U.S. v. Ripa

Decision Date12 March 2003
Docket NumberDocket No. 01-6099.
Citation323 F.3d 73
PartiesUNITED STATES of America, Plaintiff-Counter-Defendant-Appellee, v. Glenn H. RIPA, Esq., and Benedetto Romano, Defendants-Counter-Claimants-Appellants, New York State Department of Taxation and Finance, Defendant-Counter-Claimant.
CourtU.S. Court of Appeals — Second Circuit

Ellen Page Delsole, Tax Division, Department of Justice (Eileen J. O'Connor, Assistant Attorney General, Richard Farber, Tax Division, Department of Justice, Kathleen Mehltretter, United States Attorney, of counsel), Washington, D.C., for Appellee.

Glenn H. Ripa, New York, N.Y., for Appellants.

Before: SACK, KATZMANN, and B.D. PARKER, Circuit Judges.

SACK, Circuit Judge.

Defendants Glenn H. Ripa and Benedetto Romano appeal from a decision of the United States District Court for the Western District of New York (John T. Curtin, Judge) granting summary judgment to the United States in an interpleader action brought by the United States to determine rights among the parties to a fund in the amount of $491,236.69. The fund comprises $359,500 in United States currency that the United States Customs Service seized from Romano on November 18, 1983, when Romano attempted to carry it across the border into Canada without completing the required currency reporting form, plus interest since paid by the government thereon. Pursuant to the currency reporting statute, the United States sought civil forfeiture of the sum. The suit was suspended while the government brought an unsuccessful criminal prosecution against Romano for tax evasion. Finally, in 1998, some fifteen years after the seizure, Romano prevailed against the government in the civil forfeiture suit. Because of several tax liens against Romano totaling over $1.5 million, including a lien on the taxes assessed on the currency seized in 1983, the district court ordered the $359,500 plus interest deposited with the clerk of the district court. The court permitted the government to bring a suit in the nature of an interpleader to effect the proper distribution of the fund.

The basic principle governing cases assessing the priority of federal tax liens is "first in time, first in right." The government, which created a lien on the sum on the same day it was seized in 1983, therefore asserts a right to first priority in the distribution of the money. Because the interest and penalties on the taxes owed to the government by Romano now exceed the total amount in the fund, the government asserts a claim to the entire fund. Ripa, Romano's attorney, asserts a contrary claim to approximately one-third of the fund, as a contingency-fee payment for his representation of Romano in the forfeiture proceeding. Ripa contends that his attorney's lien has "superpriority" over the government's tax lien under a provision of the Internal Revenue Code (the "Code" or "Tax Code") that allows certain attorneys' liens to take priority over prior government liens. See 26 U.S.C. § 6323(b)(8). In response, the government argues that section 6323(b)(8) does not apply here because the provision contains an exception to attorney's lien superpriority in cases involving a "judgment ... of a claim or of a cause of action against the United States." Id. Because we agree with the government that that exception applies here, we conclude that section 6323(b)(8) is inapplicable. Ripa therefore has no basis for asserting priority over the prior government tax lien.

Because the government's claim far exceeds the amount deposited by the government in the interpleader action, we affirm the district court's grant of summary judgment to the government and order disbursement of the fund to the government pursuant thereto. Romano argues that we should employ equitable principles to deny the government interest and penalties on the taxes assessed against him in 1983. The Code provides avenues for the abatement of interest and penalties, some of which may remain open to Romano. But if there is a road to relief for Romano, it lies through the Internal Revenue Service ("IRS") and the Tax Court in the first instance, not through Article III courts such as the district court and this Court of Appeals.

The defendants characterize their travails as "Kafkaesque." Appellants' Br. at 27. Our rehearsal of the facts in some detail below tends to support that view. The United States Customs Service wrongfully seized a large sum of money from Romano, which he alleges made it impossible for him to pay taxes he owed the IRS on those funds. Although the government paid interest on the seized money, it did so at a rate so low in comparison to the penalties and interest the IRS was charging him on the unpaid taxes that, ultimately, the amount Romano owed the government in taxes and interest on the fund far exceeded the amount in the fund. Meanwhile, the civil proceedings over title to the seized funds were delayed by related criminal prosecutions, which also eventually proved meritless. When Romano finally prevailed in the civil suit over the seized currency, his money had been eaten up by taxes and penalties on it that, he says, he could not have paid because the government had wrongfully seized his money. We conclude, nonetheless, that Romano has not presented us, as an Article III court, with a legal basis upon which to deliver him from these circumstances. We are no more able to relieve Romano of the absurdity of his situation than we are able to relieve Kafka's Joseph K of the absurdity of his. See Franz Kafka, The Trial (Willa & Edwin Muir, trans., Alfred A. Knopf, rev. ed.1992).

