¶50,588] Sheryl Ann Flake, et al., Plaintiffs v.
United States of America
, et al., Defendants
District Court, Dist. Ariz., CIV-93-0306-PHX-SMM, 9/29/95
[Code Sec. 6203 ]
Certificates of assessment: Claimed deductions: Documentation.--Certificates
of assessment and payments against a husband and wife established that
the assessments were made, notice and demand for payment were sent, and
the taxpayer was liable for the taxes. The wife's vague and general
references did not show that the documents submitted related to expenses
or other claimed deductions, and certain checks and receipts were not
admissible as evidence of claimed deductions.
[Code Secs. 6321 and
IRS liens: Insurance proceeds: Statute of limitations: Wrongful levy:
Property rights defined.--An IRS levy upon annuities that were
funded with life insurance proceeds, received by a widow upon the death
of her husband and that she created for the benefit of her children, was
not wrongful because the government had a lien on all property and all
rights to property belonging to the taxpayer at the time she purchased
the annuities. A state (
) statute that exempted life insurance proceeds from satisfying the
debts of the insured did not apply because the government was concerned
with the debt of the wife. Therefore, under the principle of transferee
liability, the life insurance proceeds that were subject to a tax lien
and which were transferred by the taxpayer to third parties were
properly seized by the government.
[Code Sec. 6502 ]
IRS liens: Insurance proceeds: Statute of limitations.--IRS liens
on the property and all rights to property of a wife who, upon the death
of her husband, used part of the life insurance proceeds she received to
purchase two annuities for the benefit of her children were not
extinguished at the time of the transfers because the statute of
limitations had not run. The applicable state (
) laws applied for the purpose of defining the nature and extent of the
property rights involved, not for determining the statute of
MEMORANDUM OF DECISION AND ORDER
February 12, 1993
, Plaintiffs filed a wrongful levy suit against the
. Plaintiffs' complaint alleges that the
wrongfully levied against two annuities and three pieces of real
October 28, 1994
, the Defendants filed a motion seeking summary judgment in its favor
with respect to the two annuities. Plaintiffs timely opposed the motion
for summary judgment. Plaintiffs filed a motion for summary judgment.
Defendants timely opposed the motion for summary judgment. Defendants
also filed a motion for partial summary judgment with respect to the
outstanding income tax assessments against Sherman and Karen Flake.
Plaintiffs filed a letter addressed to the Court which the Court
construed as a response to Defendants motion for partial summary
have stipulated to the facts in this action. However, the Court will
provide an overview of the nature of the claim. This action arises from
' efforts to collect the delinquent tax liabilities of Plaintiffs'
parents, Sherman K. Flake and Karen S. Flake. Plaintiffs allege that the
Internal Revenue Service ("IRS") wrongfully levied and seized
Plaintiffs' property to pay for a third-party's tax liability.
liabilities of Sherman and Karen Flake accrued prior to the death of
Sherman Flake. A delegate of the Secretary of the Treasury properly
assessed and gave notice to Sherman Flake and Karen Flake for unpaid
federal income taxes for the taxable years 1971-1978 and 1986-1988.
Sherman Flake died in October 1988. He had a life insurance policy
issued by Beneficial Life Insurance Company ("Beneficial") in
the amount of $100,000, of which Karen Flake was the primary
beneficiary. Karen Flake claimed and controlled the proceeds from this
policy. The cash surrender value of the life insurance policy at the
time of Sherman Flake's death was $5,063.69.
November 5, 1988
, Karen Flake used part of the proceeds from the policy to purchase
annuity 1054860 for the benefit of Stacey Diane Flake and annuity
1054861 for the benefit of Shanna Lynn Flake from Beneficial. At the
time Karen Flake used part of the policy proceeds to purchase the
annuities, she was indebted to the
for the tax liabilities from the years 1971-1978 and 1986-1988. On
December 2, 1991
, a Notice of Federal Tax Lien was recorded in
in the names of Stacey Diane Flake and Shanna Lynn Flake, nominees of
and/or successors in interest to Karen Flake. The IRS issued to
Beneficial a Notice of Levy, dated
January 14, 1992
, naming the taxpayer as Karen Flake and identifying the levies as
attaching to annuities 1054860 and 1054861. On
April 10, 1992
, pursuant to the levies, Beneficial transferred to the IRS the
following sums: $38,887.65 from annuity 1054861 and $38,578.07 from
STANDARD OF REVIEW
A court must
grant summary judgment if the pleadings and supporting documents, viewed
in the light most favorable to the nonmoving party, "show that
there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law." Fed. R. Civ. P.
56(c) (1995); see Celotex Corp. v. Catrett, 477
317, 322-23 (1986). Substantive law determines which facts are material.
242, 248 (1986). "Only disputes over facts that might affect the
outcome of the suit under the governing law will properly preclude the
entry of summary judgment."
The dispute must also be genuine, that is, "the evidence is such
that a reasonable jury could return a verdict for the nonmoving
purpose of summary judgment is "to isolate and dispose of factually
unsupported claims." Celotex, 477
at 323-24. Summary judgment is appropriate against a party who
"fails to make a showing sufficient to establish the existence of
an element essential to that party's case, and on which that party will
bear the burden of proof at trial."
at 322. The moving party need not disprove matters on which the opponent
has the burden of proof at trial.
at 317. The party opposing summary judgment "may not rest upon the
mere allegations or denials of [the party's] pleadings, but ... must set
forth specific facts showing that there is a genuine issue for
trial." Fed. R. Civ. P. 56(e); see also Matsushita Elec. Indus.
Co. v. Zenith Radio, 475
574, 585-88 (1986).
Plaintiffs' Motion for Summary Judgment and Defendants' Cross Motion for
allege that the
wrongfully levied against two annuities and three pieces of real
property. The United States counterclaimed in this suit under 26 U.S.C. §7403
to reduce to judgment the delinquent income tax assessments of
Sherman and Karen Flake, to set aside certain conveyances as fraudulent,
and to foreclose its tax liens against two parcels of real property,
held in Plaintiffs' names as nominees to partially satisfy those
filed a motion for partial summary judgment seeking judgment in its
favor with respect to the two annuities. Plaintiffs' complaint alleges
wrongfully levied upon two annuities, 1054860 and 1054861, which
Plaintiffs own. The United States assert that the levies upon these
annuities were not wrongful because the United States had a lien on all
property and all rights to property belonging to Karen Flake at the time
she purchased the annuities, including the insurance proceeds used to
purchase annuities 1054860 and 1054861. Plaintiffs do not dispute that
at the time Karen Flake purchased the annuities, tax liens were in
place. Plaintiffs, however, argue that these liens do not reach the
insurance proceeds that Karen Flake used to purchase the annuities, and
if the tax liens attach, they only attach to the cash surrender value of
the life insurance policy at the time of Sherman Flake's death. Further,
Plaintiffs argue that even if the liens did attach, the
has failed to timely set aside the transfer of these proceeds from Karen
Flake to the Plaintiffs.
