Charles B. ERWIN, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee, v. Stephen C. Coggin; William G. Pintner; James Barry Light; Hartsell B. Light, Jr., Third Party Defendants.
No. 08-1564
United States Court of Appeals, Fourth Circuit.
Argued: Sept. 23, 2009. Decided: Jan. 13, 2010.
591 F.3d 313
Before MOTZ, Circuit Judge, HAMILTON, Senior Circuit Judge, and Irene M. KEELEY, United States District Judge for the Northern District of West Virginia, sitting by designation. Affirmed by published opinion. Judge MOTZ wrote the majority opinion, in which Judge KEELEY joined. Senior Judge HAMILTON wrote a dissenting opinion.
[A] creditor may not . . . commence any action or demand or take possession of collateral on account of default until ten days after notice has been given to the consumer of his or her right to cure such default.
The requirement under
III.
Accordingly, the judgment of the district court is affirmed.
AFFIRMED
ARGUED: Emma Claire Merritt, Tuggle, Duggins & Meschan, PA, Greensboro, North Carolina, for Appellant.
OPINION
DIANA GRIBBON MOTZ, Circuit Judge:
This appeal arises from the district court‘s imposition of personal liability on Charles Erwin for payroll withholding taxes owed by GC Affordable Dining, Inc. (“GCAD“). Erwin owned a one-third interest in GCAD and served as a GCAD corporate officer and director, and, on behalf of GCAD, selected business sites, hired and fired employees, and negotiated and personally guaranteed loans and other contracts for the company. The district court held as a matter of law that Erwin (1) was responsible for payment of these taxes and (2) willfully failed to pay them. Erwin challenges both holdings on appeal. For the reasons that follow, we affirm.
Over the last 25 years, Erwin, a North Carolina entrepreneur, has owned or operated at least 60 restaurants. In June 1994, Erwin joined with three other North Carolina businessmen—Geoffrey Grenert, Stephen Coggin, and John Miracle—to form GCAD, a franchisee of Golden Corral Franchising System, Inc. (“Golden Corral“). GCAD eventually opened and operated five Golden Corral restaurants.
At GCAD‘s founding, Erwin and Grenert each owned one third of the corporate stock; Coggin and Miracle each owned one sixth of the stock. Shortly thereafter, Grenert left the enterprise; eventually, Miracle sold his interest in GCAD to Mark Cole. But at all times, Erwin retained at least a one-third interest in the company.
In addition to owning all of the corporate stock in GCAD, Erwin and his partners served as its directors and officers. Coggin served as president, Miracle (and later Cole) as vice president, and Erwin as vice president, secretary, and treasurer.1 The partners hired two managers to oversee day-to-day operations, payroll, and accounting.
In early 1995, Erwin and his partners—along with their wives—personally guaranteed construction and operating lines of credit with First Union Bank for GCAD. Erwin and his partners also secured a construction line of credit for a corporation, Tiffany, LLC, which they established as a flow-through real estate holding company for GCAD. Tiffany leased or purchased land and equipment for the restaurants; GCAD, in turn, leased the land and equipment from Tiffany.
Erwin participated in selecting sites for the restaurants and signed lease-related documents for all restaurant locations on behalf of both Tiffany and GCAD. Erwin also personally guaranteed rent payments on at least four of the leases, and personally guaranteed lines of credit from food vendors for the benefit of the GCAD restaurants.
Despite early profits, the GCAD restaurants soon began to lose money. In January 1997, Erwin and his partners decided to fire one of the original day-to-day managers and consolidate operations under the other. Erwin expressly acknowledged his “involve[ment]” in both decisions. During 1997, Erwin conferred at least weekly with Coggin regarding GCAD‘s affairs. Moreover, Erwin and his partners met monthly during 1997, and at least quarterly in 1998, to discuss GCAD matters. In an effort to improve business, Erwin also visited the GCAD restaurants and met with store managers during 1997 and 1998.
