United States of America
, Plaintiff v. Max B. Cohen, et al., Defendants
S. District Court, So. Dist. Fla., No. 66-1496-Civ.-CF, 271 FSupp 709,
[1954 Code Sec. 6323, prior to amendment by P. L. 89-719]
Lien for taxes: Priority: Property subject to lien: Equitable
interest in mortgage: Marshaling of assets.--Under Florida law an
equitable interest in a mortgage is intangible personal property,
subject to a tax lien. Since the government's lien on the personalty was
properly filed in the county of taxpayer's residence, its lien was prior
to the claim of a subsequent judgment creditor and its later interest as
a purchaser. The Court also refused to subject the government to a
requirement that it marshal assets in favor of the junior lienor.
[1954 Code Sec. 6323]
Lien for taxes: Collateral estoppel: Final judgment in creditor's
suit: Petition for intervention.--Neither the denial of the
government's petition for intervention nor the final judgment in a
Florida county circuit court creditor's suit estopped the government
from pursuing its claim for unpaid taxes because the government was not
a party to that law suit nor was it privy to any party to the lawsuit.
[1954 Code Sec. 6321]
Lien for taxes: Defenses against lien: Release of lien.--The
defense of a release of the government's tax lien was not allowed where
the government effectively denied any release of the lien and the moving
party submitted nothing in support of its defense.
Department of Justice,
, D. C. 20530, Lavinia L. Redd, Assistant U. S. Attorney, Main Post
, for plaintiff. Levine & Freedman, 725 E. Kennedy Blvd., Tampa,
Fla., Bernard Wieder, 407 Lincoln Rd., Miami Beach, Fla., W. Max Smiley,
P. O. Box 527, Bradenton, Fla., Jack G. Goldberg, 295 Academy St.,
Jersey City, N. J., Corneal B. Myers, 130 Central Ave., Lake Wales,
ert Manuel, 620 Shoreham Bldg., Washington, D. C., Theodore R. Nelson,
605 Lincoln Rd., Miami Beach, Fla., W. A. Gllen, P. O. Box 1438, Tampa,
Fla., Philena Cohen, 711 Hillcrest Drive, Harbor Hills, Bradenton, Fla.,
Elwyn Middleton & Annie Middleton, 250 Beach, Fla., W. Max Smiley,
P. O. Box 527,
came on to be heard before the Court upon the Government's Motion for
Partial Summary Judgment on the issue of priority of liens as between
the Government and the Defendant,
. The Court has heard argument of counsel, has carefully studied the
memoranda of law and pleadings filed herein, as well as the affidavit
submitted by the Government in support of said motion, and is otherwise
fully advised in the premises.
By virtue of a
contract of purchase and sale between defendant Middleton as Trustee and
defendant Myers dated September, 1962, and the consummation of that
transaction, defendant Cohen, the taxpayer herein, has owned a
beneficial interest in a mortgage indebtedness owed by defendant Myers
to defendant Middleton as Trustee. Middleton, a resident of
Palm Beach County
, holds this indebtedness for the benefit of Cohen and others. The
mortgage covers property situate in Citrus and Levy counties, and it is
Cohen's interest in this indebtedness upon which the Government now
claims and seeks foreclosure of its tax lien.
As Judge Gewin
of the Court of Appeals for the Fifth Circuit observed when confronted
with a similar problem,
is a case in which the Government is diligently pursuing the taxpayer in
an effort to satisfy tax liens for delinquent taxes, penalties and
interest; but in doing so, it is challenged by others who claim to be
innocent bystanders, admitting the right of the Government to collect,
but contending that they are being seriously injured by the procedure,
and that their property rights are being jeopardized to satisfy tax
liens against another. The case is drawn down to the narrow margin that
sometimes arises between the rights of the Government to have its taxes
paid and its liens satisfied, and the rights of individuals who do not
owe the tax but who claim they are injured by the efforts of the
Government to collect. Folsom v. United States [62-2 USTC ¶9648],
306 F. 2d 361 (5th Cir. 1962.)
which gave rise to this controversy are not disputed. According to
Cohen's uncontroverted affidavit, from September, 1963 to December,
1964, he was a domiciliary and resident of
, and from December, 1964 to October, 1965, he was a domiciliary and
. He has never resided in Citrus, Levy or
the chronology of the accrual and recording of the Government and
Fontainebleau liens are the crux of this litigation, these undisputed
facts are probably most clearly set forth in time-line fashion.
May 12, 1961
--District Director of the Internal Revenue Service made an assessment
of income tax liability of defendant, Max Cohen, in the amount of
$83,639.48, of which a balance remains due of $39,415.40.
September 7, 1961
--District Director caused notice of tax lien, based on the first
assessment, to be filed with the Clerk of the Manatee County Circuit
September 8, 1961
--District Director caused notice of tax lien based on the first
assessment to be filed with the Clerk of the Dade County Circuit Court.
July 14, 1963
--District Director of the Internal Revenue Service made a second
assessment of income tax liability of defendant, Max Cohen, in the
amount of $257,732.38.
September 5, 1963
--District Director caused notice of tax lien based on the second
assessment to be filed with the Clerk of the Manatee County Circuit
Court. Notice of tax lien based on both assessments was filed with the
Clerk of the Citrus County Circuit Court.
October 23, 1963
--District Director caused notice of tax lien based on both assessments
to be filed with the Clerk of the Hillsborough County Circuit Court.
October 24, 1963
--District Director caused notice of tax lien based on the second
assessment to be filed with the Clerk of the Dade County Circuit Court.
October 30, 1963
--District Director caused notice of tax lien based on both assessments
to be filed with the Clerk of the Levy County Circuit Court.
April 20, 1965
--The Defendant Fontainebleau Hotel Corp. obtained a personal judgment
against the defendant taxpayer Max Cohen in the Dade County Circuit
April 22, 1965
--Fontainebleau Hotel Corp. recorded that judgment in
July 26, 1965
--Execution having been returned nolla bona, Fontainebleau Hotel Corp.
filed a complaint in the nature of a creditors bill in the Citrus County
Circuit Court, seeking to reach Cohen's beneficial interest in the
November 17, 1965
--The Citrus County Circuit Court issued a temporary stay order,
enjoining Cohen from encumbering or transferring any funds held by
Middleton as trustee for Cohen's benefit.
December 17, 1965
--District Director caused notice of tax liens based on both assessments
to be filed with the Clerk of the Palm Beach County Circuit Court.
May 18, 1966
--The Fontainebleau Hotel Corp. obtained a final decree in its
creditors suit, which decree declared
's lien on Cohen's equity in the mortgage indebtedness. Cohen's interest
was ordered to be sold by a special master.
but prior to the sale of Cohen's interest in the mortgage indebtedness,
the Government attempted to intervene in the Citrus County Circuit Court
proceedings. The intervention was strenuously and successfully opposed
by Fontainebleau, on the grounds that (1) the Fontainebleau's final
decree in the creditors suit in no way affected the Government's rights
because the Government could maintain a separate and independent suit to
test the priority of its claim as against Fontainebleau, (2)
intervention after the final decree was not timely, and (3) the proposed
intervention was not subordinate to and in recognition of the propriety
of the main proceedings, as required by the Florida Rules of Civil
beneficial interest in said mortgage was sold at public outcry, pursuant
to the Citrus County Circuit Court final decree. For the price of
purchased Cohen's interest in the mortgage, the purchase price being
applied towards satisfaction of
's judgment against Cohen.
thwarted in its
attempt to reach Cohen's interest in said mortgage, the Government filed
its complaint herein. Plaintiff now seeks a judgment against Cohen in
the amount of the two unpaid assessments, foreclosure of its tax liens
on Cohen's equitable interest in the mortgage, sale of that interest,
and if appropriate, a deficiency judgment against Cohen for the balance.
in his answer admits his indebtedness to the Government and not only
asserts that the tax liens are prior to any other liens claimed by
defendants to this cause, but joins in the Government's prayer for
raises the following defenses to foreclosure of the Government's lien:
's lien or interest as purchaser.
Estoppel by judgment, arising by virtue of the Government's failure to
appeal the denial of its petition for intervention and the final
judgment in the
Release of its claim of lien by the Government.
way of counterclaim,
asks this Court to marshal all of Cohen's assets subject to the
Government's tax lien in accordance with equity and good conscience.
I. The Government's Lien
C. §6321 creates a lien in favor of the Government on "all
property and rights to property, whether real or personal"
belonging to a taxpayer who, after demand, neglects or refuses to pay
his income tax. Whether the taxpayer has an interest in property to
which a lien can attach is a matter of state law. United States v.
Bess [58-2 USTC ¶9595], 78
1054 (1958). That the Government has made demand, and Cohen has
neglected or refused to pay his income tax is uncontroverted.
In the instant
case, the Government seeks to levy upon its tax lien imposed on the
taxpayer-Cohen's interest in said mortgage indebtedness.
law determines whether this interest in "property" or a
"right to property" within the meaning of §6321, and under
law, an equitable interest in a mortgage is intangible personal
property, which may be reached by a creditor. Evins v. Gainesville
National Bank, 85 So. 659 (
1920); Ratliff v. Nowery, 136 So. 895 (
1931); Thalheimer Bros. v. Tischler, 55
796, 46 So. 514 (
1908). Thus it may be subject to a tax lien.
Priority as Between the Government and
The tax lien
created by §6321 arises automatically upon the ripening of the
taxpayer's tax liability and attaches to all property and rights to
property then owned and subsequently acquired by the taxpayer. Once the
tax lien has attached to the taxpayer's property or rights to property,
Federal law determines the priority of competing liens asserted to that
interest. Aquilino v. United States [60-2 USTC ¶9538], 363
509 (1960). However, in order to enforce its lien as against certain
persons designated in the statute, the Government must first give notice
of its lien.
Thus under §6323,
the lien created by §6321 shall not be valid as against any purchaser
or judgment creditor until proper notice is filed by the Secretary of
the Treasury or his delegate. Before §6323 was amended in November,
1966, it had been held that a "judgment creditor" for purposes
of that statute had to be a judgment lien creditor, for until the
state-created lien became choate in the Federal sense, it had no
protection against a recorded tax lien. Fore v. United States
[65-1 USTC ¶9101], 339 F. 2d 70 (5th Cir. 1964). This requirement has
been confirmed and made statutory by the 1966 amendment, which imposes
upon the Government the duty of giving notice as against judgment lien
creditors in order to enforce its tax lien. So, §6323 protects a
creditor against a tax lien only when the creditor's judgment becomes a
specific lien against the property to which the tax lien has attached.
required by §6323 is to be filed under state laws in the office in the
state, county, or other governmental subdivision in which the property
subject to the lien is situated, designated by the laws of that state.
§28.20, Florida Statutes, designates the office of the clerk of the
circuit court for the filing of federal tax liens.
amendment to §6323 specifies that real property is deemed to be
situated at its physical location, and personal property, whether
tangible or intangible, is deemed to be situated at the residence of the
taxpayer at the time the notice of lien is filed. The taxpayer is the
person whose tax liability is the basis for the lien and against whose
property the lien is imposed, in this case being the defendant Max
Cohen. The committee report concerning this amendment indicates that the
provision was designed to clarify already existing law. Most courts had
already held that the filing of a tax lien imposed on the taxpayer's
personal property was valid when filed at the taxpayer's domicile.
Public Law 87-719 provides that this amendment shall apply after the
date of enactment (November 2, 1966), regardless of when a lien of the
arose or when the lien or interest of any other person was acquired.
