Court Opinion

ID: 6112597
Source: CourtListenerOpinion
Date Created: 2022-01-26 01:00:36.217933+00
Date Added: 2024-06-11T08:54:25.034166
License: Public Domain

Case: 20-30422     Document: 00516179857         Page: 1     Date Filed: 01/25/2022

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

                                                                           FILED
                                                                    January 25, 2022
                                  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.
   Per Curiam:*
          This case returns to us after the Louisiana Supreme Court denied this
   court’s request for certification in November of 2021. In its per curiam
   opinion denying certification, the supreme court references the Louisiana

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 20-30422         Document: 00516179857              Page: 2       Date Filed: 01/25/2022

                                          No. 20-30422

   Civil Code and two Louisiana appellate court decisions. Upon further
   consideration of this applicable statutory and case law, we AFFIRM.
                     I. FACTUAL & PROCEDURAL BACKGROUND1
           Louisiana residents Henry Goodrich, Sr. (“Henry Sr.”) and his wife
   Tonia owned community property during their marriage which included
   shares of stock and stock options in the Goodrich Petroleum Corporation
   (the “Goodrich securities”). Tonia died in 2006. 2 Her succession, which was
   completed in 2015, left her interest in some of the community property,
   including the Goodrich securities, to the couple’s three children—Walter G.
   Goodrich (“Gil”), Henry Goodrich, Jr., and Laura Goodrich Watts
   (collectively, “the Goodriches”)—subject to a usufruct in favor of Henry Sr.
           Before his death, Henry Sr. sold $857,914 worth of the Goodrich
   securities. One half of that amount—$428,957—belonged outright to Henry
   Sr. given his community interest in the property, while the other half was
   attributable to the Goodriches’ naked ownership subject to Henry Sr.’s
   usufruct. At issue on appeal is the Goodriches’ claim to their share of these
   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
   2012. A month later, his son and executor, Gil, opened a succession checking
   account 3 and all relevant estate funds and expenses were passed through that

           1
             Although we provided much of the relevant factual and procedural background in
   our first opinion, see Goodrich v. United States, 3 F.4th 776 (5th Cir. 2021), we do so again
   here to the extent necessary for ease of comprehension.
           2
             After Tonia’s death, Harry Sr. married Laurice W. Rountree and the two entered
   into a separate property regime that has no bearing on this appeal.
           3
             Gil also opened a succession savings account, but the funds from that account are
   not relevant to the disposition of this appeal.

                                                2
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                                          No. 20-30422

   account. In April 2017, the IRS placed a levy on the checking account to
   collect Henry Sr.’s unpaid taxes. In May 2017, the bank remitted all of the
   remaining funds in 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 he passed away.
   Thereafter, a combined outstanding tax liability balance of $471,818
   remained for the 2013 and 2014 tax years.
           After the IRS levied the funds from the checking account, the
   Goodriches filed this lawsuit claiming that the agency had wrongfully levied
   the funds under I.R.C. § 7426(a)(1). 4 The operative complaint alleged that
   the IRS had taken money that rightfully belonged to the Goodriches because
   they were the owners of nearly $500,000 worth of liquidated Goodrich
   securities, representing Henry Sr.’s half of the community property he
   shared with Tonia, subject to the children’s usufruct. Both parties filed cross-
   motions for summary judgment. As part of their motion, the Goodriches
   attached a final accounting of Henry Sr.’s succession, which indicated that
   all of the cash remaining in the succession was needed to satisfy their
   property claims against it.
           The magistrate judge granted in part and denied in part the
   Government’s and the Goodriches’ summary judgment motions 5 and issued

           4
             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.”
   I.R.C. § 7426(a)(1).
           5
             The competing summary judgment motions involved claims to proceeds from the
   sale of certain personal property as well as mineral interest revenues, none of which are at
   issue in this appeal.

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                                     No. 20-30422

   a final judgment. 6 In his judgment, the magistrate judge ordered the IRS to
   return $86,774, which represented the Goodriches’ share of proceeds from
   the sale of some of the community property that had been deposited into the
   succession checking account. However, the magistrate judge held that the
   Goodriches were not entitled to any funds attributable to their portion of the
   liquidated Goodrich securities. Relying on Louisiana state court precedent
   and the Louisiana Civil Law Treatise, he reasoned that the IRS’s claim to that
   money took priority over that of the Goodriches since they were essentially
   “unsecured creditors” of the disputed funds in Henry Sr.’s succession.
          The Goodriches timely appealed. On appeal, they contend that they
   are owed the remaining amount levied from the succession checking account,
   i.e., $153,152.74, because it reflects part of their share of the liquidated
   Goodrich securities. We disagree.
                            II. STANDARD OF REVIEW
          We review a district court’s ruling on a motion for summary judgment
   de novo. Sanders v. Christwood, 970 F.3d 558, 561 (5th Cir. 2020). “Summary
   judgment is proper ‘if the movant shows that there is no genuine dispute as
   to any material fact and the movant is entitled to judgment as a matter of
   law.’” Id. (citing Fed. R. Civ. P. 56(a)).
                                  III. DISCUSSION
          When a taxpayer fails 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 collect the
   unpaid taxes by placing an administrative levy on the property. Id. § 6331(a).

