There is still
to be considered the conflicting claims of the Bonding Company, the
unpaid claimants, and the Government tax lien as to the amount of the
unpaid balance exceeding the required ten percent. The Bonding Company
asserts priority as to that sum over the Government tax liens by virtue
of an assignment from the Contractor. The bond application by the
Contractor to the Bonding Company executed
March 3d, 1958
, contained an assignment by the Contractor to the Bonding Company of
all amounts to become due it under the contract as security for any
liabilities incurred by the Bonding Company under the bond.
Company has made payments to those who furnished labor and materials for
the improvement, and who were not paid by the Contractor, in excess of
the amounts here involved. The assignment by the Contractor was to
secure the Bonding Company against future liability. An assignment to
secure against future liability will not prevail against a Government
tax lien. United States v. F. R. Ball Construction Co., Inc.
(1958) [58-1 USTC ¶9327], 355
587, 78 S. Ct. 442, 2 L. Ed. 510. This Court discussed that case in Randall
v. Colby (1961) [61-1 USTC ¶9178], 190 F. Supp. 319, 338 et seq.
It seems clear that the claim of the Bonding Company to the unpaid
balance of the contract price under its assignment is inferior to the
claim of the Government under its tax lien.
In the case of
Randall v. Colby, supra, this Court stated (p. 335) its view as
to the present state of the law in regard to the status of a Federal tax
lien in connection with the unpaid balance of the contract price for the
construction of an improvement as follows:
seems clear that under the Federal law once a right arises in favor of a
contractor against whom a Federal tax lien is outstanding to a portion
of the contract price, the tax lien attaches to that portion
immediately. It would also seem clear that once a Federal tax lien has
attached to such a portion it is no longer a part of the balance 'due'
the contractor but is 'due' to the Government. Under the rule of the Aquilino
cases, in order for a Federal tax lien against a contractor to attach to
the conract price there must have been a time at which the owner is not
entitled to take credit on the contract price for the claims of the
subcontractors. On the other hand, if there was a time when the owner
was not entitled to take credit for claims of subcontractors out of the
contract price and the contractor against whom a tax lien was
outstanding would have had the right, save for the tax lien, to demand
and receive payment of the balance of the contract price, then the tax
lien would attach to the balance due on the contract price."
order for the Government's tax lien to attach to the unpaid balance here
involved, there must have been a time after the lien came into existence
when the balance, or a portion thereof, was due the Contractor and could
have been paid by the Owner to the Contractor, save for the tax lien,
without incurring liability for so doing.
It is the
claim of certain of the defendants that the amount in question never has
become due because of Article 32 of "General Conditions of the
Contract for Construction of Buildings" which is incorporated by
reference in the contract between the Owner and the Contractor and
provides, in part, as follows:
the final payment nor any part of the retained percentage shall become
due until the contractor, if requested, shall deliver a complete release
of all liens arising out of this contract. * * *"
It is clear
that the Contractor, because of its bankrupt condition, cannot itself
ever deliver a complete release of all liens arising under the contract.
Therefore, if the Owner "requested" such releases it could
prima facie result in the situation that the balance of the contract
price in question never would become due. However, in the present case
the Owner paid the amount in question into Court as the balance
remaining unpaid under the contract for disposition by Court. The
payment into Court of the unpaid balance of the contract price is
inconsistent with the theory that the complete release of all liens was
a condition precedent to the Owner's liability for such balance. The
payment into Court of that balance would seem to constitute a waiver by
the Owner of the provisions of the contract referred to. The Owner
failed to make any showing as to the amount required to remedy the
claimed breach or breaches of contract on the part of the Contractor.
Upon the failure of the Owner to do so, the unpaid balance then became
due so far as the Owner was concerned. The pivotal question is whether
at the time it became due the Contractor was entitled to it, save for
the Government tax lien.
In the case of
United States v. Durham Lumber Co., supra, the Court stated (p.
526 U. S.):
Court of Appeals was correct in asserting that the Government's tax lien
attached to the taxpayers' property interests in the fund as defined by
law. * * *"
is necessary to ascertain what interests the different parties in the
present action have to the unpaid balance in question under the
law. The rights of those parties are defined by the provisions of
Chapter 573 and the decisions of the Iowa Supreme Court interpreting
In the present
case, the Owner has retained the sum of $895.43 in excess of the ten
percent required by Chapter 573. The unpaid claimants have claims on
file in excess of the ten percent. It developed during the litigation
that the Owner had no claim against such excess. The question is, when
it so developed, was that excess due the Contractor and could the Owner,
apart from the Government tax lien, pay the excess to the Contractor
without incurring liability to the unpaid claimants?
of Chapter 573 provides as follows:
filing of any claim shall not work the withholding of any funds from the
contractor except the retained percentage, as provided in this
There are two
cases which are of importance. They are the cases of Hercules Mfg.
Co. v. Burch (1944), 235 Iowa 568, 16 N. W. 2d 350, and Sinclair
Refining Co. v. Burch (1944), 235 Iowa 594, 16 N. W. 2d 359. The
former case was commented on in 30 Iowa Law Review 568 (1945). They both
involved actiosn brought under what is now Chapter 573. In the case of Hercules
Mfg. Co. v. Burch, supra, the contractor had made an assignment to a
bank of the amount which would become due him under a construction
contract with the Iowa State Highway Commission. The contractor failed
to pay a number of those who had furnished labor or materials for the
project. Those claimants filed claims with the Commission. The
contractor completed the project. The Highway Commission had retained
not only ten percent of the contract price but also retained a sum in
excess of that amount. The surety on the contractor's bond paid the
unpaid claimants and became their assignee and subrogee. The case
involved the conflicting claims of the bank, as assignee of the
contractor, and the surety company, as the assignee and subrogee of the
unpaid claimants, to the amount retained by the Highway Commission in
excess of the required ten percent. The Iowa Supreme Court stated (p.
352 N. W. 2d):
* * The lower court held that claimants for labor and material and the
surety as their assignee and subrogee had no right to any part of the
contract price except the 10 per cent retention fund and awarded the
amount in controversy to the bank. The surety has appealed. We think the
trial court was right."
holding in the case of Sinclair Refining Company v. Burch, supra,
is in accord. Under the doctrine of those cases, where an owner retains
an amount in excess of the ten percent required to be retained under
Chapter 573, the contractor, upon completion of the improvement, is
entitled to such excess even though there are unpaid claims on file for
labor and materials furnished for the improvement and if the contractor
has made an assignment which includes that excess the assignee is
entitled to such excess ahead of the unpaid claimants.
Government tax lien comes into existence against a taxpayer, it becomes
a lien on all causes of action which the taxpayer can assert against
other persons. See cases cited in Randall v. Colby (D. C. 1961)
[61-1 USTC ¶9178], 190 F. Supp. 319, 327. Such a lien operates as an
assignment of such causes of action to the Government. In the present
case, the Government's tax lien made it the assignee of any claim that
the Contractor might have for the balance of the contract price. As such
assignee, its situation is similar to that of the assignee of the
contractor in the cases of Hercules Mfg. Co. v. Burch and Sinclair
Refining Co. v. Burch, supra.
It seems clear
that under the
law the claim of the Government as a tax lien assignee of the Contractor
to the excess of $895.43 is prior and superior to the claims of the
unpaid claimants and the Bonding Company. It also seems clear that when
it developed that the Owner had no claim against that excess it then
became due to the Contractor and also thereupon became due the
Government under its tax lien.
Court holds as follows:
that the required ten percent, or the sum of $5,350.00, is due to the
that the $895.43 in excess of that ten percent is due the Government
under its tax lien.
that the Owner has no claim against either the said ten percent or the
that the Owner is not entitled to be awarded or to recover the attorney
fees and expenses claimed by it.
that the Owner is free from any liability to any and all of the
defendants and to the Intervenor.
IT IS ORDERED
that judgment be entered accordingly.
Some of the
more recent literature relating to some of the matters here involved is
Plumb, Federal Tax liens, 47 A. B. A. Journal 455 (May 1961); Final
Report of American Bar Association Committee on Federal Liens (1959);
Myers, The Fall and Rise Of The Security Interest, 8 Practical Lawyer
60-78 (December 1960); McNamara, The Surety and Federal Tax Liens, 28
Insurance Counsel Journal 92 (January 1961); and Comment, 46 Iowa Law
Review 666 (1961).
shall constitute the Findings of Fact and Conclusions of Law under Rule
52(a) of the Federal Rules of Civil Procedure.
United States of America
, Plaintiff v. Henry's Bay View Inn, Inc., et al., Defendants
S. District Court, So. Dist. N. Y., Civ. 148-255, 191 FSupp 632,
[1954 Code Sec. 7403]
Action to enforce tax lien: Government's right to interest on fund
held by disinterested stakeholder: Stakeholder's right to costs out of
fund.--Insurance companies were not liable for interest on a fund
consisting of insurance proceeds owing to a delinquent taxpayer against
whom the government sought to enforce a tax lien. The fund, which the
insurance companies moved to pay into court, was held by them pursuant
to a government-obtained court order staying the distribution of the
insurance proceeds. There was nothing to indicate that the insurance
companies were under any contractual obligation to pay interest, and
there are no statutes governing interest in a case such as this.
Furthermore, the insurance companies were entitled to costs from the
fund, in view of the fact that the fund was substantially in excess of
the government's lien.
Gillespie, United States Attorney, United States Court House, Foley Sq.,
, N. Y., for plaintiff. Grey & Murphy, John C. McCarthy, 280
Broadway Ave., Louis J. Lefkowitz, 500 Eighth Ave., Sahn, Shapiro &
Epstein, 350 Fifth Ave., Charles H. Tenny, Municipal Bldg., New York, N.
Y., Giller & Dreyer, 215 E. 149th St., Bronx, N. Y., for defendants.
This is an
action brought by the
under section 7403 of the Internal Revenue Code of 1954 (26
C. §7403) to enforce a tax lien against Henry's Bay View Inn. The inn
was insured under four insurance policies and was damaged by fire in
April, 1958, while the policies were still in force. Claimants of the
proceeds other than the
, are made defendants.
obtained an order staying defendant insurance companies from paying out
any of the proceeds. Defendant insurance companies filed an answer and
cross complaint against the other defendants alleging ignorance of the
respective rights of the various claimants, admitting their liability
under the policies as adjusted by the New York Board of Fire
Underwriters and declaring their willingness to pay the sum due into
court. Three parties were subsequently joined by defendant insurance
companies. The insurance companies now move to be allowed to pay the sum
due into court, to be discharged and to recover costs from the sum
There is no
opposition to the motion other than an oral argument by the
seeking to have the insurance companies pay interest on the amounts due
and to deny them recovery of costs.
of this action is based on 28 U. S. C. section 1345, giving the District
Court original jurisdiction of all civil actions commenced by the
. Under Rule 22, F. R. C. P., a defendant in any civil action, who is
exposed to multiple liability from adverse claimants, may, by
cross-claim, interplead the adverse claimants. This enables the District
Court to entertain the interpleader under its equitable powers. Under 28
U. S. C. section 2361, the court has the power to grant the relief
sought on this motion.
insurance companies have alleged grounds which entitle them to discharge
and there is no opposition to the grant of this relief. The only
question is whether costs should be allowed out of the fund and whether
interest should be added thereto.
generally allowed when it is provided for by contract or statute or as a
compensatory element for wrongful detention of money when there is a
duty to pay.
v. McDonald Grain and Seed Co., 135 F. Supp. 854 (D. N. D.
1955); New York Life Ins. Co. v. Cooper, 76 F. Supp. 976 (S. D.
N. Y. 1944). The motion papers disclose no contractual provision
requiring the defendant insurance companies to pay interest on the money
tendered. Neither federal nor state statutes prescribe any rule which
governs interest in such a case as this. Accordingly, the court has
discretion to decide whether any actions of the defendant insurance
companies warrant the imposition of interest on the fund. The papers
disclose nothing warranting an allowance of interest. Cf. Hancock
Mutual Life Ins. Co. v. Doran, 138 F. Supp. 47 (S. D. N. Y. 1956); Aetna
Life Ins. Co. v. Du Roure, 123 F. Supp. 736 (S. D. N. Y. 1954).
including reasonable attorneys' fees are generally allowed from the fund
to a successful disinterested stakeholder. Globe Indemnity Co. v.
Puget Sound Co., 154 F. 2d 249 (2 Cir. 1946); Aetna Ins. Co. v.
Dickler, 100 F. Supp. 875 (S. D. N. Y. 1951). When the
is asserting a tax lien and is one of the parties impleaded, the
question becomes whether the stakeholder can recover costs from the fund
to which the
may acquire title. This question arises from two considerations: first,
28 U. S. C. section 2412(a) which permits costs to be assessed against
the government only when provided by Congress; and, second, the priority
of the tax lien over the stakeholder's right to costs. Where the lien
priority has been decided in favor of the
and the fund is not sufficient to leave a balance after the lien has
been satisfied, it is clear that costs will not be allowed to the
stakeholder. United States v. R. F. Ball Constr. 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); Narragansett Bay Gardens, Inc. v. Grant Constr. Co. [59-2
USTC ¶9557], 176 F. Supp. 451 (D. R. I. 1959); Ford Motor Co. v.
Hackart Constr. Co. [56-2 USTC ¶9831], 143 F. Supp. 216 (D. N. J.
1956). However, where the tax lien priority is not adjudicated and the
fund exceeds the amount claimed by the government, there is no reason to
deny costs and attorneys' fees to the disinterested stakeholder
otherwise entitled to them since the elements requiring departure from
the general rule are not present. See United States v. Ullman
[53-2 USTC ¶9648], 115 F. Supp. 211 (E. D. Pa. 1953). Here the fund
offered is $23,750 and the tax lien asserted by the government is for
The motion is
in accordance herewith.
¶9557]Narragansett Bay Gardens, Inc., Plaintiff v. Grant Construction
Company, Inc., The Wardwell Lumber Company, John Correira--doing
business as Alma's Hardware and Supply, John A. O'Connell, John
Marshall--doing business as Marshall's Landscaping Company, Defendants
United States of America, Intervening Plaintiff v. Narragansett Bay
Gardens, Inc., Grant Construction Company, Inc., The Wardwell Lumber
Company, John Correira--doing business as Alma's Hardware and Supply,
John Marshall--doing business as Marshall's Landscaping Company, and
Narragansett Improvement Company, Defendants in Intervention United
States of America, Plaintiff v. John Marshall--doing business as
Marshall's Landscaping Company, Commodore Perry Village, Inc.,
Narragansett Improvement Company, Grant Construction Company, Inc., The
Wardwell Lumber Company, and John Correira--doing business as Alma's
Hardware and Supply, Defendants
S. District Court, Dist R. I., Civil Action Nos. 2289, 2406, 176 FSupp
[1954 Code Sec. 6323]
Lien for taxes: Priority as against attachment creditors: Allowance
of attorneys' fees and costs in interpleader.--A tax lien of the
United States which was recorded before attachment creditors obtained
judgments was entitled to priority, attachment liens being inchoate for
federal tax purposes. Since the tax lien was in excess of the amounts
owed to the delinquent taxpayer by two debtors who had filed bills for
interpleader and paid the funds into court, they could have no recourse
to the runds for counsel fees and court costs.
ert J. Conley,
, R. I., for plaintiff. Morphis A. Jamiel, Warren, R. I., for
defendants, Grant Construction Company, Inc., et al., Joseph Mainelli,
United States Attorney, Samuel S. Tanzi, Assistant United States
Attorney, Providence, R. I., for intervening plaintiff.
which were consolidated for trial, present identical questions as to the
priority of federal tax liens over
attachments and as to the allowance of counsel fees and costs to the
debtors of a delinquent taxpayer as plaintiffs in a complaint in
interpleader and a counterclaim in interpleader.
