Annotations- Effect of Honoring
Levy Page5
ORDER
AND JUDGMENT
*
SEYMOUR, Chief
Judge:
This action
was brought in state court by Bonneville Distributing, Inc. against
Green River Development Associates, Inc. for breach of contract,
conversion, breach of fiduciary duty, and fraud arising out of a joint
venture agreement for the operation of Westwind Truck Stop in
Green River
,
Utah
. The joint venture was originally between Triangle Oil, Inc. and
Green River
, but Triangle's interest was assigned in 1990 to Bonneville. At the
time of the assignment, Triangle's property was subject to tax liens
filed by the
United States
against Triangle. Given these tax liens and a subsequent tax levy filed
by the
United States
against the joint venture, Green River filed a counterclaim in this
action naming the
United States
as an additional defendant and seeking declaratory relief with respect
to whether Bonneville or the
United States
was entitled to receive payments from the joint venture. The district
court granted summary judgment in favor of the
United States
against Triangle and Bonneville and in favor of
Green River
against Bonneville. Bonneville appeals only the judgment in favor of
Green River
. We affirm in part and reverse in part.
I
In 1987, the
IRS filed a tax lien against Triangle for unpaid excise taxes in the
amount of $1,166,206.13. It subsequently assessed this income tax
liability against Triangle along with penalty and interest. Doug Allred
owned 90 percent of Triangle's stock and his two children owned the
remainder. Triangle owned all of the stock in Bonneville. In 1988 while
Triangle was in financial difficulty, Allred transferred all of the
Bonneville stock from Triangle to his children. On January 1, 1990,
Triangle transferred its interest in the joint venture to Bonneville
with
Green River
's consent. At that time, Doug Allred was the president of Triangle and
the general manager of Bonneville, and he was aware of the IRS tax lien
filed against Triangle.
In August
1993, the IRS sent notices of tax levy to
Green River
's attorney and to the joint venture's attorney. The notices listed
Triangle as the taxpayer then owing the total amount $2,746,028.08, and
stated: "This levy requires you to turn over to us this person's
property and rights to property (such as money, credits, and bank
deposits) that you have or which you are already obligated to pay this
person." App. at 223, 226. In 1994,
Green River
asked the IRS whether it considered Bonneville's interest in the joint
venture, acquired from Triangle with knowledge of the recorded tax lien,
as subject to the liens and levy against Triangle's property. Receiving
no response,
Green River
inquired again in June 1995. In the 1995 letter to the IRS, counsel for
Green River stated, "Frankly, at this point our client does not
much care which position the Internal Revenue Service takes, just so
they take one."
Id.
at 448.
In response,
the IRS informed
Green River
of its position that the 1993 levy applied to Bonneville's interest in
the joint venture. In August 1995, the IRS reiterated its position and
informed
Green River
that if the joint venture were to be dissolved, payment for Bonneville's
interest should be made to the IRS. In December 1995, the IRS issued
another notice of levy listing Triangle as the taxpayer and the amount
due as $3,774,075.27.
In late
December 1995,
Green River
, as the managing partner of the joint venture, adopted a dissolution
plan. The plan valued Bonneville's interest in the joint venture at
$220,000 and stated it would tender to the IRS the funds to be
distributed to Bonneville under the plan. The IRS reviewed the plan and
agreed to accept the money in full satisfaction of the levies served on
Green River
. In April 1996,
Green River
paid the IRS $92,079.02 as a portion of Bonneville's share, and began
making monthly payments of $2,500 to the IRS.
Bonneville
filed this action in state court against
Green River
claiming that it had breached the joint venture contract and had
defrauded Bonneville of the full value of its interest. Green River
interpleaded the
United States
and asked the court to declare the value of Triangle's interest in the
joint venture and to quiet title to that interest in either Bonneville
or the
United States
. The government removed the case to federal court and subsequently
filed a separate complaint against Triangle, Bonneville and
Green River
asking the court to reduce to judgment its assessment against Triangle,
to declare that Bonneville acquired Triangle's interest in the joint
venture subject to the tax liens, and to foreclose the liens. It also
sought to set aside as fraudulent the transfer of the joint venture
interest from Triangle to Bonneville.
The government
and
Green River
both filed motions for summary judgment. Bonneville essentially conceded
the government's motion, stating in its response that "Triangle and
Bonneville have no objection to the entry of summary judgment in favor
of the
United States
for a judgment against Triangle for the amount of the tax lien and an
order determining that Bonneville's joint venture interest is subject to
the tax lien." App. at 475. However, Bonneville objected to
foreclosing the joint venture interest or ordering a sale of that
interest until the court determined whether the tax levy had served to
divest Bonneville of its entire joint venture interest.
Id.
With respect
to
Green River
's motion for summary judgment, Bonneville took the position that the
tax levy did not divest Bonneville of its interest in the joint venture.
It contended that Green River improperly dissolved the joint venture,
improperly valued Bonneville's interest therein, and still owed
Bonneville money in excess of the $220,000
Green River
had agreed to pay the IRS. The district court decided these issues as a
matter of law against Bonneville and entered summary judgment for
Green River
. It held that all of Bonneville's claims against Green River were
barred because it had not filed a wrongful levy suit pursuant to 26
U.S.C. §7426 1 in response
to any of the IRS levies and was therefore precluded from later
challenging the service or scope of the levies. Relying on Kane v.
