EOG ENVIRONMENTAL INC, Employer
On April 9, 2010, the Department of Workforce Development (department) issued an initial determination which held that Michael Vilione was personally liable for $2,399.91 in unpaid taxes, interest, and collection costs related to the employer's fourth quarter 2008 (04/08) and first quarter 2009 (01/09) unemployment insurance tax contributions. Vilione filed a timely request for hearing on the adverse determination, which the department acknowledged on December 14, 2011. By March 15, 2013, notice, the department scheduled the matter for hearing on May 6, 2013. Following hearing, a department administrative law judge issued a decision on May 31, 2013, affirming the initial determination. Vilione filed a timely petition for commission review of the adverse decision, and the matter now is ready for disposition.
Based upon the law and the record in the case, the commission makes the following:
Vilione is president and 100% owner of the (currently inactive) employer, a national corporation that did environmental consulting and contracting for the removal of both hazardous and non-hazardous industrial waste. The employer did not pay its quarters 04/08 and 01/09 unemployment taxes, and the issue is whether Vilione is personally liable for them pursuant to Wis. Stat. § 108.22(9). One of the criteria for personal liability is that the individual in question have willfully failed either to make the payment or to see that the payment was made. The 04/08 taxes were due January 31, 2009, and the 01/09 taxes April 30, 2009. During that time period, Vilione had significant health issues, was taking both oxycodone and morphine daily, and had had to hire two other individuals to run the company. For these reasons, the commission does not believe he can be said to have willfully failed to make the payments, and so reverses the appeal tribunal decision.
Vilione began experiencing health problems in 2004, which initially resulted in the removal of his gall bladder, and then in a whipple operation (removal of head of pancreas, portion of bile duct, and duodenum), following which he developed uncontrollable diabetes. Because of his health problems, he hired an associate of approximately 25 years to serve as executive vice president. That person, along with nine others, embezzled over $2 million from the company. Before Vilione's health problems, he ran the company, reviewed financial information, reviewed the staff accountant's work, and oversaw the payment of taxes.
Subsequently, Vilione's health problems continued. In 2008, he had to be placed on a diabetic pump, in the fall of that year his prostate was removed, and he then needed an incisional hernia operation. During the time period May 2008 through October 2009, Vilione's health conditions included: pain due to chronic pancreatitis and uncontrollable diabetes, and excessive blood sugar level fluctuation, which contributes to poor mental ability. Certain of the medications he took daily at the time, oxycodone and morphine, also contributed to his mental and physical instability.
Vilione did not consider himself able to run the company during this time, so in the latter part of 2008 he hired Rick Suave (sp.) and Rick Pulse (sp.) to run it for him. Suave, Pulse, and the company's accountant would have had responsibility for paying the taxes at issue. During this time period, Vilione was taking 120 mg. of oxycodone and 60 mg. of morphine per day. Vilione received reports from Suave and Pulse, but the opiates he was taking interfered with his mental processes to the point where he could not comprehend them.
By operation of Wis. Stat. § 108.22(9), personal liability may be imposed upon an individual if four conditions are met: 1. the individual had at least 20 percent ownership in the corporation; 2. the individual had control or supervision of or responsibility for making tax payments; 3. the individual willfully failed to make those payments; and 4. the department tried, unsuccessfully, to collect the monies in question from the corporation itself. Factors 1, 2, and 4 are conceded, leaving only whether Vilione willfully failed to make the payments.
"'Willfulness' has been almost universally defined as an intentional, voluntary, conscious act or omission." Feist v. United States, 221 Ct. Cl. 531, 607 F.2d 954, 961 (Ct. Cl. 1979), citing Bolding v. United States, 215 Ct. Cl. 148, 565 F.2d 663 (1977).(1) No evidence establishes that Vilione intentionally failed to pay the taxes in question. This of course does not end the inquiry; if it did, it would be a simple matter for anyone to avoid liability by simply designating responsibility for the taxes to someone else. [Thus the responsibility requirement (factor 2) is satisfied by one who has delegated his or her responsibility to another.]
