Edward J. Finley, and Counterclaim v. United States of America, and Counterclaim Floyd Johnson, Counterclaim

provide demnify, requires insurer to “ FINLEY, by filed coverage complaint Plaintiff ‘when Edward J. Defendant, potentially within alleges facts claimant Counterclaim ” Heritage, coverage policy.’ of the Western v. (quoting Foundation Reserve at 656 America, Defendant UNITED STATES of Mullenix, N.M. 642 P.2d Ins. Co. Plaintiff-Appellee, and Counterclaim (1982)). do Because we not be “potentially was within the lieve Mesa’s claim Johnson, Floyd Counterclaim scope coverage, we conclude its insurance Defendant-Appellant. duty not its to defend that INA did breach No. 95-3108. refusing provide a defense to Mesa Ekotek lawsuits.” Appeals, States Court Tenth Circuit. a New

We have concluded that Mexico meaning” “plain court honor the Aug. 20, 1997. pollution exclusion find CGL coverage in policy provide this situa- does not

tion. Other courts that reached in- also concluded

conclusion have See, duty its

surer did not breach defend. State, Quaker F.Supp.

e.g., by

(holding coverage was barred that once exclusion, duty not

pollution to defend could invoked). Moreover, under New Mexico duty when the claim no to defend arises coverage provided

“clearly falls” outside the County Deputy policy. Bernalillo Bernalillo, County Ass’n

Sheriffs N.M. 845 P.2d Because “plain meaning”

we have that the concluded provide not

of the insurance contract does situation,

coverage in we also believe “clearly claim falls” outside Mesa’s Thus,

coverage policy. INA provided duty

had no to defend Mesa’s claims. duty to argues

INA that the defend also the EPA apply

does here because settle- “suit,” response

ment is not a and CERCLA “damages,” meaning

costs are not within provision. we conclude that

of that Because by the pollu- was covered

the Ekotek exclusion, duty and that no to defend on

tion situation, part arose in this of INA these

need address issues.

CONCLUSION reasons, foregoing

For we AFFIRM judgment court. of the district SEYMOUR, PORFILIO,

Before TACHA, ANDERSON, BALDOCK, BRORBY, EBEL, KELLY, HENRY, BRISCOE, MURPHY, LUCERO Judges. Circuit BRORBY, Judge. Circuit appeal We en reheard this banc to address following question: Under 26 if responsible U.S.C. person investigate fails to or correct mis- management learning after of a withhold- ing tax delinquency, must his conduct be found reckless and therefore willful as a law, or, alternative, matter of in the should jury, of all the view relevant evi- dence, responsible to find the entitled person recklessly? did not act We hold “willful” conduct as defined in the (1994 context of 26 Supp. U.S.C. & 1977)' negated by can showing the re- sponsible person had reasonable cause for failing pay withholding taxes held in trust for the appro- Such conclusion priately liability” interpreta- avoids a “strict preserves tion a role for the finder, whether, jury, as fact to determine evidence, responsi- the view of all relevant person “willfully” pay employee ble failed to withholding taxes. AND

