, Appellee v. Francis Taylor, Defendant,
Mary E. Taylor, Appellant.
Court of Appeals, 8th Circuit; 01-2874/3872, 338 F3d 947,
July 31, 2003
Reversing and remanding an unreported DC Minn. decision; related opinion
at DC Minn. 2002-1
Secs. 6321 and 6323]
Tax liens: Priority: Conveyances made by taxpayer to ex-wife:
Qualified domestic relations order: Employee plan proceeds: Relation
back of interest in proceeds. --
wife became the owner of 90 percent of her former husband's interest in
employee plan proceeds on the date when a state (Texas) court issued a
domestic relations order (DRO), even though details of qualification
remained to transform the DRO into a qualified domestic relations order
(QDRO). Thus, as a judgment lien creditor, her interest in the proceeds
had priority over an IRS tax lien against the husband that was filed
subsequent to the entry of the DRO but before the order became a QDRO.
On the date the DRO was granted, her identity was clear, the subject
property was identified, the amount was fixed, and the husband no longer
owned 90 percent of the plan proceeds at issue.
Before: Loken, Bye and Riley, Circuit Judges.
RILEY, Circuit Judge: This case arises out of an April 1996 Northwest
Airlines (Northwest) interpleader of the
and Mary Taylor (Mary) to determine whether the Internal Revenue Service
(IRS) or Mary has priority and is entitled to the benefits of three
Northwest sponsored employee benefits plans. On cross motions for
summary judgment, the district court ruled generally for the IRS and
against Mary, finding Mary's right to the plans under a
domestic relations order (DRO) was subject to a prior federal tax lien.
We disagree and reverse.
As is often the case, the sequence of events is critical. Francis Taylor
(Francis) worked as a pilot for Northwest from 1966 to 1994. During his
employment, Francis participated in a retirement plan, a stock plan, and
a savings plan
istered by Northwest under ERISA. 1
Francis retired from Northwest in September 1994, at which time he filed
state court for divorce from Mary, his wife of more than thirty years.
The following month, in October 1994, a tax court concluded that Francis
had not filed tax returns from 1981 through 1985. On
May 1, 1995
, the IRS assessed deficiencies totaling approximately $984,310
(including penalties and interest) for those tax years. On
July 28, 1995
court entered a divorce decree and approved a marital settlement
agreement. The agreement provided that "to settle all obligations
of the marriage," Mary would receive a 90 percent interest in
Francis's Northwest employee benefits proceeds (plan proceeds). Also in
July, the court entered a purported qualified domestic relations order
(QDRO), directing the plan
istrator to distribute Mary's interest in the plan proceeds directly to
court, in the July order, retained jurisdiction to amend or reform the
order as necessary to conform with plan requirements and qualify as a
In October 1995, Northwest informed Mary and Francis that the July DRO
did not qualify as a QDRO. In December 1995, the IRS filed a lien
against the plan proceeds in
, where Francis claimed he resided at the time of the divorce, and where
the DRO issued. In October 1996, the IRS filed another lien in
, where the plans were
istered. Meanwhile, Mary and Francis attempted to correct the DRO's
identified deficiencies. Among other things, the order: (1) did not
specify the period to which it applied; (2) did not address how to treat
amounts accrued, but had not yet been credited to the account; and (3)
would have required Northwest to make an extra payment. Twice the
court, at Mary's request, reformed the DRO to address Northwest's
concerns. Northwest finally pronounced the DRO a QDRO in January 1997.
The district court dismissed Northwest from the interpleader action, and
the IRS and Mary were left to determine who was entitled to the plan
proceeds. The IRS claimed its interest in the plan proceeds was first in
time, while Mary argued her interest had priority because she was both a
"judgment lien creditor" and a "purchaser" under 26
a statute that in certain situations requires the IRS to file notice of
its lien to obtain priority.
The district court concluded Mary was neither a purchaser nor a judgment
lien creditor under section
6323(a). Specifically, the court determined Mary was not a purchaser
because her consideration was not "adequate and full," as
defined in 26 C.F.R. §301.6323(h)-1(f)(3)
(2001) (consideration must have reasonable relationship to true value of
interest in acquired property). Further, the district court found Mary
was not a judgment lien creditor because there was no evidence she had
perfected her lien by executing the judgment as required under
law. Because Mary was not entitled to the protections of section
6323, the district court held the IRS tax liens assessed on May 1,
1995, became effective against Mary as of that date and were first in
time and entitled to priority.
On appeal, Mary argues: (1) the Texas divorce court had exclusive
jurisdiction over this dispute; thus, there was no federal question and
the interpleader action was not proper; (2) under Texas community
property law, Mary had substantial property rights in the plan proceeds
even before the divorce; (3) she was a purchaser under section
6323(a); and (4) she was a judgment lien creditor under section
This court reviews de novo the district court's grant of summary
judgment. Mayberry v. United States [ 98-2
USTC ¶50,632], 151 F.3d 855, 858 (8th Cir. 1998). Initially, we
reject Mary's first two arguments: (1) federal jurisdiction does exist, see
29 U.S.C. §1132(a)(3) (civil action may be brought by fiduciary to
enjoin violations of ERISA plan, or to obtain appropriate equitable
relief); and (2)
community property law does not vest her with an interest in the plan
proceeds. See 29 U.S.C. §1144(a) (ERISA supersedes state law
insofar as such law relates to ERISA-governed plans); Boggs v. Boggs,
833, 850 (1997) (QDRO provisions define scope of nonparticipant spouse's
community property interest in pension plans).
We turn next to whether Mary became a judgment lien creditor under section
6323(a) within sufficient time to have priority over the IRS. 3
An IRS lien attaches automatically on the date a penalty is assessed, 26
(lien arises at time of assessment), and is enforceable as of that date
against creditors except any "purchaser," "holder of
security interest," "mechanic's lienor," or
"judgment lien creditor," within the meaning of section
6323(a). If the creditor falls into one of these categories, then
the IRS must provide adequate notice to establish the priority of its
lien. See 26 U.S.C. §6323(a);
USTC ¶9401], 697 F.Supp. 1508, 1511 (D. Minn. 1988) (as to §6323(a)
creditors, tax lien will have priority only if notice has been filed in
accordance with §6323(f)).
A Treasury Regulation defines "judgment lien creditor" as
... a person
who has obtained a valid judgment, in a court of record and of competent
jurisdiction, for the recovery of specifically designated property or
for a certain sum of money. In the case of a judgment for the recovery
of a certain sum of money, a judgment lien creditor is a person who has
perfected a lien under the judgment on the property involved. A judgment
lien is not perfected until the identity of the lienor, the property
subject to the lien, and the amount of the lien are established.
Accordingly, a judgment lien does not include an attachment or
garnishment lien until the lien has ripened into judgment, even though
under local law the lien of the judgment relates back to an earlier
If under local
law levy or seizure is necessary before a judgment lien becomes
effective against third parties acquiring liens on personal property,
then a judgment lien under such local law is not perfected until levy or
seizure of the personal property involved.
26 C.F.R. §301.6323(h)-1(g).
A state law created lien's priority depends on when it attaches and
becomes choate, and federal law will determine when the lien has
acquired sufficient substance and becomes so perfected as to defeat a
later federal tax lien. United States v. Pioneer Am. Ins. Co. [ 63-2
USTC ¶9532], 374 U.S. 84, 88 (1963). Liens are perfected, under the
federal rule, when there is nothing more to be done to have a choate
lien, that is, "when the identity of the lienowner, the property
subject to the lien, and the amount of the lien are established."
at 89 (citations omitted). Here, Mary obtained a valid judgment from a
divorce court for 90 percent of Francis's plan proceeds creating an
exclusive property interest in the plan proceeds for Mary. On the date
court granted the DRO, Mary's identity was clear, the subject property
was identified, and the amount (90 percent) was fixed.
Mary was not required to comply with any state law requirements for
purposes of establishing lien priority over the IRS's interest in the
plan proceeds. ERISA provides a mechanism for enforcing QDROs, and this
mechanism supersedes any contrary state law. See
Constitution art. VI, cl. 2, Heart of Am. Grain Inspection Serv.,
Inc. v. Mo. Dep't of Agric., 123 F.3d 1098, 1103 (8th Cir. 1997)
(under Supremacy Clause, federal laws are supreme law of land and may
preempt state law); cf. Chevron U.S.A. Inc. v. Natural Res.
Def. Council, Inc., 467 U.S. 837, 843-44 (1984) (agencies may
elucidate, through regulations, specific provisions of statutes that
ister). Specifically, 29 U.S.C. §1056(d) provides for alienation of
pension plan benefits in accordance with a QDRO, and gives plan
istrators or courts eighteen months to determine whether a DRO qualifies
as a QDRO, directing the plan
istrator to segregate the amounts in question during that period. See
29 U.S.C. §1056(d)(3)(H). 4
In this case, Northwest determined, within eighteen months of the date
the first payment would have been made under the DRO, that the DRO, as
modified, was a QDRO. Thus, Mary satisfied ERISA's requirements for
alienating pension plan proceeds. Requiring Mary to satisfy state law
perfection requirements would conflict with ERISA's policy of ensuring
that plan sponsors are subject to a uniform body of law. See Egelhoff
v. Egelhoff, 532 U.S. 141, 148 (2001) (principal goal of ERISA is to
establish uniform scheme with standard procedures; uniformity is
impossible if plans are subject to different legal obligations in
different states); Minnesota Chapter of Associated Builders &
Contractors, Inc. v. Minn. Dep't of Pub. Safety, 267 F.3d 807,
810-11 (8th Cir. 2001) (ERISA's goal is to minimize
istrative and financial burden of complying with conflicting state
directives, and to prevent potential for conflicts in substantive law
requiring tailoring of plans to peculiarities of multiple local laws), cert.
denied, 122 S.Ct. 2292 (2002); Compagnoni [ 2001-2
USTC ¶50,626], 162 F.Supp.2d at 710 (imposing state law perfection
requirements would create choice-of-law difficulties, frustrating
objective of ensuring uniformity of ERISA
We further conclude that Mary's interest in the plan proceeds relates
back to the date of the initial DRO. See Nelson v. Ramette,
322 F.3d 541, 544 (8th Cir. 2003) ("A person awarded a lump-sum
distribution from an ERISA plan pursuant to a divorce decree has a
direct interest in plan funds while the plan reviews the DRO to
determine whether it constitutes a QDRO."); Gendreau v. Gendreau,
122 F.3d 815, 818 (9th Cir. 1997) (wife's interest in pension plans was
established at time of divorce decree; husband's interest was
concomitantly limited at that time, or subject to being limited at any
time wife obtained QDRO, much like property owner's rights may be
subject to divestment by contingent interest); Compagnoni [ 2001-2
USTC ¶50,626], 162 F.Supp.2d at 711-12 (wife had possessory
interest in benefits once first DRO had been entered although interest
was unenforceable until QDRO was obtained); cf. 29 U.S.C. §1056(d)(3)(H)
(any determination made within eighteen months of the order, or
modification of the order, will be applied prospectively). Mary had
eighteen months pursuant to section 1056(d)(3)(H)(ii) to qualify her
DRO, and "[i]f within the 18-month period ... the order (or
modification thereof) is determined to be a qualified domestic relations
order, the plan
istrator shall pay the segregated amounts ... to the
person...." (Emphasis added). The plan
istrator, by plan procedures, cannot shorten this eighteen month
Because the DRO preceded the IRS's notice of tax lien, and Northwest
determined within the requisite eighteen months that the DRO qualified
as a QDRO, see 29 U.S.C. §1056(d)(3)(H)(v) (computation of
time), Mary was a judgment lien creditor with priority as of July 1995,
when the DRO was entered. She is thus entitled to the plan proceeds free
of the IRS lien.
One other related issue should be addressed regarding the finality of
the July 1995 Texas DRO. The
judge signed an order prepared and approved by the parties which stated:
retains jurisdiction to amend this Order so that it will constitute a
qualified domestic relations order under the Plan even though all other
matters incident to this action or proceeding have been fully and
finally adjudicated. If the Plan determines at any time that changes in
the law, the
istration of the Plan, or any other circumstances make it impossible to
calculate the portion of a distribution awarded to Alternative Payee by
this Order and so notifies the parties, either or both parties shall
immediately petition the Court for reformation of this Order.
The intent of the July 1995 DRO, to qualify under the applicable
Northwest plans, is clear. The parties and the court recognized the
order may need changes to qualify. Northwest did require certain changes
to qualify. Mary asked the
court twice to reform the DRO before Northwest accepted the DRO as a
QDRO. This process is anticipated by the law, which provides for
segregation of the funds by the plan
istrator for up to eighteen months to qualify the DRO as a QDRO. See
29 U.S.C. §1056(d)(3)(H). Our holdings in Nelson and here,
recognizing the DRO establishes a "direct interest in plan
funds," and upon qualification, the interest relates back to the
initial DRO date, further the statutory scheme to protect employee
retirement benefits for beneficiaries of the plans, including divorced
As a legal matter, when the DRO issued, Francis was no longer the owner
of 90 percent of the
plans. Mary was awarded this share as part of the divorce. Mary, the
property, and the amount were identified clearly, only the details of
qualification remained to transform the DRO into a QDRO.
Since we conclude Mary was a judgment lien creditor, we do not address
whether she was also a purchaser under section
6323(a). Accordingly, we reverse the summary judgment with regard to
Mary Taylor, and remand with instructions to enter judgment in
conformity with this opinion.
LOKEN, Circuit Judge, dissenting: The lien priority issue in this case
involves the interplay of two federal statutory regimes, ERISA and the
Internal Revenue Code. The Code provides that a judgment lien, when
perfected, has priority over an existing federal tax lien unless
notice of the tax lien has been filed in accordance with state law. See
26 U.S.C. §6323(a),
(f). ERISA provides that a former spouse may acquire an enforceable
right to a participant's pension plan benefits pursuant to the
provisions of a "qualified domestic relations order" (QDRO). 5
Here, the IRS more or less concedes that the
divorce court's domestic relations order granted Mary Taylor a judgment
lien on Francis Taylor's ERISA plan benefits. The issue, then, is
whether her lien on those plan benefits is entitled to priority over the
IRS's tax liens under §6323(a).
Federal law governs whether a judgment lien created by state law is
perfected for purposes of §6323(a).
The federal rule is that a lien is perfected, or choate, "when the
identity of the lienor, the property subject to the lien, and the amount
of the lien are established." United States v. Pioneer Am. Ins.
Co. [ 63-2
USTC ¶9532], 374 U.S. 84, 89 (1963) (quotation omitted). A Treasury
Regulation now codifies this principle. 26 C.F.R. §301.6323(h)-1(g).
Though Mary Taylor's judgment lien was created by state law, ERISA
provides that, to be perfected --that is, enforceable against Francis
Taylor's plan benefits --the state court order must be a QDRO. And
Congress's definition of a QDRO incorporates the substance of the
federal law definition of a perfected lien: a domestic relations order
qualifies as a QDRO if it clearly specifies the plan participant, the
alternative payee (the lienholder), each plan to which the order
applies, the amount or percentage of the benefits to be paid to the
alternate payee, and the number of payments or period to which the order
applies. 26 U.S.C. §414(p)(2).
Given this overlap between the judicially developed federal rule of
perfection, and the statutory elements of a QDRO, I agree with the court
that a QDRO is a perfected judgment lien for purposes of the priority
rules of §6323(a).
Like the court, I reject the IRS's argument that, to be perfected under §6323(a),
the judgment lien created by a QDRO must also satisfy any levy or
seizure requirements generally applicable to liens created by the laws
of that State. Congress codified the perfection requirements for a QDRO
in another section of the Internal Revenue Code, and ERISA would preempt
any local law that interfered with its anti-alienation provisions. In
the absence of a Treasury Regulation specifically addressing the
relationship between Code §§6323(a)
and 414(p)(2), I decline to apply a general reference to local law in a
pre-existing Treasury Regulation, 26 C.F.R. §301.6323(h)-l(g), in a
manner inconsistent with the QDRO perfection provisions of ERISA.
