Petition — Nesbitt v. United States

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Uffice Supreme Court, U.S.

FILED

80-1256

JAN 28 1981

ALEXAND -: STEVAS,

CLERK

—_——.

Jn the Supreme Court of the Anited States

OCTOBER TERM, 1980

MARIE D. NESBITT, PETITIONER

UNITED STATES OF AMERICA, ET AL.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FRANKLIN J. FLOCKS

Attorney at Law

260 Sheridan Avenue, Suite 414

Palo Alto, California 94306

Telephone: (415) 326-6625

Attorney for Petitioner

TABLE OF CONTENTS

TABLE OF AUTHORITIES

OPINIONS BELOW

JURISDICTION

QUESTIONS PRESENTED

STATUTES INVOLVED IN THIS CASE

REASONS FOR GRANTING THE PETITION

CONCLUSION

APPENDICES

A. Opinion of the Court of Appeal

B. Opinion of the District Court

C. Judgment of the Court of Appeal

D. Order Rejecting Petition for

Rehearing en banc

E. Statutes

PROOF OF SERVICE

69A

TABLE OF AUTHORITIES

Cases

City of Vermillion y. Stan

Houston Equipment Co,, 341 F.

Supp. 707 (S.D.S.D. 1972) 19

Commonwealth of Kentucky Dept,

of Rev. vs United States, 383

F. 2d 13 (6 Cir. 1967) 18

Conard ve The Atlantic Insur-

ance Co, of New York, 1 Peters

385, 7 L.Ed 189, (1828) 16

Corporation of America vy,

Marks, 10 Cal.2d 218, (1937) 5

Exchange Bank and Trust Co. Ve

Tubbs Manufacturing Co,, et

gi, 286 F. 24 181 (Sth Cir.

1957), cert, denied sub. nom

City of Dallas, Texas vy. Tubbs

Manufacturing Co,, Inc., 355

U.S. 868 (1957) 20

HB. Agsten & Sons, Inc. Ve

Huntington Trust & Savings

Bank, 388 F2.d 156, (4th Cir.

1967); cert, denied 390 U.S.

1025 (1968) Zi, 22

in Re Decker's Estate, 355 Pa.

331; 49 A.2d 714 (1946) cert,

denied sub. nom, Decker Vv,

Kann, 331 U.S. 807 (1947) 19

National Surety Corp, vy. Sharpe,

236 N.C. 35: 72 S.E. 2d 109 (1952) 19

-ii-

Nesbitt vy. United States, 622 F,

2d 433 (9th Cir. 1980)

Thelusson y Smith, 2 Wheat. 396,

15 U.S. 396, 4 L.Ed. 271 (1817) 15,

United States y, » 563

F.2d 678 (5th Cir. 1977), 440

U.S. 715, 723 (1979) 24,

United States y. Emory,

314 U.S. 423 (1941)

United States vy. Gilbert,

345 U.S. 361 (1953) 23,

United States vy. Kimball

Inca, 440 U.S. 715 (1979)

United States vy. New Britain,

347 U.S. 81 (1954)

United States vy,

261 U.S. 253 (1923)

United States vy. Security Trust

art - vVings Bank, 340 U.S. 47

1950

United States vy. S.K.A,. Asso-

cjates, Inc,., 600 F.2d 513

(5th Cir., 1979)

United States ys Vermont, 317

F.2d 446 (2nd Cir. 1963), aff'd

377 U.S. 351 (1964)

Statutes

[a a

% Gbie, 8-31 26,

-iii-

20.

11 U.S.C. 8 101 et seq. 26

11 U.S.C.A. 8 303(h) 26

26 U.S.C. 8 6321

(I.R.C. of 1939 8 3670) 9

26 U.S.C. 8 6323 11

26 U.S.C. § 6323(a) .. 8. (Ob. 4a ve:

(I.R.C. of 1939 $8 3672) 20, 26, 27-30

26 U.S.C. 8 6323(b) 11

26 U.S.C. 8 6323(c) 11

26 U.S.C. 8 6323(d) 11

26 U.S.C. 8 6323(e) 11, 18

26 Y.S.C. 8 6325(b)(3) 8

26 U.S.C. 8 7426(a)(3) 9

28 U.S.C. 8 1254 2

28 U.S.C. 8 1346(2)(e) 9

31 U.S.C. 8 191) 3, 4, 10, 11,

(Rev. Stat. 8 3466) 18, 25, 28-30

California Code of Civil

Procedure 8 674(a) 6

California Probate Code 8 716 5

California Probate Code 8 732 5

-iv-

Miscellaneous Authorities

Legislative History of the Fed-

eral Tax Lien Act of 1966, 89th

Cong., 2d Session

Plum, "The Federal Priority in

Insolvency", Proposals for Re-

form, 70 Mich. L. Rev. 3 (1971)

'‘s United States Citations,

(1968 Statute Edition)

News, 89th Cong. 2d. Session

(1966) V.3, pp. 3722-3723,

"Senate Report No. 1708"

29, 30

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

MARIE D. NESBITT, PETITIONER

UNITED STATES OF AMERICA, ET AL.1

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

The petitioner, MARIE D. NESBITT,

respectfully petitions for a writ of

certiorari to review the judgment of the

United States Court of Appeals for the

Ninth Circuit entered in this proceeding

on June 26, 1980.

1. The names of all of the parties respondent

to this proceeding are: United States of America,

Safeco Title Insurance Company, a California cor-

poration, the City and County of San Francisco,

L.T. Goldmeyer dba Union Credit Company, and the

Franchise Tax Board, an agency of the State of

California.

OPINIONS BELOW

The opinion of the court of appeals

(App. A, infra, pp. 1A-3A) is reported at

622 F.2d 433. The opinion of the district

court (App. B, infra, pp. 4A-34A) is re-

ported at 445 F.Supp. 824 and 78-1

U.S.T.C. { 9239.

| JURISDICTION

The judgment of the Court of Appeal

(App. C., infra, p. 35A-36A) was entered

on June 26, 1980. A timely Petition for

Rehearing in Banc was filed on July 10,

1980 and was rejected on October 2, 1980

(App. D, infra, pp. 37A-38A). On Decem-

ber 15, 1980, Justice Rehnquist extended

the time within which to file a petition

for a writ of certiorari to and including

January 23, 1981. The jurisdiction of

this court is invoked under 28 U.S.C.

§ 1254(1).

QUESTIONS PRESENTED

Te Whether in a tax case, the

Federal Tax Lien Act [26 U.S.C. 86323(a);

(ILR.C. of 1939 8 3672)] impliedly limits

the effect of the Federal Insolvency-

Priority Statute [31 U.S.C. 8 191 (Rev.

Stat. 8 3466)] so that creditors of a

taxpayer who are expressly protected from

claims of the United States under the

terms of the Federal Tax Lien Act are also

protected from claims of the United States

under the Federal Insolvency-Priority

Statute.2

2. Whether there is an implied

exception from the effect of the Federal

Insolvency-Priority Statute [31 U.S.C. 8

191 (Rev.Stat. 8 3466)] for a creditor

With a fully perfected choate judgment

lien on real property, even if the Federal

Tax Lien Act [26 U.S.C. 8 6323(a) (I.R.C.

of 1939 8 3672)] has no effect on the

2. We have used the term "Federal Tax Lien Act"

generally to refer to 26 U.S.C. 8 6323(a), as

amended as well as to its predecessors [I.R.C. of

1939 $ 3672 and Act of March 4, 1913, ch. 166, 37

Stat. 1016].

operation of the Federal Insolvency-Pri-

ority Statute.

STATUTES INVOLVED IN THIS CASE

This case involves the construction

of two statutes: the Federal Tax Lien Act

[26 U.S.C. 8 6323(a); (I.R.C. of 1939

$ 3672)] and the Federal Insolvency-Prior-

ity Statute [(31 U.S.C. $8 191; (Rev.Stat.

$ 3466)]. The text of these statutes is

set forth at Appendix E, p. 40A and

pp.65A-66A, respectively.

STATEMENT OF THE CASE3

Petitioner, MARIE D. NESBITT, was

represented by her former attorney,

Franklyn K. Brann ("Brann"), in a divorce

proceeding in 1971. Mrs. NESBITT had been

married for more than 30 years and was

3. With one exception (which is more in the

nature of a conclusion of law than a statement of

fact), NESBITT finds the material facts to be

accurately stated in the opinion of the District

Court and has expanded upon them here only for the

convenience of this Court: At App. B, p. 8A, the

District Court states that upon Brann's death,

"the Capp Street property passed to his estate".

While it may be true that bare legal title to the

partially physically disabled at the time

of the divorce action. In that pro-

ceeding, Attorney Brann allowed a default

judgment to be taken against his client,

Mrs. NESBITT, and, as a result, Mrs. NES-

BITT received only a very small percentage

of the community property and no spousal

Support of any kind,

In a subsequent attorney malpractice

action against Attorney Brann, Mrs. NES-

BITT was awarded a judgment in the amount

of $225,061.00, none of which has been

collected to date. Her judgment was en-

tered on April 27, 1976, and an abstract

of the judgment was properly recorded in

property passed to Brann's estate upon his death,

this statement is misleading to the extent it

suggests that Brann's executor had any interest in

the property superior to that of NESBITT. NESBITT

was not required to await payment of her claim in

the course of administration of Brann's estate,

but instead could have foreclosed upon the Capp

Street property through the use of the same type

of civil action that is used in mortgage foreclo-

sures. [See Cal. Probate Code $8716 and 8732 and

Corporation of America vy. Marks 10 Cal.2d 218,

220-221 (1937)]

the Official Records of the County Re-

corder of the County of San Francisco on

April 28, 1976. (App. B, pp. 6A-7A).

Under California law4 the recording of

this abstract of judgment gave NESBITT a

judgment lien upon all real property be-

longing to Brann in the county of San

Francisco,

Attorney Brann died on May 26, 1976.

At his death, Brann and his wife owned an

undivided thirteen percent (13%) interest

in certain real estate located in the City

and County of San Francisco, commonly

known as 540 Capp Street, as their com-

munity property ("the Capp Street proper-

ty"). (App. B, pp. 6A-8A).

All of the defendants? except for

Defendant SAFECO are also creditors of

4. California Code of Civil Procedure 8 674(a)

(App. E, pp.66A-68A, infra).

5. The names of all of the defendants in the

District Court (respondents in this court) are set

forth in footnote l, p. 1, supra.

Brann. The only liens against the Capp

Street property which were superior in

time to Mrs. NESBITT'S judgment lien were

as follows (App. B, pp. 7A-8A):

Date Type

Lienor Amount Recorded of Lien

Union Credit Co. $267.57 4/16/75 Judgment Lien

City and County $772.56 7/28/75 Lien for per-

of San Francisco sonal property

City and County $280.10 8/1/75 Judgment Lien

of San Francisco

The UNITED STATES recorded Notices of

Tax Liens with the County Recorder of the

County of San Francisco as follows (App.

B, p.7A):

Date Amount Number

September 7, 1976 $ 436.77 9401(F) 76-1997

January 17, 1977 $50,674.29 Q401(F) 77-464

January 25, 1977 $ 4,761.66 Q401(F) 77-504

)

}

The California FRANCHISE

BOARD also held two tax liens against

Brann, one of which was recorded on May

27, 1976, in the amount of $5,489.36, ana

the other recorded on June 7, 1976, in the

amount of $704.77 (App. B, p. 7A)®

Brann's estate did not have

assets of sufficient value to pay and

satisfy all valid claims of indebtedness

against it, and a dispute arose as to who

should be first paid from the proceeds of

the sale of the Capp Street property. So

that the property could be sold, the par-

ties entered into an agreement pursuant to

26 U.S.C. 8 6325(b)(3), with all claims to

attach to the sales proceeds (App. B, pp.