OPERATIVE FACTS PRIOR DISPOSITION1 Appellant, Johnson, Floyd presi- Mr. was and a the board dent member of of directors Halsey-Tevis, (“Halsey-Tevis”), Inc. struggling engaged corporation in the interi- or construction business. late October (Loretta Argrett, Ernest J. Brown C. 1988, Mr. Johnson learned board mem- Brookhart, Cole, Roger E. E. Charles secretary-treasurer, Mr. ber Edward Counsel, Justice, Department of and Of Finley, Halsey-Tevis was Rathbun, Randall K. of the United Office security paying federal social and income briefs), Attorney, with him States employee wages during taxes withheld from Justice, DC, Department Washington, for quarters Upon third and fourth 1988. Plaintiff-Appel- and Counterclaim Defendant learning delinquency, Mr. Johnson told lee. Finley, “[t]hey paid.” have to be Mr. (Arthur Palmer, Joseph McKinney Finley responded partial payments E. E. were briefs) Goodell, in; Stratton, coming gave him on the he no indication he would with L.L.P., Palmer, KS, Topeka, comply & directive to Edmonds Johnson’s DefendanL-Appellant. made no taxes. Mr. Johnson further Counterclaim present only 1. We here facts relevant to the is found in v. United tho§e 1996). question. complete banc recitation of Cir. en facts §of When asked whether Mr. regarding context inquiry took no further action “shown, unpaid withholding though taxes even he preponderance Johnson had and, authority sign company checks had willfully fail to that he did not the evidence time, Halsey-Tevis had to funds access pay over the United States used make at least have been that could Halsey- wages from the taxes withheld government. to partial payment the Tevis, jury responded employees,” Inc.’s the Halsey-Tevis’ not financial This verdict was allowed The full extent of “YES.” later stand, a short time when granted woes became evident The court however. district completed company’s quarter- Finley the Mr. post-trial for a government’s motion the ending ly period for financial statement the Fed. as matter of law under judgment 7, 1988, 30, September 1988. On November 50(b), concluding “a reasonable R.Civ.P. Finley First National Bank Mr. contacted met not found that Johnson [Mr.] could have Halsey-Tevis which bank at Wichita —the Applying proof.” his Denbo burden payroll general checking and maintained its (10th Cir.1993), States, F.2d 1029 988 Halsey-Tevis provided and that accounts panel court affirmed the district company from the could line credit which set the verdict. court’s decision to aside its operating funds based on accounts borrow Finley, at 972-74. newly completed explain the receivable —to reviewing After quarterly statement’. the UNDER 26 WILLFULNESS U.S.C. statement, meeting bank called a the Question § 6672: A of Fact or Halsey-Tevis day. officers for the next On A Matter of Law? 8, Finley, morning Mr. the of November Mr. requires The Internal Revenue Code officer, Halsey-Tevis Johnson and another security employers to social withhold federal McCann, the Mr. Brian met discuss com- employees’ problems prior meeting income taxes from their pany’s financial meeting Mr. wages pay with the bankers. It was to the then those over Finley not 3402(a), learned Mr. had remed- 3102(a), Johnson §§ 26 U.S.C. withholding delinquency. tax Prior ied (1994 1997). Supp. & The funds with 3403 bankers, Johnson, meeting with the Mr. belong employee wages do not held Finley to the Mr. and Mr. McCann went local they employer/corporation; are funds try Administration office to Small Business employer govern trust for the held them to and secure a loan that would allow 7501(a) (1994). corpo ment. 26 U.S.C. pay withholding taxes. The Small Busi- employee fails remit rate officer or who Halsey-Tevis ness told the Administration may person such taxes go through officers would ally pursuant to penalties liable for 26 U.S.C. day, First Later same National bank. 6672(a), provides: which Halsey-Tevis’ There- Bank froze accounts. collect, truthfully Any person required to after, any Halsey-Tevis pay could not bills for, any imposed pay over tax account approval. prior without the bank’s willfully fails to collect this title who Mr. On November tax, truthfully pay or account for and such $105,000in collec- delivered about tax, attempts any willfully over such or tions to the bank and asked bank officials manner to or defeat such tax evade deposit withholding tax apply the to the bal- thereof, shall, in payment addition applied ance. The bank refused instead penalties provided by liable other deposit Halsey-Tevis’ indebted- loan penalty equal to the total amount of to a ness. Bank officials told Mr. Johnson and evaded, collected, the tax or not Finley they “take care of the taxes accounted for and over. later.” added.) (Emphasis July Internal Revenue Service liability It is well-settled 6672 does being he was notified Mr. Johnson assessed depend presence of a bad motive or $144,876.48 26 penalty under U.S.C. govern- specific intent to defraud the against government’s Mr. Johnson claim criminal lia- ment —elements associated with proceeded to a trial 1994 on sole States, F.2d bility. v. United 486 acted within the Burden issue whether he

