The opinion of the court was delivered by: Hayes, Judge
FINDINGS OF FACT AND CONCLUSIONS OF LAW FOLLOWING BENCH TRIAL
The matter before the Court is the Findings of Fact and Conclusions of Law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure in this action tried without a jury.
On September 3, 2002, Plaintiff Dennis E. Walker (Walker) filed the Complaint in this matter seeking contribution pursuant to 26 U.S.C. § 6672(d) against Defendants Michael W. Crow (Crow) and Richard Keyes (Keyes). (Doc. # 1). On October 18, 2002, Keyes answered the Complaint and asserted affirmative defenses premised upon agreements whereby Walker allegedly released all claims of contribution against Crow and Keyes. (Doc. # 4). Keyes also filed Counterclaims against Walker for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and declaratory relief. (Doc. # 5). The agreements referred to in Keyes' Answer and Counterclaims are known to the parties as the First and Second Agreements, and were signed by all parties on May 1, 1997 (First Agreement), and on January 17, 2002 (Second Agreement).
On November 14, 2002, Walker answered Keyes' Counterclaims and asserted that the release and indemnity provisions of the First and Second Agreements were void as against public policy. (Doc. # 9).
On October 31, 2003, Crow answered Walker's Complaint and filed a Counterclaim against Walker seeking declaratory relief. (Doc. # 22). Like Keyes, Crow based his Answer and Counterclaims on the existence of the First and Second Agreements whereby Walker allegedly released and waived any claim to contribution.
On June 20, 2006, Crow and Keyes filed Amended Counterclaims. (Docs. # 84, 85). On November 21, 2006, Walker answered the Amended Counterclaims. (Docs. # 99, 100).
Walker's claim for contribution (Doc. # 1) and Crow and Keyes' Amended Counterclaims for breach of contract, misrepresentation, fraud, and declaratory relief (Docs. # 84, 85) remain pending before the Court. On July 10, 2007, and after determining that all claims before the Court were ready for trial, the Court bifurcated the claims and set trial dates. (Docs. # 118, 119). The Court ordered a bench trial with respect to Walker's claim for contribution to begin on September 18, 2007, and a jury trial with respect to the Amended Counterclaims to begin on December 4, 2007. (Doc. # 118).
The bench trial with respect to Walker's claim for contribution pursuant to 26 U.S.C. § 6672(d) began as scheduled on September 18, 2007, and concluded on September 20, 2007. Based upon the testimony and exhibits received into evidence at trial, and after full consideration of the legal arguments of all parties, the Court issues the following Findings of Fact and Conclusions of Law pursuant to FED. R. CIV. P. 52(a) with respect to Walker's claim for contribution. See (Doc. # 1).
On or about July 14, 1996, Walker, Crow, and Keyes, among others, formed a Nevada limited liability company known as SBN, LLC for the purposes of entering into the business of telemarketing long distance telephone services. Keyes and Crow initially contributed $25,000 each to SBN, LLC, and each received a 15% equity interest in SBN, LLC at that time. Keyes and Crow each contributed an additional $50,000 at a later date and received additional equity interests in SBN, LLC. Walker did not contribute cash to SBN, LLC at any time. Rather, Walker contributed "sweat equity" to SBN, LLC, including his experience with call centers and telemarketing, as well as his contacts and contracts with U.S. Long Distance (USLD). Transcript of Bench Trial, Volume 2A at 237. Walker also contributed the goodwill of Walker's company SBN, Inc. Walker received a 50% equity interest in SBN, LLC for his contributions.
On or about July 11, 1996, Walker, Crow, Keyes, and two additional investors in SBN, LLC, entered into and signed SBN, LLC's Operating Agreement (the Operating Agreement). The Operating Agreement named Walker, Crow, and Keyes as initial managers of SBN, LLC, and named Walker as the Chief Executive Officer (CEO). The Operating Agreement provided that:
The ordinary and usual decisions concerning the business affairs for the Company shall be made by the Chief Executive Officer, which will be held by Walker. The Managers shall have the authority to act for, and on behalf of, the Company (SBN, LLC) for all matters not otherwise expressly reserved to the Members pursuant to paragraphs 7.11, 7.12, and 7.13 or otherwise reserved to the Members pursuant to the Act or as otherwise set forth herein.
Tr. Ex. 2 at 16 (§ 8.1). Walker, Crow, and Keyes intended the position of manager to be akin to a position as a member of a board of directors when they signed the Operating Agreement and formed SBN, LLC.
Walker, Crow, and Keyes each testified that SBN, LLC intended and anticipated Crow and Keyes to be passive investors of SBN, LLC. At the time that the parties formed SBN, LLC, Crow served as President of Zipsort and Chairman of California Cosmetics, and his positions with those companies engaged 100% of Crow's time. At the time that the parties formed SBN, LLC, the parties intended Walker to control and operate SBN, LLC on a day-to-day basis vis-a-vis his positions as CEO, Chief Financial Officer (CFO), President, and General Manager of SBN, LLC. Walker testified that his role in SBN, LLC was to locate a site for and build a call center, locate and train employees, equip all facilities, negotiate contracts with third parties, make sure contracts were being implemented, and generate profits for the company. Walker further testified that he worked twelve hours per day, five days per week, for SBN, LLC. Walker hired and supervised hundreds of SBN, LLC employees, and signed or stamped his signature on every payroll check during SBN, LLC's existence.
