Florida

---

 

Rob ert Stokey and Rob ert Stokey II, Plaintiffs v. China Sea Restaurant, Inc., et al., Defendants.

U.S. District Court, So. Dist. Fla. , Miami Div.; 01-10089-CIV-KING, November 14, 2002 .

[ Code Secs. 6321 and 6323]

Tax liens: Perfection of liens: Validity and priority against third parties: Liquor license: Wrongful levy. --

Federal tax liens against the assets of a restaurant corporation that failed to pay employment taxes, which were properly filed with the office of the secretary of state ( Florida ), had priority over third parties' interest in the entity's alcohol beverage license. The third parties, who held an interest in the license as collateral for various loans, reacquired ownership of the collateral in lieu of foreclosure after the tax liens were filed and perfected. Thus, the liens remained on the property in the hands of the third parties, and the government held a superior interest in the license.

ORDER GRANTING THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT

KING, District Judge: THIS CAUSE comes before the Court upon the United States ' Motion for Summary Judgment filed on September 12, 2002 . Plaintiffs have not filed a Response, and the time to do so has passed.

I. BACKGROUND

On August 28, 1997 , Steven R. Moshy ("Moshy") and Debra S. Burrows ("Burrows") executed a Balloon Promissory Note, Lease Agreement, Memorandum of Lease, Security Agreement or Chattel Mortgage, a Pledge Agreement, and an Indemnity Agreement in favor of the Plaintiffs related to the sale of China Sea Restaurant, Inc. (" China Sea "). These documents pledged collateral, including Alcoholic Beverage License 54-00098 5COP ("the license"), issued by the Florida Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco ("DABT"). On September 26, 1997 , the Stokeys recorded their interest in the license with the DABT.

Beginning in 1999, China Sea failed to pay its Federal employment taxes. On October 26, 2000 , a Notice of Federal Tax Lien ("NFTL") was filed with the Florida Secretary of State for the 1999 liabilities in the amount of $47,742.22. NFTLs covering the 2000 liabilities were filed on March 9, 2001 , and March 30, 2001 , in the amounts of $30,106.36 and $26,386.97 respectively.

On February 16, 2001 , the Stokeys reacquired ownership of the collateral, in lieu of foreclosure, from Moshy, Burrows, and China Sea, which granted the Stokeys title to the personal property of China Sea , including the interest in the license. On March 22, 2001 , the IRS issued a levy for China Sea 's 1999 liabilities. A Notice of Levy was served upon the Stokeys on that date. On March 26, 2001 , the IRS seized the license. On September 18, 2001 , the IRS released the levy, and issued another levy on that same date for approximately $122,000.00, which included China Sea 's 1999 and 2000 liabilities. On September 19, 2001 , the IRS re-seized the license.

II. STANDARD OF REVIEW

Summary judgment is appropriate only where it is shown that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the record as a whole could not lead a rational fact-finder to find for the non-moving party, there is no genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). On a motion for summary judgment, the court must view the evidence and resolve all inferences in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). There is no requirement that the trial judge make findings of fact. Id. , at 251.

The moving party bears the burden of pointing to that part of the record which shows the absence of a genuine issue of material fact. If the movant meets its burden, the burden then shifts to the non-moving party to establish that a genuine dispute of material fact exists. See Hairston v. Gainesville Sun Pub. Co. , 9 F.3d 913, 918 (11th Cir. 1993). To meet this burden, the non-moving party must go beyond the pleadings and "come forward with significant, probative evidence demonstrating the existence of a triable issue of fact." Chanel, Inc. v. Italian Activewear of Florida, Inc., 931 F.2d 1472, 1477 (11th Cir. 1991). If the evidence relied on is such that a reasonable jury could return a verdict in favor of the non-moving party, then the court should refuse to grant summary judgment. Hairston, 9 F.3d at 919. However, a mere scintilla of evidence in support of the non-moving party's position is insufficient to defeat a motion for summary judgment. Anderson, 477 U.S. at 252. If the evidence is merely colorable or is not significantly probative, summary judgment is proper. See id. at 249-50.

III. ANALYSIS

In a wrongful levy suit, the initial burden is upon the plaintiff to show that he holds title or some other ownership interest in the property at issue. Morris v. United States [ 87-1 USTC ¶9241], 813 F.2d 343, 345 (11th Cir. 1987). The burden then shifts to the United States to establish a nexus between the taxpayer and the property by substantial evidence. Id. However, the plaintiff retains the final obligation of persuading the Court that the levy should be overturned. Id.

Pursuant to 26 U.S.C. §6321, if a person fails to pay their tax liabilities after demand, a lien arises in favor of the United States on all property and rights to property of that person. The lien imposed by §6321 arises on the date of assessment. 26 U.S.C. §6322. This statutory lien is not valid against certain parties, as provided in §6323(a), until notice of the tax lien has been filed pursuant to §6323(f). ¹

Plaintiffs argue that the United States was required to file its notice of federal tax lien with the DABT pursuant to Fla. Stat. §561.65. However, §561.65 is not applicable. Instead, §703.901 governs the filing of the notice of federal tax lien, and it stipulates, in pertinent part, that:

(c) Notices of federal liens upon personal property, whether tangible or intangible, for obligations payable to the United States , and certificates and notices affecting the liens, shall be filed as follows:

 

1. If the person against whose interest the lien applies is a corporation or a partnership whose principle executive offices is in this state ... in the office of the Secretary of State.

Therefore, because the United States filed three Notices of Federal Tax Lien on October 26, 2000 , March 9, 2001 , and March 30, 2001 , with the Secretary of State, the federal tax liens were perfected on those dates. The filing with the Secretary of State on October 26, 2000 , preceded any transfer of ownership of the liquor license to the Stokeys, and the liquor license was clearly encumbered by the first NFTL at the time of the transfer. The transfer of property subsequent to the attachment of a federal tax lien does not affect the lien, which remains on property in the hands of the transferee. United States v. Bess [ 58-2 USTC ¶9595], 357 U.S. 51, 57 (1958). Therefore, the United States ' interest in the liquor license is superior to the interest of the Stokeys.

IV. CONCLUSION

Accordingly, after a careful review of the record, and the Court being otherwise fully advised, it is

ORDERED and ADJUDGED that the United States ' Motion for Summary Judgment be, and the same is hereby, GRANTED.

DONE and ORDERED.

ORDER OF FINAL JUDGMENT

Pursuant to Fed.R.Civ.P. 58 and the Court's Order Granting the United States' Motion for Summary Judgment, it is

ORDERED and ADJUDGED that judgment is entered in favor of the United States and against Plaintiffs Rob ert Stokey and Rob ert Stokey II. The case, namely the entire Complaint, is dismissed with prejudice. This case is CLOSED. The Court retains jurisdiction of the above-styled action to determine fees, costs, and expenses incurred by the United States in defending this action. It is further

ORDERED and ADJUDGED that any pending motions are DENIED as moot.

DONE and ORDERED.

¹ Section 6323(f) provides that the notice shall be filed "[i]n the case of personal property, whether tangible or intangible, in one office within the State ... as designated by the laws of such State, in which the property subject to the lien is situated...." 26 U.S.C. §6323(f)(1)(A)(ii).

 

[99-2 USTC ¶50,827] Waste Management of Missouri, Inc., Interpleader Plaintiff v. Donna S. Evert, Defendant-Appellant , United States of America , Defendant-Appellee, William D. Nichols, Intervenor-Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 98-3395, 8/27/99, 188 F3d 1002, Affirming two District Court decisions, 97-2 USTC ¶50,985 and 98-2 USTC ¶50,569

[Code Sec. 6323 ]

Tax liens: State law: Priority of liens: Perfection of liens: Judgment creditors.--A notice of federal tax lien was properly filed with the "official records" of the applicable county's Commissioners, despite the fact that state (Florida) law specified that the notice was to be filed with the circuit court clerk. Thus, the lien had priority over subsequently perfected liens of judgment creditors with respect to interpleaded funds owed to the taxpayer by a third party. The judgment creditor's contentions that the government filed its lien notice in the wrong office and that the lien was not valid against them under Florida 's Federal Lien Registration Act were rejected. The county in which the notice was filed had exercised its right under the state constitution to designate different offices for the filing of public documents, such as lien notices.

Before: LOKEN and ARNOLD, Circuit Judges, and WATERS, ^* District Judge.

LOKEN, Circuit Judge:

Waste Management of Missouri, Inc. ("Waste Management"), was contractually indebted to taxpayer E. Scott Evert ("Taxpayer"), a resident of Broward County , Florida . On April 20, 1995 , the United States filed a notice of federal tax lien against all of Taxpayer's property in the "official records book" of the Broward County Commissioners. Taxpayer's judgment creditors Donna S. Evert and William D. Nichols perfected their judgment liens against monies owed by Waste Management on May 13, 1997 . Generally, when a federal tax lien is in the competition, the first lien in time has priority, and state law governs what constitutes a perfected lien. See United States v. Dishman Indep. Oil, Inc., 46 F.3d 523, 526 (6th Cir. 1995). In these two lawsuits, the judgment creditors seek to capture Waste Management contract payments on the ground that the government's lien is unperfected because it was filed in the wrong Broward County office. The district courts ¹ granted summary judgment in favor of the United States, and the judgment creditors filed these consolidated appeals. We affirm.

