Gold Forever Music, Inc. v. United States of America
Filing
37
OPINION AND ORDER denying 31 defendant's renewed Motion to Dismiss and denying 23 plaintiff's Motion for injunction. Signed by District Judge George Caram Steeh. (MBea)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
GOLD FOREVER MUSIC, INC.,
Plaintiff,
Case No. 17-13927
v.
Hon. George Caram Steeh
UNITED STATES OF AMERICA,
Defendant.
_______________________________/
OPINION AND ORDER DENYING DEFENDANT’S
RENEWED MOTION TO DISMISS (ECF NO. 31) AND
PLAINTIFF’S MOTION FOR INJUNCTION (ECF NO. 23)
Before the court is Defendant’s renewed motion to dismiss and
Plaintiff’s motion for injunction of levy, which have been fully briefed. The
court heard oral argument on October 10, 2019, and took the matter under
advisement. For the reasons explained below, both motions are denied.
BACKGROUND FACTS
This is a wrongful levy action brought pursuant to 26 U.S.C. §
7426(a)(1). The court initially granted Defendant’s motion to dismiss on
statute of limitations grounds; the Sixth Circuit reversed and remanded for
further proceedings. Gold Forever Music, Inc. v. United States, 920 F.3d
1096 (6th Cir. 2019). After the mandate was issued, Defendant filed a
-1-
renewed motion to dismiss and Plaintiff filed a motion to enjoin the levy
during the pendency of the case.
Plaintiff Gold Forever Music, Inc., is a music publishing company
owned by Edward Holland, Jr., a Motown artist who has co-written songs
such as “You Can’t Hurry Love” and “Stop in the Name of Love” by the
Supremes. Gold Forever’s catalog includes songs by Holland and other
artists. Gold Forever is entitled to royalties when the works in its catalog
are sold or performed. Rather than directly licensing its music to third
parties, Gold Forever contracts with Broadcast Music, Inc. and Universal
Music Publishing to do so. These companies license others to use Gold
Forever’s music, collect royalties pursuant to those agreements, and remit
the royalties to Gold Forever.
Holland owes the Internal Revenue Service approximately $20 million
in taxes, interest, and penalties. In an attempt to collect Holland’s tax debt,
the IRS served notices of levy on BMI and Universal on August 27, 2012.
The notices required BMI and Universal to turn over “property and rights to
property . . . that you have or which you are already obligated to pay” to
Gold Forever. The IRS alleges that Gold Forever is the alter ego of
Holland.
-2-
The first payment made by BMI and Universal to the IRS in response
to the notices of levy was $119,160.37 on October 10, 2013. Additional
payments were made from October 6, 2016, to July 26, 2017, in the
amount of $967,140.76. Gold Forever seeks the return of the funds
remitted in 2016 and 2017, which it contends were wrongfully levied. Gold
Forever argues that it is not the alter ego of Edward Holland and that most
royalties owed to Gold Forever belonged to artists other than Holland.
Gold Forever filed this action on December 6, 2017. The government
moved to dismiss on statute of limitations grounds. Finding that the ninemonth statute of limitations began to run when the notices of levy were
served in 2012, the court dismissed the action as untimely. The Sixth
Circuit reversed, noting that “[a]lthough the district court was correct that
service of the notice of levy can start the statute of limitations running for
intangible property, it is necessary for the notice of levy to attach to the
property that is the subject of the wrongful levy action before the statute
can run.” Gold Forever, 920 F.3d at 1102 (emphasis in original). The
record did not contain sufficient information to determine whether Gold
Forever’s right to receive future royalties was attached by the 2012 levies.
Assuming that the 2012 levies did not attach future payments, the Sixth
Circuit held that the court should have drawn a factual inference in Gold
-3-
Forever’s favor that “the earliest the statute of limitations could have begun
running on Gold Forever’s claim was when the IRS seized Gold Forever’s
funds held by BMI and Universal. . . . Therefore, the district court should
have concluded that, on the face of the complaint, this case was properly
filed within the statute of limitations.” Id.
LAW AND ANALYSIS
I.
Defendant’s Renewed Motion to Dismiss
The government has renewed its motion to dismiss on statute of
limitations grounds, alleging that additional facts that were not before the
Sixth Circuit warrant dismissal. See Fed. R. Civ. P. 12(b)(1), 12(b)(6);
Miller v. United States, 838 F. Supp. 338, 339 (N.D. Ohio 1993)
(compliance with statute of limitations in suit against the United States a
“jurisdictional prerequisite”); Ohio Nat. Life Ins. Co. v. United States, 922
F.2d 320, 324 (6th Cir. 1990) (statute of limitations for suit by taxpayer for
refund is jurisdictional).
