Karl Eckhardt v. USA, et al.

FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
MARCH 26, 2012
JOHN LEY
CLERK
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 10-15113
D. C. Docket No. 1:08-cv-21791-ASG
KARL ECKHARDT,
Plaintiff-Counter
Defendant-Appellant,
versus
UNITED STATES OF AMERICA,
Defendant-Counter
Claimant-Appellee,
KIM ECKHARDT,
Defendant-Counter
Defendant-Appellee,
ARTHUR P. GIRARD,
Counter-Defendant.
Appeal from the United States District Court
for the Southern District of Florida
(March 26, 2012)

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Before DUBINA, Chief Judge, ANDERSON and KLEINFELD, Circuit Judges.*
PER CURIAM:
This is an appeal from the district court’s amended final judgment awarding
summary judgment to the United States (“the government”). The district court
determined that Karl Eckhardt was the alter ego of Karl’s Collision Center, Inc.
(“KCCI”). Because we agree with the district court that there are no genuine
issues of material fact, we affirm the grant of summary judgment in favor of the
government.
I.
Eckhardt has been in the automotive business since he graduated from high
school. In 1997, Eckhardt became the sole owner of Arnold’s Paint and Body,
Inc. (“Arnold’s”), an auto repair business formed by Arnold Nese in 1987 located
on the property at issue in this suit. Kim, Eckhardt’s wife, later became vice1
president of the corporation. On March 2, 2001, the IRS filed a Notice of Federal
Tax Lien for taxes owed by Arnold’s. Nine months later, on December 12, 2001,
Eckhardt formed KCCI. Arnold’s was administratively dissolved by the State of
Florida on October 4, 2002.
Honorable Andrew J. Kleinfeld, United States Circuit Judge for the Ninth Circuit, sitting*
by designation.
At that time, Eckhardt executed a $65,000 mortgage in favor of Arnold Nese. The mortgage1
was later assigned to Arthur P. Girard, a third-party defendant in the case below.
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Eckhardt was the sole owner of KCCI and served as president. His wife
served as vice president. KCCI was a paint and body auto shop operated by
Eckhardt on the subject property, just like Arnold’s. KCCI’s corporate account
and the Eckhardts’ personal accounts were maintained at the same bank, City
National Bank of Florida. Over the years, many transfers took place from KCCI’s
account to the Eckhardts’ mortgage and personal checking accounts. Eckhardt
also wrote himself checks from KCCI’s corporate account.
In 2004, a transfer of $7,240 was made from KCCI’s account to the
Eckhardts’ mortgage account and $15,635 was transferred to their personal
checking account. On July 28, 2004, Eckhardt wrote himself a check for the2
amount of $5,453.26 from KCCI’s corporate account. On July 29, 2004, he wrote
a check to City National Bank from his mortgage account for an almost-identical
amount of $5,458.26. Eckhardt could not explain these payments during his
deposition but stated that he believed the latter check to be a mortgage payment
for his personal residence.
Eckhardt disputes this fact in the statement of disputed facts but states that “Karl Eckhardt2
nor Kim Eckhardt ‘transferred’ any funds as alleged. It was the consistent testimony of the
Eckhardts that the bank automatically made the transfers; and that they were not aware of any
agreement authorizing such transfers, nor did either of them initiate any of the referenced transfers.”
[R. 104-2 at 6.] Thus, Eckhardt only disputes that he personally transferred the funds but
acknowledges that the funds were transferred.
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In 2005, $26,855 was transferred from KCCI’s account to the Eckhardts’
mortgage account and $18,303.45 to their personal account. In 2006, $30,460 was
transferred from KCCI’s account to the Eckhardts’ mortgage account and $6,115
to their personal account. Between April 28, 2006 and November 17, 2006,
Eckhardt paid $21,800 from KCCI’s account toward the mortgage on the property.
