Court Opinion

ID: 4701592
Source: CourtListenerOpinion
Date Created: 2021-07-07 00:00:36.82597+00
Date Added: 2024-06-11T08:06:19.078805
License: Public Domain

Case: 20-30422      Document: 00515926578          Page: 1     Date Filed: 07/06/2021

            United States Court of Appeals
                 for the Fifth Circuit
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit

                                                                                 FILED
                                                                              July 6, 2021
                                    No. 20-30422                            Lyle W. Cayce
                                                                                 Clerk

   Walter G. Goodrich, in his capacity as the Independent
   Executor on behalf of Henry Goodrich Succession; Walter
   G. Goodrich; Henry Goodrich, Jr.; Laura Goodrich
   Watts,

                                                             Plaintiffs—Appellants,

                                        versus

   United States of America,

                                                             Defendant—Appellee.

                   Appeal from the United States District Court
                      for the Western District of Louisiana
                             USDC No. 5:17-CV-610

   Before Higginbotham, Stewart, and Wilson, Circuit Judges.
   Carl E. Stewart, Circuit Judge:
          Plaintiffs-Appellants Walter G. “Gil” Goodrich (individually and in
   his capacity as the executor of his father—Henry Goodrich, Sr.’s—
   succession), Henry Goodrich, Jr., and Laura Goodrich Watts brought suit
   against Defendant-Appellee United States of America. Henry Jr. and Laura
   are also Henry Sr.’s children. Plaintiffs claimed that, in an effort to discharge
   Henry Sr.’s tax liability, the Internal Revenue Service (“IRS”) has
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                                     No. 20-30422

   wrongfully levied their property, which they had inherited from their
   deceased mother, Tonia Goodrich, subject to Henry Sr.’s usufruct. Among
   other holdings not relevant to the disposition of this appeal, the magistrate
   judge1 determined that Plaintiffs were not the owners of money seized by the
   IRS and that represented the value of certain liquidated securities. This
   appeal followed.
          Whether Plaintiffs are in fact owners of the disputed funds is an issue
   governed by Louisiana law. For the reasons that follow, we conclude that the
   Louisiana Supreme Court should have the chance to resolve this issue in the
   first instance.
                        I. FACTS & PROCEDURAL HISTORY
          Henry Sr. and Tonia, Louisiana residents, owned community
   property during their marriage, including personal property, oil-and-gas
   rights, and shares of stock and stock options in Goodrich Petroleum
   Corporation (the “Goodrich securities”). Tonia died in 2006. Her
   succession, which was completed in 2015, left her interest in some of the
   community property, including the Goodrich securities, to her children
   subject to Henry Sr.’s usufruct. During his life, Henry Sr. sold $857,914
   worth of the Goodrich securities. One half of that amount—$428,957—
   belonged to Henry Sr. given his community interest in the property, while
   the other half was attributable to Plaintiffs’ naked ownership subject to
   Henry Sr.’s usufruct. At issue on appeal is Plaintiffs’ claim to their share of
   those proceeds.
          Henry Sr. died in March 2014 having failed to pay $38,029 in assessed
   income tax for that year, in addition to $312,078 for 2013 and $214,806 for

          1
             Pursuant to 28 U.S.C. § 636 and Federal Rule of Civil Procedure 73, the
   magistrate judge presided over this case by consent of the parties.

