St. Louis Union Trust Co. v. Stone, 76-236C(1).

• Decision Date: 22 February 1979
• Docket Number: No. 76-236C(1).,76-236C(1).
• Citation: 468 F. Supp. 941
• Parties: ST. LOUIS UNION TRUST CO., Plaintiff, v. Andrew L. STONE, Jeanne M. Stone, and U.S.A., et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

468 F. Supp. 941

ST. LOUIS UNION TRUST CO., Plaintiff, v. Andrew L. STONE, Jeanne M. Stone, and U.S.A., et al., Defendants.

No. 76-236C(1).

United States District Court, E. D. Missouri, E. D.

February 22, 1979.

Thomas S. McPheeters, Jr., Robert F. Scoular, Juan D. Keller, Kenneth A. Kleban, Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., for plaintiff.

Michael I. Saltzman, New York City, Joseph B. Moore, Asst. U.S. Atty., St. Louis, Mo., Sidney L. Stone, St. Louis, Mo., Alexander Younger, U.S. Dept. of Justice, Civ. Div., John J. McCarthy, Chief, Litigation Section, Tax Div. of U.S. Dept. of Justice, Washington, D.C., Richard J. Sheehan, Henry H. Stern, Jr., Susman, Stern, Agatstein & Heifetz, St. Louis, Mo., for defendants.

MEMORANDUM

MEREDITH, Chief Judge.

This matter is before the Court on the Defendant United States' motions for partial summary judgment, for a protective order, and for a stay or extension of time for discovery. For the reasons stated below, the motion for summary judgment will be granted while the other motions will be denied as moot.

This case is brought under 28 U.S.C. § 1331 for a declaratory judgment and other relief. Plaintiff, St. Louis Union Trust Company (the Trust Company), has asked the Court to clarify its obligations under (1) a 1970 trust agreement between the Trust Company, Andrew L. Stone (Stone), and the United States; and (2) subsequent tax liens and levies on the trust account and its proceeds. In its order dated March 16, 1977, 428 F.Supp. 988, this Court granted the United States' motion to dismiss both plaintiff's interpleader action and Stone's crossclaim for lack of subject matter jurisdiction. On appeal the Eighth Circuit Court of Appeals affirmed the dismissal of the crossclaim but reversed the dismissal of the interpleader action 570 F.2d 833 (5 Cir.). The Court held that determining the validity of a federal tax lien is a federal question giving the district court subject matter jurisdiction under 28 U.S.C. § 1331. Accordingly, the case was remanded to determine if the complaint stated a cause of action, and if the lien and levy were valid.

The subject matter of this suit is an escrow account and its income. In 1969 the Civil Division of the Department of Justice began an action in the Eastern District of Missouri against Andrew L. Stone and others. The government sought to ensure that any judgment or other resolution of the civil action could be collected. Stone, in order to avoid an attachment of his assets by the government, agreed with the Civil Division to deposit in an escrow account securities valued at $2,500,000 and shares of a company which Stone controlled. The escrow agreement provided:

1. That it would remain in force during the pendency of a civil action against Stone and would be concluded only by

(a) a final judgment or dismissal with prejudice following complete settlement of the civil case,

(b) the agreement of Stone and the Civil Division, or

(c) by due process of law.

2. That during the life of the trust the principal would be retained and reinvested by the Trust Company and the interest would be paid to Stone.

3. That Stone was empowered to spend the interest for his support, for legal fees, for charitable contributions, and for other necessary expenses.

4. That Stone's right to alienate either the income received from the trust or any other of his assets was circumscribed by the escrow agreement and made subject to the review of the Civil Division.

5. That in return for the deposit of the securities in escrow the Civil Division undertook not to attach Stone's assets, and further undertook to use its "best efforts" to ensure that no other government agency attached the property.

In 1972 the Internal Revenue Service, despite the terms of the agreement between the Civil Division and Stone, filed a lien on Stone's assets and levied upon Stone's property rights held by the Trust Company. The terms of the levy required the bank to pay over all Stone's property rights immediately in order to satisfy the unpaid tax assessment against Stone that had given rise to the lien. However, at this time the revenue officer notified the Trust Company that it should retain both the trust and income from the trust but should no longer pay to Stone the trust income. The bank continued to retain, now in two segregated accounts, both the trust and income.

Stone appealed the Internal Revenue Service levy in Tax Court and, in 1974, filed suit in the Southern District of New York claiming that the Civil Division had breached its escrow agreement and that the income was not subject to levy and should be paid to Stone under the terms of the escrow agreement. The Tax Court appeal is pending, while Stone's action in New York was dismissed for lack of jurisdiction. Stone v. U. S., 405 F.Supp. 642 (S.D.N.Y.1975) aff'd 538 F.2d 314 (2d Cir. 1976), cert. den. 429 U.S. 921, 97 S.Ct. 317, 50 L.Ed.2d 288 (1976). The Court considered and rejected Stone's claim that the escrow agreement barred an I.R.S. lien and levy on the trust or income. 405 F.Supp. at 647, 648.

In 1975 the I.R.S. again levied on the trust and income, and sent the Trust Company a final demand for Stone's property. However, a revenue agent instructed the Trust Company to retain both the trust and income pending resolution of the litigation between Stone and the United States.

In 1976 the I.R.S. filed another lien on Stone's property held by the Trust Company, levied upon it and sent the Trust Company a final demand. Stone, by telegram, threatened suit for breach of the trust agreement if the Trust Company observed the final demand. The Trust Company then began this...