Rhode Island2

---

 

[2000-1 USTC ¶50,385] Merisel of Americas, Inc., Plaintiff v. United States of America, acting through its Internal Revenue Service, Mitchell Mallett, and Myrna Mallett, Defendants

U.S. District Court, Dist. R.I., 97-0723T, 2/22/2000

[Code Sec. 6323 ]

District court: Jurisdiction: Wrongful levy: Judgment lien: Priority against third parties: Perfection of lien: Filing of lien: Personal property: Rhode Island law.--A judgment lien creditor that seized a delinquent taxpayer's property was not entitled to recover damages arising from the IRS's subsequent seizure and sale of the same property pursuant to a federal tax lien. The creditor's action failed to state a valid claim for relief because the tax liens were superior to the subsequent judgment lien. Under state ( Rhode Island ) law, the tax liens were perfected when the IRS filed them with the town clerk in the city where the property was located. The fact that the seized assets consisted of personal rather than real property did not require the IRS to also file notice of the tax liens in the Rhode Island Secretary of State's office.
[Code Sec. 6871 ]

District court: Jurisdiction: Wrongful levy: Sovereign immunity: Waiver: Statute of limitations: Tolling: Bankruptcy: Automatic stay: Core proceeding.--A judgment lien creditor that seized a bankrupt taxpayer's property was not entitled to damages arising from the IRS's subsequent seizure and sale of the same property pursuant to a federal tax lien. Jurisdiction was barred by the government's sovereign immunity because the creditor brought its wrongful levy suit more than nine months after the IRS seizure occurred. The limitations period was not tolled by the automatic bankruptcy stay, which was terminated by the approval of the taxpayer's Chapter 11 plan prior to the IRS seizure, and was not reinstituted when the taxpayer's bankruptcy proceeding was converted to Chapter 13. The Bankruptcy Code also did not confer jurisdiction because the creditor's suit was not a core bankruptcy proceeding. The action did not affect the admin istration of the taxpayer's bankruptcy case, and the creditor's recovery of damages from the government would not affect the bankruptcy estate. BACK

[Code Sec. 7426 ]

District court: Jurisdiction: Wrongful levy: Judgment lien: Sovereign immunity: Waiver: Statute of limitations: Tolling: Bankruptcy: Automatic stay: Fraud.--A wrongful levy suit brought by a judgment lien creditor that seized a bankrupt taxpayer's assets, which were subsequently seized and sold by the IRS pursuant to a federal tax lien, was barred by the statute of limitations. The limitations period was not tolled by the automatic bankruptcy stay, which terminated before the IRS seizure occurred. The government's alleged fraud against the creditor also did not toll the limitations period. The IRS made and broke any purported promises not to seize the assets more than nine months before the creditor filed suit. In addition, the government's allegedly negligent sale of the assets for less than their appraised value did not constitute a separate fraud against the creditor.

REPORT AND RECOMMENDATION

MARTIN, Magistrate Judge:

In this action Plaintiff, Merisel of Americas, Inc., ("Merisel") alleges that the Internal Revenue Service ("the IRS") fraudulently induced it to disclose the location of certain assets which Merisel had seized from a debtor pursuant to an execution issued by the state superior court. Merisel further alleges that after inducing it to make this disclosure, the IRS seized the assets and sold them at auction for a net loss. Merisel asserts that the IRS deprived Merisel of the value of the assets and caused it to be injured. Merisel seeks, among other relief, compensatory and punitive damages from Defendant United. States of America ("the United States "). The United States has moved for summary judgment, or alternatively, for dismissal for failure to state a claim upon which relief can be granted.

This matter has been referred to me for preliminary review, findings, and recommended disposition pursuant to 28 U.S.C. §636(b)(1)(B) and D. R.I. Local R. 32(a). A hearing was held on September 1, 1999 . After listening to the arguments presented, reviewing the memoranda submitted, and performing independent research, I recommend that the motion for summary judgment be granted.

Facts and Travel ¹

Merisel, a New Jersey corporation doing business in Rhode Island , is a supplier of computer equipment and other merchandise. In 1994 and 1995, Merisel began a business relationship with The Mac Shop, Inc., ("Mac Shop"), a retail computer store located in Portsmouth , Rhode Island . Mac Shop's principals, officers and directors are Defendants Mitchell Mallett and Myrna Mallett ("the Malletts"). Merisel received financial applications from Mac Shop, but nowhere in these documents did Mac Shop disclose that it was then in bankruptcy. ² Pursuant to a contract, Merisel sold and leased certain computer equipment to Mac Shop. The Malletts personally guaranteed payment of Mac Shop's obligations to Merisel.