The assessment of unpaid federal income taxes creates a lien in favor of the United States on all property "belonging to" the taxpayer. See 26 U.S.C. §6321; Thomson v. United States [95-2 USTC ¶50,549], 66 F.3d 160 (8th Cir. 1995). To be valid against a taxpayer's subsequent secured creditors, such as judgment creditors, the government must give formal notice of its tax lien in accordance with 26 U.S.C. §§6323(a) & (f). For personal property, like the right to Waste Management's contract payments, notice of the tax lien must be filed--

in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated. . . .

§6323(f)(1)(A)(ii). If State law does not designate one such office, the lien notice must be filed "[i]n the office of the clerk of the United States district court for the judicial district in which the property subject to the lien is situated." §6323(f)(1)(B). If the government files notice of its tax lien in the wrong office--which is primarily an issue of state law--then the judgment creditor has a superior claim to the personal property in question. See Gordon White Constr. Co., Inc. v. Southland Inv. Co. [75-2 USTC ¶9771], 521 F.2d 856, 857 (5th Cir. 1975).

The Florida Constitution states, "When not otherwise provided by county charter or special law approved by vote of the electors, the clerk of the circuit court shall be ex officio clerk of the board of county commissioners, auditor, recorder and custodian of all county funds." FLA. CONST. art. VIII, §1(d). Florida counties may enact a county charter providing for "local self-government not inconsistent with general law." FLA. CONST. art. VIII, §1(g) and (c). The voters of Broward County approved the Broward County Charter in November 1974. That Charter transferred responsibility for recording public documents to an agency of the Broward County Commissioners. Broward County Charter , art. IV, §4.02(C). Consistent with the Broward County Charter, the United States filed its lien notice with the "official records" of the Broward County Commissioners, rather than with the Broward County Circuit Court or the United States District Court for the Southern District of Florida.

The judgment creditors rely on the Florida Legislature's 1992 enactment of the Florida Uniform Federal Lien Registration Act ("the Act"). FLA. STAT. §713.901. The Act specifies that liens against an individual's personal property are to be filed "in the office of the clerk of the circuit court of the county where the person against whose interest the lien applies resides at the time of filing of the notice of lien." FLA. STAT. §713.901(3)(c)(4). The judgment creditors argue that either §713.901(3)(c) implicitly repealed the Broward County Charter provision and therefore lien notices must be filed with the clerk of the circuit court, or §713.901(3)(c) created two state offices in which tax lien notices may be filed, triggering the requirement in 26 U.S.C. §6323(f)(1)(B) that federal tax lien notices be filed with the clerk of the local federal court. Under either theory, the United States filed its lien notice in the wrong office and the lien is not valid against the judgment creditors. We disagree.

The judgment creditors' argument rests on the mistaken assumption that, in passing the Act, the Florida Legislature failed to consider the possibility that some counties--like Broward--had exercised their authority under the Florida Constitution to designate different offices for the filing of public documents such as lien notices. However, subsection (3)(b) of the Act explicitly states:

If by law the county recorder and custodian of the official records of a county is other than the clerk of the circuit court, a reference in this section to the clerk of the circuit court shall be deemed to be the county recorder so designated by law.

Although this provision is in a different subsection than §713.901(3)(c), on which the judgment creditors rely, its plain language states that it applies to all references "in this section." (Emphasis added.) Thus, the Act is consistent with the Broward County Charter, and the two read together provide for only one state office in Broward County for the filing of lien notices. By filing its lien notice in that office, the United States complied with 26 U.S.C. §6323(f), and its lien is valid against the judgment creditors under §6323(a).

The judgments of the district courts are affirmed.

^* The HONORABLE H. FRANKLIN WATERS, United States District Judge for the District of Arkansas, sitting by designation.

¹ The HONORABLE CATHERINE D. PERRY and the HONORABLE DONALD J. STOHR, United States District Judges for the Eastern District of Missouri.

 

 

[98-2 USTC ¶50,590] United States of America , Plaintiff v. Wilford A. Simpson, Janet L. Simpson, Cynda B. Simpson, William A. Simpson, Warren A. Simpson, Whitney A. Simpson and Wesley A. Simpson, Defendants

U.S. District Court, No. Dist. Fla., 3:97-cv-242/LAC, 6/24/98

[Code Secs. 6321 and 7402 ]

Liens and levies: Property subject to: Real property: Transfer of ownership: Tenancy by the entireties: Fraudulent transfer: Jurisdiction: District court: Mootness.--The IRS was not entitled to enforce a lien against an individual taxpayer with respect to real property that he held with his wife as a tenant by the entireties since, under state (Florida) law, a judgment lien could not attach to property held by the entireties. Moreover, the question of whether the husband made a fraudulent subsequent transfer of the property to his wife in fee simple was moot since the property would still have been a tenancy by the entireties if the transfer were fraudulent.

[Code Sec. 7402 ]

Jurisdiction: District court: Sanctions: Federal Rule of Civil Procedure 11: Frivolous litigation.--Married taxpayers were not entitled to Rule 11 sanctions against the government for its allegedly frivolous litigation position involving a lien on real property that the taxpayers held as tenants by the entireties. The government was required to file a responsive memorandum to the motion for summary judgment filed by the taxpayers.

Carol Koehler Ide, Department of Justice, Washington , D.C. 20530 , for plaintiff. Wilford Alex Simpson, Janet L.Simpson, General Delivery, Paxton , Fla. 32538 , pro se.

SUMMARY JUDGMENT

COLLIER, District Judge:

THIS CAUSE comes before the Court on the parties' motions for summary judgment (docs. 26, 31). Also pending is Defendants' motion for Rule 11 sanctions, (doc. 34), which Plaintiff opposes (doc. 40). The Court has taken both motions for summary judgment under advisement, (docs. 30, 37), and is now prepared to rule on all motions. For the reasons stated below, Defendants' motion for summary judgment is GRANTED. Plaintiff's motion for summary judgment and Defendants' motion for sanctions are both DENIED.

I. STATEMENT OF THE CASE

A. Background

Both Plaintiff and Defendants agree that the facts in the instant action are undisputed, and indeed both recite almost identical factual circumstances in the memoranda in support of their respective motions for summary judgment.

1. On December 29, 1983 Defendants Wilford and Janet Simpson, as husband and wife, acquired as tenants by the entireties a parcel of property located in Walton County , Florida . That property, totaling approximately 27.77 acres, also includes buildings and an airplane runway.

2. On October 12, 1984 , Defendant Wilford Simpson transferred his interest in the property to Janet Simpson by quitclaim deed.

3. On June 10, 1985 Plaintiff assessed it first tax liability against Defendant Wilford Simpson for the tax year 1981.

4. On October 30, 1987 Plaintiff filed a notice of federal tax lien as to Defendant Wilford Simpson's 1981 tax liability.

5. On December 17, 1987 Defendant Janet Simpson transferred her interest in the property by warranty deed to her children, Defendants Cynda, William, Warren, Whitney, and Wesley Simpson, but retained a life estate in the property.

6. On April 22, 1988 the children transferred their interest in the property by warranty deed to only children Cynda and William Simpson, but still reserved a life estate for Janet Simpson.

7. On June 24, 1988 the Defendants Cynda and William Simpson transferred their interest into the Earnest Mill Family Preservation Trust. Janet Simpson still retained a life estate in the property.

8. Twelve additional tax liabilities were assessed by Plaintiff against Defendant Wilford Simpson in the years 1991, 1994, and 1995 for the tax years 1984-1992. The respective tax liens were subsequently filed in 1992, 1994, and 1995. The total unpaid balance of tax liability alleged by Plaintiff is $1,284,537.10.

9. Civil penalties were also assessed against Defendant Wilford Simpson in 1992 and 1994 for tax years 1978-1981, totaling $2,696.66. Notice of liens were filed as to these assessments in 1994.

10. On April 29, 1992 and May 27, 1994 notices of federal tax lien were filed with the Clerk of the Circuit Court of Walton County against the Defendants Janet, Cynda, William, Warren, Whitney, and Wesley Simpson as nominees of Wilford A. Simpson.

11. Defendant Wilford Simpson has not paid either the balance of tax liability or the civil penalties assessed in 1985 and thereafter.

B. Procedural History

On May 19, 1997 Plaintiff filed this civil action seeking a monetary judgment against Defendant Wilford A. Simpson for the unpaid balances and foreclosure of its liens against the 27.77 acres of property and structures located in Walton County (doc. 1). Default judgment was entered against Defendant Wilford Simpson in the amount of $1,284,537.10 for unpaid federal income taxes and $2,696.66 for unpaid civil penalties as of February 28, 1996 plus further interest and statutory additions as allowed by law (doc. 36).

The remaining Defendants, ¹ however, timely filed a responsive pleading and moved for summary judgment against Plaintiff (docs. 26, 27). After the Court took that motion under advisement, (doc. 30), Plaintiff filed a cross-motion for summary judgment, which also served as its response in opposition to Defendants' motion (doc. 31). The Court has taken that motion under advisement as well, (doc. 37), and is prepared to rule on both motions. ²

II. MOTIONS FOR SUMMARY JUDGMENT

A. Standard

Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, show that no genuine issue of material fact exists and that the party moving is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed. 2d 265 (1986). The substantive law will identify which facts are material and which are irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed. 2d 202 (1986). An issue of fact is material if it is a legal element of the claim under the applicable substantive law which might affect the outcome of the case. Id.

