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Breck v. Dept. of Labor, Employment Security Div. (11/5/93), 862 P 2d 854
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring typographical or other formal
errors to the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska 99501, in order
that corrections may be made prior to permanent
publication.
THE SUPREME COURT OF THE STATE OF ALASKA
WILLIAM H. BRECK, )
)
Appellant, )
) Supreme Court
v. ) File No. S-4947
)
STATE OF ALASKA, DEPARTMENT OF )
LABOR, EMPLOYMENT SECURITY ) Superior Court
DIVISION, ) File No. 3AN 90 8096 CI
)
Appellee. )
________________________________)
STATE OF ALASKA, DEPARTMENT OF )
LABOR, EMPLOYMENT SECURITY )
DIVISION, ) Supreme Court
) File No. S-5065
Petitioner, )
) Superior Court
v. ) File No. 3AN 88 2832 CI
)
BIG EDDIES, INC., EDGAR K. )
OAKES, FRANCIS A. WEST, MICHAEL ) O P I N I O N
L. SMITH, )
)
Respondents. ) [No. 4020 - November 5, 1993]
________________________________)
Appeal in File No. S-4947 from the Superior
Court of the State of Alaska, Third Judicial
District, Anchorage,
Karl Johnstone, Judge.
Appearances: William H. Breck, pro se,
Vallejo, California, for Appellant. Julia T.
Coster, Assistant Attorney General,
Anchorage, Charles E. Cole, Attorney
General, Juneau, for Appellee.
Petition for Hearing in File No. S-5065 from
the Superior Court of the State of Alaska,
Third Judicial District, Anchorage, Mark C.
Rowland, Judge, on petition for review from
the District Court, William K. Fuld, Judge.
Appearances: Julia T. Coster, Assistant
Attorney General, Anchorage, Charles E. Cole,
Attorney General, Juneau, for Petitioner.
Thomas J. Yerbich, Anchorage, for
Respondents.
Before: Moore, Chief Justice, Rabinowitz,
Burke, Matthews and Compton, Justices.
BURKE, Justice.
I. INTRODUCTION
In these consolidated cases we hold that corporate officers
who exercise significant control over a corporation's
finances may be held personally liable for the entire
contribution owed by the corporation under the Alaska
Employment Security Act. II. FACTS AND PROCEEDINGS
A. Breck v. State, Case No. S-4947
Financial Planning Associates, Inc. ("Financial Planning")
failed to pay its employment security taxes for the third
quarter of 1984. The Employment Security Division (ESD)
sent Financial Planning a notice of assessment in January
1985 for taxes due. Financial Planning neither appealed nor
paid the late taxes.
In August 1989, the ESD sent a notice of assessment to
William Breck, who was the president, chief executive
officer, and principal shareholder of Financial Planning
during the period of delinquency. Breck appealed to the
Commissioner of the Department of Labor, who affirmed the
assessment. The superior court affirmed the Commissioner's
decision. Breck appeals.
B. State v. Big Eddies, Case No. S-5065
Big Eddies, Inc., (Big Eddies) was a restaurant located in
Wasilla, Alaska. Big Eddies was delinquent in paying
employment security taxes from the first quarter of 1986
through the third quarter of 1987. Big Eddies is indebted
to ESD in the total amount of $25,346.12.1
Edgar Oakes was the president, director and 81% owner of Big
Eddies during the period of delinquency. Oakes signed four
of Big Eddies' six quarterly tax reports. These reports
were filed with the ESD without payment of the taxes due.
The ESD brought an action against Big Eddies and Oakes to
recover the delinquent contributions, plus interest and
penalties under the Alaska Employment Security Act. AS
23.20. The district court held that Oakes was liable only
for $2,031.86, the employee portion of the contributions.
After the superior court affirmed, ESD filed a petition for
hearing, which we granted.
III.DISCUSSION
Under the Alaska Employment Security Act, AS 23.20.,
employers are required to pay the State of Alaska employment
security contributions based on the wages paid to their
employees. AS 23.20.165. Employees pay a portion of the
contributions through withholdings that are taken from their
wages by their employers. AS 23.20.165(c). Employers also
pay a portion of the contributions. AS 23.20.165(a).
Employers are required to make quarterly contributions to
the ESD and file quarterly contribution reports. 8 Alaska
Administrative Code 85.030.
The collections section of the Employment Security Act
provides in part:
(a) If after notice an employer
defaults in the payment of contribution or
interest, the amount due may be collected by
a person authorized by law and authorized by
the department, by civil action in the name
of the State, or by both methods. . . . An
employer who is liable shall pay the cost of
the collection, including collection fees
charged and the costs of legal action.
. . .
