Stuyvesant Insurance Co. v. Department of Treasury

• Decision Date: 18 April 1974
• Docket Number: No. 73 Civ. 3948 (IBC).,73 Civ. 3948 (IBC).
• Parties: The STUYVESANT INSURANCE COMPANY and Raymond Robin, Plaintiffs, v. DEPARTMENT OF the TREASURY et al., Defendants.
• Court: U.S. District Court — Southern District of New York

378 F. Supp. 7

The STUYVESANT INSURANCE COMPANY and Raymond Robin, Plaintiffs, v. DEPARTMENT OF the TREASURY et al., Defendants.

No. 73 Civ. 3948 (IBC).

United States District Court, S. D. New York.

April 18, 1974.

Harry Salvan, New York City, for plaintiffs.

Paul J. Curran, U. S. Atty., S.D.N.Y. New York City, for defendants Dept. of the Treasury and Internal Revenue Service; David P. Land, Asst. U. S. Atty., of counsel.

Adrian P. Burke, Corp. Counsel, New York City, for defendant Gene Grupposso.

OPINION

COOPER, District Judge.

We have before us cross-motions for summary judgment by plaintiffs and by co-defendant United States pursuant to Fed.R.Civ.P. 56. The material facts are not in dispute; summary judgment is therefore appropriate. At issue here are conflicting claims to a substantial amount of money now in the possession of co-defendant Property Clerk of the City of New York (hereinafter "Property Clerk"). For the reasons given below, we (1) grant the motion by the United States for summary judgment dismissing plaintiffs' complaint against it, and (2) dismiss the complaint against the Property Clerk for lack of jurisdiction. The United States has filed a cross-claim against the Property Clerk which is predicated upon an independent basis of federal jurisdiction and therefore will not be affected by our disposition of these motions.

I FACTS

Plaintiffs herein are licensed bail bondsmen in the City of New York. One John T. Brown (hereinafter "taxpayer"), who resided at 180 West End Avenue, New York, New York, was arrested on September 24, 1972 by the New York Police and arraigned in state court criminal proceedings on three separate charges apparently relating to drugs. The police seized from the taxpayer cash sums totalling more than $80,000. Plaintiffs furnished bail in the amount of $45,000; the taxpayer failed to appear on May 5, 1973; the bail bond was forfeited.

On November 3, 1972, Internal Revenue Service made an income tax assessment against the taxpayer in the amount of $78,040.00 for the taxable period ended September 24, 1972. No portion of that tax assessment has been paid.

On November 9, 1972, IRS served upon the Property Clerk of the City of New York a Notice of Levy which recited the facts of the tax assessment and stated: ". . . all property . . . now in your possession and belonging to this taxpayer . . . are hereby levied upon and seized for satisfaction of the aforesaid tax . . . and demand is hereby made upon you for the amount necessary to satisfy the liability set forth herein . . ." At the time the Notice of Levy was served, the Property Clerk had in his possession, and still possesses, the cash seized by the police from the taxpayer ($80,000 minimum), in excess of the tax liability ($78,040). The Property Clerk has not remitted any of the taxpayer's property to IRS. On the same date that the Notice of Levy was served (November 9, 1972), IRS filed with the Register of the City of New York a Notice of Federal Tax Lien against the taxpayer for the unpaid $78,040.00 tax assessment.

After the $45,000 bail was forfeited on May 31, 1973, plaintiffs instituted in the Supreme Court, New York County, an action against the taxpayer; on June 25, 1973 plaintiffs obtained an order of attachment for $45,000 against him; on June 28, 1973, the Sheriff of the City of New York served the Property Clerk with the attachment order; on September 10, 1973, a default judgment for $45,000 was entered in favor of plaintiffs against the taxpayer; on September 11, 1973, an Execution with Notice to Garnishee was issued upon the Sheriff and the Property Clerk by plaintiffs as attaching judgment creditors.

At no time did plaintiffs file any claim or request with IRS for the return or release of the property levied upon by IRS. On September 14, 1973, plaintiffs began this action against IRS and the Property Clerk.

II ISSUES

Plaintiffs' action against the United States is authorized by 26 U.S.C. § 7426(a); it provides in substance that any person (other than a taxpayer) may sue the United States to recover a money judgment in respect to property of a taxpayer levied upon by IRS when the claimant had a right to that property superior to the claim of IRS.¹ IRS argues that plaintiffs' complaint must be dismissed because (1) this Court lacks jurisdiction since the action is time barred by 26 U.S.C. § 6532(c), and (2) on the merits, the claim of the United States to the property held by the Property Clerk is superior to that of plaintiffs.

