Jarro v. US

• Decision Date: 29 May 1992
• Docket Number: No. 92-853-Civ.,92-853-Civ.
• Parties: George JARRO, Plaintiff, v. UNITED STATES of America and Anderson Meat Distributors Company.
• Court: U.S. District Court — Southern District of Florida

835 F. Supp. 625

George JARRO, Plaintiff, v. UNITED STATES of America and Anderson Meat Distributors Company.

No. 92-853-Civ.

United States District Court, S.D. Florida.

May 29, 1992.

Philip T. Weinstein, Miami, FL, for plaintiff.

Mark Steir, U.S. Dept. of Justice, Tax Div., Washington, DC, for defendants.

ORDER DENYING MOTION FOR TEMPORARY RESTRAINING ORDER

MARCUS, District Judge.

THIS CAUSE comes before the Court upon Plaintiff George Jarro's motion for temporary restraining order. This is an action pursuant to 26 U.S.C. § 7426 against the United States for wrongful levy by the Internal Revenue Service ("IRS") on property which is not the taxpayer's. By the instant motion Plaintiff seeks to enjoin the IRS "from levying upon the sales commissions due the Plaintiff for the taxes of Coral Steak, Inc., a Florida Corporation." Motion for Immediate Hearing on Temporary Restraining Order and/or Preliminary Injunction at 1. For the reasons detailed below, the Court concludes that it probably lacks jurisdiction to enter the injunctive relief requested and that even if we had the power to grant the relief sought, on this limited record, Plaintiff's showing of irreparable harm is insufficient for entry of this preliminary relief. Accordingly, Plaintiff's Motion for Temporary Restraining Order is DENIED.

Plaintiff was formerly the President and sole stockholder of Coral Steak, Inc., ("Coral Steak") a corporation, now defunct, which became indebted to the United States for delinquent payroll taxes. A portion of these taxes were "trust fund taxes" attributed personally to Plaintiff, see 26 U.S.C. § 6672. Plaintiff maintains, and the United States has not disputed, that Plaintiff paid the United States in full for the debt apportioned to him personally. The remainder of the taxes were owed by the corporation Coral Steak.

Subsequent to his employment with Coral Steak Plaintiff began to work for Defendant Anderson Meat Distributors ("Anderson"). Pursuant to a written contract with Anderson, Plaintiff's wages are in part a commission comprising a percentage of sales to customers brought to Anderson by Plaintiff. Plaintiff acknowledges that many of the customers he brought to Anderson were previously customers of Coral Steak. In March 1992 the IRS served a Notice of Levy on Anderson against "George Jarro as nominee of Coral Steak, Inc.," and began to seize a large percentage of Plaintiff's commissions. In essence, the Internal Revenue Service maintains that to the extent that customers of Coral Steak are now Plaintiff's customers at Anderson, commissions collected by Plaintiff are properly seized to satisfy Coral Steak's outstanding tax debt.

Plaintiff, however, maintains that he is not a nominee of Coral Steak, and that the commissions upon which the IRS has levied arise not from any proprietary right taken from Coral Steak, but wholly from his personal services rendered. Plaintiff argues that as a matter of state law, these commissions cannot be deemed Coral Steak's property. In sum, Plaintiff maintains that the IRS has wrongfully levied on his property in order to satisfy the obligations of Coral Steak, obligations for which he cannot properly be held accountable. On April 14, 1992 Plaintiff filed a complaint for injunctive relief and damages, entitled Complaint by a Person Other than the Taxpayer for Injunction and Other Relief Pursuant to 26 U.S.C. § 7426. After consulting with counsel for Plaintiff, this Court set the Cause down for a status conference on April 21, 1992, and at that status conference set an evidentiary hearing on Plaintiff's motion for temporary restraining order for April 22, 1992. At the April 22 hearing testimony was taken, various exhibits were offered and the Court heard argument as to the merits of Plaintiff's motion. In addition, the Court raised sua sponte the question of whether jurisdiction is vested in the Court to enter the requested injunctive relief.

At that time we expressed the concern that the Anti-Injunction Act, 26 U.S.C. 7421(a) may preclude the entry of an injunction — whether preliminary or permanent — in this instance. Then, as now, Plaintiff contended that the "wrongful levy exception" to the Anti-Injunction Act, 26 U.S.C. § 7426, a statutory exception to the Anti-Injunction Act, controls, and that by its terms the Court is empowered to grant injunctive relief. We expressed concern, however, that under the express language of section 7426 and under the authority of Ketcham v. United States, 783 F.Supp. 511 (D.Nev.1991), the wrongful levy exception was inapplicable. Accordingly, the Court directed further briefing as to jurisdiction as well as to other aspects of Plaintiff's claims. In addition, after hearing from the parties the Court established an expedited briefing and discovery schedule so that Plaintiff's claims on the merits could be tried as soon as reasonably possible.

