42 F.3d 787
74 A.F.T.R.2d 94-7399, 94-2 USTC P 50,622,
25 UCC Rep.Serv.2d 27
INTERNAL REVENUE SERVICE
v.
Donald GASTER and Mary Ann Gaster
v.
NINTH WARD SAVINGS BANK, FSB, Third-party
Defendant,
Mary Ann Gaster, Appellant in Nos.
94-7195 and 94-7196.
Nos. 94-7195, 94-7196.
United States Court of Appeals,
Third Circuit.
Argued Sept. 19, 1994.
Decided Dec. 5, 1994.
Loretta C. Argett, Asst. Atty. Gen., Gregory M. Sleet, U.S. Atty., Gary R. Allen, William S. Estabrook, Alice L. Ronk (argued), Tax Div., Dept. of Justice, Washington, DC, for I.R.S.
Peter A. Mardinly (argued), Paul, Mardinly, Durham, James, Flandreau & Rodger, Media, PA, for appellants Donald & Mary Ann Gaster.
William J. Marsden, Jr. (argued), Potter, Anderson & Corroon, Wilmington, DE, for appellee Ninth Ward Sav. Bank, FSB.
Before: BECKER and COWEN, Circuit Judges and POLLAK, District Judge.
OPINION OF THE COURT
BECKER, Circuit Judge.
This appeal from a judgment of the District Court for the District of Delaware primarily presents the question whether the Internal Revenue Service ("IRS") had the right to levy pursuant to 26 U.S.C.A. Sec. 6321 (1989) on a bank account at the Ninth Ward Savings Bank ("the Bank") in Wilmington, Delaware, owned jointly by appellants Donald Gaster and his wife Mary Ann Gaster, along with their son Bryan Gaster. The IRS levied against the account in order to enforce a judgment for a tax deficiency obtained against Donald Gaster in his individual capacity. Donald Gaster died during the pendency of this appeal, and his estate has challenged the propriety of the IRS levy. Alleging that the property which was levied upon was held by her and Donald Gaster (the "Gasters") as tenants by the entireties, Mary Ann Gaster claimed an interest in property seized for another's taxes under 26 U.S.C.A. Sec. 7426 (1989). (Bryan Gaster has waived all interest in the bank account and is not a party.)
It is unquestioned that the IRS can properly levy on the account if Donald Gaster, the delinquent taxpayer, had the unilateral right to withdraw money from the joint bank account under Delaware law. The district court determined, following a bench trial, that Donald Gaster had a unilateral right to withdraw funds from the account, and hence the IRS could properly levy on the account. We conclude, however, that the district court erred and that pursuant to the Gasters' contract with the Bank and applicable Delaware law, both the signature of Donald and Mary Ann Gaster were required in order to withdraw funds from the account. We therefore hold the IRS levy to be improper and reverse the judgment of the district court with the direction to dissolve the levy.
I.
On June 25, 1985, the Gasters opened an account at the Bank to deposit the proceeds from the sale of an apartment building in Secane, Pennsylvania, which they had held as tenants by the entireties. When they opened the account, the Gasters transferred a portion of it to their son, titling in the alternative the account's original signature card and six-month certificate of deposit ("CD")--"Donald Gaster or Mary Ann Gaster or Bryan Gaster." It is undisputed that the titling of a signature card in the alternative allows for unilateral withdrawal from the account by each owner. The district court found that the Gasters titled the signature card in the alternative--which permitted access to the account with one signature--because Donald Gaster would be unavailable due to the pendency of serious surgery.
On the following day, June 26, 1985, the Supreme Court decided United States v. National Bank of Commerce, 472 U.S. 713, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985), holding that the determination whether a delinquent taxpayer has an interest in a joint bank account subject to a federal tax lien turns on whether the delinquent has a unilateral right under the applicable state law to withdraw funds from the account. Shortly after the publication of the National Bank of Commerce opinion, the Gasters became aware of its holding and resolved to protect their jointly-held property from an IRS levy that could arise from an IRS judgment obtained against Donald Gaster on May 12, 1977. To effectuate this intent, Donald Gaster went to the Bank in December 1985, and retitled the signature card to read "Donald Gaster and Mary Ann Gaster or Bryan Gaster," so that more than one signature would be required in order for Donald Gaster to withdraw funds from the jointly owned account. Over the next five years (until and including the time of the IRS levy on August 24, 1990) all correspondence from the Bank with regard to the account referred to the account in this conjunctive form.
