Interpleader
Page3
5
Beaufort expressly so concedes as to Philipp's lien and the
United States of America
impliedly agrees. A further support for the asserted tax liens of the
United States on the proceeds of the sale is found in the fact that when
the purchase price indebtedness was no longer conditional or contingent
as of December 11, 1970, such indebtedness was then "property"
of Fischer and hence covered by the tax liens under Section 6321. Glass
City Bank v. United States [45-2 USTC ¶9449], 326
U. S.
265; Home Insurance Co. v. B. D. Rider Corp., D. C. N. J. [63-1
USTC ¶9235], 212 F. Supp. 457.
6
That Philipp seeks to have the judgment on the cross-claim paid
out of Fischer's interest in the fund does not affect the fact that the
cross-claim itself is not related to the fund.
[71-1 USTC
¶9106]H. L. Merideth, Jr., Plaintiff v. United States of America,
Boston Old Colony Insurance Co., England Motor Company, Humble Oil &
Refining Company, Meadors Chevrolet Company and Greenville Gravel
Company, Defendants v. United States of America, Defendant and
Third-Party Plaintiff v. Greenville Contracting Company, Third-Party
Defendant
U.
S. District Court, No.
Dist.
Miss.
,
Greenville
Div., Civil No. GC 703-S, 327 FSupp 429, 11/27/70
[Code Secs. 6321 and 6323--Result unchanged by '69 Tax Reform Act]
Lien for taxes: Priority: Judgment creditors: State law: Property in
hands of sheriff: Attorney's fees: Allocation of proceeds of
liquidation.--Under Mississippi law, recorded judgment liens had
priority over Federal tax liens later in time. Under a composition
agreement, the judgment creditors agreed to pay first, from proceeds of
liquidation, the debt owed the SBA. Since this payment released the
cloud on the title to property in the hands of the sheriff, that
property could be used to pay another judgment creditor. Total
liquidation proceeds were insufficient to pay all the judgment
creditors, so no Federal taxes could be paid. The Court, therefore,
allowed attorney's fees and costs to the taxpayer (payable
proportionately out of the creditors' judgments) for arranging the
disbursements, there being no consequent reduction in moneys for payment
of the tax liens.
H. L.
Merideth, Jr., P. O. Drawer 99, Greenville, Miss., pro se. H. M.
Ray, United States Attorney, Oxford, Miss., for U. S.; Eugene J.
Raphael, P. O. Box 539, Greenville, Miss., for Boston Old Colony Ins.
Co.; J. A. Lake, P. O. Box 918, Greenville, Miss., for England Motor
Co.; Philip B. Terney, P. O. Drawer 99, Greenville, Miss., for Humble
Oil Refining Co.; L. Carl Hagwood, Box 895, Greenville, Miss., for
Meadors Chevrolet Co.; J. Wesley Watkins, III, Box 1295, Greenville,
Miss., for Greenville Gravel Co., defendants.
Memorandum
Opinion
SMITH,
District Judge:
This
interpleader action is before the court for final disposition on the
record herein and Stipulation of Facts executed by the parties to the
action.
Plantiff filed
this action pursuant to the provisions of 28 U. S. C. A. §1335
alleging, in substance, that the amount in controversy exceeded the
jurisdictional amount of $500.00, exclusive of interest and costs, i.
e. the sum of $30,169.80, and at least two claimants, of diverse
citizenship, claim or may claim to be entitled to the money or some part
thereof. The
United States
(referred to herein as the "Internal Revenue Service" or the
"Government") is a party defendant.
[Stipulated
Facts]
The facts are
not controverted. The Greenville Contracting Co. (hereinafter referred
to as the "debtor") borrowed from the Small Business
Administration (SBA) on
November 2, 1964
, the sum of $100,000.00. As security for the loan the debtor executed a
trust deed on all of its personal and real property. The trust deed was
duly recorded on December 15, 1964 in the land records of Washington
County, Mississippi, (Deed Book 993, pages 49 et seq.) the county in
which the debtor was domiciled and operated its business, and wherein
the property was situated.
The debtor was
not successful in the operation of its business. The principal owner or
debtor (a corporation) decided to liquidate debtor's property and apply
the proceeds of the liquidation to the payment of debtor's debts. The
debtor elected to liquidate its property through a sale at public
auction conducted by a private auctioneer.
Subsequent to
the execution of the trust deed five of the debtor's creditors obtained
judgments in the
County
Court
of
Washington
County
, aggregating the sum of $14,924.77 and the debtor became liable for
numerous federal taxes. In the appendix to this opinion there is
contained a complete history of the judgment and tax liens, and the
collection efforts made in regard thereto.
The auctioneer
employed by debtor on
September 12, 1969
, sold the property of debtor at public auction. This sale was conducted
with the sanction of SBA and the five judgment creditors. The net
proceeds of the sale amounted to $30,184.80. The auctioneer did not
accept a bid of $5,300.00 for one Lorain Truck Crane, and it remained in
the possession of debtor. The auctioneer accepted a bid for the debtor's
real estate, but being unable to deliver a merchantable title thereto,
the sale was cancelled. All other property was sold by the auctioneer.
Prior to the
auction sale, on September 11, 1969 plaintiff, the debtor, A. F.
Brownell, chief stockholder of debtor, and the five judgment creditors,
entered into a written contract, denominated as a "composition
agreement". The parties to the contract, realizing the insolvency
of debtor and the desirability of liquidating the company, agreed that
plaintiff should act as disbursing agent, to receive and disburse the
proceeds of the auction to be held the next day. The order in which the
funds were to be disbursed by plaintiff was set forth in the agreement
as follows:
(1) Payment of
the balance due SBA on debtor's loan, for which SBA held the
aforementioned deed of trust as security;
(2) Payment in
full of the judgment creditors and federal tax liens in order of their
priority according to the laws of the State of
Mississippi
;
(3) Payment in
full to all secured creditors which were not known at the time; and
(4) Payment to
all unsecured creditors of their share of the remaining proceeds, to be
ascertained from the books of the company.
Plaintiff was
not to serve in the capacity of a fiduciary, and was to act only as
disbursing agent. The agreement does not expressly provide for payment
to plaintiff of any amount for services rendered in connection with his
work.
After the
sale, upon failure to carry through on the sale of the real property,
SBA disposed of the property and applied the proceeds of sale to the
debt, reducing the amount thereof to $18,972.89 (with interest at 4% per
annum from
March 17, 1970
). The sale of the real property and the application of the proceeds are
not issues in this action.
After the
auction had been conducted, an execution was issued on two of the
judgments aforesaid. The sheriff of the county executed the writ by
levying on the crane aforesaid. The crane was sold for the sum of
$3,500.00. This money remains in the hands of the sheriff, and has not
been paid into the registry of this court. The court has no jurisdiction
over the money in the hands of the sheriff, and can consider the fund
only as it may affect the judgment to be entered in the action sub
judice.
It is at once
apparent from what the court has said that the funds turned over to
plaintiff were not sufficient to carry out the program provided in the
composition agreement. The amount paid to plaintiff in the sum of
$30,184.80 ($30,169.80 of which he has paid into court, deducting $15.00
for the filing fee herein) will not pay in full the balance due on the
SBA loan, and the claims of the judgment creditors aggregating
$14,924.65, without interest, and the tax liens amounting to $13,458.47,
exclusive of interest from the date upon which the tax lien notices were
filed of record.
The parties
were unable to agree as to the distribution of the money in plaintiff's
hands and it became necessary for plaintiff to file the bill of
interpleader in this action and summons the interested parties to appear
before the court for an adjudication of their rights.
The foremost
question with which the court is confronted in the case sub judice is
whether the judgment liens hereinbefore mentioned have priority over the
tax claims of the Internal Revenue Service. Counsel for the
judgment-creditors vigorously assert that the claims of
judgment-creditors, having become fixed before the assessment of the
taxes by the Commissioner, and the filing of the Notices of Tax Liens
with the Chancery Clerk of the County, have priority over the tax
claims. The Internal Revenue Service just as vigorously asserts the
contrary view.
All parties
have submitted excellent briefs and these have been of much assistance
to the court in considering the problems.
[
Mississippi
Law]
In determining
the force, effect and extent of a judgment lien in
Mississippi
, the court must look to
Mississippi
law.
There are five
Mississippi
statutes dealing with the subject pertinent to the issue. 1
Section 1554, provides that the clerk of the Circuit Court of the County
shall procure and keep in his office one or more books to be styled
"The Judgment Roll". The clerk is required to record on the
Judgment Roll, within twenty days after the adjournment of each term of
court, all final judgments rendered at the term in the order in which
the judgments were entered on the Minutes.
Section 1555
provides that "A judgment so enrolled shall be a lien upon and bind
all the property of the defendant within the county where so enrolled,
from the rendition thereof, and shall have priority according to the
order of such enrollment, in favor of the judgment creditor, his
representatives or assigns, against the judgment debtor, and all persons
claiming the property under him after the rendition of the judgment. . .
."
A junior
judgment creditor is given the right under Section 1556 to serve written
notice on any senior judgment creditor requiring him to execute his
judgment, in default of which the senior judgment creditor forfeits his
priority.
The judgments
involved in the case sub judice were rendered by the County Court and
not the Circuit Court of the County. Section 1610 of the code, being one
of the sections pertaining to County Courts, provides that the clerk of
the Circuit Court shall be the clerk of the County Court and that the
dockets, minutes and records of the County Court shall be kept, so far
as is practicable, in the same manner as are those of the Circuit Court.
By virtue of the provisions of the latter section the provisions of
Section 1554, supra, apply to judgments rendered by the County
Court.
After the sale
under an execution the Sheriff or other officer of the county making the
sale is required by Section 1934 of the Code to examine the County
Judgment Roll, and, if any older judgment against defendant is found,
having priority over the judgment under which the sale has been made,
the Sheriff or other officer making the sale shall apply the proceeds
thereof to the satisfaction of the older judgment, before making his
return to the court on the execution.
A careful
consideration of these statutes, without judicial interpretation,
convinces the court that
Mississippi
statutory law has the effect of fixing a lien upon all property of a
judgment debtor, from the date of the enrollment of a judgment on the
Judgment Roll of the County.
This
determination, without more, would result in a holding by the court that
the claims of the judgment creditors in this case are entitled to
priority of payment from the funds which have been interpleaded in this
action, over the tax claims of the Internal Revenue Service, since all
of the judgments were enrolled on the Judgment Roll prior to the
assessment of the taxes, the recording of the Notices of Tax Liens, and
the service of tax notices.
The two most
pertinent cases of the Mississippi Supreme Court hearing upon the issue
are Willis Hardware Company v. Clark,
Miss.
1952, 61 So. 2d 441, and Motors Securities Co. v. B. M. Stevens Co.,
Miss.
1955, 83 So. 2d 177.
In Willis
the judgment creditor obtained a judgment against the judgment debtor in
the Circuit Court of the County. After the judgment had been enrolled,
the judgment debtor sold fifteen bales of lint cotton to one Clark, who
took possession of the cotton and converted it to his own use. The
judgment creditor sued
Clark
for the value of the cotton. It was not alleged or claimed that any
execution or other process was ever issued or levied upon the cotton. As
a basis for its suit against
Clark
, the judgment creditor claimed it has a lien on the cotton by virtue of
the judgment and the enrollment thereof. The court stated "The sole
question presented is whether appellant (Willis) had such a lien on the
cotton as to entitle it to recover the value thereof." 2
The court reviewed the effect of the statute, in the light of several
prior cases treating the force and effect of judgment liens in
Mississippi. The Willis court held, in effect, that the statute
creating a judgment lien on all property of the judgment debtor within
the county where the judgment has been enrolled 3
did not create such a lien on the property of the judgment debtor within
the county as to entitle a judgment creditor to recover the value of the
lien from a third party who had converted the property to his own use.
The court recognized, however, that, even though Clark was a purchaser
for value of the cotton, if the cotton had been seized under an
execution while in Clark's possession and before its conversion by
Clark, the rights of the judgment creditor would have been superior to
those of
Clark
.
The court
concluded that the judgment lien statute provided a general and not a
specific lien on the cotton and that the judgment creditor never
obtained a specific lien on the cotton which would give rise to an
action for conversion of the cotton.
Three years
after the disposition of Willis, the Mississippi Supreme Court
decided the B. M. Stevens Co. case, supra. In the latter
case the sole question for the court's consideration was whether the
judgment lien in favor of the judgment creditor had priority over the
lien of the chattel mortgage. The facts recited in the opinion reflect
that the judgment creditor obtained a judgment against the judgment
debtor on
March 22, 1950
, and the judgment was duly enrolled on the Judgment Roll of the county.
On
December 30, 1950
, the judgment debtor became the owner of a truck which he continued to
own until it was seized on
January 18, 1954
under a writ of execution issued on the judgment. On
October 6, 1953
the judgment debtor drove the truck to
Monroe
,
Louisiana
where he obtained a loan on the truck. The lender took a mortgage on the
truck, and had it recorded in the county where the judgment debtor
resided and in which the judgment was enrolled. The mortgage was
recorded on
October 13, 1953
. As stated above, the question presented by the record was whether the
judgment lien was entitled to priority over the recorded mortgage. It is
noted that the judgment was enrolled prior to the acquisition of the
truck by the judgment debtor and prior to recordation of the mortgage,
but the execution was issued and levy made on the truck after
recordation of the mortgage. The court held:
"Under
our statute a judgment constitutes a lien upon and binds all the
property of the defendant within the county where it is enrolled from
the rendition thereof. The lien attaches to after-acquired property from
the date of its acquisition. Jenkins v. Gowen, 37
Miss.
444; Cayce v. Stovall, 50
Miss.
396.
"One
who purchases property on which there is an enrolled judgment lien holds
it subject to the right of the judgment creditor to have it seized under
a writ of execution for the satisfaction of the judgment. Jenkins v.
Gowen, supra; Minshew v. Davidson, 86 Miss. 354, 38 So. 315; Gerlach-Barklow
Co. v. Ellett, 145
Miss.
60, 111 So. 92." 4
The court
distinguishes the Willis case with this observation.
"The
appellant's attorneys cite in support of their contention the case of Willis
Hardware Co. v. Clark, 216
Miss.
84, 61 So. 2d 441. But the decision in that case is not controlling
here. The cotton subject to the judgment lien in that case was never
seized under a writ of execution. The appellant had caused no writ of
execution to be levied upon the cotton while it was still in the hands
of Clark so as to obtain a specific lien thereon, but had waited until
after Clark had disposed of the cotton and had then sought to obtain a
money judgment against
Clark
for the conversion of the cotton. In this case the judgment creditor
proceeded against the property itself and caused the property to be
seized under a writ of execution, as he had a right to do, thereby
impressing a specific lien on the property; and under the decisions
cited above the appellee's judgment lien had priority over the
appellant's chattel mortgage lien." 5
[Fifth
Circuit Decision]
The United
States Circuit Court of Appeals for the Fifth Circuit had the occasion
to discuss this Mississippi problem in Brookhaven Bank & Trust
Co. v. Gwin, 5 Cir. 1958, 253 F. 2d 17. This case involved the
priority of liens on a fund in the hands of a trustee in bankruptcy. The
bankrupt, R. P. Crenshaw, on
July 1, 1953
, executed to D. E. Gwin a chattel mortgage on a Ford Motor Truck and
Float. This instrument was filed for record in the Chancery Clerk's
office of
Lincoln County
,
Mississippi
on
June 1, 1954
. Meanwhile, on
September 8, 1953
, Fordyce Truck & Equipment Co. had recovered a judgment against
Crenshaw in the
Circuit
Court
of
Lincoln
County
which had been duly enrolled in the office of the Circuit Clerk on the
same day. No execution was issued on the judgment and no levy was made
against the truck and float. Such was the status when, on
November 2, 1955
, Crenshaw filed his petition and was adjudicated a bankrupt. On
January 5, 1956
the Fordyce Truck & Equipment Co. assigned its judgment to the
Brookhaven Bank & Trust Co. The referree ordered the property sold
subject to the determination of the priority of liens against the
proceeds of sale. The property brought $1,650.00, which was less than
the amount of the lien of either claimant. The referee held that the
lien of the mortgage was superior to that of the judgment. On petition
for review the district court affirmed the referee's order. The Circuit
Court of Appeals reversed, holding that the lien of the judgment was
superior to that of the mortgage.
