Annotations- Bank Accounts Page5

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 II. DEFENDANT BLAINE STATE BANK'S MOTION TO DISMISS

Defendant Blaine State Bank moved to dismiss Plaintiff's complaint for lack of personal jurisdiction. ¹⁰ The Bank asserts that it is a corporation organized under the laws of the state of Minnesota , that its only location is in the City of Blaine , County of Anoka , State of Minnesota , and that it is neither licensed nor does business in Utah .

Plaintiff contends that jurisdiction in the United States District Court for the State of Utah is proper because the Bank conspired with the IRS in the alleged illegal conversion of Plaintiff's money. Further, Plaintiff maintains that the Bank waived any jurisdictional objection because it did not "properly" challenge Federal jurisdiction when it received notice of levy from the government. Finally, Plaintiff asserts that jurisdiction is proper because the United States and Blaine State Bank, as co-conspirators, used the United States mail to transport the alleged illegally converted money across state lines.

To defeat a motion to dismiss for lack of personal jurisdiction, Plaintiff need only to make a prima facie showing that the requirements for personal jurisdiction are met. Rambo v. American Southern Ins. Co., 839 F.2d 1415, 1417 (10th Cir. 1988); STV International Marketing v. Cannondale Corp., 750 F. Supp. 1070, 1072-73 (D. Utah 1990). At a preliminary stage of the proceedings, Plaintiff's burden is relatively light. STV International Marketing, 750 F. Supp. at 1073. Jurisdiction over a non-resident corporate defendant can be either general or specific. Id.

General personal jurisdiction is the concept reflected in a doing business statute which requires substantial and continuous local activity. Id. Defendant asserts that it is not incorporated in Utah , that it is not licensed to do business in Utah and that it conducts no business in Utah . Plaintiff fails to raise even a scintilla of Utah based activity, let alone substantial and continuous local activity. Accordingly, Plaintiff has failed to make the prima facie showing of general personal jurisdiction.

Specific personal jurisdiction is the concept embodied in a state's long-arm statute and the related constitutional requirement of "minimum contacts." Id. A three-prong analysis is applicable to determine specific jurisdiction: (1) whether Defendant's acts implicate Utah under the Utah Long-Arm Statute; (2) whether a nexus exists between Plaintiff's claim and Defendant's acts; and (3) whether application of the long-arm statute satisfies the requirements of due process. STV International Marketing, 750 F. Supp. at 1074.

First, the Utah long-arm statute provides, in pertinent part:

[a]ny person . . . whether or not a citizen or resident of this state, who in person or through an agent does any of the following enumerated acts, ¹¹ submits himself . . . to the jurisdiction of the courts of this state as to any claim arising from . . . (3) the causing of any injury within this State whether tortious or by breach of warranty. Utah Code §78 -27-24.

In the instant case, at best, Plaintiff may contend that the Bank is subject to jurisdiction in Utah because the alleged conversion, while occurring in Minnesota , caused financial injury to a Utah resident. No other connections between the Bank and the State of Utah are relevant to the inquiry of personal jurisdiction. In Hydroswift Corp. v. Louie's Boats & Motors, Inc., 494 P.2d 532 (1972), the Utah Supreme Court addressed the issue of personal jurisdiction based on an alleged out-of-state conversion that resulted in financial injury to a Utah plaintiff. The Hydroswift court concluded that jurisdiction could not be predicated solely upon financial injury accruing to a Utah resident. Id. As another court observed, "acceptance of such theory would lead to the unacceptable proposition that jurisdiction could be established anywhere a plaintiff might locate." Burt Drilling, Inc. v. Portadrill, 608 P.2d 244, 250 (Utah 1980) (citing International Shoe v. Washington, 326 U.S. 310 (1945) and World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980) for the proposition that state boundary lines are not entirely irrelevant to issues of state in personam jurisdiction); STV International Marketing, 750 F. Supp. at 1075-76. Accordingly, Plaintiff failed to make the prima facie showing that the Bank is subject to jurisdiction in Utah under the state's long-arm statute. Because Plaintiff failed to satisfy the first prong of the specific jurisdiction test, consideration of the final two prongs is not considered necessary. ¹²

Plaintiff has failed to make the prima facie showing of personal jurisdiction under either the general or specific requirements of jurisdiction. Therefore, this court lacks personal jurisdiction over Blaine State Bank.