Unfortunately, business did not improve. GCAD had a negative operating cash flow of $2 million by the end of 1997, and thus had difficulty paying its creditors. In early 1998, Erwin and Coggin negotiated a payment plan to settle GCAD debts owed to one food vendor, LoPresti, with whom Erwin had personally guaranteed GCAD‘s line of credit.
During this period, Erwin and his partners decided to replace the remaining original manager with William Pintner, a seasoned Golden Corral employee. On a weekly basis, Pintner and Erwin discussed sales figures and strategies to increase profits.2 Early in Pintner‘s tenure, he rec-
Despite these efforts, GCAD continued to lose money. In December 1998, Erwin and his partners learned that the Light brothers had failed to pay the entire quarterly payroll tax withholdings for the third quarter of 1998. The partners made a capital call for approximately $150,000 and wired the money to the Light brothers with instructions. Erwin, who contributed $95,000 of the $150,000, testified that he personally instructed the Light brothers “that absolutely under no circumstances whatsoever were [the Light brothers] ever to be late with any taxes.” Despite Erwin‘s admonition, the Light brothers failed to pay in full the payroll taxes for the fourth quarter of 1998.
Coggin testified that in late 1998, he and Erwin also sent the Light brothers $50,000 for additional payment to the favored food vendor, LoPresti, and instructed the Light brothers not to pay the rent because Erwin and Coggin themselves would handle the rent payments directly. Erwin never testified to the contrary.
Also in late 1998, Erwin became involved in negotiations—which became final in May 1999—to release GCAD from obligations under one of its leases. The landlord, seeking to terminate the lease to accommodate another party, agreed to wire $1.65 million to CNL American Properties Fund, Inc. (“CNL“), a company financing GCAD‘s restaurant building and equipment, to cover rents GCAD owed CNL on that and other leases. At that time GCAD—and Erwin as personal guar-
antor—owed CNL substantial rental payments.
GCAD‘s financial condition continued to worsen throughout 1999, and GCAD did not pay in full its withholding taxes for the first three quarters of that year. In August 1999, Erwin and his two partners learned of this latest delinquency. In December 1999, the partners made another capital contribution of $50,000 to help cure these deficiencies, but GCAD never paid the taxes in full. Nevertheless, Erwin and his partners continued to employ the Light brothers.
In February 2000, Erwin and his partners finally fired the Light brothers. After doing so, Erwin decided to take control of GCAD accounting functions, including payroll. He moved GCAD‘s financial operations from Ohio to the North Carolina offices of his solely owned company, Chelda. After that time, GCAD remained current on its payroll withholding payments. In late 2000, Erwin became the 100 percent owner of GCAD; shortly thereafter he dissolved the corporation. Between August 1999 and the close of business in 2000, the GCAD restaurants generated approximately $5 million in sales revenue. Rather than paying the outstanding 1998 and 1999 tax deficiencies, however, GCAD continued to pay rent and supplier expenses. Erwin acknowledged that, pursuant to his direction, GCAD paid its landlord and suppliers rather than the IRS; he maintained that GCAD did so because this was the only way to remain in business.
Following the demise of GCAD, the IRS assessed tax deficiencies against Erwin in the amount of the unpaid payroll withholding taxes owed by GCAD. Erwin paid a portion of the assessed amounts and then brought this action against the United
The parties filed cross motions for summary judgment. The district court, adopting the recommendation of the magistrate judge, denied Erwin‘s motion and granted the Government‘s. The court also granted the Government‘s motions to issue a final judgment against Erwin and stay the proceedings against Coggin, Pintner, and the Light brothers pending the outcome of Erwin‘s anticipated appeal.
Erwin timely noted this appeal.
II.
