Annotations- Title in
Dispute
6332 Annotations: Title
in Dispute- Levy
Penalty
for Failure to Surrender Property: Title in Dispute
[53-1 USTC ¶9290]Herman J. Determan,
Plaintiff v. Herbert T. Jenkins,
Vernon
R. Woodard, and Charles H. Dunn, Defendants
In
the United States District Court for the Northern District of Georgia,
Atlanta Division, Civil Action No. 4437, 111 FSupp 604, February 5, 1953
Surrender of property subject to distraint: Delivery to Collector:
Title in dispute: Duty to ascertain true title.--A city police
official acted properly in delivering certain money in his possession to
an Internal Revenue Agent who, acting under a warrant of distraint, had
levied on the money, even though he knew at the time that title to the
money was in dispute. The police official was not required to ascertain
the true title to the money before he delivered it to the Internal
Revenue Agent.
Charles E.
Lester, 8 East Fifth Street, Newport, Ky., Gambrell, Harlan, Barwick,
Russell & Smith, 825 C & S National Bank Building, Atlanta, Ga.,
for plaintiff. J. Ellis Mundy, United States Attorney, Box 912, Atlanta,
Ga., and J. C. Savage, 803 C & S National Bank Building, Atlanta,
Ga., for defendant.
Order
Granting Motion for Summary Judgment as to Defendant Herbert T. Jenkins
HOOPER,
District Judge:
The complaint
seeks to recover from defendant Jenkins, Chief of Police of Atlanta, and
from Defendant Dunn, as acting United States Collector of Internal
Revenue for
Georgia
, and from defendant Woodard, Internal Revenue Agent, the sum of
$16,200.00, representing currency which was found by defendant Jenkins
in an airplane wrecked near
Atlanta
. The following facts appearing from the pleadings in the case, and from
statements made at pre-trial hearing, appear without dispute:
The airplane
in question belonged to one Brink who was a passenger in the same when
it crashed near
Atlanta
. Defendant Jenkins took therefrom $16,200.00 of currency, it being
stipulated that this currency was technically taken from the possession
of Brink. Someone in behalf of the plaintiff Determan notified defendant
Jenkins that the currency was the property of Determan but this person
did not make a demand on Jenkins to deliver the same. Subsequently,
Agent Woodard, a Deputy Collector of Internal Revenue for Georgia,
acting under authority of a distraint issued against Brink, levied on
said currency in the possession of defendant Jenkins who delivered same
to Woodard pursuant to provisions of Section 3710 of the Internal
Revenue Code, even though defendant Jenkins knew at the time that
plaintiff Determan was claiming the same. Defendant Woodard turned said
currency over to defendant Dunn, the possession of each of these
defendants being their official possession as Agents of Internal
Revenue.
Under these
facts the Court is of the opinion that the complaint does not allege a
cause of action against defendant Jenkins. Said Section 3710 provides in
part that "any person in possession of property subject to
distraint, upon which a levy has been made, shall upon demand by the
Collector or Deputy Collector, making such levy, surrender such property
to such collector or deputy." Plaintiff contends this property was
not "subject to distraint" because it belonged to plaintiff
and not to Brink, the person named in the warrant of distraint. That
construction of the statute would have required Jenkins to ascertain the
true title to the money before delivering it over to the Internal
Revenue Agent, but this Court cannot adopt that construction. It was the
duty of defendant Jenkins to deliver it to defendant Woodard. There was
no conversion by defendant Jenkins and the action is dismissed as to
him. See
United States
v. Marine Midland Trust Company of
New York
, 46 Fed. Supp. 38 [42-2 USTC ¶9590]; United States v.
Metropolitan Life Insurance Company, 36 Fed. Supp. 339 [41-1 USTC ¶9173];
United States v. City State Bank, 19 Fed. Supp. 775 [37-2 USTC ¶9471].
[65-1 USTC ¶9343]Evelyn S. Sebel and
Richard Sebel, Plaintiffs v. Lytton Savings and Loan Association,
Eastland Savings and Loan Association, and Doe I through Doe VI,
Defendants Lytton Savings and Loan Association, a California
Corporation, Defendant and Cross-Complainant v. Evelyn S. Sebel, Richard
Sebel, and R. A. Riddell, District Director of Internal Revenue,
Cross-Defendants
U.
S. District Court, So. Dist. Calif., Central Div., No. 64-1223-JWC
Civil, 1/26/65
[1954 Code Sec. 6331]
Levy and distraint: Savings account.--A savings and loan
association had an absolute defense in an action brought by a
taxpayer-depositor where the association had paid money from the
taxpayer's account to the Internal Revenue Service under a notice of
levy and demand for payment.
N. E.
Youngblood,
425 S. Beverly Dr.
,
Beverly Hills
,
Calif.
, for plaintiffs. Thomas W. Clarke, Mark L. Lamken, Daniel S. McDonald,
Los Angeles
,
Calif
, for defendant and cross-complainant, Lytton Savings and Loan Ass'n.
James
S.
Bay
, Assistant United States Attorney,
Los Angeles
,
Calif.
, for cross-defendant.
Findings
of Fact and Conclusions of Law
CURTIS,
District Judge:
The cause came
on regularly for trial of a Motion for Summary Judgment on December 7,
1964, before the Court sitting without a jury. N. E. YOUNGBLOOD appeared
as counsel for Plaintiffs. MARK L. LAMKEN appeared as counsel for
Defendant Lytton Savings and Loan Association, and
JAMES
S.
BAY
, Assistant United States Attorney, appeared as counsel for
Cross-Defendant District Director of Internal Revenue. The Court having
read the affidavits and having examined the proof offered by the
respective parties, and the cause having been submitted for decision,
and the Court being fully advised in the premises makes its findings of
fact as follows:
Findings
of Fact
It is true
that:
1. On or about
June 21, 1963, plaintiffs were the owners of a certain savings account
No. 46179 at Lytton Savings and Loan Association.
2. That the
District Director of Internal Revenue Service is an officer of the
Internal Revenue Service, United States Treasury Department.
3. On or about
June 21, 1963, defendant Lytton Savings and Loan Association was served
with a Notice of Levy against plaintiff Evelyn S. Sebel and one W. F.
Sebel in the sum of $8,238.74 by the District Director of Internal
Revenue through Revenue Officer Angelo A. Henderson.
4. That
together with service of the said Notice of Levy, demand was made upon
defendant Lytton Savings and Loan Association, by said District Director
of Internal Revenue, for payment of the sum of $8,238.74.
5. That
pursuant to said demand of the said District Director of Internal
Revenue, defendant Lytton Savings and Loan Association paid to the
Internal Revenue Service the sum of $8,238.74 out of the funds of said
savings account No. 46179.
The following
Conclusions of Law, insofar as they may be considered Findings of Fact,
are so found by this Court to be true in all respects.
From the
foregoing facts, the Court concludes as follows:
Conclusions
of Law
1. That
plaintiffs Evelyn S. Sebel and A. Richard Sebel held said savings
account as joint tenants.
2. That each
was entitled to the whole of said account and that the receipt or
acquittance of one of the joint tenants releases and discharges
defendant Lytton Savings and Loan Association for any liability on said
account to the other joint tenant, pro tanto.
3. That the
District Director of Internal Revenue, either personally, or through
agents, is empowered to issue a Notice of Levy and to demand and receive
payment in respect thereto.
4. That no
statute, law, or otherwise, of the State of
California
is applicable to or in any manner restricts the exercise of the right of
levy by the District Director of Internal Revenue in the instant case.
5. That upon
service of the Notice of Levy and upon demand, defendant Lytton Savings
and Loan Association was obligated to pay to the levying party the sum
so demanded from the account held by plaintiffs herein.
6. That the
service of the Notice of Levy and demand for payment upon defendant
Lytton Savings and Loan Association, and the payment in answer thereto,
constitutes an absolute defense in favor of said defendant against any
action at law or suit in equity which might be brought against said
Association by the holders of the savings account from which such
payment was made.
Judgment
The cause came
on regularly for trial of a Motion for Summary Judgment on December 7,
1964, before the Court sitting without a jury. N. E. YOUNGBLOOD appeared
as counsel for Plaintiffs, MARK L. LAMKEN appeared as counsel for
Defendant Lytton Savings and Loan Association, and
JAMES
S.
BAY
, Assistant United States Attorney, appeared as counsel for
Cross-Defendant District Director of Internal Revenue. The Court having
read the affidavits and having examined the proof offered by the
respective parties, and the cause having been submitted for decision,
and the Court being fully advised in the premises, and in accordance
with the Findings of Fact and Conclusions of Law filed by the Court
herein, IT IS ORDERED, ADJUDGED AND DECREED:
1. That
judgment shall be entered in favor of defendant Lytton Savings and Loan
Association on plaintiffs' complaint, that plaintiffs Evelyn S. Sebel
and A. Richard Sebel take nothing by reason of their complaint as
against defendant Lytton Savings and Loan Association, and that the same
be, and hereby is, dismissed as to defendant Lytton Savings and Loan
Association.
2. That
defendant Lytton Savings and Loan Association have judgment against
plaintiffs Evelyn S. Sebel and A. Richard Sebel for costs of suit herein
in the sum of $13.50.
[85-2 USTC ¶9813]Bell & Beckwith,
Plaintiff v.
United States of America
, Internal Revenue Service, Defendant-Appellee, Donna D. Cannon,
Defendant-Appellant
(CA-6),
U. S. Court of Appeals, 6th Circuit, No. 83-3582, 766 FSupp 910,
3/26/85, Rev'g and rem'g unreported district court decision
[Code Sec. 6332 and 28 U. S. C. 1331]
Jurisdiction: Interpleader: Title in dispute.--A district court
within the Sixth Circuit did not have jurisdiction to hear an
interpleader action where the title holder to the interpleaded fund
claimed ownership and denied that she held title as a mere nominee for a
delinquent taxpayer. Although a coercive action by the
United States
against the stakeholder could have arisen under federal law, a
resolution of the threshold question of ownership pursuant to state law
could have obviated the need to decide the federal question.
Thomas P.
Kurt, 1030 Spitzer Bldg.,
Toledo
,
Ohio
43604
, for plaintiff. Patrick J. Foley, Assistant United States Attorney,
Toledo, Ohio 43624, Glenn L. Archer, Jr., Assistant Attorney General,
Michael L. Paup, Carleton D. Powell, Douglas G. Coulter, Department of
Justice, Washington, D. C. 20530, for defendant-appellee. Robert B.
Gosline, Shumaker, Loop & Kendrick, 1000
Jackson
,
Toledo
,
Ohio
43624
, for defendant-appellant.
Before KEITH,
MARTIN and CONTIE, Circuit Judges.
KEITH, Circuit
Judge:
This is an
appeal from a judgment of the United States District Court for the
Northern District of Ohio, distributing an interpleaded fund, less
certain expenses, to the
United States
. For reasons stated below, we reverse the decision of the district
court and remand with instructions to dismiss for lack of jurisdiction.
Facts
This case
stems from an effort to collect the tax liabilities of Dr. Alan E.
Zimmer. On Augut 28, 1981, the Internal Revenue Service (IRS) levied a
tax lien on an investment account in the name of the appellant, Donna D.
Cannon, and managed by plaintiff, Bell & Beckwith, a stock brokerage
partnership. The government contends that Ms. Cannon is merely acting as
the nominee of Dr. Zimmer, who provided the funds to set up the account.
On September 1, 1981, the IRS demanded that Bell & Beckwith turn
over the property in the investment account. On September 9, Bell &
Beckwith received a letter from Cannon claiming ownership of the
property and demanding full payment. Bell & Beckwith deposited
$129,620.22 with the clerk's registry and brought an interpleader action
to resolve adverse claims to the property. The complaint invoked
jurisdiction under 28
U. S.
C. §§ 1331, 1340, 1346, 2410 and Rule 22 of the Federal Rules of Civil
Procedure.
[Request
for Admissions]
On December
10, 1981, the government filed a request for admissions and served its
first set of interrogatories on Donna Cannon. One week later the parties
consented to have the case heard and judgment entered by a United States
Magistrate pursuant to 28 U. S. C. §636. Cannon repeatedly ignored,
postponed, and evaded the government's discovery requests until
September 1, 1982, when Cannon filed her response to the government's
interrogatories. Subsequently, the government unsuccessfully attempted
to depose Cannon. Cannon never appeared for scheduled depositions and
never offered any explanation for her absences. Based on these repeated
failures to comply with discovery, the government moved for a default
judgment against Cannon, and for its expenses pursuant to Rules 37(b)
and (d) of the Federal Rules of Civil Procedure. Also pursuant to Rule
37, Bell & Beckwith subsequently moved to dismiss Cannon's
counterclaim and to recover its expenses in connection with the case.
A pretrial
conference was held regarding the motions for sanctions against Cannon.
As a result of the conference, the court ordered that judgment be
granted to the
United States
, that the government withdraw its application for attorney's fees and
costs, and that the balance of the fund, after payment of Bell &
Beckwith's expenses, be transferred to the
United States
. On May 17, 1983, the court issued an order distributing the remainder
of the fund to the government. On the same day, judgment was entered by
the United States Magistrate. Cannon appealed, asserting three claims
for the removal of the district court judgment:
(1)
The district court judgment should be remanded because the basis for the
judgment cannot be discerned;
(2)
The Magistrate Act, 28
U. S.
C. §636, is unconstitutional;
(3)
The district court judgment should be vacated because the court lacked
jurisdiction to rule on Bell & Beckwith's interpleader claim.
The
Basis for the District Court Judgment
Initially we
address Cannon's contention that the district court judgment should be
remanded because the basis for the judgment cannot be discerned. This
argument must be rejected. The district court clearly disposed of this
case in response to a Rule 37(b) motion seeking sanctions against
appellant for her failure to comply with discovery. This ruling may be
reversed only if there has been an abuse of discretion. National
Hockey League v. Metropolitan Hockey Club, Inc., 427
U. S.
639 (1976); Hubbard v. Baltimore & Ohio Railroad, 249 F. 2d
885 (6th Cir. 1957). Given Cannon's repeated, unexplained failures to
appear for depositions, the basis of the decision is clear. Accordingly,
pursuant to Rule 37 of the Federal Rules of Civil Procedure, we find
that the disposition of the case was proper, and not an abuse of
discretion.
The
Magistrate Act
Next, we
analyze Cannon's assertion that the Magistrate Act is unconstitutional.
We also find this argument to be without merit. The parties consented to
have the case heard and judgment entered by a magistrate pursuant to 28
U. S.
C. §636. Cannon now contends that under Northern Pipeline
Construction Co. v. Marathon Pipeline, 458
U. S.
50 (1982), this procedure was unconstitutional because the magistrate
was not authorized to exercise the power of an Article III Judge.
However, the reasoning of Northern Pipeline does not apply in
situations, such as this one, where the magistrate is acting with the
consent of the parties. See Pacemaker Diagnostic Clinic v.
Instromedix, Inc., 725 F. 2d 537 (9th Cir. 1984), cert. denied, 105
S. Ct. 100 (1984); Wharton-Thomas v. United States, 721 F. 2d 922
(3d Cir. 1983); see also KMC Co. v. Irving Trust, 757 F. 2d 752
(6th Cir. 1985) (holding the Magistrate Act constitutional).
Federal
Question Jurisdiction
Finally, we
address Cannon's contention that the district court judgment should be
vacated because the court lacked jurisdiction to rule on the
plaintiff-appellee's interpleader claim. The parties agree that if
jurisdiction is proper in this case, the only basis for jurisdiction is
the general federal question jurisdiction statute, 28
U. S.
C. §1331. That statute provides federal jurisdiction in civil actions
that "aris[e] under the Constitution, laws, or treaties of the
United States
." The difficulty with finding jurisdiction under Section 1331 is
that
Bell
and Beckwith has asserted a federal claim against neither the
United States
nor Cannon.
[Anticipated
Coercive Actions]
Nevertheless,
federal question jurisdiction exists in those cases in which the
plaintiff's claim, though itself not raising a federal question, asserts
a defense to a claim that would raise a federal question and that
defendant could have asserted in a coercive action. The prototypical
action in which this principle is invoked is a patent case in which a
supposed infringer seeks a declaratory judgment that he has not
interfered with the rights of the patentee. See, e.g., Cold Metal
Products Co. v. E. W. Bliss Co., 285 F. 2d 244 (6th Cir. 1960); Technical
Tape Corp. v. Minnesota Mining & Mfg. Co., 200 F. 2d 876 (2d
Cir. 1952); E. Edelmann & Co. v. Triple A. Specialty Co., 88
F. 2d 852 (7th Cir. 1937). If the supposed infringer had not sought
anticipatory relief, the patentee could have sued to enjoin
infringement. Because the infringer's suit merely anticipates a coercive
action by the patentee and the patentee's action would have arisen under
the patent laws, the anticipatory action by the infringer likewise
"arises under" federal law. E. Edelmann & Co., 88
F. 2d at 854; Milwaukee Gas Specialty Co. v. Mercoid Corp., 104
F. 2d 589, 592 (7th Cir. 1939). The suit by the alleged infringer raises
the same issue that could have been raised by the patentee, and
therefore federal question jurisdiction exists.
The principle
established in patent cases is consistent with the dictum in Public
Service Commission v. Wycoff Co., 344 U. S. 237, 248 (1952), in
which the Court stated, "Where the complaint in an action for
declaratory judgment seeks in essence to assert a defense to an
impending or threatened state court action, it is the character of the threatened
action, and not of the defense, which will determine whether there
is federal question jurisdiction in the District Court." The courts
have not limited application of the principle to patent cases and have
applied the principle in a wide variety of cases. See e.g., Thomas v.
Shelton, 740 F. 2d 478, 485 (7th Cir. 1984) (federal question
jurisdiction exists in suit that anticipates coercive action under
Medical Care Recovery Act); Wisconsin v. Baker, 698 F. 2d 1323,
1328-29 (7th Cir.), cert. denied, 103 S. Ct. 3537 (1983),
(federal question jurisdiction exists in suit that anticipates coercive
action under federal Indian treaties); Serio v. Liss, 300 F. 2d
386, 389 (3d Cir. 1961) (federal question jurisdiction exists in suit
that anticipates coercive action under Labor-Management Reporting and
Disclosure Act). The principle has been approved in dicta in many other
cases. See, e.g., City of Saginaw v. Service Employees International
Union, Local 446-M, 720 F. 2d 459, 461 (6th Cir. 1983); Superior
Oil Co. v. Pioneer Corp., 706 F. 2d 603, 607 (5th Cir. 1983), cert.
denied, 104 S. Ct. 706 (1984); Illinois v. Archer Daniels Midland
Co., 704 F. 2d 935, 940 (7th Cir. 1983); Nuclear Engineering Co.
v. Scott, 660 F. 2d 241, 253 (7th Cir. 1981), cert. denied,
455 U. S. 993 (1982). Moreover, the Supreme Court recently noted that
federal courts have regularly taken original jurisdiction over
declaratory judgment suits where the declaratory judgment defendant
could bring a coercive action that would necessarily present a federal
question. Cf. Franchise Tax Board v. Construction Laborers Vacation
Trust, 463
U. S.
1, 5-7 (1983) (rule inapplicable when state seeks declaratory judgment
because state should use its own courts).
As the court
in Franchise Tax Board makes clear, the principle that federal
jurisdiction exists if it would exist in a coercive action by the
defendant has been invoked primarily in cases under the federal
Declaratory Judgment Act, 28
U. S.
C. §2201. We believe that the principle may also be applicable in
situations, such as the case at bar, involving Rule 22 interpleader.
The question
of whether an action arises under federal law is not dependent on an
interpretation of the Declaratory Judgment Act. As the Supreme Court has
made clear, determining whether the court has subject matter
jurisdiction is analytically distinct from determining whether a party
may obtain a declaratory judgment:
"[T]he
operation of the Declaratory Judgment Act is procedural only." Aetna
Life Ins. Co. v. Haworth, 300
U. S.
227, 240. Congress enlarged the range of remedies available in the
federal courts but did not extend their jurisdiction. . . . The
Declaratory Judgment Act allowed relief to be given by way of
recognizing the plaintiff's right even though no immediate enforcement
of it was asked. But the requirements of jurisdiction--the limited
subject matters which alone Congress had authorized the District Courts
to adjudicate--were not impliedly repealed or modified.
Skelly
Oil Co. v. Phillips Petroleum Co.,
339
U. S.
667, 671-72 (1950).
If the Declaratory Judgment Act did not extend the jurisdiction of the
federal courts, then the principle that federal question jurisdiction
exists in an action if such jurisdiction would exist in a coercive
action by the defendant must result from a construction of the term
"arising under" and not from a construction of the Declaratory
Judgment Act. The Declaratory Judgment Act is a procedural device that
permits parties to take advantage of the independently established
principle of jurisdiction.
The
Declaratory Judgment Act operates procedurally to broaden the class of
litigants who might bring into federal court causes of action arising
under federal law. . . . Though the underlying cause of action which is
thus actually litigated is the declaratory defendant's, not the
declaratory plaintiff's, this does not violate the requirement that what
must arise under federal law is the cause of action in issue itself
(regardless of to whom it belongs). . . .
Lowe
v. Ingall's Shipbuilding, a Division of Litton Systems, Inc.,
723 F. 2d 1173, 1179 (5th Cir. 1984); see also E. Edelmann & Co.,
88 F. 2d at 854 ("The Declaratory Judgment Act merely introduced
additional remedies. It modified the law only as to procedure. . . . But
the controversy is the same as previously.").
If the Declaratory Judgment Act is only a procedural device that allows
parties to make use of a particular construction of "arises
under," it follows that other procedural devices may similarly
permit parties to make use of the jurisdictional principle.
We believe
that Rule 22 interpleader may be such a device. Rule 22 provides:
(1) Persons
having claims against the plaintiff may be joined as defendants and
required to interplead when their claims are such that the plaintiff is or
may be exposed to double or multiple liability.
(emphasis
added). As the italicized language makes evident, a plaintiff may use an
interpleader action to anticipate and accelerate a coercive action by
the defendant. The issue to be adjudicated remains the same, but
interpleader may be used "to reach an early and effective
determination of disputed questions." 7 C. Wright & A. Miller, Federal
Practice and Procedure §1702 (1972). Interpleader is available
"even though neither an action has been brought against nor a
formal demand has been made on the stakeholder by some or all of the
potential claimants."
Id.
at §1707. Thus, the purpose of, and procedural advantage provided by,
an interpleader action may be the same as that of the declaratory
judgment action--the actions "enabl[e] a defendant to precipitate a
plaintiff's suit in order to avoid multiple liability or other
inconvenience." Thomas v.
Shelton
, 740 F. 2d 478, 485 (7th Cir. 1984). In interpleader actions as in
declaratory judgment actions, federal question jurisdiction exists if
such jurisdiction would have existed in a coercive action by the
defendant.
Our
application of the jurisdictional principle to interpleader actions is
supported by precedent. In Gelfgren v. Republic National Life
Insurance Co., 680 F. 2d 79 (9th Cir. 1982), the court found federal
question jurisdiction in a Rule 22 interpleader action. An employee
welfare fund interpleaded claimants to certain death benefits.
Id.
at 80-81. The Ninth Circuit held that federal question jurisdiction
existed because an action by the claimants against the welfare fund
would have arisen under ERISA, 29
U. S.
C. §1132(a)(1)(B). Gelfgren, 680 F. 2d at 81. Similarly, in Bank
of China v. Wells Fargo Bank & Union Trust Co., 209 F. 2d 467
(9th Cir. 1953), the court stated in dictum that federal question
jurisdiction would exist in an interpleader action by a federally
insured bank against a foreign central bank because a coercive action by
the foreign central bank would have arisen under federal law.
Id.
at 473-74.
Application of
the jurisdictional principle in the instant interpleader action might
involve any one of three coercive actions which Bell & Beckwith may
have anticipated: an action by the
United States
against Bell & Beckwith; an action by Cannon against Bell &
Beckwith; and an action between Cannon and the
United States
. The number of possible suits and the resulting complexities in the
analysis require us to carefully consider the interplay between the
state and federal claims and the judicial glosses on "arising
under" jurisdiction as provided for in Section 1331.
[Threshold
Question]
Initially, we
consider an anticipated action by Cannon against Bell & Beckwith.
The underlying IRS claim is a tax lien on the investment account in
Cannon's name, which the IRS contends is actually owned by the taxpayer
Dr. Zimmer. Determining the ownership of the investment account is the
threshold question in ascertaining the validity of the lien. Acquilino
v. United States [60-2 USTC ¶9538], 363
U. S.
509, 512-13 (1960).
Cannon asserts
that a coercive action by her against Bell & Beckwith would have
arisen under state law. Specifically, Cannon claims her contention that
she, not Dr. Zimmer, was the owner of the investment account is properly
resolved by state law. If resolution of Cannan's state law claim would
have negated the need for a resolution of any federal law claim, Bell
& Beckwith's interpleader action would not arise under federal law.
Federal question jurisdiction is absent when "the right to be
vindicated is State-created" and the action was "brought into
the federal courts merely because an anticipated defense derived from
federal law." Skelly Oil Co. v. Phillips Co., 339
U. S.
at 673. In Wisconsin v. Baker, the Seventh Circuit explained the
rationale for the Skelly rule:
The rationale
. . . is that the anticipated defense might never be raised, or if it is
raised, never reached because the plaintiff fails to prevail on a
preliminary issue of state law. There is no federal interest, and a
strong state interest, in providing a forum for the litigation of purely
state law issues between citizens of the same state.
Wisconsin
v. Baker,
698 F. 2d at 1328.
Thus, if determination of the state law question raised by Cannon may
have obviated the need for resolution of any federal issue, federal
jurisdiction would be inappropriate. See Shoshone Mining Co. v.
Rutter, 177 U. S. 505, 507-508 ("[A] suit to enforce a right
which takes its origin in the laws of the United States is not
necessarily one arising under the Constitution or laws of the United
States, within the meaning of the jurisdiction clauses . . .")
It is evident
that Cannon's claim in a coercive action against Bell & Beckwith
would have arisen under state law and that resolution of her claim would
have obviated the need to determine a federal question. The Internal
Revenue Code provides that the IRS may "levy upon all property and
rights to property . . . belonging to" a person who refuses to pay
his taxes. 26
U. S.
C. §6331(a); see also 26
U. S.
C. §§ 6332(a), 6321. Cannon asserts in her claim against Bell &
Beckwith and her cross-claim against the
United States
that the funds in the investment account "belong to" her, not
to the taxpayer, Dr. Zimmer. In determining ownership of property for
the purpose of taxation, the Supreme Court has held that:
[B]oth federal
and state courts must look to state law, for it has long been the rule
that "in the application of a federal revenue act, state law
controls in determining the nature of the legal interest which the
taxpayer had in the property . . . sought to be reached by the
statute." Morgan v. Commissioner, 309
U. S.
78, 82. Thus, as we held only two Terms ago, Section 3670 "creates
no property rights but merely attaches consequences, federally defined,
to rights created under state law. . . ." United States v. Bess
[58-2 USTC ¶9595], 357
U. S.
51, 55.
Aquilino
v. United States [60-2 USTC ¶9538],
363
U. S.
509, 512-13 (1960).
Thus, the question whether the funds in the investment account
"belong[ed] to" Cannon or Zimmer would be decided as a matter
of state law. See, e.g., Tillery v. Parks [80-2 USTC ¶9661], 630
F. 2d 775, 776 (10th Cir. 1980); Paskow v. Calvert Fire Ins. Co.
[78-2 USTC ¶9697], 579 F. 2d 949, 950 & n. 2 (5th Cir. 1978).