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   2012. A month after Henry Sr. passed away, his executor, Gil, opened a
   succession checking account.2 Notwithstanding the money placed in the
   savings account, “[a]ll estate funds and expenses have passed through [the
   checking] account.” In April 2017, the IRS placed a levy on the checking
   account in order to collect Henry Sr.’s unpaid taxes. In May 2017, the bank
   remitted all of the remaining funds within the checking account—
   $239,927—to the IRS. The IRS applied that amount to Henry Sr.’s 2012 tax
   liability, which also included penalties and interest and totaled $238,922 as
   of the date Henry Sr. passed away. There remains a combined outstanding
   balance of $471,818 on Henry Sr.’s 2013 and 2014 tax liability.
           The same month that the bank remitted the $239,927 payment to the
   IRS, Plaintiffs filed this lawsuit claiming under I.R.C. § 7426(a)(1) 3 that the
   agency had wrongfully levied those funds. Relevant to this appeal, the
   operative complaint alleged that the IRS had taken money that in actuality
   belonged to Plaintiffs as owners of nearly half-a-million dollars’ worth of
   liquidated Goodrich securities. The parties filed cross-motions for summary
   judgment. As part of their motion, Plaintiffs attached a final accounting of
   Henry Sr.’s succession, which indicated that all of the cash remaining in the
   succession was needed to satisfy Plaintiffs’ property claims against it.
           Without considering whether he had subject-matter jurisdiction to
   entertain Plaintiffs’ claim, the magistrate judge partly granted and denied the
   Government’s and Plaintiffs’ motions and issued a final judgment. More

           2
            He also opened a succession savings account, but that account is not relevant to
   the disposition of this appeal.
           3
            This provision states: “If a levy has been made on property . . ., 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.”
   § 7426(a)(1).

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   specifically, the magistrate judge ordered the IRS to return $86,774, which
   represented Plaintiffs’ share of proceeds from the sale of personal property
   and oil-and-gas revenues that had been deposited into the succession
   checking account. The magistrate judge, however, held that Plaintiffs were
   not entitled to any funds attributable to their portion of the liquidated
   Goodrich securities. Relying on a Louisiana appellate court decision and the
   Louisiana Civil Law Treatise, he reasoned that the IRS’s claim to that money
   took priority over that of Plaintiffs since they were “unsecured creditors” of
   Henry Sr.’s succession.
          Plaintiffs timely appealed, contending that they are owed the
   remaining amount levied from the succession checking account, i.e.,
   $153,153, since it reflects (at least some of) their share of the liquidated
   Goodrich securities.
                             II. STANDARD OF REVIEW
          “Jurisdiction cannot be waived, and it is the duty of a federal court
   first to decide, sua sponte if necessary, whether it has jurisdiction before the
   merits of the case can be addressed.” Filer v. Donley, 690 F.3d 643, 646 (5th
   Cir. 2012). “When courts lack subject matter jurisdiction over a case, they
   lack the power to adjudicate the case” and must dismiss it. Nat’l Football
   League Players Ass’n v. Nat’l Football League, 874 F.3d 222, 225 (5th Cir.
   2017). “Questions of subject-matter jurisdiction are reviewed de novo.”
   Zimmerman v. City of Austin, 969 F.3d 564, 567 (5th Cir. 2020).
                                  III. DISCUSSION
                             A. Overview of § 7426(a)(1)
          When an individual neglects or refuses to pay his or her taxes, a lien
   arises on “all property and rights to property” belonging to that person once
   the IRS assesses the tax liability. I.R.C. §§ 6321–22. The IRS may then

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   collect the unpaid taxes through placing an administrative levy on the
   property. I.R.C. § 6331(a). Congress, however, has afforded third parties
   such as Plaintiffs the right to challenge the IRS’s levy when they have an
   “interest” in the property. See § 7426(a)(1). In a suit for wrongful levy, the
   plaintiff cannot challenge the tax assessment itself, but rather the IRS’s
   ability to collect the tax. Myers v. United States, 647 F.2d 591, 603 (5th Cir.
   Unit A 1981). “[T]o establish a wrongful levy claim a plaintiff must show (1)
   that the IRS filed a levy with respect to a taxpayer’s liability against property
   held by the non-taxpayer plaintiff, (2) the plaintiff had an interest in that
   property superior to that of the IRS and (3) the levy was wrongful.” Oxford
   Cap. Corp. v. United States, 211 F.3d 280, 283 (5th Cir. 2000). The last
   element requires the plaintiff to demonstrate “some interest in the property
   to establish standing.” Id.
          The Fifth Circuit has yet to clarify whether the standing requirement
   is jurisdictional or what satisfies this standard. As to the former, the parties’
   appellate briefing does not provide the court any guidance, having assumed
   (like the magistrate judge) that the standing requirement is a merits issue.4
   The question here is whether Plaintiffs have an interest in the levied funds
   sufficient for a court to conclude that their claim falls within the scope of
   § 7426(a)(1). See § 7426(a)(1). Since that inquiry requires interpretation of a
   statute, it would seem to go to the merits of Plaintiffs’ claim. But § 7426(a)(1)
   operates as a waiver of the United States’s sovereign immunity from suit,
   Oxford, 211 F.3d at 283, and “[s]overeign immunity is jurisdictional,” Cozzo
   v. Tangipahoa Par. Council--President Gov’t, 279 F.3d 273, 280 (5th Cir.
   2002). Thus, if Plaintiffs lack standing for their wrongful levy claim, then
   sovereign immunity applies, see McGinness v. U.S., I.R.S., 90 F.3d 143, 145