          6
             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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                                         No. 20-30422

   Third parties such as the Goodriches are permitted to legally challenge the
   IRS’s levy when they have an “interest” in the property. Id. § 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. 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). “To prove that a levy is wrongful, (1) a plaintiff must first show some
   interest in the property to establish standing, 7 (2) the burden then shifts to
   the IRS to prove a nexus between the property and the taxpayer, and (3) the
   burden then shifts back to the plaintiff to prove the levy was wrongful, e.g.,
   that the property in fact did not belong to the taxpayer.” Id. Other circuits
   have held that unsecured creditors cannot sue for wrongful levy because
   holding “otherwise would invite litigation from numerous parties only
   remotely aggrieved by IRS levies, with consequent disruptive effects on
   federal tax enforcement.” Valley Fin., Inc. v. United States, 629 F.2d 162, 168
   (D.C. Cir. 1980); see also Frierdich v. United States, 985 F.2d 379, 381–83 (7th
   Cir. 1993).
           The dispositive question here is whether Louisiana law assigns to the
   Goodriches a primary interest in the securities as owners or a secondary
   interest in the securities as creditors. The Goodriches acknowledge on appeal
   that the IRS prevails if they are considered creditors rather than owners of
   the disputed funds. “[I]n the application of a federal revenue act,” including
   the Internal Revenue Code, “state law controls in determining the nature of

           7
            For purposes of our analysis here, we assume as the magistrate judge did that the
   standing requirement is a merits issue.

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   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) (internal
   citation and footnote omitted). Accordingly, we apply Louisiana law at this
   juncture in our analysis.
          It is undisputed that the Goodriches’ relationship to the Goodrich
   securities derives from their status as naked owners of consumables, i.e.,
   funds they inherited from Tonia, subject to Henry Sr.’s usufruct. Louisiana
   Civil Code Article 535 states that a “[u]sufruct is a real right of limited
   duration on the property of another. The features of the right vary with the
   nature of the things subject to it as consumables or nonconsumables.” La.
   Civ. Code art. 535. Consumables are defined as things 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 art. 536. Article
   538 discusses usufructs of consumable things and provides:
              If 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 either to
              pay to the naked owner the value that the things had at
              the commencement of the usufruct or to deliver to him
              things of the same quantity and quality.
   La. Civ. Code art. 538. The Louisiana Civil Law Treatise observes that
   “[a] usufruct of consumables differs from a usufruct of nonconsumables
   because the usufructuary acquires ownership of the things and the naked

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                                      No. 20-30422

   owner becomes a general creditor 8 of the usufructuary.” 3 A. N.
   YIANNOPOULOS, LA. CIV. L. TREATISE § 1:3 (5th ed. 2020).
          We now turn to the Louisiana Second Circuit’s decision in Succession
   of Catching, 35 So. 3d 449 (La. App. 2 Cir. 2010), which the magistrate judge
   relied on and which provides the best guidance for applying Civil Code
   Article 538 to the facts of this case. There, Phillip Catching became the naked
   owner of $476,758 worth of consumables when his mother died, subject to
   his father’s usufruct. Id. at 450. Before the father died, he made a $100,000
   bequest to a church that later sought the legacy gift from his succession. Id.
   When the father died, however, his total assets were only worth $330,307. Id.
   In other words, there were insufficient funds to cover Phillip’s inheritance
   and the church’s legacy gift. Id. Applying Civil Code Articles 536 and 538,
   the court denied the church’s claim for the legacy gift because the
   consumables held by the usufructuary (the father) “became a debt owed by

          8
             A “general creditor” is synonymous with “unsecured creditor.” See Unsecured
   Creditor, BLACK’S LAW DICTIONARY (11th ed. 2019).

                                            7
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                                           No. 20-30422

   the succession to the naked owner” (Phillip) at the termination of the
   usufruct and the succession was worth less than the debt owed. 9 Id. at 451. 10
           Applying Succession of Catching to the facts of this case, we agree with
   the magistrate judge that the Goodriches had a claim against Henry Sr.’s
   estate in connection with the Goodrich securities, but they did not
   immediately become owners of the disputed funds at the time of his death.
   Rather, they became “unsecured creditors” of the succession with respect
   to their claim. Consequently, the IRS did not seize funds or property that the
   Goodriches legally owned at the time, so the levy was not wrongful. See
   Oxford Cap. Corp., 211 F.3d at 283. And as the Goodriches concede, because
   they are considered creditors rather than owners of the disputed funds, the
   IRS prevails because it has priority over other creditors. See I.R.C. § 6323
   (providing that the IRS can establish the priority of its lien over third parties
   by filing a notice of a federal tax lien). For these reasons, we hold that the
   magistrate judge did not err in granting summary judgment in favor of the

           9
             In this case, Phillip’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.”
   Succession of Catching, 35 So. 3d at 450. Although this precise factual scenario is not present
   in the case before us, we are nevertheless informed by the court’s explanation that
   consumables held by a usufructuary become “a debt owed by the succession to the naked
   owner” upon the death of the usufructuary. Id. at 451.
           10
              See also Succession of Majoue, 705 So. 2d 225, 229 (La. App. 5 Cir. 1997) (“At the
   termination of a usufruct of consumables, of which money is one, the usufructuary owes to
   the naked owners the value that the thing had at the commencement of the usufruct, La.
   Civ. Code, Arts. 536 and 538. This obligation is in the nature of a debt owed by the
   succession to the owners, and must therefore be shown as such on the sworn descriptive
   list. We therefore order that the sworn descriptive list be amended to show the claim of the
   grandchildren against the estate[.]”); Stewart v. Usry, 399 F.2d 50, 55 (5th Cir. 1968)
   (observing that an “imperfect” usufructuary, i.e., one of consumables, becomes a
   “debtor” of the naked owner when the usufruct ends (quoting Burdin v. Burdin, 129 So.
   651, 654 (La. 1930)).

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                                  No. 20-30422

   IRS with respect to the liquidated Goodrich securities levied from the
   succession checking account.
                              IV. CONCLUSION
         For the foregoing reasons, the magistrate judge’s judgment is
   AFFIRMED.

                                       9