Statute of Limitations
assert that the right of the
to set aside the transfer, the purchase of the annuities, has been
asserts that it is entitled to such a finding because the transfer of
the property subsequent to the attachment of the lien does not affect
the lien because the lien passes to whomever the property is passed.
Plaintiffs argue that either A.R.S. §44
-1009 or Utah Code Ann. §25
-6-10 are the applicable statutes. The
argues that the applicable statute of limitations is found in 26 U.S.C. §6502(a)(1)
, not a state statute of limitations.
, when acting in its governmental capacity, is not bound by state
statutes of limitation, absent its consent.
v. John Hancock Mut. Life Ins., 364
301, 308 (1960); United States v. Summerlin [40-2
USTC ¶9633 ], 310 U.S. 414 (1940); United States v. St. John's
General Hosp., 875 F.2d 1064 (3d Cir. 1989). Even though suits
brought by the
to set aside fraudulent conveyances of a taxpayer's property in order to
foreclose on such property depend on state law to define the nature and
extent of the property rights involved, it is federal law that governs
the consequences of those rights. United States v. Nat'l Bank of
USTC ¶9482 ], 472 U.S. 713, 722-73 (1985); Aquilino v. United
USTC ¶9538 ], 363 U.S. 509, 513 (1960).
filed a claim against a
estate, and the claim was denied as untimely and therefore void under
statute. Summerlin [40-2
USTC ¶9633 ], 310
at 415-16. The Supreme Court reversed, holding that
becomes entitled to a claim, acting in its governmental capacity, and
asserts its claim in that right, it cannot be deemed to have abdicated
its governmental authority so as to become subject to a state statute
putting a time limit upon enforcement. [I]f the statute, as sustained by
the state court, undertakes to invalidate the claim of the United
States, so that it cannot be enforced at all, because not filed within
eight months, we think the statute in that sense transgressed the limits
of state power.
rely primarily on United States v. Vellalos, 780 F.Supp. 705
(D.Hawaii 1992), aff'd on other issues, 990 F.2d 1265 (9th Cir.
1993). Plaintiffs state that "the Vellalos case is sound and
since the 9th [sic] Circuit has affirmed the Vellalos case, this
court should accept the Vellalos holding." Plaintiff's
Motion for Summary Judgment, p. 12. However, the Ninth Circuit Court of
Appeals held that it did not have jurisdiction over the
January 10, 1992
order of the district court, in which the court granted the defendants'
motion to dismiss the government's claim based on
's Fraudulent Transfer Act. As such, the Court of Appeals never
addressed the government's fraudulent conveyance claim.
the court held that
's codification of the Uniform Fraudulent Transfer Act (UFTA) is subject
to a state statute of limitation. Vellalos, 780 F.Supp. at 707.
The court stated that "there is an important distinction between
cases involving the government's common law right to collect on a debt
and cases involving a carefully delineated state statutory right."
The court reasoned that
had the power to limit the availability of the cause of action to any
litigant because it created the cause of action by statute in the first
at 708. The court, therefore, found that a state statutory cause of
action after a certain time period is not bound by the Supreme Court's
holding in Summerlin that a common law debt collection action by
is not subject to a state statute of limitations.
courts have held declined to distinguish between the application of Summerlin
to common law actions and actions under the UFTA. See United States
v. Fernon [81-1
USTC ¶9287 ], 640 F.2d 609 (5th Cir. 1981) (state of limitations
applicable to fraudulent conveyances in Florida was not a bar to action
by United States; 26 U.S.C. §6502
provided the applicable limitations period); United States v.
Moore, 968 F.2d 1099, 1100 (11th Cir. 1992) (small business
istration's action to set aside fraudulent conveyance subject to federal
not state statute of limitations); United States v. Romano, 757
F.Supp. 1331, 1339 n.5 (M.D. Fla. 1989), aff'd, 918 F.2d 182
(11th Cir. 1990) (government's action to foreclose pursuant to UFTA in
Florida is subject to federal time constraints and not state statutes of
limitation); United States v. Wurdemann [81-2
USTC ¶9757 ], 663 F.2d 50, 51 (8th Cir. 1981) (government's tax
claim against taxpayers for fraudulent conveyance was not barred by
state statute of limitations); United States v. Gleneagles Inv. Co.,
565 F.Supp. 556, 583 (M.D. Pa. 1983), aff'd in part and reversed in
part on other issues, sub nom., United States v. Tabor Court Realty
Corp., 803 F.2d 1288 (3d Cir. 1986) (United States was acting in its
governmental capacity and, therefore, the state statute of limitations
did not apply), cert. denied, 483 U.S. 1005 (1987).
asserts that 26 U.S.C. §6502(a)(1)
is the statute of limitations applicable to court actions to collect
assessed tax liabilities. 26 U.S.C. §6502(a)(1)
provides that the levy must be made or the proceeding must be begun
within ten years after the assessment of the tax. 1
26 U.S.C. §6502(a)(1)
. Plaintiffs filed their complaint on
February 12, 1993
files its answer and counterclaim on
May 11, 1993
. The earliest assessments against either Sherman Flake and Karen Flake
were made on
May 20, 1985
. Stipulation of Facts, p. 3. Therefore, the statute of limitations is
not a bar.
' Levy Upon the Annuities
contend that the United States' levy upon the annuities was wrongful
because the life insurance proceeds used to purchase those annuities
were exempt from the insured's creditors pursuant to A.R.S. §20-1131.
asserts that the levies upon the annuities were not wrongful because the
had a lien on all property and all rights to property belonging to Karen
Flake at the time she purchased the annuities, including the insurance
proceeds used to purchase both annuities. Citing 26 U.S.C. §6321
, the United States contends that regardless of the source, once the
money used to purchase the annuities came into the control and
possession of Karen Flake it was impressed with federal tax liens
arising from her unpaid taxes.
6321 of the Internal Revenue Code provides as follows:
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, belong to
U.S.C. §6321 . Tax
liens arise at the time of assessment and take effect after the
government's demand for payment. Runkel v. United States [76-1
USTC ¶9152 ], 527 F.2d 914, 916 (9th Cir. 1975). Once the demand
has been made, the liens are treated as effective since the time of
Moreover, "[t]he statutory language, 'all property and rights to
property,' appearing in §6321
..., is broad and reveals on its face that Congress meant to reach
every interest in property that a taxpayer might have." United
States v. National Bank of Commerce [85-2
USTC ¶9482 ], 472 U.S. 713, 720-21 (1985). In fact,
"[s]tronger language could hardly have been selected to reveal a
purpose to assure the collection of taxes." Glass City Bank v.
