author: RESTANI, Judge:

text:
    The UNITED STATES, Plaintiff, v. Christopher C. TABOR, et al., Defendants.
    Court No. 84-9-01327.
    United States Court of International Trade.
    May 3, 1985.

      Richard K. Willard, Acting Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, A. David Lafer and Francis J. Sailer, Civ. Div., U.S. Dept. of Justice, Washington, D.C., for plaintiff.
    Brownstein, Zeidman and Schomer, Washington, D.C. (Steven P. Kersner and Paul S. Davidson, Washington, D.C.) and Zachry, Kearney, Hill, Shaw & Beatty, Tom L. Zachry, Fort Worth, Tex., for defendants.
   Opinion and Order

RESTANI, Judge:

Plaintiff filed suit in this court on September 27, 1984, pursuant to § 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (1982), alleging that defendants attempted to import into the United States an improperly equipped 1983 Porsche automobile from the Federal Republic of Germany. Plaintiff seeks both an in personam penalty equal to the domestic value of the automobile (alleged to be $52,159.00 plus interest) and an in rem civil forfeiture of the automobile. The automobile was seized by the United States Customs Service (“Customs”) on August 11, 1983. Following administrative proceedings which resulted in a mitigated penalty decision on July 5, 1984, and pursuant to defendant Tabor’s request of July 13, 1984, this matter was referred to the United States Attorney or the Department of Justice for judicial proceedings. The automobile remains in Customs’ possession.

This matter is before the court on defendants’ motion to dismiss and to quash the warrant for arrest of the automobile and on plaintiff’s motion, pursuant to Court of International Trade Rule 15(a), to amend the complaint. The court will address plaintiff’s motion first.

Plaintiff seeks to allege an additional basis for civil in rem forfeiture pursuant to 18 U.S.C. § 545 (1982). Plaintiff asserts that this court can and should exercise jurisdiction over § 545 forfeiture actions when they are brought in conjunction with related § 592 penalty proceedings. Jurisdiction over federal civil forfeiture actions lies generally with the district courts. 28 U.S.C. § 1355 (1982). The district court’s jurisdiction in these actions, however, does not include matters within the jurisdiction of this court under 28 U.S.C. § 1582 (1982). 28 U.S.C. § 1355. Section 1582 grants exclusive jurisdiction to this court of “any civil action which arises out of an import transaction and which is commenced by the United States — to recover a civil penalty under section 592 ... of the Tariff Act of 1930____” Therefore, plaintiff relies on the non-statutory ground of pendent jurisdiction to bring its § 545 civil forfeiture claim before this court.

“[Pjendent jurisdiction is a doctrine of discretion, not of plaintiff’s right.” United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966); Network Project v. Corporation for Public Broadcasting, 561 F.2d 963, 970 (D.C.Cir.1977), cert. denied, 434 U.S. 1068, 98 S.Ct. 1247, 55 L.Ed.2d 770 (1978). Such discretion, however, is not left to the court’s “inclination, but to its judgment; and its judgment is to be guided by sound legal principles.” Albermarle Paper Co. v. Moody, 422 U.S. 405, 416, 95 S.Ct. 2362, 2371, 45 L.Ed.2d 280 (1975), quoting United States v. Burr, 25 F.Cas. 30, 35 (C.C.Va.1807) (No. 14,692d) (Marshall, C.J.). The doctrine of pendent jurisdiction is most commonly applicable to federal courts’ exercise of jurisdiction over causes of action which normally are decided by state courts. In a case involving a “substantial” claim arising under federal law, the district court has power to entertain a separate cause of action between the same parties based on state law, provided that the state and federal claims “derive from a common nucleus of operative fact” and are sufficiently related so that plaintiff would “ordinarily be expected to try [both Claims] in one judicial proceeding____” Gibbs, 383 U.S. at 725, 86 S.Ct. at 1138.

As indicated, exercise of pendent jurisdiction is a discretionary matter and “involvement of federal law in a pendent claim is a factor significantly affecting the proper exercise of that discretion.” Network, 561 F.2d at 971. See also Hagans v. Lavine, 415 U.S. 528, 548, 94 S.Ct. 1372, 1385, 39 L.Ed.2d 577 (1974); Rosado v. Wyman, 397 U.S. 397, 425, 90 S.Ct. 1207, 1224, 25 L.Ed.2d 442 (1974) (Douglas, J., concurring); 13 C. WRIGHT, A. MILLER & E. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3567 (1984). In Network, the appeals court reversed the district court’s decision not to exercise pendent jurisdiction over a state court claim involving federal law because the lower court’s “decision was unresponsive to the considerations that govern the exercise of pendent jurisdiction when the pendent claim invokes federal law.” Network, 561 F.2d at 971. Absent regard for such considerations and because the court of appeals perceived nothing out of the ordinary that justified a refusal of pendent jurisdiction, the district court was held to have abused its discretion. That case does not hold, as defendant implies, that it is necessarily an abuse of discretion for a federal court to refuse to exercise pendent jurisdiction over a claim involving federal law. Instead, it holds that the fact that the claim without an independent federal jurisdictional basis is one grounded in federal law should weigh in favor of exercising pendent jurisdiction. See, e.g., Hagans, 415 U.S. at 548, 94 S.Ct. at 1385; Rosado, 397 U.S. at 425, 90 S.Ct. at 1224.

Plaintiff cites several cases for the proposition that one federal court may assume jurisdiction over matters otherwise within the jurisdiction of another federal court. They are Florida Lime and Avocado Growers, Inc. v. Jacobsen, 362 U.S. 73, 80 S.Ct. 568, 4 L.Ed.2d 568 (1960), Rosado, 397 U.S. 397, 90 S.Ct. 1207, 25 L.Ed.2d 442, Romero v. International Terminal Operating Co., 358 U.S. 354, 79 S.Ct. 468, 3 L.Ed.2d 368 (1959) and Lefson v. Esperdy, 211 F.Supp. 769 (S.D.N.Y.1962). First, neither Romero nor Rosado clearly involves the jurisdiction of two federal courts. Both involve claims based on federal law which may be heard in state courts. (To the extent Romero involves pendent admiralty jurisdiction it is so narrow as to have little meaning beyond the facts of the case.) Second, the remaining two cases fail to establish plaintiff’s claim that it is appropriate for the CIT to exercise pendent jurisdiction over a § 545 claim. Florida Lime, because it involved an action to enjoin a state statute’s enforcement on federal grounds, was heard by a panel of three federal judges. The Florida Lime court held that the three-judge panel also had jurisdiction over other federal statutory claims which would normally be heard by a single district court judge. It is unclear whether the court in Florida Lime grounded the three-judge court’s jurisdiction over such claims on pendent jurisdiction principles or solely on Congress’ intent with regard to the statute requiring a three-judge panel. Florida Lime, 362 U.S. at 85, 80 S.Ct. at 575. Lefson, a district court case, involved one claim which was exclusively in the jurisdiction of the appeals court and another which ordinarily would be within the district court’s jurisdiction. The district court transferred both claims to the appeals court in order for the appeals court to consider pendent jurisdiction over the claim which was originally before the district court. In Lefson, because there is no appellate opinion, there is no evidence that the appeals court exercised pendent jurisdiction. Cf. Thompson Tower Ltd. Dividend Housing Association v. United States, 228 Ct.Cl. 766, 771 (1981), citing Berdick v. United States, 222 Ct.Cl. 94, 612 F.2d 533 (1979) (transfer does not confer jurisdiction on the transferee court). Therefore, Lefson stands only for the proposition that the district court could not hear a claim which was within the exclusive jurisdiction of the court of appeals.

Plaintiff first argues that since the district court’s jurisdiction over § 545 claims is not exclusive and since jurisdiction over § 592 claims is exclusively in this court, judicial economy compels the exercise of pendent jurisdiction by this court over § 545 actions. Judicial economy, however, is not necessarily an adequate basis for the exercise of pendent jurisdiction. Judicial economy is but one factor to be considered. See Gibbs, 383 U.S. at 725-26, 86 S.Ct. at 1138-39. In United States v. Gold Mountain Coffee, Ltd., 8 C.I.T. -, 597 F.Supp. 510, reh’g denied, 601 F.Supp. 212 (1984), this court discussed the closely related concept of ancillary jurisdiction, which plaintiff there sought to invoke regarding its § 545 claims. The court noted, among other factors to be considered before asserting ancillary jurisdiction over federal claims, the necessity of such jurisdiction to the just resolution of the main proceeding. Plaintiff has shown no such necessity here. As the Supreme Court noted in Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365, 376, 98 S.Ct. 2396, 2404, 57 L.Ed.2d 274 (1978):

[Ajncillary jurisdiction typically involves claims by a defending party haled into court against his will, or by another person whose rights might be irretrievably lost unless he could assert them in an ongoing action in a federal court,

(footnote omitted).

Plaintiff loses no rights if it is denied a hearing in this court of its § 545 claim; it may simply sue in district court. Although this may be inconvenient for plaintiff, Congress apparently intended this result — as will be discussed infra.

Although the court’s exercise of pendent jurisdiction may not be limited by the requirement of necessity in every case, this court’s exercise of pendent jurisdiction is limited by Congressional intent, particularly the Congressional intent involved in Congress’ decisions dividing jurisdiction among the federal courts. One of the predecessor courts to the Court of Appeals for the Federal Circuit made this clear in declining to exercise pendent jurisdiction in several cases. Lockridge v. United States, 218 Ct.Cl. 687 (1978), involved patent, copyright and trademark claims arising out of the same set of facts, but the Court of Claims found it had jurisdiction over the patent and copyright claims only. The Court of Claims stated that it would not exercise jurisdiction if Congress expressly or impliedly negated its exercise as it had by limiting the court’s express jurisdiction to jurisdiction over two of the three types of related claims. See also Thompson Tower, 228 Ct.Cl. at 771; Strick Corporation v. United States, 223 Ct.Cl. 262, 279, 625 F.2d 1001, 1010 (1980); Eastport Steamship Corp. v. United States, 178 Ct.Cl. 599, 614, 372 F.2d 1002, 1012-13 (1967). Similar negation is, at least, implied here. Congress has had a recent opportunity to review the jurisdiction of this court with the specific intent of eliminating confusion as to the jurisdictional demarcation between the CIT and the federal district courts, but Congress did not give the CIT, vis-a-vis the district court, either concurrent or exclusive jurisdiction over § 545 in rem forfeiture actions. 28 U.S.C. § 1582; H.Rep. No. 96-1235, 96th Cong., 2nd Sess., 47-49, reprinted in 1980 U.S.CODE CONG. & AD.NEWS 3758-61. Rather, it gave this court jurisdiction over § 592 penalty claims.