From the time the account had been established, the Bank sent a savings transfer form to the Gasters every six-months to authorize the roll-over of the proceeds from an expiring CD for the purchase of a new CD. Even after the change in the signature card, Mary Gaster would return the form, with her signature alone, on behalf of both herself and her husband. With the return of each transfer form, the account's title remained conjunctive. No withdrawals of any kind have ever been made from the account.
On August 24, 1990, the IRS levied on the account pursuant to 26 U.S.C.A. Sec. 6321 (1989) to enforce the 1977 tax deficiency judgment against Donald Gaster. In response to this levy, the Bank filed a complaint in interpleader against the Gasters and the IRS in the Delaware Superior Court. The IRS removed the interpleader action to the District Court for the District of Delaware, 28 U.S.C.A. Sec. 1444 (1994), invoking jurisdiction pursuant to 28 U.S.C.A. Secs. 1340 and 1345 (1994) and also 26 U.S.C.A. Secs. 7402 and 7403 (1989). As we have noted, the district court held that the IRS could levy on the account, deciding that Donald Gaster had a unilateral right to withdraw the funds. The court concluded in a memorandum opinion that Donald Gaster's subsequent modification of the account signature card was ineffective, given that Donald Gaster alone formally executed the change. This appeal followed.
While we review the district court's findings of fact under a clearly erroneous standard, Sheet Metal Workers Int'l Ass'n Local 19 v. 2300 Group, Inc., 949 F.2d 1274, 1278 (3d Cir.1991), the court's conclusion that Donald Gaster had an unrestricted unilateral right to withdraw the funds under Delaware law is a legal question over which we exercise plenary review; Borse v. Piece Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir.1992); High v. Balun, 943 F.2d 323, 325 (3d Cir.1991).
II.
A.
Section 6321 of the Code, 26 U.S.C.A. Sec.
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42 F.3d 787
74 A.F.T.R.2d 94-7399, 94-2 USTC P 50,622,
25 UCC Rep.Serv.2d 27
INTERNAL REVENUE SERVICE
v.
Donald GASTER and Mary Ann Gaster
v.
NINTH WARD SAVINGS BANK, FSB, Third-party
Defendant,
Mary Ann Gaster, Appellant in Nos.
94-7195 and 94-7196.
Nos. 94-7195, 94-7196.
United States Court of Appeals,
Third Circuit.
Argued Sept. 19, 1994.
Decided Dec. 5, 1994.
Loretta C. Argett, Asst. Atty. Gen., Gregory M. Sleet, U.S. Atty., Gary R. Allen, William S. Estabrook, Alice L. Ronk (argued), Tax Div., Dept. of Justice, Washington, DC, for I.R.S.
Peter A. Mardinly (argued), Paul, Mardinly, Durham, James, Flandreau & Rodger, Media, PA, for appellants Donald & Mary Ann Gaster.
William J. Marsden, Jr. (argued), Potter, Anderson & Corroon, Wilmington, DE, for appellee Ninth Ward Sav. Bank, FSB.
Before: BECKER and COWEN, Circuit Judges and POLLAK, District Judge.
OPINION OF THE COURT
BECKER, Circuit Judge.
