Carter v. U.S.
| Decision Date | 21 May 2002 |
| Docket Number | No. 01-2304 G/A.,01-2304 G/A. |
| Citation | 216 F.Supp.2d 700 |
| Parties | Linda CARTER, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Western District of Tennessee |
John J. Cook, A. J. Cook, Pietrangelo Cook, Memphis, TN, Daniel Scott Lovett, Law Office of Daniel Scott Lovett, Arlington, TN, for Plaintiff.
Lawrence J. Laurenzi, U.S. Attorney's Office, Memphis, TN, Michael J. Martineau, D. Brian Simpson, U.S. Department of Justice, Tax Division, Washington, DC, for Defendant.
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Before the court are plaintiff's motion for summary judgment, filed on March 12, 2002, and defendant's motion for summary judgment, filed on March 18, 2002. Based on the following discussion, the former motion is granted in part and denied in part, and the latter motion is denied.
This case arises from a tax assessment against Todd F. Brooks, the former husband of plaintiff Linda Carter. (1st Carter Aff. ¶ 3.) On June 19, 1995, while Brooks and Carter were married, the Internal Revenue Service ("IRS") assessed $516,924.15 in unpaid federal income taxes against Brooks—$229,434.45 for 1992 and $287,489.70 for 1993. (Answers to First Set of Pl.'s Interrog. at 5.) During their marriage, including 1992 and 1993, Carter and Brooks filed separate tax returns. Id. at 10-11.
Brooks initiated divorce proceedings in April or May 1996. Id. at 13. Carter learned of Brooks' federal tax liability during those proceedings. (Carter Dep. at 12-13.) On August 6, 1997, the Circuit Court for Shelby County issued a judgment divorcing Carter and Brooks. Brooks v. Carter, No. 152550-3 R.D., at 1 (Circuit Court of Tennessee Aug. 6, 1997) (Final Judgment of Divorce). The judgment stated, in part, that ITT Hartford Mutual Fund Account No. 68901 ("Account No. 68901"), with a then-existing value of $247,045.04, "shall be the sole and separate property of [Carter], and [Brooks] is divested of all rights to ownership of said property." Id. at 6. The divorce judgment also stated that "any liability and/or debt that [Brooks] owes to the Internal Revenue Service is his separate property." Id. at 8. The judgment has not been filed with the Shelby County Register of Deeds. (Carter Dep. at 31-32.)
On March 30, 1998, the IRS filed a Notice of Federal Tax Lien against Brooks with the Shelby County Register of Deeds. (Answers to First Set of Pl.'s Interrog. at 10.) The lien, amounting to $516,924.15, consisted of Brooks' federal income tax liability for 1992 and 1993, plus statutory additions. Id. at 5; Def.'s Mot. for Summ. J. Ex. 3. Carter did not become aware of the lien until 1999 or 2000. (1st Carter Aff. ¶ 5.)
On June 19, 1998, the IRS served a levy on Hartford Life Insurance Company ("Hartford Life"), attaching all property or rights to property belonging to Brooks. (Answers to First Set of Pl.'s Interrog. No. 7.) By letter dated July 9, 1998, Hartford Life advised the IRS that the levy, which lacked the required approval of the IRS District Director, would not be honored. (Def.'s Mot. for Summ. J. Ex. 7.) On June 16, 1999, the IRS served Hartford Life with a levy which reflected the approval of the District Director. Id. Ex. 8. In response, on August 4, 1999, Hartford Life issued two checks to the IRS totaling $527,261.00, including $350,403.12 from Account No. 68901. (Answers to First Set of Pl.'s Interrog. No. 6; Def.'s Mot. for Summ. J. Ex. 10.) The $350,403.12 consisted of the then-existing value of Account No. 68901, $390,958.24, less surrender charges of $1,621.44 and a tax withholding of $38,933.68. (Def.'s Mot. for Summ. J. Ex. 10.)
Carter filed the complaint in this case on April 18, 2001. The sole claim advanced by Carter is that defendant United States of America ("the government") wrongfully levied upon and seized the contents of Account No. 68901. Pursuant to 26 U.S.C. § 7426, Carter seeks a judgment in the amount of $390,958.24, plus interest and compensatory damages.
