Blake Bookstaff v. David Gerregano, Commissioner of Revenue, State of Tennessee ( 2017 )

12/20/2017
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
September 12, 2017 Session
BLAKE BOOKSTAFF v. DAVID GERREGANO,
COMMISSIONER OF REVENUE, STATE OF TENNESSEE
Appeal from the Chancery Court for Knox County
No. 192969-2 Clarence E. Pridemore, Chancellor
No. E2017-00763-COA-R3-CV
In this action, the Tennessee Department of Revenue (“the Department”) sought to
collect unpaid franchise and excise taxes owed by a dissolved corporation from its former
shareholder. The trial court entered a judgment in favor of the shareholder, determining
that the Department could not collect on the assessments originally issued in 2008 and
2009 due to the six-year statute of limitations contained in Tennessee Code Annotated §
67-1-1429. The trial court also determined that the shareholder was not a “person” or
“taxpayer” subject to franchise and excise taxes because those taxes are assessed solely
against entities such as corporations. Finally, the trial court determined that the
shareholder had no personal liability for the taxes owed by the dissolved corporation
absent proof of a fraudulent conveyance. The Department timely appealed. Determining
that the trial court erred in its construction and application of the applicable tax statutes,
we reverse the judgment in favor of the shareholder.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Reversed; Case Remanded
THOMAS R. FRIERSON, II, J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and JOHN W. MCCLARTY, J., joined.
Herbert H. Slatery, III, Attorney General and Reporter; Andrée S. Blumstein, Solicitor
General; Charles L. Lewis, Deputy Attorney General; and Jonathan N. Wike, Senior
Counsel, for the appellant, David Gerregano, Commissioner of Revenue, State of
Tennessee.
John A. Lucas, Knoxville, Tennessee; G. Michael Yopp and Christopher A. Wilson,
Nashville, Tennessee, for the appellee, Blake Bookstaff.
OPINION
I. Factual and Procedural Background
The plaintiff, Blake Bookstaff, was formerly a principal and shareholder of
popularcategories.com (“PopCat”), a Florida corporation that was formed by Mr.
Bookstaff and William Marquez in 2000. In 2001, PopCat and another Florida company,
Compatible Technologies of Orlando, LLC, joined together to form Popular Enterprises,
LLC (“Popular Enterprises”), a Florida limited liability company. Popular Enterprises
operated an internet search engine and internet domain name aggregator. Mr. Bookstaff
managed certain aspects of PopCat and Popular Enterprises from his place of business in
Knoxville.
Mr. Bookstaff later acquired Mr. Marquez’s shares in PopCat, becoming PopCat’s
sole shareholder in 2005. In 2006, Popular Enterprises was sold to a third party. The
proceeds from that sale were paid to PopCat in two installments, the first in 2006 and the
second in 2007. Mr. Bookstaff has acknowledged in his appellate brief that the sale
proceeds were then distributed to him as sole shareholder. Later in 2007, PopCat filed
articles of dissolution with the Florida Secretary of State.
Subsequently, the Department determined that the proceeds from the sale of
Popular Enterprises were business earnings and that PopCat owed additional franchise
and excise (“F&E”) taxes for 2006 and 2007. On June 6, 2008, the Department issued a
notice of assessment to PopCat of estimated unpaid F&E taxes for 2006, plus penalties
and interest, for a total assessment in the amount of $899,288.78. On February 15, 2009,
the Department issued a notice of assessment to PopCat of estimated unpaid F&E taxes
for 2007, plus penalties and interest, for a total assessment in the amount of $630,515.23.
In 2009, PopCat filed two lawsuits challenging these assessments in the Davidson
County Chancery Court, which lawsuits were later consolidated. The Department filed
counterclaims in each suit, seeking judgment against PopCat for the amount of the unpaid
tax assessments. On March 22, 2017, the Davidson County Chancery Court entered an
“Order and Final Judgment Pursuant to Tenn. R. Civ. P. 54.02,” which upheld the
assessments and granted judgment on the Department’s counterclaims in the amount of
$2,107,691.54.1 PopCat has appealed that ruling in a separate action. Mr. Bookstaff,
individually, was not a party to the Davidson County lawsuits.
