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[83-2 USTC ¶9530]In re Albert Priest, Jr., Debtor, Albert Priest, Jr., Plaintiff v. Progressive Savings & Loan Association, a corporation; Trusten E. Apperson and Janet J. Apperson, husband and wife; West Whittier Paint Co.; Western Medical Commercial Exchange, Inc., a corporation, State of California, State Board of Equalization; Guadalupe Priest, wife of plaintiff herein; Curtis B. Danning, interim trustee, Defendants. Internal Revenue Service, United States of America, Defendant-Appellant, State of California, Employment Development Department, Defendant-Appellee Professional Escrow Services, a California corporation, Plaintiff, v. Esther B. Mendelsohn, Rob ert Muchnikoff, Anita R. Muchnikoff, Rob ert Muchnikoff and Anita Muchnikoff dba Bob's Luncheonette and Does 1 through 10, inclusive, Defendants. State of California , Employment Development Department, Defendant-Appellee, Internal Revenue Service, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 82-5321, 82-5392, 725 FSupp 477, 8/10/83, Reversing and remanding unreported District Court and Bankruptcy Court

[Code Sec. 6323]

Liens: Priority of federal v. state liens: Inchoateness.--Federal tax liens on the taxpayers' assets took precedence over state liens on their assets, because the state liens were inchoate, identifying neither the lienor, the property subject to the lien nor the amount due under the lien. Under California law, a tax lien arose when a taxpayer failed to file a timely unemployment tax return. The state claimed that the liens became choate when the taxpayers filed their late returns, because all necessary identification information was contained in the returns. But the court disagreed, stating that a choate lien could not arise merely by the passage of a due date or filing of a return. Administrative steps to establish the lien had not been taken. Once a return was filed, the amount of the deficiency, interest and penalties had yet to be determined, and possible delays in mail delivery and admin istrative procedure created further uncertainty.

Gayle P. Miller, Department of Justice, Washington , D. C. 20530, for appellant-petitioner. Diane M. Spencer, Los Angeles , Calif. , for appellee-respondent.

Before CHAMBERS, HUG and CANBY, Circuit Judges.

Opinion

CHAMBERS, Circuit Judge:

These cases present a single issue of law--that of the relative priority of Internal Revenue Service liens, which arise upon assessment under 26 U. S. C. §6322, and California unemployment tax liens, which are said to arise when the delinquent tax return is filed, under Section 1703 of the California Unemployment Insurance Code. In each case, the California taxpayer filed the State tax return after the date it was due. Thereafter, the Internal Revenue Service assessment was made and notice of federal tax lien was recorded with the county recorder. At some later date, California filed its notice of State tax lien and recorded it with the county recorder.

In Professional Escrow Services v. I. R. S. (a State interpleader action that was removed to District Court), the district judge held that the California lien was sufficiently choate to take priority over the federal lien. In In re Priest (an adversary proceeding in Bankruptcy Court) ¹ the bankruptcy judge would have recognized the priority of the federal lien, but he considered himself estopped by the judgment of the district court in Professional Escrow Services, and thus granted judgment for the State. ² U. S. 81, 84-85, 745 Ct. 767, 369-70, 98 L. Ed. 520, (1954), the priority of statutory liens is determined by the principle of "the first in time is the first in right," but the lien that is competing with the federal lien must be perfected:

. . . in the sense that there is nothing more to be done to have a choate lien--when the identity of the lienor, the property subject to the lien, and the amount of the lien are established.

The State statute in question is Section 1703 of the California Unemployment Insurance Code which, immediately prior to its amendment effective in 1979, stated that a tax lien arose when the unemployment tax return was "due and payable." This was defined as "the date a return is required to be filed, without regard to any extension of time, without payment of the amount due . . .." Mere passage of the due date, under the statute as it was then worded, was intended to give rise to an enforceable lien on all of the taxpayer's property.

Section 1703, as amended in 1979, stated:

(a) If any employing unit or other person fails to pay any amount imposed under this division at the time that it becomes due and payable, the amount thereof, including penalties and interest, together with any costs in addition thereto, shall thereupon be a perfected and enforceable state tax lien . . .

(b) For the purposes of this section, amounts are "due and payable" on the following dates:

(1) For amounts disclosed on a return received by the director before the date the return is delinquent, the date the return would have been delinquent;

(2) For amounts disclosed on a return filed on or after the date the return is delinquent, the date the return is received by the director;

(3) For all other amounts, the date the assessment is final.

California concedes, as it must, that the wording of the pre-1979 statute is insufficient to create a choate lien under the rule of New Britain . The mere passing of the date when the tax return should have been filed does not identify the lienor, the property, or the amount due. It is the State's argument, however, that in both cases now before us its liens became choate at the moment the taxpayers actually filed their delinquent returns. Thus, regardless of the fact that one or more of the liens here in question was governed by the pre-1979 wording of Section 1703, the State is putting into issue (as to all of the liens in these cases) the standard of choateness set forth in the California statute, as it was amended in 1979.

California characterizes the effect of filing the delinquent State return as "self assessment" and contends that this admission of liability by the taxpayer fulfills the New Britain requirements for choateness. The district judge in Professional Escrow Services agreed with the State and concluded that there was "assessment on the date of receipt of the tax return." It was his view that the identity of the lienor (the State) was now fixed, the property subject to the lien (all of the taxpayer's property, according to the statute) was fixed, and the amount of the lien (the sum admitted to be owing by the taxpayer) was fixed. Relying on Thriftway Auto Rental Corp. v. Herzog [72-1 USTC ¶9311], 457 F. 2d 409 (2nd Cir. 1972), the district judge stressed that the issue was whether the State statute gave rise to an enforceable lien, and not whether the State statute was sufficiently similar to the federal statute.

The Internal Revenue Service has not argued, on these appeals, that the State lien statute must be identical with the federal lien statute. The Service does argue that there cannot be a choate lien, under the New Britain requirement of choatness, without some activity by the State to fix the taxpayer's liability. The Service argues that Thriftway is not support for California 's claim that its liens are choate, correctly noting that in Thriftway there had been an assessment and a warrant had been issued with the county clerk. Thriftway was not a case, such as those under consideration here, where the State claims a choate lien may arise without any activity, whatsoever, on its part.

We are persuaded that Section 1703(b)(2) (1979), cannot be deemed to create liens that are sufficiently choate under the test of New Britain . We agree with the bankruptcy judge in Priest that "a lien cannot arise prior to the taking of any admin istrative steps to establish the lien." The mere receipt of a delinquent State tax return is too vague and indefinite a standard by which to establish a lien that is capable of taking priority over a federal lien. The uncertainty of postal delivery, the uncertainty of the length of time it might remain on someone's desk, and the uncertainty of the time that might be consumed in processing the return through the admin istrative machinery, are realities to be considered. Significant delays might well occur before there was even any acknowledgment of the director's receipt of the delinquent return, or any admin istrative act by which the State acknowledged in its own accounts that the taxpayer is liable for unpaid taxes, or the precise amount of that delinquency, and the amount of penalty, interest and fees.

The lien created by Section 1703(a) is for the amount of the tax delinquency "including penalties and interest, together with any costs in addition thereto." Under the rule of New Britain a lien is not choate unless "there is nothing more to be done" and "the amount of the lien" is established, 374 U. S. at 84, 74 S. Ct. at 369. In the cases before us the total amount of the lien could not be known until the Director computed the interest, penalties and fees. These amounts were not established when the return is received by the Director; they were established thereafter. On the records before us, it appears that the taxpayers had no advice from the State, as to the computation of tax liability, interest, penalties, and fees, until the notices of tax lien were filed.

Clearly, the State lien statute need not be identical with the federal statutory scheme. United States v. Vermont , 377 U. S. 351 (1964). But for there to be priority over the federal lien, the State lien statute must encompass a scheme that provides sufficient choateness under the rationale and rule of New Britain . Section 1703 of the California Unemployment Insurance Code as it was worded prior to 1970, and Section 1703(b)(2) after the 1979 amendment provides insufficient choateness to permit the State lien to take priority over the federal lien.

Reversed and remanded with directions to enter judgment in favor of the Internal Revenue Service in both cases.

¹ We have jurisdiction over the appeal from the Bankruptcy Court despite Northern Pipeline Const. Co. v. Marathon Pipe Line Co., -- U. S. --, 102 S. Ct. 2858, 73 L. Ed. 2d 598, (1982), as the holding in that decision is prospective only and the decision in Priest predated Northern Pipeline. See Buckley v. Valeo [76-1 USTC ¶9189], 424 U. S. 1, 142, 96 S. Ct. 612, 693, 46 L. Ed. 2d 659 (1976).

² The parties dispute the validity of the bankruptcy judge's conclusion that he was collaterally estopped by the judgment in Professional Escrow. As both cases are consolidated here, we will address the underlying issue presented by both. As indicated infra we rely in part on the bankruptcy judge's reasoning in coming to our decision in these cases.

 

 

[77-2 USTC ¶9670]William Little, Plaintiff v. United States of America , Defendant

U. S. District Court, Cen. Dist. Calif., CV 77-1235-WMB, 6/2/77

[Code Sec. 7425--Result unchanged under '76 Tax Reform Act]

Lien for taxes: Discharge of lien: Notice.--The taxpayer, who purchased property at a nonjudicial sale, took the property subject to two tax liens because notice of the sale was not given to the IRS. The IRS had properly filed notice of these two liens more than 30 days prior to the sale. However, because notice of a third lien was not filed within 30 days of the sale, the purchaser was not subject to the third lien.

[Code Sec. 6323--Result unchanged under '76 Tax Reform Act]

Lien for taxes: Priority of state taxes: State claim discharged: Subrogation.--The taxpayer-purchaser was entitled to the priority of the state's senior claim and thus was entitled to his purchase price from the IRS sale proceeds. The purchaser had discharged the state's claim when he purchased the property at the nonjudicial sale.

William Little, 6161 Temple Hill Dr., Los Angeles, Calif. pro per. Rob ert O. Harker, 420 N. Brand Blvd., Glendale, Calif. 91203, for deefendant.

Findings of Fact and Conclusions of Law

BYRNE, Jr., District Judge:

This matter was tried without a jury before the Honorable Wm. Matthew Byrne, Jr., the plaintiff appeared through his attorney, Rob ert O. Harker, and the defendant was represented by its attorney, William D. Keller, United States Attorney, and Mason C. Lewis, Assistant United States Attorney.

The cause was tried upon the Complaint for wrongful Internal Revenue levy and Injunctive Relief, Defendant's Response, Stipulation of Facts and Issues, and all exhibits attached thereto. The cause having been argued and submitted for decision, and the court, being fully advised in the premises, now makes its Findings of Fact and Conclusions of Law.

Findings of Fact

1. The real property which is the subject of these proceedings is described as:

"Lots 740 and 741 of the Forthmann Tract, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 7, Pages 158 and 159 of Maps, in the office of the County Recorder of said County, more commonly known as 10524 and 10526 Juniper Street, Los Angeles, California."

2. Plaintiff, William Little, purchased this property for $4,500.00 on February 4, 1976 , from the Los Angeles County Tax Collector at a public auction sale. The property previously had been sold and conveyed under California Revenue and Taxation Code Sections 3436 and 3511 to the State of California for nonpayment of real property taxes. These taxes had been legally levied and were a proper lien upon said property. Plaintiff's purchase was confirmed by a tax deed from the Tax Collector of the County of Los Angeles to Plaintiff, dated February 11, 1976 , recorded February 20, 1976 as Document No. 3601, in Book D6976, Page 908, Official Records of Los Angeles County.

3. The said real property taxes are taxes of general application levied by the County of Los Angeles , based upon the value of said real property.

4. At the time of the public auction on February 4, 1976 , the Tax Collector of the County of Los Angeles would have required for redemption of the property a payment of $4,844.56.

5. The United States Department of the Treasury, Internal Revenue Service, recorded a Notice of Federal Tax Lien on February 7, 1973 , as Document No. 1596, in Official Records of Los Angeles County, reflecting the $1,212.04 was due and owing from LEE VAN HARRIS and HELEN HARRIS for unpaid federal taxes. This lien was filed more than 30 days before the sale of the subject property at the County Tax Sale on February 4, 1976 .

6. The United States Department of the Treasury, Internal Revenue Service, recorded a Notice of Federal Tax Lien on March 14, 1973 , as Document No. 2436, in Official Records of Los Angeles County, reflecting that $1,415.57 was due and owing from LEE VAN HARRIS and HELEN HARRIS for unpaid federal taxes. This lien was filed more than 30 days before the sale of the subject property at the County Tax Sale on February 4, 1976 .

7. The United States Department of the Treasury, Internal Revenue Service, recorded a Notice of Federal Tax Lien on February 2, 1976 , as Document No. 1945, in Official Records of Los Angeles County, reflecting that $4,407.05 was due and owing from LEE VAN HARRIS and HELEN HARRIS for unpaid federal taxes. This lien was not filed within 30 days of the County Tax Sale on February 4, 1976 .

8. The taxpayers named in the Federal Tax Lien Notices, LEE VAN HARRIS and HELEN HARRIS, had an interest in the real property at some point in time before said property was sold and conveyed to the State of California for non-payment of real property taxes.