1345 denied, Cir.1973), govern cert. over taxes to person’s ment. A responsible S.Ct. L.Ed.2d 109 in U.S. failure to (1974); vestigate Bowen problem v. United or correct misman (5th Cir.1988); agement Bloom v. United receiving actual after notice of a Cir.1959), delinquency represents tax paradigm factual applied this ease. Fin 973; also, Denbo, L.Ed.2d Rather “willfulness” ley, 82 F.3d at see purposes imposing civil upon at 1033-34. Reliance repre § 6672 is sentation of in control company someone “voluntary, finances that conscious and intentional de- taxes will be prefer learning other creditors over the after such cision taxes are delin Although negligence quent, Government....” person and when it is known that the give liability, not making does rise to section the statements is unreliable has ‘“ requirement the willfulness is ... if inadequately performed met respon his financial responsible the officer shows a “reckless represents past, sibilities in the par another disregard of a known or obvious risk that adigm liability impose used to under may trust funds not be remitted to the payment as a matter of The law. of other government....”’” responsible per- bills with knowledge that the business is investigate failure to or to son’s correct trouble, failing reasonably financial but to being mismanagement after notified that inquire money whether would be available not been taxes have satis- pay withholding to when become require- the section 6672 willfulness fies yet paradigm due is another courts ment. applied. See Thomsen United (1st Cir.1989) (summarizing Denbo, (citations omitted). 988 F.2d at 1033 patterns the “distinctive fact from which to question posed appeal en banc The is disregard infer a reckless sufficient to dem satisfying whether evidence the Denbo defini- onstrate as a un willfulness matter of law impose liability tion alone is sufficient to Blais, law, (quoting der section 6672” I.R.S. v. of or under as a matter whether (D.Mass.1985))). F.Supp. there remains some role for to deter- mine, evidence, paradigms obviously These ejqpan- create an view of all relevant that a sive web of “as a matter of responsible person act law” and did not significantly government’s corpora- cannot liable for a ease the burden therefore be held 50(b). Thus, easy unpaid withholding it tion’s taxes. Fed.R.Civ.P. is why government to so understand the relies government responds question to this The heavily existing precedent. on The en banc by citing to us case law from circuit and however, question, reflects our concern responsible person others holds who ease law whether this web of leaves role knowledge unpaid has of taxes and thereafter for to determine willfulness. pays payment personally or directs the government’s existing pre reliance on mere creditors, of other or claims fails to take question. cedent does not answer appropriate steps to ensure taxes are ie.g., investigate fails to matter or attempts escape Mr. Johnson the web mismanagement), willful correct is as a mat- by arguing facts in are the relevant his case government, According ter of law. (not as) egregious distinct from as rele- stray precedent largely from this ‘Vould vant applied facts cases where courts have provide a emasculate Section 6672 and blue- investigate or “failure correct misman- print personal liability for the avoidance of alternative, agement” paradigm. persons responsible for for those the failure reject rigid urges application us to pay over trust due fund taxes the United paradigm, application of that such an as States.” of virtual announce “a standard strict liability” contrary plain language fully precedent are aware We whereby Using approach statute. either to back courts have seized the notion away investigate cor- paradigms factual establish will from-the “failure certain mismanagement” paradigm, Mr. though as a matter of even rect John- fulness not an failure then asserts there is substantial evidence facts do involve intentional son willful, and the consideration definition of support jury’s verdict he did will- tq may consideration Halsey-Tevis’ cause invite fully fail federal with- holding business’ of irrelevant elements such demands. condition creditors’ financial that certain agree We with Mr. Johnson 1316; Monday, Harrington, 504 F.2d at existing factual distinctions exist between has At least one court also at 1216. However, precedent case. the fac- and this an “that cause’ is noted while ‘reasonable paradigms for tual identified as standards of other [internal element sections of law determining willfulness as matter code], so in it is made Section revenue quite majority of are The vast cases broad. Harrington, 504 F.2d 6672.” taxpayer meaningfully leave no room a distinguish his based on case before a government’s appreciate the reliance We degree pres- the relative of willfulness or on 26 6672 to collect U.S.C. extenuating circumstances. ence responsible af individuals tax revenues entity insolvent. ter a business becomes Indeed, defining those circumstances corresponding im understand the And we that constitute willfulness as matter construing § in manner portance of law, many of our circuits have consid sister protect revenue. See Slodov expressly rejected possibility ered and 238, 243-45, duty responsible person’s that a breach of 1778, (1978); 1783-84, 56 L.Ed.2d 251 S.Ct. withholding might by a pay be excused States, 723, 726 Bowlen v. United 956 F.2d “justifiable cause” or excuse.”2 “reasonable (7th Cir.1992). Accordingly, agree we with See, States, e.g., Harrington v. 504 United “willful” conduct under the notions that (1st Cir.1974); Nat. F.2d 1316 Pacific § not the same “willful” conduct 6672 is as States, 422 F.2d & Ins. Co. v. United 33 context, in facts criminal and that certain (9th Cir.), denied, n. 19 398 U.S. cert. of wheth are irrelevant to determination (1970); 1838, 26 L.Ed.2d Mon 90 S.Ct. 269 pay responsible person er failed to a States, day 421 v. 1216 Nevertheless, withholding like (7th Cir.), 821, 91 400 U.S. Johnson, possibility are troubled Bowen, (1970); 27 L.Ed.2d 48 S.Ct. c.f. 26 the courts have transformed U.S.C. (although Fifth Circuit 836 F.2d at 968 statute, liability § into outside a strict recognized conceptually