Wetzel v. US
| Decision Date | 26 March 1992 |
| Docket Number | Civ. A. No. S89-0677(G). |
| Citation | 802 F. Supp. 1451 |
| Parties | James K. WETZEL, Plaintiff, v. UNITED STATES of America, Defendant/Third-Party Plaintiff, v. Ray A. TROMATORE, et al., Third-Party Defendant. |
| Court | U.S. District Court — Southern District of Mississippi |
Harris H. Barnes, III, Jackson, Miss., for plaintiff.
William D.M. Holmes, Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendant/third-party plaintiff.
R. Travis Douglas, Kenner, La., Doyle L. Coats, Gulfport, Miss., Robert Gambrell, Biloxi, Miss., for third-party defendant.
BENCH OPINION
This cause came on for trial before the Court without a jury on July 22, 1991, with additional testimony being taken on August 1, 1991. The Court, having fully considered the testimonial and documentary evidence presented by both parties at trial, the arguments of counsel, and the applicable law, and being otherwise fully advised in the premises, makes the following findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure:
Findings of Fact
Jurisdiction is vested in this Court pursuant to 28 U.S.C. § 1346(l)(1) and § 7422 of the Internal Revenue Code of 1954 over the plaintiff's claim. This Court also has jurisdiction over defendant/third-party plaintiff's claims pursuant to 28 U.S.C. § 1345 and Rule 14 of the Federal Rules of Civil Procedure.
The following facts are established either by stipulation of the parties or by the testimony and exhibits offered at trial. James K. Wetzel, a practicing attorney, is an adult resident citizen of the State of Mississippi. Wetzel brings this action seeking judgment against the defendant/third-party plaintiff, United States of America, in the amount of $21,558.08.
The genesis of this dispute arose some four years ago when certain unpaid employment taxes were assessed against Highball, Ltd. (Highball) pursuant to 26 U.S.C. § 6672. Wetzel voluntarily paid the assessment which represented the unpaid employment taxes of Highball for all four quarters of 1986 and the first two months of 1987, together with interest.
Third-party complaints were also filed by the United States against the third-party defendants, James F. Ussery and Ray A. Tromatore, seeking judgments against them for the unpaid taxes of Highball for either all or part of the aforesaid tax periods. The claim against Ussery amounts to $21,558.08, plus interest as provided by law. The claim against Tromatore has been reduced to $13,929.34, plus interest as provided by law1, following a determination by the United States that Tromatore is only liable for the employment taxes in question for the first three quarters of 1986.
Highball was incorporated on January 29, 1986, by Wetzel, Ussery, and Tromatore for the purpose of operating a restaurant in Gulfport, Mississippi by the name of Vincent's. These individuals were all members of the board of directors and each owned approximately one-third of the corporate stock. Tromatore was elected president of the corporation, Wetzel vice-president, and Ussery secretary-treasurer. Wetzel and Ussery each contributed monies to the corporation upon incorporation in 1986, and in August of 1986, they obtained an $8,000 loan from the Metropolitan Bank. That money was contributed to the corporation for the payment of bills.
All of the parties had check signing authority on the corporate checking account during the period in question, even though Tromatore wrote no checks after October 1, 1986, when he left the business. During this time period Wetzel wrote three checks: (1) February 26, 1986, in the amount of $92.22; (2) May 1, 1986, in the amount of $64.88; and (3) November 7, 1986, for $130.40.
As vice-president of Highball, Wetzel testified that he was to provide legal assistance and capital to the corporation as well as solicit patrons for business purposes. During the initial stages of the business, Tromatore served as the general manager as well as the chef. Shortly thereafter (some time in early summer, 1986), Ussery took over as general manager and Tromatore was relegated to duties as the chef.
During the fall of 1986 a rift developed between Tromatore and Ussery. Ussery recommended to Wetzel that Tromatore be removed as chef of the restaurant. As general manager, Ussery fired Tromatore. Although Wetzel was not in charge of the daily hiring and firing, he did acquiesce in the removal of Tromatore.
Based upon a continuing cash flow problem, both Wetzel and Ussery agreed that the restaurant should be sold. In February 1987, the corporation was sold to Lewis Langlinais.
