U.S. v. Rem
| Decision Date | 13 October 1994 |
| Docket Number | No. 1192,D,1192 |
| Citation | 38 F.3d 634 |
| Parties | -6649, 94-2 USTC P 50,537 UNITED STATES of America, Plaintiff-Appellee, v. Mary REM, Syma Lichter, and Nathan Hanfling, as executors of the Estate of Henry Rem, Defendants, Gerard Rem, Defendant-Appellant. ocket 93-6229. |
| Court | U.S. Court of Appeals — Second Circuit |
M. Chinta Gaston, Asst. U.S. Atty., New York City (Mary Jo White, U.S. Atty., S.D.N.Y., Richard W. Mark, Asst. U.S. Atty., on the brief), for plaintiff-appellee.
Judd Burstein, New York City (Kim P. Bonstrom, on the brief), for defendant-appellant.
Before: KEARSE, PIERCE, and LEVAL, Circuit Judges.
Defendant Gerard Rem ("Rem" or "Gerard") appeals from a judgment of the United States District Court for the Southern District of New York, Louis J. Freeh, Judge, awarding plaintiff United States $1,875,179.41 against him, comprising $550,000.08 in withholding taxes owed by a corporation of which he was an officer, plus interest of $1,325,179.41. The district court granted summary judgment against Rem on the ground that he was a responsible officer of the taxpayer corporation within the meaning
of Sec. 6672 of the Internal Revenue Code, 26 U.S.C. Sec. 6672 (1988). On appeal, Rem contends that summary judgment was inappropriate because there were genuine questions of fact as to his liability, to wit, (a) whether he had sufficient control over the corporation to bring him within the scope of Sec. 6672, and (b) if he was a person within the scope of that section, whether his failure to remit the taxes was willful. He also contends that if he is liable, there are questions to be tried as to the extent of his liability. We agree that there are factual questions to be tried on all three issues, and we therefore vacate the judgment and remand for further proceedings.
The present suit arises out of the failure of Princeton Industries, Inc. ("Princeton"), to remit to the Internal Revenue Service ("IRS") funds that Princeton withheld from its employees' paychecks with respect to the employees' federal income and social security tax obligations (collectively "withholding taxes"). See 26 U.S.C. Sec. 3402 (1988) (); id. Sec. 3102 (1988) (). IRS contends that Princeton failed to pay withholding taxes for all of 1980 and for parts of 1978, 1979, and 1981. The events, largely as described by Rem in affidavits and deposition testimony, are set out below.
Princeton was founded in 1976 by Rem's father Henry Rem ("Henry") to engage in the manufacture and sale of textiles. Until April 1980, the company had two manufacturing sites--a knitting facility in Ware, Massachusetts, and a dyeing and finishing plant in St. Johnsville, New York. It had a corporate office in New York City, from which the company's managers coordinated production and sales.
The original officers and directors of the company were Henry as chairman, William Thal as president, and Richard Rem ("Richard"), Rem's brother, as executive vice president. Henry had provided Princeton with its starting capital; until 1978 he retained final authority over all business decisions. However, because of his history of credit difficulties, he avoided direct participation in Princeton's credit negotiations.
The company grew quickly, and it continually experienced cash-flow problems. In late 1978, Mary Rem ("Mary"), who was Henry's wife and Rem's mother, invested approximately $600,000 in the company. Shortly thereafter, Mary became the chairman of Princeton's board of directors. Though Henry nonetheless maintained control of the company's affairs for a time, he was soon diagnosed with cancer and transferred both his 80% stock ownership and his control of the company to Mary. Because she was known as Henry's wife, Mary, like Henry, did not attempt to conduct any credit negotiations.
Rem joined Princeton in late 1977, at the suggestion of Richard, "as a consultant to computerize Princeton's rapidly growing operations." (Affidavit of Richard Rem dated March 12, 1992 ("Richard Rem Aff."), p 3.) Rem held an advanced degree in computer operations and had worked for several years as a management consultant for banking and accounting firms; he had no background in the manufacturing business. Rem eventually purchased 20% of the company's stock, with his father retaining the other 80%. Sometime after joining Princeton as a computer specialist, Rem was also assigned responsibility for conducting credit negotiations on behalf of the company.
From 1977 to 1981, Rem had a variety of corporate titles at Princeton. He was corporate secretary from 1977 or 1978 until the company ceased operation in 1981. He became a director of the corporation in 1978 and for some period of time was its treasurer. In addition, with the approval of the board of directors, Rem represented to various actual and potential creditors that he was Princeton's president; he also signed at least one credit agreement as Princeton's "President and Secretary," and signed Princeton's eventual bankruptcy petition as "President."
Both Thal and Richard left Princeton's employ in 1978. After Richard left, Rem's In April 1980, a fire destroyed Princeton's Ware manufacturing facility and much of the company's inventory. Delay in payment of Princeton's insurance claim exacerbated its chronic cash-flow problem, and Princeton decided to pay only newly incurred debts, planning to pay older debts, including those to IRS, out of the expected fire insurance reimbursement. When the insurance company eventually made an advance payment in December 1980, however, IRS received no portion of it; rather that money was paid (Rem Dep. at 57.)
responsibilities were expanded and included keeping the accountant "appraised [sic ] on what was happening with the company [and] where the sales were going" (Deposition of Gerard Rem, March 26, 1991 ("Rem Dep."), at 24), negotiating contracts for machinery, computers, and insurance, and attempting to "coordinate and resolve problems" among various employees (id. at 44).
