United States District Court, Northern District of Illinois, E.D
July 7, 1983
DIMMITT & OWENS FINANCIAL, INC., PLAINTIFF,
UNIQUE INDUSTRIES, INC., ALLEN SPECIALITY COMPANY, DUDLEY OLSEN, AND UNITED STATES OF AMERICA, DEFENDANTS.
The opinion of the court was delivered by: McMILLEN, District Judge.
Both parties have filed motions for summary judgment in this
case, plaintiff seeking to set aside and enjoin the enforcement
of a tax levy against Unique Industries, Inc. and defendant
United States of America as counterplaintiff seeking to enforce
its tax levy by foreclosing its liens against defendant Unique
Industries, Inc. We find and conclude that Unique's principal
executive office was located in Illinois which requires that
defendant's motion for summary judgment should be granted.
The controversy arose in the following manner. Internal Revenue
Service filed tax liens in DuPage County, Illinois against Unique
Industries beginning July 10, 1979. Unique Industries' total tax
indebtedness reached $152,726.20 plus statutory penalties and
interest, which is the amount of its counterclaim. Plaintiff
began buying Unique Industries' accounts receivable on June 18,
1979, and obtained a total of $723,166.90 in collections.
Plaintiff was served with a notice of levy by I.R.S. on November
9, 1979, and had acquired the accounts receivable prior to that
time. However, it had constructive notice of the government's
liens which had been filed with the Recorder of Deeds of DuPage
County on July 10, 1979.
The applicable statute, 26 U.S.C. § 6323(f), protects a
commercial financing transaction such as the plaintiff had with
Unique Industries in this case up to the 46th day after the tax
lien has been filed. The forty-sixth day after July 10, 1979, is
August 25, 1979, and plaintiff collected approximately $400,000
of Unique Industries' accounts receivables after that date.
Therefore, if the tax liens were properly filed, the counterclaim
of the Internal Revenue Service becomes valid and enforceable up
Subparagraph (f) of § 6323 provides in pertinent part as
(f) Place for filing notice; form. —
(1) Place for filing. — The notice referred to in
subsection (a) shall be filed —
(A) Under State laws. —
(ii) Personal property. — In the case of personal
property, whether tangible or intangible, in one
office within the State (or the county, or other
governmental subdivision), as designated by the laws
such State, in which the property subject to the lien
is situated . . .
(2) Situs of property subject to lien. — For
purposes of paragraph (1), property shall be deemed
to be situated —
(B) Personal property. — In the case of personal
property, whether tangible or intangible, at the
residence of the taxpayer at the time the notice of
lien is filed.
For purposes of paragraph (2)(B), the residence of a
corporation or partnership shall be deemed to be the
place at which the principal executive office of the
business is located. [Emphasis added.]
Plaintiff argues, first, that its contract with Unique
Industries predated any tax lien filed by I.R.S. and that it had
no actual knowledge of the one filed in DuPage County on July 10,
1979, or any other subsequent lien filed by the federal
government. However, actual notice or knowledge of a tax lien is
not required under § 6323. Plaintiff had forty-five days to
discover the lien, which is a reasonable period of grace for a
factoring corporation to protect itself. If a lien is properly
filed in accordance with the laws of the State of Illinois, as
was done in the case at bar, then all parties, at least in this
state, have constructive notice of the lien. Although plaintiff
claims that notices of liens subsequently filed in California
were not in accordance with the laws of that State, this
contention becomes irrelevant if the principal executive office
of Unique Industries was in Illinois. Indeed, the government does
not contend that liens were properly filed in California.
It should be noted that the phrase "principal executive office"
was enacted into § 6323 on July 25, 1958, modifying the phrase
"residence of the taxpayer." The case relied upon by plaintiff,
United States v. Jane B. Corp., 167 F. Supp. 352 (D.Mass. 1958),
was decided under the old language of § 6323 which is no longer
applicable. It thus becomes a question of the meaning of the
phrase "principal executive office," and this is generally
understood to mean "the head office, the place where the
principal officers generally transact business, and the place to
which reports are made and from which orders emanate." Alabama v.
