Hyped Holdings, LLC v. United States

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

HYPED HOLDINGS, LLC,

Plaintiff,

v. MEMORANDUM & ORDER

22-CV-530 (HG) (JMW)

UNITED STATES OF AMERICA,

Defendant.

HECTOR GONZALEZ, United States District Judge:

Plaintiff Hyped Holdings, LLC (“Hyped”) filed this action against Defendant United

States of America pursuant to 26 U.S.C. § 7426 seeking an injunction of wrongful levy

enforcement and “recovery of wrongfully levied funds.” ECF No. 26 ¶ 1 (Amended Complaint).

Presently before the Court is Defendant’s motion for summary judgment seeking dismissal of

Plaintiff’s complaint. ECF No. 50. For the reasons set forth below, the Court grants Defendant’s

motion for summary judgment.

BACKGROUND1

Hyped is a temporary staffing company formed in 2017 which “provides employees

under contracts with third-party clients. . . . The workers remain employees of [Hyped], which

pays wages to those employees and bears the responsibility to comply with [] employment tax

laws.” ECF No. 56-1 ¶¶ 1–2 (Defendant’s Local Rule 56.1 Statement of Material Facts with

Plaintiff’s Responses). Hyped is 100% owned and controlled by Philip N. Missirlian. Id. ¶ 3.

On June 25, 2013, Wonder Partners, Inc. (“Wonder”), d/b/a National Recruiting Group, a

temporary staffing company, was organized. Id. ¶¶ 12, 14. Wonder was owned by Missirlian’s

daughter, Heather Gold, up until she resigned in 2017. Id. ¶ 19. In a subsequent tax court

1 Unless otherwise specified, the facts cited by the Court are undisputed.

litigation, Gold stated that “she was made an officer and shareholder of Wonder because her

father asked her to do this as an accommodation to him.” Id. ¶ 21. Defendant alleges that

Missirlian was a manager at Wonder. Id. ¶ 22. Plaintiff disagrees, but admits that Missirlian

worked as a consultant for Wonder in 2019 and 2020, and had signature authority on Wonder’s

bank accounts “for a short time in 2014.” ECF No. 48-1 ¶¶ 22–23 (Plaintiff’s Counterstatement

in Response to Defendant’s Local Rule 56.1 Statement).

On July 23, 2020, the Internal Revenue Service (“IRS”) sent Wonder a letter “scheduling

a telephone meeting to discuss Wonder’s unpaid taxes on August 24, 2020.” ECF No. 56-1 ¶ 31.

On August 27, 2020, the IRS sent Wonder another letter, “demanding payment of Wonder’s

past-due tax liabilities by September 11, 2020, and warning Wonder that the IRS would begin

collecting via levy if the taxes were not paid.” Id. Defendant alleges that Wonder “owed federal

employment tax liabilities, . . . federal unemployment tax liabilities, . . . and a civil penalty

assessed pursuant to 26 U.S.C. § 6721” for a total of $3,747,163.66. Id. ¶ 32.

On September 21, 2020, shortly after the August 2020 IRS collection notice, Hyped and

Wonder entered into an Assets Purchase Agreement (“APA”). Id. ¶ 34. In its complaint,

Plaintiff alleges that it purchased assets from Wonder “including a client list, phone number,

website and the d/b/a name of National Recruiting Group.” ECF No. 26 ¶ 10 (Amended

Complaint). The APA describes the “included assets” as: (i) “the Client list of [Wonder], which

includes companies that [Wonder] either currently does business with or has in the past”; (ii) “all

of [Wonder’s] rights, title and interest in the d/b/a trade names ‘National Recruiting Group,’ and

‘The Science People’”; (iii) “all of [Wonder’s] rights, title and interest” in certain telephone and

fax numbers; and (iv) “all of [Wonder’s] rights, title and interest in the domain name

‘www.nrgusa.com, and Website content.’” ECF No. 50-32 at 1–2 (APA). Despite the language

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in the APA, in its counterstatement to Defendant’s 56.1 statement, Plaintiff claims that “it did not

purchase Wonder[’s] . . . clients that they did business with in the past . . . . Plaintiff only

purchased existing contracts that were to expire so they could show the client they were different

and earn the right to have the contract under [Hyped].” ECF No. 48-1 ¶ 36.

