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United States v. Vespe

filed: February 28, 1989.


On Appeal from the United States District Court for the District of New Jersey, D.C. Civil Action No. 85-4053.

Becker, Hutchinson and Scirica, Circuit Judges.

Author: Hutchinson


HUTCHINSON, Circuit Judge.

Section 6672 of the Internal Revenue Code permits the government to collect from a "responsible" person who willfully fails to pay employment taxes an amount equal to the unpaid taxes. 26 U.S.C.A. § 6672 (West Supp. 1988). The government assessed Basil Vespe under this provision for the unpaid employment taxes of Vespe the Versatile/Southern Division, Inc. (Vespe the Versatile) for the second quarter of 1975 through the second quarter of 1976, and the unpaid employment taxes of Environmental Contracting Corporation (Environmental) for the fourth quarter of 1976, the first, third and fourth quarters of 1977, and the first quarter of 1978. It filed this action to reduce that assessment to judgment. A jury found that Vespe was not liable for any of the taxes of Environmental nor those of Vespe the Versatile for the second quarter of 1975, but found him liable for the ties of Vespe the Versatile for the remaining quarters at issue.

Both Vespe and the government moved for judgment notwithstanding the verdict as to those quarters on which they had not prevailed. Vespe also moved, in the alternative, for a new trial based on claimed trial errors. Vespe subsequently sought to have the district court recuse itself from hearing any post-trial motions. The district court denied Vespe's motions and granted the government's motion. Vespe now appeals. For the reasons which follow, we will reverse the order of the district court granting judgment notwithstanding the verdict as to Vespe's liability for the unpaid taxes of Environmental and will in all other respects affirm.


Vespe was president of Vespe Contracting Company (VCC), a cement contracting and construction company. In 1974, Conforte and Eisele (C&E), a general contractor, engaged VCC to perform work at a building site in Washington, D.C. To avoid the possibility of mechanics' liens, VCC and C&E agreed that checks would be issued jointly to VCC and the creditor. Vespe the Versatile, which actually performed the work, submitted a monthly list of suppliers and creditors who needed to be paid and C&E then issued checks, up to the amount of the progress payments then due, payable to the creditor and VCC. C&E also issued a weekly check for the payment of Vespe the Versatile's employees. In November, 1975, a dispute arose as to the payment process. When there was no satisfactory resolution, Vespe the Versatile left the job. Soon thereafter the company became inactive.

Environmental was formed in 1975 or 1976 to perform cement contracting work for water and sewage treatment plants and frequently used a joint checking system in its relationships with general contractors. During the first quarter of 1978, a dispute arose as to the continuation of this procedure on a project in Key West, Florida. Environmental was fired from the job and soon became inactive.

The Internal Revenue Service made assessments against Vespe and Alex Fein, a/k/a Alex Feinman, the president of Vespe the Versatile, for the unpaid employment taxes of that company and against Vespe and David Padrutt, the treasurer of Environmental, for the unpaid employment taxes of Environmental. The government then instituted this action in the United States District Court for the District of New Jersey to reduce the assessments to judgment. Default judgments were entered against Fein and Padrutt, and the claim against Vespe was tried before a jury.

At trial, Vespe argued that he was not a responsible person of either company since he was not an officer in them and was not involved in their administration. He also argued that any failure to pay taxes was not willful, claiming that the general contractors controlled the funds available to each company through the joint checking systems. Finally, he introduced evidence that in the summer of 1975 he was hospitalized for approximately three months from severe burns suffered in a boating accident and that he was subsequently incarcerated. Thus, he maintained, he could not have acted willfully or been a responsible person during those periods.

On October 16, 1987, just prior to the submission of the case to the jury, the government's attorney informed the district court that a witness who had testified the previous day claimed Vespe had physically threatened him outside the courtroom. After charging the jury, the court instructed the government to produce the witness and also invited the United States Attorney's Office to conduct, or assist in conducting an investigation. This invitation was declined and the district court held a hearing later that day on the alleged incident.

The jury thereafter returned its verdict. In response to special interrogatories, it found that Vespe was a responsible person for both companies for all quarters in dispute. It also determined that he had willfully failed to pay the taxes of Vespe the Versatile for the third quarter of 1975 through the second quarter of 1976 and was therefore liable for that period. Since the jury concluded that he did not willfully fail to pay the taxes of Vespe the Versatile for the second quarter of 1975 or the taxes of Environmental for any quarter, it did not hold him liable for those delinquencies.

Vespe challenges the district court's decision to grant the government's motion for judgment n.o.v. and to deny his. He also asserts that the district court erred in not recusing itself and in denying his alternative motion for a new trial. We have appellate jurisdiction over the district court's final orders on the parties' cross-motions for judgment n.o.v. and in the alternative denying Vespe a new trial under 28 U.S.C. § 1291. We apply the same standard as the district court in determining whether judgment n.o.v. should have been granted. Aloe Coal Co. v. Clark Equip. Co., 816 F.2d 110, 113 (3d Cir.), cert. denied, 484 U.S. 853, 108 S. Ct. 156, 98 L. Ed. 2d 111 (1987). We review the court's decision not to recuse itself for abuse of discretion, Johnson v. Trueblood, 629 F.2d 287, 290 (3d Cir. 1980), cert. denied, 450 U.S. 999, 68 L. Ed. 2d 200, 101 S. Ct. 1704, (1981), and review its evidentiary rulings and conduct of the trial by the same standard.


