Filed: Apr. 03, 1996
Latest Update: Feb. 21, 2020
Summary: UNITED STATES COURT OF APPEALS Filed 4/3/96 FOR THE TENTH CIRCUIT _ JESSE LEE HOWELL, ) ) Plaintiff-Appellant, ) ) v. ) No. 95-5093 ) (D.C. No. 92-C-81-K) UNITED STATES OF AMERICA, ) (N. Dist. of Okla.) ) Defendant-Counterclaim Plaintiff- ) Third Party Plaintiff-Appellee. ) ) v. ) ) DANIEL L. NICHOLS and SYDNEY NICHOLS, ) ) Third Party Defendant-Appellant. ) _ ORDER AND JUDGMENT* _ Before PORFILIO, BARRETT, and LUCERO, Circuit Judges. _ Jesse Lee Howell (Howell) appeals from an order of the dist
Summary: UNITED STATES COURT OF APPEALS Filed 4/3/96 FOR THE TENTH CIRCUIT _ JESSE LEE HOWELL, ) ) Plaintiff-Appellant, ) ) v. ) No. 95-5093 ) (D.C. No. 92-C-81-K) UNITED STATES OF AMERICA, ) (N. Dist. of Okla.) ) Defendant-Counterclaim Plaintiff- ) Third Party Plaintiff-Appellee. ) ) v. ) ) DANIEL L. NICHOLS and SYDNEY NICHOLS, ) ) Third Party Defendant-Appellant. ) _ ORDER AND JUDGMENT* _ Before PORFILIO, BARRETT, and LUCERO, Circuit Judges. _ Jesse Lee Howell (Howell) appeals from an order of the distr..
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UNITED STATES COURT OF APPEALS
Filed 4/3/96
FOR THE TENTH CIRCUIT
______
JESSE LEE HOWELL, )
)
Plaintiff-Appellant, )
)
v. ) No. 95-5093
) (D.C. No. 92-C-81-K)
UNITED STATES OF AMERICA, ) (N. Dist. of Okla.)
)
Defendant-Counterclaim Plaintiff- )
Third Party Plaintiff-Appellee. )
)
v. )
)
DANIEL L. NICHOLS and SYDNEY NICHOLS, )
)
Third Party Defendant-Appellant. )
______
ORDER AND JUDGMENT*
______
Before PORFILIO, BARRETT, and LUCERO, Circuit Judges.
______
Jesse Lee Howell (Howell) appeals from an order of the
district court denying his motion for summary judgment and granting
summary judgment in favor of the United States of America.
In 1981, Howell purchased Speedprint No. 1 from M. W. Pickett,
*
This order and judgment is not binding precedent, except
under the doctrines of law of the case, res judicata, and
collateral estoppel. The court generally disfavors the citation
of orders and judgments; nevertheless, an order and judgment may
be cited under the terms and conditions of Tenth Cir. R. 36.3.
the owner of the Speedprint franchise. The business was
incorporated as J.D.S. Systems, Inc. (JDS). It engaged in
commercial printing and typesetting. Howell was the President and
sole shareholder of JDS. Daniel Nichols, husband of Howell’s
sister, Sydney, was a JDS salesman. In 1983, Daniel was elected
Vice-President of JDS.
On January 1, 1984, Howell and his wife (designated “seller”)
entered into an agreement to sell JDS to Daniel and Sydney
(designated “purchaser”) for $120,000. Daniel was elected
President of JDS and Howell Vice-President. Howell remained a
member of the board of directors. The agreement provided that: the
purchaser would receive 50% of the JDS stock; distribution of
profits would be made from time to time at the discretion of seller
and purchaser; seller and purchaser would each receive an annual
salary of $70,000; seller was entitled to examine and inspect the
books, records, and accounts of the corporation; and, seller would
receive a monthly recap report from purchaser. The agreement also
provided that: no money would be borrowed against JDS unless agreed
upon in advance in writing by seller and purchaser; any purchases,
except for materials and supplies, must be agreed to by seller and
purchaser; and, purchaser could acquire the remaining 50% of JDS
stock after a ten-year period.
