Deeds of Trust

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[2002-2 USTC ¶50,560] United States of America , Plaintiff v. Stephen C. Burdine, et al., Defendants

U.S. District Court, West. Dist. Wash. , Tacoma Div., C01-5286RJB, 4/3/2002 , 2002 U.S. Dist. LEXIS 12058.

[Code Sec. 6203 ]

Assessments, validity of: Evidence: Form 4340: Presumption of correctness.--The government was entitled to foreclose on a married couple's property because Forms 4340 were presumptive proof that the taxes at issue were duly assessed and recorded, and that adequate notice and demand had been made. The taxpayers' contention that the forms were unreliable and could not be verified by an audit trail of supporting documents was rejected. Documents they submitted did not show errors in their accounts. In addition, they failed to show any existing or potential problems with the master file system used to record the assessments, or how the absence of such a system rebutted the presumption of correctness of the Forms 4340.

[Code Secs. 6212 and 6321 ]

Liens and levies: Creation of lien: Notice of deficiency: Necessity of notice: Self-reported liability: Employment taxes.--Liens against a married couple who failed or refused to pay income and employment taxes properly arose on the date of assessment and attached to the taxpayers' residence. The taxpayers' contention that the liens were invalid because the IRS failed to issue a notice of deficiency prior to filing them was rejected. The IRS was not required to issue a notice of deficiency because the income taxes at issue were based on amounts voluntarily reported and because employment taxes are not subject to the Code Sec. 6212 deficiency procedures.

[Code Sec. 6323 ]

Priority of liens: Deed of trust.--Valid federal tax liens that attached to a married couple's residence were junior in priority to a deed of trust in favor of the taxpayers' mortgage company because the deed was recorded before the government recorded its notices of lien.

[Code Sec. 6323 ]

Priority of liens: Judgment creditors.--Valid federal tax liens that attached to a married couple's residence were superior in priority to judgment liens against the property that were held by two entities because the tax liens were recorded prior to those judgments. BACK

[Code Sec. 6323 ]

Priority of liens: State property taxes.--Valid federal tax liens that attached to a married couple's residence were junior in priority to any lien in favor of the taxpayers' county of residence for unpaid property taxes and special assessments.

[Code Sec. 7403 ]

Liens and levies: Action to enforce lien: Foreclosure: Priority of liens.--The government was entitled to foreclose on property belonging to a married couple who failed or refused to pay income and employment taxes that they voluntarily reported for three tax years. Valid federal tax liens attached to the property were junior in priority to any lien in favor of the taxpayers' county of residence for unpaid property taxes and special assessments. The liens were also junior to a deed of trust in favor of their mortgage company because the deed was recorded before the government recorded its notices of lien. However, the federal tax liens were superior to judgment liens against the property because the tax liens were recorded prior to those judgments.

W. Carl Hankla, Jeremy N. Hendon, Department of Justice, Washington, D.C. 20530, for plaintiff. Stephen C. Burdine, Michelle S. Burdine, Tacoma , Wash. , pro se.

ORDER GRANTING UNITED STATES' MOTION FOR SUMMARY JUDGMENT

BRYAN, District Judge:

This matter comes before the court on the United States ' Motion for Summary Judgment. Dkt. 31. The court has considered the pleadings filed in support of and in opposition to the motion and the file herein.

A. SUMMARY JUDGMENT STANDARD

Summary judgment is proper only if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party is entitled to judgment as a matter of law when the nonmoving party fails to make a sufficient showing on an essential element of a claim in the case on which the nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L.Ed.2d 265, 106 S.Ct. 2548 (1985). There is no genuine issue of fact for trial where the record, taken as a whole, could not lead a rational trier of fact to find for the non moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L.Ed.2d 538, 106 S.Ct. 1348 (1986) (nonmoving party must present specific, significant probative evidence, not simply "some metaphysical doubt."). See also Fed.R.Civ.P. 56(e). Conversely, a genuine dispute over a material fact exists if there is sufficient evidence supporting the claimed factual dispute, requiring a judge or jury to resolve the differing versions of the truth. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 253, 91 L.Ed.2d 202, 106 S.Ct. 2505 (1986); T.W. Elec. Service Inc. v. Pacific Electrical Contractors Association, 809 F.2d 626, 630 (9th Cir. 1987).

The determination of the existence of a material fact is often a close question. The court must consider the substantive evidentiary burden that the nonmoving party must meet at trial--e.g., a preponderance of the evidence in most civil cases. Anderson, 477 U.S. at 254, T.W. Elect. Service Inc., 809 F.2d at 630. The court must resolve any factual issues of controversy in favor of the nonmoving party only when the facts specifically attested by that party contradict facts specifically attested by the moving party. The nonmoving party may not merely state that it will discredit the moving party's evidence at trial, in the hopes that evidence can be developed at trial to support the claim. T.W. Elect. Service Inc., 809 F.2d at 630 (relying on Anderson , supra). Conclusory, non specific statements in affidavits are not sufficient, and "missing facts" will not be "presumed." Lujan v. National Wildlife Federation, 497 U.S. 871, 888-89, 111 L.Ed.2d 695, 110 S.Ct. 3177 (1990).

B. PROCEDURAL AND FACTUAL BACKGROUND

Stephen C. Burdine and Michelle S. Burdine (The Burdines) have been married continuously since at least January 1, 1990 . The Burdines currently reside at 4506 Country Club Dr. N.E. , Tacoma Washington 98422 (The Property). The Burdines acquired the property on or about July 30, 1999 . They gave a deed of trust on the property to WMC Mortgage Corporation to finance the purchase, which WMC subsequently assigned to Nations Credit Home Equity Services Corporation. Bishop, Lynch & White, P.S. is the trustee under that deed of trust.

During 1990, Mr. Burdine operated a sole proprietorship business under the name "Burdine & Associates." He filed Form 941 federal employment tax returns for the second, third and fourth quarters of 1990, but did not pay the tax due on those returns. The United States contends that, as of March 1, 2002, the outstanding balance of self reported employment tax liabilities assessed against the Burdines was $15,954.69, including statutory interest under 26 U.S.C. §6651 and penalties under 26 U.S.C. §6656.

The Burdines filed federal Form 1040 income tax returns for their 1992 and 1993 tax years. They did not pay the tax reported on those returns. The United States contends that, as of March 1, 2002, the outstanding balance of self-reported income tax liabilities assessed against the Burdines was $33,910.16, including statutory interest under 26 U.S.C. §6651 and penalties under 26 U.S.C. §6656.

The United States contends that the total outstanding balance of both employment and income tax liabilities due as of March 1, 2002 , including statutory accruals through that date, was $48,864.85.

C. MOTION FOR SUMMARY JUDGMENT

The United States filed this action to (1) reduce federal tax assessments against the Burdines to judgment; and (2) foreclose tax liens against their residence property. The United States contends that the assessments are presumptively correct, and the priority of the federal tax liens against the Property is undisputed.

The Burdines oppose the motion for summary judgment, contending that (1) they did not receive a statutory notice of deficiency; (2) the absence of a Non-Master File account in their transcripts raises an issue for trial; (3) the Forms 4340 are unreliable; and (4) the Forms 4340 cannot be verified by an audit trail of supporting documents. Dkt. 36.

D. ISSUES

1. Are the Burdines indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties?

2. Does the United States have valid and subsisting liens on all property and rights to property of the Burdines, including the Property?

3. Should the United States ' liens be enforced and foreclosed against the Property through a judicial sale?

E. DISCUSSION

1. Are the Burdines indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties?

Included in the record are Form 4340 Certificates of Assessments and Payments, which substantiate the Burdines' tax liabilities. Dkt. 32, Exh. G, H, I, L, and M. Generated under seal and signed by an authorized delegate of the Secretary of the Treasury, Forms 4340 are admissible into evidence as self-authenticating official records of the United States, and these documents carry a presumption of correctness. Rossi v. United States , 755 F.Supp. 314, 318 (D.Or. 1990); Fed.R.Civ.P. 803(8) and 902(1). The "23-c" entries on the Form 4340 show that the taxes at issue were duly assessed and recorded. United States v. Chila [89-1 USTC ¶9299 ], 871 F.2d 1015, 1017 (11th Cir. 1989); Rossi, 755 F.Supp. at 318. The "Notice" entries on the Form constitute proof that adequate notice and demand was made. United States v. Lorson Electric Co., Inc. [73-1 USTC ¶9449 ], 480 F.2d 554, 555-56 (2d Cir. 1973).

The Forms 4340 show that the total unpaid assessed balance, as of March 1, 2002 , of Form 941 employment tax liabilities due from Stephen C. Burdine and the marital community of Stephen C. Burdine and Michelle S. Burdine was $14,954.69. Dkt. 32 and 33.

The Forms 4340 show that the total unpaid assessed balance, as of March 1, 2002 , of Form 1040 income tax liabilities due from Stephen C. Burdine and Michelle S. Burdine was $33,910.16. Dkt. 32 and 33.

The total outstanding balance of both employment and income tax liabilities due as of March 1, 2002 , including statutory accruals through that date, was $48,864.85.

The Burdines contend that the Forms 4340 are unreliable, and that these forms cannot be verified by an audit trail of supporting documents. These arguments are without merit. The FOIA documents submitted by the Burdines do not show any errors in their accounts; and the Burdines have not shown any existing or potential problems with the Master File system used to record assessments of income or employment taxes against taxpayers such as the Burdines. The Burdines also argue that the absence of a "Non-Master File" account raises an issue of fact for trial. A Non-Master File is a manual accounting system controlling certain types of returns that are not processed through the general IRS computer system to the Master File. Non-Master File assessments are relatively uncommon. IRM 35.13.10.3. The Burdines have not shown how the absence of a Non-Master File rebuts the presumption of correctness of the Forms 4340.

The Burdines are indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties.

2. Does the United States have valid and subsisting liens on all property and rights to property of the Burdines, including the Property?

Under IRC §6321, the United States obtains a lien "upon all property and rights to property, whether real or personal, belonging to" any taxpayer who neglects or refuses to pay taxes after notice and demand. This lien arises as of the date of assessment and continues until the tax liability is extinguished. 26 U.S.C. §6322. It thus attaches to property acquired after the date of assessment but before the tax liability is extinguished. Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, 267, 90 L.Ed. 56, 66 S.Ct. 108 (1945) (tax lien effective as against after-acquired property). It is effective as against the taxpayer without the filing of a notice of lien. See 26 U.S.C. §6323(a). It is effective as against third parties entitled to notice upon the filing of a notice of lien. 26 U.S.C. §6323(a), (f).

Federal tax assessments have been made against the Burdines, and they have failed to pay them after notice and demand. Statutory tax liens arose as of the dates of the assessments and attached to all of their property and rights to property then owned or after-acquired, including community property such as the Property. See Hyde v. United States [93-2 USTC ¶50,605] , 1993-2 U.S.T.C. P 50,605 (D.Ariz. 1993) (federal tax assessment against husband was community debt).

The United States has valid and subsisting liens on all property and rights to property of the Burdines, including the Property.

3. Should the United States ' liens be enforced and foreclosed against the Property through a judicial sale?

IRC §7403 provides authority for the court to order a judicial sale to satisfy unpaid tax liabilities, as follows:

In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability.

All parties having liens upon or claiming any interest in the property involved in this action have been named as defendants to this action, as is required by 26 U.S.C. §7403(b), including the beneficiary of the purchase money deed of trust, the trustee under that deed of trust, the local taxing authority, and several judgment creditors. Nations Credit Home Equity Services Corporation and Bishop, Lynch & White were named as defendants solely because they have interests of record in the Property. They and defendant Pierce County were dismissed without prejudice pursuant to stipulations with the United States approved by the court on January 25, 2002 . Dkt. 30. The other defendants to this action, R.J. Coyer, Southern Washington Collection Bureau, Inc. and Lease & Industrial Collectors, Inc. were named as parties because their judgments against the Burdines may constitute liens on the Property; the court entered an order of default against these defendants on January 18, 2002 . Dkt. 29. The Burdines appear to have discharged their debt to Lease & Industrial Collectors, Inc. in a Chapter 7 bankruptcy case filed in August 1992. Dkt. 32, Exh. 20-22.

Under 26 U.S.C. §7403(c),

The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of a court in respect to the interests of the parties and of the United States.

See United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 76 L.Ed.2d 236, 103 S.Ct. 2132 (1983) (family home sold under section 7403 to satisfy tax liens arising from husband's tax liability).

The Burdines contend that they did not receive proper notice because they did not receive a statutory notice of a deficiency. This argument is without merit. The income taxes at issue were based on amounts voluntarily reported by the Burdines on Forms 1040. The employment taxes at issue are not subject to the deficiency procedures of 26 U.S.C. §6212(a).

In summary, the record shows that the Burdines have refused or neglected to pay federal tax liabilities. Liens for taxes have arisen against all of their property and rights to property, including the Property. The tax liens against the Property should be foreclosed. Those liens are junior in priority to any lien in favor of Pierce County for unpaid property taxes and special assessments. See 26 U.S.C. §6323(b)(6). They are also junior to the deed of trust in favor of Nations Credit Home Equity Services Corporation, since that deed of trust was recorded before the IRS recorded its notices of federal tax lien with the Auditor's office in Tacoma . See Dkt. 25 and 30. The government's tax liens are superior to the judgment liens against the Property held by R.J. Coyer and southern Washington Collection Bureau, d/b/a Pioneer Credit Company, because the notices of federal tax lien were recorded prior to the judgments. Dkt. 32, PP 16-18; 22-23. As between the two judgment liens, R.J. Coyer's is superior. Id. at PP 22-23.