Mac Shop failed to make timely payments to Merisel in accordance with the contract, and Merisel sued. Merisel asserts that it was intentionally mislead regarding Mac Shop's financial health. On May 23, 1996 , the Rhode Island Superior Court issued judgment in favor of Merisel against Mac Shop and the Malletts, jointly and severally, for $29,144.21 plus ongoing interest and costs. Merisel obtained an execution on this judgment. After reviewing the records at the Uniform Commercial Code Division of the Rhode Island Secretary of State and finding no recorded liens, Merisel had a court constable attach the personality of both Mac Shop and the Malletts. On July 5 and 6, 1996, the constable seized the inventory from Mac Shop and an automobile belonging to Myrna Mallett.

Unknown to Merisel, Mac Shop owed employment taxes to the IRS for the years 1992 and 1993. The IRS had filed Notices of Federal Tax Liens with the Town Clerk for the Town of Portsmouth ("Portsmouth Town Clerk") for these tax liabilities on February 10, 1993 , July 28, 1993 , and August 20, 1993 . Mac Shop filed for bankruptcy on October 11, 1993 . The IRS filed Notices of Federal Tax Liens with the Portsmouth Town Clerk with respect to the personal tax liabilities of the Malletts on February 4, 1994 , and July 7, 1994 .

In the bankruptcy proceeding the IRS had been listed as a creditor of Mac Shop, but Merisel had not. On March 3, 1995 , the IRS filed a proof of claim in the bankruptcy proceeding for the 1992 and 1993 employment taxes. Mac Shop's (the Debtor's) First Amended Plan of Reorganization ("the Plan") provided for full payment of the IRS's secured claim. The Plan further provided that " 'the Internal Revenue Service shall retain its liens securing its claims against the Debtor's assets until its claim has been satisfied in accordance with the terms of this Plan.' " Statement of Undisputed Facts, United States ' Motion for Summary Judgment ¶5 (quoting the Plan at 13-14). The Plan was confirmed on March 28, 1995 , and the Order confirming the Plan allowed the secured tax claim of the IRS.

Merisel had no knowledge of Mac Shop's bankruptcy proceeding until the end of July 1996, when Merisel received notice of a request to convert the proceeding from a Chapter 11 (reorganization) to a Chapter 13 (straight liquidation).

On or about August 6, 1996 , the IRS contacted Merisel's attorney and sought to learn the whereabouts of the assets which Merisel had seized. According to Merisel, the IRS assured Merisel's attorney that it would cooperate with Merisel and would not seize the assets. Merisel asserts that the IRS represented that it only wished to know the whereabouts of the inventory so that it could conduct a more thorough investigation of Mac Shop's assets. Based on these statements, Merisel's attorney informed the IRS of the location of the assets. Merisel alleges that the IRS, contrary to its prior representations, moved within minutes to seize the assets. It served Merisel's attorney with a Notice of Levy and a few hours later served similar notice upon the constable and the moving company custodian of the assets.

Merisel also alleges that the IRS, while serving the levies, indicated that it would pay Merisel's creditor's costs, including all constable costs, but has failed to do so. These costs total $1,112.84.

On or about August 16, 1996, the IRS filed a motion in the Bankruptcy Court to lift the automatic stay imposed by 11 U.S.C. §362(a)(6) in order to conduct a sale of Mac Shop's property and to apply the proceeds of the sale to its outstanding tax liabilities. The United States characterizes this motion as being a "precautionary motion." ³ Memorandum of Law in Support of United States' Motion for Summary Judgment ("Defendant's Memo.") at 3. The motion was granted on September 10, 1996 . Merisel filed an objection to the IRS's motion to lift the stay, but no appeal was taken by Merisel from the order of the Bankruptcy Court.

After gaining possession of the assets, the IRS scheduled an auction on a specified date. The auction was advertised in The Providence Journal and some forty to fifty people appeared for it. However, for unexplained reasons, the auction did not take place, and it was rescheduled for September 26, 1996 . The auction was again advertised, and it went forward on the 26th. The sale produced gross proceeds of $4,683.00. This was less than the appraised value of the goods. Even worse, the moving, storage, advertising, and auctioneering costs totaled $7,262.00, resulting in a net loss of $2,579. As a result, no proceeds were available for application to the outstanding federal tax liens.

Merisel contends that the manner in which the IRS advertised and conducted the auction was not commercially reasonable. Specifically, Merisel asserts that the IRS did not give notice to computer dealers in New England of the auction, but instead chose to utilize costly advertisements in The Providence Journal. Merisel further asserts that the IRS canceled the first auction without explanation to the people who had appeared for it, and did not give notice to these people of the second auction.

