Moats v. United States, 82-0455-CV-W-1.

• Decision Date: 03 June 1983
• Docket Number: No. 82-0455-CV-W-1.,82-0455-CV-W-1.
• Citation: 564 F. Supp. 1330
• Parties: Robert L. MOATS, Plaintiff, v. UNITED STATES of America, Defendant and Third-Party Plaintiff, v. Sidney ESTRIDGE, James F. O'Crowley, Jr. and Herbert Maslin, Third-Party Defendants.
• Court: U.S. District Court — Western District of Missouri

564 F. Supp. 1330

Robert L. MOATS, Plaintiff, v. UNITED STATES of America, Defendant and Third-Party Plaintiff, v. Sidney ESTRIDGE, James F. O'Crowley, Jr. and Herbert Maslin, Third-Party Defendants.

No. 82-0455-CV-W-1.

United States District Court, W.D. Missouri, W.D.

May 26, 1983.

On Various Pending Motions May 26, 1983.

On Direction of Further Proceedings June 3, 1983.

Stanley P. Weiner, Grier, Swartzman & Weiner, Kansas City, Mo., for plaintiff.

Mark E. Nebergall, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., Robert G. Ulrich, U.S. Atty., Kansas City, Mo., for defendant and third-party plaintiff.

David Rhodus, Morris, Larson, King, Stamper & Bold, Kansas City, Mo., for third-party defendant James F. O'Crowley, Jr.

John F. Michaels, Ryder, Rose & Frensley, Kansas City, Mo., Segal, Liling & Greenberg, New York City, for third-party defendant Herbert Maslin.

MEMORANDUM OPINION AND ORDERS GRANTING PLAINTIFF MOATS' MOTION FOR SUMMARY JUDGMENT AND DENYING THE GOVERNMENT'S CROSS-MOTION FOR SUMMARY JUDGMENT

JOHN W. OLIVER, Senior District Judge.

I.

This Section 6672 26 U.S.C. § 6672 case involves the validity of a 100% penalty assessed against plaintiff Moats in the amount of $29,903.91 to cover withholding taxes of Arlen Trophy Company (Arlen), located in Middlesex, New Jersey, a wholly owned subsidiary of Gateway Sporting Goods Company (Gateway), located in Kansas City Missouri.

In accordance with established practice, see Kelly v. Lethert, 362 F.2d 629, 635 (8th Cir.1966), plaintiff paid a small portion of the § 6672 assessment, claimed a refund, and, after the refund claim was denied, brought an action in this Court. The government counterclaimed for the full amount of the penalty assessed under Section 6672.

The case pends on plaintiff Moats' April 15, 1983 motion for summary judgment, appropriately supported by affidavits and deposition testimony, and on the government's May 5, 1983 cross-motion for summary judgment. As will be noted, the pending motions and the suggestions in support and in opposition establish that there are no genuine issues of material fact for trial within the meaning of Rule 56 of the Rules of Civil Procedure.

Plaintiff's motion will be granted and the government's cross-motion will be denied for the reasons stated in this memorandum opinion.

II.

The government's brief accurately states the questions presented and the statutes involved as follows:

QUESTIONS PRESENTED

1. Whether plaintiff was a responsible person under 26 U.S.C. Section 6672.¹

2. Whether plaintiff's failure to collect, truthfully account for and pay over the employment taxes of Arlen was willful.

STATUTES INVOLVED

Internal Revenue Code of 1954 (26 U.S. C.):

SEC. 6671. RULES FOR APPLICATION OF ASSESSABLE PENALTIES.

* * * * * *

(b) Person Defined. — The term "person," as used in this subchapter, 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 perform the act in respect of which the violation occurs.

SEC. 6672. FAILURE TO COLLECT AND PAY OVER TAX, OR ATTEMPT TO EVADE OR DEFEAT TAX.

(a) 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, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable.

Plaintiff's motion for summary judgment is based upon factual data contained in the affidavits of plaintiff and of one Donald Farwell, a vice president of Gateway, the parent corporation of Arlen, the actual employer under duty to pay over the withheld taxes. Plaintiff also relies upon the deposition testimony of plaintiff and the deposition testimony of James F. O'Crowley, Jr., who was president of Gateway during the relevant periods of time. Both those depositions were noticed and taken by the government.

The government has not, by affidavit or otherwise, as authorized by Rule 56(e) of the Rules of Civil Procedure, attempted to set forth any specific facts which the government contends would show that there is a genuine issue for trial. Indeed, the government filed a cross motion for summary judgment. Its suggestions in opposition to plaintiff's motion and in support of its cross motion expressly state that "the government believes that the statement of facts contained in the plaintiff's brief is fairly accurate." The government's basic position is that it disagrees with plaintiff in regard to "the weight to be given much of the evidence submitted."

