J.M. Mandler & Nuclear Imaging Systems, Inc. v. Com. of PA ( 2021 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Jeffrey M. Mandler and Nuclear :
Imaging Systems, Inc., :
Petitioners :
:
v. :
:
Commonwealth of Pennsylvania, : No. 483 F.R. 2014
Respondent :
Jeffrey M. Mandler and Cardiovascular :
Concepts, P.C., :
Petitioners :
:
v. :
:
Commonwealth of Pennsylvania, : No. 484 F.R. 2014
Respondent : Submitted: February 10, 2021
BEFORE: HONORABLE P. KEVIN BROBSON, President Judge
HONORABLE MARY HANNAH LEAVITT, Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
HONORABLE ELLEN CEISLER, Judge
OPINION BY
JUDGE COVEY FILED: March 3, 2021
Before the Court are Jeffrey M. Mandler (Mandler), Nuclear Imaging
Systems, Inc. (NIS) and Cardiovascular Concepts, P.C.’s (CVC) (collectively,
Taxpayers) exceptions (Exceptions)1 to this Court’s March 2, 2020 Memorandum
1
Pennsylvania Rule of Appellate Procedure 1571(i) states:
Any party may file exceptions to an initial determination by [this
C]ourt under this rule within 30 days after the entry of the order to
which exception is taken. Such timely exceptions shall have the
Opinion and Order (March 2, 2020 Opinion) affirming the Board of Finance and
Revenue’s (Board) August 27, 2014 orders denying Taxpayers’ Petitions for Refund
(Refund Petitions) of the $180,168.46 Taxpayers remitted to the Pennsylvania
Department of Revenue (Revenue) on July 31, 2013, to satisfy employer withholding
liens.2 Therein, Taxpayers present three issues for this Court’s review: (1) whether
Taxpayers satisfied their burden of proving their entitlement to the $180,168.46
refund; (2) whether the United States Bankruptcy Court for the Eastern District of
Pennsylvania (Bankruptcy Court) set aside the funds necessary for Taxpayers to
satisfy their payroll tax obligations, and the Commonwealth of Pennsylvania
(Commonwealth) was on notice that those funds were available; and (3) whether
Taxpayers are entitled to prevail under the doctrine of estoppel by laches or collateral
estoppel. After review, this Court en banc overrules Taxpayers’ Exceptions.
Facts
On January 11, 2019, pursuant to Pennsylvania Rule of Appellate
Procedure (Rule) 1571(f), Taxpayers and the Commonwealth submitted a joint
Stipulation of Facts (Stipulation).3 According to the Stipulation, Mandler owned NIS
effect, for the purposes of Rule 1701(b)(3) (authority of lower court
or agency after appeal) of an order expressly granting reconsideration
of the determination previously entered by the court. Issues not raised
on exceptions are waived and cannot be raised on appeal.
Pa.R.A.P. 1571(i).
2
The Board’s August 27, 2014 orders were mailed on September 3, 2014. See Taxpayers’
Initial Br. Attachments.
3
A review of determinations of the Board is governed by [Rule] 1571.
Although this Court hears such cases in its appellate jurisdiction, it
functions essentially as a trial court. Therefore, this Court must
consider a record made by the parties specifically for the Court rather
than one certified to the Court from the proceedings below.
Armco, Inc. v. Commonwealth, 654 A.2d 1191, 1192 (Pa. Cmwlth. 1993) (citations omitted). Rule
1571(f) mandates that the parties “prepare and file a stipulation of such facts as may be agreed to[.]”
2
and CVC, which are Pennsylvania corporations with principal places of business in
Malvern, Pennsylvania.4 See Stip. ¶¶ 3-4. Pursuant to Sections 316(a) and 320 of the
Tax Reform Code of 1971 (Code),5 72 P.S. §§ 7316.1(a),6 7320, Taxpayers were
employers responsible for withholding their employees’ payroll taxes in trust for the
Commonwealth. See Stip. ¶¶ 2-4. On August 4, 2000, NIS and CVC commenced
voluntary reorganization bankruptcy proceedings in the Bankruptcy Court, pursuant
to Chapter 11 of the Bankruptcy Code.7 See Stip. ¶ 4. On September 18, 2000, the
Bankruptcy Court ordered the joint administration of NIS’s and CVC’s bankruptcy
actions. See Stip. ¶ 8. On October 6, 2000, Revenue filed proofs of claim with the
Bankruptcy Court seeking, among other taxes,8 NIS’s and CVC’s Pennsylvania
employer withholding taxes (Taxes).9 See Stip. ¶ 9, Stip. Ex. A.
Pa.R.A.P. 1571(f). “The facts stipulated by the parties are binding and conclusive and should be
regarded as this Court’s findings of fact.” Quest Diagnostics Venture, LLC v. Commonwealth, 119
A.3d 406, 410 n.4 (Pa. Cmwlth. 2015), aff’d, 148 A.3d 448 (Pa. 2016). “‘However, this Court may
draw its own legal conclusions.’” Am. Elec. Power Serv. Corp. v. Commonwealth, 184 A.3d 1031,
1034 n.7 (Pa. Cmwlth.), aff’d, 199 A.3d 880 (Pa. 2018) (quoting Kelleher v. Commonwealth, 704
A.2d 729, 731 (Pa. Cmwlth. 1997)). The parties declared in the Stipulation: “[N]o evidence of []
facts other than in this Stipulation need be adduced in this matter.” Stip. at 2.
Revenue is represented by the Commonwealth’s Office of Attorney General, which has
acted on Revenue’s behalf throughout these proceedings.
4
NIS was a Pennsylvania corporation and CVC was a Pennsylvania professional
corporation. See Stip. ¶¶ 3-4.
5
Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-10004.
6
Added by Section 4 of the Act of August 31, 1971, P.L. 362.
7
11 U.S.C. §§ 1101-1195. Mandler also filed for Chapter 11 bankruptcy on September 12,
2000. See Stip. ¶ 7.
8
The other taxes included corporate net income taxes, capital stock-franchise taxes and
corporate loan taxes. See Stip. Ex. A at 2, 7.