9. Notice of the February 4, 1976 , public auction sale of the property was not given pursuant to the requirements of 26 U. S. C. §7425(c)(1). However, the Internal Revenue Officer to whom the Harris account had been assigned had become aware of the State's scheduled sale through conversations with the taxpayer some 25-30 days prior to the sale. The Internal Revenue Service did not participate in any manner in the Tax Collector's February 4, 1976 sale of the subject property.

10. With respect to the February 4, 1976 Tax Collector's sale, the County Tax Collector published and distributed a sheet entitled "General Information on Public Auction Sales of Tax Delinquent Real Property in the County of Los Angeles." Among other items, this sheet includes the following:

"If property is encumbered with improvement bonds, irrigation taxes, Internal Revenue liens, etc., a tax deed may not discharge these obligations."

11. There is no evidence that Plaintiff had actual knowledge of the existence of the Internal Revenue Service liens on the subject property.

12. On December 10, 1976 , Defendant United States of America through its Internal Revenue Service, made a levy and seizure of the subject real property for non-payment of Internal Revenue taxes due from LEE VAN HARRIS and HELEN HARRIS.

13. On March 25, 1977 , the Internal Revenue Service advertised in accordance with law a sealed bid sale of said real property for April 6, 1977 . Pursuant to agreement of the parties and pending final disposition of this matter, the sale was indefinitely postponed and Plaintiff agreed not to convey, encumber, or in any way effect the title to the property.

14. Plaintiff estimates the current fair market value of such property, independent of any potential encumbrances upon title at between $10,000 and $12,000. Based upon the Los Angeles County tax assessment, the Internal Revenue Service estimates the current fair market value of the property to be $18,000.

15. Any Conclusions of Law to the extent that they are deemed to be Findings of Fact are incorporated into these Findings of Fact.

Conclusions of Law

1. Jurisdiction over the subject matter is conferred in this court by 28 U. S. C. §1340.

II. Pertinent Statutes and Regulations

At all times relevant to the matters herein, the following applicable statutes and regulations provided in pertinent part:

1. CAL. REV. & TAX. CODE §2192.1:

Every tax declared in this chapter to be a lien on real property, and the lien of taxes and assessments upon real property of all taxing agencies as set forth in Section 3900 of this code, have priority over all other liens on the real property, regardless of the time of their creation.

2. 26 U. S. C. §6323(b)(6):

Even though notice of a lien imposed by §6321 has been filed, such lien shall not be valid . . . (6) With respect to real property, as against the holder of a lien upon such property, if such lien is entitled under local law to priority over security interests in such property which are prior in time, and such lien secures payment of (A) a tax of general application levied by any taxing authority based upon the value of such property . . .

3. 26 U. S. C. §7425(b):

. . . a sale of property on which the United States has or claims a lien . . . (1) shall, except as otherwise provided, be made subject to and without disturbing such lien . . . if notice of such lien was filed in the place provided by law for such filing . . . more than 30 days before such sale and the United States is not given notice of such sale in the manner prescribed in subsection (c)(1).

4. 26 U. S. C. §7425(c)(1):

Notice of a sale to which subsection (b) applies shall be given . . . in writing, by registered or certified mail, or by personal service, not less than 25 days prior to such sale, to the Secretary or his delegate.

5. TREAS. REG. §301.7425(3)(c) example (5):

For purpose of this section, this public sale is considered to be a nonjudicial sale described in §7425(b) because the sale is made pursuant to a statutory lien on the property sold.

6. 26 U. S. C. §6323(i)(2):

Where, under local law, one person is subrogated to the rights of another with respect to a lien or interest, such person shall be subrogated to such rights for purposes of any lien imposed by §§ 6321 or 6324.

III. Application of Pertinent Statutes and Regulations:

1. Pursuant to California Revenue & Taxation Code Section 2192.1, the lien for real property taxes levied by the County of Los Angeles is entitled to priority over security interests in said property which are prior in time.

2. The County of Los Angeles's lien with respect to real property taxes is of the type contemplated by 26 U. S. C. §6323(b)(6).

3. Section 7425(b) of Title 26, United States Code, applies to a sale by a County pursuant to its lien for real property taxes. The statute requires that the United States file notice of their lien more than 30 days before the sale of property upon which the United States claims a lien in order for the sale of the property to be made subject to the lien of the United States .

4. The United States complied with the requirements of 26 U. S. C. §7425(b) with respect to the two 1973 Internal Revenue Service liens.

5. The 1976 Internal Revenue Service lien was not filed within 30 days of the county tax sale. Pursuant to 26 U. S. C. §7425(b), the property purchased by Plaintiff was not subject to the 1976 Internal Revenue Service lien.

6. Notice of the February 4, 1976 public auction was not given to the Internal Revenue Service pursuant to the requirements of 26 U. S. C. §7425(c)(1), and thus the purchaser took the property subject to the two 1973 Internal Revenue Service liens which were properly and timely filed. Puls v. United States [74-1 USTC ¶9322], 387 F. Supp. 760 (N. D. Cal. 1974); United States v. Rosen, 77-1 USTC ¶9355 (D. Md. 12/20/76 ).

7. The County of Los Angeles' lien for real property taxes was senior to the liens of the Internal Revenue Service in accordance with 26 U. S. C. §6323(b)(6). When Plaintiff purchased the property, he discharged the senior claim held by the County of Los Angeles , and is therefore subrogated and equitably entitled to the amount of his purchase price of $4,500.00. Gallup v. United States , 358 F. Supp. 776, 780 (D. Neb. 1973). Plaintiff should therefore have first claim to any Internal Revenue Service sale proceeds to the extent of $4,500.00.

8. Any Findings of Fact to the extent that they are deemed to be Conclusions of Law are incorporated into these Conclusions of Law.

 

 

[69-1 USTC ¶9437]In the Matter of Webbell Marine Manufacturing Co. , Bankrupt

U. S. District Court, Central Dist. Calif., Bankruptcy No. 20,442, 5/13/69

[Code Secs. 6321-6323]

Lien for taxes: Bankruptcy: California state tax lien: Circular priority.--A federal tax lien had priority over a California state tax lien for unpaid unemployment taxes, but was subordinate to the security interest of the trustee in bankruptcy. Further, the trustee was a purchaser for value under California law, and since he did not have actual knowledge of the unpaid state tax lien, his interest had priority over the state's lien created under the recorded tax certificate.

Marvin Neben, 730 N. Euclid St. , Anaheim , Calif. , for debtor.

Memorandum Opinion and Order

PHELPS, Referee:

This matter involves the priority of liens upon a fund created by a foreclosure sale, as between three claimants; the Department of Employment of the State of California, the Internal Revenue Service, and the trustee of the estate of the above-named bankrupt.

The common debtor was Orange County Recreation Enterprises, Inc., which became a customer and debtor of the above-named bankrupt during an operating proceedings. That debtor organization is now defunct, but no bankruptcy proceedings have been filed by or against it. It was engaged in the pleasure boat sales business, and in such business had encumbered its personal property by a duly filed security agreement and financing statement in favor of Western Funding, Inc. All parties concede the priority of this lien, and it has been paid in full and is no longer of concern here.

Next in time, the Internal Revenue Service made an assessment under §6321 of Title 26, U. S. C. A., for unpaid taxes of $5,981.15 in May, 1968. Then on June 26, 1968, the Department of Employment of the State of California recorded in the County Recorder's office a tax certificate for $968.81 unpaid employment taxes pursuant to the provisions of §1703 of the Unemployment Insurance Code.

On the following day, the trustee of the estate of Webbell Marine Manufacturing Co. recovered a judgment for $4,470.00 against the common debtor and on the same day caused a writ of execution to be issued and a levy made upon the goods of the judgment debtor and caused a keeper to be placed in possession of its business premises. Immediately thereafter, negotiations commenced between the trustee in bankruptcy (the judgment creditor) and the judgment debtor, and settlement was soon reached. Pursuant to the settlement the lien of the execution was released, the keeper was removed from the business premises of the judgment debtor, the judgment debtor executed a financing statement and security agreement covering its goods and agreed to pay the $4,470.00 plus interest and costs to the trustee, and the trustee extended the time for payment approximately six months.

The Court must find that the trustee released the lien of the execution and acquired his contractual lien without having actual knowledge of the recorded tax certificate of the Department of Employment. This point is not stipulated to by the Department of Employment but the evidence on the point is convincing and is not contradicted.

Thereafter the debtor violated the terms of the security agreement, and the trustee in bankruptcy then took peaceful possession of the goods described in the security agreement. An auctioneer was thereafter employed to auction the goods in foreclosure of the security agreement held by the trustee. After the auction sale the Internal Revenue Service made a levy upon the funds in the hands of the auctioneer, being $8,245.36 after payment of expenses of sale and the first lien. All parties agree that the assessment lien, not being recorded in the County Recorder 's office, is subordinate to the security interest of the trustee in bankruptcy, and all parties agree that the assessment lien has priority ahead of the recorded lien of the Department of Employment. The Department asserts priority over the trustee thus creating a circuity problem, but the trustee contests the Department's claim of priority.

Prior to the 1957 amendment to §1703 of the Unemployment Insurance Code, the lien created by the recording of a tax certificate under that section affected only real property. By the amendment of 1957 the lien for unpaid taxes is imposed upon both real and personal property "except that with respect to personal property the lien shall not be valid against a purchaser for value without actual notice of the lien."

The Department of Employment argues for an exceedingly narrow interpretation of the new language, and concedes only that the lien on personal property would not be good as against purchasers for value without actual knowledge of the lien where the certificate was defective in some manner or where it was defectively recorded. The Department asserts that knowledge is conclusively presumed from the recording, and that therefore, the phrase "without actual knowledge of the lien" means "without actual knowledge or constructive notice of the lien."

The Department cites Cowden v. Cress, 202 Cal. App. 2nd 1; Wheaton v. Nolan, 3 Cal. App. 2nd 401; Lady Washington Consolidated Company v. Wood, 113 Cal. 492; Consolidated Reservoir and Power Co. v. Scarborough, 216 Cal. 698; and Wood v. Carpenter, 101 U. S. 135. In the Cowden case the plaintiff sought to quiet title and had a recorded deed. The defendant purchaser had had the title checked by a title company but the title company had, through an error, missed the recorded deed to plaintiff. The court stated, among other things, "means of knowledge, such as recording in public records . . . is deemed, in law, to be knowledge."

In the Wheaton case, plaintiff sued his attorney for negligence in delaying attachment of property of the defendant in a law suit until other creditors had attached all of the defendant's property, thereby exhausting potential security. The plaintiff sought to avoid the bar of the statute of limitations by asserting he had no knowledge of the negligence. The court held the action was barred by the statute saying that "means of knowledge, especially where it consists of public records, is deemed in law to be knowledge."

The Lady Washington case, the Scarborough case and the Carpenter case all involved actions for fraud in which the plaintiff sought to avoid the bar of the statute of limitations by alleging that the plaintiff did not have knowledge of the fraud within the statutory period. In each case the court held that the plaintiffs' complaints were defective and stated that the means of knowledge, especially where it consists of public records, is deemed in law to be knowledge.

The cases cited by the Department are not controlling here. None of them deal with the problem of statutory construction, and all are readily distinguishable from the case at bar.

The state legislature had a very practical problem in mind when the statute was amended, and that is, whether a purchaser of personal property should be required to make an investigation of public records as to tax liens prior to making his purchase. The legislature did not contemplate that each purchaser or each boat sold by the debtor should go to the County Recorder 's office to check the county records for liens. Instead, the legislature contemplated that purchasers of merchandise from the businessman would acquire title free and clear of the recorded tax lien. If the language is interpreted exactly as it reads, its application will not do violence to usual business practices; and all the people who deal with merchants can do so with safety, without the trouble, the expense, the delay and the risk of investigating public records before they make purchases.

The trustee contends that when he gave up the security of the lien under his writ of execution, and made the agreement extending time for payment, and was granted a security interest in the debtor's goods, that he, the trustee, thereby became a purchaser for value within the meaning of §1703. At 59 C. J. S. §241, the text discusses the giving of an encumbrance of real property to secure a pre-existing debt as constituting a purchase for value, and also discusses extension of time and the surrender of prior security in relation to the problem. The text sets forth the general rule that an encumbrancer, even for a preexisting debt, who extends additional time and surrenders prior security is a purchaser for value. California cases agree with the general text statement. Phelps v. American Mortgage Company, 40 Cal. App. 2nd 361, holds that a beneficiary under a deed of trust is a bona fide purchaser. Eckman v. Pulums County Bank, 215 Cal. 671, holds that a beneficiary of a deed of trust given to secure an antecedent debt is a purchaser for value. Tripler v. MacDonald Lumber Co., 163 Cal. 144, holds that the extension of time for payment of a pre-existing debt is sufficient consideration to make a mortgagee a purchaser for value.

The cases and the text cited by the trustee all deal with a "purchaser for value" in the real property context. Should the same interpretation be given to the words in the statute dealing with liens on personal property? It should be noted that the statute does not define the term.