United States [45-2
USTC ¶9449 ], 326 U.S. 265, 267 (1945).
the Federal Revenue Act, state law controls in determining the nature of
the legal interest that the taxpayer has in the property. National
Bank of Commerce [85-2
USTC ¶9482 ], 472
at 722; Aquilino [60-2
USTC ¶9538 ], 363
at 513. Once the court rules that the property or the rights to it exist
under state law, the consequences are governed by federal law. National
Bank of Commerce [85-2
USTC ¶9482 ], 472
at 727; Aquilino [60-2
USTC ¶9538 ], 363
liens arise when unpaid taxes are assessed, U.S. v. Bell Credit Union
¶9564 ], 860 F.2d 365, 367 (10th Cir. 1988), and continues until
the resulting liability is either satisfied or becomes unenforceable
through lapse of time. U.S. v. Cache Valley Bank [89-1
USTC ¶9157 ], 866 F.2d 1242, 1244 (10th Cir. 1989), citing 26
U.S.C. §6322 . The
transfer of property after tax liens have attached does not affect the
tax lien because no matter into whose hands or what form the property
goes it passes with the liens attached. United States v. Bess [58-2
USTC ¶9595 ], 357 U.S. 51, 57 (1958); U.S. v. Donahue Industries
¶50,343 ], 905 F.2d 1325, 1331 (9th Cir. 1990). The Treasury
Regulations provide that: "[p]roperty subject to Federal tax lien
which has been sold or otherwise transferred by the taxpayer may be
seized while in the hands of the transferee or any subsequent
transferee. ..." 26 C.F.R. §301.6331-1(a)(1)
. Thus, the Treasury Regulations makes clear that levy may be made
by serving a notice of levy on any person in possession of property or
rights to property subject to levy.
relies on A.R.S. §47 -9306
for the proposition that an interest in insurance proceeds is of the
type to which creditors' liens may attach. Plaintiffs argue that the
government's reliance upon this statute is misplaced, and instead, rely
upon A.R.S. §20-1131. However, both parties' reliance upon the
respective statutes is misplaced. A.R.S. §47
-9306 is part of the
version of the Uniform Commercial Code. This statute allows a secured
party's rights to continue in proceeds from the disposition of
collateral. Section 9306 provides that a creditor's interest continues
in proceeds received from disposition of collateral including casualty
insurance proceeds paid as a result of damage to the collateral. As
reliance upon A.R.S. §47 -9306
discussion about A.R.S. §20-1131 and insurance proceeds is also
misplaced. Although section 1131 concerns the exemption of life
insurance proceeds and cash values from creditors, the statute is
concerned with the debt of the insured, not the wife of the insured who
is also liable for their joint tax debt. A.R.S. §20-1131. Plaintiffs
also rely upon Bess to support their contention. Bess [58-2
USTC ¶9595 ], 357 U.S. 51.
the Supreme Court affirmed the Court of Appeals which overruled the
district court and found that a widowed wife was liable for only the
cash surrender value of the life insurance policy from which she
However, the husband died with outstanding tax liabilities for which the
wife was not responsible.
Thus, unlike the present case, the wife in Bess had no tax
liabilities of her own.
' levies upon the annuities were based upon the tax liabilities of Karen
Flake, not Sherman Flake. Stipulation of Facts, ¶¶2, 5, and 7.
Moreover, a levy was issued to Beneficial naming the taxpayer as Karen
Flake and identifying the levy as attaching to the annuities.
Stipulation of Facts, ¶¶11 and 12. Thus, the United States were
concerned with the debt of Karen Flake, not Sherman Flake, and as such
A.R.S. §20-1131 does not address this type of situation.
Treasury Regulations, property subject to a federal tax lien which has
been sold or otherwise transferred by the taxpayer may be seized while
in the hands of the transferee or any subsequent transferee. 26 C.F.R. §301.6331-1(a)(1)
; see also U.S. v. Bank of Celina [83-2
USTC ¶9688 ], 721 F.2d 163 (6th Cir. 1983); Valley Finance v.
USTC ¶9554 ], 629 F.2d 162 (D.C. Cir. 1980), cert. denied,
1018 (1981). Levy may be made by serving a notice of levy on any person
in possession of property or rights to property subject to levy. 26
. Moreover, the transfer of property subsequent to the attachment of
the lien does not affect the lien because no matter whose hands or what
form the property goes, it passes with the liens attached. Bess [58-2
USTC ¶9595 ], 357
and Karen Flake did not file income tax returns nor pay income taxes for
the years 1971-1978 and 1986-1988. Although Sherman Flake attempted to
provide for his family by purchasing a life insurance policy naming his
wife, Karen Flake, as the beneficiary, the fact remains that Karen Flake
was jointly and severally liable for the Flake's tax debt. Consequently,
as the beneficiary to Sherman Flake's insurance policy, once the policy
was cashed out, it became the sole property of Karen Flake. Karen
Flake's motive to use this money to purchase annuities to provide for
her minor children might have been altruistic. However, despite the
possible altruistic motive, it is irrelevant what Karen Flake chose to
do with the money. When Karen Flake used her property, the money, to
purchase the annuities, it was already impressed with federal tax liens
arising from her unpaid taxes. See, 26 U.S.C. §6321
. Accordingly, judgment should be entered in favor of the
with respect to Plaintiffs' claim that the
wrongfully levied upon the annuities.
Defendants' Motion for Partial Summary Judgment with Respect to the
Outstanding Income Tax Assessments Against Karen Flake and
October 28, 1994
also filed a Motion for Partial Summary Judgment with respect to the
outstanding income tax assessments against Sherman and Karen Flake.
Pursuant to the stipulation of the parties and order of the Court filed
July 13, 1994
, Karen Flake is appearing in this action in her individual capacity, as
the trustee of the S & K Flake Children's Trust, and as the personal
representative of the Estate of Sherman Flake. On
May 10, 1995
, the Court construed a letter from Karen Flake as a response to the
' motion for partial summary judgment with respect to the outstanding
income tax assessments against
and Karen Flake.
Rule 56 of the
Federal Rules of Civil Procedure dictates 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 and the moving party
is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c).
