US v. Burger, 86 Civ. 7592 (MGC).
| Citation | 717 F. Supp. 245 |
| Decision Date | 20 July 1989 |
| Docket Number | No. 86 Civ. 7592 (MGC).,86 Civ. 7592 (MGC). |
| Parties | UNITED STATES of America, Plaintiff, v. Alexander BURGER, Irwin Goldfeder, and Alan J. Levy, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Benito Romano, U.S. Atty., S.D.N.Y., New York City by Harriet Goldberg, Asst. U.S. Atty., for plaintiff.
Edward Rubin and Garfunkel & Bloomfield, New York City by Alan J. Garfunkel and Lori A. Corsun, for defendant Alan J. Levy.
This civil action arises out of the failure of Art Steel Co., Inc. ("Art Steel") to pay over to the Internal Revenue Service income and Social Security taxes withheld from its employees' salaries in the second and fourth quarters of 1981 and the first quarter of 1982. Defendant Alan J. Levy moves for judgment notwithstanding the verdict, or alternatively for a new trial, after a five day jury trial in which he was found liable for the 100% penalty assessed against him by the Internal Revenue Service under 26 U.S.C. § 6672. Section 6672 provides:
(a) General rule.—Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to ... pay over such tax ..., shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of tax not ... paid over.
For the reasons discussed below, the motion for judgment notwithstanding the verdict is granted.
At trial, the following facts were either stipulated or uncontested.
Art Steel, which filed for bankruptcy in March of 1982, was a closely-held corporation located in the Bronx, New York. It manufactured and sold office furniture and equipment. During 1981 and 1982, Art Steel employed 600 or 700 people (Goldfeder, Tr. 554).
At all relevant times, Art Steel was owned equally by three extended family groups descended from Art Steel's original founder, Alexander Burger (SF 17)1. Three of the founder's grandsons, Alexander Burger, Irwin Goldfeder, and Alan Levy, were employed by Art Steel. Levy himself owned sixteen percent of the shares of Art Steel (Levy, Tr. 44).
From 1969 to the date of Art Steel's bankruptcy, Burger was President of Art Steel and Goldfeder was Executive Vice-President and Chairman of the Board (Goldfeder, Tr. 515). During the relevant tax quarters, Irwin Kossoff was Controller and Chief Financial Officer (Kossoff, Tr. 346). Levy was not an officer of Art Steel during this period and had not been an officer since January of 1975, when he was removed from the position of Executive Vice-President by the Board (SF 3). Levy was both an officer and director of five companies affiliated with Art Steel, which signed consolidated financial statements with Art Steel (SF 19, 23).
During the relevant tax quarters, Levy was a director of Art Steel (SF 23), although the board of directors did not meet during that time (Burger, Tr. 435). In 1969, Levy was made a member of Art Steel's "executive committee," which also consisted of Burger and Goldfeder, but the committee did not hold formal meetings in 1981 or 1982 and had not done so for many years (Burger, Tr. 448).
Levy was an employee of Art Steel. His primary area of responsibility focused on Art Steel's factories (Burger Tr. 433, Goldfeder Tr. 526), including their productivity and compliance with environmental laws in the use of paint (Levy, Tr. 75-76, Burger, Tr. 467). In this regard, in 1974, the Board had directed Levy to spend all of his time at Art Steel's plant at 170th Street in the Bronx, and to supervise production there (Deft's Exh. 94). That order was never lifted officially, although by 1981, Levy was spending significant amounts of time and had an office at Art Steel's main office at 233rd Street in the Bronx (Levy, Tr. 149, Goldfeder, Tr. 523-24). At all times, Levy's salary was the same as that of Burger, whose special responsibilities were sales and marketing (Goldfeder, Tr. 525), and Goldfeder, whose special responsibilities were purchasing, export sales, and internal warehousing (Goldfeder, Tr. 525-26) (SF 25).
Levy has not been a signatory on Art Steel's checking accounts since January of 1975, when he was removed as a signatory (SF 2, 3). The signature stamp for payroll checks was changed from Levy's name to Burger's to reflect this removal (Deft's Exh. 144). During the first relevant tax quarter, Levy was one of the signatories on the checking account of one of the affiliated companies, Art Steel of California (SF 27). Levy was also a signatory on the account of Art Steel Sales (Govt's Exh. AL). Art Steel Sales did not have a source of income independent from Art Steel (Kossoff, Tr. 364). By 1980, its payroll had been merged with that of Art Steel (Kossoff, Tr. 363). Occasionally, moneys would be placed in the Art Steel Sales checking account to cover the payroll (Kossoff, Tr. 367). Burger and Goldfeder signed the payroll checks drawn on the Art Steel Sales account (Kossoff, Tr. 368).
