Insurance Company, Plaintiff v.
New York City
Health and Hospitals Corporation, Defendant.
New York City
Health and Hospitals Corporation, Interpleader Plaintiff v. Levinson
& Santoro Electric Corporation, et al., Interpleader Defendants.
District Court, So.
; 99 Civ. 3891 (LAP), 265 FSupp2d 434,
July 8, 2003
Tax liens: Priority: Interpleader fund: Assignment of property
made by a delinquent taxpayer to an insurance company of certain
contract funds constituted a complete transfer of the taxpayer's
interest in those funds to the insurer pursuant to state (
) law. Because the assignments effectively transferred the taxpayer's
property interest in the funds before the government's federal tax lien
could attach to the interpleaded monies, the insurer's claim had
priority over the government's lien. However, the insurer's contention
that it was entitled to priority over the tax lien because it qualified
as a "purchaser" under federal law was rejected. The evidence
did not establish that it met the adequate and full consideration
standard of Code
PRESKA, District Judge: Interpleader defendant the
(the "Government") and plaintiff American Insurance Company
("American") have cross-moved for summary judgment in this
action concerning funds due Levinson & Santoro Electric Corporation
("L&S") under certain contracts with
defendant-interpleader plaintiff New York Health and Hospitals
Corporation ("NYHHC"). At issue is whether the Government or
American has a priority claim to the interpleader fund.
The following facts are undisputed unless otherwise noted. In March 1987
and April 1994, L&S and certain others executed and re-executed a
General Indemnity Agreement (collectively, the "Indemnity
Agreements") as a precondition to American's issuance of payment
and performance bonds on behalf of L&S in connection with certain
construction projects. (American Rule 56.1 Statement ¶1). The Indemnity
Agreements granted American certain rights including "an assignment
of all monies due, or to be come due, to L&S in connection with
bonded and unbonded projects, as well as a separate security interest in
all monies due, or to become due, to L&S in connection with the
bonded and unbonded projects." ( Id.
at ¶ ¶2-3). In the fall of 19 95, L&S advised American that it
needed financial assistance to complete its work under various
construction contracts, and as a result, in December 1995, American and
L&S entered into an agreement (the "Assistance
Agreement"). ( Id.
at ¶ ¶7-8). Under the Assistance Agreement, American "provided
financial assistance to L&S for the completion of various bonded
projects...." ( Id.
at ¶8). On December 20, 1995, "as part of the consideration to
American for the Assistance Agreement," L&S executed certain
assignments (the "Assignments") "cumulative with
American's existing rights under the [previously entered into] Indemnity
Agreements, expressly assigning to American L&S' right to all
contract funds in connection with various bonded and unbonded
projects." ( Id.
at ¶9). Specifically, L&S provided American "with an express
assignment of its rights to receive existing or future Contract
Funds" for two projects, the Queens Hospital Project and the
Bellevue Project. ( Id.
at ¶ ¶10-11). The Assignments, by their express terms, are
"irrevocable" and provide that L&S "immediately
assigns, transfers and sets over to" American "all right,
title and ownership to all contract funds of any nature," whether
those funds "are due now or shall, in the future, become due"
for the Queens Hospital and Bellevue Projects. (American Rule 56.1
Statement at ¶ ¶13-14, 16-17). American states that in reliance on the
Assignments and other agreements, it provided financial assistance to
L&S and incurred "losses, costs, fees and expenses in the total
amount of $11,741,485.90." ( Id.
at ¶ ¶15, 18-19). The Government disputes the accuracy of this amount,
arguing that American only provided financial assistance and/or incurred
losses of no more than $7,050.71. (Gov. Response to American's Rule 56.1
Statement ¶ ¶15, 19).
L&S' tax liability for the tax periods ending September 30, 1995 and
December 31, 1995 was assessed on March 11, 1996 and May 20, 1996,
respectively. (Ex. A to the Declaration of David J. Kennedy, sworn to on
July 30, 2002
January 16, 1997
, the Internal Revenue Service (the "IRS") filed a federal tax
lien against L&S in the amount of $753,393.33. (Gov. Rule 56.1
Statement ¶1). On
March 10, 1997
, American served NYHHC with the Assignments. (American Rule 56.1
Statement ¶ ¶20-21). It is undisputed that as of that date, certain
funds were due and owing to L&S under the Queens Hospital contract,
although the Government disputes that American has proven that any funds
were due and owing under the Bellevue Contract 1
and that any funds under either contract remain due and owing L&S. (
Id. ¶22; Gov. Response to American Rule 56.1 Statement ¶ ¶23-25).
American commenced the instant action against NYHHC in 1999 in the
Supreme Court of New York, New York County, and the case was
subsequently removed to federal court. By notice of motion filed on or
July 31, 2002
, the Government moved for summary judgment in the amount of $758,174.73
plus interest from
July 8, 2002
. American filed its cross-motion for summary judgment on or about
August 21, 2002
. The Government argues that American does not qualify as either a
purchaser or a holder of a security interest and that, therefore, the
federal tax lien has a priority claim to the interpleader fund. In
support of this argument, the Government points out that American has
admitted that it did not file any U.C.C. financing statements with
regard to the Assignments, thus defeating any claim that American holds
a perfected security interest. In response, American argues that,
contrary to the Government's characterization of its position, American
does not base its claim on a security interest, but rather on the theory
that it owns the monies due L&S based upon the Assignments. American
argues that under
law, the Assignments --executed in 1995 --made the funds the property of
American and that, therefore, the federal tax lien against L&S
--filed in 1997 --could not attach to the funds. 2
In addition, or alternatively, American argues that it qualifies as a
purchaser under 26 U.S.C. §6323(a) with an interest superior to that of
the Government. American also adds a final argument regarding a
subrogation claim under Article 3-A of the New York Lien Law for the
approximately $7000 it expended on L&S' behalf.
I. Summary Judgment Standard
"A motion for summary judgment may not be granted unless the court
determines that there is no genuine issue of material fact to be tried
and that the facts as to which there is no such issue warrant judgment
for the moving party as a matter of law." Chambers v. TRM Copy
Centers Corp., 43 F.3d 29, 36 (2d Cir. 1994); see Fed. R.
Civ. P. 56(c); see generallyCelotex Corp. v. Catrett, 477
U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242
(1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574 (1986). An issue of fact is genuine when "a reasonable
jury could return a verdict for the nonmoving party," and facts are
material to the outcome of the particular litigation if the substantive
law at issue so renders them. Anderson, 477
The burden of establishing that no genuine factual dispute exists rests
on the party seeking summary judgment. Chambers, 43 F.3d at 36.
"In moving for summary judgment against a party who will bear the
ultimate burden of proof at trial," however, "the movant's
burden will be satisfied if he can point to an absence of evidence to
support an essential element of the nonmoving party's claim." Goenaga
v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir.
1995); accordGallo v. Prudential Residential Servs., 22
F.3d 1219, 1223-24 (2d Cir. 1994) ("The moving party may obtain
summary judgment by showing that little or no evidence may be found in
support of the nonmoving party's case."). The moving party, in
other words, does not bear the burden of disproving an essential element
of the nonmoving party's claim.
If the moving party meets its burden, the burden shifts to the nonmoving
party to come forward with "specific facts showing that there is a
genuine issue for trial." Fed. R. Civ. P.56(e); accordRexnord
Holdings, Inc. v. Bidermann, 21 F.3d 522, 525-26 (2d Cir. 1994). The
nonmoving party must "do more than simply show that there is some
metaphysical doubt as to the material facts." Matsushita,
at 586. Instead, the nonmovant must "`come forward with enough
evidence to support a jury verdict in its favor, and the motion will not
be defeated merely ... on the basis of conjecture or surmise."' Trans
Sport v. Starter Sportswear, 964 F.2d 186, 188 (2d Cir. 1992)
On cross-motions for summary judgment, the court applies the same
standard as that for individual motions and treats the facts in the
light most favorable to the non-moving party. SeeAviall, Inc.
v. Ryder Sys., 913 F.Supp. 826, 828 (S.D. N.Y. 1996). "Simply
because the parties have cross-moved, and therefore have implicitly
agreed that no material issues of fact exist, does not mean that the
court must join in that agreement and grant judgment as a matter of the
law for one side or the other. The court may conclude that material
issues of fact do exist and deny both motions." Id.
(internal citation omitted). See alsoHeublein, Inc. v. United
States [ 93-2
USTC ¶50,397], 996 F.2d 1455, 1461 (2d Cir. 1993).
As noted at the outset, resolution of these motions turns on which party
has a priority claim to the interpleader fund. Federal law determines
the priority of competing liens, governed by the traditional rule of
"first in time is first in right." SeeUnited States
v. City of New Britain [ 54-1
USTC ¶9191], 347 U.S. 81, 85-86 (1954); United States v. Hage
USTC ¶9459], 417 F.Supp. 74, 76 (N.D. N.Y. 1976). As against a
federal tax lien, a state lien can take priority only if, in addition to
being first in time, it is choate, or fully established, before the
federal lien attaches. SeeDon King Prods., Inc. v. Thomas
USTC ¶50,474], 945 F.2d 529, 533 (2d Cir. 1991) ("A choate
lien is one in which the identity of the lienor, the property subject to
the lien and the amount of the lien are established."); United
States v. 110-118 Riverside Tenants Corp. [ 90-2
USTC ¶50,493], 886 F.2d 514, 518 (2d Cir. 1989); Hage [ 76-1
USTC ¶9459], 417 F.Supp. at 76-77. A federal tax lien attaches to
"all property and rights to property, whether real or
personal," belonging to the taxpayer, here, L&S. 26 U.S.C. §6321.
The nature of the taxpayer's property interest is determined by state
law, here the law of the State of
. Thus, in order to make a determination as to priority, I must first
consider when each party's rights to the interpleader fund arose. SeeJaffie Contracting Co. v. Doff, No. 94 Civ. 2670, 1995
Dist. LEXIS 11765, at *9 (S.D. N.Y. Aug. 16, 1995). A federal tax lien
arises at the time of assessment. 26 U.S.C. §6322.
The dates of assessment for L&S' tax liability were
March 11, 1996
May 20, 1996
As stated above, American bases its claim to the interpleader fund
primarily on the Assignments it executed with L&S for the
Hospital and Bellevue Projects. American argues that the Assignments
conveyed L&S' property interest in the funds to American and that,
therefore, the federal tax lien could not attach to the funds. I find
that the language of the Assignments in this case --providing that
L&S "immediately assigns, transfers and sets over to"
American "all right, title and ownership to all contract funds of
any nature," whether those funds "are due now or shall, in the
future, become due" for the Queens Hospital and Bellevue Projects
--constituted a complete assignment under New York law of all rights
under the Queens Hospital and Bellevue contracts to American because
L&S and American "intended a complete and immediate transfer of
the interest at the time of the [A]ssignment[s]." Jaffie
Contracting, 1995 U.S. Dist. LEXIS 11765, at *10; see alsoContinental
Oil Co. v.
United States [ 71-1
USTC ¶9296], 326 F.Supp. 266, 269 (S.D. N.Y. 1971). Under the
Assignments, American received "a complete transfer of the entire
interest of the assignor in the particular subject of assignment,
whereby the assignor is divested of all control over the thing
assigned." Continental Oil [ 71-1
USTC ¶9296], 326 F.Supp. at 269 (quoting 3 N.Y. Juris. Assignments
§28) (quotation marks omitted). It is undisputed that the Assignments
were executed in December of 1995, while the IRS did not assess the
taxes against L&S until 1996 and file its federal tax lien until
January of 1997. Accordingly, I find that American is entitled to
priority because the Assignments effectively transferred L&S'
property interest in the funds before the Government's federal tax lien
could attach. 3
I have also considered American's argument that it qualifies as a
"purchaser" under federal law. A federal tax lien imposed by Section
6321 is not valid "as against any purchaser [or] holder of a
security interest ... until notice thereof ... has been filed by the
Secretary," 26 U.S.C. §6323(a),
and thus, if American qualified as a purchaser, it would be entitled to
priority over the federal tax lien. As defined by 26 U.S.C. §6323(h)(6),
a "purchaser" is "a person who, for adequate and full
consideration in money or money's worth, acquires an interest (other
than a lien or security interest) in property which is valid under local
law against subsequent purchasers without actual notice." The
requirement of adequate and full consideration is what sets a purchaser
apart from a regular assignee and is a matter of federal law. SeeUnited States v. Paladin [ 82-1
USTC ¶9360], 539 F.Supp. 100, 103 (W.D. N.Y. 1982); see also
26 C.F.R. 301.6323(h)-1(f)(3) ("the term `adequate and full
consideration in money or money's worth' means a consideration in money
or money's worth having a reasonable relationship to the true value of
the interest in property acquired"). While American states that it
"provided good and valuable consideration for the Assignments,
based on the monies advanced by American under the Assistance Agreement
exceeding $11,741,485.90," (American Memo. at 12), I find there is
insufficient evidence in the record supporting American's claim that it
meets the "adequate and full consideration" standard. American
has put in a spreadsheet of payments made on L&S' behalf, (Ex. A to
the Declaration of Stacey M. Fleming, sworn to
October 17, 2002
("Fleming Reply Decl.")), and claims that these payments
"demonstrat[e] the exchange of adequate and full consideration for
the Assignments." (Fleming Reply Decl. at ¶4). While the
spreadsheet indicates that some payments were made on the date the
Assignments were executed, the payments appear to relate to work on the
, and not for either the
or Bellevue Hospital Projects. (Ex. A to Fleming Reply Decl. at 2-3).
Accordingly, I find that American has not demonstrated that it qualifies
as a purchaser.
Finally, L&S has submitted papers attesting to settlement
negotiations between the L&S and the Government, in the apparent
hope that the Court will reduce the amount of the federal tax lien.
However, L&S takes no position on whether American or the Government
should be entitled to a priority claim to the interpleader fund. In
response, the Government argues that L&S' submissions should be
stricken from the docket as violating Fed. R. Evid. 408. Having found
that American has a priority claim to the interpleader fund, I decline
to make a finding on this issue.
For the foregoing reasons, the Government's motion for summary judgment
is denied. American's motion for summary judgment is granted to the
extent that I find American is entitled to a priority claim to the
interpleader fund. Counsel shall confer and inform the Court by letter
no later than
July 14, 2003
of the steps necessary to resolve the action.
However, the Government does not dispute that American made demands on
NYHHC for payment under both the Queens Hospital and Bellevue contracts.
(Gov. Response to American's Rule 56.1 Statement ¶ ¶26-29).
In support of this argument, American points to a case decided in the
Supreme Court of the State of
, to which the Government was not a party. I agree with the Government
that the conclusions reached by the court in that case are irrelevant
for purposes of this case.
Because I find that American is entitled to a priority claim to the
interpleader fund, I decline consideration of American's subrogation
claim pursuant to Article 3-A of the New York Lien Law.
United States of America
, Plaintiff v. Harold Morrell and Michael F. Morrell, Defendants
U.S. District Court, East. Dist. N.Y., 97 CV 5344
Liens and levies: Enforcement: Validity: Foreclosure: Transfer of
property subject to lien.--Federal tax liens on a residence conveyed
by married taxpayers to their son and an annuity traceable to securities
also transferred to their son, in exchange for a promise of future
support were valid and could be foreclosed. The parents conceded that
they divested themselves of their assets through the conveyance,
rendering them unable to satisfy their tax obligations and the son
admitted that the purported agreement arose after the transfer had taken
place. Further, there was no supporting documentation for the claim that
the son purchased the securities with his own money. Thus, there was no
basis for concluding that the shares had not been transferred to the son
in the same manner as other securities were transferred or that the
transfer occurred before the tax assessments were made.
Liens and levies: Enforcement: Validity: Foreclosure: Transfer of
property subject to lien: Purchaser: Oral agreement.--An individual
who promised to provide future support for his parents in exchange for
their transfer to him of their home was not a purchaser whose interests
in the transferred property were superior to federal tax liens on the
property. The purported oral agreement under which the property was
transferred was unenforceable under the statute of frauds and the son
admitted that the agreement arose after the property was transferred.
