BEFORE THE
STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION

In the matter of the contribution liability,
or status, under Chapter 108, Stats., of

MILO G. FLATEN, RECEIVER FOR
THOMAS P. STREB AND CHERYL D. STREB, Appellant

UNEMPLOYMENT INSURANCE CONTRIBUTION LIABILITY DECISION
Account No. 276095-9, Hearing No. 8866, S


A Department Deputy's Initial Determination issued on December 6, 1989 held that Milo G. Flaten owed certain unemployment compensation contributions for the first and second quarter of 1985, together with interest and late filing fees, in the amount of $1,501.22 after deducting a credit.

Flaten filed a timely appeal and a hearing was held on May 31, 1990 before Administrative Law Judge James R. Sturm, acting as an Appeal Tribunal of the Wisconsin Department of Industry, Labor and Human Relations. The Appeal Tribunal Decision, issued on October 4, 1990, affirmed the Initial Determination.

Flaten timely petitioned for review by the Wisconsin Labor and Industry Review Commission. Based on the evidence and applicable law, and having considered the arguments presented by the petitioner, the Commission makes the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Prior to December 12, 1984 the Shamrock Bar was operated, apparently as a sole proprietorship, by Cheryl Streb. The Bank of Middleton brought a foreclosure action against Cheryl Streb, Thomas Streb, the Wisconsin Department of Revenue, and the United States of America, and effective December 12, 1984, the Dane County Circuit Court in which the foreclosure action was pending appointed Milo G. Flaten as receiver of the Shamrock. Flaten was responsible for operating the establishment while it was being sold. Flaten hired back the employes and had a manager, a bookkeeper, and an accounting service to actually operate the bar.

The bar operated in the first and second quarters of 1985, and had payroll in those quarters, on which unemployment compensation tax contributions were due. These contributions were not timely paid, and some remain due, along with late filing fees and interest.

The bar was eventually sold in connection with the foreclosure proceedings, and on August 23, 1985 the court in which the foreclosure action was pending issued an order approving the sale and discharging Milo Flaten from his responsibilities as receiver, effectively terminating the receivership.

On June 18, 1986, the Department issued an Initial Determination which determined that there had been a total transfer of the bar's account from Cheryl D. Streb, d/b/a Shamrock Saloon, to Milo Flaten, receiver for Cheryl D. Streb, effective December 24, 1984. That Initial Determination was never appealed.

On December 6, 1989 the Department issued an Initial Determination to "Milo G. Flaten, former receiver for Cheryl D. Streb, f/d/b/a Shamrock Saloon," which determined that the sum of $1,501.22 was owed for late filing fees, interest and delinquent contributions attributable to the first and second quarters of 1985 as well as the 1985 SAFI. Flaten filed a timely request for hearing from this Initial Determination, hearing was held, the Appeal Tribunal affirmed the Initial Determination, and the petition now before the Commission has been taken from that Appeal Tribunal Decision.

The issue for decision is whether Milo G. Flaten is liable to the Department in the amount of $1,501.22 as set forth in the Initial Determination of December 6, 1989.

Analysis of this issue requires consideration of the law of receivership. Courts are authorized by section 813.16, Stats., to appoint receivers in certain situations. Apart from this section, and section 813.17, Stats., which defines the responsibilities of a receiver who is appointed to manage or close out businesses, the law on receivership is common law. The authority of a court to appoint a receiver is part of the court's general equitable jurisdiction to order injunctive relief. Thus, just as in the proper case a court can order that a business subject to foreclosure take particular steps in order to preserve the security interests of the foreclosing mortgagor, the court may also designate a person to act in the court's stead to operate the business, where making the numerous decisions required in the day-to-day operation of a business would be a burden on the court. Thus, the institution of receivership has developed.

A receiver is a quasi-judicial officer, acting as an officer of the court. 66 Am. Jur. 2d, Receivers, sec. 359, Milwaukee and Minnesota Railroad v. Soutter, 69 U.S. 510, 17 L. Ed. 900 (1865). The legal entity involved is really the receivership, not the receiver. Suits against a receiver are in effect only against the receivership, the receiver being regarded as in the nature of a corporation sole, and the judgment recovered being against funds in his hands. Smith v. Jones Lumber and Mercantile Company, 200 F. 647 (W. D. Wis., 1912).