Moreover, § 545 and § 592 claims are not related on an occasional basis only. Time and again such claims will arise out of the same set of facts. Congress obviously could perceive this, yet it gave this court no jurisdiction of any type over § 545 civil claims. In Gibbs’ terms the § 592 action here is a “substantial claim,” and both the § 592 and § 545 claims “derive from a common nucleus of operative fact,” but the third Gibbs factor is missing. That is, plaintiff would not “ordinarily be expected to try [both claims] in one judicial proceeding.” Such an expectation would be unfounded in light of the jurisdictional framework established by Congress. Thus, whether plaintiff seeks this court’s jurisdiction over its § 545 claim on the basis of ancillary jurisdiction as it did in Gold Mountain Coffee, or on the basis of pendent jurisdiction as it did here, no such jurisdiction seems appropriate.

Another doctrine which is commonly applicable to issues arising in both federal and state courts is that of abstention. There is authority that a federal court may abstain from deciding an issue properly before that court when the issue involves an area of unsettled state law. See Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 60 S.Ct. 628, 84 L.Ed. 876 (1940) (bankruptcy court ordered to consent to submission of question of unsettled state property law to state court); United Services Life Insurance Co. v. Delaney, 328 F.2d 483, (5th Cir.), cert. denied, 377 U.S. 935, 84 S.Ct. 1335, 12 L.Ed.2d 298, reh’g denied, 377 U.S. 973, 84 S.Ct. 1644, 12 L.Ed.2d 743 (1964) (decision stayed until state court ruled on area of unclear state law); White v. Husky Oil Co., 266 F.Supp. 239 (D.Mont.1967) (action stayed pending determination by state court of unclear state law); Richey v. Sumoge, 257 F.Supp. 32 (D.Or.1966) (proceedings stayed to allow state court to determine legality of service of process under state law); see also Lehman Brothers v. Schein, 416 U.S. 386, 94 S.Ct. 1741, 40 L.Ed.2d 215 (1974) (diversity case where Court remanded for consideration whether unclear question of state law should be certified to state court); Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25, 79 S.Ct. 1070, 3 L.Ed.2d 1058 (1959) (action stayed until state court had opportunity to construe confused state statute); cf. Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943) (abstention invoked to avoid needless conflict with the state’s administration of its own affairs).

Although the federal courts in the cases cited above had jurisdiction over state law claims pursuant to federal statutes, they declined to exercise such jurisdiction— usually because controlling state law was undecided. Assuming this court has the power to exercise pendent jurisdiction in this case, similar considerations weigh against exercising such nonstatutory jurisdiction. The § 545 claim here raises important unresolved issues of law. For example, there are no criminal proceedings regarding the facts involved here, and it remains an open question whether civil forfeiture under § 545 must be connected to district court criminal proceedings. See One Lot Emerald Cut Stones v. United States, 409 U.S. 232, 234 n. 3, 93 S.Ct. 489, 491 n. 3, 34 L.Ed.2d 438 (1972); Gold Mountain Coffee, 597 F.Supp. at 514 n. 5. It is also undecided whether the burden of proof in a § 545 action is different from that involved in a § 592 action. Thus, this court would be presented with issues of, perhaps, first impression in an area over which the district court, by statute, has jurisdiction. Whether or not “abstention” is a useful analogy, discretion would seem to indicate that one of the courts specifically empowered to hear § 545 claims be given an opportunity to determine the essential features of such claims.

Plaintiffs second argument relates to the nature of the imported merchandise. It is admitted that the subject automobile did not comply with EPA emission standards and therefore did not conform to mandatory requirements of the Clean Air Act, as amended. See 19 C.F.R. §§ 12.73(b)(5)(ii) and (f) (1982). Plaintiff apparently would characterize such an automobile as dangerous or inherently illegal. Plaintiff suggests that the court in Gold Mountain Coffee recognized the possibility of jurisdiction over a § 545 forfeiture in the case of such illegal or dangerous goods. The court, however, was not faced with the issue of dangerous merchandise in Gold Mountain Coffee. The discussion in that opinion of illegal and dangerous merchandise took place in the context of a discussion of the relationship of § 545 forfeitures to criminal proceedings, and the court suggested a possible exception, in the case of goods which are illegal per se, to any requirement 'of collateral criminal proceedings.

Whether or not pendent jurisdiction over the § 545 claim will be exercised involves the factors discussed previously, no matter what type of merchandise is involved. In the case of dangerous goods, plaintiff might argue that jurisdiction is necessary to prevent such goods from entering the commerce of the United States. But plaintiff has not demonstrated an inability to obtain such relief pursuant to statutes within this court’s jurisdiction, by means of a § 545 proceeding in district court or by administrative means. Accordingly, there is no showing of a necessity for pendent jurisdiction over the § 545 claim and, therefore, plaintiff’s motion rests solely on the basis of efficient use of judicial and legal resources. Given the previous discussion of Congressional intent and of the considerations relating to pendent jurisdiction, the court declines to exercise pendent jurisdiction over a § 545 claim on the facts of this case.

The court turns now to defendant Tabor’s motion to dismiss. Apart from its right to forfeiture as a means of satisfying any unpaid money judgment, plaintiff’s remaining claim for forfeiture of the automobile at issue arises by alleged implication from the words of § 592(c)(5). Plaintiff states that the statute intends that the automobile be forfeited because defendant Tabor did not pay the administratively determined penalty within the time set by the Secretary of the Treasury or his delegee.

There is agreement that under § 592 the goods will be “forfeited” if the penalty is not paid “within the time specified by law.” Plaintiff argues, however, that the “time specified by law” in this case is the time administratively set by the Secretary. Plaintiff cites as the relevant “law” 19 C.F.R. § 171.32, which provides inter alia for payment of mitigated penalties within a specified period. If under plaintiff’s theory defendant is liable for forfeiture not because the goods were prohibited, but merely because it sought a mitigation ruling and disagreed with the result, requests pursuant to 19 U.S.C. § 1618 (1982) for mitigation of penalties certainly would be chilled. Of course, plaintiff’s theory would only have this effect if mitigation proceedings were the only administrative proceedings to which the phrase “within the time specified by law” applies. Plaintiff has cited no other “time specified by law.” As Tabor indicates, the purpose of § 1618 was to benefit the owner of seized merchandise. The court in United States v. Eight Rhodesian Stone Statutes, 449 F.Supp. 193, 202 (C.D.Cal.1978), stated the purposes of § 1618 as follows:

[Fjirst to permit an administrative review of the propriety of the seizure and the equities involved before any formal court action begins, and second, to give a claimant to seized property a quick, expeditious method of getting his property back without the necessity of hiring a lawyer to defend a court proceeding,

(emphasis added).

Plaintiff’s reading of the statutes does not serve these purposes.

Even if there is no chilling effect because other “time[s] specified by law” in the administrative process are applicable, plaintiff’s interpretation is not in keeping with the notion that plaintiff may freely litigate the basis and amount of penalties in this court. See 19 U.S.C. § 1592(e) (providing for trial de novo on all issues). It is not clear whether plaintiff is asserting that defendant’s right to trial de novo on liability is lost because the mitigated penalties were not paid. At the very least, plaintiff’s view mandates a specific type of penalty, that is, sale of the seized goods. There is nothing in § 1618, or in any cited provision regarding administrative proceedings, which indicates that resort to administrative remedies will limit the right to a trial de novo regarding all issues, pursuant to § 592(e). In fact, § 592(e) indicates that trial will be de novo “[notwithstanding any other provision of law.”

In addition, plaintiff’s reading of § 592(c) is difficult to reconcile with its own regulatory scheme. First, forfeiture cannot occur in a case involving more than $10,000 without court action. 19 C.F.R. § 162.75(d)(3). In this case, involving in excess of $10,000, plaintiff would have to obtain a judgment to be entitled to forfeiture. (There is no indication in § 592, that forfeiture, rather than seizure, is intended as a prejudgment remedy.) Second, under 19 U.S.C. § 1613(b) (1982), plaintiff is not entitled to retain more than the amount of the adjudicated monetary penalty, even if the goods are “forfeited.” Thus, if plaintiff were willing to immediately satisfy a monetary penalty judgment, sale of the goods under a claim of “forfeiture” would be a useless act. On the other hand, one might argue that Customs is entitled to sell the goods, even though it must return the excess proceeds, because Congress intended in this way to punish those who fail to pay administratively determined penalties timely. Neither penalties nor forfeitures, however, may be implied, rather they must be specifically provided. See Stapleton v. Two Million Four Hundred Thirty-Eight Thousand, One Hundred and Ten Dollars, 454 F.2d 1210, 1216 (3rd Cir.1972); Baca v. Commissioner of Internal Revenue, 326 F.2d 189, 191 (5th Cir.1964); Warner v. United States, 301 F.2d 327, 329, 157 Ct.Cl. 1, 5 (1962). If Congress intended that plaintiff pay the penalties prior to suit by the government in order to avoid potential forfeiture liability, it would have made this clear either in the statutes allowing suit in this court or in § 1618.

Section 19 U.S.C. § 1613(b) makes it clear that the word forfeiture in § 592(c)(5) is not used in the common sense of loss of the value of goods irrespective of the value of the monetary claim of plaintiff. A different type of “forfeiture,” one tied to the value of plaintiff’s claim, is intended. In regard to this type of case, Congress appears to have provided a particular, but nonexclusive, manner for satisfaction of a judgment. This seems to be the only way to read § 592(c)(5), 19 U.S.C. § 1613(b), 19 U.S.C. § 1618, and the relevant regulations together in a logical manner. Accordingly, the court finds that Congress did not intend forfeiture as a remedy which is distinct from monetary penalties, and which may be stated as a separate claim in a case such as this.

Finally, defendant Tabor seeks dismissal of the entire action on the basis of excessive delay. Tabor alleges laches and due process grounds. First, laches will not provide an adequate defense when the United States, acting in its sovereign capacity, sues on a statutory cause of action. Costello v. United States, 365 U.S. 265, 281, 81 S.Ct. 534, 542, 5 L.Ed.2d 551 (1961); Lane v. United States, 639 F.2d 758, 761, 226 Ct.Cl. 303 (1981). Second, since all forfeiture claims are to be dismissed, and the arrest warrant quashed, it is not necessary to address defendant’s due process ground for dismissal of the forfeiture claims. Therefore, the only question remaining as a result of the motion to dismiss is whether the delay in filing suit provides the basis for an adequate nonlaches defense to the monetary claims.

The parties are in agreement that United States v. Eight Thousand Eight Hundred and Fifty Dollars, 461 U.S. 555, 103 S.Ct. 2005, 76 L.Ed.2d 143 (1983), provides the basic guidance in this matter. As indicated by defendant, delay in bringing suit to allow for administrative action with regard to seized goods is allowed. Eight Thousand, 461 U.S. at 566, 103 S.Ct. at 2013. But unreasonable administrative delay is not permitted under due process principles. Eight Thousand, 461 U.S. at 567, 103 S.Ct. at 2013. Plaintiff argues that Tabor could have asked for immediate referral for suit, thereby avoiding all administrative delay. But plaintiff does not indicate whether Tabor could have obtained referral for suit during the administrative process, when delay became apparent. Apart from this legal question and the question of the applicability of the Supreme Court’s decision to a penalty (rather than a forfeiture) case, there remain numerous factual questions regarding the conduct of the administrative proceedings, Therefore, dismissal on the basis of unreasonable delay is not appropriate at this time.

