¶9245] The Bank of
, Plaintiff v.
United States of America
District Court, East. Dist. Ky., London,
[Code Secs. 6323 and
7426 --Result unchanged
by the Tax Reform Act of 1986 ]
Collection of taxes: Validity of lien: District where filed: State
law: Kentucky: Civil actions by nontaxpayers: Priority of claims.--Under
Kentucky law, in order to perfect a security interest by filing,
financing statements must be filed in the county where the corporation's
registered office is located. Accordingly, a lienholder who filed in a
county other than the one in which the registered corporation office was
located did not perfect its security interest in equipment prior to the
IRS's filing of a tax lien against the equipment. Further, the
"good faith" provision of
law, which protects a lienholder who inadvertently files financing
statements in the wrong county, was inapplicable because, in the view of
the court, it was irrelevant whether or not the IRS had notice of the
P.O. Box 441
, for plaintiff. Louis G. DeFalaise, United States Attorney, Lexington,
ert L. Gordon, Department of Justice, Washington, D.C. 20530, for
The case comes
before the Court on both parties' motions for summary judgment. Both
parties have submitted memoranda in support of their motions for summary
judgment. After considering the record in this case, the Court grants
summary judgment for the defendant.
This is a suit
brought pursuant to 26 U.S.C. Section
7426(a)(3) in which the Court has been asked to determine the
respective priorities of the parties' liens against certain equipment of
Rockcastle Steel Corporation.
The facts are
not in dispute in this case. In 1977 and 1978 Plaintiff filed with the
Clerk of Rockcastle County various financing statements and security
agreements concerning certain equipment of Rockcastle Steel Corporation.
Sometime after this period, defendant filed two notices of tax liens
with the Clerk of Rockcastle County. Thereafter, defendant filed a
notice of tax lien with the Clerk of Fayette County. Approximately two
months later, plaintiff filed financing statements and security
agreements with the Clerk of Fayette County. A more detailed sequence of
the filing events is as follows:
Place of Filing:
December 4, 1979
, plaintiff took possession of said equipment. By agreement of the
parties, plaintiff sold the equipment on
April 16, 1980
. The proceeds of that sale are now being held by plaintiff pending the
determination of this action.
26 U.S.C. Section
6323(a) and (f) gives
a holder of a security interest priority over a tax lien only if the
security interest is perfected before the IRS has filed notice of its
lien in the proper location.
first must decide whether defendant properly filed notice of its tax
6323(f)(1)(A)(ii) states that in the case of personal property, the
Service must file notice of its tax lien in the office within the State
-"as designated by the laws of such State, in which the property
subject to the lien is situated. . . ."
law, KRS 382.480(1) sets forth that such notices must be filed "in
the office of the county clerk of each county within which the property
subject to the lien is located." Both parties agree that at the
time defendant filed its notice of tax lien, the equipment was located
. Thus, since the
filed its notices in
where the equipment was located, the defendant has filed notice of its
lien in the proper place.
Court must decide whether plaintiff obtained a properly perfected
security interest before the defendant filed notice of its lien in
26 U.S.C. Section
6323(h)(1) provides that one becomes a holder of a security interest
when his interest "has become protected under local law against a
subsequent judgment lien arising out of an unsecured obligation.
finds National Cash Register Co. v. K.W.C., Inc., 432 F.Supp. 82
(E.D. Ky. 1977), controlling. Under
law, in order to perfect a security interest by filing, financing
statements must generally be filed against
residents "in the office of the county court clerk in the county of
the debtor's residence." KRS 355.9-401(1)(c). In National Cash
Register, this Court held that under
corporation's "residence," for purpose of the filing
provisions of the state's Uniform Commercial Code, is the location of
the corporation's registered office.
