Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-02494/USCOURTS-caed-2_04-cv-02494-3/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 28:1442 Petition for Removal

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1 Because oral argument will not be of material

assistance, the court orders the matter submitted on the briefs. 

E.D. Cal. L.R. 78-230(h).

2 Any further references to a “Rule” or “Rules” are to

the Federal Rules of Civil Procedure unless otherwise indicated.

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

CAL FRUIT INTERNATIONAL, INC.,

NO. CIV. 04-2494 FCD KJM

Plaintiff,

MEMORANDUM AND ORDER

JEANNE SPAICH; INTERNAL

REVENUE SERVICE; and DOES 1-

20,

Defendants.

----oo0oo----

This matter is before the court on interpleader defendant

Internal Revenue Service’s (“IRS” or “the government”) motion for

summary judgment1 regarding interpleader defendant Jeanne

Spaich’s (“Spaich”) claim to the interpleader funds pursuant to

Federal Rule of Civil Procedure2 56. The government’s claim to

the proceeds of the sale of prunes to plaintiff Cal Fruit

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3 Except where noted, the facts of this case are

undisputed. For the purposes of this motion, where the facts are

disputed, the court recounts Spaich’s version of the facts. (See

Def. Spaich’s Response to United States’ Separate Stmt. of

Undisp. Facts (“RUF”), filed Aug. 31, 2006). 

2

International, Inc. (“Cal Fruit”) arises from various federal tax

assessments against CalPrune, a corporation formed and owned by

defendant Spaich’s father, Gavrillo Spaich. Spaich’s claim

arises from her allegation that she is the owner of the prunes

sold to plaintiff and that her father was merely acting as her

agent; therefore, she contends the funds should be distributed to

her rather than to the government to pay the IRS’ tax levy. 

BACKGROUND3

A. CalPrune’s Tax Liability

Gavrillo Spaich, Jeanne Spaich’s father, has been in the

business of growing and selling fruit in his own name and through

various business entities since 1972. (RUF ¶ 1). In 2003, Mr.

Spaich filed a petition for personal bankruptcy. (RUF ¶ 2). 

Also in 2003, Mr. Spaich formed a corporation named CalPrune, for

which he was the sole owner, sole officer, and president. (RUF

¶¶ 3-4). CalPrune grew and processed prunes. (RUF ¶ 5). 

CalPrune had no equipment, no inventory, and no land; the land

that CalPrune utilized was leased personally to Mr. Spaich and

CalPrune reimbursed him the $40,000 monthly lease payments by

paying that amount to the lessor. (RUF ¶ 6). At times, CalPrune

had upwards of 30 employees. (RUF ¶ 7). It is unclear whether

CalPrune was profitable in 2003, but by 2004, the situation had

worsened and CalPrune’s employees were laid off during the fourth

quarter of 2004. (RUF ¶¶ 8-9). 

At least as early as the first quarter of 2004 (ending March

31, 2004), employment taxes owed by CalPrune to the United States

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were substantially in arrears, and CalPrune had amassed

substantial unpaid obligations to the United States. (RUF ¶ 10). 

By Mr. Spaich’s own admission, in a late-filed return received by

the IRS on or about September 22, 2004, CalPrune had a total

employment tax liability of $100,656.73 for the first quarter of

2004 and $65,811.27 for the second quarter of 2004, excluding

interest and penalties for late filing and untimely payment. 

(RUF ¶¶ 10, 12). The payroll taxes for the first quarter of 2004

were paid in full shortly after the second quarter return was

filed in September 2004. (RUF ¶ 12). On October 8, 2003, an

assessment against CalPrune was made for employment taxes due and

owing in the amount of $52,383.10 for the third quarter of 2004. 

(RUF ¶ 15). Spaich asserts that this assessment is only an

estimate of taxes, made prior to the return due date of October

31, 2004, and that it is not based upon any articulated statement

by anyone knowledgeable about the corporation’s third quarter

employment. (RUF ¶ 15). Spaich also asserts that CalPrune filed

its monthly payroll tax returns for the third quarter, but that

the IRS and the United States has simply ignored the filings and

continues to assert what it knows to be an erroneous balance due. 

(RUF ¶ 15).

