The opinion of the court was delivered by: Michael A. Telesca United States District Judge
Plaintiff Woods Oviatt Gilman, LLP, ("Woods Oviatt") a law firm based in Rochester, New York, brings this interpleader action pursuant to Rule 22(a)(1) of the Federal Rules of Civil Procedure, 28 U.S.C. § 2410(a)(5), and 26 U.S.C. § 7402 seeking, inter alia, an Order from the Court allowing it to deposit certain contested funds in its possession into the Registry of the Court and an injunction against the defendants from instituting or maintaining any action to recover the contested funds. Specifically, plaintiff alleges that it is holding approximately $425,000 in a trust account which may be, or formerly may have been, the property of Louis Sinisgalli, now deceased, or Sinisgalli, Incorporated. The plaintiff contends that two parties, the defendants United States Government, by the Internal Revenue Service ("IRS"), and the New York State Department of Environmental Conservation, ("DEC") have made competing claims against the fund, and have demanded payment of the claims from the plaintiff.
The plaintiff claims that because the amount of the fund is insufficient to satisfy the competing claims, and because at least one of the claimants has threatened to hold plaintiff liable if its claim is not satisfied, it is entitled to the protection afforded by an interpleader action to resolve the competing claims, and insulate it from liability for failing to satisfy any claim made on the fund.
By motion dated January 28, 2013, plaintiff seeks an Order from the Court: (1) allowing it to deposit the funds held in escrow into the registry of this court; (2) restraining defendants from initiating any action in any court against the plaintiff to collect any portion of the fund; (3) dismissing plaintiff as a party; and
(4) requiring defendants to litigate their claims to the funds in this court.
Defendant IRS opposes plaintiff's motion, and cross-moves for judgment on the pleadings on grounds that this court lacks subject matter jurisdiction over the dispute. The IRS claims that because there is no federal question presented, the plaintiff's claim must be dismissed, and plaintiff must pursue its claim in State court.*fn1
A third party, proposed defendant Donna Sinisgalli, claims that she also has an interest in the property held by Woods Oviatt, and moves to intervene as a defendant.
For the reasons set forth below, I grant plaintiff's motion to deposit the funds held in trust with the Registry of this Court and to be dismissed from the action. I further grant plaintiff's motion to enjoin the defendants from initiating any action in any court against the plaintiff to collect any portion of the fund. I deny the IRS's motion for judgment on the pleadings, and deny proposed defendant Donna Sinisgalli's motion to intervene as a defendant.
Plaintiff Woods Oviatt Gilman represented Louis Sinisgalli, Donna Sinisgalli (collectively "the Sinisgallis), and various companies or entities owned, operated or controlled by the Sinisgalli's (hereinafter the "Sinisgalli defendants") in an action brought in New York State Supreme Court against those parties by the New York State Department of Environmental Conservation. In that action, the DEC sought remediation of a landfill owned or controlled by the defendants. Although the parties entered into settlement agreements at various times during the course of the litigation, the defendants defaulted on many of its obligations, and the DEC sought damages from the defendants, including costs of closing and sealing the landfill.
Concurrent with the State Court proceedings, Louis Sinisgalli was the subject of a federal criminal investigation. Pursuant to that investigation, in March, 2009, federal authorities, acting pursuant to a search warrant, seized approximately $827,000 in cash from the Sinisgalli residence.*fn2 The Government apparently used approximately $400,000 of the seized funds to satisfy tax obligations of the Sinisgallis and/or various companies owned or controlled by the Sinisgallis. The Government then deposited the remaining $425,230.74 of the seized funds ("the interpleader funds") into a trust account set up by Woods Oviatt pursuant to an Order of New York State Supreme Court Justice Evelyn Frazee in the State Supreme Court action brought by the DEC against the Sinisgalli defendants. Pursuant to an Order issued by Judge Frazee, the funds were to be used to compensate the DEC for costs of closing the Sinisgalli Landfill.
Although the Federal Government had deposited the interpleader funds into the trust account, on May 4, 2012, the IRS filed a Notice of Levy against the fund seeking an additional $171,171.93 in back-taxes and penalties allegedly owed by Louis Sinisgalli.*fn3
Woods Oviatt, as Trustee of the fund, informed Judge Frazee of the IRS claim, and invited the IRS to attend a conference of all parties before Judge Frazee for the purpose of determining the parties' respective rights to the proceeds of the fund. The IRS, however, declined to participate in such a conference on grounds that it was not a party to the State Court case, and because, in its opinion, "federal court has exclusive jurisdiction over issues where the United States claims an interest in property based on [a] federal tax lien." May 12, 2012 Letter from IRS to Woods Oviatt, attached as Exhibit "B" to the Plaintiff's Complaint. The IRS further stated that Woods Oviatt would be subject to a penalty of approximately ...