The liability of receivers is either official or personal. The general rule is that their liability is in their official capacity, except in cases where they are personally at fault. 66 Am. Jur. 2d, Receivers, sec. 359. This is true with respect to both contract and tort liabilities. Such official liability of a receiver is, strictly speaking, actually that of the court appointing the receiver. A receiver is not liable officially where he is liable personally. 66 Am. Jur. 2d, Receivers, sec. 359, 362. No personal liability, as distinguished from official liability, of a receiver can exist where he disburses funds in his hands or does any other act by the order and according to the direction of the court; he will be protected in carrying out such instructions, and the court order under which he acts will be a complete defense to personal liability in any action or proceeding. The personal liability of a receiver for negligence exists only where such negligence is his personal negligence. 66 Am. Jur. 2d, Receivers, sec. 367. Personal liability of a receiver arises from his wrongful acts not within the scope of his authority as determined by the statutes and orders and directions of the court under which he acts or omits to act. Ibid.

The official liability of a receivership cannot survive the termination of the receivership by the court. The effect of the discharge of a receiver is to relieve him from all his official liabilities as such. He is not thereafter a proper party to an action, and no judgment can be rendered against him thereon. 66 Am. Jur 2d, Receivers, sec. 366. The discharge of a receiver completely precludes the possibility of establishing any official liability against the receiver. This is because any such liability is really that of the receivership, and must be paid out of the receiverships assets, and a receiver has no authority to commit those funds after his discharge. Thus, Am. Jur. recites:

"A receiver who has been discharged is relieved from all of his official liabilities as such, and he is neither a necessary nor a proper party to an action on any such liability. . . Indeed, an action cannot be maintained against a receiver, even for the purpose of establishing the validity of a claim, after he has been discharged and has ceased to hold any relationship to the fund, out of which alone payment can be secured." 66 Am. Jur. 2d, Receivers, sec. 487.

For this reason, the fact that Flaten was discharged as receiver by an order of the court of August 23, 1985, is determinative here of his official liability. Not only was Flaten discharged as receiver by that order, but the receivership itself was dissolved. There no longer is a receivership, and there no longer is such a legal entity, as "Milo Flaten, Receiver for Cheryl D. Streb." There is no such legal status as "former receiver." There is only Milo G. Flaten, personally, and the historical fact that there once was a receivership which no longer exists. There can thus be no liability on the part of Milo G. Flaten in his official capacity as receiver.

Although it is not so indicated in the Appeal Tribunal Decision, it may be the theory of the Department and the Appeal Tribunal that personal liability exists here and is being determined. However, the Commission has concluded that there is no basis for personal liability against Milo G. Flaten.

A specific section of the Unemployment Compensation Act, 108.22 (9), Stats., allows imposition of personal liability on officers or employes of corporations in certain circumstances. (1)   Conspicuously absent from the Act, however, is any provision which similarly allows imposition of personal liability on receivers. The Commission concludes that the Department cannot make enforceable determinations of personal liability against former receivers in the absence of express statutory authorization. This conclusion is compelled by consideration of the common law of receivership. It is also suggested by the fact that the United States has seen fit to establish such statutory authority for purposes of collection of its own tax liabilities. Thus, a receiver is personally liable to the United States to the extent he pays other creditors if at such time there are debts owing to the United States, by virtue of federal law, 31 U.S.C. sees. 191, 192; see, King v. United States, 379 U.S. 329, 85 S. Ct. 427, 13 L. Ed. 2d 315 (1964). Pursuant to this statutory authority, receivers have been found personally liable for failures to remit withholding and FICA taxes. At least one other jurisdiction has noted the significance of the absence in its statutes of a similar enactment. Thus, in Kurt v. Kurt, 243 Cal. App. 2d 580, 52 Cal. Rptr. 725 (Cal. App. 1966), a receiver failed to pay certain taxes to the state of California, including unemployment insurance contributions. The court expressly noted the absence in California of an analog to 31 U.S.C. sec. 191. In that case, however, it was unnecessary for the court to consider the availability of personal liability, because official liability was still a possibility: the court order discharging the receiver had been timely appealed, and the Court of Appeals' decision reversed that order on the grounds that taxes due and owing had not been paid. Here, however, the court order discharging the receiver is final, and personal liability is the only present option. However, since Wisconsin lacks an analog to 31 U.S.C. sec. 191, that personal liability may not be established by the mere issuance by the Department of a determination.

