Memorandum of Decision Re: Dischargeability of Withholding Tax

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re ROGER and DOROTHY STICKLER,                                       No. 1-86-00022      Debtors. ___________________________/ ROGER and DOROTHY STICKLER,      Plaintiffs,     v.                                                                                          A.P. No. 1-88-0140 STATE OF CALIFORNIA, et. al.,      Defendant. ______________________________/
Memorandum of Decision
     Prior to 1982, plaintiff and debtor Roger Stickler was the sole shareholder and president of Arcata Flying Service, Inc., a small commuter airline. In 1982, he began selling some of his stock to two other individuals. In 1983, Stickler retained the title of president while one of the other individuals was designated chief executive officer. Stickler concentrated on the operations side of the business, and left the financial side mostly to the new shareholders.      This action was commenced by Stickler and his codebtor wife to recover damages against the State of California for violation of the permanent injunction of section 524(a) of the Bankruptcy Code by setting off the corporation's unpaid 1983 withholding tax obligation against their 1987 personal income tax return. Whether the state's action was wrongful depends on whether Stickler has a nondischargeable personal obligation for the 1983 corporate withholding taxes.      Pursuant to sections 523(a)(1) and 507(a)(7)(C) of the Bankruptcy Code, debts for payroll withholding taxes are nondischargeable. California Unemployment Insurance Code section 1735 makes persons having charge of the affairs of a corporation personally liable for any willful failure to pay the corporate withholding taxes. The taxes are therefore a nondischargeable debt of Stickler if he had charge of the corporation and willfully failed to see that the taxes were paid.      Even though he remained as president of the corporation and his wife was secretary and bookkeeper of the corporation during 1983, Stickler says that he has no liability under section 1735 of the Unemployment Insurance Code because he had no say in what bills were paid. He explains that the bank accounts were changed so that he was one of three authorized signatories, any two of which could issue a check. Thus, he could not pay any bills on his own and the other two could pay bills without him.      There are two problems with Stickler's argument. First, the state has produced a check drawn on a corporate account dated October 30, 1983, bearing Stickler's signature alone; he admits he had sole signatory power over that one account. Second, and more fundamental, under Stickler's theory all three members of any management triumvirate could escape personal liability merely by agreeing among themselves that any two could do anything but any one could not act alone. The court does not interpret the law in this manner.      Drawing on analogous federal law, it is clear that one is in charge of corporate affairs merely by virtue of his status, regardless of the actual mechanisms used to pay bills. Significant control over corporate affairs, not exclusive control, is all that need be shown. Turner v. U.S. (9th Cir.1970) 423 F.2d 448, 449. Thus, the fact that Stickler was one of the three persons who could sign corporate checks, especially when coupled with his status as president, establishes his liability as a responsible person under the statute.      Stickler cannot convincingly argue that his failure to see that the taxes were paid was not willful. A finding of willfulness requires no showing of fraud or bad motives, but only the voluntary, conscious, and intentional preference of other creditors over the taxing agency. Bloom v. .S. (9th Cir.1960) 272 F.2d 215, cert. den. 363 U.S. 803. The corporation's failure to pay was clearly willful under this standard. The fact that any two of the three signatories could have paid the taxes means that all three are guilty of willful failure to pay. Stickler cannot use his insulation from day-to-day financial matters as an excuse, especially since he clearly knew at the time that the withholding taxes were not being paid.      For the foregoing reasons, the court finds that the corporation's 1983 withholding tax debt is a personal debt of Stickler, and was not discharged in his 1986 bankruptcy. The setoff was therefore proper, and not a violation of section 524(a) of the Bankruptcy Code. The Sticklers will therefore take nothing by their complaint, which will be dismissed with prejudice.      Counsel for the state shall submit an appropriate form of judgment. This memorandum constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052.
Dated: August 7, 1989                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy