Respondents Brief — United States v. Estate of Romani

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i Supreme Court, US. |

4} FILED

No. 96-1613 _ OCT 6 1997

=F Clr. <4

IN THE Pon |

Supreme Court of the Gnited States

OCTOBER TERM, 1997

UNITED STATES OF AMERICA,

Petitioner,

Vv.

ESTATE OF FRANCIS J. ROMANI,

Respondent.

On Writ of Certiorari to the

Supreme Court of Pennsylvania

BRIEF FOR RESPONDENT ROMANI INDUSTRIES, INC.

Of counsel: PATRICK F. MCCARTAN

(Counsel of Record)

LAWRENCE L. DAviS JONES, DAY, REAVIS & POGUE

DAVIS AND DAVIS North Point

103 South Center Street tt 8 steaks Aoesine

Ebensburg, PA 15931

814) 472.9740 Cleveland, Ohio 44114

wie ant (216) 586-3939

GREGORY G. KATSAS

JONES, DAY, REAVIS & POGUE

1450 G Street, N.W.

Washington, D.C. 20005

(202) 879-3939

Counsel for Respondent

Romani Industries, Inc.

EST AVAILABLE COPY

QUESTION PRESENTED

Whether 31 U.S.C. § 3713(a), which creates priority but not

security for any federal government claim against the estate of an

insolvent debtor, is controlling for a government tax claim where

(1) a Competing creditor is secured by a judgment lien on the

debtor's real property and (11) the Federal Tax Lien Act of 1966,

26 U.S.C. § 6323(a), specifically provides that the lien securing

the tax claim “shall not be valid” against that creditor

PARTIES TO THE PROCEEDINGS

The parties below were the United States, Romani Industries,

Inc., and the Estate of Francis J. Romani. Although the United

States has captioned the case as United States v. Estate of Francis

J. Romani, Romani Industries is a proper respondent by operation

of this Court’s Rule 12.6.

Romani Industries has no corporate parent or subsidiaries.

Page

QUESTION PRESENTED ..........----eeeeeee i

PARTIES TO THE PROCEEDINGS ............... ii

rr 2. 6 Ue ees es 08 8 0 6 6 iv

rr ee ie et ko 6.6 ]

er l

SUMMARY OF ARGUMENT ...........-.--+-:- 6

EE ee aS ec ee nee eee 10

I. THE FEDERAL PRIORITY STATUTE DOES

NOT OVERRIDE ANTECEDENT JUDGMENT

LIENS ON REAL PROPERTY ............... 10

A. The Federal Priority Statute Does Not Override

Traditional Security Interests............... 10

B. A Judgment Lien On Real Property Qualifies As

A Traditional Security Interest.............. 19

Il. THE TAX LIEN ACT PREVENTS APPLICATION

OF THE PRIORITY STATUTE IN THE SPECIFIC

CONTEXT OF FEDERAL TAX CLAIMS ........ 26

cides ccccccsccicsicesecwes 37

TABLE OF AUTHORITIES

Page

Cases

Abrams v. United States, 274 F.2d 8 (8th Cir. 1960) ..... 24

Argentine Republic v. Amerada Hess Shipping Corp..,

a a eee 27, 28

Armstrong v. United States, 364 U.S. 40 (1960) ........ 25

Astoria Federal Savings & Loan Association v. Solimino,

eS Ll lO eee 13

Attorney General v. Andrew, Hadres 22, 145 Eng. Rep.

DEP GUEEED ci cctéedée cdoebeee tives 11

Barnhill v. Johnson, 503 U.S. 393 (1992) ............ 19

Beaston v. Farmers’ Bank of Delaware, 37 U.S. (12 Pet.)

Se GY a beN va was + dee teedh oes sete 10

Brecht v. Abrahamson, 507 U.S. 619 (1993) .......... 34

Brent v. Bank of Washington, 35 U.S. (10 Pet.)

SE ee de coe eek a a nen es 2 7, 16, 17

Casberd v. Attorney-General, 6 Price 411, 146 Eng.

% * SS eee ri Arm sore 11

Case v. Beauregard, 99 U.S. 119 (1878) ............ 16

City of Vermillion v. Stan Houston Equipment Co.,

S41 ©. Sap. Fer GO. SD. BIE ww cc ccc cc ccees 6

Commissioners of Public Accounts v. Greenwood,

erie TF fF Ul ere 12

Conard v. Atlantic Insurance Company, 26 U.S.

Fe he ED 2 6446 oe'eS seeds ee 7, 16, 18

Conard v. Nicoll, 29 U.S. (4 Pet.) 291 (1830) ......... 16

Conard v. Pacific Insurance Co., 31 U.S.

SS ne 6 edn sei ay ore aed 0 yy 16

Cook County National Bank v. United States, 107 U.S.

EE ids ba. od aan eee eb le ox 9, 29

In re Cook, 6 F. Cas. 383 (C.C.D. Mass. 1842)........ 15

Cottrell v. Pierson, 12 F. 805 (C.C.D. Neb. 1881) ...... 19

County of Spokane v. United States, 279 U.S. 80

SE. ob cea che eee ee ad ba rhwis den 21

Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S.

PE Co's See Decent ee Ue cca ake 28

Crowell v. Benson, 285 U.S. 22 (1932) ............. 26

TABLE OF AUTHORITIES (Cont’d.)

Page

Davis v. Pringle, 268 U.S. 315 (1925) ........... 9, 29

In re Decker’s Estate, 49 A.2d 714 (Pa. 1946),

cert. denied, 331 U.S. 807 (1947) ............. 6, 32

Deeley v. Dwight, 30 N.E. 258 (N.Y. 1892) .......... 21

Department of the Treasury v. Fabe, 508 U.S. 491

EA eri Se es Pe eee es 4

DeSylva v. Ballentine, 351 U.S. 570 (1956) ....... 19, 20

in re Estate of Berretta, 426 A.2d 1098 (Pa. 1981) ...... 4

Evans v. Stewart, 66 N.W.2d 442 (lowa 1954) ........ 6

Ex parte Christy, 44 U.S. (3 How.) 292 (1845) ........ 15

Fairfax's Devisee v. Hunter's Lessee, 11 U.S.

SEE oC bec ee cee ee eecncconts 13

Farrey v. Sanderfoot, 500 U.S. 291 (1991) ........... 15

Fector v. Philpott, 12 Price 197, 147 Eng. Rep. 697

ED GU e's ben dee ewbdbe tive cecst ess 11

Field v. United States, 34 U.S. (9 Pet.) 182 (1835) ...... 17

Fitzpatrick v. Flannagan, 106 U.S. 648 (1882) ........ 16

Gibson v. Warden, 81 U.S. (14 Wall.) 244 (1871) ...... 15

In re Goerg, 844 F.2d 1562 (1ith Cir. 1988).......... 25

Guarantee Title & Trust Co. v. Title Guaranty & Surety

we 2 Ff) err ree ee 9, 29

H.B. Agsten & Sons, Inc. v. Huntington Trust & Savings

Bank, 388 F.2d 156 (4th Cir. 1967), cert. denied,

SG, PGE nc ccccccecccsaneeees 5, 32

Illinois ex rel. Gordon v. Campbell, 329 U.S. 362

COE i FCHUE el ES FSC e RRs 7, 8, 19, 20, 21

James Talcott Inc. v. Roto American Corp., 302 A.2d

067 C6.3. Gaper. GR. IDTH) 2 wi cece ec ceees 6

Jett v. Dallas Independent School Dist., 491 U.S. 701

eg ee ee eee ee ee 27, 28

Jordan, Ellis & Co. v. L. & J. James, 5 Ohio 88

EE a OS ee ee eee ee 21

Kamen v. Kemper Financial Services, Inc.,

8 BP errr ray Tee 19

The King v. Dickenson, Parker 262, 145 Eng. Rep. 774

Sy oa kvoe oes Uhh ects 6 ecin este scabeee 11

TABLE OF AUTHORITIES (Cont’d.)

Page

The King v. Lee, 6 Price 369, 146 Eng. Rep. 837

Gee. SED 0 old HO Me db SMA ced 1 Cenex ll

Lewis v. United States, 92 U.S. 618 (1875) ........... 17

Lorillard v. Pons, 434 U.S. 575 (1978) ............. 26

Louisville Joint Stock Land Bank v. Radford, 295 U.S.

SEED peed Gh bb thee bie a's cos bb-0 wees 25

Lucas v. South Carolina Coastal Council

Se We GI ok. de Maa ~ 6 de ec ex 25

Marshall v. New York, 254 U.S. 380 (1920) .......... il

Martin v. Dennett, 626 P.2d 473 (Utah 1981) ......... 24

Mellon v. Michigan Trust Co., 271 U.S. 236

Gas « Oth an een «ec ascee Geen 9, 29, 30, 33

Mennonite Board of Missions v. Adams, 462 U.S. 791

ee ee Oe ee ee 25

In re Meyer's Estate, 48 A.2d 210 (Pa. Super.

Se ee ets ae bi Os Gal << OSM hows 4, 5, 32

Mobil Oil Corp. v. Higginbotham, 436 U.S. 618

ee eee ee ee ee ee 13

Montgomery v. State, 153 So. 394 (Ala. 1934)......... 12

Morton v. Mancari, 417 U.S. 535 (1974) ........ 27, 28

Muniz v. United States, 155 N.E.2d 140

(Ind. Ct. App. 1958) (in banc) ............ 6, 19, 21

National Surety Corp. v. Sharpe, 72 $.E.2d 109

eee es ae ee a 6

New York v. Maclay, 288 U.S. 290 (1933) ........ 20, 21

Norfolk Redev. & Housing Authority v. Chesapeake &

Potomac Telephone Co., 464 U.S. 30 (1983) ........ 12

Norton's Assignee v. Boyd, 44 U.S. (3 How.) 426

Gee ok bc Oe SiG codes Bat ds £00k. bs 15

Patterson v. McLean Credit Union, 491 U.S. 164

ee 6 a wae Cee dak cts cdi & 9, 27, 33

Pauley v. California, 75 F.2d 120 (9th Cir.

_ SPPPerareo ee ee ae 12

People v. Farmers’ State Bank, 167 N.E. 804

Gie CR wide tid > SS). 6S Wks See cS) ows 12

vii

TABLE OF AUTHORITIES (Cont’d.)

Page

Petition of Gilbert Associates, 90 A.2d 499

(N.H. 1952), rev'd, 345 U.S. 361 (1953) .......... 22

Postmaster General v. Robbins, 19 F. Cas. 1126

CT SED Gil’ ccd cccescenevcosrseceses 19

Radzanower v. Touche Ross & Co., 426 U.S. 148

SEE bcclccccwhe vies duecsdevecs Js eewds 28

Rankin & Schatzell v. Scott, 25 U.S. (12 Wheat.)

5 SEPP TT PTET TE ETT 22

Rex v. Humphrey, 1823-24 All E.R. 452 (Ex. 1825) ..... 11

Robertson v. Seattle Audubon Society, 503 U.S. 429

Or ee ee ee 27

Rodriguez v. United States, 480 U.S. 522 (1987)

(per curiam) ... 0.6 eee eee eee eens 28

Rorke v. Dayrell, 4 T.R. 403, 100 Eng. Rep. 1087

OU) a eee re 11

Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) ..... 25

Schneidewind v. ANR Pipeline Co., 485 U.S. 293 a

Se Sore oe eee ee

Schwartz v. Commissioner of Internal Revenue, 560 F.2d

ie le eS .., eee rer err ree ee ee ee 24

Silver v. New York Stock Exchange, 373 U.S. 341

Se ee ere er ee ee 28

Southern Railway Co. v. United States, 306 F.2d 119

Ge DN o's oloc UR SOW e Ws 6 OO 0s o VSN 00 4 24

State v. Bank of Maryland, 6 G. & J. 205 (Md. 1834) .... 12

Thelusson v. Smith, 15 U.S. (2 Wheat.) 396

OE sk 66 Fees 6 Ess PUG HECS 0 o's oe 7, 17, 18

Traynor v. Turnage, 485 U.S. 535 (1988) .......-.--- 28

Twyne’s Case, 3 Co. Rep. 806 (Star Chamber 1601) ..... 21

United States v. City of New Britain, 347 U.S. 81 (1954) . . 36

United States v. Emory, 314 U.S. 423 (1941) ....... 5, 30

United States v. Fausto, 484 U.S. 439 (1988) ......... 28

United States v. Fisher, 6 U.S. (2 Cranch) 358

Se whe kbs cb bbb 0s oe EU b He US Cues ve cess 13

United States v. Gilbert Associates, 345 U.S. 361

SD an eeabe pekdnsd6esten dp uoh es 8, 21, 36

Viii

TABLE OF AUTHORITIES (Cont’d.)

Page

United States v. Guaranty Trust Co., 280 U.S. 478

ip PEED od Rush dale We bhls cle Wwe kOe 02 9, 29

United States v. Hack, 33 U.S. (8 Pet.) 271

Se. pwns eee beech i Cee bs cvebblecs ohh 7, 16

United States v. Hooe, 7 U.S. (3 Cranch) 73 (1805) ... 7, 16

United States v. Key, 397 U.S. 322 (1970) ...... 5, 30, 33

United States v. Kimbell Foods, Inc., 440 U.S.

EE ES ee 6, 19, 22, 34

United States v. Lewis, 26 F. Cas. 920 (C.C. E.D.

a NE i'w dire ea hake oak o's 6 cb OK 17

United States v. Moore, 423 U.S. 77 (1975) ........ 4,15

United States v. Oklahoma, 261 U.S. 253 (1923) ....... 10

United States v. Randall, 401 U.S. 513 (1971)......... 31

United States v. Security Industrial Bank,

I re 25, 26

United States v. State Bank of North Carolina,

Be Ses PD. «6 0665 % 6 Wes « Ghee ll

United States v. Texas, 314 U.S. 480 (1941) ....... 20, 21

United States v. Texas, 507 U.S. 529 (1993) .......... 13

United States v. Vermont, 377 U.S. 351 (1964) ..... 21, 36

United States v. Waddill, Holland & Flinn, Inc.,

ee ER 8, 19, 21, 31

United States v. Wells, 117 S. Ct. 921 (1997) ......... 34

United States Fidelity & Guaranty Co. v. Bramwell,

i ee pe ee 12

In re Upset Sale, 479 A.2d 940 (Pa. 1984) ......... 2, 22

Warren v. First National Bank, 38 N.E. 122

ee ee oe eee 21

Wart v. Alaska, 451 U.S. 259(1981)............... 29

Wright v. Terry, 2 So. 6 (Fla. 1887) ............... 21

Yeatman v. Savings Institution, 95 U.S. 764 (1877)... ... 15

Statutes and Rules

Federal Tax Lien Act of 1966, 26 U.S.C. §§ 6321—6327.. 1

ae > GD 6. 6 26 cleat ress Je 4 el ek 2

SPEED Shouse eine bce cule 2

TABLE OF AUTHORITIES (Cont’d.)

Page

Sk ge 0) eres re i ree 2 passim

DUIIEMEUEEES cusvocecs v.eceseceseener 3, 31

Bs EOD ccc cc es ewoerresednses 3, 31

Se ss obese Vecewesoueseedse 3, 31

TE eT TSE GREREEE LIOR ELL 14

OE SL ree ee ee 14

Ro Ee TE ERRETLERRTE 14

8 errs se ree ee 14, 26

Of ) | FES ee re ee ee *

P,P te S00. Eee eee ee 23

42 Pa. Cons. Stat. Ann. § 4303 ..........55055: 1, 20

Act of Aug. 19, 1841, ch. 9, § 2, 5 Stat. 440,442 ...... 15

Act of July 1, 1898, §§ 64, 67(d), 30 Stat. 544, 563-64 ... 14

Act of July 31, 1789, § 21, 1 Stat. 29,42 .........-. 13

Act of March 3, 1797, § 5, 1 Stat. 512,515 ........-. 13

Act of Mar. 4, 1913, ch. 166, 37 Stat. 1016 .......... 34

Reform Act of 1978, Pub. L. No. 95-598,

tit. I], § 322(a), 92 Stat. 2678, codified

¢ bh. Oo , NSA ee ee 24, 29

Pub. L. No. 89-719, 80 Stat. 1125 (1966) ........... 34

Statute of Westminster II of 1285, 13 Ed. 1, c.18

(1285), 1 Stat. Realm 82 (1810) ... 2... 6 eens 22

i Mee, Br A A ain boo bb 0 hon SHON 04 20

Miscellaneous Authorities

American Bar Association, Final Report of the

Committee on Federal Liens (1959), reprinted

in Staff of House Comm. on Ways and Means,

Legislative History of H.R. 11256 (1966) ........ >

Case of Richardson, 9 Op. Att'y Gen. 28 (1857) ..... 7,19

3 R. Clark, A Treatise on the Law and Practice of

Receivers § 669 (3d ed. 1959) 2... 6. . eee eee es 12

4 Collier on Bankruptcy 4 507.02(4)[a] (L. King, ed.,

OE SS Peer rer. PEEL 14

G. Glenn, The Law Governing Liquidation § 510

Dh inca tace eases eedbrehes tare veces 13

TABLE OF AUTHORITIES (Cont’d.)

Page

1 G. Gilmore, Security Interests in Personal Property

6.0 on Ae dao alee ass ee ee se pa me 21

mam. Tap. Mo. G2-1008 CID1D) 2... ci bcc ccs 34

Kennedy, From Spokane County To Vermont: The

Campaign of the Federal Government Against

the Inchoate Lien, 50 lowa L. Rev. 724 ee Boe 2 33

Kennedy, The Relative Priority of the Federal

Government: The Pernicious Career of the Inchoate

and General Lien, 63 Yale L.J. 905 (1954) ... . 13, 16, 34

S. Nadler & M. Nadler, The Law of Bankruptcy § 182

Ser Se 6a oe a a toe ae Pk caw. <i 14

G. Nelson & D. Whitman, Real Estate Finance Law

Se ee res ee ee 23, 24

Note, Nesbitt v. United States: Denying an Implied

Tax Lien Exception to the Federal Priority in

Insolvency, 33 Cath. U. L. Rev. 741 Ee 32

Plumb, Federal Liens and Priority, 77 Yale L.J. 228

ne ee ee eae aes ee a oe ee 24

Plumb, The Federal Priority in Insolvency: Proposals

for Reform, 70 Mich. L. Rev. 1 (1971) ........ 32, 35

W. Plumb, Federal Tax Liens (3d ed. 1981) .......... 25

4 R. Powell, Powell on Real Property § 439 (1997) ..... 23

5 R. Powell & P. Rohan, Powell on Rea,’ Property

DED 4 Sen each s ok wa aR a ee. 22

Riesenfeld, Enforcement of Money Judgments in Early

American History, 71 Mich. L. Rev. 691 (1973) ...... 22

2A C. Sands, Sutherland on Statutes and Statutory

Construction § 51.02 (4th ed. 1973) ............. 29

T. Sedgwick, The Interpretation and Construction of

Statutory and Constitutional Law (2d ed. 1874) ...... 29

S. Rep. No. 89-1708, reprinted in 1966 U.S.C.C.A.N.

PE. <b-0.n pss aed one SOR be a bees st 34

J. White & R. Summers, Uniform Commercial Code

So XS ere ee ee eee 15

ee ee a ee Le eT)

BRIEF FOR RESPONDENT ROMANI INDUSTRIES, INC.

STATUTES INVOLVED

The federal priority statute, as amended, 31 U.S.C. § 3713(a),

and relevant portions of the Federal Tax Lien Act of 1966, as

amended, 26 U.S.C. §§ 6321-6327, appear in their entirety in an

appendix to this brief.

STATEMENT OF THE CASE

The Federal Tax Lien Act of 1966, which secures federal tax

claims and comprehensively governs their priority, provides that

a federal tax lien “shall not be valid” against a first-in-time

judgment lien creditor. 26 U.S.C. § 6323(a). This case presents

the question whether a federal tax claim nonetheless may prevail

against a first-in-time judgment lien creditor by operation of 31

U.S.C. § 3713(a), which creates no security interest at all, but

which affords a priority for all federal government claims against

insolvent debtors. Without dissent, the three courts below held

that the specific provisions of the Tax Lien Act prevail over the

general provisions of the federal priority statute. Accordingly,

they concluded that the secured judgment held by respondent

Romani Industries must be satisfied before the unsecured tax

claim held by the government.

1. On January 25, 1985, respondent Romani Industries, Inc.

recorded a $400,000 judgment against Francis J. Romani in the

clerk’s office of the Court of Common Pleas for Cambria County,

Pennsylvania. Pet. App. 21a-22a. Under Pennsylvania law, the

recording of that judgment created a lien on all of the real

property owned by M:. Romani in Cambria County. 42 Pa.

Cons. Stat. Ann. Section 4303(a).' Pennsylvania law treats such

'In pertinent part, Section 4303(a) provides:

Any judgment or other order of a court of common pleas for the

payment of money shall be a lien upon real property . . . when it is

entered of record in the office of the clerk of the court of common

pleas of the county where the real property is situated, or in the

office of the clerk of the branch of the court of common pleas

a judgment lien as a mature property interest fully entitled to

federal and state constitutional protection. See Jn re Upset Sale,

479 A.2d 940, 943-44 (Pa. 1984). In particular, it defines

judgment liens as “no less property interests” than mortgages.

See id. at 944.

After Romani Industries obtained its judgment lien, the Internal

Revenue Service filed notices of federal tax liens, for an amount

totalling approximately $490,000, on the property of Mr.

Romani. Pet. App. 2a. Those liens arose under the Federal Tax

Lien Act of 1966, which provides that if any person refuses to

pay a tax “after demand” by the IRS, the unpaid amount

constitutes a lien in favor of the United States on all of that

person’s real and personal property, wherever located. 26 U.S.C.

Section 6321, App. 2a.’ The Tax Lien Act also comprehensively

regulates the priority of these tax liens against competing claims

and interests. Most relevant here, it provides that a lien imposed

under Section 6321 “shall not be valid” against four categories of

competing claimants — “any purchaser, holder of a security

interest, mechanic’s lienor, or judgment lien creditor” — until

notice of the lien has been publicly filed in an office designated

by the State where the encumbered property is located. 26

embracing such county.

> Section 6321 provides:

If any person liable to pay any tax neglects or refuses to pay the

same after demand, the amount (including any interest, additional

amount, addition to tax, or assessable penalty, together with any costs

that may accrue in addition thereto) shall be a lien in favor of the

United States upon all property and rights to property, whether real

or personal, belonging to such person.

26 U.S.C. § 6321. The next section of the Tax Lien Act confirms that

this lien arises “at the time the assessment is made” by the IRS. Jd.

§ 6322.

U.S.C. § 6323(a), App. 2a. The Tax Lien Act further provides

that a lien imposed under Section 6321 “shall not be valid”

against ten other categories of interests even after notice of the

lien has been so filed. 26 U.S.C. § 6323(b), App. 2a-Sa. The

Act further provides special protection for certain elaborately

defined “commercial transactions financing agreements.” 26

U.S.C. § 6323(c), App. Sa-9a. The Act also specifically defines

many of the other protected security interests. 26 U.S.C.

§ 6323(h), App. 14a-15a. And it provides an entirely distinct set

of liens and priorities for various estate and gift taxes. 26 U.S.C.

§§ 6324, 6324A, 6324B, App. 17a-24a.

When Mr. Romani died in 1992, he left as his entire estate a

piece of real property located in Cambria County and valued at

approximately $53,000. Pet. App. 2a. The property remained

encumbered both by Romani Industries’ judgment lien and by the

government’s federal tax lien. Jd. The administrator of the estate

filed a petition in the Court of Common Pleas for Cambria

County to transfer the property to Romani Industries in lieu of

execution, on the ground that the Tax Lien Act expressly

invalidated the government’s tax lien as against Romani

Industries’ first-in-time judgment lien, and that Romani Industries’

secured claim therefore prevailed as against the government's

unsecured claim. The government opposed the motion under 31

U.S.C. § 3713(a), App. la, which the government characterizes

as an “absolute priority statute” (Pet. Br. passim), but which this

Court has more modestly described as simply the “priority

* Section 6323(a) provides that “[tJhe lien imposed by section 6321 shall

not be valid as against any purchaser, holder of a security interest,

mechanic's lienor, or judgment lien creditor until notice thereof which

meets the requirements of subsection (f) has been filed by the Secretary”

of the Treasury. App. 2a. Section 6323(f)(1), in turn, provides in

pertinent part that the notice shall be filed in an office designated by the

state “in which the property subject to the lien is situated.” App.

10a-lla. Section 6323(f)(2) provides that real property is situated “at

its physical location” and that personal property is deemed to be situated

“at the residence of the taxpayer” when the notice is filed. App. 11a.

statute,” e.g., Department of the Treasury v. Fabe, 508 U.S. 491,

493 (1993); United States v. Moore, 423 U.S. 77, 81 (1975). In

pertinent part, Section 3713(a) provides that a federal claim “shall

be paid first” when the estate of a deceased debtor is “insolvent”

in the sense that its assets are “not enough to pay all debts of the

debtor.”*

2. The court of common pleas granted the motion to transfer

the real property to Romani Industries. The court acknowledged

the conflict in this case between the Tax Lien Act, which would

give priority to Romani Industries’ first-in-time judgment lien,

and Section 3713(a), which would give priority to the

government's claim against an insolvent estate. Pet. App. 23.

Citing the prior Pennsylvania decisions in /n re Estate of Berretta,

426 A.2d 1098 (Pa. 1981), and Jn re Meyer’s Estate, 48 A.2d

210 (Pa. Super. Ct. 1946), and the principle of statutory

construction that “specific provisions should prevail over

conflicting general ones,” the court concluded that the priority

provisions of the Tax Lien Act, which were “enacted to govern

tax debts specifically,” must prevail over the federal priority

Statute, which “references federal debts generally.” Pet. App. 23a-24a.

*In its entirety, the federal priority statute provides:

(1) A claim of the United States Government shall be paid first

when —

(A) a person indebted to the Government is insolvent and —

(i) the debtor without enough property to pay the debts makes a

voluntary assignment of property;

(ii) property of the debtor, if absent, is attached; or

(iii) an act of bankruptcy is committed; or

(B) the estate of a deceased debtor, in the custody of the

executor or administrator, is not enough to pay all debts of the

debtor.

(2) This subsection does not apply to a case under title 11.

The Superior Court of Pennsylvania unanimously affirmed.

That court too concluded that the priority provisions of the Tax

Lien Act and of Section 3713(a) “produce[d] conflicting results”

in this case. Pet. App. 19a. That court too resorted to the

“familiar and time honored principle” that “conflicting provisions

must be construed together with the more specific provisions

prevailing over the general ones.” Pet. App. 20a. And, that

court too concluded that the Tax Lien Act “is the more specific

provision because it applies only to federal tax liens,” whereas the

priority statute “applies to any unpaid claim of the government

against an insolvent debtor.” Jd. (emphases in original).

The Supreme Court of Pennsylvania also unanimously

affirmed. That court concluded that there was a “plain inconsis-

tency” between the respective statutes “because, with respect to

tax liens, Section 6323 provides for a ‘first in time’ priority while

Section 3713 gives absolute priority to the United States.” Pet.

App. 6a-7a. Accordingly, the court held that the Tax Lien Act

priorities must prevail, either as an “‘implied exception’” to

Section 3713, Pet. App. 5a (citing United States v. Emory, 314

U.S. 423 (1941) and United States v. Key, 397 U.S. 322 (1970)),

or under the principle that the “more specific” provisions of the

Tax Lien Act qualify the “general” provision of Section 3713,

Pet. App. 6a n.9. Quoting from then-Chief Judge Haynsworth’s

concurring opinion in H.B. Agsten & Sons, Inc. v. Huntington

Trust & Savings Bank, 388 F.2d 156, 161 (4th Cir. 1967), cert.

denied, 390 U.S. 1025 (1968), the court explained that the Tax

Lien Act priorities “would be essentially meaningless” if Section

3713 “always prevailed” when the debtor was insolvent:

“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 insolvent taxpayer with secured claims which

would enjoy priority under state law.”

