*1 customers for more than or recreation per year. months
seven stipulated It is clear from the facts operate the Reds do indeed for more year. truly per seven months While sea- employs insignificant sonal business that an year-round of workers could conceiv- number exemption, ably qualify for the the fact that employ year-round the Reds workers they “operate” compels the conclusion year-round. operate
Because the Reds for more than year, they months in a calendar seven summary judgment based entitled 213(a)(3). upon § 29 U.S.C.
III. reasons, foregoing For the we reverse the summary judgment in favor of the order of this to the district Reds and remand cause proceedings. court for further HUIZINGA, Andrew G. Plaintiff-Appellee,
v. America, UNITED Defendant STATES Plaintiff-Appellant, & Counterclaim Ralph Scotese; Larry Vanderbeek, L. Defendants-
Counterclaim Appellees. No. 94-1684. Appeals, United States Court Sixth Circuit. Argued Sept. 1995. Decided Oct.
I. Services, (“AMS”),
Allied Mechanical Inc. plumbing heating is a contractor in Kala- mazoo, Michigan. Plaintiff-appellee Andrew *3 Huizinga (“Huizinga”) served as AMS’s Pres- 1979, ident and Chairman of the Board. Huizinga stepped down as AMS’s President position but retained his as Chairman of the Unfortunately, Board. AMS encountered se- problems vere financial thereafter. Con- future, cerned about AMS’s American Na- Bank, principal tional AMS’s secured credi- tor, serve, persuaded Huizinga again, once February as AMS’s President 1984. Larry working Vanderbeek started for and, 1979, AMS in the late 1960’s late was AMS’s Vice President and a member of its Scotese, Ralph Board of Directors. a certi- accountant, public began working fied for Gass, (argued Mark E. Rizik and resignation David J. AMS in Prior to 19.74. his on briefed), Miller, Johnson, 24, 1984, July Snell & Cummins- Scotese was AMS’s Executive MI, key, Huiz- Rapids, for Andrew G. Grand Vice President.
inga. 31, 1984, July Huizinga On or about learned that AMS had failed to remit to the (briefed), Allen, Gary Acting R. Chief Ken- (“IRS”) Internal Revenue the federal Service Greene, (argued), P. neth L. Frank Cihlar security payments income tax and social that Crowe, Justice, Department L. of Billie U.S. employees’ pay from AMS had withheld Section, Division, Washington, Appellate Tax quarters for the first three of 1984. The DC, for U.S. that, parties agree Huizinga when learned of Nordwind, Jr., Reed, omission, Willy Stover & there were no funds in AMS’s O’Connor, Kalamazoo, MI, thereafter, Ralph Shortly Scotese. AMS’s bank accounts. American National Bank informed that AMS Moskal, Heacock, James Steven R. War- deposited it would offset funds that AMS ner, Judd, MI, Rapids, Norcross & Grand against outstanding loan balance. AMS’s Larry L. Vanderbeek. opened thereafter an account Com- AMS informing Na- erica Bank without American CONTIE, NELSON, RYAN, Before: and Unfortunately, Huizinga was tional Bank.1 Judges. Circuit not able to reverse financial deteriora- AMS’s petition tion. In October filed AMS CONTIE, J., opinion of the delivered the reorganization pursuant Chapter seeking court, RYAN, J., NELSON, joined. in which Bankruptcy 11 of Code. 145-46), (pp. separate J. delivered 15,1990, assessed a On November the IRS concurring opinion. $1,021,496.25 Huizinga penalty against of that for his failure to remit the funds AMS CONTIE, Judge. Circuit employees held in trust for its for the first 29,1991, January appeals quarters district three of 1984. On The United States (one employ- penalty Huizinga paid af- the IRS $202.25 court’s tax determination. We security income tax ee’s social and federal firm. (i.e., wages During August September taxes taxes on earned and AMS 31, 1984). $550,000 remaining money July deposited Comerica after (more The more than in its $480,000) $70,585 Approximately figure was to creditors other of this account. payroll than the United States. was to the United States as current (those withholdings quarter). payroll withholding That for one same taxes taxes com- (2) 31,1984); ing July day, Huizinga nullify asked the due after some were IRS $1,021,496.25 encumbered Builders penalty requested that the (3) Act; Trust Fund some were sub- refund the that he had remitted IRS $202.25 ject principal to the 15, 1991, secured creditor’s day. April reject- On the IRS (American Bank’s) security National inter- Huizinga’s requests. ed agreement. est and cash collateral 21, 1991, May Huizinga filed this tax On alleging refund suit that he was not a “re- First, agrees parties this Court with the sponsible person” pursuant to section 6672 portion “after-acquired” the Internal Revenue Code. funds that was used to the “current” States, turn, against a counterclaim filed *4 payroll withholding federal taxes must be Huizinga, alleging and Vanderbeek Scotese considered “encumbered.” ... responsible the three men were AMS’s failure to remit the taxes Next, portion this Court believes that the quarters Though for the first three of 1984. “after-acquired” “impressed” funds