There remains the question whether Mary's judgment lien was perfected
(acquired QDRO status) prior to the IRS filing notice of its tax liens
, in late December 1995. Mary's judgment lien arose on
July 28, 1995
, when the
divorce court entered a domestic relations order awarding her a 90%
interest in Francis Taylor's ERISA plan benefits. Northwest Airlines as
istrator determined that amended versions of that order qualified as
QDROs, long after the tax liens were filed in December 1995. The court
nonetheless concludes that Mary's QDRO-perfected lien has priority
because "Mary's interest in the plan proceeds relates back to the
date of the initial [divorce court order]." Ante at 7. I
ERISA provides that, when a domestic relations order is submitted for a
QDRO determination, the plan
istrator must make the determination "within a reasonable period
after receipt of such order," 26 U.S.C. §414(p)(6)(A)(ii),
and must segregate plan benefits that would be payable to the alternate
payee (here, Mary Taylor) for up to eighteen months while it makes that
See Hogan v. Raytheon, Co., 302 F.3d 854, 857 (8th Cir.
2002). If the
istrator determines within the eighteen-month approval period that the
submitted order or a "modification" of that order is a QDRO,
it must pay the segregated amounts to the alternate payee. 26 U.S.C. §414(p)(7)(B);
see Trustees of the Dirs. Guild of Am.-Producer Pension
Benefits Plans v. Tise, 255 F.3d 661, 2000 U.S. App. LEXIS 38507, at
**16 (9th Cir. 2000). In that situation, although the issue is not free
from doubt, I do not take issue with the court's conclusion that QDRO
status should "relate back" to the entry of the initial
domestic relations order for purposes of §6323(a)
lien priority because ERISA has conferred a direct interest in the
segregated plan funds at that earlier date. 6
Cf. Nelson v. Ramette, 322 F.3d 541, 544 (8th Cir. 2003) (for bankruptcy
purposes, alternative payee acquires QDRO interest in plan funds on the
date the domestic relations order is first entered); Gendreau v.
Gendreau, 122 F.3d 815, 818 (9th Cir. 1997) (same), cert. denied, 523
U.S. 1005 (1998).
But assuming the court has adopted a correct relation-back principle, it
has misapplied that principle to the facts of this case. Unlike the plan
istrator in Cooper Indus., Inc. v. Compagnoni [ 2001-2
USTC ¶50,626], 162 F.Supp.2d 702 (S.D. Tex. 2001), Northwest
Airlines did not invite Mary and Francis Taylor to submit a modified
domestic relations order to cure defects in the July 28, 1995, order.
Rather, Northwest Airlines as plan
istrator issued three letters between October 16 and November 3, 1995,
initially determining that the July 28, 1995, domestic relations order
did not qualify as a QDRO with respect to any of the three plans, and
advising the Taylors that these initial determinations would become
final at the conclusion of the sixty-day appeal period provided for in
the three plans. When the
did not appeal, Northwest Airlines issued three final negative
determinations. At that point, ERISA expressly provides that Mary as
alternate payee had no further interest in any segregated plan benefits.
26 U.S.C. §414(p)(7)(C).
Consistent with the statute, Northwest Airlines then paid the segregated
benefits for the months from July 1995 to January 1996 to Francis
Taylor. At that point, though the eighteen-month period had not
expired, Mary's claim to a perfected judgment lien as of
July 28, 1995
, was finally rejected. 7
As the court notes, the
court entered a modified domestic relations order on
January 8, 1996
, after the plan
istrator's final negative determinations. The
submitted that order to Northwest Airlines as plan
istrator. Northwest Airlines again issued three notices that it had
received a domestic relations order (one notice for each plan), which is
the first step in the QDRO-determination process. See 26 U.S.C. §414(p)(6)(A)(i).
In June 1996, Northwest Airlines finally determined that the January 8,
1996, order qualified as a QDRO with respect to Francis Taylor's savings
plan and stock plan benefits. However, on
April 15, 1996
, Northwest Airlines initially determined that the January 8 order did
not qualify as a QDRO with respect to Francis Taylor's retirement plan
benefits. Again, the
failed to appeal within the plan's sixty-day appeal period, and that
determination became final. Again, after the appeal period expired, the
submitted another modified domestic relations order, entered by the
August 29, 1996
, which Northwest Airlines finally determined to be a QDRO on
January 7, 1997
On this undisputed record, I conclude that the plan
istrator's QDRO determinations did not grant Mary Taylor a perfected
judgment lien interest in Francis Taylor's plan benefits prior to
January 8, 1996
. As the IRS properly filed notice of its liens in late December 1995,
the federal tax liens have priority over Mary's judgment lien under §6323(a).
Accordingly, I respectfully dissent.
Employee Retirement Income Security Act of 1974 (ERISA), as amended, 29
U.S.C. §§1001-1461 (2000).
26 U.S.C. §6323(a)
states: "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 [of the Treasury]."
The IRS has authority to proceed against Francis's interest in any ERISA
plan benefits and "is not constrained by ERISA's anti-alienation
provision." United States v. McIntyre [ 2000-2
USTC ¶50,613], 222 F.3d 655, 660 (9th Cir. 2000). After the DRO,
Francis effectively no longer has any ownership interest in Mary's 90
percent share of the
Pension benefit plans are distinguishable from welfare benefit plans,
which do not provide an enforcement mechanism. See Mackey v.
Lanier Collection Agency & Serv., Inc., 486
825, 831-33 (1988); Cooper Indus., Inc. v. Compagnoni [ 2001-2
USTC ¶50,626], 162 F.Supp.2d 702, 709-10 (S.D. Tex. 2001).
Significantly, the QDRO provisions of ERISA appear in both the Internal
Revenue Code and the Title 29 labor laws. See 29 U.S.C. §1056(d);
26 U.S.C. §414(p).
I will cite to the Code provisions in this dissent.
My doubt stems from the fact that the initial domestic relations order,
if seriously deficient, may not satisfy the QDRO requirements in §414(p)(2)
that correspond to the elements that make a judgment lien choate under
federal common law. Here, for example, the July 28, 1995, order did not
identify to which of the three Northwest Airlines plans it applied and
thus did not clearly define the 90% interest that Mary was awarded. In
such a case, for purposes of priority against a federal tax lien, I am
not sure whether QDRO status should only relate back to the date the
deficient domestic relations order was modified, or all the way back to
the entry of the initial, non-choate domestic relations order. I need
not resolve that question here.
The court has no support for its assertion that "[t]he plan
istrator, by plan procedures, cannot shorten [the] eighteen month
qualification period." Ante at 7. The assertion is contrary
to the plain language of the statute, which requires a QDRO
determination "within a reasonable period," provides that
affected benefits must be segregated while the determination is made,
but places an eighteen-month limit on the plan
istrator's duty to segregate. The assertion is also contrary to the
Department of Labor's interpretation of the QDRO provisions: "the
`18-month period' during which a plan
istrator must preserve the `segregated' amounts ... is not the measure
of the reasonable period for determining the qualified status of an
order and in most cases would be an unreasonably long period of time to
take to review an order." U.S. Dep't of Labor, Employee Benefits
Sec. Admin., QDROs --The Division of Pensions Through Qualified
Domestic Relations Orders, Question 2-12 at p.19, available
online at <http://www.dol.gov/ebsa/Publications/qdros.html>.
USTC ¶50,493] Linda Carter, Plaintiff v.
United States of America
District Court, West. Dist.
, West. Div., 01-2304 G/A, 5/20/2002
Secs. 6323 and 7426 ]
Civil suit: Liens and levies: Priority: Judgment lien creditor:
Divorce: State law: Tennessee: Perfected interest.--The government's
levy on a mutual fund account formerly held by an individual's bankrupt
ex-husband was wrongful. She qualified as a judgment lien creditor and
was awarded the fair market value of the account immediately prior to
the levy, plus interest accruing from the date of liquidation. She was
not required to register her divorce judgment to attach it to the
account. Under state (
) law, all marital property is eligible for divestiture in satisfaction
of a judgment. No formal execution was required, as the account was
liable at law. Her interest was perfected upon issuance of the divorce
Civil suit: Liens and levies: Damages: Interest: Fair market value:
Consequential damages: Exhaustion of
istrative remedies.--The government's levy on a mutual fund account
formerly held by an individual's bankrupt ex-husband was wrongful.
However, she was not entitled to consequential damages because she
failed to show that she exhausted
istrative remedies. Nor did she prove the IRS's disregard for the tax
code or that she suffered economic damages proximately caused by the
IRS's actions. Moreover, she failed to mitigate her alleged damages.
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR
SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
court are plaintiff's motion for summary judgment, filed on
March 12, 2002
, and defendant's motion for summary judgment, filed on
March 18, 2002
. Based on the following discussion, the former motion is granted in
part and denied in part, and the latter motion is denied.
arises from a tax assessment against Todd F. Brooks, the former husband
of plaintiff Linda Carter. (1st Carter Aff. ¶3.) On
June 19, 1995
, while Brooks and Carter were married, the Internal Revenue Service
("IRS") assessed $516,924.15 in unpaid federal income taxes
against Brooks--$229,434.45 for 1992 and $287,489.70 for 1993. (Answers
to First Set of Pl.'s Interrog. at 5.) During their marriage, including
1992 and 1993, Carter and Brooks filed separate tax returns.
initiated divorce proceedings in April or May 1996.
at 13. Carter learned of Brooks' federal tax liability during those
proceedings. (Carter Dep. at 12-13.) On
August 6, 1997
, the Circuit Court for
issued a judgment divorcing Carter and Brooks. Brooks v. Carter,
No. 152550-3 R.D., at 1 (Circuit Court of Tennessee Aug. 6, 1997) (Final
Judgment of Divorce). The judgment stated, in part, that ITT Hartford
Mutual Fund Account No. 68901 ("Account No. 68901"), with a
then-existing value of $247,045.04, "shall be the sole and separate
property of [Carter], and [Brooks] is divested of all rights to
ownership of said property."
at 6. The divorce judgment also stated that "any liability and/or
debt that [Brooks] owes to the Internal Revenue Service is his separate
at 8. The judgment has not been filed with the Shelby County Register of
Deeds. (Carter Dep. at 31-32.)
March 30, 1998
, the IRS filed a Notice of Federal Tax Lien against Brooks with the
Shelby County Register of Deeds. (Answers to First Set of Pl.'s
Interrog. at 10.) The lien, amounting to $516,924.15, consisted of
Brooks' federal income tax liability for 1992 and 1993, plus statutory
at 5; Def.'s Mot. for Summ. J. Ex. 3. Carter did not become aware of the
lien until 1999 or 2000. (1st Carter Aff. ¶5.)
June 19, 1998
, the IRS served a levy on Hartford Life Insurance Company
("Hartford Life"), attaching all property or rights to
property belonging to Brooks. (Answers to First Set of Pl.'s Interrog.
No. 7.) By letter dated
July 9, 1998
, Hartford Life advised the IRS that the levy, which lacked the required
approval of the IRS District Director, would not be honored. (Def.'s
Mot. for Summ. J. Ex. 7.) On
June 16, 1999
, the IRS served Hartford Life with a levy which reflected the approval
of the District Director.
Ex. 8. In response, on
August 4, 1999
, Hartford Life issued two checks to the IRS totaling $527,261.00,
including $350,403.12 from Account No. 68901. (Answers to First Set of
Pl.'s Interrog. No. 6; Def.'s Mot. for Summ. J. Ex. 10.) The $350,403.12
consisted of the then-existing value of Account No. 68901, $390,958.24,
less surrender charges of $1,621.44 and a tax withholding of $38,933.68.
(Def.'s Mot. for Summ. J. Ex. 10.)
the complaint in this case on
April 18, 2001
. The sole claim advanced by Carter is that defendant
United States of America
("the government") wrongfully levied upon and seized the
contents of Account No. 68901. Pursuant to 28 U.S.C. §7426, Carter
seeks a judgment in the amount of $390,958.24, plus interest and
have filed motions for summary judgment. Carter argues in her motion
that the government's levy was wrongful for two reasons. First, she
contends that it was placed on property in which Brooks had no interest.
Second, Carter claims that she qualifies as a judgment lien creditor
pursuant to 26 U.S.C. §6323, making her interest in Account No. 68901
superior to the government's lien. In its motion for summary judgment,
the government asserts that its levy was not wrongful because its lien
on Account No. 68901 is superior to Carter's interest. Alternatively, in
the event that the levy was wrongful, the government argues that Carter
is only entitled to recover $350,403.12, the amount it received from
Account No. 68901.
Rule of Civil Procedure 56(c), summary judgment is proper "if the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); Celotex
Corp. v. Catrett, 477
317, 322 (1986). So long as the movant has met its initial burden of
"demonstrat[ing] the absence of a genuine issue of material
fact," Celotex, 477 U.S. at 323, and the nonmoving party is
unable to make such a showing, summary judgment is appropriate, Emmons
v. McLaughlin, 874 F.2d 351, 353 (6th Cir. 1989). In considering a
motion for summary judgment, "the evidence as well as all
inferences drawn therefrom must be read in a light most favorable to the
party opposing the motion." Kochins v. Linden-Alimak, Inc.,
799 F.2d 1128, 1133 (6th Cir. 1986); Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475
574, 587 (1986).
confronted with a properly-supported motion for summary judgment, the
nonmoving party "must set forth specific facts showing that there
is a genuine issue for trial." Fed. R. Civ. P. 56(e); Abeita v.
TransAmerica Mailings, Inc., 159 F.3d 246, 250 (6th Cir. 1998). A
genuine issue of material fact exists for trial "if the evidence
[presented by the nonmoving party] is such that a reasonable jury could
return a verdict for the nonmoving party." Anderson v. Liberty
Lobby, Inc., 477
242, 248 (1986). In essence, the inquiry is "whether the evidence
presents a sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a matter of
of the Internal Revenue Code ("the Code") provides:
If any person
liable to pay any tax neglects or refuses to pay the same after demand,
the amount . . . shall be a lien in favor of the United States upon all
property and rights to property, whether real or personal, belonging to
U.S.C. §6321. The lien generally arises when an assessment is made and
continues until the taxpayer's liability "is satisfied or becomes
unenforceable by reason of lapse of time."
§6322. Since a federal tax lien is not self-executing, the Code
provides the government with two options for the collection of unpaid
taxes. The first option, irrelevant to the matter at hand, is a
lien-foreclosure suit. 26 U.S.C. §7403(a). The second option is the
istrative levy, a provisional remedy which typically "does not
require any judicial intervention."
§6331(a); United States v. Rodgers [83-1
USTC ¶9374] , 461 U.S. 677, 680-82 (1983).
the second option, in the event that a taxpayer's property is held by
another, it is customary to serve notice of the levy upon the custodian.
26 U.S.C. §6332(a). Such notice gives the IRS the right to all property
levied upon and creates a custodial relationship between the person
holding the property and the IRS, bringing the property into the
constructive possession of the government. United States v. Nat'l
Bank of Commerce [85-2
USTC ¶9482] , 472 U.S. 713, 720 (1985). The levy, however, does not
determine whether the government's rights to the seized property are
superior to those of other claimants.
at 721. Its purpose is to allow the government to promptly secure
revenues. Phillips v. Commissioner [2
USTC ¶743] , 283 U.S. 589, 596 (1931).
her wrongful levy claim pursuant to 28 U.S.C. §7426, which states:
Wrongful levy.--If a levy has been made on property or property has been
sold pursuant to a levy, any person (other than the person against whom
is assessed the tax out of which such levy arose) who claims an interest
in or lien on such property and that such property was wrongfully levied
upon may bring a civil action against the United States.
of assessment.--For the purposes of an adjudication under this section,
the assessment of tax upon which the interest or lien of the
is based shall be conclusively presumed to be valid.
The Sixth Circuit has stated that a levy is
(1) it is
placed on property exempt under §6334; (2) it is placed on property in
which the delinquent taxpayer had no interest [at the time the lien
arose or thereafter]; (3) it is invalid under §§6323 or 6324(a)(2) or
(b); or (4) the plaintiff's interest in the property is senior to the
federal tax lien and will be destroyed by the levy.
v. United State of America [96-2
USTC ¶50,434] , 90 F.3d 143, 147 (6th Cir. 1996) (citing 26 C.F.R.
