6321
After Aquired Property page3

OPINION
AND ORDER ON COMPLAINT TO DETERMINE PRIORITY OF LIENS
SELLERS,
Bankruptcy Judge:
On April 9,
1992, Larry E. Staats, Trustee, filed a complaint seeking to determine
the validity, extent and priority of liens against the assets of the
bankruptcy estate of B&B Printing Co., Inc. All claims against the
estate's assets have been dismissed, compromised, or reduced to default
judgment except those of defendants John J. Guzzo ("Guzzo");
the
United States of America
, Internal Revenue Service ("
United States
"); and the Ohio Bureau of Employment Services ("OBES").
Pursuant to 28
U.S.C. §§1334(b), 157(b)(2), and the General Order of Reference
entered in this district, this Court has jurisdiction to hear and
finally determine this core proceeding.
The parties
have stipulated to the relevant facts in this matter, including a
stipulation recognizing the validity of each party's lien. The issues
presented for determination are: (1) whether the filing date of the
first United States' notice of tax lien acted as an attachment for all
subsequent federal tax lien filings through relation back, and (2)
whether, based on the 45-day rule and choate lien theory, the liens of
the United States, once choate, attached prior to the liens of other
parties with interests in after-acquired property.
I.
The "Relation Back" Theory
In its brief,
the
United States
asserts that all notices of tax lien filings relate back to its first
filings on September 16, 1985. (United States Brief, p. 5). In support
of this proposition, the
United States
cites United States v. Bank of Celina [83-2 USTC ¶9688 ], 721 F.2d 163 (6th Cir. 1983).
In Bank of
Celina, the bank attempted to set off a customer's debt even though
the
United States
previously had filed notices of tax liens against the customer's assets.
The Court of Appeals for the Sixth Circuit held that the
United States
was entitled to the monies used to set off the customer's obligation to
the bank. In so holding, the court stated that "once a federal tax
lien has attached to a taxpayer's property, that property remains
subject to the lien when transferred from the taxpayer to a third
party."
Id.
at 169.
United States
' reliance on Bank of Celina for support of its "relation
back" theory is misplaced. Although the Sixth Circuit espouses such
a theory, it was expressed "[b]efore proceeding to the merits"
of the case, and was not used by the court in its legal analysis. Bank
of Celina at 166. Thus, the support of the "relation back"
theory used by the
United States
in the case at bar is mere dicta, and has no legal authority.
United States
, citing Peterson v. United States [81-1
USTC ¶9469 ], 511 F.Supp. 250 (D.Utah 1981), further states
that the filing of the first tax lien notice puts interested parties on
notice and imparts to the parties an obligation to inquire as to the
accumulating tax obligation. (United States Brief, p. 5). Thus,
United States
argues, it is secured for the actual amount of tax liability as it
accumulates, not just for the amount recorded.
The problem
with the
United States
' analysis is two-fold. First, Peterson is a district court
decision from
Utah
and, thus, is not controlling authority for the "relation
back" theory. Second, Peterson is contrary to the applicable
statutory authority.
26 U.S.C. §6321
states:
"If
any person liable to pay any tax neglects or refuses to pay the
same after demand, the amount (including interest, additional amount,
addition to tax, or assessable penalty, together with any costs that may
accrue in addition thereto) shall be a lien in favor of the United
States upon all property, whether real or personal, belonging to such
person." (Emphasis added).
The
application of a "relation back" theory in which a subsequent
tax lien "relates back" to the filing date of a prior tax lien
disregards the fact that 26 U.S.C. §6321
requires that a person be liable for the tax before the lien
is created. If a lien "relates back" to a filing date before
the creation of that lien, it allows the
United States
a lien before the taxpayer is liable for the tax.
Moreover, 26
U.S.C. §6322
states:
.
. . [T]he lien imposed by section
6321 shall arise at the time the assessment is made
and shall continue until the liability for the amount so assessed . . .
is satisfied or becomes unenforceable by reason of lapse of time.
(Emphasis added).
This
statutory language is in direct conflict with the theory relied upon by
the
United States
. If a subsequent tax lien "relates back" to the filing date
of a prior lien, it becomes effective for purposes of priority against
holders of state created liens before the actual date of assessment.
Such a result is clearly contrary to the express language of 26 U.S.C. §6322
.
Finally, 26
U.S.C. §6323(a)
states that a 26 U.S.C. §6321
lien "shall not be valid against any purchaser, holder
of a security interest, mechanic's lienor, or judgment lien creditor
until notice thereof . . . has been filed . . .". The purpose of
this provision is to protect subsequent secured creditors from a
"secret tax lien"--a lien in which the creditor would have no
notice--imposed by the
United States
. The "relation back" theory thwarts such a purpose. Such a
theory allows a secured creditor to be defeated by a lien of which
he/she had no notice. Therefore, 26 U.S.C. §6232(a)
implicitly speaks against such a theory.