Accordingly, the court should order a judicial sale of the Property, subject to the deed of trust in favor of Nations Credit Home Equity Services Corporation, with the proceeds to be distributed (1) to the U.S. Marshals Service for allowed costs of sale; (2) to Pierce County, for any real property taxes or special assessments constituting a lien having priority under 26 U.S.C. §6323(b)(6) as of the date of sale; (3) to the United States, to be applied toward the unpaid tax liabilities of the Burdines until those liabilities, including all accruals, are satisfied or the funds are exhausted; (4) if any excess funds remain after the subject liabilities are satisfied in full, to R.J. Coyer on account of his judgment lien; (5) if any excess funds remain after R.J. Coyer's judgment lien is satisfied, to Southern Washington Collection Bureau, d/b/a Pioneer Credit Company on account of its judgment lien; and (6) if any excess funds remain thereafter, to the Burdines.

Therefore, it is hereby

ORDERED that the United States ' Motion for Summary Judgment (Dkt. 31) is GRANTED. Judgment is entered in favor of the United States and against Stephen Curtis Burdine and Michelle S. Burdine in the amount of $48,864.85, plus statutory interest and penalty accruals from March 1, 2002 until the tax liabilities, including all accruals, are satisfied. The United States' liens shall be enforced and foreclosed against the marital community real property of Stephen C. Burdine and Michelle S. Burdine, located at 4506 Country Club Drive N.E., Tacoma, Washington 98422, Tax Parcel I.D. No. 500042-140-0, more particularly described as Lot 140 North Shore Country Club Estates Division IV-C., according to plat recorded under Auditor's No. 9109100360, in Pierce County, Washington, through a judicial sale conducted by the U.S. Marshal pursuant to 26 U.S.C. §§7402 and 7403 and 28 U.S.C. §§2001 and 2002. The United States ' tax liens on the above described property are subordinate to (i) any unpaid real property taxes or special assessments owing to Pierce County that constitute a lien, and (ii) a deed of trust in favor of Nations Credit Home Equity Services, Inc. The United States ' liens are superior to the judgment liens on the above described property in favor of R.J. Coyer and southern Washington Collection Bureau, Inc. d/b/a Pioneer Credit Company. As between these two judgment liens, Mr. Coyer's is superior. The United States is ORDERED to submit a proposed order of sale within thirty days of the entry of judgment herein.

The Clerk is directed to send uncertified copies of this Order to all counsel of record and to any party appearing pro se at said party's last known address.

JUDGMENT IN A CIVIL CASE

Decision by Court. This action came under consideration before the Court. The issues have been considered and a decision has been rendered.

IT IS ORDERED AND ADJUDGED that the United States ' Motion for Summary Judgment is GRANTED. Judgment is entered in favor of the United States and against Stephen Curtis Burdine and Michelle S. Burdine in the amount of $48,864.86, plus statutory interest and penalty accruals from March 1, 2002 until the tax liabilities, including all accruals, are satisfied. The United States' liens shall be enforced and foreclosed against the marital community real property of Stephen C. Burdine and Michelle S. Burdine, located at 4506 Country Club Drive N.E., Tacoma, Washington 98422, Tax Parcel I.D. No. 500042-140-0, more particularly described as Lot 140 North Shore Country Club Estates Division IV-C., according to plat recorded under Auditor's No. 9109100360, in Pierce County, Washington, through a judicial sale conducted by the U.S. Marshal pursuant to 26 U.S.C. §§7402 and 7403 and 28 U.S.C. §§2001 and 2002. The United States ' tax liens on the above-described property are subordinate to (i) any unpaid real property taxes or special assessments owing to Pierce County that constitute a lien, and (ii) a deed of trust in favor of Nations Credit Home Equity Services, Inc. The United States' Liens are superior to the judgment liens on the above described property in favor of R.J. Coyer and southern Washington Collection Bureau, Inc. d/b/a/ Pioneer Credit Company. As between these two judgment liens, Mr. Coyer's is superior. The United States if ORDERED to submit a proposed order of sale within thirty days of the entry of judgment herein.

 

 

[2000-1 USTC ¶50,130] United States of America , Plaintiff v. Gilbert Mark Crisp, Rhonda Jean Crisp, Sequoia Property and Equipment Limited Partnership, Washington Mutual Bank, Defendants

U.S. District Court, East. Dist. Calif. , CV-F-97-5044 OWW DLB, 11/30/99

[Code Sec. 6323 ]

Federal tax liens: Priority: Filing of liens: First in time: Property, foreclosure: Deed of trust: Judicial notice: Successor beneficiary: Undisputed facts.--A bank's lien against proceeds from the foreclosure sale of delinquent taxpayers' real property had priority under state ( California ) law over subsequently filed federal tax liens. The court took judicial notice of a copy of the deed of trust recorded against the property, and the bank's status as successor beneficiary under the deed of trust was undisputed. Pursuant to the "first-in-time, first-in-right" rule, the tax liens were not valid until they were filed with the appropriate county recorder. Since the deed of trust was filed more than four years before the tax liens were perfected, it was superior to the tax liens.

MEMORANDUM AND ORDER RE DEFENDANT WASHINGTON MUTUAL'S REQUEST FOR JUDICIAL NOTICE AND SUMMARY JUDGMENT MOTION

I. INTRODUCTION

WANGER, District Judge:

This case is before the Court on Defendant Washington Mutual's September 20, 1999 motion for summary judgment. Plaintiff originally filed four complaints. The first was against Sequoia Property and Equipment Limited Partnership (filed 1/22/97); the second against Hyper-Jean Property and Equipment Limited Partnership (filed 1/30/98); the third against Wanda Jean Crisp, Hyper-Jean Property and Equipment Limited Partnership, Leader Federal Bank for Savings, Bankers Trust Company of California, and Mid-Valley Lenders (filed 10/14/98); and the fourth against Gilbert Mark Crisp, Rhonda Crisp, Sequoia Property and Equipment, and Washington Mutual Bank Inc. (filed 10/19/98). All four cases were consolidated for all purposes on August 6, 1999 .

The second amended complaint alleges two claims. (Doc. 61, No. 98-6188) First, Plaintiff requests the tax assessments against Gilbert Mark Crisp and Rhonda Jean Crisp from 1988 and 1989 be reduced to judgment. (Doc. 61, No. 98-6188 at 3-4) Second, Plaintiff the October 20, 1992 transfer of the real property known as 5036 West Oak Street , Visalia , California , from Gilbert Mark Crisp and Rhonda Jean Crisp be set aside. (Doc. 61, No. 98-6188 at 4-7) Defendant Washington Mutual Bank Inc. is a bank that is the successor beneficiary under a deed of trust recorded March 4, 1992 against the property in question.

Defendant Washington Mutual filed a motion for summary judgment to determine that its lien on the property is superior to the tax lien filed by Plaintiff. ( Br. at 4) Plaintiff submitted a notice of non-opposition.

II. LEGAL STANDARD

Summary judgment is appropriate only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact." Fed. R. Civ. P. 56(c); see also Maffei v. Northern Ins. Co. of New York , 12 F.3d 892, 899 (9th Cir. 1993). A genuine issue of fact exists when the non-moving party produces evidence on which a reasonable trier of fact could find in its favor viewing the record as a whole in light of the evidentiary burden the law places on that party. Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-56, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The non-moving party cannot simply rest on its allegation without any significant probative evidence tending to support the complaint. U.A. Local 343 v. Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1471 (9th Cir.), cert. denied, 516 U.S. 912, 116 S.Ct. 297, 133 L.Ed.2d. 203 (1995).

[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be "no genuine issue as to any material fact," since a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial.

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The more implausible the claim or defense asserted by the opposing party, the more persuasive its evidence must be to avoid summary judgment. United States ex rel. Anderson v. Northern Telecom, Inc., 52 F.3d 810, 815 (9th Cir.), cert. denied, 516 U.S. 1043, 116 S.Ct. 700, 133 L.Ed.2d 657 (1996). Nevertheless, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in its favor." Liberty Lobby, 477 U.S. at 255. A court's role on summary judgment, however, is not to weigh the evidence, i.e., issue resolution, but rather to find genuine factual issues. Abdul-Jabbar v. General Motors Corp., 85 F.3d 407, 410 (9th Cir. 1996).

Evidence submitted in support of or in opposition to a motion for summary judgment must be admissible under the standard articulated in 56(e). See Keenan v. Hall, 83 F.3d 1083, 1090 n.1 (9th Cir. 1996); Anheuser-Busch, Inc. v. Nat'l Beverage Distribs., 69 F.3d 337, 345 n.4 (9th Cir. 1995). Properly authenticated documents, including discovery documents, although such documents are not admissible in that form at trial, can be used in a motion for summary judgment if appropriately authenticated by affidavit or declaration. United States v. One Parcel of Real Property, 904 F.2d 487, 491-492 (9th Cir. 1990). Supporting and opposing affidavits must be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Fed. R. Civ. P. 56(e); Connor v. Sakai, 15 F.3d 1463, 1470 (9th Cir. 1993), rev'd on other grounds sub nom. Sandin v. Connor, 515 U.S. 472, 115 S.Ct. 2293, 132 L.Ed.2d 418 (1995).

III. DISCUSSION

Defendant Washington Mutual first requests the Court take judicial notice of a copy of the Deed of Trust recorded in Tulare County on March 4, 1992 . (J/N Request at 1, Ex. A) Federal Rule of Evidence Rule 201 provides in pertinent part "A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. A court shall take judicial notice if requested by a party and supplied with the necessary information." A deed of trust is an official record of Tulare County of which the accuracy is easily verifiable. Judicial notice is taken that a Deed of Trust was recorded for the property in question between Great Western Bank and Gilbert Mark Crisp and Rhonda Jean Crisp. Defendant Washington Mutual alleges that it is a successor beneficiary under the deed of trust. ( Br. at 2) Although this fact cannot be judicially noticed, it is undisputed. (Doc. 61 No. 98-6188 ¶8)

Defendant Washington Mutual also moves for summary judgment on the priority of its lien over the government's lien in the event the government prevails in a foreclosure action on the property. Pursuant to California Civil Code Section 2897, "[o]ther things being equal, different liens upon the same property have priority according to the time of their creation, except in cases of bottomry and respondentia." The "first-in-time, first-in-right" rule also controls in federal court. See Fleet Credit Corp. v. TML Bus Sales, Inc., 65 F.3d 119, 122 (9th Cir. 1995). On or about June 17, 1996 , the Internal Revenue Service (IRS) filed a notice of federal tax lien with the Tulare County Recorder against Gilbert Mark Crisp and Rhonda Jean Crisp for the assessments in question. (Doc. 61, No. 98-6188 ¶16) On or about August 27, 1996 , the IRS filed a notice of federal tax lien with the Tulare County Recorder against Sequoia Property, as nominee of Gilbert Mark Crisp and Rhonda Jean Crisp, for the assessments in question. (Doc. 61, No. 98-6188 ¶17) Pursuant to 26 U.S.C. §6323(a) & (f), a federal lien is not valid until filed pursuant to state law. Since the two federal liens were not filed until 1996 and Defendant Washington Mutual is the successor beneficiary of a deed of trust lien recorded in 1992, the lien of Defendant Washington Mutual is superior. Defendant Washington Mutual's motion for summary to determine its lien has priority over the government's lien is GRANTED.

IV. CONCLUSION

For the foregoing reasons, IT IS ORDERED: Defendant Washington Mutual's motion for summary judgment to determine its lien has priority over the government's lien is GRANTED.

SO ORDERED.

 

[98-2 USTC ¶50,582] Lynn M. Ewing III, Plaintiff v. Donald Erickson, State of Missouri, Resac, Inc. and United States of America , Defendants

U.S. District Court, East. Dist. Mo. , East. Div., 4:97CV00359 DJS, 6/15/98

[Code Sec. 6323 ]

Liens and levies: Federal tax liens: State tax liens: Mortgagor's liens: Request for litigation costs: Priority: Foreclosure sale: Proceeds from: Deeds of trust: Property subject to.--Under state (Missouri) law, liens filed by the holder of trust deeds against proceeds from the foreclosure sale of the deeded property had priority over a subsequent federal tax lien against the owner of the property. However, the federal tax lien was not extinguished by the sale and, thus, attached to the remainder of the sale proceeds. The federal lien had priority over a state tax lien because the state lien attached only to the property itself, not to the proceeds from its sale. Finally, the federal lien was superior to a claim for reimbursement of court costs and attorneys' fees that the holder of the disputed funds incurred in an interpleader action that determined the proper distribution of the funds.

Richard C. Wuestling IV, Wuestling & James, 1015 Locust St., St. Louis, Mo. 63101-1322, Lynn M. Ewing III, Ewing & Hoberock, 123 N. Main, Nevada, Mo. 64772-0287, for plaintiff. Donald Erickson, 7219 Southwest, St. Louis, Mo. 63143, pro se. Douglas E. Nelson, 221 W. High St., Jefferson City, Mo. 65102-0899, Phillip K. Gebhardt, 2486 Westford Dr., Maryland Heights, Mo. 63043, Rachel I. Wollitzer, Department of Justice, Washington, D.C. 20530, for defendants. Andrew J. Lay, Kansas City, Mo. 64106-2149, John J. Lynch, Assistant Attorney General, St. Louis , Mo. 63101 , for cross-defendants.

MEMORANDUM AND ORDER

STOHR, District Judge:

This matter is before the Court on various motions for summary judgment filed by the parties.

Plaintiff Lynn Ewing, III, commenced this interpleader action in state court alleging that he has custody of $56, 557.65, ¹ proceeds from a foreclosure of a deed of trust, and that defendants are adverse claimants to the funds. Ewing is counsel for Roosevelt Bank, which held a promissory note secured by the deed of trust, and Merlyn Petersmeyer, trustee under the terms of the deed of trust. The defendants are Donald Erickson, who holds the equity of redemption in the property; Resac, Inc., which holds junior liens on the property; the State of Missouri , which holds judgment liens against Erickson; and the United States of America , which holds a tax lien against the property. The United States removed the action to this Court. (Doc. 1.) This Court added Petersmeyer as a party plaintiff. (Doc. 35.)

