490 F.2d 960 | Ct. Cl. | 1974
This case comes before the court on plaintiff’s exceptions to a recommended decision filed February 22,1973, by Trial Judge Thomas J. Lydon pursuant to Buie 134(h). The court has considered the case on the briefs and oral argument of counsel. Since the court agrees with the decision, as hereinafter set forth,
Plaintiff, a New York surety company, authorized to do business in the State of Georgia, seeks to recover $24,287.57, plus interest, representing federal income and F.T.C.A. (social security) withholding taxes it paid on behalf of a contractor, Stradtman-Georgia Construction Company, to whom it had furnished payment and performance bonds attendant to contracts which the contractor had with the cities of Macon and Brunswick, Georgia. Plaintiff’s claim is grounded on the contention that it paid said taxes under duress.
It is my opinion that plaintiff is not entitled to recover.
The detailed and separate ¡findings of fact accompanying the trial judge’s opinion set out the relationship and dealings between plaintiff and the contractor, as well as between plaintiff and the Internal Revenue Service (IRS). Only a brief summary of the facts are set forth hi this opinion.
The contractor entered into “Contract C-1963” with the city of Macon, Georgia, on March 26, 1964, where, for the contract price of $678,247.05, it agreed to construct sanitary sewage system improvements. On July 8, 1964, the contractor entered into “Contract D” with the city of Brunswick, Georgia, where, for the contract price of $34,512.25, it agreed to construct improvements to a sanitary sewage system. Plaintiff furnished the contractor with payment and performance bonds covering both contracts.
In mid-December 1964, the contractor advised plaintiff it would be unable to complete either contract unless it received financial assistance. The contractor was considered competent, capable and honest, and those city officials who were in charge of contract performance, on the Macon contract in particular, were extremely anxious to keep it on the job. Plaintiff assured itself that the contractor could complete both contracts with financial assistance.
Having decided to extend financial assistance to the contractor, plaintiff took immediate steps to protect its interests. The contractor was required to execute a series of agreements whereby its assets were pledged as security for its existing estimated indebtedness of $200,606.84, as well as all other future liabilities of the contractor under both contracts. Some
Thereafter, plaintiff paid obligations of the contractor, which it considered covered by its bonds, as well as obligations which it did not consider covered by its bonds. It also refused to pay other obligations although requested by the contractor to do so. In summary, plaintiff paid those obligations which would ensure that contract performance would continue toward completion. Obligations which did not fall into this category were generally not paid.
In March 1965, IRS advised plaintiff that the contractor owed some $9,404.90, representing federal withholding and F.I.C.A. taxes for the Fourth Quarter of 1964. A Notice of Tax Lien and a Notice of Levy had been filed in the county courts of Macon and Brunswick, Georgia. IRS agents visited
In making payment to IBS, plaintiff advised it was doing so as an expedient, and expressly denied any legal responsibility on its part to the government for payment of such taxes. Plaintiff was of the view that its bonds did not cover the taxes owed by the contractor and that it was not an employer with responsibility to collect and turn over to IBS federal withholding and F.I.C.A. taxes incurred by the contractor although these views were not articulated in the letter it sent IBS transmitting the tax payment.
The situation with respect to the contractor’s tax indebtedness for the Fourth Quarter of 1964 set out above was repeated with respect to the contractor’s tax indebtedness for the First Quarter ($7,108.43) and the Second Quarter ($7,774.24)
In September 1965, plaintiff was again requested to pay additional taxes owed by the contractor, representing federal withholding and F.I.C.A. taxes ($5,183.20) for the Third Quarter of 1965 and F.I7.C.I. (Federal Unemployment Contribution Act) taxes ($9,733.55) for the tax period ending December 31, 1964. IRS agents visited Mr. Gunn and again advised that the contractor would be shut down if the taxes were not paid. They also advised, as they had done previously, that Mr. Gunn could be personally liable for the taxes and could go to jail if the taxes were not paid. At this stage of contract performance (the Brunswick contract was completed and the Macon contract was close to being completed) plaintiff determined it had gone as far as it could go with the contractor and refused to pay the taxes. However, the contractor wanted plaintiff to pay these taxes.
Upon being advised by plaintiff that it would not pay the contractor’s existing tax indebtedness, IRS took steps to implement its levy on the contractor’s equipment and as a result the contractor was forced to terminate its Macon contract operations. Plaintiff thereafter obtained a replacement contractor to complete the work.