Once the moving party has made the required showing, the adverse party
must "go beyond the pleadings and by [its] own affidavits ...
designate specific facts showing that there is a genuine issue for
trial." Celotex, 477
at 323-34; Fed. R. Civ. P. 56(e).
assessments made against
and Karen Flake are reflected on the Forms 4340, Certifies of
Assessments and Payments. Declaration of Sean K. McElenney, Exhibits 1,
2, and 3. The Certificates of Assessments and Payments are a proper
means of establishing the fact that assessments were made and that
notices and demand for payment were sent. Koff v. United States [93-2
USTC ¶50,520 ], 3 F.3d 1297, 1298 (9th Cir. 1993), cert. denied,
114 S.Ct. 1537 (1994); Hughes v. United States [92-1
USTC ¶50,086 ], 953 F.2d 531, 535 (9th Cir. 1992). An assessment
for unpaid federal taxes, when properly certified, is presumptively
correct evidence of a taxpayer's liability. United States v. Janis
[76-2 USTC ¶16,299], 428 U.S. 433, 440-41 (1976); Koff [93-2
USTC ¶50,520 ], 3 F.3d at 1298; Hughes [92-1
USTC ¶50,086 ], 953 F.2d at 540. The burden of supporting allowable
deductions from income is upon the taxpayer. Rockwell v. Commissioner
¶9324 ], 512 F.2d 882, 885-86 (9th Cir.), cert. denied, 423
1015 (1975); McKay v. United States [92-1
USTC ¶50,228 ], 957 F.2d F.2d 689, 691 (9th Cir. 1992).
Furthermore, where the taxpayer fails to meet his burden of showing the
assessments to be incorrect, summary judgment in favor of the Government
is appropriate upon submission of the Certificates of Assessments and
Payments. Adams v.
, 358 F.2d 986, 994 (Ct. Cl. 1966).
letter does not specifically address the issues set forth by the
. Indeed, Ms. Flake's letter contains vague and conclusory statements
regarding bank deposits made into two checking accounts, and cash
advances and rental income from her mother being counted as income. Ms.
Flake's Letter, filed
May 10, 1995
, p. 2. Further, Ms. Flake states that "[t]here were also cash
deposits I have no idea where the money came from. I don't believe all
the deposits were income." Id. Ms. Flake also appears to
have attached various cancelled checks and receipts for the calendar
argues that the attachments to Ms. Flake's letter are not properly
before the Court. However, the standard used to evaluate motions filed
by pro se litigants is a liberal one. See e.g., Estelle v.
Gamble, 429 U.S. 97 (1976); Ivey v. Board of Regents of the
University of Alaska, 673 F.2d 266, 268 (9th Cir. 1982). The Court
has construed Ms. Flake's letter to the Court as a response to the
' motion for partial summary judgment. Therefore, the Court also will
construe the attachments to Ms. Flake's letter as being properly before
Ms. Flake has not met her burden of proof in showing that the claimed
deductions are allowable. Mr. and Mrs. Flake did not file tax returns
setting forth their employment, income, and expenses. Yet, Ms. Flake now
submits numerous pages of checks and receipts for the year 1971 without
any itemization or explanation. Moreover, Ms. Flake does not submit any
documents regarding the tax years 1972-1988. As such, Ms. Flake's vague
and general references do not show that the attached documents
demonstrate expenses or other claimed deductions. Accordingly, the
Certificates of Assessment and Payments made against Sherman and Karen
Flake establish that assessments were made, notice and demand for
payment were sent and that Ms. Flake is liable for the unpaid taxes,
penalties and interest shown on those Certificates. Therefore, judgment
should be entered in favor of the
reasons stated above,
THEREFORE ORDERED Plaintiffs' Motion for Summary Judgment is DENIED.
FURTHER ORDERED Defendants' Motion for Partial Summary Judgment is
GRANTED. (Doc. #60).
FURTHER ORDERED Defendants' Motion for Partial Summary Judgment
regarding Outstanding Income Tax Assessment against Karen Flake and
Sherman Flake is GRANTED. (Doc. 52).
IN A CIVIL CASE
-- Jury Verdict. This action came before the Court for a trial by
jury. The issues have been tried and the jury has rendered its verdict.
-- Decision by Court. This action came to hearing before the
Court. The issues have been heard and a decision has been rendered.
ORDERED AND ADJUDGED that defendants' Motions for Partial Summary
Judgment having been granted, that plaintiffs take nothing and the
complaint and action are hereby dismissed.
The date on which a levy on property or rights to property is made shall
be the date on which the notice of seizure provided in section
6335(a) is given.
United States of America
, Appellant v. The Valley National Bank, Executor of the Estate of
Maurice H. Berkson, deceased; Shimmel, Hill and Bishop, P. C., a
professional corporation; State of Arizona; Great Western Bank and
Trust, an Arizona banking corporation; Park Central Development Company;
Ernest G. Herman; and United Bank of Arizona, Appellees
U. S. Court of Appeals, 9th Circuit, No. 74-1313, 524 F2d 199, 8/22/75,
Affirming unreported District Court decision
[Code Sec. 6323]
Lien for taxes: Priority against third parties: Security interest:
Commissions.--A valid security interest was found to have been
perfected under Arizona law at the time the taxpayer assigned to a bank
certain commissions due him, even though the assignment was not
recorded, since, under pre-Uniform Commercial Code law, the bank
acquired a vested interest in the commissions immediately upon
assignment. Further, since the assignment gave the bank an immediate
perfected interest in the commissions, subsequent garnishment judgments
by the taxpayer's creditors against the bank took priority over federal
Donohue, Department of Justice,
, D. C., 20530, for appellant. Merle M. Allen, Jr., Harry M. Beggs, 1400
United Bk. Bldg., 3550 N. Central Ave., Phoenix, Ariz., for appellees.
WRIGHT, and GOODWIN, Circuit Judges.
appeals from a judgment in favor of two banks in a contest among
creditors claiming interests in broker's commissions earned by a
taxpayer during his lifetime and assigned to a bank. We affirm.
commissions at the time of trial had a value of $83,702.87. The
taxpayer's estate is insolvent. The government bases its claim of first
priority on two income-tax assessments for the year 1966. The first
October 27, 1967
, was for $25,980.64 plus interest. The notice of a tax lien for this
assessment was filed on
February 29, 1968
. The second assessment, dated
June 14, 1968
, was for $15,211.69 plus interest. The second notice was filed
December 30, 1970
February 22, 1966
, approximately two years before the first notice of tax lien was filed,
the taxpayer assigned the so-called "
" commission to the predecessor in interest of appellee Great
Western Bank & Trust as security for all the taxpayer's existing and
future indebtedness. On
January 30, 1967
, approximately one year before the first notice of tax lien was filed,
the taxpayer assigned the so-called "
" commission to Great Western's predecessor as security for all the
taxpayer's existing and future indebtedness. These assignments were not
August 29, 1967
, appellee Ernest C. Herman obtained a judgment against the taxpayer for
$5,000 plus interest and costs. Approximately four months before the
first notice of tax lien was filed, Herman obtained a garnishment
judgment against Great Western's predecessor.
