United States v. First National Bank Of Circle

652 F.2d 882 (1981)

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Nature of the Case

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Facts

Builders borrowed funds from D and one of D's affiliates in 1970. Later in the same year, the shareholders of Builders borrowed funds from D and its affiliates to finance construction of a building for Builders. The lease of that building was assigned to D as security. Builders assigned to D the proceeds from the H.U.D. contract which were deposited directly in Builders' account when received while D continued to make advances to Builders. The funds advanced came from banks affiliated with D. All of the loans were arranged by Edward Towe, president of D, working out of the offices of D. Towe was authorized to make these loans and had possession of blank forms of notes executed by Builders. Towe was the president of all but one of the lending banks and owned 50 percent of the stock of D as well as some of the stock of the lending banks. Through 1971, Builders paid its employees but failed to pay withholding and F.I.C.A. taxes. P sued D under Section 3505(b), which imposes liability for federal withholding taxes on a person who supplies funds to an employer for the payment of wages, knowing that the employer does not intend or will not be able to pay those taxes. On March 28, 1978, P and D entered into a pretrial order which included a statement of agreed facts and a summary of each party's contentions. D's contentions set forth in the pretrial order were in substance that (1) it did not have the requisite knowledge, (2) Builders was always able to pay the taxes, (3) the loans it made were ordinary working capital loans not for the specific purpose of paying wages, (4) the taxes owing by Builders had been paid, and (5) the action was barred by the statute of limitations and laches. On the first day of trial, D moved for summary judgment on the ground that the loans to Builders were ordinary operating loans for general expenses, not specifically for paying wages. The district court granted the motion. P appealed.