USA v. Triangle Oil

• Decision Date: 24 January 2002
• Docket Number: No. 01-4033,01-4033
• Citation: 277 F.3d 1251
• Parties: (10th Cir. 2001) UNITED STATES OF AMERICA, Plaintiff, BONNEVILLE DISTRIBUTING, INC., a Utah corporation, Plaintiff-Counterdefendant-Appellant v. TRIANGLE OIL, Defendant, and GREEN RIVER DEVELOPMENT ASSOCIATES, INC., a Utah corporation; WILLIAM S. GREAVES, an individual; STANLEY DEWAAL, an individual, Defendant-Counterclaimant - Appellee, v. UNITED STATES DEPARTMENT OF TREASURY; INTERNAL REVENUE SERVICE, Counterclaim Defendant
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1251

277 F.3d 1251 (10th Cir. 2001)

UNITED STATES OF AMERICA, Plaintiff, BONNEVILLE DISTRIBUTING, INC., a Utah corporation, Plaintiff-Counterdefendant-Appellant v. TRIANGLE OIL, Defendant, and GREEN RIVER DEVELOPMENT ASSOCIATES, INC., a Utah corporation; WILLIAM S. GREAVES, an individual; STANLEY DEWAAL, an individual, Defendant-Counterclaimant - Appellee, v. UNITED STATES DEPARTMENT OF TREASURY; INTERNAL REVENUE SERVICE, Counterclaim Defendant.

No. 01-4033

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

January 24, 2002

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OFUTAH (D.C. No.97-CV-71-S)

[Copyrighted Material Omitted] Stephen B. Mitchell (and Richard D. Burbridge, with him on the briefs), Burbridge & Mitchell, Salt Lake City, Utah, for Plaintiff - Appellant.

George A. Hunt (and Kurt M. Frankenburg, with him on the brief), Williams & Hunt, Salt Lake City, Utah, for Defendants-Appellees.

Before KELLY, BRORBY, and MURPHY, Circuit Judges.

PAUL KELLY, Jr., Circuit Judge

Plaintiff-Appellant Bonneville Distributing, Inc. ("Bonneville") appeals the district court's grant of summary judgment to Defendants-Appellees Green River Development Associates, Inc., William S. Greaves, and Stanley DeWaal (collectively, "Green River"). We have jurisdiction pursuant to 28 U.S.C. 1291 and reverse and remand for further proceedings.

Background

This action involves a joint venture between Bonneville and Green River under which the joint venturers operated a truck stop in Green River, Utah. The joint venture began in 1983 with Triangle Oil, Inc. ("Triangle") and Green River as the original joint venturers. Pursuant to the joint venture agreement, Triangle was entitled to receive one-half cent per gallon of motor fuel sold and was also to receive common carrier rates for fuel delivered to the truck stop. In 1990, with Green River's approval, Triangle assigned its interest to Bonneville. At the time of the assignment, Triangle's property was subject to federal tax liens.

In April, 1993, Bonneville commenced a state court action against Green River seeking recovery of an account receivable allegedly owed to Bonneville and for payment for fuel sold and delivered. In August of 1993, the Internal Revenue Service ("IRS") served a Notice of Levy to Green River upon all of Triangle's property and rights to property. After several inquiries, the IRS notified Green River that the Notice of Levy applied to Bonneville's interest in the joint venture and that any payments to Bonneville should go to the IRS. In 1995, Green River notified Bonneville that it was dissolving the joint venture effective December 11, 1995. According to Green River, it was dissolving the joint venture pursuant to a clause in the agreement providing for termination upon the end of the underlying truck stop lease. The IRS reviewed Green River's dissolution plan and agreed to accept payments of Bonneville's liquidated interest.

Bonneville then brought an additional claim of wrongful dissolution that was eventually consolidated with the original action. Due to the levies, Green River filed a counterclaim naming the United States as an additional defendant and sought declaratory relief with respect to whether the United States or Bonneville was entitled to receive payments related to Bonneville's joint venture interest. The United States removed the case to federal court. The district court granted the United States' unopposed motion for summary judgment, thus reducing the tax liens against Triangle to judgment and concluding that Bonneville's joint venture interest was subject to the tax lien. The district court also granted summary judgment to Green River after concluding that 26 U.S.C. 6332(e), which provides immunity to third parties who comply with IRS levies, prevented Bonneville from bringing its state law claims against Green River.

On appeal of that decision, a panel of this Court affirmed the district court "on all issues relating to Green River's honoring of the federal tax levies . . . against Bonneville's interest in the joint venture." United States v. Triangle Oil Co., No. 98-4147, slip op. at 10 (10th Cir. Jun. 12, 2000) (Aplt. App. at 517). The panel reversed the district court, however, "insofar as it dismissed with prejudice all of Bonneville's state law claims against Green River," and stated further that "[o]n this record, we are not persuaded that all of Bonneville's state law claims are necessarily subsumed in Green River's section 6332(e) defense." Id.

