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Hartung v State of Alaska Dept. of Labor (4/27/01) sp-5399
Hartung v State of Alaska Dept. of Labor (4/27/01) sp-5399
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
STEVEN L. HARTUNG, )
) Supreme Court No. S-8352
Appellant, )
) Superior Court No.
v. ) 3AN-96-7907 CI
)
STATE OF ALASKA, ) O P I N I O N
DEPARTMENT OF LABOR, )
TOM CASHEN, Commissioner, ) [No. 5399 - April 27, 2001]
)
Appellee. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Sigurd E. Murphy, Judge pro tem.
Appearances: Stephan H. Williams, Anchorage,
for Appellant. Susan L. Daniels, Assistant Attorney General,
Anchorage, and Bruce M. Botelho, Attorney General, Juneau, for
Appellee.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
FABE, Justice.
CARPENETI, Justice, with whom MATTHEWS, Chief
Justice, joins, dissenting.
I. INTRODUCTION
Alaska law allows the state, under certain circumstances,
to collect a corporation's unpaid unemployment taxes from the
officers of the delinquent corporation. A corporate officer is
liable for all payments that become due during a period in which
the officer is in a position to behave strategically and effectuate
the payments. But where bankruptcy intervenes and removes the
corporate officer's power to make the required payments on behalf
of the corporation, that officer is not liable for payments that
become due during the post-petition period and that the officer
could not make because of bankruptcy.
II. FACTS AND PROCEEDINGS
MarkAir was an air carrier serving Alaska and the West
with hubs in Anchorage and Denver. Steven Hartung was MarkAir's
chief financial officer during the period relevant to this appeal.
Pursuant to the Alaska Employment Security Act (the
AESA), [Fn. 1] MarkAir accrued $135,026 in unemployment insurance
taxes owed during the first quarter of 1995 (January 1 through
March 31). Of this amount, MarkAir withheld $26,578 from its
employees' wages. The $108,438 remainder was MarkAir's employer
contribution.
MarkAir filed a bankruptcy petition in federal court on
April 14, 1995, shortly after the end of the first quarter of the
year. Accordingly, all of MarkAir's "cash collateral" was subject
to a security interest in favor of Seattle First National Bank
(SeaFirst) after April 14. [Fn. 2] As a result, MarkAir could no
longer disburse any funds without SeaFirst's permission.
During a meeting that took place in the period between
April 14 and April 28, Hartung and other corporate officers learned
that the first quarter taxes had not been paid. This discovery
occurred while they were preparing a budget detailing the cash
disbursements they thought MarkAir should make. Their proposed
budget, which was subject to SeaFirst's approval, included $216,200
in "payroll taxes." Hartung testified that this budget item likely
included the $135,026 in unemployment taxes at issue here.
SeaFirst categorically refused to consider any pre-
petition payments or obligations. This refusal was reflected in
the bankruptcy court's April 28 order (apparently drafted by
SeaFirst). The order allowed MarkAir to pay certain business
expenses, but specifically excluded payment of "any pre-petition
debts, including but not limited to state or federal excise,
withholding or other tax obligations, except as expressly
authorized by the Bankruptcy Court."
Because SeaFirst did not allow MarkAir to pay these tax
obligations, the taxes remained unpaid. When the state did not
receive MarkAir's scheduled tax payment, it attempted to recover
this debt by filing a "proof of claim" in MarkAir's bankruptcy
action. Additionally, the Alaska Employment Service issued a
notice of assessment against Hartung on October 25, 1995, stating
that the Department of Labor had determined that Hartung was
"responsible to pay" the $135,026.
Hartung appealed the assessment, but the Department of
Labor upheld it after a hearing. Hartung then appealed the
Department's decision to the superior court. Hartung filed this
appeal after the superior court affirmed the Department's decision.
III. DISCUSSION
A. Standard Of Review
In this case, the superior court sat as an appellate
court reviewing the administrative decision of the Department of
Labor. [Fn. 3] In such cases, we independently review the merits
of the administrative determination. [Fn. 4]
This case requires us to interpret the statutory language
of AS 23.20.240. We have stated that "[t]he interpretation of a
statute presents a question of law." [Fn. 5] We review questions
of law that do not involve agency expertise under the substitution
of judgment test. [Fn. 6] When interpreting a statute we "adopt
the rule of law that is most persuasive in light of precedent,
reason, and policy." [Fn. 7]
B. Because Bankruptcy Removed Hartung's Power to Compel
Payments, He Is Not Liable for MarkAir's Unpaid Taxes Which Became
Due in the Post-Petition Period.
