Opinion
CASE NO. 5:03 CV 1013
September 18, 2003
MEMORANDUM OPINION AND ORDER
On July 31, 2003, the Court conducted the Case Management Conference after which it issued an order directing the parties to show cause by no later than September 15, 2003, why this action should not be dismissed for failure to join the fiduciary of the estate for whom the plaintiffs are holding the funds at issue. The defendant United States of America ("the IRS") timely filed a response to the Court's order, seeking an order of dismissal, see Doc. No. 16; the plaintiffs filed nothing in response to the Court's order.
This interpleader action was originally filed in the Wayne County Court of Common Pleas. It was brought by four insurance companies ("State Farm") against the IRS and Joretta A. Miller, the widow of Richard D. Miller who had been an agent of the four companies but who had terminated his agent's agreement in October 1995, at a time when the IRS had already served upon the plaintiffs a "Notice of Levy on Wages, Salary and Other Income" for unpaid federal income taxes owed by Richard D. and Joretta A. Miller in the amount of $98,365.09. The complaint alleges that Richard D. Miller was entitled to termination pay, in sixty monthly installments. Under the terms of the notice of levy, these payments were made to the IRS until December 17, 1999, the date of Mr. Miller's death.
The plaintiffs allege that the remainder of the payments, a little over $23,000, are the property of Mr. Miller's estate, but that no estate has been opened. They seek a determination in this lawsuit as to which of the two defendants is entitled to receive the balance due.
On May 27, 2003, the IRS removed the matter to this Court. At the time, Joretta Miller had not yet been served. She has since been served by ordinary mail on September 8, 2003 (see Doc. No. 15), but has not yet made an appearance in the case.
The IRS argues in its response to the show cause order that this case should be dismissed because it does not meet the requirements of an interpleader case, namely, that there be the possibility that the plaintiffs will suffer conflicting liabilities. The IRS asserts that, in this case, there is no real or reasonable fear of double liability because the funds in question are subject to a federal tax levy. Under 26 U.S.C. § 6332(e), the plaintiffs would be held harmless if any other party were to claim an interest in the property. The sole cause of action for any such person would lie against the United States in a wrongful levy action. See 26 U.S.C. § 7426(a)(1). Although the plaintiffs have filed no brief in response to the Court's order of July 31, 2003, the Court is of the view that the IRS has made a convincing argument that these plaintiffs cannot be liable to any party for turning over property which is subject to a tax levy.
26 U.S.C. § 6332(e) provides:
(e) Effect of honoring levy. — Any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made who, upon demand by the Secretary, surrenders such property or rights to property (or discharges such obligation) to the Secretary (or who pays a liability under subsection (d)(1)) 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. § 7426(a) provides in pertinent part:
(1) Wrongful levy. — If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary.
Accordingly, the Court intends to dismiss this action, which will include ordering the plaintiffs to turn over to the defendant United States of America (improperly identified as the Internal Revenue Service) funds they are holding which are subject to the levy.
IT IS SO ORDERED.