Regan & Company v. United States

• Citation: 290 F. Supp. 470
• Decision Date: 27 June 1968
• Docket Number: No. 63-C-631,66-C-653.,63-C-631
• Parties: REGAN & COMPANY, Inc. (formerly C. W. Regan, Inc.), Plaintiff, v. UNITED STATES of America, Defendant. UNITED STATES of America, Plaintiff, v. Charles W. WEISMAN, Defendant.
• Court: U.S. District Court — Eastern District of New York

290 F. Supp. 470

REGAN & COMPANY, Inc. (formerly C. W. Regan, Inc.), Plaintiff, v. UNITED STATES of America, Defendant.

UNITED STATES of America, Plaintiff, v. Charles W. WEISMAN, Defendant.

Nos. 63-C-631, 66-C-653.

United States District Court E. D. New York.

June 27, 1968.

M. Carl Levine, Morgulas & Foreman, New York City, Edwin Efros, New York City, of counsel, for plaintiff, Regan & Co., Inc.

Joseph P. Hoey, Brooklyn, N. Y., Gerald Fain and Stanley Greenblatt, Asst. U. S. Attys., Tax Div., Washington, D. C., of counsel, for the United States.

MacArthur & Walsh, Albany, N. Y., James P. Walsh, Albany, N. Y., of counsel, for defendant, Charles W. Weisman.

ROSLING, District Judge.

In the first of the two cases consolidated for trial the plaintiff, Regan & Company, Inc., ("Regan"), sues to reclaim from the government taxes and interest assessed and collected pursuant to Section 6672 of the Internal Revenue Code of 1954, ("IRC 1954"), as in force at the time (26 U.S.C. 1964 Ed., Sec. 6672).¹ The relevant taxes are withholding and social security taxes² for the second and third quarters of 1959 referable to the wages earned by employees of Vince's Concrete Company, Inc. ("Vince"). The sum which is sought to be recovered by Regan is $14,361.^* ($14,318. in taxes and $42. in accrued interest). This sum was paid on July 23, 1962, on which date Regan also filed a claim for a refund with the District Director.

The second of the consolidated actions is brought by the government against Charles W. Weisman to reduce an assessment of like origin against him to judgment upon an allegation of liability generated under the same Code provisions.

The issues³ presented to the court for its resolution are whether the Regan company and Weisman each was a "person"⁴ required to collect, truthfully account for, and pay over the withholding and social security taxes with regard to Vince for the quarters involved, and whether as such persons they willfully failed in fulfilling the several obligations thus enjoined upon them.

The facts hereinafter reported as found represent either those facts stipulated by the parties and adopted in their pretrial order or as to which there is no substantial dispute in the evidence, and when the respective versions are in conflict or disparate inferences may be drawn, the version or inferences sponsored by the government⁵ have been adopted.

The Regan corporation was de facto a joint venture comprised of Nager Electric Company (the "Nager") and Weisman Construction Company, Inc., (the "Weisman Company"). The agreement which gave birth to the Regan was entered into July 10, 1958. Regan was formed to execute and perform a prime contract with the United States Army for the construction of a radar warning network at Lockport, New York. Defendant Weisman was president of the Weisman Company and owner, together with his wife, of all its outstanding stock. He became president of the Regan company at its inception. The precise date of his resignation from that office is uncertain. He testified it occurred about June 1959, but the circumstance is not established by credible proof. The government's legal position in this suit, however, is unaffected by such uncertainty. For irrespective of his official designation Weisman continued to function in fact as managerial head of Regan with duties and authority undiminished throughout the project until full performance of the contract, a point reached late in 1959 or early 1960. In part his presence at the Lockport site was motivated by a desire to protect his own financial interest in the Weisman company whose profits from Regan were drawn in the form of the salary he personally received from Regan.

Weisman was in over-all charge of the radar project, with complete responsibility for running the job. He negotiated all subcontracts, coordinated the efforts of subcontractors, made provision for supplies and dealt with vendors, planned the construction work and functioned as business manager.

On September 3, 1958, the Regan company,⁶ represented by Weisman as negotiator, entered into a subcontract with the Vince company for performance by Vince of concrete work at Lockport. Representing Vince was its president D'Innocenzo. Thereafter the subcontract was administered for the joint venture by Weisman with the collaboration of his job superintendent, Jack Prahl, who in all his conduct in the Lockport operation acted as agent for the Regan. Vince's contract with Regan called for it to set the forms in place and finish the concrete. Weisman told D'Innocenzo to do his job and assured him the necessary monies would be made available to him. Financial matters were not to be D'Innocenzo's concern.

