In the United States Court of Federal Claims

No. 10-359T

(Filed: May 28, 2015)

* * * * * * * * * * * * * * * * * * *

SCOTT B. GANN,

Plaintiff,

v.

THE UNITED STATES,

Defendant.

* * * * * * * * * * * * * * * * * * * *

Kerry L. Pedigo, Dallas, TX, for plaintiff.

Jennifer D. Spriggs, Tax Division, United States Department ofJustice,

Washington, DC, with whom were Caroline D. Ciraolo, Acting Assistant

Attorney General, David I. Pincus, Chief, Court of Federal Claims Section, G.

Robson Stewart, Assistant Chief, for defendant.

OPINION

BRUGGINK, Judge.

Pending in this tax refund suit is defendant’s motion for summary

judgment. Defendant argues that it is entitled to judgment as a matter of law

because the undisputed facts establish plaintiff’s legal liability for failing to

remit income and social security taxes withheld from the pay of employees of

a corporation over which plaintiff had defacto control. Plaintiff opposes the

motion, arguing that he was neither in control of the operations of the company

nor did he willfully shirk any responsibility to pay those taxes. Oral argument

is deemed unnecessary. We grant defendant’s motion in part and deny it in

part as explained below.

Employee withholding; Trust fund

taxes; 26 U.S.C. § 6672; Failure to

pay over; Responsible person;

Willfulness.
BACKGROUND

1

I. Legal Framework And Procedural History

The Internal Revenue Code (“IRC”) requires employers to withhold

income and social security taxes from employee wages and to submit those

monies to the Internal Revenue Service (“IRS”) on behalf of the employees.

See 26 U.S.C. §§ 3102(a), 3402(a) (2012). In essence, the law requires

employers to collect and hold these funds in trust for the government. See 26

U.S.C. § 7501 (2012) (“the amount of tax collected or withheld shall be held

to be a special fund in trust for the United States”). If an employer fails to

remit these funds to the IRS, the employee is generally credited with having

paid the taxes anyway. See Slodov v. United States, 436 U.S. 238, 243 (1978).

The employer naturally remains liable. Section 6672 of the IRC provides an

additional protection for the government: personal liability on the part of those

who were responsible for failing to remit the withheld funds to the

government. 26 U.S.C. § 6672 (2012). “Any person required to collect,

truthfully account for, and pay over any tax imposed by this title who willfully

fails to collect such a tax . . . and pay over such tax . . . shall . . . be liable to a

penalty equal to the total amount of the tax evaded.” Id.

The IRS levied a section 6672 penalty on plaintiff, Scott Gann, for

failing to pay over the trust fund taxes withheld from employees of Humanity

Capital, Inc. (“HCI”) for the tax quarters that ended on June 30, 2005, through

September 30, 2007. The total amount assessed against plaintiff was

$699,690.33 plus statutory interest. See Def.’s Exs. 1-11.

Mr. Gann made a partial payment of $467.00 for the first quarter of

2007, and, on February 9, 2010, filed a claim for refund of that amount and

abatement of the remaining amount assessed against him. That request was

denied by a letter dated May 21, 2010. Def.’s Ex. 51. Plaintiff filed suit for

the same relief in this court on July 10, 2010. Defendant has counterclaimed

for an amount equal to the balance of the assessed penalty plus accrued

statutory interest. The parties have completed discovery, and defendant now

asks the court to hold that plaintiff was responsible for HCI’s failure to pay

those taxes to the IRS and that he willfully chose not to pay them. Plaintiff

opposes the motion.

The facts in this background section are drawn from the parties’ briefs and

1

exhibits attached thereto. All the facts are undisputed except where noted.

2
II. Factual History

Scott Gann has worked in the financial sector since 1992, both on Wall

Street and in Houston, Texas. Currently he runs a hedge fund, OSO Capital,

which he started in 2008. During the period in question, he was employed by

an investment banking firm in Houston as a managing director. In 2005, he

funded the start up of HCI, a temporary staffing company in the Dallas, Texas

area. HCI was formally incorporated on February 7, 2005. Def.’s Ex. 33

(Articles of Incorporation). Mr. Gann was listed as its only director at

founding. Id. at A181. He was, however, upon the express prohibition of his

2

then-employer, not an executive of HCI and did not run its day-to-day

operations. At its founding and for the duration of its life, HCI’s daily

operations were overseen by its president and CEO, Mimbi Robertson.

3

Ms. Robertson was a prior acquaintance of plaintiff, and plaintiff

testified that she approached him with the idea of starting a staffing company.

