Annotations- Bank Accounts Page5

---

 

 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 the district court. Although Moore asserted various statutory bases for federal jurisdiction, he names as defendants only private parties and his cause of action arises solely under state law. Thus, the only basis for the district court's jurisdiction--and apparently the one relied upon below--was diversity jurisdiction, 28 U.S.C. §1332. Moore is a resident of Indiana . Lingenfelter and Milne are residents of Michigan . Moore 's complaint alleged that GM had "[a] place of domicile in Flint , Michigan with [a] subsidiary in Anderson , Indiana ," and that NBD had a "domicile in Detroit , Michigan with branches in Indiana ." These allegations are deficient--a corporation does not have a domicile; rather, its citizenship for diversity purposes is determined by its place of incorporation and its principal place of business. Nonetheless, the defendants' appellate brief states that GM and GMPP are incorporated in Delaware and have principal places of business in Michigan , and that NBD is both incorporated in and has a principal place of business in Michigan . Thus, it appears that there was complete diversity so far as the named parties were concerned.

The problem with Moore 's suit is that he also named as defendants "Does 1-10." Because diversity jurisdiction must be proved by the plaintiff rather than assumed as a default, Pollution Control Industries of America v. Van Gundy, 21 F.3d 152, 155 (7th Cir. 1994), this court cannot presume that Does 1-10 are diverse with respect to the plaintiff. This is not a case, however, where the plaintiff knows that there are specific additional defendants he wishes to sue, but is simply uncertain as to their names. Rather, Moore appears to have included "Does 1-10" in the complaint in the event that during discovery he identified any additional defendants he wished to add to the suit. The district court terminated discovery and dismissed Moore 's suit before he could add any additional defendants. Because, as we hold below, the district court correctly dismissed this suit before Moore named any additional parties, we think it proper to treat "Does 1-10" as mere nominal parties, whose presence does not affect diversity jurisdiction. United States Fire Ins. Co. v. Charter Financial Group, 851 F.2d 957, 958 n. 3 (7th Cir. 1988). Hence, we conclude that the district court had diversity jurisdiction to hear this suit.

Turning now to the merits of Moore 's appeal, Moore appears to allege two bases for error in the district court. We will first address Moore 's second claim on appeal: that the Notice of Levy served upon NBD was invalid for a variety of reasons, and therefore the immunity conferred by 26 U.S.C. §6332(e) does not apply to the defendants. Moore argues that the defendants had a duty both to recognize these alleged deficiencies in the levy and to oppose the IRS on his behalf. Because the defendants failed to challenge the validity of the levy, Moore concludes, the immunity conferred by §6332(e) does not protect them.

This line of argument is meritless. Once the IRS served a Notice of Levy on NBD, the bank had a legal obligation under §6332(a) to turn over to the IRS Moore's accounts; NBD could not challenge the validity of the levy. "[A] bank served with a notice of levy has two, and only two, possible defenses for failure to comply with the demand: that it is not in possession of the property of the taxpayer, or that the property is subject to a prior judicial attachment or execution." United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 727 (1985) (emphasis added). Moore's challenge to the validity of the levy did not alter NBD's obligation to comply with the levy, Schiff v. Simon & Schuster, Inc. [86-1 USTC ¶9204 ], 780 F.2d 210, 212 (2d Cir. 1985); Allstate Financial Corp. v. United States, 860 F. Supp. 653, 656 (D. Minn. 1994), and thus, NBD could not have challenged the validity of the levy on Moore's behalf. NBD cannot be held liable for having failed to do what it could not legally do.

Furthermore, regardless of whether or not the levy served on NBD was valid, NBD and the other defendants are immune from liability. Allstate Financial Corp., 860 F. Supp. at 657. Section 6332(e) provides that:

[a]ny person in possession of [property] subject to levy upon which a levy has been made who, upon demand by the Secretary [of the Treasury], surrenders such [property] to the Secretary ... shall be discharged from any obligation or liability to the delinquent taxpayer. ...

26 U.S.C. §6332(e) . There is no question in this case that Moore 's bank account was "property subject to levy," that the IRS made a levy (whether valid or not) on that account, and that upon demand of the Secretary--acting through the IRS--NBD surrendered Moore 's account. By its own terms, then, §6332(e) applies to the defendants in this case; that statute is not limited to levies which survive challenges to their validity. Moore 's interpretation of §6332(e) reads in requirements which simply are not a part of the statute. We therefore cannot accept his interpretation, and hold instead that under §6332(e) , the defendants in this suit are immune from liability to Moore . The district court therefore correctly granted summary judgment in favor of the defendants.

Returning now to Moore 's first ground for appeal, Moore claims that the district court denied him due process by dismissing his suit before he could conduct discovery upon the IRS and potentially join it as a defendant. The flaw in this claim is that it conflates Moore 's ongoing disagreement with the IRS with his present suit against the defendants. Although related to some degree, these are two separate matters. Proof that the levy was invalid would not have abrogated the defendants' immunity from suit. Because, as discussed above, Moore could not have prevailed in this suit against the defendants, there would have been no value to allowing discovery to proceed. It is not a violation of due process to terminate quickly a suit that has no chance of succeeding.

Moreover, dismissal of this suit does not preclude Moore from pursuing his claim against the IRS--thus, Moore can still have his day in court to challenge the validity of the levy under 26 U.S.C. §7432 . Indeed, the record indicates that Moore is (or at least was) a plaintiff in a class action suit filed against the IRS in the United States District Court for the District of Utah. Thus, Moore is assured of all the process he is due.

AFFIRMED.

^* After an examination of the briefs and the record, we have concluded that oral argument is unnecessary in this case; accordingly, the appeal is submitted on the briefs and the record. See Fed. R. App. P. 34(a); Cir. R. 34(f).

^** This decision was released on March 8, 1996 as an unpublished order pursuant to Cir. R. 53(b). The court has decided to reissue the decision as a published opinion.

 

[97-2 USTC ¶50,717] Luis O. Ramos, Plaintiff v. First Hawaiian Bank, Internal Revenue Service, Defendants

U.S. District Court, Dist. Hawaii, Civ. 97-00704 DAE, 9/15/97

[Code Sec. 6332 ]

Levies: Bank account: Surrender of property.--The claim of an individual that his bank illegally turned over approximately $77 of his funds to the government was dismissed for failure to state a claim upon which relief could be granted. Since the bank received a notice of levy, it was required to turn over the funds and, accordingly, was immune from liability.
[Code Secs. 7402 and 7422 ]

Civil action for refund: Conditions precedent: Payment of entire tax: Sovereign immunity.--An individual who sought the return of funds released from his bank account and turned over to the IRS to pay a portion of his tax liability failed to demonstrate that sovereign immunity had been waived. He produced no evidence that he paid the entire amount of tax owing, which was required to maintain an action in federal district court. Therefore, the suit against the government was dismissed due to lack of subject matter jurisdiction.
ORDER GRANTING DEFENDANT FIRST HAWAIIAN BANK'S MOTION TO DISMISS AND DEFENDANT INTERNAL REVENUE SERVICE'S MOTION TO DISMISS

EZRA, District Judge:

On May 19, 1997, Plaintiff Luis Ramos ("Plaintiff") filed a complaint in District Court of the Second Circuit of the State of Hawaii against Defendants First Hawaiian Bank ("First Hawaiian") and the Internal Revenue Service ("IRS" or " United States "). The United States removed the action to this court on May 28, 1997. Defendant First Hawaiian Bank filed a motion to dismiss on June 9, 1997, and Defendant United States filed a motion to dismiss on June 19, 1997. Pursuant to Local Rule 2202 (d), the court finds this matter suitable for determination without a hearing. After reviewing the motions, and the supporting and opposing memoranda, the court GRANTS Defendant First Hawaiian Bank's Motion to Dismiss and GRANTS Defendant United States' Motion to Dismiss.

BACKGROUND

On May 1, 1997, First Hawaiian Bank was served with a Notice of Levy from the Department of Treasury/Internal Revenue Service against the accounts of Plaintiff for an IRS lien in the amount of $1,623.21. See Exhibit A, Plaintiff's Complaint. The levy "require[d] [First Hawaiian] to turn over to [the IRS] [Plaintiff's] property and rights to property (such as money, credits and bank deposits that [First Hawaiian has] or which [First Hawaiian is] already obligated to pay . . ." Id. After a search of their records, First Hawaiian determined that Plaintiff held rights to a total of $101.86. First Hawaiian then sent a letter to Plaintiff, with a copy of the Notice of Levy, indicating that it was holding $76.86 for the levy and $25 for a bank processing fee. Id. First Hawaiian further stated in the letter that unless a Release of Levy was received, the funds would be forwarded to the IRS on the 22nd calendar day after May 1, 1997 (the date of receipt of the Notice of Levy). Id. First Hawaiian subsequently forwarded the funds to the IRS.

Plaintiff's Complaint alleges First Hawaiian released this money to the IRS "without valid assessment Court order signed by a Judge, Warrant of Distraint or garnishment," and that the IRS took the money "with fraudulent notice of levy without court order warrant of distraint or garnishment." Plaintiff's Complaint. Plaintiff seeks $101.86, the amount withdrawn from his bank account, in damages.

STANDARD OF REVIEW

A motion to dismiss will be granted where the plaintiff fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A complaint should not be dismissed "unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1989); Buckey v. County of Los Angeles, 968 F.2d 791, 794 (9th Cir.), cert. denied, 506 U.S. 999 (1992). All allegations of material fact are taken as true and construed in the light most favorable to the plaintiff. Love, 915 F.2d at 1245.

DISCUSSION

I. First Hawaiian's Motion to Dismiss

Taking Plaintiff's allegations as true, First Hawaiian argues that it is entitled to dismissal based upon 26 U.S.C. §6332(e). 26 U.S.C. §6332(e) provides: "Any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made who, upon demand by the Secretary, surrenders such property or rights to such property . . . to the Secretary . . . shall be discharged from any obligation or liability to the delinquent taxpayer . . . arising from such surrender or payment." This provision of immunity is interpreted broadly. Farr v. United States [93-1 USTC ¶50,229], 990 F.2d 451, 456 (9th Cir.), cert. denied, 510 U.S. 1023 (1993).

It is undisputed that First Hawaiian received a Notice of Levy from the IRS on May 1, 1997. Moreover, it is undisputed that Plaintiff owned the property in the account at First Hawaiian. Plaintiff however contends that the levy was invalid and therefore First Hawaiian illegally turned over Plaintiff's money.

The Seventh Circuit recently addressed a nearly identical situation and held that "[o]nce the IRS served a Notice of Levy on [the defendant bank], the bank had a legal obligation under §6332(a) to turn over to the IRS [plaintiff's] accounts; [the defendant bank] could not challenge the validity of the levy." Moore v. General Motors Pension Plans, 91 F.3d 848, 851 (7th Cir. 1996). Further, the plaintiff's "challenge to the validity of the levy did not alter [the defendant bank's] obligation to comply with the levy." Id. (citing Schiff v. Simon & Schuster, Inc. [86-1 USTC ¶9204], 780 F.2d 210, 212 (2nd Cir. 1985); Allstate Financial Corp. v. United States, 860 F. Supp. 653, 656 (D. Minn. 1994)). Finally, the Seventh Circuit noted that regardless of whether the levy was valid, the bank was immune from liability pursuant to §6332(e) as there was "no question . . . that [the plaintiff's] bank account was 'property subject to levy,' that the IRS made a levy (whether valid or not) on that account, and that upon demand of the Secretary--acting through the IRS--[the defendant bank] surrendered [the plaintiff's] account." Id.

Likewise, in the instant case, once First Hawaiian received the Notice of Levy, they were required under law to turn over the money in Plaintiff's bank account to the IRS. "A bank served with a notice of levy has two, and only two, possible defenses for failure to comply with the demand: that it is not in possession of the property of the taxpayer, or that the property is subject to a prior judicial attachment or execution." United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 727 (1985). Neither of these two defenses were available to First Hawaiian, nor does Plaintiff contend that they apply. Consequently, pursuant to 26 U.S.C. §6332(e), First Hawaiian is immune from liability to Plaintiff. Therefore, Plaintiff has stated a claim upon which no relief may be granted. Accordingly, the court GRANTS First Hawaiian's Motion to Dismiss.

II. United States ' Motion to Dismiss

The United States moves to dismiss the instant Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted. First, the United States asserts that the action is barred by sovereign immunity. Additionally, the United States argues that if the action is characterized as brought pursuant to 28 U.S.C. §1346(a)(1), because Plaintiff has not complied with the jurisdictional requirements of paying in the entirety the challenged assessment, nor filed a claim for refund, this court lacks jurisdiction over the instant action. The United States also asserts that if the action is construed as brought pursuant to 26 U.S.C. §7433, authorizing civil actions for damages where any officer of the IRS intentionally or recklessly disregards any tax code provision, it fails to state a claim upon which relief may be granted. Finally, the United States notes that nothing in 26 U.S.C. §6331 requires the IRS to obtain a warrant of distraint before it levies upon a taxpayer's property and that changes to the Internal Revenue Code in 1954 eliminated all mention of the requirement of a warrant of distraint.

The United States is a sovereign and as such, is immune from suit without its prior consent. Hutchinson v. United States [82-1 USTC ¶9405], 677 F.2d 1322, 1327 (9th Cir. 1982). In cases involving the government's sovereign immunity, the statute in question must be strictly construed in favor of the sovereign and may not be enlarged beyond the waiver its language expressly requires. Miller v. United States [95-2 USTC ¶50,516], 66 F.3d 220, 222 (9th Cir. 1995) (citing United States v. Nordic Village, Inc. [92-1 USTC ¶50,109], 503 U.S. 30, 33-35 (1992)), cert. denied, 116 S. Ct. 1317 (1996). Absent consent to sue, dismissal of the action is required. Hutchinson [82-1 USTC ¶9405], 677 F.2d at 1327.

In the instant circumstances, Plaintiff alleges, without elaboration, that the IRS took money "with fraudulent notice of levy without court order warrant of distraint or garnishment." Plaintiff's Complaint. Plaintiff has failed to allege or demonstrate a statutory waiver of sovereign immunity and the court determines that such waiver has not occurred in the instant circumstances.

First, Congress has provided a comprehensive system for seeking review of tax liability in federal courts: prior to the payment of taxes, taxpayers may seek review in the Tax Court for claimed deficiencies, or alternatively, taxpayers may pay the claimed deficiency and seek review of the disputed IRS determination by filing for a refund. Life Science Church v. Internal Revenue Service [81-2 USTC ¶9798], 525 F. Supp. 399, 402-03 (N.D. Cal. 1981). These two remedies constitute that exclusive means for contesting federal tax liability. Id. (citing Flora v. United States [60-1 USTC ¶9347], 362 U.S. 145, 157 (1960); Kent v. Northern Cal. Regional Office of Am. Friends Serv. Comm. [74-1 USTC ¶16,148], 497 F.2d 1325, 1328 (9th Cir. 1974)). Because Plaintiff filed suit in this forum, he has chosen to proceed with the second option.

28 U.S.C. §1346(a)(1) provides that the district courts have jurisdiction over any civil action against the United States for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected. 28 U.S.C. §1346(a)(1). However, section 1346(a)(1) "requires full payment of the assessment before an income tax refund suit can be maintained" in this court. Flora v. United States [60-1 USTC ¶9347], 362 U.S. 145, 177 (1960). Plaintiff has produced no evidence that he has paid the entire amount owing, and therefore, this court lacks jurisdiction over the instant action under §1346(a)(1). See Haisten v. Grass Valley Medical Reimbursement Fund, Ltd., 784 F.2d 1392, 1396 (9th Cir. 1986) (plaintiff bears the burden of demonstrating subject matter jurisdiction).