However, the amendment shall not apply in any case in which its
application would impair a priority enjoyed by a person other than the
holding a lien or interest prior to the date of enactment. As will be
seen, application of §6323 both before and after the amendment yields
the same result in this case.
as amended in November, 1966, the situs of Cohen's beneficial interest
in this mortgage, which is intangible personal property, is his
residence at the time the notice of lien was filed. The uncontroverted
affidavit of defendant Cohen states that he was a resident of
September 5, 1963
, when notice of tax lien based on the second assessment was filed with
the Clerk of the Manatee County Circuit Court. Notice of lien based on
the first assessment had previously been filed in that county. Thus, the
Government's lien based upon both assessments attached to this property
September 5, 1963
, prior to
's obtaining its judgment against Cohen. Thus, the Government's lien,
based on both assessments, is prior to any interest the
may have in said property. Although Cohen later moved his residence from
Manatee, a lien once properly filed remains valid against judgment
creditors and purchasers even if the taxpayer later severs all
connection with his former residence. §6323(f)(2)(B); Grand Prairie
State Bank v. United States [53-2 USTC ¶9481], 206 F. 2d 217 (5th
the former §6323 and case law thereunder, the result is still the same.
Case law had established that the situs of intangible personal property
was the domicile of its owner. See Campbell v. Bagley [60-1 USTC
¶9340], 276 F. 2d 28 (5th Cir. 1960); United States v. Goldberg
[66-2 USTC ¶9523], 362 F. 2d 575 (3rd Cir. 1966); and cases cited
law, a mortgage is a specific lien on property and thus is a chose in
action, Evins v. Gainesville National Bank, 85 So. 659 (
1920); Ratliff v. Nowery, 136 So. 895 (
1931) which is intangible personal property, Vogel v. New York Life
Insurance Co., 55 F. 2d 205 (5th Cir. 1932). The same holds true of
an equitable interest in a mortgage. Thus, under the former §6323 the
notice required of the Government still had to be filed in the county in
which Cohen was domiciled, again being
It is the
taxpayer, Cohen's domicile which is critical in this case, for it is
Cohen's equitable interest in the mortgage which is sought to be
subjected to the Government's lien here, and to which
claims a prior right, and not the Trustee's legal interest in said
mortgage. The domicile of the Trustee-holder of legal title to
the mortgage indebtedness is irrelevant for this purpose of determining
whether Cohen's beneficial interest is to be subject to the
either the former §6323 or the November, 1966 amendment, the
Government's lien based on the second assessment is still prior to
's interest as a judgment lien creditor and its later interest as
's premise that the Government had to record its lien on Cohen's
beneficial interest in said mortgage in
, where the Trustee resides,
must still be subordinated to the Government lien.
obtained its judgment against Cohen, it could not assert any priority as
against the Government. Even though as a judgment creditor it had an
immediate lien on Cohen's real property located in Florida, §55.08,
Florida Statutes, it had to take further steps to establish a lien on
Cohen's intangible personal property, by bringing an equitable action in
the nature of a creditors bill and obtaining a decree therein.
before amendment imposed the notice requirement upon the Government as
against a taxpayer's "judgment creditors," the courts had
interpreted that language to mean "judgment lien
creditors." Determination of whether a creditor attains this status
is reached first by reference to state law to ascertain the effect of
the judgment as a lien on the taxpayer's property, and then by reference
to federal standards to ascertain whether the state-created lien is
"choate," specific and perfected for purposes of §6323. United
States v. Equitable Life Assurance Society [66-1 USTC ¶9444], 384
323 (1966); United States v. Pioneer American Insurance Co. [63-2
USTC ¶9532], 83
1651 (1964); 9 Mertens §54.42 at pg. 105 and cases cited
case, which led to amendment of the statute to recite the "judgment
lien creditor" requirement is Fore v. United States
[65-1 USTC ¶9101], 339 F. 2d 70 (5th Cir. 1964). Fore had
judgment, which under
law entitled him to a lien on the debtor's
real estate but not to a lien on the debtor's personalty located in
. Inasmuch as under
law, Fore had no possessory lien, attachment lien or execution lien on
the debtor's personalty, his lien was not choate in the Federal sense.
's judgment on the note constitutes a lien against Cohen's realty
. However, a judgment at law is not a lien on land to which the judgment
debtor has no legal title. Equitable interests in property are
ordinarily not subject to levy and sale under writ of execution in
; they must either be reached by supplemental proceedings or by
creditors suit. Huttig v. Hoffman, 9 So. 2d 506 (
1942). Furthermore, a mortgage on real estate, being a contract lien on
the land, is not subject to levy and sale under writ of execution, and
must likewise be reached by supplemental proceedings or by creditor's
suit. Evins v. Gainesville National Bank, 85 So. 659 (
1920); Ratliff v. Nowery, 136 So. 895 (
1931). Under Federal concepts a lien is not perfected if its existence,
amount or enforcement is contingent upon the outcome of a suit. United
States v. Acri [55-1 USTC ¶9138], 348
211; United States v. Security Trust and Savings Bank [50-2 USTC
¶9492], 71 S. Ct. 111 (1950).
liens are perfected or choate for priority purposes when the identity of
the lienor, the property subject to the lien, and the amount of the lien
are established. United States v. Pioneer American Insurance Co.
[63-2 USTC ¶9532], 83
1651 (1964); Regulations §301.6323(1)(a)(2). Whether
's judgment on the note against Cohen constituted a lien on his
beneficial interest in said mortgage was not determined under state law
obtained its decree in its
creditors suit. It was only when that decree was entered that the
property subject to Fontainebleau's judgment lien was determined, and
thus it was only when that decree was entered that Fontainebleau's
judgment became choate in the Federal sense and Fontainebleau became a
judgment lien creditor for purposes of §6323. This was on
May 18, 1966
and the Government had previously recorded its notice in
December 17, 1965
Subject to the
§6323 notice requirement, the transfer of property subject to a tax
lien subsequent to the attachment of that lien does not affect
the tax lien, for it is the very nature and essence of a lien that no
matter into whose hands the property goes, it passes cum onere.
United States v. Bess [58-2 USTC ¶9595], 78
1054 (1958). Michigan v. United States [43-1 USTC ¶9225], 63 S.
Ct. 302 (1943). The taxpayer's lien liability is based upon the
Government's claim on the property of the taxpayer until the tax debt is
discharged and the property passes into the hands of a subsequent party
subject to the lien regardless of the transferee's status as a creditor
or purchaser. Exhaustion of remedies against the taxpayer and the
taxpayer's insolvency or solvency are irrelevant in a proceeding to
enforce a Government tax lien. United States v. Hoper [57-1 USTC
¶9508], 242 F. 2d 468 (7th Cir. 1957). So the transfer of Cohen's
equitable interest in said mortgage to
by judicial sale after the tax lien based on the second assessment
attached thereto did not affect the already established priority of the
federal tax lien.
may be named a party in a state mortgage or lien foreclosure suit.
However, if the Government is not made a party to a suit concerning
property which is subject to an income tax lien, then
. . a sale to satisfy a lien inferior to one of the United States
shall be made subject to and without disturbing the lien of the United
States, unless the United States consents that the property may be sold
free of its lien and the proceed divided as the parties may be entitled.
28 U. S. C. §2410.
In the instant
case, the Government gave no such consent to the sale following
's suit in the Citrus County Circuit Court, so that the sale was subject
to the Government's lien.
By way of
has asked the Court to marshal Cohen's other assets and use Cohen's
other assets to satisfy the Government's tax lien, leaving Cohen's
interest in the Myers-Middleton mortgage to the
doctrine of marshaling rests on the principle that a creditor having two
funds to satisfy his debt, may not by his application of them to his
demand, defeat another creditor who may resort to only one of the funds.
Meyer v. United States [64-1 USTC ¶9111], 375
States v. Pollack, a New York District Court did use a marshaling
type approach where two sources existed for satisfaction of a tax lien
and a junior creditor had resort to only one of those sources. The Court
stayed the lien foreclosure proceedings directed at the assets which was
subject to the lien of the junior creditor pending the outcome of other
Government lien foreclosure proceedings directed at the taxpayer's other
Court has not yet been faced with a case in which marshaling was sought
against the federal government in an income tax case, although it was
asked by the Government to apply the doctrine in Meyer v. United
the Government had sought to impose and foreclose a tax lien upon the
proceeds of life insurance policies which insured the life of the
taxpayer. A bank had a senior lien on the entire proceeds of the
policies, while the Government's tax lien attached only to the cash
surrender value of the policies, subject to the bank's claim. The
Government invoked the doctrine of marshaling assets, asking the Court
to satisfy the tax lien from the cash surrender value and the bank's
claim from the remainder of the proceeds.
lower court cases holding that the doctrine will not be applied where
state-created exemptions would thereby be destroyed or where one of the
funds is exempt under state law, the Supreme Court adopted the state
rules and refused to extend the doctrine to this situation.
has a statute exempting insurance benefits of a widow from the claim of
her husband's creditors, so that the proceeds other than the cash
surrender value were not subject to the tax lien. The Supreme Court
refused to enlarge the statutory lien by application of the doctrine of
courts have been confronted with situations where creditors of the
taxpayer have invoked the doctrine, and have reached varying results.
The Second Circuit has refused to subject the Government to a
requirement that it marshal assets in favor of junior lienors because
"this would create an extreme burden on collection of revenue,
unauthorized by statute." United States v. Herman [63-1 USTC
¶9135], 310 F. 2d 846 (2nd Cir. 1962).
Circuit adopted a similar position in United States v. Stutsman
County Implement Co. [60-1 USTC ¶9224], 274 F. 2d 733 (8th Cir.
1960). It did not find in any of the cases cited by the
creditor-appellee a holding that the Court may discharge a valid tax
lien imposed by the statute merely because it appears to the Court that
the existence of the lien bears harshly on those who have dealt with the
taxpayer in disregard of the lien.
court, interpreted a Supreme Court per curiam reversal as disallowing
the doctrine of marshaling assets, and therefore refused to apply it
upon remand of the case. United States v. Wintner [64-1 USTC ¶9168],
84 S. Ct. 451 (1964); on remand [65-2 USTC ¶9642], 247 F. Supp. 47 (
1964). Mertens has also noted that the Government is not required
to seek its taxes from any particular source. 9 Mertens §54.52
at p. 161.
apply the doctrine is based upon construction of the tax lien statutes
in the following manner. The statute creates the tax lien and prescribes
its duration. After the notice has been duly given, the power of the
Court to determine the rights of the parties in respect to the lien is
limited by statute. There is no statutory authority conferred on the
Court to discharge or terminate the lien already attached to specific
property without satisfaction of the tax or exhaustion of the property.
The Court's usual equity powers are said to be limited by the special
statutory provisions of §6325 regarding discharge of tax liens, which
provisions make no mention of discharge by marshaling other assets of
the taxpayer. That rationale is analogous to a similar refusal to apply
the doctrine in levy situations.
finds the line of cases refusing to apply the doctrine of marshaling
assets to be more convincing. This is especially so in view of the
equities appearing in the instant case.
obtained the final judgment in its creditor's suit,
stood as any other judgment creditor and could attempt to execute on or
reach any of Cohen's assets not exempt by state statute just as it now
wants the Government to do. It chose to reach for the beneficial
interest which is the subject of this lawsuit. In so doing, it chose not
to join the Government as a party defendant, as it could have under 26
C. §2410. If
had joined the Government as a defendant in its suit, this controversy
would have been dsposed of without further adieu.
Government attempted to intervene in the creditor's suit,
, through its attorney, stated to that Court:
did not adjudicate the Government's rights and no effort to adjudicate
the Government's rights was made and the final decree in no way affects
the Government's rights. They have lost nothing by the sale we are going
to make and I see that they have no standing in this Court, even if
there has been a final decree which forecloses them out . . ..
again reiterated this position in its Memorandum Reply herein filed on
March 2, 1967
, in response to Cohen's Motion to Dismiss Fontainebleau's Counterclaim.
It states that the State Court denied the Government's petition to
intervene on two theories:
claimed to have a first lien in its petition to intervene on the equity
created by the Middleton agreement. If this were true, the State Court
felt that the foreclosure by the Fontainebleau Hotel would not affect
If the Government's lien was inferior and it had not been made a party
to the foreclosure proceedings, it was still free to maintain a suit to
test the priority of its claim and that of the Fontainebleau Hotel by an
attempts to use its judgment and purchase obtained on the above
representation to take a contradictory position. In effect it is asking
this Court to consider the
proceedings as going to the merits of the Government's claim.
