that issue first and then get to the substance of my client's argument at the at the time this started as a claim objection proceeding in a bankruptcy case at the time that claim  is a fairly significant claim in the case there are additional general unsecured claims this is the only priority claim in that bankruptcy case the trustee for whatever reason determined not to administer th assets she did hold solely for the benefit of those priority claims that's the only the only creditor that would have been paid with whatever funds she had the assets she did hold are currently residing at the at the court in idaho they have been paid into the court and it's now was it is an elastic case so i think one of the first points i'd make is that no after report from the trustee can easily be withdrawn unsecured creditors which because of the discharge is the only way that those creditors would receive anything out of the bankruptcy you're much more familiar with bankruptcy who i am obviously but explain to me why you say that the no as that finding by the trustees must be withdrawn that i don't mean it must be withdrawn i'm saying it could be withdrawn if she determines she does want to administer those funds doesn't have to be withdrawn there are some assets in the bankruptcy and she's wrong about saying that there are no essence is that which is that there were assets in the bankruptcy estate the trust i think acknowledged that she had assets but just determined not to administer those and once you on the record in the bankruptcy case or anywhere else so as the stands now that the bankruptcy is a no s in groups that as it stands right now it's listed as a no asset bank and it's more or less the bankruptcy was in this place in the bankruptcy court or in the lower courts to establish a bankrupt state as to which the claim can be can be satisfied if that's going to happen if i think that's one of the issues is i don't know that that point should the trustee decide to she could then and minister what assets she did hold for the other creditors that were in the case there were other creditors or other critters that you know were not priorities other critters other non priority creditors could what i may say that awkward lee but i don't i don't think there's a dispute between the parties to whether or not the debt is dischargeable versus nanda stardoll if it's a valid debt it's not to start he would still be liable for our position as it shouldn't a valid debt and at this point we've got two federal court opinions a bankruptcy court in the district court that say it is it is about it is valid debt and i don't think there's any dispute that at least the bankruptcy courts do says and when it would that be a bar i don't i don't think the statute of limitations has run i think they could because these are taxes from i believe two thousand and eleven was essentially limitations i think it's ten years but i'm not entirely certain so they could still pursue him and the issue mr czerny would done face at that point is he's now got to federal court decision saying those are valid days and so i think he would have incredible difficulty trying to then argue in that collection for seating these aren't test whether the failure to pay the payroll taxes was willful and that's really the second part of the test and whether mr czerny had a responsibility to make sure those payments got made really were challenging was a financial officer of the company out of an ownership interest in the entities the issue is more the relationship that the hospital which is is the entity that we're talking about had with its lenders and the control that those lenders had over what monies the hospital could spend at the time that these taxes were incurred that the i r s was assessing there was  really two separate lenders clearwater and millennium in the picture there was a security agreement that had been granted to millennium that gave them a security interest in virtually everything that florence hospital on and clearwater then was acting on behalf of millennium collecting all of the receivables that would come in went to clearwater proceed or practically what would happen is fourth hospital would craft a list of look here's what we need to pay this week they send that to clearwater clearwater says well we'll prove the certain things and here's money to pay those things the lists that were provided always included payroll taxes the approvals that were made almost always did not include payroll taxes didn't your client make a recommendation that the rule taxes not be paid there is in the record one emo where he made that recommendation but in that case the payroll taxes were actually paid the ones related to what that e mail was see seems to indicate that he had some say he was a participant in the process of explaining to clearwater why they needed these payments to be made but the decision on what funds would be released by clearwater to florence was always made exclusively by clearwater he was there mr attorney was there to advise them to discuss what what needed to be paid and why but there never was a case where clearwater provided funds to the hospital to pay payroll taxes that the hospital then chose to use to pay for something else they just weren't paid the funds by clearwater to pay those taxes you know the  going ok's recognize look it's trust fund that's why we call these trust fund taxes once the party collects the fund star holding them in trust for the government our position is florence hospital and churning never collected those funds they never held them in trust clearwater did but the way the cases are i hope i don't quite understand then how could that possibly be clearwater at all the fun hospital was paying young i don't see how you can say that they were in trust to the to the credit to the was the millennium or wherever the other creditor water clear water if under the original i'm saying that clearwater held the funds is because because they did all of the income all the receivables went to clearwater and then clearwater would then distribute the taxes or the taxes we see will the funds to be used to pay the taxes always came from receive a bills it's all that the hospital had as far as income well plus a loan from clearwater while at that point clearwater was wasn't loaning new funds they were they were turning the funds that came in came from insurance companies that all went directly to clearwater through the hospital to clearwater through clearwater to the hospital to me i see that the insurance companies as the records show that the