III. PLAINTIFF'S MOTION FOR RECONSIDERATION OF DEFENDANT SHIELDS' DISMISSAL

On February 2, 1993, this court heard arguments on various motions pending in the case. By order dated February 26, 1993, this court dismissed Karen Shields as a defendant in the matter. Plaintiff moved the court to reconsider its decision to dismiss Plaintiff's complaint against Defendant Karen Shields. ¹³

Provided that they are timely filed, ¹⁴ motions to alter or amend judgments, calling into question the correctness of a judgment on some material point of fact or law, are generally considered under Rule 59(e) of the Federal Rules of Civil Procedure. See, e.g., Dalton v. First Interstate Bank of Denver , 863 F.2d 702, 703 (10th Cir. 1988); Summers v. Salt Lake County , 713 F. Supp. 1415, 1417 (D. Utah 1989). In ruling on a motion to alter or amend judgment, the trial judge has broad discretion to ensure that justice is done. McHargue v. Stokes Div. of Pennwalt Corp., 912 F.2d 394, 396 (10th Cir. 1990) (Scholz Homes Inc. v. Wallace, 590 F.2d 860, 864 (10th Cir. 1979)). This court will consider Plaintiff's objection to the order and Plaintiff's motion for reconsideration under Rule 59(e).

Plaintiff's objection to the minute order and motion for reconsideration allege violations of 42 U.S.C. §1983, unlawful search and seizure, and deprivation of property without due process of law by Defendant Karen Shields. Plaintiff's allegations remain substantially unchanged from the original complaint: Defendant Karen Shields failed to follow the procedures specified in §§6331 and 6332 of the IRC in levying Plaintiff's bank account and Defendant Karen Shields tortiously converted the money on deposit in his bank account.

Plaintiff has failed to present any basis for the court to reverse its prior decision dismissing Defendant Karen Shields. Plaintiff has no cause of action under 42 U.S.C. §1983 against Defendant Karen Shields because, as an agent of the Internal Revenue Service, she did not act under color of state law. See Stonecipher [81-2 USTC ¶9614 ], 653 F.2d 398, 401 (9th Cir. 1981) (affirming the dismissal of an action against the Internal Revenue Service because the IRS is a federal agency and its agents performed no acts under color of state law). Furthermore, assessment and levy of property in connection with the collection of taxes do not violate any clearly established constitutional or statutory right. Christensen v. Ward [90-2 USTC ¶50,520 ], 916 F.2d 1462, 1476 (10th Cir. 1990); Yalkut, 873 F.2d at 35. Moreover, Congress has provided a remedy for overzealous collection actions by the IRS and its agents in 26 U.S.C §7433 . Accordingly, a Bivens type constitutional tort action does not lie against Defendant Shields. Therefore, Plaintiff has failed to present any basis for reversal, and the motion for reconsideration is denied.

Based upon the foregoing, it is hereby ORDERED that Plaintiff's claim against the United States for tortious conversion is dismissed for lack of subject matter jurisdiction; it is

Further ORDERED that Plaintiff's claim against the United States under 26 U.S.C. §7433 is dismissed for failure to state a claim; it is

Further ORDERED that Plaintiff's claim against Blaine State Bank is dismissed for lack of personal jurisdiction; it is

Further ORDERED that Plaintiff's motion for reconsideration of this court's order dismissing Defendant Karen Shields is denied; it is

Further ORDERED that "Unknown Persons 1-10" are dismissed as defendants concurrently with United States and Blaine State Bank. ¹⁵

The dismissal of all defendants in this matter obviates consideration of Plaintiff's second motion for summary judgment, Plaintiff's motion to compel discovery and Defendant United States' objections to the proposed pre-trial order.

IT IS SO ORDERED.