When a corporation liable for unemployment taxes becomes
delinquent, the state may institute collection proceedings under AS
23.20.240. That statute both establishes the collection procedure
and broadly defines the persons or entities against whom it may be
used:
(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.
. . . .
(f) In this section, "employer" as defined in
AS 23.20.520 also 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.
The statute provides for collection from persons other
than the delinquent corporation itself. By defining the term
"employer" to include certain officers and employees of a
corporation, AS 23.20.240(f) allows the state to seek delinquent
taxes from those individuals in the corporation who, as a condition
of their position, are "under a duty to pay the contributions as
required by (a) of this section."
In Breck v. State, Department of Labor, we interpreted
the scope of AS 23.20.240 in a consolidated appeal of two
collection actions by the state against the officers of two
corporations. [Fn. 8] In those actions, the state sought to
collect unpaid unemployment insurance taxes from the officers of
two corporations that had failed to pay their respective
unemployment taxes. [Fn. 9] We addressed the circumstances under
which corporate officers could properly be held liable for the
entire amount of their corporations' unemployment taxes. We held
in Breck 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." [Fn. 10]
In this case, MarkAir's bankruptcy filing intervened
before the taxes became due and before Hartung received notice of
default. By the time the taxes became due, the bankruptcy had
removed Hartung from being in a position, as CFO, to see that
MarkAir paid taxes it owed out of its corporate assets. Because
SeaFirst controlled the dispensation of all of MarkAir's assets,
and MarkAir could not use any corporate assets to pay debts or
obligations without SeaFirst's consent, Hartung no longer had the
power to compel MarkAir to pay its tax liability from these assets.
Thus, to the extent that Hartung did not have authority to direct
MarkAir to pay the taxes it owed, he did not meet the second
requirement of the Breck test and may not be held liable for
MarkAir's unemployment taxes.
The conclusion we reach here rests on a narrow exception
to officer liability and should not be construed to absolve
corporate officers from liability whenever those officers lack the
power to cure a default. We hold today that a corporate officer is
not liable for payments that become due during the post-petition
period and which bankruptcy prevents the officer from effectuating.
But the corporate officer is still liable for all payments that
become due during a period in which the officer is in a position to
behave strategically. Thus, when the officer is in a position to
see that the corporation pays its taxes but fails to do so, that
officer is liable for those particular obligations. And if the
corporate officer fails to compel payments prior to the bankruptcy
petition even though he is in a position to do so, he cannot escape
personal liability for those pre-petition obligations.
In other words, if the officer exhausts corporate funds
during the pre-petition period and fails to effect payment of the
withholding taxes, that officer is liable for those obligations
even if bankruptcy subsequently prevents payment. But the
corporate officer is not liable for payments that become due after
the corporation has filed for bankruptcy, and for which bankruptcy
law prohibits payment. [Fn. 11]
Thus, courts should examine whether the corporate officer
has compelled payments during the period in which the officer was
capable of doing so. The corporate officer is not liable for
obligations that become due during the post-petition period and for
which the bankruptcy court prohibits payment. But the corporate
officer is liable for obligations that become due during the pre-
petition period which the officer is in a position to effectuate,
regardless of whether bankruptcy later prevents the officer from
compelling payment.
Applying these standards here, we conclude that Hartung
is not personally liable for the $108,438 portion of unemployment
insurance taxes that represented MarkAir's employer contribution
for the first quarter of 1995. The employer contributions would
have to be paid out of corporate assets, they became due during the
post-petition period, and the bankruptcy court had prohibited such
payments without SeaFirst's express authorization. By the time
MarkAir's taxes became due, then, Hartung was not in a position to
see that the employer contributions were paid.
But the same conclusion does not necessarily hold true
for the $26,578 portion of taxes representing employee
contributions. Alaska Statute 23.20.165(c) treats these
contributions as employee assets, not corporate assets, and
expressly exempts them from being considered as assets of the
employer in bankruptcy. It would thus seem to follow that, despite
the bankruptcy order barring unapproved payment of corporate
assets, Hartung might have remained in a position to behave
strategically to effectuate payment of the employee contributions.