1
The Department has filed a motion asking this Court to consider this order as a post-judgment fact. The
disposition of this motion will be discussed in a subsequent section of this Opinion.
2
On January 6, 2011, the Department “assessed” the unpaid F&E taxes owed by
PopCat against Mr. Bookstaff personally, by letter notice. The Department asserted that
all of the income received by PopCat had been distributed to Mr. Bookstaff and that
PopCat was thereafter dissolved, resulting in Mr. Bookstaff’s personal liability for the
unpaid F&E taxes pursuant to Tennessee Code Annotated §§ 67-4-2016 and -2117.2 In
this letter, the Department instructed Mr. Bookstaff that he could request a conference to
discuss the assessment. Mr. Bookstaff requested and the Department conducted an
informal conference regarding the assessment pursuant to Tennessee Code Annotated §
67-1-1801(c)(3). The Department issued a written decision affirming the assessment
against Mr. Bookstaff on November 21, 2016.
The Department filed an action against Mr. Bookstaff to collect these taxes on
January 5, 2017, in the Knox County Chancery Court. On January 18, 2017, before he
was served with process in that lawsuit, Mr. Bookstaff initiated the instant action against
the Department, in a different division of the Knox County Chancery Court (“trial
court”), challenging the assessment levied against him personally and seeking an
injunction prohibiting any attempts by the Department to collect. Mr. Bookstaff
requested a temporary restraining order, which was granted. Following his receipt of
service of process concerning the lawsuit filed by the Department, Mr. Bookstaff
amended his complaint and sought an additional temporary restraining order, which was
also granted by the trial court in the instant action.
Following a hearing, the trial court granted Mr. Bookstaff’s motion for an
injunction in an order entered March 20, 2017. The court enjoined the Department from
filing a lawsuit or levy against Mr. Bookstaff and directed the Department to cancel the
2011 assessment, which the court determined was not a new assessment but rather was an
attempt to collect the earlier assessments against PopCat. The court determined, inter
alia, that the Department could not collect on the assessments originally issued in 2008
and 2009 due to the six-year statute of limitations contained in Tennessee Code
Annotated § 67-1-1429. The court also determined that Mr. Bookstaff was not a
“person” or “taxpayer” subject to F&E tax because F&E taxes are assessed only against
entities such as corporations. Finally, the court determined that Mr. Bookstaff had no
personal liability for the taxes owed by PopCat absent proof of a fraudulent conveyance.
The Department timely appealed.
2
These statutory provisions are discussed in detail in section VI of this Opinion.
3
II. Issues Presented
The Department presents the following issues for our review, which we have
restated slightly:
1. Whether the trial court erred by determining that the six-year statute
of limitations would bar any attempt by the Department to collect the
tax represented by assessments previously made against PopCat
from Mr. Bookstaff personally.
2. Whether the trial court erred by determining that a personal
assessment against Mr. Bookstaff was not authorized by Tennessee
Code Annotated §§ 67-4-2016(a) and -2117.
3. Whether the trial court erred by determining that Mr. Bookstaff
could not be held personally liable for the tax represented by
assessments against PopCat in the absence of a fraudulent
conveyance.
III. Standard of Review
The issues in this matter turn upon whether the trial court properly interpreted the
applicable tax statutes. As our Supreme Court has explained with regard to statutory
construction:
Issues of statutory construction are questions of law to which the de
novo standard with no presumption of correctness applies. See Perry v.
Sentry Insurance Co., 938 S.W.2d 404, 406 (Tenn. 1996). When
construing a statute, our goal is “to ascertain and give effect to the
legislative intent without unduly restricting or expanding a statute’s
coverage beyond its intended scope.” Owens v. State, 908 S.W.2d 923, 926
(Tenn. 1995).
Leab v. S & H Mining Co., 76 S.W.3d 344, 348 (Tenn. 2002).
IV. Consideration of Post-Judgment Facts
The Department has asked this Court to consider as post-judgment facts, pursuant
to Tennessee Rule of Appellate Procedure 14, the following orders entered in the separate
but related litigation between the Department and PopCat:
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(1) the Davidson County Chancery Court’s March 22, 2017 judgment
upholding the F&E tax assessments against PopCat and granting
judgment on the Department’s counterclaims in the amount of
$2,107,691.54; and
(2) the Davidson County Chancery Court’s May 26, 2017 order denying
PopCat’s motion to alter or amend filed in that action.
Both of these orders were entered following entry of the final judgment in this matter on
March 20, 2017. In his response to the Department’s motion, Mr. Bookstaff stated that
although he does not believe these orders should be considered because they are
irrelevant to the matter herein, he does not object to their inclusion in the appellate
record.
Tennessee Rule of Appellate Procedure 14 provides that this Court, in its
discretion, may consider facts “concerning the action that occurred after judgment.”
Such consideration generally extends “only to those facts, capable of ready
demonstration, affecting the positions of the parties or the subject matter of the action
such as mootness, bankruptcy, divorce, death, other judgments or proceedings, relief
from the judgment requested or granted in the trial court, and other similar matters.” See
Tenn. R. App. P. 14 (emphasis added). We determine that the judgment ultimately
rendered in the related litigation between PopCat and the Department is a fact capable of
ready demonstration, which affects the positions of the parties herein. The orders entered
by the Davidson County Chancery Court are relevant to the subject matter of this action
because those orders concern the Department’s assessments of F&E taxes against
PopCat, which are the same assessments the Department now seeks to enforce against
Mr. Bookstaff. We therefore exercise our discretion to determine that the Department’s
motion for consideration of post-judgment facts should be granted.
V. Statute of Limitations
The Department asserts that the trial court erred in its determination that the six-
year statute of limitations found in Tennessee Code Annotated § 67-1-1429(a) (Supp.
2017) barred the Department’s action against Mr. Bookstaff. This statutory section
provides in pertinent part:
(1) Where the assessment of any tax imposed by this or any other title
has been made within the applicable period of limitation, such tax
may be collected by levy or by a proceeding in court, but only if the
levy is made or the proceeding begun:
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(A) Within six (6) years after the assessment of the tax becomes final . . .
.
The Department argues that a collection “proceeding in court” was initiated within
the initial six years following the assessments of F&E taxes against PopCat, which
resulted in a judgment in favor of the Department.3 As the Department points out,
Tennessee Code Annotated § 67-1-1429(a)(3) further provides:
The period for collection provided in subdivision (a)(1)(A) shall not apply
if the tax liability has been reduced to judgment in a suit begun within such
period. Such tax may be collected at any time subsequent to assessment
without limitation after such judgment.
(Emphasis added.) Therefore, according to the Department, because it filed a
counterclaim against PopCat in the Davidson County Chancery Court lawsuit within six
years of the initial assessments, with such claim resulting in a judgment granted in the
Department’s favor, the Department can attempt to collect said judgment at any time
without limitation pursuant to Tennessee Code Annotated § 67-1-1429(a)(3). Our
Supreme Court has explained that a counterclaim should be regarded as an independent
action, as if it were “a separate suit brought.” See Brown v. Hipshire, 553 S.W.2d 570,
571 (Tenn. 1977) (quoting Consol. Motor Lines v. M. & M. Transp. Co., 20 A.2d 621
(Conn. 1941)).