BACKGROUND

The parties have stipulated to the facts as set forth in two prior district court opinions, United States v. $359,500 in United States Currency, 645 F.Supp. 638 (W.D.N.Y.1986) ("$359,500 I"), and United States v. $359,500 in United States Currency, 25 F.Supp.2d 140 (W.D.N.Y.1998) ("$359,500 II"), for the purposes of this appeal.

The Seizure

United States law does not prohibit the transportation of United States funds abroad. It does require that transportation of funds above a threshold amount be reported to the government for informational purposes. 31 U.S.C. § 5316.

On November 17, 1983, Benedetto Romano drove from Buffalo, New York, across the Peace Bridge into Ontario, Canada. The trunk of his car contained $359,500, the proceeds of wildly successful, albeit illegal, gambling activities. $359,500 II, 25 F.Supp.2d at 141, 142-44.1 Romano was questioned by a Canadian Customs official at the primary customs inspection site. Then, for reasons that were not established at trial, Romano was referred to a secondary inspection site. $359,500 I, 645 F.Supp. at 639. The second Canadian Customs official asked Romano to open his trunk, which Romano did. The official found bags containing thousands of dollars in United States currency. $359,500 II, 25 F.Supp.2d at 142. The official asked Romano if he had declared this money before leaving the United States, and Romano acknowledged that he had not. Id. at 142-43. The official then called United States Customs officials to inform them of the situation and ordered Romano to return to the United States. Id. at 143.

After recrossing the bridge, Romano was stopped and questioned by a United States Customs official. Id. Romano initially said he was carrying $30,000 to $35,000, but eventually admitted to having over $300,000 in cash. Id. He then completed a currency reporting form, Form 4790, and a baggage declaration form, Form 6059-B, printed in Italian, on which he acknowledged carrying more than $5,000 — the minimum amount he was required to report. Id. A records check indicated that Romano had not completed a currency reporting form prior to leaving the United States, as required by 31 U.S.C. § 5316(a). $359,500 II, 25 F.Supp.2d at 143.2 Customs agents therefore seized Romano's $359,500 in currency pursuant to 31 U.S.C. § 5317(b), which authorized the forfeiture of any monetary instrument transported without the filing of a currency report.3

The Tax Lien on the Seized Currency

Later that day, the IRS made a termination assessment against Romano for $169,973 in income tax, based upon the $359,500 in cash that he had been carrying. See United States v. Romano, 938 F.2d 1569, 1570 (2d Cir.1991).

A termination assessment [under 26 U.S.C. § 6851] informs the person notified that his or her tax year is terminated as of a certain date and calculates the income tax due. The resulting tax liability becomes due immediately, and the IRS files a tax lien to secure payment of the tax debt. The IRS uses a termination assessment when it discovers that a person possesses an inappropriate amount of cash presumed to be taxable income from a previously undisclosed source and it fears that the collection of taxes may be thwarted if the person puts the cash or herself beyond the government's reach. The filing of a termination assessment does not relieve the taxpayer of her obligation to prepare, sign, and file a true and correct income tax return for that year.

Id. at 1570-71.4 Because the tax liability determined in a termination assessment is due immediately, 26 U.S.C. § 6851(a)(1), the IRS promptly sent a notice of levy to the Customs Service and filed a notice of a federal tax lien with the Erie County Clerk in Buffalo. Romano never filed a federal tax return for 1983. See United States v. New York State Dep't of Taxation and Finance, 138 F.Supp.2d 392, 394 (W.D.N.Y.2001) ("NYSDTF").

In November 1989, the United States filed suit in the United States District Court for the Eastern District of New York seeking to reduce the 1983 termination assessment to judgment. On December 14, 1990, the district court granted summary judgment to the United States in the amount of $169,981 plus statutory interest. United States v. Romano, No. CV-89-3862 (E.D.N.Y. Dec. 14, 1990). We affirmed, United States v. Romano, 963 F.2d...

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