Section 1201(44)b of the California Commercial Code defines "value" as including the taking as security for a pre-existing debt. Section 1201(32) and (33) define a purchaser as including one who takes by mortgage or lien. It should be noted that §1201(9) defines "buyer in ordinary course of business" much more restrictively than a purchaser for value by excluding a transfer in bulk or as security for or in satisfaction of a pre-existing debt. The California Commercial Code was adopted in 1963, six years after the 1957 amendment to the tax statute.

But preceding the adoption of the Commercial Code, California had at least four statutes closely related to the point. In 1935 California adopted the Uniform Trust Receipts Act, which defines a purchaser as including a mortgagee or pledgee and states that a mortgagee "is a purchaser and not a creditor," and defines value as includig the taking as security for a pre-existing debt. Former §3013(10), (11) and (15) of Civil Code. In the Uniform Bill of Lading Act (former §2132b of Civil Code) and in the Uniform Warehouse Receipts Act (former §1858.4 of Civil Code), and in the Uniform Sales Act (former §1796 of Civil Code), the terms are similarly defined.

I hold that the trustee is a purchaser for value within the meaning of the statute, and since he did not have actual knowledge of the unpaid tax lien, he takes his interest free of the lien under the recorded tax certificate.

This Court has no jurisdiction to direct the disposition of the funds remaining in the hands of the auctioneer after paying the trustee's claim. The auctioneer was not an agent of the trustee to conduct a general liquidation sale. The assets of the debtor were not before this Court for admin istration and liquidation as in the usual bankruptcy case. The authority given to the auctioneer by order of this Court authorizing his employment should extend only to the extent necessary to pay the debt of the secured party, i.e. the trustee, together with the expenses of sale. Any auction sale beyond that extent should not be directed by this Court, and therefore, the proceeds derived from such additional activities should be beyond the reach of this Court.

This Memorandum Opinion shall be deemed to be Findings of Fact and Conclusions of Law.

[Order]

It is ordered that Harry Engelson pay to Rob ert H. Stopher, as trustee of the estate of said bankrupt, the sum of $4,470.00 with interest thereon at 7 percent per annum from June 28, 1968 , together with $892.61 as costs of the foreclosure advanced.

 

 

[67-1 USTC ¶9291]Publix Title Company, a corporation; Myer Silverman; Albert E. Greer; and Bertha S. Waldman, Plaintiffs v. United States of America, Defendant Third-Party Plaintiff v. The County of Los Angeles , Third-Party Defendant

U. S. District Court, Central Dist. Calif., No. 64-865-S Civil, 1/4/67

[1954 Code Sec. 6323]

Tax liens: Priority: California state taxes.--The tax liens of the United States did not attach to any of the proceeds realized by the State of California from the sale of certain real estate where the state liens for city and county ad valorem taxes on the property became choate and were prior in time and right to the liens of the United States. The deed of the real estate to the state and the subsequent sale by the state both conveyed title free and clear of any liens or claims of the United States .

Rob ert E. Rosskopf, 4519 Admiralty Way, Suite 200, Marina del Rey, Calif., for plaintiffs. Francis C. Whelan, Manuel L. Real, John K. Van de Kamp, United States Attorneys, Loyal E. Keir, Arthur M. Greenwald, James S. Bay, Assistant United States Attorneys, Los Angeles, Calif., for defendant and third-party plaintiff. Harold W. Kennedy, County Counsel, Irvin C. Taplin, Jean Louise Tarr, Deputy County Counsels, 648 Hall of Administration, Los Angeles, Calif., for third-party defendant.

Findings of Fact and Conclusions of Law

STEPHENS, JR., District Judge:

The above entitled matter came on regularly for hearing in the above entitled Court on October 19, 1965, before the Honorable Albert Lee Stephens, Jr., Judge presiding; Rob t. E. Rosskopf, Esquire, appearing on behalf of plaintiffs PUBLIX TITLE COMPANY, a corporation, MYER SILVERMAN, ALBERT E. GREER, and BERTHA S. WALDMAN; Messrs. Manual L. Real, United States Attorney, Loyal E. Keir, Assistant United States Attorney, and Arthur M. Greenwald, Assistant United States Attorney, by Arthur M. Greenwald, Esquire, appearing on behalf of defendant and third-party plaintiff UNITED STATES OF AMERICA; Messrs. Harold W. Kennedy, County Counsel, Irvin C. Taplin, Deputy County Counsel, and Jean Louise Tarr, Deputy County Counsel, by Jean Louise Tarr, Esquire, appearing on behalf of third party defendant THE COUNTY OF LOS ANGELES; and it appearing that a Disclaimer has been filed by defendant STATE OF CALIFORNIA; and said matter having been submitted to the Court upon the facts contained in the Pretrial Conference Order and upon written briefs to be thereafter submitted by the parties; and briefs having been filed by and on behalf of the parties hereto, and having been fully considered by the Court, and the Court having reached a determination thereof, makes its Findings of Fact and Conclusions of Law, as follows:

Findings of Fact

The Court finds:

I The Court has jurisdiction of this action by virtue of the provisions of Title 28, United States Code, Sections 1345 and 1346(a)(s).

II The real property involved in this action is improved with a factory building located at 1650 Tarleton Street , Los Angeles , California , and is legally described as:

The Northwesterly 110 feet of Lot 26 of the J. G. McDonald Tract, as per map recorded in Book 70, page 20 of Miscellaneous Records, in the office of the County Recorder of Los Angeles County , California .

III On the first Monday in March, 1952, B. W. Minsky was the owner of record of said real property.

IV On the first Monday of March of each of the years hereinafter set forth, said real property was assessed under the provisions of the Revenue and Taxation Code of the State of California for Los Angeles City and Los Angeles County ad valorem property taxes; and on or about September 1st of each of said years, the tax rolls of the County of Los Angeles were equalized and assessments were levied against said real property for said respective years in the following amounts, to-wit:

1952 ....         $ 9i.17

1953 ....           81.28

1954 ....           83.57

1955 ....          126.33

1956 ....          419.12

1957 ....          498.65

1958 ....          679.56

 

V None of said taxes as listed in Finding IV hereof were paid. On June 30, 1953 said real property was sold to the State of California for delinquent 1952 taxes, pursuant to the provisions of Section 3436 of the Revenue and Taxation Code of the State of California .

VI On July 1, 1958 said real property was deeded to the State of California pursuant to the provisions of Section 3511 of the Revenue and Taxation Code of the State of California .

VII On February 23, 1960 said real property was sold at public auction by the Tax Collector of Los Angeles County, pursuant to the provisions of Sections 3691 through 3731, inclusive, of the Revenue and Taxation Code of the State of California . Said property was purchased for the sum of $10,600.00 in cash, which was paid to said Tax Collector by plaintiffs' predecessors in title. A deed to said purchasers, from the State of California , was issued by said Tax Collector and was recorded in the office of the County Recorder of Los Angeles County , California , on March 22nd, 1960 , in Book D789 at page 91, Official Records of Los Angeles County, California. Plaintiffs are the present owners by mesne conveyances from said purchasers of all of the title conveyed by said deed from the State of California .

VIII That during the year 1960, pursuant to the provisions of Section 4673 of the Revenue and Taxation Code of the State of California , the Tax Collector of Los Angeles County disbursed said amount of $10,600.00 to the taxing agencies for whom said Tax Collector was acting as the collecting agent.

IX On February 23, 1960 the amounts which would have been required to redeem said property from the sale and deed to the State, as computed pursuant to Sections 4102, 4103 and 4104 Revenue and Taxation Code of the State of California, were as follows:

Tax of 1952 Book 5 Page 48 Par./Asmt.

No. 39449 ................................         $ 92.17

Penalty for Delinquency ..................            5.53

Costs ....................................            1.00

Sold to State for ........................         $ 98.70

Redemption Penalty 46% ...................           42.39

Tax of 1953 Book 5 page 88 Par./Asmt.

No. 39086 ................................           81.28

Redemption Penalty 40% ...................           32.51

Tax of 1954 Book 6 Page 16 Par./Asmt.

No. 39115 ................................           83.57

Redemption Penalty 34% ...................           28.41

Tax of 1955 Book 4 Page 195 Par./Asmt.

No. 36510 ................................          126.33

Redemption Penalty 28% ...................           35.37

Tax of 1956 Book 15 Page 171

Par./Asmt. No. 147087 ....................          419.12

Redemption Penalty 22% ...................           92.20

Tax of 1957 Book 15 Page 43 Par./Asmt.

No. 138372 ...............................          498.65

Redemption Penalty 16% ...................           79.78

Tax of 1958 Book 6 Page 251 Par./Asmt.

No. 133029 ...............................          679.56

Redemption Penalty 8% ....................           54.36

Tax of 1959 Unassessed ...................          594.71

Redemption Penalty .......................           17.84

Code Area 4 State Redemption Fee .........            1.50

Total amount necessary to redeem

on or before 
2-23-60
 .....................       $2,966.28

 

X By deed dated August 12, 1955 , and recorded October 6, 1955 , B. W. Minsky conveyed the fee title of said property to Fred Saldana, subject to then existing County and City ad valorem property tax liens.

XI The U. S. Director of Internal Revenue, a delegate of the Secretary of the Treasury, made the following assessments for unpaid Federal Withholding and Federal Insurance Contributions Act against taxpayers Fred Saldana, Ralph J. Saldana, Frank Solis, Edward Jiminez and Arthur Arellanes, dba Solis Foundary Company, notices and demands for payment of which were made upon said taxpayers; notices of which were filed with the Los Angeles County Recorder; and the unpaid balances of which are as follows, to-wit:

                                                                          
(T) Taxes

(I) Interest

* Plus interest thereon as provided by law

** Filed with the County Recorder, Los Angeles County, California

Ralph Saldana, Fred Saldana, Arthur Arellanes, Edward Jiminez and Frank Solis, 

d/b/a Solis Foundary Co., 

filed on September 25, 1956, individual petitions in bankruptcy. 

Said bankruptcy proceeding was closed on 

January 13, 1958
. On 
February 28, 1962
, 

Ralph Saldana executed tax collection waivers extending the 

statutory period of collection to 
August 10, 1973
. On 
April 2, 1962
, Arthur 

Arellanes executed tax collection waivers extending the period of collection to 

August 10, 1973
. On 
May 21, 1962
, Fred Saldana, Edward Jiminez and Frank 

Solis executed tax collection waivers extending the statutory period of collection to 
August 10, 1973
.

XII On or about September 13, 1963 , the United States seized said property under the provisions of Section 6331 United States Internal Revenue Code, and has retained control over said property since that date.

XIII Since the sale of said property to plaintiff's predecessors, said property has been assessed and ad valorem property taxes levied thereon by the Tax Collector of Los Angeles County for the following years in the following amounts, to-wit:

1960 ....           $595.08

1961 ....            614.78

1962 ....            614.47

1963 ....            641.30

1964 ....            675.00

1965 ....         (unknown)

That none of said taxes have been paid, and on June 30, 1961 , said property was sold to the State of California for delinquent 1960 taxes.

XIV On or about March 13, 1964 , the United States filed a claim with the Los Angeles County Board of Supervisors for the sales proceeds received by Los Angeles County on February 23, 1960 . On February 4, 1965 , the District Director of Internal Revenue served upon the authorized representative of the Board of Supervisors a Notice of Levy as to these proceeds. On February 9, 1965 , the Board of Supervisors formally adopted an order rejecting the claim of the United States , conveying said rejection to the United States by letter dated February 14, 1965 . On February 15, 1965 , a final demand for payment was served upon the County of Los Angeles , which has not been honored. No portion of said proceeds has been paid to the United States .

Conclusions of Law

Based on the foregoing Findings of Fact, the Court concludes:

I That plaintiff PUBLIX TITLE COMPANY, a corporation, is the owner of an undivided one-third interest; that plaintiff MYER SILVERMAN is the owner of an undivided two-ninths interest; that plaintiff BERTHA S. WALDMAN is the owner of an undivided two-ninths interest; and plaintiff ALBERT E. GREER is the owner of an undivided two-ninths interest, in and to all that certain real property in the City of Los Angeles, County of Los Angeles, State of California, described as follows:

The Northwesterly 110 feet of Lot 26 of the J. G. McDonald Tract, in the City of Los Angeles , County of Los Angeles , State of California , as per map recorded in Book 70 page 20 of Miscellaneous Records, in the office of the County Recorder of said County.

II That defendant and third-party plaintiff UNITED STATES OF AMERICA , and defendant STATE OF CALIFORNIA, have no right, title, interest, lien or estate in or to said real property.

III That third-party defendant COUNTY OF LOS ANGELES is a proper third-party defendant in the above entitled action.

IV That the liens of the STATE OF CALIFORNIA for the years 1952, 1953, 1954 and 1955 for City and County ad valorem taxes levied and assessed against said real property as described in Finding IV hereof became choate, and were prior in time and prior in right to the liens of the UNITED STATES OF AMERICA, as described in Finding XI hereof.

V The deed of said real property to the STATE OF CALIFORNIA on July 1st, 1958 conveyed said real property to the STATE OF CALIFORNIA free and clear of any liens or claims by the UNITED STATES OF AMERICA , subject, however, to a right of redemption by the owners or any persons interested in said real property.

VI The sale of said real property by the STATE OF CALIFORNIA on February 23rd, 1960 to plaintiffs' predecessors in title terminated the right of redemption and conveyed title to said purchasers free and clear of any liens or claims of the UNITED STATES OF AMERICA .