The Court of
Appeals discussed Willis and the B. M. Stevens Co. cases,
and the effect of each upon the
Mississippi
judgment lien statute. In reference to Willis the court said:
".
. . Some of the language quoted in the Willis Hardware Company
case from earlier Mississippi decisions is difficult, if not impossible,
to explain consistently with the plain words of the statute that an
enrolled judgment 'shall be a lien upon and bind all the property of the
defendant within the county where so enrolled, from the rendition
thereof * * *.' Title 10, §1555,
Mississippi
Code, 1942. The actual holding of that case was, however, that Clark
having disposed of the property was not liable to the judgment creditor
for a money judgment. . . ." 6
In discussing
the B. M. Stevens Co. case, the court said:
"There
is no uncertainty or confusion about the clear and well-reasoned case of
Motors Securities Co. v. B. M. Stevens Co., supra, and in any
event, that being the later case, it is controlling upon the federal
courts. . . ." 7
In connection
with
Mississippi
's judgment lien statute, the court said:
"The
statute, Title 10, §1555, Mississippi Code of 1952, provides that the
enrolled judgment 'shall have priority according to the order of such
enrollment * * * against the judgment debtor, and all persons claiming
the property under him after the rendition of the judgment.' Literally,
under that statute, the lien follows the property and does not authorize
a money judgment against a person who has disposed of the property. As
best we can discern, that construction seems to be the effect of the Willis
Hardware Company case, supra." 8
The
Mississippi
statutes, to which reference has been hereinbefore made, recognize the
existence of judgment liens on all property of a judgment debtor
situated within the county where the judgment is enrolled, and the
priority of judgments, if there be more than one.
Section 1554
provides for the enrollment of judgments. Section 1555 declares an
enrolled judgment to be a lien upon and bind all the property of a
judgment debtor situated in the county. Sections 1556 and 1934 recognize
the priority of senior over junior judgments.
The Willis,
B. M. Stevens Co. and Brookhaven Bank & Trust Co. cases
establish the true rule to be that under the statute the lien follows
the property and does not authorize a money judgment against a person
who disposes of the property. In sum, once a judgment is obtained and
duly enrolled, the judgment becomes a lien on all property of the
judgment debtor situated within the county. The lien follows the
property and may be enforced against the property whenever it may be
found within the county, without regard to intervening rights of any
third parties.
[Priority
of Judgment Liens]
After mature
consideration of the problem, the court holds that the judgment
creditors in the case sub judice acquired judgment liens on the property
sold by the auctioneer as of the date of the entry and recordation of
the judgments, and that such judgment liens existed on the property of
debtor when it was sold by the auctioneer pursuant to the composition
agreement of the parties.
Section 6321,
Title 26, U. S. C. A. provides that when any person liable to pay any
tax neglects or refuses to pay the same, after demand, the amount of the
tax, with interest, penalties, etc. "shall be a lien in favor of
the United States upon all property and rights of property, whether real
or personal, belonging to such person." Section 6323(a), Title 26,
U. S. C. A., provides "The lien imposed by Section 6321 shall not
be valid as against abny purchaser, holder of a security interest,
mechanic's lienor, or judgment lien creditor until notice thereof
which meets the requirements of subsection (f) has been filed by the
Secretary or his delegate. (emphasis supplied)." Do the judgment
creditors in the case sub judice come within the protection of Section
6322 as judgment lien creditors? The statutory history of the
Mississippi
judgment lien statutes, and the interpretation placed thereon by the
Mississippi Supreme Court, convinces the court that they do and are
entitled to priority over the tax claims of the Internal Revenue
Service.
The court's
holding is buttressed by the decisions of the United States Supreme
Court in
United States
v.
New Britain
[54-1 USTC ¶9191], 1954, 347
U. S.
81, 98 L. ed. 520, 74 S. Ct. 367 and United States v. Vermont,
1964, 377
U. S.
351, 12 L. ed. 2d 370, 84
S. Ct.
1267. In
New Britain
the court considered conflicting municipal and federal statutory liens.
Recognizing that a competing lien must be choate in order to take
priority over a later federal tax lien, the court said:
".
. . The liens may also be perfected in the sense that there is nothing
more to be done to have a choate lien--when the identity of the lienor,
the property subject to the lien, and the amount of the lien are
established. The federal tax liens are general and, in the sense above
indicated, perfected . . ." 9
The claims of
the judgment creditors in the case sub judice meet the standard
established in
New Britain
in order to create a choate lien. The identity of the lienors and the
amount of the liens are established without doubt. The property subject
to the lien is likewise definitely established as "all the property
of the defendant within the county where so enrolled". 10
[Disbursement
of Funds]
The funds in
the registry of the court are not sufficient to pay in full the SBA and
the judgment liens. The indebtedness involved, including the tax claims,
without taking into consideration interest on the debts, is computed as
follows:
CLAIMS
FILED
(1) Small Business
Administration ............. $18,972.89
(2) Judgment Creditors ..... 14,924.65
(3) Tax claims ............. 13,458.47
Total ...................... $47,356.01
AVAILABLE FUNDS
(1) Funds in registry of
court ........................ $30,169.80
(2) Funds in hands of
sheriff of
Washington
County ....................... 3,500.00
Total ........................ $33,669.80
Deficit ...................... $13,686.21
The record is
not clear as to the manner in which the parties expect the court to deal
with the $3500.00 in the hands of the sheriff of
Washington
County
. The parties have stipulated that SBA is entitled to full payment of
its claim from the funds now in the registry of the court. When this is
accomplished SBA's mortgage lien against the crane will have been
satisfied and the property discharged from the lien. When this occurs,
the title to the property in the hands of the purchaser will not be
encumbered with the mortgage. The
Mississippi
statutory law is plain and unambiguous as to the application of the
money now in the sheriff's hands. The money was realized under an
execution issued on the judgment of England Motor Company. Boston Old
Colony Insurance Company holds a judgment which is senior to the one
held by
England
.
Boston
has not forfeited its priority under Section 1556 of the Code. The
sheriff is commanded by Section 1934 of the Code to pay the
Boston
judgment from the proceeds of the sale. Since such a disbursement of
funds will not consume the money in his hands, the balance must be
applied to the payment of either the
England
or the Humble Oil and Refining Company judgment, depending upon the
order in which the judgments were entered on the minutes of the court,
both being rendered and enrolled on the same day.
The court must
infer from the stipulation and record herein that the money in the hands
of the sheriff is to be handled according to the court's order rendered
in the case sub judice. The court can marshal the assets of debtor or
the securities of the lien holders in directing the distribution of the
fund in the registry of the court and the money in the hands of the
sheriff. Metropolitan Life Ins. Co. v. Jones,
Miss.
1934, 152 So. 267; Dilworth v. Federal Reserve Bank,
Miss.
1934, 170
Miss.
373, 154 So. 535.
[Distributor's
Expenses and Fee]
There is
presented to the court the issue of the right of plaintiff to the
allowance of expenses and compensation for his services in regard to the
distribution of the funds entrusted to him and the institution of this
action. Plaintiff came into possession of the funds which are the
subject of this action by virtue of a composition agreement executed by
the debtor and all judgment creditors. It is apparent that, at the time,
it was not anticipated that any difficulty would be encountered in
making the distribution. However, differences of opinion as to priority
of liens compelled plaintiff to resort to an interpleader to make a
proper distribution.
The Internal
Revenue Service takes the position that an award for attorney's fees and
costs in derogation of federal tax liens is not permissible under the
prevailing rule of law, citing a number of decisions by federal courts,
including the Supreme Court of the
United States
, to sustain its position. The court need not act upon this issue, since
under the holding of the court, there is not sufficient money to pay in
full the creditors who hold priority over the tax liens, without
considering attorney's fees and costs.
Plaintiff has
rendered valuable service to the judgment creditors pursuant to the
contract, and the court feels that he is entitled to his cost and a
reasonable fee. The judgment creditors have agreed that SBA shall
receive payment in full for its claim, and, as such is the case, the
cost and attorney fee must be borne by them. The court feels that the
circumstances of the case require that the court apportion the cost and
attorney fee among the several judgment creditors according to the
amount received by each of them from the funds available for
distribution.
[Allocation
of Funds]
In sum, the
court holds that the funds subject to distribution shall be made as
follows:
From the sum
of $30,169.40, in the registry of the court:
First:
There should be paid to the SBA the sum of $18,972.89, plus interest at
4% from
March 17, 1970
;
Second:
There should be paid to Boston Old Colony Insurance Co. the sum of
$579.50, plus interest at 6% from
February 14, 1969
;
Third:
There should be paid to Meadors Chevrolet Co. the sum of $646.12, plus
interest at 6% from
April 16, 1969
;
Fourth:
There should be paid to Humble Oil §Refining Co. the sum of $5,105.54,
plus interest at 6% from
April 16, 1969
;
Fifth:
The balance of said fund shall be paid to England Motor Co., as a credit
on its claim of $5,359.68, plus interest at 6% from
April 17, 1969
.
Provided,
however, that there is taxed as a cost item herein the sum of $750.00,
being a reasonable attorney fee for plaintiff, and the sum of $85.97 for
expenses incurred by plaintiff, or a total of $835.97. The said attorney
fee and costs shall be deducted on a pro rata basis from the amounts to
be paid to the judgment lien creditors, as aforesaid.
The England
Motor Company is entitled to receive from $3,500.00 held by the sheriff,
an amount sufficient to pay the balance due on its claim with interest
(excluding England's portion of the attorney fee and cost aforesaid);
and Greenville Gravel Company shall be entitled to the balance in the
hands of the sheriff.
The parties
will confer and furnish the court with an appropriate order for entry
within ten days.
1
Sections 1554, 1555, 1556, 1610 and 1934,
Mississippi
Code 1942, Ann. Rec.
2
61 So. 2d at 441.
3
Section 1551,
Miss.
Code 1942, ann. Rec.
4
83 So. 2d at 179.
5
Id.
at 179.
6
253 F. 2d at 21.
7
Id.
at 22.
8
Id.
at 22.
9
98 L. ed. at 525; 347
U. S.
at 84.
10
Section 1555,
Miss.
Code, 1942, Ann. Rec.
Appendix
Schedule
I JUDGMENT CREDITORS
Date of Date
Creditors Amount 1 Entry Enrolled
$ 570.50
2/14/69
(1) Boston Old Colony Ins. Co. (
Boston
) ..... ($9.00 costs) 2/14/69 4
$ 644.12
4/16/69
(2) Meadors Chev.
Co.
(Meadors) ............. ($12.00 costs) 4/16/69 3
$5,105.42 4/17/69
(3) Humble Oil & Ref. Co. (Humble) .......... (costs not shown) 4/17/69 5
$5,359.68 4/17/69
(4) England Motor Co. (
England
) ............. (costs not shown) 4/17/69 2
$3,244.93 5/26/69
(5) Greenville Gravel Co. (
Greenville
) ...... (costs not shown) 5/26/69 5
1 Each judgment bears interest at six percent per annum from date of
rendition until paid. Section 39,
Miss.
Code 1942, Ann. Recompiled.
2 Execution was issued on
England
's judgment on
June 9, 1970
, and the Sheriff of Washington County levied on and sold under the
execution one Lorain Truck Crane found in the possession of debtor,
Greenville Contracting Co. The sale at public auction was held
July 24, 1970
. The successful bidder was Allied Equipment Inc.,
Jackson
,
Miss.
, at the sum of $3,500.00. This amount remains in the hands of the
Sheriff.
3 Execution was issued on Meador's judgment on
May 30, 1969
, and was returned by the Sheriff without levy as nulla bona on
September 30, 1969
.
4
Boston
filed a suggestion of garnishment on its judgment on
September 9, 1969
and a writ of garnishment was served on that date on the auctioneer who
cried the private auction of the property involved. Execution was issued
on
Boston
's judgment on
July 23, 1970
, and the Sheriff made a levy thereunder on the aforementioned crane on
July 24, 1970
. On August 18, 1970 Boston moved the county court in which its judgment
and that of England were obtained to require the Sheriff of the county,
who has the $3,500.00 derived from the execution sale of the crane in
his hands, to pay over to Boston as an elder judgment-creditor an amount
sufficient to pay Boston's judgment with interest and costs, pursuant to
the provisions of Section 1934, Miss. Code 1942, Ann. Recompiled. This
motion is still pending and has not been acted upon by the court.
5 Humble and
Greenville
have not secured issuance of any process from the county court seeking
to collect or enforce their judgments.
II TAX LIENS OF UNITED STATES
The
tax claim of the Internal Revenue Service of the
United States
is reflected in the stipulation submitted by the parties to this court,
and is as follows:
Date of
Assessment
& Notice Date Notice
of & of Tax
Kind Taxable Demand for Amount Lien Filled
of Tax Period Payment Assessment Outstanding 2
WH &
FICA 2d Qtr 68 6/6/69 ........ $3,996.40(T) $3,041.39
7/9/69
147.55(I)
WH & 3d Qtr 68 6/6/69 ........ 4,026.10(T) 4,170.98
7/9/69
144.88(I)
WH &
FICA 4th Qtr 68 6/6/69 ........ 3,677.73(T) 3,938.80
7/9/69
245.20(P)
79.77(I)
Excise 3d Qtr 68 6/20/68 ....... 96.00(T) 99.68
8/14/69
3.68(I)
Total ......... 1 $11,250.85
T--Tax.
P--Penalty, pursuant to the provisions of Sections 6651 and 6656, 1954
Internal Revenue Code.
I--Interest.
1 Plus interest as provided by law.
2 Notice of the tax liens were filed in the Office of the Chancery
Court, Washington County,
Mississippi
.
Date of Assessment Date Notice
& Notice of Tax
King Taxable of & Demand Amount Lien Filed
of Tax Period for Payments Outstanding 2
1 $
WH & FICA 4th Qtr 68 10/10/69 .............. 141.08
11/25/69
WH & FICA 2nd Qtr 69 3/20/70 ............... 1 2,066.54
4/13/70
1 Plus interest as provided by law.
2 Notice of tax liens were filed in the Office of Chancery Court,
Washington County,
Mississippi
.
In addition to
recording the Notice of Tax Lien in the Chancery Clerk's office of
Washington
County
, as shown by the foregoing statement of the tax claim, the Internal
Revenue Service made other efforts to collect the taxes due the
government as follows:
(1) A notice
of levy was served on the auctioneer, Gordon Dement, for $11,444.34,
including interest to
September 12, 1969
. The notice was served
September 12, 1969
.