Seeking to collect unpaid taxes owed by Wonder, beginning in October 2020, the IRS

allegedly enforced tax levies against a number of Wonder’s clients, including:

Vendor/Client Total Amount Levied

ProHEALTH Dental (“ProHEALTH”) $10,265.972

Ringo LLC (“Ringo”) $572,392.403

Kedrion Biopharma Inc. (“Kedrion”) $18,241.064

H2M Architects Engineers Land Survey $4,284.00

Architecture DPC (“H2M”)

Certified Laboratories Inc. (“Certified Labs”) $134,669.56

Webster Bank $45,000.00

RSM Electron Power, Inc. (“RSM”) $3,771.71

ECF No. 26 ¶¶ 11–30; ECF No. 31 ¶¶ 11–30. “All of these are levies of contract receivables

except for the $45,000 levied from Webster Bank.” ECF No. 56-1 ¶ 63.

2 Plaintiff alleges that Defendant has enforced levies against ProHEALTH for a total

amount of $58,334.46. ECF No. 26 ¶ 11 (Amended Complaint). Defendant admits the IRS

received $10,265.97, but “lacks knowledge or information sufficient to admit or deny the [total]

amount plaintiff claims that the IRS has collected from this levy source.” ECF No. 31 ¶¶ 11

(Defendant’s Answer).

3 Plaintiff alleges that Defendant has enforced levies against Ringo LLC for a total amount

of $1,187,195.54. ECF No. 26 ¶ 27. Defendant admits the IRS received $572,392.40, but denies

Plaintiff’s total amount. ECF No. 31 ¶¶ 15, 18–19, 26–27.

4 Plaintiff alleges that Defendant has enforced levies against Kedrion for a total amount of

$80,153.22. ECF No. 26 ¶ 20. Defendant admits the IRS received $18,241.06, but “lacks

knowledge or information sufficient to admit or deny the [total] amount plaintiff claims that the

IRS has collected from this levy source.” ECF No. 31 ¶ 20.

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On September 23, 2022, Plaintiff filed an amended complaint “seeking recovery of

wrongfully levied funds.” ECF No. 26 ¶ 1. Plaintiff alleges that it has an interest in the property

levied by Defendant. Id. ¶ 33.

On January 24, 2023, Defendant filed its motion for summary judgment. ECF No. 50.

On March 31, 2023, Plaintiff filed its opposition, and shortly thereafter Defendant filed its reply.

ECF Nos. 55, 56.

LEGAL STANDARD

Summary judgment is appropriate “if the movant shows that there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a). In other words, a court should grant summary judgment “if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and that the moving party is entitled to a

judgment as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986).5 The

moving party has the burden of demonstrating that there is no genuine issue of material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “Where the moving party demonstrates the

absence of a genuine issue of material fact, the opposing party must come forward with specific

evidence demonstrating the existence of a genuine dispute of material fact.” Brown v. Eli Lilly &

Co., 654 F.3d 347, 358 (2d Cir. 2011). In deciding a summary judgment motion, any

ambiguities and inferences drawn from the facts must be viewed in the light most favorable to

the nonmoving party. LaFond v. Gen. Physics Servs. Corp., 50 F.3d 165, 171 (2d Cir. 1995).

5 Unless noted, case law quotations in this Order accept all alterations and omit all internal

quotation marks, citations, and footnotes.