that a reason has (1) realm, broadly jury’s defining the may negate finding a of willful able cause leading likely a failure most fact scenarios ness, taxpayer yet pail “no has carried that “willful” pay taxes as conduct hill”). up given main The reasons' (2) closing as matter of the door a possibility that can rejecting the willfulness any opportunity responsible person for a negated by showing of reasonable cause distinguish his case from those factual (1) liability are: standard which does not (i.e., scenarios, paradigms demonstrate incorporate cause fur reasonable will better pay). As cause for failure reasonable primary purpose ther the the statute “ ‘[mjaintenance (2) jury fact-finding revenue, defining protect government importance occupies so body is of such willfully to include a lack of reasonable place history jurispru firm a in our may inappropriately inject the notions cause ” dence,’ duty carefully it is our scrutinize purpose applicable of bad motive evil any apparent curtailment of that function.3 criminal definition of willful into civil expressed squarely 3. Circuit has never addressed We note number courts 2. Tenth binding application Finley, their panel discomfort § three-judge Muck v. United this issue. States, in precedent. See at 974 1993), (10th stated, Cir. ("We what one court has are not oblivious to dicta, liability cause a reasonable “defense power which called 'the Draconian enforcement appears § ... with this under inconsistent precedent,' is our the IRS has under the but it (bad) is insistence that motive circuit's is.”) job (quoting Phillips apply it the law as Ultimately, § pertinent inquiry under 6672.” Cir.1996)); I.R.S., Buf fal however, panel [a determined if rea "[e]ven ow v. United Cir.1997) recognized by exception were cause] sonable (in summary upholding judgment circuit, apply” under the circum it would not who, taxpayer attempt against to rescue his an stances Muck. Id. at 1382. company, he other creditors before taxes, court commented Westover, Theatres, er, concluding Beacon Inc. v. 359 U.S. sufficient evidence existed for 500, 501, 948, 951-52, 79 S.Ct. 3 L.Ed.2d 988 jury reasonably taxpayer to conclude neither Schiedt, (quoting Dimick v. 293 U.S. recklessly disregarded knew of nor withhold- 474, 486, 296, 301, 55 S.Ct. 79 L.Ed. 603 ing delinquency). tax deprive To (1935)). opportunity fully evaluate the 'con- scious supporting responsible per- motions scrutiny begins plain Our with the deprive son’s conduct would be to the word statutory language § of 26 U.S.C. 6672. “willfully” operative Thus, of its effect. even clearly expressed legislative “Absent a inten in the express absence of an contrary, language tion to the must ordi element, Congress cause must have contem- narily regarded as conclusive.” Consum plated most cases a would be Safety Sylvania, er Product Comm’n GTE permitted to Inc., responsi- determine whether a 102, 108, 2051, 2056, 447 U.S. 100 S.Ct. person willfully ble failed possible, 64 L.Ed.2d 766 If we also totality must construe taxes based on the such a circumstances manner every operative word has some effect. Unit evidence.4 Inc., Village, ed States v. Nordic 503 U.S. existing Our review of 6672 case law 1011, 1015-16, 112 S.Ct. 117 L.Ed.2d 181 leads tous conclude courts too often have (1992). Our focus in this case is on the word liability beyond plain extended “willfully,” Congress expressly which includ statutory language impermissibly en- ed as an element of upon croached the role as fact- Although precise definition of “willful” by utilizing finder paradigms broad factual context, depending varies somewhat on its impose Lability as a matter of law notwith- 91, 101, Screws v. United 325 U.S. 65 standing possibility taxpayer pre- that a 1031, 1035, (1945), 89 L.Ed. 1495 one convincing sented extenuating evidence of context, thing any is certain: the word circumstances relevant to his state of mind. “willfully” denotes “conscious motion of the opportunity We view this case as an to recti- will,” (5th Dictionary Black’s Law 1434 Circuit, fy problem in the Tenth ed.1979), faculty” giving or “mental rise to a given thought have much as to how to accom- particular course of action. II Webster’s plish objectives protecting gov- the dual of (1988). University Dictionary New Riverside preserving ernment revenue and the fact- context, then, inquiry In this an whether a finding jury required by function of the as responsible person “willfully” pay failed to plain § language of 6672. “ withholding ‘necessarily taxes is directed to ” could, suggests, reject We as Mr. Johnson mind,’ responsible person’s the state of the rigid application of the “failure to investi- States, 1499, Thibodeau v. United 828 F.2d gate mismanagement” paradigm or correct (11th Cir.1987) (quoting 1505 v. Mazo United impose liability as a of matter law. Alterna- States, (5th 1151, Cir.), 591 F.2d 1157 cert. tively, adopt concurring Judges’ 842, we could denied, 444 100 S.Ct. 62 approach and characterize the issue as (1979)), properly L.Ed.2d 54 and therefore is sup- whether there is evidence to characterized as an issue of scienter —“the substantial jury port Turpin, verdict. quintessential jury See also 970 Turpin issue.” v. United States, (4th Cir.1992) approach F.2d at 1347. Either used 970 F.2d 1350 could be (court upheld jury taxpay- salvage jury verdict in favor of verdict in Mr. Johnson’s must, statute, again liability although "we once embrace the result of a 6672 is a strict after law, 'responsible person' velleity”); reviewing might case with the case one believe other- States, wise.”). None, however, step Williams v. United 931 F.2d has taken the we 811 (11th Cir.1991) ("The today impact existing take to scrutinize the seeds of common sense precedent jury’s determining compassion on the role in will- hospitali- sown find scant contemplated by plain language fulness as ty legal landscape.''); on this rock hard Arnett v. States, § 6672. F.Supp. United 1471-72 (D.Kan.1996) (constrained Denbo, by Finley and If, fact, “reluctantly compelled” Congress impose court was to conclude 4. 6672 to desires taxpayer willfully pay liability responsible persons, failed to over federal em- strict then Con- States, taxes);