9
In addition to the Taxes, NIS and CVC owed taxes to other creditors, including the Internal
Revenue Service (IRS), the Pennsylvania Department of Labor & Industry, and state taxing
authorities in Delaware, Maryland and New Jersey. See Stip. ¶ 13, Stip. Ex. D. By April 26, 2001
Amended Stipulation of Settlement and Order, Taxpayers settled the claims made by DVI Financial
Services, Inc., National Century Financial Enterprises, Inc., NPF X, Inc., NPF VI, Inc., and the IRS.
See Stip. ¶ 10, Stip. Ex. B.
3
From October 29, 2000 to September 1, 2001, Revenue issued 10
assessment notices to NIS and Mandler (individually, and in his capacity as NIS’s
president) for their Taxes for consecutive tax periods from January 1, 1999 to June
30, 2001, plus interest and penalties, in the total amount of $110,331.60. See Stip. ¶
14. Between October 29, 2000 and June 3, 2001, Revenue issued nine assessment
notices to CVC and Mandler (individually, and in his capacity as CVC’s president)
for their Taxes for consecutive tax periods from January 1, 1999 to March 31, 2001,
plus interest and penalties, in the total amount of $70,486.89. See Stip. ¶ 15.
On April 17, 2001, Taxpayers entered into an Amended Stipulation of
Settlement and Order (Settlement Order) to resolve certain creditor claims, and to
allow the sale of NIS’s and CVC’s assets to Integral Nuclear Associates, LLC
(Integral) pursuant to an April 11, 2001 Asset Purchase Agreement10 (as amended by
the Settlement Order), which would facilitate reorganization.11 See Stip. ¶ 10, Stip.
Ex. B. Thereunder, Integral agreed to purchase certain of NIS’s and CVC’s assets
out of bankruptcy, and to issue a “promissory note made payable to [Taxpayers] to
fund payments to state taxing authorities.”12 Stip. Ex. B at 8. On May 1, 2001,
Integral’s counsel sent United Savings Bank, inter alia, $66,215.49 to be held in an
interest-bearing state tax escrow account. See Stip. ¶¶ 37-38, Stip. Exs. R, S.
On June 8, 2001, Taxpayers filed a proposed Second Amended Joint
Plan of Reorganization (Proposed Plan), in which they suggested in Section 4.2.B:
“[Taxpayers] shall distribute $66,000[.00] to state taxing authorities. These claims
10
The parties did not include the Asset Purchase Agreement as a Stipulation exhibit.
11
In their brief to this Court, Taxpayers reference an April 17, 2001 Bankruptcy Court order
which, in paragraph 4, “provides for a transfer of [Taxpayers’] assets [to Integral] . . . free of all
liens.” Taxpayers’ Initial Br. at 12. However, the Settlement Order does not contain that language,
and no such order is referenced in or attached to the Stipulation. See Stip. Ex. B.
12
The amount of the promissory note specified in paragraph 10(b) of the Settlement Order is
illegible. See Stip. Ex. B at 8. However, Taxpayers contend in their brief to this Court that the
amount was $50,000.00. See Taxpayers’ Initial Br. at 17. The amount was later amended to
$66,215.49. See Taxpayers’ Initial Br. at 17.
4
are estimated at $300,000[.00]. . . . Mandler shall make monthly payments to
[Taxpayers] to pay any deficiency.” Stip. Ex. P at 13; see also Stip. ¶ 35. Revenue
objected to the Proposed Plan. See Stip. ¶ 36, Stip. Ex. Q.
On August 20, 2001, the Bankruptcy Court converted NIS’s and CVC’s
bankruptcy actions to Chapter 7 liquidation proceedings.13 See Stip. ¶ 11. Thereafter,
Revenue filed amended proofs of claim - on September 14, 2001, against CVC and
on November 15, 2001, against NIS - seeking the Taxes.14 See Stip. ¶ 12, Stip. Ex. C.
On January 7, 2002, Integral’s counsel instructed United Savings Bank
to close out the state tax escrow account and forward the proceeds thereof (which was
then $67,113.00) to Bankruptcy Trustee Christine Shubert (Trustee). See Stip. ¶ 39,
Stip. Exs. T, U. Revenue did not receive any of the escrowed funds.
During 2002 and 2005, Revenue filed liens against Taxpayers in the
Chester County Common Pleas Court. See Stip. ¶ 16, Stip. Ex. E. On May 18, 2005,
Trustee issued her amended Chapter 7 Proposed Distribution of Property, pursuant to
which the Trustee, on August 3, 2005, paid Revenue $1,043.29 relative to claims
against CVC and $755.49 for claims against NIS. See Stip. ¶¶ 17-18, Stip. Exs. F, G.
Those payments were not made in satisfaction of the Taxes or Taxpayers’ other state
tax debts.15 On April 13, 2006, Trustee certified that the estate was fully
administered - all bankruptcy estate money had been distributed to creditors and the
bankruptcy estate accounts had zero balances. See Stip. ¶ 40, Stip. Ex. U.
13
11 U.S.C. §§ 701-784.
14
Like in the original proofs of claim, the amended proofs of claim sought corporate net
income taxes, capital stock-franchise taxes, and corporate loan taxes in addition to the Taxes. See
Stip. Ex. C at 2, 7.
15
According to the Trustee’s itemized payment list, the $1,043.29 was paid on CVC’s
$22,343.31 administrative priority claim and $755.49 was paid on NIS’s $16,158.09 administrative
priority claim. See Stip. Ex. C at 2, 7; Stip. Ex. F at 7. The amended proofs of claim reflect that
those administrative priority claims were made pursuant to Section 507(a)(1) of the Bankruptcy
Code, 11 U.S.C. § 507(a)(1) (relating to trustee expenses and domestic support obligations). See
Stip. Ex. C at 2, 7.
5
By July 30, 2013 letter, Revenue notified Taxpayers’ counsel (Counsel)
that Taxpayers’ lien payoff figure was $180,168.46. See Stip. ¶ 19, Stip. Ex. H.
Taxpayers remitted $180,168.46 to Revenue on July 31, 2013. See Stip. ¶ 20, Stip.
