FI LED U. S . COURT OF AP PE ALS E L E V E N T H C IR C U IT A U G U ST 27, 2007 T HOM AS K. KAHN CL E RK [ DO NO T P UB L I S H] I N THE UN I TE D STATE S C OU RT OF APPE ALS F O R T H E E L E V E N T H C IR C U IT

________________________ N o. 06- 15953 N on -A rgum entC al endar

________________________ D . C . D o c k e t N o s . 0 6 - 0 1 0 8 4 - C V- OR L - 1 9 - J GG 0 5 - 0 9 4 7 7 - B K- J AF I n R e : J A M E S L . P A R I S , D e b to r .

__________________________________________________________________ J A M E S L . P A R I S , P la in tif f - A p p e lla n t, v ersu s U N I T E D S T A T E S O F A M E R I C A , D e f e n d a n t- A p p e lle e .

________________________ A pp ea l fr om the U ni t ed S t at es D i stri ctC ou rt f orthe M i ddl e D i s tr i c tof F l or i da

_________________________ ( A u gu s t 27, 2007)2

B efo re B IR C H , D U B IN A an d C A RN E S , C i rcu i tJu d g es. P E R C U R I A M: Ja m es P ar i s, a debt or i n a ca se fi l ed un der C hapt er7 o f the B ankrup t cy C od e, appeal s the grantof sum m ary j ud gm entagai nsthi m i n favor of the Int ernal R e ve nue S e rvi c e i n a n a dve r s a ry pr oc e e di ng he br oughtt o de t e rm i ne the d is c h a r g ab ility o f

tru s t f u n d r e c o v e ry p e n a ltie s th a t h a d b e e n a s s e s s e d a g a in s t h im u n d er § 6 6 7 2 o f th e In t ern al R ev en u e C o d e. T h o se p en al t i es w ere assessed ag ai n st hi m a s r e s pons i bl e pe r s on w ho w i l l f ul l y f a i l e d t o pa y e m pl oy m e ntt a xe s ow e d by h i s b u si n ess. I . P a r is w a s th e o w n e r , p r e s id e n t, a n d r e g is te r e d a g e n t o f J a m e s L . P a r is F i nanci al S ervi ce , Inc. P ar i s had the autho ri ty t o h i re and fi re em pl oyee s, op en b u si n ess acco u n t s, an d d i rectp aym en to f co rp o rat e b i l l s. P ari s h i red C arm en P ari s, h is b r o th e r , to b e th e c o rp o r a tio n ’s v ic e - p r e s id e n t a n d a c c o u n ta n t, ac ap a c ity in w hi ch C arm en se rved un t i l he w as t erm i nat ed i n 2 00 2. C arm en w as an autho ri ze d ba nk s i gna t ory f

orthe c orpor a t i on a nd s i gne d i t s qua r t e r l y f e de r a l t a x r e turns f

or the pe r i ods e ndi ng i n M a r c h 2000, J une 2000, D e c e m be r2000, M a r c h 2001, J une 2001, a nd S e pt e m be r2001. P a r i s a l l e ge d tha tC a rm e n e m be z z l e d m one y f r om the co rp o rat i o n an d st o l e co m p an y reco rd s, an d , th atas a resu l to f C arm en ’ s m i sd eed s,3

Pa r i s w a s n o ta w a r e o f

th e p a y r o l l t a x d e f

i c i e n c i e s u n t i l A g e n tRi c a n , o f th e I RS, c ont a c t e d hi m on J une 8, 2002, s hor t l y a f t e rC a rm e n’ s di s m i s s a l f r om the c orpor a t i on. P a r i s a dm i tt e d tha t , a f t e rl e a rni ng of

the t a x de f

i c i e nc i e s i n J une 2002, he pa i d va r i ous e xpe ns e s , s uc h a s pa y r ol l , r e nt , s uppl i e s , a nd ut i l i t i e s i ns t e a d of p ayi n g th e t ax d efi ci en ci es. T h e IR S assessed tru stfu n d reco v ery p en al t i es ag ai n st P a r i s , pur s ua ntt o 26 U . S . C . § 6672, f orpa y r ol l t a xe s tha tw e r e w i thhe l d f r om the w a ge s of the e m pl oy e e s of