¹ As a preliminary matter, the Court will address Plaintiff's motion to disqualify. Plaintiff moved the trial judge to disqualify himself from the matter for bias, prejudice and lack of impartiality. Nothing in Plaintiff's motion supports a disqualification. Accordingly, Plaintiff's motion to disqualify is denied.

² On November 3, 1993, Plaintiff also filed an answer to Defendant United States' memorandum, a demand for disciplinary action against government officials, and a memorandum in further support of his motion for summary judgment. The court has reviewed the document and finds that it merely reiterates matters previously raised by Plaintiff, which are addressed in this Memorandum Decision and Order. The court rejects Plaintiff's demand for disciplinary action against the government officials.

³ The motions pending before the Court on February 2, 1993 were:

(1) Defendant United States ' motion to dismiss;

(2) Defendant Karen Shields' motion to dismiss;

(3) Plaintiff's motion for costs;

(4) Defendant Blaine State Bank's answer and motion to dismiss; and

(5) Plaintiff's motion for summary judgment.

Memoranda in opposition to Defendants' motions to dismiss, Plaintiff's motion for costs and Plaintiff's motion for summary judgment had also been filed with the Court at the time of the February hearing.

⁴ Plaintiff also claimed violations of 42 U.S.C. §§1983 and 1985 against the government for unlawfully converting money in his bank account, for taking his money without due process of law and for unlawfully searching his personal records and seizing money in his bank account. Plaintiff asserted jurisdiction under 28 U.S.C. §1343. Section 1343 confers original jurisdiction in the district courts for alleged violations of 42 U.S.C. §§1983 and 1985. 28 U.S.C. §1343. Sections 1983 and 1985 provide a remedy for constitutional deprivations by persons acting under color of state law. 42 U.S.C. §§1983 & 1985. Because the IRS and its agents are a Federal agency and Federal agents, respectively, they performed no acts under color of state law. Rather, the IRS and its agents acted under Federal law. Therefore, Plaintiff improperly asserts jurisdiction under 28 U.S.C. §1343. Accordingly, this Court lacks subject matter jurisdiction over Plaintiff's 42 U.S.C. §§1983 and 1985 claims and Plaintiff failed to state a claim for which relief can be granted. See, e.g., Stonecipher v. Bray [81-2 USTC ¶9614 ], 653 F.2d 398, 401 (9th Cir. 1981); Mack v. Alexander [78-2 USTC ¶9559 ], 575 F.2d 488, 489 (5th Cir. 1978).

Plaintiff's claim could also be construed as a constitutional tort action against the IRS and agent Shields for violations his Fourth and Fifth Amendment rights. See Bivens v. Six Unknown Named Agents, 403 U.S. 388 (holding that Federal officials may be liable for violations of constitutional rights). As a general proposition, constitutional tort remedies are not available against IRS agents because such claims would impair the effectiveness of specific statutory remedies provided against the IRS. See Bush v. Lucas, 462 U.S. 367, 388-90 (1983); Christensen v. Ward [90-2 USTC ¶50,520 ], 916 F.2d 1462, 1476 (10th Cir. 1990); Cameron v. Internal Revenue Service [85-2 USTC ¶9661 ], 773 F.2d 126, 128 (7th Cir. 1985). Congress has provided an explicit remedy to taxpayers for overzealous collection actions by the IRS and its agents. 26 U.S.C. §7433 . Moreover, Federal agencies and Federal agents are immune from suit provided that their conduct does not violate clearly established statutory or constitutional rights. Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982). Assessment and levy pursuant to the IRC and subject to post-levy administrative and judicial review do not violate any clearly established constitutional or statutory right. Christensen [90-2 USTC ¶50,520 ], 916 F.2d at 1476 (citing Yalkut v. Gemignani [89-1 USTC ¶9372 ], 873 F.2d 31, 34-35 (2nd Cir. 1989)). Therefore, a Bivens type action does not lie in the instant case because the government's actions did not violate any clearly established statutory or constitutional right and Plaintiff's claim under 26 U.S.C. §7433 is addressed at length in this memorandum decision and order.

