Montana

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Henry L. Matthies, Jerry E. Burright, Diane Burright, Edward H. Blome and Shirley A. Blome, Plaintiffs v. Tony Nave, et al., Defendants and Third-Party Plaintiffs v. United States of America, Third-Party Defendant.

U.S. District Court, Dist. Mont. , Billings Div.; CV-02-107-BLG-RFC, CV-02-108-BLG-RFC, CV-02-109-BLG-RFC, October 16, 2002 .

[ Code Sec. 6323]

Lien for taxes, validity of: Creation of lien: Priority: Conflict of laws: Notice of lien. --

Several taxpayers' claims that notices of federal tax liens recorded against their property were invalid under state ( Montana ) law were dismissed because federal law governed the form and content of the notices. The taxpayers contended that the county clerk erred in filing the notices because they were not certified by the Secretary of the Treasury, and further that there were not abstracts of judgment attached to the notices. However, such requirements were not mandated by federal law, which was controlling. Back.

ORDER

CEBULL, District Judge: Tony Nave ("Nave") is the Yellowstone County Clerk and Recorder. On June 7, 2001 , the United States presented Nave with a notice of federal tax lien with the name Henry L. ("Matthies) and requested that Nave file the notice. Nave filed the tax lien notice, and on May 23, 2002 , Matthies sent a letter to Nave in which he requested that the be removed. Matthies asserted that Nave erred in filing the notice because it was not certified by the Secretary of the United States Treasury, and further that there wasn't an abstract of judgment attached to the notice.

On April 25, 2002 , the United States presented Nave with a notice of federal tax lien which named Edward H. Blome and Shirley A. Blome ("Blomes"). Nave filed the notice, and on June 14, 2002 , Nave received a letter from the Blomes asserting the same arguments as those contained in the Matthies' letter of May 23, 2002 .

On March 14, 2000 , the United States presented Nave with a notice of federal tax lien which named Jerry E. Burright and Diane Burright ("Burrights"). Nave filed the notice, and on May 29, 2002 , Nave received a letter from the Burrights asserting the same arguments as those contained in the Matthies' letter of May 23, 2002 .

All three parties filed separate cases in the State Court in the Thirteenth Judicial District. The cases were removed by the United States to the United States District Court for the District of Montana. The three cases were consolidated pursuant to this Court's order on August 27, 2002 .

ARGUMENTS

Nave argues that federal law supercedes state law as to notices of federal tax liens. He contends that when state law and federal law conflict, federal law controls. Nave asserts that M.C.A. §71-3-203 requires that the Secretary of the United States Treasury certify a notice of a federal tax lien before it is filed. However, Nave points out that the Montana statute conflicts with, and is therefore superceded by the Internal Revenue Code and certain Revenue Rulings on the subject. Nave argues that federal law governs the filing of these notices, and he complied with the requirements of federal law, and therefore he is entitled to a judgment on the pleadings.

The United States of America ("the government") puts forth arguments that are similar in nature to those of Defendant Nave. They also argue that because the federal tax lien is a federal creation, federal law controls the form and content required for a sufficient notice.

ANALYSIS

The Defendant filed his motion pursuant to Rule 12(c) Fed. R. Civ. P. Rule 12 states the following:

(c) Motion for Judgment on the Pleadings. After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

Judgment on the pleadings may be granted only when "...it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Enron v. Walbrook Ins. Co. Ltd., 132 F.3d 526, 529 (9th Cir. 1997). In other words, a motion for judgment on the pleadings should be granted when, taking all the allegations in the non-moving party's pleadings as true, the moving party is entitled to judgment as a matter of law. Fajardo v. County of Los Angeles , 179 F.3d 698, 699 (9th Cir. 1999).