Ms. Robertson already had 15 years of experience in the staffing industry,

including 10 very successful years as an account executive and eventually a

regional manager at another staffing company. See Def.’s Ex 38 (Tabatha IV

SEC Form 8-K). Owing to her experience, plaintiff agreed to fund the new

venture as the principal shareholder. Ms. Robertson was promised 10 percent

of HCI, by stock grant, should the business succeed and a market for its stock

develop. Pl.’s Ex A at A4 (Decl. of Scott Gann). There is much disagreement

between the parties as to how much independent control was exercised by Ms.

Robertson, but it is undisputed that she was listed as the CEO and president of

Initially, plaintiff’s wife, Camille Gann, was the sole shareholder of HCI.

2

That was in order to give time for Mr. Gann to gain approval from his thenemployer to invest in the company. The shares were later conveyed from Mrs.

Gann to Mr. Gann. In May 2005, HCI became a wholly-owned subsidiary of

Tabatha IV, Inc., a public company. As a part of that reorganization, Mr.

Gann was issued all of the company’s common stock. On January 16, 2006,

Tabatha IV was renamed Human Capital Holding Corporation. We will refer

to all of these entities collectively as “HCI” unless specifically mentioned

otherwise.

Ms. Robertson was later married, and her named changed to Mimbi Cohen.

3

We refer to her as “Ms. Robertson” as she was known at the time of the events

in question.

3
HCI in all of its SEC filings and represented herself as such when conducting

business on behalf of HCI.

Mr. Gann also hired Charlie Dickerson as CFO of HCI. He is a

certified public accountant, and, at the time of his hiring, had more than 20

years of accounting experience, including a position as Director of Finance and

Acquisition at a national staffing company. Def.’s Ex. 38 at A216. Mr.

Dickerson reviewed HCI’s books to make sure that each transaction was

recorded on a daily basis, consulted on operational issues, prepared SEC

filings, maintained financial records, and provided input on general financial

matters to Mr. Gann and Ms. Robertson. See Def.’s Ex. 49 at A495-96 (Dep..

of Charlie Dickerson). Mr. Dickerson and Ms. Robertson also served on the

board of directors of the holding company after its acquisition of HCI. See id.

at A198. Mr. Dickerson, however, did not have any financial stake in HCI or

the holding company at any time.

HCI employed approximately nine other permanent office staff and, at

its peak, approximately 400 temporary employees who were contracted out to

other companies. From its inception, HCI used separate bank accounts for the

payroll of temporary workers and permanent office staff. Payroll taxes for

permanent employees are not at issue.

Because HCI was a new business and had no credit history of its own,

plaintiff signed the office space lease for HCI, Def.’s Ex. 29, paid workers’

compensation insurance premiums directly, opened bank accounts, guaranteed

loans, and leased vans for HCI. See Def.’s Ex. 46 at A336-37, A375-76.

Defendant presents the court with the 2005 agreements for eight HCI checking

accounts at Sovereign Bank in Dallas. These reflect that plaintiff was the sole

authorized signer for two of those accounts (earmarked for taxes and bills).

See Def.’s Ex. 27 (Sovereign Bank initial account agreements). He was listed

4

as an authorized signer along with Ms. Robertson for the other six accounts.

On several of the initial account agreements, plaintiff is listed as “principal”

4

and, in one instance, as “president” of HCI. Def.’s Ex. 27 at A91, A95, A103,

A107, A111. On the others, he is listed, along with Ms. Robertson, as an

“authorised signer.” Mr. Gann testified at deposition that these were clerical

errors and that he should have been listed as the chairman of the board and not

as an executive or principal of HCI. Def.’s Ex. 46 at A364-73 (Dep. of Scott

Gann).

4
Plaintiff likewise signed several signature cards, along with Ms.

Robertson, opening several commercial checking accounts for HCI at JP

Morgan Chase Bank in 2007. See Def.’s Exs. 23-24. These accounts were

earmarked for temporary payroll, tax deposits, permanent payroll, and general

operating. Plaintiff is also listed on several internal bank documents relating

to these accounts, business depository resolutions, as a “principal.” Def.’s Ex.

24 at A79, A82, A84. On the signature cards, however, a handwritten

annotation appears, crossing out the word “principal” and writing over top of

it the word “chairman,” Def.’s Ex. 23; Def.’s Ex. 24 at A80-81, A83, A85.

Mr. Gann testified that he did not write the word “chairman” and did not know

who did. Def.’s Ex. 46 at A351-56.

Plaintiff also executed a certificate of deposit signature card on behalf

of HCI for a $25,000 deposit at Sovereign Bank, dated August 7, 2005. Def.’s

Ex. 28 at A129-30. Mr. Gann similarly executed, as the sole signer and

“principal,” a promissory note with Sovereign Bank for a $36,182 loan to HCI.