Lease payments on a car leased to Eckhardt’s wife were made from KCCI’s
corporate account, as well as car insurance on a Ford Thunderbird for the
Eckhardts’ personal use.
Soon after its incorporation, KCCI incurred employment tax liabilities and
the IRS tried unsuccessfully to collect from KCCI. In August 2005, KCCI owed
employment taxes for the first and fourth quarters of 2002, all four quarters of
2003, and the first and second quarters of 2004. On June 22, 2005, the IRS
assessed trust fund recovery penalties against the Eckhardts pursuant to 26 U.S.C.
§ 6672 as responsible officers of KCCI. The Eckhardts paid these penalties. In
January 2007, the IRS obtained an order authorizing Revenue Officer Elmer Davis
to enter KCCI and seize property belonging to the taxpayer. The IRS seized cash,
checks, and equipment and later sold the equipment.
On the day KCCI’s assets were seized, Eckhardt’s wife formed and
incorporated NMB Collision Center, Inc. (“NMB”). Like Arnold’s and KCCI,
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NMB did not pay its employment taxes on time and as of September 23, 2009,
NMB owed employment taxes for the first, second, and third quarters of 2008.
On May 11, 2007, the IRS filed a Notice of Federal Tax Lien against the
Eckhardts as alter egos of KCCI. After levying on bank accounts and recovering
proceeds through the seizure, some of KCCI’s employment tax liabilties were
paid. As of September 23, 2009, the assessed balance due from KCCI was
$98,445.28, and it still owes taxes for the second, third, and fourth quarters of
2004 and the first, second, and third quarters of 2005.
Eckhardt brought suit against the government pursuant to 28 U.S.C. § 2410,
seeking to quiet title to the property. The government filed a counterclaim against
Eckhardt pursuant to I.R.C. § 7403 to foreclose the federal tax lien on the
property. The government filed a motion for summary judgment, which the
district court granted in part and denied in part. On July 7, 2010, the court found
that Karl Eckhardt was the alter ego of KCCI, that the Notice of Federal Tax Lien
against Eckhardt was valid, and that the government was entitled to enforce the
lien against the property. An Amended Final Judgment was entered on July 30,
2010. Eckhardt filed this appeal to contest the district court’s grant of summary
judgment in favor of the government.
II.
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We review a grant of summary judgment de novo. Levinson v. Reliance
Standard Life Ins. Co., 245 F.3d 1321, 1325 (11th Cir. 2001). Summary judgment
is appropriate when “there is no genuine dispute as to any material fact and the
movant is entitled to a judgment as a matter of law.” FED. R. CIV. P. 56(a). “A
genuine factual dispute exists if the jury could return a verdict for the non-moving
party.” Thomas v. Cooper Lighting, Inc., 506 F.3d 1361, 1363 (11th Cir. 2007)
(per curiam) (internal quotation marks omitted). The materials presented and all
factual inferences must be viewed in the light most favorable to the non-moving
party. Nat’l Parks Conservation Ass’n v. Norton, 324 F.3d 1229, 1236 (11th Cir.
2003) (citing Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598,
1608 (1970)). The question is “whether the evidence presents a sufficient
disagreement to require submission to a jury [or] whether it is so one-sided that
one party must prevail as a matter of law.” Bishop v. Birmingham Police Dep’t,
361 F.3d 607, 609 (11th Cir. 2004) (per curiam) (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 251–252, 106 S. Ct. 2505, 2512 (1986)).
III.
Property held by an “alter ego” of the taxpayer is subject to collection for
the taxpayer’s tax liability. See G. M. Leasing Corp. v. United States, 429 U.S.
338, 350–51, 97 S. Ct. 619, 627–28 (1977). Florida law governs the
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determination of alter ego status in the context of federal tax liabilities. Old W.