On July 15, 1997 , Merisel commenced this action in the Bankruptcy Court by filing an adversary complaint against the United States , Mac Shop, and the Malletts. Mac Shop and the Malletts defaulted on November 3, 1997 .

On December 24, 1997 , the Bankruptcy Court denied the United States ' motion to dismiss for lack of bankruptcy jurisdiction over the complaint. However, the Bankruptcy Court subsequently dismissed the proceeding and transferred jurisdiction to this court, ruling that the adversary proceeding was not a core proceeding under 28 U.S.C. §157(b)(2).

On or about December 2, 1998 , Plaintiff filed a motion in this court to amend the complaint to assert a claim under 26 U.S.C. §7426 for wrongful levy. This motion was granted by rule of court on December 28, 1998 .

In its amended complaint, Merisel alleges several causes of actions against the United States, including: intentional interference with possession of chattels (Count 1), intentional interference with a contractual relationship (Count 2), misrepresentation and false statements (Count 3), malicious use of process (Count 4), breach of contract (Count 7), negligent supervision of employees (Count 9), criminal larceny (Count 10), unjust enrichment (Count 12), intentional fraud (Count 13), and wrongful levy (Count 15). Merisel also seeks a determination that it may pursue its claims against the Malletts without interference from the IRS (Count 14) and a determination that Merisel's debt has priority over that of the IRS (Prayers for Relief ¶J).

On August 20, 1999, the United States filed a motion for summary judgment on the ground that this court does not have jurisdiction over the United States (Fed.R.Civ.P. 56) and for dismissal on the alternative ground that the complaint fails to state a claim against the United States upon which relief can be granted (Fed.R.Civ.P. 12(b)(6)).

Discussion

I. Summary Judgment

A. Summary Judgment Standard

When determining a motion for summary judgment, a court must review the evidence in the light most favorable to the nonmoving party and must draw all reasonable inferences in the nonmoving party's favor. See Mesnick v. General Elec. Co., 950 F.2d 816, 820 (1st Cir. 1991); Griggs-Ryan Smith, 904 F.2d 112, 115 (1st Cir. 1990). Summary judgment should be granted where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Goldman v. First Nat'l Bank of Boston , 985 F.2d 1113, 1116 (1st Cir. 1993); Lawrence v. Northrop Corp., 980 F.2d 66, 68 (1st Cir. 1992).

B. Has the United States Waived Sovereign Immunity?

It is a basic proposition that the United States , as a sovereign, is immune from suit unless it consents to be sued. See United States v. Dalm [90-1 USTC ¶50,154; 90-1 USTC ¶60,012], 494 U.S. 596, 608 (1990); United States v. Testan, 424 U.S. 392, 399 (1976); Progressive Consumers Federal Credit Union v. United States [96-1 USTC ¶50,160], 79 F.3d 1228, 1230 (1st Cir. 1996); Hanley v. United States, 74 A.F.T.R.2d 94-6780, *2 (1st Cir. 1994). A waiver of sovereign immunity by the government cannot be implied but must be unequivocally expressed. See United States v. King [69-1 USTC ¶9410], 395 U.S. 1, 4 (1969); United States v. Soriano, 352 U.S. 270, 276 (1957). "Accordingly, any lawsuit against the United States must be brought in compliance with a specific statute which expressly waives sovereign immunity." Hanley, 74 A.F.T.R.2d at *2. A plaintiff has the burden of demonstrating a waiver of sovereign immunity. See id.; Baker v. United States, 817 F.2d 560, 562 (9th Cir. 1987), cert. denied, 487 U.S. 1204 (1988). "District courts lack subject-matter jurisdiction over claims against the government to which Congress has not consented." Miller v. Tony and Susan Alamo Found. [98-1 USTC ¶50,153], 134 F.3d 910, 915-16 (8th Cir. 1998).

1. Is There Waiver Under 26 U.S.C. §7426(a)(1)?

Merisel argues that the government has waived its sovereign immunity by virtue of 26 U.S.C. §7426(a)(1). See Plaintiff's Memorandum In Support of Objection to Defendant's Motion for Summary Judgment ("Plaintiff's Memo.") at 10. That statute allows suits by a party (other than a taxpayer) who asserts an interest prior in right to that of the United States in property levied upon by the IRS. It states:

(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).

This statute is the sole recourse for third parties who seek to assert claims against property upon which the IRS has levied. See Miller [98-1 USTC ¶50,153], 134 F.3d at 916. Actions brought under it are subject to a nine months statute of limitations. See 26 U.S.C. §6532(c)(1). "Because a statute of limitation is one of the terms of Congress' consent, a time-barred claim against the government is an unconsented claim, over which a district court has no jurisdiction." Miller [98-1 USTC ¶50,153], 134 F.3d at 916.