Furthermore, as a general creditor of Cohen,
may still try to reach Cohen's other assets, just as may the Government.
Thus there is no reason to apply the quitable doctrine of marshaling
is not a creditor who has resort to only one of the funds available for
satisfaction of the Government's claim--it can resort to the same funds
which the Government may attempt to reach. By reason of the foregoing,
this Court will not require the Government to satisfy its tax lien from
other assets the taxpayer may own.
Estoppel of Judgment
contends that the Government is estopped to bring this action by virtue
of the final judgment and denial of its petition for intervention in the
creditor's suit, which the Government has failed to appeal.
In order for
an estoppel by judgment to arise, there must be a final judgment or
decree rendered on the merits, which will be conclusive of the rights,
questions and facts, the determination of which was necessary to the
judgment rendered. A judgment or decree rendered on any grounds which do
not involve the merits of the action may not be used as the basis for
the operation of this doctrine. Armstrong v.
273, 37 So. 938 (
1905); Tilton v. Horton, 103
497, 137 So. 801 (
1931); Universal Construction Co. v.
, 68 So. 2d 366 (
itself admitted and even argued as a basis for denial of leave to
intervene, the Citrus County Circuit Court's denial of the Government's
petition was not an adjudication of the merits of its claim.
judgment rendered by the Citrus County Circuit Court cannot estop the
Government to pursue its claim because the Government was not a party to
that lawsuit nor is it privy to any party to the lawsuit.
contended in the argument on the Government's petition, a mortgagee is
not bound by any judgment or decree rendered in a suit to which it was
not made a party, where its interest antedates the action. Logan v.
473, 18 So. 767; Stokely v. Conner, 80
89, 85 So. 678.
Government had been permitted to intervene, it would have been bound,
but even the right to intervene does not subject one to the doctrine of
estoppel by judgment. Merriman v. Lewis, 141
832, 194 So. 349 (
1940). Thus, no estoppel arises by virtue of either the denial of the
Government's petition or the final judgment in the
has alleged the defense of a release of the Government's lien in its
answer, it has not submitted anything in support thereof in response to
the Government's Motion for Summary Judgment. When such a motion is made
and supported, an adverse party may not rest upon the mere allegations
or denials of his pleading, but his response, by affidavits or as
otherwise provided in Rule 56, must set forth specific facts showing
that there is a genuine issue for trial. Rule 56(e), Federal Rules of
Civil Procedure. The Government has effectively denied any release
of this lien by affidavit of the District Director of the Internal
Revenue Service at
has failed to meet its burden. It cannot under the rules rest on its
naked allegation to attempt to create a fact issue.
there being no genuine issue of any material fact, it is ORDERED and
ADJUDGED as follows:
Government's Motion for Summary Judgment be and the same is hereby
granted. However, this judgment is limited to a determination that the
Government's tax lien on Cohen's beneficial interest in the
Myers-Middleton mortgage is prior to the
's claim as Cohen's creditor and purchaser of said property.
¶9119]United States of America, Plaintiff-Appellant v. Stephen
Winterburn, aka Steven H. Winterburn; Linda Winterburn;
ert O. Middleton; and Carol A. Middleton, Defendants, and Roger Allard
and Adele Allard, Defendants-Appellees
U. S. Court of Appeals, 9th Circuit, No. 83-3875, 749 F2d 1283,
12/17/84, Reversing the unreported decision of the district court
[Code Secs. 6323(a) and 7425]
Lien for taxes: Validity: Conflicts of law: Discharge of certificate
of release or nonattachment: Extinguishment.--The district court
erred by characterizing the sellers' state action as a confirmation of
the sellers' rights under a real estate sales contract rather than an
action to quiet title under Washington law, because the contract sellers
did not declare a forfeiture upon the contract buyer's delinquency,
which would have extinguished the tax liens, but instead they elected to
have a Washington court restore them to possession and terminate the
contract buyer's right of redemption and his equitable interest in the
property. Moreover, because the contract sellers failed to name the U.
S. as a party to their quiet title action, the tax liens placed on the
property to permit recovery of taxes from the recalcitrant contract
buyer, was unaffected by the Washington court's judgment. In addition,
the government fulfilled its requirement to file a notice of its lien in
the office of the proper county within which the property was located,
and although under Washington law actual notice of a lien must be given
to the contract seller, notice of a federal tax lien need not be filed
in accordance with the laws of the state where the property is located,
except those pertaining to the place of filing.
Dudeck, Department of Justice,
, D. C. 20530, for plaintiff-appellant.
ert B. Leslie, Quigley, Hatch, Loveridge & Leslie, 2920 Seattle
First National Bank Building, Seattle, Wash. 98154, for
SNEED, and ALARCON, Circuit Judges.
appeals from the order of the district court denying the motion of the
for summary judgment to foreclose federal tax liens against the interest
of Stephen and Linda Winterburn in real property located in
determine whether the judgment of a
state court terminating the Winterburns' rights under a real estate
sales contract was rendered in a quiet title action. Because we conclude
that this proceeding was a quiet title action under
law, the district court's order dismissing the action must be reversed
was not joined in the
FACTS. The facts underlying the
' claim against the defendants are not in dispute. On
February 24, 1975
ert and Carol Middleton entered into a real estate sales contract for
the sale of real estate in
, to Stephen Winterburn for a total price of $12,000. The contract
provided for the payment of $125 plus interest in consecutive monthly
installments. Winterburn was entitled to possession of the property so
long as he fulfilled the terms of the contract. Upon full payment of the
purchase price, Winterburn would receive a statutory warranty deed. If
Winterburn failed to make any payment, the sellers could "elect to
declare the purchaser's rights terminated." In the event of a
declaration of forfeiture, all payments and improvements made upon the
property would be forfeited.
failed to pay the installments for May, June and July 1975. On
July 15, 1975
sent Winterburn notice of their intention to declare a forfeiture. A
notice of forfeiture was sent on
August 21, 1975
. Winterburn remained in possession. On
August 27, 1975
, a $500 payment was made to the bank collection account. Thereafter,
the Winterburns made each monthly payment through February, 1976. No
payments were made until June, 1976. A second notice of intention to
declare a forfeiture was mailed to the Winterburns on
May 20, 1976
June 24, 1976
, a payment of $500 was credited to the bank collection account. The
Winterburns made the payments due from July through October, 1976. No
payments were made from November to May, 1977. A third notice of
intention to declare a forfeiture was mailed on
May 11, 1977
June 15, 1977
, the Winterburns made a payment of $875. No further payments were made
by the Winterburns.
September 16, 1975
the Internal Revenue Service filed a notice of tax lien against Stephen
Winterburn in the amount of $10,637.49 in the proper office in
March 19, 1976
, the Internal Revenue Service filed a second tax lien in the amount of
$3,123.35 in the appropriate office in the county where the property was
located. The liens covered any property or right to ownership by Stephen
Winterburn in the property which is the subject of the land sales
contract. Winterburn failed to pay any of the federal taxes.
January 24, 1978
, the sellers,
ert O. and Carol A. Middleton, filed an action designated simply as a
"Complaint" against Stephen Winterburn in the Superior Court
of Whatcom County, Washington. The
, after alleging that no payment had been made since June 15, 1977,
prayed for (1) an adjudication terminating all of Winterburn's rights
under the contract, (2) forfeiture of the payments previously made as
liquidated damages, and (3) an order giving the
the right to reenter and take possession of the property. The
was not joined as a party nor served with notice of the action. A
default judgment was entered against Stphen Winterburn on
May 17, 1978
, granting the relief requested by the
September 15, 1978
sold the property to Roger and Adele Allard for $27,500.
July 16, 1981
brought this action against the Winterburns, the
, and the Allards to reduce to judgment the Winterburns' outstanding tax
liabilities and to foreclose the tax liens against the real property in
question in this matter.
A default was
entered against the Winterburns and the
moved for summary judgment. The Allards moved to dismiss the action
contending that "the forfeiture was accomplished by Notice; the
subsequent possessory action (quiet title) was not the forfeiture event
but an action to recover possession."
April 13, 1983
, the district court granted the government's motion for a summary
judgment against Winterburn. The government's motion for summary
judgment to foreclose the tax liens was denied. The Allards' motion to
dismiss the complaint was granted.
The government argues that the district court erred by characterizing
' state action as a confirmation of the sellers' rights under the real
estate sales contract rather than as an action to quiet title. We agree.
We begin our
analysis by discussing the pertinent federal statutes. 1
recovery of taxes from a recalcitrant taxpayer, Congress has 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, whether real or personal, belonging to
U. S. C. §6321.
In order to
prevent the extinguishment of its tax liens by a transfer or forfeiture
of interest of a taxpayer in real property, Congress enacted section
7425 of title 26 of the United States Code, 26 U. S. C. §7425. Section
7425(a) provides that a federal tax lien is not affected by a civil
action described in subsection (a) of section 2410 of title 28 of the
United States Code if the United States was not joined as a party
provided that "notice of such lien has been filed in the place
provided by law for such filing at the time such action or suit is
commenced." 26 U. S. C. §7425(a)(1).
2410(a) of title 28 of the United States Code, 28 U. S. C. §2410(a),
Congress has authorized the naming of the United States as a party to an
action to quiet title upon real property on which the United States
claims a lien.
No issue has
been raised concerning the existence of the tax liens prior to the time
filed their action in the
, or that notice of the government's lien was filed in the proper place
in accord with applicable
contend that the government failed to file the liens pursuant to the
requirements of the state of
. We disagree. The government was required to file a notice of its liens
in the place for filing such notice under state laws. 26 U. S. C. §6323.
That requirement was fulfilled. The Allards contend, nevertheless, that
law actual notice of a lien must be given to the contract seller. The
does not require that actual notice of a federal tax lien be given to
law expressly provides that notices of federal tax liens may be filed in
the office of the county auditor of any county within which the property
is located. Wash. Rev. Code §60.68.010 (1983). Here, notice of the tax
lien was filed in the office of the Whatcom County Auditor. Accordingly,
the requirements of section 6323(a) were met. Notice of a federal tax
lien need not be filed in accordance with the laws of the state where
the property is located, except those pertaining to the place of filing.
See United States v. Union Central Life Insurance Co. [62-1 USTC
¶9103], 368 U. S. 291, 296 (1961) (notice is sufficient if given in the
form used by the government without regard to the general requirements
for recording under the laws of a particular state or territory).
having filed proper notices of tax liens, our task is to determine
whether the action filed by the
was a quiet title action. If so, the tax liens were not extinguished by
the state court's judgment because the government was not named as a
party to that action. In deciding the nature of the
' state court action, we must look to
law. See United States v. Bosnan, 363
237, 241 (1960) (state law should be adopted as federal law governing
divestiture of tax liens); see also Runkel v. United States [76-1
USTC ¶9152], 527 F. 2d 914, 916 (9th Cir. 1975) (rights in property to
which tax liens may attach are created under state law).
law, where the buyer fails to make a payment as required by the land
sales contract the vendor has a choice of remedies. Where time has been
made the essence of the contract, he may terminate the contract or
declare a forfeiture without resort to judicial proceedings for
confirmation. Dill v. Zielke, 26
2d 246, 252, 173 P. 2d 977, 979-80 (1946); Sofie v. Kane, 32
App. 889, 893, 650 P. 2d 1124, 1127 (1982). Where the vendor has granted
indulgences by permitting payments after they were due without protest,
strict performance is waived and a forfeiture cannot be declared without
notice of the intention to do so and a reasonable time for the vendee to
perform. Ryker v. Stidham, 17
App. 83, 87, 561 P. 2d 1103, 1105 (1977). If the vendor declares a
forfeiture, there is no requirement that he seek judicial confirmation
of the forfeiture. Sofie v. Kane, 32
App. at 893-94, 650 P. 2d at 1127. "Upon a valid declaration of
forfeiture, the vendee must relinquish possession of the property."
Sofie v. Kane, 32 Wash. App. at 893, 650 P. 2d at 1127 citing
Suess v. Heale, 68 Wash. 2d 962, 966, 416 P. 2d 458, 461 (1966). In
the event that the vendee does not relinquish possession, "the
vendor can bring a suit to quiet title and regain possession."