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DISCUSSION

“[U]nder 26 U.S.C. § 7426(a)(1) . . . a person claiming an interest in property that the

IRS has levied upon may bring a civil action in the federal courts to dissolve that levy. An action

for wrongful levy under section 7426(a)(1) initially requires the plaintiff to prove title to or an

ownership interest in the property levied upon, which would then shift the burden to the

Government to demonstrate a nexus between the property and the taxpayer, after which the

plaintiff would have the ultimate burden to prove the levy was wrongful.” Kopec v. Kopec, 70 F.

Supp. 2d 217, 219 (E.D.N.Y. 1999). “A levy will only be found to be wrongful when plaintiff

proves that (1) the IRS filed a levy covering taxpayer liability against property held by the

plaintiff; (2) the plaintiff had an interest or lien on that property superior to the government’s

interest; and (3) the levy was wrongful because the tax debtor does not own the property levied

against.” Nassar Fam. Irrevocable Tr. v. United States, No. 13-cv-5680, 2016 WL 5793737, at

*11 (S.D.N.Y. Sept. 30, 2016); see also Marshall v. United States, 831 F. Supp. 988, 997

(E.D.N.Y. 1993) (articulating three-part test); Century Hotels v. United States, 952 F.2d 107, 109

(5th Cir. 1992) (holding that in order for plaintiff to prove a wrongful levy, “it was required to

show: 1) the IRS filed a levy covering taxpayer liability against property held by [plaintiff], 2)

[plaintiff] had an interest or lien on that property superior to the interest of the IRS, and 3) the

levy was wrongful because [tax debtor] did not own the property, at least in part”). “If plaintiff

fails to sustain the burden [of proving that the levy was wrongful], the levy on the property

interest will be upheld.” Marshall, 831 F. Supp. at 997.

Defendant moves for summary judgment on Plaintiff’s wrongful levy claim on several

grounds: (i) Plaintiff cannot establish that it has an interest in the levied contract receivables; (ii)

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Plaintiff cannot establish that its interest is superior to that of the United States; and (iii) Plaintiff

never made valid service of process on Defendant. See generally ECF No. 50-1.

I. Plaintiff Has Not Established an Ownership Interest in the Levied Funds

Within the Meaning of 26 U.S.C. § 7426(a)(1)

Defendant argues that it is entitled to summary judgment because Hyped does not have

an ownership interest in the levied funds: (i) the APA did not transfer the contract rights from

Wonder to Hyped; (ii) Wonder did not separately assign the contracts to Hyped; and (iii) Hyped

did not have a right to the levied funds under any new-post APA contracts. ECF No. 50-1 at 14–

15. Defendant further argues that as a result, Plaintiff cannot carry the initial burden of proving

that “the IRS filed a levy covering taxpayer liability against property held by the plaintiff.”

Nassar, 2016 WL 5793737, at *11. In its opposition, Plaintiff concedes that “it did not acquire

any of Wonder’s receivables nor any contractual rights related to Wonder clients,” but that it

purchased Wonder’s client list, and that it is entitled to receivables it earned separately and apart

from Wonder. ECF No. 55 at 12, 14–15 (“[Q]uestions of fact concerning the percentage of levy

proceeds constituting Hyped (as opposed to Wonder) receivables remain for trial . . . . [T]he IRS

cannot collect receivables corresponding to services Hyped provided after the levy was served.”)

(emphasis in original).6

As established previously, “the initial burden of proof is on the plaintiff to prove title to

or an ownership interest in the property levied upon by the Government and that the Government

levied upon the property because of a tax assessment against another taxpayer.” Marshall, 831

F. Supp. at 997; see also Kopec, 70 F. Supp. 2d at 219. In support of its contention that it has an

6 Plaintiff’s opposition contradicts its Counterstatement in Response to Defendant’s Rule

56.1 Statement in which it states that it purchased the existing contracts. See ECF No. 48-1 ¶ 38

(“Plaintiff never purchased the accounts receivables from [Wonder], only the contracts.”).

