The Blanches also raise vague affirmative defenses of laches and waiver
against the IRS. The Blanches assert that the IRS waited too long to
file its tax lien on the property. This contention is not applicable in
the context of this case. The tax lien arises at the time of the
assessment. The lien is only notice. The Tax Code itself provides a kind
of laches protection for persons who acquire an interest in property
before the notice provided by a tax lien is filed. Those persons receive
protection as "purchasers." Here, however, the Blanches did
not acquire any interest in the property. The doctrine of laches does
not provide them with any interest in the property. Similarly, waiver
does not give rise to rights that never existed. The conveyance of the
property was invalid and any delay by the IRS is irrelevant to the
question of whether the Blanches acquired an interest in the property.
this Court finds that the doctrine of unjust enrichment should be
applied in this case. It would be unconscionable to allow Hewitt to keep
his interest in the property as well as the substantial benefits
conferred to him by the Blanches. The purpose of restitution under this
remedy is to do what justice demands. See generally, RESTATEMENT
OF RESTITUTION, Introductory Matters p.11 (1937). This theory of
recovery provides that "[a] person who has been unjustly enriched
at the expense of another is required to make restitution to the
other." RESTATEMENT OF RESTITUTION §1. The doctrine places the
person conferring the benefit back to the position he or she formerly
occupied by reimbursing him or her for the benefit conferred on another.
at 12. Although restitution is given when one "... wrongfully
secure[s] a benefit or has passively received one which would be
unconscionable for him to retain," Barrett v. Ferrell, 550
S.W.2d 138, 143 (Tex.Civ.App.--Tyler 1977, writ ref'd n.r.e.),
the remedy does not depend on whether the person receiving the benefit
committed a wrongful act. Fun Time Centers, Inc. v. Continental Nat'l
Bank, 517 S.W.2d 877, 884 (Tex.Civ.App.--Tyler 1974, writ ref'd
n.r.e.). Recovery under principles of unjust enrichment is also
appropriate when an agreement is "... unenforceable, impossible,
not fully performed, thwarted by mutual mistake or void for other legal
reasons." Harker Heights v. Sun Meadows Land, Ltd., 830
S.W.2d 313, 319 (Tex. App.--Austin 1992, no writ).
(22) The Court
cannot find, based upon the minimal admissible evidence presented at
trial, that the Blanches were reasonable in relying on the assumption
deed combined with the representations from Mrs. Hewitt indicating that
her husband consented to the conveyance. However, the Court finds that
the Blanches honestly and with good faith believed that they were
actually purchasing the property by assumption. The Blanches expended a
great deal of money in fixing the property and making improvements in
order to provide a comfortable and safe home for themselves and their
children. In addition, the Blanches prevented this property from being
foreclosed upon while Hewitt passively let the situation develop. In the
name of equity and fundamental fairness, this Court, pursuant to Fed. R.
Civ. P. 54(c), holds that the Blanches must be recompensed for the
expenditures and improvements to the property that were done in reliance
upon the assumption agreement and which have been duly pled in this
(23) As to the
amounts that should not be reimbursed to the Blanches, the money
expended as payments under the earnest money contract are not
recompensable since the Blanches failed to meet their obligations under
the sales agreement. The Blanches did not confer a benefit, nor was
Hewitt unjustly enriched, by the payments under the contract since the
Blanches had a contractual duty to pay under the contract in order to
purchase the property and there was a possibility that those monies
would be forfeit if the Blanches did not meet their other contractual
obligations. Further, the itemized expenses listed in Defendant's
Exhibit Dl-17 that are mere projections are not to be reimbursed.
Finally, the Court finds that the monthly payments to Mrs. Hewitt and to
constitute fair rental value for the Blanches' occupancy of the property
after the expiration of the earnest money contract and during the time
they believed they were assuming the property and will not be
(24) As to
amounts that should be reimbursed to the Blanches, the amount that they
expended to cure the mortgage default is recoverable since this
expenditure was in addition to the fair market paid lease payments.
Additionally, amounts spent to repair and improve the property
constitute an unfair enrichment of Hewitt as he will retain title to the
property with its now enhanced value. Thus, the Court finds that the
Blanches should recover for the following:
(Lomas Mortgage to cure default)
(water heater replacement)
(Heating and air conditioning work)
(Garage door repair)
(25) The Court
further finds that the Blanches' reimbursement should take priority over
the IRS's tax lien because the Blanches' expenditures were made prior to
the notice filing of the tax lien.
conclusions of law above should be construed as findings of fact to the
therefore ORDERED that JUDGMENT shall issue as follows:
shall have judgment against Defendant William S. Hewitt in the amount of
twenty five thousand two hundred seventy six and 20/100 dollars
($25,276.20) along with additional interest and penalties accrued since
March 1, 1996
the tax lien of the United States upon the property described in this
Order and based upon the amount of the judgment awarded against William
S. Hewitt above is valid and may be foreclosed with proceeds to be
distributed as follows:
, any outstanding mortgage amount owed on the property;
second, to Andrew E. and Cynthia D. Blanche, twenty nine thousand nine
hundred thirty five and 31/100 dollars ($29,935.31) as restitution for
improvements and investments in the property;
third, to the United States, twenty five thousand two hundred seventy
six and 20/100 dollars ($25,276.20) along with additional interest and
penalties accrued since March 1, 1996, for the unpaid tax liability of
William S. Hewitt; and
fourth, any remaining excess to William S. and Peggy L. Hewitt, jointly.
It is further
ORDERED that if excess proceeds from the sale of the property do not
satisfy the unpaid tax liability owed to the
by William S. Hewitt, the deficiency may be collected directly from
William S. Hewitt and any other property which may be subject to
liability through him.
It is further
ORDERED that the remaining cross-claim by William S. Hewitt alleging
conspiracy by Lomas Mortgage and Andrew E. and Cynthia D. Blanche is
hereby transferred to the United States Bankruptcy Court that it may be
considered in light of the pending bankruptcy proceeding of
A letter dated
January 3, 1991
, addressed to Mr. and Mrs. Hewitt in
, was submitted into evidence detailing the findings of the inspection
June 19, 1990
. Exhibit H. In addition, a letter dated
June 4, 1991
from Mr. Blanche to Hewitt expressed concern about the needed repairs to
be done before the Blanches could secure outside financing to purchase
the property. Defendant's Exhibit D1-18.
Paragraph 7B of earnest money contract.
The Blanches expended approximately $969.00 on plumbing repairs prior to
the lease option expiration date, which falls below this $1,500.00
There was a conversation sometime after
June 30, 1991
, between Hewitt and Mr. Blanche. Mr. Blanche was upset at Hewitt
because he still had not made the repairs to the property as promised.
Mr. Blanche became even more infuriated because Hewitt told him that he
was thinking of putting the property up for sale.
Mr. Blanche relied on information he received from Mrs. Hewitt
indicating that Mr. Hewitt had left her, she did not know his
whereabouts, and the lease payments were to be made in her name only.
The Court sustained an objection to hearsay testimony about what Mrs.
Hewitt said her husband told her. This Court cannot presume what was
actually said or not said by Mrs. Hewitt or Hewitt but must consider
only what was allegedly relied or not relied upon by the Blanches. The
Blanches obviously were under the impression that by assuming and curing
the mortgage default on the property they were not only getting a good
deal, they were also preventing the house from being foreclosed upon.
However unreasonable they may have been, the Blanches believed Hewitt
gave his consent to the assumption in order to prevent the imminent
foreclosure of the property. However, the Court will not make such a
finding because the only evidentiary support for this assertion is
inadmissible hearsay testimony.
Defendant's Exhibit no. D1-17
The IRS states that it is unaware of any law that would allow for such a
conveyance; however, it would nonetheless allow a partial conveyance to
stand and concede the Blanches' one-half ownership of the property.
In fact, although Vallone would apparently allow a partial
conveyance in some circumstances, Vallone would invalidate the
assumption deed in the instant case because it purports to convey the
entire property, not just Mrs. Hewitt's one-half interest.
In fact, the Court finds that the Blanches seek specific performance,
not of the initial earnest money contract, but of the subsequent
assumption agreement to which Hewitt himself was not a party. Specific
performance for a subsequent contract cannot be based upon a party's
default under a prior expired contract.
¶50,433] Jack F. Wasenius, Barbara F. Wasenius, Plaintiffs-Appellants
v. Fadia O. Shatila, Badrie Abdullah Shatila, Internal Revenue Service
United States of America
United States of America
U.S. Court of Appeals, 11th Circuit, 96-2666, 4/29/97, Affirming a
District Court decision, 96-1
Tax liens: After-acquired property: Perfection: Equitable lien:
Priority.--An IRS tax lien against real property owned by delinquent
taxpayers, which was recorded after the realty was sold to third
parties, had priority over the purchasers' equitable lien that arose
following a state (Florida) court-ordered rescission of the sale. The
tax lien was perfected when title reverted to the sellers, but the
purchasers' equitable lien was not perfected until the later date when
the state court's final judgment fixed the amount of their lien.
Tax liens: After-acquired property: Constructive trust.--An IRS
tax lien against real property owned by delinquent taxpayers, which was
recorded after the realty was sold to third parties, had priority over
the purchasers' equitable lien that arose following a state (
) court-ordered rescission of the sale. The property was not part of a
constructive trust that arose before the tax lien became choate; since
the purchasers sought rescission of the deed, any constructive trust
would encompass only the money paid for the property, and not the
Tax liens: After-acquired property: Estoppel: Timely filing of
lien.--An IRS tax lien against real property owned by delinquent
taxpayers, which was recorded after the realty was sold to third
parties, had priority over the purchasers' equitable lien that arose
following a state (
) court-ordered rescission of the sale. The government timely recorded
its tax lien four days after assessing the unpaid taxes against the
sellers. Thus, it was not estopped from asserting the priority of its
lien on the basis of what the purchasers described as "tardy
and BLACK, Circuit Judges, and COHILL, *
Senior District Judge.
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.ç
Jack and Barbara Wasenius challenge a district court order denying their
motion for summary judgment and granting the
' cross-motion for summary judgment. The Waseniuses instituted this
action to establish the priority of their interest in a parcel of real
property over a federal tax lien claimed by the
. As the material facts were not in dispute, the parties filed
cross-motions for summary judgment. The district court awarded summary
judgment to the
after concluding that the federal tax lien took priority over the
Waseniuses' inchoate equitable lien. We affirm.
at the center of this controversy was formerly owned by Osman and Fadia
May 29, 1992
, Appellants purchased the property, situated in
, for $148,500. The Waseniuses paid the Shatilas $48,500 of the purchase
price in cash and the remainder by executing a promissory note and
purchase money mortgage. The Waseniuses recorded a full warranty deed to
the property on
June 9, 1992
thereafter, the Waseniuses discovered that their property previously had
served as an unlawful waste disposal site. On
August 21, 1992
, the Waseniuses filed a state court action against the Shatilas seeking
to rescind the sale, cancel the mortgage, and secure reimbursement for
all costs. On
July 28, 1993
, the state court granted partial summary judgment as to the liability
of the Shatilas and ordered rescission of the deed, note, and mortgage
on the property. The state court entered final judgment on
March 14, 1994
, at which time it fixed the amount of the Shatilas' liability at
$75,889.36. The court also granted the Waseniuses an equitable lien on
the property to secure payment of the award. The state court order
provided that the lien would relate back to
August 21, 1992
, when the Waseniuses filed a lis pendens.
had also been pursuing legal action against the former owners of the
June 25, 1992
, 16 days after the Waseniuses recorded their deed, the
assessed Osman and Fadia Shatila for unpaid federal taxes for the years
1984 through 1990. By operation of law, the assessment created a lien in
favor of the
on any property owned or acquired by the Shatilas. See 26 U.S.C.
recorded its lien on
June 29, 1992
February 10, 1994
, the Internal Revenue Service served the Waseniuses with a Notice of
Seizure that purported to arrest the
considering these undisputed facts, the district court determined that
the federal tax lien had priority over the Waseniuses' equitable lien.
The court concluded that the federal tax lien achieved priority because
it had been perfected, and thus became choate, before the equitable
lien. The district court indicated the federal tax lien became choate on
July 28, 1993
, when the Shatilas reacquired their interest in the property by virtue
of the state court order rescinding the deed. By contrast, the district
court determined the equitable lien did not become choate until
March 14, 1994
, the date when the state court fixed the amount of the Shatilas'
liability and, therefore, the amount of the lien.
We concur with
the district court's determination that the federal tax lien prevails
over the Waseniuses' equitable lien and reject each of the arguments
advanced by the Waseniuses in opposition to this conclusion. First,
although the Waseniuses correctly recognize that the Shatilas had to
regain some interest in the property before the federal tax lien could
attach, they fail to appreciate that this is precisely what happened
when the state court rescinded the deed. At that point, title reverted
to the Shatilas and the lien attached, notwithstanding the continued
occupation of the property by the Waseniuses or the alleged inability of
the Shatilas to convey good and marketable title to any third party.
law provides that equitable liens arise at the time of the transaction
from which they spring, see Blumin v. Ellis, 186 So. 2d 286, 295
Fla. Dist. Ct. App.
