Bonneville Dist. v. Green River ( 2000 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS JUN 12 2000
TENTH CIRCUIT PATRICK FISHER
Clerk
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
BONNEVILLE DISTRIBUTING, a
Utah corporation,
Plaintiff-Counter-Defendant-
Appellant,
v.
TRIANGLE OIL COMPANY, No. 98-4147
(D.C. No. 97-CV-071-S)
Defendant, (Utah)
and
GREEN RIVER DEVELOPMENT
ASSOCIATES, a Utah corporation;
WILLIAMS S. GREAVES, an
individual; STANLEY DEWAAL, an
individual,
Defendant-Counter-Claimant-
Appellee.
ORDER AND JUDGMENT *
Before SEYMOUR, Chief Judge, BRISCOE and MURPHY,.
This action was brought in state court by Bonneville Distributing, Inc.
against Green River Development Associates, Inc for breach of contract,
conversion, breach of fiduciary duty, and fraud arising out of a joint venture
agreement for the operation of Westwind Truck Stop in Green River, Utah. The
joint venture was originally between Triangle Oil, Inc. and Green River, but
Triangle’s interest was assigned in 1990 to Bonneville. At the time of the
assignment, Triangle’s property was subject to tax liens filed by the United States
against Triangle. Given these tax liens and a subsequent tax levy filed by the
United States against the joint venture, Green River filed a counterclaim in this
action naming the United States as an additional defendant and seeking
declaratory relief with respect to whether Bonneville or the United States was
entitled to receive payments from the joint venture. The district court granted
summary judgment in favor of the United States against Triangle and Bonneville
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
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and in favor of Green River against Bonneville. Bonneville appeals only the
judgment in favor of Green River. We affirm in part and reverse in part.
I
In 1987, the IRS filed a tax lien against Triangle for unpaid excise taxes in
the amount of $1,166,206.13. It subsequently assessed this income tax liability
against Triangle along with penalty and interest. Doug Allred owned 90 percent
of Triangle’s stock and his two children owned the remainder. Triangle owned all
of the stock in Bonneville. In 1988 while Triangle was in financial difficulty,
Allred transferred all of the Bonneville stock from Triangle to his children. On
January 1, 1990, Triangle transferred its interest in the joint venture to Bonneville
with Green River’s consent. At that time, Doug Allred was the president of
Triangle and the general manager of Bonneville, and he was aware of the IRS tax
lien filed against Triangle.
In August 1993, the IRS sent notices of tax levy to Green River’s attorney
and to the joint venture’s attorney. The notices listed Triangle as the taxpayer
then owing the total amount $2,746,028.08, and stated: “This levy requires you to
turn over to us this person’s property and rights to property (such as money,
credits, and bank deposits) that you have or which you are already obligated to
pay this person.” App. at 223, 226. In 1994, Green River asked the IRS whether
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it considered Bonneville’s interest in the joint venture, acquired from Triangle
with knowledge of the recorded tax lien, as subject to the liens and levy against
Triangle’s property. Receiving no response, Green River inquired again in June
1995. In the 1995 letter to the IRS, counsel for Green River stated, “Frankly, at
this point our client does not much care which position the Internal Revenue
Service takes, just so they take one.” Id. at 448.
In response, the IRS informed Green River of its position that the 1993 levy
applied to Bonneville’s interest in the joint venture. In August 1995, the IRS
reiterated its position and informed Green River that if the joint venture were to
be dissolved, payment for Bonneville’s interest should be made to the IRS. In
December 1995, the IRS issued another notice of levy listing Triangle as the
taxpayer and the amount due as $3,774,075.27.
In late December 1995, Green River, as the managing partner of the joint
venture, adopted a dissolution plan. The plan valued Bonneville’s interest in the
joint venture at $220,000 and stated it would tender to the IRS the funds to be
distributed to Bonneville under the plan. The IRS reviewed the plan and agreed
to accept the money in full satisfaction of the levies served on Green River. In
April 1996, Green River paid the IRS $92,079.02 as a portion of Bonneville’s
share, and began making monthly payments of $2,500 to the IRS.
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Bonneville filed this action in state court against Green River claiming that
it had breached the joint venture contract and had defrauded Bonneville of the full
value of its interest. Green River interpleaded the United States and asked the
court to declare the value of Triangle’s interest in the joint venture and to quiet
title to that interest in either Bonneville or the United States. The government
removed the case to federal court and subsequently filed a separate complaint
against Triangle, Bonneville and Green River asking the court to reduce to
judgment its assessment against Triangle, to declare that Bonneville acquired
Triangle’s interest in the joint venture subject to the tax liens, and to foreclose the
liens. It also sought to set aside as fraudulent the transfer of the joint venture
interest from Triangle to Bonneville.
The government and Green River both filed motions for summary
judgment. Bonneville essentially conceded the government’s motion, stating in
its response that “Triangle and Bonneville have no objection to the entry of
summary judgment in favor of the United States for a judgment against Triangle
for the amount of the tax lien and an order determining that Bonneville’s joint
venture interest is subject to the tax lien.” App. at 475. However, Bonneville
objected to foreclosing the joint venture interest or ordering a sale of that interest
until the court determined whether the tax levy had served to divest Bonneville of
its entire joint venture interest. Id.
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With respect to Green River’s motion for summary judgment, Bonneville
took the position that the tax levy did not divest Bonneville of its interest in the
joint venture. It contended that Green River improperly dissolved the joint
venture, improperly valued Bonneville’s interest therein, and still owed
Bonneville money in excess of the $220,000 Green River had agreed to pay the
IRS. The district court decided these issues as a matter of law against Bonneville
and entered summary judgment for Green River. It held that all of Bonneville’s
claims against Green River were barred because it had not filed a wrongful levy
suit pursuant to 26 U.S.C. § 7426 1 in response to any of the IRS levies and was
therefore precluded from later challenging the service or scope of the levies.
