Appeal from Grand-Wood the Circuit Court of Cook County. No. 09 L 51032 Honorable Elmer James Tolmaire, III, Judge Presiding.
PRESIDING JUSTICE QUINN delivered the judgment of the court, with opinion. Justices Cunningham and Connors concurred in the judgment and opinion.
¶ 1 The Illinois Department of Revenue (Department) issued a notice of penalty tax liability (NPL) for the period of January 2006 through September 2006, against plaintiff, Jack P. Cerone, the majority shareholder of Grand-Wood Enterprises, Inc. (Grand-Wood), in connection with Grand-Wood's unpaid taxes, penalties, and interest under section 3-7(a) of the Uniform Penalty and Interest Act (35 ILCS 735/3-7(a) (West 2008)). The Department found that plaintiff was personally liable in the amount of $49,577.86 in penalties and interest for that nine-month period. Plaintiff protested the NPL, and an evidentiary hearing was held before an administrative law judge (ALJ) on March 12, 2009, with plaintiff appearing as the only witness. The ALJ subsequently prepared a recommendation for disposition, finding that plaintiff failed to rebut the Department's presumption that he willfully failed to pay Grand-Wood's sales taxes. The Department accepted the ALJ's recommendation and issued a final assessment against plaintiff for $52,809.97. On administrative review, the circuit court entered a memorandum of decision and judgment affirming the decision of the ALJ. Plaintiff filed a timely appeal. For the reasons set forth below, we affirm.
¶ 3 Grand-Wood was a corporation that owned and operated an Italian restaurant on West Grand Avenue in Chicago, Illinois. At the evidentiary hearing, plaintiff testified that in 1997 he purchased a 25% stake in the restaurant, which at that time was named Colucci's. About a year later, plaintiff purchased the remaining shares from the restaurant's managing partner, George Colucci, and renamed the restaurant II Jack's Restaurant. Plaintiff's son, John Cerone, who had been the manager of Colucci's, was retained in that position and became a shareholder and corporate officer of the restaurant. In 2004 or 2005, John Cerone resigned, and Jerry Villa, who had been an assistant manager, was promoted to manger and given a 25% ownership interest in the restaurant. Villa's duties included hiring and firing, purchasing, paying bills and rent, selecting purveyors, and paying taxes. Plaintiff stated that his role at the restaurant was primarily to generate business by bringing clients in for meals and that he played no role in ordering products, paying vendors, or paying taxes for the restaurant.
¶ 4 Plaintiff testified that in September 2006, he went to the restaurant on a Sunday morning, when the restaurant was closed, to meet some friends. Plaintiff found the restaurant in disarray and could not locate Villa. He tried unsuccessfully to reach Villa by phone, and later that morning, a restaurant employee found Villa's home abandoned. Plaintiff said that he never saw Villa again but had heard that Villa had moved to Texas. The plaintiff went into the restaurant's office and found cardboard boxes full of unopened envelopes 6 to 12 months old from banks, purveyors, the Internal Revenue Service, and the State. He turned over the boxes to his accounting firm, Kolnicki, Peterson, and Wirth, whose services plaintiff had retained from 1997 through 2006.
¶ 5 Plaintiff testified that his lease on the property expired on September 30, 2006, and that although he had been negotiating a renewal of the lease, he decided instead to close the restaurant immediately because there were no funds available to keep it in operation. Plaintiff said that the Kolnicki accounting firm prepared and filed Grand-Wood's final tax return for 2006. He further stated that during the term of his ownership of the restaurant there were no corporate profits, he never took a paycheck, and he did not receive a distribution when the restaurant closed.
¶ 6 On cross-examination, the Department introduced into evidence an "ST-15, Business Information Update (Sales and Use Tax)" form for II Jack's Italian Restaurant listing plaintiff as the person responsible for filing sales and use tax returns and paying taxes. Plaintiff's signature appears under the following statement: "I accept personal responsibility for the filing of returns and the payment of taxes due." The form is dated September 1, 2003, and includes plaintiff's social security number. Plaintiff denied that the signature was his, though he acknowledged that it was his social security number, and stated that he had never seen the form before.
