JOHNSON v. U.S.
FORD T. JOHNSON, JR., Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.
Case No. WDQ-98-3050.
United States District Court, D. Maryland.
February 15, 2012.
USA, Defendant, represented by Gerald Alan Role, United States Department of Justice.
USA, Counter Claimant, represented by Gerald Alan Role, United States Department of Justice.
REPORT AND RECOMMENDATIONBETH P. GESNER, Magistrate Judge.
Before the court is the United States' Motion for Installment Payment Order ("Motion") pursuant to the Federal Debt Collection Procedures Act of 1990, 28 U.S.C. § 3204. (ECF No. 45.) Currently pending are the United States' Motion (ECF No. 45) and Memorandum in Support of Motion for Installment Payment Order ("Memorandum") (ECF No. 46), plaintiff's Opposition to the United States' Motion to Impose Installment Payment Order ("Opposition") (ECF No. 62), and the United States' Reply Memorandum in Support of Motion for Installment Payment Order ("Reply"). (ECF No. 63.) The United States seeks an order compelling the judgment debtor in this action, Ford T. Johnson, Jr. ("plaintiff"), to make monthly installment payments in the amount of $400 to the United States until the total judgment debt of $1,498.004.01, plus the accrued post judgment interest and the 10 percent surcharge imposed by 28 U.S.C. 3011(a),1 has been satisfied.2 (ECF Nos. 45, 46.) Plaintiff opposes the United States' Motion, contending that a $400 monthly installment payment order is neither appropriate nor reasonable because it "would impose an undue hardship" on plaintiff and his family "without meaningfully reducing" the overall judgment. (ECF No. 62 at 2.) Judge Quarles referred this case to the undersigned pursuant to 28 U.S.C. § 636 and Local Rules 301 and 302 to hold a hearing and to make recommendations regarding the United States' Motion. (ECF No. 49.) Accordingly, a hearing was held in open court before the undersigned on February 7, 2012, at which plaintiff testified and counsel were heard. For the reasons discussed herein, I respectfully recommend that the United States' Motion for Installment Payment Order (ECF No. 45) be GRANTED and that plaintiff be ordered to make monthly installment payments to the United States in the amount of $400 until the total judgment debt of $1,498.004.01, plus the accrued post judgment interest and costs, has been satisfied.
I. BACKGROUND
Plaintiff commenced this action on September 4, 1998 to recover $15,435.50 that the Internal Revenue Service ("IRS") had withheld from his 1995 personal tax return. Johnson v. United States, 203 F.Supp.2d 416, 417 (D. Md. 2002). The IRS counterclaimed that plaintiff was liable for $887,726.78, plus interest and statutory penalties, in unpaid employee withholding taxes for Koba Associates, Inc.3 On January 28, 2002, the court granted the United States' Motion for Summary Judgment, ordered a judgment of $1,498.004.01 plus interest against plaintiff, and directed the Clerk to close the case. (ECF No. 37.) On April 12, 2011, the United States moved to reopen the case to permit consideration of its Motion for Installment Payment Order. (ECF No. 42.) Plaintiff opposed the Motion to Reopen Case. (ECF No. 52.) On April 20, 2011, Judge Quarles referred the case to the undersigned to hold a hearing and make recommendations regarding the United States' Motion and Memorandum. (ECF No. 49.) On May 18, 2011, the undersigned suspended review of the instant motion until resolution of the United States' Motion to Reopen Case. (ECF No. 54.)
1. Section 3011(a) provides, in pertinent part:
[The United States may] recover a surcharge of 10 percent in the amount of the debt in connection with the recovery of the debt, to cover the cost of processing and handling the litigation and enforcement under this chapter for the claim of such debt. 28 U.S.C. § 3011(a).
2. The amount due as of December 1, 2010 is $2,474,531.50. (ECF No. 46.)
3. Plaintiff was the president, chairman of the board, and majority shareholder of Koba Associates, Inc., "a small company engaged in, among other things, community planning and economic development in the District of Columbia." Johnson, 203 F. Supp. 2d at 417. The IRS contended that plaintiff was liable for 100 percent of the unpaid taxes because he was a "responsible person" who willfully failed to pay employee withholding taxes within the meaning of 26 U.S.C. § 6672. Id.
