Thosteson v. U.S., No. 01-14520.

• Decision Date: 11 September 2002
• Docket Number: No. 01-14520.
• Citation: 304 F.3d 1312
• Parties: Peter THOSTESON, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Counter-Claimant-Appellee, Quentin Garner Umphrey, et al., Counter-Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

304 F.3d 1312

Peter THOSTESON, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Counter-Claimant-Appellee, Quentin Garner Umphrey, et al., Counter-Defendants.

No. 01-14520.

United States Court of Appeals, Eleventh Circuit.

September 11, 2002.

COPYRIGHT MATERIAL OMITTED

Banks Thomas Smith, Hall & Smith, Dothan, AL, for Plaintiff-Appellant.

Richard Farber, Paula K. Speck, U.S. Dept. of Justice, Tax Div., Washington, DC, for U.S.

Appeal from the United States District Court for the Middle District of Alabama.

Before EDMONDSON, Chief Judge, and CARNES and SILER^*, Circuit Judges.

SILER, Circuit Judge:

Plaintiff Peter Thosteson filed this action against the United States seeking a refund of his partial payment of the tax penalty assessment made against him pursuant to 26 U.S.C. § 6672, based on the failure of the company for which he worked to submit payroll withholding trust fund taxes (the "taxes"). A trial was held, and the jury returned a verdict in his favor for all tax quarters at issue. Pursuant to Rule 50 of the Federal Rules of Civil Procedure, the district court granted judgment as a matter of law for the Defendant United States of America (the "government"), finding Thosteson liable for all tax quarters at issue. Thosteson appeals that decision. We affirm.

I.

In response to an Internal Revenue Service (IRS) assessment, Thosteson filed this action against the government. He seeks a refund of his partial payment of the taxes from the third quarter of 1994 through all four quarters of 1995 (until November 28, 1995), which his employer, Lorac, Inc., failed to remit to the government. The judgment amounts to $1,293,427.09.¹

Prior to submission of the case to the jury, the government made a motion for judgment as a matter of law. The court reserved decision on that motion. After the jury began deliberations, it returned with a question: "If the jury were to find that plaintiff was a responsible person for only following quarters, third quarter of 1995, fourth quarter of 1995, but was not willful in the failure to pay taxes of said quarters, will Mr. Thosteson be assigned a penalty?" The court answered that an individual must be both "responsible" and "willful" to be liable for the penalty. Subsequently, the jury returned a verdict in favor of the taxpayer. For the last two quarters of 1994 and the first two quarters of 1995, the jury found that Thosteson was not a responsible party. For the third and fourth quarters of 1995, the jury found that Thosteson was a responsible party, but his conduct in not paying the taxes was not willful.

The government renewed its request for a judgment as a matter of law. The court granted that motion, overturning the jury verdict and entering judgment for the government.

The district court recounted the following basic facts in its opinion granting the Rule 50 motion:

Plaintiff was an incorporator of Lorac, Inc., an employee leasing business. Initially he was one of the company's vice-presidents, and his main responsibility was sales and "growing" the business. He had limited authority to hire and fire employees, to determine financial policy, to set salaries and wages, to pay employees, and to enter loan agreements on Lorac's behalf. He opened bank accounts for Lorac with People's Bank in Dothan, Alabama, and was a signatory on those accounts with the ability to write checks under his sole signature for amounts up to $750. Lorac had two different kinds of checks: Checks that expressly required two signatures for amounts above $750, and checks that did not. On at least three occasions, Plaintiff wrote checks for more than $750 under his sole signature on Lorac checks that did not expressly require two signatures [checks in the amount of $1,000, $923.04 and $45,000]. The evidence at trial did not show that those checks were not honored, and conclusively proved that at least one such check was honored [entered into evidence along with the bank statement indicating that the check was cashed and honored]. Further, Plaintiff also had the authority to sign Lorac's Form 941 withholding tax returns, and he did so for the third and fourth quarters of 1995.

In the spring of 1995, Plaintiff purchased a 24% stake in Lorac from its sole shareholder, Garner Umphrey, for $288. Umphrey, however, did not cash the check that Plaintiff used to pay him. At some point before the bankruptcy, Plaintiff also became the president of Lorac.

Plaintiff testified at trial that he knew during the entire period at issue in this suit that a responsible person has a duty under the law to assure that withholding taxes are remitted to the United States. And he testified that as of August 28, 1995[,] he was aware that Lorac had failed to remit withholding taxes to the United States, and that, in October 1995, he became aware of the full amount of withholding taxes that Lorac owed.

