Alabama2
[98-1 USTC
¶50,417]
United States of America
, Plaintiff v. Eleanor Fay Ressler, Paul Eugene Ressler, Cullman Savings
and Loan Association, and State of
Alabama
Department of Revenue, Defendants
U.S.
District Court, No. Dist. Ala., Northeastern
Div., Civ. CV-96-S-2464-NE, 3/16/98
[Code Sec.
6321 ]
Lien for taxes: Priority: State liens: Perfection of liens:
Assessment.--Federal tax liens were superior to state (Alabama) tax
liens, even though the state had notified the taxpayer of her state
deficiencies before the federal deficiencies were assessed. The federal
assessments themselves perfected the federal liens, while the state
notices of deficiency were simply the start of a multi-step process to
determine and collect the state deficiencies.
[Code Sec.
6323 ]
Lien for taxes: Priority: State liens: Perfection of liens:
Assessment: Judgment creditor.--Federal tax liens were superior to
state (
Alabama
) tax liens, even though the state had notified the taxpayer of her
state deficiencies before the federal deficiencies were assessed. The
federal assessments themselves perfected the federal liens, while the
state notices of deficiency were simply the start of a multi-step
process to determine and collect the state deficiencies. The state also
did not qualify as a judgment creditor superior to the federal
government. Although the state had determined its final assessments and
recorded its liens before the federal liens were recorded, it had not
reduced its liens to judgment in a court of record.
[Code Sec.
7122 ]
Settlement: Offer in compromise: Acceptance: Evidence.--The
co-owner of property foreclosed by a federal tax lien failed to show
that he and the government had reached a settlement to release the
property from the lien. There was no evidence that the government
accepted his offer in compromise.
MEMORANDUM OPINION
SMITH,
District Judge:
The
United States
filed this action on behalf of the Internal Revenue Service to foreclose
its liens upon two parcels of real property jointly owned by defendants
Paul Ressler and the State of
Alabama
. The State of
Alabama
executed against the same property and obtained a Sheriff's Deed on
December 16, 1994
, foreclosing the undivided interest of defendant Eleanor Ressler in the
real property which is the subject of this case.
The federal
and state tax liens both arise from tax years 1988 through 1992. Tax
returns for those years were received by the State of
Alabama
and the Internal Revenue Service at approximately the same time. The
State recorded its lien before the IRS.
I.
BACKGROUND
This case
involves a conflict between a federal tax lien arising under the
provisions of 26 U.S.C. §§6321 and 6322, and, an antecedent state tax
lien arising under Alabama Code §40-29-20.
Section
6321 of the federal statute provides that:
If any person
liable to pay any tax neglects or refuses to pay the same after demand,
the amount . . . 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.
26
U.S.C. §6321. Section 6322 adds:
[T]he lien
imposed by section 6321 shall arise at the time the assessment is made
and shall continue until the liability for the amount so assessed . . .
is satisfied or becomes unenforceable by reason of lapse of time.
Alabama
Code §40-29-20 is substantially similar to 26 U.S.C. §6321, and
provides that:
If any person
liable to pay any tax . . . neglects or refuses to pay the same, the
amount . . . shall be a lien in favor of the State of Alabama upon all
property and rights to property, whether real or personal, tangible or
intangible, belonging to such person.
Following a
pretrial conference, the parties entered into the following
stipulations:
1. Prior to
1990, defendants Eleanor Ressler and Paul Ressler jointly acquired two
parcels of real property in
Cullman County
,
Alabama
. The first parcel was approximately 31 acres and identified with a
street address of
1104 County Road
998. The second parcel was approximately one acre and identified with a
street address of
1121 County Road
998.
2. Cullman
Savings Bank has mortgage lien against the 31-acre parcel which is
senior to all other liens against that parcel, including the federal and
state tax liens.
3. Federal
income taxes were assessed against Eleanor Ressler based on tax returns
filed with the Internal Revenue Service, on the dates and for the
amounts stated below:
Unpaid
Date Return Date Tax Amount of
YEAR Received Assessed Assessment
1988 ..........................
June 16, 1993
August 16, 1993
$30,984.40
1989 ..........................
June 16, 1993
August 23, 1993
$36,488.69
1990 ..........................
June 16, 1993
August 30, 1993
$25,566.14
1991 ..........................
June 16, 1993
August 30, 1993
$23,074.22
1992 ..........................
June 14, 1993
July 19, 1993
\$23,022.11
4. On
July 30, 1993
, the State of
Alabama
entered and mailed Notices of Tax Determination and Demand for Payment
to Eleanor Ressler for state income tax liabilities for the years 1988
and 1989. On
August 3, 1993
, the State of
Alabama
entered and mailed Notices of Tax Determination and Demand for Payment
to Eleanor Ressler for state income tax liabilities for the years 1990,
1991, and 1992. The state income tax liabilities approximated $17,000.
5. The State
of
Alabama
made preliminary income tax assessments against Eleanor Ressler for
those same tax years for an adjustment to the admitted tax liabilities
to the State of
Alabama
on
October 22, 1993
, which totaled approximately $17,000.
6. The State
of
Alabama
made five final income tax assessments for those same tax years for an
adjustment to the admitted tax liabilities to the State of
Alabama
on
January 20, 1994
, which totaled approximately $17,000.
7. On
February 11, 1994
, the State of
Alabama
filed a Notice of Lien for Taxes in the Office of the Judge of Probate,
Cullman Country
,
Alabama
for the state income tax liabilities of Eleanor Ressler for the three
years 1986 to 1992.
8. Or
May 13, 1994
, the Internal Revenue Service filed a Notice of Federal Tax Lien in the
Office of the Judge of Probate,
Cullman County
,
Alabama
for the federal income tax liabilities of Eleanor Ressler for the years
1988 to 1992.
9. A Sheriff's
Deed concerning the two subject parcels was executed in favor of the
State of
Alabama
on
December 16, 1994
based on a judgment execution by the State of
Alabama
against the remaining interest of Eleanor Ressler. The Sheriff's Deed
was signed on
June 13, 1995
, and recorded in Cullman County Probate Court on
January 17, 1997
. The State of
Alabama
did not provide notice to the Internal Revenue Service of the described
execution and deed. The Sheriff's Deed did not alter or foreclose any
prior interests, liens, or levies of either the State of
Alabama
or the Internal Revenue Service.
10. The
United States
filed this foreclosure action on
September 19, 1996
and filed a Notice of Lis Pendens with the Office of the Judge of
Probate,
Cullman County
,
Alabama
on or about the same day.
