FSM SUPREME COURT
Cite as FSM Social Sec. Admin. V. Weilbacher,
7 FSM Intrm. 442 (Pon 1996)
FSM SOCIAL SECURITY ADMINISTRATION,
BISMARCK WEILBACHER d/b/a MICRO
CIVIL ACTION NO. 1994-042
Andon L. Amaraich
Decided: April 2, 1996
For the Plaintiff: Douglas Parkinson, Esq.
Law Offices of R. Barrie Michelsen
P.O. Box 1450
Kolonia, Pohnpei FM 96941
For the Defendant: Delson Ehmes, Esq.
P.O. Box 1018
Kolonia, Pohnpei FM 96941
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Civil Procedure) Summary Judgment
Once the moving party has presented a prima facia case of entitlement to summary judgment, the non-moving party may not rely on unsubstantiated denials of liability to carry its burden, but must present some competent evidence that would be admissible at trial which demonstrates that there is a genuine issue of fact, and that there is enough evidence supporting its position to justify a decision upholding its claim by a reasonable trier of fact. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 442, 444 (Pon. 1996).
Civil Procedure) Admissions
A defendant who fails to file a timely response to plaintiff's requests for admission, is deemed to have admitted the matter sought to be admitted. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 442, 445 (Pon. 1996).
Civil Procedure) Summary Judgment; Taxation
The Social Security Administration is entitled to summary judgment for unpaid taxes when it supported its motion with an affidavit detailing the a taxpayer's audit and other evidence indicating the taxpayer's liability, and the taxpayer has provided no evidence to indicate otherwise. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 442, 445-46 (Pon. 1996).
The Social Security Administration is entitled to a penalty of not more than $1,000 and interest of 12% on unpaid taxes. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 442, 446-47 (Pon. 1996).
Attorney, Trial Counselor and Client) Fees; Taxation
A taxpayer is liable to the Social Security Administration for reasonable attorney's fees and costs when unpaid taxes are referred to an attorney for collection to the extent which the Social Security Administration prevails on its claims. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 442, 447 (Pon. 1996).
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ANDON L. AMARAICH, Chief Justice:
This matter is before the Court on plaintiff's Motion for Summary Judgment.
The Federated States of Micronesia Social Security ("FSMSSA") audited Micro Customized Construction ("MCC") in September and October 1993. Following that audit, on November 4, 1993, the FSMSSA sent a letter to Defendant Weilbacher, as owner of MCC, noting deficiencies in the company's recordkeeping. The letter informed the defendant that its taxable wages had not been reported consistently with Public Law 5-120, and demanded prompt payment of $6,288.48, representing $5,306.58 in unpaid taxes due as of November 10, 1993, together with a 10% penalty of $530.66, and $451.24 in interest. See Pl.'s Motion for Partial Summary Judgment (Aug. 16, 1994), Letter from Hubert Yamada to Bismarck Weilbacher (Nov. 4, 1993).
When no payment was made, on April 23, 1994, FSMSSA filed this action, alleging that the defendant owed $5,306.58 in delinquent social security taxes, plus penalties and accrued interest. Defendant counterclaimed against FSMSSA, challenging the constitutionality of the government's audit, as well as the constitutionality of the entire FSM Social Security program. Plaintiff then moved for partial summary judgment on the counterclaims, and the Court ruled in plaintiff's favor on April 27, 1995. See FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 137 (Pon. 1995). The only issue remaining following that ruling was whether the defendant had in fact failed to pay social security taxes, and if so, whether the amount of unpaid taxes, penalties and interest FSMSSA claimed was correct.
In an effort to narrow the issues for trial, plaintiff served requests for admission on defendant on October 31, 1995. Defendant failed to respond to these requests. On January 19, 1996, plaintiff moved for summary judgment based largely on FSM Civil Rule 36, which states that requests for admission which are not denied are deemed admitted.
Soon thereafter, on January 30, 1996, defendant filed a late response to plaintiff's requests for admission. Plaintiff moved to strike the response, see Motion to Strike Def.'s Late Reply to Requests for Admissions (Feb. 1, 1996), and the Court granted plaintiff's motion.1 On February 19, 1996, defendant filed an opposition to plaintiff's Motion for Summary Judgment, which incorporated by reference the defendant's memorandum in opposition to plaintiff's motion to strike, defendant's supporting affidavit, and defendant's late responses to plaintiff's requests for admission. Defendant's opposition further states: "In addition, all the information sought to be admitted is in the control of the plaintiff including those of the attorney's hours worked and it will be an injustice to expect the defendant to second [g]uess the attorney." Def.'s Opp'n to Motion for Summary Judgment at 1.
The Court must now decide whether plaintiff is entitled to summary judgment as a matter of law, based on the record now before the Court.