VII The liens and claims of the UNITED STATES OF AMERICA did not attach to any of the proceeds realized by the STATE OF CALIFORNIA from the sale of said real property.

Let Judgment be entered accordingly.

 

 

[46-1 USTC ¶9186]United States of America, Appellant, v. Paul W. Sampsell, Trustee in Bankruptcy of the Estate of El Camino Refining Company, State of California and Universal Consolidated Oil Company, Appellees

(CA-9), United States Circuit Court of Appeals for the Ninth Circuit, No. 10,932, 153 F2d 731, February 15, 1946

Upon appeal from the District Court of the United States for the Southern District of California, Central Division.

Lien for taxes: Validity against mortgagees: Federal v. state taxes.--There is nothing in Code Secs. 3670-3672 providing for Government priority over inchoate liens which antedate its own liens. Under Sec. 67 of the Bankruptcy Act, the liens of the United States for gasoline taxes were not entitled to priority in payment over the inchoate general liens of the State of California for franchise taxes.

Lien for taxes: Validity against mortgagees: Interest accrued after adjudication: Legal expenses of mortgagee.--Where the property given as security for a debt was sufficient to pay, in addition to the principal amount, interest accrued after adjudication, and attorney's fees performed for the mortgagee in connection with the mortgage and bankruptcy proceedings, the tax liens of the United States were subordinated to the payment of such interest and attorney's fees. Affirming a District Court opinion.

Samuel O. Clark, Jr., Assistant Attorney General, Sewall Key, A. F. Prescott, Leonard Sarner, Muriel S. Paul, Special Assistants to the Attorney General, Washington, D. C.; Charles H. Carr, U. S. Attorney, E. H. Mitchell, Assistant U. S. Attorney, Eugene Harpole, Special Assistant to Chief Counsel, Bureau of Internal Revenue, Los Angeles, Calif., for appellant. Grainger and Hunt, Los Angeles , Calif. , for appellee, Paul W. Sampsell. Rob ert W. Kenny, Attorney General, State of California, John L. Nourse, Deputy Attorney General, San Francisco, Calif., for appellee, State of California. C. E. McDowell, McIntyre Faries, Allan M. Carson, Los Angeles , Calif. , for appellee, Universal Consolidated Oil.

Before: STEPHENS, BONE and ORR, Circuit Judges.

STEPHENS, Circuit Judge:

The United States, deeming itself aggrieved by a judgment of the United States District Court adverse to its claim of priority as a lien holder upon a sum of money held in the Bankruptcy court, appeals.

[The Facts]

The El Camino Refining Company, a corporation, filed a petition for reorganization on May 12, 1942, under Chapter X of the Bankruptcy Act of 1898, c. 541, 30 Stat. 544, as amended by the Act of June 22, 1938, c. 575, 52 Stat. 840, 883. It was adjudicated a bankrupt on March 27, 1943 , and Paul W. Sampsell was appointed trustee in bankruptcy of the state on March 27, 1943 . On March 31, 1943 , he was qualified and assumed the duties of that office. In conformity with the agreement of all lien claimants and the court, the assets of the bankrupt were sold and the net proceeds received in the sum of $19,927.85. In further conformity with the agreement in which all lien claimants joined, all claims of liens together with their priority as they existed before the sale were transferred to the fund realized, subject to the expenses of admin istration to be fixed by the court.

There are three lien claimants, whose claims together exceed the value of the assets of the estate.

(1) The State of California , by and through the California State Franchise Tax Commissioner, filed a claim for April 3, 1943 , for corporate franchise taxes in the sum of $3,071.35 plus interest at 6% per annum from January 15, 1944 , until paid. The taxes were for the years 1939 and 1940 accruing January 1, 1939 , and January 1, 1940 , respectively. The exact amount of the taxes was not fixed prior to the date of the commencement of these bankruptcy proceedings. The California law provides that such taxes (imposed by the Bank and Corporation Tax Act of the State of California [Deering, California General Laws (1939 Supp.), Act 8488]) shall constitute a lien upon the real property of the taxpayer, the lien to have the same force, effect and priority as a judgment lien, and shall attach on the first day of the taxable year.

(2) The Universal Consolidated Oil Company, a corporation, filed a claim for $11,234.78 plus interest based upon real property mortgage given as security for a promissory note, which was executed and delivered on January 19, 1941 . The obligation of the note is for the principal sum of $8,444.08 with interest at the rate of 5% per annum from March 15, 1943 , until paid, together with the provision for attorney fees. On May 10, 1943 , the Referee made an order allowing to the mortgagee a secured claim upon the real property so mortgaged to the extent of the total indebtedness. The mortgage was recorded on May 3, 1941 , in the Official Records of Orange County, California. The balance due upon the said note and mortgage, principal and interest, exclusive of attorney's fees, is the sum of $10,484.78 plus interest thereon thereafter at the rate of 5% per annum until paid. The claim under the mortgage was contested by the United States and after legal notice of hearing (§58 of Bankruptcy Act; 11 USCA §94), the sum of $750 was fixed by the court as reasonable compensation for legal services performed by the law firm of Faries & McDowell for the mortgagee in connection with the mortgage in the bankruptcy proceedings.

(3) The United States filed a claim on June 20, 1942 , for gasoline taxes for a sum in excess of $20,000. The liens attached on several dates between January 6, 1942 , and June 18, 1942 , both dates being included, by virtue of the fact that the assessment lists of the Commissioner of Internal Revenue were received by the Collector at Los Angeles on those dates. (Internal Revenue Code, §§ 3670-3671, 53 Stat. 448-490, §3412, 53 Stat. 413, 26 USCA §§ 3412, 3670-3672.) No lien claim was recorded for these taxes in the office of the County Recorder of Orange County , State of California , or filed for record in the Office of the Clerk of the United States District Court for the Southern District of California, within which jurisdictions the oil refinery plant was located. The government's lien arises by virtue of §§ 3670-3671 of the Internal Revenue Code (26 USCA §§ 3670-3671). Section 3672 of the same Act (26 USCA §3672) provides that no lien shall be valid as against a mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector.

Expenses of admin istration amounting to $6,929.83 were ordered to be paid out of the estate before any of the liens were to be paid.

The Referee, affirmed by the District Court, ruled that the liens were entitled to priority in the order in which they attached, and since the assets were insufficient to pay both the state's claim and the mortgagee's claim in full, the legality of the United States ' claim, aside from the priority phase was not passed upon.

The appellant contends that the District Court erred in holding that the United States was not entitled to priority in payment for gasoline taxes out of the bankrupt estate over the claims of the State of California for franchise taxes, and of the Universal Consolidated Oil Company for interest and attorney's fees relating to its mortgage.

Three questions are presented for determination by this court: "(1) Whether the District Court erred in holding that under §67 of the Bankruptcy Act (11 USCA §107) the liens of the United States for gasoline taxes were not entitled to priority in payment over the inchoate general liens of the State of California for franchise taxes.

"(2) Whether the District Court erred in allowing interest to the Universal Consolidated Oil Company on the principal sum due under its mortgage, subsequent to the date of adjudication in bankruptcy, or sale with the mortgagee's consent, of the mortgaged property free and clear of all liens.

"(3) Whether the District Court erred in subordinating the tax liens of the United States to the payment of attorney's fees and interest on the principal sum due under the mortgage to the Universel Consolidated Oil Company subsequent to the date of adjudication in bankruptcy."

[Relative Priorities]

The lien and priority claims of the United States are based upon §§ 3670-3672 of the Internal Revenue Code (26 USCA §§ 3670-3672) for gasoline taxes due under §3412(a) of the Internal Revenue Code [26 USCA §3412(a)]. In substance these sections provide that when a tax is not paid it becomes a lien, effective at the time the assessment list is received by the collector. It is provided that the lien shall not be valid against a mortgagee, pledgee, purchaser, or judgment creditor until notice of the lien is filed with certain local officials or with the clerk of the District Court. The language of §3672, however, has been interpreted to mean that a lien of the United States is inferior to all mortgage or judgment liens which were acquired prior to the date of recording or filing of the notice. See Fox v. Queens County Sales Co., Inc. (DC N. Y., 1931), 52 Fed. (2d) 794 [1931 CCH ¶9381]; Minnesota Mutual Life Insurance Co. v. United States (DC Tex., 1931), 47 Fed. (2d) 942 [1931 CCH ¶9174].

All requisites for the attachment of government's liens for gasoline taxes claimed on appeal were fulfilled prior to the filing of the petition on May 12, 1942 . Specifically the issue deals with the relative priorities of the United States as a lien claimant and California as a lien claimant under the facts obtaining. The tax liens asserted by the State of California were inchoate as to amount, but were fixed and attached to the real property of the debtor on January 1, 1939, and January 1, 1940, both of these dates being prior to the time that the Federal tax liens attached to such property. [See California Bank and Corporation Franchise Tax Act, Deering California General Laws (1939 Supp.), Act 8488, §§ 25, 29.]

[Inchoate v. Specific Liens]

The government contends that since the state lien is general and inchoate that the United States lien being specific and perfect, arising at the time the assessment lists were received, was thereby given priority over the state lien. It is also contended by the government that §3672 of the Internal Revenue Code (26 USCA §3672) which requires recordation in certain intances does not defeat this priority since a state is not among the enumerated classes protected by the statute.

The California courts have held that even though the taxes are not fixed or payable until the assessment has been made, such subsequent assessment does not create the lien but is only a step in its enforcement. County of San Diego v. County of Riverside , 125 Cal. 495 (1899).

The determination of this controversy rests upon statutory construction. The statutes involved are the Bankruptcy Act and certain sections of the Internal Revenue Code, supra. In general, the lien claimants fall under §67 of the National Bankruptcy Act of 1898, as amended by the Chandler Act of 1938 (11 USCA §107). This section provides, in substance and for purposes herein concerned, that statutory liens for taxes and debts owning to the United States or any State or subdivision thereof, created or recognized by the laws of the United States or of any State, may be valid against the trustee. Where these laws require the liens to be perfected in order to be valid against the trustee in bankruptcy and they are not perfected but arise before bankruptcy, they are valid if perfected within the time permitted by and in accordance with the requirements of the laws of the United States or of any state. There is nothing in the Bankruptcy Act or in the Internal Revenue Code §§ 3670-3672 (26 USCA §§ 3670-3672) directly providing that perfected liens shall have priority over prior inchoate liens which is the claim of the government. We are of the opinion that the government can get no support of any kind from the statutes in aid of its position.

[Authorities Distinguished]

The cases cited by the government, with the exception of United States v. Reese, 131 Fed. (2d) 466 (CCA-7, 1942) [42-2 USTC ¶9763], do not involve bankruptcy proceedings and hence are not applicable in the instant controversy. It has been established that §3466 of the Revised Statutes (31 USCA §191) does not apply in bankruptcy proceedings so that the cases cited by the government, in holding that inchoate liens will not defeat the priority of the government's liens established by that section, do not cortrol the instant case. Davis v. Pringle, 268 U. S. 315 (1925); Guarantee Title & Trust Co. v. Guaranty & Surety Co., 224 U. S. 152 (1912); Claude D. Reese, Inc. v. United States, 75 Fed. (2d) 9 (CCA-5, 1935) [35-1 USTC ¶9126]. It has been stated that the statute fixing priority of claims of the United States has been superseded by the Bankruptcy Act in cases involving bankruptcy proceedings. The priority given the United States, however, was put back in the Bankruptcy Act by the 1926 amendment, but only as to debts due the United States under §64 (11 USCA §104). Lien creditors come under §67 (11 USCA §107) and are prior in right to taxes without a lien under §64. Reese v. United States , 75 Fed. (2d) 9 (CCA-5, 1935) [35-1 USTC ¶9126]. See also City of Dallas v. Ryan, 62 Fed. (2d) 959 (CCA-5, 1933).

In the case of In re Knox-Powell-Stockton, 100 Fed. (2d) 979 (CCA-9, 1939) [39-1 USTC ¶9277], a state inchoate tax lien was held valid under §67 and superior to a United States unsecured tax priority claim under §64. Section 64 does not give taxes of the United States or of a state priority of payment over valid existing liens under §67, since such liens are not affected by the Bankruptcy Act. Section 67 applies against the United States just as it does against any creditor. A lien does not have to be a specific or perfected lien to come within the protection of §67. The cases which have held that only perfected liens are given priority are within the §3466 of the Revised Statutes (31 USCA §191), but that section does not apply to bankruptcy proceedings, hence its all inclusive effects do not cover the situation in this case. There is nothing new in the principle that a statutory lien need not be perfected. In Detroit Bank v. United States, 317 U. S. 329 (1943) [43-1 USTC ¶9224], a federal estate tax (under §315a of the Revenue Act of 1926) attached at the date of the decedent's death without the necessity of assessment, demand for payment, recordation or other procedure to perfect it against subsequent liens. See United States v. Alabama , 313 U. S. 274 (1941).