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interest in the levied funds, Plaintiff submits a declaration in which Missirlian asserts that Hyped

had “short-term informal agreements” with Wonder’s clients, provided services to these clients,

and has outstanding invoices for services rendered. ECF No. 55-1 at 2–3 (Missirlian

Declaration); ECF Nos. 55-4, 55-5, 55-6, 55-7, 55-8 (Invoices for Kedrion, ProHEALTH,

Certified Labs, H2M, and RSM). As such, Plaintiff alleges that it has met its burden to establish

that Hyped has an interest in the levied funds. The Court disagrees.

“[O]nly persons claiming specific, possessory rights are entitled to seek judicial review. .

. . Their mere claim of a contractual right to be paid, unsecured by a lien or other specifically

enforceable property interest, does not provide judicial access. To hold otherwise would invite

litigation from numerous parties only remotely aggrieved by IRS levies, with consequent

disruptive effects on federal tax enforcement.” Valley Fin., Inc. v. United States., 629 F.2d 162,

169 (D.C. Cir. 1980), cert. denied, 451 U.S. 1018 (1981) (holding that general creditors without

a security interest in the property seized did not having standing to sue); see also Austin &

Laurato, P.A. v. United States, 539 F. App’x 957, 960 (11th Cir. 2013) (“[T]he right of a third

party to challenge a wrongful levy is confined to persons who have a fee simple or equivalent

interest, a possessory interest, or a security interest in the property levied upon.”) (citing

Frierdich v. United States, 985 F.2d 379, 383 (7th Cir. 1993)); Goodrich v. United States, 3 F.4th

776, 780 (5th Cir. 2021) (“[U]nsecured creditors cannot sue for wrongful levy.”). Plaintiff

alleges that “[a]t the time the government’s levies were issued . . . , Hyped had billed and was

owed significant amounts” of money, but does not otherwise allege a “specific, possessory”

interest in the levied funds akin to a lien or security interest. ECF No. 55 at 7. While Hyped

alleges that its business relationships with the levy sources were “conducted informally,” it fails

to put forth any evidence that it held a lien on the levied funds. ECF No. 55-1 at 3 (Missirlian

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Declaration). Accordingly, as an unsecured creditor, Hyped does not have standing to bring this

action, and thus has not met its burden to establish the necessary “ownership interest in the

property levied.” Kopec, 70 F. Supp. 2d at 219. Granting summary judgment in favor of

Defendant is, therefore, appropriate.

II. The IRS Levies Were Not Wrongful

Defendant contends that the IRS levies were not wrongful because there is no genuine

issue of material fact as to whether the United States’ tax liens against the levied funds have

priority over any interest Hyped may have, if any. ECF No. 50-1 at 21–22. Defendant further

argues that “any interest that Hyped held in the levied property was necessarily acquired from

Wonder subject to the preexisting federal tax liens.” Id. at 22. Plaintiff counters that any money

generated from its placement of “temporary workers with the levy sources” are “beyond the

reach of any levy to collect Wonder property.” ECF No. 55 at 12–13. Plaintiff further argues

that the “IRS collected more in levy proceeds than [it is] entitled to.” Id. at 13.

Although the Court does not need to reach this issue in light of its finding that Plaintiff

has not met its burden of demonstrating an interest in the levied funds, the Court also finds that

Plaintiff has not met “the ultimate burden” of proving that the levies were wrongful. Kopec, 70

F. Supp. 2d at 219. “The transfer of property subsequent to the attachment of the [federal tax]

lien does not affect the lien, for it is of the very nature and essence of a lien, that no matter into

whose hands the property goes, it passes cum onere.” United States v. Bess, 357 U.S. 51, 57

(1958); United States v. Aiello, No. 11-cv-1886, 2013 WL 3998468, at *4 (E.D.N.Y. Apr. 15,

2013), report and recommendation adopted, 2013 WL 2383001 (E.D.N.Y. May 30, 2013)

(quoting Bess and finding that “the recording of the government’s lien ensured its priority over

any subsequent transferee”). In other words, “[o]nce a federal tax lien has attached to a

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taxpayer’s property pursuant to section 6321, that property remains subject to the lien even if the

property is later transferred from the taxpayer to a third party.” Snyder v. United States, No. 88-

cv-2136, 1995 WL 724529, at *7 (E.D.N.Y. July 26, 1995), report and recommendation

adopted, No. 88-cv-2136 (E.D.N.Y. Aug. 18, 1995) (ECF No. 45).