§301.7426-1(b)). Pursuant to §6323, a federal tax lien is not valid
against a judgment lien creditor until notice of that lien has been
properly filed. 26 U.S.C. §6323. 1
advances two bases for her assertion that the government's levy was
wrongful. First, Carter claims that the levy was placed on property in
which Brooks had no interest. Second, she contends that pursuant to §6323,
she qualified as a judgment lien creditor before the government filed
notice of its tax lien.
argument misconstrues the law. Pursuant to 26 C.F.R. §301.7426-1(b),
the critical consideration is whether the taxpayer had an interest in
the levied property at the time the tax lien arose or thereafter, not
whether the interest existed at the time the levy was issued. 2
Therefore, the court rejects Carter's first argument that the
government's levy was wrongful.
second argument requires a more elaborate analysis. In adjudicating the
priority of competing liens, federal common law prescribes that
"the first in time is the first in right." United States v.
City of New Britain [54-1
USTC ¶9191] , 347 U.S. 81, 85 (1954). However, this principle is
modified by §6323, under which a federal tax lien has priority over a
competing judgment lien only if the IRS serves proper notice of its lien
before the judgment lien is perfected and attached. United States v.
Estate of Romani [98-1
USTC ¶50,368 ; 98-1
USTC ¶60,311 ], 523 U.S. 517, 524 (1998).
The court is
faced with the issue of whether, by virtue of the divorce judgment,
Carter qualifies as a perfected and attached judgment lien creditor of
Account No. 68901. Although the government's lien on Account No. 68901
June 19, 1995
, notice of the lien was not filed until
March 30, 1998
. (Answers to First Set of Pl.'s Interrog. at 5, 10.) The record
reflects that on
August 6, 1997
, Carter obtained an interest in Account No. 68901 upon the entry of the
divorce judgment but took no further action to perfect this interest. 3
(2nd Carter Aff. ¶5.) If the divorce judgment made Carter a perfected
and attached judgment lien creditor of Account No. 68901, the
government's levy was wrongful pursuant to §6323 because the judgment
was entered before the government filed notice of its tax lien.
Otherwise, the government's levy was not wrongful.
promulgated by the IRS define "judgment lien creditor" as
"judgment lien creditor" means a person who has obtained a
valid judgment, in a court of record and of competent jurisdiction, for
the recovery of specifically designated property or for a certain sum of
money. . . . A judgment lien is not perfected until the identity of the
lienor, the property subject to the lien, and the amount of the lien are
established. . . . If under local law levy or seizure is necessary
before a judgment lien becomes effective against third parties acquiring
liens on personal property, then a judgment lien under such local law is
not perfected until levy or seizure of the personal property involved.
C.F.R. 301.6323(h)-1(g). To create a state lien, a judgment creditor
must first do what is required under state law to cause a judgment to
attach to property. Redondo Constr. Co. v. United States [98-2
USTC ¶50,841] , 157 F.3d 1060, 1063 n.4 (6th Cir. 1998) (citing United
States v. Pioneer Am. Ins. Co. [63-2
USTC ¶9532] , 374 U.S. 84, 89 (1963); City of New Britain,
347 U.S. at 84; S&S Gasket Co. v. United States [81-1
USTC ¶9115] , 635 F.2d 568, 570 (6th Cir. 1980)). However, federal
law governs the issue of when a state-created lien is considered
perfected or "choate" such that it will defeat a federal tax
qualifies as a judgment lien creditor. A Final Judgment of Divorce was
entered by the Circuit Court of Tennessee for the Thirteenth Judicial
August 6, 1997
. Brooks v. Carter, No. 152550-3 R.D., at 1 (Circuit Court of
Tennessee Aug. 6, 1997) (Final Judgment of Divorce). The authority to
decree divorce is vested in both the circuit and chancery courts of
Code Ann. §36-4-105. The judgment declared Account No. 68901,
specifically designated personal property, to be "the sole and
separate property of [Carter], and [Brooks] relinquishes and is divested
of all rights to ownership. . . ." Brooks v. Carter, No.
152550-3 R.D., at 8 (Circuit Court of Tennessee Aug. 6, 1997) (Final
Judgment of Divorce).
asserts, however, that Carter did not properly attach the judgment of
divorce to Account No. 68901. It contends that Carter failed to register
the judgment in
, as required by Tenn. Code Ann. §25-5-103. Carter asserts that §25-5-103
is inapplicable and that registration is not required to enforce the
judgment's division of personal property.
25-5-103 of the Tennessee Code states:
thereon shall not bind the debtor's legal or equitable interest in
stock, choses in action, or other personal property, not liable at law,
unless a similar abstract or memorandum is registered within sixty (60)
days from rendition of the judgment or decree, in the county where the
debtor resides, if the debtor lives in this state, or, if not, then in
the county in which the property is located.
Code Ann. §25-5-103. 4
Execution is a process by which the sheriff or another officer satisfies
a judgment by levying upon and selling the debtor's property. Alexander
E. Conlyn, Enforcing Money Judgments in
, 4 Mem. St. Law Rev. 65, 67 (1973); Black's Law Dictionary 568 (6th
ed. 1990). The process begins with a writ of execution, the typical
vehicle for enforcing money judgments, which is an order directing an
officer to levy upon and sell the judgment debtor's property identified
in the writ.
Code Ann. §§26-1-103 to 26-1-104. A levy of execution is the officer's
act of appropriating the debtor's property for satisfaction of the debt,
resulting in the divestiture of the judgment debtor's title. Keep
Fresh Filters, Inc. v. Reguli, 888 S.W.2d 437, 443 (Tenn. Ct. App.
25-5-103 is inapposite in this case because a formal execution has not
occurred. There is no evidence in the record indicating that a writ of
execution was issued in connection with the divorce judgment. It appears
that instead of transferring title to Account No. 68901 by means of
execution, the circuit court used its statutory authority to award title
to Carter in the divorce judgment.
Code Ann. §36-4-121(a); Thompson v. Thompson, 797 S.W.2d 599,
604 (Tenn. Ct. App. 1990). Therefore, Carter was not bound by the
registration requirement in §25-5-103.
that the divorce judgment qualifies as an execution, an issue arises as
to whether Account No. 68901 is property "liable at law." Two
cases have addressed the meaning of this phrase. In Smith v. United
States Ins. Co., the Supreme Court of Tennessee found that a
corporation's choses in action were "liable at law" because §4765
of Shannon's Code provided that "an execution against a corporation
may be levied of its choses in action as well as on goods and
chattles," modifying the common law rule that an execution did not
impose a lien upon a debtor's choses in action. 150 S.W. 97, 99 (
1912). More recently, a bankruptcy court held that choses in action are
"liable at law" under Tenn. Code Ann. §26-2-202, which states
that "[a]ll property, debts and effects of the defendant in the
possession of the garnishee, or under his control, shall be liable to
satisfy the plaintiff's judgment."
by's Pancake House of Florida v. R.K. Walker, 24 B.R. 989, 998
n.11 (Bankr. W.D. Tenn. 1982). The court reasoned that
"property" encompassed choses in action.
In light of
these cases, the court finds that Tenn. Code Ann. §36-4-121(a) makes
Account No. 68901 "liable at law." Section 36-4-121 states:
(a)(1) In all
actions for divorce or legal separation, the court having jurisdiction
thereof may, upon request of either party, and prior to any
determination as to whether it is appropriate to order the support and
maintenance of one (1) party by the other, equitably divide, distribute
or assign the marital property between the parties without regard to
marital fault in proportions as the court deems just.
(3) To this
end, the court shall be empowered to effectuate its decree by divesting
and reinvesting title to such property and, where deemed necessary, to
order a sale of such property and to order the proceeds divided between
Code Ann. §§36-4-121(a)(1), (3). To the
extent that a divorce judgment qualifies as an execution for the
purposes of §25-5-103, §36-4-121(a) makes all marital property, 5
including Account No. 68901, "liable at law" by explicitly
identifying such property as eligible for divestiture in satisfaction of
a judgment. The registration requirement in §25-5-103 appears to apply
only to personal property which is not made expressly subject to
divestiture by a separate provision of law. Thus, Carter was not
required to register the divorce judgment to attach it to Account No.
also claims that Carter is not a perfected judgment lien creditor. It
acknowledges that the divorce judgment reported the value of Account No.
68901 as $247,048.04. Brooks v. Carter, No. 152550-3 R.D., at 6
(Circuit Court of Tennessee Aug. 6, 1997) (Final Judgment of Divorce).
Nevertheless, the government contends that since Account No. 68901 was
comprised of mutual fund shares which fluctuated in value, it was
impossible for the court to "establish" the value of the lien,
as required by 26 C.F.R. 301.6323(h)-1(g). Carter contends that there is
no legal support for the government's position, which, she argues, would
have the practical effect of preventing anyone from obtaining a judgment
lien under 26 C.F.R. 301.6323(h)-1(g) on personal property other than
sparse, there is some legal guidance regarding the conditions under
which the amount of a lien is "established." The Sixth Circuit
has held that this element of perfection is satisfied by a judgment in a
court of record for a definite amount of money. S&S Gasket [81-1
USTC ¶9115] , 635 F.2d at 571. It has also indicated, in dictum,
that a lien is perfected when "the underlying amount is
fixed," "although the total balance of the lien may
fluctuate." Hensley v. Harbin [99-2
USTC ¶50,961] , 196 F.3d 613, 616 (6th Cir. 1999). The Tenth
Circuit determined that a bank possessed a perfected lien on a
customer's accounts, despite their fluctuation in value, because the
amount owed was a definite amount plus interest at a set rate and the
bank monitored the accounts to assure the presence of funds which
covered the obligation. Jefferson Bank and Trust v. United States
USTC ¶50,078] , 894 F.2d 1241, 1244 (10th Cir. 1990).
guidance to the case at hand, the court finds Carter's position more
persuasive. The divorce judgment adequately identified Account No. 68901
and specified its value as of
August 6, 1997
. Brooks v. Carter, No. 152550-3 R.D., at 6 (Circuit Court of
Tennessee Aug. 6, 1997) (Final Judgment of Divorce). The foregoing cases
indicate that perfection of a lien is not inhibited by fluctuation in
the lien's value so long as the value can be easily calculated from a
fixed underlying amount. The value of Account No. 68901, until it was
levied upon by the government, was easily determined by multiplying the
total number of mutual fund shares in Account No. 68901 by the
then-existing value of each share, which was fixed by a well-defined
market. Moreover, the government's position is contrary to the plain
language of 26 C.F.R. 301.6323(h)-1(g), which clearly contemplates
judgment liens on personal property other than money, despite the fact
that such property often fluctuates in value. Therefore, in addition to
identifying the lienor and property subject to the lien, the divorce
judgment "established" the value of the lien and, thus,
perfected it for the purposes of 26 C.F.R. 301.6323(h)-1(g).
the court finds that pursuant to 26 C.F.R. 301.6323(h)-1(g), Carter is a
judgment lien creditor of Account No. 68901. Moreover, Carter's interest
in Account No. 68901 became perfected and attached upon the issuance of
the divorce judgment on August 6, 1997. Consequently, pursuant to 26
C.F.R. §301.7426-1(b) and 26 U.S.C. §6323, the government's levy on
Account No. 68901 was wrongful. 6
The court must
now determine the relief to which Carter is entitled for the
government's wrongful levy. Carter contends that pursuant to 26 U.S.C.
§7426(g), her judgment should include the amount of $390,958.24 plus
interest. In addition, she seeks consequential damages amounting to the
costs of this action, including attorney's fees. The government claims
that Carter is only entitled to an award of $350,403.24, the amount
collected by the IRS from Account No. 68901, plus interest. The
government also avers that Carter has not satisfied the statutory
prerequisites for the recovery of consequential damages.
issue concerning relief is whether the judgment will include the value
of Account No. 68901 on
August 4, 1999
, $390,958.24, or the portion thereof transferred to the government by
Hartford Life, $350,403.24. The only statutory guidance on this matter
is 26 U.S.C. §7426(b), which states:
Adjudication.--The district court shall have jurisdiction to grant only
such of the following forms of relief as may be appropriate in the
of Property.--If the court determines that such property has been
wrongfully levied upon, the court may--
(A) order the
return of specific property if the
is in possession of such property;
(B) grant a
judgment for the amount of money levied upon; or
(C) if such
property was sold, grant a judgment for an amount not exceeding the
the amount received by the
from the sale of such property, or
the fair market value of such property immediately before the levy.
(b)(2)(C) sets forth the remedies available to Carter. The record
indicates that after receiving the government's second levy, Hartford
Life sold the mutual fund shares in Account No. 68901 and transferred a
portion of the proceeds to the government. (Answers to First Set of
Pl.'s Interrog. No. 6; Def.'s Mot. for Summ. J. Ex. 8, 10.) Of the three
options, subsection (b)(2)(C) is the only one which addresses the
situation in which property is sold to satisfy an IRS tax levy. 7
Consequently, the court must award relief in accordance with this
On this issue,
the court finds Carter's position more persuasive. Pursuant to
subsection (b)(2)(C), the court has discretion over the award, bounded
only by the requirement that the amount not exceed the greater of the
funds received by the government, $350,403.12, or the fair market value
of Account No. 68901 immediately before the levy, $390,958.24. In
determining an appropriate figure, the court is guided by §7426(b)(2),
which clearly evinces an intent to return a person whose property has
been wrongfully levied upon to the financial position occupied before
the levy. If adopted, the government's position would render Carter
$40,555.12 poorer than she was before the wrongful levy because she
presumably cannot recover the amounts retained by Hartford Life for the
payment of taxes and surrender charges. Therefore, Carter's award will
include the amount of $390,958.24.
matter concerning relief is interest. The court is permitted to award
interest on the $390,958.24 in accordance with 26 U.S.C. §7426(g),
Interest.--Interest shall be allowed at the overpayment rate established
under section 6621--
in the case of a judgment pursuant to subsection (b)(2)(C), from the
date of the sale of the property wrongfully levied upon to the date of
the payment of such judgment.
Section 6621 states that the overpayment
rate shall be the sum of "(A) the federal short-term rate
determined under subsection (b), plus (B) 2 percentage points." 26
U.S.C. §6621. Therefore, in addition to $390,958.24, Carter is entitled
to interest calculated pursuant to §6621, accruing from the date on
which Hartford Life sold the mutual fund shares in Account No. 68901
until the date on which the government satisfies the forthcoming
judgment of this court.
matter concerning relief is the recovery of consequential damages.
Carter claims that she is entitled to such damages pursuant to 26 U.S.C.
§7426(h), which states in pertinent part:
of damages permitted in certain cases.--
In general.--Notwithstanding subsection (b), if, in any action brought
under this section, there is a finding that any officer or employee of
the Internal Revenue Service recklessly or intentionally, or by reason
of negligence, disregarded any provision of this title the defendant
shall be liable to the plaintiff in an amount equal to the lesser of
$1,000,000 ($100,000 in the case of negligence) or the sum of--
actual, direct economic damages sustained by the plaintiff as a
proximate result of the reckless or intentional or negligent disregard
of any provision of this title by the officer or employee (reduced by
any amount of such damages awarded under subsection (b)); and
the costs of this action.
istrative remedies be exhausted; mitigation; period.--The rules of
section 7433(d) shall apply for the purposes of this subsection.
Section 7433(d) states:
istrative remedies be exhausted.--A judgment for damages shall not be
awarded under subsection (b) unless the court determines that the
plaintiff has exhausted the
istrative remedies available to such plaintiff within the Internal
Mitigation of damages.--The amount of damages awarded under subsection
(b)(1) shall be reduced by the amount of such damages which could have
been mitigated by the plaintiff.
