First Interstate Bank of Or. v. US

• Decision Date: 30 March 1995
• Docket Number: Civ. No. 94-917-HA.
• Citation: 891 F. Supp. 543
• Court: U.S. District Court — District of Oregon
• Parties: FIRST INTERSTATE BANK OF OREGON, N.A., Plaintiff, v. UNITED STATES of America, by and through the INTERNAL REVENUE SERVICE, Hoyt & Sons Ranch Properties Nevada, Limited, a Nevada limited partnership, and Hoyt & Sons Ranch Properties California, Limited, a California limited partnership, Defendants.

891 F. Supp. 543

FIRST INTERSTATE BANK OF OREGON, N.A., Plaintiff, v. UNITED STATES of America, by and through the INTERNAL REVENUE SERVICE, Hoyt & Sons Ranch Properties Nevada, Limited, a Nevada limited partnership, and Hoyt & Sons Ranch Properties California, Limited, a California limited partnership, Defendants.

Civ. No. 94-917-HA.

United States District Court, D. Oregon.

March 30, 1995.

O. Meredith Wilson, Jr., Timothy R. Harmon, Lane Powell Spears & Lubersky, Portland, OR, for plaintiff.

Kristine Olson Rogers, U.S. Atty., Dist. of Or., William W. Youngman, Asst. U.S. Atty., Portland, OR, W. Carl Hankla, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, for defendant U.S.

William D. Cramer, William D. Cramer, Jr., Cramer & Mallon, Burns, OR, for defendant Hoyt & Sons Ranch Properties Nevada, Ltd.

OPINION

HAGGERTY, Judge:

This is an interpleader action brought by plaintiff, First Interstate Bank of Oregon, N.A. ("FIOR"), to resolve competing claims to $28,179.91 (the "disputed funds") held by FIOR in a checking account. FIOR alleges that it is a disinterested stakeholder, and that it may be exposed to multiple liability and vexatious litigation unless it is allowed to interplead the disputed funds into the court for a determination of the rights of the claimants thereto. FIOR specifically moves the court for an order (1) requiring the disputed funds to be deposited with the court; (2) discharging it from liability as to the disputed funds; and (3) enjoining all parties to this action from commencing any other action against it concerning the disputed funds. FIOR further moves the court for an order awarding it the reasonable attorneys' fees and costs it has incurred in bringing this interpleader action. These motions are presently before the court.

BACKGROUND

At all times relevant to the instant action, defendant Hoyt & Sons Ranch Properties Nevada, Limited ("Hoyt") has maintained a checking account at the Burns, Oregon branch office of FIOR. The account number of this checking account is XXXXXXXXXX, and on the signature card corresponding to the account, Hoyt represented that its taxpayer identification number is XX-XXXXXXX. The funds in the account have, at all material times, totaled $28,179.91.

On June 15, 1994, the Internal Revenue Service ("IRS") served a "Notice of Levy" on FIOR seeking unpaid tax assessments owed by "Hoyt & Sons Ranch Properties."¹ The IRS levy indicated that the subject taxpayer owed a total of $1,114,435.17 in unpaid taxes, and explained that a lien for this amount had been secured. The levy instructed FIOR that it was required to withhold and remit to the IRS all of the subject taxpayer's property and rights to property, including bank deposits, that it possessed.² The levy expressly stated that it "included, but was not limited to account number XXXXXXXXXX." Interestingly, however, the levy indicated that the identifying number for the subject taxpayer was 68-0000274, not XX-XXXXXXX.

On June 15, 1994, FIOR mailed a letter and a copy of the IRS levy to Hoyt. In the letter, FIOR indicated that the levy named "Hoyt & Sons Ranch Properties" as the subject taxpayer, and that the levy specifically identified account number XXXXXXXXXX as within its scope. The letter further indicated that FIOR intended to comply with the levy and remit the balance of the aforementioned account to the IRS in 21 calendar days.

On June 21, 1994, FIOR received a letter from Hoyt's attorney. In this letter, FIOR was instructed that:

There are two Hoyt & Sons Ranch Properties limited partnerships. One is a California partnership with a tax identification number 68-0000274 which is shown on the notice of levy. The other is a Nevada limited partnership with a tax identification number of XX-XXXXXXX which you have on your signature card for account number XXXXXXXXXX.

I am formally notifying you that your depositor, my client, is not, and never has been, the alter ego of the parties against whom the levy is being pursued.

The letter also declared that the levy was illegal, and advised FIOR that if the funds deposited in account number XXXXXXXXXX were turned over to the IRS, FIOR would undoubtedly face legal repercussions.³

On June 30, 1994, counsel for FIOR responded, by way of letter, to Hoyt's counsel, stating that:

Failure to honor the levy would expose FIOR to liability for the full amount in the account identified in the levy plus substantial penalties. Your demand letter, and the information in it, will not protect FIOR from this liability. Rather, the Internal Revenue Code and Regulations establish a procedure for obtaining the release of a levy.... If your client contests the levy, it must follow those procedures.

