Opinion
No.: 00-CV-73070-DT
August 20, 2001
ORDER GRANTING UNITED STATES' MOTION TO DISMISS AND GRANTING QUICK AND REILLY'S MOTION TO DISMISS.
Pending before the court are two motions for dismissal for failure to state a claim upon which relief can be granted, brought by Defendant United States of America ("the U.S.") and Defendant Quick and Reilly ("QR"), filed on October 19, 2000 and October 11, 2000, respectively. The motions are in response to a complaint filed by Plaintiff Ralph Sachs on July 7, 2000, claiming unauthorized collection action against the U.S and claiming breach of fiduciary duty against QR.
I. HISTORY
Internal Revenue Service ("the IRS") Revenue Officer Jacqueline Zogut was assigned to collection from Mr. Sachs of a tax liability resulting from underpayment of taxes in 1978 and 1979. The collection statute expiration date ("CSED") for the tax liability was July 4, 1999. (Compl. ¶ 8.) The IRS sent a notice of levy to QR on June 1, 1999. ( Id. at ¶ 1.) On July 1, 1999, the IRS initiated court proceedings to have the tax liability reduced to a judgment. The IRS cashed a check from QR in the amount of $251,511.09 to satisfy the tax liability on July 13, 1999. The funds were obtained by levying and then liquidating various negotiable instruments owned by Mr. Sachs and held by QR in its capacity as a financial broker. On September 23, 1999, Mr. Sachs filed a claim for refund from the IRS, which was rejected on February 9, 2000, thus exhausting his administrative remedies for his claim against the IRS.
II. STANDARD
If a plaintiff fails to state a claim upon which relief can be granted, then a defendant can move for relief under Federal Rule of Civil Procedure 12(b)(6). A Rule 12(b)(6) motion tests whether a claim has been adequately stated in the complaint. In evaluating a motion to dismiss under Rule 12(b)(6), all well-pleaded factual allegations in the complaint are taken as true and the complaint is construed liberally in favor of the non-moving party. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987); Westlake, 537 F.2d at 858; Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996). A complaint should not be dismissed because it does not state all the elements giving rise to a legal basis of recovery, or because plaintiff misconceived the proper theory or claim, if plaintiff is entitled to relief under any theory. Myers v. United States, 636 F.2d 166, 169 (6th Cir. 1981). However, even though the pleading standard is liberal, bald assertions and conclusions of law will not enable a complaint to survive a Rule 12(b)(6) motion. Leeds, 85 F.3d at 53.
Federal Rule of Civil Procedure 8 sets forth the pleading requirements for a complaint and requires only a "short and plain statement of the claim." Fed. P. Civ. P. 8(a). Thus, a complaint is sufficient if it gives the defendant "fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47 (1957); Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir. 1976). However, the complaint is required to provide a "'statement of circumstances, occurrences, and events in support of the claim presented. . . . [T]he complaint must disclose information with sufficient definiteness.'" Veney v. Hogan, 70 F.3d 917, 921-22 (6th Cir. 1995) (citation omitted).
III. ANALYSIS A. Unauthorized Collection — IRS Claim
Mr. Sachs brings his claim pursuant to 26 U.S.C. § 7433(a), which authorizes suits against the U.S. if "in connection with any collection of Federal tax . . . any officer or employee of the [IRS] recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation under this title." He makes essentially six claims: (1) the IRS violated a revenue ruling and Internal Revenue Manual ("IRM") provision by not physically seizing his negotiable instruments, (2) the IRS violated the Fourth Amendment by not obtaining a writ of entry when it "constructively seized" his negotiable instruments, (3) the IRS collected the negotiable instruments without a valid tax lien, (4) the IRS did not follow proper procedure in its summons of a QR employee, (5) the IRS did not notify him of the seizure of securities, and (6) the IRS did not collect the liabilities within the allowable time period. The U.S. asserts that Mr. Swift does not present a cognizable basis for relief under § 7433.
