` LINK:
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Case No.
`Title
`
`CIVIL MINUTES - GENERAL
`Date August 15, 2014
`CV 13-3291 GAF (RZx)
`United States of America v. JPMorgan Chase Bank NA
`
`Present: The Honorable
`Stephen Montes Kerr
`Deputy Clerk
`Attorneys Present for Plaintiff:
`None
`
` GARY ALLEN FEESS
`N/A
`None
`Tape No.
`Court Reporter / Recorder
`Attorneys Present for Defendant:
`None
`
`Proceedings:
`
`(In Chambers)
`
`FINDINGS OF FACT AND CONCLUSIONS OF LAW
`
`I.
`INTRODUCTION
`
`At the pre-trial conference in this case, the parties, after conferring with the Court, agreed
`that the material facts were not in dispute and that the case could be submitted to the Court for
`decision on their pre-trial filings, agreeing to what amounts to a stipulated facts trial. (Docket
`No. 54 [Pl. Mem. of Fact and Law (“Pl. Mem.”)]; Docket No. 56 [Def. Mem. of Fact and Law
`(“Def. Mem.”)].) The undisputed facts present the Court with a purely legal question arising out
`of a failed attempt by the Internal Revenue Service (“IRS”) to impose a levy on a delinquent
`taxpayer’s bank accounts.
`
`In 2009, James Waterman (“Waterman”) received a tax refund of $75,169, even though
`his adjusted gross income for the prior year was only $21,594. Discovering the discrepancy,
`revenue officer Ted Hanson (“Hanson”) was assigned to recover the money for the IRS. In an
`effort to do so, Hanson served a jeopardy levy on Defendant JPMorgan Chase Bank, N.A.
`(“Chase” or “Defendant”). The levy would have allowed the IRS to seize assets in two bank
`accounts held by Chase in the taxpayer’s name.
`
`However, after service of the notice of levy but before Chase acted to freeze the accounts,
`Waterman withdrew $40,000 from his accounts. The United States of America (“Plaintiff” or
`the “United States”) has been unable to recover those funds from Waterman, and therefore seeks
`recovery from Chase. Defendant argues that it froze the accounts with reasonable speed, and
`should not be held responsible for Waterman’s ability to evade the IRS’s levy.
`
`CV-90 (06/04)
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`CIVIL MINUTES - GENERAL
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`Page 1 of 7
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`Case 2:13-cv-03291-GAF-RZ Document 59 Filed 08/15/14 Page 2 of 7 Page ID #:1436
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Case No.
`Title
`
`CIVIL MINUTES - GENERAL
`Date August 15, 2014
`CV 13-3291 GAF (RZx)
`United States of America v. JPMorgan Chase Bank NA
`
`Plaintiff’s suit is premised on the rule that “[a]ny person who fails or refuses to surrender
`any property . . . subject to levy . . . shall be liable in his own person and estate to the United
`States.” 26 U.S.C. § 6332(d)(1). This statute is not specific as to the expediency with which this
`“surrender” must occur, and the Court previously denied summary judgment to the United States
`because of this ambiguity.
`
`However, following a further review of the applicable statutes and caselaw, the Court is
`compelled to change course. When Waterman refused to pay the IRS, the United States was left
`with only one option: to place a levy on his bank accounts. It did so, shifting any risk that the
`money might disappear onto Chase’s shoulders. Accordingly, the Court must GRANT
`JUDGMENT in favor of the United States. The Court sets forth its reasoning, in further detail,
`below.
`
`II.
`FINDINGS OF FACT
`
`James Waterman’s adjusted gross income for 2008 was $21,584. (Docket No. 54-1
`[Pretrial Conference Order, Stipulated Facts (“Stip. Facts”)] ¶ 5a.) Nonetheless, in August 2009,
`he received a refund of $78,169 from the IRS. (Id. ¶ 5b.) Shortly thereafter, the IRS determined
`that the refund had been issued in error and that Waterman actually owed $92,779. (Id. ¶ 5c.)
`Waterman’s case was then assigned for collection to revenue officer Ted Hanson. (Id. ¶ 5e.)
`The Office of the Chief Counsel for the IRS then approved the issuance of a jeopardy levy on
`
`Waterman’s bank accounts. (Id. ¶ 5f.)
`
`At around 9:30 a.m. on September 9, 2009, Hanson went to Waterman’s home with the
`levy in hand, notified him that he owed the IRS roughly $93,000, and, in accordance with IRS
`statutory authority, demanded payment. (Id. ¶¶ 5g, 5i, 5j.) Waterman did not pay the balance of
`his debt at that time, so Hanson served him with a series of documents, including a notice that
`the IRS intended to levy his bank accounts. (Id. ¶¶ 5j, 5k.)