Unless your client obtains a release of the Internal Revenue Service levy, FIOR will file an interpleader action and deposit the disputed funds into court.

Hoyt failed to secure a release of the IRS levy. Accordingly, in early July of 1994, FIOR filed a complaint in interpleader in the Circuit Court for the State of Oregon for the County of Multnomah. Shortly thereafter, the federal defendant, the United States of America ("United States"),⁴ removed this action to federal court.

On September 19, 1994, Hoyt filed an answer to the interpleader complaint. Concurrent with the filing of the answer, Hoyt's general partner, Darrel Smith, brought cross-claims against FIOR, the United States, and two employees of the IRS. The essence of Hoyt's answer and cross-claims is that issuance of the IRS levy was wrongful, and as a result, it is entitled, at a minimum, to immediate possession of the disputed funds free of any encumbrances.

The United States subsequently filed an answer in which it amended its original claim to the disputed funds. The United States now asserts a claim to $11,415.56 of the disputed funds.

DISCUSSION

1. Interpleader

"Rooted in equity, interpleader is a handy tool to protect a stakeholder⁵ from multiple liability and the vexation of defending multiple claims to the same fund." Washington Elec. Coop., Inc. v. Paterson, Walke & Pratt, P.C., 985 F.2d 677, 679 (2d Cir.1993). Interpleader allows a plaintiff stakeholder to join in a single action those parties who are or might assert claims to a common fund held by the stakeholder. See 7 Charles A. Wright et al., Federal Practice and Procedure § 1702, at 493 (2d ed. 1986); see generally Fed.R.Civ.P. 22; 28 U.S.C. § 1335; ORCP 31. An interpleader action usually encompasses two distinct procedurally stages. First, the court determines the propriety of interpleading the adverse claimants and relieving the stakeholder from liability. The second stage involves an adjudication of the adverse claims of the defendant claimants. 3A James WM. Moore & Jo D. Lucas, Moore's Federal Practice §§ 22.141 and 2 (2d ed. 1994); see also Cripps v. Life Ins. Co. of North America, 980 F.2d 1261, 1265 (9th Cir.1992) (describing an interpleader action as follows: "The `stakeholder' of a sum of money sues all those who might have claim to the money, deposits the money with the district court, and lets the claimants litigate who is entitled to the money.").

The Supreme Court has emphasized that interpleader is a remedial device which is to be applied liberally. State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523, 533, 87 S.Ct. 1199, 1204-05, 18 L.Ed.2d 270 (1967). It follows that interpleader relief is not to be denied merely because the possibility of multiple liability or multiple litigation is remote or rests on tenuous grounds. Sotheby's, Inc. v. Garcia, 802 F.Supp. 1058, 1065 (S.D.N.Y. 1992); 7 Charles A. Wright et al., Federal Practice and Procedure § 1704, at 504 (2d ed. 1986). Moreover, the right to interpleader is not incumbent upon a stakeholder showing that it is in jeopardy of multiple liability, as well as multiple litigation. Instead, "a stakeholder, acting in good faith, may maintain a suit in interpleader to avoid the vexation and expense of resisting adverse claims, even though he believes only one of them is meritorious." New York Life Ins. Co. v. Welch, 297 F.2d 787, 790 (D.C.Cir.1961); see also National Fire Ins. Co. v. Sanders, 38 F.2d 212, 214 (5th Cir.1930) (the fundamental purpose of interpleader is to guard against double vexation); A/S Krediit Pank v. Chase Manhattan Bank, 155 F.Supp. 30, 33 (S.D.N.Y.1957) ("The office of modern interpleader is both to protect against possible double liability to actual claimants and against possibility of vexatious multiple litigation."), appeal dismissed as frivolous, 303 F.2d 648 (2d Cir.1962).

In the instant action, it is undisputed that FIOR is a disinterested stakeholder. It is further undisputed that FIOR has been presented with competing claims to the fund it is holding. Nevertheless, each of the adverse claimants — the United States and Hoyt⁶ — oppose the specific interpleader relief sought by FIOR. Although the United States does not oppose FIOR's request to deposit the disputed funds with the court, it does oppose FIOR's requests for (1) an order enjoining the parties to this action from commencing any future action against FIOR regarding the disputed funds and (2) an order discharging FIOR from liability as to the disputed funds. In subtle contrast, Hoyt opposes FIOR's request for interpleader relief in its entirety.

A. Threat of Multiple Liability or Multiple Litigation

The United States contends that FIOR is not entitled to interpleader relief in the form of an order discharging it from liability because FIOR faced no genuine threat of multiple liability with respect to the disputed funds. The United States specifically contends that had FIOR honored the IRS levy, it would have been shielded from any potential liability to Hoyt pursuant to 26 U.S.C. § 6332(e).⁷ Even if this assertion by the United States is accurate,⁸ it does not preclude FIOR from obtaining the interpleader relief it seeks.

As indicated above, interpleader is to be granted in...