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Fate of assets ordered back to state court

Rebuffing the Internal Revenue Service, a federal judge Wednesday returned the receivership case involving St. Augustine Center to state court.

The nonprofit human services agency that served Buffalo's black community was ordered closed in February by State Supreme Court Justice John A. Michalek because of financial problems.

Since then, attorney Adam W. Perry, a court-appointed receiver, developed a plan to pay off creditors and obtain compensation for 85 employees who worked months without pay.

After Perry presented his report last month about distributing the center's available assets -- including more than $127,000 in unpaid wages -- the IRS sought to move the case to federal court.

The IRS argued that the actions contemplated by the receiver would be adverse to the IRS's tax lien of almost $900,000 against St. Augustine and that the receivership action has become one "against" the United States.

Further, attorneys for the U.S. Justice Department, representing the IRS, threatened last week to sue the former employees and the receiver if the lien wasn't honored.

Perry argued before U.S. District Judge John V. Elfvin on Friday to keep the case in Michalek's court.

Elfvin agreed. In a decision issued Wednesday, Elfvin concluded that removing the case from state court had been improper.

The judge also denied a conditional petition/motion for emergency injunctive relief that was filed by the IRS after the court clerk's office closed Friday for the holiday weekend. The IRS sought to prevent the receiver from distributing any St. Augustine assets until 10 days after the state court decides another IRS motion.

Elfvin wrote that he lacks jurisdiction over the receivership action and that the IRS can petition the state court for such relief.

"Justice prevailed, and the employees so far have prevailed," Perry said Wednesday.

He said he will ask Michalek to take back the case and to be discharged as receiver.

e-mail: jhabuda@buffnews.com

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