Vespe first argues that he is entitled to judgment n.o.v. on the question of whether he is a responsible person of Vespe the Versatile. An assessment by the government is presumptively correct and where, as here, it is introduced into evidence, the burden shifts to the defendant to show that he was either not a responsible person or did not act willfully. Psaty v. United States, 442 F.2d 1154, 1160 (3d Cir. 1971). Vespe thus asks us to enter judgment n.o.v. in his favor on an issue on which he bore the burden of proof, a remedy "reserved for extreme circumstances." Fireman's Fund Ins. Co. v. Videfreeze Corp., 540 F.2d 1171, 1177 (3d Cir. 1976), cert. denied, 429 U.S. 1053, 50 L. Ed. 2d 770, 97 S. Ct. 767, (1977). His motion may only be granted if the record shows he was not a responsible person so clearly that no rational jury could find to the contrary. EEOC v. Delaware Dep't of Health and Social Servs., 865 F.2d 1408, slip op. at 10 (3d Cir. 1989). In determining whether this standard has been met, we must view the evidence in the light most favorable to the government as the verdict winner and accord it the benefit of all justifiable inferences. Bhaya v. Westinghouse Elec. Corp., 832 F.2d 258, 259 (3d Cir. 1987), cert. denied, 488 U.S. 1004, 57 U.S.L.W. 3451, 102 L. Ed. 2d 774, 109 S. Ct. 782 (U.S. Jan. 9, 1989).

Section 6672 imposes liability on "any person required to collect, truthfully account for, and pay over" taxes who willfully fails to do so.*fn1 In order to fall within this statutory language and thereby qualify as a responsible person, the individual must have significant, though not necessarily exclusive, control over the employer's finances. Purdy Co. of Illinois v. United States, 814 F.2d 1183, 1188 (7th Cir. 1987); Commonwealth Nat'l Bank of Dallas v. United States, 665 F.2d 743, 757 (5th Cir. 1982). More than one individual may be a responsible person for a given employer. Commonwealth Nat'l Bank of Dallas, 665 F.2d at 757.

In attacking the jury's finding, Vespe relies on the testimony of Richard D. Laxton, who was a vice-president of Vespe the Versatile. Laxton stated that he signed most of the company's checks, "pretty much" determined when bills would be paid and negotiated most of the contracts. He also testified that he and Fein had the authority to sign the company's tax returns, that they ran the company's day-to-day operations and that Fein was responsible for signing the payroll checks.

Vespe also presented various documents which tend to support his non-involvement with the company. He introduced requests to C&E for payment pursuant to the joint checking system, all of which were signed by Laxton. He also submitted a corporate resolution designating a Washington, D.C. bank as a depository which lists the corporate officers and does not mention him. Since, Vespe argues, no documents reveal his involvement with the company and since Laxton testified that others handled its affairs, the jury was obligated to find in his favor.

The government, however, countered with significant evidence of Vespe's participation in Vespe the Versatile. VCC, Vespe the Versatile and Environmental all operated out of the same building. David Padrutt, the former treasurer of Environmental who testified by way of deposition, stated that the companies operating from that address involved the same group of people and that "Basil Vespe was in charge of whatever work we were doing, whatever we were doing out of that set of offices Basil was in charge of it." Appendix (App.) at a313. He also stated that he sometimes spoke with Vespe about the need to pay certain creditors, id. at a353-54, that Vespe would decide which creditors would be paid, id. at a354, a384, and that Vespe exercised control over who would be hired or fired. Id. at a376-77.

Given the inference from Padrutt's testimony that he worked for the other Vespe-related organizations in the building besides Environmental, see id. at a312, a330, and his interactions with people who worked for these various businesses, he had a legitimate basis for stating that Vespe controlled all the companies in the building. Thus, although his testimony as to Vespe's method of operation was not specific to Vespe the Versatile, the jury could have properly found it applicable to that company. Padrutt's statement that Vespe ran Environmental regardless of whether his name appeared on any documents involving the company, see id. at a369-70, a377, provided another basis for the jury's rejection of Vespe's argument that the lack of documents linking him to Vespe the Versatile proved he was not involved with the company. In addition, Laxton admitted that in an arbitration hearing he testified to Vespe's ownership of Vespe the Versatile. Id. at a246.

The testimony of Flavio Franco, a C&E vice-president who was responsible for the project in Washington, D.C., also points to Vespe's influence over Vespe the Versatile. Franco testified that when payment disputes arose one of the persons he would speak to would be Vespe. In particular, Franco related an incident which occurred in November, 1975, after he had been informed that VCC was delinquent in its tax obligations to Maryland and possibly the IRS. He stated that requests in excess of the progress payment then due had been submitted, and that he drew up joint checks for the taxing authorities and for other creditors on the list up to the amount of the progress payment. Id. at a417. In doing so, he refused to draw requested checks for what he described as Vespe's "captive corporations"--Vespe Leasing Company, Curbco, and Taurus. Id. Franco claimed that at a meeting with Vespe, Laxton, and Vespe the Versatile's project superintendent, Vespe continually insisted upon receiving the money requested for these ...

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