|
|
||
|
|
||
                              
|
6331 Debt | |
|
82-2
USTC ¶9684] U.
S. District Court, Mid. Dist., Ga., Thomasville Div., Civil Action
No. 81-71-THOM, Civil Action No. 81-72-THOM, Curtis
L. Muncy, Department of Justice, Opinion SMITH, District Judge: The two cases above identified were consolidated for disposition and the parties have filed cross-motions for summary judgment and briefs in support thereof and, since it is clear that there is no controversy concerning the facts, the cases are properly before the Court for summary disposition. The In
February, 1978, the Defendant Tillman J. Dean entered into a lease
contract with L. Mervin Barbree and, at the same time, the
Defendant Otis C. Dean, Jr. entered into a lease contract with
Barbree. Under the terms of these lease agreements the Deans
became obligated to pay to Barbree annual rental payments in
certain amounts and one of the rental installments was due to be
paid on or before On On September 25, 1979, a similar Notice of Levy was served upon Otis C. Dean, Jr. by which a demand was made upon him for an amount necessary to satisfy the tax lien. On
January 15, 1980, a final demand was made upon the Defendant
Tillman J. Dean for the amount set forth in the Notice of Levy,
but Dean refused and has continued to refuse to honor the levy and
surrender to the On the
same date, January 15, 1980, a final demand was made upon
Defendant Otis C. Dean, Jr. for the amount set forth in the Notice
of Levy but Dean refused and has continued to refuse to honor the
levy and surrender to the Under the terms of his lease agreement with Barbree, the Defendant Tillman J. Dean was obligated to make a rental payment for the year 1980 on or before January 15, 1980 and on January 2, 1980, Dean made the rental payment to Barbree in the amount of $18,260.00. Under
the terms of his lease agreement with Barbree, the Defendant Otis
C. Dean, Jr. was obligated to make a rental payment for the year
1980 on or before The right of the taxpayer, Barbree, to receive the rental payments for the year 1980 from the respective Defendants was clear and unconditional and was in existence at the time the levies above referred to were served on them and was an adequate interest in, or right to, property to which the Internal Revenue Service's levies clearly attached; and §6332(a) of the Internal Revenue Code of 1954 provides that any person in possession of, or obligated with respect to property or rights to, property subject to levy must surrender such property or discharge such obligation to the Secretary upon service of the levy. The
Defendants contend that since the rental payments for the year
1980 were not required to be paid until It is the Court's view that §301.6331-1(a) of the regulations adopted by the Secretary of the Treasury and the decisions in St. Louis Union Trust Company v. United States [80-1 USTC ¶9282], 617 F2d 1293 (8 Cir. 1980), and J. A. Wynne Co. v. R. D. Phillips Construction Co. [81-1 USTC ¶9305], 641 F2d 205 (8 Cir. 1981), and United States v. Citizens and Southern National Bank [76-2 USTC ¶9665], 538 F2d 1101 (5 Cir. 1976), make the defense here asserted by the Defendants unavailing. Consistent with the foregoing, the Court concludes that the Defendants' motions for summary judgment should be denied and the Plaintiff's motions for summary judgment in the respective cases should be and are hereby sustained and judgment will be entered accordingly. Judgment Pursuant to an Opinion and Order of Judge J. Robert Elliott, United States District Court Judge, signed on November 9, 1982 and Filed on November 10, 1982 and for the reasons contained therein; IT IS
ORDERED [81-2
USTC ¶9805] U.