          4
           The Government did argue in its summary judgment briefing that the standing
   requirement is jurisdictional.

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   (6th Cir. 1996) (noting that standing is a “prerequisite[] for establishing a §
   7426 waiver of sovereign immunity”); Arford v. United States, 934 F.2d 229,
   232 (9th Cir. 1991) (same), and the magistrate judge lacked subject-matter
   jurisdiction over the claim, see Bodin v. Vagshenian, 462 F.3d 481, 484 (5th
   Cir. 2006) (holding that federal courts are “deprive[d]” of subject-matter
   jurisdiction when there is no waiver of sovereign immunity). 5
           With respect to what qualifies as an “interest” in property for the
   purposes of § 7426(a)(1), other circuits have held that “the right of a third
   party to challenge a wrongful levy is confined to persons who have a fee
   simple or equivalent interest, a possessory interest, or a security interest in
   the property levied upon.” Austin & Laurato, P.A. v. United States, 539 F.
   App’x 957, 960 (11th Cir. 2013) (per curiam) (quoting Frierdich v. United
   States, 985 F.2d 379, 383 (7th Cir. 1993) and citing additional cases from other
   circuits); Allied/Royal Parking L.P. v. United States, 166 F.3d 1000, 1005 (9th
   Cir. 1999) (same). The Frierdich court explained that its standard is grounded
   in a contextual reading of § 7426(a)(1); for, “[w]hen [the terms] interest and
   lien are conjoined, the inference arises that the legislature was referring to
   ownership or its near equivalents[.]” 985 F.2d at 381. It added that unsecured
   creditors cannot sue for wrongful levy. Id. at 383. “To hold otherwise,” as
   another decision upon which Frierdich relied observed, “would invite
   litigation from numerous parties only remotely aggrieved by IRS levies, with
   consequent disruptive effects on federal tax enforcement.” Valley Fin., Inc.

           5
              The operative complaint averred jurisdiction under both § 7426 and 28 U.S.C.
   § 1346(e). Section 1346(e) provides district courts with original jurisdiction over specific
   civil actions against the United States, such as those for wrongful levy. It does not
   independently permit a plaintiff to sue the government when the United States has not
   otherwise waived its sovereign immunity.

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   v. United States, 629 F.2d 162, 168 (D.C. Cir. 1980); see Frierdich, 985 F.2d at
   381–83. We adopt Frierdich’s definition of “interest” as used in § 7426(a)(1).
               B. Intersection of Federal Tax Law with Louisiana Law
          The dispositive question here is whether Plaintiffs have demonstrated
   the requisite interest in the disputed funds. Indeed, Plaintiffs acknowledge
   that, the Government prevails if they are creditors rather than owners of the
   money. “[I]n the application of a federal revenue act,” including the Internal
   Revenue Code, “state law controls in determining the nature of the legal
   interest which the taxpayer had in the property sought to be reached by the
   statute.” Aquilino v. United States, 363 U.S. 509, 513 (1960) (citation and
   footnote omitted). Hence, to answer the question posed above, we must
   apply relevant state law, which in this case is the law of Louisiana.
          “To determine Louisiana law, we look to the final decisions of the
   Louisiana Supreme Court.” Chevron Oronite Co., L.L.C. v. Jacobs Field Servs.
   N. Am., Inc., 951 F.3d 219, 225 (5th Cir. 2020) (citation omitted). However,
   as Plaintiffs observe, “No Louisiana court[,]” let alone that state’s highest
   court, “has decided the precise issue of whether the naked owner of [money]
   occupies the status of owner or creditor.” Given this, we could make a guess
   as to how the Louisiana Supreme Court would address the issue per Erie R.R.
   Co. v. Tompkins, 304 U.S. 64, (1938). But we can avoid making such a guess
   by invoking Rule XII, § 1 of Louisiana’s high court, which states:
          When it appears to . . . any circuit court of appeal of the United
          States, that there are involved in any proceedings before it
          questions or propositions of law of this state which are
          determinative of said cause independently of any other
          questions involved in said case and that there are no clear
          controlling precedents in the decisions of the supreme court of
          this state, such federal court before rendering a decision may
          certify such questions or propositions of law of this state to the
          Supreme Court of Louisiana for rendition of a judgment or