the c orpor a t i on, a nd notpa i d t o the I R S f r om J une 2000 th r o u g h D e c e m b e r2 0 0 2 . P a r i s f i l e d m ot i ons t o c om pe l di s c l os ur e of the a c tua l na m e a nd l oc a t i on of A ge ntR i c a n a nd t o c om pe l A ge ntL a w s on, the c urr e ntI R S a ge nton the c a s e , a nd C a rm e n to a tte n d d e p o s itio n s . T h e b a n k ru p tc y c o u r t h e ld ah e a r in g o n th e m o tio n s . A tthe he a r i ng P a r i s c onc e de d tha the w a s ar e s pons i bl e pe r s on unde r§ 6672, a r gue d tha tthe r e w a s aque s t i on of f a c ta s t o w he the rhe “ w i l l f ul l y ” vi ol a t e d the s ta tu te , a n d s ta te d th a t h e n e e d e d A g e n t R ic a n ’s d e p o s itio n to e s tab lis h th a t P a r is w as no taw ar e thatthe payr ol l t axes w er e notbei ng pai d. T he bank rupt cycourt d e n i e d th e mo t i o n s t o c o mp e l a n d g r a n t e ds u mma ry j u d g me n ti n f a v o ro f th e I RS o n th e is s u e s o f

liab ility a n d d is c h a r g ab ility . T h e c o u r t f o u n d th a t P a r is w illf

u lly vi ol a t e d the s t a tut e a s am a tt e rof l a w be c aus e on J une 8, 2002 he be c a m e a w a r e of the ou t st andi ng t ax l i abi l i ty and there af t erw rot e num er ou s c hecks t o o ther4

c r e d ito r s . T h e c o u rt m a d e th is f in d in g d e s p ite P a r is ’ a s s e r tio n th a t h is p a y m e n ts to o th e rc r e d ito r s r e p r e s e n te d a n e f f o r t to k e e p th e c o rp o r a tio n g o in g s o th a t h e c o u ld e ve ntua l l y pa y the t a xe s . P a r i s appe a l e d a nd the di s tr i c tc our ta f f i rm e d the b an k ru p t cy co u rt ’ s o rd er i n i t s en t i rety. II. O n app ea l t o thi s C ou rt , P ar i s f i rs tcont ends thatthe bank rupt cycourterre d b y n o t a llo w in g h im to c o m p le te d is c o v e ry b e f o r e it g r a n te d s u m m a ry ju d g m e n t. H e a r g u e s th a t, b e c au s e h e w a s u n ab le to d e p o s e th e r e le v a n t w itn e s s e s , h e c o u ld notdi s c ove rc r i t i c a l e vi de nc e tha tw oul d ha ve s a t i s f i e d hi s bur de n t o s how tha the di d n otac tw i l l ful l y. N ext , P ar i s argues thatthe on l y e vi dence thatthe IR S offe re d reg ard i n g h i s l i ab i l i ty w ere reco rd s p rep ared b y C arm en , th e em b ezzl er. T h o se re cords, ac cordi ng t o P ar i s, ov er st at ed the t ax l i abi l i ty bec ause C arm en had c onc oc t e d the r e c or ds t o c ove rup hi s e m be z z l e m e ntby i nf l a t i ng the a m ount s he h a d s u p p o s e d ly p a id to th e I R S , w h e n in r e a lity h e p o c k e te d th e m o n e y . P a r is a s s e rts th a t th e b a n k ru p tc y c o u rt s h o u ld h a v e a llo w e d h im to d e p o s e C a rm e n to d e te rm in e th e tru e e x te n t o f th e u n p a id e m p lo y m e n t ta x e s . A d d itio n a lly , P a r is a r g u e s th a t, if

h e h a d b e e n ab le to c o m p le te d is c o v e ry , h e w o u ld h a v e b e e n ab le to as ce rt ai n w hy the fr aud con t i nu ed for s o l on g w i tho utthe IR S col l ec t i ng m on ey f r om C a rm e n.5