On August 27, 2020, the IRS sent Wonder a letter “demanding payment of Wonder’s

past-due tax liabilities by September 11, 2020, and warning Wonder that the IRS would begin

collecting via levy if the taxes were not paid.” ECF No. 56-1 ¶ 31. Pursuant to the Internal

Revenue Code, the tax liens on the levied funds arose at the time the IRS made its assessment

and sent Wonder a letter in August 2020. See 26 U.S.C. § 6322 (“[T]he lien imposed by section

6321 shall arise at the time the assessment is made and shall continue until the liability for the

amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied

or becomes unenforceable by reason of lapse of time.”). Accordingly, by the time Wonder and

Hyped entered into the APA, any potential interest Hyped may have had in any levied funds was

necessarily encumbered by the federal tax liens. Thus, Plaintiff has failed to establish a genuine

issue of material fact as it relates to whether Hyped has an interest in or lien on, the levied funds

superior to Defendant’s interest.

Plaintiff does not directly address whether its interest in the levied funds is superior to

Defendant’s, and instead argues that Defendant cannot “demonstrate that 100% of the levy

proceeds it received are the property of Wonder as distinguished from property of Hyped.” ECF

No. 55 at 14 (emphasis in original). In doing so, Plaintiff jumps ahead to the third step in the

analysis set forth in Nassar: whether the “tax debtor does not own the property levied.” 2016

WL 5793737, at *11. The Court need not address Plaintiff’s argument because it grants

summary judgment in favor of Defendant on the basis that: (i) Plaintiff does not have an

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ownership interest in the levied funds within the meaning of 26 U.S.C. § 7426(a)(1), and

accordingly does not have standing to sue, and (ii) even if it had an ownership interest, Plaintiff

has failed to establish a genuine issue of material fact with respect to whether its interest has

priority over Defendant’s interest. Nevertheless, the Court finds Plaintiff’s argument to be

unpersuasive. ECF No. 55 at 14. First, Plaintiff presents no evidence that the levy sources

agreed to enter into agreements (formal or informal) with Hyped as opposed to Wonder other

than a declaration from Missirlian, which contradicts Plaintiff’s prior assertions.7 Compare ECF

No. 48-1 ¶¶ 36–37 (Counterstatement to Defendant’s Rule 56.1 Statement) (“Plaintiff only

purchased existing contracts that were to expire . . . . Plaintiff never purchased Wonder Partners’

client list.”), with ECF No. 55 at 12 (“Hyped . . . did not acquire any of Wonder’s receivables nor

any contractual rights related to Wonder clients. . . . Hyped merely purchased the client list. . .

.”). Accordingly, Missirlian’s declaration alone is insufficient to support Plaintiff’s contention

that the levy sources agreed to do business with Hyped. See Shantou Real Lingerie Mfg. Co.,

Ltd. v. Native Grp. Int’l Ltd., 401 F. Supp. 3d 433, 438 (S.D.N.Y. 2018) (“[A] party cannot

escape summary judgment . . . by submitting self-serving affirmations that contradict prior

testimony asserted in depositions, interrogatories, or affidavits.”). Moreover, as Defendant

points out, Plaintiff itself admits that “[c]lients were still paying Wonder . . . instead of Plaintiff,”

ECF No. 48-1 ¶ 41, and at least one client, Ringo, has asserted that it did business with Wonder

and “did not become aware of any entity operating under the name of ‘Hyped’ . . . until on or

7 In discovery, Plaintiff allegedly did not provide Defendant with copies of contracts with

any third parties at issue in the instant wrongful levy action with the exception of one, Kedrion.