Since the Department's decision did not distinguish between
employer and employee contributions, however, and because the
parties have not adequately addressed this issue in their briefing,
we decline to decide it here. Instead, we remand the issue to the
Department for further consideration in light of this opinion.
IV. CONCLUSION
Because the bankruptcy order prevented Hartung from
compelling payment of MarkAir's first quarter 1995 unemployment
taxes after MarkAir filed for bankruptcy, and because Hartung was
not in a position to see that MarkAir paid employer contributions
that became due in the post-petition period, Hartung was not a
party against whom the tax liability for these contributions could
properly be assessed. Nevertheless, Hartung might remain liable
for employee contributions under AS 23.20.165(c); but this issue
has not been adequately addressed by the parties or the Department.
Accordingly, we REVERSE the decision of the Department of Labor and
REMAND for further proceedings consistent with this opinion.
CARPENETI, Justice, with whom MATTHEWS, Chief Justice, joins,
dissenting.
I. INTRODUCTION
The chief financial officer for MarkAir failed to pay
taxes -- representing both employee and employer contributions --
that were incurred and then withheld by the corporation on wages
earned. Because his failure occurred at a time when he had the
ability to make the payments and the law imposes liability on
individual officers in such circumstances, I would affirm the
decisions of the Department of Labor and the superior court holding
the corporate officer liable for the unpaid taxes.
II. DISCUSSION
A. As Chief Financial Officer of MarkAir, Steven Hartung Was
"Under a Duty" To Make the Payments.
Hartung argues that the state cannot collect MarkAir's
delinquent contributions from him because his position as MarkAir's
CFO did not create a "duty to pay" the taxes.
Hartung, the state, and the court properly look to our
decision in Breck v. State, Department of Labor [Fn. 1] for
guidance as to when officers may be held personally liable for a
corporation's unpaid unemployment taxes. In that consolidated
case, we crafted a two-part test to determine when personal
liability attaches under AS 23.30.240. Those corporate officers or
employees who (1) have significant control over a corporation's
finances and who (2) are in a position to see that the corporation
pays the taxes owed can be held personally liable. [Fn. 2] Because
Hartung had the power to pay the taxes and failed to do so, he
meets both prongs of the Breck test and the department's assessment
against him was proper.
1. Hartung had "significant control" over MarkAir's
finances.
The dispute today does not concern the first prong of
Breck: that Hartung, as CFO, had significant control over MarkAir's
finances. Hartung effectively conceded that he meets the first
prong of the Breck test, [Fn. 3] and the majority does not rest its
holding on this prong of Breck.
2. Hartung was "in a position to see" that MarkAir
paid the unemployment insurance taxes.
Hartung claims that despite his authority as CFO of
MarkAir he was not "in a position to see" that MarkAir paid the
taxes because he was "legally precluded" by federal law [Fn. 4] and
court order from causing MarkAir funds to be used to pay the taxes.
But Hartung neglects the period before the bankruptcy filing. The
record shows that there was a significant period -- after the taxes
became payable and before MarkAir's bankruptcy filing -- during
which Hartung could have seen to it that MarkAir paid the taxes.
Further, even assuming that the taxes were not finally
due until after the bankruptcy petition was filed (after which
MarkAir was forbidden from using its cash collateral to pay any
pre-petition debts -- including the taxes at issue here -- without
SeaFirst's permission), the state could properly hold Hartung
liable, because the statute imposes strict liability on high
corporate officers such as Hartung for their corporations' unpaid
unemployment contributions.
a. Hartung could have paid the taxes prior to
bankruptcy.
i. Employee contributions
Pursuant to the AESA, employee contributions are deducted
by the employer from employees' wages and "held in trust by the
employer for the commissioner [of labor] until the employee
contributions are required by regulation to be deposited with the
commissioner." [Fn. 5] The statute further provides that "[t]hese
funds are not subject to garnishment or attachment, and in the
event of lien, judgment, or bankruptcy proceedings are not
considered assets of the employer." [Fn. 6]
Accordingly, MarkAir was not barred by federal bankruptcy
law from contributing at least this portion of the taxes it owed
($26,578). [Fn. 7] Neither federal bankruptcy laws in general, nor
the bankruptcy court's orders in MarkAir's case in particular,
barred MarkAir from forwarding the employee contributions to the
state. Therefore Hartung -- as an employer under AS 23.20.240 --
can be held liable for MarkAir's failure to forward them.
