                                                           F I L E D
                                                     United States Court of Appeals
                                                             Tenth Circuit
             UNITED STATES COURT OF APPEALS                 JUN 12 2000

                            TENTH CIRCUIT              PATRICK FISHER
                                                                 Clerk



UNITED STATES OF AMERICA,

      Plaintiff-Appellee,


BONNEVILLE DISTRIBUTING, a
Utah corporation,

      Plaintiff-Counter-Defendant-
      Appellant,

v.

TRIANGLE OIL COMPANY,                        No. 98-4147
                                       (D.C. No. 97-CV-071-S)
      Defendant,                               (Utah)

and

GREEN RIVER DEVELOPMENT
ASSOCIATES, a Utah corporation;
WILLIAMS S. GREAVES, an
individual; STANLEY DEWAAL, an
individual,

      Defendant-Counter-Claimant-
      Appellee.
                       ORDER AND JUDGMENT *


Before SEYMOUR, Chief Judge, BRISCOE and MURPHY,.



      This action was brought in state court by Bonneville Distributing, Inc.

against Green River Development Associates, Inc for breach of contract,

conversion, breach of fiduciary duty, and fraud arising out of a joint venture

agreement for the operation of Westwind Truck Stop in Green River, Utah. The

joint venture was originally between Triangle Oil, Inc. and Green River, but

Triangle’s interest was assigned in 1990 to Bonneville. At the time of the

assignment, Triangle’s property was subject to tax liens filed by the United States

against Triangle. Given these tax liens and a subsequent tax levy filed by the

United States against the joint venture, Green River filed a counterclaim in this

action naming the United States as an additional defendant and seeking

declaratory relief with respect to whether Bonneville or the United States was

entitled to receive payments from the joint venture. The district court granted

summary judgment in favor of the United States against Triangle and Bonneville



      *
       This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

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and in favor of Green River against Bonneville. Bonneville appeals only the

judgment in favor of Green River. We affirm in part and reverse in part.



                                          I

      In 1987, the IRS filed a tax lien against Triangle for unpaid excise taxes in

the amount of $1,166,206.13. It subsequently assessed this income tax liability

against Triangle along with penalty and interest. Doug Allred owned 90 percent

of Triangle’s stock and his two children owned the remainder. Triangle owned all

of the stock in Bonneville. In 1988 while Triangle was in financial difficulty,

Allred transferred all of the Bonneville stock from Triangle to his children. On

January 1, 1990, Triangle transferred its interest in the joint venture to Bonneville

with Green River’s consent. At that time, Doug Allred was the president of

Triangle and the general manager of Bonneville, and he was aware of the IRS tax

lien filed against Triangle.

      In August 1993, the IRS sent notices of tax levy to Green River’s attorney

and to the joint venture’s attorney. The notices listed Triangle as the taxpayer

then owing the total amount $2,746,028.08, and stated: “This levy requires you to

turn over to us this person’s property and rights to property (such as money,

credits, and bank deposits) that you have or which you are already obligated to

pay this person.” App. at 223, 226. In 1994, Green River asked the IRS whether


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it considered Bonneville’s interest in the joint venture, acquired from Triangle

with knowledge of the recorded tax lien, as subject to the liens and levy against

Triangle’s property. Receiving no response, Green River inquired again in June

1995. In the 1995 letter to the IRS, counsel for Green River stated, “Frankly, at

this point our client does not much care which position the Internal Revenue

Service takes, just so they take one.” Id. at 448.

      In response, the IRS informed Green River of its position that the 1993 levy

applied to Bonneville’s interest in the joint venture. In August 1995, the IRS

reiterated its position and informed Green River that if the joint venture were to

be dissolved, payment for Bonneville’s interest should be made to the IRS. In

December 1995, the IRS issued another notice of levy listing Triangle as the

taxpayer and the amount due as $3,774,075.27.

      In late December 1995, Green River, as the managing partner of the joint

venture, adopted a dissolution plan. The plan valued Bonneville’s interest in the

joint venture at $220,000 and stated it would tender to the IRS the funds to be

distributed to Bonneville under the plan. The IRS reviewed the plan and agreed

to accept the money in full satisfaction of the levies served on Green River. In

April 1996, Green River paid the IRS $92,079.02 as a portion of Bonneville’s

share, and began making monthly payments of $2,500 to the IRS.




                                          -4-
       Bonneville filed this action in state court against Green River claiming that

it had breached the joint venture contract and had defrauded Bonneville of the full

value of its interest. Green River interpleaded the United States and asked the

court to declare the value of Triangle’s interest in the joint venture and to quiet

title to that interest in either Bonneville or the United States. The government

removed the case to federal court and subsequently filed a separate complaint

against Triangle, Bonneville and Green River asking the court to reduce to

judgment its assessment against Triangle, to declare that Bonneville acquired

Triangle’s interest in the joint venture subject to the tax liens, and to foreclose the

liens. It also sought to set aside as fraudulent the transfer of the joint venture

interest from Triangle to Bonneville.

       The government and Green River both filed motions for summary

judgment. Bonneville essentially conceded the government’s motion, stating in

its response that “Triangle and Bonneville have no objection to the entry of

summary judgment in favor of the United States for a judgment against Triangle

for the amount of the tax lien and an order determining that Bonneville’s joint

venture interest is subject to the tax lien.” App. at 475. However, Bonneville

objected to foreclosing the joint venture interest or ordering a sale of that interest

until the court determined whether the tax levy had served to divest Bonneville of

its entire joint venture interest. Id.


