Revised November 24, 1999
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
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No. 98-41190
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MICHAEL P. LOGAL,
Plaintiff-Counter Defendant-Appellant,
VERSUS
UNITED STATES OF AMERICA,
Defendant-Counter Claimant-Appellee.
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Appeal from the United States District Court
for the Eastern District of Texas
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November 22, 1999
Before POLITZ, DAVIS, and STEWART, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Michael P. Logal appeals from a district court judgment
against him under 26 U.S.C. § 6672 for failure to pay the Internal
Revenue Service amounts due in employee withholding taxes and
penalties. Logal challenges: (i) the jury’s determination that he
was a “responsible person” for all three tax quarters at issue and
“willful” for the second quarter of 1994, (ii) the district court’s
failure to instruct the jury on his reasonable cause defense to §
6672, and (iii) the district court’s entry of judgment as a matter
of law in favor of the government for the last quarter of 1993 and
the first quarter of 1994. For the reasons that follow, we affirm.
I.
Logal was president, CEO and one of five directors of Meridien
Specialty Personnel Services, Inc. (“Meridien”), a corporation in
the business of providing temporary employees to other businesses.
Logal was entitled to twenty percent of Meridien’s stock, title to
which he had placed in his wife’s name. He was the only director
with experience in the personnel business, and as such was
generally responsible for running and developing the business. He
was the only officer compensated by Meridien for his services and
he was its highest paid employee.
In the same year that Meridien was formed, GL Management
Associates, Inc. (“GL”) was formed by two of Meridien’s other
directors. In 1993, Meriden’s Board of Directors put GL in charge
of Meridien’s accounting through Meridien’s Ft. Lauderdale office,
while Logal maintained control of operations of the Dallas office.
As a result, Logal became less involved in financial matters and
more involved in business development, including negotiating
contracts and hiring and firing employees. However, Logal
maintained authority to sign checks without a co-signer.
In December 1993 or January 1994, Logal became aware that
employment taxes had not been paid to the government, although they
had been withheld from employee wages. He nevertheless continued
to sign payroll checks to himself and others. He also claimed a
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tax credit for taxes withheld from his wages, although he knew they
had not been paid to the government.
In May 1994, Logal entered into an installment agreement with
the IRS on behalf of Meridien to pay $45,000 per month for
delinquent taxes for the last three quarters of 1993 and the first
quarter of 1994. Logal contends that because Fred Miller (another
Meridien director) diverted Meridien funds, Logal was unable to
make the installment payments as agreed.
The IRS assessed $103,130.33 against Logal under § 6672 for
the unpaid withholding taxes. Logal sued to recover $1,901.92 in
payments made on that assessment. The IRS counterclaimed for the
unpaid balance of $106,230.30 (including accrued interest). At the
close of evidence at trial, the government moved for Judgment as a
Matter of Law under Fed.R.Civ.P.50(a), asserting that Logal’s
substantial status, duties and authority in the corporation
established that he was a responsible person, as a matter of law,
and that his payment of other creditors (including his own salary)
while aware of the unpaid taxes established willfulness as a matter
of law. The district court denied the motion, but indicated that
it would reconsider the government’s motion post-verdict. The jury
then returned its verdict and found that Logal was a responsible
person for all quarters at issue (the fourth quarter of 1993 and
the first two quarters of 1994) and that he willfully failed to pay
taxes for the second quarter of 1994. The jury also found his
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actions not to be wilful for the earlier two quarters. The
government renewed its motion for Judgment as a Matter of Law with
respect to the last quarter of 1993 and the first quarter of 1994.
The district court granted the motion and rendered judgment against
Logal under § 6672 for all three quarters. This appeal followed.
II.
Logal first challenges the jury’s determination that he was a
“responsible person” under 26 U.S.C. § 6672 of the Internal Revenue
Code for the fourth quarter of 1993 and the first and second
quarters of 1994 (all quarters at issue), and that he was “willful”
under § 6672 for the second quarter of 1994. He contends that the
government produced insufficient evidence for the jury to make
these findings.