At the summary judgment stage, a court's function is not to weigh the evidence to determine the truth of the matter, but to determine whether a genuine issue of fact exists for trial. Anderson, 477 U.S. at 249, 106 S.Ct. at 2510. A genuine issue exists only if sufficient evidence is presented favoring the nonmoving party for a jury to return a verdict for that party. Id. "If reasonable minds could differ on the inferences arising from undisputed facts, then a court should deny summary judgment." Miranda v. B & B Cash Grocery Store, Inc., 975 F.2d 1518, 1534 (11th Cir. 1992) (citing Mercantile Bank & Trust Co. v. Fidelity and Deposit Co., 750 F.2d 838, 841 (11th Cir. 1985)).

When assessing the sufficiency of the evidence in favor of the nonmoving party, the court must view all the evidence, and all factual inferences reasonably drawn from the evidence, in the light most favorable to the nonmoving party. Hairston v. Gainesville Sun Publ'g Co., 9 F.3d 913, 918 (11th Cir. 1993). The court is not obliged, however, to deny summary judgment for the moving party when the evidence favoring the nonmoving party is merely colorable or is not significantly probative. Anderson, 477 U.S. at 249, 106 S.Ct. at 2510. A mere scintilla of evidence in support of the nonmoving party's position will not suffice to demonstrate a material issue of genuine fact that precludes summary judgment. Walker v. Darby, 911 F.2d 1573, 1577 (11h Cir. 1990).

B. Discussion

Under Florida law, property held as a tenancy by the entireties cannot be charged with the individual debts of either spouse, in the absence of fraud. United States v. Gurley [69-2 USTC ¶9562], 415 F.2d 144, 149 (5th Cir. 1969) (citing Meyer v. Faust, 83 So. 2d 847 ( Fla. 1955)). ³ "Because of the unique nature of a tenancy by the entireties under Florida law, a judgment lien cannot attach to real property held in such an estate . . ., and since property held by the entireties is not subject to levy and sale under execution, an 'Execution Lien' cannot attach thereto." Id.

It is undisputed that Defendants Wilford and Janet Simpson took title to the property at issue as tenants by the entireties, ⁴ and Plaintiff readily concedes that "[t]here is no evidence before this Court that the Simpsons acquired the real property as tenants by the entireties in order to defeat Mr. Simpson's creditors" (doc. 31, memorandum at 9). Therefore, Defendant Wilford Simpson's interest in the property was unreachable by Plaintiff or any other creditor while held as a tenancy by the entireties.

A similar circumstance was at issue before the Fifth Circuit in Gurley:

[I]f the property here involved was then held by the Gurleys in a tenancy by the entirety, the filing of this federal tax assessment with the Clerk of the Circuit Court of Duval County would not have created a United States tax lien against said property because in matters involving the creation and enforcement of federal tax liens the Federal Courts respect those laws of a state which establish and regulate property rights within a state.

[69-2 USTC ¶9562], 415 F.2d at 150 (citing Folsom v. United States [62-2 USTC ¶9648], 306 F.2d 361 (5th Cir. 1962); United States v. American Nat'l Bank [58-2 USTC ¶9564], 255 F.2d 504 (5th Cir. 1958)).

That court ultimately concluded that if the property was in fact held as an estate by the entireties, it could only be reached by creditors once the spouses' interests converted to a tenancy in common, where each spouse's separate interests in such property become liable for his or her individual debts. Id. If on remand the district court determined that the Gurleys were tenants by the entireties, then the tenancy would be destroyed only upon the divorce of the husband and wife, thus creating a tenancy in common and simultaneously allowing the United States tax lien to attach to each spouses' interests. Id. at 149-50.

In the instant case, there simply was no opportunity for Plaintiff to reach the individual interest of Defendant Wilford Simpson. As a tenant by the entireties under the laws of Florida , his interest was unreachable by any creditor. United States v. 15621 S.W. 209th Avenue , 894 F.2d 1511, 1514-15 (11th Cir. 1990). Moreover, because the property was then conveyed to only Janet Simpson in fee simple, Wilford Simpson had absolutely no interest at the time the tenancy by the entireties was destroyed:

No persons except husband and wife have a present interest in an estate by the entireties when such estate is unencumbered by any lien existing prior to the creation of such estate and is unencumbered by any lien created jointly by the husband and wife after the estate by entireties came into being. It is not subject to execution for the debt of the husband. It is not subject to partition; it is not subject to devise by will; neither it is subject to the laws of descent and distribution. It is, therefore, an estate over which the husband and wife have absolute disposition and as to which each, in the fiction of the law, holds the entire estate as one person. Therefore, there appears to be no plausible reason why the law should not recognize as valid any formal agreement executed according to law whereby one spouse would be divested of his or her interest in such estate and the other be invested with the unqualified fee-simple title.

Hunt v. Covington , 200 So. 76 ( Fla. 1941).

Plaintiff now argues that the subsequent transfers to Janet Simpson, then to her children, and ultimately to the Mills Family Preservation Trust were fraudulent, as those grantees were effectively nominees of Wilford Simpson, and that it is entitled to foreclose its liens against the property (doc. 31, memorandum at 8-14). However, a large component of this argument becomes moot when considered in light of the safeguards afforded property held by tenants by the entireties. If, arguendo, the transfer to Janet Simpson was not fraudulent, then clearly she hold the property in fee simple and is free to dispose of it as she wishes. On the other hand, if that conveyance was fraudulent, Janet Simpson would not have fee simple title to the property, but rather the property would still be held by Wilford and Janet Simpson as tenants by the entireties. In either case, the subsequent transfers to the children and trust become irrelevant, as they too are either entirely valid or entirely void depending on the validity of the initial transfer to Janet. ⁵

Furthermore, it is also unnecessary to address whether the conveyance from Wilford and Janet Simpson to only Janet was fraudulent. As discussed immediately above, if the conveyance to Janet was fraudulent, the property remained a tenancy by the entireties and was unreachable by creditors of only Wilford Simpson. If the conveyance was valid, then Janet Simpson held the property in fee simple and Wilford had no interest at all. While there is a possibility that by divorce or some other reason the tenancy by the entireties could be destroyed, thus creating a tenancy in common and making the validity of subsequent conveyances of utmost importance, that day has not yet arrived. As such, the Court declines to make those determinations today. ⁶

The facts of this case mandate an unusual result. Frequently, a debtor will attempt to covey his own property to a third party or into a tenancy by the entireties as an attempt to hinder or obstruct his creditors. Without discerning the motives behind their decision, the Court notes that Defendants did exactly the opposite, destroying the tenancy by the entireties in favor of a fee simple held by Janet Simpson alone. While this conveyance, if valid, would have placed the property beyond the reach of Wilford's individual creditors, the tenancy by the entireties already afforded that protection. Nonetheless, because it is undisputed that Wilford and Janet Simpson acquired the 27.77 acre parcel as tenants by the entireties without intention to defraud or avoid creditors, the Plaintiff is simply unable to enforce a lien against Mr. Simpson's interests in the property as it is held today, regardless of subsequent conveyances. Therefore, summary judgment in favor of Defendants is warranted.

III. MOTION FOR SANCTIONS

Defendants also move for Rule 11 sanctions against Plaintiff and allege that the Government's motion for summary judgment is "frivolous, not 'substantially justified,' and is not 'warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal or existing law' " (doc. 34:1). However, the Court finds Defendants' argument unpersuasive. By filing their own motion for summary judgment, Defendants invited a response in opposition from the Plaintiff. Indeed, the non-movant is required in this district to file a responsive memorandum to a motion for summary judgment and failure to do so "may be sufficient cause to grant the motion." N.D. FLA. Loc. R. 7.1(C)(1).

The language of Rule 11 "stresses the need for some prefiling inquiry into both the facts and the law to satisfy the affirmative duty imposed by the rule." FED. R. CIV. P. 11 advisory committee's note. The rule, as amended in 1983, is intended to "reduce frivolous claims, defenses or motions" and to deter "costly meritless maneuvers," thus avoiding unnecessary delay and expense in litigation. Donaldson v. Clark, 819 F.2d 1551, 1556 (11th Cir. 1987) (citations omitted). The standard for testing conduct under Rule 11 is "reasonableness under the circumstances," a standard more stringent than the original good faith requirement required under the rule. Id. Where there is some legal and factual basis for the argument, sanctions are inappropriate. See, e.g., Davis v. Carl, 906 F.2d 533, 536-37 (11th Cir. 1990).

In the instant case, Plaintiff's arguments are well-grounded in Eleventh Circuit jurisprudence. Although they now fail because of their inapplicability to the unusual factual posture of this case, the significance of those arguments may come to bear in the future. Simply because the Court finds those arguments unavailing today does not mean they are without merit, nor does it compel this Court to resort to Rule 11 sanctions. Moreover, as Plaintiff was required to respond to Defendants' motion, it's cross-motion for summary judgment did not impose any additional expenses upon the Court or the parties than if it had been titled only as a responsive memorandum. ⁷ For these reasons, the Court finds that sanctions are not proper.

IV. SUMMARY

The Court's ruling in this matter may be summarized as follows, and IT IS HEREBY ORDERED:

1. Defendants JANET, CYNDA, WILLIAM, WARREN, WHITNEY, AND WESLEY SIMPSON's motion for summary judgment (doc. 26) is GRANTED and summary judgment is hereby entered in favor of those Defendants. Plaintiff takes nothing by this action from said Defendants who shall go without day.

2. Plaintiff's cross-motion for summary judgment (doc. 31) is DENIED.

3. Defendants' motion for Rule 11 sanctions is DENIED.

ORDERED.

¹ Only Wilford A. Simpson defaulted. Defendants Janet, Cynda, William, Warren, Whitney, and Wesley Simpson remain and are the only defendants moving for summary judgment and sanctions.