However, the $18,241.06 levy payment was made for services “owed to Wonder Partners Inc.”

ECF No. 50-55 (Kedrion Letter attaching check to IRS dated October 5, 2021); see also ECF No.

56 at 8 (Defendant Motion).

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about May 19, 2021.” ECF No. 50-42 at 10 (Declaration of Managing Director of Ringo in

Hyped Holdings LLC v. Ringo, LLC, No. 610622/2021 (N.Y. Sup. Ct.)). As a result, Plaintiff has

failed to establish a genuine issue of material fact as to whether the levy proceeds Defendant

received are the property of Hyped as opposed to Wonder.8

III. Plaintiff’s Failure to Serve Defendant Warrants Dismissal Without Prejudice

Pursuant to Rule 4(m)

Defendant argues that “a third independent ground for dismissal . . . is that Hyped never

made valid service of process” on Defendant. ECF No. 50-1 at 25. Plaintiff does not dispute

that it did not properly serve Defendant, but instead contends that “procedural deficiencies . . . do

not warrant dismissal.” ECF No. 55 at 15.

Rule 4(m) of the Federal Rules of Civil Procedure provides that, “[i]f a defendant is not

served within 90 days after the complaint is filed, the court—on motion or on its own after notice

to the plaintiff—must dismiss the action without prejudice against that defendant or order that

service be made within a specified time. But if the plaintiff shows good cause for the failure, the

court must extend the time for service for an appropriate period.” Fed. R. Civ. P. 4(m) (emphasis

added). Plaintiff filed its complaint on February 8, 2022, and its amended complaint on

September 23, 2022. ECF Nos. 1, 26. To date, Plaintiff has not served Defendant. ECF No. 56

at 13.

8 In its opposition, Plaintiff argues that this Court cannot enter judgment in favor of

Defendant because of Defendant’s suggestion that Hyped is the alter ego or successor of

Wonder. See ECF No. 55 at 10 n.7; see also ECF No. 26 ¶ 1 (Amended Complaint) (alleging

that Defendant issued a “Notice to Alter Ego of Federal Tax Lien Filing” to Plaintiff and asserted

that Plaintiff was an alter ego and successor in interest of Wonder). The Court agrees with

Defendant that it need not reach the issue of whether Hyped is Wonder’s successor or alter ego.

See ECF No. 50-1 at 13 n.4. As discussed previously, the Court need not determine whether the

“tax debtor does not own the property levied,” the third step in the Nassar analysis because it

grants summary judgment in favor of Defendant on other grounds. 2016 WL 5793737, at *11.

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Because the Court grants summary judgment in favor of Defendant, it does not need to

alternatively dismiss the action for insufficient service of process. The Court notes, however,

that Plaintiff’s counsel’s neglect in failing effectively to serve Defendant is not a showing of

good cause, and the Court would have dismissed the action without prejudice as required by Rule

4(m) if necessary. See Smalls v. City of New York, No. 15-cv-3017, 2019 WL 1243823, at *5

(E.D.N.Y. Mar. 18, 2019) (“Prolonged attorney neglect is not . . . an excuse [for failure to timely

serve.]”); Zapata v. City of New York, 502 F.3d 192, 199 (2d Cir. 2007) (upholding the district

court’s refusal to extend time where the represented plaintiff “made no effort to effect service

within the service period” and “neglected to ask for an extension within a reasonable period of

time”).

CONCLUSION

For the foregoing reasons, the Court GRANTS the motion for summary judgment and

dismisses Plaintiff’s amended complaint. The Clerk of Court is respectfully directed to enter

judgment and close this case.

SO ORDERED.

/s/ Hector Gonzalez

HECTOR GONZALEZ

United States District Judge

Dated: Brooklyn, New York

September 19, 2023

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