The court would also note that 26 U.S.C. §7433 ¹ does not provide a jurisdictional basis for this action. The Ninth Circuit has held that "based upon the plain language of the statute [26 U.S.C. §7433], which is clearly supported by the statute's legislative history, a taxpayer cannot seek damages under §7433 for improper assessment of damages." Miller [95-2 USTC ¶50,516], 66 F.3d at 223 (quoting Shaw v. United States [94-1 USTC ¶50,254], 20 F.3d 182, 184 (5th Cir.), cert. denied, 513 U.S. 1041 (1994)). Consequently, to the extent that Plaintiff is challenging the determination of the tax, such claim is not actionable under §7433. Miller [95-2 USTC ¶50,516], 66 F.3d at 223.

The court concludes that Plaintiff has failed to demonstrate that sovereign immunity has been waived. None of the statutory provisions discussed above support an action in this court at this time. As such, dismissal is proper for lack of subject matter jurisdiction. See Miller [95-2 USTC ¶50,516], 66 F.3d at 223.

The court would further note that 26 U.S.C. §6331(a) provides that "if any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property belonging to such person . . ." 26 U.S.C. §6331(b) provides that "the term 'levy' as used in this title includes the power of distraint and seizure by any means." Neither court proceedings nor legal review is required before levy. Maisano v. Welcher [91-2 USTC ¶50,478], 940 F.2d 499, 502 (9th Cir. 1991), cert. denied, 504 U.S. 916 (1992); Vote v. United States, 753 F. Supp. 866, 870 (D. Nev. 1990), aff'd, 930 F.2d 31 (9th Cir. 1991). Moreover,

the right of the United States to collect its internal revenue by summary administrative proceedings has long been settled. Where, as here, adequate opportunity is afforded for a later judicial determination of the legal rights, summary proceedings to secure prompt performance of pecuniary obligations to the government have been consistently sustained.

Tavares v. United States [74-1 USTC ¶9240], 491 F.2d 725, 726 (9th Cir. 1974) (quoting Phillips v. Commissioner of Internal Revenue [2 USTC ¶743], 283 U.S. 589, 595 (1931)), cert. denied, 420 U.S. 925 (1975). As such, to the extent that Plaintiff challenges the IRS's levy on his property without a prior judicial proceeding, such claim is without merit and fails to state a claim upon which relief may be granted.

Therefore, for the reasons stated above, the court GRANTS the United States ' Motion to Dismiss.

CONCLUSION

For the reasons stated above, the court GRANTS Defendant First Hawaiian Bank's Motion to Dismiss and GRANTS Defendant United States' Motion to Dismiss.

IT IS SO ORDERED.

¹ 26 U.S.C. §7433 provides in relevant part that "[i]f, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States.

 

[98-1 USTC ¶50,123] Ken Biegeleisen, Plaintiff v. Mary Ross and Kim Albert, Defendants

U.S. District Court, So. Dist. N.Y., 96 Civ. 1157, 11/17/97

[Code Secs. 6065 and 7421 ]

Notice of levy: Verification: Sufficiency of pleadings: Anti-Injunction Act.--An individual who claimed that an IRS agent wrongfully levied his bank account by stamping, rather than signing, the notice of levy, and by failing to include a verified declaration with the notice, failed to state a claim upon which relief could be granted. The agent had no duty to sign the notice nor to submit a verified declaration with the notice. Moreover, the Anti-Injunction Act would have barred the taxpayer's suit even if he had stated a valid claim.
[Code Sec. 6332 ]

Compliance with levy: Sufficiency of pleadings.--An individual who claimed that a bank employee improperly complied with an IRS levy failed to state a claim on which relief may be granted. Because a bank must comply with an IRS levy unless it does not possess the delinquent taxpayer's property or the property is subject to prior judicial attachment, the bank employee had a duty to comply with the levy and was immune to suit.

Ken Biegeleisen, 133 E. 73rd, New York , N.Y. 10021 , pro se. Robert T. Stephenson, Chemical Bank Legal Department, 1 chase Manhattan Plaza , New York , N.Y. 10081, for defendants.

MEMORANDUM AND ORDER

BATTS, District Court Judge:

Ken Biegeleisen, pro se Plaintiff, brought this action seeking damages and a court order to direct Mary Ross and Kim Albert, Defendants, to provide assessments, pursuant to 26 CFR §301.6203-1, ¹ signed under penalty of perjury. Defendant Ross moves to dismiss Plaintiff's Complaint pursuant to 12(b)(1) and 12(b)(6) Fed. R. Civ. P. Defendant Albert moves to dismiss pursuant to 12(b)(6) and 19(a) Fed. R. Civ. P. For the foregoing reasons, this Court grants Defendants' motions to dismiss for failure to state a claim upon which relief could be granted.

I. BACKGROUND

Plaintiff commenced this action in the Supreme Court of the State of New York, New York County on January 10, 1996. (Compl. at 1). Defendant Ross removed the case to this Court pursuant to 28 U.S.C. §1442(a)(1) which authorizes removal of actions against any officer of the United States . (Def. Ross' Mem. Law at 2). Plaintiff alleges that Defendant "colluded with each other to deny" Plaintiff his rights under the law. (Compl. ¶1). Plaintiff further contends that Defendant Ross "knowingly and wrongfully" levied against Plaintiff's bank account at Chemical Bank. (Compl. ¶2). Plaintiff claims that the levy was unlawful because it was rubber stamped, rather than signed, and was not verified by a written declaration made under penalty of perjury. (Compl. ¶3). Plaintiff also brings this action against Defendant Albert for wrongfully complying with the Internal Revenue Service (IRS) levy against Plaintiff's bank account. (Compl. ¶7). Plaintiff requests that this Court award him damages and order Defendants to provide a tax assessment, containing the information required by 26 C.F.R. §301.6203-1, that is signed under penalty of perjury. (Compl. ¶16).

II. DISCUSSION

As an initial matter, this Court notes that where a plaintiff proceeds pro se, a court must liberally construe the complaint and " 'interpret [it] to raise the strongest arguments that [it] suggest[s].' " Soto v. Walker, 44 F.3d 169, 173 (2d Cir. 1995) (quoting Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994), thus holding the pro se pleading to " 'less stringent standards than formal pleading drafted by lawyers.' " Hughes v. Rowe, 449 U.S. 5, 9 (1980) (per curium) (quoting Hines v. Kerner, 404 U.S. 519, 520 (1972)); see also Hernandez v. Couglin, 18 F.3d 133, 136 (2d Cir.) cert. denied, 513 U.S. 836 (1994).

In deciding a Rule 12(b)(6) motion, the Court must read the complaint generously, accepting as true the factual allegations in the complaint and drawing all inferences in favor of the pleader. Bolt Elec., Inc. v. City of New York , 53 F.3d 465, 469; Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). The District Court should grant such a motion only if after viewing Plaintiff's allegations in this favorable light, "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Walker v. City of New York , 974 F.2d 293, 398 (2d Cir. 1992). cert. denied, 507 U.S. 961; see also, Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied, 503 U.S. 960 (1992) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Because a 12(b)(6) motion is used to assess the legal feasibility of a complaint, a Court should not "assay the weight of the evidence which might be offered in support thereof." Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (1984). Rather, the Court must limit its consideration to the facts that appear on the face of the compliant. Id.

Plaintiff claims that Defendant Ross unlawfully levied his bank account at Chemical Bank by failing to sign the notice of levy and failing to include a verified declaration made under penalty of perjury. (Compl. ¶3). In Morelli v. Alexander, the plaintiff alleged that the IRS agents violated their duty under 26 U.S.C. §6065 by failing sign the notices that they sent to plaintiff. 920 F.Supp. 556, 558 (2d Cir. 1996). In that case, the Second Circuit held that plaintiff had "incorrectly interpreted [the] provision" and that §6065 was "enacted to permit the taxpayer to submit a verified return rather than a notarized return (citation omitted) and does not apply to notices issued by IRS agents." Morelli, 920 F.Supp. at 558.

Just as in Morelli, Plaintiff is claiming that §6065 applies to IRS agents. The Second Circuit has clearly stated that §6065 applies only to taxpayers and not to notices issued by the IRS. Id. See also, Pursell v. United States [95-1 USTC ¶50,184], 94 Civ. 0463, 1995 WL 273175, *6 (E.D.C. Feb. 27, 1995) (stating that the verification requirement in 26 U.S.C. §6065 applies to taxpayers and not the IRS); In re White [94-2 USTC ¶50,350], 168 B.R. 825, 833 (Bankr. D. Conn. 1994) (finding that §6065 is intended to require taxpayers, not the IRS, to make returns under penalties of perjury); Simianonok v. Nelson, 93 Civ. 590, 1994 WL 736016, *2 (D.N.H. Aug. 3, 1994), aff'd mem., 66 F.3d 306 (1st Cir. 1995). No matter how favorable the light the Court construes Plaintiff's Complaint in, this Court cannot find that §6065 imparted any duty upon Defendant Ross to submit a verified notice to Plaintiff. Defendant Ross, accordingly, did not breach any duty by stamping her signature on Plaintiff's notice and not verifying it. As a result, this Court finds that Plaintiff has failed to state a claim for which relief can be granted as to Defendant Ross.

Even if Defendant did state a viable legal claim, Plaintiff's claim would be barred by the Anti-Injunction Act (Act), 26 U.S.C. §7421. The Act divests courts of jurisdiction, stating "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." Randell v. United States [95-2 USTC ¶50,468], 64 F.3d 101, 106 (2d Cir. 1995). The purpose of the Act is to protect "the Government's need to assess and collect taxes as expeditiously as possible with a minimum of preenforcement judicial interference, 'and to require that the legal right to the disputed terms be determined in a suit for refund.' " Randell [95-2 USTC ¶50,468], 64 F.3d at 106 (citing Bob Jones Univ. v. Simon [74-1 USTC ¶9438], 416 U.S. 725, 736 (1974) (quoting Enochs v. Williams Packing & Navigation Co. [62-2 USTC ¶9545], 370 U.S. 1, 7 (1962))). The Act has been broadly construed to include not only assessment and collection, but also "activities which are intended to or may culminate in the assessment or collection of taxes." Id. at 558. See also Bianco v. IRS [94-1 USTC ¶50,181], 1994 WL 538020 at *2 (S.D.N.Y. 1994) (holding that a request for corrections was barred by 26 U.S.C. §7421). In the instant case, the IRS levy did result in an assessment of taxes. Accordingly, the Act would apply to divest this Court of jurisdiction to hear Plaintiff's claim. ²

Plaintiff also alleges that Defendant Albert improperly complied with the IRS levy. (Compl. ¶7). A bank is required to comply with an IRS levy unless (1) it is neither "in possession of" nor "obligated with respect to" property belonging to the delinquent taxpayer, or (2) the taxpayer's property is "subject to prior judicial attachment or execution." U.S. v. Williams [97-1 USTC ¶50,425], 959 F.Supp. 210, 212 (S.D.N.Y. 1997) (citing 26 U.S.C. §6332(a)); see also Meminger v. United States Internal Revenue Service [93-1 USTC ¶50,129], 91 Civ. 6971, 1993 WL 17311, *2 (S.D.N.Y. Jan. 21, 1993). Plaintiff's Complaint does not aver that either situation existed. Barring the existence of either situation, failing to comply with 26 U.S.C. §6332(a) subjects banks to liability. See 26 U.S.C. §6332(d) (1992).

Therefore, Defendant Albert, as an employee of the bank, had a duty to comply with the levy. Defendant Albert is protected from liability for complying with this duty by 26 U.S.C. §6332(e) which states that "any person honoring a federal tax levy by surrendering property subject to levy 'shall be discharged from any obligation or liability to the delinquent taxpayer with respect to such property or rights to property arising from such surrender of payment.' " Meminger [93-1 USTC ¶50,129], 1993 WL 17311, *4 (citing 26 U.S.C. §6332(e) (1992)). Thus, Defendant Albert is immune to liability and Plaintiff has, again, failed to state a claim upon which relief can be granted.

III. CONCLUSION

Plaintiff has failed to state a claim against either Defendant upon which relief can be granted. Accordingly, this Court grants Defendant Ross' and Defendant Albert's motions to dismiss pursuant to 12(b)(6) Fed. R. Civ. P.

SO ORDERED.

¹ The Federal Regulations describe the method of assessment and state that if the taxpayer requests a copy of the record of assessment, "he shall be furnished a copy of the pertinent parts of the assessment which set forth the name of the taxpayer, the date of assessment, the character of the liability assessed, the taxable period, if applicable, and the amounts assessed." 26 C.F.R. §301.6203-1 (1997).

² There is, however, an exception to the Anti-Injunction Act. Enochs v. Williams Packing & Navigation Co. [62-2 USTC ¶9545], 370 U.S. 1, 7 (1962) states that the Anti-Injunction Act does not divest a court of jurisdiction if (1) it is clear that under no circumstances the Government would ultimately prevail on the tax liability issue, and (2) the taxpayer would suffer irreparable injury if the Government were not enjoined. Given the facts of the instant action, it is clear that neither prong of this exception applies.

[98-2 USTC ¶50,740] Ken Biegeleisen, Plaintiff-Appellant v. Mary Ross and Kim Albert, Defendants-Appellees

(CA-2), U.S. Court of Appeals, 2nd Circuit, 97-6336, 9/22/98, 158 F3d 59, Affirming a District Court decision, 98-1 USTC ¶50,123

[Code Secs. 6065 and 6331 ]

Levy and distraint: Notice of levy, validity of: Signature stamp v. original signature: Constitutionality: Due process.--An IRS agent's use of a signature stamp, rather than an original signature, on an otherwise valid notice of levy did not violate an individual's constitutional right of due process. No statute or regulation prohibited the use of signature stamps by federal agencies in general or by the IRS in particular. The use of the signature stamp was a necessary convenience and, absent a concrete indication of misuse or fraud, carried the same authority as an original signature. Thus, the individual's wrongful levy action was properly dismissed for failure to state a justiciable claim.

Ken Biegeleisen, New York , N.Y. , pro se. Mary Jo White, United States Attorney, Susan D. Baird, Steven M. Haber, Assistant United States Attorneys, New York , N.Y. , for defendant-appellee Mary Ross. Robert T. Stephenson, Legal Department, Chase Manhattan Bank, New York , N.Y. , for defendant-appellee Kim Albert.

Before: CABRANES and POOLER, Circuit Judges, and TRAGER, District Judge. ^*

Appeal from order and judgment of the United States District Court for the Southern District of New York (Deborah A. Batts, Judge) granting defendants' motions to dismiss the complaint for failure to state a claim upon which relief can be granted. The appellant claims, inter alia, that the use of a signature stamp in an Internal Revenue Service notice of levy, pursuant to 26 U.S.C. §6331, violated his constitutional right to due process of law.

Affirmed.

PER CURIAM: Plaintiff Ken Biegeleisen appeals from an order and judgment of the United States District Court for the Southern District of New York (Deborah A. Batts, Judge) granting defendants' motions to dismiss for failure to state a claim upon which relief can be granted. In a summary order entered today, we affirm several of the holdings of the district court.

