In re Coveney
| Decision Date | 04 March 1998 |
| Docket Number | Civ.A. No. 96-40241-GAO. |
| Citation | 217 BR 362 |
| Parties | In re Robert P. COVENEY, Debtor. Mitchell ADAMS, Commissioner, Commonwealth of Massachusetts, Department of Revenue, Appellant, v. Robert P. COVENEY, Appellee. |
| Court | U.S. District Court — District of Massachusetts |
Edward J. DeAngelo, Atty. General's Office, Karen L. Paino, Massachusetts Dept. of Revenue, Boston, MA, for Appellant.
Arthur Bergeron, Badbois & Bereron, Marlboro, MA, for Appellee.
Denise Pappalardo, trustee, Worcester, MA, Pro se.
O'TOOLE, District Judge.
The Commissioner of the Massachusetts Department of Revenue ("DOR") appeals from a final order of the Bankruptcy Court disallowing the DOR's claim against the debtor, Robert P. Coveney ("Coveney"). In re Robert P. Coveney, 202 B.R. 801 (Bankr. D.Mass.1996). The Commissioner contends that the Bankruptcy Judge applied the wrong legal standard in interpreting Mass. Gen.L. ch. 64H, § 16 and Mass.Gen.L. ch. 62B, § 5 to determine whether Coveney was "under a duty" to pay over the state trust fund taxes withheld by Covynn, Inc., a corporation formerly owned in part by Coveney. The question whether the Bankruptcy Court applied the appropriate legal standard is subject to de novo review. Williams v. Poulos, 11 F.3d 271, 278 (1st Cir.1993). This Court concludes that the legal analysis applied by the Bankruptcy Judge was erroneous, but that application of the correct analysis leads to the same result. Accordingly, the judgment of the Bankruptcy Court is affirmed.
The DOR filed a proof of claim against Coveney for withholding and meals taxes for the period between January, 1988 and January, 1989. At issue in this appeal is whether Coveney is a person "under a duty" to pay over the meals and payroll taxes of Covynn, Inc. ("Covynn"), a Massachusetts corporation, and so responsible to the DOR upon the corporation's default. The parties submitted an agreed statement of facts, supplemented by an affidavit by Coveney "containing statements consistent with the agreed statement of facts." In re Coveney, 202 B.R. at 802. The judge accepted the undisputed facts as true. Id. The significant facts for present purposes are as follows:
Coveney and A. Lawrence Glynn together formed Covynn, Inc. in 1983 to purchase and operate an existing restaurant known as the Piave Square Pub, located in Marlborough, Massachusetts. Covynn's Articles of Organization named Coveney as President, Glynn as Treasurer, and Coveney's wife as Clerk. Coveney, Glynn, and their wives comprised the four-person Board of Directors, and each had a 25% stock interest in the company. Only Glynn and Coveney played any active role in the operation of the company.
By explicit oral agreement, Glynn and Coveney divided their responsibilities. Glynn, a practicing attorney and certified public accountant, was responsible for the preparation and filing of all of Covynn's tax returns, for payment of the taxes due, and for monthly payments to Covynn's lenders. Correspondingly, Coveney, whose background was in the food service business, was to be responsible for the day-to-day management of the restaurant on a full-time basis.
Coveney signed checks payable to suppliers and he deposited restaurant revenues into Covynn's checking account. Glynn, on the other hand, calculated the amount necessary to pay Covynn's outside payroll service for the payroll and payroll taxes. Glynn signed the checks to the payroll service. He also calculated the amount needed to pay Massachusetts meals taxes. He arranged for payments to other creditors through a realty trust of which both Glynn and Coveney were trustees. Coveney never signed any checks on behalf of the trust.
In 1988, Glynn told Coveney that Covynn was $200,000 behind in paying federal and state taxes. The two partners thereafter borrowed $200,000 from Glynn's mother, signing a note secured by a mortgage on the real estate owned by Covynn. Glynn handled the disbursement of all funds telling Coveney that the taxes were being kept current. In February or March of 1989, Glynn told Coveney that taxes were behind by $210,000. Coveney and Glynn again executed a note in the sum of $210,000 payable to Glynn's mother, secured by the mortgage on their home. Glynn again handled the disbursement of these funds through his law firm.
Subsequently, the DOR notified Coveney that it intended to hold him as a "responsible" party personally liable for the unpaid meal and payroll taxes pursuant to Mass.Gen.L. ch. 62B, § 5 and Mass.Gen.L. ch. 64H, § 16. The Bankruptcy Court disallowed the claim on the ground that Coveney was not found a person "under a duty" to make the payment so as to be within the liability imposed under the state statutes. After Coveney filed his petition under Chapter 13 of the Bankruptcy Code, the DOR filed its proof of claim.
Mass.Gen.L. ch. 62B, § 5 imposes personal liability on an employer who fails to withhold or pay Massachusetts income taxes from its employees' wages:
Every employer who fails to withhold or pay to the commissioner any sums required by this chapter to be withheld or paid shall be personally and individually liable therefor to the commonwealth. The term "employer," as used in this paragraph and in section eleven, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee or member is under a duty to withhold and pay over taxes in accordance with this section and section two. Any sum or sums withheld in accordance with the provisions of section two shall be deemed to be held in trust for the commonwealth.
The Massachusetts meals tax statute, Mass.Gen.L. ch. 64H, § 16, has a similar requirement:
Every person who fails to pay to the commissioner any sums required by this chapter shall be personally and individually liable therefor to the commonwealth. The term "person," as used in this section, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to pay over the taxes imposed by this chapter.
The question presented by this appeal is whether the Bankruptcy Judge properly determined that Coveney was not "under a duty" to pay over taxes as required by those statutes. The question had to be answered without the help of direct Massachusetts precedent construing the relevant language of the statutes. In analyzing the matter, the Bankruptcy Judge declined to rely upon the federal courts' interpretation of an analogous federal statute, 26 U.S.C. § 6672(a), but rather interpreted the Massachusetts statute without reference to the federal case law. That was an error.
As a general matter, Massachusetts courts look to the federal courts' construction of tax statutes which mirror or are similar to federal law. See Commissioner of Revenue v. Franchi, 423 Mass. 817, 673...
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