ii. Employer contributions
While Hartung could have paid the $26,578 in employee
contributions to the state, MarkAir's required employer
contribution to the unemployment insurance fund ($108,438) remains
at issue. But the record shows that there was a significant pre-
bankruptcy period during which (1) the contributions were due and
(2) Hartung could -- in a real-world sense -- have caused MarkAir
to pay them. Because he failed to do so, his argument that it is
inequitable to hold him personally liable for the contributions is
unpersuasive. This is especially true because he was acutely aware
of the possibility that a failure to see that MarkAir paid the
contributions might result in the state holding him personally
liable.
The regulation setting forth the time when contributions
are due provides:
Contributions by employers and employees are
due and shall be paid for each calendar quarter on or before the
last day of that month which follows the calendar quarter for which
contributions have accrued.[ [Fn. 8]]
The first quarter ended -- and the last of the contributions
accrued -- on March 31, 1995. Therefore, MarkAir's contributions
were due beginning April 1 and had to be paid "on or before" April
30.
MarkAir declared bankruptcy on April 14. After that
time, the bankruptcy workout made it impossible for Hartung to
cause MarkAir to make the contributions, since SeaFirst refused to
allow such payments. However, from April 1 to April 13, Hartung
had the ability to compel MarkAir to pay the contributions which
were due. Hartung himself testified that "we did have sufficient
funds in the bank accounts to [make] the payments," and his
authority as CFO to order the payments is unquestioned. As
MarkAir's chief financial officer, Hartung had the opportunity to
behave strategically in this case: He could have directed that
payments be made during the pre-petition period when they were due
and during which time he had the power to effectuate the payments.
[Fn. 9] Or he could have declined, or neglected, to do so. Holding
him personally liable as a statutory employer is therefore not
inequitable.
This conclusion is further supported by Hartung's
awareness that he might be held personally liable for the
contributions if MarkAir did not pay them. After MarkAir's first
bankruptcy filing in 1992, he was personally assessed under an
analogous federal statute for unpaid corporate excise taxes.
Further, during the administrative hearing on his liability,
Hartung testified that he included the pre-petition unemployment
taxes in the budget he submitted to SeaFirst because "it was my
desire to avoid any possibility of this particular event
happening." The "particular event" to which Hartung referred is
the department's proceeding against him personally for MarkAir's
unemployment taxes. Therefore, it is clear that Hartung was well
aware of what personal consequences he might incur from MarkAir's
failure to pay the taxes.
Under these circumstances, Hartung was properly held
liable for MarkAir's unpaid unemployment contributions.
b. Alaska Statute 23.20.240 imposes strict
liability on responsible corporate officers.
Even assuming, as Hartung and the court do, that the
taxes were not due until April 30, Hartung can nonetheless be held
liable for MarkAir's unpaid taxes.
Hartung argues that the phrase "duty to pay" in AS
23.20.240 should be interpreted to contain a requirement that the
corporate officer or employee be found to have "willfully" failed
to make the unemployment tax payments on behalf of the corporation
before he or she can be held personally liable for them. He
analogizes to 26 U.S.C. sec. 6672(a) and argues that, as federal
courts have done under that statute, we should hold that a
"voluntary, conscious, and intentional decision by a responsible
person not to cause the corporation to pay the taxes with available
corporate funds" must be proven before the state can hold an
individual officer or employee personally liable. [Fn. 10] Hartung
contends that the superior court's decision wrongfully adopts a
"strict liability" standard: "[The superior court's] decision
wrongly views persons in corporate financial positions as
'guarantors' of the corporation's contribution payments."
The state argues that Hartung is inappropriately asking
that a "willfulness" requirement in AS 23.20.240 be inserted where
none exists. It argues that the obvious intent of the Alaska
Legislature in enacting the statute was "to provide a tool to the
Employment Security Division to aid it in collecting delinquent
taxes from corporate officers and employees by making [them]
personally liable for the corporation's tax obligation."
Under Alaska's sliding scale approach to statutory
interpretation, [Fn. 11] AS 23.20.240 holds responsible individuals
strictly liable for their failure to see that corporate taxes are
paid. The actual wording of AS 23.20.240, the expressed
legislative purpose behind it, and the relevant legislative history
support this interpretation.