⁵ While Plaintiff asserted that the "action is entered against each Defendant individually", it is difficult to ascertain against whom each claim applies. See Complaint p.1 at ¶2. For example, Plaintiff alleges tortious conversion of property, however, it is difficult to comprehend how the United States , as an entity, could convert Plaintiff's property. Nonetheless, when a complaint names employees of the United States individually for actions undertaken in their official capacity as agents of the United States, the action is in fact one against the United States. Atkinson v. O'Neill, 867 F.2d 589, 590 (10th Cir. 1989). In the instant case, Plaintiff's allegations of wrongdoing by Karen Shields relate to actions within the scope of her authority and were her duties and responsibilities as an agent of the Federal government. See Yalkut v. Gemignani [89-1 USTC ¶9372 ], 873 F.2d 31, 35 (2nd Cir. 1989). Accordingly, all of Plaintiff's claims against agent Karen Shields are also attributable to the United States as a defendant.

⁶ Because of the lack of clarity in Plaintiff's pleadings and motions, it is difficult to determine whether some of Plaintiff's arguments support his allegations of constitutional violations or whether the arguments are independent bases in support of his IRC §7433 claim. For example, Plaintiff claims that the Service failed to provide him with notice of levy and improperly levied Plaintiff's bank account without attachment and execution under judicial process. For organizational purposes, Plaintiff's arguments have been included in the section addressing the alleged constitutional violations. The merits of these arguments will also be considered independently to determine whether they support Plaintiff's IRC §7433 claim.

⁷ Indeed, the Supreme Court observed that the language of Section 6331(a) "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 719-20 (1985).

⁸ While Plaintiff also claims violations under the Utah Constitution, because his complaint involves the collection of Federal income tax the matter will be analyzed under the United States Constitution and the Internal Revenue Code.

⁹ Plaintiff's claim appears to be more properly directed at the Bank because the allegation involves an improper surrender of property. The Bank's alleged improper surrender would not support a claim under 26 U.S.C. §7433 because the acts do not involve violations of the IRC and the regulations thereto by agents of the IRS.

¹⁰ In Defendant Blaine State Bank's answer it moved the Court to dismiss the complaint for lack of personal jurisdiction. Subsequently, the Bank filed a separate motion to dismiss for, among other things, lack of personal jurisdiction. This order addresses both requests for dismissal.

¹¹ Defendant Blaine State Bank did not engage in any other acts enumerated in the long-arm statute. Therefore, only subsection (3) will be analyzed.

¹² Nonetheless, after reviewing the file, jurisdiction over the Bank in Utah also appears to fail the requirements of due process. Defendant Blaine State Bank does not appear to have purposefully availed itself of the privilege of conducting activities within Utah . Thus the Bank has failed to establish the minimum contacts with Utah necessary to invoke personal jurisdiction. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985); Hanson v. Denckla, 357 U.S. 235, 253 (1958); Frontier Fed. Sav. & Loan v. National Hotel Corp., 675 F. Supp. 1293, 1298 (D. Utah 1987).

¹³ Plaintiff filed an objection to the court's minute order dismissing Karen Shields on February 12, 1993 and a motion for reconsideration on August 13, 1993.

¹⁴ Rule 59(e) requires that a motion to alter or amend the judgment shall be served no later than 10 days after the entry of judgment.

¹⁵ Defendant United States moved the court to dismiss the complaint against "Unknown Persons 1-10". The government contends that Plaintiff merely wants to preserve his claims against additional IRS employees through the use of defendants "Unknown Persons 1-10". While there may be compelling arguments for and against the use of Doe defendants in Federal court, it appears that the ultimate decision lies in discretion of this court. Because this order dismisses Plaintiff's complaint against both the Bank and the United States , this court believes that it is now appropriate to also dismiss the Doe defendants.