Moreover, courts have repeatedly rejected the argument that promises of
future support constitute fair consideration.
Liens and levies: Enforcement: Validity: Foreclosure: Transfer of
property subject to lien: Purchaser: Equitable subrogation.--An
individual who promised to provide future support for his parents in
exchange for their transfer to him of their home was not entitled
equitable subrogation. He did not have an equitable lien superior to the
government's lien because he did not satisfy a senior encumbrance on any
of the properties, nor did his payments to his parents confer any
benefit upon the government. Moreover, equitable principles did not
point to the type of relief requested by the taxpayer.
moves pursuant to Rule 56, Fed. R. Civ. P., for summary judgment to
declare the validity of certain tax liens and to order foreclosure on
the liens and sale of property, consisting of a residence conveyed by
taxpayers to their son and an annuity traceable to securities that had
been transferred by taxpayers to their son, that is subject to the
liens. Defendants oppose the motion, arguing that there are factual
issues for trial: (1) that the son"s interests in the real and
personal property that had been transferred to him are superior to the
tax liens; (2) that some of the funds used to purchase the annuity came
from the son's independently accumulated assets, or alternatively, from
property transferred by the taxpayers before the liens attached; and (3)
that the government is not entitled to the appreciation in the value of
assets after the transfers by the parents to the son.
which in part are set forth in a Joint Agreed Statement of Material
Facts ("Joint Statement") entered into by the parties, are
undisputed except as indicated. Defendant Harold Morrell invested in tax
shelters and claimed deductions on his joint income tax returns filed
with his wife, Dolores Morrell, for the years 1977--1980. 1
The IRS disallowed the deductions for these four years and assessed
deficiencies. Harold and Dolores Morrell contested the deficiencies in
Tax Court. On
August 13, 1990
, the Tax Court entered an agreed decision finding deficiencies for
those years, exclusive of interest, of $182, 645, which with interest
had grown to over $750,000 as of the date of the decision and
approximately $1.4 million when the parties entered into the Joint
separately assessed the deficiencies and demanded payment for each of
the years 1977--1980 between November 15 and December 10, 1990, thereby
creating liens against all property of Harold and Dolores Morrell
pursuant to 26 U.S.C. §§6321 and 6322. These statutes provide that a
lien attaches at the time of assessment to "all property and rights
to property" of the taxpayer for the amount of the assessment,
including interest that may accrue, and continues until the liability is
satisfied or becomes unenforceable by lapse of time. Tax liens were
filed against Harold and Dolores Morrell in
September 11, 1991
. Harold Morrell does not contest the deficiencies, and agrees that
judgment should be entered against him for the full amount of the
Dolores Morrell transferred real estate, stocks and other securities to
their son, defendant Michael F. Morrell. The real estate, a home in
having a fair market value of approximately $400,000 at the time, was
transferred by deed dated
May 24, 1991
, after the assessment and attachment of the government's lien. 2
Harold and Dolores Morrell continued to reside there after the transfer
as they had before. There was no mortgage on the property. Harold and
Dolores Morrell also transferred to Michael Morrell in May 1991 their
holdings in municipal trusts worth over $217,000. The transfer was
effectuated by transferring the holdings from the parents' account at
Dean Witter to Michael's account at Dean Witter. Michael subsequently
transferred the municipal trusts to a joint Dean Witter account of
Michael and his spouse. In April 1992, Harold and Dolores Morrell
transferred stock holdings worth approximately $200,000 from their Dean
Witter account to the Dean Witter account of Michael and his spouse.
claimed in his deposition that all of these transfers, which admittedly
followed the assessment, were not undertaken to avoid payment of tax
deficiencies. Instead, he asserted, the assets were transferred in light
of the declining health of Dolores Morrell, so that the parents would
qualify for government medical assistance. Michael Morrell testified in
his deposition that he shared the same understanding of the reason for
the transfers of assets, and was not aware at that time of his parents'
tax difficulties. For purposes of the summary judgment motion, the
government does not contest motivation, but asserts that it is entitled
to foreclose on its liens regardless of motivation.
Morrell's assertion of an interest superior to the government liens is
based upon the defendants' claim that in exchange for the transfer of
assets, Michael orally agreed to support his parents and in fact did so.
Defendants argue that Michael Morrell therefore is a
"purchaser" protected under 26 U.S.C. §6323(a) or,
alternatively, that he is entitled to an equitable lien for the hundreds
of thousands of dollars he spent to support his parents over the years
following the transfers of assets.
testified at his deposition that he and his wife transferred their
residence, stocks and securities pursuant to a unitary plan to divest
themselves of all assets, and that no other assets were left after the
Harold Morrell testified as follows as to the timing of the alleged
support agreement in relationship to the transfer of property:
connection with the transfer of the assets, did your son later make some
promises to you as to what he would do for you?
A. Well, we
had set up for a planned estate, and he agreed after we transferred
everything over to his name he would support us. We were concerned about
our health, my wife's health, which subsequently has died, but concerned
about Medicare, so we didn't want to have anything around. So we made a
deal. We decided that we'll have Michael take everything now and then
support us so that we wouldn't be exposing the assets to Medicaid.
Q. At the time
of the transfers that you made to your son, had your son agreed to give
Q. And your
recollection is that his promise for the support was before the
transfers were made, not after?
A. I don't
remember whether it was before or after. I don't remember that part,
before or after.
Q. It could
have been one or the other?
A. Yeah, it
could have been.
Q. Did your
son ever tell you what he would do for you in the way of providing you
A. He would
support us the way we were--the way we lived, you know.
Morrell admitted at his deposition that he first found out about the
transfer of property to him during a telephone call from his father
saying, "here is what I've done, and I'm really doing this because
of these Medicare issues." As far as Michael knew, the
documentation for effecting the transfer of securities consisted simply
of a name change in ownership of the Dean Witter account. Michael
Morrell testified that the circumstances surrounding the support
arrangement "was simply, We're going to give you this money, and,
you know, I agreed to support them. I mean it was no--there was no
formal arrangement." Michael reiterated that he thought "the
transfer took place and then we had the discussion," which could
have taken place one or two months after the transfer. The discussion
was: "I would just pay all their expenses." In the deposition,
Michael Morrell recollected that the transfer of securities occurred
after the real estate had been transferred; he believed the transfer of
securities took place in late 1991.
Morrell's affidavit submitted in opposition to the summary judgment
motion simply states, in reference to the purported agreement: "In
exchange for the transfer of the assets, I agreed to support my parents
for their lifetime," and that he "kept that promise" by
the substantial deposits to his parents' bank accounts and his purchase
of a townhouse in 1996 where his father lives rent free. The affidavit
identifies the transferred assets as his parents' entire portfolio of
stock and municipal bonds, and their home. The affidavit states that the
home was transferred in May 1991, and the securities in May 1991 and
1995, Michael Morrell liquidated his joint Dean Witter account and used
all of the proceeds to purchase a variable annuity for approximately
$833,000. The government claims that its lien attaches to the entire
amount of the annuity, which had increased in value to over $1 million
March 31, 1998
. In opposition to the summary judgment motion, Michael Morrell claims
that at least $380,000 in the Dean Witter account that was used to
purchase the annuity represented separate savings accumulated by Michael
and his wife and did not come from his parents. Michael also argues that
the government should not be entitled to payment of the portion of the
proceeds from his Dean Witter account used to purchase the annuity that
represents appreciation in the Dean Witter account; Michael attributes
that appreciation in asset value to his prudent and skillful management
of the account.
agrees in principle that, to the extent that Michael could show that a
portion of the annuity was purchased with funds that were not traceable
to transfers from his parents after the lien attached, Michael would be
entitled to retain a pro rata share of the proceeds of the
annuity. However, the government contends that there is no genuine
factual dispute that all of the funds in the Dean Witter account that
were used to purchase the annuity are traceable to transfers made by
Harold and Dolores Morrell after the tax liens had attached. The
government also contends that, since the lien follows the property, it
is entitled to foreclose on the entire value of the annuity, including
any appreciation in value of the annuity or the Dean Witter fund used to
purchase the annuity, until the deficiency, including accrued interest,
is fully satisfied.
that Michael Morrell asserts had been purchased with his own funds is a
tax free fund of Dean Witter. Neither Harold Morrell nor Michael Morrell
produced most of their securities account records in discovery for the
critical period of 1990 through the first few months of 1992, which
would have shown all holdings and activity in the accounts in the
periods preceding and following the assessments. Michael Morrell's
affidavit in opposition to summary judgment attached his Dean Witter
account statement for June 1991, which reflected a holding of 33,769
shares of Dean Witter New York Tax Free Inc. Fund, then worth
approximately $378,000, as well as approximately $2,000 in a
government money market fund. Michael claimed that these investments
were acquired with his own funds and were not derived from property his
parents transferred to him. Michael explained his failure to produce
that statement and others or to discuss those holdings at his deposition
by stating that he had only recently located some of these records, and
that his memory had been impaired because of a heart condition. Michael
Morrell did not produce any records that showed that he in fact
purchased shares of this tax free fund from his own savings. The
government responded to this new information by obtaining other records
from Dean Witter, including the account statement for Harold and Dolores
Morrell as of
April 30, 1990
, showing that the exact same quantity, 33,769 shares of Dean Witter New
York Tax Free Inc. Fund, then worth approximately $364,000, was held in
the parents' account.
account statements produced by the defendants and those obtained by the
government from Dean Witter are incomplete, there is a gap between the
April 1990 statement of the taxpayers and the June 1991 statement of
Michael Morrell. Therefore, no document shows when, after April 1990,
the 33,769 shares of Dean Witter New York Tax Free Inc. Fund were
withdrawn from the taxpayers' account or where it went, or when, before
June 1991, 33,769 shares of Dean Witter New York Tax Free Inc. Fund
first were carried in Michael's account or where it came from.
Defendants argue that there are factual issues, precluding the granting
of summary judgment to the government, as to whether this fund was
transferred from the parents to Michael Morrell, and if it was, when the
transfer took place, i.e., before or after the tax liens attached
in November and December, 1990.
the Dean Witter monthly statements for the account of Michael Morrell
and his spouse from the end of 1991 until its liquidation in October and
November 1995, when Michael used the entire proceeds to purchase the
annuity, confirms the government's assertion that no new money or other
assets were put into the account except for securities transferred by
Harold and Dolores Morrell in April 1992. Defendants were afforded an
opportunity after oral argument to identify any such assets that Michael
put into the account, but their counsel notified the court that they had
no further information to offer. The account statements show that there
were few purchases and sales of securities, except for liquidations to
withdraw funds from the account, and that all purchases of securities in
the account during this time period were made with the proceeds from
redemption of other securities held in the account and accumulated
dividends and interest from those securities. Although Michael Morrell
placed no new money in the account, he frequently made withdrawals from
it between December 1992 and September 1995, for a total of
approximately $119,000. The record contains no explanation of these
withdrawals. As a result of these withdrawals, there was in fact
negligible increase in the value of the account: it had a value of
approximately $778,000 on
March 31, 1992
, $807,000 on
November 30, 1992
, $781,000 on
February 28, 1995
, and $814,000 on
May 31, 1995
, before being liquidated for approximately $833,000 in October and
Summary judgment are granted if there is no genuine issue as to any
material fact, and the moving party is entitled to judgment as a matter
of law. See Lipton v. Nature Co., 71 F.3d 464, 469 (2d Cir.
1995). The moving party must demonstrate the absence of any material
factual issue genuinely in dispute. See id. A material fact is
one whose resolution would "affect the outcome of the suit under
governing law," and a dispute is genuine "if the evidence is
such that a reasonable jury could return a verdict for the nonmoving
party." Anderson v. Liberty Lobby, Inc., 477
242, 248 (1986). The court must view the inferences to be drawn from the
facts in the light most favorable to the party opposing the motion. See
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986). However, the non-moving party may not "rely on
mere speculation or conjecture as to the true nature of the facts to
overcome a motion for summary judgment." Knight v. U.S. Fire
Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986). Nor may the non-moving
party "simply show that there is some metaphysical doubt as to the
material facts." Matsushita Elec., 475
at 586. The party must produce specific facts sufficient to establish
that there is a genuine factual issue for trial. See Celotex Corp. v.
317, 322-23 (1986).
Under 26 U.S.C. §6323(a)
6323(a) of Title 26, United States Code, provides that "[t]he lien
imposed by section 6321 shall not be valid as against any
purchaser" until notice of the lien has been filed. A
"purchaser" is defined in Section 6323(h)(6) as "a person
who, for adequate and full consideration in money or money's worth,
acquires an interest . . . in property which is valid under local law
against subsequent purchasers without actual notice." The Treasury
Regulations define "adequate and full consideration" to
require "consideration in money or money's worth having a
reasonable relationship to the true value of the interest in the
property acquired." 26 C.F.R. §301.6323(h)-1 (f)(3). "Money
or money's worth" is defined in the regulation as including
"tangible or intangible property, services and other consideration
reducible to a money value," but excluding such things as
"love and affection . . . or any other consideration not reducible
to a money value." Id.
juror could find that Michael Morrell was a "purchaser" within
the meaning of this provision. First, defendants conceded during oral
argument of the summary judgment motion that the purported oral
agreement by Michael Morrell to support the taxpayers for their lives is
unenforceable under the statute of frauds. Obviously, an unenforceable
promise of future support is not "adequate and full consideration
in money or money's worth" under any rational construction of the
is no genuine issue of fact as to the existence of an agreement, even an
oral one, in which Michael Morrell furnished consideration in exchange
for which Harold and Dolores Morrell transferred these properties to
him. Michael Morrell testified at his deposition that his best
recollection was that any discussion he had with his father concerning
support occurred after the property had already been placed in his name
by the unilateral action of his parents. Viewed most favorably to him,
Harold Morrell admitted that he could not recall whether any such
discussion preceded or followed the transfers. Accordingly, there is no
basis for a reasonable jury to find that consideration was furnished in
exchange for the transfers of property, even if any such promise would
have been enforceable.
Third, even if
there had been an agreement that was enforceable before the transfers
took place, Michael Morrell's promise to support his parents is not
"adequate and full consideration in money or money's worth"
for the immediate conveyance of unencumbered assets worth over $800,000
(or almost $1.2 million when the Dean Witter New York Tax Free Inc. Fund
is included, see pp. 13-14 infra). The issue of adequate
consideration is a matter of federal and not state law, and as the
Second Circuit has stated, "a finding that [taxpayer] conveyed the
Property to her daughters for adequate consideration under New York law,
while helpful, does not provide a rule of decision that [the daughters]
are federally protected 'purchasers' under Section 6323(a)." United
States v. McCombs [94-2 USTC ¶50,363], 30 F.3d 310, 330 (2d Cir.
1994). Nevertheless, in the absence of reported federal cases construing
Section 6323's requirement of "adequate and full
consideration" when the consideration furnished by the reputed
purchaser is a promise of parental support, and notwithstanding the
variations in statutory language, the New York decisions that have
construed the requirement of "fair consideration" under
Section 273 of New York Debtor and Creditor Law in similar circumstances
are persuasive. 4
Courts have rejected repeatedly the argument that promises of future
support constitute fair consideration within the meaning of Section 273.
