Chen v. Wow Restaurant TH, LLC

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

YANHONG CHEN and LUTONG YANG,

on behalf of themselves

and others similarly situated,

Plaintiffs,

v. Case No. 8:23-cv-1602-VMC-UAM

WOW RESTAURANT TH, LLC,

and TRINH HUYNH,

Defendants.

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ORDER

This matter comes before the Court upon consideration of

Defendants Wow Restaurant TH, LLC, and Trinh Huynh’s Motion

to Dismiss (Doc. # 29), filed on October 10, 2023. Plaintiffs

Yanhong Chen and Lutong Yang responded on October 31, 2023.

(Doc. # 30). For the reasons that follow, the Motion is

denied.

I. Background

Plaintiffs initiated this 26 U.S.C. § 7434 action on

July 17, 2023, asserting civil tax fraud against their former

employers. (Doc. # 1). After the Court granted Defendant’s

Motion to Dismiss (Doc. # 22), Plaintiffs filed an amended

complaint on October 5, 2023. (Doc. # 26).

Plaintiffs worked at Wow Restaurant TH, LLC (“Wow”),

which does business as Yaki Sushi Grill BBQ, between 2019 and

2022. (Id. at ¶¶ 7-8). At various times, Chen worked as a

waitress, kitchen helper, hostess, and cashier. (Id. at ¶ 7).

Yang worked on the renovation of the restaurant in 2019-2020

and as a sushi chef in 2020-2022. (Id. at ¶ 8).

Huynh was “the day-to-day, on-site, hands-on manager of

Yaki Sushi Grill BBQ, who hired Plaintiffs and other

employees, supervised Plaintiffs and other employees, gave

Plaintiffs and other employees their assignments and changed

Chen’s assignments from time to time, determined Plaintiffs’

and other employees’ schedules, determined Plaintiffs’ and

other employees’ salaries, prepared and kept records of the

employee payroll, and sent the employee payroll to an

accountant.” (Id. at ¶ 21). Huynh is “the sole member,

manager, and financial controller of Wow who dominated and

controlled Wow.” (Id. at ¶¶ 2, 19).

Wow also made several loans to Huynh. “According to its

2020, 2021, and 2022 Form 1120-S Schedule Ls, Wow loaned a

total of $27,938.00 to Huynh in 2020[,] $192,438.00 in 2021,

and $146,809.00 in 2022.” (Id. at ¶ 22). Allegedly, Huynh

also “used company credit cards for personal expenses,

including to make payments towards a home equity loan, to

make payments towards leases of automobiles she put to

personal use, and to purchase food and drinks for herself

from Starbucks and McDonalds.” (Id. at ¶ 23).

Plaintiffs allege that, “[i]n about August 2020, Huynh

told Plaintiffs that she needed them to accept . . . W-2s

because all of Wow’s employees were working off the books and

being paid under the table in cash, and that she needed some

on-the-books employees in order to apply for government

grants and/or loans.” (Id. at ¶ 25). Allegedly, Huynh

transmitted false records of payments to Chen and Yang to

accountants to prepare information returns, including “Form

W-2s, Form 1120-S’s, quarterly Forms 941, and Form 940s.”

(Id. at ¶ 29).

Chen was required to accept W-2s that overstated her

income for 2020, 2021, and 2022. Her 2020 income was reported

as $29,147.90 in wages and $1,851.00 in tips. (Id. at ¶

24(a)(i)). Her 2021 income was reported as $45,226.15 in wages

and $1,397.37 in tips. (Id. at ¶ 24(a)(ii)). Her 2022 income

was reported as $9,500.00 in wages. (Id. at ¶ 24(a)(iii)).

These values far exceeded Chen’s actual compensation for

these years. Chen was paid “between $6,000.00 and $10,000.00

in wages throughout the entirety of her employment,” and was

provided “lodging in a company dormitory valued at about

$250.00 per month, for 21 months (amounting to about

$5,250.00).” (Id. at ¶ 13).

Yang was similarly required to accept W-2s that

overstated his income from 2020 to 2022. Yang’s 2020 income

was reported as $32,000, his 2021 income was reported as

$75,000, and his 2022 income was reported as $21,500. (Id. at

¶ 24(b)(i)-(iii)). However, in reality, Yang was paid no wages

during his employment, though he was provided “lodging in a

company dormitory valued at about $250.00 per month, for 34

months (amounting to about $8,500.00).” (Id. at ¶ 14).