Pet. App. lla n.16. After reviewing the text and legislative

history of the Tax Lien Act, and this Court’s discussion of those

materials in United States v. Kimbell Foods, Inc., 440 U.S. 715

(1979), the court further concluded that the Tax Lien Act evi-

denced an affirmative congressional intent “that federal priorities

be limited in the tax area, regardless of whether the debtor is

insolvent.” Pet. App. 13a.°

SUMMARY OF ARGUMENT

I. A. 1. The federal priority statute does not override

traditional security interests. The priority statute originated in the

crown’s prerogative to priority of payment of debts. At common

law, however, the royal prerogative did not apply to pre-existing

security interests. When the federal priority statute was enacted,

a century of English precedent had established that judgment liens

would survive assertions of the royal prerogative. In this

country, the states incorporated the same limitations into their

respective common-law sovereign prerogatives.

2. In light of this tradition, the government bears a heavy

burden to establish that the federal priority statute abrogates

settled common-law protection for judgment liens and other

security interests. This Court has held that statutes must speak

directly to the question at issue in order to abrogate a settled

common-law principle. The federal priority statute does not

speak directly to the elimination of antecedent security interests.

Instead, it creates only a priority of payment, itself unsupported

by any lien or security interest.

* The decisions below are consistent with a large body of lower court

decisions holding that the specific priorities of the Tax Lien Act (or its

antecedents) qualify the general provisions of the federal priority statute.

See, e.g., City of Vermillion v. Stan Houston Equip. Co., 341 F. Supp.

707, 713 (D. S.D. 1972); Muniz v. United States, 155 N.E.2d 140,

143-48 (Ind. Ct. App. 1958) (in banc); Evans v. Stewart, 66 N.W.2d

442, 448-49 (lowa 1954); James Talcott Inc. v. Roto American Corp.,

302 A.2d 147, 150-51 (N.J. Super. Ct. 1973); National Surety Corp. v.

Sharpe, 72 S.E.2d 109, 119-21 (N.C. 1952); In re Decker’s Estate, 49

A.2d 714, 719-20 (Pa. 1946), cert. denied, 331 U.S. 807 (1947); In re

Meyer's Estate, 48 A.2d at 212-15.

3. The Bankruptcy Code confirms the traditional understand-

ing that priority provisions do not affect the rights of secured

creditors. Bankruptcy law draws a fundamental distinction

between priority provisions, which apply only to unsecured

creditors, and security provisions. Bankruptcy law affords a high

degree of protection to secured interests, which may be set aside

only under narrow provisions specifically addressed to secured

interests as such. This Court has recognized that bankruptcy law

provides an apt analogy for construing the federal priority statute.

4. On at least four occasions, this Court has held that the

federal priority statute does not override antecedent security

interests. United States v. Hooe, 7 U.S. (3 Cranch) 73, 90

(1805) (mortgage); Conard v. Atlantic Insurance Company, 26

U.S. (1 Pet.) 386, 447 (1828) (bonds held as security); United

States v. Hack, 33 U.S. (8 Pet.) 271, 275 (1834) (equitable lien

on partnership assets); Brent v. Bank of Washington, 35 U.S. (10

Pet.) 596, 615 (1836) (common-law lien on intangible personal

property). Thelusson v. Smith, 15 U.S. (2 Wheat.) 396 (1817),

is not to the contrary. In Conard, the Court limited Thelusson to

its highly unusual facts. See 26 U.S. (1 Pet.) at 441-44.

Following Conard and Brent, the Attorney General of the United

States issued a formal opinion letter concluding that Thelusson

“has been distinctly overruled.” Case of Richardson, 9 Op. Att'y

Gen. 28, 29 (1857).

B. 1. Ina series of cases involving state tax liens on personal

property, this Court has fashioned minimum federal standards for

determining whether state-created liens qualify as security

interests for purposes of surviving application of the federal

.priority statute. Although a state’s characterization of the relevant

interest as secured is not “conclusive,” it is still “entitled to

weight.” Jilinois ex rel. Gordon v. Campbell, 329 U.S. 362, 371

(1946).

2. The judgment lien in this case satisfies all applicable federal

requirements. The lien clearly identifies the lienor, the amount

of the lien, and the property subject to the lien. Moreover, it is

immediately enforceable by execution.

3. The government mistakenly contends that a judgment lien

on real property cannot survive application of the priority statute

unless, in addition to satisfying these requirements, it is also

reduced to possession. This Court's decisions requiring

possession all have involved state tax liens on personal property.

See United States v. Gilbert Assocs., 345 U.S. 361, 362 (1953);

Campbell, 329 U.S. at 365; United States v. Waddill, Holland &

Flinn, Inc. , 323 U.S. 353, 354 (1945). The Court's decisions in

these cases simply incorporate the longstanding common-law

requirement that a creditor must possess the security in order to

perfect a lien on personal property. Judgment liens on real

property, by contrast, have never required possession as an

element of perfection. The government’s proposed possession

requirement would place at risk all modern security interests,

including mortgages. It also would produce, without good

reason, significantly different treatment of secured creditors as

between the Bankruptcy Code and the priority statute. By

permitting the routine destruction of the property rights of secured

creditors, it also would raise substantial enough takings concerns

to warrant rejection so as to avoid constitutional difficulty.

Finally, the government's broad interpretation of the priority

statute would bring that statute needlessly into conflict with the

Tax Lien Act.

Il. Even assuming that the federal priority statute overrides

antecedent security interests generally, the specific Tax Lien Act

bars such application of the priority statute in the specific context

of federal tax claims.

1. The courts below correctly concluded that the government's

construction of the priority statute brings that provision into.

conflict with the Tax Lien Act. In this case, the government

would prevail under the priority statute (as construed by the

government), but Romani Industries would prevail under Tax

Lien Act. The question presented is how to reconcile these

overlapping and conflicting statutes.

2. In cases where overlapping statutes conflict, this Court

applies the well-settled rule that specific provisions qualify general

ones. That rule applies regardless of the priority of enactment,

but has particular force where the later statute is the more specific

one. “We should be reluctant,” the Court has explained, “to read

an earlier statute broadly where the result is to circumvent the

detailed remedial scheme constructed in a later statute.”

Patterson v. McLean Credit Union, 491 U.S. 164, 181 (1989).

On five occasions, the Court has applied this principle to hold that

the priority statute conflicted with, and was therefore qualified by,

a subsequently enacted and more specific statute. Cook County

National Bank v. United States, 107 U.S. 445 (1882) (National

Bank Act); Guarantee Title & Trust Co. v. Title Guaranty &

Surety Co., 224 U.S. 152 (1912) (Bankruptcy Act); Davis v.

Pringle, 268 U.S. 315 (1925) (same); Mellon v. Michigan Trust

Co., 271 U.S. 236 (1926) (Federal Control Act); United States v.

Guaranty Trust Co., 280 U.S. 478 (1930) (Transportation Act of

1920).

3. The courts below correctly concluded that the Tax Lien Act

is more specific than, and therefore must qualify, the priority

statute. The Tax Lien Act applies only to federal tax claims, and

it provides a detailed set of priorities in that specific context. Its

carefully crafted scheme would be severely undercut if the

priority statute overrides all of these interests in every case

involving an insolvent debtor. The government urges the Court

to limit the Tax Lien Act priorities to cases where the debtor is

not insolvent. That limitation would make the Act virtually

meaningless, for the priorities are important only when the debtor

is insolvent.

4. The legislative history of the Tax Lien Act confirms that

the Congress intended for the Act to apply to all tax claims. This

Court has recognized that the Act demonstrates Congress’

disapproval of unrestricted federal priority for tax claims. The

government attributes great significance to Congress’ failure to

enact two proposals made by the American Bar Association,

which would have codified the rules urged here by Romani

Industries. But the Court is reluctant to draw inferences from

Congress’ failure to act. Moreover, because the proposals swept

much more broadly than the disputed issues here, it is impossible

to attribute any significance to that failure in this case.

5. Finally, this Court's analysis in Gilbert Associates suggests

that the Tax Lien Act qualifies the federal priority statute. In

Gilbert Associates, which involved an insolvent debtor, the Court

addressed at length a question under the Tax Lien Act, which

could not have arisen if the priority statute were controlling in

that situation.

ARGUMENT

I. THE FEDERAL PRIORITY STATUTE DOES NOT

OVERRIDE ANTECEDENT JUDGMENT LIENS ON

REAL PROPERTY

The Pennsylvania Supreme Court decided this case on the

assumption that, but for the Tax Lien Act of 1966, the federal

priority statute would override the judgment lien obtained in this

case by Romani Industries. That assumption is incorrect. In fact,

the priority statute does not override judgment liens on real

property, or other traditional security interests, already in exis-

tence when the debtor's estate is created. Properly construed,

therefore, the priority statute cannot conflict with the security

interests specifically protected by the Tax Lien Act, including

Romani Industries’ judgment lien.

A. The Federal Priority Statute Does Not Override Tradi-

tional Security Interests

The text of the federal priority statute, read in light of its

historical background, in light of comparable priority provisions

in the bankruptcy code, and in light of this Court’s decisions,

* Except in cases involving an attachment or “act of bankruptcy,” the

federal priority cannot arise before the debtor's property has passed to

a third party, by death or voluntary assignment, for distribution to

creditors. See, ¢.g., United States v. Oklahoma, 261 U.S. 253, 259-60

(1923); Beaston v. Farmers’ Bank of Delaware, 37 U.S. (12 Pet.) 102,

133 (1838).

cannot be construed to override or abrogate traditional security

interests.

1. The federal priority statute originated in the common-law

“prerogative of the crown,” a longstanding sovereign right to

“priority of payment of debts.” United States v. State Bank of

North Carolina, 31 U.S. (6 Pet.) 29, 35 (1832). But just as the

royal prerogative was settled, so too were its limitations. In

Marshall v. New York, 254 U.S. 380, 382 (1920), this Court

recognized that the prerogative did not apply to pre-existing

security interests, and thus “could be defeated” by liens. In

particular, when the federal priority statute was first enacted, a

century of common-law precedent had established that judgment

liens would survive subsequent assertions of the royal prerogative.

See, e.g., Rorke v. Dayrell, 4 T.R. 403, 412, 100 Eng. Rep.

1087, 1092 (K.B. 1791) (royal prerogative defeated “where the

subject's judgment is prior to the inception of the King’s

execution”); The King v. Dickenson, Parker 262, 263, 145 Eng.

Rep. 774, 775 (1692) (“a precedent judgment should be

preferred” to the royal prerogative); Attorney General v. Andrew,

Hadres 22, 26-27, 145 Eng. Rep. 360, 362 (1655) (adopting

contention that “[a] judgment is a common security, and ought

therefore to be favoured” over the royal prerogative).’

These principles endured in the common law of the individual

states. As early as 1795, a South Carolina court held that, just as

judgment liens and other security interests had been protected

’ The common law also protected a wide range of other security interests

against subsequent assertions of the royal prerogative, including liens on

personal property, see, ¢.g., Rex v. Humphrey, 1823-24 All E.R. 452,

458 (Ex. 1825) (wharfinger’s lien); The King v. Lee, 6 Price 369, 378,

146 Eng. Rep. 837, 840 (Ex. 1819) (“the Crown could not compel the

factors to give up their lien”); mortgages, see, e.g., Casberd v.

Attorney-General, 6 Price 411, 464, 146 Eng. Rep. 850, 868 (Ex. Ch.

1819) (“if we find that the plaintiffs are equitable mortgagees, of course

they are entitled to be paid before the Crown”); and “equitable

security,” see Fector v. Philpott, 12 Price 197, 212, 147 Eng. Rep. 697,

701-02 (Ex. Ch. 1823).

from assertions of the royal prerogative in England, so too were

they protected from assertions of the sovereign prerogative of

South Carolina. Commissioners of Public Accounts v. Green-

wood, 1 S.C. Eq. (1 Des.) 450 (1795). As the Illinois Supreme

Court later explained, in adopting Greenwood as the law of

Illinois:

[T]he state had no prerogative to be paid out of the effects of

its debtor in preference to any citizen who had a judgment,

mortgage, or other lien. This was not a denial of the

succession of the state to the prerogative of priority, for the

common law itself made the same exception in the case of the

crown that was made in the South Carolina decision.

People v. Farmers’ State Bank, 167 N.E. 804, 806 (Ill. 1929).

Similarly, the Oregon Supreme Court held that the sovereign

prerogative of Oregon, derived from the royal prerogative in

England, was a right to priority of payment only against “any one

else not having an antecedent lien.” United States Fidelity &

Guaranty Co. v. Bramwell, 217 P. 332, 335 (Or. 1923) (emphasis

added). Accord, e.g., Pauley v. California, 75 F.2d 120, 133

(9th Cir. 1934) (California law) (prerogative applies against “all

persons not having antecedent liens”); Montgomery v. State, 153

So. 394, 396 (Ala. 1934) (prerogative applies against “all persons

not having prior liens”); State v. Bank of Maryland, 6 G. & J.

205, 226 (Md. 1834) (prerogative applies where “no lien standing

in the way”). See generally 3 R. Clark, A Treatise on the Law

and Practice of Receivers § 669, at 1223-29 (3d ed. 1959).

2. In light of this settled tradition, the government bears a

heavy burden to establish that the federal priority statute abrogates

centuries of common-law protection — enforceable even against

the sovereign — for judgment liens and other security interests.

In determining whether statutes abrogate settled common-law

principles, this Court has long followed the “well-established

principle” that “‘[t}he common law .. . ought not to be deemed

to be repealed, unless the language of a statute be clear and

explicit for this purpose."” Norfolk Redev. & Hous. Auth. v.

Chesapeake & Potomac Tel. Co., 464 U.S. 30, 35 (1983),

quoting Fairfax's Devisee v. Hunter's Lessee, 11 U.S. (7 Cranch)

603, 623 (1813). Thus, the Court repeatedly has held that, “[i}n

order to abrogate a common law principle, [a] statute must ‘speak

directly’ to the question addressed by the common law.” United

States v. Texas, 507 U.S. 529, 534 (1993), quoting Mobil Oil

Corp. v. Higginbotham, 436 U.S. 618, 625 (1978). See also

Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 108

(1991) (“[W]here a common-law principle is well established the

courts may take it as given that Congress has legislated with an

expectation that the principle will apply except ‘when a statutory

purpose to the contrary is evident.’” (citations omitted)).