The
"relation back" theory espoused by the
United States
is contrary to the statutory authority of 26 U.S.C. §§6321
, 6322
, and 6323(a)
. Moreover, the
United States
has presented no colorable authority to this Court to uphold such a
theory. Thus, this Court holds that tax liens of the
United States
arising from assessments for discrete tax obligations made subsequent to
the initial lien filing do not "relate back" to the prior tax
lien filed by the
United States
.
II.
The Choate Lien Theory
A validly
perfected tax lien requires a notice of federal tax lien to be filed. 26
U.S.C. §6823. Thus, perfection of
United States
' lien did not commence prior to the filing of such notice.
For a state
lien, the identity of the lienor, the property subject to the lien, and
the amount of the lien must be established in order for such lien to be
choate.
See
,
United States
v.
New Britain
[54-1
USTC ¶9191 ], 347 U.S. 81 at 84, 74 S.Ct. 367 at 369, 98
L.Ed. 520 (1954) and United States v. Pioneer American Ins. Co. [63-2
USTC ¶9532 ], 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770
(1963). In determining the property subject to the state lien, the
Supreme Court stated that the test is that the identity of the property
subject to the lien must be established. United States v. Vermont
[64-2 USTC ¶9520 ], 377 U.S. 351 at 358, 84 S.Ct. 1267 at
1271, 12 L.Ed.2d 370 (1964). In United States v. McDermott [93-1
USTC ¶50,164 ], et al.,--
U.S.
--, 113 S.Ct. 1526, 123 L.Ed.2d 128 (1993), the Supreme Court clarified
that "attachment to particular property was also an element of what
was meant by 'perfection' in
New Britain
."
Clearly, if
Defendant Guzzo's state lien were perfected before the
United States
' tax lien was perfected, Guzzo's lien would have priority under the
doctrine of "first in time, first in right." Rankin &
Schatzell v. Scott, 25
U.S.
(12 Wheat) 177 at 179, 6 L.Ed. 592 (1827). In these circumstances,
Guzzo's state lien properly identified the lienor and the amount of such
lien as required by
New Britain
. However, Guzzo's lien was not "perfected" within the
meaning of
New Britain
because the property subject to the lien was not established as required
in
Vermont
, and the debtor did not have rights in the property. Thus, the
security interest had not attached to the property as required by McDermott.
That Guzzo's
state lien was not "perfected" within the meaning of
New Britain
does not necessarily mean that the
United States
was "first in time." As with Guzzo, the
United States
' after-acquired portion of the tax lien did not attach to established
property, and, therefore, was not "perfected" when notice was
filed. However, the recently decided McDermott case speaks
squarely to the issue of competing interests in after-acquired property
where one party is the federal government and one party is a state
lienor.
In McDermott,
the Supreme Court stated that the filing of notice under 26 U.S.C. §6323
"renders the federal tax lien extant for 'first in time'
priority purposes regardless of whether it has yet attached to
identifiable property." McDermott,--
U.S.
at--, 113 S.Ct. at 1530.
The Supreme
Court further specified that because 26 U.S.C. §6323
set out specific exceptions to the filing of notice provision
(e.g. commercial transactions financing agreements), matters not falling
within an exception presume that the federal tax lien prevails. McDermott,--
U.S.
at--,113 S.Ct. at 1530. The Supreme Court stated that "the federal
tax lien is ordinarily dated, for purposes of 'first in time' priority
against §6323(a)
competing interests, from the time of its filing, regardless
of when it attaches to the subject property." McDermott,--
U.S.
at--, 113 S.Ct. at 1530.
The policy
rationale of not adhering to a strict "first in time" rule
emanates from the nature of the competing liens. Although a strict
presumption is ordinarily appropriate as between private parties, a
different standard applies when one of the parties is the government,
acting in a taxing capacity. The government is "unable to decline
to hold the taxpayer liable for taxes," and "notice of a
previously filed security agreement in after-acquired property does not
enable the government to protect itself." McDermott,--
U.S.
at--, 113 S.Ct. at 1531. Thus, in this situation, "the federal tax
lien must be given priority." McDermott,--
U.S.
at--, 113 S.Ct. at 1531.
Relying on
Ohio Rev.Code §1309.01(A)(15), Guzzo argues that accounts receivable
are not after-acquired property. Assuming, for purposes of argument,
that accounts receivable are not after-acquired property under state
law, the result is the same. The case before the Court involves
competing liens of the federal government and a private party asserting
rights under state law. Federal law, decided in
New Britain
, Pioneer American, and McDermott, is controlling. Future
accounts receivable, whether or not called after-acquired property for
Uniform Commercial Code purposes, are not property identified and
established at the time the lien is recorded.
III.