According to the amended complaint, Wow “willfully filed

fraudulent tax information forms with the [IRS].” (Id. at ¶¶

1, 104).

“Wow’s 2020[, 2021, and 2022] Forms 1120-S, 940, and

941s, as well as Chen’s [and Yang’s] W-2[s], were all

information returns filed with the IRS that contained false

and fraudulent information about Chen’s [and Yang’s]

compensation.” (Id. at ¶¶ 43, 51, 58, 68, 77, 84). Chen and

Yang allege that the reporting of higher income between 2020

and 2022 subjected them to increased federal income tax,

Social Security payroll tax, and Medicare payroll tax. (Id.

at ¶¶ 44, 52, 59, 70, 78, 85). Plaintiffs have provided

redacted copies of Chen’s and Yang’s respective 2020, 2021,

and 2022 W-2 Forms. (Doc. # 1-1; Doc. # 1-2).

Now, Defendants move to dismiss the amended complaint.

(Doc. # 29). Plaintiffs have responded (Doc. # 30), and the

Motion is ripe for review.

II. Legal Standard

On a motion to dismiss pursuant to Rule 12(b)(6), this

Court accepts as true all the allegations in the complaint

and construes them in the light most favorable to the

plaintiff. Jackson v. Bellsouth Telecomms., 372 F.3d 1250,

1262 (11th Cir. 2004). Further, the Court favors the plaintiff

with all reasonable inferences from the allegations in the

complaint. Stephens v. Dep’t of Health & Human Servs., 901

F.2d 1571, 1573 (11th Cir. 1990). But,

[w]hile a complaint attacked by a Rule 12(b)(6)

motion to dismiss does not need detailed factual

allegations, a plaintiff’s obligation to provide

the grounds of his entitlement to relief requires

more than labels and conclusions, and a formulaic

recitation of the elements of a cause of action

will not do. Factual allegations must be enough to

raise a right to relief above the speculative

level.

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal

citations omitted). Courts are not “bound to accept as true

a legal conclusion couched as a factual allegation.” Papasan

v. Allain, 478 U.S. 265, 286 (1986). The Court must limit its

consideration to well-pleaded factual allegations, documents

central to or referenced in the complaint, and matters

judicially noticed. La Grasta v. First Union Sec., Inc., 358

F.3d 840, 845 (11th Cir. 2004).

Rule 9(b) of the Federal Rules of Civil Procedure imposes

more stringent pleading requirements on fraud claims. Clausen

v. Lab’y Corp. of Am., Inc., 290 F.3d 1301, 1305 (11th Cir.

2002). The complaint must allege “facts as to time, place,

and substance of the defendant’s alleged fraud, specifically

the details of the defendant[’s] allegedly fraudulent acts,

when they occurred, and who engaged in them.” Hopper v. Solvay

Pharm., Inc., 588 F.3d 1318, 1324 (11th Cir. 2009) (citation

and internal quotation marks omitted). “Malice, intent,

knowledge, and other conditions of a person’s mind may be

alleged generally.” Fed. R. Civ. P. 9(b).

III. Analysis

As mentioned previously, Plaintiffs assert a claim under

Section 7434(a) against Defendants. (Doc. # 26 at 25—26).

“Section 7434(a) provides a cause of action against a ‘person

[who] willfully files a fraudulent information return with

respect to payments purported to be made to any other person,’

and Section 7434(b) permits damages for the greater of $5,000

or actual damages.” Tran v. Tran, 239 F. Supp. 3d 1296, 1296–

97 (M.D. Fla. 2017) (quoting 26 U.S.C. § 7434(a)). “To state

a claim under 26 U.S.C. § 7434, a plaintiff must allege: (1)

defendant issued an information return; (2) the information

return was fraudulent; and (3) [d]efendant willfully issued

such a fraudulent return.” Elliott v. Barbeque Integrated,

Inc., No. 19-62426-CIV-SINGHAL, 2020 WL 3451576, at *2 (S.D.

Fla. May 29, 2020) (quoting 26 U.S.C. § 7434(a)). “[T]o state

a claim for civil tax fraud under § 7434(a), the plaintiff

must allege that the defendant willfully filed information

returns that misrepresent the amount of payments made.”

Sokoloff v. Bio World Merch., Inc., No. 3:22-CV-12 (CDL),

2022 WL 16857008, at *3 (M.D. Ga. Nov. 10, 2022).

Defendants raise multiple arguments for dismissal. The

Court will address each argument in turn.