S. District Court, No. Michael
J. Yamaguchi, Assistant United States Attorney, Opinion HENDERSON, District Judge: The
government filed this suit to enforce an On
November 27, 1978, the Norton performed trucking services for Guittard Chocolate Co. (hereafter "Guittard"), the defendant in this levy enforcement action. In late 1978, Norton factored its accounts to a company called Transport Clearings (hereafter "Transport"). As a result, Transport came into possession of certain invoices billed by Norton to Guittard. In December, 1978, Transport made a claim against Guittard for $40,400 on factored invoices billed from Norton to Guittard. Guittard denied liability on the invoices, contending that they had already paid the amount claimed by Transport directly to Norton. At the time that Transport made its claim against Guittard, Guittard had also received services from Norton on non-factored, unpaid invoices totalling $12,240. Guittard advised Norton that if it (Guittard) was forced to pay Transport on the disputed $40,400 claim, any amount paid to Transport would be used as an offset against the $12,240 in non-factored invoices then owing to Norton. The
Government filed notices of a federal tax lien in On
January 31, 1979, in a suit to which Guittard was not a party, an The
problem with this from Guittard's point of view was that, prior to
the entry of judgment by the Indiana court, Guittard had paid
directly to Norton some $30,584 on invoices dated prior to On July 3, 1979, the government served a notice of levy on defendant Guittard based on the unpaid assessment against Norton. On
August 15, 1979, the On March 24, 1981, Transport and Guittard entered into a settlement agreement resolving Transport's claim for $40,400 first made in December, 1978. Under the terms of the agreement, Guittard is to pay Transport $20,000 in full settlement of the claim for invoices totalling $40,400. This settlement agreement is subject to the approval of the Bankruptcy Court, due to the fact that Transport is now in bankruptcy. The approval of the Bankruptcy Court apparently has not yet been received, and none of the $20,000 settlement has been paid to Transport or its trustee in bankruptcy. On May
12, 1981, the government filed the instant suit to enforce an On October 21, 1981, an Order was entered denying defendant Guittard's motion to dismiss, granting the government's motion for partial summary judgment on the levy, and denying the government's motion for partial summary judgment as to the penalty. The
Levy Though
the defendant raised several contentions in support of its motion
to dismiss, we note that in an action by the government to enforce
an Thus, of the arguments raised by Guittard in support of its motion to dismiss, the only one properly before the Court was the claim that, at the time of the levy, Guittard had no property belonging to the taxpayer Norton. This contention was based on the premise that Guittard had a setoff against its debt to Norton at the time that Transport made its $40,400 claim against Guittard in December of 1978. The notice of levy was not served until July 3, 1979, seven months after the setoff allegedly came into existence, negating any debt owed to Norton by Guittard. On the
question of whether a party is in possession of the taxpayer's
property for purposes of the validity of an Thus,
defendant's motion to dismiss required a determination of whether,
under Under Guittard,
however, claims that because it had a right of setoff against the
debt to Norton that arose in December of 1978 when Transport made
its claim, it had no property belonging to Norton at the time of
the levy in July of 1979. Again we must look to Under
the law of California, a setoff is the right of a judgment debtor,
who has become the owner of a judgment or claim against his
judgment creditor, to go into the court that entered the judgment
against him/her (the judgment debtor) and have his/her judgment or
claim set off against his/her creditor's judgment. Highsmith v.
