U.S. v. Poling
| Decision Date | 21 September 1999 |
| Docket Number | No. C-2-97-773.,C-2-97-773. |
| Citation | 73 F.Supp.2d 882 |
| Parties | UNITED STATES, Plaintiff, v. Gary M. POLING, et al., Defendants. |
| Court | U.S. District Court — Southern District of Ohio |
Thomas F. DeCaro, Jr., Upper Marlboro, MD, for Gary M. Poling, defendant.
Kenneth C. Baker, Toledo, OH, for Fifth Third Bank of NW Ohio, N.A., defendant.
The United States of America ("Government") brings this action against Gary M. Poling and Fifth Third Bank of Northwestern Ohio pursuant to 26 U.S.C. §§ 7401 and 7403.1 This matter is before the Court on the parties' cross-motions for summary judgment (docs.18, 20).
As the result of Poling's failure to pay federal tax liabilities assessed against him, federal tax liens arose and attached to all his property and rights to property. In its motion for summary judgment, the Government contends that the tax liens attached and continue to attach to his right to receive monthly annuity payments from New York Life Insurance Company ("NYLIC"), even though the Bank maintains that Poling assigned this right to it before the tax liens arose. The Government contends that Poling assigned only a security interest to the Bank and that the Bank never perfected its security interest in the annuity payments. Therefore, the Bank has no right to retain the annuity payments because the tax liens have priority over the Bank's interest in these payments.
The Bank contends, however, that the tax liens have not attached to Poling's right to receive the annuity payments because Poling assigned to the Bank all of his rights to the annuity payments before the tax liens arose. Assuming arguendo that Poling retained some property interest in the annuity payments, the Bank argues that its interest in the payments is senior to the Government's interest because (1) it is entitled to the protections of 26 U.S.C. § 6323(a) as the "holder of a security interest" because its assigned interest in the annuity payments is protected against the claims of a judgment lien creditor of Poling by Ohio Rev.Code § 3911.10 and (2) Poling's assignment of his right to receive the annuity payments is excluded from the provisions of Article 9 of the Uniform Commercial Code ("UCC").
For the reasons that follow, both motions are denied.
After working as an insurance agent for NYLIC for over twenty years, Poling became a participant in a benefit plan for NYLIC agents known as Nylic No. 5 ("NYLIC plan"). Pursuant to the NYLIC plan, NYLIC agreed to make monthly annuity payments to Poling from December 1, 1980 until his death.2 (Government's Mot., Ex. 10.) The monthly income is assignable, but the NYLIC plan provides that "no assignee shall acquire any rights thereto, without written consent" of NYLIC. (Bach Aff., Ex. A, p. 3.) The NYLIC plan does not provide for a cash withdrawal or a cash surrender value.
On November 26, 1980, Poling "assign[ed], transfer[red] and set over" to the Bank "all [his] right, title and interest in and to any monthly income payments" due under the NYLIC plan. (Government's Mot., Ex. 12.) The document evidencing the 1980 Assignment was prepared by NYLIC. It provides in relevant part:
FOR VALUE RECEIVED, I hereby assign, transfer and set over
to: First National Bank
of: Findlay, Ohio
all of my right, title and interest in and to any monthly income payments now due me and which may hereafter during my lifetime become payable to me from the NEW YORK LIFE INSURANCE COMPANY in accordance with and subject to all the terms, provisions, conditions and rules of the Nylic No. 5 now applicable to me or any Nylic Plan hereafter applicable to me, and subject to any indebtedness which I may owe to said Company now or at any future date.
I hereby affirm that this assignment is made for a lawful consideration and is not made for the purpose of directly or indirectly evading the anti-rebate laws.
NEW YORK LIFE INSURANCE COMPANY assumes no responsibility for the validity of this assignment.
(Id.) The document is signed by Poling, a witness, and a general manager who is apparently a representative of NYLIC. The Court will refer to this assignment document as the "1980 Assignment".
Poling testified that the purpose of the 1980 Assignment was to secure a commercial line of credit with the Bank and that he did not intend to assign his entire interest in the annuity payments to the Bank:
Q. At some point did you come to assign the payments under the NYLIC policy?
A. Yes.
Q. Who did you assign them to?
A. It was First National Bank at that time.
Q. What was the purpose of the assignment?
A. To help cash flow. I mean where I could have access to a line of credit.
Q. So the assignment was security for a loan or a line of credit?
A. For a line of credit.
. . . . .