Schmitt, 98 A.D.2d at 936 (purchaser's promises to take over
payments on mortgage, furnace and taxes, to permit debtors to remain in
house rent-free, and to convey ten acres to debtors' sons did not
constitute "fair consideration" under §273; "[s]uch
promises . . . are akin to promises of future support, which are
insufficient as a matter of law to be considered a fair equivalent of
the property transferred"); Petition of National City Bank of
New York, 269 App. Div. 1040 (2d Dep't 1945) (promise of future
support is not fair consideration); see United States v. Bushlow
¶50,556 ], 832 F.Supp. 574, 582 (E.D.N.Y. 1993) (promises of future
services are not "fair consideration" under §273).
concede that Harold and Dolores Morrell divested themselves of virtually
all their assets when they conveyed their real and personal property to
their son, which rendered them unable to satisfy their tax obligations,
and received nothing in return except at most an oral promise of
support. It is not reasonable to find this promise to be "adequate
and full consideration in money or money's worth."
argue that, even if Michael Morrell is not a purchaser within the
meaning of Section 6323(a), he is entitled to an "equitable
lien," that is superior to the government's lien, for the hundreds
of thousands of dollars he spent to support his parents. Pursuant to 26
U.S.C. §6323(i)(2), equitable subrogation applies in certain
circumstances where a transferee of property or a junior lienor has
satisfied a lien that is superior to the tax lien. The statute provides:
"Where, under local law, one person is subrogated to the rights of
another with respect to a lien or interest, such person shall be
subrogated to such rights for purposes of any lien imposed by section
6321." Equitable subrogation is designed to avoid the unjust
enrichment that would occur if the government could reap the benefit of
having the senior lien satisfied but deprive the party who satisfied
that senior lien of any benefit in a foreclosure proceeding. To avoid
such unfairness, the party that satisfied the senior encumbrance is
allowed to assume the position that had been occupied by the original
holder of the senior lien, if equitable subrogation is authorized by
state law. See United States v. Avila [96-2 USTC ¶50,357], 88
F.3d 229, 237-39 (3d Cir. 1996); Mort v. United States [96-1 USTC
¶50,315], 86 F.3d 890, 893-95 (9th Cir. 1996); Progressive Consumers
Federal Credit Union v. United States [96-1 USTC ¶50,160], 79 F.3d
1228, 1234-37 (1st Cir. 1996).
Even assuming arguendo
that the Second Circuit would recognize a non-statutory equitable
doctrine applicable to tax liens, equitable principles do not point to
the relief requested. 5
Michael Morrell did not satisfy a senior encumbrance on any of these
properties; indeed, there was no mortgage on the real property. Nor did
Michael's payments to his parents confer any benefit upon the
government. Michael Morrell received property from his parents that they
should have used to satisfy their indebtedness to the government and
then gave money back to his parents so that they could continue to live
in the same style as that to which they were accustomed, as if they had
never incurred liability pursuant to an agreed judgment. Equity is not
served by giving Michael Morrell credit for these payments to his
of Funds for Annuity
undisputed that the residence and over $400,000 worth of securities were
transferred from Harold and Dolores Morrell to Michael Morrell after the
assessments were made. On review of the entire record, the undisputed
facts also establish that additional securities worth approximately
$380,000, consisting of 33,769 shares of Dean Witter New York Tax Free
Inc. Fund also were transferred to Michael by his parents. With no
supporting documentation of any kind, Michael Morrell claims that he
purchased the 33,769 shares of the Dean Witter New York Tax Free Inc.
Fund with his own money. There is no explanation for the astounding
coincidence that a year before, the taxpayers had the exact same number
of shares of the same fund in their account. Moreover, Harold Morrell
testified that he transferred all of his assets to his son, ostensibly
so that Harold and Dolores could qualify for government medical
assistance, and defendants offer no other explanation for the fact that
the 33,769 shares of the fund the parents held in 1990 were no longer
owned by them later. Since all other securities were conveyed from
parents to son by directing transfer of the securities from the parents'
Dean Witter account to the son's Dean Witter account, there is no
rational basis for concluding that the 33,769 shares in Michael
Morrell's account had not also been transferred in the same manner.
no rational juror could find that the transfer of this fund was made by
the parents to their son before the liens had attached. As set forth in
the Facts section above, Harold Morrell testified that the transfer of
all assets held by him and his wife to Michael took place pursuant to
one plan to divest themselves of all assets. Michael Morrell testified
that all securities he received from his parents were transferred after
the residence had been conveyed to him; it is undisputed that the real
property was transferred approximately six months after the assessments.
The parties agree that the assessments were made in November and
December 1990, the real property was conveyed in May 1991, and that
other securities were transferred in May 1991 and April 1992.
Accordingly, there is no basis in the undisputed evidence for finding
that the Dean Witter New York Tax Free Inc. Fund was transferred before
Morrell's argument that the government is not entitled to foreclose on
the annuity to the extent that it represents appreciation in the value
of the security holdings after the transfers of assets from the
taxpayers is erroneous. He does not question the well-settled principle
that the lien follows the property. "The transfer of property
subsequent to the attachment of the lien does not affect the lien, for
'it is of the very nature and essence of a lien, that no matter into
whose hands the property goes, it passes cum onere. . . .' "
United States v. Bess [58-2 USTC ¶9595], 357 U.S. 51, 57 (1958)
(citations omitted). This principle has been held to mean that the lien
attaches to any appreciation in the value of the property until the
taxpayer's liability has been discharge. Avila [96-2 USTC ¶50,357],
88 F.3d at 231, 233-34 (government lien is not limited to taxpayer's
equity when he conveyed the property subject to the lien; it also
attaches to the appreciation in the value of the property after the
conveyance); Han v. United States [91-2 USTC ¶50,486], 944 F.2d
526, 528-29 (9th Cir. 1991) (same); see United States v. Librizzi
[97-1 USTC ¶50,263], 108 F.3d 136 (7th Cir. 1997) (government's lien
extended to appreciated fair market value of deceased taxpayer's
interest in the property at the time of foreclosure and is not limited
to value at death).
the premises of defendant's argument, that the annuity was purchased
with appreciated assets and that the appreciation is attributable to
Michael Morrell's skillful and prudent management of his Dean Witter
account, are unfounded under the undisputed facts recited earlier.
Almost all of the appreciated value in the Dean Witter account was taken
out of it by Michael between 1992 and the account's liquidation in late
1995; and, with the inclusion of approximately 380,000 from the New York
Tax Free Inc. Fund that defendant omitted in advancing his contention,
the remaining minimal appreciation is attributable to passive
reinvestment of interest and dividends which there is no persuasive
reason to exempt from the government lien.
The motion of
United States of America
for summary judgment is granted. The government should submit a proposed
judgment on fourteen days' notice to the defendants.
Dolores Morrell died after this action was commenced and is no longer a
The parties agree that the fact that certain transfers were made after
the attachment of the liens but preceded their filing, is not
determinative in this case.
Harold and Dolores Morrell in fact continued to retain ownership of a
condominium, but the government is not seeking to foreclose on that
property in this proceeding.
N.Y. Debtor & Creditor Law §273 declares that any conveyance made
by a person who is thereby rendered insolvent is constructively
fraudulent as to creditors regardless of the transferor's "actual
intent if the conveyance is made or the obligation is incurred without a
fair consideration." Section 272 provides that "fair
consideration" is given for property when, as a fair equivalent for
it and in good faith, property is conveyed or an antecedent debt is
satisfied, or when the property is received in good faith to secure a
present advance or antecedent debt in an amount not disproportionately
small as compared with the value of the property. Schmitt v. Morgan,
98 A.D.2d 934, 935 (3d
), appeal dismissed, 62 N.Y.2d 914 (1984).
In McCombs [94-2 USTC ¶50,363], 30 F.3d at 333, the court in
dictum apparently applied the equitable subrogation doctrine of §6323(i)(2)
without citing the statute.
¶50,509] Carl G. Mueller, Jr., Plaintiff-Appellant v.
United States of America
U.S. Court of Appeals, 5th Circuit, 96-20419, 6/10/97, Reversing a
District Court decision, 96-1
Actions to enforce liens: Validity of liens: Priority of liens:
Conveyance by taxpayer: State recording statutes, notice provisions: IRS
immunity: Inquiry notice: Unjust enrichment.--The IRS's seizure of
half the proceeds of a sale of real property in order to satisfy several
tax liens against the seller's son was improper. The IRS was not exempt
from the notice provisions of a state (
) recording statute and, therefore, was charged with inquiry notice with
respect to a late-recorded deed in which the son conveyed his ownership
interests to his father. Moreover, under state (
) law, the father held equitable title under a purchase money trust
because he paid all the costs associated with the purchase of the
property. The son's only obligation was to convey the legal title to his
father which he did. Finally, since the IRS waited until the father paid
the mortgage in its entirety before it executed the tax liens on the
property, the retention of the proceeds from the sale would have
resulted in the government's unjust enrichment.
Mueller, Jr., Three River Hollow, Houston, Tex. 77027-9401, pro se.
Carol A. Barthel, Gary R. Allen, Bruce Raleigh Ellisen, Department of
Justice, Washington, D.C. 20530, for defendant-appellee.
POLITZ, Chief Judge, WIENER and STEWART, Circuit Judges.
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.ç
involves questions of property ownership under
law, of legal and equitable title, and of the proper application of the
recording statute in the factual scenario presented herein. Concluding
that the trial court erred in holding that Carl Mueller owned only a
one-half interest in the subject property, we reverse the grant of
summary judgment in favor of the Internal Revenue Service. For the
reasons assigned we render summary judgment in favor of Carl Mueller.
November 1, 1979
Carl G. Mueller, Jr. and his son Clint purchased a piece of property
known as the Braewick property. Carl paid the earnest money, down
payment, and closing costs totaling $9,548.85. The remaining
consideration consisted of a purchase money first mortgage in the sum of
$58,000 signed by both Carl and Clint Mueller. It appears that Clint was
included as a signatory on the note in order to secure a more favorable
interest rate. 1
The warranty deed was properly recorded on
November 19, 1979
December 5, 1979
Clint executed a deed conveying his interest in the property to his
father. The instrument was "executed effective as of
November 1, 1979
." Carl expressly agreed therein to assume Clint's obligations on
the $58,000 note. Clint and his wife Karen then promptly moved onto the
Braewick property under an unrecorded written lease. Carl thereafter
made all mortgage payments on the property and paid for all subsequent
repairs, taxes, and insurance. Carl did not record the December 1979
deed, however, until January 1994 when he sold the property.
Carl, in January of 1987 the IRS filed a Notice of Federal Tax Lien in
Harris County, Texas for the unpaid taxes of Clint and Karen for the
years 1984 and 1985. The IRS filed additional tax liens through May
1993, preparatory to selling the property, Carl paid the sum of
$48,214.27 in full satisfaction of the purchase money mortgage. As
noted, the following month he recorded the December 1979 deed. Believing
the property free of encumbrances, on May 26, 1994 Carl closed the sale
for the sum of $35,587.64. The IRS immediately seized one-half of the
proceeds, $17,793.82, in partial satisfaction of its tax liens against
Clint and Karen Mueller.
Carl filed the
instant wrongful levy action against the IRS. Competing motions for
summary judgment were filed. The IRS contended that by virtue of the
recording statute its tax liens had priority over the late-recorded
December 1979 conveyance from Clint to his father. Carl contended that
Clint never had an interest in the property to which the tax liens could
attach and, even if he did, the IRS could not take advantage of the
recording statute because it was not a creditor "without
notice." Finally, Carl maintained that when he paid the purchase
money note he had become subrogated to the mortgagee's position which
primed the tax liens. The district court rejected Carl's motion and
granted that of the IRS, holding that Clint owned an undivided one-half
interest in the subject property. Carl timely appealed.
A. Standard of Review
We review a
summary judgment de novo, applying the same standards used by
district courts in such matters. 2
The court must review the facts and draw inferences in favor of the
nonmoving party. 3
Summary judgment is only proper when there is no genuine issue as to any
material fact and the moving party is entitled to a judgment as a matter
of law. 4
Notice Under the
have held 5
that the IRS could avail itself of the Texas recording statute 6
in the filing of a tax lien. We reject the contention of the IRS
advanced herein, however, that it somehow is exempt from the notice
provisions of that statute. 7
The recording statute requires that a creditor be without actual,
constructive, or inquiry notice of the conveyance that it seeks to
avoid, in this instance the 1979 deed from Clint to his father. 8
produced evidence that the IRS was on notice of his claim to full title
to the property because his tax returns reflected his son's rental
payments, his son's bankruptcy petition did not list the property, and
the original deed did not specify the proportions of ownership thus
creating the potential that he and his son did not have equal ownership.
We need not consider each contention in excessive detail for we are
persuaded beyond peradventure that no lending institution likely would
have relied on an ambiguous deed if offered as collateral by the son,
nor would any purchaser or
title company accept same as dispositive if the son were purporting to
sell his half interest. 9
Prudence compels that more specific facts be determined. On this ground
alone, the summary judgment in favor of the IRS must be reversed.
that he is entitled to summary judgment. We must determine exactly what
interests Carl and Clint acquired in the original purchase because, to
satisfy Clint's tax obligations, the IRS may reach only the portion of
the property that Clint acquired therein. At this stage of the inquiry,
recording statute is irrelevant. 10
contends that it may rely on an irrebuttable presumption of equal
interests when grantees take under a deed that is silent as to the
respective interests. The district court apparently accepted this
contention. We are mindful that a presumption of equal ownership
initially arises when a deed is silent as to the respective interest of
the grantees. 11
We are also mindful of the proposition that "where two or more
persons join in the purchase of property, they will, in the absence of
an agreement to the contrary, hold title in the proportion in which each
furnished consideration for the purchase." 12
judgment record fully supports Carl's contention that it was never
intended that his son would have an ownership interest in the property.
In addition to the December deed, in which Clint conveyed all interests
in the property and Carl assumed full responsibility for the purchase
price effective back to the date of the original deed, it is not
disputed that Carl made all payments all payments involved in the
original transaction, all payments for interim mortgage, taxes,
insurance, and repair and upkeep expenses, as well as the entirety of
the mortgage satisfaction payment.
persuaded that although Carl and Clint originally took legal title, Carl
alone had the equitable title. We understand such a situation to be
covered by what, under
law, is referred to as a purchase money resulting trust.
resulting trust arises by operation of law when title is conveyed to one
person but the purchase price or a portion thereof is paid by another.
The parties are presumed to have intended that the grantee hold title to
the use of him who paid the purchase price and whom equity deems to be
the true owner. 13
'From a practical viewpoint, a resulting trust involves primarily the
operation of the equitable doctrine of consideration--the doctrine that
valuable consideration and not legal title determines the equitable
title or interest resulting from a transaction....' " 14
judgment record abounds with the accepted indicators that a resulting
trust was effectuated. As noted, the payments at original closing, the
prompt execution of a deed reflecting the true legal status, the lease
from father to son, the interim payments, and the final mortgage payout
all substantiate the existence of a resulting trust. Clint's only
obligation as the trustee of the resulting trust was to convey legal
title to his father. 15
This he promptly did.
then to a consideration of the relative equities of the parties to this
litigation, for fairness and public policy considerations predominate
when considering the propriety of a resulting trust. 16
The IRS placed its first tax liens in the
deed records in January 1987. At that time approximately $50,000
remained unpaid on the mortgage. Had the IRS attempted to execute on the
property it would have been unsuccessful because the mortgage lien was
superior to its tax liens. The IRS waited seven years until Carl,
unaware of its intentions, made the land marketable by paying off the
mortgage in its entirety. The IRS then quickly confiscated one-half of
the sales proceeds. During this seven-year interval Carl kept up with
all mortgage payments, insurance, taxes, and other expenses. To allow
the IRS to retain the benefits of these efforts would result in unjust
enrichment, which is something the resulting trust doctrine is designed
to remedy. 17
foregoing reasons, we REVERSE the summary judgment in favor of the IRS
and RENDER judgment in favor of Carl G. Mueller, Jr.
Pursuant to Local Rule 47.5, the court has determined that this opinion
should not be published and is not precedent except under the limited
circumstances set forth in Local Rule 47.5.4.
A lower interest rate was available if a party to the purchase money
mortgage on the property was going to occupy the property. Carl attested
that he planned to allow Clint and his wife Karen to lease the property.
Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477
5United States v. Creamer Indus. [65-2 USTC ¶9527], 349 F.2d 625
(5th Cir. 1965).
