United States of America v. Dial Corporation et al

Filing 32

OPINION AND ORDER re 28 Motion to Dismiss. Having considered the arguments contained in defendants' motion, plaintiff's opposition, and defendants' reply, the Court DENIES defendants' motion to dismiss. Signed by Judge Francisco A. Besosa on 06/10/2011. (brc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
UNITED STATES OF AMERICA,
Plaintiff,
Civil No. 10-1638 (FAB)

v.
DIAL CORPORATION; MARIA
MARCHANY-JUSTINIANO & ENRIQUE
PALACIOS ARRIAGA,
Defendants.

OPINION AND ORDER 1
BESOSA, District Judge.
Before the Court is a motion to dismiss filed by defendants
Dial Corporation, Maria Marchany-Justiniano, and Enrique PalaciosArriaga.

Having considered the arguments contained in defendants’

motion, plaintiff’s opposition, and defendants’ reply, the Court
DENIES defendants’ motion to dismiss.
I.

Background
A.

Procedural Background
On

July

12,

2010

the

United

States

of

America

(“plaintiff” or “the United States”) filed a complaint against Dial
Corporation, Maria Marchany-Justiano, and Enrique Palacios-Arriaga
(“defendants”). (Docket No. 1.) The complaint seeks to enforce an
Internal

1

Revenue

Service

(“IRS”)

levy

pursuant

to

26

U.S.C.

Hannah L. Miller, a second-year student at University of
Michigan Law School, assisted in the preparation of this Opinion
and Order.

Civil No. 10-1638 (FAB)

2

§ 6332(d), which authorizes the United States to bring an action
against any party who fails to surrender property subject to a
federal tax levy.

Id.

The United States alleges that defendants

failed to comply with a notice of levy that required them to
surrender property owned by Esamar, Inc. (“Esamar”), whose property
has been subjected to a federal tax levy.

Id.

On February 26, 2011, defendants filed a motion to
dismiss, arguing:

(1) that the contract on which plaintiff’s

claims are based was breached by Esamar, Inc. (“Esamar”), the
delinquent taxpayer, thus releasing defendants from any liability,
and (2), that the contract itself, if found to be valid, excuses
defendants from responsibility for any of Esamar’s unpaid tax
liability. (Docket No. 28.) Although defendants did not state the
particular legal basis for their motion to dismiss, their arguments
suggest that defendants intended to file a motion to dismiss for
failure to state a claim upon which relief can be granted pursuant
to Federal Rule of Civil Procedure 12(b)(6) (“Rule 12(b)(6)”) and
so the Court will construe defendants’ motion as such.
The United States filed an opposition to defendants’
motion, contending that the complaint states a claim sufficient to
satisfy

the

standard

for

pleadings

under

Rule

12(b)(6),

and

disputing the proposition that the terms of the contract invalidate
the suit.

(Docket No. 29, 3-4.)

The United States argues that

defendants are required to surrender payment to the IRS because

Civil No. 10-1638 (FAB)
(1)

the

IRS

levied

(2)

defendants

3
on

possess

Esamar’s
the

right

payment

to

receive

belonging

to

payment,

Esamar,

and

(3) defendants ignored the notices of levy issued by the IRS, thus
giving rise to personal liability on the part of defendants.
On

April

14,

2011,

defendants

filed

a

reply

Id.
to

plaintiff’s opposition, reiterating their argument that the United
States’ claim is invalid in light of provisions in the contract
between defendants and Esamar that “expressly” excuse defendants
from responsibility for any of Esamar’s tax liability.

(Docket

No. 30 at ¶ 8.)
B.

Factual Allegations in the Complaint
The United States alleges that defendants failed to honor

notices issued by the IRS that required defendants to surrender
$74,000 that defendants owed to Esamar, whose property is subject
to a federal tax levy.

(Docket No. 1.)

Plaintiff alleges that

Esamar held a right to collect from defendants pursuant to a
contract for the sale of a day care center entered into on
November 1, 2008.

(Docket No. 1 at ¶ 12.)

According to the

contract, defendants were to pay Esamar a total of $140,000, with
$80,000 to be paid on the signing of the agreement and the $60,000
balance to be paid no later than June 1, 2009.

Id.

alleges

unpaid.

that

Furthermore,

the

amount

plaintiff

of

alleges

$60,000
that

remains

the

sales

Plaintiff

contract

Id.
also

contains a penalty provision entitling Esamar to collect $100 per

Civil No. 10-1638 (FAB)

4

day if the buyer fails to pay on or before June 1, 2009, beginning
on June 2, 2009 and lasting until the balance is paid in full.
at ¶ 13.
in

the

Id.

