Licenses
[92-2 USTC ¶50,602]
In re Atlantic Business and Community Development Corp., Debtor, Thomas
Subriani, Trustee, Plaintiff-Appellee v. United States of
America/Internal Revenue Service, Defendant-Appellant
U.S.
District Court, Dist. N.J., Civ. 91-2591(SSB), 7/13/92
Property subject to tax lien: Broadcasting license.--A debtor's
broadcasting license issued by the Federal Communications Commission did
not constitute property or right to property that was subject to a lien
in favor of the IRS for unpaid taxes. The IRS was denied a tax lien in
the debtor's bankruptcy proceeding. A broadcast license is not an owned
asset or vested property interest that could be subject to a mortgage,
lien, pledge, attachment, seizure or similar property right. Further,
the FCC has a policy prohibiting security interests in broadcast
licenses.
ORDER
BROTMAN,
District Judge:
This
matter having come before the court on the appeal of the United States
of America from a final order of the United States Bankruptcy Court
entered on April 24, 1991 granting the motion of the plaintiff for
summary judgment and denying the cross-motion of the of the United
States for summary judgment; and
The
court having carefully reviewed record, the judgment and the oral
opinion as well as the submissions of the parties; and
The
bankruptcy court having ruled that the broadcast license "issued by
the FCC is neither property nor rights to property held by the debtor,
Atlantic Business and Community Development, as that term is used and
defined in 26 U.S.C. and, therefore, is not subject to a tax lien in
favor of the Internal Revenue Service" (Transcript of March 21,
1991 at 10); and
The
parties having agreed that the only issue before this court is whether
the bankruptcy judge erred as a matter of law in holding that the
broadcast license was not subject to a tax lien in favor of the I.R.S.;
and
It
appearing that the district court must review all questions of law de
novo; In re Dunes Casino Hotel, 63 B.R. 939, 944 (D.N.J. 1986); see
also In re Tak Communications, Inc., 138 B.R. 568, 571-72 (W.D.
Wis. 1992) (district must review de novo question of law as to whether
security interests in broadcasting licenses are permitted); and
It
further appearing that 26 U.S.C. §6321
provides: "If any person liable to pay 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 such person" (emphasis
added); and
The
court finding that a broadcast license is not property or rights to
property so as to be subject to a lien pursuant to §6321
1;
see Stephens Industries, Inc. v. McClung, 789 F.2d 386, 390 (6th
Cir. 1986) ("a broadcast license . . . is not an owned asset or
vested property interest so as to be subject to a mortgage, lien,
pledge, attachment, seizure, or similar property right"); In re
Tak, 138 B.R. at 573-76 (broadcast license is not property nor a
property right; court affirmed bankruptcy court's holding that
plaintiff's did not have perfected security interest in broadcast
license reasoning that it has been consistently held that a broadcast
license is not subject to a lien and that FCC has policy prohibiting
security interests in broadcast licenses); see also Continental Bank
v. Everett, 760 F.Supp. 713, 717 (N.D. Ill. 1991) (a party cannot
obtain a security interest in an FCC broadcast license); In re Smith,
94 B.R. 220, 221-22 (M.D. Ga. 1988) (creditor could not take security
interest in debtor radio station's broadcasting license);
IT
IS ORDERED that the judgment of the United States Bankruptcy Court is
AFFIRMED.
No
costs.
1
Appellants cite to Boss Co. v. Board of Cmrs., 40 N.J. 379 (1963)
in support of their argument that because the F.C.C. license has the
attributes of property, it should be treated as property pursuant to §6321
. (Appellant's brief at 6-7). In Boss, the New Jersey Supreme
Court held that a state liquor license is "property" subject
to §6321 because it
has the attributes of property. The court reasoned: "it is a legal
interest in the nature of an economic asset, created and protected by
statute, and because it has monetary value and is transferable, either
by consent of the licensee or by operation of law . . . it possesses the
qualities of property."
Id.
at 384-85.
A
F.C.C. license, however, does not possess the attributes of property
that the Boss court relied on in holding that a liquor license is
property subject to §6321
. Unlike a liquor license that may be transferred as a right to
property, the general rule is that a F.C.C. license cannot be
transferred apart from the physical assets of the radio station. In
re Tak Communications, Inc., 138 B.R. 568, 574 (W.D. Wis. 1992)
(citing In re Arecibo, 101 F.C.C.2d 545 (1985)); see also
Stephens Industries, Inc. v. McClung, 789 F.2d 386, 391 (6th Cir.
1986) (licensee cannot sell a "naked" F.C.C. license).
Moreover, the Supreme Court in Federal Communications Commission
v. Sanders Bros. Radio Station, 309 U.S. 470, reh'g denied
309 U.S. 642 (1940), has stated that the policy underlying the
Communications Act is clear that "no person is to have anything in
the nature of a property right as a result of the granting of a
license." The Court then went on to note that licenses are limited
in duration, may be revoked and need not be renewed in the interest of
the public that is best served leaving the channel free for a new
assignment.
Id.
[63-2 USTC ¶9766]
United States of America
, Plaintiff v. Berkshire Street Railway Co., and
Commonwealth
of
Massachusetts
, Department of Public Utilities, Defendants
U.