In the initial stages of its performance the Vince company maintained two bank accounts with the Manufacturers and Traders Trust Company in Niagara Falls. One was a general account and the other a payroll account. D'Innocenzo alone was authorized to draw checks on these accounts. At first the Regan company would make payment to the Vince by check. Later the procedure was changed whereby funds would be made available to the subcontractor by means of bank transfers from the Regan company account in New York City to Vince's Niagara Falls accounts. The amount of money to be transmitted from Regan in New York to the Vince Niagara Falls bank accounts was based on Weisman's requests. Remittances were made weekly. Using the Vince accounts, D'Innocenzo paid the Vince bills, including those for taxes payable to the Internal Revenue Service.

From October 14, 1958, through November 3rd of the same year the Regan had made direct check payments to the Vince totalling $26,731. An additional payment of $7,135 was made on November 3, 1958, by Regan to a materialman for Vince's account.

Eleven bank transfers of funds from the Regan New York City account to the Vince Niagara Falls accounts totalling $74,000 were made during the period between November 13, 1958, and March 9, 1959. Shortly after the latter date in consequence of a conversation between Weisman and D'Innocenzo a change in the financial procedures of the two companies, shortly to be noted, was effected. The circumstances which prompted Regan's action were testified to by Weisman with a vagueness which left the Court with the distinct impression that it was Regan's purpose at the time to take an ambiguous position so that future action by Regan might not be encumbered by a prior "hard" decision.

Weisman felt, so he testified, that Vince had at that point, namely in March of 1959, been overpaid by Regan relative to the dollar value of the concreting completed. The excess he estimated as amounting to between twelve and fifteen thousand dollars. Weisman professed to believe that the subcontractor had from the sums received by it from Regan been using a part to pay expenses and bills on jobs other than the one covered by the subcontract between the parties. The proof on the subject was less than complete. The record as made, however, appears to favor the Regan-Weisman claim, but even if accepted by the Court as appropriate for a finding, as motivating Regan's closer involvement in Vince's affairs than had theretofore been the case, it does not follow that Regan is to be exonerated from § 6672 liability based on its own conduct in the handling of Vince's funds.

Weisman in the March 1959 discussions with D'Innocenzo directed him to close out the two Niagara Falls Vince accounts. As a consequence of the discussion Regan on March 16, 1958, caused a new account to be opened in Vince's corporate name at the Lockport branch of the Manufacturers bank. With respect to such account Weisman and Prahl were the only persons authorized to sign. A single signature sufficed.

D'Innocenzo, as secretary of Vince, executed the customary attestation forms for filing with the bank. In practice it was Prahl alone who signed the Vince checks thereafter drawn. The Regan company following the closing of the two Vince Niagara accounts and the opening of the Vince Lockport account continued to make bank transfers to Vince, but by directing them to the Vince Lockport account for deposit controlled the earmarking of their disposition. In all there were twenty-six such transfers, the first being made on March 13, 1959, and the last on August 28, 1959. The transfers aggregated $140,000.

When the change in financial procedure had been effected with no resistance on D'Innocenzo's part, D'Innocenzo and the Vince bookkeeper were removed from that corporation's payroll by the simple expedient of not earmarking any funds for salary payment to them from the Lockport account. The natural and not unanticipated consequence was that D'Innocenzo took on some minor jobs, presumably to keep body and soul together. What is clear from the record as a whole is that after March 16th there was not the slightest likelihood that the Vince company would be able to pay withholding and social security taxes on the wages of its Lockport laborers unless Weisman or Prahl drew a Vince company check on the Lockport corporate bank account and deposited Regan money to meet it.

It is the Regan-Weisman contention that they could without becoming liable under Section 6672 oust the Vince financial management in the fashion they did, crawl into the Vince corporate shell, utilize the corporate facilities and labor to complete the Regan prime contract with the defense department, and in the meantime provide only such funds for labor and other charges as would keep Vince going, without making provision for the accruing withholding and social security tax obligations. The time lag pending the institution of government enforcement procedures would enable the intruding Regan to utilize the corporate carapace and facilities for Regan's purposes before Vince was put out of business by such enforcement. Now when called upon to make good these tax claims that surely were integral to Vince's...