Period for brining action.--Notwithstanding any other provision of law,
an action to enforce liability created under this section may be brought
without regard to the amount in controversy and may be brought only
within 2 years after the date the right of action accrues.
argues that Carter is not entitled to consequential damages for four
reasons. First, the government claims that the record is devoid of any
evidence that Carter exhausted her
istrative remedies. Second, it contends that Carter has not presented
sufficient evidence of the IRS's intentional, reckless or negligent
disregard of Title 26 of the United States Code. Third, the government
asserts that Carter has not established that she suffered economic
damages proximately caused by the IRS's actions. Finally, it avers that
Carter has failed to mitigate any of her alleged damages.
istrative remedies is addressed by 26 C.F.R. §7433-1. In pertinent
part, this regulation states:
(d) No civil
action in federal district court prior to filing an
istrative claim--(1) Except as provided in paragraph (d)(2) of this
section, no action under paragraph (a) of this section shall be
maintained in any federal district court before the earlier of the
The date the decision is rendered on a claim filed in accordance with
paragraph (e) of this section; or
The date six months after the date an
istrative claim is filed in accordance with paragraph (e) of this
istrative claim is filed in accordance with paragraph (e) of this
section during the last six months of the period of limitations
described in paragraph (g) of this section, the taxpayer may file an
action in federal district court any time after the
istrative claim is filed and before the expiration of the period of
istrative claim--(1) Manner. An
istrative claim for the lesser of $100,000 or actual, direct economic
damages as defined in paragraph (b) of this section shall be sent in
writing to the district director (marked for the attention of the Chief,
Special Procedures Function) of the district in which the taxpayer
istrative claim shall include:
The name, current address, current home and work telephone numbers and
any convenient times to be contacted, and taxpayer identification number
of the taxpayer making the claim;
The grounds, in reasonable detail, for the claim (include copies of any
available substantiating documentation or correspondence with the
Internal Revenue Service);
A description of the injuries incurred by the taxpayer filing the claim
(include copies of any available substantiating documentation or
The dollar amount of the claim, including any damages that have not yet
been incurred but which are reasonably foreseeable (include copies of
any available substantiating documentation or evidence); and
The signature of the taxpayer or duly authorized representative. For
purposes of this paragraph, a duly authorized representative is any
attorney, certified public accountant, enrolled actuary, or any other
person permitted to represent the taxpayer before the Internal Revenue
Service who is not disbarred or suspended from practice before the
Internal Revenue Service and who has a written power of attorney
executed by the taxpayer.
evidence in the record that Carter pursued
istrative remedies before filing this lawsuit. Carter contends that she
contacted the IRS in an effort to recover the funds on
October 28, 1999
, and again on
November 17, 1999
, at which time she was referred to the Taxpayer Advocate Office. 8
(2nd Carter Aff. ¶8.) On
November 24, 1999
, Carter faxed documentation regarding her claim to the Taxpayer
Advocate Office in
, and learned that her claim was assigned to Patricia Debnam.
January 7, 2000
, pursuant to her request, Debnam was faxed copies of court opinions in
Carter's divorce proceeding.
October 18, 2000
, Carter was notified that the IRS had rejected her claim.
There is no
evidence, however, which indicates that Carter complied with the
detailed procedures set forth in 26 C.F.R. §7433-1(e). Carter has not
established that she presented her
istrative claim to the funds from Account No. 68901 in a writing sent to
the district director (marked for the attention of the Chief, Special
Procedures Function) of the district which encompasses
. Moreover, there is no indication that Carter submitted her claim in
the proper format. Therefore, since Carter has not demonstrated that she
istrative remedies before filing this suit as required by 26 U.S.C. §7426(h),
she is not entitled to consequential damages, such as the costs
associated with this action, for the government's wrongful levy upon
Account No. 68901. 9
plaintiff's motion for summary judgment is granted in part and denied in
part. Plaintiff is entitled to judgment on her claim of wrongful levy
and an award of $390,958.24 plus interest. However, her request for
consequential damages is denied. Defendant's motion for summary judgment
is denied. This order disposes of the matter in its entirety.
IT IS SO
Sections 6334 and 6324 are of no consequence in this case. Section 6334
lists property which is exempt from a tax levy. 26 U.S.C. §6334.
Section 6324 pertains to special liens for estate and gift taxes.
The tax lien arose when unpaid taxes were assessed against Brooks on
June 19, 1995
. See 26 U.S.C. §6322. The record contains evidence suggesting
that Brooks possessed an interest in Account No. 68901 on that date or
thereafter. In particular, on
August 4, 1999
, Hartford Life disbursed funds from the account in response to a levy
"attaching all property or rights to property" of Brooks.
(Answers to First Set of Pl.'s Interrog. No. 6; Answers to First Set of
Pl.'s Interrog. No. 6; Def.'s Mot. for Summ. J. Ex. 8.) In addition, in
their briefs, neither of the parties contest that Brooks possessed an
interest in Account No. 68901 until that interest was extinguished by
the divorce judgment.
In the complaint, Carter argues, in the alternative, that the
government's levy was wrongful because she possessed a one-half interest
in Account No. 68901 before unpaid taxes were assessed against Brooks on
June 19, 1995
. As suggested by the government, however, Carter has not offered any
evidence which indicates that she possessed an interest in Account No.
68901 prior to the entry of the divorce judgment on
August 6, 1997
A chose in action is "[a] thing in action; a right of bringing an
action or right to recover a debt or money." Black's Law Dictionary
241 (6th ed. 1990).
There is no indication that, at the time during the divorce proceeding,
Account No. 68901 was considered anything other than marital property.
Incidentally, two other federal district courts have determined that an
individual can qualify as a judgment lien creditor under 26 C.F.R.
301.6323(h)-1(g) by virtue of a divorce judgment. Cooper Indus., Inc.
v. Compagnoni [2001-2
USTC ¶50,626] , 162 F.Supp.2d 702, 707 n.2 (S.D. Tex. 2001); Estate
of Harless v. United States [2000-1
USTC ¶50,526] , 98 F.Supp.2d 1337, 1343 (S.D. Ala. 2000).
Subsection (b)(2)(A) is inapplicable because Hartford Life provided the
government with cash proceeds, not Carter's mutual fund shares.
Likewise, subsection (b)(2)(B) is inapposite because the government
levied upon Carter's mutual fund shares, not her money.
Incidentally, Carter has produced conflicting evidence regarding the
time at which she learned that the IRS had recovered funds from Account
No. 68901. In her first affidavit, Carter states that she obtained this
information in January 2000. (1st Carter Aff. ¶7.) In her second
affidavit, however, Carter asserts that the knowledge was acquired on
October 20, 1999
. (2nd Carter Aff. ¶7.)
Having determined that Carter did not exhaust her
istrative remedies, it is unnecessary for the court to address the
government's remaining grounds for denying Carter's request for
USTC ¶50,626] Cooper Industries, Inc., Plaintiff v. Jacqueline M.
United States of America
District Court, So. Dist.
, Houston Div., CIV. H-00-0702,
Validity of lien: Priority of lien: Judgment lien creditor: Divorce
judgment: ERISA: QDRO.--A judgment creditor's perfected lien on a
portion of her husband's pension plan benefits had priority over an IRS
lien for the husband's unpaid taxes. While the IRS had assessed the tax
liability a month before the final judgment of dissolution of the
couple's marriage was entered, it did not issue its notice of lien until
after the final judgment and the issuance of a qualified domestic
relations order (QDRO) to effect the transfer of the benefits. At that
time, the identity of the wife as the lienor, the property subject to
the lien, and the amount of the lien was established by the divorce
court's final judgment. Reg.
Sec. 301.6323(h)-1(g) did not impose additional state law perfection
requirements above and beyond the ERISA QDRO procedure, which specifies
its own method for transferring benefits to an alternate payee.
the Court is Defendant
United States of America
's Motion for Summary Judgment (Instrument No. 20). Based on the
submissions of the parties and the applicable law, the Court finds that
the motion should be DENIED and that Defendant Jacqueline
Compagnoni is entitled to summary judgment. Plaintiff Cooper Industries
is ORDERED to file an application for attorney's fees within ten
days of the date of this Order.
interpleader action arises from a lien interest taken by the United
States Internal Revenue Service ("IRS") in the net accrued
benefits of Luciano Compagnoni's pension and savings plan under his
former employer, Plaintiff/Stakeholder Cooper Industries, Inc.
("Cooper"). Defendant/Claimant Jacqueline Compagnoni,
Luciano's former spouse, was awarded the full amount of these benefits
as part of a Qualified Domestic Relations Order issued in
during their divorce proceedings in 1993. Compagnoni contends that her
right to these funds is without restriction. The IRS is attempting to
apply the proceeds from Luciano Compagnoni's benefits toward his
assessed income tax deficiency for the 1987 year. Plaintiff has
deposited the disputed pension plan benefits, $62,583.58, in the Court's
registry and has interpled both Jacqueline Compagnoni and the united
States pursuant to 29 U.S.C. §1335, seeking declaratory relief in
determining which party's claim to the accrued benefits is superior.
Cooper does not claim any interest in the funds, but requests its
attorney's fees and costs. (Instrument Nos. 1, 30).
Compagnoni worked for Cooper from 1975 until 1991 and participated in
the Salaried Employees' Retirement Plan ("Salaried Plan") and
the Savings and Ownership Plan. This case concerns the proceeds from the
Salaried Plan. Luciano and Jacqueline Compagnoni were married from 1975
to 1980, and was then remarried on
December 28, 1987
. In 1990, Jacqueline Compagnoni filed for divorce in the Circuit Court
for the 11th Judicial Circuit,
In April 1991,
Luciano Compagnoni received a refund check for the 1988 tax year from
the United States Treasury made out to Luciano and Jacqueline Compagnoni
for $73,324.07. (Order and Final Judgment on Mandate, Instrument, No.
45, Exh 1 at 3). The refund was the result of the IRS's erroneous
application of a check in the amount of $84,850.00 toward the
Compagnoni's 1988 taxes. Compagnoni v. United States [96-2 USTC
¶50,522], No. 94-0813, 1996 WL 696110, at *1 (S.D. Fla. Aug. 30,1996.).
The check should have been applied toward their existing 1997 tax
Luciano Compagnoni cashed the check in
without Jacqueline Compagnoni's consent and the money was never
recovered. (Instrument No. 45, Exh 1 at 3).
judgment of dissolution of marriage was entered on
April 18, 1991
. As part of that judgment, Compagnoni was awarded 50% of her husband's
pension benefits and counsel was ordered to submit a qualified domestic
relations order ("QDRO") to effect the transfer. (Instrument
No. 20, Exh 2 ¶11). Jacqueline Compagnoni appealed the final judgment,
which was reversed by the appellate court on
December 31, 1991
and remanded with instructions to redistribute the assets of the parties
based upon their ten years of marriage rather than a two and one-half
year marriage. (Instrument No. 45, Exh 1 at 1).
October 22, 1992
, the IRS assessed $61,173.00 in additional income taxes and $46,523.59
in interest against Luciano Compagnoni for the 1986 tax year. The IRS
filed a notice of federal tax lien in
for this additional assessment on
November 13, 1992
March 8, 1993
, additional income taxes of $59,798.00 and $38,181.09 in interest were
assessed against the Compagnonis for 1987.
After the case
was remanded, the
court entered its order and final judgment distributing the assets on
April 8, 1993
. (Instrument No. 45, Exh 1). The order was also recorded on that date.
). The order directed counsel to prepare a QDRO to be entered that would
award Jacqueline Compagnoni the "total value of the Cooper
Industries pension account and savings plan," (Instrument No. 45,
Exh 1 at 8). Mr. Compagnoni's attorney sent the IRS a copy of the April
8 order by letter dated
April 19, 1993
. (Instrument No. 45, Exh 4). An order was entered on
April 16, 1993
, granting Jacqueline Compagnoni the entire interest in Luciano
Compagnoni's Salaried Plan pension benefits which was $56,331.53, and
the Savings and Ownership Plan, which was $220,381.05, and giving Cooper
the responsibility for deciding whether the domestic relations order
("DRO") was qualified. (Instrument No. 1, Exh J). Cooper made
a "tentative determination" "pending receipt of
additional information" that the DRO was deficient. (Instrument No.
20, Exh 6). Cooper faulted the DRO for neglecting to clearly identify
the Savings and Stock Ownership Plan in the language of the order and
for designating a beneficiary for the Salaried Plan despite the fact
that it did not permit Jacqueline Compagnoni to do so. (
). Cooper informed Jacqueline Compagnoni's attorney that, "[o]nce
the order or clarification is received, the Revised Domestic Relations
Order will be reviewed once more pursuant to [Cooper's] QDRO
Administrative Procedures in order to determine its qualified status.
You will then be notified of its qualified or unqualified status."
May 10, 1993
, the IRS assessed Luciano Compagnoni $18,051.47 in income taxes for
May 21, 1993
, the IRS filed a notice of federal tax lien with respect to the
Compagnonis' tax liability for 1987. (Instrument No. 45, Exh 5). The IRS
then served a notice of levy upon the Plan Administrator at Cooper with
respect to the additional assessment against the Compagnonis for 1987 as
well as a notice of levy for Luciano Compagnoni's liability for 1991. On
July 1, 1993
, the IRS served a notice of levy upon Citibank as trustee of the
Savings and Ownership Plan, with respect to Luciano Compagnoni's
liability for 1997. Citibank is not a party to this action. A similar
notice of levy was served upon Citibank for the years 1986 and 1991.
While the IRS attempted to serve a levy for the benefits at issue here,
it was apparently unsuccessful. (Instrument No. 45, Exh 7).
July 20, 1993
court issued an order clarifying its previous order with respect to the
benefits. ("Order Clarifying Qualified Domestic Relations Order
April 16, 1993
," Instrument No. 45, Exh 3). Cooper determined that the order, as
clarified, was a QDRO. (Instrument No. 20, Exh 9). On
July 29, 1993
, Citibank issued a $183,290.88 check to the IRS. The IRS applied those
proceeds from the Saving and Ownership Plan to pay Luciano Compagnoni's
income tax liability for 1986 and 1991 in full. (Instrument No. 20, Exh
10). For 1987, $47,794.61 was applied toward his liability. (
Apparently, the IRS arbitrarily chose to apply the money from the levied
Citibank benefits toward the 1991 liability rather than using all the
remaining proceeds to reduce the 1997 liability.
1993, the IRS released Jacqueline Compagnoni from liability for the
additional assessments and interest for the year 1987. (Instrument No.
20, Exh 12). Pursuant to the innocent spouse provisions of the Revenue
Code, the IRS filed a modified notice of federal tax lien that removed
her name from the lien (
February 29, 2000
, Cooper filed this action seeking a declaratory judgment as to which of
the claimants, Jacqueline Compagnoni or the Government, is entitled to
the funds at issue as well as attorney fees and costs. The United States
filed a motion for summary judgment on September 15, 2000, arguing that
pursuant to 26 U.S.C. §§6321, 6322, its lien against Compagnoni's
pension benefits attached as of the time the tax was assessed, March 8,
asserts that because the division of the Compagnonis' assets was not
final until the Final Judgment on Mandate after Remand was issued on
April 8, 1993
and the QDRO had not been entered as of the date of the assessment, the
IRS is entitled to the funds as a prior lien holder. The
contends that the final judgment did not make Jacqueline Compagnoni a
"judgment lien creditor" entitled to priority over the tax
lien. Even if it did, the Government continues, it was not effective
until the QDRO was entered on
July 30, 1993
, which was after the IRS filed a notice of federal tax lien.
Compagnoni filed a response on
October 10, 2000
, claiming that the final judgment in the divorce dated
April 8, 1993
entitles her to her former spouse's pension benefits. (Instrument No.
28). A hearing was held on
June 22, 2001
to clarify factual and legal issues for the Court. The parties filed
supplemental briefing related to priority. The Government argues that
Compagnoni failed to perfect her interest in the pension benefits and,
as a result, the IRS is entitled to priority. (Instrument No. 46).
Compagnoni argues that the recording of the final judgment was
sufficient to perfect her interest. (Instrument No. 45). Compagnoni also
requests that the Court grant her summary judgment sua sponte.
judgment is appropriate if no genuine issue of material fact exists and
the moving party is entitled to judgment as a matter of law. FED. R.