S. District Court, Dist. Mass., Civil Action No. 63-600-C, 219 FSupp
861, 7/29/63
[1954 Code Sec. 6321]
Federal tax liens: Public utility: Certificates of public convenience
and necessity.--Federal tax liens did not attach to a delinquent
street railway company's certificates of public convenience and
necessity where such certificates were construed under Massachusetts law
as being a privilege and not a contract or property. Injunctive relief
was denied the government.
W.
Arthur Garrity
,
United States
Attorney,
Boston
,
Mass.
,
Frances
Kissell, Assistant United States Attorney, for plaintiff. Carter Lee,
Room 373, State House,
Boston
,
Mass.
, for defendant.
Memorandum
and Order
CAFFREY,
District Judge:
This
is a civil action in which the plaintiff
United States of America
seeks to foreclose tax liens on taxes owed to the
United States
by the defendant Berkshire Street Railway Co. and obtain a judgment
against the taxpayer-defendant. On July 16, 1963 plaintiff applied for
and was granted a temporary restraining order which was made returnable
on July 22 at 3:00 p.m., at which time a hearing was held and the matter
was continued until 11:00 a.m. this date. The following are assumed to
be facts for purposes of ruling upon this application for the
continuance of the restraining order:
1.
Berkshire Street Railway Co. is a
Massachusetts
corporation.
2.
The Commonwealth of
Massachusetts
, Department of Public Utilities, has issued to the Berkshire Street
Railway Co. a franchise (certificates of public convenience and
necessity) for the operation of a bus line in the City of
Pittsfield
and surrounding area.
3.
The District Director, Internal Revenue Service, has assessed taxes with
penalties and interest against the Berkshire Street Railway Co., has
given notice and demand, and filed notices of lien.
4.
No part of any of the taxes, penalties and interest has been paid and it
appears that the defendant owes the
United States
$35,207.98, plus interest.
5.
The
United States
claims a Federal tax lien by virtue of 26 U. S. C. 6321 on all property
and rights to property of taxpayer.
6.
All assets of taxpayer other than the certificates of public convenience
and necessity are encumbered by a mortgage previously executed by the
taxpayer to the Small Business Administration.
7.
The
United States
contends that the only "asset" of taxpayer not subject to the
mortgage to which tax liens could apply are the certificates of public
convenience and necessity.
8.
The Department of Public Utilities resists the continuance in effect of
this injunction on the grounds that the certificates are not
"property" and hence 26
U. S.
C. 6321 does not reach the certificates.
9.
Unless restrained by order of this Court the Department of Public
Utilities will hold a hearing on a previously issued order of notice to
said taxpayer directing it to show cause why its franchise should not be
revoked.
[Certificates
as "Property"]
It
is well settled that State law must be looked to for the meaning of the
word "property" in Section 6321. See United States v. Bess
[58-2 USTC ¶9595], 357 U. S. 51, 55 (interpreting 3670, the predecessor
section under the 1939 Code to 6321); and United States v. Brosnan
[60-2 USTC ¶9516], 363 U. S. 237, 240, where the Court said, "In
determining the extent of the 'property and rights to property' (Sec.
6321) to which a Government tax lien attaches, we have looked to State
law." At the hearing counsel for the United States conceded that
the most recent decision of the Supreme Judicial Court of the
Commonwealth of Massachusetts interpreting the nature of certificates of
public convenience and necessity was Roberto v. Department of Public
Utilities, 262 Mass. 583, where the Court said, at 588, "The
certificate was a privilege. It was neither a contract nor property . .
."
It
goes without saying that in order to obtain an injunction preventing the
Commonwealth from discharging one of its sovereign functions, a clear
showing of entitlement thereto should be made. Not only has the United
States failed to make such a showing here but, on the contrary, the
Department of Public Utilities has made a clear showing that the
certificates in issue are not property or rights to property within the
meaning of that term as used in 26 U. S. C. 6321. It follows that the
certificates not being property, the Federal tax liens do not attach
thereto by reason of the express language of Section 6321 which extends
the Federal lien only to property and rights to property.
[Judgment
of Court]
For
failure of plaintiff to make a showing that it is entitled to the
injunctive relief sought, as a matter of discretion and as a matter of
law the temporary restraining order previously entered herein is
dissolved and terminated, and the prayer for injunctive relief is
denied.
[73-1 USTC ¶9300]Re:
In the Matter of the Application of Cecile Roberts, d/b/a The Bodega
Bar, Deadwood, South Dakota, for a Low Point Beer License for the year
1971-1972 and an Intoxicating Liquor License, Class E, for the year 1971
U.
S. District Court, Dist. S. Dak., Civ. 71-43W, 358 FSupp 392,
1/23/73
[Code Secs. 6321 and 6323(a)]
Assessment: Deficiency: Collection: Priority of lien.--The oral
contract of sale and foreclosure and a written contract were a mortgage
and therefore senior to tax liens asserted by the
United States
. Since parole evidence could be presented to establish the existence of
an oral contract, and the oral contract and a written contract created a
mortgage, the mortgage was entitled to priority over an unrecorded
federal tax lien.
