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First Bancorp, Inc. D/B/A First National Bank Russell Springs v. United States of America

May 10, 2013

FIRST BANCORP, INC. D/B/A FIRST NATIONAL BANK RUSSELL SPRINGS PLAINTIFF
v.
UNITED STATES OF AMERICA, ET AL.
DEFENDANTS



MEMORANDUM OPINION

This matter is before the Court upon Plaintiff First Bancorp, Inc. d/b/a First National Bank Russell Springs (First National) and Defendant United States' competing Motions for Summary Judgment. (Docket Nos. 11 & 12, respectively.) The United States filed a Response, (Docket No. 15), First National filed a Combined Reply and Response, (Docket No. 18), and the United States filed a Reply, (Docket No. 19). This matter is now fully briefed and ripe for adjudication.

BACKGROUND

This case concerns approximately $200,000 that the Internal Revenue Service (IRS) levied from Tantus Tobacco, LLC. Brian Cooper purchased Tantus Tobacco, along with some real property and interests in several other businesses, from Kenneth Catron in 2008. Cooper agreed to pay Catron in 36 monthly payments of $18,404.34, plus interest. These payments are referred to in this litigation as the "Cooper Payments."

First National loaned substantial sums of money to Catron for the purpose of developing and launching a new business. First National secured the funds it loaned Catron by entering into several security agreements with Catron. The first of these security agreements was entered into on June 29, 2007 (the "2007 Security Agreement"). That agreement secured "[a]ll present and future debts, even if this Agreement is not referenced, the debts are also secured by other collateral, or the future debt is unrelated to or of a difference type than the current debt." (Docket No. 11-3.) The 2007 Security Agreement went on:

SECURITY INTEREST. To secure the payment and performance of the Secured Debts, Debtor gives Secured Party a security interest in all of the Property described in this agreement that Debtor owns or has sufficient rights in which to transfer an interest, now or in the future, wherever the property is or will be located, and all proceeds and products of the Property. . . .

PROPERTY DESCRIPTION. The Property is described as follows:

Accounts and Other Rights to Payment: All rights to payment, whether or not earned by performance, including, but not limited to, payment for property or services sold, leased, rented, licensed, or assigned.

Inventory: . . . .

Equipment: . . . . . . . .

Specific Property Description: The Property includes, but is not limited by, the following . . . ALL EQUIPMENT, ACCOUNTS RECEIVABLE AND INVENTORY (Docket No. 11-3.) First National filed a financing statement, also on June 29, 2007, with the Kentucky Secretary of State (the "2007 Financing Statement"). That financing statement described the collateral as "ALL EQUIPMENT, ACCOUNTS RECIEVABLE [sic] and INVENTORY." (Docket No. 11-4, at 2.)

On November 19, 2007, a federal tax lien arose as to Catron in the amount of $69,346.94 for the 2006 tax year (the "2006 Tax Lien"). The IRS filed a notice of federal tax lien in regard to the 2006 Tax Lien on April 14, 2008, in the Russell County Clerk's Office.

On November 7, 2008, Catron entered into an agreement with Cooper and several other entities (the "Cooper Parties"), agreeing to sell the Cooper Parties all of Catron's interest in the Cooper Parties and the businesses they operated. That agreement obligated Cooper to pay Catron the principal amount of $662,556.27, plus interest on the unpaid balance, payable in 36 monthly payments of $18,404.34, plus interests. As noted above, these payments are referred to as the "Cooper Payments."

On March 19, 2009, Catron entered into another security agreement with First National (the "March 2009 Security Agreement"). Much like the 2007 Security Agreement, the March 2009 Security Agreement took a secured interest in Catron's "Accounts and Other Rights to Payment," "Inventory," and "Equipment." (Docket No. 11-7.) The March 2009 Security Agreement differed from the 2007 Security Agreement insofar as the "Specific Property Description" section stated: "ALL INVENTORY, RAW MATERIALS, WORK IN PROGRESS OR MATERIALS USED OR CONSUMED IN DEBTOR'S BUSINESS, WHETHER NOW OWNED OR HEREAFTER ACQUIRED, TOGETHER WITH ALL PROCEEDS INCLUDING ACCOUNTS RECEIVABLE AND NOTES . . . ." (Docket No. 11-7.) First National filed a financing statement on March 24, 2009 (the "March 2009 Financing Statement"), which tracked the "Specific Property Description" language of the March 2009 Security Agreement in describing the collateral. (See Docket No. 11-8, at 2.)

