IP HII EDVA 00483 Doc. 0183 Main

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Richmond Division

HII MISSION TECHNOLOGIES CORP. ) ) Case No. 3:25-cv-00483-JAG

Interpleader Plaintiff, ) )

V. ) ) CYBERLUX CORPORATION, et al., ) )

Defendants.

) )

UNITED STATES' MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT

The United States of America submits this memorandum of law in support of its motion for summary judgment.

There is no dispute that the United States' tax liens have priority to all other creditors in this lawsuit, except one, Legalist SPV III, L.P., as to which the United States has partial priority. Because the claims of the United States' (just over $1.1 million) and Legalist (just over $13 million) can be fully paid from the interpleaded funds (over $23 million), and because there is no genuine dispute of material fact that the United States has priority as to all other creditors, the United States is entitled to judgment as a matter of law.

support HII's work under a prime contract with the Department of the Navy and General Services Administration. ECF 41, 1 18.

a. Facts relevant to the United States' claim.

Assessment Type

Tax Period Ending

Assessment Date

NFTL Filing Date

Balance1 (as of April 13, 2026)

IRS Form 9412

6/30/2010

5/13/2013

4/30/2024

$87,454

IRS Form 941

12/31/2010

4/11/2011

4/30/2024

$149,003

IRS Form 941

12/31/2012

4/01/2013

4/30/2024

$872,811

IRS Form 941

12/31/2021

9/5/2022

10/10/2023

$2,625

IRS Form 940

12/31/2022

2/27/2023

10/10/2023

$321

IRS Form 940

12/31/2023

2/26/2024

4/30/2024

$361

12/31/2013

10/24/2016

8/21/2017

$40,882

TOTAL BALANCE

$1,153,457.00

Id., 15.

in the fourth column of paragraph 7. True and correct copies of those NFTLs are attached to Revenue Officer Davis's Declaration as Attachment B thereto.

· 4/9/2024: $1,800,000.00

· 4/19/2024: $500,000.00

· 4/30/2024: This is the date the final IRS NFTL was filed.

· 5/2/2024: $500,000.00

· 6/15/2024: This date is 46 days after the filing of all NFTLs. As explained below, advances after this date are subordinate to the IRS tax liens.

· 6/26/2024: $142,000.00

· 7/5/2024: $53,000.00

· 7/16/2024: $2,500,000.00

· 8/2/2024: $650,000.00

· 8/27/2024: $535,000.00

· 10/3/2024: $150,000.00

· 10/3/2024: $120,000.00

· 6/3/2025: $2,755,100.10

· 6/9/2025: $345,000.001

Legalist Ans. to Interrogatory G (Ex. 2). Legalist asserts that, as of March 9, 2026, Cyberlux owes it $13,204,742.88, plus interest accruing from that date. Id. at A.

"Under Rule 56(a), summary judgment is appropriate 'if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.' The relevant inquiry in a summary judgment analysis is 'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Moore-King v. Cnty. of Chesterfield, Va., 819 F. Supp. 2d 604, 610 (E.D. Va. 2011), aff'd, 708 F.3d 560 (4th Cir. 2013) (quoting Fed.R.Civ.P. 56(a) and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986)).

"An interpleader action typically involves two stages. First, the court must determine whether the plaintiff "has properly invoked interpleader .... " Allstate Life Ins. Co. v. Ellett, No. 2:14CV372, 2015 WL 500171, at *2 (E.D. Va. Feb. 4, 2015) (internal citations and quotations omitted). "In the second stage, a scheduling order is issued and the case continues between the claimants to determine their respective rights." Id. (internal quotation omitted). This motion concerns the second stage of an interpleader, i.e., the respective rights of the United States and other Cyberlux creditors.

As ordered by the Court (ECF 158), undersigned counsel has reviewed statutes pertaining to government contracting in connection with this dispute and believes the resolution of the priority of the United States tax liens is governed by the Internal Revenue Code and specifically, as discussed in greater detail below, 26 U.S.C. §§ 6321-6323.

