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[87-1 USTC ¶9364] Great Western Savings, a Federal Savings
and Loan Association, Plaintiff v. The
Elliott H. Kajan, Kajan & Gross, 9777 Wilshire Blvd., Beverly
Hills, Calif. 90212, James D. Sage, Jeffrey J. Hultman, 9301
Corbin Ave., Northridge, Calif. 91308, for plaintiff. Robert C.
Bonner, United States Attorney, Charles H. Magnuson, Assistant
United States Attorney, Los Angeles, Calif. 90012, for defendants. FINDINGS OF 1. GREAT WESTERN SAVINGS ("GREAT WESTERN") is a federally
chartered Savings and Loan Association. 2. During December, 1978, GREAT WESTERN loaned the amount of
$40,000 to WAYNE D. WILLIAMS and CORAZON G. WILLIAMS ("the
WILLIAMS"). The loan was evidenced by a promissory note and
the debt was secured by a purchase money first deed of trust
recorded 3. During December, 1980, GREAT WESTERN loaned an additional amount
of $66,000 to the WILLIAMS. The second loan was evidenced by a
promissory note and the debt was secured by a second deed of
trust, recorded December 24, 1980, encumbering the Subject
Property. 4. Subsequent to the recordation of GREAT WESTERN'S two deeds of
trust, the Los Angeles District Office of the Internal Revenue
Service (" 5. The WILLIAMS subsequently defaulted in their payment of GREAT
WESTERN'S two loans. Thereafter, GREAT WESTERN instructed the
trustee of the second deed of trust, CALIFORNIA RECONVEYANCE
COMPANY (the "Trustee"), to commence non-judicial
foreclosure proceedings under the second deed of trust. 6. When foreclosure becomes necessary on real property securing
multiple loans issued by GREAT WESTERN, it is the policy of GREAT
WESTERN to foreclose on the most junior loan. It is also the
policy of GREAT WESTERN to thereafter instruct the Trustee to
reconvey any senior GREAT WESTERN deed of trust and also cancel
the corresponding promissory notes secured by the deeds of trust.
That policy was followed in the instant action. 7. In order to comply with the discharge of liens provisions
contained under §7425
of the Internal Revenue Code of 1954, as amended (26
U.S.C.) (the "Code"), the Trustee issued to the 8. On November 17, 1981, under the mistaken assumption that the 9. On December 3, 1981, a Trustee's Deed conveying the Subject
Property to GREAT WESTERN was recorded. 10. After the Trustee's Deed conveying the Subject Property to
GREAT WESTERN was recorded, and under the mistaken assumption that
the foreclosure sale under the second deed of trust had eliminated
all other liens encumbering the Subject Property, including the
Non-Discharged Liens, GREAT WESTERN cancelled the promissory note
in the amount of $40,000 and effectuated the reconveyance of its
first deed of trust. 11. On December 17, 1981, the 12. On February 1, 1982, in reviewing the request to release its
right of redemption, the 13. GREAT WESTERN presently remains as the owner of the Subject
Property. 14. Any conclusion of law deemed to be a finding of fact is hereby
found as a fact. CONCLUSIONS OF LAW 1. Section
7425(b)(1) of the Code provides, inter alia,
that a sale of property on which the United States has a lien,
made pursuant to an instrument creating a lien on the property,
shall be made subject to and without disturbing such lien if
notice of such lien was filed in the place provided by law for
such a filing more than 30 days before such sale and the United
States is not given notice of such sale. 2. The UNITED STATES was not given proper notice of the
Non-Discharged Liens in connection with the foreclosure
proceedings under GREAT WESTERN'S second deed of trust.
Accordingly, the Non-Discharged Liens were not extinguished by the
sale under the second deed of trust and, thus, remained as viable
and subsisting liens against the Subject Property. §7425(b)
of the Code. 3. A necessary consequence of the operation of §7425(b)
of the Code is that when a nonjudicial foreclosure sale
takes place without notice being given to the United States of its
junior tax liens, the lien being foreclosed is normally
extinguished and, therefore, the tax liens are promoted in
priority. Southern Bank of Lauderdale County v. Internal
Revenue Service [85-2
USTC ¶9670 ], 770 F.2d 1001 (11th Cir. 1985). 4. GREAT WESTERN seeks in this proceeding to avoid this result by
obtaining rescission of the Trustee's deed and the sale taken
under the second deed of trust, and, further, to rescind the
reconveyance of the first deed of trust and cancellation of the
promissory note secured thereunder, thereby allowing it to
thereafter conduct a new "power of sale" foreclosure
accompanied by the giving of proper notice to the 5. If California law were all that were involved, the Court, in
furtherance of the longstanding policy of California law to
correct forfeitures (and the accompanying windfall) which occur by
reason of action taken under a mistake, would hold that GREAT
WESTERN could rescind both the sale under the second deed of trust
and the later reconveyance of the first deed of trust, and the
Court would reinstate the liens of the deeds of trust with
priority over the subsequent Non-Discharged Liens. Brackett v.
Banegas, 116 6. Fairness and equity dictate such treatment here, but the Court
cannot order it insofar as the rescission of the foreclosure sale
under the second deed of trust is concerned by reason of the
operation of federal law embodied in §7425
of the Code. While state law defines the property
interest to which liens attach, federal law defines the priority
and effect of tax liens on that interest. Southern Bank of
Lauderdale County v. Internal Revenue Service [85-2 USTC ¶9670 ], 770 F.2d 1001 (11th Cir. 1985). 7. With respect to the requested rescission of the foreclosure sale
under the second deed of trust, the interest of the United States
in having a uniform method of protecting itself against private
sales takes precedence over state law concepts of equity and
fairness in correcting the effect of a mistake. Since federal law
determines the priority of a federal tax lien, the congressionally
prescribed result of §7425(b)(1)
of the Code governs, and it is not open to state
legislatures or courts to prescribe different remedies. Southern
Bank of 8. This Court believes that the Southern Bank case is the
law of the Ninth Circuit and follows it. The result is that the
foreclosure sale under the second deed of trust may not be
rescinded with the effect of eliminating the priority of the
Non-Discharged Liens. 9. Section
7425 of the Code does not affect GREAT WESTERN'S action
in causing the lien of the first deed of trust to be reconveyed
following the foreclosure sale. That section deals only with
private sales under "power of sale" provisions in deeds
of trust. Considerations of enforcement of federal tax liens in
accordance with the intent of Congress are not impacted by a
rescission of the reconveyance and a determination that the
reinstated first lien takes priority over the Non-Discharged
Liens. See Little v. 10. In a situation where a deed of trust is reconveyed in error,
rescission and cancellation of the reconveyance and reinstatement
of the lien of the deed of trust is allowable.Duley v.