Plaintiff alleges that defendants have accrued a penalty
amount

contract.

of

$14,000

Id. at ¶ 15.

pursuant

to

this

provision

of

the

Plaintiff concludes that defendants are

liable in the amount of $74,000 because (1) they owe Esamar $60,000
plus an accrued penalty of $14,000, (2) the IRS levied on all of
Esamar’s property, including its contractual right to collect from
defendants, and (3) defendants failed to comply with notices of
levy issued by the IRS that required defendants to surrender the
sum of $74,000.
II.

(Docket No. 1.)

Legal Analysis
A.

Rule 12(b)(6) Standard
Rule 12(b)(6) allows a party to request the dismissal of

a case for failure to state a claim upon which relief may be
granted.

To adjudicate a motion to dismiss, the Court must accept

as true all the factual allegations contained in the complaint.
Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citations omitted).
To survive a motion to dismiss under Rule 12(b)(6), a
complaint

must

satisfy

the

pleading

standards

established

by

Rule 8, which requires only “a short and plain statement of the
claim

showing

that

Fed.R.Civ.P. 8(a)(2).

the

pleader

is

entitled

to

relief.”

Rule 8 exists to “give the defendant fair

notice of what the claim is and the grounds upon which it rests.”

Civil No. 10-1638 (FAB)

5

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting
Conley v. Gibson, 355 U.S. 41, 47 (1957)).
To comply with Rule 8, a complaint must allege factual
matter that states a “claim to relief that is plausible on its
face.”

Ashcroft v. Iqbal, ____ U.S. ____, 129 S.Ct. 1937, 1949

(2009) (quoting Twombly, 550 U.S. at 570.)

A complaint need not

include “detailed factual allegations” but it must contain “more
than an unadorned, the-defendant-unlawfully-harmed-me accusation.”
Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 555.)
(additional citation omitted).

“Affirmative defenses . . . may be

raised in a motion to dismiss under [Rule 12(b)(6)], provided that
the facts establishing the defense [are] clear on the face of the
plaintiff’s

pleadings.”

Trans-Spec

Truck

Serv.,

Inc.

v.

Caterpillar, Inc., 524 F.3d 315, 320 (1st Cir. 2008) (summarizing
Blackstone Realty LLC v. FDIC, 244 F.3d 193, 197 (1st Cir. 2001).
B.

Enforcement of Levy Under 26 U.S.C. § 6332(d)
The Internal Revenue Code authorizes the IRS to seek

collection of unpaid taxes by placing a levy upon all of a
taxpayer’s property and rights to property. 26 U.S.C. § 6331(a). If
the IRS levies on property belonging to the delinquent taxpayer but
held by a third party, the third party must surrender the property
to the IRS upon its demand. 26 U.S.C. § 6332(a). If the third party
fails

to

surrender

the

property

demanded,

he

then

becomes

personally liable to the IRS in an amount equal to the value of the

Civil No. 10-1638 (FAB)

6

property he did not surrender, and the IRS can bring an action
against him to enforce the levy.

26 U.S.C. § 6332(d).

To prevail in an action under 26 U.S.C. § 6332(d), the
United States

must

show:

(1)

that

the

defendants

possessed

property or rights to property belonging to a delinquent taxpayer
that are subject to a federal tax levy,2 (2) that the IRS demanded
that defendants surrender said property, and (3) that defendants
did not comply with the IRS’ demand.
6332(d).

Plaintiff’s

complaint

26 U.S.C. §§ 6332(a),

includes

factual

allegations

regarding each of the material elements of a failure to honor levy
claim described above.

First, the United States alleges that the

IRS assessed unpaid employment and unemployment taxes against
Esamar for tax periods ending between 2005 and 2008, that a federal
tax

lien

arose

by

operation

of

law

against

all

of

Esamar’s

property, and that Esamar’s property thereby became subject to a
federal tax levy.

(Docket No. 1 at ¶¶ 10-11.)

The United States

further alleges that defendants hold property belonging to Esamar
pursuant to a sales contract between the defendants and Esamar.
(Id. at ¶ 12.)

Next, the United States alleges that two notices of

levy were served on defendants in October, 2009 to collect Esamar’s
property.

2

Finally, the United States alleges that defendants did

Property subject to a federal tax levy includes all property
on which there is a federal tax lien, which arises by operation of
law
when the IRS assesses unpaid federal taxes.
26 U.S.C.
§§ 6331(a), 6321, 6322.

Civil No. 10-1638 (FAB)

7

not honor the demands in these notices, and that defendants’
inaction gave rise to personal liability on the part of defendants
pursuant to 26 U.S.C. § 6332(d).

(Id. at ¶ 14.)

Because the

complaint alleges (1) that all of Esamar’s property is subject to
a tax levy, and that defendants owe money to Esamar, (2) that two
notices of levy were served on defendants, and (3) that defendants
failed to comply with the IRS’ demands, the complaint sufficiently
states a claim for which relief may be granted.

