On Appeal From the United States District Court For the District of New Jersey. D.C. Civil No. 92-cv-4443.
Before: Sloviter, Chief Judge, Hutchinson, Circuit Judge, and Diamond, District Judge*fn*
Edward M. Sullivan ("Sullivan") appeals an order of the United States District Court for the District of New Jersey granting summary judgment in favor of the United States and denying his motion for summary judgment. Specifically, the district court upheld the Internal Revenue Service's ("IRS") assessment of a 100% penalty against Sullivan pursuant to § 6672 of the Internal Revenue Code on grounds that he was a responsible person who willfully failed to pay over federal employment taxes. Because we believe that the record before us does not establish Sullivan's liability as a matter of law, we will reverse and remand for a trial on the merits.
In September 1984, Sullivan began working as president of Pat's International, Ltd. ("Pat's"), a company which operated fast food restaurants specializing in Philadelphia-style cheesesteaks. Sullivan was hired by Robert P. Carrigan ("Carrigan"), chairman of the board of directors and chief executive officer of Pat's. Pursuant to his designation as president, Sullivan was responsible for (1) assisting Carrigan in raising capital for Pat's by meeting with potential investors; (2) managing restaurant operations; and (3) locating new restaurant sites. Sullivan also was authorized to sign checks drawn from the company's payroll and general operating accounts.
In February or March 1985, Sullivan first became aware that Pat's was not current in its payment of quarterly employment taxes to the United States.*fn2 During this same time period, Sullivan loaned Pat's $20,000.00, at the request of Carrigan, so that it could pay its creditors, including the IRS. Sullivan took no steps, however, to ensure that the $20,000.00 was applied to the tax liability, even though he knew that other creditors were being paid ahead of the United States. Sullivan was removed as president of Pat's in August 1985, and left the company the following month.
In April 1989, the IRS made an assessment against Sullivan in the amount of $83,060.78 pursuant to 26 U.S.C.A. § 6672.*fn3 The IRS charged that Sullivan willfully failed to account for and pay over to the United States federal employment taxes withheld from the wages of Pat's employees during the three quarters ending March 31, 1985, June 30, 1985, and September 30, 1985.*fn4
In October 1992, the United States filed a complaint in the district court seeking to reduce to judgment the assessments that had been made against Sullivan, Carrigan, and Fendrick pursuant to § 6672.*fn5 Thereafter, Sullivan filed an answer seeking dismissal of the complaint against him for failure to state a claim upon which relief could be granted, and also filed a counterclaim seeking a refund of $100.00 paid on account of the penalty assessed against him.*fn6 Upon consideration of cross-motions for summary judgment, the district court found that "although Sullivan may not have always had the 'final' say about paying creditors, in the apocalyptic sense of the word," he was a responsible person under § 6672 because (1) he had signature authority on the payroll and general operating accounts, which he exercised at least once in making a tax payment to the IRS; (2) he was president of Pat's; (3) he devoted significant time to raising capital for the company; and (4) he loaned the company $20,000.00 to pay creditors. Further, the district court found that Sullivan willfully failed to pay over the withholding taxes because he was aware of the unpaid tax liability and that other creditors were being paid ahead of the IRS, yet failed to exercise his authority to ensure that the taxes were paid, either with the $20,000.00 that he personally loaned to Pat's or from the existing balances in the company's accounts on which he had signature authority.*fn7
The district court had jurisdiction over the parties' claims by virtue of 28 U.S.C.A. §§ 1340, 1345, and 1355 and 26 U.S.C.A. §§ 7401 and 7402. We have jurisdiction over the appeal pursuant to 28 U.S.C.A. § 1291.
In reviewing the district court's grant of summary judgment we exercise plenary review and employ the same standard applicable in the district court. Davis v. Portline Transportes Maritime, 16 F.3d 532, 536 (3d Cir. 1994). We must consider all of the facts and inferences in the light most favorable to the nonmoving party. The moving party can prevail in its motion for summary judgment only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Peters v. Delaware River Port Authority, 16 F.3d 1346, 1349 (3d Cir. 1994).
The question of Sullivan's liability under § 6672 presents two issues: whether Sullivan is a responsible person and whether he willfully failed to collect, truthfully account for or pay over federal employment taxes. As we have extensively discussed the standards for addressing these two issues before, we will only ...