Relying on Kane v. Capital Guardian Trust Co., 145 F.3d 1218 (10th Cir. 1998),
the court concluded that upon service of a notice of levy the IRS steps into the
taxpayer’s shoes and acquires the taxpayer’s rights to the property in question,
1
I.R.C. § 7426 provides in relevant part:
(a) Actions permitted.
(1) Wrongful levy. – If a levy has been made on property or property
has been sold pursuant to a levy, any person (other than the person
against whom is assessed the tax out of which such levy arose) who
claims an interest in or lien on such property and that such property
was wrongfully levied upon may bring a civil action against the
United States in a district court of the United States. Such action
may be brought without regard to whether such property has been
surrendered to or sold by the Secretary.
26 U.S.C. § 7426(a)(1).
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here the interest in the joint venture that Bonneville acquired from Triangle
subject to the liens. As a result, the court reasoned, the IRS succeeded to
Bonneville’s right to consent to the dissolution of the joint venture and the
valuation of Bonneville’s interest therein. The court held that Green River was
statutorily obligated by 26 U.S.C. § 6332 2 to pay over Bonneville’s interest in the
joint venture to the IRS. Finally, the court held that there was no evidence Green
2
I.R.C. § 6332 provides in relevant part:
(a) Requirement. Except as otherwise provided in this section, any
person in possession of (or obligated with respect to) property or
rights to property subject to levy upon which a levy has been made
shall, upon demand of the Secretary, surrender such property or
rights (or discharge such obligation) to the Secretary, except such
part of the property or rights as is, at the time of such demand,
subject to an attachment or execution under any judicial process.
****
(d) Enforcement of levy.
(1) Extent of personal liability. Any person who fails or
refuses to surrender any property or rights to property, subject to
levy, upon demand by the Secretary, shall be liable in his own person
and estate to the United States in a sum equal to the value of the
property or rights not so surrendered, but not exceeding the amount
of taxes for the collection of which such levy has been made,
together with costs and interest on such sum at the underpayment rate
established under section 6621 from the date of such levy. . . .
26 U.S.C. § 6332(a), (d).
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River acted in bad faith in complying with the levy, and that it was therefore
immune from suit by the taxpayer (or Bonneville) pursuant to 26 U.S.C. § 6332
(e). 3
II
Internal Revenue Code § 6331(a) authorizes the IRS to collect the taxes of
a delinquent taxpayer “by levy upon all property and rights to property . . .
belonging to such person or on which there is a lien.” It is undisputed that
Bonneville took Triangle’s interest in the joint venture subject to the existing tax
lien filed against Triangle. Consequently, when the IRS served the levy on
counsel for the joint venture for taxes owed by Triangle, the levy attached to the
interest of Triangle that had been transferred to Bonneville. Once the levy was
served, the IRS effectively stood in the shoes of Bonneville and acquired
3
I.R.C. § 6332(e) provides:
(e) Effect of honoring levy. Any person in possession of (or
obligated with respect to) property or rights to property subject to
levy upon which a levy has been made who, upon demand by the
Secretary, surrenders such property or rights to property (or
discharges such obligation) to the Secretary (or who pays a liability
under subsection (d)(1)) shall be discharged from any obligation or
liability to the delinquent taxpayer and any other person with respect
to such property or rights to property arising from such surrender or
payment.
26 U.S.C. § 6332(e).
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constructive possession of whatever rights Bonneville had in joint venture assets
in the possession of Green River. See United States v. National Bank of
Commerce, 472 U.S. 713, 720, 725-26 (1985); Kane, 145 F.3d at 1221; United
States v. Bell Credit Union, 860 F.2d 365, 368 (10th Cir. 1988).
IRC § 6332(e) provides that one who honors a levy, as Green River did
here, “shall be discharged from any obligation or liability to the delinquent
taxpayer and any other person with respect to such property or rights to property
arising from such surrender or payment.” See also Moore v. General Motors
Pension Plans, 91 F.3d 848, 850-51 (7th Cir. 1996) (§ 6632 shields third party
from claims that levy was defective). The IRS has interpreted this statutory
defense very broadly:
[I]f the delinquent taxpayer has an apparent interest in
property or rights to property, a person who makes good
faith determination that such property or rights to
property in his or her possession has been levied upon
by the Internal Revenue Service and who surrenders the
property to the United States in response to the levy is
relieved of liability to a third party who has an interest
in the property or rights to the property, even if it is
subsequently determined that the property was not
properly subject to levy.
26 C.F.R. § 301.6332-1(c)(2)(emphasis added). Bonneville admitted when it
conceded summary judgment to the IRS that its joint venture interest was subject
to the federal tax lien. Green Rivers’ persistence in contacting the IRS to
determine its position as to whether Bonneville’s interest in the joint venture was
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subject to Triangle’s tax lien establishes its good faith. Consequently, Green
River is entitled to the protection of section 6332(e).
Having carefully reviewed the record, the briefs of the parties, and the case
law, we affirm the judgment of the district court on all issues relating to Green
River’s honoring of the federal tax levies by the IRS against Bonneville’s interest
in the joint venture. However, we reverse the judgment of the district court
insofar as it dismissed with prejudice all of Bonneville’ state law claims against
Green River. The district court did not deal separately with these claims in its
summary judgment order. On 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. We therefore remand these claims for further consideration by
the district court.
We AFFIRM the judgment of the district court in part, REVERSE in part,
and REMAND Bonneville’s state law claims for further consideration in light of
this opinion.
ENTERED FOR THE COURT
Stephanie K. Seymour
Chief Judge
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