KRS 271A.270 and 271A.275, a corporation designates its initial
registered office in the Articles of Incorporation which it files with
the Secretary of State. Any changes to that designation must be made in
a statement submitted to the Secretary of State pursuant to KRS
Steel Corporation designated in its Articles of Incorporation its
registered office to be in
. No change was ever made regarding this designation at any time
material to this suit. Therefore, the only way plaintiff could have
perfected its security interest under KRS 344.9-401(1)(c) was by filing
its financing statements in
finds that plaintiff's filings in
had no effect under KRS 355.9-401(1)(c). Further, since plaintiff did
not file in Fayette County until after defendant had filed notice
of its liens in Rockcastle County, plaintiff cannot defeat defendant's
valid liens according to 26 U.S.C. Section
advanced several other arguments in its motion for summary judgment
setting forth why it feels its security interest was perfected before
the defendant's liens were filed.
first argues that the so-called "good-faith filing" provision
of KRS 355.9-401(2) applies. It states:
filing which is made in good faith in an improper place or not in all of
the places required by this section is nevertheless effective with
regard to any collateral as to which the filing complied with the
requirements of this article and is also effective with regard to
collateral covered by the financing statement against any person who has
knowledge of the contents of such financing statement.
first portion of this statute is inapplicable to the facts in this case,
and the second portion is also inapplicable as it is irrelevant whether
the government had "knowledge" of the contents of the
financing statements. This is because the government does not rely on
any notice in determining whether to become a creditor in a tax lien
situation and creating and filing notice of a tax lien. Borg-Warner
Acceptance Corp. v. First National Bank of Prestonburg [79-1
USTC ¶9208 ], 577 S.W.2d 29 (Ky. Ct. App. 1979).
further relies on KRS 355.9-401(1)(b). However, plaintiff has not
law that the goods are fixtures for purposes of this statutory section.
plaintiff relies upon KRS 355.9-305. However, while plaintiff argues
persuasively, even if plaintiff were perfected in accordance with this
section, said perfection would have occurred after defendant's
tax liens were filed since under KRS 355.9-305, perfection dates
"from the time possession is taken without relation back. . .
Thus, for the
reasons stated above, summary judgment is granted for defendants.
with the memorandum of even date, it is hereby
motion for summary judgment be and is denied.
motion for summary judgment be and is granted.
with the Order of even date, it is hereby
ADJUDGED that defendant be and is granted judgment against the plaintiff
and that within twenty (20) days of the date of this Order, the
plaintiff shall close out Account No. 5454-4 at the Bank of Mt. Vernon,
styled "United States, Internal Revenue Service and BMV Escrow and
DMV Escrow Agent," and shall tender to the United States the entire
proceeds of the Account, consisting of the principal sum of $92,994.42
deposited in said account on July 18, 1980, as well as all interest
which has been earned in said Account from July 18, 1980, until the date
the Account is closed, and the plaintiff shall pay the costs of this
¶9692]Perry Siler et al. v. Middlesboro-Lafollette Bus Line, Inc.
Circuit Court, Bell Circuit Court, Civil Action No. 3482-14, 4/30/64
[1954 Code Sec. 6323]
Tax liens: Priority: State law.--The state court set the
following order of priority with respect to claims against a fund paid
to the court by the insurer of a bus which had been owned by a debtor
taxpayer and had been destroyed by fire: (1) state and county ad valorem
taxes for the franchise to operate the bus, (2) state unemployment
insurance taxes, (3) federal income tax lien to the extent it was
perfected prior to an attachment lien of a creditor holding a personal
note of the debtor, and (4) the attachment lien of the note holder.
116 S. 24th St.
, for plaintiff. Glenn W. Denham, American Ass'n Bldg.,
, Smith & Gillis, 109 S. Main,
, for defendant.
[Nature of Action]
having been tried by the Court without a jury upon the pleadings, briefs
of the parties hereto, and including the entire record herein, and the
Court finds the following facts from said record:
1. That the
plaintiff, Perry H. Siler, maintained this action seeking judgment on a
personal note in the sum of $2,863.35 with interest from the defendant,
Middlesboro LaFollette Bus Line, Inc. and named Hartford Accident and
Indemnity Company as garnishee.