Ex. I. On August 20, 2013, Revenue asked the Chester County Common Pleas Court
to mark Taxpayers’ liens as satisfied. See Stip. ¶ 21, Stip. Ex. J.
However, on November 13, 2013, Taxpayers filed the Refund Petitions
with Revenue’s Board of Appeals (BOA) seeking return of their $180,168.46,
arguing that the Taxes had already been paid from the escrow account. See Stip. ¶¶
22-24. On January 23, 2014, the BOA denied the Refund Petitions, stating relative to
both NIS and CVC:
[Taxpayers] filed for bankruptcy and [] an escrow account
was established for the payment of state taxes. The record
does not provide any evidence that notice of the escrow
account was provided to [Revenue]. There is no evidence
indicating that these funds were used to pay the outstanding
state tax liabilities. In fact, [Revenue’s] records indicate
that [Revenue] did not receive payment from these
escrowed funds. Accordingly, [Taxpayers] ha[ve] failed to
prove that [they are] entitled to a refund.
Stip. Exs. K (BOA NIS Dec. at 2), L (BOA CVC Dec. at 2);16 see also Stip. ¶¶ 25-26.
On April 4, 2014, Taxpayers appealed to the Board. See Stip. ¶¶ 27-29.
On August 27, 2014, the Board denied the Refund Petitions. See Stip.
Exs. M (Board NIS Dec. at 5), L (Board CVC Dec. at 4-5); see also Stip. ¶¶ 30-31.
On September 24, 2014, Taxpayers appealed to this Court, which affirmed the
Board’s orders on March 2, 2020.17 Mandler v. Commonwealth (Pa. Cmwlth. Nos.
16
Taxpayers also requested abatement of the penalties and interest, which the BOA denied
on the basis that Taxpayers were delinquent for 9 (CVC) and 10 (NIS) consecutive tax periods since
1999, and that they failed to prove they acted in good faith, without negligence or intent to defraud.
See Stip. ¶¶ 14, 15; Stip. Exs. K (BOA NIS Dec. at 2), L (BOA CVC Dec. at 2).
17
“[A] party appealing from a denial of a tax refund . . . has the burden of proof in a de novo
proceeding before th[is Court].” Sabatine v. Commonwealth, 442 A.2d 210, 212 n.6 (Pa. 1981)
(italics added). “Our scope of review in tax appeals is . . . limited to the construction, interpretation
6
483, 484 F.R. 2014, filed March 2, 2020). On April 1, 2020, the Commonwealth
filed an Application to Redesignate the Court’s Unreported Memorandum Opinion as
a Reported Opinion (Application), to which no response was filed. Taxpayers timely
filed the Exceptions seeking to reverse the Court’s March 2, 2020 Opinion and grant
their refund request.18 The Commonwealth filed a brief in opposition to Taxpayers’
Exceptions.19
Discussion
1. Waiver
Preliminarily, in their initial appeal to this Court, Taxpayers “request[ed]
relief pursuant to [Section 1983 of the United States Code,] 42 U.S.C. § 1983[(relating to civil rights deprivation actions)] and attorney’s fees pursuant to [Section
1988 of the United States Code,] 42 U.S.C. § 1988 [(relating to proceedings in
vindication of civil rights)].” See Taxpayers’ Initial Br. at 23. However, because
Taxpayers failed to mention any civil rights violations in their Statement of Questions
Involved and did not develop arguments in their brief to support any such claims, this
Court ruled that Taxpayer waived those claims. See Commonwealth v. Spotz, 18
A.3d 244 (Pa. 2011) (such waiver applies to undeveloped constitutional rights
claims); Mun. of Mt. Lebanon v. Gillen, 151 A.3d 722, 727 n.5 (Pa. Cmwlth. 2016)
(“Appeal of an issue is waived where the appellant fails to include it in the statement
and application of a [s]tate tax statute to [the] given set of facts.” United Servs. Auto. Ass’n v.
Commonwealth, 618 A.2d 1155, 1156 (Pa. Cmwlth. 1992) (quoting Escofil v. Commonwealth, 406
A.2d 850, 852 (Pa. Cmwlth. 1979), aff’d per curiam, 452 A.2d 1012 (Pa. 1982)).
18
“[E]xceptions filed pursuant to [Rule] 1571(i) have the effect of an order granting
reconsideration.” Kalodner v. Commonwealth, 636 A.2d 1230, 1231 (Pa. Cmwlth. 1994), aff’d, 675
A.2d 710 (Pa. 1995).
19
Taxpayers filed a reply brief. The reply brief was identical to their principal brief in
support of Exceptions. Relative to reply briefs, Rule 2113 specifies, in relevant part: “[T]he
appellant may file a brief in reply to matters raised by appellee’s brief . . . and not previously
addressed in appellant’s brief.” Pa.R.A.P. 2113.
7
of questions involved section of [his/]her brief and fails to address the issue in the
argument section of the brief.”).
Notwithstanding, in their brief in support of Exceptions, Taxpayers again
request[] relief pursuant to [Section 1983 of the United
States Code,] 42 U.S.C. § 1983[,] [] attorney’s fees pursuant
to [Section 1988 of the United States Code,] 42 U.S.C. §
1988 [] and . . . fees and expenses pursuant to [the statute
commonly known as the Costs Act (relating to fees and
expenses for administrative agency actions)20].
Taxpayers’ Exceptions Br. at 18. Therein, Taxpayers also include the following
limited general argument:
1. The [] actions of the Commonwealth violate the [D]ue
[P]rocess and Equal Protection clause[s] of the United
States Constitution[21] and the Uniformity Clause of the
Pennsylvania Constitution, the Pennsylvania Taxpayers[’]
Bill of Rights[22] and give rise to the right to attorney’s fees
pursuant to [Section 1983 of the United States Code,] 42
U.S.C. § 1983 [(relating to civil rights deprivation actions)].
....