In collecting delinquent taxes, the IRS has the power to levy the
taxpayer’s property, even if that property is under the control of a third
party. See 26 U.S.C. §§ 6331, 6332. When the taxpayer’s property is held
by another, the IRS serves a notice of levy pursuant to 26 U.S.C. §
6332(a). “The third party must comply with the levy demand even if it or
-4-
any other party claims an interest in the levied property.” Gold Forever,
920 F.3d at 1098. Any person other than the taxpayer who claims an
interest in the levied property may pursue a wrongful levy action against the
United States under 26 U.S.C § 7426(a). An action under § 7426(a) is “the
exclusive remedy for an innocent third party whose property is confiscated
by the IRS to satisfy another person’s tax liability.” Id. (citation omitted).
At all times relevant here, the statute of limitations for a wrongful levy
action was nine months “from the date of the levy or agreement giving rise
to such action.” 26 U.S.C. § 6532(c)(1) (2017).1 A request for the return of
levied property under 26 U.S.C. § 6343, made within the nine-month
limitations period, extends the limitations period by twelve months. 26
U.S.C. § 6532(c)(2) (2017). “When the property or obligation levied on is
intangible, we have held that the notice of levy qualifies as the ‘date of the
levy’ sufficient to start running the statute of limitations for a wrongful levy
action.” Gold Forever, 920 F.3d at 1099 (citation omitted).
This court initially held that the date of the levies was August 27,
2012, the date that the notices of levy were served on BMI and Universal.
The court found Gold Forever’s suit to be untimely because it was filed
more than nine months after August 27, 2012. As the Sixth Circuit noted,
1
The statute was amended in 2017 to extend the limitations period to two years.
-5-
however, a levy may “extend only to property possessed and obligations
existing at the time thereof.” Id. (quoting 26 U.S.C. § 6331(b)). A levy does
not reach property acquired after the date of the levy; the levy must “attach”
to existing property or obligations for the statute of limitations to begin
running. Id. at 1102. The question on appeal was “whether the 2012
notices of levy reach[ed] the royalties generated after 2012” such that the
statute began running in 2012. Id. at 1099.
As the Sixth Circuit explained:
The answer to that question depends on whether the
royalties remitted to the IRS beginning in 2016 were fixed
and determinable in 2012 when the notices of levy issued.
If they were not fixed and determinable, the notices of levy
could not reach the royalties and the limitations period
could not begin to run. If they were fixed and
determinable, the notices of levy would have been
sufficient to qualify as the “date of the levy” under §
6532(c)(1), beginning the limitations period.
Gold Forever, 920 F.3d at 1099. See also 26 C.F.R. § 301.6331-1(a)
(“Obligations exist when the liability of the obligor is fixed and determinable
although the right to receive payment thereof may be deferred until a later
date.”). The court further noted that it had “not previously addressed when
an existing contractual obligation to pay the taxpayer in the future is
sufficiently fixed and determinable such that a levy can attach to that future
payment.” Id. at 1100. In determining the issue, the court looked to
-6-
decisions from other circuits, primarily Tull v. United States, 69 F.3d 394,
397 (9th Cir. 1995) and United States v. Hemmen, 51 F.3d 883 (9th Cir.
1995). The court concluded that
These cases stand for the principle that a contractual
obligation to pay money (or remit property) to the taxpayer
after the date of the levy is “fixed” where performance is
complete and all that remains under the contract is
payment (provision of property) to the taxpayer, and
“determinable” if, at the time the levy is served, the amount
that the taxpayer will be owed can be ascertained with
reasonable accuracy, regardless of whether that amount is
subject to potential defeasance.
Gold Forever, 920 F.3d at 1101.
At the time of the initial motion to dismiss and appeal, the agreement
between Gold Forever and BMI/Universal was not in the record. As a
result, the Sixth Circuit concluded that
the district court should have drawn factual inferences in
Gold Forever’s favor and concluded that nothing remitted
in 2016 and beyond represented any obligation owed in
2012 – i.e., the royalties had not yet been generated and
so there was more remaining to be done under the
contract, such as finding licensees and collecting royalties,
than to simply remit royalties to Gold Forever. Taking the
facts in the light most favorable to Gold Forever, the only
thing that existed in 2012 was the obligation to remit
royalties generated in the future.
Id. at 1102.
