Name
Changed
[40-1 USTC
¶9253]
United States of America
, Plaintiff, v. The National City Bank of
New York
, Defendant Third Party Plaintiff, v. Rose Gossert, Inc., Third Party
Defendant
United
States District Court, Southern District of New York, Civil 3-75, 32
FSupp 890, Decided February 15, 1940
Lien for taxes.--Funds on deposit in the bank in a name of Rose
Gossert, Inc. were subject to levy by the Government for taxes due from
Lewis-Gossert, Inc. for 1933. In 1936, the firm name was changed, and a
creditors' agreement was entered into whereby subsequently arising
claims would be given preferenc. Such an agreement, in which the
Government had no part, was not binding upon it.
Hon. John T.
Cahill, United States Attorney, Southern District of New York, Foley
Square, New York City, attorney for plaintiff, (John B. Creegan, Esq.,
Assistant United States Attorney, of counsel). Shearman & Sterling,
Esqs., 55 Wall Street, New York City, attorneys for defendant and third
party plaintiff, (Chauncey B. Garver, Esq., of counsel).
Rob
ert Hoffman, Esq., 1270 Broadway,
New York City
, attorney for Third Party Defendant.
LEIBELL, D.
J.:
The plaintiff,
United States of America, has moved for summary judgment against the
original defendant and third party plaintiff, The National City Bank of
New York, which also moves for summary judgment against the third party
defendant, Rose Gossert, Inc. Rule 56(a) and (b) F. R. C. P.
[The
Issue]
The action was
brought by
United States of America
against The National City Bank of
New York
to recover the sum of $1030.32 on deposit with that bank to the credit
of the third party defendant, Rose Gossert, Inc. The complaint sets
forth that on
June 12, 1936
, the Commissioner of Internal Revenue duly assessed against Lewis
Gossert, Inc., an
Illinois
corporation, a deficiency income tax in the sum of $1030.32 for the year
1933 and that on
June 20th, 1936
, the name of such corporation was changed to Rose Gossert, Inc. It
alleges that on October 28, 1937 the Collector of Internal Revenue for
the Third Collection District of New York duly served upon the original
defendant and upon a representative of the third party defendant a
notice and demand for the payment of the tax, and that on the same day a
notice of tax lien in the usual form was filed with the Clerk of this
Court. It is further alleged that on that date the defendant bank had in
its possession money applicable to the payment of the deficiency tax and
that notwithstanding the demand for payment the bank has refused and
still refuses to pay over the money in its possession contrary to the
provisions of Section 1114(e) and (f) of the Revenue Act of 1926 (26 U.
S. C. A. §1610).
Prior to the
service of its answer the bank obtained an ex parte order under
Rule 14 of the Federal Rules of Civil Procedure permitting it to serve a
third party summons and complaint upon Rose Gossert, Inc.
The third
party complaint after stating the facts with respect to the levy upon
the bank, alleges that the third party defendant claimed that the lien
of plaintiff was against Lewis-Gossert Inc. and not against it and had
directed the bank not to pay over any part of its indebtedness to Rose
Gossert, Inc., to the plaintiff. In its answer to the original
complaint, the bank asserts that it has no interest in this indebtedness
except to deliver it to the person legally entitled thereto and that
since Rose Gossert, Inc. had directed it not to pay over any part of the
deposit to the Collector of Internal Revenue it could not safely
determine which of the two claimants was entitled to the fund. It
therefore prays that it be permitted to pay the deposit into Court and
thereby be discharged from all liability either to the plaintiff or to
Rose Gossert, Inc. in connection with the amount so paid.
After the
service of the third party summons and complaint, Rose Gossert, Inc.
appeared by attorney and filed an answer to the original complaint and
to the third party complaint. The third party answer to the original
complaint alleges that Rose Gossert, Inc. is without knowledge or
information sufficient to form a belief as to the assessment of the tax
on
June 12, 1936
and admits that the corporate name of Lewis-Gossert, Inc. was changed to
Rose Gossert, Inc. It further asserts that a creditors' committee
assumed control of the affairs of the corporation on or about May 29,
1936 and while it admits the service of the notice and demand on October
28, 1937, and the fact that the defendant bank has a deposit to the
credit of Rose Gossert, Inc., it alleges that "the beneficial
interest, right and title" to the deposit is in the creditor' body
of Rose Gossert, Inc.