On remand, the district court again granted summary judgment to Green River. The district court began by quoting the panel in the prior appeal where it stated: "Once the levy was served, the IRS effectively stood in the shoes of Bonneville and acquired constructive possession of whatever rights Bonneville had in joint venture assets in the possession of Green River." See id. at 8-9 (Aplt. App. at 515-16). The district court reasoned that the joint venture assets included Bonneville's state law claims. Thus, according to the district court, the IRS's actions in this case deprived Bonneville of any ownership interest in the joint venture and therefore deprived Bonneville of the ability to bring such claims. In effect, the district court concluded, Bonneville had no standing to bring its state law claims. On appeal, Bonneville contends that it has standing to assert its state law claims because it still owns the joint venture interest.

Standard of Review

We review the grant of summary judgment de novo, applying the same legal standard used by the district court. L&M Enter., Inc. v. BEI Sensors & Sys. Co., 231 F.3d 1284, 1287 (10th Cir. 2000) (citation omitted). Summary judgment is appropriate if "there is no genuine issue as to any material fact" and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In reviewing a summary judgment motion, the court views the record "in the light most favorable to the nonmoving party." Thournir v. Meyer, 909 F.2d 408, 409 (10th Cir.1990) (citation omitted).

Discussion

The district court's conclusion that Bonneville had no standing to bring claims related to its joint venture interest necessarily involved an interpretation of the effect of the IRS's levy power against that interest. Although there is no question that the IRS properly exercised its levy power in this case, we find it necessary to review the relevant statutory provisions to determine the effect its actions had on Bonneville's joint venture interest. To satisfy a tax deficiency, the IRS may impose a lien on any "property" or "rights to property" belonging to a taxpayer. 26 U.S.C. 6321. To complement this provision, 6331(a) allows "the Secretary to collect such tax . . . by levy upon all property and rights to property . . . on which there is a lien . . . ." Id. 6331(a). "The term 'levy' as used in this title includes the power of distraint and seizure by any means." Id. 6331(b). This administrative levy power is justified by "the need of the government promptly to secure its revenues." United States v. Nat'l Bank of Commerce, 472 U.S. 713, 721 (1985) (internal quotation omitted). Unlike a lien-foreclosure suit authorized by 26 U.S.C. 7403, however, an administrative levy does not determine priority disputes between the Government and other claimants, but instead protects the Government against diversion or loss while such disputes, if any, are resolved. See id. at 721. Further, an administrative levy does not "transfer ownership of the property to the IRS." United States v. Whiting Pools, Inc., 462 U.S. 198, 209-10 (1983).

"We look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer's state-delineated rights qualify as 'property' or 'rights to property.'" Drye v. United States, 528 U.S. 49, 58 (1999). Pursuant to Utah law, joint ventures are treated under the same statutory provisions as are partnerships. See Utah Code Ann. 48-1-3.1 (1998). Utah law recognizes the following property rights of a partner: (1) the rights in specific partnership property held as a tenant in partnership; (2) the interest in the partnership; and (3) the right to participate in management. Id. 48-1-21. Here, the levy was against Bonneville's "property and rights to property." See 26 U.S.C. 6321. According to Utah law, "[a joint venturer's] interest in the [joint venture] is his share of the profits and surplus, and the same is personal property." Utah Code Ann. 48-1-23. Federal courts, including this circuit, have long defined a partner's interest in the partnership in a similar manner. See United States v. Kaufman, 267 U.S. 408, 414 (1925) (lien against a partner owing an individual tax "extends only to his interest in the surplus of the partnership property"); Adler v. Nicholas, 166 F.2d 674, 678-79 (10th Cir. 1948); see also United States v. Worley, 213 F.2d 509, 512 (6th Cir. 1954) (citing Kaufman); Economy Plumbing & Heating Co. v. United States, 456 F.2d 713, 716 (Cl. Ct. 1972) (citing Kaufman). The IRS has itself recognized that a partner's interest in a partnership is generally limited to the "right to a proportionate share of the distribution of partnership profits or surplus after the payment of partnership debts." Internal Revenue Man. 5.17.3.5.16 (2001); see also Rev. Rul. 73-24, 1973-1 C.B. 602 (IRS could not seize partnership-owned bank account to satisfy tax deficiency of individual partner).

Given the property and rights to property pertaining to Bonneville's interest in the joint venture, it is clear that the IRS properly accepted the proceeds from the dissolution of the joint venture. Those proceeds represented Bonneville's share of the surplus of joint venture assets over the joint venture's liabilities and the levy attached to that surplus. Kaufman, 267 U.S. at 414.

Requiring closer scrutiny, however, is the question...