Resolution of
that state law issue against the
United States
would have obviated the need for determination of any federal claim.
Indeed, an examination of the pleadings in this case reveals that the
state law question of the ownership of the investment funds was the only
issue raised by any of the parties to this action. Because determination
of a state-law issue could have obviated the need for resolution of any
federal issue, examination of the possible coercive actions against Bell
& Beckwith reveals that this interpleader action was not within the
court's jurisdiction under 28 U. S. C. §1331.
Our conclusion
is not altered when we consider that Bell & Beckwith's interpleader
action also anticipated a coercive action by the IRS and an action
between Cannon and the
United States
. If Bell & Beckwith had simply refused to turn over the funds to
the IRS, it could have been subject to penalty under 26
U. S.
C. §6332(c)(1) (penalty for failure to honor levy) and 26
U. S.
C. §6332(c)(2) (failure to honor levy without reasonable cause). Though
a coercive action by the
United States
against Bell & Beckwith thus would have arisen under federal law,
resolution of the threshold question of ownership pursuant to state law
could have obviated the need to decide the federal question. Thus
federal jurisdiction need not exist. Furthermore, Bell & Beckwith
disclaimed any interest in the interpleaded funds, thus the real
substantial controversy was between Cannon and the
United States
. Given that the only dispute between those two litigants was purely a
question of state law, federal question jurisdiction would not exist in
an action between those parties.
[Eighth
Circuit]
Though the
Eighth Circuit has found federal question jurisdiction in a case
involving a tax lien greater than the formerly required jurisdictional
amount of $10,000, we are not persuaded by the reasoning of that court.
Federal courts lack jurisdiction to entertain interpleader actions
where, as here, resolution of a state law question could decide the
matter. But see St. Louis U. Trust Co. v. Stone [78-1 USTC ¶9259],
570 F. 2d 833 (8th Cir. 1978). 1 The Eighth
Circuit cited United States v. Brosnan [60-2 USTC ¶9516], 363
U. S.
237, 240 (1960), for the proposition that matters affecting the
"nature or operation" of tax liens governed by federal
statutes are federal questions, regardless of whether the federal
statutes deal specifically with those matters or not. Unlike Stone,
the instant case does not involve the "nature or operation" of
the lien, but the threshold question of its validity. As we noted, 26
U. S.
C. §6331 provides for a levy upon "property" "belonging
to" a taxpayer. The effect of such language is to incorporate state
laws by reference into the federal law. Aquilino v. United States,
363
U. S.
at 512-13; United States v. Overman [70-1 USTC ¶9342] 424 F. 2d
1142, 1144 (9th Cir. 1970); see also Shoshone Mining Co. v. Rutter,
177
U. S.
at 507. (Federal question jurisdiction held not to exist when a claim
arose under a federal statute that required disputes over the possession
of certain lands to be "determined by 'local customs or rules of
mines in the several mining districts . . .'"). Courts have
consistently cited Shoeshone Mining for the proposition that when
federal law incorporates state law by reference and the issue of state
law is the only or dispositive issue raised by the parties, the case
does not arise under federal law within the meaning of Section 1331.
See, e.g., City National Bank v. Edmisten, 681 F. 2d 942, 945
(4th Cir. 1982); Standage Ventures, Inc. v. Arizona, 499 F. 2d
248, 250 (9th Cir. 1974); Roecker v. United States, 379 F. 2d
400, 407 (5th Cir.), cert. denied, 389
U. S.
1005 (1967). See generally 13b C. Wright, A. Miller & E. Cooper, Federal
Practice & Procedure, §3653 (1984).
The real,
substantial controversy is between Cannon and the
United States
. Since the only issue in controversy is a question of state law, albeit
state law incorporated into federal law, the controversy between those
two parties does not arise under federal law. Thus, although the action
anticipated by Bell & Beckwith's interpleader may be said to be that
between Cannon and the
United States
rather than any coercive action against Bell & Beckwith, the
anticipated action does not arise under federal law within the meaning
of Section 1331.
Accordingly,
the decision of the district court is hereby reversed and remanded with
instructions to dismiss the action for lack of jurisdiction.
1 The Eighth
Circuit ruling was based in part on the presence of the $10,000
jurisdictional amount for federal cases which was repealed by Pub. L.
No. 96-486 §2(a), 94 Stat. 2369 (amending 28
U. S.
C. §1331). To the extent that our result deviates from the result or
analysis in Stone, we decline to follow the Eighth Circuit's
decision. Circuit's decision.
[92-2 USTC ¶50,348] L.G. Sloan, Linda
W. Sloan, Vestar, Inc., Deks, Plaintiffs v. United States of America,
Defendant
U.S.
District Court, No. Dist. Ga., Rome Div., Civ. 4:-90-cv-303-HLM, 4/8/92
[Code Secs.
6332 and 6334 ]
Levy: Title to property: Husband and wife.--Married taxpayers'
motion for an injunction seeking to enjoin a proposed levy on a trust
was dismissed as moot, and the government's motion for summary judgment
was denied with respect to his wife's claim that the IRS wrongfully
levied on a car that was titled in her name. A notice of lien was filed
against the taxpayer's husband who was liable for penalty assessments.
The car in question was seized and sold, and the proceeds were applied
to her husband's tax liabilities. In an affidavit, the wife contended
that her husband never held title to the car. Rather, she purchased the
car, and title was erroneously issued in her husband's name. The
government argued that record title would be conclusive in cases
involving the IRS's enforcement of its statutory rights. However, the
court held that the affidavit, along with the taxpayer's testimony, was
sufficient to create a genuine issue of material fact as to whether
title to the car ever passed to her husband.
ORDER
MURPHY,
District Judge:
This case is
before the Court on Defendant's Motion for Partial Summary Judgement,
and Plaintiff's Motion for Injunctive Relief.
Plaintiffs
filed suit in this case to obtain a refund of monies paid to the
Internal Revenue Service ("IRS") pursuant to a closing
settlement agreement and a release from further liability under the
agreement. The closing settlement agreement provided that Plaintiffs
would pay to the IRS $175,000.00, in full satisfaction of any penalties
which might be imposed on the basis of Plaintiffs' participation in an
abusive tax shelter pursuant to 26 U.S.C. 6700 and 6701. Between
December 31, 1986 and September 2, 1987, Plaintiffs partially satisfied
their obligations under the agreement. By December 29, 1989, however,
the Plaintiffs attempted to recover their payments by filing a refund
request.
On November
27, 1990, the Plaintiffs filed the instant lawsuit against the United
States to recover the payments already made and to seek an order that
Plaintiffs are not obligated to continue paying penalties pursuant to 26
U.S.C. 6700 and 6701. Plaintiffs contended that the closing settlement
agreement, upon which their liability is based, was induced through
fraud on the part of the IRS.
On June 29,
1991, This Court ruled on the Defendant's Motion to Dismiss. The Court
found that Plaintiffs' Complaint, to the extent it sought a refund of
monies already paid, was barred by the statute of limitations contained
in 26 U.S.C. 6511(a). The Court also found, however, that to the extent
that Plaintiffs' Complaint sought an order that Plaintiffs were no
longer liable for such payments, the Defendant's argument was
insufficient to justify granting its Motion to Dismiss. See, Order dated
June 20, 1991, at 12.
On October 30,
1991, this Court granted Defendant's Motion for Reconsideration and
dismissed the remaining aspects of counts I, III, and IV. The claims
were held to violate the anti-injunction act, 26 U.S.C. §7421 . See, Order dated
October 30, 1991, at 9.
This Court's
disposition of Defendant's Motion for Reconsideration has rendered a
decision on Plaintiff's Motion for an Injunction moot. The motion sought
to enjoin the United States' proposed levy on the L.W. Sloan Children's
Trust and was premised on this Court's consideration of whether some
exception to the Anti-Injunction Act, 26 U.S.C. §7421 , applied to the Plaintiff's claims
under counts I, III, and IV. Since this Court's order of October 30,
1991, made it clear that no such exception was available, a decision on
Plaintiff's Motion for an Injunction was rendered moot. Accordingly,
this order will record such a disposition.
All that
remains of the Plaintiff's Complaint, at this point, is count II. Count
II of Plaintiff's Complaint seeks to recover for the United States'
allegedly wrongful levy on a 1983 Mercedes 300 SD vehicle
("Mercedes") which was titled in Mrs. Linda Wooten Sloan's
name. The United States has moved for Partial Summary Judgment against
this claim and the same is now before the Court.
The penalty
assessments against Plaintiff Larry Sloan were made by the IRS on July
2, 1986 and a notice of lien was filed on November 7, 1986. In September
of 1989 the IRS seized the Mercedes which is the subject of count II of
the Plaintiff's complaint. The Mercedes was sold and the proceeds of
$15,400.00 were applied to the tax liabilities of Larry Sloan.
The records on
file with the Georgia State Department of Revenue, Motor Vehicle
Division, indicate that title to the automobile in question was
originally issued to Energy Conservation Systems, Inc., in September of
1983. On August 31, 1985, title passed to Plaintiff Larry G. Sloan. The
records also indicate that on November 9, 1986, title passed from Larry
Sloan to his wife Linda Sloan. Soon after the IRS seized the automobile,
Linda Sloan filed a claim with the IRS seeking return of the automobile.
Her claim eventually became count II of the instant complaint.
The United
States' motion for Partial Summary Judgment seeks to show that its levy
on the Mercedes was valid, since title to the Mercedes was held by Larry
Sloan at the time of the IRS lien. The United States argues that any
purported transfer of the Mercedes by Larry Sloan to his wife is a
fraudulent conveyance under Georgia law. Moreover, the United States
argues that the transfer did not affect the IRS's right to seize the
Mercedes since Linda Sloan was aware of the IRS lien at the time of the
transfer.
Ms. Sloan,
does not dispute the legal argument presented by the United States. She
contends instead that Larry Sloan never held title to the Mercedes. Ms.
Sloan's position is that she purchased the Mercedes from Energy
Conservation Systems Inc. in her own name, and that the auto, as part of
her separate and distinct property, was never subject to the penalties
assessed by the IRS against her husband. According to Ms. Sloan, she
used a line of credit with First Colony Bank to purchase the Mercedes
from Energy Conservation Systems in August of 1985. When First Colony
arranged for the transfer, however, a certificate of title was
erroneously issued in her husband's name. She claims that upon learning
of the mistake she initiated steps to have the title transferred to her
name.
Federal Rule
of Civil Procedure 56(c) authorizes summary judgment when "there is
no genuine issue as to any material fact and . . . the moving party is
entitled to a judgment as a matter of law." The party seeking
summary judgment bears the burden of demonstrating that no dispute as to
any material fact exists. See Adickes v. S.H. Kress & Co.,
398 U.S. 144, (1970); Bingham, Ltd. v. United States, 724 F.2d
921, 924 (11th Cir. 1984). The moving party's burden is discharged
merely by " 'showing'--that is, pointing out to the District
Court--that there is an absence of evidence to support [an essential
element of] the nonmoving party's case." Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986).
