Summary
In Lucas v. Limbach (1988), 35 Ohio St.3d 71, 518 N.E.2d 944, we held that a responsible corporate officer was not derivatively liable under R.C. 5739.33, even though trust fund taxes are not dischargeable in bankruptcy, because "* * * the state, under the terms of the plan of arrangement, waived the payment of the remaining indebtedness in exchange for the promise by the debtor to pay $3,000 per month from the proceeds of its operation.
Summary of this case from Kessler v. LimbachOpinion
No. 87-281
Decided February 3, 1988.
APPEAL from the Court of Appeals for Stark County.
James D. Lucas, Wayne S. Wolf, and William Hogue were officers of Persky Wolf, Inc. (hereinafter "the corporation"). They were assessed as officers responsible for the unpaid sales tax assessment of the corporation pursuant to R.C. 5739.33. Wolf is the only party remaining in this case. Lucas was deleted from the assessment by the Tax Commissioner, as he was not properly assessed, and Hogue did not appeal the finding of the commissioner.
Wolf was an officer of the corporation from its incorporation in 1972 until September 1977, when he sold his approximate twenty-five percent interest to T H Enterprises. He was president of the corporation and ran the retail merchandising discount division. He had hired the controller who prepared the sales tax returns, and he had authority to fire the controller as well as other accounting personnel. Wolf had signed some returns and authorized some checks in payment of the sales tax during the audit period.
In November 1975, the corporation filed for protection under Chapter 11 of the Bankruptcy Act. Wolf was named debtor in possession and was charged with control over the corporate finances and the implementation of a reorganization plan. After the sale to T H Enterprises in 1977, this successor gradually liquidated three stores and sold the remaining assets of the corporation to Brian's Family Center. The corporation was released from bankruptcy in June 1978.
The corporation evidently experienced sales tax problems from its inception. Appellant, Tax Commissioner, issued assessments against the corporation and became a priority creditor in the bankruptcy. The plan of arrangement which was confirmed by the court, after consent by appellant, provided that the state would be paid $45,000 toward the payment of sales tax due. The state waived the immediate payment of the remaining indebtedness, but would be paid $3,000 per month from the corporation's operation until the indebtedness was fully paid. After the initial payment and the first monthly installment were made by the corporation, totalling $48,000, no further payments were made to the state. Appellant assessed appellee, Lucas, and Hogue for the balance.
Upon appeal to the Board of Tax Appeals ("BTA"), the BTA found that Wolf was a responsible corporate officer to whom personal liability had properly attached and affirmed the assessment against him.
The court of appeals reversed this decision, holding that the plan of arrangement was a contract which changed the sales tax claim into a promise by the debtor in possession to pay a sum of money in settlement between the parties and that this new agreement between the appellant and the debtor in possession resulted in a settlement of the claim and a release of Wolf, personally, from the derivative obligation.
The cause is now before this court pursuant to the allowance of a motion to certify the record.
Krugliak, Wilkins, Griffiths Dougherty Co., L.P.A., Sam O. Simmerman, A. Edward Moss and Michael A. Thompson, for appellee.
Anthony J. Celebrezze, Jr., attorney general, and Floyd J. Miller, Jr., for appellant.
For the following reasons, we affirm the judgment of the court of appeals as to Wolf.
Appellant argues that the court of appeals erred when it relied upon decisions which construed the later enacted Bankruptcy Code of 1978, rather than the Bankruptcy Act of 1898. Further, appellant argues that trust fund taxes such as the sales tax are not dischargeable in bankruptcy.
As to the first contention, while technically correct, it does not cause us to reverse the decision of the court since the terms and the concepts used in both the Bankruptcy Act and the Bankruptcy Code are similar. Our review of bankruptcy decisions does not indicate any basic distinctions in the concepts involved, nor does appellant refer us to any cases which note any such distinctions. The court of appeals reviewed recent decisions which discussed the Bankruptcy Code only as a prelude to its finding that the new contract entered into by the debtor and the appellant extinguished the claim of the appellant against the appellee.
See, for instance, In re Astroglass Boat Co., Inc. (E.D. Tenn. 1983), 32 B.R. 538, and In re Blanton-Smith Corp. (E.D. Tenn. 1984), 44 B.R. 73, which are cases decided under the Bankruptcy Code of 1978 but refer to cases decided under the Bankruptcy Act of 1898 for authority.
Concerning the second contention, we agree with the appellant that trust fund taxes are not dischargeable in bankruptcy. However, as the court of appeals found, this claim was not dischargeable in bankruptcy, but the state, under the terms of the plan of arrangement, waived the payment of the remaining indebtedness in exchange for the promise by the debtor to pay $3,000 per month from the proceeds of its operation. The debt was not discharged; it was compromised and settled by the debtor's agreement to make these monthly payments. The court cited In re Ernst (D. Minn. 1985), 45 B.R. 700, 702, for its holding that the confirmation of a plan effectively discharges the prior, underlying indebtedness and creates a new indebtedness:
"The effect of confirmation is to discharge the entire confirmation debt, replacing it with a new indebtedness as provided in the confirmed plan. The plan is essentially a new and binding contract, sanctioned by the Court, between a debtor and his preconfirmation creditors."
In the later case of In re Herron (D. La. 1986), 60 B.R. 82, 84, that court stated:
"Once a plan is confirmed, the preconfirmation debt is `replaced' with a new indebtedness as provided in the confirmed plan. The new indebtedness is, in essence, a new and binding contract between the debtor and the creditors."
As the court of appeals noted, appellant could have preserved her ability to assess Wolf for his derivative liability by reserving such right in the plan of arrangement. She did not do so and specifically waived the immediate payment of the balance due on the liability. The court found that the effect of this was a new agreement, the consideration for which was a new promise to pay, i.e., a chose in action, which is recognized as a valuable property right. Cincinnati v. Hafer (1892), 49 Ohio St. 60, 30 N.E. 197; Loveman v. Hamilton (1981), 66 Ohio St.2d 183, 20 O.O. 3d 194, 420 N.E.2d 1007. We agree. While under the Bankruptcy Act the bankruptcy of a corporation did not release its officers from liability under the laws of a state (former Section 22[b], Title 11, U.S. Code or Section 4[b] of the Bankruptcy Act of 1898, as amended), the agreement of the appellant to waive the underlying debt and contract for a new debt did release appellee here.
Accordingly, the judgment of the court of appeals is affirmed.
Judgment affirmed.
MOYER, C.J., SWEENEY, LOCHER, HOLMES, DOUGLAS, WRIGHT and H. BROWN, JJ., concur.