Tex.Prop. Code Ann. §13.001(a) (
Supp. 1997). The statute provides in relevant part:
of real property or an interest in real property or a mortgage deed of
trust is void as to a creditor or to a subsequent purchaser for a
valuable consideration without notice unless the instrument has been
acknowledged, sworn to, or proved and filed for record as required by
7Paris Grocer Co. v. Burks, 101
106, 105 S.W. 174 (1907) (specifically holding that creditors, like
purchasers, must be "without notice" to avoid an unrecorded
deed under the recording statute); see alsoPrewitt v.
United States[86-2 USTC ¶9513], 792 F.2d 1353 (5th Cir. 1986) (applying the
"without notice" requirement to the IRS).
8Harrison v. Boring, 44
255 (1875); Wethered v. Boon, 17
143 (1856). These cases treat "inquiry notice" as a subset of
various forms of constructive notice. Semantics aside, however, the IRS
is charged with knowledge of whatever a reasonable inquiry would have
revealed. Woodward v. Ortiz, 150
75, 237 S.W.2d 286 (1951).
9SeeCollum v. Sanger Bros., 98
162, 82 S.W. 459 (1904) (holding that facts placing a purchaser on
inquiry notice will also place a creditor on inquiry notice).
The IRS appears to contend that the
recording statute somehow prevents Carl from arguing that Clint took no
title in the original conveyance. The recording statute, however, only
protects the IRS from a subsequent unrecorded conveyance of an
interest in land of which it had no notice. See
Prop. Code Ann. §13.001. It is well settled that "the superiority
of [an equitable] title may be asserted against a judgment lien holder
even though he had no notice of the equitable title at the time of
fixing his lien." Gibralter Savings Ass'n v. Martin, 784
S.W.2d 555, 558 (Tex.App.--Amarillo 1990, writ denied); see alsoJohnson
v. Darr, 114
516, 272 S.W. 1098 (1925); Park Central Bank v. JHJ Investments Co.,
835 S.W.2d 813 (Tex.App.--Fort Worth 1992, no writ); Jensen v.
Bryson, 614 S.W.2d 930 (Tex.Civ.App.--Amarillo 1981, no writ); Northeast Indep. School Dist. v. Aldridge, 528 S.W.2d 341
(Tex.Civ.App.--Amarillo 1975, writ ref'd n.r.e.); Scull v. Davis,
434 S.W.2d 391 (Tex.Civ.App.--El Paso 1968, writ ref'd n.r.e.). Stated
another way, the recording statute cannot affect an equitable title,
which cannot be recorded, that was acquired in the original conveyance.
11Wooley v. West, 391 S.W.2d 157 (Tex.Civ.App.-Tyler 1965, writ
ref'd n.r.e.). The case relied upon by the district court, Zephyr v.
Zephyr, 679 S.W.2d 553 (Tex.App.-Houston [14th Dist.] 1984, no
writ), likewise so holds.
16 Tex.Jur.3d Cotenancy & Joint Tenancy §9 (1981); see
alsoWooley; Bray v.
, 9 S.W.2d 203 (Tex.Civ.App.--Waco 1928, writ dism'd w.o.j.).
13Lifemark Corp. v. Merritt, 655 S.W.2d 310, 316 (Tex.App.-Houston
[14th Dist.] 1983, writ ref'd n.r.e.) (citing Cohrs v. Scott, 161
111, 338 S.W.2d 127 (1960)); see alsoElliot v.
, 398 S.W.2d 442 (Tex.Civ.App.-Beaumont 1965, writ ref'd n.r.e.)
(holding that when property is transferred to one but paid for by
another, a presumption of resulting trust arises).
15NoLana Dev. Ass'n v. Corsi, 682 S.W.2d 246 (
1984); George T. Bogert, The Law of Trusts and Trustees §454 (2d
ed. 1991) (noting that claims of a resulting trust are often confirmed
by a deed from the legal title holder to the payer of the purchase
16See Eastham v. Roundtree, 56 Tex. 110 (1882) (holding that no
resulting trust can spring from an act contrary to public policy); Bute
v. Stickney, 160 S.W.2d 302 (Tex.Civ.App.--San Antonio 1942, writ
ref'd w.o.m.) (holding that party seeking resulting trust must come with
Tax liens: Validity of lien: Levy and distraint: Conveyance by
taxpayer: Inadequate consideration: Real property.--An individual
who purchased her daughter's real property for less than its fair market
value after the assessment of a tax deficiency against the daughter was
not entitled to the return of the property after seizure and sale by the
IRS. The IRS lien arose when taxes were assessed and was superior to any
interest that the mother subsequently acquired in the property. Further,
the mother did not qualify as a "purchaser" because she did
not pay adequate consideration for the property and did not live on the
property or otherwise treat it as her own. Consequently, the
government's interest in the property was proven to be superior to that
of the mother, and its motion for summary judgment in the wrongful levy
action was granted.
Beninda Alexander, 10799 Greentrail Dr., Boynton Beach, Fla. 33436, pro
se. Tracy Anagnost Martinez, Thomas V. Linguanti, Department of
Justice, Washington, D.C. 20530, for defendant.
This matter is
before the Court upon the defendant's motion for summary judgment
pursuant to Rule 56(c) of the Federal Rules of Civil Procedure. Oral
argument on the motion is scheduled for
July 28, 1994
Upon review of the file and all submissions of the parties, the Court
has concluded that oral argument is unnecessary. Accordingly, pursuant
to Rule 78 of the Federal Rules of Civil Procedure, the matter will be
resolved without oral argument. The hearing scheduled for
July 28, 1994
is therefore canceled.
Marcella Alexander ("Marcella"), commenced this action seeking
the return of the real property located at
7515 Chicago Avenue South
, which has been seized and sold by the Internal Revenue Service
("IRS" or "the government") for payment of the
federal income tax liabilities of Marcella's daughter, Donna Alexander
("Donna"). The IRS contends that the seizure was proper and
that its interest in the property is superior to Marcella's. In the
alternative, the IRS argues that the complaint should be stricken.
Marcella argues in response that her interest in the property is
superior to the government's.
November 7, 1990
, the IRS assessed federal income tax deficiencies, including interest
and penalties, against Donna for 1985, 1986, and 1987. Before
February 8, 1991
, Donna was record owner of the property. On
February 8, 1991
, Donna executed a warranty deed allegedly transferring her interest in
the property to her mother, Marcella, who is now the record owner.
Marcella paid Donna $1.00 in consideration for the property. The
property was seized by the IRS on
May 4, 1993
to collect the federal income taxes owed by Donna.
May 14, 1993
, approximately ten days after the property was seized, Donna executed a
"power of attorney" in favor of William Schreiber
("William"). William, who currently resides with Donna at the
property in dispute, is not an attorney, nor has Marcella ever
understood him to be an attorney. William signed and filed the complaint
initiating this lawsuit, allegedly on Marcella's behalf, on
May 24, 1993
. Marcella, however, did not see a copy of the complaint until
May 19, 1994
, which was a day before her deposition was taken by the government. He
has also signed and filed other documents on Marcella's
July 8, 1994
, Magistrate Judge Noel denied Marcella's motion to have William
represent her and directed the Clerk of Court to "remove from the
docket in this case Mr. Schreiber's name and address" and to send
documents in this action to Marcella at her
residence. Alexander v. United States, No. 3-93 CIV 325, slip op.
at 2 (D. Minn. filed July 8, 1994).
SUMMARY JUDGMENT STANDARD
Court has held that summary judgment is to be used as a tool to isolate
and dispose of claims or defenses that are either factually unsupported
or based on undisputed facts. Celotex Corp. v. Catrett, 477
317, 323-24 (1986); Hegg v.
United States, 817 F.2d 1328, 1331 (8th Cir. 1987). Summary judgment is proper,
however, only if examination of the evidence in a light most favorable
to the non-moving party reveals no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law. Anderson
v. Liberty Lobby, Inc., 477
242, 247 (1986).
The test for
whether there is a genuine issue of material fact is two-fold. First,
the materiality of a fact is determined from the substantive law
governing the claim. Only disputes over facts that might affect the
outcome of the suit are relevant on summary judgment. Liberty Lobby,
at 252; Lomar Wholesale Grocery, Inc. v. Dieter's Gourmet Foods, Inc.,
824 F.2d 582, 585 (8th Cir. 1987), cert. denied, 484
1010 (1988). Second, any dispute of material fact must be
"genuine." A dispute is genuine if the evidence is such that
it could cause a reasonable jury to return a verdict for either party. Liberty Lobby, 477
at 252. It is the non-moving party's burden to demonstrate that there is
evidence to support each essential element of its claim. Celotex,
claiming an interest in property may challenge a seizure in a wrongful
levy action pursuant to Section
7426 of the Internal Revenue Code ("I.R.C."). I.R.C. §7426
(1992). The plaintiff has the initial burden of proving that she has
an interest in the property and that the government levied on the
property because of tax assessments against another person. Xemas,
Inc. v. United States [88-1
USTC ¶9282 ], 689 F. Supp. 917, 922 (D. Minn. 1988), aff'd,
889 F.2d 1091 (8th Cir. 1989), cert. denied, 494
1027 (1990); accord Security Counselors, Inc. v.
United States [88-2
USTC ¶9584 ], 860 F.2d 867, 869 (8th Cir. 1988). The burden then
shifts to the government to prove a nexus between the property and the
taxpayer by substantial evidence. Xemas [88-1
USTC ¶9282 ], 689 F. Supp. at 922. The plaintiff, however, has the
ultimate burden of proving that the levy was wrongful. Id.
6321 and 6322 provide
that a federal tax lien arises against a delinquent taxpayer at the time
the tax is assessed and continues until the liability is satisfied or
becomes unenforceable by lapse of time. See I.R.C. §§6321
, 6322 (1992). The lien attaches to all property and rights to
property then belonging or thereafter acquired by the taxpayer. See
United States v. National Bank of Commerce [85-2
USTC ¶9482 ], 742 U.S. 713, 720 (1985). A federal tax lien arose
against the property in dispute when tax deficiencies were assessed
against Donna on
November 7, 1990
Marcella acquired the property after the lien was assessed, the
government's interest is superior to hers, unless she qualifies for one
of the exceptions set forth in Section
6323 . See United States v. Powell [81-2
USTC ¶9637 ], 48 A.F.T.R.2d 81-5741, 81-5743 (S.D. Ga. 1981). Section
6323 provides that a "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 . . . has been filed." 1
I.R.C. §6323(a) (1992).
The statutory exception germane to this action is that of a
"purchaser," which is one who, "for adequate and full
consideration in money or money's worth, acquires an interest . . . in
property which is valid under local law against subsequent purchasers
without actual notice." I.R.C. §6323(h)(6)
(1992). Thus, if Marcella qualifies as a "purchaser"
pursuant to Section
6323 , her interest has priority over the government's lien.
finds that Marcella does not qualify as a "purchaser" for
several reasons. First, and most obviously, the consideration paid was
inadequate. To be considered "adequate," consideration must
have a "reasonable relationship to the true value of the property
acquired." United States v. Mac Cement Finishing Corp. [83-1
ustc ¶9183 ], 546 F. Supp. 52, 53 (N.D.N.Y. 1982); accord
v. Powell [81-2
ustc ¶9637 ], 48 A.F.T.R.2d at 81-5743. Marcella paid only $1.00 in
consideration for property that is clearly worth far more. Second,
although Marcella is the current record owner, she has never actually
lived on the property. Instead, Donna, William, and William's son
currently reside there, Donna having lived there for about twelve years,
and William and his son having lived with Donna for at least seven
years. Third, Donna has never paid Marcella rent for living on the
property. Fourth, Marcella does not take any federal income tax
deductions in connection with the property, nor does she pay for
utilities, repairs, fire/theft insurance, or property taxes.
Accordingly, the Court finds as a matter of law that the government has
met its burden of proving that its interest in the property is superior
government's interest in the property is superior, seizure of the
property was justified pursuant to Section
6331 . I.R.C. §6331 (1992).
That section provides that the IRS may collect unpaid taxes by
istrative levy "upon all property and rights to property . . .
belonging to the taxpayer or on which there is a lien provided in this
chapter for the payment of such tax." Id.
The Court will therefore grant the
' motion for summary judgment.
determined that summary judgment is appropriate, it is not necessary for
the Court to reach a decision on the government's alternative motion to
strike the complaint on the grounds that it was brought by William, a
upon review of the files, motions, and proceedings herein,
IT IS HEREBY
The defendant's motion for summary judgment is GRANTED;
2. That the hearing scheduled for
July 28, 1994
in this matter is canceled; and
3. The Clerk of Court shall enter judgment against the plaintiff as
IT IS ORDERED,
ADJUDGED, AND DECREED That the plaintiff's complaint is dismissed in its
entirety with prejudice.
The government concedes that a notice of federal tax lien was not filed
prior to the title transfer from Donna to Marcella. (Mem. in Supp. of
Mot. for Summ. J. at 11 n.3.)
The Court will note, however, that the plaintiff has had remarkably
little involvement in this lawsuit. William signed the complaint on
Marcella's "behalf," but she did not even see it until a day
before her deposition, nor has she signed or seen most of the other
documents submitted by William. In light of her lack of participation,
the Court finds William's extensive participation somewhat disturbing,
especially given his personal interest in the outcome of the lawsuit.
This is precisely the scenario that laws prohibiting legal
representation by a non-lawyer are intended to prevent.
United States of America
, Plaintiff v. Arthur D. Dalessandro, Defendant
District Court, Mid. Dist. Pa., 3:CV-93-00105, 12/10/93
Assessment and collection: Tax liens: Real estate: Deeds:
"Purchaser": Recording.--The government's tax lien did not
attach to an individual's alleged interest in real estate because, under
state (Pennsylvania) law, the individual had conveyed his interest to
his son before the government made assessments. It did not matter that
the deed had not been recorded because the government had possession of
the deed for investigative purposes two years before it began making
assessments and, thus, had actual notice of the prior conveyance to the
son. The son's interest was first in time, and therefore first in right,
even though he was not a "purchaser" under Code Sec.
6323 because of his failure to record the deed.
Morano, Jr., 309 Federal Bldg., Scranton, Pa. 18501, Shannon L. Hough,
Angelo A. Fratarelli, Department of Justice, Washington, D.C. 20530, for
plaintiff. Mark A. Ciavarella, Jr.,
63 West River St.
, for defendant.
was commenced by the
on January 22, 1993, by the filing of a complaint. Count I of the
complaint seeks to reduce to judgment certain federal tax assessments
made against Arthur D. Dalessandro for the taxable years 1982, 1983,
1984, 1985, 1986, 1987, 1988, and 1989. Count II seeks to foreclose
existing federal tax liens on shares of stock and real estate owned by
Dalessandro. Defendant stipulated to the assessments and the amounts due
to the Government which form the basis of Count I, liquidated the shares
of stock and turned over the proceeds to the Government. However,
Defendant contends that the tax liens do not attach to the real estate
19 Fordham Road
. Defendant's contention is the only issue in this matter. We set the
matter for trial.
August 10, 1993
, counsel for both parties met with the Court in
at the final pre-trial conference. At that conference the parties stated
that there were no disputed facts and that they wished the matter
submitted to the Court on a Case Stated. On August 18, 1993, pursuant to
this Court's order of August 11, 1993, counsel for both parties
stipulated that the principal balance owed by Dalessandro as of August
17, 1993, was $32,710.99, the interest balance owed by Dalessandro as of
June 30, 1993, was $21,186.39, and the daily accrual interest rate for
the third quarter of 1993 was seven percent.
September 1, 1993
, counsel for both parties filed a Case Stated, supported by respective
memoranda of law. On
September 29, 1993
, we issued an order stating that the Case Stated was deficient in that
no date of delivery to David Dalessandro of the deed from Defendant and
his wife was stipulated to by the parties. The parties were given the
opportunity to stipulate to the date of delivery, or, in the
alternative, stipulate that there was no delivery of the deed to David
October 20, 1993
, the parties filed a statement that they were unable to stipulate as to
whether there was a valid delivery of the deed from Defendant and his
wife to David Dalessandro. On
November 23, 1993
, we held a hearing to determine whether delivery of the deed occurred
and, if so, the date thereof. The following are the Case Stated adopted
by this Court and the Court's additional findings of fact, discussion,
and conclusions of law.
