BRUNETTI, Circuit Judge:
On January 6, 1992, Plaintiff/Appellant Capital Tracing, Inc. ("Capital") filed a wrongful levy action against the United States under 26 U.S.C. § 7426
FACTS AND PROCEEDINGS
On or before July 13, 1982, the IRS assessed $180,582.48 in income taxes against John James Badger ("Badger"). Badger was indicted on six fraud-related offenses in July 1985 and was ordered to post a $100,000 cash bond. Capital alleges that on July 29, 1985, it posted the bond with approximately $73,000 of its own funds and approximately $27,000 loaned to Badger by other people or entities for the purpose of posting bond.
On August 22, 1985, the IRS served a notice of levy upon the Clerk of the District Court for the Central District of California. The notice of levy stated that "[t]he intent and purpose of this levy is to attach to the $100,000 cash bond" posted for Badger.
Badger was found guilty, and we affirmed his conviction in United States v. Badger, 849 F.2d 1476, 1988 WL 63746 (9th Cir.) (Badger I), cert. denied, 488 U.S. 891, 109 S.Ct. 225, 102 L.Ed.2d 215 (1988). Badger surrendered himself for incarceration, and thereafter the district court ordered that the cash bond be exonerated. Upon being apprised of the IRS' notice of levy, the district court ordered the IRS to show cause why the $100,000 cash bond should not be exonerated and paid over to Capital. The district court held a hearing on the show cause order and, on May 11, 1989, ordered that the $100,000 be paid over to Capital on May 18, 1989. The district court held that Internal Revenue Code ("I.R.C.") § 6331 does not allow the IRS to levy upon bail bonds.
On April 16, 1991, we reversed the district court order and remanded for the district court to comply with the IRS' notice of levy. Badger II, 930 F.2d 754, 755. We stated that:
Id. at 756.
On June 25, 1991, the district court on remand directed payment of the $100,000 to the IRS; payment was made on June 27, 1991. On January 6, 1992, Capital filed a complaint in the district court under § 7426 alleging that the IRS had "wrongfully levied on the [bail bond]."
Following a hearing, the district court entered an order on May 8, 1992, dismissing Capital's complaint for lack of subject matter jurisdiction. The district court denied Capital's motion for reconsideration and vacation of its May 8, 1992 order. Capital filed a timely appeal from the district court's order.
STANDARD OF REVIEW
The district court's order dismissing Capital's complaint on the ground that statutory limitations bar the action involves questions of law which we review de novo. Washington v. Garrett, 10 F.3d 1421, 1429 (9th Cir.1993).
The United States, as a sovereign, may be sued only with its consent, United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953-54, 47 L.Ed.2d 114 (1976), and waivers of sovereign immunity are to be strictly construed. United States v. Michel, 282 U.S. 656, 660, 51 S.Ct. 284, 285-86, 75 L.Ed. 598 (1931); Dieckmann v. United States, 550 F.2d 622, 624 (10th Cir.1977). However, once the government has waived its sovereign immunity, the doctrine of equitable tolling may apply to toll the statutory limitation. Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95-96, 111 S.Ct. 453, 457-58, 112 L.Ed.2d 435 (1990).
We assume, without deciding, that the IRS' service of the notice of levy on the clerk of the district court on August 22, 1985, triggered the limitations period which, unless equitably tolled, would have required Capital to bring its wrongful levy action on or before May 22, 1986, to avoid summary judgment.