 

[96-2 USTC ¶50,589] United States of America , Plaintiff v. AmSouth Bank of Florida , Defendant

U.S. District Court, Mid. Dist. Fla., Ocala Div., 95-75-Civ-Oc-10, 9/13/96, 947 FSupp 459

[Code Sec. 6332 ]

Liens and levies: Compliance: Enforcement: Bank account: Defenses: Priority claims: Penalty: Failure to surrender property.--A bank failed to turn over all the funds in an individual's bank account to the IRS pursuant to a levy when it retained a portion of the funds to pay its attorneys' fees and costs incurred during the litigation of an unrelated matter. The bank's claim that it had a perfected security interest in the funds that had priority over the tax lien was not an appropriate defense to the IRS's enforcement action. Further, since no wrongful levy claim was pending, the court was without authority to decide whether the claim was barred by the limitations period. Reg. §301.6323b-1(j) did not require the bank to remit to the IRS only the amount in excess of that to which it was entitled pursuant to its security interest in the account because priority issues are not litigable in enforcement actions. The penalty for failure to surrender property was imposed on the bank because it refused to comply with the levy without reasonable cause.

ORDER

HODGES, District Judge:

This action to enforce a tax levy is before the Court on the parties' cross-motions for summary judgment (Docs. 12, 18). Each party has responded to the motion of the other. For the reasons that follow, Plaintiff's motion for summary judgment will be granted and Defendant's motion will be denied.

BACKGROUND

Because the Court's resolution of the case does not turn on the complex priority issues forming the bulk of the parties' argument, a short statement of undisputed facts will suffice.

In 1988 and 1989, taxpayer, Mr. James T. Greene, contracted for four loans from Defendant's predecessor, Mid-State Federal Savings Bank. Mr. Greene also maintained a time deposit account in Mid-State; and, pursuant to assignments, Mid-State held the account as security for the loans. Mr. Greene's account was also subject to an administrative hold which prevented him from withdrawing funds from the account.

In July 1989, the United States Department of Agriculture filed suit against Mr. Greene and Mid-State under the Perishable Agricultural Commodities Act. The USDA claimed that Greene made payments on the first loan ¹ issued by Mid-State out of funds that were subject to a trust created by the Act. The complaint, therefore, sought recovery of many of the funds paid to Mid-State under the first of the four loans. Mid-State believed that the lawsuit placed the completion of Mr. Greene's obligations under the first loan in question and that, under the terms of the first loan or pursuant to dragnet clauses in the other three loans, it was entitled to payment, out of the Greene account, of attorney's fees and costs incurred in defending the action.

On May 30, 1990, while the USDA litigation was pending, the Internal Revenue Service filed a tax lien in the amount of $276,246.36 against Mr. Greene. In an effort to collect Mr. Greene's unpaid tax debt, the IRS, on June 28, 1990, filed a notice of levy with Mid-State Savings Bank. Mr. Greene's account with Mid-State had an approximate balance, at the time of the levy, of $65,000.

On February 26, 1991, the IRS served Mid-State with a final demand for the funds Mid- State held in Greene's account. On March 5, Mid-State's attorney wrote a letter to the IRS informing it of Mid-State's intent to retain the funds in the account pending the outcome of the litigation with the USDA.

On June 29, 1992, the U.S. District Court for the Middle District of Florida granted summary judgment in Mid-State's favor in the USDA litigation. On June 15, Mid-State used the funds in the Greene account to pay $37,750.26 worth of attorney's fees and costs incurred during the litigation. On February 15, 1993, Mid-State remitted the remaining $34,400.13 to the IRS.

On July 13, 1993, the IRS wrote Mid-State informing Mid-State of its belief that the February 15 remittance was insufficient and of its contention that it was entitled to the funds disbursed by Mid-State subsequent to the USDA litigation. On July 26, Mid-State's attorney wrote the IRS explaining its belief that it was entitled to the funds in question and that the February 15 remittance constituted the extent of Mid-State's obligation under the levy.

On December 12, 1993, Mid-State merged into AmSouth bank of Florida . Pursuant to the terms of the merger, AmSouth assumed all liabilities of Mid-State, including any liability it might have had in connection with the tax levy.

This lawsuit to enforce the levy pursuant to 26 U.S.C. §6332 was filed by the United States on April 19, 1995 (Doc. 1). The complaint alleges an entitlement to all of the funds in the Greene account as of the date of the levy, which, for practical purposes, means the $37,750.26 paid out of the account prior to the February 15, 1993 remittance. The complaint also demands that a penalty of fifty percent of the recoverable amount be imposed upon AmSouth. 26 U.S.C. §6332(d)(2) .

Both parties have moved for summary judgment. The government argues that the existence of a prior lien interest cannot be raised as a defense to an action to enforce a levy. The parties then concentrate on the issue of whether, as of the date of the levy, Mid-State had an perfected security interest in the funds held in the Greene account with priority over the tax lien. The parties have also argued about whether Mid-State's refusal to honor the levy constituted "reasonable cause" such that the fifty percent penalty should not be imposed.

DISCUSSION

Summary judgment is appropriate only when the Court is satisfied "that there is no issue as to any material fact and that the moving party is entitled to judgment as a matter of law." F.R.Civ.P. 56(c). In making this determination, the Court must "view the evidence in the light most favorable to the non-moving party." Samples on Behalf of Samples v. Atlanta , 846 F.2d 1328, 1330 (11th Cir. 1988). The moving party has the initial burden of establishing the absence of a genuine issue of fact. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Next, the "non-moving party ... bears the burden of coming forward with sufficient evidence of every element that he or she must prove." Rollins v. Techsouth, Inc., 833 F.2d 1525, 1528 (11th Cir. 1987). To that end, the non-moving party must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324, 106 S.Ct. 2553 (citations and internal quotation marks omitted).

A. May AmSouth raise a prior lien interest in defense?

There are only two defenses to an action to enforce a levy pursuant to 26 U.S.C. §6332(d) ²: (1) that the defendant is not in possession of or obligated with respect to the taxpayer's property or rights therein; and (2) the property levied upon was subject to attachment or judicial process at the time the levy was received. United States v. Nat'l Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 722, 105 S.Ct. 2919, 2925, 86 L.Ed.2d 565 (1985). ³ The defenses to an enforcement action are necessarily limited in light of the Congressional purpose to ensure quick and inexpensive compliance with the provisions of the tax code. Id. at 720-22, [85-2 USTC ¶9482 ] 105 S.Ct. at 2924-25. As a result, claims of security interests with priority over the tax levy may not be raised in a §6332 proceeding; rather, such claims are properly litigated only in an action for wrongful levy under 26 U.S.C. §7426 . Trust Co. of Columbus v. United States [84-2 USTC ¶9614 ], 735 F.2d 447, 449-450 (11th Cir. 1984); United States v. Citizens and Southern Nat. Bank [76-2 USTC ¶9665 ], 538 F.2d 1101, 1106 (5th Cir. 1976), cert. denied, 430 U.S. 945, 97 S.Ct. 1579, 51 L.Ed.2d 792 (1977).

Precedent, therefore, clearly commands the result in this case. However, Defendant raises two arguments against the foreclosure of its defenses in this case. First, Defendant argues that, because the government waited so long to bring this action, the nine month limitation on the bringing of an action pursuant to §7426 has run and "principles of equity" should preclude the government from raising this issue now. Absent a pending §7426 claim, the Court is obviously without authority to decide the limitations issue. Further, Defendant cites no authority for such a departure from clearly established precedent.

Defendant's second argument is equally unavailing. Defendant contends that Treas. Reg. §301.6323b-1(j) and the concomitant example establish that Defendant was only required to remit to the IRS the amount in excess of that to which it was entitled pursuant to its security interest in the account. This regulation interprets 26 U.S.C. §6322 which deals with the validity and priority of IRS liens as against certain individuals. §6332 and the cases interpreting it clearly establish that priority issues are not litigable in actions to enforce a tax levy. Consequently, this argument also fails and the government is entitled to summary judgment on its claim to enforce the levy.