The case of In re Van Winkle, 49 Fed. Supp. 711 (DC Ky., 1943), likewise holds that §3466 of the Revised Statutes (31 USCA §191) is not applicable in bankruptcy proceedings, saying that the section yields to the distribution scheme provided in the Bankruptcy Act. The court held that an equitable lien of a surety, upon payment of the claim against the bankrupt by the surety, may be related back to the date of the contract and assignment of the retained percentage to defeat the government's lien which arose prior to the date of actual payment, but was not prior to the date of the contract and assignment. There was no appeal from the decision. A lien against the property of a bankrupt recognized as valid by either federal or state law attaches to the property in the hands of the trustee after bankruptcy, unless invalidated by a provision in the Act. The trustee acquires no better title than the bankrupt himself had. See Bankruptcy Act, §67 (11 USCA §107); City of Richmond v. Bird, 249 U. S. 174 (1919); In re Knox-Powell-Stockton, 100 Fed. (2d) 979 (CCA-9, 1939) [39-1 USTC ¶9277].

It has been held that §64 of the Bankruptcy Act (11 USCA §104) does not defeat the priority for claims of the United States in non-bankruptcy proceedings, so that §64 did not impliedly modify §3466 of the Revised Statutes (31 USCA §191) as applied in non-bankruptcy proceedings. United States v. Emory, 314 U. S. 423, 427 (1941). The resulting inference would be that §64 of the Bankruptcy Act in general would eliminate such priority when inconsistent with the Act in bankruptcy proceedings. It has been clearly held that where §3466 of the Revised Statutes, establishing priority of the United States , in inconsistent with another national act, the situation not being justly within the scope of §3466 in view of the other act, §3466 will not apply. Cook County Nat. Bank v. United States , 107 U. S. 445 (1882) (National Bank Act); United States v. Guaranty Trust Co., 280 U. S. 478 (1930) (Transportation Act).

It is reasonable to assume that bankruptcy proceedings are of such a specialized nature that the Bankruptcy Act was intended to govern such a situation exclusively and unaffected by §3466 of the Revised Statutes (31 USCA §191). The Act was intended to set up a particular scheme of distribution not to be varied by exceptions found outside the Act, since to do so would interfere with a well ordered and efficient working Act. Section 3466 of the Revised Statutes would not even be useful by way of analogy as it sets up an over-all priority without exception governing a given set of circumstances, while the Bankruptcy Act has its own schedule of priorities intended to cover all situations within its terms and jurisdiction.

The case of United States v. Reese, 131 Fed. (2d) 466 (CCA-7, 1942) [42-2 USTC ¶9763], is not controlling here, since there was a failure in that case to consider the applicable provisions of the Bankruptcy Act, the governing statute, and also because it relies upon authorities which are inapplicable under the Bankruptcy Act.

[Rule]

There is nothing in the Internal Revenue Code, §§ 3670-3672, providing for government priority over inchoate liens which antedate its own liens.

We are of the opinion that the requirements of recordation in the Internal Revenue Code, §3672, are not applicable in the instant case. The true purpose of a recording provision is to give protection for the future rather than over events which have already taken place in the past.

[Interest Accrued After Adjudication]

The government claims that it was error to allow interest to the mortgagee subsequent to the date of adjudication in bankruptcy or sale of the mortgaged property, with its consent, and to subordinate the tax liens of the United States to such payments. The general rule holds that interest stops running upon secured and unsecured claims after a debtor passed into bankruptcy unless the estate is solvent. Brown v. Leo, 34 Fed. (2d) 127 (CCA-2, 1929); Sexton v. Dreyfus, 219 U. S. 339 (1911). There is an exception, however, holding that the rule does not apply to debts or claims of secured debts after and during bankruptcy when the mortgaged property is sufficient to pay the principal and interest of the mortgaged debt. Wilson v. Dewey, 133 Fed. (2d) 962 (CCA-8, 1943). There is a conflicting view in Lerner Stores Corporation v. Electric Maid Bake Shops, 24 Fed. (2d) 780 (CCA-5, 1928), in which it was held that the interest does not run beyond the date of the filing of a petition in bankruptcy. The Lerner case, however, relies upon the Dreyfus case which would apply the rule only where the secured creditors had exhausted their security so that there is not enough to pay the debt and interest. See People's Homestead Ass'n. v. Bartlette, 33 Fed. (2d) 561 (CCA-5, 1929). It has been held that interest runs on a secured debt after the date of filing the petition in bankruptcy, but that it ceases on the sale of mortgaged property free of liens, by reason of the fact that the sale in effect is an end of the proceedings. The duty of the trustee arises at such time to pay the claimant his debt. In re Stevens, 173 Fed. 842 (DC Ore., 1909). The question was not determined as to what may happen if the trustee fails to make the payment at that time. The statement has been made in several cases that interest runs until payment is made. Hershberger, 208 Fed. 94 (DC Penn., 1913); San Antonio Loan & Trust Co. v. Booth, 2 Fed. (2d) 590 (CCA-5, 1924); Phoenix & Homestead Ass'n, v. E. A. Carrere's Sons, 33 Fed. (2d) 563 (CCA-5, 1929); Sehen-Stevenson & Co. v. Union Trust Co., 113 Fed. (2d) 968 (CCA-4, 1940). The accrual of interest is a part of the debt to the mortgagee and should not be affected by bankruptcy. See In re Stevens, supra; San Antonio Loan & Trust Co. v. Booth, supra.

Judge Orr in the case of In re Torchia, 185 Fed. 576, 584 (DC Penn., 1911), stated: "Interest is payable on the * * * mortgage to the date of payment of the principal. * * * Having been transferred from the land to the fund realized by sale, they must be payable when and only when the fund is distributable; that is, when the referee under bankruptcy act first prepares a decree or order for distribution."

To prevent the running of interest upon a secured debt, when the security is sufficient to pay the debt and the interest, would in effect permit the bankruptcy proceedings to adversely affect the lien which is contrary to the provision in the Bankruptcy Act that a lien shall not be affected by the Act, §67. See In re Stevens, supra, at page 843.

The lien of the mortgage arose prior to the lien of the government for taxes and is entitled to priority. The security is sufficient to pay the full debt and it was given to secure the debt plus interest as one entire obligation arising at the time of the execution and delivery of the mortgage. It should not be broken down into separate parts. Nor is it necessary to make use of the doctrine of "relation back" to make after accrued interest a part of the lien of the mortgage. See Security Mortgage Co. v. Powers, 278 U. S. 149 (1928). The government made no objection to allowance for interest and attorney's fees until after determination of the cause in the District Court.

[Attorneys' Fees]

The government contends that the United States tax liens were not to be subordinated to the attorney's fees awarded to the mortgagee. Attorney's fees are a part of the secured debt and are entitled to be collected as such. There is no claim that the fees in question are not made a part of the debt or that they are not secured by the same lien, but only that the principal then due on the mortgage at the time the government lien attached may not be increased by attorney's fees for services to be performed in the future by any doctrine of "relation back". There is no need, however, for such a doctrine to support a lien for attorney's fees. Attorney's fees as well as interest are provided for in the obligation and the reasoning which supports the interest claim applies in the provision for attorney's fees. In Security Mortgage Co. v. Powers, 278 U. S. 149, 156 (1928), the attorney's fees were held to be a part of a mortgage debt even though they accrued after adjudication, the court saying. "The contingent obligation to pay attorney's fees was a part of the original transaction." See In re Gotham Can Co., 48 Fed. (2d) 540 (CCA-2, 1931).

Affirmed.

 

 

[54-1 USTC ¶9218]California State Department of Employment, Appellant v. United States of America and Frank M. Chichester, Trustee in Bankruptcy of the Estate of Claude Elsworth Gee, Doing Business as Judy Ann's Bakery, Bankrupt, Appellees

(CA-9), In the United States Court of Appeals for the Ninth Circuit, No. 13,663, 208 F2d 535, 210 F2d 242, January 25, 1954

Appeal from the United States District Court for the Southern District of California, Central Division.

Priority of liens: Bankruptcy.--Tax liens of the United States, perfected prior to and superior to state tax liens, are not subordinated to the state tax liens by Sec. 67c of the Bankruptcy Act merely because the state acquired possession of the bankrupt's personal property prior to bankruptcy.

Edmund G. Brown, Attorney General, State of Calif., James E. Sabine, Assistant Attorney General, Edward Sumner, Deputy Attorney General, Los Angeles, Calif., for appellant. H. Brian Holland, Assistant Attorney General, Ellis N. Slack, Assistant Attorney General, Chief, Appellate Section, Carlton Fox, Fred Youngman, Special Assistants to Attorney General, Washington, D. C., Laughlin E. Waters, United States Attorney, E. H. Mitchell, Edward R. McHale, Craig, Weller & Laugharn, Los Angeles, Calif., for appellees.

Before HEALY, BONE and ORR, Circuit Judges.

ORR, Circuit Judge:

This appeal presents for determination the rather novel issue as to whether tax liens of the United States, hereafter the Government, perfected prior to and superior to state tax liens are subordinated by §67c of the Bankruptcy Act to the state tax liens because the state acquired possession of the bankrupt's personal property prior to bankruptcy. The specific question posed is, does §67c of the Bankruptcy Act alter the priorities of statutory liens recognized by §67b of said Act.

The facts are not disputed. Prior to June 12, 1950 , the Commissioner of Internal Revenue perfected statutory liens upon the real and personal property of Claude E. Gee for the nonpayment of federal insurance contributions and withholding taxes. The California Department of Employment, hereafter the State, pursuant to the California Unemployment Insurance Act filed tax liens upon Gee's property, and on June 12, 1950 , took actual possession of Gee's personal property. On July 19, 1950 , Gee filed a voluntary petition in bankruptcy and was adjudicated a bankrupt. The receiver in bankruptcy entered into a stipulation with the State whereby the assets in the State's possession were turned over to the receiver subject to whatever rights the State might have in the property by virtue of its possession. The bankrupt's estate, on liquidation, amounted to $2,100.00, which sum was insufficient to pay the state and federal tax claims and expenses of admin istration. ¹

On February 27, 1951 , an order to show cause was issued to the State and the Government to appear before the referee for determination of their respective rights in the proceeds of the bankrupt's estate. The referee found that the government tax liens were entitled to priority of payment over the state tax liens. The District Court affirmed the order of the referee.

Section 67b of the Bankruptcy Act expressly provides that liens for taxes owed to the United States or any state are valid against the trustee. 11 U. S. C. A. §107(b). Section 67b places federal and state liens in the same category. The rank and position of such liens is determined by applicable lien law. In re Pennsylvania Central Brewing Company, 3 Cir. 1940, 114 Fed. (2d) 1010, cert. denied 312 U. S. 685; In re Mt. Jessup Coal Co. , D. C. Penn. 1934, 7 Fed. Supp. 603 [1934 CCH ¶9414]; Collier on Bankruptcy, 14th Ed. Vol. 4, Par. 67.24. It is clear that the Government tax liens, having been perfected first, take precedence over the state tax liens. 26 U. S. C. A. §§ 3670, 3671, 3672; Michigan v. United States, 317 U. S. 339 (1943) [43-1 USTC ¶9225].

The State, while conceding that prior to bankruptcy its tax liens were subordinate to the government liens, argues that after bankruptcy its liens became superior to the government liens by virtue of its possession of the bankrupt's personal property. The State's argument is that §67c gives its liens which are accompanied by possession priority over admin istrative expenses, and since by §67c the government liens, unaccompanied by possession, are subordinate to admin istrative expenses, they are therefore subordinate to the state liens.

The Government acknowledges that its lien position is subordinate to expenses of admin istration by reason of §67c, but contends that the priority of its tax liens as against the state liens is unaffected by §67c. This contention is bottomed on the theory that §67c merely postpones payment of statutory liens to the payment of the debts specified in clauses (1) and (2) of §64a but does not alter the order of priority as between lienholders placed in the same category by §67b. ²

From a consideration of both the language used in the Act and the legislative history we are persuaded that §67c does not affect or impair the priorities of liens recognized by §67b. The relevant part of §67c provides that ". . . statutory liens, including liens for taxes or debts owing to the United States or to any state . . . on personal property not accompanied by possession of such property . . . shall be postponed in payment to the debts specified in clauses (1) and (2) of subdivision a of §64 of this title. . . ." 11 U. S. C. A. §107(c). The section deals only with the relationship of the lienholder without possession to unsecured creditors having priorities under §64a. It does not attempt to deal with priorities as between secured creditors under §67b. Reconstruction Finance Corp. v. Sun Lumber Co., 4 Cir. 1942, 126 Fed. (2d) 731. As pointed out by Collier on Bankruptcy, 14th Ed., Vol. 4, p. 242, "§67c does not, nor does any other provision of the Bankruptcy Act for that matter, set up any scheme of priorities among liens." Thus we see that statutory liens unaccompanied by possession of the personal property to which they attach are postponed in payment only to the two claims specifically mentioned, viz. wages and expenses of admin istration. The state tax liens are not within either of these two classes.

