Mervis Industries, Inc., Plaintiff and Clark
Chevrolet Sales, Inc., Intervenor-Plaintiff v. David Sams, David Sams,
d/b/a D&D Foods, and United States of America, Defendants
District Court, So.
Dist. Ind., Terre Haute Div., TH 92-127-C, 4/21/94, 866 FSupp 1143
6321 and 6323
Federal tax lien: Attached property: Priority.--Neither the
government nor the employer of an embezzler was entitled to summary
judgment where, although the government proved that its tax lien against
the embezzler had priority over the employer's pre-judgment lien, the
employer presented sufficient evidence indicating that it had a
constructive trust over the property purchased by the employee with the
proceeds of the embezzled funds. State (
) law provided that an embezzler acquired no beneficial ownership in
property purchased with stolen funds and that a constructive trust arose
over property that could be traced to stolen funds. The employer raised
a material question of fact regarding the ownership of the property,
indicating that the federal tax lien might have no property to which it
could attach. The matter was thus put over for trial in order to
determine whether the employer could directly trace its stolen funds to
the disputed property.
Joe E. Beardsley, Beardsley
& Stengel, 320 S. Main St., Clinton, Ind. 47842, John R. Kenley,
Kenley & Kenley, P.O. Box. 308,
, for plaintiffs. David Sams, Box 4002, Danville, Ill. 61834-4002,
Jeffrey L. Hunter, 46 E. Ohio St., Indianapolis, Ind. 46204, Michael W.
Davis, Peter Sklarew, Department of Justice, Washinton, D.C. 20530, for
BROOKS, District Judge:
This matter is before the
Court on cross-motions from plaintiff Mervis Industries, Inc.
("Mervis"), plaintiff-intervenor Clark Chevrolet, Inc.
("Clark") and defendant
United States of America
and Mervis filed cross-motions for summary judgment January 29, 1993.
filed its Motion for Summary Judgment March 9, 1993. Mervis filed answer
briefs to the Clark and
motions March 29, 1993. The
filed a consolidated answer brief March 30, 1993. On April 26, 1993, the
filed a Motion to Strike certain portions of Mervis' Answer Brief in
Opposition. Mervis filed a response June 3, 1993.
Defendant David Sams
("Sams") was an employee of Mervis. (Mervis Brief in Support,
Ex. A at ¶5.) From December 12, 1985, to February 28, 1990, Sams was in
charge of "scalehouse operations" for Mervis. (Mervis Brief in
Support, Ex. A at ¶8.) As part of his duties, Sams purchased truckloads
of scrap metal for Mervis, paying for the metal out of a cash fund
supplied by Mervis. (Mervis Brief in Support, Ex. A at ¶9.) The cash
was to be paid to drivers and customers who delivered loads of scrap to
Sams was required to have the drivers or customers to whom he paid cash
to sign a "scale ticket" to acknowledge the receipt of the
Unfortunately, Sams used
his position to defraud Meivis by creating fraudulent scale tickets for
"phantom" truckloads of scrap and pocketing the cash. (Mervis
Brief in Support, Ex. A at ¶14.) Sams transferred the money to his
business, D&D Foods. (Mervis Brief in Support, Ex. B at ¶8.) Sams
embezzled at least $500,000 from Mervis in this manner. (Mervis Brief in
Support, Ex. D at ¶2.) Sams was apprehended, convicted and sentenced to
13 years in an
penitentiary. (Mervis Brief in Support, Ex. C.)
Mervis then began a civil
action in the
courts to recover the converted funds from Sams. (Mervis Brief in
Support, Ex. D.) The Vermillion Circuit Court issued a prejudgment
attachment directing the sheriff to seize Sams' assets on March 7, 1990.
(Mervis Brief in Support, Ex. E.) The Vermillion County Sheriff seized
the property of Sams, including several vehicles which were subsequently
sold. The proceeds were delivered to the office of the Clerk of the
Court of Vermillion County. (Mervis Brief in Support, Ex. F at ¶2, 3.)
On August 12, 1991, the
Internal Revenue Service ("IRS") filed two notices of federal
tax lien against Sams and his wife amounting to $671,180.33. (Mervis
Brief in Support, Ex. J at 5; Notice of Removal.)
In December of 1993 the
Vermillion Circuit Court granted a default judgment for Mervis and held
a hearing on the issue of damages. The Court determined that Sams
converted the property of Mervis to his own use and transferred the
property to D&D Foods, which was fully aware that the money in fact
belonged to Mervis. (Mervis Brief in Support, Ex. B at ¶4, 8.) The
Court also found that Sams and D&D Foods were "the constructive
trustee[s]" of the stolen money, with Mervis as the beneficiary.
(Mervis Brief in Support, Ex. B at ¶5, 11.)
On July 2, 1992, the IRS
filed a final demand for the property held by the Vermillion County
Clerk of the Court. (Mervis Brief in Support, Ex. J at 5.) Mervis filed
for a stay of compliance on July 7, 1992. The stay was granted. (Mervis
Brief in Support, Exs. J, K.) Mervis also moved the Vermillion Circuit
Court to join the
as an additional defendant in the action. That motion was also granted.
(Notice of Removal, Ex. A.) The
then filed a Notice of Removal, alleging that removal was proper because
Mervis was seeking to determine the priority of liens and a stay of
compliance with the
' final demand.
