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April 21, 1959

FINE FASHIONS, INC., Petitioner,
Kenneth W. MOE, District Director of Internal Revenue for Upper Manhattan District, New York, United States of America, and Linde Factors Corp., Respondents

The opinion of the court was delivered by: BRYAN

This is a summary proceeding brought on by order to show cause in which petitioner Fine Fashions, Inc. seeks to quash a levy and demand served upon respondent Linde Factors Corp. by respondent Moe, as District Director of Internal Revenue. Petitioner also seeks an order restraining the District Director and respondent United States from any further proceedings against Linde Factors Corp. with respect to certain sums alleged to be in the hands of Linde which the District Director claims are owing to a delinquent taxpayer, Penn Garment Company, and petitioner claims to be owing to it, and to restrain respondent Linde from paying such sums to the District Director.

The United States and the District Director move to dismiss the proceeding because no complaint has been filed as required by Rule 3 of the Federal Rules of Civil Procedure, 28 U.S.C. The sole issue raised by the motion is whether, under the circumstances, petitioner may maintain a summary proceeding for the relief which it seeks, or whether it is required to proceed by a plenary civil action in this court.

 The petition alleges, in substance, the following:

 Penn Garment Company (the delinquent taxpayer) had a contract to supply garments to the Philadelphia Quartermaster Depot but lacked sufficient funds to purchase the cloth necessary to fulfil the contract. Solely as an accommodation, and without profit to itself, Fine Fashions agreed to aid in obtaining financing for Penn by purchasing the necessary cloth and turning it over to Penn. To carry out this arrangement Penn executed an assignment of all its receivables under the Quartermaster contract to respondent Linde Factors Corp. The assignment from Penn to Linde was filed with the appropriate government authorities. Linde advised Fine that it was understood that the purpose of the assignment was to accumulate funds to pay for the cloth Fine had purchased to fulfil the contract, and that Linde would release funds received under the assignment to Penn Garment Company only on the written authorization of Fine's agent, until the cloth had been fully paid for.

 From time to time Fine authorized Linde to release funds to Penn to meet its payroll but Linde was always instructed to retain sufficient funds so that the supplier of the cloth could be paid instalments on the price as they became due.

 Linde, it is alleged, now has a balance of $ 6,400 received pursuant to the assignment, and according to its arrangement with Fine should pay this sum to Fine since Fine's obligations for cloth received by Penn now far exceed the sum in the hands of Linde.

 The District Director seeks to collect taxes claimed to be due and owing from Penn. Acting under color of 26 U.S.C. 6331 he served a notice of levy and final demand upon Linde. The notice of levy stated that 'all property, rights to property, monies, credits, * * * now in your possession and belonging to this taxpayer (Penn) (or with respect to which you are obligated) and all sums of money or other obligations owing from you to this taxpayer are hereby levied upon and seized * * * and demand is hereby made * * * for such * * * sum as you may be indebted to him * * *'.

 The final demand subsequently served on Linde reiterated the demand contained in the notice of levy and directed Linde's attention to 26 U.S.C. § 6332, which requires any person who is obligated to make payments to a delinquent taxpayer to make such payments to the District Director upon levy, or render himself personally liable to the Director for the amount of such obligation and interest.

 Petitioner Fine Fashions thereupon made demand upon the District Director that he release the sums allegedly due it from the levy, but the Director refused so to do and reasserted his right to collect these sums as due and owing to the delinquent taxpayer, Penn, rather than to the petitioner.

 In this summary proceeding the petitioner seeks a final adjudication of the respective rights of the petitioner and the respondents to payment of Linde's obligation arising out of the assignment by Penn, and the surrounding transactions.

 It is well-settled that when property belonging to A is levied upon to satisfy a tax obligation of B, A is not without remedy but may seek redress in the federal courts. While 26 U.S.C. § 7421 and 28 U.S.C. § 2201 (and see26 C.F.R. § 601.104(c)(2) as revised Jan. 1958) forbid the courts to enjoin the collection of taxes or to grant declaratory relief under certain circumstances, the courts have found an exception to these provisions and an action may be maintained by a third party whose property is being unlawfully taken for appropriate relief. Holland v. Nix, 5 Cir., 214 F.2d 317; Tomlinson v. Smith, 7 Cir., 128 F.2d 808; Jones v. Kemp, 10 Cir., 144 F.2d 478; Shelton v. Gill, 4 Cir., 202 F.2d 503; Rothensies v. Ullman, 3 Cir., 110 F.2d 590; Long v. Rasmussen, D.C.D.Mont., 281 F. 236; Szerlip v. Marcelle, D.C.E.D.N.Y., 136 F.Supp. 862; Seattle Association of Credit Men v. United States, 9 Cir., 240 F.2d 906; Stuart v. Chinese Chamber of Commerce, 9 Cir., 168 F.2d 709; Hoye v. United States, D.C.S.D.Cal., 109 F.Supp. 685. See Communist Party, U.S.A. v. Moysey, D.C.S.D.N.Y., 141 F.Supp. 332.

 Whether such remedies stem from an exception implied by the courts or from a statute of long standing which is now 28 U.S.C. § 2463, is by no means clear from the decided cases dealing with the subject. Cf. Holland v. Nix, supra, ('equitable principles which permit suits to restrain collection where the exaction is illegal', 214 F.2d at page 320) with Rothensies v. Ullman, supra (jurisdiction based on predecessor of § 2463, 110 F.2d at page 591). 28 U.S.C. § 2463 provides:

 'All property taken or detained under any revenue law of the United States shall not be repleviable, but shall be deemed to be in the custody of the law and subject only to the orders and decrees of the courts of the United States having jurisdiction thereof.'

 I do not think that either § 2463, or any implied exception to 26 U.S.C. § 7421 and 28 U.S.C. § 2201, gives this petitioner, under the circumstances of this case, the option of summarily proceeding to obtain a final adjudication as to the respective rights of the parties to obtain payment of Linde's obligation under the assignment rather than ...

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