4. [sic] The actions of the Commonwealth and its officials
have deprived [] [T]axpayer[s] of property without the
process of law in violation of Article I, [Sections] 9[ and]
10 of the Pennsylvania Constitution[, Pa. Const. art. I, §§ 9,
10,] and the due process clause of Section 1 of the
Fourteenth Amendment of the United States Constitution[,
U.S. Const. amend. XIV,] and the Commerce Clause of the
U[nited] S[tates] Constitution.[23]
5. [sic] The administrative decisions further violate Article
II, [Section] 1 of the Pennsylvania Constitution[, Pa. Const.
art. II, § 1,] which requires that administration actions
conform to the statue under which the action is taken and
20
Act of December 13, 1982, P.L. 1127, as amended, 71 P.S. §§ 2031-2035. The Costs Act
expired on July 1, 2007.
21
U.S. Const. amend. XIV.
22
Act of December 20, 1996, P.L. 1504, 72 P.S. §§ 3310-101 - 3310-402.
23
U.S. Const. art. I, § 8, cl. 3.
8
Article 8, [Section] 1 of the Pennsylvania Constitution[, Pa.
Const. art. VIII, § 1,] requiring that all tax be uniform upon
the same class of subjects.
6. [sic] [] Taxpayer[s] also reserve[] the right to raise any
other issues and arguments that might present themselves
on this matter.
Taxpayers’ Exceptions Br. at 17. However, because Taxpayers previously waived
any constitutional argument, and because they did not specifically raise these issues
in their Exceptions, they are waived.24 See Rule 1571(i) (“Issues not raised on
exceptions are waived[.]”).
2. Exceptions
In their Exceptions, Taxpayers claim that (a) they satisfied their burden
of proving their entitlement to the $180,168.46 refund; (b) the Bankruptcy Court set
aside the funds necessary for Taxpayers to satisfy their payroll tax obligations and the
Commonwealth was on notice that those funds were available; and (c) they are
entitled to prevail under the doctrine of estoppel by laches or collateral estoppel.
Taxpayers made identical arguments in their initial appeal to this Court.25
24
Despite this Court’s warning in its March 2, 2020 Opinion, Taxpayers failed to raise these
issues in their new Statement of Questions Involved. In fact, despite having raised four Exceptions,
in their brief supporting the Exceptions, Taxpayers sole issue in the Statement of Questions
Involved is: “Were [Taxpayers’] tax liabilities satisfied in full per the deposit into the escrow
account as explained by [Taxpayers]?” See Taxpayers’ Exceptions Br. at 7; see also Taxpayers’
Exceptions Reply Br. at 7. Clearly, Taxpayers merely copied the Statement of Questions Involved
from its initial brief on appeal. See Taxpayers’ Initial Br. at 7 (Taxpayers’ Exceptions Br. App. C at
7). Moreover, Taxpayers’ purported constitutional arguments are nothing more than declarations
without accompanying developed arguments, record citations, or legal authority.
25
In their initial appeal, Taxpayers asserted that Integral set aside escrow funds for the
express purpose of satisfying Taxpayers’ state tax obligations and that Revenue’s failure to timely
claim those funds during the bankruptcy proceedings resulted in the Trustee using them to pay other
debts and, thus, Revenue was estopped from thereafter collecting those monies from Taxpayers.
9
a. Refund Entitlement
Here, as they did in their initial appeal, Taxpayers claim that they
satisfied their burden of proving their entitlement to the $180,168.46 refund. In
concluding that the Code required Taxpayers to withhold employee payroll taxes and
hold them in trust for the Commonwealth, and further authorized Revenue to enforce
liens against Taxpayers for the withheld monies, this Court reasoned:
Section 316(a) of the Code specifies:
Every employer maintaining an office or transacting
business within [the Commonwealth] and making
payment of compensation (i) to a resident
individual, or (ii) to a nonresident individual
taxpayer performing services on behalf of such
employer within this Commonwealth, shall deduct
and withhold from such compensation for each
payroll period a tax computed in such manner as to
result, so far as practicable, in withholding from the
employe’s compensation during each calendar year
an amount substantially equivalent to the tax
reasonably estimated to be due for such year with
respect to such compensation. The method of
determining the amount to be withheld shall be
prescribed by regulations of [Revenue].
72 P.S. § 7316.1(a). Section 320 of the Code clarifies:
Every person[FN][18] required to deduct and withhold
tax under [S]ection 316[(a) of the Code] is hereby
made liable for such tax. For purposes of
assessment and collection, any amount required to
be withheld and paid over to [Revenue] and any
additions to tax penalties and interest with respect
thereto, shall be considered the tax of the person.
All taxes deducted and withheld pursuant to
[S]ection 316[(a) of the Code] or under color of
[S]ection 316[(a) of the Code] shall constitute a
trust fund for the Commonwealth and shall be
enforceable against such person, his representative
or any other person receiving any part of such fund.
10
72 P.S. § 7320. ‘[T]he employer has no right to this
withholding once wages are paid; such withholding is
commonly referred to as “trust fund tax” precisely because
the employer holds it in trust for the [g]overnment.’ In re
Dutch Masters Meats, Inc., 182 B.R. 405, 411 (Bankr. M.D.
Pa. 1995). Accordingly, the Code required Taxpayers to
withhold employee payroll taxes and hold them in trust for
the Commonwealth, and further authorized Revenue to
enforce liens against Taxpayers for the withheld monies.
[FN][18]
Section 201(e) of the Code defines
‘person’ as ‘[a]ny natural person, association,
fiduciary, partnership, corporation or other
entity . . . . Whenever used in any clause
prescribing and imposing a penalty . . . the
term “person,” . . . as applied to a corporation,
[shall include] the officers thereof.’ 72 P.S. §
7201(e). This Court has ruled that a corporate
officer can be personally liable for a
corporation’s withholding taxes during periods
in which he controlled the corporation. Brown
v. Commonwealth, 670 A.2d 1222 (Pa.
Cmwlth. 1996).
