United States v. Rochelle

• Decision Date: 07 July 1966
• Docket Number: No. 22046.,22046.
• Citation: 363 F.2d 225
• Parties: UNITED STATES of America, Appellant, v. William J. ROCHELLE, Jr., Trustee in Bankruptcy of Gulf Southwestern Transportation Co., Appellee. William J. ROCHELLE, Jr., Trustee in Bankruptcy of Gulf Southwestern Transportation Co., Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

363 F.2d 225 (1966)

UNITED STATES of America, Appellant, v. William J. ROCHELLE, Jr., Trustee in Bankruptcy of Gulf Southwestern Transportation Co., Appellee.

William J. ROCHELLE, Jr., Trustee in Bankruptcy of Gulf Southwestern Transportation Co., Appellant, v. UNITED STATES of America, Appellee.

No. 22046.

United States Court of Appeals Fifth Circuit.

July 7, 1966.

COPYRIGHT MATERIAL OMITTED

Barefoot Sanders, U. S. Atty., Dallas, Tex., Louis F. Oberdorfer, Asst. Atty. Gen., Dept. of Justice, Lee A. Jackson, Joseph Kovner, Karl Schmeidler, Attys., Dept. of Justice, John B. Jones, Jr., Acting Asst. Atty. Gen., Meyer Rothwacks, Atty., Dept. of Justice, Washington, D. C., for appellant, Melvin M. Diggs, U. S. Atty., Martha Joe Stroud, Asst. U. S. Atty., of counsel.

Philip I. Palmer, Jr., J. J. French, Jr., David J. Beck, Palmer, Green, Palmer & Gilmore, Locke, Purnell, Boren, Laney & Neely, Dallas, Tex., for appellee, William J. Rochelle, Jr., Trustee.

Before TUTTLE, Chief Judge, JONES and WATERMAN,^* Circuit Judges.

WATERMAN, Circuit Judge:

This is a plenary suit brought by William D. Rochelle, Jr., Trustee in Bankruptcy of the taxpayer, the Gulf Southwestern Transportation Co., against the United States of America. The trustee seeks to compel the United States to refund to him $159,968.68,¹ which the Government seized in order to ensure collection of taxes, interest, and penalties due from the taxpayer, so that this sum can be administered in bankruptcy where the Government's tax lien, though recognized, would yield priority to certain wage claims and administrative expenses as provided in Section 67c of the Bankruptcy Act. 11 U.S.C. § 107c.² In the alternative the trustee seeks to compel the United States to refund so much of the $159,968.68 as represents penalties assessed with respect to taxes the taxpayer failed to pay.

The facts are not disputed and, although intricate, can be briefly summarized. The taxpayer, an interstate motor carrier, owned several Certificates of Public Convenience and Necessity granted by the Interstate Commerce Commission and commonly called "Permits." The taxpayer failed to pay its income taxes for 1952 through 1955, thereby incurring a substantial principal tax liability plus liability for interest on the unpaid tax and related penalties.³ Between April 28, 1959 and January 21, 1961 the taxpayer entered into agreements for the sale of certain of its "Permits" to several other interstate carriers. These agreements, as required by law, provided that the sales would be subject to ICC approval, but in all other respects they were binding. In some cases the purchasers placed the purchase price in escrow. On June 8, 1960 the District Director of Internal Revenue for the Austin, Texas District, pursuant to Sections 6213 and 6861 of the 1954 Internal Revenue Code, made a jeopardy assessment totaling $249,401.67 against the taxpayer, which sum included the deficiency believed due from the taxpayer for the years 1952 through 1955 together with the interest and penalties related to that deficiency.⁴ On the following day the taxpayer received a notice and demand for payment of the amount stated in the jeopardy assessment. See Treas.Reg. § 301.6861-1(d).⁵ The taxpayer failed to file a bond to stay collection pending a final determination of its tax liability as it might have done pursuant to Section 6863 of the 1954 Code. And the district director took steps to freeze the taxpayer's available assets in order to ensure that there would be property of the taxpayer available to satisfy its tax liability as finally determined. On June 9, 1960 — the same day that the taxpayer received the notice of demand for payment of the jeopardy assessment — the IRS filed with the clerk of court in Harris County, Texas a notice of the federal tax lien, in the amount of the jeopardy assessment, upon "all property and rights to property * * * belonging to" the taxpayer, which lien arose when the jeopardy assessment was made. Int.Rev.Code of 1954, § 6321. Furthermore Section 6331 of the 1954 Code provides, so far as is relevant, that:

If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary or his delegate to collect such tax * * * by levy upon all property and rights to property * * * belonging to such person or on which there is a lien provided in this chapter for the payment of such tax.