Francis
J. Parker,
P. O. Box
586
, Deadwood, S. Dak., for plaintiff. William F. Clayton,
United States
Attorney,
Sioux Falls
, D. Dak., for U. S.
Before
BOGUE, District Judge.
Memorandum
Decision
[Facts]
Gentlemen:
On
June 1, 1966
, Cecile Roberts, owner of the Bodega Bar in Deadwood,
South Dakota
, entered into a contract with one O. A. Kelley in which she agreed to
sell and he agreed to buy the Bodega Bar.
On
November 6, 1967
, Kelley assigned his interest in the aforementioned contract to one
Robert Dardis, subject to all of the terms of the original contract
between Kelley and Roberts.
Beginning
on
July 3, 1970
, and extending into May, 1971, the
United States
made tax assessments against Dardis, d/b/a the Bodega Bar, in the total
sum of $9,330.77.
On
March 19, 1971
, the original contract between Roberts and Kelley, together with the
assignment thereof, were filed in the office of the Register of Deeds,
Lawrence County
,
South Dakota
.
On
March 22, 1971
, Dardis, having been in default on his payments, Mrs. Roberts
instituted a summary foreclosure action and advertised a sale of the
"goodwill of the business and all business licenses thereon."
On
March 29, 1971, two notices of tax levies were filed by the Internal
Revenue Service in the Register of Deeds office, Lawrence County, South
Dakota, one of such forms being for the assessment of taxes for the
period ending September 30, 1969, in the sum of $2,890.26, and the
second notice being for tax assessments for the period ending December
31, 1969 in the sum of $1,652.71.
On
April 3, 1971
, pursuant to the foreclosure action, the sheriff of
Lawrence County
,
South Dakota
, conducted a sale of the Bodega Bar, at which Mrs. Roberts was the high
bidder.
On
April 29, 1971
, two further notices of tax levy were filed by the Internal Revenue
Service in Lawrence County Register of Deeds office. The first of such
notices covered the period ending
June 30, 1970
, and was in the sum of $1,460.07. The second of such notices covered
the period ending
December 31, 1970
, and was in the sum of $2,005.58.
On
May 3, 1971
, the
United States
, after having discovered that the liquor licenses used in the operation
of the Bodega Bar had been removed from the premises, served a notice of
levy on the Deadwood City Council, which had received possession of the
licenses from Mrs. Roberts. This levy was issued in order to enable the
United States
to sell the licenses to satisfy Mr. Dardis' tax liabilities.
On
May 14, 1971
, the Deadwood City Council issued two new liquor licenses to Mrs.
Roberts, and indicated to the Commissioner of Revenue of the State of
South Dakota
that such issuance cancelled Dardis' licenses.
The
Commissioner of Revenue, having learned of the interest of the United
States, declared that "until a determination is made as to the
proper party in interest in the presently existing license," such
license would be issued in the name of Mrs. Roberts, but would be
deposited with the state court pursuant to S. D. C. L. §15-6-67(c).
On
June 2, 1971, the licenses, having been deposited with the state court,
that court entered an order allowing Mrs. Roberts to operate under the
licenses "pending a resolution of the basic questions involved
herein . . ." A notice of depository was mailed to the United
States on June 3, 1971.
On
July 27, 1971
, the
United States
was served with an order to show cause why the licenses held by the
state court should not be released and returned to Cecile Roberts.
On
August 10, 1971
, the
United States
filed a petition for removal with this Court and the case was heard on
its merits on
August 14, 1972
.
[The
Law]
Section
6321 of the Internal Revenue Code, entitled "Lien for Taxes,"
provides:
"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 such person."
26
U. S. C. A. §6323(a) provides that "[t]he lien imposed by §6321
shall not be valid as against any purchaser, holder of a security
interest, mechanics lienor, or judgment lien creditor until notice
thereof which meets the requirements of subsection (f) has been filed by
the Secretary or his delegate." In this case such notice had to be
filed with the Lawrence County, South Dakota, Register of Deeds, 26 U.
S. C. A. §6323(f)(1)(A)(ii); S. D. C. L. 44-7-2, in order to have
priority over the aforementioned interests. The language quoted above
was effectuated by a 1966 amendment. Prior to 1966, §6323(a) provided
that the lien imposed by §6321 was not valid as against any purchaser,
mortgagee, pledgee and judgment creditor until notice thereof which met
the requirements of subsection (f) had been filed by the Secretary or
his delegate. The 1966 amendment made the language above quoted
effective as of
November 2, 1966
, regardless of when a lien or title of the
United States
arose or when the lien or interest of any other person was acquired.
Nevertheless, the amendment provided for exceptions in certain cases.
The amendments made by this title would not apply in any case in which
such amendments would "impair a priority enjoyed by any person
(other than the
United States
) holding a lien or interest prior to the date of enactment of this act.
. ." The effect of such an exception would allow for Mrs. Roberts
to enjoy the status of either a mortgagee, pledgee, or judgment creditor
and still fall within the provisions of §6323(a) providing for notice.
Thus, if the contract dated June 1, 1966, between Mrs. Roberts and O. A.
Kelley, created in Mrs. Roberts the status of either a mortgagee,
pledgee, judgment creditor, secured party, mechanics lienor or judgment
lien creditor, the United States, in order to obtain priority, would
necessarily have had to file notice of the tax lien in the office of the
Register of Deeds, Lawrence County, South Dakota.