B. Jeanne Spaich’s Asserted Right to the Prunes 

Defendant Jeanne Spaich asserts that on April 4, 2004, her

father gifted twelve hundred (1,200) tons of prunes that were the

subject of a contract with Mariani, a fruit company, for her 21st

birthday. (RUF ¶ 27). The Government contends that CalPrune

owned the prunes that were gifted to defendant Spaich. Defendant

Spaich contends that ownership of the prunes at issue is

disputed. After the value of the prunes went up, a deal with

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4 While defendant Spaich did not contest the government’s

assertion that she received 300 tons of prunes under the Mariani

contract, there appears to be some uncertainty based upon the

court’s review of Spaich’s Statement of Disputed Facts which

asserts that she received approximately 400 tons of prunes. (See

Def. Spaich’s Am. Opp’n to the United States’ Mot. for Summ. J.

(Am. Opp’n), filed Sept. 19, 2006, ¶¶ 33-34). However, the exact

number of prunes is irrelevant to the issues presently before the

court. 

4

Mariani was struck, whereby the contract buyer would obtain about

3004 tons of prunes from Mariani in exchange for opting not to

exercise rights to purchase the remaining 900 tons at what had

become a below market price. (Dep. of Gavrilo Spaich (“G. Spaich

Dep.”), Ex. 1 to Def. Spaich’s Opp’n to United States’ Mot. for

Summ. J (“Opp’n”), filed Aug. 31, 2006, at 64:17-66:15; Dep. of

Jeanne Spaich (“J. Spaich Dep.”), Ex. 2 to Opp’n, filed Aug 31,

2006, at 89:7-14). Subsequently, CalPrune bought Spaich’s 300

tons of prunes for a promise to pay her $500,000. (RUF ¶ 29). 

However, she only received $100,000 and an additional amount of

prunes (405,980 pounds) worth about $89,000, the exact quantity

of prunes that were later sold to Cal Fruit International, Inc.

(“Cal Fruit”) on September 9, 2006. (RUF ¶¶ 29, 36). Spaich is

still owed money from this transaction. (G. Spaich Dep. 61:23-

24). Spaich admits that she never physically saw or inspected

the prunes, did not know where the prunes were stored, and did

not know whether the prunes at issue were in the field, whether

they were process, or whether they were packed. (RUF ¶ 31). 

Spaich never took any steps to sell the prunes because her father

was contacting potential buyers. (RUF ¶ 32).

At some point during the late summer of 2004, Gavrillo

Spaich contacted Cal Fruit, seeking to sell prunes. (RUF ¶ 16). 

The prunes were delivered to Cal Fruit on September 9, 2004,

after having been weighed at CalPrune’s facilities. (RUF ¶ 17). 

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28 5 The complaint was originally filed in Sutter County

Superior Court, and subsequently removed to this court.

5

After brown rot was discovered on some of the fruit, the final

quantity of fruit sold was 405,980 pounds for a price of

$89,315.60. (RUF ¶ 17). Cal Fruit was not aware that Jeanne

Spaich was the seller of the fruit until it received the invoice

from Jeanne Spaich. (RUF ¶ 19).

C. The Current Action

The IRS served a levy upon Cal Fruit, dated September 17,

2004, relating to first quarter employment taxes owed by

CalPrune, which at the time remained due and owing. (RUF ¶ 20). 

Thereafter, the IRS served a second levy, dated September 27,

2004, relating to second quarter employment taxes owed by

CalPrune. (RUF ¶ 22). Rather than pay the IRS levy, plaintiff

filed this interpleader action, depositing said funds with the

court and seeking a determination as to who is entitled to the

funds. (Compl. In Interpleader, filed Nov. 5, 2004).5

Specifically, plaintiff alleges that it does not know the

identity of the seller of the prunes, whether it was CalPrune

(Gavrillo Spaich) or Jeanne Spaich. Both the government and

Spaich filed claims to the interplead funds. 

STANDARD

Summary judgment is appropriate when it is demonstrated that

there exists no genuine issue as to any material fact, and that

the moving party is entitled to judgment as a matter of law. 

Fed. R. Civ. P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144,

157 (1970).