We address here plaintiff's primary argument on appeal, that the use of a signature stamp rather than an original signature on an Internal Revenue Service ("IRS") notice of levy violated his constitutional right to due process of law. See Brief for Appellant at 1, 9.

Biegeleisen commenced an action in New York State Supreme Court against Mary Ross, an employee of the IRS, and Kim Albert, an employee of Chemical Bank, after the bank complied with an IRS notice of levy under 26 U.S.C. §§6331 and 6332 requiring the bank to turn over the money in Biegeleisen's checking account to the IRS. According to Biegeleisen's complaint, the use of a signature stamp by Mary Ross on the IRS's notice of levy rather than an original signature denied him the process due under the Constitution. On appeal, plaintiff argues that his constitutional claim should not have been dismissed.

Plaintiff does not draw to our attention any authority to support his claim that use of a signature stamp rather than an original signature on a notice of levy rendered the levy unconstitutional, and our own search has proved unavailing. ¹ It appears that no statute or regulation prohibits the use of signature stamps by federal agencies generally or the IRS in particular. Our sister circuits have held in other contexts that signature stamps in lieu of original signatures on official government documents do not render the documents invalid. See United States v. Victoria-Peguero, 920 F.2d 77, 83 (1st Cir. 1990) ("[T]he validity of the designation [by a customs officer] is not affected by the fact that the designating officer's signature was mechanically reproduced."); United States v. Juarez, 549 F.2d 1113, 1114-15 (7th Cir. 1977) (Magistrate's signature stamp on a search warrant did not render it invalid). We now hold that an otherwise valid IRS levy based on a notice signed with a signature stamp rather than an original signature does not violate the Due Process Clause of the Fifth Amendment to the United States Constitution. Use of signature stamps by government agencies is a convenience necessary to their smooth functioning, and, absent some concrete indication of misuse or fraud, we find no reason to doubt that a duly authorized signature stamp carries the same authority as an original signature.

Accordingly, the judgment of the district court is affirmed.

^* The Honorable David G. Trager, of the United States District Court for the Eastern District of New York, sitting by designation.

¹ We note that an IRS levy with an original signature on the notice of levy does not violate any clearly established right to due process of law. See Yalkut v. Gemignani, 873 F.2d 31, 35-36 (2d Cir. 1989); Baddour, Inc. v. United States [86-2 USTC ¶9748], 802 F.2d 801, 807 (5th Cir. 1986). See also G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 429 U.S. 338, 351-52 (1977).

[98-2 USTC ¶50,534] United States of America , Plaintiff v. Raymond James & Associates, Inc., Defendant

U.S. District Court, Dist. Fla., Tampa Div., 97-2586-Civ-T-23C, 6/12/98

[Code Sec. 6332 ]

Liens and levies: Third parties: Surrender of property: Failure to surrender: Brokerage account.--An investment firm was liable for its failure to honor an IRS levy against the brokerage account that it held on behalf of two delinquent taxpayers. The firm had returned the notice of levy to the IRS, erroneously indicating that the taxpayers had no account. Although the notice of levy issued by the IRS was not on the appropriate form, the firm could not challenge its validity. The court noted that the investment firm's relationship to its customers is analogous to that of a bank, which cannot challenge the validity of a levy against its customers' property. Since the firm was unable to show that it was not in possession of the property at the time of the levy or that the property was subject to a prior judicial attachment or execution, it was liable for the full value of the property not surrendered.

Mary A. Hervey, Department of Justice, Washington , D.C. 20530 , for plaintiff.

ORDER

JENKINS, Magistrate Judge:

Before this court are Defendant's Motion to Dismiss and Motion for Summary Judgment (Dkt. 10) and Plaintiff's Cross-Motion for Summary Judgment (Dkt. 12). ¹ Plaintiff brings this action under sections 6331 and 6332 of the Internal Revenue Code of 1986, 26 U.S.C. §§6331-6332. Plaintiff contends that defendant failed to comply with a tax levy on an investment account held by defendant on behalf of two delinquent taxpayers. Defendant counters that plaintiff fails to state a claim upon which relief can be granted and that it was not in possession of property subject to the levy.

Background Facts

Charles and Clara Candiano were delinquent taxpayers as of September 20, 1995, with unpaid federal tax liabilities of $338,313.67. The Candianos held a brokerage account with defendant, an investment firm. On October 12, 1995 plaintiff served defendant with a Notice of Levy on Wages, Salary, and Other Income, Form 668-W(c) (Dkt. 12, Ex. A), listing the delinquent taxpayers as the Candianos.

Defendant responded by filling out and returning to plaintiff the form on the reverse side of the levy, indicating that "neither of these individuals is an employee [o]f [sic] Raymond James & Associates, Inc. They do not have any account(s) at our firm. No record." (Dkt. 12, Ex. A) On November 14, 1995 the Candianos' account was closed and defendant issued the Candianos a check for $88,837.77. (Dkt. 12, Ex. C).

The Candianos did in fact have an account with defendant, but it was overlooked when incorrect social security numbers were entered during defendant's search for accounts held by the Candianos. Defendant informed plaintiff of this error via a letter dated November 7, 1996 (Dkt. 12, Ex. B). Plaintiff does not dispute that a clerical error was the reason defendant claimed there were no accounts belonging to the Candianos at the firm.

Plaintiff served defendant with a Final Demand, Form 668-C, on November 15, 1996.

MOTION TO DISMISS

On a motion to dismiss the complaint all facts alleged in the complaint and all reasonable inferences drawn from those facts must be taken as true. Marshall v. Western Grain Co., Inc., 838 F.2d 1165, 1172 (11th Cir. 1988), cert. denied, 488 U.S. 852 (1988). Moreover, the court should not dismiss the complaint "for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

The complaint alleges that the Internal Revenue Service filed a notice of federal tax lien against the Candianos for $338,574.71 on September 20, 1995. Defendant was served a notice of levy on all funds due and owing by the defendant to the Candianos on October 12, 1995. (Dkt. 1, ¶6). The Candianos maintained an investment account with defendant valued at $88,837.77. (Dkt. 1, ¶7). The Candianos liqui dated their account on November 14, 1995 and were paid $88,837.77 by a check drawn by defendant. (Dkt. 1, ¶8). One year later, plaintiff made a final demand that defendant comply with the levy. (Dkt. 1, ¶9).

A lien arises in favor of the United States upon all property and rights to property belonging to a person when that person is liable to pay any tax and neglects or refuses to pay the tax. See 26 U.S.C. §6321. The Secretary of the Treasury may collect such tax by levy upon all property and rights to property belonging to such a person. See 26 U.S.C. §6331(a). A third party in possession of or obligated with respect to property or rights to property subject to levy upon which a levy has been made shall, upon demand by the Secretary, surrender such property or rights to the Secretary. See 26 U.S.C. §6332(a). Any person who fails to surrender property subject to levy shall be held personally liable for the value of the property not surrendered. See 26 U.S.C. §6332(d)(1).

Plaintiff claims that defendant is liable for $88,837.77, the amount contained in the Candianos' investment account with defendant. If all the facts alleged in the complaint are taken as true, it appears that plaintiff can prove facts in support of its claim.

The complaint states that the Candianos maintained an investment account with defendant, and that the United States served a notice of levy on defendant, levying upon and seizing the property or rights to property belonging to the Candianos which was in possession of defendant. The statements that the Candianos subsequently liquidated the account and that plaintiff later filed a final demand to comply with the levy leads to a reasonable inference that defendant failed to comply with the levy. Defendant has failed to establish that the complaint should be dismissed for failure to state a claim.

SUMMARY JUDGMENT

Summary judgment should be entered when there is no genuine issue regarding any material fact when all the evidence is viewed in the light most favorable to the non-moving party. See Rule 56, Fed. R. Civ. P.; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Clark v. Coats & Clark, Inc., 929 F.2d 604, 609-09 (11th Cir. 1991). A genuine issue of material fact exists when there is sufficient evidence in favor of the non-moving party for a reasonable jury to return a verdict in its favor. See Hayes v. City of Miami, 52 F.3d 918, 921 (11th Cir. 1995) (citations omitted).

Here, the facts are undisputed. The debate between the parties concerns the law. Defendant contends that assets held by a third party will be deemed levied only after the appropriate notice of levy is served upon the third party and that the form used by plaintiff, Form 668-W(c), Notice of Levy on Wages, Salary, and Other Income, was not the appropriate form. Therefore, according to defendant, there was no levy, and defendant is not liable.

Plaintiff argues, however, that this defense is not available to a third party who fails to surrender levied property. Plaintiff contends that only two defenses are recognized. First, the third party can show that it was not in possession of any of the delinquent taxpayer's rights to property at the time it received the notice of levy. See United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 722 (1985); United States v. Ruff [97-1 USTC ¶50,130], 99 F.3d 1559, 1563 (11th Cir. 1996). Second, a third party can show that when it received the notice of levy, the property in question was subject to attachment or execution under judicial process. See National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. at 722; Ruff [97-1 USTC ¶50,130], 99 F.3d at 1563.

The first issue the court must answer is whether defendant can claim that plaintiff's use of Form 668-W(c) was inappropriate such that the investment account cannot be deemed levied.

In Moore v. General Motors Pension Plans [96-2 USTC ¶50,539], 91 F.3d 848 (7th Cir. 1996), the Internal Revenue Service served a Notice of Levy on Wages, Salary, and Other Income on a bank holding a delinquent taxpayer's account. See id. at 849. The bank surrendered the money in the taxpayer's account, and the taxpayer sued the bank for not raising a defense that the notice was invalid. See id. at 850. The Seventh Circuit, in holding the bank not liable, asserted that the bank could not have challenged the validity of the levy. See id. at 851. The court then quoted the rule in National Bank of Commerce that "two, and only two" possible defenses exist for a third party who fails to surrender the property. Moore [96-2 USTC ¶50,539], 91 F.3d at 851 (emphasis in original). A bank may claim that it is not in possession of the property, or that the property is subject to a prior judicial attachment or execution. See id. at 851.

Defendant, like a bank, holds intangible property belonging to taxpayers. A bank holds various accounts for its customers, while defendant holds investment accounts for its customers. In either situation, a customer may liquidate his or her account on demand. The defendant and a bank both hold the property of their respective customers. The defendant's relationship to its customers is analogous to that of a bank. The defendant cannot, therefore, challenge the validity of the levy.

Even if the defendant had standing to claim that there was no levy because the improper form was served, defendant fails to point to any authority supporting its assertion that there was no levy because Form 668-W(c) was served as opposed to Form 668-A(c). ²

Defendant points to language in a Supreme Court case stating that levy is effected when the appropriate form is served upon the third party. (Dkt. 10, pp. 8-9, 13). This language is used in these cases in the context of a general discussion of the United States' power to levy and collect unpaid taxes, and does not in any way indicate that the reviewing court's discussion of the "appropriate form" means anything more specific than a notice of levy. See G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 429 U.S. 338, 349-50 (1977).

Defendant also cites to U.S. v. Donahue Indus., Inc. [90-2 USTC ¶50,343], 905 F.2d 1325, 1332 (9th Cir. 1990), which states that serious deficiencies in the levy notices may call into question the legal effectiveness of the levy and give reasonable cause for failing to honor the levy. See id. at 1332. However, that case does not state that using Form 668-W(c) when another form might have been more appropriate provides reasonable cause for failing to honor the levy. In fact, the levy notice in that case failed to correctly identify the delinquent corporate taxpayer, yet the court still found there was no reasonable cause for failing to honor the levy. See id. at 1332.

Unless the defendant can show that it either was not in possession of the property at the time of the levy or that the property was subject to a prior judicial attachment or execution, then defendant is liable under 26 U.S.C. §6332(d)(1) for the full value of the property not surrendered. See, e.g., Ruff [97-1 USTC ¶50,130], 99 F.3d at 1563. Defendant attempts to craft an argument that it was not in possession of the property levied by claiming that no property was actually levied because of the defective notice of levy. ³ As previously discussed, there is no dispute that the Candianos held such an account with defendant at the time of the notice. This argument is without merit.

There exists no genuine issue of any material fact and summary judgment is therefore appropriate under Rule 56, Fed. R. Civ. P., in favor of plaintiff.

Plaintiff seeks the sum of $88,837.77, costs and interest pursuant to 26 U.S.C. §§6611 and 6612 from October 12, 1995 to the present, as well as a ten (10) percent surcharge pursuant to 28 U.S.C. §3011(a). It is, however, unclear whether the parties dispute only the issue of underlying liability or whether they also dispute the amount for which defendants may be held liable. ⁴ Accordingly, the parties shall confer on this issue and shall submit a proposed judgment.

If the parties disagree about the amount owed then they shall submit briefs within fourteen (14) days of this order.

Conclusion

It is therefore ORDERED that:

(1) Defendant's Motion to Dismiss and for Summary Judgment (Dkt. 10) is DENIED; and

(2) Plaintiff's Motion for Summary Judgment (Dkt. 12) is GRANTED.

DONE AND ORDERED.

¹ The parties have consented to proceed before the Magistrate Judge pursuant to Title 28, United States Code, Section 636(c) and Fed.R. Civ. P. 73.

² Examples of Form 668-W(c), which was served on defendant, and Form 668-A(c), which defendant claims should have been served by the IRS, may be found at Exhibits 3 and 5, respectively, of defendant's motion to dismiss and for summary judgment (Dkt. 10).

³ Defendant does not suggest that the property was subject to prior judicial attachment or execution.

⁴ Neither party addressed the potential amount of defendant's indebtedness to plaintiff.

 

[99-1 USTC ¶50,271] United States of America , Plaintiff v. Bank of the West, Defendant

U.S. District Court, No. Dist. Calif., San Jose Div., C-98-20086-JF (PVT), 12/18/98

[Code Sec. 6332 ]

Liens and levies: Bank accounts: Failure of bank to honor levy: Self-help: Summary judgment.--No issue of material fact remained regarding a bank's refusal to honor an IRS levy that sought funds in a delinquent taxpayer's checking account. The bank had foreclosed on the account upon receiving notice of the levy based on its belief that it had lien priority against the IRS with respect to the funds. Under National Bank of Commerce (SCt), 85-2 USTC ¶9482 , however, a bank has only two defenses for failure to comply with such a levy: (1) the bank is not in possession of the funds when served with the notice of levy, and (2) the funds are subject to prior judicial attachment or execution. Here, the bank engaged in "self-help" by foreclosing on the funds strictly on a priority theory and, thus, failed to establish a defense for noncompliance with the levy.

[Code Sec. 6332 ]

Liens and levies: Bank accounts: Failure of bank to honor levy: Self-help: Penalties, civil: 50% of value of levied property: Reasonable cause not established.--A bank was liable for the 50% penalty on the value of a checking account pursuant to Code Sec. 6332(d) since its failure to honor an IRS levy on the account, based on the its purported superior lien status, was not reasonable. It was also not reasonable for the bank to attempt to arrange satisfaction of the levy out of escrow funds belonging to the account owner and held by a third party since the IRS could have levied that account had it so intended.