T.V.A., 636 F.2d 1061, 1065-66 (5th Cir. 1981).
Counterplaintiff has shown the following factors without
genuine dispute, to establish that the principal executive office
of Unique Industries is in Illinois: Unique Industries was
incorporated in Illinois on December 29, 1978, and the Articles
of Incorporation give Unique's address as "350 Randy Road, Carol
Stream, DuPage County, Illinois." Plaintiff's own ledger lists
Unique's address as "350 Randy Road, Carol Stream, Illinois" or
"P.O. Box 1054, Wheaton, Illinois." Plaintiff's written,
agreement for factoring Unique's accounts receivable bears the
latter's Carol Stream address. Unique Industries' stationary
bears the Illinois address, and plaintiff sent all of its
correspondence with Unique to that address. The financial
statements which were filed by plaintiff in Illinois and in
California shows Unique's address to be in Illinois. The report
to the I.R.S. on the financial condition of Unique, prepared by
The Phoenix Company of Garden Grove, California, gives Unique's
address in Carol Stream. Unique gave this address when it filed
tax returns with the I.R.S. and defendant United States relied
upon this representation when deciding where to serve notice of
the tax liens. Unique maintains financial records, purchase
orders, bank statements, accounts payable ledgers, customers'
orders, payroll account, and other records in Illinois. Its
president, Dudley A. Olsen, its secretary/treasurer Deborah K.
Olsen, and its secretary, Mrs. Dudley Olsen all maintained their
offices and records in Carol Stream along with three other
clerical employees. The minute book was kept there and "Virtually
all corporate decisions were finalized in Illinois." (Declaration
of Dudley A. Olsen, dated January 15, 1983). This included
computerized cost data upon which price quotations were based.
Plaintiff's affidavit points out, without genuine dispute, that
Unique's principal manufacturing facility was in Culver City,
California, that most of its employees worked there, and that Mr.
Olsen spends a considerable amount of time there. Also Unique's
accountants were in Los Angeles as were most of its customers and
several of its bank accounts. Apparently the accountants had
either temporary custody or copies of Unique's business records
in California because they performed the audits for two years
prior to Unique's bankruptcy. The bankruptcy petition was filed
in California by an Illinois attorney.
Mr. Olsen in his affidavit concedes that he spent a
considerable proportion of each week living in an efficiency
apartment near the factory in California for purposes of
overseeing the manufacturing operation but that he maintained his
"permanent residence" in Illinois with his wife and intended to
control the activities of all manufacturing from one central
location in Carol Stream, Illinois. The offices there occupy
7,500 square feet, considerably smaller than the factory in
California, but certainly adequate to house a principal executive
Therefore, the undisputed evidence is that Unique Industries
Inc.'s principal executive office was in Carol Stream, Illinois,
and that its principal executive officers managed the business
out of that office. Mr. Olsen planned to have several
manufacturing operations, but adverse business conditions limited
the company to one facility in California where its retail sales
operations likewise were located. It is not unusual for a
corporation to have its principal manufacturing operations in a
different location from its principal executive office, but the
location of the latter is controlling under § 6323(f).
Even the plaintiff treated Unique Industries as a corporation
whose financial management and communications were located in
Illinois. It would do violence to the clear language of the
statute to hold that Unique's principal executive office was
located in the factory or the small apartment, or even in the
accountant's office or a combination of all of them, in
California. Unfortunately for plaintiff, this just was not the
fact, and there is no genuine issue to the contrary. Therefore,
we find and conclude that the federal tax liens filed in DuPage
County, Illinois on July 10, 1979, and thereafter were effective
against the plaintiff beginning August 25, 1979. Judgment is
entered in favor of the counterplaintiff United States and
against the counterdefendant Dimmitt & Owens Financial, Inc., and
the plaintiff's motion for summary judgment is denied.
Defendant/counterplaintiff may serve and file a judgment order
in accordance with this decision within two weeks (14 days)
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