Id. at A136-38. In connection with that loan, he executed a corporate

resolution allowing him to borrow on behalf of HCI. Id. at A140-41. He

signed that document twice, once as a “principal” and once as the “president”

of HCI. Plaintiff also signed a commercial guaranty in connection with that

note and a commercial security agreement as a principal of HCI. Id. at A142-

44, 145-149. Lastly, he signed a Landlord’s Release and Consent as a

borrower in connection with that same loan. Def.’s Ex. 26. He signed that

document as a “principal” of HCI. Id. at A88.

During 2005 and 2006, plaintiff regularly signed payroll checks for

permanent and temporary employees. He also signed checks to meet the

various other obligations of HCI. In total, Mr. Gann signed 2508 checks on

behalf of HCI, drawing from six accounts at Sovereign Bank in Dallas. Jt. Ex.

50 (joint stipulation regarding checks signed by plaintiff). He stopped

regularly signing HCI’s checks in 2006 because it occupied too much time.

Pl.’s Ex. A at A5 (Decl. of Scott Gann).

Mr. Gann stated that he signed these checks at Ms. Robertson’s behest

because she thought it would be a good way for him to become familiar with

the business. Id. He explained that he did not prepare any of the checks nor

decide who would be paid at what time. Id. Ms. Robertson’s recollection is

different, however. She stated in a 2014 declaration that “Mr. Gann controlled

all of the company’s financial decisions,” and further explained that plaintiff

instructed HCI’s accounting team “every Friday . . . what bills were to be paid

and how much was to be paid.” Def.’s Ex. 45 at A319 (Decl. of Mimbi

5
(Robertson) Cohen). This contrasts with an earlier affidavit signed by Ms.

Robertson attached to plaintiff’s complaint. In that 2008 affidavit, Ms.

Robertson stated that, as CEO of HCI, she was “responsible for making and

executing all financial decisions, including receiving, reviewing and approving

invoicing, the maintenance of the Company’s banking accounts, and the actual

paying of bills and signing of checks/drafts.” Pl.’s Ex. G. She further stated

that she alone had handled those duties since January 2006.

In a declaration submitted in support of plaintiff’s opposition to the

motion forsummary judgment, Mr. Dickerson stated that he reviewed the 2008

affidavit of Ms. Robertson and agreed with her representations therein: that

Ms. Robertson was responsible for daily operations and decisions made at

HCI. Pl.’s Ex. B at A16. Mr. Dickerson testified at his deposition that he

provided advise to Ms. Robertson regarding the operation of HCI because of

his history in the industry. Def.’s Ex. 49 at A496. He described his role in this

regard as a “sounding board” for Ms. Robertson. Id. He was asked who had

the final say regarding operations at HCI. He answered that, at least in some

instances, Ms. Robertson would make the decisions, even over the objection

of others. Id. at A497. “[T]here certainly were times she would advise [Mr.

Gann] on what . . . she wanted to do and whether it was persuasive or jointly

agreed to, [it] would be done.” Id. He summarized, however, by saying that

the final say varied depending on the issue or subject matter. Id.

An independent auditor, Bill Huff, was deposed regarding a 2005 audit

he and his firm performed on HCI. Mr. Huff dealt primarily with Mr.

Dickerson at HCI during the audit and did not have any contact with Ms.

Robertson while there. See Def.’s Ex. A467 (Dep. of Bill Huff). He testified

that he recalled having one conversation with Mr. Gann regarding HCI’s

nonpayment of payroll taxes. Id. at A473. He and his firm did not involve

themselves in the day-to-day operations of HCI because they were tasked with

performing an independent audit. Id. at A466-67. He nonetheless provided

an opinion regarding who ran HCI when asked by defendant at his deposition.

It was his opinion that Scott Gann ran HCI and that he made most of the

ultimate decisions for the company. Id. at A474-75.

