Lyon v. Campbell

• Decision Date: 01 September 1990
• Docket Number: No. 41,41
• Parties: John W. LYON, et al. v. Larry A. CAMPBELL, et al. Misc.,
• Court: Maryland Court of Appeals

Page 178

324 Md. 178

596 A.2d 1012

John W. LYON, et al. v. Larry A. CAMPBELL, et al.

Misc. No. 41, Sept. Term, 1990.

Court of Appeals of Maryland.

Oct. 10, 1991.

Laura P. Masurovsky, Robert S. Litt, Thomas M. Patton, and Williams & Connolly, all on brief, Washington, D.C., for appellants.

Arnold M. Weiner, Thomas J. Zagami, and Hazel & Thomas, P.C., all on brief, Baltimore, for appellees.

Argued before MURPHY, C.J., and ELDRIDGE, RODOWSKY, McAULIFFE, CHASANOW, KARWACKI and ROBERT M. BELL, JJ.

KARWACKI, Judge.

This case comes to us from the United States District Court for the District of Maryland, pursuant to the Uniform Certification of Questions of Law Act, Maryland Code (1989), §§ 12-601 to -609 of the Courts and Judicial Proceedings Article. That court certified the following question for our determination:

"If a corporation fails to pay over to the Comptroller income taxes which have been withheld from its employees, and if the Comptroller imposes personal liability for those income taxes upon an officer of the corporation who exercises direct control over its fiscal management, pursuant to § 10-906 of the Maryland Tax Code, does that corporate officer have a right to seek contribution from other corporate officers who are alleged by the corporate officer on whom personal liability was imposed to have also exercised direct control of the corporation's fiscal management?"

I.

John W. Lyon and Larry A. Campbell, parties to the federal court litigation, are the sole shareholders of I.C.E., Inc., a Nevada corporation which was the parent of several companies including Excavation-Construction, Inc. (Excavation). Lyon and Campbell, as officers of Excavation, allegedly exercised direct control over its fiscal affairs and were required to withhold Maryland income taxes from the corporation's employees and to remit those taxes to the Comptroller of the Treasury. In or about September, 1979, Excavation filed a petition under Chapter 11 of the federal bankruptcy laws.

Prior to its bankruptcy, Excavation had failed to pay over $415,000 in withheld taxes to the State of Maryland. The Comptroller of the Treasury filed liens to collect the unpaid withholding taxes from Lyon pursuant to Maryland Code (1988, 1991 Cum.Supp.), § 10-906(d) of the Tax-General Article, which imposes personal liability for failure to withhold taxes on any corporate officer who exercises direct control over the corporation's fiscal management. On or about June 28, 1990, Lyon paid $150,000 to the Comptroller, which was accepted in full satisfaction of the liens.

On October 11, 1990, Lyon and his wife filed a complaint against Campbell and his wife in the Circuit Court for Prince George's County, Maryland. The complaint contained three counts, only one of which, Count Three, is relevant to the certified question of law before us. In Count Three, Lyon sought contribution of $75,000 from Campbell, alleging that both he and Campbell were liable for Excavation's unpaid withholding taxes and that $75,000 represented Campbell's pro rata share of the sum that Lyon had paid to settle the State tax claim.

The Campbells removed the case to the United States District Court for the District of Maryland pursuant to 28 U.S.C. § 1441 (1988) because of the diversity of citizenship between themselves and the Lyons. Thereafter, Campbell moved to dismiss Count Three pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the ground that it did not state a claim upon which relief could be granted, asserting that there was no right to contribution for unpaid taxes under Maryland law. After the arguments on the motion were fully briefed, the United States District Court certified the question set forth above to this Court. ¹

II.

Campbell presents two alternative arguments in support of his position that no right to contribution exists between persons jointly obligated under Md.Code (1988, 1991 Cum.Supp.), § 10-906(d) of the Tax-General Article. First, relying principally on several cases which have denied a right of contribution under the similar provision of the Internal Revenue Code, 26 U.S.C. § 6672(a) (1988), ² Campbell argues that Md.Code (1988), § 10-107 of the Tax-General Article requires that § 10-906(d) be interpreted consistently with its federal counterpart. Alternatively, Campbell contends that even if § 10-107 does not require that § 10-906(d) be construed consistently with § 6672(a), Lyon has no common law basis for his claimed right of contribution. We are not persuaded by either of these propositions for the reasons we now explain.

III.