(Stipulated
Facts filed November 12, 1997: Document No. 22.)
The action
presently is before the court on the
United States
' motion for partial summary judgment and defendant Paul Ressler's
motion to compel settlement. Upon consideration of the pleadings,
briefs, and evidentiary submissions, this court concludes the
government's motion is due to be granted and defendant's motion denied.
II.
GOVERNMENT'S MOTION FOR PARTIAL SUMMARY JUDGMENT
The
United States
moves for partial summary judgment on the issue of the priority of the
federal and state tax liens. Rule 56(c) of the Federal Rules of Civil
Procedure provides that summary judgment shall be granted if "the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact that the moving party is entitled
to judgment as a matter of law." "An issue of fact is
'material' if it is a legal element of the claim under the applicable
substantive law which might affect the outcome of the case." Allen
v. Tyson Foods, Inc., 121 F.2d 642, 646 (11th Cir. 1997) (citing Anderson
v. Liberty Lobby, Inc., 477
U.S.
242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)). "It is
'genuine' if the record taken as a whole could lead a rational trier of
fact to find for the nonmoving party."
Id.
The moving
party has the initial burden of showing the absence of a genuine issue
as to any material fact.
Id.
In determining whether this burden is met, the court must view the
evidence "and all factual inferences arising from it in the light
most favorable to the nonmoving party."
Id.
(quoting Adickes v. S.H. Kress & Co., 398
U.S.
144, 157, 90 S.Ct. 1598, 1608, 26 L. Ed. 2d 142 (1970)). Once the
movant's initial burden is met, the burden shifts to the nonmoving party
to point out "specific facts showing that there is a genuine issue
for trial."
Id.
(quoting Fed. R. Civ. P. 56(e)). In meeting its burden, the nonmoving
party may "avail itself of all facts and justifiable inferences in
the record taken as a whole."
Id.
(quoting Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 998 (11th
Cir. 1992) (citation omitted)). "The evidence of the nonmovant is
to be believed, and all justifiable inferences are to be drawn in his
favor." Allen, 121 F.3d at 646 (quoting Tipton, 965
F.2d at 999 (citations omitted)). Even so, a "mere 'scintilla' of
evidence supporting the [nonmoving] party's position will not suffice;
there must be enough of a showing that the jury could reasonably find
for that party."
Id.
(quoting Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir.1990)).
Thus,
"[t]he basic issue before the court on a motion for summary
judgment 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.' "
Id.
(quoting Anderson v. Liberty Lobby, Inc., 447
U.S.
242, 251, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986)).
III.
TAX LIEN PRIORITY
Federal Tax
liens do not automatically acquire priority over all other liens. United
States v. McDermott [93-1 USTC ¶50,164], 507 U.S. 447, 449, 113
S.Ct. 1526, 1528, 123 L.Ed.2d 128 (1993). Rather, the priority of
federal tax liens in relation to competing liens is a federal question,
determined by application of the common law rule of "the first in
times is the first in right."
United States
v. New York Britain [54-1 USTC ¶9191], 367 U.S. 81, 85, 74
S.Ct. 367, 370, 98 L. Ed. 520 (1954); see also
United States
v. Acri [55-1 USTC ¶9138], 348 U.S. 211, 213, 75 S.Ct. 239, 241, 99
L. Ed. 264 (1955) (priority of federal tax liens is "always a
federal question to be determined finally by the federal courts").
A lien which is first in time will be deemed first in right if, but only
if, it is "perfected" under federal law. McDermott
[93-1 USTC ¶50,164], 507
U.S.
at 449, 113 S.Ct. at 1528 ("Our cases deem a competing state lien
to be in existence for 'first in time' purposes only when it has been
'perfected'. . . .") (citing
New Britain
[54-1 USTC ¶9191], 347
U.S.
at 84, 74 S.Ct. at 369). The first question this court must answer then
is, which liens were perfected first?
A.
Which Liens Were Perfected First?
The court's
analysis depends in part upon the dates on which various events
occurred, and the legal significance of those events. The following
chart summarizes relevant information.
Event 1988 1989 1990 1991 1992
Federal Tax
Returns
Received ...... 6/16/93 6/16/93 6/16/93 6/16/93 6/14/93 2
State's Motion
& Demand
Letters ....... 7/30/93 7/30/93 8/3/93 8/3/93 8/3/93
Federal Taxes
Assessed ...... 8/16/93 8/23/93 8/30/93 8/30/93 7/19/93 3
State's
Preliminary
Assessment .... 10/22/93 10/22/93 10/22/93 10/22/93 10/22/93
State's Final
Assessment .... 1/20/94 1/20/94 1/20/94 1/20/94 1/20/94
State's Notice
of Lien Filed . 2/11/94 2/11/94 2/11/94 2/11/94 2/11/94
IRS's Notice of
Lien Filed .... 5/13/94 5/13/94 5/13/94 5/13/94 5/13/94
Sheriff's Deed
Executed ...... 12/16/94 12/16/94 12/16/94 12/16/94 12/16/94
1. Perfection of federal liens
Federal tax
liens need not be filed to gain priority over competing interests:
rather, they are perfected at the time taxes are assessed. 26
U.S.C. §6322 ("the lien imposed by section 6321 shall arise at the
time assessment is made"); see also, e.g., McDermott [93-1
USTC ¶50,164], 507 U.S. at 448, 113 S.Ct. at 1527 ("Upon that
assessment", the law created a lien in favor of the United
States on all real and personal property belonging to the
[taxpayer]") (emphasis added). Thus, only events which occurred
before the federal tax assessments could act to prime the resulting
federal liens.
Here, federal
taxes were assessed against the Resslers for the years 1988 through
1992, respectively, on the following dates:
1988 ......................................................
August 16, 1993
1989 ......................................................
August 23, 1993
1990 ......................................................
August 30, 1993
1991 ......................................................
August 30, 1993
1992 ......................................................
July 19, 1993
(Stipulated Facts at 2. §3.) IRS assessments are presumptively correct.
Welch v. Helvering [3 USTC ¶1164], 290 U.S. 111, 115, 54 S.Ct.
8, 9, 78 L.Ed. 212 (1933). Moreover, the State of
Alabama
stipulates that the assessment dates for the years 1988 through 1991 are
accurate. Accordingly, the court accepts the assessment dates for those
years as the dates on which federal liens arising from those assessments
were perfected.