This appeal from a judgment of the District Court for the District of Delaware primarily presents the question whether the Internal Revenue Service ("IRS") had the right to levy pursuant to 26 U.S.C.A. Sec. 6321 (1989) on a bank account at the Ninth Ward Savings Bank ("the Bank") in Wilmington, Delaware, owned jointly by appellants Donald Gaster and his wife Mary Ann Gaster, along with their son Bryan Gaster. The IRS levied against the account in order to enforce a judgment for a tax deficiency obtained against Donald Gaster in his individual capacity. Donald Gaster died during the pendency of this appeal, and his estate has challenged the propriety of the IRS levy. Alleging that the property which was levied upon was held by her and Donald Gaster (the "Gasters") as tenants by the entireties, Mary Ann Gaster claimed an interest in property seized for another's taxes under 26 U.S.C.A. Sec. 7426 (1989). (Bryan Gaster has waived all interest in the bank account and is not a party.)
It is unquestioned that the IRS can properly levy on the account if Donald Gaster, the delinquent taxpayer, had the unilateral right to withdraw money from the joint bank account under Delaware law. The district court determined, following a bench trial, that Donald Gaster had a unilateral right to withdraw funds from the account, and hence the IRS could properly levy on the account. We conclude, however, that the district court erred and that pursuant to the Gasters' contract with the Bank and applicable Delaware law, both the signature of Donald and Mary Ann Gaster were required in order to withdraw funds from the account. We therefore hold the IRS levy to be improper and reverse the judgment of the district court with the direction to dissolve the levy.
I.
On June 25, 1985, the Gasters opened an account at the Bank to deposit the proceeds from the sale of an apartment building in Secane, Pennsylvania, which they had held as tenants by the entireties. When they opened the account, the Gasters transferred a portion of it to their son, titling in the alternative the account's original signature card and six-month certificate of deposit ("CD")--"Donald Gaster or Mary Ann Gaster or Bryan Gaster." It is undisputed that the titling of a signature card in the alternative allows for unilateral withdrawal from the account by each owner. The district court found that the Gasters titled the signature card in the alternative--which permitted access to the account with one signature--because Donald Gaster would be unavailable due to the pendency of serious surgery.
On the following day, June 26, 1985, the Supreme Court decided United States v. National Bank of Commerce, 472 U.S. 713, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985), holding that the determination whether a delinquent taxpayer has an interest in a joint bank account subject to a federal tax lien turns on whether the delinquent has a unilateral right under the applicable state law to withdraw funds from the account. Shortly after the publication of the National Bank of Commerce opinion, the Gasters became aware of its holding and resolved to protect their jointly-held property from an IRS levy that could arise from an IRS judgment obtained against Donald Gaster on May 12, 1977. To effectuate this intent, Donald Gaster went to the Bank in December 1985, and retitled the signature card to read "Donald Gaster and Mary Ann Gaster or Bryan Gaster," so that more than one signature would be required in order for Donald Gaster to withdraw funds from the jointly owned account. Over the next five years (until and including the time of the IRS levy on August 24, 1990) all correspondence from the Bank with regard to the account referred to the account in this conjunctive form.
From the time the account had been established, the Bank sent a savings transfer form to the Gasters every six-months to authorize the roll-over of the proceeds from an expiring CD for the purchase of a new CD. Even after the change in the signature card, Mary Gaster would return the form, with her signature alone, on behalf of both herself and her husband. With the return of each transfer form, the account's title remained conjunctive. No withdrawals of any kind have ever been made from the account.
On August 24, 1990, the IRS levied on the account pursuant to 26 U.S.C.A. Sec. 6321 (1989) to enforce the 1977 tax deficiency judgment against Donald Gaster. In response to this levy, the Bank filed a complaint in interpleader against the Gasters and the IRS in the Delaware Superior Court. The IRS removed the interpleader action to the District Court for the District of Delaware, 28 U.S.C.A. Sec. 1444 (1994), invoking jurisdiction pursuant to 28 U.S.C.A. Secs. 1340 and 1345 (1994) and also 26 U.S.C.A. Secs. 7402 and 7403 (1989). As we have noted, the district court held that the IRS could levy on the account, deciding that Donald Gaster had a unilateral right to withdraw the funds. The court concluded in a memorandum opinion that Donald Gaster's subsequent modification of the account signature card was ineffective, given that Donald Gaster alone formally executed the change. This appeal followed.