Capital Guardian Trust Co. [98-2 USTC ¶50,491], 145 F.3d 1218 (10th
Cir. 1998), the court concluded that upon service of a notice of levy
the IRS steps into the taxpayer's shoes and acquires the taxpayer's
rights to the property in question, here the interest in the joint
venture that Bonneville acquired from Triangle subject to the liens. As
a result, the court reasoned, the IRS succeeded to Bonneville's right to
consent to the dissolution of the joint venture and the valuation of
Bonneville's interest therein. The court held that Green River was
statutorily obligated by 26 U.S.C. §6332 2 to pay over
Bonneville's interest in the joint venture to the IRS. Finally, the
court held that there was no evidence Green River acted in bad faith in
complying with the levy, and that it was therefore immune from suit by
the taxpayer (or Bonneville) pursuant to 26 U.S.C. §6332(e). 3
II
Internal
Revenue Code §6331(a) authorizes the IRS to collect the taxes of a
delinquent taxpayer "by levy upon all property and rights to
property . . . belonging to such person or on which there is a
lien." It is undisputed that Bonneville took Triangle's interest in
the joint venture subject to the existing tax lien filed against
Triangle. Consequently, when the IRS served the levy on counsel for the
joint venture for taxes owed by Triangle, the levy attached to the
interest of Triangle that had been transferred to Bonneville. Once the
levy was served, the IRS effectively stood in the shoes of Bonneville
and acquired constructive possession of whatever rights Bonneville had
in joint venture assets in the possession of
Green River
. See United States v. National Bank of Commerce [85-2 USTC ¶9482],
472 U.S. 713, 720, 725-26 (1985); Kane [98-2 USTC ¶50,491], 145
F.3d at 1221; United States v. Bell Credit Union [88-2 USTC ¶9564],
860 F.2d 365, 368 (10th Cir. 1988).
IRC §6332(e)
provides that one who honors a levy, as Green River did here,
"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." See
also Moore v. General Motors Pension Plans [96-2 USTC ¶50,539], 91
F.3d 848, 850-51 (7th Cir. 1996) (§6632 shields third party from claims
that levy was defective). The IRS has interpreted this statutory defense
very broadly:
[I]f the
delinquent taxpayer has an apparent interest in property or
rights to property, a person who makes good faith determination
that such property or rights to property in his or her possession
has been levied upon by the Internal Revenue Service and who
surrenders the property to the United States in response to the levy
is relieved of liability to a third party who has an interest in the
property or rights to the property, even if it is subsequently
determined that the property was not properly subject to levy.
26
C.F.R. §301.6332-1(c)(2) (emphasis added). Bonneville admitted when it
conceded summary judgment to the IRS that its joint venture interest was
subject to the federal tax lien. Green Rivers' persistence in contacting
the IRS to determine its position as to whether Bonneville's interest in
the joint venture was subject to Triangle's tax lien establishes its
good faith. Consequently,
Green River
is entitled to the protection of section 6332(e).
Having
carefully reviewed the record, the briefs of the parties, and the case
law, we affirm the judgment of the district court on all issues relating
to
Green River
's honoring of the federal tax levies by the IRS against Bonneville's
interest in the joint venture. However, we reverse the judgment of the
district court insofar as it dismissed with prejudice all of Bonneville'
state law claims against Green River. The district court did not deal
separately with these claims in its summary judgment order. On this
record, we are not persuaded that all of Bonneville's state law claims
are necessarily subsumed in
Green River
's section 6332(e) defense. We therefore remand these claims for further
consideration by the district court.
We AFFIRM the
judgment of the district court in part, REVERSE in part, and REMAND
Bonneville's state law claims for further consideration in light of this
opinion.
* This order
and judgment is not binding precedent, except under the doctrines of law
of the case, res judicata, and collateral estoppel. The court generally
disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R.
36.3.
1 I.R.C. §7426
provides in relevant part:
(a) Actions
permitted.
(1) Wrongful
levy.--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 action may be brought without regard to
whether such property has been surrendered to or sold by the Secretary.
26
U.S.C. §7426(a)(1).
2 I.R.C. §6332
provides in relevant part:
(a) Requirement.
Except as otherwise provided in this section, 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 shall, upon
demand of the Secretary, surrender such property or rights (or discharge
such obligation) to the Secretary, except such part of the property or
rights as is, at the time of such demand, subject to an attachment or
execution under any judicial process.
*
* * *
(d) Enforcement
of levy.
(1) Extent
of personal liability. 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, but not exceeding the amount of taxes for the collection of
which such levy has been made, together with costs and interest on such
sum at the underpayment rate established under section 6621 from the
date of such levy. . . .
26
U.S.C. §6332(a), (d).
3 I.R.C. §6332(e)
provides:
(e) Effect of
honoring levy.
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 property
(or discharges such obligation) to the Secretary (or who pays a
liability under subsection (d)(1)) 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).
[2002-1 USTC ¶50,206] United States
of America, Plaintiff, Bonneville Distributing, Inc., a Utah
corporation, Plaintiff-Counter-Defendant-Appellant v. Triangle Oil,
Defendant and Green River Development Associates, Inc., a Utah
corporation, William S. Greaves, an individual, Stanley Dewaal, an
individual, Defendant-Couter-Claimant-Appellee v. United States
Department of Treasury, Internal Revenue Service, Counterclaim-Defendant
(CA-10),
U.S. Court of Appeals, 10th Circuit, 01-4033, 1/24/2002, 277 F3d 1251
277 F3d 1251
2002 U.S. App. LEXIS 954. Reversing and remanding an unreported District
Court decision. Related case at 2000-1
USTC ¶50,525 .
[Code
Sec. 6331 ]
Levy and distraint: Effect of levy: Partnership: Joint venture: State
law property rights.--A partner in a joint venture of a truck stop
operation had standing to bring its state (Utah) law claims against its
partner for improperly dissolving and valuating the joint venture
following the IRS's collection of proceeds resulting from dissolution.
Although the IRS's administrative levy power provided the IRS with the
ability to enforce its tax liens that were greater than those held by
private secured creditors, the power did not transfer ownership of the
property to the IRS. Thus, the IRS's acceptance of the joint venture's
dissolution plan and the subsequent payment of the proceeds to the IRS
did not divest the partner of its state-law property rights.
[Code
Sec. 6332 ]
Levy and distraint: Effect of levy: Partnership: Joint venture: State
law property rights.--A partner in a joint venture of a truck stop
operation that had standing to bring its state (Utah) law claims against
its partner for improperly dissolving and valuating the joint venture
following the IRS's collection of proceeds resulting from dissolution
was entitled to immunity under Code
Sec. 6332(e) only in relation to its honoring of the federal
tax levies. The Tenth Circuit declined to extend immunity to the entire
series of events that occurred prior to the actual surrender of
dissolution proceeds to the IRS. The court previously held that it was
not persuaded that all of the taxpayer's state law claims were subsumed
in the partner's immunity defense. Thus, the "law of the case"
doctrine did not control resolution of the appeal.