At the outset, defendant raises the question of jurisdiction.
The parties are in agreement that plaintiff would not have been legally liable for payment of the contractor’s tax indebtedness as an “employer” under pertinent provisions of the Internal Revenue Code of 1954 during the period in question.
Plaintiff claims it paid the taxes on behalf of the contractor under duress. Its claim centers on conversations between IES agents and personnel of plaintiff wherein the agents advised that (1) the contractor’s operations would be shut down if the then due and owing taxes were not paid; and (2) personal civil and criminal liability was possible if authorized personnel of plaintiff refused to pay these taxes. The facts in the case will not support a finding of duress.
Plaintiff undertook to provide financial assistance to the contractor in late December 1964, in order to keep the contractor on both jobs and thus comply with its bond obligations to the cities of Macon and Brunswick to see to it that both contracts were fully performed. In keeping the contractor on both jobs, plaintiff paid various obligations of the contractor, some it considered covered by its bonds and others
When plaintiff began to supply financial assistance to the contractor, creditors, suppliers and materialmen began looking to the plaintiff for assurance and/or payment relative to supplies to be furnished and/or furnished. The government, no more than the suppliers and materialmen, was also a legitimate creditor of the contractor. It was reasonable to expect that IES would also look to plaintiff as a possible source for payment of the contractor’s tax indebtedness generated by the contracts, especially since all proceeds from both contracts were being transmitted directly to plaintiff and the contractor was left without funds with which to discharge its tax indebtedness.
It is in this setting that IES agents approached plaintiff in March,
In discussions with plaintiff’s personnel, IES agents made it clear that if the contractor’s taxes were not paid, imple
It is obvious that IES had a right to take appropriate steps to effect payment of overdue taxes. The filing of the Notices of Lien and Levy were proper in this case. The statement of the agents that if the taxes of the contractor were not paid, the contractor would be shut down, was a frank statement of the inevitable consequence which would occur; a statement of an intention to seek a remedy which the law gave to the government in its effort to collect overdue taxes from a delinquent taxpayer. It is never duress to threaten to do what one has a legal right to do. Beatty v. United States, 144 Ct. Cl. 203, 201, 168 F. Supp. 204, 201 (1958).
Plaintiff made a reasoned judgment initially to provide the contractor with financial assistance in the expectation that with such assistance the contractor would be able to complete the contracts. When it paid the tax obligations of the contractor it again made a reasoned judgment that such payments were required to keep the contractor on the job,
Even viewed in a light most favorable to plaintiff, the actions of IES in the circumstances surrounding payment of the taxes by plaintiff cannot be considered so overpowering as to have inhibited plaintiff from the unfettered exercise of its reasoned judgment. Plaintiff was an experienced surety company with competent legal advice readily available. "When it paid the taxes on behalf of the contractor it did so in the belief it was acting in its best interest. The money that IES took was voluntarily proffered by plaintiff in satisfaction of tax liabilities of the contractor admittedly owing to the United States.
As the court noted in J. C. Pitman & Sons v. United States, 161 Ct. Cl. 701, 707, 317 F. 2d 366, 369 (1963), it had “the impression that the payment of one’s taxes by another is not an unusual occurrence.” It would seem that, when a surety makes tax payments on behalf of a contractor to whom it has furnished bonds it is even less unusual, especially when it publicly undertakes to provide financial assistance to the contractor.
There are no circumstances in this case whereby a contract implied in fact can be established based on the dealings between IRS and the plaintiff. Plaintiff has failed to carry its burden in this regard, and it must be placed in the fatal category of a volunteer. J. C. Pitman & Sons v. United States, supra, 161 Ct. Cl. at 706-707, 317 F. 2d at 369-870.
Plaintiff’s petition should be dismissed.
CONCLUSION 0E LAW
Upon the findings of fact and the foregoing opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is not entitled to recover, and the petition is dismissed.
Whereas the court adopts the trial judge’s separate findings of fact, which are set forth in his report of February 22, 1973, they are not printed herein since such facts as are necessary to the decision are contained in his opiBlon.
