Wagner v. U.S., 77-1383

• Decision Date: 28 March 1978
• Docket Number: No. 77-1383,77-1383
• Citation: 573 F.2d 447
• Parties: 78-1 USTC P 9340 Richard D. WAGNER, as Trustee for M. Clune Co., Inc., and Donald L. Adams, as Trustee for George Geary Haughton, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 447

573 F.2d 447

78-1 USTC P 9340

Richard D. WAGNER, as Trustee for M. Clune Co., Inc., and Donald L. Adams, as Trustee for George Geary Haughton, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.

No. 77-1383.

United States Court of Appeals Seventh Circuit.

Argued Oct. 3, 1977.

Decided March 28, 1978.

Myron C. Baum, Acting Asst. Atty. Gen., John G. Manning, Atty., Tax Div., Dept. of Justice, Washington, D. C., Virginia Dill McCarty, U. S. Atty., Indianapolis, Ind., for defendant-appellant.

Richard D. Wagner, Indianapolis, Ind., for plaintiffs-appellees.

Before PELL and WOOD, Circuit Judges, and CAMPBELL, Senior District Judge. ^*

PELL, Circuit Judge.

This is an appeal from a district court judgment in which the plaintiffs-appellees recovered from the United States $7,044.14 plus interest and costs, the principal sum being the amount that the Internal Revenue Service had levied upon to satisfy unpaid federal income taxes of George G. Haughton and his wife, Geraldine A. Haughton. At issue on appeal, as in the district court, is whether the Government wrongfully levied on certain trust funds to satisfy the unpaid income taxes of the Haughtons.

The facts relevant to this appeal concern the creation of the trusts upon which the Government levied. Haughton was an employee of M. Clune Company, Inc., a furniture business. He also operated his own business in one of Clune's stores. In 1972, Haughton became indebted to Heller & Company in the amount of $28,000, allegedly acting with the apparent authority of Clune. Heller then filed suit against both Haughton and Clune alleging that Clune was also liable on the debt because Haughton had incurred the debt on behalf of Clune.

On February 20, 1973, Richard Wagner and Donald Adams (trustees-appellees herein but acting then as attorneys for Clune and Haughton) signed a letter agreement acknowledging that the Heller debt must be paid and establishing an arrangement for such payment. This letter agreement provided that Clune would pay $500 of Haughton's monthly wages and commissions directly to Richard Wagner and Donald Adams as trustees respectively for Clune and Haughton. The trustees would deposit the funds in a checking account and periodically make payments from the account to Heller to pay the debt. Heller was not a party to this agreement.

On January 7, 1974, Haughton and Clune themselves entered into an agreement with similar provisions. In the later agreement, Haughton acknowledged that he was liable for any judgment that Heller might obtain against Clune and agreed to indemnify Clune for any such liability. The appellees-trustees were to deposit in savings accounts all sums held by them as trustees under the previous letter agreement, as well as continuing to deposit subsequent monthly $500 payments from Clune to appellees in the same fashion as under the previous letter agreement so long as Haughton remained Clune's employee. If Heller did obtain a final judgment against Clune, the appellees were to transfer the funds on deposit to Clune to satisfy Haughton's obligation to indemnify Clune, and to pay any balance remaining to Haughton. Eventually, in March 1976, Heller obtained a judgment against Clune which, including interest, was in the amount of some $34,000.

The January 7, 1974, agreement stated that Haughton would file a petition in bankruptcy within three weeks, but that he would not seek to schedule or otherwise discharge his obligation to indemnify Clune in the bankruptcy proceeding. Haughton filed his bankruptcy petition on January 29, 1974.

On April 14, 1973, prior to the 1974 agreement but subsequent to the letter agreement, Haughton and his wife were assessed federal income taxes for 1972 in the amount of $5,137.07. A tax lien on their property attached pursuant to 26 U.S.C. § 6321 on that date. ¹ On May 16, 1974, the Government levied on and seized funds in one of the savings accounts opened by appellees subsequent to the January 7, 1974 agreement. The Government levied upon and seized funds in a second similarly opened savings account on July 24, 1975 to further satisfy Haughton's 1972 tax assessment. ² Similar procedures were repeated with respect to Haughton's 1974 tax assessment. On June 21, 1975, the Haughtons were assessed $4,790.07 for 1974 incomes taxes. A tax lien thus attached on that date. The Government levied upon one of the savings accounts set up pursuant to the January 7, 1974 agreement and seized $3,335.10, the unpaid balance of the 1974 assessment.

