The opinion of the court was delivered by: BIUNNO
This case was tried before the court without a jury on a number of days between criminal jury trials as calendar conditions permitted.
The findings of fact and conclusions of law required by Rule 52(a), F.R.Civ.P., appear in this opinion as allowed by that Rule.
The factual background in this case is not in serious dispute. The litigation ensues from disputes about some detail facts, about inferences and interpretations from the facts as found, and from the law applicable thereto.
Over the period from 1959 on, Mr. Campagna occasionally was ill to an extent that required his hospitalization. In these instances, a long-time friend and business associate, one John Costello, would step in to supervise and continue work then in progress until Mr. Campagna was able to return.
Mr. Campagna maintained his office in space provided to him within the Mautner-Glick offices. Whether he was charged for rent, telephone and other office expense, or whether these were provided without charge in view of the convenience of having him readily available to Mautner-Glick did not appear at trial.
In the latter part of 1971, Mr. Campagna fell ill again and was hospitalized. Again, John Costello stepped in to cover the work. On November 9, 1971, Mr. Campagna died unexpectedly. He died without a will, and his widow, Jeanne Campagna was appointed as the administratrix of his estate.
At his death, there were evidently six building projects that Mr. Campagna had under contract or under way for Mautner-Glick. Two of these, at 204-206 East 25th Street, were in initial stages, and another was hardly begun. The other three were well along. These were at 505 East 83rd Street, 521 East 88th Street, and 448 East 79th Street.
The working arrangements between Mautner-Glick and Mr. Campagna during his lifetime were evidently quite informal. As each project arose, an agreement was made for Campagna to perform specified work at some lump sum figure. These agreements were usually oral and without formal documentation. The practice shown was that Campagna would gather the various work crews and buy materials, and Mautner-Glick would provide funds by advance as "progress payments". Insofar as labor costs were concerned, it is quite clear that Mr. Campagna received funds sufficient to cover the gross wages, and he undertook to make the necessary deductions for withholding tax, F.I.C.A. tax and the like, pay the workmen their net pay, and then file returns for the withholdings with the aid of an accountant, with remittances accordingly. There is no suggestion that for any quarter before his death in November, 1971, Mr. Campagna was at any time deficient in reporting and remitting withholdings on income tax, withholdings on F.I.C.A. tax, or payments of the employer's share of F.I.C.A. taxes, not to mention state or federal unemployment taxes, or the like. The dispute arises only in respect to the final quarter of 1971 (during which Mr. Campagna died), and the first and second quarters of 1972 (by the end of which the subject projects were completed).
Having died without a will, there was no way in which Mr. Campagna's estate could undertake, as an estate, to carry on his business. When a self-employed individual like Mr. Campagna dies with a will, it is not uncommon to include provisions authorizing the personal representative to continue the business at least long enough to carry out existing commitments and preserve the "going business" value as an asset that might be sold to avoid its erosion to zero, or to a minus figure, deriving net earnings meanwhile. Having died without a will, this commonly made authorization simply did not exist.
In any event, it is clear and not in dispute that the renovation contracts in existence with Mautner-Glick at Mr. Campagna's death were potential estate assets or potential liabilities. From the testimony and the reasonable inferences therefrom, it is clear that the widow regarded these contracts as potential assets and wanted to see them completed.
There were discussions between Mrs. Campagna and Mautner-Glick after Mr. Campagna's death, in regard to the outstanding projects. How many discussions there were, or when they took place, is only vaguely reflected in the testimony. That which is not in dispute are two major items: one, the newly-begun project at 204-206 East 25th Street was disposed of by what amounted to a sale of the contract to DiJon Construction for a lump sum paid to Mrs. Campagna; two, a written "Memorandum of Understanding", drafted by or for Mautner-Glick, was executed by it and Mrs. Campagna under date of November 16, 1971, covering an arrangement to continue and complete the work on the three projects in an advanced stage. The record is not clear on how the other building project was handled.
IRS Form 941 is a tax form required to be filed quarterly by employers required to withhold federal income taxes, or F.I.C.A. taxes or both, the return being due by the end of the calendar month following each calendar quarter. This appears from the instructions on IRS Form 941 as well as in the more detailed Circular E, "Employer's Tax Guide", which are judicially noticed.