The undisputed evidence showed that after Plaintiff became aware that Lorac owed withholding taxes to the government and after he became aware of the full amount of the taxes that were owed, he continued to write check after check to other creditors under his signature alone, including checks to Tack and So Forth, Inc. (a joint venture of Lorac and Plaintiff's wife) [for $1,000, dated October 18, 2001], himself [for $280, dated October 20, 1995], Builder's Cash and Carry [for $923, dated October 13, 1995], and Garner Insurance Agency [for $45,000, dated October 13, 2001].

Thosteson v. United States, 182 F.Supp.2d 1189, 1191-92 (M.D.Ala.2001) (notes omitted).

On appeal, Thosteson emphasizes the role of Garner Umphrey, who has also been sued by the government but has disappeared. He describes their relationship as beginning in the late 1980's through Umphrey's uncle, who attended Thosteson's church. In 1993, Umphrey approached Thosteson about starting an employee leasing business in the civilian context. Umphrey was already involved in employee leasing on behalf of military contractors. Thosteson claims that he originally had no related experience or background, but he educated himself in the computer program area of the business and proceeded to build the company through sales and marketing. He credits his sales and marketing efforts in late 1994 and early 1995 for making the new business become very successful. During 1995, the company had between four thousand and five thousand employees.

Nevertheless, Thosteson claims that Umphrey was not only the sole stockholder up through April 1995, but he and his wife also controlled all major decisions within the business. He alleges that Umphrey started diverting money from the company into his other business enterprises, and these alleged transfers amounted to hundreds of thousands of dollars.

Regarding the taxes, Thosteson claims that he was not aware of the corporation's failure to pay them until August 28, 1995. He alleges that he was hospitalized when he found out that the taxes had not been paid. Further, after finding out about the tax arrears in August 1995, even though not knowing the amounts of those arrearages, he used his best efforts to try to establish a repayment plan. Thosteson testified that on August 28, 1995, he confronted Umphrey's wife and confirmed with her that the company had substantial overdue payroll tax liabilities. Thereafter, he arranged for Lorac to make weekly payments of $30,000 to the IRS. Thosteson and Umphrey's wife signed three checks for $30,000 on an account of the company, payable to the IRS, and dated August 31, September 6 and September 15, 1995. He alleges that his efforts were frustrated by Umphrey who contradicted his orders and stopped the tax restitution payments. Thosteson does not deny, however, that he knew Umphrey ordered the payments to cease. He claims that he continued to use his best efforts to make the business successful because based on his meeting with Lorac's bookkeeper, he felt that if they continued with the business, then the taxes could be successfully repaid. Thosteson signed the payroll tax return for the third and fourth quarters of 1995.

He testified that in November 1995, he became the president of Lorac through Umphrey's consent and in order to formulate a Chapter 11 bankruptcy plan to repay the taxes and keep the business going. The company's original petition for reorganization eventually converted to a Chapter 7 liquidation case, and the company went out of business in 1997.

The principal service offered by Lorac to its clients, in addition to volume discounts for workers compensation insurance, was relief from the paperwork of handling payroll, including the filing of federal employment tax returns and the payment of those taxes. The client's employees became employees of Lorac for purposes of payroll processing and payroll taxes.

II.

We review de novo a district court's grant of judgment as a matter of law under Rule 50, applying the same standards as the district court. Slicker v. Jackson, 215 F.3d 1225, 1229 (11th Cir. 2000). We consider whether such sufficient conflicts exist in the evidence to necessitate submitting the matter to the jury or whether the evidence is so weighted in favor of one side that one party must prevail as a matter of law. Mendoza v. Borden, Inc., 195 F.3d 1238, 1244 (11th Cir.1999) (en banc). Although we look at the evidence in the light most favorable to the non-moving party, the non-movant must put forth more than a mere scintilla of evidence suggesting that "reasonable and fair-minded persons in the exercise of impartial judgment might reach different conclusions." Id. (quoting Walker v. NationsBank of Florida, N.A., 53 F.3d 1548, 1555 (11th Cir.1995)).

III.

Section 6672 imposes liability upon (1) a responsible person (2) who has willfully failed to perform a duty to collect, account for, or pay over federal employment taxes.² See Williams v. United States, 931 F.2d 805, 810, reh'g granted and opinion supplemented, 939 F.2d 915 (11th Cir. 1991).

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