I. Applicable Legal Standard
Under FSM Civil Rule 56, a motion for summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FSM Civ. R. 56(c); Kyowa Shipping Co. v. Wade, 7 FSM Intrm. 93, 95 (Pon. 1995). A moving party is entitled to summary judgment when it has demonstrated that there are no genuine issues of material fact remaining, and that it is entitled to judgment as a matter of law. See FSM Civ. R. 56(c); Kihara Real Estate, Inc. v. Estate of Nanpei, 6 FSM Intrm. 48, 52 (Pon. 1993). Once the moving party has presented a prima facia case of entitlement to summary judgment, the burden shifts to the non-moving party to produce evidence showing a genuine issue of material fact. Urban v. Salvador, 7 FSM Intrm. 29, 31 (Pon. 1995); Kyowa Shipping Co., 7 FSM Intrm. at 95; FSM v. Ponape Builders Constr., Inc., 2 FSM Intrm. 48, 52 (Pon. 1985). The non-moving party may not rely on unsubstantiated denials of liability to carry its burden; it must present some competent evidence that would be admissible at trial which demonstrates that there is a genuine issue of fact. Urban, 7 FSM Intrm. at 31. The non-moving party must show that there is enough evidence supporting its position to justify a decision upholding its claim by a reasonable trier of fact. Alik v. Kosrae Hotel Corp., 5 FSM Intrm. 294, 295 (Kos. 1992).
II. Plaintiff's Motion for Summary Judgment
Plaintiff's Motion for Summary Judgment seeks unpaid social security taxes in the amount of $4,579.46 and unpaid self employment taxes of $727.12, together totalling $5,306.58; interest of $1,845.99 through January 18, 1996; penalties of $530.652, attorney's fees of $4,275.00, and a $10.00 fee for service of process.
A. Principal Amount of $5,306.58
Plaintiff's October 1995 requests for admission asked the defendant to admit the following:
11. Admit that defendant was required to maintain payroll records showing the number of hours worked each week, the compensation earned, and deductions made for each of his employees for the period covering the quarters ending 30 June 1992 through 30 June 1993 pursuant to 51 F.S.M.C. § 154(3).
12. Admit that defendant is indebted to plaintiff for the principal amount of $5306.58 in overdue and unpaid social security taxes.
Under FSM Civil Rule 36(a) "[a] matter is admitted unless, within 30 days after service of the request, or within such shorter or longer time as the Court may allow, the party to whom the request is directed serves upon the party requesting the admission a written answer or objection addressed to the matter . . . ." In this case, by failing to file a timely response to plaintiff's requests for admission, defendant is deemed to have admitted the matter sought to be admitted. Defendant has therefore admitted that it is indebted to plaintiff for the principal amount of $5306.58 in overdue and unpaid social security taxes.
Even if the Court had not granted plaintiff's motion to strike defendant's late response to plaintiff's requests for admission, the Court would be compelled to grant plaintiff's motion for summary judgment with respect to the principal amount claimed by FSMSSA. FSMSSA's allegation that defendant owes a total of $5,306.58 in principal is supported by the following evidence on the record: (1) a letter dated October 1, 1993 from Albert Panuelo of the Office of Human Resources of the Pohnpei State Government, furnishing hourly wages for contract workers for Micro Customized Construction Company; (2) a letter dated October 14, 1993 from Mr. Hubert Yamada, Administrator of the FSMSSA, to Mr. Weilbacher, requesting records needed to facilitate the audit of MCC's payrolls; and (3) a letter dated November 4, 1993 from Mr. Yamada to Mr. Weilbacher, explaining the results of the audit, noting deficiencies in his recordkeeping, and setting out in detail the defendant's unreported and overdue accounts. See Pl.'s Motion for Partial Summary Judgment (Aug. 16, 1994).
The record also contains an affidavit from the Field Technician for the FSMSSA who conducted MCC's audit. Id., Aff. Peteriko P. Hairens (Aug. 16, 1994). Mr. Hairens's affidavit attests that the defendant was notified in writing on September 6, 1993 that the FSMSSA would be conducting an audit of his business on September 22, 1993. Defendant was requested to provide all payroll records and related documents on that date. Hairens Aff. para. 8. Mr. Hairens states that he personally conducted MCC's audit, that Mr. Weilbacher provided him with most, but not all, of the company's pay stubs, and that Mr. Hairens returned to MCC three times in September and October of 1993 to request additional records, which Mr. Weilbacher could not provide. Id. para. 11. Although Mr. Hairens agreed to postpone completion of the audit until Mrs. Weilbacher, who did the company's bookkeeping, was on island, no additional information was ever provided following her return. Id. When no further information was forthcoming, despite repeated requests, Mr. Hairens completed the audit using the information defendant had provided, as well as information from the Office of Human Resources of the Pohnpei State Government. He reconstructed missing information using pay stubs and wage amounts from previous pay periods. Id. paras. 12-15. As a result of the audit, FSMSSA concluded that MCC owed delinquent taxes of $5,306.58 as of November 10, 1993, plus interest of $451.24, and penalties of $530.66, for a total of $6,288.48. Id. para. 16.