4. When the United States filed its Motion, plaintiff's 2010 Form 1099 represented the most recent earnings data available for plaintiff. Plaintiff attached his 2010 Form 1099 and Koba payment schedules to his Opposition as Exhibit 1, which showed that plaintiff earned $75,000 in 1099 income in 2010. (ECF No. 62, Ex. 1.) Plaintiff testified that this income represented rental payments for his home and payments for life insurance premiums. Plaintiff testified his earnings were lower in 2011 than 2010 because, in 2011, payments for life insurance premiums were allocated to his wife.
5. Plaintiff testified that Koba is a closely-held corporation that provides residential care services to children at five group homes in the Washington metropolitan area. Plaintiff further advised that he and his wife are the co-founders of Koba and that his wife is the sole shareholder and owner. Plaintiff is the president of Koba, and his wife serves as the vice president and human resources director, and also manages admissions and collections.
6. Plaintiff attached a payment schedule generated by Koba's data system to his 2011 Form 1099, which he testified showed the $5,250.00 monthly rental payments and $157.50 penalty payments for late rent. (ECF No. 67.)
7. The United States further notes that the court awarded the judgment in the instant case because it found that plaintiff was liable for willfully failing to pay withholding taxes of employees of Koba Associates, Inc., Johnson, 203 F. Supp. 2d at 417-418, and that plaintiff and his wife are now subject to another proceeding in this court for similar unpaid withholding tax liabilities for Koba Institute, Inc., which they founded the day after Koba Associates, Inc. filed for bankruptcy. (ECF No. 63 at 2 (citing Johnson v. U.S. Dep't of Treasury, No. 08:09-cv-0787-DKC (D. Md.).)
8. At the hearing in this case, the United States stated that, although it was proceeding against plaintiff pursuant to § 3204(a)(1), an analysis under § 3204(a)(2) may apply here because plaintiff is "diverting earnings" to his wife within the meaning of § 3204(a)(2). The undersigned concludes, however, that § 3204(a)(1) sets forth the appropriate analysis for this case. See 28 U.S.C. § 3204(a)(1).
9. Relying on NLRB v. Potential School for Exceptional Children, at al., 1999 U.S. Dist LEXIS 19172, at *16 (N.D. Ill. 1999), plaintiff argues that a $400 monthly payment is unreasonable because it would "impose an undue hardship on [plaintiff and his family] without meaningfully reducing the large judgment sought to be collected by the United States." (ECF No. 62 at 2.) The undersigned is not persuaded by this argument as the facts of Potential School are substantially different from the present case. In Potential School, the judgment debtor's sole source of income was $1,096.00 in monthly social security payments, only $16,736.37 of the $130,777.00 obligation remained outstanding, and an arrangement had been reached to satisfy the outstanding balance of the debt. Potential School, 1999 U.S. Dist LEXIS 19172, at *2, 5-6. The court denied the Government's motion for an installment payment order pursuant to § 3204 because it found the Government had not shown that an order was authorized under § 3204(a) and that such an order was prohibited by § 3204(c) because a writ of garnishment existed on earnings on the same debt. Id. at *16.
10. Plaintiff testified that his wife earned a salary of approximately $130,000.00-140,000.00 in 2011 and that she generally works from the hours of 9:00 a.m. to 5:00 p.m. five days per week. Plaintiff earned $63,787.00 in 1099 income in 2011, and testified that he works Monday through Friday from approximately 6:30 a.m. until 6:30 p.m. or later, and Saturday and Sunday from 8:30 a.m. to 5:00 or 6:00 p.m. Plaintiff's suggestion that his wife is compensated at a higher rate because she is the sole owner of Koba is unpersuasive.
11. Twelve $400 monthly installment payments yield a total of $4800.00 in payments per year, representing approximately 7.5 percent of $63,787.00, the amount of plaintiff's 2011 earnings.