As a
purportedly separate defense to the complaints it is alleged that Rose
Gossert, Inc. was liquidated on the 31st day of May, 1937, and its
business discontinued. It is asserted that on that day it had been
determined that there was an insufficient amount of assets on hand to
pay current creditors in full and that there were no assets to pay the
creditors whose claims accrued prior to May 29, 1936.
The third
party defendant opposes the granting of the motions on the ground that
there are material triable issues of fact (affidavit of Henry I.
Perlstein, page 3). The pleadings show, however, that the only issue in
the case is whether or not on
October 28, 1937
, defendant bank had on hand a deposit subject to levy by the
government.
Since no real
argument has or can be made with regard to the effect of the merely
formal change of the corporation's name, the levy having been made upon
funds to the credit of either Lewis-Gossert, Inc. or Rose Gossert, Inc.,
the resolution of the issue depends upon two factors only:--(1) whether
or not despite the corporation's lack of information and knowledge with
respect to the assessment, the facts show that the assessment was
validly made; and (2) whether or not an agreement of May 29, 1936 was
sufficient to raise some prior right in the creditors sufficient to
defeat the government's claim for taxes for the year 1933. The papers
submitted on these motions show the following facts with regard to these
two points.
[The
Facts]
It appears
from the affidavits submitted by the United States Attorney that on or
about January 11, 1936, the Commissioner of Internal Revenue, Chicago
Division, mailed the usual ten day formal letter to Lewis-Gossert, Inc.,
at 700 North Michigan Avenue, Chicago, Illinois, this address being the
same as that given by the corporation on June 20th, 1936, in its
application to the Secretary of State of Illinois for its change of
name. The letter states that the government proposes to assess an
additional $908.10 tax for the year 1933 and directs the taxpayer to
file a protest with the local office if he desires to have an
admin
istrative hearing upon the proposed deficiency. Attached to the
affidavits is a photostatic copy of the 90-day letter sent by registered
mail to the taxpayer at its Chicago address by the Commissioner of
Internal Revenue, Washington, D. C., on March 2, 1936, in which the
taxpayer is advised of the determination of the deficiency and of the
fact that it has 90 days from the mailing of the letter to file a
petition with the Board of Tax Appeals. Apparently nothing was done by
the taxpayer with respect to the 90-day letter and a certified copy of
the assessment roll shows that the deficiency, together with the
statutory interest, was assessed on
June 12, 1936
, after the expiration of the 90-day period.
Rose Gossert,
who was associated with Lewis-Gossert, Inc., since October 1933 and was
Secretary and Treasurer thereof, has made affidavit that at no time did
she have knowledge that any assessment or claim had been levied by the
Government against the corporations for the tax upon which the suit is
brought; that William L. Lewis severed his connection with the
corporation May 29, 1936 (this is contradicted by paragraph Fifteenth of
the agreement of that date) after which Rose Gossert became
Vice-President acting under direction of a creditors' committee headed
by Henry I. Perlstein (a new president of the taxpayer) whose offices
were located in New York City. Rose Gossert says she never knew of or
received either of the Government's demands of
June 16, 1936
or
July 3, 1936
or the copy of the assessment list. She also states that in the early
part of 1937 a Government agent called on her with respect to a
government claim for taxes against the corporation. She told him the
control of the corporation and its monies was in the hands of its
creditors.
The mailing of
the notice of deficiency and the 90-day letter to the usual business
address of the taxpayer was sufficient to warrant the making of the
assessment [§274 of the Revenue Act of 1926; 26 U. S. C. A. §272; Ventura
Consolidated Oil Fields v. Rogan, 86 Fed. (2d) 149 [36-2 USTC ¶9494]]
and the fact that the corporation now denies information and knowledge
sufficient to form a belief with respect to it having been made, does
not in any way disprove its validity.
[Creditor's
Agreement]
Henry I.
Perlstein has made affidavit in respect to the making of the agreement
of
May 29, 1936
. He also states:--
That
thereafter, and on or about the 31st day of May, 1937 the assets of Rose
Gossert, Inc., were liquidated and its business and activities
discontinued. At that time it was determined that there was an
insufficient amount of monies and assets on hand to pay current or
"new" creditors their claims in full, and that there were no
assets whatsoever to pay the corporate creditors, whose claims accrued
prior to May 29th, 1936, any part or portion thereof.