Defendant and Florence G. Dalessandro were married on
September 30, 1956
May 28, 1969
, the Defendant and Florence G. Dalessandro purchased real estate
19 Fordham Road
April 2, 1980
, the Defendant filed a Complaint in Divorce against Florence G.
Dalessandro in the Court of Common Pleas of Luzerne County, PA (Case No.
1070-C of 1980).
March 30, 1985
, the Defendant and Florence G. Dalessandro executed a deed
("Deed") conveying their entire interest in the
property to their son, David Dalessandro.
conveyance referred to in the preceding paragraph was done in
consideration of one dollar ($1.00).
May 13, 1986
, a hearing was held concerning the divorce proceedings described in
7. During the
hearing described in the preceding paragraph, the Deed was admitted into
evidence as Court Exhibit 35-A.
to the hearing described in paragraph 6, the Court of Common Pleas of
Luzerne County ordered the Deed held in escrow pending the resolution of
the divorce proceedings described in paragraph 3.
9. The Deed
was not recorded prior to the court's order described in the preceding
10. The Court
of Common Pleas of Luzerne County retained possession of the Deed until
August 31, 1989
August 31, 1989
, the Court of Common Pleas of Luzerne County released the Deed to the
custody of Alan Celusniak, Special Agent, Internal Revenue Service.
May 26, 1992
, the Defendant and Florence G. Dalessandro entered into a stipulation
resolving the divorce proceedings described in paragraph 3.
May 26, 1992
, Court of Common Pleas Judge Richard D. Grifo released the Deed to the
June 22, 1992
, and again on
October 26, 1992
, counsel for the Defendant wrote to Special Agent Alan Celusniak of the
Internal Revenue Service and requested that the Deed be returned to the
Internal Revenue Service has been unable to locate the Deed.
16. To date,
no documents evidencing the conveyance described in paragraph 4 have
September 9, 1991, a delegate of the Secretary of the Treasury made the
following assessments against the defendant for federal income taxes,
accrued interest and penalties according to law:
notice and demand for payment was made on
August 31, 1992
, the date of assessment.
23. As of
January 8, 1993
, the Defendant was indebted to the Plaintiff in the amount of
$186,899.17, which sum includes interest and penalties that have accrued
under law since the respective dates of assessment.
June 16, 1992
, the Plaintiff recorded a Notice of Federal Tax Lien (lien serial
number 239221173) in the amount of $214,813.02, representing unpaid
income taxes for the years 1982 through 1985, against the defendant in
the office of the Prothonotary in
June 23, 1992
, the plaintiff recorded a Notice of Federal Tax Lien (lien serial
number 239222099) in the amount of $15,891.32, representing unpaid
income taxes for the year 1986, against the Defendant in the Office of
the Prothonotary in
July 22, 1992
, the Plaintiff recorded a Notice of Federal Tax Lien (lien serial
number 239225387) in the amount of $13,746.35, representing unpaid
income taxes for the year 1987, against the Defendant in the Office of
the Prothonotary in
July 24, 1992
, the Plaintiff recorded a Notice of Federal Tax Lien (lien serial
number 239224835) in the amount of $29,637.67, representing unpaid
income taxes for the years 1986 and 1987, against the Defendant in the
Office of the Prothonotary in
October 5, 1992
, the Plaintiff recorded a Notice of Federal Tax Lien (lien serial
number 239231558) in the amount of $16,601.09, representing unpaid
income taxes for the years 1988 and 1989, against the Defendant in the
Office of the Prothonotary in
29. On or
January 27, 1993
, the Defendant paid $148,436.53 towards the liability referenced in
30. The funds
used to make the payment described in the preceding paragraph were
derived from the sale of the shares of stock described in paragraph 21
of the Complaint.
Defendant is currently indebted to the Plaintiff in the amount of
$55,694.68, plus interest and penalties which will continue to accrue
until the entire liability is paid.
Additional Findings of Fact.
1. In March,
1985, Defendant Dalessandro delivered to his son, David Dalessandro, who
was then 21 years of age a deed to the
2. The deed at
that time was signed only by Defendant Dalessandro.
March 30, 1985
, David Dalessandro took the deed to his mother, who had an interest in
the property, obtained her signature, took her to a notary before whom
she acknowledged her signature, and redelivered the deed to his father,
Defendant Dalessandro, a Judge, to do with it whatever remained to be
addresses the issue of whether the federal tax liens that arose in 1991
and 1992 attached to the property that was allegedly conveyed to
Defendant Dalessandro's son in 1985. The IRS had notice of the
conveyance and the son's interest in the property on
August 31, 1989
contends that, since the deed to the
property was not recorded as required by 21 Pa.C.S. §444
(1970), the conveyance was fraudulent and void. The Government
argues that because of lack of recordation its tax liens attached to the
property on the date of the first assessment. 21 Pa.C.S. §444
deeds and conveyances . . . shall be recorded in the office for the
recording of deeds where such lands, tenements or hereditaments are
lying and being, within ninety days after the execution of such deeds or
conveyance, and every such deed and conveyance that shall at any time
after the passage of this act be made and executed in this commonwealth,
and which shall not be proved and recorded as aforesaid, shall be
adjudged fraudulent and void against any subsequent purchaser or
mortgagee for a valid consideration, or any creditor of the grantor or
bargainor in said deed of conveyance . . . .
Government asserts that the conveyance was void as to the Government, a
creditor of Defendant Dalessandro, because of the grantee's failure to
record the deed within 90 days of the date of conveyance.
contends that David Dalessandro is not protected as a
"purchaser" of the Fordham Road property under Section
6323(a) of the Internal Revenue Code, 26 U.S.C. §6323(h)(6)
6323(h)(6) defines a "purchaser" as "a person who,
for adequate and full consideration in money or money's worth, acquires
an interest in property which is valid under local law against
subsequent purchasers without actual notice." Therefore, the
Government concludes that the interest, if any, which he acquired was
not valid under
law against subsequent purchasers without actual notice since it was not
perfected as against bona fide purchasers under
deeds, conveyances, contracts, and other instruments of writing . . .
shall be recorded in the office for the recording of deeds in the county
where such lands, tenements, and hereditaments are situate. Every such
deed, conveyance, contract, or other instrument of writing which shall
not be acknowledged or proved and recorded, as aforesaid, shall be
adjudged fraudulent and void as to any subsequent bona fide purchaser or
mortgagee or holder of any judgment, duly entered in the prothonotary's
office of the county in which the lands, tenements, or hereditaments are
situate, without actual or constructive notice unless such deed,
conveyance, contract, or instrument of writing shall be recorded, as
aforesaid, before the recording of the deed or conveyance or the entry
of the judgment under which such subsequent purchaser, mortgagee, or
judgment creditor shall claim.
asserts that under
law the tax liens cannot attach to the
property since the property was conveyed to his son prior to the filing
of the tax liens and the IRS had knowledge of this conveyance two years
prior to the filing of its tax liens. Dalessandro contends that on
August 31, 1989
, IRS Special Agent Celusniak obtained possession of the deed to further
his investigation of Dalessandro and thus had notice of the prior
conveyance of the property to David Dalessandro.
It is well
settled that once a tax assessment is made, a lien arises in favor of
"upon all property and rights to property whether real or personal,
owing to such person." 26 U.S.C. §§6321
-22. This Court must look to state law to determine whether the
taxpayer, Defendant Dalessandro, has a property interest, and then to
federal law to determine the priority of competing interests. Aquilino
v. United States [60-2
USTC ¶9538 ], 363 U.S. 509, 513-14 (1960).
At the hearing
to determine whether there was a delivery of the deed from Defendant and
his wife to their son, David Dalessandro, David Dalessandro testified
that in March, 1985, Defendant Dalessandro delivered to him a deed to
the Fordham Road property; that the deed was signed by only his father;
that he took the deed to his mother, obtained her signature, took her to
a notary public for acknowledgment of the deed, and returned the deed to
his father, Defendant Dalessandro, to complete the processing of the
We are of the
view that a valid delivery of the deed to the
property occurred on
March 30, 1985
from Defendant and his wife to David Dalessandro.
agree that the federal tax liens arose subsequent to the conveyance of
property. The parties disagree on the application of the notice
provisions of the
recording statutes. Section
351 expressly provides a notice exception which states that the
statute does not protect those subsequent purchasers who had actual or
constructive notice of an unrecorded deed. United States v. Purcell,
798 F. Supp. 1102, 1115 (E.D. Pa. 1991) (O'Neill, J.), aff'd per
curiam, 972 F.2d 1334 (1992). The Pennsylvania Supreme Court has
held the notice provision is implicit in section
444 . Smith v. Miller, 296
340, 344, 145 A. 901 (1929).
brought an action to reduce to judgment federal tax assessments made
against a taxpayer. In that case, Defendant Purcell conveyed his
interest in real property to Gingras for valuable consideration. The
IRS, through its revenue agents, had notice of the conveyance prior to
the filing of tax liens against Purcell. Purcell, 798 F. Supp. at
1109. Gingras waited five years until he recorded his deed. Id.
The parties in
Purcell disagreed whether section
351 or section
444 applied. The court stated that it did not need to resolve the
issue of which statute applied because "the government had notice
of the transfer of Mr. Purcell's interest in the . . . property to [the
purchaser] before the Internal Revenue Service assessed Mr. Purcell and
filed its tax liens. The Government therefore is disqualified from the
protection of either
recording act." Id.
at 1115. The court held that the purchaser's interest in the real
property was superior to the IRS's lien Id.
law, either actual or constructive notice of a prior deed may defeat a
subsequent claimant's interest in property. The Pennsylvania Supreme
Court has stated that "a fundamental rule construing recording laws
generally [is] that actual notice of an unrecorded instrument, if
received by a subsequent lienor before his interest attaches, is
equivalent to the constructive notice which the recording
provides." In Re 250 Bell Road, 479
222, 227 n.l, 388 A.2d 297, 299-300 n.1 (1978). The Government contends
that focusing on the question of whether the IRS had notice of the
conveyance prior to its federal tax assessments against Dalessandro is
irrelevant. The Government argues that the real issue is whether
Defendant Dalessandro "had, on the date the federal tax liens
against him arose, a sufficient interest in [the
property] to which the tax liens would attach."
August 31, 1989
, the IRS, through Special Agent Celusniak, took possession of the deed
September 9, 1991
, the IRS made its first assessments against Dalessandro for federal
income taxes. Clearly, the IRS had notice of the conveyance of the
property by Dalessandro to his son, prior to the date that the tax
assessments against Dalessandro arose.
The fact that
David Dalessandro was not a "purchaser" under 26 U.S.C.A. §§6323(a)
& (h)(6) is not determinative in this matter. Under
law the conveyance of the
property to David Dalessandro was valid and prior in time to the federal
assessment. At the time the taxes were assessed Defendant Dalessandro
had no interest in the
rule of priority is first in time, first in right. United States v.
City of New Britain [54-1
USTC ¶9191 ], 347 U.S. 81 (1954). We are of the view that as a
matter of state law David Dalessandro's interest is valid against the
Conclusions of Law.
March 30, 1985
, a valid delivery of the deed to the
property from Defendant and his wife to David Dalessandro occurred.
2. The IRS had
notice of the conveyance of Dalessandro's interest in the
property prior to the date that the tax assessments arose.
Dalessandro's interest in the
property was first in time to that of the IRS because the tax lien arose
after Defendant Dalessandro deeded his interest in the property to his
's federal tax liens did not attach to the
order will be entered.
entered in favor of Defendant Arthur D. Dalessandro and against the
as to the validity of its claimed tax liens against the property known
19 Fordham Road
, in accordance with our opinion.
¶50,552] Linda Hamilton, Plaintiff v.
United States of America
District Court, Dist. Conn., Civ. N-90-128 (TFGD), 8/28/92, 806 FSupp
Lien for taxes: Conveyances to third parties: Suits by nontaxpayers:
Property owners.--The transfer of real property by an executed, but
unrecorded, quitclaim deed to a third party prior to the imposition of a
levy on the property was sufficient to transfer all of a taxpayer's
rights in the property to the third party. Therefore, the levy on the
property was wrongful, and the lien was ordered released. The third
party had standing to bring suit because she was in possession of the
property and the transfer of title was valid. The court rejected the
government's argument that the failure to record the deed allowed the
taxpayer to retain a right to the property. Although a subsequent
grantee who recorded a deed to the property would prevail in a contest
with the third party, the second sale by the taxpayer would be wrongful.
Therefore, the taxpayer's ability to convey marketable title in a second
sale did not constitute a property right under Code Sec.
6321 . Finally, the levy could not be upheld by reliance on a state
recording statute that protected creditors. The government had not given
credit to the taxpayer in reliance on the taxpayer's status as the
record owner of the property.
MEMORANDUM OF DECISION
Linda Hamilton ("Plaintiff" or "Ms. Hamilton")
brings this action against the
("the government" or "the defendant") for an alleged
wrongful levy. 26 U.S.C. §7426(a)(1)
. The case raises an issue of apparent first impression in this
Circuit, to wit, whether an executed but unrecorded quitclaim deed
purporting to transfer specified real property from the delinquent
taxpayer to a third-party defeats the government's levy on that
the third-party in question, seeks to enjoin the government's sale of
residential property located at
174-176 Thompson Street
("the property"). Ms. Hamilton lives there with her family in
a two-family dwelling and claims ownership to it through a quitclaim
deed executed in her favor by the record owner, Brenda Jones Agnew
("Ms. Jones"). Ms. Hamilton did not record that quitclaim
deed, however, until after the government had seized the property to
satisfy Ms. Jones' tax liabilities. Essentially arguing that as a
creditor without notice of the prior transaction it is entitled to the
protections afforded by Connecticut's recording statute, Conn. Gen.
Stat. §42 -10, the
government contends that the levy is enforceable.
The matter has
been tried to the Court and the parties have supplemented their
presentations with post-trial written submissions. This opinion
constitutes the Court's findings of fact and conclusions of law pursuant
to Federal Rule of Civil Procedure 52.
was looking for property to rent when, in 1983, a friend told her about
a two-family home on
that was available for sale at a relatively inexpensive price.
Unemployed at the time, Ms. Hamilton was convinced that she could not
obtain a mortgage for the property on her own. Ms. Jones, a long-time
friend who owned two other properties and presumably could get a
mortgage, offered to acquire the property, in name only, on Ms.
Hamilton's behalf. The two women agreed that Ms. Hamilton would pay the
closing costs and make the $3,000 down payment on the $30,000 purchase
price. Thereafter, Ms. Hamilton would make all mortgage, tax and
miscellaneous payments on the property. In exchange, Ms. Jones would
execute a quitclaim deed transferring the property to Ms. Hamilton. This
plan was chosen in lieu of a co-signing arrangement on the
mortgage--with five people already waiting in line at the bank for the
property, plaintiff was advised that such a co-signor arrangement would
complicate matters and jeopardize any prospects she had of buying the
Both Ms. Jones
and Ms. Hamilton were present at the
November 1, 1983
closing on the property. Also present were Richard Shapiro, Ms.
Hamilton's lawyer, and Owen Carber, a representative from New Haven
Savings Bank ("the Bank")--both the seller of the property and
the mortgagee. As the women had agreed, Ms. Hamilton paid the closing
costs and the $3,000 down payment for the property. Mr. Carber executed
a quitclaim deed on behalf of the Bank transferring the property to Ms.
Jones. Trans. at 10. That deed was recorded with the Registry of Deeds,
leaving Ms. Jones the record owner of the property. See id. at
83-84. The mortgage deed itself, in the amount of $27,000 in favor of
the New Haven Savings Bank, also bore the name of Ms. Jones. Exh. 2.
On the same
date as the closing, Ms. Jones executed a quitclaim deed purporting to
transfer "all right, title, interest, claim and demand
whatsoever" in the subject property to Ms. Hamilton. Exh. 1. 1
Testifying at trial as to her understanding of the quitclaim deed, Ms.
