Denham Law Firm, PLLC et al v. United States of America et al
Filing
34
ORDER AND REASONS both the United States' and Atkin's motions 12 17 to dismiss. The claims against the United States and the IRS are DISMISSED with prejudice. The claims against Atkins are DISMISSED with prejudice.. Signed by Chief Judge Sarah S. Vance on 6/19/14. (jjs)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
DENHAM LAW FIRM, PLLC, et al.
CIVIL ACTION
VERSUS
NO: 13-5773
UNITED STATES OF AMERICA, et al.
SECTION: R(2)
ORDER AND REASONS
Defendant the United States of America moves to dismiss the
claims against it for lack of subject matter jurisdiction.1
Defendant Dale Atkins, in her official capacity as Clerk of the
Civil District Court for the Parish of Orleans, State of
Louisiana, moves to dismiss the claims against her for failure to
state a claim.2 For the following reasons, the Court GRANTS both
motions.
I.
Background
A.
The Plaintiffs' Complaint
Plaintiffs Denham Law Firm, PLLC and Templeton Fowlkes,
attorney at law (collectively, "Denham") sue the United States,
the Internal Revenue Service ("IRS") and Atkins to recover money
allegedly seized by the IRS.3 Denham's complaint alleges the
following facts:
1
R. Doc. 12.
2
R. Doc. 17.
3
R. Doc. 2.
Denham represented Jon Overing, doing business as Overing
Yacht Designs, LLC, in litigation before the Civil District Court
for the Parish of Orleans.4 Denham and Overing entered into a
contingency fee agreement under which Denham was entitled to 40
percent of all sums recovered on Overing's behalf.5 The parties
to the suit reached a settlement agreement, with a total of
$391,197 earmarked for Overing.6 Under its contingency fee
agreement, Denham was entitled to $156,454.80 of Overing's
share.7
All settlement funds were deposited in the registry of the
state court, and the suit was converted into a concursus
proceeding.8 See La. C. C. P. Art. 4651 ("A concursus proceeding
is one in which two or more persons having competing or
conflicting claims to money, property, or mortgages or privileges
on property are impleaded and required to assert their respective
claims contradictorily against all other parties to the
proceeding."). On September 26, 2011, Denham filed a certified
copy of its contingency fee agreement in the state court record.9
4
Id. at 2, 3.
5
Id. at 4.
6
Id. at 4-5.
7
Id. at 5.
8
Id. at 3, 5.
9
Id. at 5.
2
On December 12, 2012, on Atkins' motion, the state court released
to the IRS the funds earmarked for Overing, including Denham's 40
percent share.10
Denham filed an administrative claim with the IRS, seeking
return of its share of the settlement funds.11 It also brought
this suit under 26 U.S.C. § 7426, which gives third parties a
cause of action to challenge IRS levies on property in which they
claim an interest.
B.
The State Court Record
The record indicates that, on January 11, 2011, before the
state court suit was converted into a concursus proceeding, the
IRS served two notices of levy on Atkins.12 One was against
Overing Yacht Designs in the amount of $63,800.21, and the other
was against Overing personally in the amount of $54,574.01.13 The
notices were entered in the state court record on January 18,
2011.14
On May 27, 2011, after the parties had reached their
settlement agreement, the state court plaintiff, High Tech Steel
10
Id. at 6.
11
Id.
12
R. Doc. 17-4 at 3, 25-29.
13
Id.
14
Id. at 3.
3
Products, LLC ("High Tech") moved for leave to deposit "disputed
settlement funds into the registry of the court."15 High Tech
explained that the settlement agreement required it to collect
funds from one of the defendants and distribute the funds among
the other parties to the suit, including Overing.16 A third
party, however, had made a demand on the settlement funds
earmarked for Overing, claiming that Overing owed it money.17
Accordingly, High Tech sought to deposit the disputed funds with
the state court.18 The state court granted High Tech's motion.19
On July 26, 2011, the IRS served a number of notices on
Atkins.20 First, it served a new notice of levy against Overing
Yacht Designs in the amount of $24,166.95.21 Second, it served a
notice of partial release of the previous levy against Overing
Yacht Designs, reducing the amount of that levy to $59,409.79.22
Third, it served a new notice of levy against Overing personally
15
Id. at 30.
16
Id. at 31-32.
17
Id. at 32.
18
Id. at 32-33.
19
Id. at 38.
20
Id. at 7.
21
R. Doc. 17-5 at 22.
22
Id. at 24-27.
