United States v. Davidson

• Decision Date: 15 February 1983
• Docket Number: No. G80-862.,G80-862.
• Citation: 558 F. Supp. 1048
• Parties: UNITED STATES of America, Plaintiff, v. Richard A. DAVIDSON and Merle R. Jenkins, Defendants, and Richard A. DAVIDSON, Counter-Plaintiff, v. UNITED STATES of America, Counter-Defendant.
• Court: U.S. District Court — Western District of Michigan

558 F. Supp. 1048

UNITED STATES of America, Plaintiff, v. Richard A. DAVIDSON and Merle R. Jenkins, Defendants, and Richard A. DAVIDSON, Counter-Plaintiff, v. UNITED STATES of America, Counter-Defendant.

No. G80-862.

United States District Court, W.D. Michigan, S.D.

February 15, 1983.

Allen R. Mass, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., Robert C. Greene, Asst. U.S. Atty., Grand Rapids, Mich., for plaintiff.

Chris Parfitt, Jenkins, Nystrom & Strelacci, P.C., Southfield, Mich., for defendant.

OPINION

ENSLEN, District Judge.

On March 20, 1978, a delegate of the Secretary of the Treasury made an assessment, pursuant to Section 6672 of the Internal Revenue Code of 1954, 26 U.S.C. § 6672, and gave notice of the assessment and demand for payment against Defendant Richard A. Davidson. The assessment, in the amount of $87,535.99, was based on a determination by the United States that Davidson was a person responsible for paying to the United States the withholding and Federal Insurance Contributions Act taxes of Davco, Inc. for the fourth quarter of 1972 and the third quarter of 1973, who had knowledge that these taxes had not been paid, and who knowingly failed to see that they were paid at a time when there were funds available to pay those taxes to the United States.

On December 2, 1980, the United States brought this action to reduce the assessment against Davidson to judgment, and to set aside a fraudulent conveyance of certain property by Davidson to Defendant Merle R. Jenkins.¹ Defendants Davidson and Jenkins answered the Complaint on February 13, 1981. The Answer contained a Counter Claim against the United States alleging that certain employees of the United States, notably the former and present United States Attorneys for this District, made unauthorized disclosures of financial information relating to Davidson. Presently, this matter is before the Court on Plaintiff's Motion for Partial Summary Judgment, filed pursuant to Rule 56 of the Federal Rules of Civil Procedure.

I. Summary Judgment

To warrant the grant of summary judgment, the moving party bears the burden of establishing the non-existence of any genuine issue of fact that is material to a judgment in his favor. Adickes v. S.H. Kress & Company, 398 U.S. 144, 147, 90 S.Ct. 1598, 1602, 26 L.Ed.2d 142 (1970); United States v. Articles of Device ... Diapulse, 527 F.2d 1008, 1011 (CA 6 1976); Nunez v. Superior Oil Company, 572 F.2d 1119 (CA 5 1978); Tee-Pak, Inc. v. St. Regis Paper Company, 491 F.2d 1193 (CA 6 1974). If no genuine issue as to any material fact is established, the moving party is entitled to judgment as a matter of law. Chavez v. Noble Drilling Company, 567 F.2d 287 (CA 5 1978); Irwin v. United States, 558 F.2d 249 (CA 5 1977).

In determining whether or not there are issues of fact requiring a trial, "the inferences to be drawn from the underlying facts contained in the (affidavits, attached exhibits, and depositions) must be viewed in the light most favorable to the party opposing the motion." United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); Bohn Aluminum & Brass Corporation v. Storm King Corporation, 303 F.2d 425 (CA 6 1962). Even if the basic facts are not disputed, summary judgment may be inappropriate when contradictory inferences may be drawn from them. United States v. Diebold, supra; EEOC v. United Association of Journeymen & Apprentices of the Plumbing & Pipefitting Industry, Local 189, 427 F.2d 1091, 1093 (CA 6 1970). In making this determination, the Court must make reference to the entire record and all well pleaded allegations are to be accepted as true. Dayco Corporation v. Goodyear Tire and Rubber Company, 523 F.2d 389 (CA 6 1975); Holmes v. Insurance Company of North America, 288 F.Supp. 325 (DC Mich.1968); Mahler v. United States, 196 F.Supp. 362 (DC Pa.1961). These guidelines will be adhered to as substantive issues of the motion are examined.