No. 2289 was originally begun as a bill in equity for interpleader in
the Superior Court for the State of
. One of the defendants named therein was John A. O'Connell, then and
now District Director of Internal Revenue for the District of
Providence. The action was subsequently removed to this Court by him
pursuant to the provisions of 28
C. A. §1442 and §1444. The remaining respondents named in said bill of
complaint are Grant Construction Company, Inc. and The Wardwell Lumber
Company, both Rhode Island corporations; John Correira, doing business
as Alma's Hardware and Supply; and John Marshall, doing business as
Marshall's Landscaping Company. Both Correira and Marshall are citizens
to Funds in Debtor's Hands]
removal of said bill in equity to this Court, the plaintiff, in
accordance with the Federal Rules of Civil Procedure, filed a new
complaint conforming to said Rules. In this complaint the plaintiff
alleges in substance that it has in its hands and possession the sum of
$2,400 due and owing to the defendant John Marshall under a certain
contract between them; that it claims no interest in said sum; that on
November 7, 1957 the defendants Wardwell Lumber Company, John Correira
and Grant Construction Company, Inc. caused writs of attachment,
returnable to a court of the State of Rhode Island, to be served upon
it, attaching the personal estate of the defendant John Marshall in its
hands and possession; that on December 4, 1957 it received notice that
federal tax liens in the aggregate sum of $5,636.24 against all the
property rights and monies of the said John Marshall had been perfected
in accordance with the provisions of the Internal Revenue Code of 1939,
notice of such liens having been recorded as provided by law in the
office of the Town Clerk at Bristol, Rhode Island on August 28, 1957 and
November 7, 1957; that judgments were entered on December 5, 1957 in
favor of said Wardwell Lumber Company, Grant Construction Company, Inc.
and John Correira in their respective actions against the said John
Marshall; that on December 12, 1957, executions issued on said
judgments; that said judgment creditors have made demands upon the
plaintiff for the satisfaction of said executions out of the personal
estate of said John Marshall in its hands and possession; that said John
Marshall claims to be entitled to receive said sum of $2,400, and has
threatened to institute proceedings against plaintiff for its recovery;
and that plaintiff is willing to pay said sum to the person or persons
legally entitled thereto, but is in doubt as to whom it should be paid.
After the recital of these facts the complaint concludes with a prayer
that the plaintiff be permitted to deposit said sum of $2,400 in the
registry of this Court; that the defendants and each of them be required
to interplead and settle among themselves their respective claims in and
to said sum of $2,400; and that the plaintiff be awarded reasonable
costs and counsel fees.
appearing that the federal tax liens were claimed by the
and not by the named defendant John A. O'Connell, the latter was
dismissed as a party defendant and the
was granted leave to intervene as a party plaintiff and to file a
complaint as intervenor. In this intervening complaint (in which the
remaining defendants, the plaintiff Narragansett Bay Gardens, Inc., and
Narragansett Improvement Company, a Rhode Island corporation, were
joined as defendants) the United States alleges that the said John
Marshall owes certain taxes and penalties aggregating $7,019.06; that
said taxes were duly assessed, that liens were duly perfected thereon,
and that notice thereof was duly recorded as provided by law; that
Narragansett Bay Gardens, Inc. is indebted to said John Marshall in the
sum of $2,400; that the defendants are each claiming an interest
therein; and that the United States seeks a determination that John
Marshall is indebted to it in said sum of $7,019.06, with interest as
allowed by law, as well as a determination of the rights of the
respective parties in and to said sum of $2,400.
Action No. 2406, brought by the
, the defendants are the said John Marshall, John Correira, Grant
Construction Company, Inc., Wardwell Lumber Company, Narragansett
Improvement Company, in addition to Commodore Perry Village, Inc., a
corporation. This complaint likewise alleges that John Marshall is
indebted to the plaintiff for certain federal taxes and penalties in the
aggregate sum of $7,019.06, with interest thereon as allowed by law;
that said taxes were duly assessed, that liens were duly perfected
thereon, and that notice thereof was duly recorded as provided by law;
that the defendant Commodore Perry Village, Inc. is indebted to the said
John Marshall in the sum of $1,341; and that each of the defendants is
claiming an interest in said sum. The complaint concludes with a prayer
that this Court adjudge and decree that the said John Marshall is
indebted to the plaintiff in the amount of $7,019.06, together with
accrued interest thereon as allowed by law; and that this Court
determine the rights of all of the parties to said sum of $1,341.
In its answer
Commodore Perry Village, Inc. counterclaims in interpleader, alleging
that on November 4, 1957 a writ of attachment, returnable to a court of
the State of Rhode Island, was served upon it in an action then pending
in said court wherein Narragansett Improvement Company was plaintiff and
the said John Marshall was defendant; that said writ attached the
personal estate of the latter in its hands and possession; that it then
had in its hands and possession the sum of $1,341 belonging to said John
Marshall, that thereafter on December 4, 1957 it received notice that
federal tax liens in the sum of $5,636.24 against all the property
rights and monies of said John Marshall had been perfected, notice of
such federal liens having been recorded, as provided by law, in the
office of the Town Clerk at Bristol, Rhode Island on August 28, 1957 and
November 7, 1957; that on December 4, 1957 a levy was made upon it; that
a question has arisen as to the relative priority as between said
attachment lien and said tax liens; and that it is in great doubt as to
which of said lienors is entitled to priority of payment. The
counterclaim prays that this Court order the plaintiff and the
defendants Narragansett Improvement Company and John Marshall to
interplead their respective claims to said sum of $1,341; and award it
counsel fees and costs.
trial, Narragansett Bay Gardens, Inc. deposited the sum of $2,400 into
the registry of the Court, and Commodore Perry Village, Inc. likewise
deposited the sum of $1,341. Also, by agreement of the parties, the
complaint in Civil Action No. 2406 was dismissed as to the defendants
Grant Construction Company, Inc., Wardwell Lumber Company, Narragansett
Improvement Company and John Correira. At the same time, the defendant
John Marshall having failed to plead or otherwise defend, an entry of
default was made against him. In Civil Action No. 2289, similar entries
of default were made for the same reasons against him and against the
defendant Narragansett Improvement Company.
adduced during the trial established the following facts: that at the
time of the institution of these actions the defendant John Marshall was
indebted to the Government in the sum of$7,019.06 on account of unpaid
withholding and excise taxes; that notice of the assessment of these
taxes and demands for the payment thereof were seasonably made upon him;
that notice of the perfection of tax liens in the sum of $5,634.24 on
all the property rights and monies of the defendant John Marshall was
received by Narragansett Bay Gardens, Inc. and Commodore Perry Village,
Inc. on December 4, 1957, notice of said liens having been recorded on
August 8, 1957 and November 7, 1957; that judgments in favor of Grant
Construction Company, Inc., Wardwell Lumber Company and John Correira in
their respective state court actions were entered on December 5, 1957;
and that no judgment in favor of Narragansett Improvement Company has as
yet been entered in its action in the state court.
of Tax Liens]
It is well
settled that a tax lien of the
is entitled to priority over an attachment lien created pursuant to
state law if the federal lien is recorded prior to the date when the
attachment creditor obtains judgment. United States v. Liverpool
& London & Globe Insurance Co., Ltd., 1955, 348 U. S. 215
[55-1 USTC ¶9136]; United States v. Acri, 1955, 348 U. S. 211
[55-1 USTC ¶9138]; United States v. Security Trust Co., 1950,
340 U. S. 47 [50-2 USTC ¶9492].
v. Acri, supra, the Supreme Court held at page 213:
relative priority of the lien of the United States for unpaid taxes is,
as we said in United States v. Waddill Co., 323 U. S. 353, 356,
357 [45-1 USTC ¶9126]; Illinois v. Campbell, 329 U. S. 362, 371;
United States v. Security Trust Co., 340 U. S. 47, 49 [50-2 USTC
¶9492], always a federal question to be determined finally by the
federal courts. The state's characterization of its liens, while good
for all state purposes, does not necessarily bind this Court."
attachment liens are inchoate for federal tax purposes, the fact and
amount of such liens being contingent on the outcome of the actions in
which they were issued. Since the tax liens of the United States were
recorded prior to the entry of judgments in favor of said attaching
creditors, and were in an amount in excess of the aggregate of the sums
held by the debtors of the delinquent taxpayer, I find and conclude that
the federal tax liens have priority over the liens of said attaching
creditors and that the sums presently on deposit in the registry of the
Court are payable to the United States.
for Attorneys' Fees and Costs]
the question of whether any amount should be deducted from each of said
sums as an allowance to Narragansett Bay Gardens, Inc. and Commodore
Perry Village, Inc. for counsel fees and costs sustained by them in
admittedly the general rule, in the absence of a statute making
provision to the contrary, that a party who is confronted with
conflicting claims to a fund in his possession and who claims no
interest therein, may in good faith interplead the several claimants,
deposit the fund involved in the registry of the Court, and recover his
reasonable costs and counsel fees out of such fund. This rule is
followed both in the federal courts and in the courts of
. See, e.g., Palomas Land & Cattle Co. v. Baldwin, 1951, 9
Cir., 189 Fed. (2d) 936;
Paint Works v. Stimson, 1853, 2 R.
415. It is agreed here that both Narragansett Bay Gardens, Inc. and
Commodore Perry Village, Inc. are merely disinterested stakeholders who
have asserted no claims of ownership to the funds involved.
existence of this general rule, the Government contends that such an
allowance of counsel fees and costs cannot be made where (1) the
under a federal tax lien is the prevailing claimant to a fund and (2)
the amount due under such federal tax lien exceeds the amount of the
On the other
hand, the stakeholders contend that I should follow the general rule
which prevails in the usual interpleader proceeding in the courts of
In support of
its position, the Government relies upon the holding of the Supreme
Court in United States v. Liverpool & London & Globe
Insurance Co., Ltd., supra. While it may be claimed that the denial
of counsel fees and related costs in that case was based upon the
peculiar provisions of the state statute there involved, I believe that
any latent ambiguity therein is removed by the subsequent per curiam
decision in the later case of United States v. R. F. Ball
Construction Co., 1958, 355 U. S. 587 [58-1 USTC ¶9327]. In my
judgment the contention of the Government is sound. I concur with the
observations and reasoning of Chief Judge Forman in Ford Motor Co. v.
Hackart Construction Co., 1956, D. C. N. J., 143 Fed. Supp. 216
[56-2 USTC ¶9831], where he said at page 218-219:
determination of the Supreme Court on the facts of the Liverpool
& London case that counsel fees could not be allowed is
controlling here. It is not significant that the source of power used by
the lower courts in that case to justify their allowance was a
rule which here it is inherent equity authority plaintiff asked this
court to exercise. None of the three opinions in the Liverpool
case (the district court's opinion is reported as Sunnyland Wholesale
Furniture Co. v. Liverpool & London & Globe Ins. Co., 107
Fed. Supp. 405 [53-1 USTC ¶9121]) questions the validity of the
application of the
rule in the federal court. That rule was treated throughout that case as
a competent source of power for the allowance of counsel fees in the
ordinary case just as is the equity power of this court ordinarily a
valid source of power to be utilized for that purpose. But in the
case and in this one these usual prerogatives of the court must fall
before the primacy of the federal tax lien. A superior source of power
forbids the allowance of counsel fees here. The Supreme Court held in
case that property subject to a valid and paramount tax lien cannot be
invaded even for the allowance of the counsel fees to an innocent
stakeholder, and this court must obey that ruling."
conclusion was reached in United States v. Gasaway, 1958, D. C.
Mo., 1 A. F. T. R. 2d 1189 [58-1 USTC ¶9412]. There, as here, a
disinterested stakeholder sought to recover counsel fees in an
interpleader action in which the
was the prevailing claimant. The Court, relying on United States v.
Liverpool & London & Globe Insurance Co., Ltd., supra, and United
States v. R. F. Ball Construction Co., supra, held that since the
fund involved was insufficient to satisfy the prevailing federal tax
lien, no recourse to such fund could be had for the allowance of counsel
fees to the stakeholder. This decision is of particular force in view of
the clear precedents under the state law for awarding such fees in
similar actions not involving claims under federal tax liens. See, e.g.,
Woodson v. Woodson, 1949, 359 Mo. 972, 224 S. W. (2d) 978; John
, Inc. v. McConkey, 1947, 240 Mo. App. 198, 203 S. W. (2d) 512.
support of this interpretation of the
decision, see Commercial Standard Insurance Co. v. Campbell,
1958, 5 Cir., 254 Fed. (2d) 432 [58-1 USTC ¶9477]; Boston Insurance
Co. v. Stubbs, 1956, D. C. Wash., [56-2 USTC ¶9695] 51 A. F. T. R.
v. Goldstein, 1958, 2 Cir., 256 Fed. (2d) 581 [58-1 USTC ¶9478].
See also 9 Mertens, Law of Federal Income Taxation (Zimet Revision
The cases of United
States v. Ullman, 1953, D. C. Pa., 115 Fed. Supp. 211 [53-2 USTC ¶9648],
and American Alliance Insurance Co. v. Mitchell, 1958, -- Mo.
App. --, 299 S. W. (2d) 536 [57-1 USTC ¶9506], relied upon by
Narragansett Bay Gardens, Inc. and Commodore Perry Village, Inc., are in
my opinion clearly contrary to the weight of authority, and hence I am
unwilling to follow them.
I find and conclude that said John Marshall was at the time of the
institution of these actions indebted to the United States in the sum of
$7,019.06 for federal taxes and penalties thereon, plus interest; that
the United States has valid prior liens on the sums of $2,400 and $1,341
presently on deposit in the registry of this Court, which liens are
superior to any liens thereon in favor of the attaching creditors of the
said John Marshall; that the United States is entitled to the payment of
said sums, such payment to be applied to the reduction of said
indebtedness; and that the prayer of Narragansett Bay Gardens, Inc. and
Commodore Perry Village, Inc. for the entry of orders awarding them
their respective counsel fees and costs must be, and they hereby are,
denied. The United States will prepare and submit to me within ten (10)
days a computation of the amount presently due and owing by the said
John Marshall as federal taxes and penalties, plus interest thereon; and
thereupon judgments shall be entered in each of these actions in favor
of the United States in that amount less the sum of $3,741 ($2,400 plus
$1,341) and in accordance with the other conclusions hereinbefore
¶9412]United States of America, Plaintiff v. Gordon Gasaway, and Edna
Gasaway, and Kenneth Teasdale and John O. Price, as Trustees of Usona
Construction Company, a corporation, Defendants.
S. District Court, East. Dist.
, East. Div., Case No. 57C300, Court No. 2, 2/17/58
[1954 Code Sec. 6323]
Collection: Lien for taxes: Counsel fees of trustee for counter-claim
and cross-claim in interpleader.--A trustee in liquidation of a
corporation holding funds belonging to a delinquent stockholder filed a
counter-claim and cross-claim in interpleader asking that the Court
order the funds paid into the Court, order the discharge of the trustee,
and allow the trustee a reasonable sum for attorneys' fees for
interpleader. The Court held that it was without jurisdiction to grant
the relief requested, because the Government had not consented to be
sued in a case of this kind by way of counter-claim and interpleader.
However, because the Government agreed, the Court indicated that it
would: (a) enter an order entitling the trustee to deposit the funds in
the Registry of the Court; (b) discharge him from liability on account
of the Government's claims upon deposit of the funds; and (c) dismiss
him as a party to the collection suit upon deposit of the money.
However, the trustee was not allowed a sum for attorney's fees.
Richards, United States Attorney,
ert E. Brauer, Assistant United States Attorney,
, for plaintiff. Cobbs, Armstrong, Teasdale & Ross, Walter M. Clark,
506 Olive Street, St. Louis 1, Mo., for Kenneth Teasdale and John O.
Price. John Grossman,
722 Chestnut Street
, for Gordon Gasaway and Edna Gasaway.
It is hereby
stipulated and agreed between the parties as follows:
1. Prior to
the institution of this action, separate defendant Gordon Gasaway was
the registered owner of 150 shares of common stock of Usona Construction
corporation. Said corporation was dissolved and defendants Teasdale and
Price (now deceased) acted as Trustees in liquidation of said
corporation. At present, as Trustee, defendant Teasdale has in his
possession the sum of $13,185.50, which amount is claimed by defendant
Gasaway as his distributive share of the proceeds of the liquidation of
Usona Construction Company.
2. As alleged
in its Complaint, plaintiff claims certain tax deficiencies on the part
of defendants Gordon and Edna Gasaway, in amounts substantially in
excess of the fund held by defendant Teasdale; and plaintiff, having
heretofore filed and recorded certain tax liens, claiming that
defendants Gordon and Edna Gasaway are indebted to plaintiff in an
amount in excess of that held by defendant Teasdale has asked in its
Complaint that the Court adjudge and decree that the aforesaid liens are
valid and enforce said liens against defendants Teasdale and Price.