Appellees brought suit against the Government to recover the funds levied upon, alleging wrongful levies. ³ The term "wrongful levy" itself is defined in Section 301.7426-1(b)(iv) of the Treasury Regulations on Procedure and Administration (1954 Code), to include (1) a levy made upon property in which the taxpayer has no interest, (2) a levy made upon property with respect to which a person other than the taxpayer is a purchaser against whom the lien in favor of the United States for the unpaid taxes of the taxpayer is invalid under Section 6323 of the Internal Revenue Code, or (3) a levy that effectively destroys or otherwise irreparably injures the interest of a person other than a taxpayer in the property levied upon when such person's interest is senior to the lien of the United States for unpaid taxes.

The Government's first argument in this appeal is that the transfer by Clune of Haughton's wages and commissions into the trust was an invalid assignment of wages under Indiana law, and thus that these funds remained Haughton's property and were subject to a tax levy. The determination of whether a taxpayer has an interest in property is governed by state law. Aquilano v. United States, 363 U.S. 509, 513, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960). Ind.Code Ann. § 22-2-6-2 (Burns) provides that any assignment of the wages of an employee thereafter made shall not be valid unless specific content and formalistic requirements are met and it is made to pay one of eleven listed purposes such as union dues, premiums on insurance secured by the employer, charitable contributions, etc. The Government argues, but for the first time on this appeal, that the purported assignment of Haughton's future wages was not in compliance with the Indiana statute and therefore invalid. The Government concedes in its reply brief that it had failed to plead or otherwise raise the issue at trial, but argues that it would not be precluded from now raising it because the invalidity of the agreement under the statute is apparent from the face of the agreement. The Government is certainly correct insofar as it is stating that noncompliance with the statute is apparent from the face of the agreement. If for no other reason, the payment purpose does not fall within any of the eleven statutory categories. This, however, is only an initial step in the analysis of the claimed defense.

The determination of what questions will be considered and resolved for the first time on appeal is left to the discretion of the court of appeals. Singleton v. Wulff, 428 U.S. 106, 121, 96 S.Ct. 2868, 49 L.Ed.2d 826 (1976). Our discretion to consider such issues, however, should be exercised only in exceptional cases as where the proper resolution is beyond doubt or where injustice might otherwise result. Id. Ordinarily we follow the well-settled general proposition that "a litigant cannot present to this court as a ground for reversal an issue which was not presented to the trial court and which it, therefore, had no opportunity to decide." Stern v. United States Gypsum, Inc., 547 F.2d 1329, 1333 (7th Cir. 1977), cert. denied, 434 U.S. 975, 98 S.Ct. 533, 54 L.Ed.2d 467 (Nov. 29, 1977); Desert Palace, Inc. v. Salisbury, 401 F.2d 320, 324 (7th Cir. 1968). Nevertheless, if the letter agreement, which was signed and became effective before the first tax assessment and which was continued in effect by the 1974 agreement, was absolutely void and a complete nullity, the question might be a close one, particularly as to the amounts paid into the savings accounts subsequent to the first tax assessment. ⁴ We do not read the Indiana statute, however, as saying that a noncomplying assignment is totally without legal effect.

A predecessor Indiana statute on the subject had apparently prohibited all assignments of future wages, see International Text-Book Company v. Weissinger, 160 Ind. 349, 65 N.E. 521 (1902), but the present statute quite obviously indicates that there is nothing inherently wrong with an assignment of such wages in that it specifically permits assignment to eleven categories of recipients. Those which are not included, by statutory definition, "shall not be valid." While there are certainly aspects of public policy in this statute, that policy is not directed at protecting the public at large but more narrowly just the "interest of the wage-earners." Id. at 353, 65 N.E. 521. In our opinion, the Indiana courts, under well-established general law would hold that when an action is not "valid," indeed, even when it is statutorily described as being "void," the proper construction is that the action is "voidable at the option of one of the parties or some one legally interested therein." Doney v. Laughlin, 50 Ind.App. 38, 94 N.E. 1027, 1028 (1911). To the same effect and for a scholarly discussion of the general rule of construction, see Mutual Benefit Life Insurance Co. v. Winne, 20 Mont. 20, 49 P. 446 (1897). The following words of that court, at 449, are particularly applicable to the present situation:

Whenever the act done takes effect as to some purposes, and is void as to persons who have an interest in impeaching it, the act is not a nullity, and therefore, in a legal sense, is not utterly void, but merely voidable. Another test of a void act or deed is that every stranger may take advantage of it, but not of a voidable one.

Here Haughton could have chosen to impeach his assignment but...