Court Opinion

ID: 4016270
Source: CourtListenerOpinion
Date Created: 2016-07-15 21:00:22.603526+00
Date Added: 2024-06-11T07:44:55.149830
License: Public Domain

United States Court of Appeals
                       For the First Circuit

No. 15-2214
                     UNITED STATES OF AMERICA,

                        Plaintiff, Appellee,

                                 v.

        MARCI McNICOL, a/k/a MARCI REITANO, individually,

                       Defendant, Appellant.
                        ____________________

           ESTATE OF ROBERT REITANO and MARCI McNICOL,
          as Executrix of the ESTATE OF ROBERT REITANO,

                            Defendants.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

              [Hon. Rya W. Zobel, U.S. District Judge]

                                Before
                    Thompson, Selya and Kayatta,
                           Circuit Judges.

     James E. Hoyt, with whom Hoyt Legal, LLC was on brief, for
appellant.
     Curtis C. Pett, Attorney, Tax Division, United States
Department of Justice, with whom Caroline D. Ciraolo, Acting
Assistant Attorney General, Richard Farber, Attorney, Tax
Division, and Carmen M. Ortiz, United States Attorney, were on
brief, for appellee.

                           July 15, 2016
           SELYA,   Circuit   Judge.     This   appeal   requires   us    to

construe and apply 31 U.S.C. § 3713 (commonly known as the federal

priority statute). We conclude that the statute says what it means

and means what it says. Since the court below accorded the statute

its plain meaning and applied it in that manner, we affirm that

court's entry of judgment in favor of the United States.

I.   BACKGROUND

           We start with a sketch of the factual background and

travel of the case.   Robert Reitano died in July of 2002, survived

by his wife (appellant Marci McNicol) and four minor children.           At

the time of his death, Reitano owed over $340,000 in unpaid federal

income tax liabilities. Since these liabilities exceeded the value

of his estate, the estate was insolvent.

           The assets of the estate consisted almost entirely of

stock in two corporations: Sophia Gale, Inc. (100% owned by

Reitano's estate) and RR Fishing Corp. (50% owned by Reitano's

estate and 50% owned by the appellant).         Each corporation owned a

fishing vessel as its sole asset, and the value of the stock in

each corporation was coextensive with the value of that vessel.

           On July 30, 2002 — shortly after Reitano's death — the

appellant transferred the Sophia Gale shares to herself.                 The

appellant was appointed executrix of Reitano's estate in January

of the following year and, on April 11, she transferred the RR

shares to herself.     These share transfers were effected without

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consideration and, when the appellant effected them, she was

admittedly aware of Reitano's unpaid tax debts.

            Later   in    2003,    the   Internal    Revenue    Service   (IRS)

completed its assessment of taxes, penalties, and interest owed by

Reitano's estate.        That assessment totaled $342,538.93.          The IRS

contacted the appellant about this debt and, in October of 2003,

formally submitted a probate claim.

            Nothing was paid, and in November of 2006, the IRS again

contacted the appellant.           The parties attempted to resolve the

matter, but negotiations stalled: in 2008, the appellant told the

IRS that she would no longer cooperate.               The IRS countered by

serving the appellant with a formal notice of potential liability

under the federal priority statute.          See 31 U.S.C. § 3713(b).

            In due course, the government repaired to the United

States District Court for the District of Massachusetts and sued

Reitano's estate and the appellant, both individually and in her

capacity as executrix of the estate.                Its two-count complaint

sought both to reduce to judgment the estate's unpaid federal tax

liability    and    to    secure     judgment   against        the   appellant,

personally, for transferring assets of the estate to herself

without first paying the estate's federal tax debts.

            After some preliminary skirmishing (not relevant here),

the parties cross-moved for summary judgment.            The district court

granted the government's motion and denied the appellant's cross-

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motion.      The claim against the estate and against the appellant as

executrix      was   essentially   uncontested:   no    one   challenged   the

government's assessment of the amount owed.            The claim against the

appellant, in her individual capacity, was contested. With respect

to that claim, the district court concluded that the appellant was

liable up to the value of the transferred assets.