The State of
Alabama
refused to stipulate to the accuracy of the 1992 assessment date
provided by the IRS, however. The state argues that, because all the
returns were mailed to the IRS on the same date and in the same
envelope, the 1992 assessment could not have been made more than one
month before the others, as claimed by the
United States
. Evidence must be construed in the light most favorable to the
non-moving party on a motion for summary judgment. Therefore, the court
rejects the proffered date for the 1992 assessment. Instead, the court
assumes that the 1992 federal tax assessments occurred after the
state's notice and demand letter was mailed, consistent with the other
tax years. 4
In any event, that curious discrepancy does not change the result in
this case. The state liens must have been perfected before the federal
tax assessments arose if they are to prime the federal liens. Only one
event could possibly have accomplished that: the mailing of the state's
notice and demand letters.
2.
Perfection of state liens
The State of
Alabama mailed "Notices of Tax Determination and Demands for
Payment" for tax years 1988 and 1989 to Eleanor Ressler on July 30,
1993, and, for tax years 1990, 1991, and 1992 on August 3, 1993. Both
actions occurred before federal taxes for those years were assessed. 5
No other action by the State occurred before the last federal tax
assessment was made on
August 30, 1993
.
Therefore, the
perfection question reduces to whether
Alabama
's liens were perfected at the time of its notice and demand letters. If
so, the State's liens prevail. If not, the federal liens are superior.
The rule for
perfection of non-federal liens is different than the rule for federal
liens. Non-federal liens are "perfected in the sense that there is
nothing more to be done to have a choate lien--when the identity of the
lienor, the property subject to the lien, and the amount of the lien are
established."
New Britain
[54-1 USTC ¶9191], 347
U.S.
at 84, 74 S.Ct. at 369.
Most courts
also impose an additional requirement: summary enforceability. Monica
Fuel, Inc. v. Internal Revenue Service [95-2 USTC ¶50,477], 56 F.3d
508, 512 (3d Cir. 1995) ("We agree that a right to enforce a lien
summarily (that is, without a judicial proceeding) is a requirement of
choateness in addition to the tripartite rule of fixed identity,
property and amount"); In re Terwilliger's Catering Plus, Inc.
[90-2 USTC ¶50,460], 911 F.2d 1168, 1176 (6th Cir. 1990) ("[T]he
state lien holder must show that he had the right to enforce the lien at
some time prior to the attachment of the federal lien"), cert.
denied, 501 U.S. 1212, 111 S.Ct. 2815, 115 L. Ed.2d 987 (1991); T.
H. Rogers Lumber Co. v. Apel, 468 F.2d 14, 18 (10th Cir. 1972)
("This requirement can be met only if the claim is final; that is;
not subject to a judicial contest as to its amount, and also only if it
is enforceable by summary proceedings") [citations omitted]; United
States v. Utah State Tax Comm'n, 642 F. Supp. 8, 10 (D. Utah 1983)
(nonfederal lien must be summarily enforceable and not have conditions
that affect its viability); cf. Burrus v. Oklahoma Tax Commission,
59 F. 3d 147 149 (10th Cir. 1995) (explaining its holding in T. H.
Rogers to mean "that at the time of enforcement, whenever that
should occur, a lienholder may satisfy its debt by resort to a summary
proceeding because the lien will be both choate and perfected") see
also United States v. McDermott [93-1 USTC ¶50,164], 507 U.S. at
453 n.5, 113 S.Ct. at 1530 n.5 (lien on property not yet owned was not
perfected because it was not definite, contingent, and summarily
enforceable at time of filing).
The
United States
does not dispute that, at the time of the state's notice and demand
letters, the identity of the lienors and the property subject to the
liens were established. The two questions presented here are: whether
the amount of the state's liens was established at the time of notice
and demand; and whether the state's liens were summarily enforceable at
the time of notice and demand.
(a)
Was the amount of the lien established?
The Supreme
Court instructs that the proper focus of such an inquiry is on whether
the state's liens were free from "contingencies" that would
prevent execution at the relevant time. See Security Trust &
Savings Bank, 340
U.S.
at 50, 71 S.Ct. at 113. In Security Trust, the Supreme Court
refused to accord priority to an attachment lien not yet reduced to
judgment, because "[n]umerous contingencies might arise that would
prevent the attachment lien from ever becoming perfected by a judgment
awarded and recorded. Thus, the attachment lien is contingent or
inchoate--merely a lis pendens notice that a right to perfect a
lien exists."
Id.
A review of
the statutory two-step procedure under which Alabama tax authorities
enforce that State's tax liens reveals that the amounts of such liens
are not fixed at the time a notice and demand letter is issued. Instead,
that letter begins an arms-length negotiation process between the
taxpayer and the Alabama Department of Revenue designed to uncover the
actual amount of taxes owed. A taxpayer who does not pay the requested
amount upon receipt of a notice and demand letter will receive a
preliminary assessment of his tax liability, as determined by the
Department of Revenue. The taxpayer has a 30 day period within which to
object to that assessment. Upon timely objection to a preliminary
assessment, the department
shall schedule
a conference with the taxpayer for the purpose of allowing the taxpayer
and the department to present their respective positions, discuss any
omissions or errors, and to attempt to agree upon any changes or
modifications to their respective positions.
Alabama
Code §40-2A-7(b)(4)(a). A final
assessment is made only after those objections are resolved. 6
Id.
at 7(b)(4)(b). Hence, any assessment made before a taxpayer has had an
opportunity to effect such "changes or modifications" cannot
be said to have fixed the amount of the lien for purposes of priority.
Under this statutory scheme, the State's liens clearly were subject to
"[n]umerous contingencies" of the sort described in Security
Trust at the time the notice and demand letters were sent.
Indeed, the
State characterizes its preliminary assessment as a complaint, and the
final assessment as a judgment. (State of
Alabama
, Depart of Revenue's Brief in Opposition to the Motion for Partial
Summary Judgment of the Internal Revenue Service at 6 and 9.) such
characterizations support a finding that the State's notice and demand
letter was nothing more than a first estimate of the Resslers' tax
deficiency, subject to "changes or modifications" upon timely,
valid objections by the Resslers. 7
(b)
Were the liens summarily enforceable?