Read with these principles in mind, the federal priority statute

Clearly does not abrogate the settled common-law protection for

judgment liens and other security. In its present form, the

priority statute simply provides that “[a] claim of the United

States Government” against the estate of an insolvent debtor

“shall be paid first.” 31 U.S.C. § 3713(a). In its original forms,

the statute similarly provided that, for claims against the estate of

an insolvent debtor, “the debt due to the United States shall be

first satisfied.” Act of March 3, 1797, § 5, 1 Stat. 512, 515; see

also Act of July 31, 1789, § 21, 1 Stat. 29, 42. On its face, the

statute establishes only a right to priority of payment: it creates

no security interest in favor of the United States, see United

States v. Fisher, 6 U.S. (2 Cranch) 358, 390 (1805), and it does

not address at all — much less “‘speak directly’” (Texas, 507

U.S. at 534 (quoting Mobil Oil Corp. , 436 U.S. at 625)) — to the

property rights of other secured creditors.*

3. The Bankruptcy Code confirms the traditional understanding

that priority provisions do not affect the rights of secured

*Unless specifically addressed to secured claims, priority statutes

traditionally have been understood to affect only the rights of unsecured

creditors. See, e.g.,G. Glenn, The Law Governing Liquidation § 510,

at 726 (1935); Kennedy, The Relative Priority of the Federal

Government: The Pernicious Career of the Inchoate and General Lien,

63 Yale L.J. 905, 907-08 (1954).

creditors. The priority provisions in the Code apply only to

unsecured claims (11 U.S.C. § 507), with the “determination of

secured status” governed by entirely separate rules (id. § 506).

As a leading treatise explains:

The priorities granted by section 507 are priorities as

against holders of unsecured claims only. The rights of

holders of priority claims are subject to the rights of holders of

liens against property. The right to priority does not grant or

imply any right to affect the rights of holders of secured claims

and the rights of holders of secured claims may only be

affected to the extent authorized by a particular section of the

Code.

4 Collier on Bankruptcy { 507.02[4){a] (L. King, ed., 15th rev.

ed. 1997) (emphasis added).’ Thus, the Code allows liens to be

avoided only in very limited circumstances, and only under

provisions specifically addressed to liens as such. See, e.g., 11

U.S.C. § 545 (avoidance of liens by trustee); id. § 522(f)

(avoidance of liens by debtor).

Bankruptcy has long reflected these fundamental principles.

For example, Section 64 of the Bankruptcy Act of 1898 set forth

priority provisions for unsecured interests, and Section 67(d) of

that Act confirmed that liens would “not be affected” by the

priority provisions. See Act of July 1, 1898, §§ 64, 67(d), 30

Stat. 544, 563-64. Similarly, the Bankruptcy Act of 1841 set

forth a priority provision, and confirmed that it would not “be

* Other commentators echoed that point:

A “creditor entitled to priority” is a general and unsecured creditor;

and were it not for the express provision of the Act, such a creditor

would be treated like all other unsecured creditors in the

proportionate distribution of funds. . . . “Creditors entitled to

priority” are paid their claims out of the free unencumbered funds of

the estate but ahead of general creditors.

S. Nadler & M. Nadler, The Law of Bankruptcy § 182 (2d ed. 1965)

(emphasis added).

construed to annul, destroy, or impair . . . any liens, mortgages,

or other securities on property, real or personal, which may be

valid by the laws of the States respectively.” Act of Aug. 19,

1841, ch. 9, § 2, 5 Stat. 440, 442."°

Bankruptcy law thus draws fundamental distinctions between

secured and unsecured creditors; affords substantial protection to

the property rights of secured creditors; and, most significant

here, does not disturb those rights by operation of general priority

provisions. Those principles should control this case, for the

Court repeatedly has recognized that, because the bankruptcy

statutes “focus more precisely on the problems of insolvency,”

they provide an “apt” source of guidance in construing the federal

peerey Stamne. See United States v. Moore, 423 U.S. 77, 84

(1975).

Consistent with these provisions, this Court consistently has recog-

nized the special protection afforded to secured claims in bankruptcy.

See, e.g., Farrey v. Sanderfoot, 500 U.S. 291, 297 (1991) (“Ordinarily ,

liens and other secured interests survive bankrupicy.”); Gibson v.

Warden, 81 U.S. (14 Wall.) 244, 248 (1871) (rights of trustee “are

subordinate to all the prior liens, legal and equitable, upon the property

in question”); Yeatman v. Savings Institution, 95 U.S. 764, 766 (1877)

(trustee takes property “subject to all equities, liens, or encumbrances”):

Norton's Assignee v. Boyd, 44 U.S. (3 How.) 426, 436 (1845) (“It is

quite clear that the liens and mortgages which are valid under state law

must be protected . . . in bankruptcy”); Ex parte Christy, 44 U.S. (3

How.) 292, 316 (1845) (“no doubt that the liens, mortgages, and other

securities . . . are not to be annulled, destroyed, or impaired under the

proceedings in bankruptcy”). See also In re Cook, 6 F. Cas. 383, 384

(C.C.D. Mass. 1842) (Story, J.) (“the lien of a judgment . . . is wholly

unaffected by the proceedings in bankruptcy”).

‘In commercial law as well, it is axiomatic that secured creditors

receive payment before unsecured creditors. Under Article 9 of the

Uniform Commercial Code, as the leading commentators have noted, a

secured creditor has “a prior right over any such unsecured creditor

without a lien.” J. White & R. Summers, Uniform Commercial Code

§ 24-2, at 1126-27 (3d ed. 1988).

4. a. On at least four separate occasions, this Court unani-

mously has held, consistent with these principles, that the federal

priority statute does not override antecedent security interests. In

United States v. Hooe, 7 U.S. (3 Cranch) 73, 90 (1805), the

Court held that the priority statute does not override a deed of

trust held by a creditor “for the security.” Speaking through

Chief Justice Marshall, the Court reasoned that only a lien could

defeat a competing secured interest, and that the priority statute

created no such security. See id. In Conard v. Atlantic Insurance

Company, 26 U.S. (1 Pet.) 386, 447 (1828), the Court held that

the priority statute did not apply to certain bonds held as

“collateral security” for a debt. The Court rejected the govern-

ment’s contention that the unsecured federal priority (“not of itself

~—a lien”) could be “still superior to any lien” (id. at 440-41),

concluding instead that the priority statute creates only “a mere

right of prior payment, out of the general funds of the debtor.”

Id. at 439 (emphasis added)."* In United States v. Hack, 33

U.S. (8 Pet.) 271, 275 (1834), the Court held that the priority

statute did not defeat an equitable lien held on partnership assets

held by a partner of the insolvent government debtor." Finally,

in Brent v. Bank of Washington, 35 U.S. (10 Pet.) 596, 615

(1836), the Court held that the priority statute does not override

a common-law lien on intangible personal property. In so doing,

the Court stressed that the priority statute is defeated not only by

a prior sale of the property at issue, but also by a prior

" The Court subsequently affirmed its reasoning in two related cases.

Conard v. Nicoll, 29 U.S. (4 Pet.) 291, 305, 310 (1830); Conard v.

Pacific Insurance Co., 31 U.S. (6 Pet.) 262, 279-80 (1832). Fora

summary of the complex history of the Conard litigation, see Kennedy,

Relative Priority, 63 Yale L.J. at 909-10.

'’ At common law, partners held an equitable lien to have partnership

assets applied to the debts of the partnership. See, e.g., Fitzpatrick v.

Flannagan, 106 U.S. 648, 654-55 (1882); Case v. Beauregard, 99 U.S.

119, 125 (1878). Im Hack, the Court held that the priority statute

entitled the government to obtain partnership assets only after, consistent

with the equitable lien, all other partnership debts had been satisfied.

See 33 U.S. (8 Pet.) at 275-76.

transaction that “approximates to one which merely gives a lien.”

Id. at 612.

Riding circuit in United States v. Lewis, 26 F. Cas. 920, 924

(C.C. E.D. Pa. 1875), Justice Strong explained that, under these

decisions, the priority statute “does not override any liens upon

the debtor’s property.” Justice Strong noted that the “reason” for

this rule was “obvious”:

The claim of the government extends only to that which was

the property of the debtor when he became insolvent, and his

property is only that, in substance, which remains after the

satisfaction of liens upon it. His power of disposition extends

no farther. The lien is paramount to his right.

Id. (emphasis added). This Court unanimously affirmed that

decision. Lewis v. United States, 92 U.S. 618 (1875). Similarly,

in Field v. United States, 3-. U.S. (9 Pet.) 182 (1835), a district

court held that, under Conard, the priority statute does not

override competing secured claims:

“It is to the unencumbered estate of the insolvent, divested of

any pre-existing lien, that they must look for priority of

payment, for, having no lien themselves on their debtor’s

property while it is under his own control, they cannot reach

it in the hands of others, who have an implied right to it in

case of the non payment of the debt for which it is security.”

See id. at 197 (quoting opinion below). In reversing the district

court’s judgment in favor of the United States, on grounds not

relevant here, this Court expressed no disagreement with that

analysis.

b. Against all of this authority, the government relies on

Thelusson v. Smith, 25 U.S. (2 Wheat.) 396 (1817), which it

characterizes as having “held” that the priority statute applies

“even when a competing creditor possesses a valid and enforce-

able judgment lien.” Pet. Br. 14. Thelusson did state, as the

government explains, that the priority statute “makes no exception

in favour of prior judgment creditors.” 15 U.S. (2 Wheat.) at

425. Subsequently, however, the Court limited Thelusson to its

facts and specifically disavowed the broad holding attributed to it

by the government.

In Conard, the Court explained at length that Thelusson

“turned upon its own particular circumstances,” and had bese

“greatly misunderstood.” See 26 U.S. (1 Pet.) at 441-44." In

Thelusson, judgment creditors sued a marshal for the proceeds of

an adverse execution by the government. In thet context, the

Court explained, the judgment creditors couid prevail only if they

had previously acquired title to the property at issue, not because

the priority statute would defeat any lesser property interest, but

because their lien remained attached to the property itself (which

was still secured), as opposed to the proceeds from its sale (which

were unsecured). See Conard, 26 U.S. (1 Pet.) at 445 [sic 443)-

44." The Court in Conard emphatically disavowed any

suggestion in Thelusson that the priority statute “cut{s] out the

lien” of a first-in-time security interest that is “perfect, independ-

ent of possession,” but not yet reduced to possession. See id. at

442.

Following Conard and Brent, the Attorney General of the

United States issued a formal opinion letter concluding that

Thelusson “has been distinctly overruled, and by the later cases

it seers to be well settled that the priority of the United States

will not reach back over any lien, whether it be general or

* Justice Story’s opinion for the Court in Conard was joined by five of

the seven Justices who had participated in Thelusson, including Justice

Washington, who authored both the circuit court decision in Thelusson

and, in the same opinion, the decision of this Court affirming himself

(see 15 U.S. (2 Wheat.) at 426).

'’ Thus, the plaintiff judgment creditors in Thelusson could have

prevailed if they had made a subsequent levy against the property —

which would have defeated even the security interest arising out of the

government's last-in-time judgment lien. See 26 U.S. (1 Pet.) at 445

[sic 433] (property “may be levied upon” by junior creditor “who is

entitled to hold it against every other person except such judgment

creditor” (emphasis added)).

specific.” Case of Richardson, 9 Op. Att'y Gen. 28, 29 (1857).

Accord, e.g., Cottrell v. Pierson, 12 F. 805, 807 (C.C.D. Neb.

1881) (Conard “overruled” Thelusson); Postmaster General v.

Robbins, 19 F. Cas. 1126, 1127 (D. Me. 1829) (Conard \imited

Thelusson to “its own particular circumstances”); Muniz v. United

States, 155 N.E.2d 140, 145 (Ind. Ct. App. 1958) (in banc)

(Conard “overruled” Thelusson).

Like the relevant history and bankruptcy provisions, this

Court’s decisions confirm that the priority statute does not

override traditional security interests.

B. A Judgment Lien On Real Property Qualifies As A

Traditional Security Interest

1. In a series of cases involving state tax liens on personal

property, this Court has fashioned minimum federai standards for

determining whether state-created liens qualify as security

interests for purposes of surviving application of the federal

priority statute. The Court has recognized that it is ultimately “a

matter of federal law” whether state-created security interests

displace a priority afforded under a federal statute. United States

v. Waddill, Holland & Flinn, Inc., 323 U.S. 353, 356-57 (1945).

At the same time, however, the Court has attempted to accom-

modate state law where possible, and to avoid imposing an

entirely federalized body of security law. Thus, a state’s

characterization of the relevant interest as secured, although not

“conclusive,” is still “entitled to weight.” Jilinois ex rel. Gordon

v. Campbell, 329 U.S. 362, 371 (1946). The Court’s approach

to the priority statute is thus consistent with its approach to other

federal statues, where it likewise has permitted state law — within

a range of “permissible variations” — to govern questions not

directly addressed by the statute. DeSylva v. Ballentine, 351 U.S.

570, 580-81 (1956) (definition of “children” under Copyright

Act); see, e.g., Barnhill v. Johnson, 503 U.S. 393, 398 (1992)

(definition of “property” under Bankruptcy Code); Kamen v.

Kemper Financial Services, Inc., 500 U.S. 90, 98-99 (1991)

(nature of demand requirement for derivative action under

Investment Companies Act); United States v. Kimbell Foods, 440

U.S. 715, 736 n.37 (1979) (consensual lien priorities under Small

Business Act). Not surprisingly, the “permissible variations” in

state law include those laws consistent with “ordinary usage.”

See De Sylva, 351 U.S. at 581.