8A-9A)T, The net proceeds of the sale

allocable to Brann's interest in the Capp

Street property amounted to $39,839.51 and

were deposited with SAFECO (App. B, p.9A),

6. The FRANCHISE TAX BOARD conceded that its

tax liens were inferior to the claim of NESBITT

(Clerk's Record, pp. 144-145).

The Capp Street property was also subject’ to

six other claims, all of which were released upon

full payment to the various claimants (App. B, p.

8A).

7. The text of 26 U.S.C. §$ 6325(b)(3) is set

forth at App. E, pp.62A-63A.

Who continues to hold the same pending

final determination of this cause.

On May 26, 1977 NESBITT filed

Suit in the United States District Court

for the Northern District of California to

determine who has priority to payment from

the proceeds of the sale of the Capp

Street property. Jurisdiction in the

District Court was based on 26 U.S.C.

8 7426(a)(3) and 28 U.S.C. 8 1346(2)(e).8

section 6321 of 26 U.S.C. (I.R.C. of

1939 $ 3670)9 creates a lien in favor of

the United States for the amount of tax,

together with incidentals, that anyone has

neglected to pay upon "all property and

8. The text of 26 U.S.C. 8 7426(a)(3) and 28

U.S.C.8 1346(2)(e) are set forth at App. E p. 63A

and pp. 64A-65A, respectively.

9. The text of 26 U.S.C. $8 6321 is set forth at

App. E, p. 39A. Section 6321 (I.R.C. of 1939

8 3670)is based on Revised Statutes $ 3186 as

amended by $ 3 of the Act of March 1, 1879 [See

U.S. v. Security Trust Savings Bank, 340 U.S. 47,

52 (1950)}.

rights to property, whether real or per-

sonal, belonging to such person." However

$ 6323(a) of 26 U.S.C.19, and its prede-

cessors (I.R.C. of 1939 8 3672 and Act of

March 4, 1913 ch. 166, 37 Stat. 1016) have

each granted protection to certain private

creditors from federal tax liens of which

notice has not been filed in a duly desig-

nated office. The 1913 act (Act of March

4, 1913, ch. 166, 37 Stat. 1016) granted

protection from such unfiled liens only to

"purchasers," "mortgagees" and "judgment"

creditors. In 1939 the list of protected

creditors was expanded to afford similar

protection to "pledgees" (I.R.C. of 1939,

3 3672). In 1966, the list of protected

creditors was again expanded this time to

include "holders of a security interest"

and mechanics lienor(s) (Federal Tax Lien

10. The text of 26 U.S.C. & 6323(a) is set

forth at Appendix E, p. 40A, infra.

Act of 1966. 80 Stat. 1125, amending 26

U.S.C. $ 6323),11

The parties agreed that, but for the

insolvency of Brann's estate, NESBITT'S

judgment lien claim against Brann, being

11. The 1966 act also provided protection from

Federal Tax Liens for certain private creditors,

even in cases in which notice of a tax lien had

already been filed. (See for example & 6323

(b)(1), providing protection for certain pur-

chasers and holders of security interests in se-

curities; 8 6323(b)(2) providing protection for

certain purchasers of motor vehicles; $ 6323(b)(3)

providing protection for certain purchasers of

personal property at retail; § 6323(b)(4) pro-

viding protection for certain purchasers of per-

sonal property at casual sales; $ 6323(b)(5) pro-

viding protection for certain holders of posses-

sory liens; ® 6323(b)(6) providing protection to

certain holders of liens against real property;

8 6323(b)(7) providing protection to certain me-

chanic's lienors; $ 6323(b)(8) providing protec-

tion to certain holders of attorney's liens;

8 6323(b)(9) providing protection to insurers

under certain insurance contracts; & 6323(b)(10)

providing protection to certain institutions

making loans on the security of passbook accounts;

8 6323(c) providing protection for lien holders in

certain commercial financing transactions. %6323

(d) providing protection for certain security

interests; and §$ 6323(e) providing protection for

certain claims for interest expenses, attorneys'

fees and trustees' fees. (The text of these

Statutes is set forth at App. E, pp.40A-56A).

perfected under state lawle2 prior in time

to the United States' tax liens, would,

under the provisions of 26 U.S.C.

3 6323(a) be entitled to satisfaction from

the proceeds of the sale of the Capp

Street property prior to any tax lien

claim of the federal government (App. B,

p. 9A-10A).

The Federal Insolvency-Priority Stat-

ute (31 U.S.C. $191 (Rev.Stat. 8 3466)13

states that "(w)henever any person in-

debted to the United States is insolvent,

or whenever the estate of any deceased

12. California Code of Civil Procedure,& 674(a)

(App. E, pp. 66A-68A, infra).

13. The Federal Insolvency-Priority Statute[3l

U.S.C. $8 191, (Rev.Stat. § 3466)] (App. E, pp.65A-

6A, infra) can be traced back to the Act of July

31, 1789, ch 5, 8 21, 1 stat 42, the fifth statute

enacted by the first Congress. It has been sub-

stantially in its present form since the Act of

March 3, 1797, ch 20, 8 5, 1 stat. 515. It was

most recently amended by Public Law 95-598, 92

stat. 2679, November 6, 1978, which added a sen-

tence at the end of the section stating that the

priority established thereunder does not apply in

cases under Title 11 of the United States Code

which deals with bankruptcy proceedings. This

amendment appears to be declarative of existing

debtor ... is insufficient to pay all

debts due from the deceased, the debts due

the United States shall first be sat-

isfied." Since Brann's estate is insol-

vent, there is no dispute that 8 3466

applies here. (App. B, p. 11A). Ac-

cordingly this case squarely presents the

issue of whether in a tax case, the Fed-

eral Tax Lien Act impliedly limits the

effect of the Federal Insolvency-Priority

Statute, so that creditors of a taxpayer

Who are expressly protected from claims of

theUnited States under the term of the

Tax Lien Act are also protected from

claims of the United States under the

Insolvency-=Priority Statute.

If this court should reach the conclu-

Sion that the Federal Tax Lien Act does

not limit the scope of the Insolvency-

law: [See United States vy. Emory, 314 U.S. 423,

427 (1941), and Plum, "The Federal Priority in

Insolvency", Proposals for Reform, 70 Mich. L.

Rev.3, 6-9 (1971)}.

» on

Priority Statute, this case will present a

second issue: whether there is an implied

exception from the effect of the Insol-

vency=Priority Statute for a creditor with

a fully perfected choate judgment lien on

real property. There is no dispute that

NESBITT'S lien was perfected under state

law (App. B, p. 9A), nor is there any

dispute that NESBITT'S lien was choate, at

least within the standards of the cases

arising under the Tax Lien Act, since a

choate lien is one in which "the identity

of the lienor, the property subject to the

lien, and the amount of the lien are es-

tablished."14 However many of the cases

which have to date found on implied excep-

tion to the operation of the Insolvency-

Priority Statute have also required that

14. United States v. New Britain, 347 U.S. 8l,

84 (1954) (See also the opinion of the District

Court; App. B, p. 29A, note 16). In the present

case the identity of the lienor is NESBITT, the

property subject to the lien is the Capp Street

property and the amount of the lien is $225,061

(App. B, p. 6A).

the private claimant have a lien which is

"Specific" or that the private claimant

have obtained either "title" or "posses-

sion" to the subject property.!5 Almost

all of these cases have involved competing

claims to personal property. The last

Supreme Court case dealing with judgment

liens on real property in relation to the

Insolvency-=Priority Statute was the case

of Ihelusson vy Smith, 2 Wheat. 396, 15

U.S. 396, 4 L.Ed. 271 (1817). Thelusson

held that a private creditor's judgment

lien did not have priority over the gov-

ernment's claim under the Insolvency-

Priority Statute. However, Thelusson was

decided at a time when recording statutes

were not well developed and there was

nothing to prevent a judgment debtor from

transferring title to his real property to

a bone fide purchaser and thereby de-

15. See cases cited at App. B, at pp. 27A-32A,

infra.

feating the claim of the judgment credi-

tor, 16 While concepts of "specificity,"

"title" and "possession" may be important

in valuing the worth of a lien on personal

property, (where a debtor possession

always retains the power to defeat his

creditor by disposing of the property), it

is NESBIIT'S position that such concepts

have no significance in valuing the worth

of a lien on real property in the face of

modern recording statutes, !7 Accordingly,

if this court should reach the conclusion

that the Federal Tax Lien Act does not

limit the scope of the Insolvency-Priority

16. See Conard v. The Atlantic Insurance Co. of

New York, 1 Peters 385, 443, 7 L.Ed 189, 214

(1828) and the opinion of the District Court, App.

B at pp.30A-31A).

17. NESBITT'S judgment lien would defeat the

claim of a later recording purchaser even if the

purchaser had both bare legal title and posses-

sion. Under the circumstances, it would be anoma-

lous to say that the claim of such a purchaser

would defeat the government's claim under the

Insolvency~Priority Statute if NESBITT'S lien were

itself defeated by the government's claim.

Statute, NESBITT submits that the time is

ripe for the court to reevaluate the rule

of Thelusson.

In the District Court, NESBITT

and the UNITED STATES each moved for sum-

mary judgment (App. B, p.5A) and the Court

granted the governments motion (App. B, p.

33A).

The Ninth Circuit, in a three

Paragraph opinion, adopted the bulk of the

Opinion of the District Court and affirmed

(App. A, pp. 1A=3A).

REASONS FOR GRANTING THE PETITION

qi. The decisions of Ninth and Sixth

Circuits are in conflict with the deci-

Sions of the Supreme Courts of Pennsyl-

vania and North Carolina, the Appellate

Department of the Superior Court of New

Jersey, the U.S. District Court for the

District of South Dakoda, and language of

decisions of the Fifth and Second Cir-

cuits.

It is plainly desirable that there

be a uniform rule for determining the

priorities between private judgment liens

and competing federal tax liens. Uni-

formity has proved to be an elusive

goal, 18 The Courts of Appeal in the Ninth

and Sixth Circuits have held that the

Federal Tax Lien Act [26 U.S.C. 8 6323(a)

(IL.R.C. of 1939, 8 3672)] has no effect on

the operation of the Federal Insolvency-

Priority Statute [(31 U.S.C. 8 191 (Rev.

Stat. 8 3466)].19

The Supreme Courts of the States of

Pennsylvania and North Carolina, the Ap-

pellate Department of the Superior Court

of the State of New Jersey and a Federal

District Court in South Dakota have

18. The principal cases on each side of the

main issue in this case, which had been decided as

of the date of the decision of the District Court

(Feb. 1, 1978), are listed at footnote 9 of that

decision (App. B, at p. 15A, infra).

19. Nesbitt v. United States, 622 F.2d 433

(9th Cir. 1980); Commonwealth of Kentucky Dept. of

Rev. v. United States, 383 F. 2d 13, 15-16 (6 Cir.

1967).

reached precisely the opposite conclu-

sion,20

20.

A. In the case of In Re Decker's Estate, 355

Pa. 331; 49 A.2d 714 (1946) Cert. denied sub. nom.