The Internal Revenue Code requires employers to withhold social security and federal excise taxes from their employees’ wages. See
The Code “assure[s] compliance by the employer with its obligation . . . to pay” trust fund taxes by imposing personal liability on officers or agents of the employer responsible for “the employer‘s decisions regarding withholding and payment” of the taxes. Slodov v. United States, 436 U.S. 238, 247 (1978) (interpreting
Personal liability for a corporation‘s trust fund taxes extends to any person who (1) is “responsible” for collection and payment of those taxes, and (2) “willfully fail[s]” to see that the taxes are paid. Plett, 185 F.3d at 218; O‘Connor v. United States, 956 F.2d 48, 50 (4th Cir.1992). Once the Government assesses a taxpayer for this liability, the taxpayer has the burden of proof at trial on both elements of
But we review de novo a district court‘s grant of summary judgment to the Government, resolving all disputed facts in favor of the taxpayer. See O‘Connor, 956 F.2d at 50. Of course, to defeat summary judgment, the taxpayer (like any other litigant) must identify an error of law or a genuine issue of material fact; the taxpayer cannot create a material fact by reliance on conclusory allegations or bare denials. See
“[I]n the absence of disputed material facts, summary judgment represents a favored mechanism to secure the ‘just, speedy, and inexpensive determination’ ” of taxpayer liability under
With these principles in mind, we turn to Erwin‘s contention that the district court erred in holding, as a matter of law, that Erwin (1) was a person responsible for the payment of GCAD‘s withholding taxes, and (2) willfully failed to pay those taxes. We consider each argument in turn.
III.
Although the Code defines a responsible person as one “required to collect, truthfully account for, and pay over any tax,”
More than one person may be held responsible for a corporation‘s payroll taxes. Indeed, “[t]he term ‘responsible person’ is broad and may include many individuals connected with a corporation.” O‘Connor, 956 F.2d at 50; see also Barnett, 988 F.2d at 1455 (“[T]here usually are multiple responsible persons in any company.“). Assessing whether a “person has the statutorily imposed duty to make the tax payments” constitutes the “key element” in determining responsible person status. O‘Connor, 956 F.2d at 51. “This duty is considered in light of the person‘s authority over an enterprise‘s finances or general decision making[,] [and] is generally found in high corporate officials charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursement of funds.” Id. (citation omitted).
Titular authority alone does not establish responsible person status. Rather, the proper inquiry focuses “on substance rather than form.” Id. “The substance of the circumstances must be such that the officer exercises and uses his authority over financial affairs or general management, or is under a duty to do so, before that officer can be deemed to be a
We have developed a non-exhaustive list of factors to consider in determining whether “the substance of the circumstances” establishes responsible person status under
In this case, the undisputed facts demonstrate that Erwin was a “responsible person” for
As to the first factor, it is undisputed that Erwin founded and served as an officer of GCAD. In fact, Erwin continually served as secretary, treasurer, vice-president, and director of the corporation throughout its existence and, at all times, owned at least a one-third interest in GCAD. Although Erwin asserts that he acted as a mere “passive investor[] who contributed capital and [only] held the ti-
tle[s] to protect his interest in the venture,” the evidence establishes that in fact his involvement in GCAD was substantial. Erwin was the only GCAD owner with any experience in the restaurant business, and he himself acknowledged in deposition his active involvement in corporate decisions.
With respect to the second factor, although Erwin and his two partners did not directly manage GCAD‘s payroll, they exercised substantial supervisory authority over the management team—Pintner and the Light brothers—who did control payroll. Moreover, Erwin conceded that he participated in setting financial policy for GCAD and, on occasion, directed payment of GCAD‘s withholding taxes. See Kinnie, 994 F.2d at 284 (stating that a taxpayer need not “always exercise his powers” to remain responsible for seeing that withholding taxes are paid, and “may not escape liability by delegating the task of paying over the taxes to someone else“).
Furthermore, within months of learning of GCAD‘s tax deficiencies, Erwin took complete control of GCAD‘s financial operations, which establishes his authority to do so. Erwin himself had no doubt as to his authority over the company‘s payroll, testifying that, had he learned of the Light brothers’ failures to remit payroll withholding taxes during the first quarter of 1999, “a lot of things would have happened differently.” Erwin testified that he would have taken remedial action at that time, noting that “as soon as [he] did find out” about the deficiencies, “[he] did bring all the accounting back to [his] office.” Although Erwin did not seize control of GCAD during the tax periods at issue here, his subsequent exercise of authority over all of GCAD‘s financial operations certainly “cast[s] light on” the question of whether he was “a responsible person” during those periods. Vinick, 205 F.3d at 11 n. 8.