Accordingly, plaintiffs motion to amend the complaint is denied. Counts IV and V of the complaint are dismissed and the arrest warrant previously issued is quashed.

      . 18 U.S.C. § 545 (1982) provides in relevant part:

        Whoever knowingly and willfully, with intent to defraud the United States, smuggles, or clandestinely introduces into the United States any merchandise which should have been invoiced, or makes out or passes, or attempts to pass, through the customhouse any false, forged, or fraudulent invoice, or other document or paper; or
      Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or receives, or conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law—
      Shall be fined not more than $10,000 or imprisoned not more than five years, or both.
      Proof of defendant's possession of such goods, unless explained to the satisfaction of the jury, shall be deemed evidence sufficient to authorize conviction for violation of this section.
      Merchandise introduced into the United States in violation of this section, or the value thereof, to be recovered from any person described in the first or second paragraph of this section, shall be forfeited to the United States.

      . 28 U.S.C. § 1355 (1982) provides:
      The district courts shall have original jurisdiction, exclusive of the courts of the States, of any action or proceeding for the recovery or enforcement of any fine, penalty, or forfeiture, pecuniary or otherwise, incurred under any Act of Congress, except matters within the jurisdiction of the Court of International Trade under section 1582 of this title.

      . Section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (1982) provides in part:
      (a) Prohibition
      (1) General rule
      Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty thereby, no person, by fraud, gross negligence, or negligence—
      (A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of—
      (i) any document, written or oral statement, or act which is material and false, or
      (ii) any omission which is material, or
      (B) may aid or abet any person to violate subparagraph (A).
      ******
      (c) Maximum penalties
      (1) Fraud
      A fraudulent violation of subsection (a) of this section is punishable by a civil penalty in an amount not to exceed the domestic value of the merchandise.
      ******
      Lesser penalties for gross negligence and negligence are provided.

      . It is unclear what plaintiff means by the term "exclusive” in this context. In one sense, plaintiffs argument is circular. If this court exercises jurisdiction, it will have ruled that the district court's jurisdiction is not exclusive. In any case, this court does not rule on the issue of whether or not the district court’s jurisdiction over § 545 claims is exclusive in relation to all other federal courts.

      . The distinctions between ancillary and pendent jurisdiction are unclear. Birmingham Fire Insurance Co. v. Winegardner and Hammons, Inc., 714 F.2d 548, 550 n. 3 (1983); see, e.g., Aldinger v. Howard, 427 U.S. 1, 13, 96 S.Ct. 2413, 2419, 49 L.Ed.2d 276 (1976). Thus far, the Supreme Court has declined to decide if there are any "principled" differences between ancillary and pendent jurisdiction. Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365, 370 n. 8, 98 S.Ct. 2396, 2400 n. 8, 57 L.Ed.2d 274 (1978).

      . Section 592 claims are normally in personam. United States v. Gold Mountain Coffee, Ltd., 597 F.Supp. 510, 515, reh'g denied, 601 F.Supp. 212 (1984), and discussion infra.

        . Judicial economy might best be served by concurrent jurisdiction of the district court and this court over § 545 civil claims, since such claims are as likely to be related to district court § 545 criminal proceedings, as they are to § 592 actions. But Congress has never given this court concurrent jurisdiction. Therefore, such jurisdiction may not be implied easily.

      . Plaintiffs assertion that the issues in the two actions are identical is, therefore, in some doubt.

      . 19 C.F.R. §§ 12.73(b)(5)(ii) and (f) (1982) provide:
      ENTRY OF MOTOR VEHICLES AND MOTOR VEHICLE ENGINES UNDER THE CLEAN AIR ACT, AS AMENDED.
      § 12.73 Federal motor vehicle air pollution control.
      ... (b) Requirements for entry and release. Each motor vehicle or motor vehicle engine offered for importation or imported into the Customs territory of the United States shall be refused entry unless there is filed with the entry, in duplicate, a declaration verified by the importer or consignee which contains:
      ... (5) A statement that:
      ... (ii) Such 1971 or subsequent model year motor vehicle or motor vehicle engine is covered by a certificate of conformity with Federal motor vehicle emission standards and is tagged or labeled in accordance with applicable regulations in 40 CFR Part 85; or
      ... (f) Prohibited importations. The importation of motor vehicles and motor vehicle engines, otherwise than in accordance with the provisions of this section, is prohibited.

      . The "prohibited” nature of the automobile relates more directly to § 592 remedies and is not determinative with regard to the motion under consideration. Plaintiff concedes that forfeiture based solely on the “prohibited” nature of goods is not warranted under § 592, and that Count V of its complaint should be dismissed.

      . The motion was filed in response to the direction of the court to the parties to file memoranda discussing Gold Mountain Coffee’s impact on plaintiffs ex parte motion for an order designating a newspaper for publication of a notice of arrest and auction of the automobile in question. An arrest warrant had already issued. Defendant seeks to have that warrant quashed.

      . Section 592(c)(5) provides as follows:
      (c) Maximum penalties

        (5) Seizure
      If the Secretary has reasonable cause to believe that a person has violated the provisions of subsection (a) of this section and that such person is insolvent or beyond the jurisdiction of the United States or that seizure is otherwise essential to protect the revenue of the United States or to prevent the introduction of prohibited or restricted merchandise into the customs territory of the United States, then such merchandise may be seized and, upon assessment of a monetary penalty, forfeited unless the monetary penalty is paid within the time specified by law. Within a reasonable time after any such seizure is made, the Secretary shall issue to the person concerned a written statement containing the reasons for the seizure. After seizure of merchandise under this subsection, the Secretary may, in the case of restricted merchandise, and shall, in the case of any other merchandise (other than prohibited merchandise), return such merchandise upon the deposit of security not to exceed the maximum monetary penalty which may be assessed under subsection (c) of this section.

      . If 19 C.F.R. § 162.75(d)(3)(2), allowing summary forfeiture in cases of $10,000 or less, is valid, no judgment is necessary in such cases. In this case, 19 C.F.R. § 162.75(d)(3)(1) precludes summary forfeiture even if the statute could be read to permit it.


source: Caselaw Access Project

author: MOYE, Chief Judge.

license: Public Domain

text:
    Braxton H. ANDERSON; Frank Kenneth Basinger; Pamela E. Johnson; Patricia L. Murph; Richard B. Peterson; Shirley Sharp; Robert V. Tucker; and Ronald D. Yost, Plaintiffs, Verlin Bryant; Sharon Dover; Norma L. Fanning; Joy Harris; Josey Jarrett; Emma Johnston; Robert Lee Keaton; Kathy Nealey; Walter Nealey; Michael L. Nystrom; Elbert Payne; Ruby C. Payne; Loretta Davis Raymond & Lowie A. Herman, Intervening Plaintiffs, v. CIBA-GEIGY CORPORATION; Employee Benefit Plan of Ciba-Geigy Corporation; Corporate Employee Benefit Committee Ciba-Geigy Corporation; Michael Whelan; Stanley Kase; John Mullins; John O’Conner; Stanley Sherman; Robert Hochhauser; Laurie W. Lawrence; George H. Stewart; Dr. Charles E. Ziegler; William H. Ebert; and John Mincy, Defendants.
    No. C83-0068A.
    United States District Court, N.D. Georgia, Atlanta Division.
    April 26, 1984.
    Defendants’ motion granted; plaintiffs’ motion denied.
    Anthony J. McGinley, Robert O. McCloud, Jr., H. Sanders Carter, Jr., Carter, Ansley, Smith & McLendon, Atlanta, Ga., for all plaintiffs and intervening plaintiffs.
    Griffin B. Bell, Jr., King & Spalding, Atlanta, Ga., Charles B. Wolf, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for all defendants.
   ORDER OF COURT

MOYE, Chief Judge.

The above-styled ERISA action is before the Court on the defendants’ motion for summary judgment and the plaintiffs’ motion for partial summary judgment. The parties agree that the issue of liability is one of law that can be decided on cross-motions for summary judgment.

Statement of Facts

The plaintiffs in this action are former employees of defendant Ciba-Geigy Corporation which is incorporated in New York. Ciba-Geigy offers its employees various benefits including severance pay. The rules relating to these benefits are set out in Ciba-Geigy’s corporate Personnel Policy No. 7.1 dated June 1, 1972, and amended on March 15, 1981. This Plan, which the defendants concede is covered by ERISA, provided that Ciba-Geigy employees who were terminated for reasons other than cause would be entitled to severance pay in the amount of two weeks pay for each year or fraction of a year worked for Ciba-Geigy. Termination for reasons other than cause was defined as termination “initiated by the Company for reasons beyond the control of the employee (e.g., reorganization, budgetary cutback, lack of work____” The Plan defined severance pay as “payments made to an employee when the Company terminates the employer-employee relationship unless the employee has been discharged or special contractual arrangements provide otherwise.” The Plan also provided for an exception to the general provisions regarding severance pay. This exception provided that” [t]his policy shall not be applicable in any special situation (such as the relocation of a major Operating Unit) where the Corporate Management Committee deems it necessary to establish a separate policy applicable to that situation only.” It is undisputed that the plaintiffs in this action were covered by these severance pay provisions.

The plaintiffs worked for the Ren Telecommunications Division which was part of the Applied Plastics Division of Ciba-Geigy. In early 1981, Ciba-Geigy executive, Jack Schneller decided to reorganize part of the Applied Plastic Division by selling the entire Ren Telecommunications Division. Schneller decided to sell this Division as an ongoing concern, including a transfer of the existing employees to the acquiring company. On July 21, 1981, Communications Technology Corporation (CTC) purchased the Ren Telecommunications Division from Ciba-Geigy. CTC specifically disclaimed any liability for claims by any former Ciba-Geigy employee which accrued prior to the sale. In addition, CTC never made any formal offer of employment to the plaintiffs. Rather, the plaintiffs reported to work on July 22, 1981, and found out that they had a new employer. Although the plaintiffs were retained by CTC at their same salaries and job positions they had at Ciba-Geigy, they claim that they lost benefits that had been provided by Ciba-Geigy, including lost vacation time and seniority status. In Count I of their complaint, the plaintiffs claim that they are entitled to severance pay under the provisions of the Plan because they are no longer working for Ciba-Geigy. In Count VI of their complaint, the plaintiffs claim that they are entitled to these benefits under the federal common law. The Ciba-Geigy executive who interpreted the Plan decided that the plaintiffs were not entitled to any severance pay because their termination was one of form not of substance and because the Plan specifically exempted “special situations” from its provisions and the sale of the Telecommunications Division constituted such a “special situation.”