Decker v. Kann, 331 U.S. 807 (1947) the Supreme

Court of Pennsylvania said:

"...It is urged by appellants that Section 3672

of the Internal Revenue Code ... should not be

construed as overriding Section 3466 of the

Revised Statutes but as being limited to solvent

debtors whereas Section 3466 relates to in-

solvent debtors. It is obvious, however, that

such a construction of Section 3672 would be

quite unreasonable, since there could be no need

or reason for such legislation if intended to

provide merely for relative priorities in the

distribution of assets of solvent debtors."

49 A.2d at 719-720.

B. In National Surety Corp. v. Sharpe, 236

N.C. 35; 72 S.E. 2d 109 (1952), the Supreme Court

of North Carolina said:

"In enacting the provision of 26 U.S.C.A.

Section 3672...Congress impliedly amended...31

U.S.C.A. 8 191 giving debts due the United

States priority..."/2 S.E. 2d at 109.

C. In City of Vermillion vy. Stan Houston

Equipment Co., 341 F. Supp. 707, 713 (S.D.S.D.

1972), the court said:

"26 U.S.C.A. sec. 6323(a) was enacted long after

31 U.S.C.A. sec. 191 and is plainly inconsistent

with it. Congress could not have intended any

other purpose for 26 U.S.C.A. sec. 6323(a) than

to give certain creditors priority over unfiled

claims of the United States."

The Fifth and Second Circuits have

used language which can only be read as

expressing a firm belief that 8 6323(a)

limits the scope of the Insolvency-Prior-

ity Statute.21

21.

A. In Exchange Bank and Trust Co. v.Tubbs

Manufacturing Co., et al., 246 F. 2d 141, 143 (5th

Cir. 1957), cert. denied sub. nom. City of Dallas,

Texas v. Tubbs Manufacturing Co., Inc., 355 U.S.

868 (1957), the taxpayer was insolvent. In re-

versing a judgment in favor of the Unitce States,

the 5th Circuit said:

"...(F)or the reasons stated by us in the

Atlantic case supra, and for the additional

reason that in this case the mortgage liens are

within Sec. 6323, ... we are in no doubt that

the claim of the United States to priority over

the mortgage claims is without foundation."

(246 F.2d at 143).

B. In United States v. S.K.A. Associates,

Inc., 600 F. 2d, 513 (5th Cir., 1979), the 5th

Circuit said:

"...The Supreme Court's meticulous rationale in

Kimball rejecting every Government argument for

favored treatment makes so much good sense that

it should be applied effectively. To hold that

federal law adopts state commercial law in a

dispute between lienholders when the debtor is

solvent, but not when he is insolvent, would

deprive private lenders of equanimity when it is

most needed. We, therefore, reject the argument

that $8 191 gives the Government as a secured

lienholder a priority over other lienholders

that it would not enjoy under state commercial

law." (600 F.2d at 516)

II. This case presents an issue of

exceptional importance,

This case squarely presents the

question of whether in a tax case, the

Federal Government may use its priority

under the Federal Insolvency Statute to

defeat a creditor who is expressly pro-

tected from the Government's Tax Lien by

the terms of the Federal Tax Lien act.

This is an issue of exceptional impor-

tance. The 1968 Statute Edition of

Shepard's United States Citations contains

over 500 citations to the Insolvency

Statute (31 U.S.C. § 191) and over 250

citations to the Federal Tax Lien Act [26

U.S.C. 8 6323(a)].

In a concurring opinion in H,B, Agsten

& Sons, Inc, vs Huntington Trust & Savings

Bank, 388 F2.d 156, (4th Cir. 1967);

cert, denied 390 U.S. 1025 (1968), Justice

Haynsworth noted the importance of the

C. See also United States vy. Vermont, 317 F.

2d 446, 449 & n.3 (2nd Cir. 1963), aff'd 377 U.S.

351 (1964).

very question presented by this case:

"It is most unfortunate that the

Congress, when considering the Federal

Tax Lien Act of 1966, did not focus

its attention specifically upon the

Insolvency Statute. Had it done so, I

am confident the Insolvency Statute

would have been repealed or

substantially amended, for all of the

time, attention and effort expended in

drafting, considering and passing the

Federal Tax Lien Act of 1966 will be

fruitless, except in bankruptcy cases,

if the Insolvency Statute is applied

to preserve the super-priorities which

the Federal Tax Lien Act of 1966

undertook to withdraw from tax claims.

The question of priorities is wholly

or largely academic, unless the debtor

is insolvent, and the clearly stated

purpose of the Federal Tax Lien Act of

1966 was to regulate the priority of

federal tax claims when competing for

payment out of the assets of an insol-

vent taxpayer with secured claims

which would enjoy priority under state

law. 388 F2.d at 161

Unless certiorari is granted and the

decision of the Ninth Circuit reversed,

the Government will use this case to forge

ahead and defeat the claims of all those

creditors who it had been previously

assumed were protected from the claims of

the Government.

III. The decision below conflicts

with controlling principals announced in

the decisions of this court:

A. In United States vy. Gilbert, 345

U.S. 361 (1953) the United States asserted

tax liens against an jnsolvent taxpayer.

The town of Walpole, New Hampshire,

asserted priority over the claims of the

government for its own tax liens. The

Supreme Court addressed itself to the

question which it considered to be dis-

positive of the case:

"Was the town a judgment creditor

within the meaning of Section 3672?"

(3455 U.S. at §.-.363)

The court went on to decide in favor

of the United States by a 7-2 vote on the

ground tha the town was not a judgment

creditor. However, it was implicit in the

decision of all nine (9) justices, that

the town would have prevailed despite the

insolvency of the taxpayer if the town had

been a judgment creditor.

Admittedly, the language quoted above

is dicta; but in view of the fact that all

nine justices assumed that if the creditor

of the taxpayer qualified as a judgment

creditor within the meaning of the Federal

Tax Lien Act (I.R.C. of 1939, 8 3672), he

would have prevailed over the Federal

government, despite the taxpayer's insol-

vency, it is powerful dicta indeed.22

B. More recently, in JU. S&S vy. Crit-

tenden, 563 F.2d 678 (5th Cir. 1977), 440

U.S. 715, 723 (1979),23 this court stated:

The Federal Tax Lien Act of 1966, 80

Stat. 1125, as amended, 26 U.S.C. 8

6323, provides further evidence that

treating the United States like any

other lender would not undermine Fed-

eral interests. These amendments

modified the Federal Government's pre-

ferred position under the choateness

22. The portion of the opinion in United States

ye Gilbert dealing with "specificity" (345 U.S. at

361) relates only to the question of whether the

town could prevail even though it was not a

judgment creditor. Since the case does not deal

with liens on real property, that portion of the

Opinion is not relevant to the case now before

this court.

23. United States v. Crittenden,440 U.S. 715,

723 (1979) was the companion case to United States

v. Kimball Foods, Inc., 440 U.S. 715 (1979).

and first in time doctrine, and recog-

nized the priority of many state

Claims over Federal tax liens, In

enacting this legislation, Congress

sought to 'improv(e) the status of

private secured creditors’ and prevent

impairment of commercial financing

transactions by 'moderniz(ing) ... the

relationship of Fedral tax liens to

the interests of other creditors.' ...

We do not suggest that Congress! ac-

tions in the tax lien area control our

choice of law in the commercial lien

context. But in fashioning Federal

Principals to govern areas left open

by Congress, our function is to ef-

fectuate Congressional policy (cita-

tion omitted). To ignore Congress!

disapproval of unrestricted Federal

priority in an area as important to

the nation's stability as taxation,

would be inconsistent with this

function. Thus, without showing that

application of state laws would impair

Federal operations, we decline to

extend to new contexts extraordinary

Safeguards largely rejected by Con-

gress. (440 U.S. at 738)

IV. THE DECISION OF THE NINTH CIRCUIT

UNDERMINES THE WORK OF CONGRESSIN EN-

ACTING 26 U.S.C. $8 6323 AND ITS PREDECES-

SORS.

The opinion of the District Court

points out that the Insolvency-Priority

Statute does not apply to all types of

insolvencies (App. B, p. 24A). We agree

that 8 3466 does not apply to certain

types of temporary technical insolvencies.

However, the language of 8 3466 makes it

clear that it was intended to apply to

every situation in which there is a

serious likelihood that all of the cred-

itors of a debtor will not be paid. Sec-

tion 3466, by its terms, applies "to cases

in which an act of bankruptcy is com-

mitted." The six (6) acts of bankruptcy

were set forth in 8 3A of the Bankruptcy

Act, 11 U.S.C. § 21.24 Particularly sig-

nificant is the third act of bankruptcy,

Which is defined as follows:

"Acts of bankruptcy by a person shall

consist of his having ...(3) suffered

Or permitted, while insolvent, any

creditor to obtain a lien upon any of

his property through legal proceedings

or distraint and not having vacated

such lien within thirty days from the

date set for any sale or other dis-

position of such property."

24. With the passage of the new Bankruptcy Code

(Pub. Law 95-598, Title I, Nov. 6, 1978, 92 Stat.

2549; 11 U.S.C. # 101 et seq.) former 11 U.S.C. 21

was repealed. The new Bankruptcy Code does make

use of the concept of "Acts of Bankruptcy" (see 11

U.S.C.A. #8 303(h), note "h" at p. 156). Since

the Insolvency-Priority Statute still makes use of

the term "act of bankruptcy" we have referred to

A debtor was defined as insol-

vent within the meaning of the Bankruptcy

Act, "whenever the aggregate of his prop-

erty...Shall not at fair valuation, be

sufficient in amount to pay his debts;",

11 U.S.C. § 1,29 Therefore, even though a

"mere inability of the debtor to pay all

his debts in the ordinary course of busi-

ness is not insolvency within the meaning

of the act...", United States y Oklahoma,

261 U.S. 253, 260 (1923), as soon.as ‘a

debtor whose assets exceed his liabilities

allows a lien to attach to his property

for a period of thirty days, he falls

within 83466.

The Ninth Circuit would have this

court believe that a creditor of a tax-

payer may have the "benefits" of 8 6323

Only when there is really nothing at

stake. The 1966 Amendment to the Tax Lien

former 11 U.S.C. #8 21 for a definition of the

term.

25. See footnote 24, supra

Act represents the culmination of ten

years of analysis and study by the Trea-

sury Department and the Congress. U.S.

Code and Administrative News, 89th Cong.

2d. Session (1966) V.3, pp. 3722-3723,

"Senate Report No. 1708". The passage of

8 6323, as well as the passage of the

earlier amendments to the Tax Lien Act,

were not idle acts on the part of Con-

gress. The listing of the creditors pro-

tected from Federal Tax Liens by the 1966

Amendment to the Tax Lien Act encompasses

over fifteen pages in the Appendix of

Statutes attached to this Petition .

(App. E, pp. 40A-56A (26 U.S.C. & 6323(a)

through 8 6323(e) infra).

The opinion of the District Court

States that there is nothing in the legis-

lative history of the Federal Tax Lien Act

indicating “any congressional intent to

override #8 3466" (App. B at p. 19A, in-

fra). The answer to this argument is that

it never even occurred to Congress that

the Internal Revenue Service would attempt

to use 8 3466 to gain priority over the

claims of persons expressly protected by

the mandate of 8 6323(a). The legislative

history of the 1966 Amendment to the Tax

Lien Act is exhaustively set forth in the

784-page Legislative History of the Fed-

eral Jax Lien Act of 1966, 89th Cong., 2d

Session, by the Committee on Ways and

Means of the House of Representatives.