insurance companies are paying patient being clearwater not the hospital director kind of an interesting scenario not ups what clearwater needed in order to continue to help funding the hospital and that's the only way they could keep the hospital open i think that fact the fact that it's a hospital is something that sometimes gets lost to the i r s would have mr czerny simply quit or choose to use the funds they did have to pay the hospital bills you know the  utility bills the patient treatment that sort of thing rather than using them for those you need to use them to pay the payroll taxes so would you say is that the cash never was in hospital hands which would be hands went to clue one or the cash went to clearwater there was cash that clearwater would then authorize be paid to the hospital but only for these certain things to be  paid and so for the hospital then to take the cash would have been authorized for those payments and use them for something else one practically wasn't possible because of the fact that it's a hospital they need to keep the doors open they need to keep the patients being treated and number two it then would breach the agreement that they had with clearwater which really gets to the second point whether there was an encumbrance over those funds our position is that there was the creditor was the one who was holding the phones creditor had a security interest in all those funds the message that's been sent to creditors is hey if you want to control the sanity that's fine we're not going to impose any sort of liability on you for doing that and that's what we think needs to change there needs to be a recognition that once the creditors steps in and actively controls that company that person is the one now controlling and and responsible for those payroll taxes if they're going to be going against clearwater thank you good morning may it please the court i'm rachel it's are representing the happily the united states the courts well correctly how mr attorney was a responsible person who willfully failed to pay the trust fund taxes  florence hospital and was therefore liable for the trust and recovery penalties against assessed against him pursuant to six six seven is what was who do you disagree with as the relation of facts as to who had actual the critical thing here is that any time money regardless of where receivables or insurance payments or patient payments were going into the company and the time money was paid out of the company it was paid from florence hospital accounts and once the money hit those accounts that became florence hospital funds and they had to go to the taxes the trust fund taxes on any failure on mr chinese part not to pay those funds any fun of florence hospital would you think would have happened if own in january of one year phones that were deposited with instructions from clearwater as to who to pay had been disregarded by florence hospital and they'd paid you instead in some other  responsibility is a matter of significant control that is all that is required not exclusive control not final control not final three just significant control and status duty and authority so mr czerny's attorney said they don't dispute that he has satisfied the checklist of all the items that you normally look to in determining your your honor he did have authority and he wasn't just an accountant or a bookkeeper he was an officer he had an ownership stake in the company he loaned personal funds to the company he had the status duty and authority now  had some relationship with florence hospital but it was florence hospital corporation and if mr mr truly was an officer would you please  state for me the title of his office ok so mr czerny was the c f o of initiatives health care and initiatives health care was the majority member of health care of florence and the manager of florence hospital all right so there was a chain saw and yes the second majority member sounds to me like an l l c correct not a corporation right and the majority michelin's was a  majority member of florence which was the soffit l l c so therefore it's not quite accurate to say that mr truman he was an officer of a corporation florence hospital was not a corporation neither was new she was a little c ok so does that make a difference where the reason officer or not no your honor because as a practical matter an initiative how health care was the manager of florence hospital and therefore has his function as a c f o was sufficient to give him control he hired the c f o of florence hospital he may maybe i've got this wrong but i heard mr christensen say that as a practical matter if mr truly didn't follow clearwater's instructions as to who to pay he wouldn't get no money the next month authority and his responsibility in this position within the company did he have significant in the way he got the cash he delegated to the bank he participated he didn't say i refuse to participate in this arrangement that's true i'm going to quit i can't do this if i participate in this arrangement and allow clearwater to tell me not to pay payroll taxes i will be liable he did not do that so and  cases are clear the brad shot case and the cow case discussed in our brief on page thirty are clear that if an officer participates in an arrangement that gives banks prior approval of dispersemen they are responsible and here i gathered that he seemed to acknowledge that what you're just saying but their argument was well these funds are encumbered ok he's arguing both he did i mean really the real heart of their argument i thought was more the these funds were encumbered and there's just nothing he could do correct your honor and that goes to the question of well fullness and it's very important to focus on the underlying principles of w because a responsible person is considered willful as a matter of law when he permits funds of the corporation to be paid to other creditors when he is aware that trust fund taxes have not been paid so we should just quit well that it that was one option or he could have he could have consulted with the other principals of the company and decided whether to file for bankruptcy or try to find another lender or suspend operations because any money coming into the company from any source must be paid to satisfy current and accrued trust fund taxes clearwater cannot override the the word of congress sixty six seventy two which i think you the suggestions made maybe you should be soon clear water well your honor clearwater could be held liable under sixty six seven two however the iris has the right to