US v. Rockland Trust Co.
| Decision Date | 17 June 1994 |
| Docket Number | Civ. A. No. 93-10674-DPW. |
| Citation | 860 F. Supp. 895 |
| Parties | UNITED STATES of America, Plaintiff, v. ROCKLAND TRUST COMPANY (As successor Middleborough Trust Company), Defendant/Third Party Plaintiff, v. Carlton C. GIFFORD and Lloyd Earl Belford, Third Party Defendants. |
| Court | U.S. District Court — District of Massachusetts |
John V. Cardone, U.S. Dept. of Justice, Tax Div., Washington, DC, for U.S.
Daniel E. Goldrick, Pamela E. Karmazine, Fagan & Goldrick, Taunton, MA, for Rockland Trust Co.
Carlton C. Gifford, Wareham, MA, for Carlton C. Gifford.
Andrew M. Higgins, Casner & Edwards, Boston, MA, for Lloyd Earl Belford.
The United States commenced this action to recover an amount, calculated with interest as of this day to be $92,255.11 from the defendant/third-party plaintiff Rockland Trust Company ("Rockland"). The United States alleges that Rockland failed or refused to surrender property or property rights of third-party defendant Carlton C. Gifford, which was subject to an Internal Revenue Service ("IRS") levy. Presently before me is a summary judgment motion by the United States against Rockland and a motion by third-party defendant Lloyd Earl Belford, Gifford's former attorney, to have the claims brought against him by Rockland dismissed pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons set forth below, I will grant the summary judgment motion and allow the motion to dismiss.
Rockland (formerly the Middleborough Trust Company) was the holder of a real estate mortgage given it by Gifford in 1982. In March 1988, Rockland foreclosed on the mortgaged property for breach of condition. On April 6, 1988, the IRS served a Notice of Levy on Rockland's agents, indicating tax liabilities on Gifford's part in the amount of $51,675.91. See Plaintiff's Exh. 2. On April 8, 1988, Rockland's agents advised the IRS that the foreclosure was in progress and, upon Rockland's receipt of funds, any surplus would be "turned over to the Land Court on an interpleader basis." See Plaintiff's Complaint at 4, ¶ 12.
At auction, the property sold for $205,000.00, which, after satisfaction of indebtedness, left Rockland with a surplus of $73,029.74. See Amended Third-Party Complaint at ¶¶ 11-12.1 Confronted with the competing claims of "several junior lienholders" for these funds — the United States among them — Rockland filed a complaint in interpleader with the Plymouth County Superior Court on May 18, 1988.2 The United States was not properly served in the interpleader action, however, until September 27, 1989, more than a year after the initial filing.3
On or about June 3, 1988, according to Rockland, "Third Party Defendant Carlton C. Gifford retained the services of Third Party Defendant Lloyd Earl Belford for the purpose of filing a voluntary Chapter Thirteen bankruptcy petition with the United States Bankruptcy Court, District of Massachusetts — Docket no. 88-10996-JNG." Amended Third-Party Complaint, ¶ 13. Rockland asserts that this bankruptcy petition was signed by both Gifford and Belford and "contained a complete list of Gifford's creditors, including the IRS and Rockland." Id., ¶ 14. Also on June 3, Gifford and Belford "filed a Suggestion of Bankruptcy with the Plymouth County Superior Court informing all parties, including Rockland and the IRS, of Gifford's pending Chapter Thirteen Bankruptcy." Id., ¶ 19. In November 1988 "Belford filed a dismissal of Gifford's voluntary Chapter Thirteen petition with the United States Bankruptcy Court, which dismissal was ultimately allowed by said Court." Id., ¶ 20.4
On December 2, 1988, Gifford, again through his attorney Belford, filed a motion for summary judgment in the interpleader action, asserting his entitlement to the surplus funds and falsely asserting in his "Argument" the following:
The defendant states to the Court that all of the other defendants listed in the caption have in fact, been satisfied in full and have no interest in surplus funds held by the Middleborough Trust Company.