The United States contends that the present action is barred by the statute of limitations. Thus, the answer to the question of whether the United States has waived sovereign immunity under 26 U.S.C. §7426(a)(1) depends on whether this action is time barred.

a. Is the Action Time Barred Under §7426(a)(1)?

The IRS seized the assets on August 6, 1996 . Merisel did not commence this action until July 15, 1997 , which is more than nine months after the seizure (and also more than nine months after the September 26, 1996 , auction). Based on these facts, the United States argues that this action does not conform to the terms under which sovereign immunity has been waived pursuant to §7426(a)(1), and it must, therefore, be dismissed for lack of jurisdiction. See Defendant's Memo. at 6. This court agrees that the action is time barred unless the nine month statute of limitations was tolled in some manner.

b. Was the Statute of Limitations Tolled by 11 U.S.C. §362?

Merisel contends that the nine month statute of limitations was tolled because Mac Shop was in bankruptcy and Mac Shop was a necessary party to this dispute as its properties are the subject of the dispute. See Plaintiff's Memo. at 10. In other words, Merisel argues that the automatic stay created by 11 U.S.C. §362 tolled the statute from running because Mac Shop and the Malletts were already in bankruptcy on August 6, 1996 , when the IRS seized the assets.

Merisel cites Wekell v. United States [94-1 USTC ¶50,171], 14 F.3d 32 (9th Cir. 1994), to support its claim that the nine month period in which suit must be commenced under I.R.C. §7426(a) is tolled by bankruptcy. See Plaintiff's Memo. at 11. However, Wekell dealt with I.R.C. §6503(h) which tolls the period of time in which the United States can collect a tax against a taxpayer/debtor. This court finds that it has no applicability to the time period prescribed by §6532(c) in which third parties can sue the United States .

The United States contends that the bankruptcy stay was not in effect at the time of the levy, or at any time thereafter. See United States ' Reply Memorandum to Defendant's Opposition to United States ' Motion for Summary Judgment ("Defendant's Reply Memo.") at 2. According to the United States , under the Bankruptcy Code, the confirmation of a Chapter 11 plan terminates the automatic stay. See id. (citing 11 U.S.C. §§362(c)(2)(C), 1141(d)(1)(A); In re Space Building Corp., 206 B.R. 269, 273 (D. Mass. 1996)). In this case, the United States says, and Merisel does not dispute, that the Plan was confirmed on March 28, 1995 , sixteen months before the assets were seized on August 6, 1996 . See Defendant's Statement of Undisputed Facts, Bankruptcy Docket for Petition #: 93-12643, Docket entry for March 28, 1995 , at 14.

Upon examination of the case law and statute cited by the United States , this court agrees that the confirmation of the Chapter 11 plan terminated the automatic stay. Moreover, the conversion of Mac Shop's proceedings from Chapter 11 to Chapter 13 did not reimpose the automatic stay of 11 U.S.C. §362(a). See In re Greetis, 98 B.R. 509, 512 (S.D. Cal. 1989); cf. British Aviation Ins. Co. v. Menut (In re State Airlines, Inc.), 873 F.2d 264, 269 (1989); Masterson v. Berkeley Fed. Bank & Trust, 189 B.R. 250 (D. R.I. 1995); Ramirez v. Whelan, 188 B.R. 413, 414-15 (B.A.P. 9th Cir. 1995); Trevino v. Gasper, 36 F.3d 417 (5th Cir. 1994) (rehearing denied Nov. 10, 1994 ). Accordingly, this court finds that the running of the statute was not stayed by the automatic stay of the bankruptcy statute (11 U.S.C. §362).

c. Was the Statute of Limitations Tolled by Fraud?

Merisel asserts that the IRS committed fraud by falsely representing that it would not seize the assets if Merisel's attorney disclosed their location. See Plaintiff's Memo. at 12 (citing several Rhode Island state cases for the proposition that the statute of limitations does not begin to run until the wrong is discovered: Anthony v. Abbott Laboratories, 490 A.2d 43 (R.I. 1985), Lee v. Marvin, 469 A.2d 358, 360 (R.I. 1983), Wilkinson v. Harrington, 243 A.2d 745, 752 (R.I. 1968)). Merisel argues that even though it knew immediately that the IRS agents had lied, it was not until the auctions that Merisel "realized it had been completely duped." Plaintiff's Memo. at 12. Merisel contends that the full effect of the IRS's deception did not become apparent to it until the debacle of the second auction which produced a net loss. See id. Therefore, Merisel apparently urges that the court find that the statute did not begin to run until September 26, 1996 . See id.