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          opinion concerning such questions or propositions of Louisiana
          law.
   La. Sup. Ct. R. XII, § 1; accord La. Stat. Ann. § 13:72.1.A. While
   neither Plaintiffs nor the Government have “moved this court to certify [a]
   question to the Louisiana Supreme Court, . . . the Rule further provides that
   certification ‘may be invoked by . . . any circuit court of appeal of the United
   States upon its own motion[.]’” See Coleman v. OFS, Inc., 554 F. App’x 251,
   255 (5th Cir. 2013) (per curiam) (quoting La. Sup. Ct. R. XII, § 2).
          We consider several factors to assist us in deciding whether to certify
   a question since “[w]e are acutely aware that certification is not a panacea for
   resolution of those complex or difficult state law questions which have not
   been answered by the highest court of the state.” In re Katrina Canal Breaches
   Litig., 613 F.3d 504, 509 (5th Cir. 2010) (citation and internal quotation
   marks omitted). Those factors are:
          (1) the closeness of the question and the existence of sufficient
          sources of state law; (2) the degree to which considerations of
          comity are relevant in light of the particular issue and case to
          be decided; and (3) practical limitations of the certification
          process: significant delay and possible inability to frame the
          issue so as to produce a helpful response on the part of the state
          court.
   McMillan v. Amazon.com, Inc., 983 F.3d 194, 202 (5th Cir. 2020) (citation
   omitted). We conclude that each factor weighs in favor of certification here.
          Regarding the first factor, “[i]t is axiomatic that in Louisiana, courts
   must begin every legal analysis by examining primary sources of law: the
   State’s Constitution, codes, and statutes.” Shaw Constructors v. ICF Kaiser
   Eng’rs, Inc., 395 F.3d 533, 546 (5th Cir. 2004) (citations omitted). Relevant
   here is the Louisiana Civil Code, though it does not overtly answer the
   question posed by this case. The parties agree that Henry Sr. held a usufruct

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   of consumables over the money at issue. According to the Code, “[i]f the
   things subject to the usufruct are consumables, the usufructuary becomes
   owner of them. He may consume, alienate, or encumber them as he sees fit.
   At the termination of the usufruct he is bound to pay to the naked owner
   either the value that the things had at the commencement of the usufruct or
   deliver to him things of the same quantity and quality.” La. Civ. Code
   Ann. art. 538. Likewise, Article 629 states, “At the termination of a usufruct
   of consumables, the usufructuary is bound to deliver to the owner things of
   the same quantity and quality or the value they had at the commencement of
   the usufruct.” La. Civ. Code Ann. art. 629. Notably, the Code does not
   clarify the naked owner’s relationship to consumables at the conclusion of a
   usufruct.
          Nevertheless, several courts have attempted to discern the nature of
   that relationship. In Succession of Catching, upon which the magistrate judge
   relied in determining that the IRS need not return to Plaintiffs the funds at
   issue, an individual became the naked owner of $476,758 worth of
   consumables when his mother died, subject to his father’s usufruct. 35 So. 3d
   449, 450 (La. App. 2 Cir. 2010). During his lifetime, the father made a
   bequest to a church of $100,000. Id. When he passed away, his total assets
   were worth $330,307. Id. The church sought the $100,000 legacy gift from
   the father’s succession. Id. at 450–51. The appeal court, having applied
   Articles 5366 and 538 of the Code, denied the church’s request because the
   consumables held by a usufructuary “became a debt owed by the succession
   to the naked owner” at the termination of the usufruct and the succession

          6
            Article 536 defines consumables as “those that cannot be used without being
   expended or consumed, or without their substance being changed, such as money,
   harvested agricultural products, stocks of merchandise, foodstuffs, and beverages.” La.
   Civ. Code Ann. art. 536.

