     Case: 09-50544    Document: 00511164393   Page: 1   Date Filed: 07/06/2010




          IN THE UNITED STATES COURT OF APPEALS
                  FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                  Fifth Circuit

                                               FILED
                                                                  July 6, 2010
                                  No. 09-50544
                                                                 Lyle W. Cayce
                                                                      Clerk
In the Matter of: TEXAS PIG STANDS, INC.

            Debtor
——————————————————–
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS

                      Appellee

v.

VINCENT J. LIUZZA, JR., Trustee of Texas Pig Stands, Inc.

                      Appellant


                  Appeal from the United States District Court
                       for the Western District of Texas


Before JONES, Chief Judge, and BENAVIDES and PRADO, Circuit Judges.
EDITH H. JONES, Chief Judge:
        Vincent J. Liuzza, Jr. served as the bankruptcy trustee for Texas Pig
Stands, a venerable San Antonio, Texas, restaurant company. In an attempt to
keep the restaurants afloat after a plan of reorganization had been confirmed,
Liuzza failed to remit state sales taxes to the Texas Comptroller. The issue
posed in this appeal is whether Liuzza may be held personally liable for the
deficiency. T EX. T AX. C ODE A NN. § 111.016(b) (Vernon 2007). The bankruptcy
court found that Liuzza could not be held liable absent a showing of “gross
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                                     No. 09-50544

negligence.”      The district court disagreed.          We affirm the district court’s
judgment imposing liability.
                                      I. Background
       Pig Stands, home of the legendary “pig sandwich,” 1 owned several
restaurants throughout Texas. In April 2005, Pig Stands filed for Chapter 11
bankruptcy and continued to face serious cash flow problems. While the debtor-
in-possession ran the estate, Pig Stands failed to remit state sales taxes
for October and November 2005.2              On March 14, 2006, the court appointed
Liuzza as trustee. As part of the appointment, the bankruptcy court’s order
(“March Order”) explicitly required Liuzza to remit state sales taxes as they
became due.
       Liuzza believed the best way to maximize the estate’s value was to sell the
restaurants as going concerns instead of liquidating their assets piecemeal.
Bidders would be far more interested in open restaurants, even unprofitable
ones, than in liquidation sales. Accordingly, Liuzza attempted to keep the
restaurants in business to attract bidders. Insufficient cash flow made this
difficult, so Liuzza again fell behind in remitting sales taxes.                  When the
Comptroller moved to convert the bankruptcy to Chapter 7, however, the
bankruptcy court denied the motion. In June 2006, Liuzza remitted the taxes
for April and May 2006, and payments stayed timely until September.
       On September 13, 2006, the bankruptcy court approved a reorganization
plan (the “Plan”), which provided for orderly sales of the restaurants as going
concerns and distribution of the proceeds to the creditors. The Plan created a
liquidation trust (the “Trust Agreement”) and appointed Liuzza trustee. In



       1
           See Texas Pig Stands, Inc. v. Hardrock Café Int’l, 951 F.2d 684 (5th Cir. 1992).
       2
          Pig Stands collected tax from customers for each sale. Under Texas law, those
collected sales taxes are held in trust until remitted to the Texas Comptroller. TEX . TAX CODE
ANN . § 111.016 (Vernon 2007). These”trust-fund taxes” must be remitted timely to the state.


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language similar to that of the March Order, the Plan required Pig Stands to
stay current and timely remit state sales taxes held in trust. Specifically,
Section 5.02 of the Plan provided that “the Trustee shall remain current with all
post-confirmation expenses of the Debtor.”        An addendum to Section 8.06
included “default language” on behalf of the State of Texas:
      (a) A failure by the Trustee to remain current on its
      postconfirmation Texas sales . . . taxes or to make a payment to the
      Texas Comptroller . . . pursuant to the terms of the Plan shall be an
      Event of Default. If the reorganized Debtor fails to cure an Event
      of Default as to tax payments . . . the taxing entity issuing the notice
      of default may (a) enforce the entire amount of all of its claims,
      (b) exercise any and all rights and remedies under applicable
      nonbankruptcy law, and (c) seek such relief as may be appropriate
      in this court.