1. Violation of Revenue Rulings and the IRM
Mr. Sachs points out that Revenue Ruling 75-355, 1975-2 C.B. 478, and IRM § 5.11.6.8(3) require physical seizure when negotiable instruments are seized. The U.S., however, claims that since these are neither a provision of Title 26 of the U.S. Code nor a regulation promulgated under Title 26, neither the Revenue Ruling nor the IRM are relevant to a suit for damages under § 7433.
In Schwarz v. U.S., 234 F.3d 428, (9th Cir. 2000), the Court of Appeals for the Ninth Circuit addressed the applicability of IRM provisions and the IRS National Policy Statement ("NPS") to § 7433 claims. The court wrote that "because the manual and the NPS are not code provisions or regulations, violations of the manual and the NPS cannot support a claim under § 7433." Id. at 434. This court is persuaded by the Ninth Circuit's reasoning and by a clear reading of the statute, which states that a successful claim under § 7433 only occurs when Title 26, or a regulation promulgated thereunder, is violated. Thus, this aspect of Mr. Sachs's claim must fail.
In addition, Revenue Ruling 75-355 deals with negotiable certificates of deposit, not stock certificates as were levied in this case, making the ruling seemingly inapplicable to Mr. Sachs's case.
2. Illegal Seizure
Mr. Sachs points to GM Leasing Corp. v. United States, 429 U.S. 338 (1997), to support his contention that the IRS could not seize his assets without a writ of entry. The IRS, however, never physically seized the assets. QR liquidated Mr. Sachs' stocks and gave the IRS a check in satisfaction of his tax liability. Mr. Sachs claims this was a "constructive seizure" because the IRS required QR to liquidate his assets.
The Fourth Amendment cannot be part of a § 7433 claim, as it is not a part of Title 26, nor a regulation promulgated under Title 26. An action seeking monetary damages for constitutional violations by the government should take the form of a Bivens claim. Given this anticipated determination, Mr. Sachs seeks leave to amend his complaint so he can bring a Bivens suit against individual IRS employees. Mr. Sachs concedes that Bivens actions seeking monetary damages cannot be brought against the U.S. or the IRS. (Resp. to IRS's Mot. at 9.) Granting leave to amend, however, would be pointless because Mr. Sachs cannot bring a Bivens claim seeking monetary damages for actions arising out of the collection of taxes. Fishburn v. Brown, 125 F.3d 979, 982-83 (6th Cir. 1991).
Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971).
3. Lack of a Valid Lien
According to Mr. Sachs, the IRS held four Notices of Federal Tax Lien ("NFTL") against Mr. Sachs, but all four NFTLs had expired before the IRS levied Mr. Sachs' assets that were held by QR. (Automated Lien Report, attached as Compl. Ex. A.) He asserts that an NFTL supercedes the statutory lien provided under 26 U.S.C. § 6321 , which is applicable whenever a taxpayer refuses to pay all or part of their taxes. Accordingly, once an NFTL expires, he argues, the statutory lien no longer attaches to the property. Nothing on the NFTL, however, says that it supercedes the statutory lien. (NFTL, attached as Compl. Ex. B.) Moreover, a valid lien is not required for all levies. The Code of Federal Regulations dealing with Title 26 states that "(t]he district director may levy upon any property, or rights to property, whether real or personal, tangible or intangible, belonging to the taxpayer. The district directory may also levy upon all property with respect to which there is a lien. . . ." 26 C.F.R. § 301.6331-1 (emphasis added). As the negotiable instruments held by QR were owned by Mr. Sachs, a valid lien was not required.
The statute provides that:
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real. or personal, belonging to such person.26 U.S.C. § 6321.
4. Improper Summons
Mr. Sachs claims that the IRS did not follow proper procedure in its summons of Mr. Edwin Mendez, a QR employee. He claims that the IRS summons was served by fax and required a response within one day. Pointing to 26 U.S.C. § 7603 and 7605(a) , respectively, Mr. Sachs claims the IRS violated portions of Title 26.