There are also requirements for the deposit, with an authorized financial institution or a Federal Reserve Bank, of the amount of tax withholdings and of the F.I.C.A. tax assessed against both the employee (deducted from gross pay) and the employer. The requirement for deposit payments depends on whether the aggregate of those taxes reaches specified amounts. Thus, if the total tax at the end of a quarter is less than $ 200., no deposits need be made and the tax is to be paid along with the IRS Form 941. On the other hand, if the tax for a given month is $ 200 or more (but less than $ 2,000) for the first or second month of any quarter, then a deposit must be made, with IRS Form 501, within 15 days of the end of that month. Finally, if the taxes for any quarter-month (weekly) period are $ 2,000. or more, then the deposit must be made within 3 business days after the end of the period.
The IRS Form 941 is designed to reflect the tax liability for each quarter-month (week) and for each month, as well as the dates and amounts of each deposit, for each calendar quarter. The undeposited tax for the quarter should not be more than $ 200. if the required deposits were made.
As is well known, once an employer files his first return on IRS Form 941, the return form is automatically mailed to him by IRS for succeeding quarters unless appropriate indication is made on the return for a given quarter that it is a final return, or that there has been a change of ownership, or the like. It is also known that the returns mailed each quarter to listed employers carry a preprinted label with the employer's name, address and employer's identification number (EIN). This same information is required to be entered on the W-2 and W-3 forms, as well as on 1099's and the reconciling 1096.
Despite the lack of basic data in the evidential record on this score, it is beyond dispute that IRS Form 941 for the 4th quarter of 1971 was prepared by an accountant for Mrs. Campagna, who then signed the return with her deceased husband's name, and filed it with the taxes which that return showed were due. The record is not clear on who prepared the returns for the 1st and 2nd Quarters of 1972. Mrs. Campagna signed them. Mautner-Glick declined to provide checks to pay the taxes, and they were filed without payment.
So far as the disputes between Mrs. Campagna and the United States are concerned, this course of conduct is strong evidence that Mrs. Campagna was somehow continuing her deceased husband's business, albeit in informal and irregular fashion, either in her capacity as administratrix of the estate, or as a beneficiary of it. In the statutory sense of the Internal Revenue Code, this evidence supports the contention of the United States that she was an "employer", although in her deceased husband's name, and was accordingly liable for the ensuing taxes, interest and the like, reduced by the payments subsequently made.
Taken all together, the evidence of the arrangements and working details between Mrs. Campagna and Mautner-Glick arising out of the "Memorandum of Understanding" of November 18, 1971 does not overcome this conclusion. The IRS Form 941 carries a large, boldface caption "Employer's Quarterly Federal Tax Return". The ID block calls for name, address and "employer identification number". The report lines are itemized for reporting total wages and other compensation, income tax withheld, a calculation of the FICA tax, and so on. The final item calls for entering "FINAL" if the person reporting is not liable for returns in the future, and the instructions referred to on the same line call for an attached statement, when there is a sale or transfer of the business, of pertinent information. The form is replete with "employer" status, and it was signed and filed not once, but three times, using the name of Mr. Campagna who his widow surely knew was dead, and not using the name of Mautner-Glick.
Whatever Mrs. Campagna's experience or lack of it may have been, the inferences from the circumstances point much too strongly against her contention vis-a-vis the United States. Each return involved some kind of communication with the accountant, an execution of the form with "employer" sticking out all over it, and a filing. It strains credulity to contend that she was not an employer in the statutory sense, even though she was acting in the name of her deceased husband in an undefined capacity.
The next aspect deals with the claims as between Mrs. Campagna and Mautner-Glick. The findings and conclusions as between Mrs. Campagna and the United States are not controlling on these issues, which require evaluation from an entirely different perspective.
As briefly noted above, Mautner-Glick was in the real estate business, serving two primary functions. It owned itself (or through subsidiaries) parcels of real estate for investment, for its own account, and managed them (collecting rent and paying taxes, repairs, insurance and other expenses). It also served as managing agent for real estate held by others for investment. In at least some instances, and certainly for the real estate involved in this suit, its services began with the physical renovation of old buildings that were structurally sound, stripping them to structural members and installing new heating, plumbing, electrical and air-conditioning equipment, carpentry, kitchen and bathroom fixtures and appliances, replastering, painting and other finishes to make the unit ready for occupancy on a turn-key basis. It would then rent the units and manage the investment for the owners, as it did for its own real estate, collecting rents and paying expenses.
In a number of these outside ownership projects, individual principals of Mautner-Glick, such as Mr. Mautner or Mr. Glick or others had a share of the investment along with outside investors.
This part of the case focuses on the renovation work, and the function of Dominick Campagna during his lifetime, as well as that of his widow after his death.
The association between Mautner-Glick and Mr. Campagna went back some 10 or 12 years before his death on November 9, 1971, having begun at the request of his older brother who was in the same line of work.