Mandler, slip op. at 9-10. Accordingly, this Court concluded that Taxpayers did not
satisfy their burden of proving entitlement to the $180,168.46 refund. After review,
this Court discerns no error in its March 2, 2020 conclusion.
b. Bankruptcy Proceedings
Taxpayers also argue that the Bankruptcy Court set aside the funds
necessary for Taxpayers to satisfy their payroll tax obligations and the
Commonwealth was on notice that those funds were available. Taxpayers made an
identical argument in their initial appeal. Therein, this Court concluded that the
Board properly denied Taxpayers relief because employer-withheld income taxes
were trust fund taxes which were not dischargeable in bankruptcy, based on the
following analysis:
Section 523(a)(1)(A) of the Bankruptcy Code provides:
11
A discharge under [Chapter 7 of the Bankruptcy
Code] does not discharge an individual debtor from
any debt . . . for a tax . . . of the kind and for the
periods specified in [S]ection . . . 507(a)(8) of [the
Bankruptcy Code], whether or not a claim for such
tax was filed or allowed[.FN19]
[FN19]
A taxing body’s failure to file a proof of
claim bars it from obtaining a distribution from
the estate in a bankruptcy proceeding, but does
not affect its authority to collect the tax debt.
City of Phila. v. Carpino, 915 A.2d 169 (Pa.
Cmwlth. 2006).
11 U.S.C. § 523(a)(1)(A). Section 507(a) of the
Bankruptcy Code specifies:
The following expenses and claims have priority in
the following order: . . . [A]llowed unsecured
claims of governmental units, only to the extent that
such claims are for . . . a tax required to be collected
or withheld and for which the debtor is liable in
whatever capacity[.]
11 U.S.C. § 507(a).
Further, the United States Bankruptcy Court for the
Northern District of Illinois, has ruled that ‘taxes described
in [Section] 507(a)([8])(C) [of the Bankruptcy Code], often
referred to as ‘trust fund’ taxes, are never dischargeable[,]
no matter how long the unpaid tax obligations have been
outstanding. 1 Robert E. Ginsberg, Bankruptcy § 11.06[b]
at 899 (2[]d ed. 1989).’ In re Torres, 117 B.R. 379, 384
(Bankr. N.D. Ill. 1990); see also Dutch Masters Meats, Inc.,
182 B.R. at 411 (‘It is because of th[e] trust relationship
that, unlike other tax obligations, trust fund taxes are
nondischargeable . . . .’). Therefore, whether or not
Revenue filed claim petitions for them, and no matter how
much time has passed, the Taxes were trust fund taxes that
Taxpayers could not discharge in a Chapter 7 bankruptcy
proceeding.
Taxpayers’ claim that the Chapter 7 bankruptcy proceeding
relieved them of their liability for the Taxes because the
escrowed funds were ‘for the sole purpose of paying the
[Taxes] . . .’ is meritless. Taxpayers’ [Initial] Br. at 14.
12
This Court acknowledges that, pursuant to the Settlement
Order, Integral agreed to, and paid into an escrow account,
monies ‘to fund payments to state taxing authorities.’ Stip.
Ex. B at 8. However, neither the Settlement Order nor the
May 1 and June 12, 2001 escrow letters, or any other record
document, specifies that the escrowed funds were set aside
for the express purpose of satisfying the Taxes. A
taxpayer’s bare assertions are generally insufficient proof in
tax cases. See Camp Hachshara Moshava of New York v.
Wayne C[n]ty. Bd. for Assessment [&] Revision of Taxes, 47
A.3d 1271 (Pa. Cmwlth. 2012); see also Fiore v.
Commonwealth, 668 A.2d 1210 (Pa. Cmwlth. 1995), aff’d,
690 A.2d 234 (Pa. 1997); Bruce & Merrilees Elec. Co. v.
Commonwealth, 530 A.2d 994 (Pa. Cmwlth. 1987).
The record likewise belies Taxpayers’ assertion that
‘adequate cash funds had been set aside by [the Settlement
Order] to pay to [Revenue] the [Taxes] . . . .’ Taxpayers’
[Initial] Br. at 13. It is evident from the Proposed Plan that
Taxpayers knew they owed more than $300,000.00 in
various state taxes and, based on the amended proofs of
claim, they were aware that more than $180,000.00 thereof
was owed to Revenue for the Taxes. See Stip. Ex. C at 3-5,
8-9, 11 and Ex. P at 13. Notwithstanding, only $66,215.49
was placed into the state tax escrow account, which was
clearly inadequate to satisfy Taxpayers’ liability for the
Taxes. See Stip. ¶¶ 37-38, Stip. Exs. R, S.
In addition, there is no record evidence that Revenue was
aware that the escrowed funds existed. Taxpayers did not
point to any record notifying Revenue about the escrowed
funds. The May 1 and June 12, 2001 escrow letters [we]re
neither addressed nor copied to Revenue, and Revenue was
not a party to the Settlement Order.[FN20] A settlement
agreement is essentially a contract that is binding on the
parties thereto, and is governed by contract law principles.
Roe v. Pa. Game Comm’n, 147 A.3d 1244 (Pa. Cmwlth.
2016). A ‘general principle of contract law [is] that an
agreement cannot legally bind persons who are not parties
[thereto].’ Chambers Dev. Co., Inc. v. Commonwealth ex
rel. Allegheny C[n]ty. Health Dep’t, 474 A.2d 728, 731 (Pa.
Cmwlth. 1984). Here, the Settlement Order declared:
‘Nothing in this [Settlement Order] may be relied upon or is
intended for the benefit of any party other [than] those who
have executed this [Settlement Order] below.’ Stip. Ex. B
13
at 10, ¶ 20. Therefore, notwithstanding Taxpayers’ claims
to the contrary, neither the Settlement Order nor any other
record document informed Revenue about the escrowed
funds.
Based on the foregoing, the Board properly denied
Taxpayers relief, because employer-withheld income taxes
are trust fund taxes which are not dischargeable in
bankruptcy. The Board further reasoned:
[T]he [Settlement Order] does not prohibit
[Revenue] from collecting the outstanding employer
withholding liability from [Taxpayers]. [Revenue]
was not a party to [the Settlement Order], as a
representative of [Revenue] did not sign the
[Settlement Order]. The [Settlement Order] merely
required that [Taxpayers’] assets transfer to Integral
free of encumbrances, and it did not remove
[Taxpayers’] liability for the [T]ax[es]. Lastly, the
documentation provided by [Taxpayers] fails to
show that the funds were set aside specifically for
[Revenue], as [Taxpayers] owed tax liabilities to
multiple states.
