US v. Vaccarella

• Decision Date: 24 April 1990
• Docket Number: No. IP 88-1120-C.,IP 88-1120-C.
• Citation: 735 F. Supp. 1421
• Parties: UNITED STATES of America, Plaintiff, v. Joseph J. VACCARELLA, Security Pacific Business Credit, Inc. and Gary D. Zintgraff, Defendants.
• Court: U.S. District Court — Southern District of Indiana

735 F. Supp. 1421

UNITED STATES of America, Plaintiff, v. Joseph J. VACCARELLA, Security Pacific Business Credit, Inc. and Gary D. Zintgraff, Defendants.

No. IP 88-1120-C.

United States District Court, S.D. Indiana, Indianapolis Division.

April 24, 1990.

Douglas W. Snoeyenbos Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for plaintiff.

Robert Johnson, Krieg, DeVault, Alexander & Capehart, Indianapolis, Ind., for defendant Vaccarella.

Steven K. Huffer, Mitchell, Hurst, Jacobs & Dick, Indianapolis, Ind., for defendant Sec. Pacific.

Gary D. Zintgraff, Boerne, Tex., pro se.

ENTRY

BARKER, District Judge.

In the present case, the United States (the "government") brought suit against the defendants to collect unpaid withheld federal income taxes due and owing from the Mystik Corporation ("Mystik") for the first, second, and fourth quarters of 1983. In March of 1987, a delegate of the Secretary of the Treasury made separate assessments against defendants Vaccarella (for $241,774.58 plus statutory interest) and Zintgraff ($241,774.58 plus statutory interest) pursuant to 26 U.S.C. § 6672, for their allegedly willful failure to collect, account for, and pay over unpaid withheld federal income taxes and social security taxes due and owing from Mystik Corporation. The Secretary entered a similar assessment against Security Pacific Business Credit, Inc. ("Security Pacific") for $241,588.70 plus statutory interest on August 5, 1987, and a separate assessment pursuant to 26 U.S.C. § 3505(b) in the amount of $123,009.50. Vaccarella has counterclaimed for $3,443.97 plus interest, an amount due to him from a 1987 income tax refund which the Internal Revenue Service applied toward the assessment against Vaccarella instead of sending the return to him.

The case was tried to the court on March 19, 20, and 21, 1990. At trial the government conceded its claims against the defendants for the first and fourth quarters of 1983, and the case went forward only on the unpaid taxes for the second quarter of 1983. The parties have submitted post-trial briefs and proposed Findings of Fact and Conclusions of Law. The court, having considered the evidence adduced at trial and the admissible portions of the tendered depositions, as well as the briefs and arguments of counsel, hereby finds that judgment should be entered in favor of defendants Vaccarella and Zintgraff, and against defendant Security Pacific.

Before addressing the facts and law of the case, the court must rule on some evidentiary objections to deposition testimony proffered by the parties. Security Pacific offered into evidence the deposition testimony of Mr. Gerald L. Nieukirk of the Harris Bank (Plaintiff's Exhibit 185), and the government objected to the testimony on relevancy grounds. The testimony concerns the manner in which Harris Bank (where Mystik had an account) handled bounced checks. Although only minimally useful, this evidence is sufficiently related to the bounced payroll tax check in this case to satisfy Federal Rule of Evidence 401, and cannot be considered prejudicial to any party. Therefore, the government's objection is overruled, and Exhibit 185 is admitted into evidence.

Security Pacific has also proffered selected portions of the deposition testimony of Mr. Robert C. Bartkowicz, an officer at Security Pacific. The government's objects to page 85, lines 2 through 12, on the grounds that those lines have already been admitted into evidence, and the objection is sustained for that reason. The government further objects to page 82, lines 5 through 21, on relevancy grounds. Because that testimony relates to whether asset-based lenders frequently fund customers on the basis of the customer's bank overdrafts, and a great deal of evidence was presented in the trial concerning Security Pacific's funding of Mystik's overdrafts, the government's objection is overruled.

Finally, the government has eight objections to the portions of the Tamborello deposition sponsored by Security Pacific. Because the deposition is already part of the record, the court will rule on the objections without needlessly synopsizing the challenged passages.

* Lines 19 through 25 on page 174 are admitted, not to show the truth of the matters therein asserted, but to show Mr. Tamborello's perception of Mr. Kleiman's and Mr. Gray's attitudes toward the re-hiring of Campbell and Prescher.

* Lines 1 through 11 on page 175 are admitted; they are neither irrelevant nor speculatory.

* Lines 25 on page 177 through 10 on page 178 are not admissible because they are speculatory. Mr. Tamborello's suspicions regarding Mystik's or General Electric's knowledge of the inventory drop have no foundation, and in any event are irrelevant to any of the issues proveable in this case.

