Opinion
No. 1347 C.D. 2013
12-11-2014
City of Philadelphia v. Nathan Lerner, Appellant
BEFORE: HONORABLE BERNARD L. McGINLEY, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE P. KEVIN BROBSON, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE LEAVITT
Nathan Lerner appeals the order of the Court of Common Pleas of Philadelphia County (trial court) denying his motion for post-trial relief following entry of a $280,772.67 judgment against him for unpaid taxes, interest and penalties owed to the City of Philadelphia. The trial court found that the amount of the City's assessment was unsupported by any evidence. Nevertheless, it concluded, with reluctance, that Lerner had waived his right to challenge the validity of the City's tax assessment. Discerning no error, we are constrained to affirm.
On September 25, 2009, the City filed a complaint against Lerner alleging that he owed more than $200,000 in unpaid business privilege, wage and net profits taxes for tax years 2003 to 2006. The amount of unpaid tax stated in the complaint was a fictional "jeopardy assessment," which is used to induce a taxpayer to cooperate with the City's Department of Revenue to determine the actual tax owed. On November 16, 2009, the City obtained a default judgment against Lerner, which was vacated on December 15, 2009. Lerner was served with notice of the jeopardy assessment on January 7, 2010. On January 11, 2010, Lerner, acting pro se, submitted a request for departmental review.
The actual date Lerner was served is unclear from the record. Lerner asserts that he was first notified of the jeopardy assessment on January 7, 2010. However, the docket sheet shows that Lerner entered a Motion to Stay Writ of Execution on November 30, 2009. This suggests that Lerner knew of the jeopardy assessment and the proceedings against him before January 7, 2010. Furthermore, the City's brief cites September 1, 2010, as the date Lerner was served. We will treat January 7, 2010, as the date Lerner first learned of the jeopardy assessment because the record is unclear and the true date of Lerner's notice does not affect the disposition of this matter.
On February 2, 2010, the City reinstated the default judgment without answering Lerner's request for departmental review. Shortly thereafter, the City initiated collection proceedings against Lerner. On November 12, 2010, Lerner appealed the City's jeopardy assessment to the Tax Review Board. The Board dismissed the appeal, concluding that it lacked jurisdiction because the City had already instituted a collection proceeding in the trial court. Lerner appealed the Tax Review Board's decision to the trial court. On August 23, 2012, the trial court consolidated Lerner's appeal of the Board's decision and the City's collection action.
The trial court states that the February 2, 2010, reinstatement was "the first of several reinstatements of the civil tax complaint against" Lerner. Trial Court op. at 3.
A hearing was held on September 6, 2012. The City informed the trial court that Lerner did not pay for a transcript of the Tax Review Board hearing. The trial court ordered Lerner to pay for a copy of the transcript within 20 days. On December 17, 2012, the City moved to quash Lerner's appeal of the Tax Review Board's decision because Lerner had not yet paid for a copy of the Board hearing transcript. The trial court granted the City's motion, and Lerner appealed. On review, this Court stated:
The merits of Lerner's appeal of the tax assessments to the trial court and whether a decision on the merits would have resulted in remand to the Board are not before us. The only issue is the trial court's dismissal of Lerner's appeal of the Board's orders. Accordingly, the only issue we address is ... whether he had good cause for not purchasing the transcript.Appeal of Nathan Lerner (Pa. Cmwlth., 515 C.D. 2013, filed April 7, 2014) slip op. at 2. We concluded that Lerner did not have good cause for disobeying the trial court's order and affirmed the order quashing his appeal.
While Lerner's appeal was pending in this Court, Lerner, still pro se, sought to delay the trial on the City's collection action by filing numerous requests for discovery. At the same time, Lerner did not comply with the City's discovery requests. On March 6, 2012, the trial court issued protective orders with respect to Lerner's discovery requests. On March 27, 2012, the trial court ordered Lerner to comply with the City's discovery requests, but Lerner did not do so.
In total, Lerner requested 391 interrogatories, 420 requests for admissions and 18 requests for production of documents.
