# Petition — Nesbitt v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1981
- **Citation:** 451 U.S. 984

## Text

te

Uffice Supreme Court, U.S.
FILED

80-1256

JAN 28 1981

ALEXAND -: STEVAS,
CLERK

oo

—_——.

Jn the Supreme Court of the Anited States

OCTOBER TERM, 1980

MARIE D. NESBITT, PETITIONER
Ve

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 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-

18

20.

21

27
27

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

13

21

28

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

MARIE D. NESBITT, PETITIONER
Ve

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

OD

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

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

r
4
?
)
}

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)}.

10

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.

11

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).

12

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

13

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

14

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).

15

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.

16

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.

17

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-

18

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).

19

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."

20

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)

21
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).

22

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.

23

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

24

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).

co

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

26

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

27

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

28

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

29

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-

30

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

1A

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,

2A

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.

3A

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,

4A

APPENDIX B

Marie D. NESBITT, Plaintiff,
V.

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.

.
@
i.

“2
=

5A

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

6A

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

TA

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.

BA

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.

9A

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

B.

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,
Ve
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
Ve
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--

4A

(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

(C) charges for utilities 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

(C) after satisfaction of a
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))

(c) PROTECTION FOR CERTAIN COMMERCIAL
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.

(C) Commercial financing se-
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.

(C) Special rules for surety
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
(C) With Recorder of Deeds of
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

as

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
Ve

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

I

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1217%3A1. Public record. Not legal advice.