In the meantime, in November 1980, Princeton filed for protection under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Sec. 1101 et seq. (1988). The company ended all production in December 1980 and thereafter sold its remaining inventory. In June 1981, the Chapter 11 reorganization proceeding was converted to a Chapter 7 liquidation proceeding, see 11 U.S.C. Sec. 701 et seq. (1988), with a trustee appointed to oversee liquidation.
In the bankruptcy proceeding, IRS filed claims for unpaid withholding taxes totaling $105,771.83. In 1982, IRS made an assessment against Rem on account of Princeton's unpaid withholding taxes for the first quarter of 1978, the fourth quarter of 1979, all of 1980, and the first three quarters of 1981, in the total amount of $550,000.08:
Period Ending Unpaid Taxes
3/31/78 $ 77,690.32
12/31/79 $ 92,242.57
3/31/80 $130,872.87
6/30/80 $111,525.46
9/30/80 $ 51,562.63
12/31/80 $ 12,620.77
3/31/81 $ 34,170.77
6/30/81 $ 34,170.77
9/30/81 $ 5,143.92
After Rem disputed the 1982 assessment, and negotiations toward a consensual resolution failed, the government commenced the present action in 1989 to, inter alia, reduce this assessment to judgment.
After a period of discovery, in which depositions were taken of Rem and Mary, and documents were produced, IRS moved for summary judgment on the Princeton assessment. The government relied on parts of Rem's deposition and on checks signed by Rem as evidence that Rem's corporate positions, corporate responsibilities, and check-signing authority made him a person responsible for the company's nonpayment of withholding taxes within the meaning of 26 U.S.C. Sec. 6672(a). The government also argued that Rem's deposition indicated that he knew withholding taxes were required to be paid and knew other creditors were being paid instead, and that his failure to have the withholding taxes paid was therefore willful.
In opposition to summary judgment, Rem argued principally that he had had no actual control or position of responsibility with respect to withholding taxes. First, he asserted that, as indicated in his deposition, his affidavit, and an affidavit submitted by former Princeton director and plant manager Robert Brooks, each of Princeton's manufacturing sites was operated by a local plant manager and maintained its own bookkeeper and controller. Employees at these sites, a total of some 400 at the height of Princeton's operations, were paid from site-specific bank accounts that were separate from the accounts used by the New York City office, and each manufacturing site separately withheld the appropriate taxes from its employees' paychecks. The bank accounts maintained by the New York City office were used primarily to pay the company's general expenses, such as charges incurred for yarn purchases, to pay the salaries of New York City employees, and to wire money into the accounts of the manufacturing sites so the sites could pay, inter alia, their payroll expenses. Rem stated that he had had no Second, Rem claimed that Mary had exercised total control over Princeton's finances. In support of this contention, he pointed to parts of his deposition and that of his mother, and to affidavits of himself, his brother Richard, Brooks, and former Princeton manager Anna Lifson. For example, Rem testified that though he sometimes sat in on interviews of potential employees for the New York office, he had no authority to hire or fire anyone without authorization from...
To continue reading
Request your trial
- Doona v. Onesource Holdings Inc
-
Burwell v. Peyton
...conflicting versions of the facts are matters for the jury, not for the court on summary judgment.’ ") (quoting United States v. Rem, 38 F.3d 634, 644 (2d Cir.1994) ).In the light most favorable to Plaintiff, the officers' accounts of what transpired within Plaintiff's residence are suffici......
-
Halberg v. United Behavioral Health
...is true for the summary judgment motion as a whole—weigh evidence or assess the credibility of witnesses. See United States v. Rem , 38 F.3d 634, 644 (2d Cir. 1994). Legal arguments are impermissible in any Rule 56.1 Statement and are to be disregarded. See Sattar v. U.S. Dep't of Homeland ......
-
Stern v. Cosby
...of New York, 426 F.3d 549, 554 (2d Cir.2005); Hayes v. New York City Dep't of Corr., 84 F.3d 614, 619 (2d Cir.1996); United States v. Rem, 38 F.3d 634, 644 (2d Cir.1994). B. Is Stern Defendants argue that Stern is libel-proof as a matter of law because of all the negative publicity he has r......
-
Tax violations.
...means possessing knowledge that taxes are due and consciously disregarding the obligation to pay them); see also United States v. Rem, 38 F.3d 634, 643 (2d Cir. 1994) (holding individual liable for failure to pay taxes if he knew company funds were used for another (148.) See Winter v. Unit......
-
Tax violations.
...disregarding the obligation to pay them); see also United States v. Landau, 155 F.3d 93, 101 (2d Cir. 1998) (quoting United States v. Rem, 38 F.3d 634, 643 (2d Cir. 1994) (holding individual liable for failure to pay taxes if he knew company funds were used for another (154.) See Winter v. ......
-
TAX VIOLATIONS
...a tax return, (iii) keep legally required tax records, or (iv) supply required tax-related information.194 7202); United States v. Rem, 38 F.3d 634, 645–46 (2d Cir. 1994) (stating that a responsible person could be liable for failure to pay taxes if he knew that company funds were used for ......
-
Tax Violations
...to employees instead of remitting withholding taxes to the IRS was a willful and voluntary violation of § 7202); United States v. Rem, 38 F.3d 634, 645–46 (2d Cir. 1994) (stating that, in the context of the similarly worded I.R.C. § 6672, a responsible person could be liable for failure to ......