W e r e v ie w , a s th e s e c o n d le v e l o f ap p e lla te r e v ie w o f

ab a n k ru p tc y c o u r t,

“ que s t i ons c onc e rni ng the s c ope oroppor tuni ty f ordi s c ove ry f

ora n abus e of di s c r e t i on. ” I n r e P i pe rA i r c r a f tC orp. , 362 F . 3d 736, 738 ( 11th C i r . 2004) ( in te rn a l q u o ta tio n a n d c ita tio n o m itte d ) . T h e b an k ru p tcy c o u rt d idn o t ab u se it s d iscr etio n b y d en yin g P ar is’s di s c ove ry r e que s t s be c aus e hi s pr opos e d i nqui r i e s w e r e notr e l e va ntt o the de t e rm i na t i on of

hi s t a x l i abi l i ty unde rthe r e l e va nts t a tut e a nd w oul d notha ve changed the ou t com e of the sum m ary j ud gm entdet erm i nat i on . T he di sc ov ery s oughtby P a r i s c oul d notha ve y i e l de d a ny e vi de nc e r e l e va ntt o hi s l i abi l i ty f orthe t ax debtor the di sc hargabi l i ty of the debt , the tw o i ss ues bef ore the bank rupt cy c ourton s um m a ry j udgm e nt . T he onl y e vi de nc e r e l e va ntt o the s e que s t i ons c onc e rne d e ve nt s a f

t e rJ une 8, 2002, be c aus e i ti s undi s put e d tha tP a r i s l e a rne d of the t a x l i abi l i ty on tha tda t e . A ny t e s t i m ony f r om A ge ntR i c a n, A ge ntL a w s on, or C a rm e n c o n c e rn in g P a r is ’ k n o w le d g e o f th e c o rp o r a tio n ’s f

a ilu r e to s a tis f

y its pa y r ol l t a x obl i ga t i ons be f or e J une 8, 2002 i s i rr e l e va ntt o the I R S ’ the ory of l i abi l i ty i n thi s c a s e , w hi c h hi nge s on P a r i s ’ c onduc ta f t e rhe l e a rne d of

the de bton June 8, 20 02 . N on e of the qu es t i on s P ar i s s ug gest s he w ou l d h ave a sked i f gi ven the opportuni ty t o de pos e A ge ntR i c a n, A ge ntL a w s on, orC a rm e n, r e s pond t o the I R S ’ th e o ry o f

liab ility . A c c o r d in g ly , th e b a n k ru p tc y c o u r t d id n o t ab u s e its6

di s c r e t i on by de ny i ng P a r i s the di s c ove ry he r e que s t e d. I I I . P a r is n e x t c o n te n d s th a t s u m m a ry ju d g e m e n t w a s im p r o p e rb e c au s e h e d id n o t w illf u lly v io la te § 6 6 7 2 . H e a r g u e s th a t la w s u it h e f ile da g a in s t C a rm e n in st at e c ou rt , no w an as se tof the bank rupt cyes t at e, dem on stra t es thatC arm en e m be z z l e d the f

unds tha ts houl d ha ve be e n pa i d t o the I R S a nd tha tP a r i s di d not kn ow thatthe t axes w er e notbei ng pai d. P ar i s a l so as se rt s thatthe IR S conceded th a t h e d id n o t k n o w ab o u t th e ta x liab ility u n til J u n e 8 , 2 0 0 2 . H e a r g u e s th a t h is onl y c onne c t i on t o the unpa i d t a x l i abi l i ty w a s s i gni ng tw o de l i nque ntt a x r e turns a f t e rhe r e ga i ne d c ontr ol of the c orpor a t i on. P a r i s a ddi t i ona l l y a r gue s tha t , ha d he done w ha tthe I R S a s ke d, he w oul d ha ve be e n gui l ty of s e c ur i t i e s f

r aud unde r18 U . S . C . §§ 13 41 , 13 48 , & 13 46 . F i nal l y, P ar i s s ug gest s thatthe bank rupt cycourt di d notf ul l y c ons i de rthos e s t a tut ory pr ovi s i ons orthe f a c ttha ta l l of

the c orpor a t i on’ s f

unds w e r e e nc um be r e d. W e r ev iew d e n o v o a d istrict co u rt’s o rd eraf firm in g a b an k ru p tcy c o u rt’s gr a ntof s um m a ry j udgm e nt . I n r e P i c c a di l l y C a f e t e r i a s , I nc . , 484 F . 3d 1299, 1302 ( 11th C i r . 2007) . “ L i ke adi s tr i c tc our t , aba nkrupt c y c our tm a y onl y gr a nt sum m ary j ud gm entw here there i s no g enui ne i ss ue of m at er i al fa ct . ” I n re O pt i ca l T ec hn ol og i es , Inc. , 24 6 F . 3d 13 32 , 13 34 (11th C i r. 20 01 ) ( ci t at i on om i tt ed).7