This document contains not one word which

would suggest that anyone even hinted to

the Congress that the government could use

its priority under 8 3466 to defeat the

lien of a person expressly protected from

Claims of the government by 8 6323. For-

mer Assistant Secretary of the Treasury

Stanley R. Surrey submitted a statement to

the House Committee on Ways and Means

urging the passage of the 1966 Amendment

to the Tax Lien Act, but he did not sug-

gest that the amendment was intended to

benefit only creditors of solvent taxpay-

ers. In the course of its hearings, Lau-

rens Williams, Chairman of the Special

Committee on Federal Tax Liens of the

American Bar Association, addressed the

Committee. Despite the fact that the

A.B.A. had earlier proposed legislation

Which would have completely rewritten

$3466, Mr. Williams expressed great sat-

isfaction with the bill as written. There

is nothing in his remarks which would

Suggest that he believed it necessary to

amend 8 3466 in order to protect persons,

expressly protected from the claims of the

government by 8 6323. Legislative History

of the Federal Tax Lien Act of 1966,

Supra, at pp. 80-84 & 104-117.

CONCLUSION

The petition for a Writ of

Certiorari should be granted.

Ls/

Franklin J. Flocks

Attorney for Petitioner

Dated: January 22, 1981

APPENDIX A

Marie D. NESBITT, Plaintiff-Appellant,

UNITED STATES of America, Safeco Title

Insurance Company, a California Corpo-

ration; the City and County of San

Francisco; L.T. Goldmeyer dba Union

Credit Company; and the Franchise Tax

Board, an agency of the State of Cali-

fornia, Defendants-Appellees.

No. 78-2111.

United States Court of Appeals,

Ninth Circuit.

June 26, 1980.

Appeal from the United States District

Court for the Northern District of Cali-

fornia; Charles B. Renfrew, Judge.

Franklin J. Flocks, Palo Alto, Cal.,

for plaintiff-appellant.

Joan I. Oppenheimer, Washington, D.C.,

for defendants-appellees,

Before SNEED and POOLE, Circuit Judges,

and PFAELZER*, District Judge.

Appellant, appeals from a summary

judgment of the district court granting

priority to the United States' tax lien

claims over the judgment lien claim of the

appellant. Both appellant and appellee

agree that but for the provisions of Re-

vised Statutes 83466, 31 U.S.C. 8191,

appellant would be entitled to priority.

The district court held that section 3466

was applicable, with the consequence that

the United States was entitled to prior-

ity, and that the appellant's lien was not

excepted from the operation of section

3466. We affirm.

The reasons for our affirmance were

Stated quite well in the district court's

Opinion which appears in 445 F.Supp.

824(N.D.Cal. 1978). We adopt Judge

*Honorable Mariana R. Pfaelzer, United States Dis-

trict Judge for the Central District of Califor-

nia, sitting by designation.

Renfrew's opinion to the extent of Parts

I, II, and III-A As to Part III.B, we

merely wish to hold that to the extent an

exception to section 3466 might exist for

"perfected and specific liens," the lien

of the appellant was not sufficiently per-

fected and specific to come within any

Such exception.

Affirmed,

APPENDIX B

Marie D. NESBITT, Plaintiff,

UNITED STATES of America, Safeco Title

Insurance Company, a California Corpo-

ration, the City and County of San

Francisco, L.T. Goldmeyer dba Union

Credit Company, and the Franchise Tax

Board, an agency of the State of Cali-

fornia, Defendants.

No. C-77-1126-CBR

United States District Court,

N.D. California.

Feb. 1, 1978.

Daniel J. Parks, Pico & Parks, San

Mateo, Cal., for plaintiff.

G. William Hunter, U.S. Atty., John M.

Youngquist, Asst. U.S. Atty., San Francis-

co, Cal., for defendant United States of

America.

Thomas E. Alborg, San Francisco, Cal.,

Safeco Title Insurance Co., for defendant

Safeco Title Insurance Co.

Thomas M. O'Connor, City Atty., Vir-

ginia J. Lum, Deputy City Atty., San Fran-

cisco, Cal., for defendant City and County

of San Francisco.

“2

MEMORANDUM OF OPINION

RENFREW, District Judge

This is an action instituted by

plaintiff seeking a determination that

her claim to certain proceeds from the

Sale of real property has priority over

any claims of the United States to such

proceeds, The United States has filed a

cross-claim seeking a determination that

it is entitled to first priority payment

from the same sales proceeds. Both par-

ties have moved for summary judgment on

their respective claims. Arguments on

the motion were heard on November 10,

1977. Having carefully considered the

arguments of counsel and the legal memo-

randa, affidavits, and exhibits filed in

Support of and in opposition to the mo-

tions, the Court concludes that there is

no genuine issue as to any material fact

and that the United States is entitled to

Summary judgment in its favor as a matter

of law.

I. FACTUAL BACKGROUND

The complaint, originally filed on

May 26, 1977, and amended by stipulation

on August 8, 1977, named as defendants

the United States, the City and County of

San Francisco (the "City"), L.T. Gold-

meyer, d.b.a. Union Credit Company ("Un-

ion Credit"), the Franchise Tax Board of

the State of California ("Franchise Tax

Board"), and Safeco Title Insurance Com-

pany ("Safeco"), Plaintiff and each

defendant except Safeco aire claimants to

the proceeds from the sale of certain

real property (the "Capp Street proper-

ty") in which one Franklyn K. Brann

("Brann"), together with his wife, owned

an undivided 13 per cent interest.

Plaintiff and the claimant-defendants

are creditors of Brann. Plaintiff holds a

judgment against Brann for $225,061,! an

1. Plaintiff'sjudgment against Brannwas

entered upon the latter's default in a malpractice

abstract of which was recorded on April

28, 1976. The United States has assessed

certain Internal revenue tax liabilities

totalling $89,160.06 against Brann.2 No-

tices of tax liens were recorded on Sep-

tember 7, 1976 for $436.77; on January

17, 1976, for $50,674.29; and on January

25, 1977, for $4,761.66. Union Credit

holds a judgment against Brann for

$267.57, an abstract of which was re-

corded on April 16, 1975. The City has

assessed certain personal property tax

liabilities totalling $772.56 against

Brann and recorded a certificate of

action. The complaint in that action charged Brann

with responsibility for a default entered against

Plaintiff in a 1971 divorce proceeding in which

Brann had represented plaintiff.

2. In its cross-claim, the United States al-

leged that Brann was indebted to it in the sum of

$54,167.54. In a declaration submitted by the

United States, counsel stated the amount of in-

debtedness to be $89,160.06, and exhibits were

submitted supporting this figure. Since only

$39,839.51 is available to satisfy the parties'

claims, the Court need not resolve the conflict

between the figure alleged in the cross-claim and

the figure set forth in the declaration.

delinquency of such taxes on July 28,

1975. The City also holds a judgment

against Brann in the amount of $280.10,

an abstract of which was recorded on

August 1, 1975. The Franchise Tax Board

holds two tax liens against Brann, one of

which was recorded on May 27, 1976, in

the amount of $5,489.36, the other re-

corded on June 7, 1976, in the amount of

$704.77.3

On May 26, 1976, Brann died and the

Capp Street property passed to his es-

tate. Since the estate did not have

assets of sufficient value to pay and

Satisfy all valid claims of indebtedness

against it, a dispute arose as to who

Should be first paid from the proceeds

from the sale of the Capp Street proper-

Ye So that the property could be sold,

plaintiff, the United States, Union

3. The Capp Street property was also subject to

six other claims, all of which were released upon

full payment to the various claimants.

Credit, and the City entered into an

agreement whereby the property was to be

sold pursuant to 26 U.S.C. 86325(b)(3),4

with all claims to attach to the sales

proceeds. Safeco now holds the sum of

$39,839.51, which are the net proceeds of

sale allocable to Brann's interest in the

Capp Street property.

The question presented, simply

Stated, is who has priority to payment

from these sales proceeds. The parties

agree that, but for the insolvency of

Brann's estate, the judgment lien claim

of plaintiff against Brann, being per-

fected under state law prior in time to

the United States tax liens, would, under

the provisions of 26 U.S.C. 86321 et

seq., be entitled to satisfaction from

4. Section 6325(b)(3) provides:

"Subject to such regulations as the Secretary or

his delegate may prescribe, the Secretary or his

delegate may issue a certificate of discharge of

any part of the property subject to the len if

such part of the property is sold and, pursuant

10A

these proceeds prior to any tax lien

Claim of the federal government. The

United States contends, however, that

because Brann's estate is insolvent, its

claims are entitled to priority under the

provisions of Revised Statutes 83466, 31

U.5.C. 8191,

II. APPLICABILITY OF 83466

Section 3466 of Revised Statutes pro-

vides:

Whenever any person indebted to

the United States is insolvent, or

whenever the estate of any deceased

debtor, in the hands of the execu-

tors or administrators is insuf-

ficient to pay all the debts due

from the deceased, the debts due to

the United States shall be first

satisfied; and the priority estab-

lished shall extend as well to cases

in which a debtor, not having suffi-

clent property to pay all his debts,

makes a voluntary assignment there-

Of, or in which the estate and

effects of an absconding, concealed,

Or absent debtor are attached by

to an agreement with the Secretary or his dele-

gate, the proceeds of such sale are to be held, as

a fund subject to the liens and claims of the

United States, in the same manner and with the

Same priority as such liens and claims had with

respect to the discharged property."

114A

process of law, as to cases in which

an act of bankruptcy is committed.2

It is not disputed that 83466 applies

here. There is an estate which is insuf-

ficient to pay all the debts due from the

deceased, and there are debts due to the

United States from the estate. Taxes due

5. Section 3466 has been in substantially its

present form since the Act of March 3, 1797, ch.

20, @, 1 Stat. $15.

6. In a declaration submitted by the United

States, Rudolph Nothenberg, the executor of

Brann's estate, stated that the "estate is with

out assets of value sufficient to pay and satisfy

all valid claims of indebtedness against it and

that said estate is accordingly insolvent." Plain-

tiff has not disputed this statement, and the

Court accepts it for purposes of the within mo-

tions,

Plaintiff does argue, however, that even though

the estate is insolvent, 83466 is not applicable

since (1) the vast bulk of tax liens here involved

were recorded against both Brann and his wife, and

there is no evidence that Mrs. Brann is insolvent,

and (2) there are other resources from which the

federal government could satisfy its claims, C-2.,

certain other real property which was the home of

Brann and his wife. Plaintiff has submitted no

factual support for the second contention. As for

the first contention, even assuming that Mrs.

Brann is a joint debtor and that she is solvent,

the application of 83466 does not depend on whe-

ther there is a solvent joint debtor to which the

United States can look for satisfaction of its

debts. The United States is entitled to priority

under 83466.

——_

12A

the United States have long been recog-

nized as debts for purposes of 83466.

see Price _v,. United States, 269 U.S. 492,

499 (1926). There is, therefore, no

question that the claim asserted here by

the United States is within the purview

of 83466.

