JAMES D. WHITTEMORE, District Judge.
Relying on 26 U.S.C. § 7402(a), the United States seeks an injunction requiring Defendants "to comply with their employment tax obligations." (Dkt. 23 at p. 1).
Section 7402(a) "encompasses a broad range of powers necessary to compel compliance with the tax laws." United States v. Ernst & Whinney, 735 F.2d 1296, 1300 (11th Cir. 1984). Notwithstanding, this Circuit has repeatedly "questioned the enforceability of obey-the-law injunctions" in the context of securities cases and others. S.E.C. v. Goble, 682 F.3d 934, 949 (11th Cir. 2012). Most notably, it "went out of [its] way to condemn these injunctions because they lack specificity and deprive defendants of the procedural protections that would ordinarily accompany a future charge of a violation of the securities laws." Id.
Following this precedent, the United States' proposed injunction would be unenforceable. The only question is whether a more narrowly drawn injunction, proscribing specific statutory violations, would meet the specificity requirements of Rule 65(d). Id. at 952-53 ("In sum, we emphasize that an injunction prohibiting violations of the securities regulations must comply with Rule 65(d).").
The focus of the United States' concerns is the failure of Defendants to remit withheld payroll taxes to the Internal Revenue Service in the past. Seeking prospective relief, its proposed injunction includes a requirement that:
With respect to withheld employee taxes, once those taxes are withheld by an employer, they "constitute a special fund held in trust for the United States." Thibodeau v. United States, 828 F.2d 1499, 1506 (11th Cir. 1987). Those funds are not property of Defendants, but rather belong to the employees. And the record demonstrates that Defendants have diverted and misappropriated those funds, rather than remit them to the IRS. For example, since 2010, the company has unpaid employment taxes in 15 quarters for the period between June 30, 2010 and January 5, 2017, (Paulsen Decl. ¶ 19, Dkt. 23-1).
Accordingly, where, as here, the United States has demonstrated a proclivity for unlawful conduct, injunctive relief may be appropriate. McComb v. Jacksonville Paper Co, 336 U.S. 187, 192 (1949) ("By its terms it enjoined any practices which were violations of those statutory provisions. Decrees of that generality are often necessary to prevent further violations where a proclivity for unlawful conduct has been shown . . . Respondent's record of continuing and persistent violations of the Act would indicate that that kind of a decree was wholly warranted in this case."). And the specificity requirements of Rule 65(d) are met where an injunction "enjoins violations of the statute, the terms of the statute were specific, and the defendant clearly knew what conduct the injunction addressed." Goble, 682 F.3d at 951.
Under FICA, Askins & Miller is required to withhold payroll taxes from wages it pays to its employees and remit those taxes, along with its share of FICA taxes, to the IRS. 26 U.S.C. §§ 3101, 3102, 3111, 3402. Askins Miller "does not contest its responsibility" to pay its employment tax obligations, and admits it failed to deposit or made late deposits of employment taxes over a seven year period. (Dkt. 23-2). And since December 2010, the IRS has made numerous attempts to bring Askins Miller into compliance with its obligations through phone calls, in person meetings, and installment agreements. (Id. ¶¶ 28-31). And Paulsen avers that "[s]ince that time, the company . . . has only sporadically complied with its obligations to deposit its employment taxes and pay them over to the IRS. The few instances in which the company has complied indicate that Defendants know how to follow the law but nonetheless choose to disobey it." (Id. ¶ 4).
The statutes with which Defendants must comply are specific, and the record demonstrates that they are well aware of the conduct the proposed injunction addresses, their failure to remit to the IRS taxes withheld from their employees. 26 U.S.C. § 3102, 3111, 3402, 6302 and 6157; 26 C.F.R. § 31.6302-1. The inquiry does not stop there, however.
The traditional factors used in determining the propriety of injunctive relief are considered in determining whether to issue an injunction under § 7402(a). Ernst & Whinney, 735 F.2d at 1301. The United States must demonstrate: (1) a substantial likelihood of success on the merits; (2) irreparable injury will be suffered absent the injunction; (3) the threatened injury outweighs the potential damage of the proposed injunction; and (4) the injunction would not be adverse to the public interest. Keeton v. Anderson-Wiley, 664 F.3d 865, 868 (11th Cir. 2011). Factors 1, 3, and 4 are not seriously disputed by Defendants. They contend, however, that the United States has an adequate remedy at law and therefore cannot establish irreparable harm.
"Foremost among the principles governing the use of the injunctive remedy is the traditional requirement `that courts of equity should not act . . . when the moving party has an adequate remedy at law and will not suffer irreparable injury if denied equitable relief.'" Ernst & Whinney, 735 F.2d at 1301 n. 11 (alteration in original) (quoting Younger v. Harris, 401 U.S. 37, 43-44 (1971); O'Hair v. Hill 641 F.2d 307, 310 (5th Cir.1981)). And, "[i]n determining whether the [United States] is entitled to an injunction in this case, it will be necessary . . . to examine the extent to which its interests are protected by available legal remedies." Id.
Defendants contend that the United States has an adequate remedy at law by bringing an action for damages to collect unpaid employment taxes, as it has done in this case. And that contention is supported by the "fundamental principle of equity jurisprudence" that "[i]t is axiomatic that equitable relief is only available where there is no adequate remedy at law; cases in which the remedy sought is the recovery of money damages do not fall within the jurisdiction of equity." Rosen v. Cascade Int'l. Inc., 21 F.3d 1520, 1527 (11th Cir. 1994).
Generally, an injury is irreparable "`if it cannot be undone through monetary remedies.'" Scott v. Roberts, 612 F.3d 1279, 1295 (11th Cir. 2010) (quoting Cunningham v. Adams, 808 F.2d 815, 821 (11th Cir.1987)). An injury is irreparable if damages would be "difficult or impossible to calculate." Id. But here, withheld payroll taxes are specific and can be accurately calculated. And while the United States makes much of its inability to collect from Defendants, that does not constitute irreparable injury under Circuit precedent or Florida law.
Rosen v. Cascade Int'l. Inc., 21 F.3d 1520, 1531 (11th Cir. 1994).
The United States has not demonstrated that an injunction under 26 U.S.C. § 7402(a) is appropriate since it has not demonstrated that it will suffer irreparable harm in the absence of an injunction requiring Defendants to comply with the internal revenue laws.
Accordingly, United States' Renewed Motion for Preliminary Injunction (Dkt. 23) is
By keeping taxes it withholds from employees' pay because of its financial hardships, Defendants essentially make the government an "unwilling partner in a business experiencing financial difficulties." Thibodeau, 828 F.2d at 1506. More than $80,000 of Askins & Miller's past liabilities were funds withheld from employees which were not paid to the IRS. (Paulsen Decl. ¶ 8, Dkt. 23-1).