Alaska Statute 23.20.240(a) does not contain any scienter
requirement. It provides:
If after notice an employer defaults in the
payment of contributions or interest, the amount due may be
collected . . . .
Subsection (f) of the statute further provides,
"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.
Hartung would infer a willfulness requirement from the terms
"notice" and "duty to pay." Neither of these terms is defined in
the definitions section of the AESA. [Fn. 12] Nor is resort to the
dictionary helpful. [Fn. 13]
The legislature, in sections entitled "purpose" and
"policy," laid out its overall goals in enacting the Alaska
Employment Security Act. The "purpose" section establishes that
the act is to be "liberally construed" to accomplish, among other
purposes, "the accumulation of reserves for the payment of
compensation to individuals with respect to their unemployment."
[Fn. 14] The "policy" section emphasizes that the public policy of
the state is to encourage accumulation of reserves to combat
serious social ills. [Fn. 15] The purpose of the statute and the
policy it is designed to effectuate favor the state's construction
of AS 23.20.240. Holding Hartung liable is a liberal construction
of the statute because it furthers the stated goals of the AESA.
This construction increases the accumulation of money in the
unemployment insurance fund and may deter other corporate officers
from failing to ensure that their corporations pay their
contributions.
Although not dispositive, the legislative history
generally supports the state's position. The committee files
contain an attached section-by-section description of the bill
drafted by the Department of Labor [Fn. 16] which states that the
section to become AS 23.20.240(f) was intended to create individual
corporate officer liability so as to avoid the loss of
contributions to the unemployment insurance program:
Under the existing law the department cannot
hold individual corporate officers liable for contributions due.
Almost $1,000,000 was declared uncollectible last year [1978]
because the department was unable to hold individual corporate
officers liable. The proposal comes from the statutes of the
Department of Revenue and will allow the unemployment insurance
program to protect its tax revenues to the same extent as the
Department of Revenue by expanding the definition of "employer" in
determining liability in cases of default in payments.[ [Fn. 17]]
Consonant with the general purpose of the AESA, this proposal
places a premium on protecting the state's unemployment insurance
fund and does not mention any limits on the department's ability to
"hold individual corporate officers liable."
Hartung also argues that the superior court
"inappropriately relied on federal cases interpreting a very
different federal income tax penalty scheme" in its decision. He
cites a United States Supreme Court decision, Slodov v. United
States, [Fn. 18] to illustrate this difference. While Hartung is
correct that 26 U.S.C. sec. 6672(a) and AS 23.20.240 differ in
important ways, this contrast in fact serves to undermine Hartung's
argument.
The Slodov court held that the federal statute does not
impose strict liability on responsible corporate officers. [Fn. 19]
In support of its holding, the Court highlighted some of the
important characteristics of the federal statute. [Fn. 20]
First, the Slodov court pointed out that "the fact that
the [federal] provision imposes a 'penalty' and is violated only by
a 'willful failure' is itself strong evidence that it was not
intended to impose liability without personal fault." [Fn. 21] The
AESA, in contrast, "is a remedial statute with the primary purpose
of ameliorating the negative effects that involuntary unemployment
has on both the unemployed individual and society as a whole." [Fn.
22] As discussed above, AS 23.20.240 does not contain an explicit
willfulness requirement. The implication of Slodov's analysis is
that the Alaska statute is properly interpreted to impose strict
liability.
The Slodov court also noted that "Congress, moreover, has
not made corporate officers personally liable for the corporation's
tax obligations generally, and sec. 6672 therefore should be
construed
in a way which respects that policy choice." [Fn. 23] In contrast,
the Alaska Legislature has chosen to make corporate officers
"personally liable for the corporation's tax obligations generally"
in AS 43.20.270(q). [Fn. 24] Thus, holding Hartung liable here
would respect the policy choice of the Alaska Legislature in this
regard.
Consistent with this view, the "notice" language in AS
23.20.240(a) should be construed to have no more than a literal
meaning. It requires that notice be given before collection
begins. That requirement applies equally to the actual employer
and to officers who have employer status because of their duty to
pay under subsection .240(f). It has no impact on this case.
The "duty to pay" language in subsection .240(f) defines
officers who are liable as if they were the actual employer.
Logically, "duty to pay" has two components. It refers first to
the responsibilities of the officer within the corporation.