A.
Because Logal failed to move for judgment as a matter of law
under Fed.R.Civ.P. 50(a) at the conclusion of all the evidence, he
waived his right to file a post-verdict Rule 50(b) motion and his
right to challenge the sufficiency of evidence on appeal. U. S. v.
Flintco, Inc., 143 F.3d 955, 960 (5th Cir. 1998). Thus, this
Court’s inquiry on appeal is limited to “whether there was any
evidence to support the jury’s verdict, irrespective of its
sufficiency, or whether plain error was committed which, if not
noticed, would result in a ‘manifest miscarriage of justice.’”
Coughlin v. Capitol Cement Co., 571 F.2d 290, 297 (5th Cir.
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1978)(citing American Lease Plans, Inc. v. Houghton Construction
Co., 492 F.2d 34, 35 (5th Cir. 1974)).
B.
Logal contends that he was not a “responsible person” because
he was under the control of Meridien’s Board of Directors, lacked
actual control of Meridien’s finances, and was unable to pay the
taxes due. He argues that he was president and CEO in name only.
This circuit takes a broad view of who is a responsible person
under § 6672. Barnett v. Internal Revenue Service, 988 F.2d 1449,
1454 (5th Cir. 1993), cert. denied 510 U.S. 990, 114 S.Ct. 546
(1993). This “serves a valuable prophylactic purpose: it
encourages officers, directors, and other high-level employees to
stay abreast of the company’s withholding and payment of employee’s
taxes.” Id. at 1457. Six factors to consider in determining
whether someone is a “responsible person” are whether that person:
(i) is an officer or member of the board of directors; (ii)
owns a substantial amount of stock in the company; (iii)
manages the day-to-day operations of the business; (iv) has
the authority to hire or fire employees; (v) makes decisions
as to the disbursement of funds and payment of creditors; and
(vi) possesses the authority to sign company checks.
Id. at 1455. The jury was entitled to find that Logal satisfied
all of these factors. The evidence is more than ample to support
the jury verdict that Logal was a responsible person under § 6672.
C.
Logal also challenges the jury’s finding that he was “willful”
under § 6672 for the second quarter of 1994. Despite his check
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writing authority, he contends that he was not willful because he
lacked the authority to pay the taxes and that he had “reasonable
cause” for failure to pay the taxes. He argues that Miller had
assured him that the unpaid taxes would be paid and that once he
learned that they were not, he negotiated the installment agreement
with the IRS. He contends that Miller’s misuse of the funds
prevented him from complying with the agreement. Further, he
argues that funds deposited in the payroll account were not
available to pay taxes because checks had already been written on
the funds for employee salaries.
A responsible person is liable under § 6672 only if his
failure to pay the withholding taxes is willful. Barnett, 988 F.2d
at 1457. A responsible person acts willfully if he knows the taxes
are due but uses corporate funds to pay other creditors, Barnett,
988 F.2d at 1457; Gustin v. U.S., 876 F.2d 485, 492 (5th Cir. 1989),
or if he recklessly disregards the risk that the taxes may not be
remitted to the government. Gustin, 876 at 492. A responsible
person who learns of the underpayment of taxes must use later-
acquired unencumbered funds to pay the taxes; failure to do so
constitutes willfulness. Barnett, 988 F.2d at 1458. Funds are
“encumbered” for this purpose only if they are subject to
restrictions imposed by a creditor with an interest superior to the
IRS that preclude the taxpayer from using the funds to pay the
taxes. Barnett, 988 F.2d at 1458.
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Between March and July 1994, after Logal knew that the
withholding taxes had not been paid, deposits totaling over
$450,000 were made into Meridien’s accounts in Dallas. However,
Logal used these funds to pay other creditors, including his wages
and the wages of other employees. These later acquired funds were
not “encumbered” under § 6672; thus Logal was required to use them
to pay the delinquent withholding taxes. His failure to do so
makes him a willful violator of § 6672 and he cannot escape
liability by shifting the blame to others. There is more than
enough evidence to support the jury’s verdict.
III.
Logal next challenges the district court’s failure to instruct
the jury on his reasonable cause defense. He asserts that Miller’s
misuse of Meridien’s funds prevented him from complying with the
installment agreement and, if accepted by the jury, this could
constitute reasonable cause for not paying the taxes. Thus, he
contends that the court’s failure to charge on his defense requires
us to vacate the portion of the judgment predicated on the jury’s
finding of willful failure to pay taxes for the second quarter of
1994.
We have consistently held that the reasonable cause defense to
a § 6672 action is exceedingly limited. In Bowen v. U.S., 836 F.2d
965, 968 (5th Cir. 1988), we stated that “[a]lthough we have
recognized conceptually that a reasonable cause may militate
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against a finding of willfulness, no taxpayer has yet carried that
pail up the hill.” See also Newsome v. U.S., 431 F.2d 742, 747 (5th
Cir. 1970). No such defense may be asserted by a responsible
person who knew that the withholding taxes were due, but who made
a conscious decision to use corporate funds to pay creditors other
than the government. Newsome, 431 F.2d at 747 n. 11; Frazier v.
U.S., 304 F.2d 528, 530 (5th Cir. 1962).
Here, Logal consciously decided to make payments to creditors
other than the government even though he knew that the withholding
taxes had not been paid. The facts Logal relied on were not
sufficient to support a reasonable cause defense. Thus, the
district court committed no error in refusing to instruct on this
defense.
IV.
Finally, Logal challenges the district court’s determination
that Logal’s failure to remit withheld taxes for the last quarter
of 1993 and the first quarter of 1994 was willful as a matter of
law. He argues that the government’s motion at the close of
evidence varied from its post-verdict motion for judgment as a
matter of law which precluded the court from granting the
government’s motion. Logal argues in effect that the government’s
first motion was deficient because it did not urge the court to
determine that Meridien’s after acquired funds were unencumbered
and available to pay the withheld taxes.
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This Court reviews a district court’s grant of a post-verdict
judgment as a matter of law de novo, viewing the evidence in the
light most favorable to the nonmovant. U.S. v. $9,041,598.68, 163
F.3d 238, 248 (5th Cir. 1998); Garcia v. Woman’s Hospital of Texas,
97 F.3d 810, 812 (5th Cir. 1996). Federal Rule of Civil Procedure
Rule 50(a)(2) requires a motion for judgment as a matter of law to
“specify the judgment sought and the law and the facts on which the
moving party is entitled to the judgment.” This allows the
responding party to correct any deficiencies in the evidence. 1991
Advisory Committee Notes to Fed.R.Civ.P. 50, Subdivision (a).
The government’s two motions were substantially the same.
Both asserted that the evidence established Logal’s responsibility
and willfulness, as a matter of law, for all three quarters. The
evidence at trial established that after Logal learned of the
unpaid taxes, Meridien received more than enough money to pay the
taxes in full. Logal’s use of those funds to pay other creditors
when he knew that delinquent taxes were owed to the IRS for all
three quarters establishes his willfulness, as a matter of law, for
all three quarters. See Barnett, 988 F.2d at 1457; Howard v. U.S.,
711 F.2d 729, 735-36 (5th Cir. 1983); Mazo, 591 F.2d at 1157.
In addition, the taxpayer, not the government, had the burden
of proving at trial that the later acquired funds were encumbered.
Barnett, 988 F.2d at 1458. Logal failed to satisfy that burden.
Logal also argues that the IRS waived any theory regarding
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unencumbered funds by entering into the installment agreement with
Meridien. Logal presented no evidence that the IRS waived any
rights by entering into the settlement agreement, which Meridien
breached. We find no error in the district court’s order granting
judgment as a matter of law.
V.
For the above reasons, we AFFIRM the judgment of the district
court.
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