Discussion

The plaintiffs concede that the proper standard of review for the purposes of the present motions is the arbitrary and capricious standard. Plaintiffs’ Brief at 18, Fn. 1. Accordingly, this Court is bound by the decision of the Plan Administrators unless that decision was arbitrary, fraudulent, or rendered in bad faith. Sly v. P.R. Mallory & Co., Inc., 712 F.2d 1209 (7th Cir.1983). And, the Eleventh Circuit has recently stated that the Court’s role “is limited to determining whether the [administrators’] interpretation was made rationally and in good faith — not whether it was right.” Griffis v. Delta Family Care Disability, 723 F.2d 822 (11th Cir.1984).

The defendants argue that the plaintiffs are not entitled to severance pay because the wholesale transfer of the Ren Telecommunications Division to CTC constituted a “special situation” as defined in the Plan’s guidelines and that Ciba-Geigy formulated a separate policy applicable to this special situation. In response to the plaintiffs’ argument that no special policy was formulated in this case, the defendants claim that Ciba-Geigy’s Executive Committee delegated the authority to interpret the Plan to Jack Schneller who, in turn, delegated the authority to Stanley Kase, Director of Human Resources for Ciba-Geigy. In his deposition, Kase states that he decided that it was proper to formulate a separate policy regarding the applicability of the severance pay provisions to the sale of the Ren Telecommunications Division. Kase Deposition at 70-71; 78-79. Kase decided that the employees were not entitled to severance pay because they remained at their same jobs at their same salaries. This decision can only be overturned if it was made arbitrarily or capriciously.

Another Court has previously addressed the identical issue now facing this Court. In Rynar v. Ciba-Geigy Corp., 560 F.Supp. 619 (N.D.Ill.1983), another Ciba-Geigy employee sued the corporation for severance pay when his entire division was sold to another company. The severance pay provisions at issue in Rynar were the same ones that are in issue in the present controversy. The Court in Rynar held that Ciba-Geigy did not act arbitrarily or capriciously in denying severance pay to Rynar when he remained at his same job after the sale of his division. The Court summed up its holding as follows:

The reference in Section 2.9.2 to any “special situation” suggests that further limitations upon the payment of severance benefits were within the discretion of Ciba’s personnel officers. We conclude that Ciba did not abuse its authority to determine the propriety of severanee pay ... where it is undisputed that Rynar accepted an equivalent position with the buyer of the division of Ciba for which he worked, and where Rynar suffered no significant economic loss as a result of the substitution of one employer for the other. Id. at 626.

The Rynar Court also addressed the argument that Ciba-Geigy’s policy provisions are ambiguous and must be construed against Ciba-Geigy. The Court noted that this principle rests upon general contract law which is preempted by federal ERISA law. In fact, as the Rynar Court also noted, the principle that ambiguities in a contract must be interpreted against the employer is inconsistent with the arbitrary and capricious standard of review applicable to ERISA cases.

The plaintiffs attempt to distinguish Rynar in two ways. First, they argue that much of the deposition testimony that is before this Court was not before the Court in Rynar. The plaintiffs contend that this evidence shows that Ciba-Geigy did not treat the sale of the Ren Division as a “special situation” under the policy provisions and, therefore, Ciba-Geigy cannot justify its treatment of the plaintiffs by reference to that section of the Pension Plan. Secondly, the plaintiffs argue that by losing seniority status and vacation time, they did suffer significant economic loss as a result of the sale of their division.

Stanley Kase testified that he relied on the “special situation” section of the Plan when he decided not to award severance pay to the plaintiffs. Kase deposition at 70-71, 78-79. This testimony contradicts the plaintiffs’ assertion that Ciba-Geigy did not treat the divestiture as a “special situation.” In addition, the “special situation” provision of the Plan put the plaintiffs on notice that Ciba-Geigy had the discretion to deny them severance pay in a variety of situations. This Court cannot say that the decision to deny severance pay in this particular situation, where the employees kept their same jobs at the same pay, was arbitrary or capricious.

The plaintiffs allege that, unlike the plaintiff in Rynar, they have suffered significant economic harm as a result of the sale of their division to CTC. The plaintiffs state that they “lost all seniority rights and all accrued protection against involuntary termination.” Plaintiffs’ Brief in Response to Defendants’ Motion for Summary Judgment at 11. The plaintiffs do not, however, enumerate these “seniority rights” nor do they detail what “accrued protection” they had obtained against involuntary termination. In addition, the plaintiffs have not shown this Court that the plaintiff in Rynar did not also lose these same benefits. In any event, the degree of economic harm suffered by the plaintiffs does not address the argument that the Plan specifically provided that Ciba-Geigy could adopt a special policy for situations that warranted one and that the wholesale transfer of one division constituted such a special situation. This Court feels that the Court’s analysis in Rynar is equally applicable to the present case.

The Seventh Circuit Court of Appeals recently dealt with almost the identical issue facing this Court and resolved it in favor of the plan administrators. Sly v. P.R. Mallory & Co., Inc., 712 F.2d 1209 (7th Cir.1983). The plaintiffs in Sly were two employees who worked for a division which was sold to another company. The plaintiffs continued to work for the purchaser of the division at the same jobs and equal salaries. The plan at issue provided that employees “whose services are involuntarily terminated for the convenience of the company,” would receive severance pay. Id. at 1212. The plaintiffs claimed that they were terminated and that they had a “vested interest in ... payment of their accrued severance benefits.” Id. The Seventh Circuit panel cited with approval the district court’s holding that the plaintiffs were not entitled to both their new jobs and their severance pay. The district court stated that:

The denial of severance pay to employees who accepted their old positions with the purchaser was not arbitrary or capricious. Severance pay is generally intended to tide an employee over while seeking a new job and should be considered an unemployment benefit____ To award severance benefits under these facts would result in a windfall to the employees who retained their positions with the purchaser of the going concern, which was clearly not the intention or goal of ... ERISA. See Sly at 1211.

The issue before this Court is a very difficult one. In addition to the cases already discussed, there is an abundance of case law, both state and federal, dealing with the situation where one division of a company is sold in toto to another company and the employees of the old company demand severance pay or other benefits promised by the old company. E.g., Livernois v. Warner-Lambert Co., Inc., 723 F.2d 1148 (4th Cir.1983); Chapin v. Fairchild Camera Instrument Corp., 31 Cal.App.3d 192, 107 Cal.Rptr. 111, 115 (1973); Adams v. Jersey Central Power & Light Co., 36 N.J.Super. 53, 114 A.2d 776 (1955); Younger v. Thomas International Corp., 275 Ark. 327, 629 S.W.2d 294 (1982). Some of these cases have arisen under state contract law and some under ERISA. The state courts, which have reached the merits of these eases de novo, have reached conflicting results depending on the specific policies in question and the philosophy of each particular court. Compare Chapin, supra with Younger, supra. This Court, however, is not free to decide this case based on a de novo review of the record. Rather, the inquiry is limited to whether Ciba-Geigy’s decision not to grant severance benefits to the plaintiffs was arbitrary or capricious. It is undisputed that the plaintiffs were hired by CTC at their same salaries and job positions. In light of the fact that the Plan contained a specific exception to the general provisions regarding severance pay and that there are competing equities as to the desirability of awarding severance pay in situations where the employees keep their same jobs at- their same salaries, this Court cannot say that Ciba-Geigy’s decision was arbitrary or capricious. Accordingly, this Court feels that the defendants’ motion for summary judgment on Count I of the plaintiffs’ complaint should be granted.

The plaintiffs have alleged that they are entitled to severance pay under the federal common law of ERISA. This allegation was originally stated in Count VI of the plaintiffs’ complaint and survived the defendants’ motion to dismiss only to the extent that it did not allege a state cause of action. See Order dated September 13, 1983. The plaintiffs have not alleged any facts or theories, however, to convince this Court that Count VI states anything other than a state contract action. Since ERISA preempts state contract law, see Lafferty v. Solar Turbines International, 666 F.2d 408 (9th Cir.1982), the defendants are entitled to summary judgment on Count VI of the plaintiffs’ complaint.

In sum, this Court holds that the defendants did not act arbitrarily or capriciously in denying severance pay to the plaintiffs. Accordingly, the defendants’ motion for summary judgment as to all issues is hereby GRANTED. The plaintiffs’ motion for summary judgment is hereby DENIED. This order resolves all of the issues in this case.

      . The plaintiffs seem to question whether this standard should apply to this case because the decision not to provide severance pay to the plaintiffs was allegedly not made by the plan administrators. The plaintiffs do not pursue this argument, however, and as noted above, concede that the arbitrary and capacious standard applies.

      . The plaintiffs argue that this delegation of authority violated ERISA. This Court finds that the plaintiffs have not met their burden of proof on this issue.

      . The plaintiffs argue that since Schneller stated in his deposition that he didn’t feel a separate policy was necessary, the defendants did not, in fact, create a separate policy. This argument carries little weight because it was Kase who made the decisions concerning severance pay and he testified that he did feel that a separate policy was necessary in this case.

      . The Plan in Sly also contained a provision whereby all “terminated" employees would be placed on a leave of absence before receiving severance pay. The plaintiffs in Sly were not placed on such leave and, thus, did not meet the requirements of the Plan. Although this fact does, to some extent, distinguish Sly from the present case, the policy considerations that the Sly court relied on are equally applicable to the present controversy. It is also interesting to note that the Court in Sly observed that the fringe benefits that the purchaser company provided to the plaintiffs were “admittedly less than the [defendants’] benefits.” Id. at 1212.


author: ROTHSTEIN, District Judge.

text:
    PEOPLES NATIONAL BANK OF WASHINGTON, a national banking association, Plaintiffs, v. UNITED STATES of America, Defendant.
    No. C83-680R.
    United States District Court, W.D. Washington, at Seattle.

      Bernard H. Friedman, Karr, Tuttle, Koch, Campbell, Mawer & Morrow, P.S., Seattle, Wash., for plaintiffs.
    Gene S. Anderson, U.S. Atty., Seattle, Wash., for defendant.
   ORDER DENYING PLAINTIFF’S MOTION FOR RECONSIDERATION

ROTHSTEIN, District Judge.

THIS MATTER comes before the court on plaintiff’s motion for reconsideration of the court’s order of June 13, 1984, dismissing plaintiff’s action for wrongful levy under 26 U.S.C. § 7426 (1982). The court has carefully considered the memoranda and other materials submitted in support of and in opposition to the motion. The court declines to order oral argument, which the court feels would not be helpful.

Plaintiff is People’s National Bank of Washington (Peoples). Defendant is the United States. This case involves a federal tax levy on a taxpayer’s bank account, in which Peoples claims a right of setoff and a security interest. The facts are undisputed.

On March 5, 1980 and April 6, 1981, the Internal Revenue Service (IRS) assessed income taxes against Jerry L. and Susan M. Redwine (the Redwines). The Redwines failed to pay the full assessment upon notice and demand.

