878 F.

2d 1382
64 A.F.T.R.2d 89-5547, 89-2 USTC P 9511,
Unempl.Ins.Rep. CCH 14880A

The MERCHANTS NATIONAL BANK OF MOBILE,

Plaintiff-Counter
Defendant, Appellant,
v.
UNITED STATES of America, Defendant-Counter Plaintiff,
Appellee.
No. 88-7277.

United States Court of Appeals,

Eleventh Circuit.
Aug. 4, 1989.

I. David Cherniak, Alan C. Christian, Johnstone, Adams, Bailey, Gordon

& Harris, Mobile, Ala., for plaintiff-counter defendant, appellant.
Gary R. Allen, Chief, William S. Rose, Jr., Asst. Atty. Gen., Richard
Farber, Janet K. Jones, U.S. Dept. of Justice, Tax Div., Washington, D.C.,
Edward J. Vulevich, Jr., Asst. U.S. Atty., Mobile, Ala., for defendantcounter plaintiff, appellee.
Appeal from the United States District Court for the Southern District of
Alabama.
Before HILL and CLARK, Circuit Judges, and TUTTLE, Senior Circuit
Judge.
TUTTLE, Senior Circuit Judge:

This is an appeal from a judgment after a jury trial in which the jury found in
favor of the United States following an assessment of the so-called 100 percent
penalty pursuant to Section 6672 of the Internal Revenue Code of 1954 (26
U.S.C. Sec. 6672).

I. STATEMENT OF THE CASE

2

The penalty was assessed against Merchants National Bank of Mobile (Bank)
for its failure to collect and pay over the taxes withheld from the wages of
employees of Maritime Coatings, Inc. (Maritime) during the first, second and
third quarters of 1979. The Bank paid a portion of the assessment which
permitted it then to file suit for a refund of the amount paid and an abatement of
the remainder of the assessment made by the United States. The government
counterclaimed for the balance of the assessment. The case was submitted to a
jury which, by a special verdict,1 found for the government and the trial court
entered a final judgment against the Bank in the sum of $241,421.71.

II. STATEMENT OF THE FACTS

3

Since the determination by the jury that the Bank was a "responsible" party
under Section 6672 is based upon the entire relationship between the Bank and
Maritime, this is necessarily a fact specific case. The facts must therefore be
considered in detail.

Oral testimony and records of the parties showed the following facts which
could properly be considered by the jury:

Maritime was a marine sand blasting and painting company located in Mobile,
Alabama. Early during its operations, it employed some two to three hundred
people and had a quarterly payroll of more than $1,000,000. At all times
relevant to the appeal, the company's president and principal stockholder was
Richard Trum. At all times, the Bank was involved in lending Maritime
substantial sums of money. Mr. Dowdell, the Bank's vice-president, who was
responsible for the account of Maritime, testified that, at some time in February
of 1979, he noticed that the company's financial situation had "deteriorated
somewhat." He then said, concerning the existing relationship, the following:

Well, at the time, the relationship had strictly been on a basis of the customer
bringing in an invoice and assigning that invoice as collateral to a particular
loan under their line, with really no basic rules and regulations concerning the
lending relationship which, in banking, as you know, is called a loan agreement
and, at the time, I felt that the company needed to be under more rules and
regulations concerning their lending ability--their bonding borrowing ability
with us, to attempt to try to get the company back in a more comfortable
position.
Thereupon Maritime and the Bank entered into what was denominated a "loan

Thereupon Maritime and the Bank entered into what was denominated a "loan
agreement."

For the fiscal year ending September 30, 1978 preceding the execution of the
loan agreement, Maritime showed a net loss of approximately $446,000 and
showed a negative net worth exceeding $200,000. By the end of the calendar
year 1978, Maritime's indebtedness to the Bank totaled approximately
$600,000. However, during its entire period of operations prior to 1979,
Maritime had timely paid the full amount of its federal withholding taxes.

The agreement conditioned future loans upon the Bank's prior approval of
collateral offered by Maritime. The agreement was secured by the requirement
that Maritime pledge all of its accounts receivable or "payables" to secure the
indebtedness, which was also secured by a lien against physical assets. The
agreement also required Maritime to pay over immediately to the Bank any
payment which it received from a pledged account receivable. These payments
were to be deposited in a "collateral account" and would then be used to reduce
Maritime's debt to the Bank. The agreement was also personally guaranteed by
Trum, the president of the company.

10

The agreement between the Bank and Maritime provided for the Bank's prior
approval before Maritime could enter any new contract. It also restricted
Maritime's power to make any new lease or make any leasehold improvement,
without first obtaining the Bank's approval. The agreement also limited the
amount of salaries of officers and employees and it required that Maritime
should provide the Bank with detailed financial information, listings of
accounts payable and original copies of any contracts which it might execute. It
prohibited Maritime from paying dividends, purchasing or retiring outstanding
stock, borrowing money from any lender other than the Bank or expending
more than $25,000 in equipment purchases or capital expansion without first
securing the Bank's approval. In order to maintain complete control over funds
received from the payment of receivables, the agreement required the opening
in the Bank of a "collateral account" in which Maritime was required to deposit
any amounts collected from receivables "immediately upon receipt." The Bank
had exclusive control over this account. No officer or other person with
Maritime could withdraw any such funds. Maritime continued to maintain its
general account which was replenished from time to time by advances from the
collateral account upon the consent of the Bank. Thereafter, continuing the
practice that was already in existence, Maritime was frequently overdrawn in its
general account.

11

Following the signing of this agreement, the expenses of the company for such

personal expenditures on behalf of the officers as automobile rents, club dues,

and the like, were less than they had previously been because, as testified to by
a bank officer, "the Bank had placed restrictions on those categories of
expenses."
12

Maritime continued to have a general account at the Bank on which the

company drew checks to pay operating expenses, including employees' wages.
The Bank had no authority to write checks against Maritime's general account.
Maritime submitted to the Bank weekly requests, identifying the individual
payee and the amounts needed. These weekly requests for transfers from the
collateral to the general account included specified amounts for Maritime's
weekly payroll deposits. Trum testified that in addition to submitting a weekly
list of payables, the company bookkeeper "would contact the Bank ... on
Tuesday so [that the Bank] could write the checks on Friday." During the same
period, Maritime also submitted weekly lists of its accounts receivable. During
April, May and June, 1979, the Bank transferred funds from the collateral
account to Maritime's general account in its sole discretion. The Bank had the
option at any time of applying these funds towards Maritime's indebtedness
rather than transferring the money to the company's general account. There was
testimony to the effect that during the time the collateral account was in effect,
it was the only source of funds for Maritime's general account. This testimony
was given by a Bank official in response to a question by counsel for the Bank
on cross-examination. This question was as follows:

13

So, what you are telling me is--what your knowledge indicates to you is that
during the period of time that the collateral account was in effect that that was
the only source of funds of deposits into the general account; is that correct?

Answer: Yes, sir. Some $1,700,000.

14
15

The same witness testified that from April 18, 1979, it "began typically being
overdrawn" and that the overdraft "continued all the way through May and
through June and on into July, through all of July and on through and into
August."2

16

The overdrafts were twice reduced by the signing by Maritime of two

promissory notes in the total amount of $211,000 to cover a part of the
overdrafts. During this period of time, according to Dowdell's testimony, he
"talked to Mrs. Vogwill (Maritime's bookkeeper) probably at least every day
and sometimes twice" regarding the overdrafts in the general account. In late
April, Maritime requested the Bank to release approximately $270,000 from the
collateral account. However, Dowdell would not do this without first requiring

Maritime to sign a letter. This letter was signed on April 25, 1979 and stated
that the funds were necessary for Maritime to continue operating and it
concluded with the statement that: "All payroll tax deposits required by state
and federal governments have been made." However, at the time of this letter,
Maritime had made only two weekly tax withholding payments for the first
quarter and at that time owed the federal government approximately $240,000
for its first quarter liability.
17

Trum later testified that he had frequently "discussed this tax thing with Mr.
Dowdell" before he executed the April 25, 1979 letter and that the two had
agreed that Maritime should "pay the people on the job who were generating
the funds" and pay the withholding taxes later when Maritime received a
progress payment from one of its accounts. In his testimony, however, Mr.
Dowdell stated that he relied on the letter's representation that Maritime had
paid its taxes and he did not know the true facts until late in June.