The United States , while denying that any government agents lied to Merisel, says that even if Merisel's accusation of misconduct by IRS agents were true, Merisel was aware of all the facts which it contends constituted the government's wrongful conduct more than nine months before suit was filed. See Defendant's Reply Memo. at 3. This court is compelled to agree.

Any fraud in this case was immediately apparent to Merisel. Although the IRS may have later botched the auction after the alleged fraud, this court does not find that the manner in which the auction was conducted constituted fraud on Merisel. Indeed, Merisel only contends that the IRS acted "negligently (if not recklessly)" in conducting the auction. Plaintiff's Memo. at 12, n.11. It does not allege the auction itself constituted a fraud. ⁴ See id.

The case of Bank of Commerce and Trust Co. v. United States [86-1 USTC ¶9111], 57 A.F.T.R.2d 86-367 (N.D. Okla. 1985), cited by Merisel, is clearly distinguishable. See Plaintiff's Memo. at 11, n.10. In that case, the plaintiff bank was lulled by the misrepresentations of IRS officers into months of inactivity while the bank's right to contest the IRS levy was expiring. See 57 A.F.T.R.2d at *2-3. Because of the false representations of the IRS officers, the court found that the statute of limitations was tolled until the date that the plaintiff became aware of the falsity of the IRS's representations. See id. at *5. In the present case, Merisel knew almost immediately of the IRS's misrepresentations. Hence, there is no basis to find that the United States should be estopped from asserting the statute of limitations. Cf. Salois v. Dime Savings Bank, 128 F.3d 20, 25 (1st Cir. 1997); Maggio v. Gerard Freezer & Ice Co., 824 F.2d 123, 127 (1st Cir. 1989). Accordingly, this court finds that the statute of limitations was not tolled because of fraud allegedly committed by the IRS.

2. Is There Waiver Under 28 U.S.C. §1334?

In its complaint Merisel also cites as a jurisdictional basis for this action 28 U.S.C. §1334 (Bankruptcy cases and proceedings). See First Amended Complaint ¶3. This statute gives the district court jurisdiction over (1) "all cases under title 11," (2) "all civil proceedings arising under title 11," or (3) "all civil proceedings . . . arising in or related to cases under title 11." 28 U.S.C. §1334(a)-(b).

The United States argues that the present lawsuit is not a case "under title 11" because none of the parties is a bankruptcy debtor. See Defendant's Memo. at 7. Furthermore, the United States contends that the action does not arise under title 11 because Merisel's claims against the United States "do not constitute a cause of action created by the Bankruptcy code." See id. Lastly, the United States maintains that Merisel's claims do not "arise in or relate to" a bankruptcy case. See id.

In support of this last proposition, the United States cites Boyajian v. DeLuca:

"[T]he test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being admin istered in bankruptcy. . . . Thus, the proceeding need not necessarily be against the debtor or against debtor's property. An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and admin istration of the bankrupt estate."

Defendant's Memo. at 7 (quoting 180 B.R. at 368-69 (Bankr. D.R.I 1995) (emphasis added) (alteration in original)).

Applying the above test to the instant case, this court concludes that the present lawsuit will not have any effect on the admin istration of the bankruptcy estate. Merisel seeks damages from the United States because the IRS allegedly tricked it into disclosing the location of the assets and then botched the auction of those assets, causing a net loss. See Defendant's Memo. at 8. The United States points out that Plaintiff "does not seek a return of any of Debtor's property to the Bankruptcy Trustee." Id. Instead, Merisel seeks monetary damages from Defendant. See id. Therefore, even if Merisel were to recover the damages its seeks, such damages would not affect the bankruptcy estate. Moreover, the Bankruptcy petition is no longer "being admin istered," Boyajian, 180 B.R. at 368-69, because it was terminated on February 3, 1998 . See Defendant's Statement of Undisputed Facts, Bankruptcy Petition #: 93-12643, Docket at 1. This court, therefore, concludes that bankruptcy jurisdiction does not provide a basis for litigating Merisel's claims against the United States because the outcome cannot impact in any way the handling and admin istration of the bankruptcy estate. Accordingly, there is no basis for finding that the United States has waived sovereign immunity by virtue of 28 U.S.C. §1334.

C. Conclusion Re Sovereign Immunity and Summary Judgment

This court concludes that the United States has not waived sovereign immunity in this matter (since there is no statute which authorizes Merisel's action), and, therefore, the motion for summary judgment should be granted and matter dismissed.