), cert. denied, 189 So. 2d 634
1966), the relevant inquiry in the present case concerns not when the
equitable lien arose, but when it was perfected. Under federal law, a
state lien comes into existence for "first in time" purposes
only when it has been "perfected" in the sense that identity
of the lienor, the property subject to the lien, and the amount of the
lien are established. United States v. McDermott [93-1 USTC ¶50,164],
1526, 1528 (1993). As a result, it is of no consequence that the
equitable lien may have arisen on
June 9, 1992
, the time of the underlying transaction. The lien did not become extant
for federal purposes until perfected.
As a variant
of their second argument, Appellants suggest that the
property should be considered part of a constructive trust that arose at
the time of the underlying transaction, more than one year before the
federal tax lien became choate. A constructive trust arises where a
person who holds title to property is subject to an equitable duty to
convey it to another on the ground that he would be unjustly enriched if
he were permitted to retain it. Mitsubishi Int'l Corp. v. Cardinal
Textile Sales, Inc., 14 F.3d 1507, 1518 (11th Cir. 1994), cert.
1092 (1995). The constructive trust argument fails because the Shatilas
were not subject to an equitable duty to reconvey the property to the
Waseniuses after the state court rescinded the deed. The Waseniuses can
hardly claim that equity required the Shatilas to convey the property at
issue back to them when their state court action specifically sought
recision of the deed. Moreover, even if a constructive trust were to be
imposed, the real property would not be included within it. Any
constructive trust would encompass only the money that the Waseniuses
paid to the Shatilas in exchange for the property, not the property
Appellants' contention that their equitable lien became choate on
June 9, 1992
, must be rejected. The mere fact that the purchase price of the
property had been fixed by that date does not mean that the amount of
the lien to be imposed had also been fixed. The amount of the lien,
which included amounts for property improvements, court costs, and
attorneys' fees, was not fixed until the state court issued its final
March 14, 1994
find no merit to Appellants' suggestion that the United States should be
estopped from asserting the priority of its federal tax lien on the
basis of what the Waseniuses describe as "tardy filing." The
uncontroverted evidence establishes that the IRS recorded its tax lien
June 29, 1992
, a mere four days after it assessed the unpaid taxes against the
In sum, we
hold that the district court properly determined that the
' federal tax lien has priority over the Waseniuses' equitable lien. We
recognize, of course, that the governing legal principles produce a
rather harsh result in the instant case. The Waseniuses are innocent
parties, attempting to recover from the fraud perpetrated upon them by
the Shatilas. If there were any way to find for the Waseniuses while
remaining faithful to our judicial obligations, we would have done so.
In the end, however, we are bound to decide cases in accordance with the
law, not our sympathies.
foregoing reasons, we affirm the district court order denying the
Waseniuses' motion for summary judgment and granting the
' cross-motion for summary judgment. 1
, Jr., Senior U.S. District Judge for the Western District of
Pennsylvania, sitting by designation.
Given this disposition, we deny the
' Motion to Strike Appellants' Record Excerpts and to Require Refiling
of Record Excerpts as moot.
United States of America
, Plaintiff v.
ert Scher, Esquire, and Scher & Eliasberg, P.C., Defendants
District Court, East.
, 94-CV-3763 (DRH),
Secs. 6323 and 6332 ]
Liens and levies: IRS: Attorney: Priority: Attachment: Choate:
Doctrine of Laches.--Simultaneously a federal tax lien attached and
the rights assigned to an attorney from a taxpayer became choate to
funds held in escrow by the attorney. Therefore, the IRS's lien had
priority because the attorney's lien was not "prior" to the
IRS lien. The taxpayer's right to the escrow funds, which were part of
sale price for the transfer to a third party of her right to purchase
her apartment upon its conversion to a cooperative, became fixed upon
confirmation of the conversion. Under state (
) law, the transfer of a conditional right creates merely an equitable
lien. Thus, pursuant to an IRS levy, the attorney had to turn over the
escrow funds to the IRS. Finally, the IRS was not barred by the doctrine
of laches or by the state's six-year statute of limitations for contract
Liens and levies: IRS: Individual liability: Corporate obligation:
Estoppel.--An attorney, who was president of a law firm that was a
corporation, could be called on individually to answer to an IRS levy
that was served on the firm relating to funds held in escrow for a
taxpayer. He asked the IRS to take no action to derail the taxpayer's
real estate closing based on his assurance the funds would remain in
escrow pending resolution of this issue. Accordingly, he was estopped
from asserting any right that could insulate himself from liability for
his act performed as a corporate officer.
Carter, United States Attorney, Brooklyn, N.Y. 11201-2744, Thomas A.
McFarland, Assistant United States Attorney, Tamara H. Lindquist,
Jennifer M. Blunt, Department of Justice, Washington, D.C. 20530, for
plaintiff. Scher & Scher, P.C.,
111 Great Neck Rd.
, for defendants.
has moved for summary judgment pursuant to Rule 56 of the Federal Rules
of Civil Procedure based on the defendant,
ert Scher's ("Scher" or "defendant") failure to
honor an IRS levy. In response, Scher moved to dismiss the complaint
upon the grounds that: (1) at the time he was served with the levy, he
was not in possession of an asset owned by Stephanie Winston
("taxpayer"); (2) he may not be held personally responsible
for the obligations of Scher & Eliasberg, P.O. ("Scher &
Eliasberg"); and (3) the statute of limitations and doctrine of
laches preclude any recovery by the United States.
which bear on the question presently before the Court are not in
dispute. A recitation of those facts, however, is necessary to place the
legal arguments in context. The relevant facts are as follows:
June 24, 1985
, an assessment in the amount of $101,138.55 was made against the
taxpayer. The legitimacy of that assessment is not at issue in this
(2) Some time
prior to December of 1985, the taxpayer assigned to Scher &
Eliasberg $10,000 of the $20,000 that she anticipated receiving from
Micon Industries of New York ("Micon"). The $20,000 was to be
paid by Micon in consideration of the taxpayer transferring her right to
purchase the apartment in which she was living upon its conversion to
cooperative status. Under her agreement with Micon, she was to be paid
the $20,000 thusly:
25% of the
consideration shall be placed into the [taxpayer's] attorney's escrow
account upon signing of this agreement. An additional 25% of the
consideration will be placed into the applicant's attorney's account
upon confirmation that the building will convert to Co-operative status.
Upon closing of
250 Mercer Street
Co-operative status, the 50% consideration will be released to the
applicant. The remaining balance of the consideration which is 50%, will
be released to the applicant's attorney upon the applicant vacating the
's Rule 3(g) Statement, Ex. 4.)
purpose of the assignment by the taxpayer to defendant was to compensate
Scher & Eliasberg, at least in part, for legal services that the
firm had provided to her apparently over a fairly extended period of
's Reply Mem. Ex. 2.)
April 24, 1986
, the IRS served a Notice of Levy on Scher and the law firm of
Scher & Eliasberg.
(5) The first
two $5,000 payments under the Micon contract were received by defendant
in December, 1985 and March, 1986.
in a letter dated April 18, 1986 to the IRS: (a) stated that at the time
the levy was served, he was not in possession of any taxpayer assets,
given her prior assignment of the $10,000 in question to his law firm;
(b) asked that the IRS not interfere with the scheduled closing with
Micon and; (c) indicated that the firm would hold "the money . . .
in escrow pending an amicable attempt to resolve the differences with
your office." The closing thereafter did occur. Micon paid the
remaining $10,000 directly to the IRS pursuant to a levy which was
served upon them. The dispute between the IRS and Scher regarding the
other $10,000 was not resolved, leading to the present lawsuit.
Attachment of the Federal Tax Lien
A federal tax
lien arises when unpaid taxes are assessed which in this case, was
June 24, 1985
. See 26 U.S.C. §6321. Such liens "continue in full force
and effect until the tax liability is extinguished (26 U.S.C. §6322)
and attach to all after acquired property of the taxpayer." Seaboard
Surety Company v.
[62-2 USTC 9653], 306 F.2d 855, 859 (9th Cir. 1962).
of a tax lien to after acquired property, however, does not occur until
the taxpayer's right to the property is "fixed" in the sense
of not being contingent or uncertain in nature. See Wagner v. United
States [78-1 USTC ¶9340], 573 F.2d 447, 454 (7th Cir. 1978); City
of New York v. United States [60-2 USTC ¶9767], 283 F.2d 829, 832
(2d Cir. 1960). 1
See also Corwin Consult. v. Interpublic Group of Companies, Inc.
[74-1 USTC ¶9401], 375 F Supp. 186 (S.D.N.Y. 1974) ("It is settled
that although tax liens do not attach to contingent rights . . .
pre-existing liens do attached as soon as the taxpayer gains a
fixed right to property.") (emphasis in original). Prior to that
time, the property does not "belong" to the taxpayer within
the meaning of Section 6321. See United States v. Long Island Drug
Company [41-1 USTC ¶9140], 115 F.2d 983, 986 (2d Cir. 1940).
Here, it is
debatable precisely when the taxpayer's rights to the subject $10,000
became fixed, but it would seem to be "upon confirmation that the
building will convert to Co-operative status." After that, there
were no remaining contingencies, nor was there anything further for the
taxpayer to do to be entitled to the escrowed monies at closing.
of the conversion, and the corresponding second $5,000 payment to
defendant (in his role as attorney), both occurred in March 1996. At
that point, the government's interest in the taxpayer's after acquired
property attached to the $10,000 received from Micon.
however, had assigned her interest in that property to defendant
"sometime prior to December 1995." And that brings us to the
gravamen of the present dispute. Although triggered by defendant's
receipt of a levy, it is in essence a claim by him of lien priority.
government's lien "takes priority over competing liens unless the
competing lien was choate prior to the attachment of the federal lien. .
.." MDC Leasing v.
Property Ins. Underwriting [79-1 USTC ¶9122], 450 F. Supp. at 181. See
also PPG Industries Inc. v. Hartford Fire Ins., Co. [74-2 USTC ¶9823],
384 F. Supp. 91, 94 (S.D.N.Y. 1974), aff'd [76-1 USTC ¶9257],
531 F.2d 58 (2d Cir. 1976).
earlier assignment transferred the legal right to the $10,000 to
defendant, his lien would have been superior to that of the government.
Defendant's interest did not become choate, or fixed, however, until
"confirmation that the building will convert to Co-operative
status." Under the law of the State of
the transfer of a conditional right creates merely an equitable lien. See,
e.g., PPG Industries [74-2 USTC ¶9823], 384 F. Supp. at 95; MDC
Leasing [79-1 USTC ¶9122], 450 F. Supp. at 181. In sum, the federal
tax lien attached, and the rights assigned to defendant became choate,
simultaneously in March of 1986. Defendant's lien not being
"prior," it is subordinate. See, e.g., United States v.
McDermott [93-1 USTC ¶50,164], 113
1526 (1993); MDC Leasing [79-1 USTC ¶9122], 450 F. Supp. at 181.
of this point, the defendant, at the time he was served with the tax
April 24, 1986
, was in possession of an asset of the taxpayer, and was required to
remit the $10,000 to plaintiff.
Additional Issues Raised by Defendant
claims that the levy was served on Scher & Eliasberg, and that he
may not be called upon individually to answer for a corporate
background information is required at this juncture. Scher was the
president of the corporation, which apparently is no longer operational.
As such, he dealt with the IRS regarding the levy. He asked plaintiff to
take no action to derail the Micon closing based on his assurance that
the monies would remain in escrow pending resolution of the dispute. It
was he who wrote the
October 2, 1987
letter indicating that:
District Court tells us to pay it, we'll do so. You may be assured that
since we promised Mr. Demetriou that we would hold the money pending the
outcome, that we have, indeed done so.
Reply, Ex. 3.)
defendant's involvement with plaintiff regarding the levy, including his
assurances that the $10,000 would be escrowed until the claim was
resolved, his disavowance of responsibility is without merit. He was the
one of the two lawyer/shareholders in the corporation who handled the
levy. Under the circumstances, he is estopped to assert any right that
he might otherwise have, arguendo, to insulate himself from
liability for his act performed as a corporate officer.
may be made of defendant's final argument. The present claim by the
is not barred by the doctrine of laches or by
's six year statute of limitations for contract actions. See, e.g.,
United States v. Weintraub [80-1 USTC ¶9172], 613 F.2d 612, 619
(6th Cir. 1979), cert. denied, 447 U.S. 905 (1980); United
States v. Incorporated Village of Island Park, 791 F. Supp. 354, 369
motion for summary judgment is granted, and defendant's motion to
dismiss the complaint is denied.
shall submit a proposed order consistent with this opinion on or before
March 7, 1997
, with at least five days prior notice to defendant.