2. That said
garnishee answered and stated that it had paid to the Clerk of the Bell
Circuit Court all money owed the said defendant.
3. That the
sum of money available for distribution herein is $3,459.24.
subsequent to the filing of this action, the
United States of America
, ex rel James V. Marcum, Commissioner of Revenue;
ex rel Division of Unemployment Insurance, and
each intervened for the purpose of asserting their respective claims
against the defendant, Middlesboro-LaFollette Bus Line, Inc.
5. That the
claims of both Commonwealth of Kentucky ex rel James V. Marcum,
Commissioner of Revenue, and Bell County, Kentucky are for ad valorem
taxes and pursuant to KRS 134.420 have priority over any other
obligation or liability for which the property is liable; that said fund
paid in Court by the garnishee was for a bus that was destroyed by fire
and the said ad valorem taxes were for the franchise to operate this bus
as well as others.
6. That the
claim of Commonwealth of Kentucky, Division of Unemployment Insurance
has priority over any and all obligations or liabilities for which the
property is liable and of equal rank as that of the County and Revenue
Department from the date notice of lien was filed in the County Court
Clerk's office pursuant to KRS 134.420 and KRS 341.310.
7. That the
United States of America has a lien as a result of its claims inferior
to the Commonwealth of Kentucky, ex rel James V. Marcum, Commissioner of
Revenue, Bell County, Kentucky, and Commonwealth of Kentucky, ex rel
Division of Unemployment Insurance, but superior to the attachment lien
of Perry H. Siler to the extent that said individual liens were
perfected prior to said attachment.
Wherefore as a
matter of law the Court concludes, and it is so ordered and adjudged,
that the parties recover their respective claims in full to the extent
of the fund in the hands of the Bell Circuit Clerk pursuant to the
following numerical priorities:
ex rel James V. Marcum, Commissioner of Revenue and
have lien of equal rank.
ex rel Division of Unemployment Insurance.
United States of
to the extent that its liens were perfected prior to the attachment lien
created by garnishment herein.
H. Siler attachment lien herein.
It is the
further judgment of the Court that all court costs be deducted from the
fund held by the Clerk before the payment of any claim, and this action
shall remain on the docket subject to further orders of this Court in
paying specific claims in accordance with the priorities herein.
This the 30th
day of April, 1964.
United States of America
, Plaintiff v.
J. Bates, et al., Defendants
S. District Court, East. Dist. Ky., Frankfort Div., No. 143, 158 FSupp
[1954 Code Secs. 6322 and 6323--similar to 1939 Code Secs. 3671 and
Lien for taxes: Priority.--Taxpayer recovered $11,000 fire
insurance proceeds on a claim, and the amount was deposited with the
court for determination of priority of liens for $1,200 attorney fees in
connection with the recovery and for unpaid federal taxes in an amount
in excess of $11,000. Under Kentucky R. S. §30.200, the attorney's lien
was perfected as against the insurance recovery when the funds were paid
into the court. In the absence of showing of filing of the tax lien
notice and proof of assessment of the tax before perfection of the
attorney's lien, the lien for services is superior to the tax lien.
After payment of the $1,200 to the attorney, the remainder of the fund
should be applied to the tax claim.
Henry J. Cook,
United States Attorney, John M. Kelley, Assistant United States
Attorney, Lexington, Ky., for plaintiff. Samders & Redwine,
, for defendant J. E. Sanders. Funk, Chancellor & Marshall,
Frankfort, Ky., Ogden, Galphin & Abell, Marion E. Taylor Building,
Louisville, Ky., for defendant.
record, this case is submitted for judgment disposing of certain funds
now in the Registry of the Court which were derived from satisfaction of
a judgment determining liabilities under fire insurance policies issued
to the defendant Sandusky J. Bates (hereinafter referred to as Sam J.