I. Jurisdictional Analysis

The Eleventh Circuit has recently addressed the power of the federal courts to enjoin the collection of taxes. In Mathes v. United States the Court wrote as follows:

The question of jurisdiction to enjoin tax assessments and collections is expressly covered by 26 U.S.C. § 7421(a), the Anti-Injunction Act, which provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person ..." Section 7421(a) expressly allows the following exceptions: petitions to the Tax Court for a redetermination of a deficiency pursuant to 26 U.S.C. §§ 6212(a) and (c), 6213(a) and civil actions in the district court pursuant to 26 U.S.C. § 7426(a) and (b)(1).

Courts have recognized that, aside from the express statutory exceptions of this statute, federal courts may enjoin the collection of taxes if it can be shown that (1) under no circumstances could the government ultimately prevail on its tax claim and (2) equity jurisdiction otherwise exists; either ground being conclusive. Enochs v. Williams Packing & Nav. Company, 370 U.S. 1, 6-7, 82 S.Ct. 1125, 1128-1129, 8 L.Ed.2d 292 (1962); Bowen v. United States, 331 F.2d 149, 150 (5th Cir.1964) (per curiam); see also Intercontinental Jet, Inc. and Jerry Lee Harvey v. United States of America, 690 F.Supp. 1012 (S.D.Fla.1988). Therefore, the general rule is that, except in very rare and compelling circumstances, federal courts will not entertain actions to enjoin the collection of taxes.

901 F.2d 1031, 1033 (11th Cir.1990) (footnote omitted) (ellipses in original). See United States v. Doyal, 462 F.2d 1357, 1358 (5th Cir.1972); Elias v. Connett, 908 F.2d 521, 523 (9th Cir.1990) ("Actions to enjoin the assessment and collection of taxes by the IRS are narrowly limited by the Anti-Injunction Act, 26 U.S.C. 7421."); Zernial v. United States, 714 F.2d 431, 434 (5th Cir.1983).

Plaintiff grounds his claim for injunctive relief on one of the statutory exceptions to the Anti-Injunction Act, the wrongful levy exception located in section 7426.¹ As summarized by the Ninth Circuit:

Section 7426 was added to the Internal Revenue Code of 1954 by the Federal Tax Lien Act of 1966, P.L. 89-719, 80 Stat. 1142 Sec. 110(a). Prior to that, the United States could not be sued by third persons where its collection activities interfered with third party property rights. This included a situation where the government wrongfully levied upon the property of a third person in an attempt to collect from a taxpayer.

Shannon v. United States, 521 F.2d 56, 60 n. 10 (9th Cir.1975), cert. denied, 424 U.S. 965, 96 S.Ct. 1458, 47 L.Ed.2d 731 (1976); see S.Rep. No. 1708, 89th Cong., 2d Sess., reprinted in 1966 U.S.Code Cong. & Admin.News 3722, 3751 hereinafter "Senate Report" Section 7426(a)(1) provides for a limited waiver of the United States' sovereign immunity under certain circumstances:

If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on 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.

26 U.S.C. § 7426(a)(1). As discussed above, Plaintiff in the instant action maintains that he is not the person against whom the assessment exists.

The federal courts' jurisdiction to grant injunctive relief is specifically addressed in section 7426(b)(1). The critical language, emphasized below, suggests that in order for injunction jurisdiction to vest, a third party's rights in the property levied upon must be threatened with irreparable harm. The statute provides as follows:

(b) Adjudication. The district court shall have jurisdiction to grant only such of the following forms of relief as may be appropriate in the circumstances:

(1) Injunction. — If a levy or sale would irreparably injure rights in property which the court determines to be superior to the rights of the United States in such property, the court may grant an injunction to prohibit the enforcement of such levy or to prohibit such sale. ....

26 U.S.C. § 7426(b)(1) (emphasis added). The statute thus makes clear that a district court has jurisdiction to issue an injunction only "if a levy or sale would irreparably injure rights in property...."

In Ketcham v. United States the District Court of Nevada recently explicated the meaning of "irreparably injure rights in property" in section 7426. 783 F.Supp. 511 (D.Nev.1991). In that case, Plaintiff Evelyn Ketcham moved for a preliminary injunction to prohibit the IRS from levying upon her interest in a partnership. Id. at 512. The levy was issued based upon a notice of federal tax lien for taxes owned by Ms. Ketcham's former husband. The Court stated the issue before it as "whether the assets sought to be levied upon belonged to plaintiff prior to recordation of the notice of the lien. This issue in turn depends directly on whether a...