U.S. v. Second Nat. Bank of North Miami

• Decision Date: 04 October 1974
• Docket Number: No. 73-2586,73-2586
• Citation: 502 F.2d 535
• Parties: 74-2 USTC P 9739, 15 UCC Rep.Serv. 870 UNITED STATES of America, Plaintiff-Appellee, v. SECOND NATIONAL BANK OF NORTH MIAMI, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 535

502 F.2d 535

74-2 USTC P 9739, 15 UCC Rep.Serv. 870

UNITED STATES of America, Plaintiff-Appellee, v. SECOND NATIONAL BANK OF NORTH MIAMI, Defendant-Appellant.

No. 73-2586.

United States Court of Appeals, Fifth Circuit.

Oct. 4, 1974, Rehearing Denied Oct. 31, 1974.

Sheldon Rosenberg, North Miami, Fla., for defendant-appellant.

Robert W. Rust, U.S. Atty., Melvyn L. Ames, Asst. U.S. Atty., Miami, Fla., Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Tax Div., Dept. of Justice, Robert E. Noel, Atty., Tax Div., Internal Revenue Service, Bennet N. Hollander, Arthur L. Bailey, Tax Div., Dept. of Justice, Washington, D. C., for plaintiff-appellee.

Before WISDOM and GOLDBERG, Circuit Judges, and LYNNE, District Judge.

GOLDBERG, Circuit Judge:

A little-known weapon in the government's tax collection arsenal has turned a bank employee's mistake into a banker's nightmare. Originally financial go-between for a harried general contractor and a financially-troubled subcontractor, the Second National Bank of North Miami now finds itself caught between the relentless federal tax collector and a resourceful taxpayer. The hapless bank appeals an adverse judgment which has left it holding the bag of someone else's tax liability. We affirm.

I. FACTS

The skeletal framework of this controversy is undisputed although several important factual details remain bones of contention. In the fall of 1970 Medallion Electric Company, Inc. (Medallion), an electrical subcontractor working for The Hannon Company (Hannon) on the construction of the Midway Mall Shopping Center in Dade County, Florida, began having difficulties meeting its payroll and setting aside sufficient amounts to pay withholding taxes due the United States. After a series of payroll checks drawn on defendant-appellant Second National Bank (bank) were returned unpaid due to insufficient funds, the business agent of Medallion's employees' union, acting pursuant to the contract with Medallion, refused to accept further payroll payments except in the form of cash, cashiers' checks, or the equivalent. To meet the union's demand and to prevent further interruptions in the progress of the construction, medallion and Hannon arranged a net payroll financing operation with appellant bank as financial intermediary.

Under the arrangement Hannon would draw a check in the amount of the net payroll on its account at City National Bank to the joint order of appellant bank and Medallion, and would deposit this check in Medallion's payroll account at appellant bank, where Medallion also maintained a general account. ¹ With these funds Medallion would purchase 190 individual money orders signed and issued by appellant. Working from a payroll schedule furnished by Medallion, appellant would prepare each money order with the payee blank but in the exact amount of an employee's net weekly wages. Medallion would then fill in the name of the employee-payee. No withholding tax was set aside.

The bank issued the first set of 190 money orders on or about October 5, 1970. Because an influential bank customer had guaranteed Hannon's check, appellant bank issued the money orders on uncollected funds, that is, before Hannon's check had cleared City National Bank. Medallion received the money orders, filled in the names of the employees, and met the payroll. Subsequently Hannon's check cleared and was paid by City National Bank.

Sometime before appellant was to issue the second series of money orders, employees of the Internal Revenue Service met with Medallion representatives, including Leonard Gutkin, president of Medallion, and Alphonse Schwitalla, Medallion's attorney, regarding Medallion's withholding taxes for the third quarter of 1970. ² Although who said what to whom and in what tone of voice is a matter of some dispute, it is clear that Medallion agreed to turn the second set of money orders over to the IRS for application against existing tax liability.

On October 14 Hannon's second check, in the amount of $83,000, was delivered to appellant and credited to Medallion's payroll account. Since no one had guaranteed payment of this check, appellant's president, Alfred Slobusky, did not, as he had done the first week, approve the issuance of the money orders on uncollected funds. Unfortunately, after telephoning City National Bank to verify that Hannon had sufficient funds on deposit to cover the check, appellant's assistant cashier followed the previous week's procedure and issued the 190 money orders in the total face amount of $92,355.86. ³ Medallion then delivered the money orders to the IRS, which inserted in each payee blank the words 'to the order of the Internal Revenue Service, Room 426, 51 S.W. 1 st Avenue, Miami, Florida, 33130.'