18

Two days later, Maritime presented for payment, $248,000 in checks payable to
the Internal Revenue Service bearing dates ranging from January 19, 1979
through March 31, 1979. These checks represented most of Maritime's first
quarter tax liability. Dowdell later testified that he did not know that the
company had presented for payment checks totaling $248,000 within a day or
so after the transfer of funds to Maritime's general account.

19

In the second quarter of 1979, Maritime made only two payments of federal
withholding taxes, one dated April 27 for $19,186.06 and the other dated May
4, 1979 for $16,865.19. Although Maritime's general account was overdrawn,
the checks were both honored. Mrs. Vogwill testified at trial that after these
checks were presented, Dowdell instructed her to inform Trum "not to release
any more of the payroll tax deposit checks unless there was money in the
regular account to cover them." The Bank continued to honor other checks for
payroll and other corporate purposes even though they increased the company's
overdraft at the Bank. Trum made out the checks for the federal withholding
tax and kept them in his desk drawer instead of sending them on to the
government for the remaining unpaid weeks of the first quarter.

20

Referring again to the time that the Bank first knew of the non-payment of the
first quarter's federal withholding taxes, Mrs. Vogwill testified as follows:

21 It was a meeting with the stockholders and the lawyers--Jimmy Dowdell and it
A.
was mentioned that the payroll taxes had not been paid and the Bank didn't know
this and I looked at Jimmy Dowdell. I said, "Jimmy, you knew those payroll taxes
hadn't been paid."

Q. What did Mr. Dowdell tell you?

22
23 He did not say anything then and he called me later in the week and I asked him
A.
why he had said that. He said, "I knew they hadn't been paid but I didn't realize how
great they were."
....
24
Q. Would that have been a meeting on or about June 27, 1979?
25
A. Could have been. I am not sure of the date.
26
27

Thereafter, Maritime was unable to collect anything like the full amount it had
claimed was due from two of its principal customers, and shortly thereafter, it
sought protection in the bankruptcy court under Title XI.

III. DISCUSSION
A. The Statutory Framework
28

As stated by appellant's brief, Section 6672 provides for a penalty equal to the
sum of an employer's unpaid withholding taxes against any person
"responsible" for payment of same and who "willfully" fails to do so. Pursuant
to Sec. 6671(a), the so-called "responsible" person penalty of Sec. 6672 is to be
assessed and collected in the same manner as taxes. Thus, in order to assess the
Sec. 6672 penalty against MNB, the Government had to administratively find
that MNB was a "responsible" person required to truthfully account for, collect
and pay over the unpaid withholding taxes of Maritime, and "willfully" failed to
do so.

29

The courts have embraced a broad and functional test to determine liability
under Sec. 6672 and who qualifies as such a "responsible" person. As the Fifth
Circuit noted in Commonwealth v. National Bank of Dallas v. United States,
665 F.2d 743 (5th Cir.1982):

30[T]he test of liability under Sec. 6672 is indeed a functional one: so long as a
...
person has ultimate authority over expenditures of corporate funds and effective
power to see to it that federal employment taxes withheld by an employer are paid,
he or she qualifies as a responsible person.
31

665 F.2d at 752. Thus, Sec. 6672 can be applied to banks or other lenders,
though as also noted by the Fifth Circuit in Commonwealth:

...
32the facts in Hill [an earlier case] are critical (as indeed they are in any Sec. 6672
case), and we set forth those facts at some length so that we will be in a position to
compare those facts with the facts in this case....
33

Id. at 752-53.

34

It is conceded by the appellant that Section 6672 can be applied to banks or

other lenders as well as officers, directors or other employees of the employer
corporation. [App. Br. p. 27]. It is also true as stated by appellant that: "The
facts ... are critical" in any determination as to whether a particular person or
corporation is a responsible person under Sec. 6672.
B. The Bank as Responsible Person

35

Facts which have been found to be insufficient to constitute a lender a

responsible person are set out in United States v. Hill, 368 F.2d 617 (5th
Cir.1966). Facts, on the other hand, from which a jury was permitted to find
that a lender was a responsible person are set out in Commonwealth National
Bank of Dallas v. United States, supra. We recognize, of course, that the
decision in Hill is binding on this Court to the extent that the facts are the
same.3 However, we are constrained to pay careful attention to the
Commonwealth case which, although not binding on this Court, because it was
decided subsequent to October 1, 1981, interprets a prior decision of the same
Court.