2. The judgment lien in this case satisfies all of the federal

requirements imposed by this Court for a state-created lien to

survive application of the priority statute. In Campbell, this

Court held that such a lien must be “definite” with respect to “(1)

the identity of the lienor, (2) the amount of the lien, and (3) the

property to which it attaches.” 329 U.S. at 375 (citations

omitted). Moreover, in New York v. Maclay, 288 U.S. 290, 294

(1933), the Court held that such a lien also must be “presently

enforcible.” The judgment lien in this case clearly identifies both

the lienor (Romani Industries) and the amount of its lien

($400,000). Pet. App. 2a. Moreover, it applies only to Mr.

Romani’s real property located in Cambria County, Pennsylvania.

Id.. 42 Pa. Cons. Stat. Ann. § 4303(a). Its identification of the

encumbered property is thus far more precise than the

descriptions held impermissibly vague in Campbell, which

involved a state tax lien on all personal property “used by [the

debtor} in connection with his trade, occupation, profession or

business,” see 329 U.S. at 372, 375-76, and in United States v.

Texas, 314 U.S. 480, 484 (1941), which involved a state tax lien

on all property “devoted to or used in [the debtor's] business as

a distributor.” Finally, unlike the state tax lien at issue in

Maclay, the judgment lien here was immediately enforceable by

execution. See Pa. R. Civ. P. 3103.

3. The government contends that no lien may survive applica-

tion of the priority statute unless, in addition to satisfying the

minimum federal requirements addressed above, it is also reduced

to possession. Pet. Br. 15 & n.5. That position is unwarranted

as a matter of precedent, history, and common sense.

a. In its more recent decisions addressing the priority statute,

this Court often has mentioned a requirement that liens be reduced

to possession. Every case that actually turned on that require-

ment, however, involved a state tax lien on personal property.

See United States v. Gilbert Assocs. , 345 U.S. 361, 362 (1953):

Campbell, 329 U.S. at 365; Waddill, 323 U.S. at 354." In

deeming such liens to be perfected without possession, the states

in these cases had abrogated venerable common-law principles.

With respect to liens on personal property, the requirement that

a creditor “take possession of his collateral” in order to perfect

the security interest “dates from the beginning of legal history.”

1G. Gilmore, Security Interests in Personal Property § 14.1, at

438 (1965). Liens on personal property remaining in the debtor's

Possession were completely “unknown” at common law, and in-

deed were considered “fraudulent.” See id. § 2.1, at 24; Twyne’s

Case, 3 Co. Rep. 806, 812-13 & n.(c) (Star Chamber 1601)."’

Against this backdrop, the Court's possession requirement,

applied to state tax liens on personal property, reflects simply an

affirmation of traditional common-law rules, federalized so as “to

° Waddill also involved a landlord's lien on personal property. See

U.S. at 356. Of the other cases cited by the government (Pet. > 8

& n.5), United States v. Vermont, 377 U.S. 351 (1964), involved

Construction of the Tax Lien Act; United States v. Texas involved a state

tax lien on personal property for an uncertain amount (see 314 U.S. at

487); Maclay involved a state tax lien that was not “presently enforce-

able” (see 288 U.S. at 294); and County of Spokane v. United States.

279 U.S. 80, 94-95 (1929), involved a state tax lien on personal

property that was not perfected even as a matter of state law.

"’ Outside the context of regulating their own tax liens, the states retained

the common-law rule that possession is necessary in order to create a

lien on personal property. See, ¢.g., Wright v. Terry, 2 So. 6, 9 (Fla.

1887) (“exclusive legal possession is an essential element of a

common-law lien on personal property”); Warren v. First National

Bank, 38 N.E. 122, 129 (Ill. 1893) (“to obtain such lien the factor must

have the goods lawfully in his possession”); Muniz, 155 N.E.2d at 147

(Indiana law) (“Neither a judgment nor a state tax is a lien on personal

property until a levy has been made.”) (emphasis in original); Deeley v.

Dwight, 30 N.E. 258, 258 (N.Y. 1892) (“possession by the lienor of

chattels on which the lien is claimed is indispensable to support a

common-law lien”); Jordan, Ellis & Co. v. L. & J. James, 5 Ohio 88

98 (1831) (“It is essential to liens, that persons claiming them have the

possession of the chattel upon which they are claimed to operate.”).

prevent States from ‘undercutting’” a federal statute with

arbitrary, novel, and self-serving rules (Kimbell Foods, 440 US.

at 736 n.37)."*

The relevant considerations are entirely different, however,

with respect to judgment liens on real property. Most

importantly, those interests are traditional. As the Pennsylvania

Supreme Court has noted, judgment liens on real property “are

the product of centuries of statutes.” In re Upset Sale, 479 A.2d

940, 943 (Pa. 1984). In England, judgment liens on real property

have existed at least since the Statute of Westminster II of 1285,

13 Ed. 1, c. 18 (1285), 1 Stat. Realm 82 (1810). See Riesenfeld,

mortgages, and unlike liens on personal property — traditionally

Schatzell v. Scott, 25 U.S. (12 Wheat.) 177, 179 (1827)."° These

states. See, e.g., 5 R. Powell & P. Rohan, Powell on Real

Property § 38.02{[2], at 38-6 (1997) (“Generally the docketing of

“judgment,” for purposes of its own tax enforcement scheme. See

Petition of Gilbert Assocs., 90 A.2d 499, 501-02 (N.H. 1952), rev'd,

345 U.S. 361 (1953). Not surprisingly, this Court held that those

characterizations did not bind it for federal law purposes.

Applying security and first-in-time principles “believed to be

universal,” the Court in Rankin & Schatzell held that a judgment lien

creditor could execute on property already executed upon by a junior

judgment lien creditor. See 25 U.S. (12 Wheat.) at 177-78. In

analogizing judgment liens to mortgages, the Court explained that a

judgment lien “is as binding as a mortgage, and has the same capacity

to hold the land so long as the statute preserves it in force.” id. at 179.

And in distinguishing judgment liens from “executions against personal

property,” the Court explained that in personal property cases, “the lien

is not created by the judgment.” See id.

the judgment gives the judgment creditor a lien on all of the

judgment debtor’s real property in the county of docketing or

recording.”). Moreover, Congress itself has recognized state-

created judgment liens as an appropriately protected category of

security interest. See, e.g., 26 U.S.C. § 6323(a) (protection

under Tax Lien Act); 42 U.S.C. § 9607(/)(3) (protection under

CERCLA). Finally, because judgment liens are broadly

applicable interests that primarily benefit private parties, there is

little reason to fear that the States will manipulate their doctrines

in this area — unlike in the area of state tax liens — either to

further their own interests or to setard federal interests

inappropriately. For all of these reasons, there is no basis for this

b. The breadth of the government's “title or possession”

a lien on the property, with the mortgagee retaining actual title.

See, e.g., 4 R. Powell, Powell on Real Property { 439, at 37-10

to 37-13 (1997); G. Nelson & D. Whitman, Real Estate Finance

Law 150-59 (3d ed. 1993). Thus, all mortgages in the so-called

“lien theory” states would be at risk. Nor would the possession

element of the government's theory reduce that risk. Under the

“lien theory” of mortgages, the mortgagee by definition retains

the right of possession (until default). And even in the “title

theory” states, the mortgagee generally retains that right, either

by statute or by agreement of the parties. See, ¢.g., id. at 153.”

The government's theory also would produce sharply different

treatment of secured creditors as between the Bankruptcy Code

and the priority statute.” As explained above, the Code contains

no provision that would allow unsecured creditors to frustrate the

claims of secured creditors. Under the government's theory,

however, the priority statute would defeat secured claims

whenever the secured party had failed to perfect and execute (thus

reducing to possession) its security interest before the federal

priority had attached. There is no conceivable justification for a

judge-made rule to produce that result, which would create

perverse incentives for secured creditors to drive possiaty

insolvent debtors, willingly or unwillingly, into bankruptcy.

*® So far, the lower courts have managed to resist the government's

attempts to expand the scope of the priority statute to override even

mortgages. See, ¢.g., Southern Ry. Co. v. United States, 306 F.2d 119,

126 (Sth Cir. 1962) (priority statute “gives way to a valid recorded first

mortgage”). The lower courts even have held that a wide variety of

claims for an estate's administrative expenses, ¢.g., Abrams v. United

States, 274 F.2d 8, 12 (8th Cir. 1960); for funeral expenses of the

deceased debtor, ¢.g., Martin v. Dennett, 626 P.2d 473, 475 (Utah

1981); and for spousal and family allowances, ¢.g., Schwartz v.

Commissioner of Internal Revenue, 560 F.2d 311, 314-15 n.7 (8th Cir.

1977).

"In 1978, Congress expressly excluded the priority statute from

application in bankruptcy proceedings. See Bankruptcy Reform Act of

1978, Pub. L. No. 95-598, tit. Il], § 322(a), 92 Stat. 2678, codified at

31 U.S.C. § 3713¢a)Q2).

= As one prominent commentator in this area has noted, discrepancies

between the bankruptcy rules and the insolvency rules would give

secured creditors “a distinct incentive to throw into bankruptcy a debtor

on the federal courts. in another form of proceeding.” Plumb, Federai

Liens and Priority, 77 Yale UJ. 228, 242 (1967). That problem is

exacerbated because, “unless the accident of death makes the choice for

Moreover, cases involving decedents’ estates — which are

ineligible for bankruptcy precisely because of congressional

solicitude for traditional state-law probate, see In re Goerg, 844

F.2d 1562, 1566 (11th Cir. 1988) — would be governed by a

more intrusive federal rule of decision about the respective rights

of the United States against secured creditors.

c. By permitting the routine destruction of the property rights

of secured creditors, the government's broad “title or possession”

theory also would create substantial constitutional difficulties. In

Armstrong v. United States, 364 U.S. 40, 44 (1960), this Court

held that federal action destroying all value of certain liens

constituted a Fifth Amendment taking.” The Court in Armstrong

explained that there was no basis for distinguishing, at least for

takings purposes, the liens at issue there from the mortgage also

held compensable in Louisville Joint Stock Land Bank v. Radford,

295 U.S. 555 (1935). Since Armstrong, the Court has broadly

expanded the category of non-fee interests entitled to Takings

Clause protection, Ruckelshaus v. Monsanto Co., 467 U.S. 986

(1984); has held that mortgage interests are protected property for

Due Process purposes, Mennonite Board of Missions v. Adams,

462 U.S. 791 (1983); and has held that the destruction of all

economic value, at least with respect to fee interests, constitutes

a per se taking, Lucas v. South Carolina Coastal Council, 505

U.S. 1003 (1992).

SO as to avoid the takings concerns that would be presented by the

destruction of a lien. United States v. Security Industrial Bank,

them,” creditors generally may “substitute a federal bankruptcy

proceeding for any collective action” to which the priority statute is

applicable. W. Plumb, Federal Tax Liens 199-200 (3d ed. 1981).

* The value of the liens in Armstrong was destroyed because the

government had exercised its contract right to acquire certain

encumbered property from a contractor. As a result, the liens became

unenforceable by virtue of sovereign immunity. See 364 U.S. at 46.

459 U.S. 70 (1982). The Court stressed the constitutional

“difficulty” that arises when federal power is “used to defeat

traditional property interests” such as liens. /d. at 75. Quoting

from Armstrong, the Court reiterated that the “‘total destruction’”

of “‘all value of these liens’” would constitute a compensable

taking. Jd. at 77. Similar concerns are present in cases like this

one, where application of the priority statute would destroy the

entire value of the property interest held by Romani Industries.

Accordingly, the Court should invoke the “‘cardinal principal’”

of interpreting the priority statute so as to avoid the constitutional

question. Lorillard v. Pons, 434 U.S. 575, 577 (1978), quoting

Crowell v. Benson, 285 U.S. 22, 62 (1932). In this case, such an

interpretation is not only possible, but also correct.

d. Finally, the government’s broad interpretation of the

priority statute would bring that statute into conflict with the Tax

Lien Act in circumstances where, as here, the Tax Lien Act

specifically protects the private security interest at issue. As we

explain below, any such conflict must be resolved in favor of the

specific provisions of the Tax Lien Act and against the general

provisions of the priority statute. Nonetheless, avoidance of such

a conflict in the first instance provides yet another reason to

construe the priority statute as establishing for the government

only a first priority as among unsecured creditors.

ll. THE TAX LIEN ACT PREVENTS APPLICATION OF

THE PRIORITY STATUTE IN THE SPECIFIC CON-

TEXT OF FEDERAL TAX CLAIMS

Even assuming that the federal priority statute overrides

, ay i Hy, the priority

be applied to abrogate security interests specifically protected by

the Tax Lien Act.

* In order to minimize possible takings concerns, the Court construed

11 U.S.C. § 552(f)(2), which permits individual debtors to avoid certain

liens, so as not to apply retroactively to property rights created prior to

its enactment. See 459 U.S. at 73-78.

1. The courts below correctly concluded that the priority

statute, as construed by the government, overlaps and conflicts

with the Tax Lien Act. This case demonstrates that conflict.

Applying only the priority statute (as construed by the govern-

ment), the government would be “paid first” even though Romani

Industries’ competing claim is secured. 31 U.S.C. § 3713(a).

On the other hand, applying only the Tax Lien Act, the

government's tax lien would “not be valid” against Romani

Industries’ first-in-time judgment lien, and Romani Industries’

secured claim would then prevail against the government's

competing unsecured claim. 26 U.S.C. § 6323(a). The result in

the case thus “differs” depending on which statute is applied.

Pet. App. 6a. Thus, the question presented is not simply whether

the government would prevail under the priority statute

considered in isolation (Pet. Br. 16-17), but how to reconcile the

priority statute with the Tax Lien Act in the considerable range of

cases where the former statute (as construed by the government)

2. a. In cases where overlapping statutes conflict, this Court’s

approach is well-settled: Absent a clearly expressed congressional

intent to the contrary, “specific provisions qualify general ones.”

Robertson v. Seattle Audubon Society, 503 U.S. 429, 440 (1992).

Although this principle applies “regard!ess of the priority of

enactment, ” Morton v. Mancari, 417 U.S. 535, 551 (1974), it has

particular force where the later statute is the more specific one.

“We should be reluctant,” the Court has explained, “to read an

earlier statute broadly where the result is to circumvent the

detailed remedial scheme constructed in a later statute.”