From the legislative history it appears that the sole concern of Congress in enacting §67c was to insure payment of admin istrative expenses and small wage claims. Goggin v. California Labor Division, 336 U. S. 118, 127 (1928) [49-1 USTC ¶9142] citing Committee Report Analysis of H. R. 12889, 74th Congress, 2d Sess. (1936) and Weinstein, The Bankruptcy Law of 1938 (1938). Prior to the Act of 1938 all liens valid in bankruptcy had precedence over unsecured creditors having only priority claims under §64a. Liens in favor of contractors, materialmen, and particularly accumulated tax liens, frequently consumed the bankrupt's estate to the exclusion of the costs and expenses of admin istration incurred in the proceeding. To insure payment of admin istrative expenses and wage claims Congress decided to subordinate statutory liens to a limited extent, that is, to unsecured claims having a first and second priority under §64a. Collier on Bankruptcy, 14th Ed., Vol. 4, par. 67.20. We find no suggestion that Congress intended by §67c to permit a subordinate lienholder who secures possession of personal property prior to bankruptcy to thus place himself in a superior position to an otherwise prior and superior lienholder. See, Reconstruction Finance Corp. v. Sun Lumber Co., 4 Cir. 1942, 126 Fed. (2d) 731.

In determining the distribution of the proceeds in the hands of the trustee, the lien priorities under §67b should be resorted to before considering §67c. Since under §67b the government liens are superior to the state liens, a sum equal to the government claim should be set aside from the proceeds and the remainder, if any, should be applied to the state tax liens. In the instant case the State takes nothing since it appears from the record that the claim of the Government exceeds the proceeds realized from the sale of the bankrupt's estate. The government liens unaccompanied by possession of the bankrupt's personal property are subordinated by §67c to the expenses of admin istration. Hence, admin istrative expenses must be satisfied out of the sum set aside for the government claim.

Judgment affirmed.

¹ No challenge is made to the validity or the amount of any of the liens.

² Section 64a establishes what unsecured debts are entitled to priorities. Clause (1) of §64a deals with expenses of admin istration and clause (2) deals with wage claims.

 

 

[75-2 USTC ¶9867]Business Title Corporation, Plaintiff v. Division of Labor Law Enforcement, State of California; Los Angeles Hotel-Restaurant Employer-Union Welfare Fund; and William H. Temkin, Jr., Defendants and Appellants v. United States of America, Defendant and Respondent

Calif. Court of Appeal, Second Appellate Dist., Div. Four, Civ. No. 44420, 10/14/75, Affirming California Superior Court decision at, 74-1 USTC ¶9371

[Code Sec. 6323]

Lien for taxes: Priority: State claim for wages.--On appeal, the superior court's determination of the priority of creditors' claims in an escrow fund, in which a Federal tax lien was found superior to wage claims, was upheld. The state law governing the transfer of liquor licenses, enacted pursuant to the Twenty-first Amendment, did not take preference over the Federal taxing power and, therefore, could not give priority to wage claims over the tax lien.

George P. Coulter, Coulter, Vernoff & Brewer, 234 E. Colorado Bl., #808, Pasadena, Calif., for plaintiff. John P. Kightlinger, Denison & Kightlinger, 3460 Wilshire Blvd., #408, Los Angeles, Calif., Rob ert G. Leff, Lipzig, Rosenfield, Temkin, 405 N. Camden Dr., Beverly Hills, Calif., for defendants and appellants. William D. Keller, United States Attorney, Charles H. Magnuson, Assistant United States Attorney, Los Angeles, Calif., Scott P. Crampton, Assistant Attorney General, Stephen M. Gelber, Gilbert E. Andrews, Crombie J. D. Garrett, Department of Justice, Washington, D. C. 20530, for defendant and respondent.

Three defendants appeal from a judgment in an interpleader action. ¹ The action was commenced in the superior court for Los Angeles County by Business Title Corporation against the United States, ² the Division of Labor Law Enforcement of the State of California, the Los Angeles Hotel-Restaurant Employer-Union Welfare Fund (hereinafter "Union Welfare Fund"), Mating Game, Inc., ³ William Temkin, Sanford Orling and Peter Rooney.

The verified complaint alleged: on October 6, 1971 , at Los Angeles, Mating Game, Inc., entered into a written escrow agreement with 12319 Corporation whereby Mating Game agreed to sell to 12319 Corporation an on-sale general liquor license for a cocktail lounge business, with the license to remain at the business premises; pursuant to Bus. & Prof. Code §24070, buyer and seller opened an escrow, and plaintiff was named as escrow holder; the total purchase price of the liquor license was $10,500.00, which sum was deposited in escrow by the buyer prior to transfer of the license; during the course of the escrow, and before May 24, 1972, (when the Department of Alcoholic Beverage Control notified plaintiff of transfer of the license to the buyer), plaintiff received claims from the seller's creditors, including the defendants; defendant United States served on plaintiff a notice of levy and a notice of federal taxes due in the sum of $3,329.89 on account of tax delinquences of the seller; defendants Division of Labor Law Enforcement, Union Welfare Fund, Temkin, Orling and Rooney presented claims totaling $8,171.04 for wages due the seller's employees; the State Board of Equalization and the Department of Human Resources Development presented claims totaling $2,328.96; as these latter claims must be paid to accomplish transfer of the license, plaintiff paid them from the funds on deposit in escrow; after transfer of the license, plaintiff mailed notices to the creditors informing them that the cash in escrow was insufficient to pay all creditors in full.

The complaint further alleged: plaintiff holds in escrow the sum of $8,141.04, which represents the purchase price of $10,500.00 less payment of $2,328.96 to the priority creditors, and less $30.00 paid as attorney's fees for a legal opinion regarding the proper placement of creditors' claims under §24074; plaintiff claims no right, title or interest in or to the cash in escrow, except to recover its costs and attorney's fees incurred in the interpleader action; plaintiff is subject to conflicting claims to the fund in escrow by the United States and by the other defendants, whose wage claims are given first priority under §24074.

Plaintiff sought judgment requiring defendants to interplead and litigate among themselves their respective rights to the cash in escrow; plaintiff also sought attorney's fees and costs.

Each of the defendants filed an answer to the complaint. The United States moved for summary judgment in its favor for the amount of federal tax owing by the seller. Affidavits in support of the motion were filed showing that such tax was assessed on September 24, 1971 , and that notice of the resulting federal tax lien was filed with the Los Angeles County Recorder, and with the California Secretary of State, on October 21, 1971 .

Plaintiff moved for an order dismissing it from the action upon deposit in court of the escrowed fund of $8,141.04, and for an order allowing plaintiff to deduct from such fund the sum of $642.00 as attorney's fees and costs incurred in prosecuting the interpleader action. (Code Civ. Proc. §386.6, subd. (a).) From the fund in escrow, the trial court granted plaintiff $400.00 as attorney's fees and $42.00 as costs "without prejudice to later determination as to whose interest ultimately to bear said costs." Plaintiff was ordered to deposit $7,699.04 (the balance of the fund remaining after deduction of the attorney's fees and the sum allowed for costs) with the clerk of the court. The court further ordered that plaintiff be dismissed from the action upon making such deposit.

Prior to the hearing of the United States' motion for summary judgment, all of the interpleaded defendants entered into the following stipulation of facts: after escrow was opened on October 6, 1971, for the transfer of Mating Game's liquor license, the following wage claims were submitted to plaintiff by defendants: October 15, 1971, claim of Union Welfare Fund for $1,650.00; January 18, 1972, claim of Division of Labor Law Enforcement for $1,418.85; May 5, 1972, claim of Temkin for $3,952.19, claim of Orling for $575.00 and claim of Rooney for $575.00; on June 13, 1972, the United States served on plaintiff a notice of levy for federal taxes due from Mating Game, Inc., in the total amount of $3,329.89; ⁴ on the same date, the United States also served on plaintiff a "Notice of Federal Taxes Due" and a "Final Demand," each in the amount of $3,329.89.

The trial court granted the motion for summary judgment, directing the clerk to pay to the United States from the interpleaded fund, the sum of $3,170.88 plus interest and penalties. The court further ordered that the attorney's fees and costs awarded to plaintiff were not to be apportioned against the sum payable to the United States .

Thereafter, defendants Temkin, Orling and Rooney moved for summary judgment disposing of the balance of the interpleaded fund. The trial court granted the motion "as to wage claim defendants," and ordered that, after payment of the tax lien of the United States and the costs of interpleader, the remaining funds were to be apportioned among the wage claimants in the proportion that each claim bore to the total wage claims.

Findings of fact and conclusions of law were signed and filed. ⁵ The trial court found, as facts: plaintiff deposited into the registry of the court the sum of $7,699.04; such interpleaded fund is insufficient to pay the claims asserted against it by defendants; on September 24, 1971, a delegate of the Secretary of the Treasury made an assessment against Mating Game, Inc., for withholding and federal insurance contribution taxes in the sum of $2,889.77, plus: delinquency penalty, $144.49; failure to deposit penalty, $96.32; failure to pay penalty, $14.45; and interest, $25.85, for a total assessment of $3,170.88; in addition to this sum, defendant United States is entitled to accrued interest of $349.66, as of August 1, 1973, on the principal amount of tax assessed, for a total of $3,520.54, with interest to continue accruing after August 1, 1973, ⁶ at the rate of 52 cents per day; notice of the assessment and demand for payment were sent to Mating Game, Inc., on September 24, 1971; notice of federal tax lien (which arose upon assessment) ⁷ was filed with the recorder for Los Angeles County, and with the California Secretary of State, on October 21, 1971; by virtue of the assessment, Mating Game, Inc., is indebted to the United States in the sum of $3,170.88, plus accrued interest; defendant Division of Labor Law Enforcement has a wage claim of $1,418.85 against the interpleaded fund and is entitled to 17.36 percent of the sum remaining after payment of the claim of the United States; defendant Union Welfare Fund has a claim of $1,650.00 against the fund, and is entitled to 20.19 percent of the sum remaining after payment of the claim of the United States; defendants Temkin, Orling and Rooney have claims of $3,952.19, $575.00 and $575.00, respectively, against the fund for a total of $5,102.19, and such defendants are entitled collectively to 62.45 percent of the fund remaining after payment of the claim of the United States.

As conclusions of law, the court determined: the claims of defendants Division of Labor Law Enforcement, Union Welfare Fund, Temkin, Orling and Rooney are wage claims having first priority under Bus. & Prof. Code §24074; the Twenty-first Amendment of the United States Constitution is not applicable in this case; accordingly, under the Supremacy Clause (art. VI) of the United States Constitution, the priority accorded a tax lien of the United States under 26 U. S. C. §§ 6321 and 6323, subd. (a), prevails over any priority set forth in Bus. & Prof. Code §24074; the lien of the United States for unpaid taxes and interest therefore must be paid from the interpleaded fund before the claims of the other defendants are paid; the attorney's fees and costs awarded to plaintiff may not be allocated against the recovery of the United States, but have priority over the wage claims.

Judgment was entered awarding the United States, out of the interpleaded fund, the sum of $3,520.54, plus interest accruing on such sum after August 1, 1973, ⁸ at the rate of 52 cents per day. Of the fund remaining after payment to the United States , the judgment awarded to the wage claimants the respective percentages set forth in the findings of fact. ⁹

Defendants Division of Labor Law Enforcement, Union Welfare Fund and Temkin appeal from the judgment contending that the payment of claims, as provided in Business & Professions Code section 24074, ¹⁰ is a condition upon the transfer of a liquor license which is solely a creature of state law, and that under the system which the state has created, until labor claims were satisfied, no property passed to Mating Game, Inc., to which the tax lien could attach.

Appellants contend that section 24074 was enacted pursuant to the power, granted to the states by the Twenty-first Amendment to the Constitution of the United States , to regulate and control the use, distribution and consumption of alcoholic beverages within state borders. (See Department of Revenue v. Beam Distilling Co., 377 U. S. 341, 346, 12 L. Ed. 2d 362, 366 [1964].) Therefore, they contend, §24074 is not invalid under the Supremacy Clause.

This argument is based on the assumption that the Twenty-first Amendment supersedes the federal constitutional taxing power to the extent that such power conflicts with a state's regulation of every phase of the liquor trade within its borders. Such assumption is false. The effect of the Twenty-first Amendment is to free a state of traditional Commerce Clause limitations when the state restricts the importation of intoxicants destined for use, distribution or consumption within its borders. (Hostetter v. Idlewild Liquor Corp., 377 U. S. 324, 330, 12 L. Ed. 2d 350, 355 [1964].) The Twenty-first Amendment does not supersede all other provisions of the Constitution in its allotted area of liquor regulation. (California v. La Rue, 409 U. S. 109, 115, 34 L. Ed. 2d 342, 350 [1972].) Both the Twenty-first Amendment and the power to collect taxes (art. I, §8) are parts of the United States Constitution. "Like other provisions of the Constitution, each must be considered in the light of the other, and in the context of the issues and interests at stake in any concrete case." (Hostetter v. Idlewild Liquor Corp., supra, 377 U. S. at p. 332, 12 L. Ed. 2d at p. 356.)