Erickson filed an amended counterclaim against Ewing, Petersmeyer, the law firm of Ewing and Hoberock, and Roosevelt Bank, alleging that they did not provide proper notice of the foreclosure sale. (Doc. 36.) Ewing filed a motion for summary judgment on the counterclaim. (Doc. 55.) Erickson filed motions for summary judgment against all of the parties. (Docs. 57, 59, 60, 62, 65.) Defendants Resac and the United States also filed motions for summary judgment. (Docs. 43, 56.) This Court previously dismissed a cross-claim filed by Erickson against the Missouri Attorney General and two Assistant Attorneys General, which alleged violations of 42 U.S.C. §1983.

The Court will first address Erickson's counterclaim. Erickson moved for summary judgment on the counterclaim, alleging that the counterclaim defendants conducted the foreclosure of his property without prior written notice to his last known address. He argues that notice of the foreclosure sale was sent to an old address, and that Ewing was on notice that Erickson's address had changed because a new address was given on his bankruptcy filings. Erickson noted that Ewing knew for purposes of serving this lawsuit that Erickson's address had changed. Erickson also filed a motion for summary judgment against Petersmeyer, arguing that he had a statutory and fiduciary duty as trustee to give Erickson notice.

Ewing also moved for summary judgment on the counterclaim, arguing that Erickson received proper notice of the foreclosure sale because notice was sent by registered mail to Erickson's last known address twenty-eight days prior to the sale, and notice was sent to his attorney as well. He argued that he reviewed Erickson's audit file, which did not contain any notice of bankruptcy, and that the notice sent to Erickson's address was not returned. Ewing further argued that Erickson never requested the bank to send correspondence regarding his loan to any other address, and that he was later informed of Erickson's current address for purposes of serving this lawsuit by the attorney for Resac.

This Court finds that Ewing satisfied his duty to provide Erickson with notice of the action. The Missouri statute requires notice of a foreclosure sale to be mailed by registered or certified mail to the grantor not less than twenty days prior to the date set for the sale. See Mo. Rev. Stat. §443.325.3(3). Ewing sent proper notice to the last address known to the Bank twenty-eight days prior to the sale. See Woolsey v. Bank of Versailles, 951 S.W.2d 662, 666-67 (Mo. Ct. App. 1997) (notice proper where borrower did not inform bank of new address for loan-related correspondence, despite bank's knowledge of different address for checking and savings account information); Kurtz v. Ripley County State Bank, 785 F. Supp. 116, 118 (E.D. Mo.) (actual receipt not necessary to comply with statute), aff'd, 972 F.2d 354 (8th Cir. 1992). Even if Erickson included a new address on bankruptcy filings submitted to the bank, he did not inform the bank that the address he had provided for the bank to mail loan-related correspondence had changed. Because Ewing provided proper notice of the foreclosure, Erickson does not have a claim for inadequate notice against Petersmeyer.

Ewing argues alternatively that Erickson had actual notice of the sale, because he called Ewing 's office the morning of the sale to request that it be halted. Ewing submitted the affidavit of his legal assistant, who attested that Erickson had called the law firm on the morning of September 18 and stated that he was aware of the pending foreclosure sale, that he had filed for bankruptcy, and that he wanted the foreclosure sale stopped.

Erickson responded with an affidavit attesting that he did not call the law office in an attempt to halt the foreclosure sale. Ewing moves to strike Erickson's response for certain "malicious, scandalous, and hostile" statements made by Erickson. The Court agrees that Erickson's response is inappropriate and again instructs him to refrain from including unwarranted and inflammatory allegations in future pleadings. See Fed. R. Civ. P. 12(f). The Court declines to strike Erickson's affidavit. The Court need not resolve the factual dispute regarding whether Erickson received actual notice, however, given its finding that cross-claim defendants complied with the Missouri statute.

Erickson also argues in his counterclaim that the counterclaim defendants violated Missouri law and a fiduciary duty by failing to deliver the surplus proceeds of the sale to him and instead filing this interpleader action, knowing there was no possibility of multiple liability. Erickson alleges that the actions constituted civil conspiracy. Ewing argues in support of summary judgment that the interpleader action was proper because of the possible multiple liability. Ewing argues that no wrongful act was committed in support of Erickson's allegation of civil conspiracy.

An interpleader action is an appropriate solution when a party "is or may be exposed to double or multiple liability." Fed. R. Civ. P. 22(1). Ewing joined several parties as defendants who had possible claims to the foreclosure surplus. The Court finds that counterclaim defendants did not breach any duty to Erickson by filing this interpleader action. Moreover, the Court notes that Erickson cannot file a counterclaim against non-parties to the action. See Fed. R. Civ. P. 13(a) (counterclaim is claim pleader has against any opposing party). Although the Court may join additional parties in a proper situation, see Fed. R. Civ. P. 13(h), the Court finds that joinder is not feasible, as complete relief can be accorded among those already parties, see Fed. R. Civ. P. 19. Accordingly, Erickson's claims against Ewing 's law firm and Roosevelt Bank must fail for this reason. Ewing 's motion for summary judgment on the counterclaim will be granted, and Erickson's counterclaim will be dismissed.

Because the Court finds that notice of the foreclosure sale was proper, the Court can address which defendant is entitled to the surplus foreclosure proceeds. Defendant Resac has filed a motion for partial summary judgment, arguing that it holds two deeds of trust on the property that was foreclosed, and that it is entitled to principal, interest, and late charges on the deeds of trust. (Doc. 43.) Resac argues that the outstanding principal, accrued interest, and late charges amounted to $3,924.05 as of March 1, 1998 . Erickson opposes the motion, arguing that under Missouri law, junior deeds of trust and notes alleged by Resac were extinguished as a matter of law by the foreclosure sale under Roosevelt Bank's senior deed of trust. Erickson argues that Resac's junior deeds of trust created a lien only against the foreclosed property, not against the foreclosure sale proceeds. (Docs. 57, 58.)

The United States has also moved for summary judgment, arguing that it has valid perfected liens against the foreclosure proceeds which have priority over all liens except for the amount of the prior liens by defendant Resac. The United States argues that tax, penalty, and interest amounted to $90,580.49 as of the filing of the notice of federal tax liens, and that interest and penalties have continued to accrue. The United States further argues that the State of Missouri 's judgment lien does not extend to the proceeds, and that the United States has priority over any claim by plaintiffs for attorney's fees and costs of the action. (Doc. 56.) Erickson moved for summary judgment against the United States , arguing that the United States ' tax lien against Erickson was a lien only against the foreclosed property, not against the foreclosure sale proceeds. (Doc. 59.)

The State of Missouri has not moved for summary judgment. Erickson has filed a motion for summary judgment against the State of Missouri , also arguing that Missouri 's judgment lien was only against real property. (Doc. 60.)

Under Missouri law, disposition of the proceeds of a foreclosure sale is ordinarily ascertained from directions in the deed of trust, unless those directions conflict with the law. See Hilfiker v. Preyer, 690 S.W.2d 451, 452 (Mo. Ct. App. 1985). Missouri law also provides that after the first obligation is satisfied, the holder of a second deed of trust is entitled to the excess proceeds. See In re Rob erts, 91 B.R. 57, 59-60 (E.D. Mo. 1988).

This Court finds that defendant Resac is first entitled to its share of the surplus proceeds. Resac held two junior deeds of trust on the property. The first was recorded July 1, 1985 , and the second was recorded August 26, 1993 . The deed of trust held by Roosevelt Bank provided that any excess proceeds from a foreclosure sale would be applied "to the person or persons legally entitled thereto." (Doc. 43, Ex. C ¶18.) Resac's first deed of trust provided that any surplus proceeds after payment of prior notes would be first applied to the amount unpaid on this note and interest accrued thereon. (Doc. 43, Ex. F. at 3.) Resac's second deed of trust provided that any surplus should be paid "to the person or persons legally entitled thereto." ( Id. Ex. K. at 2.)

Erickson relies on Brask v. Bank of St. Louis, 533 S.W.2d 223, 227 (Mo. Ct. App. 1975) to argue that Resac's deeds of trust were extinguished when the property was sold. Another Court in this district previously rejected the same argument, noting that Brask "does, in fact, hold that a foreclosure sale extinguishes junior lien encumbrances, but this is as between the purchaser at the foreclosure sale and the lienholders. The foreclosure sale cannot extinguish the security agreement between [the lender] and debtors. . . . [After a foreclosure sale occurs], if proceeds remain above satisfaction of the obligation to the holder of the first deed of trust, [the lender] has a right to those proceeds." Rob erts, 91 B.R. at 60.

The Court finds that the United States is entitled to the remaining surplus proceeds of the foreclosure sale. See 26 U.S.C. §§6321, 6323. Notice of the federal tax lien was filed on June 12, 1995 . The United States acknowledges that Resac has a superior entitlement to part of the foreclosure sale proceeds. See 26 U.S.C. §6323(a) (tax lien not valid against holder of security interest until notice is filed by the Secretary). Erickson does not dispute the validity of the tax lien. He argues only that the lien does not extend to the surplus sale proceeds. Erickson's argument is meritless. See, e.g., Frappier v. Texas Commerce Bank, N.A., 879 F. Supp. 715, 717-18 (S.D. Tex.) (federal tax lien attached to excess proceeds of foreclosure sale), aff'd, 71 F.3d 878 (5th Cir. 1995).

The State of Missouri has not moved for summary judgment requesting any part of the surplus proceeds. The Court notes that Missouri 's judgment lien does not extend to the surplus sale proceeds. See Hawkins v. Alcorn, 698 S.W.2d 37, 39 (Mo. Ct. App. 1985) (judgment against person results in lien only against real estate and does not follow surplus from sale under preexisting deed of trust). In addition, although plaintiff Ewing has withdrawn his claim for attorney's fees (Doc. 76), the Court notes that the federal tax liens are prior to any claim by plaintiff for attorney's fees and costs of this action. See Millers Mut. Ins. Ass'n v. Wassall [84-2 USTC ¶9621], 738 F.2d 302, 303 (8th Cir. 1984).

Accordingly,

IT IS HEREBY ORDERED that plaintiff's motion for summary judgment on defendant Erickson's counterclaim (Doc. 55) is GRANTED. Defendant Erickson's motion for summary judgment on the counterclaim (Doc. 65) is DENIED. Defendant Erickson's counterclaim is DISMISSED.

IT IS FURTHER ORDERED that defendant Resac's motion for partial summary judgment (Doc. 43) is GRANTED. Resac shall recover the excess proceeds from the foreclosure sale up to the amount of the unpaid principal, interest, and late charges due on its deeds of trust as of the date of this order.

IT IS FURTHER ORDERED that defendant United States ' motion for summary judgment (Doc. 56) is GRANTED. The United States shall recover all funds remaining after defendant Resac receives the funds to which it is entitled.

IT IS FURTHER ORDERED that defendants Resac and the United States shall consult with plaintiff Ewing regarding the final judgment. Within fifteen days of their receipt of this Memorandum and Order, the parties shall submit a proposed final judgment, addressing how the transfer of funds should be effectuated.

IT IS FURTHER ORDERED that defendant Erickson's motion for summary judgment against the State of Missouri (Doc. 60) is GRANTED.

IT IS FURTHER ORDERED that defendant Erickson's motions for summary judgment against Resac (Docs. 57, 58); the United States (Doc. 59); and Petersmeyer (Doc. 62) are DENIED.

IT IS FURTHER ORDERED that plaintiff Ewing's motion to strike and for sanctions, or alternatively for leave to file a supplemental response (Doc. 82) is GRANTED in part and DENIED in part. Defendant Erickson's improper allegations are stricken from the response.

IT IS FURTHER ORDERED that all other pending motions are DENIED as moot.

¹ The Court has not ordered plaintiff Ewing to deposit the interpleaded funds into the registry of the Court. It appears that Ewing retains custody of the funds, although the possibility exists that the funds have been deposited into the registry of the state court.

 

 

[92-2 USTC ¶50,318] United States , Plaintiff v. Hassan Almassi, et al., Defendants

U.S. District Court, West. Dist. Wash., Seattle, C90-858WD, 2/20/92

[Code Secs. 6323 , 6672 and 7402 ]

Civil penalties: Failure to collect and pay over tax: 100% penalty for failure to withhold or pay over withheld tax: District Court: Jurisdiction: Claim arising in respect of assessment or collection of tax: Lien for taxes: Deeds of trust securing claims recorded before priority of United States attached.--The taxpayer was a responsible person of a drapery company who willfully failed to collect, truthfully account for, and pay over employment taxes to the IRS. Furthermore, the deeds of trust issued by the taxpayer to his three children were valid conveyances made to secure an existing debt and, in return for forbearance, were issued for fair and genuine consideration, did not render the grantors insolvent, and were not made to hinder, delay, or defraud the government or other creditors. Thus, the deeds of trust did not constitute fraudulent transfers. Moreover, the government did not establish that the statute of limitations had run on the underlying promissory notes, and the potential availability of a limitations defense would not invalidate the indebtedness reflected in the notes. Accordingly, although the government had jurisdiction to reduce the responsible person assessments to judgments, it was not entitled to have the deeds of trust set aside.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

DWYER, District Judge:

This case was tried to the court on February 18, 1992 . All testimony received, exhibits admitted, the deposition of Katayoun Almassi, and the arguments and briefs of counsel, have been fully considered. The court now makes and enters the following findings of fact, as established by a preponderance of the evidence or stipulation of the parties, and the following conclusions of law:

FINDINGS OF FACT

1. As background, the court adopts and incorporates the following agreed statement from the pretrial order:

The United States filed this action on June 15, 1990, to reduce "responsible person" (26 U.S.C. §6672 ) assessments to judgment, set aside fraudulent transfers, and foreclose federal tax liens against a specific parcel of real property located in Bellevue, Washington. The "responsible person" assessments arise out of Hassan Almassi's involvement with Designer's Drapery Co., Inc. (Employer Identification Number 91-0981411) and Designers Drapery & Co., Ltd. (Employer Identification Number 91-1225873) and the failure of those corporations to withhold, truthfully account for, and pay over withheld income and FICA taxes from July 1, 1979, through March 31, 1984. Assessments were made on October 1 and 15, 1984, and August 16, 1986 . Notices of Federal Tax Liens were filed with the King County Auditor on December 28, 1984 , and October 28, 1986 .