B. Is the United States entitled to a penalty?

26 U.S.C. §6332(d)(2) provides that any person who fails to comply with a levy, without reasonable cause, when required to do so shall be liable to the government for a penalty in the amount of fifty percent of the amount recovered. Treas. Reg. §301.6332-1(b)(2) finds reasonable cause where there is a bona fide dispute concerning the amount of property to be surrendered pursuant to the levy or the legal effectiveness of the levy. Although the regulation is unclear as to whether priority issues raise such bona fide disputes, cases interpreting the statute have found reasonable cause when a defendant has brought a wrongful levy action prior to remittance or where there was a dispute over the applicability of the defenses to a §6332 claim. See supra p. 4-5. See United States v. Donahue Indus., Inc. [90-2 USTC ¶50,343 ], 905 F.2d 1325 (9th Cir. 1990) (holding that bona fide dispute over whether bank actually possessed property belonging to taxpayer is reasonable cause); Texas Commerce Bank-Fort Worth, N.A. v. United States [90-1 USTC ¶50,155 ], 896 F.2d 152 (5th Cir. 1990) (holding that reasonable cause exists where meritorious wrongful levy action is instituted prior to surrender of levied property); Citizens & Southern [76-2 USTC ¶9665 ], 538 F.2d 1101 (bona fide dispute over whether deposit represents property is reasonable cause).

Excepting Defendant from the penalty provisions of the statute where it has neither raised a cognizable defense to the enforcement action or instituted a wrongful levy proceeding would undermine the effectiveness of the levy as a remedy. The levy provisions of the Internal Revenue Code contain broad grants of power with narrow exceptions in order to secure the efficiency and cost effectiveness of the levy as a tax collection device. See generally Nat'l Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. at 720-23, 105 S.Ct at 2924-25. If every dispute with the IRS over priority to property subject to a levy constituted reasonable cause, persons claiming priority would have no reason to surrender levied property until the government commences an enforcement action, rendering the penalty provision, in substantial part, nugatory. Such a result would destroy the levy's effectiveness as a provisional administrative remedy. See Nat'l Bank of Commerce, [85-2 USTC ¶9482 ] 472 U.S. at 721, 105 S.Ct. at 2924.

The justification for the imposition of a penalty in this case is strengthened in light of the clarity of the law with regard to the proper procedure in the event of a priority dispute. Controlling law in this Circuit and others unequivocally declines to recognize priority claims as a defense to a levy and makes an action for wrongful levy the exclusive mechanism for pursuit of such claims. Trust Co. of Columbus [84-2 USTC ¶9614 ], 735 F.2d at 449-50; Citizens & Southern [76-2 USTC ¶9665 ], 538 F.2d at 1106. See Texas Commerce Bank-Fort Worth [90-1 USTC ¶50,155 ], 896 F.2d at 157. Defendant has not raised a cognizable defense to a §6332 action and has ignored the appropriate avenue for pursuit of its priority claims. As such, Defendant has not established reasonable cause for its failure to honor the levy.

Accordingly, upon due consideration,

(1) Defendant's motion for summary judgment (Doc. 18) is DENIED; and

(2) Plaintiff's motion for summary judgment (Doc. 12) is GRANTED and the Clerk is directed to enter judgment for Plaintiff in the amount of thirty-seven thousand seven hundred and fifty dollars and twenty-six cents ($37,750.26), representing the principal amount due under the levy, eighteen thousand eight hundred and seventy-five dollars and thirteen cents ($18,875.13), representing the penalty imposed pursuant to 26 U.S.C. §6332(d)(2) , plus interest at the rate prescribed by law, plus costs according to law.

IT IS SO ORDERED.

¹ The payment status of the loans is a matter of some dispute. The first loan was paid in full by Mr. Greene in September 1988 and stamped paid by Mid-State. The remaining three loans matured in September 1989 and Mid-State took $111,488.02 from the Greene account to satisfy the debt. These loans, however, were never noted by Mid-State as paid.

² 26 U.S.C. §6332(d)(1) provides:

Any person who fails or refuses to surrender any property or rights to property, subject to levy, upon demand by the Secretary, shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered. ...

³ Defendant raises neither of these defenses here.

