Kinnie v. US, Civ. A. No. 90-70728.

• Decision Date: 06 August 1991
• Docket Number: Civ. A. No. 90-70728.
• Citation: 771 F. Supp. 842
• Parties: William A. KINNIE, Plaintiff and Counterclaim Defendant, v. The UNITED STATES of America, Defendant and Counterclaim Plaintiff, v. Barbara BERTOLLINI and Robert M. Blinstrub, Counterclaim Defendants.
• Court: U.S. District Court — Western District of Michigan

771 F. Supp. 842

William A. KINNIE, Plaintiff and Counterclaim Defendant, v. The UNITED STATES of America, Defendant and Counterclaim Plaintiff, v. Barbara BERTOLLINI and Robert M. Blinstrub, Counterclaim Defendants.

Civ. A. No. 90-70728.

United States District Court, E.D. Michigan, S.D.

August 6, 1991.

COPYRIGHT MATERIAL OMITTED

George M. Malis, Chirco, Herrinton, Runstadler & Thomas, Troy, Mich., for plaintiff William A. Kinnie.

Mack D. Lansing, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendant and counterclaim plaintiff U.S.

Kenneth Afton, Birmingham, Mich., for counterclaim defendant Barbara Bertollini.

Mayer Morganroth, Morganroth & Morganroth, Southfield, Mich., for counterclaim defendant Robert M. Blinstrub.

GADOLA, District Judge.

William A. Kinnie filed a complaint March 16, 1990, against the United States of America seeking recovery of penalties assessed and collected by the Internal Revenue Service ("IRS") pursuant to Section 6672 of the Internal Revenue Code of 1986. The government filed a counterclaim May 21, 1990, against plaintiff Kinnie and added Barbara Bertollini and Robert M. Blinstrub as counterclaim defendants. In its counterclaim, the government seeks judgments against plaintiff Kinnie in the amount of $136,292.76, against counterclaim defendant Bertollini for $137,892.76, and against counterclaim defendant Blinstrub for $133,545.93.

Counterclaim defendant Bertollini filed a motion for summary judgment April 29, 1991. The government filed a response May 15, 1991, along with a cross motion for summary judgment against Bertollini. Bertollini responded to the government's cross motion May 29, 1991, and the government filed a reply June 4, 1991.

The government filed a motion for summary judgment against plaintiff Kinnie and counterclaim defendant Blinstrub May 6, 1991. Blinstrub filed a response May 15, 1991, to which the government filed a reply June 6, 1991. Kinnie filed a response May 20, 1991, to which the government filed a reply May 30, 1991.

BACKGROUND FACTS¹

Plaintiff Kinnie and counterclaim defendant Blinstrub formed a corporation, Eastern Michigan Truck Sales, Inc. ("EMTS"), in 1982. The business purpose of the corporation was to lease, sell and service new and used trucks. The corporation operated under franchise or dealer agreements with Mercedes-Benz and Freightliner, Inc., and later with Isuzu Truck. Blinstrub was made president and Kinnie vice-president. Counterclaim defendant Bertollini was later hired by Blinstrub as secretary and treasurer. Blinstrub and Kinnie, investing equal amounts of money, were 50 percent owners and agreed that the corporation would be run as a 50/50 partnership.

Blinstrub, as general manager, ran the company on a day-to-day basis and admitted at deposition that he determined, along with Kinnie, which creditors to pay. He testified, in fact, that no payment was made to any creditor without his or Kinnie's prior approval. Kinnie contends that he was only an investor and that, as such, his only interest in the corporation was to get a return on his investment.

Beginning in 1985, EMTS began failing to pay to the IRS all of the income and Federal Insurance Contributions Act ("FICA") taxes withheld from the wages of its employees. Those delinquencies appeared on both the year end financial reports and the monthly financial reports sent to Mercedes-Benz, copies of which were provided to Blinstrub and Kinnie. In addition, Blinstrub testified that Bertollini informed both Blinstrub and Kinnie that there were insufficient funds to pay the payroll taxes. Blinstrub further testified that as a result of the corporation's insufficient funds, payroll tax checks were held in an office cabinet file along with Forms 941, Employer's Quarterly Tax Returns.

In his deposition Blinstrub stated that he and Kinnie met in person or discussed over the telephone the corporation's financial condition on a daily basis, including the payment of creditors and the payroll taxes. According to Blinstrub, he and Kinnie made joint decisions regarding which creditors to pay. The payroll taxes were not paid so that the business might continue operations. According to Blinstrub, the taxes went unpaid in anticipation that sufficient funds would be available in the future to pay the tax liability.