S ect i o n 6 6 7 2 p ro v i d es: A ny pers on re qu i re d t o col l ec t , truthful l y a cc ou ntfor, and p ayov er a ny t a x i m pos e d by thi s t i t l e w ho w i l l f ul l y f a i l s t o c ol l e c ts uc h t a x, or tru th f u lly a c c o u n t f

o ra n d p a y o v e rs u c h ta x , o r w i l l f u lly a tte m p ts in any m anner t o evade or defea tany s uch t ax or the paym entthere of, sh al l . . . be l i abl e t o a penal ty e qu al t o the t ot al am ou ntof the t ax evaded, or no tcol l ec t ed, or no tac coun t ed for a nd pai d o ver. 26 U . S . C . § 6672( a ) . P a r i s c onc e de s , a nd the r e c or d a m pl y s uppor t s , the pos i t i on o f th e I R S th a t h e is a“r e s p o n s ib le p e r s o n ” w ith in th e m e a n in g o f § 6 6 7 2 ( a ) . T here fore , ou r r es ol ut i on of thi s i ss ue turns on w hether P ar i s “ w i l l ful l y” vi ol at ed th e s ta tu te . W e ha ve f

ound tha tthe w i l l f

ul ne s s r e qui r e m e ntof

§ 6672 i s s a t i s f

i e d “ i f the re spon si bl e per son h as kn ow l edge of paym ent s t o o ther c re di t ors a ft erhe becom es a w a r e of the f a i l ur e t o r e m i tthe w i thhe l d t a xe s . ” T hos t e s on v. U ni t e d S t a t e s , 331 F . 3d 1294, 1300 ( 11th C i r . 2003) . T he r e i s no r e qui r e m e nttha tw i l l f ul ne s s of the r e s pons i bl e pe r s on i nc l ude af r audul e ntorothe rba d m ot i ve . I d. I n T hos t e s on the re spon si bl e party di d n otl earn un t i l m uch l at erthat , du e t o the ac t i on s of ano ther p a rty , th e c o rp o r a tio n h a d “s u b s ta n tia l o v e r d u e p a y r o ll ta x liab ilitie s .” I d . a t 1 2 9 8 . H ow ever , on ce he l earned of the del i nq uency, he cont i nu ed t o w ri t e c hecks t o o ther c r e d ito r s b e c au s e h e f

e lt th a t, if

th e b u s in e s s w a s s u c c e s s f u l, th e n th e ta x e s c o u ld be r e pa i d. I d. W e c onc l ude d tha ts uc h be ha vi orc ons t i tut e d aw i l l f ul vi ol a t i on of § 6 6 7 2 ( a ) , e x p la in in g th a t:8

E ve n i f a“ r e s p o n s i b l e ” p e r s o n i s u n a w a r e th a tw i th h o l d i n g t a x e s h a ve go ne un pai d i n p as tqu art er s, a r es po nsi bl e p er so n w ho becom es aw ar e th at t ax es h ave gone unpa i d i n pa s tqua r t e r s i n w hi c h he w a s a l s o a resp o n si b l e p erso n , i s u n d er a d u ty t o u se al l “ u n en cu m b ered fu n d s” a va i l abl e t o the co rp o ra t i on t o pa y thos e ba c k t a xe s . T hi s duty e xt e nds notonl y t o f

unds a va i l abl e t o the c orpor a t i on atthe t i m e the re spon si bl e per son b ec om es aw ar e bu t al so t o any un encum bere d fund s a cqui re d there af