In United
States v. Vermont [64-2 USTC ¶9520], 377 U.S. 351, 84 S.Ct. 1267,
12 L.Ed.2d 370 (1964), the Supreme Court concluded that a state tax lien
primed competing federal tax liens because it was "summarily
enforceable" upon assessment and demand. Vermont [64-2 USTC
¶9520], 377 U.S. at 359 and n. 12, 84 S.Ct. at 1272-73 and n. 12
("it is as true of Vermont's lien here as it was of the federal
lien in New Britain that 'The assessment is given the force of a
judgment, and if the amount assessed is not paid when due,
admin
istrative officials may seize the debtor's property to satisfy the debt'
"). The State of
Alabama
glosses over this significant distinction by asserting that the summary
enforceability of the
Vermont
lien "was not basic to [the Court's] decision." [State of
Alabama
, Department of Revenue's Brief in Opposition at 7.] Yet, the
distinction is fundamental, because
Alabama
law--contrary to the State's assertion--does not permit summary
enforcement of tax liens. Rather, the statute cited by the State permits
enforcement only after the appeals period following a final assessment
has expired, not before. See Alabama Code 40-23-23(a) ("If
any person liable to pay any final assessment of tax neglects or
refuses to pay the same or fails to appeal such final assessment
within 30 days, it shall be lawful for the Commissioner to collect such
tax [by] levy upon all property . . . belonging to such person")
(emphasis supplied). Final assessment in this case occurred on
January 20, 1994
. Thus, the state's power to summarily enforce its lien arrived 30 days
later, six months too late to prime the federal liens.
In summary,
Alabama
's tax liens were not perfected upon notice and demand for two reasons.
First, the amounts of the liens were subject to revision upon timely
objection by the Resslers, and thus were not fixed at the time notice
and demand was sent. Second,
Alabama
tax authorities had no power to enforce liens against the Resslers until
30 days after the State had issued a final assessment of their tax
liability, an event which occurred six months after federal taxes were
assessed. Accordingly,
Alabama
's liens were not "first in time" for purposes of priority
over federal liens.
That
determination does not end the court's inquiry, however, because there
are limited statutory exceptions to the common law rule. The second
question before the court is whether the State tax liens fall into one
of the categories of liens enumerated it 26 U.S.C. §6323(a), which are
exempt from the "first in time, first in right" rule.
B.
Is the State a "judgment lien creditor"?
Title 26,
United States Code, Section 6323(a) creates certain exceptions to the
"first in time, first in right" rule of priority:
The lien
imposed by section 6321 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.
Under
this provision, federal liens which have not yet been filed cannot prime
certain non-federal liens. The State contends it is entitled to the
protection of §6323 as a judgment lien creditor by virtue of either its
final assessment on
January 20, 1994
, or its notice of lien filed on
February 11, 1994
. Both events occurred before the IRS recorded its liens in
Cullman County Probate Court
on
May 13, 1994
. 8
Thus, this court must determine whether those acts were sufficient to
bring the State's liens under §6323's protective wing. 9
Although the
term, "judgment lien creditor," is not defined in the statute,
the Supreme Court has interpreted it "in the usual, conventional
sense of a judgment of a court of record. . . ." United States
v. Gilbert Associates, Inc. [53-1 USTC ¶9291], 345 U.S. 361, 364,
73 S.Ct. 701, 703, 97 L.Ed. 1071 (1953). In Gilbert Associates,
the Court considered "whether the Town of Walpole, New Hampshire,
or the Federal Government has the prior right to a fund in the hands of
a state court receiver of the respondent-taxpayer, an insolvent
corporation." Gilbert Associates [53-1 USTC ¶9291], 345
U.S.
at 362, 73 S.Ct. at 702. The Supreme Court of New Hampshire held that
the town's assessments for ad valorem taxes, which preceded filing of
the federal government's tax liens, were "in the nature of a
judgment" under the law of New Hampshire, making the town a
judgment creditor under 26 U.S.C. §3672; the predecessor statute to §6323.
The United States Supreme Court reversed, holding that, although
"[t]he state is free to give its own interpretation for the purpose
of its own internal
admin
istration, . . . the meaning of a federal statute is for this Court to
decide."
Id.
at 363, [53-1 USTC ¶9291], 73 S.Ct. at 703. The Court elaborated:
A cardinal
principle of Congress in its tax scheme is uniformity, as far as may be.
Therefore, a "judgment creditor" should have the same
application in all the states. In this instance, we think Congress used
the words "judgment creditor" in §3672 [now §6323] in the
usual, conventional sense of a judgment of a court of record, since all
states have such courts. We do not think Congress had in mind the action
of taxing authorities who may be acting judicially as in
New Hampshire
and some other states, where the end result is something "in the
nature of a judgment, while in other states the taxing authorities act
quasi-judicially and are considered
admin
istrative bodies."
Id.
at 364, [53-1 USTC ¶9291], 73 S.Ct. at
703-04. 10
Thus, the Court concluded that "whatever the tax proceedings of the
Town of Walpole may amount to for the purpose of the State of New
Hampshire, they were not such proceedings as resulted in making the Town
a judgment creditor within the meaning of §3672 [now §6323]."
Id.
at 365, [53-1 USTC ¶9291], 73 S.Ct. at 704. This court finds that
analysis persuasive in the present case.
The principle
of "uniformity" would be undermined if each state could decide
that its particular procedures for assessing and recovering past-due
taxes rendered it a judgment lien creditor entitled to priority even
without a conventional court judgment. That is essentially what the
State of
Alabama
is asking this court to do--deny priority to federal liens which arose
and were recorded before the State reduced its liens to judgment.
Admittedly, the State issued its final assessment and recorded its liens
before the IRS recorded its liens. The State did not, however, reduce
its liens to judgment in a court of record before the IRS recorded its
liens. Under the holding of Gilbert, such a judgment is necessary
to garner the protection of §6323.
Accordingly,
the State's reliance on State v. Woodroof, 46 So. 2d 553 (
Ala.
1950), and the Department of Revenue's view that a final assessment is
"like a judgment," are unavailing. Neither the Alabama Supreme
Court's nor the Department of Revenue's internal understanding of the
nature of the State's tax recovery procedures is dispositive on this
federal question, particularly in light of the Supreme Court's contrary
holding in Gilbert Associates.
Additionally,
United States Department of Treasury regulations interpreting the
phrase, "judgment lien creditor," instruct that: "The
term 'judgment' does not include the determination of a quasi-judicial
body or of an individual acting in a quasi-judicial capacity such as the
action of State taxing authorities." 26 C.F.R. §301.6323(h)-1(g).
The Supreme Court has long recognized that an agency's interpretation of
a statute it is charged with enforcing should be given
"considerable weight," and should not be disturbed unless it
appears from the statute or legislative history that Congress intended a
different construction. Chevron
U.S.A.