Robert S. Mueller III, Thomas Moore, 450 Golden Gate Ave., San Francisco, Calif. 94102, for U.S. Bruce W. Robertson, Robertson, Lewis & Deckard, 60 S. Market St., San Jose, Calif. 95113, for Bank of the West. Cary L. Dictor, 19 Embarcadero Cove, Oakland , Calif. 94606 , for Commonwealth. Stephen D. Pahl, Sarahann Shapiro, 160 W. Santa Clara St., San Jose, Calif. 95113-1700, for the Stephensons.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

ORDER ¹ GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DISMISSING COUNTERCLAIM

FOGEL, District Judge:

On December 14, 1998, the Court heard argument regarding Plaintiff's motion for summary judgment and Counter-Defendant's motion to dismiss. For the reasons set forth below, Plaintiff's motion for summary judgment will be granted and the counterclaim will be dismissed.

I. BACKGROUND

This action arises out of the refusal of Defendant Bank of the West ("Bank") to honor a tax levy issued by the Internal Revenue Service ("IRS").

The IRS made assessments for unpaid taxes against Stephenson Roofing ("Stephenson") in 1993, 1994 and 1996. The IRS filed notices of liens based upon these assessments in 1996 and subsequently served the Bank with a notice of tax levy for approximately $70,700 held in a checking account which Stephenson maintained at the Bank. Rather than honoring the levy and delivering the $70,700 to the IRS, the Bank foreclosed upon the account pursuant to a security interest which the Bank held against the account. The Bank's actions apparently were motivated by a belief that it had lien priority over the IRS. The Bank also claims that it had arranged to have the levy satisfied by payment of escrow funds belonging to Stephenson and held by Commonwealth Land Title Company ("Commonwealth"). The Bank claims that Commonwealth promised to deliver the escrow funds to the IRS but failed to do so.

The IRS filed this lawsuit on January 29, 1998, contending that under the provisions of the Internal Revenue Code, the Bank was obligated to honor the tax levy and was not permitted to engage in "self help" by foreclosing on the account rather than honoring the levy and then pursuing its claim of lien priority in an appropriate administrative or judicial proceeding. The IRS seeks a statutory award in the amount of the funds levied plus a statutory penalty in an amount of one half the amount of the funds levied.

The Bank filed a counterclaim against Commonwealth, Stephenson, and Stephenson's principals, Michael and Kathy Stephenson. The counterclaim alleges claims for negligence and breach of fiduciary duty against Commonwealth and claims for equitable indemnity against all counterdefendants.

Currently before the Court are the IRS's motion for summary judgment and Commonwealth's motion to dismiss the counterclaim.

II. MOTION FOR SUMMARY JUDGMENT

The IRS's motion for summary judgment should be granted if it demonstrates that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10 (1986). The motion should not be granted, however, if a reasonable jury, viewing the evidence in the light most favorable to the Bank, could resolve a material issue in the Bank's favor. See Anderson, 477 U.S. 242, 248-49, 106 S.Ct. 2505, 2510-11 (1986); Barlow v. Ground, 943 F.2d 1132, 1134-36 (9th Cir. 1991).

The Court concludes that no triable issue of material fact exists and that the IRS is entitled to judgment as a matter of law. Pursuant to 26 U.S.C. §6332(d), a person who refuses to surrender property which is subject to a tax levy is personally liable for a sum equal to the value of the levied property. 26 U.S.C. §6332(d)(1). Additionally, such person is liable for a penalty equal to fifty percent of the value of the levied property if the refusal to honor the levy was "without reasonable cause." 26 U.S.C. §6332(d)(2).

It is undisputed that a bank account is a type of property subject to a tax levy within the meaning of §6332. Moreover, the United States Supreme Court has held that a bank served with a notice of levy has only two defenses for failure to comply with the levy: (1) the bank is not "in possession of" or "obligated with respect to" property or property rights belonging to the delinquent taxpayer; and (2) the taxpayer's property is subject to a prior judicial attachment or execution. United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 721-22, 105 S.Ct. 2919, 2925 (1985). It is undisputed that the bank was in possession of the funds in question at the time it was served with the notice of levy. Further, it is undisputed that the funds in question were not the subject of a prior judicial attachment or execution. Thus it is clear that the Bank is personally liable to the IRS for the amount of funds in the account at the time of the levy. That amount was $70,736.41. ² Moreover, it cannot be said that the Bank's refusal to honor the levy was reasonable in light of the clear legal authority to the contrary. Accordingly, the Bank is liable for a penalty in the amount of $35,368.21.

The Bank argues that it should be allowed to raise the issue of lien priority as a defense to the lawsuit, citing to a Tenth Circuit decision in which the court held that a bank properly could raise lien priority as a defense to an action pursuant to §6332. United States v. Central Bank of Denver [88-1 USTC ¶9256], 843 F.2d 1300, 1305-06 (10th Cir. 1988). This Court declines to adopt the Tenth Circuit's approach in light of the Supreme Court's express holding that only two defenses are available to actions pursuant to §6332, neither of which encompasses a defense based upon lien priority. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. at 721-22, 105 S.Ct. at 2925. As the Court stated, "[t]hat another party or parties may have competing claims to the accounts is not a legitimate statutory defense." Id. [85-2 USTC ¶9482], 472 U.S. at 727, 105 S.Ct. at 2928. The Court explained that the restriction of the defenses available to §6332 actions was necessary to effectuate the balance which Congress had struck between the interest in the speedy collection of taxes and the interests of other claimants to the property. Id. [85-2 USTC ¶9482], 472 U.S. at 729, 105 S.Ct. at 2929.

Moreover, the Court pointed out that the issuance of a tax levy is a provisional remedy, which does not determine the rights of third parties to the levied property. Id. , 472 U.S. at 731, 105 S.Ct. at 2930. Such rights to the levied property may be asserted in postseizure administrative or judicial proceedings; the purpose of the levy is merely to protect the government's interest in the property until competing claims to the property may be determined in a postseizure proceeding. ³ Id. , 472 U.S. at 731 n.15, 105 S.Ct. at 2930 n.15. Clearly, the Bank should have complied with the levy and litigated its claim of lien priority in an appropriate postseizure proceeding rather than pursuing the "self help" remedy of foreclosing on the account.

The Bank argues that even if it is held liable for the amount of the funds in the account pursuant to §6332(d)(1), it should not be found liable for the fifty percent penalty pursuant to §6332(d)(2). The Bank claims that its refusal to honor the levy was reasonable in light of its belief that its lien on the account was senior to the tax lien and in light of its efforts to ensure that the tax levy was satisfied by Commonwealth. The Court cannot agree. For the reasons discussed above, it was unreasonable as a matter of law for the Bank to believe that lien priority gave it the right to foreclose on the account rather than honoring the levy and pursuing its lien priority claim in the appropriate forum. Moreover, it was unreasonable as a matter of law for the Bank to decide unilaterally that the tax levy which was directed at Stephenson's bank account should be satisfied not from the funds in that account but from funds held by a third party in an escrow account. The IRS could have levied the escrow funds had it wished to do so. The IRS instead chose to levy the bank account funds, and in light of the strong public policies underlying the statute authorizing tax levies its choice must be respected. Adoption of the Bank's legal argument in this case would render the administrative process created by Congress essentially meaningless. This Court is unwilling to be a party to such a result. Accordingly, the motion for summary judgment is granted.

III. MOTION TO DISMISS

Commonwealth moves to dismiss the Bank's counterclaim on the basis that the facts upon which the counterclaim is based do not have a sufficient nexus with the main action by the IRS. The Court need not reach this issue, because the Court declines to exercise supplemental jurisdiction over the counterclaim in light of its ruling with respect to the main action.

A district court has supplemental jurisdiction over a state law claim if that claim is "so related" to claims over which the district court has original jurisdiction that it forms "part of the same case or controversy." 28 U.S.C. §1367(a). If a district court has supplemental jurisdiction over a state law claim, it may decline to exercise such jurisdiction if: (1) the claim raises a novel or complex issue of state law; (2) the claim substantially predominates the claims over which the court has original jurisdiction; (3) the court has dismissed all claims over which it has original jurisdiction; or (4) in exceptional circumstances, other compelling reasons exist for declining jurisdiction. See 28 U.S.C. §1367(c). A decision to decline jurisdiction pursuant to one of these factors should take into consideration judicial efficiency, convenience of the parties, fairness, and comity. See ACRI v. Varian Associates, Inc., 114 F.3d 999, 1001 (9th Cir. 1997).

The counterclaim in this case asserts common law claims of negligence, breach of fiduciary duty and indemnity and also seeks declaratory relief. In light of the Court's decision disposing of the action by the IRS, the Court declines to exercise supplemental jurisdiction over these common law claims. Such state law claims more appropriately may be adjudicated in the superior court. Accordingly, the counterclaim is dismissed without prejudice.

IV. ORDER

IT IS HEREBY ORDERED that:

(1) The United States ' motion for summary judgment is GRANTED;

(2) The Bank of the West SHALL pay to the United States statutory damages in the amount of $70,736.41 plus costs and interest on this sum as provided by statute and additionally SHALL pay to the United States a statutory penalty in the amount of $35,368.21; and

(3) The Bank of the West's counterclaim is DISMISSED WITHOUT PREJUDICE on the ground that the Court declines to exercise supplemental jurisdiction over such counterclaim.

¹ This disposition is not designated for publication and may not be cited.

² The Court takes this figure from the Memorandum In Support Of Motion filed by the IRS. The Court presumes that the Bank does not dispute the figure, because its Memorandum Of Points And Authorities in opposition to the motion does not offer a different figure.

³ The necessity of such protection is evident from the facts of this case: although the Bank attempted to replace the Stephenson bank account with proceeds from escrow, the attempt failed, and the IRS has never been paid.

 

[2003-1 USTC ¶50,167] Virgin Islands Bureau of Internal Revenue, Appellant (01-3468/4464) v. Chase Manhattan Bank, Defendant/Third-party Plaintiff Appellant (01-3467/4325) v. William Lansdale, Third-party Defendant Appellant (01-4236).

U.S. Court of Appeals, 3rd Circuit; 01-3467, 01-3468, 01-4325, 01-4326, 01-4464, 312 F3d 131, December 5, 2002.

Affirming in part and reversing in part an unreported DC V.I. decision.

[ Code Sec. 6331]

Levy and distraint: Notice, sufficiency of: Bank account: Unidentified successor corporation. --

A bank was not required to enforce a tax levy by the Virgin Islands Bureau of Internal Revenue against a successor company that was not named or identified in the notice of levy merely because senior bank officers knew that the corporate taxpayer named in the notice had previously merged into the unnamed company. The complete absence of the successor's name or taxpayer identification number in the levy notice rendered the levy ineffective as to accounts under that name.

[ Code Secs. 6331 and 6332]

Levy and distraint: Bank account: Property of the taxpayer: Offset v. levy: Failure to surrender property: Reasonable cause. --

A bank impermissibly dishonored a notice of levy against a delinquent taxpayer's account that was issued by the Virgin Islands Bureau of Internal Revenue (VIBIR) when it exercised its right of setoff with respect to that account after receiving the notice. The nonjudicial remedy of setoff constituted a taking that transferred the taxpayer's assets to the creditor bank. Prior to the setoff, the property still belonged to the taxpayer, and the levy attached to those funds. The mere fact that the taxpayer's right to withdraw the funds was restricted prior to the setoff did not extinguish its property interest in the account. Rather than proceeding with the setoff, the bank should have turned the funds over to the VIBIR and then filed a timely wrongful levy suit. Because it failed to do so, it was liable for the funds not surrendered plus costs and interest.

Iver A. Stridiron, Attorney General, Elliott McIver Davis, Solicitor General, Joanne E. Bozzuto, Special Assistant Attorney General, Richard M. Prendergast, Assistant Attorney General, Office of Attorney General of Virgin Islands, John A. Sopuch III, Sopuch Nouhan Higgins Arnett & Gaubert, John A. Zebedee, Hymes & Zebedee, for Virgin Islands Bureau of Internal Revenue. Lawrence M. Hill, Michael I. Saltzman, Richard A. Nessler, White & Case LLP, for Chase Manhattan Bank. Henry C. Smock, Smock Law Offices, Richard Smith, Cynthia Morales, Shook, Hardy & Bacon LLP, for William Lansdale.

Before: Ambro, Fuentes and Garth, Circuit Judges.



OPINION OF THE COURT

AMBRO, Circuit Judge: This case poses two questions. First, does senior bank officers' knowledge that the company named in a notice of levy previously had merged into another company neither named nor identified in the levy notice require the bank to enforce the levy against the company not named in the notice? Under the circumstances of this case, we hold that it does not. Second, must a bank honor a notice of levy on property in which it holds an unexercised right of setoff, but has limited the property owner's access? We hold that because an account holder retains a property interest in the account until the right of setoff has been exercised, dishonoring the levy is not justified.



I. Background

William Lansdale established La Isla Virgen, Inc. ("La Isla Virgen" or "LIV"), a Delaware corporation, in 1981. He was its president and a director, and he and his wife were its sole shareholders. LIV bought an $800,000 certificate of deposit ("CD") from Chase Manhattan Bank ("Chase") on August 20, 1985, and later increased the amount to $1.2 million. On March 18, 1986, Lansdale personally borrowed $1.2 million from Chase, granting (through LIV) to Chase a security interest and right of setoff against LIV's CD.

In late 1988 LIV merged into Marina Pacifica Oil Company ("Marina Pacifica"), a California corporation wholly owned by the Lansdales. In early 1989 Marina Pacifica bought a renewal CD from Chase for $1,487,371.95, by converting the LIV CD. Marina Pacifica granted Chase a security interest in the renewal CD.

Four months later, senior Chase officers recommended the reapproval of the collateralized line of credit to Lansdale . An internal memorandum noted that Lansdale , besides being the majority shareholder and president of Marina Pacifica,

was also the 100% owner of our former customer, La Isla Virgen, Inc., which during 1988 ceased to be, merging into [Marina Pacifica] which survived the merger. Marina Pacifica Oil resultantly possesses all the debts and obligations of the former LIV. Additionally, the merger agreement provided for the preservation of all the rights of creditors relative to all liens upon any property of LIV, and provided for the attachment of such liens to the surviving corporation.

At the same time, LIV was embroiled in litigation with the Virgin Islands Bureau of Internal Revenue ("VIBIR") stemming from alleged income tax liabilities for past tax years. The District Court of the Virgin Islands ultimately resolved that issue in favor of the VIBIR, and we affirmed. See La Isla Virgen, Inc. v. Olive, Nos. 1986-263, 1988-012, and 1988-270 (D.V.I. Feb. 28, 1991), aff'd, 952 F.2d 1393 (3d Cir. 1991).

On April 22, 1991, the VIBIR, in its attempt to execute against assets of LIV to collect on its judgment, issued to Chase's St. Thomas branch a notice of levy against LIV for $22,514,390.14 in unpaid taxes, interest, and penalties. The notice identified the taxpayer as "La Isla Virgen," and listed its taxpayer identification number. On the date of the notice, $1,304,138.17 remained in Marina Pacifica's CD pledged to Chase, and Lansdale owed a $600,000 balance on his personal loan from Chase secured by the CD.

Chase's customer support services department in St. Thomas performed a computer search of Chase's account database. The database maintained files only on open accounts. Chase searched its database both by taxpayer name and tax identification number. It then sent a notice to the holders of any matching accounts, giving an account holder twenty-one days "to settle the dispute with the taxing authority." If there was no such resolution, Chase would remit the funds to that authority. Using this procedure, Chase discovered an open account under La Isla Virgen's name, labeled "LIV Building Account." It remitted the balance, $5,058.53, to the VIBIR. It did not perform a search under Marina Pacifica's name or identification number.