(2) On or
about
November 17, 1969
, a notice of levy was served on plaintiff, H. L. Merideth, Jr. for
$11,542.36.
(3) On or
about
January 7, 1970
a final demand was served upon H. L. Merideth, Jr., which was not
accepted, for $11,542.36.
[60-2 USTC
¶9667]
United States of America
, Appellant v. L. C. Chapman, et al., Appellees
(CA-10),
U. S. Court of Appeals, 10th Circuit, No. 6108, 281 F2d 862, 7/29/60,
Reversing District Court, 59-1 USTC ¶9182
[1954 Code Sec. 6323]
Tax liens: Priority of claims to interpleaded funds: Construction of
state law.--Under Oklahoma law laborers and materialmen had an
equitable right to payment from funds due a contractor on a public
improvement in preference to general creditors and their claims had
preference over the Federal tax lien since under Oklahoma law the
contractor-taxpayer had no property or property rights to the funds
retained by the interpleader to which the Federal tax lien could attach
except to the extent that the retained funds exceeded the labor and
material claims. The Federal tax lien took preference over the claim of
the assignee Finance Company since it was not a purchaser within the
meaning of Section 6323 of the 1954 Code, but was a lienor whose lien
was inchoate and imperfected at the time of the filing of the Federal
tax lien.
[1954 Code Sec. 6323]
Tax liens: Allowance of attorney's fees and costs in interpleader.--Even
though the material and labor liens took preference over the Federal tax
lien the attorney fees and costs of the interpleader may not be paid out
of the funds impressed with the Federal tax lien. The inviolability of
the Federal tax lien did not inure to the benefit of the labor and
material claimants and they must bear the costs of the interpleader.
Karl
Schmeidler, Department of Justice, Washington, D. C. (Abbott M. Sellers,
Acting Assistant Attorney General, Lee A. Jackson, A. F. Prescott,
George F. Lynch, Department of Justice, Washington, D. C., Paul W.
Cress, United States Attorney, Leonard L. Ralston, Assistant United
States Attorney, Oklahoma City, Okla., with him on brief), for
appellant. Walter J. Arnote (James B. Bratton, John A. Allford, with him
on brief), for McAlester Finance Corp. Granville Tomerlin, Oklahoma
City, Okla. (T. H. Eskridge, Tulsa, John F. Butler, Joe W. Whitten,
Oklahoma City, Okla., T. L. Blakemore, Winfrey D. Houston,
Rob
ert M. Murphy, Russell E. Moss, with him on brief), for Labor and
Material Suppliers.
Before
BRATTON, LEWIS and BREITENSTEIN, Circuit Judges.
BREITENSTEIN,
Circuit Judge:
The issue is
whether the
United States
has a tax claim which takes precedence over other claims to a fund
deposited by Southwestern Bell Telephone Company in an interpleader
action. The trial court held that a retained percentage of funds due
under a construction contract, which was not payable to the
contractor-taxpayer until labor and material claims were satisfied, was
not property subject to a federal tax lien and that an assignee for
security of construction contracts was a purchaser whose rights were not
affected by the tax claims. The payment of the laborers, materialmen,
and assignee exhausted the deposited fund and left nothing for the
United States
, which has appealed.
[Facts]
The Telephone
Company contracted with R. J. Sims for certain construction work in
Oklahoma
. Upon the completion of the work Sims left unpaid bills in the amount
of $20,151.75, incurred before
August 13, 1957
, for labor and materials. To secure payment of loans, Sims, by a
general assignment made
December 19, 1955
, and a special assignment made
July 3, 1957
, assigned to McAlester Finance Corporation his contracts with the
Telephone Company. The unpaid balance was $11,697.66, plus interest and
attorney's fees. Assessments of unpaid withholding and excise taxes were
made against Sims in the period March 18--
November 19, 1957
, and notices of lien were filed August 6--
November 20, 1957
, in the total sum of $24,601.09.
The contracts
between the Telephone Company and Sims all contained the following
pertinent provisions:
"Article
VII
"*
* * The Telephone Company agrees to pay the Contractor [Sims] on the
twentieth day of each month for 90% of the amount of completed approved
work on the first day of the month and agrees to make final payment
within ten (10) days after the completion and acceptance of all work by
the Telephone Company.
*
* *
"Article X
"The
Telephone Company shall have the right to require satisfactory proofs of
payment, by the Contractor, of all labor and material furnished under
this contract, before acceptance of the work, but no action or
non-action of the Telephone Company in requiring such proofs shall
relieve the Contractor of the duty of causing any and all liens arising
out of the contract to be fully satisfied and discharged."
Upon the
completion of the work the ratained percentage amounted to $27,183.70,
and was not paid to Sims because he failed to establish payment of labor
and material furnished under the contracts. The Telephone Company
brought an interpleader action under 28
U. S.
C. §1335 and paid the retained sum into court. Named as defendants were
Sims, the holders of the claims for labor and materials, and the Finance
Company. The
United States
intervened asserting its tax claims.
The Finance
Company takes the position that the labor and material claims must first
be satisfied out of the fund and that it is then entitled to be paid.
The
United States
contends that its tax claims must be satisfied before any payment may be
made out of the fund to the laborers, the materialmen, or the Finance
Company.
[Code
Provisions]
Under §§
6321 and 6322 of the Internal Revenue Code of 1954, the
United States
has a tax lien upon "all property and rights to property" of
the taxpayer at the time of the assessment of the unpaid tax. 1
The
United States
says that the retained percentage was property of the taxpayer to which
its lien attached.
[Aquilino
Case]
In Aquilino
v. United States, 363
U. S.
509, decided
June 20, 1960
[60-2 USTC ¶9538], the unpaid balance of a general construction
contract was claimed by subcontractors who had supplied labor and
materials and who had asserted a lien under
New York
law. The United States asserted that its tax liens under §§ 3670 and
3671 of the Internal Revenue Code of 1939 2
took precedence. The New York Court of Appeals upheld the tax claim and
the United States Supreme Court reversed, holding that state law
controls in the determination of the nature of the legal interest which
the taxpayer had in the property sought to be reached by the
United States
in asserting its tax claim. Federal law determines the priority of
competing liens asserted against the taxpayer's property or rights to
property. As the
New York
court did not determine the nature of the property rights possessed by
the taxpayer under state law, the case was remanded so that such court
could "ascertain the property interests of the taxpayer under state
law and then dispose of the case according to established principles of
law."
[
Durham
Case]
United
States v. Durham Lumber Company, 363 U. S. 522 [60-2 USTC ¶9539],
decided the same day as the Aquilino case, involved competing
claims of the United States for unpaid withholding and unemployment
insurance taxes, and of certain subcontractors under a general
construction contract. The taxpayers were adjudicated bankrupt and at
the time of such adjudication there was an unpaid balance due under the
construction contract. This sum was paid to the trustee and the claims
were resolved in the bankruptcy proceedings. The Court of Appeals for
the Fourth Circuit held that under North Carolina law, except to the
extent that the claim of the general contractor exceeded the claims of
the subcontractors, the general contractor had no property right which
is subject to seizure under the tax lien 3
and, hence, the United States could recover only so much of the unpaid
balance as remained after the satisfaction of the subcontractors'
claims. The United States Supreme Court affirmed on the authority of the
Aquilino decision.
[Contrast
of Cases]
There are
important differences between these two recent cases and the one now
under consideration. In the Aquilino case the subcontractors
contended that under the New York lien law 4
the contractor-taxpayer had no property interest in the balance unpaid
by the owner under the construction contract. The Durham Lumber
Company case involved
North Carolina
statutes which expressly create a lien in favor of subcontractors, which
is preferred over that of general contractors, and create a primary
obligation on the part of the owner to assure the payment of
subcontractors. 5
In the instant
case, the labor and material claimants are aided by no such statutes. It
is conceded that Southwestern Bell Telephone Company is a public service
corporation within the intent of the Oklahoma Constitution, 6
and that public policy forbids a mechanic's lien against the property of
such a corporation when that property is essential to the performance of
public purposes. 7
Further,
Oklahoma
has no statute such as the
New York
lien law considered in the Aquilino case, which creates a trust
fund in favor of subcontractors and permits an action by a subcontractor
upon an obligation for moneys due to a general contractor, as well as
moneys received by him. Nor has
Oklahoma
a statute similar to the
North Carolina
statute, before the court in the Durham Lumber Company case,
which permits a subcontractor to bring a direct, independent action
against the owner to the extent of any amount due under a construction
contract.
More important
than these statutory differences is the difference in the construction
contracts. In Aquilino and Durham Lumber Company there was
no point raised on the obligation of the owner to pay the balance due on
the construction contract. For all that appears in those opinions the
obligation to pay was absolute. Here the obligation is dependent upon
the satisfaction of a condition precedent, namely, the proof of payment
for labor and materials. Article VII of the contract between the
Telephone Company and Sims requires the Telephone Company to pay the
retained percentage after "completion and acceptance of all work by
the Telephone Company." Article X gives the Telephone Company the
right to require satisfactory proofs of payment for all labor and
material "before acceptance of the work." Such proofs were
never furnished and the Telephone Company never accepted the work. Sims,
the contractor-taxpayer, could not compel the Telephone Company to pay
the retained percentage to him because of his failure to pay the
laborers and materialmen.
[State
v. Federal laws]
As said in Aquilino,
the federal statute creates no property right but attaches federally
defined consequences to rights created under state law. The right to
property which the
United States
asserts is covered by its lien is the right of Sims to compel payment by
the Telephone Company of the retained percentage. That right does not
exist because of the failure to pay the labor and material claims. The
Oklahoma
rule is that conduct of a party which dispenses with performance by the
adverse party is equivalent to a waiver of the right to require
performance. 8
This accords to the general rule, recognized in
Oklahoma
, that contracts must be performed according to their terms before
recovery can be had thereon. 9
As the contractor-taxpayer had no enforceable right to the money covered
by the retained percentage, there was no property or right to property
to which the tax lien of the United States attached, 10
except to the extent that the retained percentage exceeded the labor and
material claims.
The United
States attempts to avoid this weakness in its position by arguing that
as the labor and material claimants have no lien under Oklahoma law and
as they cannot sue the Telephone Company because of lack of privity of
contract 11
they have no enforceable right to the fund which can defeat the tax
claim of the United States. This is but another way of saying that the
United States
may rely on the weakness of the competing title.
This is a
federal interpleader action 12
and the fund has been paid into court. Right to recover from the fund
must be based on the strength of a claimant's title and not on the
weakness of the title of another claimant. 13
As the
United States
stands in the shoes of the contractor-taxpayer and can have no greater
rights to the fund than he has, the tax claim may be asserted only
against that portion of the fund remaining after the satisfaction of the
claims for labor and materials.
[Finance
Comapany's Position]
Unlike the
United States
, the Finance Company takes the position that the labor and material
claims are superior to its claim. At the same time it says that if those
claimants have no rights under the provisions in the Telephone Company
contracts, then the Finance Company is entitled to full payment of its
claim before the tax claim is paid. This makes it necessary to determine
the rights of labor and material claimants to recover from the deposited
fund.
Following a
long line of federal decisions, 14
Oklahoma has held that laborers and materialmen have an equitable right
to payment from funds due a contractor on a public improvement in
preference to general creditors and that when a surety pays such claims
it is subrogated to the rights of the laborers and materialmen and its
right to recover from the fund takes precedence over an assignment of
the fund by the contractor. 15
This same rule should apply to a construction contract of a public
utility for property needed in the public service. Also, if a subrogee
has such right, certainly the subrogor has it too. As
Oklahoma
has recognized this equitable right, it follows that the labor and
material claimants here have the right to secure payment from the fund
and this right is superior to that of the assignee Finance Company.
The next
question is whether the
United States
or the Finance Company may recover the $6,945.49 remaining in the
deposited fund after the satisfaction of the labor and material claims.
The tax lien created by §6321 arises at the time of the assessment of
unpaid taxes, 16
unless the competing claims are within §6323(a) which provides that the
lien imposed by §6321 shall not be valid "as against any
mortgagee, pledgee, purchaser, or judgment creditor" until notice
shall have been filed as therein provided. The Finance Company asserts
that it is a purchaser within the intent of §6323(a) and that its claim
must prevail over the tax claims as the notices were filed after the
assignments.
[State
v. Federal Law]
Here again we
have the problem of the applicability of state law or federal law. As
previously noted, Aquilino holds that, in the determination of
the existence of property or property rights subject to a federal tax
lien under §6321, state law governs, while the decision of the relative
rights of lien holders depends upon federal law. That case does not
cover the point as to which law governs in determining the existence of
the status of a mortgagee, pledgee, purchaser or judgment creditor, each
of whom under §6323 is not affected by a federal tax lien until notice
thereof has been filed.
[Finance
Company Not Purchaser]
The problem is
presented by the contention of the Finance Company that it is a
purchaser under the law of
Oklahoma
. The Supreme Court of that state has held that under its statutes 17
every chose in action, not founded upon tort, is assignable and right of
action is conferred upon the assignee. 18
A valid assignment passes the title of the assignor and, after
assignment, the assignor has no interest to be reached by his creditor
in any proceeding. 19
A possibility, coupled with an interest, is assignable. 20
The United States relies on the definition of purchaser stated in United
States v. Scovil, 348 U. S. 218, 221 [55-1 USTC ¶9137], where it is
said that a purchaser within the meaning of §3672, the predecessor of
$6323 of the 1954 Code, "usually means one who acquires title for a
valuable consideration in the manner of vendor and vendee."
The
distinction between vendor and vendee on the one hand and lienor and
lienee on the other is controlling. The transaction between the Finance
Company and the contractor-taxpayer was one in which the assignment of
the contracts was given as security for a loan. In other words, it was a
security transaction rather than a sale. This is made clear by the fact
that the contractor-taxpayer gave the Finance Company a promissory note
which was not satisfied by the assignment. 21
The general
rule is that an assignment given as security for a debt "gives the
assignee only a qualified interest in the assigned chose, commensurate
with the debt or liability secured, although the assignment is absolute
on its face." 22
The distinction between a lien and an assignment is that a lien is a
charge upon property, while an assignment creates an interest in
property. 23
While there appear to be no Oklahoma cases dealing with the legal effect
of an assignment as security for a debt, 24
it is reasonable to conclude that the general rule would prevail and
that the assignee does not receive a transfer of absolute title but,
rather, a qualified interest in the assigned chose.
Both the
United States and the Finance Company rely on Marteney v. United
States, 10 Cir., 245 F. 2d 135, 139 [57-1 USTC ¶9670], which held
that an assignee was a purchaser within the intent of §3672 of the 1939
Code. In that case there was an absolute and unqualified assignment of
an interest in a judgment in return for the cancellation of the
assignor's liability on a promissory note. This court said, at page 138,
that "a sale, in the ordinary sense of the word, is a transfer of
property for a fixed price in money or its equivalent." 25
The distinction between Marteney and the case at bar is that in Marteney
the assignment extinguished the liability on the promissory note,
whereas here the liability on the note remained and the assignment was
given merely to secure payment.