[Code
Sec. 7426 ]
Levy and distraint: Effect of levy: Partnership: Joint venture:
Immunity: Wrongful levy: State law property rights.--A partner in a
joint venture of a truck stop operation that had standing to bring its
state (Utah) law claims against its partner for improperly dissolving
and valuating the joint venture following the IRS's collection of
proceeds resulting from dissolution was not limited to a wrongful levy
action against the IRS pursuant to Code Sec. 7426 . Although
the IRS reviewed the dissolution plan, it was a right the IRS had by
virtue of the levy. In addition, it did not force the partner to
implement the plan, and the exercise of the right to review was not
wrongful. Thus, the taxpayer had no reason to pursue a wrongful levy
action.
Stephen B.
Mitchell, Richard D. Burbridge, Burbridge & Mitchell, Salt Lake
City, Utah, for plaintiff-appellant. George A. Hunt, Kurt M.
Frankenburg, Williams & Hunt, Salt Lake City, Utah, for
defendants-appellees.
Before: KELLY,
BRORBY and MURPHY, Circuit Judges.
KELLY, Circuit
Judge:
Plaintiff-Appellant
Bonneville Distributing, Inc. ("Bonneville") appeals the
district court's grant of summary judgment to Defendants-Appellees Green
River Development Associates, Inc., William S. Greaves, and Stanley
DeWaal (collectively, "Green River"). We have jurisdiction
pursuant to 28 U.S.C. §1291 and reverse and remand for further
proceedings.
Background
This action
involves a joint venture between Bonneville and Green River under which
the joint venturers operated a truck stop in Green River, Utah. The
joint venture began in 1983 with Triangle Oil, Inc.
("Triangle") and Green River as the original joint venturers.
Pursuant to the joint venture agreement, Triangle was entitled to
receive one-half cent per gallon of motor fuel sold and was also to
receive common carrier rates for fuel delivered to the truck stop. In
1990, with Green River's approval, Triangle assigned its interest to
Bonneville. At the time of the assignment, Triangle's property was
subject to federal tax liens.
In April,
1993, Bonneville commenced a state court action against Green River
seeking recovery of an account receivable allegedly owed to Bonneville
and for payment for fuel sold and delivered. In August of 1993, the
Internal Revenue Service ("IRS") served a Notice of Levy to
Green River upon all of Triangle's property and rights to property.
After several inquiries, the IRS notified Green River that the Notice of
Levy applied to Bonneville's interest in the joint venture and that any
payments to Bonneville should go to the IRS. In 1995, Green River
notified Bonneville that it was dissolving the joint venture effective
December 11, 1995. According to Green River, it was dissolving the joint
venture pursuant to a clause in the agreement providing for termination
upon the end of the underlying truck stop lease. The IRS reviewed Green
River's dissolution plan and agreed to accept payments of Bonneville's
liquidated interest.
Bonneville
then brought an additional claim of wrongful dissolution that was
eventually consolidated with the original action. Due to the levies,
Green River filed a counterclaim naming the United States as an
additional defendant and sought declaratory relief with respect to
whether the United States or Bonneville was entitled to receive payments
related to Bonneville's joint venture interest. The United States
removed the case to federal court. The district court granted the United
States' unopposed motion for summary judgment, thus reducing the tax
liens against Triangle to judgment and concluding that Bonneville's
joint venture interest was subject to the tax lien. The district court
also granted summary judgment to Green River after concluding that 26
U.S.C. §6332(e), which provides immunity to third parties who comply
with IRS levies, prevented Bonneville from bringing its state law claims
against Green River.
On appeal of
that decision, a panel of this Court affirmed the district court
"on all issues relating to Green River's honoring of the federal
tax levies . . . against Bonneville's interest in the joint venture.
" United States v. Triangle Oil Co. [2000-1 USTC ¶50,525],
2000 U.S. App. LEXIS 13672, No. 98-4147 (10th Cir. Jun. 12, 2000), slip
op. at 10 (published in table format at 215 F.3d 1338) (Aplt. App. at
517). The panel reversed the district court, however, "insofar as
it dismissed with prejudice all of Bonneville's state law claims against
Green River," and stated further that "on this record, we are
not persuaded that all of Bonneville's state law claims are necessarily
subsumed in Green River's section 6332(e) defense." Id.
On remand, the
district court again granted summary judgment to Green River. The
district court began by quoting the panel in the prior appeal where it
stated: "Once the levy was served, the IRS effectively stood in the
shoes of Bonneville and acquired constructive possession of whatever
rights Bonneville had in joint venture assets in the possession of Green
River." See id. at 8-9 (Aplt. App. at 515-16). The district
court reasoned that the joint venture assets included Bonneville's state
law claims. Thus, according to the district court, the IRS's actions in
this case deprived Bonneville of any ownership interest in the joint
venture and therefore deprived Bonneville of the ability to bring such
claims. In effect, the district court concluded, Bonneville had no
standing to bring its state law claims. On appeal, Bonneville contends
that it has standing to assert its state law claims because it still
owns the joint venture interest.
Standard
of Review
We review the
grant of summary judgment de novo, applying the same legal
standard used by the district court. L&M Enter., Inc. v. BEI
Sensors & Sys. Co., 231 F.3d 1284, 1287 (10th Cir. 2000)
(citation omitted). Summary judgment is appropriate if "there is no
genuine issue as to any material fact" and the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In
reviewing a summary judgment motion, the court views the record "in
the light most favorable to the nonmoving party." Thournir v.
Meyer, 909 F.2d 408, 409 (10th Cir. 1990) (citation omitted).
