United States v. Paladin

• Decision Date: 11 February 1982
• Docket Number: No. CIV-78-860.,CIV-78-860.
• Citation: 539 F. Supp. 100
• Parties: UNITED STATES of America, Plaintiff, v. Ann G. PALADIN and Carl D. Traina, Defendants.
• Court: U.S. District Court — Western District of New York

539 F. Supp. 100

UNITED STATES of America, Plaintiff, v. Ann G. PALADIN and Carl D. Traina, Defendants.

No. CIV-78-860.

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

February 11, 1982.

Jonathan B. Forman, Trial Atty., Tax Div., Dept. of Justice, Washington, D. C., for plaintiff.

Carl P. Paladino, Joseph V. Sedita, Buffalo, N. Y., for defendants.

MEMORANDUM and ORDER

ELFVIN, District Judge.

Plaintiff seeks to recover unpaid taxes assessed against the defendant Paladin for the years 1971 through 1974. It also asserts causes of action against the defendant Traina, Paladin's brother, based on his alleged conversion of money belonging to Paladin on which plaintiff claims a lien and an alleged fraudulent transfer of such money to him. Plaintiff has moved for summary judgment. Its motion has been opposed by Traina but not by Paladin.

Summary judgment is a drastic remedy which may be granted only when there are no material issues of fact to be resolved at trial. Gladstone v. Fireman's Fund Ins. Co., 536 F.2d 1403, 1406 (2d Cir. 1976). The moving party has the burden of demonstrating that there is no material factual issue and that he is entitled to judgment as a matter of law. Robertson v. Seidman & Seidman, 609 F.2d 583, 591 (2d Cir. 1979). In ruling upon a motion for summary judgment, a court "must resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought * * *." Heyman v. Commerce and Industry Insurance Co., 524 F.2d 1317, 1320 (2d Cir. 1975). After reviewing the pleadings, the transcript of Traina's pretrial deposition, Paladin's answers to interrogatories, plaintiff's request for admissions,¹ the affidavit of Philip A. Corigliano submitted in support of the current motion, and the memoranda of law submitted by plaintiff and Traina, I have concluded that the plaintiff has established that it is entitled to summary judgment against Paladin and against Traina on its cause of action for conversion.

Traina and Paladin opened the Stage Pigalle Bar in 1965. Paladin ran the bar as a sole proprietorship until 1970, at which time she became ill. She executed a power of attorney in favor of Traina September 28, 1970 and authorized him to conduct transactions on her behalf with respect to chattels and goods, banking, insurance, general business operations, and records and reports. Thereafter, Traina ran the bar and also handled Paladin's personal affairs, including the preparation of her personal income tax returns.

Beginning in December, 1973, plaintiff made various tax assessments against Paladin. Withholding and Federal Insurance Contributions Act ("FICA") taxes (including interest and penalties) totalling $1,938.31 for the quarter ending September 30, 1973 were assessed December 10, 1973. Assessments for such taxes (including interest and penalties) for the quarters ending December 31, 1973 and March 31, 1974 were made May 29, 1974 in the amount of $3,125.06 and July 10, 1974 in the amount of $704.13, respectively. Federal unemployment taxes (including interest) totalling $113.10 for the quarter ending December 31, 1973 were assessed July 10, 1974. Additional assessments for federal unemployment and personal income taxes were made against Paladin throughout the remainder of 1974 and 1975. The assessments totalled $7,641.46.

The Stage Pigalle Bar was destroyed by a fire January 18, 1974. Paladin executed a partial assignment of the fire insurance proceeds to Traina July 16, 1974 in the amount of $9,066.08. According to Traina's pretrial testimony, the assignment was intended to reimburse him for amounts he had previously expended to pay creditors of the bar. The written document recites the sum of one dollar as consideration for the assignment. Insurance proceeds totalling $16,000 were remitted to Paladin's attorney, Andrew Gaeta, who thereupon disbursed $9,066.08 of the proceeds to Traina.

At the time Paladin assigned said portion of the insurance proceeds to Traina, four separate tax assessments totalling $5,880.60 had been made against her. A payment in the amount of $496 had been made toward the assessments April 4, 1974, leaving an outstanding balance of $5,384.60. Plaintiff filed lien notices with respect to two of the assessments (totalling $4,567.37) with the Erie County Clerk April 29, 1974 and June 12, 1974. Other notices were filed after Paladin executed the assignment. As of April 30, 1981, the amount outstanding on all assessments made against Paladin, including accrued interest and penalties and deducting the $496 credit, was $12,384.33.

It is well-established that a tax assessment is presumed to be correct. Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933). Thus, in an action by the government to collect an unpaid tax assessment, the taxpayer has the burden of demonstrating by a preponderance of the evidence that the assessment is incorrect. United States v. Lease, 346 F.2d 696, 700 (2d Cir. 1965). In her answers to interrogatories, Paladin has stated that she does not dispute the correctness of the tax assessments made against her. Therefore, plaintiff is entitled to summary judgment against Paladin. See, United States v. Pierce, 609 F.2d 407 (9th Cir. 1979) (per curiam).

Under 26 U.S.C. § 6321, a taxpayer's failure to pay a tax assessment creates "a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." Plaintiff claims that Traina's receipt of a portion of the fire insurance proceeds constitutes a conversion of its lien on the proceeds. A conversion of property is any unauthorized exercise of dominion or control over the property by one who is not the owner thereof which interferes with another person's superior possessory rights in the property. Meese v. Miller, 79 A.D.2d 237, 436 N.Y.S.2d 496, 500 (4th Dept. 1981); Bunge Corp. v. Manufacturers Hanover Trust Co., 37 A.D.2d 409, 325 N.Y.S.2d 983, 988 (1st Dept. 1971), aff'd 31 N.Y.2d 223, 335 N.Y.S.2d 412, 286 N.E.2d 903 (1972). In order to successfully maintain a cause of action for conversion, the plaintiff must establish that its right to possession of the property was superior to the defendant's and that the defendant exercised unauthorized control over the property to the exclusion of the plaintiff's superior rights. Gold Metal Products, Inc. v. Interstate Computer Services, Inc., 80 A.D.2d 600, 436 N.Y.S.2d 312, 313 (2d Dept. 1981).

Plaintiff has established that its claim to the insurance proceeds was superior to Traina's. The lien provided by section 6321 arises at the time the underlying assessment was made. 26 U.S.C. § 6322. Under 26 U.S.C. § 6323(a), the lien is valid against "any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor" provided that appropriate notice of the lien has been filed. Thus, at the time the proceeds were assigned to Traina, they were subject to four separate liens in plaintiff's favor in the total amount of $5,384.60. With respect to two of the liens (totalling $4,567.37), plaintiff's claim to the proceeds is valid against Traina because notice of the liens was filed prior to the assignment.

The question whether plaintiff's other two liens (totalling $817.23) are also valid against Traina is somewhat more complex because notice thereof was not filed until after the insurance proceeds were assigned to him. If Traina is deemed a "purchaser" of the proceeds, plaintiff's liens would not be valid against him. A purchaser is defined as a "person who, for adequate and full consideration in money or...