This Court should disburse $1,153,457, as of April 13, 2026, plus interest accruing after that date, from the Disputed Funds to the United States. The United States has perfected tax liens on the Disputed Funds in that amount, and the liens have priority as to all other creditors, with the exception of certain of Legalist's claims.

Under 26 U.S.C. § 6321, if a person liable to pay tax neglects to do so after demand, the amount (including interest and statutory additions) "shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." This language "is broad and reveals on its face that Congress meant to reach every interest in

property that a taxpayer might have." Drye v. United States, 528 U.S. 49, 56 (1999). This lien "shall arise at the time the assessment is made .... " 26 U.S.C. § 6322.

Here, after notice and demand for payment, Cyberlux failed to pay the tax owed, and a lien arose in favor of the United States. Davis Decl. (Ex. 1), 17.

The lien is not valid against other creditors, however, unless notice of the lien is filed. 26 U.S.C. § 6323(a). To ensure a lien on personal property is valid as to such other creditors, the IRS must file the notice in the office within the state in which the personal property is situated, as designated by the laws of that state. § 6323(f)(1)(A)(ii). The personal property of a corporation is deemed to be situated in the state of the principal executive office of the business. 26 U.S.C. § 6323(f)(2)(B).

Here, Cyberlux's principal place of business is in North Carolina. Am. Compl. ECF 41, 14. Under North Carolina law, notices of federal tax lien upon a corporation's personal property must be filed with the North Carolina Secretary of State. N.C. Gen. Stat. Ann. § 44-68.12(c)(1). Here, the Notices of Federal Tax Lien were indeed filed with the North Carolina Secretary of State. Davis Decl. (Ex. 1), 18 & Attachment B thereto. As a result, as of the dates set forth in column four of paragraph II.7, the United States held perfected liens on all of Cyberlux's "property and rights to property," including Cyberlux's rights to the Disputed Funds.

B. The United States' liens have partial priority as to Legalist's claims.

"Absent provision to the contrary, [federal tax lien] priority for purposes of federal law is governed by the common-law principle that 'the first in time is the first in right." U.S. By & Through I.R.S. v. McDermott, 507 U.S. 447, 449 (1993) (quoting United States v. New Britain, 347 U.S. 81, 85 (1954)).

Here, aside from Legalist, no claimant holds a security interest or lien in the Disputed Funds that was perfected prior to the NFTLs set forth in paragraph II.7, above. The Disputed Funds total $23,736,937.56. As of March 9, 2026, Legalist claims it is owed $13,204,742.88, plus interest. Legalist Ans. to Interrogatory G (Ex. 2). The United States is owed $1,153,457, as of April 13, 2026, plus interest. Davis Decl. (Ex. 1), 15. The priority dispute between Legalist and the United States is immaterial because there are sufficient interpleaded funds to pay both creditors in full.

Should the priorty of the United States' and Legalist's interests be put at issue, the United States asserts, for the reasons that follow, the following order of priority:

Priority

Creditor

Claim Amount

USA

$40,882

USA

$2,937.49

Legalist

$2,800,000

USA

$1,106,083.54

Section 6323 of the Internal Revenue Code governs the relative priority of the United States and Legalist's claims. Under 26 U.S.C. § 6323(a), a federal tax lien "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." (emphasis added). The term "security interest" means, in pertinent part, "any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time ... [only] to the extent that, at such time, the holder has parted with money or money's worth." 26

U.S.C. § 6323(h)(1) (emphasis added). Under this general rule, Legalist must have "parted with money" for its security interest to prevail over the tax liens.

Paragraph d of § 6323, however, creates a limited exception to the rule that a secured lender must "part[] with money" to prevail over a NFTL, providing for a 45-day window, after the filing of the NFTL, within which the secured creditor may disburse money to the taxpayer and still retain priority. 26 U.S.C. § 6323(d).

Because the IRS filed three different Notices of Federal Tax Lien for different Cyberlux liabilities at three different times, the United States has three different priority dates: August 21, 2017, October 10, 2023, and April 30, 2024.

On August 21, 2017, the IRS perfected its lien on Cyberlux's $40,882 debt for 26 U.S.C. § 6721 penalties, and this lien has first priority as to all other claims, as neither Legalist nor any other creditor were yet "holders of a security interest" or otherwise perfected as of this date. Davis Decl. (Ex. 1), 15.