² Additionally, Defendants filed a motion for Rule 11 sanctions. (doc. 34), which is opposed by Plaintiff (doc. 40). That motion will also be disposed of in this order.

³ In Bonner v. City of Prichard the Eleventh Circuit adopted as binding precedent all of the decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981 . 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).

⁴ A tenancy by the entireties cannot exist unless the five "unities" of marriage (the joint owners must be married to each other), title (they must both have title to the property), time (they must have both received title from the same conveyance), interest (they must have an equal interest in the whole of the property), and control (they must both have the right to use the whole property) are present. United States v. 15621 S.W. 209th Avenue, 894 F.2d 1511, 1514 (11th Cir. 1990); United States v. Gurley [69-2 USTC ¶9562], 415 F.2d 144, 149 (5th Cir. 1969). However, as stated previously, Plaintiff does not contest that Wilford and Janet Simpson held the property as tenants by the entireties.

⁵ Unless, of course, the children took the property as bona fide purchasers for value. Even if this were the case, it would have no bearing on the outcome of this action as the children's purchases would then be protected from prior creditors under the Florida statutes even if the transfer to Janet was fraudulent. See United States v. Ressler [77-1 USTC ¶9459], 433 F.Supp. 459, 464 (S.D. Fla. 1977), aff'd [78-2 USTC ¶9571], 576 F.2d 650 (5th Cir. 1978).

⁶ If that day arrives, at least a portion of the property would presumably be reachable as a tenancy in common between Wilford Simpson and his wife; that is if Plaintiff could demonstrate that the conveyances made to Janet Simpson and then to the children and trust were fraudulent.

⁷ The Court reminds Defendants that the local rules required them to file their own responsive memorandum and statement of facts in opposition to Plaintiff's cross-motion. The Court did not hold them to that strict standard here, as each motion for summary judgment also effectively serves as opposition to the other, making additional argument unnecessary.

 

 

[96-1 USTC ¶50,294] In re Darrell Joe Carrens and Linda Dell Carrens, Debtors. Darrell Joe Carrens, Linda Dell Carrens, and Terry Smith, Chapter 13 Trustee, Plaintiffs v. United States of America, Defendant

U.S. Bankruptcy Court, Mid. Dist. Fla., Tampa Div., 94-6541-8G3, 5/8/96 , 198 BR 999.

[Code Sec. 6323 ]

Validity of lien: Bankruptcy: Purchaser: Bona fide purchaser: Superpriority.--

A federal tax lien on a married couple's vehicles was perfected and enforceable against a bona fide purchaser at the commencement of the couple's bankruptcy case because the IRS properly filed a notice of lien with the clerk of the circuit court in the county of the debtors' residence. State ( Florida ) law specifically provided that the department of motor vehicles was not a recording office for liens on motor vehicles, and the tax lien did not have to be recorded on the vehicle's certificate of title. The tax liens on the couple's vehicles and other personal property could not be avoided under section 545(2) of the Bankruptcy Code because the bankruptcy trustee was not entitled to assert the superpriority status of a purchaser. The bankruptcy trustee merely acquired the characteristics of a traditional bona fide purchaser under the Bankruptcy Code and did not possess the additional characteristics of a purchaser under Code Sec. 6323(b) . The Bankruptcy Code did not the grant the trustee hypothetical possession of the vehicles or other characteristics necessary to satisfy the purchaser requirement of Code Sec. 6323 ; thus, the couple could not avoid the liens.

Darrell Joe Carrens, Linda Dell Carrens, Terry E. Smith, pro se. Michael Barnett, 115 N. MacDill Ave., Tampa, Fla. 33609, for plaintiffs. Philip Doyle, United States Attorney General, Department of Justice, Washington, D.C. 20530, for defendant.

ORDER ON MOTION FOR SUMMARY JUDGMENT AND CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

GLENN, Bankruptcy Judge:

THIS CASE came before the Court to consider the Motion for Summary Judgment filed by Darrell Joe Carrens and Linda Dell Carrens (the "Debtors"), together with the Cross-Motion for Partial Summary Judgment filed by the United States of America (the United States). The Motions relate to a Complaint to Determine Secured Status and to Avoid Statutory Lien filed by the Debtors and Terry E. Smith (the "Trustee"), the Trustee in the Debtors' Chapter 13 case (the Debtors and the Trustee are the "Plaintiffs"). The United States has asserted a federal tax lien on the Debtors' personal property, which includes their motor vehicles, and real estate. In Count I of the Complaint, the Plaintiffs request the Court to avoid the lien asserted by the United States on the Debtors' vehicles and personal property pursuant to Section 545(2) of the Bankruptcy Code. In Count II of the Complaint, the Plaintiffs request the Court to determine that the secured portion of the United States ' claim is $3,000, based on the amount of the Debtors' equity in their homestead real property. In its Answer to the Complaint, the United States asserts that its lien is not avoidable under §545 because the lien was perfected against a bona fide purchaser at the commencement of the case, and because the Chapter 13 Trustee is not entitled to the "superpriority" rights of a purchaser as provided by the Internal Revenue Code.

The Debtors have filed the Motion for Summary Judgment, and the United States has filed a Cross Motion for Summary Judgment. Both parties contend that there is no genuine issue as to any material fact, and that they are entitled to a judgment as a matter of law with respect to the avoidance of the lien on the Debtors' vehicles and personal property. Both parties also appear to concede, however, that a factual issue exists regarding the amount of the Debtors' equity in their homestead real property. Consequently, the entry of a summary judgment is not appropriate with respect to a determination of the secured portion of the United States ' claim on such real property.

I. Background

The Debtors filed their Petition under Chapter 13 of the Bankruptcy Code on July 6, 1994 . In connection with their filing, the Debtors listed various automobiles and personal property on their schedules of assets. The parties agree that the description and value of these assets are as follows:

Furniture ........................................................... $ 2,000

Vehicles ............................................................   7,900

Clothing ............................................................     100

Jewelry .............................................................     270

Hobby equipment .....................................................     180

Other personal property .............................................     100

                                                                      -------

   Total ............................................................ $10,550

 

The Debtors also listed their homestead on their schedule of real property. The Debtors claim that the amount of their equity in the homestead real property is $3,000. The United States claims that the amount of the Debtors' equity in the homestead real property is $16,000.

The Debtors scheduled their interest in all of their personal property except the motor vehicles as exempt, and scheduled their interest in their homestead real property as exempt.

The United States timely filed a Proof of Claim in the Debtors' bankruptcy case in the total amount of $13,662.84. Of this total amount, the sum of $12,920.64 was filed as a secured claim. The United States bases its security on a Notice of Federal Tax Lien filed with the Clerk of the Circuit Court of Hillsborough County, Florida, on July 20, 1993 , and September 20, 1993 , prior to the commencement of the Debtors' bankruptcy case. The United States contends that its lien extends to all property and rights to property owned by the Debtors.

II. Applicable Statutes

Bankruptcy Code:

11 U.S.C. §545 . Statutory liens

The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien--

...

(2) is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the case, whether or not such a purchaser exists.

11 U.S.C. §522. Exemptions.

...

(h) The debtor may avoid a transfer of property of the debtor or recover a set-off to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if

(1) such transfer is avoidable by the trustee under section 544 , 545 , 547 , 548, 549, or 724(a) of this title or recoverable by the trustee under section 553 of this title; and

(2) the trustee does not attempt to avoid such transfer.

Florida Statutes:

§319.27, Florida Statutes. Notice of lien on motor vehicles or mobile homes; notation on certificate; recording of lien.--

(1) Each lien, mortgage, or encumbrance on a motor vehicle or mobile home titled in this state shall be noted upon the face of the Florida certificate of title or on a duplicate or corrected copy thereof, as provided by law;.... Except for the recording of liens upon motor vehicles or mobile homes for which no Florida certificates of title have been issued as provided in subsection (3), the department shall not be a recording office for liens on motor vehicles or mobile homes.

...

(2) ... No interest of a statutory nonpossessory lienor; the interest of a nonpossessory execution, attachment, or equitable lienor; or the interest of a lien creditor as defined in s. 679.301(3), if nonpossessory, shall be enforceable against creditors or subsequent purchasers for a valuable consideration unless such interest becomes a possessory lien or is noted upon the certificate of title for the subject motor vehicle or mobile home prior to the occurrence of the subsequent transaction.

§713.901, Florida Statutes. Florida Uniform Federal Lien Registration Act.

(1) Short Title. This section may be cited as the "Florida Uniform Federal Lien Registration Act."

(2) Scope. This section applies only to federal tax liens and to other federal liens, notices of which, under any act of Congress or any regulation adopted pursuant thereto, are required or permitted to be filed in the same manner as notices of federal tax liens.

(3) Place of Filing.

(a) Notices of liens, certificates, and other notices affecting federal tax liens or other federal liens, notices of which, under any act of Congress or any regulation adopted pursuant thereto, are required or permitted to be filed in the same manner as notices of federal tax liens, must be filed in accordance with this section.

...

(c) Notices of federal liens upon personal property, whether tangible or intangible, for obligations payable to the United States , and certificates and notices affecting the liens, shall be filed as follows:

...

4. In all other cases, in the office of the clerk of the circuit court of the county where the person against whose interest the lien applies resides at the time of filing of the notice of lien.

...

(7) Uniformity of application and construction. This section shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this section among the states enacting it.

Internal Revenue Code:

26 U.S.C. §6321 . Lien for taxes.

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

26 U.S.C. §6323 . Validity and Priority Against Certain Persons.

(a) Purchasers, holders of security interests, mechanic's lienors, and judgment lien creditors.--The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary.

