Hammond Co. v. United States, Civ. No. 82-844.

• Decision Date: 14 July 1983
• Docket Number: Civ. No. 82-844.
• Court: U.S. District Court — Southern District of California
• Parties: The HAMMOND COMPANY, a California corporation; State Savings and Loan Association, a California corporation, Plaintiffs, v. UNITED STATES of America, Defendant. Andrew T. Fellner and Robert B. Palmer, Intervenors.

568 F. Supp. 309

The HAMMOND COMPANY, a California corporation; State Savings and Loan Association, a California corporation, Plaintiffs, v. UNITED STATES of America, Defendant.

Andrew T. Fellner and Robert B. Palmer, Intervenors.

Civ. No. 82-844.

United States District Court, S.D. California.

July 14, 1983.

Philip F. Marantz, Richard H. Cooper, Marlena J. Mouser, Freshman, Mulvaney, Marantz, Comsky, Kahan & Deutsch, Beverly Hills, Cal., Milton A. Miller, Latham & Watkins, Los Angeles, Cal., for plaintiffs.

Peter K. Nunez, U.S. Atty., Kathryn A. Snyder, Asst. U.S. Atty., San Diego, Cal., Nancy Morgan, Trial Atty., Tax Div. Dept. of Justice, Washington, D.C., for defendant.

ORDER

TURRENTINE, Chief Judge.

Plaintiffs State Savings and Loan and The Hammond Company move to amend a prior judgment to provide for the award of interest on money wrongfully levied upon by the Internal Revenue Service. The wrongful nature of the levy was determined on a motion for summary judgment in favor of plaintiffs on March 21, 1983.

I. FACTS

In June of 1982, Andrew Fellner and Robert B. Palmer, intervenors in this action, were arrested by federal agents for the violation of various federal anti-fraud statutes.¹ At the time of Fellner's arrest, he was carrying a briefcase containing $1,132,550 ("the Briefcase money"). This money was seized and immediately deposited into an interest-bearing account. Shortly thereafter, F.B.I. agents located a second cache in a locker at the Seattle airport. This fund consisted of $100,000 in U.S. dollars and $1,169,385 in Swiss Francs ("the Seattle money"). The Seattle money was seized by the F.B.I. and deposited in a vault at its regional office in Seattle.

The arrests and seizures were based on a two count information implicating Fellner and Palmer in an elaborate real estate fraud and forgery scheme to defraud plaintiff State Savings of approximately $9 million. Upon learning of these seizures, the Internal Revenue Service served the F.B.I. on June 22, 1982 with a notice of levy on what it characterized as Fellner and Palmer's income. On July 7, 1982, Fellner and Palmer pleaded guilty to the charges of fraud. During this period, several calls had been made and at least one letter sent by State Savings and Loan to the I.R.S. requesting that the levy on the Seattle money be released and that the money be returned to State Savings or at least be deposited in an interest-bearing account.

Receiving no response, State Savings and Loan filed on July 20, 1982 an action against the United States for wrongful levy under 26 U.S.C. § 7426. Meanwhile, though having pleaded guilty to criminal fraud and having turned the proceeds of the fraud over to the government, Fellner and Palmer were still being pursued by the Internal Revenue Service for taxes owed on their putative "income." On August 24, 1982, Fellner filed a suit against the United States seeking use of the confiscated proceeds to discharge his tax liability under the Internal Revenue Service levy. On October 29, 1982, the government in its answer admitted that the Service was in "possession" of the approximately $2.4 million taken from Fellner and Palmer in June of 1982.² This action was ultimately dismissed by stipulation on March 26, 1983.

On November 25, 1982, State Savings, still out of possession, brought a motion for summary judgment on its suit against the government for wrongful levy on the amount seized plus interest as provided under 26 U.S.C. § 7426(g). While this motion was pending, State Savings, the F.B.I., and the Internal Revenue Service entered into a stipulation on December 7, 1982 providing that the Seattle money be deposited in an interest-bearing account at State Savings, and that the Swiss francs be converted into U.S. dollars and deposited in an interest-bearing account. On March 21, 1983, this Court granted plaintiffs' motion for summary judgment against the United States for the amount wrongfully seized. This motion seeks to amend the prior judgment to provide for an award of interest on the sum under 26 U.S.C. § 7426(g).

II. ISSUES

The principal issue before this Court is whether plaintiff State Savings is entitled to interest on the Seattle money³ from June 22, 1982, the date of the levy, as urged by plaintiffs, or from December 7, 1982, the date of the stipulation, as urged by the government.