The agreement was amended on September 7, 1984, to provide,
inter alia: a reduction in Howell’s salary, a salary for Sydney for
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bookkeeping and typesetting, and a monthly car allowance of $789.83
for seller and purchaser for 29 months. On that same date, a
corporate resolution of J’S authorized any one of Daniel Nichol,
Sydney Nichol or Jesse Howell to write checks on the corporate
checking acocunt.
The agreement, as amended, was modified on January 31, 1986,
wherein the parties acknowledged that JDS was having financial
difficulties, it was in the best interest of both parties that JDS
survive, and without financial concessions from the Howells, JDS
would be forced to liquidate and file bankruptcy. Under the
modification, Howell waived any further salary and he resigned from
the board of directors, effective immediately. It also provided
that 100% of the JDS stock would be released to the Nichols, free
and clear of any liens, upon payment of $165,000.
During the third and fourth quarters of 1985 and the first
quarter of 1986, JDS did not remit the federal withholding taxes
due the United States. On July 28, 1986, the Internal Revenue
Service (IRS) assessed Howell and the Nichols $31,890.15 as
responsible persons under 26 U.S.C. § 6672 for JDS’s employment tax
liabilities. Under § 6672, “[a]ny person required to collect . .
. and pay over any tax . . . 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 the tax
evaded . . . or not accounted for and paid over.”
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In 1988, the Nichols submitted amended tax returns on behalf
of JDS in which they attempted to eliminate the § 6672 liability
by stating that JDS had erroneously reported as wages certain
payments made to Howell when in fact the payments should have been
characterized as proceeds from the sale of stock.
Howell subsequently filed an action seeking a refund of the
$868.92 payment he had made toward the § 6672 assessment and to
have the balance of the penalty abated. In response, the
government filed a counterclaim against Howell for the unpaid
balance of the penalty, plus interest and statutory costs. The
government filed a similar counterclaim against the Nichols. The
parties moved for summary judgment.
In its order granting the government’s motion for summary
judgment, the district court observed, inter alia: JDS failed to
pay employment taxes for the time period in question; for summary
judgment to issue in favor of the government it must prove that
the taxpayers were “responsible persons” for JDS under § 6672 and
that the taxpayers willfully failed to pay JDS’s employment taxes;
Howell and the Nichols could prevail on their motion only “if they
establish that the tax returns filed by JDS during the period at
issue erroneously classified payments made for the purchase of
stock as payments made for salary.” (Corrected Appendix to Opening
Brief of Appellant, Part A at 6).
The court also found/concluded: the Nichols do not dispute
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that they are responsible parties under § 6672; “[t]he evidence .
. . shows that Howell instructed JDS to give payment priority to
his salary, with other creditors receiving a lower priority.
Howell could have instructed JDS to pay the IRS first, and then
his salary, but he did not.” Id. at 16; Howell “expressed a
preference as to which [creditors] should be paid” and “attempted
to influence the Nichols’ decision-making by means of violent
threats.” Id.; Howell “crossed the threshold of § 6672 . . .
[and] became a ‘responsible person.’”
Id. at 17; although the
government agrees that Howell threatened the Nichols with harm if
his payments were not made, “[t]he court does not find that threats
negate willfulness as used in § 6672.”
Id. at 18; Howell “had
access to the company’s books and accounts, and . . . notice of the
tax delinquencies. . . . [and] it [is] the combination of factors,
including Howell’s role in determining the company’s payment of
creditors, which requires the court to impose responsibility on
him.”
Id. at 21; and, the amended tax returns submitted by JDS did
not effectively reclassify the salary payments made to Howell as
payments for stock. Howell and the Nichols appealed.1
On appeal, Howell contends that the district court erred in
granting summary judgment by failing to recognize the existence of
genuine issues of material fact which precluded summary judgment in
After briefs had been submitted but prior to oral argument,
1
the Nichols settled with the government.
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favor of the government. The government responds that there were
sufficient undisputed facts to support summary judgment in its
favor.
I.
We review the district court’s grant of summary judgment de
novo, Ellis v. United Airlines, 73 F.3d 999, 1003 (10th Cir.