In response to Plaintiff's motion, Defendant Davidson submits that summary judgment is inappropriate in situations where, as here, the basic, evidentiary facts are undisputed but the conclusions which the Court may infer from those facts are in dispute. In light of the extraordinary remedy which summary judgment is, the Court recognizes that the instant motion does not entitle the Court to now summarily try issues of fact; rather, its function is limited to deciding whether there are any such issues to be tried. United States v. Bosurgi, 530 F.2d 1105 (CA 2 1976).

II. Factual Background

Defendant Richard A. Davidson readily acknowledges that at all times he was the founder, president and sole shareholder of Davco, a road construction firm. The Davco Board of Directors consisted of Davidson; Merle Jenkins, his attorney; and L.A. Davidson, his father. All persons within the corporate structure of Davco reported to and took directions from Davidson.

As president of the road construction concern, Davidson directed all other employees, either through staff people or supervisors, as well as maintaining numerous other corporate responsibilities. For example, Davidson was involved in Davco's relationship and dealings with the various unions representing Davco's employees, and he had ultimate authority to hire and fire all employees. Davidson also arranged for the financing of Davco's operations, the purchase of its equipment, bidding for work, and directing the manner in which its jobs were to be performed. Likewise, he was responsible for negotiating the contracts Davco entered into, and he signed most of those contracts. In fact, no employee of Davco could sign a contract of significance without Davidson's approval. Davidson also admits that he was the only party to ever sign the corporate tax returns.

With regard to the Davco bank accounts, Davidson had signatory authority on all of them, and no one at Davco could sign a check for a significant amount absent Davidson's approval.² Of special significance to this motion, Davidson admits that "between October 1, 1972 and September 30, 1973 he made certain decisions regarding the payment of Davco's creditors." Finally, Davidson had undertaken to personally guarantee a number of Davco's corporate obligations.

With respect to Davco's dealings with the IRS after Davco fell behind on its taxes, it was Davidson who signed installment agreements and other documents in which Davco promised to pay the back taxes. Davidson, on behalf of Davco, had a series of meetings with an Officer of the Internal Revenue Service who was attempting to collect Davco's overdue employment taxes. When it was later determined that an attorney was required to represent Davco in its relations with the IRS, Davidson signed the necessary power of attorney on behalf of Davco.

The above facts are undisputed. Additional facts will be elaborated as they become necessary to a resolution of this motion.

III. The Applicable Law

In Count I, Plaintiff seeks to reduce to judgment certain outstanding tax assessments rendered against Defendant Richard A. Davidson, pursuant to 26 U.S.C. § 6672. Section 6672(a) of the Internal Revenue Code provides:

§ 6672. Failure to collect and pay over tax, or attempt to evade or defeat tax.

(a) General rule. — Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable.

There exist two conditions precedent which must be satisfied before an individual can be held liable under this provision: (1) he must be the person responsible for the collection and payment of withholding taxes; and (2) he must willfully fail to collect and pay over said taxes. Teele v. United States, 529 F.2d 903, 905 (CA 9 1976); Pacific National Insurance v. United States, 422 F.2d 26, 29 (CA 9 1970); Taubman v. United States, 499 F.Supp. 1133, 1137 (ED Mich. 1978).

Section 6671(b) of the Internal Revenue Code of 1954, 26 U.S.C. § 6671(b), defines the word "person" thusly:

(b) Person defined. — The term "person", as used in this subchapter, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

Certainly, pursuant to the above definition, responsibility for the collection and payment of withholding taxes can attach to corporate officers. However, such a result is not automatic. It is well established that the test for determining the responsibility of the corporate officer under § 6672 is essentially a functional one, focusing upon the degree of influence and control which the officer exercised over the financial affairs of the corporation and, specifically, disbursements of funds and the priority of payments to creditors. In Monday v. United States, 421 F.2d 1210, 1214-1215 (CA 7 1970), the Seventh Circuit Court of Appeals, defining the contours of the test, stated:

Corporate office does not, per se, impose the duty to collect, account for and pay over the withheld taxes. On the other hand, an officer may have such a duty even though he is not the disbursing officer. Cf. Bloom v. United States, 272 F.2d 215 (9th Cir.1959), certiorari denied, 363 U.S. 803, 80 S.Ct. 1236, 4 L.Ed.2d 1146. The existence of the same duty and concomitant liability in another official likewise has no effect on the taxpayer's responsibility. Datlof v. United States, 252 F.Supp. 11, 33 (E.D.Pa.1966), affirmed, 370 F.2d 655 (3d Cir.1966), certiorari denied, 387 U.S. 906, 87

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