Motion to Strike
The United States has moved
this Court to strike a sentence from Mervis' Answer Brief in Opposition
which states "Sams held no property or rights to property in the
cash proceeds at issue before this Court because he purchased the motor
vehicles with monies tortiously acquired from Mervis." (Mervis
Answer Brief at 5.)
contends that "[t]he allegation in Mervis [sic] latest submission
is without evidentiary support." (Motion to Strike at 2.) The
' arguments in favor of striking the complained of lines in Mervis'
Answer Brief are more properly considered as arguments against Mervis'
position. The Court is well aware of the distinction between claims made
in a brief and evidence supporting those claims. Therefore, the Motion
to Strike is DENIED.
A motion for summary
judgment is properly granted only when there is no genuine issue of
material fact, and the moving party is entitled to judgment as a matter
of law. Fed.R.Civ.P. 56(c). The record and all reasonable inferences
therefrom must be viewed in the light most favorable to the non-moving
party. Beard v. Whitley County REMC, 840 F.2d 405, 410 (7th Cir.
1988) (citing United States v. Diebold, Inc., 369
654, 655 (1962)). The moving party bears the burden of demonstrating the
absence of a triable issue. Celotex Corp. v. Catrett, 477
317, 323 (1986). The burden may be met by demonstrating "that there
is an absence of evidence to support the non-moving party's case." Celotex
at 325. If the moving party meets its burden, the adverse party
"may not rest upon the mere allegations or denials of the adverse
party's pleading," but must present specific facts to show that
there is a genuine issue of material fact. Fed.R.Civ.P. 56(e); see
also, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 586-87 (1986).
In this case, the Court is
called upon to consider three competing Motions for Summary Judgment.
has moved the Court to grant summary judgment (and the cash proceeds
from the sale of the disputed property) to it, Mervis has moved the
Court to grant it summary judgment, and plaintiff-intervenor
has moved for summary judgment as to a portion of the cash proceeds. In
evaluating these competing claims, two issues are pivotal: the priority
of the liens filed upon Sams' property, and the property rights of Sams
in the disputed cash proceeds.
Priority of Liens
A federal tax lien attaches
to "all property and rights to property, whether real or personal,
belonging to such person." 26 U.S.C. §6321
. The lien of the government, which arises as soon as taxes
are assessed, prevails against all other unperfected liens with a few
statutory exceptions. One exception is judgment lien creditors. Whenever
the tax lien of the
competes with that of the judgment lien creditor, it must be determined
filed notice of its lien in the proper place prior to the time the
competing lienor established his status as a judgment lien creditor. 26
In this case, the
filed notice of its lien with the Vermillion County Recorder. This
notice would have been effective under the provisions of Ind. Code §36
-211-21, which provided that federal tax liens should be
filed in the recorder's office of the county in which the property
subject to the lien is located. Unfortunately, in 1987 the
legislature enacted Ind. Code §36
-2-11-25 and repealed Section
21 . Section
25 provided for similar filing provisions, but referred to
"real property" only. However, the
argues extensively, and we do not understand Mervis to disagree, that
the legislative history of Ind. Code §36
-2-11-25 indicates that Section
25 applies to personal property as well. Therefore, we find
properly filed notice of the federal tax lien, as required by 26 U.S.C. §6323(f)(1)
However, Mervis asserts
that, because it filed a pre-judgment lien prior to the filing of the
tax lien, it has an interest superior to that of the government in the
proceeds. We do not agree. Mervis fails to recognize that it is a matter
of federal and not state law as to when a lien has acquired sufficient
substance and has become so perfected as to defeat a federal tax lien. United
States v. Pioneer American Ins. Co. [63-2 USTC ¶9532 ], 374 U.S. 84 (1963). For a lien to be
sufficiently established to defeat a federal tax lien, the identity of
the lienor, the property subject to the lien, and the amount of the lien
must be established. In this case, it is clear that the amount of the
pre-judgment lien was not established at the time of the filing of the
federal tax lien. Mervis' interest as a creditor of Sams was contingent
upon the outcome of its suit. Until Mervis received a judgment from the
Vermillion County Circuit Court, its lien was "inchoate," and
not perfected to the extent required by federal law so that it would
defeat a valid federal tax lien. See, Atlas, Inc. v. United States
[79-1 ustc ¶9118 ], 459 F.Supp. 1000, 1003 (D.C. N.D. 1978).
Since Mervis did not have a
lien in a certain amount on Sams' property at the time the federal tax
lien was perfected, its interest was inchoate and inferior to the
federal tax lien. Therefore, the tax lien is effective upon "all
property and rights to property, whether real or personal, belonging
to" Sams. 26 U.S.C. §6321
. However, although federal law determines whether a state
lien is sufficiently choate so as to defeat a federal tax lien, it must
be determined whether the taxpayer had property or a right to property
to which the federal tax lien could attach. This is a matter of state
law. Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509 (1960).
Sams' Property Interest
Mervis argues that because
Sams was a constructive trustee of Mervis, he had no interest or rights
to the property at issue to which the tax lien could attach. The
raises two arguments to oppose this theory. First, the government argues
that Sams acquired not a void title in property purchased with the
stolen funds, but rather a voidable title and that the tax lien
therefore attaches to that interest. Second, the
argues that Mervis has failed to properly present sufficient evidence to
sustain its Motion for Summary Judgment.