HCI was never profitable. As early as June 30, 2005, it reported a

significant net operating deficit. See Def.’s Ex. 35 (June 30, 2006 HCI

Consolidated Balance Sheet). The company was dependent upon a series of

cash infusions from plaintiff, which eventually totaled approximately

$700,000. Those loans were not repaid, with the exception of one $13,000

bridge loan that was repaid within two days in August 2007. Def.’s Ex. 46 at

6
A357 (Def.’s excerpts of Gann Dep.).

From its inception, HCI did not remit withheld payroll taxes to the IRS

for its temporary employees. Quarterly tax returns for the second and third

quarters of 2005 show payroll taxes owed in the amounts of $27,466.88 and

$32,6999.44 respectively. Def.’s Exs. 12-13. Mr. Gann stated that he first

became aware of these deficiencies in November 2005 when Ms. Robertson

came to his office and showed him a notice from the IRS. Pl.’s Ex. A at A5

(Gann Decl.). Mr. Gann, after consultation with Mr. Dickerson, contacted the

IRS soon thereafter to discuss the liability. Ms. Robertson’s 2014 declaration

reflects that she attended meetings with Mr. Gann and Mr. Dickerson during

that first year concerning the taxes but played no role in the decisions made

regarding them. Def.’s Ex. 45 at A318-19. Mr. Dickerson testified that he

took the lead in resolving the tax problem in 2005 and that he discussed the

issue with both plaintiff and Ms. Robertson. See Def.’s Ex. 49 at A498-501.

The result of their efforts in late 2005 was an agreement with the IRS

by which HCI would make installment payments to catch up on its payroll

taxes and would keep current on its ongoing withholding obligations. See Pl.’s

Ex. B. at A15 (Dickerson Decl.). After that agreement was reached, Mr.

Dickerson believed that HCI was keeping current on its ongoing payroll taxes.

Then, “at some point,” he became aware that HCI was not meeting its agreed

upon installment payments, id. at A16, nor remitting the subsequently withheld

amounts. Things came to a head in February 2007 when an IRS agent visited

HCI unannounced and informed both Mr. Dickerson and plaintiff that HCI had

not kept current on its payroll taxes. See id.

Plaintiff testified that he had no idea that the taxes were not being paid

because he was “pumping money into the company” to meet its regular

expenses. Def.’s Ex. 46 at A346. He further testified that he would ask Ms.

Robertson about the status of the taxes, but he did not hold regular meetings

to discuss the issue. Id. at 347. Other than signing three checks to the IRS in

February, March, and May 2006 after the initial installment agreement was

reached, Mr. Gann did not deal directly with the IRS again until 2007. He

testified that he was not made aware of HCI’s continuing failure to remit

withheld taxes and assumed that HCI was keeping current. Pl.’s Ex. A7-8.

Both Mr. Dickerson and plaintiff testified that it was Ms. Robertson’s ultimate

responsibility to ensure that HCI paid its taxes. She signed each of the

quarterly tax returns for HCI. The record is not clear as to why HCI did not

meet its withholding obligations other than the obvious problem of operating

at a loss.

7
HCI’s holding company’s annual SEC disclosure for the fiscal year

ended June 30, 2005, reported a payroll tax liability in the amount of $74,119.

Def.’s Ex. 44 at A289 (Tabatha IV’s SEC Form 10-K). Subsequent SEC

filings through the first quarter of 2006 disclosed no additional withholding

liabilities. See Def.’s Exs. 40, 41. No further SEC disclosures were filed for

HCI’s holding company. HCI’s Consolidated Balance Sheet through June 30,

2006, indicated a payroll tax liability of $426,260, Def.’s Ex. 35 at A183, but

also noted that HCI had ceased operations as of September 14, 2007, id. at

A191. The actual date of this document is not clear; it states only that it was

current through June 30, 2006, but included information about the closing of

HCI in 2007. Thus, even assuming that Mr. Gann reviewed this document, it

is still unclear whether this is evidence of Mr. Gann’s awareness of HCI’s

continuing failure to pay its payroll taxes after the installment agreement was

reached with the IRS in late 2005.

On February 17, 2007, IRS officer Nick Tsirigotis visited HCI’s office

and informed plaintiff, Mr. Dickerson, and Ms. Robertson of HCI’s failure to

pay withholding taxes from the fourth quarter of 2005 through the fourth

quarter of 2006. Mr. Gann claims that this is the first time that he learned of

HCI’s continuing failure to remit payroll taxes. See Pl.’s Ex. A at A8 (Gann

Decl.). Mr. Tsirigotis interviewed Mr. Gann and recorded the results in a IRS

Form 4180, Report of Interview. Def.’s Ex. 22 (Form 4180, Report of

Interview of Scott Gann). Mr. Gann signed the report but noted that he would

“comment later” on the last page in the “Additional Comments” section. Id.

at A75. Mr. Gann recalled that he was told by Mr. Tsirigotis that he would be

able to amend his answers later. Pl.’s Ex. A at A9. That never happened.

In that report, Mr. Gann is listed as “Investor/Board Member” of HCI.