April 14, 1967
, the predecessor in interest of appellee United Bank obtained a
judgment against the taxpayer for $15,000 plus interest, costs, and
attorney's fees. Like Herman, United Bank's preducessor caused a writ of
garnishment to be issued against Great Western's predecessor in interest
with respect to the "
" commissions. In like manner, approximately four months before the
first notice of tax lien was filed, United Bank's predecessor obtained a
garnishment judgment against Great Western's predecessor for sums
received by Great Western's predecesor in excess of sums owed it by the
The rights of
all parties here except the
, the State of
, and the disinterested stakeholder of the "
" commission were determined by a judgment of the Maricopa County
Superior Court in June 1971. That judgment is res judicata and
binds the parties to the state-court action. Thus, we are concerned only
with the rights of the
, the sole appellant, in the distribution scheme.
urges that it should be prior to Great Western because the assignment to
Great Western was either a mortgage or an assignment of an account
receivable, and was not recorded.
relevance of recordation lies in §6323(a) of the Internal Revenue Code,
which provides that a tax lien shall not be vaid against a holder of a
"security interest" until notice of lien is filed.
notices of lien were filed
February 29, 1968
December 30, 1970
, after the assignment of the "
" commission. But the government urges that it nonetheless enjoys
first priority because the assignment had not created a "security
interest" is defined by 26 U. S. C. §6323(h)(1) as "any
interest in property acquired by contract for the purpose of securing
payment or performance of an obligation or indemnifying against loss or
liability. A security interest exists at any time * * * if, at such
time, the property is in existence and the interest has become protected
under local law against a subsequent judgment lien arising out of an
unsecured obligation * * *."
argues that the unrecorded assignment did not give Great Western an
interest protected against a subsequent judgment lien creditor.
Western's principal responses are:
did not make the mortgage argument below and should not be allowed to
tender it for the first time on appeal.
assignment was not of an "account receivable" within the
the Uniform Commercial Code was enacted in
before the government filed its notice of lien, the U. C. C. should
govern. Under the U. C. C. no recording is required to perfect Great
Western's interest in the commission because (a) under Ariz. Rev. Stat.
§44-3104(4) [§9-104(d) of the U. C. C.] the Article 9 filing
requirements do not apply to a "transfer of a claim for wages,
salary or other compensation of an employee"; or (b) under Ariz.
Rev. Stat. §44-3123(A)(5) [§9-302(1)(e) of the U. S. C.] filing is not
required to perfect a security interest obtained through "[a]n
assignment of accounts or contract rights which does not alone or in
conjunction with other assignments to the same assignee transfer a
significant part of the outstanding accounts or contract rights of the
court and the parties agree that the commissions "existed"
within the meaning of Int. Rev. Code §6323(h)(1). This fact invokes
law in the definition of "security interest". We accord the
district judge's interpretation of
law substantial deference. See Gilham v.
Northern, Inc., -- F. 2d -- (9th Cir.
March 27, 1975
judge did not reach the issue whether enactment of the U. C. C.
"cured" any defect in Great Western's security interest
because he held that Great Western held a vested interest under pre-Code
law. Ariz. Rev. Stat. §44-3201. We believe that he was right.
recordation was mandatory in order to preserve the priority of
assignments of accounts or accounts receivable under pre-U. C. C. law,
the assignments here were not of accounts or accounts receivable. See Valley
National Bank of
v. Byrne, 101
363, 419 P. 2d 720 (1966). In Byrne, the Supreme Court of Arizona
held that an assignment of the proceeds of a contract of plumbing work
on 50 homes was valid as against a subsequent creditor. The court did
not discuss the issue of recordation, apparently because the parties did
not raise it. While the precedential value of the case on the
recordation is not overwhelming (cf. United States v. Tucker Truck
Lines, 344 U. S. 33, 37-38 (1954); Webster v. Fall, 266 U. S.
507, 511 (1925)), the holding is stated in unequivocal terms: "Once
a valid assignment of the proceeds had been made, the Bank acquired a
vested interest in them, as soon as they became due including all the
right, title, and interest in the proceeds * * *." 419 P. 2d at
is correct in arguing that the district court's reliance on our Costello
v. Bank America National Trust & Savings Ass'n, 246 F. 2d 807
(9th Cir. 1957), is misplaced. That case turned on a peculiarity in the
state law definition of one category of "accounts". See 246 F.
2d at 812-13. It is thus not binding in cases involving
law. But in light of other indications that the district court correctly
law, this point is inconsequential.
government's afterthought about the assignments being mortgages was
never addressed to the trial court, we will not pursue it.
We express no
opinion upon the
interpretation of the Uniform Commercial Code as it may apply to
assignments of wage claims. If the
court has construed and applied the provisions of §9-104 of the U. C.
C., the case has not been called to our attention. We do not decide
whether the inter vivos assignments here in question were of a
significant part of the outstanding accounts or contract rights of the
assignor at the time they were made, because that point does not appear
to have been deemed important as the case was presented below, and the
trial court made no finding upon it.
of the trial court that a valid security interest had been perfected
law at the time of the assignments was free from error.
garnishment judgment also gave United Bank and Herman priority over the
¶9487]Lorren J. Kuffel, Appellant v.
United States of America
Supreme Court, No. 8422, 441 P2d 771, 5/29/68
[1954 Code Sec. 6323(a)]
Lien for taxes: Priorities: Arizona law: Garnishor as purchaser.--Under
Arizona law, filing and service of a writ of garnishment by the
garnishor do not amount to an equitable assignment to the garnishor of
the debt owed by the garnishee to the delinquent taxpayer. Accordingly
the garnishor did not become a purchaser under Sec. 6323(a) entitled to
record notice of the federal tax lien.
[1954 Code Sec. 6323(a)(1), prior to enactment of P. L. 89-719]
Lien for taxes: Notice of lien: Personalty: Place of filing.--In
a case involving intangible personal property (a debt owed to delinquent
taxpayer), notice of federal tax lien was properly filed with the county
recorder in the county where the delinquent taxpayer resided.
[1954 Code Sec. 6323, prior to enactment of P. L. 89-719]
Lien for taxes: Priorities: Garnishment proceedings: Attorney's
fees.--Where the Government's tax lien was entitled to priority over
a garnishment lien, it was also prior to the garnishor's claim for
reasonable attorney's fees.