      In the order confirming the Plan, a new provision specified that:
      The [Texas] administrative claim for October and November 2005
      sales taxes and all accrued penalty and interest thereon will be paid
      on the Effective Date [October 13, 2006].           Any additional
      administrative expense tax claims owed to the Texas Comptroller
      will also be paid on the Effective Date.

      Liuzza paid only a small portion of the taxes that became due on the
Effective Date. This default, he asserts, resulted from the unexpected inability
to consummate a post-confirmation loan. On October 25, more than a month
after Liuzza defaulted in paying the August 2006 taxes and twelve days after the
Effective Date defaults, the Comptroller issued notices of deficiency.
On November 8, the Comptroller froze the company bank accounts and collected
money directly from restaurant cash registers. A week later, the Comptroller
revoked Pig Stands’ license to collect sales taxes, effectively ending the
company’s ability to function. The bankruptcy case was eventually converted to
Chapter 7.
      The Comptroller then filed an adversary proceeding to impose personal
liability on Liuzza for the sales tax deficiency under T EX. T AX C ODE A NN.


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§ 111.016(b) (Vernon 2007).3 The bankruptcy court denied liability, finding that
the Trust Agreement limited Liuzza’s liability to “gross negligence.” The district
court reversed, holding that under the Trust Agreement, Liuzza remained liable
for and had committed willful misconduct in failing to pay trust fund taxes. The
district court entered judgment against Liuzza and he has appealed.
                                     II. Discussion
       This court reviews the decision of a district court, sitting as an appellate
court in bankruptcy, by applying the same standards of review to the bankruptcy
court’s findings of fact and conclusions of law. In re Jack/Wade Drilling, Inc.,
258 F.3d 385, 387 (5th Cir. 2001). Generally, a bankruptcy court’s findings of
fact are reviewed for clear error and conclusions of law are reviewed de novo. In
re Williams, 337 F.3d 504, 508 (5th Cir. 2003).4
       Liuzza raises myriad challenges to a judgment that will cost him more
than a hundred thousand dollars. He denies that he violated applicable state
tax law. He relies upon exculpatory provisions in the Trust Agreement that
accompanied the Plan. He asserts that the mere “deferral” of tax payments was
implicitly or explicitly authorized under bankruptcy law, which allegedly
supersedes state tax law in this respect.



       3
        TEX . TAX CODE ANN . § 111.016(b)(Vernon 2007) states:
      With respect to tax or other money subject to the provisions of Subsection (a),
      an individual who controls or supervises the collection of tax or money from
      another person, or an individual who controls or supervises the accounting for
      and paying over of the tax or money, and who willfully fails to pay or cause to
      be paid the tax or money is liable as a responsible individual for an amount
      equal to the tax or money not paid or caused to be paid. The liability imposed
      by this subsection is in addition to any other penalty provided by law. The
      dissolution of a corporation, association, limited liability company, or
      partnership does not affect a responsible individual’s liability under this
      subsection.
(emphasis added).
       4
          Because Liuzza is proceeding pro se, we interpret his brief liberally to afford all
reasonable inferences which can be drawn from them. See Oliver v. Scott, 276 F.3d 736, 740
(5th Cir. 2000).

