PHILADELPHIA – A plaintiff’s motion to enforce settlement in a statutory income tax action will remain denied, per the U.S. Court of Appeals for the Third Circuit.
Per a May decision from Judge Marjorie O. Rendell (also written on behalf of fellow Third Circuit judges D. Michael Fisher and Maryanne Trump Barry), the settlement enforcement motion filed by appellant Michelle T. Seidner and previously denied in the District Court, was once again turned away at the federal appellate level.
Decedent Irving Steven Levy passed away on Jan. 7, 2012. At the time of Levy’s passing, he was married to Mary Dixon Levy and acted as a partner of the law firm of White & Williams. Further, Levy was previously married to Seidner until their divorce on Feb. 10, 2009.
According to Court records, Levy owed federal income taxes in excess of $800,000 and equitable distribution proceedings were ongoing in the process of his divorce, when he passed away.
Upon his death, Levy was “entitled to the proceeds of certain funds held or controlled by White & Williams: (1) White & Williams profit distributions; (2) an unfunded pension calling for payments to Levy’s beneficiary amounting to $2,000 per month for a period of five years; (3) the White & Williams Pension Plan held by Wilmington Trust; and (4) a 401(k) account through the White & Williams 401(k) Tax Deferment/Retirement Savings Plan held by Vanguard Fiduciary Trust Company.”
In January 2013, White & Williams, plus the White & Williams Pension Plan, initiated an interpleader action in the District Court, naming Seidner, Levy, and the United States as defendants, while the United States filed a counterclaim against White & Williams, looking to enforce an IRS collection order for Levy’s federal-income-tax liabilities, and seeking the imposition of a penalty for White & William’s failure to honor this order.
After settlement talks before Magistrate Judge Elizabeth T. Hey ended, the parties finalized a settlement agreement dated Jan. 8, 2014. According to its terms:
“In full and final payment of all personal tax liabilities owed by Decedent to the United States, the United States will accept the sum of Seven Hundred Seventy Five Thousand Dollars ($775,000.00). To the extent the Funds exceed $775,000, the excess sums shall be distributed fifty percent (50 percent) to Seidner and fifty percent (50 percent) to Levy.”
However, the agreement’s fourth paragraph also took into consideration that the personal tax liabilities may not be the only taxes on the funds themselves:
“[White and Williams] will issue 1099 Forms to the recipients of the Funds, and shall not be responsible for any tax liabilities of any kind related to the Funds, which responsibilities, including income and inheritance tax, shall lie with the recipients only. Seidner does not acknowledge that she has any tax liability for the distribution to be made to her pursuant this settlement agreement and reserves the right to contest any tax assessment made with respect to such distribution.”
Also, White & Williams agreed to pay the United States a sum of $5,000 from the firm’s assets in addition to paying the $775,000 from Levy’s assets. After both this and the payment of additional applicable federal taxes on the funds that were withheld by Vanguard and Wilmington Trust, the balance that remained totaled $44,000, of which Seidner received 50 percent.
But, Seidner asserted she should have received $114,500, rather than the $22,000 she actually received – as a result of the fund amount at the time of settlement being over $1 million.
Seidner acknowledged that the discrepancy was a result of federal tax withholdings by Vanguard and Wilmington Trust, but asserted that these withholdings were not contemplated by the parties at the time the agreement was signed, and argued White & Williams’s failure to comply with a Court order requiring the firm to place the funds in an account with the Court also caused the discrepancy.
The District Court denied Seidner’s motion, determining all parties “substantially complied” with the settlement agreement. Further, the District Court held that Seidner “failed to demonstrate any reason to set aside the settlement agreement or to impose sanctions.” This ruling led Seidner to appeal to the Third Circuit.
“Seidner argues that she was entitled to at least $114,500 under the settlement agreement rather than the $22,000 that she actually received. She asserts that all parties shared a fundamental assumption that the amount remaining after the $775,000 paid to the United States would be approximately $229,000, of which she would be entitled to 50 percent,” Rendell said.
Rendell stated Seidner’s assertions that the District Court declined to enforce the agreement as she interpreted it were “correctly rejected”.
“The District Court correctly determined that the settlement agreement was unambiguous in guaranteeing Seidner no sum certain but rather only 50 percent of whatever funds remained after the $775,000 payment to the United States for Decedent’s unpaid income taxes,” Rendell said. “The District Court likewise correctly found that Seidner had presented no ‘persuasive reason’ for setting aside the settlement agreement because of any mistake of fact.”
The District Court found “Seidner’s expectation that the Vanguard and Wilmington Trust disbursements would not be taxed runs contrary to both law and reason”, a rationale the Third Circuit concurred with.
“Finally, we see no error in the District Court’s determination that the appellees substantially complied with their obligations under the settlement agreement and that Seidner failed to demonstrate that either White & Williams or the United States engaged in any sanctionable conduct,” Rendell said. “For the foregoing reasons, we will affirm the District Court’s order denying Seidner’s motion to enforce the settlement.”
The appellant is represented by Seidner and Neil E. Jokelson in Philadelphia, plus Ari D. Kunofsky and Ann E. Nash of the U.S. Department of Justice’s Tax Division in Washington, D.C.
The appellees are represented by Peter J. Mooney of White & Williams, in Philadelphia.
U.S. Court of Appeals for the Third Circuit case 14-4604
U.S. District Court for the Eastern District of Pennsylvania case 2:13-cv-00110
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com