Finally, the record contains an affidavit from the Operations Officer for the FSMSSA. This
affidavit states that the defendant has not yet made any payments toward satisfaction of the unpaid social security taxes and self employment taxes, penalties, interest, or collection costs demanded in the complaint. See Pl.'s Motion for Summary Judgment, Aff. Marilyn Johnson para. 3 (Jan. 19, 1996).
The evidentiary submissions on the record make out a prima facie case of entitlement to summary judgment. Although defendant's answer to plaintiff's complaint denies that defendant owed the amounts plaintiff alleged, since the inception of this case defendant has provided no affidavit or other evidence to demonstrate that the taxes FSMSSA claims are delinquent were calculated in error. FSM Civil Rule 56 states that
When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.
(emphasis added). See also Urban, 7 FSM Intrm. at 31-32; FSM Dev. Bank v. Rodriguez Corp., 2 FSM Intrm. 128, 130 (Pon. 1985). Defendant has failed to produce evidence sufficient to demonstrate that a genuine issue of fact remains with respect to the amount of principal FSMSSA claims is owed in this action. Accordingly, the Court finds that the defendant is liable for $5,306.58 in unreported and unpaid self-employment and social security taxes.
B. Penalties and Interest
FSMSSA seeks a penalty of 10% on defendant's unpaid taxes, and interest at the rate of 1% for each month these taxes remained unpaid. As an initial matter, the Court notes that by failing to answer plaintiff's requests for admission in a timely manner, defendant is deemed to have admitted FSMSSA's entitlement to a 10% penalty and to 12% annual interest.3 Notwithstanding these admissions, the Court finds that plaintiff is entitled to summary judgment as a matter of law on its claims for penalties and interest.
Public Law No. 5-120, passed on November 25, 1988, amended 53 F.S.M.C. 605 of the Federated States of Micronesia Social Security Act. The amended Section 605, titled "Violations ) Penalties and interest ) Attorney's fees and costs," reads in pertinent part as follows:
(3) Any covered employer who fails to submit the quarterly report and pay the social security tax within ten days after the end of the quarter shall be considered delinquent. The Board or its authorized representatives shall be vested with the authority to levy a penalty of not more than $1,000 on delinquent employers.
(4) If any tax or penalty imposed by this subtitle is not paid on or before the date prescribed for such payment, there shall be collected, in addition to such tax and penalty, interest on the unpaid balance of the tax principal at the rate of twelve percent per annum
from its due date until the date it is paid.
53 F.S.M.C. 605(3) and (4) (emphasis added).
The FSMSSA seeks to levy a penalty of $530.66 on defendant's unreported and unpaid self employment and social security taxes totalling $5,306.58. This 10% penalty is under $1,000.00, and therefore is within the statutory limits of FSMSSA's authority. See Letter from Hubert Yamada to Bismarck Weilbacher (Nov. 4, 1993), attached to Pl.'s Motion for Partial Summary Judgment (Aug. 16, 1994). Defendant has not presented any competent summary judgment evidence in opposition to the amount of this penalty or to its calculation.
FSMSSA's motion for summary judgment additionally seeks $1,845.99 in interest through January 18, 1996. Section 605(4) of the Social Security Act requires FSMSSA to collect annual interest at the rate of 12% on unpaid taxes. Marilyn Johnson's affidavit in support of plaintiff's Motion for Summary Judgment sets forth the days on which defendant's payments were due, and calculates the total interest accrued on the unpaid principal balance through January 18, 1996 at $1,845.99. Defendant has also failed to present any competent summary judgment evidence in opposition to plaintiff's interest calculation.
Accordingly, the Court finds that plaintiff is entitled to summary judgment on its claims for a $530.66 penalty, pursuant to 53 F.S.M.C. 605(3), and $1,845.99 in accrued interest, pursuant to 53 F.S.M.C. 605(4).
C. Attorney's Fees and Costs of Service
Plaintiff has requested $4,275 in attorney's fees under Section 605(4) of the Social Security Act. That section provides that
In the event that any tax, interest, or penalty due under this subtitle is referred to an attorney or trial counselor for collection, whether or not suit is brought for the collection thereof, the taxpayer shall additionally be liable for reasonable attorney's or trial counselor's fees and costs of collection, including court costs.