The Plaintiffs point to M.C.A. §71-3-203 as ammunition for their argument that the lien notices filed in this case were invalid. M.C.A. §71-3-203 states the following:

Execution of notices and certificates. Certification by the secretary of the treasury of the United States or his delegate, or by any official or entity of the United States responsible for filing or certifying of notice of any lien, of notices of liens, certificates, or other notices affecting federal liens entitles them to be filed. No other attestation, certification, or acknowledgment is necessary.

While the Montana statute provides that the tax lien notice should be certified by the Secretary of the United States Treasury, the federal rules do not contain such a provision. 26 U.S.C. §6323 contains the following provisions:

(3) Form. --The form and content of the notice referred to in subsection (a) ¹ shall be prescribed by the Secretary. Such notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien.

This statute clearly evinces an intent by the secretary of the United States Treasury to supersede any state laws concerning the form and content of tax lien notices. Because the federal tax lien is wholly a creature of federal statute, federal law establishes the content of a sufficient filing. United States v. Brosnan, [ 60-2 USTC ¶9516] 363 U.S. 237, 240 (1960). The proper form of filing for a tax lien is left up to the Secretary of the Treasury by 26 U.S.C. §6323(f)(3). United States v. Polk [ 87-2 USTC ¶9432], 822 F.2d 871, 873 (9th Cir. 1987).

The federal regulations governing this area further bolster the conclusion that federal law supercedes state law in this area. 26 C.F.R. §301.6323(f)-(1)(d) states the following:

(d) Form --(1) In general. The notice referred to in §301.6323(a)-1 shall be filed on Form 668, "Notice of Federal Tax Lien Under Internal Revenue Laws." Such notice is valid notwithstanding any other provision of law regarding the form or content of a notice of a lien. For example, omission from the notice of lien of a description of the property subject to the lien does not affect the validity thereof even though State law may require that the notice contain a description of the property subject to the lien.

From the foregoing discussion it is obvious that Montana law conflicts with federal law as to the form and content of the tax lien notices. In such a case, federal law supersedes Montana law. Because federal law does not require the Defendant to have the notice certified by the Secretary of the United States Treasury, or attach an abstract of judgment, the tax lien notice is clearly valid. Both Defendants have established that on the face of the pleadings, there is no material issue of fact that remains to be resolved, and the Defendants are entitled to judgment as a matter of law.

Accordingly pursuant to Rule 12(c) Fed. R. Civ. P. IT IS HEREBY ORDERED that:

1. Defendant Nave's Motion for Judgment on the Pleadings is GRANTED. (Doc. #38).

2. Defendant United States of America 's Motion for Judgment on the Pleadings is GRANTED. (Doc. #43).

3. The above-entitled consolidated action is DISMISSED with prejudice.

The Clerk of Court is directed to notify the parties of the making of this Order.

¹ This refers to §6321 which states the following: If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

 

[74-1 USTC ¶9477]D. Frank Kampfe, Plaintiff v. Department of the Treasury, Internal Revenue Service of the United States of America , Defendants

U. S. District Court, Dist. Mont., Billings Div., Civil No. 1138, 3/26/74

[Code Sec. 6323]

Validity of lien: Priority: Holder in due course: Montana law.--The District Court held that the taxpayer, an attorney, was not entitled to two cashier's checks which were seized by the government after the termination of the taxable year of the taxpayer's client who had assigned the checks to him. The Court further held that the assignment instrument was not a negotiable instrument and that the taxpayer under Montana law was not a holder in due course; therefore, he could not defeat the claim of the government to the checks.

Ken Tolliver, Sandall, Moses & Cavan, P. O. Box 1297 , Billings , Mont. , for plaintiff. Scott P. Crampton, Assistant Attorney General, John J. McCarthy, Roger M. Olsen, Department of Justice, Washington, D. C. 20530, Otis L. Packwood, United States Attorney, Billings, Mont., for defendant.