The City filed three motions in limine to prevent Lerner from using evidence at trial that he had not disclosed to the City during discovery. The trial court granted two of the City's motions, effectively precluding Lerner from presenting any testimony or documents at trial that he had not disclosed to the City before September 6, 2012.
The trial court granted the first motion in limine on September 6, 2012, prohibiting Lerner from offering the testimony of any witnesses or producing any documents to challenge the City's assessment. The second motion in limine, granted on April 30, 2013, prohibited Lerner from presenting evidence to challenge "the assessed liabilities." Trial Court op. at 5.
Lerner retained counsel on June 24, 2013. A hearing was held two days later. The City presented the testimony of Denise Reynolds, the Revenue Collection Manager, and Joseph McTamney, the former Manager of Compliance Operations. Lerner testified on his own behalf.
Paula Weiss, Executive Director of the Office of Administrative Review, and Lisa Bratz, Tax and Revenue Conferee, also testified on behalf of the City.
Reynolds testified that a "jeopardy assessment" is a tax assessment that the City hopes "will elicit a response from the taxpayer." Notes of Testimony, June 26, 2013 (N.T.___) at 27. Reynolds specifically testified that the jeopardy assessment "was not based on any specific information that the [C]ity had." N.T. 27-28. On cross-examination, the following exchange occurred between Reynolds, counsel for Lerner and the trial judge:
[Counsel for Lerner]: As I understand it, the jeopardy assessment is just something you make up to scare the taxpayer to come in?
[Reynolds]: Basically, yes.
[Counsel for Lerner]: So you've never adjusted the made up scary assessment up until the present time?
[Reynolds]: No...
[Trial Judge]:...[W]hat's the basis of the scary number, though?
[Reynolds]: My manager at the time would have given me a number to produce the gross receipts and net income for the business taxes.
[Trial Judge]: Where would he have gotten that number?
[Reynolds]: He really just makes them up. We try to make it real high. If it's a low balance taxpayers will say, Okay, fine, I'm going to pay this. We don't want them to do this. We want them to come in and make sure the figures are accurate. We make them high.N.T. 43-44.
[Trial Judge]: In essence, there's no real basis of this number?
[Reynolds]: No, there's not. Just a number.
McTamney testified that he offered to meet with Lerner on multiple occasions, but Lerner never accepted. At the same time, Lerner refused to provide the City with any financial records. McTamney testified that he wanted any record Lerner could produce, not just "business" records. McTamney wanted "to determine how [Lerner] sustained himself, his cost of living. He had to pay rent, food, and had all these expenses. We would want to know the basis for that to make sure it wasn't from business income." N.T. 73.
Lerner offered the following testimony to explain why he neither provided the City with the requested documents nor met with McTamney:
[Counsel for Lerner]: ... Did Mr. McTamney offer to meet with you?
[Lerner]: Yes, he did. He said I had to bring my business records. And I told him I didn't operate a business....
[Counsel for Lerner]: Did the City also offer to meet with you?
[Lerner]: Yes, but in every instance they required that I bring my business records and each time I advised them I don't have a business and I asked the City, the Department of Revenue to tell me what business they thought I owned so I could address the issue.
[Counsel for Lerner]: Did you think it might be productive just to meet with the City anyway with whatever records you had in order to through -N.T. 127-128.
[Lerner]: I didn't have, as I explained, I did not have records from ten years before.
[Counsel for Lerner]: You didn't have income or expense records at all?
[Lerner]: I didn't have records from that period, no.
Nevertheless, Lerner attempted to introduce at trial 12 checks that he had received during the period in question but had not yet cashed. Lerner testified that the checks "were payment[,] which I didn't cash[,] but they were for articles" written for a newspaper syndicate. N.T. 132. Counsel for the City questioned why the checks had not been produced during discovery:
[Counsel for the City]: Did the City seek this information through discovery?N.T. 138. The trial court denied the admission of the checks into evidence.
[Lerner]: No, because they didn't know I didn't cash the checks. I did not have those checks when [the City] requested them.
[Counsel for Lerner]: So did you recently find the checks?
[Lerner]: Yes, I did.