A lawsuit to quiet title may also be necessary after a declaration of
forfeiture "to obtain marketable title." Sofie v. Kane,
App. at 893, 650 P. 2d at 1127.
In the instant
did not declare a forfeiture. Instead, the Midletons alleged in their
complaint that the filing of the action was necessary to regain
possession and to terminate Winterburn's rights under the real estate
sales contract because:
defendant has heretofore been delinquent on payments and on three
different occasions Notice of Intention to Terminate the Contract have
been sent to him and that it would be unreasonable and burdensome to
require the plaintiffs to continue to send notices of forfeiture thereby
incurring legal expense.
than declare a forfeiture, the
elected to have the court restore them to possession and terminate
Winterburn's right of redemption and his equitable interest in the
property. Eckley v. Bonded Adjustment Co., 30
2d 96, 106, 190 P. 2d 718, 722-23 (1948). Under
law, a vendee has a real property interest in the land which is subject
to a federal tax lien. Runkel v.
, 527 F. 2d at 916. Under
law "a declaration of forfeiture under an executory real estate
sales contract is effective to extinguish liens upon the buyer's
interest in the contract unless the seller had actual notice of the
liens." Runkel v.
, 527 F. 2d at 917. The
had no notice of the government's tax liens on Winterburn's equitable
interest in the property. Thus, had the
elected to declare a forfeiture, the tax liens would have been
extinguished. Instead, the
sought the assistance of the court in regaining possession and in
terminating the Winterburns' equitable interest in the land. Under
Washington law, the relief they sought is referred to as a quiet title
action, Sofie v. Kane, 32 Wash. App. at 893, 650 P. 2d at 1127.
As noted above, the Allards, in their motion to dismiss this action
referred to the
' law suit as a possessory/quiet title action.
argue in their brief before this court, however, that a judicial
proceeding to enforce a contractual right to regain possession is
"a possessory action." The Allards would apparently limit a
quiet title action to a proceeding in which the plaintiff seeks a decree
confirming his title. No citation is given for this proposition. This
narrow interpretation of the term "quiet title action" is
inconsistent with the
law discussed above. The argument also ignores the fact that the action
brought by the
also sought a termination of Winterburn's rights under the real estate
failed to name the
as a party to their quiet title action under section 7425(a), the tax
lien was unaffected by the
court's judgment. The district court erred as a matter of law in
concluding that the Middleton's action was not a quiet title action.
dismissing this action is REVERSED.
The issues presented in this matter require an interpretation of federal
statutes and the law of the State of
concerning actions to quiet title or to foreclose a lien. Such questions
are reviewable de novo. United States v. McConney, 728 F. 2d 1195
(9th Cir. 1984), appeal docketed, No. 83-1884 (
May 17, 1984
United States of America
, Plaintiff-Appellant v. Henry E. Perry et al., Defendants-Appellees
U. S. Court of Appeals, 5th Circuit, No. 72-2143, 473 F2d 643, 1/8/73,
Aff'g unreported District Court decision
[Code Sec. 6321 and 28 U. S. C. §2410]
Tax liens: Foreclosure of: Fraudulent conveyance: Quiet title action:
Res judicata.--The government was barred from maintaining this
action to foreclose a tax lien and to set aside an allegedly fraudulent
transfer of the property because it did not intervene in a 1969 state
court action brought by the transferee to quiet title to the property.
The lien had been filed and the government knew of the alleged
fraudulent conveyance at the time the state action was brought.
Moreover, the 1969 complaint gave a sufficient description of the lien
and was not defective merely because it failed to state that the
government might claim a fraudulent conveyance.
Sherrer, United States Attorney, William D. Mallard, Jr., Assistant
United States Attorney, Birmingham, Ala., John M. Dowd, Ann E. Belanger,
Meyer Rothwacks, Scott P. Crampton, Assistant Attorney General,
Department of Justice,
, D. C. 20530, for plaintiff-appellant. J. Gilmer Blackburn, P. O. Box
757, Decatur, Ala.,
ert Straub, P. O. Box 327, Decatur, Ala., William B. Eyster, P. O. Box
1145, Decatur, Ala., for defendants-appellees.
Chief Judge, THORNBERRY and MORGAN, Circuit Judges.
Revenue Service brought this action against the appellees to set aside
the transfer of certain real property as fraudulent against the
government and to impress and foreclose an equitable lien on the
property. The District Court for the Northern District of Alabama
dismissed the government's claim as barred by an earlier state court
quiet title action under principles of res judicata. From that adverse
decision, the Internal Revenue Service appeals.
Appellees-taxpayers, Henry and Annie Mae Perry, were charged by the
government with failure to pay a total of approximately $84,000 in
federal income tax for various years from 1959 to 1965. At the times
that these liabilities accrued, Henry and Annie Mae Perry owned the
piece of real property which was subject of the conveyance that the IRS
now asserts to be fraudulent. In January, 1967, taxpayers Henry and
Annie Mae entered a contract to transfer this real estate to Perrylanes,
Inc., a corporation whose sole stockholders were the children of Henry
and Annie Mae, in exchange for assumption of outstanding mortgages. When
the actual deed delivery came on
March 11, 1967
, however, the property was transferred by warranty deed to the Perry
children jointly, rather than to the corporation.
November, 1967, and March, 1968, the IRS assessed deficiencies against
the Perrys totaling $84,617.83. Notice of liens were filed by the
government in the appropriate county offices on March 15 and June 11,
1968, pursuant to 26 U. S. C. §6322.
1969, the corporation, Perrylanes, Inc., commenced a suit in the circuit
court of Morgan County, Alabama, to reform the deed to show Perrylanes,
not the children, as grantee, and to quiet title. Named defendants were
the Perry children, the parties holding mortgages on the property, and
was properly served with process, both in
, as required by federal law. The filed tax liens claimed by the
were specifically set out in the complaint. The United States failed to
make any appearance in this state court action 1
and never requested, as was its right, that the action be removed to
federal district court. On
September 15, 1970
, a decree pro confesso was entered against the government,
ostensibly freeing the property of all government claims.
April 7, 1971
, the IRS commenced this action to declare the transfer to Perrylanes to
be fraudulent against the government and void. The district court held
that action was barred by res judicata.
II. In this
appeal, the government alleges two grounds for reversal which are very
closely connected. Both arguments rest on the acceptance of the
government's view of the nature and origin of the lien it now seeks to
enforce. The first argument is substantive. The second is procedural and
argues that the notice of liens filed March and June, 1968, were against
the taxpayers and not the property, and so at the time of the judgment
of the Morgan County court the government had no claim on the property.
The government maintains that these recorded liens are not the subject
of the instant fraudulent conveyance action. Rather, the government
asserts that the lien involved herein is a totally new equitable lien
which did not, and indeed could not, come into existence until the
instant suit was brought in 1971.
At the outset,
it is necessary to understand the basis for the original suit to quiet
title. Congress has expressly granted to appropriate state and federal
courts the power to entertain suits of this type in 28
C. §2410. 2
One of the purposes of this statute was "to provide a method to
clear real estate titles of questionable or valueless liens." 3
It was in response to the recognized need for a way to force disputes
over government tax liens to resolution, rather than leaving the United
States in complete control of the timing. It is against this background
that the effect of the quiet title proceeding attacked herein must be
courts and this court construing
law have recognized that quiet title actions in
are designed to end all doubts about title to land as far as all
persons given notice of the suit are concerned. The Alabama Supreme
Court has stated:
primary purpose of . . . [the quiet title action] is to enable a party
who is in peaceable possession of land, and who, for this reason, cannot
maintain an action at law, to compel a party who claims a right, title,
or interest in the land, or who is ever reputed to so claim, to come
into a court of equity and propound and show the nature, character, and
kind of his title, claim, and demand, and to have it determined, and to
have the court to decree and adjudge whether it is good or bad. Wylie
v. Lewis, 263
522, 83 So. 2d 346, 347 (1955).
This court has
recently recognized this as
statutes which control quieting title and determination of claims to
land, the Circuit Court decrees ". . . clear up all doubts
or disputes concerning [the land]."
v. Moorer, 372 F. 2d 747, 751 (5th Cir. 1967).
Thus it is
clear that quiet title actions are intended to be as final and reliable
now takes the position that while quiet title suits may be designed to
settle all claims, the government's instant claim was not in
existence at the time of the quiet title suit and that the government
was not bound to litigate it. We reject this position in order to
preserve the integrity of the quiet title action and to give full effect
to what Congress must have intended in 28 U. S. C. §2410.
There can be
no doubt that the government was fully aware of these transactions in
1969 when the quiet title suit was brought. The Service had been feuding
with the Perrys, both in court and out, for several years. The question
is whether the government, a creditor of those who transferred land, is
required to come in and assert any claim of fraudulent conveyance in any
action brought by a third-party transferee to quiet title to the land.
In the instant case, where all the necessary facts are known to the
government at the time of the quiet title action, we find that it was
obligated to assert its claim of a fraudulent conveyance at that time
and failure to do so subjects the government to res judicata.
law, as this court has recognized, all matters are to be settled in
quiet title actions, including matters available for presentation but
. . the
state courts would not allow relitigation either of issues raised in the
prior suits or of issues which could have been raised in those suits. By
statutes which control quieting title and determination of claims to
land, the Circuit Court decrees ". . . clear up all doubts
or disputes concerning [the land]."
Code, Title 7, §§ 1109, 1116 (Recomp. 1958). [emphasis added] Warrior
River Coal & Land Co. v.
State Land Co., 1907, 154
135, 45 So. 53. See Cheney v. Nathan, 1896, 110
254, 20 So. 99. The decrees are also ". . . binding and conclusive
upon all the parties . . ." in the suit.
Code, Title 7, §1112, 1126 (Recomp. 1958).
Alabama Supreme Court has, further, embraced for all cases (not merely
for quiet title actions) the federal rule that ". . . res judicata
must be pleaded as a bar, not only as respects matters actually
presented to sustain or defeat the right asserted in the earlier
proceeding, 'but also as respects any other available matter which might
have been presented to that end.'" 25 So. 2d 515.
has asserted no legal basis for lifting the bar of res judicata. That
bar is neither sinister nor harsh; often it is salutary and,
v. Moorer, 372 F. 2d 747, 751-52 (5th Cir. 1967).
Here it is
very clear that any claim of the
would go to the heart of a quiet title action. The claim of fraudulent
conveyance, known and available to the government at the time of the
quiet title suit, would be of prime importance in achieving the end for
which the quiet title suit exists.
We note that
in other cases where, under similar facts, the government has been
joined in a quiet title action, the Service has been quick to come in
and assert its fraudulent conveyance claim. In Zeddies v. United
States, 7th Cir., 1966, [66-1 USTC ¶9273] 357 F. 2d 897, the
taxpayer had conveyed property to his daughter prior to the recording by
the government of liens against the taxpayer. After the daughter brought
a state court quiet title action, the government both filed an action
alleging a fraudulent conveyance in federal court and had the state
action removed. These cases were consolidated in federal court. In Smith
v. United States, 6th Cir., 1958, [58-1 USTC ¶9424] 254 F. 2d 865,
the taxpayer husband conveyed property to his wife two years before a
tax lien was filed. The
filed an action to perfect its lien against the wife in district court.
