¶50,619] Blue Cross of Western Pennsylvania and Pennsylvania Blue
Shield, Plaintiffs v. United States of America, Internal Revenue
Service; Commonwealth of Pennsylvania, Department of Revenue;
Commonwealth of Pennsylvania, Department of Labor and Industry; and
Fairman Drilling Company, Defendants
District Court, West.
, Civ. 92-2236,
[Code Sec. 6323 ]
Bankruptcy: Tax lien: Accounts receivable: Priority: Attorneys'
fees.--A federal tax lien had priority over a creditor's security
interest in accounts receivable and other assets. The creditor failed to
demonstrate that it acquired the receivables within the 45-day extension
period from the date of the filing of the tax lien. Further, no
attorneys' fees were awarded because the tax lien was far in excess of
the interpleaded funds and the IRS lien had priority.
Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield, have
brought this interpleader action. At the time of filing, plaintiffs owed
the Business and Educational Benefit Association, Inc. (BEBA) the sum of
$63,655.30 representing insurance commission proceeds. At the time that
plaintiffs attempted to make these payments to BEBA, BEBA was in the
midst of Chapter 7 bankruptcy proceedings. The court-appointed trustee
informed plaintiffs that he would not
ister these funds to BEBA's creditors, and the funds were returned to
plaintiffs. Plaintiffs concede that this amount is owed and, as
stakeholder of those funds, have filed the instant action.
parties alleging claims for these funds are Fairman Drilling Company
(Fairman) and the
United States of America
, Internal Revenue Service (IRS). Fairman is a creditor of BEBA, whose
loan notes are secured by an interest in "accounts receivable,
cash, contracts, choses in action, and generally other assets."
Fairman asserts that it is entitled to the funds and that its interest
was perfected prior to the tax liens recorded by the IRS. Fairman has
filed a motion for summary judgment on this claim.
the Court is plaintiffs' motion for attorney's fees, which has been
opposed by the IRS.
judgment may only be granted if "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a
matter of law." Fed. R. Civ. P. 56(c). "Rule 56 mandates the
entry of summary judgment, after adequate time for discovery and upon
motion, against the party who fails to make a showing sufficient to
establish the existence of an element essential to that party's case,
and on which that party will bear the burden of proof at trial." Celotex
Corp. v. Catrett, 477
317, 322 (1966). In considering a motion for summary judgment, this
Court must examine the facts in a light most favorable to the party
opposing the motion. International Raw Materials, Ltd. v. Stauffer
Chemical Corp., 898 F.2d 946, 949 (3d Cir. 1990).
The burden is
on the moving party to demonstrate that the evidence creates no genuine
issue of material fact. Chippollini v. Spencer Gifts, Inc., 814
F.2d 893, 896 (3d Cir.) (en banc), cert. dismissed, 483
1052 (1987). Where the non-moving party will bear the burden of proof at
trial, the party moving for summary judgment may meet its burden by
showing that the "evidentiary materials of record, if reduced to
admissible evidence, would be insufficient to carry the non-movant's
burden of proof at trial."
See also Celotex, 477
In that there
are no genuine issues of material fact, summary judgment is appropriate
in the instant case.
A federal tax
lien is a perfected, choate lien on the date the lien arises. United
States v. Fidelity-Philadelphia Trust Co. [72-1
USTC ¶9394 ], 459 F.2d 771, 773 (3d Cir. 1972) (citing United
States v. Security Trust and Savings Bank [50-2
USTC ¶9492 ], 340 U.S. 47, 71 (1950)). The lien arises at the time
of assessment and continues until the liability is satisfied or becomes
unenforceable. 26 U.S.C. §6322
. However, when competing against a purchaser, holder of a security
interest, mechanics lienor, or judgment lien creditor, the IRS's
interest does not attach until notice of the tax lien is filed. 26
U.S.C. §6323(a) .
