U.S. v. Landau

• Decision Date: 25 August 1998
• Docket Number: Nos. 97-6139,97-6165,s. 97-6139
• Citation: 155 F.3d 93
• Parties: -6113, 98-2 USTC P 50,667 UNITED STATES of America, Third-Party-Plaintiff-Appellee, v. Robert LANDAU, Third-Party-Defendant-Appellant, Nathan Unger, Plaintiff. Nathan UNGER, Plaintiff-Appellee, v. Robert LANDAU, Third-Party-Defendant, United States of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

Page 93

155 F.3d 93

82 A.F.T.R.2d 98-6113, 98-2 USTC P 50,667

UNITED STATES of America, Third-Party-Plaintiff-Appellee, v. Robert LANDAU, Third-Party-Defendant-Appellant, Nathan Unger, Plaintiff.

Nathan UNGER, Plaintiff-Appellee, v. Robert LANDAU, Third-Party-Defendant, United States of America, Defendant-Appellant.

Nos. 97-6139, 97-6165.

United States Court of Appeals Second Circuit.

Argued Feb. 26, 1998.

Decided Aug. 25, 1998.

Jerome Kamerman, New York City (Kamerman & Soniker P.C., New York City, Michael J. Gerstein, New York City, of counsel), for Third-Party Defendant-Appellant Landau in No. 97-6139 and for Third-Party-Defendant Landau in No. 97-6165.

Jeffrey Oestericher, Assistant United States Attorney, New York City, (Mary Jo White, United States Attorney for the Southern District of New York, Gideon A. Schor, Assistant United States Attorney, New York City, of counsel), for Third-Party-Plaintiff-Appellee United States of America in No. 97-6139 and for Defendant-Appellant United States of America in No. 97-6165.

Wallace Musoff, New York City (Michael J. Coyle, Law Offices of Wallace Musoff, New York City, of counsel), for Plaintiff Unger in No. 97-6139 and for Plaintiff-Appellee Unger in No. 97-6165.

Before: WINTER, Chief Judge, PARKER, Circuit Judge, and SCHWARZER, District Judge ^*

PARKER, Circuit Judge:

This appeal concerns the assessment of tax penalties against Nathan Unger and Robert Landau under 26 U.S.C. § 6672 for the failure of their former employer, Robert Landau Associates ("RLA"), to remit withholding and Federal Insurance Contributions Act ("FICA") taxes to the United States Internal Revenue Service ("IRS" or "Government") as required under 26 U.S.C. § 7501(a). In 1987, the IRS made separate penalty assessments against Unger and Landau, and seized all of Unger's available assets. Unger brought an action seeking a refund; the IRS counterclaimed for the unpaid assessment and commenced a third-party action against Landau. The case was tried before a jury in the United States District Court for the Southern District of New York (Whitman Knapp, Senior Judge ), and the jury found Unger, but not Landau, personally liable for the unremitted taxes. Unger moved for a new trial and the Government moved for judgment as a matter of law against Landau. The district court set aside the jury verdict against Unger, sua sponte granted Unger judgment as a matter of law and directed the IRS to pay Unger $21,000 plus interest. The district court also set aside the jury verdict in Landau's favor, granting the Government's motion for judgment as a matter of law, and awarded the Government judgment against Landau in the sum of $1,046,376.30 plus statutory interest and additions accruing from the date of the assessment of the penalty. For the reasons stated below, we reverse and remand the judgment of the district court with respect to Unger, and affirm the judgment of the district court with respect to Landau.

I. BACKGROUND

A. Unger's and Landau's Duties at RLA

RLA, founded by Landau in 1975, was a marketing and advertising agency that provided promotional and sports licensing services to corporate clients. During the first three quarters of 1984 (the "Tax Period"), Landau was RLA's sole shareholder, President and Chief Executive Officer ("CEO") and Unger was Senior Vice President and Chief Financial Officer ("CFO"). Landau's salary was approximately $600,000 and Unger's was $100,000. During the Tax Period, RLA employed approximately two hundred people. Although primarily responsible for creative marketing and sales, Landau had supervisory authority over all RLA employees, including Unger.

Unger was first hired by RLA in March 1978 at the age of 22. He had a bachelor's degree in accounting from Queens College, but has never been a certified public accountant. He has never owned any shares in RLA. Unger's first position at RLA was as an assistant to the Controller. In January 1979, Unger was promoted to Controller, a position he held for approximately two years. He reported directly to Landau and was responsible for maintaining the company's books and supervising a staff of 4-5 employees. In this position, he had the power to hire and fire employees in his department. Between 1981 and 1983, Unger served as Vice President of Marketing Services. Unger was promoted to Senior Vice President and CFO in late 1983. He remained in that position until RLA declared bankruptcy on September 14, 1984.