               The appellant moved for reconsideration of the award

against her in her individual capacity.                 The district court

summarily denied that motion and thereafter entered a judgment

holding the estate and the appellant as executrix liable for

$351,218.98, and holding the appellant, individually, liable for

$125,938.1       This timely appeal followed.          In it, the appellant

challenges only the district court's entry of summary judgment

against her personally.       Neither the estate nor the appellant qua

executrix has appealed.

II.       ANALYSIS

               We review a district court's entry of summary judgment

de novo.      See Schiffmann v. United States, 811 F.3d 519, 524 (1st

Cir. 2016).      In conducting this review, we take the facts and all

reasonable inferences therefrom in the light most hospitable to

      1The amount of the judgment against the appellant,
individually, was derived by adding the price for which the vessel
owned by Sophia Gale, Inc. was eventually sold ($80,000) and one-
half of the price for which the vessel owned by RR Fishing Corp.
was eventually sold ($107,500), and subtracting the amount of a
lien against the latter vessel ($61,562).
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the nonmoving party (here, the appellant).            See id.     Summary

judgment is appropriate as long as the record reflects no genuine

issue of material fact and demonstrates that the moving party is

entitled to judgment as a matter of law.            See Fed. R. Civ. P.

56(a); Schiffmann, 811 F.3d at 524.

          Here, our review is channeled by the district court's

local rules, which provide in pertinent part:

     Motions for summary judgment shall include a concise
     statement of the material facts of record as to which
     the moving party contends there is no genuine issue to
     be   tried,   with   page   references   to   affidavits,
     depositions and other documentation. Failure to include
     such a statement constitutes grounds for denial of the
     motion. . . . A party opposing the motion shall include
     a concise statement of the material facts of record as
     to which it is contended that there exists a genuine
     issue to be tried, with page references to affidavits,
     depositions and other documentation. . . . Material
     facts of record set forth in the statement required to
     be served by the moving party will be deemed for purposes
     of the motion to be admitted by opposing parties unless
     controverted by the statement required to be served by
     opposing parties.

D. Mass. R. 56.1.   Here, the government complied with this rule.

The appellant, however, spurned it.

          With   respect   to   the   appellant's    opposition   to   the

government's motion, she did not file "a concise statement of the

material facts of record as to which it is contended that there

exists a genuine issue to be tried."     So, too, with respect to her

cross-motion for summary judgment, she failed to file "a concise

statement of the material facts of record as to which the moving

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party contends there is no genuine issue to be tried."                      These

failures have consequences.            See Schiffmann, 811 F.3d at 525; see

also Air Line Pilots Ass'n v. Precision Valley Aviation, Inc., 26

F.3d 220, 224 (1st Cir. 1994) (explaining that "[v]alid local rules

are an important vehicle by which courts operate" and "carry the

force of law").      It follows that, for purposes of these motions,

the facts set forth in the government's statement of undisputed

facts are deemed admitted.

            Against this backdrop, we turn to 31 U.S.C. § 3713. This

statute directs that "[a] claim of the United States Government

shall be paid first when the estate of a deceased debtor, in the

custody of the executor or administrator, is not enough to pay all

debts of the debtor."       31 U.S.C. § 3713(a)(1)(B).           Refined to bare

essence, the statute grants a largely unqualified priority of

payment   for   claims     due    to   the   United   States     from   either   an

insolvent   debtor    or    the    estate    of   a   deceased    debtor   having

insufficient assets to pay all debts.                  See United States v.

Vermont, 377 U.S. 351, 357 (1964) (noting that the federal priority

statute "on its face permits no exception whatsoever").

            It is clear beyond hope of contradiction that the federal

priority statute imposes personal liability on representatives of

an estate who fail to honor a priority claim of the government.

See 31 U.S.C. § 3713(b); United States v. Moore, 423 U.S. 77, 81

(1975) (explaining that "Congress gave the priority [statute]

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teeth by making the administrator of any insolvent or decedent's

estate personally liable for any amount not paid the United States

because he gave another creditor preference").                      Section 3713(b)

therefore ensures that those who control the assets of a debtor's

estate bear full responsibility for adhering to the government's

priority.      See King v. United States, 379 U.S. 329, 337 (1964).