Lair, 44 Guittard
was not at any time relevant to this enforcement action a judgment
debtor of taxpayer Norton. Thus, under Up until
the settlement agreement with Transport, Guittard insisted that it
was not liable on the claim by Transport for $40,400. If Guittard
was not liable to Transport, no setoff against taxpayer Norton
would ever arise. At best, what Guittard appears to have had in
December of 1978 when Transport made its claim is a potential
defense to a claim that might one day be filed by Norton. Guittard
cited no Guittard could have argued, of course, that by entering into a settlement agreement with Transport that required Guittard to make payments to Transport, the claimed setoff against Norton was just as effective as if some payment had in fact been paid to Transport. Even accepting this argument, the settlement agreement was not entered into until March 24, 1981, close to two years after the government served its notice of levy on Guittard. Thus at all times relevant to this enforcement action, Guittard was in possession of taxpayer Norton's property in the form of a debt in the amount of $12,240. Guittard contended that the date of the levy, not the date of the tax lien, determines whether the party levied against had any property belonging to the taxpayer. Logically, of course, if the party levied against owed money to the taxpayer on the date of the lien, but paid that amount over to the taxpayer prior to the service of notice of levy, the levy would be invalid because the party levied against would have no property belonging to the taxpayer. Guittard claims that its right to setoff effectively negated any interest that Norton had in the money at issue, and that that right to setoff was effective before Guittard received notice of the levy. The contention made by Guittard is really one concerning the priority of the federal tax lien as against the priority of the interest claimed under state law by the party levied against. As noted above, the defense of lien priority cannot be raised in an action to enforce a levy. United States v. Sterling National Bank, supra, 360 F. Supp. at 922-923. Nonetheless, for the edification of counsel, we make the following observations on the issue of lien priority. Even
assuming for the purpose of argument that Norton [Guittard] had
some right negating its debt to Norton, it is federal law that
determines whether a state-recognized property interest has become
so perfected as to defeat a federal tax lien. United States v.
Pioneer American Ins. [63-2 USTC ¶9532], 374 The assessment against the taxpayer was made in November of 1978. Guittard contended that its right to setoff arose in December of 1978. Even if Guittard were correct in its contention that the right to setoff was established in December, 1978, the federal tax lien attached to the debt first and thus takes priority over Guittard's claimed interest. The
Penalty The government in its motion for partial summary judgment sought a penalty equal to 50% of Guittard's liability on the tax levy. Under 26
Though Guittard was incorrect in its contention that it had no property belonging to taxpayer Norton at the time of the levy, the existence vel non of a bona fide dispute is not determined by reference to which party prevails on the merits of the underlying claim. See United States v. Sterling National Bank, supra, 494 F. 2d at 923. Guittard's setoff claim was made in good faith, thus giving rise to a bona fide dispute as to the existence, and therefore the amount, of property subject to the levy. Furthermore,
under the circumstances of this case, failure to impose a penalty
will not detract from the Congressional purpose of requiring
compliance with tax livies. Conclusion Under the foregoing analysis, at the time of the levy, Guittard was in possession of a $12,240 debt belonging to taxpayer Norton. Guittard's motion to dismiss, treated as a motion for summary judgment, was therefore denied as no ground in defense of the government's enforcement action was established. Accordingly, the government's motion for partial summary judgment in the amount of $12,240 plus interest and costs from the date of the levy was granted. A bona fide contention as to the existence of property subject to the levy having been raised by Guittard, the government's motion for partial summary judgment in the amount of a 50% penalty was denied. [58-1 USTC ¶9351]Louis Freeman, Trustee in Bankruptcy of Brokol Manufacturing Company v. Joseph F. J. Mayer, District Director of Internal Revenue for the District of New Jersey, Appellant (CA-3),
A.
