Watson v. Miss. Dep't of Revenue (In re Watson)

556 B.R. 757

In re: Norman T. Watson

Norman T. Watson

v.Mississippi Department of Revenue

CASE NO. 1302892EE

ADVERSARY NO. 1300101EE

United States Bankruptcy Court, S.D. Mississippi.

Signed August 31, 2016

Hon. James G. McGee, Jr., jmcgee@mcgeetaxlaw.com, 125 South Congress Street, Suite 1240, Jackson, MS 39201, Attorney for the Debtor

Hon. Kenitta Franklin Toole, Hon. John S. Stringer, john.stringer @dor.ms.gov, Post Office Box 22828, Jackson, MS 39225, Attorneys for Mississippi, Department of Revenue

MEMORANDUM OPINION

Judge Edward Ellington, United States Bankruptcy Judge

THIS MATTER came before the Court on the Defendant/Creditor Mississippi Department of Revenue's Second Amended Motion to Dismiss Adversary Complaint, or, in the Alternative, Motion for Summary Judgment (Adv. Dkt. #42) and the Response in Opposition to Defendants' Second Amended Motion to Dismiss Adversary Complaint, or, in the Alternative, Motion for Summary Judgment (Adv. Dkt. #44) filed by Norman T. Watson. Having considered same and the respective briefs filed by the parties, the Court finds that the request for summary judgment contained in the Defendant/Creditor Mississippi Department of Revenue's Second Amended Motion to Dismiss Adversary Complaint, or, in the Alternative, Motion for Summary Judgment (Adv. Dkt. #42) should be granted.

FINDINGS OF FACT¹

On September 24, 2013, Norman T. Watson (Debtor) filed a petition for relief pursuant to Chapter 7 of the United States Bankruptcy Code. The Debtor initiated the above-styled adversary proceeding with the filing of the Complaint of Norman T. Watson Initiating Adversary Proceeding (Adv. Dkt. #1) (Complaint) on November 14, 2013.

The following facts are alleged in the Complaint:

1. The Debtor and an unnamed individual were partners in a company called L Signs. The Debtor alleges that the other partner was the managing partner of L Signs and that he managed sales for L Signs.

2. Prior to the Debtor's bankruptcy filing, the Mississippi Department of Revenue (MDOR) assessed L Signs for sales taxes and withholding taxes for the tax periods of April 30, 2008, through September 30, 2009. The total assessment was $240,588.02.

3. MDOR “issued a transfer assessment, pursuant to Miss. Code § 27-65-55, against Watson for the Sales Taxes and Withholding Taxes owed by L Signs in the amount of $240,588.02.”² The Debtor asserts that the assessment was not properly delivered to him: “despite a diligent search of his records Watson cannot find and does not remember ever receiving the Notice of Assessment from MDOR by certified mail or otherwise.”³

4. The Debtor alleges that “by the time he was made aware of the assessments, the deadline for appealing the erroneous assessments had already run.”⁴

5. The Debtor states that “the assessments are the results of audit methods which are both unsubstantiated and inappropriate.”⁵

In his Complaint, the Debtor alleges three separate counts as grounds for relief against the MDOR:

Count One: The Debtor asserts that the assessments are void because they were assessed without adequate notice and that the assessments were based upon impermissible accounting methods.

Count Two: The Debtor asserts that the tax debts are dischargeable.

Count Three: The Debtor asserts that his Complaint “is the initial pleading by which an adversarial [sic] proceeding is initiated with regard to the subject dispute between Watson and MDOR.”

The Court notes that the only document attached to the Complaint is a copy of the Responsible Person Statement which was mailed to the Debtor on October 21, 2013, by MDOR.

On November 30, 2015, MDOR filed its Defendant/Creditor Mississippi Department of Revenue's Second Amended Motion to Dismiss Adversary Complaint, or, in the Alternative, Motion for Summary Judgment⁶ (Adv. Dkt. #42) (Motion). In its Motion and corresponding Defendant Mississippi Department of Revenue's Memorandum in Support of Second Amended Motion to Dismiss or in the Alternative Motion for Summary Judgment (Adv. Dkt. #43) (Brief), MDOR asserts that the Debtor admits in his Complaint that he was a partner in L Signs and that he took over the management of L Signs in 2009 when his partner left L Signs, therefore, the Debtor is a responsible person pursuant to Mississippi law.

In support of its Motion, MDOR attached to its Brief copies of three Notice[s] of Tax Lien and three Notice[s] of Tax Lien Re-Enrollment which were issued to L Signs and to the Debtor. In addition, MDOR attached copies of the withholding tax returns the Debtor filed for the first, second and third quarters of 2009. Further, MDOR attached a Certificate signed by J. Ed Morgan, Commissioner of Revenue for the Mississippi Department of Revenue which states that “three (3) separate Responsible Person Assessments for Withholding Tax for the tax quarters ending in March 2009, June 2009 and September 2009 were issued and mailed on May 30, 2012 to Norman Watson at 301 Fawnwood Drive, Brandon, Mississippi 39042.”⁷ The facts show that the Debtor was a responsible person and that the Debtor was properly notified of the taxes, consequently, MDOR asserts that the Complaint should be dismissed pursuant to Federal Rule of Bankruptcy Procedure 7012(b)(6)⁸ or in the alternative, that judgment should be entered in favor of MDOR as a matter of law.