Westinghouse Electric Corporation, 97 Cal. App. 3d 430, 158
Cal. Rptr. 668 (1979). Accordingly, judgment will enter decreeing
rescission of the reconveyance of the first deed of trust and
reinstatement of the first deed of trust as a lien prior to the
Non-Discharged Liens. 11. Any finding of fact deemed to be a conclusion of law is hereby
concluded as a matter of law. [87-1 USTC ¶9364] Great Western Savings, a Federal Savings
and Loan Association, Plaintiff v. The
Elliott H. Kajan, Kajan & Gross, 9777 Wilshire Blvd., Beverly
Hills, Calif. 90212, James D. Sage, Jeffrey J. Hultman, 9301
Corbin Ave., Northridge, Calif. 91308, for plaintiff. Robert C.
Bonner, United States Attorney, Charles H. Magnuson, Assistant
United States Attorney, Los Angeles, Calif. 90012, for defendants. FINDINGS OF 1. GREAT WESTERN SAVINGS ("GREAT WESTERN") is a federally
chartered Savings and Loan Association. 2. During December, 1978, GREAT WESTERN loaned the amount of
$40,000 to WAYNE D. WILLIAMS and CORAZON G. WILLIAMS ("the
WILLIAMS"). The loan was evidenced by a promissory note and
the debt was secured by a purchase money first deed of trust
recorded 3. During December, 1980, GREAT WESTERN loaned an additional amount
of $66,000 to the WILLIAMS. The second loan was evidenced by a
promissory note and the debt was secured by a second deed of
trust, recorded December 24, 1980, encumbering the Subject
Property. 4. Subsequent to the recordation of GREAT WESTERN'S two deeds of
trust, the Los Angeles District Office of the Internal Revenue
Service (" 5. The WILLIAMS subsequently defaulted in their payment of GREAT
WESTERN'S two loans. Thereafter, GREAT WESTERN instructed the
trustee of the second deed of trust, CALIFORNIA RECONVEYANCE
COMPANY (the "Trustee"), to commence non-judicial
foreclosure proceedings under the second deed of trust. 6. When foreclosure becomes necessary on real property securing
multiple loans issued by GREAT WESTERN, it is the policy of GREAT
WESTERN to foreclose on the most junior loan. It is also the
policy of GREAT WESTERN to thereafter instruct the Trustee to
reconvey any senior GREAT WESTERN deed of trust and also cancel
the corresponding promissory notes secured by the deeds of trust.
That policy was followed in the instant action. 7. In order to comply with the discharge of liens provisions
contained under §7425
of the Internal Revenue Code of 1954, as amended (26
U.S.C.) (the "Code"), the Trustee issued to the 8. On November 17, 1981, under the mistaken assumption that the 9. On December 3, 1981, a Trustee's Deed conveying the Subject
Property to GREAT WESTERN was recorded. 10. After the Trustee's Deed conveying the Subject Property to
GREAT WESTERN was recorded, and under the mistaken assumption that
the foreclosure sale under the second deed of trust had eliminated
all other liens encumbering the Subject Property, including the
Non-Discharged Liens, GREAT WESTERN cancelled the promissory note
in the amount of $40,000 and effectuated the reconveyance of its
first deed of trust. 11. On December 17, 1981, the 12. On February 1, 1982, in reviewing the request to release its
right of redemption, the 13. GREAT WESTERN presently remains as the owner of the Subject
Property. 14. Any conclusion of law deemed to be a finding of fact is hereby
found as a fact. CONCLUSIONS OF LAW 1. Section
7425(b)(1) of the Code provides, inter alia,
that a sale of property on which the United States has a lien,
made pursuant to an instrument creating a lien on the property,
shall be made subject to and without disturbing such lien if
notice of such lien was filed in the place provided by law for
such a filing more than 30 days before such sale and the United
States is not given notice of such sale. 2. The UNITED STATES was not given proper notice of the
Non-Discharged Liens in connection with the foreclosure
proceedings under GREAT WESTERN'S second deed of trust.
Accordingly, the Non-Discharged Liens were not extinguished by the
sale under the second deed of trust and, thus, remained as viable
and subsisting liens against the Subject Property. §7425(b)
of the Code. 3. A necessary consequence of the operation of §7425(b)
of the Code is that when a nonjudicial foreclosure sale
takes place without notice being given to the United States of its
junior tax liens, the lien being foreclosed is normally
extinguished and, therefore, the tax liens are promoted in
priority. Southern Bank of Lauderdale County v. Internal
Revenue Service [85-2
USTC ¶9670 ], 770 F.2d 1001 (11th Cir. 1985). 4. GREAT WESTERN seeks in this proceeding to avoid this result by
obtaining rescission of the Trustee's deed and the sale taken
under the second deed of trust, and, further, to rescind the
reconveyance of the first deed of trust and cancellation of the
promissory note secured thereunder, thereby allowing it to
thereafter conduct a new "power of sale" foreclosure
accompanied by the giving of proper notice to the 5. If California law were all that were involved, the Court, in
furtherance of the longstanding policy of California law to
correct forfeitures (and the accompanying windfall) which occur by
reason of action taken under a mistake, would hold that GREAT
WESTERN could rescind both the sale under the second deed of trust
and the later reconveyance of the first deed of trust, and the
Court would reinstate the liens of the deeds of trust with
priority over the subsequent Non-Discharged Liens. Brackett v.
Banegas, 116 6. Fairness and equity dictate such treatment here, but the Court
cannot order it insofar as the rescission of the foreclosure sale
under the second deed of trust is concerned by reason of the
operation of federal law embodied in §7425
of the Code. While state law defines the property
interest to which liens attach, federal law defines the priority
and effect of tax liens on that interest. Southern Bank of
Lauderdale County v. Internal Revenue Service [85-2 USTC ¶9670 ], 770 F.2d 1001 (11th Cir. 1985). 7. With respect to the requested rescission of the foreclosure sale
under the second deed of trust, the interest of the United States
in having a uniform method of protecting itself against private
sales takes precedence over state law concepts of equity and
fairness in correcting the effect of a mistake. Since federal law
determines the priority of a federal tax lien, the congressionally
prescribed result of §7425(b)(1)
of the Code governs, and it is not open to state
legislatures or courts to prescribe different remedies. Southern
Bank of 8. This Court believes that the Southern Bank case is the
law of the Ninth Circuit and follows it. The result is that the
foreclosure sale under the second deed of trust may not be
rescinded with the effect of eliminating the priority of the
Non-Discharged Liens. 9. Section
7425 of the Code does not affect GREAT WESTERN'S action
in causing the lien of the first deed of trust to be reconveyed
following the foreclosure sale. That section deals only with
private sales under "power of sale" provisions in deeds
of trust. Considerations of enforcement of federal tax liens in
accordance with the intent of Congress are not impacted by a
rescission of the reconveyance and a determination that the
reinstated first lien takes priority over the Non-Discharged
Liens. See Little v. 10. In a situation where a deed of trust is reconveyed in error,
rescission and cancellation of the reconveyance and reinstatement
of the lien of the deed of trust is allowable.Duley v.
