IRS Bills Former Continental Trucking Executives, Not Owners

At the end of October 2010, Ralph Bradbury received a bill from the Internal Revenue Service for more than $2.8 million in unpaid employment taxes tied to the defunct trucking company of which he had been president, Continental Express Inc. of Little Rock.

A few days later, a similar bill arrived at the home of Pete Campbell, who had been Continental’s executive vice president. But Campbell had died on Oct. 28, so his widow received the bill on the day of her 55-year-old husband’s funeral.

Even though his tax bill has since been reduced to $800,000, Bradbury insists it’s not his bill to pay. Documents obtained by Arkansas Business indicate he is gearing up for a fight with Continental’s former owners, Ed and Bonnie Harvey, following in the footsteps of two banks that alleged the Harveys shifted assets to avoid paying financial obligations. The Harveys and their financial advisor, Marvin Jones of Cabot, are responsible for the taxes, Bradbury claims in letters to the IRS.

Bradbury’s attorney, Randy Coleman of Little Rock, declined to comment for this story. Bradbury declined to be interviewed, but agreed to provide a statement if it would be used in its entirety.

The IRS said it doesn’t comment on individual tax cases.

The question of who owes the money will hinge on who the IRS determines was the “responsible person” with regard to payroll taxes for the period that ended Sept. 30, 2008. Bradbury maintains that in preparation for selling the trucking company later that year, the Harveys – particularly Bonnie Harvey as proxy for her ailing husband – had turned the financial decisions over to Jones.

“Mrs. Bonnie Harvey and Mr. Marvin Jones should be the persons held accountable,” Coleman wrote in a June 27 letter to the IRS Appeals Office. “We are sure it can and will be shown that they diverted monies that were promised and legally should have been made available to the IRS for the proper settlement of these taxes.”

Emails dating to late 2008 indicate both  Jones and the Harveys’ lawyer acknowledged Continental’s tax obligations. But in a September interview with Arkansas Business, Jones said neither he nor Bonnie Harvey had been contacted by the IRS. He denied he owed the money.

“I was not involved in anything to do with the finances until after the company was sold” on Dec. 4, 2008, Jones said. “So I’m not sure how that argument holds up.”

Bradbury disputes Jones’ timeline in documents presented to the IRS. In a sworn deposition for one of the bank collection suits, Jones said he had been hired by the Harveys in the summer of 2008.

Jones said he didn’t know who was responsible for paying the taxes.

By fall 2008, Ed Harvey was suffering from Alzheimer’s disease and his wife had power of attorney. Bonnie Harvey didn’t return a message from Arkansas Business.

The Harveys’ daughter, Jill, is married to U.S. Sen. Mark Pryor, D-Ark. Pryor hasn’t been involved in the tax question, his spokesman said.

 

Bradbury’s Case

Bradbury first joined Continental in December 1985 and helped it become one of Arkansas’ largest trucking companies. He left the firm in 1999 because of several disagreements with the Harveys.

In May 2005, Bradbury told the IRS in a letter last December, he returned to Continental to help steer it through the financial mess left by former president Kelly Wooldridge and CFO Todd Tiefel. (Tiefel, who died in March, and Wooldridge both eventually served time in federal prison for charges related to mail fraud.)

Bradbury also was dealing with a fatal accident caused by a Continental driver, which resulted in a $7.2 million settlement and $1.2 million in legal bills in 2007, Bradbury explained to the IRS. (Continental Express was self-insured.)

On top of that, the economy was starting to sputter. Starting in June 2007, Continental was losing $200,000 to $300,000 a month, Bradbury said in the Dec. 8 letter.

“The Owners well knew of this predicament but never moved to sell any of their assets, nor did they attempt to move sufficient monies into the Company to ‘keep it afloat’ as promised,” Bradbury wrote. “I had no control over the capitalization of the Company.”

 

IRS Visit

Bills for Continental were piling up in the summer of 2008. During that summer, the Harveys hired Jones to examine Ed Harvey’s business holdings, according to a deposition Jones gave in April 2010 in connection with a collection lawsuit filed by First Security Bank of Searcy. In addition to Continental Express, Harvey owned Gibraltar National Insurance Co. of Little Rock, Travis Lumber Co. of Mena, Eaves Manufacturing of Beebe and Preston National Bank of Dallas.

“Virtually everything that [Ed Harvey] was involved in collapsed,” Jones said in the deposition.

Bradbury said that, starting in September 2008, “Jones assumed increasing authority and control over the management and operations of the Company.”

After Harvey was diagnosed with Alzheimer’s, Bonnie Harvey “began with the assistance of Marvin Jones, ‘calling the shots,'” Bradbury wrote.

The IRS also became concerned about Continental. An IRS officer came to its office on Oct. 2, 2008. According to an email that Jim Dodd, Continental’s CFO, wrote two months later, the agent instructed him to make the fourth-quarter deposits on time and warned the $1.2 million owed for the third quarter of 2008 needed to be paid by Nov. 5 – a deadline that had passed by the time of Dodd’s email.

But by then, Bradbury claims, Jones had check-signing authority.

 “He advised that he had made contact with the IRS and was handling all payments and/or directing wire transfers,” Bradbury wrote.

 

Warnings

In November 2008, Jones and Bonnie Harvey told Bradbury they found a buyer for Continental. The Celadon Group Inc. of Indianapolis would buy the company’s assets for $24.1 million, but wouldn’t assume any of its debts. The sale would close on Dec. 4, which would be Bradbury’s last day at the company.

