Texas Commerce Bank-Fort Worth, N.A. v. U.S.

• Citation: 896 F.2d 152
• Decision Date: 16 March 1990
• Docket Number: No. 88-1809,BANK-FORT,88-1809
• Parties: -848, 90-1 USTC P 50,155 TEXAS COMMERCEWORTH, N.A., Plaintiff-Appellee/Cross-Appellant, v. UNITED STATES of America, Defendant-Appellant/Cross-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 152

896 F.2d 152

65 A.F.T.R.2d 90-848, 90-1 USTC P 50,155

TEXAS COMMERCE BANK-FORT WORTH, N.A., Plaintiff-Appellee/Cross-Appellant, v. UNITED STATES of America, Defendant-Appellant/Cross-Appellee.

No. 88-1809.

United States Court of Appeals,

Fifth Circuit.

March 16, 1990.

Marvin Collins, U.S. Atty., Fort Worth, Tex., Steven W. Parks, Gary R. Allen, Chief, Appellate Section, Tax Div., Dept. of Justice, William S. Estabrook, Asst. Atty. Gen., Washington, D.C., for defendant-appellant/cross-appellee.

Thomas Nezworski, George Haratsis, McDonald, Sanders, Ginsburg, Newkirk, Gibson & Day, Fort Worth, Tex., for plaintiff-appellee/cross-appellant.

Appeals from the United States District Court for the Northern District of Texas.

Before GOLDBERG, POLITZ, and JONES, Circuit Judges.

EDITH H. JONES, Circuit Judge:

The United States and Texas Commerce Bank, Fort Worth ("TCB") cross-appeal from the district court's summary judgment resolving the parties' conflicting interests in funds held by TCB for the benefit of C.I. Construction Inc. ("CIC"). The district court found that the IRS held a superior lien over CIC's $40,233.91 bank account ("account"), while TCB possessed a prior interest in the $83,907.00 check ("check") made payable jointly to TCB and CIC. On appeal, the parties dispute the court's decision regarding priority over the bank account, and the court's reluctance to impose a 50% penalty against TCB for wrongful dishonor of the levy. Significantly, however, the IRS now concedes that TCB's lien in the $83,907 check primed the IRS' interest in those funds. We affirm the district court's summary judgment order. We hold that TCB had the right to institute a wrongful levy action concerning property in which it claimed a lien superior to that of the IRS, where (1) the IRS had not yet filed a lawsuit to enforce its levy and (2) TCB in good faith honored the levy concerning property in which the relative priority of its lien claim was dubious.

I. BACKGROUND

CIC obtained business loans from Texas Commerce Bank in November, 1982 for $325,000, and on November 12, 1985 for $121,585.14. CIC secured these loans in two ways. First, it executed promissory notes which provided TCB with a "lien and contractual right of set-off in and to all money now in or at any time hereafter coming within payee's [TCB's] custody and control." At all times during this transaction, CIC maintained two general deposit accounts with TCB.

Second, on November 30, 1982, CIC signed a security agreement giving TCB an interest in "all of debtor's accounts now owned or hereafter acquired." TCB properly perfected this security interest by filing a timely financing statement. CIC executed another security agreement in favor of TCB in February, 1985, giving the bank an interest "in all accounts and accounts receivable ... of whatever nature now owned by debtor or existing or hereafter acquired ... and all proceeds of the collateral." These security interests extended to all future advances by TCB and so covered the November 1985 loan.

During 1985 and 1986, CIC's business liabilities exceeded its revenue. In August, 1985, CIC contracted with Par Properties No. 1 ("Par") to construct a shopping center. Par would pay CIC in installments as Additionally, CIC defaulted on its loan from TCB. Sometime before January 1986, TCB placed an administrative hold on CIC's bank accounts, allowing TCB to decide whether it would honor individual checks presented for payment. This procedure enabled TCB closely to monitor the cash flow in these accounts. TCB also requested that Par make all checks for CIC's completed work jointly payable to CIC and TCB. This dispute involves one of these co-owned checks.

CIC completed portions of the project, for a total anticipated revenue of $504,787. This income could not satisfy CIC's mounting debts. CIC had already failed to pay its federal employment taxes for the first two quarters of 1985. The IRS filed Notices of Tax Lien with the Texas Secretary of State for $33,417 (August 3, 1985) and $93,404.53 (September 24, 1985). CIC disregarded these notices.

On January 8, 1986, between 8:30 and 9:00 a.m., an employee of CIC presented to TCB and $83,907.00 Par Properties check payable jointly to CIC and TCB and endorsed "FOR DEPOSIT ONLY". This check represented payment for work completed through January 2, 1986. Later that morning, the IRS served a notice of tax levy against all CIC property in TCB's hands for a total of $87,522.02. TCB surrendered the $40,233.91 contained in CIC's bank accounts but did not release the Par check. On or before January 10, TCB accelerated repayment of CIC's loans and applied the Par check against that indebtedness. ¹ The IRS served a second notice of levy on January 14, 1986 in the amount of $43,353.43.