SBN, LLC began operations in and around July 1996, and at that time, Walker hired Bob Baran to serve as SBN, LLC's Controller. As Controller, Baran prepared financial statements and payroll tax information, and managed accounts receivable, accounts payable, and relationships with vendors. Walker supervised Baran at all times, and Baran reported to Walker. Walker hired Baran without consulting Crow and Keyes. Crow and Keyes were not happy that Walker hired Baran without first consulting them.
On September 30, 1996, SBN, LLC failed to pay previously withheld employee payroll taxes to the IRS for the third quarter of 1996. During the third quarter of 1996, Walker and Baran exercised complete control over withholding employee payroll taxes and ensuring that SBN, LLC paid tax liabilities. Walker testified that he signed all tax returns for SBN, LLC.
In October, 1996, Walker contracted with Dialogic to provide services to SBN, LLC. Walker's wife, Helen Walker, owned Dialogic from October, 1996 until approximately November, 1997, and SBN, LLC paid Dialogic roughly $100,000 per month during that time. At the time that Walker first contracted with Dialogic, neither Keyes nor Crow knew that Helen Walker owned Dialogic.
On December 31, 1996, SBN, LLC failed to pay previously withheld employee payroll taxes to the IRS for the fourth quarter of 1996. During the fourth quarter of 1996, Walker and Baran exercised complete control over withholding employee payroll taxes and ensuring that SBN, LLC paid tax liabilities.
Walker testified that he first learned that SBN, LLC had failed to pay tax liabilities for the third and fourth quarters of 1996 during a meeting with Baran on or around January 11, 1997. Walker fired Baran during or after that meeting. Though Walker testified that Baran unilaterally failed to pay withholding taxes to the IRS, Walker testified that he directly supervised Baran during that time and had ultimate responsibility for the payment of payroll taxes. Neither Crow nor Keyes had any responsibility for or authority to pay SBN, LLC's tax liabilities on or before January 11, 1997.
Crow and Keyes became aware of SBN, LLC's unpaid tax liabilities in and around the second or third week of January, 1997. In an effort to learn more about the tax liabilities and the financial health of SBN, LLC, Crow and Keyes interviewed and hired an accountant and consultant named Tage Tracy in late January, 1997. Thereafter, Tracy submitted reports to Crow, Keyes, and Walker which outlined SBN, LLC's dire financial state.
On February 11, 1997, Tracy submitted a report to the managers which informed the managers that SBN, LLC had $350,000 in outstanding tax liabilities. Tr. Ex. 34. On March 7, 1997, Tracy submitted an additional report which further detailed SBN, LLC's outstanding tax liability. In the report of March 7, 1997, Tracy noted that, "[t]he company should stay current on paying all its payroll tax liabilities associated with its weekly and bi-weekly payrolls starting with the payroll dated 2/28/97." Tr. Ex. 35. Tracy further noted that, "[t]he size of the federal (tax) obligation will prohibit the company from undertaking a quick fix approach (i.e., immediately pay all outstanding balances due)." Tr. Ex. 35. From and after March 7, 1997, SBN, LLC paid its payroll tax liability going forward until on or about the fourth quarter of 1997.
Prior to late February or early March, 1997, Crow and Keyes were passive investors in SBN, LLC, and each visited SBN, LLC's facilities, at most, two or three times per month. Prior to late February or early March, 1997, neither Crow nor Keyes hired or fired employees, paid creditors, signed checks, withheld payroll taxes, paid payroll taxes, contacted creditors, contracted with third party vendors, or provided any services to SBN, LLC other than as passive managers of the company. Neither Crow nor Keyes ever had a permanent office at SBN, LLC's headquarters.
Prior to late February or early March, 1997, Walker completely controlled the day-to-day operations and finances of SBN, LLC in his capacity as CEO, CFO, President, and General Manager. Prior to late February or early March, 1997, Walker hired and fired employees, signed checks, contracted with third party vendors, paid creditors, paid taxes, signed tax returns, and supervised and operated the entire company.
In and around late February or early March, 1997, and after learning of SBN, LLC's outstanding tax liabilities, Crow and Keyes began to take a more active role in the operation of SBN, LLC. At that time, Crow and Keyes attempted to restrict Walker's check-signing authority, and participated in decisions to cut SBN, LLC's overhead by 50% and suspend training and hiring of employees. Crow and Keyes also participated in SBN, LLC's decision to terminate Walker's employment contract, though Walker remained a manager and employee of SBN, LLC. Tr. Ex. 27. Walker resisted Crow and Keyes' efforts to restrict Walker's involvement in SBN, LLC, however, Crow and Keyes believed those efforts were necessary in order to ensure the survival of the company.
As of February 25, 1997, SBN, LLC was insolvent. Tr. Ex. 25. On or around March 5, 1997, Walker, Crow, and Keyes reorganized SBN, LLC, and each was assigned a ...