Thus, during the tax periods at issue, Erwin actively negotiated substantial payments to GCAD creditors on lines of credit and loans, some of which he had personally guaranteed. Erwin‘s personal guarantees of these lines of credit and other debts do not alone establish his status as a responsible person. But the undisputed evidence that Erwin negotiated payments to these preferred creditors offers additional strong support for the conclusion that he “use[d] his authority over financial affairs” of GCAD. O‘Connor, 956 F.2d at 51. In this way, he again acted as a “responsible person” for purposes of
GCAD‘s dealings with the IRS further demonstrate Erwin‘s control over the company‘s financial priorities. In December 1998 and again in December 1999, Erwin
and his partners infused capital into GCAD and explicitly directed the Light brothers to use that money to pay back taxes. Erwin testified that he personally instructed the Light brothers to stay current with GCAD‘s payroll withholdings.4 Erwin also testified that in 2000, when GCAD had significant revenues, he made the business decision to keep the restaurants’ doors open by paying the landlord and suppliers instead of paying the back taxes that GCAD owed from previous years.
As to the fourth factor, Erwin did not play the most active role in the day-to-day management of the corporation during the relevant tax periods; rather he delegated much day-to-day authority to others. But, of course, “delegation will not relieve one of responsibility.” Purcell v. United States, 1 F.3d 932, 937 (9th Cir.1993); see also Kinnie, 994 F.2d at 284. Moreover, the undisputed facts establish that Erwin did involve himself in the company‘s general decision making and never was, as he claims, a mere passive investor. Cf. O‘Connor, 956 F.2d at 51-52 (finding question of fact as to responsible person status when “passive investor” did not exercise authority in managing the company, did not dictate the financial decisions of the company, and had no authority to do so).
Erwin helped to choose sites for the corporation‘s restaurants, negotiated and signed leases and other contracts on behalf of the corporation, personally guaranteed lines of credit and rent payments for the corporation, met with its restaurant managers, and involved himself in negotiating payment plans and buy-outs with corporate creditors. Thus, albeit to a lesser extent than others, Erwin participated in
Consideration of the fifth factor—hiring and firing power—also demonstrates that Erwin was a “responsible person” for
With respect to the sixth factor, we agree with Erwin that the record does not demonstrate that he had check-writing authority for GCAD during the relevant tax periods. Although this factor weighs in favor of Erwin, we must consider it in the “totality of the circumstances.” See Vinick, 205 F.3d at 8; see also Barnett, 988 F.2d at 1455; O‘Connor, 956 F.2d at 51.
Those circumstances include inter alia Erwin‘s exercise of authority over GCAD‘s finances by directing certain payments to privileged creditors during the tax periods in question, and taking over GCAD‘s day-to-day financial operations and exercise of ultimate check-writing authority immediately after the tax periods in question. Taken together, the undisputed facts of the case clearly evidence that during the relevant tax periods Erwin had the power to exercise check-writing authority had he chosen to do so. Compare Plett, 185 F.3d at 222 (finding “financial control . . . indisputably in the hands of [the taxpayer]“), with Vinick, 205 F.3d at 11 (explaining that determining responsibility goes to “the central question of power” and emphasizing that “[a]t no time did [the taxpayer] exercise any decision-making authority over which creditors [the corporation] paid“).