3. The parties
stipulate and agree that both plaintiff and defendant Gordon Gasaway
claim the fund held by defendant Teasdale; further, it is agreed that
defendant Teasdale makes no claim whatsoever to the aforesaid fund,
except a claim for expenses and attorneys' fees with respect to this
action. Further, it is agreed by and between all of the parties that
there has not yet been any final adjudication or determination by any
court or proper tribunal as to which of plaintiff or defendant Gordon
Gasaway is entitled to the fund held by defendant Teasdale.
4. In response
to plaintiff's Complaint, defendants Teasdale and Price filed their
Answer, and also filed their Counterclaim and Cross-Claim (against
defendants Gasaway) In Interpleader, alleging that no claim to the fund
was made by defendants Teasdale and Price, that conflicting claims to
said fund had been made by plaintiff and defendant Gordon Gasaway, and
asking that the Court order the fund paid into Court, order the
discharge of Teasdale and Price, allowing defendants Teasdale and Price
a reasonable sum for attorneys' fees, and ordering that a hearing be had
on the merits of the conflicting claims of plaintiff and separate
defendants Gasaway. It is further stipulated and agreed that since there
is a dispute as to the ownership of the fund, the aforesaid sum of
$13,185.50 may, upon approval of the Court, be paid into the Registry of
the Court by defendant Teasdale, pending determination by the Court as
to the ownership thereof, and that the sole question for decision by the
Court in this hearing is whether or not defendant Teasdale is entitled
to receive a reasonable sum as and for his attorneys' fees with respect
to the Counterclaim and Cross Claim In Interpleader heretofore filed by
defendants Teasdale and Price.
of Fact and Conclusions of Law
November 15, 1957
, the counter-claim and cross-claim in interpleader of the defendant
Teasdale came on for hearing.
appeared by its attorney,
ert E. Brauer, Assistant United States Attorney, the defendants Gordon
Gasaway and Edna Gasaway appeared by their attorney, John Grossman;
defendant Teasdale appeared in person and by his attorney, Walter M.
announced ready for trial, and the Court after having considered the
evidence and the briefs of the attorneys, finds the facts and states its
conclusions of law as follows:
1. The Court
adopts as its findings of fact the facts contained in the Stipulation
signed by the parties and upon which the counter-claim and cross-claim
counter-claim and the cross-claim in interpleader of defendant Teasdale
ought to be and is hereby dismissed, and the relief therein ought to be
and is hereby denied, because the plaintiff has not consented to be sued
in a case of this kind by way of counter-claim and interpleader; thus,
this Court is without jurisdiction to grant the relief therein
Nevertheless, because the plaintiff agrees thereto, defendant Teasdale
will be given the following relief:
An Order will be entered entitling him to deposit in the Registry of the
Court the sum of $13,185.50; and
Discharging him, upon the deposit of said sum in the Registry of this
Court, from any and all liability on account of the claims of the United
States of America, plaintiff, and defendants Gordon Gasaway and Edna
Gasaway against said sum of money; and
Dismissing him as a party to this law suit upon said deposit of said sum
requested relief, that defendant Teasdale be given a reasonable
allowance for attorney's fees for interpleader, the
, and defendants Gordon Gasaway and Edna Gasaway and depositing the sum
of $13,185.50 in the Registry of this Court will be denied.
¶9831]Ford Motor Company, a corporation of the State of Delaware,
Plaintiff v. The Hackart Construction Company, Inc., a corporation of
the State of
, et al., Defendants
S. District Court Dist. N. J., Civ. Action 169-55, 143 FSupp 216,
[1939 Code Sec. 3672(a)--similar to 1954 Code Sec. 6323(a)]
Collection: Lien for taxes: Counsel fees of interpleading
stakeholder.--A general contractor agreed to perform certain
construction work for a corporation which was confronted with claims to
money which it owed the contractor. The corporation brought a suit in
interpleader against the contractor and his creditors, and the
intervened, asking that its tax liens upon the contractor's property be
declared paramount to all other claims to the fund and that they be
foreclosed. The corporation was not entitled to counsel fees since it
was determined that the federal tax lien was paramount. There was a
contest between the claim for fees and the federal lien claim, and the
corporation was not sufficiently disinterested in the distribution of
the fund since some of the creditors had filed counterclaims against it
alleging an express agreement by it to pay the amount due under the
contract in consideration for continuance of performance by them after
the contractor's default. Liverpool & London Ins. Co., 55-1
USTC ¶9136, 348
215, was followed.
& Milstein, George R. Milstein (Benjamin Gross, of counsel), for
plaintiff. Raymond Del Tufo, Jr., United States Attorney, George H.
United States of America
Application for Allowance of Costs and Counsel Fees
interpleader action was begun by a complaint filed
February 18, 1955
in which the
was named a party defendant. The suit arose in the following fashion:
Hackart Construction Company, as general contractor, agreed with the
plaintiff, the Ford Motor Company, to perform construction work at the
site of the plaintiff's plant at
. Subsequently, the plaintiff found itself confronted with many claims
to money which it owed Hackart and which totaled far in excess of the
amount Hackart had yet to be paid.
This suit in
interpleader was then brought naming as defendants the Hackart Company,
many laborers and materialmen who had claims against Hackart, the State
. The plaintiff was permitted to interplead. The
then moved that the complaint be dismissed as to it on the ground that
it had not consented to be made a defendant and the motion was granted.
filed its complaint in intervention asking that its tax liens upon
property of Hackart Construction Company be declared paramount to all
other claims to the fund and that they be foreclosed.
determined that the claim of the United States under its federal tax
lien was paramount to all other claims asserted to the fund and it was
ordered that the entire fund be paid over to the United States. At this
time plaintiff's counsel asked that a counsel fee be granted to them out
of the fund. The United States opposes the allowance of counsel fee on
the ground that to allow it out of this fund would be to allow counsel
fees against the United States without its consent, contrary to the
express provision of 28 U. S. C. §2412(a), and on the further ground
that the tax lien raises the rights of the United States even higher
than the traditional rights of an innocent stakeholder to such counsel
exclusive reliance of plaintiff's counsel is upon Judge Clary's decision
in United States v. Ullman, 115 Fed. Supp. 211 (E. D. Pa. 1953) 1
[53-2 USTC ¶9648] in which he allowed counsel fees to an interpleading
stakeholder despite the claim of the United States that to do so would
be contrary to 28 U. S. C. §2412(a). Although the government claim
involved in the Ullman case arose out of a tax lien, since that
lien had not been foreclosed nor its priority established at the time
the counsel fees were allowed Judge Clary did not, because he could not,
discuss the relative priority of a paramount government lien and a claim
for counsel fees out of the fund in interpleader. Thus, Judge Clary's
decision concerning counsel fees, coming as it did before the question
of priorities of interest in the fund had been reached, did not purport
to resolve a conflict between a government lien and an allowance of
fees. This is made clear by his statement of the issue involved:
simple legal question to be determined in these two actions is,
therefore, whether an award of counsel fees and costs may be granted in
an interpleader action to a disinterested third party stakeholder who
and other claimants to a fund." 115 Fed. Supp. at p. 214.
argument that the government's lien, if paramount, defeats even the
inherent equity power of the court to allow counsel fees seems not to
have been either advanced or considered in the Ullman case.
[Interpleader's Counsel Fees Disallowed]
to the plaintiff in this case are foreclosed by the decision of the
United States Supreme Court in United States v. Liverpool &
London Ins. Co., 348 U. S. 215 (1955) [55-1 USTC ¶9136]. In that
case suit was brought in a Taxas state court against an insured who was
owed the proceeds of a fire insurance policy by the Liverpool &
London & Globe Insurance Company. The fund in the hands of the
insuror was garnished by the plaintiff and the insuror moved in the
state court to have the
added as a party defendant because the
had also asserted a claim to the fund held by it. The motion to add the
was granted. Thereafter the
removed the suit to the United States District Court for the Northern
District of Texas. Further facts may be taken from the opinion of the
Court of Appeals for the Fifth Circuit, 209 Fed. (2d) 684, 686-687 [54-1
and upon the ground that it had not consented to be made a party
defendant the Government moved that the action against it be dismissed
and that it be allowed to intervene as a party plaintiff for the purpose
of seeking foreclosure of its lien. This motion was granted and the
filed its petition in intervention . . . claiming first and prior tax
liens under Section 3670 et seq. of Title 26, U. S. C on any and
all property and rights to property belonging to the taxpayers. The
appellee insurance Company filed responsive pleadings in which it
tendered its loss draft in the sum of $7,500.39 into the registry of the
court and prayed for an order directing the clerk to receive and collect
this draft and place the proceeds in the registry of the court and that
Adams and his wife (the insureds), the United States, and the appellee
furniture company (the garnishor) be required to interplead. . . . It
further prayed for a discharge from any other . . . liability and for a
reasonable attorney's fee in the sum of $500.00. . . .
District Court made fact findings. . . . The court was further of the
opinion that there was no contest between the appellee insurance company
and any other parties to the case and concluded that the insurer was
entitled to a reasonable attorney's fee. . . ."
The facts in
this case are substantially similar to those outlined in the opinion
quoted from above. In both cases there was a stakeholder who was
confronted with claims of creditors of the owner of the fund and with
lien claims of the
for taxes. In both the fund was insufficient to satisfy the total amount
of the claims and in both were presented substantial questions of
priority to the fund among the several claimants.
Court allowed the Liverpool & London & Globe Insurance Company a
counsel fee upon the authority of Rule 677,
's Texas Rules of Civil Procedure. This court is asked to award the fee
in the exercise of its inherent equity power to do so in interpleader
cases. See Globe Indemnity Co. v. Puget Sound Co., 154 Fed. (2d)
249, 250 (2nd Cir. 1946) and cases cited. This difference is seized upon
by counsel for the plaintiff, but I am of the opinion that it is a
difference without significance for the reasons stated below.
The award of
counsel fees under the
rule by the district court was affirmed by the Court of Appeals for the
Fifth Circuit, 209 Fed. (2d) 684, as was its determination that the
garnishment lien was superior to the federal tax lien. The Supreme
Court, however, reversed on the merits, 348
215, and also voided the allowance of counsel fees saying:
the garnishment lien is not prior to the Government liens, and we have
held that it is not, certainly fees allowed in that proceeding are not
prior to the Government liens, and the authorization of the payment of
attorney's fees prior to the Government liens was error. . . ." 348
at p. 217.
determination of the Supreme Court on the facts of the Liverpool
& London case that counsel fees could not be allowed is
controlling here. It is not significant that the source of power used by
the lower courts in that case to justify their allowance was a
rule while here it is inherent equity authority plaintiff asks this
court to exercise. None of the three opinions in the
case (the district court's opinion is reported at 107 Fed. Supp. 405
[53-1 USTC ¶9121]) questions the validity of the application of the
rule in the federal court. That rule was treated throughout that case as
a competent source of power for the allowance of counsel fees in the
ordinary case just as is the equity power of this court ordinarily a
valid source of power to be utilized for that purpose. But in the
case and in this one these usual prerogatives of the court must fall
before the primacy of the federal tax lien. A superior source of power
forbids the allowance of counsel fees here. The Supreme Court held in
case that property subject to a valid and paramount federal tax lien
cannot be invaded even for the allowance of counsel fees to an innocent
stakeholder, and this court must obey that ruling.
argues elaborately that overruling by implication is not looked upon
with favor. Hence, it contends the
case may not be construed as having overruled the Ullman case,
for it does not mention it. In any event, as has been shown, the Ullman
case is not analgous to this case because there was no contest between
the claim for fees and the lien claim of the United States and it dealt
with situations wherein the stakeholder only came forward with the
stake, deposited it with the court and requested payment of its counsel
fee and expenses. There was no show of resistance on the stakeholder's
part to any claimant to the fund. Fees proportionate with this pro
forma labor were allowed. 2
plaintiff is not sufficiently disinterested in the distribution of the
fund to qualify for a fee. Some of the many defendants have filed
counterclaims against the plaintiff alleging an express agreement by the
plaintiff to pay in full the amount due under the construction contract
in consideration for continuance of performance under the contract by
the defendants after Hackart's default. If the allegations of these
counterclaims are correct and the plaintiff is liable for the amounts
due the defendants for their full performance on the project,
distribution of the fund to the defendants rather than to the government
would substantially reduce the potential liability of the plaintiff
under the agreements alleged in the counterclaims. 3
It is true that plaintiff's attorney specifically postponed his
application for fees from the conventional time of the filing of the
complaint until the determination of the claim of the
, but he is not helped thereby.
The motion for
counsel fees and costs will be denied and an appropriate order should be
submitted to that effect by the United States Attorney, consented to as
to form only, by counsel for the plaintiff, or noticed for settlement.
Mention is also made of the case of United States v. Thorn, USTC
Par. 9405 (D. C. Pa. 1954) [55-1 USTC ¶9405] decided upon the reasoning
in the Ullman case.
Two complaints were consolidated for consideration and $1,000 was
allowed to cover fees and costs for each.
This potential liability under the counterclaims was undoubtedly the
motivating reason behind the plaintiff's appearance in opposition to the
government's motion to foreclose its lien and pay the fund over to it.
This has caused the plaintiff the expenditure of considerably more
energy than that usually incurred by a stakeholder who merely wants to
get its money safely paid into court and then retire from the scene.
This also accounts for the unusually high fee demanded by the
plaintiff--$6,000--which the court approved as reasonable while
reserving decision as to its allowability. It is peculiarly appropriate
that the plaintiff should bear the expense of the resistance rather than
* * *
¶9695]Boston Insurance Company, Northern Assurance Company, and
National Fire Insurance Company, Plaintiffs v. H. Frank Stubbs; Arthur
R. Knodel; Fritz Schadde, L. H. Rogers and L. E. Sticha; Jesse D. Lander
and Paul K. Cook; and John T. McLaughlin, Director, Unemployment
Insurance Division, Territory of Alaska, Defendants
S. District Court, West. Dist.
, So. Div., No. 1846, 3/20/56
[1939 Code Sec. 3672(a)--similar to 1954 Code Sec. 6323(a)]
Collection: Lien for taxes: Validity against creditors:
Fact-finding.--Federal tax liens on insurance proceeds were valid
and prior to the following claims: an attorneys' lien for services in
settling the fire insurance claim arising when a fire occurred at
taxpayers' Club Cafe, writs of attachment and notices of garnishment by
a bakery and another creditor, and a lien by the Employment Security
Commission of Alaska based upon an assignment of the proceeds of the
[1939 Code Sec. 3672(a)--similar to 1954 Code Sec. 6323(a)]
Collection: Lien for taxes: Attorneys' fees of interpleading
insurance company.--Insurance companies brought an interpleader
action against the creditors of taxpayers to determine the disposition
of the proceeds from taxpayers' insurance claim settlement. They were
not entitled to attorneys' fees and costs in view of the fact that
Federal tax liens were valid and prior to the claims of all other
creditors. Liverpool & Globe Insurance Co., 55-1 USTC ¶9136,
215, was followed.
, for plaintiff. Charles P. Moriarty, United States Attorney, Guy A. B.
Dovell, Assistant United States Attorney, for intervenor.
in Interpleader (Filed
October 14, 1954
Come now the
plaintiffs and, for cause of action in interpleader, state:
to Collect Fire Insurance]
plaintiffs, and each of them, are insurance companies, duly authorized
to write policies of insurance covering property in the Territory of
Alaska and that each of said plaintiffs issued a policy of insurance
naming Bert Adams and Mary Adams, d.b.a. Club Cafe, as insureds and
covering their interest in said Club, or its contents, which was located
in Fairbanks, Alaska, against the hazard of loss by fire in accordance
with the terms and conditions of said policies.
II. That a
fire occurred at said Club on or about the 28th day of December, 1950,
as a result of which said insureds made claim against the plaintiff
insurance companies under the aforementioned insurance policies as to
which claim plaintiff companies denied liability, and that the insureds
thereafter instituted suit against said insurance companies for the
purpose of endeavoring to collect said claim, the suit being Cause No.
1745 in the records of the above-entitled Court.