Conclusion
Based on the
foregoing, the Court finds that the priority of liens shall be the
following:
(1)
$5,200 to Defendant Guzzo for a purchase money security interest in one
Miller color printing press;
(2)
Up to $1,710.75 to Defendant OBES for personal property in existence on
8/7/85;
(3)
$19,386.80 to Defendant
United States
for all property in existence and/or after-acquired;
(4)
Up to $13,069.23 to Defendant OBES for personal property in existence on
10/2/85, 1/6/86, 4/3/86, 7/2/86, 9/29/86, 1/2/87, 9/28/87, and 1/7/88;
(5)
Up to $78,679.18 to Defendant Guzzo for all property in existence from
2/10/88 to 2/28/88;
(6)
Up to $53,564.11 to Defendant
United States
for all property remaining.
To the extent
the OBES and Guzzo lien amounts require proof of property in existence
at certain times and such property cannot be shown,
United States
has priority.
A judgment
will be issued consistent with this finding.
IT IS SO
ORDERED.
United States
by and through Internal Revenue Service, Petitioner v. Bruce J.
McDermott, et al
Supreme
Court of the United States, 91-1229, 3/24/93, 113 SCt 1526, Reversing
and remanding CA-10, 91-2
USTC ¶50,491 , 945 F.2d 1475
On Writ of Certiorari to the United States of Appeals for the Tenth
Circuit.
[Code Sec.
6323 ]
Federal tax lien: Priority: After-acquired property.--A federal tax lien
had priority over a private creditor's previously filed judgment lien
against a delinquent taxpayer's after-acquired real property. Although
Code Sec.
6323(a) provided that the tax lien was not valid against
other creditors until it was filed, the state judgment lien was not
perfected until the after-acquired property was obtained by the
taxpayer. Only then was the property subject to the lien identified with
the specificity necessary for the judgment lien to attach to the
property. Further, under the language of Code Sec.
6323(a) , the filing of the tax lien rendered that lien
extant for "first in time" priority regardless of whether it
had yet attached to identifiable property. The presumption that the
first lien recorded had priority was not applied to federal tax liens
because the government, unlike a private lender, may not decline to hold
a taxpayer liable for taxes; notice of a previously filed security
interest does not enable the government to protect itself from loss by
refusing to extend credit to a taxpayer.
James A.
Feldman, Department of Justice,
Washington
,
D.C.
20530
, for petitioner. T. Richard Davis, Callister, Duncan & Nebeker,
P.C., 800 Kennecott Bldg., Salt Lake City, Utah 84133, for Bruce J.
McDermott.
Syllabus
The United
States' federal tax lien on the respondent McDermotts' property applied
to after-acquired property, Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, but could "not be valid
as against any . . . judgment lien creditor until notice thereof . . .
has been filed," 26 U.S.C. §§6323(a)
. Before that lien was filed with the Salt Lake County Clerk,
a bank docketed a state-court judgment it had won against the
McDermotts, thereby creating a state-law judgment lien on all of their
existing or after-acquired real property in the county. After both liens
were filed, the McDermotts acquired certain real property in the county
and brought this interpleader action. The District Court awarded
priority in that property to the bank's lien. The Court of Appeals
affirmed.
Held: A
federal tax lien filed before a delinquent taxpayer acquires real
property must be given priority in that property over a private
creditor's previously filed judgment lien. Priority for purposes of
federal law is governed by the common-law principle that " 'the
first in time is the first in right.' "
United States
v.
New Britain
[54-1 USTC ¶9191 ], 347 U.S. 81, 85. A state lien that
competes with a federal lien is deemed to be in existence for
"first in time" purposes only when it has been
"perfected" in the sense that, inter alia, "the
property subject to the lien [is] established."
Id.
, at 84. Because the bank's judgment lien did not actually attach to the
property at issue until the McDermotts acquired rights in that property,
which occurred after the United States filed its tax lien, the
bank's lien was not perfected before the federal filing. See id.,
at 84-86. United States v. Vermont [64-2 USTC ¶9520 ], 377 U.S. 251, distinguished. It is
irrelevant that the federal lien similarly did not attach and become
perfected until the McDermotts acquired the property, since §6323(c)(1)
demonstrates that such a lien is ordinarily dated, for
purposes of "first in time" priority against §6323(a)
competing interests, from the time of its filing. Pp. 2-8.
[91-2
USTC ¶50,491 ], 945 F.2d 1475, reversed and remanded.
SCALIA, J.,
delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE,
BLACKMUN, KENNEDY, and SOUTER, JJ., joined. THOMAS, J., filed a
dissenting opinion, in which STEVENS and O'CONNOR, JJ., joined.
JUSTICE SCALIA
delivered the
opinion of the Court.
We granted
certiorari to resolve the competing priorities of a federal tax lien and
a private creditor's judgment lien as to a delinquent taxpayer's
after-acquired real property.
I
On December 9,
1986 the
United States
assessed Mr. and Mrs. McDermott for unpaid federal taxes due for the tax
years 1977 through 1981. Upon that assessment, the law created a lien in
favor of the United States on all real and personal property belonging
to the McDermotts, 26 U.S.C. §§6321
and 6322
, including after-acquired property, Glass City Bank v.