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       Because Liuzza appears pro se and because a tax collector’s imposition of
personal liability on a bankruptcy trustee is an unusual, if not wholly
unprecedented occurrence,5 we have carefully reviewed the record before
deciding to affirm the district court. We are also cognizant that although Liuzza
transgressed Texas tax law, he did not enrich himself from Pig Stands’ estate.
We address his interrelated arguments in an orderly fashion.
                                             A.
       As noted above, Texas Tax Code Section 111.016(b), imposes personal
liability on a controlling person for any tax deficiency if that person “willfully”
fails to remit sales taxes held in trust. Liuzza was a controlling party. He
initially asserts that a trustee can be held liable only for gross negligence or
willful or wanton misconduct, and that the trustee’s standard is a different —
and higher — standard than is imposed under state tax law.
       State v. Crawford explains when a party is liable under § 111.016.
262 S.W.3d 532 (Tex. App.–Austin 2008, no pet.).                   Crawford noted that
§ 111.016(b) was modeled after Section 6672 of the Internal Revenue Code,
26 U.S.C. § 6672, and adopted the federal statute’s construction of the term
“willfully”. Id. at 538-39. Citing cases analyzing Section 6672, the court held
that “willfully not paying taxes” is established “by evidence that the responsible
person had knowledge that taxes were due . . . and yet paid other creditors.” Id.
at 538 (citing Barnett v. I.R.S., 988 F.2d 1449, 1457 (5th Cir. 1993)).
“Willfulness . . . requires only a voluntary, conscious, and intentional act, not a
bad motive or evil intent.” Barnett, 988 F.2d at 1458. Liuzza admits that he
knew that the sales taxes were due and used the money to pay other creditors


       5
         See e.g. King v. United States, 85 S. Ct. 427 (1964); In re Dolard, 519 F.2d 282 (9th
Cir. 1975); United States v. Kaplan, 74 F.2d 664 (2d Cir. 1935). Some modern cases discuss
that a trustee might be liable for failing to pay withholding taxes. See e.g. In re San Juan
Hotel Corp., 847 F.2d 931, 947 (1st Cir. 1988); In re Equipment Fabricators, No. 91-16748,
1993 WL 83498, *1 (9th Cir. Mar. 23, 1993); In re Thurman, 163 B.R. 95, 100 n.6 (Bankr. W.D.
Tex. 1994).

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(suppliers, staff, etc.). Accordingly, absent special protection of some sort, he is
exposed to liability under § 111.016(b). Liuzza has not identified, and we have
not found, any different definition of willfulness that pertains to bankruptcy
trustees.
      Liuzza believes that his duty as a trustee to “maximize the estate’s value”
superseded his duty to pay the taxes timely and should absolve him of liability.
Essentially, Liuzza argues his “good intentions” of maximizing the estate’s value
preclude liability. Good intentions are irrelevant: a party is liable for willfully
failing to remit trust-fund taxes irrespective of why he failed to do so. Crawford,
262 S.W.3d at 544 (“Willfulness does not require a bad motive or evil intent, but
rather a ‘voluntary, conscious, and intentional act.’”) (quoting Barnett, 988 F.2d
at 1457).     In the analogous federal tax statute, 26 U.S.C. § 6672(a), good
intentions are not exculpatory. See, e.g., High v. United States, 506 F.2d 755,
756 (5th Cir. 1975); Collins v. United States, 848 F.2d 740, 741-42 (6th Cir. 1988)
(“It is no excuse that, as a matter of sound business judgment, the money was
paid to suppliers and for wages in order to keep the corporation operating as a
going concern — the government cannot be made an unwilling partner in a
floundering business.”).
      Moreover, a trustee’s failure to pay taxes is not judged by a gross
negligence standard. Liuzza mistakenly relies on a case that discusses the
standard of care owed by a trustee to the estate when he acts as its agent. See
In re Smyth, 207 F.3d 758, 761 (5th Cir. 2000). That a trustee is only liable to
the estate for acts of gross negligence, Id. at 761-62, has nothing to do with a
statutory duty to the state to pay taxes held in trust. Liuzza is comparing apples
to oranges.
      Although the Bankruptcy Code does not discuss trustee liability, federal
law directly incorporates state law when a bankruptcy trustee manages property
and expressly requires the timely payment of taxes. See 28 U.S.C. §§ 959(b),
960. Section 959(b) requires a trustee to operate the property “according to the