In MDC Leasing V. New York Property Ins. Underwriting [79-1 USTC
¶9122], 450 F. Supp. 179 (S.D.N.Y. 1978), aff'd 603 F.2d 213 (2d
Cir. 1979), however, the Court indicated that the federal tax lien took
effect as of the filing of the assessment, even though the amount of the
proceeds due under a fire insurance policy had not yet come "into
at 181. By way of dictum, however, it was noted in MDC that the
IRS would also prevail if the tax lien was deemed to attach at the later
date when the proceeds came into existence "since in the event of
simultaneous attachment the federal liens are accorded priority."
In the present case, as in MDC, the IRS levy has priority under
¶50,169] First of America Bank--West Michigan, Plaintiff v. William J.
Alt, M.D., Lind Alt, Harbor Laboratory, Inc., United States of America,
and Cote La Mer, Inc., Defendant
District Court, West. Dist.
, So. Div., 1:91-CV-1020,
Secs. 6323 , 6501
and 6502 ]
Tax liens: Assessments: Statute of limitations: Standing to
challenge.--A bank lacked standing to challenge the validity of an
IRS tax lien against a condominium owned by delinquent taxpayer
individuals who had obtained a mortgage on the property from the bank on
the grounds that the two underlying assessments were not filed within
three years of the date on which their return was filed. The three-year
limitations period for assessing tax protects taxpayers only, not third
parties. Furthermore, since the assessments were assumed valid due to
the bank's lack of standing, the IRS's lien attached for ten years under
the applicable limitations period for collecting tax.
Sec. 6321 ]
Lien for taxes: Validity of lien: Transfer to related entity.--The
transfer of a condominium by delinquent taxpayers to a related
corporation did not defeat an IRS tax lien that was filed against the
individuals only. Although the deed was executed before the IRS filed
its lien, it was not recorded until afterward.
Sec. 6323 ]
Lien for taxes: Validity of lien: Conflicts of law.--An IRS tax
lien had priority over a bank's unrecorded mortgage even though under
) law it would not have had priority if the IRS was on notice of the
bank's lien. Notice of a prior unrecorded interest is irrelevant to
determining lien priority under the Code. The priority of IRS liens is
determined under federal law, not state law.
Sec. 6323 ]
Lien for taxes: Validity of lien: Estoppel against IRS: Equitable
principles.--The IRS was not estopped from claiming an interest in
mortgaged real estate even though it waited almost 10 years to begin
legal proceedings or to enforce its lien. Despite the fact that the
lender would not have made the loan had it known of the IRS's
assessment, the IRS had committed no affirmative action that misled the
bank or induced it to make the loan. Furthermore, the IRS was not
required under equitable principles to apply seized assets to the
earliest tax liability.
Court Rule 37 ]
Suits by nontaxpayers: Default judgment: Attorney fees:
Interrogatories, failure to reply.--A lender was not entitled to a
default judgment against the IRS in a case involving the priority of
liens since the IRS complied with discovery orders. The lender may have
been entitled to attorney fees since the IRS had not answered all
interrogatories fully and correctly. This issue was referred to a
magistrate judge for further consideration.
Treado, Culver, Lague & McNally, 600 Terrace Plaza,
, for plaintiff. Michael H. Dettmer, United States Attorney, Michael L.
Shiparski, Assistant United States Attorney, 110 Michigan Ave., Grand
Rapids, Mich. 49503, Alexandra E. Nicholaides, John A. Linquist,
Department of Justice, Washington, D.C. 20530, for defendant (IRS).
Floyd H. Farmer,
102 S. Buchanan St.
49456, for defendant (Cote La Mer, Inc.). Cote La Mer, Inc., 4739
Poinsettia, Grand Rapids, Mich. 49508, pro se. Michael H.
Dettmer, United States Attorney, Michael L. Shiparski, Assistant United
States Attorney, 110 Michigan Ave., Grand Rapids, Mich. 49503, Alexandra
E. Nicholaides, John A. Linquist, Department of Justice, Washington,
D.C. 20530, for defendant (USA).
This is a
civil action brought by plaintiff First of America Bank--
("FOA" or "Bank") to foreclose its mortgage on
certain real property previously owned by William and Rosalinda
("Lind") Alt, and to determine the priority of its lien. The
subject property is a condominium located in Cote La Mer, a subdivision
. The property was recently sold by judicial sale, yielding net proceeds
of $79,710.45. Those proceeds have been placed in escrow with the Court.
States contends that its tax lien against Lind Alt has priority over
plaintiff's claimed mortgage interest in the property pursuant to the
Internal Revenue Code, 26 U.S.C. §6323
. Both parties are now before the Court on contesting motions for
purchased the disputed Cote La Mer property on
December 30, 1971
April 16, 1982
, Lind and William Alt filed their 1981 tax return with the Internal
Revenue Service ("IRS"). A few months later, on
October 11, 1982
, the IRS made an assessment against the Alts for their unpaid taxes
from 1981. On
June 27, 1984
, the Alts borrowed $501,000 from FOA in the form of a commercial loan,
securing the loan with a mortgage on the condominium and two other
pieces of property located in
. The Bank recorded the mortgages by filing in
, but not in
where the Cote La Mer condo is located.
On or before
April 15, 1985
, the government contends that it issued a statutory notice of
deficiency for the Alts' unpaid 1981 taxes. 1
Later in April of that year, the Alts commenced a Tax Court proceeding
relating to their 1981 return. On
May 27, 1986
, the Tax Court entered a judgment against the Alts for taxes due in the
sum of $83,655.40, plus negligence penalties. A few days later, on
June 2, 1986
, Lind Alt transferred the condominium to a corporation called Harbor
Laboratory, Inc. ("Harbor Lab"), by quitclaim deed. Although
the facts are unclear, Harbor Lab is apparently owned by Lind Alt. The
deed was recorded on
August 1, 1986
. The IRS later found Harbor Lab to be a nominee or alter ego of the
June 13, 1986
, the IRS made another assessment against the Alts, this time pursuant
to the Tax Court's ruling in May.
November 3, 1986
, the IRS filed a tax lien against Lind and William Alt, but
. The tax lien was for $178,280.87, for the tax period ending
December 31, 1981
. This lien initially referenced the assessment of
October 11, 1982
April 28, 1987
, however, the IRS filed an amended tax lien, changing the assessment
June 13, 1986
, the date of the assessment which followed the Tax Court's ruling.
In August of
1987, the IRS sold other property of the Alts, realizing net proceeds of
$94,770.80. These proceeds were applied against the Alts' 1981 tax
December 31, 1987
, FOA requested proof of fire insurance for the Cote La Mer property
from the Alts. Lind Alt responded that the loan had been paid in full.
Subsequent negotiations between the Alts and the Bank ensued, whereby
FOA agreed to refinance the Alts' loan on
March 8, 1988
, secured by the same property, including the condominium. This time,
however, the mortgage was recorded in
April 28, 1988
June 12, 1991
, the IRS filed a notice of Federal Tax Lien against Harbor Lab in
early 1991, FOA requested that the Alts obtain fire insurance on the
Cote La Mer property. Effective
June 26, 1991
, the Bank independently obtained its own insurance coverage for the
condo. A few months later, on
November 1, 1991
, FOA filed the present foreclosure action in Ottawa County Circuit
November 12, 1991
, the IRS filed further liens against the Alts' property for tax years
subsequent to 1981.
contends that Lind Alt owes the
$188,794.83 as of
August 1, 1993
, on the 1981 tax liability. At the judicial sale of the Cote La Mer
condo, the property grossed approximately $91,500. After payment of back
taxes on the property, U.S. Marshal fees, dues owed to the condominium
association, and utility costs incurred by the association in
maintaining the property, $79,710.45 remained. This sum was escrowed
with the Court, pending disposition of this matter.
In October of
1992, FOA served its first set of interrogatories and document
production requests in this case on the IRS. The IRS objected to most of
these requests and inquiries. On
January 25, 1993
, Magistrate Judge Scoville granted the Bank's motion to compel
discovery, and the IRS was ordered to furnish FOA with supplemental
answers. In its subsequent answers, the IRS indicated that it was
appropriate for it to file a notice of deficiency for the tax year 1981
in the spring of 1986, as the Alts misrepresented their 1981 income by
over 25%, giving the IRS a six-year statute of limitations. These
subsequent answers proved inadequate to FOA, however, and on
March 31, 1993
, Judge Scoville issued another order compelling the IRS to comply with
discovery requests. In this set of answers, the IRS no longer claimed
that the Alts had misrepresented their income by over 25%. Rather, the
IRS claimed that notice of deficiency had issued on or before
April 15, 1985
, pulling it within the three-year statute of limitations applicable in
most situations. The IRS also revealed for the first time that the Alts
had filed a Tax Court petition in 1985.
Both FOA and
are now before this Court on cross-motions for summary judgment. The
briefs in this case present a myriad of issues for resolution. First and
foremost, is the question, "Who has priority in the property?"
Although it appears the IRS does, FOA challenges the priority of the
federal tax lien on several grounds. The second issue is whether the
equitable doctrines of laches or estoppel apply in this case. The third
issue concerns whether the doctrine of marshalling may be applied to the
IRS. The fourth question presented by the briefs asks whether FOA is
entitled to discovery sanctions due to IRS actions (or nonactions) in
the course of this litigation. The final issue presented for resolution
is whether FOA is entitled to reimbursement for the insurance it
obtained on the Cote La Mer property. Applying the standards for summary
judgment, the Court will examine each of these issues in turn.
judgment is appropriate when the record reveals that there are no issues
as to any material fact in dispute and the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(c); Sims v. Memphis
Processors, Inc., 926 F.2d 524, 526 (6th Cir. 1991) (citing Celotex
Corp. v. Catrett, 477
317, 322-23 (1986), and Anderson v. Liberty Lobby, Inc., 477
242, 248 (1986)). The standard for determining whether summary judgment
is appropriate is "whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so
one-sided that one party must prevail as a matter of law." Booker
v. Brown & Williamson Tobacco Co., 879 F.2d 1304, 1310 (6th Cir.
at 251-52). "By its very terms, this standard provides that the
mere existence of some alleged factual dispute between the
parties will not defeat an otherwise properly supported motion for
summary judgment; the requirement is that there be no genuine
issue of material fact." Anderson, 477
at 247-48 (emphasis in original).
party bears the burden of clearly and convincingly demonstrating the
absence of any genuine issues of material facts. Sims, 926 F.2d
at 526. The court must consider all pleadings, depositions, affidavits,
and admissions on file and draw all justifiable inferences in favor of
the party opposing the motion. See Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475
574 (1986). If the moving party carries this burden, the nonmoving party
must present significant probative evidence showing that genuine,
material factual disputes remain to defeat summary judgment. Sims,
926 F.2d at 526. The court's function is not to weigh the evidence and
determine the truth of the matter, but to determine whether there is a
genuine issue for trial.
The court must make purely legal judgments that go to the nature and
sufficiency of the complaint as well as the evidence put forward to
support it. Val-Land Farms, Inc. v. Third Nat'l Bank, 937 F.2d
1110, 1113 (6th Cir. 1991). Applying these principles to the present
case, this memorandum concludes that FOA's motion for summary judgment
shall be denied. The government's motion shall be granted.
Priority of Lien
question presented for resolution in this matter is whose interest in
the Cote La Mer property has priority. FOA contends that its mortgage on
the condominium has priority, while the
claims that the federal tax lien prevails. This is a question of both
federal and state law.
, interests in real property are recorded with the register of deeds in
the county where the property is located. All recorded liens, rights,
and interests in property take priority over subsequent owners and
encumbrances. M.C.L.A. §565.25. Where an individual fails to record a
lien or interest in property, that interest is void as against any
subsequent interest holder who purchased the interest in good faith for
valuable consideration. M.C.L.A. §565.29. A person takes in "good
faith" if he or she takes without notice of the prior unrecorded
Nat'l Bank & Trust Co. v. Morran, 194
App. 407, 410 (1992). Thus,
has adopted what is frequently known as a "race-notice"
statute: the first interest holder to record takes priority, unless that
individual has notice of a prior unrecorded interest.
Revenue Code alters the scheme of priorities under
law. Under 26 U.S.C. §6321
, a lien on an individual's property arises when the individual is
liable to pay a tax, but neglects or refuses to pay the tax after notice
of the liability is given. However, "[t]he lien imposed by section
6321 shall not be valid against any . . . holder of a security
interest . . . until notice thereof which meets the requirements of [26
U.S.C. §6323(f) ]
has been filed." 26 U.S.C. §6323(a)
6323(f) requires that notice of a lien on real property be filed
according to the laws of the state where the property is located.
Accordingly, the tax lien has priority if it was recorded first
with the register of deeds in the county where the property is situated.
November 3, 1986
, the IRS filed a tax lien against Lind and William Alt in
, the location of the Cote La Mer property. The Bank had recorded its
mortgage on the property in
in 1984, but did not file in
until April of 1988. A cursory review of the facts thus suggests that
the IRS has priority in the condominium. FOA disputes this conclusion,
however, on four separate grounds. First, FOA challenges the validity of
the IRS assessment against the Alts, which gave rise to the lien.
