Cooper Industries, Inc. v. Compagnoni

• Decision Date: 29 August 2001
• Docket Number: No. Civ.A. H-00-0702.,Civ.A. H-00-0702.
• Citation: 162 F.Supp.2d 702
• Parties: COOPER INDUSTRIES, INC., Plaintiff, v. Jacqueline M. COMPAGNONI, and United States of America, Defendants.
• Court: U.S. District Court — Southern District of Texas

Page 702

162 F.Supp.2d 702

COOPER INDUSTRIES, INC., Plaintiff, v. Jacqueline M. COMPAGNONI, and United States of America, Defendants.

No. Civ.A. H-00-0702.

United States District Court, S.D. Texas, Houston Division.

August 29, 2001.

Marsha L. Montgomery, Houston, Texas, James Frederick Allen, Houston, Texas, for plaintiff.

Robert Ader, Miami, Florida, Michael D. Powell, Dallas, Texas, for defendant.

ORDER

GILMORE, District Judge.

Pending before the Court is Defendant United States of America's Motion for Summary Judgment (Instrument No.20). Based on the submissions of the parties and the applicable law, the Court finds that the motion should be DENIED and that Defendant Jacqueline Compagnoni is entitled to summary judgment. Plaintiff Cooper Industries is ORDERED to file an application for attorney's fees within ten days of the date of this Order.

I.

This interpleader action arises from a lien interest taken by the United States Internal Revenue Service ("IRS") in the net accrued benefits of Luciano Compagnoni's pension and savings plan under his former employer, Plaintiff/Stakeholder Cooper Industries, Inc. ("Cooper"). Defendant/Claimant Jacqueline Compagnoni, Luciano's former spouse, was awarded the full amount of these benefits as part of a Qualified Domestic Relations Order issued in Dade County, Florida during their divorce proceedings in 1993. Compagnoni contends that her right to these funds is without restriction. The IRS is attempting to apply the proceeds from Luciano Compagnoni's benefits toward his assessed income tax deficiency for the 1987 year. Plaintiff has deposited the disputed pension plan benefits, $62,583.58, in the Court's registry and has interpled both Jacqueline Compagnoni and the United States pursuant to 28 U.S.C. § 1335, seeking declaratory relief in determining which party's claim to the accrued benefits is superior. Cooper does not claim any interest in the funds, but requests its attorney's fees and costs. (Instrument Nos. 1, 30).

Luciano Compagnoni worked for Cooper from 1975 until 1991 and participated in the Salaried Employees' Retirement Plan ("Salaried Plan") and the Savings and Ownership Plan. This case concerns the proceeds from the Salaried Plan. Luciano and Jacqueline Compagnoni were married from 1975 to 1980, and were then remarried on December 28, 1987. In 1990, Jacqueline Compagnoni filed for divorce in the Circuit Court for the 11th Judicial Circuit, Dade County, Florida.

In April 1991, Luciano Compagnoni received a refund check for the 1988 tax year from the United States Treasury made out to Luciano and Jacqueline Compagnoni for $73,324.07. (Order and Final Judgment on Mandate, Instrument No. 45, Exh 1 at 3). The refund was the result of the IRS's erroneous application of a check in the amount of $84,850.00 toward the Compagnoni's 1988 taxes. Compagnoni v. United States, No. 94-0813, 1996 WL 636110, at *1 (S.D.Fla. Aug. 30, 1996). The check should have been applied toward their existing 1987 tax liability. Id. Luciano Compagnoni cashed the check in Venezuela without Jacqueline Compagnoni's consent and the money was never recovered. (Instrument No. 45, Exh 1 at 3).

A final judgment of dissolution of marriage was entered on April 18, 1991. As part of that judgment, Compagnoni was awarded 50% of her husband's pension benefits and counsel was ordered to submit a qualified domestic relations order ("QDRO") to effect the transfer. (Instrument No. 20, Exh 2 ¶ 11). Jacqueline Compagnoni appealed the final judgment, which was reversed by the appellate court on December 31, 1991 and remanded with instructions to redistribute the assets of the parties based upon their ten years of marriage rather than a two and one-half year marriage. (Instrument No. 45, Exh 1 at 1).

On October 22, 1992, the IRS assessed $61,173.00 in additional income taxes and 46,523.59 in interest against Luciano Compagnoni for the 1986 tax year. The IRS filed a notice of federal tax lien in Miami for this additional assessment on November 13, 1992. On March 8, 1993, additional income taxes of $59,798.00 and $38,181.09 in interest were assessed against the Compagnonis for 1987.