Westinghouse Electric Corporation, 97 Cal. App. 3d 430, 158
Cal. Rptr. 668 (1979). Accordingly, judgment will enter decreeing
rescission of the reconveyance of the first deed of trust and
reinstatement of the first deed of trust as a lien prior to the
Non-Discharged Liens. 11. Any finding of fact deemed to be a conclusion of law is hereby
concluded as a matter of law. 86-2 USTC ¶9618] United States of America, Plaintiff v.
Robert F. Aden, et al., Defendants U.S. District Court, Dist. Wyo., C85-399, Francis Leland Pico, Cheyenne, Wyo. 82003, Teresa J. Rasmussen,
Mark G. Fraase, Department of Justice, Washington, DC 20530, for
plaintiffs. Jeffrey C. Gosman, 139 W. Second, Casper, Wyo. 82601
for Charles R. Anderson, Denise Anderson, Joe R. Wilmetti, for
Meester Inc., William F. Swanton, P.O. Box 3191, Casper, Wyo.
82602, for Alfred Meester and Rose M. Meester. CORRECTED MEMORANDUM OPINION JOHNSON, District Judge: This is an action to reduce federal tax assessments against Robert
F. Aden and Carol J. Aden (Aden) to judgment, enforce outstanding
federal tax liens against the interests of the Adens in certain
real property located in Casper, Wyoming; and to foreclose the
federal tax liens on the interest of the Adens in that real
property. Jurisdiction vests by virtue of 28 U.S.C. §§1340 and
1345 and 26 U.S.C. §§7402
and 7403
. Summary judgment may not be granted unless the pleadings,
depositions, answers to interrogatories and admissions on file,
together with affidavits, if any, show that there exists no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law. Cayce v. Carter Oil
Company, 618 F.2d 669, 672 (10th Cir. 1980). The fact that
cross-motions for summary judgment have been filed does not permit
the entry of summary judgment if disputes remain as to material
facts. Buell Cabinet Co., Inc. v. Sudduth, 608 F.2d 431
(10th Cir. 1979). However, cross-motions for summary judgment will
allow the Court to infer that there is no evidence which needs to
be considered other than that which has been filed by the parties.
Securities and Exchange Commission v. American Commodity
Exchange, Inc., 546 F.2d 1361 (10th Cir. 1976). Following a complete examination of the materials filed by both
sides, we find no dispute as to the material issues of fact. On
November 21, 1980, the Adens entered into a contract for deed for
the purchase of certain real property located in During the pendency of the contract for deed, and prior to default
by the Adens, the Initially, we note that similar issues were raised in United
States v. Hernandez, Civil No. C85-384 (D. Wyo.). In Hernandez
we held that a purchaser's release of all equitable interests
under a contract for deed, in the state of The United States' position in this case is that the declaration of
a forfeiture, as opposed to an abandonment, is a "nonjudicial
sale" of which the United States must receive notice under §7425(b)
in order to extinguish a federal tax lien. We do not
agree. The purchaser of property under a contract for deed is vested only
with an equitable interest in the property. Hollabaugh v.
Kolbet, 604 P.2d 1359 ( Accordingly, we follow those decisions which have held that a
declaration for forfeiture, under the law of their respective
states, is not a sale of property within the meaning of §7425(b)
; Title 26 U.S.C. Brookbank, Inc. v. Hubbard [83-2 USTC ¶9507 ], 712 F.2d 399 (9th Cir. 1983); Runkel v.
United States [76-1
USTC ¶9152 ], 527 F.2d 914 (9th Cir. 1975); Sigel
v. United States of America, Civil No. 4-85-440 (D.C. Minn. We observe that the Andersons have filed a counterclaim against the
United States for attorney's fees under the Equal Access to
Justice Act, 26 U.S.C. §7430
. The Finally, there remains one matter for the Court to decide. The Accordingly, IT IS HEREBY ORDERED, ADJUDGED 1. Plaintiffs' Motion for Summary Judgment as against defendants
Robert F. Aden and Carol J. Aden Perkins is granted. 2. Judgment is entered in favor of plaintiff against defendant
Robert F. Aden and Carol J. Aden Perkins in the amount of
$36,114.26, plus accrued interest, penalties and other additions
to tax as provided by law. 3. Plaintiffs' Motion for Summary Judgment as against Meester,
Inc., Alfred Meester, Rose Meester, Charles R. Anderson, Jr.,
a/k/a Gus Anderson, and Denise Anderson is denied. 4. Defendants Meester, Inc., Alfred Meester, Rose Meester, Charles
R. Anderson, Jr., a/k/a Gus Anderson, and Denise Anderson's
Motions for Summary Judgment against plaintiff are granted. 5. The [88-2 USTC ¶9398] Delta Savings & Loan Association,
Inc., Plaintiff-Appellant v. Internal Revenue Service, Defendant-Appellee
(CA-5), Ronald J. Vega, Gauthier, Murphy, Sherman, McCabe, Chehardy &
Ellis, 3500 N. Hullen, Metairie, La. 70002, for
plaintiff-appellant. Michael L. Paup, Wynette J. Hewett, Howard M.
Soloman, Department of Justice, Washington, D.C. 20530, for
defendant-appellee. Before WISDOM, GARWOOD, and JONES, Circuit Judges. GARWOOD, Circuit Judge: Plaintiff-appellant Delta Savings & Loan Association, Inc.
(Delta) appeals the district court's grant of the motion of
defendant-appellee Internal Revenue Service ( Facts and Proceedings Below The facts of this case are undisputed. The The district court granted the motion of the Discussion Delta's sole contention on appeal is that the redemption amount
which the The basic premise of Delta's argument is that the automatic stay
prevented Delta from pursuing its deficiency claim against the
Olanos. Delta does not question the generally accepted
interpretation of section 2410(d) first set forth in Equity
Mortgage Corp. v. Loftus [74-2 USTC ¶9757 ], 504 F.2d 1071 (4th Cir. 1974). In that
case, the Fourth Circuit stated: "Where the purchaser at the sale is the person whose lien is
being foreclosed, the amount paid by him includes the amount of
the debt underlying his lien to the extent that the lien is
satisfied by the sale. Where the lien is fully satisfied, the
purchaser is not to receive less than the amount due him at the
time of the sale. Where the lien attaches to other property,
however, or where, after the sale, the purchaser still has the
right to sue for the unpaid balance of the amount due him, the
amount paid does not include this unpaid balance." Accord Mikulec v. United States
[87-2 USTC ¶9430 ], 705 F.2d 599, 601 (2d Cir. 1983); see
also 26 C.F.R. §301.7425-4(b)(2)
(ii) (stating that "[w]here, after the sale, the
holder of the lien being foreclosed has the right to the unpaid
balance of the amount due him, the amount legally satisfied by
reason of the sale does not include the amount of such lien to the
extent a deficiency judgment may be obtained therefor"). Nor
does Delta dispute the fact that, as a general proposition, a
lienholder that has not been fully paid after foreclosing on the
property subject to the lien has a right under The problems with Delta's argument are essentially twofold. First,
Delta is simply wrong when it contends that the automatic stay
prevented it from pursuing its deficiency claim against the Olanos.