Patterson v. McLean Credit Union, 491 U.S. 164, 181 (1989)

(specific provisions of Title VII qualify general provisions of 42

U.S.C. § 1981); see, e.g., Seattle Audubon Society, 503 U.S. at

439-40 (specific provisions of Northwest Timber Compromise

qualify general provisions of Migratory Bird Treaty Act); Jett v.

Dallas Indep. School Dist., 491 U.S. 701, 734 (1989) (specific

provisions of 42 U.S.C. § 1983 qualify general provisions of 42

U.S.C. § 1981); Argentine Republic v. Amerada Hess Shipping

Corp., 488 U.S. 428, 438 (1989) (specific provisions of Foreign

Sovereign Immunities Act qualify general provisions of Alien Tort

Statute); United States v. Fausto, 484 U.S. 439, 453 (1988)

(specific provisions of Civil Service Reform Act qualify general

provisions of Back Pay Act and Tucker Act). A statute is

“specific” for these purposes if it is either narrower, ¢.g.,

Traynor v. Turnage, 485 U.S. 535, 548 (1988); Radzanower v.

Touche Ross & Co., 426 U.S. 148, 153 (1976), or more detailed,

e.g., Jett, 491 U.S. at 734; Amerada Hess, 480 U.S. at 438, than

the competing statute. By construing specific statutes to qualify

general ones, the Court accomplishes the “classic judicial task of

reconciling many laws enacted over time, and getting them to

‘make sense’ in combination.” Fausto, 484 U.S. at 453.

Closely related to this rule is the presumption against implied

repeals. Where a specific statute conflicts with a later and more

general statute, the Court has applied the presumption against

implied repeals to reinforce the rule that a specific statute (enacted

earlier) qualifies a general one (enacted later). See, ¢.g.,

Traynor, 485 U.S. at 547-48; Crawford Fitting Co. v. J.T.

Gibbons, Inc., 482 U.S. 437, 442, 445 (1987); Radzanower, 426

U.S. at 153-55; Morton v. Mancari, 417 U.S. at 549-51. But

where a specific statute conflicts with an earlier and more general

statute, thus bringing the presumption against implied repeals into

conflict with the rule that specific provisions qualify general ones,

the Court repeatedly has applied the rule that specific provisions

qualify general ones, and repeatedly has refused to apply the

presumption against implied repeals. See, e.g., Amerada Hess,

488 U.S. at 438; Fausto, 484 U.S. at 453.”

* The Court also applies the presumption against implied repeals to

reinforce the principle that statutes should be construed, if possible, so

as not to conflict with one another. See, e.g., Rodriguez v. United

States, 480 U.S. 522, 524 (1987 (per curiam); Silver v. New York Stock

Exchange, 373 U.S. 341, 357 (1963). As explained above, that

principle supports construing the priority statute to afford the

government first priority only among unsecured creditors.

Finally, where overlapping statutes conflict and it is impossible

to characterize one or the other as more specific, yet another rule

of construction governs: a more recent statute qualifies a less

recent one. See, e.g., Watt v. Alaska, 451 U.S. 259, 266 (1981);

2A C. Sands, Sutherland on Statutes and Statutory Construction

§ 51.02 (4th ed. 1973); T. Sedgwick, The Interpretation and

ma of Statutory and Constitutional Law 104 (2d ed.

b. This Court repeatedly has applied these principles in cases

involving the federal priority statute. On at least five separate

occasions, the Court unanimously has held that the priority statute

conflicted with — and was therefore qualified by — subsequently

enacted and more specific statutes. In Cook County National

Bank v. United States, 107 U.S. 445, 448-51 (1882), the Court

held that the National Bank Act, which set forth a comprehensive

“system for the establishment and government of national banks”

(id. at 448), barred application of the priority statute to federal

claims against such banks. In Guarantee Title & Trust Co. v.

Title Guaranty & Surety Co., 224 U.S. 152, 159-60 (1912), and

Davis v. Pringle, 268 U.S. 315, 317-18 (1925), the Court held

that the priority provisions of the Bankruptcy Act barred

application of the priority statute in bankruptcy cases.* In

Mellon v. Michigan Trust Co., 271 U.S. 236, 238-40 (1926), the

Court held that the Federal Control Act barred application of the

priority statute to government claims on behalf of railroads

subject to federal control. Although the Federal Control Act

contained no provision directly inconsistent with the priority

statute, the Court concluded that application of the priority statute

“would conflict with the spirit and broad purpose” of the later

** When these cases were decided, the literal text of the priority statute

encompassed bankruptcy cases. Congress made the exclusion explicit

only in 1978. See Bankruptcy Reform Act of 1978, Pub. L. No.

95-598, tit. Ill, § 322(a), 92 Stat. 2678 codified at 31 U.S.C.

§ 3713(a)(2).

Act. Id. at 240.” Finally, in United States v. Guaranty Trust

Co., 280 U.S. 478 (1930), the Court held that the Transportation

Act of 1920, which comprehensively regulated the indebtedness

of certain railroads to the federal government, barred application

of the priority statute to claims arising under that Act. Although

the Transportation Act created no distinctive priority provisions,

the Court, speaking through Justice Brandeis, concluded that

application of the priority statute “would have defeated the

purpose” of the Act. /d. at 485.

Not surprisingly, the government cites no case in which this

Court has held that the priority statute qualifies a later and more

specific statute with which it is inconsistent. Neither United

States v. Key, 397 U.S. 322 (1970), nor United States v. Emory,

314 U.S. 423 (1941), supports that remarkable proposition. In

Key, the Court held that the priority statute is entirely consistent

with a provision requiring a “fair and equitable” distribution to

certain competing creditors. See 397 U.S. at 327. In Emory, the

Court held that the priority statute is entirely consistent — in

non-bankruptcy cases — with the bankruptcy priority provisions.

See 314 U.S. at 427-28 & n.4. Those cases involved no

inconsistency between the priority statute and any other provision.

Accordingly, the cases did not even address, much less modify,

the well-settled principles for determining the interaction of

overlapping and inconsistent statutory provisions.”

*” In pertinent part, the Federal Control Act simply prohibited the federal

government, in defending suits brought by third parties against

controlled railroads, from defending on the ground that the railroads

were an “instrumentality or agency” of the government. See 271 U.S.

at 238.

**In the Pennsylvania Supreme Court, the government acknowledged

that “‘general rules of construction suggest that the broad mandate of

[the priority statute] should yield to the specific priorities prescribed by

the tax lien legislation.’” Brief for Appellant, Jn re Estate of Francis J.

Romani, No. 0059 W.D. Appeal Docket 1995, at 26 (filed Jan. 29,

1996) (citation omitted). Nonetheless, the government argued that Key

had established a separate canon of “special deference” to the priority

3. a. The courts below correctly concluded that the Tax Lien

Act is more specific than, and therefore must qualify, the priority

statute. The Tax Lien Act, which applies only to federal tax

claims, is obviously narrower than the priority statute, which on

its face applies to all federal claims without limitation. Indeed,

this Court repeatedly has described the priority statute as “broad

and sweeping,” Waddill, 323 U.S. at 355, and as a “generalized

statut[e] giving the United States priority in a wide range of

situations,” United States v. Randall, 401 U.S. 513, 517 (1971).

The Tax Lien Act is also far more detailed than the priority

statute. Whereas the priority statute provides only that certain

federal government claims “shall be paid first,” 31 U.S.C.

§ 3713(a), the Tax Lien Act comprehensively regulates the

priority of interests competing against federal tax liens. For

example, the Tax Lien Act defines four categories of interests that

compete against federal tax liens on a first-in-time basis (26

U.S.C. § 6323(a), App. 2a), ten categories of interests that

prevail even against a first-in-time federal tax lien (26 U.S.C.

§ 6323(b), App. 2a-Sa), three categories of interests that prevail

against a first-in-time federal tax lien if they also receive certain

protections as a matter of state law (26 U.S.C. § 6323(c), App.

Sa-8a), and a distinct set of priorities for interests competing

against estate and gift tax liens (26 U.S.C. §§ 6324, 6324A,

6324B, App. 17a-24a). This carefully crafted scheme would be

gravely undercut if, as the government contends, the priority

statute. /d. In this Court, the government makes the same contention

more obliquely, by arguing that the priority statute should qualify the

Tax Lien Act (and not vice versa) — even if the later Tax Lien Act

conflicts with and is more specific than the earlier priority statute — as

long as an unconditional application of the priority statute would not

“deprive the [Tax Lien Act] of any meaning.” Pet. Br. 18 (emphasis

added). Nothing in Key or Emory supports that proposition, which is

inconsistent not only with this Court's general rules of construction, but

also with specific decisions, including Cook County Netional Bank,

Mellon, and Guaranty Trust Co., applying those rules of construction to

the priority statute.

statute overrides ail of these interests in every case (outside of

bankruptcy) involving an insolvent debtor.

b. The government contends that, even if the priority statute

overrides the Tax Lien Act “in cases involving insolvents,” the

Tax Lien Act still has meaningful application in non-insolvency

cases. Pet. Br. 22. Insolvency, however, is precisely where the

Tax Lien Act priorities are the most significant. As the

Pennsylvania Supreme Court explained in this case, those

priorities “would be essentially meaningless” if the federal

priority statute “always prevailed” when the debtor was insolvent,

for “[tjhe question of priorities is wholly or largely academic,

unless the debtor is insolvent.” Pet. App. lla n. 16 (quoting

H.B. Angsten & Sons, 388 F.2d at 161 (Haynsworth, C.J.,

concurring)). And as that court explained long ago, limiting the

Tax Lien Act priorities to cases involving solvent debtors “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.” Jn re

Decker’s Estate, 49 A.2d 714, 720 (Pa. 1946), cert. denied, 331

U.S. 807 (1947).” Moreover, even if there were some small

** Others also have noted the implausibility of the government's proposed

limitation of the Tax Lien Act priorities to cases involving solvent

debtors. See, e.g., In re Meyer's Estate, 48 A.2d at 213 (“It is only

when the funds are not sufficient to pay all claims, that the question of

priority becomes of real interest, and it was that situation that moved

Congress to give added protection to judgment creditors.”); Plumb, The

Federal Priority in Insolvency: Proposals for Reform, 70 Mich. L. Rev.

1, 9 (1971) (government's position would nullify “the hard-won and

much-needed protections provided for secured creditors and certain

lienors by the Federal Tax Lien Act” in “the very circumstance in which

those protections would become of crucial importance”); Note, Nesbitt

v. United States: Denying an Implied Tax Lien Exception to the Federal

Priority in Insolvency, 33 Cath. U. L. Rev. 741, 744 (1984) (govern-

ment’s position would impose “a tax lien variation of ‘Catch-22’: the

priority accorded . . . by the tax lien legislation is only effective in the

distribution of assets of a solvent debtor -- in which case, the issue of

priority is wholly academic as the debtor is capable of satisfying all

class of cases where the Tax Lien Act priorities would matter

even though the debtor was solvent, the government's proposed

limitation of those priorities would largely “circumvent the

detailed remedial scheme constructed in” the Tax Lien Act

(Patterson, 491 U.S. at 181), and thereby “conflict with the spirit

and broad purpose” of that Act (Mellon, 271 U.S. at 240). That

alone establishes that the Tax Lien Act qualifies, and is not

qualified by, the earlier and more general federal priority

statute.”

The government also notes that the priority statute applies

based only on a government “claim” (Pet. Br. 22), whereas the

Tax Lien Act affords protection only against a government “lien”

(Pet. Br. 20). That distinction suggests a possibly alternative

theory that, in insolvency cases, the Tax Lien Act operates to

eliminate the government's secured interest (as reflected in the tax

lien), but the priority statute enables the government to prevail on

its unsecured interest (as reflected in the underlying tax debt).

But that account does not eliminate the fundamental structural

flaw in the government's position: that the priority statute

Operates to render ineffective the subsequently enacted and more

specific Tax Lien Act priorities in the vast majority of cases

where those priorities could even possibly be significant.

Moreover, it suffers an additional substantive flaw as well. As

leading commentator has explained: “It is paradoxical that the

federal government should stand in a better position as an

unsecured creditor than as a secured creditor — a result which

can hardly have been contemplated by those who drafted and

sponsored the federal tax lien statute.” Kennedy, From Spokane

claims against him”).

* The government suggests that because the definition of insolvency for

purposes of the priority statute is idiosyncratically small, the Tax Lien

Act priorities, under its theory, would continue to apply to a significant

class of non-insolvency cases. Pet. Br. 22-23. In fact, however, the

definition of insolvency for purposes of the priority statute tracks the

traditional definition of insolvency for bankruptcy purposes. See Key,

397 U.S. at 328 n.7.

County To Vermont: The Campaign of the Federal Government

Against the Inchoate Lien, 50 lowa L. Rev. 724, 744 (1965).

4. The legislative history of the Tax Lien Act and its

predecessors confirms that the Congress intended for the Act to

apply to all tax claims, even where the debtor is insolvent.

a. In Kimbell Foods, Inc., this Court recognized that the Tax

Lien Act clearly demonstrates “Congress’ disapproval of

unrestricted federal priority” for tax claims. See 440 U.S. at

738. That disapproval began in 1913, when Congress specifically

gave first-in-time judgment creditors, among others, priority over

the lien securing a federal tax claim. See Act of Mar. 4, 1913,

ch. 166, 37 Stat. 1016. The Committee Report for the 1913

statute broadly stated that the government should “occupy the

same position with reference to liens on property as does the

individual.” H.R. Rep. No. 62-1018, at 2 (1912). Over the next

several decades, Congress repeatedly expanded the protections

afforded to private creditors competing against government tax

claims. See, e.g., Kennedy, The Relative Priority of the Federal

Government: The Pernicious Career of the Inchoate and General

Lien, 63 Yale L.J. 905, 922 n.104 (1954). Finally, in 1966,

Congress substantially amended the tax lien statute to afford even

greater and more comprehensive protection to such private

creditors. See Pub. L. No. 89-719, 80 Stat. 1125 (1966). The

legislative history specifically stated that the 1966 amendments

were designed to “conform the lien provisions of the internal

revenue laws to the concepts developed in this Uniform

Commercial Code,” S. Rep. No. 89-1708, at 2 (1966), reprinted

in 1966 U.S.C.C.A.N. 3722, 3722, under which secured

creditors prevail against unsecured creditors, see supra note 11.

b. The government attributes great significance to Congress’

failure to enact two proposals made by the American Bar

Association in 1959 and 1970 respectively. Pet. Br. 26-28. This

Court, however, is “‘reluctant to draw inferences from Congress’

failure to act."” Brecht v. Abrahamson, 507 U.S. 619, 632

(1993), quoting Schneidewind v. ANR Pipeline Co., 485 U.S.