53 F.S.M.C. 605(4). In FSM Social Security Administration v. Mallarme, 6 FSM Intrm. 230 (Pon. 1993) this Court suggested that among the factors to be considered in assessing the reasonableness of attorney's fees under the Social Security Act are the nature of the violation, the degree of cooperation by the taxpayer, and the extent to which the Social Security Administration prevails on its claims. Id. at 232-33 (court has discretion to determine the reasonableness of the fees sought on a case by case basis, in light of the particular circumstances of each case).
In the instant case, FSMSSA was completely successful on its claims for overdue social security taxes, penalties and interest. FSMSSA also successfully defended itself against defendant's counterclaims, brought under 11 F.S.M.C. 701, which alleged, inter alia, that the FSMSSA's audit had been conducted in violation of defendant's constitutional rights.4
In support of its request for attorney's fees, plaintiff has submitted an affidavit from its counsel,
which states that its office bills the FSM Social Security Administration at the rate of $100.00 per hour, and that 42.75 hours have been billed to FSMSSA for a total of $4,275.00. The affidavit notes that most of the hours for which plaintiff seeks reimbursement were spent responding to defendant's counterclaims.5
From the contents of plaintiff's affidavit, and from the record in this case, the Court observes that approximately one-third of counsel's time was spent in presentation of the agency's affirmative case against the defendant under the Social Security Act. Approximately two-thirds of counsel's time was spent defending the agency against defendant's counterclaims, brought under 11 F.S.M.C. 701. Although 11 F.S.M.C. 701(3) permits the Court to award costs and reasonable attorney's fees to the prevailing party in an action seeking redress of civil rights violations, an award of fees is not mandatory.
On this basis, the Court finds that $1,500.00 is a reasonable award of attorney's fees in this case. This award is intended to compensate plaintiff for that portion of its attorney's fees directly incurred in collecting defendant's unpaid and unreported taxes under 53 F.S.M.C. 601 et seq. The Court declines to award attorney's fees to the plaintiff for hours spent responding to defendant's civil rights claims, brought under 11 F.S.M.C. 701.
The Court is sympathetic to the time and expense involved in responding to defendant's counterclaims. However, a governmental agency must expect challenges to the exercise of its authority when it appears that the bounds of that authority may have been exceeded. In its ruling on these counterclaims, the Court recognized the seriousness of defendant's equal protection claim and noted the appearance of impropriety and the potential conflict of interest created by the FSMSSA Administrator's simultaneous involvement in a private business enterprise in competition with the defendant, and involvement in the prosecution of this case. Weilbacher, 7 FSM Intrm. at 146. In addition, the litigation of plaintiff's civil rights counterclaims has succeeded in clarifying the parameters of a lawful administrative search under the Social Security Act, and has affirmed the constitutionality of the FSM Social Security program. These findings will be of assistance to the FSMSSA in future cases.
The Court grants plaintiff's request for $10.00 for service of process.
For the foregoing reasons, defendant's Motion for Summary Judgment is hereby granted in part and denied in part. The Court grants judgment in favor of plaintiff and against defendant in the amount of $9,193.23. This figure represents $5,306.58 in principal, $1,845.99 in interest accrued through January 18, 1996, $530.66 in penalties, $1,500.00 in attorney's fees, and $10.00 for service of process.
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1. The Court found that the defendant's failure to respond in a timely manner had not been the result of excusable neglect, and that the defendant had failed to establish that good cause existed for the Court to grant it an enlargement of time to file its response. Order Granting Pl.'s Motion to Strike Def.'s Late Reply to Requests for Admissions (Feb. 19, 1996).
2. Plaintiff's pleadings and supporting documents variously request penalties of $530.66 (Complaint), $530.65 (Motion for Summary Judgment), and $529.64 (Johnson Affidavit in Support of Request for Summary Judgment). The Court will rely on the figure in plaintiff's complaint, which represents 10% of the total principal sought.
3. Plaintiff's fifth and eighth requests for admission asked defendant to admit that FSMSSA is entitled to impose a 10% penalty on taxes due for each quarter that taxes went unpaid or unreported. Plaintiff's sixth and ninth requests asked defendant to admit that FSMSSA is entitled to add interest at the rate of 1% every 30 days for unreported and overdue and uncollected social security taxes. See Pl.'s Request for Admissions (Feb. 21, 1996).
4. Defendant's counterclaims are described in detail in the Court's April 27, 1995 Memorandum of Decision, which granted plaintiff summary judgment on these counterclaims. See FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. at 140-41 .
5. See Pl.'s Motion for Summary Judgment, Aff. in Support of Request for Attorney Fees (Jan. 19, 1996). Counsel's affidavit states that two attorneys worked on this case for the plaintiff. Douglas Parkinson spent 36 hours primarily responding to defendant's counterclaims. See id. John Hollinrake spent 6.75 hours attending hearings, preparing requests for admission, drafting the motion for summary judgment and related affidavits, and performing interest calculations.