4
in the amount of $262,725.81.23 Fourth, it served an updated
notice of the previous levy against Overing personally,
increasing the amount of that levy to $55,925.80.24 These four
notices were entered in the state court record on August 3,
2011.25
On September 26, 2011, Denham moved in the state court to
file its contingency fee agreement in the record.26 The court
granted Denham's motion.27
On November 3, 2011, the IRS served two final demands for
payment on Atkins, one in connection with the levies against
Overing personally and one in connection with the levies against
Overing Yacht Designs.28
On May 14, 2012, Denham intervened in the concursus
proceeding, asserting its right to 40 percent of the settlement
funds earmarked for Overing.29 In its petition for intervention,
23
R. Doc. 17-6 at 1.
24
Id. at 2.
25
R. Doc. 17-4 at 7.
26
R. Doc. 20-2 at 1.
27
Id. at 2.
28
R. Doc. 17-6 at 25-29.
29
R. Doc. 17-4 at 13; R. Doc. 20-4.
5
Denham acknowledged that other parties, including the IRS, had
filed claims for the disputed funds.30
On July 9, 2012, the United States sued Atkins in this Court
for failure to honor the IRS levies (the "first federal suit").31
On December 7, 2012, Atkins filed an ex parte motion in the
concursus proceeding for an order to release the disputed funds
to the IRS.32 She stated, "The United States of America has
argued in the [first federal suit] . . . that claimants who
believe they are entitled to the levied funds have a sufficient
protection either via an administrative claim with the IRS
seeking that the funds be returned, or an action against the
United States for a wrongful levy . . . . Consequently there is
no prejudice to the claimants should the Court release the
funds."33 The state court granted Atkins' motion and released the
30
R. Doc. 20-4 at 4.
31
United States v. Atkins, No. 12-1779 (E.D. La.).
32
R. Doc. 20-6.
33
Id. at 2-3. The Court notes that, in the first federal
suit, the United States did not take the position that there
would be no prejudice to the claimants should the state court
release the funds. Rather, the United States argued that, "[i]n
general, paying over funds does not leave claimants without a
remedy." United States v. Atkins, No. 12-1779 (E.D. La.), R. Doc.
13 at 14. It took "no position regarding the viability of any
suits against it by any would-be claimants for a wrongful levy
regarding the funds the IRS levied in this case," and specified
that 26 U.S.C. § 6532(c) "requires that a wrongful levy suit be
filed within nine months from the levy date unless the claimant
makes an administrative request for the return of the property."
Id. at 14 n.5, n.6.
6
funds to the IRS.34 The United States and Atkins then stipulated
to voluntary dismissal of the first federal suit.35
Denham filed an administrative claim with the IRS on or
about August 22, 2013.36 It filed this action on September 9,
2013.37
II.
The United States' Motion to Dismiss
The United States moves to dismiss the claims against it
under Federal Rule of Civil Procedure 12(b)(1). It argues that
Denham's suit falls outside the limited waiver of sovereign
immunity for actions of this kind and that, accordingly, the
Court lacks subject matter jurisdiction.38 It additionally argues
that the IRS is not a proper party and should be dismissed.39
A.
Legal Standard
34
R. Doc. 20-6 at 4.
35
United States v. Atkins, No. 12-1779 (E.D. La.), R. Doc.
15.
36
In its complaint, Denham does not specify the date of its
administrative claim. R. Doc. 2 at 6. The United States
indicates, and Denham does not dispute, that Denham filed its
administrative complaint "on or around August 22, 2013." R. Doc.
12-1 at 5.
37
R. Doc. 2.
38
R. Doc. 12.
39
R. Doc. 12-1 at 5-6.
7
Federal Rule of Civil Procedure 12(b)(1) permits dismissal
for lack of jurisdiction over the subject matter of a claim. "In
ruling on a motion to dismiss for lack of subject matter
jurisdiction, a court may evaluate (1) the complaint alone, (2)
the complaint supplemented by undisputed facts evidenced in the
record, or (3) the complaint supplemented by undisputed facts
plus the court's resolution of disputed facts." Den Norske Stats
Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 424 (5th Cir.
2001). The party asserting jurisdiction bears the burden of
establishing that the district court possesses jurisdiction.
Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001).
B.
Waiver of Sovereign Immunity
"Under settled principles of sovereign immunity, the United
States, as sovereign, is immune from suit, save as it consents to
be sued . . . and the terms of its consent to be sued in any
court define that court's jurisdiction to entertain the suit."
United States v. Dalm, 494 U.S. 596, 608 (1990) (alteration in
original) (quoting United States v. Testan, 424 U.S. 392 (1976))
(quotation marks removed). "A statute of limitations requiring
that a suit against the Government be brought within a certain
time period is one of those terms." Id.; see also Gallion v.
United States, 389 F.2d 522, 524 (5th Cir. 1968) ("Time and
again, in an abundance of cases, it has been held that the time
8
within which a suit must be brought against the United States
under the provisions of a federal statute is strictly a condition
of the remedy given.").
Denham sues the United States under 26 U.S.C. § 7426(a)(1),
which states that "[i]f a levy has been made on property . . .
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." Section 7426 specifies
that the statute of limitations for such actions is set out in
§ 6532(c). 26 U.S.C. § 7426(i). Section 6532(c), in turn,
provides that "no suit or proceeding under section 7426 shall be
begun after the expiration of 9 months from the date of the
levy," unless the party claiming an interest in the levied
property makes an administrative request for return of the
property, in which case the 9-month period may be extended. 26
U.S.C. § 6532(c). In order to extend the 9-month limitations
period, the administrative request "must be filed within nine
months of the levy." United Sand and Gravel Contractors, Inc. v.
United States, 624 F.2d 733, 736 (5th Cir. 1980).
Thus, Congress has waived sovereign immunity in this case,
and the Court may exercise subject matter jurisdiction, only if
9
Denham filed suit or filed his administrative claim within nine
months "from the date of the levy." 26 U.S.C. § 6532(c)(1).
C.
Denham's Suit Is Untimely.
"The date of the levy is the date the Notice of Levy is
served." Creditbank v. Milwaukee Elec. Const., Inc., 707 F. Supp.
513, 515 (S.D. Fla. 1988). "[S]ervice of the notice of levy on
the possessor of the property triggers the running of the statute
of limitations for purposes of section 6532(c)." Williams v.
United States, 947 F.2d 37, 39 (2d Cir. 1991); accord State Bank
of Fraser v. United States, 861 F.2d 954, 967 (6th Cir. 1988);
McCoy v. United States, No. 75-3510, 1976 WL 960, at *3-*4 (E.D.
La. Nov. 9, 1976). Section 7426 "does not impose a duty on the
United States to give notice to a possible third-party claimant
or to search for them." Dieckmann v. United States, 550 F.2d 622,
624 (10th Cir. 1977). "Notice of the levy to all potential
competing claimants to the property would be impractical and
overly burdensome on the government and, therefore, is not
required." Williams, 947 F.2d at 39; see 14A Mertens Law of
Federal Income Taxation § 54A:89 ("The Government does not have a
duty to give notice to possible third parties or to search for
them; lack of knowledge by such parties does not suspend the
running of the limitation period.").
10
The IRS served its initial notices of levy on Atkins, the
undisputed possessor of the property, on January 11, 2011. It
served amendments to those notices, as well as two additional
notices of levy, on July 26, 2011. Thus, the nine-month statute
of limitations under § 6532(c) began to run, at the latest, on
July 26, 2011. It expired, at the latest, on April 26, 2012.
Denham did not file its administrative complaint until
approximately August 22, 2013 and did not file suit until
September 9, 2013, well over a year after the statute of
limitations expired. The Court concludes that Denham's suit is
untimely, that Congress has not waived sovereign immunity in
these circumstances, and that the Court lacks subject matter
jurisdiction over the action.
Denham argues that the IRS had a duty to exercise reasonable
diligence in notifying it of the levies, that the IRS did not
exercise such diligence, and that, accordingly, the Court should
consider Denham's complaint timely filed.40 As stated supra, the
IRS does not have a duty to notify possible third party claimants
of the levies it imposes. Williams, 947 F.2d at 39. "Without a
duty to give notice, the lack of knowledge by [Denham] does not
toll the statute of limitations." Dieckmann, 550 F.2d at 624; see
also Becton Dickinson and Co. v. Wolckenhauer, 215 F.3d 340, 352
(3d Cir. 2000) ("[T]he vast majority of federal courts to address
40
R. Doc. 18.
11
squarely this issue have concluded that the time limitation in
section 6532(c) is a jurisdictional bar that cannot be tolled,
regardless of the equities in a given case, and that the failure
to file a claim under section 7426(a)(1) prior to the expiration
of the time limitation in section 6532(c) deprives the district
court of subject matter jurisdiction.").
The only case Denham cites in support of its argument that
the IRS had a duty to exercise reasonable diligence in notifying
it of the levies is Terrell v. Comm'r of Internal Revenue, 625
F.3d 254 (5th Cir. 2010). There, the Fifth Circuit observed that
the statute of limitations for a taxpayer suit challenging a tax
deficiency runs from the date that the IRS sends notice to the
taxpayer's "last known address." Id. at 259 (citing 26 U.S.C.
§ 6015(e)(1)(A)). The court explained that "last known address"
is a term of art requiring the IRS to use "'reasonable diligence'
to determine the taxpayer's address." Id. Denham's citation to
Terrell is unpersuasive. In Terrell, the IRS had a clear
statutory duty to notify the taxpayer of its decision. Here, by
contrast, the IRS had no duty to notify Denham, as a potential
third-party claimant, of the levies it imposed. See Williams, 947
F.2d at 39. Accordingly, Terrell's explication of the scope of
the IRS's duty to notify under 26 U.S.C. § 6015 has no bearing on
this case.