Discussion
The district
court's conclusion that Bonneville had no standing to bring claims
related to its joint venture interest necessarily involved an
interpretation of the effect of the IRS's levy power against that
interest. Although there is no question that the IRS properly exercised
its levy power in this case, we find it necessary to review the relevant
statutory provisions to determine the effect its actions had on
Bonneville's joint venture interest. To satisfy a tax deficiency, the
IRS may impose a lien on any "property" or "rights to
property" belonging to a taxpayer. 26 U.S.C. §6321. To complement
this provision, §6331(a) allows "the Secretary to collect such tax
. . . by levy upon all property and rights to property . . . on which
there is a lien . . . ." Id. §6331(a). "The term
'levy' as used in this title includes the power of distraint and seizure
by any means." Id. §6331(b). This administrative levy power
is justified by "the need of the government promptly to secure its
revenues." United States v. Nat'l Bank of Commerce [85-2
USTC ¶9482], 472 U.S. 713, 721, 86 L.Ed.2d 565, 105 S.Ct. 2919 (1985)
(internal quotation omitted). Unlike a lien-foreclosure suit authorized
by 26 U.S.C. §7403, however, an administrative levy does not determine
priority disputes between the Government and other claimants, but
instead protects the Government against diversion or loss while such
disputes, if any, are resolved. See id. at 721. Further, an
administrative levy does not "transfer ownership of the property to
the IRS." United States v. Whiting Pools, Inc. [83-1 USTC ¶9394],
462 U.S. 198, 209-10, 76 L.Ed.2d 515, 103 S.Ct. 2309 (1983).
"We look
initially to state law to determine what rights the taxpayer has in the
property the Government seeks to reach, then to federal law to determine
whether the taxpayer's state-delineated rights qualify as 'property' or
'rights to property.' " Drye v. United States [99-2 USTC ¶51,006;
99-2 USTC ¶60,363], 528 U.S. 49, 58, 145 L.Ed.2d 466, 120 S.Ct. 474
(1999). Pursuant to Utah law, joint ventures are treated under the same
statutory provisions as are partnerships. See Utah Code Ann. §48-1-3.1
(1998). Utah law recognizes the following property rights of a partner:
(1) the rights in specific partnership property held as a tenant in
partnership; (2) the interest in the partnership; and (3) the right to
participate in management. Id. §48-1-21. Here, the levy was
against Bonneville's "property and rights to property." See
26 U.S.C. §6321. According to Utah law, "[a joint venturer's]
interest in the [joint venture] is his share of the profits and surplus,
and the same is personal property. " Utah Code Ann. §48-1-23.
Federal courts, including this circuit, have long defined a partner's
interest in the partnership in a similar manner. See United States v.
Kaufman [1 USTC ¶116], 267 U.S. 408, 414, 69 L.Ed. 685, 45 S.Ct.
322 (1925) (lien against a partner owing an individual tax "extends
only to his interest in the surplus of the partnership property"); Adler
v. Nicholas [48-1 USTC ¶9205], 166 F.2d 674, 678-79 (10th Cir.
1948); see also United States v. Worley [54-1 USTC ¶9427], 213
F.2d 509, 512 (6th Cir. 1954) (citing Kaufman); Economy
Plumbing & Heating Co. v. United States [72-1 USTC ¶9344], 197
Ct.Cl. 839, 456 F.2d 713, 716 (Cl.Ct. 1972) (citing Kaufman). The
IRS has itself recognized that a partner's interest in a partnership is
generally limited to the "right to a proportionate share of the
distribution of partnership profits or surplus after the payment of
partnership debts." Internal Revenue Man. §5.17.3.5.16 (2001); see
also Rev. Rul. 73-24, 1973-1 C.B. 602 (IRS could not seize
partnership-owned bank account to satisfy tax deficiency of individual
partner).
Given the
property and rights to property pertaining to Bonneville's interest in
the joint venture, it is clear that the IRS properly accepted the
proceeds from the dissolution of the joint venture. Those proceeds
represented Bonneville's share of the surplus of joint venture assets
over the joint venture's liabilities and the levy attached to that
surplus. Kaufman [1 USTC ¶116], 267 U.S. at 414.
Requiring
closer scrutiny, however, is the question as to whether the acceptance
of the plan of dissolution and the subsequent payment of the proceeds to
the IRS divested Bonneville of those state-law property rights other
than its economic interest in the joint venture. Even if the IRS had
foreclosed on Bonneville's interest in the joint venture, which it did
not do, under Utah law Bonneville would still remain a partner and would
still be able to exercise management rights and proportionate control
over specific partnership property. See Utah Code Ann. §§48-1-24,
48-1-25 (partner retains management rights). As such, the fiduciary duty
that Green River owed to Bonneville still remained even subsequent to
the dissolution of the joint venture. See Utah Code Ann. §48-1-18
(fiduciary duty of partner to other partners applies to formation,
conduct, or liquidation of the partnership). We cannot say that
Bonneville's state law claims related to its status as a partner, as
opposed to its status as owner of an interest in the partnership, were
obliterated with the IRS's collection of the proceeds resulting from the
dissolution.
Even were we
to assume that Bonneville's state law claims attached only to its
interest in the joint venture, the district court's conclusion that
Bonneville lacked standing because the IRS divested Bonneville of all
interest in the joint venture still could not stand. Although the IRS
levy power does provide the IRS with abilities "to enforce its tax
liens that are greater than those possessed by private secured
creditors," it still does not "transfer ownership of the
property to the IRS." Whiting Pools [83-1 USTC ¶9394], 462
U.S. at 209-10. Thus, while the levy power does provide the IRS with
rights to property co-extensive with those of the taxpayer, see Nat'l
Bank of Commerce [85-2 USTC ¶9482], 472 U.S. at 725 ("The IRS
acquires whatever rights the taxpayer himself possesses."); Kane
v. Capital Guardian Trust Co. [98-2 USTC ¶50,491], 145 F.3d 1218,
1221 (10th Cir. 1998) (stating that the "IRS steps into the shoes
of the taxpayer and acquires whatever rights to the property the
taxpayer possessed") (internal quotation omitted), absent a
foreclosure or similar action the taxpayer still retains ownership of
the property. See United States v. Challenge Air Int'l, Inc. (In re
Challenge Air Int'l, Inc.) [92-1 USTC ¶50,090], 952 F.2d 384, 387
(11th Cir. 1992) (stating that an administrative levy does not
"transfer ownership of the property" and holding that the
IRS's constructive possession of the right to payment did not obliterate
all rights of the debtor). Given that Bonneville still retained
ownership of whatever remained of its interest in the joint venture, we
fail to see why it should be prevented from exercising the rights
attached to that property, e.g., a right to an accounting, simply
because the IRS has chosen not to exercise any of those related rights.