The government's quibbles concerning what it suggests might be hearsay contained in two paragraphs of plaintiff Moats' affidavit do not suggest that any material fact is in dispute within the meaning of Rule 56. We therefore find and conclude that the pending cross motions for summary judgment may properly be ruled on the undisputed factual data submitted in support of plaintiff's motion.

III.

Plaintiff's statement of fact, which the government concedes is "fairly accurate," states the following:

In August, 1974, plaintiff Robert Moats was employed by Gateway Sporting Goods Company (Gateway) as its controller (Moats Aff., ¶ 1; Moats tr., p. 8). Moats reported to Mr. Robert Rogers, Gateway's Vice President-Treasurer, who in turn reported to third-party defendant J.F. O'Crowley, Gateway's President. Donald W. Farwell, the other corporate Vice President, also reported to O'Crowley (Moats Aff., ¶ 1). O'Crowley, in turn, reported to third-party defendant Sidney M. Estridge, who was Chairman of the Board and chief executive officer of Gateway, as well as a director of Arlen Trophy Company (Arlen) (Moats Aff., ¶ 1; Moats Tr., p. 17). Gateway's administrative personnel, except for Estridge, were located in Kansas City. Estridge maintained his office in New York City (Moats Aff., ¶ 1).

Arlen was a subsidiary of Gateway, located in New Jersey. It had its own officers and administrative personnel, including its own controller (Moats Aff., ¶ 2; Moats Tr., p. 12). In late 1974, Moats, O'Crowley, and Rogers went to Arlen's headquarters to review its operations and determine the source of the financial difficulties Arlen was experiencing. Shortly after the trip, Moats was designated to head a task force assigned to assist Arlen in correcting Arlen's financial situation (Moats Aff., ¶ 3).

As a result of the recommendation of the task force, Arlen's president requested and received the resignation of Arlen's controller. In January, 1975, Moats was asked to assume the position of acting controller for Arlen. He did so for a period of approximately eight weeks, at the end of which time Arlen hired a new controller. During the eight-week period, Moats had authority to pay bills for Arlen and made certain that the payroll taxes were paid to the IRS (Moats Aff., ¶ 4). This eight-week period was the only period during which Moats exercised any authority over the financial affairs of Arlen (Moats Aff., ¶ 4).

In early 1975, Arlen hired Ronald James as its sales manager. He was shortly thereafter promoted to Vice President and General Manager. In these positions, James was responsible for Arlen's day-to-day operations, including the payment of federal withholding and FICA taxes (Moats Aff., ¶ 5). In mid-1975, Herbert Maslin became President of Arlen (Moats Tr., p. 12). He reported directly to the board of directors of Arlen (Moats Tr., p. 14).

During 1975, the managers of Gateway's subsidiaries were directed by O'Crowley to telephone Gateway headquarters periodically to report their cash position. As controller, Moats received these calls and passed the information on to O'Crowley and Estridge (Moats Aff., ¶ 6). Moats periodically received calls from James concerning Arlen's shortness of cash. James requested additional capital from Gateway. Moats advised James that he did not have authority to transfer funds to Arlen, but passed on James' requests to O'Crowley and Estridge (Moats Aff., ¶ 6; Farwell Aff., ¶ 13). Estridge advised Moats, through O'Crowley, that Gateway had no capital to provide to Arlen (Moats Aff., ¶ 6). Moats relayed this to James and advised him that he should discuss the matter directly with Estridge (Moats Aff., ¶ 6; Farwell Aff., ¶ 18).

During the fourth quarter of 1975, Moats learned from his conversations with James that Arlen was getting behind on its federal payroll tax deposits. Moats frequently urged James to make certain that the deposits were made timely (Moats Aff., ¶ 7). Moats notified O'Crowley and Estridge of the problem. Again, however, Moats was informed that Gateway had no capital to contribute to Arlen (Moats Aff., ¶ 7). Moats was aware of the potential liability of individuals for non-payment of these taxes, and so advised James (Moats Aff., ¶ 8; Farwell Af., ¶¶ 28-30; Moats Tr., p. 23).

In November or December, 1975, James released Arlen's controller and assumed all responsibility for making Arlen's cash disbursements, including federal payroll deposits (Moats Aff., ¶ 9).

In January, 1976, Moats was promoted to the position of Vice President and Treasurer of Gateway (Moats Aff., ¶ 10). In this position, Moats went to Arlen's headquarters to assist in preparing a forecast of Arlen's operations. During preparation of the forecast, James advised Moats that Estridge had directed him not to pay the payroll taxes until after Arlen had purchased the raw materials it required to stay in business (Moats Aff., ¶ 10). At this same time, Moats overheard telephone conversations between James and Estridge in which Estridge told James which of Arlen's bills to pay and which not to pay (Moats Aff., ¶ 11

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