While we review the district court's findings of fact under a clearly erroneous standard, Sheet Metal Workers Int'l Ass'n Local 19 v. 2300 Group, Inc., 949 F.2d 1274, 1278 (3d Cir.1991), the court's conclusion that Donald Gaster had an unrestricted unilateral right to withdraw the funds under Delaware law is a legal question over which we exercise plenary review; Borse v. Piece Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir.1992); High v. Balun, 943 F.2d 323, 325 (3d Cir.1991).
II.
A.
Section 6321 of the Code, 26 U.S.C.A. Sec. 6321 (1989), provides: "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."
In National Bank of Commerce, the Supreme Court addressed the question of when a delinquent taxpayer's interest in a joint bank account constitutes "property" or "rights to property" pursuant to Sec. 6321. The Court concluded that a delinquent taxpayer has such an interest in property on which the IRS may levy when "under state law, a taxpayer has the unrestricted right to withdraw funds from the account." National Bank of Commerce, 472 U.S. at 725-26, 105 S.Ct. at 2927. Whether the delinquent has such a right to the funds is governed by state law, since "state law controls in determining the nature of the legal interest which the taxpayer had in the property." Id. at 722, 105 S.Ct. at 2925 (internal quotation marks omitted). See also id. ("This follows from the fact that the federal statute creates no property rights but merely attaches consequences, federally defined, to rights created under state law." (internal quotation marks omitted)). Thus, in deciding whether the IRS may properly levy on the jointly-owned account at the Bank, we must determine whether the tax delinquent, Donald Gaster, had an unrestricted right to the funds in the account under Delaware law.
Pursuant to National Bank of Commerce, before considering Mary Ann Gaster's cross-claim for the return of her ownership interest in the proceeds of the bank account under 26 U.S.C.A. Sec. 7426 (1989), we are required to determine the propriety of the IRS levy. National Bank of Commerce, 472 U.S. at 728, 105 S.Ct. at 2928 ("[A] levy action settles no rights in the property subject to seizure." (internal quotation marks omitted)). If the IRS levy is determined to be proper, "one claiming an interest in property seized for another's taxes may bring a civil action [under Sec. 7426] against the United States to have the property or the proceeds of its sale returned." Id. Alternatively, 26 U.S.C.A. Sec. 6343(b) (1989) provides an administrative proceeding to allow a claimant a remedy for the return of seized property. Treas.Reg. Sec. 301.6343-1(b)(2), 26 C.F.R. Sec. 301.6343-1(b)(2) (1984). It is only under these post-seizure proceedings that the ownership form of the property becomes relevant.
In sum, as the Court made clear in National Bank of Commerce, the propriety of the IRS levy turns only on right to withdraw, not the ownership form of the bank account. The ownership form determines only the claimant's share of the seized property under her post-seizure claim. National Bank of Commerce, 472 U.S. at 728 n. 11, 105 S.Ct. at 2928 n. 11. Thus, whether or not Donald and Mary Ann Gaster owned their share of the account as tenants by the entireties is relevant only if we first determine that the IRS levy was proper.
Before proceeding to that determination, it is important to note that in National Bank of Commerce the Supreme Court acknowledged that if money is held by a husband and wife in a joint bank account as tenants by the entireties under applicable state law "the Government could not use the money in the account to satisfy the tax obligations of one spouse," notwithstanding the propriety of the levy. National Bank of Commerce, 472 U.S. at 729 n. 11, 105 S.Ct. at 2928 n. 11 (citing Raffaele v. Granger, 196 F.2d 620, 622 (1952), which recognizes that if an account is held as tenants by the entireties under Pennsylvania law the IRS's "attempt to deal separately with or dispose of the interest of one is in derogation of the other spouse's ownership of the entire property and, therefore, legally ineffective"). Similarly under Delaware law, the IRS would not be entitled to the money in the account if the Gasters owned the account as tenants by the entireties since both Donald and Mary Ann Gaster would be "seized, not merely of equal interests, but of the whole estate during their lives and the interest of neither of them can be sold, attached or liened except by the joint act of both husband and wife." Steigler v. Insurance Co. of North America, 384 A.2d 398, 400 (Del.1978) (internal quotation marks omitted).