An Embezzler's Title to Property Purchased with Stolen Funds
argues in its brief that "[o]nly if state law would hold that an
embezzler, from the beginning, acquires no beneficial ownership in
property purchased with stolen funds could Mervis prevail in this
Answer Brief at 11-12.) We agree. Unfortunately for the government,
law is clear, and has been clear for well over a century, that this is
precisely the case. Riehl v.
Foundry Ass'n, 3 N.E. 633 (
1885). This rule is not simply
law, it is " 'perhaps universally recognized that a constructive
trust will arise when stolen or embezzled funds are used to purchase
other property.' " Dennis v. United States [74-1 USTC ¶9391 ], 372 F.Supp. 563 (E.D. Va. 1974) (quoting
Annotation, 38 A.L.R.3d 1354, 1359). See also, Atlas [79-1 USTC ¶9118 ], 459 F.Supp. at 1005; First Nat'l. Bank
v. Hill [76-2
USTC ¶9623 ], 412 F.Supp. 422, 425 (N.D.
law describes a constructive trust as "a fiction of equity, devised
for the purpose of making equitable remedies available against one who
through fraud or other wrongful means acquires the property of
another." Hunter v. Hunter, 283 N.E.2d 775, 779 (Ind.App.
1972) (citing Brown v. Brown, 135 N.E.2d 614 (
1956); Koenig v. Leas, 165 N.E.2d 134 (
1959)). Nor does the transformation of property from one form to another
deprive a beneficiary of the right to the trust property. That rule has
been unchanged for at least 99 years. It was set out in Winstanley v.
Second Nat'l. Bank, 41 N.E. 956 (Ind.App. 1895); quoted verbatim in Ross
v. Thompson, 146 N.E.2d 259 (Ind.App. 1957), and quoted verbatim
again in Fall v. Miller, 462 N.E.2d 1059 (Ind.App. 1984):
The equity rule is that
trust property may be followed by the beneficiary so long as its
identity can be ascertained. If a trustee or other fiduciary wrongfully
dispose of his principal's property, equity imposes a constructive trust
upon the new forms or species into which it is converted, so long as it
can be traced or followed and its identity ascertained. The principle
upon which this rule rests is a very plain and just one. It is founded
upon the right of property. The trust property rightfully belongs to the
cestuis que trust and a change in its form does not change its
ownership. So long as either the original or substituted property can be
traced or followed equity will always attribute the ownership to
the beneficiary and will not allow the right to be defeated by the
wrongful act of the fiduciary, no matter what form it may assume. The
true owner of property has the right to have his property restored to
him, not as a debt due and owing, but because it is his property
wrongfully withheld. As between cestuis que trust and the trustee
and all parties claiming under the trustee, except purchasers for
value and without notice, all the property belonging to the trust,
however much it may have been changed in its form or its nature or
character, and all the fruits of such property, whether in its original
or altered state, continue to be subject to and affected by the trust.
462 N.E.2d at 1062 (emphasis added, citations and original emphasis
The government is simply
wrong in its assertion that
cases "treat the wrongdoer as acquiring voidable rights to
Answer Brief at 7.) There is no merit whatsoever to this argument. 2
next argues that "it remains a fact that Mervis' motion for summary
judgment fails to present any evidence of the embezzlement and .
. . fails to present any evidence that Mervis [sic, presumably should be
Sams] acquired the vehicles in question with the embezzled funds."
(U.S. Answer Brief at 8, emphasis in original.)
Mervis has presented this
Court with certified copies of a judgment filed in the Vermillion
Circuit Court of the State of
. (Mervis Brief in Support, Ex. B.) This decision recites that the Court
granted a default judgment to Mervis on December 9, 1991, and heard
evidence on December 13, 1991, regarding damages. The judgment further
recites that Sams converted $1,785,000.00 of Mervis' money to his own
use (Mervis Brief in Support, Ex. B at ¶1, 3), that Sams transferred
the money to Sams D&D Foods which was aware of the embezzlement
(Mervis Brief in Support, Ex. B at ¶8), and that Sams and Sams D&D
Foods were the constructive trustees of the $1,785,000.00 (Mervis Brief
in Support, Ex. B at ¶5, 11).
attacks the state court determination on the ground that a default
judgment is "insufficient to establish the facts alleged in Mervis'
original complaint against Sams." (
Answer Brief at 8.) The United States argues that the judgment of the
state court is not binding upon it as it did not default, and further,
citing Commissioner v. Estate of Bosch [67-2
USTC ¶12,472 ], 387 U.S. 456, 457 (1967), makes the
assertion that "even a litigated judgment between a taxpayer and
another person will not bind the United States unless the judgment is
affirmed on the merits by the state's highest court." (
Answer Brief at 9.)
Indiana Trial Rule 56
If, in order to enable the
court to enter judgment or to carry it into effect, it is necessary to
take an account or to determine the amount of damages or to establish
the truth of any averment by evidence or to make an investigation of
any other matter, the court may conduct such hearing or order such
references as it deems necessary and proper . . . .
Tr. Rule 56 (emphasis added).