It was testified that Mr. Campagna's function was to perform the work to be done by him, and to supervise the work of other trades that he did not do. He was to be paid a total sum for the work he undertook to do and for the supervision or coordination, which sum was agreed on in advance. Mautner-Glick paid the outside suppliers or contractors directly, in addition to the sum to be paid to Campagna (see Tr. 7/7/78, p. 115, 1.1. 7-22).
The outside trades paid by Mautner-Glick over and above the Campagna contract sum, were identified as electric, plumbing (and heating), electric fixtures, kitchen fixtures, air conditioners and air conditioner sleeves, and painting, see Tr. 7/7/78, p. 115, 1. 11 to p. 117, 1. 16; p. 118, 1.1. 13-17), although he supervised that work as part of his contract.
Thus, aside from the details and miscellaneous disputes in the record, the underlying framework appears to be that Mr. Campagna would agree to supervise or coordinate all the trades and work involved in renovation or reconstruction, undertake performance of some aspects of the work himself, and with his own work crews, all for some agreed total; but with Mautner-Glick itself paying the cost of trades he did not perform but merely supervised or coordinated.
The contracts with Mr. Campagna were oral, except for the one for 204-206 E. 25th St. (which was assigned to DiJon Construction); that one was a written contract with Mr. Campagna because there was a "strange" (outside Mautner-Glick?) partner.
During the 10-12 year period that Mr. Campagna did work on oral contracts with Mautner-Glick, there were not any progress payments made on any scheduled basis as is common in construction contracts, such as an amount or percentage as various natural stages of the work are completed, with a percentage retained until the end. Instead, there were simply requests (evidently oral) from Mr. Campagna for $ X in a particular lump sum, un-itemized and without detail to indicate what it was for, and Mautner-Glick would issue a check. Alvin Glick testified that he visited the project sites regularly and so was familiar with the progress. After his death, Mautner-Glick established a ledger captioned "Advances for D. Campagna", using a printed form evidently designed for reports to "OWNER", in the name of "GE-Management Mortgages", possibly a separate but related company. Copies of these sheets, one for each month from November, 1971 through July, 1972, plus one for December, 1972, were marked in evidence as Exh. P-3. Two other sheets at the end of P-3 appear to be some kind of reconciliation for one property, 448 East 79th St. These two sheets along with two others were marked for identification as Exh. P-5, Iden., during the cross-examination of Alvin Glick (Tr. p. 162, 1. 19 to p. 166, 1. 2), but were never marked in evidence as such. In any event the December, 1972 item does not appear on either of the two sheets for 448 E. 79th St., at the end of Exh. P-3.
So far as wages of workmen are concerned, the testimony is that when Mr. Campagna was hospitalized for what became his last illness, John Costello filled in as supervisor, although all other arrangements evidently continued as before, whatever they were.
When Mr. Campagna died, new arrangements were made. Based on the "Memorandum of Understanding" dated November 16, 1971 (Exh. P-1 in evidence), the ledger sheet mentioned above was established. According to Exh. P-3, which is not the original ledger sheet but a summary prepared by Mautner-Glick, the ledger account was credited with $ 10,000. for 448 E. 79th St., $ 5,000. for 505 E. 83rd St., and $ 15,000. for 521 E. 88th St., these being the same as, in the case of 505 E. 83rd St., but different than, in the cases of 521 E. 88th St. ($ 25,000) and 448 E. 79th St. ($ 92,500) the recited balances in par. 4 of the Memorandum of Understanding, Exh. P-1. The original oral contract prices recited in that same paragraph were $ 95,000. each for 505 E. 83rd St. and 521 E. 88th St., and $ 117,500. for 448 E. 79th St.
The entries mentioned are in the lower left hand corner of each sheet in the column "Remarks" rather than "Received". Later sheets show similar entries for specific buildings, as well as one entry for a building not mentioned in the Memorandum (Exh. P-1, December, 1971, 1666 1st Ave.), but without indication whether these are additional credits or what they are. All of these entries through July, 1972 (including two handwritten entries for December, 1971) add up to $ 92,346.90, which is less than the total balances recited in par. 4 of the Memorandum. This total does not reconcile at all with the entries headed "Deposits toward Construction" listed on the last 2 pages of Exh. P-3, which relate only to 448 E. 79th St., and which total $ 149,809.32 through July 23, 1972.
Even if deposits toward construction entered through November 5, 1971 (during Mr. Campagna's lifetime) are deducted, the total deposits received after his death come to $ 119,809.32 for one building alone, and well in excess of the recited balances ...