On October 10, 2023, the IRS perfected its lien on Cyberlux's $2,937.49 debts for certain Form 940 ($321) and Form 941 ($2,625) taxes, and this lien has second priority as to all other claims, as neither Legalist nor any other creditor were yet "holders of a security interest" or otherwise perfected as of this date. Id.

On March 27, 2024, Legalist and Cyberlux entered into the Government Purchase Order Financing Agreement, under which Legalist agreed to advance $3,000,000 to Cyberlux. Legalist Ans. to Interrogatory B (Ex. 2); Ex. 3 at LEGALIST000021. On April 1, 2024, Legalist perfected this security interest by filing UCC Filing Statements in Nevada, where Cyberlux is incorporated. Ex. 3 at LEGALIST000017.

On April 30, 2024, as noted, the IRS filed its third and final NFTL, perfecting its lien on $1,109,629 in liabilities. Davis Decl. (Ex. 1), 15.

Under the financing agreement, Legalist disbursed the following funds on the following dates:

· 4/9/2024: $1,800,000.00

· 4/19/2024: $500,000.00

· 4/30/2024: This is the date the final IRS NFTL was filed.

· 5/2/2024: $500,000.00

· 6/15/2024: This date is 46 days after the filing of the final NFTL.

· 6/26/2024: $142,000.00

· 7/5/2024: $53,000.00

· 7/16/2024: $2,500,000.00

· 8/2/2024: $650,000.00

· 8/27/2024: $535,000.00

· 10/3/2024: $150,000.00

· 10/3/2024: $120,000.00

· 6/3/2025: $2,755,100.10 6/9/2025: $345,000.001

Legalist Ans. to Interrogatory G (Ex. 2).

As shown here, $2,800,000 of disbursements were made within 45 days of the April 30, 2024, NFTL. As a result, under § 6323(d), Legalist's claim for that $2,800,000 has priority to the tax liens memorialized in the United States' April 30, 2024, NFTL. Following disbursement of those sums to Legalist, however, the liens memorialized in the April 30, 2024 NFTL, in the amount of $1,109,629, should be fully paid from the Disputed Funds.

As the facts set forth in section II.c, above, make clear, no other creditor has a claim that rivals those of the United States. As a result, the United States should be fully paid.

For these reasons, the United States requests that $1,153,457, as of April 13, 2026, plus interest accruing until the date of disbursement, be paid to the United States from the Disputed Funds.

Date: April 15, 2026

Respectfully submitted,

BRETT A. SHUMATE Assistant Attorney General

JOSHUA WU Deputy Assistant Attorney General, Tax Litigation Branch

/s/ William J. Harrington WILLIAM J. HARRINGTON ELIZABETH PRUITT Trial Attorneys, Civil Division

Tax Litigation Branch U.S. Department of Justice Post Office Box 227 Washington, DC 20044

Tel: (202) 353-1882

Fax: (202) 514-6866 William.J.Harrington@usdoj.gov Elizabeth.Pruitt@usdoj.gov

-and-

TODD BLANCHE Acting Attorney General

/s/ Jonathan H. Hambrick JONATHAN H. HAMBRICK VSB NO. 37590

Assistant United States Attorney

Eastern District of Virginia 919 E. Main Street, Suite 1900 Richmond, VA 23219 Phone: (804) 819-5400 Fax: (804) 771-2316 E-mail: jay.h.hambrick@usdoj.gov Counsel to the United States

CERTIFICATE OF SERVICE

I certify that on April 15, 2026, I electronically filed the foregoing document with the Clerk of Court using the CM/ECF system, which will send notification of such filing to all counsel of record.

/s/ William J. Harrington

WILLIAM J. HARRINGTON ELIZABETH PRUITT Trial Attorneys, Civil Division Tax Litigation Branch U.S. Department of Justice Post Office Box 227 Washington, DC 20044 Tel: (202) 353-1882 Fax: (202) 514-6866 William.J.Harrington@usdoj.gov Elizabeth.Pruitt@usdoj.gov