 

[96-2 USTC ¶50,539] Donald E. Moore, Plaintiff-Appellant v. General Motors Pension Plans, General Motors Corporation, National Bank of Detroit, (N.B.D. Bank NA), et al., Defendants-Appellees

(CA-7), U.S. Court of Appeals, 7th Circuit, 95-3133, 3/8/96

(submitted February 29

1996 ^*; published July 29, 1996 ^**), 91 F3d 848. Affirming an unreported District Court decision.

[Code Sec. 6332 ]

Liens and levies: Bank accounts: Validity.--An individual's suit against his bank, certain bank employees, a corporation, and the corporation's pension plan alleging that a notice of levy served on the bank by the IRS was invalid and that the bank wrongfully gave the taxpayer's property to the IRS was properly dismissed. The defendants were immune from liability under Code Sec. 6332(e) because the taxpayer's bank account was property subject to levy, the IRS made a levy on that account and, upon demand of the Secretary of the Treasury, the bank surrendered his money. The bank could not challenge the validity of the levy; the taxpayer's challenge did not alter the bank's obligation to comply with the levy; and, even if the levy was invalid, Code Sec. 6332(e) is not limited to levies that survive challenges to their validity.
[Code Sec. 1 ]

Liens and levies: Immunity: Due process.--An individual was not denied due process when the district court dismissed his suit, which alleged that a notice of levy served on a bank by the IRS was invalid and that the bank wrongfully gave his property to the IRS, before he could conduct discovery upon the IRS and potentially join it as a defendant. The claim against the IRS and the suit against the bank were two separate matters. Further, since the defendants named in the suit were immune from liability and, thus, the taxpayer could not prevail, there would have been no value in allowing discovery to proceed. Finally, dismissal of his suit did not preclude the taxpayer from pursuing his claim against the IRS because he could challenge the validity of the levy under Code Sec. 7432 .

Donald E. Moore, 2824 U.S. 36, Markleville, Ind. 46056, pro se. Roderick Gillium, for General Motors Pension Plans, Daniel G. Galant, for General Motors Corp., 3031 W. Grand Blvd., Detroit, Mich. 48232, Steven L. Yount, One Indiana Square, Indianapolis, Ind. 46266, for Natl. Bk. of Detroit.

Before: POSNER, Chief Judge, and MANION and KANNE, Circuit Judges.

Per Curiam"

EC: The IRS claims that Donald Moore owes federal income taxes; Moore denies that he does. After the IRS failed to collect the taxes directly from Moore , it served a "Notice of Levy on Wages, Salary, and Other Income" on National Bank of Detroit (NBD), Moore 's Bank. As it believed it was required to under 26 U.S.C. §6332 , NBD turned over to the IRS $12,540 from Moore 's account.

Moore believed the Notice of Levy was invalid and that NBD therefore wrongfully gave his deposits to the IRS. He demanded that NBD restore the funds, but NBD refused. Moore then filed this suit for conversion and negligence, seeking damages totaling over $300,000. He named as defendants NBD, Diane Lingenfelter (an NBD employee) and Charles Mine (an NBD officer). He also named as defendants General Motors Corporation (GM) and General Motors Pension Plans (GMPP). Moore draws a pension from GMPP which is deposited in NBD, but it is unclear from the record on what basis Moore seeks to hold GM or GMPP liable. Finally, Moore named as defendants "Does 1-10," described as "those defendants, individuals, corporations, associates, accessories and otherwise, specifically unknown to the plaintiff, yet to be named, who have acted beyond the scope of their authority and will be revealed under discovery as the facts are discovered."

In order to substantiate his claim that the Notice of Levy was invalid, Moore served subpoenas duces tecum upon two IRS employees. Upon the IRS's motion, the district court quashed the subpoenas. The court denied Moore's motion for reconsideration, and then granted summary judgment in favor of the defendants, holding that they were immune from suit under 26 U.S.C. §6332(e) , which immunizes from liability any party who--in response to a levy--turns over to the IRS funds or property belonging to a delinquent taxpayer. This appeal followed.

Before reaching the merits of Moore 's appeal, however, we must address the subject matter jurisdiction of th