1996), applying the same legal standard used by the district court
under Fed.R.Civ.P. 56(c). Crow Tribe of Indians v. Repsis,
73 F.3d
982, 986 (10th Cir. 1995). Even though all the parties moved for
summary judgment, this does not change the district court’s
consideration or our standard of review. E.E.O.C. v. Steamship
Clerks Union, Local 1066,
48 F.3d 594, 603 n.8 (1st Cir.), cert.
denied, ___ U.S. ___ (1995). Although cross motions for summary
judgment were filed by the parties, this did not permit the entry
of summary judgment if disputes remained as to material facts.
Harrison Western Corporation v. Gulf Oil Co.,
662 F.2d 690, 692
(10th Cir. 1991). See also Cargill Inc. v. Charles Kowsky
Resources, Inc.,
949 F.2d 51, 55 (2nd Cir. 1991) (“Even though both
parties move for summary judgment and even though they agree that
there are no issues of fact, the court may still find that factual
issues exist.”).
II.
Howell contends that the district court erred by deciding the
issue of his status as a responsible person under § 6672 on the
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government’s motion for summary judgment rather than allowing the
matter to proceed to trial. He argues that there existed genuine
issues of material fact, including who controlled JDS’s finances,
and who had the power to determine which of JDS’s creditors would
be paid, which made summary judgment improper.
“Courts have generally given broad interpretation to the term
‘responsible person’ under § 6672.” Denbo v. United States, 988
F.2d 1029, 1032 (10th Cir. 1993). In Denbo, we held:
A person is responsible with the meaning of the statute
if that person is required to collect, truthfully account
for or pay over any taxes withheld from the wages of a
company’s employees. . . . The responsible person
generally is, but need not be, a managing officer or
employee, and there may be more than one responsible
person. . . . Indicia of responsibility include the
holding of corporate office, control over financial
affairs, the authority to disburse corporate funds, stock
ownership, and the ability to hire and fire employees. .
. . Among other things therefore, a corporate officer or
employee is responsible if he or she has significant,
though not necessarily exclusive, authority in the
‘general management and fiscal decision making of the
corporation.’
* * *
[W]hile it is clear that [the president] exercised
greater control over the corporation than Denbo,
‘[s]ection 6672 does not confine liability for the unpaid
taxes only to the single officer with the greatest or the
closest control over corporate affairs.’ . . . It
suffices that Denbo had ‘significant, as opposed to
absolute, control of the corporation’s finances.’
* * *
A responsible person’s failure to investigate or to
correct mismanagement after being notified that
withholding taxes have not been paid satisfies the
section 6672 willfulness requirement.
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988 F.2d at 1032-33 (citations omitted).
See also Taylor v. Internal Revenue Service, 69 F.3d 411, 416
(10th Cir. 1995)(person with sufficient indicia of responsibility
is a responsible person under § 6672 regardless of whether he has
final say as to which creditors should be paid); Muck v. United
States,
3 F.3d 1378, 1381 (10th Cir. 1993)(the existence of
significant, though not necessarily exclusive authority,
“irrespective of whether that authority is actually exercised, is
determinative” of whether a corporate employee or officer is a
responsible person under § 6672).
“‘[S]ummary judgment is appropriate [only] when there is no
genuine issue over a material fact and the moving party is entitled
to summary judgment as a matter of law’ . . . [and] ‘we must view
the record in the light most favorable to the parties opposing the
motion for summary judgment.’” Crow Tribe, 73 F.3d at 986
(citations omitted).
In concluding that Howell was a responsible person under §
6672, the district court relied on the undisputed facts that:
Howell was an officer and director of JDS, Howell owned 50% of JDS
stock, and Howell had check writing authority for the corporation.
The court also relied on various provisions within the sales
agreement: all profit distributions were at the discretion of both
the seller and purchaser; seller had the right to examine and
inspect the books, records, and accounts of JDS; seller was to be
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supplied a monthly recap report sheet for JDS; all money borrowed
by JDS had to be agreed upon in advance by the seller and
purchaser; and any purchases, excluding materials and supplies,
were to be agreed upon by the seller and purchaser.