To establish how Lerner supported himself during the tax years at issue, the City offered into evidence the transcript of the hearing before the Tax Review Board. The City questioned Lerner as follows regarding a specific excerpt from the transcript:
[Counsel for the City]: [Commissioner Wells-Chancy asked] how do you support yourself? What is your main source of income?...
[Lerner]: As the City is aware, I was on Social Security, I received SSI checks.
[Counsel for the City]: And Commissioner Wells-Chancy said, Okay. And that's your only means of support? And what was your response?
[Lerner]: It was my principal means of support.
[Counsel for the City]: An[d] Commissioner Wells-Chancy said, Was that your only means of support?
[Lerner]: No...I received loans, I receive repayment. It was in different years there was different things. But principally it was SSI....
[Counsel for the City]: So did you provide any of this information about any of the income either when Mr. McTamney was requesting this information or when the [City] was requesting this information during the course of this proceeding?
[Lerner]: I had no records. That's what Mr. McTamney had responded. I didn't have any documentations remaining in 2010. I certainly didn't have any records of those years and many of the checks I never cashed and I didn't know where they were.
[Counsel for the City]: But then you subsequently found some of the checks?
[Lerner]: Some of them. But many of them I haven't recovered. I found some that are from Lester [Goldstein] that I never cashed.N.T. 153-155.
One of the sources of income the City believed Lerner was not reporting was from a partnership he was in with Lester Goldstein. Goldstein had provided the City with documents purporting to show that his company, LeGo, had made payments to Lerner.
Following the hearing, the trial court entered judgment against Lerner and in favor of the City for $280,772.67 in unpaid taxes, interest and penalties. Lerner filed a motion for post-trial relief seeking a new trial or entry of judgment in his favor, asserting that the City had not introduced any evidence that Lerner actually owed business taxes. The trial court denied Lerner's motion for post-trial relief. Relying on Krug v. City of Philadelphia, 620 A.2d 46 (Pa. Cmwlth. 1993), the trial court reasoned that
the validity of the assessment and whether [Lerner] is liable for the delinquent taxes are no longer in issue because [Lerner] waived his right to challenge them. Pursuant to the [trial court's] finding that [Lerner] waived his right to contest the assessment, the [trial court] precluded [Lerner] from offering evidence to contest the assessment, which was the net effect of [Lerner] failing to exhaust his administrative remedies before the Tax Review Board.Supplemental Reproduced Record (S.R.R.___) at 200b. Lerner now appeals.
At the time the trial court wrote its Rule 1925(a) opinion, this Court had not yet decided Lerner's appeal of the trial court's order quashing Lerner's appeal of the Tax Review Board's decision. This Court affirmed that order after the trial court issued its opinion in this matter.
On appeal, Lerner raises three assignments of error by the trial court. First, Lerner contends that the trial court should have dismissed the City's collection action because the City lacked authority to assess a fictitious tax at an artificially high number in order to scare a taxpayer. Second, Lerner argues that the trial court erred in concluding that his appeal of the Tax Review Board's decision was untimely. Third, Lerner asserts that Krug, 620 A.2d 46, is distinguishable from the present case and provides no legal basis for the trial court's decision. In response, the City argues that Lerner could only contest the underlying tax assessment in an appeal to the Tax Review Board, not in a collection action in the trial court. We agree with the City and will not consider the merits of Lerner's appeal.
When considering whether a trial court erred in denying a motion for post-trial relief, our scope of review is limited to determining whether the trial court committed an error of law or abused its discretion. City of Philadelphia v. Petherbridge, 781 A.2d 263, 266 n.6 (Pa. Cmwlth. 2001).