, Inc. v. Natural Resources Defense Council, Inc., 467
U.S.
837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). No contrary
intent is evident.
Although the
State claims that the Supreme Court's decision in United States v.
Speers [66-1 USTC ¶9101], 382 U.S. 266, 86 S.Ct. 411, 15 L.Ed.2d
314 (1965), raises doubts about the present validity of Gilbert
Associates, this court disagrees. Speers simply is not
applicable to the present case: it involved priority rights conferred by
federal bankruptcy laws, not priority rights conferred based on a
particular state's tax assessment procedures. Thus, as the Supreme Court
recognized, Speers raised "no problem of evaluating widely
differing state laws, . . . no possibility of unequal application of the
federal tax laws, depending upon variances in the terms and phraseology
of different state and local tax assessment statutes and judicial
rulings thereon." Speers at 271, at 414. Rather, it involved
"an unequivocal statement by Congress that [a trustee in
bankruptcy] shall have 'all' the rights of a judgment lien creditor. . .
."
Id.
In the absence of any similar pronouncement by Congress or the Supreme
Court with regard to state tax liens like those at issue in this case,
the State of
Alabama
is not entitled to invoke the status of a judgment lien creditor to ward
off the priority of federal tax liens.
Finally, the
State suggests that a failed Congressional effort to clarify the phrase
"judgment creditor" supports its rendering of the term. The
proposed legislation purportedly would have made clear that §6323 does
not protect those who "have not actually obtained a judgment in the
conventional sense." From the failure of that legislation, the
State seems to be suggesting that this court should infer that such a
construction of the phrase was rejected by Congress. An equally valid
inference, however, is that such a clarification was unnecessary given
the clear holding of Gilbert Associates.
Although this
court concedes that the State of
Alabama
may be the "sovereign more diligent," in the sense that it
recorded its liens first, §6323 requires diligence of a specific sort: i.e.,
diligence in obtaining a judgment in a court of record. In that regard,
the State's delay in obtaining such a judgment is fatal to its claim of
priority.
IV.
DEFENDANT PAUL RESSLER'S MOTION TO COMPEL SETTLEMENT
Ressler claims
a settlement was reached under which both the State of
Alabama
and the IRS agreed to release all tax liens against Ressler in exchange
for his payment of $32,000. Such a scenario would permit Ressler to
remove himself from the priority dispute between the State and the IRS.
Yet, Ressler presents no evidence to support a finding that such a
settlement exists.
The
United States
concedes that Ressler made a settlement offer, but the
United States
' two written responses to that offer clearly, and in bold print, state:
"Unless you receive a formal notice of acceptance from this office,
the Department is in no way committed to a settlement." (Response
of
United States
to Motion to Compel Settlement, Exhibits 1 and 2.) No such "formal
notice of acceptance" is before the court. Thus, the court finds
that no settlement agreement was reached, and Ressler's motion is due to
be denied. 11
V.
CONCLUSION
For the
foregoing reasons, plaintiff's motion for partial summary judgment is
due to be granted, and defendant Paul Ressler's notion to compel
settlement is due to be denied. An order consistent with this memorandum
opinion shall be entered contemporaneously herewith.
DONE.
1
The State of
Alabama
does not stipulate to these dates for the 1992 tax year. See infra
note 4 and accompanying text.
2
This date is disputed by the State of
Alabama
: see discussion at page 8-9 infra.
3
This date also is disputed by the State of
Alabama
: see discussion at page 8-9 infra.
4
The precise date on which the 1992 assessment occurred cannot be
ascertained from the present record.
5
As already noted, for purposes of deciding this motion, the court
assumes that the 1992 federal taxes were assessed after the
state's notice and demand letter was mailed, consistent with the other
tax years.
6
An accelerated procedure is permitted when the Department of Revenue
makes a jeopardy determination, i.e., when the department
believes the taxpayer is about to remove the subject property from state
jurisdiction or otherwise take steps which would make recovery by the
state impossible. See
Alabama
Code §40-29-91. No such jeopardy determination was made in this case.
7
The court notes that the amount of at least one of the assessments was,
in fact, changed between the time of the preliminary assessment and
final assessment. For example, the penalty amount of $543.17 recited in
the preliminary assessment for 1991 was increased to $599.36 in the
subsequent final assessment for that year.
See
Defendant
State
of
Alabama
's Evidentiary Submission in Opposition, Exhibit 5 at 6-7.
8
See supra stipulation 8 at page 3.
9
The state obtained a judgment in the Probate Court of Cullman County,
Alabama on
December 16, 1994
, but that judgment came too late to prime the federal tax liens.
10
The Court noted one tax treatise's agreement that "assessments,
though they may be enough like judgments to definitely establish a
demand for taxes, are not technical judgments." Gilbert
Associates [53-1 USTC ¶9291], 345
U.S.
at 364 n.2, 73 S.Ct. at 704 n.2 .
11
The court recognizes Ressler's need to have the tax liens on his
property released by impleading a sum of money ($32,000) into this
court. The IRS has agreed to accept that sum as substituted collateral
for its tax liens, but the State of
Alabama
apparently has not so agreed. In the absence of such an agreement, the
court must deny Ressler's motion.
[82-2 USTC
¶9619]Max Pope, as Trustee under Trust Agreement dated December 31,
1977, Plaintiff v. Birmingham Trust National Bank, et al., Defendants
U.
S. District Court, No. Dist.
Ala.
, So. Div., Civil Action No.: CV82-PT-0017-S, 8/13/82
[Code Sec. 6323]
Lien for taxes: Validity and priority against third parties: State
Department of Industrial Relations.--Liens of the Alabama Department
of Industrial Relations were judgment liens and were entitled to
priority over unrecorded federal tax liens under Code Sec. 6323, which
provides that unfiled tax liens are invalid against judgment lien
creditors. The state department's lien became choate at the time the
taxpayer-employer field reports with the state required by state law
since the identity of the lienor, the property subject to the lien, and
the amount of the lien were established at that time. The fact that the
department did not comply with notice procedures required by state law
to employers who failed to file such reports did not defeat its lien
since those provisions were inapplicable to the present case in which
the taxpayer-employer filed the returns but did not make payments. BACK
REFERENCES: 82FED ¶5362.8001.