Mervis has presented an
order following such a hearing. The
has presented no reasons why this Court should reject the findings of
the state court. Nor does this Court perceive any reason to ignore or
revise the findings of the state court. To the contrary, to do so would
be an egregious violation of the principles of comity.
Bosch does not carve
out a special protection for the
from being bound by state court decisions. Bosch merely
recognizes that when application of a federal statute is involved, the
decision of a state trial court as to an underlying issue of state law
is not controlling. 3
at 465. Thus, if the state court had determined that the federal tax
lien did not apply, its determination would not be binding upon the
. However, the state court did not make that determination.
Nor does Mervis need a
ruling on the facts by the Indiana Supreme Court to establish its claim.
The Vermillion County Circuit Court was merely applying well developed
state law in this case. What the
seems to be implying is that the government is not bound by the state
court's application of the law to the facts. By no stretch of the
imagination can Bosch be read as requiring parties to litigate
their property rights in specific property to the highest court in their
state before they may deem it their own and not the government's.
It is therefore clear that
' Motion for Summary Judgment must be denied. Mervis has raised a
material question of fact regarding the ownership of the disputed
property. The findings of the Vermillion County Circuit Court show that
Sams and D&D Foods were the constructive trustees of $1,785,000.00,
benefitting Mervis. It is a reasonable inference that some, if not all,
of the disputed property belonged therefore not to Sams but to Mervis,
and that the federal tax lien therefore did not attach to it.
However, while Mervis has
raised a material question of fact regarding Sams' ownership of the
vehicles, Mervis has not presented this Court with evidence that traces
the embezzled funds into the disputed property. This is an essential
requirement of the constructive trust. Fall, 462 N.E.2d at 1062.
The state court judgment does not clearly trace the embezzled funds into
Sams' property. Rather, it orders an accounting and that the Sams' and
D&D Foods' property be sold to pay the obligation to Mervis. (Mervis
Brief in Support, Ex. B at ¶6, 12.) Therefore, the Court cannot grant
plaintiff's Motion for Summary Judgment at this time. 4
Clark's Motion for Summary Judgment
Turning to the Motion for
Summary Judgment brought by Clark, the Court finds that
has presented no admissible evidence which demonstrates why it has a
lien prior to the federal tax lien. Nor has
presented admissible evidence to show that it, rather than Sams or
Mervis, was the true owner of the disputed Blazer. The exhibits attached
's motion are uncertified and unsworn, and thus do not meet the
requirements of Fed.R.Civ.P. 56(e).
For the foregoing reasons,
the Court DENIES defendant
' Motion to Strike; DENIES defendant
' Motion for Summary Judgment; DENIES plaintiff Mervis Industries Inc.'s
Motion for Summary Judgment, and DENIES plaintiff-intervenor Clark
Chevrolet, Inc.'s Motion for Summary Judgment. This case remains pending
for further proceedings to determine the extent of the constructive
trust held by Mervis Industries, Inc.
The Court notes that the
legislature has since amended Ind. Code §36
-2-11-25 to include all federal tax liens, further supporting
the government's interpretation of the statute.
We also reject the
' contention that "a constructive trust is merely an equitable
prioritizing remedy." (
Answer Brief at 10-11.) While the theoretical underpinnings of the
constructive trust doctrine may lend themselves to this interpretation,
it is clear the legal effect of the doctrine is that the beneficiary of
a constructive trust is the owner of the property. ("The
true owner of property has the right to have his property restored to
him, not as a debt due and owing, but because it is his property
wrongfully withheld". Fall, 462 N.E.2d at 1062 (emphasis
added).) Thus, there is no need to "prioritize" his interest
as against other creditors of the constructive trustee.
Bosch dealt with estate tax liability. As such, it involved
statutory considerations not at issue here. Bosch [67-2
USTC ¶12,472 ], 387
urges the Court to grant its Motion for Summary Judgment because Mervis
has failed to bring forward evidence tracing the embezzled funds into
the disputed property. The government is again overreaching. While the
need not negate the plaintiff's case, Celotex, 477
at 325, it is inappropriate to grant summary judgment where the moving
party merely makes a conclusory allegation that the opposing party has
no evidence to support its case.
at 328 (White, J., concurring).
In re Toyson J. Burruss, Debtor. Steven J. Cole,
Maryland Securities Commissioner, Turner MacKall, Joyce Edelin,
Plaintiffs v. Roger Schlossberg, Trustee, United States of America,
Internal Revenue Service, Defendants
Bankruptcy Court, Dist. Md., at Rockville, 83-A-1608, 1/12/88
6321 and 6323
--Result unchanged by the Tax Reform Act of 1986 ]
Bankrupt taxpayer: Tax claims: Property of estate: Constructive
Assets of the taxpayer that were originally seized by a state
court-appointed receiver for the benefit of individuals that the debtor
had defrauded were subject to the IRS tax claims. Although the Maryland
Securities Commissioner opposed the payment of taxes from assets
initially seized to compensate the taxpayer's victims, the adversarial
proceeding was filed after the expiration of
's three-year statute of limitations. Thus, the Securities
Commissioner's suit was dismissed.
MEMORANDUM OF DECISION
(Cross-motions for Summary Judgment)
MANNES, Chief Judge:
Before the court are two
well conceived and executed motions for summary judgment filed on behalf
of Steven J. Cole, Commissioner of Securities for the State of
, and other plaintiffs, and by the
United States of America
on behalf of the interests of the Internal Revenue Service.
