## Facts

- Fort Belknap Builders, Inc. (Builders), a corporation owned by a tribal community council, employed workers but failed to pay federal withholding and FICA taxes for the fourth quarter of 1970 and all quarters of 1971.
- Builders financed construction projects through loans and advances associated with First National Bank of Circle (Bank) and affiliated banks; Builders assigned contract proceeds to the Bank and deposited them into its Bank account as advances continued.
- Although some advanced funds originated with affiliated banks, the financing was arranged through the Bank’s president, who operated from the Bank’s offices, was authorized to make the loans, and held leadership/ownership positions across the related banks.
- By late 1971, Builders’ account at the Bank was substantially overdrawn.
- The United States sued the Bank under 26 U.S.C. § 3505(b) to collect Builders’ unpaid withholding and FICA taxes, alleging the Bank supplied funds for wages with knowledge Builders could not or would not pay the taxes.
- A Rule 16 pretrial order included agreed facts stating that the Bank made numerous loans and advances to Builders during the relevant period, and listed the Bank’s defenses (including lack of knowledge, funds not specifically for wages, payment/ability to pay taxes, and limitations/laches).
- At the start of trial, the Bank sought summary judgment on a new theory that it did not “supply funds” because it acted only as an agent arranging loans from participating banks; the district court granted summary judgment for the Bank.

## Issues

1. Whether the district court violated Fed. R. Civ. P. 16 by granting summary judgment on a theory inconsistent with the Rule 16 pretrial order’s agreed facts and framed contentions.
2. Whether genuine disputes of material fact existed as to whether the Bank “supplie[d] funds” for wage payments within 26 U.S.C. § 3505(b) when the lending structure involved affiliated banks and centralized control.
3. Whether genuine disputes of material fact existed as to the Bank’s knowledge that Builders did not intend, or would not be able, to pay withholding and FICA taxes as required for § 3505(b) liability.

## Decision

- The Ninth Circuit reversed the summary judgment and remanded for trial.
- The court held the district court’s handling of the case was not in conformity with Rule 16 because it allowed dispositive reliance on a theory that conflicted with the pretrial order.
- The court also held summary judgment was improper because material facts remained disputed concerning the Bank’s role in supplying funds and the Bank’s knowledge for purposes of § 3505(b).

## Legal Principles

- A Rule 16 pretrial order supersedes the pleadings and controls the subsequent course of the action; a court should not decide the case on a theory that contradicts the order’s agreed facts and framed issues absent proper modification.
- Summary judgment is improper where the record permits competing inferences on statutory elements, including who supplied funds and what the alleged supplier knew.
- Under 26 U.S.C. § 3505(b), a person may be liable for an employer’s unpaid withholding taxes if the person supplies funds for wage payments with knowledge the employer does not intend, or will not be able, to make timely tax payments; whether a defendant is a “supplier of funds” may depend on the substance of control and the flow of funds rather than formal labels.

## Conclusion

The Ninth Circuit required trial because the pretrial order bound the parties and the district court could not grant summary judgment on a late-introduced, inconsistent “non-supplier” theory, and because disputed facts remained on whether the Bank effectively supplied wage funds and had the knowledge required for liability under § 3505(b).


United States v. First Nat'l Bank of Circle, 652 F.2d 882 (9th Cir. 1981)