Def.’s Ex. 22 at A71. A checklist of questions regarding functions and duties

performed for HCI reflects a “yes” answer for whether Mr. Gann performed

the following:

a. Determine financial policy for the business?

b. Direct or authorize payments of bills?

c. Open or close bank accounts for the business?

d. Guarantee or co-sign loans?

e. Sign or counter-sign checks?

f. Authorize or sign payroll checks?

g. Authorize or make Federal Tax Deposits?

h. Prepare, review, sign, transmit payroll tax returns?

8
Id. at A73. The period of time for each of those actions listed was from

February 2005 to “current.” Id. Listed for each question under “who else

performed this duty” was “Mimbi [Robertson].” Id. A question regarding

payment of other obligations during the period when delinquent taxes were

owed reflects that all other bills were paid and that “Both Ms. [Robertson] and

Mr. Gann discussed the bills and which would be paid.” Id. at A74. Plaintiff

now disputes much of the information recorded in the Form 4180 as inaccurate

as a result of a rushed interview and not having been afforded an opportunity

to review the document after the fact.

Mr. Tsirigotis remained in regular contact with Mr. Dickerson and

plaintiff from February 2007 through September 2007. During that period,

plaintiff pursued selling the company to a third party. The IRS agreed to

postpone filing a lien in the hopes that the sale of HCI would generate enough

money to cover HCI’s back taxes. See Pl.’s Ex. A at A9-10. HCI was allowed

to continue operating. Mr. Dickerson stated in his declaration that HCI was

specifically allowed to meet its other financial obligations in order to keep HCI

afloat while a sale was pursued. Pl.’s Ex. B at A16-17. Another reason not to

place a tax lien on HCI was that HCI had a factoring agreement with another

company, Textron Financial, pursuant to which Textron provided cash flow to

HCI to meet daily operating expenses in exchange for an interest in HCI’s

accounts receivable. See Def.’s Ex. 49 at A506-508 (Dickerson Dep.). A tax

lien would have put an immediate end to the factoring agreement. Id. at A506.

HCI informed the IRS that a potential sale of HCI fell through in

September 2007. The IRS promptly placed a tax lien on all of HCI’s assets.

Textron quickly terminated its factoring agreement, and, unable to fund

payroll, HCI ceased operations on September 17, 2007.

DISCUSSION

Section 6672 of the Internal Revenue Code imposes personal liability

on individuals who are “required to collect, truthfully account for, and pay

over any tax” and who “willfully fail[] to collectsuch tax, or truthfully account

for and pay over such tax.” 26 U.S.C. § 6672 (2012). Under the statute then,

the penalized individual must have been a (1) “responsible person,” or

someone responsible for having collected and paid the tax in the first place,

and (2) must have willfully failed to collect and pay that tax. Godfrey v.

United States, 748 F.2d 1568, 1574 (Fed. Cir. 1984). IRC section 6671

defines a “person” as used in 6672 as “an officer or employee of a corporation,

or a member or employee of a partnership, who as such officer, employee, or

9
member is under a duty to perform the act in respect of which the violation

occurs.” 26 U.S.C. § 6671(b). There can be more than one responsible person

in a business.

Whether an individual is a “responsible person” within the meaning of

section 6672 is necessarily a factual question to be determined in the totality

of the circumstances; no single factor is determinative. See United States v.

Rem, 38 F.3d 634, 642 (2d Cir. 1994). “It is a test of substance and not form.”

Godfrey, 748 F.2d at 1576. The crucial inquiry is whether the individual has

the “power to compel or prohibit the allocation of corporate funds.” Id. The

Federal Circuit’s seminal opinion on section 6672 liability, Godfrey v. United

States, summarized its predecessor court’s history regarding “responsible

person” liability under section 6672 as follows: “[W]here a person has

authority to sign the checks of the corporation, or to prevent their issuance by

denying a necessary signature, or where that person controls the disbursement

of the payroll, or controls the voting stock of the corporation, he will generally

be held ‘responsible.” Id. (internal citations omitted). In Godfrey, the court

held that the trial court had erred in finding Mr. Godfrey a responsible person

based solely on his involvement with the company and the facts that he was

the chairman of the board and had knowledge of the tax delinquency. Id.

Missing was the critical fact that Mr. Godfrey had actual control over the

finances rather than mere involvement in operations. Id.

The separate requirement that a responsible individual also have acted

willfully in failing to withhold and/or remit the tax also presents a factintensive inquiry, calling for “proof of a voluntary, intentional, and conscious

decision not to collect and remit taxes thought to be owing.” Id. at 1577. This

does not, however, require a showing of specific intent to defraud or otherwise

of an evil motive. Id. The Second Circuit summed up the willfulness prong

by stating that the person must have known “of the company’s obligation to

pay withholding taxes” and known “that the company funds were being used

for other purposes instead.” Rem, 38 F.3d at 643. The Federal Circuit in

Godfrey also stated that the willfulness prong, though not satisfied by mere

negligence, could be met by a showing of “reckless disregard of an ‘obvious

and known risk’ that taxes might not be remitted.” Godfrey, 748 F.3d at 1577

(quoting Feist v. United States, 607 F.2d. 954, 961 (Ct. Cl. 1979)).