Dietle, II, Stockton & Hing,
234 N. Central Ave.
, for appellant. Louis F. Oberdorfer, Assistant Attorney General, Lee A.
Jackson, Joseph Kovner, J. Edward Shillingburg, Department of Justice,
Washington, D. C. 20530, Jo Ann D. Diamos, United States Attorney,
Tucson, Ariz., Richard C. Gormley, Assistant United States Attorney,
Tucson, Ariz., for appellee.
Lorren J. Kuffel appeals from a judgment rendered in favor of appellee
United States of America who was an intervenor below in the garnishment
proceedings instituted by appellant against Stephen M. A. Young,
defendant-debtor. Appellant contends the lower court erred in holding
that a federal tax lien was prior to Kuffel's garnishment lien and
refusing to set any part of the garnisheed funds aside as attorney's
fees for Kuffel's attorney.
The facts of
this case are undisputed. Kuffel was a resident of
, and was in the business of selling truck and automobile parts and
supplies. Stephen M. A. Young, hereinafter called Young, was a resident
doing business individually, and as Western Cut Rate Lumber Co.,
hereinafter designated as Western, and as Edison Trucking Co.,
hereinafter designated as
. As of
April 15, 1956
, Young was indebted to Kuffel for a purchase of tires, truck parts, and
other merchandise in the amount of $5,170.02, and on that date Young
delivered to Kuffel an installment note for that amount. Young made only
one payment for $561.67 on the note in June of 1956. Subsequent to
April 15, 1956
, Kuffel sold to Young additional merchandise in the amount of $4,915.72
in excess of payments made by Young on the open account at different
times. Kuffel made demands for payment of that sum, but Young failed to
pay the amount owing.
April 18, 1958
, federal excise taxes in the amount of $11,972.17 were assessed against
, and, on
May 22, 1958
, the District Director of Internal Revenue,
, filed a notice of lien for those assessed taxes with the
, which was the place of residence of taxpayer Young.
On August 1,
1958, Kuffel commenced action against Young, individually, dba Western
and dba Edison, in the Superior Court of Maricopa County, Arizona, based
on Young's indebtedness to him. In accordance with
statutes, Kuffel, as garnishor, caused writs of garnishment to issue,
and to be served upon Ray Lumber Co., hereinafter designated Ray, and
upon United Wholesale Distributors, hereinafter designated Distributors.
August 8, 1958
, garnishee Ray answered the writ of garnishment, stating that it was
not indebted to defendant Young. Three days later the other garnishee,
Distributors, answered that it was not indebted to any of the named
defendants, but that it was indebted to K. A. Spears Lumber Co.,
hereinafter called Spears, in the amount of $8,753.60 by reason of
orders for lumber placed by Distributors with Spears which were invoiced
to Distributors upon the invoices of Western, and that it was informed
that Western was not owned by Young.
October 27, 1958
through the District Director served on the garnishee-Distributors a
notice of levy which notified Distributors that all sums of money or
other obligations in its possession and belonging or owing to Young were
levied upon, seized, and demanded for satisfaction of Young's tax
liability. Also, the
government served a final demand on Distributors on
March 23, 1959
April 6, 1959
filed notices of a lien for taxes assessed on
April 18, 1958
, with the
of Maricopa and
June 23, 1961
' motion to intervene was granted, and its complaint filed. The
government claimed that its lien for taxes, based on the 1958
assessments, was prior to rights of Kuffel that were created by the
In July of
1961 Distributors amended its answer to the Writ of Garnishment, and
stated that at the time of the service of the writ and at the time of
answering said writ it was indebted to defendant Young, individually,
dba Western and dba
, in the sum of $8,573.60. Default was taken against Young,
individually, dba Western, dba
August 2, 1961
moved for summary judgment based upon the priority of its existing lien
for taxes. On
February 4, 1964
, the trial court granted the
government's motion for summary judgment in the total amount of
$8,573.60 against Young, individually, dba Western and dba Edison;
Kuffel; and Distributors, which sum was being held by Distributors as
garnishee. The court held that the government liens were prior and
superior to all other liens, claims and interests of all the other
parties in the action, thereby refusing to allow Kuffel the reasonable
value for the services of his attorneys.
contends his filing and service of the writ of garnishment constituted
an equitable assignment to him as the garnishor of the debt owed by
Distributors to Young, and hence as garnishor he became a
"purchaser" within the meaning of Section 6323(a) of the
Internal Revenue Code of 1954 which entitled him to record notice of the
tax lien. Kuffel further argues that he did not receive the requisite
notice for the reason that notice of the tax lien was not filed in
until after the garnishment proceedings were instituted in
, although notice of the tax lien was filed in
prior to the filing and service of the writ of garnishment in
6322, and 6323 of the Internal Revenue Code of 1954 set forth the
provisions bearing on this case. 1
tax lien is created by Section 6321 of the Internal Revenue Code of
1954, and it attaches to "all property and rights to property,
whether real or personal, belonging" to the delinquent taxpayer.
The lien attaches not only to all property held by the taxpayer on the
date the lien arose, but also to after-acquired property. Glass City
Bank v. United States [45-2 USTC ¶9449], 326
265, 66 S. Ct. 108, 90 L. Ed. 56. The lien arises "at the time the
assessment is made." Section 6322, Internal Revenue Code of 1954.
The federal lien is perfected and choate at the time it arises.
[54-1 USTC ¶9191], 347
81, 74 S. Ct. 367, 98 L. Ed. 520.
of a federal tax lien as against other interests created under state law
is expressly governed in part by statute. Section 6323(a) of the 1954
Code--the provision relied upon by the garnishor, Kuffel--provides that,
as against a holder of certain enumerated interests, including that of a
purchaser, the tax lien is not valid until notice has been filed. The
question then is: Did Kuffel become a purchaser within the meaning of
federal law when he commenced the garnishment proceedings? We hold that
he did not. The determination of those to whom Section 6323 is
applicable is a federal question. United States v. L. R. Foy
Construction Co., Inc. [62-1 USTC ¶9325], 300 F. 2d 207 (C. A.
States of America v. Liverpool & London & Globe Insurance
Company [55-1 USTC ¶9136], 348 U. S. 215, 99 L. Ed. 268, 75 S. Ct.
247, in discussing priorities of a tax lien over writs of garnishment
issued and served and attorney's fees, the court said:
question of priorities is identical with that of Acri, No. 33, this day
v. Security Trust & Sav. Bank [50-2 USTC ¶9492], 340 U.S.
