Harrell v. U.S.

• Decision Date: 30 December 1993
• Docket Number: No. 91-2077,91-2077
• Parties: -630, 94-1 USTC P 50,137 Gaylon L. HARRELL, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

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13 F.3d 232

73 A.F.T.R.2d 94-630, 94-1 USTC P 50,137

Gaylon L. HARRELL, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 91-2077.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 16, 1993.

Decided Dec. 30, 1993.

John Y.E. Lee (argued), Oppenheimer, Wolff & Donnelly, Chicago, IL, for plaintiff-appellant.

Gary R. Allen, Joel A. Rabinovitz, William S. Estabrook, Annette M. Wietecha (argued), Dept. of Justice, Tax Div., Appellate Section, Washington, DC, J. William Roberts, U.S. Atty., James A. Lewis, Asst. U.S. Atty., Springfield, IL, John A. Lindquist, III, Dept. of Justice, Tax Div., Appellate Section, Washington, DC, for defendant-appellee.

Before POSNER, Chief Judge, and COFFEY and KANNE, Circuit Judges.

POSNER, Chief Judge.

A taxpayer brought suit under the federal "quiet title" act, 28 U.S.C. Sec. 2410, challenging a levy that the Internal Revenue Service had placed against his wages because he had failed to pay income tax in 1985 and 1986. The district court dismissed the suit on the ground that it was not within the scope of the quiet-title act and anyway was barred by the "anti-injunction" act, 26 U.S.C. Sec. 7421, which forbids the maintenance of a suit brought "for the purpose of restraining the assessment or collection of any [federal] tax."

The quiet-title act waives the federal government's sovereign immunity with respect to suits to determine title to real or personal property on which the United States has or claims a lien. 28 U.S.C. Sec. 2410(a). The government argues, correctly in our view, that the act is inapplicable both to Harrell's wages that have already been paid over to the Internal Revenue Service by his employer pursuant to the levy and to wages that Harrell has not yet earned but expects to earn in the future. As to the former, the government now has not a lien on but title to the money, Hughes v. United States, 953 F.2d 531, 538 (9th Cir.1992); Farr v. United States, 990 F.2d 451, 453 (9th Cir.1993), and Harrell's remedy, if he believes he does not owe that amount of money to the government in unpaid taxes, is to bring a suit for refund. As to the latter, Harrell may have a contract claim but he has no property right in wages that he has not yet earned, his entitlement to them being contingent on his continued employment. Wagner v. United States, 573 F.2d 447, 454 (7th Cir.1978); United States v. Long Island Drug Co., 115 F.2d 983, 986 (2d Cir.1940). Without a colorable title, he has no basis for a quiet-title suit.

This leaves, however, wages that Harrell has already earned but that have not yet been paid over to the government pursuant to the levy. Once an employee has earned wages by having done the work that under his explicit or implicit employment contract entitles him to those wages, he has a vested right to them. Colosi v. Electri-Flex Co., 965 F.2d 500, 504 (7th Cir.1992); In re Northwest Engineering Co., 863 F.2d 1313, 1316 (7th Cir.1988); National Metalcrafters v. McNeil, 784 F.2d 817, 820, 823 (7th Cir.1986); Illinois Wage Payment and Collection Act, 820 ILCS 115. If the government claims a lien in them by virtue of a levy, the sorting out of competing property claims that is then required is just the task for which the quiet-title act was designed. Of course if Harrell is concerned not with the levy itself but with the tax assessment that motivated it, he has chosen the wrong remedy. His remedy is to challenge the assessment in the Tax Court. But insofar as his concern is with the levy itself, that is, with the deducting of money from his paycheck for payment over to the IRS, he has not misconceived his remedy. This would be clearer if the property he was claiming were something other than cash. Suppose the government had seized an heirloom of Harrell's and proposed to sell it in order to collect taxes that the government claims he owed. Even if Harrell admitted that he owed the taxes, he could challenge by way of a quiet-title action the government's claim of a lien in the heirloom, assuming the lien was for some reason not authorized by law. We think the principle should be the same when the form the property takes is a vested right to cash wages. Farr v. United States, supra, 990 F.2d at 453; Hughes v. United States, supra, 953 F.2d at 538. The anti-injunction act is no obstacle. It bars a suit challenging the collection or assessment of taxes, but not a suit to remove a lien without questioning the entitlement of the government to collect the taxes in some other way. Robinson v. United States, 920 F.2d 1157, 1159-61 (3d Cir.1990); In re Estate of Johnson, 836 F.2d 940, 948 (5th Cir.1988). If a taxpayer tries to defeat the government's efforts at assessment or collection by filing groundless suits to prevent the government from levying on his assets to collect the taxes that he owes, the government's remedies include dismissal, sanctions, an injunction against vexatious litigation--or, as we shall see, recharacterization of the taxpayer's conduct as a de facto effort to enjoin the collection of taxes, thus bringing the anti-injunction act into play.

All the quiet-title act does is waive sovereign immunity. It does not authorize quiet-title suits; it does not confer federal jurisdiction over them; it merely clears away the obstacle that sovereign immunity would otherwise place in the path of such a suit. Harrell has no problem, however, finding a basis for federal jurisdiction for his quiet-title suit; it is 28 U.S.C. Sec. 1340, which bestows on the federal district courts original jurisdiction of any civil action arising under the internal revenue laws. Harrell's claim is that the levy on his wages violated the provisions authorizing federal tax liens; that claim arises under the Internal Revenue Code and is therefore within the jurisdiction conferred by section 1340. But nothing in that section or for that matter in section 2410 itself prescribes the remedial details of the quiet-title action, and for these the courts have usually turned to state law. United States v. Brosnan, 363 U.S. 237, 241-42, 80 S.Ct. 1108, 1111-12, 4 L.Ed.2d 1192 (1960); Dupnik v. United States, 848 F.2d 1476, 1484 (9th Cir.1988); McEndree v. Wilson, 774 F.Supp. 1292, 1295-96 (D.Colo.1991).

Now Illinois appears--no stronger word is possible--not to allow a quiet-title action with respect to personal property unless it is closely related to real estate, for example proceeds of the sale of land. American Invs-Co Countryside, Inc. v. Riverdale Bank, 596 F.2d 211, 216 n. 9 (7th Cir.1979); Crawford Realty & Development Corp. v. Woodlawn Trust & Savings Bank, 382 Ill. 354, 47 N.E.2d 81, 84 (1943). But this cannot be the end of the inquiry. A federal suit to clear a federal tax lien is governed by federal law--federal common law if the applicable statutes have gaps. United States v. Brosnan, supra, 363 U.S. at 240-42, 80 S.Ct. at 1111-12; Dupnik v. United States, supra, 848 F.2d at 1484; McEndree v. Wilson, supra, 774 F.Supp. at 1295-96. For a variety of reasons having mainly to do with the paucity of...