But the inapplicability of the Twenty-first Amendment does not determine the issue before us in the present case. That issue is simple: does section 24074 of the Business and Professions Code merely establish a priority of claims against the seller of a liquor license--in which case the federal tax lien takes priority, ¹¹ or does it set out conditions for the transfer of the license which must be satisfied before a transfer of the license may take place and the seller becomes entitled to any portion of the purchase price--in which case the federal lien must be subordinate to the priorities set forth in section 24074? ¹²

In determining that question, three cases are significant. In Golden v. State of California, 133 Cal. App. 2d 640 (1955), the court construed section 24074, as that section then stood, as doing no more than to set out a scheme for satisfying creditors of the seller in cases where the purchase price was not sufficient to meet all of them in full. It concluded that the pro rata scheme then incorporated in section 24074 must yield to the priority of the federal tax claim. But the authority of that case was seriously weakened by the decision of the Court of Appeals for the Ninth Circuit in United States v. State of California [60-2 USTC ¶9604], 281 F. 2d 726 (9th Cir. 1960), where the court said (at p. 728): "Here the license existed because the state had issued it. If the licensee acquired something of value, it was because the state had bestowed it upon him. Whatever value the license, as property, may have had to a purchaser depended upon its transferability. If it was transferable, it was because the state had made it so. If the state had seen fit to impose conditions upon issuance or upon transfer of property it has wholly created, that is the state's prerogative so long as its demands are not arbitrary or discriminatory. The federal government has no power to command the state in this area. It has no power to direct that property be created by the state for purposes of federal seizure.

The United States contends that the state has no right to impose such a condition against the claims of the United States ; that a state's control over the issuance of liquor licenses is derived from its police power; that the conditions here imposed by the state relate to revenue and not to police control.

Assuming, arguendo, that conditional demands of a state, unrelated to the privilege sought to be transferred, would be regarded as arbitrary, we cannot say that such is the case here. If (as here) the conditions be lawful in the sense that they are proper and reasonable demands to make of an applicant, they constitute a limitation upon the right of the applicant and upon the property which that right constitutes and upon the values which attach to that property. Those values and no greater values became a part of the bankrupt estate and fell within the reach of the United States ." We regard Golden as no longer controlling in construing the present section 24074 as quoted above in footnote 10.

In Gough v. Finale, 39 Cal. App. 3d 777 (1974) the Court of Appeals for the First Appellate District considered the present statute in the light of United States v. State of California, supra, 281 F. 2d. It concluded that that case, dealing as it did with a priority granted (under §24049 of the Bus. & Prof. Code) to the state itself for debts owing to the state was distinguishable from the priorities granted by section 24074 to creditors other than the entity that created the license. The pertinent language in Gough is the following terse statement (p. 784): "There is nothing in California law which suggests that the priority provisions of section 24074 subsume any significant right or concern of the State of California or the public, beyond the protection of suppliers or service creditors of licensee."

Comity and good judicial admin istration impel us to follow the holding in Gough. However, were we free to decide the question before us without that decision, we would hold that the federal lien in this case must yield to the wage creditors. ¹³ California long has regarded wage creditors as having a special place in the settlement of insolvent estates. Unlike creditors in general, employees stand in a peculiar position vis-a-vis their employers. If their legitimate wage claims are not met, an immediate burden is cast on the state's welfare rolls and disruption of the economic life of the community is direct and may be serious. We see in section 24074, at least as to the first priority therein established, a "significant right [and] concern of the State of California ," sufficient to sustain the application of the section in a case such as this.

The judgment is affirmed.

¹ Originally, the United States cross-appealed from the judgment (Cal. Rules of Court, Rule 3, subd. (c)) insofar as it denied the claim of the United States for penalties imposed with respect to delinquent taxes. Pursuant to motion of the United States , the cross-appeal was dismissed by order of this court.

² By order of the trial court, made pursuant to stipulation of plaintiff and the United States , the United States was substituted as a party defendant in place of the originally named defendant, United States Department of the Treasury-Internal Revenue Service.

The Los Angeles County superior court had jurisdiction of the United States under 28 U. S. C. §2410, which provides in part: "(a) . . . the United States may be named as a party in any civil action or suit . . . in any State court having jurisdiction of the subject matter . . . (5) of 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 other lien."

³ Mating Game, Inc., a California corporation, was named as a defendant. Its default in the interpleader action subsequently was entered by the clerk of the court.

⁴ The amount of the tax assessed against Mating Game, Inc., on September 24, 1971 , was $2,889.77. To this was added the sum of $281.11 for penalties and interest, for a total assessment of $3,170.88. The notice of levy served on plaintiff June 13, 1972 , showed the total tax liability of Mating Game, Inc., to be $3,329.89. This sum was comprised of $3,170.88 (unpaid balance of assessment) plus $159.01 (interest to June 30, 1972 , penalty and lien fee). Additional interest accrued after June 30, 1972 , at the rate of 52 cents per day.

⁵ Findings of fact ordinarily have no place in summary judgment procedure which is concerned with "issue finding," not "issue determination." (Code Civ. Proc. §437c; de Echeguren v. de Echeguren, 210 Cal. App. 2d 141, 148 [1962].) Consequently, a court is without power to make findings of fact in summary judgment proceeding. (Perry v. Farley Bros. Moving & Storage, Inc., 6 Cal. App. 3d 884, 889 [1970]; Meyer Koulish Co. v. Cannon, 213 Cal. App. 2d 419, 432 [1963]; Family Service Agency of Santa Barbara v. Ames, 166 Cal. App. 2d 344, 346 [1958]; Weichman v. Vetri, 100 Cal. App. 2d 177, 180 [1950].)

In the instant case, the interpleaded defendants filed a stipulation of facts before the motion of the United States for summary judgment was heard. Defendants thereby agreed (at least impliedly) that the action should be tried on the basis of the facts stipulated. (See 4 Witkin, Cal. Procedure, 2d ed., p. 2704, "Proceedings Without Trial," §38.) We therefore view the action as having been so tried, rather than having been determined by summary judgment proceeding.

When a cause is submitted to the trial court on an agreed statement of facts without any other evidence, findings of fact are unnecessary because the only question before the court is the law applicable to the stipulated or agreed facts; thus, on appeal any findings of fact may be disregarded. (Crawford v. Imperial Irrigation Dist., 200 Cal. 318, 335 [1927]; McMenomy v. White, 115 Cal. 339, 343 [1896]; Gregory v. Gregory, 102 Cal. 50, 51-52 [1894].) However, where the stipulation sets forth only evidentiary material, it is proper for the trial court to make findings of the ultimate facts. (Taylor v. George, 34 Cal. 2d 552, 556 [1949]; Hugo Neu Corp. v. County of Los Angeles, 241 Cal. App. 2d 703, 706 [1966]; City of Los Angeles v. Gage, 127 Cal. App. 2d 442, 450 [1954].) Since the stipulation of facts here set forth some evidentiary matters, the trial court properly made findings as to ultimate facts. At any rate, none of the parties to this appeal disputes the facts as found, arguing only issues of law.

⁶ The judgment was signed August 24, 1973 , and entered September 4, 1973 .

⁷ Title 26 U. S. C. §6322: Glass City Bank v. United States [45-2 USTC ¶9449], 326 U. S. 265, 267, 90 L. Ed. 56, 58-59 (1945).

⁸ Judgment was signed August 24, 1973 , although it was not entered until September 4, 1973 . The relevance of August 1, 1973 (as the date after which interest continued to accrue) arises because of the date the judgment was signed.

⁹ Pursuant to written stipulation of the interpleaded defendants, the trial court ordered that the clerk enforce the judgment by paying the following sums to defendants: to the United States, $3,567.86; to the Division of Labor Law Enforcement, $717.17; to the Union Welfare Fund, $834.09; to Temkin, Orling and Rooney, $2,579.92.

¹⁰ Bus. & Prof. Code §24074 provides in part: "Before the filing of such a transfer application with the department [of Alcoholic Beverage Control], if the intended transfer of the business or license involves a purchase price or consideration, the licensee and the intended transferee shall establish an escrow with some person, corporation, or association not a party to the transfer acting as escrow holder, and the intended transferee shall deposit with the escrow holder the full amount of the purchase price or consideration. . . . The licensee and intended transferee shall also enter into an agreement, which agreement shall be deposited with the escrow holder, directing the escrow holder, after the requirements for transfer as provided in Section 24049 are satisfied, to pay out of the purchase price or consideration, the claims of the bona fide creditors of the licensee who file their claims with the escrow holder before the escrow holder is notified by the department of its approval of the transfer of the license or if the purchase price or consideration is not sufficient to pay the claims in full, to distribute the consideration as follows:

First, to the payment of claims for wages, salaries, or fringe benefits of employees of the seller or transferor earned or accruing prior to the sale, transfer, or opening of an escrow for the sale thereof;

Second, to the payment of claims of secured creditors to the extent of the proceeds which arise from the sale of the security;

Third, to the United States for claims based on income or withholding taxes; and thereafter for claims based on any tax other than taxes specified in Section 24049; . . ."

¹¹ The relative priority of a lien of the United States for unpaid taxes, and a state-created lien, is a federal question to be determined by federal law. (Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 513-514, 4 L. Ed. 2d 1365, 1369 [1960]; United States v. Acri [55-1 USTC ¶9138], 348 U. S. 211, 213, 99 L. Ed. 264, 267 [1955]; United States v. Security Trust & Sav. Bank [50-2 USTC ¶9492], 340 U. S. 47, 49, 95 L. Ed. 53, 56 [1950]; United States v. Trigg [72-2 USTC ¶9642], 465 F. 2d 1264, 1269 [8th Cir. 1972], cert. den. 410 U. S. 909, 35 L. Ed. 2d 270 [1973]; United States v. Christensen [59-2 USTC ¶9621], 269 F. 2d 624, 627 [9th Cir. 1959]; United States v. City of Los Angeles [72-1 USTC ¶9199], 336 F. Supp. 1014, 1016 [C. D. Cal. 1972]; Latipac, Inc. v. General Tire & Rubber Co. [72-2 USTC ¶9499], 347 F. Supp. 1043, 1046 [N. D. Cal. 1971].) Under federal law, the priority of a federal tax lien against a lien created by state law is governed by the common law rule that "the first in time is the first in right." (United States v. Pioneer American Ins. Co. [63-2 USTC ¶9532], 374 U. S. 84, 87, 10 L. Ed. 2d 770, 774 [1963]; United States v. City of New Britain [54-1 USTC ¶9191], 347 U. S. 81, 85-86, 98 L. Ed. 520, 525-526 [1954].) That is, the lien which is first in time will be deemed first in right if it is specific and perfected in the federal sense. (United States v. Morrison [57-2 USTC ¶9801], 247 F. 2d 285, 287 [5th Cir. 1957]; United States v. Truss Tite, Inc. [68-1 USTC ¶9296], 285 F. Supp. 88, 91 [S. D. Tex. 1968].)

When a federal lien arises upon assessment, it is fully perfected, without filing, as against all but those classes of persons enumerated in 26 U. S. C. §6323.

The statutes establishing a tax lien were enacted by Congress pursuant to its constitutional power "to lay and collect taxes" (U. S. Const., art. I, §8; Michigan v. United States, 317 U. S. 338, 340, 87 L. Ed. 312, 314 [1943]); they are, therefore, the supreme law of the land. ( U. S. Const., art. VI, cl. 2; Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225, 229, 11 L. Ed. 2d 661, 665 [1964].) Any state law, however clearly within a state's acknowledged power, which interferes with or is contrary to such federal statutes, must yield. (See Kewanee Oil Co. v. Bicron Corp., 416 U. S. 470, 479-480, 40 L. Ed. 2d 315, 324 [1974]; Sperry v. Florida, 373 U. S. 379, 384, 10 L. Ed. 2d 428, 432 [1963]; Free v. Bland, 369 U. S. 663, 666, 8 L. Ed. 2d 180, 183 [1962]; Burnet v. Harmel [3 USTC ¶990], U. S. 103, 110, 77 L. Ed. 199, 205 [1932]; Metropolitan Life Ins. Co. v. United States [39-2 USTC ¶9771], 107 F. 2d 311, 313 [6th Cir. 1939], cert. den. 310 U. S. 630, 84 L. Ed. 1400 [1940].) "[I]t would be contrary to the federal policy of uniformity in the federal tax laws to permit the relative priority of federal tax liens to 'be determined by the diverse rules of the various States.'" ( United States v. Equitable Life Assur. Soc. [66-1 USTC ¶9444], 384 U. S. 323, 331, 16 L. Ed. 2d 593, 599 [1966]. See also United States v. Christensen, supra, 269 F. 2d at p. 624.)

¹² State law determines whether a person has property or rights to property to which a federal tax lien can attach. (Aquilino v. United States, supra, 363 U. S. at pp. 512-513, 4 L. Ed. 2d at p. 1368; United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, 55, 2 L. Ed. 2d 1135, 1140-1141 [1958]; Avco Delta Corp. Canada, Ltd. v. United States [73-2 USTC ¶9636], 484 F. 2d 692, 697 [7th Cir. 1973], cert. den. 415 U. S. 931, 39 L. Ed. 2d 490 [1974].)

¹³ On the record before us, we need not, and do not, consider the applicability of section 24074 in cases involving a conflict between a federal tax lien and the other priorities set out in section 24074.

 

 

[74-2 USTC ¶9778]CBR Development Company, Inc., Plaintiff v. R & S Enterprises, Inc., et al., Defendants

State of Calif., Sacramento Municipal Court, Dist. County of Sacramento, No. 87993, 9/10/74

[Code Sec. 6323]

Liens for taxes: Priority: Unrecorded claims.--Government liens were ruled superior over claims by employees against defendant R & S Enterprises for wages. These claims, which the employees had assigned to defendant California Division of Labor Law Enforcement, had not been reduced to judgment, nor had liens been filed, nor had other actions provided by State law been utilized.