Annuity & Life Ins. Co. v. Apollo Grp., 605 F.3d 856, 862 (11th Cir. 2010) (per
curiam). Under Florida law, the corporate veil will only be pierced to prevent
fraud or injustice. Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114, 1121
(Fla. 1984). Piercing the corporate veil is proper if the corporation “is a mere
device or sham to accomplish some ulterior purpose, or is a mere instrumentality
or agent of another corporation or individual owning all or most of its stock, or
where the purpose is to evade some statute or to accomplish some fraud or illegal
purpose.” Aztec Motel, Inc. v. Faircloth, 251 So. 2d 849, 852 (Fla. 1971). To
pierce the corporate veil in Florida, a claimant must establish:
(1) the shareholder dominated and controlled the corporation to such
an extent that the corporation's independent existence was in fact
non-existent and the shareholders were in fact alter egos of the
corporation;
(2) the corporate form must have been used fraudulently or for an
improper purpose; and
(3) the fraudulent or improper use of the corporate form caused injury
to the claimant.
Gasparini v. Pordomingo, 972 So. 2d 1053, 1055 (Fla. Dist. Ct. App. 2008) (per
curiam).
One important factor relevant to whether an individual dominates the
corporation to such an extent as to negate its separate identity is whether corporate
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funds were used for the individual’s benefit. See Sykes, 450 So. 2d at 1120. A
showing of improper conduct is required to pierce the corporate veil. Id. at 1121.
Mere ownership of a corporation by one shareholder is insufficient to pierce the
corporate veil. Gasparini, 972 So. 2d at 1055. The veil will be pierced and the
corporate entity disregarded if it is shown “that the corporation is formed or used
for some illegal, fraudulent or other unjust purpose which justifies piercing the
corporate veil. Sykes, 450 So. 2d at 1121 (quoting Roberts’ Fish Farm v. Spencer,
153 So. 2d 718, 721 (Fla. 1963)). Improper conduct exists where a corporation is
used “as a subterfuge to mislead or defraud creditors, to hide assets, to evade the
requirements of a statute or some analogous betrayal of trust.” Lipsig v. Ramlawi,
760 So. 2d 170, 187 (Fla. Dist. Ct. App. 2000). The alter ego issue is heavily fact-
specific, but alter ego liability may be decided on summary judgment. See Miller
v. Harco Nat’l Ins. Co., 241 F.3d 1331, 1332–33 (11th Cir. 2001) (per curiam)
(affirming grant of summary judgment that no material dispute existed as to
whether individual and corporation were alter egos).
The record shows that the government has established the complete absence
of any genuine issue of material fact in this case. Under Florida law, the
government was required to prove that (1) Karl so dominated and controlled KCCI
that the corporation had no separate existence; (2) KCCI was used for some
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illegal, fraudulent, or other improper purpose; and (3) such alleged illegal,
fraudulent, or improper purpose damaged the government. As the party asserting
the alter ego theory, the government bears the burden of proof.
(1) Domination and Control
The government presented evidence that Eckhardt dominated and controlled
KCCI. Eckhardt formed KCCI and was its sole owner and president. There is
overwhelming evidence of commingled funds between Eckhardt and KCCI. It is
undisputed from the record that more than 240 transfers were made from KCCI’s
corporate account to the Eckhardts’ personal accounts totaling $107,000. It is also
undisputed that Eckhardt wrote himself checks from the corporate account and
that he used corporate funds to make a down payment on a Thunderbird car for the
Eckhardts’ personal use. Further, it is undisputed that Eckhardt wrote at least
twenty-one checks, totaling $21,800, from the KCCI account to pay for a
mortgage on the property.
Eckhardt asserts that there is no proof that the Eckhardts initiated any of the
inter-account transfers. Contrary to Eckhardt’s argument, the district court
accepted the Eckhardts’ testimony that they did not personally make any transfers.