(f) In this section, "employer". . .
includes, but is not limited to, an officer
or employee of a corporation or a member or
employee of a partnership who, as an officer,
employee, or member, is under a duty to pay
the contributions as required by (a) of this
section.
AS 23.20.240. By their plain language, these subsections hold
corporate officers and employees personally liable for the
entire contribution due so long as their responsibilities
include making certain that the taxes are paid by the
corporation. Contrary to the district court's
interpretation in Big Eddies, AS 23.20.240 contains no
language from which it could reasonably be inferred that the
ESD may only collect the employee portion of the tax from
corporate officers or employees. The statute does not
differentiate between the employer and employee portions of
the contribution. Rather, it clearly and unambiguously
empowers the ESD to collect the entire "amount due"from the
responsible corporate officers and employees.
Alaska Statute 23.20.240(f) is not overly broad in that it
does not impose liability on every officer or employee of a
corporation. Liability is imposed only if the official has
a duty to pay the contributions on behalf of the
corporation. Federal courts, construing federal statutes
which similarly impose personal liability on corporate
officers,2 have extended liability to those officers "who
are so connected with a corporation as to have the
responsibility and authority to avoid the default which
constitutes a violation." White v. United States, 372 F.2d
513, 516 (Ct. Cl. 1967).
As the case law makes abundantly clear,
a person's "duty"under [26 U.S.C.] 6672
must be viewed in light of his [or her] power
to compel or prohibit the allocation of
corporate funds. It is a test of substance,
not form. Thus, where a person has authority
to sign checks of the corporation . . . or to
prevent their issuance by denying a necessary
signature . . . or where the person controls
the disbursement of the payroll . . . or
controls the voting stock of the corporation
. . . he [or she] will generally be held
"responsible."
Godfrey v. United States, 748 F.2d 1568, 1576 (Fed. Cir. 1984).
The key to liability is "significant control or authority
over an enterprise's finances or general decision-making."
Ruth v. United States, 823 F.2d 1091, 1094 (7th Cir. 1987).
We find this reasoning persuasive and hold that personal
liability will attach under AS 23.20.240 only to those
corporate officers or employees who have significant control
over a corporation's finances and who are in a position to
see that the corporation pays the taxes owed. Both
litigants before us now satisfy this test. Breck was the
president, chief executive officer, and principal
shareholder of Financial Planning when the taxes accrued.
He had control of and responsibility for corporate
accounting and was charged with responsibility for the
proper use and application of corporate funds. Finally,
Breck was the corporate officer responsible for submitting
reports to the ESD. Given these facts, we conclude that
Breck had significant control over Financial Planning's
finances and is, therefore, personally liable for its unpaid
employment security contributions.3
Oakes was the president, director, and majority shareholder
of Big Eddies during the time the taxes accrued. Oakes was
a signatory on the corporate bank account and made direct
payments to creditors. Oakes also signed four of the six
quarterly tax reports filed by Big Eddies that went unpaid.
Given these undisputed facts, we hold as a matter of law
that Oakes had significant control over Big Eddies' finances
and was responsible for insuring that these taxes were paid.
In other words, Oakes was "under a duty" to pay the
contributions for the corporation and failed to do so.
Thus, pursuant to AS 23.20.240, Oakes is personally liable
for the entire unpaid employment security obligation owed by
Big Eddies.
V. CONCLUSION
We AFFIRM the superior court's decision in Case
No. S-4947. We REVERSE the district court's decision in Case
No. S-5065 and VACATE the attorney's fees award.
_______________________________
1. Unpaid contributions amount to $15,560.54. Interest
due for the period of delinquency is $8,196.15.
Additionally, $1,589.43 is due for penalties.
2. 26 U.S.C. 6672(a) imposes personal liability on
[a]ny person required to collect,
thoroughly account for, and pay over any tax
imposed by this title who willfully fails to
collect such tax, or truthfully account for
and pay over such tax, or willfully attempts
in any manner to evade or defeat any such tax
or the payment thereof. . . .
Section 6671(b) defines "person"as
an officer or employee of a corporation,
or a member or employee of a partnership, who
as such officer, employee, or member is under
a duty to perform the act in respect of which
the violation occurs.
3. Breck argues that he was under no duty to pay the
contributions because he was no longer employed by Financial
Planning when the corporation went into default liquidation.
This argument was not presented at the administrative
hearing, the superior court, or in Breck's statement of
points on appeal. We will, therefore, not consider it here.
See L.L.M. v. P.M., 745 P.2d 599 (Alaska 1987).
Breck also argues that AS 23.20.240(f) is void for vagueness
and susceptible to arbitrary enforcement, and that the ESD's
application of AS 23.20.240(a) and (f) to Breck violated his
state and federal due process rights. We consider these
arguments to be without merit.
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