go after any and all of those responsible so if there are if there is a c f o or a president or even a lender that has control and that did  willfully fail to pay then the iris can go after all three any and any of that want anyone so just because clearwater may have some culpability here doesn't mean that mr cherney does not and a very important point here going back to the idea that these trust fund taxes are supposed to be held in trust so once you pa wages without remitting the trust fund taxes that is constitutes willfulness as a matter of law and this is clearly stated in this court's opinion in sorenson which is discussed in our brief on page available funds between the trust fund taxes and the employee's wages so in other words if you only have a certain amount to pay the wages and you don't have enough to pay the wages and the taxes then you reduce the wages and then use the the i'm left over amount to pay the trust fund taxes the church czerny's conduct in allowing the payment of net wages constituted willfulness as a matter of law and mr  has articulated this court in a condo has articulated a very detailed standard for this doctrine where the taxpayer is legally obligated the funds are encumbered only where the taxpayer is legally obligated to use the funds for a purpose other than satisfying the preexisting employment tax liability and if that legal obligation is superior to the the payment of the funds to another purpose rather than payment of the trust in their taxes that's the only possibility well the court in the sixth circuit and bell did specifically adopt that standard that that a contractual restriction would not be sufficient the court and this is a contractual restriction excluded from the state from the us we would argue it is  statutory language in the text of the stand of sixty six seventy two no your honor the unencumbered funds doctrine is not in the statutory language so if we focus just on the language then there wouldn't be an exception and it wouldn't benefit the taxpayers this is a way for it's basically a limitation on the taxpayers liability it most frequently comes into play were responsible officer becomes responsible and will fall after the taxes have already accrued and so therefore there is a giudici use unencumbered funds to satisfy the that's why the word preexisting employment tax liability is in there because you're talking about taxes that have already accrued well here mr czerny was responsible and willful the whole time throughout the hope period he was the one who participated in the decision and actually paid for that wages without paying the taxes from the time that the taxes are crude so that is why the test is not satisfied and it doesn't really even apply in this context but in terms of the the argument that contractual restrictions can not satisfy the test although in a condo involved statute so it didn't address specifically the issue of contractual restrictions bell the bell case which is cited in that condo clearly held that a lockbox arrangement with the bank did not render company funds and cumbered were no statute ordinance prevented payment of the taxes any other rule would encourage failing businesses continue to contract away their obligations to pay their trust fund taxes so here churn should have again shut down the company this bears on well fullness suspended operations resigned filed for bankruptcy or reputed aided their arrangement with clear water rather than pay the taxes in addition when you look at it when you break this down i believe that mr cherney is relying on the informal arrangement with clearwater as well as the security agreement with millennium funding that they seek to add to the record in  their motion to supplement the record the clearwater arrangement they admit was an informal on written arrangement well this this arrangement can hardly be said to be even legally enforceable so there wouldn't be  millennium funding debtor has shown no extraordinary circumstances justifying being inclusion of the millennium funding agreement in the record and i would also like to add that the agreement in fact the relationship between the no asset asset characterization and i would just add that there is money sitting in the ridge through the court your honor i'm not aware of exactly what sitting in the registry of the court so i deferring to the debtors counsel on that but i would say that regarding the court specific question about movements there does remain a lot of controversy between the government and the debtors about whether mr turner is liable for these taxes and there would be practical consequences to the ruling ok you're leaving me up in the air what's your position as to the movements because because of the of finding by the trustee that there's no assets in this particular bankrupt estate no your honor the case is not moot because when you look at the broad question of motor ness in the justice ability factor you're looking at the personal stake of the parties and the and the outcome and here the debtors clearly have a personal stake and  early by going into a bankruptcy estate and getting paid out of that one week we couldn't do it while you were brought into the bankruptcy he filed the claim on your behalf yes he did your honor thank you for pointing that out yes and also we couldn't file a suit during the bankruptcy  few a minute or two for rebuttal and i'll try to take all of it well it's not necessary i just a couple of quick points your honor i think in response to some of the argument from the i r s first with regard to delegating significant control i think it's important to point out that mr cherney was not part of the decision to to grant clearwater the ability to dictate what was being paid in fact he objected to that and once he learned about it what the decision on the agreement had already been made by the c e o of the company r s also seemed to recognize that they could potentially go after clearwater as a responsible party i think the problem with that is that would require recognition that clearwater was a responsible party that had control and if clearwater had control then czerny couldn't have had control so it's it's one or the other lastly with regard to the contractual restrictions being a form of encumbrance the reference to bell case that didn't recognize contractual restrictions i would simply reference the honey case the did recognize contractual restrictions so long as the creditor was actually taking steps to control what was happening with the funds and on that all rational search for question thank you th