Jones stated that if there ever was a question as to who owned the
property, the quitclaim deed "would prove that Linda owned
at 23. She later added that "I never owned the property. Only in
name only did I own that property. I did not put up any money to [buy]
that property. . . . I was . . . doing an honest deed for a
at 36. The quitclaim deed, notarized and witnessed by Mr. Shapiro, was
not delivered to Ms. Hamilton at the closing. Nor was it recorded until
June 6, 1989
, some two months after the government's seizure of the property and
approximately five and one-half years after the closing. 2
after the closing until the present, Ms. Hamilton has lived in the
property with her children. The first floor of the house has also been
periodically leased by her during this period. She has paid all expenses
for improvements and repairs to the house as well as the mortgage and
tax payments, albeit with the substantial assistance of her mother, her
brother and friends. See exhs. 7 (New Haven Savings Bank payment book,
in name of plaintiff's mother); 10 (payment receipts from New Haven
Savings Bank): exh. 14 (various receipts for expenses incurred in
improving/repairing the property). Utilities were set up by Ms. Hamilton
when she moved into the house and have been paid by her. At least one
bill (water/sewage) however, was initially placed under Ms. Jones' name.
helped Ms. Hamilton move in and occasionally assisted with cleaning, Ms.
Jones never made any payments in connection with the property, never
lived there, never rented there, never stayed there and never made any
improvements or repairs to it. However, she did list
174 Thompson Street
as a source of $600 in rental income on her 1987 tax return. Exh. 502.
Ms. Jones also cited the following rental expenses relating to the
property on the same return: $1,313 in insurance, $2,894 in mortgage
interest payments, $1,510 in repairs, $1,573 in taxes, $2,000 in
utilities and $1,400 in depreciation expenses. The property was
similarly listed in Ms. Jones' 1988 return, filed jointly with her
husband. Exh. 505. That return listed $500 in rental income on the
property and $7,983 in rental expenses, including depreciation. Id.
Ms. Jones explained at trial that she and Ms. Hamilton were friends and
that Ms. Hamilton had no objections to her "reaping the gain"
from the property. Trans. at 41. Asked whether Ms. Hamilton knew about
her representations on the tax returns, Ms. Jones replied simply
"[w]hy not?" Id. Ms. Hamilton's testimony on this point
was not nearly as clear. Asked whether she knew that Ms. Jones was
"doing things on her return related to that home," Ms.
Hamilton responded as follows: "I knew that she used the tax--I
really don't know. I should not say anything, because I really do not
fully understand all the terms. But I did know that  something with
the interest rate or something interest that you can deduct from your
at 100. She also testified that Ms. Jones had mentioned something to her
about taking the interest deduction "the first year that I
purchased the house" but that she could not recall any later such
references. Asked whether she had voiced any concerns to Ms. Jones
regarding such an interest deduction, Ms. Hamilton responded that she
had not. Id.4
April 11, 1989
, the defendant, through IRS Collection Officer Alice Hammermann
("Officer Hammermann"), seized the subject property in order
to satisfy Ms. Jones' unpaid tax liabilities. The seizure followed a
property search by Officer Hammermann at the New Haven Town Hall, a
review of Ms. Jones' 1987 tax return, an interview with Ms. Jones 5
and a check with the New Haven Tax Assessor's office, all of which
indicated that Ms. Jones was the record owner of the property. Officer
Hammermann also wrote a letter to the Southern Connecticut Water
Authority to determine if there was any back money owed to the utility.
The Water Authority's response also indicated that Ms. Jones was the
owner of the property.
April 12, 1989
, immediately after learning of the seizure, Ms. Hamilton telephoned
Officer Hammermann and told her that she had a quitclaim deed that would
establish that she, Ms. Hamilton, was the owner of the property. Officer
Hammermann replied that no such deed had ever been recorded and that if
Ms. Hamilton had such a document, she would like to see it. After a
successful search for the unrecorded quitclaim deed, see supra
note 2, Ms. Hamilton's lawyer, V. James Ferraro, sent Officer Hammermann
a copy of the deed along with a letter advising her that he was having
the deed recorded with the New Haven Land Records Office. Exh. 5 (June
5, 1989 dated letter from V. James Ferraro to Alice Hammerman[n]). The
letter also requested that the government "release the property at
174-176 Thompson Street
from the IRS seizure, since Brenda Jones is not the owner of the
property. The true owner is Linda Hamilton." Id.
Notwithstanding Ms. Hamilton's claimed rights to the property, the IRS
declined to release the levy. On
March 13, 1990
, Officer Hammermann orally notified Ms. Hamilton that the IRS intended
to advertise immediately and sell the property in order to satisfy Ms.
Jones' liabilities. This suit was commenced two days later.
brings this action pursuant to 26 U.S.C. §7426(a)(1)
. That statutory section provides for suits by third-parties seeking
recovery of property in which they claim an "interest,"
property allegedly "wrongfully" levied by the Internal Revenue
Service ("IRS") in its efforts to collect taxes owing from a
delinquent taxpayer. 6
A levy of property is "wrongful" if made "upon property
in which the taxpayer had no interest at the time the lien arose or
thereafter." 26 C.F.R. 301.7426-1 (1991); see also S. Rep. No.
1708, 89th Cong., 2d Sess. 3 (1978), reprinted in 1966
U.S.C.C.A.N. 3751 (" '[w]rongful,' as used here, refers to a
proceeding against property which is not the taxpayer's"); Arth
v. United States [84-2
USTC ¶9601 ], 735 F.2d 1190, 1193 (9th Cir. 1984) ("[p]roperty
is wrongfully levied if it does not, in whole, or in part, belong to the
taxpayer against whom the levy originated") (citations omitted).
The burden of
proof in a §7426 proceeding
rests on the plaintiff, in the first instance, to show that she has
title or some other ownership interest in the property and that the
government made a levy on that property because of a tax assessment
against another taxpayer. Morris v. United States [87-1
USTC ¶9241 ], 813 F.2d 343, 345 (11th Cir. 1987). The burden is
essentially that of establishing standing. Assuming the plaintiff proves
standing, the burden then shifts to the government to prove a nexus
between the property and the delinquent taxpayer. Id.
The ultimate burden remains the plaintiff's--that of showing that the
levy was wrongful, i.e., that the property did not belong to the
taxpayer against whom the levy was directed but, in fact, belonged to
the plaintiff. Security Counselors, Inc. v. United States [88-2
USTC ¶9584 ], 860 F.2d 867, 869 (8th Cir. 1988); Arth [84-2
USTC ¶9601 ], 735 F.2d at 1193.
Hamilton is in possession of the property and as the record clearly
indicates that the government made a levy on that property because of a
tax assessment against another taxpayer, Ms. Hamilton has satisfied her
initial standing burden. Marotta v. United States, 82-1 USTC
(CCH) (N.D.N.Y. March 6, 1981) (MacMahon, J.) ("generally, courts
have held possession a sufficient interest to meet the standing
requirement of Section
7426 ") (citations omitted); compare Rabinof v.
United States [71-2
USTC ¶9601 ], 329 F.Supp. 830, 843 (S.D.N.Y. 1971) (plaintiffs in
action to enjoin enforcement of tax levy on valuable violin and bows had
standing to sue under §7426
where plaintiffs had possession of the subject property) with
Valley Finance, Inc. v. United States [80-2
USTC ¶9554 ], 629 F.2d 162, 168 (D.C. Cir. 1980), cert. denied,
451 U.S. 1018 (1981) (held that general creditors without a security
interest in the property seized or some other "specific possessory
right" did not have standing to sue under §7426
). Defendant's arguments to the contrary are not persuasive.
first argues that as Ms. Jones executed the quitclaim deed on Ms.
Hamilton's behalf before the Bank had even transferred the property to
her, see supra note 1, she "had no rights in the
property to quitclaim to the plaintiff at the time she executed the
quitclaim deed." Gov't Post-Trial Brief at 6. As such, it submits,
plaintiff acquired no legal interest in the property via the quitclaim
deed. Defendant offers no legal support, however, for what the Court
finds, in any event, a tenuous argument. It is sufficient, in the
Court's view, that the two documents were part of the same transaction
and that the execution of one was substantially contemporaneous to the
execution of the other. See World Inv. Co. v. Kolburt, 317 S.W.2d
697, 701 (St. Louis Ct. of Appeals 1958) ("[t]he true test is
whether [the instruments] were executed as integral acts in a series of
acts which, taken together, constitute one continuous transaction, and
were so intended, so that in order to carry out the intention of the
parties the two instruments should be given contemporaneous operation
and effect"); cf. Ethridge v. Allied Equip. & Supply Co.,
26 N.J. Super. 586, --, 98 A.2d 590, 591 (1953) ("where, as in this
matter, there is no intention to evade the statute and the parties
contemplate the prompt execution and delivery of the prescribed title
papers, the transaction should not be considered void merely because the
papers were not delivered at the moment the bargain was struck or when
the buyer took possession of the vehicle").
argues that even assuming Ms. Jones had an interest in the property at
the time she executed the quitclaim deed, there was no valid conveyance
of the interest in the absence of actual delivery of the quitclaim deed
to plaintiff. In making this argument, defendant assumes the burden of
proving by clear and convincing evidence that there was no valid
delivery. Lomartira v. Lomartira, 159
558, 562, 271 A.2d 91, 93 (1970). It is well settled that "[t]he
delivery of a deed with intent by the grantor to pass title is essential
to a valid conveyance." City Nat'l Bank v. Morrissey, 97
480, 483, 117 A. 493,--(1922). It is not necessary, however, that the
instrument be delivered to the grantee in person; delivery to an
authorized agent of the grantee is as effective as though made to the
grantee herself. 23 Am. Jur. 2d, Deeds§§138
-39. In all cases, the "intent of the grantor is . . . the most
important factor." D'Addario v. D'Addario, No. 256879S, 1991
Super. LEXIS 891, at *14 (
April 24, 1991
); see generally 23 Am. Jur. 2d, Deeds§123
adduced at trial indicates that Ms. Jones' intent in executing the
quitclaim deed was that of effecting a transfer of the property to the
plaintiff. As Ms. Jones testified at trial, "it was explained to
both [myself and Ms. Hamilton at the closing] that I did not own the
property. This quit-claim deed meant that it would stay in the file and
if it ever came a time of question [of] who owned the house, this would
prove that Linda owned it." Trans. at 23. Equally evident at trial
was the fact that Ms. Hamilton intended Mr. Shapiro to act as her agent
in accepting delivery of the quitclaim deed. Evidence the following
exchange between Ms. Hamilton and counsel for the government:
understanding was that the deed was in the attorney's office and that
protected you as the owner of the property?
A--Yes, yes. .
Q--Do you know
why it wasn't recorded? Do you know why it wasn't recorded?
there wasn't a need to. I just felt it was safe, you know. I thought it
was legal just the way it was. Completely legal.
Q--You mean to
have it in the attorney's possession?
Id. at 60.
Under all the
circumstances and particularly in view of the foregoing, the Court finds
that Ms. Jones intended to pass title to Ms. Hamilton via the quitclaim
deed and that delivery of that deed to her was constructively made
through Mr. Shapiro. The government's claim to the contrary is without
concluded that Ms. Hamilton has standing to bring this action, the
Court's focus turns to whether the government has established the
condition precedent to the government seizure, namely, that a nexus
exists between Ms. Jones, the taxpayer, and the property. See 26 U.S.C. §6321
(affording the government a lien for delinquent taxes upon "all
property and rights to property" belonging to the taxpayer). In
determining the nature of the legal interest Ms. Jones had in the
subject property at the time of the seizure, the Court must look to
law. Aquilino v. United States [60-2
USTC ¶9538 ], 363 U.S. 509, 513 (1960). Whether or not any
state-created interest she had in the property can then be said to
constitute possession of the "property or rights to property"
to which a tax lien can attach under §6321
, is a question of federal law. United States v. National Bank of
USTC ¶9482 ], 472 U.S. 713, 727 (1985) ("[t]he question
whether a state-law right constitutes 'property' or 'rights to property'
is a matter of federal law") (citation omitted); Kimura v.
USTC ¶50,397 ], No. 91-35010, 1992 U.S. App. LEXIS 15509, at *8
(9th Cir. July 10, 1992) ("[o]ur initial task is to understand and
define the bundle of rights and privileges that Alaska law has created
in favor of the holder of a liquor license. Concomitant with our state
law inquiry, we must determine as a matter of federal law whether the
interest created by the statute is 'property' or a 'right to property'
to which the federal tax lien can attach") (citations omitted); Terwilliger's
Catering Plus, Inc. v. United States [90-2
USTC ¶50,460 ], 911 F.2d 1168, 1171 (6th Cir. 1990), cert.
denied sub nom. Ohio Dep't of Taxation v. IRS,--U.S.--, 111 S. Ct.
2815 (1991) (same). An interest is said to constitute possession of the
"property or rights to property" where that interest is
"an economic asset in the sense that it has pecuniary worth and is
transferable." Little v. United States [83-1
USTC ¶9343 ], 704 F.2d 1100, 1106 (9th Cir. 1983); see also
Kimura, supra ("a liquor license will constitute property,
within the meaning of federal law, if the license has beneficial value
for its holder and is sufficiently transferable") (citing Little);
21 West Lancaster Corp. v. Main Line Restaurant, Inc. [86-2
USTC ¶9516 ], 790 F.2d 354, 357 (3d Cir. 1986) (same).
that Ms. Jones had an economic asset in the property and thus rights to
it, the government relies on Connecticut General Statute §47
-10, providing that "[n]o conveyance shall be effectual to hold
any land against any other person but the grantor and his [or her]
heirs, unless recorded on the records of the town in which the land
lies." Conn. Gen. Stat. §47
-10 (emphasis added). Applying that provision to the circumstances
present in the case at bar, the government submits that Ms. Hamilton's
failure to record the duly executed quitclaim deed allowed Ms. Jones to
retain marketable title to the property. She could pass that title to a
bona fide purchaser for value who could record first and whose claim
would then be superior to Ms. Hamilton's. Gov't Post-Trial Brief at 17.
This is true despite the fact that as between Ms. Jones and the first
purchaser, Ms. Hamilton, the quitclaim deed is valid and binding. 7
According to the government's analysis, the power to make this second
sale amounts to an economic asset belonging to Ms. Jones. That alleged
asset, in turn, would constitute a right to the property cognizable
under §6321 . See
finds the government's argument troubling. The position, akin to that
taken by the government in United States v. V&E Engineering &
Construction Company, would have this Court effectively sanction the
knowing sale by a vendor of the same piece of property to two
purchasers. 819 F.2d 331, 333 (1st Cir. 1987). In V&E, the
First Circuit concluded that the
recording statute at issue, a race-notice statute, could not be presumed
to work such a result. 8
As the Court explained:
government's argument amounts to asking that we construe the term
"right to property" in section
6321 as referring to the possibility that the seller might
fraudulently convey the sold property to an innocent third party. We
cannot accept that Congress intended the term "right" to
include the possibility that a party might engage in fraud. Under the
statutory scheme, a taxpayer, once having sold his property, no longer
has a "right" to that property within the meaning of section
Id. In so concluding, the First Circuit relied, inter
alia, on a
statutory provision specifying that "a sale shall be perfected
between vendor and vendee and shall be binding on both of them, if they
have agreed upon the thing which is the object of the contract and upon
the price, even when neither has been delivered." P.R. Laws Ann.
tit. 31 §3746. Under that provision, noted the Court, "a vendor is
bound by the sale of his property, regardless of the recording of that
sale by the purchaser. He, therefore, has no 'right to property' under
26 U.S.C. §6321 ."
819 F.2d at 334.
law regarding quitclaim deeds includes a comparable provision, Conn.
