Wisconsin Labor and Industry Review Commission --
Summary of Wisconsin
Court Decision relating to Unemployment Insurance
Subject: Leslie Foster vs. LIRC and DWD, Case No. 06-CV-538(Wis. Cir. Ct.,
Eau Claire Co., July 9, 2007 [Bench decision])
Digest Codes: ER 451 - Contributions (UI Taxes), incl. liability for taxes;
penalties; interest
Indianhead Construction, Inc., (Indianhead) and Indianhead Construction and
Development, Inc. (ICD) were Wisconsin corporations engaged in commercial
building. Richard Foster was in charge of most of the actual operations of the
businesses, but 100 percent of the corporate stock of both corporations was
owned by his wife, Leslie. She was also an officer of both corporations.
Eventually, Indianhead could not make appropriate payments to creditors, and it
ceased operating. The business then began operating under the ownership of ICD.
Again, Richard Foster was in charge of day to day operations but Leslie was 100
percent shareholder and an officer of the corporation. As with Indianhead, ICD
did not pay its unemployment insurance taxes on time and also incurred
considerable amounts of other indebtedness.
For both Indianhead and ICD, Leslie was aware of unpaid bills including some
hints of unpaid unemployment insurance taxes. This was because notices of unpaid
bills came to her residence. She also received at least one phone call regarding
unpaid unemployment taxes. She ignored them, and, for the most part did not open
mailed notices but simply referred them to her husband. She was also aware of
the financial difficulties of both corporations because she was requested by her
husband from time to time to put some of her own money into them in amounts of
$200,000 to $300,000 to help with cash flow problems. She never received
repayment of this money as of the date of the hearing in this matter in December
2005.
In spite of all the indications of financial difficulties and failures of the
businesses to be properly operated so as to pay their obligations, Leslie took
no action. She made no effort to ask the corporation’s accountant to review the
financial status of the corporations, including unpaid bills with her. She also
made no effort to force her husband to be more responsible in the operation of
the businesses, fearing adverse repercussions for her marriage.
In spite of efforts to collect unpaid unemployment insurance taxes from the two
corporations, the Department of Workforce Development (department) was not able
to collect all the money owed. As a result it issued determinations of personal
liability to Richard, who did not appeal those determinations. Later, after
little or no payment, the department issued initial determinations to Leslie
holding her personal liable for unpaid unemployment insurance taxes of both
corporations. Leslie timely appealed the initial determinations, not contesting
her status as an officer or employee having at least a 20 percent ownership
interest. She also did not contest that there had been adequate efforts by the
department to collect from the corporations before pursuing her personally. Her
appeal was based upon arguing that she did not have control or supervision or
responsibility for filing and paying the unpaid unemployment insurance taxes and
that she did not willfully fail to pay them.
Leslie’s argument was based on the fact that she did not take, for the most
part, an active part in corporate affairs and delegated the authority to her
husband. The department relied to a large degree on her status as an officer and
100 percent shareholder to argue she had the authority to make decisions to pay
the delinquent taxes and could have imposed her will if she had chosen to. This
argument was based on the fact that as corporate officer under Wisconsin law,
she had a fiduciary obligation to insure the payment of the taxes. Furthermore,
she had the authority, through her right as sole shareholder, to elect corporate
directors to control the affairs of the corporations to make sure they were
paying the Wisconsin unemployment insurance taxes.
After a hearing, an appeal tribunal decision reversed the initial determination.
It reasoned that her mere 100 percent ownership and status as an officer could
not be used to satisfy the criteria of control or supervision and responsibility
for paying the unemployment taxes and willfully failing to pay them. The
department then petitioned for review based upon prior Labor and Industry Review
Commission (LIRC) decisions which were contrary to the holding of the appeal
tribunal decision.
LIRC's decision reversed the appeal tribunal decision;
holding its past decisions held that by virtue of her ownership and status as a
corporate officer, Leslie had the ultimate authority, and control or supervision
of the payment of unpaid unemployment insurance taxes through the authority to
elect directors and control who was managing the corporations. As a result, she
had the ultimate responsibility for filing and paying the unemployment insurance
taxes. LIRC further held that she could not delegate this authority and merely
ignore the clear signs that there were financial problems in the corporations.
Finally, LIRC held that because she was aware of financial problems in general
and did not make reasonable inquiries to verify that the unemployment insurance
taxes were paid, her actions amounted to a reckless disregard of a risk the
taxes were not being paid. Therefore, her failure to see to the timely and
proper payment of the unemployment insurance taxes of the corporations was
willful.
Leslie commenced an action for judicial review of LIRC's decision.
Held: The court was bound, to a large degree, to accept LIRC findings of
fact if they were reasonably supported by the evidence. There was evidence that
by virtue of her stock ownership she had the authority to have control or
supervision of and responsibility for the payment of the taxes and was
ultimately responsible for seeing to the timely payment of taxes. LIRC’s holding
she had some awareness of the financial difficulties of the corporations because
of the dunning notices coming to her residence and the fact that she was being
asked to invest more and more money in the corporations due to their inability
to pay their bills on time were reasonably supported by the evidence. The Court
further held there was enough evidence to establish that she willfully failed to
pay the taxes because she did nothing to follow up to make sure the taxes were
being paid in light of the known financial difficulties. LIRC’s construction of
the term “willful” to mean knowingly making a decision to not follow up to see
to the payment of the taxes was reasonable so as to require the court to affirm
LIRC’s decision, even though the court might have decided otherwise on the
issue, if not required to defer to LIRC.
Please note that this is a summary prepared by staff of the commission, not a verbatim reproduction of the court decision.
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