Bates), and which were in effect upon a building owned by him when it
was destroyed by fire in the fall of 1951.
seeks judgment for the payment of its alleged liens out of the funds
relying upon the following allegations:
has liens for its unpaid taxes in amounts exceeding $11,000 on a fund of
$11,000, representing the proceeds from the settlement of a fire
insurance claim by defendant Sandusky J. Bates against the nine
defendant insurance companies.
plaintiff's aforesaid liens are prior and superior in right to any
right, title or interest of any of the defendants to said fund, except
that upon information and belief the defendants Chat Chancellor, Sarah
Chancellor and Thomas F. Marshall, partners doing business as Funk,
Chancellor and Marshall, have an attorneys' charging lien thereon in the
amount of $4,515.84, which is prior and superior to plaintiff's
J. E. Sanders filed his Answer denying priority or superiority of
plaintiff's liens and asserting a lien pursuant to K. R. S. §30.200 in
the sum of $1200 for services rendered as attorney for Sam J. Bates in
connection with the recovery of the funds here involved.
1. By contract
with the property owner Sam J. Bates, the defendant J. E. Sanders served
as his attorney and rendered substantial service in connection with the
preparation of his case. His original contract called for a fee in a sum
equal to 331/3% of the amount recovered, but by subsequent agreement
with his client he agreed to accept the sum of $1200 for his services.
Other counsel associated with him in the case performed the principal
amount of the work involved in the litigation.
2. In support
of plaintiff's claim, there is no showing whatever by pleading or proof
as to the time the assessments for the alleged delinquent taxes were
made or as to when alleged liens on account thereof arose, as provided
by 28 USCA §6322 (formerly 28 USCA §3671), nor is there any showing
that notices thereof were filed as required by 28 USCA §6323 (formerly
28 USCA §3672).
3. There is no
showing by pleading or proof that the property owner Sam J. Bates was or
is insolvent within the meaning of 31 USCA §191.
1. This Court
has jurisdiction of the parties and of the subject matter of this
action. 28 USCA §1396.
2. Upon the
payment into Court of the funds here involved, in satisfaction of the
judgment in favor of Sam J. Bates, the attorney's lien in favor of the
defendant J. E. Sanders was perfected as against the amount recovered
"in the sense that there is nothing more to be done to have a
choate lien--when the identity of the lienor, the property subject to
the lien, and the amount of the lien are established."
81, 84 [54-1 USTC ¶9191].
statute creating the federal liens here involved, I. R. C. §3670 (now
28 USCA §6321) does not in terms confer priority upon them."
v. New Britain, supra, pp. 84-85.
4. The absence
of both pleading and proof, in support of plaintiff's claim of priority
showing that the alleged taxes were assessed and the liens arose
pursuant to 28 USCA §6322 at a time prior to the perfection of the lien
of the defendant J. E. Sanders renders plaintiff's alleged liens merely
general liens under 28 USCA §6321 (formerly 28 USCA §3670), and thus
precludes adjudging to them a position of priority under the rule that
"the first in time is the first in right".
v. New Britain, supra, p. 87.
5. In the
absence of any allegations or proof that the property owner Sam J. Bates
is or was insolvent, the record fails to show the plaintiff entitled to
the priority provided in 31 USCA §191.
reasons indicated, the plaintiff's claim that its tax liens set out in
the Complaint are prior or superior to the attorney's charging lien in
favor of the defendant J. E. Sanders should be denied, and the claim of
the defendant J. E. Sanders that his lien for services to Sam J. Bates
herein referred to is superior to the alleged claim of the plaintiff
should be granted.
of the fund now in the hands of the Court, after the payment of the
claim of J. E. Sanders, should be applied to the tax claim of the
Government sicne there is no dispute in the record in respect to the
Government's right to have such remainder so applied.
be submitted for entry in conformity herewith.