United States [45-2 USTC ¶9449 ], 326 U.S. 265 (1945). Pursuant to 26 U.S.C.
§6323(a)
, however, that lien could "not be valid as against any
purchaser, holder of a security interest, mechanic's lienor, or judgment
lien creditor until notice thereof . . . has been filed."
(Emphasis added.) The
United States
did not file this lien in the Salt Lake County Recorder's Office until
September 9, 1987. Before that occurred, however--specifically, on July
6, 1987--Zions First National Bank, N.A., docketed with the Salt Lake
County Clerk a state-court judgment it had won against the McDermotts.
Under
Utah
law, that created a judgment lien on all of the McDermotts' real
property in
Salt
Lake
County
, "owned . . . at the time or . . . thereafter acquired during the
existence of said lien."
Utah
Code Ann. §78
-22-1 (1953).
On September
23, 1987 the McDermotts acquired title to certain real property in
Salt
Lake
County
. To facilitate later sale of that property, the parties entered into an
escrow agreement whereby the
United States
and the Bank released their claims to the real property itself but
reserved their rights to the cash proceeds of the sale, based on their
priorities in the property as of September 23, 1987. Pursuant to the
escrow agreement, the McDermotts brought this interpleader action in
state court to establish which lien was entitled to priority; the
United States
removed to the United States District Court for the District of Utah.
On
cross-motions for partial summary judgment, the District Court awarded
priority to the Bank's judgment lien. The United States Court of Appeals
for the Tenth Circuit affirmed. McDermott v. Zions First Nat'l Bank,
N.A. [91-2
USTC ¶50,491 ], 945 F.2d 1475 (1991). We granted certiorari.
504
U.S.
-- (1992).
II
Federal tax
liens do not automatically have priority over all other liens. Absent
provision to the contrary, priority for purposes of federal law is
governed by the common-law principle that " 'the first in time is
the first in right.' "
United States
v.
New Britain
[54-1 USTC ¶9191 ], 347 U.S. 81, 85 (1954); cf. Rankin
& Schatzell v. Scott, 12 Wheat. 177, 179 (1827) (Marshall,
C.J.). For purposes of applying that doctrine in the present case--in
which the competing state lien (that of a judgment creditor) benefits
from the provision of §6323(a)
that the federal lien shall "not be valid . . . until
notice thereof . . . has been filed"--we must deem the United
States' lien to have commenced no sooner than the filing of notice. As
for the Bank's lien: our cases deem a competing state lien to be in
existence for "first in time" purposes only when it has been
"perfected" in the sense that "the identity of the
lienor, the property subject to the lien, and the amount of the
lien are established."
United States
v.
New Britain
[54-1 USTC ¶9191 ], 347
U.S.
, at 84 (emphasis added); see also id., at 86; United States
v. Pioneer American Ins. Co. [63-2 USTC ¶9532 ], 374 U.S. 84 (1963).
The first
question we must answer, then, is whether the Bank's judgment lien was
perfected in this sense before the
United States
filed its tax lien on September 9, 1987. If so, that is the end of the
matter; the Bank's lien prevails. The Court of Appeals was of the view
that this question was answered (or rendered irrelevant) by our decision
in United States v. Vermont, 377 U.S. 351 (1964) [64-2 USTC ¶9520 ], which it took to "stan[d] for the
proposition that a non-contingent . . . lien on all of a person's real
property, perfected prior to the federal tax lien, will take priority
over the federal lien, regardless of whether after-acquired property is
involved." 1
[91-2
USTC ¶50,491 ] 945 F.2d, at 1480. That is too expansive a
reading. Our opinion in
Vermont
gives no indication that the property at issue had become subject to the
state lien only by application of an after-acquired-property clause to
property that the debtor acquired after the federal lien arose. To the
contrary, the opinion says that the state lien met (presumably at the
critical time when the federal lien arose) "the test laid down in
New Britain
that . . . 'the property subject to the lien . . . [be] established.'
" 377 U.S., at 358 (citation omitted). 2
The argument of the
United States
that we rejected in
Vermont
was the contention that a state lien is not perfected within the meaning
of
New Britain
if it "attach[es] to all of the taxpayer's property,"
rather than "to specifically identified portions of that
property." 377
U.S.
, at 355 (emphasis added). 3
We did not consider, and the facts as recited did not implicate, the
quite different argument made by the
United States
in the present case: that a lien in after-acquired property is not
"perfected" as to property yet to be acquired.