The fraudulent transfer claim arises from Hassan and Guita Almassi's granting of three deeds of trust upon the subject property, each for $70,000.00, in favor of Ardeshir Almassi, Kourosh Almassi, and Katayoun Almassi on August 1, 1984 . The property is encumbered by a first deed of trust in favor of Goldome Realty Credit Corporation. The United States and Goldome have stipulated that Goldome's interest is superior to the United States ' interest, and that should the Court foreclose federal tax liens on the subject property, such foreclosure should be subject to Goldome's senior mortgage lien.

2. The court finds as facts the following facts which are admitted by the parties in the pretrial order:

(a) Meladith Gopinath left Designer's Drapery Company in April, 1979.

(b) The Articles of Incorporation, dated January, 1977, establish Hassan Almassi as the Executive Vice President and interim director.

(c) Hassan Almassi contributed $75,000 to the incorporation of the business in December, 1976.

(d) Beginning in April, 1977, Hassan Almassi was regularly present at the office of the corporation, and within a few months he was responsible for paying bills. Prior to Gopinath's departure, Almassi prepared most checks for Gopinath's signature. After Gopinath's departure Almassi prepared and signed all the checks himself. Between April, 1977, and April, 1979, Almassi occasionally completed payroll, and after April, 1979, Almassi was the only one who completed the payroll. Hassan Almassi worked at the business full time until it was sold in 1984.

(e) During the entire life of the corporation, Hassan Almassi owned 45%-50% of the total stock issued by the corporation.

(f) After Mr. Gopinath left the business in April, 1979, Hassan Almassi ran the company with the help of a manager.

(g) Other than Mr. Gopinath, Hassan Almassi and Guita Almassi were the only persons authorized to sign corporate checks. Guita Almassi did not sign any checks after April, 1979. The account on which Gopinath was a signatory was closed in January, 1981.

(h) Two or three weeks after Gopinath left the business, Almassi learned that Gopinath was still writing checks on the corporate account.

(i) On July 3, 1980 , Almassi signed the corporation's U.S. Corporate Income Tax Return (Form 1120) for the tax year ending September 30, 1979 .

(j) Almassi signed minutes of corporate meetings which purportedly took place on January 13 and 20, and September 9, 1977 . The meetings never took place.

(k) Prior to coming to the United States in 1977, Almassi had no experience in American business or knowledge of American law. Prior to Gopinath's departure in April, 1979, Almassi had no experiences in American business other than those in Designers Drapery Co., Inc., indicated herein.

(l) From April, 1977, through April, 1979, Hassan Almassi did the corporation's payroll, and was aware that he was withholding federal taxes from the employees' paychecks.

(m) After Gopinath left, the corporation made federal tax deposits "on and off." Almassi wrote these checks.

(n) Almassi hired someone to draft a letter to the Small Business Administration, which Almassi signed on September 25, 1980 . The letter made reference to a $44,000 tax liability to federal and state authorities. The federal tax liability referred to was the corporation's employment tax liability.

(o) The corporation's accountant, Skipton & Company, prepared some financial statements for the corporation at Mr. Almassi's request. One such statement, prepared through May 31, 1980 , and dated August 1, 1980 , identified federal withholding taxes payable on the page labelled "Liabilities."

(p) Almassi signed the following Employer's Quarterly Tax Returns (Form 941):

(i) For the third quarter of 1979 on September 3, 1980 .

(ii) For the fourth quarter of 1979 on September 3, 1980 .

(iii) For the first quarter of 1980 on September 3, 1980 .

(iv) For the second quarter of 1980 on September 3, 1980 .

(v) For the fourth quarter of 1980 on January 31, 1981 .

(vi) For the third quarter of 1981.

(vii) For the first quarter of 1982, on June 23, 1982 .

(viii) For the second quarter of 1982, on June 30, 1982 .

(q) At Almassi's direction, the corporation changed its accounting firm from Skipton & Company to Gordon's Accounting.

(r) The Form 941 return for the third and fourth quarters of 1982 and first, second and third quarters of 1983 were prepared by and signed by employees of Gordon's Accounting.

(s) Hassan Almassi first learned that the IRS was checking up on the business in October, November or December of 1980, from his son, Ardeshir, who worked at the business for several months.

(t) On June 23, 1982 , Hassan Almassi was interviewed at the IRS office by Revenue Officer Steve Wilson. He filled out a Form 4180 ("Report of Interview Held With Persons Relative to Recommendation of 100-Percent Penalty Assessments"). On the form he indicated he was responsible for the day-to-day management of the company from April, 1979 through the date of the interview; that he first learned that the employment tax liability had not been paid on January 1, 1982 ; and that he authorized the payment of other obligations while the tax liabilities were accruing. On the form Almassi further indicated that within the corporation's structure, he was the person who bore the responsibility for filing the Form 941, paying the withheld federal taxes to the Government, and making federal tax deposits.

(u) Sometime prior to April, 1979, Gopinath induced Almassi to invest money in Designer's Drapery Co., Inc., in part, by representing that he was also investing money in Designer's Drapery Co., Inc. Gopinath did not, however, invest as much money as he represented that he had in the corporation. Almassi filed suit against Gopinath in December, 1979, and an agreed judgment in Almassi's favor was filed. After paying legal fees, there was no net return to Almassi.

(v) Almassi also filed suit against Skipton and Company, and obtained a judgment. At this date, counsel are uncertain of the date the suit was filed or the date judgment was entered.

(w) Hassan Almassi is a native of Iran . In 1971, he immigrated to Canada . In 1968 Hassan Almassi's mother gifted three parcels of real property in Isfahan, Iran, to Hassan and Guita Almassi's three children, defendants herein, Ardeshir, Kourosh and Katayoun. At that time, they were approximately 12, 7 and 1 years old, respectively.

(x) In 1975, when the Almassi family was living in Canada , Hassan Almassi and the oldest child, Ardeshir, returned to Iran to sell the three parcels. Together, they sold the three parcels to three different buyers. Each parcel sold for 3,900,000 rials, the Iranian monetary unit.

(y) Hassan Almassi was paid directly for the sales of the two parcels belonging to the younger children. Ardeshir signed his check over to his father. Hassan Almassi bought three or four rental housing units in Canada with the money from the sales. Almassi then moved to the United States , sold the Canadian units at a loss, and used the remainder of the proceeds for his own expenses and in the drapery business.

(z) Hassan Almassi has prepared and signed three promissory notes in favor of his children in the amount of $70,000 each, representing the amount he realized upon the sale of the property. These notes bear the date " July 15th, 1977 ." The children were not present when the notes were prepared and signed. The children gave no additional consideration for the notes. The notes are payable on demand, with no interest. Though the children have made demands of payment, no payments on the debt have been made.

(aa) After the promissory notes were executed they were stored in Hassan Almassi's safety deposit box.

(bb) By letter dated September 9, 1982 , the IRS first notified Mr. Almassi of its intention to assess him with the 100% penalty for the third and fourth quarters of 1979, and all four quarters of 1980. Almassi's attorney responded by letter dated September 15.

(cc) By letter dated September 20, 1982 the IRS advised Mr. Almassi that unless he perfected an appeal protesting the proposed assessment, he would be assessed for the penalty.

(dd) On October 11, Almassi's attorney filed a preliminary protest, and ultimately filed a statement of facts dated January 6, 1983 . There was a disagreement over whether Almassi had perfected his appeal, and in the January 6 letter his attorney confirmed an "oral understanding" that a perfected appeal was on file.

(ee) By letter dated May 19, 1983 , the IRS notified Mr. Almassi of its proposal to assess him the 100% penalty for the third and fourth quarters of 1981, and the first, third and fourth quarters of 1982. The letter noted that these quarters could be appealed along with the earlier quarters identified in the letters sent in September, 1982. By letter dated June 1, the IRS instructed Mr. Almassi to sign a Form 2750, "Waiver Extending Statutory Period for Assessment of 100-Percent Penalty," because no formal appeal had been filed, and the statute of limitations would soon expire. Mr. Almassi signed the Form 2750 on June 6, 1983 , extending the statute of limitations for assessment of the 1979 and 1980 liabilities until December 31, 1984 .

(ff) By letter dated April 19, 1984 , IRS Appeals Officer John Yamada scheduled a hearing on the admin istrative appeal for May 3, 1984 .

(gg) On April 25, Mr. Almassi's attorney telephoned Mr. Yamada to postpone the hearing. A second hearing was scheduled for June 28, and also cancelled by Almassi's attorney.

(hh) By letter dated July 10, 1984 , Appeals Officer Yamada notified Mr. Almassi of a third scheduled date for the hearing of July 23. On July 20 Almassi's attorney again telephoned to postpone the hearing. The hearing was rescheduled for August 9, 1984 .

(ii) By letter dated June 14, 1984 , the IRS notified Hassan Almassi of its proposal to assess him with the 100% penalty for the fourth quarter of 1983. The letter also requested that Mr. Almassi agree to the proposed assessment by signing an enclosed form.

(jj) By letter dated June 28, 1984 , the IRS notified Hassan Almassi that it had not received the signed form requested in the June 14 letter. The letter further notified Mr. Almassi that unless a proper appeal with regard to these unpaid taxes was filed within 30 days, the penalty assessment would be made.

(kk) By letter dated July 26, 1984 , the IRS notified Mr. Almassi that another statute of limitations was approaching, and sought his consent to extend the period so that the Appeals Office could complete consideration of the case. The IRS requested that he sign and return the consent forms within two weeks. Mr. Almassi did not respond.

(ll) On August 1, 1984, Hassan and Guita Almassi granted three deeds of trust upon the subject property, one to each of their three children, Ardeshir, Kourosh and Katayoun. Each deed of trust was in the amount of $70,000.00.

(mm) Almassi did not show up for the appeals hearing scheduled for August 9.

(nn) The three 100% penalty assessments were made on October 1 and 15, 1984, and August 18, 1986 .

(oo) Hassan Almassi and Ardeshir Almassi discussed the corporations' tax problems before the deed of trust was granted in August, 1984.

(pp) The only additional consideration the Almassi children gave Hassan and Guita Almassi in return for the deeds of trust was the children's agreement to forebear on collection of the debts.

(qq) In 1989, the children commenced, then aborted, foreclosure proceedings.

3. The court further finds the following fact which was not contested in the pretrial order:

On or about April 14, 1984 , Almassi sold Designer Drapery to Rob ert Siegfried (Purchaser). The purchaser executed a promissory note, dated April 14, 1984 , in favor of Hassan Almassi in the amount of $112,000 with interest to be paid at ten (10) percent. The purchaser defaulted and Almassi instituted suit on the promissory note which was secured by the assets of Designer Drapery and the purchaser's other assets. As of February 29, 1988 , the purchaser owed approximately $140,000 as the unpaid balance (with interest). Almassi instituted suit against Siegfried to collect the unpaid balance after Siegfried failed to make timely payments. On February 29, 1988 , prior to the trial date, the United States seized Almassi's interest in the promissory note over Almassi's objection and sold the note at a public auction, to the purchaser, for $20,000.

4. On October 1, 1984, a delegate of the Secretary of the Treasury of the United States made an assessment against Hassan Almassi in the amount of $126,315.05 due to his willful failure to collect, truthfully account for and pay over to the United States the withheld income and FICA taxes of Designers Drapery Co., Inc. (EIN 91-0981411) for the taxable quarters ending between September 30, 1979, and September 30, 1983. Subsequent assessments were made in the amount of $2,395.35 on October 15, 1984 for the taxable quarter ending December 31, 1983 , and for $7,558.26 on August 18, 1986 , for the taxable quarters ending December 31, 1983 and March 31, 1984 . This last assessment related to a different corporate entity, Designers Drapery & Co., Ltd. (EIN 91-1225873). Despite timely notice and demand for payment of the assessments identified above, Hassan Almassi has failed to pay the full amount due to the United States .

5. Hassan Almassi was a "responsible person" of Designer's Drapery, Inc., who willfully failed to collect, truthfully account for, and pay over employment taxes to the Internal Revenue Service. This finding applies to all of the amounts specified in the preceding finding.

6. The deeds of trust granted by Hassan and Guita Almassi to their three children, Ardeshir, Kourosh, and Katayoun, on August 1, 1984, were valid conveyances made to secure an existing debt and in return for a forbearance, were issued for fair and genuine consideration, did not render the grantors insolvent, and were not made to hinder, delay, or defraud plaintiff or other creditors. The deeds of trust were executed and delivered in good faith and did not constitute fraudulent transfers. Plaintiff has not established that the statute of limitations had run on the underlying promissory notes, since the basic period may be extended by various acts and events; in any event, the potential availability of a limitations defense would not invalidate the indebtedness reflected in the notes.

7. The evidence does not support defendants' contentions that plaintiff failed to act in a commercially reasonable manner in seizing and selling the Siegfried note, has failed to mitigate its damages, has failed to exhaust admin istrative remedies, or has sued untimely under the statute of limitations.

CONCLUSIONS OF LAW

1. The court has jurisdiction of this action under 26 U.S.C. §7402 and 28 U.S.C. §§1340 and 1345.

2. Plaintiff is entitled to judgment against defendant Hassan Almassi in the amount of $136,268.96, less any amounts paid thereon, plus accrued interest and any statutory additions provided by law.

3. The deeds of trust issued in 1984 by Hassan Almassi and Guita Almassi to their three children did not constitute fraudulent transfers, and plaintiff is not entitled to have them set aside.

Counsel for plaintiff is directed to serve and file by March 3, 1992 , a proposed form of judgment consistent with these findings and conclusions. Any objections by defendants to the form of judgment are to be served and filed by March 10, 1992 .

The clerk is directed to send copies of these findings and conclusions to all counsel of record.