On March 7, 1983, the Redwines borrowed money from Peoples to finance their farming activities. Exhibit A to Affidavit of Versil Brixey in Support of Plaintiff’s Motion for Summary Judgment. The Red-wines executed a promissory note for $193,989.29 that was due “[o]n demand, or if no demand on 12-30-83.” Id. The noted and accompanying Farm Security Agreement granted Peoples a security interest in, among other things, funds on deposit with Peoples and general intangibles. Exhibits A & B to Affidavit of Versil Brixey in Support of Plaintiff’s Motion for Summary Judgment.

On March 25, 1983, the IRS issued a Notice of Levy for $5,125.36 on Peoples to satisfy the delinquent tax assessment from the Redwines’ deposit account. Exhibit C to Affidavit of Versil Brixey in Support of Plaintiff’s Motion for Summary Judgment. As of the time the Notice of Levy issued, Peoples had not taken any positive action to setoff the funds in the account or otherwise restrict the Redwine’s ability to withdraw the funds. Approximately four months later, in July of 1983, the IRS filed notices of the tax lien pursuant to 26 U.S.C. § 6323(f) (1982). Exhibit A to Affidavit of Bernard H. Friedman in Support of Plaintiff’s Motion for Summary Judgment. Peoples responded by delivering a cashier’s check for $5,125.36 to the Clerk of this Court and commencing this action for wrongful levy under 26 U.S.C. § 7426 (1982).

On June 13, 1984, this court dismissed Peoples’ action on the grounds that a federal tax lien had attached to the Redwines’ property interest in the deposit account in question, and Peoples possessed no prior security interest in this account.

Now Peoples has moved for reconsideration of the Order of Dismissal. Peoples presents two arguments. First, Peoples argues that the Redwines’ property interest in the deposit account is “limited by” Peoples’ right of setoff and that the government can claim no interest greater than that which could be claimed by the Redwines themselves. Second, Peoples argues that it has a common-law security interest in the deposit account and that this security interest takes priority over the tax lien.

In light of these arguments, the court believes that greater explanation of its position is warranted.

I. THE REDWINES’ INTEREST IN THE DEPOSIT ACCOUNT WAS PROPERTY TO WHICH A FEDERAL TAX LIEN COULD ATTACH

A. The IRS Has Authority to Levy on the Redwines’ Property.

When a taxpayer fails to pay an income tax on demand, a lien is created on “all property and rights to property” belonging to the taxpayer. 26 U.S.C. § 6321 (1982). This includes after-acquired property. Bank of America Nat’l Trust & Savings Ass’n v. Mamakos, 509 F.2d 1217 (9th Cir.1975). For the purpose of determining priority among liens, a federal tax lien arises on the date of the assessment of taxes. 26 U.S.C. § 6322 (1982). In this case, a tax lien on all the Redwines’ property and rights to property arose when, in 1980 and 1981, the IRS assessed taxes against the Redwines. Unless provided otherwise by statute, this tax lien takes priority over any lien arising after the date of assessment. See United States v. City of New Britain, 347 U.S. 81, 85-86, 74 S.Ct. 367, 370-371, 98 L.Ed. 520 (1954); United States v. Pioneer American Ins. Co., 374 U.S. 84, 87-89, 83 S.Ct. 1651, 1654-1656, 10 L.Ed.2d 770 (1963).

To recover delinquent tax assessments, the IRS may levy upon “all property and rights to property” that belong to the taxpayer or are subject to a federal tax lien. 26 U.S.C. § 6331(a) (1982). On March 25, 1983, the IRS levied on the Redwines’ deposit account. The threshold question with respect to the lawfulness of this levy is whether the Redwines’ interest in their account is property or rights to property. If the answer to this question is affirmative, then the levy is lawful. See 26 U.S.C. §§ 6331, 6332 (1982). The levy operates as a seizure of property. American Acceptance Corp. v. Glendora Better Builders, Inc., 550 F.2d 1220, 1222-23 (9th Cir.1977). The only way to overcome such a levy is to establish an interest prior to that of the government. See United States v. Citizens & Southern Nat’l Bank, 538 F.2d 1101, 1105-7 (5th Cir.1976), cert. denied, 430 U.S. 945, 97 S.Ct. 1579, 51 L.Ed.2d 792 (1977).

B. The Redwines’ Interest in the Account Was Property.

State law determines the nature of the legal interests the IRS seeks to reach by levy. Aquilino v. United States, 363 U.S. 509, 512-14, 80 S.Ct. 1277, 1279-81, 4 L.Ed.2d 1365 (1960); United States v. Stonehill, 702 F.2d 1288, 1298 (9th Cir.1983). In other words, 26 U.S.C. § 6321 (1982) creates no property rights but merely attaches consequences to the existence of property rights under state law. 363 U.S. at 513, 80 S.Ct. at 1280.

Under Washington law, “[o]nce 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.” Peters v. Sjoholm, 95 Wash.2d 871, 875, 631 P.2d 937, 940 (1981), cert. denied, 455 U.S. 914, 102 S.Ct. 1267, 71 L.Ed.2d 455 (1982). While the bank has title to the account, the depositor “does have an ownership interest in the indebtedness created by the deposit____” Id. Such a state-recognized interest has been treated as “property” to which a tax lien may attach. Bank of America Nat’l Trust & Savings Ass’n v. Mamakos, 509 F.2d 1217 (9th Cir.1975); MacKenzie v. United States, 109 F.2d 540, 542 (9th Cir.1940).

Peoples had the right to setoff the Red-wines’ account against payments due on the Redwines’ promissory note. See Allied Sheet Metal Fabricators, Inc. v. Peoples Nat’l Bank of Washington, 10 Wash.App. 530, 537, 518 P.2d 734, 739, cert. denied, 419 U.S. 967, 95 S.Ct. 231, 42 L.Ed.2d 183 (1974). As the court explained in its Order of Dismissal, however, a bank’s unexercised right of setoff does not extinguish the depositor’s interest in a deposit account. Such extinguishment requires positive action by the bank.

Washington case law indicates that setoff is an optional remedy. Bank of California v. Starrett, 110 Wash. 231, 236, 188 P. 410, 412 (1920); Allied Sheet Metal, 10 Wash.App. at 537-38, 518 P.2d at 739 (holding that a bank may choose among multiple remedies). By implication, therefore, set-off does not occur automatically or by operation of law whenever a person becomes both a depositor and a delinquent debtor with respect to a single bank. If a bank declines to exercise its right of setoff, then the depositor’s interest in his account remains undiminished. In this case, Peoples did not exercise its right of setoff before the IRS issued the Notice of Levy. Therefore, the Redwines still owned an interest in the account at the time of the levy.

Where a deposit account is currently vulnerable to a bank’s right of setoff under state law, but the bank has chosen not to exercise this right, the depositor’s interest in the account is still “property” or “rights to property” for the purposes of 26 U.S.C. §§ 6321 and 6331. United States v. Citizens & Southern Nat’l Bank, 538 F.2d 1101, 1105-7 (5th Cir.1976), cert. denied, 430 U.S. 945, 97 S.Ct. 1579, 51 L.Ed.2d 792 (1977); United States v. Sterling Nat’l Bank & Trust Co., 494 F.2d 919, 921-22 (2d Cir.1974). Therefore, the Redwines’ interest in the account at issue in this case was “property” or “rights to property” and subject to levy by the IRS.

II. PEOPLES’ RIGHT OF SETOFF DOES NOT DEFEAT THE TAX LEVY

A. Peoples’ Right of Setoff was not “Choate” When the Tax Lien Arose

In order to attain priority over a federal tax lien a state-created lien must become “choate” before the tax lien arises. United States v. City of New Britain, 347 U.S. 81, 85-86, 74 S.Ct. 367, 370-371, 98 L.Ed. 520 (1954). Under 26 U.S.C. § 6322 (1982), a federal tax lien arises on the date of assessment of taxes. In the present case, therefore, Peoples’ interest in the levied property would have to have been “choate” on March 5, 1980, and April 6, 1981, in order to attain priority over the entire tax lien.

The “choateness” doctrine is part of a judicial gloss on 26 U.S.C. § 6321 (1982) (Section 6321), which creates federal tax liens on the property of delinquent taxpayers. New Britain, 347 U.S. at 85-86, 74 S.Ct. at 370-371 (discussing former codification of Section 6321, Section 3670 of the Internal Revenue Code of 1939). As a general rule, a lien created by Section 6321 takes priority over all liens arising subsequently. Id. The “choateness” doctrine serves to determine when a state-created lien may be considered to have arisen for the purpose of this rule. Id. In order for a lien to be “choate” in the federal sense, “the identity of the lienor, the property subject to the lien, and the amount of the lien” must be established. Id. at 84, 74 S.Ct. at 369. The cases have required that the amount of the lien be fixed exactly, beyond possibility of change. See, e.g., United States v. Pioneer American Ins. Co., 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963).

In Bank of Nevada v. United States, 251 F.2d 820, 826 (9th Cir.1957), cert. denied, 356 U.S. 938, 78 S.Ct. 780, 2 L.Ed.2d 813 (1958), the Ninth Circuit held that a bank’s right of setoff against a debt, which has arisen after assessment of taxes against the debtor, was, at the relevant point in time, “inchoate in the extreme!” Like the present case, Bank of Nevada involved a tax levy on a delinquent taxpayer’s bank account. After a tax lien had attached to all the taxpayer’s property, the taxpayer borrowed money from the bank with which he maintained the account. When notified of the levy on the taxpayer’s account, the bank attempted to exercise its right of set-off. The Ninth Circuit said that the bank’s right of setoff did not have priority over the tax lien because the right of setoff had not been “choate” before the tax lien arose. In fact, the debt against which the bank attempted to exercise its right of setoff had not even existed at the time taxes were assessed against the taxpayer. Thus the bank’s right of setoff could hardly have been more inchoate at the relevant point in time.

In the present case, Peoples had neither obtained nor exercised its right of setoff before the tax lien arose. Although Peoples did obtain the right of setoff before the IRS levied, the date of the levy is insignificant under the “choateness” doctrine. The only question is whether Peoples’ interest in the Redwines’ property was “choate” on March 5, 1980, and April 6, 1981, when the tax lien arose under 26 U.S.C. § 6322 (1982). Obviously, Peoples’ interest was not “choate” on either of these dates because Peoples did not lend money to the Redwines until March 7,1983. As in Bank of Nevada, therefore, the tax lien prevails.