47, 95 L. ed. 53, 71 S. Ct. 111. On the authority of those cases we hold
the tax liens of the
superior to the lien of the garnisher.
to the attorney's fee allowed the garnishee insurance company, Rule 677,
Vernon's Texas Rules of Civil Procedure, provides:
the garnishee is discharged upon his answer, the costs of the
proceeding, including a reasonable compensation to the garnishee, shall
be taxed against the plaintiff; where the answer of the garnishee has
not been controverted and the garnishee is held thereon, such costs
shall be taxed against the defendant and included in the execution
provided for in this section; where the answer is contested, the costs
shall abide the issue of such contest."
District Court evidently found there was no contest between the
insurance company and the other parties, and that the insurance company
should be discharged with costs and allowance of a reasonable attorney's
fee of $500. It, therefore, ordered the clerk to issue a check to the
insurance company, payable out of the funds paid into the court by it.
the garnishment lien is not prior to the Government liens, and we have
held that it is not, certainly fees allowed in that proceeding are not
prior to the Government liens, and the authorization of the payment of
the attorney's fees prior to the Government liens was error. The costs
and fees should be adjudged against the defendant, as provided by Rule
contends the effect of Section 12-1585, A. R. S. 2,
is to make an equitable assignment by law from Young to him of the debt
owed by the garnishee-distributor.
It did not
appear from the garnishee-Distributors' answer that it was indebted to
Young until after the government had intervened when Distributors
amended its answer admitting its indebtedness. Furthermore, the only
conceivable argument tending to support this claim would be that
immediately upon service of the writ of garnishment Kuffel obtained a
perfected, choate lien against Distributors' debt to Young which became
Land & Irrigation Co. v. Jones, 63
535, 164 P. 2d 456, we said:
". . .
from the date of service of the writ of garnishment any amount due or
found to be due from the garnishee to the defendant is in control of the
court and held by the court in abeyance until the hearing has been
concluded, and cannot be paid to any person except on judgment of the
effect of the writ of garnishment is, therefore, to impound any asset or
property of defendant which is found in the hands of the garnishee
pending the resolution of the merits of the garnishor's claim. The writ
itself constitutes, at most, a lis pendens notice that a right to
perfect a lien on the garnisheed property exists, but such perfection
must await judicial action.
Any amount due
from the garnishee to the debtor at the date of service of the writ is
subject to the impounding effect of the writ. Weir v. Galbraith,
279, 376 P. 2d 396. The most garnishor Kuffel had after service of the
writ of garnishment was an inchoate garnishment lien which could not
have been perfected until the time judgment was rendered. At that time
Kuffel did not have an absolute right to the funds impounded, but did
have a right to have his claim heard without fear that the funds would
be dissipated pending judgment. Under our state law Kuffel therefore had
no assignment to him of Distributors' debt to Young. Furthermore, under
federal law Kuffel did not become a "purchaser" within the
meaning of Section 6323 Internal Revenue Code of 1954 upon service of
the writ of garnishment, and he cannot claim the benefit of that section
which requires that the
give notice of its tax lien. United States v. L. R. Foy Construction
Co., supra; United States v. Hawkins [56-1 USTC ¶9143], 228 F. 2d
517 (C. A. 9th).
government took the necessary steps to perfect its lien. Even if Kuffel
would have been entitled to record notice, which he wasn't, he did in
fact receive such notice before he filed his writ of garnishment.
Section 6323(a) of the 1954 Code provides that the federal tax lien is
not valid as against any mortgagee, pledgee, purchaser, or judgment
creditor until notice thereof has been filed by the Secretary of the
Treasury or his delegate "In the office designated by the
law of the State or Territory in which the property is situated"
when the State or Territory had designated an office for the filing of
such notice. The property which is the subject of this case--the
Distributors debt--was personal property and the situs of such property
was in the state of residence and domicile of the taxpayer Young. In Re
De Angelis [67-1 USTC ¶9290], 373 F. 2d 755 (C. A. 3d); Walker
v. Paramount Engineering Co. [66-1 USTC ¶9106], 353 F. 2d 445 (C.
A. 6th); United States v. Goldberg [66-2 USTC ¶9523], 362 F. 2d
575 (C. A. 3d); Marteney v. United States [57-1 USTC ¶9670], 245
F. 2d 135 (C. A. 10th); Investment & Securities Co. v. United
States [44-1 USTC ¶9210], 140 F. 2d 894 (C. A. 9th).
Young was a
resident of the State of
and the law of that state required that notice of a federal tax lien be
filed in the office of the county recorder of the county within which
the property subject to the lien was situated. Government Code, 34
Codes, Section 27330. On
May 22, 1958
, the District Director of Internal Revenue filed a notice of tax lien
, the place of residence of Young, more than two months before the
garnishor instituted his action and filed his writ of garnishment in the
court below on
August 1, 1958
. Consequently, the fact that the
, through the District Director, did not file notices of lien in the
April 6, 1959
, was irrelevant to the Superior Court's resolution of the relative
priorities of the tax lien and the garnishment lien.
This result is
in accord with the practicalities of this case. To require the
government to file notices of tax lien in every place where a delinquent
taxpayer has personal property would impose an awesome
istrative burden on it, particularly with respect to intangible and
transitory personal property. See Grand Prairie State Bank v. United
States [53-2 USTC ¶9481], 206 F. 2d 217 (C. A. 5th). On the other
hand, the requirement that the government file its notice of lien where
the taxpayer resides has the advantage of centralizing the place where
the government must file its notice and where creditors of the taxpayer
who are entitled to notice under Section 6323 may quickly ascertain what
tax liens, if any, are outstanding against their debtor.
contends that even if the tax lien be held superior to the claim he
asserts, the trial court erred in refusing to set aside out of the
garnisheed funds an amount to compensate his attorneys for services
which they rendered in creating and protecting that fund up to the time
the United States government intervened in the proceeding below. The
amount sought for the reasonable value of attorney's fees is $2,500.00.
Kuffel did enter into a contingent-fee arrangement with his attorneys
based on thirty-three and a third percent of the amount recovered. It
appears that the amount claimed ($2,500.00) is close to the full amount
which counsel would have received under their contingent-fee arrangement
had they been successful. Kuffel would have the
, the senior lienor, pay for its opponents' attorneys in addition to its
priority of a
government lien for unpaid taxes is a federal question. United States
v. Equitable Life Assurance Society of the United States [66-1 USTC
323, 86 S. Ct. 1561, 16 L. Ed. 2d 593: United States v. Acri
[55-1 USTC ¶9138], 348
211, 75 S. Ct. 239, 99 L. Ed. 283. The general rule in courts of the
is that each party to the litigation bears the expense of its respective
counsel. However, one exception to this rule was noted in Trustees v.
