Edwards v. First Federal Sav. & Loan Ass'n of Clovis

• Decision Date: 12 February 1985
• Docket Number: No. 7854,7854
• Citation: 102 N.M. 396,696 P.2d 484,1985 NMCA 15
• Parties: Helen V. EDWARDS, Fiduciary Trustee of James E. Edwards Family Trust, Plaintiff-Appellant, v. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CLOVIS, Defendant and Third-Party Plaintiff-Appellee, v. James E. EDWARDS and Helen V. Edwards, Husband and Wife, Third-Party Defendants-Appellants.
• Court: Court of Appeals of New Mexico

Page 484

696 P.2d 484

102 N.M. 396

Helen V. EDWARDS, Fiduciary Trustee of James E. Edwards

Family Trust, Plaintiff-Appellant, v. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CLOVIS, Defendant and Third-Party Plaintiff-Appellee, v. James E. EDWARDS and Helen V. Edwards, Husband and Wife,

Third-Party Defendants-Appellants.

No. 7854.

Court of Appeals of New Mexico.

Feb. 12, 1985.

Bruce Keith, Bruce Keith, P.C., Albuquerque, Gloria T. Svanas, Odessa, Tex., for plaintiff-appellant and third-party defendants-appellants

Esther Smith Van Soelen, Van Soelen & Greig, Clovis, for defendant and third-party plaintiff-appellee.

OPINION

WOOD, Judge.

Plaintiff, in her capacity as Trustee of a family trust (Trustee), sought damages from defendant on the basis of its response to a notice of tax levy from the United States Department of the Treasury, Internal Revenue Service (IRS). Defendant moved to dismiss, relying on a federal court judgment. The trial court granted the motion; Trustee appealed. We discuss: (1) the procedural posture; (2) the effect of the federal judgment; and (3) whether the trial court judgment disposed of all of Trustee's claims.

The notice of levy served upon defendant stated that "[t]he taxpayer named at the bottom of this notice" owed the United States a named sum of money for four tax periods, and that money, credits and bank deposits in defendant's possession "and belonging to this taxpayer" are levied upon. The notice made demand upon defendant for the amount necessary to pay the tax liability or for any smaller sum that defendant owed the taxpayer.

A pleading by defendant states that it paid to the IRS, pursuant to the levy, the sum of $52,475.97. A pleading of Trustee's seems to agree. The amount paid does not appear to have been an issue in either the federal case or, so far, in this case. Because of our disposition of the third issue, should the amount paid be disputed, we point out that the record in this appeal does not show that the amount paid has been judicially determined.

What is undisputed is that defendant did make a payment to the IRS pursuant to the levy. The dispute in this case concerns (a) whether defendant's payment was from funds belonging to the taxpayers, and (b) defendant's conduct in making the payment.

Trustee sued the United States in the United States District Court for the District of New Mexico. The case number was Civ. 82-093-JB. The suit was for relief from a wrongful levy by the IRS. United States District Judge Burciaga, on the basis of undisputed facts, granted the government's motion for summary judgment and dismissed Trustee's complaint. There is no suggestion that the federal judgment was not final. Defendant's motion to dismiss, which the trial court granted, relied on Judge Burciaga's opinion. The trial court dismissed Trustee's complaint with prejudice.

Procedural Posture

Trustee complains of findings made and requested findings refused by the trial court. We need not discuss this argument. Inasmuch as matters outside the pleadings were presented to and considered by the trial court, the motion to dismiss became a motion for summary judgment. NMSA 1978, Civ.P.R. 12(b) (Repl.Pamp.1980). In granting the summary judgment, the trial court was not required to make findings. Skarda v. Skarda, 87 N.M. 497, 536 P.2d 257 (1975); NMSA 1978, Civ.P.R. 52(B)(1)(a) (Repl.Pamp.1980).

Effect of the Federal Judgment

Trustee's complaint alleges that defendant had issued four certificates of deposit in the name of the trust and that defendant "unlawfully converted" the funds represented by these certificates, together with the accumulated interest. That defendant converted these funds is not disputed. Defendant cashed in these certificates and used the proceeds in its payment in response to the tax levy. Trustee seeks damages, both compensatory and exemplary, on the basis that defendant's use of the proceeds was unlawful. See Bowman v. Butler, 98 N.M. 357, 648 P.2d 815 (Ct.App.1982).