The debtor, Toyson J.
Burruss, is a convicted criminal, pleading guilty on June 7, 1984,
before the Honorable Austin W. Brizendine, Associate Judge of the
Circuit Court for
. The debtor pleaded guilty to a violation of Section
11 -301 of the Corporations and Associations Article
(Securities Fraud). Count II charged the debtor with the sale of an
unregistered security in violation of 11-501 of the Corporations and
Associations Article of the Maryland Code. As the statement of facts in
support of the debtor's plea indicates, the debtor was associated with
an entity called the Life Investors Group that preyed on people who were
not particularly sophisticated or well-to-do obtaining over a $1,600,000
in the process.
By virtue of action taken
by the Attorney General for the State of Maryland, a Receiver was
appointed by the Circuit Court for Prince George's County, Maryland, to
seize the assets of the debtor and hold them for the benefit of injured
investors. In all, the Receiver turned over $351,642.27 to the Chapter 7
Both the Securities
Commissioner and the Trustee now desire to return to the defrauded
investors pro rata the funds obtained through the receivership. After
the battle between the Securities Commissioner and the debtor, in the
words of Associate Justice John McAuliffe of the Court of Appeals of
Maryland, "the Internal Revenue Service swept down from the
mountain and now wishes to massacre all the wounded." That is, it
wishes to suck up the funds of the receivership on the claim that the
debtor owes income taxes on the money that he "earned" through
his criminal activity. The debtor earned money the old fashioned way, he
The position of the Trustee
is one of complete selflessness. Rather than support the claim of the
with the resultant substantial trustee's commission that would ensue,
the Trustee takes the position that the funds in question are not
property of the estate, and he joins in the request of the Securities
Commissioner. As for Mr. Burruss, whose discharge has been denied, he
deserves a special commendation for filing this useless bankruptcy case
and abusing his investors one more time and subjecting them to the
bankruptcy law and its priority scheme, particularly with the priority
of §507(a)(7)(A) for allowed unsecured claims of governmental units for
The motion for summary
judgment filed on behalf of the
is splendid in its manipulation of settled legal principles. The
Internal Revenue Service relies on three discreet bases in support of
its motion. Unlike a three-legged stool, any one of the three arguments
is sufficient to save the day. These three points going to the very
extremities of the matter, as opposed to the heart, are as follows:
1. The Commissioner filed
the complaint too late and is barred by the three-year limitation period
of MD. CTS. & JUD. PROC. CODE ANN. §5
2. The Commissioner has no
standing to seek a declaration of a constructive trust on behalf of any
investors who have not joined in the suit.
3. There could be no
tracing, either on behalf of individuals or the groups of the victims of
Burruss of a constructive trust on a pooled tracing theory.
After review of the
memoranda submitted and the authorities cited on behalf of the
disputants, the court concludes that common sense and reason must give
way to the legal argument espoused on behalf of the
United States of America
In reaching this
conclusion, the court assumes without deciding that the Securities
Commissioner has standing to bring this action on behalf of the
aggrieved parties to litigate the return of the money stolen from them
with the second entity that picked their pockets. See In re DeFelice,
77 BR 376 (BC
1987); In re Klein, 39 BR 927 (BC E.D. Pa. 1984). In DeFelice,
Judge Schiff noted that, apart from public policy considerations, in his
opinion the state, in the form of the Attorney General, had the standing
to maintain the action in question against the debtor under the doctrine
of parens patriae. DeFelice, 77 BR at 380.
The court will also assume
without deciding that the Commissioner's position is correct with
respect to tracing. In re Teltronics, Ltd., 649 F.2d 1236 (7th
v. Page, 163
619, 164 A. 182 (1932). In the instant case, the source of the funds
obtained by the Receiver were from two investment accounts made up
almost entirely of funds of victims of Burruss. That is, some 97% of the
money was obtained from these individuals. Assuming that the debtor used
the converted funds for his own benefit and that the first funds out
were his own funds, it follows that the remaining funds were those of
the individuals for whom the Receiver litigated. See the remarks of Mr.
Chief Justice Taft in the original Ponzi case, Cunningham v.
Brown, 265 U.S. 1, 13 (1924) (The rule is useful to work out equity
between a wrongdoer and a victim; but, when the fund with which the
wrongdoer is dealing is wholly made up of the fruits of the frauds
perpetrated against a myriad of victims, the case is different).
Reluctantly, as is apparent
from the court's earlier remarks, the court believes that the complaint
was not timely filed and is therefore subject to a legislatively
mandated repose under the
statute of limitations. The court will adopt by reference as the basis
for its opinion the argument of the
United States of America
found at pages 4-7 of its memorandum in support of its motion for
summary judgment filed August 20, 1987, and its reply memorandum filed
October 26, 1987. While the Securities Commissioner has stated that in
his mind this is a quiet title action calling for the 6-year statute of
limitation pursuant to 28 U.S.C. §2410 as an action affecting property
on which the United States has a lien, however, the fact is that the
United States has never asserted a secured claim in this case. The
ordinary three-year statute of limitation applies and, for that reason,
the filing of the instant complaint on July 24, 1986, was untimely as it
was more than three years after the last possible date upon which the
Commissioner would have become aware of the debtor's fraud. The record
is not clear as to the two individual plaintiffs.
