Lyle v. Commodity Credit Corp.
| Decision Date | 29 November 1993 |
| Citation | 104 F.3d 367 |
| Parties | -7623, 97-1 USTC P 50,119, 97 CJ C.A.R. 21 NOTICE: Although citation of unpublished opinions remains unfavored, unpublished opinions may now be cited if the opinion has persuasive value on a material issue, and a copy is attached to the citing document or, if cited in oral argument, copies are furnished to the Court and all parties. See General Order of |
| Court | U.S. Court of Appeals — Tenth Circuit |
Before BRORBY, EBEL and HENRY, Circuit Judges.
After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R.App. P. 34(a); 10th Cir. R. 34.1.9. The case is therefore ordered submitted without oral argument.
Plaintiff Ewing E. Lyle sued Defendant Commodity Credit Corporation, 1 alleging the Commodity Credit Corporation's payment of funds it owed Mr. Lyle to the Internal Revenue Service was not proper either as a levy or as an administrative offset. The district court granted the Commodity Credit Corporation's motion to dismiss for failure to state a claim upon which relief could be granted, and Mr. Lyle appeals. Reviewing de novo the district court's dismissal for failure to state a claim, Jojola v. Chavez, 55 F.3d 488, 490 (10th Cir.1995), we affirm the holding of the district court.
The Commodity Credit Corporation is a wholly-owned government corporation within the United States Department of Agriculture. 7 C.F.R. § 780.3 (1995). It administers the Department's price support programs, making payments to participating farmers through the Agriculture Stabilization and Conservation Service. On March 15, 1993, Mr. Lyle's wife applied for Mr. Lyle to receive price support payments. On April 30, 1993, Mr. Lyle entered into two contracts with the Commodity Credit Corporation to participate in the 1993 Price Support and Production Adjustment programs.
On March 11, 1993, the Internal Revenue Service sent the Agriculture Stabilization and Conservation Service a Notice of Levy indicating Mr. Lyle owed the United States government $26,233.36 in back taxes, interest, and penalties. Pursuant to that notice, in April and June of 1993, the Agriculture Stabilization and Conservation Service sent the Internal Revenue Service $14,252.94 which it otherwise would have paid to Mr. Lyle pursuant to the March application and the April contracts.
Mr. Lyle argued to the district court that the Commodity Credit Corporation's payment of those funds to the Internal Revenue Service, rather than to himself, was improper for two alternative reasons. First, if the payment was an administrative offset, 2 he alleged it was improper because the Commodity Credit Corporation failed to comply with the Debt Collection Act's requirements for administrative offset, set forth in 31 U.S.C. § 3716 (1994). Alternatively, he contended the payment was not proper as a levy, 3 because at the time the Notice of Levy was filed, Mr. Lyle did not have any property in the hands of the Commodity Credit Corporation. See 26 U.S.C. § 6331(b) (1994) ().
The district court correctly held Mr. Lyle's claim of improper offset to be meritless, because 31 U.S.C. § 3716 is inapplicable to debts under the Internal Revenue Code. 31 U.S.C. § 3701(d) (1994). It also found the Commodity Credit Corporation's payment to the Internal Revenue Service to have been pursuant to administrative offset, rather than levy, and accordingly held Mr. Lyle's wrongful levy claim failed to state a claim for which relief could be granted.
On appeal, Mr. Lyle contends the Commodity Credit Corporation's payment to the Internal Revenue Service was pursuant to levy, rather than offset, and therefore claims his suit has merit as an action for improper levy. 4 We, however, find the transaction between the Commodity Credit Corporation and the Internal Revenue Service to have been pursuant to offset, rather than levy. Accordingly, we affirm the district court's dismissal of Mr. Lyle's action for failure to state a claim upon which relief can be granted.
The district court relied on 7 C.F.R. § 1403.7(m)(4), which in 1995 provided:
Offset shall be made, if the Internal Revenue Service so requests or has served a Notice of Levy, of any amounts for which the assignor is indebted to the United States for taxes, for which a notice of lien was filed in accordance with the provisions of the Internal Revenue Code prior to the date the notice of assignment was accepted by [the Commodity Credit Corporation] or [the Agriculture Stabilization and Conservation Service].