On May 12, 1991, Lansdale requested that Chase transfer $724,696.02 from the CD to a Marina Pacifica account in California . Chase refused because the transfer would have reduced the balance below the $600,000 required to secure fully Lansdale 's personal loan. In this context, Chase transferred $703,338.17 to the Marina Pacifica account, leaving a balance of $600,800 in the CD.

On March 17, 1992, Marina Pacifica merged into Lonesome Dove Petroleum Corporation ("Lonesome Dove"), a Texas corporation wholly owned by the Lansdales. Marina Pacifica assigned its interest in the CD to Lonesome Dove. On May 20, 1992, the VIBIR served Chase with a notice of levy, identifying the taxpayer as La Isla Virgen, naming Marina Pacifica and Lonesome Dove as successor corporations, and providing the taxpayer identification numbers of all three corporations. The balance on the CD was $606,167.51, but Chase wired the accumulated interest of $6,167.51 to Lonesome Dove, leaving a $600,000 balance, which it did not remit to the VIBIR.

One week after the VIBIR served the second notice of levy, Chase sent a letter to John deJongh, its local counsel in the Virgin Islands, asking for his opinion on offsetting the balance of the CD against Lansdale 's loan. DeJongh replied that he was "unable to vouch for the seniority of Chase's lien as against the V.I. Government's tax lien," but agreed with the decision to set off. Chase sent a letter to Lansdale demanding payment and on June 5 set off the balance of the CD against Lansdale 's loan.

On June 16, 1993, the VIBIR sued Chase for failure to comply with the 1992 levy, seeking the value of LIV's property Chase held at the time of the levy, plus a 50% penalty. The VIBIR agreed to a dismissal with prejudice as to the 50% penalty in exchange for Chase adding Lansdale as a third-party defendant, which it did. In May 1998 the District Court granted the VIBIR's motion to amend its complaint to add a count for failure to comply with the 1991 levy, and seeking a 50% penalty for that failure. Both parties moved for summary judgment.

On July 30, 2001, the District Court granted the VIBIR's motion for summary judgment on the two levies, and granted Chase's cross-motion to dismiss the 50% penalty. Although the order resolved all claims between the two parties, Chase retained a third-party claim for contribution from Lansdale . In light of the outstanding claim, Chase and the VIBIR were uncertain whether this order constituted a final order, and both filed motions for entry of a final judgment under Federal Rule of Civil Procedure 54(b). ¹ The Court granted the motion and entered judgment on October 26, 2001.

Because we find that the District Court did not abuse its discretion in entering its 54(b) judgment, its order is appealable. Berckeley Investment Group Ltd. v. Colkitt, 259 F.3d 135, 140 (3d Cir. 2001). ² Our appellate jurisdiction is pursuant to 28 U.S.C. §1291, and we exercise plenary review over the District Court's grant of summary judgment. Tse v. Ventana Medical Systems, Inc., 297 F.3d 210, 217 (3d Cir. 2002).



II. Discussion



A. The 1991 levy

The 1991 notice of levy, sent to Chase's St. Thomas branch, named only LIV. At the time of the notice, LIV had merged, more than two years earlier, into its successor company, Marina Pacifica. The District Court used a general agency standard to impute to Chase knowledge of Marina Pacifica's status as LIV's successor. V.I. Bureau of Internal Revenue v. Chase Manhattan Bank, 168 F.Supp.2d 480, 489 n.13 (D. V.I. 2001) (citing F.D.I.C. v. Ernst & Young, 967 F.2d 166, 170 (5th Cir. 1992), and In re Carter, 511 F.2d 1203, 1204 (9th Cir. 1975)). It reasoned that because senior Chase officers knew Marina Pacifica was LIV's successor in interest, their knowledge was imputed to Chase as a whole. Chase did have property belonging to Marina Pacifica at the time it received notice of the 1991 levy naming LIV, and the Court concluded it should have surrendered that property to the IRS.

What the VIBIR is attempting is to shift the burden to Chase to research whether assets held once by one of its customers are now held by a successor entity. For an immense and extensive operation like that of Chase, the consequences of such a ruling slide none too slowly down the slope from irritating to impossible. While we reject per se pronouncements absolving entities like Chase in every instance, ³ in this case it makes more sense, and better policy, simply to place on the VIBIR the burden of including each taxpayer Chase should search for assets, particularly when the VIBIR knows that Marina Pacifica was LIV's successor and indeed in the VIBIR's 1992 levy mentioned, in addition to LIV, not only Marina Pacifica but Lonesome Dove as well.

The VIBIR and the District Court cited United States v. Donahue Industries, Inc. [ 90-2 USTC ¶50,343], 905 F.2d 1325 (9th Cir. 1990), to bolster their claim of imputed knowledge, but that case differs greatly from this one. In Donahue, the levy notice referred to "Donahue Printing" instead of "Donahue Industries, Inc." Id. at 1332. However, because the bank had responded in the past to the IRS summons with a letter indicating that it acknowledged that both names referred to the same entity, the "deficiencies" in the levy notice did not excuse the bank's refusal to honor the levy. Id.

The facts of this case part company with those of Donahue. If there had been a Donahue-like miswording (for example, if the levy listed "Marine Pacifica", instead of "Marina Pacifica"), Chase would presumably have found the correct account, if not by its name search, then certainly by its taxpayer identification number search. Therefore, while it may be true that, as the Ninth Circuit observed in Donahue, "deficiencies" in levy notices necessarily do not constitute "reasonable cause", under §6332 for dishonoring a levy, id. at 1332, the complete absence of the name "Marina Pacifica", or its taxpayer identification number is not simply a deficiency. Rather, it is an omission of any marker by which Chase could identify Marina Pacifica as the taxpayer subject to levy. This omission resulted in the levy being ineffective as to accounts under that name.



B. The 1992 levy

The District Court erred in applying Virgin Islands law regarding levies. Instead, it should have followed the pertinent Internal Revenue Code ("IRC") provisions. Virgin Islands income tax law "mirrors" the IRC:

The income-tax laws in force in the United States of America and those which may hereafter be enacted shall be held to be likewise in force in the Virgin Islands of the United States , except that the proceeds of such taxes shall be paid into the treasuries of said islands.

48 U.S.C. §1397. The District Court mistakenly reasoned that, because the provisions at issue in this case are "administrative and procedural in nature," Virgin Islands income tax law should apply. Chase Manhattan Bank, 168 F.Supp.2d at 486. On the contrary, the IRC does not distinguish between "substantive" and "nonsubstantive" income tax provisions, and neither do we. Chase Manhattan Bank v. Gov't of V.I., Bureau of Internal Revenue, 300 F.3d 320 (3d Cir. 2002). Therefore, we apply federal law governing liens and levies.

We begin with a general review of the subject. Section 6321 of the IRC authorizes the Government to obtain a lien against a delinquent taxpayer:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

26 U.S.C. §6321.

The Government's lien is not self-executing, however. United States v. Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. 713, 720 (1985). The Government must select between two alternative options when enforcing its lien. In the first, a 26 U.S.C. §7403(a) lien foreclosure suit, the Government files an action in District Court to enforce the lien. This is an involved proceeding that actually determines the priorities of the various claimants. Id.

The second, and more common, lien enforcement mechanism is 26 U.S.C. §6331's administrative levy. This is a "provisional remedy, which does not determine the rights of third parties until after the levy is made, in postseizure administrative or judicial hearings.", Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 731 (emphases omitted). 26 U.S.C. §6332 requires that the party holding the levied property relinquish it. Unlike §7403(a)'s lien foreclosure suit, §6331's administrative levy does not determine the relative priority of creditors' claims, either amongst themselves or in relation to the Government's lien. Instead, it simply "protect[s] the Government against diversion or loss while such claims are being resolved." Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 721. In essence, it takes a snapshot of the property at the time of levy, freezing it until the court can sort out the rights of competing claimants.

Sometimes someone other than the taxpayer holds property that is subject to an administrative levy. These third parties understandably are apprehensive about turning over property they hold to the Government, especially if it is later proved that another creditor, or the taxpayer, had a superior claim. Section 6332(e) accordingly provides that those who honor an administrative levy "shall be discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment." 26 U.S.C. §6332(e). Dishonoring the levy, on the other hand, exposes a third party to substantial liability: "failure to surrender the property upon service of a tax levy will render the third party personally liable to the government for the value of the property and for additional penalties if the noncompliance was not reasonable." Congress Talcott Corp. v. Gruber [ 93-1 USTC ¶50,283], 993 F.2d 315, 318 (3d Cir. 1993). Besides "a sum equal to the value of the property or rights not ... surrendered ... together with costs and interest," the statute imposes an additional 50% penalty upon "[a]ny person who fails or refuses to surrender any property or rights to property, subject to levy, upon demand," if the refusal to surrender property was "without reasonable cause." 26 U.S.C. §6332(d).

There are only two exceptions to the rule that a third-party holder of levied property must turn it over to the Government. The first is where the taxpayer's property is "subject to a prior judicial attachment or execution." Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 722 (citation omitted). The second is where the taxpayer no longer has a property interest in the levied property, so that the third party is "neither in possession of nor obligated with respect to property or rights to property belonging to the delinquent taxpayer." Id.

Both exceptions are logical. In the first case, the property has already been judicially determined to be the subject of another attachment or execution proceeding, so to relinquish it to the Government makes little sense, as it would be both inefficient and confusing. In the second, the levy does not apply because the taxpayer has no proprietary interest in the property in question. The Government's right to levy property extends only to the taxpayer's property: the IRS "steps in the taxpayer's shoes ... [and] acquires whatever rights the taxpayer himself possesses." Id. at 725 (citation omitted). If the taxpayer has no interest in the property, the Government's lien cannot attach. Because the first exception is not in play here, we need not discuss it. Therefore, we turn to the second: did LIV and/or its successors --Marina Pacifica and Lonesome Dove ⁴ --retain any property rights in the CD at the time of the 1992 levy.

Section 6331's language is extremely broad, covering "all property and rights to property" owned by the taxpayer. Congress Talcott [ 93-1 USTC ¶50,283], 993 F.2d at 319 (quoting Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 719-20). Courts look to both state and federal law to answer whether a taxpayer owns "property or rights to property" held by another. State law determines the nature of the legal interest the taxpayer has in the property. Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 722. However, federal law assigns consequences to the state law rights. Id. "Thus, because the United States Congress meant to attach a broad meaning to the statutory language `all property and rights to property,' courts must liberally identify property rights created under state law." Congress Talcott [ 93-1 USTC ¶50,283], 993 F.2d at 319 (citation omitted).

In this context, for a levy to attach requires only a small property interest. "[E]ven if others claim an interest in the property and the taxpayer's interest may be quantified as but a modicum, the property remains subject to attachment by levy and must be surrendered until ultimate ownership can be resolved." Id. at 319 (citing Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 721-22). National Bank of Commerce held that joint accounts were subject to administrative levy. Although the co-owner had a right to the accounts, the taxpayer's "unqualified right to withdraw the full amounts on deposit in the joint accounts without notice to his codepositors" was a sufficient property interest to subject the entire amount to administrative levy. [ 85-2 USTC ¶9482], 472 U.S. at 723-24. In Congress Talcott, we concluded that even if the third-party possessor of the property had a right of setoff against the property, the taxpayer retained a property interest until the setoff was exercised. [ 93-1 USTC ¶50,283], 993 F.2d at 320.

A secured creditor who obtains a perfected security interest before the Government's lien attaches has priority over the Government, and its security interest will prevail in a wrongful levy suit. The administrative levy "settles no rights in the property subject to seizure." Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 728 (citation omitted). However, if the property is levied upon, the secured creditor must turn the property over to the Government, or risk incurring the penalties described above. Congress Talcott [ 93-1 USTC ¶50,283], 993 F.2d at 318.

The proper recourse for secured creditors with a priority interest in levied property is to relinquish the property and then file a wrongful levy action under 26 U.S.C. §7426(a):

If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States.

Such a creditor has nine months from the date of the levy to file suit for wrongful levy. 26 U.S.C. §6532(c)(1). The creditor may then prove the priority of its interest in court and recover the property or its value. 26 U.S.C. §7426(b)(2).

This mechanism may seem overly burdensome to the priority creditor, who must surrender property when it knows it will ultimately prevail over the Government (provided it follows the procedural prerequisites, e.g., filing a §7426 wrongful levy suit within nine months). However, public policy supports this result: just as a sheriff in executing a judgment would levy (or seize) a debtor's property and then let the court sort out the rights of competing claimants, so here the administrative levy merely freezes the various assets until rights can be established.

The alternative is much less appealing. To allow every party who claimed priority to hold on to, and dispose of, property on which the Government levies would result in chaos. All creditors in possession of levied taxpayer property would claim that their interest was prior, and the Government would find it difficult to collect on liens. The administrative levy is a "quick [and] relatively inexpensive" way to serve the "[n]eed for our government promptly to secure its revenues." Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 721 (citation omitted).

In this case, Chase Manhattan's decision not to turn over the $606,167.51 was unreasonable. The VIBIR properly obtained a lien, and on May 20, 1992, served Chase with a notice of levy. Section 6332 instructs us that, as a nontaxpayer holding property that had been levied, Chase was obligated to turn over the money, unless one of two exceptions applied. As already noted, the first exception --that the money was subject to prior judicial attachment or execution --does not apply. But as to the second exception, Chase argues that it exercised its right of setoff, and thus the CD was not LIV's property at all.

The parties agree that New York law governs, so we apply that law to determine LIV's property interest in the CD. To review, events occurred in the following sequence: at the time of the 1992 levy, the CD's remaining balance was $606,167.51. On the day of the levy, May 20, 1992, Chase wired $6,167.51 to Lonesome Dove's account, leaving $600,000. Chase later sent a letter to John deJongh, its local counsel in the Virgin Islands , requesting an opinion on the advisability of setting off $600,000. DeJongh did not vouch for the priority of Chase's lien, but agreed that the setoff should occur. Chase then authorized the setoff, which was completed June 5, 1992, sixteen days after the levy. ⁵

Chase first argues that its right of setoff, acquired in 1986 when it loaned Lansdale $1.2 million secured by the initial CD, extinguished all of LIV's property rights. Appellant's Br. at 45. Chase had a perfected security interest in the CD, with priority over the tax lien, and therefore, it contends, LIV had no property right in the CD. ⁶ Appellant's Br. at 46-47. This argument fails because it amounts to a claim of priority, and that (perhaps counterintuitively to a secured creditor) is not a proper ground for resisting an administrative levy. Chase could have properly raised a claim of priority only by turning over the levied property and then bringing a wrongful levy suit under §7426 within the prescribed nine-month time period.

If Chase were to exercise its right of setoff before an IRS levy, it would gain complete ownership of the property, and LIV would lose any property interest in it. See generally Barkley Clark & Barbara Clark , 2 The Law of Bank Deposits, Collections and Credit Cards P 18.01 (rev. ed. 2002). There would then be no need for Chase to comply with the levy, because this would trigger the second permissible reason for dishonoring it, the defense that the taxpayer has no proprietary interest in the property levied against.