In assessing
whether the movant has met this burden, the District Court must view the
evidence and all factual inferences in the light most favorable to the
party opposing the motion. See Bradbury v. Wainwright, 718 F.2d
1538, 1543 (11th Cir. 1983). Once the moving party has adequately
supported its motion, the nonmovant then has the burden to show that
summary judgment is improper, coming forward with specific facts showing
a genuine dispute. Matsushita Electric Industrial Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986).
In deciding a
motion for summary judgment, it is not part of the Court's function to
decide issues of genuine material fact but solely to determine whether
there is such an issue to be tried. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242 (1986); Warrior Tombigbee Transportation Co.
v. M/V Nan Fung, 695 F.2d 1294, 1296 (11th Cir. 1983). It is the
applicable substantive law which will identify those facts that are
material. Anderson, 477 U.S. at 248. Facts which in good faith
are disputed, but which do not resolve or affect the outcome of the suit
will not properly preclude the entry of summary judgment. Id. In
short, such facts are not material. The materiality of a fact rests
solely on the governing substantive law. A District Court "can only
grant summary judgment 'if everything in the record . . .
demonstrates that no genuine issue of material fact exists.' " Tippens
v. Celotex Corp., 805 F.2d 949, 952 (11th Cir. 1986), quoting
Keiser v. Coliseum Properties, Inc., 614 F.2d 406, 410 (5th Cir.
1980) (emphasis in original).
Genuine
disputes are those by which the evidence is such that a reasonable jury
could return a verdict for the nonmovant. Anderson, 477 U.S. at
248. Moreover, for factual issues to be "genuine" they must
have a real basis in the record. Matsushita, 475 U.S. at 587. The
nonmovant "must do more than simply show that there is some
metaphysical doubt as to the material facts. . . . Where the record as a
whole could not lead a rational trier of fact to find for the nonmoving
party, there is no 'genuine issue for trial.' " Id. at 586
(citations omitted.) "[T]his standard mirrors the standard for a
directed verdict. . . . [T]he inquiry under each is the same: whether
the evidence presents a sufficient disagreement to require submission to
a jury or whether it is so one-sided that one party must prevail as a
matter of law." Anderson, 477 U.S. at 251-52.
The United
States argues that there is no genuine issue of material fact as to the
ownership of the Mercedes since record title to the automobile was held
by Larry Sloan at the time of its lien. As Plaintiffs point out,
however, a certificate of title is only "prima facie evidence"
of ownership, and, as such, can be contradicted by other evidence in the
record. Wielgoreki v. White, 133 Ga. App. 834 (1975); United
States v. Elliot, 571 F.2d 880 (5th Cir.) cert. denied, 439
U.S. 953 (1978).
The United
States argues that the problem with this "prima facie"
argument is that it has only been recognized by Georgia Courts in
disputes between buyers and sellers, and to enable a seller to prove
ownership without presenting title. The United States' position,
apparently, is that a Georgia Court would consider record title to be
conclusive in suits involving the IRS's enforcement of its statutory
rights. This Court does not agree. In the view of this Court, record
title is a static concept which does not mutate for the benefit of any
particular litigant. Consequently, the question in the instant case is
whether the Plaintiffs are able to create a genuine issue of material
fact sufficient, if proven at trial, to overcome the United State's
prima facie showing.
The United
States argues that they have not. According to the United States, the
affidavit submitted by Linda Sloan falls short of supporting her
contention that ownership of the vehicle passed directly from Energy
Conservation Systems to herself. The affidavit states, in pertinent
part, the following:
"(3)
In August of 1985, I made arrangements to purchase the car from Energy
Conservation Systems, Inc. and to have the purchase financed through
First Colony Bank.
(4)
First Colony Bank erroneously prepared documents causing the title to
the car to be transferred to Larry W. Sloan with First Colony Bank as
the first lienholder. In fact, title to the 1983 Mercedes-Benz 300SD was
supposed to have been transferred to Linda Sloan.
(5)
Upon learning of the bank's error, I initiated procedures whereby title
to the vehicle would be conveyed to me. On November 9, 1986, title to
the Mercedes-Benz 300SD correctly passed to Linda W. Sloan."
The United
States argues that the above states only that she "made
arrangements" to purchase the car, rather than stating that she
did, in fact, purchase the car (and such "arrangements" can be
made on another's behalf). Likewise the United States points out, the
language quoted above does not state that title passed directly from
Energy Conservation Systems to herself. The point, according to the
United States, is that "[G]iven that plaintiff vociferously
contends in her brief that she was the owner of the automobile, it is
curious, to say the least, that her affidavit does not clearly spell out
that fact." Defendant's Reply Brief in Support of Partial
Summary Judgment, at 4.
Of course,
this Court's function on summary judgment is to identify genuine issues
of material fact and not to resolve them. Consequently, an affidavit
which skates blithely between fact and fiction is often sufficient to
avoid entry of summary judgment. The Court is competent to police such
activities by means of Rule 11 sanctions imposed on parties, and on
their counsel, as well as penalties for perjury, but is absolutely
incompetent to decide issues of fact on summary judgment.
In the instant
case, this Court concludes that the above affidavit, when read in
conjunction with Linda Sloan's deposition testimony, is sufficient to
create a genuine issue of material fact as to whether title to the
Mercedes ever passed to Larry Sloan. 1
Accordingly,
based on the above, Plaintiff's motion for an Injunction is DENIED, as
moot, and Defendant's motion for partial Summary Judgement is DENIED.
IT IS SO
ORDERED, this the 8th day of April 1991.
1 Linda Sloan
testified on deposition as follows:
Q: From whom
was the Mercedes purchased?
A: It was
purchased from Energy Conservation Systems.
. . .
Q: By you?
A: By me.