Although in some cases questions as to responsible person status under
We note that other courts have reached precisely the same conclusion in considering similar facts. See, e.g., Jefferson v. United States, 546 F.3d 477, 481 (7th Cir. 2008) (holding board president responsible person as a matter of law because he secured loans and directed past payment of taxes for the corporation, reviewed financial reports, and had check-signing authority); Thosteson v. United States, 331 F.3d 1294, 1299-1300 (11th Cir.2003) (holding corporate officer and stockholder a responsible person as a matter of law even though he had “limited check writing authority, up to only $750, without a countersignature“); Taylor v. IRS, 69 F.3d 411, 417 (10th Cir.1995) (holding corporate director and officer a responsible person as a matter of law because he “possessed sufficient control over corporate finances, had authority to borrow funds and write checks and thereby had the ‘effective power’ to pay the taxes” (quoting Barnett, 988 F.2d at 1454)); Greenberg v. United States, 46 F.3d 239, 243-44 (3d Cir.1994) (holding in-house controller a responsible person as a matter of law even though he took instructions from the controlling stockholder and “feared for his job were he to independently issue a check for the [tax] delinquency“); Kinnie, 994 F.2d at 284 (holding corporate vice president and fifty-percent shareholder a responsible person as a matter of law because he had check-signing authority, hired an accountant to review the books, and eventually took control of the business); Mazo v. United States, 591 F.2d 1151, 1156 (5th Cir.1979) (holding corporate stockholders, officers, and directors responsible persons as a matter of law even though others handled all day-to-day operations and prepared all corporate checks).
Erwin‘s contention that others in the company may have been just as, or even more, responsible for GCAD‘s failure to remit payroll taxes during the tax periods in issue does not free him from
To summarize, Erwin admitted that at all times he owned at least one third of the stock of this closely-held corporation and served as its secretary, treasurer, vice president, and director. Erwin admitted that he signed loan documents and leases on behalf of the corporation, thus evidencing that he shared responsibility for establishing the corporation‘s financial policy. Erwin admitted that he approved restaurant site selection and regularly reviewed sales data. Erwin admitted holding quarterly meetings with his partners and weekly telephone calls with the general manager to discuss the restaurants. Erwin admitted that he directed or negotiated payments to certain favored creditors to reduce GCAD debt, which he had personally guaranteed. Erwin admitted that he hired and fired upper-management employees, including GCAD‘s accountants. Finally, although Erwin delegated many of the day-to-day financial responsibilities of the corporation
In short, the undisputed facts—indeed Erwin‘s own admissions—demonstrate, as a matter of law, that Erwin was a responsible person under
IV.
Having found Erwin a “responsible person,” we turn to whether he “willfully” failed to collect, account for, or remit payroll taxes to the United States. Plett, 185 F.3d at 219. This inquiry focuses on whether Erwin had “knowledge of nonpayment or reckless disregard of whether the payments were being made.” Id. (quoting Turpin v. United States, 970 F.2d 1344, 1347 (4th Cir.1992)). A responsible person‘s intentional preference for creditors other than the United States establishes willfulness as a matter of law; such an intentional preference occurs when the responsible person knows of or recklessly disregards an unpaid deficiency. Id.; Turpin, 970 F.2d at 1347.
By the end of 1998, Erwin knew that GCAD had financial difficulties. Indeed, in December 1998 Erwin made a special capital contribution to pay a tax delinquency from a prior quarter. At that time, Erwin also admonished the Light brothers to make timely payments in the future, but he did not monitor the situation personally to ensure future payment, nor did he advise the Light brothers to implement additional internal controls.
Although Erwin‘s lack of oversight in all likelihood contributed to the Light brothers’ failure to remit payroll taxes for the fourth quarter of 1998 and the first three quarters of 1999, the record, viewed in the light most favorable to Erwin, does not support a finding—as a matter of law—that prior to August 1999 Erwin had actual knowledge that the Light brothers continually failed to pay GCAD‘s payroll taxes. Thus, whether Erwin acted willfully during this time, as a matter of law, depends on whether he acted with “reckless disregard” of GCAD‘s tax obligations. See Turpin, 970 F.2d at 1347.
