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March 17, 1997

NATHAN UNGER, Plaintiff, against UNITED STATES OF AMERICA, Defendant.

The opinion of the court was delivered by: KNAPP


 This action by Nathan Unger ("Unger") for the refund of taxes illegally assessed and collected has its origins back in 1984 when the company by which he was employed, Robert Landau Associates, Inc. ("RLA"), went bankrupt without having remitted to the Internal Revenue Service ("IRS") a total of $ 1,046,376.30 it had withheld from its employees during the first three quarters of 1984 ("the tax period"). In 1987, the IRS, having determined that Unger was a responsible person as defined in 26 U.S.C. Section 6672 ("Section 6672"), made an assessment against him for the entire sum of $ 1,046,376.30, and actually seized all his available assets totalling $ 20,500. In addition, Unger paid an administrative fee of $ 500 which was required for filing a claim for refund. In January of 1990, Unger instituted this action. The Government responded with an answer seeking to dismiss the Complaint and a counter-claim seeking to reduce to judgment the IRS' $ 1,046,376.30 assessment.

 In April of 1993, after three years of discovery, the Government made a motion for summary judgment. Believing ourselves to be constrained by the Second Circuit decision in Hochstein v. United States (2d Cir. 1990) 900 F.2d 543, cert. denied (1992) 504 U.S. 985, 112 S. Ct. 2967, 119 L. Ed. 2d 587 (hereinafter "Hochstein "), we granted the Government's motion. Eight months later, the Second Circuit announced its decision in United States v. Rem (2d Cir. 1994) 38 F.3d 634 (hereinafter the "Rem decision"). Realizing that the Rem decision demonstrated that we had been in error, we suggested to Unger that he make a motion to reconsider our order granting the Government's motion for summary judgment. We granted his subsequent motion and ordered that the matter be put down for trial. On December 19, 1996, a jury returned a verdict against Unger. His motion to set aside that verdict is now before us.


 The three years of discovery leading up to the Government's motion for summary judgment produced evidence which revealed that Robert Landau ("Landau"), RLA's president and sole-stockholder, founded the company in 1975. With the exception of a short period from when he sold his controlling interest in RLA to another company until 1979 when he repurchased it, Landau was RLA's sole owner and controlled every aspect of its activities. In March of 1978 Landau hired Unger to work at RLA. Unger was 22 years old and had just graduated from college with a bachelors degree in accounting and had never held a full-time job. Landau hired Unger as an assistant to the controller and fixed his salary at approximately $ 10,000 annually. Unger remained employed at RLA until he resigned in December 1984. During his six and one-half years of employment at RLA, Landau several times changed Unger's duties. Sometime near the end of 1983, Landau directed that RLA's then Senior Vice President and Chief Financial Officer, Nicholas Gilles ("Gilles"), be replaced by Unger; and fixed Unger's salary at $ 100,000. Government Exhibits D, E and S substantially describe the powers Landau then conferred upon Unger.

 These powers -- so far as the record indicates -- were in no way modified throughout the tax period. These documents indicate that Unger was one of three people at RLA with the technical authority to review and approve all agreements (Ex. D and S) and individually sign checks (Ex. E). No documentary evidence offered either by Unger or the Government gives any indication of how Unger used these powers.

 From the parts of Unger's pre-trial deposition that he and the Government offered on the motion for summary judgment it appears that Unger's position during the tax period involved overseeing the accounting and administrative functions of RLA, reporting directly to Landau. Within these functions, Unger's duties included dealing with creditors, preparing weekly or bi-weekly lists of accounts payable -- including any taxes which were due -- for review with Landau, writing checks to cover payments designated by Landau and signing employee payroll checks after review with Landau. With respect to Unger's authority to hire and fire employees, he exercised this authority only when directed by Landau. Similarly, Unger signed leases and other agreements on behalf of RLA when directed by Landau.

 It is undisputed that during the tax period RLA did indeed fail to remit the withheld taxes. With respect to the resulting liability, Unger was informed by an outside RLA accountant that he could be assessed a personal penalty for the unremitted funds. His response to this was repeatedly to urge that the taxes be remitted, but Landau specifically refused to let him do so. At Landau's direction Unger continued to pay other creditors.