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      With respect to Green River’s motion for summary judgment, Bonneville

took the position that the tax levy did not divest Bonneville of its interest in the

joint venture. It contended that Green River improperly dissolved the joint

venture, improperly valued Bonneville’s interest therein, and still owed

Bonneville money in excess of the $220,000 Green River had agreed to pay the

IRS. The district court decided these issues as a matter of law against Bonneville

and entered summary judgment for Green River. It held that all of Bonneville’s

claims against Green River were barred because it had not filed a wrongful levy

suit pursuant to 26 U.S.C. § 7426 1 in response to any of the IRS levies and was

therefore precluded from later challenging the service or scope of the levies.

Relying on Kane v. Capital Guardian Trust Co., 145 F.3d 1218 (10th Cir. 1998),

the court concluded that upon service of a notice of levy the IRS steps into the

taxpayer’s shoes and acquires the taxpayer’s rights to the property in question,


      1
          I.R.C. § 7426 provides in relevant part:

      (a) Actions permitted.
            (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.

26 U.S.C. § 7426(a)(1).

                                           -6-
here the interest in the joint venture that Bonneville acquired from Triangle

subject to the liens. As a result, the court reasoned, the IRS succeeded to

Bonneville’s right to consent to the dissolution of the joint venture and the

valuation of Bonneville’s interest therein. The court held that Green River was

statutorily obligated by 26 U.S.C. § 6332 2 to pay over Bonneville’s interest in the

joint venture to the IRS. Finally, the court held that there was no evidence Green



      2
          I.R.C. § 6332 provides in relevant part:

             (a) Requirement. Except as otherwise provided in this section, 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
      shall, upon demand of the Secretary, surrender such property or
      rights (or discharge such obligation) to the Secretary, except such
      part of the property or rights as is, at the time of such demand,
      subject to an attachment or execution under any judicial process.

               ****

               (d) Enforcement of levy.

                    (1) Extent of personal liability. Any person who fails or
      refuses to surrender any property or rights to property, subject to
      levy, upon demand by the Secretary, shall be liable in his own person
      and estate to the United States in a sum equal to the value of the
      property or rights not so surrendered, but not exceeding the amount
      of taxes for the collection of which such levy has been made,
      together with costs and interest on such sum at the underpayment rate
      established under section 6621 from the date of such levy. . . .

26 U.S.C. § 6332(a), (d).



                                           -7-
River acted in bad faith in complying with the levy, and that it was therefore

immune from suit by the taxpayer (or Bonneville) pursuant to 26 U.S.C. § 6332

(e). 3



                                           II

         Internal Revenue Code § 6331(a) authorizes the IRS to collect the taxes of

a delinquent taxpayer “by levy upon all property and rights to property . . .

belonging to such person or on which there is a lien.” It is undisputed that

Bonneville took Triangle’s interest in the joint venture subject to the existing tax

lien filed against Triangle. Consequently, when the IRS served the levy on

counsel for the joint venture for taxes owed by Triangle, the levy attached to the

interest of Triangle that had been transferred to Bonneville. Once the levy was

served, the IRS effectively stood in the shoes of Bonneville and acquired


         3
             I.R.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. § 6332(e).

                                           -8-
constructive possession of whatever rights Bonneville had in joint venture assets

in the possession of Green River. See United States v. National Bank of

Commerce, 472 U.S. 713, 720, 725-26 (1985); Kane, 145 F.3d at 1221; United

States v. Bell Credit Union, 860 F.2d 365, 368 (10th Cir. 1988).

      IRC § 6332(e) provides that one who honors a levy, as Green River did

here, “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.” See also Moore v. General Motors

Pension Plans, 91 F.3d 848, 850-51 (7th Cir. 1996) (§ 6632 shields third party

from claims that levy was defective). The IRS has interpreted this statutory

defense very broadly:

             [I]f the delinquent taxpayer has an apparent interest in
             property or rights to property, a person who makes good
             faith determination that such property or rights to
             property in his or her possession has been levied upon
             by the Internal Revenue Service and who surrenders the
             property to the United States in response to the levy is
             relieved of liability to a third party who has an interest
             in the property or rights to the property, even if it is
             subsequently determined that the property was not
             properly subject to levy.

26 C.F.R. § 301.6332-1(c)(2)(emphasis added). Bonneville admitted when it

conceded summary judgment to the IRS that its joint venture interest was subject

to the federal tax lien. Green Rivers’ persistence in contacting the IRS to

determine its position as to whether Bonneville’s interest in the joint venture was

                                         -9-
subject to Triangle’s tax lien establishes its good faith. Consequently, Green

River is entitled to the protection of section 6332(e).

       Having carefully reviewed the record, the briefs of the parties, and the case

law, we affirm the judgment of the district court on all issues relating to Green

River’s honoring of the federal tax levies by the IRS against Bonneville’s interest

in the joint venture. However, we reverse the judgment of the district court

insofar as it dismissed with prejudice all of Bonneville’ state law claims against

Green River. The district court did not deal separately with these claims in its

summary judgment order. On this record, we are not persuaded that all of

Bonneville’s state law claims are necessarily subsumed in Green River’s section

6332(e) defense. We therefore remand these claims for further consideration by

the district court.

       We AFFIRM the judgment of the district court in part, REVERSE in part,

and REMAND Bonneville’s state law claims for further consideration in light of

this opinion.

                                        ENTERED FOR THE COURT


                                        Stephanie K. Seymour
                                        Chief Judge




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