But concerns over paying the $1.2 million in overdue payroll taxes for the third quarter were being raised by Dodd.

“In my opinion, any large sale of equipment without using part of the proceeds to pay the IRS liability will lead to the IRS pursuing the liability with all the force they have,” he wrote in a Dec. 1, 2008, email. “At least a plan should be submitted in writing as to how the liability is to [be] paid with the remaining assets. … I would strongly suggest the [IRS] liability be paid with the first available funds.”

Bradbury forwarded the email to Jones and asked, “What are your thoughts about contacting them and explaining the plan so as not to appear covert with the sale?”  In a Dec. 2 email, Jones replied, “Once we have a signed agreement – I’ll contact them.”

 

Creditors

The IRS wasn’t the only creditor that didn’t get paid. Last year Metropolitan National Bank of Little Rock received a $1.7 million judgment against the Harveys for defaulting on a loan tied to Continental. Metropolitan subsequently filed a federal lawsuit accusing the Harveys of transferring assets to avoid paying the judgment. The Harveys denied the allegation, and the case was settled in May.

Also in 2010, First Security Bank of Searcy filed a nearly identical lawsuit against the Harveys to collect a $756,000 judgment tied to Eaves Manufacturing. That case settled last September.

 

No Money

Jones said recently Continental didn’t have the money to pay the taxes. After the sale to Celadon, Continental rounded up about $700,000 in receivables, Jones said in a January deposition for Metropolitan’s collection suit. He told Arkansas Business in September almost half of that money was used to replace money withheld from employee paychecks that had not been remitted to the proper accounts: $260,000 in 401(k) contributions and $70,000 in dental insurance premiums.

The rest went to the IRS, but “there were outstanding creditors that could not be paid,” Jones said.

After the sale of Continental, the tax bill still nagged at Bradbury. On June 25, 2009, six months after the sale, Bradbury emailed Little Rock attorney Price Gardner, who represented the Harveys, for an update.

“Taxes should be knocked out next,” Gardner replied four days later. “We will be working with the IRS to get the balances this week.”

Gardner declined to comment for this story, but the taxes were not “knocked out.” Sixteen months later, Bradbury received a certified letter from the IRS stating he owed $1.88 million in outstanding taxes and a penalty of $1 million.  The taxes were due for the last two quarters of 2008 and the first quarter of 2009.

Jane Campbell, widow of Continental’s former EVP, received an identical bill on Nov. 1, the day she buried Pete, according to Bradbury’s Dec. 8 letter to the IRS.

Bonnie Harvey attended Campbell’s funeral, and Bradbury asked her about the tax bill. She said she “had no idea what I was talking about,” Bradbury told the IRS. 

“This was extremely disconcerting, as I am well aware that she knows of the owing,” Bradbury said in the letter.

Bradbury said he called Gardner, and was told the issue was “being worked on.”

“As sad as it is, Mr. Jones and Mrs. Harvey have hidden behind the fact that others have been listed as ‘responsible’ while completely skirting their own duty and have misled those of us in that situation,” Bradbury said.

Partial Victory

After looking over Bradbury’s case, the IRS sent him a new tax bill. This time, it totaled about $800,000, for only the third quarter of 2008. In a July 6 letter, the IRS suggested Bradbury pay the bill to lower his interest charges. He could then appeal the decision. Bradbury sent $400 to the IRS on Aug. 15, and appealed the $800,000.

It is not clear how the IRS reconciled the tax owed, and the status of Campbell’s bill is not known. Jane Campbell couldn’t be reached for comment. 

 

Ralph Bradbury Issues Statement on IRS Issue

 

“This entire situation is obviously disturbing to me and my family. However, facts will emerge in a formal court setting, if necessary, that will confirm that during these periods that the IRS is concerned about, I was not the party responsible for the non-payment of the taxes or any other diversion of resources out of Continental and beyond the reach of the IRS. Information concerning who is behind the movement of assets out of Continental is already a matter of public record in bank-oriented litigation. It is my information that the transfer of assets has continued until quite recently.

“It is particularly disappointing when I consider my long years of loyal service to the Harvey family. Over those years, I was utterly insistent that Continental’s obligations to the government be met fully and in a timely manner. It was not until I was stripped of any real authority and interim management was installed that these problems occurred in contemplation of a sale of the Company, of which I had no part.

“I had no ownership in the Company at the time in question. It is clear that the beneficiaries of the sale, and any restructuring leading up to the sale, were persons other than myself. Presumably, the ownership of the Company so benefited. It is there that the IRS should seek and find responsibility and money for the payment of taxes. Subsequent legal action would, if necessary, I am confident will so demonstrate. Why the IRS would stop its collection efforts with Pete Campbell’s widow and me is a conundrum to all who observe this matter.

“In point of fact, the IRS has excused me from liability for two of the three periods they are concerned about. I assume that is because they agree with my argument that I had no de jure authority for the payment of taxes for Continental at those times. If that is the case, who is responsible for those periods?

“Those who know me know that I am not stupid enough to participate in the willful non-payment of any tax. And those who know the situation know that I did not benefit in any way from the non-payment of taxes or, for that matter, in any way from the sale of the assets of Continental. ZERO. Only the shareholders enjoyed monetary benefits from that.”