The agreement between Gold Forever and BMI/Universal is now in
the record. See ECF No. 23-6. The administration agreement provides
-7-
that BMI/Universal is Gold Forever’s agent and exclusive administrator of
all musical compositions owned by Gold Forever. Id. at 1. The agreement
gives BMI/Universal the exclusive right to license, administer rights, print,
publish, sell, and collect monies earned with respect to the musical
compositions. With respect to royalties, BMI/Universal pays Gold Forever
a percentage of “net income” derived from licenses, including public
performances, phonograph records, soundtracks, and printed editions.
“Net income” is defined as “Gross Income actually received by Company in
the United States, less the costs actually incurred by Company in
connection with the Compositions. . . .” Id. at 10. BMI/Universal computes
the royalties earned by Gold Forever twice a year and remits “the Net
Amount of such royalties, if any, that shall be payable under this
Agreement.” Id. at 7.
The government argues, in light of the terms of the agreement, the
inferences made by the Sixth Circuit are unwarranted. The factual
inferences made by the Sixth Circuit, however, are borne out by the terms
of the administration agreement. Under the agreement, royalties remitted
in 2016 “had not yet been generated” in 2012 and “there was more
remaining to be done under the contract, such as finding licensees and
collecting royalties, than to simply remit royalties to Gold Forever.” Gold
-8-
Forever, 920 F.3d at 1102. Royalties generated and remitted in 2016 were
derived from sales and performances that did not exist in 2012. “Taking
the facts in the light most favorable to Gold Forever, the only thing that
existed in 2012 was the obligation to remit royalties generated in the
future.” Id.
The government seeks to reframe the issue by arguing that although
the levy did not attach to each future payment under the agreement, it
nonetheless attached to the contractual right to payment itself, thereby
capturing all future payments. This argument appears to be foreclosed by
the Sixth Circuit’s opinion, which acknowledged that the contractual right to
payment was the only existing property that could be attached in 2012.
Gold Forever, 920 F.3d at 1099 (“The only property or obligation to which
the levy could potentially attach in 2012 were Gold Forever’s agreements
with BMI and Universal to remit future royalties to Gold Forever. So, the
question on appeal is whether the 2012 notices of levy reach the royalties
generated after 2012 by virtue of the agreements in place when the notices
of levy were served.”). The Sixth Circuit appears to have accepted the
government’s premise – that the levy could have attached to the
contractual right to future payments. Nonetheless, the court found that this
-9-
right was not sufficiently fixed or determinable for the levy to capture future
payments.
The government points out that an “unqualified contractual right to
receive property is itself a property right subject to seizure by levy.” United
States v. National Bank of Commerce, 472 U.S. 713, 725 (1985) (quoting
St. Louis Union Trust Co. v. United States, 617 F.2d 1293, 1302 (1980)).
Gold Forever’s contractual right to future royalties is not “unqualified,” but
contingent upon BMI/Universal negotiating licenses and the actual
performance or sale of Gold Forever’s musical compositions. Further,
although the right to receive property is subject to levy, the obligation
created by that contractual right must be fixed and determinable for the levy
to attach. See Gold Forever, 920 F.2d at 1100 (addressing “when an
existing contractual obligation to pay the taxpayer is sufficiently fixed and
determinable such that a levy can attach to that future payment”). See also
In re Hawn, 149 B.R. 450, 457 (Bankr. S.D. Tex. 1993) (right to receive
future income from production of oil was “not a vested, fixed or
determinable right to future income existing at the time of the levy” but was
“a purely contingent right to receive certain income in the future”);
Armstrong v. U.S., 7 F. Supp. 2d 758, 766 (W.D. Va. 1998) (“A promise to
pay money does not become such a property interest until the payment no
-10-
longer depends upon a condition which has not been fulfilled.”); In re
Trammell, 584 B.R. 824, 831 (Bankr. E.D. Tenn. 2018) (“[A] one-time levy
may seize a future stream of payments if the taxpayer’s right to the
payments is fixed and determinable without any requirement for the
provision of future services.”).
The cases upon which the government relies involve fixed contractual
rights or obligations, such as lease or disability payments. See Kirk v.
United States (In re Kirk), 100 B.R. 85, 89 (Bankr. M.D. Fla. 1989)
(retirement disability benefits); Hines v. U.S., 658 F. Supp.2d 139, 146
(D.D.C. 2009) (social security benefits an “existing right”); KMG Prop. v.
IRS, 2009 WL 1885930 (W.D. Pa. June 30, 2009) (lease payments). Here,
the Sixth Circuit distinguished Gold Forever’s agreement with
BMI/Universal as “merely ‘an obligation to attempt to sell some as yet
undetermined amount of property for an as yet undetermined price to as
yet undetermined buyers.’” Gold Forever, 920 F.3d at 1102 (quoting Tull,
69 F.3d at 397). As discussed above, the Sixth Circuit’s inferences
regarding the agreement are confirmed by its actual terms.
The government also suggests that Gold Forever’s contractual right
to future royalties was sufficiently fixed because no further performance
was required from Gold Forever. Again, the government’s argument is
-11-
foreclosed by the Sixth Circuit’s ruling. The Sixth Circuit did not base its
holding on the inference that additional performance by Gold Forever may
have been required by the agreement. In finding that the agreement with
BMI/Universal did not create a fixed and determinable obligation, the Sixth
Circuit inferred that “there was more to be done under the contract” by
BMI/Universal, “such as finding licensees and collecting royalties.” Gold
Forever, 920 F.3d at 1102. Again, this inference is consistent with the
terms of the contract.
Consistent with the Sixth Circuit’s ruling, the court finds that Gold
Forever’s right to collect future royalties was not sufficiently fixed and
determinable for the levies to attach to future payments. Because the
levies did not attach to future payments, the statute of limitations did not
begin to run as to those future payments when the notices of levy were
served in 2012.
In the alternative, the government argues that Gold Forever’s suit is
nonetheless untimely because the statute began to run when
BMI/Universal made the first payment to the IRS, in October 2013. The
Sixth Circuit stated that, assuming the statute did not begin running in
2012, “the earliest the statute of limitations could have begun running on
Gold Forever’s claim was when the IRS seized Gold Forever’s funds held
-12-
by BMI and Universal.” Gold Forever, 920 F.3d at 1102. However, it is not
clear why the 2013 seizure of funds, which Gold Forever is not challenging
here, should be considered the “date of the levy” and start the statute of
limitations running for seizures that did not occur until 2016 and 2017.
Given that the 2012 notices of levy did not capture the stream of future
payments, treating each subsequent payment as a separate seizure
appears to be most consistent with the Sixth Circuit’s opinion. It follows
that the statute begins to run on the date of payment – “the date of the levy”
– with respect to that payment only. See id. (“The term ‘levy’ as used in
this title includes the power of distraint and seizure by any means.”)
(quoting 26 U.S.C. § 6331(b)); 26 U.S.C. § 6532(c)(1) (2017) (providing
that wrongful levy action may only be brought within nine months “from the
date of the levy or agreement giving rise to such action”).
For these reasons, the court finds that Gold Forever’s suit is timely
and will deny Defendant’s renewed motion to dismiss.
II.
Gold Forever’s Motion for Injunction of Levy
Gold Forever seeks a temporary injunction of collection pursuant to
the 2012 levies while this litigation is pending. The court may grant an
injunction pursuant to 26 U.S.C. § 7426(b)(1), which provides: “If a levy or
sale would irreparably injure rights in property which the court determines
-13-
to be superior to rights of the United States in such property, the court may
grant an injunction to prohibit the enforcement of such levy or to prohibit
such sale.” Gold Forever contends that most of the royalty payments
seized by the IRS from BMI/Universal belong to songwriters other than
Holland, who have a superior right to that property.
The government argues that Gold Forever has not established
irreparable harm. Even if the government has seized property belonging
to others, such harm is compensable by money damages and is not
irreparable. See generally Basicomputer Corp. v. Scott, 973 F.2d 507, 511
(6th Cir. 1992) (“[H]arm is not irreparable if it is fully compensable by money
damages.”).
Moreover, the administration agreement between Gold Forever and
BMI/Universal expired on June 30, 2018. ECF No. 23-6. It appears that
BMI/Universal will not owe Gold Forever any further payments that could
be levied and, therefore, there are no potential levies/seizures to be
enjoined.
Gold Forever has not met its burden of demonstrating that injunctive
relief is proper. Accordingly, the court will deny the motion.2
The court notes, however, that the government’s attempt to seize future royalty
payments pursuant to the 2012 notices of levy would be inconsistent with the court’s
ruling that the notices of levy did not attach to future payments.
2
-14-
CONCLUSION
IT IS HEREBY ORDERED that Defendant’s renewed motion to
dismiss (ECF No. 31) is DENIED.
IT IS FURTHER ORDERED that Plaintiff’s motion for injunction of
levy (ECF No. 23) is DENIED.
Dated: October 17, 2019
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
October 17, 2019, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk
-15-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?