26 U.S.C. § 7603 requires service of a summons by registered or certified mail.
26 U.S.C. § 7605(a) requires that the IRS allow at least ten days to respond to a summons.
The portions of Title 26 cited by Mr. Sachs are located in Chapter 78, entitled "Discovery of Liability and Enforcement of Title." The summons to Mr. Mendez dealt with a levy and not with the discovery of liability or the enforcement of title. Summonses relating to levies are governed by 26 U.S.C. § 6333, located under Chapter 64, Subchapter D, entitled "Collection; Seizure of Property for Collection of Taxes," which states that:
If a levy has been made or is about to be made on any property, or right to property, any person having custody or control of any books or records, containing evidence or statements relating to the property or right to property subject to levy shall, upon demand of the Secretary, exhibit such books or records to the Secretary.
Absent from § 6333 is any discussion of the requirements for the processing of a summons intended to effectuate the collection of a levy. Thus, the summons was proper.
5. Lack of Notice of Seizure
Mr. Sachs complains that he was not provided with the requisite Notice of Seizure, mandated by 26 U.S.C. § 6335(a), although his attorney was. (Compl. ¶ 25(v).) He further argues that the Notice of Seizure that was filed was not sufficiently specific, since it only stated that "various negotiable instruments" had been seized. (Resp. to IRS's Mot. at 11-12.)
Although Mr. Sachs claims he was not provided with the Notice of Seizure, attached to Mr. Sachs' complaint was a Notice of Seizure with the addressee listed as "Ralph G Sachs; P.O. Box 10; Troy, MI 48099-0010." Moreover, 26 U.S.C. § 6335(a) provides that a Notice of Seizure "shall be given by the Secretary to the owner of the property (or, in the case of personal property, the possessor thereof)." QR was the possessor of Mr. Sachs' negotiable instruments (Compl. at ¶ 12.) As QR was the possessor of the securities, the IRS was only required to provide a Notice of Seizure to QR.
Mr. Sachs further complains that the Notice of Seizure lacked the requisite specificity. (Resp. to IRS's Not. at 11-12.) The IRS stated that the property seized was "various negotiable instruments," however, which was an account of the property, as required by § 6335(a). Moreover, on page two of the Notice of Seizure attached to the Complaint, the IRS lists a description of the property, including the number and type of shares liquidated and then seized.
The Notice of Seizure "shall specify the sum demanded and shall contain, in the case of personal property, an account of the property seized." 26 U.S.C. § 6335(a).
The Notice of Seizure lists the property seized as follows:
6. Statute of Limitations
Mr. Sachs asserts that the levy on the assets held by QR was improper because it was not satisfied until after the CSED. The IRS asserts that 26 U.S.C. § 6502(a), governing the collection of a levy, allowed it to collect the tax liability after the expiration of the CSED.The IRS points to the following language of § 6502 to support its assertion:
If a timely proceeding in court for the collection of a tax is commenced, the period during which such tax may be collected by levy shall be extended and shall not expire until the liability for the tax (or a judgment against the taxpayer arising from such liability) is satisfied or becomes unenforceable.26 U.S.C. § 6502(a). The IRS brought a proceeding in court on July 1 to reduce the tax assessment to a judgment, which was prior to the CSED of July 4. Accordingly, the deadline for collecting the tax was extended until the tax liability was satisfied, which occurred on July 13.
The U.S. withdrew this suit on September 17, 1999, as it was rendered moot by the successful levy of the funds in July.
Mr. Sachs's only rebuttal to the plain language of this statute is that "a valid levy never occurred on [sic] this case." (Resp. to IRS's Mot. at 12.) He provides no support for this contention. In his complaint and in his response to the IRS's motion, he does discuss the alleged invalidity of the lien, but nowhere else does he make the argument that the levy itself is invalid. Indeed, no evidence on the record supports such a conclusion. Mr. Sachs fails to state how or why the levy was invalid, other than his futile claim, previously discussed, that the levy was improper without a valid lien.