But what happens when a right of setoff is possible but not exercised before an IRS levy? Congress Talcott answers this question, for it rejects the idea that a mere right of setoff extinguishes a taxpayer's interest in property. In Congress Talcott, the IRS served a notice of levy on Congress Talcott, which, pursuant to a factoring agreement, held cash collateral in an account to which the taxpayer, Gruber, lacked access. [ 93-1 USTC ¶50,283], 993 F.2d at 317. Congress Talcott refused to turn over the account balance, arguing that it had a superior interest in the account by virtue of the agreement containing the cash collateral provisions. We held that because Gruber's debt had not matured, and "although Congress had absolute control and discretion over the use of the funds, Congress was to return to Gruber any amount not applied to Seegull's debt once the debt was satisfied." Id. at 320. As Gruber possessed a property interest in the account, Congress Talcott was unjustified in refusing to turn over the balance. Id. at 321.

Other circuit courts have also rejected the idea that an unexercised right of setoff excuses a bank from honoring a levy. In United States v. Cache Valley Bank [ 89-1 USTC ¶9157], 866 F.2d 1242 (10th Cir. 1989), the bank argued that because it could have offset the taxpayer's funds against outstanding loans, it had an interest superior to the Government's. The Tenth Circuit rejected this argument, observing that "the lien attached to the deposits in the taxpayer's account before the bank exercised its right of setoff." Id. at 1245 (emphasis in original). Similarly, in United States v. Sterling Nat'l Bank & Trust [ 74-1 USTC ¶9336], 494 F.2d 919, 922 (2d Cir. 1974), the Second Circuit found that until a bank exercised its right of setoff, the taxpayer retained a property interest in his account. In contrast, because Pennsylvania gives banks an automatic right of setoff, Pittsburgh National Bank v. United States [ 81-2 USTC ¶9626], 657 F.2d 36 (3d Cir. 1981), held that a taxpayer default alone was enough to constitute the "exercis[ing]" of the right of setoff. Id. at 39. But no such automatic right of setoff exists under New York law, Marine Midland Bank v. Graybar Electric Co., 41 N.Y.2d 703, 708 (N.Y. 1977), and Lansdale was not in default in any event. Thus, Chase's right of setoff upon a default does not constitute an exercise of the right.

Chase next argues that it "effectively" exercised its setoff prior to the 1992 levy because it had restricted LIV's access to the $600,000, refusing to allow it withdrawals that would drop the balance below that threshold, and thereby exercising the functional equivalent of a setoff before the notice of the levy. Appellant's Br. at 46-7.

Restriction of LIV's right to withdraw did not extinguish its property interest in the CD. The documents indicate that Chase had to demand payment prior to exercising its right of setoff. No demand was made until after the 1992 levy. Moreover, the fact that Chase inquired of local counsel about the advisability of exercising its right of setoff a week after receiving the notice of levy indicates that it did not believe that it had already exercised the right simply by restricting LIV's access.

The Eleventh Circuit has found that "[u]nder New York law setoff is complete when three steps have been taken: a decision to exercise the right, some action that accomplishes the setoff, and some record evidencing that the right of setoff has been exercised." Gregg v. U.S. Industries, 715 F.2d 1522, 1539 (11th Cir. 1983) (citing Clarkson Co. v. Shaheen, 533 F.Supp. 905, 925 (S.D. N.Y. 1982), and Aspen Industries, Inc. v. Marine Midland Bank, 74 A.D.2d 59, 62 (N.Y. App. Div. 1980), rev'd on other grounds, 52 N.Y.S.2d 316 (N.Y. 1980)). Chase did not take these steps until after the 1992 levy, when it consulted local counsel as to the advisability of setting off, had the setoff authorized, and finally completed it over a week later. Similarly, the bank in Congress Talcott did not withdraw funds from the taxpayer's account until four months after the notice of levy. [ 93-1 USTC ¶50,283], 993 F.2d at 321. We held that only at the time of this withdrawal was the right of setoff exercised. Id.

These decisions underscore the obvious. A setoff --a nonjudicial remedy --is a taking transferring the debtor's or pledging party's asset to the creditor bank. James J. White & Robert S. Summers, Uniform Commercial Code §21-7, at 401 (4th ed. 1995). Prior to the taking, the property still belongs to the debtor or pledging party. See Sterling Nat'l Bank [ 74-1 USTC ¶9336], 494 F.2d at 922.

Chase's emphasis that Lansdale and LIV had no "unfettered right to claim funds," and no "unilateral right to withdraw the $600,000," Appellant's Br. at 48, reveals that it misses the point regarding the nature of our inquiry. The taxpayer in Congress Talcott similarly lacked an "unfettered" right of withdrawal; indeed, he was completely denied access to the account. Nevertheless, we held that he retained a property interest in the account. The same is true here.

To recapitulate, the second exception to an administrative levy is not available here. Because Chase did not exercise its setoff right until after it received the notice of levy, LIV retained a property interest in the CD. Chase should have turned over the CD proceeds to the VIBIR, and then filed a §7426 wrongful levy suit within nine months of the levy. Because it did not take these measures, it is liable for "a sum equal to the value of the property or rights not surrendered," 26 U.S.C. §6332(d) --$606,167.51, plus costs and interest. ⁷

Under the circumstances presented, we conclude that Chase did not dishonor the 1991 levy. However, we hold that Chase's dishonoring of the 1992 levy was impermissible because LIV retained a property interest in the CD at the time of levy. We therefore affirm in part and reverse in part. <sup>8

1</sup> Rule 54(b) provides: "When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim ... the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment."

² Because Lansdale is not a party to VIBIR's lawsuit against Chase, it is beyond peradventure that Lansdale cannot appeal the District Court's judgment as to that suit. Lansdale 's attempt to join in this appeal is therefore dismissed for lack of standing. We further deny Lansdale 's motion to serve as amicus curiae.

³ For example, Chase is not absolved where evidence shows it to be in conspiracy with Lansdale to hide assets or it engages in fraud. No evidence of either is presented on the record before us.

⁴ For convenience, unless the context requires otherwise, LIV and its successors are hereinafter jointly and severally referred to as "LIV."

⁵ Because we perform de novo review of the summary judgment, and so have determined for ourselves what facts are undisputed and what reasonable inferences can be drawn in Chase's favor (as the non-moving party) from those undisputed facts, we will not respond separately to Chase's contentions concerning inappropriate fact-finding by the District Court.

⁶ As a preliminary matter, we note that even if we were to accept this argument, it does not justify Chase's decision to wire the $6,167.51 to Lonesome Dove's account, rather than forwarding the funds to the VIBIR. The balance due on the loan was $600,000.00. Even by its own logic, Chase should have turned over the excess funds to the VIBIR.

⁷ Although Chase's refusal to honor the levy was unreasonable, the 50% penalty does not apply because on June 30, 1994, the parties stipulated for dismissal with prejudice as to a penalty, in exchange for Chase naming Lansdale as a third-party defendant. Chase Manhattan Bank, 168 F.Supp.2d at 485.

⁸ As already noted, supra n.2, we dismiss Lansdale 's appeal for lack of standing.

 

[2005-1 USTC ¶50,122]  Maurice Wayne Jones and Dorenda Price Jones, Plaintiffs v. Fred Bass, Ron Thomas and Gerald Goulding, Defendants.

U.S. District Court, Dist. Wyo. ; 04-CV-153-D, September 30, 2004.

[ Code Sec. 6332]

Liens and Levies: Bank accounts: Immunity. --

An individual's suit against a bank president, which contested the bank's honoring of a Notice of Levy on his accounts receivable, was dismissed for lack of jurisdiction. Under Code Secs. 6332(e) and (f), the bank and its officers are immune from suit for honoring a properly executed and served Notice of Levy.

[ Code Sec. 7426]

Liens and Seizures: Actions to contest: Application of statute. --

An individual's suit against an Internal Revenue officer, which contested a Notice of Levy on his accounts receivable, was dismissed for lack of jurisdiction. Suits against employees of the Internal Revenue Service performing their official duties are really suits against the United States , which has sovereign immunity. Although a limited waiver of immunity exists to contest levy actions under Code Sec. 7426, this waiver only applies to third-parties, not to those against whom the taxes are assessed. Back reference: ¶41,713.10.

ORDER ON DEFENDANTS' MOTIONS TO DISMISS AND PLAINTIFFS' MOTIONS FOR SUMMARY JUDGMENT

DOWNES, District Judge: This matter comes before the Court on Defendants' Ron Thomas and Gerald Goulding's Motion to Dismiss, Defendant Fred Bass' Motion to Dismiss, and Plaintiffs' Motions for Summary Judgment, filed June 25, 2004. The Court, having reviewed the materials submitted in opposition and support, having heard oral argument, and being otherwise fully advised, FINDS and ORDERS as follows:

BACKGROUND

Plaintiffs Maurice and Dorenda Jones ("Plaintiffs") filed a civil action in Wyoming State District Court, Lincoln County, Wyoming, on March 3, 2004, asserting claims against Defendants Fred Bass, an employee of the United States Internal Revenue Service ("IRS"); Gerald Goulding, attorney for First National Bank, Afton, Wyoming ("Bank"); and Ron Thomas, Branch President of the Bank. The claims arise out of the Bank's honoring a Notice of Levy served upon First National Bank on or about March 17, 2004 by the IRS for Plaintiffs' alleged unpaid balance of tax assessment. Plaintiffs allege that the Notice of Levy is invalid and that Defendants' actions in serving, accepting, or advising others to honor the Notice of Levy were in error, harmful to Plaintiffs, and in violation of the law.

On May 24, 2004, the U.S. Attorney on behalf of Defendant Fred Bass, an employee of the federal government, filed a Notice of Removal with this Court pursuant to 28 U.S.C. §1442(a)(1), which states:

A civil action ... commenced in a State court against any of the following may be removed by them to the district court of the United States for the district and division embracing the place wherein it is pending:

 

(1) The United States or any agency thereof or any officer (or any person acting under that officer) of the United States or of any agency thereof, sued in an official or individual capacity for any act under color of such office or on account of any right, title or authority claimed under any Act of Congress for the apprehension or punishment of criminals or the collection of the revenue ....

28 U.S.C. §1442(a)(1) (2004). Plaintiffs objected to the removal, claiming the U.S. District Court lacks subject matter jurisdiction to hear the case.

Four motions are currently pending in this case. Plaintiffs filed two motions for summary judgment on June 25, 2004, which lack legal substance. Defendants Thomas and Goulding filed a joint Motion to Dismiss for failure to state a claim on June 22, 2004 and Defendant Bass filed a Motion to Dismiss for lack of subject matter jurisdiction on June 25, 2004. The Court, finding Defendants' Motions to Dismiss as dispositive, dismisses Plaintiffs' Motions for Summary Judgment as moot.

STANDARD OF REVIEW

Defendants Thomas and Goulding moved to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). In ruling on motions to dismiss for failure to state a claim, "All well-pleaded facts, as distinguished from conclusory allegations, must be taken as true." Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir. 2002) (quoting Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir. 1984)). "The court must view all reasonable inferences in favor of the plaintiff, and the pleadings must be liberally construed. The issue in reviewing the sufficiency of a complaint is not whether the plaintiff will prevail, but whether the plaintiff is entitled to offer evidence to support her claims." Id. (citations omitted). "A Rule 12(b)(6) motion to dismiss may be granted only if it appears beyond a doubt that the plaintiff is unable to prove any set of facts entitling her to relief under her theory of recovery." Id. (citing Conley v. Gibson, 335 U.S. 41, 45-46 (1957)).

Defendant Bass moved to dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). The standard of review is substantially similar in considering a 12(b)(1) motion to dismiss as for considering a 12(b)(6) motion to dismiss. "Accepting the complaint's allegations as true, we consider whether the complaint, standing alone, is legally sufficient to state a claim upon which relief can be granted.." E.F.W. v. St. Stephen's Indian High School , 264 F.3d 1297, 1303 (10th Cir. 2001).

DISCUSSION

Defendants Ron Thomas and Gerald Goulding's Motion to Dismiss

Ron Thomas and Gerald Goulding moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). As to the claim against Gerald Goulding, Defendants interpret Plaintiffs' Complaint to allege that Mr. Goulding gave legal advice to First National Bank, thereby making him an accessory to an illegal levy against the Plaintiffs. Defendants assert that such a claim sounds in negligence. As an attorney for the Bank, Defendants argue that Mr. Goulding has no duty to the Plaintiffs. As no duty exists, a negligence action cannot be maintained. Regarding Ron Thomas, Defendants assert immunity bars any claim against him. Defendants state that as an employee of a bank that simply honored an IRS levy, Mr. Thomas qualifies for immunity under 26 U.S.C. §6332(e) and (f). In the alternative, Mr. Thomas had no contract with the Plaintiffs such that a breach of contract action would lie, nor did he have a duty to the Plaintiffs such that a negligence action would lie. In addition, if the Plaintiffs assert a claim for conversion, one cannot lie where the property involved is a bank account from which a legitimate creditor has demanded payment. Finally, if the Complaint is construed to allege fraud, it has not been pleaded with sufficient particularity.

In opposition to Defendants' Motion to Dismiss, Plaintiffs' sole argument is that this Court has no jurisdiction over the matter. When given the opportunity to supplement its arguments, Plaintiffs add that Mr. Thomas and Mr. Goulding "failed to write a simple letter asking alleged IRS agent Bass for clarification regarding the legality and scope of the Notice of Levy." Plaintiffs' Supp. to Pending Motions, at 6.

As to Mr. Goulding, because the Plaintiffs do not explicitly outline the causes of action relied upon in their Complaint, the Defendants in their Motion to Dismiss are left to speculate. Defendants have presumed from the factual allegations against Mr. Goulding that Plaintiffs assert a claim for negligence against him for the advise given to Mr. Thomas to treat the Notice of Levy as any other levy. To maintain a claim for negligence, the Plaintiffs must demonstrate all the elements of negligence, including the legal duty owed by the defendant to the plaintiff. Brooks v. Zebre, 792 P.2d 196, 200 ( Wyo. 1990). Whether a legal duty exists is a question of law. Id.

It is clear under Wyoming law that an attorney owes a duty of zealous representation to his/her client. Id. In an adversarial context, a duty to the opposing party cannot be assumed by an attorney, as it would violate the primary duty of the attorney to his/her own client. Id. In other contexts, it is possible for an attorney to owe a duty to a non-client, i.e., when the non-client is a third-party beneficiary to the relationship between the attorney and client. See In re Estate of Drwenski, 83 P.3d 457 (Wyo. 2004). The Wyoming Supreme Court has recently adopted a set of factors to consider in determining whether an attorney owes a duty to a non-client. Id. at 464-65. The court will consider: (1) the extent to which the transaction was intended to directly benefit the plaintiff; (2) the foreseeability of harm; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant's conduct and the injury suffered; (5) whether expansion of liability to the non-client would place an undue burden on the legal profession; and (6) the policy of preventing future harm. Id. The "threshold question" is whether the attorney-client relationship was intended to benefit a third-party. Id. If an intent to benefit a third-party is not found, the other factors need not be considered. Id.

Upon consideration of the above factors, as a matter of law, Mr. Goulding did not owe a legal duty to the Plaintiffs. Under a Drwenski analysis, Plaintiffs in this case were not intended to be third-party beneficiaries to the attorney-client relationship between Mr. Goulding and the Bank. Thus, there is no need to consider the other Drwenski factors. In contrast, this case more closely resembles the adversarial situation in Brooks in that Mr. Goulding's advise to his client, Mr. Thomas, as an agent of the Bank, was directly adverse to the interests of the Plaintiffs. He advised his client to treat the Notice of Levy like any other levy, in effect advising Mr. Thomas to surrender the funds from the Plaintiffs' account to the IRS. In such an adversarial situation, an attorney cannot have a legal duty to the opposing party, as it would "violate the primary duty" owed to the attorney's own client. Owing no duty to the Plaintiffs, Mr. Goulding cannot be held liable under a negligence theory for his legal advise.