Blinstrub further testified that both he and Kinnie discussed the tax delinquency at least nine to twelve months prior to a $100,000.00 payment to the IRS in February 1987. Also, Blinstrub stated that he received and reviewed the monthly finance reports to Mercedes-Benz and the annual finance reports, both of which set forth the outstanding tax liabilities, and that he discussed both reports with Kinnie and their corporate accountant. During at least one of the meetings, the accountant informed both of them of the potential for personal liability, according to Blinstrub.

Contrary to Blinstrub's testimony, Kinnie testified that he first learned of the unpaid payroll taxes in August or September 1986. Kinnie admits that he knew the corporation was required to pay withholding taxes, but he assumed that Blinstrub was taking care of the taxes. Kinnie testified that when he learned of the unpaid taxes, he requested that Blinstrub and the corporate accountant meet with the IRS. As a result of that November 1986 meeting, Kinnie personally guaranteed a loan for $100,000.00 which he used to pay the IRS in February 1987. Also in late 1986 Kinnie directed an accountant to review the corporate records for possible diversion of corporate funds by Blinstrub for personal or other improper use and directed Bertollini to make the corporate records available to the accountant.

In March 1987 Kinnie forced Blinstrub to leave the corporation, allegedly because lenders refused to provide capital to EMTS as long as Blinstrub was associated with EMTS. After Blinstrub left, Kinnie authorized each check that was made by EMTS to its creditors. Kinnie testified that he used his personal funds to pay creditors, payroll, and, at times, the IRS. Kinnie also obtained personal loans to pay creditors and payroll. Creditors paid by EMTS, with Kinnie's approval, included insurance companies, utility companies, landlords, and suppliers.

Kinnie testified that he closed EMTS in May 1987 because Mercedes-Benz and Freightliner refused to continue their dealer relationships with EMTS or any entity associated with Blinstrub. Subsequently, Kinnie initiated a new corporation by the name of Great Lakes Freightliner, Inc. ("Great Lakes"), which operated for the same business purpose, at the same address, with virtually the same employees² and customers as that of EMTS.

In addition, Great Lakes continued to operate as a franchise or dealer for Mercedes-Benz and Freightliner. Kinnie was the sole owner of Great Lakes. The assets, including inventory, of EMTS were taken over by Great Lakes; and before EMTS ceased to exist, it paid Great Lakes over $78,000.00. Great Lakes also used EMTS' VISA and MasterCard credit cards until it was issued those cards in its own name.

Kinnie personally borrowed money which he used in incorporating Great Lakes. None of those borrowed funds was used to pay the trust fund tax liability. In addition, Great Lakes paid creditors, suppliers and its payroll rather than the unpaid withholding taxes of EMTS. Kinnie knew of and allowed those payments to other creditors.

Bertollini was never an owner or director of EMTS. As secretary and treasurer, she maintained all of EMTS' financial and personnel records in her office. EMTS had not yet begun its actual operations at the time Blinstrub asked her to work for the corporation. Therefore, it was she, along with the corporate accountant and Kinnie and Blinstrub, who prepared EMTS' pro forma balance sheet, which was submitted to Freightliner and Mercedes-Benz.

Once EMTS began operations, Bertollini's responsibilities included preparing and issuing corporate checks, bookkeeping, supervising the accounting or finance department and handling creditors. As more employees were hired for the accounting office, Bertollini became office manager. Bertollini testified that as office manager she had the authority to hire and fire employees under her control.

Bertollini also testified that she had authority to sign and did sign checks on all corporate checking accounts. She stated that she would have signed the corporate resolution authorizing the opening of a bank account for the corporation. She further testified that there was no limitation placed on her by the bank, the corporation or its owners regarding her authority to sign checks on behalf of the corporation. Bertollini paid normal operating expenses, including payroll, C.O.D., or C.I.A. (cash in advance) without obtaining prior approval from either Blinstrub or Kinnie.

Bertollini further testified that as secretary/treasurer and office manager she was responsible for preparing all quarterly tax returns, both state and federal, including Form 941, Employer's Quarterly Tax Return, which set forth the withheld income and FICA taxes that were either paid during a specific quarter or were still owing. She also was responsible for preparing monthly financial statements to Freightliner and annual Form 940, Employer's Federal Unemployment Tax Return, and the Michigan Annual Report. In addition, she signed at least one loan (for the purchase of a vehicle) on behalf of the corporation and negotiated and signed contracts for group life and health insurance for EMTS employees.

The tax delinquencies appeared on the year end financial reports, the monthly financial reports sent to Mercedes-Benz, and Forms 941. Bertollini, having prepared all of these except the year end report, knew of the unpaid taxes. She testified that she always timely prepared a check for the payment of the withheld taxes. In addition, every quarter she timely prepared the Form 941 and a check for the outstanding tax...