The Bank
argues that, as of July 6, 1987, the date it docketed its judgment lien,
the lien was "perfected as to all real property then and thereafter
owned by" the McDermotts, since "[n]othing further was
required of [the Bank] to attach the non-contingent lien on
after-acquired property." Brief for Respondents 21. That reflects
an unusual notion of what it takes to "perfect" a lien. 4
Under the Uniform Commercial Code, for example, a security interest in
after-acquired property is generally not considered perfected when the
financing statement is filed, but only when the security interest has
attached to particular property upon the debtor's acquisition of that
property. §§9-203(1) and (2), 3 U.L.A. 363 (1992); §9-303(1), 3A
U.L.A. 117 (1992). And attachment to particular property was also an
element of what we meant by "perfection" in
New Britain
. See [54-1 USTC ¶9191 ], 347
U.S.
, at 84 ("when . . . the property subject to the lien . . . [is]
established"); id., at 86 ("the priority of each
statutory lien contested here must depend on the time it attached to the
property in question and became [no longer inchoate]"). 5
The Bank concedes that its lien did not actually attach to the property
at issue here until the McDermotts acquired rights in that property.
Brief for Respondents 16, 21. Since that occurred after filing of
the federal tax lien, the state lien was not first in time. 6
But that does
not complete our inquiry: Though the state lien was not first in time,
the federal tax lien was not necessarily first in time either. Like the
state lien, it applied to the property at issue here by virtue of a
(judicially inferred) after-acquired-property provision, which means
that it did not attach until the same instant the state lien attached, viz.,
when the McDermotts acquired the property; and, like the state lien, it
did not become "perfected" until that time. We think, however,
that under the language of §6323(a)
("shall not be valid as against any . . . judgment lien
creditor until notice . . . has been filed"), the filing of notice
renders the federal tax lien extant for "first in time"
priority purposes regardless of whether it has yet attached to
identifiable property. That result is also indicated by the provision,
two subsections later, which accords priority, even against filed
federal tax liens, to security interests arising out of certain
agreements, including "commercial transactions financing
agreement[s]," entered into before filing of the tax lien. 26
U.S.C. §6323(c)(1)
. That provision protects certain security interests that,
like the after-acquired-property judgment lien here, will have been
recorded before the filing of the tax lien, and will attach to the
encumbered property after the filing of the tax lien, and simultaneously
with the attachment of the tax lien (i.e., upon the debtor's
acquisition of the subject property). According special priority
to certain state security interests in these circumstances obviously
presumes that otherwise the federal tax lien would prevail--i.e.,
that the federal tax lien is ordinarily dated, for purposes of
"first in time" priority against §6323(a)
competing interests, from the time of its filing, regardless
of when it attaches to the subject property. 7
The Bank
argues that "[b]y common law, the first lien of record against a
debtor's property has priority over those subsequently filed unless a
lien-creating statute clearly shows or declares an intention to cause
the statutory lien to override." Brief for Respondents 11. 8
Such a strong "first-to-record" presumption may be appropriate
for simultaneously-perfected liens under ordinary statutes creating
private liens, which ordinarily arise out of voluntary transactions.
When two private lenders both exact from the same debtor security
agreements with after-acquired-property clauses, the second lender
knows, by reason of the earlier recording, that that category of
property will be subject to another claim, and if the remaining security
is inadequate he may avoid the difficulty by declining to extend credit.
The Government, by contrast, cannot indulge the luxury of declining to
hold the taxpayer liable for his taxes; notice of a previously filed
security agreement covering after-acquired property does not
enable the Government to protect itself. A strong
"first-to-record" presumption is particularly out of place
under the present tax-lien statute, whose general rule is that
the tax collector prevails even if he has not recorded at all. 26
U.S.C. §§6321
and 6322
; United States v. Snyder, 149
U.S.
210 (1893). Thus, while we would hardly proclaim the statutory meaning
we have discerned in this opinion to be "clear," it is evident
enough for the purpose at hand. The federal tax lien must be given
priority.
The judgment
of the Court of Appeals is reversed, and the case is remanded for
further proceedings consistent with this opinion.
So ordered.
1 As our later discussion will show, we think it
contradictory to say that the state lien was "perfected"
before the federal lien was filed, insofar as it applies to
after-acquired property not acquired by the debtor until after the
federal lien was filed. The Court of Appeals was evidently using the
term "perfected" (as the Bank would) in a sense not requiring
attachment of the lien to the property in question; our discussion of
the Court of Appeals' opinion assumes that usage.
2
The dissent cannot both grant the assumption "that the debtor in Vermont
acquired its interest in the bank account before the federal lien
arose," post, at 4-5, n. 2, and contend that "the
debtor's interest in the bank account . . . could have been uncertain or
indefinite from the creditors' perspective," id., at 5, n.
2. In the same footnote, the dissent misdescribes the "critical
argument that we rejected" in
Vermont
. Ibid. It was not that "the State's claim could not
be superior unless the account had been 'specifically identified' as
property subject to the State's lien," ibid., but rather
that the State's claim could not be superior unless it had "attach
[ed ] to specifically identified portions of that property,"
United States v. Vermont, 377 U.S. 351 [64-2
USTC ¶9520 ],
355 (1964) (emphasis added).