293, 306 (1988). See also United States v. Wells, 117 S. Ct.

921, 929 (1997) (“*“at best treacherous”’” to find congressional

silence controlling (citations omitted)). Moreover, congressional

inaction is particularly insignificant here, where the ABA

proposals would have changed existing law far beyond any

question presented in this case. Among other things, the 1959

proposal would have provided (i) that the priority statute does not

override security interests specifically protected by the Tax Lien

Act, (ii) that the priority statute does not override any other

antecedent security interests, and (iii) that the goverrment would

have only a sixth priority, even in insolvency proceedings and

even among unsecured creditors. See American ar Association,

Final Report of the Committee on Federal Liens 121-22 (1959)

(hereafter “ABA Final Report”), reprinted in Staff of House

Comm. on Ways and Means, Legislative History of H.R. 11256,

at 239-40 (1966) (hereafter “Legislative History”). The 1970

proposal would have gone even farther. In addition to all of the

provisions mentioned above, the 1970 amendment also would

have (iv) eliminated the federal priority in its entirety for all non-

tax claims. See Plumb, The Federal Priority in Insolvency:

Proposals for Reform, 70 Mich. L. Rev. 1, 10 n.53 (1971). Even

if the entire Congress had rejected the ABA proposals — which

it did not — there would still be no basis to infer that Congress

disapproved either of the first two provisions mentioned above,

which are at issue in this case, or only one or more of the last

two provisions, which are not at issue here.”

5. Finally, this Court's analysis in Gilbert Associates , although

not directly controlling, strongly suggests that the Tax Lien Act

qualifies the federal priority statute, and not vice versa, in cases

*! With respect to the questions at issue in this case, the ABA appears to

have viewed its proposals as confirming, rather than modifying, existing

law. The 1959 proposal would have “assured,” contrary to “sugges-

tions” made in “some” decisions, that the priority statute would not

override existing liens. See ABA Final Report, at 124, reprinted in

Legislative History, at 242. The 1970 proposal was designed “partly to

clarify” that the priority statute does not override existing liens. See

Plumb, Federal Priority in Insolvency, 70 Mich. L. Rev. at 10 n.53.

above, Gilbert Associates held that a state tax lien was unsecured,

for purposes of the priority statute, because the state had not

satisfied the common-law requirement of obtaining possession of

the personal property at issue. See 345 U.S. at 365. Before

reaching that decision, however, the Court addressed at length

whether the state also was a secured judgment creditor for

of the Tax Lien Act (see id. at 362-65) — an analysis

that would be entirely superfluous if, as the government contends,

the priority statute overrides all of the security interests protected

by the Tax Lien Act in all cases where, as in Gilbert Associates,

the debtor was insolvent. Justice Frankfurter confirmed what the

Court's approach implies: after concluding that the state was

secured for Tax Lien Act purposes, he did not concur in the

judgment on the ground that the priority statute was controlling.

but rather dissented from the Court's judgment in favor of the

United States. See id. at 366-68 (Frankfurter, J., dissenting).

New Britain, 347 U.S. 81 (1954), and United States v. Vermont, 377

U.S. 351 (1964). Pet. Br. 21-22. Because both cases involved solvent

debtors, see 377 U.S. at 352; 347 U.S. at 85, the priority statute was

clearly inapplicable, and the Court thus had no occasion to consider its

interaction with the Tax Lien Act.

CONCLUSION

The judgment of the Supreme Court of Pennsylvania should be

affirmed.

Of counsel:

LAWRENCE L. DAvis

DAVIS AND DAVIS

103 South Center Street

Ebensburg, PA 15931

(814) 472-9740

Dated: October 6, 1997

Respectfully submitted,

PATRICK F. MCCARTAN

(Counsel of Record)

JONES, DAY, REAVIS & POGUE

North Point

901 Lakeside Avenue

Cleveland, Ohio 44114

(216) 586-3939

GREGORY G. KATSAS

JONES, DAY, REAVIS & POGUE

1450 G Street, N.W.

Washington, D.C. 20005

(202) 879-3939

Counsel for Respondent

STATUTORY APPENDIX

bs,

RENNER ERE RO

FEDERAL PRIORITY STATUTE

31 U.S.C. § 3713. Priority of Government claims

(a)(1) A claim of the United States Government shall be paid

first when—

(A) a person indebted to the Government is insolvent

and—

(i) the debtor without enough property to pay all debts

makes a voluntary assignment of property;

(ii) property of the debtor, if absent, is attached; or

(iii) an act of bankruptcy is committed; or

(B) the estate of a deceased debtor, in the custody of the

executor or administrator, is not enough to pay all debts of

the debtor.

(2) This subsection does not apply to a case under title 11.

(b) A representative of a person or an estate (except a trustee

acting under title 11) paying any part of a debt of the person or

estate before paying a claim of the Government is liable to the

extent of the payment for unpaid claims of the Government.

FEDERAL TAX LIEN ACT OF 1966

26 U.S.C. § 6321. Lien for taxes

If any person liable to pay any tax neglects or refuses to pay

the same after demand, the amount (including any interest, addi-

tional amount, addition to tax, or assessable penalty, together with

any costs that may accrue in addition thereto) shall be a lien in

favor of the United States upon all property and rights to

property, whether real or personal, belonging to such person.

26 U.S.C. § 6322. Period of lien

Unless another date is specifically fixed by law, the lien

imposed by section 6321 shall arise at the time the assessment is

made and shall continue until the 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. § 6323. Validity and priority against certain persons

(a) Purchasers, holders of security interests, mechanic’s

lienors, and judgment lien creditors

The lien imposed by section 6321 shall not be valid as against

any purchaser, holder of a security interest, mechanic's lienor, OF

judgment lien creditor until notice thereof which meets the

requirements of subsection (f) has been filed by the Secretary.

(b) Protection for certain interests even though notice filed

Even though notice of a lien imposed by section 6321 has been

filed, such lien shall not be valid—

(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 respect to a motor vehicle (as defined in subsection

(h)(3)), as against a purchaser of such moior vehicle, if—

(A) at the time of the purchase such purchaser did not have

actual notice or knowledge of the existence of such lien, and

(B) before the purchaser obtains such notice or knowledge,

he has acquired possession of such motor vehicle and has not

thereafter relinquished possession of such motor vehicle to the

seller or his agent.

(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 business, unless at the time of such purchase such purchaser

intends such purchase 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 household goods, personal effects, or other

tangible personal property described in section 6334(a) purchased

(not for resale) in a casual sale for less than $250, as against the

purchaser, but only if such purchaser does not have actual notice

or knowledge (A) of the existence of such lien, or (B) that this

sale is one of a series of sales.

(5) Personal property subject to possessory lien

With respect to tangible personal property subject to a lien

under local law securing the reasonable price of the repair or

improvement of such property, as against a holder of such a lien,

if such holder is, and has been, continuously in possession of such

property from the time such lien arose.

(6) Real property tax and special assessment liens

With respect to real property, as against a holder of a lien

upon such property, if such lien is entitled under local law to

priority over security interests in such property which are prior

in time, and such lien secures payment of—

(A) a tax of general application levied by any taxing

authority based upon the value of such property,

(B) aspecial assessment imposed 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

property by the United States, a State or political subdivision

thereof, or an instrumentality of any one or more of the fore-

going.

(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 lienor, but only if the contract price on the

contract with the owner is not more than $1,000.

(8) Attorneys’ liens

With respect 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 enforceable against such

judgment or amount, to the extent of his reasonable compensation

for obtaining such judgment or procuring such settlement, 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 contracts

With respect to a life insurance, endowment, or annuity

contract, as against the organization which is the insurer under

such contract, at any time—

(A) before such organization had actual notice or knowledge

of the existence of such lien;

(B) after such organization had such notice or knowledge,

with respect 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;

unless and until the Secretary delivers to such organization a

notice, executed after the date of such satisfaction, of the

existence of such lien.

(10) Passbook loans

With respect to a savings deposit, share, or 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 continuously in possession of such

passbook from the time the loan is made.

agreements, etc.

(1) In general

To the extent provided in this subsection, even though notice

of a lien imposed by section 6321 has been filed, such lien shall

not be valid with respect to a security interest which came into

existence after tax lien filing but which—

(A) is in qualified property covered by the terms of a written

agreement entered into before tax lien filing and constituting—

(i) acommercial transactions financing agreement,

(ii) a real property construction or improvement

financing agreement, or

(iii) an obligatory disbursement 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 financing 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)—

(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 commercial 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) before the lender or purchaser had actual notice or

knowledge of such tax lien filing.

(B) Limitation on qualified property

The term “qualified property”, when used with respect to a

commercial transactions financing agreement, includes only

commercial financing security acquired by the taxpayer before

the 46th day after the date of tax lien filing.

The term “commercial financing security” means (i)

. . . a . paper

of a kind ordinarily arising in commercial transactions, (ii)

accounts receivable, (iii) mortgages on real property, and (iv)

inventory.

(D) Purchaser treated as acquiring 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 improvement fin-

ancing agreement” means an agreement to make cash disburse-

ments to finance—

(i) the construction or improvement of real property,

(ii) a Contract to construct or improve real property, or

(iii) the raising or harvesting 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 qualified property

The term “qualified property”, when used with respect to a

real property construction or improvement financing agree-

ment, includes only—

(i) in the case of subparagraph (A)(i), the real property

with respect to which the construction or improvement has

been or is to be made,

(ii) in the case of subparagraph (A)(ii), the proceeds of

the contract described therein, and

(iii) in the case of subparagraph (A)(ili), property

subject 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 subparagraph (A)(iii).

(4) Obligatory disbursement agreement

For purposes of this subsection—

(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 coming within the term only to the extent of

disbursements which are 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 property”, when used with respect to an

obligatory 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 acquisition is directly traceable to

the disbursements referred to in subparagraph (A)) property

acquired by the taxpayer after tax lien filing.

Where the obligatory disbursement agreement is an

agreement ensuring the performance of a contract between the

taxpayer and another person—

(i) the term “qualified property” shall be treated as

also including the proceeds of the contract 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 prop-

erty, to produce goods, or to furnish services, the term

“qualified property” shall be treated as also including any

tangible personal property used by the taxpayer in the

performance of such ensured contract.

(d) 45-day period for making disbursements

Even though notice of a lien imposed by section 6321 has been

filed, such lien shall not be valid with respect to a security

interest which came into existence after tax lien filing by reason

of disbursements made before the 46th day after the date of tax

lien filing, or (if earlier) before the person making such dis-

bursements had actual notice or knowledge of tax lien filing, but

only if such security interest—

(a) is in property (A) subject, at the time of tax lien

filing, to the lien impos: by section 6321, and (B) covered

by the terms of a written agreement 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 -

cured obligation. %) sgiens

(e) Priority of interest and expenses

, If the lien imposed by section 6321 is not valid as against a

len OF security interest, the priority of such lien ity inter-

eae a Or security inter

(1) a er any geen eitipaion

(2) the reasonable charges and expenses of an indenture

trustee or agent holding the security interest for the benefit

of the holder of the security interest,

(3) the reasonable expenses, including reasonable com-

pensation for attorneys, actually incurred in collecting or

enforcing the obligation secured,

10a

reasonable of insuring, preserving, oF

ven ine the property to which the lien or security interes

relates,

(5) the reasonable costs of insuring payment of the

obligation secured, and

which the lien or security interest relates, but only |

lien so satisfied is entitled to priority over the lien imposed

by section 6321,

(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, whenever the State has not by law designated one

office which meets the requirements of subparagraph (A); or

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.

to the extent that, under local law, any such item has the same (2) Situs of property subject to lien

hace security interest which it relates.

priority as the lien or : ns For purposes of paragraphs (1) and (4), property shall be

(f) Place for filing notice; form deemed to be situated—

(1) Place for filing | (A) Real property

The notice referred to in subsection (a) shall be filed—

(A) Under State laws

(i) Real property

In the case of real property, in one office within the

subdivision), as

or the county, or other governmental ‘

cxignated by the laws of such State, in which the property

subject to the lien is situated; and

does not constitute a second office for filing as designated

by the laws of such State, or

In the case of real property, 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.

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 Secretary. Such notice shall be valid

notwithstanding any other provision of law regarding the form or

content of a notice of lien.

l2a

(4) Indexing required with respect 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 a manner that a

reasonable inspection of the index will reveal the existence of

the deed, and

(B) there is maintained (at the applicable office under

paragraph (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.

(5) National filing systems

The filing of a notice of lien shall be governed solely by this

title and shall not be subject to any other Federal law establishing

a place or places for the filing of liens or encumbrances under a

national filing system.

(g) Refiling of notice

For purposes of this section—

(1) General rule

Unless notice of lien is refiled in the manner prescribed in

paragraph (2) during the required refiling period, such notice of

lien shall be treated as filed on the date on which it is filed (in

accordance with subsection (f)) after the expiration of such

refiling period.

l3a

(2) Place for filing

A notice of lien refiled during the ired refili iod

be effective only— si <TR

(A) if—

(i) . such notice of lien is refiled in the office in which

the prior notice of lien was filed, and

(ii) in the case of real property, the fact of refiling is

entered and recorded in an index to the extent required by

subsection (f)(4); and

(B) in any case in which, 90 days or more prior to the

of & rallling of nation of lien exter echpemarwh (A), Oo

Secretary received written information (in the manner

prescribed in regulations issued by the Secretary) concerning

a change in the taxpayer's residence, if a notice of such lien is

also filed in accordance with subsection (f) in the State in

which such residence is located.