In Williams-Scaife v. Department of Defense Dependent Sch., 925 F.2d 346, 347 (9th Cir.1991), we applied the Supreme Court's decision in Irwin and stated that "equitable tolling is applicable in employment discrimination cases filed by federal employees [against the government.]" The Irwin decision overruled a long line of Ninth Circuit cases
In Dempsey v. Pacific Bell Co., 789 F.2d 1451 (9th Cir.1986), in determining whether statutory limitations may be equitably tolled, we directed the district court to consider such factors as the lack of clear precedent in the circuit regarding the issue, and the absence of prejudice to the defendant. Id. at 1453 (the "lack of clear precedent in this circuit regarding the jurisdictional requirements pertaining to" plaintiff's age discrimination claim against a private employer may serve as an equitable factor justifying tolling of the statute of limitations); see also Vance v. Whirlpool Corp., 707 F.2d 483, 489-90 (4th Cir.1983) (plaintiff permitted to refile his complaint because there was no clear precedent on the issue and there was no demonstration of prejudice to defendant; statute of limitations effectively tolled), supp. op., 716 F.2d 1010 (4th Cir.1983), cert. denied, 465 U.S. 1102, 104 S.Ct. 1600, 80 L.Ed.2d 130 & 467 U.S. 1226, 104 S.Ct. 2678, 81 L.Ed.2d 873 (1984). Because of Irwin, we can now apply the Dempsey factors in cases against the government.
The history of the instant case illustrates the lack of clarity in the law that would justify a court's equitable tolling of a limitations period. At the exoneration proceeding in 1989, the district court ruled against the IRS and ordered that the bond proceeds be paid over to Capital. In 1991, we overturned that decision and remanded for the district court to comply with the IRS' notice of levy. We said that "if any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. § 7426.... [The Anti-Injunction Act] indicate[s] that the district court was required to honor the IRS levy without inquiring into its validity...." Badger II, 930 F.2d at 756. At issue in Badger II was "whether the power to rule on the validity of the IRS' levy `can fairly be implied as necessarily ancillary to the exoneration of the bond.'" Id. (quoting United States v. Arnaiz, 842 F.2d 217, 220 (9th Cir.1988)). In Arnaiz, we held that a district court had jurisdiction ancillary to its power to exonerate a bail bond to consider disputes related to the bond if "denial of jurisdiction would necessarily interfere with the district court's ability to carry out its statutory mandate [to exonerate the bond]." Id. at 220-21. In Arnaiz, the defendant posted collateral with the surety and therefore became an "obligor" under Rule 46(f).
In contrast, in Badger II we held that the district court did not need to conduct a hearing to determine who owned the bond, because "there is no requirement that the IRS prove what portion of the property being levied upon belongs to the delinquent taxpayer before it can levy on the property." Badger II, 930 F.2d at 757. We said that Capital's only recourse lay in a wrongful levy action under § 7426. Id.
In United States v. Rubenstein, 971 F.2d 288 (9th Cir.1992), we followed Arnaiz, stating that "[t]he district court thus had jurisdiction to consider Sherman's motion because it was `necessarily ancillary' to release of the bail funds." Id. at 293. We distinguished Badger II, stating that there "we ruled on a `narrow jurisdictional issue' and held that under the Anti-Injunction Act the district
A unique situation arose in Badger II, and we set forth new law. In other situations, both before and after Badger II, we have stated that district courts have jurisdiction to determine the rightful owner of bail funds. Capital's failure to know that the only way it could reclaim its bail bond was by filing a wrongful levy action was not due to its lack of diligence. The law was unclear, and we cannot say that Capital chose an unreasonable course of action by waiting until the exoneration proceeding to assert its ownership rights over the bond. Capital exercised its rights at what it thought was the earliest opportunity; Capital commenced actively protecting its interest in 1989 when, at the time of exoneration of the bail bond, it was apprised of the IRS' notice of levy on the bond. Capital was a major participant, as real party in interest, in the United States' appeal to our court from the district court's determination that the bond should be returned to Capital.
The lack of clarity in our circuit's law on the district court's jurisdiction to determine ownership of bail funds and the absence of demonstrated prejudice to the government justifies equitable tolling of the limitations period from the date of the levy until April 16, 1991, the date we issued our opinion in Badger II. Since Capital filed its wrongful levy action on January 6, 1992, within nine months of our decision, we hold that this action is not time-barred.
Accordingly, we reverse the order granting the government's motion to dismiss and remand to the district court to consider the merits of the case.
REVERSED AND REMANDED.
26 U.S.C. § 7426(a)(1) (1988). All statutory references hereafter are to 26 U.S.C. (1988) unless otherwise indicated.