The claim of unlawfulness is based on the undisputed fact that the certificates were issued in the name of the trust and the undisputed fact that the taxpayers named in the notice of levy were two individuals--James E. and Helen V. Edwards. Trustee claims that the trust and the individuals were different entities, and that the funds represented by the certificates issued in the name of the trust were not money, credits or bank deposits belonging to the individual taxpayers named in the notice of levy.

This distinction was the basis of Trustee's federal court suit. The suit was under 26 U.S.C.A. Section 7426(a) (West 1967). All citations to federal statutes in our discussion are to Title 26, U.S.C.A. (West 1967); hereinafter, only the section number will be used. Section 7426(a)(1) authorizes a suit against the United States for a wrongful levy.

If a levy has been made on property * * * any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in * * * such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States.

Id. at 236.

Judge Burciaga's memorandum opinion analyzes the undisputed facts as to the establishment of the trust and the relationship of James E. and Helen V. Edwards to the trust. Judge Burciaga ruled that the "arrangement is a transparent attempt by the Edwards to transfer tax liability from themselves to the Trust where their consumptive expenses can be taken from pre-tax rather than post-tax dollars."

The memorandum opinion acknowledges Trustee's claim of contested material facts but points out that each claimed factual dispute was in reality a dispute over the legal implications of undisputed facts. "There is only the legal issue of whether the Trust is a separate legal entity for purposes of a government levy to collect taxes."

The memorandum opinion states:

Under 26 U.S.C. Secs. 674 and 677 (1976), the grantors [the Edwards individuals] are to be taxed as the owners of the Trust assets since they enjoy the power of disposition over the Trust without any approval or consent of an adverse party being required. Because the Trust is a nullity and sham for tax purposes, property held in the name of the Trust is not shielded from levy by the government.

Defendant's motion for summary judgment was based on the memorandum opinion and the summary judgment entered pursuant to the opinion which dismissed Trustee's complaint in the federal suit. The trial court took judicial notice of the decision and order of the federal court. The propriety of judicial notice is not questioned. See NMSA 1978, Civ.P.R. 44 (Repl.Pamp.1980). The trial court ruled defendant was required by law to honor the levy, that defendant was entitled to dismissal of Trustee's suit under Section 6332 and that Trustee was "estopped to relitigate the issues determined in Federal Court." Trustee challenges each of these rulings.

The briefs recognize, and we agree, that the key in deciding the effect of the federal judgment in this state court proceeding is the doctrine of collateral estoppel. Adams v. United Steelworkers of America, 97 N.M. 369, 373, 640 P.2d 475 (1982) states:

The purpose of collateral estoppel is to aid in the finality of judgments by preventing parties from endlessly relitigating the same issues under the guise of different causes of action. Collateral estoppel bars relitigation, as between parties or their privies, of ultimate facts or issues actually and necessarily decided in a prior suit.

Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326, 99 S.Ct. 645, 649, 58 L.Ed.2d 552 (1979) states:

Collateral estoppel, like the related doctrine of res judicata, ⁵ has the dual purpose of protecting litigants from the burden of relitigating an identical issue with the same party or his privy and of promoting judicial economy by preventing needless litigation. [Citation omitted.]

New Mexico does not differ in distinguishing res judicata from collateral estoppel. Adams.

Our discussion of collateral estoppel has three parts: A. Issues Actually and Necessarily Decided; B. New Mexico Collateral Estoppel; and C. Applicability of Federal Collateral Estoppel.

A. Issues Actually and Necessarily Decided

Trustee asserts that the issues in the two suits were different, that the issue in the federal suit was the wrongfulness of the government levy while an issue in this suit involves the propriety of defendant's action in turning over the proceeds of the certificates. Trustee asserts that the federal court suit did not actually or necessarily determine any issue as to defendant's conduct. This argument is superficial; it fails to recognize that collateral estoppel involves issue preclusion, Adams, and that the preclusion question is concerned with the claimed distinction between the Edwards individuals and Trustee.

The applicable portion of Section 6332(a) provides that "any person in possession of * * * property or rights to property subject to levy upon which a levy has been made shall, upon demand * * * surrender such property or rights * * *." Section 6332(c) provides for personal liability of a person who fails or refuses to surrender any property or rights to property. Section 6332(d) provides that a person in possession of property or rights to property, upon which a levy has been made, who surrenders that property or rights to property upon demand "shall be discharged from any obligation or liability to the delinquent taxpayer with respect to such property or rights to property arising from such surrender or payment."

The above statutes are federal substantive law which we must apply. Adams v. United Steelworkers of America. Their application in this case depends upon whether the levy upon the certificates in the name of the trust was wrongful. If not wrongful, defendant's payment was required by and protected by the federal statutes....