[FN20]
The IRS negotiated and was a party to the
Settlement Order. See Stip. Ex. B at 7-9, 13.
Stip. Exs. M (Board NIS Dec. at 5), L (Board CVC Dec. at
4-5); see also Stip. ¶¶ 30-31.
Mandler, slip op. at 10-13.
Accordingly, this Court concluded that the Board properly denied
Taxpayers relief because employer-withheld income taxes were trust fund taxes that
were not dischargeable in bankruptcy, and funds were not set aside to satisfy the
Taxes. After review, this Court discerns no error in its March 2, 2020 conclusion.
c. Estoppel
Lastly, Taxpayers claim that the doctrine of estoppel barred Revenue
from collecting the Taxes in 2013 because it failed to claim them during the
14
bankruptcy proceedings. As alleged in their initial appeal, Taxpayers specifically
contend that Revenue is estopped by laches. This Court declared that argument to be
without merit based on the following:
This Court has held that ‘[e]quitable estoppel [and] laches .
. . cannot vary the statutory requirements in the [Code].
Neither the [Board] nor this Court has the power to alter . . .
the [Code] based on equitable principles.’ Quest
Diagnostics Venture, LLC v. Commonwealth, 119 A.3d 406,
413-14 (Pa. Cmwlth. 2015), aff’d, 148 A.3d 448 (Pa. 2016)
(citations omitted).
[I]n order to apply the doctrine of equitable estoppel
to a Commonwealth agency: the party sought to be
estopped [(]1) must have intentionally or
negligently misrepresented some material fact[;]
[(]2) know[n] or ha[d] reason to know that the other
party would justifiably rely on the
misrepresentation[;] and [(]3) induc[ed] the other
party to act to his detriment because of his
justifiable reliance on the misrepresentation. In
addition, ‘[o]ne who asserts estoppel must establish
the essential elements thereof by clear, precise, and
unequivocal evidence.’ [Pa. Liquor Control Bd. v.
Venesky, 516 A.2d 445,] 448 [(Pa. Cmwlth. 1986)].
Yurick v. Commonwealth, 568 A.2d 985, 990 (Pa. Cmwlth.
1989) (emphasis added). However, ‘“estoppel cannot be
created by representations or opinions concerning matters
of law.”’ Id. at 990 (quoting Gabovitz v. State Auto. Ins.
Ass’n, 523 A.2d 403, 406 (Pa. Super. 1987) (citations
omitted)) (emphasis added). This Court has more
specifically concluded that ‘[n]o errors or misinformation . .
. can estop the government from collecting taxes legally
due.’ Am. Elec. Power Serv. Corp. v. Commonwealth, 160
A.3d 950, 960 (Pa. Cmwlth. 2017) (quoting DS Waters of
Am., Inc. v. Commonwealth, 150 A.3d 583, 592 (Pa.
Cmwlth. 2016)); see also Yurick.
‘The essence of any claim of laches is an estoppel as a
result of prejudicial delay.’ Stahl v. First Pa. Banking &
Tr. Co., 191 A.2d 386, 390 (Pa. 1963); see also
Commonwealth ex rel. Pa. Attorney Gen. Corbett v. Griffin,
15
946 A.2d 668, 676 n.9 (Pa. 2008) (‘[T]he doctrine of laches
contains an estoppel component . . . , and it is sometimes
referred to as estoppel by laches.)’ (quotation marks
omitted)[].
“[L]aches . . . bars relief when a . . . party is guilty
of want of due diligence in failing to promptly
institute an action to the prejudice of another.” Stilp
v. Hafer, . . . 718 A.2d 290, 292 ([Pa.] 1998);
accord Sprague v. Casey, . . . 550 A.2d 184, 187
([Pa.] 1988). . . . Whether laches applies is a
question of law. . . . However, applicability of the
doctrine of laches is a factual determination made
on a case-by-case basis. []
Wheels Mech. Contracting & Supplier, Inc. v. W. Jefferson
Hills Sch. Dist., 156 A.3d 356, 362 (Pa. Cmwlth. 2017).
Historically, our Supreme Court has been reluctant
to permit a party to assert the doctrine of laches
against a state’s exercise of its taxing power. See,
e.g., Commonwealth v. W[.] M[d.] [R.R.] Co[.], . . .
105 A.2d 336 ([Pa.] 1954) . . . (cannot estop the
government from collecting taxes which are legally
due); Commonwealth v. A.M. Byers Co[.], . . . 31
A.2d 530 ([Pa.] 1943) (no estoppel can be asserted
against the Commonwealth in the exercise of its
taxing power). In the Western Maryland Railway
Co[.][, formerly Western Maryland Railroad Co.,]
case, ou[r] Supreme Court held that the laches
defense could not be asserted so as to prevent the
state from collecting legally due taxes on property
when it failed to assess the same for a number of
years. Further, in that case, the [Supreme] Court
held that a state or other sovereignty cannot be
estopped by any acts or conduct of its officers or
agents in the performance of a governmental
function and that no errors or misinformation of the
officers or agents can estop the government from
collecting legally due taxes.
In re Estate of Trowbridge, 920 A.2d 901, 906 n.5 (Pa.
Cmwlth. 2007); see also Borough of Braddock v. Sullivan
Plumbing, Inc., 954 A.2d 672 (Pa. Cmwlth. 2008).
Although courts have held that a taxing authority’s delay
16
may bar its claims for interest and penalties attributable
thereto, the courts have consistently upheld the imposition
of the underlying taxes owed. See W. Md. R.R. Co.; see
also Borough of Braddock; In re Estate of Leitham, 726
A.2d 1116 (Pa. Cmwlth. 1999).