The district court further considered and relied upon, inter
alia: the testimony of the Nichols and M. W. Pickett that Howell
threatened to kill Daniel if he was not paid in accordance with the
sales agreement in finding that “[m]ortal threats by a director and
vice-president of a company against the president of that company
are indicative of an effort to control the payment of funds to
creditors,” (Corrected Appendix to Opening Brief of Appellant, Part
A at 11-12); Daniel’s testimony that Howell controlled the books
for a period of time after the sale, in finding that “[i]n
actuality, for much of a year, Howell may have enjoyed greater
access to the JDS’s records than its owners,” id. at 14-15; the
testimony of the Nichols that Howell consulted with them about
which creditors to pay in finding that “Howell could have
instructed JDS to pay the IRS first, and then his salary, but he
did not,” and that “Howell was in a position to prevent the
default from occurring. . . .”
Id. at 15-16.
The court relied on these findings in concluding that Howell
was a responsible person under § 6672. However, not all of these
findings were based on undisputed facts. It is undisputed,
however, that in terms of control or the right to exercise control
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over JDS during the time period here involved, Howell served as
vice-president, director and a 50% shareholder of the corporation
at all times in 1985. In addition, the Purchase Agreement provided
Howell with substantial authority over distribution of profits,
borrowing, purchases, the right to inspect JDS’s books and records,
and to receive a monthly recap report. During the entire period at
issue, Howell also exercised check writing authority over the
corporate checking account.
We agree that these undisputed facts justified the district
court’s conclusion that Howell was a responsible party with respect
to JDS, and thus under a duty to collect and pay over the federal
income and social security taxes withheld from the wages of JDS’s
employees to the government. Responsibility is a matter of status,
duty, and authority.
We hold that the district court did not err in concluding that
Howell was a responsible person under § 6672.
III.
Howell contends that “the district court erred when it failed
to recognize the existence of the unresolved genuine disputes of
material facts regarding [his] alleged wilful [sic] failure to pay
JDS Systems, Inc.’s employment taxes under the meaning of I.R.C. §
6672.” (Corrected Opening Brief of Appellant at 21). He argues
that because the issue of his willful failure to pay the
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withholding taxes was in dispute, and inasmuch as the district
court “appears to have written an order for a trial that has yet to
take place,” the order of the district court granting summary
judgment in favor of the government must be reversed and the case
remanded for trial. Id. We agree.
In Thomas v. International Business Machines, 48 F.3d 478, 484
(10th Cir. 1995), we held that the party moving for summary
judgment has the burden of showing that there is an absence of
evidence to support the non-movant’s case, and that the court must
examine the factual record and all reasonable inferences in the
light most favorable to the non-movant. Here, the government
cannot point to the absence of evidence to support Howell’s
contention that he did not act willfully under § 6672.
Furthermore, the district court failed to examine the factual
record in the light most favorable to Howell in granting the
government’s motion for summary judgment on the issue of Howell’s
willfulness. In TPLC, Inc. v. United Nat. Ins. Co.,
44 F.3d 1484,
1489 (10th Cir. 1995), we held that at the summary judgment stage,
the court may not weigh the evidence to determine the truth, but
rather must decide only whether there is a genuine issue for trial.
If the district court is required to adjudicate factual issues, the
case is not ripe for summary judgment. IBEW Local Union No. 969 v.
Babcock & Wilcox,
826 F.2d 962, 964 (10th Cir. 1987). Here, the
district court did adjudicate factual issues.
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If the moving party shows the absence of a genuine issue of
material fact upon a motion for summary judgment as required under
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986), the non-movant
“may not rest upon mere allegations or denials” of the pleadings,
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986), but must
produce evidence creating a genuine issue of material fact to be
resolved at trial. Wilson v. Meeks,
52 F.3d 1547, 1552 (10th Cir.
1995). Here, Howell’s depositional testimony is at complete odds
with the government’s contentions on the issue of his willfulness
under § 6672. This creates a credibility issue for trial
determination. See Applied Genetics Intern., Inc. v. First
Affiliated Securities, Inc.,
912 F.2d 1238, 1241 (10th Cir. 1990).
Anderson observed that a fact is “material” only if it “might
affect the outcome of the suit under the governing law” and the
dispute is “genuine” only “if the evidence is such that a
reasonable jury could return a verdict for the non-moving
party.”