II. Dismissal for Failure to State a Claim

The United States also seeks dismissal on the ground that its lien was prior in right to that of Merisel's and that, therefore, Merisel's complaint fails to state a claim upon which relief can be granted. See Defendant's Memo. at 9-10; Fed.R.Civ.P. 12(b)6). Merisel, on the other hand, specifically seeks an order that its lien has priority over that of the IRS and also seeks to have the IRS enjoined from interfering with any future actions by Merisel to collect the debt that it is owed. In view of this court's conclusion that the action should be dismissed on grounds of sovereign immunity, consideration of this alternative ground for dismissal is not mandatory. However, in the interest of addressing all the issues raised by the present motion, the court will address this alternative ground.

A. Rule 12(b)(6) Standard

In deciding a motion to dismiss pursuant to Rule 12(b)(6) the court must view all facts and inferences in the light most favorable to the plaintiff and must assume for the purposes of the motion that all of the allegations of the complaint are true. See Paradis v. Aetna Casualty & Surety Co., 796 F.Supp. 59, 61 (D. R.I. 1994). If under any theory, the allegations are sufficient to state a cause of action in accordance with the law, the motion to dismiss must be denied. Hart v. Mazur, 903 F.Supp. 277, 279 (D. R.I. 1995).

B. Did the IRS Perfect its Federal Tax Liens?

Merisel contends that IRS did not perfect its liens because it filed them with the Portsmouth Town Clerk and not at the Uniform Commercial Code division of the Rhode Island Secretary of State's office. See Plaintiff's Memo. at 6-9. Merisel argues that according to the Rhode Island General Laws all liens on personal property are to be recorded at the Secretary of State's Office. See id. at 7 (citing R.I. Gen. Laws §§6A-9-302, 6A-9-401). Merisel asserts that "it is far more reasonable to require the [IRS] to file its lien against personal property in the Uniform Commercial Code Division of the Secretary of State's office" than at the town hall where liens against real estate are normally recorded. Id. at 8-9. Merisel further says that "it makes no sense to file liens against moveable property of the debtor in an office where creditors do not normally look." Id. at 9.

The United States argues that it filed its lien in the place prescribed by federal and state law. See Defendant's Memo. at 9-10. Its argument can be summarized as follows. A lien arose on all of Mac Shop's property as a result of Mac Shop's failure to pay employment taxes. See id. (citing 26 U.S.C. §§6321, 6322; United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 719-720 (1985); Glass City Bank v. United States [45-2 USTC ¶9449], 326 U.S. 265, 267 (1945); Markham v. Fay [96-1 USTC ¶50,118], 74 F.3d 1347, 1353 (1st Cir. 1996)). Section 6323(a) provides that "[t]he lien imposed by §6321 shall not be valid as against any . . . judgment lien creditor until notice which meets the requirements of [6323(f)] has been filed by the Secretary." Id. (quoting 26 U.S.C. §6323(a) (1999)). Subsection 6323(f)(1)(A)(ii) further provides that the notice referred to in subsection 6323(a) shall be filed:

In the case of personal property, whether tangible or intangible, in one office within the State . . . as designated by the laws of such State, in which the property subject to the lien is situated.

Id. at 9-10. (quoting 26 U.S.C. §6323(f)(1)(A)(ii) (1999)). Personal property "is deemed to be situated at the residence of the taxpayer (or the place at which the principal executive office of the business is located) at the time the notice of lien is filed." Id. at 10 (citing 26 U.S.C. §6323(f)(2)). In Rhode Island the office within the state designated for the filing of federal tax liens is that of the recorder of deeds for the city or town clerk where the personal property is deemed located. See id. (citing R.I. Gen. Laws §34-34-1; ⁵ In re Elliott [87-1 USTC ¶9118], 67 B.R. 866 (Bankr. D. R.I. 1986)). Mac Shop's principal office was in Portsmouth , Rhode Island . The Malletts also resided in that town. Based on these facts, the United States filed its tax liens with the Portsmouth Town Clerk in 1993 and 1994.

Merisel urges that this court not follow In re Elliot which squarely rejected the argument Merisel now makes-that the IRS can only achieve secured status in personal property by filing its lien notice with the Secretary of State. However, this court finds Judge Votolato's reasoning in Elliot persuasive. It agrees with his view that "Rhode Island could designate the office of the Secretary of State as 'one office within the State' where the Internal Revenue Service must file a notice of tax lien in personal property, but any such designation must come from the legislature, rather than from our effort to fit a federal tax lien within the filing requirements of the Rhode Island UCC." In re Elliot [87-1 USTC ¶9118], 68[7] B.R. at 869.

C. Conclusion Re Perfection of IRS Liens and Dismissal

Based on the foregoing, this court finds that the IRS liens were filed in the correct office, that they were perfected, and that they were prior in right to Merisel's interest as a judgment creditor. Accordingly, Merisel's First Amended Complaint fails to state a claim upon which relief can be granted, and dismissal is also appropriate on that basis.