B. Breach of Fiduciary Duty — QR Claim
Mr. Sachs's claim against QR vaguely avers that because QR failed to investigate his assertion that physical seizure was required when levying negotiable instruments, it breached its fiduciary duty to him. (Compl. ¶ 29.) QR responds that it was legally required to comply with an IRS levy.
Mr. Sachs claims that QR was not required to liquidate his negotiable instruments and turn them over to the IRS because of Revenue Ruling 75-355, which requires the IRS to satisfy a levy on a negotiable certificate of deposit by having said certificates surrendered to the IRS. Initially, this revenue ruling deals with certificates of deposit and not stocks, as were levied by the IRS in the instant case. Moreover, QR is legally bound to honor an IRS levy pursuant to 26 U.S.C. § 6332(e), which states that:
Any person in possession of . . . property or rights to property subject to levy and upon which a levy has been made who . . . surrenders such property . . . to the Secretary . . . shall be discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment.26 U.S.C. § 6332(e). Indeed, one who ignores a levy may face stiff sanctions, including liability for the entire amount of the levy, plus costs, taxes and a penalty not greater than 50% of the value of the levy. 26 U.S.C. § 6332(d)(1), (2).
Mr. Sachs concedes that there was a levy in place. (Compl. ¶¶ 11, 13.) He also admits that § 6332(a) provides statutory immunity to "certain third parties who surrender property pursuant to an Internal Revenue Service . . . levy." (Resp. to QR's Mot. at 2.) He argues, however, that QR is not entitled to such immunity because "prior to any allowance of immunity under Section 6332(e) the third party involved must make a 'good faith determination' that the property at issue was actually subject to a levy." ( Id.) Despite the lack of such a limitation on immunity in the language of § 6332(e), Mr. Sachs asserts that 26 C.F.R. § 301.6332-1(c)(2) requires a "good faith determination" before there is statutory immunity.
The reliance on 26 C.F.R. § 301.6332-1(c)(2) is misguided. That section of the Code of Federal Regulations is entitled "Exception for Certain Incorrectly Surrendered Property" and removes statutory immunity when a levy is enforced against property in which an uninvolved third party has an interest, unless the levied party makes a good faith determination that the delinquent taxpayer also has an interest in the levied property. Clearly, that situation has no bearing on the instant case. There is no need for a good faith determination in this case because this suit is not being brought by a third party to whom the levy did not apply. There is no debate that the levied property belonged to Mr. Sachs, nor is there debate that it was Mr. Sachs who incurred the tax liability.
The Complaint only makes one other vague allegation against QR that "[a]t all times . . . QR's first loyalty was to IRS [sic], and despite explicit Treasury Regulations clearly on point, only after receiving permission from Zogut did Mr. Davidson [of QR] agree that the twenty-one day period would conclude as of July 6." (Compl. ¶ 30.) The fact that QR waited for permission from the IRS to agree that the levy would expire on July 6 is not a basis for a claim of breach of fiduciary duty.
The levy was received by QR. on June 11, 1999 and required QR to satisfy the levy within twenty one days. Because of the July 4 holiday weekend, the twenty one days expired on July 6, according to Mr. Sachs.
IV. CONCLUSION
For the foregoing reasons, Mr. Sachs has failed to state a claim upon which relief can be granted. Accordingly,
IT IS ORDERED that the United States' "Motion to Dismiss" is GRANTED.
4,950 shares of Lucent Technologies Inc stock 2,000 shares of Ligand Pharmaceuticals Inc stock 4,000 shares of Micron Technology Inc stock 50 shares of Niagara Mohawk Holdings Inc stock 1,000 shares of PSS World Medical Inc stock 2,000 shares of Altera corp stock 36,000 shares of Atmel Corp stock 1,000 shares of Bank of Tokyo-Mitsubishi Ltd- stock 2,000 shares of Cendant Corp stock (Notice of Seizure at 2, attached as Compl. Ex. B.)IT IS FURTHER ORDERED that Quick and Reilly's "Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6)" is GRANTED.