477 U.S. at 248. Howell’s depositional testimony created a
credibility issue for trial determination by the fact finder.
Howell’s depositional testimony disavowed any association with
JDS and any knowledge of JDS’s tax problems during the third and
fourth quarters of 1985 and the first quarter of 1996:
Q. The third and fourth quarter of ‘85 and the first
quarter of ‘86. That’s why we are here, and those are
the taxes that weren’t paid, and that’s the issue of the
case. Do you understand that?
A. Okay. Yes, I do.
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Q. Who was running the company in that period at issue?
A. Danny Nichols ran the company from the time I sold him
and he became president, in that period.
Q. Okay. What was your role in the company?
A. Really I had no role in the company whatsoever. I had
told Danny that I would help him with any problems that
I could, and I lived on the farm and took care of and was
trying to build my place up there, is what I was trying
to do in this period of time.
Q. So you basically just told him that you would help him
if he needed any help?
A. That’s right.
Q. Did you do anything else with respect to the company?
A. No, sir.
Q. Did you go onto the company premises?
A. Not that I can remember. I might have at one time or
another or something, but you know, it wouldn’t have been
on a regular basis.
* * *
Q. During that period at issue, though, did you write any
checks?
A. From the time that --- no, I did not.
Q. So Danny and Sydney wrote the checks?
A. Yes, they did.
* * *
Q. So your answer is that, during the period at issue,
you didn’t receive any financial information?
A. No, sir, I did not.
Q. Did they tell you that the taxes weren’t being paid
during that period?
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A. No, sir, they did not. I was not aware of the tax
problem that they had.
Q. They didn’t tell you that they were having problems
with the taxes?
A. No, they did not.
Q. Did you know that the company was having financial
problems?
A. No more than it ever did. I always had, you know, I’d
have a good month and I’d have a rough month, and I’d
have, you know, its ups and downs, but I always made good
money.
Q. But during the period at issue, did you know that the
company was having financial problems?
A. When I went to Danny’s house, I was pretty well under
the understanding that there was something wrong, yes,
and at that point Danny and I didn’t communicate on
anything. He handled everything himself. They did not
communicate with me, they did not send me financial
statements. I had no way of knowing what the business
was doing.
Q. But you knew it was in trouble?
A. Well, I knew that they weren’t paying me, so, you
know, that’s all I knew.
* * *
Q. . . . . Did you ever threaten Danny personally on
paying the notes?
A. I’d have to answer that no. . . . I was raised that if
you have an argument you go outside and settle it, you
know, but did not threaten --
(Corrected Appendix to Opening Brief of Appellant, Part A at 13-
14, 21-22, 25).
Howell is liable under § 6672 only if he “willfully” failed
to comply with the statute. In Denbo, we defined “willfulness”
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to be:
Willfulness, in the context of section 6672 means a
‘voluntary, conscious and intentional decision to prefer
other creditors over the government. . . .’ Although
negligence does not give rise to section 6672 liability,
“‘the willfulness requirement is ... met if the
responsible officer shows a “reckless disregard of a
known or obvious risk that trust funds may not be
remitted to the government. . . .”’” A responsible
person’s failure to investigate or to correct
mismanagement after being notified that withholding taxes
have not been paid satisfies the section 6672 willfulness
requirement. . . .
788 F.2d at 1033 (citations omitted).
Applying these standards, and mindful that summary judgment is
appropriate only “when there is no genuine dispute over a material
fact,” we hold that the district court erred in finding/concluding
that Howell acted “willfully” for purposes of § 6672. Howell
testified that he did not have any role in JDS whatsoever during the
time in question and that he did not have any knowledge of JDS’ tax
problems. Howell’s testimony created genuine disputes of material
facts, rendering the district court’s finding/conclusion of
willfulness on the summary judgment motion improper.
IV.
Howell contends that the district court erred when it relied
heavily on inadmissible hearsay in granting summary judgment in
favor of the government. We elect not to reach this issue in view
of our holding that the district court erred in granting the
government’s motion for summary judgment on the issue of Howell’s
willfulness.
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AFFIRMED in part, REVERSED in part, and REMANDED for further
proceedings.
Entered for the Court:
James E. Barrett,
Senior United States
Circuit Judge
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