Tennessee Rule of Civil Procedure 13 addresses counterclaims and cross-claims,
providing in relevant part: “A pleading shall state as a counterclaim any claim, other than
a tort claim, which at the time of serving the pleading the pleader has against any
opposing party, if it arises out of the transaction or occurrence that is the subject matter of
the opposing party’s claim . . . .” This Court has previously explained that a party is not
prohibited from filing such a counterclaim as a separate lawsuit “if that party is willing to
run the risk that it may well lose the right to pursue its claim in the separate lawsuit if the
initial suit results in a final judgment first.” See Crain v. CRST Van Expedited, Inc., 360
S.W.3d 374, 379 (Tenn. Ct. App. 2011). In this matter, the Department chose to bring its
claim against PopCat as a counterclaim in the action filed by PopCat, rather than in a
separate lawsuit, when either choice was acceptable. We cannot fault the Department for
filing its claim as a counterclaim and see no reason to draw a distinction, for the purposes
of construing the above statutory section, between a claim that is filed via an original
3
No allegation has been raised that the F&E tax assessments were not made within the applicable
limitations period found in Tennessee Code Annotated § 67-1-1501(b) (Supp. 2017) (providing that “the
amount of any tax imposed under any title, in which the filing of a return is required by the state, shall be
assessed within three (3) years from December 31 of the year in which the return was filed . . . .”).
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complaint and a claim filed as a counterclaim. In either scenario, the Department has
begun a “proceeding in court” to collect taxes previously assessed pursuant to Tennessee
Code Annotated § 67-1-1429.
As Mr. Bookstaff points out, the Davidson County Chancery Court lawsuit was
between the Department and PopCat; Mr. Bookstaff was not a party. We note, however,
that collection of taxes assessed against a corporation may be sought from a shareholder
in certain situations. We now turn to the issue of whether the Department may collect
this tax liability from Mr. Bookstaff individually.
VI. Personal Liability
The trial court determined that the Department could not assess F&E taxes against
Mr. Bookstaff individually because he did not meet the definition of a “taxpayer”
contained in the definitions section of the franchise and excise tax provisions. Tennessee
Code Annotated § 67-4-2004(38) (Supp. 2017) provides:
“Person” or “taxpayer” means every corporation, subchapter S corporation,
limited liability company, professional limited liability company, registered
limited liability partnership, professional registered limited liability
partnership, limited partnership, cooperative, joint-stock association,
business trust, regulated investment company, REIT, state-chartered or
national bank, or state-chartered or federally chartered savings and loan
association . . . .
Therefore, according to the trial court’s analysis, because Mr. Bookstaff is not included
within this definition, he could not be “classified as a taxpayer for” F&E taxes.
The Department asserts, however, that the franchise and excise tax provisions
authorize it to collect taxes previously assessed against the corporation from Mr.
Bookstaff individually pursuant to Tennessee Code Annotated §§ 67-4-2016 (2013) and
-2117 (2013).4 Tennessee Code Annotated § 67-4-2016(a) provides:
The commissioner is empowered and it is the commissioner’s duty to
collect the tax, together with penalty and interest, levied under this part
from any officer, stockholder, partner, member, principal, or employee of a
taxpayer that is out of business or has dissolved, liquidated, otherwise
terminated at a time when it has refused or failed to pay the excise tax
4
Tennessee Code Annotated § 67-4-2016 is contained within the section regarding excise taxes, and § 67-
4-2117 is contained within the section regarding franchise taxes.
7
levied under this part, and any such officer, stockholder, partner, member,
principal, or employee has received property belonging to the taxpayer, but
such collection shall be limited to the value of the property received.
Likewise, Tennessee Code Annotated § 67-4-2117 provides:
The commissioner is empowered and it is the commissioner’s duty to
collect the tax, together with penalty and interest, levied under this part
from any officer, stockholder, partner, member, principal, or employee of a
taxpayer that has dissolved or has been liquidated, at a time such taxpayer
has refused or failed to pay the franchise tax levied under this part, and such
individual has received property belonging to the taxpayer, but such
collection shall be limited to the value of the property received.
To summarize, these nearly identical subsections provide that the Department is
empowered to collect the tax assessed against a dissolved corporation from a stockholder
who has received assets that belonged to the corporation, but the amount collected must
not exceed the value of the assets received.