ployment gress appropriate Fowler v. United is the branch to establish such ("Section F.Supp. (D.Wyo.1993) policy, 1395 n. 2 not the courts. However, fully already collected or deducted amount tax neither can favor. employees liability employer and for which the squared precedent imposing with as an thereby already credit in their individu taking the issue received a matter away jury, 6672 does not liability from the whenever al income tax returns. Since (1) responsible regarding protection of a undisputed facts establish raise concern (2) knowledge harsh, person, penalties of a im taxpayer had from additional (3) delinquency, personally purposes punishment tax failed to and deter posed for duty payment of rence, adopt fulfill his to ensure inappropriate to it would be available, any unen- taxes like that lenient reasonable cause standard prior paying ordinary cumbered funds other penalties, i.e. applied to income tax Denbo, 1033-34; 988 F.2d at creditors. See prudence. care and See Eastern business Mazo, at We believe the States, 591 F.2d Corp. Inv. way protect government revenue (10th better Cir.1995); Sanders v. Commissioner of role in this case preserve Serv., Internal Revenue existing undermining pre- and others without Cir.1955), 350 U.S. apply is to continue to the established cedent Instead, L.Ed. identify paradigms to willful conduct as narrowly construe the “reasonable must law, yet recognize a expressly matter of rea- exception to order cause” exception application sonable cause (1) purpose of 6672 to further the basic way can paradigms. those the courts revenue, (2) government discourage protect persons’ responsible continue hold feet corporations self-executing fire, yet provide individuals a those same trust, using they the tax monies hold loans opportunity to to a delimited demonstrate government “an making the avoid there was reasonable cause sufficient business,” partner in unwilling floundering pay the failure to excuse See Collins v. United held trust for the Thibodeau, Cir.1988); 1506; Newsome United Having recognized the reasonable (5th Cir.1970). 742, 747 exception, we now take the fur cause must defining are step of what elements nec ther conclude reasonable cause We therefore cause,” essary to demonstrate “reasonable person’s responsible sufficient to excuse a jury’s properly is limited to deter role taxes should be failure present mining are whether those elements (1) to the limited those circumstances where See, e.g., Rykoff v. given in a case. United pro- taxpayer has made reasonable efforts to Cir.1994); (2) funds, the trust but those efforts tect Hatfried, Inc. v. Commissioner Internal by out- have been frustrated circumstances Revenue, (3d Cir.1947). taxpayer’s By limiting so the control. side cause in the the elements reasonable begin analysis of constitutes our what We temptation § the to 6672 context we avoid to cause sufficient avoid withhold reasonable motive, inject of evil bad faith or notions distinguish § ing under tax improper into the determina- other factors cases, ing this situation from those statutes willfulness, ability to and maintain the tion regulations which what consti address zealously protect government the revenue via lia reasonable cause sufficient to avoid tutes paradigms application of certain factual wide- bility penalties. for tax Unlike the income ly-recognized accepted as “willful con- penalties for failure to file income assessed Yet, plain the lan- returns, duct.” consistent with § imposed by 6672 are penalties tax guage approach preserves to the not civil fines assessed addition whether, jury the to role for determine based tax. amount of the Section 6672 case, particular in a on all relevant evidence simply payment to insure to the is means responsible taxpayer’s conduct reflects government the taxes the owed. only requisite Thus, penalties scienter.5 reflect that the case, given including indicating a in a those 5. We note this result also is in line with the facts government’s during argument responsible person's concession oral cause for the reasonable scienter, imposes § 6672 an element of the pay. failure upon dependent which is all the evaluation of Halsey-Tevis, wages NEW TRIAL: Did Mr. Johnson from the Inc.’s em- (Circle answer.) ployees. Have Cause? appropriate Reasonable the jury The circled “YES.” only jury The tried to was issue the The instructions and verdict reveal willfully failing Mr. acted whether jury was asked never to determine whether pay Halsey-Tevis’ delinquent over with Mr. Johnson had reasonable cause sufficiént holding government. taxes to the federal pay Halsey-Tevis’ his failure excuse (1) jury The was instructed Mr. Johnson Rather, appears it he pay contended did not fail to case tried was and instructed under the as- (2) taxes, when Mr. Johnson learned sumption this recognize circuit would not paid, not been he di had exception cause reasonable conduct other- (3) taxes, Finley pay rected wise deemed “willful” existing so, he learned when had not done precedent. today Our decision makes clear corporate were no there unencumbered funds assumption was incorrect. pay which to jury with the taxes. The was further instructed States denied then, remains, question The proper how to Mr. Johnson’s contention and Mr. Johnson ly appeal. resolve this can uphold We proof. parties bore burden of de government’s judgment aas matter of law “willfully,” part, fined in relevant only fully if Mr. Johnson was heard on the and, issue construing of willfulness the evi voluntary, conscious and deci- intentional favor, dence and inferences in Mr. Johnson’s prefer sion to other creditors over legally evidentiary we can find no sufficient present Willfulness is when- jury basis for find his con a responsible person ever acts or fails Maynard, duct was not willful. Mitchell consciously voluntarily act with Cir.1996); Fed. knowledge or intent that as a result of his 50(a)(1). Applying R.Civ.P. 6672 anal belonging action inaction trust funds ysis today, embrace we Mr. Johnson should but will over prove, an opportunity have had and the purposes. be used will for other determined, jury should whether there addition, told was was sufficient establish evidence to Mr. John son had reasonable cause his failure to willful, payment to other credi-