Under summary judgment practice, the moving party

always bears the initial responsibility of informing

the district court of the basis of its motion, and

identifying those portions of "the pleadings,

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depositions, answers to interrogatories, and admissions

on file together with the affidavits, if any," which it

believes demonstrate the absence of a genuine issue of

material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the ‘pleadings, depositions, answers to

interrogatories, and admissions on file.’” Id. at 324. Indeed,

summary judgment should be entered against a party who fails to

make a showing sufficient to establish the existence of an

element essential to that party’s case, and on which that party

will bear the burden of proof at trial. Id. at 322. In such a

circumstance, summary judgment should be granted, “so long as

whatever is before the district court demonstrates that the

standard for entry of summary judgment, as set forth in Rule

56(c), is satisfied.” Id. at 323.

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist. 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

585-87 (1986); First Nat’l Bank v. Cities Serv. Co., 391 U.S.

253, 288-289 (1968). In attempting to establish the existence of

this factual dispute, the opposing party may not rely upon the

denials of its pleadings, but is required to tender evidence of

specific facts in the form of affidavits, and/or admissible

discovery material, in support of its contention that the dispute

exists. Fed. R. Civ. P. 56(e). The opposing party must

demonstrate that the fact in contention is material, i.e., a fact

that might affect the outcome of the suit under the governing

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law, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986),

and that the dispute is genuine, i.e., the evidence is such that 

a reasonable jury could return a verdict for the nonmoving party,

Id. at 251-52.

In the endeavor to establish the existence of a factual

dispute, the opposing party need not establish a material issue

of fact conclusively in its favor. It is sufficient that “the

claimed factual dispute be shown to require a jury or judge to

resolve the parties’ differing versions of the truth at trial.” 

First Nat’l Bank, 391 U.S. at 289. Thus, the “purpose of summary

judgment is to ‘pierce the pleadings and to assess the proof in

order to see whether there is a genuine need for trial.’” 

Matsushita, 475 U.S. at 587 (quoting Rule 56(e) advisory

committee’s note on 1963 amendments).

In resolving the summary judgment motion, the court examines

the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any. Rule

56(c); SEC v. Seaboard Corp., 677 F.2d 1301, 1305-06 (9th Cir.

1982). The evidence of the opposing party is to be believed, and

all reasonable inferences that may be drawn from the facts placed

before the court must be drawn in favor of the opposing party. 

Anderson, 477 U.S. at 255. Nevertheless, inferences are not

drawn out of the air, and it is the opposing party’s obligation

to produce a factual predicate from which the inference may be

drawn. Richards v. Nielsen Freight Lines, 602 F. Supp. 1224,

1244-45 (E.D. Cal. 1985), aff’d, 810 F.2d 898 (9th Cir. 1987).

Finally, to demonstrate a genuine issue, the opposing party

“must do more than simply show that there is some metaphysical

doubt as to the material facts. . . . Where the record taken as a

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6 Spaich argues that the court should not consider this

argument because it was raised as a new issue in the government’s

motion for summary judgment. However, in its Answer and Claim

filed on January 13, 2005, the government denied that Jeanne

Spaich sold the prunes at issue to Cal Fruit or that she

performed any contractual conditions or promises relating to the

sale. The United States averred that the “true seller” of the

(continued...)

8

whole could not lead a rational trier of fact to find for the

nonmoving party, there is no ‘genuine issue for trial.’” 

Matsushita, 475 U.S. at 586-87, 106 S. Ct. at 1356.

ANALYSIS

A. Ownership of the Prunes

Each party claiming entitlement to interpled funds bears the

burden of proving, by a preponderance of the evidence, that it is

entitled to the funds. Midland Ins. Co. v. Friedgood, 577 F.

Supp. 1407, 1411 (S.D.N.Y. 1984). In this case, determining

entitlement to the funds at issue requires a determination of the

ownership of the 405,980 pounds of prunes sold to Cal Fruit on

September 9, 2004. 