The City raises two additional arguments. The first is that the issues raised in Lerner's brief to this Court were not raised in his post-trial motion or Rule 1925(b) Statement. We disagree. Lerner's Rule 1925(b) Statement can reasonably be read to include all the issues raised in his brief. Additionally, the City argues that Lerner has failed to pay for and provide this Court with a copy of the transcript of the hearing before the trial court. However, after the parties submitted their briefs in this matter, this Court ordered the trial court to provide a copy of the hearing transcript because Lerner is proceeding in forma pauperis. --------
In Krug, the City assessed the taxpayer with $7,429.61 in unpaid wage and net profit taxes and $6,000 in fines. The taxpayer did not appeal to the Tax Review Board. Instead, the taxpayer waited until the City filed a collection action against him to challenge the assessment. In his answer to the City's complaint, the taxpayer argued that the assessment was unconstitutional because he never lived in the City. The trial court granted summary judgment in favor of the City, holding that the taxpayer had to present any issues regarding the City's calculation of the assessment first to the Tax Review Board.
This Court affirmed the trial court's grant of summary judgment. We explained:
The [Tax Review Board] provides an administrative remedy for the resolution of disputes concerning a person's liability for City taxes.... The Board conducts a public hearing at which a taxpayer is afforded the opportunity to make a record on the issue of why he or she should not pay all or some of the tax; at the conclusion of the hearing, the Board issues a written decision on the taxpayer's liability for the tax. Once a party has exhausted its administrative remedy before the Board, the party may appeal an adverse decision of the Board to the Court of Common pleas of Philadelphia County[.]Krug, 620 A.2d at 47 (citations and footnotes omitted). We further stated that
an appeal to the Board is the sole method of raising defenses to a City wage tax assessment. When the City files a civil action in a common pleas court to collect delinquent wage taxes, and the taxpayer never appealed the assessment for the wage taxes to the Board, all defenses against the tax assessment which should have been raised before the Board are waived and, thus, may not be interposed against the City's collection action.Id. at 48-49 (emphasis added).
The appeal to the Tax Review Board applies to many different types of taxes assessed by the City. See City of Philadelphia v. Kenny, 369 A.2d 1343 (Pa. Cmwlth. 1977) (holding that appeal to the Board is the exclusive remedy for contesting delinquent wage and net profits taxes); City of Philadelphia v. Sam Bobman Department Store Co., 149 A.2d 518 (Pa. Super. 1959) (holding that appeal to the Board is exclusive remedy for contesting delinquent mercantile license tax assessments). As the Superior Court explained in Sam Bobman Department Store Co.,
[t]he exclusiveness of the procedure prevents a diversity of judicial tribunals being called upon to decide a multitude of cases arising in a variety of forms. The procedure permits appeals to be heard by a tribunal whose members, because of their specialization, have acquired a particular competence over the subject matter. Most of the controversies can be disposed of promptly by an administrative agency, thus substantially reducing the volume of litigation which otherwise would have to be heard by the courts. If it were necessary to have a court trial to determine the amount of tax due in all disputed cases, it is likely that the courts would become clogged with these cases.Id. at 522 (citations omitted).
Lerner argues that Krug is distinguishable because here the City has acknowledged that its jeopardy assessment, which is huge by comparison to the assessment at issue in Krug, has no basis in fact. In Krug, the taxpayer argued that he did not live in Philadelphia and, thus, could not be assessed by the City. The merits were never reached because the dispositive legal question was one of jurisdiction, i.e., the appropriate forum for contesting an assessment. Krug firmly established that a challenge to the merits of the City's assessment must be made to the Tax Review Board regardless of the type of substantive challenge made to the assessment.
Here, Lerner lost his ability to challenge the validity of the jeopardy assessment by not satisfying the trial court's order to pay for a copy of the transcript of the Tax Review Board hearing. As a result, the trial court dismissed his appeal. Taxpayer's substantive challenges to the City's "fictional" assessment may have merit; the City's strong arm collection tactics may well lack authority in law. However, we cannot reach the merits of Taxpayer's challenge because the question is one of jurisdiction. Krug is dispositive, and we are constrained to affirm the trial court's holding.
For these reasons, the order of the trial court is affirmed.
/s/_________
MARY HANNAH LEAVITT, Judge ORDER
AND NOW, this 11th day of December, 2014, the order of the Court of Common Pleas of Philadelphia County dated July 9, 2013, in the above-captioned matter is hereby AFFIRMED.
/s/_________
MARY HANNAH LEAVITT, Judge