A. Grouping of Corporate and Individual Defendants

First, Defendants argue that Plaintiffs have

impermissibly “merge[d] the individual and corporate

defendants by incorporating all the general allegations into

Count I and [by combining] the prayer of relief [for

Defendants], without differentiating each defendant’s

liability based on the distinct factual pattern.” (Doc. # 29

at 3).

A plaintiff fails to comply with the pleading standards

in Federal Rule of Civil Procedure 8 if “the complaint

indiscriminately groups the defendants together.” Joseph v.

Bernstein, 612 F. App’x 551, 555 (11th Cir. 2015). This Court

previously dismissed Plaintiffs’ complaint on this ground,

among others. (Doc. # 22).

However, in the amended complaint, Plaintiffs have

corrected this deficiency. While Plaintiffs reallege and

incorporate by reference all factual allegations in Count I

(Doc. # 26 at ¶ 102), Plaintiffs no longer refer to Defendants

together. Instead, Plaintiffs allege that “Wow willfully

filed fraudulent information returns with respect to payments

purported to be made to Plaintiffs and the [Internal Revenue

Code (IRC)] Class” and that this violation of Section 7434

entitles Plaintiffs and the IRC Class to damages and

attorney’s fees and costs. (Id. at ¶¶ 104, 105). Plaintiffs

then state that Hunyh should be held liable for this conduct

because of her control over Wow, abuse of the corporate form,

and other actions, as alleged previously in the amended

complaint. (Id. at ¶ 106). Therefore, Plaintiffs do not

impermissibly lump Defendants together and Defendants have

received sufficient notice of the allegations and theory of

liability against them.

B. Claim against Huynh

Next, Defendants argue that the claim against Huynh

should be dismissed because Plaintiffs have not sufficiently

pled that the corporate veil should be pierced. “Under Florida

law, the corporate veil will only be pierced to prevent fraud

or injustice.” Eckhardt v. United States, 463 F. App’x 852,

855 (11th Cir. 2012) (citing Dania Jai-Alai Palace, Inc. v.

Sykes, 450 So. 2d 1114, 1121 (Fla 1984)). Use of this theory

of liability is proper if “the corporation ‘is a mere device

or sham to accomplish some ulterior purpose, or is a mere

instrumentality or agent of another corporation or individual

owning all or most of its stock, or where the purpose is to

evade some statute or to accomplish some fraud or illegal

purpose.’” Id. (quoting Aztec Motel, Inc. v. Faircloth, 251

So. 2d 849, 852 (Fla. 1971)). To pierce the corporate veil,

the plaintiff must prove that:

(1) the shareholder dominated and controlled the

corporation to such an extent that the

corporation’s independent existence, was in fact

non-existent and the shareholders were in fact

alter egos of the corporation;

(2) the corporate form must have been used

fraudulently or for an improper purpose; and

(3) the fraudulent or improper use of the corporate

form caused injury to the claimant.

Molinos Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330,

1349 (11th Cir. 2011) (quoting Gasparini v. Pordomingo, 972

So. 2d 1053, 1055 (Fla. 3d DCA 2008)) (emphasis omitted).

Determining whether a shareholder is a corporation’s

alter ego is a fact-specific analysis. Eckhardt, 463 F. App’x

at 856. “One important factor relevant to whether an

individual dominates the corporation to such an extent as to

negate its separate identity is whether corporate funds were

used for the individual’s benefit.” Id.

However, “[m]ere ownership of a corporation by one

shareholder is insufficient to pierce the corporate veil.”

Id. (citing Gasparini, 972 So. 2d at 1055). Instead, a

plaintiff must also show that “the corporation [was] formed

or used for some illegal, fraudulent or other unjust purpose

which justifies piercing the corporate veil.” Id. (quoting

Sykes, 450 So. 2d at 1121). “Improper conduct exists where a

corporation is used ‘as a subterfuge to mislead or defraud

creditors, to hide assets, to evade the requirements of a

statute or some analogous betrayal of trust.’” Id. (quoting

Lipsig v. Ramlawi, 760 So. 2d 170, 187 (Fla. 3d DCA 2000)).

In the amended complaint, Plaintiffs have alleged

sufficient facts to maintain their claim against Hunyh.