Defendant has moved for summary judgment on these two questions.

In order to grant the motion, we must be satisfied that there is no material

dispute that Mr. Gann was a responsible person under section 6672 and that he

willfully failed to remit withholding taxes to the IRS for the quarters in

10
question. See generally Anderson v. Liberty Lobby Inc., 477 U.S. 242, 255

(1986). A factual dispute is only material if it “might affect the outcome of the

suit under the governing law.” Id. at 248. Thus there will generally only be

a genuine issue that would prevent summary judgment when the evidence

presented requires the court to weigh it and find that one side’s evidence is

more credible than the other. See id. at 251-52. When the court need not

decide whose evidence is better or more credible, because the evidence is

undisputed, the court may enter judgment as a matter of law for the moving

party.

I. Mr. Gann Was A Responsible Person

Defendant argues that Mr. Gann was a responsible person by virtue of

his having been HCI’s initial investor and ongoing funding source, sole

director of HCI, majority shareholder of both HCI and its holding company,

chairman of the board of its holding company, signatory on all of its bank

accounts, and by virtue of having signed 2500 checks on behalf of HCI,

personally guaranteed HCI’s debt, and having been a principal creditor of HCI.

Defendant argues that plaintiff was responsible for making all major financial

decisions and was consulted on which bills were to be paid and when to pay

them. It is thus uncontroverted, in defendant’s view, that Mr. Gann had both

a reason and the authority to direct that HCI pay its withholding taxes.

Plaintiff answers that Mr. Gann cannot be held to be a responsible

person on this record because the government’s evidence is unreliable and

crucial facts are disputed. Plaintiff’s chief argument regards Ms. Robertson’s

dueling statements regarding her level of control over HCI’s operations as

CEO. As noted previously, she signed an affidavit in 2008 in which she swore

that she was responsible for HCI’s daily operations, including its finances and

decisions as to which bills were to be paid. In 2014 she disclaimed those

statements as having been made under duress. That 2014 declaration is

suspect, according to plaintiff, because she harbored personal animus against

Mr. Gann after he fired her in 2010.

5

Ms. Robertson continued to work for Mr. Gann after HCI was closed until

5

some point in 2010 when she was fired for allegedly making unauthorized

charges on a credit card belonging to Mr. Gann. See Pl.’s Ex. A at A11-13.

Plaintiff also contends that she never requested that her 2008 affidavit be

returned to her as alleged in her 2014 declaration.

11
Plaintiff also disputes the deposition testimony of Bill Huff, the

independent auditor, arguing that it was contradicted by Mr. Dickerson’s

testimony and is likely inadmissable due to lack of foundation and a possible

hearsay objection. Plaintiff argues that Mr. Huff’s role was limited to

reviewing HCI’s financial records and SEC filings, which meansthat he would

have had limited interaction with Mr. Gann and limited observation of the

daily operation of HCI. Mr. Huff’s testimony is therefore an insufficient basis

to establish plaintiff’s personal responsibility for failure to remit the withheld

tax payments, according to plaintiff. Plaintiff argues instead that the evidence

shows that his actions were consistent with those of a director of a corporation

and investor in it, not the president or CEO of one.

Plaintiff also challenges the contents of the IRS Form 4180 record of

his interview with Mr. Tsirigotis. Plaintiff points to his deposition in which

he disputed many of the yes/no answers as incorrect. See Pl.’s Ex. I at A100-

121 (Pl.’s Excerpts from Gann Dep.). He likened the interview and report to

a multiple choice test in which Mr. Tsirigotis had “missed all the questions.”

Id. at A121. Plaintiff also admits that neither he nor Mr. Tsirigotis provided

comments or otherwise corrected the record of the interview afterwards. He

contends, however, that the failure to pursue that avenue was because he was

pursuing the IRS-approved sale of HCI, which, according to plaintiff, made the

form irrelevant at the time.