The Department contends that the 2017 lawsuit filed against Mr. Bookstaff to
collect PopCat’s unpaid F&E taxes was timely by virtue of the judgment obtained by the
Department in the Davidson County Chancery Court action. Tennessee Code Annotated
§ 67-1-1429(a)(3) provides that such money judgment could then be collected without
time limitation. The Department posits that, by virtue of Tennessee Code Annotated §§
67-4-2016 and -2117, the judgment could be collected against Mr. Bookstaff due to the
fact that PopCat had been dissolved. We agree. Because the Department obtained a
judgment against PopCat for the unpaid taxes, thus establishing that such judgment could
be collected at any time pursuant to Tennessee Code Annotated § 67-1-1429(a)(3), and
because Tennessee Code Annotated §§ 67-4-2016 and -2117 permit collection from a
stockholder, we determine that the Department’s 2017 lawsuit against Mr. Bookstaff was
not barred by the statute of limitations contained in Tennessee Code Annotated § 67-1-
1429(a)(1)(A).
VII. Requirement of Fraudulent Conveyance
The trial court determined that Mr. Bookstaff could not be held personally liable
for the F&E taxes assessed against PopCat in the absence of allegations of a fraudulent
conveyance from PopCat to Mr. Bookstaff. In making this determination, the court found
that the language in Tennessee Code Annotated §§ 67-4-2016 and -2117, enacted in
1999, conflicted with the language of Tennessee Code Annotated § 67-1-1444 (2013),
enacted in 1988. Section 67-1-1444 provides:
8
(a) When assets are conveyed or obligations are created by a person
owing taxes to the state, on or after the date any such taxes are
incurred, and such conveyance of assets or creation of obligations is
in violation of title 66, chapter 3, then the commissioner may
proceed to collect such tax debt from the transferee, pursuant to this
part, in the same manner as the commissioner otherwise could have
collected such debt from the transferor.
(b) The liability of any such transferee shall be limited to the fair market
value of the assets conveyed at the time of the transfer from the
original taxpayer or the amount of any such obligation at the time
the obligation is created.
(Emphasis added.) Tennessee Code Annotated § 66-3-301, et seq., known as the
Uniform Fraudulent Transfer Act, concerns transfers made by a debtor to avoid collection
by a creditor. Therefore, the trial court essentially superimposed the requirement of proof
of a fraudulent transfer onto the provisions of Tennessee Code Annotated §§ 67-4-2016
and -2117 when those sections do not expressly require such a showing.
The Department asserts that this requirement was added by the trial court in error
because Tennessee Code Annotated sections 67-4-2016 and -2117 appear in a chapter of
the tax code separate from section 67-1-1444 and are thus independent. Mr. Bookstaff
argues that these provisions must be read in pari materia because Tennessee Code
Annotated § 67-1-1444 is found within Chapter 1, Part 14, which is entitled, “Tax
Enforcement Procedures Act.” This Part also contains Tennessee Code Annotated § 67-
1-1402 (2013), which states in pertinent part:
(a) This part shall apply to every public tax, license or fee, and/or any
penalty or interest payable thereon, levied under any existing or later
enacted law that is codified in this or any other title and is collectible
by the commissioner of revenue.
(b) The purpose of this part is to supplement and clarify existing
provisions of the general law relating to the enforcement of state
taxes and to compile in a single part the principal enforcement
procedures previously enacted and codified in numerous other
chapters of this title.
(c) In the event of any conflict between the provisions of this part and
those of any other specific statutory provisions contained elsewhere
9
in this title or in any other title, it is declared to be the legislative
intent that, to the extent such other specific provisions are
inconsistent with or different from this part, the provisions of this
part shall prevail.
We determine, however, that the simplest construction of these statutory sections,
and one that does not create conflict between them, is to enforce the plain language of
Tennessee Code Annotated §§ 67-4-2016 and -2117, which does not require the finding
of a fraudulent conveyance solely in those situations where the transferee of assets is a
shareholder in a now-dissolved corporation. Similarly, the plain language of Tennessee
Code Annotated § 67-1-1444 demonstrates that it would apply in any other situation
wherein assets have been transferred by any person in order to defraud the Department
from levying against those assets for the collection of tax liability. In other words, the
two provisions are not conflicting—rather, the more recently enacted provisions found in
Tennessee Code Annotated §§ 67-4-2016 and -2117 provide an additional remedy to the
Department in those instances when assets have been conveyed by a dissolved
corporation to a shareholder.