III. CLAIMED EXCEPTIONS TO 83466

Having decided as a preliminary mat-

ter the applicability of 83466, the

Court now addresses plaintiff's arguments

that the United States does not have

priority under that section over her

judgment lien since (1) the Federal Tax

Lien Act of 1966 (the "FTLA"), and in

particular 26 U.S.C. 86323(a), created

an exception to $3466 which excepts her

lien from the operation of 83466 and (2)

her lien is perfected and specific and

therefore excepted from the operation of

§3466.7

7. Plaintiff also contends that she should

prevail over the federal government because Brann

13A

A. Internal Revenue Code %6323(a)

Section 6321 creates a lien in favor

of the United States for the amount of

tax, together with incidentals, that

anyone has neglected to pay, upon "all

property and rights to property, real or

personal, belonging to such person." 26

U.S.C. 86321.8 Section 6323(a), however,

provides in relevant part:

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 require-

ments of subsection (f) has been

filed by the Secretary or his dele-

gate. 26 U.S.C. 86323(a)

Since plaintiff is a judgment lien

creditor, and since notice of the federal

had no remaining property rights in the proceeds

of sale. This contention is patently without

merit. The existence of a judgment lien does not

deprive the judgment debtor of his rights to

property subject to the lien.

8. Section 6321 was not amended by the FTLA,

but for purposes of convenience the Court will

refer to 86321 and all other relevant sections

dealing with federal tax liens as the FTLA.

14A

government's tax liens was not filed

before plaintiff recorded her judgment

lien, the United States tax liens are not

valid against plaintiff's lien under the

provisions of the FTLA. Plaintiff argues

that this also means that the United

States is not entitled to priority under

$3466 since the FTLA, and in particular

26 U.S.C. $6323(a) overrides 83466 where

the debts due to the United States are

for taxes due. Specifically, plaintiff

argues that 83466, a broad general pri-

ority statute, is inconsistent with the

FTLA, a specific tax lien priority stat-

ute, and that the specific rule of the

FTLA, which gives plaintiff's judgment

lien priority over the federal govern-

ment's tax liens, should therefore pre-

vail over the general rule of 83466.

The Court of Appeals for this Circuit

has not yet addressed the question. Al-

though several courts have dealt general-

15A

ly with this question, 9 no court appears

to have fully addressed it. Because of

the novelty and importance of the ques-

tion, the Court sets forth below the

reasons Which lead it to conclude that

the FTLA and 86323(a) do not create any

exception to the operation of 83466,

9. Several courts have held that the provisions

of $3466 are limited by the FTLA and 86323(a), see

City of Vermillion, S.D. v. Stan Houston Equipment

Co., 341 F.Supp. 707, 713 (D.S.D. 1972); In re

Decker's Estate, 355 Pa. 331, 49 A.2d 714 (1946),

cert. denied sub nom. Decker vy. Kann, 331 U.S. 807

(1947); National Surety Corp. v. Sharpe, 236 N.C.

35, 72 S.E.2d 109 (1952); James Talcott, Inc. v.

Roto American Corp., 123 N.J.Super. 183, 302 A.2d

147 (1973), and at least two circuits have used

language which can only be read as expressing a

belief that 86323(a) does so limit 83466, see

United States vy. Vermont, 317 F.2d 466, 449 & n.3

(2 Cir. 1963), aff'd 377 U.S. 351 (1964); Ex-

change Bank & Trust Co. vy. Tubbs Manufacturing

Co., 246 F.2d 141, 143 (5 Cir.) cert. denied sub

nom, City of Dallas, Texas y. Tubbs Manufacturing

Co... Inc., 355 U.S. 868 (1957). Other courts,

however, have held that 86323(a) does not create

any exception to the operation of $3466. See

Commonwealth of Kentucky, Dept. of Rev. vy. United

States, 383, F.2d 13, 15-16 (6 Cir. 1967); Spira

vy. United States, 76-2 USTC 19600 (N.D.111.1976);

See also James v. United States, 366 U.S. 213, 252

n.4 (1961) (Whitaker, J., concurring in part and

dissenting in part); H.B. Agsten & Sons, Inc. vy.

Huntington Trust & Savings Bank, 388 F.2d 156, 161

(4 Cir. 1967) (Haynsworth, C.J., concurring),

cert. denied, 390 U.S. 1025 (1968)

16A

The predecessor of the FTLA was the Act of

July 13, 1866, ch. 184 89, 14 Stat. 107,

Which provided in part:

And if any person, bank, associa-

tion, company, or corporation, lia-

ble to pay any tax, shall neglect or

refuse to pay the same after demand,

the amount shall be a lien in favor

of the United States from the time

it was due until paid, with the

interest, penalties, and costs that

may accrue in addition thereto, upon

all property and rights to property

belonging to such person, bank,

ascoean company, or corporation

* * #

The purpose of this act, as recently

Stated by former Congressman Mills, then

Chairman of the House Ways and Means Com-

mittee and sponsor of the FTLA, was to

"Cassist] in the collection of the reve-

nues." Indeed, one of the purposes of the

FTLA, according to Congressman Mills, was

to "improv[e] the ability of the Federal

tax liens to fulfill their original func-

tion." 112 Cong. Rec.22224 (1966). There

10. This act amended the Act of March 3, 1865,

ch. 78, 13 Stat. 470.

17A

is nothing in either the language or the

legislative history of the act to indicate

that Congress intended to make tax liens

the federal government's sole remedy for

the collection of unpaid taxes. To the

contrary, Congress intended tax liens to

Supplement existing means for the collec-

tion of taxes, including 83466. There is,

therefore, no basis for Saying that Con-

gress, by creating federal tax liens,

intended to modify 83466 in any way.

Plaintiff apparently realizes this

Since she cites 86323(a) as the specific

Provision which overrides 83466, Her

argument is that Congress, by enacting

this section to give certain classes of

creditors, including judgment lien cred-

itors, protection from federal tax liens,

must have also intended to give such cred-

itors protection from the government's

priority under 83466, Plaintiff's argu-

ment is unsupported by legislative his-

18A

tory. The predecessor of 86323(a) was the

Act of March 4, 1913, ch. 166, 37 Stat.

1016, which gave purchasers, mortgagees,

and judgment creditors protection against

federal tax liens of which notice had not

been filed in a duly designated office. 11

The purpose of this act, as expressed by

its author, Representative Sterling, was to

"amend Section 3186 of the Revised

Statutes [the existing tax lien act]" "for

the protection of innocent purchasers or

mortgagees or judgment creditors without

notice." 49 Cong.Rec. 1802 (1913). There

is nothing in the legislative history of

this act to indicate that innocent

purchasers, mortgagees, and judgment cred-

itors were also to be afforded protection

from the federal government's priority

under 83466, and the clear language of the

Statute is quite to the contrary.

11. In 1939, pledgees were afforded similar

protection. See Revenue Act of 1939, 8401, 53

Stat. 883. The FTLA amended 8&6323(a)to its

present form.

19A

Nor is there anything in the FTLA

Which supports plaintiff's argument. Al-

though the FTLA was a comprehensive re-

vision of the law of federal tax liens and

Priorities, it in no way affected the

government's priority under 83466, Noth-

ing in the legislative history of the FTLA

indicates any congressional intent to

override 83466. In fact, there is some

evidence to the contrary. The American

Bar Association ("ABA"), whose proposal

ultimately led to the enactment of the

FILA, had recommended that Congress amend

$3466 to coordinate the federal priority

in insolvency with the relief against the

federal tax lien proposed for certain

liens and security interests (j.e., the

relief afforded by 86323(a)). Report of

the Special Committee on Federal Liens, in

84 ABA Annual Report 645, 731-736 (1959).

Congress failed to act upon the ABA's

Proposal, however, apparently because the

20A

ABA's recommendation affected many federal

claims in addition to tax claims and

therefore fell outside the jurisdiction of

the congressional committees that con-

Sidered the ABA's proposed tax lien legis-

lation. Plumb, "The Federal Priority in

Insolvency: Proposals for Reform," 70

Mich.L. Rev. 3, 8 (1971). In 1970, the

ABA proposed a revised version of its

insolvency priority recommendation., afis

at 9-10. This proposal was considered by

the Senate Judiciary Committee, but the

resulting bill never passed out of commit-

tee. See S. 2197, 92d Cong., Ist Sess.

(1971). This Court cannot lightly disre-

gard the fact that Congress has been re-

quested on at least two occasions to amend

$3466 in a manner which would achieve the

result sought here by plaintiff, but it

has not yet so amended that section.

The Court recognizes that the policies

reflected in 86323(a) appear inconsistent

21A

with affording a federal tax lien priority

under 83466 over the claims of those cred-

itors protected by the provisions of

§6323(a). This is not, however, a suffi-

cient basis to hold that 83466 has been

impliedly amended. The Supreme Court has,

on several occasions, stated that "'Co]nly

the plainest inconsistency would warrant

our finding an implied exception to the

operation of so clear a command as that of

§3466.'" United States vz. Moore, 423 U.S.

77, 82-83 (1975) (citation omitted);

United States vy. Key, 97 U.S. 322, 324-325

(1970); United States ys Emory, 314 U.S.

423, 433 (1941). This Court does not

believe that, under the standards set

forth by the Supreme Court, #6323(a)

created an implied exception to the opera-

tion of 83466.

The operation of 83466 when a federal

claim for taxes due conflicts with a

claim of a purchaser, a holder of a secu-

22A

rity interest, a mechanic's lienor, or a

judgment lien creditor is not plainly

inconsistent with 86323(a). Section 3466

and the FTLA are entirely separate enti-

ties. See HB, Agsten & Sons, Inc. vee

Huntington Trust & Savings Bank, 388 F.2d

156, 160 (4 Cir. 1967); cert.sdenied, 390

U.S. 1025 (1968); cf. United States vy

Vermont, 377 U.S. 351, 357-358 (1964)

(test for determining the choateness of a

lien for purposes of the tax lien law is

different from test for determining wheth-

er a lien is perfected and specific for

purposes of 83466). For one thing, the

two statutes operate in different con-

texts;

"Section 3466 of the Revised Stat-

utes grants a first priority to the

Government as a creditor; [section

6321] creates a lien on ‘all the

property' of a delinquent taxpayer.

The Section 3466 priority is not a

lien; it covers all debts to the

Government; it is available only in

the case of an insolvent debtor

whose property has passed to a third

person--other than a trustee in

bankruptcy--for the benefit of cred-

23A

itors; and it arises at the time of

this transfer. The [section 6321]

tax lien covers only tax debts; it

arises regardless of the solvency of

the taxpayer; and it attaches at the

time the assessment list is received

by the collector." Kennedy, "The

Relative Priority of the Federal

Government: The Pernicious Career

of the Inchoate and General Lien,"

63 Yale L.J. 905, 906 (1954) (foot-

notes omitted); see also H. B.

Agsten & Sons, Inc, ye. Huntington

— ad + opie Bank, supra, 388

° a ,

Moreover, the two statutes address

different policies. Section 6323(a) is

not a simple act of magnanimity on the

part of Congress; by modifying federal tax

liens to the advantage of certain compet-

ing interests, Congress may well have

enhanced the government's chance of real-

izing taxes, owing to feeding of the lien

by private credits. See Young, "Priority

of the Federal Tax Lien," 534 U.Chi.L.

Rev. 723, 725-726 (1967). No such motive

exists in the determination of the govern-

ment's priority under 83466. JIbid,

It may very well be that "[t]he

C4A

question of priorities is wholly or largely

academic, unless the debtor is

insolvent," HB. Agsten & Sons, Inc vy.

