Swift v. Levesque

• Decision Date: 01 July 1985
• Docket Number: Civ. No. N-83-486.
• Citation: 614 F. Supp. 172
• Court: U.S. District Court — District of Connecticut
• Parties: Wilbert SWIFT, v. Roger LEVESQUE.

614 F. Supp. 172

Wilbert SWIFT, v. Roger LEVESQUE.

Civ. No. N-83-486.

United States District Court, D. Connecticut.

July 1, 1985.

Herbert I. Mendelsohn, New Haven, Conn., for plaintiff.

Thomas V. McLaughlin, New Haven, Conn., for defendant.

RULING ON CROSS MOTIONS FOR SUMMARY JUDGMENT

ELLEN B. BURNS, District Judge.

In this action for contribution, plaintiff Wilbert Swift has moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, and defendant Roger Levesque has filed a cross motion for summary judgment on his counterclaim, in which he essentially seeks indemnification. In a related action that forms the basis for this action,¹ both plaintiff and defendant were found by a jury in June of 1981 to be "responsible persons" under 26 U.S.C. § 6672,² and thus personally liable for the collection and payment of withholding taxes owed by Swift Steel Erectors, Inc. ("SSE") for the third and fourth quarters of 1970.³ Section 6672 enables the United States government, when it cannot collect taxes from a corporation due to its insolvency, to shift liability to those responsible for the corporation's failure to pay taxes. White v. United States, 372 F.2d 513, 178 Ct.Cl. 765 (1967).

Subsequent to the entry of judgment in the prior action, the plaintiff paid $74,539.03, partially in payment of taxes covering the period for which defendant was not found liable, and the defendant paid $35,496.59. The plaintiff now seeks contribution from the defendant in the amount of $15,698.42, plus interest, which plaintiff claims is the difference between what defendant owes for one-half the total amount due for July to December of 1970, and the amount already paid by the defendant. Defendant, on the other hand, has counterclaimed, seeking to recover from plaintiff the $35,496.59 he has paid to the Internal Revenue Service ("IRS") plus reimbursement of his attorneys' fees spent in this and the prior litigation. For the reasons stated below, the plaintiff's motion is granted and the defendant's motion is denied. The court finds that defendant is not entitled to indemnification, but that plaintiff is entitled to contribution.

As plaintiff readily admits, there is no private federal right of contribution or indemnity under 26 U.S.C. § 6672. Sinder v. United States, 655 F.2d 729, 731 (6th Cir.1981); DiBenedetto v. United States, 75-1 U.S.T.C. ¶ 9503 (D.R.I., 1974). The statute serves as a collection device for the government, and not as a source of a cause of action between or among persons found to be "responsible" parties. The statute does not, however, foreclose a right to contribution under state law. This action, then, is one brought under state law principles and is in federal court by virtue of the diversity of citizenship of the parties. Because Connecticut case law is apparently devoid of any case directly on point, the task of this court is to discern whether Connecticut would recognize a cause of action for either contribution or indemnification between these parties. A detailed discussion of the factual contentions of the parties is necessary, however, before the court can decide the state law question.

I. Factual Allegations

Motions for summary judgment, as are presently before the court, may be granted only if no genuine dispute exists as to issues of material fact, and the moving party is entitled to judgment as a matter of law. Adickes v. S.H. Kress Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). Moreover, the inferences to be drawn from the facts must themselves not be disputed. Schwabenbauer v. Board of Education, 667 F.2d 305, 313 (2d Cir.1981). The burden is on the moving party to show the absence of material fact disputes. It remains for this court to determine first, which facts are genuinely undisputed and second, whether those undisputed facts are sufficient to trigger either the equitable remedy of contribution or indemnification.

Plaintiff has attempted to show that he and defendant were both officers of the corporation and therefore co-debtors, equally liable for the taxes assessed which, he claims, would constitute a corporate debt. In an effort to defeat plaintiff's motion, defendant has attempted to create factual disputes on issues that, if his version is accurate, would render it inequitable for plaintiff to receive contribution from defendant, the prior judgment against defendant and in favor of the IRS notwithstanding. Indeed, defendant contends that, if his story is true, he is entitled to be indemnified for monies already paid.⁴ Defendant maintains, by way of affidavit, that the corporation may not have been bona fide; that defendant was never a true officer of or partner in the business; that plaintiff made false representations about the financial viability of the business to induce him to become a "partner"; and that defendant did not know the withheld wages were not being paid to the IRS until October of 1970.