After the case was remanded, the Dade County court entered its order and final judgment distributing the assets on April 8, 1993. (Instrument No. 45, Exh 1). The order was also recorded on that date. (Id.). The order directed counsel to prepare a QDRO to be entered that would award Jacqueline Compagnoni the "total value of the Cooper Industries pension account and savings plan," (Instrument No. 45, Exh 1 at 8). Mr. Compagnoni's attorney sent the IRS a copy of the April 8 order by letter dated April 19, 1993. (Instrument No. 45, Exh 4). An order was entered on April 16, 1993, granting Jacqueline Compagnoni the entire interest in Luciano Compagnoni's Salaried Plan pension benefits which was $56,331.53, and the Savings and Ownership Plan, which was $220,381.05, and giving Cooper the responsibility for deciding whether the domestic relations order ("DRO") was qualified. (Instrument No. 1, Exh J). Cooper made a "tentative determination" "pending receipt of additional information" that the DRO was deficient. (Instrument No. 20, Exh 6). Cooper faulted the DRO for neglecting to clearly identify the Savings and Stock Ownership Plan in the language of the order and for designating a beneficiary for the Salaried Plan despite the fact that it did not permit Jacqueline Compagnoni to do so. (Id.). Cooper informed Jacqueline Compagnoni's attorney that, "[o]nce the order or clarification is received, the Revised Domestic Relations Order will be reviewed once more pursuant to [Cooper's] QDRO Administrative Procedures in order to determine its qualified status. You will then be notified of its qualified or unqualified status." (Id.).

On May 10, 1993, the IRS assessed Luciano Compagnoni $18,051.47 in income taxes for 1991. On May 21, 1993, the IRS filed a notice of federal tax lien with respect to the Compagnonis' tax liability for 1987. (Instrument No. 45, Exh 5). The IRS then served a notice of levy upon the Plan Administrator at Cooper with respect to the additional assessment against the Compagnonis for 1987 as well as a notice of levy for Luciano Compagnoni's liability for 1991. On July 1, 1993, the IRS served a notice of levy upon Citibank as trustee of the Savings and Ownership Plan, with respect to Luciano Compagnoni's liability for 1987. Citibank is not a party to this action. A similar notice of levy was served upon Citibank for the years 1986 and 1991. While the IRS attempted to serve a levy for the benefits at issue here, it was apparently unsuccessful. (Instrument No. 45, Exh 7).

On July 20, 1993, the Dade County court issued an order clarifying its previous order with respect to the benefits. ("Order Clarifying Qualified Domestic Relations Order Dated April 16, 1993," Instrument No. 45, Exh 3). Cooper determined that the order, as clarified, was a QDRO. (Instrument No. 20, Exh 9). On July 29, 1993, Citibank issued a $183,290.88 check to the IRS. The IRS applied those proceeds from the Savings and Ownership Plan to pay Luciano Compagnoni's income tax liability for 1986 and 1991 in full. (Instrument No. 20, Exh 10). For 1987, $47,794.61 was applied toward his liability. (Id.).¹ Apparently, the IRS arbitrarily chose to apply the money from the levied Citibank benefits toward the 1991 liability rather than using all the remaining proceeds to reduce the 1987 liability.

In September 1993, the IRS released Jacqueline Compagnoni from liability for the additional assessments and interest for the year 1987. (Instrument No. 20, Exh 12). Pursuant to the innocent spouse provisions of the Revenue Code, the IRS filed a modified notice of federal tax lien that removed her name from the lien. (Id.).

On February 29, 2000, Cooper filed this action seeking a declaratory judgment as to which of the claimants, Jacqueline Compagnoni or the Government, is entitled to the funds at issue as well as attorney fees and costs. The United States filed a motion for summary judgment on September 15, 2000, arguing that pursuant to 26 U.S.C. §§ 6321, 6322, its lien against Compagnoni's pension benefits attached as of the time the tax was assessed, March 8, 1993. The United States asserts that because the division of the Compagnonis' assets was not final until the Final Judgment on Mandate after Remand was issued on April 8, 1993 and the QDRO had not been entered as of the date of the assessment, the IRS is entitled to the funds as a prior lien holder. The United States contends that the final judgment did not make Jacqueline Compagnoni a "judgment lien creditor" entitled to priority over the tax lien. Even if it did, the Government continues, it was not effective until the QDRO was entered on July 30, 1993, which was after the IRS filed a notice of federal tax lien.

Jacqueline Compagnoni filed a response on October 10, 2000, claiming that the final judgment in the divorce dated April 8, 1993 entitles her to her former spouse's pension benefits. (Instrument No. 28). A hearing was held on June 22, 2001 to clarify factual and legal issues for the Court. The parties filed supplemental briefing related to priority. The Government argues that Compagnoni failed to perfect her interest in the pension benefits and, as a result, the IRS is entitled to priority. (Instrument No. 46). Compagnoni argues that the recording of the final judgment was sufficient to perfect her interest. (Instrument No. 45). Compagnoni also requests that the Court grant her summary judgment sua sponte.

II.

Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56. A fact is "material" if its resolution in favor of one party might affect the outcome of the suit under governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); see also ...