Goodrich v. United States ( 2022 )

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opinion should not be published and is not precedent except under the limited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.
3
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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.
4
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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.
5
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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
6
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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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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)).
8
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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