All that the automatic stay does is to force creditors and other
interested parties to seek the bankruptcy court's approval before
taking certain types of action against a debtor or against
property of the estate. See In re Doan's Truck Repair, Inc.,
34 B.R. 180, 183 (Bankr.D.Wyo. 1983). Nothing in section 362(d)
expressly limits the ability to obtain relief from the automatic
stay to secured creditors seeking only to foreclose on specific
property. See In re Holtkamp, 669 F.2d 505, 508 (7th Cir.
1982); 2 Collier on Bankruptcy ¶362.07[1], at 362-53 (15th
ed. 1987). More importantly, Delta's argument would fail even if
it had been denied relief from the automatic stay in respect to a
suit against the Olanos personally on the debt or even if section
362(d) never allowed a lift of stay for such purposes. Delta's
foreclosure did not relieve Olanos of their remaining obligation
on their debt to Delta. Assuming there were sufficient assets in
the Olanos' bankruptcy estate, Delta could still ultimately
receive some further payment on its obligation, 2
and its failure to receive any such payment would be the result
not of its foreclosure, but rather of the degree to which the
Olanos were insolvent and the debt was finally discharged in the
bankruptcy proceeding. Second, Delta's interpretation of the language of section 2410(d)
is simply not consistent with the purpose of that section and section
7425(d) . The reason for allowing the government to
redeem property that was sold to a foreclosing superior lienholder
at essentially the same price that the lienholder paid for it is
not to ensure that the lienholder never realizes any loss on its
loan. The secured creditor whose foreclosure does not entirely
discharge the debtor's obligation continues to bear the risk of
the debtor's inability to pay more than the amount of indebtedness
discharged by the foreclosure. The statutory purpose is to
encourage the lienholder to bid at least a fair price on the
property being foreclosed by allowing the government to redeem the
property at the same price that the lienholder pays for it (plus
interest); if the superior lienholder pays the debtor at least a
fair price, this somewhat inures to the benefit of the government
as a creditor by reducing the debtor's obligations; the government
is not obliged to redeem; if the lienholder pays less than a fair
price, the government in redeeming the property is able to capture
any differential between the price paid and the property's fair
market value. As the Senate Finance Committee stated in its
explanation of this provision: "By exercising its power of redemption the
Government can purchase property sold at distress prices and
resell the property at a profit. This profit, of course, is
applied in satisfaction of the taxpayer's liability. In some
instances this procedure is the only means by which the Government
can collect taxes due. In all instances, however, the exercise of
this power, where redeemed property is sold at a profit, inures to
the benefit of delinquent taxpayers." S.Rep. No. 1708, 89th
Cong., 2d Sess. 31-32, reprinted in 1966 U.S. Code Cong.
& Admin. News 3722, 3753. If we were to accept Delta's interpretation of
section 2410(d), it would provide no incentive for a secured
creditor of a debtor to whom section
362(a) applied to bid a fair price at its foreclosure
sale. On the contrary, there would be every incentive for such a
creditor to bid a below-market price in an attempt to maximize its
gains by reselling the foreclosed property at a substantial
profit--knowing that any redemption by the government would have
to be for the full amount of the debt--while also pursuing its
deficiency claim against the debtor. On the other hand, under our
interpretation, a creditor such as Delta could adequately protect
itself, from the risk that government below-market redemption
would diminish recovery of its debt, by purchasing the property at
foreclosure by credit on its debt of an amount equal to the lesser
of the property's market value or the balance of the debt. Because
Delta's interpretation of section 2410(d) is not mandated by the
language of section 2410(d) and would frustrate the policy that
Congress sought to implement in that section and in section
7425(d) , we decline to adopt it. Conclusion We conclude that the amount the AFFIRMED. 1
Section 1346(f) provides the district courts with exclusive
jurisdiction of civil actions brought pursuant to 28 U.S.C. §2409a.
Section 2409a, in turn, waives the federal government's sovereign
immunity for particular types of quiet title actions. Although
this action was not formally denominated a quiet title action, we
believe that it is in substance such an action, the theory being
that the 2
See 11 U.S.C. §506(a); 3 Collier on Bankruptcy ¶506.04[1]
(15th ed. 1988). [81-2 USTC ¶9490]Thomas Jerry Myers, Plaintiff-Appellant v. (CA-5), U. S. Court of Appeals, 5th Circuit, Unit
A, No. 80-3245, 647 F2d 591, David M. Touchstone, 3821 Southern Ave., Before BROWN and TATE, Circuit Judges, and SMITH *,
District Judge. TATE, Circuit Judge: Property owner Thomas Jerry Myers brings this appeal from a
judgment of the district court that upheld the validity of an
Internal Revenue Service levy made pursuant to the provisions of
the Federal Tax Lien Act of 1966, 26 U. S. C. §§ 6323 et seq.
The property in question had been foreclosed upon and sold, and
the federal tax liens cancelled, pursuant to The judgment below is therefore affirmed. Facts The facts of this case are largely undisputed. On At the time the foreclosure proceedings were commenced, the Peoples
Bank mortgage was the senior encumbrance on the property. Among
the several inferior encumbrances was a duly recorded federal tax
lien against Fitts in the amount of $17,754.18 that had been filed
for recordation in Caddo Parish on April 5, 1978. Pursuant to the
foreclosure proceedings, the property was seized and a notice of
seizure was recorded on April 24, 1978. On April 25, 1978, four days after the foreclosure proceedings were
commenced, a second federal tax lien against Fitts, this one in
the amount of $15,809.33, was duly recorded as an encumbrance on
the property. (The plaintiff Myers' first contention on this
appeal is that this second lien, recorded after the
foreclosure proceedings were filed, was discharged by the
foreclosure sale. The district court rejected this contention,
holding that the lien was not discharged because notice of the
foreclosure proceedings was not served upon the government.) On June 7, 1978, more than forty days after the filing of the
second federal tax lien, a sheriff's sale was held. The property
sold to Peoples Bank for $170,000.00--less than the amount of the
debt secured by the Peoples Bank mortgage. In accordance with
state law, as instructed by the sheriff, the Caddo Parish clerk of
court therefore noted in the public records the cancellation of
all inferior encumbrances on the property, including the two
federal tax liens. At no time during the foreclosure proceedings was the Subsequently, on June 16, 1978, Peoples Bank sold the property to
appellant Myers, whose title examination had disclosed that all
encumbrances on the property (including the federal tax liens) had
been discharged. [Levy Following On June 21, 1978, after Myers' purchase and the recordation of his
deed, the government served Fitts with a levy against the
property, and served Myers with a notice of seizure. Notices of
seizure were posted on the property, and the property was secured.