CONCLUSIONS OF LAW

I. Jurisdiction

This Court has jurisdiction of the subject matter and of the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(I).

II. Motion to Dismiss/Summary Judgment

A. Procedural Point

On an initial procedural point, the Court notes that in the Complaint, the Debtor does not cite Miss. Code § 27-7-307 (2010) or raise the issue that he was not a responsible person for purposes of Miss. Code § 27-7-307 (2010). It is not until the Debtor filed his Response in Opposition to Defendant's Second Amended Motion to Dismiss Adversary Complaint, or, in the Alternative, Motion for Summary Judgment (Adv. Dkt. #44) that the Debtor raises the argument that he was not a responsible person as defined in Miss. Code § 27-7-307 (2010).

Even though the Debtor does not plead Miss. Code § 27-7-307 (2010), MDOR, however, in its Motion and Brief, address the issue of whether the Debtor was a responsible person. Since MDOR has not raised the failure of the Debtor to plead Miss. Code § 27-7-307 (2010), the Court will proceed as if the Debtor had properly pled Miss. Code § 27-7-307 (2010).

B. Motion to Dismiss/Summary Judgment

On March 23, 2016, the Honorable Katharine M. Samson, United States Bankruptcy Judge for the Southern District of Mississippi, entered an Order Granting Motion to Dismiss, or in the Alternative, Motion for Summary Judgment (Kelly Opinion) in an adversary proceeding in the Carrie Lee Kelly⁹ bankruptcy case (Kelly Adversary Proceeding). The Kelly Adversary Proceeding was filed by attorney James G. McGee, Jr., who is also representing the Debtor in the case at bar.

In the Kelly Adversary Proceeding, the facts are very similar to the facts before this Court. A business in which Ms. Kelly held an ownership interest was assessed sales taxes and withholding taxes.¹⁰ Like the Debtor in the case at bar, Ms. Kelly alleged that she was not liable for the taxes.

The complaint in the Kelly Adversary Proceeding recites three counts for relief which, except for the name of the debtor, are identical to the three counts in the case at bar:

Count One: Ms. Kelly asserts that the assessments are void because they were assessed without adequate notice and that the assessments were based upon impermissible accounting methods.

Count Two: Ms. Kelly asserts that the tax debts are dischargeable.

Count Three: Ms. Kelly asserts that her complaint “is the initial pleading by which an adversarial [sic] proceeding is initiated with regard to the subject dispute between Watson and MDOR.”¹¹

As in the case at bar, MDOR filed Defendant/Creditor Mississippi Department of Revenue's Amended Motion to Dismiss Adversary Complaint, or, in the Alternative, Motion for Summary Judgment.¹² On March 23, 2016, Judge Samson entered the Kelly Opinion and granted MDOR's motion for summary judgment.

As noted, the requests for relief in the case at bar and in the Kelly Adversary Proceeding are identical. Rather than re-inventing the wheel and for the sake of not wasting judicial resources, this Court hereby adopts the Conclusions of Law contained in Judge Samson's careful and well-reasoned opinion, reprinted as an appendix to this Opinion. Gordon v. Niagara Machine & Tools Works, 574 F.2d 1182, 1184 (5th Cir.1978).

CONCLUSION

MDOR attached exhibits to its Motion and Brief which are not part of the Debtor's Complaint. Therefore, like the court held in the Kelly Opinion, the Court will consider MDOR's Motion as a motion for summary judgment and not as a motion to dismiss.

Based upon the legal conclusions in the Kelly Opinion, the Court finds the following indicia of the Debtor's status as a responsible person: (1) the Debtor admits that he was a partner in L Signs; (2) the Debtor filed withholding tax returns with MDOR on behalf of L Signs for the time periods in question; and (3) the Debtor admitted that in 2009, he took over all of the day to day operations of the business after his partner left. The Debtor has not offered any evidence to disprove his responsible person status, therefore, the Court finds that the Debtor qualifies as a responsible person under Mississippi law and is liable for the tax debts.

The Court finds that the address to which MDOR mailed all notices to the Debtor is the same address listed on the Debtor's bankruptcy petition. The Debtor has failed provide any evidence to overcome the presumption that “mail deposited, postage prepaid and properly addressed is timely delivered to the person addressed.”¹³ Consequently, the Court finds that the Debtor received all of the notices/mail sent by MDOR to which he was entitled, and therefore, the...