Green River
advances a number of arguments to persuade us that Bonneville has lost
its right to bring its state law claims. To begin, Green River relies on
the "law of the case" doctrine to establish that: (1) the IRS
levy attached to Bonneville's interest in the joint venture and the IRS
"stood in the shoes of Bonneville and acquired constructive
possession of whatever rights Bonneville had," and (2) the United
States succeeded to Bonneville's right to consent to the dissolution of
the joint venture and the valuation of its interest. Aplee. Br. at 8.
While we agree that the panel decision in the prior appeal established
these points, nothing in our present opinion contradicts those two
conclusions. We have already recognized that the IRS had every right to
agree to the dissolution plan, but have simply not gone so far as to say
that the IRS, by accepting the proceeds of the dissolution, wiped out
every property right or cause of action Bonneville had in relation to
its joint venture participation. Neither case that Green River cites
supports its position that the IRS administrative levy subsumed all of
Bonneville's joint venture property rights. In United States v.
Spurgeon [88-2 USTC ¶9583], 861 F.2d 181 (8th Cir. 1988), the
taxpayers transferred their farm to a trust, but the IRS discovered the
asset, filed a Notice of Levy, and eventually purchased the farm in a
closed-bid sale. Id. at 182. When the taxpayers attempted to
challenge the Government's ejectment action, the district court
concluded that they had no standing to do so. On appeal, the Eighth
Circuit affirmed, holding that the "levy proceedings divested [the
taxpayer] of all ownership interests he may have held in the farm."
Id. at 183. We are not faced with the same situation as in Spurgeon,
however, because in this case the IRS never undertook the statutory
actions required to transfer ownership of the joint venture interest. See
26 U.S.C. §6335 (detailing actions necessary for IRS sale of levied
property). Green River's other case, Shire Dev. v. Frontier Inv.,
799 P.2d 221 (Utah Ct. App. 1990), is also unavailing. In that case, the
court simply held that the plaintiffs could not sue on a contract to
which they were not a party. See id. at 222-23. Here, there is no
question that Bonneville, by virtue of its written assignment from
Triangle, was a party to the joint venture agreement.
Green River
also relies on an IRS district counsel's internal memorandum for support
of its assertion that Bonneville lacks standing. In that memorandum, the
district counsel stated,
In effect, the
Service levied upon the chose in action. Based upon [Spurgeon and
other cases], it appears that Bonneville has no standing in its lawsuit,
since it is in the lawsuit only as a successor or transferee of Triangle
Oil and the Service seized "all the right, title, and interest of
Triangle Oil" in the funds that are the subject of the lawsuit.
Aplt.
App. at 521. In addition to Spurgeon, which we have already
distinguished, the district counsel also relied on United States v.
Geissler [94-1 USTC ¶50,060], 1993 U.S. Dist LEXIS 16692, 1993 WL
625535 (D. Idaho Nov. 8, 1993), where the court held that the taxpayers
had no interest in the real property at issue because an administrative
levy and sale had occurred. Id. at *5. Geissler, like Spurgeon,
is therefore of limited relevance because in this case no sale has
occurred. Thus, whatever its value as persuasive authority, the internal
memorandum was premised on an assumption with which we disagree, namely,
that the administrative levy operates as a transfer of "all right,
title, and interest" in the subject property. This contradicts the
Supreme Court's statement in Whiting Pools [83-1 USTC ¶9394],
462 U.S. at 209-10, that an administrative levy does not transfer
ownership of the subject property and is also contrary to decisions in
other circuits. See, e.g., Challenge Air Int'l [92-1 USTC ¶50,090],
952 F.2d at 387; United States v. Sullivan [64-1 USTC ¶9392],
333 F.2d 100, 116 (3d Cir. 1964) (stating that implicit in the
administrative levy power is the "principle that the Commissioner
acts pursuant to the collection process in the capacity of lienor as
distinguished from owner").
Green River
also relies on the Kane case to support the district court's
decision that Bonneville lacked standing to bring its state law claims.
In Kane, the IRS sent a notice of levy to a trust company that
was the custodian of the mutual fund shares in the taxpayer's Individual
Retirement Account ("IRA"). [98-2 USTC ¶50,491], 145 F.3d at
1220. Upon receipt of the notice, the trust company liquidated the
mutual fund shares and transferred the proceeds to the IRS. Id.
The taxpayer sued the trust company, claiming that it had transformed
the nature of his mutual fund shares into cash and thereby prevented him
from exercising his right to redeem the shares. Id. at 1222. As
Green River states, the "core issue" in Kane "was
whether, after it had levied upon [the] mutual fund . . . , the IRS was
entitled to exercise Mr. Kane's rights [to] liquidate the fund and take
delivery of the monetary proceeds from the liquidation." Aplee. Br.
at 11. The court held that the IRS was indeed entitled to liquidate the
fund and therefore concluded that the trust company could not be sued
for complying with the levy. Kane [98-2 USTC ¶50,491], 145 F.3d
at 1224.
Nothing in our
opinion is inconsistent with the Kane decision. Like the court in
Kane, we have recognized that the IRS "stepped into the
taxpayer's shoes" and exercised the same right the taxpayer had
available, viz., the right to receive the proceeds upon
dissolution. See Kane [98-2 USTC ¶50,491], 145 F.3d at 1221.
Despite Green River's assertion to the contrary, however, Kane is
distinguishable and does not compel us to find that the IRS's acceptance
of the dissolution proceeds subsumed all of Bonneville's state law
claims. First, the court in Kane was not addressing the issue we
have before us: whether a party in control of a taxpayer's levied
property can be held to answer for claims of fraud, breach of contract,
or breach of fiduciary duty that occurred prior to surrender of the
property (or rights thereto) to the IRS. Second, a joint venture
interest is a fundamentally different asset than mutual fund shares
residing in an IRA. As discussed supra, a joint venturer's
property rights in a joint venture are comprised of more than a mere
financial interest, but include management rights and rights in specific
property. Although the Kane court did state that "once
Capital Guardian converted the IRA to cash . . . the IRS had nothing to
sell, and Kane had nothing to redeem," Kane [98-2
USTC ¶50,491], 145 F.3d at 1223, we do not read that statement as
suggesting that ownership was transferred. The statement merely reflects
the practical result that, due to the nature of the levied property
involved in that case, the liquidation of the IRA left Kane without any
property.
