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Shiner v. Turnoy

United States District Court, N.D. Illinois, Eastern Division

July 11, 2014

DAVID SHINER, Plaintiff,
v.
BERNARD I. TURNOY, Defendant

For David B Shiner, Plaintiff: Sanjay Shivpuri, LEAD ATTORNEY, David B. Shiner, Chuhak & Tecson, P.C., Chicago, IL.

For Bernard Turnoy, Defendant: Mark A. Brand, LEAD ATTORNEY, Rodney L. Lewis, Polsinelli Shughart PC, Chicago, IL.

Page 1157

MEMORANDUM OPINION AND ORDER

Milton I. Shadur, Senior United States District Judge.

David Shiner (" Shiner" ) brings this action pursuant to 26 U.S.C. § 7434 (" Section 7434" ), asserting that Bernard Turnoy (" Turnoy" ) willfully filed a fraudulent income tax information return by transmitting a Form 1099-MISC (" 1099" ) to the Internal Revenue Service (" IRS" ) that reported he had made a payment to Shiner in 2012 -- even though Shiner had never accepted such payment. More specifically, after Turnoy had entered into an agreement with Shiner to share equally the commissions generated by the sale of several life insurance policies, he then sent Shiner a check for an amount less than what Shiner claimed (and still claims) was due him. That check bore a restrictive endorsement stating that Shiner's acceptance would constitute full satisfaction of the disputed debt.

Shiner promptly filed an Illinois state court action against Turnoy and eventually returned the check, but by the time Turnoy was served with process and received the uncashed check he had already filed a 1099 with the IRS declaring that he had

Page 1158

made a payment to Shiner in 2012. Shiner then brought this action, charging that the 1099 was false because he had never accepted a payment, so that Turnoy committed tax fraud under Section 7434 by the willful filing of a false information return. Shiner and Turnoy have now filed cross-motions for summary judgment under Fed.R.Civ.P. (" Rule" ) 56.

At the outset it should be noted that Turnoy and Shiner have wasted a great deal of effort in their memoranda disputing how much Turnoy actually owed Shiner under their agreement (T. Mem. 5-7, 13-14; S. R. T. Mem. 5-7; S. Mem. 5; T. R. S. Mem. 4).[1] Both parties are still embroiled in their state court battle over the amount of commissions Turnoy owed Shiner, but this case focuses solely on whether the 1099 accurately reflected that Turnoy made a payment to Shiner in 2012 and whether Turnoy believed that the form was true when he filed it. Irrelevant to those questions is whether the amount Turnoy offered to Shiner satisfied -- or even whether Turnoy believed that it satisfied -- the underlying debt. Hence this opinion expresses no view on the amount of commissions due to Shiner under his agreement with Turnoy.

Here the undisputed material facts reveal that because of the restrictive endorsement that Turnoy chose to place on his check, (1) it did not qualify as a bona fide payment to Shiner and (2) Turnoy had no good faith basis to believe that he had made such a payment when he filed the 1099. By filing a form that purported to be true without actually believing it, Turnoy willfully filed a false information return in violation of Section 7434. Accordingly Shiner's motion for summary judgment is granted, and Turnoy's corresponding motion must be and is denied.

Background

Shiner and Turnoy -- both licensed producers of life insurance products -- entered into an agreement that Turnoy would pay Shiner one half of the commissions generated by the procurement of two life insurance policies that were ultimately issued in November 2012 (T. St. ¶ ¶ 1-3, 6). Turnoy said that he had received $298,119.81 in such commissions, but over weeks of increasingly heated correspondence Shiner insisted that the actual amount of commissions (and consequently his share) was significantly higher (T. St. ¶ 7). On December 13, 2012 Shiner sent Turnoy a demand letter, accompanied by a draft complaint for breach of contract, with the letter stating that he would sue if he did not receive additional documentation from Turnoy by December 17 verifying the amount of commissions that were to be divided (S. Ex. 18).[2] Turnoy responded on December 17

Page 1159

by sending a check to Shiner for $149,059.91, half of the $298,119.81 that Turnoy maintains he had received in commissions -- a check that read on the reverse side (at the place for endorsement) that " endorsement constitutes full & absolute release/hold-harmless by Shiner & /or all interested persons/parties; as per cover letter" (S. Ex. 20). Included with the check was a letter (S. Ex. 19) that said in relevant part:

Enclosed you will find my check payable to you . . . in the sum of one-half (1/2) of the abovementioned gross commissions, same being $149,059.91. Accordingly, this sum will be reported and a corresponding 1099 generated indicating said.
***
Your acceptance and the negotiation of the above referenced check [#8171] and payment to you thereby shall also serve as a full, complete and absolute release / hold-harmless from any ...

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