Prior to this filing, however, the wife had instituted quiet title
proceedings in state court. The Court of Appeals held that the
government, by not seeking removal, had chosen to litigate the matter in
state court and that the district court action should be stayed pending
resolution in the state courts. These cases suggest to this court that
the quiet title action indeed covers the resolution of fraudulent
conveyance claims and that the government has seemingly recognized this
principle by asserting its fraud claims in those cases. 4
appears to this court that the government has no viable argument that
res judicata is improper because the issues involved in quiet title and
fraudulent conveyances are so different. It seems to us that the quiet
title action is an overall umbrella type proceeding which includes, as a
constituent part necessary to preserve the integrity of the quiet title
action, the resolution of available fraudulent conveyance claims.
government's highly technical second claim is an assertion that the
earlier proceeding cannot bind it because notice of the lien claimed was
not alleged with specificity as required by 28 U. S. C. §2410(b). 5
In the quiet title suit, plaintiff Perrylanes set out the name of the
taxpayers, the land involved, the identity of the local IRS office
handling the Perry's problems and the location and page of the lien
notices which had been filed by the government. In short, the plaintiff
gave just about all the information which it could. The government
maintains that to comply with the statute, the plaintiff in a quiet
title suit, to avoid a later fraudulent conveyance action by the
government, would have to allege that the United States might
claim the transaction was fraudulent and specifically give notice, not
just as to the land, transaction, and taxpayers, but also hypothesize
what the government might later wish to assert. The government admits
that this would never be done if it is indeed possible to describe the
contingency. Furthermore, the government argues that even if such an
allegation were made, it would seek dismissal on that issue arguing that
there could never be a fraudulent conveyance issue until the government
filed such a suit at its own pleasure. In short, the government says
that there is no way for any party by any action to avoid the
possibility that the government will later bring suit claiming a
fraudulent conveyance. We do not feel that this position should be
sustained. To allow this interpretation to be given the statute would
infringe the intent of Congress and prohibit full usage of a valuable
tool--the quiet title action--for conclusively settling all claims to
specificity provisions are in the statute to ensure that the government
is given full notice of what claims the parties are talking about and
what land and parties are involved. Here the taxpayers whose problems
gave rise to the assessments were identified, the fact of a transaction
involving a specific piece of land and the identity of the transferee
were disclosed. The government had specific notice to come in and
litigate about this piece of property. There could be no mistake about
the material issues; there was no bad faith or attempt to
"fool" the government. Congress wanted to ensure that
"hidden" liens were not removed without notice to the
government; it never indicated that the government could not be required
to litigate all claims growing out of the specific liens, property, and
taxpayers clearly identified to the Service.
sought to provide, through the basic enactment of §2410, a method to
force the government to litigate tax liens to enable persons, both
taxpayers and third parties, to clear title and have uncertainty
conclusively removed so they could take certain actions without fear of
later challenge. To allow the government to always hold back one
possible defect will never fulfill the goal of conclusively settling
these disputes. 6
It is well known that the
istration process, even in the IRS, is often slow and unresponsive. To
offset this and to prevent the obvious harm which can come from
istrative harassment, Congress provided a method to settle the issue.
We do not feel
that any undue burden is put on the government by requiring it to assert
any fraudulent conveyance claim in a quiet title action. First, it is
given notice that a transfer has occurred, the terms of the transfer,
the identities of the parties involved and the nature of the tax
difficulties involved. The government has an absolute right of removal
to federal court. The complaint itself and the information it contains
is enough to give the IRS ample information for deciding whether a
fraudulent conveyance claim may lie. The values sought to be established
in the quiet title action sufficiently outweigh any
istrative convenience since in reality the only chance of harm to the
government comes from negligence or inattention on the government's
part. The notice given herein was all that realistically could be given
and was, under the circumstances, sufficient to comply with statutory
our reading of 28
C. §2410 does not lead us to believe that Congress intended the IRS to
escape an adjudication which would be an adequate bar to a private
litigant. Here, as we have already discussed, we feel the courts of
would find a creditor with knowledge and notice equal to that of the
government in this case to be barred from relitigating this title in a
future suit. The IRS knew all aspects of this transaction at all
material times and were of necessity given notice by the elements in the
quiet title complaint. The government now raises for the first time, in
this appeal, that sufficient notice was not given. For the reasons
stated, we choose to reject the highly technical argument of the
government and opt for preserving the integrity of the quiet title
action as a method specifically provided by Congress for forcing these
matters to a speedy and just conclusion.
hold that the fraudulent conveyance action was barred by res judicata
and the decision of the district court is
The government expressed its reasons for not entering the quiet title
action to the district court at the trial of this instant action in
November, 1971, as shown by the district court's opinion. The attorneys
for the government informed the district court that they had intended to
file an answer in the quiet title suit but that through neglect or pure
oversight on their part no appearance was ever made.
(a) Under the conditions prescribed in this section and section 1444 of
this title for the protection of the
may be named a party in any civil action or suit in any district court,
or in any State court having jurisdiction of the subject matter--
(1) to quiet
foreclose a mortgage or other lien upon,
interpleader or in the nature of interpleader with respect to, real or
personal property on which the United States has or claims a mortgage or
H. R. Rep. No. 1191, 77th Cong., 1st Sess. (1941); S. Rep. No. 1646,
77th Cong., 2nd Sess. (1942); See Quinn v. Hook [64-2 USC ¶9609],
231 F. Supp. 718 (E. D. Pa., 1964); See also, United States v.
Brosnan [60-2 USTC ¶9516], 363 U. S. 237, 242-250 (19--).
This conclusion as to the government's usual practice is reinforced by
the government attorney's statement to the district court. See footnote
(b) The complaint or pleading shall set forth with particularity the
nature of the interest or lien of the
. In actions or suits involving liens arising under the internal revenue
laws, the complaint or pleading shall include the name and address of
the taxpayer whose liability created the lien and, if a notice of the
tax lien was filed, the identity of the internal revenue office which
filed the notice, and the date and place such notice of lien was filed.
In actions in the State courts service upon the United States shall be
made by serving the process of the court with a copy of the complaint
upon the United States attorney for the district in which the action is
brought or upon an assistant United States attorney or clerical employee
designated by the United States attorney in writing filed with the clerk
of the court in which the action is brought and by sending copies of the
process and complaint, by registered mail, or by certified mail, to the
Attorney General of the United States at Washington, District of
Columbia. In such actions the
may appear and answer, plead or demur within sixty days after such
service or such further time as the court may allow.
We note that the government argues that no real harm to the integrity of
the quiet title action can come in these cases since it concedes that
any bona fide purchaser taking from the one who obtains the bill
to quiet title before the government files a fraudulent conveyance
action will be protected. This overlooks the very real possibility that
the transferee who seeks a bill to quiet title may be doing so as a
prelude to making substantial investment and/or improvements in the
property in reliance on that bill. Once such a party had made
substantial investments he might be tempted to settle even an
essentially groundless fraudulent conveyance claim to protect a far
allowing the government to stand on the sidelines and wait, in a sense
does nothing more than create the possibility of further litigation, for
even where the one obtaining the bill to quiet title has sold the
property, in addition to the question of a possible fraudulent
conveyance, the government might see fit to litigate whether the second
sale was to a bona fide purchaser. It seems far better, when the
government knows full well of all claims it might have, to require it to
litigate these claims in the quiet title action and thus try to nip
these later problems in the bud.
Judge, Specially Concurring:
I concur fully
in the decision and opinion of the Court. I add this only to clear up to
the reader what might otherwise be a mystery: Why did this happen? Was
the Government deliberately declining to participate in the
quiet title action because of any genuine belief that §2410 did not
cover its potential claim? The answer is a plain no.
only difficulty in this case is trying to articulate the Government's
thesis. The fact is, as the arguments revealed, this is a plain case of
gross, glaring neglect in which the Attorney General's Office and that
of the local United States Attorney's Office to each of whom the
appropriate citations were twice sent, simply sat by and did nothing.
does a disservice to the laudable Congressional concept expressed in §2410
by seeking a Judicial pardon on these dubious grounds for neglect of a
kind for which they neither offer or can find an excuse.
¶9554]Jane I. Hartman, Appellant v. Fred J. Lauchli, Trustee of Hartman
U. S. Court of Appeals, 8th Circuit, No. 16,929, 304 F2d 431, 6/20/62,
Affirming an unreported District Court decision
[1954 Code Secs. 6323 and 6871]
Tax claims in bankruptcy: Trustee's action against bankrupt: Finality
of judgment.--Since Federal Rules of Civil Procedure are not
substitutes for direct appeals from judgments, Rule 60(b) of the Federal
Rules of Civil Procedure was not a proper means of seeking vacation of a
judgment against transferees of a bankrupt corporation. The judgment had
been affirmed by this court and the transferees were without further
Becker, 7811 Carondelet Ave., Clayton 5, Mo. (William J. Becker, 7811
Carondelet Ave., Clayton 5, Mo., on brief), for appellant. Kenneth
Teasdale, Charles E. Dapron, Armstrong, Teasdale, Roos, Kramer &
Vaughan, 506 Olive St., St. Louis, Mo., for appellee.
SANBORN, BLACKMUN and RIDGE, Circuit Judges.
Hartman, one of the defendants in the District Court in the action of Fred
J. Lauchli, Trustee of Hartman Corporation of America (a corporation),
Bankrupt, v. Milton D. Hartman, et al., has appealed from an order
filed October 6, 1951, denying the defendants' motion of July 21, 1958,
under Rule 60(b) of the Federal Rules of Civil Procedure, to vacate the
final judgment entered against the defendants on Count VII of the
background of this controversy between the Trustee in Bankruptcy of the
Hartman Corporation and the Hartmans has been stated in great detail in
the opinion of this Court in Hartman v. Lauchli [57-1 USTC ¶9571],
238 F. 2d 881, and will not be repeated.
December 20, 1948
, brought an action against the Hartmans in the District Court to
recover monies alleged to have been transferred to them by the bankrupt
corporation in fraud of its creditors. Counts VI and VII of the
Complaint in the Trustee's action were claims for monies diverted from
the bankrupt, without consideration and in fraud of its creditors, to
the members of an allegedly fictitious Hartman family partnership known
as American Electrical Products Company. The District Court, after a
trial, entered a judgment in favor of the Trustee upon the claim stated
in Count VI, for $421,469.21 ($307,641.76 plus interest), because of
monies diverted to the defendants between September 2, 1943, and
February 5, 1945. The court entered judgment in favor of the Trustee
upon Count VII, for $150,372.97 ($109,761.29 plus interest), because of
monies diverted to the defendants between
February 2, 1945
January 31, 1946
. On appeal, this Court affirmed the judgment of the District Court as
to Court VII, holding that the Government was an existing creditor of
the Hartman Corporation between
February 2, 1945
January 13, 1946
. The judgment on Count VI was reversed and the "cause as to Count
6" was "remanded for a new trial." This because the
bankrupt had not been shown to have had any creditors during the period
September 1, 1943
July 15, 1944
It is the
judgment on Count VII, which was affirmed by this Court on appeal and
which the Supreme Court declined to review on certiorari (353
965), that the defendants asked the District Court to vacate.
There can be
no question that the affirmance by this Court of the judgment of the
District Court on Count VII conclusively and finally established (after
the Supreme Court had denied certiorari) that the United States during
the period referred to in that Count was, by virtue of matured tax
claims against the bankrupt, a creditor with a provable debt, and that
the diversion of funds by the bankrupt was in fraud of creditors and
recoverable by the Trustee.
contends that the ruling that the
was a creditor was erroneous. But if that were so, what of it? The
District Court and this Court unquestionably had jurisdiction to decide
that issue. They decided it. Jurisdiction to decide is jurisdiction to
make wrong, as well as right, decisions. 1
Rule 60(b) was
not intended as a substitute for a direct appeal from an erroneous
judgment. The fact that a judgment is erroneous does not constitute a
ground for relief under that Rule. 2
What we have
said is not to be construed as any indication that we think the decision
with respect to Count VII was in fact erroneous. The District Court
obviously did not err in denying the motion of the defendants to vacate
and set aside the final judgment in this case. Moreover, after this
Court had affirmed the judgment of the District Court on Count VII, that
court, without the consent of this Court, could not have disturbed the
The motion to vacate might well have been denied on the authority of Thornton
v. Carter, 8 Cir., 109 F. 2d 316.
appealed from is affirmed.
Fauntleroy v. Lumm, 210 U. S. 230, 234-235, 237; Burnet v.
Desmornes, 226 U. S. 145, 147; Lamar v. United States, 240 U.