Green River
has suggested in its brief as well as in oral argument that Bonneville's
only avenue for relief in this case is a wrongful levy action pursuant
to 26 U.S.C. §7426. That section allows a party claiming an interest in
property that has allegedly been "wrongfully levied upon" to
bring a civil action against the United States for relief. 26 U.S.C. §7426.
In this appeal, however, Bonneville does not challenge any aspect of the
IRS's actions in connection with the levy. Instead, Bonneville claims
that Green River used the IRS levy as an opportunity to violate the
joint venture agreement and avoid liability for any wrongful actions in
doing so. Having reviewed the evidence in the light most favorable to
Bonneville, as we must, we cannot say that the record reveals anything
more than that the IRS simply reviewed Green River's proposed
dissolution plan and agreed to accept the liquidation proceeds. See
Aplt. App. at 220 (declaration of IRS attorney); id. at 446
(deposition of IRS agent); id. at 54, P 21 (Green River's answer
to Bonneville's state court complaint). Given that the IRS did not force
Green River to implement a dissolution plan, Bonneville simply had no
reason to pursue a wrongful levy action. True, the IRS did review Green
River's plan of dissolution, but that was a right that the IRS had by
virtue of the levy and its exercise of that right was therefore not
wrongful. See Kane [98-2 USTC ¶50,491], 145 F.3d at 1223.
Finally, Green
River asserts that Bonneville's state law claims should be dismissed
because of the protection afforded by 26 U.S.C. §6332(e). That section
provides that an individual who, "upon demand by the Secretary,
surrenders . . . property or rights to property . . . 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 or payment." 26 U.S.C. §6332(e). Although the IRS
has interpreted the immunity under that section broadly, see 26
C.F.R. §301.6632-1(c)(2), the language of the statute limits the
protection to a party's actions "arising from such surrender or
payment." 26 U.S.C. §6332(e). Thus, as the panel concluded in the
prior appeal, Green River "is entitled to the protection of section
6332(e)," but only in relation to its "honoring of the federal
tax levies." Triangle Oil, slip op. at 10 (Aplt. App. at
517). On these facts, we decline to extend the immunity afforded under
§6332(e) to the entire series of events that occurred prior to the
actual surrender of the dissolution proceeds to the IRS.
Green River
cites the "law of the case" doctrine to support its assertion
that §6332(e) immunity applies, but, in this case, we disagree that the
doctrine prevents Bonneville from maintaining its state law claims.
Courts use "law of the case" to "promote decisional
finality" and rely on it to prevent relitigation of an issue
already decided in prior proceedings of the same case. Octagon Res.,
Inc. v. Bonnett Res. Corp. (In re Meridian Reserve, Inc.), 87 F.3d
406, 409 (10th Cir. 1996). Although in the prior appeal the panel stated
that Green River "is entitled to the protection of section
6332(e)," it nonetheless reversed because it was "not
persuaded that all of Bonneville's state law claims are necessarily
subsumed in Green River's section 6332(e) defense." Triangle Oil,
slip op. at 10 (Aplt. App. at 517). Given the panel's ultimate
disposition of the case in the prior appeal, we do not see our present
decision as "abrogating the prior decision" and we therefore
decline to allow the law of the case doctrine to control our resolution
of this appeal. See In re Meridian, 87 F.3d at 409-410.
At oral
argument, counsel for Bonneville conceded that the amount of money it
anticipated from this litigation would never reach the current amount of
the levy against the joint venture interest. Further, although the IRS
did not file a brief in this appeal, it has notified the clerk of this
court by letter that any additional amounts that Bonneville recovers
should be paid to the United States up to the full amount of the
outstanding tax liability. On this record, we express no opinion as to
the legal ramifications of these particular circumstances, but leave it
to the district court on remand to determine their effect.
Accordingly,
we REVERSE the district court's order granting Green River's motion for
summary judgment and REMAND to the district court for further
proceedings.
[2000-2 USTC ¶50,678] Walter J.
Lawrence, Plaintiff-Appellant v. United States of America, et al.,
Defendants-Appellees
(CA-6),
U.S.
Court of Appeals, 6th Circuit, 99-1926, 8/15/2000, 2000
U.S.
App. LEXIS 21287. Affirming an unreported District Court decision
[Code Sec. 7421 ]
Jurisdiction: Suit enjoining assessment or collection: Injunctive
relief denied.--The District Court properly dismissed a pro se
taxpayer's suit against the IRS, IRS employees, a bank, a bank employee
and a General Motors administrator for lack of jurisdiction. The
taxpayer, who sought to enjoin the government from collecting back
taxes, alleged various tax protester claims. He did not make any valid
arguments that he was not liable for the deficiency or that collection
would cause him irreparable harm. Therefore, he did not meet the narrow
exception to Code Sec. 7421 afforded by William Packing & Nav.
Co. (US), 62-2 USTC ¶9545.
[Code Secs. 6331 and 7402 ]
Jurisdiction: Suit enjoining assessment or collection: Damages: IRS
employees: Bivens claim unavailable: Private parties: Third party
liability lacking.--The District Court properly dismissed a pro
se taxpayer's suit against the IRS, IRS employees, a bank, a bank
employee and a General Motors administrator for lack of jurisdiction.
The taxpayer's Bivens claim against the IRS employees was dismissed
because he could not recover damages resulting from the collection
activities of the IRS. Likewise, he was not permitted to recover from
the private parties because they were simply fulfilling their legal
obligation in honoring the IRS levy against him.
[Fed. Rule App. Proced. 38 ]
Suit enjoining assessment or collection: Penalties, civil: Frivolous
appeal: Tax protest arguments: Sanctions.--Penalties were imposed
against a pro se taxpayer who appealed the trial court's decision
to dismiss his suit for damages against the IRS, IRS employees, a bank,
a bank employee and a General Motors administrator. The taxpayer, who
had a long history of filing frivolous suits, was sanctioned because his
contention that the statute of limitations on collection had elapsed was
meritless.
Walter J.