III. That in
said action the insurance companies, in addition to pleading defenses as
to any liability, also pleaded affirmatively that various liens,
attachments and garnishments had been filed against said insurance
claim, as more specifically hereinafter referred to; that in said Cause
No. 1745 a stipulation of settlement was entered into between the
parties, a copy of which is hereto attached marked "Exhibit A"
and by reference made a part hereof the same as if set forth in full
herein, whereby settlement was agreed upon in the amount of $3,000.00,
which said sum was to be paid into court in an interpleader action in
order that the rights of the respective claimants to said fund could be
therein adjudicated, and that this action is brought pursuant to said
IV. That the
defendants, H. Frank Stubbs and Arthur R. Knodel are citizens and
residents of the State of Washington, residing in Pierce County,
Washington; that they were attorneys of record for the insured in said
Cause No. 1745 and are claiming an attorneys' lien on said fund for
their services in the amount of $1,500.00, plus advanced costs and
V. That the
defendants, Fritz Schadde, L. H. Rogers and L. E. Sticha, are citizens
and residents of the Territory of Alaska, residing at Fairbanks, Alaska,
and that they are, or were, doing business as the North Pole Bakery, and
that in Cause No. 6698 in the District Court for the Territory of
Alaska, Fourth Division, they caused a writ of attachment and notice of
garnishment to be served upon the Insurance Commissioner of the
Territory of Alaska as process agent for the insurance companies which
are plaintiffs in this action, setting forth that Norbert Adams and wife
were indebted to them in the sum of $1,997.73, together with interest
and costs, and purporting to attach any indebtedness from said insurance
companies to the said Norbert Adams and wife.
VI. That the
defendants, Jesse D. Lander and Paul K. Cook, are citizens and residents
of the Territory of Alaska, residing at Fairbanks, Alaska, and that in
Cause No. 6672 in the District Court for the Territory of Alaska, Fourth
Division, they caused a writ of attachment and notice of garnishment to
be served upon the Insurance Commissioner of the Territory of Alaska as
process agent for the insurance companies which are plaintiffs in this
action, setting forth that Norbert Adams, Sr., is indebted to them in
the sum of $4,870.35, together with interest and costs, and purporting
to attach any indebtedness from said insurance companies to the said
VII. That John
T. McLaughlin is Director of the Unemployment Insurance Division of the
Territory of Alaska and that on April 3, 1951, the said N. J. Adams
executed an assignment of the proceeds of his insurance claim in favor
of the Employment Security Commission of Alaska in the amount of
$850.11, and that said Employment Security Commission filed on June 7,
1951, lien No. 124609 in the amount of $901.46, which said lien
purported to be against all property or funds of the said N. J. Adams.
VIII. That the
Internal Revenue Department of the United States filed in the
Commissioner's office at Fairbanks, Alaska, and served on the Insurance
Commissioner of Alaska as process agent for the insurance companies the
following notices of lien and levies as against Norbert Adams:
No. 20074, dated
May 28, 1951
, in the amount of $1,462.38;
No. 19628 dated
March 9, 1951
, in the amount of $2,474.84;
of Levy dated
November 10, 1951
, under Liens No. 20751 and No. 21075, in the amount of $1,479.39,"
that the said Internal Revenue Department has, through its authorized
counsel, signified its intention of intervening in the above-entitled
action for the purpose of asserting its said liens and levies and claims
of priority as to the fund paid into court in this action.
IX. That, as
herein above set forth, adverse claimants of diverse citizenship are
claiming an interest in the insurance proceeds herein before referred to
and that, although ample time has been allowed, said claimants have been
unable to agree among themselves as to their respective priorities on
the division of said fund, and that plaintiffs, having no knowledge of
the respective rights and priorities of said claimants and being
desirious of avoiding the possibility of multiple liability, do hereby
deposit into court the full amount due under the settlement stipulation
in Cause No. 1745, to wit, the sum of $3,000.00, in order that there may
be an adjudication as to the respective rights of the claimants and that
plaintiffs may receive a full and complete release of liability to any
X. That an
order should be entered by this Court prohibiting the defendants, and
each of them, from instituting or continuing any suit, action, claim or
process against the insurance companies relating to the funds herein
paid into court except by filing their responsive pleadings and claims
in this interpleader action.
XI. That there
should be no proceedings in this action until sufficient time has
elapsed for the Department of Internal Revenue of the
to intervene and assert its claim under its aforesaid liens and levies.
by Insurance Companies for Attorneys' Fees]
$300.00 is a reasonable sum to be allowed plaintiffs in this
interpleader action out of the funds paid into court for the services of
their attorneys in connection with the institution and maintenance of
this interpleader action.
plaintiffs pray that an order be entered discharging plaintiffs, and
each of them, from any and all liability to all defendants arising out
of the insurance policy and fire loss referred to in Cause No. 1745 of
the records of the above-entitled court, and that appropriate orders be
entered prohibiting the defendants, and each of them, from proceeding
against the plaintiffs in relation to said fund or claims in any other
cause and proceeding, and that plaintiffs be allowed the sum of $300.00
for the services of their attorneys and their costs and disbursements
out of the funds paid into the court in this proceeding.
and Judgment (March 20, 1956)
coming on regularly to be heard before the above-entitled Court, and
upon due consideration of the Pre-trial Order entered this day, and
briefs and arguments thereon, it is hereby
ADJUDGED and DECREED that the entire fund remaining to wit $2,000.00 on
deposit in the registry of the court in this action belongs to the
United States of America by virtue of the priority of its valid liens
thereon for taxes due from Norbert J. and Mary J. Adams, and it is
ADJUDGED and DECREED that the Clerk of the Court pay to the
United States of America
all of said funds, to wit $2,000.00 and it is further
ADJUDGED and DECREED that plaintiffs, Boston Insurance Company, Northern
Assurance Company and National Fire Insurance Company, are hereby
discharged from all further liability with respect to that fund, and the
claims thereto of all parties other than the
United States of America
are hereby foreclosed, and it is further
ADJUDGED and DECREED that the request of the interpleading plaintiffs
for their attorneys' fees and costs be denied on the authority of the
decision of the Supreme Court of the United States in United States
v. Liverpool & Globe Insurance Company, 348 U. S. 215 [55-1 USTC
¶9211]Bank of America National Trust & Savings Association, etc.,
Plaintiff-Appellant v. Socrates Mamakos, United States of America,
William K. Weeks, et al., Defendants-Appellees
U. S. Court of Appeals, 9th Circuit, No. 73-1700, 509 F2d 1217, 1/21/75,
Affirming District Court decision, 73-1 USTC ¶9290
[Code Sec. 6323]
Tax liens: Priority of creditors: Attorney's fees of stakeholder.--The
Appellate Court affirmed the District Court's holding that the
attorney's fees of an interpleading bankstakeholder were not allowed
against a fund which was insufficient to satisfy prior federal tax
Thornhill, Legal Dept., Bank of America,
, for plaintiff-appellant. William A. Whilledge, Department of Justice,
, D. C. 20530, for defendants-appellees.
DUNIWAY, WRIGHT and INGRAHAM, *
America National Trust & Savings Association (the bank), plaintiff
in this interpleader action, appeals from denial of its motion for
relief from judgment under Rule 60(b), F. R. Civ. P. We affirm.
On December 1,
1971, Williams Weeks deposited in the commercial checking account which
he and his wife maintained at the bank's Cloverdale branch a check drawn
on a Florida bank for $13,500. On December 3, 1971, the Internal Revenue
Service (IRS) filed a notice of tax lien against the Week's property and
served on the Cloverdale branch a notice of levy (in the amount of
$670,190) against Weeks' account. Also on December 3, or slightly before
that date, Socrates Mamakos, attorney for the Weeks, presented for
payment a $13,500 check drawn on their account. The
check had not yet cleared, and Mamakos was told that the check could not
be honored for want of sufficient funds. Later, the
check was paid and $13,500 was credited to the Weeks' account.
On December 9,
1971, Mamakos wrote a letter to the bank's attorneys claiming that he
was entitled to the money in his clients' account by virtue of his
presentment of their check before the IRS levy. As Mamakos suggested,
the bank then filed an action in interpleader in state court, naming the
Weeks, Mamakos, and the government as defendants. At the government's
behest, the action was removed to federal court pursuant to 28
C. §§ 1441(a) and 2410(a)(5).
thereafter, on March 1, 1972, Mamakos disclaimed any interest in the
interpleaded funds and advised the bank's attorneys that his clients no
longer contested the government's right to collect the money. The bank,
however, declined the government's invitation to stipulate to the
dismissal of the action, refusing to pay over the interpleaded funds
unless it could deduct its costs and reasonable attorneys fees
(approximately $547.50). The government then moved for summary judgment,
and the bank moved for discharge with a direction to pay over the money
to the government less its costs and fees. On November 10, 1972, the
district judge granted the government's motion for summary judgment and
denied the bank's motion.
Almost a month
later, the bank filed its Rule 60(b) motion, alleging that the district
judge's memorandum opinion was based on an erroneous finding of fact,
that the IRS levy occurred about the same time as, or after, the
proceeds from the Florida check were credited to the Weeks' account, and
on an incorrect conclusion of law, that 26 U. S. C. §6332(d) provides
an absolute defense against a third party claimant for a stakeholder
like the bank which satisfies the government's tax levy with contested
funds. The district judge properly denied the motion.
60(b)(1), a district judge may grant relief from a judgment predicated
on "mistake, inadvertence, surprise, or excusable neglect."
His ruling on such a motion may not be disturbed on appeal absent a
showing that he has abused his discretion. Martella v. Marine Cooks
& Stewards Union, 9 Cir., 1971, 448 F. 2d 729; Title v.
, 9 Cir., 1959, 263 F. 2d 28, 31.
without deciding, that this is a proper case for entertaining a Rule
60(b) motion, which we seriously doubt, we find no abuse of discretion.
The bank argues that because there were no funds in the Weeks' account
at the time the IRS served its notice, the levy was ineffective. (See
26 U. S. C. §6331(b)). 1
But the bank failed to raise the point in opposition to the government's
motion for summary judgment, asserting it only after judgment had been
entered. This alone indicates that denial of the motion was not an abuse
of discretion. We note also that the argument is incorrect. The IRS, on
December 3, 1971
, gave notice not only of a tax levy, see 26
C. §§ 6331-32, but of a tax lien, see 26
C. §6321. This lien attached to all after-acquired property of the
Weeks, including their Cloverdale bank account. Glass City Bank v.
United States, 1945, [45-2 USTC ¶9449], 326
265; Seaboard Surety Co. v. United States, 9 Cir., 1962 [62-2
USTC ¶9653] 306 F. 2d 855, 859. Thus, had the bank correctly
investigated its legal position before filing its action in
interpleader, it would have discovered the government's paramount and
unquestionable right to the disputed funds. 2
Even were we
to hold that the IRS levy was ineffective, the district court on remand
would have to disallow the bank's claims for costs and attorneys fees.
Such claims may not diminish the portion of an interpleaded fund to
which the government is entitled by virtue of a federal tax lien. Seaboard
Surety Co. v. United States, supra; United States v. State National Bank
of Connecticut, 2 Cir., 1970, [70-1 USTC ¶9209] 421 F. 2d 519; Spinks
v. Jones, 5 Cir., 1974, [74-2 USTC ¶9657] 499 F. 2d 339. See
United States v. R. F. Ball Construction Co., 1958, [58-1 USTC ¶9327]
355 U. S. 587; United States v. Liverpool & London & Globe
Insurance Co., 1955, [55-1 USTC ¶9136] 348 U. S. 215.
The Honorable Joe McDonald Ingraham, Senior
Circuit Judge for the Fifth Circuit, sitting by designation.
This argument obviously depends on the fact that funds from payment of
check were not credited to the Weeks' account until after the IRS levy.
The bank is correct in asserting that the district court erroneously
found that the levy occurred after, or at about the same time as, the
funds were credited, but the court's error was harmless for the reasons
Even if 26 U. S. C. §6332(d) does not provide an absolute defense
against third party claimants to money paid in satisfaction of a tax
lien, but only against taxpayers claiming the funds, §6321 and the
cases cited above clearly establish the government's right to the money
in the Weeks' account.
¶9657]Paul G. Spinks and Mary E. Spinks, Plaintiffs--Appellees v. J. L.
Jones, Sr. and J. L. Jones, Jr., d/b/a J. L. Jones Construction Company,
et al., Defendants v. United States of America, Intervenor-Appellant.
Court of Appeals, 5th Circuit, No. 74-1373, 499 F2d 339,
, Summary Calendar. *
Vacating and remanding District Court, 74-1 USTC ¶9276
[Code Sec. 6323]
Priority of liens: Interpleader: Stakeholders' attorney's fees.--The
award of attorney's fees to the stakeholder of an interpleaded fund was
improper where the fund was partially impressed with Federal tax liens.
The awarded fees were taken "off the top" of that part of the
fund which was subject to tax liens. The award invaded the tax lien by
reducing the amount which the government could recover.
, for plaintiff-appellee. Edward J. Vulevich, Jr., Ass't U. S. Attorney,
Mobile, Ala., Scott P. Crampton, Ass't Attorney General, Meyer
Rothwacks, Daniel F. Ross, Jonathan S. Cohen, Dept. of Justice,
Washington, D. C. 20530, L. Y. Sadler, Jr., P. O. Box 516, Camden, Ala.,
COLEMAN, DYER and RONEY, Circuit Judges.
question on this appeal is the propriety of the District Court's [74-1
USTC ¶9276] award of attorney's fees to the stakeholders of an
interpleaded fund partially impressed with federal tax liens. The award
reduced the Government's recovery pro tanto. We vacate and
J. L. Jones
Construction Company recovered a judgment against Paul and Mary Spinks
court. Faced with conflicting claims against the moneys represented by
the state judgment, including federal tax liens, the Spinkses brought an
interpleader action. The District Court determined the priority of each
claim and ordered distribution of the fund: first, $3,700 to the
Construction Company's attorney, employed on a contingent retainer, for
his services in creating the fund; second, $500 to the Spinkses as
reasonable attorney's fees for bringing the interpleader action; third,
$2,070.74 in full payment to Marshall Lumber & Mill Company on its
mechanic's lien; and fourth, the balance of the $11,100 fund to the
United States in partial satisfaction of its tax liens. The Government
appealed the $500 reduction in the amount otherwise available to it
caused by the award of attorney's fees to the Spinkses.
stakeholder of an interpleaded fund is not entitled to attorney's fees
to the extent that they are payable out of a part of the fund impressed
with a federal tax lien. Commercial Standard Insurance Co. v.
Campbell [58-1 USTC ¶9477] 254 F. 2d 432, 433 (5th Cir. 1958); see
United States v. R. F. Ball Construction Co. [58-1 USTC ¶9327], 355
U. S. 587, 78 S. Ct. 442, 2 L. Ed. 2d 510 (1958); United States v.
Hubbell [63-2 USTC ¶9724], 323 F. 2d 197 (5th Cir. 1963); United
States v. State National Bank [70-1 USTC ¶9209], 421 F. 2d 519 (2d
Cir. 1970); United States v. Wilson [64-1 USTC ¶9396], 333 F. 2d
147 (3d Cir. 1964). See generally J. Moore, Federal Practice ¶22.16,
at 3159-3162 (1974); C. Wright & A. Miller, Federal Practice &
Procedure: Civil §1719, at 488-489 (1972). The Spinkses stress that
here, unlike the above cases, the Government does not have the paramount
claim. This distinction finds no support in the decided cases. The
judicial prerogative to award stakeholders their attorney's fees must
give way to the supremacy of the federal tax lien law whenever an award
would invade the amount subject to tax lien. United States v. Chapman
[60-2 USTC ¶9667], 281 F. 2d 862, 870 (10th Cir. 1960). In this case,
the District Court's fee award "off the top" invaded the tax
lien by reducing the amount which would therein be recoverable by the
Government. The portion of an interpleaded fund that is subject to a
Government tax lien cannot be reduced by an award of attorney's fees to
the stakeholder for bringing the interpleader action.
vacate the judgment insofar as it decreases the sum otherwise available
for satisfaction of its tax lien by the $500 attorney's fees to the
Spinkses and remand this cause to the District Court for further
consideration in the light of this opinion.
Rule 18, 5th Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty
Co. of New York et al., 431 F. 2d 409, Part I (5th Cir. 1970).