The district court never made a finding that the Eckhardts made the transfers, but
only that the transfers occurred, as evidenced on the bank statements. Whether or
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not the Eckhardts made the transfers or the transfers were automatically entered by
the bank is irrelevant. What matters is that many transfers from KCCI’s corporate
account to the Eckhardts’ personal accounts took place. Eckhardt argues that
since he did not personally make the transfers, he did not have sufficient control
over KCCI as an alter ego. Yet there is no evidence that Eckhardt attempted to
stop the transfers or return the funds to the corporate account and there is evidence
that Eckhardt used some of the money transferred for his benefit—the thunderbird
car and mortgage payments.
Eckhardt argues on appeal that the fact that he wrote himself checks is
irrelevant because he was president of KCCI and was entitled to payment for his
services. However, there is no evidence to prove that the checks were written for
Eckhardt’s salary or for rent of the property that Eckhardt owned. In fact,
Eckhardt testified during his deposition that he did not know why he had written
himself a $7,500 check. Viewing the facts in a light most favorable to Eckhardt
and assuming the checks were written for his salary or rent of the property,
Eckhardt still does not escape alter ego liability because there is no dispute that
Eckhardt made mortgage payments totaling $21,800 from KCCI’s corporate
account toward Arnold Nese’s mortgage on the subject property. Eckhardt’s
admission that these “payments were made to Mr. Nese, directly by Karl’s
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Collision, as a matter of convenience, to avoid the necessity of writing one check
from the corporation to Mr. Eckhardt, only to turn around and write an identical
check to Mr. Nese,” supports the government’s argument Eckhardt did not respect
the corporate form and that he commingled corporate funds. [R. 104-2 at 8.]
This evidence shows that Eckhardt dominated and controlled KCCI to such
an extent that there was no meaningful difference between Eckhardt and the
corporate form, KCCI. Although Eckhardt’s status as president of KCCI is not
sufficient to prove Eckhardt’s control, we conclude that the evidence of his
extensive use of corporate funds for his personal benefit supports the district
court’s conclusion that Eckhardt dominated and controlled KCCI as its alter ego.
(2) Improper or Fraudulent Purpose
The government adequately presented evidence that KCCI was used for the
improper purpose of evading employment tax liabilities. Viewing the facts in a
light most favorable to Eckhardt, there are no genuine issues of material fact on
this issue.
Prior to KCCI’s incorporation, Arnold’s had unpaid employment tax
liabilities. Nine months after the IRS filed a notice of federal tax lien against
Arnold’s, Eckhardt formed KCCI. KCCI also had unpaid employment tax
liabilities from 2002 to 2005. During the time that KCCI had unpaid employment
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tax liabilities, over one hundred thousand dollars was transferred from KCCI’s
corporate account to the Eckhardts’ personal accounts. In addition, Eckhardt
wrote himself checks from KCCI’s corporate account without any indication that
it was for payment of his services as president.
Contrary to Eckhardt’s argument on appeal, the government was not
required to show that the corporation was formed for an improper purpose.
Florida law only requires that the corporation be formed or used for an improper
or fraudulent purpose. Thus Eckhardt’s argument that the government did not find
fraud and did not look at the issue from a “fraudulent perspective” does not mean
the alter ego analysis must end. The bank statements, checks, and history of
KCCI’s formation support the district court’s conclusion that KCCI was used for
an improper purpose. The government established that Eckhardt employed KCCI
for an improper purpose—to evade payment of employment taxes.
(3) Damage to the government
The improper use of KCCI as a corporate form caused injury to the
government by preventing the collection of outstanding employment tax liabilities
from KCCI. By taking funds out of KCCI, Eckhardt deprived the corporation of
any means to pay its taxes. The government adequately proved this element by its
inability to collect taxes from KCCI.
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IV.
For the foregoing reasons, we affirm the grant of summary judgment.
AFFIRMED.
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KLEINFELD, Senior Circuit Judge, dissenting:
I respectfully dissent.