Huntington Trust & Savings Bank, supra,

388 F.2d at 161 (Haynsworth, C.J., concur-

ring), but it does not follow from this

that the FTLA is plainly inconsistent with

$3466. Ibid, First, not all insolvencies

are covered by 83466:

"Mere inability of the debtor to pay

all his debts in ordinary course of

business is not insolvency within

the meaning of the act, but it must

be manifested in one of the modes

pointed out in the latter part of

the statute which defines or ex-

plains the meaning of insolvency

referred to in the earlier part."

United States ys. Oklahoma, 261 U.S.

253, 260 (1923).

Second, the question of priorities may

arise even where the debtor is solvent.

The Government's need for tax liens ny

tends to situations where there is a sol-

vent debtor. For example, tax collections

could be defeated by a transfer of a sol-

vent taxpayer's assets before the institu-

254A

tion of enforcement proceedings were it

not for the FTLA. See Kennedy, supra, at

919-920.

The Court is not unmindful of the many

policy reasons why the government should

not be entitled to priority under 83466

when it is not entitled to priority under

the FTLA.12 However, persuasive these

policy reasons may be, they do not con-

vince the Court that the FTLA is plainly

inconsistent with g§3466. Plaintiff's rem-

edy, if there is to be a remedy, must come

from Congress and not the courts.13

12. For a thorough discussion of these reasons,

see Plumb, "The Federal Priority in Insolvency:

Proposals for Reform," 70 Mich.L.Rev. 3 (1971)

13. Several respected commentators, while

pointing out the inconsistencies between the FTLA

and 83466, have concluded that it will take con-

gressional action to coordinate the two statutes.

See Plumb, "Federal Liens and Priorities -- Agenda

for the Next Decade," 77 Yale L.J. 228, 243

26A

Perfected and Specific Liens

Plaintiff's second argument is that

her lien is excepted from the operation of

§3466, since it is a perfected and speci-

fic lien. While never yet holding that a

perfected and specific lien is excepted

from the operation of 83466, the Supreme

Court has on several occasions raised the

issue only avoid it by holding the as-

serted lien not sufficiently perfected and

Specific to qualify under any possible

exception. See, e.g., United States vy,

Gilbert Associates, 345 U.S. 361, 366

(1953); Illinois yz Campbell, 329 U.S.

362, 370-371 (1946); United States ye

Waddill Co,, 323 U.S. 353, 355-356 (1945);

United States vy. Texas, 314 U.S. 480, 485

(1941). In any event, the ion is not

Squarely before the Court since under

(1967); Kennedy, "The Relative Priority of the

Federal Government: The Pernicious Career of the

Inchoate and General Lien," 63 Yale L.J. 904, 932

(1954); see also H.B. Agsten & Sons, Inc. y,

Huntington Trust & Savings Bank, supra, 388 F.2d

at 161 (Haynsworth, C.J., concurring).

27A

federal lawl4, it is clear that a lien is

sufficiently perfected and specific for

purposes of 83466 only if it has been

reduced to possession, It is undisputed

that plaintiff had not reduced her judg-

ment lien to possession by writ of execu-

tion before the Capp property passed to

Brann's estate,195

It has long been the rule that the

federal government is entitled to priority

under 83466 over a judgment creditor who

has only a general judgment lien upon all

of the debtor's real property. see

Thelusson vs. Smith, 2 Wheat., 396, 15 U.S.

187 (1817). In JThelusson, the Supreme

14. "The effect and operation of a lien in

relation to the claim of priority by the United

States under Rev. Stat. #3466is always a federal

question. 'The priority given the United States

cannot be impaired or superseded by state law.'"

Illinois vy. Campbell, supra, 329 U.S. at 371

(citation omitted); see also United States vy.

Waddill Co., supra, 323 U.S. at 356-357.

15. Section 3466 becomes operative upon the

passing of the debtor's assets to a third party,

here, the executor of Brann's estate.

28A

Court recognized that there must be some

exceptions to the priority afforded the

federal govenment under 83466 and listed

three such exceptions: bona fide convey-

ances, mortgages, and seizures under a fi,

fa. The exceptions listed by the Court

all involve situations in which "the prop-

erty is divested out of the debtor and

cannot be made liable to the United

States." Id, at 426. Since a general

judgment lien does not divest the debtor

of his property, the court held that such

a lien is not excepted from the operation

of 83466. Id. at 425-426.

The IThelusson opinion laid the founda-

tion for the requirement that a lien be

reduced to possession in order to be suf-

ficiently perfected and specific for pur-

poses of 83466. This requirement has now

been clearly delineated by the Supreme

Court in several decisions. See United

States ys. Gilbert Associates, supra, 345

29A

U.S. at 366 (municipal tax lien for unpaid

ad valorem tax); Illinois vy. Campbell,

Supra, 329 U.S. at 376 (statutory lien for

state unemployment compensation taxes);

United States vy. Waddil] Co., supra, 323

U.S. at 358 (statutory landlord's lien and

municipal tax lien for unpaid personal

property taxes). "In claims of this type,

"specificity' requires that the lien be

attached to certain property by reducing

it to possession, on the theory that the

United States has no claim against proper-

ty no longer in the possession of the

debtor." United States vy. Gilbert Asso-

ciates, supra, 345 U.S. at 366,16

16. Plaintiff argues that her lien is choate

under the standards of United States v. New

Britain, 347 U.S. 81 (1954), since "the identity

of the lienor, the property subject to the lien,

and the amount of the lien are estabished." 347

U.S. at 84, Plaintiff's lien may very well be

choate under the standards of New Britain, but it

does not necessarily follow that plaintiff's lien

is perfected and specific for purposes of 83466.

The standards set forth in New Britain, measured

the choateness of liens competing with federal tax

liens arising under 26 U.S.C. 8 6321, and the same

standards are not applicable when the government

30A

Plaintiff correctly points out that

Thelusson was the last Supreme Court deci-

Sion dealing with judgment liens. From

this, plaintiff argues that since record-

ing acts did not exist at the time of the

Thelusson opinion, the Supreme Court would

reach a different result today in view of

the present-day recording acts. Plaintiff

argues that in 1817 a judgment debtor

could transfer his property free from any

claim of a judgment creditor, whereas

today, under 8674 of the California Code

of Civil Procedure, a judgment debtor

cannot transfer title to his property

except subject to the claims of a creditor

who has recorded his abstract of judgment.

asserts a claim under 83466. United States yv.

Vermont, 377 U.S. 351, 358 (1964). For purposes

of 83466, a lien must not only meet the standards

set forth in New Britain (Illinois vy, Campbell,

supra, 329 U.S. at 375), it must also be reduced

to possession (United States y. Gilbert Asso-

Ciates, supra, 345 U.S. at 366). Both require-

ments must be met before a lien becomes perfected

and specific for purposes of 83466. Cf. United

States v. Vermont, supra, 377 U.S. at 357-358.

Although plaintiff's historical analy-

Sis is correct, it does not follow that

her judgment lien should be viewed as

perfected and specific for purposes of

$3466. "The federal priority is not de-

Stroyed by state recording acts any more

than by state statutes creating or other-

wise affecting liens, if the lien as re-

corded or otherwise executed does not have

the required degree of specificity and

perfection. Under the decisions the test

is not, and cannot be, simply whether by

his taking further steps the lienor's

rights will be enforced against others

than the Government." JIllinois vy. Camp-

bell, supra, 329 U.S. at 375.

There is simply no reason to distin-

guish between a judgment lien and the

liens which were before the Supreme Court

in United States vy. Gilbert Associates,

Supra, 345 U.S. at 366 (municipal tax lien

for unpaid ad valorem tax); Illinois y,

32A

Campbell, supra, 329 U.S. at 376 (statu-

tory lien for state unemployment compensa-

tion taxes); or United States vy. Waddill

Co.. Supra, 323 U.S. at 358 (statutory

landlord's lien and municipal tax lien for

unpaid personal property taxes). A judg-

ment lien on all of a debtor's property is

no more perfected and specific than a

municipal tax lien on all of a debtor's

property. See United States vy. Gilbert

Associates, supra, 345 U.S. at 366.

It is thus clear that a lien, includ-

ing a judgment lien, will only be excepted

from the operation of 83466 if it has been

reduced to possession, thereby divesting

the judgment debtor of either title or

possession. It is not disputed that

plaintiff had not executed on her lien

before the Capp Street property passed to

Brann's estate, notwithstanding the fact

that plaintiff had recorded an abstract of

judgment. Under California law, "[rlJe-

cordation of an abstract of judgment mere-

ly creates a lien on real property of the

judgment debtor; such recordation is not

an execution upon a judgment." Industrial

indemnity Co. vy. Levine, 49 CAl.App.3d

698, 699, 122 Cal.Rptr. 712 (1975) (cita-

tions omitted). Thus, even if perfected

and specific liens are excepted from the

operation of $3466, which the Court need

not decide, plaintiff's lien, not being

sufficiently perfected and specific, does

not qualify under such an exception.

IV. QORDER

Accordingly, IT IS HEREBY ORDERED that

plaintiff's motion for summary judgment is

denied.

IT IS HEREBY FURTHER ORDERED that

defendant United States' motion for sum-

mary judgment is granted, and judgment

Shall be entered in favor of defendant

United States together with costs of suit

incurred herein,

34A

IT IS HEREBY FURTHER ORDERED that

counsel for defendant United States shall

prepare an appropriate form of judgment in

accordance with this Memorandum of Opin-

ion, obtain the approval of all other

counsel as to form of judgment, and submit

it to the Court for execution within ten

(10) days of the date hereof.

Dated: February 1, 1978

Zs/

Charles B. Renfrew

United States District Judge

“=

35A

APPENDIX C

Marie D. NESBITT, Plaintiff-Appellant,

UNITED STATES of America, Safeco Title

Insurance Company, a California Corpo-

ration, the City and County of San

Francisco, L.T. Goldmeyer dba Union

Credit Company, and the Franchise Tax

Board, an agency of the State of Cali-

fornia, Defendants-Appellees,

No. 78-2111.

DC# Cv 77-1126 CBR

United States Court of Appeals,

Ninth Circuit.

JUDGMENT

APPEAL from the United States District

Court for the NORTHERN District of CALI-

FORNIA

THIS CAUSE came on to be heard on the

Transcript of the Record from the United

States District Court for the NORTHERN

District of CALIFORNIA and was duly sub-

mitted.

36A

ON CONSIDERATION WHEREOF, It is now

here ordered and adjudged by this Court,

that the judgment of the said District

Court in this Cause be, and hereby is

affirmed. Costs in ths court in favor of

the appellee (USA) and against the aplt.

Costs:

BRIEF FOR THE APPELLEE [USA] $156.60

TOTAL $156.60

Filed and entered June 26, 1980

37A

APPENDIX D

United States Court of Appeals

FOR THE NINTH CIRCUIT

MARIE D. NESBITT, PLAINTIFF-APPELLANT

UNITED STATES OF AMERICA, SAFECO . TITLE

INSURANCE COMPANY, a CALIFORNIA COR-

PORATION, THE CITY AND COUNTY OF SAN

FRANCISCO, L.T.- GOLDMEYER DBA UNION

CREDIT COMPANY, AND THE FRANCHISE

TAX BOARD, AN AGENCY OF THE STATE

OF CALIFORNIA, DEFENDANTS- APPELLEES

NO. 78-2111.

ORDER

October 2, 1980.

Before SNEED and POOLE, Circuit

Judges, and PFAELZER,*® District Judge:

The panel as constituted in the above

case has voted to reject the petition for

rehearing en banc.