An order will be entered
dismissing this adversary proceeding as to all parties but the
individual plaintiffs. Counsel for the
United States of America
shall file an appropriate order.
Vincent Zito, Plaintiff and United States of
America, as Intervening Plaintiff v. Anthony J. Tesoriero, Property
Clerk of the Suffolk County Police Department, John L. Barry,
Commissioner of Police of the Suffolk County Police Department, Marie
Leone, Richard Leone, Frederick Marangio, Joseph Chiofalo and Helen
S. District Court, East. Dist. N. Y., 64 C 1166, 6/14/65
Tax liens: Property in custody of police.--District Court granted
the delinquent taxpayer's motion for summary judgment declaring him the
rightful owner of stolen property in the custody of the police and
granted the government's claim of tax lien against the taxpayer's
property in police custody.
Bennett E. Aron, 575
, N. Y., for plaintiff. Joseph P. Hoey, U. S. Attorney, 225 Washington
St., Brooklyn, N. Y., George W. Percy, Jr., Suffolk County Center,
Riverhead, L. I. N. Y., for defendant.
DOOLING, District Judge:
Plaintiff moves pursuant to
Rule 56(a), Federal Rules of Civil Procedure for summary judgment.
1. This action was
commenced in the Supreme Court, County of Suffolk, by service of summons
and complaint on the defendants County of Suffolk, John L. Barry,
Anthony J. Tesoriero, and Richard Leone on November 13, 1964, on the
then defendant and now intervening plaintiff United States on November
16, 1964, and on defendants Frederick Marangio and Joseph Chiofalo on
November 17, 1964. All the defendants have answered except Marangio and
filed a petition for removal on December 3, 1964. On February 24, 1965
[65-1 USTC ¶9319], Judge Mishler granted the motions of the United
States pursuant to Rule 12(b) dismissing the complaint against the
United States and pursuant to Rule 24 permitting the United States to
intervene as a plaintiff. The
filed its Intervener's Complaint on March 15, 1965.
Plaintiff Zito in his
complaint asks for a judgment declaring him to be the rightful owner of
all the property taken from the defendants Leone, Marangio and Chiofalo
when they were arrested by the Suffolk County Police and now held by the
Police (listed in Exhibit D accompanying the Motion papers) except for
the sum of $26,455.06 with accrued interest from June 4, 1964 to date of
payment which plaintiff Vincent Zito and his wife defendant Helen Zito
agree they owe to the United States for income taxes and except for a
sum equal to the expenses, commissions, or charges for the placing of
the Exhibit D property in a local bank for safekeeping.
2. There is no genuine
issue as to the following facts: On September 9, 1962, defendants Leone,
Marangio and Chiofalo removed from plaintiff Zito's home a substantial
currency and other personal property most of which was later found in
their possession or control along with other property purchased with
some of the stolen money. (Exhibit D). Members of the Suffolk County
Police Department turned the property so found over to defendant
Tesoriero, Property Clerk of the Suffolk County Police Department for
safekeeping pending its use in evidence and eventual return to its
rightful owners. Defendant Tesoriero placed the property in question in
two safe deposit boxes in the Bank of Smithtown,
United States served upon defendant Tesoriero, among others, notices of
tax lien filed January 28, 1963, based upon jeopardy assessments against
defendants Leone, Chiofalo, and Marangio for non-payment of income
On April 10, 1964, based on
a burglary report of Plaintiff Zito that property valuing $107,000 had
been stolen from him, the United States made a jeopardy assessment for
1962 income taxes against plaintiff Zito and defendant Helen Zito, his
wife, and filed notice of it with the Property Clerk of the Suffolk
County Police Department on or about April 13, 1964.
A subsequent audit by
Internal Revenue Service Agents resulted in an agreement that $26,455.06
in taxes were due to the
for 1959, 1960, and 1961. A notice of tax lien based on this agreement
was filed with the Property Clerk Tesoriero on June 4, 1964, against all
the property of Zito in his possession.
Defendants Tesoriero, Barry
have answered the complaints of Zito and the
but make no claim of title or ownership to the property in question.
They have shown that $68.36 is due to be paid to them out of the Exhibit
D property for charges for safe deposit boxes to date for the two boxes
in the Bank of Smithtown in which the Exhibit D property has been
The Exhibit D property
includes about $51,000 in
currency and approximately $12,000 worth of articles allegedly purchased
by the defendants Leone, Marangio, and Chiofalo with some of the stolen
Defendant Leone answered
the complaint of Zito on November 23, 1964, and may have been
contending, although this is not a contention of record, that he won
$15,000 gambling with some of the stolen money in Las Vages which is
rightfully his. He has not in any way opposed the present motion,
although he was on May 12, 1965, given an additional two weeks until May
26, 1965, in which to submit papers in opposition, and was thereafter
allowed a further week.
It appears that plaintiff
is entitled to summary judgment substantially as prayed and that the
intervening plaintiff and the County authorities are entitled to summary
relief substantially as outlined above. Since details of draftmanship
will require consultation among the parties entitled to relief, it is
ORDERED that the motion for
summary judgment is granted and plaintiff is directed to settle on
notice before the Court a form of judgment, pursuant to Rule 58, for
entry by the Clerk after its approval by the Court.