 Examination of all the evidence before us on the motion for summary judgment -- whether offered by Unger or by the Government -- does not disclose a single instance where it could be said that Unger signed any check or took any action in circumstances where he was not confident that he was acting in accord with Landau's expressed wishes.

 Unger's position with respect to the foregoing has been consistent. It was simply stated in his original claim for refund to the IRS (Ex. A to his Complaint in this action):

[Unger] was not a stockholder of Robert Landau Associates, Inc. and not permitted to exercise discretion with respect to whom corporate disbursements should be made or in what amount. Such discretion was exercised solely by the sole-stockholder and corporate principal, Robert Landau, from whom [he] took direction.

 When we were considering the motion for summary judgment we were convinced that logic and the demands of justice supported Unger's position. However, the Government persuaded us that Hochstein required a holding that if corporate records purported to give Unger authority to draw appropriate checks to the IRS he was a "responsible person" regardless of what the true facts might have been. We accordingly granted the Government's motion for summary judgment. In the hope that an appeal from our order might result in a modification of the Circuit's views, we observed (1994 WL 52574 at *6):

Unger was twenty-eight years old when the tax delinquency occurred. Since then he has been stripped of all his assets (including a life insurance policy) and is faced with an undischargable debt of more than one million dollars. So far as we can determine, the only course open to him is to migrate to some more civilized country and try to start life over again. It is difficult to understand how a rational government could so treat its own citizen. It certainly could not do so to a prisoner of war. Were we sitting in a circuit where the question was open, we would adopt as our own now Chief Judge Jon O. Newman's eloquent dissent in Hochstein. 900 F.2d at 550. Unhappily, we do not have that option.


 As we have noted, the Court of Appeals announced the Rem decision about eight months after our ruling. The facts in that case were in many ways similar to those now before us. A corporation known as Princeton Industries Inc. ("Princeton") had gone bankrupt at a time when some five hundred and fifty thousand dollars of withheld taxes had not been remitted to the IRS. The question before the Court was whether the district court -- in reliance upon Hochstein -- had properly granted the Government's motion for summary judgment upholding an IRS assessment for the full amount against one Gerard Rem (hereinafter "Gerard"), a Princeton employee, officer, stockholder and director. The Court of Appeals reversed the grant of summary judgment on the ground, among others, that there existed a factual question of whether or not Gerard had been a responsible person as defined by Section 6672(a).

 With respect to that question, Gerard did not dispute the existence of many facts which cumulatively -- or even separately -- would seem to suggest that he had indeed been such a responsible person. Princeton had been organized by Gerard's father who for most of its existence had been its sole stockholder. Due to illness and other considerations, the father had divested himself of his stock, assigning most of it (along with control of the Company) to his wife. At some point, Gerard made an investment in the Company, acquiring 20% ownership. Gerard had some checkwriting authority and at different times had various official titles signifying authority, including that of President. As President he had executed the petition which placed the Company in bankruptcy. However, pointing to affidavits and deposition testimony, Gerard claimed there was evidence suggesting that, regardless of appearances, other members of his family in fact controlled the Company and had assigned to him limited duties which did not include the payment of taxes. He further pointed to evidence which would suggest that his mother actually exercised complete control of the Company on the family's behalf; and that, having determined to defer payment to the IRS until certain insurance claims had been resolved, she had specifically forbidden remittance of withheld taxes. The Court ruled that the existence of such possibilities was sufficient to defeat the Government's motion for summary judgment.

 Two opinions accompanied the Court's decision. The main opinion was authored by Judge KEARSE with the silent acquiescence of Judge PIERCE. Judge LEVAL filed a concurring opinion.

 In a preliminary explanation of Section 6672(a)'s definition of a responsible person, Judge KEARSE in her opinion observes (at p. 642) "the determinative question is whether the individual has significant control over the enterprises finances" (inner quotes and citations omitted, emphasis in original). Further,

No single factor is dispositive in evaluating whether the individual had significant control; that determination must be made in light of ...

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