[Government's
Contention]
The
United States contends, that since neither the contract of sale, dated
June 1, 1966, between Mrs. Roberts and O. A. Kelley, nor the assignment
thereof between Kelley and Robert Dardis, specifically mentions
"liquor licenses," a lien did not arise in favor of Mrs.
Roberts and therefore, the summary foreclosure of the personal property
in the Bodega Bar did not contemplate a foreclosure of the liquor
licenses.
The
contract of sale, dated
June 1, 1966
, between Mrs. Roberts and O. A. Kelley, provided for the sale of the
following:
"All
of the furnishings, furniture, fixtures, utensils, and other equipment
on the date hereof utilized in connection with the operation of the
Bodega Bar and Bodega Cafe, at Nos. 662 and 664 Main Street, Deadwood,
South Dakota, including cash registers, adding machine, safe and
restaurant supplies, all signs advertising the businesses of Bodega Bar
and Bodega Cafe, whether at the places of said businesses or elsewhere .
. .. As a part of the sale transaction represented by this instrument,
purchaser is also purchasing the good will of the business named above
and vendor has agreed to not enter into the restaurant business in
Lawrence County, South Dakota, or to hold any interest in such a
business, for a period of twenty years after date hereof."
The
assignment of the contract to Robert Dardis contained the same wording
as set forth above.
[The
Court]
Although
the parties have stipulated that a liquor license is
"property" to which a federal lien may attach, this Court is
disposed to disregard such a stipulation and proceed to a determination
of whether, under South Dakota State Law, such a license constitutes
"property". S. D. C. L. 35-2-1.2 requires all retail liquor
license applications be submitted to the governing board of the
municipality wherein the applicant intends to conduct business. The
local board is clothed with a wide discretion in determining whether a
license will issue, and this discretion is additionally given to the
Commissioner of Revenue under S. D. C. L. 35-2-5.2. The exercise of such
discretion is imposed not only upon applications for "new
licenses" but also upon the transfer of licenses to either a new
location or to another person. S. D. C. L. 35-2-7.
S.
D. C. L. 35-2-7 provides:
"Any
license granted under this title may be transferred to a new location or
to another person. Where the transfer is to another person, the licensee
must show in writing, under oath, that he has made a bulk sale of the
business operated under such license, which bulk sale may be conditioned
upon the granting of a transfer of the license and the transferee must
make application exactly as if an original applicant, and such
application shall take the same course and be acted upon as if an
original application. . . ."
From
the above statutes, it is readily apparent that a liquor license in the
State of
South Dakota
is nothing more than a personal privilege to participate in the monopoly
granted to the state by the Twenty-First Amendment to the United States
Constitution and implemented by Title 35 of the South Dakota Compiled
Laws. Being a privilege, its avlue necessarily depends upon the
circumstances of its use. Standing alone, a liquor license is worthless
under the
South Dakota
statute. It is not a severable commodity from the premises where it is
used. If it is transferred to another person, the transferee must also
be the purchaser of the original licensee's business. The statutes could
not be more explicit. Thus, the monetary value of a liquor license in
South Dakota
arises only by sale of a licensee's business and the transferee's
subsequent approved application. But in and of itself, a liquor license
vests no property rights in a license holder which can be considered
"property" within the verbiage of §6321. The government,
therefore, may not assert a tax lien against such a license, standing
alone.
Since
the foreclosure of the personal property of the Bodega Bar under a
contract previously filed was validly carried out, and having already
determined that a liquor license is not severable from the premises
which are transferred, Mrs. Roberts' contract of sale and foreclosure
thereof are senior to the tax liens asserted by the
United States
.
Moreover,
even should this Court accept the stipulation of the parties that a
liquor license, by itself, is a sufficiently valuable property right to
which a federal tax lien may attach, there is another line of reasoning
which disposes of the government's claim.
[Oral
Contracts]
The
general rule provides that a written contract supersedes all
negotiations or stipulations. S. D. C. L. 53-8-5. However, as early as
1914, South Dakota Courts have recognized exceptions to this rule. Thus,
in Barnes v. Hill City Lumber Company, 147 N. W. 775 (1914), the
Court held that a valid oral contract, collateral to a written contract,
may exist as an independent contract, even though the consideration may
be found in some of the terms of the written contract, but only if such
oral contract does not modify or change the terms of the written
contract to which it is collateral. Moreover, parole evidence may be
presented to establish the existence of any such oral contract which is
not inconsistent with the terms of the written contract, if from the
circumstances of the case, the Court infers that the party did not
intend the contract to be a complete and final statement of the whole
transaction. See Putnam v. Dickinson, 142 N. W. 2d 111, involving
an interpretation of a statute similar to
South Dakota
's. See also, Depue v. McIntosh, 127 N. W. 532; Janssen v.
Tusha, 287 N. W. 501.