t er . If the re spon si bl e per son fai l s t o u se such un encum bere d f

un ds t o s at i sf

y the past un pai d l i abi l i ty, he is d ee m ed pe r s ona l l y l i abl e f

orthe t a xe s tha tw e ntunpa i d i n the pa s tw hi l e he w a s r e s p o n s ib le . T h e r e s p o n s ib le p e r s o n d e e m e d liab le f o rth e u n p a id liab ility o f

p a s t ta x q u a rte r s is c o n s id e r e d to h a v e “w illf u lly ” f a ile d to pay ov er the t axes for tho se past qu art er s, even tho ug h h e w as u n a w a r e a t th a t tim e th a t th e ta x e s w e r e g o in g u n p a id . Id. at13 00 –0 1 (em ph as i s a dd ed) ( ci t at i on s om i tt ed). I n lig h t o f

o u rd e c is io n in T h o s te s o n , s u m m a ry ju d g m e n t w a s e n tir e ly appr opr i a t e i n thi s c a s e . P a r i s c onc e de s tha ta f t e rJ une 8, 2002 he w a s a w a r e of the u n p ai d t ax l i ab i l i ty. In h i s resp o n se t o th e IR S ’ req u estfo r ad m i ssi o n s, P ari s al so adm i tt ed thathe w rot e c hecks, draw n o n the corporat i on ’ s bank account , t o o ther c r e di t or s a f

t e rhe l e a rne d of

the t a x de bt . H e w r ot e the s e c he c ks t o c ove rva r i ous c o rp o r a te e x p e n s e s , in c lu d in g p a y r o ll, r e n t, s u p p lie s , u tilitie s , a n d le g a l b ills . P a r is a ls o s ig n e d q u a rte r ly ta x r e tu rn s f o rth e p e r io d s e n d in g in M a r c h a n d J u n e o f 2 0 0 2 . U n d e rT h o s te s o n th e s e a c tio n s e f f e c tiv e ly tr a n s f

o rm e d P a r is f

r o m ar e s p o n s ib le pers on w ho w as no tpers on al l y l i abl e i nt o a w i l l ful vi ol at or of the st atut e. Itm ay h a v e b e e n P a r is ’ s in c e r e b e lie f th a t c o n tin u in g to o p e r a te th e c o rp o r a tio n w o u ld e ve ntua l l y a l l ow hi m t o r e pa y the unpa i d t a xe s , j us ta s tha tm a y ha ve be e n the9

si n cere b el i ef o f th e resp o n si b l e p erso n i n T h o st eso n . N ev erth el ess, i ti s cl ear as a m a tte ro f la w th a t P a r is “w illf

u lly ” v io la te d § 6 6 7 2 , ju s t a s w e h e ld T h o s te s o n d id . N o fac t s thatar e m at er i al t o the § 6 67 2 i ss ue ar e i n d i sput e. W e nee d n otre ac h P ar i s’ ar gu m entthatthe corporat i on ’ s f un ds w er e encum bere d b y opera t i on of the se curi t i es l aw s bec ause he m ade pay m ent s t o o ther c r e d ito r s w ith m o n e y th a t w a s p r e s u m ab ly u n e n c u m b e r e d . A n y p a y m e n t to cred i t o rs o th er th an th e IR S , o n ce P ari s w as aw are o f th e u n p ai d t ax l i ab i l i ty, c ons t i tut e d aw i l l f

ul vi ol a t i on of

the § 6672. I d. E ve n a s s um i ng tha ts om e of the c orpor a t i on’ s f

unds c oul d notbe pa i d t o a ny c r e di t or , i nc l udi ng the I R S , w i thout runni ng a f

oul of the s e c ur i t i e s l a w s , P a r i s ’ a r gum e nttha tthe c orpor a t i on “ ha d no u n en cu m b ered fu n d s” aft er Ju n e 2 0 0 2 i s n o tsu p p o rt ed b y th e reco rd . P ari s ch o se t o pa y othe rc r e di t or s of the c orpor a t i on i ns t e a d of the I R S . U nl e s s P a r i s ’ pos i t i on is th a t p a y in g o th e rc r e d ito r s a ls o v io la te d s e c u r itie s la w s , w h ic h it ap p a r e n tly is n o t, h is a r g u m e n t th a t h e h a d n o u n e n c u m b e r e d f u n d s is w ith o u t m e r it. AF F I RME D.