(Myers' second complaint, based on the Fifth Amendment, is that no
predeprivation hearing was held before he was dispossessed of his
property and that no meaningful post deprivation hearing was
afforded him to contest the validity of the tax claim against
Fitts, the tax debtor and prior owner of the property.) On [No Judicial Proceeding] After trial on the merits, the district court concluded that
Louisiana's executory process is not a "judicial
proceeding" within the meaning of the Act's discharge
provisions, see 26 U. S. C. §7425(a), and that the
foreclosing creditor (Peoples Bank) was therefore required to
serve notice upon the government, as provided by 26 U. S. C. §7425(b),
in order to discharge the federal tax liens through the
foreclosure sale. Since such notice was not given in this case,
the district court held that the liens had not been discharged,
and that the government had properly levied upon and seized the
property. On appeal, Myers contends (I) that the district court erred in
concluding that the second federal tax lien, filed for recordation
after the commencement of the executory foreclosure proceedings,
was not discharged by virtue of the foreclosure sale, and (II)
that the levy procedures established by the Act are
unconstitutional in that they violate the due process clause of
the Fifth Amendment. 3 [Discharge of Lien] I. The resolution of Myers' first contention--that the foreclosure
sale effectively discharged the second federal tax lien--turns on
the proper characterization of the foreclosure sale under the
discharge provisions of the Act. A. The methods by which an inferior tax lien of the United States
may be discharged through foreclosure and sale under local law are
set out in 28 U. S. C. §2410 and 26 U. S. C. §7425. 4
See Mertens, Federal Income Taxation: Code Commentary §7425:1
(1980). When the United States is not joined as a party to the
foreclosure proceedings, the statutory scheme embodied in those
sections draws a distinction between sales pursuant to
"judicial proceedings," the effect of which is governed
by 26 U. S. C. §7425(a), 5
and "other sales," the effect of which is governed by 26
U. S. C. §7425(b). 6
See generally Mertens, Code Commentary, supra, §7425:1-:2.
The distinction is made by 26 U. S. C. §7425, enacted by the
Federal Tax Lien Act of 1966, which was intended to protect the
United States, where its tax lien is junior. from its discharge
under state law without prior notice to the For present purposes, the relevance of the distinction is that, if
the [ B. In the present case, the foreclosure sale was held pursuant to In order to obtain the ex parte order of seizure and sale,
the creditor must file a petition that comports with the general
pleading requirements of The Louisiana executory proceeding, founded upon
"authentic" (sworn, presuit) evidence, is designed to be
an expeditious, effective, and inexpensive foreclosure proceeding.
McMahon, supra, 32 Tul. L. Rev. at 532. Once the order has
issued and the property has been seized, the debtor may contest
the seizure only by taking a suspensive appeal or by instituting
an injunction proceeding to arrest the seizure and sale. C. Under the facts of the case at hand, the issue to be resolved is
relatively narrow: Whether The For reasons to be set forth, the district court correctly held that
Louisiana's executory process does not constitute a "judicial
proceeding" within the meaning of §7425(a), and that the
foreclosure sale at issue here is thus an "other sale"
governed by the provisions of §7425(b). By its terms, §7425(a) applies only to "judicial sales"
pursuant to "a judgment in any civil action or suit described
in subsection (a) of title 28 of the United States Code." 26
U. S. C. §7425(a). Section 7425(b), on the other hand, applies to
all "other sales": Notwithstanding subsection (a) a sale of property
. . . made pursuant to an instrument creating a lien . . ., pursuant
to a confession of judgment on the obligation secured by such an
instrument, or pursuant to a nonjudicial sale under a
statutory lien. . . . 26 The precise contours of the distinction thus drawn between
"judicial" and "other" sales are brought into
clearer focus by the legislatory history. The congressional
committee reports explaining §7425 differentiate the
"judicial proceedings" of its subsection (a) from the
"other sales" of subsection (b) as follows: the former
is "a plenary judicial proceeding," as contrasted with
"other foreclosure proceedings" "where the
interests of junior lienors may be eliminated without
notice"; as an example of the latter, the report speaks of
the procedure available in some states whereby "foreclosure
of a senior security interest may be accomplished by sale of the
property by a judicial officer pursuant to a judgment entered
under a 'confession of judgment' signed by the debtor (typically
in the security interest instrument itself)." 11
The report notes the intent of §7425 to require that the
government be made a party in a plenary proceeding to discharge
its tax lien, and--where there is no plenary proceeding--to
require timely notice to the government where it has the status of
a junior lienor. [Nonplenary Proceeding] The import of the legislative history is quite clear: Section
7425(a) was intended to apply only to judicial sales pursuant to plenary
judicial proceedings embodying the procedures associated with a
complete and formal hearing on the merits, as distinguished from a
more informal summary determination. See Black's Law Dictionary, verba
"plenary" and "plenary action" (5th ed. 1979).
Myers argues, however, that the Act's legislative history, when
taken as a whole, does not reflect the plenary-nonplenary
distinction made in the above-quoted committee reports. In support
of this contention he quotes from statements made before the Myers also contends that the plenary-nonplenary distinction
described in the congressional committee reports and adopted by
the court below does not stand up in the light of two recent
federal court decisions interpreting §7425. The gist of this
contention is that §7425(a) controls whenever there is a judicial
proceeding in which the United States might be named a party or in
which the United States might intervene to assert its rights. 12
For reasons somewhat tedious to explain (see notes 13 and 14),
neither of the two decisions relied upon--A. H. and R. S. Coal
Corporation v. United States [78-2 USTC ¶9624], 461 F. Supp.
752 (W. D. Pa. 1978) 13
and Galesi v. United States [76-2 USTC ¶9753], 406 F.
Supp. 623 (D. Vt. 1976), aff'd, 544 F. 2d 606 (2d Cir.
