JUSTICE COURT
BOULDER TOWNSHIP
PEGGIE and BILL WILLIAMSON CASE NO. 97AOI7
Plaintiffs,
v.
BOULDER DAM CREDIT UNION and
"BILL' WILLIAM G. FERENCE,
Defendants.
DECISION
Plaintiffs brought suit against the BOULDER DAM CREDIT UNION (hereafter "Credit Union') for inappropriately turning over money in Plaintiffs' credit union accounts to the Internal Revenue Service (IRS) without court order, without legal obligation and without Plaintiffs' permission. No evidence was presented to show that Defendant Ference was in any way personally involved in this action and consequently he is dismissed in his individual capacity from this action.
Plaintiffs had entrusted their funds to the BOULDER DAM CREDIT UNION, a financial institute licensed under the laws of the State of Nevada. As such, the Credit Union had a fiduciary relationship with the Plaintiffs and a resulting higher, fiduciary, responsibility over the funds they with which they have been entrusted.
Notwithstanding this fiduciary duty, when served with a 'notice of levy' from the IRS. the Credit Union sent the funds in the Plaintiffs' accounts to the IRS. This was done even though the Plaintiffs had objected to the procedures followed by the IRS and did so via sworn affidavit delivered to the Credit Union.
No evidence was presented that the Credit Union did anything to investigate the concerns of its depositors other than waiting twenty-one days to send the money. However, the Plaintiffs' concerns as presented to the Credit Union merited investigation and research.*
The Credit Union did not necessarily need to make a dispositive decision as to the merits of Plaintiffs' objections but the Credit Union should not have released the Plaintiffs' funds without considering their depositor's objections and as a result of that investigation possibly even inter-pleading the funds if necessary to protect itself from the competing claims for the Plaintiffs' funds.
At any rate, the Credit Union owed it's highest duty to it's depositors with whom it has a contractual and fiduciary duty. In the instant situation, the BOULDER DAM CREDIT UNION breached that duty, to the injury of the Plaintiffs. This injury included loss of $289.04 and $577.89 (total $ 866.93) taken from Plaintiffs' accounts together with return check fees and late fees of $243.94.
The Credit Union's claim of immunity is misplaced. Per statute (26 U.S.C. section 6332 (e)) and case law cited by Defendant, a bank is provided immunity if it honors an IRS levy. However, in the instant case the Credit Union was merely sent a "Notice of Levy"; consequently. the law providing for immunity when releasing funds pursuant to a "Levy" is not applicable.
Therefore, the Plaintiffs are awarded judgment against the Defendant Boulder Dam Credit Union in the amount of $1,110 87 plus court costs incurred and prejudgment interest.
DATED this 19th day of May. 1998
*The Plaintiffs argue that the mere sending of a "Notice of Levy" is inadequate for the seizure of funds by the IRS pursuant to the Internal Revenue Code and Case law. In Goodwin v. The United States, 935 F.2d.1061 (9th Cir. 1991) our Circuit Court of Appeals held that the IRS must strictly comply with the statutory requirements when seizing a taxpayers property. At page 1065 the court stated:
Congress has set forth precise requirements for notice of seizure and sale of property in tax deficiency situations. "[W]hen the government seeks to enforce the laws, it must follow the steps which congress has specified." Recce, 506 F.2d at 971.
A mere notice of intent to levy does not meet this requirement. In Freeman v. Mayer, 152 F.Supp. 383. at 385 (D.C., N.J. 1957) the court stated:
The procedure of accomplishing a levy maybe spelled out from the reported cases. A 'levy' requires that property be brought into legal custody through seizure, actual or constructive, levy being an absolute appropriation in law of the property levied on, and mere Notice of Intent to Levy is insufficient, United States v. O'Dell. 6th Cir.,(1947),160 F.2d. 304, 307. Accord, In re Holdsworth, D.C., N.J. 1953, 113 F. Supp. 878, 888; United States v. Aetna Life Insurance Company of Hartford Conn., D. C. Conn., 1942, 146 F.Supp. 30, 37, in which Judge Hincks observed that he could "find no statue which says that a mere notice shall constitute a levy." There are cases, which hold a warrant for distraint is necessary to constitute a levy. Givan v. Cripe, 7th Cir., 1951, 187 F.2d.. 225; United States v. O'Dell, supra. The Court of Appeals for Third Circuit stated in its opinion, 221 F.2d.at page 642, "These sections (26 U.S.C. sections 3690-3697) require that a levy by a deputy collector be accompanied by warrants of distraint." In re Brokol Manufacturing Co., supra. [Emphasis added.]
Similarly, the court in U.S. v. O'Dell. 160 F. 2d., 304, at 307 (6th Cir 1947) stated on this issue:
This paragraph describes a mere statement or Notice of Claim. Nothing alleged to have been done amounts to a levy, which requires that the property be brought into a legal custody through seizure, actual, constructive, levy being "an absolute appropriation in law of the property levied upon." Rio Grand R. Co. v Gomila, 132 U.S. 478, 10 S.Ct. 155, 33 L.Ed. 400; In re Weinger, Bergman and Co., D.C. 126 F. 875, 877; Smith v. Packard 7th Cir., 98 F. 793. Levy in not effected by mere notice. Hollister v. Goodale, 8 Conn. 332, 21 Am. Dec. 674; Meyer v. Missouri Glass Co., 65 Ark. 286, 45 S.W. 1062, 67 AM. St. Rep. 927; Jones v. Howard, 99 Ga. 451, 27 S.E. 765, 59 Am.St Rep. 231.