The Complaint against Mr. Goulding also asserts that he "became a principal or an accessory engaging in fraudulent actions ...." Complaint, at 12. As distinguished from well-pleaded facts, such a "conclusory allegation" need not be taken as true. Ruiz v. McDonnell, 299 F.3d at 1181. In addition, Wyoming law requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." WYO. R. CIV. PRO. 9(b) (LexisNexis 2004). Plaintiffs have asserted no particular facts that would establish that the elements of fraud are present in this case, i.e., (1) the defendant made a false representation intended to induce action by the plaintiff; (2) the plaintiff reasonably believed the representation to be true; and (3) the plaintiff relied on the false representation and suffered damages. Marchant v. Cook, 967 P.2d 551, 554 ( Wyo. 1998). In accordance with the Court's findings, the Complaint against Mr. Goulding is dismissed.

As to Mr. Thomas, quite rightly, he asserts in his motion to dismiss that he is immune from any claim arising out of the surrender of funds from Plaintiffs bank account pursuant to the Notice of Levy. United States statute is clear that "[a]ny person in possession of property subject to levy upon which levy has been made who, upon demand by the Secretary, surrenders such property to the Secretary shall be discharged from any obligation or liability to the delinquent taxpayer ...." 26 U.S.C. §6332(e) (2004). "Person" as defined in the statute includes "an officer or employee ... who ... is under a duty to surrender the property ... or discharge the obligation." Id. §6332(f). Not only is Mr. Thomas immune from any suit brought by a tax evader for honoring the levy, if he had failed to surrender the funds to the IRS, he would have become liable himself for the amount he failed to surrender. Id. §6332(d)(1). The Tenth Circuit has recognized the complete defense afforded by 26 U.S.C. §6332(e) for "honoring ... federal tax levies." U.S. v. Triangle Oil [ 2002-1 USTC ¶50,206], 277 F.3d 1251, 1259 (10th Cir. 2002). In light of the statute and case law, it is clear the Mr. Thomas cannot be held liable by Plaintiffs for surrendering funds from Plaintiffs' bank account pursuant to a valid levy by the IRS. If the Plaintiffs contest the validity of the levy, that matter should be taken up with the IRS by filing Form 8546, as referenced on the Notice of Levy. Accordingly, the claims against Mr. Thomas are dismissed and the Court need not consider the other arguments in favor of dismissal proffered by Mr. Thomas.

The sole legal argument offered in opposition to Defendants Goulding and Thomas' Motion to Dismiss is that this Court lacks subject matter jurisdiction over the present claims. In support of their contentions, Plaintiffs claim that "federal tax issues cannot be resolved by this court in that the Federal courts are barred from original or pendant jurisdiction over such federal tax issues, pursuant to Title 28, U.S.C. Sec. 2201(a)1 ...." Plaintiffs' Supp. to Pending Motions, at 7-8. In addition to 28 U.S.C. §2201(a), Plaintiffs cite Fogel v. U.S. [ 2001-1 USTC ¶50,366], 2001 WL 306496 (S.D. Cal. 2001) and Hughes v. U.S. [ 92-1 USTC ¶50,086], 953 F.2d 531 (9th Cir. 1991), in an attempt to demonstrate that the Court has no subject matter jurisdiction. Plaintiffs reliance on the statute and case law is misplaced.

United States Code, title 28, section 2201(a) is entitled "Creation of a Remedy" and is incorporated in the Declaratory Judgment Act. According to Black's Law Dictionary, a declaratory judgment is "a binding adjudication that establishes the rights and other legal relations of the parties without providing for or ordering enforcement." BLACK'S LAW DICTIONARY 846 (7th ed. 1999). A declaratory judgment action can be brought pursuant to the Declaratory Judgment Act before any actual harm has occurred and the trial court can, in its discretion, decline to extend jurisdiction to such a case. Kunkel v. Continental Casualty Company, 866 F.2d 1269, 1273 (10th Cir. 1989). United States Code, title 28, section 2201(a) does in fact prohibit the federal courts from entertaining declaratory judgment actions involving federal tax issues:

In a case of actual controversy within its jurisdiction, except with respect to Federal taxes ... any Court of the United States , upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.

28 U.S.C. §2201(a) (2004) (emphasis added). The present action however, is not a declaratory judgment action, but a first-party action claiming an injury has occurred and praying for relief. As such, the prohibition of 28 U.S.C. §2201(a) does not apply. It follows that the cases cited by the Plaintiffs which rely on 28 U.S.C. §2201(a) are also inapplicable to the present case. See Fogel v. U.S. [ 2001-1 USTC ¶50,366], 2001 WL 306496 (S.D. Cal. 2001) ("Because section 2201(a) of the Declaratory Judgment Act expressly denies federal courts subject matter jurisdiction over requests for declaratory judgments in federal tax matters, the Government's motion to dismiss for lack of subject matter jurisdiction is GRANTED ...." (emphasis added)); Hughes v. U.S. [ 92-1 USTC ¶50,086], 953 F.2d 531, 536-37 (9th Cir. 1991) (affirming District Court's denial of subject matter jurisdiction over the declaratory judgment action because it involved issues of federal taxation).

Subject matter jurisdiction is found in this case. The provisions of 28 U.S.C. §1442(a)(1) allow for the removal of the case at bar from state to federal court:

A civil action ... commenced in a State court against any of the following may be removed by them to the district court of the United States for the district and division embracing the place wherein it is pending:

 

(1) The United States or any agency thereof or any officer (or any person acting under that officer) of the United States or of any agency thereof, sued in an official or individual capacity for any act under color of such office or on account of any right, title or authority claimed under any Act of Congress for the apprehension or punishment of criminals or the collection of the revenue.

28 U.S.C. §1442(a)(1). Fred Bass, an employee of the IRS, was named in the Complaint in his official capacity, as discussed later, for serving the Notice of Levy on the Bank. As such, the case was properly removed to this Court and this Court has subject matter jurisdiction to decide the issues presented.



Defendant Fred Bass' Motion to Dismiss

In support if his Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, Mr. Bass argues first that the United States is the proper defendant in this case, as the Plaintiffs' claims are based on actions taken by Mr. Bass in his official capacity as an IRS agent. Mr. Bass goes on to argue that this case is essentially a suit against the United States , and is barred by sovereign immunity, absent express statutory consent to sue. In addition, the limited waiver of sovereign immunity related to the challenge of a levy does not apply in this case and dismissal for lack of subject matter jurisdiction is appropriate. Finally, Mr. Bass asserts that this Court lacks subject matter jurisdiction over any request for declaratory and injunctive relief in this context.

In response to Mr. Bass' Motion to Dismiss, Plaintiffs again challenge the subject matter jurisdiction of the Court to rule on the motion and demand remand to the state court. Plaintiffs also claim that Mr. Bass' "wrongful fraudulent filing of a claim of levy is not an official act of an officer of the U.S. " and not within the scope of his authority. Plaintiffs' Response to Motion to Dismiss, at 6. To the extent that the Court finds that the claim is against the United States and not Mr. Bass in his individual capacity, Plaintiffs assert that the United States has waived sovereign immunity in this case by "filing of Notice of Levy by Defendant Bass" in violation of "the Privacy Act and 26 U.S.C. §6103."

The first issue to resolve is whether Mr. Bass was named in Plaintiffs' Complaint in his official capacity as an employee of the IRS or whether he was named in his individual capacity. Interestingly, the only place the name of Fred Bass appears in Plaintiffs' Complaint is in the caption. In contrast, Plaintiffs in part III, Statement of the Case, aver that "this action arises out of one alleged 'levy,' titled 'Notice of Levy,' which was executed by a foreign power, ' United States ' Internal Revenue Service ...." Plaintiffs admit in part III that the Notice of Levy was "prepared and transmitted under color of authority pursuant to [26 U.S.C. §6331]." The Complaint goes on to state in part III that "the IRS, in an obvious and blatant act of deception, attempts to deceive the recipients of said notices ...." In short, except for occasional mention that the Notice was "fraudulently served," Plaintiffs' claims against Mr. Bass are essentially claims against the United States and any claim that Mr. Bass was fraudulent in presenting the Notice to the Bank has no basis in fact and is not pleaded with particularity as required under Wyoming law. See WYO. R. CIV. PRO 9(b) (LexisNexis 2004). ¹

As the Complaint alleges claims against Mr. Bass in his official capacity as an employee of the IRS, it is essentially a suit against the United States . Gilbert v. DaGrossa [ 85-2 USTC ¶9665], 756 F.2d 1455, 1458 (9th Cir. 1985). As the Ninth Circuit Court of Appeals so aptly explained,

It is well settled that the United States is a sovereign, and, as such, is immune from suit unless it has expressly waived such immunity and consented to be sued. Such waiver cannot be implied, but must be unequivocally expressed. Where a suit has not been consented to by the United States , dismissal of the action is required. 'It is axiomatic that the United States may not be sued without its consent and that the existence of such consent is a prerequisite for jurisdiction.'

Id. (quoting United States v. Mitchell, 463 U.S. 206, 212 (1983)) (other internal citations omitted). The court went on to conclude that "a suit against IRS employees in their official capacity is essentially a suit against the United States . As such, absent express statutory consent to sue, dismissal is required." Id.

Absent a waiver of immunity, dismissal is required in a suit against an IRS employee acting in his official capacity. In this instance, the United States has acknowledged in its motion to dismiss that a limited waiver of sovereign immunity is available to those who would challenge a levy. See 26 U.S.C. §7426(a)(1) (2004). The Tenth Circuit has held that "[a]ny waiver must be construed strictly in favor of the sovereign and not enlarged beyond what [its] language requires." United Tribe of Shawnee Indians v. U.S., 253 F.3d 543, 547 (10th Cir. 2001) (quoting In re Talbot [ 97-2 USTC ¶50,624], 124 F.3d 1201, 1206 (10th Cir. 1997)). In this case, the waiver only applies to any person "other than the person against whom is assessed the tax out of which such levy arose." 26 U.S.C. §7426(a)(1). As a consequence, the person liable for the tax cannot maintain a wrongful levy action under the waiver of sovereign immunity. See McCarty v. U.S. [ 92-1 USTC ¶50,222], 929 F.2d 1085 (5th Cir. 1991); Shannon v. U.S. [ 97-2 USTC ¶50,624], 521 F.2d 56 (9th Cir. 1975). The waiver of sovereign immunity does not apply to Plaintiffs who in this case are clearly those "against whom is assessed the tax out of which such levy arose." 26 U.S.C. §7426(a)(1). ²

Where the United States has been sued and sovereign immunity has not been waived, dismissal for lack of subject matter jurisdiction is appropriate. See U.S. v. Mitchell, 463 U.S. 206, 211 (1983) (stating that consent to suit is a "jurisdictional prerequisite"); see also F.D.I.C. Meyer, 510 U.S. 471 (1994); Merrill, Lynch, Pierce, Fenner, & Smith, Inc. v. Jacks, 960 F.2d 911 (10th Cir. 1992).

Fred Bass has been sued by Plaintiffs in his official capacity as an employee of the IRS. As such, the suit is essentially against the United States and therefore, barred by sovereign immunity. Although a limited waiver of sovereign immunity exists for challenging a wrongful levy, that waiver explicitly precludes applicability to the Plaintiffs as "person[s] against whom is assessed the tax out of which such levy arose." 26 U.S.C. §7426(a)(1). The claims against Mr. Bass and the United States as principal are dismissed for lack of subject matter jurisdiction and Plaintiffs' motion for summary judgment on those claims is dismissed as moot. Therefore, it is hereby

ORDERED that Defendants' Ron Thomas and Gerald Goulding's Motion to Dismiss is GRANTED, Defendant Fred Bass' Motion to Dismiss is GRANTED, and Plaintiffs' Motions for Summary Judgment, filed June 25, 2004, are DISMISSED as moot. Plaintiffs' Complaint is DISMISSED with prejudice.

¹ The United States Attorney does not deny the Mr. Bass was acting in his official capacity in presenting the Notice of Levy to the Bank. In fact, in his argument in support of Mr. Bass' Motion to Dismiss, the U.S. Attorney states that "it is clear from the complaint that plaintiffs' claims are based on actions taken by Mr. Bass in his official capacity."

² Plaintiffs assert in their response to Defendant Bass' Motion to Dismiss that the United States waived sovereign immunity by filing the levy in the offices of Lincoln County , Wyoming . As the United States Supreme Court made abundantly clear in U.S. v. King, "waiver cannot be implied, but must be unequivocally expressed." U.S. v. King [ 69-1 USTC ¶9410], 395 U.S. 1, 4 (1969). Filing a levy in Lincoln County , Wyoming , does not constitute an "unequivocally expressed waiver."

 

[2005-1 USTC ¶50,317] Andrew E. Ryder, Plaintiff-Appellant v. Della Elliot, et al., Defendants-Appellees.

U.S. Court of Appeals, 9th Circuit; 04-15834, April 13, 2005.

Unpublished opinion affirming an unreported DC Nev. decision.

[ Code Sec. 6332]

Liens and levies: Bank accounts subject to levy: Surrender of property: Immunity: Damage claims. --

A bank was immune from liability in connection with the IRS's levy of a delinquent taxpayer's bank account. The taxpayer filed a multi-million dollar damage claim against the bank for turning over approximately $300 to the IRS in response to an IRS levy. The bank and its agents, however, were required to honor the levy and were absolved of liability under Code Sec. 6332. Back reference: ¶38,198.13.

[ Code Sec. 7402]

Penalties, civil: Rule 11 sanctions. --

Sanctions under Rule 11 of the Federal Rules of Civil Procedure were imposed against a taxpayer for maintaining a frivolous damage claim against a bank that honored the IRS's levy against his bank account. The taxpayer persisted in his claim for damages against the bank despite being notified that the bank was statutorily immune. Back reference: ¶41,605.105.

Before: Fletcher, Trott and Paez, Circuit Judges. ^*

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

MEMORANDUM ^**

Andrew C. Ryder appeals pro se from the district court's judgment on the pleadings which dismissed his 42 U.S.C. §1983 action seeking compensatory damages of $56 million from Nevada State Bank upon allegations that Bank employees erroneously levied on $306 in Ryder's bank account in response to a levy from the Internal Revenue Service. Ryder also appeals from the district court's imposition of sanctions. We affirm.

The district court properly granted judgment, because the Bank and its agents were required to honor the IRS's levy in order to avoid liability imposed directly on them, including the principal amount due, costs, interest and penalties. 26 U.S.C. §6332(a) (any person possessing property must surrender that property upon receipt of an IRS levy.) Section 6332(e) immunizes those who comply with the levy. Because the Bank acted in compliance with an IRS levy, it is statutorily immune from liability.

Ryder also appeals the district court's imposition of sanctions of $500 under Federal Rule of Civil Procedure 11. We review for abuse of discretion. Buster v. Greisen, 104 F.3d 1186, 1189 (9th Cir. 1997). Rule 11 applies to pro se litigants, and we agree with the district court that a sanction is appropriate because Ryder brought this frivolous action against the Bank "for an improper purpose," and failed to dismiss his claims after the Bank filed its Rule 11 motion for sanctions and despite notice from the Bank of its statutory immunity. See Warren v. Guelker, 29 F.3d 1386, 1388 (9th Cir. 1994).