              The personal representative of a debtor's estate is

liable under section 3713(b) as long as three requirements are

satisfied.      See United States v. Renda, 709 F.3d 472, 480-81 (5th

Cir. 2013); United States v. Coppola, 85 F.3d 1015, 1020 (2d Cir.

1996).    A party seeking relief from such personal liability bears

the burden of showing that these requirements (or, at least, one

of them) have not been satisfied.                  See Bramwell v. U.S. Fid. &

Guar.    Co.,    269    U.S.    483,    487    (1926).         We   rehearse   these

requirements.

              First, the personal representative must have transferred

assets of the estate before paying a claim of the United States.

See Renda, 709 F.3d at 481.                 Liability may attach even if the

transferred funds were not used to pay a debt; the dispositive

question is whether the personal representative "depleted the

assets of . . . [the] estate by distributing them to" herself or

others.   Coppola, 85 F.3d at 1020.

              The    second    and   third    requirements      —   insolvency   and

notice    —     do   not   appear      in    the   text   of    section    3713(b).

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Nevertheless, courts have routinely read these requirements into

the statutes to soften what would otherwise be a strict liability

regime.   See, e.g., Renda, 709 F.3d at 480 & nn.9-10.

           The insolvency requirement demands that an indebted

estate be insolvent at the time that the personal representative

effects a transfer of assets.       See id. at 480.      The notice

requirement demands that the personal representative must have had

"knowledge of the debt owed by the estate to the United States or

notice of facts that would lead a reasonably prudent person to

inquire as to [its] existence."   Coppola, 85 F.3d at 1020.

           In this case, the district court concluded that all three

requirements for section 3713(b) liability were satisfied.     This

conclusion finds solid footing in the record.      The acknowledged

facts unambiguously demonstrate that the appellant effected asset

transfers by distributing virtually all of the assets of Reitano's

estate to herself; that the estate was insolvent at the time of

these transfers because its unpaid federal income tax liabilities

far exceeded the value of the estate's assets; and that the

appellant was aware of the unpaid tax liabilities when she effected

the transfers.    No more is exigible for a finding of section

3713(b) liability.

           Faced with this inhospitable terrain, the appellant

serves up a salmagundi of reasons why she should not be subject to

section 3713(b) liability at all or, alternatively, why she should

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be subject to such liability only in a lesser sum.                Her primary

argument starts with the premise that certain types of expenses

associated    with     administering   an   estate   may   be    entitled   to

precedence over the government's tax claims.               Building on this

premise, she insists that she used the transferred assets to pay

such administrative expenses and, therefore, she is entitled to an

equitable exception.       In her view, we would be "exalt[ing] form

over substance" and "ignor[ing] the equities and the law" were we

to hold her liable under section 3713(b).

             We do not gainsay that a personal representative of an

estate that is indebted to the United States for unpaid taxes may

nonetheless use estate assets to defray certain types of expenses

without contravening the statutory priority.                The IRS itself

acknowledges that there are exceptions to the priority created by

section 3713(a) for family allowances and administrative expenses

(such as "expenses incurred for the general welfare of creditors,"

"expenses incurred to collect and preserve assets," court costs,

and funeral expenses). See Internal Revenue Manual, 34.4.1.7 (Aug.

11, 2004).     The case law reinforces this view.               See Estate of

Jenner v. C.I.R., 577 F.2d 1100, 1106 (7th Cir. 1978); Schwartz v.

C.I.R., 560 F.2d 311, 314 n.7 (8th Cir. 1977); Abrams v. United

States, 274 F.2d 8, 12 (8th Cir. 1960).

             Despite    this   promising     provenance,        however,    the

appellant's argument for an equitable exception fails.             Even if we

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assume that an equitable exception to the priority statute may

exist — a matter on which we take no view — the appellant's

prospects would not improve.

          As   a   threshold   matter,     the   summary   judgment   record

flatly contradicts the appellant's assertion that she transferred

the stock to herself for the purpose of paying administrative

expenses of the estate.      The government's statement of undisputed

material facts — which controls here, see D. Mass. R. 56.1 — makes

pellucid that:

     Ms. McNicol deliberately chose to not liquidate the
     Estate and pay the tax debts owed to the United States.
     Ms. McNicol chose not to sell the two fishing vessels
     because she wanted to maintain the lucrative income that
     the vessels had been generating and use that income to
     fund her family's lifestyle. Ms. McNicol hoped that the
     IRS would not seek to collect the liabilities and that
     the statute of limitations period would expire.