Consequently, if a tenancy by the entireties existed, Mary Ann Gaster could successfully recover the entire amount in the account pursuant to her Sec. 7426 (property claim) action. However, while it appears that the Gasters owned their share of the account from its establishment in June of 1985 as tenants by the entireties under Delaware law, as we have stated, we need not address this issue if we first determine that the IRS levy was improper.
B.
The propriety of the IRS levy depends on whether Donald Gaster possessed a unilateral right of withdrawal as determined "by his contract with the bank, as well as by the relevant [Delaware] statutory provisions." National Bank of Commerce, 472 U.S. at 723, 105 S.Ct. at 2926. If Donald Gaster had a unilateral right to withdraw funds from the account, the IRS levy was proper; if he did not have such a right, the IRS levy was improper. It is not disputed that when the joint account at the Bank was initially established, Donald Gaster had a unilateral right to withdraw funds from the account, given the original alternative form of the account signature card. The issue, however, is the ability of Donald Gaster to unilaterally withdraw funds at the time of the IRS levy, after his change in the signature card, the efficacy of which, as we explain infra, is clear.
The record provides uncontested testimony that Bank policy would have required the signature of both Donald and Mary Ann Gaster (or, alternatively, the single signature of Bryan Gaster) in order to make a withdrawal from the account, given the conjunctive signature card. The fact that Bryan Gaster could have unilaterally withdrawn the funds is not relevant to our analysis since under National Bank of Commerce we must determine whether the delinquent taxpayer had a right, acting alone, to withdraw funds from the account. National Bank of Commerce, 472 U.S. at 728, 105 S.Ct. at 2928.
The Bank has stated that it would have honored a withdrawal from this particular savings account by issuing a check payable as the account was titled--"Donald Gaster and Mary Ann Gaster or Bryan Gaster." If such a check were issued, Delaware law would require the signature of both Donald and Mary Ann Gaster (or the sole signature of Bryan Gaster) in order to negotiate the check. Delaware has enacted the relevant portion of Article 3 of the Uniform Commercial Code which requires the signature of each payee when a check is issued in the conjunctive form.
An instrument payable to the order of two or more persons: ... (b) if not in the alternative is payable to all of them and may be negotiated, discharged or enforced only by all of them.
6 Del. Code Ann. Sec. 3-116(b) (1988) (emphasis added). Therefore, as a matter of Delaware law, both the signatures of Donald and Mary Ann Gaster were required to withdraw funds from the savings account. Given that his wife's signature was also required, the delinquent taxpayer, Donald Gaster, did not have the ability to withdraw funds unilaterally from the account; correspondingly, the IRS levy was improper.
C.
Notwithstanding the fact that representatives of the Bank testified that they would require the signatures of both Donald and Mary Ann Gaster to actually make a withdrawal from the account, the district court refused to recognize the legal effect of the change in the signature card since Mary Ann Gaster never executed a document evidencing her assent to the change. We disagree with the significance the district court placed on the failure of Mary Ann Gaster to formally demonstrate her consent.
We may conclude that Donald Gaster had the actual authority to act as an agent of his wife in this particular instance if he was acting consistent with a manifestation of consent by Mary Ann Gaster. An agency relationship " 'results from the manifestation of consent by one person to another that the other shall act on his behalf....' " Cox v. Dean, 1994 WL 466312, at * 3, 1994 Del.Super. LEXIS 357, at * 9 (July 29, 1994) (adopting the definition of RESTATEMENT (SECOND) OF AGENCY Sec. 1); see also Concors Supply Co. v. Giesecke Int'l, Ltd., 1990 WL 28567, at * 2, 1990 Del.Super. LEXIS 87, at * 5 (March 5, 1990). Consent sufficient to establish an agency relationship exists not only where there is prior authorization, but also where a principal ratifies acts done on her behalf after the fact. McCabe v. Williams, 43 Del. 191, 45 A.2d 503, 505 (1944); Hirzel Funeral Homes, Inc. v. Equitable Trust Co., 46 Del. 334, 83 A.2d 700, 701 (Super.Ct.1951); RESTATEMENT (SECOND) OF AGENCY Sec. 100 & cmt. a ("The affirmance of the act of an unauthorized person by the purported principal, all conditions for ratification being fulfilled, normally has the same effect as if such person had been originally authorized."). Thus, the change in the signature card is legally binding if Mary Ann Gaster was aware of, and ratified, the change done, in part, on her behalf.