United States of America
, Plaintiff v. Nicholas Briglia, et al., Defendants
S. District Court, So. Dist. N. Y., Civ. 101-317, 182 FSupp 271, 1/29/60
[1939 Code Sec. 3670--similar to 1954 Code Sec. 6321]
Lien for taxes: Property in police custody: Ownership.--For the
purpose of foreclosing a tax lien, the fact that the taxpayer made an
immediate complaint of the theft of precious stones to the New York City
police and subsequently, after their recovery, filed the only claim as
owner, was sufficient to establish a prima facie case of ownership.
Testimony by the taxpayer that the gems belonged not to him but to his
corporation was not believed. The government was entitled to foreclose
its lien against the Police Department Property Clerk (with a direction
that the taxpayer pay any deficiency resulting from such sale), and for
judgment in the amount of the lien.
U. S. Court
, N. Y., for plaintiff. Nicholas Briglia, 427 West St., New York, N. Y.,
pro se. Charles H. Denney and Stanley Katz, Municipal Bldg.,
Manhattan, N. Y., for Thomas E. Rosetti.
MURPHY, District Judge:
This is an action by the
government to foreclose a tax lien and for a judgment in the amount of
such lien. Only two defendants have been served with process, Nicholas
Briglia, the taxpayer, also known as Dante Brigliante, and Thomas E.
Rosetti. Briglia is alleged to be the owner of certain precious stones
now in the possession of the other defendant, Rosetti, who is the New
York City Police Department Property Clerk.
The proof and admissions in
the pleadings establish that the Commissioner of Internal Revenue made
assessment of taxes upon the income of defendant Briglia for the
calendar years 1947, 1948 and 1949 which, including penalties and
interest, amounts to $384,653.54; that the commissioner certified the
list of each assessment to the then Collector of Internal Revenue for
the Third District of New York by whom it was received on August 4,
1952, and within ten days thereof the said collector gave notice to, and
demanded payment of the amount thereof from, defendant Briglia.
of Gems in Police Custody]
On February 3, 1953, the
collector filed a Notice of Tax Lien with the Register of the City of
, with the Clerk of the United States District Court, Southern District
of New York, and the Property Clerk of the New York City Police
Department, for payment of the assessments heretofore described.
The court refused to permit
defendant Briglia to contest the assessments by offering to prove the
non-receipt of income during the years in question, on the ground that
such assessments were immune from collateral attack in this court.
The principal issue
litigated relates to the ownership and identity of the property
admittedly being held by defendant Rosetti.
There was no dispute that
on January 31, 1953, a locker in the subway arcade on
West 42nd Street
was broken into and that a complaint of grand larceny was made to the
New York City Police Department on the same day describing the loss of
$100,000 in precious stones from said locker. In support of this the
government introduced the original Police Department Complaint Form
which records the name "Dante Brigilante of
121 Primrose Ave.
, Fleetwood, N. Y." as complainant. This report states that the
complainant said that he had placed the property in such locker on
January 29, 1953, and on January 31, 1953, he discovered that the locker
had been broken into and the property taken therefrom.
A New York City detective
testified that he was in charge of the investigation of the alleged
grand larceny complaint and that on February 1, 1953, another detective
recovered some stones in another locker in the Port Authority Bus
Terminal building at Eighth Avenue and 40th Street, New York City, and
that the stones were turned over to him; he in turn delivered them to
the Property Clerk of the Police Department who retains possession of
Claimed Gems as Owner and Later as Agent]
The Police Department
records also indicate that Dante Brigliante made a claim as owner of the
property and no other person has come forward in the intervening six
years claiming the same although there are numerous liens in the form of
judgments and third-party orders filed against it.
The Property Clerk offered
no evidence, rested on the government's proof and moved for dismissal.
Defendant Briglia testified
that he never owned the property and never made a claim for it. On
cross-examination he admitted possession of the property, but as agent
of a corporation of which he was an officer, and that the corporation
had bought the property from various dealers during the years 1948 and
1949 and paid for it with corporation checks. He further testified that
he had an attorney file a claim with the Police Department but that the
claim was supposed to have been in the name of the corporation.
While the government's
proof is not overwhelming we feel that a fair inference exists that the
property now held by the Police Department Property Clerk is part of the
same property that was stolen from the locker in the
subway arcade and recovered the following day in another locker in the
. Of course the government would be entitled to a lien on the property
only if it was the property of defendant Briglia. The only proof of
ownership by defendant Briglia in the government's case is the fact that
Briglia made a complaint of the loss of the property and, according to
the Police Department records, is the only one over the years who has
claimed it as owner.
Query: Is this enough proof
to establish that defendant Briglia is in fact the lawful owner? In
other words, does one who makes an immediate complaint of the theft of
property to the police and subsequently files the only claim as owner
sufficient to establish a prima facie case of ownership for the purpose
of foreclosing a lien?
We find under all the
circumstances that the proof was sufficient and since there was no
contrary evidence submitted by Rosetti his motion to dismiss is denied.