United States of America
, Plaintiff-Appellant v. The State National Bank of Connecticut,
Defendant-Appellee and Charles Wergeles, Dorothy Wergeles, Charles
Wergeles, Jr. and Theresa Mastrogiovanni Rust, Defendants
U. S. Court of Appeals, 2nd Circuit, Docket No. 34142, 421 F2d 519,
1/29/70, Reversing unreported District Court
[Code Sec. 6323]
Liens for taxes: Validity of liens: Bank-stakeholder.--A
disinterested bank-stakeholder was not entitled to attorney's fees from
the funds in the taxpayer's bank accounts when the amounts in the
accounts were insufficient to satisfy prior federal tax liens.
Hutzelman, Johnnie M. Walters, Assistant Attorney General, Lee A.
Jackson, Crombie J. D. Garrett, Department of Justice, Washington, D. C.
20530. Stewart H. Jones, United States Attorney,
, for plaintiff-appellant. Abram W. Spiro,
54 Main St.
ert M. McAnerney,
43 Corbin Dr.
, for defendant-appellee.
and FEINBERG, Circuit Judges, and LEVET, District Judge. *
involves the question of whether a District Court may award attorney's
fees to a bank-stakeholder from the funds in a taxpayer's bank accounts
when the amount in the accounts is substantially less than the amount
awarded in judgment to the
upon foreclosure of federal tax liens. We reverse the District Court's
The facts are
23, 1965, the
filed a complaint in the United States District Court for the District
of Connecticut against taxpayers Charles and Dorothy Wergeles for the
purpose of reducing tax liens to judgment and of foreclosing the liens
on certain bank accounts said to be the property of Dorothy Wergeles.
The two bank accounts, both on deposit with the defendant State National
Bank of Connecticut ("the bank") at its Ridgefield office, are
Account No. 748 in the name of Dorothy Inez Wergeles in trust for
defendant Charles Wergeles, Jr., and Account No. 749 in the name of
Dorothy Inez Wergeles in trust for defendant Theresa Mastrogiovanni, now
known as Theresa Mastrogiovanni Rush. On January 24, 1966, the bank
filed an answer and counterclaim admitting that Accounts No. 748 and 749
were on deposit with it and that the accounts contained balances as of
that date in the sums of $2,000 plus accrued interest and $300.94 plus
interest, respectively. The bank asked the court to adjudge whether the
United States or one or more of the defendants were entitled to the
accounts; sought permission to deposit such funds in the registry of the
court and be discharged from all liability; 1
and requested the award of costs and attorney's fees payable out of
Accounts No. 748 and 749.
On May 18,
filed a motion for summary judgment. On July 9, 1969, the District
Court, T. Emmet Clarie, Judge, without written opinion, granted
the motion for summary judgment, held that the taxpayers were jointly
and severally liable to the United States for the taxable year 1956 in
the amount of $27,155.39, and ordered that Dorothy Wergeles surrender
the deposit books for Accounts No. 748 and 749 to the bank, which was
directed to pay such funds to the United States for application to the
above judgment. The court also awarded the bank $400 in attorney's fees
to be paid out of the above accounts.
tax adjudged to be due was $27,155.39, the deposits totaled only
$2,300.94 plus interest. The
appealed from the award of $400 in attorney's fees to the bank. On
appeal, the bank neither submitted a brief nor presented argument. 26 U.
S. C. §6321 (1954 Code) provides for a lien for unpaid taxes in favor
of the United States upon the taxpayer's personal property, including
bank deposits. Notice of the federal tax liens pertaining to the
assessment against Charles and Dorothy Wergeles was duly filed with the
Secretary of State,
on April 24, 1963. The present taxpayer's accounts in the form of
revocable trusts were subject to these liens.
It is well
established that accounts deposited in a bank by the depositor in trust
for another are tentative trusts only, revocable at will until the
depositor dies or completes the gift in his or her lifetime by some
unequivocal act or declaration. Such a trust may be subject to claims of
creditors. Fruchtman v. Manning, 156
500, 242 A. 2d 723 (1968); Fasano v. Meliso, 146
496, 152 A. 2d 512 (1959);
Sav. Bank v. Everett, 132
92, 42 A. 2d 662 (1945). See also Matter of Totten, 179 N. Y. 112
(1904); Beaver v. Beaver, 117 N. Y. 421 (1889); Mabie v.
Bailey, 95 N. Y. 206 (1884); Matter of O'Sullivan, 173 Misc.
554 (1940); Matter of Weinberg, 162 Misc. 867 (1937).
judicial notice that banks today frequently recommend, indeed solicit,
the opening of trust accounts. Under the terms of such accounts, the
depositor remains in control of the fund with the right of withdrawal
during his lifetime, with the understanding that upon his death title to
the funds vests in the designated beneficiary. Presumably, experienced
bankers also know full well that such accounts may be subject to federal
tax liens. Consequently, the possibility of disputed claims to the funds
is not an unexpected business risk. The duty of a bank as a primary
depository is to hold the fund; and ordinarily when conflicting claims
arise, it becomes merely a stakeholder. When the
brought suit in the case at bar to reduce the tax liens to judgment and
have the sums in the two accounts applied in reduction of such judgment,
the bank, as a depository, became only a disinterested stakeholder.
arguendo, that a bank-stake-holder could enforce a lien for attorney's
fees in the absence of prior federal tax liens, it is evident that no
such lien for attorney's fees is enforceable when the available funds
are insufficient to satisfy a judgment based on prior federal tax liens.
The bank may
not rely on 26
C. §6323(b)(8), which provides for priority for an attorney's lien when
the attorney's efforts procured a judgment against which a previously
filed federal tax lien has attached. No efforts by the bank procured
any such judgment.
Nor can the
bank gain relief under 26 U. S. C. §6323(e)(3), which provides that a lien
or security interest deemed to be prior to a federal tax lien shall
extend to reasonable expenses, including attorney's fees incurred in
collecting or enforcing the secured obligation. There is no lien or
security interest (independent of the attorney's fees) which has
priority over the federal tax lien in this case.
equitable doctrine of reimbursement by way of allowance for attorney's
fees, recognized in Sprague v. Ticonic Bank, 307 U. S. 161, 164
(1939), has no application here since no fund was unconditionally
created as a result of the appellee bank's action. See Culter v.
American Federation of Musicians of United States and Canada, 231 F.
Supp. 845, 849 (S. D. N. Y. 1964), aff'd 366 F. 2d 779 (2nd Cir. 1966),
cert. denied, 386
We hold that a
disinterested bank-stake-holder is not entitled to attorney's fees from
a fund when the total amount in the fund is insufficient to satisfy
prior federal tax liens. United States v. Ball Construction Co.
[58-1 USTC ¶9327], 355 U. S. 587 (1958); United States v. Liverpool
& London Ins. Co. [55-1 USTC ¶9136], 348 U. S. 215 (1955); United
States v. Wilson [64-1 USTC ¶9396], 333 F. 2d 147 (3rd Cir. 1964); Seaboard
Surety Company v. United States [62-2 USTC ¶9653], 306 F. 2d 855
(9th Cir. 1962); United States v. Henry's Bay View Inn, Inc.
[61-1 USTC ¶9157], 191 F. Supp. 632 (S. D. N. Y. 1960).
We reverse the
judgment insofar as it awarded $400 in attorney's fees from the amount
on deposit with the bank.
Of the Southern District of New York, sitting by designation.
It appears from the record that the court did not rule directly on the
portion of the bank's counterclaim which was in the nature of
interpleader. Instead, the court granted the government's motion for
summary judgment and ordered that the bank "deliver to the
a check payable * * * in the full net amount of said accounts * *
*." Therefore, we need not discuss further the issue of
United States of America
v. Anthony J. J. A. Wilson, Hedwig C. Wilson, Massachusetts Mutual Life
Insurance Company, and Travelers Insurance Company, Travelers Insurance
U. S. Court of Appeals, 3rd Circuit, No. 13,859, 333 F2d 147, 4/10/64,
Affirming District Court, 61-2 USTC ¶9693, 195 F. Supp. 332
Tax liens: Recovery of interpleader costs.--An insurance company
was denied recovery of costs of interpleading in the Wilson case,
64-1 USTC ¶9395, where the allowance of such costs would have impaired
the value of the Government's lien attaching against insurance policies
of a delinquent taxpayer. In private actions in the nature of
interpleader in which the stakeholder asserts or maintains a substantial
adversary position, courts properly exercise their discretion to
disallow recovery of costs.
Oberdorfer, Assistant Attorney General, L. A. Jackson, J. Kovner, M. A.
Mulroney, Dep't of Justice, D. M. Satz, Jr., U. S. Attorney, Newark, N.
J., for appellee. Stryker, Tams & Dill, Burtis W. Horner, Newark, N.
J., for Travelers Ins. Co., appellant.
Chief Judge, and MCLAUGHLIN, KALODNER, STALEY, HASTIE, GANEY and SMITH,
of the Court
This is the
appeal of the Travelers Insurance Company ("Travelers") in the
Section 7403, Internal Revenue Code of 1954, action brought against
delinquent taxpayer, Anthony Wilson, and involving foreclosure of a tax
lien on his interest in certain unmatured insurance policies. The
separate appeal of the Massachusetts Mutual Life Insurance Company in
this same proceeding is filed concurrently herewith and is reported at
[64-1 USTC ¶9395] -- F. 2d -- (1964).
The facts of
the case at bar are set out in the opinions of the court below reported
at [60-1 USTC ¶9400] 182 F. Supp. 567 (1960), at [61-1 USTC ¶9268] 191
F. Supp. 69 (1961), and at [61-2 USTC ¶9693] 195 F. Supp. 332 (1961),
and in the "Tabulation of Information re Life Insurance
Policies" appended to our opinion in United States v. Sullivan
[64-1 USTC ¶9392], -- F. 2d -- (1964), filed concurrently herewith. The
"Tabulation" is incorporated into this opinion by reference. 1
unnecessary to recite the facts here. For present purposes it is
sufficient to state that unlike the four other tax lien-insurance cases
decided this day, no question was presented below as to Travelers
respecting policy loans or automatic premium loans and the proper
measure of the Government's recovery. 2
The company professed its willingness to turn over the cash surrender
value of its policy to the Government pursuant to a proper order of the
court. Travelers, however, made application for an allowance of a setoff
for its costs in the proceeding, which consisted almost exclusively of
attorney's fees. 3
The court below denied the company's request and this determination
forms the basis of the present appeal.
asserts that its status in the case at bar has been that of a
stakeholder of its policy's cash surrender value and that by reason
thereof, it is entitled to recover its costs out of the fund citing as
authority a number of cases dealing with interpleader. Travelers' claim
in the circumstances of this case is ill-founded and does not require
extended discussion. The company, of course, was in a fundamental sense
a stakeholder in the proceeding below notwithstanding the fact that it
occupied the nominal status of defendant rather than interpleader. But
it is far from clear that Travelers acted the role of a disinterested
of Costs Denied]
flatly asserts on this appeal without citing any record references in
support of its claim, that Travelers "devoted substantial time and
energy to developing and briefing an argument on the automatic premium
loan question [which was posed with respect to its co-defendant, the
Massachusetts Mutual Life Insurance Company]." Brief for Appellee,
p. 65. Some substance is given to this assertion by the fact that in its
appeal brief filed with this court, Travelers devoted some twenty-three
pages of argument to the automatic premium loan and related issues
(because of their "fundamental importance to the insurance
industry," Brief for Appellant, p. 5) and only four pages to the
cost question. Travelers apparently did not particularize its costs
other than as indicated in note 3 supra. In private actions in
the nature of interpleader in which the stakeholder asserts or maintains
a substantial adversary position, courts properly exercise their
discretion to disallow recovery of costs.
v. Sentell, 153
465, 485-86 (1894); Century Ins. Co. v. First Nat'l Bank, 102 F.
2d 726, 729 (5 Cir.), cert. denied, 308
570 (1939); American Smelt. &
Ref. Co. v. Naviera Andes Peruana, S. A., 208 F. Supp. 164, 171-72 (N. D. Cal. 1962).
It would be
superfluous, however, to pursue this line of inquiry further. What is
more clearly of controlling importance here is the fact that the
Government's delinquency claim against
far exceeded the total amount of its judgment. To allow Travelers to
recover its costs, therefore, would be to impair the value of the tax
lien. We are of the view that existing law precludes such a result. See United
States v. Ball Constr. Co. [58-1 USTC ¶9327], 355 U. S. 587 (1958)
(per curiam); United States v. Liverpool & London & Globe
Ins. Co. [55-1 USTC ¶9136], 348 U. S. 215 (1955); Seaboard Sur.
Co. v. United States [62-2 USTC ¶9653], 306 F. 2d 855 (9 Cir.
1962); United States v. Chapman [60-2 USTC ¶9667], 281 F. 2d 862
(10 Cir. 1960); Narragansett Bay Gardens v. Grant Constr. Co.
[59-2 USTC ¶9557], 176 F. Supp. 451 (D. R. I. 1959).
issues being presented on this appeal, the judgment against Travelers
Insurance Company will be affirmed.
Those facts set out in the "Tabulation" which are enclosed by
parentheses are not in the record of the case. The
"Tabulation" must be read with that in mind.
There apparently had been no applications for pay-outs of the policy's
cash surrender value at times pertinent to the Government's claim and
premiums on the policy had been prepaid through the time of judgment in
the court below.
The "Affidavit in Support of Application for Counsel Fee"
filed by counsel for Travelers stated that "a fair and reasonable
charge [for counsel fees] would be $650.00, together with our
out-of-pocket expenses in the amount of $7.88."
¶9653]Seaboard Surety Company, a New York Corp., and Hansen &
Rowland, Inc., a Washington Corp., Appellants v. United States of
U. S. Court of Appeals, 9th Circuit, No. 17,618, 306 F2d 855, 7/24/62,
Affirming unreported District Court decision
[1954 Code Sec. 6321]
Lien for taxes: Future profits under Government contract: Profits
assigned to trust.--A lien for withholding taxes attached
immediately to the taxpayer's rights under a Government contract awarded
after assessment, and this lien could not be displaced by an assignment
in trust of payments to become due under the contract, the trust funds
to be used to pay costs chargeable to the contract, to pay the surety's
costs, and to pay other creditors. Legal expenses incurred by the surety
and the trustee in bringing an interpleader suit were not entitled to
priority. Since the surety and the trustee had disclaimed any interest
in the trust fund except for legal expenses, they could not appeal from
the order disbursing the funds (except as to the legal expenses which
they had withheld).
McKelvy, Henke, Evenson & Uhlmann, William E. Evenson, William F.
, for appellant. Louis F. Oberdorfer, Assistant Attorney General,
Washington 25, D. C., Brockman Adams, United States Attorney, Thomas H.
S. Brucker, Assistant United States Attorney, Seattle, Wash., for
BARNES and BROWNING, Circuit Judges.
This is an
appeal from a judgment entered by the United States District Court
directing the clerk of the court to pay appellee $28,673.16 from the
funds in the registry of the court, and giving judgment against
appellants in the amount of $1,903.02. Jurisdiction was conferred upon
the district court by §§ 1335 and 2463, Title 28, United States Code,
and §7403, Title 26, United States Code.
appellee was entered on
September 5, 1961
. A timely notice of appeal was filed. This court has jurisdiction to
review the judgment entered below under the provisions of §§ 1291 and
1294(1), Title 28, United States Code.
We note that
Seaboard and Hansen & Rowland appeal from the judgment, but that
defendant creditors have not appealed from the judgment granting
appellee priority over their claims.
This was an
action in interpleader brought by appellants, interpleading plaintiffs
below, to determine the relative rights of various creditors, including
appellee, in and to certain funds representing the profit from a
completed construction job of Poland & Pfaff, Inc. (hereinafter
referred to as "taxpayer").
On or about
December 31, 1956
, taxpayer was awarded a government construction contract. Taxpayer and
C & R Builders, Inc. (hereinafter referred to as "C &
R"), a joint venturer, on December 31, 1956 made application to
appellant Seaboard Surety Company (hereinafter referred to as
"Seaboard") for the issuance of a performance bond, and a
payment of labor and material bond. As a condition to issuance of the
bonds, Seaboard required "standby" agreements to be obtained
from taxpayer's existing creditors. 1
Appellee, although a creditor, 2
was not requested to nor did it participate in any such agreement. None
of the aforementioned creditors had any claim or debt due from taxpayer
arising out of the government contract.
