This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1998).




Douglass Coy,



Commissioner of Economic Security,


Filed July 6, 1999


Randall, Judge

Department of Economic Security

File No. 199T97

Nathan T. Riordan, Kampf & Associates, P.A., 901 Foshay Tower, 821 Marquette Avenue, Minneapolis, MN 55402 (for relator)

Kent E. Todd, Department of Economic Security, 390 North Robert Street, St. Paul, MN 55101 (for respondent)

Considered and decided by Randall, Presiding Judge, Davies, Judge, and Schultz, Judge.[*]



The commissioner's representative found Douglass E. Coy personally liable for past-due taxes owed to the Department of Economic Security by TCSS Acquisition Inc. On appeal, Coy argues this decision was not supported by substantial evidence. We affirm.


TCSS Acquisition Inc. (TCSS) was organized in Minnesota on July 25, 1994. Douglass E. Coy was president and CEO for the entire period that TCSS was in existence. The other two incorporators were William Kampf and Phillip Greenberg. Coy was 1/3 owner until February 1995, when he became 1/4 owner. TCSS was in the business of manufacturing, distributing, and installing windows and siding for both residential and commercial property. Beginning in December 1994, TCSS began to experience financial difficulties. During 1994 and 1995, shareholders and directors met in an attempt to resolve the problems. Despite their efforts, TCSS went out of business on August 1, 1995.

Beginning with the third quarter of 1994, and continuing in the first and second quarters of 1995, reemployment insurance taxes were not paid in full to the Department of Economic Security (Department). Taxes for the third quarter were due on October 31, 1994. TCSS filed the tax report on January 26, 1995, but did not pay the taxes owed. During the third quarter of 1994 through the first and second quarters of 1995, TCSS paid for materials and labor to complete jobs. Workers were also paid during this period.

Coy had check-signing authority during the entire period of TCSS's existence. Coy testified that Thomas Mach, the controller, was in charge of everyday activities and also had check-signing authority. TCSS had a revolving credit agreement with Richfield Bank. All payments collected for products and services went to the bank, and the bank made advances based on receivables. At some point in time, the bank stopped honoring checks and foreclosed on the corporate assets.

On May 19, 1995, Coy signed TCSS's quarterly unemployment tax report for the first quarter of 1995, which was due on April 30, 1995. Coy wrote a check for the amount of the tax due, but the check was dishonored twice by the bank. Coy testified that a few weeks passed between the time when he wrote the check and when it was dishonored. He said he assumed all tax obligations were being met.

On September 6, 1996, the Department mailed Coy a determination of personal liability. Coy contested this determination, and a hearing was held on October 13, 1997. A representative of the Department's tax enforcement division testified that he relied on individual liability questionnaires from Coy, Mach, and Greenberg in making the determination that Coy was aware the taxes were not paid. He also testified that he spoke with Mach by phone and Mach stated that Coy knew the taxes were unpaid. Neither Greenberg nor Mach (who was subpoenaed but did not appear) was at the hearing. The judge admitted these statements over Coy's objections. The Department's determination of Coy's personal liability was upheld. On October 23, 1998, the commissioner's representative affirmed this decision.


In reviewing questions of law, this court is not bound by an agency's determination. St. Otto's Home v. Minnesota Dep't of Human Servs., 437 N.W.2d 35, 39-40 (Minn. 1989). However, findings of fact are viewed in the light most favorable to the agency's decision, and if there is evidence reasonably tending to sustain them, they will not be disturbed. White v. Metropolitan Med. Ctr., 332 N.W.2d 25, 26 (Minn. 1983).


Coy argues the plain language of section 268.161, subd. 9 (1996) requires the commissioner's representative to make findings that Coy was aware obligations under the statute were unpaid. The statute states:

Any officer, director, or employee of a corporation or any manager, governor, member, or employee of a limited liability company which is an employer under sections 268.03 to 268.23, who

(1) either individually or jointly with others, have or should have had control of, supervision over, or responsibility for the filing of the tax reports or the making of payments under this chapter, and

(2) willfully fails to file the reports or to make payments as required, shall be personally liable for contributions or reimbursement, including interest, penalties, and costs in the event the employer does not pay to the department those amounts for which the employer is liable.