Since there is no statutory basis on which personal liability can be assessed against Flaten, and since there can be no official liability here because the receivership has been terminated and the receiver discharged, the decision must be reversed.

The Commission therefore finds that the petitioner is not liable for payment of unemployment compensation contributions as defined in the Initial Determination.

DECISION

The Appeal Tribunal Decision is reversed. Accordingly, Milo G. Flaten is not liable for payment of unemployment compensation contributions as defined in the Initial Determination.

Dated and mailed December 19, 1990
110 - CD3025  ER 451

/s/ Kevin C. Potter, Chairman

/s/ Carl W. Thompson, Commissioner

/s/ Pamela I. Anderson, Commissioner

 

NOTE: The Commission has reversed the Appeal Tribunal as a matter of law.

The Commission would note that the Department is not totally without a remedy here which might enable it to collect the unemployment compensation tax contributions which were indisputably owed for the first and second quarters of 1985 on the operation of the bar. Although it lacks statutory authority to make administrative determinations establishing the personal liability of the receiver, it may be possible for the department to commence an action against the receiver in court seeking to establish his personal liability. Alternatively, the department could move the court to set aside the order which discharged the receiver.

Obviously, the problem arose here because the Department was not party to the receivership proceedings and could not raise an objection to the termination of the receivership based on the grounds that tax liabilities were still owed. The department asserts that its lack of knowledge of the existence of the receivership proceedings was caused by the failure of Flaten to comply with the provisions of section 108.16 (8)(k), Stats., which requires both transferor and transferee to notify the Department in writing of the fact of a business transfer within 30 days thereof. Pursuant to this statute, Flaten should have notified the department within 30 days of his appointment as receiver. If Flaten indeed failed to notify the department of his appointment as receiver, thus causing the inability of the department to intervene in the proceedings prior to the time at which he was discharged as receiver, and thus eliminating the ability of the department to have access to receivership funds to collect taxes, the department would be in a good position to assert an equitable right to some form of relief.

Section 806.07 (1)(h), Stats., provides that a court may relieve a party from the effects of a judgment or order for any reason justifying relief from the operation of that judgment or order, and it has been held that this section is to be liberally construed to allow relief from judgments whenever appropriate to accomplish justice. Conrad v. Conrad , 92 Wis. 2d x+07 (1979). Am. Jur. notes holdings that it is essential to the termination of a receivership that all interested parties be given notice of the petition for a discharge and an opportunity to be heard thereon, and that lack of notice of proceedings for the discharge of a receiver may be tolerable so long as local practice permits a creditor injured by such a discharge to make application to the court for vacation of the order. 66 Am. Jur. 2d, Receivers, sec. 193. The Department could conceivably file a motion to vacate the order discharging Flaten and closing the receivership, and if such an order were granted it would presumably open up the possibility that the Department could collect the amounts due from someone, perhaps the party who purchased the bar, or, alternatively, the surety on the bond that Flaten was required to post when he was appointed receiver.

The Commission intends to express no opinion on whether these courses of action should be taken by the Department or would be successful, but describes them merely to illustrate that its holding herein does not necessarily deprive the Department of all opportunity to recoup losses when receiverships are terminated before payment of all unemployment compensation taxes which are due.

Because it has resolved the issues presented in this case on the basis described above, the Commission finds it unnecessary to discuss, the other theories advanced by the petitioner in support of his petition.

cc:
Jorge Fuentes, Attorney
Enforcements



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Footnotes:

(1)( Back ) The fact that a receiver can be described as being in the nature of a "corporation sole," Smith, supra, does not allow invocation of sec. 108.22 (9), Stats. The word "corporation" as it is used in general popular and legal speech, means a "corporation aggregate," which is distinct from a "corporation sole." Black's Law Dictionary. (4th Ed., 1968), p. 410. Also, a receiver lacks the required 20 percent ownership interest in the receivership's assets.

 


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