This regulation was premised on a long-standing policy of the Commodity Credit Corporation to treat Internal Revenue Service Notices of Levy the same as requests for administrative offset from other federal agencies. See 60 Fed.Reg. 43705, 43706 (1995). The district court held this regulation authorized the Commodity Credit Corporation to treat the Internal Revenue Service Notice of Levy as an offset request, and accordingly found the questioned transaction to have been an offset. 5 We find the regulation's applicability to the instant situation somewhat ambiguous, and thus utilize different reasoning than the district court, although we reach the same result. See Swoboda v. Dubach, 992 F.2d 286, 291 (10th Cir.1993) ().
Mr. Lyle argues the Commodity Credit Corporation lacks the power to engage in an offset in response to the receipt of an Internal Revenue Service Notice of Levy. He is incorrect. The Notice of Levy served to inform the Commodity Credit Corporation that Mr. Lyle owed the Internal Revenue Service $26,233.36. It is indisputable that the government possesses the common-law right to offset "debts owed by one agency against claims that another agency has against a single debtor." In re Turner, 84 F.3d 1294, 1296 (10th Cir.1996) (en banc); see also Munsey Trust, 332 U.S. 234; Cherry Cotton Mills, Inc. v. United States, 327 U.S. 536 (1946). Therefore, upon being notified of Mr. Lyle's outstanding debt to the Internal Revenue Service, the Commodity Credit Corporation had the common-law right to offset funds it owed Mr. Lyle against Mr. Lyle's debt to the Internal Revenue Service. This is exactly what the Commodity Credit Corporation chose to do.
Mr. Lyle's argument that a levy would not, and could not, have reached the Commodity Credit Corporation's obligations to him because those obligations were nonexistent at the time of the levy supports our conclusion. The Commodity Credit Corporation could not have legally paid the funds in question to the Internal Revenue Service pursuant to levy, see 26 U.S.C. § 6331(b), yet they could have done so as an offset. Because the Commodity Credit Corporation did pay the funds to the Internal Revenue Service, they necessarily did so as an offset. Although this reasoning in and of itself might be insufficient upon which to base our holding, it does provide additional support.
Our holding is further supported by the analogous case of Warren, 805 F.2d 449. In Warren, the Internal Revenue Service issued the United States Army three successive Notices of Levy against the Warren Corporation, which the Army had hired to perform a construction project. Id. at 450-51. The Army, instead of paying the Warren Corporation, sent the payment to the Internal Revenue Service. Id. at 451. In response to a wrongful levy action instituted by a third party, the government contended the court was without jurisdiction to hear the case because the transaction was an offset, rather than pursuant to levy. 6 Id. The First Circuit agreed. Id. at 452-53. It stated:
a government agency's transfer to the [Internal Revenue Service] of funds owed to a delinquent taxpayer should properly be characterized as a set off by the federal government even if the transfer occurs pursuant to a formal notice of levy. To hold otherwise would place undue significance on the type of form used by the [Internal Revenue Service ] to notify the other agency of the taxpayer's delinquency. Accordingly, despite the three notices of levy issued by the [Internal Revenue Service], we find that the Government in the case at bar has simply asserted its well established right to set off an unpaid earned contract balance against the unpaid tax liability of a government contractor.
Id. (emphasis added).
We believe the First Circuit's reasoning to be equally applicable to this case. However, we limit our holding to the facts of this case, noting there may be situations where the Internal Revenue Service must proceed by forceful levy, rather than offset. Capuano v. United States, 955 F.2d 1427 (11th Cir.1992), is illustrative. In Capuano, the United States Attorney's Office had agreed to pay Mr. Agustin Santana $100,000 in settlement of a forfeiture action. Id. at 1428. The negotiaters agreed the settlement was to be by a check made payable jointly to Mr. Santana and his attorney, Mr. Capuano, in recognition of Mr....
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