Further, 26 U.S.C. §6323(c)
provides that a federal tax lien is not valid against a security
interest in accounts receivable where the accounts receivable are
actually acquired by the taxpayer within 45 days after a tax lien
filing. 26 U.S.C. §6323(c)(2)(B)
. See United States v. McDermott [93-1
USTC ¶50,164 ], 61 USLW 4282, 4283 (1993); Congress Talcott
Corp. v. Gruber [93-1
USTC ¶50,283 ], 993 F.2d 315, 322-25 (3d Cir. 1993) (Greenberg, J.,
dissenting); Shawnee State Bank v. United States [84-1
USTC ¶9513 ], 735 F.2d 308, 310-311 (8th Cir. 1984). In the instant
case, it is uncontroverted that the IRS filed its notice of federal tax
October 13, 1991
. Therefore, assuming that Fairman is entitled to the 45-day extension
provided in §6323(c) ,
Fairman must demonstrate that it actually acquired the accounts
receivable prior to
November 28, 1991
In the instant
case, there is no question that plaintiffs did not begin issuing the
commission checks until February 19, 1992, well after the 45-day
safe-harbor provided by 26 U.S.C. §6323(c)
. Therefore, the lien of the IRS has priority under §6323(a)
, and judgment will be entered in favor of the IRS and against
Fairman and the remaining defendants.
courts have discretion to award attorney's fees to a disinterested
stakeholder in an interpleader action. Abex Corp. v. Ski's
Enterprises, Inc. [85-1
USTC ¶9144 ], 748 F.2d 513, 516 (9th Cir. 1984). However, the
existence of superior federal tax liens gives the government a statutory
priority over the interpleader plaintiffs' ability to diminish the fund
by an award of attorney's fees. United States v. Wilson [64-1
USTC ¶9396 ], 333 F.2d 147, 149 (3d Cir. 1964). See also Cable
Atlantic, Inc. v. Project, Inc., 749 F.2d 626, 627 (11th Cir. 1984);
USTC ¶9144 ], 748 F.2d at 516.
government's tax lien is far in excess of the interpleaded funds, and
because the IRS prevailed in the interpleader action, plaintiffs are not
entitled to an award of attorney's fees.
Fairman's interest in the accounts receivable was not perfected prior to
the issuance of the commission checks since "the amount of the
lien" was not established until that time. McDermott [93-1
USTC ¶50,164 ], 61 USLW at 4282 (citing
v. City of
USTC ¶9191 ], 347 U.S. 81, 84 (1954)).
¶9701]In the matter of William E. Moody, individually and trading as
Edward S. Moody & Son, Bankrupt
District Court for the Eastern District of Pennsylvania, In Bankruptcy.
Cause No. 24017,
July 1, 1955
[1939 Code Sec. 3672--substantially unchanged in 1954 Code Sec. 6323]
Liens for unpaid tax: Priority over chattel mortgage.--Taxpayer
William E. Moody, individually and trading as Edward S. Moody & Son
was adjudicated bankrupt on
February 23, 1954
. After the sale of his personal property, the sum of $2,078.85 was
available for distribution. The referee allowed the claim of J. G.
Braun, a creditor, in full, and ordered that the balance be paid to the
on tax liens for which notices had been properly filed. Two creditors of
taxpayer filed a petition for review, claiming priority over the
' claim for taxes. The holder of a chattel mortgage was denied priority
since under the Pennsylvania Chattel Mortgage Act, his chattel mortgage
lien was good for only five years from date of filing, unless extended.
Accordingly, his lien, which was filed on
September 27, 1948
, expired on
September 27, 1953
and was no longer valid.
[1939 Code Secs. 3670 and 3672--substantially unchanged in 1954 Code
Secs. 6321 and 6323, respectively]The landlord's claim for rent for
property occupied by the taxpayer was based on a distraint issued on
taxpayer's personal property on February 1, 1954, whereas, the notice of
tax liens had been filed on three dates in 1952. The Court denied the
landlord's claim for priority based on the contention that because
taxpayer was a bailee under a bailment lease, his interest was of a
nature which could not be reached by a tax lien. The Court was of the
opinion that a bailee under a bailment lease has a property interest
which can be subjected to a lien for federal taxes, under 1939 Code Sec.
3670, and held that the
' lien did attach and was superior to the lien created by the landlord
when he made a distraint for rent.
, for trustee. Holl, Taylor & Holl,
, for landlords.
, Beatty, Greer & Johnson,
, for chattel mortgagee. Thomas J. Curtin,
, is the referee in bankruptcy.