Lawrence, Eastpointe, Mich., pro se. Gilbert S. Rothenberg, John
A. Nolet, Department of Justice, Washington, D.C. 20530, Patricia G.
Gaedeke, Office of the U.S. Attorney, Detroit, Mich., for U.S., Jonathan
A. Braun, NBD Bank, Detroit, Mich., for National Bank of Detroit.
Before:
KRUPANSKY, WELLFORD and BOGGS, Circuit Judges.
è Caution:
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.ç
ORDER
Pro se
Michigan
resident Walter J. Lawrence appeals a district court judgment that
dismissed a civil complaint in which he attempted to enjoin the
United States
from collecting back taxes. The case has been referred to this panel
pursuant to Rule 34(j)(1), Rules of the Sixth Circuit. We unanimously
agree that oral argument is not needed. See Fed. R. App. P.
34(a).
Seeking
monetary and injunctive relief and purporting to sue each defendant in
his official and individual capacities,
Lawrence
sued the
United States
, the IRS, three IRS officers, a bank, a bank employee, and the pension
plan administrator for General Motors.
Lawrence
claimed that his suit was authorized by the doctrine announced in Bivens
v. Six Unknown Named Agents of the Fed. Bureau of Narcotics, 403
U.S.
388, 29 L.Ed.2d 619, 91 S.Ct. 1999 (1971), and he raised tax-protestor
claims of: (1) retaliation, (2) conspiracy, (3) negligence, and (4)
defamation.
Upon the
defendants' motion, and after a hearing, the district court denied
Lawrence
's motion for an injunction and dismissed
Lawrence
's suit for lack of subject matter jurisdiction.
In his timely
appeal,
Lawrence
argues that the district court erred by dismissing his suit for want of
jurisdiction. The parties have both filed briefs. In addition, the
United States
moves the court to sanction
Lawrence
in the amount of $4,000 for filing this appeal, which it contends is
frivolous.
Lawrence
moves the court to take judicial notice of his past tax amounts due and
to compel the
United States
to conduct a pre-levy hearing concerning tax liability.
At the outset,
we note that neither of
Lawrence
's motions has merit. His request for a pre-levy hearing is denied. No
pre-levy hearing, nor any other judicial intervention, is mandated. See
United States v. National Bank of Commerce [85-2 USTC ¶9482], 472
U.S. 713, 721, 729, 86 L.Ed.2d 565, 105 S.Ct. 2919 (1985); State Bank
of Fraser v. United States [88-2 USTC ¶9592], 861 F.2d 954, 958
(6th Cir. 1988).
Lawrence
's motion for this court to take judicial notice of past assessments is
also denied. Through judicial notice,
Lawrence
seeks to freeze assessments at amounts determined at the time they were
issued, regardless of accruing interest and penalties. This motion is an
affront to logic.
Whether the
district court properly dismissed this suit pursuant to Fed. R. Civ. P.
12(b)(1) for want of jurisdiction is a question of law subject to de
novo review. See
Duncan
v. Rolm Mil-Spec Computers, 917 F.2d 261, 263 (6th Cir. 1990). To
survive a Rule 12(b)(1) motion, the plaintiff must prove that
jurisdiction exists. See id.
The district
court properly concluded that it lacked jurisdiction. Federal district
courts lack jurisdiction over actions seeking injunctions against the
collection of taxes, see 26 U.S.C. §7421(a); however, the
statute has narrow exceptions. In Enochs v. Williams Packing &
Nav. Co. [62-2 USTC ¶9545], 370 U.S. 1, 6-7, 8 L.Ed.2d 292, 82
S.Ct. 1125 (1962), the Supreme Court held that the statute is not
applicable if the taxpayer was certain to succeed on the merits and
could demonstrate that the collection would cause him irreparable harm.
Although
Lawrence
has attempted to restrain the IRS from garnishing his pension payments
to collect the back taxes, he makes no cognizable argument that would
remotely suggest that he is not liable for the deficiency, and he has
provided no evidence that the collection would cause him irreparable
harm.
Lawrence
does not satisfy the narrow exception of Williams Packing, and no
other exception to the anti-injuction provision applies to
Lawrence
's suit.
We further
note that, although
Lawrence
claims that authority for his suit rests in Bivens, no Bivens
action is available for a taxpayer who seeks to recover damages
resulting from IRS collection activities. See Fishburn v. Brown
[97-2 USTC ¶50,742], 125 F.3d 979, 982-83 (6th Cir. 1997). Thus, in
addition to all injunctive relief being barred,
Lawrence
cannot obtain monetary relief under Bivens. His suit against the
individual IRS officials is not viable, and it was properly dismissed in
all respects. See id.
Finally, we
note that the private entities
Lawrence
sued, i.e., the bank, the bank employee, and the pension
administrator, are all immune from suit. Each of these defendants simply
fulfilled his obligation pursuant to 26 U.S.C. §§6321, 6322 in
honoring the IRS levy against
Lawrence
's pension payments. See United States v. General Motors Corp.
[91-1 USTC ¶50,158], 929 F.2d 249, 251 (6th Cir. 1991). In so doing,
each defendant is absolved of any liability to
Lawrence
for honoring the levy pursuant to §6332(e) (formerly §6332(d)). See
26 U.S.C. §7402(a); State Bank of Fraser [88-2 USTC ¶9592],
861 F.2d at 958; Edgar v. Inland Steel Co. [84-2 USTC ¶9819],
744 F.2d 1276, 1278 (7th Cir. 1984).
We grant the
United States
's motion for sanctions for filing this frivolous appeal. The government
moved for sanctions in a timely manner, and
Lawrence
has responded. See Fed. R. App. P. 38 (requiring notice and an
opportunity to respond).
Lawrence
has a long history of filing frivolous suits and appeals. See
Lawrence v. Bucci, No. 98-1788, 1999 WL 617969 (6th Cir. Aug. 12,
1999) (unpublished) (dismissal under Rule 12(b)(1) and (6) under the Rooker-Feldman
doctrine and judicial immunity); Lawrence v. United States, No.
95-2284, 1996 WL 325216, **1-2 (6th Cir. June 12, 1996) (unpublished)
(raising "patently frivolous" claims in an appeal from the
denial of a §2255 motion after Lawrence was jailed for contempt); United
States v. Lawrence, No. 94-2309, 1995 WL 302247, at *1 (6th Cir. May
17, 1995) (unpublished) (direct appeal following Lawrence's conviction
of contempt for filing multiple bankruptcy petitions in multiple
district courts in attempts to stay tax proceedings); Lawrence v.