1976) 14
support the nondistinction of plenary-nonplenary for which Myers
argues. We conclude, therefore, that §7425(a) applies only to sales made
pursuant to plenary judicial proceedings, and that §7425(b)
applies to all other foreclosure sales. Since [Due Process] II. Myers' final contention is that the levy here at issue violated
the provisions of the due process clause of the Fifth Amendment. There is no suggestion on this appeal that the federal tax liens
upon which the challenged levy was based did not properly attach
to the property in question, 15
and we have determined that the liens were not discharged by the
foreclosure sale. The challenged levy was thus based upon valid
and existing tax liens. Under §6331, 16
the United States is authorized to collect delinquent taxes
"by levy upon all property and rights to property . . . on
which there is a lien provided in this chapter for the payment of
such tax." 26 U. S. C. §6331(a). The term "levy"
as used in the Act includes "the power of distraint and
seizure by any means." 26 U. S. C. §6331(b). And, where levy
is proper, the There is no suggestion on this appeal that the The Supreme Court of the The Act does provide an opportunity for prompt postseizure judicial
determination of the validity of the levy. 26 U. S. C. §7426. 17
This remedy is prompt insofar as a third person whose
property is seized pursuant to a levy for a tax owed by another;
for the third person is permitted immediate access to the courts
on his claim of wrongful levy including the right to seek
injunctive relief. 18
Id.; Valley Finance, Inc. v. United States [80-2 USTC ¶9554],
629 F. 2d 162, 170-71 & n. 19 (D. C. Cir. 1980). See Plumb
& Wright, Federal Tax Liens, supra, at 215-21. Myers argues that this postseizure remedy is inadequate because it
affords him no opportunity to contest the validity of the tax
assessment giving rise to the liens upon which the levy was based.
See Flores v. United States [77-1 USTC ¶9380], 551 F. 2d
1169, 1175 n. 5 (9th Cir. 1977). 19
Myers is correct that the Act precludes third party attack upon
the validity of the underlying tax assessment in actions brought
under §7426. 26 U. S. C. §7426(c). See Shannon v. United
States [75-2 USTC ¶9646], 521 F. 2d 56, 59 (9th Cir. 1975), cert.
denied, 424 The hearing requirements of the due process clause are neither
inflexible nor absolute. The Supreme Court has been at pains to
point out that "the timing and content of the notice and the
nature of the hearing will depend on appropriate accommodation of
the competing interests involved." Goss v. Lopez, 419 In the context of the present case, we cannot say that Myers was
not afforded prompt and meaningful postseizure hearing rights.
Myers purchased property subject to two duly recorded (although
improperly cancelled) federal tax liens. Under the provisions of
§7426, he was entitled to bring an immediate action in order to
contest the levy made pursuant to those liens. During the course
of that proceeding, Myers was entitled to full judicial
consideration, in an adversary context, of the validity of the
levy. He was entitled to show that the liens had not properly
attached to the property in question, that the liens had been
discharged through foreclosure and sale of the property, that the
liens had been discharged through payment of the tax assessed,
that his own interest in the property was superior in rank to the
federal liens, and that the government had failed to follow the
procedural requirements of the Act--in short, Myers was entitled
to raise virtually any legitimate and available objection he might
have had to the validity of the levy. What he could not do is
challenge the merits of the tax assessment itself, which had
determined the tax liability of a former owner of the
property--with finality, under substantive law, insofar as a third
person who subsequently purchases the taxpayer's property is
concerned. We do not believe due process requires that Myers, a third person,
be allowed to challenge the tax liability of the former owner of
the property. As we have noted, the resolution of asserted due
process violations requires a careful weighing of the competing
interests involved. Commissioner v. Shapiro, supra, 424 To the contrary, we would note that a tax assessment is in the
nature of a judgment, Bull v. United States supra, 295 U.
S. at 260, 55 S. Ct. at 699-700, the merits of which the taxpayer
himself has ample opportunity to contest, see 26 U. S. C. §6213.
In this light, we believe that well accepted notions concerning
the finality of judgments and their immunity from collateral
attack provide a useful analogy in the resolution of the issue
before us. In keeping with this view, courts have recognized a
general rule that such assessments are not open to collateral
attack by non-taxpayers. Moyer v. Mathas [72-1 USTC ¶9342],
458 F.2d 431, 434 & n. 4 (5th Cir. 1972). See Al-Kim, Inc.
v. United States [79-2 USTC ¶9631], 610 F. 2d 576, 579 (9th
Cir. 1979). We conclude, therefore, that since the statutory scheme affords a
prompt and meaningful opportunity for the postseizure judicial
determination of rights relative to the levy itself, the plaintiff
Myers was not denied any due process rights by the tax levy
procedures at issue. Conclusion Accordingly, we find no error in the district court's conclusion
that the foreclosure and sale of the property here in question,
pursuant to Louisiana's executory foreclosure process, constituted
an "other sale" within the meaning of 26 U. S. C. §7425(b),
and that therefore the foreclosing creditor's failure to serve
notice upon the United States as required by that section
precluded the discharge of the federal tax liens by virtue of that
foreclosure sale. In addition, we hold that the levy procedures of
the Act, as applied in the context of the case before us, fully
comport with the requirements of the due process clause of the
Fifth Amendment. Accordingly, the judgment of the court below is AFFIRMED. AFFIRMED. *
District Judge of the Northern District of Mississippi, sitting by
designation. 1
La. C. Civ. P. arts. 2631 et seq. 2
See 26 If a levy has been made on property or property has been sold
pursuant to a levy, any person (other than the person against whom
is assessed the tax our of which such levy arose) who claims an
interest in or lien on such property and that such property was
wrongfully levied upon may bring a civil action against the United
States in a district court of the United States. 3
Although briefed and argued at some length below, the
constitutional issue was not discussed by the district court in
its opinion. 4
28 (a) Under the conditions prescribed in this section and section
1444 of this title for the protection of the (1) to quiet title to. (2) to foreclose a mortgage or other lien upon, (3) to partition. (4) to condemn, or pleader with respect to, with respect to. real or personal property on which the (c) A judgment or decree in such action or suit shall have the same
effect respecting the discharge of the property from the mortgage
or other lien held by the 26 (a) Judicial proceedings.--If the United States is not joined as a
party, a judgment in any civil action or suit described in
subsection (a) of section 2410 of title 28 of the United States
Code, or a judicial sale pursuant to such a judgment, with respect
to property on which the United States has or claims a lien under
the provisions of this title-- (1) shall be made subject to and without disturbing the lien of the
United States, if notice of such lien has been filed in the place
provided by law for such filing at the time such action or suit is
commenced, or (2) shall have the same effect with respect to the discharge or
divestment of such lien of the United States as may be provided
with respect to such matters by the local law of the place where
such property is situated, if no notice of such lien has been
filed in the place provided by law for such filing at the time
such action or suit is commenced or if the law makes no provision
for such filing. If a judicial sale of property pursuant to a
judgment in any civil action or suit to which the United States is
not a party discharges a lien of the United States arising under
the provisions of this title, the United States may claim, with
the same priority as its lien had against the property sold, the
proceeds (exclusive of costs) of such sale at any time before the
distribution of such proceeds is ordered. (b) Other sales.--Notwithstanding subsection (a) a sale of property
on which the United States has or claims a lien, or a title
derived from enforcement of a lien, under the provisions of this
title, made pursuant to an instrument creating a lien on such
property, pursuant to a confession of judgment on the obligation
secured by such an instrument, or pursuant to a nonjudicial sale
under a statutory lien on such property-- (1) shall, except as otherwise provided, be made subject to and
without disturbing such lien or title, if notice of such lien was
filed or such title recorded in the place provided by law for such
filing or recording more than 30 days before such sale and the
United States is not given notice of such sale in the manner
prescribed in subsection (c)(1); or (2) shall have the same effect with respect to the discharge or
divestment of such lien or such title of the (A) notice of such lien or such title was not filed or recorded in
the place provided by law for such filing more than 30 days before
such sale, (B) the law makes no provision for such filing, or (C) notice of such sale is given in the manner prescribed in
subsection (c)(1). (c) Special rules.-- (1) Notice of sale.--Notice of a sale to which subsection (b)
applies shall be given (in accordance with regulations prescribed
by the Secretary or his delegate) in writing, by registered or
certified mail or by personal service, not less than 25 days prior
to such sale, to the Secretary or his delegate. 5
See A. H. and R. S. Coal Corp. v. United States [78-2 USTC
¶9624], 461 F. Supp. 752. 754-55 (W. D. Pa. 1978); Galesi v.