TRe Second Quarter assessment Included the sum oí $2,038.12 which was the responsibility of another surety, New Amsterdam Casualty Co. This surety company reimbursed plaintiff the sum of $2,038.12. However, plaintiff still seeks to recover here the full amount of its payment to IRS. There is no basis on this record, and no case law has been cited, which would justify recovery by plaintiff in this regard. To the extent that New Amsterdam is indebted to plaintiff on other matters, plaintiff must proceed against New Amsterdam and not defendant.
Plaintiff's jurisdictional statement refers to 28 U.S.C. § 1346(a)(1) and 2S U.S.C. 1491.
The filing of a claim for refund does not convert a nontaxpayer into a taxpayer. Economy Plumbing & Beating Co. v. United States, 200 Ct. Cl. 31, 37, 470 F. 2d 585, 589 (1972).
Plaintiff concedes that under the Federal Tax Lien Act of 1966, 80 Stat. 1139, 26 U.S.C. § 3605 (1966), which took effect January 1, 1967, it would be legally liable for payment of the taxes here in issue. However, it argues that passage of the Act clearly demonstrates that it was not legally liable for the contractor’s tax indebtedness during the period in question. While plaintiff does not articulate the contention in its briefs, it seems to imply that since it paid the taxes of the contractor when it was not legally obligated to do so, it must have done so under duress. However, this approach fails to consider plaintiff’s self interest as a surety and the various ramifications of the bonds it furnished the contractor.
The court in Pacific Nata. Ins. Co., supra, admitted that its interpretation of Section 6672 as encompassing a surety -was disputable, but pointed out that the result it reached was one now explicitly required by the Tax Lien Act of 1966 (422 F. 2d at 27-28). Moreover, different courts have taken different views of liability under Section 6672. See Lindeman, Confusion over scope of 100% penalty maltes it a most “settleahle” issue, 38 The Journal of Taxation 50 (Jan. 1973). See also McCarty v. United States, 194 Ct. Cl. 42, 54, 437 F. 2d 961, 967 (1971).
This fact weakens the force of plaintiff’s reliance on the assertion it made to IRS agents that taxes were not covered by Its bonds. Plaintiff was motivated to pay the contractor’s obligations, whether covered by its bonds or not, in order to avoid a work shut down and to further contract completion.
Por example, it paid off a chattel mortgage on some of the contractor’s equipment even though it was not required to do so under its bonds because the contractor needed the equipment to perform the contracts, under these circumstances, that plaintiff viewed its bonds as not covering taxes is of little moment. Moreover, one surety commentator has pointed out that even before the passage of the Tax Lien Act of 1966, supra,, most sureties, when financing a faltering contractor saw to it that payroll taxes were paid. Brady, Bonds on Federal Government Construction Contracts: The Surety’s View, 46 N.Y.U.L. Rev. 262, 267, n. 28 (1971).
Plaintiff was well aware, as early as late January 1965, that the contractor was not paying the taxes in question. Accordingly, the visits from IRS were not a complete surprise to plaintiff.
Plaintiff contends that these personal threats Influenced it to pay the taxes In question. However, the facts show that neither Mr. Gunn, nor Mr. Anderson, were intimidated by the threats. Indeed, Mr. Anderson had been prepared for the IRS visit by Mr. Gunn and told to contact plaintiff’s attorney. In the last analysis, if either Mr. Gunn or Mr. Anderson were inclined to feel threatened by the remarks of the IRS agents, it was only necessary for them to contact plaintiff’s attorney, who was readily available, to learn that since they had no authority to make tax payments, they could not be personally liable. These circumstances will not support duress. Beatty v. United States, 144 Ct. Cl. 203, 206-207, 168 F. Supp. 204, 206-207 (1958). Moreover, in the absence of unusual circumstances, representations as to questions of law generally will not form a basis for setting aside completed transactions. Mills v. United States, 187 Ct. Cl. 696, 700, 410 F. 2d 1255, 1257 (1969).
It is not clear from the record whether any of the progress payments earned by the contractor were utilized and/or available for payment of the taxes. The Macon Trust Account indicates that from February 3, 1965, to April 27, 1965, progress payments of some $112,303.46 were deposited therein. An additional progress payment of $16,274.08 was deposited in the trust account in July 1965. However, since there is no record of disbursements from either of the trust accounts, one cannot say whether in March or June or August 1965 there were sufficient progress payment funds available to cover the taxes then paid.
See Brady, supra, note 6, at 267, n. 28.