United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON DEFENDANT'S MOTION FOR
DENNIS SAYLOR IV UNITED STATES DISTRICT JUDGE
an action for a tax refund and related claimed damages.
Plaintiff Kathleen Norgaard is proceeding pro se.
2008, Kathleen Norgaard and her husband James Norgaard opened
a small marine supply store called Lynn Marine Supply, Inc.
In 2010, the company secured a Small Business Administration
loan in the principal amount of $85, 000. The business was
not successful and was unable to make payments on the loan.
To repay the company's debts, Kathleen obtained a reverse
mortgage on her residence. That was insufficient to save the
company, which closed in early 2012.
now contends that she is entitled to a “bad debt”
deduction pursuant to § 166 of the Internal Revenue Code
and a refund of approximately $140, 000. She also seeks money
damages and injunctive relief against the United States.
government has moved for summary judgment in its favor. For
the following reasons, the motion will be granted.
following facts are as set forth in the government's
statement of material facts and accompanying exhibits.
Because plaintiff has not opposed the government's
statement of material facts, the Court deems those facts
admitted. See Stonkus v. City of Brockton Sch.
Dep't, 322 F.3d 97, 102 (1st Cir. 2003).
Acquisition and Financing of Lynn Marine
and James Norgaard are married. On April 1, 2008, the
Norgaards purchased Lynn Marine Supply, Inc. for $10, 000.
(Compl. ¶ 18; Def. Ex. A ¶ 4(a)). Lynn Marine was a
corporation. Kathleen owned 51 percent of the company, and
James owned the remaining 49 percent. (Def. Ex. B ¶ 12).
The Norgaards were the only officers and directors of Lynn
Marine. (Id. ¶ 13).
October 1, 2009, to increase the company's business, the
Norgaards began seeking federal and state government-supply
contracts. (Compl. ¶ 22). To obtain those contracts,
they decided additional financing was necessary.
(Id.). They applied for a small-business loan for
the company through Eastern Bank. (Def. Ex. D). That loan
application was denied on March 4, 2010, for (1) insufficient
collateral, (2) projected inability to repay principal, (3)
delinquent credit history, and (4) lack of established
Norgaards then applied for a Small Business Administration
(“SBA”) loan through Marblehead Bank. (Compl.
¶ 22; Def. Ex. E). A loan to Lynn Marine, with a
principal amount of $85, 000, was approved on April 30, 2010.
(Def. Ex. E at 1). The note stated that “[a]ll
individuals and entities signing this Note are jointly and
severally liable.” (Id. at 6, § 9(a)). In
addition, the note stated that “[b]y signing below,
each individual or entity becomes obligated under this Note
as Borrower.” (Id. at 8, § 11). Both
Kathleen (as secretary of Lynn Marine) and James (as
president of Lynn Marine) signed the note on behalf of Lynn
Marine. (Id. at 8).
same time, Kathleen executed a document guaranteeing the SBA
loan. (Compl. ¶ 23; Def. Ex. F). The document, titled
“UNCONDITIONAL GUARANTEE, ” stated that she
promised “to pay all expenses Lender [Marblehead Bank]
incurs to enforce this Guarantee, including, but not limited
to, attorney's fees and costs.” (Def. Ex. F at 3,
§ 9(a)). As security for the guarantee, Kathleen granted
Marblehead Bank a mortgage on her residence in Marblehead.
(Compl. ¶¶ 25-26; Def. Ex. G at 1).
complaint alleges that Lynn Marine was then able to win
several small government-supply contracts. (Compl. ¶
29). However, according to the complaint, the SBA loan
payments “compromise[ed] necessary purchasing
requirements for the store business, ” and the business
struggled. (Id. ¶ 31).
Kathleen Obtains a Reverse Mortgage
early 2011, because Lynn Marine was facing financial
difficulty, Kathleen decided to repay the SBA loan in full.
To do so, she obtained a reverse mortgage on her Marblehead
residence through Wells Fargo Bank. (Def. Ex. H at 1). The
principal amount of the reverse mortgage was $382, 200.
(Id.; Compl. ¶ 32). The $382, 200 loan was
allocated as follows: $84, 164.06 went to repay the SBA loan;
$280, 350.31 went to repay another loan from National Grand
Bank; $12, 608.00 went to origination fees; $493.91 went to
Kathleen herself; and the remainder went to other closing
fees. (Def. Ex. H at 1-2). The SBA loan was repaid in full on
March 31, 2011. (Def. Ex. E at 1).
than the Norgaards, no person invested money in Lynn Marine.
(Def. Ex. A ¶ 4(a)- (b); Ex. B ¶ 7; Ex. C ¶
Lynn Marine's Closure
November 2011, Kathleen suffered a severe illness and stopped
working. (Compl. ¶ 34). The following month, December
2011, James filed for personal bankruptcy. (Id.
¶ 35). James's bankruptcy filings indicated that
neither he nor Kathleen had any income in January 2012 other
than Social Security or other retirement benefits. See In
re James Norgaard, No. 11-21628, Docket No. 15, at 14
(Bankr. D. Mass. Jan. 6, 2012). Lynn Marine closed at the end
of first quarter 2012. (Compl. ¶ 36).
was no written agreement between Kathleen and Lynn Marine for
the company to reimburse her for the amount she personally
paid toward the SBA loan. (Def. Ex. B ¶ 1; Ex. C ¶
1). Lynn Marine never made any such reimbursement payments,
or offered any collateral in connection with the loan. (Def.
Ex. B ¶¶ 2, 4-5; Ex. C ¶¶ 2, 4-5).
Kathleen did not require Lynn Marine to create a
“sinking fund” as a condition for her
guaranteeing and later repaying the SBA loan. (Def. Ex. B
¶ 11; Ex. C ¶ 11). The only way Lynn Marine
could have reimbursed Kathleen was to pay her out of its
future earnings. (Def. Ex. B ¶ 8; Ex. C ¶ 8).
Kathleen's Tax History from 2001 to
Tax Year 2001
filed her 2001 tax return on November 5, 2003. (Def. Ex. I at
2). The only payments she made for her 2001 tax liabilities
was through withholding in the amount of $31, 123.
(Id.). She was credited for that amount on April 15,
2002. (Id.). Later, the IRS applied five overpayment
credits to her remaining 2001 tax liabilities between 2007
and 2009. (Id. at 3-5). With the credits, Kathleen
has no outstanding balance on her 2001 tax liabilities, and
she has not sought a refund for that tax year. (See
generally Def. Ex. I).
Tax Year 2002
filed her 2002 tax return on November 12, 2003. (Def. Ex. J
at 2). She did not make any withholding payments for 2002,
although she did include a payment when she filed the return.
(Id.). The IRS applied one overpayment credit to her
2002 tax liabilities on April 15, 2002, because of an
overpayment for 2001. (Id.). The IRS eventually
wrote off her remaining tax liability of $0.28 on December
22, 2003. (Id.). She has not sought a refund for
that tax year. (See generally Def. Ex. J).
Tax Year 2003
filed her 2003 tax return on November 2, 2005. (Def. Ex. K at
2). She only made payments for her 2003 tax liabilities
through withholding in the amount of $11, 970.
(Id.). She was credited for that amount on April 15,
2004. (Id.). Later, the IRS refunded $5, 916.89 from
her withholding. (Id.). She has no outstanding
balance on her 2003 tax liabilities, and she has not sought a
refund for that tax year. (See generally Def. Ex.