(b) Protection for certain interests even though notice filed.--Even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid--

...

(2) Motor Vehicles.--With respect to a motor vehicle, ... as against a purchaser of such motor vehicle, if--

(A) at the time of the purchase such purchaser did not have actual notice or knowledge of the existence of such lien, and

(B) before the purchaser obtains such notice or knowledge, he has acquired possession of such motor vehicle and has not thereafter relinquished possession of such motor vehicle to the seller or his agent.

...

(4) Personal property purchased in casual sale.--With respect to household goods, personal effects, or other tangible personal property ... purchased (not for resale) in a 'casual sale for less than $250, as against the purchaser, but only if such purchaser does not have actual notice or knowledge (A) of the existence of such lien, or (B) that the sale is one of a series of sales.

...

(f) Place for filing notice; form.--

(1) Place for filing.--The notice referred to in subsection (a) shall be filed--

(A) Under State laws.--

(i) Real property.--In the case of real property, in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, is which the property subject to the lien is situated; and

(ii) Personal property.--In the case of personal property, whether tangible or intangible, in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated, except that State law merely conforming to or reenacting Federal law establishing a national filing system does not constitute a second office for filing as designated by the laws of such State; or

(B) With clerk of the district court.--In the office of the clerk of the United States district court for the judicial district in which the property subject to the lien is situated, whenever the State has not by law designated one office which meets the requirements of subparagraph (A); ...

...

(h) Definitions.--For purposes of this section and section 6324 --

...

(6) Purchaser.--The term "purchaser" means a person who, for adequate and full consideration in money or money's worth, acquires an interest (other than a lien or security interest) in property which is valid under local law against subsequent purchasers without actual notice....

...

III. Discussion

The Debtors claim that the lien on their vehicles and personal property is avoidable under §545(2) of the Bankruptcy Code.

A. Filing of Notice of Lien

With respect to their vehicles, the Debtors assert that the lien of the United States was not perfected or enforceable at the commencement of the case within the meaning of 11 U.S.C. §545(2) because the United States had not complied with §319.27(2), Florida Statutes, which provides that a statutory nonpossessory lien on motor vehicles titled in Florida must be noted upon the certificates of title.

It is undisputed that the lien was not noted on the certificates of title to the Debtors' motor vehicles. It is also undisputed that the United States filed its Notice of Lien only with the Clerk of the Circuit Court of Hillsborough County , and not with the Department of Motor Vehicles.

The lien of the United States was perfected and enforceable at the time of the commencement of the case against a bona fide purchaser, because the notice of lien was filed with the Clerk of the Circuit Court of Hillsborough County .

In this case, the statutory lien is a federal tax lien asserted under 26 U.S.C. §6321 , which provides that the amount of any unpaid tax "shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to" the taxpayer. The validity and priority of the lien as against third parties is determined in accordance with federal law, see United States v. City of New Britain, Conn. [54-1 USTC ¶9191 ], 74 S.Ct. 367 (1954), specifically 26 U.S.C. §6323 . Subsection (a) of that section provides that the lien imposed by 26 U.S.C. §6321 shall not be valid against certain third parties unless a notice has been filed pursuant to subsection (f). Subsection (f) states that, in the case of personal property, the required notice shall be filed "in one office within the state ... as designated by the laws of such State, in which the property subject to the lien is situated." In Florida , the filing of a federal tax lien is governed by §713.901, Florida Statutes, the "Florida Uniform Federal Lien Registration Act." The general purpose of this Act, as stated in subsection (7), is to make the law with respect to the filing of federal liens uniform among the states enacting it. If the obligor is an individual, subsection 713.901(3)(c)(4) provides that a notice of a federal lien upon personal property "shall be filed" in the office of the clerk of the circuit court of the county where the person resides.

If the laws of a state provide more than one office to file a notice of federal tax lien with respect to a taxpayer's personal property, then the notice must be filed with the clerk of the United States district court for the judicial district in which the property subject to the lien is situated. 26 U.S.C. §6323(f)(1)(B) . However, §319.27(1), Florida Statutes, specifically provides that the department of motor vehicles is not a recording office for liens on motor vehicles. Further, the Attorney General of Florida has issued an opinion that §319.27, Florida Statutes, does not provide an additional office for filing a notice of federal tax lien and does not require that the notice of federal tax lien be recorded on the certificate of title for a motor vehicle in order to be valid. See Op. Atty. Gen. 76-119 (May 28, 1976).

Since the United States filed its notice of federal tax lien with the Clerk of the Circuit Court in Hillsborough County, the county of the Debtors' residence, the United States properly perfected its lien in accordance with 26 U.S.C. §6323(f) and §713.901, Florida Statutes, and its lien is perfected and enforceable against a bona fide purchaser.

B. Bona Fide Purchaser.

However, with respect to the vehicles and also with respect to the other personal property, the Debtors also contend that the lien is not valid pursuant to 26 U.S.C. §6323(b) , which provides that even though a notice of lien has been properly filed, the lien is not valid against certain purchasers. Pursuant to 11 U.S.C. §545(2) , the Trustee may avoid a statutory lien which is not valid against a bona fide purchaser. Therefore, the issue is whether the statutory lien may be avoided pursuant to the Trustee's powers under 11 U.S.C. §545(2) if the lien is valid against bona fide purchasers in general but invalid against a special group of bona fide purchasers designated in 26 U.S.C. §6323 .

i. The Parties' Contentions.

According to the Debtors, 11 U.S.C. §545(2) allows the Trustee to stand in the shoes of the purchasers described in 26 U.S.C. §6323(b)(2) and §6323(b)(4) quoted above. Since the lien of the United States on their vehicles and personal property would not be enforceable as against such purchasers as of the date the case was filed, the Debtors contend, the lien is ineffective as against the Trustee and may be avoided.

The United States contends that the Debtors are not entitled to avoid the lien by virtue of 26 U.S.C. §6323(b) because §545(2) of the Bankruptcy Code endows the Trustee ¹ with only the rights of a bona fide purchaser as of the commencement of the case. It contends that a bona fide purchaser is simply a purchaser for value without notice of an adverse claim. The United States claims that its lien is valid as against a bona fide purchaser since it had properly filed its Notice of Federal Tax Lien, and that 26 U.S.C. §6323(b)(2) and §6323(b)(4) require that a purchaser have characteristics in addition to those associated with a bona fide purchaser to be entitled to the "superpriority" status granted under those sections. A purchaser of a vehicle, for example, must have actual possession of the vehicle, and the purchaser of household goods or other personal effects must purchase at a "casual sale" for a price not to exceed $250, and must not intend to purchase the goods for resale. The United States concludes, therefore, that the qualifications for a purchaser under 26 U.S.C. §6323 are higher than those of a traditional bona fide purchaser. Since a bankruptcy trustee acquires only the rights and characteristics of a "mere" bona fide purchaser under 11 U.S.C. §545 , and not the additional qualities set forth in 26 U.S.C. §6323 , it is not entitled to assert the superpriority status of a purchaser under 26 U.S.C. §6323 and may not avoid the lien.

ii. Case Authority.

Cases interpreting the application of 11 U.S.C. §545(2) with respect to tax liens have not reached consistent results. In In re Branch [94-2 USTC ¶50,406 ], 170 B.R. 577 (E.D.N.C. 1994), the District Court in North Carolina ruled that a Chapter 13 debtor and trustee could avoid a federal tax lien on household goods. The Court reasoned that the trustee was a bona fide purchaser by virtue of 11 U.S.C. §545 , and that he necessarily was a purchaser at a casual sale within the meaning of 26 U.S.C. §6323(b)(4) because a "casual sale" is defined as a sale "not occurring in the ordinary course of business." Therefore, the debtor and the trustee could avoid the lien based on the combined effect of 11 U.S.C. §545(2) and 26 U.S.C. §6323(b)(4) .

Other cases have reached mixed results on the same issue. The complexity of the issue is evidenced not only by inconsistencies in results between different cases, but also by confusion and convoluted histories within the same case. See United States v. Sierer, 121 B.R. 884 (Bankr. N.D. Fla. 1990), 139 B.R. 752, on remand In re Sierer, 137 B.R. 523; and In re Znider [93-1 USTC ¶50,165 ], 150 B.R. 239, opinion vacated 167 B.R. 603 (Bankr. C.D. Cal. 1993). Further, the legislative history of 11 U.S.C. §545(2) provides little guidance in explaining the applicability of the section to federal tax liens. In re Walter [95-1 USTC ¶50,072 ], 45 F.3d 1023, 1027 n.2. (6th Cir. 1995). ("[T]he legislative history itself is contradictory and offers little help in interpreting the statute.")

On the other hand, the Sixth Circuit as well as the District Court in the Middle District of Florida have recently addressed the issue in the context of Chapter 7 cases. In In re Walter [95-1 USTC ¶50,072 ], 45 F.3d 1023 (6th Cir. 1995), the Sixth Circuit concluded that the trustee could not avoid a federal tax lien on the debtor's motor vehicle. Significantly, the Sixth Circuit specifically stated that a "bona fide purchaser" for purposes of §545(2) of the Bankruptcy Code is not necessarily a "purchaser" for purposes of §6323(b)(2) of the Internal Revenue Code, and that a bankruptcy trustee standing in the shoes of a hypothetical bona fide purchaser does not meet the possession requirement of 26 U.S.C. §6323(b)(2) with respect to a motor vehicle. The Court concluded that the Bankruptcy Code does not grant hypothetical possession to a hypothetical bona fide purchaser, so that the trustee in Walter could not avoid the federal tax lien on the debtor's vehicle under 11 U.S.C. §545(2) . In re Walter [95-1 USTC ¶50,072 ], 45 F.3d at 1034.