Although much of the evidence relied on by the government is disputed

by contrary testimony presented by plaintiff, there are several important and

highly relevant uncontroverted facts. First, plaintiff was the majority

shareholder and the sole director of HCI. He also controlled the voting stock

of HCI’s parent companies after HCI was reverse merged into Tabatha IV, Inc.

and then Humanity Capital Holding Company. Mr. Gann owned 89 percent

of the holding company’s stock. See Def.’s Ex. 38 at A198-99 (Tabatha IV

SEC Form 8-K). He was also elevated to Chairman of the Board of the

holding company. Def.’s Ex. 30 (resolution changing the name and electing

Scott Gann as chairman). Second, plaintiff had authority to sign checks and

obligate HCI to pay funds. For several early accounts at Sovereign Bank, he

was the only authorized signer. Third, Mr. Gann signed over 2500 checks on

behalf of HCI, paying all manner of HCI obligations from payrolls to

consultant fees. Fourth, plaintiff signed on behalf of HCI for loans, leases,

commercial guarantees, and other agreements. He obligated both himself and

HCI on behalf of HCI.

Mr. Gann testified that, although he was not allowed to be an executive

12
at HCI because of his job at an investment firm, given the amount of money

he had invested in the company, he wanted to be a board member and “to

watch what was going on” in order to know whether to cut his losses. Def.’s

Ex. 46 at A334. This oversight was more than passive. From HCI’s inception,

plaintiff had control over large outlays of funds, owing to the fact that he was

the only investor in HCI and most often its lender of first and last resort. Ms.

Robertson had to get Mr. Gann’s agreement on the office space to be leased

because she wanted to spend more than he thought appropriate. See id. at

A336-37. Mr. Gann personally executed that commercial lease. Def.’s Ex. 29

at A.157, A160. Mr. Gann leased the initial fleet of vans for HCI’s operations.

Def.’s Ex. 46 at A409. Mr. Gann also acted as a personal guarantor for at least

one loan that HCI took out from Sovereign Bank. Id. at A375. Mr. Gann

further signed a corporate resolution to borrow in connection with that loan.

Def.’s Ex. 28 at A140-41.

Plaintiff also had the power to demand quick repayment on a loan that

he personally made to HCI in 2007. He testified that he agreed to lend the

money only on the express agreement that it be repaid within 24-48 hours, and

it was so repaid, at least partially. Def.’s Ex. 46 at A357; Pl.’s Ex. A at A4;

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Def.’s Ex. 25 (copy of the check from HCI to Scott Gann).

Mr. Gann was also consulted regarding the IRS notice of delinquency

in 2005. Ms. Robertson brought the notice directly to him at his office at the

investment firm. Def.’s Ex. 46 at A344. He spoke with her and Mr. Dickerson

regarding the liability and sought to have it resolved as quickly as possible.

“We got on the phone [with the IRS] immediately.” Id. After Mr. Dickerson

negotiated an installment agreement with the IRS to resolve the back taxes,

Mr. Gann recalls having personally signed at least one check to the IRS for the

delinquent taxes, see Pl.’s Ex. A at A6, and plaintiff presented copies of three

checks to the IRS signed by Mr. Gann, see Pl.’s Exs. D-F.

In sum, Mr. Gann had the authority to sign checks and meet the

obligations of HCI. He also had the authority to obligate HCI and signed

documents to effectuate a loan to HCI from Sovereign bank. He, or his wife

At his deposition, plaintiff testified that the $13,000 was a repayment of a

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very short term bridge loan. Later, in his 2014 declaration appended to his

opposition to the motion for summary judgment, Mr. Gann stated that he was

repaid $13,000 of a total $20,000 that was owed him. Compare Def.’s Ex. 46

at A357 with Pl.’s Ex. A at A4.

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for a short time, controlled the voting stock of HCI and its holding company.

He was the sole director of HCI and the Chairman of the Board of its holding

company. Mr. Gann had the “power to compel or prohibit the allocation of

corporate funds” as stated in Godfrey. 748 F.2d at 1576. The undisputed facts

here meet virtually every one of the set of circumstances listed by the Federal

Circuit in Godfrey as exemplary to establish responsibility under the statute.

See id. (listing cases from the former United States Claims Court in which

liability as a responsible person was found).

It does not matter that Ms. Robertson may have had control over the

daily operations of HCI. Section 6672 asks only whether the individual in

question, here Mr. Gann, could and should have prevented the failure to pay.

“The section is generally understood to encompass all those officers who are

so connected with a corporation as to have the responsibility and authority to

avoid the default which constitutes a violation of the particular Internal

Revenue Code section.” White v. United States, 372 F.2d 513, 516 (Ct. Cl.

1967). That is, the statute is concerned with who had the ultimate authority or

final word over what bills should be paid and when. Id.; Godfrey, 748 F.2d at

1575. Although it may be that Mr. Gann in large delegated that authority to

Ms. Robertson for the day-to-day operations, there is no question that the final

control over the purse strings of HCI rested in plaintiff’s hands, even if he did

not exercise it consistently. Plaintiff was a “responsible person” under IRC §

6672 and can be held liable for HCI’s failure to pay over employee

withholding.