The
testimony taken during the course of the trial and received over
objection by the Government, conclusively shows that a collateral oral
agreement was, in fact, entered into between the parties to the original
contract, which contemplated the transfer of the liquor licenses in
question to the purchaser, subject of course, to the conditions of the
written contract. This agreement was confirmed by Dardis under Roberts'
bulk sale affidavit of the stock and business of the Bodega Bar, under
which Dardis was able to secure the transfer of Roberts' liquor license
to him. It is also confirmed by the testimony that the purchase price of
$50,000 in the written contract included payment for the liquor
licenses. This collateral oral agreement, in no manner, changes or
modifies the terms of the written contract, and as between the vendor
and purchaser, was an enforceable agreement.
[Court's
Conclusion]
This
brings us to the crucial question of whether the written contract
between Mrs. Roberts and O. A. Kelley for the sale of the property and
the collateral oral contract for the sale of the liquor licenses,
created in Mrs. Roberts the status of a "purchaser, holder of a
security interest, mechanics lienor, or judgment lien creditor"
under the 1966 amendment to 26 U.S.C.A. §6323(a) or the status of a
"purchaser, mortgagee, pledgee, and judgment creditor" under
26 U. S. C. A. §6323(a) before the 1966 amendment. As discussed
previously, under Public Law 89-719, §114(b) Exceptions, the
1966 amendment, which changed the classifications of protected
individuals and which had November 2, 1966 as the effective date, did
not apply "in any case (2) in which such amendments would (A)
impair a priority enjoyed by any person (other than the United States)
holding a lien or interest prior to the date of enactment of this Act .
. ." Thus, if the June 1, 1966 contract created in Mrs. Roberts the
status of even the latter four enumerated persons, she would be entitled
to the protections of §6323(a).
This
Court is satisfied, under the reasoning of Gauvey v. United States
[61-1 USTC ¶9478], 291 F. 2d 42 (8th Cir. 1961) that the written
contract and collateral oral agreement constituted a mortgage within the
meaning of §6323(a), as amended, §6323(a) (1966). As such, it
is entitled to priority over an unrecorded federal tax lien. The
Government argues, however, that regardless of the label attached to
Mrs. Roberts' interest, since the written contract did not include
liquor licenses, the filing of such on
March 19, 1971
, did not have the effect of giving notice to other creditors.
Therefore, unless Mrs. Roberts filed a sworn statement of the lien with
the Lawrence County Register of Deeds prior to foreclosure, as required
by S. D. C. L. 21-54-4, the foreclosure on
April 3, 1971
, was invalid. However, as stated in Gawvey v.
United States
, supra, "the factor of recording is not mentioned in §6323
and, in our opinion, this element should not be read into the statute as
a condition precedent to the protection afforded the enumerated
classes."
Id.
p. 47. Citation was then made to Mason City & Clear Lake R. Co.
v. Imperial Seed Co. [57-2 USTC ¶9736], 152 F. Supp. 145, 157, and
the following quote was set out in footnote 6: "Neither does the
fact that the instrument was not recorded under the State's fraudulent
conveyence statutes--thus to impart constructive notice to subsequent
purchasers, mortgagees and the like--make any difference here, for
the instrument was valid between the parties to it, and Congress, .
. . expressly subordinated federal tax liens to antecedent mortgages . .
." (emphasis added). In this case, even though the collateral oral
contract covering the liquor licenses was never recorded (obviously) and
an affidavit was never filed prior to foreclosure, nevertheless the oral
contract was binding between the parties to it and thus is
entitled to priority (emphasis added).
[Key
to the
Sale
]
Finally,
a very real and most practical aspect of this case must not escape
consideration by this Court. The power of the Government is now brought
to bear on Mrs. Roberts, because of what the Government believes is a
technical loophole. Had Mrs. Roberts' counsel, now deceased, listed the
liquor licenses in the written contract initially, the Government
would not now be urging that the lien attaches to Mrs. Roberts' liquor
licenses, but the counsel advised her that it was not necessary to do
this and that she and Kelley could accomplish the transfer of the liquor
licenses by oral agreement. She relied upon this advice and proceeded.
This Court takes judicial notice of the fact that a very great portion
of the business of the Bodega Bar and Gife is the sale of liquor. We
would be naive indeed then to feel that the business could long survive
without such licenses. A valid oral contract was entered into by Mrs.
Roberts and Kelley. The licenses are the key to the sale, and the
parties to the agreement knew it and relied upon it.
Further,
the City Council of Deadwood, even with notice that the United States
Government was attempting to impress its lien upon Dardis' liquor
licenses, issued new licenses to Mrs. Roberts--which they had every
right to do. No authority exists which could force the City Council or
the State Commissioner of Revenue to grant a license to anyone. The
Council made its choice and even if the Federal Government presented one
hundred tax sale purchasers of liquor licenses, one right after the
other, the Council could still say, and this Court is confident it would
say, "Mrs. Roberts is our choice. We have exercised our
discretion." To what avail would the Government's efforts then be?
Mrs. Roberts obtained new licenses from the Deadwood City Council to be
used on the premises she owned. The Dardis licenses having been turned
in and not being part of any business and not having any specific
location as required by law, simply ceased to exist.
The
foregoing constitutes the Court's findings of fact and conclusions of
law under Rule 52 F. R. C. P.
[67-2 USTC ¶9538]The
Paramount Finance Company, Plaintiff-Appellee v.