Peoples suggests that the “choateness” doctrine has been undermined or eliminated by the Federal Tax Lien Act of 1966, Pub.L. No. 89-719, 80 Stat. 1125 (1966 Act). Prior to the enactment of the 1966 Act, the “choateness” doctrine had become controversial because very few state-created liens could meet the doctrine’s strict requirements. See Kennedy, From Spokane County to Vermont: The Campaign of the Federal Government against the Inchoate Lien, 50 Iowa L.Rev. 724 (1965); Coogan, The Effect of the Federal Tax Lien Act of 1966 Upon Security Interests Created Under the Uniform Commercial Code, 81 Harv.L.Rev. 1369, 1375-80 (1968); Plumb, Federal Liens and Priorities— Agenda for the Next Decade, 77 Yale L.J. 228, 230 (1967). However, the 1966 Act did not eliminate the doctrine. The 1966 Act was merely one in a series of enactments designating specific types of state-created liens for special protection. See United States v. First Nat’l Bank of Memphis, 458 F.2d 560, 564-68 (6th Cir.), cert. denied, 409 U.S. 851 (1972) (Appendix entitled “History of the Federal Tax Lien”). In enacting the 1966 Act, Congress clearly retained the general rule that a federal tax lien under Section 6321 takes priority over subsequently created interests. S.Rep. No. 1708, 89th Cong., 2d Sess. 3, reprinted in 1966 U.S.Code Cong. & Ad.News 3722, 3724. The “choateness” doctrine, which merely elaborates this basic rule, was also preserved, except where overridden by a provision granting special protection to a particular class of state-created liens.

Since enactment of the 1966 Act, the Ninth Circuit has confirmed the continued vitality of the “choateness” doctrine. See In re Priest, 712 F.2d 1326 (9th Cir.1983), modified, 725 F.2d 477 (1984). In particular, the Ninth Circuit has continued to rely on Bank of Nevada. See United States v. First Nat’l Bank of Arizona, 458 F.2d 513 (9th Cir.1972), aff’g 348 F.Supp. 388 (D.Az.1970). Therefore, “choateness” is the standard by which Peoples’ right of setoff must be judged. As the right of setoff clearly was not “choate” when the tax lien arose, the right of setoff must yield to the tax lien.

B. Peoples’ Right of Setoff Does Not Diminish the Property on which the IRS May Levy.

Peoples argues that the Redwines’ interest in the account in question was “limited by” Peoples’ right of setoff and that the government can claim no interest greater than that which could be claimed by the Redwines themselves. More specifically, Peoples asserts that, if the Redwines had attempted to withdraw funds from their account before a setoff was executed, Peoples could have refused payment and exercised its right of setoff at that time. Peoples further asserts that the government, when it levies on a taxpayer’s property, stands in the same shoes as the taxpayer. From these premises, Peoples deduces that the manuver that could have thwarted the Redwines is likewise effective against the IRS. Peoples thus concludes that its right of setoff can defeat a tax levy even though the right of setoff is as yet unexercised when a notice of levy is issued. According to Peoples, the right of setoff can be exercised successfully even after receipt of a notice of levy.

The Ninth Circuit has ruled at least three times that an unexercised right of setoff does not defeat a tax levy. Bank of Nevada v. United States, 251 F.2d 820 (9th Cir.1957), cert. denied, 356 U.S. 938, 78 S.Ct. 780, 2 L.Ed.2d 813 (1958); Bank of America Nat’l Trust & Savings Ass’n v. United States, 345 F.2d 624 (9th Cir.), cert. denied, 382 U.S. 927, 86 S.Ct. 316, 15 L.Ed.2d 340 (1965); United States v. First Nat’l Bank of Arizona, 458 F.2d 513 (9th Cir.1972), aff'g 348 F.Supp. 388 (D.Az.1970). See also United States v. Sterling Nat’l Bank & Trust Co., 494 F.2d 919 (2d Cir.1974); United States v. Trans-World Bank, 382 F.Supp. 1100 (C.D.Cal.1974). At least as long as a delinquent taxpayer has not been dispossessed of his property interest in a deposit account, the IRS may levy. Id.

In Bank of America, 345 F.2d 624, a tax lien on a certain taxpayer’s property had arisen well before the taxpayer became indebted to the plaintiff bank. After the taxpayer’s debt to the bank had matured but before the bank had exercised its right of setoff, the IRS levied on the taxpayer’s bank account. Upon receiving the notice of levy, the bank attempted to exercise its right of setoff. As in the present case, the bank’s right of setoff could have been exercised before the levy but was not exercised until afterward. The Ninth Circuit held that the tax levy prevails.

As the facts of Bank of America are substantially indistinguishable from those of the present case, Bank of America is controlling. The levy on the Redwines’ account cannot be thwarted by a right of setoff that was not yet exercised at the time of the levy.

It is of no consequence that the Red-wines’ property is “limited by” its vulnerability to setoff. For many months before Peoples loaned money to the Redwines, the Redwines’ property, including after-acquired property, had all been vulnerable to levy by the IRS. This too was a “limitation.” Such terminology, however, adds nothing. Peoples and the IRS are essentially competing creditors. The conflict between them is governed by a rule of priority. Under this rule, as explained in Section II-A of this Order, the IRS prevails. The court need not resort to recondite theories about “limited” rights to property.

III. PEOPLES DOES NOT HAVE A SECURITY INTEREST PRIOR TO THE TAX LIEN

A federal tax lien under Section 6321 generally takes priority over state-created liens arising subsequently. United States v. City of New Britain, 347 U.S. 81, 85-86, 74 S.Ct. 367, 370-371, 98 L.Ed. 520 (1954). However, 26 U.S.C. § 6323(a) (1982) (Section 6323(a)) provides:

The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary of his delegate. In the present case, the IRS did not file a notice of lien until July of 1983, months after the levy. Exhibit A to Affidavit of Bernard H. Friedman in Support of Plaintiff’s Motion for Summary Judgment. Peoples asserts that, before such notice was filed, Peoples had acquired a security interest in the Redwines’ deposit account. Hence Peoples claims the protection of Section 6323(a).

The question is whether Peoples has acquired a “security interest” for the purpose of Section 6323(a). If so, the tax lien is not valid against Peoples.

The term “Security Interest” is defined in 26 U.S.C. § 6323(h)(1) (1982) (Section 6323(h)(1)). The definition requires in part that the alleged security interest have “become protected under local law against a subsequent judgment lien arising out of an unsecured obligation____” Id. In order to satisfy this requirement, Peoples interest must either be perfected under Washington’s version of the Uniform Commercial Code (UCC) or otherwise protected under Washington common law.

A. Peoples Does Not Have a Perfected Security Interest Under the UCC.

Originally, Peoples claimed to have a perfected security interest under Article 9 of the UCC. Since the Redwines’ interest in their bank account was technically a chose in action, Peoples argued that it had acquired its security interest under the “General Intangibles” heading of the standard form Farm Security Agreement. Peoples perfected its rights under this agreement by filing the requisite financing statement on February 10, 1983, months before the IRS filed a notice of lien. Exhibit D to Affidavit of Versil Brixey in Support of Plaintiff’s Motion for Summary Judgment.

As the court explained in its Order of Dismissal, Peoples has not acquired a UCC security interest because Article 9 does not apply to the transfer of any interest in a deposit account. Under the UCC, “ ‘general intangibles’ means any personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments and money.” RCW § 62A.9-106. The Official Comments to Section 9-106 make clear that “this catch-all definition does not apply to types of intangibles which are specifically excluded from the coverage of the Article (Section 9-104)----” One type of property specifically excluded from the coverage of Article 9 is “an interest in any deposit account.” RCW § 62A.9-104(1). See also, RCW § 62A.9-105(e) (defining “deposit account” as a “demand, time, savings, passbook or like account maintained with a bank”). Clearly, therefore, Peoples claim of a security interest under the UCC must be rejected.

B. Peoples Does Not Have a Perfected Security Interest at Common Law

Peoples maintains that Section 6323(a) protects not only UCC security interests, but common-law security interests as well. Peoples maintains further that, by virtue of the note and security agreement, the Red-wines assigned their chose in action to Peoples, thereby granting Peoples a security interest at common law. According to Peoples, this security interest was effective immediately and does not need to be filed. See Bellingham Bay Boom Co. v. Brisbois, 14 Wash. 173, 44 P. 153 (1896).

Because transfers of interests in deposit accounts are excluded from the coverage of Article 9, the common law applies.

These exclusions [under former UCC § 9-104(K), excluding transfers of tort claims and deposit accounts] ... reflect the thought that such transfers are beyond the pale with respect to a statute devoted to commercial financing. The pre-Code common law of assignment or pledge will continue to apply to the excluded transfers____

G. Gilmore, Security Interests in Personal Property § 10.8, at 316. See also UCC § 9-104 Official Comment No. 7 (such transactions covered by “existing law”). The existence of a security interest in this case is therefore governed by common law.

Any security interest, whether recognized under the UCC or at common law, is protected by Section 6323(a) as long as it meets the requirements of Section 6323(h)(1). When the Internal Revenue Code of 1954 was enacted, Section 6323(a) explicitly protected a “mortgagee” or “pledgee.” Ch. 736, 68A Stat. 779. The Federal Tax Lien Act of 1966 replaced these terms with the language “holder of a security interest.” Pub.L. No. 89-719, 80 Stat. 1125. The new language was intended to broaden the coverage of Section 6323(a) to include security interests under the UCC. S.Rep. No. 1708, 89th Cong., 2d Sess. 13, reprinted in 1966 U.S.Code Cong. & Ad.News 3722, 3734. Coverage of common-law security interests was not eliminated. Id. In particular, a common-law assignment may still qualify as a “security interest” under Section 6323(a). Trust Co. of Columbus v. United States, 735 F.2d 447 (11th Cir.1984).

The question is whether there was an effective assignment to Peoples in this case. Peoples argues that the note and security agreement executed by the Red-wines constitute an assignment. The note provides as follows:

The holder of this note shall at all times have a security interest in deposit balances of any maker, endorser, surety or guarantor and may offset or apply such balances to the indebtedness evidenced by this note at maturity, or upon default, without notice.

Exhibit A to Affidavit of Versil Brixey in Support of Plaintiffs Motion for Summary Judgment. In addition, the security agreement, under the heading “Possessory Collateral,” provides that Peoples has a “security interest” in, among other things, any “deposits.” Exhibit B to Affidavit of Versil Brixey in Support of Plaintiffs Motion for Summary Judgment. Peoples has never disputed, however, that until the IRS levied on the Redwines’ account, the Red-wines had access to the funds in the account, subject only to the potential exercise of Peoples right of setoff.

One of the central elements of a common-law assignment is the transfer of control of the property assigned. 6A C.J.S. Assignments § 43. Discussing the requisites of a valid assignment, the Washington Supreme Court has said that “particular words are not important as long as the intent is manifest to deprive the assignor of control.” Amende v. Town of Morton, 40 Wash.2d 104, 106, 241 P.2d 445, 446 (1952). In the case of an equitable assignment, it must be clear that “the assignor unequivocally relinquishes control or power of revocation over the debt, fund, or subject matter of the assignment to the use or benefit of the assignee.” Wise Plumbing & Heating, Inc. v. Alpine Development Co., Inc., 72 Wash.2d 172, 178, 432 P.2d 547, 551 (1967).