          Beyond    this    hurdle,   a    further   impediment   remains.

Though the appellant itemizes various expenses in support of her

contention, the documents offered to show that the appellant paid

these expenses are unauthenticated hearsay.            See Fed. R. Evid.

801, 901; see also Vazquez v. Lopez-Rosario, 134 F.3d 28, 33 (1st

Cir. 1998) (explaining that "[e]vidence that is inadmissible at

trial, such as inadmissible hearsay, may not be considered on

summary judgment").        Manifestly, then, the appellant failed to

present competent evidence sufficient to make out a genuine issue

of material fact with respect to the government's summary judgment

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motion.   That failure is fatal to the argument that she now seeks

to advance.2   See Torres v. E.I. DuPont de Nemours & Co., 219 F.3d

13, 18 (1st Cir. 2000); Garside v. Osco Drug, Inc., 895 F.2d 46,

49-50 (1st Cir. 1990).

           The appellant musters three other arguments.    None of

them requires extensive comment.

           First, the appellant asserts that she cannot be held

liable for the value of the Sophia Gale stock because she had not

been appointed executrix at the time of the transfer and, thus,

lacked the authority to transfer the stock.        This assertion,

however, was not made below, and it is therefore waived.       See

Snyder v. Collura, 812 F.3d 46, 51 (1st Cir. 2016); see also

Teamsters, Chauffeurs, Warehousemen & Helpers Union, Local No. 59

v. Superline Transp. Co., 953 F.2d 17, 21 (1st Cir. 1992) ("If any

principle is settled in this circuit, it is that, absent the most

extraordinary circumstances, legal theories not raised squarely in

the lower court cannot be broached for the first time on appeal.").

We add, moreover, that even if this argument were not waived, it

    2 The appellant also composes a variation on this theme: she
suggests that she transferred the stock to herself to "reimburse
herself for having paid all of the administrative expenses." But
this "reimbursement" theory was not preserved below: it surfaced
for the first time in the appellant's motion for reconsideration,
so it is waived. See Dillon v. Select Portf. Serv'g, 630 F.3d 75,
80 (1st Cir. 2011) ("When a party makes an argument for the first
time in a motion for reconsideration, the argument is not preserved
for appeal.").
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would fail: whether the appellant had been appointed executrix at

the time the assets were transferred is not determinative in the

section 3713(b) analysis.   What counts is whether the responsible

party had control over the transferred assets, see King, 379 U.S.

at 337, and it is nose-on-the-face plain that the appellant had

such control from and after the date of Reitano's demise.

          Next, the appellant attempts to raise a factual issue

regarding the value of the shares that she transferred to herself.

This attempt, however, comes too late.      The appellant clearly

stated the value of the shares in her answers to the government's

interrogatories.   A party is ordinarily bound by her unambiguous

and unamended answers to interrogatories.    See, e.g., Calhoun v.

United States, 591 F.2d 1243, 1246 (9th Cir. 1978); cf. Colantuoni

v. Alfred Calcagni & Sons, Inc., 44 F.3d 1, 4-5 (1st Cir. 1994)

("When an interested witness has given clear answers to unambiguous

questions, he cannot create a conflict and resist summary judgment

with an affidavit that is clearly contradictory, but does not give

a satisfactory explanation of why the testimony is changed.").

There is nothing in the record that so much as hints at any valid

basis for relieving the appellant from the strictures of this

obligation.

          Finally, the appellant seeks a $10,000 credit against

her section 3713(b) liability for a sales commission that she

allegedly incurred in selling one of the fishing vessels.     Once

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again, however, the document proffered to support the appellant's

claim comprises unauthenticated hearsay and, therefore, is without

any weight in the summary judgment calculus.   See Torres, 219 F.3d

at 18; Garside, 895 F.2d at 49-50.

            In this case, all roads lead to Rome: the district court

did not err in granting the government's motion for summary

judgment.

III.   CONCLUSION

            We need go no further. For the reasons elucidated above,

the judgment of the district court is

Affirmed.

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