At the trial in the underlying action, the verdict indicates that the jury necessarily found SSE to be a corporation between July, 1970, and December, 1970, the period for which contribution is claimed. Claims now that defendant does not know the duration of the corporate life are insufficient to create a fact dispute on this issue.

Regarding defendant's position in the business, plaintiff asserts the following. Plaintiff was the president of the corporation and that defendant was the vice president, secretary and treasurer. Plaintiff contributed financial resources and defendant contributed his skills of supposed equal value. The business office was located in defendant's home. Defendant was a signatory on the corporate checking accounts, and signed payroll checks, and the Form 941 Employers Quarterly Federal Tax Returns for the period of June to December of 1970. Defendant also had the authority to hire and fire employees. Defendant, through affidavit and answers to requests to admit, does not dispute that he hired and fired personnel, signed checks, payroll and tax returns, and indeed, "otherwise allowed himself to be known as Vice President, Secretary and Treasurer of the corporation." (¶ 9, Defendant's Affidavit). Yet he insists he never was "a true corporate co-owner, partner or joint venturer with the plaintiff". (¶ 15, Defendant's Affidavit).

Defendant has failed to raise a triable fact issue as to his true status in the corporation. Equity relies not on titles or form but rather on substance. Defendant has admitted he had at least apparent authority. Because he held himself out to be an officer of the corporation and acted as an officer, the defendant cannot now claim he was neither an officer nor had an officer's authority. See Henn, Handbook of the Law of Corporations at 201; Restatement of Agency 2d, 7 and 8.

Defendant denies he handled or had knowledge of the financial dealings of the corporation and asserts he did not know until October of 1970 that plaintiff was not covering "bad checks" or providing for the payment of withheld payroll taxes. (¶ 11, 12, Defendant's Affidavit). Defendant does admit he signed checks after October, and significantly, he admits he signed the Form 941 for the period ending December, 1970. Defendant attempts to explain his actions as attributable to "pressure from plaintiff" and the fact that the office remained in his home even after he resumed his prior status of an employee. (¶ 6, Defendant's Counterclaim). However, defendant is collaterally estopped from relitigating the issue of his knowledge of the handling of financial matters and the withheld payroll taxes. In order to find a person personally liable to the IRS under 26 U.S.C. § 6672, the jury must find that the person is required to keep, account for and pay over the taxes and that he failed to do so willfully. The jury's verdict in the prior case unequivocally shows that defendant's version of the facts was rejected. The jury answered two interrogatories with respect to Levesque. First it was specifically found that defendant was required to account for and pay over taxes withheld from wages for the third and fourth quarters of 1970, although he was not so obligated for the first quarter of 1971. As a second step, the jury further found that defendant's failure to pay over the taxes was willful for the third and fourth quarters of 1970. It is beyond dispute that defendant had a full and fair opportunity to litigate his claim that he was not aware of plaintiff's handlings of the tax matters, and he did so against both the IRS and Wilbert Swift, whose interest was adverse to his own. Willfulness is intentional, voluntary and knowing conduct, and thus defendant cannot be heard now to disclaim his knowledge or involvement for the six-month period in question.

As a final factual matter, defendant contends the plaintiff made false claims about the financial health of the business in order to lure him into partnership. Although a factual dispute does appear to exist on this matter, it is irrelevant to the instant action. Regardless of the reason the defendant accepted plaintiff's offer to become more than an employee, the fact remains that it has already been conclusively established that, as a corporate officer, defendant had the requisite knowledge and intent when he participated in the failure to pay over the taxes. Once he was in, he knew what he was doing.

The inevitable conclusion, then, is that the defendant has failed to raise any material fact disputes. SSE was a corporation, defendant either was an officer or at least held himself out as an officer, and defendant willfully failed to pay over taxes to the IRS, as did plaintiff.

II. Indemnification

It is readily apparent based on the foregoing, that as a matter of law, defendant is not entitled to indemnification by the plaintiff for the amount defendant has already paid to the IRS. Indemnification is permissible under state law only upon a showing that one party had ...