¶ 7 Plaintiff also stated on cross-examination that he was an authorized check signer for the restaurant and signed checks on occasion for payroll or other reasons. He said that he would go to the restaurant once a week for lunch and twice a week for dinner and frequently met clients there. He would sometimes talk "restaurant affairs" with Villa but not financial information about the restaurant. He said that he did not inspect business books or records while at the restaurant, but at the end of each year he received a schedule K-1 tax form for the restaurant, which contained "various financial information about the business." Plaintiff acknowledged that he was aware that for the entire time he owned the restaurant it was losing money and that before Villa became the manager, plaintiff made capital contributions to buy new equipment and to change the decor. He stated that in 2006, some suppliers put the restaurant on a cash on delivery payment system, which he said happens when "you are not paying your bills in a timely fashion." Plaintiff did not discuss this issue with Villa or get involved in any decisions about which vendors to pay but left it up to Villa's discretion. He also never made specific inquiries of Villa as to whether the taxes were being paid.
¶ 8 After the hearing, the ALJ entered a recommendation for a disposition finding that, pursuant to section 3-7 of the Uniform Penalty and Interest Act (35 ILCS 735/3-7 (West 2008)), plaintiff was a responsible officer who knew or should have known whether returns were filed and taxes paid, and that he willfully failed to pay the tax by not taking action in light of the restaurant's losses and cash flow problems. On administrative review, the circuit court entered a memorandum of decision and judgment affirming the ALJ's decision. Plaintiff filed a timely appeal, arguing that the Department failed to prove that he was a responsible officer of Grand-Wood or that he acted willfully in failing to pay Grand-Wood's sales tax.
¶ 10 A. Standard of Review
¶ 11 Before addressing the merits of plaintiff's argument, we first address the applicable standard of review. Our supreme court has held that in administrative cases, such as this one, the appellate court reviews the decision of the administrative agency, not the determination of the circuit court. Exelon Corp. v. Department of Revenue, 234 Ill. 2d 266, 272 (2009). In reviewing the decision of the administrative agency, " '[t]he applicable standard of review depends upon whether the question presented is one of fact, one of law, or a mixed question of fact and law.' " Cinkus v. Village of Stickney Municipal Officers Electoral Board, 228 Ill. 2d 200, 210 (2008) (quoting American Federation of State, County & Municipal Employees, Council 31 v. Illinois State Labor Relations Board, State Panel, 216 Ill. 2d 569, 577 (2005)). An administrative agency's findings on questions of fact are deemed to be prima facie true and correct. 735 ILCS 5/3-110 (West 2008). In examining an administrative agency's factual findings, a reviewing court does not weigh the evidence or substitute its judgment for that of the agency. Cinkus, 228 Ill. 2d at 210. Rather, the reviewing court is limited to ascertaining whether the agency's factual findings are contrary to the manifest weight of the evidence. See Cinkus, 228 Ill. 2d at 210; see also Illinois Fraternal Order of Police Labor Council v. Illinois Local Labor Relations Board, 319 Ill. App. 3d 729, 736, (2001) ("[T]he decision is against the manifest weight of the evidence only if the opposite conclusion is clearly evident."). An agency's conclusions of law, however, are not entitled to the same deference, and we review them de novo. Illinois Fraternal Order of Police Labor Council, 319 Ill. App. 3d at 736.
¶ 12 If the question presented for review is one of mixed law and fact, then yet a third standard applies, and we review the agency's decision to determine if it was clearly erroneous. American Federation of State, County & Municipal Employees, Council 31, 216 Ill. 2d at 577. Mixed questions of fact and law " 'are "questions in which the historical facts are admitted or established, the rule of law is undisputed, and the issue is whether the facts satisfy the statutory standard, or to put it another way, whether the rule of law as applied to the established facts is or is not violated." ' " Cinkus, 228 Ill. 2d at 211 (quoting American Federation of State, County & Municipal Employees, Council 31, 216 Ill. 2d at 577, quoting Pullman-Standard v. Swint, 456 U.S. 273, 289 ...