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requirements of the valid laws of the State in which such property is situated,
in the same manner that the owner or possessor thereof would be bound to do
if in possession thereof.” Section 960(a) states that a trustee “shall be subject to
all Federal, State and local taxes applicable to such business to the same extent
as if it were conducted by an individual or corporation.”                        Finally,
Section 959(a) authorizes suits against trustees “with respect to any of their acts
or transactions in carrying on business connected with such property.” Taken
together, these provisions do not expressly address trustees’ personal liability,
but in confirming trustees’ responsibility to “comply with tax laws,” they are
fully consistent with holding trustees personally responsible for their
professional conduct to the same extent as any other actors under the law.
      Further, the United States’ published materials for bankruptcy trustees
warns trustees of their responsibilities to remit taxes.           The United States
Trustee Manual states:
      Failure to remit taxes is also a breach of the debtor’s statutory
      obligations and fiduciary duties. See 11 U.S.C. [§ 346(h)]; 28 U.S.C.
      §§ 959 and 960. A debtor is presumed to be aware of the withholding
      requirements of federal and state law. See In re WPAS, Inc., 6 B.R.
      40, 44 (Bankr. M.D. Fla. 1980).6
Similarly, the U.S. Trustee’s Chapter 11 Trustee Handbook specifically informs
trustees of the risk of not paying taxes:
      The trustee must file appropriate returns and pay tax liabilities on
      behalf of the estate. A trustee who fails to comply with the federal
      withholding tax provisions runs the risk of being held personally
      liable for the trust fund taxes not collected and paid over to the
      government. Similarly, the trustee may be held personally liable
      when an estate does not have sufficient funds to pay the taxes due
      from the sale of estate assets.




      6
          U.S. DEP ’T . OF JUSTICE , U.S. TRUSTEE MANUAL , CHAPTER 11 CASE ADM INISTRATION
3 - 9 . 4 . 5    ( O c t o b e r       1 9 9 8 )   a v a i l a b l e a t
http://www.justice.gov/ust/eo/ust_org/ustp_manual/vol3toc.htm.

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(emphasis added).7 While the provision discusses federal withholding taxes, it
certainly puts the reader on notice that he is responsible for remitting trust-fund
taxes in a timely manner. The Chapter 11 Trustee Handbook also refers to
§ 959. Liuzza testified to reading the handbook and should have been aware of
its warnings.
                                           B.
      Liuzza next asserts that the Trust Agreement limits his liability. The
Comptroller is bound to any liability limitations imposed by the Plan, which
included the Trust Agreement.         11 U.S.C. § 1141(a).       The Plan and Trust
Agreement are contracts that must be read in their entirety to be given full
meaning. In re Texas Commercial Energy, 607 F.3d 153, 158 (5th Cir. 2010);
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 235 (Tex. 2003) (“Contracts are
to be read as a whole, and an interpretation that gives effect to every part of the
agreement is favored so that no provision is rendered meaningless or as
surplusage.”). Further, under the governing law of Texas, “exculpatory clauses
are strictly construed, and the trustee is relieved of liability only to the extent
to which it is clearly provided that he shall be excused.” Jewett v. Capital Nat.
Bank, 618 S.W.2d 109, 112 (Tex. Civ. App.– Waco 1981, writ ref’d n.r.e.)
      Liuzza relies on Sections 3.13 and 5.4 of the Trust Agreement to limit his
liability. Under Section 3.13, the trust will indemnify the trustee “from all loss,
liability, expense (including counsel fees) or damages which he or they may incur
or sustain in good faith and without fraud, willful misconduct, or negligence in
the exercise and performance of his or their powers[.]”             This provision is
inapposite. This is not an indemnification case, and Liuzza is ineligible for
indemnification because he committed willful misconduct by willfully failing to




      7
        U.S. DEP ’T . OF JUSTICE , CHAPTER 11 TRUSTEE HANDBOOK 52 (May 2004) available at
http://www.justice.gov/ust/eo/private_trustee/library/chapter11/docs/Ch11Handbook-20040
5.pdf.

