Appeal from the Superior Court of the District of Columbia; (Hon. Rufus King, III, Trial Judge)
Before Rogers, Chief Judge, and Ferren and Wagner, Associate Judges.
The opinion of the court was delivered by: Ferren
FERREN, Associate Judge : The District of Columbia appeals the trial court's judgment that the District violated the takings clause of the Fifth Amendment by using its distraint power in appellees' commercial building in a manner inconsistent with the lease agreement between appellees and the distrained tenant. Although concluding that the District acted within its statutory and constitutional authority under the government's taxing levy and distraint powers when it physically seized the tenant's store, the court further concluded that the District's failure to abide by the tenant's lease agreement was a compensable taking of appellees' property. Because we conclude the District's actions did not violate the Fifth Amendment, we reverse and remand for vacation of the trial court's order.
The essential facts were stipulated at trial. The appellees (the "landlord") are joint venturers, known as "The Square 106 Associates," who own International Square, an office and retail complex located at 1825 Eye Street, N.W. In 1982, Europa International Inc. (the "tenant") signed a seven-year lease for street-level retail space. On January 3, 1986, the landlord filed a complaint for possession of the premises because of the tenant's failure to pay rent. Subsequently, the tenant paid at least some of the back rent, and the landlord never completed the eviction proceedings.
For most of the period of its tenancy the tenant had failed to pay its District of Columbia sales and use taxes, withholding taxes, personal property taxes, unincorporated business taxes, and unemployment compensation contributions. In April 1985, after an audit, the District determined that the tenant had not been paying its taxes and negotiated a payment schedule with the tenant. On Friday, May 9, 1986, while the tenant's store was open for business, the District served a Notice of Levy on the tenant because of its failure to adhere to the repayment schedule. At that time the tenant owed over $57,000 in back taxes. That same day the tenant gave the District a bank check for $8,000 and agreed to a new payment schedule. As a result, the District suspended enforcement efforts.
Three days later, however, the tenant requested the return of the bank check and indicated it intended to cancel its new payment agreement. Upon discovering the tenant had removed over half of its personal property from its store, a District agent seized the remaining property by changing the locks of the premises and posted official notices on the window of the store informing the public that the tenant's personalty had been seized for the account of the District of Columbia. The agent acted under the authority of D.C. Code §§ 47-1601 (distraint of goods and chattels), 47-1602 (storage of distrained property; manner of sale), and 47-1702 (distraint of personal property) (1990) (hereafter referred to collectively as distraint statutes). At the time of the seizure, the tenant was still in possession of the store and the lease.
On May 13, 1986, the day after the District seized the tenant's property, the tenant orally surrendered its remaining interest in the lease to the landlord. The landlord accepted the surrender and did not seek further compensation from the tenant. Between May 12 and June 1, 1986, the District spent time at the premises inspecting the seized property and preparing it for an auction sale. As required by D.C. Code § 47-1702, the District published legal notice on May 29, 30, and 31 in the Washington Post indicating the District would be auctioning the seized merchandise on the premises at noon on June 9, 1986. On June 2, however, the landlord notified the District by letter that it had removed the District's locks and had secured the store for itself. The letter asked the District to remove the seized property by 5:00 p.m. on June 9 or to pay the landlord for storage. The letter also made clear that the landlord would not permit the District to hold a public auction on the premises. On June 3, the District replaced the landlord's locks, retook possession of the premises, and continued to prepare for the June 9 scheduled auction.
On June 6 the landlord sought and obtained a temporary restraining order. That order permitted the District to maintain control over the premises but prohibited the auction or sale of the personal property. On June 10, Judge Alprin denied the landlord's motion for preliminary injunction after finding the landlord had failed to make the requisite showing of irreparable harm. The District subsequently maintained its locks on the premises, republished the statutorily required notices, and held its auction in the tenant's store on June 20.
On June 27, 1986, the landlord filed an amended complaint alleging that the District's occupation of the tenant's retail space from May 12 until June 20 prevented the landlord from earning rent on its property. It also alleged the District's distraint and sale had an "adverse effect" on the character of the building and on rental income from other tenants based on sales volume. The amended complaint demanded damages, attorneys' fees, a declaratory judgment, and a permanent injunction enjoining District seizures of tenant property at International Square and everywhere else the landlord has an ownership interest. The District's answer was accompanied by a counterclaim for $2,500 based on the landlord's interference with the distraint and sale of the tenant's assets. The case was called for trial three years later, and the parties filed a stipulation of facts with exhibits.
In July 1990, the trial court (Judge King) issued an order on liability only, concluding that although the District had a right to seize and sell the tenant's chattels, including its lease, the District's enforcement of the distraint statutes did not give the District authority to violate the terms of the tenant's lease. The court held that the District's actions constituted a taking of the landlord's property because the seizure and sale of the tenant's personalty violated various terms of the lease between the landlord and tenant. The court refused to grant injunctive relief but on December 3, 1990 ordered judgment against the District for $3,843.30, consisting of $2,787.72 in rent from May 12 to June 20, 1986, and $1,055.58 in accrued interest. The District timely appealed.
The government's statutorily authorized levy, distraint (also known as distress), and seizure powers have long been considered a necessary and constitutional (though severe) summary administrative remedy for collecting back taxes from delinquent and recalcitrant taxpayers. See generally 84 C.J.S. Taxation §§ 686(b), 694-95 (1954). "Indeed, one may readily acknowledge that the existence of the levy power is an essential part of our self-assessment tax system and that it enhances voluntary compliance in the collection of taxes that [the Supreme Court] has described as 'the lifeblood of government, and their prompt and certain availability an imperious need.'" G.M. Leasing Corp. v. United States, 429 U.S. 338, 350, 50 L. Ed. 2d 530 , 97 S. Ct. 619 , 39 A.F.T.R.2d (P-H) 475 (1977) (citing Bull v. United States, 295 U.S. 247, 259, 79 L. Ed. 1421 , 55 S. Ct. 695 , 15 A.F.T.R. (P-H) 1069 (1935)).
"Taxes are creatures of statute and must necessarily be collected in the manner provided by the statute." Tumulty v. District of Columbia, 69 App. D.C. 390, 398, 102 F.2d 254, 262 (D.C. Cir. 1939). "The construction that has been placed upon the statute by the District since its enactment . . . must unless it be plainly erroneous, receive due weight and consideration." Id., 69 App. D.C. at 399, 102 F.2d at 263. The District asserts that, since the initial enactment of the Distraint Act, it has followed a policy of using the Act's seizure authority to padlock spaces leased by delinquent taxpayers and to use those spaces to auction the taxpayer's goods and interests when taxes remain unpaid after seizure. Such ...