At trial, Mary Ann Gaster testified that even though she failed to explicitly authorize Donald Gaster's actions before the fact, she manifested a general consent to his acting on her behalf.
Q: Mrs. Gaster, when did you become aware that the accounts at Ninth Ward Savings Bank and Loan had been changed from Donald or Mary Ann Gaster to Donald and Mary Ann Gaster?
A: I guess after Donald did it. Being married to a man for 40 years, I trust anything he does, I agree with.
Q: He did not consult you before he did this?
A: I don't feel he would have to--I mean, what's his is mine, and what's mine is his.
In addition to her acknowledging her ratification of his actions at trial Mary Ann Gaster was aware of and failed to object to the change that her husband made in the signature card for a period of more than five years after the change in the card and before the time of the levy. She signed on multiple occasions the saving transfer forms which reinvested the funds in an account where title was consistent with the change in the signature card--"Donald and Mary Ann Gaster or Bryan Gaster." Given these uncontested facts, including those that demonstrate Mary Ann Gaster's retroactive consent to the change in the signature card, we conclude that as a matter of Delaware law Mary Ann Gaster ratified the change. See RESTATEMENT (SECOND) OF AGENCY Sec. 83 (1958) (allowing a principal to ratify an agent's unauthorized prior act if he knows about it and fails to take affirmative steps to disavow the act).
In sum, we conclude that the change in the card was legally effective, since when Donald Gaster executed the change in the signature card he was acting as the agent of his wife under Delaware law as to her share of the account. Buttressing this conclusion is the fact that Delaware law, in general, considers a husband and wife as agents of the other when dealing with a joint account. See Hoyle v. Hoyle, 31 Del.Ch. 64, 66 A.2d 130, 132 (1949).
D.
In addition to concluding that the change in the signature card was ineffective, the district court also appeared to rely for its determination that Donald Gaster had unilateral access to the account on the fact that Mary Ann Gaster at times unilaterally executed saving transfers on the account. Because only Mary Ann Gaster signed the saving transfer forms, the government contends that Donald Gaster really had a unilateral right to withdraw funds from the account, the Gasters' interests in the account being identical. We disagree. A savings transfer is not a withdrawal, since no money leaves the bank. See BLACK'S LAW DICTIONARY 1104 (6th ed. 1990) (defining withdrawal as the "removal of money or securities from a bank or other place of deposit" (emphasis added)). The ability to remove funds from the bank is clearly the touchstone under National Bank of Commerce. See National Bank of Commerce, 472 U.S. at 723, 105 S.Ct. at 2926 (focusing on whether the delinquent "had the unqualified right to withdraw the full amounts on deposit in the joint accounts without notice to his co-depositors" (emphasis added)). At trial, Bank officials clarified this distinction, stating that while the conjunctive signature card required the signature of both Donald and Mary Ann Gaster in order for either to have made a withdrawal, two signatures were not required to make a savings transfer, since the signature card only governed withdrawals.
III.
In sum, we conclude that pursuant to the Gasters' contract with the Bank and applicable Delaware law, both the signature of Donald and Mary Ann Gaster were required in order to withdraw funds from the account. Accordingly, we hold the IRS levy to be improper and will therefore reverse the judgment of the district court with the direction to dissolve the levy. In addition, we will vacate as moot the judgment in favor of the IRS as to Mary Ann Gaster's Sec. 7426 cross-claim, and will affirm the district court's judgment as to the Gasters' claim against Ninth Ward Savings Bank.