Erwin claims that he thought that the Light brothers would obey his instruction to stay current with GCAD‘s tax obligations, that Coggin was monitoring the Light brothers, and that the Light brothers were professionals with experience accounting for Golden Corral restaurants in the past. Arguably, a fact finder fully crediting this testimony might conclude that Erwin‘s actions, although negligent, did not rise to the level of recklessness. See id. at 1347 n. 4 (“Mere negligence in failing to ascertain facts regarding a tax delinquency . . . is insufficient to constitute
Even assuming, however, that Erwin did not act willfully prior to learning of the full extent of the tax deficiencies in August 1999, his conduct after that point unquestionably evidences willfulness as a matter of law. During the third quarter of 1999, GCAD paid just a fraction of its payroll tax liability. Although Erwin and Coggin each made capital contributions to cover the deficiency in December 1999, GCAD still owed over $100,000 for that quarter alone and had not satisfied deficiencies from 1998 and the first two quarters of 1999. The record does not conclusively reveal the extent of Erwin‘s actual knowledge at this point in time, but certainly demonstrates that by that time he was on notice that GCAD owed substantial payroll taxes to the IRS. Yet Erwin and his partners continued to rely on the Light brothers to address the problem for several more months. Erwin‘s failure to assess and remedy the payroll tax deficiencies immediately upon learning of their existence in August 1999 constitutes unreasonable willful conduct. Cf. id. at 1350 (noting the relevance of responsible person‘s immediate action to address deficiencies upon learning of them). This is particularly so given that, at Erwin‘s direction, GCAD paid other creditors during this period. Thus, Erwin is liable for any outstanding third-quarter 1999 deficiencies. See Plett, 185 F.3d at 219.
Moreover, following the lead of every other circuit to consider the question, we adopt the rule that when a responsible person learns that withholding taxes have gone unpaid in past quarters for which he was responsible, he has a duty to use all current and future unencumbered funds available to the corporation to pay those back taxes. See, e.g., Thosteson, 331 F.3d at 1300-01; United States v. Kim, 111 F.3d 1351, 1357 (7th Cir.1997); Honey v. United States, 963 F.2d 1083, 1089 (8th Cir.1992); Mazo, 591 F.2d at 1157. Pursuant to this rule, as of August 1999, Erwin had a duty to use all unencumbered funds to reduce GCAD‘s tax liability from the prior quarters.
The record demonstrates that GCAD generated several million dollars in gross receipts after August 1999 and paid rent and food vendors with those funds instead of paying the IRS. (Erwin does not contend that any creditor held a security interest in these funds superior to the IRS‘s interest. See Honey, 963 F.2d at 1090.) Accordingly, we hold that, by preferring GCAD‘s other creditors to the IRS, Erwin willfully failed to remit GCAD‘s payroll taxes for the fourth quarter of 1998 and the first three quarters of 1999.8
V.
For the reasons set forth above, the judgment of the district court is
AFFIRMED.
Because I believe a reasonable factfinder, viewing the evidence in the light most favorable to Erwin and drawing all reasonable inferences from such evidence in his favor, could find that he was not a responsible person under
I.
We review the district court‘s grant of summary judgment de novo. Blaustein & Reich, Inc. v. Buckles, 365 F.3d 281, 286 (4th Cir.2004). A motion for summary judgment should be granted “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.”
peached, at least to the extent that the evidence comes from disinterested witnesses.” Reeves, 530 U.S. at 151 (internal quotation marks omitted).
II.
Mindful that in determining
I agree with the majority opinion that the first Plett factor, which asks whether the party upon whom the Government seeks to impose responsible person liability under
However, contrary to the majority opinion, I conclude that the second Plett factor, which asks whether Erwin controlled the company‘s payroll, cuts in favor of Erwin. The evidence shows that Erwin did not control GCAD‘s payroll during the four tax quarters at issue. First, the record contains a sworn statement by Erwin that he had no control over GCAD‘s payroll. Second, there is no evidence that Erwin personally oversaw GCAD‘s payroll. Third, the undisputed evidence shows that for all four quarters at issue, a professional accounting and tax service was in charge of GCAD‘s payroll, including collecting withholdings and paying such withholdings to
Moreover, the fact that Erwin and the other shareholders infused capital into GCAD with instructions that the Light Brothers catch up the back withholding taxes, merely establishes that Erwin and the other shareholders did not want to see their investment in GCAD go down the drain because the corporation was not current in paying its federal withholding taxes. Accordingly, such infusions and instructions, which Erwin admitted during his deposition, are not inconsistent with Erwin‘s later sworn statement that he had no control over GCAD‘s payroll. Similarly, Erwin‘s seizure of control over GCAD‘S payroll functions after the tax periods at issue and after he learned of the payroll withholding delinquencies for those periods reasonably suggests that Erwin decided to become the responsible person under
Moving on to the third Plett factor, such factor cuts in favor of Erwin. Specifically, a reasonable jury could find that Erwin had limited decision-making authority about which creditors to prefer. For the most part, any creditor preferences made by Erwin during the tax periods at issue were made with infusions of investor capi-
tal. The record also contains the sworn statement of Erwin that, prior to October 1999, he had limited, to no decision-making ability, about which creditors of GCAD to prefer.