Gen. Stat. §47 -36f
(quoted above in note 7). Following the First Circuit's reasoning in V&E,
Ms. Jones relinquished any valid right to make further transfer
of the property in question when she executed the quitclaim deed
transferring the property to Ms. Hamilton. 9
It is undoubtedly true that where, as here, the first grantee failed to
record, any subsequent grantee of the property from Ms. Jones who does
record would prevail in a contest with the first grantee. Nonetheless,
the second transfer would have worked a fraud on the first transferee,
here Ms. Hamilton. The Court is hard pressed to believe Congress would
countenance this result. As there can be no valid right to sell the same
property twice and as Conn. Gen. Stat. §47
-36f had the operative effect of divesting Ms. Jones of title to the
property when the quitclaim deed was executed, her conceded ability to
sell the property twice could only be wrongful and cannot be
characterized as the kind of economic asset said to constitute a
property interest under §6321
. See V&E, supra. The Court notes that had the
legislature enacted a provision outlawing the sale of real property one
does not own, the government could not have made this argument. Ms.
Hamilton should not be penalized merely because the precept is so
obvious as to be virtually above legislating.
To the extent
the United States v. Creamer Indus., Inc. and Prewitt v.
United States cases in the Fifth Circuit compel a different result,
the Court declines to follow them. As the First Circuit intimated in V&E,
the persuasive dissent by the Honorable John R. Brown in Creamer
and the concurrence by the Honorable E. Grady Jolly in Prewitt
leave those decisions less than compelling authorities. Creamer
involved the case of a delinquent taxpayer who had sold several tracts
of land to a bona fide purchaser. [65-2
USTC ¶9527 ], 349 F.2d 625 (5th Cir.), cert denied, 382 U.S.
957 (1965). The deed subsequently recorded by the purchaser erroneously
failed to include certain tracts of the land. The deed was later
corrected to include the omitted property but only after a federal tax
lien against the taxpayer had attached to that portion of the property.
Over a vigorous dissent by Judge Brown, the majority held the lien
enforceable, reasoning that the conveyance of the omitted property had
not been timely recorded and that the IRS was therefore a creditor
without notice and entitled to the protection of the applicable
recording statute. Judge Brown made the following cogent argument in
dissent: "the morality of the Government's taking property which
the Court's opinion reflects was sold to, paid for by, and in equitable
conscience and law belonged to a stranger, is so disturbing to me that
before the heavy hand of the tax gatherer falls, it is for Congress to
speak clearly to declare that this is the conscience of the
country." Id. at 629-30 (Brown, J., dissenting); see
generally Travis v. United States, No. 385991, 1989 U.S. Dist.
LEXIS 12047, at *5 (E.D. Tenn. Sept. 27, 1989) (wherein the district
court noted that Judge Brown's dissent had been "at the heart
of" its ruling in favor of plaintiffs who had brought a similar
involved the filing of notice of a tax lien against real property
previously owned by James and Johanna Damon. [86-2
USTC ¶9513 ], 792 F.2d 1353 (5th Cir. 1986). The notice named James
Damon only. Before the notice was filed, however, Mrs. Damon had been
awarded the whole of the property pursuant to a divorce decree and had
subsequently sold it to Mr. Prewitt, a third-party without notice. Ms.
Damon had not filed a copy of the divorce decree until after the filing
of the levy notice at issue. Although conceding that on the date the
lien notice was filed "James had no enforceable interest in the
property as against Johanna, the divorce decree which awarded her the
property having become final two months before," the Fifth Circuit
reached the seemingly reluctant conclusion that it was bound by
precedent to hold the lien enforceable. [86-2
USTC ¶9513 ], 792 F.2d at 1355 (noting that "[w]hile on its
face somewhat appealing, [Mr. Prewitt's] argument is foreclosed by United
States v. Creamer Industries, Inc."). Concurring in the
majority opinion, the Honorable E. Grady Jolly explained that he fully
agreed with Judge Brown's dissent in Creamer and was joining the
majority "only because we are bound by our own precedent,"
Id. at 1359 (Jolly, J., concurring). Judge Jolly then proceeded to
criticize the illogical result dictated by Creamer:
pursuant to the divorce decree, the property was transferred from the
taxpayer to his wife in a final judgment on
October 9, 1982
. From that point forward, the taxpayer had no interest or right
whatsoever, legal or equitable, in this property. . . . Whatever the
[subsequent] lien attached to, it did not attach to this property
because it in no way, shape or form belonged to the taxpayer.
Neither the Creamer
decision nor the Prewitt decision persuades the Court that the
government's position here is a sound one. Neither case is on all fours
with the one at bar, neither is binding on this Court and neither is
overly persuasive, particularly when read in conjunction with Judge
Brown's and Judge Jolly's respective opinions.
persuasive, at least at first blush, is the government's argument that
Ms. Jones also had a "right to the property" to the extent
that she derived economic benefit from the purported ownership of it by
taking related deductions on her 1987 and 1988 tax returns. However,
while evident that her purported ownership of the property in that
context held pecuniary worth for Ms. Jones, that interest was not
transferable. See Little [83-1
USTC ¶9343 ], 704 F.2d at 1106. As discussed above, although she
could actually have sold the property twice, thereby transferring the
tax advantages accompanying it, the Court will not allow that she could
have done so legitimately. 10
Plaintiff has one additional source of pecuniary worth in the property
arising out of the protections extended lien creditors under the
recording statute. Prudent Projects v. Travelers Ins. Co., 3
App. 429, 431 n.3, 489 A.2d 396, 397 n.3 (1985). The government not
having raised this argument, the Court will not address it.
holds that the foregoing rationale defeats any claimed nexus between Ms.
Jones and the property in question. 11
In so holding, the Court has not ignored the fact that the IRS stands
before it as a creditor who put a lien on the property without notice
that, in fact, the property belonged to Ms. Hamilton. There is no
evidence that before Officer Hammermann seized the property on April 11,
1989 she knew that Ms. Hamilton had been living there and had been
making all payments relating to the property, albeit with the
substantial assistance of family and friends. Nonetheless, the Court's
decision finds additional support in a distinction between this creditor
and other persons or entities seeking protection under
's recording statute. While courts in Connecticut have extended the
protections of the recording statute to creditors, see Prudent
Projects, 3 Conn. App. at 431 n.3, 489 A.2d at 397 n.3, it is
apparent that the courts had in mind those individuals or entities that
had actually extended credit to the record owner in reliance on the land
records. See Second Nat'l Bank of New Haven v. Dyer, 121 Conn.
263, 184 A. 386 (1936) ("we have gone beyond the express terms of
the recording statute and . . . have given the protection of the
recording system to those who have given credit to one appearing upon
the record to be the owner of the property although he had no beneficial
right in it") (citations omitted). Defendant here is not so
situated. The record is devoid of any evidence that the government ever
extended credit to Ms. Jones in reliance on her record ownership of the
subject property. The case does not, in sum, involve the equitable
stakes typically dispositive of the conventional recording statute
dispute. It calls to mind instead Judge Brown's words in dissent in Creamer:
This is a
startling result. Laws of Texas which are designed to protect innocent
persons dealing in faith on the revelations of title records are twisted
to permit the great national sovereign to take property from one who is
the acknowledged owner of it to apply on the tax debts of another the
former owner who--as the trial Court found and this Court does not
dispute--has transferred the property. I do not believe that Congress
ever intended any such result. I do not think that a Court should lend
its hand to anything so demeaning to a sovereign.
offers the alternative argument that Ms. Hamilton should be estopped, as
an equitable matter, from denying Ms. Jones' alleged interest in the
property. The Court finds this argument unavailing, premised as it is on
the government's unsupported collusion theory. As noted earlier, see
supra note 2, the Court is not convinced that either woman made a
deliberate decision not to record the quitclaim deed with a wrongful
purpose in mind. For example, plaintiff did not testify, as the
government alleges, that "she would not have wanted to be named as
titular owner at the time Brenda Jones purchased the property since her
one stable source of income was welfare." Gov't Post-Trial Brief at
18. Although Ms. Hamilton testified that she did not inform the State
Department of Income Maintenance that she had purchased a home, see
Trans. at 103, the government's above paraphrase strikes the Court as a
reaching extrapolation of that testimony. 12
In the absence
of a finding that Ms. Jones possessed the property at issue or rights to
it, the Court concludes that the challenged levy was wrongful. So
concluding, the Court hereby ORDERS the Clerk of the Court to enter
judgment for the plaintiff. Consistent with this Order, the Commissioner
of the Internal Revenue Service is directed to cause the release of the
lien at issue forthwith. 13
Ms. Hamilton's uncontradicted testimony at trial established that Ms.
Jones signed the quitclaim deed transferring the property to Ms.
Hamilton before she signed the quitclaim deed through which the Bank
transferred the property to her. Trans. at 84.
None of the witnesses at trial, including either Mr. Shapiro, Ms. Jones
or Ms. Hamilton, could fully account for the failure to record the
quitclaim deed immediately after the closing. It appears that the deed
was only mistakenly returned to Mr. Shapiro's file without having been
recorded. Although Ms. Hamilton testified that she did not believe it
had to be recorded, there is no evidence that she advised Mr. Shapiro
not to do so. The deed did not resurface until June, 1989, when Ms.
Hamilton, confronted with the seizure of the property, conducted a
search for it. Only then was it recovered from a file at Mr. Shapiro's
former law firm.
suggested at trial and in its post-trial submission that Ms. Hamilton
chose not to record the deed in order to avoid jeopardizing her
entitlement to welfare payments. See, e.g., Gov't Post-Trial
Brief at 14, 19. The argument, part and parcel of the government's
theory of collusion between the two women, is not persuasive. As the
Court noted at trial, the theory does not adequately explain Mr.
Shapiro's role in the transaction and his testimony that he was under
the impression that the quitclaim deed had been recorded. Mr. Shapiro's
testimony allows of no inference that he knowingly agreed to keep the
deed in his file without recording it.
The government's proposed finding of fact that all other utilities,
including electricity, were held and paid in the name of Brenda Jones,
finds no support in the record. See Gov't Post-Trial Brief at ¶11.
The record does not support the government's claim that Ms. Jones
reported ownership of the property "[o]n her tax returns for tax
years 1983 through 1988." Gov't Post-Trial Brief at ¶14. Only Ms.
Jones' 1987 and 1988 returns were admitted at trial; the sole reference
to returns from 1983 through 1986 came in the form of a question from
government counsel that was not subsequently adopted by the witness. See
Trans. at 31-32. Alleged exhibits 503 and 506, cited by the government
in connection with this argument, see Gov't Post-Trial Brief at ¶15,
are not part of the record in this case.
When Officer Hammermann met with Ms. Jones to secure a financial
statement, Ms. Jones indicated to her that she owned the
property. Trans. at 130 (Officer Hammermann's testimony).
Recognizing that the government's rigorous tax enforcement activities at
times encroach upon persons other than the delinquent taxpayer, Congress
sought through this provision to provide a measure of protection for the
property rights of these third-parties. See Falcon Constr. Co. v.
United States, No. F-87-332 (EDP), 1988 U.S. Dist. LEXIS 16730, at *9 (E.D. Cal.
June 15, 1988) (citing the section's legislative history).
Connecticut law provides that a quitclaim deed, when duly executed,
"has the force and effect of a conveyance to the releasee of all
the releasor's right, title and interest in and to the property
described therein . . ." Conn. Gen. Stat. §47
-36f. Thus, as between Ms. Jones and the plaintiff, the deed is
valid, though not recorded, and in a contest between the two, Ms. Jones
could successfully claim no interest in the property.
As here, V&E involved a situation where notice of an IRS tax
lien was filed before the mortgage and deed of sale from an earlier
transfer of the property by the delinquent taxpayer, V & E, were
recorded. The government argued that the property remained subject to
the tax lien even after V & E had sold the property to innocent
The government's attempts to distinguish V&E are
unpersuasive. See Gov't Post-Trial Brief at 15 n.2.
The government's additional claim, that "Ms. Jones was further able
to list the parcel on any and all loan and other credit applications she
may have chosen to make," has no evidentiary basis in the record
and was presumably offered as hypothetical support for the government's
position. See Gov't Post-Trial Brief at 10. This hypothetical interest,
while also of obvious pecuniary value, is only as transferable, however,
as the property itself. As noted above, the property itself cannot
properly be transferred.
The Second Circuit's recent decision in SEC v. Levine, reversing
a District Court's holding that assets obtained by wrongful means could
not properly be considered property of the taxpayer for §6321
purposes, does not compel this Court to reach a contrary finding.
881 F.2d 1165 (2d Cir. 1989), aff'g in part, rev'g in part 689 F.
Supp. 317 (S.D.N.Y. 1988). The Second Circuit reversed the District
Court's conclusion on two grounds. As an initial matter, the Court found
no evidence to support the finding below that the assets had been
obtained by wrongful means. Assuming, arguendo, that that finding
was supportable, the Court found error in the District Court's ensuing
legal analysis and, specifically, its conclusion that the applicable
provision of the Securities Exchange Act of 1934 would have rendered the
wrongful transaction at issue void. Because the statutory provision at
issue only rendered the transaction voidable and not void, and because
law provides that a culpable party to a voidable transaction nonetheless
acquires title, albeit voidable title, to the transferred goods, the
Court concluded that defendants had acquired property rights in the
goods and that the contrary finding below was in error. Id.
this case does not involve a contract voidable under federal law, nor
does it involve any state law providing that a voidable transaction
nonetheless extends good title to the property at issue.
In view of the findings above, the Court need not address plaintiff's
alternative argument that Ms. Jones held the record title under the
resulting trust doctrine as trustee for the benefit of Ms. Hamilton.
As the mortgage on the property has not been repaid in full, the Court
declines to grant the relief requested in paragraph 2 of plaintiff's
prayer for relief--the issuance of a declaration that she is the sole
and absolute owner of the subject property.
ert A. Miller, Kody Miller, by
ert A. Miller,
ert Miller, by
ert A. Miller, Carey Miller, Jeremiah Justin Miller, by Carey Miller,
Rick Miller, James Miller, Plaintiffs-Appellees v. Tony Alamo, a/k/a
Tony Fernando, a/k/a Tony Fernando Alamo, a/k/a Bernie Lazar, a/k/a
Bernie Hoffman, a/k/a Bernie Lazar Hoffman, a/k/a Boris Lazar, a/k/a
Papa Tony, individually and as officer and director of Tony & Susan
Alamo Foundation & Music Square Church, Defendant-Appellee. Timothy
J. Leathers, Commissioner of Revenues, Arkansas Department of Finance
and Administration, Intervenor, United States of America,
U.S. Court of Appeals, 8th Circuit, 91-3116WA, 9/21/92, 975 F2d 547,
Affirming an unreported District Court decision
Liens: Priority: Validity: Finality of lower court decision.--A
judgment creditor was entitled to the proceeds of a sheriff's sale of
the debtor's personal property, despite the fact that the IRS had a
senior tax lien. Under state (
) law, the debtor had no rights with respect to the proceeds to which
the IRS's lien could attach. Further, the tax lien was valid and the
appeal was not moot. Prior to its sale, the auctioned property had been
transferred from one debtor-controlled entity to another. Although the
IRS's lien attached to the property of the former entity, the court had
issued a prior ruling that both entities (and the debtor) were alter
egos and, therefore, the tax lien attached to the auctioned property.
Finally, the court had jurisdiction over the appeal because the lower
court's order was final. The lower court decided who was entitled to the
proceeds, the sole issue for decision, and the fact that it refused to
rule on the validity or priority of the liens of the numerous other
intervening claimants did not undermine the finality of that decision.
Similarly, the debtor's pending Rule 60(b) motion seeking relief from
the taxpayer's judgment did not thwart finality.
GIBSON, Circuit Judge, F. GIBSON, Senior Circuit Judge, and BEAM,
Senior Circuit Judge:
appeals the district court's 1
determination that the Millers were entitled to the proceeds realized
from a series of judicial sales. We affirm.
obtained a default judgment against Tony Alamo for violations of the
Fair Labor Standards Act, 29 U.S.C. §§206(a)(1) and 207(a)(1) and for
various claims arising under state law. See Miller v. Tony &
Susan Alamo Found., 748 F.Supp. 695 (W.D. Ark. 1990). Following
further proceedings in this case, the district court found that Alamo
and various corporations, including the Tony & Susan Alamo
Foundation ("the Foundation") and Music Square Church, Inc.
