Burack v. United States

• Decision Date: 16 June 1972
• Docket Number: No. 94-67.,94-67.
• Citation: 198 Ct. Cl. 855,461 F.2d 1282
• Parties: Robert H. BURACK v. The UNITED STATES.
• Court: U.S. Claims Court

198 Ct. Cl. 855, 461 F.2d 1282 (1972)

Robert H. BURACK v. The UNITED STATES.

No. 94-67.

United States Court of Claims.

June 16, 1972.

COPYRIGHT MATERIAL OMITTED

Stanley P. Wagman, New York City, attorney of record, for plaintiff.

Michael H. Singer, New York City, with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant; Philip R. Miller and Joseph Kovner, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA and KUNZIG, Judges.

OPINION

PER CURIAM:

This case was referred to Trial Commissioner Saul Richard Gamer with directions to make findings of fact and recommendation for conclusions of law under the order of reference and Rule 134(h). The commissioner has done so in an opinion and report filed on February 23, 1972. No exceptions or brief pertaining to the opinion and report were filed by the parties and time for so filing pursuant to the Rules of the court has expired. On April 14, 1972, defendant filed a motion that the court adopt the commissioner's report and dismiss plaintiff's petition to which no timely response has been filed. Since the court agrees with the trial commissioner's opinion, in which the facts are fully stated, and his recommended conclusion of law, as hereinafter set forth, it hereby grants defendant's motion and adopts them as the basis for its judgment in this case. Therefore, plaintiff is not entitled to recover and the petition is dismissed.

OPINION OF COMMISSIONER

GAMER, Commissioner:

Section 6672 of the Internal Revenue Code of 1954 (26 U.S.C. § 6672 (1970) ) provides that if a "person" is "required" to collect and pay over certain taxes but "willfully fails" to do so, he shall be penalized by being made liable himself for the amount of such unpaid taxes.¹ Section 6671(b) includes in the definition of such a person an officer or employee of a corporation who "is under a duty" to so collect and pay over.²

Plaintiff was the vice-president of a New York corporation which carried on its business at White Plains, New York, under the name of Allied-Hutchinson Co., Inc. The corporation was required to withhold from the wages of its employees certain amounts in respect of the employees' income tax liabilities, as well as amounts representing their obligations under the Federal Insurance Contributions Act. For the first quarter of 1961, the corporation withheld but failed to pay over to the Internal Revenue Service such so-called payroll or employment taxes, and, in 1965, plaintiff was, under the above two Code sections, assessed for the amount the corporation owed for such quarter. In 1966, plaintiff paid the amount in question, plus interest, and in 1967, filed a timely claim for refund thereof, which was denied. Plaintiff sues to recover such assessed amount, plus interest.

To be liable, plaintiff's position with the corporation and his duties must have been such that he had "the responsibility and authority to avoid the default * * *," but willfully failed to do so. Scott v. United States, 354 F.2d 292, 296, 173 Ct.Cl. 650, 657 (1965). Plaintiff contends that, although he was the vice-president, the part he played in the corporation's affairs was not such as to have made him such a responsible person with the requisite authority and that, in any event, he did not "willfully" fail to pay the withheld taxes involved. It becomes necessary, therefore, to consider how the defaulting corporation operated and what were plaintiff's duties and activities therein.

Allied-Hutchinson Co., Inc., was an unusual corporation whose active, operating life lasted only approximately two years, from June 1959 to July 1961. It represented a combination of two separate corporate interests, and came into being in the following described manner.

I. Burack, Inc., is a New York corporation successfully engaged, since 1931, in the wholesale plumbing, heating, oil burner, and electrical supply business. During the 1959-1961 period here pertinent, it had gross sales of approximately $10,000,000, was servicing 1,200-1,500 customers, and had excellent banking connections and contacts with large building contractors. Plaintiff, the corporation's treasurer, was in general charge of the corporation's operations, was the officer who was in direct contact with customers and suppliers, and was familiar with the corporation's financial affairs, being in close touch with the corporation's bankers and the official who signed the corporation's tax returns. There were only three stockholders, i. e., plaintiff, his brother Abraham W. Burack, and his brother-in-law Solomon Jaffe, but plaintiff was the corporation's principal officer and employee.

The Hutchinson Roofing & Sheet Metal Company (hereinafter the Hutchinson Company) was also a New York corporation organized in 1931. It was engaged in the business of supplying and installing fabricated sheet metal used in ventilation (air-conditioning and heating) components of structures. It too was a close corporation owned and operated by Max Radding, his son Joseph, his son-in-law George Goldstein, and one Edward Kleinberg.

Following some earlier business dealings between the Burack corporation and the Hutchinson Company, there had developed, by early 1959, a close personal friendship between Joseph Radding and plaintiff. At that time, Joseph Radding told plaintiff that the Hutchinson Company was negotiating for an approximately $800,000 subcontract for the sheet metal work on an International Business Machines project to be located in Yorktown Heights, New York, but that he doubted that the Company had the necessary financial resources to enable it to handle what would be for it such a large undertaking. Since the Burack corporation had good banking connections, he suggested the possibility of the IBM subcontract being undertaken as a joint venture between the Hutchinson Company and the principals of the Burack corporation. The Burack corporation principals also owned a corporation operating under the name of Allied Industrial Manufacturing Corporation, and the discussions included the possibility of a joint venture composed of the Hutchinson Company and Allied Industrial. Upon consideration, however, the Burack principals decided against a joint undertaking with the Hutchinson Company interests by any of their corporations.

Nevertheless, further discussions did evolve the idea of forming a new corporation in which the Hutchinson Company and the Burack interests would have equal stock ownership. This corporation would be in the same business as the Hutchinson Company and would perform the IBM subcontract and such other sheet metal subcontract business as it could procure. The new proposed corporation would operate from the same premises as the Hutchinson Company, and its contracts would actually be performed by such Company, which had the know-how and the necessary facilities. The objective was to combine the Hutchinson Company's facilities and technical ability in its specialized field with the good credit of the Burack interests, as well as their contacts with large building contractors, which, it was hoped, would be productive of business.

Both sides agreed to such a plan and, in June 1959, the new entity designed to effectuate it was organized as a New York corporation with the name of Allied-Hutchinson Co., Inc. (hereinafter "Allied"). To carry out the design of equal stock ownership between the Burack and the Hutchinson Company interests, the subscribers to Allied's stock were plaintiff, Abraham Burack, and Jaffe, each with a 16 2/3 percent interest (totaling 50 percent) and the Hutchinson Company, with a 50 percent interest. Apparently because the new corporation needed no facilities or independent quarters, or any employees of its own, it being the Hutchinson Company that would house it and execute its contracts on a 100 percent type subcontract arrangement, the total capitalization was the surprisingly small amount of $500, which amount was its only initial asset.

Nevertheless, the new corporation did obtain the sheet metal subcontract, in the amount of $790,000, on the IBM project, and plaintiff was instrumental in obtaining from the Royal State Bank of New York City, a bank with which the Burack corporation had financial connections, a line of credit for the corporation, the loans thereunder being secured, in accordance with a loan agreement between the corporation and the bank, by an assignment of the corporation's accounts receivable. In July 1959 — the month after Allied was organized — the bank lent Allied over $140,000 against assigned accounts receivable which at that time related only to the subcontract on the IBM project. The prime contractor on that project was the William L. Crow Construction Company, which subcontracted the mechanical work to a joint venture composed of A. D. Walker, Inc., and the J. E. Schechter Corporation, such joint venture in turn subcontracting the sheet metal work to Allied.

The new corporation's officers (all of whom were also its directors) consisted of Joseph Radding, president, plaintiff, vice-president, Jaffe, secretary, and Goldstein, treasurer. It was understood that Joseph Radding would manage its day-to-day operations. However, pursuant to an arrangement entered into with the bank, it was agreed that one person from the Hutchinson Company group, i. e., either Joseph Radding or Goldstein, and one person from the Burack group, i. e., either plaintiff or Jaffe, had to sign the corporate checks before payment would be made by the bank. It was in fact plaintiff who cosigned all of Allied's checks.³

For a while, matters apparently went well. In addition to the IBM subcontract, Allied obtained, in August 1959, a $460,000 subcontract on a project at the McGuire Air Force Base in New Jersey, and, in February 1960, a $152,000 subcontract on the Morgan Annex of the General Post Office in New York City.

Since Allied initially had no employees of its own, with its...