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UNITED STATES v. LONG ISLAND DRUG CO.

October 6, 1939

UNITED STATES
v.
LONG ISLAND DRUG CO., Inc., et al.



The opinion of the court was delivered by: MOSCOWITZ

MOSCOWITZ, District Judge.

This action is to enforce a statutory liability pursuant to Section 1114 (e) (f) of the 1926 Revenue Act (1939 Internal Revenue Code, Section 3710 (a) (b) (c); Title 26, U.S.C. § 1610, 26 U.S.C.A. § 1610), which states as follows:

"Any person in possession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, surrender such property or rights to such collector or deputy, unless such property or right is, at the time of such demand, subject to an attachment or execution under any judicial process.

 "Any person who fails or refuses to so surrender any of such property or rights 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 the taxes (including penalties and interest) for the collection of which such levy has been made, together with costs and interest from the date of such levy.

 "The term 'person' as used in this section includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs."

 The government has moved for the following relief:

 "(1) To strike out the answer and grant summary judgment in favor of the plaintiff and against the defendant, Long Island Drug Company, Inc., pursuant to Sec. [rule] 56 of the Rules of Civil Procedure for the District Courts [28 U.S.C.A. following section 723c] on the ground that the answer is sham and frivolous and interposed merely for the purpose of delay.

 "(2) To grant judgment on the pleadings in favor of the plaintiff and against the defendant, Long Island Drug Company, Inc. under Sec. [rule] 12 (c) (d) (f) (g) of the Rules of Civil Procedure for the District Courts on the ground that the affirmative defenses 1 and 2 of the answer and the counterclaim state no defenses or cause of action sufficient in law.

 "(3) For such other and further relief as to this Court may appear just and proper."

 The complaint alleges that on or about March 7, 1939, and at all times mentioned therein, the defendant, Long Island Drug Company, Inc., was in possession of property, or rights to property of Charles J. Steinberg in an amount over $12,777.65, subject to distrant; that on or about March 7, 1939, a notice of levy by the United States Collector of Internal Revenue for the First District was duly served, and a final demand was duly made upon the defendants to surrender to the aforesaid United States Collector of Internal Revenue property and rights to property, to wit, $12,777.65, subject to distraint as property and rights of property of Charles J. Steinberg for taxes, interest and penalties under an assessment duly made against the said Charles J. Steinberg, and duly certified to the said United States Collector of Internal Revenue for the First District; that on or about March 7, 1939, when the foregoing notice of levy was duly served and the final demand was duly made, the defendant Charles J. Steinberg was also an officer of the defendant Long Island Drug Company, Inc., to wit, Comptroller; that the defendants failed and refused to comply with said levy and demand, and failed and refused to surrender any of such property or rights of property of Charles J. Steinberg, to wit, $12,777.65.

 The answer of the defendant Long Island Drug Company, Inc., does not deny that the United States duly served notices of levy and final demand to surrender the "$12,777.65 subject to distraint as property and rights of property of Charles J. Steinberg for taxes, interest and penalties under an assessment duly made against the said Charles J. Steinberg;" nor does it deny that the Company "failed and refused to comply with said levy and demand, and failed and refused to surrender any of such property or rights of property of Charles J. Steinberg, to wit: $12,777.65." It does deny that on March 7, 1939 (when the United States served its last notice of levy and demand) the Company "was in possession of property, or rights to property, of Charles J. Steinberg in an amount over $12,777.65, subject to distraint."

 The first affirmative defense in the answer states that at all the times mentioned Steinberg was employed by the Company and as such was entitled to his salary for his services; that the United States, acting on the assessment mentioned in the complaint, had previously served on the Company notices of levy and demand to turn over Steinberg's money; that at that time the Company owed Steinberg nothing and had none of his property; that the United States then advised the Company that these notices affected all salary thereafter owed by the Company to Steinberg; that thereafter the Company, Steinberg and Steinberg's wife agreed that from time to time the Company would lend to Steinberg's wife, and Steinberg would guarantee the repayment of these loans by applying all his salary thereafter earned toward such repayment; that thereafter the Company loaned to Steinberg's wife more than Steinberg's salary; that the "alleged credit referred to in paragraph 3 of the complaint" was merely the Company's book entries showing steinberg's total salary since the agreement "so made and entered for convenience because of the assertion of the Collector of Internal Revenue that the notice referred to in paragraph fourth hereof was effective against salaries that might be earned after the date of its service."

 The second affirmative defense is that the assessment is void and unlawful because it is based on information obtained from evidence illegally seized from Steinberg, and thereafter by order of this Court returned to him and its use by the United States enjoined.

 Upon a motion for judgment on the pleadings there can be no recourse to facts and documents aliunde the pleadings. In seeking to determine the validity of the defenses interposed herein, whether the same are sufficient upon the face thereof, the problem is best exposed in the light of the basic statute ...


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