As CFO, Unger was responsible for RLA's accounting and administrative functions and he reported directly to Landau. He signed documents with the title "Senior Vice-President." Unger had check-signing authority over all of RLA's accounts and signed checks to pay RLA's payroll, commercial creditors and withholding taxes. He had the authority to make transfers from RLA's bank accounts and was one of three people, including Landau, authorized to sign any and all documents without limitation, including leases, any financially related documents or any agreements with vendors or suppliers with total commitments in excess of $10,000.

Unger's claim, at trial and on appeal, is that his actual authority did not extend to the full extent of his technical authority. Unger became aware, in the beginning of 1984, that RLA was experiencing cash flow problems and was unable to pay all of its bills. During 1984, Unger spent most of his time talking with creditors and vendors regarding demands for payment. Unger was also aware that RLA was not meeting its withholding tax obligations, and he was informed by RLA's outside auditing firm that he could be personally liable for the unpaid taxes. Unger maintains that he would draw up a list of creditors on a weekly basis and present the list to Landau. The tax delinquencies were at the top of the list. However, Unger claims that Landau directed him to pay other creditors first, and Landau assured him that he would soon obtain enough new business to enable RLA to pay off its tax liabilities. Unger followed Landau's instructions.

On April 26, 1984, RLA filed its Employer's Quarterly Federal Income Tax Return on Form 941 ("941 Return") for the first quarter of 1984 showing a total amount due for that period of $568,340.17 for withheld income and FICA taxes. RLA paid $101,711.58. On July 26, 1984, RLA filed its 941 Return for the second quarter of 1984 showing withholding taxes due for the period in the amount of $490,251.47, none of which was paid. In November 1984, RLA filed its 941 Return for the third quarter of 1984 showing withholding taxes due for the period in the amount of $289,242.33. The total amount of the delinquency was $1,046,376.30.

B. Landau's Drug and Alcohol Addiction and His Activities during the Tax Period

By the spring of 1983, Landau had become totally addicted to cocaine. Shortly thereafter, Unger was promoted to CFO and Landau gave Unger power of attorney so that Unger could write checks on Landau's personal bank account in order to pay Landau's personal bills. In December 1983, Landau began consuming alcohol in addition to the cocaine. In late May 1984, Landau voluntarily entered a drug rehabilitation hospital, but left after a few days with his addiction uncured. He continued to ingest daily six to eight grams of cocaine and a quart of alcohol. After RLA was declared bankrupt, Landau plead guilty to wire and mail fraud charges.

As CEO, Landau could sign checks, determine the order in which bills would be paid and negotiate contracts. According to the Government, Landau was aware by the end of 1983 that RLA was experiencing cash flow problems. Landau obtained a $2.3 million bank loan in January 1984, which was secured by the assets of RLA and Landau's personal real estate holdings, and subsequently called major clients to inform them of the material change in the company's finances. He also negotiated a termination of a major contract which had caused RLA to suffer substantial losses. In February 1984, Landau took a business trip to Sarajevo to oversee RLA's promotion work at the Winter Olympics taking place there. While in Sarajevo, Landau hosted dinner parties, entertained clients and escorted clients to events. In June 1984, Landau landed a major account as marketing representative for the U.S. Olympic Committee, with exclusive responsibility for licensing commercial use of all Olympic-related symbols and marks through the 1988 games.

Landau was told by at least June or July of 1984 that RLA was delinquent with respect to its withholding tax obligations. Also in July 1984, Landau negotiated the sale of his partnership interest in certain race horses and put the proceeds into RLA. At the end of July, Landau took a business trip to the Summer Olympics in Los Angeles and tried, unsuccessfully, to raise money.

C. Pre-trial Proceedings

On or about November 23, 1987, the IRS made separate 100% penalty assessments against Unger and Landau each in the amount of $1,046,376.30, based on their alleged failure to cause RLA to remit its withholding taxes to the IRS for the Tax Period. With respect to Unger, the Government actually seized all his available assets totalling $20,500. Unger paid an administrative fee of $500 for filing a claim for a refund, and on or about January 22, 1990, commenced an action against the Government demanding that the penalty assessed against him be abated and that the district court order the Government to refund the monies it had collected from him based on that assessment. On June 20, 1990, the Government answered Unger's complaint and filed a counterclaim requesting judgment for the unpaid balance of the assessment against Unger plus statutory interest accrued thereon. On June 21, 1990, the Government commenced a third-party action against Landau to reduce to a judgment the penalty assessment against him plus accrued interest.

In February 1993, the Government moved for summary judgment on its counterclaim against Unger and third-part...