For purposes of this subdivision, "willfulness" means that the facts demonstrate that the responsible party used or allowed the use of corporate or company assets to pay other creditors knowing that the payments required under this chapter were unpaid. An evil motive or intent to defraud is not necessary to satisfy the willfulness requirement.


The statute requires a willful violation, defined as an awareness that unemployment taxes remained unpaid while other creditors were being paid. See State by Beaulieu v. RSJ, Inc., 552 N.W.2d 695, 701 (Minn. 1996) (holding if statute is unambiguous, court must apply its plain meaning). Coy insists that the commissioner's representative did not make this finding. But the commissioner's representative determined that Coy was aware taxes were not being paid because: (1) during the period taxes were owed, TCSS continued to pay for necessary labor and materials to complete jobs; (2) this was done with Coy's knowledge or at his direction; (3) Coy's argument that the bank made the decision not to pay the Department by not honoring a check (because the bank did not find the money in the account to cover it) is not persuasive; and (4) by law, Coy was responsible for these taxes. The commissioner's representative made the requisite findings.


Coy argues the hearsay evidence admitted during the hearing was inherently unreliable and cannot be used to support the commissioner's representative's finding. We disagree. The judge may admit all evidence that possesses probative value, including hearsay, during an administrative hearing if it is evidence "on which reasonable, prudent persons are accustomed to rely in the conduct of their serious affairs." Minn. R. 1400.7300, subpt. 1 (1997).

Coy specifically objects to comments made by Mach, who was not present at the hearing. Mach's statements were admitted into evidence to show what the Department relied on when making its determination. The record reflects, however, that the commissioner's representative also relied on Coy's own statements in making its final decision. The commissioner's representative found that Coy knew of the unpaid taxes because: (1) Coy was ultimately responsible for paying the taxes; (2) TCSS continued to pay for labor and materials; and (3) the commissioner's representative did not believe that the bank was making selective decisions about which debts to pay. See State ex rel. Indep. Sch. Dist. No. 276 v. Department of Educ., 256 N.W.2d 619, 627 (Minn. 1977) (holding Commissioner of Education is in position to judge inherent trustworthiness and reliability of evidence presented). Even without the hearsay evidence, these findings reasonably tend to sustain the commissioner's representative's decision.


When an agency acts in a quasi-judicial capacity, an appellate court applies the substantial-evidence test on review. Signal Delivery Serv., Inc. v. Brynwood Transfer Co. (In re Signal Delivery Serv., Inc.), 288 N.W.2d 707, 710 (Minn. 1980). Substantial evidence is defined as:

1. Such relevant evidence as a reasonable mind might accept as adequate to support a conclusion;
2. More than a scintilla of evidence;
3. More than some evidence;
4. More than any evidence; and
5. Evidence considered in its entirety.

Cable Communications Bd. v. Nor-west Cable Communications Partnership, 356 N.W.2d 658, 668 (Minn. 1984) (citations omitted).

Although the willfulness requirement means more than mere sloppiness in record keeping, it does not require specific intent to defraud. Minn. Stat. § 268.161, subd. 9; see Behrendt v. Commissioner of Jobs & Training, 513 N.W.2d 843, 846 (Minn. App. 1994) (holding it sufficient to show individual had authority to make payment; was under no compulsion from superior authority not to make payment; and failed to make payment while settling other outstanding liabilities). The commissioner's representative has discretion when making credibility determinations pursuant to the willfulness requirement. See Seemann v. Little Crow Trucking, 412 N.W.2d 422, 426 (Minn. App. 1987) (holding commissioner's representative has discretion to assess credibility of witnesses).

The commissioner's representative's decision reflects: (1) Coy had the authority to make the payments; (2) although Coy claims he made the payment by sending a check, the commissioner's representative found Coy's claim that the bank selectively dishonored the check was unreliable; and (3) checks for wages and materials were honored by the bank. The commissioner's representative did not abuse its discretion. There is substantial evidence to support the finding of personal liability.


[*] Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.