527, 26 L. Ed. 1157. In that case, a holder of certain bonds brought
suit against the trustees of the state improvement fund alleging
mismanagement and waste of the fund which was to secure the bonds and
asking that his claim be allowed, that the fund be charged with the
payment thereof, and that an accounting be had. The relief was granted,
valuable property was reclaimed to the fund, and agents were appointed
for the sale of the property of the fund for the purposes of
liquidation. During the liquidation, the holder of the bonds who had
initiated the proceedings filed a petition for an allowance from the
fund of his expenses, including attorney's fees. The court approved the
allowance of attorney's fees, holding that where a bondholder, in good
faith, filed a bill to secure the correct application of a fund and
succeeded in bringing it under the control of the court for the common
benefit of the bondholders, he is entitled to be paid for his costs and
counsel fees before distribution. See also Sprague v. Titonic Bank,
161, 59 S. Ct. 777, 83 L. Ed. 1184. However, the principle announced in
the Greenough case has no application to the instant case where counsel
for the garnishor, Kuffel, neither created nor protected the debt for
the government. It is plain that Kuffel's attorneys did not create an
asset where there was none before; they did not reduce a mere cause of
action to judgment and thereby create a fund in which the
government seeks to share.
contention is analogous to that which the Supreme Court of the United
States considered in United States v. Pioneer American Ins. Co.
[63-2 USTC ¶9532], 374 U. S. 84, 83 S. Ct. 1651, 10 L. Ed. 2d 770. In
that case, a foreclosure proceeding, the mortgagee, whose interest was
senior to the tax claims of the
government, contended that it was entitled to a reasonable attorney's
fee ahead of the tax claims under the equitable rules against unjust
enrichment. The court rejected this contention as being without merit.
It noted that the services rendered by the mortgagee's attorney were
rendered for the benefit of the mortgagee to protect his own interest in
the property; the
government, the holder of an adverse interest, received no such benefit
from them that its interest was to be charged for them. See also:
v. Equitable life Assurance Society of
In the United
States Supreme Court case of United States v. Liverpool & London
& Globe Insurance Company, supra, it was held that a tax lien of
the United States government was prior in right over a garnishment lien
obtained by a creditor of the taxpayer in an action on an open account
where the tax lien arose and was filed prior to the date the garnishor
obtained judgment against the taxpayer, but subsequent to the date of
the garnishment lien. The situation in that case is similar to the one
in the instant case, and in that case the Court further held that if a
garnishment lien is not prior to a federal tax lien the attorney's fees
allowed to the garnishee in the garnishment proceedings are not
prior to the tax lien. In that case the attorney's fees were denied to
even the garnishee. See also: Nason v.
347, 221 N. E. 2d 400.
States Supreme Court has even held where there is a statutory lien under
state law it does not take priority over the lien of the
government for unpaid taxes--that the validity of the lien is a federal
question. In United States v. Pay-O-Matic Corp. [58-2 USTC ¶9533],
162 F. Supp. 154, the court held:
Section 475 of the N. Y. Judiciary Law an attorney's lien is more than
mere security; it is enforceable by remedy in the nature of foreclosure
and may not be extinguished by action of the parties. Here Goldstein's
lien arose at the commencement of the suit in condemnation and attached
to the award finally made. Reisman v. Independence Realty Corp.,
195 Misc. 260, 89 N. Y. S. 2d 763, affirmed 277 App. Div. 1020, 100 N.
Y. S. 2d 407; In re Cross Island Pkwy., Nassau County, 171 Misc.
652, 14 N. Y. S. 2d 238. However, 'the relative priority of the lien of
the United States for unpaid taxes is, as we said in United States v.
Waddill Co. [45-1 USTC ¶9126], 323 U. S. 353, 356, 357, 65 S. Ct.
304, 306, 89 L. Ed. 294; * * * always a federal question to be
determined finally by the federal courts. The state's characterization
of its liens, while good for all state purposes, does not necessarily
bind this court.' United States v. Acri [55-1 USTC ¶9138], 348
211, 213, 75 S. Ct. 239, 241, 99 L. Ed. 264. Whether attorney
Goldstein's lein by state tests would be held to be choate, it is clear
that under federal tests it is as compared to that of the Government
inchoate. It was not established for the amount of the lien was
contingent on the outcome of a trial in the state condemnation court to
fix the amount of the award to be made to Pay-O-Matic for the property
condemned. It was but a 'caveat of a more perfect lien to come' (United
States v. Scovil [55-1 USTC ¶9137], 348 U. S. 218, 220, 75 S. Ct.
244, 246, 99 L. Ed. 271) and is therefore subordinate to the federal tax
lien; United States v. City of New Britain [54-1 USTC ¶9191],
347 U. S. 81, 84, 74 S. Ct. 367, 370, 98 L. Ed. 520."
In the instant
case there is no doubt the claim for attorney's fees is inchoate under
federal interpretation; this Court must follow the holdings of the
United States Supreme Court in determining the validity of the claim for
attorney's fees. Accordingly, we hold that the lower court properly held
government lien was prior to both Kuffel's garnishment lien and any
claim for reasonable attorney's fees.
JR., and LOCKWOOD, Justices, concurring.
"Sec. 6321. LIEN FOR TAXES.
person liable to pay any tax neglects 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
rights to property, whether real or personal, belonging to such
person." 26 U. S. C. 1958 ed. Sec. 6321.
6322. FERIOD OF LIEN.
another date is specifically fixed by law, the 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 satisfled or becomes
unenforceable by reason of lapse of time." 26 U. S. C. 1958 ed.
6323. VALIDITY AGAINST MORTGAGEES, PLEDGEES, PURCHASERS, AND JUDGMENT
of Lien Without Notice.--Except as otherwise provided in subsection
(c), the lien imposed by section 6321 shall not be valid as against any
mortgagee, pledgee, purchaser, or judgment creditor until notice thereof
has been filed by the Secretary or his delegate--
state or territorial laws.--In the office designated by the law of
the State or Territory in which the property subject to the lien is
situated, whenever the State or Territory has by law designated an
office within the State or Territory for the filing of such notice; or .
. ." 26 U. S. C. 1958 ed., Sec. 6323.
"§12-1585. Judgment against garnishee.
appears from the answer of the garnishee, or otherwise, that the
garnishee is indebted to the defendant in any amount or was so indebted
when the writ was served, the court shall give judgment for plaintiff
against the garnishee for the amount so admitted or found to be due
defendant from the garnishee unless the amount exceeds plaintiff's
judgment against defendant in which case it shall be for the amount of