CIV. P. 56. A fact is "material" if its resolution in favor of
one party might affect the outcome of the suit under governing law. See
Anderson v. Liberty Lobby, Inc., 106 S.Ct. 2505, 2510 (1986); see
v. Arron, 954 F.2d 249, 251 (5th Cir. 1992). An issue is
"genuine" if the evidence is sufficient for a reasonable jury
to return a verdict for the nonmoving party. See Anderson, 106
S.Ct. at 2510. If the evidence rebutting the motion for summary judgment
is only colorable or not significantly probative, summary judgment
should be granted.
at 2511; see also Thomas v. Barton Lodge, Ltd., 174 F.3d 636, 644
(5th Cir. 1999). The summary judgment procedure, therefore, enables a
party "who believes there is no genuine issue as to a specific fact
essential to the other side's case to demand at least one sworn averment
of that [specific] fact before the lengthy process continues." See
Lujan v. Nat'l Wildlife Fed'n, 110 S.Ct. 3177, 3188-99 (1990).
Under Fed. R.
Civ. P. 56(c), the moving party bears the initial burden of informing
the district court of the basis for its belief that there is an absence
of a genuine issue for trial, and for identifying those portions of the
record that demonstrate such absence. See Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 106 S.Ct. 1348, 1355-56 (1986); Burge v.
Tammany, 197 F.3d 452, 464 (5th Cir. 1999).
moving party has met its Rule 56(c) burden, the nonmovant "must do
more than simply show that there is some metaphysical doubt as to the
material facts. . . . [T]he nonmoving party must come forward with
'specific facts showing that there in a genuine issue for trial.'
" See Matsushita, 106 S.Ct. at 1356 (quoting Fed. R. Civ. P.
56(e)) (emphasis in original); see also Celotex Corp. v. Catrett,
106 S.Ct. 2548, 2552 (1986); Engstrom v. First Nat'l Bank, 47
F.3d 1459, 1462 (5th Cir. 1995). To sustain the burden, the nonmoving
party must produce evidence admissible at trial. See Anderson,
106 S.Ct. at 2514; see also Thomas v. Price, 975 F.2d 231, 235
(5th Cir. 1992) ("To avoid a summary judgment, the nonmoving party
must adduce admissible evidence which creates a fact issue. . .
."). The Court reviews the facts in the fight most favorable to the
nonmovant and draws all reasonable inferences in favor of the nonmovant.
See Brown v. Bunge Corp., 207 F.3d 776, 781 (5th Cir. 2000).
"The mere existence of a scintilla of evidence in support of the
plaintiff's position will be insufficient; there must be evidence on
which the jury could reasonably find for the plaintiff." See
Anderson, 106 S.Ct. at 2512.
of whether the IRS or Jacqueline Compagnoni is entitled to the proceeds
from Luciano Compagnoni's pension benefits ultimately depends on which
party had the priority interest based on the applicable tax and employee
benefits laws. To resolve the issue, this Court must enter "the
tortured meanderings of federal tax lien law," Tex. Oil &
Gas Corp. v. United States [72-2 USTC ¶9653], 466 F.2d 1040, 1043
(5th Cir. 1972), and address the interplay of Employee Retirement Income
Security Act ("ERISA") with state execution of judgment law.
The IRS contends that its lien filed on
May 21, 1993
takes priority over Ms. Compagnoni's QDRO because she was not a judgment
creditor with a perfected interest in the pension benefits. The IRS
asserts that Compagnoni was not a judgment creditor until
July 20, 1993
when the final QDRO was issued. Compagnoni argues that the
April 8, 1993
entry and recording of the
court order rendered her a judgment lien creditor with an interest
superior to that of the IRS. The parties do not dispute the facts of the
case but disagree as to the legal import of these facts.
is entitled to impose a lien upon a person's real or personal property
if that person fails to pay any tax owed the IRS. 26 U.S.C. §6321. The
benefits at issue are governed by ERISA. While ERISA's anti-alienation
clause prevents ordinary creditors from attaching pension funds, a
federal tax lien or levy may be imposed upon ERISA-qualified pension
plan funds such as those here. See Shanbaum v. United States [94-2
USTC ¶50,512], 32 F.3d 180, 183 (5th Cir. 1994). The lien arises
"at the time the assessment is made." 26 U.S.C. §6322; see
also Harris v.
[85-2 USTC ¶9511], 764 F.2d 1126, 1128 (5th Cir. 1985). However,
such a lien is not valid against several classes of creditors, including
a "judgment lien creditor," until notice of the federal tax
lien has been filed. 26 U.S.C. §6323(a), (f). The relative priority of
a federal tax lien is a matter of federal law. United States v. Acri [55-1
USTC ¶9138], 75 S.Ct. 239, 241 (1954). Priorities may turn, however, on
questions of state law such as whether property existed to which a lien
might attach. S. Rock, Inc. v. B&B Auto Supply [83-2 USTC ¶9529],
711 F.2d 683, 695 (5th Cir. 1983).
of federal tax liens is generally determined by the common law rule of
"first in time, first in right."
[54-1 USTC ¶9191], 74 S.Ct. 367, 370 (1954). To the extent that §6323(a)
is applicable, it modifies the rule to require the IRS to have filed a
notice of federal tax lien "first in time" to be "first
in right" over a judgment lien creditor. See 26 U.S.C. §6323(a),
in the Treasury Regulations, a "judgment lien creditor" is a
"person who has obtained a valid judgment, in a court of record and
of competent jurisdiction, for the recovery of specifically designated
property or for a certain sum of money." 2
26 C.F.R §301.6323(h)-1(g); 3
Palandjoglou v. United Nat'l Ins. Co., 821 F.Supp. 1179, 1184
1993). Where the judgment is for the recovery of a certain sum of money,
a judgment lien creditor must have perfected the lien under the judgment
on the property involved.
If levy or seizure is required under state law before a judgment lien
becomes effective against third parties acquiring liens on personal
property, then levy or seizure is necessary for perfection. 26 C.F.R §301.6323(h)-1(g).
Perfection requires compliance with the doctrine of choateness: the
identity of the lienor, the property subject to the lien, and the amount
of the lien must be established. See Palandjoglou, 821 F.Supp. at
1184. A lien that is "choate" has been described as a lien
that is "specific and perfected" and for which "nothing
more [need] be done." United States v. Equitable Life Assurance
Soc'y [66-1 USTC ¶9444], 86 S.Ct. 1561, 1563-1564 (1966) (citation
omitted). According to the Fifth Circuit, for a nonfederal lien to be
considered choate, "the identity of the lienor, the property
subject to the lien and the amount of the lien must be established
beyond any possibility of change or dispute." Rice Inv. Co. v.
United States [80-2 USTC ¶9654], 625 F.2d 565, 568 (5th Cir. 1980).
The IRS seems
to suggest that because tax liens arise at the time of assessment,
Compagnoni would have had to be judgment lien creditor before the
IRS made its assessment for the 1987 taxes or else she would take the
pension benefits to the tax lien. This argument does not track the
superpriority language of §6323, which provides that "[t]he lien .
. . shall not be valid as against any . . . judgment creditor until
notice thereof . . . has been filed." 26 U.S.C. §6323(a). For
purposes of priority, section 6323(a) has the effect of shifting the
focus from the point in time when the lien arose to when the IRS filed
notice. See United States v. McDermott [93-1 USTC ¶50,164], 113
S.Ct. 1526, 1530 (1993) ("under the language of §6323(a) . . . the
filing of notice renders the federal tax lien extant for 'first in time'
priority purposes regardless of whether it has yet attached to
identifiable property"). The Government relies on United States
v. Bess [58-2 USTC ¶9595], 78 S.Ct. 1054, 1058 (1958) for the
proposition that Compagnoni took the benefits subject to the IRS lien.
The case is inapposite as it dealt with insurance benefits that passed,
subject to a tax lien, to a spouse at the beneficiary's death.
The spouse in Bess was not a potential judgment creditor as here.
The IRS also argues that Compagnoni is not entitled to priority because
she did not perfect her interest in the benefits as required by state
law. Compagnoni contends that her lien was choate as of the time of the
recording of the final judgment.
April 8, 1993
, the date of the final judgment of the
court, the identity of the lienor, the property subject to the lien and
the amount of the lien were fixed and that the judgment was recorded.
The first DRO was issued on
April 16, 1993
. This all transpired before the IRS filed its notice of lien on
May 21, 1993
. While the QDRO in its final form was not issued until
July 20, 1993
, after the IRS's notice of lien was filed, Compagnoni's interest was
conveyed as of the first DRO on
April 16, 1993
. This is because the July order simply clarified the earlier DRO. The
IRS maintains that neither the issuance of the final judgment nor the
QDRO was sufficient to perfect Compagnoni's interest in the benefits at
issue because the Treasury Regulations required her to undertake
execution as required by state law.
Regulations specify that for personal property, a potential judgment
creditor most place a levy on the property or seize it "if such
action is required under state law to perfect the lien." 26
C.F.R. §301.6323(h)-1(g) (emphasis supplied). It is not immediately
apparent that such further action would be required here. Some courts
have required perfection under state law for liens involving
specifically designated property, though these courts were not
confronted with judgments involving ERISA-regulated pension benefits. See
Miller v. Conte [99-2 USTC ¶50,980], 72 F.Supp.2d 952, 960 (N.D.
Ind. 1999) (requiring that judgment lien be recorded in case of real
property where state law so required); Smith Barney, Harris Upham
& Co. v. Connolly [95-1 USTC ¶50,010], 887 F.Supp. 337, 344 (D.
Mass. 1994) (same). See also Palandjoglou, 821 F.Supp. at 1185
("In order to perfect a judgment lien in
on personal property [to satisfy a money judgment], a form of execution
such as garnishment is required") (internal quotation and citation
, a lien on personal property is not perfected until a writ of execution
is delivered to the sheriff of the county in which the property is
located. Interstate Funding Corp. v. Direct Link Cable, Inc., 826
F.Supp. 437, 439 (S.D.
1993). Ms. Compagnoni asserts diet she did not have to do anything
further after recording of the final judgment to perfect her interest in
the benefits. The IRS argues that Compagnoni failed to execute on the
judgment and that as a result, its interest in the pension benefits is
superior to hers.
completely ignores the fact that the property at issue is not stock
shares or real property, but intangible pension benefits regulated by
ERISA, which has its own procedure for transferring ownership to a
spouse. Given the mechanism provided by ERISA and the clear
Congressional intent that ERISA pension benefits not be alienated except
under specific circumstances, the Court is not convinced that further
measures that are prescribed by state law would be required to perfect
the lien. There is no can law addressing whether ERISA would preempt any
additional, state law-based requirements for perfecting a judgment
involving pension benefits. This issue was not addressed by the parties.
The Court believes this analysis is necessary to determine whether
Compagnoni or the IRS has the priority interest in the benefits.
purpose of ERISA is to protect plan beneficiaries. See, e.g.,
§§1001(b), (c), 1103(c)(1), 1104(a)(1), 1108(a)(2), 1132(a)(1)(B). A
nonparticipant spouse may be conferred beneficiary status if a
"qualified domestic relations order" awards the spouse an
interest in the beneficiary's plan. 29 U.S.C. §1056(d)(3)(A); Boggs
v. Boggs, 117 S.Ct. 1754, 1757 (1997). A QDRO is a limited exception
to the pension plan anti-alienation provision and allows a court to
recognize a non-participant spouse's community property interest in a
pension plan. Boggs, 117 S.Ct. at 1759. ERISA sets forth the
procedures for a plan
istrator to follow to determine whether or not a domestic relations
order is qualified. 29 U.S.C. §1056(d)(3)(A)-(H). Whether Treasury
Regulations can institute additional state law perfection requirements
above and beyond the ERISA QDRO procedure turns on whether such
requirements would be preempted by ERISA.
supersedes state laws that "relate to" employee benefit plans
covered by the statute. 29 U.S.C. §1144(a). Interpreting the
"relate to" language is a difficult proposition. "[A]s
many a curbstone philosopher has observed, everything is related to
everything else." Calif. Div. of Labor Standards Enforcement v.
Dillingham Constr., N.A., Inc., 117 S.Ct. 832, 843 (1997) (Scalia,
J., concurring). Consistent with the comprehensive nature of ERISA, the
preemption language has been read broadly. Manning v. Hayes, 212
F.3d 866, 870 (5th Cir. 2000) (characterizing the scope of ERISA's
preemption provisions as "deliberately expansive"), cert.
denied, 121 S.Ct. 1401 (2001). A state law relates to an ERISA plan
"if it has a connection with or reference to such a plan." Shaw
v. Delta Air Lines, Inc., 103 S.Ct. 2890, 2900 (1983). But see
Boggs, 117 S.Ct. at 1760-1761 (finding that state law conflict with
statute's provisions or objects was sufficient to resolve preemption
question in favor of ERISA without resort to interpretation of statutory
language). Execution of judgment statutes, such as those here, are
generally applicable and would not refer specifically to ERISA. The
Court will analyze whether the statutes conflict with ERISA, frustrate
its objectives, or have an impermissible "connection with"
One case that
dealt with ERISA preemption and execution of judgments is Mackey v.
Lanier Collection Agency & Serv., Inc., 108 S.Ct. 2182 (1988).
In Mackey, the Supreme Court, in analyzing
's general garnishment statute, held that ERISA does not bar a
garnishment action against a welfare benefit plan.
at 286. The benefit plan at issue here is a pension benefit plan, which
distinguishes it from Mackey. The court specifically noted that
ERISA does not provide an enforcement mechanism for collecting judgments
against welfare benefit plans, which distinguishes Mackey from
the case before this Court. Without looking to state law, there would be
no effective process to collect on a successful suit for benefits by a
participant or on an action where a welfare benefit plan had failed to
pay its creditors.
at 2187. In the context of alienation of pension benefits, by contrast,
ERISA has provided the QDRO mechanism to effectuate judgments.
Importantly, Mackey involved ERISA welfare benefits which,
through Congressional silence on the issue, are subject to alienation or
garnishment, id. at 2189, whereas Luciano Compagnoni's benefits
are ERISA pension benefits, which can only be alienated by a QDRO. The
effect of any lien with respect to federal law governing the collection
of debts owed the
is a federal question. United States v. Acri [55-1 USTC ¶9138],
75 S.Ct. 239, 241 (1954). For this reason, "although a state
court's classification of a lien as specific and perfected is entitled
to weight, it is entitled to reexamination" by federal courts. United
States v. Pioneer Am. Ins. Co. [63-2 USTC ¶9532], 83 S.Ct. 1651,
1655 n. 7 (1963).
earlier, imposing state law perfection requirements upon judgment
creditors attempting to make use of the superpriority provisions of 26
U.S.C. §6323(a) would create choice of law difficulties as well as
enormous practical confusion where the company, plan trustee, and plan
participant are located in different states, as here. In order to
determine whether the IRS or a former spouse is entitled to benefits, a
istrator would have to master execution procedures of fifty states as
well as apply choice of law principles where applicable. One of the
primary purposes of ERISA and for providing for pervasive federal
preemption is to ensure uniformity of
istration to protect participants and beneficiaries from the threat of
conflicting and inconsistent state regulation. Fort Halifax Packing
Co. v. Coyne, 107 S.Ct. 2211, 2216 (1987). Reading the Treasury
Regulations to require a separate mechanism for perfection of a lien on
pension benefits that varies from state to state would frustrate this
Court recently decided a related preemption issue, the logical
underpinnings of which are instructive here. In Egelhoff v. Egelhoff,
the court held that ERISA preempted a
statute that purported to automatically revoke a spouse's designation as
beneficiary upon divorce. 121 S.Ct. 1322, 1325-1326 (2001). The court
reasoned that the statute undermined uniformity, noting that
istrators cannot make payments simply by identifying the beneficiary
specified by the plan documents. Instead they must familiarize
themselves with state statutes so that they can determine whether the
named beneficiary's status has been 'revoked' by operation of law. And
in this context the burden is exacerbated by the choice-of-law problems
that may confront an
istrator when the employer is located in one State, the plan participant
lives in another, and the participant's former spouse lives in a third.