36

A careful reading of Hill and Commonwealth convinces us of the correctness of

the following analysis by the Court in Commonwealth:4

37

We read Hill as holding that, in a situation in which there are funds available to
a corporate employer for the payment of withheld federal employment taxes
that are not advanced by a lending bank directly (as loans or overdrafts) or
indirectly (as progress payments assigned to the bank which the bank permits
the company to retain), the decision of the bank not to permit its direct and
indirect advances to be used for the payment of such taxes, and the concomitant
use of a veto power over corporate checks, funded through such advances, to
insure their use in accordance with the terms of the advances, will not, without
more, subject the bank or its lending officer to Sec. 6672 liability. The court,
citing the government's brief, specifically noted that the bank was not in control
of the company's checking account and that the bank's refusal to make a loan
for the payment of employment taxes had not had the effect of altering the
control of Messrs. Hill and Moore of the company.

38

We cannot interpret Hill, as Commonwealth and Pittman urge us to do, as

precluding Sec. 6672 liability under all circumstances for a lending bank or its
officer. The Hill court began by setting forth the broad language in [United
States v.] Graham [309 F.2d 210 (9th Cir.1962) ] to the effect that Sec. 6671(b)
must be construed to include all those so connected with a corporation as to be
responsible for the performance of the act in respect of which the violation
occurred. The court went on to make a careful distinction between the control
which the bank and Jeffus exercised only over the bank's advances and the
control which the management of the company continued to exercise over the
company's checking account (containing advances from the bank and funds
from other sources as well ) and its business generally. These aspects of the
court's opinion in Hill suggest to us that in a situation in which a lending bank
and an officer thereof have the power to see to it that the borrower's taxes are
paid, to make final decisions concerning the disbursement of the funds of the
borrower or to determine which creditors are to be paid and when, the Hill
court would not hesitate to affirm a judgment holding the bank and its officer
liable under Sec. 6672....

39

665 F.2d at 754-55 (emphasis in original in part and added in part).

40

In Hill, there were ample funds in the Hill and Moore general account from
sources other than bank advances with which the company could have paid the
withheld taxes. In this case, testimony of the Bank official himself was that the
collateral account [over which the employer had no control] was in effect "...
the only source of funds of deposits into the general account." Thus, it is clear
that it was only by the payments by the Bank of its own volition from the
collateral account into the general account, or the allowance by the Bank of
additional overdrafts that the withheld taxes could have been paid to the
Internal Revenue Service.

41

In view of the almost complete control held by the Bank over the operation of
Maritime during its last three quarters of operation, and the fact that the checks
drawn by Maritime for the payment of withheld taxes were kept in the desk
drawer of the president of Maritime on instructions from the Bank not to
present them for payment unless funds were available we find the factual
situation that was presented to the jury here is directly in line with that which
existed in Commonwealth.

42

We especially note the following language from the Commonwealth opinion:

43

The image that emerges from the foregoing facts, and a conclusion that the jury

could clearly have reached, is that of a company wholly dependent for the
payment of any bills whatsoever on what Commonwealth's and Pittman's own
brief describes as selective extensions of credit. Unlike Hill, where the
construction company had unencumbered funds and control over its own bank
account, CPF had no unencumbered funds and any control which it had over its
bank account was, at best, shared with Pittman....
44

665 F.2d at 757 (emphasis added).

45

The facts here are almost identical with those in Commonwealth. Under the
loan agreement, the Bank had the right to oversee substantially all of the
significant operations of Maritime. Moreover, it actually exercised this
authority by selectively authorizing the honoring of checks and selectively
declining to honor others. Those which it decided not to honor were the checks
drawn by Maritime in payment of the withheld taxes. As to these alone, the
Bank refused to permit an additional overdraft on the general fund. Therefore,
not inconsistent with Hill and fully consistent with Commonwealth, we
conclude that the trial court properly submitted to the jury the issue of whether
the Bank was a responsible person.
C. Charges to the Jury