United States of America
, Defendant-Appellant
(CA-6),
U. S. Court of Appeals, 6th Circuit, No. 17005, 379 F2d 543, 6/28/67,
Aff'g District Court, 65-2 USTC ¶9677, 245 F. Supp. 766
[1954 Code Sec. 6321]
Tax liens: Property: Liquor license.--Taxpayer transferred to his
lender a security interest in his Ohio liquor license which had a
pecuniary worth. Whether the license created a property right was
immaterial for the tag "property" simply symbolizes the fact
that courts enforce a claim which has pecuniary worth. Accordingly,
since the taxpayer's tavern and liquor license were hypothecated to the
lender under a security agreement perfected prior to the Government's
tax lien, the lender was entitled to the fund produced by the sale of
taxpayer's business by the Government
Philip
Kasdan, 522 Leader Bldg.,
Cleveland
,
Ohio
, for plaintiff-appellee. Mitchell Rogovin, Assistant Attorney General,
Lee A. Jackson, Joseph Kovner, Howard J. Feldman, Department of Justice,
Washington, D. C. 20530, Merle M. McCurdy, United States Attorney, James
Oakar, Assistant United States Attorney, 400 Federal Bldg., Cleveland,
Ohio, for defendant-appellant.
Before
EDWARDS and CELEBREZZE, Circuit Judges, and NEESE, District Judge. *
NEESE,
District Judge:
S.
& C. Tavern, Inc. 1
procured a loan from the plaintiff 2
and applied the proceeds to the purchase of a tavern business in
Cleveland, Ohio. The taxpayer made its promissory note to the lender,
securing the repayment of the loan with a security agreement 3
and financing statement. The lender perfected its security interest in
the collateral given by the taxpayer by filings in the respective
offices of the recorder of
Cuyahoga County
,
Ohio
and the
Ohio
secretary of state on
August 15, 1962
.
Within
two years therefrom the taxpayer was in default on the loan and
deficient in paying its federal taxes. The defendant assessed the
taxpayer on
April 23, 1964
with a tax deficiency of $4,988.03. Four days afterward, the defendant's
agents filed with the aforementioned recorder a lien on the taxpayer's
property for federal tax liabilities, and its agents seized, 26 U. S. C.
§6331(b), the tavern property, including DA-3 permit no. 3494 of the
Ohio Department of Liquor Control, respecting a liquor license which had
been issued theretofore to the taxpayer.
The
lender brought suit on
June 16, 1964
in an
Ohio
state court to enfore collection of the balance due on the note of
$5,394.00 and to foreclose on the security agreement. The appellant, a
defendant in the state litigation, removed the action to the District
Court [65-2 USTC ¶9677] for the Northern District of Ohio. 28 U. S. C.
§1444.
The
taxpayer's property and property rights were sold under 26 U. S. C. §6331(b)
at an adjourned sale on June 19, 1964 and, subject to the approval of
the Ohio liquor control authorities, the taxpayer's liquor license was
transferred to the successful purchasers at the sale. After allowances
for expenses and claims, the fund remaining for distribution from the
proceeds of such sale was $3,588.40. The District Judge applied this
amount to the satisfaction of the lender's rights under the security
agreement. 4
The
defendant was authorized to collect the tax due it from the taxpayer by
levy on and seizure of the state liquor license. 5
Barr v. United States [64-2 USTC ¶9811], 337 F. 2d 693, 695 [2]
(C. A. 6, 1964). However, such lien imposed thereon by 26
U. S.
C. §6321 was invalid against the lender's perfected purchase money
security interest under the aforementioned security agreement and
financing statement. 26 U. S. C. §6323. The perfected security
agreement was effective according to its terms against the defendant as
a tax creditor of the taxpayer.
Ohio
R. C. §1309.12.
The
security interest acquired by the lender was a "purchase money
security interest" under the Ohio Commercial Code, which applies
"* * * so far as concerns any personal property and fixtures within
the jurisdiction of [Ohio] * * *: (1) to any transaction, regardless of
its form, which is intended to create a security interest in personal
property or fixtures including goods, documents, instruments, general
intangibles, chattel paper, accounts or contract rights * * *."
Ohio
R. C. §1309.02(A). A "* * * 'General intangible' means any
personal property, including things in action, other than goods,
accounts, contract rights, chattel paper, documents and
instruments."
Ohio
R. C. §1309.01(A)(12).
The
taxpayer could not transfer to the lender title to the liquor license
issued to it by the Ohio Department of Liquor Control, Abraham v.
Fioramonte, 158 Ohio St. 213 [6] (1952), but the taxpayer could, and
did, transfer to the lender a security interest in the liquor license,
as constituting "property" with unique value. Nelson v.
Naranjo, 74 N. M. 503, 395 P. 2d 228 (1964). It is agreed by the
litigants that this taxpayer's liquor license had pecuniary worth, so
whether the license created "* * * 'property' right, indeed, is
immaterial; for here, * * * the tag 'property' simply symbolizes the
fact that courts enforce a claim which has pecuniary worth. * * *" Haelan
Laboratories v. Topps Chewing Gum, 202 F. 2d 866, 868 [1] (C. A. 2,
1953), cert. den. 346
U. S.
816.