26 U.S.C. § 7426(g) provides that

"interest shall be allowed at an annual rate established under section 6621(1) in the case of a judgment pursuant to subsection (b)(2)(B), from the date the Secretary receives the money wrongfully levied upon to the date of payment of such judgment." (italics added).

An award of interest to plaintiffs under this statute requires the resolution of two issues, namely, whether constructive possession of the funds by the Internal Revenue Service under the levy satisfies the "received" requirement under the statute, and if so, whether the term "money" as used in the statute was intended to include foreign currencies, specifically, the $1,169,385 in Swiss francs.

III. DISCUSSION

With respect to the first issue, plaintiffs offer the following analysis. In Phelps v. United States, 421 U.S. 330, 337, 95 S.Ct. 1728, 1732, 44 L.Ed.2d 201 (1975), the Supreme Court held that a tax levy creates a "custodial relationship" between the holder of the subject property and the United States, reducing the property to the "constructive possession" of the government. See also Chevron U.S.A., Inc. v. United States, 705 F.2d 1487 at 1490 (9th Cir.1983). Since the Internal Revenue Service levied on the Seattle money on June 22, 1982, plaintiffs insist that their right to interest under the statute accrued on that date. Plaintiffs cite defendant's admission⁴ in the answer filed in response to Fellner's complaint as further proof of the Internal Revenue Service's possession of the fund, possession which plaintiffs insist is sufficient to satisfy the "received" requirement under § 7426(g).

The Court, however, is not convinced of the sufficiency of constructive possession under § 7426(g), and hence, must deny plaintiffs' request for interest. The Court's ruling is grounded in its reading of the statute, the legislative history, and the Court's general reluctance to impose an obligation on the government absent express statutory authority.

Prior to a discussion of these three factors, it should be noted that interest on judgments obtained against the United States is available only where authorized by contract or statute. U.S. v. Louisiana, 446 U.S. 253, 264-65, 100 S.Ct. 1618, 1625, 64 L.Ed.2d 196 reh'g denied, 447 U.S. 930, 100 S.Ct. 3007, 65 L.Ed.2d 1110 (1980). No contract is alleged by plaintiff. Where a statute provides for interest, as in the case of 26 U.S.C. § 7426(g), it constitutes a waiver of sovereign immunity and should be strictly construed. Honda v. Clark, 386 U.S. 484, 501, 87 S.Ct. 1188, 1197, 18 L.Ed.2d 244 (1966); United States v. One (1) Douglas A-26B Aircraft, 662 F.2d 1372, 1375 (9th Cir.1981). A statute which waives sovereign immunity must be read narrowly, and interpreted in the manner most favorable to the government. McMahon v. United States, 342 U.S. 25, 27, 72 S.Ct. 17, 19, 96 L.Ed. 268 (1951), reh'g denied, 342 U.S. 899, 72 S.Ct. 228, 96 L.Ed. 673 (1952). Lamarand v. Lamarand, 499 F.Supp. 1109, 1111 (C.D.Cal.1980). A statute will only be deemed to effect a waiver where the operative language is clear and unambiguous. Holly v. Chasen, 639 F.2d 795, 796 (D.C. Cir.), cert. denied, 454 U.S. 822, 102 S.Ct. 107, 70 L.Ed.2d 94 (1981); Rooney v. United States, 694 F.2d 582, 582 (9th Cir.1982).

With this judicial philosophy in mind, the Court shall proceed to address plaintiffs' argument. Plaintiffs contend that the date of receipt should be treated as the date on which the I.R.S. took constructive possession of the funds i.e., the date of levy. Such an interpretation is clearly not in accord with the plain ordinary meaning of the statute. Congress said "receives," not "the date of levy." If Congress intended to impose liability on the government for interest from the date of levy, it could certainly have used such language. It chose instead to limit the entitlement to interest from the date received. Such a limitation should not be regarded lightly.

Congress' recognition of the distinction between levy and receipt is evidenced by Section (a)(1) of the statute which provides that a wrongful levy action may be brought "without regard to whether such property has been surrendered to or sold by the Secretary or his delegate." If the Court adopts plaintiffs' interpretation of § 7426(g), the Internal Revenue Service could conceivably be held liable for the payment of interest on funds which, due to the contumacy of a third party, the Service has not actually received, though subject to levy and within its constructive possession. Such a construction of the statute would clearly work a hardship on the government, and could not conceivably have been Congress'...