`
`Up to this time, though, the jeopardy levy had not actually been presented to Waterman’s
`bank. (Id. ¶¶ 5m, 5n.) Therefore, after leaving Waterman’s home, Hanson drove to a local
`Chase branch, where Waterman had two bank accounts. (Id. ¶¶ 5m, 5s.) He had $40,050.43 in
`one account, and another $7,325.04 in the second. (Id. ¶ 5t, 5u.) Defendant subsequently
`deposited another $0.32 in interest into one of the accounts, for a combined total of $47,375.79.
`(Id. ¶ 5w.)
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`CV-90 (06/04)
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Case No.
`Title
`
`CIVIL MINUTES - GENERAL
`Date August 15, 2014
`CV 13-3291 GAF (RZx)
`United States of America v. JPMorgan Chase Bank NA
`
`Just before 9:50 a.m. on September 9, Hanson served the jeopardy levy on one of Chase’s
`employees. (Id. ¶ 5v.) She in turn faxed the levy to Defendant’s central processing office at
`9:50 a.m. (Id. ¶ 5cc.) However, less than two hours later—and before Chase had frozen or
`seized the taxpayer’s accounts—Waterman withdrew $40,000 from his accounts. (Id. ¶5y.)
`
`Chase eventually froze Waterman’s accounts two days later, on September 11, 2009, at
`7:59 a.m. (Id. ¶ 5x.) By that time, the first account had been drained to only $50.75, while the
`other had apparently grown to $7,608.73. (Id. ¶¶ 5dd.) Chase subsequently sent all of this
`money—a grand total of $7,659.48—to the IRS on October 1, 2009. (Id. ¶ 5ee.)
`
`III.
`CONCLUSIONS OF LAW
`
`A. IRS LEVIES
`
`The Commissioner of the IRS or his delegate may collect taxes “by levy upon all property
`and rights to property” belonging to a person who “neglects or refuses to pay” any tax. 26
`U.S.C. § 6331(a). Such a levy includes “the power of distraint and seizure by any means.”
`G.M. Leasing Corp. v. United States, 429 U.S. 338, 350 (1977) (citing 26 U.S.C. §§ 6331(a) and
`7701(21)). Moreover, “[a]ny person who fails or refuses to surrender any property . . . subject to
`levy . . . shall be liable in his own person and estate to the United States.” 26 U.S.C. §
`6332(d)(1).
`
`Two broad categories of levy are relevant to the consideration of this motion: levies with
`something like full notice, and levies with partial notice. When pursuing a levy under the former
`category, the IRS must first give the taxpayer prior notice of its intent to pursue a levy. 26
`U.S.C. § 6330(a)(1). This notice must include sufficient information to inform the taxpayer of
`his due process rights. Id. “Upon receiving this notice, the taxpayer has a right to request a
`collection due process (CDP) hearing with the IRS Office of Appeals.” Zapara v. Comm’r, 652
`F.3d 1042, 1044 (9th Cir. 2011) (citing 26 U.S.C. § 6330(b)).
`
`The second category, which holds the IRS to lesser notice requirements, includes levies
`imposed after a jeopardy assessment. This category may be invoked “when the taxpayer is or
`appears to be: (1) [p]lanning to depart from the United States, or conceal himself or herself; (2)
`planning to place his property beyond the reach of Commissioner by concealing it, by
`dissipating it, or by transferring it to other persons; or (3) financially imperiled.” Hoover v.
`Comm’r, 91 T.C.M. (CCH) 1053 (2006) (citing 26 C.F.R. § 1.6851–1); 26 U.S.C. § 6331(a).
`“Generally, if collection is in jeopardy, the [IRS] makes a jeopardy assessment, immediately
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Case No.
`Title
`
`CIVIL MINUTES - GENERAL
`Date August 15, 2014
`CV 13-3291 GAF (RZx)
`United States of America v. JPMorgan Chase Bank NA
`
`serves a notice and demand on the taxpayer, and then makes a jeopardy levy.” Michael I.
`Saltzman, IRS PRACTICE AND PROCEDURE, ¶ 10.05[6]. “[W]hen a jeopardy assessment is made .