In the instant matter, pursuant to Section 523(a)(1)(A) of
the Bankruptcy Code and Sections 316(a) and 320 of the
Code, regardless of when or whether Revenue claimed the
Taxes, the record reflects that Taxpayers collected the
Taxes, Taxpayers were aware that they owed them, and
Taxpayers were at all times liable for them. Moreover,
Taxpayers were cognizant of Revenue’s ongoing attempts
to collect the Taxes. Revenue filed proofs of claim for the
Taxes on October 6, 2000[,] relative to Taxpayers’ Chapter
11 reorganization cases, and amended proofs of claim
relative to their Chapter 7 liquidation proceedings in
September and November 2001. From October 2000 to
September 2001, Revenue issued assessment notices to
Taxpayers for the Taxes. Revenue also filed liens for the
Taxes in 2002 and 2005. In 2013, Revenue sought and
Taxpayers paid the outstanding liens. Taxpayers did not
prove based on the record before this Court that Revenue
intentionally or negligently misrepresented any material fact
that induced Taxpayers to act to their detriment, Yurick, or
that any lack of due diligence by Revenue prejudiced
Taxpayers. Wheels Mech. Contracting & Supplier, Inc.
Accordingly, Taxpayers’ equity arguments fail.
Mandler, slip op. at 13-16.
In their brief in support of Exceptions, Taxpayers nevertheless argue
that, in 1999, in Leitham, this Court applied the doctrine of estoppel by laches to
preclude the Commonwealth’s collection of past due taxes. Indeed, in Leitham, this
Court held that Revenue’s assessment against an estate (Estate) for inheritance taxes
on a decedent’s retirement plan proceeds eight years after its statutory deadline was
barred by estoppel by laches.26 The Leitham Court acknowledged that, in
26
Therein,
[t]he Estate reported the proceeds of [the decedent’s] retirement plan
as $180,224.26 on its federal estate tax return. Because the Estate did
17
Department of Public Welfare v. UEC, Inc., 397 A.2d 779 (Pa. 1979), the
Pennsylvania Supreme Court ruled that estoppel can be asserted against the
government. The Leitham Court explained:
Courts nonetheless retain a general reluctance to apply the
estoppel doctrine against the government and therefore will
require a stronger showing when estoppel is asserted against
a governmental entity than when it is asserted against an
individual. Weinberg v. State B[d.] of Examiners of Pub[.]
Accountants, . . . 501 A.2d 239 ([Pa.] 1985).
not believe that the retirement plan was subject to Pennsylvania
inheritance tax, it did not report this asset on its Pennsylvania
inheritance tax return and, accordingly, paid no inheritance tax on the
retirement plan to this Commonwealth. The Estate, however,
included a copy of its federal return with its Pennsylvania return, and
both returns were filed with the appropriate authorities on June 27,
1988. The Estate also distributed real estate in the decedent’s will
subject to certain real estate expenses incident to transfer of the
property and deducted $4,491.50 in expenses on its Pennsylvania
return. Thereafter, the personal representative received her
commission, distributed the remaining assets to the beneficiaries and
closed the Estate.
Leitham, 726 A.2d at 1117.
The undisputed facts of this case amply establish the essential
elements of estoppel by laches. The retirement plan was disclosed on
the Estate’s federal return, and thus the necessary information was
within the possession and knowledge of [Revenue]. During the years
since [Revenue] failed to file a timely appraisement, determination or
assessment, the Estate ha[d] been closed and all assets distributed to
the beneficiaries. Defending against or complying with the
[assessment] now presents an unfair hardship for the Estate. See In re
Ramsay’s Estates, . . . 20 A.2d 213 ([Pa.] 1941). [Revenue] offers no
explanation that would justify its delay.
Id. at 1119.
In Ramsay’s Estates, the Pennsylvania Supreme Court upheld an orphan court’s decree
setting aside the Commonwealth’s supplemental appraisement filed nearly five years after an estate
was settled because it was unclear whether deeds of trust were known when the first appraisement
was issued, and the Commonwealth failed to show some later-discovered fraud, accident, mistake
or concealment, to warrant the filing of a second appraisement.
18
These modern advances in case law left intact the principle
which the Supreme Court enunciated in [Western Maryland
Railroad Co.]. In that case, the Supreme Court held that
‘failure to collect the tax in the past is no bar to present
collection.’ UEC, . . . 397 A.2d [at 785] n[.]6 (discussing
Western Maryland R.R. Co.); Weinberg, . . . 501 A.2d at
243 n[.]5 (quoting UEC). Unlike the appellant in Western
Maryland [Railroad] Co., however, the Estate does not seek
insulation from future tax liability. The Estate instead
asserts estoppel by laches against [Revenue’s]
appraisement, determination and assessment of the specific
tax liability that became due upon [the decedent’s] death,
which [Revenue] failed to claim with due diligence.
Because the Estate does not seek to bar present collection of
taxes, but instead seeks to estop [Revenue’s] claim for taxes
previously due, the Western Maryland [Railroad] Co.
principle is inapposite to the instant case.
The Court recognizes that it applied the Western Maryland
[Railroad] Co. principle in Kirkpatrick v. Butler County
Commissioners, . . . 298 A.2d 607 ([Pa. Cmwlth.] 1972), to
prevent a taxpayer from asserting estoppel against a county
attempting to collect taxes previously due based on the
county’s intervening errors. Any distinctions between the
Court’s outcome in Kirkpatrick and the outcome today
merely illustrate the settled principle that ‘the application of
laches involves a factual determination and an ad hoc
balancing of conflicting interests in each case.’ Weinberg, .
. . 501 A.2d at 243. Moreover, Kirkpatrick was decided
before the Supreme Court’s decisions in UEC and
Weinberg. Since UEC was decided[,] this Court has
approved application of the doctrine of estoppel to limit the
Commonwealth’s efforts to collect taxes previously due
under appropriate circumstances. See Dep[’t] of Revenue,
Bureau of Sales [&] Use Tax v. King Crown Corp., . . . 415
A.2d 927 ([Pa. Cmwlth.] 1980).
Leitham, 726 A.2d at 1120.
Nine years after Leitham, this Court decided Borough of Braddock,
wherein this Court reiterated: “Application of the doctrine [of laches] depends not
just on the passage of time but on whether, under the circumstances, the complaining
party’s lack of due diligence actually does prejudice the other party. Therefore, the
19
question is to be determined by examining the factual circumstances of each case.”