Both parties have filed motions for summary judgment. Carter argues in her motion that the government's levy was wrongful for two reasons. First, she contends that it was placed on property in which Brooks had no interest. Second, Carter claims that she qualifies as a judgment lien creditor pursuant to 26 U.S.C. § 6323, making her interest in Account No. 68901 superior to the government's lien. In its motion for summary judgment, the government asserts that its levy was not wrongful because its lien on Account No. 68901 is superior to Carter's interest. Alternatively, in the event that the levy was wrongful, the government argues that Carter is only entitled to recover $350,403.12, the amount it received from Account No. 68901.
Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). So long as the movant has met its initial burden of "demonstrat[ing] the absence of a genuine issue of material fact," Celotex, 477 U.S. at 323, 106 S.Ct. 2548, and the nonmoving party is unable to make such a showing, summary judgment is appropriate, Emmons v. McLaughlin, 874 F.2d 351, 353 (6th Cir. 1989). In considering a motion for summary judgment, "the evidence as well as all inferences drawn therefrom must be read in a light most favorable to the party opposing the motion." Kochins v. Linden-Alimak, Inc., 799 F.2d 1128, 1133 (6th Cir.1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
When confronted with a properly-supported motion for summary judgment, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); Abeita v. TransAmerica Mailings, Inc., 159 F.3d 246, 250 (6th Cir.1998). A genuine issue of material fact exists for trial "if the evidence [presented by the nonmoving party] is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In essence, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52, 106 S.Ct. 2505.
Section 6321 of the Internal Revenue Code ("the Code") provides:
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.
26 U.S.C. § 6321. The lien generally arises when an assessment is made and continues until the taxpayer's liability "is satisfied or becomes unenforceable by reason of lapse of time." Id. § 6322. Since a federal tax lien is not self-executing, the Code provides the government with two options for the collection of unpaid taxes. The first option, irrelevant to the matter at hand, is a lien-foreclosure suit. 26 U.S.C. § 7403(a). The second option is the administrative levy, a provisional remedy which typically "does not require any judicial intervention." Id. § 6331(a); United States v. Rodgers, 461 U.S. 677, 680-82, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983).
Elaborating on the second option, in the event that a taxpayer's property is held by another, it is customary to serve notice of the levy upon the custodian. 26 U.S.C. § 6332(a). Such notice gives the IRS the right to all property levied upon and creates a custodial relationship between the person holding the property and the IRS, bringing the property into the constructive possession of the government. United States v. Nat'l Bank of Commerce, 472 U.S. 713, 720, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985). The levy, however, does not determine whether the government's rights to the seized property are superior to those of other claimants. Id. at 721, 105 S.Ct. 2919. Its purpose is to allow the government to promptly secure revenues. Phillips v. Commissioner, 283 U.S. 589, 596, 51 S.Ct. 608, 75 L.Ed. 1289 (1931).
Carter brings her wrongful levy claim pursuant to 26 U.S.C. § 7426, which states:
(a) Actions permitted.—
(1) Wrongful levy.-If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States.
. . . . .
(c) Validity of assessment.-For the purposes of an adjudication under this section, the assessment of tax upon which the interest or lien of the United States is based shall be conclusively presumed to be valid.
Id. The Sixth Circuit has stated that a levy is wrongful if:
(1) it is placed on property exempt under § 6334; (2) it is placed on property in which the delinquent taxpayer had no interest [at the time the lien arose or thereafter]; (3) it is invalid under §§ 6323 or 6324(a)(2) or (b); or (4) the plaintiff's interest in the property is senior to the federal tax lien and will be destroyed by the levy.
McGinness v. United State, 90 F.3d 143, 147 (6th Cir.1996) (citing 26 C.F.R. § 301.7426-1(b)). Pursuant to § 6323, a federal tax lien is not valid against a judgment lien creditor until notice of that lien has been properly filed. 26 U.S.C. § 6323.1
Carter advances two bases for her assertion that the government's levy was wrongful. First, Carter claims that the levy was placed on property in which Brooks had no interest. Sec...
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