Second, FOA contends that the statute of limitations on the collection
of taxes has expired. Third, the Bank argues that the lien did not
attach to the Cote La Mer condominium, as that property had been
transferred to Harbor Lab on
June 2, 1986
. Finally, FOA maintains that a genuine issue of material fact remains
as to whether the IRS had notice of the Bank's prior unrecorded interest
in the property. Such notice is relevant, the Bank contends, to
determining the priority of the tax lien.
Validity of the IRS Assessment
the validity of the government's tax lien, claiming that the assessments
pursuant to which the liens were filed were untimely and not preceded by
notices of deficiency. Under 26 U.S.C. §6501(a)
, taxes must be assessed within three years of the date on which the
return was filed. In this case, two assessments were made for the Alts'
1981 taxes: one on
October 11, 1982
, and the other on
June 13, 1986
assessment clearly falls within the statutory three-year period. The
second assessment, however, falls well outside this time frame.
Supplemental assessments are permitted by the Internal Revenue Code, but
they too must fall within the three-year period of limitations. See
26 U.S.C. §6204(a) ;
Brockhurst, Inc. v. United States [91-1
USTC ¶50,217 ], 931 F.2d 554, 557 (9th Cir. 1991). FOA also
contends that the government failed to provide the Alts with notice of
deficiency for the June 1986 assessment. Initially, the IRS contended
that notice was served sometime in the spring of 1986; later the
government alleged that notice was issued before
April 15, 1985
, pulling it within the three-year statute of limitations. The
government has no evidence to support these assertions, however. 2
The IRS does
not appear to argue that the
June 13, 1986
, assessment fell inside the statutory time frame, or that it can prove
that notice was sent prior to
April 15, 1985
. Rather, the government contends that the Bank lacks standing to
challenge the assessment. Under 28 U.S.C. §2410(a), sovereign immunity
of the government is waived, permitting a party to sue the
to foreclose a mortgage on property upon which the government has a
lien. This is essentially a suit to "quiet title." However,
the courts have construed §2410 to permit only challenges to the
procedural regularity of the lien, not the underlying tax liability or
merits of the assessment. Pollack v. United States [87-2
USTC ¶9463 ], 819 F.2d 144, 145 (6th Cir. 1987). FOA contends that
it asserts merely procedural defects in the assessment, and not the
underlying tax. The IRS counters that a challenge to the notice is a
challenge to the very merits of the assessment.
The case law
provides little guidance on the resolution of this issue. In Guthrie
v. Sawyer [92-2
USTC ¶50,391 ], 970 F.2d 733, 737 (10th Cir. 1992), the Tenth
Circuit held that a taxpayer could not raise a procedural defect in the
issuance of a deficiency notice in a quiet title action because the
purpose of the notice requirement was to allow the taxpayer to challenge
the amount of the assessment in Tax Court. The challenge thus went to
the underlying tax liability itself. However, the taxpayer was found to
be entitled to relief under another statute, and the Court held that the
failure of the IRS to send a notice of assessment could be
challenged under §2410. Other cases suggest that all taxpayer
challenges to notice, be it notice of deficiency or assessment, do
qualify as claims of procedural irregularities. In an unpublished
decision, the Sixth Circuit permitted a taxpayer to challenge notice
under §2410, although it ultimately ruled against him on the merits. See
Williams v. United States, No. 89-5740, 1990 W.L. 47555 (6th Cir.
1990); see also Gentry v.
USTC ¶50,374 ], No. CIV-1-89-337, 1991 W.L. 191246 (E.D. Tenn.
1991) (citing Williams). Thus, it would appear that in this
Circuit, a taxpayer may challenge the validity of the assessment and the
resulting lien by asserting that no deficiency notice was issued. A
taxpayer challenge to the assessment on the grounds that it fell outside
the statutory period similarly appears to constitute a procedural
The result may
differ, however, where the individual claiming procedural irregularities
which render the lien invalid is not a taxpayer, but a third party. In
its brief, FOA cites only one case from 1965 to support its contention
that third parties may challenge the validity of IRS liens on procedural
grounds. See Falik v. United States [65-1
USTC ¶9295 ], 343 F.2d 38 (2d Cir. 1965). That case, however, made
only a passing reference to the issue. Furthermore, McEndree v.
, 774 F.Supp. 1292 (D. Colo. 1991), cited by the Bank during oral
argument, is inapposite. Although McEndree addressed third-party
standing under §2410, that case did not involve a procedural challenge
to the validity of an IRS lien as the plaintiff conceded the validity of
at 1296. Rather, the plaintiff merely sought to assert the priority of
its lien over the federal tax lien. In the present case, no one disputes
that FOA may attempt to argue that its mortgage takes priority over the
federal lien. There is no authority, however, which permits the Bank, as
a third party, to argue that the lien is procedurally invalid. As the
procedural provisions of the Internal Revenue Code appear to exist to
protect the taxpayer only, not third parties, FOA lacks standing to
challenge the procedural regularity of the lien. This challenge to the
IRS' priority must fail.
Collection of Taxes
that any interest that the government had in the property has expired,
as the IRS had only six years from the date of assessment to collect the
tax owed pursuant to 26 U.S.C. §6502(a)(1)
. Because the first assessment issued on
October 11, 1982
, the government's lien only attached until 1988, the Bank argues.
notes, however, that §6502(a)(1)
was amended effective
November 5, 1990
, to give the IRS a ten-year collections period. This ten-year period
applies even to taxes assessed before the effective date, if the
previous six-year period had not yet expired as of
November 5, 1990
. Although counting from the 1982 assessment, the six-year time frame
expired in 1988, the six-year period had not expired by November 1990,
if we count from the
June 13, 1986
assessment. The government would have ten years in which to act. Thus,
if the 1986 assessment is the proper trigger for the collections period,
then the IRS has until June of 1996 to collect the Alts' unpaid taxes.
Due to the
conclusion of the preceding section that FOA does not have standing to
challenge the validity of the assessment, the Court assumes that the
1986 assessment is valid. Accordingly, the period of time in which the
IRS may collect on the deficiency has not expired. This challenge by FOA
Lien as Against Property of Harbor Lab
argues that the federal tax lien did not attach to the Cote La Mer
property as that property was transferred to Harbor Lab by quitclaim
June 2, 1986
. Because the lien recorded in
only referenced the property of the Alts, it did not attach to the
condominium owned by Harbor Lab, the Bank contends. The IRS did not file
a lien against Harbor Lab in
until June of 1991, after FOA had perfected its interest.
The IRS claims
that the transfer to Harbor Lab is ineffective to defeat the tax lien as
the deed was recorded after the assessment of the tax liability. The
Supreme Court has ruled that "[t]he transfer of property subsequent
to the attachment of the lien does not affect the lien." United
States v. Bess [58-2
USTC ¶9595 ], 357 U.S. 51, 57 (1958). Although the transfer
June 2, 1986
, the deed was not recorded in
until August 1st, well after the June 13th assessment. Furthermore, the
IRS had made a previous assessment in October of 1982. In these
circumstances, the Alts should not be given the power to defeat the
federal tax lien through a quitclaim transfer. The lien did attach to
the Cote La Mer property. The Bank's third challenge to the priority of
the government's lien is without merit.
IRS' Notice of Prior Unrecorded Interest
contends that the federal tax lien should not take priority as the
government was on notice of the prior unrecorded interest held by the
law, a lienholder has priority if he or she recorded first and had no
notice of a prior unrecorded interest. The IRS argues that notice of the
mortgage is irrelevant, as priority determinations are controlled by
federal, not state, law.
6323 of the Internal Revenue Code dictates that a federal tax lien
has priority if it has been properly recorded under state law. 26 U.S.C.
§6326(a) , (f).
The Code imposes no notice requirement. State law appears to matter only
to the extent it directs the government where to file the tax lien.
Moreover, any notice requirement would render litigation over competing
liens highly complex. If federal tax liens were forced to yield every
time a governmental department had notice of a prior unrecorded
interest, the tax lien system would be hampered. The government does not
elect to extend credit based upon the security available, but is an
involuntary creditor. Accordingly, the Court finds that notice of a
prior unrecorded interest is irrelevant to determining lien priority
under the Internal Revenue Code.
preceding discussion indicates, the federal tax lien does take priority
over the Bank's mortgage on the Cote La Mer property. Summary judgment
on this question shall issue for the government.
Doctrines of Laches and Estoppel
issue raised in the briefs concerns the applicability of the equitable
doctrines of laches and estoppel. In its brief, FOA contends that
pursuant to the doctrine of laches, the Bank's interest in the Cote La
Mer property should be given priority over the government's tax lien.
FOA notes that the Alts owed their 1981 taxes for almost ten years
before the IRS instituted any legal proceedings or made any effort to
enforce the lien on the condominium. Had the Bank been on notice earlier
of the IRS' interest, FOA argues, it would not have gone ahead with the
initial loan in 1984 or the refinancing agreement in 1988. Further, the
issue is only now before this Court because the Bank forced a sale of
the disputed property and filed the present action. Given these
circumstances, FOA contends, equity demands that the Bank's mortgage
prevail over the federal tax lien.
government notes, however, the doctrine of laches may not be invoked
when it seeks to enforce its rights. See United States v. Weintraub
¶9172 ], 613 F.2d 612, 618 (6th Cir. 1979). This well-established
principle is "based upon the important public policy of preserving
public rights and revenues from the negligence of public officers."
During oral argument, the Bank conceded that the doctrine of laches does
not apply in this case.
FOA argues that the IRS should be estopped from claiming an interest in
the property. But again, estoppel may not be invoked against the
government, unless it is based upon an allegation of affirmative
misconduct. See Federal Crop Ins. Corp. v. Merrill, 332
380, 385, 68 S.Ct. 1, 3 (1947); Giles v. Carlin, 641 F.Supp. 629,
635 (E.D. Mich. 1986) (long-standing tradition that "estoppel may
not be invoked against the government"); Tonkonogy v. United
USTC ¶9447 ], 417 F.Supp. 78, 79 (S.D.N.Y. 1976) (estoppel may be
invoked only where allegation of affirmative misconduct). The only
"affirmative" action which the Bank alleges, however, occurred
during the discovery phase of this litigation. Such conduct has no
bearing on the real issue in this case: Whose interest in the property
should prevail? Estoppel would only apply if FOA demonstrated that the
government had taken an affirmative step which caused the Bank to loan
money to the Alts in exchange for a mortgage in the Cote La Mer property
or to refinance the loan later. No such allegation has been made.
Discovery conduct is simply irrelevant to the estoppel question.
doctrines of laches and estoppel may not be invoked in these
circumstances against the government. Accordingly, there is no dispute
here meriting a trial. The IRS' motion for summary judgment shall be
granted as to these issues.
Doctrine of Marshalling
contends in its brief that the IRS should be required to
the assets from previously seized property. Essentially, the Bank wants
this Court to order the IRS to apply all previously seized assets to the
1981 tax liability, as that is the earliest tax deficiency. FOA argues
that the government is refusing to do so, applying the assets to
deficiencies in later years, in order to protect its interest in the
Cote La Mer property.
of the Internal Revenue Manual, agents of the IRS are required to apply
all proceeds from the sale of seized property toward the satisfaction of
the earliest tax liability. The provision clearly requires the
assets. However, as the government notes, the Manual was developed
solely to guide the internal
istration of the IRS, and confers no legal rights on taxpayers or third
v. Will [82-1
USTC ¶9216 ], 671 F.2d 963, 967 (6th Cir. 1982). Furthermore, there
exists no "right of marshalling" against the
. United States v. Eshelman [87-2
USTC ¶9419 ], 663 F.Supp. 285 (D.
1987). A junior lienholder cannot compel the IRS to
its liens. In re Ackerman [70-1
USTC ¶9343 ], 424 F.2d 1148 (9th Cir. 1970); United States v.
USTC ¶9135 ], 310 F.2d 846, 848 (2d Cir. 1962).
argument, FOA conceded that the doctrine of marshalling is not
applicable. Rather, the Bank requested that the Court invoke its
"equitable powers" to require the IRS to apply the seized
assets to the earliest tax liability. FOA provided the Court with no
reason why it should exercise its powers in this fashion, however.
Accordingly, the Court finds that the government shall prevail on this
issue raised in the briefs focuses on whether FOA is entitled to a
default or attorney fees as a sanction against the government. Under
Fed. R. Civ. P. 37(b)(2)(C), the Court may render a default against a
party who fails to obey an order to provide or permit discovery.
Alternatively, the Court may require a party against whom a discovery
order is issued to pay the reasonable expenses, including attorney fees,
of the party who sought the order. Fed. R. Civ. P. 37(a)(4). FOA claims
entitlement to these sanctions due to the various discovery battles it
has had with the IRS.
FOA served its
first set of interrogatories and document requests on the IRS in October
of 1992. The IRS refused to respond to fifteen of the 21 interrogatories
and seven of the eight document requests on grounds of relevance.
