Sawyer v. U.S., 86-2872

• Decision Date: 08 October 1987
• Docket Number: No. 86-2872,86-2872
• Citation: 831 F.2d 755
• Parties: -5713, 87-2 USTC P 9573 Robert W. SAWYER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 755

831 F.2d 755

60 A.F.T.R.2d 87-5713, 87-2 USTC P 9573

Robert W. SAWYER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 86-2872.

United States Court of Appeals, Seventh Circuit.

Argued April 22, 1987.

Decided Oct. 8, 1987.

John P. Shanahan, Petry & Fitzgerald, Hebron, Ind., for plaintiff-appellant.

Matthew J. Anderson, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellee.

Before POSNER, FLAUM, Circuit Judges, and WILL, Senior District Judge. ^*

WILL, Senior District Judge.

Robert Sawyer appeals from the district court's dismissal, sua sponte of his complaint seeking an income tax refund following a tax assessment under 26 U.S.C. Sec. 6672(a) and grant of summary judgment in favor of the United States' counterclaim for the unpaid balance of the taxes assessed, both issued simultaneously with an order denying Sawyer's motion for summary judgment. ¹ After careful examination, we find that genuine material issues of fact may be in dispute with respect to Sawyer's complaint and concurrent defense against the United States' counterclaim. We therefore reverse the judgment of the district court dismissing Sawyer's complaint and granting summary judgment in favor of the United States on its counterclaim.

I.

Sawyer was the president and sole shareholder of Sawyer Transport, Inc., a Minnesota trucking corporation licensed by the Interstate Commerce Commission to transport commodities in 48 states. While operating during the third and fourth quarters of 1981, Sawyer Transport failed to pay $133,486.90, the applicable employee withholding tax, to the Internal Revenue Service ("IRS"), pursuant to 26 U.S.C. Sec. 3102(a). ² On October 27, 1981, Sawyer Transport filed a Chapter 11 Petition with the United States Bankruptcy Court for the Northern District of Illinois. Sawyer continued as the chief operating officer of Sawyer Transport while the Chapter 11 Petition was pending. On November 15, 1982, the Chapter 11 Petition was converted into a Chapter 7 liquidation proceeding and Nathan Yorke was appointed trustee in bankruptcy for Sawyer Transport.

On October 12, 1982, Yorke filed a petition with the Bankruptcy Court, on behalf of Sawyer Transport, seeking an income tax refund of $73,179.10, as a result of business losses incurred between 1974 and 1980. Sawyer notified Yorke and the IRS that he was opposed to payment of the income tax refund to the bankruptcy estate for the benefit of all creditors rather than applying the refund as a setoff against Sawyer Transport's withholding tax liability, and, concurrently, against Sawyer's possible personal liability for any withholding taxes owed. On or about March 22, 1983, however, the IRS paid the full income tax refund into the bankruptcy estate for the benefit of all Sawyer Transport's creditors.

On August 1, 1983, the IRS issued a 100% penalty and assessment for Sawyer Transport's delinquent withholding taxes ($133,486.90) against Sawyer individually, pursuant to 26 U.S.C. Sec. 6672(a) ("Sec. 6672"), ³ alleging that as a responsible person of Sawyer Transport, Sawyer willfully failed to pay the taxes owed.

Subsequently, the IRS determined that Sawyer and his wife were entitled to a $63,784.13 income tax refund unrelated to Sawyer Transport's withholding tax deficiency. This refund was applied to (and deducted from) the Sec. 6672 assessment against Sawyer.

Sawyer commenced this action on June 26, 1984, seeking a refund in the amount of $100.75, the amount which was paid by him on August 31, 1983 in partial satisfaction of the $133,486.90 assessment. On October 19, 1984, the United States counterclaimed for the unpaid balance of the assessment ($69,702.77) plus accrued interest from August 1, 1983.

On April 30, 1985, Sawyer filed a motion for summary judgment, alleging that the United States was required to credit him individually with the Sawyer Transport income tax refund rather than pay it into the bankruptcy estate for the benefit of Sawyer Transport's creditors and, thus, Sawyer owed no tax liability. ⁴ The district court denied Sawyer's motion for summary judgment and, at the same time, sua sponte dismissed his complaint and granted summary judgment in favor of the United States on its counterclaim. Sawyer appeals from the adverse judgment dismissing his complaint and granting summary judgment in favor of the United States' counterclaim. He does not appeal from the denial of his summary judgment motion which is not a final appealable order.

II.