Robert Rothbard, Before GOODRICH, MCLAUGHLIN and HASTIE, Circuit Judges. Opinion
of the Court HASTIE, Circuit Judge: This dispute between a trustee in bankruptcy and a Collector of Internal Revenue concerns the status and disposition of property of Brokol Manufacturing Company, presently a bankrupt, which the Collector reduced to possession and wishes to retain for delinquent federal taxes. The trustee, on the other hand, has asserted that the property in question is subject to administration in bankruptcy where the tax lien, though recognized, must yield priority to certain wage claims and administrative expenses as provided in Section 67c of the Bankruptcy Act. 11 U. S. C., 1952 ed., §107c. The matter was originally adjudicated by a bankruptcy court [53-1 USTC ¶9319], but on appeal this court held that the controversy did not lie within bankruptcy jurisdiction. In re Brokol Mfg. Co., 1955, 221 Fed. (2d) 640 [55-1 USTC ¶9357]. Thereafter, the trustee initiated this plenary suit against the District Director of Internal Revenue, the successor to the Collector, and recovered judgment for the amount in dispute. D. N. J. 1957, 152 Fed. Supp. 383 [57-2 USTC ¶9756]. This appeal followed. [Facts] The
involuntary petition, pursuant to which Brokol Manufacturing
Company was adjudicated bankrupt, was filed the day after the
taxing authorities had levied upon all property at the Brokol
place of business in distraint for federal taxes. For purposes of
this case, the circumstances are sufficiently disclosed by an
undisputed affidavit of the Deputy Collector who made the levy. He
says that, acting under warrants authorizing him to distrain for
taxes in the amount of $5,742.25, ". . . he seized the goods,
chattels, effects and all property or rights to property of the
said taxpayer at its premises, 89 Madison Street, Newark, New
Jersey, on It also appears without dispute that federal tax assessments against Brokol Manufacturing Company as implemented by tax liens duly filed in the appropriate Register's Office aggregated almost $20,000, although the actual levy in suit was made pursuant to the warrants for distraint totaling only $5,742.25. The tangible property thus seized was later sold, without prejudice to the present controversy, for $7,100. In these circumstances the trustee in bankruptcy properly concedes that the amount of $5,742.25, plus proper costs and expenses, can lawfully be retained by the taxing authorities. The present record shows that the Collector's costs, including a charge by Brokol's landlord for the use of the premises after their padlocking by the taxing authorities, aggregated $1,749.51. This sum, added to the face amount of the warrants, gives the taxing authorities an unchallenged right to hold assets of the taxpayer worth $7,491.76. However, the taxing authorities realized only $7,100 from the sale of all of Brokol's tangible property. In other words, the sale yielded no surplus over the amount as to which the taxing authorities had unqualified priority. It follows that the fact, much discussed in this briefing and argument, that the government had a lien for taxes greatly in excess of the face of the warrants upon which the distraint was based, is of no importance in this case. For regardless of that fact, the right of the tax collector to retain the entire $7,100 realized from the sale of tangible property is clear. [Money
Collected After Bankruptcy] The only doubtful matter in this case is the proper disposition of certain additional money realized by the Collector from another source. The court below found, and the record indicates that, after the petition for bankruptcy was filed, the distraining tax authorities collected $2,667.37 from certain of Brokol's customers, apparently on account of work very recently performed by Brokol and not paid for at the time the Collector levied upon all of Brokol's personal property and closed its establishment. The only question of substance in the present posture of this case is whether the taxing authorities may keep this money or whether they must surrender it to the trustee in bankruptcy. Section
67b of the Bankrputcy Act, 11 U. S. C., 1952 ed., §107b,
recognizes that a tax lien may be so impressed upon the property
of an insolvent as to be valid against a trustee in bankruptcy. In
this case the Collector says his actions amounted to such an
effective and exclusive appropriation of debts owed Brokol to the
satisfaction of Brokol's tax obligations. But Section 67c of the
Bankruptcy Act qualifies Section 67b by providing that "valid
. . . liens for taxes or debts owing to the United States . . . on
personal property not accompanied by possession of such property .
. . shall be postponed in payment to the debts [for wages and for
expenses of bankruptcy administration] specified in clauses (1)
(2) of subdivision a of Section 64 of this Act. . . ." 52
Stat. 877 (1938), 11 U. S. C., 1952 ed., §107c. Since, in order
to be situated beyond a trustee's reach under this subsection
property must be covered by a lien "accompanied by possession
of such property", it is arguable that this subsection has no
application at all to incorporeal property such as an ordinary,
debt, which is not a subject of possession in the common sense.
However, the courts have not found it too difficult to adopt the
lien concept and the possessory concept of distraint to the
seizure of choses in action, including ordinary debts for taxes.
See United States v. Liverpool & London & Globe Ins.