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   was worth less than the debt owed. Id. The son’s priority over the church was
   a function of his father’s will, which stated that “all administration debts be
   paid before any legacies were distributed.” Id. at 450. Consequently, even if
   the son did not own the funds in dispute, his claim to them still took priority
   over that of the church. Catching is therefore only so helpful to the resolution
   of the instant dispute.
          The same could be said for another decision cited by the parties,
   Stewart v. Usry, 399 F.2d 50 (5th Cir. 1968). In that case, this court observed
   that an “imperfect” usufructuary, i.e., one of consumables, becomes a
   “debtor” of the naked owner when the usufruct ends. Id. at 55 (quoting
   Burdin v. Burdin, 129 So. 651, 654 (La. 1930)). However, it clarified that the
   connection between the usufructuary and naked owner is more one of “quasi
   debtor-creditor.” Id. Quoting a French commentator’s—Marcel Planiol’s—
   treatise of civil law, the court clarified “that something more than an ordinary
   debtor-creditor association is contemplated: ‘the relations between the
   usufructuary and the naked owner are not those of an ordinary debtor and
   creditor. What is involved here is not so much the return of a sum of money,
   as a restitution of the capital subject to usufruct, whose enjoyment cannot be
   extended beyond the duration of the usufruct[.]’” Id. at 55 n.10 (citation
   omitted). But the court left for another day what that “something more” may
   be.
          Even if Henry Sr. as a usufructuary of consumables was in debt to his
   children as naked owners, that does not necessarily mean Plaintiffs were
   unsecured creditors. Whatever the exact nature of his debt may be, we
   determine that “the only court that can adjudicate [the question] with
   finality”—the Louisiana Supreme Court—should have an opportunity to
   provide an answer. See McMillan, 983 F.3d at 196.

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             With respect to the second factor, this court has observed that
   “certification may be advisable where important state interests are at stake
   and the state courts have not provided clear guidance on how to proceed.”
   Katrina Canal Breaches, 613 F.3d at 509 (citation omitted). Such interests are
   involved here since a determination of the naked owner’s relationship to
   consumables will affect the rights of all individuals and entities, including the
   naked owners themselves, who have competing claims to a usufructuary’s
   assets.
             Finally, the third factor also weighs in favor of certification because
   we “perceive no hardship in certifying the question[s]” stated below. See
   Silguero v. CSL Plasma, Inc., 907 F.3d 323, 333 (5th Cir. 2018). The court
   “can formulate [a] discrete issue[] for consideration” and there is no
   indication that the Louisiana Supreme Court will be unable to respond
   promptly. See id. Additionally, there is no risk of the IRS losing the ability to
   refund the remaining portion levied from Henry Sr.’s succession checking
   account if certification will delay resolution of this appeal.
                                      *     *     *
             We certify the following questions to the Louisiana Supreme Court:
             1. Does a usufructuary’s testamentary usufruct of consumables
             render naked owners unsecured creditors of the usufructuary’s
             succession?
             2. If not, what is the naked owner’s relationship to those
             consumables?
             Should the Louisiana Supreme Court accept our request for answers
   to these questions, we disclaim any intention or desire that it confine its reply
   to the precise form or scope of the questions certified. Along with our
   certification, we transfer this case’s record and the briefs submitted by the
   parties. We will resolve this case in accordance with any opinion provided on

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   these questions by the Louisiana Supreme Court. Accordingly, the Clerk of
   this court is directed to transmit this certification and request to the
   Louisiana Supreme Court in conformity with the usual practice of this court.

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