The court is convinced that the note and security agreement do not constitute an assignment. First, the Redwines retained substantial control over the funds in the account. Their access to the account was never restricted except for the possibility that Peoples might exercise its right of setoff. Thus an essential element of a common-law assignment is lacking. Cf. United States v. Third Nat’l Bank of Nashville, 589 F.Supp. 155, 158 n. 3 (M.D.Tenn.1984) (dicta). Second, the court is not persuaded that the parties intended their transaction to constitute an assignment. The note and security agreement provisions creating a “security interest” in the Red-wines’ account do not purport to assign the Redwines’ property. Nothing in these provisions suggests transfer of title or control. Instead, these provisions merely describe Peoples right of setoff. Peoples has even confirmed this interpretation. Plaintiff’s Reply Memorandum Supporting Summary Judgment at 4. As explained in Part II of this Order, the unexercised right of setoff is insufficient to defeat a tax lien.

In support of its assertion of a common-law security interest, Peoples cites Trust Co. of Columbus v. United States, 735 F.2d 447 (11th Cir.1984), in which an assignment of a depositor’s interest in a bank account took priority over a subsequently filed tax lien. The Trust Co. of Columbus case is plainly distinguishable because in that case there was a valid assignment under local law, while in this case there is none. The assignment in that case was executed under Georgia law. The Eleventh Circuit did not explain the elements of an assignment under Georgia law or how these elements were reflected in the transaction at issue. This court has no reason to believe, however, that the transaction in Trust Co. of Columbus failed to satisfy a major element of an assignment under Georgia law. In contrast, the transaction between Peoples and the Redwines failed to transfer control of the assigned property as required by Washington law. Also, the promissory note in Trust Co. of Columbus provided that the collateral was “delivered, pledged, assigned, conveyed and transferred” to the Trust Company. 735 F.2d at 448. This language clearly indicates an intent to create a common-law assignment. In contrast, the documents on which Peoples relies in this case do not purport to assign or otherwise transfer the Redwines’ bank account.

Peoples has not asserted that the Redwines pledged their chose in action, but the court addresses this possibility for the sake of completeness. Pledge is the alternative common-law method by which one could transfer a security interest in a chose in action. To execute a pledge, the pledgor must surrender possession of the pledged property. Kietz v. Gold Point Mines, Inc., 5 Wash.2d 224, 229-30, 105 P.2d 71, 74 (1940). The key is relinquishment of control by the pledgor, as opposed to acquisition of control by the pledgee. 5 Wash.2d at 230, 105 P.2d at 74 (delivery to third party permissible). For reasons similar to those stated with respect to assignment, therefore, the note and security agreement do not constitute a pledge.

IV. CONCLUSION

The Redwines’ interest in their bank account was property subject to levy by the IRS. Therefore, the levy was lawful. Peoples’ unexercised right of setoff did not diminish the Redwines’ property interest in the account or otherwise thwart the tax levy. Peoples has no prior security interest in the property and cannot claim the protection of Section 6323(a). Accordingly, the federal tax lien prevails. The court, having had the benefit of extensive briefing on these issues, is of the opinion that oral argument would not be helpful.

IT IS NOW, THEREFORE, ORDERED. that plaintiff’s motion for reconsideration is DENIED.

      . Because the IRS filed notice of lien after it had already levied, it may be necessary to ask whether any security interest on the part of Peoples was acquired before the levy, not merely before the filing. A tax levy operates as a seizure of property. American Acceptance Corp. v. Glendora Better Builders, Inc., 550 F.2d 1220, 1222-23 (9th Cir.1977). Peoples could not acquire a security interest in property already levied. See Id. However, the issue is not significant under the circumstances. Peoples’ security interest, if it acquired one, predates the levy as well as the notice of lien.

      . The unexercised right of setoff is not itself a prior security interest under Section 6323(a) because it never became "choate.” See United States v. Sterling Nat'l Bank & Trust Co., 360 F.Supp. 917, 924 (S.D.N.Y.1973), aff’d in part & rev'd in part on other grounds, 494 F.2d 919 (2d Cir.1974). One might argue that the "choateness" doctrine has been supplanted by Section 6323(h)(1), which defines "security interest" for the purpose of Section 6323(a). However, the "choateness” doctrine remains relevant under Section 6323(a), at least as a tool to resolve issues not clearly anticipated by Congress. See Bank of California, Nat’l Ass’n v. United States, 520 F.2d 302 (9th Cir.1975) ("choateness doctrine governs when judgment lien under Section 6323(a) considered to attach); J.D. Court, Inc. v. United States, 712 F.2d 258, 262-63 (7th Cir.1983) (applying "choateness" doctrine to security interest under Section 6323(a)); Rice Inv. Co. v. United States, 625 F.2d 565, 571 n. 19 (5th Cir.1980) (citing Texas Oil & Gas Corp. v. United States, 466 F.2d 1040 (5th Cir.1972), cert. denied, 410 U.S. 929, 93 S.Ct. 1367, 35 L.Ed.2d 591 (1973) as example of "choateness" doctrine used to interpret Section 6323). Application of the "choateness" doctrine is therefore appropriate where a bank’s right of setoff is proffered as a security interest under Section 6323(a). As a technical matter, Peoples’ right of setoff does not receive the protection of Section 6323(a) because it was not "choate” before notice of lien was filed. For practical purposes, the right of setoff is unprotected because it was not "choate" before the levy. It could not become "choate” after the levy. See American Acceptance Corp. v. Glendora Better Builders, Inc., 550 F.2d 1220, 1222-23 (9th Cir.1977).


author: CALDWELL, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. UNITED PENN BANK and Heavy Media, Inc., Defendants.
    Civ. A. No. 81-0310.
    United States District Court, M.D. Pennsylvania.
    July 17, 1984.
    Gordon A.D. Zubrod, Asst. U.S. Atty., Harrisburg, Pa., Silvia Sepulveda-Hambor, Anthony C. Liotta, Deputy Asst. Attys. Gen., Land & Natural Resources Div., Washington, D.C., Robert Miller, Phillip J. North, Office of Field Solicitor, Dept. of Interior, Charleston, W.Va., Alfred T. Ghiorzi, Larry Martin Corcoran, Frank MeAnear, Dept, of Land & Natural Resources, Benjamin Franklin Station, Washington, D.C., Stuart Sanderson, Dept, of Interior, Office of Solicitor, Surface Mining, Washington, D.C., for plaintiff.
    Arthur L. Piccone, Paula Garrety, Wilkes-Barre, Pa., for United Penn Bank.
    Joseph C. Gilbus, Wilkes-Barre, Pa., Martin W. Matzen, Dirk D. Snel, U.S. Dept. of Justice, Land & Natural Resources Div., Appellate Section, Washington, D.C., for Durkin, Barbara Coal Co., and Marchessi.
   MEMORANDUM

CALDWELL, District Judge.

This is a declaratory judgment proceeding in which the current issue is the extent of the interest of the United Penn Bank in certain real estate situate in Luzerne County. Plaintiff is, and since 1980 has been, engaged in attempting to extinguish an underground mine fire on the land in question. The work has involved the removal of large quantities of coal, some of which has been sold. The Bank has asserted a claim of ownership in part of the premises, and seeks to recover the proceeds arising from the sale of the coal that has been sold, and establish its right to the coal that is stockpiled or in place on the premises.

The plaintiff has filed a motion to dismiss the Bank as a party to this proceeding, alleging that it has no ownership or other interest in the mineral estate of the premises and lacks standing to continue as a litigant. The Bank, on the other hand, has filed a motion for partial summary judgment under F.R.Civ.P. 56(b), in which it asks us to determine that it has title in and to the coal underlying the land which is the subject of this proceeding. Both of these motions will be resolved in the course of our discussion.

The Bank acquired its interest in the property through a mortgage foreclosure against Barbara Coal Company, and whether the Bank is the owner of the coal underlying the premises depends upon the extent of the estate that it acquired when it foreclosed and received a deed from the sheriff. Plaintiff contends that Barbara Coal Company mortgaged only the surface estate in the premise and that only the surface estate was acquired by United Penn Bank as a result of the foreclosure on the mortgage.

Three estates in land are recognized in Pennsylvania: surface, minerals, and the right of support. Captline v. County of Allegheny, 74 Pa.Commw. 85, 459 A.2d 1298, 1301 (1983), opp. pending; Pennsylvania Bank & T. Co., Youngsville Br. v. Dickey, 232 Pa.Super. 224, 335 A.2d 483, 485-86 (1975); Stewart v. Chernicky, 439 Pa. 43, 266 A.2d 259, 261 n. I (1970). When a freehold estate in coal is separated from ownership of the surface, the mineral estate is said to be severed. Severance is effected either by a separate conveyance of the coal by the surface owner or by an exception or reservation of the coal estate from a conveyance of the surface. The coal estate is then considered a separate and independent estate in real property which is held by separate and distinct title. Liens against the surface cannot be levied against the mineral estate. Coal Law & Regulation, Theiss, et al. vol. 4, § 80.01[3], 80-8; Wheelock v. Heath, 201 Neb. 835, 272 N.W.2d 768, 771 (1978). Once they have been severed from the surface, estates beneath the land can also be conveyed separately without any effect on the surface. Pennsylvania Bank & T. Co., Youngsville Br., supra, 335 A.2d at 485-86; Delaware and Hudson Canal Co. v. Hughes, 183 Pa. 66, 38 A. 568 (1897); Moreland v. H.C. Frick Coke Co., 170 Pa. 33, 32 A. 634 (1895). Therefore, it is possible to have a situation where any of the three estates in land may be owned by persons different from the ones owning the other estates.

After reviewing the chain of title by which the Bank acquired its interest in the premises, and having heard the testimony concerning the chain of title, we have concluded that the surface and mineral estates in the premises have been severed and that the Bank owns only the surface estate in the property.

Prior to 1971, the property involved in this proceeding was owned by Blue Coal Corporation. Blue Coal conveyed numerous tracts to Barbara Coal Company, Inc. by quitclaim deed dated November 15, 1971 (plaintiffs exhibit GG, item 12; defendant’s exhibit 103). This deed was restricted to “all of the surface of all of the following described parcels____” (emphasis added). After describing fourteen separate parcels of real estate the quitclaim deed included the following provision:

“Grantor (Blue Coal) also quitclaims unto said Grantee (Barbara Coal), ... all coal now remaining in place ... owned by the Grantor, in, under and upon the surface above described.”

There can be no doubt that the parties to this transaction treated the surface estate and the mineral estate separately, or that the two had been severed long before the conveyance.

One and a half years later, on May 2, 1973, Blue Coal executed a second quitclaim deed to Barbara Coal Company, Inc., which was recorded on May 7, 1973 (exhibit E). This deed was designed to correct certain conveyances of the surface made in the deed of November 15, 1971. The deed recited:

“This is a deed of correction, the intent and purpose of which is to more specifically remise, release and quitclaim all of the Larksville Borough portion of the surface remaining in Grantor as of November 15, 1971 and referred to as Parcel No. 1 in the deed from Blue Coal Corporation to Barbara Coal Company, Inc., dated November 15, 1971 and recorded as aforesaid.” (emphasis added)

This deed also contained a separate provision of quitclaim as to Blue Coal’s interest in the coal underlying the tract.