Co., 1955, 348 [No
Notice to Debtors] In this case the Deputy Collector seized everything within Brokol's place of business, padlocked the premises and posted appropriate notices of this distraint for taxes. But nothing beyond this was done by way of notice to debtors or attempted levy upon outstanding obligations. The following day the petition for bankruptcy was filed. It does not appear that the Collector even knew at that time who Brokol's creditors were. Certainly he had taken no steps to establish possessory dominion over any sum owed Brokol. It is clear, therefore, that whatever tax liens may in legal contemplation have attached to debts owed to Brokol no steps were taken sufficient to make these liens "accompanied by possession" of the debts. Therefore, their proceeds, as later collected, are subject to the priorities and procedures of bankruptcy administration indicated in Section 67c. Finally, it is to be noted that although the taxing authorities collected $2,667.37 owed to Brokol after bankruptcy, judgment below was for the trustee in the sum of $2,179.41, and the trustee has not appealed. This discrepancy between collection and award represents certain expenses incurred in the over-all effort to distrain for the Brokol tax indebtedness. Since all concerned have agreed to the deduction of some $500 of these expenses from the collections of outstanding debts we make no point of the matter. We note it because some similar issue contested in another case may present a question of substance. The judgment will be affirmed. [58-1 USTC ¶9468]In the Matter of Deputy Construction Company, Bankrupt U.
S. District Court, James P. D'Angelo, Trustee. William J. Hagan, Office of the Regional Counsel, Internal Revenue Service, for U. S. Findings
of Fact, Conclusions of Law and Opinion on Claim of Government The District Director of Internal Revenue for the District of Delaware has filed a claim against the bankrupt estate. The Trustee has objected to the claim. A priority status is demanded by the government on its claim based on the provisions of §64.A(5) of the Bankruptcy Act. The Trustee's objections to the claim are first because it was allegedly filed out of time; and secondly because the claim itself is not entitled to priority. Each of the two facets of the problem will be considered. It is fair to state a representative of the District Director of Internal Revenue office has attended most of the meetings of creditors of the bankrupt held in this proceeding. The
Timeliness of the Government's Claim LYNCH, REFEREE: The
bankruptcy proceeding was begun on The
Trustee filed a petition on Such bar
order was entered on On On or
about These are the salient facts bearing upon the timeliness of the government priority claim. I am
convinced that sufficient evidence was before the Court prior to It
appears from a reading of 3 Collier, Bankruptcy 57.11, and the
notes in the supplement thereto, that the government did not file
a new claim on This is not to say that undue liberality can be allowed in filing late claims,--the statute is adamant and exceptions to the necessity of filing fully and promptly should not be encouraged; this, however, is a case where the rule of amplification of a prior claim should be followed. In any event, the bar order served upon the government may have been properly construed as allowing the government to set within the return time. I find and conclude that time and hence that it should be allowed as timely. The
Propriety and Priority of the Government Claim Since my conclusion is that the claim has been filed within time, I must next determine if the claim is proper, and whether the claim can be given a priority status under §64.a(5) of the Bankruptcy Act as asserted by the government. This cited section provides: "* * * Sec. 64a.--The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be *
* * "(5) Debts owing to any person, including the United States, who by the laws of the United States in (is) entitled to priority, and rent owing to a landlord who is entitled to priority by applicable State law; Provided, however, That such priority for rent to a landlord shall be restricted to the rent which is legally due and owing for the actual use and occupancy of the premises affected, and which accrued within three months before the date of bankruptcy." The Trustee argues that the government is not entitled to priority unless it can show it was entitled to priority on the date on which the petition in bankruptcy was filed, and furthermore the Trustee claims that the government must show that the original obligor was and is insolvent. A brief resume and discussion of the facts may help point up the basis of the decision I have reached in this case. The
bankrupt, Deputy Construction Co., was a The levy amounted to some $3765.07. It appears at that time Wayne Nichols was due approximately $3495.74 by Deputy Construction Co., it appears however that this amount was not payable at any one time |