The government asserts that it has a right to the funds at

issue because the prunes were the property of CalPrune. Pursuant

to § 6321 of the Internal Revenue Code, “[i]f any person liable

to pay any tax neglects or refuses to pay the same after demand,

the amount . . . shall be a lien in favor of the United States

upon all property and rights to property . . . belonging to such

person.” 26 U.S.C. § 6321 (West 2006). Spaich argues that the

government does not have a right to the funds at issue because

the prunes sold to Cal Fruit did not belong to CalPrune, but

belonged to her; therefore, the proceeds of the sale should be

distributed to her.

1. Nominee Status6

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6(...continued)

prunes was CalPrune. As such, Spaich was on notice that the

government would be advancing legal theories in support of its

assertion that Spaich was not the true owner or seller of the

prunes and that Spaich was merely a nominee or fraudulent

transferee. 

9

The government contends that Jeanne Spaich was merely a

nominee for CalPrune and Gavrilo Spaich, as the sole owner and

president of CalPrune. In seeking to satisfy legitimate tax

debts, the government may levy on property held by an individual

who is merely the nominee of the taxpayer. 26 U.S.C. §§ 6321,

6331; see G.M. Leasing Corp. v. United States, 429 U.S. 338, 350-

51 (1977) (holding that § 6321 allows the government to impose a

lien on property in the hands of a third party straw man and that

§ 6331 permits a levy upon such property); United States v. Bell,

27 F. Supp. 2d 1191, 1195 (E.D. Cal. 1998); see also United

States v. Miller Bros. Constr. Co., 505 F.2d 1031 (10th Cir.

1974) (finding that legal title holder was merely the nominee of

the tax payer and government had interest in land); Towe Antique

Ford Found. v. I.R.S., 791 F. Supp. 1450, 1454 (D. Mont. 1992)

(finding that corporation was the nominee and alter ego of the

taxpayer and government levy was justified); United States v.

Marsh, 114 F. Supp. 2d 1036, 1043 (finding that trust held funds

as nominee of taxpayer and liens could be foreclosed against

properties). “State law governs the determination of whether

there exists an alter ego from whom the government may satisfy

the obligation of a taxpayer.” Wolfe v. United States, 806 F.2d

1410, 1411 (9th Cir. 1986). There appear to be no reported

California decisions which address the issue of what factors are

relevant in determining whether an individual is a nominee of a

taxpayer. However, other courts to analyze this issue have

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considered the following factors to be relevant in determining

nominee status:

(a) No consideration or inadequate consideration paid

by the nominee;

(b) Property placed in the name of the nominee in

anticipation of a suit or occurrence of

liabilities while the transferor continues to

exercise control over the property;

(c) Close relationship between transferor and the

nominee;

(d) Failure to record conveyance;

(e) Retention of possession by the transferor; and

(f) Continued enjoyment by the transferor of benefits

of the transferred property.

Bell, 27 F. Supp. 2d at 1195 (citing Towe, 791 F. Supp. at 1454;

United States v. Williams, 581 F. Supp. 756, 759 (N.D. Ga. 1982);

United States v. Code Prod. Corp., 216 F. Supp. 281 (E.D. Pa.

1963)). 

The government argues that the application of these factors

to the facts in this case demonstrate by a preponderance of the

evidence that Spaich was merely a nominee for CalPrune and

Gavrilo Spaich. As an initial matter, both Gavrilo Spaich and

Jeanne Spaich testified at their depositions that the prunes that

were given to Jeanne Spaich on her 21st birthday were prunes that

were the subject of the Mariani contract. (J. Spaich Dep. 57:11-

23; 62:19-65:3; G. Spaich Dep. 62:1-17). The Mariani contract

was a contract between Mariani Packaging Co. and CalPrune to sell

prunes to CalPrune. Therefore, the prunes and other rights under

the contract were CalPrune’s to give.

The rights to the Mariani contract were given as a gift to

defendant Spaich for her 21st birthday. The gift was given by

Gavrilo Spaich, the sole owner, sole officer, and president of

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7 However, Spaich has not yet been paid in full for the

purchase of these prunes by CalPrune or Gavrilo Spaich. (Am.

Opp’n ¶ 35).