R. Clifford
Fulford, 2326 Highland Avenue, Birmingham, Alabama 35205, for plaintiff,
Michael G. Kendrick, Gorham, Waldrep, Stewart & Kendrick, 1507 City
Federal Building, Birmingham, Alabama 35203, for
Rob
bie D. Wood (deft. interpleader), G. Guy Hayes, George Cocoris, J. R.
Vaughan, Department of Industrial Relations, Montgomery, Alabama 36130,
for Saint Ala. Dept. of Industrial Relations, Frank W. Donaldson, Frank
S. James, III, Karl L. Keller, Department of Justice, Washington, D. C.
20530, John B. Harper, Internal Revenue Service, Birmingham, Ala. 35203,
Rob
ert S. More, Department of Interior, Knoxville, Tenn. 37901, for
defendant, Earl V. Brown, Jr., Cooper, Mitch & Crawford, Birmingham,
Alabama 35203, for United Mine Workers, W. W. Conwell, Raymond P.
Fitzpatrick, Jr., Foster & Conwell, Birmingham, Alabama 35203, For
B'ham. Trust Natl. Bank, Charles M. Thompson (Defendant in interpleader)
300 Vestavia Office Park,
Birmingham
,
Alabama
35216
, pro se.
Memorandum
Opinion
PROPST,
District Judge:
This case is
before the court upon Motions for Summary Judgment filed by the State of
Alabama Department of Industrial Relations (ADIR) and by the
United States of America
. It is agreed by the said movants that no factual issues exist and that
summary judgment can be granted with respect to the case.
None of the
other defendants have opposed these motions or filed Motions for Summary
Judgment with respect to their claims. The plaintiff in interpleader
has, by letter dated
May 18, 1982
, indicated that a decision on the undisputed facts would be appropriate
and has assumed the risk of future legal action by parties later
asserting a claim to the trust funds involved in this case.
Section 6321
of Title 26 of the United States Code provides for a lien in favor of
the
United States
on all property and rights to property of a taxpayer who fails to pay
taxes for which he is liable. That lien becomes effective on the date of
assessment. In the instant case liens were assessed by the IRS against
plaintiff on
June 18, 1979
;
September 10, 1979
;
June 4, 1979
; and
March 19, 1979
. A notice of lien was filed on
April 9, 1980
. ADIR recorded its Certificate of Lien on
September 17, 1979
. The returns on which ADIR's lien is based were filed in May 1979 and
August 1979.
The relative
priority of a federal lien for unpaid taxes is a federal question. See United
States v. Equitable Life Assurance Society [66-1 USTC ¶9444], 384
U. S.
323 (1966); United States v. Acri [55-1 USTC ¶9138], 348
U. S.
211 (1955). The courts look to state law to determine the nature of a
party's interest in property subject to lien litigation. United
States v. Bess [58-2 USTC ¶9595], 357
U. S.
51 (1958); United States v. Creamer Industries, Inc. [65-2 USTC
¶9527], 349 F. 2d 625 (5th Cir.), cert. denied, 382
U. S.
957 (1965). State law is applied to determine the existence and
characteristics of the state lien. United States v. Truss Tite, Inc.
[68-1 USTC ¶9296], 285 F. Supp. 88 (S. D. Tex. 1968).
Section
6323(a) of the Internal Revenue Code provides that an unfiled lien
imposed pursuant to 26
U. S.
C. §6321 is not valid against any purchaser, holder of a security
interest, judgment lien creditor, or mechanic's lienor. ADIR contends
that it is a holder of a security interest and is protected by §6323(a).
This court finds that the interest held by ADIR does not constitute a
security interest for the purposes of §6323(a). A "security
interest" is defined in §6323(h) as:
[A]ny interest
in property acquired by contract for the purpose of securing payment or
performance of an obligation or indemnifying against loss or liability.
Although §6323(h)
defines "security interest," "mechanic's lienor" and
"purchaser," it does not define "judgment lien
creditor." As indicated, state law is looked to in order to
determine the existence and character of the state lien. Alabama Code §25-4-134(a)
(1975) provides as follows:
The
contributions, interest and penalties required to be paid under this
chapter shall be a first and prior lien upon all property and rights to
property, real or personal, of any employer subject to this chapter. The
lien shall arise at the time the contribution report, or the payment of
the contributions, as the case may be, was due to have been filed with
or made to the department of industrial relations. The director may file
in the office of the judge of probate of any county in this state a
certificate which shall show the name of the department for which it is
filed, the amount and nature of the contributions, interest and
penalties for which a lien is claimed together with any costs that may
have accrued, the name of the employer against whose property a lien for
such contributions, interest and penalties is claimed and the date
thereof. An error in the certificate of the amount shall not invalidate
the lien for the amount actually due. Such certificates shall be indexed
and recorded under the same provision of law in this state relating to
the filing and recording of certificates of judgment and without
costs; provided, however, that such lien shall be effective as to
purchasers, mortgagees and judgment creditors only from the time a
certificate shall have been duly filed for record in the office of the
judge of probate in the county wherein is located the property to be
subjected to such lien.
(Emphasis
added.) Alabama Code §25-4-134(b)(5) provides:
Whenever any
contributions, interest and penalties required to be paid under this
chapter are not paid within 30 days of the date due and upon final
assessment in any of the manners provided in this section, the director
is authorized to issue an execution therefor directed to any sheriff of
the state of Alabama, commanding him to levy upon and sell the real and
personal property of the employer against whom such execution is
directed, found in his county, for the payment of contributions and
interest due, together with penalties assessed. The sheriff shall,
within five days after the receipt thereof, file with the clerk of the
circuit court of his county a copy thereof and thereupon the circuit
clerk shall enter in the judgment roll in the column of judgment
debtors the name of the employer named in the execution, the amount
of contributions, interest and penalties for which the execution is
issued and the date when such copy is filed. The sheriff shall thereupon
levy upon any property of the employer with like effect and in the
manner prescribed by law in respect to executions issued upon
judgments of the circuit court and the remedies of attachment and
garnishment shall apply fully to such executions and the officer shall
be entitled to the same fees for his services as now allowed by law for
like services, to be collected in the same manner as now provided by law
for like services.
(Emphasis
added.) The court deems that, under Alabama law, liens such as are
claimed by ADIR are treated as judgment liens and are entitled to be so
treated under §6323.
Assuming that
ADIR, under §25-4-134, becomes a "judgment lien creditor" at
some time, the court is not persuaded by the argument of the United
States that ADIR's lien would not become choate until the notice
procedures of §25-4-134(c)(2)(a) are followed.