When the evidence is viewed through the proper summary judgment lens, the fourth Plett factor also cuts in favor of Erwin. Specifically, the record shows that he did not participate in the day-to-day operations of GCAD. First, the record contains the sworn statement of Erwin that, prior to October 1999, he had no responsibility for the day-to-day management of GCAD.2 Moreover, the evidence in the record supports the reasonable inference that, during the four quarters at issue, with the exception of all aspects of accounting and payroll, Pintner was solely responsible for the day-to-day operations of GCAD. Indeed, “Pintner came to GCAD upon the recommendation of various corporate officers of Golden Corral who presented him as a seasoned operator of the Golden Corral concept.” (J.A. 1077). The evidence supports the reasonable inference that, during the four quarters at issue, the Light Brothers were solely responsible for all aspects of accounting and payroll, including financial reporting to Pintner and, by extension, the GCAD shareholders. While Erwin‘s activities on behalf of GCAD, for example, the negotiation of leases and the choosing of site locations for the restaurants, show that he was more than a passive investor, they do not establish that he participated in the day-to-day operations of GCAD. Moreover, the fact that Erwin reviewed GCAD‘s sales figures
The fifth Plett factor, which asks whether Erwin had check writing authority, also favors Erwin.4 The evidence is undisputed that Erwin did not possess the power to sign checks during the four quarters at issue, nor was he a signatory on any of GCAD‘s bank accounts during such quarters. The focus of this factor is whether the individual at issue possesses check-writing authority, because the lack of such authority suggests that he is not a responsible person under
Finally, the sixth Plett factor, which asks whether Erwin had the ability to hire and fire employees cuts both ways.5 On the one hand, the undisputed evidence shows that Erwin substantially participated in the hiring and firing decisions with respect to GCAD‘s top management, including hiring the Light Brothers. On the other hand, the evidence shows that Erwin did not participate at all in routine personnel decisions.
Examining the Plett factors in toto, in my considered opinion, Erwin has proffered sufficient evidence to stave off the Government‘s motion for summary judgment. More specifically, when the evidence in this case is viewed in the light most favorable to Erwin, and all reason-
able inferences are drawn in his favor, a reasonable fact finder could find, under the totality of the circumstances, that Erwin was not a responsible person with respect to GCAD‘s withholding taxes for the last quarter of 1998 and the first three quarters of 1999—i.e., Erwin did not have the effective power to pay those taxes during those quarters.
My view is substantially supported by the First Circuit‘s decision in Vinick v. United States (Vinick II), 205 F.3d 1, 9 (1st Cir.2000), which is not cited by either party. In Vinick II, the Government assessed a nearly $50,000 penalty against Arnold Vinick (Vinick) pursuant to
Vinick paid a small portion of the penalty and filed a claim for a refund. Id. at 6. After the Government denied the claim, Vinick sued for a refund. Id. The Government counterclaimed for the balance due and moved for summary judgment. Id. at 6. The district court granted summary judgment for the Government, and Vinick appealed. Id. The First Circuit reversed and remanded for further proceedings. Vinick v. Comm‘r of IRS (Vinick I), 110 F.3d 168 (1st Cir.1997). Following a bench trial, the district court again ruled in favor of the Government by finding Vinick to be a responsible person. Vinick II,
Vinick was a CPA in private practice and a former IRS employee. Id. at 4. In 1981, he and two other persons (Letterman and Mayer) formed Jefferson Bronze for the purpose of operating a foundry. Id. The three men, who each owned one-third of Jefferson Bronze‘s stock, personally guaranteed the Small Business Administration loan used to start-up the business and pledged their homes as collateral. Id. Letterman became president, Vinick became treasurer, and Mayer became the day-to-day manager of the foundry. Id. Soon after its formation, Jefferson Bronze began a long period of financial difficulties. Id.