S. 60, 64-65; Pope v. United States, 323 U. S. 1, 14.
Home Indemnity Co. of New York v. O'Brien, 6 Cir., 112 F. 2d 387;
Berryhill v. United States, 6 Cir., 199 F. 2d 217, 219; Elgin
Nat. Watch Co. v. Barrett, 5 Cir., 213 F. 2d 776, 779-780; Collins
v. City of Wichita, Kansas, 10 Cir., 254 F. 2d 837, 839; United
States v. Failla, D. C. N. J., 164 F. Supp. 307, 312-313; Ackermann
v. United States, 340 U. S. 193, 197-198.
Tribble v. Bruin, 4 Cir., 279 F. 2d 424, 427; Price v. United
States, D. C. E. D. Va., 195 F. Supp. 203; 7 Moore's Federal
Practice (2d Ed.) 339-341; Butcher & Sherrerd v. Welsh, 3
Cir., 206 F. 2d 259, 261-262.
ert D. Smith and Betty Newland Smith, Appellants v.
United States of America
Court of Appeals, 6th Circuit, No. 13309, 254 F2d 865,
, Vacating and remanding District Court, 57-1 USTC ¶9224, 146 Fed.
[1939 Code Sec. 3672--similar to 1954 Code Sec. 6323; 1939 Code Sec.
3678--same as 1954 Code Sec. 7403]
Liens for taxes: Filing of notice: Prior state court action to quiet
title: Exclusive jurisdiction.--Where taxpayer's wife brought action
in a state court to quiet title to real property which taxpayer had
conveyed to her prior to the Government's filing of notice of tax lien
and the Government subsequently failed to remove the state-court action
to a federal court, the state court retained exclusive jurisdiction to
determine whether taxpayer's wife was in fact a "purchaser"
against whom the lien would be invalid. Consequently, the
Federal District Court
erred when it held in a later foreclosure action against the real
property that the tax lien was a valid first lien and that the property
could be sold in satisfaction of it. Accordingly, a stay of proceedings
Federal District Court
as to both the taxpayer and his wife was to be continued in force
pending determination of the state court action.
ert P. Goldman, Cincinnati, Ohio (Harry Stickney, Leonard S. Meranus,
Paxton & Seasongood, Cincinnati, Ohio, were with him on brief), for
appellants. S. Dee Hanson, Washington, D. C. (Charles K. Rice, Lee A.
Jackson, A. F. Prescott, George F. Lynch, Washington, D. C., Sumner
Canary, Clarence M Condon, Cleveland, Ohio, were with him on brief), for
Chief Judge, MILLER, Circuit Judge, and MATHES, District Judge.
husband and wife, appeal from a judgment of the District Court decreeing
foreclosure of appellee's tax lien on real property situate in Erie
County, Ohio, claimed by reason of assessments for appellant J.
ert D. Smith's 1942 and 1943 income taxes.
involved had been acquired by appellant
ert Smith, through inheritance upon the death of his mother, after the
assessment lists had been received by the Collector [Int. Rev. Code of
1939 §3671], and was conveyed by warranty deed for allegedly valuable
consideration to appellant Betty Smith some two years prior to the
filing of the Collector's notice of tax lien with the Recorder of Erie
County [id. §§ 3670, 3672], although this deed was not recorded
until after recordation of the Collector's notice.
from the record that shortly after commencement of the lien-foreclosure
action in the District Court [Int. Rev. Code of 1939 §3678; 28 U. S. C.
§1345] [57-1 USTC ¶9224], appellants as defendants moved to stay the
proceedings upon the grounds: that appellant Betty Smith as plaintiff
had previously commenced in the Court of Common Pleas of Erie County,
Ohio, an action to quiet title and for other equitable relief "with
respect to the same property and involving the same federal tax
lien"; that the United States was made a party defendant and served
with process in this previously filed state-court action [28 U. S. C. §2410],
but made no effort to remove the state-court case to the District Court
[id. §1444]; and that appellants would be subjected to undue
harassment unless the federal-court action might be stayed pending
determination of the state-court action to quiet title as against the
identical tax lien.
did not oppose the motion to stay proceedings, and the District Court
granted the motion. Shortly thereafter the Government filed a
"motion to place cause on active list and require defendants to
Court's memorandum directing that this motion be granted "insofar
as the defendant J.
ert D. Smith is concerned" stated that there was "no reason at
this stage of the proceedings . . . to require the defendant Betty
Newland Smith to meet the issue involving her deed of conveyance in this
Court at this time." Thereupon the District Court ordered that the
lien-foreclosure action "be placed on the active list insofar as
the defendant J.
ert D. Smith is concerned, and that said defendant answer the complaint
filed in this cause."
In due course
ert Smith filed his answer to the lien-foreclosure complaint. The case
was then submitted to the District Court for decision upon a stipulated
statement of facts, and the District Court's memorandum of decision
awarding judgment in favor of the Government states that the case was so
submitted along with the complaint, "the answer of defendant J.
ert D. Smith . . . and the briefs of plaintiff and the defendant J.
ert D. Smith."
finding of fact, conclusions of law, and judgment treat the case as if
defendant Betty Smith, too, had appeared and litigated the
lien-foreclosure action along with her husband. Apparently because all
counsel overlooked it, no mention is made of the fact that appellant
Betty Smith had never been called upon even to answer the Government's
complaint, or indeed of the fact that as to her all proceedings in the
federal-court action remained--and for all that appears still
remain--stayed by the earlier order of the District Court.
As Mr. Chief
Justice Hughes observed for the Court in United States v. Bank of New
York & Trust Co., 296 U. S. 463 (1936): "The principle,
applicable to both federal and state courts, that the court first
assuming jurisdiction over property may maintain and exercise that
jurisdiction to the exclusion of the other, is not restricted to cases
where property has been actually seized under judicial process before a
second suit is instituted. It applies as well . . . in suits of a
similar nature, where, to give effect to its jurisdiction, the court
must control the property. . . . If the two suits are in rem or quasi
in rem, so that the court must have possession or control of the res
in order to proceed with the cause and to grant the relief sought, the
jurisdiction of one court must of necessity yield to that of the
rule which has risen on the foundation of this principle is that
whichever court, state or federal, first obtains constructive possession
of property in the exercise of its jurisdiction, is entitled to retain
control of that property without interference from the other. [Harkin
v. Brundage, 276 U. S. 36, 43 (1928); Farmers' Loan & Trust
Co. v. Lake Street Elevated R. R., 177 U. S. 51, 61 (1900); Hagan
v. Lucas, 35 U. S. (10 Pet.) 400, 103 (1836).]
Brick Co. v. Chicago Trust Co., 286 Fed. 818 (6th Cir., 1923), upon
applying the rule just stated in a situation closely analogous to that
presented in the case at bar, this Court declared: "Our conclusion
that the state court had exclusive jurisdiction to determine the
validity of the . . . [lien] renders a discussion of the merits of the
controversy not only unnecessary, but improper." [286 Fed. at 822;
see also: First Nat'l. Bank v. Charles Broadway Rouss, Inc., 61
Fed. (2d) 489, 492 (5th Cir. 1932), cert. denied, 287
670 (1933); Davis v. Mabee, 32 Fed. (2d) 502, 504 (6th Cir.), cert.
580 (1929); cf. Great North Woods Club v. Raymond, 54 Fed. (2d)
1017 (6th Cir. 1931).]
judgment of the District Court, in addition to decreeing that the tax
claims against appellant
ert Smith constitute a valid lien against the real property which is the
subject of the earlier state court quiet-title action, also decrees that
the tax lien is a first lien on that real property, and orders the
property "be sold by the U. S. Marshal at public auction. . .
what this Court said in the Dennison Brick case, supra:
The State court has undoubted jurisdiction to quiet title to the land in
question, and to declare appellee's tax lien void if appellant Betty
Smith was a "purchaser" within §3672 of the Internal Revenue
Code of 1939 [28 U. S. C. §2410]; and the State court has equally
undoubted jurisdiction in the same quiet-title action to subject the
land to payment of the tax lien, if found valid, by foreclosure and sale
State court has prior jurisdiction over the real property against which
the tax lien is asserted, and the Government appears to have elected, by
eschewing removal [28 U. S. C. §§ 1444, 2410], to litigate the matter
in the State court, the District Court in the first instance properly
stayed further proceedings, and such a stay as to both defendants Smith
should be continued in force pending determination of the prior
the findings of fact, conclusions of law and judgment of the District
Court are vacated, and the cause remanded for further proceedings not
inconsistent with this opinion.
¶50,287] William C. Blankstyn, Plaintiff v.
United States of America
District Court, Dist. Ariz., CIV. 91-0452 PHX CAM, 5/13/94
[Code Secs. 6103 and
Return information: Wrongful disclosure: Notice of levy: Employer.--An
employee was not entitled to damages for wrongful disclosure of return
information arising from the IRS's serving of a notice of levy on the
wages of the employee with his employer and the recording of a notice of
tax lien. The disclosure of return information was authorized, and it
was necessary for the collection of taxes.
[Code Sec. 6323 ]
Tax lien: Res judicata.--An individual was not entitled to
relitigate, in an action to quiet title to property, the same claim
concerning the validity of a tax lien that was already denied by the
bankruptcy court in the same district for which a separate appeal was
considered the pleadings filed concerning defendant's motion for summary
judgment, the Court concludes as follows:
filed this action seeking to enjoin the Internal Revenue Service
("IRS") from levying his wages and seeking damages for
wrongful disclosure of return information. Defendant's Statement of
Facts ("DSOF"), 1. Plaintiff alleged that he never received a
notice of deficiency for tax year 1985, and that the assessment was not
properly made and recorded.
Plaintiff alleged that the IRS's collection of taxes assessed for 1985
Plaintiff also alleged that because the assessment was improper, the
IRS's disclosure of return information in connection with the wage levy
violated 26 U.S.C. §7431 .
Plaintiff sought damages for wrongful disclosure of return information.
Court denied a permanent injunction pursuant to 26 U.S.C. §7421
(the "Anti-Injunction Act"), and dismissed the lawsuit,
plaintiff appealed. DSOF, 2-3. The Ninth Circuit affirmed this Court's
denial of the injunction, and remanded only the wrongful disclosure
issue for this Court to determine whether an assessment was made against
plaintiff for 1985.
If an assessment was made against plaintiff, any disclosure of return
information would be authorized pursuant to 26 U.S.C. §6103(k)(6)
. DSOF, 3.
November 23, 1993
, this Court granted defendant's motion for partial summary judgment.
Defendant had established that valid assessments in the amount of
$18,772.41 and a lien fee of $6.00 were made against plaintiff in 1985.
Defendant also established that the required notices were properly
mailed. The Ninth Circuit had already determined that the notices were
Prior to the
ruling on the motion for summary judgment, construed as a motion for
partial summary judgment, plaintiff filed an amended complaint adding
two new causes of action for (1) quiet title to his property and (2)
seeking damages pursuant to 26 U.S.C. §7431
for wrongful disclosure of return information arising from the IRS's
serving a Notice of Levy on his employer and recording a Notice of
Federal Tax Lien with respect to his unpaid 1985 federal tax liability.
judgment may be granted if the movant shows that "there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Rule 56(c), Federal Rules
of Civil Procedure.
fact(s) must be material.
Substantive law determines which facts are material. "Only disputes
over facts that might affect the outcome of the suit under the governing
law will properly preclude the entry of summary judgment."
242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
must also be genuine. A dispute about a material fact is genuine if
"the evidence is such that a reasonable jury could return a verdict
for the nonmoving party."
at 249, 106 S.Ct. at 2510. There is no issue for trial unless there is
sufficient evidence favoring the nonmoving party. If the evidence is
merely colorable or is not significantly probative, summary judgment may
at 249-50, 106 S.Ct. at 2510-11. In a civil case, the question is:
fair-minded jury could return a verdict for the plaintiff on the
evidence presented. The mere existence of a scintilla of evidence in
support of the plaintiff's position will be insufficient; there must be
evidence on which the jury could reasonably find for the plaintiff.
at 252, 106 S.Ct. at 2512.
party who has the burden of proof on the issue at trial must establish
all of the essential elements of the claim or defense for the court to
find that the moving party is entitled to judgment as a matter of law. Fontenot
v. Upjohn, 780 F2d 1190, 1194 (5th Cir. 1986); Calderone v.