 

 

[91-2 USTC ¶50,367] In re Lewis Akmakjian, Debtor. Steven E. Smith, as Trustee, Plaintiff v. United States Internal Revenue Service, Gayle Akmakjian, Hugh Lawson, Henry Friedman and Irwin Butler, Defendants United States of America, Counterclaimant v. Lewis Akmakjian, Hugh Lawson, Henry Friedman, Irwin Butler, Steven E. Smith and Gayle Akmakjian, Counterclaim Defendants

U.S. Bankruptcy Court, Cent. Dist. Calif. , LA 85-09888-KL, 7/19/90

[Code Secs. 6321 and 6323 and Rev. Stat. Sec. 3466 (U.S. Rev. Stat. 31 USC 191) ]

Liens for tax: Priority of claims: Bankruptcy.--

A federal tax lien against a debtor in bankruptcy was unaffected by the debtor's assignment of certain property interests by deed of trust. The tax lien arose automatically at the time of assessment and had priority over the interests of the debtor's assignees and other creditors, interests which were perfected, if at all, after the notices of federal tax lien were filed. Further, the federal tax lien was unaffected by the debtor's bankruptcy since no steps were taken, and none were available under the Bankruptcy Code, to avoid the perfected tax liens.

Rob ert L. Brosio, United States Attorney, Mason C. Lewis, Edward M. Rob bins, Jr., Assistant United States Attorneys, Los Angeles, Calif. 90012, for U.S.

STATEMENT OF UNCONTROVERTED FACTS AND CONCLUSIONS OF LAW

LAX, Bankruptcy Judge:

This matter is before the Court on the motion of defendant and counterclaimant, United States of America , for summary judgment on plaintiff's complaint and the government's counterclaim on the grounds that there exists no genuine issue of material fact and the government is entitled to judgment as a matter of law. (Rule 7056, Bankruptcy Rules). Gayle Akmakjian has filed a cross-motion for summary judgment. No other party opposed the government's motion. The facts are stipulated. The Court grants the government's motion and denies the motion of Gayle Akmakjian.

STATEMENT OF UNCONTROVERTED FACTS

1. This is an action brought by the Trustee and United States of America for the purpose of determining the validity, extent and priority of competing claims of the United States of America and the named defendants to certain funds and to compel distribution of the funds. The named defendants are individuals residing and doing business in the Central Judicial District of California.

2. This Court has jurisdiction of this action under 28 U.S.C. Sections 157(b), 1334, 1340 and 1345 and 26 U.S.C. Section 7402 .

3. Venue lies in the Central District of California under 28 U.S.C. Sections 1408 and 1409.

4. The Commissioner of Internal Revenue has entered against the debtor, Lewis Akmakjian, assessments for unpaid federal income taxes as follows:

TAX PERIOD ASSESSMENT DATE    TAX DUE

   1968     
July 12, 1982
  $10,319.00

   1969     
July 12, 1982
  $50,088.00

   1971     
July 12, 1982
  $ 6,456.00

   1973     
July 12, 1982
  $ 3,333.00

   1975     
July 12, 1982
  $17,984.00

                TOTAL      $88,180.00

 

5. Proper notice and demand for payment of the identified assessments has been made upon the debtor, Lewis Akmakjian.

6. On November 29, 1982 , the Commissioner of Internal Revenue filed a Notice of Federal Tax Lien regarding the identified assessments against the debtor, Lewis Akmakjian, with the Office of the County Recorder at Los Angeles , California .

7. On July 17, 1985 , the debtor, Lewis Akmakjian, filed the above-captioned voluntary petition under Chapter 7 of Title 11 of the United States Code in this Court.

8. On April 16, 1986 , the Commissioner of Internal Revenue timely filed in this Chapter 7 case a proof of claim regarding the identified assessments against the debtor, Lewis Akmakjian, showing that the debtor is indebted to the United States of America in the sum of $265,675.28 as of the petition date.

9. The Commissioner of Internal Revenue has entered against Gayle Akmakjian, assessments for unpaid federal income taxes as follows:

TAX PERIOD ASSESSMENT DATE    TAX DUE

   1968     
July 12, 1982
  $10,319.00

   1969     
July 12, 1982
  $50,088.00

   1971     
July 12, 1982
  $ 6,456.00

   1973     
July 12, 1982
  $ 3,333.00

   1975     
July 12, 1982
  $17,984.00

                TOTAL      $88,180.00

 

10. Proper notice and demand for payment of the identified assessments has been made upon Gayle Akmakjian.

11. On November 29, 1982 , the Commissioner of Internal Revenue filed a Notice of Federal Tax Lien regarding the identified assessments against Gayle Akmakjian, with the Office of the County Recorder at Los Angeles , California .

12. As of June 26, 1987 , the government claims that Gayle Akmakjian is indebted to the United States of America in the amount of $329,553.27, in respect of the identified assessments.

13. Steven E. Smith is the duly appointed, qualified and acting Chapter 7 trustee herein (hereinafter "the Trustee").

14. Debtor Lewis Akmakjian was a 50% general partner in L&M Ltd., a limited partnership transformed in the pre-petition period to a general partnership. The other pre-petition 50% general partner was Max Saddle, now deceased and represented by Philip Berkowitz, executor. L&M Ltd. held title to the land and commercial building at 129 Golden Mall, Burbank , California , which was then subject to a first deed of trust for Gayle Akmakjian. Gayle Akmakjian is debtor's former wife. Shortly after the Trustee was appointed, the Court directed him to take possession of the L&M Ltd. property from debtor's hands, to temporarily manage and operate the same, and to receive, expend and be accountable for rents, profits, and expenses thereof, all preparatory to the Court's determining if the property should be sold.

15. Martin Akmakjian, debtor's brother, claimed to be a secured creditor as to debtor's interest in L&M Ltd. The Trustee brought adversary action No. LA 85-4390 in part to adjudicate that claim. On August 18, 1986, this Court entered an order authorizing and directing the sale by the Trustee and Berkowitz of said real property, free and clear of all liens (pursuant to 11 U.S.C. §363(f)). Net proceeds from said sale were to be paid over one half to Berkowitz for the Saddle estate and one half to the Trustee for debtor's estate (pending adjudication of Martin's claim). Subsequently, this Court entered amended orders substituting in turn the names of new buyers, the original and one succeeding buyer having withdrawn. None of those amended orders modified the essential terms of the original August 18, 1986 order that the sale was to be free and clear of all liens.

16. By written instruments after the filing of the Notices of Federal Tax Lien, Gayle Akmakjian assigned all her beneficial rights in the aforesaid trust deed (see paragraph 15, above) to Hugh Lawson, Henry Friedman and/or Irwin Butler. On the eve of closing, the Internal Revenue Service levied against all monies in the escrow due to Gayle Akmakjian. When informed of the Internal Revenue Service levy, the assignees of Gayle Akmakjian refused to reconvey and permit the closing of this sale.

17. Thereafter, the Trustee sought and obtained from the Court a SUPPLEMENTAL ORDER DIRECTING SALE OF REAL PROPERTY FREE AND CLEAR OF LIENS, entered July 17, 1987 . Paragraph 1 of that order directed escrow to pay the real estate commission and closing costs, "and all encumbrances of record except the Internal Revenue Service levy and the first deed of trust of Gayle Akmakjian (or her assignees)." Paragraph 2 of that order further provided: "All remaining proceeds of the sale are to be paid over to Steven E. Smith, Trustee, who will fully bond said funds, to be held by him in a separate interest bearing account, pending an adjudication and order by this Court as to who is entitled to those funds."

18. Escrow closed. The Trustee received from escrow the full sum of $299,718.97, consisting of $163,998.73 from the escrow and $135,720.24 from the trustee of Gayle Akmakjian's trust deed, which the Court ordered turned over to and held by the Trustee. The Trustee secured a bond more than sufficient for that amount, and opened an interest bearing account for the $299,718.97 at Metrobank, Los Angeles .

19. The liens of all persons attached to the $299,718.97 fund with the same force, effect and priority that they attached to the real property sold.

20. On October 29, 1987 , the Court entered its ORDER ON TRUSTEE'S APPLICATION FOR ORDER (1) ADJUDICATION OF LIEN RIGHTS, AND (2) ASSESSING COSTS AND DIRECTING PAYMENT OF INTERIM TRUSTEE FEES, which provided in pertinent part that:

(1). The Trustee would hold the $135,720.24 (plus interest earned while the funds were in the Trustee's hands) pending the determination of an adversary proceeding in which Gayle Akmakjian and her assignees, the United States of America and the Trustee are all named adversary parties. It was the understanding of the Court that such an action will be brought and that the Trustee intends to take a limited role therein as a "stakeholder."

(2). The trustee would disburse the sum of $81,999.37 (plus the proportionate share of interest earned by the funds while in the trustee's hands) as the 50% share of the net process of the sale, to Philip Berkowitz as executor of the estate of Max Saddle, deceased, after allowing for a deduction for stipulated trustee fees.

(3). The remaining sum of $81,999.36 would remain in this bankruptcy estate until judgment is rendered in the adversary action seeking to determine the existence of a security interest therein by Martin Akmakjian. If that judgment does not expressly direct the manner of payment of said fund and identify the payee, the Trustee may apply to the Court for an ex parte order for such distribution if warranted.

21. This Court determined in the adversary action that Martin Akmakjian had no security interest in the $81,999.37.

22. The United States of America has a first priority position on the $135,720.24 (plus interest) fund identified above.

23. The United States of America has a first priority position in the remaining sum of $81,999.36 (plus interest) identified above.

24. The United States of America is entitled to have the $135,720.24 (plus interest) fund identified above.

25. The United States of America is entitled to have the $81,999.36 (plus interest) fund identified above.

26. To the extent any Conclusion of Law is deemed a Statement of Uncontroverted Fact, it is incorporated herein.

CONCLUSIONS OF LAW

1. Section 6321 of the Internal Revenue Code of 1986, provides for the imposition of a federal tax lien encompassing "all property and rights to property whether real or personal, belonging to" a delinquent taxpayer. Pursuant to Section 6322 of the Code, such tax lien arises automatically at the time of the assessment, continues thereafter until the underlying tax liability is satisfied or the statute of limitations intervenes (see Sec. 6502 , Internal Revenue Code 1986 (26 U.S.C.)) and attaches to after-acquired property of the taxpayer. Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265 (1945); J.D. Court, Inc. v. United States [83-2 USTC ¶9454 ], 712 F.2d 258, 260-261 (7th Cir. 1983). In the present case, federal tax liens in the amount of $88,180 arose against all property and rights to property of the debtor, Lewis Akmakjian and Gayle Akmakjian on July 12, 1982 , upon assessments of their joint income tax liabilities for 1968, 1969, 1971, 1973 and 1975.

2. Once it is determined that a federal tax lien attaches to property, "we enter the province of federal law * * *: (Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 514 (1960)) and the question whether there is a security interest that has priority is exclusively within that province. The priority of federal tax liens vis-a-vis other liens is essentially based upon "first in time is the first in right." United States v. City of New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85-86 (1954). This general lien of the government prevails against all unperfected liens against a taxpayer's property or rights to property with the exceptions outlined in Section 6323(a) , which, in relevant part, provides for priority over the unfiled tax lien to the claims of any "purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor." J.D. Court, Inc., supra, at 261. ¹ Here, notices of federal tax liens for both assessments were filed November 29, 1982 . The interests of the assignees of Gayle Akmakjian were perfected, if at all, after the filing of the notices of federal tax lien. Hence, the assignees of Gayle Akmakjian (Hugh Lawson, Henry Friedman and Irvin Butler) cannot compete with the filed federal tax liens.

3. The tax liens against Gayle Akmakjian are unaffected by Gayle Akmakjian's assignment of her interest in the trust deed. As recently explained by the Ninth Circuit Court of Appeals:

We cannot accept the bank's interpretation of the statute and regulations. Under 26 U.S.C. §6332(a) , "any person in possession of . . . property or rights to property subject to levy upon which a levy had been made shall, upon demand surrender such property or rights." Levy may be made "upon all property and rights to property . . . belonging to [a taxpayer] or on which there is a [federal tax] lien." 26 U.S.C. §6331(a) . (emphasis added). A federal tax lien attaches to a taxpayer's property when unpaid taxes are assessed, and continues to attach until either the tax is paid or the lien becomes unenforceable because of lapse of time. 26 U.S.C. §§6321 , 6322 . The lien continues to attach to a taxpayer's property regardless of any subsequent transfer of the property. United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51, 57 (1958); United States v. Oil Resources, Inc. [87-2 USTC ¶9461 ], 817 F.2d 1429, 1433 n.3 (9th Cir. 1987); Omnibus Fin. Corp. v. United States [78-1 USTC ¶9209 ], 566 F.2d 1097, 1103 (9th Cir. 1977). Thus, under the Treasury Regulations, [p]roperty subject to a Federal tax lien which has been sold or otherwise transferred by the taxpayer may be seized while in the hands of the transferee or any subsequent transferee. . . . Levy may be made by serving a notice of levy on any person in possession of . . . property or rights to property subject to levy. . . . [A] levy only reaches property in the possession of the person levied upon at the time a levy is made.

26 C.F.R. §301.6331-1(a)(1) (emphasis added).

United States v. Donahue Industries, Inc. [90-2 USTC ¶50,343 ], 905 F.2d 1325 (9th Cir., June 18, 1990 ) (emphasis in the original). Accordingly, the assignees of Gayle Akmakjian took their assignments subject to the federal tax liens against Gayle Akmakjian.

4. It is too well settled for discussion that a lien, mortgage or security interest against the debtor's property is unaffected by the intervention of bankruptcy in the absence of some affirmative act sufficient to avoid the encumbrance, even though the underlying debt is extinguished. Long v. Bullard, 117 U.S. 617, 620-21 (1986); Isom v. United States [90-1 USTC ¶50,216 ], 901 F.2d 744 (9th Cir. 1990). This is true regardless of whether the secured creditor files a proof of claim. Simmons v. Savell (In Re Simmons), 765 F.2d 547, 556 (5th Cir. 1985). The burden of avoiding an encumbrance on property of the estate lies with the debtor or the trustee. In re Simmons, supra. Here, neither the debtor nor the trustee has taken any steps to avoid the perfected tax liens. Indeed, the Bankruptcy Code makes no provision for avoiding such liens. See 11 U.S.C. §§544 --549 and 724(a). As a result, any discharge of the debtor's tax liabilities has no impact on the government's perfected tax liens. Accordingly, the federal tax liens take priority over any claim of the debtor or Gayle Akmakjian. ²

5. No material issues of fact exist and the government is entitled to judgment as a matter of law.

6. None of the parties can compete with the government's tax liens. Therefore, this Court orders the Trustee to pay the Internal Revenue Service the amount of $135,720.24 (plus interest) and $81,999.36 (plus interest) presently held by the Trustee.

7. To the extent any Statement of Uncontroverted Fact is deemed a Conclusion of Law, it is incorporated herein.

IT IS SO ORDERED

¹ Section 6323(b) providing for protection of certain interests even though the notice of tax lien was filed has no application here.

² At oral argument counsel for Gayle Akmakjian represented that Ms. Akmakjian received a discharge of her tax obligations in another bankruptcy case.

 

 

[57-1 USTC ¶9479]W. C. Blodgett, Plaintiff, v. United States of America , Defendant

U. S. District Court, So. Dist. Calif. , Cent. Div., Civil No. 20057-WB, 3/4/57

[1939 Code Sec. 3672--similar to 1954 Code Sec. 6323]

Lien for taxes: Priority: Purchase at trustee's sale of deed of trust.--In 1943, taxpayers, husband and wife, acquired title to certain real property. In 1948, they executed a deed of trust on the real property to secure a promissory note in the amount of $1,000. In 1949 and 1950, the United States filed notices of liens for withholding and FICA taxes due from the taxpayers. In 1951, the plaintiff in this case purchased the deed of trust at trustee's foreclosure sale for $1,010, plus prior liens at the time of sale, making his entire purchase price $6,249.28. The court holds that the interest of the purchaser in the property is prior and superiod to the tax liens and orders sale of the real estate, the proceeds to be applied first to expenses of sale and costs of this suit, then to the purchaser to the extent of $6,249.28 plus interest from the date of his purchase, and then to the United States, plus interest, with any remainder to be paid to plaintiff.

Charles H. Matthews, 303 Blodgett Building, 2510 South Central Avenue , Los Angeles 11, Calif. , for plaintiff. Laughlin E. Waters, United States Attorney, Edward R. McHale, Assistant United States Attorney, Rembert T. Brown, Assistant United States Attorney, 808 Federal Building, Los Angeles 12, Calif., for defendant.

Findings of Fact, Conclusions of Law and Judgment

BYRNE, District Judge:

The above-entitled cause came on regularly for trial on October 9, 1956 in the above-entitled Court before the Honorable Wm. M. Byrne, Judge Presiding, sitting without a jury, Charles H. Matthews appearing as attorney for plaintiff and Laughlin E. Waters, United States Attorney, Edward R. McHale, Assistant United States Attorney, Chief, Tax Division, and Rembert T. Brown, Assistant United States Attorney, appearing for defendant, and oral and documentary evidence having been introduced and the Court having considered the arguments of counsel, both oral and written, and being fully advised makes the following findings of fact:

Findings of Fact

I. On or about March 23, 1943 one Louis G. Brooks and his wife Ethel Brooks acquired quired title under a joint tenancy form of deed to that certain real property located in the County of Los Angeles, State of California, and more particularly described as follows: Lot 22, Block 9, of South Woodlawn as per Map recorded in Book 4, Page 5, of Maps in the Office of the County Recorder of said County.

[Deed of Trust Executed]

II. On October 26, 1948 said Louis G. Brooks and Ethel Brooks executed a deed of trust on the above-described property to Land Title Insurance Company, a corporation, as trustee, to secure a promissory note of even date in the sum of $1,000 in favor of Max Hayman and Lydia Hayman, husband and wife. Said deed of trust was subsequently recorded in the Office of the County Recorder , County of Los Angeles , State of California , on October 28, 1948 , in Book 28633, Page 82, Official Records of said County.

[Lien for Taxes]

III. Subsequent to the execution and recordation of the aforementioned deed of trust the Commissioner of Internal Revenue assessed against the aforesaid taxpayer Louis G. Brooks, doing business with one Arthur L. Rainwater, as Hi-Hat Grill, Federal Internal Revenue taxes of the type, for the taxable period, and in the amounts set forth below; the Collector of Internal Revenue for the 6th Collection District of California received the respective assessment lists showing the assessments of the aforesaid taxes on the dates shown below, on which dates liens of the United States of America arose against all property and rights to property of the taxpayer, as provided in Sections 3670 and 3671 of the 1939 Internal Revenue Code; shortly after the receipt by the Collector of each assessment list, notice of each tax assessed was given to the taxpayer and demand was made upon him for the payment of each tax so assessed; that the taxpayer, after notice and demand, paid, if any, only those amounts shown in the table below and no more, and remains indebted to the United States of America for the balance; on the dates specified below Notices of Tax Lien were filed in the Office of the County Recorder of Los Angeles County, California, pursuant to Section 3672 of the 1939 Internal Revenue Code, and there show the lien numbers set forth below; there remains due, owing and unpaid to the United States of America on each lien the sum shown in the last column, which represents the balance of the assessed tax plus subsequently accruing penalties and interest computed through January 18, 1957; further interest accumulates on the total balance of assessed taxes, penalties and interest from said date at the statutory rate of six per centum per annum, which amounts to $0.18 per day, until paid; that lien filing fees of $2.50 have been incurred:

IV. Also subsequent to the execution and recordation of said deed of trust the Commissioner of Internal Revenue assessed against the aforementioned taxpayer Ethel Brooks, doing business as Hi-Hat Grill, Federal Insurance Contributions taxes, for the first of 1950, in the amount of $114.45; the Collector of Internal Revenue for the 6th Collection District of California received the assessment list showing the assessment of the aforesaid taxes on July 7, 1950, on which date a lien of the United States of America arose against all property and rights to property of the taxpayer, as provided in Sections 3670 and 3671 of the 1939 Internal Revenue Code; shortly after the receipt by the Collector of said assessment list, notice of the tax assessed was given to the taxpayer and demand was made upon her for the payment of the tax so assessed; the taxpayer, after notice and demand, paid, if any, only the amount of $121.91 and no more, and remains indebted to the United States of America for the balance; on August 25, 1950, a Notice of Tax Lien No. 2053 was filed in the Office of the County Recorder of Los Angeles County, California, pursuant to Section 3672 of the 1939 Internal Revenue Code; there remains due, owing and unpaid to the United States of America on said lien the sum of $26.74, which represents subsequently accruing interest on the assessed tax as of October 9, 1956; lien filing fees of $1.00 have been incurred.

[Deed of Trust Foreclosed]

V. Subsequent to the date each of the aforementioned tax liens arose, there having been default in payments on the aforesaid note, said deed of trust was foreclosed through the exercise of the power of sale contained therein with the resultant sale to the plaintiff herein, W. C. Blodgett, for a bid of $1,010.00. There has not been at any time any judicial foreclosure of said deed of trust. The trustee's sale took place on August 3, 1951 and the trustee's deed upon sale was recorded in the Office of the Los Angeles County Recorder on August 9, 1951 in Book 36961, Page 26, Official Records of Los Angeles County, California.

[Waiver Filed]

VI. Subsequently, on March 3, 1955 , a "tax collection waiver" was executed by Louis G. Brooks in favor of the United States of America stating therein that the aforementioned taxes in connection with the liens which arose at various times during the year 1949 may be collected from the taxpayer "on or before December 31, 1960 ." This waiver was executed six years after the assessment of each of said taxes.

[Community Property]

VII. Despite a joint tenancy form of deed to them, Louis G. Brooks and Ethel Brooks each intended to hold the subject real property as their community property.

Conclusions of Law

From the foregoing facts the Court makes the following conclusions of law:

I. This Court has jurisdiction of the parties and of this controversy.

II. At the time of the foreclosure of the subject deed of trust under the power of sale contained therein, all of the subject federal tax liens were valid, subsisting and perfected. The foreclosure under the power of sale was without any effect whatsoever on those tax liens. Under the provisions of Section 2410, Title 28, United States Code, federal tax liens can be eliminated only by a judicial foreclosure to which the United States of America has properly been made a party.

[Waiver]

III. The taxes secured by said liens could be collected at any time within six years after said liens arose. The time for collection could be extended by agreement with the taxpayer entered into at any time before the expiration of that six-year period. The prior foreclosure of said deed of trust under the power of sale in no way limited the taxpayer's ability to extend the period during which the pre-existing federal tax liens could be enforced against the subject property. The above-mentioned waiver timely executed by Louis G. Brooks extended the life of the tax liens on the subject property. By virtue of said waiver all of the tax liens covered thereby remain valid, subsisting, and enforceable against said property.

[Community Property]

IV. Parole evidence is admissible to show the intention of Louis G. Brooks and Ethel Brooks to hold the subject real property in community despite the joint-tenancy form of the deed to them. An express agreement to hold such property in community is not necessary. The subject real property was held by Louis G. Brooks and Ethel Brooks at all times herein pertinent as their community property.

[Purchaser at Trustee's Sale Had Priority]

V. By virtue of the purchase by him at the trustee's sale hereinabove mentioned, plaintiff acquired an interest in the subject real property. To the extent of the purchase price paid by the plaintiff plus prior liens at the time of said sale, to wit, the sum of $6,249.28, the interest of plaintiff in said property is prior and superior to any interest of defendant under any of said tax liens.

Judgment

In accordance with the foregoing findings of fact and conclusions of law it is hereby ordered, adjudged and decreed:

I. That certain real property situated in the County of Los Angeles , State of California , and more particularly described as follows:

Lot 22, Block 9, of South Woodlawn as per Map recorded in Book 4, Page 5, of Maps in the Office of the County Recorder of said County

is and shall be subject to:

1) The payment to plaintiff, W. C. Blodgett, of the sum of $6,249.28, plus interest from August 3, 1951 as provided by law;

2) The payment to defendant, United States of America , of the total sum of $1,683.73, plus interest at the rate of $0.18 per day from January 18, 1957 .

[Order of Application of Proceeds]

II. That said property be sold at a public auction according to law by the United States Marshal for the Southern District of California and any proceeds arising from said sale shall be applied as follows:

FIRST: To the payment of the Marshal's fees, disbursements and expenses of sale;

SECOND: To the payment to the plaintiff of the costs of this suit incurred in the sum of $18.50;

THIRD: To the payment to the plaintiff of the total sum of $6,249.28, plus interest from August 3, 1951 , as provided by law;

FOURTH: To the payment to the defendant of the total sum of $1,683.73, plus interest as set forth above;

"FIFTH: If there be any surplus in the hands of said Marshal after payment of the sums specified in items First through Fourth inclusive above, any such surplus shall be paid to plaintiff.

III. That either party to this action may be a purchaser at such sale; that said Marshal after the time allowed by law for redemption has expired shall execute a deed to the purchaser or purchasers at said sale; and if either of the parties to this action may be in possession of said real property, or any part thereof, or any person who since the commencement of this action has come into possession under them, or either of them, refuse to deliver possession thereof to such purchaser or purchasers, or any part thereof, a Writ of Assistance may, without further notice, be issued to compel such delivery of possession to the purchaser or purchasers.

IV. That the defendant and any person claiming under it be forever barred and foreclosed of and from all equity of redemption and claim of, in and to said real property and every part and parcel thereof from and after delivery of said deed by said Marshal.

 

 

[60-1 USTC ¶9220]The Washington Auditorium Corporation, a Virginia Corporation, Plaintiff v. American Security and Trust Company, Trustee, First Deed of Trust Bonds of Plaintiff Corporation, et al., Defendants United States of America, Plaintiff v. 5 Parcels of Land in Square 123 in the District of Columbia, Washington Auditorium, Inc., a Virginia Corporation, et al., and Unknown Owners, Defendants

U. S. District Court, District of Columbia., Civil Action No. 2860-58, D. C. Docket No. 32-56, 11/16/59

[1954 Code Sec. 6323]

Lien for taxes: Priority: Second deed of trust bondholders.--When the amounts paid in to taxpayer corporation for stock and for first deed of trust bonds were insufficient to finance the construction of an auditorium in Washington, D. C. for civic and public functions, the corporation issued second deed of trust bonds in 1926. No payments have ever been made on account of principal or interest of these second deed of trust bonds. In 1956, the United States acquired the auditorium property by condemnation proceedings, and the corporation reserved from the proceeds sufficient funds to pay the first deed of trust bonds. In 1959, jeopardy assessments of income tax were made against the corporation, and no part of these assessments has been paid. The court grants the motion for summary judgment filed on behalf of the second trust bondholders and holds that they have a prior lien on the remainder of the condemnation proceeds (after provision is made for the first trust bondholders) over the claims of the stockholders and over the claim of the United States for taxes.

John A. Beck and G. A. Chadwick, Jr., 605 Southern Bldg., Washington , D. C. for plaintiff. Craighill, Aiello & Preston, 725 Fifteenth St., N. W. , Washington , D. C. for defendants.

Order for Partial Summary Judgment

MATTHEWS, District Judge:

These consolidated actions came on to be heard upon the motion of the defendant second trust bondholders James M. Johnston (No. 5), James H. Lemon (No. 6), Edith Lester Kinsolving (No. 8) and Katherine Lester McGreer (No. 9), acting on behalf of themselves and all other second trust bondholders of the plaintiff corporation similarly situated, seeking summary judgment with respect to certain claims involved herein; and after having duly considered said motion, and the depositions and affidavits on file in these actions, the Court finds that the following facts appear from the record without substantial controversy.

1. The plaintiff corporation was organized under the laws of Virginia in 1922 by a number of civic-minded citizens of the District of Columbia for the purpose of providing the City of Washington with an anditorium suitable for civic and public functions. Thereafter plaintiff acquired certain real property in the District of Columbia located between 19th Street, E Street and New York Avenue, N. W., and known as Lot 17 in Square 123, and proceeded to erect thereon an auditorium building. Plaintiff continue to be the owner of said land and improvements until November 30, 1956, when the United States of America acquired the same on notice in condemnation proceedings #32-56.

[First Deed of Trust Bonds]

2. In order to obtain funds for the acquisition of the auditorium property and the construction of improvements thereon, plaintiff, through sale of combined units (a) obtained certain funds from its stockholders, defendants herein, by the issuance and sale of 7,279 shares of its $50 par value capital stock now outstanding; and (b) issued and sold its first deed of trust bonds dated January 1, 1924, and payable January 1, 1944, in the aggregate principal sum of $400,000, with interest at 6% per annum, and caused the same to be secured by a deed of trust dated May 1, 1923, on the aforesaid real property, to the defendant American Security and Trust Company, trustee, which deed of trust was duly recorded in Liber 4978, at folio 451, of the land records of the District of Columbia.

[Second Deed of Trust Bonds]

3. The proceeds from the issuance and sale of the aforesaid stock and first mortgage bonds of the corporation were not sufficient to complete the construction of said building; and the plaintiff corporation issued and thereafter delivered for a valid consideration its second deed of trust bonds in the aggregate principal amount of $250,000, dated July 1, 1926 and pyable January 1, 1936, with interest at 7% per annum, and caused the same to be secured by a deed of trust dated June 3, 1926, on the aforesaid real property, running to the District National Bank of Washington, as trustee, which deed of trust was duly recorded in Liber 5776 at folio 203 of the land records of the District of Columbia. The execution and delivery of said bonds and deed of trust were duly authorized by the plaintiff corporation by action of its directors and stockholders.

4. No payments have ever been made by the plaintiff corporation on account of principal or interest of said second deed of trust bonds.

5. In Civil Action 2867-47, brought by certain of said second trust bondholders on behalf of themselves and others similarly situated, this Court, by order entered July 14, 1947, appointed William V. Simmons as trustee under the said second deed of trust in place and stead of the District National Bank of Washington (said bank having been then liquidated and dissolved), and in said order this Court also decreed that said new trustee "is hereby vested with all the title at law and in equity, and all the powers that had been conveyed to and vested in said original trustee, District National Bank of Washington."

6. In Civil Action 595-57, brought by certain of said second trust bondholders on behalf of themselves and others similarly situated, this Court by order entered July 26, 1957, appointed Jaquelin A. Marshall and Webb C. Hayes III trustees in place and stead of William V. Simmons, who was then deceased; and in said order this Court decreed "that said new trustees are hereby vested with all the title at law and in equity and all the powers that have been conveyed to or vested in the District National Bank of Washington and thereafter in the prior successor trustee William Simmons."

[Condemnation]

7. On November 30, 1956 , the United States of America , in Condemnation Proceedings No. 32-56, filed a declaration of taking of the real property of the plaintiff corporation secured by the aforementioned deeds of trust and paid into the registry of the court as estimated compensation therefor the sum of $500,000. The plaintiff corporation, having declined to accept said $500,000 as full and adequate compensation, a trial was had in said condemnation proceedings, resulting in a verdict and judgment increasing said condemnation award to the sum of $1,030,100, with interest. The United States paid the amount of said condemnation judgment into the registry of this Court.

8. Pursuant to orders of this Court in said Condemnation Proceedings No. 32-56, the aforesaid condemnation proceeds were paid over to the defendant Real Estate and Columbia Title Insurance Companies under instructions to "apply the proceeds * * * to the payment of all taxes and assessments, general or special, due or exigible on said real property at the time of the filing of the declaration of taking, when title to the said property became vested in the United States of America, namely November 30, 1956, and to the redemption of all tax sales, if any, on said real property and to the payment and discharge of all liens and encumbrances of whatesoever nature on said real property and fund, after which the balance, if any, shall be paid by said title companies to the Washington Auditorium Corporation, a Virginia corporation."

9. At the time of the declaration of taking of the aforesaid property by the United States on November 30, 1956 , no payment had been made on account of the principal of said first deed of trust, but interest thereon had been paid. Thereafter the defendant title companies paid out of the funds in their hands the principle and interest (to May 31, 1957) on all of the first deed of trust bonds of the plaintiff corporation which were presented to said title companies for payment, and has reserved sufficient funds to pay the balance of said bonds. No payments, however, have been made by said title companies on account of the second trust bonds of the plaintiff corporation, nor have any payments been made by said title companies to the plaintiff corporation itself.

[Jeopardy Assessment]

10. On February 5, 1959, the U. S. Commissioner of Internal Revenue caused certain jeopardy assessments to be made and filed against the plaintiff corporation in the aggregate principal amount of $219,205.66, plus interest, for income taxes alleged to be due and unpaid by the plaintiff corporation for income received during the calendar years 1957 and 1958. The defendant title companies have made no payment from the funds in their possession on account of said alleged income tax liability.

[Bondholders' Priority Over Stockholders]

11. Upon consideration of the foregoing facts the Court has determind that the second trust bondholders of the plaintiff corporation are entitled to a declaratory judgment declaring that the second trust bondholders have priority as to the condemnation proceeds over the stockholders of the plaintiff corporation and over the aforesaid claim of the United States for income taxes, and that the motion of said second trust bondholders for a partial summary judgment should be granted.

Accordingly, it is this 16th day of November, 1959,

ORDERED, as follows:

1. The motion for summary judgment filed on behalf of the defendant second trust bondholders is hereby granted to the extent hereinafter set forth.

2. The second deed of trust from the plaintiff corporation dated June 3, 1926, and securing bonds executed by the plaintiff in the aggregate principal amount of $250,000, with interest thereon was a valid lien against the real property of the plaintiff corporation taken in Condemnation Proceedings No. 32-56, as of November 30, 1956, the date of said declaration of taking, and the lien of said deed of trust was transferred to and now exists against the proceeds of said condemnation in the hands of the defendants Real Estate & Columbia Title Insurance Companies.

3. The second trust bondholders of the plaintiff have a prior lien on said funds in the hands of the defendants Real Estate & Columbia Title Insurance Companies for payment of principal and interest on their bonds, over stockholders of the plaintiff corporation and over the claim of the United States of America for income taxes for the calendar years 1957 and 1958.

4. The Court hereby expressly determines that there is no just reason for delay and expressly directs the entry of final judgment on this order.

5. The Court reserves the right to enter further orders with resepct to such claims in these actions as have not been finally determined by this judgment.

 

 

[65-1 USTC ¶9206] Phoenix Title and Trust Company, Appellant v. Myles Stewart, Trustee of the Estate of Arthur Peabody and Olive Peabody, Appellee

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 18,819, 10/21/64, Reversing unreported District Court opinion

[1954 Code Secs. 6321-6323]

Lien for taxes: Validity against mortgagee: Notice of security interest.--A bank, which held a recorded deed of trust to real estate executed by an individual who at the same time executed a trust agreement giving the bank authority to subdivide and sell the property for the individual's benefit, at the same time giving the bank a promissory note secured by an assignment of the beneficial interest in the trust, had a valid security interest in the property which was prior to federal tax liens which arose after the deed of trust was recorded.

Clague A. Van Slyke, 182 N. Court St., Tucson , Ariz. , for appellee. Ashby I. Lohse, John Donahue, Lohse, Donahue & Bloom, 406 N. Church, Tucson, Ariz., for appellant.

Before ORR, HAMLEY and BROWNING, Circuit Judges.

[Opinion in Full Text]

HAMLEY, Circuit Judge:

This is a proceeding in bankruptcy to determine the validity of a security interest in specific property asserted by Phoenix Title and Trust Company (Phoenix Title). ¹ The referee determined that the asserted security interest is void and ordered the company to turn over to the trustee in bankruptcy property obtained in the exercise of purported rights accorded by such security interest. On review the district court approved and confirmed the referee's order. Phoenix Title appealed and the trustee cross appealed. ²

[Facts]

[Trust Deed]

Between July 23 and 26, 1956, Arthur Peabody and Olive Peabody, his wife, executed and delivered to Phoenix Title four instruments. One of these is a deed to Phoenix Title, "as Trustees," to several parcels of real property situated in Pima County, Arizona, subject to certain restrictions, reservations and encumbrances. This deed, which was dated July 23, 1956, and acknowledged July 26, 1956, gives Phoenix Title full power to hold, sell, convey, mortgage or pledge the property "in the same manner as though the Phoenix Title and Trust Company held the said property in fee simple and not as Trustee." The instrument makes no reference to an indebtedness of the Peabodys to Phoenix Title, or to any security interest held by that company for any such indebtedness. Nor does it refer to any other instrument executed or to be executed by the Peabodys as security for the performance by them of any contract with Phoenix Title or others. No beneficiaries are named in the deed nor is there any reference to a trust agreement or the terms thereof.

[Trust Agreement]

The second of the four instruments referred to above is a trust agreement between the Peabodys and Phoenix Title, dated July 23, 1956 , and acknowledged by the Peabodys on July 26, 1956 , and by an officer of the company on July 31, 1956 . In this instrument Phoenix Title is designated trustee and the Peabodys are designated beneficiaries. The agreement makes reference to the parcels of real property described in the deed in trust, stating that the trustee has accepted that property to be held in trust upon the terms and conditions and for certain uses as set forth in the trust agreement.

The purposes of the trust, as stated in the agreement, were for the trustee to subdivide, plat, sell and otherwise handle the property upon such terms and conditions as the beneficiaries should instruct. In this agreement the trustee was given no discretionary powers nor any responsibility in handling or managing the property. The settlors remained in possession and control of the property with full powers of management.

As in the case of the deed in trust, this instrument contains no reference to an indebtedness of the Peabodys to Phoenix Title, or to any security interest held by the company for any such indebtedness, or to any other instrument executed or to be executed for the Peabodys as security for the performance of any obligation. The agreement provides that all funds arising from the lease or sale of the property held under the trust shall, after the payment of costs, fees, taxes and the like, be paid the beneficiaries on demand.

[Assignments of Beneficial Interest in Trust]

The third instrument referred to above is a promissory note, dated July 24, 1956 , made by the Peabodys to the order of Phoenix Title, in the sum of fifty thousand dollars, payable on or before July 24, 1957 , with interest at the rate of six per cent. The note recites that it is secured by a collateral assignment of the Peabodys ' beneficial interest in the trust referred to above and of certain other trusts, a policy of life insurance and a pledge of assets.

The fourth instrument is the collateral assignment of beneficial interest, dated July 23, 1956 , and acknowledged on July 26, 1956 . This assignment refers to the promissory note of July 24, 1956 . It provides that, for the purpose of securing payment of that note, all of the rights, powers and privileges of the Peabodys , as beneficiaries under the trust agreement, are assigned, conveyed, transferred and set over to Phoenix Title. The assignment further provides that in the event of default on the part of the Peabodys in the payment of the note, the whole amount of the principal sum and any further amount advanced shall become due and shall be collectible in a suit at law or by foreclosure "as if this collateral assignment of Beneficial Interest were a mortgage."

The deed in trust was recorded on July 31, 1956 . None of the other three instruments was recorded.

Midway Lumber Company obtained a mechanic's lien upon the property on December 18, 1956 , to secure the payment of $2,415.76. It also obtained a judgment on February 19, 1957 on a claim separate from the lien. On the previous day Tucson Newspapers, Inc., had obtained a judgment against the Peabodys for $1,000. On February 28, 1957 , the State of Arizona brought a suit to condemn part of the land described in the deed in trust.

Between April 26, 1957 and April 15, 1958 , ten creditors of the Peabodys obtained judgments against them in amounts ranging from $575.00 to $10,668.23. Also during this period the United States and an agency of the State of Arizona obtained tax liens against the property, a lis pendens was filed, and the property was further encumbered by various deeds and assignments. None of the creditors searched the record and thus learned of the deed in trust, and none of them made inquiry of Phoenix Title as to the nature of that instrument and rights thereunder.

On December 12, 1958 , Phoenix Title sued in a state court to foreclose its asserted mortgage lien evidenced by the collateral assignment. On April 15, 1958 , a petition for involuntary bankruptcy was filed by creditors of the Peabodys and the latter were, on October 2, 1959 , adjudged bankrupt. On January 28, 1960 , the bankruptcy court enjoined further proceedings in the foreclosure action.

The condemnation suit resulted in the payment by the state to Phoenix Title, on February 24, 1960 , of $26,093.82. The proceeding now before us was commenced before the referee on August 18, 1960 .

[Notice of Security Interest]

In approving the order of the referee, the district court held, in effect, that whether the security transaction of Phoenix Title be regarded as a mortgage on real property or upon personal property, the deed in trust, which was the only instrument recorded or filed, did not put subsequent creditors upon inquiry as to the existence of such security interest and was therefore void as to them. Accordingly, the district court concluded, the security interest of Phoenix Title was voidable under section 70(c) of the Bankruptcy Act (Act), Act of July 1, 1898, 30 Stat. 565, as amended, 66 Stat. 429, 430 (1952), 11 U. S. C. §110(c) (1958). ³

In challenging the determination that the deed in trust did not give notice of the security interest of Phoenix Title, the company relies on Barringer v. Lilley, 9 Cir., 96 F. 2d 607.

[Case Distinguished]

In that case the only recorded instrument was a warranty deed from Mrs. Barringer to Phoenix Title, conveying to the company certain property in Maricopa County , Arizona . This deed was given pursuant to a transaction whereby Mrs. Barringer sold the property to Thomas J. Tunney, acting for L. D. Owens, Jr., H. C. Dinmore, and S. W. Mills. The sales price was $105,000, twenty thousand dollars of which was paid in cash. Tunney gave Mrs. Barringer a promissory note in the sum of eighty-five thousand dollars for the balance.

In connection with the transaction, Mrs. Barringer, Tunney and Phoenix Title signed a declaration of trust in which the corpus consisted of the property conveyed by the deed and proceeds therefrom. The trust instrument declared that the eighty-five thousand dollar indebtedness, represented by the note, was a first lien upon and was secured by the entire beneficial interest thereunder. The company was named trustee and Mrs. Barringer and Tunney were beneficiaries. Under the instrument, which provided that the land should be subdivided, improved, and sold, the amount received, less expenses, was to be applied to the credit of Mrs. Barringer until the eighty-five thousand dollar note was paid. Tunney, who was granted such possession of the property as was necessary to carry out his obligations in connection with the sale of the lots, was to receive the remaining proceeds. The trust was to terminate upon sale and conveyance of all the property and the payment of all proceeds and the expenses of the trustee.

Tunney thereafter assigned his rights under the trust agreement to Owens, Dinmore and Mills, and they later assigned their rights to Windsor Square Development Company ( Windsor Square ), a corporation. The corporation thereafter went into voluntary bankruptcy. Mrs. Barringer filed a claim therein as a secured creditor as to the balance of seventy-four thousand dollars then due on the eighty-five thousand dollar note. The trustee in bankruptcy contested this claim, asserting that the sum due on the promissory note was an unsecured indebtedness, because of the failure to record the declaration of trust. The referee sustained this position and the district court approved the referee's determination.

In reversing, this court stated that, as between the parties, the declaration of trust was a valid mortgage held by Mrs. Barringer upon the property conveyed to Phoenix Title to secure payment of her note. With regard to the rights of the creditors of Windsor Square reference was made to Section 969 of the Revised Code of Arizona, which is now Sec. 33-412, Arizona Revised Statutes. This section provides, in part, that all mortgages and deeds of trust shall be void as to creditors and subsequent purchasers for value without notice, unless acknowledged and recorded as required by law.

In holding that Mrs. Barringer held a lien valid as against the trustee in bankruptcy, this court, at pages 612-613, said:

"Mere naked possession is not enough. When the creditors were giving credit to Owens, Dinmore and Mills, if they assumed Owens and his associates to be the owners of the property, the assumption was unwarranted. If inquiry was made by the creditors they would have actual notice of the declaration of trust, else how could Owens explain away the record title in the Title & Trust Company?

"It being established that record title was in the Title & Trust Company, it follows that all creditors were creditors with notice of the fact that Owens and his associates were not the owners of the tract, at least so far as the record was concerned--which is notice to all the world." (Emphasis in original.)

* * *

"When Mrs. Barringer gave the deed to the property to the Title & Trust Company and took the Tunney note for $85,000, precisely the same situation was created as if Owens and his associates had owned the property, borrowed the money and given a deed to the property and a promissory note and declaration of trust to secure repayment. In either case the record title in the Title & Trust company would be sufficient to put all persons on notice that Owens, Dinmore, and Mills did not own he property or that it was encumbered. Such a deed would then be a conveyance in the nature of a mortgage with the title in one person subject to being defeated by the performance of a condition."

There are some obvious differences between the facts of Barringer and the facts of the case before us. In Barringer the loan was made by one individual to another, Phoenix Title holding the title for their benefit to effectuate the mortgage arrangement. In our case, Phoenix Title, which held the title, was itself the lender and, considering all four instruments together, held the title to secure its own indebtedness. The deed in Barringer was a warranty deed, whereas a deed in trust is involved in our case. The security interest in Barringer was evidenced by an unrecorded declaration of trust. In our case it was evidenced by an unrecorded trust agreement and a contemporaneous unrecorded collateral assignment of the beneficiaries' interest in that trust agreement. In Barringer the party claiming a lien had no recorded interest in the property. In our case the party claiming a lien had record title under a deed in trust which indicated that the grantee had the same powers as if it held fee simple title.

Despite these differences in facts, the underlying principles applied in Barringer are equally applicable here. One of these is that, under Arizona law, substantially contemporaneous instruments are to be read together in determining, as between the parties thereto, the nature of the transaction. Applying that principle in Barringer, the court read together the warranty deed and the substantially contemporaneous trust agreement in determining the nature of the transaction involved in that case. Applying the same principle here, we should read together the deed in trust and the substantially contemporaneous trust agreement and collateral assignment in determining the nature of the transaction between the Peabodys and Phoenix Title.

A second principle applied in Barringer is that, under Arizona law, where the substance of the transaction is that the lender of money holds a claim against the title to real property of the borrower to secure payment of the loan, the transaction will be regarded as a mortgage upon real property, however the instruments are denominated. In Barringer, consistent with that principle, the court held that since under the warranty deed to Phoenix Title and the contemporaneous trust agreement, the lender, Mrs. Barringer, retained a claim on the title to secure payment, the transaction was in the nature of a mortgage on real property. So, here, under the same principle, by virtue of the deed in trust to Phoenix Title and the contemporaneous trust agreement and collateral assignment, the lender, Phoenix Title, retained a claim on the title to secure payment; therefore the transaction was in the nature of a mortgage on real property.

The third principle applied in Barringer is that, under Arizona law, where a debtor is in possession of real property but record title is in another, subsequent creditors have constructive notice that the debtor does not have unencumbered title and, if desirous of extending credit upon the basis of such property are put upon reasonable inquiry as to the outstanding interest held against the debtor therein.

Applying that principle in Barringer, this court held that the warranty deed given to Phoenix Title by Mrs. Barringer gave the creditors of Owens and his asociates constructive notice that the Owens group did not have title to the property. It they nevertheless desired to deal with the Owens group, who were in possession, the recorded instrument put them on inquiry as to any outstanding interest held in the property. Likewise here, applying the same principle, the deed in trust given to Phoenix Title by the Peabodys provided the creditors of the Peabodys with constructive notice that the Peabodys did not have the title to the property. If they nevertheless desired to deal with the Peabodys, who were in possession, the recorded instrument put them on inquiry as to any interest held, by virtue of the recorded deed in trust, against the Peabodys .

[Constructive Notice]

In either case, such constructive notice deprived the creditors of the right to deal with the debtor on the legal assumption that the latter had an unencumbered, or any, interest in the property. In both cases, therefore, the recording of the instrument of conveyance served the purpose of the Arizona recording statute.

It is true that the creditors of the Peabodys, unlike the creditors in Barringer, might assume that since the recorded instrument was a deed in trust, persons other than Phoenix Title might have a beneficial interest in that property. But there was no legally cognizable basis for them to assume that the Peabodys were such beneficiaries. While the Peabodys were the grantors of the trust no implication arises therefrom that they were the beneficiaries. The beneficiary could just as well have been a relative or a charitable institution. The Peabodys were in possession but this in no sense warranted creditors in assuming, without inquiry, that the Peabodys were the beneficiaries of the trust, thereby defeating the security interest of Phoenix Title. As we said in Barringer, where the recorded title is in another "mere naked possession is not enough."

It might be argued that if such creditor had made inquiry to ascertain whether the Peabodys had a beneficial interest in the property, they would have been shown only the unrecorded trust agreement which concontained no reference to the note or collateral assignment, and would have reasonably concluded therefrom that the Peabodys had the sole beneficial interest in the property. ⁴ This argument is based on the assumption that upon reasonable inquiry for the purpose of ascertaining whether the Peabodys had an interest which would warrant the extension of credit, Phoenix Title, as record title holder, would have concealed the true nature of the transaction as evidenced not only by the trust agreement but by the contemporaneous collateral assignment.

There is no legal warrant for such an assumption. It should be assumed, until the contrary is shown, that such reasonable inquiry would have elicited the truth. See Geyser-Marion Gold-Mining Co. v. Stark, 8 Cir., 106 Fed. 558, 563. Had such an inquiry been made, and had the existence of Phoenix Title's security interest been concealed, the duty of making a reasonable inquiry would have been satisfied and the company might well have lost its security interest as against prejudiced parties.

As indicated above, the security interest held by Phoenix Title was in effect a mortgage upon real property, the trust agreement and contemporaneous collateral assignment serving the same function as did the trust agreement in Barringer. ⁵ We are therefore not called upon to speculate as to what the situation would have been had the deed in trust and trust agreement been executed on one occasion, and the collateral assignment been executed on a later occasion, thereby giving rise to the question of whether they trust was passive and so executed under the Statute of Uses.

What is said above does not bring into question the findings of fact of the referee, as approved by the district court but, rather, the legal conclusions to be drawn from undisputed facts. It follows that Rule 52(a), providing that findings of fact shall not be set aside unless clearly erroneous, is inapplicable.

The trustee argues that if Phoenix Title's security interest is not subject to being set aside under section 70(c) of the Act, relied upon by the district court, it is in any event subject to being set aside under section 70(e) of the Act, 11 U. S. C. §110(e), relied upon by the referee but not by the district court.

Section 70(e)(1) provides that a transfer made or suffered or obligation incurred by a debtor which, under any federal or state law applicable thereto, is fraudulent as against or voidable for any other reason by any creditor of the debtor having a provable claim, shall be void as against the trustee of the debtor. The trustee argues that the security interest of Phoenix Title is voidable as against creditors of the debtor under both federal and state laws, and therefore, under section 70(e)(1), must be set aside upon demand of the trustee.

[Tax Liens]

The trustee has two prongs to this argument. The first has to do with tax liens upon all property and rights to property belonging to the Peabodys, acquired by the United States on August 28, 1957 (to secure $4,268.81), and September 21, 1957 (to secure $2,076.67), pursuant to section 6321 of the Internal Revenue Act of 1954, 68A Stat. 779, 26 U. S. C. §6321. It is provided in section 6323(a) of that Act, 26 U. S. C. §6323(a), that, with an exception not here material, a tax lien imposed by section 6321 shall not be valid as against ". . . any mortgagee . . ." until notice of such tax lien has been filed in the manner specified in that section.

Phoenix Title acquired its security interest on July 26, 1956 , which was prior to the tax liens in question. But the trustee argues that since the collateral assignment was not recorded, the company's security interest was inchoate insofar as section 6323(a) is concerned; therefore it has no standing as against the Government's tax lien. This being so, the trustee contends, he may, by virtue of section 70(e)(1) of the Bankruptcy Act, assert the same position as that of the Government.

The deed in trust, which specified the property involved, was on record prior to the acquisition of the tax liens by the Government. It placed all who desired to deal with the property described therein on inquiry as to the holder of the beneficial interest. Until the contrary is proved, it should be assumed that reasonable inquiry in regard to the beneficial interest would have disclosed that Phoenix Title held a security interest in that property in the amount specified in the promissory note. The identity of the security holder, the property subject to the lien, and the amount of the lien were all certain. The security interest was therefore choate under United States v. Pioneer American Ins. Co. [63-2 USTC ¶9532], 374 U. S. 84, 89.

Phoenix Title, to have the protection of section 6323(a) against the federal liens, must also stand as a "mortgagee" within the meaning of that section. Whether Phoenix Title achieved that status through the security arrangement which it had with the Peabodys is a federal question. Hoare v. United States, 9 Cir. [61-2 USTC ¶9681], 294 F. 2d 823, 825. Applying the test set forth in Hoare, at page 826, if Phoenix Title occupied a position substantially equivalent to that of a mortgagee under a conventional mortgage, it satisfied the requirement of section 6323(a). Our determination that, under the terms of the four instruments Phoenix Title occupied the position of a mortgagee of real property, has already been indicated. It follows that the tax liens are not valid against the security interest of Phoenix Title, and provide no basis for an assertion of rights by the trustee under section 70(e)(1) of the Act. ⁶

The second contention advanced by the trustee with reference to section 70(e) is based upon the Arizona recording statutes. Since the trustee does not here rely upon the standing of any particular creditor's claim or lien, this is in reality a renewal of the argument advanced with regard to section 70(c) of the Act and has already been dealt with above.

Reversed.

¹ The proceeding was commenced when Myles C. Stewart, the trustee in bankruptcy of Arthur Peabody and Olive Peabody, his wife, petitioned the referee in bankruptcy for a determination of custody and possession of certain assets, and for a turnover order. Phoenix Title, claiming to be the owner of the property in question and desiring to assert its interest in other property of the bankrupts, filed countering petitions.

² The trustee is satisfied with the result reached by the district court but thinks the court erred in rejecting an additional ground upon which the referee had relied in reaching the same result. That an appellee may, without taking a cross appeal, urge in support of a judgment any matter appearing in the record although his argument may involve an attack upon the reasoning of the lower court, see Helvering v. Lerner Stores Co. [42-1 USTC ¶9163], 314 U. S. 463, 466-467; United States v. American Ry. Express Co., 265 U. S. 425, 435; 7 Moore's Federal Practice (2d ed) §72.05, page 3011.

³ The district court expressed a preference for the theory that the security interest of Phoenix Title constituted a real estate mortgage. The Court expressed the opinion that the trust was passive and therefore executed by the Statute of Uses. The result, as the district court apparently reasoned, was that the Peabodys had the legal title in the lands in question notwithstanding the trust deed and trust agreement.

The reference to Statute of Uses is to the general rule established by statute, or considered as a part of the common law in most states, derived from the English Statute of Uses, 27 Henry VIII, c. 10 (1535). Under this rule, a dry or passive trust is executed, vesting the legal title in the beneficiary. The Statute of Uses was repealed in England in 1925, 12 and 13 Geo. V, c. 16, §1(7). See IA Trusts and Trustees, Bogert §§ 206, 208, pages 277, 296; I Scott on Trusts, §§ 67-69, pages 592-598; I Restatement of the Law of Trusts, 2d. §67, pages 181-182. The parties seem to be in agreement that the Statute of Uses is the law in Arizona and we will assume this to be true.

⁴ No such inquiry was in fact made.

⁵ The trustee in bankruptcy points out that, under Arizona Revised Statutes, sec. 33-702, every transfer of an interest in property, ". . . other than in trust . . ." made only as a security for the performance of another act, is a mortgage. From this the trustee argues that the deed in trust is not a mortgage and cannot be foreclosed as one. The transfer here, however, was evidenced not only by a deed in trust but also by a contemporaneous collateral assignment. Reading the two together the transfer was not "in trust," and since it was made only as a security for the performance of another act, namely the payment of the promissory note, it is a mortgage by statutory definition.

⁶ It is therefore unnecessary to consider the argument of Phoenix Title that the trustee's rights under section 70(e) of the Act may not be asserted with respect to the standing of federal tax liens pursuant to section 6323(a) of the Internal Revenue Act of 1954.