Gefen v. United States
| Decision Date | 24 September 1968 |
| Docket Number | No. 24440.,24440. |
| Citation | 400 F.2d 476 |
| Parties | Sidney J. GEFEN and Lois Gefen, Appellants, v. UNITED STATES of America, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Joseph M. Glickstein, Jr., Jacksonville, Fla., for appellants.
Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, Harry Marselli, Loring W. Post, Robert I. Waxman, Attys., Dept. of Justice, Washington, D. C., Edward F. Boardman, U. S. Atty., Tampa, Fla., William N. Hamilton, Jr., Asst. U. S. Atty., Jacksonville, Fla., for appellee.
Before BELL, GOLDBERG and DYER, Circuit Judges.
The government seeks affirmance of a judgment against Sidney and Lois Gefen for Sidney Gefen's hereinafter Gefen willful failure on behalf of Georgia Shipbuilding Corporation hereinafter Georgia Ship to pay over certain withholding and F.I.C.A. tax liabilities. 26 U.S.C. §§ 6672 and 6671(b).1 The District Court,2 as part of its judgment, foreclosed the federal tax lien on any property of the taxpayers, specifically on the cash surrender value of a life insurance policy on Gefen's life with Lois Gefen as beneficiary. 26 U.S.C. §§ 6321 and 6322.3 Gefen seeks reversal on two grounds. First, he asserts that the District Court's refusal to grant a jury trial transgressed his rights under the Seventh Amendment to the Constitution and under Rule 38 of the Federal Rules of Civil Procedure.4 Second, he contends that the Court erred in finding him to have been a responsible corporate officer with a duty to pay such taxes and in finding that he willfully failed to pay the taxes. We reject both points on appeal and affirm.
In Damsky v. Zavatt, 2 Cir. 1961, 289 F.2d 46, the Second Circuit considered the same procedural issues that we face here. In that case Bernard and Olga Damsky, husband and wife, had been assessed for non-payment of income taxes during a period of several years. In addition, tax liens had been filed on property owned by Olga for all except three of the years in question. Following the Damsky's timely demand for a jury trial and the government's motion to strike such demand, the Honorable Joseph C. Zavatt, District Judge, issued a written opinion and order granting the government's motion in full. United States v. Damsky, E.D. N.Y. 1960, 187 F.Supp. 404. The Damskys sought a writ of mandamus directing Judge Zavatt to vacate that order. In an opinion laden with thorough and exegetic historical credentials, Judge Friendly granted the writ with respect to these claims asserted solely against Bernard Damsky (only the years for which no tax liens had been filed). Judge Clark dissented as to this part of the opinion but concurred in the remainder of the majority opinion, in which the Court refused to issue the writ with respect to the claims arising from foreclosure of the tax lien on Olga's property.
Our concern at bar is with that part of the majority opinion in Damsky which denied the taxpayers' right to a jury trial in the years of foreclosure. We quote Judge Friendly's foundational analysis in full:
In an equally scholarly analysis Judge Friendly upheld the right of the District Court to render a judgment against Olga personally for any deficiency which might have remained unsatisfied after judicial sale of the mortgaged premises. 289 F.2d at 54-55.
The District Court in the case at bar followed other district courts in denying a jury trial primarily on the basis of the Damsky decision. See United States v. Warren, W.D.N.C.1964, 235 F.Supp. 638 (); United States v. Rentz, N.D. Iowa 1962, 213 F.Supp. 521. In accord, United States v. Malakie, E.D.N.Y.1960, 188 F.Supp. 592. See also Note, 46 Minn.L.Rev. 643 (1962) (); Note, 110 U.Pa.L.Rev. 133 (1961) (); 5 Moore, Federal Practice ¶ 38.31 1 at 34-35, and ¶ 38.38 4 at 45, (1967 Supp.) (); 2B Barron and Holtzoff, Federal Practice and Procedure § 872 at 17, (Wright ed., 1967 Supp.) (a similar summary of the Damsky decision); James, Civil Procedure § 8.11 at 378 n. 4 () (which quotes Judge Clark's dissent objecting to the partial granting of a jury trial in Damsky and refers to it as "a wise and temperate judicial appraisal of the problem"). We likewise agree that the historicity of foreclosure as a ward of equity is documented accurately in Judge Friendly's scholarly opinion. And although the classification of pre-1791 standards does not capture our unqualified enthusiasm, we follow Damsky until the Supreme Court frees us from its validated historical bondage.5
The following facts are undisputed. Gefen was a partner holding a 50% interest in MacDonnell Boats when on August 18, 1952, a contract was executed with the Navy Department's Bureau of Ships for MacDonnell to build five motor gun boats. Thereafter, MacDonnell Boats was incorporated as Georgia Shipbuilding Corporation, with Gefen and his wife owning 50% of the capital stock. Gefen served as president of Georgia Ship and a member of its Board of Directors from the date of its incorporation until April 30, 1955, when he resigned and sold his entire interest in the corporation. During his tenure as president Gefen's signature was required on all checks drawn on the corporation's bank account. From July 1, 1954, until April 30, 1955, the period of time involved here, Georgia Ship accrued on its books and carried as a liability an accrued salary payable to Gefen of $2,000 per month. His accrual salary rate was the highest of any employee or officer of Georgia Ship, but he never received actual payment of any salary.
As early as July, 1954, Gefen participated in negotiations with the Navy to rescue Georgia Ship from financial difficulties. On September 23, 1954, these negotiations resulted in an amendment to the 1952 contract under which the Navy would make an advance payment of $172,000 to the corporation. The following items from the corporation's balance sheets clearly show the immediate outflow of funds to creditors after receipt of the $172,000 payment:
31 Aug. 1954 30 Sept. 1954
Current Assets — Cash $ 4,538.91 $45,678.54
Current Liabilities —
Accounts Payable 130,173.49 26,451.47
Accrued Payroll Taxes 21,701.59 20,919.53
On October 30, 1954, Gefen, as president of Georgia Ship, signed Form 941, Employer's Quarterly Federal Tax Return, in which he declared liability for the following tax payments: (1) $10,508.54, representing federal income taxes of the employees which the corporation had withheld from their wages and salaries during the third quarter of 1954; and (2) $5,052.98, representing the corporation's liability under the Federal Insurance Contributions Act (F.I.C.A.). This return, however was received by the office of the District Director of Internal Revenue without payment.
On November 9, 1954, the Navy again amended its contract with Georgia Ship and agreed to loan the company an additional sum of $50,000. Unlike the advancement of $172,000 in September, the loan agreement expressly provided for the use of the funds, stating in part:
"These funds shall not be used to pay any part of the Contractor\'s delinquent withholding taxes without prior written approval of the Administering Office."
The loan agreement also required a Navy Special Account, and on November 10, 1954, such account was opened with Georgia Ship's bank in Jacksonville, with Gefen as the sole company officer authorized to make withdrawals on that account. On December 10, 1954, and on January 14, 1955, the company used funds presumably from that account to pay $17,431.99 and $8,971.66 for labor, material, and other expenses.
On January 24, 1955, Gefen sent a "Request for Amendment Without Consideration" to the Navy seeking further advance...
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