In In re Southern Transfer & Storage Co. ( United States of America v. Charles L. Weissing, Trustee), -- B.R. -- (M.D. Fla. 1995), the District Court in this district adopted the reasoning of the Sixth Circuit. In that case, a chapter 7 trustee sought to avoid a federal tax lien on several vehicles, and the Bankruptcy Court initially held that the perfection of liens on vehicles in Florida is governed by the Florida law requiring notation of the lien on the certificate of title. Since the Government in that case had not noted its lien on the certificates of title to the vehicles, the Bankruptcy Court held that the lien was not enforceable against a bona fide purchaser and therefore was avoidable.

On appeal, the District Court first noted that the tax lien at issue in the case was a federal lien created by federal law. Accordingly, the District Court ruled that the enforceability and avoidability of the lien must be determined by federal law rather than state law. The District Court found that federal law provides that federal tax liens are generally perfected by filing a notice of a tax lien, and further found that the proper place for filing such a lien on the motor vehicles is the Clerk of the Circuit Court. Because the Government had filed its notice with the Clerk, the Court concluded that the federal tax lien on the vehicles was perfected and enforceable, and could not be avoided by the trustee under 11 U.S.C. §545(2) .

Having held that the lien was perfected and enforceable, the District Court then found it necessary to consider whether the trustee in bankruptcy could avoid the federal tax lien by virtue of the special protection afforded to certain purchasers under 26 U.S.C. §6323(b) . In its analysis, the Court first found that a "bona fide purchaser" is "one who has purchased property for value without notice of any defects in the title of the seller." A "purchaser" for purposes of 26 U.S.C. §6323(b) is defined by 26 U.S.C. §6323(h)(6) as a person who acquires an interest in property "for adequate and full consideration in money or money's worth." The District Court agreed with the Sixth Circuit that "value" is a different standard than "adequate and full consideration in money or money's worth," with the result that a bona fide purchaser within the meaning of 11 U.S.C. §545(2) is not necessarily a "purchaser" for purposes of 26 U.S.C. §6323(b) .

Next, the District Court found that a trustee in bankruptcy does not satisfy the requirement of 26 U.S.C. §6323(b) that the purchaser be in possession of the motor vehicles. Again, the District Court agreed with the Sixth Circuit that the statute requires actual possession, and rejected the fiction of "hypothetical possession" by a trustee with the rights of a bona fide purchaser. Since the trustee did not satisfy the specific requirements of 26 U.S.C. §6323(b) , the District Court concluded that the bankruptcy trustee could not avoid a federal tax lien under 11 U.S.C. §545(2) or 26 U.S.C. §6323(b) .

iii. Discussion.

As set forth above, the Debtors seek to avoid a statutory lien pursuant to §545(2) of the Bankruptcy Code. Section 545(2) of the Bankruptcy Code provides that a trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien is not perfected or enforceable against a bona fide purchaser on the date that the case was filed, whether or not such a purchaser actually exists.

Section 6323(b) of the Internal Revenue Code protects certain purchasers of personal property even though a notice of a federal tax lien was properly filed. The question, therefore, is whether these provisions render a properly filed federal tax lien avoidable as against a bona fide purchaser as that term is used in §545(2) of the Bankruptcy Code. This Court concurs with the District Court in this district and with the Sixth Circuit that only those purchasers who satisfy the specific qualifications set forth in 26 U.S.C. §6323(b) are entitled to the protection provided by those provisions.

It is generally established that a bona fide purchaser for purposes of 11 U.S.C. §545(2) is a purchaser who takes for value without notice or knowledge of any adverse claim to the property. In re Walter [95-1 USTC ¶50,072 ], 45 F.3d at 1030. Under 11 U.S.C. §545(2) , this purchaser may be hypothetical, and need not exist. There are no further requirements for this hypothetical purchaser other than that he exchanged some measure of value to purchase the property, and that he has not been placed on notice of the lien affecting the property. There are no conditions concerning who has possession of the property purchased, the type of sale, or a maximum purchase price, and these conditions cannot be assumed.

Section 6323(b) of the Internal Revenue Code, on the other hand, sets forth a specific description of the purchasers entitled to defeat a federal tax lien under that provision, and 26 U.S.C. §6323(h)(6) defines "purchaser." The description of the purchaser is necessarily detailed to promote the policy of the statute to encourage the free flow of the property in commerce. In re Sierer, 121 B.R. at 885. The trustee in a bankruptcy case, however, does not possess the characteristics required of a purchaser under 26 U.S.C. §6323(b) .

This Court agrees with the Sixth Circuit and the District Court that the Bankruptcy Code does not grant hypothetical possession or other hypothetical characteristics to a bona fide purchaser. Since a purchaser must have these characteristics to satisfy the specific requirements of 26 U.S.C. §6323(b) , the Trustee may not avoid the lien under 11 U.S.C. §545(2) .

Accordingly, the Debtors' motion for summary judgment should be denied, and the United States is entitled to the partial summary judgment which it requests.

Therefore,

IT IS ORDERED that:

1. The Cross-Motion for Partial Summary Judgment filed by the United States of America is granted, and the federal tax lien asserted by the United States of America on the Debtors' vehicles and personal property is determined to be valid and enforceable. The Court will issue a separate Partial Summary Judgment consistent with this determination.

2. The Motion for Summary Judgment filed by the Debtors, Darrell Joe Carrens and Linda Dell Carrens, is denied, and the Debtors are not entitled to avoid the federal tax lien of the United States with respect to the Debtors' vehicles and personal property.

3. Further proceedings will be scheduled to consider the Complaint to Determine Secured Status to the extent that the Complaint seeks a determination of the secured portion of the United States ' claim with respect to the Debtors' homestead real property.

¹ The United States notes, correctly, that the Debtors may assume the Trustee's lien avoidance powers under §545 only to the extent that the Debtors could have exempted the property subject to the lien, see 11 U.S.C. §522(h), and that only the Debtors have brought the motion for summary judgment. However, for other reasons expressed in this order, the Court concludes that neither the Debtors nor the Trustee may avoid the lien. Consequently, it is not necessary to determine whether or the extent to which the Debtors are proper movants.

 

 

[53-1 USTC ¶9301] United States of America , Appellant v. Griffin-Moore Lumber Co., Inc., a Florida Corporation, Appellee

In the Supreme Court of Florida., January Term, 1953. En Banc, Supreme Court #23,366, 62 SO2d 589, Filed January 13, 1953

An Appeal from the Circuit Court for Polk County .

Lien for taxes: Priority: Materialmen's lien.--Materialman's lien on mortgaged property had priority over tax liens where the tax liens accrued after the materialman's lien and were recorded after the materialman's lien although before suit was brought to enforce the materialman's lien. Moreover, the Federal statute, Code Sec. 3672, does not attempt to give tax liens priority over the materialman's lien because furnishing materials, without the priority, could result in unjust enrichment of the lands and puts in jeopardy the very source of the materialman's livelihood.

Herbert S. Phillips and J. Hardin Peterson, Jr., for appellant. R. B. Huffaker, for appellee.

[Facts]

TERRELL, Acting Chief Justice:

October 16, 1950 , A. C. Thompson and his wife Alma Thompson executed a promissory note to Lake Wales State Bank. The note was secured by a mortgage describing certain lands in Polk County . It was duly recorded and on November 8, 1951 , it was assigned to Griffin-Moore Lumber Company, Inc., who will hereinafter be referred to as the plaintiff. The plaintiff commenced furnishing the Thompsons material for construction of a building on the premises described in the mortgage and on August 23, 1951, recorded a claim of lien in the sum of $2,250.06 to cover amount due on materials furnished and delivered to the property.

The United States of America filed and duly recorded three notices of tax liens against A. C. Thompson as follows: (1) October 23, 1951, notice of lien for withholding taxes and Federal Insurance Contributions Act taxes for the period ending March 31, 1951, in the amount of $513.84; (2) October 26, 1951, lien for withholding taxes, Federal Insurance Contributions Act taxes and Federal Unemployment tax act taxes for the period ending June 30, 1951, and the year 1950, respectively, in the sum of $1,780.08; (3) November 16, 1951, lien for withholding taxes and Federal Insurance Contributions Act taxes in the sum of $267.77, for the period ending September 23, 1951.

November 17, 1951 , the plaintiff filed its complaint to foreclose the mortgage and the mechanic's lien described in the forepart of this opinion. March 1, 1951 [1952], the United States of America filed its answer to the complaint challenging the priority of the mechanics lien over the tax liens of the United States heretofore described. On final hearing the chancellor found that plaintiff's mechanic's lien was a valid and subsisting lien upon the mortgaged property and that it was prior to and superior to the tax liens of the United States of America. Sale of the property to satisfy the mortgage and lien was confirmed and this appeal was prosecuted from the final decree.

[Issue]

The sole point for determination is whether or not the tax liens of the United States are prior in right to the mechanic's lien of the plaintiff.

It is admitted that the mortgage is prior to the tax liens. It is shown that the tax liens accrued subsequent to the mechanic's lien and that they were recorded prior to time suit was brought to enforce the mechanic's lien but subsequent to the date the claim for mechanic's lien was recorded. The applicable Florida Statutes are Sections 84.16, 84.21 and 84.23, F. S. A. These statutes provide the means by which mechanic's liens may attach, the procedure for foreclosing them, and the conditions for their discharge. The applicable Federal Statutes are Sections 3670 and 3672, Title 26, United States Code. The latter statute in terms makes the Government lien for taxes inferior to the interests of mortgagees, pledgees, purchasers, judgment creditors and others. United States v. Security Trust & Savings Bank et al., 340 U. S. 47, 71 S. Ct. 111, 95 L. Ed. 53 [50-2 USTC ¶9492].