liability, Huizinga Scotese conceded and Van- pursuant Michigan with a trust to the derbeek did not. Builders Trust Fund Act ... was “encum- The filed a United States motion for sum- Huizinga bered.” has demonstrated that mary judgment against Huizinga and Van- security the Act “creates device in the turn, Huizinga, derbeek. in filed cross- form of a ‘trust fund’ for the benefit of the partial summary judgment; motion for Van- owner and subcontractors on construction joined Huizinga’s derbeek in motion. On projects.” security That appears device 23, 1993, granted June the district court “after-acquired” restrict the use of the parties’ summary judgment part, in motions Further, Huizinga funds here. has part: and denied them pointed shown—and the United States ''ms agrees This Court that there is a triable contrary little to the gov- the federal —that issue of fact as to whether Vanderbeek superior ernment did not have a interest in “responsible per- should be considered a “after-acquired” funds held under the son” under section 6672. On the other Thus, Act. pursuant the sum to the hand, genuine is no there issue as to Huizinga’s Act was not pre- available for Huizinga’s “responsible material fact as to existing liability. person” designation for the relevant first Finally, this Court does not think that the quarters three of 1984. presented sufficiently record here is clear allegedly
to determine whether the funds Finding Huizinga “responsible is a principal controlled secured credi- person,” this Court must turn to (American the sec- Bank’s) tor’s security National requirement ond under section 6672: agreement interest and cash collateral “wilfully” pay whether he failed to [Tjhis over to were requires “encumbered.” issue government amount of taxes due. further clarification at trial. short, “present In responsible question Wilfulness is if the concerning the exact person knowledge had Huizinga’s pre-existing of the tax delin- extent of tax liabili- quency knowingly rectify ty failed to it must be left for trial.
when pay there were available funds to (citations Opinion District Court’s at 6-17 government.” omitted).
Though the United States conceded that Huizinga ... asserts that there Michigan Building were three Contract Fund Act types precluded security encumbrance which him creates a device in form of a using from all “after-acquired” (i.e., AMS’s trust fund for the trust’s beneficiaries $74,143.35 laborers, except liability. subcontractors), for the tax materialmen and (1) explains He that: some the funds the United States asked the district court to pay were because, used to “current” federal or finding state reconsider its the IRS ar- (1986) (emphasis in L.Ed.2d 202 in- superior held a States gued, the United genuine be dispute must original). The The district funds. the trust terest that, they if must be such for recon- the facts motion rejected the United States’ trial, jury could re- a reasonable proven at sideration. nonmoving party. 60 for the turn a verdict into set- subsequently entered parties The If the F.2d at 1435. Ivy Corp., 822 St. Huizinga and wherein: negotiations tlement merely colorable or “is disputed evidence the United States pay agreed Vanderbeek summary judg- probative, significantly appeal agreed to $125,000; the United States Anderson, 477 U.S. granted.” ment Act Fund Building Contract Michigan (citations 249-50, omit- at 2511 106 S.Ct. and, agreed issue; parties encumbrance ted). prevails on that, if the United States will Huizinga and Vanderbeek appeal, Trust Funds The $175,000. an additional United States Building Fund Contract The court, in accordance The district judg- provides: agreement, entered settlement parties’ Huizinga and Vanderbeek against building construction indus-
ment Sec. 1. appealed. $125,000. by any States building contract fund try, the contractor, such
person to a
*5
subcontractor,
II.
be
a
shall
contractor to
or
fund,
trust
by this act to be a
considered
Review
Standard of
making the
person
the
the benefit of
for
where
appropriate
is
Summary judgment
laborers,
contractors,
subcon-
payment,
any material
as to
genuine issue
is no
“there
materialmen, and the contrac-
tractors or
to a
party is entitled
moving
...
the
and
fact
considered
shall be
tor or subcontractor
law.”
of
Fed.E.Civ.P.
judgment as a matter
paid to him for
all funds so
trustee of
the
summary
56(c).
grant of
court’s
A district
purposes.
building construction
Pinney Dock
de novo.
judgment
reviewed
or subcontractor
Any contractor
Sec.
F.2d
Corp., 838
Penn Cent.
Transp. Co. v.
&
busi-
building construction
engaged in the
(6th
denied,
Cir.),
1445,
488 U.S.
cert.
1472
defraud, shall
ness, who,
to
intent
(1988).
196,
166
880,
102 L.Ed.2d
109 S.Ct.
any part
proceeds or
the
or use
retain
review,
the facts
must
view
its
this
In
him,
to
for
therefor,
any payment made
of
in the
therefrom
drawn
and all inferences
pay labor-
than to first
any
purpose
other
nonmoving party.
the
to
light most favorable
materialmen, en-
ers,
subcontractors
1432,
Alexander, 822 F.2d
Corp.
