Gold Forever Music, Inc. v. United States

          OPINION AND ORDER DENYING DEFENDANT'S RENEWED MOTION TO DISMISS (ECF NO. 31) AND PLAINTIFF'S MOTION FOR INJUNCTION (ECF NO. 23)

          GEORGE CARAM STEEH UNITED STATES DISTRICT JUDGE

         Before the court is Defendant's renewed motion to dismiss and Plaintiff's motion for injunction of levy, which have been fully briefed. The court heard oral argument on October 10, 2019, and took the matter under advisement. For the reasons explained below, both motions are denied.

         BACKGROUND FACTS

         This is a wrongful levy action brought pursuant to 26 U.S.C. § 7426(a)(1). The court initially granted Defendant's motion to dismiss on statute of limitations grounds; the Sixth Circuit reversed and remanded for further proceedings. Gold Forever Music, Inc. v. United States, 920 F.3d 1096 (6th Cir. 2019). After the mandate was issued, Defendant filed a renewed motion to dismiss and Plaintiff filed a motion to enjoin the levy during the pendency of the case.

         Plaintiff Gold Forever Music, Inc., is a music publishing company owned by Edward Holland, Jr., a Motown artist who has co-written songs such as “You Can't Hurry Love” and “Stop in the Name of Love” by the Supremes. Gold Forever's catalog includes songs by Holland and other artists. Gold Forever is entitled to royalties when the works in its catalog are sold or performed. Rather than directly licensing its music to third parties, Gold Forever contracts with Broadcast Music, Inc. and Universal Music Publishing to do so. These companies license others to use Gold Forever's music, collect royalties pursuant to those agreements, and remit the royalties to Gold Forever.

         Holland owes the Internal Revenue Service approximately $20 million in taxes, interest, and penalties. In an attempt to collect Holland's tax debt, the IRS served notices of levy on BMI and Universal on August 27, 2012. The notices required BMI and Universal to turn over “property and rights to property . . . that you have or which you are already obligated to pay” to Gold Forever. The IRS alleges that Gold Forever is the alter ego of Holland.

         The first payment made by BMI and Universal to the IRS in response to the notices of levy was $119, 160.37 on October 10, 2013. Additional payments were made from October 6, 2016, to July 26, 2017, in the amount of $967, 140.76. Gold Forever seeks the return of the funds remitted in 2016 and 2017, which it contends were wrongfully levied. Gold Forever argues that it is not the alter ego of Edward Holland and that most royalties owed to Gold Forever belonged to artists other than Holland.

         Gold Forever filed this action on December 6, 2017. The government moved to dismiss on statute of limitations grounds. Finding that the nine-month statute of limitations began to run when the notices of levy were served in 2012, the court dismissed the action as untimely. The Sixth Circuit reversed, noting that “[a]lthough the district court was correct that service of the notice of levy can start the statute of limitations running for intangible property, it is necessary for the notice of levy to attach to the property that is the subject of the wrongful levy action before the statute can run.” Gold Forever, 920 F.3d at 1102 (emphasis in original). The record did not contain sufficient information to determine whether Gold Forever's right to receive future royalties was attached by the 2012 levies. Assuming that the 2012 levies did not attach future payments, the Sixth Circuit held that the court should have drawn a factual inference in Gold Forever's favor that “the earliest the statute of limitations could have begun running on Gold Forever's claim was when the IRS seized Gold Forever's funds held by BMI and Universal. . . . Therefore, the district court should have concluded that, on the face of the complaint, this case was properly filed within the statute of limitations.” Id.

         LAW AND ANALYSIS

         I. Defendant's Renewed Motion to Dismiss

         The government has renewed its motion to dismiss on statute of limitations grounds, alleging that additional facts that were not before the Sixth Circuit warrant dismissal. See Fed. R. Civ. P. 12(b)(1), 12(b)(6); Miller v. United States, 838 F.Supp. 338, 339 (N.D. Ohio 1993) (compliance with statute of limitations in suit against the United States a “jurisdictional prerequisite”); Ohio Nat. Life Ins. Co. v. United States, 922 F.2d 320, 324 (6th Cir. 1990) (statute of limitations for suit by taxpayer for refund is jurisdictional).

         In collecting delinquent taxes, the IRS has the power to levy the taxpayer's property, even if that property is under the control of a third party. See 26 U.S.C. §§ 6331, 6332. When the taxpayer's property is held by another, the IRS serves a notice of levy pursuant to 26 U.S.C. § 6332(a). “The third party must comply with the levy demand even if it or any other party claims an interest in the levied property.” Gold Forever, 920 F.3d at 1098. Any person other than the taxpayer who claims an interest in the levied property may pursue a wrongful levy action against the United States under 26 U.S.C § 7426(a). An action under § 7426(a) is “the exclusive remedy for an innocent third party whose property is confiscated by the IRS to satisfy another person's tax liability.” Id. (citation omitted).

         At all times relevant here, the statute of limitations for a wrongful levy action was nine months “from the date of the levy or agreement giving rise to such action.” 26 U.S.C. § 6532(c)(1) (2017).^[1] A request for the return of levied property under 26 U.S.C. § 6343, made within the nine-month limitations period, extends the limitations period by twelve months. 26 U.S.C. § 6532(c)(2) (2017). “When the property or obligation levied on is intangible, we have held that the notice of levy qualifies as the ‘date of the levy' sufficient to start running the statute of limitations for a wrongful levy action.” Gold Forever, 920 F.3d at 1099 (citation omitted).

         This court initially held that the date of the levies was August 27, 2012, the date that the notices of levy were served on BMI and Universal. The court found Gold Forever's suit to be untimely because it was filed more than nine months after August 27, 2012. As the Sixth Circuit noted, however, a levy may “extend only to property possessed and obligations existing at the time thereof.” Id. (quoting 26 U.S.C. § 6331(b)). A levy does not reach property acquired after the date of the levy; the levy must “attach” to existing property or obligations for the statute of limitations to begin running. Id. at 1102. The ...