Frierdich v. U.S., 92-1623
| Decision Date | 11 February 1993 |
| Docket Number | No. 92-1623,92-1623 |
| Citation | 985 F.2d 379 |
| Parties | -903, 93-1 USTC P 50,126 Michael V. FRIERDICH, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Ronald D. Stanley, Columbia, IL (argued), for plaintiff-appellant.
Robert L. Simpkins, Asst. U.S. Atty., Office of U.S. Atty., Criminal Div., Fairview Heights, IL, Gary R. Allen, Jordan L. Glickstein (argued), William S. Estabrook, Mark Winer, Gerald H. Parshall, Jr., Dept. of Justice, Tax Div., Appellate Section, Washington, DC, for defendant-appellee.
Before POSNER, FLAUM, and ROVNER, Circuit Judges.
Michael Frierdich brought this suit against the United States contending that it had made a wrongful levy on property that Frierdich had "an interest in or lien on," 26 U.S.C. § 7426(a)(1), and seeking a judgment for some $37,000, which he claimed to be the value of his interest. 26 U.S.C. § 7426(b)(2)(B). After a bench trial, the district judge dismissed the suit on the ground that the interest claimed by Frierdich in the property in question was not the kind that supports standing to bring a third-party suit for wrongful levy--third party because Frierdich is not the taxpayer from whom the Internal Revenue Service was seeking to collect taxes by making the levy in question.
To explain the character of Frierdich's interest, we must work through a series of transactions. In October 1985 the corporation of which Frierdich was the president and controlling stockholder, Universal Beverage Sales, a distributor of beverages, made a contract to sell its principal assets to Twin Rivers Distributing Company in exchange for cash installment payments and other consideration. After the sale Universal's principal asset was the right to receive the agreed-upon payments from Twin Rivers. The payment stream not being large enough, however, to meet all of Universal's financial obligations, in February of the following year Frierdich and his wife borrowed $400,000 from the Lemay Bank and Trust Company to pay Universal's debts. As collateral for the loan Frierdich caused Universal to assign its right to receive payments from Twin Rivers to the bank. Later he caused Universal to make a subordinated assignment of the same right to him so that, should the bank be repaid in full, subsequent payments by Twin Rivers would go directly to him.
A post-nuptial property agreement between Frierdich and his wife, confirmed in their divorce decree in January 1988, assigned to her all of his rights in Universal, as well as his subordinated right to future payments from Twin Rivers. He also had Universal assign to her any right it might have to future payments from Twin Rivers notwithstanding its assignment of the right to the bank. And he agreed to indemnify her for any debts of Universal for which she might become liable.
Universal owed unpaid federal employment taxes to the Internal Revenue Service, which in 1989 seized assets of Twin Rivers equal to the amount which that company still owed Mrs. Frierdich (by assignment from Universal and her husband) on the contract with Universal. That seizure is the levy which precipitated this suit, to which Mrs. Frierdich is not a party. After the levy, the bank released the assignment to it of Universal's right to the payments under the Twin Rivers contract, but Frierdich and his wife remained liable on their promissory note to the bank for the $400,000 loan that they had obtained from the bank to pay Universal's debts. Mr. Frierdich argues that his having taken out a personal loan from the bank to pay debts of Universal gives him an "equitable" interest, not further specified, in the money that Twin Rivers owed Universal and that it now owes his former wife by virtue of the assignment from Universal to him, his assignment of all his interest in Universal to her, and the release by the bank of the assignment that Universal had made to it.
In a practical sense Frierdich has an "interest" in his former wife's contractual entitlement to payments from Twin Rivers for the rights that it acquired from Universal. The $400,000 was borrowed from the bank to pay off debts of Universal, and Frierdich has agreed to indemnify his wife for any expense she incurs in respect of those debts. Should the bank try to collect the loan from her, she will doubtless attempt to shift the liability to her ex-husband on the ground that their debt to the bank is really a debt of Universal, since the loan was taken out to help it repay its debts, and therefore she is entitled to indemnity from him. The attempt may fail; for that matter the bank may not seek to collect the loan from her; still another possibility is that by virtue of the assignment to her of Twin Rivers' contract with Universal she can pocket any payments from Twin Rivers and still go after her husband should the bank try to collect the loan from her. But all this is just to say that Mr. Frierdich's interest in the payment stream on which the Internal Revenue Service levied is probabilistic; we do not understand the government to be contending that it does not have a positive present value. Being in effect a guarantor of Universal's debts, Frierdich is harmed by the diminution in Universal's wealth arising from the seizure by the Internal Revenue Service of income due Universal from Twin Rivers.
But is Frierdich's interest in that income an "interest" within the meaning of the statute? On this, the central question in the case, the government to our dismay has been unhelpful. It insists, on the authority of Valley Finance, Inc. v. United States, 629 F.2d 162, 168 (D.C.Cir.1980), that the word "interest" in the statute authorizing third-party challenges to wrongful levies is confined to "specific, possessory rights." Valley Finance said this, all right, but it also said that any secured creditor has the requisite interest, id., even though secured creditors do not have possessory rights, at least in the literal sense--although the court probably was referring to the fact that in the event of a default a secured creditor can in effect "seize" the security and have it sold to satisfy his claim. Valley Finance based its interpretation of the statute as equating "interest" to "secured" or "possessory" interest on the statutory language and on some smatterings of legislative history that we find unilluminating. The other cases that touch on the question add nothing to Valley Finance's brief discussion though they agree with its conclusion. United States v. Eschweiler, 782 F.2d 1385, 1393 (7th Cir.1986); National Bank & Trust Co. v. United States, 589 F.2d 1298, 1301 (7th Cir.1978); Century Hotels v. United States, 952...
To continue reading
Request your trial
-
Wee Luv Childcare, Inc. v. US EX REL. IRS, Civ-96-2115-R.
...an unsecured interest is not sufficient to confer standing." McGinness v. United States, 90 F.3d at 146 (citing Frierdich v. United States, 985 F.2d 379, 383 (7th Cir. 1993)); Aspinall v. United States, 984 F.2d 355, 358 (10th Cir.1993); Valley Finance, Inc. v. United States, 629 F.2d 162, ......
-
Armstrong v. U.S.
...a "fee simple or equivalent interest, a possessory interest, or a security interest in the property levied upon." Frierdich v. United States, 985 F.2d 379, 383 (7th Cir.1993); see also Century Hotels v. United States, 952 F.2d 107, 109 (5th Cir.1992). If the plaintiff can show such an inter......
-
Canadian Wheat Bd. v. U.S.
...flow from individualized harm done to the plaintiff, separate from any claims that the corporation may assert."); Frierdich v. United States, 985 F.2d 379, 382 (7th Cir.1993) (holding that a guarantor of a taxpayer's debt had an interest that was too remote to confer standing to challenge a......
-
Equitable Life Assur. Society of U.S. v. Mischo
...bring a claim for wrongful levy. Allied/Royal Parking, L.P. v. United States, 166 F.3d 1000, 1005 (9th Cir.1999). In Frierdich v. United States, 985 F.2d 379 (7th Cir.1993), a case cited approvingly by the Ninth Circuit in Allied/Royal, supra, the court found that the word "interest", as us......