3
The dissent claims that "the Government's 'specificity' claim
rejected in
Vermont
is analytically indistinguishable from the 'attachment' argument the
Court accepts today," since "[i]f specific attachment is not
required for the state lien to be 'sufficiently choate,' then neither is
specific acquisition." Post, at 4 (citation omitted). But
the two are not comparable. Until the debtor has acquired the subject
property, it is impossible to say that "the property subject to the
lien [has been] . . . established,"
United States
v.
New Britain
[54-1
USTC ¶9191 ],
347 U.S. 81, 84 (1954). Judicial attachment, on the other hand (and it
is important to note that judicial attachment of the property, rather
than attachment of the lien to the property, was what the Government's
argument in Vermont involved), merely brings into the custody of
a court property that is already--prior to judicial
attachment--known to be subject to the lien.
4
The dissent accepts the Bank's central argument that perfection occurred
when "there was 'nothing more to be done' by the Bank 'to have a
choate lien' on any real property the McDermotts might acquire." Post,
at 3 (quoting
United States
v. New Britain, supra, at 84); see also post, at
6. This unusual definition of perfection has been achieved by making a
small but substantively important addition to the language of
New Britain
. "[N]othing more to be done to have a choate lien"
(the language of
New Britain
) becomes "nothing more to be done by the Bank to have a
choate lien." Once one recognizes that the dissent's concept of a
lien's "becom[ing] certain as to the property subject
thereto," see post, at 3, 6, is meaningless, see n. 5, infra,
it becomes apparent that the dissent, like the Bank, would simply have
us substitute the concept of "best efforts" for the concept of
perfection.
5
The dissent refuses to acknowledge the unavoidable realities that the
property subject to a lien is not "established" until one
knows what specific property that is, and that a lien cannot be anything
other than "inchoate" with respect to property that is not yet
subject to the lien. Hence the dissent says that, upon its filing, the
lien at issue here "was perfected, even as to the real property
later acquired by the McDermotts, in the sense that it was definite as
to the property in question, noncontingent, and summarily
enforceable." Post, at 3. But how could it have been, at
that time, "definite" as to this property, when the identity
of this property (established by the McDermotts' later acquisition) was
yet unknown? Or "noncontingent" as to this property, when the
property would have remained entirely free of the judgment lien had the
McDermotts not later decided to buy it? Or "summarily
enforceable" against this property when the McDermotts did not own,
and had never owned, it? The dissent also says that "[t]he lien was
immediately enforceable through levy and execution against all
the debtors' property, whenever acquired." Post, at 3
(emphases added). But of course it was not "immediately
enforceable" (as of its filing date, which is the relevant time)
against property that the McDermotts had not yet acquired.
6
The dissent suggests, post, at 3-4, n. 1, that the Treasury
Department regulation defining "judgment lien creditor," 26
CFR §301.6323(h)-1(g)
(1992),
contradicts our analysis. It would, if it contained only the three
requirements that the dissent describes. In fact, however, it says that
to prevail the judgment lien must be perfected, and that "[a]
judgment lien is not perfected until the identity of the lienor, the
property subject to the lien, and the amount of the lien are
established." Ibid. (emphasis added).
7
The dissent contends that "there is no persuasive reason for not
adopting as a matter of federal law the well-recognized common-law rule
of parity and giving the Bank an equal interest in the property." Post,
at 7, n. 4. As we have explained, the persuasive reason is the existence
of §6323(c)
, which
displays the assumption that all perfected security interests are
defeated by the federal tax lien. There is no reason why this assumption
should not extend to judgment liens as well.A "security
interest," as defined in §6323
, is not an
insignificant creditor's preference. The term includes only interests
protected against subsequent judgment liens. See 26 U.S.C. §§6323(h)(1)
and 6323(c)(1)(B)
. Moreover,
the text of §6323(a)
("The
lien . . . shall not be valid as against any purchaser, holder of a
security interest, mechanic's lienor, or judgment lien creditor")
treats security interests and judgment liens alike. Parity may be, as
the dissent says, a "well-recognized common-law rule," post,
at 7, n. 4, but we have not hitherto adopted it as the federal law of
tax liens in 127 years of tax lien enforcement.
8
The dissent notes that "[n]othing in the law of judgment liens
suggests that the possibility, which existed at the time the Bank
docketed its judgment, that the McDermotts would not acquire the
specific property here at issue was a 'contingency' that rendered the
Bank's otherwise perfected general judgment lien subordinate to
intervening liens." Post, at 5. Perhaps. But priorities here
are determined, not by "the law of judgment liens" but by §6323(a)
, as our
case-law has interpreted it. The requirement that competing state liens
be perfected is part of that jurisprudence.
Dissenting
Opinion
JUSTICE
THOMAS, with whom JUSTICE STEVENS and JUSTICE O'CONNOR join
I
agree with the Court that under 26 U.S.C. §6323(a)
we generally
look to the filing of notice of the federal tax lien to determine the
federal lien's priority as against a competing state-law judgment lien.