First, Plaintiffs have provided facts suggesting that Huynh

was the alter ego of Wow. Among other allegations, Plaintiffs

allege that Wow loaned Huynh $367,185.00 between 2020 and

2022. (Doc. # 26 at ¶ 22). Additionally, Plaintiffs allege

that Huynh “used company credit cards for personal expenses,

including to make payments towards a home equity loan, to

make payments towards leases of automobiles she put to

personal use, and to purchase food and drinks for herself

from Starbucks and McDonalds.” (Id. at ¶ 23).

Second, Plaintiffs have pled that Wow was used for

improper conduct. Specifically, Plaintiffs assert that Wow

violated Section 7434 by improperly reporting Plaintiffs’

income to the IRS so that Wow could apply for government

grants and loans. (Id. at ¶¶ 1, 25-26, 104-06). They further

allege that this violation caused Plaintiffs financial harm

by requiring them to pay higher income taxes and payroll

taxes. (Id. at ¶¶ 44, 52, 59, 70, 78, 86). While Defendants

argue that Huynh’s use of Wow’s funds for personal expenses

and Wow’s loans to Huynh were legitimate such that they should

not justify piercing the corporate veil (Doc. # 29 at 5),

Plaintiffs have provided sufficient information at this stage

of the litigation.

Defendants further argue that the claim against Huynh

should be dismissed because she “was not the filer of the

alleged tax return.” (Id. at 9); see 26 U.S.C. § 7434(a)

(creating a civil action against “the person so filing such

[fraudulent] return”). Rather, it was Wow who, as Plaintiffs’

employer, issued Plaintiffs’ W-2s. According to Defendants,

“Plaintiffs’ attempt to pierce [the] corporate veil is futile

here as they did not allege any facts that [Huynh] was the

issuer of the W-2.” (Doc. # 29 at 6).

However, the fact that Huynh did not issue the W-2s does

not preclude Plaintiffs from seeking to hold Huynh liable for

Wow’s violation of Section 7434 by piercing the corporate

veil. To succeed under this theory, Plaintiffs need not show

that Huynh issued the W-2s, but only that she should be held

liable for Wow’s issuing of the W-2s that indicated incorrect

wages. See Tara Prods., Inc. v. Hollywood Gadgets, Inc., No.

09-CV-61436, 2010 WL 1531489, at *9 (S.D. Fla. Apr. 16, 2010)

(“Alter ego is not a separate cause of action for which relief

can be granted; rather, in this case, alter ego serves as a

theory to impose liability on an individual for the acts of

a corporate entity.”).

C. Particularity and Scienter

Next, Defendants contend that the amended complaint

fails to plead its claim with particularity under Rule 9(b).

(Doc. # 29 at 7-8). Additionally, they argue that

“Plaintiff[s] failed to plead any specific facts with regards

to the scienter of Defendants.” (Id. at 8).

“Rule 9(b)’s heightened pleading standard applies to

[Plaintiffs’] tax-fraud claim [under Section 7434(a)].”

Vandenheede v. Vecchio, 541 F. App’x 577, 579 (6th Cir. 2013).

The Court finds, however, that Plaintiffs have sufficiently

pled all elements of their claim. Importantly, Plaintiffs

have pleaded the “who, what, when, why [and] how surrounding

the actual filing of the returns,” see Leon v. Tapas & Tintos,

Inc., 51 F. Supp. 3d 1290, 1298 (S.D. Fla. 2014), by outlining

the false information returns at issue, the years in which

they were issued, how the returns were incorrect, and why

Defendants issued the false returns. See Diaz v. In Season

Distribs., LLC, No. 1:16-cv-21877-UU, 2016 U.S. Dist. LEXIS

111704, at *4-5 (S.D. Fla. Aug. 17, 2016) (denying a motion

to dismiss a claim under Section 7434 where Plaintiff’s

pleadings defined the information returns at issue, how the

returns were incorrect, and Defendants’ improper purpose for

filing false returns).

Regarding scienter, Section 7434(a) requires a willful

filing of a fraudulent information return. “[W]illfulness in

this context ‘connotes a voluntary, intentional violation of

a legal duty.’” Vandenheede, 541 F. App’x at 580 (citation

omitted). “Tax fraud typically requires ‘intentional

wrongdoing.’” Id.; see Tran, 239 F. Supp. 3d at 1298 (“To

prove willfulness, the plaintiff must show that the

defendants, aware of the duty purportedly imposed by Section

7434, specifically intended to flout the statute.”). “At the

motion to dismiss stage, then, the complaint must contain

specific allegations supporting a plausible inference that

[Defendants] willfully filed false information returns.”