11

CalPrune, to his daughter, Jeanne Spaich. There was no

consideration for this transfer. The rights to the contract were

given to defendant Spaich in April 2004. By that time, Gavrilo

Spaich had already filed for bankruptcy, and by the end of April

2004, CalPrune owed over $100,000 in employment taxes for the

first quarter. CalPrune subsequently amounted debt to the

government for employment taxes due in the second and third

quarter of 2004. The 300 tons of prunes that were given to

defendant Spaich under the Mariani contract were sent to the

facility at CalPrune. (G. Spaich Dep. 69:19-70:1). Spaich then

sold these 300 tons of prunes back to CalPrune, in exchange for

both money and an amount of prunes worth about $90,000.7 Spaich

never saw these prunes, never inspected the prunes, did not know

where the prunes were stored, and did not know whether the prunes

were in the field, processed, or packed. Spaich never took any

steps to sell these prunes because her father was contacting any

potential buyers. Gavrilo Spaich negotiated the contract with

Cal Fruit for the sale of the 405,980 pounds of prunes for

approximately $90,000, the proceeds of which are at issue in this

case. Cal Fruit was not aware that Jeanne Spaich was the seller

of the prunes until it received the invoice from her after the

prunes had been sold and delivered. 

Defendant Spaich does not contest any of these facts. 

Rather, in her opposition to the government’s motion for summary

judgment, she asserts that each of the factors in determining

whether she was merely a nominee for CalPrune “represent material

issues” and that “facts associated with each of these factors

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have not been promulgated in the development of evidence in this

case.” (Opp’n at 7). Therefore, she summarily asserts that

“there are genuine issues of material fact.” However, Spaich

does not point to any other relevant “facts associated with each

of these factors,” nor does she point to any dispute in the facts

upon which the government relies in making its argument that this

was merely a nominee transfer. Defendant Spaich’s conclusory

allegations that there are triable issues of material fact

without citation to of demonstration of specific triable issues

is insufficient to rebut the government’s proffered evidence and

preclude summary judgment. 

The circumstances set forth above support the government’s

contention that the true and equitable owner of the prunes sold

to Cal Fruit was CalPrune. Jeanne Spaich paid no consideration

for the Mariani contract or the 300 tons of prunes received as a

result of that contract. Spaich then sold the 300 tons of prunes

to CalPrune for approximately 400,000 pounds of prunes and money

which she has still not been paid in full. Spaich never saw

these prunes and was not involved in the subsequent negotiation,

sale, or delivery of the prunes to Cal Fruit. Based upon these

undisputed facts, the court finds that the true owner of the

prunes sold to Cal Fruit was CalPrune, and therefore, the

government is entitled to attach the proceeds of that sale in

order to satisfy CalPrune’s tax liabilities. 

2. Fraudulent Conveyance

The government also argues that the gift of the prunes to

Jeanne Spaich was a fraudulent conveyance, and therefore should

be deemed invalid. The court must look to state law to determine

whether there was a fraudulent conveyance. See Colby B. Found.

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v. United States, 166 F.3d 1217 (9th Cir. 1999). “A fraudulent

conveyance is a transfer by the debtor of property to a third

person undertaken with the intent to prevent a creditor from

reaching the interest to satisfy a claim.” Yaesu Electronics

Corp. v. Tamura, 28 Cal. App. 4th 8, 13 (1994). Pursuant to

California’s Uniform Fraudulent Transfer Act 

a transfer made . . . by a debtor is fraudulent as to a

creditor, whether the creditor’s claim arose before or

after the transfer was made . . . , if the debtor made

the transfer . . . with the actual intent to hinder,

delay, or defraud any creditor of the debtor.

Cal. Govt. Code § 3439.04 (West 2006). In determining actual

intent for purposes of this section, the statute provides that

consideration may be given to these factors, among others:

(1) Whether the transfer or obligation was to an

insider;

(2) Whether the debtor retained possession or control

of the property transferred after the transfer;

(3) Whether the transfer or obligation was disclosed

or concealed;

(4) Whether before the transfer was made or obligation

was incurred, the debtor had been sued or

threatened with suit;

(5) Whether the transfer was of substantially all the

debtor’s assets;

(6) Whether the debtor absconded;

(7) Whether the debtor removed or concealed assets;

(8) Whether the value of the consideration received by

the debtor was reasonably equivalent to the value

of the asset transferred or the amount of the

obligation incurred;

(9) Whether the debtor was insolvent or became

insolvent shortly after the transfer was made or

the obligation was incurred;

(10) Whether the transfer occurred shortly before or

shortly after a substantial debt was incurred; and

(11) Whether the debtor transferred the essential

assets of the business to a lienholder who

transferred assets to an insider of the debtor.

