Opinion
Case No. 8:99-CV-2260-T-17E.
October 4, 1999.
Michael Paul Sampson, Glenn Arthur Adams, Holland Knight, LLP, Orlando, FL, for WATSON CLINIC LLP, plaintiff.
Scott M. Grossman, U.S. Dept. of Justice, Tax Division, Washington, DC, for USA defendant.
Gregory A. Sanoba, Gregory A. Sanoba, P.A., Lakeland, FL, for RICHARD and PATRICIA HILL, defendant.
ORDER GRANTING MOTION BY UNITED STATES OF AMERICA FOR SUMMARY JUDGMENT
This cause is before the Court on the following:
Doc. 14 Defendant, United States', Motion for Summary Judgment
Doc. 19 Defendant, Watson Clinic LLP's, response
Doc. 23 Defendants, Richard Hill and Patricia Hill's, Motion for Summary Judgment
Doc. 24 Defendants, Richard Hill and Patricia Hill's, Memorandum of Law in Support of Motion for Summary Judgment
Doc. 27 Defendants, Richard Hill and Patricia Hill's, Appendix to Motion for Summary Judgment
The parties have previously received notice that all motions for summary judgment under Federal Rule of Civil Procedure 56 will be considered based upon the standards of review set forth by the United States Supreme Court in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); and Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
Summary judgment is appropriate if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
The plain language of Rule 56(c) mandates the entry of summary judgment after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be no `genuine issue of material fact' since a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial. The moving party is `entitled to judgment as a matter of law' because the non-moving party has failed to make a sufficient showing on an essential element of the case with respect to which that party has the burden of proof.Celotex Corp. v. Catrett, 477 U.S. at 317-318 (1986).
Issues of fact are genuine only if a reasonable jury considering the evidence presented could find for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Where the moving party bears the burden of persuasion at trial, the party must support the summary judgment motion with credible evidence, of the like indicated in Rule 56(c), which would entitle that party to a directed verdict if not controverted.
FACTS
The facts as enumerated in the Motion for Summary Judgment filed by the United States of America are undisputed. Further, there is no dispute that the issues raised should be resolved via summary judgment.
Dr. Henry J. Redd is indebted to the United States of America for 1991, 1995, and 1996, income tax liabilities. (Doc. 27 at App. Ex. 9, 10). Richard Hill and Patricia Hill (hereinafter referred to as "the Hills") obtained a Judgment against Dr. Redd and his wife on June 7, 1995, in the amount of $75,000.00. Hill v. Redd, No. GC-G-94-1868 (Fla. Polk County Cir. Ct. June 7, 1995).
On April 8, 1996, the Watson Clinic LLP was served with a Writ of Garnishment and a Continuing Writ of Garnishment in connection with Dr. Redd and his wife's income tax liabilities. (Doc. 27 at App. Ex. 2 3). Watson Clinic LLP filed an Answer to the Writ and Continuing Writ of Garnishment detailing the partnership property which Dr. Redd was entitled to receive. (Doc. 27 at App. Ex. 4).
On May 8, 1996, the Hills filed a Motion for Charging Order Against Partnership Interest seeking to attach Dr. Redd's partnership interest in Watson Clinic LLP. (Doc. 27 at App. Ex. 5). On September 6, 1996, the trial court entered an Order Denying Without Prejudice the Hill's Motion for Charging Order (Doc. 27 at App. Ex. 6). On or about February 17, 1998, the Hills filed a new Motion for Charging Order Against Partnership Interest. (Doc. 27 at App. Ex. 8).
On April 6, 1998, the United States filed a Notice of Federal Tax Lien for the 1991 tax liability, and another Notice of Federal Tax Lien for the 1995 and 1996 liabilities, with the Clerk of the Circuit Court of Polk County, Florida. (Doc. 27 at App. Ex. 9, 10).
On May 12, 1998, the Polk County Circuit Court entered a Charging Order in favor of the Hills. Hill v. Redd, No. GC-G-94-1868 (Fla. Polk County Cir. Ct. May 12, 1998).
On August 24, 1993, the Internal Revenue Service served a Notice of Levy on Watson Clinic LLP in an attempt to collect Dr. Redd's tax liability. (Doc. 1 at Ex. E). The Notice of Levy directed Watson Clinic LLP to pay to the United States Redd's property, or rights to property, that Watson Clinic LLP had or was holding for Dr. Redd. Id. As of September 30, 1999, Dr. Redd's outstanding income tax liability for tax years 1991, 1995, and 1996, including interest and penalties, was $91,505.84. Id.
Both the United States of America and the Hills have laid claims to Dr. Redd's funds. Watson Clinic LLP was in doubt as to which party was entitled to receive payment and, therefore, brought this interpleader action.
ISSUE 1
The first issue before this Court is whether the Hills' Judgment Lien was perfected before the federal tax liens were filed. Once the United States properly files a Notice of Federal Tax Lien, the lien becomes valid against subsequent judgment lien creditors. See Central Bank v. United States, 833 F. Supp. 892, 895 (M.D.Fla. 1993).