Second, since an officer who is not employed by the corporation
during whatever period might be relevant should not be liable,
"duty to pay" necessarily has a time component. Breck's discussion
casts light on both of these components.
Breck speaks of the responsibility component as follows:
Liability is imposed only if the official has
a duty to pay the contributions on behalf of the corporation. . . .
[A] person's "duty" . . . 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."[ [Fn. 25]]
What the "time" component of the duty to pay requirement
consists of is also suggested by the above language. If the
officer is in a position to make payroll decisions by signing
checks or preventing checks from issuing or otherwise controlling
"the disbursement of the payroll," then the officer is liable for
the taxes associated with the particular payroll over which the
officer has responsibility.
This point is also made in other language in the Breck
opinion. In discussing both the responsibility and time components
of the duty to pay requirements, Breck fixes on the accrual date of
liability as the time from which the officer's liability is to be
measured:
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.[ [Fn. 26]]
The Breck opinion actually involved two corporations. In
discussing officer liability of the second corporation, the opinion
likewise rested on the time of accrual of the tax liability as the
temporal measure of officer liability:
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 . . . .[ [Fn. 27]]
An employer's liability accrues at each payroll when
wages are paid. [Fn. 28] Since Hartung was an officer responsible
for disbursement of the payroll at the time that the March 1995
payroll was disbursed, he satisfies both the responsibility and the
time components of the "duty to pay" language of subsection
.240(f). He therefore should be liable as an employer.
Construing officer liability to attach at the same time
that employer liability attaches seems most consistent with the
language of subsection .240(f) which equates responsible officers
with employers for purposes of imposing liability and does not
differentiate between them. Further, as indicated, this is
consistent with the legislative purpose which is to hold
responsible officers liable for tax payments that their
corporations fail to pay. By contrast, when one measures corporate
liability from accrual of tax liability -- when the payroll is paid
-- and officer liability from a later "due" date, a loophole is
created under which officers may escape liability for their
corporation's defaults. Many scenarios can be imagined under which
officers will be excused from their payment responsibilities
because of events that intervene between the accrual of liability
and the due date. One such event, voluntary bankruptcy, is
illustrated by this case. Others can include the firing or
resignation of the officer and exhaustion of funds by payments to
others, or because they are attached, or stolen. [Fn. 29]
I can see nothing in either the language or the history
of the statute that suggests that the legislature intended that a
responsible officer serving as such when a tax liability accrued
should be relieved of liability because of subsequently occurring
financial problems making payment impossible. On the contrary,
because it knew that such problems would sometimes occur, the
legislature made responsible officers liable on the same basis as
their employers.
The principle of corporate officer liability is widely
accepted in the United States. The consensus among our sister
states with statutes like AS 23.20.240 [Fn. 30] is that corporate
officers may be held personally liable for the financial
obligations of a corporation without a finding of culpability on
the individual's part. [Fn. 31] State courts have found corporate
officer liability in a variety of contexts, including unpaid
withholding and sales taxes, [Fn. 32] wages, [Fn. 33] and corporate
debt. [Fn. 34]
B. Hartung Was Not Denied Due Process.
Hartung also argues that holding him personally liable
for MarkAir's unemployment taxes violates his due process rights
because "[n]othing in [AS 23.20.240], the Department's regulations,
any prior decision of the Commissioner, or this Court's decision in
Breck, even hints that Hartung would be personally liable for
MarkAir's first quarter 1995 contribution payment when he had no
power to cause that payment to be made."
First, it is clear from the facts set out above that
Hartung did have the power during the first two weeks of April --
a time after which the entire liability had accrued -- to cause the
payment to be made.
Second, despite Hartung's considerable attention to his
lack of notice claims, the record shows that Hartung himself was
actually aware that he might be held liable if MarkAir did not pay
its taxes. He cannot now persuasively argue that he was not on
notice of the possibility that he might be held liable.
III. CONCLUSION
Alaska Statute 23.20.240 was enacted by the legislature
with the remedial goal of ensuring that the state -- and, more
importantly, involuntarily unemployed workers -- would not be
deprived of revenue because of a corporation's failure to pay its
unemployment taxes. The Alaska Legislature ensured that its
objective would be achieved by permitting the state to collect
delinquent taxes from responsible corporate officers like Hartung.