Ivy
60
St.
v.
furnish
or
perform
him to
labor
gaged by
Cir.1987).
(6th
1435
improvement,
specific
for
material
of estab-
moving party has the burden
appropriating
felony in
of
guilty
be
shall
fact
genuine issue of material
lishing that no
any
while
his own use
funds to
such
Nevertheless,
face of
Id.
may
liable or
exists.
be
he
amount for which
motion,
nonmoving
summary judgment
of his con-
the terms
hable under
become
but must
pleadings
on its
party cannot rest
remains
labor or material
tract for such
probative evidence
with some
forward
upon
come
prosecuted
unpaid, and
Catrett,
Corp. v.
defrauded,
support its claim. Celotex
any persons
to
so
complaint of
2553,
2548,
91
317, 324, 106 S.Ct.
conviction,
by
U.S.
punished
477
and,
shall be
upon
(1986).
265
L.Ed.2d
or more
than 100 dollars
not
a fine of
less
6
less than
5,000
not
dollars
and/or
terms,
provides
this
“By
very
standard
imprison-
years
than 3
nor more
months
alleged fac-
of some
mere existence
discretion of
at the
prison
in a
ment
state
parties will
dispute between
tual
court.
mo-
properly supported
an otherwise
defeat
contractor,
by a
appropriation
3. The
require-
Sec.
summary judgment;
tion
moneys paid
subcontractor,
any
any
genuine issue
be no
is that
there
ment
before
building operations
him for
Lobby,
Liberty
v.
fact.” Anderson
material
moneys
or so to
due
by
of all
2505,
him
247-48,
payment
Inc.,
106 S.Ct.
477 U.S.
laborers, subcontractors,
beneficiaries,
laborers,
become due
ma-
trust
subcontractors
payment,
or others
unpaid
terialmen
entitled
and materialmen remain
using
shall be evidence of intent to defraud.
specific project
for a
obtained
to first
pay for
and materials
labor
furnished for that
Mich.Comp.
§§
Laws
570.151-570.153.
specific project.” Id. at 252-53.
fidu-
“The
Michigan Building
“The
Contract
ciary relationship
Building
established
imposes
upon
Act
budding
Fund
a ‘trust’
Contract
any
Fund
arises at the time
by any
person
fund
to a con
contract
monies
are
the contractor or subcon-
tractor or subcontractor for the benefit of the
tractor
any
whether or not there are
benefi-
contractors,
person making
payment,
la
ciaries of the
trust
that time and continues
borers,
subcontractors
and materialmen.”
until all of the trust beneficiaries have been
Johnson,
(6th
In re
691 F.2d
Cir.
(citations omitted).
paid.” Id. at 253
See
1982) (citation
omitted).
and footnote
“The
(“Until
also
id.
some
pay-
makes a
receiving
contractor or subcontractor
building
fund,
ment
into the
contract
”
(citation
payments is the ‘trustee.’
Id.
contractor or subcontractor
sup-
is liable to
omitted).
imposes
duty
“The
upon
statute
pliers
solely
and laborers
based on contract.
money
building
the trustee to use the
in the
statutory
Once a
trust
pay-
is activated
laborers,
fund
contract
to first
subcon
building
fund,
ment into a
contract
the stat-
particular
tractors and materialmen on the
prohibits
ute
the contractor or subcontrac-
project for which the
deposited
funds were
tor’s use of
particular
monies received for a
pur
before he uses the fund for
other
project
anything
other
paying
tha[n] first
(citations
omitted).
pose.” Id.
and footnote
suppliers
laborers and
on
project.”).
subcontractor,
“Any contractor or
Selby
Co.,
v. Ford Motor
145
agree
available funds.2 We
In
his use of the
and 3402 of the
3102
Sections
the district court’s determinations.
with
require employers to
Revenue Code
ternal
income
security and federal
social
withhold
Michigan Builders Trust
wages. Pursu
employees’
their
taxes from
protect
Act was enacted “to
the owner
Fund
Revenue
of the Internal
7501
ant to section
labor and materials make
and those whose
money
in trust for
Code,
is held
the withheld
contract
performance of a construction
govern
until
to
States
the United
give rise to the owner’s obli
possible and
these trust
employer withholds
ment.
If an
Co.,
Selby
gation
pay.”
to
v. Ford Motor
to the United
fails to remit them
funds but
of the statute is to
F.2d at 644. The effect
States,
credited
employee is nevertheless
becoming
proper
funds from
prevent the
govern
and the
having paid the taxes
building
by creating a
ty of the
contractor
pay
any additional
require
ment
by making the
the funds and
trust
to hold
However, any per
employee.
ment from the
result,
the trustee.