To pierce the corporate veil in Florida, “the corporate form must have been
used fraudulently or for an improper purpose.” It is not enough that a corporation1
is thinly capitalized and improperly run. The corporation must be organized or
operated for an improper purpose to allow liability against shareholders.2
“Thus, unless there is a showing that a corporation was formed, or at least
employed, for an unlawful or improper purpose—as a subterfuge to mislead or
defraud creditors, to hide assets, to evade the requirements of a statute or some
analogous betrayal of trust, the corporate veil cannot be pierced.”3
Karl Eckhardt presented evidence sufficient to raise a genuine issue of
material fact on this issue. If Karl’s Collision was formed and operated so that
Karl could earn a living by doing auto body work, and its failure to pay taxes was
because the business was poorly run, or Karl got sick, rather than because it was
Gasparini v. Pordomingo, 972 So. 2d 1052, 1055 (Fla. Dist. Ct. App. 2008).1
Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114, 1117 (Fla. 1984); Ally v. Naim,2
581 So. 2d 961, 962–63 (Fla. Dist. Ct. App. 1991) (per curiam).
Lipsig v. Ramlawi, 760 So. 2d 170, 187 (Fla. Dist. Ct. App. 2000).3
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being operated for the purpose of evading taxes, then Karl would not be personally
liable for the taxes on the corporation.
Karl’s Collision did pay employment taxes before Karl got sick, and after he
got sick, and paid at least some taxes while Karl was sick. During the time Karl’s
Collision failed to pay taxes, Karl was diagnosed with a rare chondoblastoma
tumor on his ankle, for which he got five surgeries, resulting in a staphylococcus
infection, and in Karl being heavily medicated. Business suffered without Karl,
and the Eckhardts sold their home to reduce living expenses. Hurricane damage
delayed their move to the cheaper home by four months, so they were homeless,
living in a trailer with three children and a very sick father and husband. Although
these facts do not excuse Karl’s Collision from paying its employment taxes, they
do permit a reasonable inference that the purpose of the business was not to evade
taxes. A finder of fact could infer that the failure to pay was because Karl was
sick and broke, not because he had schemed to use the corporate form to evade
payment.
Karl Eckhardt and his wife, Kim, have personally expended significant
funds as a result of Karl’s Collision’s unpaid employment taxes. They personally
paid $76,000 against Karl’s Collision’s unpaid employment taxes in trust fund
recovery penalties under 26 U.S.C. § 6672. They borrowed this money against
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their personal residence to pay for the debts of Karl’s Collision. Further, the
corporation was not dissolved voluntarily. The government seized all of the assets
of Karl’s Collision and sold them, and then the State of Florida dissolved the
corporation. Kim averred in her declaration that she then borrowed money from
her mother to buy back the assets seized from Karl’s Collision to start her own
auto body shop, NMB Collision, so that she could support the family and pay
Karl’s medical bills. These facts permit a reasonable inference that this family
sought to run a legitimate auto body shop despite their apparent inability to
manage the finances.
As for corporate funds being used for personal expenses, the government
does not claim “skimming” (hiding income under the guise of business expenses).
Without such a claim, there is no compelling inference that this bad bookkeeping
method amounts to using the corporation fraudulently or for an improper purpose.
Since the Eckhardts owned all of the stock of the corporation, there would be no
fraud or improper purpose against other shareholders. So long as they did not hide
income, there would be no fraud or improper purpose against the Internal Revenue
Service in the nature of evading income tax. For this close corporation to pay
Karl’s mortgage on the land would, as a practical matter for people
unsophisticated in accounting, be like paying rent on the business premises. That
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does not support an inference of fraud. The Eckhardts submitted evidence that
much of the personal use of the corporate account amounted to the bank
transferring funds rather than the Eckhardts deciding to do it, as banks often do
when someone has two accounts and one of them is overdrawn.
Since on summary judgment we are required to “view all the evidence and
factual inferences therefrom in the light most favorable to the non-moving party,”4
my view is that Karl Eckhardt has established a genuine issue of material fact and
is entitled to try his case.
Miller v. King, 384 F.3d 1248, 1258–59 (11th Cir. 2004).4
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