II. Whether Mr. Gann Willfully Failed To Remit Withheld TaxesIsIn Dispute

The inquiry does not end there, however. Mr. Gann must also have

willfully chosen not to pay the taxes or recklessly neglected the risk that they

might not be paid. The government argues that the evidence presented

establishes that plaintiff willfully failed to pay the employment taxes from

November 2005 forward. It is enough, according to defendant, that plaintiff

knew of the taxes owed and chose to authorize and approve payments to

creditors other than the United States, including one payment to himself in

2007. Defendant points to several payroll checks signed by Mr. Gann in May

2005 and January 2007 and a check to a consulting firm in April 2006.

Defendant compares the total inflows and outflows of funds through HCI

during the period of delinquency and notes that enough money came in to pay

the IRS. That HCI paid other creditors other than the IRS is evidence that Mr.

Gann, as the one in ultimate control of the finances, willfully chose not to pay

the owed taxes.

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Defendant also argues that Mr. Gann’s actions amounted to a reckless

disregard of an obvious and known risk that the funds might not be paid to the

IRS when, after knowing of the problem in November 2005, he failed to take

reasonable steps to insure that it did not happen again. If Mr. Gann was in fact

ignorant of HCI’s delinquency going forward from November 2005, it

reflected reckless disregard.

Plaintiff responds first that, as a general matter, the willfulness prong

is particularly unamenable to resolution by motion for summary judgment.

Plaintiff argues that the government has not provided any specific evidence

that Mr. Gann knew of HCI’s failure to pay prior to notice in November 2005

nor afterwards until the IRS visit in 2007. No actual knowledge means no

intentional decision not to pay and no reason to have inquired, according to

plaintiff. Plaintiff next points the court to his prompt action in response to the

notice of delinquency in November 2005. This is evidence, plaintiff suggests,

that he intended to pay any taxes in arrears and wanted HCI to pay over all

payroll taxes going forward.

Plaintiff also disputes the suggestion that he recklessly disregarded the

possibility that the withholding might not be remitted to the IRS from late

2005 forward. Plaintiff argues that the government has misread the law and

that such a holding would be grossly improper on the record as presented for

summary judgment, especially in light of the evidence of Mr. Gann’s prompt

action to resolve the 2005 liability. Plaintiff further argues that Ms. Robertson

withheld crucial information from him, which prevented him from ascertaining

that the company was not paying its payroll taxes after 2005. He did inquire

and was lied to, according to plaintiff, which means that he could not have

acted with a reckless disregard.

We agree with plaintiff that there are material facts in dispute with

regard to whether and when plaintiff knew of the continuing failure of HCI to

pay over its withheld employee taxes. Plaintiff testified that he inquired

regarding the taxes, albeit infrequently, after November 2005 and was lead to

believe that they were current. He also stated that he reviewed the holding

company’s SEC forms in 2006, which did not indicate any new IRS liabilities.

Mr. Dickerson’s and Mr. Gann’s testimony is in agreement that the normal

practice was for the bookkeepers in the accounting department, under Ms.

Robertson’s supervision, to pay the quarterly taxes due.

Mr. Gann may have signed several checks to the IRS for the taxes in

arrears for 2005, but that does not establish his knowledge of the problem

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going forward. Nor is it sufficient, as defendant posits, that Mr. Gann signed

checks to creditors other than the IRS after November 2005. If Mr. Gann was

not normally in charge of making the tax payments, if had reason to believe

that payments were being made or was misled to believe so, and if he did not

have actual knowledge of the failure to pay, we cannot say that he willfully

failed to pay. Whether he was wantonly negligent of the risk of nonpayment

can only be determined after hearing all of the evidence and weighing it

appropriately. All of those questions remain open for resolution at trial.

CONCLUSION

Because Mr. Gann had ultimate control over the finances of HCI as its

controlling shareholder, funder, only corporate director, and personal

guarantor, he was a responsible person under 26 U.S.C. § 6672 and can be held

personally liable for HCI’s unpaid taxes. Summary judgment is therefore

granted for defendant on the question of the responsibility of Mr. Gann.

Summary judgment is denied as to the question of Mr. Gann’s willful failure

to pay. There remain material questions of fact as to what Mr. Gann knew and

when he knew it. Accordingly, defendant’s motion for summary judgment is

granted in part and denied in part. The parties are directed to confer and file

a joint status report proposing a pretrial schedule on or before June 22, 2015.

s/Eric G. Bruggink

ERIC G. BRUGGINK

Judge

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