Id. As
contractor
collecting
paying
responsible
son
pursuant
in trust
funds held
a contractor
wilfully
government that
taxes to the
such
property
of the con
to
are not
subject
penalty equal to
to a
fails to do so is
brought
and cannot be
into a bank
tractor
unpaid
Specifically,
taxes.
100%
ruptcy estate.
Id. at 646-47. This same
provides
that a
is
statute
relevant
reasoning suggests
could not use
that AMS
responsible for
subject
penalty if he is
to the
Act)
(pursuant
in trust
to the
the funds held
and is wilful
financial affairs
employer’s
satisfy
delinquent tax liabilities.
its own
collect,
for, or remit
account
in his failure
stated, Huizinga
clearly under a
Simply
was
government.
to the
U.S.C.
the taxes
legal obligation
after-acquired
to use the
§ 6672.
pay
Act’s
that were held in trust to
the relevant
intended beneficiaries. Because
first
responsible person
A
who
legally encumbered
the Michi
funds were
withholding tax
past
due
aware of
becomes
provisions,
Act’s
gan Builders Trust Fund
liability
is con
liability
has accrued
after
in the funds
and because the IRS’s interest
6672)
(for
section
purposes of
sidered “wilful”
legal obligations
supersede the Act’s
does not
funds that
to use all unencumbered
if he fails
beneficiaries,
intended
to its
possession thereafter
come into his
rejected.
must
assignment of error
States’
Funds are considered
delinquent
taxes.
Accordingly, we AFFIRM.
taxpayer
le
“only
encumbered
where
*7
purpose
for a
gally obligated to use the funds
NELSON,
Judge,
A.
Circuit
DAVID
employ
satisfying
preexisting
the
other
concurring.
obligation is
liability
legal
[the]
ment tax
decision of the district
agree
I
that
the
in the
superior to the interest of the IRS
affirmed,
only because
should be
but
States, 963 F.2d
Honey v. United
funds.”
present
to
adequately
failed
government
the
—
(8th
denied,
Cir.),
1083,
cert.
U.S.
1090
argument
it has
in the district court
(1992).
-,
676,
ing simply part pay. not, taxes are of a laborer’s government however, Trust. The did withholding paying taxes to argue taxpayers over the fed- that the had failed dem- to government, paying eral a contractor thus expenses onstrate that the question in employees something projects projects incurred on other than to — obviously designed prohibit. was not to delinquent which pertained. taxes If the government suggested had this fail- critical design prevent “The of the Act is to con proof court, ure in to the district I not do juggling tractors from funds between unre believe that it would have proper been projects. By imposing lated trust a as to grant summary judgment taxpayers contractor, monies in statute on the encumbrance issue. But because the particular project that funds for a sures will argument presented not was to the district project be for that People used alone.” v. court, it should not be entertained here. Miller, 336, 877, Mich.App. 78 259 N.W.2d (1977). 881 To the extent that a contractor that, “It is well-settled absent exceptional might satisfy withholding obligation tax circumstances, appeals a court of not will arising project out of activities on one argument by consider appellant an an by funds received contractor connec presented was not by or considered project, tion with another the contractor Quirk trial court.” Estate v. Commission misapplying would “encumbered” funds. er, 751, (6th Cir.1991). 928 F.2d 757-58 But funds received the contractor in con appear There do to be exceptional particular project nection with a are not “en militating in depar circumstances favor of a way prevent such a cumbered” as to principle ture from this here. Accordingly, I applying from against contractor the funds concur in summary the affirmance of the obligation related to the judgment. project same this is true even when the —and obligation is primary duty overdue. “The the trustee is to insure that trust funds are
spent particular on project for which deposited.” trust funds were Weathervane Window, Inc. v. White Lake Construction
Co., 316, Mich.App. 337, 192 480 N.W.2d 341
(1991). America, UNITED STATES of The burden of demonstrating Plaintiff-Appellee, are encumbered rests on taxpayer. See States, 740, v. Collins United 848 F.2d 742 v. (6th Cir.1988); Honey States, v. 963 WARD, Defendant-Appellant. Malik — (8th Cir.), denied, F.2d cert. -,
U.S. 113 S.Ct. No. L.Ed.2d 598 95-1284. (1992). An affidavit executed Daniel Appeals, United States Court of *8 Huizinga establishes that the funds which the Sixth Circuit. government contends should ap have been plied against withholding liability tax Argued Sept. 1995. used other “Builder’s Trust Fund Decided Oct. Expenses,” but the affidavit does not show expenses pertained of these to a project for which the contractor did not have
an unsatisfied obligation great least as expense as the question. proof Neither is such to be found elsewhere record. In the district government obliquely suggested that withholding taxes
could be out of a Builder’s