At trial, Wetzel testified that he did not keep up with the restaurant's daily activities but instead relied on the business acumen of Ussery. Wetzel testified that he requested profit and loss statements on a regular basis but such were never received. To the contrary, Ussery maintained that Wetzel never requested a profit and loss statement. Wetzel further stated that: (1) he never saw any of the tax returns for 1986 or the first quarter of 1987 prior to January 1987; (2) he was first apprised of the back taxes when he received the § 6672 tax penalty; and (3) that he never advised the corporation not to pay the taxes or discussed payment or non-payment of any creditors. Wetzel acknowledged that he examined the corporate checkbook from time to time while at the business. However, he was unable to ascertain Vincent's financial condition because of the deficient bookkeeping. Ussery maintained that, for the most part, the checkbook and outstanding bills remained at the restaurant during the time in question.
Ussery testified that as early as May or June of 1986, Vincent's was having financial problems. At that time a meeting was held in which Wetzel, Tromatore and Ussery attended. They discussed Tromatore's excessive salary in addition to F.I.C.A., sales and state taxes and outstanding bills. Ussery recounted that Wetzel was at the business on an average of two to three days per week and that the two discussed financial affairs on many of those occasions. Ussery testified that Wetzel knew the taxes were not paid in August, 1986. Wetzel denies knowing of the delinquency in August, but admits learning that the taxes were not paid in January, 1987. It was in January 1987, that the financial statements were finally prepared in connection with the sale of the business. Finally, Ussery insists that Wetzel directed him to pay the back taxes and other delinquent bills, which Wetzel denies. Ussery recalled telling Wetzel that the corporation had no money to pay the outstanding bills and taxes.
At the suggestion of Wetzel, the accounting firm of Alexander & Van Loon was retained for general accounting purposes. Of course, this included the preparation of corporate tax returns. Rodney Van Loon, a certified public accountant with Alexander & Van Loon, stated that the firm prepared a financial statement for the sale of the corporation. The financial statement was delivered in January 1987, and it indicated a delinquency in the mandatory withholding taxes. Van Loon and Cynthia Dunnavant, an accountant with the firm, testified that all financial dealings were with Ussery. They further stated that Ussery was dilatory in the submission of records necessary for the preparation of the appropriate tax documents.
The Employer's Quarterly Federal Tax Return (Form 941) for the quarter ending March 31, 1986 shows a tax liability of $3,827.69 which was paid in full. However, the monies were apparently paid late as the document is marked received on August 25, 1986. The 941 for the quarter ending June 30, 1986 shows a liability for the first month of the quarter of $3,431.73, the second month of $3,636.56 and the third month of the respective quarter for $3,184.46. Deposits in the amount of $3,333.01 left a balance of $6,919.74 due and owing. The statement was signed on August 22, 1986, and received by the government some time in August of 1986. Taxes for the quarter ending September 30, 1986 totalled over $7,000. The corporation made no payments on these taxes. Taxes for the period ending December 31, 1986 totalled approximately $4,500 with no payments being recorded. Finally, the 941 for the period ending March 31, 1987 reveals total taxes in excess of $10,000. Once again, no payments were forwarded to the Internal Revenue Service. All 941's with the exception of the last one filed (i.e., 941 for the period ending March 31, 1987) were signed by Ussery.
The corporation's bank statement on February 1, 1987, indicated that Vincent's made deposits in excess of $15,000 for the statement period. Additionally, the statement of March 1, 1987, reveals that deposits in excess of $20,000 were made during that particular transaction period. In sum, there was sufficient money in the corporate bank account to pay the outstanding federal taxes.
When questioned as to why he did not write a check for the outstanding taxes in January, 1987, Wetzel replied that the checking account balance was not written down. Moreover, Wetzel admitted that he did not call the bank because Ussery was the secretary/treasurer. Wetzel stated that he had the ability but not the authority to write checks. This contention is disputed by the record. The record indicates that Wetzel had the authority to write checks. Indeed, he wrote three checks to various vendors, albeit as an accommodation to the corporation. Hence, he had the ability and authority to write checks on behalf of the corporation although such activity was entrusted to Ussery.
On various dates in 1986 and 1987, Federal Employer's Quarterly Federal Tax Returns were filed on behalf of the corporation regarding employment tax liability for all four quarters of 1986 and the first quarter of 1987. The trust fund portion of the tax liability which was not paid is as follows:
Trust Fund Taxes
Taxable Period Which Were Not Paid
1st Qtr. '86...To continue reading
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