The record shows that there was a significant period
after the taxes came due during which Hartung was in a position to
see that MarkAir paid the taxes. He failed to do so. Even
assuming that Hartung was prohibited by MarkAir's creditors from
paying the taxes, AS 23.20.240 lacks an explicit scienter
requirement, and Hartung does not convincingly argue that such a
requirement should be read into the statute. Therefore, even if
MarkAir was prevented from paying the taxes by its bankruptcy,
Hartung cannot escape liability. This result does not deprive
Hartung of due process, because he was on actual notice that he
might be held liable if MarkAir failed to meet its tax obligations.
Accordingly, I would affirm the decision of the superior
court which upheld the department's assessment against Hartung.
FOOTNOTES
Footnote 1:
AS 23.20.005-.535.
Footnote 2:
Although MarkAir had previously filed for protection under
federal bankruptcy law in 1992, it appears that this earlier
bankruptcy did not affect MarkAir's ability to pay the taxes at
issue in this case.
Footnote 3:
See AS 23.20.220(c), .445.
Footnote 4:
See Bruner v. Petersen, 944 P.2d 43, 47 n.5 (Alaska 1997)
(citing Handley v. State, Dep't of Revenue, 838 P.2d 1231, 1233
(Alaska 1992)).
Footnote 5:
Gossman v. Greatland Directional Drilling, Inc., 973 P.2d 93,
95 (Alaska 1999) (citing Aetna Cas. & Sur. Co. v. Marion Equip.
Co., 894 P.2d 664, 666 (Alaska 1995)).
Footnote 6:
See Boyd v. State, Dep't of Commerce & Econ. Dev., Div. of
Occupational Licensing, 977 P.2d 113, 115 (Alaska 1999) (citing
Nyberg v. University of Alaska, 954 P.2d 1376, 1378 (Alaska 1998)).
Footnote 7:
Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).
Footnote 8:
862 P.2d 854 (Alaska 1993).
Footnote 9:
See id. at 855-56.
Footnote 10:
Id. at 857.
Footnote 11:
See accord, Belcufine v. Aloe, 112 F.3d 633, 634-35, 640 (3d
Cir. 1997) (where bankruptcy workout prevented corporate managers
from having discretion over payment of benefits, they could not be
held liable for not making payments because liability applies "in
only those contexts in which the managers have room to behave
strategically").
FOOTNOTES (Dissent)
Footnote 1:
862 P.2d 854 (Alaska 1993).
Footnote 2:
Id. at 857.
Footnote 3:
In his reply brief, Hartung stated, "[Appellee] seeks to
emphasize the fact that appellant . . . , while he was MarkAir's
'chief financial officer,' had substantial authority with respect
to certain aspects of MarkAir's financial affairs. Hartung has not
disputed that fact." Accordingly, this element of the Breck test
is established. "In the civil arena, a party-defendant is commonly
permitted to concede the existence of an element of the plaintiff's
claim; the concession removes the element from dispute." State v.
McLaughlin, 860 P.2d 1270, 1276 (Alaska App. 1993).
Footnote 4:
See 11 U.S.C. sec. 363(c)(2) (providing that "trustees" such
as
MarkAir may not "use, sell, or lease cash collateral . . . unless
-- (A) each entity that has an interest in such cash collateral
consents; or (B) the court, after notice and a hearing, authorizes
such use, sale, or lease in accordance with the provisions of this
section").
Footnote 5:
AS 23.20.165(c) (emphasis added).
Footnote 6:
Id. (emphasis added).
Footnote 7:
See Kalb v. United States, 505 F.2d 506, 509 (2d Cir. 1974)
(concluding that "withholding taxes are not simply a debt. They
are part of the wages of the employee, held by the employer in
trust for the government. In paying the taxes over to the
government the employer merely surrenders that which does not
belong to him. We know of no rule prohibiting such payments by a
petitioner under Chapter XI." (internal citation omitted)).
Footnote 8:
8 AAC 85.030(a) (emphasis added).
Footnote 9:
Hartung, as CFO, also presumably had significant input into
the decision making process regarding the making and timing of the
petition for bankruptcy.
Footnote 10:
26 U.S.C. sec. 6672(a) provides in part:
Any person required to collect, truthfully
account for, and pay over [corporate income tax] 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, shall . . . be liable to [sic]
a penalty equal to the total amount of the tax evaded, or not
collected, or not accounted for and paid over. (Emphases added.)