12
Finally, the Court notes that Denham had the opportunity to
discover the levies as early as January 2011. The record
indicates that Atkins entered the notices of levy in the state
court proceedings, making them a matter of public record.41 The
first set of notices appears in the record on January 18, 2011,
while the second set appears in the record on August 3, 2011.
Denham thus had the opportunity to discover the levies with ample
time to challenge them within the nine-month statute of
limitations. See Dieckmann, 550 F.2d at 624 ("[T]he period within
which the action may be brought under section 6532 was designed
to provide an opportunity to a person of reasonable diligence (in
keeping track of his own property) to discover if someone with
whom it had been entrusted no longer had it in his possession.").
The Court concludes that Congress has not waived sovereign
immunity in this case and that the claims against the United
States must be dismissed for lack of subject matter jurisdiction.
D.
The IRS Is Not a Proper Party.
The United States additionally argues that the IRS is not a
proper party, as it is a federal agency not authorized to be sued
in its own name. "An executive department of the United States or
one of its agencies may only be sued in its own name if the
41
R. Doc. 17-3 at 2; 17-4 at 3, 7, 25-29; R. Doc. 17-5 at
21-27; R. Doc. 17-6 at 1-2
13
authority to be sued has been expressly . . . conferred by
Congress." Deleeuw v. I.R.S., 681 F. Supp. 402, 403 (E.D. Mich.
1987). "Congress has not constituted the Treasury Department or
any of its divisions or bureaus as a body corporate and has not
authorized either or any of them to be sued eo nomine."
Castleberry v. Alcohol, Tobacco and Firearms Div. of Treasure
Dep't of U.S., 530 F.2d 672, 673 n.3 (5th Cir. 1976). "The IRS is
a division of the Treasury Department; therefore, the IRS cannot
be sued." Holmstrom v. United States, No. 02-2006, 2003 WL
21254624, at *3 (M.D. Fla. 2003). The Court concludes that the
claims against the IRS must be dismissed.
IV.
Atkins' Motion to Dismiss
Atkins moves to dismiss the claims against her under Federal
Rule of Civil Procedure 12(b)(6). She argues that Denham fails to
state a claim against her upon which relief may be granted.42
A.
Legal Standard
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff
must plead sufficient facts "to state a claim to relief that is
plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007)). If there are insufficient factual allegations to raise a
42
R. Doc. 17-2.
14
right to relief above the speculative level, Twombly, 550 U.S. at
555, or if it is apparent from the face of the complaint that
there is an insuperable bar to relief, Jones v. Bock, 549 U.S.
199, 215 (2007); Carbe v. Lappin, 492 F.3d 325, 328 & n.9 (5th
Cir. 2007), the claim must be dismissed. "In considering a motion
to dismiss for failure to state a claim, a district court must
limit itself to the contents of the pleadings, including
attachments thereto." Collins v. Morgan Stanley Dean Witter, 224
F.3d 496, 498 (5th Cir. 2000).
B.
Denham Fails to State a Claim Against Atkins.
Denham brings suit exclusively under § 7426,43 which
authorizes third parties to bring suit for wrongful tax levies
"against the United States." 26 U.S.C. § 7426(a)(1). The statute
does not authorize civil actions against any other party or
entity. Accordingly, Denham fails to state a claim against Atkins
under § 7426.
Nor is there any other basis for a plausible claim against
Atkins. The only factual allegation regarding Atkins in Denham's
complaint is that she filed a motion in the state court
proceeding to release the settlement funds to the IRS and that
43
R. Doc. 2 at 2
15
the state court granted her motion.44 Under Louisiana law, the
clerk of court is not liable for "taking any . . . action with
respect to . . . performance of [her] duties" if she "has been
directed to do so by order of any court of the state." La. R.S.
13:750.1(C)(1). Denham's complaint indicates that Atkins released
the settlement funds pursuant to an order of the state court.
Thus, the Court concludes that she is not liable for her alleged
conduct under Louisiana law. The claims against Atkins must be
dismissed.
V.
Conclusion
For the foregoing reasons, the Court GRANTS both the United
States' and Atkin's motions to dismiss. The claims against the
United States and the IRS are DISMISSED with prejudice. The
claims against Atkins are DISMISSED with prejudice.
New Orleans, Louisiana, this
19th
June,
day of May, 2014.
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
44
Id. at 6 ("[T]he Clerk on her own motion effected the
seizure of all of the monies on deposit in the lawsuit, without
notice to Plaintiffs and to their prejudice. On December 7, 2012,
on motion of the Clerk, the court in the state lawsuit turned
over to the IRS $391,197.00 which represents the full amount of
the funds to which Overing was entitled and of which by reason of
Plaintiffs' lien, there is due and owing $156,454.80 to
Plaintiffs.").
16
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