Conclusion

For the reasons explained fully above, I recommend that the United States ' motion for summary judgment pursuant to Fed.R.Civ.P. 56 be granted. Alternatively, I recommend that the First Amended Complaint be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. Any objections to this Report and Recommendation must be specific and must be filed with the Clerk of Court within ten (10) days of its receipt. See FedR.CivP. 72(b); D. R.I. Local R. 32. Failure to file specific objections in a timely manner constitutes waiver of the right to review by the district court and the right to appeal the district court's decision. See United States v. Valencia-Copete, 792 F.2d 4 (1st Cir. 1986); Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603 (1st Cir. 1980).

ORDER GRANTED UNITED STATES' MOTION FOR SUMMARY JUDGMENT

The United States ' motion for summary judgment is hereby GRANTED.

¹ The facts and travel are drawn from the First Amended Complaint, Plaintiff's Memorandum in Support of Objection to Defendant's Motion for Summary Judgment ("Plaintiff's Memo."), Plaintiff's Statement of Facts, Defendant's Memorandum of Law in Support of United States' Motion for Summary Judgment ("Defendant's Memo."), and Defendant's Statement of Undisputed Facts. For purposes of this motion, the facts are construed in the light most favorable to Plaintiff. See, e.g., Sheehy v. Town of Plymouth, 191 F.3d 15, n.1 (1st Cir. 1999) (citing Vargas-Badillo v. Diaz-Torres, 114 F.3d 3, 4 (1st Cir. 1997)).

² On October 15, 1993 , Mac Shop had filed a petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Rhode Island ("the Bankruptcy Court").

³ The United States maintains that the automatic stay had already been terminated as a result of the confirmation on March 28, 1995 , of the Plan.

⁴ Even if the statute had been tolled until September 26, 1996 , Plaintiff's filing would still be untimely. Nine months from September 26, 1996 , is June 26, 1997 . Merisel's suit was filed on July 15, 1997 .

⁵ The statute provides:

It shall be the duty of the recorder of deeds or the city or town clerk, having custody of the land records, in the several cities and towns in this state, to receive, file and index any and all notices of liens in favor of the United States for taxes due the United States, and of other liens notices of which under any act of congress or any regulation adopted pursuant thereto are required or permitted to be filed, or any copies thereof, duly certified by the director of internal revenue in whose district the state is situated, or by any other officer having legal custody of the records of notices of liens, with like effect as by existing law he or she is required to receive and record liens, deeds, and conveyances.

R.I. Gen. Laws §34-34-1 (1998) (emphasis added).

 

[54-2 USTC ¶9700] United States of America v. Centredale Textile Co., Inc., et al.

In the District Court of the United States for the District of Rhode Island, C. A. No. 1618, November 8, 1954

[1939 Code Sec. 3672--similar to 1954 Sec. 6323]

Lien for taxes: Establishment of lien.--The District Court awarded the Government judgment against the taxpayer for unpaid withholding and unemployment taxes, declared the lien of the Government to be valid and binding, and provided that state and local authorities should undertake to establish their claims, if any, with the order of priority of such claims to be determined at a subsequent hearing.

Jacob S. Temkin, United States Attorney, 221 Federal Building, Providence , R. I., for United States . William J. Counihan, 255 Main Street, Pawtucket, R. I. and Julius Michaelson, 1019 Hospital Trust Building, Providence, R. I., for defendant. James L. Taft, 171 Westminster Street , Providence , R. I., is the receiver.

Order

DAY, District Judge:

This matter came on for hearing before the Court on plaintiff's complaint, and after consideration thereof, the following entries are ordered to be made.

A. Findings of Fact

1. This action arose under the Internal Revenue Laws of the United States of America and was commenced under the direction of the Attorney General of the United States at the request of the United States Commissioner of Internal Revenue.

2. The defendant. Centredale Textile Co., Inc., is indebted to the plaintiff in the amount of $78,767.31 as of October 18, 1954 , as follows:

(a) For withholding taxes for the period ending December 31, 1951 , amounting to $4,053.85. The assessment list was signed by Commissioner of Internal Revenue on March 24, 1952 , and was received by the Collector of Internal Revenue at Providence , Rhode Island , on March 26, 1952 . Notice and Demand were issued on April 1, 1952 . The second Notice and Demand were issued on May 16, 1952 . A warrant of distraint was issued on June 30, 1952 . Notice of lien was filed on July 14, 1952 with the Town Clerk of the Town of Burrillville .