United States, Nos. 92-2434 etc., 1993 WL 360952, at **1-3
(7th Cir. Sept. 14, 1993) (unpublished) (appeal from dismissal of
Chapter 7 bankruptcy petitions in which the Seventh Circuit limited
Lawrence's right to file future cases); Lawrence v. Remes, No.
92-1103, 1993 WL 141066, at *1 (6th Cir. Apr. 30, 1993) (unpublished)
(appeal from the bankruptcy court's conversion of one of Lawrence's
Chapter 7 bankruptcies to a Chapter 13 bankruptcy); Lawrence v. Remes,
No. 92-1213, 1992 WL 361381, at *1 (6th Cir. Dec. 8, 1992) (unpublished)
(affirming a bankruptcy court's sua sponte dismissal of a
petition and the court's limited injunction against Lawrence's right to
file future bankruptcy petitions); Lawrence v. Fricke, No.
91-1246, 1991 WL 100630, at *1 (6th Cir. June 11, 1991) (unpublished)
(affirming a bankruptcy court's $2,175 sanction against Lawrence because
of Lawrence's attempted use of the automatic stay for an improper
purpose).
Lawrence
's track record weighs heavily in favor of sanctions. See Wrenn v.
Gould, 808 F.2d 493, 505 (6th Cir. 1987) (a record of previous
frivolous litigation in this court is relevant to a sanctions decision).
Tax protestors
who assert frivolous claims may be legally assessed damages in the
district court and on appeal. See Schoffner v. Commissioner [87-1
USTC ¶9198], 812 F.2d 292, 294 (6th Cir. 1987). This court has
indicated its disapproval of frivolous appeals in tax protestor cases
and its intention to impose Fed. R. Civ. P. 38 sanctions. See Martin
v. Commissioner [85-1 USTC ¶9238], 756 F.2d 38 (6th Cir. 1985);
Martin v. Commissioner [85-1 USTC ¶9181], 753 F.2d 1358 (6th Cir.
1985); Perkins v. Commissioner [84-2 USTC ¶9898], 746 F.2d 1187
(6th Cir. 1984). An appeal is properly sanctioned as frivolous under 28
U.S.C. §1912 and Rule 38 when the only issue raised has been clearly
resolved against the appellant. See Schoffner [87-1 USTC ¶9198],
812 F.2d at 293-94. An appeal is also frivolous if it is obviously
without merit and is prosecuted for delay, harassment, or other improper
purposes. See Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1212
(6th Cir. 1997). An appeal may be fairly characterized as frivolous when
filed out of "sheer obstinancy." Allinder v. Inter-City
Prods. Corp. (USA), 152 F.3d 544, 552 (6th Cir. 1998) (citations and
internal quotations omitted). A finding that the appeal was filed in
"bad faith," however, is not required. See Wilton Corp. v.
Ashland Castings Corp., 188 F.3d 670, 677 (6th Cir. 1999).
Upon review,
we conclude that this appeal is frivolous under any of the applicable
standards. The district court suit was based on
Lawrence
's belief that he had legally outfoxed the IRS by ordering his private
mail company to reject any mail that required his signature and then
claiming a lack of proper notice of the levy.
Lawrence
maintains this position on appeal. In his appellate brief,
Lawrence
argues that he has outwitted the IRS by filing multiple bankruptcy
petitions that delayed the collection proceedings long enough for the
statute of limitations to run against the IRS. He also repeats his
frivolous argument that the IRS has engaged in 34 criminal acts by not
respecting automatic bankruptcy stays in place since 1986. It is noted
that, in the district court,
Lawrence
also asserted the standard claim that income tax cannot be levied upon
wages. Each contention is invalid.
The
United States
has moved for sanctions to be awarded in the lump sum of $4,000. The
United States
has presented evidence that it costs an average of $4,900--in attorney
salaries and other expenses incurred by the Tax Division of the
Department of Justice--to defend frivolous appeals. We have approved
past lump-sum awards under Rule 38. See Schoffner [87-1 USTC ¶9198],
812 F.2d at 294 (finding that a sanction of $1,200 was an appropriate
award where the IRS Commissioner stated that $1,200 was the average
award for the previous two years). A sister circuit has recently
approved a $4,000 sanction in a case that mirrors
Lawrence
's. See Stafford v. United States [2000-1 USTC ¶50,325], 208
F.3d 1177, 1179 (10th Cir. 2000). We agree that this is a reasonable
penalty, and find that imposing a lump sum sanction in lieu of costs
conserves both government and judicial resources.
For the
foregoing reasons, we deny
Lawrence
's miscellaneous motions, grant the
United States
's motion for sanctions in the amount of $4,000, and affirm the district
court's judgment. Rule 34(j)(2)(C), Rules of the Sixth Circuit.
[2001-2 USTC ¶50,460] Robert H.
Taylor, Plaintiff v. James E. Gaither, et al., Defendants
U.S.
District Court, So. Dist.
Ala.
, Mobile Div., CIV. 00-360-AH-C, 3/22/2001, 2001
U.S.
Dist. LEXIS 6009.
[Code
Secs. 6332 and 7402 ]
Sanctions: Garnishment proceedings: Effect of honoring levy:
Frivolous claims: Individuals subject to tax: Attorney's fees:
Litigation expenses.--An individual who sought to enjoin the
garnishment of his wages and the collection of income tax from him was
assessed sanctions in the amount of reasonable attorney's fees and
litigation expenses incurred by employees of his employer during the
course of his frivolous lawsuit. The proper attempts by his employer,
through those employees, to comply with the tax laws could not give rise
to claims of extortion, racketeering, or mail fraud against the
employees. According to the taxpayer's complaint, he was unconvinced
that he had to pay income tax to the government. However, the employees
were not obligated to convince him that he was subject to the income tax
laws. The taxpayer's pro se status did not shield him from
liability for the sanctions. His lawsuit, in which he persisted in
arguing that he was not subject to taxation, was clearly frivolous.
Robert H.
Taylor,