The
fund produced by the sale by the defendant of the taxpayer's tavern and
its liquor license represents the value of its business which was
hypothecated to the lender under a security agreement perfected long
before the taxpayer's property was seized by the defendant. We agree
with the District Court that the fund remaining should be applied to the
satisfaction of the lender's rights thereunder.
Affirmed.
*
C. G. Neese,
Judge
,
United States
District Court for the Eastern District of Tennessee, sitting by
designation.
1,
2 For purposes of clarity, S. & C. Tavern, Inc. is referred to as
the taxpayer and The Paramount Finance Company is referred to as the
lender herein.
3
The collateral hypothecated to the lender by the taxpayer in the
security agreement included: "All fixtures and equipment * * * on
[the taxpayer's] tavern premises * * *, [t]ogether with all [items] used
in connection with said tavern business, the good will, trade name, and
all other property of every kind and character owned and/or controlled
by [the taxpayer], in connection with the operation of said business * *
*, including any and all rights and/or equities accruing to [the
taxpayer] by reason of the issuance of permits to [the taxpayer] by the
Ohio Department of Liquor Control, and * * * regulations of the Board *
* * covering * * * transfer of said permits."
4
The lender contends the District Judge reached a correct result for the
wrong reasons.
5
The conclusion contra of the District Judge was erroneous.
6
"* * * A security interest is a 'purchase money interest' to the
extent that it is * * * (B) taken by a person who by making advances or
incurring an obligation gives value to enable the debtor to acquire
rights in or the use of collateral if such value is in fact so
used."
Ohio
R. C. §1309.05.
[55-1 USTC ¶9278]
United States of America
, Appellant v. John R. Blackett et al., Appellee
(CA-9),
In the United States Court of Appeals for the Ninth Circuit, No. 13,951,
220 F2d 21, March 9, 1955
Appeal from the United States District Court, Southern District of
California, Southern Division.
[1939 Code Sec. 3672--changed in 1954 Code Sec. 6323]
Tax liens: Validity against judgment creditor: Proceeds of liquor
license.--Where notices of tax liens were filed between February and
May, 1948, and a creditor filed suit against taxpayer and attached
taxpayer's liquor stock in November, 1949, it was held that the tax
liens were superior to the lien of the attaching creditor not only in
respect to the liquor stock but also as against the proceeds of the
liquor license, notwithstanding the creditor's claim that the license
itself under California law was not subject to an attachment of lien.
Reversing and remanding the decision of the District Court,
reported at 53-1 USTC ¶9344.
H.
Brian Holland, Assistant Attorney General, Hilbert P. Zarky, Ellis N.
Slack, A. F. Prescott, Fred E. Youngman, Special Assistants to Attorney
General, Washington, D. C., Laughlin E. Waters, United States Attorney,
E. H. Mitchell, Edward R. McHale, Assistant United States Attorneys,
Eugene Harpole, Special Attorney, Internal Revenue Service, Los Angeles,
Calif., for appellant. James Don Keller, District Attorney, City of San
Diego, San Diego, Calif., for appellee, Chester Cleator. Charles E.
Burch, Jr.,
San Diego
,
Calif.
, for appellees, Thomas G. Cross et al.
Before
STEPHENS and CHAMBERS, Circuit Judges, and MCLAUGHLIN, District Judge:
STEPHENS,
Circuit Judge:
Upon
the date this appeal was lodged in this court, John R. Blackett was
delinquent in the payment of internal revenue to the
United States
in a sum greater than the total of the two sums of money involved in
this case. Liens for the payment of the principal sum with accruing
interest, under the provisions of the Internal Revenue Code §§ 3670, 1
3671,/2/ and 3672, 3
had been perfected between February 6, 1948, and May 4, 1948, and
apparently existed in full force and effect up to the date of the
lodgment. The record shows no change to date.
[The
Facts]
Blackett
owned and conducted a bar under a
California
liquor license issued to him, and he carried certain bottled liquor as
supply for the bar business.
On
June 17, 1949, Cross, Bates & Company, a copartnership, and the
individuals of such partnership, to-wit, Thomas G. Cross and Leo K.
Bates, Sr., sued Blackett in the Municipal Court of San Diego,
California, for an alleged debt, and sued out a writ of attachment.
Three days later levy was made on the stock of liquor. Judgment was
entered for plaintiff on
October 26, 1949
, and execution issued the next day. On
November 30, 1949
, the liquor levied upon was sold for $300.00. Immediately before and
immediately after the sale the government notified the Marshal of the
Municipal Court, conducting the sale, of the government lien.
Following
an order for appearance made on
May 26, 1950
, Blackett was examined in the Municipal Court in supplemental
proceedings on the unsatisfied judgment, subsequent to which and out of
which Blackett's liquor license was ordered sold, and it was sold for
$1,620.00. The money was paid to the Municipal Court Marshal, as
receiver, for proper distribution. Notice of the government lien was
given immediately before and immediately after the sale. Both sums of
money, to-wit, $300.00 and $1,620.00, remain in the Marshal's
possession.