`. . statutory notice [is] waived.” United States v. Matthews, 1992 U.S. Dist. LEXIS 13727, at
`*23 (E.D. Wash. Aug. 19, 1992). However, while the jeopardy assessment waives the
`requirement that a taxpayer be notified of his rights and the proposed levy, the IRS must still
`provide a more limited “notice and demand for immediate payment.” 26 U.S.C. § 6331(a);
`Matthews, 1992 U.S. Dist. LEXIS 13727, at *23. The levy may be imposed mere moments after
`the notice and demand are made, but the taxpayer must nevertheless be given one final chance to
`pay his delinquent accounts before the levy is instituted.
`
`B2. THE LEVY PROCESS IN THIS CASE
`
`This action derives from a failed attempt to impose a levy under the second category: a
`jeopardy levy, with lesser notice. The IRS determined that Waterman owed roughly $93,000 in
`back taxes, and its Office of the Chief Counsel approved a jeopardy levy on two of Waterman’s
`bank accounts maintained by Chase. (Stip. Facts ¶¶ 5c, 5f.) An IRS agent then presented
`himself at Waterman’s residence, notified the taxpayer of his debt, and demanded payment. (Id.
`¶¶ 5g, 5i, 5j.)
`
`As described above, a jeopardy assessment allows the IRS to impose a levy immediately
`after making a demand for payment. Crucially, while it still requires that demand for payment
`be made before the levy is imposed, the taxpayer need not be notified that a levy has already
`been approved. 26 U.S.C. § 6331(a); Matthews, 1992 U.S. Dist. LEXIS 13727, at *23.
`
`But here, when Waterman refused to pay, the IRS agent provided him with notice of the
`levy anyway. (Stip. Facts ¶ 5j.) Thereafter the agent went directly to a branch of Chase bank
`and served the levy on a bank official. (Id. ¶¶ 5m, 5n, 5v.) The official faxed the levy to a
`central processing unit, where it sat for two days. (Id. ¶¶ 5cc, 5x.) In the meantime, no
`temporary hold was placed on any of Waterman’s accounts, even though 26 U.S.C. § 6332 holds
`liable “[a]ny person who fails or refuses to surrender any property . . . subject to levy.” (Id. ¶
`5y.)
`
`When Waterman raced to the bank two hours after the IRS agent’s demand, he was able
`to withdraw $40,000. (Id.) The money has not been seen since. (Id. ¶ 5hh.)
`
`/ / /
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`CV-90 (06/04)
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`CIVIL MINUTES - GENERAL
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Case No.
`Title
`
`CIVIL MINUTES - GENERAL
`Date August 15, 2014
`CV 13-3291 GAF (RZx)
`United States of America v. JPMorgan Chase Bank NA
`
`C. THE IMPLICATIONS OF WATERMAN’S $40,000 WITHDRAWAL
`
`Because this case involved a jeopardy levy, the IRS did not need to tell Waterman of its
`intent to seize his bank accounts before serving the levy on Chase. While the IRS agent was
`required to provide one final “notice and demand for immediate payment” before instituting a
`levy, 26 U.S.C. § 6331(a), his decision to make a further statement regarding the levy was not
`required and, in hindsight, was ill advised. Providing notice to Waterman of the IRS’s intention
`to levy his bank accounts may have spurred Waterman to withdraw money from those accounts
`before Chase had the opportunity to freeze them.
`
`Nevertheless, while telling Waterman of the levy itself was clearly improper, there are
`only two defenses to a violation of 26 U.S.C. § 6332, which holds parties liable for failing to
`surrender property subject to a levy. First, that the defendant “did not possess any property or
`rights to property of the taxpayer,” and second, that “the property was subject to a prior
`attachment or execution.” United States v. Hemmen, 51 F.3d 883, 887–88 (9th Cir. 1995). The
`Parties agree that neither is applicable here. (Stip. Facts ¶¶ Def. 7c, 8.)
`
`Instead, Defendant turns to a series of equitable defenses: contribution, violation of
`internal policies, unclean hands, reasonableness, failure to mitigate, “full satisfaction,” “full
`performance,” lack of damages, and offset.1 (Id. ¶¶ Def. 7a, Def. 7c.) Chase contends, in
`essence, that its only obligation under 26 U.S.C. § 6332 is to surrender property within a
`reasonable period of time. (Id. ¶ Def. 7c.) It further argues that it was denied the opportunity to
`take reasonable steps to locate Waterman’s bank accounts because agent Hanson disclosed the
`IRS’s intention to levy the accounts. (Id.) According to Chase, the IRS’s actions allowed
`Waterman to take possession of the funds before they could be frozen, and the IRS therefore
`caused the loss. (Id.)