United States [76-2 USTC ¶9753], 406 F. Supp. 623, 625-26 (D.
Vt.) aff'd, [76-2 USTC ¶9753], 544 F. 2d 606 (2d Cir. 1976). 6
See A. H. and R. S. Coal Corp. v. 7
Foreclosure and sale pursuant to "judicial proceedings"
will discharge an inferior federal tax lien if, and only if: (1)
The United States is named as a party to the judicial foreclosure
proceedings, 28 U. S. C. §2410(a), (c); (2) the federal tax lien
is not filed in accordance with the provisions of local law at the
time the judicial foreclosure proceedings are commenced, 26 U. S.
C. §7425(a)(2); or (3) the law makes no provision for the filing
of such liens, 26 U. S. C. §7425(a)(2). See Mertens, Code
Commentary, supra, §7425.1. 8
With regard to "other sales," the statutory scheme
provides that a sale pursuant to an instrument creating a lien, a
confession of judgment on the obligation secured by an instrument
creating a lien, or a nonjudicial sale under a statutory lien, see
26 U. S. C. §7425(b), will discharge an inferior federal tax lien
according to the provisions of local law if, and only if: (1) The
federal tax lien is not duly filed in accordance with the
provisions of local law more than thirty days prior to the date of
the sale, 26 U. S. C. §7425(b)(1), (b)(2)(A); (2) the law makes
no provision for such filing, 26 U. S. C. §7425(b)(2)(B); or (3)
the foreclosing creditor serves written notice of the sale, as
described in 26 U. S. C. §7425(c)(1), upon the United States at
least twenty-five days prior to the date of the sale, 26 U. S. C.
§7425(b)(1), (b)(2)(C). See Mertens, Code Commentary, supra,
§7425:2. 9
An authentic act is one executed before a notary public in the
presence of two witnesses. 10
An act evidencing a mortgage or privilege imports a confession of
judgment when the obligor acknowledges the obligation secured by
the act and confesses judgment thereon, whether before or after
maturity. 11
In its report on the Federal Tax Lien Act of 1966, the House Ways
and Means Committee offered the following explanation of §7425: Under present law, a junior Federal tax lien may be discharged on
foreclosure of a senior security interest. Such foreclosure may
occur in a plenary judicial action, or, under the law of
some States, by nonjudicial foreclosure pursuant to a power of
sale contained in the senior security instrument. In addition,
in some States, foreclosure of a senior security interest may be
accomplished by sale of the property by a judicial officer
pursuant to a judgment entered under a "confession of
judgment" signed by the debtor (typically in the security
interest instrument itself). Where State law so provides, a
junior Federal tax lien may be extinguished without the Where there is a plenary judicial proceeding and the
Government, as a junior lienor, must be joined for its interests
to be discharged in the proceeding, the present procedure works
well. However, in other cases where the interests of junior
lienors may be eliminated without notice. it appears that the
interest of the Government are not presently sufficiently
protected. Although legitimate local considerations may
preclude requiring the Government (in other than plenary
proceeding) to be joined as a party for its interest under a tax
lien to be discharged, there does not appear to be any reason why
in these cases there should not be a timely notice of the
proceedings to the Government where notice of its tax lien is
on file. The requirement of notice gives the Government an
opportunity to review its position and determine the appropriate
action without placing an undue burden on a foreclosing creditor. As explained below, the bill adds a new provision to the internal
revenue laws requiring the Government to be made a party in a
plenary proceeding to discharge a tax lien. The bill also
makes provision for a timely notice to the Government where it
has the status of a junior lienor and there is no plenary
proceeding. (1) Plenary foreclosure actions (sec. 7425(a) of the code) The bill provides that in a plenary judicial proceeding
where the Government has properly filed notice of a tax lien
before the proceedings commence, but the Government is not joined
as a party in the court proceeding, a judgment as to the property
is not to disturb a tax lien or claim of a tax lien of the
Government on this property. The same result is to occur when the
property is sold pursuant to the judgment; the lien on the
property continues into the lands of the third person. Where the
Government is joined in these proceedings no change is made by the
bill in the present operation of local law. Where a notice of tax lien is not filed before a plenary
proceeding commences--even in those cases where the filing is
not required, such as in the case of a special lien for estate and
gift taxes--a judicial sale is to have the same effect with
respect to a tax lien as local law provides with respect to such
matters. One exception is provided to this rule: where the
Government is not joined as a party and the sale discharges the
tax lien, the Government may still assert its claim against the
proceeds of the sale at any time before the distribution is
ordered with the same force as the lien had against the property
sold. (2) Other foreclosure proceedings (sec. 7425(b) of the code) The bill provides that, in the case of all other foreclosure
proceedings, where timely notice of the proceedings is given
to the Government, the Government's claim to property under a tax
lien is to be discharged in the manner provided by local law. Where foreclosure covered by this provision are made without proper
notice to the Government, the bill provides that this does not
affect the Government's claim under a tax lien (as where the
Government is not joined in a judicial foreclosure). In these
cases, the Government's claim continues against the property into
the hands of a third party. On the other hand, where notice of the
Government's claim under a tax lien is not filed (even in those
cases where filing is not required), or where the Government is
notified of the proceeding, a sale has the same effect on the
claim as local law provides with respect to similar claims. (This
is the same result as where the Government is not joined as a
party in a plenary proceeding where its lien is not on file.) H. R. Rep. No. 1884, 89th Cong., 2d Sess. (1966),
1966-2 Cum. Bull. 815, 832-33 (emphasis added). 12
26 13
In A. H. and R. S. Coal Corp. v. United States, the court
sought to determine whether the sale of personal property,
foreclosed upon without judicial proceedings of any kind, was
effective in discharging a federal tax lien filed more than thirty
days before the sale. The court concluded that the sale was
governed by §7425(b): "What may accurately be denominated as a judicial sale is not
very well settled" but a judicial sale must have certain
basic ingredients. . . . To be classified as a judicial sale, the
sale "must be based upon an order, decree or judgment directing
sale." The sale of [the] personalty did not emanate from a judgment. . . .