[t]o Halsey-Tevis’ withholding taxes. This funds tors means of unencumbered only speculate (1) did not occur. We can knowledge must be done either why present over, or; record as to found trust not been funds had favor; simply there no Mr. Johnson’s is disregard with reckless for whether way how the discern would decide the paid. responsible per- had If a been Consequently, issue of reasonable cause. knowledge son has which circumstances position uphold judgment are in a give person position in his would reason as a matter of law. Neither can we reinstate may believe taxes jury the verdict. these Under circum paid been have over because of misman- stances, justice the interests of demand we agement problems in over paying or of grant Eby Neely a new trial. v. Martin K taxes, investigate his failure to Co., 329, 317, Construction 386 U.S. 87 S.Ct. paid determine if funds have been (1967) (court 18 L.Ed.2d 75 disregard is a over reckless and constitutes may appeals order a trial new based on pay over willful failure to these funds. own factors in its review of the encountered instructed, Having jury then been so Stores, Inc., case); Safeway Derr v. 404 F.2d following interroga- was asked to answer the (10th Cir.1968) (court appeals tory: may grant jury new trial if verdict is not reinstated); Floyd Johnson, plaintiff, King, Has the shown Jackson Bank v. State c.f. (10th Cir.1993) (new preponderance he a evidence that 992 F.2d willfully court a required did not fail over to trial after state announced way of law on certification and no United States taxes withheld new rule 1350 time. period a jury’s special ness over substantial answers inter- discern States,