Sawyer contends on appeal that he was improperly denied an opportunity to establish and present his defense in opposition to the United States' counterclaim. Although he brought a motion for summary judgment with regard to his claim under Sec. 6672, Sawyer's theory in that motion was unrelated to his defense against the United States' counterclaim. Specifically, in his motion for summary judgment, Sawyer claimed that the United States incorrectly credited Sawyer Transport's income tax refund to the bankruptcy estate for the benefit of Sawyer Transport's creditors, rather than crediting the refund against Sawyer Transport's withholding tax liability. If the IRS had credited the refund against Sawyer Transport's withholding tax liability, Sawyer claims his personal liability would have been equally reduced and, together with the unrelated income tax refund credited to him and his wife, he would not have had any withholding tax liability.

In contrast, in his defense against the United States' counterclaim, Sawyer alleges that his responsibility for Sawyer Transport's failure to pay its withholding taxes did not satisfy the willfulness standard required under Sec. 6672. Thus, although Sawyer had claimed that there existed no genuine issues of material fact with respect to his motion for summary judgment, he did not admit that no material facts were in dispute with respect to the United States' counterclaim. Accordingly, Sawyer's appeal alleges that summary judgment in favor of the United States and dismissal of his complaint, issued sua sponte, were improper.

Under Sec. 6672, if a corporate employer fails to pay the required withholding taxes, the IRS can assess the taxes due against a responsible corporate officer as a penalty. In order to be found personally liable for withholding taxes not paid to the IRS, a "taxpayer must be a 'responsible person' who 'willfully' fails to collect, account for or pay over a tax due under other provisions of the tax code." Ruth v. United States, 823 F.2d 1091, 1093 (7th Cir.1987) (citations omitted). A person is responsible under Sec. 6672 if he retains "control of finances within the employer corporation: the power to control the decision-making process by which the employer corporation allocates funds to other creditors in preference to its withholding tax obligations." Haffa v. United States, 516 F.2d 931, 936 (7th Cir.1975). See also, Monday v. United States, 421 F.2d 1210, 1214 (7th Cir.1970), cert. denied, 400 U.S. 821, 91 S.Ct. 38, 27 L.Ed.2d 48 ("Liability attaches to those with power and responsibility within the corporate structure for seeing that taxes withheld from various sources are remitted to the Government.") (citations omitted). A person acts willfully under Sec. 6672 if his "conduct denotes intentional, knowing and voluntary acts. It may also indicate a reckless disregard for obvious or known risks." Monday, supra, at 1215. Recklessness in this context is established if the corporate officer "(1) clearly ought to have known that (2) there was a grave risk that withholding taxes were not being paid and if (3) he was in a position to find out for certain very easily." Wright v. United States, 809 F.2d 425 (7th Cir.1987). See also, Mazo v. United States, 591 F.2d 1151, 1154 (5th Cir.1979), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54; Garsky v. United States, 600 F.2d 86, 91 (7th Cir.1979).

As the taxpayer in a Sec. 6672 assessment case, Sawyer assumes the burden of nonpersuasion with respect to both the responsible person and willfulness issues. Ruth, supra, 823 F.2d at 1093. Sawyer concedes that he had sufficient financial control and responsibility at Sawyer Transport to be a responsible person as defined under Sec. 6672. He contests the issue of willfulness and accordingly alleges that genuine material issues of fact with regard to the issue exist, thus precluding summary judgment in the United States' favor.

III.

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Sawyer, in opposition to the motion for summary judgment, is afforded "all reasonable inferences that can be made in [his] favor from the evidence presented." Kaufman v. Board of Trustees, Community College, 552 F.Supp. 1143, 1145 (N.D.Ill.1982); Black v. Henry Pratt Company, 778 F.2d 1278, 1281 (7th Cir.1985).

Granting summary judgment sua sponte warrants special caution. Summary judgment may be granted by a district court "for a party without a motion, when the outcome is clear, so long as the opposing party has had an adequate opportunity to respond." Smith v. DeBartoli, 769 F.2d 451, 452 (7th Cir.1985), cert. denied, 475 U.S. 1067, 106 S.Ct. 1380, 89 L.Ed.2d 606 (1986) (citing, Macon v. Youngstown Sheet & Tube Co., 698 F.2d 858, 861 (7th Cir.1983); Malak v. Associated Physicians, Inc., 784 F.2d 277, 280-81 (7th Cir.1986). Indeed, we have held that "sua sponte dismissals without prior notice or an opportunity to be heard on the issues underlying the dismissal ... 'generally may be considered hazardous.' " Doe On Behalf of Doe v. St. Joseph's Hospital, 788 F.2d 411, 415 (7th Cir.1986) (quoting, Tamari v. Bache & Co. (Lebanon) S.A.L., 565 F.2d 1194, 1198 (7th Cir.1977), cert. denied, 435 U.S....