Footnote 11:
See Romann v. State, Dep't of Transp. and Pub. Facilities, 991
P.2d 186, 190-91 (Alaska 1999) ("We rely . . . on a sliding scale
approach even if a statute is plainly worded: [S]ince words are
necessarily inexact and ambiguity is a relative concept, we . . .
turn to the legislative history, mindful that the plainer the
language, the more convincing contrary legislative history must
be.").
Footnote 12:
See AS 23.20.520.
Footnote 13:
See Black's Law Dictionary 595, 1210-11 (rev. 4th ed. 1968).
Footnote 14:
AS 23.20.005(a).
Footnote 15:
See AS 23.20.010.
Footnote 16:
See Homer Elec. Ass'n. v. City of Kenai, 423 P.2d 285, 289
(Alaska 1967) ("it is an accepted method of determining legislative
intent to look to introductory executive messages").
Footnote 17:
1979 House Finance Committee File HB 214 (Governor's
transmittal to the Speaker of the House).
Footnote 18:
436 U.S. 238 (1978).
Footnote 19:
See id. at 254.
Footnote 20:
See id.
Footnote 21:
Id. (emphases added).
Footnote 22:
Estes v. Dep't of Labor, 625 P.2d 293, 295 (Alaska 1981)
(quoting State v. Boucher, 581 P.2d 660, 662 (Alaska 1978))
(emphasis added) (internal quotation marks and brackets omitted).
Footnote 23:
Slodov, 436 U.S. at 254.
Footnote 24:
AS 43.20.270 provides for "distraint on property" of persons
who fail to pay state corporate income taxes. Subsection (q)
provides: "In this section 'person' includes 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 perform the act
in respect of which the violation occurs."
Footnote 25:
862 P.2d at 856, 857 (quoting Godfrey v. United States, 748
F.2d 1568, 1576 (Fed. Cir. 1984)) (alterations in original).
Footnote 26:
Id. at 857 (emphasis added).
Footnote 27:
Id. (emphasis added).
Footnote 28:
Both employer and individual contributions accrue "with
respect to wages." See AS 23.20.165(a) and (b).
Footnote 29:
See for example, Laborers Combined Funds of W. Pa. v. Mattei,
518 A.2d 1296, 1301 (Pa. Super. 1986), where officers sought to
excuse their liability on the grounds that needed funds were
embezzled from their corporation. The court rejected this variant
of an impossibility defense; the officers' "corporate positions
exposed them to liability for the corporation's breach" "without
reference to any proof of culpability or scienter."
Footnote 30:
See Colo. Rev. Stat. sec.sec.8-4-101 - 8-4-102; Mich. Comp.
Laws
Ann. sec. 205.96(5) (corporate taxes); Mich. Comp. Laws Ann. sec.
205.65(2) (sales taxes); Mich. Comp. Laws Ann. sec. 206.351(5)
(withholding taxes); Minn. Stat. sec. 270.101; 43 Pa. Cons. Stat.
sec.
260.2a - 260.12; Tex. Tax Code Ann. sec. 111.016(d)(1).
Footnote 31:
See generally 3A James Solheim & Kenneth Elkins, Fletcher
Cyclopedia on the Law of Private Corporations sec. 1264, at 566 &
n.22
(rev. ed. 1994). The statutes and cases discussed involve several
kinds of taxes, including unemployment, sales, and use taxes.
However, the question of whether a responsible individual may be
held personally liable for corporate debts is independent of the
type of tax sought to be collected. Likewise, cases involving
individual corporate officers' liability for unpaid wages are
relevant as well.
Footnote 32:
See Larson v. Commissioner of Revenue, 581 N.W.2d 25, 27
(Minn. 1998) (withholding and sales taxes); Stackpoole v. Michigan
Dep't of Treasury, 486 N.W.2d 322 (Mich. App. 1992) (withholding
and sales taxes); In re Amber's Stores, Inc., 205 B.R. 828, 831
(Bankr. N.D. Tex. 1997) (sales taxes).
Footnote 33:
See Cusimano v. Metro Auto, Inc., 860 P.2d 532, 533 (Colo.
App. 1992); Mohney v. McClure, 568 A.2d 682 (Pa. Super. 1990).
Footnote 34:
See Mattei, 518 A.2d at 1297-98.