It is firmly established in Maryland that one debtor may claim contribution from another equally obligated for discharging their mutual obligation. See, e.g., Jackson v. Cupples, 239 Md. 637, 639-40, 212 A.2d 273, 274 (1965) ("We have many times held that one joint obligor may claim contribution from another such obligor for having discharged their mutual obligation."); Mallis v. Faraclas, 235 Md. 109, 115-16, 200 A.2d 676, 680 (1964) ("It is well-settled law that one joint obligor may claim contribution from another obligor for having discharged their mutual obligation.").

The doctrine of contribution originated in courts of equity, and at first was available only in those courts, as contribution actions were based upon principles of equity and natural justice. Craig et al. v. Ankeney, 4 Gill 225, 231 (1846) ("The doctrine of contribution is not founded in contract; but is an implied equity, resting upon the plainest principles of moral and natural justice. For, in the language of Justice Story, 'as all are equally bound, and are equally relieved, it seems but just, that in such a case, all shall contribute in proportion, towards a benefit obtained by all....' "). See also Smith v. Anderson, 18 Md. 520, 527 (1862) ("It has been very correctly said, that the rights to contribution, as between sureties, arise out of the principles of equity and justice which grow out of the relations of the parties to each other."). These principles require that persons under a common burden shall bear responsibility in equal proportions. It is equally true that the doctrine of contribution is founded on morality, since no one ought to profit by another person's loss where he or she has incurred a like responsibility. See Craig et al. v. Ankeney, 4 Gill at 231.

The right to contribution is frequently exercised in cases of co-guarantors of a debt. For example, in Jackson v. Cupples, supra, endorsers on a note brought a suit for contribution because some of the endorsers refused to contribute their pro rata share in satisfaction of the joint obligation. The Court held that a trustee who paid the defaulted note on behalf of all endorsers of the note could maintain a suit in equity against the endorsers who had not contributed their pro rata shares. 239 Md. at 639-40, 212 A.2d at 274-75. Similarly, in Hooper v. Hooper, 81 Md. 155, 31 A. 508 (1895), three persons guaranteed a debt owed by another. When the debtor became insolvent, two of the guarantors paid the debt and proceeded in equity against the third guarantor for contribution. The Court held that they were entitled to recover one-third of the whole debt, that is, the third guarantor's pro rata share of the debt. Id. at 174, 31 A. at 511.

According to the factual predicate of the certified question posed to us, Lyon and Campbell were both officers of Excavation with direct control over its fiscal management and were required to pay to the Comptroller income taxes that were withheld from Excavation's employees. Maryland's income tax withholding statute provides in relevant part that if a corporate employer

"negligently fails to withhold or to pay income tax ... personal liability for that income tax extends ... to

(i) any officer of the corporation who exercises direct control over its fiscal management; or

(ii) any agent of the corporation who is required to withhold and pay the income tax."

Md.Code (1988, 1991 Cum.Supp.), § 10-906(d) of the Tax-General Article. Thus, Lyon and Campbell allegedly were jointly and severally liable for any failure to withhold under § 10-906(d). Because the right to contribution arises where the parties are under a common obligation or liability, there is no just reason why the general equitable principles of Maryland law should be ignored in this case so as to exempt Campbell from responsibility for his share of the debt.

Indeed, we agree with Lyon's argument that this case is analogous to the debt surety cases which present the model for equitable contribution. Under § 10-906(d), corporate officers who exercise direct control of the corporation's fiscal management are effectively made guarantors of the corporate tax obligation by imposing personal liability on them for that tax. As our predecessors observed many years ago in Craig et al. v. Ankeney, supra:

"A payment thereof, by one of them, redounded with equal benefit, to the discharge of the other. Upon every principle, therefore, of morality, equity, and common justice, if one of them paid the whole debt, he had a right, by way of contribution, as well in a Court of law, as in Chancery, to recover, from the other security, a moiety of the sum paid."

4 Gill at 231. If, as alleged, Lyon's payment to the Comptroller afforded equal benefit to Campbell by relieving him of personal liability for the taxes, under Maryland common law Lyon is entitled to contribution of Campbell's pro rata share of the amount Lyon paid to satisfy their joint obligation.

IV.

Despite this well established principle of Maryland law, Campbell argues that there is no right of contribution between persons jointly obligated under § 10-906(d). Campbell contends that Md.Code (1988), § 10-107 of the Tax-General Article requires that Maryland's income tax withholding provision, § 10-906(d), be interpreted consistently with its federal counterpart, 26 U.S.C. § 6672(a), of the Internal Revenue...