I cannot agree, however, that a federal tax lien trumps a judgment
creditor's claim to after-acquired property whenever notice of the
federal lien is filed before the judgment lien has "attached"
to the property. Ante, at 5. In my view, the Bank's antecedent
judgment lien "ha[d] [already] acquired sufficient substance and
ha[d] become so perfected," with respect to the McDermotts'
after-acquired real property, "as to defeat [the] later-filed
federal tax lien." United States v. Pioneer American Ins. Co.
[63-2
USTC ¶9532 ],
374 U.S. 84, 88 (1963).
Applying
the governing "first in time" rule, the Court recognizes--as
it must--that if the Bank's interest in the property was "perfected
in the sense that there [was] nothing more to be done to have a choate
lien" before September 9, 1987 (the date the federal notice was
filed), United States v.
New Britain
[54-1
USTC ¶9191 ],
347 U.S. 81, 84 (1954), "that is the end of the matter; the Bank's
lien prevails," ante, at 3. Because the Bank's identity as
lienor and the amount of its judgment lien are undisputed, the
choateness question here reduces to whether "the property subject
to the lien" was sufficiently "established" as of that
date. New Britain, supra, at 84. Accord, Pioneer American,
supra, at 89. See 26 CFR §301.6323(h)-1(g)
(1992). The
majority is quick to conclude that "establish[ment]" cannot
precede attachment, and that a lien in after-acquired property therefore
cannot be sufficiently perfected until the debtor has acquired rights in
the property. See ante, at 5-6. That holding does not follow
from, and I believe it is inconsistent with, our precedents.
We
have not (before today) prescribed any rigid criteria for
"establish[ing]" the property subject to a competing lien; we
have required only that the lien "become certain as to . . .
the property subject thereto." New Britain, supra, at 86
(emphasis added). Our cases indicate that "certain" means
nothing more than "[d]etermined and [d]efinite," Pioneer
American, supra, at 90, and that the proper focus is on whether the
lien is free from "contingencies" that stand in the way of its
execution, United States v. Security Trust & Savings Bank [50-2
USTC ¶9492 ],
340 U.S. 47, 50 (1950). In Security Trust, for example, we
refused to accord priority to a mere attachment lien that "had not
ripened into a judgment," New
Britain
, supra, at 86, and was therefore "contingent upon taking
subsequent steps for enforcing it," [50-2
USTC ¶9492 ],
340
U.S.
, at 51. And in United States v. Vermont [64-2
USTC ¶9520 ],
377 U.S. 351 (1964), we recognized the complete superiority of a general
tax lien held by the State of Vermont upon all property rights belonging
to the debtor, even though the lien had not "attach[ed] to [the]
specifically identified portions of that property" in which the
Federal Government claimed a competing tax lien.
Id.
, at 355. With or without specific attachment,
Vermont
's general lien was "sufficiently choate to obtain priority over
the later federal lien," because it was "summarily
enforceable" upon assessment and demand.
Id.
, at 359, and n. 12.
Although
the choateness of a state-law lien under §6323(a)
is a federal
question, that question is answered in part by reference to state law,
and we therefore give due weight to the State's " 'classification
of [its] lien as specific and perfected.' " Pioneer American,
supra, at 88, n. 7 (quoting Security Trust, supra, at 49).
Here, state law establishes that upon filing, the Bank's judgment lien
was perfected, even as to the real property later acquired by the
McDermotts, in the sense that it was definite as to the property in
question, noncontingent, and summarily enforceable. Pursuant to
Utah
statute, from the moment the Bank had docketed and filed its judgment
with the clerk of the state court on July 6, 1987, it held an
enforceable lien upon all nonexempt real property owned by the
McDermotts or thereafter acquired by them during the existence of the
lien. See
Utah
Code Ann. §78
-22-1
(1953). The lien was immediately enforceable through levy and execution
against all the debtors' property, whenever acquired. See Belnap v.
Blain, 575 P.2d 696, 700 (
Utah
1978). See also Utah Rule Civ. Proc. 69. And it was "unconditional
and not subject to alteration by a court on equitable grounds." Taylor
National, Inc. v. Jensen Brothers Constr. Co., 641 P.2d 150, 155 (
Utah
1982). Thus, the Bank's lien had become certain as to the property
subject thereto, whether then existing or thereafter acquired, and all
competing creditors were on notice that there was "nothing more to
be done" by the Bank "to have a choate lien" on any real
property the McDermotts might acquire.
New Britain
[54-1
USTC ¶9191 ],
347
U.S.
, at 84. See
Vermont
, supra, at 355. 1
The
Court brushes aside the relevance of our
Vermont
opinion with the simple observation that that case did not involve a
lien in after-acquired property. Ante, at 3-4. This is a wooden
distinction. In truth, the Government's "specificity" claim
rejected in
Vermont
is analytically indistinguishable from the "attachment"
argument the Court accepts today.