Dwayne Keyes, United States Attorney, Richard W. Nichols, Assistant United States Attorney, Sacramento, Calif., for U. S., Gerald Friedman, for Calif. Div. of Labor Law Enforcement, for defendants.

Judgment

MARVIN, Jr., Municipal Judge:

The above entitled cause came on regularly for trial on September 4, 1974 in Department P of the above entitled Court, the Honorable Lawrence W. Marvin, Jr., judge presiding. Defendant United States of America appeared by and through its counsel, Richard W. Nichols, Assistant United States Attorney. Defendant California Division of Labor Law Enforcement appeared by and through its attorney, Gerald Friedman, Esq. The matter having been presented to the Court, and the Court being fully apprised in the premises, and good cause appearing therefor.

The Court now finds that this is an interpleader action wherein plaintiff has deposited with the Clerk of this Court the sum of $2,524.38, which said sum represents funds due and owing from plaintiff to defendant R & S Enterprises, Inc., and that the defaults of all non-appearing defendants have been entered, and interlocutory default judgments entered against them, as set forth in the Interlocutory Judgment entered herein on September 4, 1974, a copy of which is attached hereto as Exhibit "A" and incorporated herein by reference as though fully set forth;

And the Court further finds that defendant United States of America, through its Internal Revenue Service, on December 17, 1971, made an assessment against defendant R & S Enterprises, Inc., 1437 5th Street, Alameda, California, for unpaid federal withholding and social security taxes for the third quarter of 1971, and that the present balance and accruals due on said assessment is $44,931.73, and that notices of said tax liens were filed for record in the Official Records of Alameda County, California, on March 21, 1972, and in the Official Records of the Secretary of State of the State of California on April 7, 1972;

And the Court further finds that defendant United States of America, through its Internal Revenue Service, on March 30, 1972, made an assessment against defendant R & S Enterprises, Inc., 1437 5th Street, Alameda, California, for unpaid federal withholding and social security taxes for the fourth quarter of 1971, and that the present balance and accruals due on said assessment is $122,146.82, and that notices of said tax liens were filed for record in the Official Records of Alameda County, California, on April 19, 1972, and in the Official Records of the Secretary of State of the State of California on April 20, 1972;

And the Court further finds that defendant United States of America, through its Internal Revenue Service, on May 9, 1972, made an assessment against defendant R & S Enterprises, Inc., 1437 5th Street, Alameda, California, for unpaid federal withholding and social security taxes for the first quarter of 1972, and that the present balance and accruals due on said assessment is $32,430.84, and that notices of said tax liens were filed for record in the Official Records of Alameda County, California on August 1, 1972, and in the Official Records of the Secretary of State of the State of California on August 2, 1972;

And the Court further finds that defendant United States of America, through its Internal Revenue Service, on April 9, 1972, made an assessment against defendant R & S Enterprises, Inc., 1437 5th Street, Alameda, California, for unpaid federal unemployment taxes for 1971, and that the present balance and accruals due on said assessment is $141.67;

And the Court further finds that, on March 21, 1972, April 19, 1972, and August 1, 1972, defendant R & S Enterprises, Inc., was a corporation with its principal executive office in the County of Alameda, State of California;

And the Court further finds that defendant United States of America, through its Internal Revenue Service, on June 20, 1972 caused a Notice of Levy relating to its assessments of December 17, 1971, March 30, 1972, and May 9, 1972 to be served upon plaintiff's president, who was authorized to accept service of said Notice of Levy;

And the Court further finds that George Seymour, Wilfred Moore and Philip Pratt, assignors of defendant California Division of Labor Law Enforcement, were employees of defendant R & S Enterprises, Inc., and that defendant R & S Enterprises, Inc. is indebted to said assignors in the sums of $1,243, $1,104 and $410, respectively, and that each of said assignors have made assignments of their said wage claims to defendant California Division of Labor Law Enforcement;

And the Court further finds that none of the claims of said assignors have been reduced to judgment, and that no liens relating to said wage claims have been filed, and that neither the California Division of Labor Law Enforcement nor the individual assignors served any stop-notices or preliminary notices pursuant to §3097 of the California Civil Code.

NOW THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that defendant United States of America 's claim to the interpleaded funds herein is prior to the claim of defendant California Division of Labor Law Enforcement;

AND IT IS FURTHER ORDERED, ADJUDGED AND DECREED that defendant United States of America have and take judgment against the interpleaded funds herein, and recover the full amount of said funds;

AND IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Clerk of this Court pay over to defendant United States of America, without further order of this Court, all of the interpleaded funds herein, to wit, the sum of $2,524.38, plus any accruals thereto;

AND IT IS FURTHER ORDERED, ADJUDGED AND DECREED that all other parties to this action take nothing, save and except as specifically set forth in Exhibit "A" to this Judgment.

 

 

[73-1 USTC ¶9438]John Kirkpatrick, Plaintiff v. E. Richard Schelin et al., Defendants

Calif. Superior Court, County of Amador , No. 8146, 2/16/73

[Code Sec. 6323]

Lien for taxes: Priority: Federal v. State claims: Residence of taxpayer: California.--A Federal tax lien was superior to a State claim where the Federal Government filed notice of its lien first in the county of the taxpayer's residence.

Richard A. Rob yn, 7 N. Main St., San Andreas , Calif. , for plaintiff. Richard W. Nichols, Assistant United States Attorney, Sacramento , Calif. , for defendants.

Memorandum Opinion

MCGEE, District Judge:

This case involves a dispute between the United States and the State of California , both of whom seek to secure money presently held by John Kirkpatrick, the County Clerk and Auditor of Amador County.

Kirkpatrick, who is the plaintiff in the action, has interpleaded the United States and the State of California . He holds $2,502.40 which belongs to E. Richard Schelin.

The Government of the United States claims this money for unpaid Federal taxes due from Schelin and relies upon its notice of Federal Tax lien filed in the office of the County Recorder of Tuolumne County , California on March 30, 1971 .

The State of California claims the money under a judgment against Schelin following which on January 21, 1972 it filed its notice of garnishment and writ of execution with the plaintiff.

The United States contends it should be preferred because its notice of lien was filed first and in the proper county.

The State of California argues that the language contained in Title 26, United States Code Section 6323(f) should be construed as applying to personal property in its more restricted sense, namely goods and chattels only, and should not apply to personal property such as money in the possession of the plaintiff herein.

I do not believe this argument is valid. In any event, Section 7200 of the Government Code of California as added in 1967 explicitly directs that notices of liens upon personal property, whether tangible or intangible, for taxes payable to the United States shall be filed for record in the office of the Recorder of the County where the taxpayer resides at the time of filing the notice of lien.

Since this is so, the only question before this court is whether Schelin resided in Tuolumne County on March 30, 1971 . In my opinion, the evidence received at the trial is sufficient to support a finding that the legal residence of Schelin on that date was Twain Harte. Under this view, the United States should prevail in this action.

The plaintiff should recover his actual costs of suit and, in addition, $150.00 as attorneys fee.

Counsel for the United States shall prepare, serve and submit a proposed judgment in accordance with the views expressed herein.

 

 

[58-2 USTC ¶9908]Frank Aramvica, et al., Libelants v. M. V. Marquesa, etc., Pacific Islands Navigation Company, a Corporation, Respondents. United States of America , County of Los Angeles , and City of Long Beach , Libelants in Intervention

U. S. District Court, So. Dist. Calif., Central Div., No. 983-57 TC, 7/18/58

[1954 Code Sec. 6323]

Lien for taxes: Validity as against county and city tax assessment.--Any liens which either the County of Los Angeles or the City of Long Beach might have acquired by their seizure of the vessel M. V. Marquesa on account of delinquent unsecured property taxes and their placing of keepers on board the vessel were relinquished when the keepers left the vessel by Court Orders. The government's lien for taxes has priority over the city and county claims for taxes.

Walfred Jacobson, City Attorney, Leonard Putnam, deputy City Attorney, for City of Long Beach . Harold W. Kennedy, County Counsel, John D. Cahill, Deputy County Counsel, for County of Los Angeles. Laughlin E. Waters, United States Attorney, Edward R. McHale, Assistant United States Attorney, Chief, Tax Division, for United States.

Commissioner's Supplemental Report on Relative Priorities of the City of Long Beach , County of Los Angeles and United States of America .

CLARKE, District Judge:

The above cause came on for hearing before Barbara Warner, Special Commissioner, on the twentieth day of March, 1958, pursuant to orders of reference dated December 3, 1957 and March 4, 1958, and the Court having on March 4, 1958, issued its order discharging all parties to the proceeding other than the City of Long Beach, County of Los Angeles and United States of America, and said parties having been represented at the hearing by their counsel of record, Wahlfred Jacobson, City Attorney and Leonard Putnam, Deputy City Attorney of the City of Long Beach, Harold W. Kennedy, County Counsel and John D. Cahill, Deputy County Counsel of the County of Los Angeles, and Laughlin E. Waters, United States Attorney and Edward R. McHale, Assistant United States Attorney, Chief, Tax Division for the United States, and evidence having been received, and oral argument having been presented, and the Commissioner having duly considered the same, with respect to the sum of $5,481.84, remaining in the Registry of the Court, the commissioner now makes the following recommendation:

It is recommended that the following findings of fact be made:

I

The county of Los Angeles is a body politic and corporation and a political subdivision of the State of California; the City of Long Beach is a municipal corporation, a body politic and corporate, duly organized under the laws of the State of California; and the United States of America is a corporate porate sovereign and body politic.

II

The intervention of the United States of America in this action has been authorized by a delegate of the Secretary of the Treasury, directed by the Attorney General of the United States and allowed by this Court.

III

Immediately prior to the institution of this litigation, the M. V. Marquesa was a vessel documented under the laws of Panama , moored and located at Long Beach , California , having a home port in the City of Long Beach , County of Los Angeles , State of California . At all times herein mentioned the said vessel was owned by the Pacific Islands Navigation Company, a corporation organized and existing under the laws of Panama , having a principal place of business in the City of Long Beach , State of California .

IV

The sole remaining question before the Court is the distribution of the sum of $5,481.84, remaining in the registry of the Court among the three governmental claimants, after previous payment of the other portion of the sum of $25,100.00 to the payment of costs, fees and claims of Maritime lienors in accordance with the Court's order of March 4, 1958 . Of said sum of $5,481.84, it has been stipulated and ordered that $285.20 represents a maritime claim of the City of Long Beach for wharfage and is first to be paid to said libelant in intervention.

V

On June 7, 1957 , the authorized delegate of the Secretary of the Treasury of the United States assessed against the Pacific Islands Navigation Company withholding and Federal Insurance Contribution Act taxes for the first quarter of 1957 in the amount of $2,387.95. Notice of and demand for payment of said assessment was made on the said Pacific Islands Navigation Company on June 14, 1957 , but no payment was made and no part of this assessment has been paid. The United States of America acquired a lien on all property owned by the Pacific Islands Navigation Company on June 7, 1957, by virtue of the said assessment. Notice of the Federal tax lien covering said assessment was filed in the Office of the County Recorder , County of Los Angeles , California , July 24, 1957 , as No. 2367.

VI

On August 30, 1957 , the authorized delegate of the Secretary of the Treasury of the United States assessed against the Pacific Islands Navigation Company withholding and Federal Insurance Contributions Act taxes for the second quarter of 1957, in the amount of $220.87, plus penalty of $11.09, making a total assessment of $231.96. Notice of said assessment and demand for payment was made on the taxpayer on September 6, 1957 , but no payment was made and no part thereof has been paid. The United States of America had, commencing August 30, 1957, a lien on all property owned by the Pacific Islands Navigation Company on account of this assessment. The notice of the Federal tax was filed in the office of the County Recorder of Los Angeles County , California , on October 24, 1957 , as No. 2564.

VII

On April 18, 1957 , the City Assessor of Long Beach, acting through a deputy assessor, prepared an unsecured property list for the tax year 1957-58, which showed the M. V. Marquesa to have a value of $40,000.00 and a net taxable value of $540.00. The assessment roll was prepared on or before the first Monday in July 1957, showing the foregoing assessment.

VIII

The unsecured tax rolls of the County of Los Angeles for the year 1957-58 included an assessment of the Pacific Islands Navigation Company in the amount of $2,173.00 on account of its ownership of the M. V. Marquesa.

IX

The said tax assessments of the City of Long Beach and the County of Los Angeles did not give rise to any lien upon the vessel.

X

On June 12, 1957 , the County of Los Angeles and the City of Long Beach jointly seized the vessel M. V. Marquesa on account of the unsecured property taxes above described and placed a keeper on board. On August 26, 1957 , pursuant to the Order of the Court in these proceedings, the keeper placed on the vessel by the County of Los Angeles was removed therefrom. The City of Long Beach thereupon put a keeper aboard who remained until October 15, 1957 when an entry of an order of default was made herein by the Court on the libel of Aramvica.

XI

The unsecured property tax rolls of the County and of the City for the fiscal year 1957-58 were not equalized and, therefore, the assessments were not finally fixed and choate in amount before the third Monday in July, 1957.