* Lines 3 through 8 on page 179 are not admissible because they lack a foundation.

* Lines 12 through 25 on page 180 are admitted. (If the court excluded all the testimony in this case that was not directly responsive to the questioning, the transcript would be half its present size.)

* Lines 1 through 25 on page 181 are admitted; the government's objections go to the weight rather than the admissibility of this evidence.

* Lines 1 through 9 on page 182, though only marginally relevant, are admissible, as the court has already heard a lot of evidence pertaining to Zintgraff's attempts (or lack thereof) to sell Mystik.

* Lines 16 through 25 on page 183 are admitted because they pertain to the business relations between Mystik and Security Pacific, and to the degree of control exercised over Mystik by Security Pacific. The weight of the evidence, of course, is diminished to the extent that it may be speculative.

The court notes that this is not a "close case," and that the challenged testimony ruled on above, whether admitted or excluded, did not have a decisive impact on the disposition of this case.

FINDINGS OF FACT

1. Defendant Zintgraff founded Chemical Investors, Inc., in 1976. The Mystik Corporation ("Mystik") was a wholly-owned subsidiary of Chemical Investors, formed to acquire the assets of the Mystik Tape Division of Borden, Incorporated. In 1980, Chemical Investors purchased Mystik Tape in a highly leveraged transaction. Borden retained a significant secured interest in Mystik, but the bulk of the deal was financed by General Electric Credit Corp. ("GE"), an asset-based lender.

2. Zintgraff was the largest single shareholder of Chemical Investors, and was Chairman of the Board of Directors of both Chemical Investors and Mystik. He was also the Chief Executive Officer of Mystik.

3. In 1982, Security Pacific replaced General Electric as Mystik's asset-based lender. Security Pacific's loans were collateralized by security interests in Mystik's accounts receivable, chattel paper, contract rights, raw materials, works in progress, inventory, goods, equipment, vehicles, fixtures, general intangibles, and real estate.

4. Mystik had a "lockbox" arrangement with Security Pacific, whereby Mystik's accounts receivable were sent directly from Mystik's customers to the lockbox account in Harris Bank, which only Security Pacific could access. Often, however, customers would mistakenly send checks directly to Mystik. When this happened, Mystik always forwarded the checks to the lockbox.

5. Mystik had some foreign customers whose checks could not be cleared through the lockbox. Mr. Smetana of Security Pacific testified that in late May of 1983, Mystik received a check in the $30,000-$40,000 range from an Australian customer; this check went directly to Mystik's operating account, but "some" of it was transfered to the lockbox after Security Pacific expressed its displeasure. Smetana also stated that some "small" foreign checks may also have gone directly into Mystik's operating account.

6. Smetana was the Security Pacific account executive primarily responsible for the day to day contacts with Mystik. His superior, Mr. Tamborello, was the Security Pacific officer with ultimate authority over the Mystik account.

7. In late January or early February of 1983, Mr. Vaccarella became the Treasurer of Mystik. Vaccarello had no previous experience dealing with asset-based lenders. He was neither a stockholder nor a Board member of either Chemical Investors or Mystik.

8. Both Vaccarella and Zintgraff had signature authority over all Mystik checking accounts.

9. In January of 1983, an audit revealed an unexpected drop in Mystik's inventory; this shortage was later attributed to theft. As a result of this loss of inventory, Security Pacific became under collateralized. Prior to this time, Mystik had never been "overline" on its loan with Security Pacific.

10. On February 10, 1983, Security Pacific notified Mystik that Mystik was in default on the loan agreement, and that Security Pacific was no longer obliged to advance funds to Mystik. Nevertheless, Security Pacific continued to fund Mystik on a regular basis.

11. After the inventory drop, personnel from Mystik and Security met to discuss ways to resolve the new problems. The question of re-financing Mystik was bruited, and Tamborello gave "marching orders" to Mystik officers to work their way out of the situation. Zintgraff moved into offices at Mystik to be on-hand during the crisis, and from this point on, Security Pacific's presence at Mystik facilities increased.

12. In February of 1983, Security Pacific took assignments of Mystik's patents and trademarks, and in March took assignments of Mystik's government contracts.

13. Mystik's plan for recovery from its overline position was ultimately unsuccessful, and by April of 1983, Mystik was more than $1 million overline.

14. By April, Smetana was working in the Mystik offices two to three times each week, and five or six Security Pacific auditors were also spending substantial amounts of time at Mystik. Mr. Lansangan, Mystik's Senior Accountant, testified that, by comparison, he had seen a Security...