Mem. in Support of Mot. to Dismiss of Third-Party Defendant, Lloyd Earl Belford ("Belford's Mem.") at 2.5 The United States notes it was never properly served with notice of this motion. See Plaintiff's Mem., ¶ 19.6 In any event, there being no opposition, the Superior Court granted the motion on January 31, 1989, ordering that the surplus funds be turned over to Gifford.
On October 27, 1989, the United States (after having been "re-served" the month prior, see note 3 supra,) removed the interpleader action to the United States District Court. Upon subsequent motion by Rockland, the District Court ordered Gifford on September 18, 1990, to return the surplus funds. Following Gifford's failure to comply with this order, the District Court dismissed the interpleader action without prejudice in or around March 1991.
On March 25, 1993, the United States filed the instant Complaint, asserting that, because Rockland had notice of the tax levy on Gifford as early as April 6, 1988, Rockland's failure to honor that levy following its receipt of the foreclosure sale proceeds on May 20, 1988, renders it liable to the United States pursuant to 26 U.S.C. § 6332(d)(1) for a sum equal in value to the property or property rights it failed then to surrender, plus costs and interest.7
Along with its Answer to the Complaint of the United States, Rockland filed a Third-Party Complaint against Gifford and Belford on April 15, 1993; an Amended Third-Party Complaint was filed December 15, 1993, asserting counts of fraud (Count I) and of negligence (Count II).8 In support of these Counts, Rockland alleges that a) it had no authority to disburse funds absent a judicial determination, b) it played no part in the summary judgment motion which resulted in the Superior Court's release of the funds to Gifford, c) Gifford and Belford not only failed to serve the United States with process regarding said motion, but, by the "false and fraudulent" statement therein, knowingly misrepresented the status of the lienholders so as to mislead the court into disbursing the funds to them. Consequently, Rockland maintains, Gifford and Belford are solely responsible for the inappropriate disbursement; Rockland further asserts that Gifford is responsible for payment of his own tax liability.
Under Fed.R.Civ.P. 56, summary judgment must be granted "where the pleadings, depositions, answers or interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Goldman v. First Nat'l Bank of Boston, 985 F.2d 1113, 1116 (1st Cir.1993) (citing Fed. R.Civ.P. 56(c)). In reviewing such materials, I must view all the facts "in the light most favorable to the non-moving party and indulge all inferences advantageous to that party, provided they arise reasonably from the record." Villanueva v. Wellesley College, 930 F.2d 124, 127 (1st Cir.), cert. denied, ___ U.S. ___, 112 S.Ct. 181, 116 L.Ed.2d 143 (1991).
It is undisputed that 1) third-party defendant Gifford had outstanding federal tax liabilities,9 2) Rockland received a notice of levy regarding the same on April 6, 1988,10 and 3) Rockland's foreclosure upon Gifford's property yielded surplus funds in the amount of $73,029.74. What is disputed is whether Rockland's failure to surrender to the IRS that portion of the surplus funds levied upon renders it now liable for an equivalent sum.11
In support of its position, the United States cites 26 U.S.C. § 6332, which, as relevant here, provides:
Pursuant to this statute, where the taxpayer's property levied upon is held by a third party, service of notice of the levy upon that third party "gives the IRS the right to all property levied upon and creates a custodial relationship between the person holding the property and the IRS so that the property comes into the constructive possession of the Government." U.S. v. Nat'l Bank of Commerce, 472 U.S. 713, 720, 105 S.Ct. 2919, 2924, 86 L.Ed.2d 565 (1985) (citation omitted). Thus, "if ... the custodian refuses to honor the levy, he incurs liability to the Government for his refusal." Id. at 721, 105 S.Ct. at 2924.
Rockland raises several defenses to this putative liability. First, noting that it did not come into full possession of the surplus funds until May 4, 1988, it claims that it was not "in possession of (or obligated with respect to)" the property levied upon at the time of the April 6, 1988 notice. I find this claim unpersuasive. The auction of Gifford's mortgaged property was completed by April 1, 1988. See Plaintiff's Exh. 7 (). Hence, as the United States observes, ...
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