We conclude
that the assignment did not make the Finance Company a purchaser within
the meaning of §6323. Instead it is a lienor. At the time of the filing
of the notices of the federal tax lien, the lien of the Finance Company
was inchoate and had not been perfected. Not only had no action been
taken to perfect the lien but, also, the amount of the debt to be
collected from the security had not been determined. 26
[Federal
Tax Lien
Superior
]
The perfected
lien standard, which has been imposed by the Supreme Court in cases
involving liens under state law in competition with federal tax liens,
is fatal to the claim of the Finance Company. While only one such
decision involves an assignment given as security for a debt, 27
that decision, United States v. R. F. Ball Construction Co., Inc.,
355 U. S. 587 [58-1 USTC ¶9327], rehearing denied 356 U. S. 934, is
controlling here. There, as in the case at bar, the plaintiff brought an
interpleader action in which moneys due under a construction contract
were paid into court. A bonding company claimed under an assignment
given as security to assure payment of a contingent indebtedness which
did not arise until after the filing of the notice of the federal tax
lien. The trial court decided for the bonding company on the ground that
the assignment as collateral security was a perfected contractual lien 28
and the Court of Appeals affirmed. 29
The Supreme Court, in a five to four decision, reversed saying that as
the assignment involved was inchoate the provisions of §3672(a) of the
1939 Code did not apply. In two recent district court decisions the Ball
Construction Company decision has been applied in factual situations
quite similar to that here under consideration. 30
The Finance
Company attempts to distinguish the Ball Construction Company
decision from the instant case on the ground that Ball involved
an assignment to secure a contingent or future indebtedness, whereas
here the assignment was to secure a present and existing debt. This same
point was raised in First State Bank of Medford v. United States,
supra, and the court, while recognizing the distinguishing
characteristic, disposed of the matter by saying "the distinction
does not perfect an unperfected lien." 31
Basically, the
problem is whether the perfected lien principle, established in cases
involving statutory liens, applies also to contractual liens. The
acceptance of an assignment of moneys due under a contract as security
for a loan is a common, legitimate commercial transaction. The
significance of the difference between contractual and statutory liens
and the problems inherent in the imposition of the perfected lien
principle on financial arrangements of the type here involved must have
been considered by the majority in the Ball Construction Company
case as the dissent takes pains to point out these matters. We are bound
by that decision. The fact that there the assignee was asserted to be a
mortgagee under
Texas
law and here the contention is that the assignee is a purchaser under
Oklahoma
law is not important. The arrangement between the Finance Company and
the contractor-taxpayer did not involve a vendor-vendee relationship as
required by the Scovil decision to establish the assignee as a
purchaser. The tax claims of the government take precedence over the
assignment to the Finance Company and the United States is entitled to a
judgment for that portion of the fund remaining after the satisfaction
of the claims of the laborers and materialmen, unless that sum is
subject to reduction because of the award of attorney's fees and costs
to the Telephone Company as plaintiff in the interpleader action.
[Attorney
Fees]
Relying upon
the Ball Construction Company decision and upon United States
v. Liverpool & London & Globe Insurance Co., Ltd., 348 U. S.
215 [55-1 USTC ¶9136], counsel for the United States contend that the
award by the trial court of costs and attorney's fees to the
interpleader Telephone Company 32
was improper to the extent that the deposited fund was impressed with a
federal tax lien. The Liverpool & London Ins. Co. case
involved garnishment proceedings but the Ball Construction Company
case was an interpleader action and the court said that the right to
costs of the interpleader was controlled by the Liverpool &
London Ins. Co. case. The propriety of the allowance of costs,
including a reasonable attorney's fee, to a plaintiff in an interpleader
action is well recognized, 33
but here this judicial prerogative collides with the supremacy of the
federal tax lien. Under the Ball and the London &
Liverpool cases, and under the decisions of the lower federal courts
announced since those decisions, the innocent stakeholder, even though
he asserts no rights to the fund in dispute, may not recover his costs
and attorney's fees when to do so would invade the paramount federal tax
lien. 34
There appears
to be no reported case involving a situation in which, as to part of the
deposited fund, there is a right superior to the tax lien. Yet that is
the situation in the instant case and it presents the question as to the
right of the interpleader to recover from that portion of the fund not
awarded to the
United States
. The inviolability of a federal tax lien does not inure to the benefit
of the labor and material claimants here. While it may seem inequitable
to charge one group of claimants to a deposited fund with the expense of
the innocent stakeholder and not similarly charge another claimant, such
is the position taken by the government. It is supported by decisions
which we are bound to obey.
[Conclusions]
The judgment
is reversed with directions: (1) to award to the labor and material
claimants the full amount of their claims, less the pro rata share of
each in any award to the interpleader; (2) to award to the United States
the amount of the deposited fund that remains after the deduction of the
amounts due under the labor and material claims; (3) to determine the
amount due the interpleader, if any, by way of costs and attorney's
fees, and to provide the payment of that amount out of the share due the
labor and material claimants; and (4) to take such further action as is
consistent with the views herein expressed.
1
Section 6321 provides: "If any person liable to pay any tax
neglects or refuses to pay the same after demand, the amount (including
any interest, additional amount, addition to tax, or assessable penalty,
together with any costs that may accrue in addition thereto) shall be a
lien in favor of the United States upon all property and rights to
property, whether real or personal, belonging to such person."
Section 6322 provides that the lien arises at the time the assessment is
made.
2
These sections are identical in all important respects to §§ 6321 and
6322 of the 1954 Code.
3
United States v. Durham Lumber Company, 4 Cir., 257 F. 2d 570,
574 [58-2 USTC ¶9736].
4
McKinney
's N. Y. Laws, Lien Law (1958 Supp.), §36-a. See Aquilino v.
United States
, supra, note 2.
5
General Statutes of
North Carolina
, §§ 44-6 to 44-12. See United States v. Durham Lumber Company,
257 F. 2d 572-573 [58-2 USTC ¶9736].
6
Constitution of
Oklahoma
. Art. 9, §34.
7
Pittsburg Equitable Meter Co. v.
Cary
, 10 Cir., 67 F. 2d 65, and
Oklahoma
decisions therein cited.
8
Quinette v. Mitschrich, 109 Okl. 281, 235 P. 530, 531; Vogel
v. Fisher, 203 Okl. 657, 225 P. 2d 346, 347; and Owens v.
Automotive Engineers, 208 Okl. 251, 255 P. 2d 240, 247.
9
Camp v. Black Gold Petroleum Co., 195 Okl. 30, 154 P. 2d 769,
771; Messick v. Johnson, 167 Okl. 463, 30 P. 2d 176, 178. See
also Miller v. Young, 197 Okl. 503, 172 P. 2d 994, 995, and Rollins
v. Rayhill, 200 Okl. 192, 191 P. 2d 934, 937.
10
General Insurance Company of
America
v. Ted Price Construction Company, Ida. 1959, 175 F. Supp. 261, 263
[59-2 USTC ¶9568]; Wolverine Insurance Company v. Phillips, N.
D. Ia. 1958, 165 F. Supp. 335, 353 et seq. [58-2 USTC ¶9765]; and, Central
Surety and Insurance Corporation v. Martin Infante Co., N. J. 1958,
164 F. Supp. 923, 927 [58-2 USTC ¶9942], affirmed, 3 Cir., 272 F. 2d
231 [59-2 USTC ¶9736]. The opinion in Scott v. Zion Evangelical
Lutheran Church, 75 S. D. 559, 70 N. W. 2d 326 [55-2 USTC ¶9669],
refers to many federal and state decisions bearing on this point. Cf.
United States Fidelity & Guaranty Co. v. United States, 10 Cir.,
201 F. 2d 118, 121-122 [53-1 USTC ¶9249]. If United States v. Kings
County Iron Works, 2 Cir., 224 F. 2d 232 [55-2 USTC ¶9536], be
considered contra, the authoritative value of that case is weakened if
not destroyed by the later decision of that circuit in Fidelity and
Deposit Company of Maryland v. New York City Housing Authority, 2
Cir., 241 F. 2d 142 [57-1 USTC ¶9410].
11
Alberti v.
Moore
, 20 Okl. 78, 93 P. 543; Union Bond & Investment Co. v.
Bernstein, 40 Okl. 527, 139 P. 974; Newman v. Kirk, 164 Okl.
147, 23 P. 2d 163; and, Conservation Oil Co. v. Graper, 173 Okl.
127, 46 P. 2d 441.
12
See 28 U. S. C. §1335 and Rule 22, F. R. Civ. P.
13
This is the general rule followed in state courts. See Curran v.
Williams, 352 Mich. 278, 89 N. W. 2d 602, 604; Slavin v. Slavin,
368 Pa. 559, 84 A. 2d 313, 317; Prudential Ins. Co. of America v.
Cahill, 321 Ill. App. 45, 52 N. E. 2d 481, 484; Denton Gin Co. v.
Gathings, (Mo. App.) 216 S. W. 2d 959, 965; 48 C. J. S. Interpleader
§41, p. 92; 30 Am. Jur., Interpleader, §27, p. 503. Cf. Shapleigh
v. Mier, 299
U. S.
468, 475.
14
These are collected in Martin v. National Surety Co., 8 Cir., 85
F. 2d 135, affirmed 300
U. S.
588.
15
Fidelity Nat. Bank of
Oklahoma City
v. United States Casualty Co., 191 Okl. 496, 131 P. 2d 75, 77, 78.
16
28 U. S. C. §6322.
17
60 Okl. St. Ann. §§ 312 and 313 (1951).
18
Minnetonka
Oil Co. v.
Cleveland
Vitrified Brick Co., 27 Okl. 180, 111 P. 326, 328.
19
Market Nat. Bank of
Cincinnati
,
Ohio
v. Raspberry, 34 Okl. 243, 124 P. 758, 759. Cf. Oklahoma Oxygen
Company v. Citizens State Bank and Trust Company of Kilgore, Texas,
(Okla.) 274 P. 2d 372, 373.
20
Harris v. Tipton, 185 Okl. 146, 90 P. 2d 932, 934.
21
The trial court gave the Finance Company a judgment against the
contractor-taxpayer for the balance due on the note which had not been
satisfied by the award to the Finance Company out of the deposited fund.
22
6 C. J. S. Assignments §93, p. 1150, quoted in Peterman Lumber
Company v. Adams, W. D. Ark. 1955, 128 F. Supp. 6, 13.
23
Springer v. J. R. Clark Co., 8 Cir., 138 F. 2d 722, 726; 6 C. J.
S. Assignments §2(7), p. 1049.
24
City Nat. Bank of
Lawton
v. Lewis, 73 Okl. 329, 176 P. 237, 240, distinguishes between an
assignment and a pledge and holds that "an essential feature of an
assignment is the transfer of title."
25
Quoting
Iowa
v. McFarland, 110
U. S.
471, 478.
26
The promissory note was for $14,774.47 and was due on
July 15, 1957
. At the time of the hearing in the lower court the amount unpaid was
$11,697.66, plus interest and attorney's fees. There is no showing as to
when the payments were made which reduced the face amount. Likewise
there is no showing that the Finance Company received any of the monthly
payments due under the construction contract.
27
United States v. Security Trust & Savings Bank, Executor, 340
U. S. 47 [50-2 USTC ¶9492], and United States v. Acri, 348 U. S.
211 [55-1 USTC ¶9138], were each concerned with an inchoate attachment
lien. United States v. Scovil, 348
U. S.
218 [55-1 USTC ¶9137], involved a landlord's distress lien. In United
States v. Gilbert Associates, Inc., 345
U. S.
361 [53-1 USTC ¶9291], the question was whether the
admin
istrative assessment of ad valorem taxes gave a town the status of a
judgment creditor. United States v. Colotta, 350 U. S. 808 [55-2
USTC ¶9680]; United States v. White Bear Brewing Co., Inc., 350
U. S. 1010 [56-1 USTC ¶9440], rehearing denied 351 U. S. 958; United
States v. Vorreiter, 355 U. S. 15 [57-2 USTC ¶9956]; and United
States v. Hulley, 358 U. S. 66 [58-2 USTC ¶9926], all involved
mechanics liens.
28
R. F. Ball Construction Co. v. Jacobs, W. D. Tex. 1956, 140 F.
Supp. 60 [56-1 USTC ¶9514].
29
United States v. R. F. Ball Construction Co., 5 Cir., 239 F. 2d
384 [57-1 USTC ¶9269].
30
First
State
Bank of
Medford
v.
United States
,
Minn.
1958, 166 F. Supp. 204 [58-2 USTC ¶9758], and Arthur Company v.
Chicago Paints, Inc.,
Minn.
1959, 175 F. Supp. 50 [59-2 USTC ¶9689]. See also Three Mountaineers
v. Ramsey, W. D. N. C. 1956, 143 F. Supp. 888 [57-1 USTC ¶9226],
and Massachusetts Bonding & Insurance Company v. Antonelli
Construction Co.,
Mass.
1959, 173 F. Supp. 391.
31
166 F. Supp. 209. A like contention was presented in Arthur Company
v. Chicago Paints, Inc., supra, and determined adversely to the
assignor.
32
The judgment in favor of the interpleader was for attorney's fee in the
amount of $800.51 and costs of $15.00.
33
Mutual Life Ins. Co. of New York v. Bondurant, 6 Cir., 27 F. 2d
464, 465, certiorari denied 278 U. S. 630; Treinies v. Sunshine
Mining Co., 9 Cir., 99 F. 2d 651, 655, affirmed 308 U. S. 66,
rehearing denied 309 U. S. 693; New York Life Ins. Co. v. Miller,
8 Cir., 139 F. 2d 657, 658; Globe Indemnity Co. v. Puget Sound Co.,
2 Cir., 154 F. 2d 249, 250.
34
Commercial Standard Insurance Co. v.
Campbell
, 5 Cir., 254 F. 2d 432, 433 [58-1 USTC ¶9477]; Narragansett Bay
Gardens, Inc. v. Grant Construction Co., 176 F. Supp. 451, 454-456
[59-2 USTC ¶9557]; and Ford Motor Co. v. Hackart Construction Co.,
143 F. Supp. 216, 218-219 [56-2 USTC ¶9831.].
[61-1 USTC
¶9337]
Rob
ert L. Shuman, Plaintiff v. John A. Field, Jr., State Tax Commissioner,
and P. L. Charles, District Director of Internal Revenue, Defendants
W.
Va. Circuit Court, Monongalia Cty., In Chancery, No. 9345, 1/12/61
[1954 Code Sec. 6323]
Lien for taxes: Intervenors: Determination of priority: Federal tax
lien v. State lien for unpaid employment security contributions:
Interpleader's attorney fees.--The State of West Virginia's claim
for unpaid employment security contributions, which was reduced to
judgment on February 17, 1957, was superior to the U. S. Government's
tax lien which was filed April 4, 1957. However, the Government's lien
was superior to the State's claim for unpaid employment security
contributions which were reduced to judgment on
August 6, 1957
. Attorney fees of interpleading plaintiff were allowed against the
respective shares of the Government and the State of
West Virginia
in proportion to their participation in the deposited amount.
Stanley R.
Cox, Jr.,
Morgantown
, W.
Va.
, for plaintiff. Albert M. Morgan,
United States
Attorney,
Fairmont
, W.
Va.
, for
United States
. Herman E. Rubin, Charleston, W. Va., for State of West Virginia,
Department of Employment Security, F. Duane Hill, Director.
Final
Decree
EDDY, Circuit
Judge:
This 5th day
of January, 1961, came the plaintiff
Rob
ert L. Shuman and his attorney Stanley R. Cox, Jr., and came also the
United States of America by Albert M. Morgan, United States Attorney,
and the State of West Virginia, Department of Employment Security, F.
Duane Hill, Director, by Herman E. Rubin, its General Counsel,
intervening petitioners, and this cause being now submitted.