*
* * * * * *
All
monies and assets in the name of Rose Gossert, Inc., had not been
derived from any assets from the corporation prior to May 29th, 1936,
but have been derived from the merchandise and credit extended to the
corporation, by those "new" creditors whose claims accrued
subsequent to May 29th, 1936.
*
* * * * * *
I
further respectfully submit that the funds on deposit with the National
City Bank of
New York
, the defendant herein, are trust funds, and are for the benefit of the
"new" creditors of the corporation. Such funds, if
distributed, amongst the "new" creditors are still
insufficient to fully pay the said "new" creditors, their
respective claims.
He
admits--
That
on or about the 28th day of October, 1937 the Collector of Internal
Revenue for the Third Collection District of New York, served upon the
Third Party Defendant, a notice and demand for the payment of an alleged
deficiency income tax, existing against Lewis Gossert, Inc. That such
deficiency income tax in the sum of $1,030.32 was assessed against the
said Lewis Gossert, Inc., on or about
June 12th, 1936
for the year 1933.
He
asserts that plaintiff has been guilty of laches. The above quoted
allegations repeat the substantial parts of the affirmative defense set
forth in the third party defendant's answer.
So far as the
effect of the agreement of May 29th, 1936 is concerned, the affidavits
show that during the first part of the year 1936 Lewis-Gossert, Inc. was
in financial difficulties and that this agreement, a copy of which is
attached to the plaintiff's moving papers, permitted the continuing of
the taxpayer in business with a proviso that no new liabilities were to
be undertaken by it without the consent and approval of a named
creditors' committee. In addition paragraph Fourteenth (A) of the
agreement excluded preferred creditors from its operation. A reading of
the agreement shows that it amounted to no more than a creditors'
control of a corporation in financial difficulties together with a
contract by those who were creditors at the time of the agreement to
permit a preference with respect to subsequently arising claims. It was
not a general assignment for the benefit of creditors and clearly, since
the government was not a party, it could not be bound by it. In
addition, the corporate resolution of Rose Gossert, Inc. dated May 8th,
1937, designating the bank as the depository of the funds of the
corporation is in the usual form and authorizes Henry I. Perlstein,
president, to sign all checks and orders with respect to the depository,
making no mention of any creditors' agreement or trust for the benefit
of creditors. An affidavit of a Vice-President of the bank states that
the only information concerning Rose Gossert, Inc. which was given when
the account was opened was that the business of the corporation was
"retail dresses (in liquidation)." This information was given
only to an employee of the bank at its Thirty-Fourth Street Branch.
Certainly no basis can be found in these facts for a theory which would
support a prior right to the deposit in favor of the creditors.
Additional
exhibits have also been produced by plaintiff to show that notices and
demands for the payment of the assessed tax were mailed to the Chicago
office of the corporation on June 16th and July 3rd, 1936, but, since
the government has made no claim for statutory interest accruing after
the assessment and before October 28, 1937, there is no reason to
comment upon these. See, 26
U. S.
C. A. §292 and 294(2)(b).
[Conclusion]
The facts set
forth in the affidavits and the exhibits which have been recited in
part, show that the tax was validly assessed and it is admitted that
notice and demand for payment were received by the corporation on
October 28, 1937
. As the agreement of May 29, 1936 not only by its own terms excluded
preferred creditors existing either before or after the date of the
agreement from its operation but also could not be binding upon the
government, and since the resolution authorizing the deposit in the bank
makes no mention of any trust for the benefit of the creditors or prior
liens acquired by them, it must be concluded that the funds on deposit
with the bank on the date of the levy were subject to levy by the
government.
There is no
genuine issue as to any material fact. I am therefore granting the
motion of the plaintiff for a summary judgment and since by the terms of
Rule 14 of the Federal Rules of Civil Procedure it is provided that
"the third party defendant is bound by the adjudication of the
third party plaintiff's liability to the plaintiff", it is
unnecessary to pass upon the motion made by defendant bank. The granting
of plaintiff's motion should furnish the bank complete relief.
Submit order
on notice.