United State, 799 F2d 254, 259 (6th Cir. 1986). However, the moving
party need not disprove matters on which the opponent has the burden of
proof at trial. Celotex Corp. v. Catrett, 477
317, 322 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Thus, summary
judgment is proper if the nonmoving party fails to make a showing
sufficient to establish the existence of an essential element of his
case on which he will bear the burden of proof at trial.
argues that summary judgment is proper because (1) plaintiff's quiet
title claim is barred by the doctrine of res judicata because the
same claim has already been denied by the Bankruptcy Court for this
district and (2) because plaintiff is not entitled to damages pursuant
to 26 U.S.C. §7431 as
a result of the IRS's serving a Notice of Levy on his employer and
recording a Notice of Federal Tax Lien with respect to his unpaid 1985
federal tax liability.
Whether plaintiff's quiet title claim is barred by the doctrine of
res judicata because the same claim has already been denied by the
Bankruptcy Court for this district.
argues that the doctrine of res judicata applies to the quiet
title claim because the Bankruptcy Court already has determined the
validity of the IRS tax lien with respect to the plaintiff's unpaid
federal tax liability for 1985 and rendered a final judgment on the
merits with respect to that cause of action.
argues that the doctrine of res judicata does not apply because
the bankruptcy decision is on appeal in the United States District Court
for the District of Arizona. See CIV 93-2062-PHX-RCB. Plaintiff argues
that, if this Court considered the arguments and the authority submitted
in the bankruptcy appeal, this Court would conclude that the appeal has
merit, and that the matter will be remanded to bankruptcy court for
further proceedings. According to plaintiff, if the matter is remanded,
then the doctrine of res judicata would not apply.
This Court is
not the appellate court in the bankruptcy matter. This Court has no
authority to second guess the outcome of the appeal. At this point in
time, the Bankruptcy Court decision is valid. Therefore, defendant's
argument has merit, and plaintiff's quiet title action is barred by the
doctrine of res judicata.
Whether plaintiff is entitled to damages pursuant to 26 U.S.C. §7431
as a result of the IRS's serving a Notice of Levy on his employer
and recording a Notice of Federal Tax Lien with respect to his unpaid
1985 federal tax liability.
argues that plaintiff is not entitled to damages pursuant to 26 U.S.C. §7431
for improper disclosure of tax return information. 26 U.S.C. §6103
provides that income tax returns and return information are
confidential. Maisano v. United States [90-2
USTC ¶50,399 ], 908 F.2d 408, 410 (9th Cir. 1990). However, 26
U.S.C. §6103 also
authorizes the IRS to disclose "return information to the extent
that such disclosure is necessary in obtaining . . . the correct
determination of tax, liability for tax, or the amount to be collected
or with respect to the enforcement of any other provision of the
[Code]." 26 U.S.C. §6103(k)(6)
. Also, Treasury Regulations specifically authorize disclosure of
tax return information "to apply the provisions of the Code
relating to the establishment of liens against [the taxpayer's] assets,
or [a] levy on . . . the assets to satisfy any [outstanding]
liability." Treas. Reg. Section
lawsuit, the Ninth Circuit has determined that any disclosure of return
information arising from the IRS' serving a Notice of Levy on the
plaintiff's employer was authorized pursuant to 26 U.S.C. §6103(k)(6)
because such disclosure "was necessary for the collection of a
tax liability" provided that the IRS made an assessment against the
plaintiff with respect to 1985. This Court has determined that the IRS
made an assessment against the plaintiff with respect to 1985. In
another lawsuit, the Ninth Circuit has determined that the disclosures
resulting from filing liens and serving levies "do not violate section
6103(a) prohibition against unauthorized disclosure of federal tax
return information." Maisano v. United States [90-2
USTC ¶50,399 ], 908 F.2d at 410.
conclusion must be reached with respect to the IRS's recording its
Notice of Federal Tax Lien as such action is also necessary for the
collection of tax liability. Any disclosure of return information
arising from the IRS's serving a Notice of Levy on the plaintiff's
employer and recording a Notice of Federal Tax Lien with respect to his
unpaid 1985 federal tax liability is authorized by section
argues that the defendant did not provide plaintiff a copy of the record
of assessment upon a request under the Freedom of Information Act
("FOIA"), and therefore, he is entitled to relief under 28
U.S.C. §2410. In response to the FOIA request, the IRS stated that it
did not keep copies of the Notices, but the Individual Master File
("IMF") "Specific Transcript" for 1985 shows the
date in which the Notice was scheduled to be sent. Thus, plaintiff
argues that defendant has not met its burden of which that the plaintiff
was provided a copy of the record of assessment.
finds no merit to plaintiff's arguments. It has already been determined
that the proper notices were mailed. 2
This Court found that an valid assessment for 1985 was made against
plaintiff. Therefore, any disclosure of return information was
authorized because it was necessary for the collection of a tax
liability and did not amount to wrongful disclosure. Finding that there
are no issues of material fact, the Court concludes that as a matter of
law summary judgment on this claim is proper.
Based on the
foregoing, IT IS ORDERED THAT:
Defendant's motion for summary judgment (Doc. #54) IS GRANTED.
(2) The Clerk
of the Court shall terminate this matter.
Section 7431 provides a taxpayer a civil cause of action for damages for
the intentional or negligent disclosure of confidential return
information by officers or employees of the Untied [sic] States. See
Maisano v. United Sates [90-2
ustc ¶50,399 ], [sic] 908 F.2d 408, 410 (9th Cir. 1990). However,
the IRS is authorized to disclose return information if necessary for
the collection of a tax liability. 26 U.S.C §6103(k)(6)
A notice of deficiency can be valid if it is mailed to the taxpayer's
last known address, even if it is never received by the taxpayer. Williams
v. Commissioner [91-2
USTC ¶50,317 ], 935 F.2d 1066, 1067 (9th Cir. 1991).
¶9442]Rickoon Real Estate v. Two Boro Dress, Inc.
Y. Supreme Court, Spec. Term, Pt. 1, Kings Cty., No. 5283-1956, 171
NYS2d 19, 11/29/57
Priority of liens: Federal tax liens v. municipal liens: Res
judicata.--Since the New York Civil Practice Act makes the
payment of city taxes, assessments and water rates an expense of sale in
foreclosing a mortgage, the Federal Government's lien for taxes is not
entitled to priority over such payment. Furthermore, the Government,
having taken no appeal from either the original or amended judgments of
foreclosure and sale, was barred from again raising the issue of
priority of liens in the present hearing on the motion for an order
confirming the referee's report of sale, by the doctrine of res
Biskind, 160 Broadway,
, N. Y., for plaintiffs. George L. Bourney, 51 Chambers St., New York 7,
N. Y., Leonard P. Moore, United States Attorney, 271 Washington St.,
Brooklyn 1, N. Y., for defendants.
foreclosure action plaintiffs move for an order confirming the referee's
report of sale and directing the referee to pay to plaintiffs the sum of
$3,285.95 now held by the referee as part of the proceeds of the sale
and also for the payment to plaintiffs of the sum of $629.62 from the
receiver's funds, this latter sum being the amount of plaintiffs'
deficiency over and above the said $3,285.95. Defendant United States of
cross-moves for an order directing the referee to correct his report in
conformity with its objections and to pay to it the said sum of
$3,285.95. A request is also made by the referee for an additional
allowance in the sum of $500 for additional services performed in this
matter. From the filed papers it appears that pursuant to a judgment of
foreclosure and sale entered on
October 19, 1956
, the referee sold the foreclosed premises to one Slavit for the sum of
$13,500. The judgment of foreclosure and sale did not provide that the
purchaser be allowed a credit for the payment of any real estate taxes,
assessments and water rates but rather that the referee was to make such
payment. The terms of sale, however, provided for such credit. The
purchaser paid the real estate taxes, etc., in the sum of $3,285.95 and
received a credit toward the purchase price for such payment. On
January 21, 1957
, title was closed and a deed delivered to the purchaser. By order dated
February 20, 1957
, the judgment of foreclosure and sale was amended nunc pro tunc to
conform to the terms of sale relating to the payment of taxes. This
order further provided that the issue of the federal tax liens was to be
passed upon on the motion to confirm the referee's report of sale. Upon
appeal the order was affirmed by the Appellate Division (N. Y. L. J.,
April 30, 1957, p. 9, col. 2). The defendant
United States of America
served and filed objections to the referee's report of sale in allowing
priority to the City of
for its real estate taxes, assessments and water rates as against liens
relating to unpaid social security assessments levied by the
against the owner of the foreclosed premises. The referee, after
deducting from the purchase price of $13,500 the aforementioned credit
of $3,285.95, received the balance of $10,214.05 in cash. After
deducting from that $400 for his fee as referee and $14.85 for revenue
stamps on the deed, he had a balance of $9,799.20. Thereafter pursuant
to an order of the court dated
June 27, 1957
, the referee paid to the plaintiffs from this amount the sum of
$6,473.32 and paid to himself $39.93 as disbursements, leaving a balance
of $3,285.95, the amount in dispute. This is claimed by the United
States Government as surplus. A further sum of $1,263.17, the balance of
the receiver's account, was also placed on deposit to the credit of the
action. The basic issue involved is whether the $3,285.95 is to be
deemed an expense of sale as provided by sections 1082 and 1087 of the
Civil Practice Act or surplus upon which the federal liens attached
because of their priority in time as against the liens of the City of
. The liens in question being statutory, the pertinent sections of the
statutes involved reveal the following: Title 26, U. S. C. A., section
6321, provides that unpaid federal taxes are a lien in favor of the
United States Government from the date of the assessment and remain so
until they are paid or become unenforcible by reason of the lapse of
time (Title 26, U. S. C. A., sec. 6322) except as against mortgagees,
pledgees, purchasers and judgment creditors, in which cases the federal
lien must first be filed (Title 26, U. S. C. A., sec. 6323). The New
York City Charter, chapter 7, section 172, provides that real estate
taxes shall become liens when they become due and payable and shall
remain so until paid. The semi-annual installments of city taxes become
due and payable on October 1 and April 1 of each year.
undisputed that the defendant
United States of America
having appeared in this action and the court having obtained
jurisdiction of such defendant, the judgment of foreclosure and sale
foreclosed any liens or claims against the property and such liens
attached to the surplus money, if any, realized on the sale of the
United States of America
contends that the money paid to the City of
for its taxes, etc., was out of surplus, and that therefore the City of
was given an unlawful priority over its liens. As its authority
defendant cites United States v. City of New Britain (347
81 [54-1 USTC ¶9191]). In that case the court held that where tax liens
are concerned the rule of "first in time, first in right" must
be applied and that a prior lien gives a prior claim which is entitled
to prior satisfaction out of the property it binds unless the lien be
intrinsically defective. The Connecticut statutes which were reviewed by
the Supreme Court provided that real estate tax liens "shall take
precedence of all transfers and incumbrances" in any manner
affecting the property subject to the lien. The funds available in the City
of New Britain case were insufficient to pay all claimants in full,
and the Superior Court of Connecticut directed that the expenses,
the city liens, the mortgages, the judgment lien and United States lien
be paid in that order. The
appealed from the judgment in so far as it gave the statutory liens of
the city priority over those of the
but did not contest the state court's direction that the expenses of
sale and the mortgagee's judgment be paid in full and given priority
over its liens. The United States Supreme Court apparently
recognized that expenses of the sale are to be paid along with the
mortgage and restricted the payment of the government's tax liens to
funds in excess of the amount needed to pay the mortgage which amount
would, of necessity, include expenses and costs of the sale. The
statute did not, as does our Civil Practice Act, make the payment of
city taxes an "expenses of the sale." Section 1087 of the
Civil Practice Act provides: "Where a judgment rendered in an
action to foreclose a mortgage on real property directs a sale of the
real property, the officer making the sale must pay out of the
proceeds, unless the judgment otherwise directs, all taxes,
assessments and water rates which are liens upon the property sold *
* *. The sums necessary to make those payments and redemptions are
deemed expenses of the sale within the meaning of that expression as
used in any provision of this article * * *." Section 1082 of the
Civil Practice Act provides that "In an action to foreclose a
mortgage upon real property, if the plaintiff becomes entitled to final
judgment, it must direct the sale of the property mortgaged or such part
thereof as is sufficient to discharge the mortgage debt, the expenses
of sale and the costs of the action * * *."
that the term "expenses of sale" relates to taxes, etc., has
been sustained by our courts (Termansen v. Matthews, 49 App.