Magistrate Judge Scoville issued an order on
January 25, 1993
, compelling the government to furnish supplemental answers. In the
first set of supplemental answers which followed, the IRS claimed that
the Alts had underreported their income from 1981 by more than 25%, and
that a notice of deficiency had issued in the spring of 1986. Because
the Alts had misrepresented their income by more than 25%, the
government had six years from
April 16, 1992
, the date of the 1981 filing, to issue notice, and thus the notice was
March 31, 1993
, Judge Scoville issued another discovery order, requiring the IRS to
provide details on the 25% claim. In its second set of supplemental
answers, produced in response to the March discovery order, the
government stated that it did not contend that the Alts had
underreported their 1981 income by more than 25%. Instead, the IRS
contended that notice had issued before
April 15, 1985
, pulling it within the normal three-year period of limitations. The
government also mentioned for the first time the Alts 1985-86 Tax Court
that these responses by the IRS constitute dilatory and obstructionist
conduct, entitling the Bank to default under Rule 37. Default is an
extreme sanction, and appears wholly unwarranted in this case. The
evidence indicates that the IRS has complied with the discovery orders.
The government explains its contradictory responses to FOA's
interrogatories by stating that the file on the Alts was temporarily
misplaced, resulting in incorrect information for a period of time. This
contention is supported by the affidavit of attorney Alexandra
and costs incurred in seeking the two discovery orders from Judge
Scoville, however, may be warranted in this case. It does appear that
the government refused to answer several requests and provided FOA with
information that it did not fully verify. The Bank requests fees and
costs in the amount of $5,916.34. This matter shall be referred to
Magistrate Judge Scoville for further resolution.
Reimbursement for Insurance Coverage
issue presented in this case concerns the fire insurance coverage
obtained by FOA on the Cote La Mer property. After the Alts neglected to
obtain coverage on the condominium in 1991 as requested by the Bank, FOA
independently obtained an insurance policy. FOA now seeks to recover the
$717.18 in premiums it paid from the proceeds now in escrow with the
Court. The IRS refuses to permit the Bank to recover these costs,
claiming that the insurance policy was for the benefit of FOA alone, and
not all creditors.
cites any law in support of their respective positions. It appears the
government should prevail on this issue, as the policy never became the
property of the taxpayer, and thus the tax lien never attached.
Accordingly, if the property had been destroyed, only the Bank would
have been entitled to the insurance proceeds. Thus, FOA is not entitled
to reimbursement for the insurance costs. Summary judgment shall attach
for the government.
In sum, FOA's
motion for summary judgment shall be denied while the
government's motion shall be granted. FOA's request for attorney
fees and costs incurred in seeking the
January 25, 1993
March 31, 1993
, discovery orders shall be referred to Magistrate Judge Joseph G.
Scoville for disposition.
IT IS SO
Previously, the government contended that the notice of deficiency was
issued in the spring of 1986.
The government does note that a Tax Court proceeding was commenced by
the Alts in April of 1985, suggesting that notice was received prior to
that petition. "The notice of deficiency is . . . the 'ticket' into
the Tax Court that allows a taxpayer to challenge the tax assessment
before paying it." Guthrie v. Sawyer [92-2
USTC ¶50,391 ], 970 F.2d 733, 735 (10th Cir. 1992). It thus seems
likely that notice was received sometime in April of 1985 or before.
¶9253]Keystone Bank, Plaintiff, and District Director of Internal
Revenue, Additional Plaintiff added by Court Order v. Walter J. Tierney,
of Common Pleas of Allegheny County,
, Civil Div., No. 3145,
[Code Sec. 6323]
Tax liens: Priority: Secured creditors: Estoppel.--The
government's tax lien arose and was duly filed before a secured creditor
took an assignment of the debtor's interest. Thus, the federal lien had
priority. Moreover, the secured creditor could not claim that the
government delayed unduly in assessing the tax after liability arose;
only the debtor can, in this situation, raise an estoppel argument.
Fishkin, 104 Lawyers Building,
, for plaintiff. Mark Albert, Department of Justice,
, D. C. 20530, for district director. Thomas Welsh,
, Cook, Hanna & Kelly, 3600
, for defendant.
action, one of interpleader, involves the two plaintiffs' competing
interests in a fund of some $6,000.00. Both claim priority and each,
having a claim in excess of the fund, seeks the full amount at stake.
The facts, as stipulated to by both parties, flow in a simple
chronological order. On
August 22, 1958
, and on
October 10, 1958
, Lawrence J. O'Toole (taxpayer) was assessed of tax liability for his
1952 and u951 tax returns, respectively. Notice of tax liability was
filed in the Prothonotary's Office of Allegheny County on
December 20, 1958
, and refiled on
November 21, 1967
February 13, 1973
January 17, 1968
, in order to secure a loan from Keystone Bank, taxpayer assigned his
one-quarter interest in a partnership to his wife as consideration for
her becoming an accommodation maker on the note. In turn, the wife
assigned this interest to the Bank. Certain real estate owned by the
partnership was sold subsequent to the loan. These proceeds were
deposited with defendant, Walter J. Tierney, accountant for the
partnership. Upon Keystone's commencement of an action of assumpsit,
defendant paid the fund into court and interpleaded the claimants.
argument advanced by Keystone would dispose of the matter instantly. It
is the position that the lapse of time between the taxable periods and
the assessment dates should estop the
from claiming priority in this situation. In the tax law area, however,
there has been a long-standing proposition that only the taxpayer can
attack an assessment. U. S. v. Pearson [66-1 USTC ¶9448], 258 F.
Supp. 686 (S. D. N. Y., 1966); Falik v. U. S. [65-1 USTC ¶9295],
343 F. 2d 38 (C. A. 2d, 1965); Graham v. U. S. [57-1 USTC ¶9645],
243 F. 2d 919 (C. A. 9th, 1957). Some recent, as yet unreported
decisions, have stated this proposition clearly: "[O]nce the line
[sic] is assessed, only the taxpayer has the right to question the
correctness of the same." U.
S. v. Santos,
-- F. Supp. --, (D. C. Puerto Rico, 1979); U. S. v. Formige, --
F. Supp. --, (D. C. D. C., 1979).
does not end here. Although 26 U. S. C. §6322, provides for the
assessment becoming a lien at the time it is assessed, §6323 allows
some exceptions. Keystone claims relief under §6323(c)(1)(B). That
section states that the
' lien shall not be valid against security interests "protected
under local law against a judgment lien arising, as of the time of tax
lien filing, out of an unsecured obligation." It is the Bank's
contention that since levy was made subsequent to the assignment they
were without notice. First of all, it is not the date of levy but,
rather, the date of assessment that activates the priority mechanism.
Secondly, the Internal Revenue Code clearly spells out the filing
requirements so that notice will be given to subsequent creditors. See
§6323(f). The courts have been confronted with these situations and
their analysis has led them to give priority to the
where the liens arose and were duly filed of record prior to the taking
of an assignment of a taxpayer's interest. Keystone Mercantile Corp.
v. Graham [61-1 USTC ¶9202], 192 F. Supp. 90 (M. D. Pa., 1961).
standing to argue that laches applies to the
lien. Nor can it be heard to say it was without notice of the lien and
should therefore fall into the exception of §6323(c)(1)(B).
decision awarding the interpleaded fund to the
will be entered.
¶9558] William Little, Plaintiff-Appellant v.
United States of America
U.S. Court of Appeals, 9th Circuit, 85-6030, 7/14/86, 794 F2d 484,
Affirming and reversing unreported District Court decision
[Code Sec. 7425 ]
Lien for taxes: Redemption right: Claim for reimbursement.--Although
the petitioner, the purchaser at a foreclosure sale under a second deed
of trust, failed to comply with regulatory procedures in requesting
reimbursement for his payments to a senior lienor under a first trust
deed, the government's title upon redemption under the second trust deed
remains encumbered by the first trust deed until the government
reimburses the petitioner for his payment to the senior lienor. The
government obtained a title upon redemption encumbered by the first
trust deed and the subsequent foreclosure of the first trust deed,
invalid as to the government, left the encumbered title undisturbed.
Gordon, 2049 Century Park E.,
, for plaintiff-appellant. Steven Frahm, Department of Justice,
, for defendant-appellee.
and NELSON, Circuit Judges, and HOLLAND, *
In this case
we must decide whether a property owner, holding title pursuant to a
foreclosure sale under a second deed of trust, can obtain redemption
reimbursement for preredemption payments to a senior lienor. We reverse
the district court's conclusion that the property owner is collaterally
estopped from seeking reimbursement. But we affirm its conclusion that
the property owner failed to comply with valid Treasury Regulations in
seeking reimbursement. We hold that, despite this noncompliance with
reimbursement procedures, the government's title upon redemption is
encumbered by the first deed of trust until it reimburses the property
owner for his payment to a senior lienor.
AND PROCEEDINGS BELOW
factual background information is presented in this court's opinion in Little
v. United States [83-1
USTC ¶9373 ], 704 F.2d 1100 (9th Cir. 1983). Key facts and
proceedings through the prior appeal are summarized in the Appendix to
appeal, Little seeks to enforce his right to receive reimbursement from
the government for payments made to a senior lienor. On the previous
appeal, we remanded the determination of the correct amount of the
government's redemption tender under the Second Trust Deed foreclosure.
court heard argument on the parties' cross-motions for summary judgment.
Based on stipulated facts, it found that Little had failed to follow
§301.7425-4(b)(4) in requesting reimbursement for his purchase of
the First Trust Deed. It concluded also that he was estopped from
claiming reimbursement as a result of adverse rulings on this issue in
two prior district court proceedings. Judgment was entered for the
appealed. He presents these issues for our review:
(1) Did the
district court err in concluding that redemption price determinations in
related district court actions barred further claims for reimbursement
of payments to a senior lienor?
§301.7425-4(b)(4) invalid as applied by the district court?
(3) Did the
district court err in concluding that it lacked subject matter
jurisdiction to consider reimbursement for Little's payments to a senior
lienor because Little had failed to follow procedural requirements?
(4) Is the
government's title free and clear of any claims of Little?
(5) Must the
government reimburse Little for the value of removing the First Trust
Deed encumbrance from its title?
of the Internal Revenue Code provides that a non-judicial sale of
real property to which the government claims a title derived from
enforcement of a lien "shall . . . be made subject to and without
disturbing such lien or title, if notice of such lien was filed . . .
more than 30 days before such sale and the United States is not given
[written] notice [at least 25 days prior to] such sale . . . ." 26
U.S.C. §7425(b)(1) .
Both the First Trust Deed and Second Trust Deed foreclosures and sales
at issue here were such non-judicial sales.
7425(b) applies, Section
7425(d)(1) gives the government a right to redeem the property
within 120 days. The amount to be paid under such redemption is governed
by 28 U.S.C. §2410(d). 26 U.S.C. §7425(d)(2)
2410(d), the redemption price "shall be the sum of--(1) the actual
amount paid by the purchaser at such sale . . . (2) interest on the
amount paid . . . and (3) . . . expenses necessarily incurred . . .
regulations implementing 26 U.S.C. §7425(d)
and 28 U.S.C. §2410(d) provide that the amount to be paid under a Section
7425(d) redemption is to include "the amount, if any, of a
payment made by the purchaser . . . after the foreclosure sale to a
holder of a senior lien (to the extent provided under paragraph (b)(4)
of this section)." Treas. Reg.
(b)(4) of the Regulations establishes the procedure by which the
purchaser at a foreclosure sale can claim reimbursement from the
government for payments made to a senior lienor after the foreclosure
sale but prior to the government's redemption. 1
Estoppel. Little initiated two related actions regarding this
property while the prior appeal to this court was pending. In April
1982, Little filed a complaint in California Superior Court for
declaratory relief and an equitable lien, alleging that the government
was enriched $76,000 due to repair expenses ($16,000) and the
foreclosure sale on the First Trust Deed ($60,000). He sought to have
the sale rescinded or declared null and void. The action was removed to
federal district court and was dismissed without prejudice in June 1982.
, No. CV 82-2679, slip op. (C.D. Cal. June 30, 1982). Little did not
appeal or attempt to amend his complaint.
1982, Little filed an action in federal district court, Little v.
United States, No. CV 82-4303, slip op. (C.D. Cal. Dec. 21, 1982
), seeking the same declaratory and equitable relief. Again, he
alleged that the government was unjustly enriched by his repair expenses
and the foreclosure of the First Trust Deed. The action was dismissed
with prejudice. The court found that Little had been paid the
appropriate amount upon the government's redemption of the Second Trust
Deed (purchase price plus interest). He did not appeal.
On remand in
this action, the district court found that the issue of the correct
government reimbursement for Little's payment to a senior lienor had
been raised by Little in these two earlier proceedings. The court
concluded that because it had already ruled that Little was fully paid,
Little was estopped from asserting any further claims in the present
collateral estoppel is available is a mixed question of law and fact in
which the legal issues predominate. We review this question de novo. Davis
& Cox v. Summa Corp., 751 F.2d 1507, 1519 (9th Cir. 1985).
estoppel bars relitigation of issues actually litigated and necessarily
determined by a court.