Levy did not have the authority to hire and fire employees of Art Steel (SF 6), nor did he sign payroll tax returns. Burger and Goldfeder signed all payroll tax returns of Art Steel relating to the relevant tax quarters (SF 10). Levy was not involved in the negotiation of the financial relationship between Chase Manhattan Bank and Art Steel in 1980 or the negotiation of the financial relationship between Marine Midland Bank and Art Steel in the spring of 1981 (SF 7). Levy attended the closing between Chase Manhattan Bank and Art Steel in 1980 and the closing between Marine Midland Bank and Art Steel in June of 1981 (SF 8). Only Burger and Goldfeder guaranteed the obligations of Art Steel to Marine Midland Bank (SF 9), although Levy agreed to indemnify Burger and Goldfeder for his pro rata share (SF 26).
Art Steel failed to pay over to the Government $1,003,866.24 in taxes withheld from employees during the second and fourth quarters of 1981 and the first quarter of 1982. The Internal Revenue Service assessed a penalty for this amount against Burger, Goldfeder, and Levy under § 6672. Judgments were entered against Burger and Goldfeder prior to trial, although they have not yet paid any amount of the assessment (SF 11). Levy contested the assessment at a five day jury trial at which Burger and Goldfeder testified as Government witnesses. Levy's motion for judgement notwithstanding the verdict is grounded on his contention that based on the evidence at trial, no reasonable person could conclude that he was a person required to collect and pay over Art Steel's withholding taxes within the meaning of § 6672. For purposes of this motion, Levy contests only the jury's finding that he is a "responsible person," and does not attack the jury's finding of the other statutory element, willfulness.
The standard for granting judgment notwithstanding the verdict ("judgment n.o. v.") is strict. Judgment n.o.v. may be granted "only if, without weighing the credibility of the witnesses or otherwise considering the weight of the evidence, there can be but one conclusion as to the verdict that reasonable persons could have reached." Stubbs v. Dudley, 849 F.2d 83, 85 (2d Cir.1988), cert. denied, ___ U.S. ___, 109 S.Ct. 1095, 103 L.Ed.2d 230 (1989) (citations omitted).
When the moving party bears the burden of proof, judgment n.o.v. is particularly difficult to grant because a finding that the evidence is in equipoise requires judgment in favor of the opposing party. The parties in this case agree that Levy bears the burden of disproving that he is a responsible person. See Simpson v. United States, 664 F.Supp. 43 (E.D.N.Y.1987); Hoeniger v. United States, 76-1 U.S. Tax Cas. (CCH) ¶ 9296 (S.D.N.Y.1976). Thus, in this case, judgment n.o.v. is appropriate only if "there is such an overwhelming amount of evidence in Levy's favor that reasonable and fair minded people could not arrive at a verdict against him." Singer v. Olympia Brewing Co., 878 F.2d 596, 598 (2d Cir.1989) (citations omitted); see also Baskin v. Hawley, 807 F.2d 1120, 1129 (2d Cir.1986).
As an alternative to judgment n.o.v., a court may grant a new trial if it concludes that the verdict is contrary to the weight of the evidence. Although the standard is not as strict as that for granting judgment n.o.v., a court may not substitute its own view for that of the jury's. In determining whether to grant a new trial, the Second Circuit explicitly has adopted the standard set forth in 6A Moore's Federal Practice ¶ 59.085 (1973):
The trial judge, exercising a mature judicial discretion, should view the verdict in the overall setting of the trial; consider the character of the evidence and the complexity or simplicity of the legal principles which the jury was bound to apply to the facts; and abstain from interfering with the verdict unless it is quite clear that the jury has reached a seriously erroneous result. The judge's duty is essentially to see that there is no miscarriage of justice. If convinced that there has been then it is his duty to set the verdict aside; otherwise not.
Bevevino v. Saydjari, 574 F.2d 676, 684 (2d Cir.1978); see also Smith v. Lightning Bolt Productions, Inc., 861 F.2d 363, 370 (2d Cir.1988) ().
Whether a person against whom the Government issues an assessment under § 6672 may be held liable depends on whether that person comes within the definition of "person" in § 6671(b). Section § 6671(b) provides:
The term "person", as used in this subchapter, includes an officer or employee of a corporation ... who as such officer or employee ... is under a duty to perform the act in respect of which the violation occurs.
(emphasis supplied). "Duty" under § 6671(b) has a much more focused meaning than the generalized duty of...
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