See 26 U.S.C.

§§ 6332(a), 6332(d).
There are only two defenses available to a party who
fails to comply with an IRS notice of levy:

either (1) the party

is not “‘in possession of’ . . . property or rights to property
belonging to the delinquent taxpayer”; or (2) the delinquent
“taxpayer’s property is ‘subject to prior judicial attachment or
execution.’”

U.S. v. National Bank of Commerce, 472 U.S. 713,

721-22 (1985) (quoting U.S. v. Sterling National Bank & Trust Co.
of New York, 494 F.2d 919, 921 (2nd Cir. 1974)).
There is no suggestion here that the sum in question was
subject to a prior judicial attachment.

Defendants do contend,

however, that they do not hold property belonging to Esamar and are
therefore not in possession of Esamar’s property.
at ¶ 5.)

(Docket No. 28

They argue that the sales contract on which the United

States’ complaint relies is null and void due to Esamar’s breach of
the contract.

Id.

This argument alone, however, is insufficient

Civil No. 10-1638 (FAB)
to justify dismissal.

8
When considering a motion to dismiss for

failure to state a claim for which relief may be granted, the court
must construe the complaint in the light most favorable to the
plaintiff and accept as true all factual allegations it contains.
Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citations omitted);
Parker v. Hurley, 514 F.3d 87, 90 (1st Cir. 2008).

Although

affirmative defenses may be considered when assessing a motion to
dismiss pursuant to Rule 12(b)(6), they can only justify dismissal
when “the facts establishing the defense [are] clear on the face of
the plaintiff’s pleadings.”

Trans-Spec Truck Serv., Inc. v.

Caterpillar, Inc., 524 F.3d 315, 320 (1st Cir. 2008) (summarizing
Blackstone Realty LLC v. FDIC, 244 F.3d 193, 197 (1st Cir. 2001)).
Because the question of breach is a factual one, and “the facts
establishing the defense” are not “clear on the face of the
plaintiff’s pleadings,” the question must be resolved in favor of
the plaintiff for the purpose of evaluating defendants’ motion.
See, e.g., Erickson, 551 U.S. at 94.
Defendants argue in the alternative that the contract
upon which the IRS relied in serving defendants with a tax levy
expressly excuses defendants from responsibility for Esamar’s tax
liability.

(Docket No. at ¶¶ 6-14.)

As mentioned earlier,

however, there are only two defenses available to a party who has
failed to comply with the demands contained in an IRS notice of
levy, and defendants’ second argument does not align with either

Civil No. 10-1638 (FAB)

9

one of these defenses.

See National Bank of Commerce, 472 U.S.

at 721-22.

As plaintiff notes, defendants’ alternative argument

“misconstrue[s] the nature of a failure to honor levy action.”
(Docket No. 29 at 5.)

The United States is not seeking to impose

tax liability on defendants or to hold defendants responsible for
Esamar’s failure to pay its taxes.

(See Docket No. 1.)

Rather,

the United States is seeking to enforce the IRS’ demand that
defendants surrender property owned by Esamar.

Id.

Under section

6332(d) of the Internal Revenue Code, 26 U.S.C.A. § 6332(d), “any
person who fails or refuses to surrender any 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 . . . .

“Accordingly,

plaintiff alleges that defendants’ failure to comply with the IRS’
demand to surrender property subject to a federal tax levy gives
rise to personal liability under 26 U.S.C.A. 6332(d).

(Docket

No. 29 at 5-6.) A private contractual agreement between Esamar and
defendants with respect to tax liability is not a valid defense.3
See National Bank of Commerce, 472 U.S. at 721-22 (holding that

3

Even if the language of the tax liability provisions of the
contract between Esamar and defendants were relevant, the contract
would not be reviewed by this Court because it was submitted only
in Spanish, without an accompanying English translation. (Docket
No. 28-1); See 48 U.S.C. § 864; see also, e.g., Puerto Ricans for
Puerto Rico Party v. Dalmau, 544 F.3d 58, 67 (1st Cir. 2007)
(holding that a federal court cannot consider untranslated
documents when the parties relied on those documents to make their
arguments).

Civil No. 10-1638 (FAB)

10

there are only two defenses available to a party who fails to
comply with an IRS notice of levy:

(1) delinquent taxpayer’s

property is subject to prior judicial attachment, and (2) defendant
is not in possession of delinquent taxpayer’s property).

Because

plaintiff’s complaint states a claim for which relief may be
granted, and defendants put forward no valid defense, this case
must be allowed to proceed.
III. Conclusion
For

the

reasons

described

above,

defendants’

motion

to

dismiss, (Docket No. 28), is DENIED.
IT IS SO ORDERED.
San Juan, Puerto Rico, June 10, 2011.
s/ FRANCISCO A. BESOSA
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE