Haffa v. U.S.
| Citation | 516 F.2d 931 |
| Decision Date | 28 May 1975 |
| Docket Number | No. 74-1581,74-1581 |
| Parties | 75-1 USTC P 9491 Mae HAFFA et al., Plaintiffs-Appellees, v. UNITED STATES of America, Defendant and Third-Party Plaintiff-Appellant, v. Thomas P. COOPER, Third-Party Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Scott P. Crampton, Asst. Atty. Gen., Jonathan S. Cohen, Atty., Tax Div., U. S. Dept. of Justice, Washington, D. C., for appellant.
James E. Beckley, Jeffrey Jahns, Robert M. Woodward, Chicago, Ill., for appellees.
Before HASTINGS, Senior Circuit Judge and SWYGERT and CUMMINGS, Circuit Judges.
The United States takes this appeal from a judgment denying its third-party claim against Thomas P. Cooper for recovery of $15,000 in delinquent payroll withholding taxes. A withholding tax deficiency of $79,705.89 was originally assessed against Titus Haffa, Ethel Haffa, Raymond Spivey, and Cooper for failure to pay withholding taxes due from G.T.O. Steel Erectors, Inc. for the quarters ending September 30, 1966 and December 31, 1966, all in violation of section 6672 of the Internal Revenue Code of 1954, 26 U.S.C. § 6672. This assessment was paid in full by the Haffas on September 28, 1971. 1 Thereafter, a claim for refund was made to the IRS and upon denial of this claim, the Haffas brought this suit to compel a refund. The Government filed a third-party complaint against Cooper for the full assessment of $79,705.89 on January 15, 1973. On April 6, 1973 a similar third-party claim was filed against Spivey. Subsequently, the refund suit was settled with the sum of $15,000 being refunded to the Haffas. 2 A default was taken on the Government's claim against Spivey, which judgment remains unsatisfied.
The claim against Cooper was tried in the district court without a jury. At the conclusion of the evidence the district judge entered judgment for Cooper, holding that Cooper was not a "person required to collect, truthfully account for, and pay over" the disputed taxes within the contemplation of section 6672. In addition the district judge held that Cooper's failure to collect, truthfully account for, and pay over was not "willful." The Government appeals both findings. 3
Viewing the facts in this case in the light most favorable to the findings and judgment of the district court, Triangle Conduit & Cable Co. v. FTC, 168 F.2d 175, 179 (7th Cir. 1948), aff'd, 336 U.S. 956, 69 S.Ct. 888, 93 L.Ed. 1110 (1949); Uniroyal, Inc. v. Mumford, 454 F.2d 1233 (7th Cir. 1972), the following situation is disclosed:
In 1966 Pauline, Mae, Dora, and Ethel Haffa formed the Aurora Downs Race Track Partnership for the purpose of owning and operating the Aurora Downs Race Track in Aurora, Illinois. Titus Haffa, husband of partner Ethel, and registered agent for the partnership, retained Thomas Cooper to act as financial advisor for the partnership (Cooper was also involved in other business enterprises of the Haffas.) In order to secure racing dates for the track it became necessary to renovate certain of the facilities at Aurora Downs. Negotiations were conducted with a contractor who had previously done work at the track. Cooper was involved in these negotiations, and after reviewing the bid submitted by this contractor, Cooper recommended to the Haffas that the bid submitted was "financially feasible," that is, that the bidding contractor would be able to post a performance bond and provide financial capabilities ensuring completion of the project.
Subsequent to the submission of this bid, Titus Haffa was contacted by a longtime acquaintance who suggested that the project could be completed at considerable savings through a company organized by Raymond Spivey and Charles Fazio. The company was called G.T.O. Steel Erectors. Cooper was asked his opinion concerning the use of G.T.O. and he recommended against using G.T.O. on the project. Shortly after making this recommendation Cooper went on vacation. Upon his return he was informed that G.T.O. had been awarded the renovation contract and had begun work on the project. This was in April of 1966. From April until September 14, 1966 Cooper had no contact with G.T.O. other than processing payments of G.T.O. invoices by the Aurora Downs partnership, including payroll invoices.
Some time immediately prior to September 14, 1966 Cooper was directed by Titus Haffa to assume the role of cosignor on a G.T.O. checking account. Haffa did so at the request of an officer of the Old Second National Bank of Aurora, where G.T.O. maintained this account. The officer informed Haffa that G.T.O. had been releasing checks in excess of funds on deposit and that this was becoming a major problem, especially on paydays. He further indicated that the bank was about to withdraw its account because of these overdrafts. Haffa was told that this could be avoided by having Cooper, with whom the bank was familiar, cosign all future G.T.O. checks to assure that when such checks were released, sufficient funds would be on deposit in the account to cover them.
Pursuant to this arrangement Cooper spent approximately an hour to an hour and one-half per week at the G.T.O. offices, devoting the major portion of this time to signing checks and verifying that expenditures claimed by G.T.O. were actually being made at the Aurora Downs project. Cooper also called the bank on several occasions to assure that the balance in the G.T.O. checking account would cover all checks released. During the period of his cosigning authority the affairs of G.T.O. occupied a very small portion of Cooper's time and attention since he was also president of Haber Corporation, a manufacturing concern; a member of the board of directors of Webcor Corporation, which was then in a period of "trying times"; the administrator of extensive oil properties owned by the Haffas in Texas, Oklahoma, and West Virginia; and the administrator of substantial rental properties owned by the Haffas.
Cooper's cosigning authority lasted from September 14, 1966 to December 9, 1966. During all of this time Cooper was aware that the Aurora Downs partnership was making payments to G.T.O. which included amounts sufficient to cover gross payroll, including withholding taxes. At the same time he knew that the checks disbursed by G.T.O. to their employees were for net wages, since he was signing these checks as they were disbursed. Cooper never undertook any supervisory role respecting the accounting and bookkeeping of G.T.O. other than in relation to the one checking account with the Aurora bank, and he never exercised any control over preferences of one creditor to another.
In October of 1966 Spivey informed Cooper that no return was being prepared or filed in regard to G.T.O. withholding taxes for the third quarter because the accountant for G.T.O. had died. Spivey indicated that he had no clear idea what the extent of the G.T.O. liability was for that quarter but that if the liability was substantial there could be problems in making payment. Spivey asked Cooper for a "recommendation" in the matter. Cooper advised that "above all, you('d) better secure somebody and get a return prepared and filed because you could have serious problems if you fail to file any tax return." He also indicated that if funds were available, the liability should be paid when determined. Subsequently Cooper was led to believe that another bookkeeper was retained to remedy the problem.
After December 9, 1966 when Cooper's cosigning authority ended, Spivey again took full control of the account and wrote numerous checks in connection with the business of G.T.O. In December or January certain creditors of G.T.O. were not being paid by Spivey and these creditors began to contact the Aurora Downs partnership about their claims. Cooper believed these claims would entitle the complaining creditors to mechanics' liens against the Aurora Downs property. He also believed that if the Aurora Downs partnership allowed these liens to attach this would constitute a breach of the partnership's mortgage on the property and grounds for revocation of the partnership's racing license as well. In order to avoid these rather dire consequences, Cooper paid the creditors of G.T.O. on behalf of the partnership, and with partnership funds. Cooper also signed a letter on behalf of the partnership which accompanied a check to the Government for $5,000 to be applied to any deficiency on the G.T.O. tax account for the fourth quarter of 1966. The letter specifically described the payment as voluntary, and disclaimed any liability of the Aurora Downs partnership relative to the G.T.O. tax account. The letter was written on partnership stationery and signed by Cooper as the agent of Pauline Haffa, Dora Haffa, Mae Haffa, and Ethel Haffa. Cooper did not personally draft the letter although he did review its contents prior to signing it.
The Government contends that these facts will not support the judgment of the district court that Cooper was not a "person" within the intendment of 26 U.S.C. §§ 6672 and 6671(b). Section 6672 provides in pertinent part that Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax or truthfully account for and pay over such tax . . . shall . . . be liable to a penalty equal to the total amount of the tax evaded or not collected, or not accounted for and paid over. . . .
Section 6671(b) defines the term "person":
The term "person," as used in this subchapter includes an officer or employee of a corporation or a member of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.
These sections have widely been interpreted to include all "persons so connected with a business as to be in a position to exercise full authority over financial affairs," United States v. Hill, 368 F.2d 617, 621 (5th...
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