The State Bank of Fraser, Cross-Appellant v. United States of America, Cross-Appellee

DAVID A. NELSON, Circuit Judge,

concurring in part and dissenting in part.

I concur in the disposition of all but one of the issues raised on appeal. That one is the issue of whether it was error for the district court to refrain from imposing a 50% penalty on the Bank. I cannot say that the district court was wrong in con-eluding that the Bank had "reasonable cause" for acting as it did when served with the Government's demand for the proceeds of Cannon's bank account, and I would therefore affirm the judgment of the district court across the board.

Before the Government had any tax lien on Cannon's property, the Bank had a security interest in the property. It is undisputed that the Bank's security interest extended to Cannon's checking account, which had a balance of $21,225.14 when the notice of levy was served in November of 1983. The Bank believed-honestly, if erroneously-that if it were to pay the $21,-225.14 over to the Government, as demanded in the notice of levy, it could get the money back through a wrongful levy action brought under 26 U.S.C. § 7426 . Such an action would have to be brought within the nine month period prescribed by 26 U.S.C. § 6532 (c); the statute of limitations would run in August of 1984.

Doing exactly what it had always done in the past in such situations, the Bank paid the proceeds of the customer's account directly to itself and told the Government, in writing, what it had done. There was no dissembling, no misrepresentation, and no fraudulent concealment. The Government knew perfectly well that from the Bank's vantage point, the Bank had merely put *968 itself in the position it would have been in had it incurred the trouble and expense of paying the money over to the Government and then recovering it back under § 7426. The Government had not objected to the Bank’s use of the alternative “self-help” procedure in the past.

On November 17, 1983, the Government hand-delivered a “final demand” (IRS Form 680-C) to a “vault clerk” of the Bank. (What the vault clerk may have done with the final demand form is uncertain; the officers of the Bank apparently knew nothing about it until the filing of the Government’s counterclaim in July of 1985.) The Form 680-C did not assert that the Government’s tax lien was superior to the Bank’s security interest, nor did it deny that the Bank would ultimately be able to recover the $21,225.14 in a wrongful levy action. In bold print, indeed, the form said “Please see the provisions of section 6332 of the Internal Revenue Code on the back of this form” — and the Supreme Court has made it clear that § 6332 of the Internal Revenue Code gives the Government nothing more than a “provisional remedy” which “does not determine whether the Government’s rights to the seized property are superior to those of other claimants....” United States v. National Bank of Commerce, 472 U.S. 713, 721 , 105 S.Ct. 2919, 2925 , 86 L.Ed.2d 565 (1985).

Almost a year and a half went by without any further action on the Government’s part. Only after the Bank had sued the Government in April of 1985 did the Government bestir itself to countersue for the disputed $21,225.14. By that time, of course, the Government could take comfort in the knowledge that a wrongful levy claim by the Bank with respect to the $21,-225.14 would be barred by the statute of limitations. The fact that the Government ultimately prevailed on its counterclaim does not mean that the Bank had acted unreasonably. The district court was not persuaded that the Government had shown the Bank to have acted without reasonable cause, and I am not persuaded that the Government has shown the district court to have erred in this regard. Insofar as this court’s judgment is to the contrary, I respectfully dissent.