*Honorable Mariana R. Pfaelzer,United States

District Judge for the Central District of Cali-

fornia, sitting by designation.

38A

The full court has been advised of the

petition for en banc rehearing, and no

judge of the court has requested a vote on

the petition. Fed. R. App. P. 35(b).

The petition for rehearing en banc is

rejected.

39A

APPENDIX E

Statutest

26 U.S.C. 86321 LIEN FOR TAXES.

If any person liable to pay any tax

neglects or refuses to pay the same after

demand, the amount (including any in-

terest, additional amount, addition to

tax, or assessable penalty, together with

any costs that may accrue in addition

thereto) shall be in a lien in favor of

the United States upon all property and

rights to property, whether real or per-

sonal, belonging to such person.

26 U.S.C. 36322. PERIOD OF LIEN.

Unless another date is specifically

fixed by law, the lien imposed by section

6321 shall arise at the time the assess-

ment is made and shall continue until the

1. All statutes are shown in their present

forms. Where a statute has been amended since

petitioner Marie D. Nesbitt recorded an abstract

of her judgment with the San Francisco County

Recorder on April 28, 1976, the nature of the

amendment is fully described in an appropriate

footnote.

4OA

liability for the amount so assessed (or

a judgment against the taxpayer arising

out of such liability) is satisfied or

becomes unenforceable by reason of lapse

of time.

26 U.S.C. 86323. VALIDITY AND PRIORITY

AGAINST CERTAIN PERSONS.

[Sec. 6323(a)]

(a) PURCHASERS, HOLDERS OF SECURITY

INTEREST 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 inter-

est, mechanic's lienor, or judgment lien

creditor until notice therof which meets

the requirements of subsection (f) has

been filed by the Secretary.

[See. 6323(b)]

(b) PROTECTION FOR CERTAIN INTERESTS

EVEN THOUGH NOTICE FILED.-- Even though

notice of a lien imposed by section 6321

has been filed, such lien shall not be

valid--

41A

(1) SECURITIES.--With respect to

a security (as defined in subsection

(h)(4))--

(A) as against a purchaser

of such Security who at the time of

Purchase did not have actual notice or

knowledge of the existence of such lien;

and

(B) as against a holder of a

Security interest in such security who,

at the time such interest came into

existence, did not have actual notice or

Knowledge of the existence of such lien.

(2) Motor vehicles.-- With re-

Spect to a motor vehicle (as defined in

Subsection (h)(3)), as against a pur-

chaser of such motor vehicle, if--

(A) at the time of the pur-

chase such purchaser did not have actual notice

Or knowledge of the existence of such

lien, and

(B) before the purchaser ob-

Hon

tains such notice or knowledge, he has

acquired possession of such motor vehi-

cle and has not thereafter relinquished

possession of such motor vehicle to the

seller or his agent.

(3) Personal property purchased

at retail. -- With respect to tangible

personal property purchased at retail,

as against a purchaser in the ordinary

course of the seller's trade or busi-

ness, unless at the time of such pur-

chase such purchaser intends such pur-

chase to (or knows such purchase will)

hinder, evade, or defeat the collection

of any tax under this title.

(4) Personal property purchased

in casual sale.-- With respect to house-

hold goods, personal effects, or other

tangible personal property described in

section 6334(a) purchased (not for re-

sale) in a casual sale for less than

$250, as against the purchaser, but only

43A

if such purchaser does not have actual

notice or knowledge (A) of the existence

of such lien, or (B) that this sale is

one of a series of sales.

(5) Personal property subject to

possessory lien.-- With respect to tan-

gible personal property subject to a

lien under local law securing the rea-

sonable price of the repair or improve-

ment of such property, as against a

holder of such a lien, if such holder

is, and has been, continuously in pos-

session of such property from the time

such lien arose.

(6) Real property tax and spe-

cial assessment liens.-- With respect to

real property, as against a holder of a

lien upon such property, if such lien is

entitled under local law to priority

Over security interests in such property

which are prior in time, and such lien

secures payment of--

(A) a tax of general applica-

tion levied by any taxing authority

based upon the value of such property;

(B) a special assessment im-

posed directly upon such property by any

taxing authority, if such assessment is

imposed for the purpose of defraying the

cost of any public improvement; or

public services furnished to such prop-

erty by the United States, a State or

political subdivision thereof, or an

instrumentality of any one or more of

the foregoing.

(7) Residential property subject

to a mechanic's lien for certain repairs

and improvements.-- With respect to real

property subject to a lien for repair or

improvement of a personal residence

(containing not more than four dwelling

units) occupied by the owner of such

residence, as against a mechanic's

45A

lienor, but only if the contract price

on the contract with the owner is not

more than $1,000.

(8) Attorneys! liens.-- With re-

Spect to a judgment or other amount in

settlement of a claim or of a cause of

action, as against an attorney who,

under local law, holds a lien upon or a

contract enforcible against such

judgment or amount, to the extent of his

reasonable compensation for obtaining

Such judgment or procuring such settle-

ment, except that this paragraph shall

not apply to any judgment or amount in

settlement of a claim or of a cause of

action against the United States to the

extent that the United States offsets

Such judgment or amount against any

liability of the taxpayer to the United

States.

(9) Certain insurance con-

tracts.-- With respect to a life insur-

4OA

ance, endowment, or annuity contract, as

against the organization which is the

insurer under such contract, at any

time--

(A) before such organization

had actual knowledge of the existence of

such lien;

(B) after such organization

had such notice or knowledge, with re-

Spect to advances required to be made

automatically to maintain such contract

in force under an agreement entered into

before such organization had such notice

or knowledge; or

levy pursuant to section 6332(b), unless

and until the Secretary or his delegate

delivers to such organization a notice,

executed after the date of such satis-

faction, of the existence of such lien.

(10) Passbook loans.-- With re-

pect to a savings deposit, Share, or

47A

other account, evidenced by a passbook,

with an institution described in section

581 or 591, to the extent of any loan

made by such institution without actual

notice or knowledge of the existence of

such lien, as against such institution,

if such loan is secured by such account

and if such institution has been con-

tinuously in possession of such passbook

from the time the loan is made.

(Sec. 6323(c))

TRANSACTIONS FINANCING AGREEMENTS,

ETC.--

(1) In general.-- To the extent

provided in this subsection, even though

notice of alien imposed by section 6321

has been filed, such lien shall not be

valid with respect to a security in-

terest which came into existence after

tax lien filing but which--

(A) is in qualified property

48A

covered by the terms of a written agree-

ment entered into before tax lien filing

and constituting--

(i) a commercial transac-

tions financing agreement,

(ii) a real property con-

struction or improvement financing

agreement, or

(iii) an obligatory dis-

bursement agreement, and

(B) is protected under local

law against a judgment lien arising, as

of the time of tax lien filing, out of

an unsecured obligation.

(2) Commercial transactions fi-

nancing agreement.--For purposes of

this subsection--

(A) Definition.-- The term

"Commercial transactions financing

agreement" means an agreement (entered

into by a person in the course of his

trade or business)--

4OA

(i) to make loans to the

taxpayer to be secured by commercial

financing security acquired by the

taxpayer in the ordinary course of

his trade or business, or

(ii) to purchase commer-

cial financing security (other than

inventory) acquired by the taxpayer

in the ordinary course of his trade

or business;

but such an agreement shall be treated

as coming within the term only to the

extent that such loan or purchase is

made before the 46th day after the date

of tax lien filing or (if earlier) be-

fore the lender or purchaser had actual

notice or knowledge of such tax lien

filing.

(B) Limitation on qualified

property.-- The term "qualified proper-

ty," when used with respect to a commer-

cial transactions financing agreement,

50A

includes only commercial financing secu-

rity acquired by the taxpayer before the

46th day after the date of tax lien

filing.

curity defined.--The term "commercial

financing security" means (i) paper of a

kind ordinarily arising in commercial

transactions, (ii) accounts receivable,

(iii) mortgages on real property, and

(iv) inventory.

(D) Purchaser treated as ac-

quired security interest.--A person who

Satisfies subparagraph (A) by reason of

clause (ii) thereof shall be treated as

having acquired a security interest in

commercial financing security.

(3) Real property construction or

improvement financing agreement.--For

purposes of this subsection--

(A) Definition. -- The term

"real property construction or improve-

51A

ment financing agreement" means an

agreement to make cash disbursements to

finance--

(i) the construction or

improvement of real property,

(ii) a contract to con-

struct or improve real property, or

(iii) the raising or har-

vesting of a farm crop or the raising

of livestock or other animals.

For purposes of clause (iii),

the furnishing of goods and services

shall be treated as the disbursement of

cash.

(B) Limitation on quali-

fied property).--The term "qualified

property," when used with respect to a

real property construction or improve-

ment financing agreement, includes

only--

(i) in the case of sub-

paragraph (A)(i), the real property

52A

with respect to which the construc-

tion or improvement has been or is to

be made,

(ii) in the case of sub-

paragraph (A)(ii), the proceeds of

the contract described therein, and

(iii) in the case of

subparagraph (A)(iii), property sub-

ject to the lien imposed by section

6321 at the time of tax lien filing

and the crop or the livestock or

other animals referred to in subpara-

graph (A)(iii).

(4) Obligatory disbursement

agreement.--For purposes of this subsec-

tion--

(A) Definition.-- The term

"obligatory disbursement agreement"

means an agreement (entered into by a

person in the course of his trade or

business) to make disbursements, but

such an agreement shall be treated as

534A

coming within the term only to the ex-

tent of disbursements which a required

to be made by reason of the intervention

of the rights of a person other than the

taxpayer.

(B) Limitation on qualified

property.--The term "qualified proper-

ty," when used with respect to an ob-

ligatory disbursement agreement, means

property subject to the lien imposed by

section 6321 at the time of tax lien

filing and (to the extent that the ac-

quisition is directly traceable to the

disbursements referred to in subpara-

graph (A)) property acquired by the

taxpayer after tax lien filing.

agreements.--Where the obligatory dis-

bursement agreement is an agreement

ensuring the performance of a contract

between the taxpayer and another

person--

S4A

(i) the term "qualified

property" shall be treated as also

including the proceeds of the con-

tract the performance of which was

ensured, and

(ii) if the contract the

performance of which was ensured was

a contract to construct or improve

real property, to produce goods, or

to furnish services, the term "quali-

fied property" shall be treated as

also including any tangible personal

property used by the taxpayer in the

performance of such ensured contract.

(Sec. 6323(d))

(d) 45-DAY PERIOD FOR MAKING DISBURSE-

MENTS.-- Even though notice of a lien

imposed by section 6321 has been filed,

such lien shall not be valid with re-

spect to a security interest which came

into existence after tax lien filing by

55A

reason of disbursements made before the

46th day after the date of tax filing,

or (if earlier) before the person making

such disbursements had actual notice or

knowledge of tax lien filing, but only

if such security interest--

(1) is in property (A) subject,

at the time of tax lien filing, to the

lien imposed by section 6321, and (B)

covered by the terms of a written agree-

ment entered into before tax lien

filing, and

(2) is protected under local law

against a judgment lien arising, as of

the time of tax lien filing, out of an

unsecured obligation.