Vermont
's general lien applied to all of the debtor's rights in property, with
no limitation on when those rights were acquired, and remained valid
until the debt was satisfied or became unenforceable. See [64-2
USTC ¶9520 ]
377
U.S.
, at 352. The United States claimed that its later-filed tax lien took
priority over Vermont's as to the debtor's interest in a particular bank
account, because the State had not taken "steps to perfect its lien
by attaching the bank account in question" until after the federal
lien had been recorded. Brief for United States in United States v.
Vermont, O. T. 1963, No. 509, p. 12. "Thus," the
Government asserted, "when the federal lien arose, the State lien
did not meet one of the three essential elements of a choate lien: that
it attach to specific property." Ibid. In rejecting the
federal claim of priority, we found no need even to mention whether the
debtor had acquired its property interest in the deposited funds before
or after notice of the federal lien. If specific attachment is not
required for the state lien to be "sufficiently choate," [64-2
USTC ¶9520 ]
377
U.S.
, at 359, then neither is specific acquisition. 2
Like
the majority's reasoning today, see ante, at 5, the Government's
argument in
Vermont
rested in part on dicta from
New Britain
suggesting that "attachment to specific property [is] a condition
for choateness of a State-created lien." Brief for
United States
in
United States
v.
Vermont
[64-2
USTC ¶9520
], supra, at 19. See
New Britain
[54-1
USTC ¶9191 ],
347
U.S.
, at 86 ("[T]he priority of each statutory lien contested here must
depend on the time it attached to the property in question and
became choate") (emphasis added).
New Britain
, however, involved competing statutory liens that had concededly
"attached to the same real estate."
Id.
, [64-2
USTC ¶9520 ]
at 87. The only issue was whether the liens were otherwise sufficiently
choate. Thus, like Security Trust (and, in fact, like all of our
cases before
Vermont
),
New Britain
provided no occasion to consider the necessity of attachment to property
that was not specifically identified at the time the state lien arose.
Nothing
in the law of judgment liens suggests that the possibility, which
existed at the time the Bank docketed its judgment, that the McDermotts
would not acquire the specific property here at issue was a
"contingency" that rendered the Bank's otherwise perfected
general judgment lien subordinate to intervening liens. Under the
relevant background rules of state law, the Bank's interest in
after-acquired real property generally could not be defeated by an
intervening statutory lien. In some States, the priority of judgment
liens in after-acquired property is determined by the order of their
docketing. 3 R. Powell, Law of Real Property ¶481[1], p. 38-36 (P.
Rohan rev. 1991) (hereinafter Powell). See, e.g., Lowe v. Reierson,
201
Minn.
280, 287, 276 N.W. 224, 227 (1937). In others, the rule is that
"[w]hen two (or more) judgments are successively perfected against
a debtor and thereafter the debtor acquires a land interest[,] these
liens, attaching simultaneously at the time of the land's acquisition by
the debtor, are regarded as on a parity and no priority exists." 3
Powell ¶481[1], pp. 38-35 to 38-36. See, e.g., Bank of
Boston
v. Haufler, 20
Mass.
App. 668, 674, 482 N.E.2d 542, 547 (1985); McAllen State Bank v.
Saenz [83-1
USTC ¶9146 ],
561 F.Supp. 636, 639 (SD
Tex.
1982). Thus, under state common law, the Bank would either retain its
full priority in the property by virtue of its earlier filing or, at a
minimum, share an equal interest with the competing lienor. 3
The fact that the prior judgment lien remains effective against third
parties without further efforts by the judgment creditor is enough for
purposes of §6323(a)
, since the
point of our choateness doctrine is to respect the validity of a
competing lien where the lien has become certain as to the property
subject thereto and the lienor need take no further action to secure his
claim. Under this federal-law principle, the Bank's lien was
sufficiently choate to be first in time. 4
I
acknowledge that our precedents do not provide the clearest answer to
the question of after-acquired property. See ante, at 8. But the
Court's parsimonious reading of Vermont undercuts the
congressional purpose--expressed through repeated amendments to the tax
lien provisions in the century since United States v. Snyder, 149
U.S. 210 (1893)--of "protect[ing] third persons against harsh
application of the federal tax lien," Kennedy, The Relative
Priority of the Federal Government: The Pernicious Career of the
Inchoate and General Lien, 63 Yale L.J. 905, 922 (1954). The attachment
requirement erodes the "preferred status" granted to judgment
creditors by §6323(a)
, and
renders a choate judgment lien in after-acquired property subordinate to
a "secret lien for assessed taxes." Pioneer American [63-2
USTC ¶9532 ],
374
U.S.
, at 89. I would adhere to a more flexible choateness principle, which
would protect the priority of validly docketed judgment liens.
Accordingly,
I respectfully dissent.
1