We hold that the complaint must be dismissed on the ground that plaintiffs' action is time-barred. Even if this is not so, the United States should prevail, for it is clear that its claim is superior to that of plaintiffs.

Section 7426 permits suit by third parties in cases where the United States has made a wrongful levy on a taxpayer's property. In such actions, as this one, the validity of the tax assessment is conclusively presumed. 26 U.S. C. § 7426(c).² This statutory provision follows the general rule of law that no person, other than a taxpayer in the appropriate judicial proceeding, may challenge the validity of a tax assessment. See Falik v. United States, 343 F.2d 38, 41-42 (2d Cir. 1965). Thus, plaintiffs have no standing to challenge the merits of the tax assessment; so for the purposes of this litigation it is conclusively presumed that the taxpayer owes $78,040.00 to the United States. What the statute does permit, and what plaintiffs are attempting to successfully accomplish, is the prosecution of an action to resolve the conflicting claims to the cash held by the Property Clerk.

III PROCEDURAL REQUIREMENTS

To resolve such conflicting claims, plaintiffs must comply with statutory procedural requirements; this they have not done. Section 6532(c) provides that an action pursuant to § 7426 must be commenced within nine months from the time the Notice of Levy is served, unless within that nine month period the third party claimant files with IRS a request for the return of the property levied upon. If such a request is timely filed, then the period within which an action may be commenced is extended for twelve months from the filing of the request, or, alternatively, for six months from the disallowance of the request by IRS, whichever is shorter.³

This nine month period acts as a statute of limitations and commences on the date on which the Notice of Levy was served. American Honda Motor Co., Inc. v. United States, 363 F.Supp. 988 (S.D.N.Y.1973). Thus, plaintiffs were required either to file a request with IRS for the return of the property levied upon, or to commence their action against the United States within nine months after the Notice of Levy was served. IRS served its Notice of Levy on the Property Clerk on November 9, 1972; plaintiffs therefore had until August 9, 1973 to file their request or commence their action. Plaintiffs have not filed such a request, and, since this action was not begun until September 14, 1973, it is time-barred.

Plaintiffs argue, however, that the institution of a law suit in the state courts together with the attachment of the funds held by the Property Clerk is equivalent to a request to IRS for the return of the property. They emphasize that the Property Clerk was served with the order of attachment on June 28, 1973, within nine months after the Notice of Levy was served by IRS on November 9, 1972 and so the statutory requirements are fully satisfied; that they are therefore entitled to the twelve month extension of time as allowed by § 6532(c) (2).

The Internal Revenue Code and the regulations pursuant thereto require that IRS receive actual notice of a request for the return of property. The United States was not a party to plaintiffs' state court action against the taxpayer and had no knowledge of it. Section 6532(c) (2) speaks of a request for the return of property pursuant to § 6343(b). The regulations promulgated pursuant to § 6343(b) specify that such a request must be in writing, addressed to the district director for the internal revenue district in which the levy was made, and marked for the attention of the Chief, special procedures staff.⁴ It is abundantly clear that a request for the return of property must be in the form of a written request filed with IRS. Institution of legal proceedings in state court, of which the United States had no notice, is insufficient to comply with the statutory requirements. We conclude therefore that the present action is time-barred.

Plaintiffs' failure to bring their suit within the prescribed period constitutes a jurisdictional defect. American Honda, supra; Rock v. United States, 279 F.Supp. 96 (S.D.N.Y.1968). "Time and again, in an abundance of cases, it has been held that the time within which a suit must be brought against the United States under the provisions of a federal statute is strictly a condition of the remedy given. The prescribed period . . . within which suit must be brought is a substantive jurisdictional requirement. . . ." Gallion v. United States, 389 F.2d 522, 524 (5th Cir. 1968). For these reasons, plaintiffs' complaint against IRS must be dismissed for lack of jurisdiction.

IV PRIORITY OF CLAIMS

Even if plaintiffs' complaint were not time-barred the United States must prevail on the merits. Plaintiffs first argue that the claim of the United States to the property held by the Property Clerk is invalid because its tax assessment has not been reduced to judgment. Section 6502(a), however authorizes the collection of a tax either by levy or through a court proceeding; no judgment is required.⁵ Once a tax assessment has been made, the United States acquires a lien on all property, and rights to property, belonging to the taxpayer.⁶ Such lien arises at the time the assessment is made, here on November 3, 1972.⁷ The lien was enforced by service of the Notice of Levy upon the Property Clerk on November 9, 1972, seizing all the taxpayer's...