On September 14, 2009, a federal tax lien arose as to Catron in the amount of $264,805.91 for the 2007 tax year (the "2007 Tax Lien"). The IRS filed a notice of federal tax lien in regard to the 2007 Tax Lien on October 16, 2009, in the Russell County Clerk's Office.*fn1

On November 20, 2009, Catron and First National entered into an "Assignment of Proceeds from Agreement and Release," whereby Catron assigned to First National his interest in the Cooper Payments. (See Docket No. 11-10.) Then on November 27, 2009, Catron entered into another security agreement with First National (the "December 2009 Security Agreement"). (See Docket No. 11-11.) That agreement took a secured interest in Catron's property as follows: "Accounts and Other Rights to Payment," "Instruments and Chattel Paper," and "General Intangibles," and set forth the "Specific Property Description" as "ASSIG NMENT OF PROCEEDS FROM AGREEMENT AND RELEASE DATED 11-20-2009." (Docket No. 11-11.) First National filed a financing statement on December 11, 2009, which tracked the "Specific Property Description" language of the December 2009 Security Agreement in describing the collateral. (Docket No. 11-12, at 2.)

Beginning in October 2010, the IRS levied a total of nine Cooper Payments, the first eight in the amount of $22,222.22 each and the ninth and final payment in the amount of $14,173.10, for a total amount of $191,950.86. The first four levies, which occurred on October 8, November 19, and December 13, 2010, and January 12, 2011, initially were applied to the 2006 Tax Lien. However, Catron filed an amended return on August 20, 2009, and the processing of that return resulted in an abatement of Catron's 2006 federal tax liabilities. As such, the IRS applied four credits in the amount of the first four levies to Catron's still-outstanding liability under the 2007 Tax Lien. The final five levies of the Cooper Payments, which occurred on February 14, March 14, April 11, May 11, and June 10, 2011, were applied directly to the 2007 Tax Lien. Thus, the funds from all nine levied payments ultimately were applied to the 2007 Tax Lien. The following represents a summary of the timeline of relevant events:

Date Event June 29, 2007 First National files 2007 Financing Statement relative to 2007 Security Agreement November 19, 2007 2006 Tax Lien arises April 14, 2008 IRS files notice of 2006 Tax Lien November 7, 2008 Catron sells business interests and real property in exchange for right to receive the Cooper Payments March 24, 2009 First National files March 2009 Financing Statement relative to March 2009 Security Agreement September 14, 2009 2007 Tax Lien arises October 16, 2009 IRS files notice of 2007 Tax Lien December 11, 2009 First National files financing statement relative to December 2009 Security Agreement October 8, 2010 IRS receives first of nine levied Cooper Payments ($22,222.22) November 19, 2010 IRS receives second of nine levied Cooper Payments ($22,222.22) December 13, 2010 IRS receives third of nine levied Cooper Payments ($22,222.22) January 12, 2011 IRS receives fourth of nine levied Cooper Payments ($22,222.22) January 21, 2011 2006 Tax Lien is released February 14, 2011 IRS receives fifth of nine levied Cooper Payments ($22,222.22) March 14, 2011 IRS receives sixth of nine levied Cooper Payments ($22,222.22) April 11, 2011 IRS receives seventh of nine levied Cooper Payments ($22,222.22) May 11, 2011 IRS receives eighth of nine levied Cooper Payments ($22,222.22) June 10, 2011 IRS receives ninth and final levied Cooper Payment ($14,173.10)

STANDARD

Summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). "[N]ot every issue of fact or conflicting inference presents a genuine issue of material fact." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir. 1989). The test is whether the party bearing the burden of proof has presented a jury question as to each element in the case. Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir. 1996). The plaintiff must present more than a mere scintilla of evidence in support of her position; she must present evidence on which the trier of fact could reasonably find for her. Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)). Mere speculation will not suffice to defeat a motion for summary judgment: "[T]he mere existence of a colorable factual dispute will not defeat a properly supported motion for summary judgment. A genuine dispute between the parties on an issue of material fact must exist to render summary judgment inappropriate." Monette v. Elec. Data Sys. Corp., 90 F.3d 1173, 1177 (6th Cir. 1996), abrogated on other grounds by Lewis v. Humboldt Acquisition Corp., Inc., 681 F.3d 312 (6th Cir. 2012).

Much, if not all, of the pertinent facts in this case are undisputed, and the parties seem to agree that the issues of attachment, priority, and the propriety of the IRS's levies of the Cooper Payments are purely ...


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