In such a situation,
istrators might find that plan payments are subject to conflicting legal
at 1328. The court also remarked that the
istrative delay and uncertainty would create financial burdens that
would ultimately be borne by beneficiaries.
raised in Egelhoff are relevant in this case. ERISA directs plan
istrators to "establish reasonable procedures to determine the
qualified status of domestic relations orders[.]" 29 U.S.C. §1056(d)(3)(G)(ii).
The uniformity of the QDRO procedures would be eliminated if plan
istrators were then required to took from state to state to determine
whether the lien was perfected. Such would be the case if, as the IRS
suggests, the issuance of the QDRO is insufficient to establish the
judgment lien creditor's priority. Here, the IRS would require
Compagnoni to obtain a writ of execution on the
court judgment before she could be considered a "judgment lien
creditor" with superpriority. The IRS does not specify which
state's law Compagnoni would have to follow in order to perfect her
judgment, and for good reason. It is not even apparent which entity
Compagnoni would levy to perfect the judgment, assuming that levy is the
appropriate method of execution. The IRS argues that it does not matter
law applies, or, presumably, whether Compagnoni would proceed against
her ex-spouse, his former employer, or the plan trustee to perfect her
interest. The IRS claims that in this case, how Compagnoni would perfect
her interest would be irrelevant because she took no action to perfect
her interest beyond obtaining a QDRO.
argument assumes that state law requires such additional measures in the
first place. Because ERISA has spoken to how pension benefits are
alienated, the Court interprets the Treasury Regulation language
(requiring levy or seizure "if such action is required under state
law to perfect the lien") as not mandating additional state
law-based procedures to attain perfection. Should the language be
construed a requiring further action on Compagnoni's part beyond
issuance of the QDRO, such a requirement would be preempted by ERISA as
it significantly interferes with the uniform
istration of disbursing benefits and conflicts with the provision
granting the plan
istrator responsibility for determining whether a DRO is a QDRO. While a
state's characterization of a lien as perfected is entitled to
significant weight, Pioneer Am. Ins. Co. [63-2 USTC ¶9532], 83
S.Ct. at 1655 n. 7, this classification cannot modify a federal statute
where reliance on state law would wreak havoc with the
istration of pension plans nationwide.
the entire perfection and priority analysis, however, presumes that the
benefits were Luciano Compagnoni's to relinquish to the IRS in the first
place. This issue was not addressed by the parties. It is a question of
the extent to which Compagnoni had a property interest in his pension
benefits at the time the Government imposed its lien. The imposition of
a tax lien is limited to the actual property interest of the taxpayer. United
States v. Rodgers [83-2 USTC ¶9572], 103 S.Ct. 2132, 2141 (1983); Aquilino
v. United States [60-2 USTC ¶9538], 80 S.Ct. 1277, 1280 (1960). In
federal taxation cases, the definition of the underlying property
interests is left to state law, but the consequences that attach to
those interests are determined by reference to federal law. Rodgers [83-2
USTC ¶9572], 103 S.Ct. at 2137. When the IRS imposed its lien for the
1987 tax liability, on
March 8, 1993
, the divorce case was on remand from the appellate court. The final
judgment was not issued until a month later. When the IRS issued its
notice of lien on
May 22, 1993
, the final judgment had been entered and the first domestic relations
order had been issued. By the time the IRS imposed its lien, Jacqueline
Compagnoni had a possessory interest in the pension benefits and they
were no longer Luciano Compagnoni's to turn over to the IRS. See In
re Gendreau, 122 F.3d 815, 818 (9th Cir. 1997) (finding that the
state court order in divorce created the wife's interest in the
husband's pension plan and correspondingly limited the husband's
provisions of ERISA do not suggest that the alternate payee has no
interest in the plan until a QDRO is entered, " 'they merely
prevent her from enforcing that interest until the QDRO is obtained.'
" Trs. of the Dirs. Guild of Am.-Producer Pension Benefit Plans
v. Tise, 234 F.3d 415, 421 (9th Cir. 2000) (quoting Gendreau,
122 F.3d at 819). See also Stewart v. Thorpe Holding Co., 207
F.3d 1149, 1156 (9th Cir. 2000) (holding that securing a DRO that
creates an interest in the proceeds of pension plan gives the bearer
"the right to obtain a proper QDRO"). In Tise, the
Ninth. Circuit enforced an alternate payee's claim to benefits even
though a QDRO was not entered until 1996, a year after the participant's
death, and the participant had designated a different beneficiary. Tise,
234 F.3d at 426. In part because the state court had determined that the
alternate payee was entitled to child support benefits and issued an
order nunc pro tunc to 1991, the Tise court found that the
alternate payee had an interest in the benefits that predated the
An analogy can
be made to the case before the Court. The
state court created Jacqueline Compagnoni's interest in the pension
benefits and as a result, limited Luciano Compagnoni's interest at the
time of the divorce decree on
April 8, 1993
. See Gendreau, 122 F.3d at 818. Because the interest of the IRS
in the benefits extends only a far as the taxpayers, the interest of the
IRS in the benefits was diminished as well. That Cooper determined that
the first order did not meet the statutory requirements for a QDRO did
not work to limit Jacqueline Compagnoni's interest in the benefits. The
divorce decree and first payment order, even though inadequate under
ERISA, permitted Jacqueline Compagnoni to claim an interest in the
benefits, but one that could only be by obtaining a QDRO. 4
See Tise, 234 F.3d at 421.
competing interests in Luciano Compagnoni's pension benefits are viewed
from the vantage point of Ms. Compagnoni or the IRS, Ms. Compagnoni has
the priority interest. The identity of the lienor, the property subject
to the lien, and the amount of the lien was established as of the
court's final judgment on
April 8, 1993
. While the IRS had assessed a tax liability a month earlier, its lien
was not effective against Ms. Compagnoni as a judgment lien creditor,
which she was as of the entry of the first DRO on
April 16, 1993
. See 26 U.S.C. §6323(a); 26 C.F.R. §301.6323(h)-1(g). While
the Treasury Regulations specify that a judgment lien creditor must
execute a judgment involving a lien on personal property where state law
requires such action, ERISA, through the QDRO provisions, has specified
its own mechanism for transferring benefits to an alternate payee,
obviating the need for an additional state law procedure. Even if the
Treasury Regulation is read to require compliance with state law,
ERISA's QDRO procedure would supersede state execution procedures
because forcing plan
istrators to determine priority according to the laws of various states
would run contrary to ERISA's goal of national uniformity and would
istrative difficulties. See Egelhoff, 121 S.Ct. at 1328 (finding
that ERISA preempted state statute in part because of
istrative burdens and potential conflicting legal obligations it
created). Accordingly, Compagnoni's compliance with Cooper's and ERISA's
QDRO requirements was sufficient to render her judgment lien creditor
with an interest superior to that of the Government. While the QDRO in
its final form was not issued until
July 20, 1993
, which was after the IRS filed its notice of levy on
May 21, 1993
, Compagnoni's interest was conveyed as of the first DRO on
April 16, 1993
. See Tise, 234 F.3d at 421. The July order only clarified the
earlier order and did not alter the substance of the order. The same
conclusion is reached by analyzing the property interest Luciano
Compagnoni had in the benefits.
The IRS stands
in the shoes of the taxpayer as far as the scope of its property
interest. Rodgers [83-2 USTC ¶9572], 103 S.Ct. at 2141. In other
words, the IRS cannot levy what the taxpayer does not own. Therefore,
the IRS is limited to Luciano Compagnoni's interest in the pension
benefits. As of the first DRO an April 16, 1993, Coopers was required by
federal statute to segregate the money that Ms. Compagnoni would be
entitled to once the QDRO could be entered. While Ms. Compagnoni could
not enforce her interest in the benefits, securing a DRO, however
imperfect, served to limit Mr. Compagnoni's interest in the benefits.
Because the interest of the IRS extends only as far as that of Mr.
Compagnoni, the IRS's interest in the pension benefits was similarly
limited. See Gendreau, 122 F.3d at 818. The IRS did not have an
interest superior to that of Ms. Compagnoni. Accordingly, the
Government's motion for summary judgment is DENIED.
Compagnoni did not file a motion for summary judgment, the Court has the
power to enter summary judgment sua sponte where the losing party
is on notice that it must produce all evidence in support of its
position. See Celotex Corp. v. Catrett, 106 S.Ct. 2548, 2554
(1986). If a party moves for summary judgment, a court may grant summary
judgment to the non-moving party on its own initiative if all the
safeguards of Rule 56 are followed. McCarty v. United States [92-1
USTC ¶50,222], 929 F.2d 1085, 1088 (5th Cir. 1991). Here, the
Government was on notice that it should submit all evidence required to
support its position. It has submitted evidence related to the dates of
assessments, notices and levies, which supplements the orders from the
court and the correspondence provided by Compagnoni. The Court conducted
a hearing to discover relevant facts and the parties submitted
additional briefing and evidence. Additionally, because the parties
agree on the relevant facts of this case, but dispute the legal
conclusions, summary judgment is proper. See Thomas, 975 F.2d at
235 (requiring evidence supporting a fact issue to avoid summary
judgment). The procedural safeguards of Rule 56 have been followed and
there are no material facts at issue that would justify a trial in this
case. Consequently, the Court finds that Compagnoni is entitled to
summary judgment and to the funds Cooper has deposited with the Court
The Court has
discretion to award reasonable attorney's fees in an interpleader
action, provided that the stakeholder is disinterested. Rhoades v.
Casey, 196 F.3d 592, 603 (5th Cir. 1999). Because Cooper is not in
controversy with either of the claimants in this case, Cooper a ORDERED
to submit an application for attorney's fees, complete with an affidavit
detailing counsel's work in this matter, within ten (10) days of the
date of this order. Any response to Cooper's application must be filed
within five (5) days of the date the application is filed.
In 1994, Jacqueline Compagnoni filed an action against the United States
in the Southern District of Florida pursuant to 26 U.S.C. §7426,
challenging the levies filed with respect to the Savings and Ownership
Plan, claiming that the property was not her husband's at the time the
levies were filed, but instead was hers pursuant to the orders of the
Dade County Circuit Court issued during the divorce proceedings. The
court did not reach the merits of the case but dismissed it for lack of
subject matter jurisdiction, finding that the
was protected by sovereign immunity. Compagnoni v. United States [96-2
USTC ¶50,522], No. 94-0813, 1996 WL 696110, at *4 n.3 (S.D. Fla. Aug.
It is not clear whether the award of the pension benefits would qualify
as an award "for the recovery of specifically designated
property" or as an award "for a certain sum of money."
The Dade County Circuit Court awarded Ms. Compagnoni $383,745.50 and
distributed the marital assets to effectuate that award. (Instrument No.
45, Exh 1 at 4, 7-8). As part of the equitable distribution, the court
awarded Compagnoni "the total value of the Cooper Industries
pension account plan" and listed the amount of the award.
(Instrument No. 45, Exh 1 at 7-8).
The Regulation provides:
'judgment lien creditor' means a person who has obtained a valid
judgment, in a court of record and of competent jurisdiction, for the
recovery of specifically designated property or for a certain sum of
money. In the case of a judgment for the recovery of a certain sum of
money, a judgment lien creditor is a person who has perfected a lien
under the judgment on the property involved. A judgment lien is not
perfected until the identity of the lienor, the property subject to the
lien, and the amount of the lien are established. . . If under local law
levy or seizure is necessary before a judgment becomes effective against
third parties acquiring liens on personal property, then a judgment lien
under such local law is not perfected until levy or seizure of the
personal property involved. . ."
The QDRO procedures set forth in statute anticipate some time lag before
a QDRO is attained. The Internal Revenue Code and ERISA require that
during the time that the plan
istrator is determining whether a DRO is "qualified," the
istrator segregate the amount that would be payable to the alternate
payee. 26 U.S.C. §414(p)(7)(A); 29 U.S.C. §1056(d)(3)(H). The plan
istrator has a reasonable amount of time to make the determination. 26
U.S.C. §414(p)(6)(A)(ii); 29 U.S.C. §1056(d)(3)(G)(i)(II).
USTC ¶50,526] In the Matter of the Estate of Larry J. Harless,
Deceased. Maurine K. Harless, Administratrix of the Estate of Larry J.
Harless, Petitioner v.
United States of America
District Court, So. Dist.
, So. Div., CIV. 98-1072-RV-S,
Tax lien: Priority over third parties: Judgment lien: Divorce
judgment: Perfection: State law: Recording: Amount of lien.--A
divorce decree filed by the ex-wife of a decedent had priority over the
government's subsequently filed tax lien. The ex-wife filed a certified
copy of the divorce judgment in the county where the property was
located, which satisfied the lien perfection requirements under state (
) law. That a lien was not imposed in the divorce judgment did not
preclude her from subsequently placing a lien on the property. Further,
the government's contention that the divorce judgment was not properly
perfected because it failed to identify the amount of the lien was
rejected. The divorce judgment was for a specified sum and the fact that
it was payable in installments was irrelevant. Thus, she was entitled to
the proceeds from the sale of the decedent's real property since his
estate lacked sufficient funds to satisfy both liens.
MEMORANDUM OPINION AND ORDER
comes before the court on cross-motions for summary judgment by
petitioner Maurine Harless, as
istratrix of the estate of Larry J. Harless, and respondent
as to whether a divorce judgment recorded in 1992 takes priority over a
federal tax lien filed in 1996. After carefully reviewing the law and
considering the submissions of the parties, 1
the court concludes that Ms. Harless, acting in her individual capacity,
perfected her lien under the divorce judgment before the government
filed notice of its federal tax lien. The court will therefore grant Ms.
Harless's motion and deny the government's motion.
The facts are
not in dispute. On
August 27, 1991
, the Circuit Court of Mobile County, Alabama, entered a judgment of
divorce dissolving the marriage of Larry and Maurine Harless. Pursuant
to the divorce judgment, Mr. Harless was required to make three
$1,000,000.00 payments in January 1992, January 1993 and January 1994
into a trust for the benefit of Ms. Harless. In January 1992, Mr.
Harless made his first and only payment into the trust. On
February 13, 1992
, he recorded a quit claim deed in the Mobile County Probate Records for
two parcels of real property he purchased on
(the "Springhill Property"). On
July 15, 1992
, Ms. Harless recorded a certified copy of the divorce judgment in the
Mobile County Probate Records.
August 3, 1992
, the Internal Revenue Service ("IRS") made an assessment
against Mr. Harless for outstanding tax liabilities in the amount of
$81,110.40. The IRS made subsequent assessments against Mr. Harless on
September 26, 1994
, for $3,445,522.00, and on
February 5, 1996
, for $1,360.47.
In 1995, Mr.
Harless died. He had not paid the 1993 or 1994 alimony installments, nor
had he satisfied his delinquent tax liabilities. Thus, at the time of
his death, Mr. Harless owed at least $2,000,000.00 in alimony to Ms.
Harless and more than $3,500,000.00 in income taxes to the
August 20, 1996
, the IRS filed a notice of federal tax lien in the Mobile County
Probate Records for the outstanding tax liabilities of Mr. Harless in
the amount of $3,527,993.62, plus accruals as provided by law.
July 10, 1998
, Ms. Harless was appointed
istratrix of the estate of Mr. Harless. On October 8, 1998, Ms. Harless,
acting in her capacity as
istratrix, filed a "Petition to Determine the Priority of Lien
(Quiet Title) and to Convey Property in Satisfaction of Lien" in
the Probate Court of Mobile County. Through this petition, Ms. Harless
alleged that the judgment lien she filed in her individual capacity
against the Springhill Property had priority over the government's
subsequently-filed tax lien. Ms. Harless also asserted that the
Springhill Property was the only asset in the Estate's possession and
that there were no other assets with which to pay the upkeep, taxes and
insurance premiums on the property. According to Ms. Harless, then, it
would be in the Estate's best interests for the probate court to confirm
that her individual judgment lien takes priority over the government's
tax lien and to vest title to the Springhill Property (which was valued
at less than either lien) in Ms. Harless in her individual capacity.