 

Cal. Govt. Code § 3439.04. Because “the real intent of the

parties and the facts of a fraudulent transaction are peculiarly

within the knowledge of those sought to be charged with fraud,”

actual and direct “proof of a transfer and of fraudulent intent

is often an impossibility.” Menick v. Goldy, 131 Cal. App. 2d

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542, 548 (1955). Therefore, proof of intent must often be

inferred “from circumstances surrounding the transaction, the

relationship and interest of the parties.” Id. (citing Taylor v.

Osborne-Fitzpatrick Fin. Co., 57 Cal. App. 2d 656, 661 (1943);

Burns v. Radoicich, 77 Cal. App. 2d 697, 702 (1947)).

The undisputed facts of this case establish that the prunes

at issue were fraudulently conveyed from CalPrune to Jeanne

Spaich. The prunes under the Mariani contract were given by

Gavrilo Spaich, on behalf of CalPrune, to his daughter Jeanne

Spaich for no consideration. See Menick, 131 Cal. App. 2d at 547

(stating that “the relationship between parent and child, when

coupled with other suspicious circumstances, may be sufficient to

raise an inference of fraud in the conveyance”). Subsequently,

CalPrune appropriated the 300 tons of prunes that resulted from

this contract from Jeanne Spaich in return for a cash payment

that has yet to be paid in full and for over 400,000 pounds of

prunes that were later sold to Cal Fruit. CalPrune always

maintained possession of the prunes and Gavrilo Spaich handled

all aspects of the sale to Cal Fruit, excepting the typing of an

invoice, which was performed by Jeanne Spaich. The transfers

between CalPrune and Jeanne Spaich occurred while CalPrune was

amassing significant unpaid taxes to the IRS, and CalPrune

continued to amount tax debt for the first, second, and third

quarters of 2004. These circumstances demonstrate that CalPrune

fraudulently conveyed the prunes at issue to Jeanne Spaich with

the intent to prevent the government from reaching the proceeds

of the sale to Cal Fruit. Therefore, the government is entitled

to levy upon the proceeds of the sale of prunes to Cal Fruit to

satisfy CalPrune’s federal tax liabilities.

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B. Amount of CalPrune’s Tax Liability

Defendant Spaich contends that even if the government is

entitled to the funds at issue, the government has not properly

accounted for the tax liabilities owed by CalPrune to the IRS. 

Specifically, Spaich contends that (1) tax levies that were

served on a company which bought prunes from CalPrune, Fresh

Pacific, were misapplied to another Spaich family company instead

of CalPrune; and (2) the tax liability for the third quarter was

overestimated by the government and has not been corrected. 

1. Fresh Pacific Levies

Spaich asserts that Fresh Pacific owed monies to CalPrune

for prunes it had purchased. (Am. Opp’n ¶ 5). The IRS, through

Revenue Officer Ben Dotson, served levies on Fresh Pacific for

CalPrune’s federal tax liabilities. (Am. Opp’n ¶ 6). A

representative of Fresh Pacific called Mr. Spaich to determine

the proper employer (tax) identification number of the identity

with which it had transacted business, and Mr. Spaich

inadvertently gave Fresh Pacific the employer identification

number for California Prune Packing Company, a Spaich family

business, rather than CalPrune, the seller of the prunes. (Am.

Opp’n ¶¶ 9-10). The IRS applied some of the money owed by Fresh

Pacific to the federal payroll tax liabilities of California

Prune Packing, instead of applying all of the money to CalPrune’s

tax liabilities. (Am. Opp’n ¶ 7). Defendant Spaich contends

that had the funds been properly applied against the liabilities

of CalPrune, the liabilities of CalPrune would have been

overpaid. (Am. Opp’n ¶ 19).

