Court Opinion

ID: 9592300
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:12:46.15794+00
Date Added: 2024-06-11T09:17:59.667351
License: Public Domain

*279Smith, Judge,
dissenting.
I respectfully dissent. In Georgia, an indemnity clause must be strictly construed against the indemnitee. See, e.g., DeKalb County v. Lenowitz, 218 Ga. App. 884, 889 (4) (463 SE2d 539) (1995); McMichael v. Robinson, 162 Ga. App. 67, 69 (2) (290 SE2d 168) (1982). Here, the indemnity clause in the settlement agreement required D’Eramo to indemnify Lostocco “from and against any liability for federal taxes arising out of PLI and its operations.” It did not expressly require indemnification for the assessment of a penalty. The assessment against Lostocco, even though it may have been “assessed and collected like tax,” was an assessment against Lostocco personally of a penalty under 26 USC § 6672. Liability under this statute “may be imposed only upon (1) a responsible person, who has (2) willfully failed to perform a duty to collect, account, or pay over the taxes. [Cits.]” George v. United States, 819 F2d 1008, 1011 (11th Cir. 1987).
While Lostocco argues that the penalty was, in fact, a tax, I do not agree. First, the Code itself identifies liability under § 6672 as a penalty. 26 USC § 6672 (a). Also, I find persuasive the federal authority relied on by the trial court and by D’Eramo for the proposition that § 6672 is penal in character. See, e.g., Stallard v. United States, 12 F3d 489, 493 (5th Cir. 1994) (distinguishing penalty under § 6672 from liability on employer to remit trust fund taxes); Rebelle v. United States, 588 FSupp. 49, 51 (M.D. La. 1984); United States v. Amerson, 808 FSupp. 695, 696 (W.D. Mo. 1992). United States v. Sotelo, 436 U. S. 268 (98 SC 1795, 56 LE2d 275) (1978) is not controlling on this issue. In quoting this case, the majority omits an essential phrase. The Court in Sotelo stated, in relevant part,
The funds here involved were unquestionably “taxes” at the time they were “collected or withheld from others.” . . . That the funds due are referred to as a “penalty” when the Government later seeks to recover them does not alter their essential character as taxes for purposes of the Bankruptcy Act, at least in a case in which, as here, the § 6672 liability is predicated on a failure to pay over, rather than a failure initially to collect, the taxes.
(Emphasis supplied.) Id. at 275.
As argued by D’Eramo, Sotelo is distinguished from this case. There, the “responsible person” filed bankruptcy and attempted to avoid liability under § 6672 by arguing that the penalty was dis-chargeable. Id. at 272. The Supreme Court rejected this argument and concluded that for purposes of the Bankruptcy Act, the penalty would be treated as a tax. The issue here is not dischargeability or *280nondischargeability under the Bankruptcy Act but instead involves construction of indemnity language in a contract. And as discussed above, the contract language in this case requires indemnification for tax liability, not for penalties. Given the general rule that contracts of indemnity must be strictly construed against the indemnitee, the trial court correctly granted summary judgment in favor of D’Eramo and denied summary judgment to Lostocco.
Moreover, the trial court’s ruling was correct on public policy grounds. The trial court concluded that the settlement agreement could not be construed to include indemnification for assessment of penalties under § 6672 “because such a construction would violate public policy and frustrate the IRS’ intent in pursuing plaintiff and not defendant for collection of the funds at issue.” As stated in Cook v. United States, 765 FSupp. 217 (M.D. Pa. 1991), the statute at issue here
has been construed by several courts as penal in nature. Thus, to allow parties to recover from other responsible persons would greatly hinder the deterrent purpose of the statute. Without the possibility that any one of several responsible persons might be held solely accountable for a penalty imposed without benefit of contribution, little incentive would exist for anyone to act in accordance with the law by coming forward sua sponte to pay or account for the taxes in question.
(Citation and punctuation omitted.) Id. at 219-220. Moreover,
when a person willfully acts and has a penalty assessed pursuant to section 6672, that person should not and must not have that liability for the penalty shared or placed wholly on another because of some contractual or fiduciary duty. The sound policy reasons against allowing a right of contribution or indemnity to someone who has willfully, consciously, and intentionally acted must and do apply under the facts of this case. The high penalty, and the omission by Congress of such a statutory right of contribution or indemnity, are intended to deter such willful conduct. It is for the Congress and not the courts to formulate a common law right of contribution when a penalty is assessed under section 6672.
Rebelle, supra at 52. See also Amerson, supra at 69.
Finally, I note that Lostocco did not contest or otherwise appeal the findings implicit in the decision by the IRS to assess a penalty under § 6672: that he was a responsible person and that he acted willfully. He consequently waived any right to seek indemnification *281from D’Eramo. See generally GAF Corp. v. Tolar Constr., 246 Ga. 411, 412 (271 SE2d 811) (1980) (indemnification unavailable where party seeking indemnification had valid defense but failed to assert it).
Decided May 26, 1999.
Raiford, Dixon & Thackston, Tyler C. Dixon, for appellant.
Weiner, Yancey, Dempsey & Diggs, Beryl H. Weiner, Thomas C. Dempsey, for appellee.
I am authorized to state that Chief Judge Johnson joins in this dissent.