(b) For withholding taxes for the period ending March 31, 1952, amounting to $9,421.73. The assessment list was signed by Commissioner of Internal Revenue on May 26, 1952 , and was received by the Collector of Internal Revenue at Providence , Rhode Island , on May 28, 1952 . Notice and Demand were issued on July 29, 1952 . A warrant of distraint was issued on September 12, 1952 . Notice of lien was filed on July 14, 1952 with the Town Clerk of the Town of Burrillville .

(c) For withholding taxes for the period ending September 30, 1952 , amounting to $12,132.33. An immediate assessment by telegram was made by the Commissioner on November 17, 1952 . Notice and demand were issued on November 18, 1952 . Notice of lien was filed on November 19, 1952 with the Town Clerk of the Town of Burrillville . A warrant of distraint was issued on January 22, 1953 .

(d) For withholding taxes for the period ending December 31, 1952 , amounting to $17,242.62. An immediate assessment by telegram was made by the Commissioner on February 9, 1953 . Notice and Demand were issued on February 11, 1953 . Notice of lien was filed on February 11, 1953 with the Town Clerk of the Town of Burrillville . A warrant of distraint was issued on March 3, 1953 .

(c) For withholding taxes for the period ending March 31, 1953, amounting to $7,660.84. An immediate assessment by telegram was made by the Commissioner on May 6, 1953 . Notice and Demand were issued on May 7, 1953 . Notice of lien was filed on May 12, 1953 with the Town Clerk of the Town of Burrillville . A warrant of distraint was issued on June 2, 1953 .

(f) For withholding taxes for the period ending June 30, 1953 , amounting to $7,492.24. An immediate assessment by telegram was made by the Commissioner on August 7, 1953 . Notice and Demand were issued on August 11, 1953 . Notice of lien was filed on August 13, 1953 with the Town Clerk of the Town of Burrillville . A warrant of distraint was issued on September 17, 1953 .

(g) For withholding taxes for the period ending September 30, 1953 , amounting to $7,235.25. The assessment list was signed by the District Director on January 5, 1954 . A warrant of distraint was issued on September 15, 1954 .

(h) For withholding taxes for the period ending December 31, 1953 , amounting to $1,947.04. The assessment list was signed by the District Director on January 5, 1954 . A warrant of distraint was issued on September 15, 1954 .

(i) For withholding taxes for the period ending December 31, 1953 , amounting to $39.07. The assessment list was signed by the Acting District Director on April 7, 1954 . Notice and Demand were issued on April 8, 1954 . A warrant of distraint was issued on September 15, 1954 .

(j) For F. U. T. A. taxes for 1952, amounting to $6,849.70. An immediate assessment by telegram was made on February 18, 1953 . Notice and Demand were issued on February 20, 1953 . Notice of lien was filed on February 20, 1953 . A warrant of distraint was issued on March 2, 1953 .

(k) For F. U. T. A. taxes for 1953, amounting to $4,606.08. The assessment list was signed by the District Director on January 5, 1954 . A warrant of distraint was issued on September 15, 1954 .

(1) For F. U. T. A. taxes for 1953, amounting to $5.43. The assessment list was signed by the District Director on March 22, 1954 . Notice and Demand were issued on March 25, 1954 . A warrant of distraint was issued on September 15, 1954 .

(m) For accrued interest on withholding taxes for the period ending September 30, 1951 amounting to $81.13. The assessment list was signed by the Commissioner on December 31, 1951 and received by the Collector on December 18, 1951 . Notice and Demand were issued on December 19, 1951 . A warrant of distraint was issued on December 19, 1951 . A notice of lien was filed on January 2, 1952 with the Town Clerk of the Town of Burrillville .

B. Conclusions

1. The plaintiff is hereby granted judgment against the defendant, Centredale Textile Co., in the amount of $78,767.31, of which $64,934.44 represents claims on which liens have been levied, and of which $13,832.87 represents claims on which no liens have been levied but for which priority is claimed by the plaintiff.

As to the amount of $64,934.44, the plaintiff is awarded judgment with interest thereon, as provided by law from October 18, 1954 until the date payment is made.

As to the amount of $13,832.87, the plaintiff is awarded judgment as a priority claim but without interest.

2. The lien of the United States , having been established, is hereby declared to be valid and binding. It shall be enforced against the proceeds in the hands of James L. Taft, Receiver herein, subject, however, to the payment of admin istration expenses which may be approved by the Court and subject to this condition:

The Town of Burrillville and the State of Rhode Island, shall undertake to establish their claims, if any; and thereafter the order of priority as to said proceeds as between the plaintiff, the State of Rhode Island and the Town of Burrillville, shall be determined at a hearing subsequently to be held at the convenience of the Court and of counsel for the said parties.