Alabama
Code §25-4-134(c)(1)a. provides:
If an employer
fails to make and file with the department any report as and when
required by the terms and provisions of this chapter or by any rule
and regulation of the director for the purpose of determining the amount
of contributions due by said employer, under this chapter, the
director may issue a written notice by registered or certified mail
to such employer, addressed to his last known address or place of
business, to make such report or reports forthwith, and if such
employer fails or refuses to make such report within 15 days from the
date of such notice, then the director shall make a report for such
employer upon such information as he may reasonably obtain, and shall
assess the contributions and penalties due thereon and interest at the
rate of one percent per month, or fraction thereof, from the date
such contributions were due.
(Emphasis
added.) Alabama Code §25-4-134(c)(1)b. (1975) provides:
If an employer
who has made and filed with the department any report required and such
report is signed by the employer or his duly authorized representative
but he has not paid, or has not paid in the correct amount, any
contribution due within 30 days from the date due, then the director
shall assess the correct amount of contributions due to be paid, along
with penalties due thereon and interest at the rate of one percent per
month, or fraction thereof, from the date such contributions were due, without
any further notice or hearing as is provided for in subdivision (2)
of this subsection (c) and such assessment shall be final unless an
appeal is taken as is provided in subdivision (3) of this subsection
(c).
(Emphasis
added.)
The court does
not deem the notice provisions of §25-4-134(c)(2) to be applicable to
this case where the employer filed the returns, but did not make
payment. 1
Thus, applying the federal rule that a lien is choate when the identity
of the lienor, the property subject to the lien, and the amount of the
lien are established, see United States v. Pioneer American Insurance
Co. [63-2 USTC ¶9532], 374 U. S. 84, 89, 83 S. Ct. 1651, 10 L. Ed.
2d 770 (1963); and Rice Investment Company v. United States [80-2
USTC ¶9654], 625 F. 2d 565, 568 (5th Cir. 1980), the court concludes
that the state lien was perfected when the employer made and filed the
report with the Department of Industrial Relations under §25-4-134(c)(1)b.
In light of the federal rule governing priorities of liens, "first
in time is the first in right," United States v. Equitable Life
Assurance Society of the United States [66-1 USTC ¶9444], 384 U. S.
323, 327, 86 S. Ct. 1561, 16 L. Ed. 2d 593 (1966), the court ultimately
concludes that the lien of ADIR is prior to that of the United States.
Within five
days after the entry of this memorandum opinion, the
United States
shall submit to the court and ADIR a proposed judgment in accordance
with this Memorandum Opinion. ADIR will file objections thereto, if any,
within five days after service. Thereafter, the court will enter the
judgment.
Consent
Judgment
It is ORDERED,
ADJUDGED, and DECREED that the Defendant and Counterclaimant State of
Alabama Department of Industrial Relations have and recover of the
interpleaded funds the sum of $9,264.50 which includes unpaid
unemployment taxes of $6,339.50, interest of $2,561.05, and penalties of
$633.95 less a deduction of $270.00 for court filing fees and expenses
of certified mail service paid by Plaintiff.
It is further
ORDERED, ADJUDGED, and DECREED that the Defendant and Counterclaimant
United States of America have and recover all other funds interpled in
this action including interest accruing since the filing of the action.
It is further
ORDERED that payment of the proceeds of this judgment shall be made
directly to the attorneys of record for the above-named Defendants and
Counterclaimants and that upon receipt thereof such attorneys shall
satisfy this judgment on the records of this Court.
It is finally
ORDERED, for good cause shown, that the Memorandum Opinion entered in
this cause on
August 16, 1982
is WITHDRAWN and held for nought.
Done this the
8th day of September, 1982.
1
The language of §25-4-134 in the cumulative supplement is different
from that in the original volume. The court has not attempted to
determine which language is applicable to the time of this case. The
United States
has apparently referred to the language in the supplement. In any event,
the court does not discern a distinction which makes a difference in its
analysis.
[62-2 USTC
¶9556]
United States of America
, Intervenor v. Mary F. Costas, A. Costas, et al.
Alabama
Supreme Court, 6 Div. 739, 142 SO2d 699, 6/14/62
[1954 Code Sec. 6323(a)]
Lien for taxes: Priorities: Mechanics' and materialmen's liens: State
income taxes: Attorney's fee.--A lien for federal income taxes which
were assessed before mechanics' and materialmen's liens were reduced to
judgment had priority over the latter liens, which remained inchoate
under the applicable Alabama law until prosecuted to final judgment. The
federal lien also had priority over a lien for state income taxes, the
assessment of which became final after the assessment of the federal
taxes. The federal lien was, however, subordinate to the lien of the
attorney who had represented the taxpayer in proceedings to partition
the property against which the liens were asserted, since, under
Alabama
law, attorneys' fees in partition proceedings are taxed as a part of the
cost of the proceedings.
W. L.
Longshore, United States Attorney, R. Macey Taylor, Assistant United
States Attorney,
Birmingham
,
Ala.
, for intervenor. Murray A. Battles, James F. Berry, St. John & St.
John, Bland & White, John H. Chapman, Cullman, Ala., MacDonald
Gallion, Attorney General, Montgomery, Ala., for Costas et al.
SIMPSON,
Justice:
Mary F. Costas
and A. Costas were tenants in common of the suit property, a house and
lot in
Cullman
,
Alabama
. Mary F. Costas filed a bill in equity against A. Costas for a sale of
the property for division, which contained the usual prayer that her
solicitor be allowed a reasonable solicitor's fee from the proceeds of
the sale.
The bill was
later amended alleging that certain firms and individuals claimed liens
for labor and materials in connection with improvements on the property,
listing the names of these firms and individuals, and the amounts
claimed and making them parties respondent. The bill was later amended
to make the
United States
and the State of
Alabama
parties, alleging that these last two parties claimed liens for unpaid
income taxes. The bill as amended also alleged that Home Improvement Co.
had a conditional sales contract on certain equipment installed in the
house and that there was a prior lien for taxes in favor of the City of
Cullman
and
Cullman County
,
Alabama
.
The
United States
intervened and alleged in its petition that it had a lien already
assessed and final through the Internal Revenue Service and that this
lien was superior to all other liens. The State of
Alabama
also intervened asserting its lien.
[Priority
of Liens]
The property
was sold at private sale but did not bring enough to pay all claims.
After the coming in of the register's report the trial court ordered to
be first paid: A solicitor's fee to the complainant's solicitor, the
other court costs, the claim of Home Improvement Co., the tax liens of
the City of
Cullman
and
Cullman
County
, recognizing these claims as prior to all other liens.