Div., 163; Wesselman v. Engel Co., 309 N. Y. 27).
undisputed that under section 6323, title 26, United States Code
Annotated, and also under the authority of the City of New Britain
case (supra), the mortgagees herein were definitely entitled to
priority over the United States Government and were entitled to be made
of Foreclosure Judgment]
of foreclosure and sale directed the sale of the mortgaged property, or
such part thereof "as is sufficient to discharge the mortgage debt;
the expenses of the sale, and the costs of this action." Payment of
these items from the proceeds of the sale had priority. Anything left
over was "surplus" to be deposited in the designated bank by
the referee for disbursement in the prescribed manner (secs. 1082 and
1087, Civil Practice Act, supra). As heretofore indicated,
section 1087 directs the officer making the sale to pay out of the
proceeds all taxes, assessments and water rates. The language used is
"must pay out." The referee is obliged to make such payments
unless the order otherwise directs. The fact that the terms of sale
provided that the purchaser pay the taxes, etc., and receive credit for
such payment, varied neither the substance of the sections nor their
purpose of protecting the purchaser at the sale and enabling him to
obtain clear title (Wesselman v. Engel Co., supra). The judgment
as amended nunc pro tunc, correcting the variance between the terms of
sale and the original order, conforms to the language of section 1087,
C. P. A. The term "expenses of sale" cannot be read so as to
include taxes only when they are paid by the referee. One must look to
substance rather than form (York Mortgage Corp'n v. Clotar
Construction Corp'n, 254 N. Y., 128; J. Radley Metzger Co., Inc.,
v. Fay et al., 4 App. Div., 2d, 436). It would be incongruous to
hold that those sums are expenses of the sale when the referee pays them
and not expenses of the sale when the purchaser pays them pursuant to an
order of the court and in compliance with the sections of the Civil
etc., being expenses of sale as provided by the sections of the Civil
Practice Act, no surplus came into existence upon which the federal
liens could attach.
To sustain the
contention of the United States Government would jeopardize the entire
mortgage market, both present and future. Mortgagees would hesitate to
advance funds needed in such business transactions in the fear that on a
foreclosure they would not be made whole.
it would appear that the United States Government is barred from raising
the present issue. It is well settled law that the principle of
"res judicata" operates to conclude by the judgment all the
parties thereto and their privies with respect to any and all matters in
issue or necessarily involved in the plaintiffs' cause of action, as
well as all matters of defense which were or might have been litigated
therein where the court had jurisdiction of the subject matter and the
parties. The defendant
United States of America
voluntarily and according to the statutes duly enacted by the Congress
United States of America
submitted to the jurisdiction of this court. By so doing, it became
bound by all the terms of the judgment. The judgment was conclusive as
between the plaintiffs and all of the defendants (Field v. Chronik,
190 App. Div., 501; King v. Franmore Equity Corp'n, 260 App.
Div., 303). The validity or legality of a provision in a judgment in
foreclosure not raised by a party to the suit by timely motion or timely
appeal cannot be raised collaterally where the court rendering the
judgment had general jurisdiction of the parties and subject matter of
the action (Matter of Estate of Stilwell, 139 N. Y., 337). No
appeal was taken by the defendant
United States of America
from the original judgment of foreclosure and sale, nor did it perfect
its appeal from the amended judgment, having apparently abandoned such
appeal. Under the circumstances, the final judgment of foreclosure and
sale as amended, not having been appealed from and no timely application
to modify or vacate same having been made, the judgment is conclusive
and res judicata as to all issues determined by it.
the motion of the plaintiffs is granted not only to confirm the
referee's report of sale and to direct the referee to pay the plaintiffs
the sum of $3,285.95 but also directing the payment to the plaintiffs of
the sum of $629.62 from the receiver's funds now subject to the order of
the court, in payment of the deficiency. The balance of the receiver's
funds amounting to $633.55, being surplus, is directed to be paid to the
United States of America
. The cross-motion by such defendant is otherwise denied.
for an additional allowance for the referee is also denied because this
court in a similar application previously made by the referee denied
such request (Beckinella, J., N. Y. L. J., June 24, 1957, p. 8, col. 1).
No additional facts have been submitted warranting any change in such
¶9274]United States of America, Complainant-Appellant, v. Guaranty
Trust Company of New York, and George J. Baumann, Trustees under the
Last Will and Testament of Henry Rosenberg, deceased, and Jerome
Rosenberg, beneficiary under the Last Will and Testament of Henry
Rosenberg, deceased, Defendants-Appellees
United States Circuit Court of Appeals for the Second Circuit, 76 F2d
747, Decided April 1, 1935
Appeal from United States District Court for the Southern District of
New York.Where the Government had appeared in the Surrogates' Court and
asked that the income payable to the beneficiary of a trust be applied
in satisfaction of tax liens, and had been denied relief, the question
is res judicata in the present suit. The court takes the position
that it can not consider whether the State court was right in
determining that the lien claimed by the
was precluded by an exemption granted under the
law. Affirming District Court decision.
United States Attorney, for complainant-appellant; Martin Conboy and
David W. Wainhouse, Counsel. Nathan Lieberman, Solicitor and counsel for
Jerome Rosenberg, defendant-appellee.
SWAN, and AUGUSTUS N. HAND, Circuit Judges.
HAND, Circuit Judge:
Baumann left a will admitted to probate in the Surrogates' Court of New
York County, on
March 17, 1923
, under which the testator created three equal trusts in his residuary
principal of one of them was devised and bequeathed by the testator to
Guaranty Trust Company of New York and George J. Baumann as trustees
"to invest, reinvest and keep same invested, to collect the
interest, rents, issues and profits thereof, and to pay the net income
thereof to my son Jerome Rosenberg during his lifetime, in quarterly
instalments, if possible." There was an executory devise of the
principal of the trust conditioned upon the death of the life
beneficiary. The annual income payable to Jerome Rosenberg from the
trust amounted to about $3,000. Judgments against him were entered in
the New York Courts amounting to about $30,000 and a receiver was
appointed in supplementary proceedings in the City Court of the City of
on behalf of one of the judgment-creditors on April 24, 1930, and the
receivership order was subsequently extended so as to include other
was indebted to the
for unpaid income taxes and penalties embracing the years 1920, 1923,
1924, 1925, 1926, 1927 and 1928 in more than the sum of $12,000. Lien
notices covering these taxes were filed pursuant to statute in the
office of the Clerk of the United States District Court and with the
Register of New York County, but no part of the taxes was paid.
May, 1934, the trustees refused to turn over to
certain of the income of the trust which they held to his credit;
whereupon he applied to the Surrogates'
County, for an adjudication of his rights and prayed that the trustees
be ordered to pay the income to himself. The motion papers in that
application were served upon the attorneys for the receiver in
supplementary proceedings, but not upon the
United States of America
, or its attorney. Nevertheless the Government appeared on the return
day by an Assistant United States Attorney, filed affidavits and briefs
in opposition to the application of Rosenberg, and in the papers which
it submitted requested the Surrogate to decree that the income from the
trust be used to pay the taxes due the United States for which lien
notices had been filed, and prayed that the trustees be directed to turn
over the same to it.
these circumstances Surrogate Foley filed an opinion in which he held
that the income of the trust was under the New York law not alienable by
the beneficiary and could not be reached by judgment creditors except as
to 10% thereof through a special garnishee execution under Section 684
of the New York Civil Practice Act, or by a suit in equity to impound
the surplus income. He held that in view of the statutory exemption
under the state law neither by means of a judgment, nor by the assertion
of a tax lien could the
obtain relief. An order was entered in the Surrogates' Court in
conformity with Judge Foley's opinion directing the payment of 90% of
the income of the trust held by the trustee to Jerome Rosenberg and 10%
to the receiver.
the foregoing disposition of the matter, the
filed a bill in the District Court for the Southern District of New York
setting forth that Jerome Rosenberg was indebted on account of the
income taxes above mentioned; that notices of lien had been filed
pursuant to statute, and that no part of the tax had been paid. The bill
prayed that the trustees be enjoined by a temporary restraining order,
preliminary injunction and final decree from paying any part of the
income of the trust except to the United States, and that Rosenberg
likewise be enjoined from executing the order entered in the Surrogates'
Court directing payment to him of the income of the trust and that the
trustees be ordered to pay the same to the United States in discharge of
the filing of the bill, the United States Attorney moved on affidavits
for a preliminary injunction in conformity therewith which was opposed
by the attorney for Jerome Rosenberg in an affidavit setting forth the
opinion and order of the Surrogate and stating that the United States
Attorney represented the Government on the hearing of the motion in the
Surrogates' Court. The motion for a preliminary injunction was followed
by a cross motion on behalf of
asking that the bill of complaint be dismissed. This cross motion was
upon an affidavit of
's attorney and one by himself. He swore that:
United States Government was not served with any citation but
voluntarily appeared on the return of that application by one of the
Assistant United States Attorneys, and after oral argument, submitted
affidavits and briefs in opposition to deponent's motion and requested
that the Trustees be directed to pay the said fund to the United States
Government for taxes due it from deponent.
Surrogate Foley granted deponent's motion and held that the United
States Government is not entitled to any part of the income from the
trust fund, as appears from a lengthy opinion of the Surrogate, a copy
of which opinion is annexed hereto.
September 1, 1934
, an order was entered in the Surrogates' Court directing the Trustees
to pay the income to deponent."
the Assistant United States Attorney in charge of the matter, filed an
affidavit in opposition to the cross motion, in which he stated that:
presence of an Assistant United States Attorney to draw to the
Surrogate's attention the existence of a
lien against the income of a trust fund under the jurisdiction of the
Court is not an appearance within the meaning of Sections 41 and 63 of
the Surrogate's Court Act. The affidavit and the memorandum of law were
presented to the Surrogate by the Assistant United States Attorney in
accordance with a practice usually followed in cases where the
has a property interest in a controversy before the State Courts."
It is to be
noted that there was no claim that the
appeared specially in the proceeding. Judge Foley's order recited that
he heard "Martin Conboy, Esq., (Nicholas Atlas, of counsel) in
opposition" to the application of
for payment of the income, and it was stated on behalf of the Government
at the time of argument that an appeal had been taken from the order of
Surrogate Foley and that his order had been affirmed. We must,
therefore, assume that the Government appeared in the Surrogates' Court,
asked that the income claimed by
be applied in satisfaction of tax liens which it had sought to impose,
and was denied relief. Under such circumstances it is not open to us to
consider whether the State Courts were right in determining that the
lien claimed by the
was precluded by an exemption granted under the
law. This question was carefully considered by one of the most learned
and experienced judges of the State of New York and is res judicata
as to the question raised in the present suit unless finally reversed on
appeal. The Government argues that the issues in the two proceedings
were different. We can discover no basis for a distinction. The District
Court was, therefore, right in denying the motion for a preliminary
suggested on the argument that whatever be the merits of the case the
bill should not have been dismissed because the proceedings in the
Surrogates' Court were not set forth on the face of the bill. But they
were set forth in the affidavits upon the motion to dismiss and we do
not understand that the complainant's version of what occurred is
disputed or that the general appearance of the United States Attorney
and his attempt to have the income of the trust applied to the
satisfaction of the taxes due from
are denied. In such circumstances, with the defense of res judicata
established on the undisputed facts, it would have been folly to prolong
the litigation and the District Judge properly dismissed the bill. Mast,
Foos & Co. v. Stover Mfg Co., 177
The order is