Bank of New Hampshire v. U.S.

• Decision Date: 25 July 2000
• Docket Number: Civil No. 99-343-M.
• Parties: BANK OF NEW HAMPSHIRE, Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. District Court — District of New Hampshire

115 F.Supp.2d 214

BANK OF NEW HAMPSHIRE, Plaintiff, v. UNITED STATES, Defendant.

Civil No. 99-343-M.

United States District Court, D. New Hampshire.

July 25, 2000.

Frank P. Spinella Jr., Hall Morse Anderson Miller & Spinella, Concord, NH, for plaintiff.

Paul M. Gagnon, US Attorney's Office, Concord, NH, for defendant.

ORDER

McAULIFFE, District Judge.

Bank of New Hampshire (the "Bank") brings this action seeking a declaratory judgment as to the priority of its lien on the accounts receivable of a third party. It also seeks the return of the cash proceeds of those accounts receivable, which were collected by the Internal Review Service to satisfy that third party's tax liabilities. The United States moves to dismiss on grounds that the Bank's amended complaint fails to set forth viable claims and, even assuming some of those claims are cognizable, that this court lacks subject matter jurisdiction. See Fed.R.Civ.P. 12(b)(1) and (6). The Bank objects.

Standard of Review

I. Rule 12(b)(1) — Lack of Subject Matter Jurisdiction.

"When faced with a motion to dismiss for lack of subject matter jurisdiction, Rule 12(b)(1), Fed.R.Civ.P., the party asserting jurisdiction has the burden to establish by competent proof that jurisdiction exists." Stone v. Dartmouth College, 682 F.Supp. 106, 107 (D.N.H.1988) (citing O'Toole v. Arlington Trust Co., 681 F.2d 94, 98 (1st Cir.1982); Charles A. Wright & Arthur R. Miller, 5 Federal Practice and Procedure § 1350, at 555 (1969 & Supp. 1987)). Furthermore, the court "may consider pleadings, affidavits, and other evidentiary materials without converting the motion to dismiss to a motion for summary judgment." Lex Computer & Management Corp. v. Eslinger & Pelton, P.C., 676 F.Supp. 399, 402 (D.N.H.1987); see also Richmond, Fredericksburg & Potomac Railroad Company v. United States, 945 F.2d 765, 768 (4th Cir.1991); Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1990). But, the court "should apply the standard applicable to a motion for summary judgment, under which the nonmoving party must set forth specific facts beyond the pleadings to show that a genuine issue of material fact exists." Richmond, 945 F.2d at 768 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). "The moving party should prevail only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Id. (citing Trentacosta v. Frontier Pacific Aircraft Indus., 813 F.2d 1553, 1558 (9th Cir.1987)).

II. Rule 12(b)(6) — Failure to State a Claim.

A motion to dismiss under Fed.R.Civ.P. 12(b)(6) for failure to state a claim is one of limited inquiry, focusing not on "whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). In considering a motion to dismiss, "the material facts alleged in the complaint are to be construed in the light most favorable to the plaintiff and taken as admitted." Chasan v. Village District of Eastman, 572 F.Supp. 578, 579 (D.N.H.1983). See also Dartmouth Review v. Dartmouth College, 889 F.2d 13, 15 (1st Cir.1989). "[D]ismissal is appropriate only if `it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Roeder v. Alpha Industries, Inc., 814 F.2d 22, 25 (1st Cir.1987) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).

Background

In its amended complaint, the Bank alleges the following facts which, for the purpose of this order, will be taken as admitted. In October of 1997, the Bank's predecessor in interest extended credit to Professional Transcription and Reporting Associates ("PTRA"). As security for that loan, the Bank acquired a security interest in all of PTRA's accounts receivable, as well as the proceeds of those accounts receivable. The Bank perfected its security interest by recording UCC-1 financing statements.

Beginning in 1997, and continuing into 1998, PTRA failed to make payroll tax payments to the Internal Revenue Service. As a result, a tax lien arose in favor of the IRS. See 26 U.S.C. § 6321. See generally, United States v. National Bank of Commerce, 472 U.S. 713, 719-20, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985). According to the Bank's amended complaint, the IRS perfected its lien on February 10, 1999, by filing a Notice of Federal Tax Lien against PTRA. Prior to that date, the Bank says that it had advanced PTRA (and was still owed by PTRA) approximately $50,000.

In late 1998, PTRA defaulted on its obligations to the Bank. Rather than use the proceeds of its accounts receivable to pay the Bank, PTRA used those funds to pay its tax obligations to the IRS. The Bank claims that all such payments to the IRS were made with the proceeds of the Bank's collateral. In essence, it says that its property was used to satisfy PTRA's tax obligations.

