On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 75-2138).
Seitz, Chief Judge, Rosenn and Garth, Circuit Judges. Garth, Circuit Judge, concurring.
This appeal raises the issue of whether a taxpayer whose property has been seized and sold by the federal government for non-payment of federal taxes may thereafter bring suit against the United States to quiet title to that same property provided that he refrains from contesting the merits of the underlying tax assessment itself.
Plaintiff, Aqua Bar & Lounge, Inc. ("plaintiff") was the owner of a restaurant liquor license issued by the Pennsylvania Liquor Control Board. On January 16, 1975, the Internal Revenue Service ("IRS"), pursuing the non-judicial remedies available to it, issued a notice of seizure of plaintiff's property rights in this license pursuant to 26 U.S.C. § 6331 for non-payment of federal employment taxes. Thereafter, the IRS issued a notice of sealed bid sale of plaintiff's property rights in the liquor license under the provisions of 26 U.S.C. § 6335. The license was ultimately purchased by the defendant Joseph Saltz.
Plaintiff then brought this action in the district court against the United States and Saltz seeking to have the seizure and subsequent sale of its license declared null and void on the grounds: (1) that the IRS had no power to seize the license under § 6331; and (2) that the IRS had failed to comply with the procedures for sale set forth in § 6335. In addition, it requested a preliminary injunction restraining Saltz from petitioning the Pennsylvania Liquor Control Board to transfer the license from the plaintiff to himself. However, the plaintiff did not challenge the validity of the underlying tax assessment whose nonpayment had resulted in the seizure and sale of its property.
Upon motion of the United States, the district court denied plaintiff's motion for a preliminary injunction and dismissed its complaint as against both the government and Saltz for lack of jurisdiction. The court reasoned that the complaint sought, in essence, a declaratory judgment "with respect to Federal taxes" which the court had no power to grant under the Declaratory Judgment Act, 28 U.S.C. § 2201. In addition, the court determined that the instant action was barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a), which prohibits a suit seeking to restrain "the assessment or collection of any tax. " Finally, apart from the Declaratory Judgment and Anti-Injunction Acts, the court held that the suit could not be maintained because the United States had not waived its sovereign immunity with respect to it. This appeal followed.
Characterizing its suit as one to quiet title to property on which the United States has a lien, plaintiff asserts that the district court had jurisdiction to hear this action under 28 U.S.C. § 1340 in combination with 28 U.S.C. § 2410(a)(1). Section 1340 of the Judicial Code grants the federal district courts "original jurisdiction of any civil action arising under any Act of Congress providing for internal revenue." Clearly, a suit which contests the validity of a federal tax lien and sale falls within its terms. See United States v. Coson, 286 F.2d 453, 455-56 (9th Cir. 1961). This general grant of jurisdiction does not, as plaintiff recognizes, constitute a waiver of sovereign immunity by the United States. Quinn v. Hook, 231 F. Supp. 718 (E.D. Pa. 1964), aff'd 341 F.2d 920 (3d Cir. 1965). However, plaintiff argues that the required waiver is found in § 2410(a)(1) which provides that the United States may be named as a party in any civil action "to quiet title to . . . real or personal property on which the United States has or claims a mortgage or other lien." Finally, plaintiff maintains that neither the Anti-Injunction Act nor the Declaratory Judgment Act operates to deprive a federal court of its jurisdiction under §§ 1340 and 2410 when the taxpayer involved merely challenges the validity of a tax lien for failure to comply with statutory requirements and refrains from contesting the merits of the underlying tax assessment itself.
The government agrees that § 1340 is a possible jurisdictional basis for this action. However, it maintains, and the district court found, that even assuming that this suit may be treated as an action to quiet title, § 2410(a)(1) does not lift the bar of sovereign immunity in cases where a taxpayer whose property has been seized, as opposed to a third party who claims an interest in that property, brings suit against the United States. In addition, it contends that the district court correctly determined that both the Anti-Injunction and Declaratory Judgment Acts prohibit this suit.
We turn first to the question of whether, based on the allegations contained in the complaint, this suit may be treated as an action to quiet title to property on which the United States has a lien. We think that this question must be answered in the affirmative.*fn1 At the time of the proceedings below, title to the license remained in plaintiff's name on the records of the Pennsylvania Liquor Control Board. In addition, neither the IRS nor Saltz had obtained physical possession of the license document as it remained for safekeeping in the Liquor Control Board's offices in Harrisburg. Certainly, both the tax lien asserted by the government and the sale of the license to Saltz, if indeed invalid, would cast clouds on the title to the license. See Little River Farms, Inc. v. United States, 328 F. Supp. 476 (N.D. Ga. 1971). An action to quiet title is the proper method of removing such clouds on title. United States v. Coson, supra at 457.
Our conclusion in this regard is not undermined by the fact that the license is personal rather than real property. Although suits to quiet title have traditionally involved real property, this particular action is governed by federal rather than state law. And, the relevant federal statute, § 2410, contemplates, by its very terms, actions to quiet title to personalty on which the United States has or claims a lien. Little River Farms, Inc. v. United States, supra at 479; Yannicelli v. Nash, 354 F. Supp. 143 (D. N.J. 1973).
Having determined that this suit may be properly viewed as an action to quiet title, we turn to the crucial issue of whether a taxpayer whose property is subjected to a federal tax lien may bring suit against the United States under § 2410(a)(1). Plaintiff concedes that an action which collaterally assails the merits of the underlying tax assessment will not lie under the statute. Quinn v. Hook, supra. However, it maintains that this statute waives sovereign immunity without regard to the plaintiff's status when the action contests only the validity of a tax lien and sale for failure to comply with statutory requirements. In this regard, it points out that the language of § 2410 does not limit its availability to parties other than the taxpayer whose property is involved. In addition, it contends that any construction of § 2410 which prohibits a taxpayer from bringing suit thereunder would deprive him of any remedy against the government for the illegal seizure and sale of his property.
The government, on the other hand, vigorously maintains that both the legislative history of § 2410 and the weight of the case law construing it demonstrate that it was intended to waive sovereign immunity only in suits brought by third parties claiming ownership or an interest in the property belonging to the taxpayer. Moreover, it argues that any other interpretation would upset the comprehensive and inter-related ...