Vandenheede, 541 F. App’x at 580.

Here, Plaintiffs have pled that “Wow willfully filed

fraudulent tax information forms with the Internal Revenue

Service.” (Doc. # 26 at ¶¶ 1, 104). Plaintiffs further allege

that “Huynh is liable inasmuch as she completely dominated

Wow; abused the corporate form fraudulently to deceive

government and private creditors into giving Wow money by

falsely representing on information returns filed with the

IRS that it paid employees, including Plaintiffs, money it

did not pay; and caused Plaintiffs financial harm by doing so

inasmuch as they were overtaxed on income they were not

actually paid.” (Id. at ¶ 106). Additionally, Plaintiffs

outline specific allegations that Huynh knew that she was

filing incorrect W-2s. The amended complaint states that

“[i]n about August 2020, Huynh told Plaintiffs that she needed

them to accept these W-2s because all of Wow’s employees were

working off the books and being paid under the table in cash,

and that she needed some on-the-books employees in order to

apply for government grants and/or loans.” (Id. at ¶ 25). As

Huynh controls Wow (Id. at ¶ 2), her actions can be used to

show that Wow had the requisite scienter.

In short, even applying Rule 9(b), Plaintiffs have

sufficiently pled that Defendants did knowingly file

fraudulent W-2 forms.

D. Filing of W-2 Forms

Finally, Defendants argue that “Plaintiffs fail[ed] to

state a claim for relief because the ‘W-2’ forms alleged in

the Complaint are not ‘information returns’ as described in

the statute and in any event are not ‘filed’ with the IRS.”

(Doc. # 29 at 10).

This argument fails. The amended complaint clearly

alleges that W-2 forms are “information returns” that were

filed with the IRS. (Doc. # 26 at ¶¶ 15, 29). And the relevant

statutes support that W-2 forms qualify as “information

returns” for purposes of Section 7434(a). See 26 U.S.C. §

7434(f) (defining “information return” as “any statement

described in section 6724(d)(1)(A)”); Id. §

6724(d)(1)(A)(vii) (defining information returns to include

“any statement of the amount of payments to another person .

. . relating to information returns with respect to income

tax withheld”). Claims under Section 7434 for improper

reporting of income in W-2 forms have been recognized by many

courts. E.g., Caraballo v. Double L Enters., LLC, No. 8:15-

cv-2123-JDW-AEP, 2016 WL 1084809, at *3 (M.D. Fla. Feb. 25,

2016) (determining that Plaintiff’s allegations of

Defendant’s “willful failure to properly record, account for,

and report to the IRS on Caraballo’s W-2 Forms all of the

monies paid to [Plaintiff] during his employment . . .

established a substantive, sufficient basis for . . . damages

under 26 U.S.C. § 7434(b)”), report and recommendation

adopted, 8:15-cv-2123-JDW-AEP, 2016 WL 1108977 (M.D. Fla.

Mar. 18, 2016); Cuellar-Aguilar v. Deggeller Attractions,

Inc., 812 F.3d 614, 620 (8th Cir. 2015) (reversing a district

court’s dismissal of a claim under Section 7434 when

Plaintiffs had alleged underreporting of income on W-2 forms

“to reduce the business’s tax obligations under” two federal

laws); Elliott, 2020 U.S. Dist. LEXIS 95687, at *4 (“[T]he

parties must concede that the W-2 forms are information

returns.”).

While Defendants also dispute that the W-2s were filed

with the IRS (Doc. # 29 at 12), when deciding a motion to

dismiss, the Court accepts as true all the allegations in the

complaint and construes them in the light most favorable to

the plaintiff. Jackson, 372 F.3d at 1262. As Plaintiffs

specifically alleged that the W-2 forms were filed with the

IRS (Doc. # 26 at 1), Defendants’ argument fails.

Accordingly, it is now

ORDERED, ADJUDGED, and DECREED:

Defendants Wow Restaurant TH, LLC, and Trinh Huynh’s

Motion to Dismiss (Doc. # 29) is DENIED. Defendants are

directed to file their answer to the amended complaint within

14 days of the date of this Order.

DONE and ORDERED in Chambers in Tampa, Florida, this 6th

day of May, 2024.

VIRGINIA M. HERNANDEZ*COVINGTON

UNITED STATES DISTRICT JUDGE

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