Moody, individually and trading as Edward S. Moody & Son, was
adjudicated a bankrupt by this court on
February 23, 1954
. The Referee permitted the trustee to sell the bankrupt's personal
property, the various lien claimants being relegated to the fund
realized from the sale.
At the time of
the adjudication, Moody had creditors who had claims against his
personal property as follows:
1. J. G.
Braun, who was the holder of a valid bailment lease on which a balance
of $295.13 was due.
States Government, which filed a claim for taxes totalling $5,077.44.
Notice of its tax liens had been filed in the office of the Prothonotary
of Delaware County, Pennsylvania, by the
June 5, 1952
, #2674 in sum of ..... $ 865.72
July 18, 1952
, #2707 in sum of .... 518.52
Oct. 31, 1952
, #2801 in sum of .... 696.70
3. J. Earle
Suter and Ada W. Suter, who had claims for rent for the property in
Media, Delaware County, Pennsylvania, which had been occupied by the
bankrupt. The rent covered the period from
May 1, 1952
February 1, 1954
, and totalled $700. A distraint was issued on Moody's personal property
February 1, 1954
National Bank of
, which held a chattel mortgage against Moody's personal property which
had been recorded in
September 27, 1948
The sum of
$2,078.85 is available for distribution as a result of the sale of the
personal property after the payment of
istration expenses. The Referee has entered an order of distribution
allowing J. G. Braun's claim on the bailment lease in full. No one
contests this. He has ordered that the balance of the fund available for
distribution, after payment to the bailment lessor, be paid to the
on its tax liens as to which notices had been filed with the
Prothonotary of Delaware County. The holder of the chattel mortgage and
the landlord have filed petitions for review.
The holder of
the chattel mortgage contends that its claim should be given priority
over the claim of the
for taxes, and the landlord contends that its claim for rent should be
given priority over the claim of the
Pennsylvania Chattel Mortgage Act of
June 1, 1945
, P. L. 1358, 21 P. S. Sec. 940.1 provides:
chattel mortgage executed pursuant to this act shall be a lien upon the
property therein described, which lien shall be good and valid against
and superior to all rights of subsequent purchasers . . . other lienors
and encumbrances, and all persons dealing with the mortgaged property or
subsequently acquiring an interest therein from the time of filing of
the mortgage . . ."
also provides that:
. . as to third parties [it] shall not remain a lien for a longer period
than five (5) years, unless the lien thereof is extended by filing,
prior to the expiration of the said lien, with the prothonotary an
affidavit of the mortgagee or his assignee stating the amount then
secured by the mortgage in which case the said mortgage shall remain a
lien for an additional period of five (5) years from the date of the
filing of such affidavit . . ."
mortgage against Moody's property was filed on
September 27, 1948
. At no time within five years thereafter and indeed never has anything
been done by the mortgagee to extend the lien of the mortgage beyond
September 27, 1953
. The Referee was correct in deciding that the lien of the chattel
mortgage expired on
September 27, 1953
. The First National Bank of
had no lien against the personal property at the time of the
adjudication or the sale and is not entitled to participate in the
distribution of the fund.
admits that if Moody had been the owner rather than the bailee of the
personal property in his possession the claim of the United States for
taxes would be given a preference over the landlord's claim under United
States v. Scovil, 348 U. S. 218 (1955) [55-1 USTC ¶9137] and In
Re Litt, 128 Fed. Supp. 34 (E. D. Pa. 1955) [55-1 USTC ¶9187]. But
the landlord contends that because Moody was a bailee under a bailment
lease rather than an owner the lien for taxes could not attach to his
The Act of
Congress provides (26 U. S. C. Sec. 3670) that tax liens shall attach
"upon all property and rights to property, whether real or
personal" belonging to the taxpayer. The bailee in a bailment lease
has a property interest which can be levied upon. Packard Motor Car
Co. v. Mazer, 77
348. In my opinion a bailee under a bailment lease has a property
interest which also can be subjected to a lien for federal taxes. The
Referee was correct in deciding that the liens of the
could and did attach to the interest of the bailment lessee in the
personal property and that these liens were superior to the lien created
by the landlord when he made a distraint for rent.
due on the bailment lease and the claim of the
for taxes took all the proceeds of the sale. The Referee was correct in
denying the claim of the holder of the chattel mortgage and the claim of
The order of
the Referee will be affirmed.