II. SUMMARY JUDGMENT

On January 22, 1986, TCB instituted a wrongful levy action under 26 U.S.C. Sec. 7426, requesting a declaration of the parties' rights in Par's check and a return of the bank account balance. The IRS counterclaimed under 26 U.S.C. Sec. 6332(c)(2) for wrongful dishonor of the levy, seeking a 50% penalty against TCB for its failure to surrender the check. The district court granted cross motions for summary judgment in part. Finding that TCB was not the "holder of a security interest" in the bank accounts as required by Sec. 6323(a), and that the administrative hold did not divest CIC of its property interest in the funds, the court adjudged the IRS' tax lien on the bank account superior to TCB's interest. Conversely, TCB held a superior interest in Par's check as the proceeds of accounts receivable. The district court declined to impose the 50% penalty against TCB. Both parties appeal from this decision.

When an appeal is taken from summary judgment, we review the district court's actions de novo, applying the same standards used by the district court. Degan v. Ford Motor Company, 869 F.2d 889, 892 (5th Cir.1989). Where, as here, questions of law control the disposition on summary judgment, we must subject the controverted issues to full appellate review. Barrett Computer Services Inc. v. PDA, Inc., 884 F.2d 214, 215-16 (5th Cir.1989); Netto v. Amtrak, 863 F.2d 1210, 1212 (5th Cir.1989); Brooks, Tarlton, Gilbert v. United States Fire Insurance, 832 F.2d 1358, 1364 (5th Cir.1987). Summary judgment may be affirmed, regardless of the correctness of the district court's rulings, when we find an adequate and independent basis for that result in the record. Schuster v. Martin, 861 F.2d. 1369, 1371 (5th Cir.1988).

III. WRONGFUL LEVY ACTION

The IRS alleges that TCB responded improperly to the government's Notices of Tax Levy by filing a wrongful levy action under 26 U.S.C. Sec. 7426. According to the IRS, TCB should have surrendered both the bank account and Par's check before pursuing TCB's statutory remedies against the United States. 26 U.S.C. Secs. 6331-6332. The IRS seeks to impose a 50% penalty against TCB under 26 U.S.C. Sec. 6332(c)(2) for wrongful dishonor of the levy. ² Since TCB surrendered the proceeds of CIC's bank account, this argument concerns only TCB's retention of Par Properties' check.

Section 7426(a)(1), Civil Action By Persons Other than Taxpayers, ³ affords the exclusive remedy for an innocent third party whose property is confiscated by the IRS to satisfy another person's tax liability. United Sand and Gravel Contractors v. United States, 624 F.2d. 733, 739 (5th Cir.1980). See Trust Company of Columbus v. United States, 735 F.2d. 447, 449 (11th Cir.1984); Valley Finance, Inc. v. United States, 203 U.S.App.D.C. 128, 629 F.2d. 162, 168 (1980) cert. den. sub. nom. Pacific Development Inc. v. United States, 451 U.S. 1018, 101 S.Ct. 3007, 69 L.Ed.2d 389 (1981); Rosenblum v. United States, 549 F.2d. 1140, 1145 (8th Cir.1977) cert. den. 434 U.S. 818, 98 S.Ct. 58, 54 L.Ed.2d 74 (1977). In order to state a cause of action under this provision, the plaintiff must show: (1) that a levy has been filed against property in plaintiff's hands, (2) that plaintiff has an interest in or a lien on the property which is senior to the interest of the United States, and (3) that the levy was wrongful. Security Counselors, Inc. v. United States, 860 F.2d. 867, 869 (8th Cir.1988); Flores v. United States, 551 F.2d. 1169, 1171 (9th Cir.1977). See Treasury Regulations Sec. 301.7426-1 (1988). A levy is "wrongful" if it seizes property that does not belong, in whole or in part, to the taxpayer. Arth v. United States, 735 F.2d. 1190, 1193 (9th Cir.1984)); Trust Company of Columbus, 735 F.2d. at 448; Al-Kim Inc. v. United States, 650 F.2d. 944, 947 (9th Cir.1979). See Treasury Regulations Sec. 301.7426-1 (1988); Senate Report No. 1708, 89th Congress, 2d Session, reprinted in 1966 U.S.Code Congressional & Administrative News, 3722, 3751.

Although the plaintiff must prove that the government has levied against the property at issue, ⁴ the plaintiff need not demonstrate that the property has actually been surrendered in response to the levy. Section 7426(a)(1) states:

Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary.

In this way, Congress sought to balance the primary lienholder's interests in the property against the government's interest in collecting tax revenue. 1966 U.S.Code Congressional & Administrative News at 3724. When the levied property provides the only realistic source from which the senior lienholder can realize collection, or when the levy effectively destroys or otherwise irreparably injures the lienholder's superior interest, the tax levy is "wrongful" as against that lienholder, even if the lienholder's legal rights to enforce its interests survive the levy. Treasury Regulations Sec. 301.7426-1 (1988). Section 7426 permits the lienholder to safeguard its superior rights in the property without surrendering the collateral.

The remedial provisions of section 7426 support this interpretation....