On learning from Medallion's employees that they had not been paid, Hannon stopped payment on the $83,000 check, which had not yet cleared City National Bank. In its turn appellant stopped payment on the money orders, and immediately informed the Collection Division of the IRS of its reasons for the action. On October 27 the money orders were presented for payment and returned unpaid. In the meantime, Hannon paid the regular net wages to Medallion's employees, as well as an additional $10,000 in penalty payments due under Medallion's union contract for late payment of wages. Thereafter Hannon sued appellant in state court to recover the penalty payments, and won a $10,000 judgment, which appellant has paid.

The United States filed suit in the United States District Court to reduce its claim on the money orders to judgment and to foreclose a statutory lien on appellant's assets, asserted pursuant to 26 U.S.C. 6311(b)(2). The bank deied liability on the money orders, and in addition filed a counterclaim under the Federal Tort Claims Act, 28 U.S.C. 1346(b), to recover the amount of the judgment paid by the bank in Hannon's state courts suit. Following a bench trial the district court held that the United States is a holder in due course of the money orders; that the bank is liable to the United States in the amount of $92,355.86, the face amount of the money orders, plus interest; that a lien exists in favor of the United States on all bank assets to secure payment of the judgment; and that the counterclaim is meritless. The bank raises four issues on appeal, which we treat seriatim.

II. APPLICABILITY OF SECTION 6311

Appellant's first line of attack focuses on the statutory underpinnings of the judgment below. Section 6311 in its entirety provides:

Payment by check or money order

(a) Authority to receive.-- It shall be lawful for the Secretary or his delegate to receive for internal revenue taxes, or in payment for internal revenue stamps, checks or money orders, to the extent and under the conditions provided in regulations prescribed by the Secretary or his delegate.

(b) Check or money order unpaid.--

(1) Ultimate liability.-- If a check or money order so received is not duly paid, the person by whom such check or money order has been tendered shall remain liable for the payment of the tax or for the stamps, and for all legal penalties and additions, to the same extent as if such check or money order had not been tendered.

(2) Liability of banks and others.-- If any certified, treasurer's, or cashier's check or any money order so received is not duly paid, the United States shall, in addition to its right to exact payment from the party originally indebted therefor, have a lien for the amount of such check upon all the assets of the bank or trust company on which drawn or for the amount of such money order upon all the assets of the issuer thereof; and such amount shall be paid out of such assets in preference to any other claims whatsoever against such bank or issuer except the necessary costs and expenses of administration and the reimbursemant of the United States for the amount expended in the redemption of the circulating notes of such bank.

Appellant asseverates that the statutory lien provision applies only when (a) money orders or other negotiable instruments have been drawn explicitly in payment for taxes and (b) the bank has received sufficient funds to cover the instruments and (c) the bank has either failed or closed due to a bank holiday of the sort common during the 1930's. Since none of these conditions existed in the case at bar, bank argues, the district court should have refused to impose a lien on the bank's assets in favor of the United States. We disagree.

Our review of appellant's applicability argument must begin with the principle that our duty 'is to give effect to the intent of Congress, and in doing so our first reference is . . . to the literal meaning of the words employed.' Flora v. United States, 1958, 357 U.S. 63, 65, 78 S.Ct. 1079, 1081, 2 L.Ed.2d 1165, 1167. 'often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning.' Perry v. Commerce Loan Co., 1966, 383 U.S. 392, 400, 86 S.Ct. 852, 857, 15 L.Ed.2d 827, 833, quoting United States v. American Trucking Associations, 1940, 310 U.S. 534, 543, 60 S.Ct. 1059, 84 L.Ed. 1345, 1350; Ray Baille Trash Hauling, Inc. v. Kleppe, 5 Cir. 1973, 477 F.2d 696, 707. And we must be constantly mindful that there is no need to refer to the legislative history where the statutory language is clear. 'The plain words and meaning of a statute cannot be overcome by a legislative history which, through strained processes of deduction from events of wholly ambiguous significance, may furnish dubious bases for inference in every direction.' Gemsco, Inc. v. Walling, 324 U.S. 244, 260, 65 S.Ct. 605, 615, 89 L.Ed. 921, 933 (1945).

Ex parte Collett, 1949, 337 U.S. 55, 61, 69 S.Ct. 944, 947, 93 L.Ed. 1207, 1211; General Electric Co. v. Southern Construction Co., 5 Cir. 1967, 383 F.2d 135, 138 & n. 2, cert. denied, 1968, 390 U.S. 955, 88 S.Ct. 1049, 19 L.Ed.2d 1148.

We are...