The remaining relevant facts are as follows: (1) throughout the history of Vinick‘s involvement in the corporation, he never gave up his accounting practice and never had an office at Jefferson Bronze; (2) although Vinick had check-writing authority on Jefferson Bronze‘s checking accounts, he never signed checks prior to the company‘s filing for Chapter 11 bankruptcy; (3) Vinick prepared Jefferson Bronze‘s quarterly employment tax returns; (4) in 1983, Letterman fired Mayer, Letterman and Vinick acquired Mayer‘s share of the corporation, and each became a half owner of Jefferson Bronze; (5) Vinick hired Ronald Ouellette (Ouellette) as the new manager; (6) Ouellette ran the office and the foundry, and his wife worked part-time as the bookkeeper and signed the company checks and payroll returns; (7) Vinick occasionally would visit the Ouellette home to collect information needed to complete the quarterly returns, and after their preparation, Vinick would return the completed, unsigned forms to the Ouellette home; (8) usually once a month, Vinick would
discuss with Ouellette the financial condition of the corporation and would stress to him the need to pay the taxes; (9) during Ouellette‘s tenure as manager, Jefferson Bronze‘s financial troubles continued, with Jefferson Bronze failing to timely pay the withholding taxes due; (10) regardless, Jefferson Bronze always filed its tax returns on time; (11) at some point, Letterman and Vinick obtained a $35,000 loan for Jefferson Bronze, which they secured with personal guarantees; (12) in 1985, Vinick negotiated with an Internal Revenue Service revenue officer a payment plan for the taxes Jefferson Bronze owed, and relayed the terms of the plan to Ouellette, who complied with the plan‘s requirements; (13) after Jefferson Bronze completed payment of these taxes, it experienced no further tax delinquency until Letterman took over as manager; (14) in January 1988, Letterman decided on his own to take over as the day-to-day financial manager of the corporation (Ouelette continued as the foundry manager for non-financial matters); (15) Letterman‘s wife then took over as office manager and bookkeeper; (16) during this time, Vinick continued to collect the financial information, to prepare the quarterly tax returns, and to leave them for Letterman to sign; (17) while he also continued to advise Letterman to pay the corporation‘s taxes, Vinick became less involved in the financial affairs of the corporation as Letterman‘s role increased; (18) in May 1988, Letterman and Vinick successfully negotiated a refinancing of Jefferson Bronze‘s Small Business Administration loan with a private bank, including signing the note in their individual and corporate capacities; (19) additionally, Vinick pledged his home as collateral on the refinancing; (20) around March 1989, Jefferson Bronze became delinquent on such note, prompting Letterman and Vinick to discuss the financial future of Jefferson Bronze with the bank‘s vice president; (21)
After applying virtually the same factors as we outlined in Plett to the facts just set forth, the First Circuit held that “Vinick as a matter of law was not a responsible person within the meaning of
While I do not suggest here that, under the facts of the present case, Erwin, as a matter of law, cannot be a responsible person under
responsible person under
In sum, I recognize that this is a close case. However, for the reasons just set forth, I believe the scale tips in favor of Erwin at the summary judgment stage.
III.
In conclusion, I would hold the district court erred in holding that the responsible person inquiry cuts in favor of the Government on summary judgment. Accordingly, I would not reach the willfulness element and would vacate the judgment in favor of the Government and remand for trial.