United States v. McNicol

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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