(Sec. 6323(e))

(e) PRIORITY OF INTEREST AND EX-

PENSES.-- If the lien imposed by section

6321 is not valid as against a lien or

security interest, the priority of such

56A

lien or security interest shall extend

to--

(1) any interest or carrying

charges upon the obligation secured,

(2) the reasonable charges and

expenses of an indenture trustee or

agent holding the security interest for

the benefit of the holder of the secu-

rity interest,

(3) the reasonable expenses, in-

cluding reasonable compensation for

attorneys, actually incurred in col-

lecting or enforcing the obligation

secured,

(4) the reasonable costs of in-

Suring, preserving, or repairing the

property to which the lien or security

interest relates,

(5) the reasonable costs of in-

Suring payment of the obligation se-

cured, and

(6) amounts paid to satisfy any

57TA

lien on the property to which the lien

or security interest relates, but only

if the lien so satisfied is entitled to

priority over the lien imposed by sec-

tion 6321,

to the extent that, under local law, any

such item has the same priority as the

lien or security interest to which it

relates.

(Sec. 6323(f))

(f) PLACE FOR FILING NOTICE; FORM.--

(1) Place for filing.--The no-

tice referred to in subsection (a) shall

be filed.--

(A) Under State laws.--

(i) Real property.--In the case

of real property, in one office

within the State (or the county, or

other governmental subdivision), as

designated by the laws of such State,

in which the property subject to the

lien is situated; and

58A

(ii) Personal property.--

In the case of personal property,

whether tangible or intangible, in

one office within the State (or the

county, or other governmental sub-

division), as designated by the laws

of such State, in which the property

subject to the lien is situated; or

(B) With clerk of district

court.--In the office of the clerk of

the United States district court for the

judicial district in which the property

subject to the lien is situated, when-

ever the State has not by law designated

one office which meets the requirements

of subparagraph (A); or

the District of Columbia.--In the office

of the Recorder of Deeds of the District

of Columbia, if the property subject to

the lien is situated in the District of

Columbia.

SOA

(2) Situs of property subject to

lien.--For purposes of paragraphs (1)

and (4), property shall be deemed to be

Ssituated--

(A) Real property.~-In the case

of real property, at its physical loca-

tion; or

(B) Personal property.--In the

case of personal property, whether tan-

gible or intangible, at the residence of

the taxpayer at the time the notice of

lien is filed.

For purposes of paragraph (2)(B), the

residence of a corporation or partnership

Shall be deemed to be the place at which

the principal executive office of the

business is located, and the residence of

a taxpayer whose residence is without the

United States shall be deemed to be in the

District of Columbia.

(3) Form.-- The form and content

of the notice referred to in subsection

(a) shall be prescribed by the Secre-

tary. Such notice shall be valid note

withstanding any other provision of law

regarding the form or content of a no-

tice of lien.

(4) Indexing required with re-

spect to certain real property.--In the

case of real property, if--

(A) under the laws of the

State in which the real property is

located, a deed is not valid as against

a purchaser of the property who (at the

time of purchase) does not have actual

notice or knowledge of the existence of

such deed unless the fact of filing of

Such deed has been entered and recorded

in a public index at the place of filing

in such manner that a reasonable inspec-

tion of the index will reveal the ex-

istence of the deed, and

(B) there is maintained (at

the applicable office under paragraph

61A

(1)) an adequate system for the public

indexing of Federal tax liens,

then the notice of lien referred to in

Subsection (a) shall not be treated as

meeting the filing requirements under

paragraph (1) unless the fact of filing

is entered and recorded in the index

referred to in subparagraph (B) in such

a manner that a reasonable inspection of

the index will reveal the existence of

the lien.2@

2. Pub. Law 94-455 (Oct. 4, 1976) added subsec-

tion £(4) and amended subsections f(2) and £(3) of

26 U.S.C. 86323. Pub. Law 94-600 (Nov. 6, 1978)

amended subsections f(2), £(3) and £(4) of 86323.

Prior to the enactment of Pub. Law 94-455 and Pub.

Law 94-600, subsections f(2) and £(3) of 86323

read as follows:

"(2) Situs of property subject to lien.-- For

purposes of paragraph (1), property shall be

deemed to be situated--

(A) Real property.-- In the case of real prop-

erty, at its physical location; or

(B) Personal property.-- In the case of personal

property, whether tangible or intangible, at the

residence of the taxpayer at the time the notice

of lien is filed.

62A

x # #3

26 U.S.C.8 6325(b)(3) SUBSTITUTION

OF PROCEEDS OF SALE.--

Subject to such regulations as the

Secretary or his delegate may prescribe,

the Secretary or his delegate may

prescribe, the Secretary or his delegate

may issue a certificate of discharge of

any part of the property subject to the

lien if such part of the property is sold

and, pursuant to an agreement with the

For purposes of paragraph (2) (B), the residence

of a corporation or partnership shall be deemed to

be the place at which the principal executive

office of the business is located, and the resi-

dence of a taxpayer whose residence is without the

United States shall be deemed to be in the Dis-

trict of Columbia.

(3) Form.-- The form and content of the

notice referred to in subsection (a) shall be

prescribed by the Secretary or his delegate. Such

notice shall be valid notwithstanding any other

provision of law regarding the form or content of

a notice of lien."

3. Subsections (g), (h) and (i) of 26 U.S.C.

86323 have not been reproduced here. These sub-

sections set forth certain "Refiling" require-

ments, "Definitions" and "Special rules" respec-

tively.

63A

Secretary or his delegate, the proceeds of

such sale are to be held, as a fund sub-

ject to the liens and claims of the United

States, in the same manner and with the

Same priority as such liens and claims had

with respect to the discharged property.

26 U.S.C. §$ 7426(a)(3) SUBSTITUTED SALE

PROCEEDS.

If property has been sold pursuant

to an agreement described in section

6325(b)(3) (relating to substitution of

proceeds of sale), any person who claims

to be legally entitled to all or any part

of the amount held as a fund pursuant to

Such agreement may bring a civil action

against the United States in a district

court of the United States,

26 U.S.C. &$ 7426(b)(4) SUBSTITUTED SALE

PROCEEDS

If the court determines that a

64A

party has an interest in or lien on the

amount held as a fund pursuant to an

agreement described in section 6325(b)(3)

(relating to substitution of proceeds of

sale), the court may grant a judgment in

an amount equal to all or any part of the

amount of such fund,

26 U.S.C. § 7426(c) VALIDITY OF ASSESS-

MENT.

For purposes of an adjudication

under this section, the assessment of tax

upon which the interest or lien of the

United States is based shall be conclu-

Sively presumed to be valid.

28 U.S.C. 8 1346(2)(e)

The district courts shall have

Original jurisdiction of any civil action

against the United States provided in

section 7426 or section 7428 (in the case

of the United States district court for

the District of Columbia) or section 7429

65A

of the Internal Revenue Code of 1954.4

31U.S.C $ 191. PRIORITY ESTABLISHED

Whenever any person indebted to the

United States is insolvent, or whenever

the estate of any deceased debtor, in the

hands of the executors or administrators,

is insufficient to pay all the debts due

from the deceased, the debts due to the

United States shall be first satisfied;

and the priority established shall extend

as well to cases in which a debtor, not

having sufficient property to pay all his

debts, makes a voluntary assignment

thereof, or in which the estate and ef-

fects of an absconding, concealed, or

absent debtor are attached by process of

law, as to cases in which an act of

bankruptcy is committed. The priority

4. Subsection (2)(e) of 28 U.S.C. 81346 was

amended in 1976 by public law 94-455 (October 4,

1976). Prior to the amendment the section read:

"The district courts shall have original jurisdic-

tion of any civil action against the United States

provided in Section 7426 of the Internal Revenue

Code of 1954,"

664A

established under this section does not

apply, however, in a case under title 11.2

CALIFORNIA CODE OF CIVIL PROCEDURE, 8 674.

(Lien of judgment: Recording abstract:

Duration of lien)

(a) An abstract of the judgment

Or decree of any court of this State,

including a judgment entered pursuant to

Chapter 1 (commencing with Section

1770.70) of Title 11 of Part 3, or a

judgment of any court sitting as a small

claims court, or any court of record of

the United States, the enforcement of

which has not been stayed on appeal or

pursuant to Section 1710.50, certified by

the clerk, judge or justice of the court

where such judgment or decree was ren-

dered, may be recorded with the recorder

5. The last sentence of 31 U.S.C. #191 was

added in 1978 by Public Law 95-598, effective Oct.

bs 2979.

—

67A

of any county and from such recording the

judgment or decree becomes a lien upon all

the real property of the judgment debtor,

not exempt from execution, in such county,

owned by him at the time, or which he may

afterward and before the lien expires,

acquire. Such lien continued for 10 years

from the date of the entry of the judgment

or decree unless the enforcement of the

judgment or decree is stayed on appeal or

pursuant to Section 1710.50 by the execu-

tion of a sufficient undertaking or the

deposit in court of the requisite amount

of money as provided in this code, or by

the statutes of the United States, in

Which case the lien of the judgment or

decree, and any lien or liability now

existing or hereafter created by virtue

otherwise by statutes of the United States

provided, ceases, or upon as undertaking

on release of attachment, or unless

judgment or decree is previously satis-

68A

fied, or the lien otherwise discharged.

The abstract above mentioned shall contain

the following: title of the court and

cause and number of the action; date of

entry of the judgment creditor; amount of

the judgment or decree, and where entered

in judgment book or minutes. It shall

also contain the social security number or

driver's license number or both of the

judgment debtor if they are known to the

judgment creditor, that fact shall be

indicated on the abstract of judgment.6

CD) oe.

6. In 1977 California Code of Civil Trocedure

8674(a) was amended by substituting the words "or

minutes" for "is required, minutes or docket in

the justice court" in the third sentence. The

fourth and fifth sentences of the subdivison were

added by amendment in 1978.

7. Subsections (b) and (c) of section 674 are

not reproduced here. These subsections relate to

certain liens arising from orders of the juvenile

court and certain liens on dwelling houses re-

spectively.

69A

No. A-510

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

MARIE D. NESBITT, Petitioner

UNITED STATES OF AMERICA, ET AL., Respondents

Proof of Service

I, Franklin J. Flocks, attorney for

petitioner, MARIE D. NESBITT herein, and a

member of the Bar of the Supreme Court of

the United States, hereby certify that on

the 22nd day of January, 1981, I deposited

in a United States post office, located at

Palo Alto, California, with first class

postage prepaid, three copies of the fore-

going document, in envelopes addressed to

each of the parties required to be served

in this proceeding. The envelopes were

addressed as follows:

Solicitor General, Department of Justice

Washington, D.C. 20530

Thomas Alborg, Esq.

Safeco Title Insurance Co.

417 Montgomery Street

San Francisco, California 94104

William Cirimeli, Esq.

1799 Old Bayshore Highway

Burlingame, California 94010

TOA

Thomas M. O'Connor, City Attorney

Virginia J. Lum, Deputy City Attorney

206 City Hall

San Francisco, California 94102

George Deukmejian, Attorney General

Ernest P. Goodman, Assistant Attorney Gener

Timothy G. Laddish, Deputy Attorney General

6000 State Building

San Francisco, California 94102

further declare that on said date I

deposited one additional "courtesy" copy

of the foregoing document in a United

States post office at Palo Alto, Califor-

nia, with first class postage prepaid in

an envelope addressed as follows:

Dated:

Joan Oppenheimer, Esq.

United States Department of Justice

Tax Division

Appellate Section

10th & Pennsylvania

Washington, D.C. 20530

January 22, 1981

Zs/

Franklin J. Flocks

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.