Memorandum and Order

BATTIN, District Judge:

Presently pending in this action are the motions of the plaintiff and defendants for summary judgment. The undisputed material facts of this case may be summarized as follows:

[Facts]

On February 25, 1973 , a search warrant was executed against one Jon William Paschke and others. Various drugs and two cashier's checks made payable to Jon William Paschke, each in the amount of $1,000, were recovered. On February 26, 1973 , Paschke signed a document labeled "Assignment", which stated in pertinent part:

"WHEREAS at the time of my arrest I had in my possession two (2) cashier's checks, made payable to me, in the amount of $1,000 each; and

"WHEREAS, I have this date retained the legal services of D. Frank Kampfe, attorney at law, Billings , Montana ;

"NOW THEREFORE, I hereby assign all of my interest in said cashier's checks to Mr. Kampfe, as of this date, as my payment of his retainer fee in his representation of my case.

"I further direct any and all individuals, including law enforcement personnel, who may be in possession of said cashier's checks at this time to deliver said checks to my attorney, Mr. D. Frank Kampfe, pursuant to this assignment and as a payment for his retainer fees."

[Termination of Tax Year]

On the same day, the two cashier's checks were in the possession of the Billings Police Department. On February 27, 1973 , the defendant terminated Paschke's taxable year allegedly pursuant to Section 6851(a) of the Internal Revenue Code, suspecting that Paschke was selling drugs and was not lawfully declaring his gross income. On February 27, 1973, Internal Revenue Service Officer Donald J. Leifert served notice of termination of the tax year on Paschke, called the Internal Revenue Service, Ogden, Utah, and advised them of the termination and requested that they make an assessment, which was done, recorded the notice of lien with the Yellowstone County Recorder's Office, and served a copy of the notice upon Mr. Paschke in Jail, and upon the County Sheriff and the City Police, and seized the two cashier's checks.

On March 1, 1973 , the plaintiff entered into a stipulation with Yellowstone County Attorney Harold Hanser, to place into evidence photocopies of said cashier's checks and release the originals to the plaintiff in accordance with the assignment of Paschke. However, the plaintiff on the same date discovered that the defendant had removed the checks from the custody of the Billings Police Department.

[Holder in Due Course]

Plaintiff argues that he was a "holder in due course" within the meaning of the Uniform Commercial Code adopted by the State of Montana . In support of this argument, plaintiff cites Section 87A-3-302, Revised Codes of Montana, 1947, which reads in pertinent part:

"A holder in due course is a holder who takes the instrument

"(a) for value; and

"(b) in good faith; and

"(c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person."

The plaintiff concludes that at the time of delivery of the assignment (February 26, 1973) he took the assignment for value (partial payment of retainer fee) and in good faith and with no notice of any claim against the cashier's checks (the IRS did not declare any tax due until February 27, 1973 ). Thus, the plaintiff concludes that he became a holder in due course and took the instrument free from all claims against the object of the assignment. Section 87A-3-305, R. C. M. 1947, reads in pertinent part:

"To the extent that a holder is a holder in due course he takes the instrument free from . . . all claims to it on the part of any person . . ."

[Negotiable Instrument]

The Court does not accept plaintiff's conclusion. The term "instrument" found in the Montana statute defining a holder in due course (Section 87A-3-302, R. C. M. 1947, supra) means a "negotiable instrument". See Section 87A-3-102(1)(e), R. C. M. 1947. Section 87A-3-104, R. C. M. 1947, defines a negotiable instrument as:

"Any writing to be a negotiable instrument within this chapter must

"(a) be signed by the maker or drawer; and

"(b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this chapter; and

"(c) be payable on demand or at a definite time; and

"(d) be payable to order or to bearer."

The assignment merely authorized the delivery of documents apparently negotiable on their face to the plaintiff. It does not state, unconditionally, that payment in money is to be made to plaintiff as required by Section 87A-3-104, R. C. M. 1947. Thus, the assignment is not a negotiable instrument.