[Conflicting
Claims]
With
the facts standing as we have recited them, the United States brought
its action in the district court [53-1 USTC ¶9344], praying that the
$1,920.00 be paid to it for credit on Blackett's delinquent tax account
under its claimed lien. By §3670 of the Internal Revenue Code, the
government lien affixes:
"*
* * upon all property and right to property, whether real or personal,
belonging to such person [here, to the delinquent taxpayer]."
The
individuals constituting the partnership of Cross, Bates & Company,
and that partnership, together with Municipal Court Marshal Cleator,
were made defendants. Cleator answered, requesting direction as to
distribution of the money. Cross, Bates & Company, and the
individuals thereof, hereinafter called judgment creditor, answered and
cross-claimed the money. The district court ordered the $300.00,
received from the sale of the liquor stock, paid to the
United States
under its tax lien. This part of the order is not contested in this
appeal. It ordered the $1,620.00, received from the sale of the liquor
license, paid to the judgment creditor, under the following reasoning. 4
"*
* *; the said on-sale liquor license not being subject to any lien
whatever, either in favor of the United States of America or any other
person, firm or entity, and the said proceeds from the sale thereof
being the result only of an in personam proceeding supplementary
to judgment against John R. Blackett in accordance with the laws of the
State of California relative thereto."
The
United States
in its brief on appeal presents its view of the issue, as follows:
"Whether
the District Court erred, under the facts and the law, in holding that a
liquor license issued by the State of
California
to John R. Blackett and/or the proceeds realized upon an execution sale
thereof are not subject to prior tax liens of the
United States
for unpaid federal taxes assessed against Blackett."
The
judgment creditor presents the issue as follows:
"The
principal issue in this case is whether a Federal Tax 'lien' attached to
a
California
liquor license, properly issued to, and standing in the name of, the
Defendant, John R. Blackett. If such a lien did attach to such
liquor license prior to sale thereof under supplemental proceedings in
an in personam motion brought by Cross, Bates & Company to
enforce a money judgment secured by the latter company against the said
Blackett--the California equivalent to a Creditor's Bill--then judgment
in this case should be for the United States. On the other hand, if no
such tax lien attached to the liquor license, the judgment must be
against the
United States
and for Cross, Bates & Company."
The
theory back of the judgment creditor's claim is that, since a California
liquor license, though transferable, is subject to the state's refusal
to honor the transfer (and such is a fact in the case), it is not
property nor does it constitute the right to property and is not subject
to be sold under a lien claimed by the United States. The district court
was in accord with this view. The court held that since, in its opinion,
the license is not the subject of a lien, the proceeds from the sale are
likewise not subject to the lien because they came into being through an
"in personam proceeding."
[License
v. Proceeds]
We
think the judgment creditor mistook the issue. The United States at no
time attempted to impose its lien against the liquor license, but upon
the sale taking place and money having been received therefor, it claims
that it has the right to enforce its lien against the money as
"property and right to property" of the delinquent taxpayer.
It is true that the sale was precipitated by the judgment creditor, but
whatever was received through the sale became the property of the
vendor-owner, subject, as any other property belonging to him, to valid
liens thereon in the order of their priority, in this case, first the
tax lien, second the judgment creditor's lien. 5
Appellee's (judgment creditor's) theory is erroneous for, if the license
is not property subject to process by the
United States
, it has no different status under the Municipal Court's process. And,
we may respectfully add, the District Court's decision is inconsistent
for, if the lien of the
United States
is good against the $300.00, it is good against the $1,620.00.
[Conclusion]
We
hold that the District Court was in error in its decision that the money
received from the sale of the license was payable to the judgment
creditor ahead of the lien of the
United States
.
There
is, in the agreed statement of fact, mention of an attempted arrangement
as to the taxpayer Blackett's creditors and that the
United States
was involved therein. The statement is not sufficient for any
consideration in this appeal. Neither party claims anything for or from
it and it is clear that the court did not regard it as affecting the
government's lien as valid and continuing, for it held the lien
applicable as to the money received from the liquor stock.
The
judgment is reversed and the cause is remanded with instructions to
order the Municipal Court Marshal, as the receiver of the two sums of
money, the $300.00 and the $1,620.00, to pay the same or as much thereof
as is due and unpaid on the lien of the United States, to the United
States.
Reversed
and remanded.
1
Title 26
U. S.
C. A., 1940 ed., §3670, 53 Stat. 448.
2
Title 26
U. S.
C. A., 1940 ed., §3671, 53 Stat. 449.
3
Title 26 U. S. C. A., 1940 ed., (1953 pocket supp.), §3672, 53 Stat.
449, as amended June 29, 1939, 10 p. m. E. S. T., c. 247, Title IV, §401,
53 Stat. 882; as amended Oct. 21, 1942, 4:30 p. m., E. S. T., c. 619,
Title V, §505, 56 Stat. 957.
4
Conclusion II, Record on Appeal, pp. 29, 30.
5
See Glass City Bank v. United States, 1945, 326
U. S.
265 [45-2 USTC ¶9449], and our cases cited therein at page 269, note 5,
to-wit: Citizens Nat'l Bank v. United States, 9 Cir., 135 Fed.
(2d) 527 [43-1 USTC ¶9426]; Investment & Securities Co. v.
United States, 9 Cir., 140 Fed. (2d) 894 [44-1 USTC ¶9210].