Colon v. Strawberry (In re Strawberry)
| Decision Date | 25 January 2012 |
| Docket Number | Adversary No. 11–04003–LMK.,Bankruptcy No. 10–40400–LMK. |
| Parties | In re Charisse Ann STRAWBERRY, Debtor.Mary W. Colon, Chapter 7 Trustee, Plaintiff, v. Darryl Strawberry, Internal Revenue Service, & Sterling Mets, L.P. Defendants.Sterling Mets, L.P., Counter–Plaintiff, v. Mary W. Colon, Counter–Defendant.Sterling Mets, L.P., Cross–Plaintiff, v. Darryl Strawberry, & Internal Revenue Service, Cross–Defendants.Sterling Mets, L.P., Third–Party Plaintiff, v. Charisse Ann Strawberry, & The State of Missouri, Third–Party Defendants. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Florida |
OPINION TEXT STARTS HERE
David K. Minacci, Smith, Thompson, Shaw & Manausa, P.A., Tallahassee, FL, for Plaintiff.
James M. Donohue, Ausley & McMullen, Nathan A. Adams, IV, Holland & Knight LLP, Tallahassee, FL, Laura Toledo, Lathrop & Gage, LLP, Clayton, MO, Philip A. Doyle, United States Department of Justice, Washington, DC, Noel R. Boeke, Holland & Knight, LLP, Tampa, FL, for Defendants.
A. Katherine Spillers, Liberty, MO, Allen Turnage, Law Office of Allen Turnage, Tallahassee, FL, for Third–Party Defendants.
ORDER ON INTERNAL REVENUE SERVICE'S MOTION TO DISMISS THE INTERPLEADER
THIS MATTER came before the Court on Defendant Internal Revenue Service's Motion to Dismiss the interpleader brought by the Sterling Mets, L.P. (the “Mets”). The Mets have named the Internal Revenue Service as a party in the interpleader, asserting that its sovereign immunity is waived pursuant to 28 U.S.C. § 2410(a)(5). After the hearing on December 13, 2011, additional briefs were requested from the parties on questions pertaining to sovereign immunity and subject matter jurisdiction. Having considered the arguments of the parties and the record in this case, I conclude that the Court has jurisdiction over the interpleader and the Internal Revenue Service's Motion to Dismiss is denied.
This matter arises from an adversary proceeding initiated by the Chapter 7 Trustee (“Trustee”) in the bankruptcy case of Charisse Ann Strawberry. The Trustee's amended complaint named Darryl Strawberry, the Mets, and the Internal Revenue Service (the “IRS”) as defendants. The Trustee brought the complaint asserting Charisse Strawberry is entitled to a portion of the monthly deferred compensation payments Darryl Strawberry receives from the Mets pursuant to a Uniform Player's Contract (“UPC”). The UPC was entered into by and between the Mets and Darryl Strawberry on March 12, 1985. Under the UPC, Darryl Strawberry receives $8,891.82 as monthly deferred compensation payments for a total of thirty years. The Trustee asserts Charisse Strawberry is entitled to $800,000 from the deferred compensation funds pursuant to a Stipulated Qualified Domestic Relations Order (“QDRO”) that was entered on November 3, 2006 in the Circuit Court of the Thirteenth Judicial Circuit, in and for Hillsborough County, Florida. However, the IRS had already issued a Notice of Levy to the Mets on the deferred compensation funds back in 2000. The IRS holds a lien against the compensation funds in the amount of $542,572.64 for Darryl Strawberry's federal income tax liabilities. Faced with the competing claims on the deferred compensation funds from the Trustee, the IRS and Darryl Strawberry, the Mets filed this crossclaim for interpleader. The Mets seek for the Court to determine the priority of the various claims to ensure their proper distribution and to discharge the Mets from any further liability to the parties with respect to deferred compensation funds.
The Court was prepared to dismiss this interpleader based on an agreement by the Trustee and the Mets on the merits, conceding the IRS holds a superior levy on the disputed compensation funds. Nevertheless, the IRS pursued the Motion to Dismiss based on jurisdiction, arguing this Court lacks subject matter jurisdiction to enter such an order because the IRS has not waived its sovereign immunity.