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pay taxes.8 Section 3.13 also provides that “The Trustee shall not be personally
liable for the payment of any Trust expense or claim or other liability of the
Trust, and no person shall look to the Trustee for payment of any such expense
of liability.” This provision also does not shield Liuzza from liability. Section
111.016(b) is not shifting a liability from the trust to Liuzza, but imposing a
personal liability onto Liuzza for failing to remit taxes as a controlling person of
the trust.
       Of more interest, Section 5.4 states that individual creditors cannot pursue
the trustee to satisfy the trust’s liabilities:
       No Personal Obligation for Trust Liabilities. Persons dealing with
       the Trustee in matters relating to the Trustee have recourse only
       against the Trust Assets to satisfy any liability incurred by the
       Trustee to such person in carrying out the terms of this Agreement
       or the Plan, and the Trustee shall have no personal or individual
       obligation to satisfy such liability. . . .
(emphasis added). Nevertheless, Section 5.4 does not protect him from liability.
Section 5.1 explains more precisely when the trustee faces liability:
       Standard of Care. Except in the case of fraud, willful misconduct or
       gross negligence, the Trustee shall not be liable for any loss or
       damage by reason of any action taken or omitted by him pursuant
       to the discretion, power and authority conferred on him by this
       Agreement or the Plan.
(emphasis added). Read in conjunction with Section 5.1, Section 5.4 absolves the
trustee from any personal liability if he follows the Plan and does not commit
fraud or willful misconduct. Liuzza exceeded his authority, violated the Plan,
and committed willful misconduct. Accordingly, the Trust Agreement does not
limit his liability.




       8
          Liuzza argues that he did not commit “misconduct.” However, even by his own
definition, he committed misconduct. Liuzza uses BLACK LAW DICTIONARY ’s definition: “A
dereliction of duty; unlawful or improper behavior.” As discussed previously, Liuzza’s behavior
was unlawful.

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      Liuzza emphatically disagrees that the mere “deferral” of tax payments
while he awaited an opportune sale of the restaurants should amount to “willful
misconduct.” But the Plan plainly required timely payment of these taxes, and
the Trust Agreement forbade him to “attempt to modify the plan” (Section 4.3).
Nonetheless, he was authorized to seek alterations to the Trust Agreement on
written submission to and approval of the bankruptcy court (Section 11.1).
Liuzza paid no heed to these strictures, nor did he avail himself of recourse to
the bankruptcy court before unabashedly defaulting on the taxes.
      Another source of fundamental misunderstanding by Liuzza is that, acting
for the estate, he could pick and choose when to pay taxes as opposed to other
priority claims. First, the timing of tax payments was determined by the Plan,
a court order binding on Liuzza. Second, because state sales taxes are held in
trust by an entity until paid to the Comptroller, they became property of the
debtor’s estate, and then of the reorganized debtor, only to the extent of legal
title, In re Al Copeland Enterprises, Inc., 991 F.2d 233, 235 (5th Cir. 1993), thus
limiting Liuzza’s ability freely to dispose of those sums.           Third, cases
determining by what priority scheme administrative creditors may divide up the
debtor’s assets in a liquidation, see e.g. United States v. Randall 401 U.S. 513,
91 S. Ct. 991 (1971) superseded by statute, Bankruptcy Reform Act of 1978, Pub.
L. No. 95-598, Stat. 2549, as recognized in Begier v. IRS, 496 U.S. 53,
110 S. Ct. 2258 (1990), are irrelevant to determining the liability of non-debtor
parties, like Liuzza, for priority taxes.
                                            C.
      Finally, Liuzza raises the defenses of in pari delicto and reliance on advice
of counsel. As he failed to raise these issues in the courts below, we do not
consider them here. Little v. Liquid Air Corp., 37 F.3d 1069, 1071 n.1 (5th Cir.
1994) (en banc).




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                              III. Conclusion
     The Comptroller’s motions to strike Liuzza’s brief and assess sanctions are
denied.   For the reasons discussed above, the district court’s judgment is
AFFIRMED; MOTIONS DENIED.




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