AFFIRMED.

^* This panel unanimously finds this case suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).

^** This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3.

 

[2005-2 USTC ¶50,512] Ian Michael Stead, Belinda A. Stead, Plaintiffs-Appellants v. United States of America , Defendant-Appellee.

U.S. Court of Appeals, 9th Circuit; 04-35028, August 12, 2005.

Affirming an unreported DC Wash. decision.

[ Code Secs. 6331 and 6332]

Suits by taxpayer: Levies: Refund. --

A taxpayer's suit for refund based on his assertion that he paid twice to satisfy a tax liability was dismissed. The IRS levied the taxpayer's bank account for the amount of the tax deficiency, but the IRS asserted that the funds were never transferred, and the bank was unable to produce documents establishing where the funds were transferred. The taxpayer failed to produce evidence that the levy of the bank account resulted in a payment to the IRS, since no evidence was presented that the government took title to or dominion and control over taxpayer's property. Because the remedies under Code Secs. 6331 and 6332 are analogous to remedies provided by Article 9 of the Uniform Commercial Code (UCC), the risk of loss of the levied property remained with the taxpayer, just as in the case of a debtor under the UCC. The government did not exert enough control over the levied property to shift the risk of loss from the taxpayer. Finally, the taxpayer's argument that the IRS violated the Fifth Amendment by effecting a taking without compensation was rejected.

Don M. Running, for plaintiffs-appellants. Eileen J. O'Connor, Assistant Attorney General, Thomas J. Clark, Karen G. Gregory, Department of Justice, for defendant-appellee.

Before: Thompson, McKeown and Gould, Circuit Judges.

OPINION

GOULD, Circuit Judge: We must decide whether the taxpayer or the government bears the risk of loss when funds on deposit at a bank for practical purposes disappear after being levied upon by the Internal Revenue Service ("IRS") and removed from a taxpayer's bank account. We have jurisdiction pursuant to 28 U.S.C. §§1291 and 1346(a)(1), and we hold that, in light of the burden of proof on the taxpayer in a tax refund case, the risk of loss necessarily falls upon the taxpayer.

I

In tax year 1994, Plaintiff-Appellant Ian Michael Stead and his former wife, Lynan K. Stead, filed a federal income tax return but underpaid their tax liability by $7,574.31. The IRS issued a notice of balance due on November 13, 1995, and, when the Steads did not respond, issued a notice of intent to levy the Steads' assets on January 22, 1996. Despite these measures, the tax liability remained unsatisfied.

On August 29, 1996, the IRS issued a notice of levy to First Interstate Bank in the amount of $9,023.26 for funds on deposit in an account belonging to From Gifted Hands, Inc., a corporate entity controlled by Ian Michael Stead. On September 4, 1996, First Interstate Bank debited the From Gifted Hands, Inc. account in the amount of $9,023.26. The withdrawal appeared as a "Miscellaneous Debit" on the Steads' monthly statement. Shortly thereafter, First Interstate Bank became a part of Wells Fargo Bank.

Although the levied upon funds were removed from the Steads' account, the final destination of the funds, if in fact they were ever transferred from the bank, is not disclosed by the record. The funds were not returned to the Steads, and the IRS does not have any record of receiving the funds from First Interstate Bank or Wells Fargo Bank. Consequently, on July 21, 1997, the IRS issued a second notice of intent to levy the Steads' property. Ian Michael Stead then inquired with the IRS regarding the first levy and debit from the account at First Interstate Bank. In response, the IRS notified Ian Stead on May 20, 1998 that the government had contacted Wells Fargo Bank and that the bank could not locate any record of the $9,023.26 levy payment. For reasons that are unclear from the record, neither the Steads nor the IRS appears to have attempted to recover the missing funds from First Interstate Bank or Wells Fargo Bank.

On February 1, 2002, Ian Stead and his subsequent wife, Belinda A. Stead, refinanced their home and paid $11,641.01 to the IRS. Upon receipt of this payment, the Steads' tax dispute was resolved to the satisfaction of the IRS, and, on February 8, 2002, the IRS released its tax lien.

On May 30, 2002, the Steads filed an amended 1994 tax return seeking a refund in the amount of $11,679.00 for double payment of their 1994 tax liability. The IRS did not act on the Steads' claim within six months, I.R.C. §6532(a)(1), and the Steads then filed a claim for a refund in the United States District Court. ¹

In 2003, the IRS subpoenaed Wells Fargo Bank, but the bank informed the IRS that any records of the September 4, 1996 debit from the Steads' account had been destroyed due to "the retention schedule of the bank." The district court granted summary judgment in favor of the IRS on the ground that the Steads could not bear the burden of proving that the $9,023.26 debited from their account on September 4, 1996 was remitted to the IRS. The Steads appeal.

II

When a taxpayer fails to pay his or her federal individual income tax, a lien in favor of the government arises by operation of law on the taxpayer's property and rights to property, whether held by the taxpayer or by a third party. I.R.C. §6321. ² The government may perfect this lien through one of two procedures: an administrative tax levy pursuant to I.R.C. §6331, or a lien-foreclosure suit in federal district court pursuant to I.R.C. §7403. United States v. Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. 713, 720 (1985); Farr v. United States [ 93-1 USTC ¶50,229], 990 F.2d 451, 455-56 (9th Cir. 1993); Treas. Reg. §301.6331-1(a)(1). When the IRS elects to recover funds though an administrative levy on property in the possession of a third party, the IRS serves a notice of levy on the third party in possession and sends a copy of the notice to the taxpayer. Although legal title to the property remains with the taxpayer for the purposes of administering a bankruptcy estate, Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 721; United States v. Whiting Pools, Inc. [ 83-1 USTC ¶9394], 462 U.S. 198, 210-11 (1983); MICHAEL D. ELLIOTT, FEDERAL TAX COLLECTIONS, LIENS, AND LEVIES ¶13.05 (2d ed. 1995), service of the notice of levy "gives the IRS the right to all property levied upon, and creates a custodial relationship between the person holding the property and the IRS so that the property comes into the constructive possession of the Government." Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 720-21 (internal citation omitted); see also Phelps v. United States [ 75-1 USTC ¶9467], 421 U.S. 330, 334 (1975); Resolution Trust Corp. v. Gill [ 92-1 USTC ¶50,199], 960 F.2d 336, 340 (3d Cir. 1992). In the case of funds on deposit in a bank, the taxpayer loses any right to access or control the funds. Treas. Reg. §301.6332-3(c)(3).

Although a person or entity in possession of property subject to a levy must ordinarily remit the property to the government immediately, I.R.C. §6332(a); Treas. Reg. §301.6332-1(a)(1), banks are subject to special rules and must wait twenty-one days before relinquishing levied upon funds, I.R.C. §6332(c); Treas. Reg. §301.6332-3. Following the service of notice, a bank has only two defenses: 1) the levied upon property is not in its possession, and 2) the levied upon property is subject to prior judicial attachment or execution. Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 722; MICHAEL I. SALTZMAN, IRS PRACTICE AND PROCEDURE ¶14.17 (2d rev. ed. 2002-2004). If a bank fails to turn over levied upon funds to the government without statutory justification, the IRS may bring suit and hold the bank personally responsible for the lesser of the value of the property or the amount of the levy, plus costs and interest, as well as a penalty equal to fifty percent of the amount thus recoverable. I.R.C. §6332(d); Treas. Reg. §301.6332-1(b); see also Melton v. Teachers Ins. & Annuity Ass'n of Am. [ 97-2 USTC ¶50,492], 114 F.3d 557, 560 (5th Cir. 1997).

III

[1] We turn to the question whether the levy and debit from the From Gifted Hands, Inc. account satisfied the Steads' 1994 tax liability. ³ The Steads raise their claim in the context of a tax refund suit, and, as a result, they bear the burden of showing that they overpaid their 1994 taxes. United States v. Janis [ 76-2 USTC ¶16,229], 428 U.S. 433, 440 (1976); Lewis v. Reynolds [ 3 USTC ¶856], 284 U.S. 281, 283 (1932). We hold that the Steads have not raised a genuine issue of material fact on an essential element of their claim for alleged overpayment of their 1994 tax liability. Specifically, the Steads failed to show that the August 29, 1996 notice of levy to First Interstate Bank and the September 4, 1996 debit from the Steads' account resulted in the payment of funds from the Steads to the IRS.

[2] The record is devoid of evidence that the government took title to or dominion and control over any property owned by the Steads. Contrary to the Steads' assertions, the issuance of a tax levy does not in itself transfer ownership of the levied upon property from the taxpayer to the IRS. Whiting Pools, Inc. [ 83-1 USTC ¶9394], 462 U.S. at 211. Rather, the IRS ordinarily does not take title to a levied upon property until the government reaps the proceeds of a tax sale or otherwise collects on the property of the taxpayer. Id. ; In re Challenge Air Int'l, Inc. [ 92-1 USTC ¶50,090], 952 F.2d 384, 386-87 (11th Cir. 1992). This framework applies to cash and cash equivalents. See id. at 387; see also Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 21 (1995).

[3] Under most circumstances, a tax is "paid" when the government becomes the owner of the property. ⁴ Cash v. United States [ 92-1 USTC ¶50,298], 961 F.2d 562, 569 (5th Cir. 1992) ("In the ordinary case, the IRS need only ensure that the taxpayer is credited with the amount actually collected on the accounts."); Sly v. United States [ 88-1 USTC ¶9188], 836 F.2d 1310, 1312 (11th Cir. 1988); see also Murphy v. United States [ 95-1 USTC ¶50,114], 45 F.3d 520, 523 (1st Cir. 1995); Zapara v. Comm'r [ CCH Dec. 56,023], 124 T.C. No. 14 (May 17, 2005) ("[A] taxpayer generally is not entitled to a credit for seized property until it is sold."). Although the Internal Revenue Code does not speak specifically to the issue presented in this case, the Code accords with the reasoning that the government need not credit an amount levied upon against a taxpayer's liability until the government actually collects on the account. I.R.C. §6343(a)(1)(A) (directing the IRS to release a tax levy, inter alia, if "the liability for which such levy was made is satisfied or becomes unenforceable by reason of lapse of time"); id. §6342 (providing the manner in which the government must apply funds "realized" through a tax levy).

[4] Moreover, the remedies available to the IRS under §§6331 and 6332 are "analogous to the remedies available to private secured creditors" under Article 9 of the Uniform Commercial Code. Whiting Pools, Inc. [ 83-1 USTC ¶9394], 462 U.S. at 210-11; see also Enos v. Comm'r [ CCH Dec. 55,757], 123 T.C. 284, 297 n.8 (2004). Under U.C.C. section 9-207(b)(2) the risk of loss of property in the possession of a secured creditor remains with the debtor. Although U.C.C. section 9-207(a) provides that a secured creditor in possession shall use reasonable care in serving as custodian of the property, the Steads have pointed to no affirmative negligence on the part of the IRS that might shift the risk of loss to the government.

[5] There are situations in which the government exerts such extensive dominion and control over a levied property that it should bear the risk of any loss. See, e.g., United States v. Pittman [ 71-2 USTC ¶9650], 449 F.2d 623, 628 (7th Cir. 1971) (holding that a levy constituted payment of tax when the government also took the deed to a property, managed it, and collected rents from tenants); United States v. Barlow's, Inc., 767 F.2d 1098, 1100 (4th Cir. 1985) ( per curiam) (holding that the risk of loss transferred when the IRS assumed dominion over a fully earned account receivable and entered into a payment agreement with the debtor); see also Enos [ CCH Dec. 55,757], 123 T.C. at 299-300. However, the government here did not take any action with respect to the bank account at First Interstate Bank aside from levying upon $9,023.26 held within it. A levy, without more, is not sufficient to transfer the risk of loss to the government. Unless the government takes affirmative action to administer the levied upon property as it did in Pittman and Barlow's, Inc., a tax levy does not in and of itself equate to payment of tax liability. Compare Murphy [ 95-1 USTC ¶50,114], 45 F.3d at 523, and Cash [ 92-1 USTC ¶50,298], 961 F.2d at 568-69, with Barlow's, Inc., 767 F.2d at 1100, and Pittman [ 71-2 USTC ¶9650], 449 F.2d at 628.

IV

[6] The Steads further argue that the levy upon and debit of the funds in their First Interstate Bank account was a taking without just compensation that violated the Fifth Amendment. We reject this argument. The government did not appropriate the funds on deposit at First Interstate Bank for its own use and did not take actual possession of or exert dominion and control over the funds. Cf. Pittman [ 71-2 USTC ¶9650], 449 F.2d at 626. The debit of the funds from the Steads' bank account also was not an unconstitutional taking by the government. It was the bank --not the IRS --that debited the Steads' account, and the twenty-one-day holding provision of I.R.C. §6332(c), designed to protect the taxpayer from unwarranted tax levies, is a reasonable regulation of private property that ensures the continuing flow of revenues into the public fisc.

V

[7] Both parties are to a degree at fault in this unfortunate situation. For their part, the Steads failed timely to pay their full income tax liability for tax year 1994, did not respond to the notice of balance due or to the notice of intent to levy, and further did not follow up with First Interstate Bank and Wells Fargo Bank to ensure that the funds subject to the tax levy were remitted to the IRS. See United States v. Triangle Oil [ 2002-1 USTC ¶50,206], 277 F.3d 1251, 1256-60 (10th Cir. 2002) (holding that a taxpayer has standing to bring state law claims related to property levied upon by the IRS); see also I.R.C. §6332(e) (granting immunity from suit only to those persons who "surrender[ ] ... property or rights to property" in actions "arising from such surrender or payment"). On the other hand, for its part, the IRS did not take action against First Interstate Bank to force compliance with the levy or to hold the bank personally liable for the amount of the levy plus penalties pursuant to I.R.C. §6332(d). Although one might sympathize with the Steads for their loss and one might encourage the IRS to improve its efficiencies in collecting on tax levies, the governing law requires that, to recover in this refund suit, the Steads must demonstrate that they paid to the government more money than they owed on their 1994 tax liability plus penalties. They have not done so.

AFFIRMED.

¹ Although Belinda A. Stead did not file the initial deficient tax return, she has standing to seek a refund as a taxpayer who allegedly overpaid a tax liability to the IRS, even though the tax was assessed against a third party. United States v. Williams [ 95-1 USTC ¶50,218], 514 U.S. 527, 529 (1995).

² Certain types of property are statutorily exempted from a §6321 tax lien pursuant to I.R.C. §6323.

³ We review de novo a district court decision to grant summary judgment. Abelein v. United States [ 2003-1 USTC ¶50,331], 323 F.3d 1210, 1213 (9th Cir. 2003). In conducting our review, we ask whether, taking all reasonable inferences in favor of the nonmoving party, sufficient evidence exists to create a genuine issue of material fact for trial. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

⁴ Although service of a notice of levy gives the IRS power over the levied property, it does not guarantee that the amount levied upon will flow into the coffers of the United States Treasury. Because property levied upon by the IRS remains subject to the claims of other creditors, Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. at 721; Whiting Pools, Inc. [ 83-1 USTC ¶9394], 462 U.S. at 210, if we were to hold for the taxpayers in this case, it would permit a taxpayer to establish that he or she had paid a tax even though the government had never collected the tax money owed to it.