(3) Required refiling period

PPh ante any notice of lien, the term “required refiling

(A) the one-year period ending 30 days after the expiration

of 10 years after the date of the assessment of the tax, and

an ) domi uth er-mahame. Lage the expiration of 10

for such notice of lien. tte reas

(4) Transitional rule

Notwithstanding paragraph (3), if the assessment of the tax was

made before January 1, 1962, the first required refiling period

shall be the calendar year 1967.

l4a

(h) Definitions

For purposes of this section and section 6324—

(1) Security interest

The term “security interest” means any interest in property

acquired by contract for the purpose of securing payment or

performance of an obligation or indemnifying against loss or

liability. A security interest exists at any time (A) if, at such

time, the property is in existence and the interest has become

protected under local law against a subsequent judgment lien

arising out of an unsecured obligation, and (B) to the extent that,

at such time, the holder has parted with money or money's worth.

(2) Mechanic’s lienor

The term “mechanic’s lienor” means any person who under

local law has a lien on real property (or on the proceeds of a

contract relating to real property) for services, labor, or materials

furnished in connection with the construction or improvement el

r . For purposes of the preceding sentence, a pe

oie all post a date such lien becomes valid under local

law against subsequent purchasers without actual notice, but not

before he begins to furnish the services, labor, or materials.

(3) Motor vehicle

The term “motor vehicle” means a self-propelled vehicle which

is registered for highway use under the laws of any State or

foreign country.

(4) Security

The term “security” means any bond, debenture, note, or

certificate or other evidence of indebtedness, issued by a

corporation or a government or political subdivision thereof, with

interest coupons or in registered form, share of stock, voting trust

certificate, or any certificate of interest or participation 1n,

certificate of deposit or receipt for, temporary or interim

certificate for, or warrant or right to subscribe to or purchase,

any of the foregoing; negotiable instrument; or money.

iSa

(5) Tax lien filing

The term “tax lien filing” means the filing of notice (referred

to in subsection (a)) of the lien imposed by section 6321.

(6) Purchaser

The term “purchaser” means a person who, for adequate and

full consideration in money or money's worth, acquires an

interest (other than a lien or security interest) in property which

is valid under local law against subsequent purchasers without

actual notice. In applying the preceding sentence for purposes of

subsection (a) of this section, and for purposes of section 6324—

(A) a lease of property,

(B) a written executory contract to purchase or lease

property,

therein, or

(D) an option to renew or extend a lease of property, which

is not a lien or security interest shall be treated as an interest

in property.

(i) Special rules

(1) Actual notice or knowledge

For purposes of this subchapter, an organization shall be

deemed for purposes of a particular transaction to have actual

notice or knowledge of any fact from the time such fact is brought

to the attention of the individual conducting such transaction, and

in any event from the time such fact would have been brought to

such individual’s attention if the organization had exercised due

diligence. An organization exercises due diligence if it maintains

reasonable routines for communicating significant information to

the person conducting the transaction and there is reasonable

compliance with the routine. Due diligence does not require an

individual acting for the organization to communicate information

unless such communication is part of his regular duties or unless

16a

he has reason to know of the transaction and that the transaction

would be materially affected by the information.

(2) Subrogation

Where. under local law, one person is subrogated to the rights

of another with respect to a lien or interest, such person shall be

subrogated to such rights for purposes of any lien imposed by

section 6321 or 6324.

(3) Forfeitures

For purposes of this subchapter, a forfeiture under local law of

property seized by a law enforcement agency of a State, county,

or other local governmental subdivision shall relate back to the

time of seizure, except that this paragraph shall not apply to the

extent that under local law the holder of an intervening claim or

interest would have priority over the interest of the State, county,

or other local governmental subdivision in the property.

(j) Withdrawal of notice in certain circumstances

(1) In general

The Secretary may withdraw a notice of a lien filed under this

section and this chapter shall be applied as if the withdrawn notice

had not been filed, if the Secretary determines that—

(A) the filing of such notice was premature or otherwise not

in accordance with administrative procedures of the Secretary,

(B) the taxpayer has entered into an agreement under section

6159 to satisfy the tax liability for which the lien was imposed

by means of installment payments, unless such agreement

provides otherwise,

of the tax liability, or

(D) with the consent of the taxpayer or the Taxpayer

Advocate, the withdrawal of such notice would be in the best

interests of the taxpayer (as determined by the Taxpayer

Advocate) and the United States.

17a

we such withdrawal shall be made by filing notice at the same

office as the withdrawn notice. A copy of such notice of

withdrawal shall be provided to the taxpayer.

(2) Notice to credit agencies, etc.

Upon written request by the er with respect

notice of a lien was cehdaen han eas (1), he tse

shall promptly make reasonable efforts to notify credit reporting

agencies, and any financial institution or creditor whose name and

address is specified in such request, of the withdrawal of such

notice. Any such request shall be in such fi

weet orm as the Secretary

26 U.S.C. § 6324. Special liens for estate and gift taxes

(a) Liens for estate tax

Except as otherwise provided in subsection (c)—

(1) Upon gross estate

Unless the estate tax imposed by chapter 11 is sooner paid i

paid in

an or becomes unenforceable by reason of lapse of time, it shall

a lien upon the gross estate of the decedent for 10 years from

the date of death, except that such part of the gross estate as is

~ for the Payment of charges against the estate and expenses

of its administration, allowed by any court having jurisdiction

thereof, shall be divested of such lien.

(2) Liability of transferees and others

then Ne ‘state tax imposed by chapter 11 is not paid when due,

the spouse, transferee, trustee (except the trustee of an

employees trust which meets the requirements of section 401(a))

surviving tenant, person in possession of the property by reason

of the exercise, nomexercise, or release of a power of

eee 1s centnciety, whe ssesiven, or bes on the dats of

decedent's death, property included in the gross estate under

sections 2034 to 2042, inclusive, to the extent of the value. at the

time of the decedent's death, of such property, shall be personally

liable for such tax. Any part of such property transferred by (or

18a

transferred by a transferee of) such spouse, transferee, trustee,

surviving tenant, person in possession, or beneficiary, to a

purchaser or holder of a security interest shall be divested of the

lien provided in paragraph (1) and a like lien shall then attach to

all the property of such spouse, transferee, trustee, surviving

tenant, person in possession, or beneficiary, or transferee of any

such person, except any part transferred to a purchaser or a

holder of a security interest.

(3) Continuance after discharge of fiduciary

The provisions of section 2204 (relating to discharge of

fiduciary from personal liability) shall not operate as a release of

any part of the gross estate from the lien for any deficiency that

may thereafter be determined to be due, unless such part of the

gross estate (or any interest therein) has been transferred to a

purchaser or a holder of a security interest, in which case such

part (or such interest) shall not be subject to a lien or to any claim

or demand for any such deficiency, but the lien shall attach to the

consideration received from such purchaser or holder of a security

interest, by the heirs, legatees, devisees, or distributees.

(b) Lien for gift tax

Except as otherwise provided in subsection (c), unless the gift

tax imposed by chapter 12 is sooner paid in full or becomes

unenforceable by reason of lapse of time, such tax shall be a lien

upon all gifts made during the period for which the return was

filed, for 10 years from the date the gifts are made If the tax is

not paid when due, the donee of any gift shall be personally liable

for such tax to the extent of the value of such gift. Any part of

the property comprised in the gift transferred by the donee (or by

a transferee of the donee) to a purchaser or holder of a security

interest shall be divested of the lien imposed by this subsection

and such lien, to the extent of the value of such gift, shall attach

to all the property (including after-acquired property) of the donee

(or the transferee) except any part transferred to a purchaser or

holder of a security interest.

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( 1) The lien imposed by subsection (a) or (b) shall not be

valid as against a mechanic’s lienor and, subject to the

conditions provided by section 6323(b) (relating to protection

for certain interests even though noticed filed), shall not be

valid with respect to any lien or interest described i

ponding in section

(2) If a lien imposed by subsection (a) or (b) is not valid as

against a lien or security interest, the priority of such lien or

security interest shall extend to any item described in section

6323(e) (relating to priority of interest and expenses) to the

extent that, under local law, such iter has the same priority as

the lien or security interest to which it relates.

26 U.S.C. § 6324A. Special lien for estate tax deferred under

section 6166

(a) General rule

In the case of any estate with respect to which an election has

been made under section 6166, if the executor makes an election

under this section (at such time and in such manner as the

Secretary shall by regulations prescribe) and files the agreement

referred to in subsection (c), the deferred amount (plus any

interest, additional amount, addition to tax, assessable penalty,

and costs attributable to the deferred amount) shall be a lien in

favor of the United States on the section 6166 lien property.

(b) Section 6166 lien property

(1) In general

For Purposes of this section, the term “section 6166 lien

property” means interests in real and other property to the extent

such interests—

(A) can be expected to survive the deferral period, and

' % are designated in the agreement referred to in subsection

c).

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(2) Maximum value of required property

The maximum value of the property which the Secretary may

require as section 6166 lien property with respect to any estate

shall be a value which is not greater than the sum of—

(A) the deferred amount, and

(B) the required interest amount.

For purposes of the preceding sentence, the value of any property

shall be determined as of the date prescribed by section 6151(a)

for payment of the tax imposed by chapter 11 and shall be

determined by taking into account any encumbrance such as a lien

under section 6324B.

(3) Partial substitution of bond for lien

If the value required as section 6166 lien property pursuant to

paragraph (2) exceeds the value of the interests in property

covered by the agreement referred to in subsection (c), the

Secretary may accept bond in an amount equal to such excess

conditioned on the payment of the amount extended in accordance

with the terms of such extension.

The agreement referred to in this subsection is a written

agreement signed by each person in being who has an interest

(whether or not in possession) in any property designated in such

agreement—

(1) consenting to the creation of the lien under this section

with respect to such property, and

(2) designating a responsible person who shall be the agent

for the beneficiaries of the estate and for the persons who have

consented to the creation of the lien in dealings with the

Secretary on matters arising under section 6166 or this section.

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(d) Special rules

(1) Requirement that lien be filed

The lien imposed by this section shall not be valid as against

any purchaser, holder of a security interest, mechanic’s lien, or

judgment lien creditor until notice thereof which meets the

requirements of section 6323(f) has been filed by the Secretary.

Such notice shall not be required to be refiled.

(2) Period of lien

The lien imposed by this section shall arise at the time the

executor is discharged from liability under section 2204 (or, if

earlier, at the time notice is filed pursuant to paragraph (1)) and

shall continue until the liability for the deferred amount is

satisfied or becomes unenforceable by reason of lapse of time.

(3) Priorities

Even though notice of a lien imposed by this section has been

filed as provided in paragraph (1), such lien shall not be valid—

(A) Real property tax and special assessment liens

To the extent provided in section 6323(b)(6)

(B) Real property subject *o a mechanic’s lien for repairs

and improvements

In the case of any real property subject to a lien for repair or

improvement, as against a mechanic's lienor.

agreement.

As against any security interest set forth in paragraph (3) of

section 6323(c) (whether such security interest came into

existence before or after tax lien filing).

Subparagraphs (B) and (C) shall not apply to any security interest

which came into existence after the date on which the Secretary

filed notice (in a manner similar to notice filed under section

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5323(f)) that payment of the deferred amount has been accelerated

under section 6166(g).

(4) Lien to be in lieu of section 6324 lien

i i with

is a lien under this section on any property |

respect to any estate, there shall not be any lien under section

6324 on such property with respect to the same estate.

(5) Additional lien property required in certain cases

If at any time the value of the property pene by the

agreement is less than the unpaid portion of the a

and the required interest amount, the Secretary may requis /

under this paragraph that the value of the property covered By U8

agreement exceed such unpaid portion). If mys er - ~~

required value is not added to the propery an ue is not

agreement (or if other security equal to the requi as

furnished) within 90 days after notice and demand therefor by lt

Secretary, the failure to comply with the preceding sent oe

he treated as an act accelerating payment of the installments

section 6166(g).

(6) Lien to be in lieu of bond

The Secretary may not require under section 6165 the

furnishing of any bond for the payment of any tax to on

agreement which meets the requirements of subsection (c) apPhes-

(e) Definitions

For purposes of this section—

(1) Deferred amount

” % the aggregate amount

deferred under section 6166 (determined as of the date ong

by section 6151(a) for payment of the tax imposed by chapter

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(2) Required interest amount

The term “required interest amount” means the aggregate

amount of interest which will be payable over the first 4 years of

the deferral period with respect to the deferred amount (deter-

mined as of the date prescribed by section 6151(a) for the

payment of the tax imposed by chapter 11).

(3) Deferral period

The term “deferral period” means the period for which the

payment of tax is deferred pursuant to the election under section

6166.

(4) Application of definitions in case of deficiencies

In the case of a deficiency, a separate deferred amount,

required interest amount, and deferral period shall be determined

as of the due date of the first installment after the deficiency is

prorated to installments under section 6166.

26 U.S.C. § 6324B. Special lien for additional estate tax

attributable to farm, etc., valuation

(a) General rule

In the case of any interest in qualified real property (within the

meaning of section 2032A(b)), an amount equal to the adjusted

tax difference attributable to such interest (within the meaning of

section 2032A(c) (2) (B)) shall be a lien in favor of the United

States on the property in which such interest exists.

(b) Period of lien

The lien imposed by this section shall arise at the time an

election is filed under section 2032A and shall continue with

respect to any interest in the qualified real property—

(1) until the liability for tax under subsection (c) of section

2032A with respect to such interest has been satisfied or has

become unenforceable by reason of lapse of time, or

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(2) until it is established to the satisfaction of the Secretary

that no further tax liability may arise under section 2032A(c)

with respect to such interest.

(1) In general

The rule set forth in paragraphs (1), (3), and (4) of section

6324A(d) shall apply with respect to the lien imposed by this

section as if it were a lien imposed by section 6324A.

(2) Qualified real property

For purposes of this section, the term “qualified real property”

includes qualified replacement property (within the meaning of

section 2032A(h) (3) (B)) and qualified exchange property (within

the meaning of section 2032A(i) (3)).

(d) Substitution of security for lien

To the extent provided in regulations prescribed by the

Secretary, the furnishing of security may be substituted for the

lien imposed by this section.

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