                   IN THE COURT OF APPEALS OF IOWA

                                 No. 15-1264
                            Filed August 31, 2016


RYAN SURBER,
     Plaintiff-Appellee,

vs.

ROBIN MARSHALL,
     Defendant-Appellant.


ROBIN MARSHALL,
     Counterclaimant,

vs.

RYAN SURBER,
     Counterclaim-Defendant.
________________________________________________________________


      Appeal from the Iowa District Court for Polk County, Robert B. Hanson,

Judge.



      The defendant appeals the district court’s order denying his motion for

partial discharge of a money judgment. REVERSED AND REMANDED.



      Randall H. Stefani of Ahlers & Cooney, P.C., Des Moines, for appellant.

      Jason A. Springer of Springer Law Firm, West Des Moines, for appellee.



      Considered by Tabor, P.J., and Bower and McDonald, JJ.
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MCDONALD, Judge.

      This case presents the question of whether a judgment debtor is entitled

to partial discharge of a money judgment entered against him for the amount the

judgment debtor paid to the Department of the Treasury pursuant to an Internal

Revenue Service (“IRS”) notice of levy on the judgment creditor’s property. We

conclude the judgment debtor is entitled to partial discharge of the money

judgment to the extent of the amount paid pursuant to the notice of levy.

                                        I.

      Ryan Surber and Robin Marshall entered into an asset purchase

agreement in December 2012 pursuant to which Surber agreed to sell client files,

computer data, records, and other assets related to his financial services

business. Marshall stopped making required payments to Surber in April 2013.

One point of contention between the parties was Surber’s failure to disclose to

Marshall federal tax liens against Surber at the time the parties entered into the

asset purchase agreement. In December 2013, Marshall received from the IRS

a notice of levy on Surber’s property. The notice included the direction, “This

levy requires you to turn over to us [Surber’s] property and rights to property

(such as money, credits, and bank deposits) that you have or which you are

already obligated to pay [Surber].”

      In May 2014, Surber filed this breach of contract action against Marshall,

and Marshall filed several counterclaims. The matter proceeded to jury trial. The

federal tax liens and levy were introduced as evidence during trial as evidence

related to Marshall’s claim Surber failed to disclose the liens to Marhshall. The

jury returned a verdict in favor of Surber and awarded him $414,328.48 in non-
                                         3


itemized damages. After the jury rendered its verdict, Marshall tendered funds

totaling $249,635.97 to plaintiff, his attorney, and the IRS.    Of that amount,

$137,702.57 was forwarded to the IRS (made payable to the United States

Treasury) and acknowledged as received by the IRS pursuant to the notice of

levy. An IRS revenue officer wrote a letter to Marshall dated June 3, 2015,

verifying receipt of the payment and confirming the payment “satisfies the levy”

on Surber’s property issued in December 2013.

       Marshall moved for setoff and/or discharge.          Marshall claimed an

entitlement to setoff because he was the owner of a judgment entered against

Surber on August 13, 2014, in the amount of $182,500, plus interest, costs, and

attorney’s fees. Marshall also claimed he was entitled to partial discharge of the

money judgment to the extent of Marshall’s payment to the federal government.

Surber resisted Marshall’s motion and moved the court to enter judgment in the

amount of $838,624.17—the full amount Surber had requested from the jury.

The district court denied the parties’ motions and entered judgment in the amount

of $414,328.48 plus interest, attorney fees, and court costs.       Marshall filed

another motion, seeking clarification on the federal tax issue. Surber resisted the

motion. In support of his resistance, Surber submitted an affidavit stating that he

had submitted to the IRS an offer in compromise of “all the pending Federal Tax

Liens,” that the offer in compromise had “been accepted” by the IRS in March

2014, and that the offer in compromise was “still pending” as of the date of the

affidavit. The district court denied Marshall’s motion:

       As stated in its previous ruling, the court does not know precisely
       how the jury arrived at the amount of damages it awarded to
       plaintiff in its verdict. The court only knows that the jury, after
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      finding for plaintiff on his claim against defendant and finding
      against defendant as to defendant’s affirmative defense and
      defendant’s counterclaim, awarded plaintiff damages in an amount
      ($414,328.48) which was only about half of what he asked. The
      court has no proof of how the jury arrived at that amount. However,
      the parties agree that the evidence received at trial and made
      available to the jury during its deliberations included, amongst other
      things, the subject I.R.S. notice of levy which stated the amount of
      $128,884.76 and evidence of I.R.S. liens against plaintiff. It seems
      to the court that it is at least conceivable that the jury took same
      into account in arriving at its damage amount. If so, then it does
      not seem appropriate to the court to give defendant a set off for
      same against the jury’s verdict.
             In any event, due to the uncertainty as to how the jury
      arrived at the amount of damages included in its verdict, the motion
      is DENIED.

Marshall now appeals the federal tax issue.

                                        II.

      Our review is for the correction of legal error. See Iowa R. App. P. 6.907.

The question presented is largely answered by federal law. 28 U.S.C. § 6332

provides:

      (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 [Secretary of the United States
          Treasury], 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.
          ....
      (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.
                                        5



The plain language of paragraph (a) requires a person in possession of property

levied upon by the IRS to surrender that property to the IRS. See Kay-Decker v.

Iowa State Bd. of Tax Review, 857 N.W.2d 216, 223 (Iowa 2014) (reviewing

principles of statutory interpretation, including looking to “plain and obvious

meaning” (citation omitted)). The plain language of subsection (e) provides a

person who honors such a levy is discharged from any obligation or liability to the

delinquent taxpayer with respect to the property surrendered.

      In applying the statute to the case at hand, we must first determine

whether Surber’s claim against Marshall was “property or rights to property”

within the meaning of the statute and thus subject to levy. Marshall received a

notice of levy dated December 6, 2013. The levy attached to any property of

Surber’s that Marshall possessed as of the date of the levy. See 26 U.S.C.

§ 6331(b) (providing that, except for levies on salaries and wages, “a levy shall

extend only to property possessed and obligations existing at the time thereof”).

Marshall breached the parties’ agreement in April 2013 when he ceased making

required payments. In May 2013, Surber sent Marshall notice of default with a

demand Marshall perform on the contract, which Marshall did not do. Surber’s

claim against Marshall accrued at this time. See Diggan v. Cycle Sat, Inc., 576

N.W.2d 99, 102 (Iowa 1998) (stating cause of action accrues upon breach of the

contract). An accrued legal claim is property upon which a creditor may levy.

See Bob McKinness Excavating & Grading, Inc., v. Morton Bldgs. Inc., 507

N.W.2d 405, 410 (Iowa 1993) (“It is true that once a cause of action accrues, a

plaintiff has a vested property interest that cannot be summarily destroyed by
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legislative action.”); Arbie Mineral Feed Co., Inc. v. Farm Bureau Mut. Ins. Co.,

462 N.W.2d 677, 680 (Iowa 1990). The levy was not released prior to Marshall’s

payment. See 26 U.S.C. § 6343 (providing conditions for release). We thus

conclude Surber’s cause of action was “property” within the meaning of the

federal statute subject to levy.

        Having concluded the cause of action was subject to levy, the plain

language of the controlling statute required Marshall to make payment to the

United States Treasury to the extent of the levy.        See 28 U.S.C. § 6332(a).

Marshall’s failure to surrender the levied property to the federal government

would have caused Marshall to become liable for the same. See 26 U.S.C. §

6332(d)(1) (“Any person who fails or refuses to surrender any property or rights

to property, subject to levy . . . shall be liable . . . in a sum equal to the value of

the property or rights not so surrendered . . . .”); Allstate Fin. Corp. v. United

States, 860 F. Supp. 653, 656–57 (D. Minn. 1994) (“A third party in possession of

property upon which levy has been made proceeds at its own peril if it refuses to

honor the levy.”). The plain language of the controlling statute provides that the

person who surrenders property “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.” 28 U.S.C.

§ 6332(e).      Under the plain language of the controlling statute, Marshall is

entitled to relief.

        Surber has several responses to this conclusion. Surber argues it was

unclear whether the levy was in effect as to Marshall because Marshall initially

told the IRS he did not owe anything to Surber. Marshall’s initial belief regarding
                                         7


what he owed Surber proved to be incorrect in light of the jury’s verdict.

Regardless, Marshall’s initial statement to the IRS does not invalidate the levy.

See Allstate Fin. Corp., 860 F. Supp. at 655–57.

       Surber argues Marshall should have contacted the IRS or the court to

request a discharge of his obligation to the IRS prior to making his payment.

This argument is incorrect on the facts and the law. On the facts, Marshall did

contact the IRS. The internal revenue officer working the case acknowledged the

validity of the levy and accepted Marshall’s payment in satisfaction of the same.

On the law, a party served with notice of levy has no obligation to contact the IRS

to verify the levy’s validity. See United States v. Nat’l Bank of Commerce, 472

U.S. 713, 721–22 (1985) (holding a bank served with a notice of levy has only

two possible defenses for failure to comply with the demand: that it is not in

possession of the property of the taxpayer, or that the property is subject to a

prior judicial attachment or execution); United States v. G & T Enters., L.C., 978

F. Supp. 1232, 1238 (N.D. Iowa 1997). “Indeed, the very purpose of section

6332(e) was to prevent custodians served with a notice of levy from being

burdened with evaluating the merits of a dispute between a taxpayer and the

government.” Kline v. U.S. Bank, No. 8:14-CV-363, 2015 WL 268559, at *2 (D.

Neb. Jan. 21, 2015).

       Surber contends the existing offer in compromise calls into question the

existence of the levy. He points to a federal statute of his own:

       (1) Offer-in-compromise pending
           No levy may be made under subsection (a) on the property or
           rights to property of any person with respect to any unpaid tax—
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               (a) During the period that an offer-in-compromise by such
                   person under Section 7122 of such unpaid tax is pending
                   with the Secretary.

26 U.S.C. § 6331(k)(1). This argument, too, fails. First, the levy was “made”

before any alleged offer in compromise was made: Surber claims his offer in

compromise was “approved” in March 2014, about four months after the levy

issued. Surber does not argue, or put forward any evidence, that his offer in

compromise was “pending” before March 2014. The “snapshot of the property”

taken at the time of levy would not have included a pending offer in compromise.

See Lanier v. Wachovia Bank, No. 2:09-cv-4566-wy, 2010 WL 1141267, at *3

(E.D. Pa. Mar. 24, 2010). Second, the discharge provided by the statute applies

“regardless of whether or not the levy served . . . was valid.” Moore v. Gen.

Motors Pension Plans, 91 F.3d 848, 851 (7th Cir. 1996). Marshall need not

“refuse to honor a notice of levy, even if the taxpayer may have a valid defense.”

Kline, 2015 WL 268559, at *2; see also Schiff v. Simon & Schuster, Inc., 780

F.2d 210, 212 (2d Cir. 1985) (“The fact that appellant disputes the validity of the

underlying tax assessment does not alter Simon & Schuster’s obligation to honor

the levy.”).   If Surber believes the levy issued in error, due to an offer in

compromise or otherwise, he has the right to protest.            See Kline, 2015 WL

268559, at *3 (“If the plaintiffs have any valid defense to the notice of levy, they

must take that up with the IRS, not the Bank.”); Busby v. I.R.S., No. 96-6566-

CIV-HURLEY, 1997 WL 364507, at *3 (S.D. Fla. Feb. 23, 1997) (“[I]f Plaintiff’s

property was collected in error or the levy was invalid, the recourse for a plaintiff

who has been taxed unjustly or in error by the federal government is [a] tax

refund suit.”). Surber’s relief is with the IRS, not Marshall.
                                         9


      Finally, Surber argues the district court should be affirmed because, as the

district court concluded, the jury may have considered the tax levy when it

calculated damages. We cannot speculate as to the jury’s unstated rationale.

See, e.g., Patz v. Farmegg Prods., Inc., 196 N.W.2d 557, 563 (Iowa 1972). The

jury may have considered the tax levy when rendering its verdict; it may not

have. That is unknowable. See Lovett ex rel. Lovett v. Union Pac. R.R. Co., 201

F.3d 1074, 1080 (8th Cir. 2000) (declining to speculate on general verdict);

Oolman v. Icon Ag Sols., L.L.C., No. 12-0035, 2012 WL 5600226, at *10 (Iowa

Ct. App. Nov. 15, 2012) (declining to speculate on apportionment of damages in

general verdict). We need not ruminate on the question or mull the answer,

however, because the question and answer are immaterial to the legal question

presented.    The question presented is whether Marshall is entitled to be

discharged from his obligation to Surber to the extent of Marshall’s payment to

the federal government made pursuant to a notice of levy. Federal law clearly

requires this result. To the extent that the jury may have considered the tax lien

in calculating damages, that question raises substantive legal issues relating to

the presentation of the case and the instructions provided to the jury. Those

substantive legal issues have not been raised in this appeal, see Iowa R. App. P.

6.903(2)(g)(3) (waiving issues not raised and supported), and we need not

address them.

                                        III.

      For the foregoing reasons, we reverse the district court and remand this

matter for proceedings not inconsistent with this opinion.

      REVERSED AND REMANDED.