[Priority of Materialman's Lien]

There is no question about the priority, notice recordation, or other factors essential to the validity or bona fides of the materialman's lien. The Federal statute, Section 3672, does not attempt to give the tax liens priority over the materialman's lien. Chapter 84, F. S. A., gives the laborer and the materialman the right to a lien from the day the first material is furnished and makes it prior to other claims. It is enforced against the property rather than the property owner. Any interest accruing to the property by reason of furnishing labor or material is held with notice of the labor or materialman's lien. Hendry Lumber Co. v. Bryant, 138 Fla. 485, 189 So. 710; Springer Land Assoc. v. Ford, 168 U. S. 513, 18 S. C. 170, 42 L. Ed. 562.

This court has repeatedly held that the labor and materialman's lien law should be liberally construed to protect the laborer and the materialman. Rob ert L. Weed, Architect, Inc. v. Horning, 159 Fla. 847, 33 So. (2d) 648. The reason for this holding is that the labor and material results in the unjust enrichment of the land owner if the laborer or the materialman is not given priority in the enforcement of his lien claim. If this were not the case, any other claimant could come in and get the advantage of the value that the labor or materials adds to the land. Another reason for this rule is even more imperative. Furnishing labor and material not only results in unjust enrichment of the lands but it is the very source of the laborer and materialman's bread and butter. This of itself was reason enough why the Federal Statute did not give the Federal tax lien priority over the laborer or materialman's lien. No Legislative body in this country would deign to enact a law to separate the laboring man from his bread. Man's necessity for bread preceded his necessity for law. It is the staff of his life, the basis of his health, his culture, his religion, and every impulse, good or bad, that colors his thinking. To contend that a tax claim of any character can deprive him of it is contrary to nature and all human experience; it is contrary to equity and would contravene every natural impulse. The state may trim corners and get along on less taxes but the working man can't cut corners and get along without bread.

[Conclusion]

We have searched diligently and have found no law or decision to the contrary and appellant has cited none. Any other interpretation of the mechanic's lien statute would leave the laborer in a most precarious condition and would deprive him of that which the law has provided to safeguard his economy. Western culture has always recognized the right to eat, to worship, to commerce in thought, to criticize the things we hate as well as the things we love; the law and common sense recognize this and have consistently refused to mess with these freedoms. For these and other good and sufficient reasons it is our view that the decree of the lower court should be and is hereby affirmed.

It is so ordered.

THOMAS, SEBRING, ROBERTS and MATHEWS, Justices, and WHITE, Associate Justice, concur.

DREW, Justice, Concurs in Judgment.

 

 

[65-1 USTC ¶9426]In re Estate of George L. Cury, Deceased

In the Fla. County Judge's Court, Durval County, No. 21587-D, 2/24/65

[1954 Code Sec. 6321]

Claim for taxes: Decedent's estate: Effect of Florida statute.--A Florida non-claim statute was inapplicable to claims of the United States and, therefore, claims of the United States in a probate proceeding for unpaid taxes were not barred.

Claude L'Engle, 225 Florida Title Bldg., Jacksonville , Fla. , for Cury Est.

Decision and Order

DAVIS , County Judge :

George L. Cury died on May 15, 1954 . An order appointing Rob ert L. Cury as admin istrator of the estate was filed on July 9, 1954 . The first publication of the notice to creditors took place on July 12, 1954 . The United States filed its Proof of Claim in this probate proceeding on January 31, 1956 , wherein the Acting District Director of Internal Revenue stated that the decedent was indebted to the United States of America for internal revenue taxes in the total amount of $83,182.53 plus interest. In May of 1963 George Cury's widow, Polly Thomas (formerly Polly Roach Cury), filed an election to take dower. By order dated February 3, 1964 , this Court denied the dower election. On April 17, 1964 , the admin istrator de bonis non filed a Supplemental Final Return and Petition for Order of Distribution and Discharge. The Suplemental Final Return showed that the admin istrator held a cash balance of $24,839.63, that more than sixty days had elapsed since dower was denied and that no appeal had been taken from the order denying dower. The Petition prayed for an order authorizing distribution of the $24,839.63 to the United States . On April 28, 1964 , Polly Thomas, as the widow and sole heir-at-law of George L. Cury, deceased, filed a Reply To Petition For Order of Distribution in which she opposed distribution of the $24,839.63 to the United States on the ground that the Proof of Claim of the United States was barred by Section 733.211 of the Florida Statutes. At a hearing on May 18, 1964 , counsel for the parties agreed that this was the only remaining issue for this Court to decide prior to closing this proceeding. The parties have submitted briefs and the Court heard oral argument on February 22, 1965 .

[Issue]

The issue to be decided is whether the provisions of Section 733.211 of the Florida Statutes apply to claims filed by the United States of America in probate proceedings. The argument of Mrs. Thomas is that since the claim of the United States ,

. . . has not had objection filed thereto or has not been paid, settled or otherwise disposed of and no proceeding is pending for the enforcement or compulsory payment thereof . . .

the claim is barred because three years have expired since it was filed. The position of the United States is that Section 733.211 of the Florida Statutes is not applicable to claims of the United States .

In In re Brown's Estate, 117 So. 2d 478 (Fla. 1960), it was held that Section 733.211 was in essence a statute of non-claim, similar to the statute (Section 733.16) requiring claims to be filed within a certain number of months from the time of the first publication of notice to creditors.

In United States v. Summerlin [40-2 USTC ¶9633], 310 U. S. 414 (1940), the Court in referring to Section 733.16 (which had been denominated a statute of non-claim by the Florida Supreme Court) stated:

It is well settled that the United States is not bound by state statute of limitations or subject to the defense of laches in enforcing its right. United States v. Thompson, 98 U. S. 486; United States v. Nashville, C. & St. L. Ry. Co., 118 U. S. 120, 125, 126; Stanley v. Schwslby, 147 U. S. 508, 514, 515; Guaranty Trust Co. v. United States, 304 U. S. 126, 132; Board of Commissioners v. United States, 308 U. S. 343, 351. The same rule applies whether the United States brings its suit in its own courts or in a state court. Davis v. Corona Coal Co., 265 U. S. 219, 222, 223. * * *

* * * When the United States becomes entitled to a claim, acting in its governmental capacity, and asserts its claim to that right, it cannot be deemed to have abdicated its governmental authority so as to become subject to a state statute putting a time limit upon enforcement. Chesapeake & Delaware Canal Co. v. United States , 205 U. S. 123, 126, 127.

The state court, however, has said that the statute in question is not a statute of limitations, but rather a statute of 'non-claim' for the orderly and expeditious settlement of decedents' estates. Presumably the Court refers to the provision of the statute that if a claim is not filed within the specified period it 'shall be void even though the personal representative has recognized such claim or demand by paying a portion thereof or interest thereon or otherwise.

If this were a statute merely determining the limits of the jurisdiction of a probate court and thus providing that the County Judge should have no jurisdiction to receive or pass upon claims not filed within the eight months, while leaving an opportunity to the United States otherwise to enforce its claim, the authority of the State to impose such a limitation upon its probate court might be conceded. But if the statute, as sustained by the State Court, undertakes to invalidate the claim of the United States, so that it cannot be enforced at all, because not filed in eight months, we think the statute in that sense transgressed the limits of state power. Davis v. Corona Coal Co., supra. (Emphasis supplied.)

In United States v. Embrey, 145 Fla. 277, 199 So (1940), it was held that pursuant to the Summerlin case,supra:

It follows that as to all claimants but the United States, if filed after eight months, it would be the duty of the probate judge to declare them void but as to the United States, since it is not bound by laches or State statutes of non-claims, it would be his duty to permit them to be filed and consider them along with other claims against the estate. (199 So. at 42.)

Thus, since Section 733.211 is a statute of non-claim similar to Section 733.16, In re Brown's Estate, supra, it follows that the Summerlin and Embrey cases,supra, are direct authority against Mrs. Thomas' contention here. This conclusion is reenforced by a decision rendered by the County Judges ' Court of Pinellas County , Florida .

In the case of In re The Estate of Joseph R. Busek, County Judges' Court, Pinellas County, Florida, Number 18,574, the admin istratrix filed a Petition which recited that the claim of the Medical Supply Company of Jacksonville had been filed on November 12, 1952; that the claim of the Director of Internal Revenue had been filed on April 9, 1953; and, "That said claims have not been objected to, have not been paid, settled or otherwise disposed of, and no preceeding is pending for the enforcement or compulsory payment thereof." The admin istratrix then prayed for an Order:

. . . that such claims are barred and foreclosed and have no further force and/or effect, and that no proceedings shall hereafter be brought, for the enforcement or payment of same, according to the provisions of Chapter 733.211 of the Florida Statutes.