The decree of
the court further ordered that all other liens or claims, including that
of the
United States
, be paid pro rata from the balance of the proceeds of the sale.
The
United States
brings the appeal. The other respondents were served with notice of the
appeal through their attorneys of record but no briefs have been filed
to support the action of the trial court in ordering proration. The
deduction and payment from the sale price of the property of the actual
court costs, the claim of Home Improvement Co., and the claims of the
City of
Cullman
and the
County
of
Cullman
for prior tax liens is not controverted by appellant on this appeal.
Appellant does, however, contest the proration of the balance of the
money among the various mechanics and materialmen, the awarding of a
solicitor's fee to complainant's solicitor and allowing any proration to
the State of
Alabama
.
[Mechanics'
Liens Not Reduced to Judgment]
The contention
of appellant is that since no judgments were rendered in favor of the
mechanics and materialmen and because the State's income tax assessment
was made final after the date of the jeopardy assessment of the
United States
became final, the lien of the
United States
is prior to these claims. We are in accord with this insistence, but
think the contest of the payment of the solicitor's fee is untenable.
Appellant in
brief states the two questions to be decided:
"1.
Does a tax lien in favor of the
United States
have a priority over a materialman's or labor lien which has not been
perfected to the extent of being reduced to judgment.
"2.
Does the Court, in the absence of the consent of parties, have the
authority to prorate the claims of lien-claimants which are mutually
exclusive."
Inasmuch
as the first question is answered in the affirmative, consideration of
the second question will be pretermitted.
None of the
mechanics' or materialmen's liens were ever reduced to judgment when the
jeopardy assessment for income taxes due the
United States
was made. A lien for taxes due the
United States
is perfected on the date the taxes are assessed.--Title 26, §6321, U.
S. C.; Title 26, §6322, U. S. C.; Title 26, §6323(a), U. S. C.; United
States v. City of New Britain [54-1 USTC ¶9191], 347
U. S.
81.
The effect of
a State statutory lien in relation to a Federal tax lien is a Federal
question and the determination of this relationship is controlled by the
United States Code and applicable decisions of the Federal courts.--United
States v. Security Trust & Savings Bank [50-2 USTC ¶9492], 340
U. S. 47.
[Mechanics'
Lien Not Perfected]
A lien for
labor or material furnished, under Alabama law, is not perfected until
every requirement of the statutes creating such lien has been complied
with.--Title 33, §37, et seq., Code of Alabama, 1940; Brewton, et
al. v. L. F. Sessions, 264 Ala. 123, 84 So. 2d 763; Cray v.
McKinley, 34
Ala.
App. 630, 43 So. 2d 421, cert. den. 253
Ala.
199; Richards v. Williams Beach Hardware Co., 242
Ala.
535, 7 So. 2d 492; Taylor v. Shaw, 256
Ala.
467, 55 So. 2d 502; Sorsby, et al. v. Woodlawn Lumber Co., 202
Ala.
566, 81 So. 68; Emanuel, et al. v. Underwood Coal & Supply Co.,
244
Ala.
436, 14 So. 2d 151; Snellings Lumber Co. v. Porter, 225
Ala.
164, 142 So. 560.
A
materialman's or mechanic's lien created by Title 33, §37, et seq.,
Code of Ala. 1940, remains inchoate and loses all force and vitality
unless suit is brought and prosecuted to final judgment.--Young &
Co. v. Stoutz & Co., 74 Ala. 574; Eggleston v. Birmingham
Purchasing Co., 15 F. 2d 529.
Such statutory
lien created by Title 33, §37, et seq., Code of Alabama, 1940, is
inchoate and unperfected while it is contingent upon taking subsequent
steps for enforcing it, and this inchoate state lien cannot take
priority over the subsequent Federal tax lien.--United States v.
Security Trust & Savings Bank [50-2 USTC ¶9492], 340 U. S. 47; United
States v. Acri [55-1 USTC ¶9138], 348 U. S. 211; United States
v. Liverpool & London Insurance Co. [55-1 USTC ¶9136], 348 U.
S. 215; United States v. Scovil [55-1 USTC ¶9137], 348 U. S.
218; United States v. Ball Construction Co. [58-1 USTC ¶9327],
355 U. S. 587; United States v. Colatta, 350 U. S. 808, reversing
79 So. 2d 474; United States v. White Bear Brewing Co. [56-1 USTC
¶9440], 350
U. S.
1010, reversing [55-2 USTC ¶9776] 227 F. 2d 359; United States v.
Vorreiter [57-2 USTC ¶9956], 355
U. S.
15, reversing [57-1 USTC ¶9415] 307 P. 2d 475; United States v.
Hulley [58-2 USTC ¶9926], 358
U. S.
66, reversing 102 So. 2d 599.
[State
Tax Lien Subordinate]
And of course,
the State's tax assessment, having become final after that of the
United States
, its lien is subordinate to that of the latter.
[Priority
of Attorney's Fee]
The argument
that the decree was in error in allowing a solicitor's fee for the
complainant to be taxed as a part of the costs of the proceeding is
clearly without merit. Appellant cites in support of its contention United
States v. Liverpool & London Insurance Co., supra, construing a
Texas
statute which provided for the allowance of attorney's fee in certain
garnishment proceedings where the United States Supreme Court disallowed
such fee. The situation here is quite different. Solicitor's fees in
partition proceedings in Alabama are provided for by Code of Ala. 1940,
Title 46, §63, and are taxed as a part of the cost of the proceeding,
the theory being that, since the services of the solicitor are for the
common benefit of all parties, the trust fund created by the sale of the
property must bear this expense.--Troy Bank & Trust Co. v.
Brantley, 263 Ala. 428, 82 So. 2d 618, and authorities therein
cited.
It results
from the foregoing that the decree of the lower court must be reversed,
and it is here ordered that the trial court decree the United States of
America to be a prior and superior lien-holder to all the parties
claiming mechanics' and materialmen's liens and also prior to the tax
lien of the State of Alabama and to make distribution of the remainder
of the trust fund accordingly.
The decree of
the lower court awarding solicitor's fee to complainant's solicitor, and
the other court costs, the allowance made to Home Improvement Co. under
its conditional sales contract, and the City of
Cullman
and
County
of
Cullman
for taxes is affirmed.
Affirmed in
part and in part reversed and remanded.
LIVINGSTON,
C. Judge, MERRILL and HARWOOD, Judges, concur.