Q. Could you read it over, Mr. Poling. Do you notice it says that for value received, I hereby assign and transfer and set over to First National Bank of Findlay, Ohio, all my right, title and interest to any monthly income payments now due me, etc.
When you signed this assignment, did you mean to assign the entire interest of your policy forever to the bank?
A. No.
Q. Let me finish my question. To First National Bank?
A. No. That was not the intent at all.
Q. What was the intent?
A. To cover the indebtedness of the line of credit only.
Q. So it was solely to secure the line of credit you were receiving from First National Bank?
A. Absolutely.
(Poling Dep., pp. 6-9.) The original note or written agreement between Poling and the Bank evidencing the establishment of the line of credit has apparently been lost. Except for the period from December of 1992 through May of 1993 when NYLIC suspended payments, the Bank has received the annuity payments from 1981 through the present. (Bach Aff., ¶ 8.)
On May 23, 1986, Poling refinanced his outstanding debt with the Bank and received new credit in the amount of $136,660.04. (Bach Aff., ¶ 6.) In connection with the refinancing, Poling and his former wife executed a "Commercial Secured Note" in which they agreed to make "59 consecutive monthly payments of $1,574.40 each beginning June 8, 1986 with the balance if any due on May 8, 1991." (Government's Mot., Ex. 13.) They also agreed that the interest rate would be the Bank's base rate plus 1% per annum and that the interest charged would be payable out of the monthly payments. (Id.) The Court will refer to this refinancing agreement as the "1986 Agreement".
The 1986 Agreement states that the Polings deposited with the Bank, as "collateral security" for the payment of the principal amount of the note, the following property: the "[a]ssignment of annuity payment (1574.40) from New York Life" and the "[a]ssignment of $150,000 life insurance policy from Gleaner Life Insurance Policy." (Government's Mot., Ex. 13.) Poling testified that the principal amount of the note represented the total amount of money borrowed pursuant to the line of credit:
Q. What was the purpose of this commercial secured note?
A. For business purposes. I don't remember exactly at that time, but it was for business purposes.
Q. At that time, did you receive a principal amount of $136,660.04, as it states on the top left-hand corner?
A. No.
Q. Well, let me ask you this. When you first got your line of credit back in 1981, did you make immediate borrowings?
A. Yes.
Q. Did you keep track of how much you borrowed?
A. And this is a cumulative total in answer to your question, a cumulative total of all the monies that were borrowed over the time period.
Q. As of —
A. The $136,000.
Q. Right, as of May 23, 1986?
A. That's correct.
On June 1, 1990, Poling filed a Chapter 7 bankruptcy petition. (Government's Mot., Ex. 15.) He was granted a discharge on October 15, 1990. Pursuant to the discharge, Poling was relieved of any personal liability for the 1986 Agreement.
On July 9, 1991, Poling and the Bank entered into an "Agreement to Extend Maturity Date of Note". (Bach Aff., ¶ 7.) The Court will refer to this extension agreement as the "1991 Agreement". The 1991 Agreement extends the maturity date of the 1986 Agreement to May 8, 2001, and it provides for the continued assignment of the annuity payments to the Bank until the loan is satisfied or Poling's death, whichever occurs first. (Id., Ex. E.) The 1991 Agreement also states that all terms and conditions of the 1986 Agreement remain in full force and effect except for the assignment of the $150,000 life insurance policy. (Id.) Poling testified that it was not his understanding that he assigned his entire right, title and interest in the annuity payments to the Bank:
Q. Now, if you look down to the second whereas clause on the agreement, it says, "Whereas, said Exhibit A [the 1986 Agreement] is secured by an assignment of borrower's right, title and interest in and to monthly income payments in the amount of $1,574.40, and which are guaranteed to him for life, and which assignment shall terminate upon the satisfaction of the loan represented by A or borrower's death, whichever first occurs." Is that statement correct?
A. That's correct.
Q. So, in other words, you didn't assign your entire — A. At no time —
Q. Right, title and interest?
A. At no time did I ever, under my understanding.
Prior to entering the 1991 Agreement, Poling received a letter from the Bank's attorney, Thomas Drake. In the letter, Drake states:
As you are aware, Fifth Third is receiving monthly payments in the amount of $1,574.40 from New York Life Insurance Company pursuant to an assignment of an annuity which you made to the bank to secure the payments of a note which you signed on May 23, 1986.
. . . . .
The maturity date for this loan was May 8, 1991, and while the bank is satisfactorily secured so long as the annuity payments are being made,...
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