Weissman v. United Postal Service

19 F. Supp.2d 254 (D. N.J. 1998)
  • Opinion Date: August 26, 1998

LEASES; TAX LIENS—A tenant that believes its last known landlord still has an “apparent interest” in the lease is immune from suit if it turns the rent over to the IRS pursuant to a tax levy against the last known landlord.

A tenant received a notice of levy from the Internal Revenue Service naming the original landlord on its lease as the taxpayer. The levy required the tenant to turn over the rents to the IRS. Upon receipt of the notice, and believing the named landlord to have an interest in the rents, the tenant began making rental payments to the IRS. About six weeks before the notice of levy arrived, the tenant had received a letter from an attorney requesting that all future rent payments be sent to the named landlord’s wife. In response, the tenant sought additional information and documentation from the attorney to support the request that the rents no longer be sent to the landlord or to a receiver that had previously been collecting rents on behalf of the named landlord. After sporadic correspondence, the named landlord’s wife filed suit against the tenant seeking payment of rent due, termination of the lease, and ejectment from the property.

The source of the confusion resulted from several changes in ownership interests in the property. Eventually, the Court straightened out the changes in ownership and all parties agreed that the plaintiff was, indeed, the true owner of the property at the time that the IRS levy was issued. Even though the IRS refunded the rents that had been paid directly to it, and the wife received that money, she persisted, albeit unsuccessfully, in her action against the tenant.

A third party in possession of property or rights to property upon which a levy has been issued must surrender the property. A third party who does so has no liability to the delinquent taxpayer with respect to this surrendered property. This immunity has been interpreted generously. Failure to surrender the property, however, will render the party personally liable to the government for the value of the property, as well as liable for possible additional penalties. The tenant argued that it was immune under the Internal Revenue Code, but the landlord responded that immunity does not apply in this case because the delinquent taxpayer, her husband, had no “apparent interest” in the rent at the time the levy was issued. In addition, she argued that the tenant did not make a good faith determination as to who the true owner of the property was at the time of the levy. The Court, in ruling in favor of the tenant, held that the information available to the tenant compelled it to forward the rent to the IRS, especially where the lease had never been reformed. The original letter from the landlord’s attorney to the tenant merely indicated the rent should be forwarded to the owner of the premises, the wife. A later letter provided more information, but did not supply the documents that would have indicated the chain of title to the current landlord. The named landlord never notified the tenant to forward rent to his wife in light of the change in ownership. With these facts in mind, and cognizant that Congress intended to confer broad immunity upon a compliant party who erroneously complies with a levy based upon a mistaken, but good faith, determination that a taxpayer has an apparent interest in property, the Court ruled that the tenant was immune from this suit.

In addition, there was no provision in the lease that provided for forfeiture upon the tenant’s nonpayment of rent. Generally, in the absence of such a provision, nonpayment of rent does not operate as a forfeiture. In addition, the equities weighed in favor of the tenant and against forfeiture. Consequently, as a matter of law, under the circumstances presented, ejectment was unavailable as a remedy, all rental payments having been made.