A subsidiary question
remains--whether defendant Briglia's testimony that the property was not
his but another's, viz., his corporation, changes the result. Admittedly
it would, if believed. We listened to his testimony and observed him on
the stand and find his testimony incredible, and find as a fact that he
was the owner and not his corporation and that the checks he proffered
to prove the purchase of the merchandise were less persuasive than his
Accordingly, the government
is entitled to judgment in the sum of $384,653.54 plus a decree
foreclosing its lien against the Police Department Property Clerk, with
a direction that defendant Briglia pay any deficiency resulting from
such sale. Settle decree.
This memorandum is filed in
lieu of findings of fact and conclusions of law.
The State of Washington, Plaintiff v. Robert James
Byrne, William Barry and Lee Fisco, Defendants, and United States of
America, Intervenors, and Robert D. Bell, Property Claimant, and H.
Sylvester Garvin, Claimant, as assignee of Robert James Byrne
the Superior Court of the State of Washington for King County, No.
27506, March 17, 1954
Lien for taxes: Property belonging to another: Levy on stolen
property.--Byrne and others were convicted of grand larceny for
obtaining $20,000 in currency from the property claimant Bell by
fraudulently representing to Bell that they were policemen and would
arrest Bell if Bell did not give them $20,000 to put up as a bond. Seven
$500 bills were recovered by the police and were used as an exhibit in
the prosecution. The
levied on the $3,500 for delinquent income taxes due from Byrne. It was
held that the Government did not acquire a lien on the money which was
not the property of Byrne.
, for Robert D. Bell, property claimant. H. Sylvester Garvin as assignee
of Robert James Byrne.
of Fact and Conclusions of Law and Judgment
SHORETT, Superior Court
This matter having come on
duly and regularly for hearing upon the motion of Kelleher & Curran,
attorneys for Robert D. Bell, property claimant herein, for return of
stolen property to owner, and upon the complaint in intervention filed
herein of the United States of America, and on the claim of H. Sylvester
Garvin as assignee of Robert James Byrne, and the court having examined
the files and records herein, heard the representations of counsel and
deeming itself fully advised, now makes and enters the following
I. That due and proper
service of the time and place of this hearing has been given all
necessary parties in accordance with law and order of court.
II. That the parties hereto
have stipulated in open court that the court consider the evidence
entered in the trial of the criminal action in considering the issues of
fact in this proceeding.
III. That on the 29th day
of September, 1952, the defendant, Robert James Byrne and Frank Seigel
obtained $20,000.00 in United States currency of denominations of $1,000
and $500 from the property claimant, Robert D. Bell, by the successful
perpetration of a fraudulent bunco game, by representing to said Robert
D. Bell that they were Seattle policemen, that they would be required to
arrest and book Robert D. Bell and hold him in jail if the said Robert
D. Bell did not give them the $20,000.00 to put up as a bond; that said
representations were false and the procurement of possession of said
money by said fraudulent misrepresentations, trick and devise amounted
to grand larceny and therefore said defendants did not acquire any
right, title or interest in said money or any part thereof.
IV. That part of said loot,
to-wit: seven of said $500 bills were recovered by the police on October
27, 1952, in the defendant, Robert James Byrne's safe deposit box
pursuant to search warrant and said property has been at all times since
said date and is now in the custody of this court marked State's Exhibit
V. That all of the
defendants above named were tried and convicted of said larceny, the
defendant Byrne having pleaded guilty to said charge, and the appeal of
the defendant, William Barry, from the judgment and sentence imposed
therein has been affirmed on appeal as well as the identity of said
State's Exhibit No. 3, and it is no longer necessary that said property
be held as evidenced or for any other purpose in this cause.
VI. That the United States
of America claims some right, title or interest in said fund by virtue
of a levy thereon for delinquent income tax due from said Robert James
Byrne, that the claim of the United States of America is based upon a
claim that said fund is the property of said Robert James Byrne but in
truth and in fact, said property is the property of Robert D. Bell and
said Robert James Byrne has not nor has ever had any right, title or
interest therein at all.
VII. That H. Sylvester
Garvin claims some right, title or interest in said sum by virtue of an
assignment thereof obtained from the defendant, Robert James Byrne; that
said defendant had no right, title or interest in said property to
VIII. That Robert D. Bell
is the owner of said property and said property should be restored to
him; that Kelleher & Curran, Attorneys at Law, have been authorized
by said owner to receive said property on his behalf.
From the foregoing Findings
of Fact, the court now makes and enters the following.
I. That Robert James Byrne
is not the owner of seven $500 bills of
currency held in evidence in this case as State's Exhibit No. 3 and has
not nor has ever had any right, title or interest therein.
II. That the levy of the
United States of America
should be declared to be not an encumbrance upon said fund and the
complaint in intervention of the
United States of America
should be dismissed.
III. That the assignment of
funds filed herein of Robert James Byrne to H. Sylvester Garvin is void
and of no effect and said H. Sylvester Garvin acquired no right, title
or interest in said property by virtue thereof.
IV. That said fund, to-wit:
State's Exhibit No. 3, the same being seven $500 United States currency
bills, should be restored to Robert D. Bell, the owner thereof through
his attorneys, Kelleher & Curran, and the Clerk of this Court should
be authorized and directed to deliver said property to said owners.
That execution of the judgment herein should be stayed, without
supersedeas bond for a period of thirty days from the date of entry
thereof and if an appeal is commenced within such time, execution of
such judgment should be further stayed without supersedeas bond pending
the outcome of such appeal.