rogatories how it would decided the 83 F.3d Bradshaw v. United — instructed). properly (10th issue if Cir.1995), 1186 —, 136 L.Ed.2d 215 Accordingly, the district we REVERSE Bradshaw, rejected contention In we 50(b) order, jury Rule court’s VACATE authority allowing over disburse a bank and REMAN'D this ease to dis- verdict at 1183-86. proceedings trict for further consistent vitiated willfulness. Id. court ments opinion. with this “willfully” un Mr. Johnson acted Whether Id. 1182- 6672 is a factual matter. at der KELLY, Jr., Judge, Circuit PAUL I.R.S., 83; Taylor v. 69 F.3d concurring dissenting part, in part and Cir.1995). way prove is to willfulness One joins. SEYMOUR, Judge, with whom Chief responsible person that a acted show I the court that the willfulness concur with disregard a known or obvious risk reckless Reg. inquiry under I.R.C. Treas. may paid not be over to the that trust funds requires consideration of rele- 301.6672-1 Bradshaw, 1183; 83 F.3d at intent, including pertaining vant evidence Denbo, theory, at 1033. Under person responsible whether a fails investi- responsible person’s have held that “[a] gate mismanagement after learn- or correct investigate or to correct misman failure nonpayment ing of of trust fund taxes. being agement after notified that view, my suffi- this case turns on whether have not been satisfies section jury’s supports the verdict cient evidence Bradshaw, requirement.” willfulness did not act when Mr. Johnson light time, negli is viewed most evidence 83 F.3d at 1183. At same Turpin to him. See v. United favorable gence is to result in 6672 liabil insufficient Cir.1992). States, Denbo, ity. Id. is entitled to consider the Because compel The evidence this case does nature, timing responsible extent willfulness, i.e., finding that Mr. Johnson willfulness, person’s nonpayment deciding knowingly preferred other creditors to supports I hold that sufficient evidence would government with unencumbered funds total- the-jury’s remand the case verdict would $95,000. ing Mr. learned of the Johnson judgment, court to its to the district vacate taxes in late trust fund October verdict, judg- and enter reinstate Finley, from Mr. sources of discussed Mr. I would not ment in favor of Johnson. funds, paid. and then directed that reach the issue of whether “reasonable taxes, exception applies, unpaid nor I define than the fact of the cause” Other parameters. Finley its had no reason view unreliable; Finley’s he was unaware of Mr. principles prior in our cases must be unpaid scheme conceal trust fund conjunction procedural pos read in with the States, See v. United case, specifically, application of ture of the (10th Cir.1996). un- assuming that the Even summary undisputed facts on the law mismanagement, taxes were evidence of judgment, v. United Muck (10th Cir.1993) affirming conclude that Mr. could jury’s judge finding of willfulness while steps it appropriate Johnson took correct light viewing the evidence most favor by discussing avail- circumstances result, Denbo v. United able to directing of funds and that the able sources Cir.1993) (jury 988 F.2d paid. be taxes verdict); v. Burden United 8, 1988, Notuntil November did Mr. John- finding), (10th Cir.1973) (district court prob- the failure to son learn of correct the denied, 94 S.Ct. rt. U.S. ce 40 L.Ed.2d 109 however, point, company’s lem. At this (1974). have re Where we arrangement with bank underwent sub- finding of a lack of versed a district court’s change. government stantial does context, respon willfulness subsequent receipts argue cash deliv- that unpaid, yet the taxes were person sible knew pursuant arrange- liquidate bank to this operate ered continued and busi $105,000 subjective (including ment that Johnson evaluation of willfulness with a requested applied and Mr. be to trust objective formulaic standard. While one taxes) fund constitute unencumbered funds might of these factors not be sufficient to applied payment that should have been determination, avoid a willfulness the trier of Kim, trust fund See United v. States fact should allowed to consider them and (7th Cir.1997); Hon nonpayment determine whether the conduct ey United 1089-90 was willful. (8th Cir.), Thus, L.Ed.2d 598 are