On March 2,
1957, a trust agreement (Ex. 1) was executed by taxpayer, C & R,
Seaboard, the University Branch of the Pacific National Bank of Seattle
(hereinafter referred to as "Pacific National"), and appellant
Hansen & Rowland, Inc. (hereinafter referred to as "Hansen
& Rowland"). The trust instrument's preamble states that the
proceeds of taxpayer's government contract were assigned 3
to Pacific National. 4
was performed and all claims arising therefrom were satisfied as of
May 27, 1959
. The balance in the trust account was $31,171.16 which sum is the
"remaining funds" referred to in paragraph (i) of the trust
agreement (set forth in footnote 4, supra).
On or about
July, 31, 1958, appellee through its District Director of Internal
Revenue for the Seattle District, caused a Notice of Levy (Form 668-A)
to be served upon Hansen & Rowland showing a total amount (including
interest) of $28,006.08 then due on appellee's liens. On or about
August 15, 1958
, appellee, through its same agent, caused a Final Demand (Form 668-C)
to be served on Hansen & Rowland and on Seaboard.
Suit by Surety and Trustee]
competing claims of creditors and appellee to the profits of taxpayer
from its government contract, appellants brought the interpleader action
May 29, 1959
, against the creditors and appellee as defendants, asking the court to
determine their respective rights to the aforementioned fund. 5
expressly disclaimed any interest in or right to the deposited fund of
$28,673.16 for their own interest, except that they alleged that the
trust account was "primarily" subject to the costs and
expenses of these proceedings, the reimbursement to them for all their
costs and expenses to be incurred therein, and to the payment of all
beneficiaries of the trust account and defendants which otherwise on any
account would have any claim against appellants or either of them.
creditors, represented by their own attorneys, fully participated in the
proceedings below. Appellee moved to dismiss the action against it and
intervened to enforce its tax liens. The essential facts were admitted
on pretrial order, and based upon the facts above stated, the district
court entered the following Conclusions of Law:
(1) That a
lien for taxes under Section 6321 of the Internal Revenue Code of 1954
attaches to all "property and rights to property belonging to a
taxpayer." However, rights under an executory bilateral contract
are not property or rights to property within the scope of Section 6321
unless and until the agreed exchange under the bilateral contract has
been performed and a right to payment has been earned.
(2) That under
law there was no valid legal or equitable assignment to defendant
creditors or an interest in the fund to be created from performance of
the government contract.
(3) That when
the fund referred to in paragraph (i) of the trust agreement came into
existence after prior claims to the proceeds of the government contract
were paid, the tax lien of appellee attached to and had priority over
the claims of defendant creditors.
(4) That under
the rule announced in United States v. Liverpool & London &
Globe Insurance Co., 1954, [55-1 USTC ¶9136] 348
215, appellants were not entitled to priority over the claim of appellee
for the expense incurred in bringing this action.
appellee (the intervenor) is entitled to a judgment and decree declaring
that the priorities and the rights to payments from the trust account
(which fund totaled $31,173.16 as of
May 27, 1959
) are as follows:
Priority: The tax liens of appellee in the sum of $23,780.31 plus
interest at the rate of six per cent on $21,440.31 from
November 15, 1956
to date in the amount of $6,164.07 plus interest at said rate on
February 28, 1957
to date in the amount of $631.80 (totaling $30,576.18).
Priority: The costs and attorneys' fees of appellants.
Priority: The priority and amounts of each of the several defendant
creditors were not established, as the funds which are the subject of
this interpleader action will be insufficient to satisfy the second
appellee is entitled to an order directing the clerk of the district
court to pay it $28,673.16 from the funds in the registry of the court.
appellee is entitled to judgment against Seaboard & Hansen &
Rowland in the amount of $1,903.02. (This represents the difference
between the total amount due the government and the amount deposited by
appellants are entitled to judgment for costs and attorneys' fees in the
amount of any balance remaining in their possession originating from the
trust account after payment of the judgment in favor of appellee ($2,500
less $1,903.02, or $596.98).
computation of the interest due on the tax liens was made. On
September 5, 1961
, the district court entered judgment which followed in its terms the
above Conclusions, i. e., the clerk was directed to pay appellee
$28,673.16 from the funds in the registry of the court, and appellee was
given judgment against appellants in the amount of $1,903.02. Appellants
were awarded the balance of $596.98.
forth seventeen specified errors upon which they rely in this court. For
reasons set forth below, however, we believe only those errors which
touch upon that part of the judgment granting appellee judgment against
Seaboard and Hansen & Rowland in the amount of $1,903.02 are
properly to be considered by this court.
complaint appellants stated:
". . .
Plaintiff trustee is ready, willing and able to pay the balance of said
fund over to the clerk of this court or as this court by its judgment
may otherwise direct. Plaintiffs disclaim any interest in or right to
said balance of said account for their own interests, except that
plaintiffs allege said account is primarily subject to the costs and
expenses of these proceedings, the reimbursement of plaintiffs for all
their costs and expenses to be incurred herein, and to the payment of
all beneficiaries of said trust account and defendants which otherwise
on any account would have any claim against the plaintiff or either of
them." (Italics added.)
disclaimer was repeated in the Partial Pretrial Order and the Findings
of Fact. Thus, appellants disclaimed any interest in the deposited fund.
The district court found they had no interest in the fund. Under these
circumstances, we rely on the rule that a party who has no interest in a
fund cannot appeal from an order disbursing that fund. 6
Defendant creditors below, who are the only parties affected by that
portion of the judgment, had the right to appeal to protect their
interests. They did not do so. Appellants have no right or power to
represent the interests of others on appeal. Therefore, appellants'
appeal must be dismissed insofar as it attempts to review the judgment
of the district court awarding $28,673.16 to appellee.
hence confined to questioning that part of the judgment entered against
them granting appellee the sum of $1,903.02; this money will be paid
from appellants' pockets, not from the fund, but only because appellants
"pocketed" attorneys' fees before filing suit.
right of appellee to the $1,903.02 depends upon its lien upon the full
amount of taxpayer's profits from the construction contract, the
validity of that lien is determinative of the issue between the parties.
Lien Against Future Profits]
facts show that as of and prior to the date of the trust agreement,
appellee had a fully perfected tax lien upon all property and rights to
property of the taxpayer, in the sum of $21,440.31 plus interest from
November 15, 1956, and $2,340 plus interest from February 28, 1957.
These liens, arising upon assessment under Section 6321 of the Internal
Revenue Code of 1954, continue in full force and effect until the tax
liability is extinguished (26 U. S. C. §6322) and attach to all
after-acquired property of the taxpayer. Glass City Bank v. United
States, 1945, [45-2 USTC ¶9449] 326
265. These tax liens attached immediately to all rights of taxpayer
under the government contract awarded
December 31, 1956
, including payments whenever earned. On
December 31, 1956
, and up to March 2, 1957, (the date of the trust agreement) appellee
had a prior lien ahead of all of other creditors. None of the other
defendant creditors had any liens upon the property of taxpayer, and no
lien upon the rights of taxpayer in the government contract. Appellee
was the only creditor with a lien upon these rights. Hence, it follows
that the trust agreement of
March 2, 1957
, could not displace the tax liens, which had already attached to
taxpayer's property rights in the contract. The fact that taxpayer's
rights under the contract were dependent upon its performance did not
affect the tax liens, as far as the defendant creditors are concerned. Glass
City Bank v. United States, supra. The tax liens were subject only
to a prior, choate lien upon these rights. Alleged beneficial interests
of the creditors in this case arose after the tax liens and are
subordinate to the tax liens.
, 1954, [54-1 USTC ¶9191] 347
81; United States v. Christensen, 9 Cir. 1959, [59-2 USTC ¶9621]
269 F. 2d 624. 7
Appellee had a
prior choate tax lien upon any profits of taxpayer under the government
contract, and this prior tax lien was superior to the then existing
non-lien creditors of taxpayer, and appellee's priority was not in any
way displaced or affected by the agreement of March 2, 1957. Appellee
was entitled to payment of its lien totaling $30,576.18, inclusive of
interest, out of the funds in the hands of appellants as of
May 27, 1959
. Appellants could not diminish appellee's lien by withholding from the
fund an amount to cover their attorneys' fees and costs of the
interpleader action made necessary by competing claims of other
creditors which were junior to the tax liens of appellee.
from appellants' complaint, that appellants, in the district court,
contended that they were entitled to attorneys' fees and expenses for
the preparation and filing of this action and for the prosecution of
these proceedings. The district court regarded their claims as being
"for the expenses incurred in bringing this action."
Appellants now contend that their claims are for the expenses of the
istration of the trust apart from the prosecution of the interpleader
action. It is settled law that the lien of appellee's is superior to the
attorneys' fees and costs of an interpleader. 8
district court, appellants did not contend and made no offer of proof
that they had incurred legal expenses for matters not related to the
preparation and prosecution of the instant case. They cannot do so here.
Factual issues cannot be raised for the first time on appeal. Carr v.
, 9 Cir. 1957, 243 F. 2d 482.
We affirm the
judgment awarding $1,903.02 to appellee. Appellants' appeal from that
portion of the district court's judgment directing the clerk of the
court to pay to appellee those funds which had been placed in the
registry of the court by appellants as interpleaders is dismissed.
Whose claims or debts arose prior to
December 31, 1956
, some of which were defendants below. By signing these agreements, the
creditors promised not to take legal action against taxpayer until one
year after the completion of the government contract; and taxpayer
agreed to pay those creditors which signed these agreements on a pro
rata basis after the expenses of the job were satisfied.
Taxpayer, an Alaska Corporation, had employees before
December 31st, 1956
. On account of this employment and the payment of wages, assessments
were duly made for the quarters ended September 30, 1956 and December
31, 1956 of the amount deducted and withheld by taxpayer from wages as
the collection of taxes upon the income of its employees (i.e.,
withholding taxes). The District Director of Internal Revenue for the
District of Seattle gave notice of each of these assessments to, and
demanded payment of, the amount thereof from taxpayer. The District
Director filed the notices of tax liens with the United States
. The amount of taxes and the penalty or interest included in each
assessment, or both, the dates of filing of notices of tax liens, the
amount of any payment and the amount of the unpaid balance of the
assessments, are as follows:
The district court found and concluded that this assignment (Ex. 5) did
not in fact take place until
April 8, 1957
The operative provisions of the trust agreement here material are, in
substance, as follows:
taxpayer and Pacific National assigned and transferred all monies
received, due or to become due Pacific National under its assignment of
the government contract to Seaboard, Seaboard being authorized to
receive all checks, warrants, and other instruments in payment of the
contract and to endorse and deposit them in a trust account with the
2. The money
held by the trustee was to be disbursed in payment of the costs and
expenses directly and indirectly chargeable against the government
3. In the
event of default on the part of taxpayer, or on account of non-payment
of claims for labor and materials, Seaboard was to have authority to use
the balance of monies in the possession of the trustee for the purpose
of completing the government contract and of paying any obligations
which Seaboard may have been required to pay on account of the execution
of the bonds.
Paragraph (i) of the trust agreement provided in part, that after
payment of all expenses incurred in performance of the government
contract, including advances made by Pacific National and certain
expenses of Seaboard and the trustee:
remaining funds . . . shall be paid to creditors of [taxpayer], in such
amounts as are indicated in statement of [taxpayer] dated December 31,
1956, or such agreed revision as may later be made between [taxpayer]
and its creditors properly certified to Trustee. Any residual amount
shall be paid to [taxpayer] when the time for bringing suit against
[Seaboard] shall have expired and all claims and suits against
[Seaboard] by reason of the operations of [taxpayer] under bonds past or
present of [Seaboard] shall have been terminated."
Appellants did not, however, deposit in the registry of the court the
full amount of the balance in the trust account of $31,173.16 but,
instead, deposited in the registry of the court $28,673.16, and retained
$2,500 for attorneys' fees in the action and for estimated costs of the
Spriggs v. Stone, D. C. Cir. 1949, 174 F. 2d 671 ("An
[executor] cannot appeal for the protection of the interests of
particular devisees or legatees who are able to protect themselves by
taking an appeal of their own.") In re Michigan-Ohio Building
Corporation, 7 Cir. 1941, 117 F. 2d 191 ("Speaking more
specifically, a party has an appealable interest only when his property
may be diminished, his burdens increased or his rights detrimentally
affected by the order sought to be reviewed."); King v.
Buttolph, 9 Cir. 1929, 30 F. 2d 769 ("It is fundamental that an
appellant must either have or represent an interest in the
subject-matter of the appeal, and it is generally held that, where it
does not appear that the
istrator has an interest in a controversy and he is the only party
asking a review of the judgment, the appeal should be dismissed.").
See also, 2 Am. Jur., Appeal and Error, §150; 4 C. J. S., Appeal and
The case of In re Halprin, 3 Cir. 1960, [60-2 USTC ¶9564] 280 F.
2d 407, does not stand for the proposition it is cited for by
appellants, since it involved only the priority of a person financing
the contract out of which the taxpayer would earn any property subject
to the federal tax lien. In this case, the only creditor in that
position is Pacific National, and its priority is not in dispute.
Defendant creditors in this case had nothing to do with financing the
construction contract. Their claims are for indebtedness incurred by
taxpayer prior to
December 31, 1956
. At that time, and up until
March 2, 1957
, the defendant creditors were junior to appellee's tax lien. The fact
that defendant creditors agreed to forbear from suit in return for a
promise that they would be paid out of the profits of the contract does
not give them priority over appellee. At the time of the
March 2, 1957
agreement, defendant creditors were no more than general creditors of
taxpayer, junior in every respect to appellee's tax lien. They cannot
contract away appellee's tax lien. At the most, the trust agreement of
March 2, 1957
, so far as defendant creditors are concerned, conferred upon them an
inchoate, future interest.
In United States v. Liverpool & London & Globe Ins. Co.,
1955 [55-1 USTC ¶9736] 348 U. S. 215, a garnishment action, the Court
held that the tax lien was prior to the garnishment lien and that
"fees in [the garnishment] proceeding are not prior to the
Government liens, and the authorization of the payment of the attorneys'
fees prior to the Government liens was error." In United States
v. Ball Construction Co., 1958, [58-1 USTC ¶9327] 355 U. S. 587, an
interpleader action, the Court said: "The claim of the interpleader
for its costs is controlled by United States v. Liverpool &
London & Globe Ins. Co., [supra]." In United States v.
Chapman, 10 Cir. 1960, [60-2 USTC ¶9667] 281 F. 2d 862, the court
held that the tax lien of the United States could not be diminished by
the attorneys' fees and costs, and that the interpleader would have to
look to other parties for its costs.
ert D. Bjork, Plaintiff-Appellee v. United States of America,
Defendant-Appellant and George E. Mahin, Director, Illinois Department
of Revenue, Defendant-Appellee
U. S. Court of Appeals, 7th Circuit, No. 72-1936, 486 F2d 934, 10-4-73,
Rev'g and rem'g, 72-2 USTC ¶9693
[Code Sec. 6323]
Collection: Validity of liens: Validity and priority against third
parties: Beneficial interest.--Pursuant to a Bulk Sales Stop Order
issued by the Illinois Department of Revenue, seeking a claim of the
State of Illinois under its Retailers Occupation Tax, the purchaser of a
card and gift shop created a fund from a portion of the purchase price
in order to satisfy the claim against the seller. The seller's
beneficial interest in the fund was a sufficient property interest to
which the tax liens of the
could attach. Since the State's stop order did not create a vested
interest in the fund, interrupting possession only and not the transfer
of beneficial interest in the fund, and since no State lien had arisen
by the date of the Government's tax lien, the Government prevailed.
Also, the Government prevailed in its appeal from the award of
attorney's fees and costs incurred by the purchaser's attorney.
Scott, Attorney General, Bonny Barezky, Assistant Attorney General,
ert D. Bjork, 20 N. Wacker Drive, Chicago, Ill., for plaintiff-appellee.
Scott P. Crampton, Assistant Attorney General, Karl Schmeidler,
Department of Justice, Washington, D. C. 20530, James R. Thompson,
United States Attorney, William T. Huyck, Assistant United States
Attorney, Chicago, Ill., for defendant-appellant.
FAIRCHILD and SPRECHER, Circuit Judges, and GRANT, *
Senior District Judge.
Letter Service, Inc. (Cline) made a bulk transfer of its card and gift
shop and office supply business to Martin J. Kucera in July, 1971, under
the provisions of Article 6 of the Uniform Commercial Code, ILL. REV.