Conclusion

The plaintiff is not a "holder in due course" because he was never in possession of a negotiable instrument. A "holder" is "a person who is in possession of a document of title or an instrument or an investment security drawn, issued, or endorsed to him or to his order or to bearer or in blank." The record clearly shows that the plaintiff was never in possession of the two cashier's checks. While those checks are negotiable instruments, the assignment was not. Therefore, the plaintiff was not a holder.

The Court therefore concludes that it is compelled to grant defendant's motion for summary judgment. In doing so, however, the Court is not condoning the activities of the Internal Revenue Service in this matter.

For the foregoing reasons, IT IS ORDERED that plaintiff's motion for summary judgment be and is denied.

IT IS FURTHER ORDERED that defendant's motion for summary judgment be and is granted. The Clerk is directed to enter judgment for the defendant accordingly.

 

 

[62-1 USTC ¶9270]Streeter Bros., a co-partnership of Billings, Montana, Plaintiff v. Lee Overfelt and Dona Mae Overfelt, husband and wife; Unemployment Compensation Commission of Montana; United States of America; and State Board of Equalization of the State of Montana; Defendants

U. S. District Court, Dist. Mont., Billings Div., Civil No. 328, 202 FSupp 143, 11/29/61

[1954 Code Secs. 6321-6323]

Lien for taxes: Priority of claim for real property taxes paid by mortgagee: Attorney fees and costs of extending abstract of title.--Under Montana law a tax on real property is a lien that attaches on the first Monday in March each year; however, the rate of tax is not determined until at least the second Monday in August. Consequently, the mortgagee's lien for real property taxes for 1960 which were levied August 10, 1960 , and paid November 30, 1960 , could not become "choate" or perfected before August 8, 1960 . Federal tax liens filed before August 8, 1960 , therefore had priority. Attorney fees and costs incurred in extending an abstract of title took priority over the Federal tax liens since it is the rule and not the exception to deduct costs in all sorts of proceedings in the field of creditors' rights before any of the creditors are satisfied.

Rob ert E. Hendrickson, Hart Albin Bldg., Billings , Mont. , for plaintiff. L. Overfelt, Fratt Bldg., Billings, Mont., for L. Overfelt; United States Attorney, Federal Bldg., Billings, Mont., for United States; Edward C. Schroeter, Capitol Bldg., Helena, Mont., for Unemployment Compensation Commission of Montana, defendants.

Opinion

JAMESON, District Judge:

The sole question presented for the court's determination is the relative priority of tax liens of the United States and property taxes paid by plaintiff, costs incurred by plaintiff in extending an abstract of title, and plaintiff's attorney fees.

The tax liens of the United States were assessed and filed for record as follows: $821.85 assessed November 13, 1959 ; $256.45 assessed January 8, 1960 , both filed May 4, 1960 ; $1,025.68 assessed September 23, 1960 , filed November 4, 1960 . Plaintiff paid real property taxes to Yellowstone County , Montana , in the amount of $179.98 on or about November 30, 1960 .

A tax lien in favor of the United States arises as of the date the assessment is made and continues until the liability is satisfied or becomes unenforceable by reason of lapse of time. 26 U. S. C. A. §§ 6321 and 6322. Unless a state created lien is afforded notice protection under §6323, it must be specific, perfected, and choate, prior to the date of assessment upon which federal tax liens arise, if it is to be preferred over the federal tax claim. In other words, if the state lien is specific, perfected and choate, and the debtor is not insolvent (see §3466 R. S., 31 U. S. C. A. §19), relative priority with federal tax liens is determined by priority in time, or "first in time, first in right." United States v. New Britain , 1954 [54-1 USTC ¶9191], 347 U. S. 81. That priority of federal tax liens is determined according to federal law is well settled. Michigan v. United States, 1943 [43-1 USTC ¶9225; 43-1 USTC ¶10,002], 317 U. S. 338; United States v. New Britain, supra; United States v. Christensen, 9 Cir. 1959 [59-2 USTC ¶9621], 269 F. 2d 624.