147, 153 (1979). The party asserting estoppel bears the burden of
pleading and proving the identity of issues decided in the previous
action. Hernandez v. City of
, 624 F.2d 935, 937 (9th Cir. 1980). Here, the government "must
introduce a record sufficient to reveal the controlling facts and
pinpoint the exact issues litigated in the prior action." Davis
& Cox, 751 F.2d at 1518.
indicates that the issue actually litigated in the two prior actions was
whether to nullify the First Trust Deed foreclosure sale, not whether
the government's tendered redemption under the Second Trust Deed was
adequate to reimburse Little for his purchase of the First Trust Deed
(prior to the foreclosure sale on the First Trust Deed).
"Similarity between issues is not sufficient; collateral estoppel
is applied only when the issues are identical." Shapley
v. Nevada Board of State Prison Commissioners, 766 F.2d 404, 408
(9th Cir. 1985) (emphasis added). The district court's statement in
82-4303-WMB that Little had been appropriately paid upon redemption by
the government makes this a close question.
inferences from the judgment, pleadings and evidence will be given
preclusive effect." Davis & Cox, 751 F.2d at 1518. But
if there is doubt, collateral estoppel will not be applied, especially
if the previous decision could have been rationally grounded on an issue
other than that which the defendant seeks to foreclose from
We find that
the government did not carry its burden of showing that the two previous
dismissals necessarily decided the issue of the government's proper
redemption reimbursement of Little's payment to a senior lienor. 2
of Treasury Regulations. Little did not challenge the validity of
the Treasury Regulations in district court. Issues not raised below will
generally not be considered on appeal. Grauvogel v. Commissioner
¶9614 ], 768 F.2d 1087, 1090 (9th Cir. 1985). We conclude that this
case falls within one of the narrow exceptions for exercising discretion
to hear such an issue. See Bolker v. Commissioner [85-1
USTC ¶9400 ], 760 F.2d 1039, 1042 (9th Cir. 1985) ("issue
presented is purely one of law and . . . the pertinent record has been
that Equity Mortgage Corp. v. Loftus [74-2
USTC ¶9757 ], 504 F.2d 1071 (4th Cir. 1974), establishes a
substantive right under 26 U.S.C. §7425(d)
to receive reimbursement for payments made to a senior lienor. He
claims that this statutory right to reimbursement cannot be limited by
requiring compliance with procedural regulations.
U.S.C. §7805(a) ,
"the Secretary or his delegate shall prescribe all needful rules
and regulations for the enforcement of this Title . . . ." Little
argues that, because Congress did not explicitly direct the Secretary to
promulgate regulations implementing 26 U.S.C. §7425(d)
or 28 U.S.C. §2410(d), the Treasury Regulations here are invalid.
promulgated under the Secretary's authority in Section
7805(a) "if found to 'implement the congressional mandate in
some reasonable manner,' must be upheld." United States v.
USTC ¶9686 ], 411 U.S. 546, 550 (1973) (quoting United States v.
USTC ¶9101 ], 389 U.S. 299, 307 (1967)). The courts are "not
in the business of
istering the tax laws of the Nation."
That task has been delegated to the Secretary of the Treasury in 26
U.S.C. §7805(a) .
Regulations 'must be sustained unless unreasonable and plainly
inconsistent with the revenue statutes.' " Commissioner v.
Portland Cement Co. [81-1
USTC ¶9219 ], 450 U.S. 156, 169 (1981) (quoting Commissioner v.
South Texas Lumber Co. [48-1
USTC ¶5922 ], 333 U.S. 496, 501 (1948).
Little has not
shown that the procedures for requesting reimbursement are unreasonable
or that requiring documentation for reimbursable expenses is plainly
inconsistent with the redemption statutes. His challenge to the validity
of the Treasury Regulations as applied here is rejected.
with Treasury Regulations. The district court found that Little had
failed to follow regulatory requirements in seeking reimbursement for
his payments to a senior lienor. Little does not claim that his request
satisfied the various requirements of Treas. Reg.
§301.7425-4(b)(4) (ii). Instead, he argues that these
"procedural regulations" could not divest the district court
of its duty on remand to determine the factual issues relevant to the
correct amount of the government's redemption payment.
suggests an unusually strict application of the general rule that
"[o]n remand, a trial court may not deviate from the mandate of an
appellate court." In re
Bancorp., 752 F.2d 1334, 1337 (9th Cir. 1984). On remand a trial
court may consider issues not decided by the appellate court
"explicitly or by necessary implication."
(quoting Liberty Mutual Insurance Co. v. EEOC, 691 F.2d 438, 441
(9th Cir. 1982)).
Here, we could
not decide in the previous appeal the correct amount to be paid by the
government to redeem the Second Trust Deed. The question of Little's
compliance with procedural requirements for requesting reimbursement for
payments to a senior lienor was left open by our mandate. The district
court's consideration of this issue was within the scope of the remand
and did not vary or exceed our mandate. See In re Sanford Fork &
Tool Co., 160
247, 255-56 (1895).
assertion that the district court was required to ignore the Treasury
Regulation procedures in considering the amount-of-redemption issue is
without merit. We are aware of no authority in support of such a novel
twist on the law of the case doctrine. The district court properly
concluded that Little had failed to comply with the procedural
requirements governing his request for reimbursement of a payment made
to a senior lienor.
of the Law of the Case Doctrine to Previous Determinations of Government
Title. Finding that Little failed to comply with valid Treasury
Regulations in seeking reimbursement does not end our inquiry. His
noncompliance with reimbursement procedures does not mean that the
government's tendered redemption automatically conveyed clear title to
the property, free of any encumbrance.
necessary to determine the government's interest in the property based
on its tendered redemption under the Second Trust Deed.
previous appeal, we affirmed the district court as to the status of the
government's title upon redemption and after foreclosure. Little v.
United States [83-1
USTC ¶9343 ], 704 F.2d 1100, 1108 (9th Cir. 1983). We take this
opportunity to resolve an apparent inconsistency between our prior
holding and that of the district court.
apparently overlooked an important fact in determining the status of the
goverment's title. The government's title after redemption under the
Second Trust Deed was subject to the First Trust Deed. The court
erred when it concluded that the government's title was "free and
clear" of any encumbrances after the Trust Deed foreclosure and
sale. The government's title remained subject to the First Trust Deed. Section
7425(b) does not require or permit the destruction of this First
Trust Deed when the nonjudicial foreclosure sale was held without proper
notice to the government. It provides only that such sale "shall .
. . be made subject to and without disturbing [the government's] lien or
title." 26 U.S.C. §7425(b)(1)
In the prior
appeal we correctly held that "the title acquired by the
upon its redemption of the property [under the Second Trust Deed] was
not disturbed by the subsequent [First Trust Deed] foreclosure and
sale of the property." Little, 704 F.2d at 1107-08 (emphasis
added). However, we failed to recognize explicitly that the government's
title upon redemption was subject to the First Trust Deed and
remained so encumbered after the First Trust Deed foreclosure (of which
the government had no notice). We must interpret our prior holding to
mean that the government's title was not "free and
clear" of encumbrances (specifically the First Trust Deed). 3
interpretation is compelled by the nature of our prior remand. We
recognize Little's claim for reimbursement of the "$60,000 [Little
paid] to obtain the beneficial interest in the first deed of trust, a
senior encumbrance on the property which was not extinguished by the
[Second Trust Deed] foreclosure sale."
at 1108 (emphasis added). We understood that the government obtained an encumbered
title upon redemption and that the subsequent First Trust Deed
foreclosure, invalid as to the government, left that encumbered title
at 1107-08. This conclusion should be read as a correction of the
district court's erroneous conclusion that the government title was
"free and clear" after the First Deed foreclosure.
We find that
the government's title upon redemption under the Second Trust Deed was
subject to the First Trust Deed. The subsequent foreclosure of the First
Trust Deed and sale (invalid as to the government for lack of notice)
did not disturb this title. The government's title remained subject to
the First Trust Deed.
Interest Upon Redemption. The final question is what property
interest was acquired by the government upon redemption. Because Little
failed to comply with reimbursement procedures, the "correct"
redemption amount is equal to the purchase price plus interest and
excludes any payments to a senior lienor. The property interest redeemed
and acquired by the government is equivalent to that held by Little
after the Second Trust Deed foreclosure: title to the property, subject
to the First Trust Deed. See 26 U.S.C. §7425(d)(3)(C)
; Treas. Reg.
§301.7425-4(c)(3) ; Olympic Federal Savings & Loan
Association v. Regan [81-2
USTC ¶9507 ], 648 F.2d 1218, 1220 (9th Cir. 1981) (when redeeming
under §7425(d) ,
the government takes subject to encumbrances existing at the time the
redemptionee acquired the property). This encumbered title is unaffected
by the subsequent First Trust Deed foreclosure and sale of which the
government had no notice. 26 U.S.C. §7425(b)(1)
. The "correct" redemption amount does not convey clear
title to the government.
may now obtain unencumbered title only by reimbursing Little for his
payments to a senior lienor. See Treas. Reg.
§301.7425-4(b)(4) (iii) (IRS discretion to reimburse "upon the
resolution of the disagreement as to the amount properly payable");
Loftus, 504 F.2d at 1078 (where government made original tender
under good faith belief that payments to senior lienor need not be
reimbursed, government should be given reasonable period after decision
upon remand to perfect its original redemption tender).
holding on the issue of Little's compliance with Treasury Regulations,
the government's title upon redemption under the Second Trust Deed is
encumbered by the First Trust Deed until it reimburses Little for his
payments to the holder of that First Trust Deed. 4
We find that
the district court erred in concluding that collateral estoppel barred
Little's claim for reimbursement. However, it was correct in holding
that Little failed to comply with regulatory procedures in requesting
reimbursement for his payments to a senior lienor.
Little's request for reimbursement for senior lienor payments was
improper, the government's title upon redemption is not unencumbered,
but is subject to the First Trust Deed. To obtain a clear title, it must
reimburse Little in the amount of $60,000 for his payments to the senior
shall bear its own costs for this appeal. REVERSED IN PART. AFFIRMED IN
OF FACTS AND PRIOR PROCEEDINGS
Rojas (owner) encumbered the subject property--First Trust Deed.
Rojas further encumbered the property--Second Trust Deed.
Rojas conveyed an undivided one-half interest to
IRS filed a federal tax lien against
IRS filed a second federal tax lien against
Maycock acquired the beneficial interests under the First Trust Deed,
now in default.
Second Trust Deed foreclosure sale. Property was sold to
$23,670. Notice of sale was given to the IRS as to the September tax
lien, but not as to the November tax lien.
conveyed the property (subject to the First Trust Deed) to
Maycock and Little entered an agreement for Little to purchase
Maycock's beneficial interest under the First Trust Deed for $60,000.
IRS officer Schneider notified Little of the government's right to
redeem based on the Second Trust Deed foreclosure and advised him of
the requirements for requesting reimbursement for payments to a
Beneficial interest under the First Trust Deed was transferred from
Maycock to Darmiento (Little's nominee).
Little's attorney sent the IRS a letter listing as reimbursable
expenses the purchase price paid to
, repair expenses and
$60,000 for the purchase of the First Trust Deed from Maycock.
IRS denied Little's claim for reimbursement for failure to comply
with proper procedures.
IRS seized the property.
Little filed this action in federal district court for a Temporary
Restraining Order, a Preliminary Injunction, and to Quiet Title.
The court granted a preliminary injunction restraining the government
from exercising its right of redemption under the Second Trust Deed.
(Final day of 120-day statutory redemption period) This court stayed
the injunction order pending appeal. The government then timely
redeemed the property by tendering $24,136.92 ($23,670 purchase price
plus $466.92 interest).
Trustee under First Trust Deed filed notice of trustee sale to be
May 28, 1981
First Trust Deed foreclosure sale. Darmiento, nominee of Little,
purchased the property for $42,611.50.
, holder of title
to the property (subject to the First Trust Deed) pursuant to its
April 15, 1981
redemption, was not notified of this sale.
Little filed a first amended and supplemental complaint in his
district court action, claiming that (1) the government had no
"property interest" to which the tax liens could attach, (2) if the
tax liens did attach, the government failed to tender the proper
amount upon redemption, and (3) if the redemption was proper, the
government acquired the property subject to the First Trust Deed, and
the subsequent First Trust Deed foreclosure divested it of the title
it had acquired through redemption.
The district court granted summary judgment for the government,
holding that the government's redemption under the Second Trust Deed
was proper and it had acquired title by operation of Section 7425(d).
It also rejected Little's request to quiet title based on the
foreclosure of the First Trust Deed, holding that this nonjudicial
sale (without notice to the government) was made subject to and
without disturbing the government's title. It declared that the
government had title free and clear of any and all rights, title and
interest of Little.
Little filed a notice of appeal.