Section 3692 does not prescribe any procedure for accomplishing a levy upon a bank account. The method followed in the cases is that the issuing warrants of distraint, making the bank a party and serving with the Notice of Levy copy of the warrants of distraint and notice of lien.. Cf. Commonwealth Bank v. United States. 6th Cir., 115 F.2d., 327; United States v. Bank of the United States, D. C., 5 F.Supp. 942, 944. No warrants of distraint were issued here.
The cases relied on by the government as supporting recovery under section 3710 arise in the main out of situations where a bank has been sued, or joined as a party to an action claiming a bank deposit. No such procedure was followed in this case. Moreover, it does not appear that notice and demand were served upon the person liable to pay the taxes, mainly, the Howie Company., in accordance with sections 3670 and 3690. This being the case, query, whether the property or rights to property were within the meaning of section 3710 "subject to distraint," for under section 3690 the right to collect the taxes by distraint and sale arises only after notice and demand.
It would seem to require not much exposition to demonstrate that when the sovereign establishes any priority in his favor, and imposes certain conditions upon the enforcement of that right it is required to comply within the conditions which it has laid down. Since no levy was made upon the funds involved, one of the jurisdictional prerequisite for the application of section 3710 is lacking, and the complaint was rightly dismissed. Cf. United States v. Aetna Life Insurance Co. of Hartford Conn., D. C., 46 F. Supp. 30, 37. [Emphasis added.]
Furthermore, the parties, are referred to Kulawy v United States, 917 F-2d 729 (2nd Cir., 1990) wherein the court addresses a similar issue and states at page 734 the following:
The government's power to levy on and seize property for tax collection is one of the small number of "extraordinary situations" in which the government may seize properly without providing prior judicial hearing [Citations omitted.] This power to proceed on a "pay first. litigate later" basis is justified by the government's need to make tax collection expeditious. '"T]axes are the life blood of government, and their prompt and certain availability an imperious need. Time out of mind therefore, the sovereign has resorted to more drastic means of collection" Bull v. United States, 295 U.S. 247, 259-60, 55 S. Ct. 695, 699, 79 L.Ed. 1421 (1935); See also GM Leasing Corp. v. United Sates, 429 U.S. 338, 352 n.18, 97 S. Ct. 619, 628 n.18, 50 L.Ed. 2d. 530 (1977); Philips v. Commissioner, 283 U.S. 589, 595-99, 51 S. Ct. 608, 611-12, 75 L.Ed. 1289 (1931).
The legitimacy of allowing the government to seize and sell property prior to adjudication, however, has long been recognized to depend on strict compliance by government officials with the procedures prescribed by
law. As Chief Justice Marshall stated:
That no individual or public officer can sell, and convey a good title to, the land of another, unless authorized to do so by express law, is one of those self-evident propositions to which the mind assents, without hesitation; and that the person invested with such a power must pursue with precision the course prescribed by law or his act is invalid, is a principle which has been repeatedly recognized in this court.
Thacher v. Powell, 19 U.S. (6 Wheat.) 119, 125, 5 L.Ed. 221 (1821). Thus. "[t]he general rule is that strict compliance with statutory provisions is required to validate tax sales." Johnson v. Gartlan, 470 F.2d., 1104, 1106 (4th Cir.) (Absent ratification by the taxpayer, sale is voidable where IRS has failed to comply with Section 6335), cert. denied, 414 U.S. 865, 94 S. Ct. 122, 38 L.Ed. 2d. 85 (1973); See also Reece v. Scogins, 506 F.2d 967, 970-71 (5th Cir. 1975) (" Section 6335 permitting the sale at public auction of a taxpayers land to satisfy a tax deficiency must be strictly construed"); cf Fuentes v. Shevin, 407 U.S. 91, 92 S.Ct. at 2000 (a prerequisite for summary seizure of property is that "the state has kept strict control over its monopoly of legitimate force" by, inter alia, providing standards in a narrowly drawn statute). In keeping with these principles, we have ruled that the government's sale of property after giving only one days public notice instead of the ten days required by sections 3693 (b) and (c) of the 1939 Code was invalid. See Margiotta v. United States, 214 F.2d. 518, 522 (2d. Cir. 1954) (short public notice was one of several "substantial defects").
…
A stickler for enforcing the statutory notice it is entitled to receive, the government should be no less punctilious with respect to the statutory notice it is required to give.
The IRS did nothing more than send "a Notice of Levy" when the Plaintiffs pointed out the deficiency in the procedure for seizure of their money to their financial institution no efforts were made by the financial institution to require strict compliance of the Internal Revenue Code or otherwise investigate this matter further.
In others words, the Plaintiffs' concerns stated to the BOULDER DAM CREIDT UNION merited investigation on the part of the fiduciary and received none.