The heart of this issue turns upon when the Hills' judgment lien became perfected. No specific statute in Florida exists to dictate when a lien is perfected in the application for Charging Order Against Interest.
The United States argues that the Hills did not perfect their lien until May 12, 1998, when the Circuit Court entered the Charging Order and, therefore, failed to meet the definition of judgment lien creditors prior to that date. (Doc. 14 at 5). The United States further argues that since the United States filed two Notices of Federal Tax Lien against Dr. Redd on April 6, 1998, the United States' federal tax liens have priority over the Hills'. See Id.
The Hills urge this Court to consider and rely on Krauth v. First Continental Dev-Con Inc., 351 So.2d 1106 (Fla. 4th DCA 1977), in which the court determined that between competing unsecured creditors, the first to apply for a charging order has priority for full satisfaction. In Krauth, the court held that ". . . the first to apply to a court of proper jurisdiction for a Section 620.695 charging order has priority for the full satisfaction of his judgment from the debtor's partnership interest." Id. at 1108. However the issue in Krauth did not involve perfection of a lien, but involved the issue of which of two perfected liens has priority. The ruling in Krauth did not establish that a lien is perfected by filing an application with a court.
In In re Jaffe, 235 B.R. 490, 492 (Bankr.S.D.Fla. 1999), the court determined that in Florida, "an application for a charging order starts the judicial process for perfecting a lien against a partnership interest. Perfection of the lien, however, does not occur until a court actually enters a charging order." Other courts have also concluded that a lien is not perfected until a charging order has been issued. See In re Bridgeman, 197 B.R. 19 (Bankr.D.Conn. 1996); see also, In re Madden, 174 B.R. 178 (Bankr.E.D.N.Y. 1994).
The Eleventh Circuit has provided some additional guidance on this issue through its exploration of when perfection of garnishment liens occurs. In Continental Nat. Bank of Miami v. Tavormina (In re Masvidal), 10 F.3d 761, 763 (11th Cir. 1993) the court held that, "it is the judgment entered on a writ of garnishment that creates the `lien' in favor of the garnishor. Mere service of a writ alone creates no such interest."
Under these guiding principles, the Hills did not perfect their lien until the Circuit Court entered the Charging Order on May 12, 1998. Therefore, the Federal Tax Liens that the United States filed on April 6, 1998, have priority over the Hills' Judgment Lien.
ISSUE 2
The second issue before this Court is whether the principle of res judicata should preclude the United States from bringing forth any claim against the funds at issue. The Hills argue that the principles of estoppel and res judicata apply because the Internal Revenue Service did not raise a claim or objection at the time of the order requiring Plaintiff, Watson Clinic LLP, to distribute the transfereable interest of Dr. Redd to the Hills. (Doc. 10 at 3).
The Supreme Court has addressed the principle of res judicata. Res judicata applies to "repetitious suits involving the same cause of action." Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 597 (1948). "A final judgment on the merits of an action precludes the parties or their privies from relitigating [sic] issues that were or could have been raised in that action." Federated Denartment Stores v. Moitie, 452 U.S. 394, 398 (1981).
The United States was neither a party, nor in privity with the parties, in the prior state court proceedings. Therefore, res judicata does not apply in this case.
Equitable estoppel does not apply against the United States in the instant case. In the 11th Circuit, equitable estoppel "cannot apply against the United States to recover public funds." United States v. Walcott, 972 F.2d 323, 327 (11th Cir. 1992).
ISSUE 3
The third and final issue before this Court concerns whether Plaintiff, Watson Clinic LLP, is entitled to attorney's fees. Plaintiff, Watson Clinic LLP, cites two cases from the Middle District of Florida,SouthTrust Bank of Florida N.A. v. Wilson, 971 F. Supp. 539 (M.D.Fla. 1997); and Kurland v. United States, 919 F. Supp. 419 (M.D.Fla. 1996), which hold that a court may award attorney's fees, at its discretion, to a disinterested stakeholder filing an action in interpleader. (Doc. 20 at 3).
However, under Cable Atlanta, Inc. v. Project, Inc., 749 F.2d 626 (11th Cir. 1984), the law in the Eleventh Circuit is clear. "The stakeholder of an interpleaded fund is not entitled to attorney's fees to the extent that they are payable out of a part of the fund impressed with a federal tax lien." Id at 627 (quoting Spinks v. Jones, 499 F.2d 339, 340 (5th Cir. 1974)).
Therefore, in equity, Plaintiff, Watson Clinic LLP, may be, upon filing of an appropriate motion, entitled to reasonable attorney's fees after the federal tax lien liability has been fully satisfied. As such, summary judgment is not appropriate as to the issue of attorney's fees.
CONCLUSION
Accordingly, it is ORDERED that Defendant, United States of America's, Motion for Summary Judgment, (Doc. 14), be GRANTED in part and DENIED in part as discussed herein; Defendants, Richard Hill and Patricia Hill's, Motion for Summary Judgment, (Doc. 23), be DENIED; and the Clerk of Court be DIRECTED to enter judgment in accordance herewith.