The government argues that defendant Spaich is barred from

challenging the application of the proceeds obtained through the

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levies served on Fresh Pacific. Section 7426 of the Internal

Revenue Code allows suit by a third party seeking recovery of

levied-upon property in which that third party claims an

interest. See 26 U.S.C. § 7426(a) (West 2006). However, such an

action must be filed within nine months from the date of the levy

at issue. See 26 U.S.C. § 6532(c)(1) (West 2006). The levy is

dated from when the IRS served the notice of levy on the

possessor of that property. See 26 C.F.R. § 301.6331-1(a)(1)

(West 2006); United States v. Donahue, 905 F.2d 1325, 1329-30

(9th Cir. 1990). The Fresh Pacific levies were dated in October

and November of 2004. Defendant Spaich failed to challenge these

levies within the statutory limit, and therefore, the government

contends that she is barred from challenging the proceeds of

these levies.

Spaich contends that she is not making a claim for the funds

obtained through levy; rather, she is raising the issue that the

United States had not properly accounted for liabilities owed by

CalPrune to the IRS. This re-characterization does not change

the fact that Spaich is seeking a determination that levy

proceeds were wrongfully applied against one taxpayer, California

Prune Packaging, and should instead be applied to the benefit of

another taxpayer, CalPrune. This is the type of challenge and

remedy contemplated by 26 U.S.C. § 7426, and Spaich cannot make

an end-run around the applicable limitations period and her

failure to file such a claim by re-characterizing her claim in

this manner. As such, defendant Spaich is barred from

challenging the application of the proceeds obtained through the

IRS levies on Fresh Pacific.

///

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8 The government noted that this amount does not include

interest, penalties, and other statutory additions if payment is

made after May 31, 2006.

9 Except for the assertion that the Fresh Pacific levies

should have been applied to CalPrune, Spaich does not appear to

dispute the amount of tax liability for the second quarter.

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2. CalPrune’s Tax Liability for the Third Quarter of 2004

Defendant Spaich also asserts that there are genuine issues

of material fact regarding CalPrune’s tax liability for the third

quarter of 2004. The government asserts that the total tax

liability of CalPrune as of May 31, 2006, is $146,092.74,8

combining the remaining tax liability for the second quarter 2004

of $77,540.41 with the tax liability for the third quarter 2004

of $68,552.33. (RUF ¶ 23). Defendant Spaich contends that the

liabilities assessed against CalPrune for the third quarter were

estimated. Spaich asserts that on December 5, 2005, duplicate

copies of the monthly payroll tax returns for July, August, and

September of 2004 were submitted to the United States, showing a

total liability of $48,694.00 for the third quarter.9 The

government has not amended the assessment.

Even if the court accepts defendant Spaich’s assessment of

third quarter liability, CalPrune still owes the government

$126,234.41. The funds at issue in this interpleader action

amount to $89,315.60 in total. Regardless of whether CalPrune

owes the government $146,092.74 or $126,234.41, the government

has shown by a preponderance of the evidence that they are

entitled to the entirety of the funds at issue in this case.

C. Attorneys’ Fees

The government also seeks summary judgment regarding whether

plaintiff is entitled to retain its attorneys fees and costs

associated with bringing the interpleader action where, as here,

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doing so would diminish the recovery of the United States. In

Abex Corp. v. Ski’s Enterprises, Inc., the Ninth Circuit held

that an award of attorneys’ fees to private parties in an

interpleader action was improper because it drained the

interpleader funds before the tax liens were satisfied. 748 F.2d

531, 517 (9th Cir. 1984). Federal tax liens have priority to the

interpleader fund, and must be fully satisfied before any award

of attorney fees is allowable. See Escobar v. I.N.S., 813 F.2d

283, 285 n.2 (9th Cir. 1987). Therefore, because the amount of

the federal tax liens exceeds the interpleader funds on deposit

with the court, plaintiff is not entitled to recover any of its

attorney fees and costs. 

CONCLUSION

For the foregoing reasons, the government’s motion for

summary judgment is GRANTED. Based upon the foregoing

determination, the United States is entitled to the entirety of

the interpleader funds held by the court. The Clerk of the Court

is directed to close this file. 

IT IS SO ORDERED.

DATED: September 21, 2006

/s/ Frank C. Damrell Jr. 

FRANK C. DAMRELL, Jr.

UNITED STATES DISTRICT JUDGE

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