October 28, 1998
removed Ms. Harless's quiet title petition pursuant to 28 U.S.C. §1444.
Thereafter, the parties filed cross-motions for summary judgment as to
which lien has priority. During the pendency of those motions, the
Springhill Property was sold for $309,469.07. The proceeds of the sale
were then deposited into the registry of the court.
SUMMARY JUDGMENT STANDARD
judgment is proper "if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of
law." Fed. R.Civ.P. 56(c). In reviewing a summary judgment motion,
the court must view the evidence and all reasonable inferences drawn
therefrom in the light most favorable to the non-moving party. See
, 207 F.3d 1303, 1335 (11th Cir. 2000).
seeking summary judgment has the initial burden of showing that there is
no genuine issue of material fact. See Celotex Corp. v. Catrett,
317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Once the moving
party meets that burden, the non-moving party must set forth specific
facts which demonstrate that there is a genuine issue of material fact
for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986). A
genuine issue of material fact exists for trial if a reasonable jury
could return a verdict in favor of the non-moving party. See
v. Liberty Lobby, Inc., 477
242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
To avoid an
adverse ruling on a motion for summary judgment, the non-moving party
"may not rest upon the mere allegations or denials of [its]
pleading." Fed. R.Civ.P. 56(e). Nor may the non-moving party defeat
summary judgment by providing a mere "scintilla" of evidence. See
Burger King Corp. v. Weaver, 169 F.3d 1310, 1321 (11th Cir. 1999).
Instead, there must be a genuine factual conflict in the evidence to
support a jury question. See Continental Cas.
v. Wendt, 205 F.3d 1258, 1261 (11th Cir. 2000).
question before the court is which lien has priority. Resolution of this
issue is determinative of whether Ms. Harless, in her individual
capacity, or the
is entitled to the proceeds of the sale of the Springhill Property, as
the Estate does not have sufficient funds to satisfy either lien. Ms.
Harless asserts that the divorce judgment lien takes priority over the
later-filed federal tax lien. The government counters that the prior
recording of the divorce judgment did not create a choate (or
"perfected") lien and that such "perfection" is
necessary to obtain priority. To resolve this issue, the court has no
choice but to confront "the tortured meanderings of federal tax
lien law." Texas Oil & Gas Co. v. United States [72-2
USTC ¶9653], 466 F.2d 1040, 1043 (5th Cir. 1972).
Revenue Code provides for the imposition of a federal tax lien against
all "property and rights to property" belonging to a taxpayer
who, after assessment and demand, fails to pay taxes to the
. 26 U.S.C. §6321. Federal tax liens arise automatically upon
assessment. See 26 U.S.C. §6322. But, such liens are "not
valid against any . . . judgment lien creditor" until proper notice
is filed. 26 U.S.C. §6323(a). Moreover, in determining the priority of
competing liens, courts apply the general principle that a lien
"first in time is the first in right." United States v.
City of New Britain [54-1 USTC ¶9191], 347 U.S. 81, 84, 74 S.Ct.
367, 369, 98 L.Ed. 520 (1954). Therefore, a federal tax lien has
priority over a competing judgment lien only if the IRS serves notice of
its lien before the judgment lien is perfected under state law. See
United States v. Estate of Romani [98-1 USTC ¶50,368; 98-1 USTC ¶60,311],
523 U.S. 517, 118 S.Ct. 1478, 140 L.Ed.2d 710 (1998).
argues that the divorce judgment lien has priority over the federal tax
lien because she properly recorded the divorce judgment before the
government recorded its lien. Specifically, Ms. Harless contends that
she, in her individual capacity, became a judgment lien creditor by
recording the divorce judgment in the Mobile County Probate Records. A
"judgment lien creditor" is a person who (1) has obtained a
valid judgment (2) in a court of record and of competent jurisdiction
(3) for the recovery of a certain sum of money; and (4) has perfected a
lien under that judgment. See Treas. Reg. §301.6323(h)-1(g).
Thus, if Ms. Harless, in her individual capacity, satisfies all four
requirements, then her divorce judgment lien takes priority over the
subsequently-filed federal tax lien.
does not contest any of the first three elements. What the government
does dispute is the fourth element, namely, that Ms. Harless, in her
individual capacity, perfected a lien under the divorce judgment. To be
perfected under federal law, a state-created judgment lien must
establish: (1) the identity of the lienor; (2) the property subject to
the lien; (3) and the amount of the lien. See Treas. Reg. §301.6323(h)-1(g).
In this case, the government takes the position that the judgment lien
does not satisfy the second and third criteria.
The court will
first address the government's assertion that the judgment lien was not
perfected "inasmuch as the property subject to the purported lien
could not be identified because no lien existed under state law."
According to the government, because the circuit court did not exercise
its discretion to impose a lien on the Springhill Property in the
divorce judgment, Ms. Harless could not subsequently place a lien on the
It is well
established that an
state court "may secure payment of alimony by declaring a lien on
the husband's property." Davis v. Davis, 147 So.2d 828, 830
(Ala. 1962) (citing Phillips v. Phillips, 129 So. 3 (Ala. 1930); Smith
v. Rogers, 112 So. 190 (Ala. 1927)); see also Gibbs v. Gibbs,
653 So.2d 300, 301 (Ala. Civ. App. 1994) (holding that trial court's
imposition of a judgment lien against husband's real property was not an
abuse of discretion because "[o]ur courts have consistently upheld
such liens to ensure that a spouse receives alimony"). The
rationale behind this discretion is simple--by placing a lien on a
spouse's real property directly in the judgment of divorce, the court
can prevent any attempt by that spouse to become
"judgment-proof" through the subsequent conveyance of his or
simply because a state court has the authority to impose a lien on a
spouse's real property does not mean that the other spouse cannot later
obtain a lien whenever the court declines to exercise that discretion.
law expressly permits the "owner of any judgment entered in
any court of this state" to record a certificate of that judgment
with a county probate court. Ala. Code §6-9-210 (1975) (emphasis
added). Once that judgment has been recorded, it "creates a blanket
lien on all of the property of the defendant that is located in the
county of recordation and is subject to levy and sale." Smith v.
Arrow Transp. Co., 571 So.2d 1003, 1006 (
1990) (citing Ala. Code §6-9-211 (1975)). Thus, Ms. Harless, in her
individual capacity, created a lien against all real property owned by
Mr. Harless in
when she recorded the certified copy of the divorce judgment in the
Mobile County Probate Records. See Garrett v. Garrett, 628 So.2d
659, 660 (Ala. Civ. App. 1994) (holding that wife "did all that was
required to obtain a lien on [her former husband's] property" when
she filed with the probate court a certificate of a divorce judgment
which did not impose a lien against the former husband's property).
Accordingly, the government's contention that
law precluded Ms. Harless from placing a lien on the Springhill Property
is without merit. 3
also argues that Ms. Harless, in her individual capacity, did not
perfect her lien because the recorded judgment does not establish the
amount of the lien. Though acknowledging that the divorce judgment
awarded a certain sum of alimony, i.e., a $3,000,000.00 trust
fund, the government contends that the amount of the lien itself was not
established because the judgment does not identify which, if any, of the
three $1,000,000.00 installments were outstanding at the time of
rests primarily upon the Alabama Supreme Court's decision in Miles v.
Gay, 190 So.2d 686 (Ala. 1966), which held that a recorded
certificate of a judgment awarding a wife $10.00 per week for an
indeterminate period was insufficient to attach a lien against the
former husband's property. According to the Miles court, a lien
for past-due alimony "does not arise automatically as to each
installment as it becomes due, but arises only when the court has
formally determined the total amount due and has reduced the delinquent
payments to judgment."
at 694 (quoting McClanahan v. Hawkins, 367 P.2d 196, 199 (
1961)). The fact that the wife's certificate repeated the terms of the
judgment was therefore insignificant: "It is no answer to say that
the amount is $10.00 for each week."
at 693. Rather, in the words of the Miles court, "a lien for
periodic installment payments can be acquired only by a judicial
ascertainment and declaration of the amount of past-due installments and
filing a proper certificate showing such a judgment or decree."
rationale of Miles to this case, the government contends that Ms.
Harless's recorded divorce judgment does not identify the past-due
amounts of alimony due under that judgment and therefore did not perfect
a lien against the Springhill Property. To properly perfect her lien,
the government argues, Ms. Harless should have reduced the past-due
amount to a money judgment and recorded that judgment with the probate
is not without some support. In Dodd v. Lovett, 211 So.2d 799,
802 (Ala. 1968), the Alabama Supreme Court relied upon Miles to
hold that a wife's claim for unpaid alimony installments ordered by a
Georgia divorce decree could not be maintained against her deceased
husband's estate unless the past-due amounts were first reduced to a
money judgment in Alabama. Ten years later, the Alabama Supreme Court
again invoked Miles to hold that past-due child support payments
must be reduced to a money judgment before a claim could be brought
against the deceased father's estate. See
, 364 So.2d 301, 302-03 (
with the government's argument, however, is three-fold. First, as the
government concedes, none of the installment payments were outstanding
at the time Ms. Harless recorded her divorce judgment. Thus, there were
no "past-due" alimony installments for Ms. Harless to reduce
to a money judgment.
Alabama Supreme Court has since rejected the proposition that past-due
alimony or child support installments are not final monied judgments as
of the dates they become due. In Ex Parte Morgan, 440 So.2d 1069
1983), the court held that a past-due installment of alimony or child
support becomes a final monied judgment on the date of delinquency.
at 1072. Thus, the court concluded, it was unnecessary for a divorced
mother to reduce past-due child support payments to a money judgment
before she could begin garnishment proceedings against her former
In making this determination, the Morgan court expressly declined
to follow Miles and its progeny:
due installments for child support under an
court decree be reduced to a monied judgment before garnishment
proceedings can be instituted against the delinquent father? The answer
to this question does not come from Austin, Miles, and Dodd.
It comes from Armstrong v. Green, 260
39, 68 So.2d 834 (1953), O'Neal v. O'Neal, 284
661, 227 So.2d 430 (1969), and Andrews v. City National Bank of
Birmingham, 349 So.2d 1 (
established the rule that installment payments decreed in a divorce for
support and education of the minor children of the marriage become final
judgments as of the dates due and may be collected as other judgments. O'Neal,
citing Rochelle v. Rochelle, 235
526, 179 So. 825 (1938), held that a decree for child support is a fixed
monied judgment, as to past due installments, which can only be
discharged as any other such judgments. In Andrews, the court
held that alimony is a debt which becomes a final money judgment as to
past due installments. Thus, being a final judgment, the past due
installments of alimony were subject to being attached by a writ of
garnishment filed by a creditor of the divorced wife.
at 1071. Accordingly, by holding that
delinquent installments of court-ordered alimony or child support are
final money judgments as of the dates due, the Morgan court
"rejected the reasoning behind
], . . . Miles v. Gay, . . . and Dodd v. Lovett." Smith
v. Estate of Baucom, 682 So.2d 1065, 1066 (Ala. Civ. App. 1996). Cf.
Morgan, 440 So.2d at 1073 (Maddox, J., dissenting) ("The
majority does not expressly overrule Austin v. Austin, 364 So.2d
301 (Ala. 1978), but the holding of the opinion has that effect.");
accord Schoonheim v. Epstein, 506 N.Y.S.2d 713, 714 (N.Y. App.
Div. 1986) ("Although the Morgan court does not expressly
overrule Austin, it distinguishes it so sharply as to deprive it
of all precedential force."). For these reasons, this court
declines to follow Miles here.
if the court were to apply the principle of Miles, this case is
factually distinguishable. As the Alabama Supreme Court explained in
, 440 So.2d at 1071, the court's primary concern in Miles was
that the certificate of judgment, which simply repeated that the wife
was entitled to alimony at the rate of $10.00 per week for an indefinite
period of time, was for an uncertain amount. Because a lien is
insufficient under Alabama law unless the certificate identifies the
amount of the judgment, 4
it was necessary for the wife to reduce the delinquent alimony
installments to a money judgment for a sum certain before she could
proceed in her claim against her former husband's property.
Unlike Miles, uncertainty as to the amount of the judgment is not
a factor in this case. There is no dispute that the trial court awarded
Ms. Harless $3,000,000.00 in alimony. The fact that this amount was
payable in annual installments is therefore irrelevant because the
divorce judgment itself is for a sum certain. Accordingly, the court
rejects the government's argument that the recorded divorce judgment
does not establish the amount of Ms. Harless's lien. 5
in her individual capacity, meets all of the federal requirements of a
judgment lien creditor. As such, her 1992 judgment lien against the
Springhill Property has first-in-time priority over the competing 1996
federal tax lien. Thus, to the extent that the parties seek a
determination of the priority of their competing liens, Ms. Harless's
motion for summary judgment is GRANTED and the
' motion for summary judgment is DENIED. Given that the
Springhill Property was sold during the pendency of those motions, the
issue of whether the property should be conveyed to Ms. Harless in her
individual capacity is MOOT.
no sooner than eleven business days after the date of entry of judgment,
the CLERK is DIRECTED to prepare a check payable to
"Maurine K. Harless, as Administratrix of the Estate of Larry J.
Harless, Deceased" in the amount of $309,469.07. Unless otherwise
ordered by the court, counsel for Ms. Harless shall then personally
retrieve the check from the clerk of court for an appropriate
distribution through probate proceedings.
is further DIRECTED to send a copy of this memorandum opinion and
order to the Clerk of the
Rule 58 of the Federal Rules of Civil Procedure, FINAL JUDGMENT
is hereby entered in favor of petitioner Maurine K. Harless, in her
istratrix of the Estate of Larry J. Harless, and against respondent
. In accordance with the court's May 23, 2000 memorandum opinion
and order granting Ms. Harless's motion for summary judgment and denying
the United States' motion for summary judgment, it is ADJUDGED
that the judgment lien recorded by Maurine K. Harless, in her individual
capacity, has first-in-time priority over the tax lien filed by the
United States. Each party shall bear its own costs.
The court has considered the record as a whole, including the United
States' motion for summary judgment (Doc. 7) and supporting brief (Doc.
8); Ms. Harless's motion for summary judgment (Docs. 10) and supporting
brief (Doc. 11); and the reply briefs of the United States (Doc. 15) and
Ms. Harless (Doc. 16).
Section 1444 permits the
to remove any state court action affecting property on which the
has a lien.
Moreover, the government does not explain how the circuit court could
possibly place a lien on the Springhill Property in the divorce
judgment, given that the property was acquired almost six months after
judgment was entered.
Code §§6-9-210, 6-9-211 (1975). The relevant portions of these
statutes are virtually identical to sections 584, 585, Tit. 7, Ala. Code
1940, which were in effect at the time Miles was decided. See
190 So.2d at 687-88.
Admittedly, the certified copy of the divorce judgment does not specify
the amount of court costs or attorneys' fees that were assessed against
Mr. Harless, as required by Alabama Code §6-9-210 (1975). Nonetheless,
the Alabama Supreme Court has held that the omission of those costs
simply precludes a lien for that unspecified sum; it does not extinguish
an otherwise valid lien for the amount of the judgment itself. See
Bowman v. SouthTrust Bank of Mobile, 551 So.2d 984, 988 (
1989) ("a statement of the amount of court costs assessed against a
judgment debtor is a material requirement of [section 6-9-210], because
it is necessary to provide notice of the amount of the lien. Likewise, a
statement of the amount of attorney fees assessed against a judgment
debtor, such fees being a part of the judgment, is a material
requirement of the statute. However, . . . we do not view the omission
of a statement of these amounts as precluding the creation of a lien in
the Bowmans' favor for the amount of the judgment stated.").