46

Appellant contends that the trial court erred in five charges which it had
requested the court to give to the jury. This Court has stated the standard by
which such contention is measured in Pesaplastic, C.A. v. Cincinnati Milacron
Co., 750 F.2d 1516 (11th Cir.1985). There, the Court said:

47The purpose of jury instructions "is to give the jury a clear and concise statement
...
of the law applicable to the facts of the case." Hanover Fire Ins. Co. v. Sides, 320
F.2d 437, 444 (5th Cir.1963)....
48

In reviewing the district court's jury instructions, this court will look to see
whether the charges, considered as a whole, sufficiently instruct the jury so that
the jurors understand the issues involved and are not misled. Frosty Land Foods
International, Inc. v. Refrigerated Transport Co., 613 F.2d 1344, 1348 (5th
Cir.1980); see Miller v. Universal City Studios, Inc., 650 F.2d 1365, 1372 (5th
Cir.1981); see also Somer v. Johnson, 704 F.2d 1473, 1477-78 (11th Cir.1983)
(to determine prejudicial effect, charge must be viewed in its entirety); Johnson
v. Bryant, 671 F.2d 1276, 1280 (11th Cir.1982) ("When the instructions, taken
together, properly express the law applicable to the case, there is no error....").
Moreover, the trial court's refusal to give a requested instruction is not error

where the substance of that proposed instruction was covered by another

instruction which was given. See Freimanis v. Sea-Land Service, Inc., 654 F.2d
1155, 1163-64 (5th Cir. Unit A 1981); see also Southern Railway Co. v.
Haynes, 293 F.2d 291, 294 (5th Cir.1961). If a requested instruction is refused
and is not adequately covered by another instruction, the court will first inquire
as to whether the requested instruction is a correct statement of the law. See
e.g., Bueno v. City of Donna, 714 F.2d 484, 490 (5th Cir.1983). If the
instruction is a correct statement of the law, the court will next look to see
whether it deals with an issue which is properly before the jury. See e.g.,
Collins v. Metropolitan Life Insurance Co., 729 F.2d 1402, 1405 (11th
Cir.1984). In the event both these standards are met, there still must be a
showing of prejudicial harm as a result of the instruction not being given before
the judgment will be disturbed. See Hunt v. Liberty Lobby, 720 F.2d 631, 647
(11th Cir.1983); Somer, 704 F.2d at 1477-78; Miller, 650 F.2d at 1372 (5th
Cir.1981).
49

Id. at 1525.

50

We have reviewed the separate requested charges (except requested charge no.
8, to the refusal of which no objection was taken) and find that the substance of
those that were appropriate was adequately covered by the instructions which
were given by the court and, as stated in Pesaplastic, supra, "utilizing the
aforementioned analysis, we conclude that the district court's instructions to the
jury, when viewed in their entirety, constitute a clear, concise and accurate
statement of the law," id. at 1515.

51

Appellant, therefore, clearly is not entitled to a new trial based on this

contention.

IV. CONCLUSION
52

The judgment of the trial court is AFFIRMED.

The jury's special verdict found that for each of the three quarters involved, the
first, second and third quarters of 1979, the Bank was responsible for collecting
or accounting for or paying over Maritime's withholding taxes for the first
quarter of 1979. It also found that the Bank willfully failed to collect or
truthfully account for or pay over the trust fund taxes for the three quarters.
After denyinga motion for judgment notwithstanding the verdict. This motion
was denied by the district court. Thereupon this appeal followed

This testimony given by Fred Taul, an officer of the Bank, was as follows:
A. The account, on April 18th, began typically being overdrawn, rather than
having a positive balance as we have seen earlier. The first overdraft occurring
on April 18th in the amount of ten thousand nine hundred and fifty-eight
dollars and ninety-eight cents.
Q. Now, did that overdraft, in amounts declining and increasing in rough
amounts, continue through the end of May to the end of June, which we have
already discussed, a hundred and fifty dollars in overdrafts, at that time?
A. Yes, sir. It continued all the way through May and through June and on into
July, through all of July and on through and into August.

In Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir.1981) (en banc), this
Court adopted as precedent all of the decisions of the former Fifth Circuit
decided prior to October 1, 1981

In this quote, Pittman and Jeffus were officers of the bank and Hill and Moore
were officers of the borrowing company, the employer. CPF was the corporate
employer