("Music Square") had no existence separate and apart from each
other, and therefore held they were alter egos. The Foundation and
appealed the judgment, and we affirmed the district court. See Miller
v. Tony & Susan Alamo Found., 924 F.2d 143 (8th Cir. 1991).
April 30, 1990
, the Millers recorded their judgment with the Crawford County,
Arkansas, Circuit Clerk. After discovering the Foundation and
had transferred their
property to Twentieth Century Holiness Tabernacle, Inc. ("Twentieth
Century"), the Millers filed suit in the Crawford County Chancery
Court, alleging that the conveyances were fraudulent and that Twentieth
Century was yet another of
's alter egos. The Chancery Court granted the Millers relief on both
theories in February 1991.
June 11, 1990
, the Internal Revenue Service filed notices of federal tax liens with
the Crawford County Circuit Clerk against the Foundation,
, and Twentieth Century. All but one of these assessments were
"jeopardy assessments" under 26 U.S.C. §6861
(1988); the other assessment was made against the Foundation for
unpaid employment taxes. In November 1991, the jeopardy assessments were
abated by the United States District Court for the Middle District of
Tennessee. See 26 U.S.C. §7429(b)(3)
1991, pursuant to a writ of execution issued the prior month, the United
States Marshall seized real and personal property owned by Alamo and his
corporate alter egos. The personal property consisted primarily of fancy
denim jackets that
and his corporations sold for profit. The personal property, which was
sold in a series of sales held during the first part of April, produced
istrative expenses) approximately $340,000.
A group of
litigants (referred to as the "Mick Intervenors") claimed the
right to intervene in the proceedings as beneficiaries of a judgment
obtained by the Secretary of Labor against the Foundation. Additionally,
the IRS and the Arkansas Department of Finance and Administration (DFA)
sought to intervene. All motions to intervene were eventually granted.
, based on the claims of the intervenors and other non-intervening
creditors, refused to disburse the sales' proceeds absent a court order.
The Millers moved for an order directing that they be paid the proceeds,
and the district court granted the motion. In so doing, the district
court expressly refused to determine the validity or priority of any of
the intervenors' liens, holding that
to the extent
any of these recent claimants had liens attaching to any of the property
sold at the execution sales which were superior to those of the
plaintiffs in this case, those liens are still attached to the property.
It is only if the claimants' liens were inferior to those of the
plaintiffs that they would have been extinguished. In either event, the
liens of the various competing parties do not attach to the proceeds now
in the hands of the U.S. Marshal, and those proceeds should be paid to
the executing judgment creditors.
v. Alamo, No. 88-2206, slip op. at
3 (W.D. Ark. June 7, 1991) (order granting disbursement of proceeds).
The government appeals the order.
contend the district court's June 7 order is not final and we therefore
lack jurisdiction over this appeal. The lack of finality is predicated
on what the Millers believe are some still-lingering issues: the
validity and priority of the various liens, the IRS' request for a
ruling that it is entitled to any proceeds that exceed the Millers'
judgment, the validity of a garnishment filed by the Millers against the
IRS, and Alamo's continuing attempts to have the underlying judgment set
jurisdiction extends only over final judgments, see 28 U.S.C. §1291
(1988); however, the concept of finality is elusive and is often
difficult to ascertain. Eisen v. Carlisle & Jacquelin, 417
156, 170 & n.9 (1974). Finality is to be determined by applying
practical, not technical, considerations, which requires an appellate
court to consider "the competing considerations underlying all
questions of finality--'the inconvenience and costs of piecemeal review
on the one hand and the danger of denying justice by delay on the
other.' " Id.
at 171 (quoting Dickinson v. Petroleum Conversion Corp., 338
507, 511 (1950) (footnote omitted)). However, the concern about limiting
piecemeal appeals is diminished when the appeal involves post-judgment
orders. United States v. Washington, 761 F.2d 1404, 1406 (9th
Cir. 1985), cert. denied, 474
1100 (1986); Joseph & Hughes Co. v. United Plumbing &
Heating, Inc. [68-1
USTC ¶9280 ], 390 F.2d 629, 630 (6th Cir. 1968). One reason is that
the underlying dispute has already been settled, and there is little
danger that prompt appeal of post-judgment matters will cause confusion,
duplicative effort, or otherwise interfere with the trial court's
disposition of the underlying merits. See King v. Ionization Intern.,
Inc., 825 F.2d 1180, 1184 (7th Cir. 1987). Another reason for
downplaying the courts' traditional concern over piecemeal appeals is
that further proceedings are not likely to produce an order that is any
more final than the one at issue. See
Washington, 761 F.2d at 1406. This case presents a prime example of the latter
point. The issue presented to the district court was, simply, who should
get the proceeds from the sale of the assets? The district court
answered this question when it decided the Millers were entitled to the
money. This mini-dispute is over insofar as the district court is
concerned; nothing the court could do in the future will make its
decision any more final. Though it is true the court did not decide the
validity or priority of the various claimants' liens, it declined to do
so because such a determination was unnecessary to decide the issue then
before the court. The validity of the Millers' garnishment against the
IRS has no bearing on the fund of money at issue in this case, and the
IRS' request for a ruling that it is entitled to any proceeds in excess
of the Millers' claim is irrelevant in that it appears there is no
's continuing efforts to undo the effects of the underlying judgment
requires further discussion.
filed a motion seeking relief from the Millers' judgment pursuant to
Fed. R. Civ. Pro. 60(b). This motion was denied by the district court
has appealed that denial. 3
The Millers contend the underlying merits are theoretically still in
jeopardy of reversal and therefore the issues raised by the government
are not ripe for appellate review. The flaw in the Millers' argument is
's Rule 60(b) appeal is not coupled with a direct appeal; indeed, the
underlying judgment was rendered in 1990, and the time for filing a
direct appeal has long since passed. A Rule 60(b) motion "does not
affect the finality of a judgment or suspend its operation," Fed.
R. Civ. Pro. 60(b), so "an appeal from the denial of a motion made
under Rule 60(b) does not raise the underlying judgment for review; it
presents the appellate court only with the question of whether the trial
court abused its discretion in ruling on the motion." Sanders v.
Clemco Indus., 862 F.2d 161, 169 (8th Cir. 1988). Thus, as a
's current efforts do not touch upon the merits of this case.
We are also
concerned about the practical implications of the Millers' argument. The
Millers' argument rests upon one of two premises: either (1) the present
existence of a Rule 60(b) motion prevents finality, or (2) the existence
of an avenue through which a judgment's merits may be reexamined
prevents finality. Both premises are unacceptable. A Rule 60(b) motion
may be filed for any one of six listed reasons, 4
and must be filed within a reasonable time. The rule prescribes that a
motion based upon the first three grounds must also be filed within one
year of the judgment; however, there is no outer time limit on the
latter three grounds. "What constitutes a 'reasonable time' depends
largely on the facts of each case under consideration. See In re
Emergency Beacon Corp., 666 F.2d 754, 760 (2d Cir. 1981) (twenty-six
month delay not unreasonable)." Harris v. Union Elec. Co.,
846 F.2d 482, 484 (8th Cir. 1988). Thus, a losing party could always
file a Rule 60(b) motion, regardless of how much time has passed since
the court entered judgment. To be sure, as time passes the likelihood
diminishes that the motion will be found to have been filed within a
reasonable time; however, the district court would still be required to
determine the reasonableness of the delay. If the Millers' argument is
correct, the government can never appeal this order because Alamo will
always have the ability to file a Rule 60(b) motion, have it granted (at
least in theory), be relieved of the judgment, and thereby remove the
judgment upon which the instant order depends. Clearly, this is not the
On the other
hand, we cannot accept the premise that the presence of
's current Rule 60(b) motion in the judicial process thwarts finality.
This premise leads to the conclusion that a judgment's finality could
appear and disappear as each Rule 60(b) motion is denied and a new one
is filed. Finality is not a transient concept, and this view would
remove all meaning from Rule 60(b)'s specific admonishment that a motion
will not affect finality.
contend the government's appeal is moot because the jeopardy assessments
were set aside, thereby extinguishing the IRS' lien. 5
The Millers concede the assessment for employment taxes was not a
jeopardy assessment and therefore the lien for those taxes was
unaffected by the setting aside of the jeopardy assessments; however,
the Millers contend the assessment was made on the Foundation, and the
property seized and sold pursuant to the instant execution had been
conveyed by the Foundation to Music Square long before the IRS made the
assessment. The government contends it has a lien against the
Foundation, and there have been judicial determinations--in this case
and in other cases--that the Foundation,
are all alter egos. We agree that the district court's decision to that
effect in this case prevents the government's appeal from being moot.
In holding the
corporations and Alamo were alter egos of each other, the district court
specifically found the corporations had no existence apart from Alamo,
and the corporations were really the same entities. This ruling became
the law of the case and should be applied, absent special circumstances
not present here, throughout all subsequent proceedings in this case. Little
Earth of United Tribes, Inc. v. United States Dep't of Housing &
Urban Dev., 807 F.2d 1433, 1441 (8th Cir. 1986). As an intervenor in
this case, the government is bound by all prior judicial decisions, Galbreath
v. Metropolitan Trust Co. of Cal., 134 F.2d 569, 570 (10th Cir.
1943); Yankton Sioux Tribe of Indians v. Nelson, 604 F.Supp.
1146, 1151 (D.S.D. 1985), rev'd on other grounds, 796 F.2d 241
(8th Cir. 1986), and there is no principled justification for binding
intervenors to unfavorable prior decisions while at the same time
denying intervenors the benefits of favorable prior decisions. We also
believe it would be anomalous to hold that, with respect to some
parties, the defendant-entities are alter-egos, yet with respect to
other parties, they are not. The combination of the government's lien on
the Foundation's property and the court's prior ruling that the
(and Alamo) are the same entities means the government has, for purposes
of this case, a lien on the clothing that was sold at the
Disposition of the Proceeds
argues its lien on the clothing is superior to the Millers'. The Millers
do not dispute this contention; therefore, we will assume the
government's claim to be true. We begin sorting out the competing claims
by first noting the government's tax lien attaches to all real and
personal property owned by
, even if the property was acquired after the lien's creation. 26 U.S.C.
§6321 (1988); Glass
City Bank v. United States [45-2
USTC ¶9449 ], 326 U.S. 265, 267, 268 (1945). However, in deciding
whether the proceeds from these sales can be characterized as Alamo's
property (thereby allowing the tax lien to attach), we must refer to
law. Aquilino v. United States [60-2
USTC ¶9538 ], 363 U.S. 509, 512-13 (1960).
law has uncovered little that directly addresses this issue, we note
there is absolutely nothing in
' jurisprudence supporting the government's position that the sales'
proceeds could be considered
's property. On the other hand, we have found some indications that
had no rights with respect to the proceeds. First, funds obtained by a
sheriff pursuant to a sale are to be turned over to the creditor; the
sheriff's failure to pay the creditor gives rise to a cause of action
against the sheriff. Fort Smith Seed Co. v. Jones, 132 S.W.2d
364, 365 (
1939); see also Ark. Stat. Ann. §16
-66-118(c) & (d) (1987). The debtor receives funds only if there
is money left after paying the judgment and costs of the sale. Id.§16 -66-413(b)(2); see
also id.§16 -66-114(h)
law would recognize
's entitlement to any money in excess of the Millers' judgment and
istrative costs, and the government's lien would attach to that amount. Cf.
Byers v. Sheets, 643 F.Supp. 695, 697 (W.D. Mo. 1986) (holding that
law, debtor has sufficient rights with respect to surplus to allow
federal tax lien to attach). However, there was no excess in this case;
therefore Alamo would not be entitled to any portion of the money and
there is no property belonging to
to which the tax lien may attach.
in this regard is buttressed by the contrast between two Supreme Court
opinions. In United States v. National Bank of Commerce [85-2
USTC ¶9482 ], 472 U.S. 713 (1985), the Court, in a 5-4 decision,
held that a tax lien attached to all the money contained in a joint bank
account even though the lax lien applied to only one of the three owners
because the delinquent taxpayer had the right to withdraw the full
amount contained in the account without notice to or permission from his
at 723-24. In United States v. Bess [58-2
USTC ¶9595 ], 357 U.S. 51 (1958), the Court held that a tax lien
did not attach to the proceeds of a life insurance policy insuring the
life of the taxpayer (but did attach to the cash surrender value). In so
holding, the Court relied on the fact that the insured/taxpayer could
not receive the proceeds himself, even though he possessed the right to
direct to whom the proceeds would be paid. Id.
at 55-56. We believe the funds at issue in this case are more akin to
those at issue in Bess;
had no right to the funds, could not direct where they were paid, and
could not expect to receive any part of the money.
absolutely no rights with respect to these proceeds; consequently,
federal law does not permit a lien to be placed on them.
is correct when it contends state law cannot curtail a lien. However,
this doctrine merely means that once it has been determined state law
would grant the debtor/taxpayer property rights, the tax lien
attaches--even if state law would not allow other liens to attach. Thus,
the cash surrender value of a life insurance policy is property to which
a tax lien may attach, even if state law would exempt that property. Bess
¶9482 ], 357
at 56-57. Similarly, the tax lien may attach to the funds in a joint
account, even if state law may not allow other creditors to garnish
those funds. National Bank of Commerce [58-2
USTC ¶9595 ], 472
at 727. However, this rule of law applies only after it has been
determined that the debtor has property; once it has been determined the
debtor has property, state law cannot be used as a shield against the
government's tax lien. We have not reached this point in the analysis
law extends no rights or expectations to
with respect to this money.
is not left without recourse. Given that the government's lien on the
personal property is senior to the Millers', the government's lien
survived the sales. 26 U.S.C. §7425(a)
Stat. Ann. 16-66-203(a) (1987). The government recognizes its lien
survives the sales, but contends it is still entitled to recover from
the proceeds because it would be impractical to track down all the
buyers and assert its superior lien position against each and every
jacket purchaser. We cannot say whether or not it is practical or wise
for the government to enforce its lien position; we need not do so
because there is no doctrine of "virtual destruction" of a
senior lien anywhere in the federal or state law. Federal statutes do
not grant the government any rights to the proceeds realized from the
sales of the jackets, and we cannot manufacture rights simply because
the nature of the personal property in this case makes it difficult or
impractical for the government to pursue the rights it does possess, or
even because it would make the government's task easier.
law does not bestow any rights with respect to the proceeds upon
. Consequently, the proceeds are not
's property and the government's tax lien cannot attach. We affirm the
district court. 6
The Honorable Morris S. Arnold, then a United States District Judge for
the Western District of Arkansas and currently a member of this court.
The district court's decision setting aside the abatements is not
reported. However, the court delivered its findings orally, at which
time it stated that the abatements were unreasonable because the
government made them solely to manufacture a lien position superior to
's appeal of the denial of his Rule 60(b) motion is pending in this
court, and has not yet been assigned to a panel. We make clear that
nothing contained in this opinion is intended to resolve any of the
issues in that appeal, and this opinion should not bind the panel to
which that appeal is ultimately assigned.
inadvertence, surprise, or excusable neglect; (2) newly discovered
evidence which by due diligence could not have been discovered in time
to move for a new trial under Rule 59(b); (3) fraud . . .
misrepresentation, or other misconduct of an adverse party; (4) the
judgment is void; (5) the judgment has been satisfied, released, or
discharged, or a prior judgment upon which it is based has been reversed
or otherwise vacated, or it is no longer equitable that the judgment
should have prospective application; or (6) any other reason justifying
relief from the operation of the judgment.
Fed. R. Civ.
This was not an issue in the district court because the jeopardy
assessments were set aside after the court ruled on the disposition of
Because of the nature of our decision, we need not address the district
court's alternative holding that the money was protected by 26 U.S.C. §6323(b)(8)
(1988), which renders the tax lien invalid insofar as the property
is subject to a lien for an attorney's services.
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