United States v. Wolff (In re Firstpay, Inc.)
- Summarized by Brooke Schumm , Daneker, McIntire, Schumm, et al.
- 14 years 4 months ago
- Citation:
- Not available-please note the decision is "Unpublished", and therefore not binding precedent in this Circuit.
- Tag(s):
-
- Ruling:
- The Circuit Court affirmed the lower court on denial of the claim of the trustee concerning lack of recoverability of fraudulent transfers from the IRS and various other trustee claims.
The Circuit Court reversed and vacated a ruling in favor of trustee on one preference claim for a recovery of $28 million that would have resulted in the disallowance of the IRS' claim under 11 U.S.C. section 502(f). The case turned on an issue relating to whether the transfers were transfers of property of the debtor. The Court held that there was no waiver by IRS under Rule 8 of an "ordinary course of business defense" which the IRS did not initally plead, and allowed amendment. The case was remanded for further factual findings.
- Procedural context:
- After a Motion for Summary Judgment in favor of the trustee in bankruptcy court (D. Md.), which occurred after an initial remand from the district court after an earlier appeal, this case was an appeal by the IRS from the district court ruling in favor of plaintiff trustee on one count, and a cross-appeal by the trustee on the denial of relief on other counts.
- Facts:
- In this nine-count case, involving a bankruptcy payroll service, the trustee attempted to avoid millions of dollars of transfers to the IRS. Unfortunately for the employers who had used the FirstPay tax payment service (comparable to ADT® or PayChex® payroll processing services, ) the funds were not properly remitted to the IRS. FirstPay used client funds to pay for business expenses and lavish personal expenses. Cleverly, FirstPay changed the addresses for notices to the taxpayers, so FirstPay’s clients did not receive the delinquency notices and new client funds could pay old taxes (classic Ponzi scheme formation). “All was well” until the principal died in a boating accident and the scheme unraveled immediately.
The trustee lost on certain dispositive motions and after a trial, lost on certain counts in the bankruptcy court. The trustee obtained reversal of adverse verdicts on two claims on a first appeal to the district court, won one and lost one on remand, and, in the second appeal to the district court, the trustee and bankruptcy court were affirmed on one preference claim involving $28 million paid within 90 days prior to the petition.
The peculiarity of the case was that what the Trustee wanted was to forestall claims by creditors who faced IRS collection, and the Trustee wanted to not owe money to the United States, as opposed to actually recovering money, which appeared to be a subsidiary goal. The Trustee was trying to avoid the unfortunate taxpayers being debited for delinquent taxes if the IRS disgorged the preferences.
- Judge(s):
- Circuit Judges Michael and Davis, Chief U.S.Dist. J. Beaty (M.D.N.C., sitting by designation)
ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!