STAT. ch. 26, §§ 6-101 to -110 (1971). On
July 15, 1971
, Kucera gave notice to those creditors of Cline who appeared on the
transferee's sworn list of creditors that on July 30 he would purchase
Cline's business for $13,000 cash. All the requirements of the Bulk
Transfer provisions of the U. C. C., as enacted in Illinois, 1
were complied with.
creditors were the
(the Government) and the Director of the Illinois Department of Revenue
(the State). On July 24 the State, acting pursuant to the Retailers'
Occupation Tax Act, §5j (ILL. REV. STAT. ch. 120 §444j (1971)), 2
issued a Bulk Sales Stop Order to Kucera, directing him to withhold
$2,500 from the purchase price as a fund from which to satisfy Cline's
obligation to the State for taxes due under the Act. At that time, the
obligation was undetermined as to amount. In fulfillment of this stop
order, Kucera procured a certified check for $2,500 payable to himself
and endorsed it to his attorney,
ert D. Bjork, on
July 30, 1971
, the date the purchase was closed. Bjork thereafter held the check as
an escrow deposit pending determination of the exact amount owed to the
State by Cline.
October 10, 1971
, the Government assessed income withholding, Social Security and
unemployment taxes against Cline in the amount of $2,323.69. Bjork was
served with a notice of levy on October 27, and notice of the tax lien
was filed in the appropriate public office the same day. When the
Government and the State failed to reach agreement on the proper
disposition of the fund and both sides continued to press Bjork, he
filed this statutory interpleader action (28
C. §1335) on January 14, in the district court. Shortly thereafter,
when Cline filed its final return on
January 31, 1972
, the exact amount of the retailers' occupation tax due the State was
In an opinion
July 24, 1972
, the district court denied the Government's motion for summary
judgment. The State's subsequent motion for summary judgment was granted
August 7, 1972
, and judgment was entered awarding the fund as follows: $1,387.62 to
the State, $24.48 in costs and $400.00 in attorney's fees to Bjork and
the remaining $687.90 to the Government. The Government has appealed,
and we reverse.
Fund Seller's Property?]
presented is whether under
law, the escrow fund was Cline's property on October 10, the date when,
if at all, the Government's lien attached. 3
As the district court stated:
tax liens attach only to 'property and rights to property' of the
taxpayer. 26 U. S. C. §6321. State law must be examined to decide
whether the taxpayer had any property or rights to property. Aquilino
v. United States
[60-2 USTC ¶9538], 363 U. S. 509, 512-13 (1960); [Avco Delta Corp. Canada
, Nos. 72-1428, 72-1899 (7th Cir.,
Aug. 1, 1973
);] Continental Oil Co. v. United States [71-1 USTC ¶9296], 326
F. Supp. 266, 269 (S. D. N. Y. 1971). If under state law the taxpayer
does have property or rights to property then it is a question of
federal law whether the federal lien has priority over the liens of
others. United States v. Security Trust & Savings Bank [50-2
USTC ¶9420], 340 U. S. 47, 49-50 (1950)." 4
court concluded that at the time of the sale when the escrow fund was
established (July 30), the State had a vested interest in the fund and
taxpayer Cline had only a contingent interest to the extent of any money
remaining after that due to the State and, therefore, that the
Government's lien attached on October 10 only to this contingent
interest. We do not agree that the transfer of funds into an escrow
account established a vested interest in the State. ILL. REV. STAT. ch.
ascertaining ownership of the property at the time of transfer, we do
not seek to determine who had the right to possession or physical
custody of the fund. If that were the question, the answer would be
simple: the right to possession passed from Kucera to Bjork at the time
of the transfer, and it was still in Bjork on October 10. Indeed, it
remained in Bjork until he endorsed the check and deposited it in the
district court registry. At any time between July 30 and the date of
deposit, Bjork could unquestionably have cashed the check and received
the proceeds. Just as clearly, he would not have been able to retain the
proceeds as his own, for Bjork had no beneficial interest in the fund.
The ownership of the benecial interest is what we seek to determine.
before the transfer, Kucera had the beneficial interest in the fund.
Absent a stop order, there is no question but that the beneficial
interest in what became the fund would have shifted to Cline at the time
of the transfer. This result is dictated by the contract between Cline
and Kucera by which Kucera agreed to give Cline a full $13,000 in cash
in return for Cline's business assets. Since Cline performed his part of
the bargain, had there been no stop order Cline would have prevailed
against Kucera in an action to recover the full $13,000.
Not Vested in the State]
How did the
stop order affect the shifting of the beneficial interest on July 30th?
Section 5j's (supra note 2) purpose is to insure the existence of
some cache of the seller's property from which the seller's tax
liability can be satisfied. To accomplish this purpose, the statute
appeals to the purchaser's self-interest in avoiding personal liability
for the tax and gives him a means of doing so without breaching his
contract with the seller. It provides for the creation of what the
parties have referred to as an "escrow fund". Section 5j does
not purport to vest ownership of the held fund in the State. On the
contrary, it leaves the State to its usual methods of determining and
assessing the tax as set out in §§ 5 and 5a of the Act, ILL. REV.
STAT. ch. 26, §§ 444 and 444a.
district court's interpretation of §5j, the State would be able to
acquire a "vested interest" in funds due the taxpayer
under a bulk sale contract, an interest good against all creditors who
acquire a lien on the property subsequent to the issuance of the stop
order. This interpretation effects a suspension of the normal procedures
for obtaining a lien, 5
a result which is difficult to justify without clearer authority in the
statutory language. 6
Given Section 5j's apparent reliance on the remedial procedures of
Sections 5 and 5a of the Act, the most reasonable interpretation of the
effect of a stop order is that it insures some cache of the seller's
property from which to satisfy the seller's tax liability only insofar
as no perfected lien attaches to the fund prior to the determination of
the amount of such liability to the State. 7
Had Beneficial Interest]
we conclude that the stop order did not interrupt the transfer of
beneficial interest in the fund to Cline on July 30, but only
interrupted possession. 8
Unless or until the State proceeded to obtain a lien on the funds,
beneficial interest resided in Cline. No State lien having arisen by
October 10, Cline had sufficient property interest in the fund for the
Government's tax lien to attach. Fine Fashions, Inc. v. United States
[64-1 USTC ¶9270] 328 F. 2d 419 (2d Cir. 1964).
must also prevail in its appeal from the award of attorney's fees and
costs to Bjork out of the fund. Bjork depends on the district court's
holding that the Government's lien did not attach to sustain his award.
Since we reverse that holding and since the law on this point is clearly
in the Government's favor when it has a valid lien, 9
we likewise reverse the award of fees and costs.
of the district court is reversed and the cause remanded with directions
to enter judgment awarding the fund to the Government in the full amount
of its lien, as determined by the district court. If any amount should
remain after the award to the Government, the district court shall
determine if this interpleader action was brought by Bjork in good
If it should so determine, it shall award Bjork as attorney's fees the
amount remaining in the fund, up to $400. If any amount shall remain
after the award to Bjork, or if the district court should determine that
this action was not brought in good faith, it shall award the remainder
to the State, up to the full amount of its lien, as determined by the
district court. The remainder, if any, shall be awarded to Cline.
Bjork's filing and service fees in the district court are to be assessed
against the State.
In view of the
relative amounts of the awards reversed herein, we tax costs in this
court in favor of the Government, one-fourth of the taxable costs to be
assessed against Bjork and three-fourths against the State. No costs
shall be paid out of the interpleaded fund.
REMANDED WITH DIRECTIONS.
Senior District Judge
ert A. Grant of the Northern District of Indiana is sitting by
In the official version of the U. C. C., Article 6 comprises eleven
sections, one of which, §6-106, is optional.
is one of the 32 jurisdictions which has chosen not to adopt the
optional section. Since §6-106 is the only section which compels the
transferee to see to the application of the proceeds of the transfer,
the effect of choosing not to adopt the section is to enact a
creditor-notice statute rather than a creditor-protection statute.
"If any taxpayer, outside the usual course of his business, sells
or transfers the major part of any one or more of (A) the stock of goods
which he is engaged in the business of selling, or (B) the furniture or
fixtures, or (C) the machinery and equipment, of any business that is
subject to the provisions of this Act, the purchaser or transferee of
such assets shall, within 10 days after the sale or transfer, file a
report of the sale or transfer with the Department disclosing the name
and address of the seller or transferor, the name and address of the
purchaser or transferee, the date of the sale or transfer, a description
of the property sold, the amount of the purchase price and such other
information as the Department may reasonably require. The seller or
transferor shall pay the Department the amount of tax, penalty and
interest (if any) due from him under this Act up to the date of the
sale. The seller or transferor or the purchaser or transferee, at least
30 days before the date of the sale or transfer, may notify the
Department of the intended sale of transfer and request the Department
to audit the books and records of the seller or transferor, or to do
whatever else may be necessary to determine how much the seller or
transferor owes to the Department hereunder up to the date of the sale
or transfer. The Department shall take such steps as may be appropriate
to comply with such request.
purchaser or transferee shall withhold enough of the purchase price to
cover the amount of all tax, penalty and interest due and unpaid by the
seller or transferor under this Act or, if the payment of money or
property is not involved, shall withhold the performance of the
condition that constitutes the consideration for the sale or transfer,
until the seller or transferor produces a receipt from the Department
showing that such tax, penalty and interest have been paid or a
certificate from the Department showing that no tax, penalty or interest
is due from the seller or transferor under this Act.
purchaser or transferee is relieved of any duty to withhold from the
purchase price and of any liability for tax, penalty or interest due
hereunder from the seller or transferor if the Department fails to
notify the purchaser or transferee of the amount claimed by the
Department to be due hereunder from the seller or transferor within 30
days after the sale or transfer had ben reported to the Department where
the seller or transferor, or the purchaser or transferee, did not notify
the Department of the intended sale or transfer at least 30 days before
the date of the sale or transfer, or if the Department fails to notify
the purchaser or transferee of the amount claimed by the Department to
be due hereunder from the seller or transferor within 10 days after the
sale or transfer has been reported to the Department where the seller or
transferor, or the purchaser or transferee, did notify the Department of
the intended sale or transfer at least 30 days before it occurred and
did request an audit or such other review as might enable the Department
to determine how much it claims to be due hereunder from the seller or
transferor up to the date of the sale or transfer.
seller or transferor fails to pay the tax, penalty and interest (if any)
due from him hereunder and the Department makes timely claim therefore
against the purchaser or transferee as hereinabove provided, then the
purchaser or transferee shall pay the amount so withheld from the
purchase price to the Department. If the purchaser or transferee fails
to comply with the requirements of this Section, the purchaser or
transferee shall be personally liable to the Department for the amount
owed hereunder by the seller or transferor to the Department up to the
amount of the reasonable value of the property acquired by the purchaser
person who shall acquire any property or rights thereto which, at the
time of such acquisition, is subject to a valid lien in favor of the
Department shall be personally liable to the Department for a sum equal
to the amount of taxes secured by such lien but not to exceed the
reasonable value of such property acquired by him."
The State does not argue that any lien it may have has priority over the
Government's lien. Bjork makes such an argument for the State, based on
C. §§ 6323(c)(1)(A)(iii) and (B). However, the argument fails to take
the statutory definitions into account. The State's stop order to Kucera
and Kucera's subsequent endorsement of the check to Bjork with the
understanding that Bjork would pay the State the amount it finally
assessed do not constitute an "obligatory disbursement
agreement" within the meaning of §6323(c)(4)(A). As only one
example of the failure of this series of events to fit the definition.
Bjork does not meet the requirement that he have entered into the
agreement "in the course of his trade or business."
"§6321. Lien for taxes.
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." 26
C. §6321 (emphasis added).
Section 5 (Ill. Rev. Stat. ch. 120, §444) imposes a penalty upon the
seller for failure to make a return or pay the tax and sets forth the
istrative procedures for determining the amount of tax due from the
seller. In part, the section provides that if the seller fails to
provide a return, the Department shall determine the amount of the tax
due from him. Proof of such determination may be made at a hearing
before the Department or in any legal proceeding. The Department shall
issue to the taxpayer a notice of liability. The latter has 20 days to
file a protest and request a hearing. Thereafter, the Department shall
issue a final assessment, or, if no protest is filed, the notice of tax
liability shall become final. At any time before the final assessment is
reduced to judgment, the Department may grant a rehearing, pursuant to
which it shall issue a revised final assessment. In the case of a
failure to pay the tax or penalty, where the above review procedures
have terminated, or where the taxpayer has filed a return, the
Department may bring suit to recover this amount. Likewise, the person
assessed may file a suit in court for review of the final assessment or
revised final assessment.
Section 5a of
the Retailers' Occupation Tax Act (Ill. Rev. Stat. ch. 120, §444a),
provides in part that the Department shall have a lien for the tax,
penalty or interest, upon all the real and personal property of the
taxpayer after a final assessment or revised final assessment has been
issued, or whenever a return is filed without payment of the tax or
penalty shown therein to be due. Where the lien arises because of the
issuance of a final assessment or revised final assessment, the lien
shall not attach until all proceedings in court have terminated. Section
5a also provides for the issuance of a jeopardy assessment lien (infra
note 7). It further provides that "[n]othing in this Section shall
be construed to give the Department a preference over the rights of any
bona fide purchaser, mortgagee, judgment creditor or other lien holder
arising prior to the filing of a regular notice of lien or a notice of
jeopardy assessment lien . . .."
The district court's interpretation cannot be buttressed by the bulk
sales provisions of the U. C. C. for
has adopted a creditor-notice statute (supra note 1). The
enactment does not obligate the transferee to apply the consideration
for the transfer to the debts of the transferor. There is nothing in
these provisions which even remotely divests the transferor of his
property interest in the purchase price and vests the creditors with
such a possessory interest.
The State has the authority to proceed rapidly under §5a, which
provides in part:
Department finds that the collection of the amount due from any taxpayer
will be jeopardized by delay, the Department shall give the taxpayer
notice of such findings and shall make demand for immediate return and
payment of such tax, whereupon such tax shall become due and payable. If
the taxpayer, within 5 days after such notice (or within such extension
of time as the Department may grant), does not comply with such notice
or show to the Department that the findings in such notice are
erroneous, the Department may file a notice of jeopardy assessment lien
. . . [which] shall have the same scope and effect as the statutory lien
hereinabove provided for in this Section."
Rev. Stat. ch. 120, §444a.
The fund does not fit neatly into the strictures of any device-created
legal relationship, such as escrow or trust. However, the requirement
that the purchaser set aside part of the purchase price is analogous to
the institution of a proceeding by means of a writ of attachment to
insure preservation of the property until the attachment creditor can
obtain a perfected lien. In such a situation, the attachment creditor
runs the risk that its lis pendens will be ineffective against a
federal tax lien which arises and becomes perfected before the
attachment creditor obtains a perfected lien. United States v.
Security Trust & Savings Bank [50-2 USTC ¶9420], 340
United States v. R. F. Ball Constr. Co., 355 U. S. 587, 588
(1958); United States v. Liverpool & London & Globe Ins. Co.
[55-1 USTC ¶9136], 348 U. S. 215, 217 (1955) (per Minton, J.); United
States v. State Nat'l Bank [70-1 USTC ¶9209], 421 F. 2d 519, 521
(2d Cir. 1970); United States v. Gurley [69-2 USTC ¶9562], 415
F. 2d 144, 150 (5th Cir. 1969); United States v. Wilson [64-1
USTC ¶9396], 333 F. 2d 147, 149 (3d Cir. 1964); Seaboard Sur. Co. v.
United States [62-2 USTC ¶9653], 306 F. 2d 855, 860 (9th Cir.
See Aetna Life Ins.
v. Bowen, 308 F. Supp. 1394, 1396-97 (W. D. Mo. 1969).
United States of America
, Petitioner v. R. F. Ball Construction Company, Inc., and United
Pacific Insurance Company
Court of the United States., No. 97, 355 US 587, 78 SCt 442, 3/3/58,
Reversing CA-5, 57-1 USTC ¶9269, 239 F. 2d 384
On writ of certiorari to the United States Court of Appeals for the
[1939 Code Sec. 3672(a)--similar to 1954 Code Sec. 6323(a)]
Tax liens: Priority: Assignment to surety on subcontractor's bond as
"mortgage."--Before notice of federal tax liens was filed,
the taxpayer-subcontractor assigned to the surety on its bond sums due
and to become due for performance of the subcontract, as security for
any liability which the subcontractor might incur to the surety. The
assignment did not make the surety a "mortgagee" as to those
sums, so as to entitle its claim to priority over the federal tax liens.