Upon
consideration of the pleadings filed and proceedings had herein, and in
further consideration of the representations of counsel, and it
appearing to the Court that plaintiff deposited with the Clerk of this
Court on July 22, 1959, the sum of $3,221.12, the same being the excess
proceeds of sale in his hands as Trustee from his sale of certain real
estate under deeds of trust executed or assumed by Vamco, Inc., a
corporation; and it further appearing that the United States of America
and the State of West Virginia, Department of Employment Security, are
prior lien creditors of Vamco, Inc., that each intervenor has certain
valid liens and claims against said deposited sum, and that said
deposited sum should be disbursed, until exhausted, to said lien
creditors in proper order of priority, subject to the payment of costs
and attorney fees, as prayed for in plaintiff's said bill. And the Court
being advised in the premises and having considered of its judgment, and
there being no objection thereto, it is
ADJUDGED,
ORDERED AND DECREED that the following are the proven liens and prior
claims against said deposited sum of $3,221.12, which will exhaust said
sum, and the order of their priority:
First:
Claim of State of
West Virginia
, Department of Employment Security, for unpaid contributions, in the
amount of $634.00, reduced to judgment
February 17, 1957
, with interest at rate of one percent per month as in said judgment
provided, to
July 22, 1959
, date of said deposit, in amount of $291.35, totalling $925.35.
Second:
Claim of Internal Revenue Service, in the amount of $1654.58, for unpaid
withholding taxes, and return check penalty in the amount of $17.83,
lien therefor filed
April 4, 1957
, with interest to
July 22, 1959
, date of said deposit, in amount of $239.39, totalling $1911.80.
Third:
Claim of State of
West Virginia
, Department of Employment Security, in the amount of $588.78, for
unpaid contributions, reduced to judgment
August 6, 1957
, with interest at rate of one percent per month as in said judgment
provided, to
July 22, 1959
, date of said deposit, an amount of $166.32, totalling $755.10 (of
which $383.97 exhausts said deposited amount).
It is further
ADJUDGED, ORDERED AND DECREED that plaintiff's attorney, Stanley R. Cox,
Jr., be and he is hereby allowed an attorney fee in the amount of
$250.00, which amount, together with the costs of this suit, shall be
paid out of the respective shares of said lien creditors, in proportion
to their participation in said deposited amount, and accordingly it is
ADJUDGED,
ORDERED AND DECREED that the Clerk of this Court shall pay and disburse
the said deposited sum of $3,221.12 as follows:
1.
$1752.74 to the Internal Revenue Service to be applied toward
satisfaction of the above tax liens against Vamco, Inc., said sum being
the claimed amount less $159.06, or 59.35% of the costs and fees
assessed herein.
2.
$1200.38 to State of
West Virginia
, Department of Employment Security, to be applied toward satisfaction
of the above State liens against Vamco, Inc., said sum being the claimed
amounts, until exhaustion of the fund, less $108.95, or 40.65% of the
costs and fees assessed herein.
3.
$250.00 to Stanley R. Cox, Jr., for attorney fees.
4.
$18.00 for costs of this suit to said Clerk.
[75-1 USTC
¶9446]Public Service Mutual Insurance Company, Plaintiff v.
United States of America
, and Donald Gruskoff, Defendants
U.
S. District Court, East. Dist. N. Y., Civil Action No. 73 C 330, 2/6/75
[Code Secs. 6321-6323, 6331, and 6332]
Liens: Interpleader: Ownership: Levy: Attorney's fees.--Amounts
deposited with a bonding company by D in order to obtain a bail bond for
the release of R from jail were actually owned by R and were subject to
assessment and levy for R's unpaid income taxes. There being no other
attachment or execution of any other judicial process on such
interpleaded fund, the
U. S.
was entitled to recover such fund as property belonging to R. Further,
the bonding company's claim for attorney fees and costs was denied
because such an allowance would reduce the amount of the recovery of the
United States
on its lien claim against the fund which was less than the amount of the
levy and lien.
Abner B.
Rosenthal, Samuel D. Muney, 393 7th Ave., New York, N. Y., for
plaintiff. Garland C. Tanks, Department of Justice, Washington, D. C.
20530, David G. Trager, United States Attorney, George H. Weller,
Assistant United States Attorney, Brooklyn, N. Y. Samuel Stone, James J.
Cally, 150 Broadway, New York, N. Y., for defendants.
Findings
of Fact and Conclusions of Law
BRUCHHAUSEN,
District Judge:
Based upon the
evidence and testimony presented at the Trial on
December 3, 1974
, and in accordance with the opinion filed herein, the Court makes the
following findings of fact and conclusions of law:
1. The
plaintiff filed an interpleader action seeking to interplead $50,000.00
between the
United States of America
and Donald Gruskoff, both of whom claimed they were entitled to the
$50,000.00.
2. On
October 22, 1971
, Raymond Daniels was arrested on a narcotic violation and was
incarcerated.
3. Public
Service Mutual Insurance Company issued bail bond No. 90-B-18267 in the
amount of $100,000.00 for the release of Raymond Daniels from
incarceration.
4. As
collateral security for the issuance of bail bond No. 90-B-18267, Donald
Gruskoff presented $50,000.00 to Public Service Mutual Insurance
Company.
5. Donald
Gruskoff testified that he was only a casual friend of Teddy Johnson, a
gambler, and the person who asked that he, Donald Gruskoff post as
collateral security toward the $100,000.00 bail bond of Raymond Daniels,
the sum of $50,000.00. He further testified that his father, William
Gruskoff, who was a lawyer but who has since died, loaned Donald
Gruskoff the $50,000.00 for this purpose. No written evidence of the
purported loan was ever executed.
6. The Court
finds the testimony of Donald Gruskoff unbelievable and to the contrary
has determined that Donald Gruskoff was nothing more than a nominee or
agent for Raymond Daniels and that the sum of $50,000.00 deposited as
collateral for his bail bond was the property of Raymond Daniels. The
Court further finds that Donald Gruskoff's story was a tissue of
falsehood and nothing more than an attempt to avoid the claim of the
United States
for unpaid federal income taxes asserted against Public Service Mutual
Insurance Company with respect to property of the taxpayer, Raymond
Daniels, in its possession.
7. Included in
the record was documentary proof submitted by the Government which
revealed that Donald Gruskoff's father, the alleged source of the loan
to Donald Gruskoff of said $50,000.00, had an extremely limited amount
of income for the years 1943 through 1970 and that William Gruskoff,
before his death, could not have amassed any substantial sum of money,
and certainly no sum in the neighborhood of $50,000.00.
8. The
$50,000.00 interpleaded by Public Service Mutual Insurance Company, as
property belonging to Raymond Daniels, was subject to an Internal
Revenue levy served upon Public Service on
April 21, 1972
. The levy, in the amount of $718,694.10, was executed pursuant to an
assessment made against Raymond Daniels on
October 29, 1971
for unpaid federal income taxes for the period
January 1, 1971
to
October 23, 1971
, pursuant to Section 6851 of the Internal Revenue Code of 1954.
9. Since the
amount of the levy and the tax lien asserted against the fund by the
United States
exceeded the amount of the interpleaded fund the plaintiff is not
entitled to an attorney's fee or to costs for instituting said action.
Such fees and costs in derogation of the lien rights of the
United States
are prohibition by law.
Conclusions
of Law
10. The
interpleaded fund of $50,000.00 is property belonging to the taxpayer,
Raymond Daniels, and consequently is subject to the tax lien of the
United States
which arose on
October 29, 1971
, the date on which unpaid federal income taxes for the terminated year
January 1, 1971
to
October 23, 1971
, were assessed against the taxpayer. Sections 6321 and 6322 of the
Internal Revenue Code of 1954.
11. On
April 21, 1972
, when the levy was served upon Public Service Mutual Insurance Company
seizing all of the taxpayer's property, in its possession, the
interpleaded fund was not subject to any attachment or execution under
any judicial process. Therefore, the United States was entitled to
recover said fund as property belonging to Raymond Daniels, Sections
6331 and 6332 of the Internal Revenue Code of 1954; United States v.
Sterling National Bank & Trust Company of New York [74-1 USTC ¶9336],
494 F. 2d 919, 921 (C. A. 2, 1974); United States v. Manufacturers
Trust Company [52-2 USTC ¶9417], 198 F. 2d 366 (C. A. 2, 1952).
12. The claim
of Public Service Mutual Insurance Company for attorney fees and costs
must be denied in view of the fact that such an allowance would reduce
the amount of the recovery of the United States on its lien claim
against the fund, United States v. State National Bank of Connecticut
[70-1 USTC ¶9209], 421 F. 2d 519, 521 (C. A. 2, 1970); and United
States v. Wilson, 333 F. 2d 147 (USDC C D N. J., 1964).
Judgment
In accordance
with the opinion of the Court and the findings of fact and conclusions
of law in which the Court determined that the interpleaded fund of
$50,000.00 is the property of the taxpayer, Raymond Daniels and as such
is subject to a federal tax lien and levy in excess of the amount the
interpleaded fund, it is hereby
ORDERED, that
Public Service Mutual Insurance Company is directed to honor the levy of
the United States by paying over to the United States the interpleaded
fund of $50,000.00 to be applied upon the federal income tax liability
of Raymond Daniels for the period January 1, 1971 to October 23, 1971,
and upon payment thereof, Public Mutual Insurance Company shall be
discharged of any further liability, with respect to said interpleaded
fund, to the United States and to Donald Gruskoff, individually, and as
agent for any other person for whom he purported to act in this
proceeding; and it is further
ORDERED that
the claims of Public Service Mutual Insurance Company for attorneys fees
and costs and the claim of Donald Gruskoff be dismissed, each party to
bear his own costs.
[75-1 USTC
¶9232]Samuel C. Short, III v. United States of America et al.
U.
S. District Court, East.
Dist.
Tex.
,
Paris
Div., No. P-73-CA-14, 395 FSupp 1151,
1/15/75
[Code Sec. 6321]
Tax liens: Property subject to: Community property: Voidable
transfer: Interpleader: Attorney's fees.--Proceeds from a sale of
restaurant equipment were property to which a tax lien against the
seller's husband could attach. The proceeds were community
property--they were not separate property of the wife. A transfer to
their son of the payments due was void under state law. The buyer, who
brought this interpleader action, was not entitled to attorney's fees,
since the lien covered the entire amount in controversy.
T. D. Wells,
Jr., 41 First N. W. St.,
Paris
,
Tex.
, for plaintiff.
Rob
y Hadden, United States Attorney, Houston Abel, Assistant United States
Attorney, Tyler, Tex., W. M. Holman, San Angelo, Tex., pro se, for
defendants.
Memorandum
Opinion and Order
JUSTICE,
District Judge:
This civil
action, involving federal tax liens, 1
is in the nature of an interpleader. Plaintiff, Short, complains that
the controversy between the
United States
and William M. and Alma Jean Holman leaves him in the position of
stakeholder, threatened with law suits by both defendants.
[Background]
Plaintiff
entered into a contract with the Holmans on or about June 1, 1973, for
the purchase of equipment for use in an Ozark Fried Chicken outlet. Alma
Jean Holman was the major shareholder in Ozark Fried Chicken, Inc., at
the time in question. Negotiating with W. M. Holman (the husband of Alma
Jean), Short made a $4,000.00 down payment in the form of a check, dated
June 6, 1973, payable to Alma Jean Holman. This check was endorsed by
Mrs. Holman and cashed by her. The full purchase price negotiated with
the Holmans was $10,000. Short executed a note for the $6,000.00
balance, payable in twelve monthly payments of $500.00 each to W. R.
Holman, son of W. M. and Alma Jean Holman. Short testified that W. M.
Holman directed that the note be made payable to W. R. Holman, in order
to help finance W. R. Holman's college expenses. Although Alma Jean
Holman testified that the note was partly in consideration for the work
done by W. R. Holman in the family stores while he was growing up, she
admitted that the money came as a surprise to him and that it was, in
effect, a gift.
By
August 23, 1973
, the Secretary of the Treasury had made assessments, in the form of
100% penalties, against W. M. Holman, because of the failure of
corporations in which he was a responsible officer to pay taxes.
(Apparently there were insufficient corporate assets to pay for
withholding taxes, which had not been withheld.) On that date, a
delegate of the Secretary of the Treasury served a copy of a notice of
levy upon plaintiff. 2
This notice informed Short that W. M. Holman owed the United States the
sum of $57,290.12, that demand had been made for such amount, and that
all property and rights to property belonging to W. M. Holman in Short's
possession were thereby levied upon and seized. By this time, Short had
made two of the $500.00 payments, and therefore still owed $5,000.00 on
the note.
It is the
contention of defendants W. M. Holman and Alma Jean Holman that the
restaurant equipment sold to Short was Alma Jean Holman's separate
property, and that the proceeds therefrom cannot be reached to satisfy
tax liens of her husband.
[Wife's
Property Interest]
The question
of whether and to what extent each spouse has property is determined
under the applicable state law. Aquilino v. United States [60-2
USTC ¶9538], 363
U. S.
509 (1960); Morgan v. Commissioner of Internal Revenue [40-1 USTC
¶9210], 309
U. S.
78 (1940). Once it is determined under state law that the taxpayer owns
property or rights to property, federal law is controlling to determine
whether a tax lien will attach to such property. United States v.
Bess [58-2 USTC ¶9595], 357
U. S.
51 (1958); United States v. Hubbell [63-2 USTC ¶9724], 323 F. 2d
197, 200 (5th Cir. 1963).
The evidence
discloses that Alma Jean Holman went into the fried chicken business in
1963, developing a special recipe for cooking fried chicken which she
registered under the trade name "Miss Alma's Recipe". Desiring
to open franchises under the name "Ozark Fried Chicken", she
moved to
Little Rock
,
Arkansas
early in 1965. There, she incorporated her business as Ozark Fried
Chicken, Inc., the only corporate asset being $1,000.00 in a bank
account.
In December of
1965, the Holmans moved to
Paris
,
Texas
, and changed the name of Ozark Fried Chicken, Inc., to O. F. C.
Operating Co., Inc., doing business in
Texas
. The
Paris
"Ozark Fried Chicken" outlet was opened in 1965, and was
managed by Mrs. Holman. At some time after moving to
Paris
, Alma Jean formed a corporation in
Delaware
, for the corporate purpose of selling franchises using the name Ozark
Fried Chicken, Inc. She then sold several franchises in
Texas
, employing the names Ozark Fried Chicken and Miss Alma's Recipe. W. M.
Holman was designated as president and chief executive officer of Ozark
Fried Chicken, Inc.
The restaurant
equipment which Short bought had been acquired by Alma Jean Holman from
two sources. Part of the equipment was transferred from the
Paris
franchise and the rest was purchased from a franchise in
San Angelo
,
Texas
in 1970. Mrs. Holman testified that she bought this property in her
individual capacity; she does not contend that this was a corporate
transaction. There was no evidence introduced by either defendant as to
the source of the funds which were used by Mrs. Holman to acquire the
equipment that was sold to plaintiff Short. It is against this
background that the Holmans make their claim that the equipment was Mrs.
Holman's separate property.
Under
Texas
law, property acquired during marriage, other than that acquired by
gift, devise, descent, or personal injury recovery, is community
property.
Texas
Family Code §5.01. A spouse's separate property consists of that
acquired by the above-mentioned means and any property owned by the
spouse before marriage.
Id.
All property possessed during marriage is presumed to be community
property, until the contrary is satisfactorily proved.