Id. at 674 (citation omitted). In Borough of Braddock, the borough waited until 2003
to collect business privilege taxes owed by a contractor from 1994 to 2003. The
contractor claimed that the borough was barred by the doctrine of laches from
collecting those past due taxes. The trial court held that the contractor owed the taxes
plus interest and penalties. On appeal, this Court examined Leitham and concluded
based on the laches defense that the contractor did not owe interest and penalties
because the contractor would not “knowingly and willingly incur liability for interest
and penalties for a period of ten years, and its incurring such liability constituted a
change in the parties’ condition during the period that the [b]orough failed to act.”
Borough of Braddock, 954 A.2d at 677. The Court nevertheless upheld the trial
court’s holding that the contractor owed the underlying taxes, ruling that the
borough’s delay in collecting them did not change the fact that the contractor owed
them. Therefore, notwithstanding Leitham, Borough of Braddock represents
established precedent, which this Court observed in its March 2, 2020 Opinion, that
“the courts have consistently upheld the imposition of the underlying taxes owed.”
Mandler, slip op. at 15.
In the instant matter, Taxpayers’ sole argument in support of their
estoppel by laches defense is that the “requirements are clearly satisfied by the facts
of [this] case[:] (1)[] [Revenue] failed to claim the funds set aside . . . [; and] (2)[]
[t]here was prejudice to [Taxpayers] by [Revenue’s] failure to claim these funds.”
Taxpayers’ Exceptions Br. at 14. However, the record is devoid of evidence to
support Taxpayers’ conclusion. First, based on the stipulated facts, no funds were set
aside in the bankruptcy proceeding to satisfy Revenue’s liens for the Taxes and, thus,
Revenue could not have claimed them. Second, Taxpayers’ conclusory declaration
that “there was prejudice,” alone, is insufficient to establish prejudice. Taxpayers’
Exceptions Br. at 14. Third, Taxpayers owed the Taxes. Accordingly, this Court
20
discerns no error in its March 2, 2020 conclusion that the doctrine of estoppel by
laches did not bar Revenue from collecting the Taxes in 2013.
In addition, Taxpayers newly contend in the Exceptions that Revenue
was barred by collateral estoppel from collecting the Taxes in 2013 because it failed
to claim them during the bankruptcy proceedings.
Collateral estoppel or issue preclusion forecloses
relitigation in a subsequent action of a necessary issue that
was actually litigated in a prior proceeding. Lamborn v.
Workmen’s Comp[.] Appeal B[d.] (A[]moroso Baking), 656
A.2d 593 (Pa. Cmwlth. 1995). Accordingly, collateral
estoppel will apply if:
[(]1) the issue decided in the prior adjudication was
identical with the one presented in the later action[;]
[(]2) there was a final judgment on the merits[;]
[(]3) the party against whom the plea is asserted was
a party . . . to the prior adjudication[;] and [(]4) the
party against whom it is asserted has had a full and
fair opportunity to litigate the issue in question in a
prior action.
Safeguard Mut[.] Ins[.] Co. v. Williams, . . . 345 A.2d 664,
668 ([Pa.] 1975) (citations omitted).
In re Judicial Sale, Tax Claim Bureau of Northampton Cnty., Easton, Pa., 720 A.2d
818, 822 (Pa. Cmwlth. 1998).
After reciting collateral estoppel principles in their brief in support of
Exceptions, Taxpayers offered no specific argument on that issue beyond their
declaration: “[Taxpayers] have clearly met the requirements for applying collateral
estoppel to this case and the application of collateral estoppel to this case precludes
the Commonwealth from denying that these funds were not set aside for them and
they should have claimed them.” Taxpayers’ Exceptions Br. at 16. However, it is
clear from the stipulated facts that the parties and the issues presented here differ
from those litigated in the bankruptcy proceeding and, since Revenue’s liens for the
21
Taxes were not satisfied in the bankruptcy proceeding, the bankruptcy proceeding did
not represent a final judgment as to the Taxes. Accordingly, Taxpayers have failed to
establish their claim that collateral estoppel barred Revenue from collecting the Taxes
in 2013 because it failed to claim them during the bankruptcy proceedings.
Conclusion
With the exception of Taxpayers’ new collateral estoppel argument,
which does not apply here,
Taxpayers’ [E]xceptions . . . raise precisely the same issues
that they raised in their initial appeal. . . .
After reviewing our previous opinion and revisiting the
arguments Taxpayers presented in their briefs . . . , we
concur with both the result and the reasoning of this Court’s
[O]pinion of [March 2, 2020]. None of the authority cited
by Taxpayers changes our conclusion or the rationale of
that [O]pinion.
Accordingly, we [overrule] Taxpayers’ [E]xceptions.
Kalodner v. Commonwealth, 636 A.2d 1230, 1231-32 (Pa. Cmwlth. 1994) (citation
omitted), aff’d, 675 A.2d 710 (Pa. 1995).27
_________________________________
ANNE E. COVEY, Judge
27
Because this is a reported Opinion, the Commonwealth’s Application is denied as moot.
22
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Jeffrey M. Mandler and Nuclear :
Imaging Systems, Inc., :
Petitioners :
:
v. :
:
Commonwealth of Pennsylvania, : No. 483 F.R. 2014
Respondent :
:
Jeffrey M. Mandler and Cardiovascular :
Concepts, P.C., :
Petitioners :
:
v. :
:
Commonwealth of Pennsylvania, : No. 484 F.R. 2014
Respondent :
ORDER
AND NOW, this 3rd day of March, 2021, the exceptions filed by Jeffrey
M. Mandler, Nuclear Imaging Systems, Inc. and Cardiovascular Concepts, P.C. to
this Court’s March 2, 2020 Opinion and Order are OVERRULED, and the
Prothonotary is directed to enter judgment in favor of the Commonwealth of
Pennsylvania (Commonwealth).
The Commonwealth’s Application to Redesignate the Court’s
Unreported Memorandum Opinion as a Reported Opinion is DENIED as moot.
_________________________________
ANNE E. COVEY, Judge