Pursuant to the authority granted by Section 6331 of the 1954 Code, the IRS thereafter served notice of levy upon the purchasers and escrow agents under the several contracts for the sale of the "Permits," seizing all sums of money owing by them to the taxpayer and demanding payment thereof to the United States. See Int.Rev.Code of 1954 § 6335(a). On July 18, 1961, more than a year after the liens arose and the levies were made, an involuntary petition in bankruptcy was filed against the taxpayer. The bankrupt contested the petition and was adjudged a bankrupt on June 12, 1962. The trustee in bankruptcy affirmed the contracts for the sale of the "Permits," and subsequently the contracts were approved by the ICC. Thereupon, pursuant to the prebankruptcy levies, the purchasers and escrow agents paid over to the United States the amounts due on the contracts of sale, which totaled $162,071.32.

While the IRS was taking steps to ensure that the taxpayer would have assets available to satisfy its tax liability as finally determined, the taxpayer commenced proceedings to have its tax liability redetermined. On November 4, 1960 the taxpayer filed a petition with the Tax Court for a redetermination of the deficiency pursuant to Section 6213 (a) of the 1954 Code. After this date and before the Tax Court rendered a decision the involuntary petition was filed and the trustee was allowed to intervene in the Tax Court proceeding. On March 26, 1963 the Tax Court entered judgment holding that the taxpayer's principal liability for taxes during the years in question plus interest and penalties totaled $159,326.42. This decision was not appealed from and has become final. Payment received by the United States from all sources⁶ for taxes, interest, and penalties relating to 1952 through 1955 totaled $199,688.81. It thus is apparent that the United States collected $40,362.39 in excess of the taxes, interest, and penalties held by the Tax Court to be owing by the taxpayer; with interest the excess totaled $43,340.37. The United States refunded $2,102.64 of the $43,340.37; it applied $6,762.64 to tax liabilities due from the taxpayer but not included in the notices of levy; and it set off $34,475.34 against nontax claims that the United States had against the taxpayer and that were the subject of a proof of claim filed in bankruptcy.

Thereafter, without more, the trustee filed this suit in the federal court for the Northern District of Texas, alleging that as of the date on which the involuntary petition in bankruptcy was filed the "Permits" were the property of the bankrupt and that pursuant to Section 70a of the Bankruptcy Act, 11 U.S.C. § 110a, the trustee took full title to all the property of the bankrupt as of that date, including the "Permits" and the right to the proceeds from their later sale. The trustee argued below that a promise to purchase a "Permit" contingent on ICC approval was not "property" or "rights to property" of the taxpayer within the ambit of Sections 6321 and 6331 of the 1954 Code and that therefore the Government's lien could not attach to such a promise nor could the Government levy on it. Even if a contract for the sale of a "Permit" was "property" within the ambit of those sections, the trustee continued, service of notice of levy upon the purchasers and escrow holders did not constitute "possession" within Section 67c of the Bakruptcy Act, 11 U.S.C. § 107c,⁷ and thus was not sufficient to avoid the limited postponement provisions of that section. Finally, the trustee contended that Section 57j of the Bankruptcy Act, 11 U.S.C. § 93j,⁸ required at the very least that $35,521.23 — that portion of the sum collected by levy representing penalties — should be refunded to the trustee.

Without pausing to consider the question, the district court in a memorandum opinion assumed it had subject matter jurisdiction over this action. It then held the contract rights were "property" within Sections 6321 and 6331 of the 1954 Code and that notice of levy to the purchasers and escrow holders was sufficient to give the United States "possession" of this property under Section 67c of the Bankruptcy Act, thereby removing this property from the pool of property to which the trustee took title. The court went on to hold that the policy of Section 57j of the Bankruptcy Act required that a sum equal to the penalties collected by levy be refunded to the trustee. Both parties have appealed.

Before discussing and deciding the merits we must raise sua sponte a substantial threshold question concerning the jurisdiction of the court below, even though the question was not discussed by either party or by that court. See United States v. Creamer Indus., Inc., 349 F.2d 625, 626 (5 Cir.), cert. denied, 382 U.S. 957, 86 S.Ct. 434, 15 L.Ed.2d 361 (1965). When the present action was commenced by the trustee the $159,968.68 had been covered into the United States Treasury, the United States claimed this sum adversely to the trustee, and there is no evidence that the United States consented to the summary jurisdiction of the district court, sitting as a court of bankruptcy. Thus, under Section 23a of the Bankruptcy Act, the district court had jurisdiction over the present case if, but only if, it would have had jurisdiction over the case if bankruptcy had not intervened and the taxpayer itself had sued the United States to recover the $159,968.68, 11 U.S.C. § 46a; 2 Collier, Bankruptcy ¶¶ 23.01-23.15 (14th ed. 1964). A federal district court would...