Texas
Family Code. §5.02. See also
Duncan
v.
Duncan
, 374 S. W. 2d 800 (Tex. Civ. App.--Eastland 1964); Kitchens v.
Kitchens, 407 S. W. 2d 300 (Tex. Civ. App.--El Paso 1966). Since the
restaurant equipment was acquired during the Holman's marriage and no
evidence sufficient to overcome the presumption has been produced, it
must be deemed to be community property.
This court
need not consider whether the equipment or proceeds were Mrs. Holman's
special community property. This portion of a community estate is
generally exempt from the spouse's creditors under the Texas Family Code
§5.61(a)(2). The right of the
United States
to enforce its liens does not depend, however, upon state laws which
regulate the rights of creditors. United States v. Mitchell [71-1
USTC ¶9451], 403
U. S.
190 (1971). The
Texas
statute is subject to Mitchell even if it "defines property
rights" rather than being a "mere exemption statute." Broday
v. United States [72-1 USTC ¶9269], 455 F. 2d 1097, 1101 (5th Cir.
1972). Thus, even if the equipment and proceeds from its sale were Mrs.
Holman's special community property, they are reachable by a federal tax
lien.
[Transfer
Void]
The
controlling issue, then, is whether the transfer of the monthly payments
due under the contract with Short from the Holmans to their son removes
these funds from the reach of the federal lien. The court finds that the
payments are subject to the lien, since the transfer may be set aside
under
Texas
law as void. (See United States v. St. Mary [72-1 USTC ¶9319],
334 F. Supp. 799, 802 (E. D. Pa. 1971), wherein that court examined
Pennsylvania law to draw the same conclusion.)
Under V. T. C.
A. §24.03 Business and Commerce Code,
(a)
A transfer by a debtor is void with respect to an existing creditor of
the debtor if the transfer is not made for fair consideration, unless,
in addition to the property transferred, the debtor has at the time of
transfer enough property in this state subject to execution to pay all
of his existing debts.
Subsection (b)
of §24.03 states that "Subsection (a) of this section does not
void a transfer with respect to a subsequent creditor of or purchaser
from the debtor". But subsection (b) does not apply to the present
situation, even though the transfer took place before the notice of levy
on
August 23, 1973
. The obligation to pay the tax penalties arose before the transfer, as
evidenced by the dates of assessment. The
United States
is deemed a creditor of the taxpayer from the date when the obligation
to pay taxes accrues. Coca-Cola Co. of Tuscon v. C. I. R. [CCH
Dec. 25,380], 37 T. C. 1006 (1962), aff'd [64-2 USTC ¶9643] 334 F. 2d
875 (9th Cir. 1964); United States v. Kaplan, 267 F. 2d 114 (2d
Cir. 1959); United States v. 58th St. Plaza Theatre, Inc. [68-1
USTC ¶9407], 287 F. Supp. 475 (S. D. N. Y. 1968). The fact that the
notice of levy was issued after the transfer does not materially affect
the question of whether the transferred property is subject to the
federal lien. In
58th St.
Plaza, supra, the Government's lien arose from delinquent
corporate income taxes. The court there commented:
[t]o permit
taxpayers to manipulate assets during the pendency of Tax Court or IRS
proceedings and still shield themselves from transferee liability merely
because such transfers were made prior to final decisions, would be
manifestly unjust. The better result places the government in
essentially the same position as that of a private creditor. Successful
creditors . . . are not limited to reaching only those assets
transferred . . . after their claims have been reduced to a judgment.
287 F. Supp. at 501.
It was
virtually conceded by Alma Jean Holman, and the court finds, that the
transfer was not "for fair consideration" within the meaning
of §24.03. Se, e.g., Fitzgerald v. Brown, Smith and Marsh Bros.,
283 S. W. 576 (Tex. Civ. App.--Texarkana 1926). Actual intent to defraud
creditors is not necessary to render a voluntary conveyance void as to
the creditors. First State Bank of Mobetti v. Goodner, 168 S. W.
2d 941 (Tex. Civ. App.--Amarillo 1943). The burden is on the party
seeking to uphold the transfer to show valid consideration or the
capacity of the debtor to pay his debts. Cf. Alamo Lumber Co. v.
Guajardo, 315 S. W. 2d 672 (Tex. Civ. App.--Eastland 1958), vacated
on other grounds, 317 S. W. 2d 725 (
Tex.
1958). Here, the Holmans did not meet either burden; hence, as against
the tax liens of the
United States
, the transfer of the right to payments to W. R. Holman is void. The
United States
, then, is entitled to receive the remaining $5,000.00 due on the
$6,000.00 promissory note.
[Attorney's
Fees]
The sole
remaining issue is that of attorney's fees. However disposed this court
may be to award such fees to an innocent stakeholder forced into
litigation to prevent double vexation, the rule seems well settled that
"in United States tax cases, at least, the attorneys' fees and
costs are tied to the fund. If the Government gets the whole fund, the
fundholder takes nothing from it for attorneys' fees and costs." Bank
of American National Trust and Sav. Ass'n v. Mamakos [73-1 USTC ¶9290],
57 F. R. D. 198, 202 (N. D. Cal. 1972). See also United States v.
Liverpool & London Globe Ins. Co. [55-1 USTC ¶9136], 348 U. S.
215 (1955); United States v. R. F. Ball Const. Co. [58-1 USTC ¶9327],
355 U. S. 587 (1958); United States v. Gurley [69-2 USTC ¶9562],
415 F. 2d 144 (5th Cir. 1969); United States v. Hubbell [63-2
USTC ¶9724], 323 F. 2d 197 (5th Cir. 1963). Plaintiff's reliance on United
States v. State National Bank of Connecticut [70-1 USTC ¶9209], 421
F. 2d 519 (2d Cir. 1970) does not sufficiently distinguish this civil
action from the above-cited authorities. Since the Government's lien
here more than covers the amount in controversy, attorney's fees can not
be deducted from the judgment and must be denied.
1
See 28
U. S.
C. §2410, wherein the
United States
waives its sovereign immunity in such claims.
2
See 28
U. S.
C. §6321, pursuant to which liens in favor of the Government are
created from non-payment of taxes. See also 26
U. S.
C. §6671 which provides that penalties are to be treated in the same
manner as taxes under this title.
[60-2 USTC
¶9502]Big Farm Tire Corporation et al. v. J. L. Boland et al.
U.
S. District Court, East. Dist. Va., Richmond, Civil 2998, 6/1/60
[1954 Code Secs. 6321-6323]
Priority of liens: Attorney's fees in interpleader.--A Federal
tax lien was entitled to priority over the claim of the city of Richmond
and that of an assignee of an equity in a note. The interpleading
stakeholder was not entitled to deduct its attorney's fees from the
fund, but was given judgment against the city of
Richmond
and the assignee for its costs and a $150 attorney's fee.
J. M.
Weinberg, Central National Bank Bldg., Shanley Keeter, Assistant United
States Attorney, Richmond, Va., for plaintiffs. W. Jerry
Rob
erts, 721 E. Main Street, Jas. A. Eichner, City of Richmond, City Hall,
Morton L. Wallerstein, 1108 E. Main Street, and John W. Riely, 1003
Electric Building, Richmond, Va., for defendants.
Memorandum
by the Court
BRYAN,
District Judge:
With no
substantial issue of fact present, the Court is of opinion as follows:
1. The lien of
the
United States
is superior to everyone's save that of a "mortgagee, pledgee or
purchaser" of a "security" without notice. 26
U. S.
C. A. 6321, 6322 and 6323.
2. Obviously
not a mortgagee or purchaser, the City of
Richmond
also is not within the category of pledgee, for the pledge to the
Virginia Trust Company does not inure to the benefit of the City.
3. Treating
the assignment to the Central National Bank as an assignment to Samuel
Z. Troy, which it is in reality, Bank-Troy was not a mortgagee and, if a
pledgee, was not a pledgee of a security, and the general filing of the
Federal tax lien was in these circumstances sufficient notice to
Bank-Troy. 26 U. S. C. A. 6323(c)(1); U. S. v. Ball Construction Co.,
355
U. S.
587 (1958) [58-1 USTC ¶9327].
4. What was
pledged to Bank-Troy was not a security, but merely an equity in a note,
because pledgor Boland no longer had the note to pledge it--the note
could only be pledged by transfer of it, 1950 Va. Code 6-382, and Boland
was not then the holder so as to transfer it.
Id.
6-544; Fleshman v. Bibb, 118
Va.
582, 88 S. E. 64 (1916).
5. Bank-Troy
was not a "pledgee" because the assignment was not for a
currently passing consideration, inasmuch as section 6323(c)(1), title
26, U. S. C. A., does not contemplate a past consideration as the basis
for such a pledge.
6. The entire
sum on deposit in the registry of the court must be awarded to the
United States
on account of its tax lien.
7. Although
this action is in the nature of an interpleader suit, yet in view of U.
S. v. Liverpool & London & Globe Ins. Co., 348 U. S. 215,
217 (1955) [55-1 USTC ¶9136], no attorney's fees can be allowed the
plaintiff against the rund in the registry. Actually, this is only an
academic decision, for if the charge were made, the
United States
would be entitled to reimbursement from the other claimants. Statutory
costs plus an attorney's fee of $150.00 will be decreed in favor of the
plaintiff against the City of
Richmond
and Samuel Z. Troy, jointly and severally. Board of Education v.
Winding
Gulf
Collieries, 152 F. 2d 382, 386 (4 Cir. 1945); Pettus v.
Hendricks, 113
Va.
326, 73 S. E. 191, 193 (1912).
Within 20 days
let findings of fact and conclusions of law, and order thereon, be
presented by the attorneys for the
United States
, after first submitting them to counsel for the other parties for
consideration as to form.
[74-1 USTC
¶9401]Corwin Consultants, Inc., Petitioner v. The Interpublic Group of
Companies, Inc., United States of America, Peter M. Moffitt, W. Denning
Harvey, Samuel A. Culbertson, II, and Cowles Communications, Inc.,
Respondents
U.
S. District Court, So. Dist., 73 Civ. 1978, 375 FSupp 186, 4/16/74
[Code Sec. 6323]
Tax liens: Priority: Judgment creditor: After-acquired property:
Interpleader.--A 1970 federal tax lien took priority over the
subsequently-acquired lien of a judgment creditor, even though the
debtor did not acquire his rights in the attached property until after
the federal lien was filed. The government's 1971 and 1972 liens were
properly filed at the situs of the debt, because the debtor's actual
residence could not be verified. Moreover, fees for the attorney of the
party that was holding the fund (the interpleader) were also entitled to
priority over the claims of the judgment creditor.
Benedict
Ginsberg,
475 Fifth Ave.
,
New York
, N. Y., for petitioner. Paul, Weiss, Rifkind, Wharton & Garrison,
345 Park Ave., New York, N. Y., for The Interpublic Group of Companies,
Inc., Paul J. Curran, United States Attorney, Mel P. Barkan, Assistant
United States Attorney, New York, N. Y., for U. S., Mass, Levy,
Friedman, Hirsch & Stern, 100 Park Ave., New York, N. Y., for S. A.
Culbertson, II, Chapman & Burke, 420 Lexington Ave., New York, N.
Y., for Cowles Communications, Inc., Goodhue & Lane, 61 Smith Lane,
Mount Kisco, N. Y., for P. M. Moffitt and W. D. Harvey, respondents.
Memorandum
LASKER,
District Judge:
This is an
action in the nature of an interpleader to determine priority among four
lienors to a fund of money accumulating under a contract between the
debtor, Marion Harper, Jr., and The Interpublic Group of Companies, Inc.
("Interpublic"). 1
Interpublic does not make any claim to the fund except for attorney's
fees. Originally brought in state court, the suit was removed to this
court by motion of the Internal Revenue Service ("IRS")
pursuant to 28 U. S. C. §§ 1441, 1442 and 1444. Three lienors, Corwin
Consultants, Inc. ("Corwin"), Cowles Communications, Inc.
("Cowles") and the IRS, move for summary judgment, each
claiming that, on the undisputed facts, it is entitled to priority in
its claim to the fund. The fourth lienor, Samuel A. Culbertson, II, does
not claim priority. Respondents Peter M. Moffitt and W. Denning Harvey
have been paid in full and have defaulted in this proceeding.
[Facts]
I. The
following facts are undisputed. On
February 1, 1968
, Harper and Interpublic entered into a covenant not to compete under
which Harper, Interpublic's founder, would receive certain monthly
payments until 1976.
On
April 15, 1970
, while Harper was a resident of
Irvington
,
New York
, in
Westchester
County
, the IRS filed with the Westchester County Clerk a notice of tax lien
for $394,692.55, which it claimed was the amount of Harper's unpaid 1968
taxes.
On January 12,
1971, the IRS filed a second notice of tax lien with the Registrar of
the City of New York for the same unpaid 1968 taxes (which, including
statutory additions, 2
then amounted to $396,923.65). Simultaneously, Interpublic was given
notice of this lien by a Notice of Levy from the IRS dated
January 12, 1971
.
On February
28, 1972, Cowles, a creditor of Harper, obtained from Supreme Court, New
York County, an order of attachment pursuant to N. Y. C. P. L. R. §6201(2).
The sheriff levied upon McCann, Erickson, Inc. ("McCann") a
wholly-owned subsidiary of Interpublic, and upon Harper's counsel,
Debevoise, Plimpton, Lyons and Gates, who as Harper's agent, had been
receiving his payments under the agreement with Interpublic. However, no
levy was made upon Interpublic itself and no property was turned over to
the sheriff by McCann or Debevoise. On
June 12, 1972
, Cowles reduced its claim to judgment for $56,820.54 plus interest, but
never delivered execution of the judgment to the sheriff. After
February 15, 1972
, Interpublic accumulated the monthly payments due Harper pending a
determination of the right of Harper's creditors to the money. Some time
in the first half of 1972, Harper disappeared, and none of the parties
have been able to locate him since then.
On October 3,
1972, at 10:32 A. M., the IRS delivered to the sheriff of New York
County a third notice of tax lien in the amount of $168,895.90
representing Harper's unpaid taxes for 1963, 1964 and 1965 (plus
statutory additions) and on the same day served Interpublic with a
Notice of Levy. Two hours later, at
12:51
P. M., Corwin delivered an execution to the sheriff, in the amount of
$52,346.00. On
May 23, 1972
, Corwin obtained a judgment against Harper in Supreme Court,
New York
County
. In accordance with the terms of the judgment, Corwin then instituted a
proceeding in state court pursuant to CPLR §5239 for a determination of
priority of lien on Harper's property. The court ordered Interpublic,
the stakeholder here, to set aside a fund of $60,000 for the
satisfaction of Corwin's judgment pending the outcome of the §5239
proceeding, and the IRS removed the proceeding to this court.
On
February 5, 1973
, Culbertson delivered his execution to the sheriff, in the amount of
$608,180.90.
[Contentions]
II. On the
fact described, Corwin contends (1) that the 1970 IRS lien which was
filed prior to the accumulation of any funds under Harper's contract
with Interpublic fails because as a matter of law a lien cannot attach
to contingent rights in property, such as Harper's rights to payment
under his contract with Interpublic; (2) that the 1971 and 1972 IRS
liens fail because they were not filed in the debtor's known county of
residence and (3) that the present action determines lien priority only
as to the $60,000 fund established by the state court for satisfaction
of Corwin's judgment against Harper.
