Peters v. Sjoholm

631 P.2d 937, 95 Wash. 2d 871, 1981 Wash. LEXIS 1133

• Court: Washington Supreme Court
• Decided: July 30, 1981
• Docket: 46865-6
• Status: Published

Opinions

Utter, J. —

The Department of Revenue seized petitioner's bank account as payment for delinquent taxes under RCW 82.32.210, .220 and .235. The trial court granted a summary judgment in favor of the State, its employee, and the defendant bank. We affirm.

Following an audit of petitioner Gene Peters' business, the Department found him delinquent in his excise taxes in the amount of $1,505.14. The Department issued a tax assessment for the delinquency and mailed a copy to petitioner. RCW 82.32.050. When Peters failed to satisfy the delinquency, the Department issued a tax warrant, under its official seal, against Peters commanding the sheriff of Lewis County to levy upon any of petitioner's property. RCW 82.32.210.

Peters petitioned the Department for review of its assessment decision. RCW 82.32.160. After a conference with Peters, the Department ruled its earlier decision was correct and ordered the compliance division of the Department to collect the tax warrants. These warrants had been filed in the Superior Court for Lewis County under RCW 82.32.220, and created a lien upon Peters' property. State v. Hi-Lo Foods, Inc., 62 Wn.2d 534, 383 P.2d 910 (1963); Weitz v. Electrovation, Inc., 48 Wn.2d 604, 295 P.2d 728 (1956).

In addition the Department, through its employee, respondent Les N. Sjoholm, served upon petitioner's bank, Puget Sound National Bank, a notice and order to withhold and deliver. RCW 82.32.235. Under this order, the bank was required to deliver to the Department any property belonging to Peters. The bank sent the Department a check for $89.98, which represented the funds in Peters' account.

Peters commenced this action against Sjoholm and Puget Sound National Bank on the grounds that the seizure of his bank account was an unwarranted search and seizure in contravention of both the state and federal constitutions; and that the seizure violated the fundamental requirements of due process. The trial court granted defendants' motion for summary judgment, and the Court of Appeals affirmed.

Petitioner first contends that the seizure of funds from his bank account violated the fourth amendment to the United States Constitution and article 1, section 7 of the Washington State Constitution. We find it unnecessary to decide this issue.

The applicability of the Fourth Amendment to bank deposits is unclear. In G.M. Leasing Corp. v. United States, 429 U.S. 338, 50 L. Ed. 2d 530, 97 S. Ct. 619 (1977), the Internal Revenue Service (IRS) seized a taxpayer's bank account. The district court held it was constitutional, but the Supreme Court did not address that aspect of the case. The court, however, did state that the full panoply of Fourth Amendment protections applies to IRS seizures which intrude upon a taxpayer's privacy. As for all other IRS seizures, the court implied that there must only be probable cause that the seized items belong to the taxpayer.

The subsequent case law is divided as to whether that means the Fourth Amendment applies only to seizures made on the taxpayer's private premises, see Brunwasser v. Jacob, 453 F. Supp. 567 (W.D. Pa. 1978), or whether it applies generally to all IRS seizures regardless of where made. See United States v. One 1975 Pontiac Lemans, 621 F.2d 444 (1st Cir. 1980). The disagreement stems from the court's abbreviated treatment, and approval, of the IRS seizure of vehicles in public places. The court stated that if there is probable cause to believe that such a vehicle belongs to the taxpayer, the IRS may seize it without a warrant. Because the court did not require the existence of any exigent circumstances (which the Fourth Amendment has been read to require in other contexts involving the seizure of parked cars), some courts have said the Fourth Amendment must not apply to seizures unless conducted on the taxpayer's private premises. See Jacob and One 1975 Pontiac Lemans.

Such a conclusion is buttressed by Den ex dem. Murray v. Hoboken Land & Improvement Co., 59 U.S. (18 How.) , 15 L. Ed. 372 (1856), the case relied upon extensively by G.M. Leasing. Murray stated that the Fourth Amendment does not apply to civil proceedings for the recovery of debts. If that is the law, the probable cause requirement for all seizures may be explainable as mandated by due process, rather than the Fourth Amendment. G.M. Leasing, at 252.

There are several possible justifications why the Fourth Amendment should apply only to seizures involving the taxpayer's private premises, and not seizures of bank deposits. One is that once the tax assessment and subsequent levy activity begin, the government in effect becomes a co-owner in the property to be seized. See United States v. Bluhm, 414 F.2d 1240 (7th Cir. 1969), and cases cited therein. At that point, the government is presumptively entitled to it. One 1975 Pontiac Lemans, at 450. Thus, the taxpayer's expectation of privacy in that property is reduced once she/he becomes aware that it is subject to levy. Such is, in part, the analysis used in State v. McCray, 15 Wn. App. 810, 551 P.2d 1376 (1976). The court condoned a call by the police to a bank for the purpose of ascertaining the status of an account in which a bad check had been drawn, because

It seems clear to us that a person who writes or passes a bad check drawn on his or her bank account cannot have any justifiable expectation that the status of the account at that time will remain private.

State v. McCray, supra at 816. That same analysis could be applied to this case.

A possible second justification is that the government's strong interest in collecting its taxes overrides the taxpayer's interest in the seized property. G.M. Leasing, at 352; One 1975 Pontiac Lemans, at 450. The government may intrude upon a person's privacy when its interest is stronger than the individual's right of privacy. See State v. Lesnick, 84 Wn.2d 940, 942, 530 P.2d 243 (1975). In the case of tax seizures, the government has a strong interest in preventing the property from being removed before it can be seized. This could be a problem if the government had to fully comply with the Fourth Amendment requirements.