A lien is specific and perfected so as to be choate when nothing further need be done to make the lien enforceable. United States v. Bond, 4 Cir. 1960 [60-2 USTC ¶9532], 279 F. 2d 837, 843. A lien is perfected in the sense that there is nothing more to be done "when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. New Britain, supra, 347 U. S. at 84.

State statutes, such as Sections 84-3809 and 84-3807, R. C. M. 1947, while helpful as aids in determining when state tax claims become specific and perfected so as to be choate liens, do not and cannot in themselves operate to confer priority on state tax claims over those of the federal government. See Michigan v. United States , supra. While under the statutes of Montana a tax upon real property is a lien that attaches on the first Monday in March in each year, the rate of the tax is not determined until at least the second Monday in August when the board of county commissioners meets to fix the same. Section 84-3805, R. C. M. 1947. The second Monday in August, 1960, was the 8th day of that month. The real property taxes in question were levied on August 10, 1960 . Without attempting to pinpoint the precise time the state tax lien became "choate", it clearly could not meet the test set forth above before August 8, 1960 .

It is my conclusion accordingly that the federal tax liens for $256.45 and $821.85, filed May 4, 1960, for taxes assessed November 13, 1959, and January 8, 1960, have priority and must be satisfied ahead of plaintiff's claim for state real property taxes. Counsel for the United States , in brief, concede that the state real property taxes were choate on August 10, 1960 . Accordingly, plaintiff's state tax lien is entitled to priority over that federal tax lien for $1,025.68 filed November 4, 1960 , for taxes assessed September 23, 1960 .

The United States urges that under the rules applicable in determining the priorities among various liens plaintiff's claims for costs of extending abstract, attorney fees, and costs are also subordinate to the federal tax liens, citing United States v. Bond, supra. The Bond case tends to support this position insofar as it refused to allow an attorney fee ahead of federal tax liens, on the ground that it was speculative and uncertain at the time the federal taxes were assessed and the lien filed. However, the reasoning and result of the Bond case are not particularly persuasive. In the first place, as pointed out by Judge Haynsworth in a dissenting opinion in that case, the Court of Appeals of the Ninth Circuit has allowed a mortgagee items of cost and attorney's fees provided for the the mortgage. United States v. Halton Tractor Company, 9 Cir. 1958 [58-2 USTC ¶9774], 258 F. 2d 612, 620; United States v. Sampsell, 9 Cir. 1946 [46-1 USTC ¶9186], 153 F. 2d 731, 736. Since paragraph 7 of the mortgage foreclosed in this action provides for the payment of costs and attorney's fees, those cases are controlling upon this court.

In addition, attorney fees are expressly provided for by statute in foreclosure actions and must be allowed as part of the costs. Section 93-8613, R. C. M. 1947. Costs are allowable as a matter of course to the plaintiff under Section 93-8602(5), R. C. M. 1947. The cost of extending the abstract of title and the attorney fee claimed by plaintiff may be awarded on the basis of those statutes aside from any question of priority of lien rights. I am of the opinion that costs, properly provided for by statute, may take precedence apart from questions of lien priority, since liens would be valueless without a proceeding to enforce them. It is the rule and not the exception to deduct costs in all sorts of proceedings in the field of creditors' rights before any of the creditors are satisfied, whether the proceeding be a sheriff's sale, mortgage foreclosure, bankruptcy proceeding, or execution sale.

It is my conclusion accordingly that the cost of extending the abstract and attorney fees take priority over defendants' tax liens.

Counsel will note that defendant Unemployment Compensation Commission's lien of September 16, 1960 , for $27.67 is prior to defendant United States ' lien for $1,025.68 since the latter amount was assessed September 23, 1960 , and not August 23, 1960 , a date which erroneously appears in some briefs.

Counsel for plaintiff will prepare, serve and lodge draft of decree consistent with this opinion. Attorney fees are allowed in accordance with the rules of the District Court of the Thirteenth Judicial District of the State of Montana , in and for the County of Yellowstone .