The IRS
answers (1) that its 1970 lien is good against the sums subsequently
accumulated under the contract because it is afteracquired property to
which federal tax liens do attach; (2) that its 1971 and 1972 liens were
properly filed and effective to establish its lien priority, and (3)
that the present action should determine the disposition not only of the
$60,000 fund established by the state court, but also the funds
accmulates and yet to accumulate under the contract subsequent to
the date of the state court judgment and subsequent to the final
determination of this lawsuit.
The IRS and
Corwin argue that Cowles has no lien priority because its
February 28, 1972
levy lapsed under CPLR §6214(e). Interpublic makes no claim to the
fund, but seeks attorney's fees. Culbertson, evidently, simply sits and
hopes.
[Place
of Filing]
III. 26 U. S.
C. §§ 6321 and 6323 prescribe the procedure for the perfection of a
federal tax lien. §6321 provides:
"If any
person liable to pay any tax neglects or refuses to pay the same after
demand, the amount (including any interest, additional amount, addition
to tax, or assessable penalty, together with any costs that may accrue
in addition thereto) shall be a lien in favor of the United States upon
all property and rights to property, whether real or personal, belonging
to such person."
A
§6321 lien has priority against judgment creditors if notice has been
filed in accordance with §6323, which provides in relevant part:
"(a) The
lien imposed by section 6321 shall not be valid as against any . . .
judgment lien creditor until notice thereof which meets the requirements
of subsection (f) has been filed by the Secretary or his delegate.
*
* *
(f) (1) The
notice referred to in subsection (a) shall be filed--
(A)
(ii) In the case of personal property, whether tangible or intangible,
in one office within the State (or the county, or other governmental
subdivision), as designated by the laws of such State, in which the
property subject to the lien is situated
*
* *
(2)
For the purpose of paragraph (1), property shall be deemed to be
situated--
*
* *
(B)
In the case of personal property, whether tangible or intangible, at the
residence of the taxpayer at the time the notice of lien is filed."
It
is undisputed that the IRS notice of lien filed in
Westchester
in 1970 meets the requirements of the quoted provisions, since Harper
was at the time a resident of that county. Consequently, we find the IRS
1970 lien (covering 1968 taxes) has first priority. The parties lock
horns, however, on the validity of the 1971 and 1972 IRS liens (the 1971
lien for the same 1968 taxes and the 1972 lien for 1963, 1964 and 1965
taxes). The IRS argues that its filing of the 1971 and 1972 liens at the
situs of the debt meets the requirements of §6323, while Corwin
counters that because Harper's actual residence cannot be verified, the
filing does not meet the requirements of §6323(f)(1)(A)(2) and
(f)(2)(B). Corwin argues, in essence, that the IRS can never
perfect a tax lien unless it files in the taxpayer's demonstrable county
of residence.
There appears
to be no authority on the question whether the "substantial
compliance" or "due diligence" standard contended for by
the IRS satisfies the notice requirements of §6321-3. We believe that
it does, and for the reasons indicated below, find that where (as here)
a taxpayer's actual residence cannot be determined, filing in the county
of the situs of the debt is sufficient to establish priority of a
federal tax lien.
Our starting
point is Mullane v. Central Hanover Trust Co., 339
U. S.
306 (1950). There the Court considered what form of notice to
beneficiaries of a common trust fund was sufficient to bind
non-residents whose addresses were unknown to the trustee, who sought to
settle the accounts of the trust. Mullane, like the present case,
involved substantial property rights of the persons sought to be
notified. The court recognized, however, that there was also a
substantial interest of the state in having the means to close trusts
with a measure of finality (339 U. S. at 313), and noted that "[a]
construction of the Due Process Clause which would place impossible or
impractical obstacles in the way [of the state interest] could not be
justified" (339 U. S. at 313-314). The court's holding (at 314)
that the notice required is "notice reasonably calculated, under
all the circumstances, to apprise interested parties of the
pendency of the action . . ." (emphasis added) guides us here, for
the due process clause does not require the impossible:
"The
reasonableness and hence the constitutional validity of any chosen
method may be defended on the ground that it is in itself reasonably
certain to inform those affected, [citations omitted] or, where
conditions do not reasonably permit such notice, that the form chosen is
not substantially less likely to bring home notice than other of the
feasible and customary substitutes. (339
U. S.
at 315.)
Measured by
the standard articulated in Mullane, we find that the 1971 and
1972 IRS filings are constitutionally adequate. The substantiality of
the federal government's interests in collecting taxes and in having
recourse to a non-paying taxpayer's property are patent. To deprive the
government of the right to proceed against the taxpayer's property in
any case where his residence is unknown (or he makes himself scarce)
would allow tax evasion by the mere disappearance of the taxpayer. The
due process clause does not require such a result, particularly where
(as here) it is reasonable to assume the taxpayer knows he is delinquent
in his payments and that some consequences are bound to follow
from his delinquency.
Moreover, to
invalidate the 1971 and 1972 liens (which, as noted above, were filed at
the situs of the debt), while giving priority to the competing Corwin
lien, would do violence to the clear policy of §6323 that tax liens are
favored over judgment liens. This policy is clear not only from the
language of §6323 itself, but from the facts that the priority of tax
liens arises without requiring the IRS to seek a judgment, that the
liens continue even where there is no certain property to which it can
attach, 3
and, in the case of personal property, need be filed in only one place
(the taxpayer's residence), rather than every place where such property
is located.
In view of the
evident policy of §6323 favoring federal tax liens, it strains common
sense to hold that the requirement of filing at the place of the
taxpayer's residence was intended to make the government's perfection of
a lien impossible in any case involving a taxpayer without a verifiable
residence. A more reasonable construction of the statute is that
personal property is "deemed" to be at the taxpayer's
residence in order to facilitate perfection of a lien on personal
property which might be scattered across the country in various banks or
brokerage accounts. This construction finds support in the language of
§6321 that a properly filed tax lien shall attach to "all
property and rights to property, whether real or personal, belonging to
such person." (emphasis added.) Requiring separate filings at the
situs of each interest in personal property would, of course,
heavily burden the IRS in its efforts to effect such all-embracing
liens. Hence the residency provision.
Moreover,
although §6323 does not contemplate a taxpayer without a residence, it
explicitly provides that the filing be made in accordance with
requirements of the applicable state law, §6323(f)(1)(A).
New York
law is applicable here, since
New York
is Harper's last known residence, as well as the situs of the debt and
no party contends the law of any other state is applicable. New York
Lien Law, §240(2) provides in part:
"Notices
of liens upon personal property for taxes payable to the United States .
. . shall be filed in the county within the city of New York or in the
town or city where the owner, if a resident of the state, resides at the
time the lien arises, and if not a resident, in the county within the
city of New York or in the town or city where the property is at such
time." (emphasis added.)
Clearly,
New York
law, which provides for the contingency involved here, favors our
holding here.
Moreover, to
find the 1971 and 1972 IRS liens invalid on the ground that filing was
not made in Harper's county of residence would in effect impose upon the
government a stricter standard of notice than a New York judgment
creditor seeking to establish priority. N. Y. C. P. L. R. §5227,
providing for a special proceeding by a judgment creditor against one
indebted to a judgment debtor states: "Notice of the proceeding
shall . . . be served upon the judgment debtor in the same manner as a
summons or by registered or certified mail . . ." It was pursuant
to §5227 that Corwin obtained an order requiring Interpublic to set
aside a $60,000. fund for satisfaction of its judgment. Although §5227
(life 26
U. S.
C. §6323) does not provide for waiver of notice in cases where the
debtor's residence is unknown, Corwin itself was permitted to waive
notice to Harper in the state court action, see Corwin Consultants,
Inc. v. The Interpublic Group of Companies, Index No. 15276/70 (Sup.
Ct.
N. Y.
Co.
1972) (N. Y. L. J. May 23, 1972). See also Dobkin v. Chapman, 21
N. Y. 2d 490, 503, 289 N. Y. S. 2d 161, 172 (1968) ("Undeniably,
there are situations in which insistence on actual notice, or even on
the high probability of actual notice, would be both unfair to
plaintiffs and harmful to the public interest.")
In the light
of the evident intention of the federal statute, and the
New York
State
lien law, we conclude that the 1970, 1971 and 1972 IRS liens were all
effective to establish first priority to the fund accumulating under
Harper's contract.
[After-Acquired
Property]
V. The
question remains whether the IRS liens attach to Harper's payments from
Interpublic falling due (1) subsequent to the time the liens were filed
and (2) subsequent to both the state court judgment and the
determination of priorities here. We find that they do. Harper's right
to payment under his contract with Interpublic is, by the terms of the
contract, contingent upon his performance of the contract. It is settled
that although tax liens do not attach to contingent rights such
as Harper's, pre-existing liens do attach as soon as the taxpayer
gains a fixed right to property, i. e., in this case, as each monthly
payment to Harper becomes due and owing. In Glass City Bank v. United
States [45-2 USTC ¶9449], 326
U. S.
265, 267 (1945), the IRS obtained a judgment against the taxpayer, who
subsequently performed certain services as the receiver of a bankrupt
corporation. The court found that the IRS lien attached to the
corporation's debt to the taxpayer, and that 26
U. S.
§§ 3670 and 3671 (now §§ 6321, 6322) "read together indicate
that a continuing lien covers property or rights to property in the
delinquent's hands at any time prior to expiration [of the lien]." United
States v. Blackett [55-1 USTC ¶9278], 220 F. 2d 21, 23 (9th Cir.
1951) involved a judgment debtor's liquor license, sold in a judgment
sale, to which the IRS made claim based on a prior tax lien. The court
rejected the judgment creditor's argument that the license was not
property to which a federal tax lien could attach because the sale was
contingent on state approval of the purchaser, and held that the IRS
lien attached to the proceeds of the sale at the moment the debtor's
right to payment came into existence. Home Insurance Co. v. B. B.
Rider Corp. [63-1 USTC ¶9235], 212 F. Supp. 457 (D. C. N. J. 1963)
reached a similar result with respect to a fire insurance policy, in
holding that a right to payment, to which a lien could attach, came into
being when a fire occurred. These cases guide us here. The IRS lien
attached to each monthly payments as it became due under Harper's
contract with Interpublic. Moreover, the IRS liens can continue to
attach to payments falling due after judgment, until they are satisfied
or payments cease under the contract. Beeghly v. Wilson [57-2
USTC ¶9808], 152 F. Supp. 726, 737 (N. D. Iowa 1957). Consequently, we
find that the 1972 IRS lien may absorb any funds accumulating after the
1970 and 1971 liens (covering the same 1968 taxes) are satisfied.
[Interpleader]
VI. Having
determined that the IRS has first priority to the accumulating fund
until its liens are satisfied, we turn to Interpublic's request for
attorney's fees of $8,187.30 for work done in connection with this
action. Although fees for the stakeholder's counsel do not have priority
over a federal tax lien, United States v. R. F. Ball Construction
Co., Inc. [58-1 USTC ¶9327], 355 U. S. 587 (1958), United States
v. Liverpool & London & Globe Ins. Co., Ltd. [55-1 USTC ¶9136],
348 U. S. 215 (1955), they have priority over the claims of judgment
creditors provided they satisfy the two standards governing an award of
attorney's fees to the stakeholder under Rule 22(1), Federal Rules of
Civil Procedure. Pennsylvania Ins. Co. v. Long Island Marine Supply
Corp. [64-2 USTC ¶9505], 229 F. Supp. 186, 188 (S. D. N. Y. 1964); United
States v. Henry's Bay View Inn, Inc. [61-1 USTC ¶9157], 191 F.
Supp. 632, 634 (S. D. N. Y. 1960). First, the stakeholder must concede
his liability, as Interpublic does; and second, the award sought must
bear a reasonable relation to the amount of the admitted liability. We
find Interpublic's attorney's fees, which are less than 5% of the
liability ($175,000 as of
November 15, 1973
) are reasonable. See
Aetna
Insurance v. Dickler, 100 F. Supp. 875 (S. D. N. Y. 1951); A/S
Kredit Bank v. The Chase Manhattan Bank, 303 F. 2d 648 (2d Cir.
1962); Savannah Bank & Trust Co. v. Block, 175 F. Supp. 798,
801-802 (S. D. Ga. 1959), 3A Moore's Federal Practice, ¶22.16[2]
(1970 ed.) pp. 3144-3156. Accordingly, Interpublic takes its attorney's
fees after the IRS liens are satisfied.
[Remaining
Priorities]
VII. We turn
next to the fray among Corwin, Cowles and Culbertson. We find that
Corwin takes after the IRS and Interpublic. Under
New York
law, a judgment creditor does not obtain a lien merely by obtaining a
judgment, or even by serving restraining notices subsequent to the
judgment. City of
New York
v. Pansirer, 23 A. D. 2d 158, 259 N. Y. S. 2d 284 (1965);
County
National Bank
v.
Inter-County
Farm
Coop. Association, 317 N. Y. S. 2d 790 (1970). A judgment lien is
created when execution is delivered to the sheriff. United States v.
Pearson [66-2 USTC ¶9726], 258 F. Supp. 686 (S. D. N. Y. 1966), C.
P. L. R. §§ 5202(a), 5234(b). Corwin delivered an execution to the
sheriff on
October 3, 1972
, approximately two hours after the IRS filed its 1972 lien; Culbertson
delivered an execution on
February 5, 1973
; and Cowles has never delivered an execution. Accordingly, Corwin,
Culbertson and Cowles, respectively, take after Interpublic.
Cowles
nevertheless takes the position that it should take after Interpublic on
the basis of an order of attachment and levy served by the sheriff upon
McCann-Erickson (Interpublic's wholly owned subsidiary) and Harper's
counsel, the law firm of Debevoise, Plimpton, Lyons and Gates, on
February 28, 1972--or some eight months before Corwin's execution. We
disagree for three reasons. First, although Cowles' order was effective
to establish priority as to any funds held by either McCann or Debevoise
for Harper's account, it is undisputed that they held no such funds so
there was nothing to which the lien could attach. Second, we find that
as a matter of law, Cowles' service on McCann and Debevoise was
inadequate to establish a lien on funds held by Interpublic. Although
one corporation can of course be the agent of another, Sugarman, Principles
of Agency, §27 (2d ed. 1948) agency is not presumed from the mere
fact that one corporation is wholly owned by another. Gillis v.
Jenkins Petroleum Process Co., 84 F. 2d 74, 79 (9th Cir. 1936); Berkey
v. Third Ave. Ry. Co., 244 N. Y. 84, 95, 155 N. E. 58, 61 (1926).
Apart from the flat statement that McCann is wholly owned by Interpublic
(which owns some 120 subsidiaries), Cowles adduces no facts in support
of its contention that McCann acted or should be deemed to have acted as
Interpublic's agent for purposes of establishing a lien on the Harper
fund.
Third, and in
our view dispositive, is the fact that even assuming Cowles' lien
priority as of February 28, 1972 as to the Harper fund, its priority
expired 90 days thereafter. C. P. L. R. §5234(b) provides that
"Where two or more executions or orders of attachment are . . .
delivered to the same enforcement officer, they shall be satisfied . . .
in the order in which they were delivered." However, C. P. L. R. §6214(e)
conditions the effectiveness of a lien so established on the action of
the creditor: "At the expiration of ninety days after a levy is
made by service of the order of attachment . . . the levy shall be void
except as to property or debts which the sheriff has taken into his
actual custody . . . or as to which a proceeding under subdivision (d)
[proceeding to compel payment of or delivery] has been commenced."