For the willfulness factor, however, it must be shown "that the responsible person recklessly disregarded his duty to collect, account for, and pay over the trust fund taxes or . . . that the responsible person ignored an obvious and known risk that the trust funds might not be remitted." Feist, supra, id, citing Brown v. United States, 591 F.2d 1136 (5th Cir. 1979). This of course is Wisconsin's gross negligence standard, and in the present context it specifically does not include ordinary negligence. See Bolding, supra, 565 F.2d 663, 672 ("More than mere negligence is required for 'willfulness'; a person is not 'willful' if as a result of negligence he is unaware of the default in the payment of payroll taxes.").
Based upon Vilione's medical conditions and medications during the time period at issue, the commission cannot conclude that his actions meet even a standard of ordinary negligence. He properly recognized that he was not competent to perform his duties, such that he had little choice but to relinquish management of the company. He continued to attempt to oversee the company's affairs, but was not able to do so. Further, as noted above, before Vilione became ill, he actively ran the company, including overseeing the payment of unemployment taxes. This factor strengthens the conclusion that his failure to do so later, when Suave and Pulse were running the company, was due to the significant level of narcotic medication he was on (in conjunction with the underlying medical conditions the medication was for), and not due to any reckless disregard on his part of his duties.
There is no evidence that Vilione had any knowledge Suave, Pulse, and the accountant would not run the company properly, that is, pay the taxes they were supposed to pay. He thus cannot be said to have disregarded "an obvious and known risk" that the taxes might not be remitted to the state, which was the basis for liability in Denbo v. United States, 988 F.2d 1029 (10th Cir. 1993) (willful failure because Denbo was aware corporation had defaulted in its payment of employment taxes but nevertheless disregarded a known risk by relying upon co-owner's subsequent assurances that "they had everything worked out" and by doing nothing more). The 9th Circuit employed the same reasoning in United States v. Leuschner, 336 F.2d 246 (9th Cir. 1964). Leuschner's ignorance of the controller's failure to have paid the Yosemite Creek Corporation's taxes was legitimate, as having been due to a reasonable division of work responsibilities between Leuschner and the controller. Leuschner's subsequent ignorance of the (same) controller's failure to have paid the Kadota Creek Corporation's taxes was not legitimate, however, because by that time Leuschner knew that the controller previously had failed to remit the taxes, but did no more to see that Kadota Creek's taxes were paid than he had done to see that Yosemite Creek's were.
Finally, there is a societal stigma associated with such matters as fraud and reckless disregard. For this reason, proof of such must be by the so-called middle standard of proof, clear, satisfactory, and convincing evidence, see Kuehn v. Kuehn, 11 Wis. 2d 15, 104 N.W.2d 138 (1960). The commission so held in Warner, and that level of evidence is absent in the present case.
The commission therefore finds that Vilione did not willfully fail to make the tax contributions at issue, within the meaning of Wis. Stat. § 108.22(9).
The decision of the administrative law judge is reversed. Accordingly, Michael Vilione is not personally liable for the employer's delinquent taxes, interest, and collection costs as set forth in the initial determination.
Dated and mailed August 27, 2013
By the Commission
/s/ Laurie R. McCallum, Chairperson
/s/ C. William Jordahl, Commissioner
/s/ David B. Falstad, Commissioner
MICHAEL C VILIONE
ATTORNEY CHARLES SCHAEFER, DWD - UI DIVISION
EOGEnvironmental_srr : 105
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Editor's Note: On September 13, 2013, the Wisconsin Department of Workforce Development served notice of nonacquiescence to the Commission pursuant to Wis. Stat. § 108.10(7)(b).
(1)( Back ) The cases cited herein are drawn primarily from the leading commission decision on personal liability, In re the contribution liability of Henry A. Warner, UI Dec. Hearing No. S9100679MW (LIRC July 16, 1993), aff'd, Warner v. LIRC, No. 93 CV 3157 (Wis. Cir. Ct. Dane County May 18, 1994).