The United States filed an Answer to Petition and on May 8, 1962 , the Court entered an Order granting the Petition as to the Medical Supply Company of Jacksonville and denying the Petition as to the Director of Internal Revenue. The holding of the Court is directly on point in this case and clearly supports the position of the United States herein. In pertinent part, the Court (after defining the issue to be whether Section 733.211 applies to claims of the United States ) stated:

The non-applicability of the Florida Non-Claim Statute, requiring that claimants file their claim within a certain period of time from the first notice to creditors (Section 733.16), has been heretofore clearly determined for the Florida Supreme Court in United States v. Embry, (sic) 199 So. 41 clearly holds that as the United States is not bound by laches or state statutes of non-claim, that the time limitation for filing claims does not apply to the United States. Likewise, it has been held by the Florida Supreme Court that unless a statute of limitation in terms is made to apply to the state, it will not be held applicable to demands enforceable by the state (see Florida Industrial Commission v. Felds Lumber Company, et al., 18 So. (2d) 362, and Heidt v. Caldwell , 41 So. (2d) 303).

Although it is true that there has been no known specific case holding that Section 733.211, Florida Statutes, does not apply to the claim of the Federal Government or of the State Government, yet by reason of the past decisions with respect to the exemption of the Government with respect to the existent Non-Claim Statute and by reason of the above-cited cases holding that unless a statute of limitations in terms is made to apply to the Government, it will not be held applicable to demands enforceable by the Government, it is the opinion of this Court that such must also be the ruling in the present instance.

In accordance with the foregoing, it is the opinion of this Court that the provisions of Section 733.211 do not apply to the claim of the United States filed herein.

[Judgment of the Court]

It is, therefore, the opinion of this Court that Section 733.211 of the Florida Statutes is inapplicable to claims of the United States , and that the claim of the United States herein is not barred. It is therefore,

ORDERED, ADJUDGED AND DECREED that the objections raised by Mrs. Thomas in her Reply to Petition for Order of Distribution be, and the same hereby are, overruled. It is further,

ORDERED, ADJUDGED, AND DECREED that the Supplemental Final Return filed by the Administrator de bonis non be, and the same hereby is approved. It is further,

ORDERED, ADJUDGED, AND DECREED that the Petition for Order of Distribution and Discharge be and the same hereby is granted and the admin istrator de bonis non is hereby authorized to distribute the remaining assets of the Estate to the United States of America after the expiration of sixty days from the date of this Order and provided that the Estate is dismissed as a party-defendant from Civil Action Number 4232-T which is now pending in the United States District Court for the Middle District of Florida. The United States shall furnish the admin istrator de bonis non with a certified copy of the dismissal of the Estate from Civil Action Number 4232-T after the expiration of sixty days from the date of this Order.

 

 

[58-2 USTC ¶9531]The Travelers Insurance Company, Plaintiff v. Mercantile National Bank of Miami Beach and The United States of America, Defendants The United States of America, Plaintiff v. Julius I. Friedman, Prudential Life Insurance Co., Metropolitan Life Insurance Co., Lincoln National Life Insurance Co., and Mercantile National Bank of Miami Beach, Defendants

U. S. District Court, So. Dist. Fla., Miami Div., Nos. 7323-M-Civil, 7889-M-Civil, 4/23/58

[1939 Code Sec. 3672(a)--similar to 1954 Code Sec. 6323(a)]

Priority of liens: Cash surrender value of pledged life insurance policies.--In 1950, taxpayer borrowed money from a bank and assigned insurance policies on his life to it as collateral security. On March 10, 1953 , the Government recorded a lien for delinquent taxes due from the taxpayer. The bank made further advances to the taxpayer after that date. A summary judgment in favor of the bank has previously been rendered for its interest in the proceeds prior to March 10. Held, the monies advanced by the bank after the date of the Government's lien were new and separate loans and not future advances under the terms of the original loan. The Government has priority on the increase in the cash surrender value of the policies subsequent to March 10, 1953 .

James L. Guilmartin, United States Attorney, 234 Post Office Building , Miami , Fla. , for plaintiff. Dixon, DeJarnette, Bradford & Williams, 908 Ainsley Building, Miami, Fla., for Prudential Life Insurance Co. and Lincoln National Life Insurance Co. Broad and Cassel, 420 Lincoln Road, Miami Beach, Fla., for Mercantile National Bank of Miami Beach. Shutts, Bowen, Simmons, Prevatt & Boureau, 800 First National Bank Building, Miami 32, Fla., Julius I. Friedman, 311 Lincoln Road, Miami Beach, Fla., for Metropolitan Life Insurance Co.

Findings of Fact, Conclusions of Law and Final Judgment

CHOATE, District Judge:

This cause having come on before the Court, without jury, on the 21st day of February, 1958, and the Court having heard the evidence, examined the exhibits, and being fully advised in the premises thereof, hereby enters the following Findings of Fact and Conclusions of Law.

Findings of Fact

1. Travelers Insurance Company, Prudential Life Insurance Company, Metropolitan Life Insurance Company, Lincoln National Life Insurance Company, are duly organized corporations authorized to do business in the State of Florida, and maintain offices in and about Dade County, Florida.

2. Defendant, Mercantile National Bank of Miami Beach is a duly organized national banking corporation with offices in Miami Beach , Florida .

3. Defendant, Julius I. Friedman, resides in the Southern District of Florida and within the jurisdiction of this Court.

4. The United States of America is body politic and sovereign, acting through the United States Commissioner of Internal Revenue.

5. On May 24, 1950 , defendant Julius I. Friedman assigned as collateral security to the Mercantile National Bank of Miami Beach certain policies of insurance, said policies having been issued upon the life of defendant, Friedman. These included insurance policies numbered 14,635,407A, and 14,635,408A issued by the Metropolitan Insurance Company; policy number 13 136 476, issued by the Prudential Insurance Company; policy number 754 022, issued by the Lincoln National Life Insurance Companies, and policies numbered 2358537, 2381858, 2381859, 2401030, 2401031, 2401032, 2402242, 2402243, 2402244, 2402245, 2402246, issued by the Travelers Insurance Company. To evidence the loan transaction, Friedman executed and delivered to defendant Mercantile National Bank, a series of collateral notes, each note being paid by renewal until the note of March 31, 1955 .

[Tax Lien Recorded]

6. The United States of America recorded a lien for delinquent taxes due from defendant Friedman to the United States Government in Dade County , Florida , on March 10, 1953 . It was admitted that the amount of the lien is greatly in excess of the cash surrender value of the several insurance policies in question. The amount of defendant Mercantile National Bank's interest prior to March 10, 1953 is not in dispute, and summary judgment has previously been rendered in favor of said bank for the sum of $5,551.75.

7. Subsequent to March 10, 1953 , defendant Mercantile National Bank made four additional loans to Friedman in the total amount of $4,248.25. The alleged purpose of the loans was to provide Friedman with money and to help him to meet the premiums due upon the insurance policies, held as collateral security by the bank.

8. The assignments of the policies and the notes executed by defendant Friedman to the defendant Mercantile National Bank contained the provision that they would cover any and all liabilities of the defendant Friedman, now existing, or that might arise in the future.

9. The cash surrender value of the now lapsed insurance policy number 13 136 476, issued by the Prudential Insurance Company is $982.98.

10. The cash surrender value of the Lincoln National Life Insurance Company's policy number 754 022, as of the 3rd day of October, 1957, was $406.00. A premium loan had been made against that policy in the amount of $57.92, by the company upon default in payment of premiums.

11. The cash surrender values of policy number 14 635 407A, and policy number 14 635 408A, issued by the Metropolitan Life Insurance Company were $733.75 each, as of September 8, 1957 . However, on or about October 9, 1956, defendant Mercantile National Bank received a loan from the Metropolitan Insurance Company on behalf of the two policies in the total sum of $1,589.70, and on which there is presently due and owing the sum of $1,403.42.

12. As of December 3, 1957 , the cash surrender value of Travelers Insurance Company policies numbered 2358537, 2381858, 2381859, 2401030, 2401031, 2401032, 2402242, 2402243, 2402244, 2402245, 2402246, was of a total amount of $7,047.90. The Travelers Insurance Company, having paid that amount into the registry of the Court, has been discharged from this action.

Conclusions of Law

1. The Court has jurisdiction of the parties and the subject matter herein.

2. The question as to who has priority to the additional cash surrender value of the aforecited insurance policies subsequent to March 10, 1953 is determined by whether or not monies advanced after that date by the defendant Mercantile National Bank were future advances under the terms of the original loan or new and separate loans (United States et al. v. Peoples Bank, 197 Fed. (2d) 898 (5th Cir. 1952) [52-2 USTC ¶9407]).

3. Although the original notes carried the provision that they would cover future liabilities, the loans in question were new and separate loans rather than future advances.

4. While it appears that defendant Mercantile Bank would have the right to secure their interests in the policies by making payments themselves to the insurors to prevent lapse or loss of the policies, the making of new loans to defendant Friedman for other purposes as well as incidental part payment of the premiums does not supersede the government's right to the value of the policies accruing after March 10, 1953, although the policies may have been to some extent enhanced indirectly due to the defendant Bank's additional loans.

5. There is due and owing plaintiff United States of America taxes by the Defendant Friedman greatly in excess of the additional cash surrender value of the policies held by defendant, Mercantile Bank, and issued by defendants Prudential Insurance Company.

6. The interest of the United States of America in the cash surrender value, accruing subsequent to March 10, 1953, of those aforecited policies issued by Prudential Life Insurance Company and Lincoln National Life Insurance Company, Travelers Insurance Company and the Metropolitan Life Insurance Company is superior to that of the Mercantile National Bank of Miami Beach, and said United States of America has a valid lien on the aforesaid policies of insurance for those increases in value subsequent to March 10, 1953 and is entitled to have said lien foreclosed.

7. The United States of America is entitled to judgment against Julius I. Friedman for the principal amount of $47,882.10.