J. Lee Rankin,
Solicitor General, Charles K. Rice, Assistant Attorney General, Earl E.
Pollock, Assistant to Solicitor General, A. F. Prescott, George F.
Lynch, Department of Justice, for petitioner. Jack Hebdon, Josh H.
Groce, Frost Bank Building, San Antonio, Tex., for United Pacific
Insurance Co. Richard U. Simon, 1407 Oil & Gas Building, Fort Worth,
Tex., for R. F. Ball Construction Co., Inc.
is reversed. The instrument involved being inchoate and unperfected, the
provisions of §3672(a), Revenue Act of 1939, 53 Stat. 449, as amended,
53 Stat. 882, 56 Stat. 957, do not apply. See United States v.
Security Trust & Savings Bank, 340 U. S. 47 [50-2 USTC ¶9492]; United
States v. City of New Britain, 347 U. S. 81, 86-87 [54-1 USTC ¶9191].
The claim of the interpleader for its costs is controlled by United
States v. Liverpool & London & Globe Ins. Co., 348 U. S. 215
[55-1 USTC ¶9136].
WHITTAKER, with whom JUSTICE DOUGLAS, JUSTICE BURTON and JUSTICE HARLAN
presented is whether an "assignment" made by a subcontractor
to his performance-bond surety of all sums to become due for performance
of the subcontract, as security for any indebtedness or liability
thereafter incurred by the subcontractor to the surety, constituted the
surety a "mortgagee" of those sums within the meaning of §3672(a)
of the Internal Revenue Code of 1939, as amended.
Construction Company had contracted to construct a housing project in
. On July 17, 1951, it entered into a subcontract with Jacobs under
which the latter agreed to do the necessary painting and decorating of
the buildings, and to furnish the labor and materials required, for a
stipulated price. The terms of the subcontract required Jacobs to
furnish to Ball a corporate surety bond, in the amount of $229,029,
guaranteeing performance of the subcontract. On July 21, 1951, Jacobs,
to induce respondent, United Pacific Insurance Company, to sign the bond
as surety, assigned to the surety all sums due or to become due under
the subcontract, as collateral security to the surety for any liability
it might sustain under its bond through nonperformance of the
subcontract, and for "the payment of any other indebtedness or
liability of the [subcontractor to the surety] whether [t]heretofore or
[t]hereafter incurred," not exceeding the penalty of the bond. On
April 30, 1953, a balance of $13,228.55 became due from Ball under the
subcontract, but, because of outstanding claims of materialmen against
Jacobs, Ball did not pay the debt. In May, June, and September, 1953,
the District Director of Internal Revenue filed, in the proper state
office, federal tax liens against Jacobs, aggregating $17,010.85.
Between December 1953, and March 1954--thus during the co-existent
period of the bond and the assignment--Jacobs incurred indebtedness,
independent of the subcontract, to the surety in the amount of
contending that its assignment of July 21, 1951, constituted it a
"mortgagee" within the meaning of §3672(a), claimed priority
of right to the $13,228.55 fund over the subsequently filed federal tax
liens. The Government disputed the claim and asserted a superior right
to the fund under its tax liens. Several creditors of Jacobs, holding
unpaid claims for materials furnished for and used in performing the
subcontract, asserted priority to a portion of the fund over the claims
of both the surety and the Government. Because of these rival claims,
Ball instituted this interpleader action, under which he impleaded the
surety, the Government, and the materialmen, and paid the fund into the
registry of the court to abide the judgment. Before conclusion of the
trial the materialmen's claims were satisfied. The District Court held
that, by the terms of the "assignment" and on its date of July
21, 1951, the surety became a mortgagee of the fund and that its right
thereto was superior, under §3672(a), to the subsequently filed federal
tax liens. 140 Fed. Supp. 60 [56-1 USTC ¶9514]. The Court of Appeals,
adopting that opinion, affirmed. 239 Fed. (2d) 384 [57-1 USTC ¶9269].
This Court now
reverses summarily, citing United States v. City of New Britain,
347 U. S. 81 [54-1 USTC ¶9191], and United States v. Security Trust
& Savings Bank, 340 U. S. 47 [50-2 USTC ¶9492]. We believe
those cases are not in point nor in any way controlling. Neither of them
even involve either the question here presented or the statute here
conceded by the parties to be controlling. Rather, they involved
entirely different facts, presented very different questions, and were
controlled by and decided upon other statutes. They were controlled by
and decided upon §§ 3670 and 3671 of the Internal Revenue Code of
which, in pertinent part, provided: "If any person liable to pay
any tax neglects or refuses to pay the same after demand, the amount . .
. shall be a lien in favor of the United States upon all property and
rights to property . . . belonging to such person" (§3670) from
the time ". . . the assessment list was received by the collector .
. .." (§3671.) Whereas the statute governing this case, as the
parties concede, is §3672(a) of the Internal Revenue Code of 1939, as
which, in pertinent part, provided: "Such lien shall not be valid
as against any mortgagee, pledgee, purchaser, or judgment creditor until
notice thereof has been filed by the collector--(1) . . . in the office
in which the filing of such notice is authorized by the law of the State
. . . in which the property subject to the lien is situated . . .."
was over that portion of the proceeds of a real estate mortgage
foreclosure sale which exceeded the amount of the mortgage. The City of
New Britain, in virtue of its unpaid annual ad valorem tax liens which
attached to the real estate on October 1 in each of the years 1947
through 1951, and its water-rent liens which had accrued from December
1, 1947, to June 1, 1951, claimed priority of right to the fund over
general federal tax liens against the mortgagor which had been effected
under §§ 3670 and 3671 by deposit of assessment lists in the
Collector's office on various dates between April 26, 1948, and
September 21, 1950. Thus, some of the City's liens had attached to the
real estate prior to receipt by the Collector of the assessment lists
and some had not.
This Court was
not there dealing with any mortgage, pledge or other contractual lien,
but was only dealing, as it said, with "statutory liens" (id.,
at 84); and in deciding the issue of their priority it observed that,
although §§ 3670 and 3671 created a lien in favor of the United States
upon all property of the taxpayer as of the time the assessment list was
received by the Collector, "Congress [had] failed to expressly
provide for federal priority . . ." (id., at 85) under those
sections, and the Court held ". . . that priority of these
statutory liens is [to be] determined by [the] principle of law [that]
'the first in time is the first in right.'" Ibid. The Court
then vacated the judgment of the state court and remanded the case for
determination of the order of priority of the various liens asserted, in
accordance with the opinion.
We think it is
not only apparent that §3672(a) had no application to that case but
also that the Court expressly so declared. It noted that the City of New
Britain contended that, because applicable state statutes provided that
real estate tax and water-rent liens should take precedence over all
other liens and encumbrances and §3672(a) subordinated federal tax
liens to antecedent mortgages, the Court should hold that the City's tax
and water-rent liens--having priority over mortgages--were prior in rank
to the federal tax liens; but the Court disagreed, saying: "There
is nothing in the language of §3672[(a)] to show that Congress intended
antecedent federal tax liens to rank behind any but the specific
categories of interests set out therein . . .."
, at 88. (Italics supplied.) As we have observed, supra,
"the specific categories of interest set out" in §3672(a)
were and are those of "any mortgagee, pledgee, purchaser or
In the Security
Trust case a creditor instituted a suit in
against one Styliano on a note and, on
October 17, 1946
, pursuant to provisions of the California Code of Civil Procedure,
procured an attachment of a parcel of real estate owned by Styliano.
While the attachment suit was pending the Government, on December 3, 5
and 10, 1946, filed notices of federal tax liens against Styliano in the
proper state office. Thereafter, on
April 24, 1947
, judgment was rendered against Styliano in the attachment suit, thus
perfecting the attachment lien on the real estate. Subsequently Styliano
sold the real estate, subject to these liens, and the purchaser filed a
suit to quiet his title, impleaded the attachment lienor and the
Government, and paid the purchase price into the registry of the court
to abide the judgment. The
trial court ordered the fund to be applied, first, in payment of the
attachment lien, and, second, in payment of the federal tax liens. The
California District Court of Appeal affirmed. On certiorari this Court
reversed, pointing out that, under the law of California as declared in Puissegur
v. Yarbrough, 29 Cal. 2d 409, 412, 175 P. (2d) 830, 831-832, an
attaching creditor obtains "only a potential right or a contingent
lien" until a judgment perfecting the lien is rendered, and that
meanwhile the lien "is contingent or inchoate--merely a lis
pendens notice that a right to perfect a lien exists."
, at 50. Naturally, in those circumstances, the tax liens which
became perfected in December 1946, were superior to the attachment lien
which did not become perfected until May 1947. There, as in
, this Court was not dealing with any mortgage, pledge or other
contractual lien, or with any question of priority of an antecedent
mortgage over subsequently filed tax liens.
It thus seems
quite clear to us that the
and Security Trust cases did not involve the question here
presented nor deal with the statute here conceded to be controlling and,
therefore, they do not in any way support the Court's decision here.
We also think
that, under the law and the facts in this record, the
"assignment" was in legal effect a "mortgage," and
inasmuch as it antedated the filing of the federal tax liens it was
superior to them under the expressed terms of §3672(a). That section
does not define the term "mortgagee" and, hence, we must
assume that it was there used in its ordinary and common-law sense. United
States v. Gilbert Associates, Inc., 345
361, 364 [53-1 USTC ¶9291]; United States v. Security Trust &
Savings Bank, supra, at 52 (concurring opinion). Substance, not form
or labels, controls the nature and effect of legal instruments.
"State law creates legal interests and rights." Morgan v.
78, 80 [40-1 USTC ¶9210]. The law of
, where the questioned assignment was made and was to be performed,
makes such an "assignment" a valid mortgage. Southern
Surety Co. v. Bering Mfg. Co., 295 S. W. 337, 341; Williams v.
626, 12 S. W. 534. Although the relation of a state-created right to
federal laws for the collection of federal credits is a federal
question, the State's classification of state-created rights must be
given weight. United States v. Security Trust & Savings Bank,
supra, at 49-50. Here, the State's determination that such
assignments are mortgages in legal effect, and its classification of
them accordingly, is not met by anything of countervailing weight. The
period of the assignment was coextensive with the bond. The bond
remained effective throughout the period here involved and, hence, so
did the assignment. The fact that the assignment was of property to be
afterwards acquired did not affect its validity as a
"mortgage," Conrad v. The Atlantic Ins. Co., 1 Pet.
386, 448, nor did uncertainty in the amount (not exceeding the fixed
maximum) of the generally identified obligation, so secured, do so. Ibid.
Neither does the fact that the instrument was not recorded under the
State's fraudulent conveyance statutes--thus to impart constructive
notice to subsequent purchasers, mortgagees and the like--make any
difference here, for the instrument was valid between the parties to it,
and Congress, by §3672(a), expressly subordinated federal tax liens to
antecedent mortgages. The questioned assignment conveyed to the surety
all sums then due and thereafter to become due under, and for
performance of, the then existing subcontract--performance of which was
guaranteed by the surety's bond--as security for the payment of
sufficiently identified but contingent and unliquidated obligations
which the subcontractor might incur to the surety during the coextensive
period of the bond and the assignment. In these circumstances, I think
it is clear that the assignment was in legal effect a mortgage,
completely perfected on its date, in all respects choate, and valid
between the parties; and inasmuch as it antedated the filing of the
federal tax liens it was expressly made superior to those liens by the
terms of §3672(a).
reasons, I dissent and would affirm the decision and judgment of the
Court of Appeals.
53 Stat. 448 and 449, 26 U. S. C. (1952 ed.) §§ 3670 and 3671.
53 Stat. 449, as amended by §401 of the Revenue Act of 1939, c. 247, 53
Stat. 882, and §505 of the Revenue Act of 1942, c. 619, 56 Stat. 957,
United States of America
, Intervenor, Petitioner v. The
& London & Globe Insurance Company, Ltd., and Sunnyland
Wholesale Furniture Company
the Supreme Court of the United States, No. 34.--October Term, 1954, 348
US 215, 75 SCt 247, January 10, 1955
On Writ of Certiorari to the United States Court of Appeals for the
[1939 Code Sec. 3672--changed in 1954 Code Sec. 6323]
Priority of liens: Insurance proceeds: Garnishment by creditor.--The
lien of a writ of garnishment filed on behalf of a litigating creditor
of taxpayer for the purpose of attaching insurance proceeds agreed to be
paid was not superior to a subsequently filed federal income tax lien.
Companion case ofU. S. v. Michael P. Acri, 55-1 USTC ¶9138,
Sobeloff, Solicitor General, H. Brian Holland, Assistant Attorney
General, Charles K. Rice, Ellis N. Slack, A. F. Prescott, Fred E.
Youngman, Special Assistants to the Attorney General, for petitioner.
Arthur S. Goldberg, 1032 Fidelity Union Life Building, Dallas, Tex.,
Goldberg & Alexander, of counsel, James R. Alexander, 1032 Fidelity
Union Life Building, Dallas, Tex., of counsel, Searcey L. Johnson, for
This is a case
involving priority of federal tax liens and a lien of garnishment.
March 8, 1952
, fire destroyed certain property of Adams, engaged in a furniture
. Respondent insurance company and another were the insurers. The
insurance companies agreed on the amount of the loss, and they were to
share the payment equally. Before the insurance money was paid, a
creditor of Adams, the Sunnyland Wholesale Furniture Company, on
April 8, 1952
on an open account. At the same time, a writ of garnishment was issued
and served upon the Liverpool & London & Globe Insurance
Company, attaching the insurance funds due and owing
April 21, 1952
, the assessment lists covering the unpaid federal taxes of Adams and
his wife for 1948 and 1950 were received in the office of the Collector
of Internal Revenue for
April 26, 1952
, notice of tax liens was filed in the office of the county clerk of
, in favor of the
for $10,417.57, with interest. Notice of the tax liens with warrants of
distraint and notice of levy were served on the respondent insurance
June 20, 1952
, judgment was entered against
in favor of Sunnyland for $2,516.70, with interest and costs. When the
garnishee, the respondent insurance company, answered, it named the
United States an additional party defendant and requested a
determination of priorities of the garnisher and the United States, and
asked for reasonable attorney's fees. The amendment was allowed, and the
was served with process to appear in the state court. On petition of the
the interpleader action was removed to the Northern District of Texas,
was dismissed as a party defendant and permitted to file its complaint
for foreclosure of its tax liens. The respondent insurance company paid
$7,500.39 into the registry of the court and asked for an attorney's fee
of $500. The District Court held [53-1USTC ¶9121] the lien of the
garnisher superior to the liens of the
for taxes and allowed the garnishee $500 for attorney's fees. 107 Fed.
Supp. 405. The Court of Appeals affirmed [54-1 USTC ¶9132], one judge
dissenting. 209 Fed. (2d) 684. We granted certiorari, 347
of priorities is identical with that ofAcri, No. 33 [55-1 USTC ¶9138],
this day decided, and United States v. Security Trust Co., 340 U.
S. 47 [50-2 USTC ¶9492]. On the authority of those cases we hold the
tax liens of the
superior to the lien of the garnisher.
As to the
attorney's fee allowed the garnishee insurance company, Rule 677,
's Texas Rules of Civil Procedure, provides:
the garnishee is discharged upon his answer, the costs of the
proceeding, including a reasonable compensation to the garnishee, shall
be taxed against the plaintiff; where the answer of the garnishes has
not been controverted and the garnishee is held thereon, such costs
shall be taxed against the defendant and included in the execution
provided for in this section; where the answer is contested, the costs
shall abide the issue of such contest."
District Court evidently found there was no contest between the
insurance company and the other parties, and that the insurance company
should be discharged with costs and allowance of a reasonable attorney's
fee of $500. It, therefore, ordered the clerk to issue a check to the
insurance company, payable out of the funds paid into the court by it.
garnishment lien is not prior to the Government liens, and we have held
that it is not, certainly fees allowed in that proceeding are not prior
to the Government liens, and the authorization of the payment of the
attorney's fees prior to the Government liens was error. The costs and
fees should be adjudged against the defendant, as provided by Rule 677.