The Bank claims that its security interest in PTRA's accounts receivable is superior to the tax lien perfected by the IRS. See Amended Complaint at para. 17 ("Plaintiff's security interest has priority over the tax lien by virtue of 26 U.S.C. § 6323, as to all receivables and proceeds of contract rights of [PTRA] at any time prior to 45 days after February 10, 1999"). In its amended complaint, the Bank sets forth five claims against the government, by which it seeks the return of monies generated by its collateral: judgment of lien priority (count 1); unjust enrichment (count 2); conversion (count 3); wrongful levy (count 4); and taking of property without due process or just compensation (count 5).

Discussion

I. Lien Priority — Count One.

In count one of its amended complaint, the Bank seeks a judicial determination that its security interest in PTRA's accounts receivable is superior to the government's tax lien. Ultimately, the issue presented by the Bank's claim is whether it retained a security interest in the cash proceeds of PTRA's accounts receivable once PTRA voluntarily turned those funds over to the government.¹

As an initial matter, the amended complaint makes it clear that the Bank did not perfect its security interest in the cash proceeds of PTRA's accounts receivable by taking possession of that cash. See N.H.Rev.Stat. Ann. ("RSA") 382-A:9-304 and 9-306. Had it done so, resolving the priority of its security interest against the government's claim would be a far simpler task. Nevertheless, notwithstanding its failure to take possession of those cash proceeds, the Bank might still have a security interest in them.

Because the Bank alleges that it obtained a security interest in PTRA's accounts receivable and any proceeds thereof, that security interest would follow the cash proceeds, provided: (1) those proceeds remain "identifiable"; and (2) they were paid to a third party (here, the IRS) either fraudulently or in a manner that was outside of the "ordinary course" of PTRA's business. See RSA 382-A:9-306(2). See generally Orix Credit Alliance, Inc. v. Sovran Bank, N.A., 4 F.3d 1262 (4th Cir.1993); Harley-Davidson Motor Co., Inc. v. Bank of New England-Old Colony, N.A., 897 F.2d 611 (1st Cir. 1990). On the other hand, if PTRA discharged its tax obligations to the IRS in the ordinary course, with commingled funds from its operating account(s), the IRS took those funds free of the Bank's asserted security interest. Comment 2(c) to section 9-306 of New Hampshire's Uniform Commercial Code makes this point clear:

Where cash proceeds are covered into the debtor's checking account and paid out in the operation of the debtor's business, recipients of the funds of course take free of any claim which the secured party may have in them as proceeds. What has been said relates to payments and transfers in ordinary course. The law of fraudulent conveyances would no doubt in appropriate cases support recovery of proceeds by a secured party from a transferee out of ordinary course or otherwise in collusion with the debtor to defraud the secured party.

RSA 382-A:9-306, comment 2(c). Importantly, the Court of Appeals for the First Circuit has cautioned that "`ordinary course' has a fairly broad meaning; and ... a court should restrict the use of tracing rules to conduct that, in the commercial context, is rather clearly improper." In re Halmar Distributors, Inc., 968 F.2d 121, 129 (1st Cir.1992) (quoting Harley-Davidson, 897 F.2d at 622). Imposing too narrow a definition on "ordinary course" might substantially complicate and even undermine routine commercial transactions.

If, however, courts too readily impose liability upon those who receive funds from the debtor's ordinary bank account — if, for example, they define "ordinary course" of business too narrowly — then ordinary suppliers, sellers of gas, electricity, tables, chairs, etc., might find themselves called upon to return ordinary payments (from a commingled account) to a debtor's secured creditor, say a financer of inventory. Indeed, we can imagine good commercial reasons for not imposing, even upon sophisticated suppliers or secondary lenders, who are aware that inventory financers often take senior secured interests in "all inventory plus proceeds," the complicated burden of contacting these financers to secure permission to take payment from a dealer's ordinary commingled bank account.

Harley-Davidson, 897 F.2d at 622 (emphasis in original).

Critically, the Bank's amended complaint includes no allegation that PTRA's payments to the IRS were from "identifiable" proceeds of the accounts receivable (as distinguished from funds taken from an account in which the proceeds of the accounts receivable were "commingled" with PTRA's other income). Nor does the amended complaint allege that the payments PTRA voluntarily made to the IRS in satisfaction of its outstanding tax obligations were either fraudulent or outside of the ordinary...