On the other hand, the individual's interest in the property can be adequately protected by a postseizure hearing, which is required by statute or due process. See Ingraham v. Wright, 430 U.S. 651, 696, 51 L. Ed. 2d 711, 97 S. Ct. 1401 (1977) (interpreting G.M. Leasing). In the individual's case, any injury to the taxpayer as a result of an improper seizure can be remedied after the fact. Moreover, the taxpayer has only a minimal expectation of privacy in his or her bank deposits. Once money is deposited in a general bank account, title to the money passes to the bank, and the bank and the depositor assume the relationship of debtor and creditor, respectively. Carlson v. Kies, 75 Wash. 171, 134 P. 808 (1931); Allied Sheet Metal Fabricators, Inc. v. Peoples Nat'l Bank, 10 Wn. App. 530, 518 P.2d 734 (1974). It thus has been stated that since the depositor exerts neither an ownership nor a possessory interest in the funds, he or she has no legitimate expectation of privacy in the funds themselves and no interest protected by the Fourth Amendment. See United States v. Miller, 425 U.S. 435, 48 L. Ed. 2d 71, 96 S. Ct. 1619 (1976);¹ Katz v. United States, 389 U.S. 347, 19 L. Ed. 2d 576, 88 S. Ct. 507 (1967). Similarly, although the depositor does have an ownership interest in the indebtedness created by the deposit, such an interest may not create, in light of society's strong interest in tax collection, an expectation of privacy which society is prepared to recognize as legitimate for Fourth Amendment purposes. Katz, at 361-62. See also Rakas v. Illinois, 439 U.S. 128, 58 L. Ed. 2d 387, 99 S. Ct. 421 (1978).

In contrast, some courts, without any analytical elaboration, believe the Fourth Amendment does apply to seizures of the taxpayer's funds; at least to the extent of requiring the presence of probable cause. Flores v. United States, 551 F.2d 1169 (9th Cir. 1977); Brunwasser v. Jacob, supra. In Flores, the court disapproved of an IRS seizure of money from a bail bondsmanj because the IRS lacked probable cause to believe it belonged to the delinquent taxpayer. In Jacob, the IRS was allowed to levy on property held by a bank.

The argument for applying the Fourth Amendment to seizures of bank accounts is that such a seizure extinguishes the bank's obligation to pay that sum to the taxpayer. " [Pjayment to the Government pursuant to levy and notice is a complete defense" to any subsequent claim by the taxpayer. DiEdwardo v. First Nat'l Bank of Bath, 442 F. Supp. 499, 500 (E.D. Pa. 1977). To this extent, the taxpayer has a form of ownership interest in the debt owed him/her by the bank. Ownership interests are generally sufficient to invoke the Fourth Amendment's prohibition against unreasonable searches. An individual "who owns or lawfully possesses or controls property will in all likelihood have a legitimate expectation of privacy by virtue of this right to exclude." Rakas v. Illinois, supra at 144 n.12.

We however need not decide whether the Fourth Amendment, or its counterpart in our state constitution, applies to seizures of bank deposits. The cases agree as to what procedure must be followed for a seizure of a bank account to be valid, although they may disagree as to which constitutional provision requires it. The agency must have probable cause to believe that the bank fund belongs to the taxpayer. See, e.g., Flores v. United States, supra at 1174-75. It, however, does not need an ordinary search and seizure warrant. See Flores v. United States, supra; Brunwasser v. Jacob, supra. The probable cause requirement exists, regardless of whether the Fourth Amendment applies, because of due process. See G.M. Leasing Corp. v. United States, supra. The tax agency, therefore, may seize bank funds when it complies with the relevant statutes and has probable cause to believe the bank funds belong to the taxpayer.

To ensure the speedy and effectual collection of taxes, the government may, under its inherent sovereign power, assess and collect taxes in a summary fashion. G.M. Leasing Corp. v. United States, supra; Phillips v. Commissioner, 283 U.S. 589, 596-97, 75 L. Ed. 1289, 51 S. Ct. 608 (1931); State ex rel. Mulhausen v. Superior Court, 22 Wn.2d 811, 817, 157 P.2d 938, 160 A.L.R. 692 (1945). This summitry method of collection does not violate the requirement of due process if, at some point during the proceedings, the taxpayer "is given notice and has an opportunity to be heard, and if the procedure established by existing law is substantially followed in assessment and collection". State ex rel. Mulhausen, supra at 817. See also G.M. Leasing; Fuentes v. Shevin, 407 U.S. 67, 90-92, 32 L. Ed. 2d 556, 92 S. Ct. 1983 (1972).

In the case at bench, the Department utilized a summary method of collection in response to Peters' tax delinquency. Due process was satisfied, however, in that it followed the procedures established under RCW 82.32, and gave Peters notice of the tax assessed against him, and afforded Peters an administrative hearing on the matter of his tax liability.

Moreover, petitioner had the opportunity to challenge the tax assessment after the taxes had been paid. He could have applied for a refund and for a conference to examine and review the tax liability, RCW 82.32.170, or appealed to the Superior Court for Thurston County for a refund, RCW 82.32.180. In the area of tax collection, it is constitutionally sound to postpone the opportunity for a hearing until after the payment of the delinquent taxes. See Fuentes v. Shevin, supra at 91-92.

Lastly, petitioner claims that he is entitled to a jury trial prior to the imposition and enforcement of any tax liability. There is no such right to a trial by jury. Dexter Horton Bldg. Co. v. King County, 10 Wn.2d 186, 116 P.2d 507 (1941).

We affirm the trial court's decision granting respondents' motion for summary judgment.

Stafford, Dolliver, Hicks, and Williams, JJ., concur.

1 In Miller, the United States Supreme Court held that bank records, including checks, deposit slips and bank statements, do not come within the protection of the Fourth Amendment. This decision, however, is not dispositive of the case at bench.