It is obvious that when Barbara Coal Co. acquired title, the surface and mineral estates were severed and were conveyed separately. Based on these deeds, and the earlier ones in the chain of title, it would also be apparent to any purchaser or mortgagee that any future conveyance of the surface would not include the mineral estate. Indeed, the defendant’s own expert, Robert A. Kley, testified that the coal and surface estates for lots one and two had been severed prior to 1944 when the properties were conveyed by Luzerne County to Charles B. Waller. (N.T. Vol. 2, p. 32). On cross-examination, Mr. Kley continued as follows:

Q. Do you recall saying that the surface and minerals to lots 1 and 2 have been severed prior to 1940 and continued to be severed at that time?
A. I believe I used the word segregated; you used the word severed.
Q. What do you mean by segregated?
A. In that both estates were in Kingston Coal Company although they came to Kingston through separate chains and were segregated by Kingston as to minerals and as to surface.

N.T. vol. 3, pp. 3-4.

The mortgage given by Barbara Coal Company to the United Penn Bank was executed on May 13, 1974 and recorded June 18, 1974 (defendant’s exhibit 102). The mortgage provided that to secure the loan the mortgagor (Barbara Coal) transferred or pledged to the mortgagee (The Bank), “all of the surface of the following described parcels____” Most of the recitals which follow the descriptions use language such as, “Being a- portion of the surface____” In initiating the foreclosure proceeding (plaintiff’s exhibit GG, item 3) the Bank, in paragraph 18 of its complaint, identified the premises subject to foreclosure and sale by reference to an exhibit. This exhibit describes the various parcels to be sold as “All of the surface of all of the following described parcels----” The Bank was the successful bidder at the foreclosure sale and the deed from the sheriff to the Bank, by which the Bank obtained title, describes the various parcels conveyed to the Bank as, “All of the surface of all of the following described parcels — ” (defendant’s exhibit 101).

A mortgagee can acquire in foreclosure only the interest encumbered to secure his loan. See Meco Realty Co. v. Burns, 414 Pa. 495, 497-98, 200 A.2d 869, 871 (1964). The nature and extent of the property or the estate encumbered in a mortgage depends upon the intention of the parties. In ascertaining the parties’ intent with respect to a deed it has been held in U.S. Steel Corp. v. Hoge, 304 Pa.Super.Ct. 182, 450 A.2d 162 (1982) that:

[The] rules [of construction] require that the instrument be construed to give effect to the intention of the parties to that instrument. The rules of construction further require that a deed should be considered in its entirety, giving effect to all its terms and provisions, and reading the language in light of conditions existing at the time of its execution. If the language of the deed prove ambiguous then it will be interpreted most strongly against the drafter of the deed. However, this latter rule of construction may not be employed as some talismanic solution or magic formula for the construction of ambiguous language or resolution of the dispute since, first and foremost, we must always keep an eye to the parties’ intentions.

Id. 450 A.2d at 166. The same rules of construction apply to mortgages. See In re Riddlesburg Min. Co., 122 F.Supp. 560 (W.D.Pa.1954), modified 224 F.2d 834 (3d Cir.1955).

In a case such as this the intention of the parties must be inferred and determined from all known facts and circumstances, including reference to the documents in the chain of title. We think it abundantly clear that neither the mortgagor, Barbara Coal Co., or the mortgagee, United Penn Bank, intended the mortgage to cover the mineral estate underlying the surface. First, the descriptions in the chain of title continually speak of a conveyance of the surface. Whereas the underlying deeds speak separately of the coal or mineral rights, the mortgage refers only to the surface estate. An examination of the title reveals uncertainty on the part of the numerous owners about the existence and extent of the mineral estate being passed by the various deeds, and perhaps explains why the surface had been consistently conveyed separately from the mineral estate.

As our previous discussion has established, there is no legal basis for the Bank’s contention that it “succeeded” to the ownership of the coal because it acquired the land. The estate in any minerals owned by Barbara Coal Company had been severed and was not included in the mortgage, which specifically provided that the only estate encumbered was the surface estate.

The Bank argues, however, that, even if the coal estate was severed from the surface at some point during the chain of title, the two estates became reunited when Barbara Coal attained title to both. Because there was no express reservation or exception of the coal in the mortgage, the Bank continues, it is presumed that the coal passes with the surface. Although there is some decisional law to support this concept of merger of estates, See, e.g., Henley v. United States, 396 F.2d 956, 184 Ct.Cl. 315 (1968), we have found no law in this jurisdiction to suggest that estates are reunited if they continue to be treated as separate by the parties. Here, it is clear to us that the parties intended that the estates be treated separately and were well aware that a reference to the “surface” of land implied no right to coal as well. Further, although a conveyance of land is generally presumed to convey minerals unless expressly excepted, we are not certain that this presumption applies to mortgages as well. Where an estate is given as security it seems to us that it may be adequate for the mortgagor simply to name the particular estate encumbered (here, by a term of art, i.e. surface) rather than to reserve expressly other estates which are not pledged. We note in this regard that certain distinctions have been drawn in Pennsylvania between conveyances and mortgages as they relate to severed minerals. See 52 P.S. § 1551.

The Bank also argues that the habendum clause to the mortgage encompasses underlying coal, if nothing else does. The habendum clause reads as follows:

To have and to hold said real estate and property, heraditaments and premises hereby granted, or mentioned and intended so to be, with the appurtenances, unto said Mortgagee to and for the only proper use and behoof of said Mortgagee forever.

As the parties have noted

A habendum clause may enlarge, expand, qualify or vary the premises of the deed itself; the purpose of a habendum clause is to determine what estate passes.

Yuscavage v. Hamlin, 391 Pa. 13, 137 A.2d 242 (1958); Ontelaunee v. Rothermel, 139 Pa.Super. 44, 11 A.2d 543 (1939); Bedford Lodge v. Lentz, 194 Pa. 399, 45 A. 378, 379 (1900). Here, however, the habendum clause does not enlarge the granting clause to include the coal estate. Although the habendum speaks of appurtenances, coal is not an appurtenance of the surface, it is a separate estate. Hence, the habendum clause here does not benefit the bank as it suggests.

Subsequent to the hearings in this case, a petition for inclusion of additional evidence in the record was filed by defendant and opposed by plaintiff. Defendant desires to admit into evidence two agreements between James J. Durkin, Sr., James J. Durkin, Jr., Anna Jean Durkin and Edward Durkin on one hand, and United Penn Bank on the other dated December 30, 1980, and June 30, 1981. The Bank also seeks to admit an assignment from James J. Durkin, Jr., Trustee in Liquidation for Barbara Coal Company, Inc. to United Penn Bank, dated October 9, 1980. We are unable to explain why these documents, if relevant, were not offered at the hearing in this matter. As we read the Bank’s brief, the only purpose related to our present discussion for which these documents are offered is to “show that Barbara Coal intended to mortgage to United Penn Bank and recognized the transfer of title of that coal to United Penn Bank upon foreclosure on the mortgage.” Although we will not permit this belated entry of evidence (which apparently had never been revealed to the plaintiff), in and of themselves, these documents, executed six years subsequent to the mortgage, would appear to be totally speculative insofar as they bear upon the intentions of the parties to the mortgage in 1974.

Having determined that United Penn Bank acquired no interest in the mineral estate beneath the land via mortgage foreclosure, we conclude this proceeding has no further useful purpose and should be terminated. The action was filed originally to declare or authorize the deposit of funds, arising from the sale of coal, in the Abandoned Mine Reclamation Fund, and the tortured course of this proceeding has somehow led us to decide the narrow matter settled herein. However, we deem this declaratory judgment proceeding, in which the government is the plaintiff/petitioner, an inappropriate vehicle for resolving any other claims that may exist or arise from the government’s activities on the premises.

Concerning any potential claim of the government for enhancing the value of the premises, the Surface Mining Control and Reclamation Act provides a procedure for filing a lien against the premises after completion of the project [30 U.S.C. § 1238]. The Act also contemplates that an aggrieved owner of any interest in such premises shall proceed by filing a claim for damages by virtue of the government’s entry [30 U.S.C. § 1240(b)]. These provisions provide the remedies for claims arising from the government’s activities and this action will be terminated upon the entry of the order which accompanies this discussion.

ORDER

AND NOW, July 17, 1984, the motion of the plaintiff to dismiss United Penn Bank as a party in this declaratory judgment proceeding is granted. The cross-motion of United Penn Bank for partial summary judgment, and its petition for inclusion of additional evidence, filed March 28, 1984, are denied.

The Clerk of Court is directed to close this file.

      . The deed recites that the property conveyed by Blue Coal to Barbara Coal had been acquired by Blue Coal from two sources. The first was a deed from Hudson Coal Co. to Blue Coal, dated November 21, 1960 (Deed book 1470-24), and conveyed "all of the surface, and coal now remaining in place____” The second was a quit claim deed from Glen Alden Corp., dated February 18, 1966, which conveyed whatever real estate interests Glen Alden owned in six counties in Pennsylvania (defendant exhibit 104 and plaintiff’s exhibit GG, item 14).

      . One indication of the Bank's intention when the mortgage was executed is revealed in a letter from counsel for the Bank, dated July 22, 1980, directed to the government’s counsel. The letter discusses the Bank’s then pending foreclosure proceeding, and its reluctance to complete foreclosure because of the possibility that as owner of the property it might incur a liability in connection with the cost of extinguishing the underground fire:
      "This pretty much is the problem which the Bank has. We wish to proceed [with foreclosure], but under no circumstances do we wish to be saddled with any costs of the extinguishment of the fire____”
      “As I indicated to you and you will note in the description of the mortgage which is attached to my Complaint and on page 2, you will further see that all that the Bank interest attaches to is the surface of lands, and not the coal rights." (plaintiff’s exhibit 613, emphasis supplied)

      . The Bank’s theory that it "succeeded” to the ownership of the coal was the only ground advanced when it first claimed an interest in the coal. In writing to the government attorney on
      February 4, 1981, after foreclosure had occurred, counsel said:
      "... it is now the position of the United Penn Bank that as the owner of the land, it succeeds to whatever interest the Barbara Coal Company had [in the mineral estate].” (plaintiff’s exhibit 630; defendant’s exhibit 220)

      . The petition for inclusion alleges that they relate to an assertion concerning a defect in the foreclosure procedure. In our opinion plaintiff lacks standing to raise this issue and we do not address it.

      . “James J. Durkin” signed the mortgage as President of Barbara Coal. We assume he is one of the two James Durkins named in the above documents.

      . The government has settled the claim of Heavy Media, Inc.