Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-03365/USCOURTS-ca10-91-03365-0/pdf.json

Parties Involved:
Floyd W. Pottorf
Appellant
United States of America
Appellee

Document Text:

' 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

FIL D 

United States Court of Appeals Tenth Circuit 

FLOYD W. POTTORF, 

CAROLYN POTTORF, CHRISTINE 

M. POTTORF, MARK A. POTTORF, 

and BRIAN L. POTTORF, 

Plaintiffs-Appellants, 

v. 

UNITED STATES OF AMERICA, 

Defendant-Appellee 

DECO 7 1992 

ROBERT L. HOECKER 

Clerk . 

Nos. 91-3365 

91-3366 

(D.C. Nos. 88-4230-R 

88-4233-R 

(D . Kansas) 

ORDER AND JUDGMENT* 

Before SEYMOUR and MOORE, Circuit Judges, and BURCIAGA, District 

Judge.** 

Plaintiffs Floyd W. Pottorf and Carolyn Pottorf appeal the 

district court's summary judgment in favor of the United States. 

We affirm. 

In 1980, Pottorf Farms, Inc., a Kansas corporation, forfeited 

its articles of incorporation for failing to pay state franchise 

taxes . In 1985, the IRS assessed taxes against Pottorf Farms and 

filed a notice of tax liens in the land records. Property owned 

*This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

**The Honorable Juan G. Burciaga, Chief United States District 

Judge for the District of New Mexico, sitting by designation. 

Appellate Case: 91-3365 Document: 010110151430 Date Filed: 12/07/1992 Page: 1 
by Pottorf Farms was condemned in 1987 by the state for the 

purpose of acquiring easements. In March, 1988, the IRS filed a 

notice of levy with the state court and moved to obtain the 

proceeds of the condemnation. In October of that year, this 

federal action was filed by plaintiffs, who are stockholders in 

Pottorf Farms, asserting that the IRS levy was wrongful, that they 

owned an interest in the corporate property, and that they are 

therefore entitled to the condemnation proceeds. In November, 

1988, a hearing was held in state court on the IRS motion for 

distribution and the proceeds were awarded to the IRS pursuant to 

federal tax liens on the property for unpaid taxes in 1979, 1980, 

1981, and 1982. The Pottorfs appealed to the Kansas State Supreme 

Court, which affirmed the state district court ruling granting the 

proceeds to the IRS. Both the state district court and the Kansas 

Supreme Court stated that the question of the rights of various 

claimants to the proceeds could properly be decided in federal 

court. 

The Pottorfs have consistently claimed that they, as 

shareholders of the defunct Pottorf Farms corporation, own title 

to the properties in question. Therefore, claim the Pottorfs, the 

IRS could not place a lien on these properties to recover the 

taxes owed by Pottorf Farms. The federal district court 

determined that this issue hinged on the interpretation of Kansas 

corporation law regarding the existence and rights of corporations 

that have forfeited articles of incorporation due to failure to 

pay the tax. The district court held that under the Kansas 

-2-

Appellate Case: 91-3365 Document: 010110151430 Date Filed: 12/07/1992 Page: 2 
' 

statutes, when a corporation forfeits its articles of 

incorporation, the delinquent corporation loses its right to do 

business as a corporation . See Kan. Stat. Ann. § 17-7510(b) 

(1988). Nevertheless, Kansas law permits the corporation to act 

for three years for the limited purpose of "winding up" its 

business. See id. § 17-6807. During that period, the corporation 

may prosecute and defend suits, discharge its liabilities, and 

dispose of its property. Id. The three year period may be 

extended by the court, id., and a trustee or receiver may be 

appointed to carry out the dissolution, § 17-6808. Moreover, the 

federal district court determined that although a corporation 

which has forfeited its articles has lost the right to do 

business, it still exists as a legal entity for the purpose of 

paying its debts and disposing of its assets. The court 

specifically relied on the Kansas statues regarding forfeiture 

which expressly provide for the revival of a corporation that 

fulfills its tax obligation. See id. § 17-7002(a) (2). 

The Pottorfs appeal the federal district courts' summary 

judgment in favor of the United States, claiming that the court 

erred by improperly applying Kansas law, which the Pottorfs 

interpret as permitting property of a defunct corporation to pass 

to its shareholders by operation of law when its articles of 

incorporation are forfeited. We have carefully reviewed the 

Pottorf's arguments and we are not persuaded that the district 

court misinterpreted Kansas law. The court decided, and we agree, 

that forfeiture of the articles of incorporation does not result 

-3-

Appellate Case: 91-3365 Document: 010110151430 Date Filed: 12/07/1992 Page: 3 
in the corporation losing legal title to its corporate assets. 

Therefore, the proceeds from the condemnation proceedings were the 

property of Pottorf Farms. The IRS had a valid tax lien on those 

proceeds and was properly awarded the funds by the state district 

court. 

The judgment of the district court is AFFIRMED substantially 

for the reasons given by the court in its Memorandum and Order 

dated September 26, 1991. 

-4-

Entered for the Court 

Stephanie K. Seymour 

Circuit Judge 

Appellate Case: 91-3365 Document: 010110151430 Date Filed: 12/07/1992 Page: 4