We held that the government had a property interest to which the tax
liens attached and that its title upon redemption "was not disturbed
by the subsequent [First Trust Deed] foreclosure and sale of the
property." Little, 704 F.2d at 1107-08. We concluded that the
factual record was inadequate to decide the correctness of the amount
tendered by the government, specifically whether the Second Trust
Deed redemption price should include the amount of Little's
post-foreclosure payment to a holder of a senior lien (First Trust
Deed). We remanded this matter for further district court
Of the District of Alaska.
The relevant parts of Treas. Reg.
§301.7425-4(b)(4) , involving these reimbursement procedures, are
paragraph (b)(4)(ii), the district director of the IRS "shall, in
any case where a [Section
7425(d) ] redemption is contemplated, send notice to the purchaser
[prior to the end of the 120-day redemption period] . . . of his right .
. . to request reimbursement . . . for a payment made to a senior
lienor." The purchaser's request for reimbursement must be
"mailed or delivered to the office specified" within 15 days.
for reimbursement "shall consist of--(A) [a] written itemized
statement . . . of the amount claimed [as] payment to a senior lienor,
together with the supporting evidence requested in the notice from the
[IRS], and (B) [a] waiver or other document that will be effective upon
redemption . . . to discharge . . . or transfer to the United States,
any interest in or lien on the property that may arise under local law
with respect to the payment made to a senior lienor."
(b)(4)(ii) of the Regulations provides also that "[u]nless a
request for reimbursement is timely submitted . . ., no amount shall be
payable to the purchaser . . . [for] a payment made to a senior lienor .
. . ."
paragraph (b)(4)(iii), a proper request for reimbursement "shall be
considered to be approved for the total amount claimed by the purchaser
. . . unless the [IRS] sends notice to the claimant . . . within [a
prescribed time period]. The notification of denial shall state the
grounds for denial." Upon denial, "the request for
reimbursement for a payment made to a senior lienor shall be treated as
having been withdrawn by the purchaser . . . and the [IRS] shall tender
only the amount otherwise payable [for purchase price, interest and
other necessarily incurred expenses]." Where a request is treated
as withdrawn, reimbursement for payments to a senior lienor "may,
in the discretion of the [IRS], be made after the redemption upon the
resolution of the disagreement as to the amount [of such
Little contends that the law of the case doctrine required the
district court to determine the correctness of the redemption amount
tendered and precluded reliance on collateral estoppel. He contends also
that the government waived its right to defend based on collateral
estoppel and failure to exhaust
istrative remedies by failing to raise these arguments in the prior
appeal. He has cited no authority to support either proposition and we
have found none. Moreover, collateral estoppel and exhaustion of
istrative remedies are affirmative defenses, see Fed. R. Civ. P.
8(c), and must be pleaded in the trial court. Our prior opinion
"should not be read to preclude assertion of the[se] affirmative
defenses . . . on remand to the district court." Hernandez v.
, 649 F.2d 336, 337 (5th Cir. 1981).
Our prior decision is "to be interpreted reasonably and not in a
manner to do injustice . . . ." Mobil Oil Corp. v. Department of
Energy, 647 F.2d 142, 145 (Temp. Emerg. Ct. App. 1981) (quoting Wilkinson
v. Massachusetts Bonding & Insurance Co., 16 F.2d 66, 67 (5th
Cir. 1926)). Where our prior ruling is "unclear or open to
conflicting interpretations," we may "presume that the ruling
was not erroneous and was otherwise in accordance with law." Chapman
v. NASA, 736 F.2d 238, 242 (5th Cir.), cert. denied, 105 S.
Ct. 517 (1984).
Any difficulty in determining the amount of reimbursement owed Little
for his payment to a senior lienor is eliminated by the parties'
stipulation that Little paid $60,000 to the holder of the First Trust
¶9483]Atlantic National Bank v. The
Court of Claims, No. 30-75, 210 CtCls 340, 536 F2d 1354, 6/16/76
[Code Secs. 6321 and 6323]
Lien for taxes: After-acquired property: Priority: Notice or
knowledge of lien: Security interest: Marshalling of assets.--A
bank, an assignee of the taxpayer, was not entitled to any funds due the
taxpayers under contracts between the taxpayer and a Federal agency.
Notices of Federal tax liens had been filed prior to the assignments of
the funds to the bank. Even though these funds had not been earned at
the time the liens were filed, the taxpayer had sufficient interest in
the funds, even after making the assignments, for the liens to attach to
them. The bank's interest was not entitled to priority because it failed
to demonstrate that its interest was protected under local law as
against a judgment lien arising out of an unsecured interest. The bank
had constructive knowledge, with the same effect as actual knowledge, of
the tax liens once they were filed. Thus, it could not claim ignorance
of the facts and could not recover under a theory of equitable estoppel.
Finally, the invocation of the doctrine of marshalling of assets was
denied since it would have been inequitable to the government, which was
unable to satisfy the total obligations owed by the taxpayer from the
funds due him.
Weintraub, Maurice Steingold, Steingolf, Steingolf & Friedman, for
plaintiff. Leslie H. Wisenfelder, Rex E. Lee, Assistant Attorney
General, Department of Justice, Washington, D. C. 20530, for defendant.
, and BENNETT, Judges.
Defendant's Motion for Summary Judgment and Plaintiff's Cross Motion for
, Judge, delivered the opinion of the court:
This case is
before the court on cross motions for summary judgment. There is no
genuine issue as to any material fact. The case involves the priority of
federal tax liens over plaintiff-assignee's claim to contract proceeds.
For the reasons below we hold for the defendant.
Services Administration (GSA) awarded contracts to Argus Security, Inc.
(Argus) for the performance of uniform guard services. By
June 4, 1974
, the Internal Revenue Service (IRS) had filed Notices of Federal Tax
Lien Under Internal Revenue Laws relating to Argus as follows:
Date filed with State
Amount of Corporation Commission,
$53,870.27 March 21, 1974
June 4, 1974
June 5, 1974
July 9, 1974
, Argus made assignments to plaintiff of proceeds to be paid under its
contracts. A more complete chronology of events is listed in the margin.
January 31, 1976
, Argus' unpaid tax liability arising out of the two notices of tax lien
June 4, 1974
, totaled $78,527.93. The total due under the Argus contracts is
first argues that the tax liens did not attach to the contract proceeds
when the liens were filed because at that time the monies were not yet
earned. Plaintiff contends that when the monies were earned, they were
immediately encumbered by plaintiff's perfected security interest.
Int. Rev. Code of 1954, provides that upon refusal to pay a tax after
demand, a lien arises in favor of the
"upon all property and rights to property, whether real or
personal," belonging to the delinquent taxpayer. Argus had a right
to, and interest in, the subject due or to become due under the subject
contracts to enable a federal tax lien to attach thereto. Even after the
assignments to plaintiff, Argus retained a sufficient interest to which
a federal tax lien could attach. In Texas Oil & Gas Corp. v.
United States [72-2 USTC ¶9653], 466 F. 2d 1040, 1052 (5th Cir.
1972), cert. denied, 410
929 (1973), the court held:
* * a federal tax lien attaches immediately to after-acquired property
without any further action required by the Government.
has also been held that the fact that the taxpayer's right to contract
proceeds was dependent on his satisfactory performance does not mean
that the proceeds were not property or rights to property of the
taxpayer under §6321. In City of Vermillion v. Stan Houston
Equipment Co. [72-2 USTC ¶9496], 341 F. Supp. 707, 713 (D. S. D.
1972), the court stated:
fact that the taxpayer's right to the proceeds of the contract was
dependent upon his performance of the contract and acceptance by the
City does not mean that the proceeds were not property or rights to
property of the taxpayer under 26 U. S. C. A. Sec. 6321. Seaboard
Surety Co. v. United States [62-2 USTC ¶9653], 306 F. 2d 855, 859
(9th Cir. 1962); Home Ins. Co. v. B. B. Rider Corp. [63-1 ¶9235],
212 F. Supp. 457, 462 (D. C. N. J. 1963). The taxpayer had more than a
mere contingent right to the proceeds of the contract.
Glass City Bank v. United States [45-2 USTC ¶9449], 326 U. S.
265 (1945); Corwin Consultants, Inc. v. Interpublic Group of
Companies, Inc. [74-1 USTC ¶9401], 375 F. Supp. 186, 193 (S. D. N.
Y. 1974), reversed and remanded on another question [75-1 USTC ¶9299],
512 F. 2d 605 (2d Cir. 1975); United States v. Blackett [55-1
USTC 9278], 220 F. 2d 21 (9th Cir. 1955).
Clearly under §6321 we must hold that plaintiff's argument cannot be
City Bank v. United States, supra at 267-69, the Court stated that
there "is a plain intent to subject to the lien 'property owned by
the delinquent' when suit is filed, rather than only that owned when the
lien arose" and also: "Our conclusions is that the lien
applies to property owned by the delinquent at any time during the life
of the lien. This is in accord with all the cases that have directly
passed upon this question." [Footnote omitted.] In Seaboard
Surety Co. v. United States [62-2 USTC ¶9653], 306 F. 2d 855 (9th
Cir. 1962), the taxpayer was awarded a Government contract on
December 31, 1956
March 2, 1957
, a trust agreement was executed assigning the proceeds of the contract
to a bank. Prior to the date of the agreement the Government had a fully
perfected tax lien on all property and rights to property of the
taxpayer. The court stated at 859:
* * These tax liens attached immediately to all rights of taxpayer under
the government contract awarded
December 31, 1956
, including payments whenever earned. * * * [T]he trust agreement of
March 2, 1957
, could not displace the tax liens, which had already attached to
taxpayer's property rights in the contract. The fact that taxpayer's
rights under the contract were dependent upon its performance did not
affect the tax liens * * *.
United States Fidelity & Guaranty Co. v. United States, 201
Ct. Cl. 1, 475 F. 2d 1377 (1973), this court held that where the IRS was
owed taxes by a defaulted prime contractor and the amount was paid to
the IRS by the contracting agency out of retained contract funds, the
tax lien has priority over a surety that has paid laborers and
materialmen on its payment bond. Accord, Seaboard Surety Co. v.
, 107 Ct. Cl. 34 [47-1 USTC ¶9128], 67 F. Supp. 969 (1946), cert.
relies on §6323. 3
Plaintiff argues that as to monies earned under these contracts by Argus
on and after June 28, 1974, the Federal Tax Lien Act of 1966 grants
plaintiff a priority over earlier filed notices of tax lien as a holder
of a security interest within the meaning of §6323. However, since
plaintiff does in fact qualify for the priority status it claims for
itself under §6323, plaintiff's reliance, based as it is on a
fallacious premise, collapses for lack of support.
v. Modison Industries, Inc. [73-2 USTC ¶9623], 483 F. 2d 837, 842
(10th Cir. 1973), the Court of Appeals in an opinion by Senior Judge
Laramore of this court held with relation to §6323 as follows:
the foregoing definitions and rules as applicable herein, it is apparent
that the appellant's security interest will take priority over the filed
Federal tax lien if the following requisites are met:
The "security interest" stems from a written agreement
which (a) was entered into before the Federal tax lien was filed,
and (b) qualifies as a "commercial transactions financing
agreement" under section 6323(c)(2)(A)(i); [Emphasis supplied.]
The loans were made pursuant to the written agreement within 45 days of
the tax lien filing or prior to receiving actual notice or knowledge
that the tax lien had been filed, i. e., disbursements or loans
after receipt of actual notice or 45 days, whichever is sooner, are
The written agreement covered "qualified property"--here
inventory--which was "acquired" by the taxpayer within 45 days
of the tax lien filing; and
State law gives the security interest holder priority over a judgment
lien by an unsecured creditor, as of the time the Federal tax lien is
9 MERTEN'S LAW OF FEDERAL INCOME TAXATION §54.66.7 (1971). 4
to the four requirements under §6323, we observe that plaintiff does
not overcome the requirement that its security interest arise from a
written agreement entered into before these tax liens were filed.
The first of the written agreement, i. e., the assignments, was
June 5, 1974
. However, by
June 4, 1974
, defendant had filed Notices of Tax Lien Under Internal Revenue Law
relating to Argus which then totalled $86,573.02. In Donald v.