Since the personal property was not sold pursuant to a judicial
decree, its sale should be classified as a non-judicial sale. A. H. and R. S. Coal Corp. v. United States,
supra,
461 F. Supp. at 755 (citations omitted). 14
In Galesi, the property in question was sold pursuant to a
state "strict" foreclosure proceeding seeking only to
cut off the mortgagor's equity of redemption. All other
lienholders on the property were joined as defendants in the
action. After the commencement of that action, however, the The provisions of 26 U. S. C. §7425(a) relate to sales
resulting from plenary judicial proceedings in which the Id. at 627 (emphasis added). As we read Galesi, then, it stands only for the proposition
that the redemption of property pursuant to plenary
foreclosure proceedings commenced before the filing of a federal
tax lien will discharge the federal lien, even though the
proceedings were a strict foreclosure (i. e., fixing the
amount due, providing that in default of payment the debtor's
equity of redemption is forever foreclosed, and granting junior
security creditors the right to redeem the property) and did not
seek judicial sale of the property, if the government had
constructive notice of the proceedings and yet failed to seek
intervention under 26 U. S. C. §7424. Nothing in that case or in
the Act would suggest that nonplenary foreclosure
proceedings, otherwise governed by §7425(b), are brought within
the ambit of §7425(a) merely because the United States might
intervene therein by virtue of §7424 and the provisions of state
law. Galesi, in our view, is inapposite to the issue now
before us. 15
The liens arose pursuant to 26 U. S. C. §6321, which provides: If any person liable to pay any tax neglects or refuses to pay the
same after demand, the amount (including any interest, additional
amount, addition to tax, or assessable penalty, together with any
costs that may accrue in addition thereto) 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. 16
26 U. S. C. §6331 provides, in pertinent part: (a) Authority of the Secretary or delegate.--If any person liable
to pay any tax neglects or refuses to pay the same within 10 days
after notice and demand, it shall be lawful for the Secretary or
his delegate or collect such tax . . . by levy upon all property
and rights to property . . . belonging to such person or on which
there is a lien provided in this chapter for the payment of such
tax. . . . (b) Seizure and sale of property.--The term "levy" as
used in this title includes the power of distraint and seizure by
any means. Except as otherwise provided in subsection (d)(3), a
levy shall extend only to property possessed and obligations
existing at the time thereof. In any case in which the Secretary
may levy upon property or rights to property, he may seize and
sell such property or rights to property (whether real or
personal, tangible or intangible). 17
26 U. S. C. §7426 provides, in pertinent part: (a) Actions permitted.-- (1) Wrongful levy.--If a levy has been made on property or property
has been sold pursuant to a levy, any person (other than the
person against whom is assessed the tax out of which such levy
arose) who claims an interest in or lien on such property and that
such property was wrongfully levied upon may bring a civil action
against the United States in a district court of the United
States. Such action may be brought without regard to whether such
property has been surrendered to or sold by the Secretary or his
delegate. . . . . (b) Adjudication.--The district court shall have jurisdiction to
grant only such of the following forms of relief as may be
appropriate in the circumstances: (1) Injunction.--If a levy or sale would irreparably injure rights
in property which the court determines to be superior to rights of
the United States in such property, the court may grant an
injunction to prohibit the enforcement of such levy or to prohibit
such sale. (2) Recovery of property.--If the court determines that such
property has been wrongfully levied upon, the court may-- (A) order the return of specific property if the United States is
in possession of such property; (B) grant a judgment for the amount of money levied upon; or (C) grant a judgment for an amount not exceeding the amount
received by the United States from the sale of such property. For the purposes of subparagraph (C), if the
property was declared purchased by the United States at a sale
pursuant to section 6335(e) (relating to manner and conditions of
sale,) the United States shall be treated as having received an
amount equal to the minimum price determined pursuant to such
section or (if larger) the amount received by the United States
from the resale of such property. (3) Surplus proceeds.--If the court determines that the interest or
lien of any party to an action under this section was transferred
to the proceeds of a sale of such property, the court may grant a
judgment in an amount equal to all or any part of the amount of
the surplus proceeds of such sale. (4) Substituted sale proceeds.--If the court determines that a
party has an interest in or lien on the amount held as a fund
pursuant to an agreement described in section 6325(b)(3) (relating
to a substitution of proceeds sale), the court may grant a
judgment in an amount equal to all or any part of the amount of
such fund. (c) Validity of assessment.--For purposes of an adjudication under
this section, the assessment of tax upon which the interest or
lien of the United States is based shall be conclusively presumed
to be valid. . . . . 18
A levy is wrongful within the meaning of the Act if: (1) The
property levied upon is exempt from levy under §6334; (2) the
levy is upon property in which the taxpayer had no interest
at the time the lien arose or thereafter; (3) the plaintiff is a
purchaser against whom the lien is invalid under §6323, §6324(a)(2),
or §6324(b); or (4) the levy or sale pursuant to levy will
destroy or irreparably injure the plaintiff's interest in the
property that is superior perior to the federal tax lien. Treas.
Reg. §301.7426-1(b) (1974). The district court is empowered in
such actions to grant (inter alia) injunctive relief where
levy or sale would irreparably injure rights superior to those
claimed by the United States, 26 U. S. C. §7426(b)(1), and to
order restitution of the property, the amount of money levied
upon, or the proceeds of the tax sale in the event of wrongful
levy, id. §7426(b)(2). 19
[T]he Supreme [C]ourt, while not yet addressing the question
specifically, has also recently noted that three key cases (North
Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U. S. 601, 607,
95 S. Ct. 719[722], 42 L. Ed. 2d 751 (1975); Mitchell v. W. T.
Grant Co. [73-2 USTC ¶9620], 416 U. S. 600, 610-611, 94 S.
Ct. 1895 [1901-1902], 40 L. Ed. 2d 406 (1974); and Fuentes v.
Shevin, 407 U. S. 67, 72, 92 S. Ct. 1983 [1990], 32 L. Ed. 2d
556 (1973)) could raise the question of whether "due process
demands that the taxpayer in a jeopardy assessment situation be
afforded a prompt post-assessment hearing at which the Government
must make some preliminary showing in support of the
assessment." (Emphasis added.) Laing v. United States,
423 U. S. 161, 183-184 n. 26, 96 S. Ct. 473, 485, 46 L. Ed. 2d 416
(1976). While a related and quite probably stronger argument might well be
presented by a third party holder of property seized to satisfy
the jeopardy assessment of another, we are not here presented with
such a demand for a prompt post-seizure hearing. Flores v. United States [77-1 USTC ¶9380], 551 F. 2d 1169, 1175 n. 5
(9th Cir. 1977). |