496 F.2d 839 (9th Cir. 1974), 73-3219, Westgate-California Corp. v. United States

Docket Nº:73-3219.
Citation:496 F.2d 839
Party Name:WESTGATE-CALIFORNIA CORPORATION, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
Case Date:April 10, 1974
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 839

496 F.2d 839 (9th Cir. 1974)



UNITED STATES of America, Defendant-Appellant.

No. 73-3219.

United States Court of Appeals, Ninth Circuit.

April 10, 1974

Page 840

Herbert L. Moody (argued), Tax. Div. Dept. of Justice, Washington, D.C. Harry D. Steward, U.S. Atty., Robert Filsinger, Asst. U.S. Atty., San Diego, Cal., for defendant-appellant.

Ralph K. Kessler (argued), Mudge, Rose, Guthrie & Alexander, New York City, Friedman, Heffner, Kahn, & Dysart, San Diego, Cal., for plaintiff-appellee.

Charles P. Scully, San Francisco, Cal., amicus curiae for Cal. State Federation of Labor, AFL-CIO.

Before MERRILL, KOELSCH and DUNIWAY, Circuit Judge.


DUNIWAY, Circuit Judge:

On October 19, 1973, the Internal Revenue Service (IRS) acting under 26 U.S.C. § 6861, levied a $4,200,000 jeopardy assessment against appellee Westgate-California Corporation (Westgate), covering Westgate's alleged liability for federal income taxes for the tax periods 1963-67, 1969 and 1970. On October 23, 1973, the IRS filed notices of federal tax liens in several California and Oregon counties where Westgate's properties and assets are located.

After unsuccessful negotiations between the parties, Westgate filed this action on November 15, 1973, seeking to enjoin the IRS from continuing to enforce the liens. Westgate alleged that the Commission of Internal Revenue @ had abused his discretion under 26 U.S.C. § 6325 by refusing to issue a certificate of release or subordination of the liens or a certificate of discharge of any property subject to the liens. On that day, the district court issued an Order to Show Cause why the relief requested by Westgate should not be granted, and set a hearing for November 19. The government responded by filing a motion to dismiss, arguing lack of jurisdiction and failure to state a claim upon which relief could be granted.

Following a two-day hearing, the district court entered an order on November 20 directing the Commissioner immediately to release and discharge all liens which had been imposed upon the

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property of Westgate and its subsidiaries. The order also prohibited the IRS from imposing any further liens upon the property of Westgate or its subsidiaries without prior approval of the court. Stay of this order pending an appeal was denied. The government appealed and applied to Circuit Judge Wallace for a stay of the order pending appeal. Judge Wallace directed that the order by stayed until November 26, 1973, pending a determination of the merits of the government's motion by a panel of this court.

Following oral arguments on November 26, we granted the government's motion to stay the district court's order until further notice. At the same time, we directed Westgate to show cause in writing why the district court's order should not be vacated and the action dismissed for want of jurisdiction. We conclude that the November 20 order of the district court must be vacated and the action must be dismissed.

The jurisdictional question is whether a district court has jurisdiction to enjoin the IRS from imposing a jeopardy assessment. Three provisions of the Internal Revenue Code are involved. 26 U.S.C. § 7421(a) provides that 'except as provided in section . . . 6123(a), . . . no suit for the purpose of restraining the assessment or collection of any tax shall be maintained on any court by any person . . ..' This 'pay and sue' rule, which originated in 1867, 1 requires that a taxpayer must first pay an assessment before he seeks judicial review of that assessment.

26 U.S.C. § 6213(a) contains a broad exception to § 7421(a). It provides, in pertinent part:


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