issue this case Mr. Johnson’s actions late

from October 1988 until November

1988.

According government, to the

once a responsible officer aware becomes

that trust taxes due fund the United States paid, upon have not been it is incumbent ASSOCIATES, BOYD AND ROSENE person appropriate steps such to take INC., Plaintiff-Appellant-Cross- that, ensure that the taxes are and if Appellee, so, e.g., investigate he fails to do fails to mismanagement, the matter or correct his constitutes, failure to act as matter of disregard a reckless known risk KANSAS MUNICIPAL GAS AGENCY might that the taxes owed Government City Winfield, Kansas, Defen paid. not be dants-Appellees-Cross-Appellants.

Aplee. Supp. Reh’g Br. On En Banc at 8. I 96-5199, agree investigating matter cor- Nos. 96-5209 and 96-5211. recting exemplary mismanagement are but Appeals, Court of States not exclusive that the must focus be on Tenth Circuit. taking steps appropriate given the situation. Here, Mr. did act. Whether re- Aug. sponsible person appropriate has taken steps, consequently acted scien-

ter, dependent solely cannot upon whether investigation mismanage- correction paid;

ment ensured that taxes were oth-

erwise, every there be strict

nonpayment case. much more

construction of statute allows

consider the facts and circumstances sur- (1)

rounding including nonpayment, (2) sophistication,

Johnson’s lack of that Mr.

Finley hid him the company’s financial

problems company and led him believe the (3) was, doing actually

was better than it

Mr. Johnson wanted the and took (a) steps accomplish goal, including

delivery $105,000 to the bank for that (b)

purpose, payment unencum- actual funds, period bered that the time

which claims Mr. Johnson’s

conduct was no amounted recklessness possibly than a couple

more weeks and Though as one

short week. the statute is

harsh, surely replace it was not intended to

Case Details

Case Name: Edward J. Finley, and Counterclaim v. United States of America, and Counterclaim Floyd Johnson, Counterclaim

Court Name: Court of Appeals for the Tenth Circuit

Date Published: Aug 20, 1997

Citation: 123 F.3d 1342

Docket Number: 95-3108

Court Abbreviation: 10th Cir.