United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON THE MOTION OF THE UNITED STATES TO DISMISS FOR WANT OF JURISDICTION
RICHARD G. STEARNS UNITED STATES DISTRICT JUDGE
Plaintiff and counterclaim defendant Garrity, Levin and Muir, LLP (GLM), a Needham-based law firm, represented the interests of defendants Paul Dillon and Sharon Dillon in a third-party bankruptcy proceeding involving tax debtors John McBride, and his wife, Nancy McBride. At stake is Nancy McBride’s interest in the $75, 000 in excess proceeds resulting from the foreclosure sale of the McBrides’ former home in Marblehead, Massachusetts. The money is being held in escrow by GLM. Both the Dillons and the Internal Revenue Service lay claim to the escrowed funds. The IRS now moves to dismiss for want of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1).
How GLM came into possession of the escrowed funds is as follows. On July 17, 2012, Gary Cruickshank, the Trustee of the McBride estate, petitioned the Bankruptcy Court for an order permitting him to disburse the excess funds. The Bankruptcy Court, having previously held that it lacked jurisdiction over Nancy McBride (and therefore the Dillons’ derivative claim to the excess funds), adopted a proposal (endorsed by the IRS attorney) that the funds be transferred from the Trustee to an escrow account held by GLM. Immediately following the transfer, the IRS served GLM with a Notice of Levy. The Notice explained to GLM that the Dillons’ only recourse was to bring an action for wrongful levy pursuant to 26 U.S.C. § 7426 within the applicable nine-month statute of limitations. For reasons unknown, the Dillons, or more precisely, GLM acting on their behalf, did not file an objection to the levy. Instead, on March 27, 2015, after receiving a Final Demand for Payment from the IRS, GLM filed this interpleader action under Fed.R.Civ.P. 22, naming the Dillons and the IRS as defendants. GLM maintains that it cannot comply with the IRS’s levy, or distribute the funds to the Dillons, without facing potential liability to the unrequited party.
The IRS responded by counterclaiming against GLM, demanding payment of the levy with interest (Count I), and for the assessment of an additional 50 percent penalty against GLM for failing to honor the original levy without reasonable cause (Count II). On January 14, 2016, claiming sovereign immunity, the United States filed the instant motion to dismiss for lack of subject matter jurisdiction.
It is black letter law that the United States is not required to interplead when it has not waived its sovereign immunity. 7 Wright, Miller & Kane, Federal Practice & Procedure: Civil 3d § 1721, at 699 (2001). In 1996, 28 U.S.C. § 2410(a)(5), which in its then existing form waived the immunity of the United States in quiet title or foreclosure actions where it “ha[d] or claim[ed] a mortgage or other lien, ” was amended to clarify that the waiver extended to interpleader actions as well. There is a limitation: the section 2410(a) waiver applies only to a “true” interpleader. See Wright, Miller & Kane § 1721, at 701 (“Section 2410(a) will not apply unless ‘a viable interpleader action is filed naming the United States as a party defendant.’ In the absence of a bona fide interpleader, the court lacks subject-matter jurisdiction.”) (internal footnote omitted).
A true interpleader arises when a stakeholder is subject to a legal dilemma because two or more parties have colorable claims to the stake in its possession and the satisfaction of one will likely lead to a lawsuit by the other(s). Here there is no true interpleader, as GLM can incur liability to only one party - the United States, by failing to honor the levy. This is because 26 U.S.C. § 6332(e) holds a party complying with an IRS levy absolutely immune from liability to any other competing claimant. Instead of seeking relief from the levied party, the frustrated other is channeled by 26 U.S.C. § 7426 to an action for wrongful levy against the IRS itself. To the extent that GLM now faces the potential of liability to the Dillons, it is because of an omission of the firm’s own making - its failure to advise the Dillons to bring an action contesting the IRS levy within the nine months allowed.
For the foregoing reasons, the motion of the United States to dismiss for lack of subject matter jurisdiction is ALLOWED. ...