FOR THE NORTHERN DISTRICT OF CALIFORNIA
ROGER and DOROTHY STICKLER, No. 1-86-00022
ROGER and DOROTHY STICKLER,
v. A.P. No. 1-88-0140
STATE OF CALIFORNIA, et. al.,
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.
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
(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 _______________________