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Gerstenbluth v. Credit Suisse Securities (USA) LLC

United States Court of Appeals, Second Circuit

August 27, 2013

Chester Gerstenbluth, Plaintiff-Appellant,
v.
Credit Suisse Securities (USA) LLC, Internal Revenue Service, Defendants-Appellees.

Argued: June 13, 2013

Plaintiff-Appellant Chester Gerstenbluth, proceeding pro se, sued his former employer, Credit Suisse Securities (USA) LLC, and the Internal Revenue Service, seeking a refund of Federal Insurance Contribution Act taxes withheld by the employer and collected by the IRS on a $250, 000 settlement payment made by the employer to Gerstenbluth. The parties do not dispute that Credit Suisse paid the sum principally in consideration of Gerstenbluth's agreement to withdraw his Age Discrimination in Employment Act complaint, which he filed after Credit Suisse terminated his longtime employment. The District Court (Joanna Seybert, Judge) dismissed Gerstenbluth's complaint against Credit Suisse pursuant to Fed.R.Civ.P. 12(b)(6), and granted summary judgment to the Internal Revenue Service. On appeal, Gerstenbluth contends principally that the District Court erred in concluding that the settlement payment constituted "wages" received "with respect to employment" under 26 U.S.C. § 3121, and was thus subject to FICA taxes. We find no error. The judgment of the District Court in favor of the Internal Revenue Service and Credit Suisse is Affirmed.

Chester Gerstenbluth, pro se, Plainview, N.Y.

Stephen M. Kramarsky (Angela L. Harris, on the brief), Dewey Pegno & Kramarsky LLP, New York, N.Y., for Defendant-Appellee Credit Suisse Securities (USA) LLC.

Kenneth W. Rosenberg (Kathryn Keneally, Assistant Attorney General, Michael J. Haungs, Attorney, on the brief), Attorney, Tax Division, United States Department of Justice, Washington, D.C. (Loretta E. Lynch, United States Attorney for the Eastern District of New York, Brooklyn, N.Y., of counsel), for Defendant-Appellee Internal Revenue Service.

Before Pooler, Lohier, and Carney, Circuit Judges.

Susan L. Carney, Circuit Judge

Plaintiff-Appellant Chester Gerstenbluth, appearing pro se on appeal as he did in the District Court, agreed to withdraw his complaint under the Age Discrimination in Employment Act ("ADEA") against his former employer, Credit Suisse Securities (USA) LLC ("Credit Suisse"), in exchange for a lump sum payment of $250, 000. The principal question on appeal is whether, under the Federal Insurance Contributions Act ("FICA"), these settlement proceeds are fairly characterized as "wages" received by Gerstenbluth "with respect to employment, " and are thus subject to FICA taxes. See 26 U.S.C. § 3101(a); id. § 3101(b)(1); id. § 3121. We conclude that the proceeds are FICA wages. We therefore affirm the District Court's rejection of Gerstenbluth's refund claim and award of summary judgment to the Internal Revenue Service ("IRS"). We further affirm the District Court's dismissal of Gerstenbluth's refund claim against Credit Suisse.

BACKGROUND

We draw the following narrative primarily from the statement of material facts submitted by the IRS in support of its motion for summary judgment, and from documents submitted as exhibits to that filing. Gerstenbluth has not disputed any of these factual assertions or the authenticity of the related exhibits.

After Credit Suisse terminated his employment with the company, Gerstenbluth filed a complaint with the United States Equal Employment Opportunity Commission ("EEOC"), asserting that Credit Suisse discriminated against him on the basis of his age when it effected the termination.[1] Credit Suisse offered to settle, and in August 2009 the parties executed a related Settlement Agreement and Release ("Agreement" or "Settlement Agreement"). The Agreement provided that, in consideration of a payment to him of $250, 000, "minus applicable taxes and deductions, " Agreement ¶ 1, and subject to the EEOC's agreement to dismiss his charge, Gerstenbluth agreed to withdraw his EEOC complaint and to release all claims against Credit Suisse, id. ¶ 4. Under the Agreement, Credit Suisse expressly "retain[ed] the right to deduct and withhold from any payments to Gerstenbluth all sums that it may be required to withhold pursuant to applicable tax withholding laws or regulations." Id. ¶ 3. Aside from these generic phrases, however, the Agreement did not address the character of the $250, 000 payment for purposes of federal income or employment taxation, or further describe the nature of the payment.[2]

Credit Suisse issued Gerstenbluth an IRS Form W-2, Wage and Tax Statement, for tax year 2009. On the Form W-2, the company included the settlement payment amount as part of Gerstenbluth's "[w]ages, tips, other comp[ensation]" and reported that it had withheld FICA taxes totaling $4, 217.66 from the settlement sum.[3]

Gerstenbluth took issue with this characterization of the payment and disputed the company's withholding of FICA taxes. He unsuccessfully sought to recover the withheld FICA taxes from Credit Suisse and the IRS, to which (we presume) Credit Suisse had forwarded the withheld taxes. Having failed to obtain a refund through the prescribed administrative processes, Gerstenbluth filed suit in the United States District Court for the Eastern District of New York.

Credit Suisse moved to dismiss the complaint for failure to state a claim, and the IRS moved for summary judgment. The District Court (Joanna Seybert, Judge) granted both motions. With respect to Credit Suisse, the court dismissed the complaint on the ground that Gerstenbluth did "not have a private right of action under the U.S. tax laws." Gerstenbluth v. Credit Suisse Secs. (USA) LLC, No. 11-CV-2525, 2012 WL 4511632, at *2 (E.D.N.Y. Sept. 28, 2012). With respect to the IRS's motion, the court noted that "[m]oney paid to settle employment discrimination claims can be 'wages, ' at least where the money represents back pay or front pay." Id. Emphasizing Credit Suisse's treatment of the award as "wages" on Form W-2 and the Settlement Agreement's provision that the award would be paid "minus applicable taxes and deductions, " the court concluded that the payment "constituted 'wages' ...


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