`
`The Court previously adopted this equitable reasoning, albeit only in part, while denying
`Plaintiff’s initial motion for summary judgment. (Docket No. 40 [2/27/14 Order].) As the Court
`said then, “[h]aving ignored the statutory objective by tipping Waterman to its intentions, the
`IRS can hardly cast the blame for its own failure on Chase.” (Id. at 5.)
`
`1 One defense falls outside this rubric. Chase argues that it complied with 26 U.S.C. § 6332 by freezing
`Waterman’s funds on September 11. (Stip. Facts ¶ Def. 7c.) While this may be true for the $7,659.48 actually
`seized, it has little bearing on the $40,000 withdrawn on September 9. The question before the Court is who bears
`the risk of loss as a result of the bank’s delay in freezing Waterman’s accounts.
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Case No.
`Title
`
`CIVIL MINUTES - GENERAL
`Date August 15, 2014
`CV 13-3291 GAF (RZx)
`United States of America v. JPMorgan Chase Bank NA
`
`The fact of the matter, though, is that the IRS was required to tip Waterman off no matter
`what. Even when jeopardy assessments are made, the IRS must provide notice of demand for
`immediate payment before any levy may be imposed. 26 U.S.C. § 6331(a). While this notice
`does not necessarily inform the taxpayer that bank accounts will soon be levied, it certainly lets
`them know that something is afoot.
`
`Moreover, Section 6332 does not contain any reasonableness element that would delay
`the vesting of the United States’ interest in property under a bank’s control. The only
`requirement is that a bank “surrender any property . . . subject to levy” or risk being held liable
`for the disappearance of that property. 26 U.S.C. § 6332(d)(1). While it is true that the bank
`need not immediately “surrender” the property, it must upon being given notice preserve that
`property or run the risk of paying the depositor’s tax bill. That is the state of affairs here.
`Waterman’s money was “property . . . subject to levy,” the IRS agent served the bank with the
`levy giving it notice of the government’s claimed interest in the property, and Chase allowed it
`to slip away. Section 6332 is therefore applicable.
`
`This reasoning is strengthened by a separate provision of Section 6332, which provides
`for an additional penalty “equal to 50 percent of the amount recoverable” if a person fails to
`surrender “property or rights to property without reasonable cause.” 26 U.S.C. § 6332(d)(2). As
`subsection (d)(2) makes clear, this penalty is applicable in addition to the recovery authorized in
`subsection (d)(1). The necessary inference is that, while a bank may be liable for 150% of the
`value of levied property if it acts unreasonably, it may be liable for 100% of the levied property
`even when it acts reasonably.
`
`Finally, the Court is compelled to note two potential justifications for this statutory
`construction. First, under Defendant’s contrary line of reasoning, tax collection could easily be
`bogged down in disputes with third parties who fail to comply with a valid levy. Absent some
`statutory mandate, the Court is loath to impose such a granular inquiry on the levy process,
`which generally operates without judicial oversight. See United States v. Rodgers, 461 U.S.
`677, 682 (1983) (a levy is a provisional remedy and typically “does not require any judicial
`intervention”). Second, and equally as important, once the IRS has served a levy on a bank, the
`bank is in the best position to protect the property at issue. Plaintiff took advantage of the only
`tool it had by which to seize Waterman’s money; engaging in a reasonableness inquiry would
`give Defendant, a private bank, some degree of control over the government’s ability to collect
`taxes. And in light of the United States’ strong interest in tax collection, “some degree” of
`interference by private parties is simply too much.
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`CV-90 (06/04)
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`Case No.
`Title
`
`CIVIL MINUTES - GENERAL
`Date August 15, 2014
`CV 13-3291 GAF (RZx)
`United States of America v. JPMorgan Chase Bank NA
`
`The Court previously denied summary judgment to Plaintiff, rejecting an argument quite
`similar to the reasoning adopted above. But further review has altered the calculus and, as they
`say, “errasse humanum est; et confiteri errorem prudentis.”2 JEROME, THE EPISTLES, 57.12.
`Judgment must therefore be entered in Plaintiff’s favor.
`
`IV.
`CONCLUSION
`
`For the reasons given above, the Court finds in favor of the United States. Once the levy
`was served, Chase was the only party who could have precluded the dissipation of assets. It
`must therefore bear the burden of its delayed action. Plaintiff shall submit a proposed judgment
`consistent with this order no later than September 5, 2014.
`
`IT IS SO ORDERED.
`
`2 To have erred is human; it is wise to acknowledge the error.
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