In conducting this analysis, we adhere to the following longstanding principles of
statutory interpretation:
When dealing with statutory interpretation, well-defined precepts apply.
Our primary objective is to carry out legislative intent without broadening
or restricting the statute beyond its intended scope. Houghton v. Aramark
Educ. Res., Inc., 90 S.W.3d 676, 678 (Tenn. 2002). In construing
legislative enactments, we presume that every word in a statute has
meaning and purpose and should be given full effect if the obvious
intention of the General Assembly is not violated by so doing. In re
C.K.G., 173 S.W.3d 714, 722 (Tenn. 2005). When a statute is clear, we
apply the plain meaning without complicating the task. Eastman Chem.
Co. v. Johnson, 151 S.W.3d 503, 507 (Tenn. 2004). Our obligation is
simply to enforce the written language. Abels ex rel. Hunt v. Genie Indus.,
Inc., 202 S.W.3d 99, 102 (Tenn. 2006). It is only when a statute is
ambiguous that we may reference the broader statutory scheme, the history
of the legislation, or other sources. Parks v. Tenn. Mun. League Risk
Mgmt. Pool, 974 S.W.2d 677, 679 (Tenn. 1998). Further, the language of a
statute cannot be considered in a vacuum, but “should be construed, if
practicable, so that its component parts are consistent and reasonable.”
Marsh v. Henderson, 221 Tenn. 42, 424 S.W.2d 193, 196 (1968). Any
interpretation of the statute that “would render one section of the act
repugnant to another” should be avoided. Tenn. Elec. Power Co. v. City of
10
Chattanooga, 172 Tenn. 505, 114 S.W.2d 441, 444 (1937). We also must
presume that the General Assembly was aware of any prior enactments at
the time the legislation passed. Owens v. State, 908 S.W.2d 923, 926
(Tenn. 1995).
In re Estate of Tanner, 295 S.W.3d 610, 613-14 (Tenn. 2009).
Based on these precepts, we presume that the General Assembly was aware of the
language of Tennessee Code Annotated § 67-1-1444 at the time Tennessee Code
Annotated §§ 67-4-2016 and -2117 were enacted. We determine that in order to construe
these provisions in such a way that one section is not repugnant to the other, we must also
presume that the General Assembly intended to provide a broader remedy to the
Department in those situations when a shareholder has received assets from a dissolved
corporation that owes taxes. We conclude that, based upon the plain language of
Tennessee Code Annotated §§ 67-4-2016 and -2117, the Department was not required to
demonstrate that a fraudulent conveyance was made by PopCat to Mr. Bookstaff. We
therefore reverse the trial court’s imposition of this additional requirement.
VIII. Conclusion
In our discretion, we hereby grant the Department’s motion seeking consideration
of post-judgment facts. Because the Department timely obtained a judgment against
PopCat for unpaid F&E taxes, thus establishing that such judgment could be collected at
any time pursuant to Tennessee Code Annotated § 67-1-1429(a)(3), and because
Tennessee Code Annotated §§ 67-4-2016 and -2117 permit collection from a stockholder
who has received assets from a dissolved corporation, we determine that the
Department’s 2017 lawsuit against Mr. Bookstaff was not barred by the statute of
limitations contained in Tennessee Code Annotated § 67-1-1429(a)(1)(A). We further
determine that the Department was not required to demonstrate that a fraudulent
conveyance was made by PopCat to Mr. Bookstaff. We therefore reverse the trial court’s
judgment in favor of Mr. Bookstaff and its grant of injunctive relief. We remand this
matter to the trial court for further proceedings consistent with this Opinion. Costs on
appeal are taxed to the appellee, Blake Bookstaff.
_________________________________
THOMAS R. FRIERSON, II, JUDGE
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