Federal Rule of Bankruptcy Procedure 7022 governs interpleader actions in adversary proceedings. The Rule provides, in part, “[p]ersons with claims that may expose a plaintiff to double or multiple liability may be joined as defendants and required to interplead.” Fed. R. Bankr.P. 7022(a)(1). The Mets have initiated the interpleader in order to ensure that the disputed deferred compensation funds are given to those that are properly entitled to it and to ensure that they are protected from further liability. The federal interpleader statute provides for this relief. 28 U.S.C. § 2361 . Although the federal interpleader statute and the federal rules of bankruptcy procedure allow a party to interplead, a federal court cannot reach the merits of any dispute until it confirms its own subject matter jurisdiction. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). The gravamen of the IRS' Motion is that the United States has not waived sovereign immunity for this type of action, and therefore, this Court lacks subject matter jurisdiction.
It is well settled that one cannot sue the United States unless Congress has expressly provided its statutory consent. United States v. Dalm, 494 U.S. 596, 608, 110 S.Ct. 1361, 108 L.Ed.2d 548 (1990). Unless it waives its sovereign immunity, the United States may not be required to interplead. Kentucky ex rel United Pac. Ins. Co. v. Laurel County, 805 F.2d 628, 636 (6th Cir.1986) (quoting 7 C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure § 1721, at 654 (2d ed.1986)); AmSouth Bank v. Miss. Chem. Corp., 465 F.Supp.2d 1206, 1209 (D.N.M.2006) (). Title 28 U.S.C. § 2410(a)(5) provides for a waiver of sovereign immunity in an interpleader action to property or funds on which the United States has a mortgage or other lien. The IRS argues that Section 2410(a)(5) does not apply to this action for three reasons: 1) the IRS contends Section 2410 only allows interpleader actions against the United States in state court or in federal district court, not bankruptcy court; 2) the plaintiff in an interpleader action must face a legitimate threat of multiple liability, which the IRS asserts does not exist in this action because 26 U.S.C. § 6332(e) shields a recipient of an internal revenue levy from liability if the recipient complies; and 3) this action is time-barred under 28 U.S.C. § 2401(a) which requires any complaint against the United States to be filed within six years after the right of action first accrues.
The Mets' counterclaim for interpleader was prudent under the circumstances and this Court has jurisdiction over the matter as it is “related to” the bankruptcy proceeding. The Trustee named the Mets as defendants in the initial complaint. The Mets contend they have no interest in the disputed funds, and because they are presented with competing claims, an action for interpleader is appropriate. The jurisdiction of this Court is determined and limited by statute. Title 28 U.S.C. § 1334(b) provides that “district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). District courts can refer to bankruptcy judges “any or all proceedings arising under title 11 or arising in or related to a case under title 11” as has been done in all bankruptcy courts. 28 U.S.C. § 157(a). Bankruptcy courts have jurisdiction in all matters “related to” bankruptcy. Walker v. The Cadle Co. (In re Walker), 51 F.3d 562, 569 (5th Cir.1995). A matter is “related to” bankruptcy when the outcome of the matter could conceivably have any effect on the estate being administered in bankruptcy. In re J.F. Naylor and Co., Inc., 67 B.R. 184, 189–90 (Bankr.M.D.La.1986). If it were determined that the Trustee is entitled to any of the deferred compensation funds and has priority in the distribution of the funds, the money would become property of the estate for distribution to creditors. Thus, this interpleader action is clearly related to the bankruptcy case and this Court has jurisdiction.
The IRS' contention that the interpleader must be dismissed because the Mets do not risk exposure to multiple liability is also unavailing. The IRS asserts that 26 U.S.C. § 6332(e) forecloses the possibility of double or multiple liability for the Mets. Specifically, double or multiple liability is barred, in the IRS' view, because Section 6332(e) shields from liability to the delinquent taxpayer, any person in possession of property subject to a levy if said person surrenders such property. However, courts have repeatedly ruled Section 6332(e) is not relevant to the issue of whether an interpleader action may be brought. Kurland v. United States, 919 F.Supp. 419, 422 (M.D.Fla.1996) addressed the issue head-on:
Title 26 U.S.C. § 6332(e) may provide a shield against liability to those honoring federal tax liens; however, that is insufficient to override the purpose behind the interpleader rule and statute. First Interstate Bank of Oregon v. United States, 891 F.Supp. 543 (D.Or.1995). Interpleader gives the disinterested party the ability to bow out, leaving the actual parties with real interests at stake to litigate their claims. See id.; New York Life Ins. Co. v. Connecticut Dev. Auth., 700 F.2d 91, 96 (2nd Cir.1983).
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