It is undisputed both that the sheriff did not take into custody any
property in the hands of Debevoise or McCann, and that Cowles did not
commence a §6214(d) proceeding to compel payment or delivery within 90
days. In fact, it "commenced" this action by filing a
counterclaim over a year after it obtained the levy and order of
attachment. Consequently, its levy is void, and it loses any lien
priority to might have had on the basis of the
February 28, 1972
levy and order.
Cowles
contends, nonetheless, that because none of the respondents have pleaded
laches, the clear language of §6214(e) should be ignored; that this
proceeding be deemed a §6214(d) proceeding in satisfaction of the
statutory requirement and that service on McCann and Debevoise be deemed
adequate to establish a lien on the Interpublic fund. We are empowered
to do this, Cowles claims, pursuant to our broad authority under C. P.
L. R. §5240 to "make an order denying, limiting, conditioning,
regulating, extending or modifying the use of any enforcement
procedure." We decline to do so. It is clear after Cook v. H. R.
H. Construction Corp., 32 A. D. 2d 806, 807, 302 N. Y. S. 2d 364,
366 (1969) that §5240 "is not an alternative procedure for
achieving lien priority." Respondents' failure to plead laches is
of no consequence, since we are, of course, not permitted to abrogate
the statute's clear requirement that a §6214 proceeding must be
commenced within 90 days.
VIII. If
Harper continues to perform his contract with Interpublic until its
termination on
January 1, 1976
, $483,400. will have accumulated since Interpublic last paid him an
installment. The IRS liens cover $441,637.73 of that sum as of November,
1973. Statutory additions in the interim will increase Harper's tax
liability to a sum uncertain at this time. Consequently, it is unlikely
that any creditors beyond the IRS and Interpublic will share in the
accumulated fund. In any event, however, we declare the priorities of
petitioner and the respondents as follows: The IRS to the extent of its
assessments, including statutory additions, Interpublic, Corwin,
Culbertson and Cowles, respectively.
The IRS'
motion for summary judgment is granted. Corwin's and Cowles' motions for
summary judgment are denied.
Submit order.
1
If Harper survives and performs his contract with Interpublic until
January 1, 1976
, $483,400, will have accumulated in his name since Interpublic last
paid him an installment on
March 15, 1972
. As of the date of this memorandum, $216,665 had accumulated.
2
Statutory additions can enlarge the scope of tax liens. In re
Parcheon, 166 F. Supp. 724, 726 (D. C. Minn. 1958); 26 U. S. C. §6321.
3
See infra section V.
[59-2 USTC
¶9623]
United States of America
v. E. J. Walsh, Administrator of the Estate of William C. Baird, Dorothy
G. Baird, Jefferson Standard Life Insurance Company and Bankers Life
Insurance Company
U.
S. District Court, Middle Dist. Tenn., Nashville Div., Civil Action No.
2570, 7/10/59
[1954 Code Sec. 6323]
Priority of liens: Cash surrender value of insurance policies:
Insurance companies' attorneys' fees v. Federal tax lien.--The
insurance company-defendants' attorneys' fees could not be paid out of
the cash surrender value of insurance policies which had been paid into
court. If it should be ultimately decided that the Government--and not
the beneficiary--is entitled to the funds, the Government's tax lien
would be superior to the insurance companies' claim for attorneys' fees.
Fred Elledge,
Jr., United States Attorney, Rondal B. Cole, Assistant United States
Attorney, United States Court House,
Nashville
3,
Tenn.
, for plaintiff. Claude Callicott,
Nashville
Trust
Building
,
Nashville
3,
Tenn.
, for defendants William C. Baid and Dorothy G. Baird. Thomas G.
Watkins, Stahlman Building, Nashville 3, Tenn., for defendants Standard
Life Insurance Co. and Bankers Life Insurance Co.
Memorandum
6/30/59
MILLER,
District Judge:
In this action
the Court has considered the question whether the defendants, Jefferson
Standard Life Insurance Company and Bankers Life Insurance Company, are
entitled to an order awarding them their reasonable attorneys' fees and
expenses to be paid out of the cash surrender values of the respective
policies of insurance.
Upon the
authority of United States v. Ball Construction Company, 355 U.
S. 587 [58-1 USTC ¶9327], and United States v. Liverpool &
London & Globe Insurance Company, 348 U. S. 215 [55-1 USTC ¶9136],
the Court is of the opinion that such attorneys' fees cannot be paid out
of the cash surrender values of the policies prior to any tax lien which
the Government may have thereon. If the Government is ultimately
determined to be entitled to the cash surrender values under the two
policies, its tax liens would take priority over and would defeat the
claim of the defendant insurance companies for attorneys' fees. The tax
lien exceeds the amount of the cash surrender value of the two policies
and would absorb the entire amount. If the cash surrender values of the
policies should ultimately be decreed to Mrs. Baird, it would not appear
that the insurance companies would be entitled to claim attorneys' fees
out of the fund as against her. She is a defendant in the action along
with the insurance companies and the named beneficiary in the policies
of insurance. The benefits of the policies cannot be diminished insofar
as the beneficiary is concerned by the allowance of attorneys' fees to
the insurance companies. She was not responsible for the bringing of the
action and no reason is perceived why the expenses of the insurance
companies' attorneys should be chargeable to her.
It appearing
that the insurance companies have paid all amounts due under the two
policies into the Registry of the Court and that the claim for the
allowance of interest upon the proceeds of the policies is not seriously
insisted upon and has in effect been abandoned, it would appear that the
insurance companies are entitled at this time to an order finally
discharging them from any further liability and directing the surrender
for cancellation of the two policies of insurance.
An appropriate
order will be drafted and submitted to the Court in compliance with this
memorandum.
Order
7/10/59
This cause
came on to be heard on this the 9th day of July, 1959, before the
Honorable William E. Miller, Judge, Holding the United States District
Court for the Middle District of Tennessee, Nashville Division, his
Memorandum Opinion filed herein June 30, 1959, and the entire record,
upon all of which the Court is of the opinion that the Jefferson
Standard Life Insurance Company and Bankers Life Company are not
entitled to have their reasonable counsel fees and the expense incurred
by said companies incident to this proceeding to be paid them from the
cash surrender values of the involved policies and that the defendants,
E. J. Walsh, Administrator of the Estate of William C. Baird, in both
policies and that Dorothy G. Baird the named beneficiary in such
contracts have abandoned all claim for interest and further that such
companies have heretofore paid into the Registry of this Court for the
benefit of those entitled thereto all sums owing by them and that such
companies are entitled to be fully and completely discharged;
It is,
therefore, ORDERED, ADJUDGED and DECREED:
First: That
the said defendant, Jefferson Standard Life Insurance Company and the
defendant, Bankers Life Company have heretofore paid into the registry
of this Court all sums due under the involved policies for the benefit
of those entitled thereto, that is to say, $15,000.00 by the Jefferson
Standard Life Insurance Company upon the policy issued by it, being
number 425,001 and $5,535.43 by the Bankers Life Company upon the policy
issued by it, being number 1105127, and said companies having thus fully
discharged all liability under said contracts, they are fully,
completely and forever discharged without cost of any and all further
responsibility thereon and the Clerk of this Court, the Honorable John
O. Anderson, is directed to return such contracts to said companies or
their counsel to be by him transmitted to such companies;
Second: That
the defendants, E. J. Walsh, Esquire, Administrator of the Estate of
William C. Baird, Deceased, and Dorothy G. Baird, the beneficiary in the
aforementioned policies, are not entitled to recover of the issuing
companies interest upon the involved policies; and
Third: That
all other matters are reserved.
[74-2 USTC
¶9748]Lake Estates, Inc., Plaintiff v.
United States of America
and Arthur C. Popham, et al., Defendants
U.
S. District Court, West. Dist. Mo., West Div., No. 74CV190-W-2, 9/18/74
[Code Sec. 6323]
Lien for taxes: Priority: Interpleaded attorney's fees.--Because
of the possibility that the amount of a Federal tax lien exceeded the
amount of the interpleaded fund, allowance of attorney's fees was
denied. The question of awarding attorney's fees was postponed until the
issues with respect to the tax liens were resolved.
Dennis L.
Davis, Hillix, Brewer & Myers, 2715 Commerce Tower, Kansas City,
Mo., for plaintiff. Lonnie J. Shalton, 1300 Commerce Bank Bldg., Kansas
City, Mo., Bert C. Hurn, United States Attorney, Mary A. Schneider,
Assistant United States Attorney, Kansas City, Mo., for defendant.
[Memorandum
and Order]
COLLINSON,
District Judge:
This is an
action of interpleader which is presently before the Court on
plaintiff's motion for judgment on the pleadings. Inasmuch as this
action was brought under 28
U. S.
C. §1335 (1970), the procedures of which are governed under the
provisions of 28
U. S.
C. §2361 (1970), we will construe this as a motion for discharge.
Defendant
United States
has objected to the motion only to the extent of any award of costs or
attorneys' fees. Defendant Popham law firm has indicated to the Court
that it does not object to the granting of the motion.
The United
States objects to the award of attorneys' fees and costs on the ground
that because the amount of the federal tax lien is greater than the
interpleaded fund, any such allowance by the Court would be in
derogation of the paramount nature of a federal tax lien if the issues
herein were decided in favor of the United States. The United States
also states that it is not liable for fees and costs in a civil action
except where such liability is expressly provided by an Act of Congress,
and that if the issues were decided in favor of the United States, the
award of fees and costs would be contrary to law. These suggestions are
well taken. Accordingly, the question of the award of attorneys' fees
and costs will be reserved pending final determination of the rights of
the defendants to the interpleaded fund.
It appearing
that plaintiff has paid the sum of $5,750.00 into the Registry of the
Court at the time of the filing of the complaint herein and that
plaintiff has properly interpleaded the defendants and that the
defendants do interplead as to their claims to this fund, it is
ORDERED that
plaintiff is fully discharged from all liability whatever on the
proceeds arising under the settlement agreement herein, and that
defendants are hereby enjoined from making any further claim against
plaintiff for recovery of the settlement proceeds or any part thereof;
and it is
ORDERED that
plaintiff's request for attorneys' fees be held in abeyance pending
final determination of the rights of the defendants in and to the funds
involved in this action.
[64-2 USTC
¶9505]The Pennsylvania Insurance Company, et al., Interpleading
Plaintiffs v. Long Island Marine Supply Corporation, et al.,
Interpleaded Defendants
United States of America
, Plaintiff in Intervention v. The Pennsylvania Insurance Company, et
al., Defendants in Intervention
U.
S. District Court, So. Dist. N. Y., 61 Civ. 1254, 5/12/64
[1954 Code Sec. 6323]
Tax lien: Priority: Fire insurance proceeds: Attorneys' fees.--The
court permitted an insurance company to withdraw from an action
involving the priority of creditors' claims, including a tax lien for
income taxes, and discharged the company from all liability after it
paid the proceeds from a fire insurance policy into the registry of the
court. However, the court refused to grant the company's request that
payment from the deposited money be made for attorney's fees. Such
payments were found to be improper until the amount and priority rank of
the federal tax lien was determined, since such lien might be superior
to the claim for attorneys' fees.
Martin Evans,
Glatzer, Glatzer & Evens, 45 John St., New York 38, N. Y., for
interpleading plaintiffs and defendants in intervention. Dawnald R.
Henderson, Assistant United States Attorney,
Rob
ert M. Morgenthau, United States Attorney, New York, N. Y., for
plaintiff in intervention United States of America. Leonard G. Kramer,
65 Park Ave.
,
Bay Shore
, N. Y., for Michael Resnik, trustee in bankruptcy.
[Nature
of Action]
WYATT,
District Judge:
This is a
motion by interpleader plaintiffs for an order permitting their
withdrawal, dismissing the action as to them, discharging them from
liability, and directing payment to their attorneys of counsel fees and
disbursements.
The action was
commenced on
April 7, 1961
by the four plaintiffs, which were styled "interpleading
plaintiffs" in the caption of the complaint as filed.
The complaint
averred that each insurance company plaintiff had issued a policy of
fire insurance to defendant Long Island Marine Supply Corporation; that
there was a fire loss under each policy on June 24, 1960; that the
insured and each plaintiff had reached an agreement as to the amount
payable under each policy and the aggregate of the amounts payable was
$36,597.51; that claims to all or a part of the amount due under each
policy had been made against each plaintiff by one or more of the
defendants, styled "interpleaded defendants"; that plaintiffs
could not safely determine which claims to pay; that plaintiffs had no
interest in the amounts due under the insurance policies but were
"mere stakeholders"; and that the $36,597.51 had been paid
into the registry of the court. It was also averred that the total of
the claims, "exclusive of those by the insured and the tentative
trustee to the entire proceeds", is $48,352.40.
Jurisdiction
was based on 28
U. S.
C. §1335 (sometimes called the Federal Interpleader Act) and "two
or more adverse claimants" named as defendants were averred to be
citizens of different states. This is sufficient to give the Court
jurisdiction even though there is not diversity between plaintiffs and
the defendants; indeed the citizenship of plaintiffs is not averred.
Fed. R. Civ. P. 22(2).
The prayer for
relief included a prayer that plaintiffs be discharged from liability
and awarded their reasonable costs, attorney's fees, etc.
Service of the
summons and the complaint was made on all named defendants.
It is
represented by movant that the "interpleaded defendants who had
held the insured premises and the insurance policies having gone into
arrangement proceedings in the Eastern District of this Court, by order
of the Court all further action in the Court herein was stayed. This
order was dated the 18th day of January, 1961.
"In
April, 1962 this stay was vacated . . .".
It is not
clear what this means, but I assume that it is intended to aver that the
assured filed a Chapter XI petition in the United States District Court
for the Eastern District of New York and that an order of that Court
stayed all proceedings in this Court from January 18, 1961 to
"April, 1962". 11
U. S.
C. §§ 701 and following, 714. In any event there has been no relevant
stay since April 1962.
[Government's
Motion]
The
United States
, named as a defendant, thereafter moved (a) to dismiss the action as
against it because it had not consented to be sued in interpleader and
(b) for leave under Fed. R. Civ. P. 24 to intervene as a plaintiff and
to serve a complaint setting forth the government's claim. This motion
was granted on default; the order granting the motion was filed on
November 5, 1962
.
The government
thereafter served its "complaint in intervention", as a result
to which the caption of the action was devised in the form as it now
appears and all the parties to the action except for the government are
styled "Defendants in Intervention" in the lower part of the
caption. Whether this is the most exact and appropriate method to plead
need not be decided. The substance of the government's claim as
intervenor is that there are tax liens under 26
U. S.
C. §§ 6321, 6322 on the money deposited by plaintiffs in the registry
of court; the government asks under 26 U. S. C. §7403 for foreclosure
of the lien on this money.
Plaintiffs
thereafter moved for leave to amend the summons and complaint and also
the government's "complaint in intervention" by adding Dexter
Axle Company, Inc. as a defendant on the asserted ground that counsel
for defendant Standard Financial Corporation had advised counsel for
plaintiffs that "the claim described in the complaint is owned by
Dexter Axle Co., Inc." although "said Dexter Axle Co. Inc. has
not formally nor in writing served any notice of claim with respect to
this chose in action". This motion was granted on consent by order
filed March 22, 1963. The amended summons and complaint are said to have
been served on all parties. What, if anything, happened to the
"complaint in intervention" does not appear.
