The opinion of the court was delivered by: MACMAHON
This is a motion, pursuant to Rule 12(b) (1), Fed. R. Civ. P., for an order dismissing the complaint for lack of subject matter jurisdiction.
American Honda Motor Co., Inc. ("creditor") is the authorized wholesale distributor of Honda motorcycles in the United States. It agreed, pursuant to a purchase money security agreement, to sell new Honda motorcycles to Better Ideas in Motion, Inc. ("taxpayer"). The agreement granted the creditor a continuing purchase money security interest in the motorcycles and in the proceeds from their resale by the taxpayer to retail customers.
Upon resale of the motorcycles, the taxpayer deposited the proceeds in a special bank account opened for this purpose at the Chase Manhattan Bank ("Chase").
During this arrangement, the taxpayer became delinquent in its payment of taxes, and the Internal Revenue Service ("IRS"), after notice and demand to the taxpayer, made four levies on the special account. The levies were served on Chase on January 19, 1971 in the amount of $2,008.44; June 22, 1971 in the amount of $2,806.02; June 30, 1971 in the amount of $2,682.44; and July 28, 1971 in the amount of $5,846.31. Chase paid the stated amount to IRS after each levy. The taxpayer defaulted in its obligations to the creditor in August 1971, and the creditor obtained a judgment against the taxpayer in November 1971 for $132,292.82, plus interest. More than $100,000.00 of the judgment remains unsatisfied.
The creditor commenced supplementary proceedings and served an information subpoena on Chase. Chase, on January 18, 1972, in response to the subpoena, advised the creditor that IRS had made three levies in June and July 1971 against the taxpayer's special account. On July 10, 1972, Chase, in response to another subpoena, advised the creditor that IRS had made an earlier levy in January 1971. The creditor, therefore, filed a written request with IRS on April 21, 1972 for return of the money which it had received from Chase pursuant to the June and July levies. This request was amended on July 11, 1972 to include the money received under all four levies.
IRS honored the creditor's claim as to the July 28, 1971 levy and paid over $5,846.31 to the creditor. That levy, therefore, is no longer in issue. However, IRS rejected the creditor's claim as to the first three levies asserting that it was filed too late. The creditor then brought this action for the monies received by IRS under the three earlier levies.
IRS contends that the action is time barred and that this court, therefore, lacks subject matter jurisdiction. The determination of this issue requires reference to a complex of applicable statutes.
The government has consented to suit by third parties in cases of wrongful levy, 26 U.S.C. § 7426(a),
but such suits must be brought within nine months of the date of levy. 26 U.S.C. § 6532(c) (1). However, if a request for the return of the levied property is filed by the third party, the period is extended for twelve months from the filing of the request, or, alternatively, for six months from the mailing of a notice of disallowance, whichever is shorter. 26 U.S.C. § 6532(c) (2).
Hence, any person claiming an interest in or lien upon property wrongfully levied may sue the United States within the period of the prescribed time limitations. Here, the creditor neither filed a request for return of the property nor commenced this action within the statutory period. It would appear, therefore, that the action is time barred.
The creditor argues, however, that since IRS neither gave plaintiff actual
nor constructive notice of the levy (by filing its tax lien), the nine-month statute of limitations applicable to levies on money should not begin to run until notice was actually given to it. We reject the argument because IRS has no duty to notify creditors, qua creditors, of a levy. Rather, under the applicable procedure, if the taxpayer refuses to pay his taxes within ten days of notice and demand, IRS may levy on his property merely by serving a notice of levy on the taxpayer or on any person in possession of the taxpayer's property. 26 U.S.C. § 6331(a);
IRS Reg. § 301.6331-1(a)(1).
The nine-month period begins on the date when the notice of levy is served upon the person in possession of the taxpayer's property, not when a creditor of the taxpayer receives notice of the levy.
If the creditor's argument were accepted in a case involving several creditors, all of whom received notice on a different date, there would be several different nine-month periods. This situation would clearly be unworkable. 26 U.S.C. § 6532(c) (1); United States v. Pittman, 449 F.2d 623, 627 (7 Cir. 1971); United States v. Cameron Constr. Co., 246 F. Supp. 869 (S.D.N.Y. 1965). Furthermore, the levy procedure does not require filing of a tax lien by IRS. United States v. Eiland, 223 F.2d 118 (4 Cir. 1955); First Nat'l Bank of Norfolk v. Norfolk & W. Ry., 327 F. Supp. 196, 199 (E.D. Va. 1971). Therefore, the creditor's lack of actual or constructive notice of the levy does not toll the nine-month period.
It is apparent that IRS was not aware of plaintiff's security interest in the debtor's Chase account. There is no evidence that either the title of the account, Chase or the taxpayer-debtor drew IRS's attention to the creditor's interest. Although the security agreement had been filed and thus was a matter of public record, there is no requirement that IRS seek to discover security interests in the property and funds upon which it levies. Rather, since the Chase account was solely for the protection of plaintiff, one would expect it to inquire as to the status of the account periodically. It did not make such inquiries. Plaintiff may not shift the blame for its own negligence to IRS.
The creditor also argues that its request with respect to the levy of June 22, 1971
was timely because IRS did not cash Chase's check until July 26, 1971. It claims that the date of the levy was July 26, 1972 because until the money was actually paid "the bank was exposed to a possible suit by [the creditor] to stop payment on the check. . . ." As we have already shown, the levy was made when the notice of levy was served on Chase. IRS Reg. § 301.6331-1(a) (1). Accordingly, this argument must fail since the creditor's request was not made within nine months of the levy.
The creditor also advances an interesting interpretory argument to avoid the statute of limitations. It urges that "property" "should be construed to include 'money' in which a security interest arises from a commercial transaction financing agreement, duly perfected and filed. . . ." Such an interpretation would remove any obstacle to the return of the monies paid pursuant to the levies since specific property can be returned "at any time." Money or "[an] amount equal to the amount of money levied upon," however, may be returned only within nine months of the levy. 26 U.S.C. § 6343(b).
Likewise, a request for the return of specific property may be filed at any time, but a request for the return of money must be filed within nine months of the date of the levy. IRS Reg. § 301.6343-1(b) (1).
We think plaintiff's interpretation is untenable. A short period of limitations is needed for money because IRS may suspend collection efforts after it has made a levy satisfying the taxpayer's liability. There is no exception to this period of limitations for proceeds or money in which a creditor may have a security interest, nor will this court create one.
The creditor also argues that the nine-month period was not intended to bar suits but only to put IRS on notice of its wrongful levy; that IRS already had notice of its wrongful levy by virtue of the filing of the purchase money security interest pursuant to the Uniform Commercial Code; and that, therefore, there is no need to enforce the nine-month period. This argument would undermine the nine-month period of limitations since IRS would not usually have actual notice of the identity of a delinquent taxpayer's creditors until after the levy. Furthermore, the nine-month period is clearly intended to operate as a statute of limitations and to bar suits filed after that period.
Finally, the creditor argues that it was deprived of due process because IRS did not give it notice of the levy and that the levy constituted a taking of private property for public use without just compensation. This argument challenges the constitutional validity of the levy procedure. The constitutionality of the levy and distraint procedure was well established, even before the passage of 26 U.S.C. § 7426, despite the absence of a remedy for wrongful levy of a third party's property. Springer v. United States, 102 U.S. 586, 593-594, 26 L. Ed. 253 (1880); Mason v. Rollins, 2 Biss. 99, 16 Fed. Cas. 1061 (No. 9,252) (C.C.N.D. Ill. 1869); Phillips v. United States, 346 F.2d 999 ...