Madison Industries, Inc., supra at 844, the court held as follows:
* * Since these security agreements were entered into after the
tax lien filing by some eight months or more (one day after would be
just as fatal), appellant clearly can draw no support from these
documents with respect to the December 1969 tax lien. Section
6323(c)(1). However, they would be relevant to any tax liens filed after
their execution. (Emphasis in original).
plaintiff's position as to its having any priority under the Federal Tax
Lien Act of 1966 fails because plaintiff has not demonstrated to this
court that its "security interest" at any relevant time became
"protected under local law against a judgment lien arising, as of
the time of tax lien filing, out of an unsecured obligation" as
required by §6323(c)(1)(B). Therefore, we hold that plaintiff is not
entitled to any priority under §6323 over the tax liens filed before
June 5, 1974
argues that defendant is estopped to claim a lien having priority over
plaintiff's rights. It bases its argument on this court's decision in Produce
Factors Corp. v. United States, 199 Ct. Cl. 572, 467 F. 2d 1343
(1972). Plaintiff's position is that when it submitted its notices of
the subject assignments and the assignments themselves to GSA as
required by the Assignment of Claims Act, the failure to defendant's
officials to advise plaintiff of the tax claims of which GSA had notice
was a breach of the duty defendant owed to plaintiff as an assignee. As
a result, so the argument goes, plaintiff is entitled to recover the
monies it lent to Argus. The language of the Produce Factors Corp.
decision on which plaintiff relies is as follows:
assignee of Government contract rights is, of course, entitled to
certain governmental protection of its interests. If at the time it
receives notification of an assignment, the Government knows that the
assignee's collateral is worthless, the Government must convey that
information to the assignee so that he will not advance funds on the
strength of proceeds that will never come due. * * * [199 Ct. Cl. at
582, 467 F. 2d at 1349.]
assignee in Produce Factors Corp. was denied any recovery because
it failed to establish that the Government had actual or constructive
notice of a fact which it was duty bound to convey to the assignee and
also because the assignee's knowledge was held to be superior to the
In order to
establish an estoppel against the
, four separate elements must be present. One of these essential
requirements is for the party asserting the estoppel to be
"ignorant of the true facts." Emeco Industries, Inc. v.
, 202 Ct. Cl. 1006, 1015, 485 F. 2d 652, 657 (1973);
v. Georgia-Pacific Co., 421 F. 2d 92, 96 (9th Cir. 1970).
Plaintiff cannot set itself up as being ignorant of the IRS tax claims
because it had constructive notice of the existence of said liens.
* * The purpose of the filing of a notice of Federal tax lien is to give
constructive notice. A purchaser is charged with constructive notice of
all a person of ordinary intelligence and diligence would have
discovered by an examination of the index to Federal tax liens in the
appropriate local office. * * * 9 MERTEN'S LAW OF FEDERAL INCOME
TAXATION §54.66.12 (1971). [Footnotes omitted.]
Richter's Loan Co. v. United States [56-2 USTC ¶9706], 235 F. 2d
753 (5th Cir. 1956); United States v. Sirico [66-1 USTC ¶9209],
247 F. Supp. 421 (S. D. N. Y. 1965); Goldstein v. Bankers Commercial
Corp. [57-1 USTC ¶9596], 152 F. Supp. 856 (S. D. N. Y. 1957), aff'd
per curiam sub nom. Goldstein v. United States [58-2 USTC ¶9662],
257 F. 2d 48 (2d Cir. 1958).
Once it is
established that plaintiff was chargeable with contructive notice, that
notice has the same legal significance as actual notice. In Simmons
Creek Coal Co. v. Doran, 142
417, 437 (1892), the Supreme Court stated:
* * He is bound not only by actual, but also by constructive
notice, which is the same in its effect as actual notice. * * *
[Emphasis in original.]
66 C. J. S. Notice §19(b) (1950):
* * constructive * * * and actual notice have the same effect, and
either constructive notice or actual notice is binding independently of
the other. Accordingly, a person chargeable with constructive * * *
notice is as much bound thereby as if the notice were actual. * * *
[Emphasis supplied.] [Footnotes omitted.]
defendant's duty to "convey" information to an assignee is
fully and completely discharged as to tax claims by the filing of tax
liens. That it would perhaps have been a better course for defendant's
officials to give plaintiff actual notice of the IRS claims is not a
legally sufficient basis for plaintiff to recover. As a matter of law,
defendant did not breach the duty imposed by Produce Factors Corp.,
supra. Plaintiff may not recover, therefore, on its theory of
The court need
respond only briefly to plaintiff's final contention that the doctrine
of marshaling assets should be invoked here to require defendant to
collect its claims of offset against assets of Argus being withheld
under contracts which are not in issue before this court before
defendant can resort to the funds being withheld under the five
contracts which are in issue in this case. 5
Defendant states that the total debts owed it by Argus far exceed the
total monies defendant is withholding. Thus, to the extent defendant is
unable to pay itself out of the $43,739.09 due and unpaid under the
subject contracts ahead of plaintiff, defendant will not be reimbursed
for the total of the obligations owed to it by Argus. There can be no
marshaling when to do so would limit the double-fund creditor's ability
to satisfy the total debt owed to it. This would be inequitable. New
Bern Oil & Fertilizer Co. v. National Bank, 28 F. 2d 554, 556
(4th Cir. 1928); Caplinger v. Patty, 398 F. 2d 471, 476 (8th Cir.
1968); Victor Gruen Associates, Inc. v. Glass, 338 F. 2d 826, 829
(9th Cir. 1964).
For the above
reasons, defendant's motion for summary judgment is granted, plaintiff's
motion for summary judgment is denied, and the petition is dismissed.
July 19, 1973--GSA awarded Contract number GS-03B-18175 to Argus.
February 1, 1974-GSA
awarded Contract number GS-03B-18245 to Argus.
February 14, 1974
--GSA awarded Contract number GS-03B-18244 to Argus.
March 21, 1974
--IRS filed a notice of federal tax lien at
, for $53,870.27.
May 6, 1974
--GSA awarded Contract number GS-03B-18336 to Argus.
May 14, 1974
--IRS served a notice of levy on GSA stating that there was due, owing,
and unpaid from Argus $60,803.46.
May 16 and
June 4, 1974
--IRS filed a notice of federal tax lien at
, respectively, for $32,702.75.
May 29, 1974
--GSA awarded Contract number GS-03B-18385 to Argus.
June 5, 1974
--Argus assigned to plaintiff "all monies due or to become due from
" under Contract numbers GS-03B-18175, GS-03B-18244, and
GS-03B-18245. The assignments contained a warranty that the assignor is
not indebted to the
for taxes and is not otherwise engaged in a controversy with the
which might give rise to a claim of a right to set-off.
June 19, 1974
--GSA received and acknowledged receipt of three documents entitled
"Notice of Assignment."
June 20, 1974
--IRS filed notice of federal tax lien at
July 9, 1974
--Argus assigned to plaintiff the monies due under Contract numbers
GS-03B-18336 and GS-03B-18385.
July 11, 1974
--GSA received and acknowledged receipt of two documents entitled
"Notice of Assignment."
July 29, 1974
--Effective on this date, the five contracts were terminated by written
agreement in accordance with an oral agreement of GSA and Argus on
July 26, 1974
August 2, 1974
--IRS served GSA with a notice of levy stating that there was due,
owing, and unpaid from Argus $132,422.78.
There is a claim in the total amount of $23,656.98 by the Department of
Labor to the withheld funds in suit. However, defendant has stated in
its briefs that the court does not have to determine priorities between
IRS and the Department of Labor. Since defendant prevails on the IRS
claim and the IRS claim exhausts the available funds, we deem it
unnecessary to discuss the Department of Labor claim.
Relevant portions of §6323 are as follows:
6323. VALIDITY AND PRIORITY AGAINST CERTAIN PERSONS.
PURCHASES, HOLDERS OF SECURITY INTERESTS, MECHANIC'S LIENORS, AND
JUDGMENT LIEN CREDITORS.--The lien imposed by section 6321 shall not be
valid as against any purchaser, holder of a security interest,
mechanics' lienor, or judgment lien creditor until notice thereof which
meets the requirements of subsection (f) has been filed by the Secretary
or his delegate.
PROTECTION FOR CERTAIN COMMERCIAL TRANSACTIONS FINANCING AGREEMENTS,
GENERAL.--To the extent provided in this subsection, even though notice
of a line imposed by section 6321 has been filed, such lien shall not be
valid with respect to a security interest which came into existence
after tax lien filing but which--
in qualified property covered by the terms of a written agreement
entered into before tax lien filing and constituting--
commercial transactions financing agreement,
real property construction or improvement financing agreement, or
obligatory disbursement agreement, and
protected under local law against a judgment lien arising, as of the
time of tax lien filing, out of an unsecured obligation.
COMMERCIAL TRANSACTIONS FINANCING AGREEMENT.--For purposes of this
DEFINITION.--The term 'commercial transactions financing agreement'
means an agreement (entered into by a person in the course of his trade
make loans to the taxpayer to be secured by commercial financing
security acquired by the taxpayer in the ordinary course of his trade,
or business, or
purchase commercial financing security (other than inventory) acquired
by the taxpayer in the ordinary course of his trade or business;
an agreement shall be treated as coming within the term only to the
extent that such loan or purchase is made before the 46th day after the
date of tax lien filing or (if earlier) before the lender or purchaser
had actual notice or knowledge of such tax lien filing.
LIMITATION ON QUALIFIED PROPERTY.--The term 'qualified property', when
used with respect to a commercial transactions financing agreement,
includes only commercial financing security acquired by the taxpayer
before the 46th day after the date of tax lien filing.
COMMERCIAL FINANCING SECURITY DEFINED.--The term 'commercial financing
security' means (i) paper of a kind ordinarily arising in commercial
transactions, (ii) accounts receivable, (iii) mortgages on real
property, and (iv) inventory.
45-DAY PERIOD FOR MAKING DISBURSEMENTS.--Even though notice of a lien
imposed by section 6321 has been filed, such lien shall not be valid
with respect to a security interest which came into existence after tax
lien filing by reason of disbursements made before the 46th day after
the date of tax lien filing, or (if earlier) before the person making
such disbursements had actual notice or knowledge of tax lien filing,
but only if such security interest--
in property (A) subject, at the time of tax lien filing, to the lien
imposed by section 6321, and (B) covered by the terms of a written
agreement entered into before tax lien filing, and
protected under local law against a judgment lien arising, as of the
time of tax lien filing, out of an unsecured obligation."
H. R. Rep. No. 1884, 89th Cong., 2d Sess. 45 (1966), provides as follows
in pertinent part:
"* * *
Thus, the security interest must arise out of a written agreement
entered into before the notice of tax lien was filed * * *."
Defendant contends that the doctrine of marshaling assets does not apply
but we need not rule on the question in view of the inadequacy of
Judge, with whom SKELTON, Judge, joins, concurring:
I concur with
Judge Kashiwa's opinion and in the decision reached, but find it
necessary to discuss briefly one aspect of plaintiff's rebuttal to the
two affirmative defenses set up by defendant in this litigation. When
faced with these defenses, plaintiff promptly asserted that its recovery
could not be diminished to th extent of its assignor's delinquent taxes
or underpaid employee wages, because of the terms of the Assignment of
Claims Act of 1940, as amended, 41 U. S. C. §15 (1970):
contract of * * * the General Services Administration * * * may, in time
of war or national emergency proclaimed by the President * * * or by Act
or joint resolution of the Congress and until such war or national
emergency has been terminated in such manner, provide or be amended
without consideration to provide that payments to be made to the
assignee of any moneys due or to become due under such contract shall
not be subject to reduction or set-off, and if such provision or one to
the same general effect has been at any time heretofore or is hereafter
included or inserted in any such contract, payments to be made
thereafter to an assignee of any moneys due * * * shall not be subject
to reduction or set-off for any liability of any nature of the a signor
to the United States or any department or agency thereof which arises
independently of such contract, * * *.
should be noted that the statute confers discretion upon contracting
agencies to include the appropriate language. A "no set-off"
clause is not mandatory.
The record in
this case does not include copies of the five contracts themselves which
were assigned as security to this plaintiff, nor has plaintiff otherwise
proved to my satisfaction that the contracts originally included the no
set-off language which is authorized by 41 U. S. C. §15 (1970). In
fact, plaintiff implicitly concedes that no such provision originally
appeared in any of the five contracts by arguing in its main brief that
the provisions of the Act became operative through an implied contract
amendment when it as assignee delivered copies of the assignments
themselves to GSA. The instruments of assignments, which we do have
before us, contain a warranty running from the assignor to plaintiff
that no outstanding claims existed which might result in a set-off,
reducing payments otherwise due the contractor.
plaintiff finds itself reduced to the position that each of these
contracts was amended during the course of performance, so as to include
by operation of law a provision binding against the Government that
payments to be made to the assignee of moneys due or to become due the
contractor would not be subject to reduction or set-off for the
assignor's liabilities to the United States or its agencies. Plaintiff
finds such an amendment implied in fact from the following
circumstances: (1) the instruments of assignment to it contained the
contractor's warranty that no indebtedness existed in favor of the
; (2) the instruments were delivered to responsible officials at GSA;
and (3) GSA acknowledged receipt of such instruments without exception.
I would go a
step further than Judge Kashiwa's opinion and hold as well that, as a
matter of law, none of these five contracts were amended to contain a no
set-off provision. In order to amend a contract, as in the case of
contracting in the first instance, the parties by words or actions must
manifest assent to the term of the proposed bargain. RESTATEMENT
CONTRACTS §52 (1932); RESTATEMENT, SECOND CONTRACTS §52 (T. D. No. 1
(1964)). I do not think that we reasonably can say that authorized
Government officials manifested their assent to the inclusion of a no
set-off provision in these contracts. The Government did nothing more
than to acknowledge receipt of the papers embodying the various
assignments. Such an acknowledgment alone on the facts of this case is
insufficient to conclude a legally effective amendment of a contract.
I agree that
the petition should be dismissed.