See Fed. R.Civ.P. 62(a); KRW Sales, Inc., v. Kristel Corp.,
154 F.R.D. 186, 188 (N.D. Ill. 1994) (weekends and holidays are not
counted for purpose of ten-day automatic stay from execution of
United States of America
v. Howard A. and Marjorie E. Brynes
District Court, Dist. R.I., Civ. 92-0018-T, 3/25/94, 838 FSupp 1096
[Code Sec. 6323 ]
Tax liens: Real estate: Purchaser: Judgment lien creditor.--A
federal tax lien against a husband's undivided one-half interest in
property continued to attach after a subsequent conveyance of the
property to his wife even though the tax assessment was made against the
husband. The wife waived future alimony payments upon the payment of the
lien by the husband in connection with divorce proceedings. However, she
was not considered a purchaser because the waiver did not take effect
unless the lien was paid. Thus, adequate and full consideration was not
given. Furthermore, the wife was not a judgment lien creditor because
she did not obtain a judgment for unpaid support payments before the tax
lien was filed.
[Code Sec. 7403 ]
Action to enforce lien: Foreclosure.--The government was entitled
to foreclose a federal tax lien on property conveyed by a husband to his
wife even though the assessment was made against the husband. Because
the tax lien attached to the property when it was held by the couple in
tenancy by the entirety, the subsequent conveyance of the property to
the wife was subject to the lien. The wife should not have had any real
expectation that the property would have been shielded from sale.
Pursuant to state (
) law, lien creditors of one spouse can force a sale once a tenancy in
the entirety is terminated. Although foreclosure was warranted, the sale
was delayed in order to provide the wife sufficient time to obtain
financing or arrange for a sale on more favorable terms.
Sammartino, 10 Dorrance St., Providence, R.I. 02903, George P.
Elipoulos, Department of Justice, Washington, D.C. 20530, for plaintiff.
Gerard McG. DeCelles,
245 Waterman St.
, for defendant (Brynes, H.). Alan T. Dworkin, 164 Airport Rd., Warwick,
ert M. Brady, One Grove Ave., East Providence, R.I. 02914, for defendant
States District Judge:
This is an
action brought pursuant to 26 U.S.C. §7403
to reduce a federal tax assessment against Howard A. Brynes to
judgment and to foreclose what the government contends is a lien on
certain real property formerly owned by Howard and his wife, Marjorie.
The issues presented are whether the property in question is subject to
a tax lien and, if so, whether the
should be permitted to foreclose that lien.
This case was
tried to the Court sitting without a jury. Marjorie Brynes was the only
witness. Based on her testimony and the documentary evidence, I find the
facts to be as follows. In 1971, Howard and Marjorie Brynes purchased a
143 Longview Drive
as joint tenants. As the years passed, their marriage foundered. On
April 4, 1985
, Howard was indicted for failing to file federal income tax returns and
for attempting to bribe an IRS agent. The following day Marjorie filed a
later, in connection with the divorce proceeding, Howard and Marjorie
executed a deed converting their ownership from joint tenancy to a
tenancy by the entirety. The deed effecting that change was recorded on
July 16, 1985
. The purpose of changing the form of ownership was to prevent creditors
of one spouse from forcing a sale of the property to satisfy that
spouse's debts. 1
November 25, 1985
, the IRS made an assessment against Howard A. Brynes in the amount of
$9,804.74 plus interest and penalties for delinquent taxes.
1988, Howard and Marjorie executed and recorded a deed conveying
143 Longview Drive
to Marjorie. Shortly thereafter, they entered into a property settlement
agreement that was incorporated into an interlocutory divorce decree by
the Rhode Island Family Court. 2
Under the property settlement agreement Marjorie received exclusive use
143 Longview Drive
, and Howard assumed sole responsibility for paying the "federal
tax lien upon said property." In return, Marjorie waived her right
to alimony "upon the payment of the federal tax lien by
[Howard]." Several months later, on
August 23, 1988
, the IRS recorded a notice of its federal tax lien against Howard.
contends that the title received by Marjorie by virtue of the March,
1988, deed was subject to its lien on Howard's interest in the property.
Alternatively, it argues that the transfer to Marjorie should be set
aside as fraudulent. In either event, the government asserts that it is
entitled to foreclose its tax lien by forcing a sale of the property.
PRIORITY OF THE FEDERAL TAX LIEN
U.S.C. §6321 , the
failure of any person to pay a tax liability after demand creates a lien
upon that person's property. The lien arises "at the time the
assessment is made." 26 U.S.C. §6322
. Generally speaking, such lien takes precedence over all other
interests in the property. United States v. V & E Engineering
& Constr. Co. [87-1
USTC ¶9355 ], 819 F.2d 331, 335-36 (1st Cir. 1987). However, §6323(a)
carves out an exception to that general rule. It provides that a tax
lien "shall not be valid as against any purchaser, holder of a
security interest, mechanic's lienor, or judgment lien creditor
until" the federal tax lien is properly recorded. 26 U.S.C. §6323(a)
; see United States v. Pioneer American Ins. Co. [63-2
USTC ¶9532 ], 374 U.S. 84, 88, 10 L.Ed.2d 770, 774, 83 S.Ct. 1651,
In this case,
the tax lien arose on
November 25, 1985
, the date of assessment. At that time, Marjorie and Howard owned
143 Longview Drive
as tenants by the entirety. However, the lien was not recorded until
August 23, 1988
, several months after the conveyance to Marjorie. Therefore, whether
the lien may be enforced against the property now owned by Marjorie
turns on whether her interest falls within one of the four exceptions
enumerated in §6323 .
Since Marjorie clearly is neither a mechanic's lienor nor the bolder of
a security interest in the property, she is entitled to relief under §6323(a)
only if she qualifies as a purchaser or judgment lien creditor.
6323 defines a purchaser as one who acquires an interest in property
"for adequate and full consideration in money or money's
worth." 26 U.S.C. §6323(h)(6)
. The regulations promulgated pursuant to that section describe
"[a]dequate and full consideration" as consideration that
bears a "reasonable relationship to the true value of the interest
in property acquired." 26 C.F.R. §301.6323(h)-1(f)(3)
. The regulations also provide that "[a] relinquishment or
promised relinquishment of . . . marital rights is not a consideration
in money or money's worth." 26 C.F.R. §301.6323(h)-1(a)(3)
. The validity of the latter provision is, at least, debatable. Like
the relinquishment of any other valuable legal right, a waiver of
alimony has been recognized as consideration. See, e.g., Law v.
United States, 83-1 USTC (CCH) ¶13514, 51 A.F.T.R.2d (P-H) ¶83-1343
(N.D. Cal. 1982). Moreover, there is nothing in the statute indicating
that Congress intended to exclude a bona fide waiver of alimony from the
definition of consideration or to delegate to the Treasury Department
the authority to create such an exclusion.
Court need not decide the validity of §301.6323(h)-1(a)(3)
. As already noted, Marjorie's "waiver" of alimony was
contingent upon Howard's payment of the tax lien on
143 Longview Drive
. Thus, the property settlement agreement provides that Marjorie
"shall waive alimony permanently upon the payment of the
federal tax lien by the husband, and at that point, alimony will
be permanently waived by her." (Emphasis added). To put it another
way, Marjorie's "waiver" does not take effect unless and until
Howard pays the lien. Because the lien remains unpaid, Marjorie has not
yet relinquished her right to alimony and her "waiver" does
not constitute "adequate and full consideration in money or money's
worth." Accordingly, Marjorie is not a "purchaser" within
the meaning of §6323(h)(6)
JUDGMENT LIEN CREDITOR
regulations define a "judgment lien creditor" as a
"person who has obtained a valid judgment, in a court of record and
of competent jurisdiction, for the recovery of specifically designated
property or for a certain sum of money." 26 C.F.R. §301.6323(h)-1(g)
. They further provide that a judgment lien must be perfected and
that perfection does not occur until "the property subject to the
lien, and the amount of the lien are established."
USTC ¶9191 ], 347 U.S. 81, 84, 98 L.Ed. 520, 74 S.Ct. 367, 369
(1954). In the case of real property, the regulations state:
or docketing is necessary under local law before a judgment becomes
effective against third parties acquiring liens on real property, a
judgment lien under such local law is not perfected with respect to real
property until the time of such recordation or docketing.
governs the determination as to whether a lien has been perfected. Don
King Productions, Inc. v. Thomas [91-2
ustc ¶50,474 ], 945 F.2d 529, 533 (2d Cir. 1991); Air Power,
Inc. v. United States [84-2
ustc ¶9732 ], 741 F.2d 53, 55 n.2 (4th Cir. 1984). However, the
fact that a lien was perfected before a federal tax lien was recorded
does not necessarily entitle it to priority over the federal tax lien.
To enjoy priority, the previous lien also must be sufficiently choate
under federal law.
, supra; Treas. Regs. §301.6323(h)-1(g)
; see Air Power, Inc. [84-2
USTC ¶9732 ], 741 F.2d at 55 n.2.
In this case,
there is no evidence that Marjorie had any judgment for recovery of a
sum certain from Howard before the federal tax lien was recorded.
Marjorie did testify that Howard failed to make support payments
required by the Family Court's interlocutory order. Moreover, it is true
law, Marjorie could have reduced those arrearages to judgment. R.I. Gen.
Laws §15 -5-16.2(d)
(1988). However, there is no indication that Marjorie ever did that.
Even if she had, there is no indication that Marjorie perfected any lien
by recording it in the records of land evidence as required by
law. See R.I. Gen. Laws §15
-5-28(A) (1988). Thus, Marjorie is not a judgment lien creditor
within the meaning of §6323(h)(6)
The fact that
the assessment against Howard was made while
143 Longview Drive
was owned as tenants by the entirety does not prevent the assessment
from establishing a federal tax lien against Howard's undivided one-half
interest in the property. As already noted, under
law, a creditor of one spouse may attach that spouse's interest in
property owned as tenants by the entirety and may compel a sale of the
property once the tenancy is terminated. See In Re Gibbons, 459
A.2d 938, 940 (R.I. 1983); Cull v. Vadnais, 122 R.I. 249, 406
A.2d 1241 (1979). In this case, any tenancy by the entirety between
Marjorie and Howard was terminated by both the March, 1988, conveyance
to Marjorie and by the final divorce decree entered on
October 23, 1993
, that dissolved their marriage.
In short, I
find that the assessment made on
November 25, 1985
, created a federal tax lien against Howard's undivided one-half
143 Longview Drive
and any subsequent conveyances of that interest to Marjorie were subject
to the lien. Because of that finding, it is unnecessary to address the
government's alternative contention that foreclosure should be permitted
on the ground that the deed to Marjorie was a fraudulent conveyance.
remaining issue is whether a foreclosure sale should be ordered to
satisfy the government's tax lien. IRC §7404(c)
states that "The court, . . . in all cases where a claim or
interest of the
. . is established, may decree a sale of such property, by the
proper officer of the court. . . ." (Emphasis added). The
permissive language of the statute indicates that courts have some
discretion to refuse to permit foreclosure. However, the Supreme Court
has said that such discretion is very limited and should be exercised
"rigorously and sparingly." United States v. Rodgers [83-1
USTC ¶9374 ], 461 U.S. 677, 710-11, 76 L.Ed.2d 236, 263-64, 103
S.Ct. 2132, 2151-52 (1983). It has listed four factors to be considered
in making that determination.
a court should consider the extent to which the government's financial
interests would be prejudiced if it were relegated to a forced sale of
the partial interest actually liable for the delinquent taxes. . . .
a court should consider whether the third party with a nonliable
separate interest in the property would, in the normal course of events,
have a legally recognized expectation that that separate property would
not be subject to forced sale by the delinquent taxpayer or his or her
creditors. . . .
a court should consider the likely prejudice to the third party, both in
personal dislocation costs and in . . . practical undercompensation. . .
a court should consider the relative character and value of the
nonliable and liable interests in the property. . . .
In this case,
there is no practical way to sell only Howard's interest in
143 Longview Drive
. The property is not susceptible to physical partition, and it is
doubtful that prospective purchasers would have any interest in buying a
partial interest in a residence occupied by Marjorie. Nor is there any
evidence that Howard has other assets that could be seized to satisfy
the claim underlying the tax lien.
it is difficult to see how Marjorie could have had "a legally
recognized expectation" that the property would not be subject to a
forced sale. Howard was indicted before execution of the deed creating
the tenancy by the entirety. Marjorie, herself, concedes that she was
aware, then, that the IRS was seeking to recover money from her husband.
Furthermore, she could not have had any real expectation that the
creation of a tenancy by the entirety would permanently shield the
property from a forced sale because
law permits lien creditors of one spouse to foreclose when the tenancy
is terminated. Since the tenancy was created pursuant to divorce
proceedings initiated by Marjorie, she must have contemplated eventual
dissolution of the marriage and a concomitant termination of the tenancy
by the entirety. Finally, she must be deemed to have recognized the risk
of a forced sale in April of 1988 when the property was conveyed to her
alone. Because of that conveyance, any expectation she previously might
have had disappeared.
difficult of the
factors to apply is the one focusing on the adverse effect foreclosure
is likely to have upon Marjorie. A foreclosure sale invariably has a
detrimental effect on third parties having an interest in the property.
That is particularly true when, as here, the property is the third
party's residence. However, if those factors were sufficient to warrant
denial of permission to foreclose, the foreclosure remedy provided by §7403(c)
effectively would be negated. Clearly, something more is required.
"something more" was present in United States v. Jensen
¶50,078 ], 785 F.Supp. 922 (D. Utah 1992), a case relied upon by
Marjorie. In Jensen, the court declined to permit immediate
foreclosure with respect to a residence belonging to the wife of a
delinquent taxpayer on the grounds that the wife was unemployed, had no
assets and was suffering from terminal cancer that left her with a
limited life expectancy. The court concluded that the prejudice suffered
by the wife in being unable to replace the "roof over her
head" greatly outweighed the prejudice the government would suffer
by delaying foreclosure for the balance of the wife's lifetime.
This case does
not present such extenuating circumstances. Marjorie is a college
graduate and has been employed as a psychologist since 1982. Although
she does have some health problems, they are far less serious to those
alluded to in Jensen. Moreover, there was evidence that the
143 Longview Drive
was paid in full during 1991. Therefore, there would appear to be a very
real possibility that financing could be obtained for the value of
Howard's one-half interest thereby preventing a foreclosure sale.
the facts of this case do not permit the Court to exercise the very
limited discretion accorded by §7403(c)
by refusing to permit foreclosure. However, the Court will exercise
that discretion for the limited purpose of mitigating the hardship to
Marjorie by deferring the sale until
August 1, 1994
. That delay should afford Marjorie an opportunity to either obtain
financing or arrange for a private sale on more favorable terms.
Furthermore, such a short delay will not significantly prejudice the
government's right to satisfy its lien. See
v. Young, No. C-89-2065 MPH, 1992
Dist. LEXIS 7908, at *11 (N.D.Cal. April 8, 1992) ("The court finds
that discretion should be exercised under section
7403(c) and that a forced sale of the property * * * should not be
ordered without first allowing defendant the opportunity to satisfy the
obligation by some less draconian means."), rev'd on other
grounds, No. 92-16007, 1993 U.S. App. Lexis 29044 (9th Cir. Nov. 1.
For all of the
foregoing reasons, the clerk is directed to entered judgment in favor of
United States of America
against Howard A. Brynes in the amount of $12,838.47 plus interest,
costs and penalties. In addition, judgment shall enter against Howard A.
Brynes and Marjorie E. Brynes permitting foreclosure of the federal tax
lien on 143 Longview Drive, Cranston, Rhode Island, provided that:
foreclosure sale shall not be conducted prior to
August 1, 1994
proceeds of such sale shall be distributed first to the
United States of America
in satisfaction of its federal tax lien against the undivided one-half
interest of Howard A. Brynes, with the remainder of the proceeds to be
distributed to Marjorie E. Brynes.
law, when a husband and wife own real estate as tenants by the entirety,
creditors of one spouse may attach that spouse's interest in the
property but may not force a sale of the property to satisfy their liens
until the tenancy is severed. In re Gibbons, 459 A.2d 938, 940
(R.I. 1983); Cull v. Vadnais, 122 R.I. 249, 406 A.2d 1241 (1979).
Marjorie obtained a final divorce decree from the Rhode Island Family
October 23, 1993