# Opposition Brief — Bank of America National Trust & Savings Ass'n v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385602_0904%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1965 - **Citation:** 382 U.S. 927 ## Text Opinions below peed Pax eres Jurisdiction__-_: mae Question. presented _ cet * ae ey Sy 2ie. Statutes. involved Pe be ——— a indnicnate sates’ Angus) nih nee envoy ett Fonte ee ereaae pain | Conclusion. ~ , Siac ; ; 7 = . CITATIONS ae Cases: . ! Ainsworth v. Bank of California, 119 Cal. 470, 51 Pac. - 952: ;, | Aqiilino v. United States, 363 US. 509....--. : Bank of Nevada v. United States, 251 F. 2d 820, cer- _ . tiorari denied, 356 U.S. 938 . - Glass. City Rank v. United States, 826 US. ea a i Halprin, In're, 280 F. 2d 407. . Karno-Smith.Co. v. Maloney, 112 F. 2d 690 ' s Keck v. Keck, 219 Cal. 316, 26 P. 2d 300 _ MacKenzie v. United States, 109. F; 2d 540 ‘3 Middle Atlantic Credit Corp.. v. First Peanepluant . ~) 9 ; el ¥ 7 ” mat wed tay ne on ? Banking & Trust Co. 199 Pa. Super.°456, 185 A. iB eds 2d'818 9. Murchison vy. Murchison, 219 Cal. App. 9d 600——— ae eer 8 Roberts v. Spires, 195 Cal. 267, 232 Pac. 708.22. 9 8 0 Salladin v. Mitchell, 42 Neb. 859, 61.N.W. Sede United States v. Allen, 328 F: od 877. 1 United States v. Bank of Shelby, 68 F. 2d 538__.._._-- 7 United States v. Bank of United States, 5 F. Supp. 942> 7 United States v. Durham Lumber Co., 363 TAS. 522---— 7 United States v. Graham, 96 F. Supp. 318, affirmed per - Curiam sub nom. California v. United States, 195 F. 2d 530, certiorari denied, 344 U.S. 831 7,9 United States v. Long Island Drug Co., 115 F. 2d 983 __ 7 I ofa - e ~ oO © ®e & = ‘ : > - : : . Py e % e Caseo-—Continned is _ ” United States v. Seourity Trust &é Savings Bank, 340° Page BUS. 47 7 10 3 ‘Walters v, Bank of America Nationgl Trust & Savings Riss Association, 9 Cal: 2d 48, 69 P. 2d 839___-_-, - ‘Statutes>. s, : Internal Reyenus Code of 1954: ’ 1% > Gee. 6821 (26:U.S.C.1958.ed., Sec. at). 27 9 he _ “Bee. 6831 (26 U.S.C. 1958 ed., Sec. 6331)-----si.2. 6 2. "Sec..6882-(26 U.S.C. 1958 58 od. Sec 6332) 9/4 - California Civil. Code, : ee See’ 5 ‘Code. of. Ctvil Procedure,' 14 14 Wests Antiotated Cali B es sta ast 440_ , a " Geusalee: Atitomatic Batingtion of Pen eg Compensatio Fra®@ Rome to California, 58 Calif. L. —_— , Rev. 224, 276, 277 errs Se 8,9, 10. é Seta Pi ight of dlink porestacc i Locisone . e. eRempoanate HEN DODY es De, $ Tul. L. - Rev. 7 & Re 498; APT & 1. 26+ : 8, PRL ORR RR OT Fm en acaet meen ras 3 Fae or oe ‘ “7% om > 7 Cs fT a ee ’ : = >> aks 7 de. re °¢ oh ‘ ‘ ~e~ sha os ; ee 5 | aa way ’ % i ; . ' c J \ 8 aS | > or Ba i a ee ERECT See ee ee ree —— 3 ‘< eof ~_ e ad . ‘“é ¢ F : “ rs n : » ~ 4 : # a = £ 4 ; > 4 eS \ 14 ’ \ bad ia > ie ” \ . > 3 . . ' « a ¥ : > : Ee axe . a : ‘ i . e = " ‘ ’. @ ° ~ ee { - TH og pai ok eee ; eh te Se ae he So, ee val =a: = od aE a . me : . * S . gkP . ~~ Fae ts 2. . = : F as . 2. : ft on ‘ “ Spam .% * - ‘ " "y Aone ; : f ee oo pets re 77 wi a) we fe ; int “ ty < 3 a -, om = z: —¢——+ eo Ff : 3 fe Supreme gout aft te hited Bhs ‘ Ocrosee Team, (1965 ‘ae BS. ‘ “i 580 es | Bank oF America NationaL Trust & Savinas ‘ASSOCIATION, PETITIONER < a Vv. ore 7% “s - UNrrep: SraTES OF ages » Ae *> ~~ — ON PETITVON FOR A WRIT OF. OBRTIORARI TO THE UNITED STATES PrP ay. OF APPEALS FOR THE NINTH CIROUIT . . Fs hs —_—_—— - z al * = ‘BRIEF FOR ‘THE UNITED STATES IK OPPOSITION | + P : aQ-e « bid Lape - sims ’ i = a a a OPINIONS ‘BELOW : The opinion of the court of appeals (Pet. pp.. _ 15-16) is reported at 345 F. 24.624. “The earlief de- cision, of the court of appeals, vacating“a judgment in - . favor of the United States and remanding to the dis- . ~triét court (Pet. App, 5-8), is ‘Teported. at 317 F. 2d, 859. The- opinion of the district court on» id - —(. 21-27; Pet. App. 7) is ore at 229 F. Se 906. o. JURISDICTION — 8, 1965, Mr. Justice Douglas ee the time for filing a Petition for a MM ” ~ The NATE: of the coyrt of appeals was entered ~ on May 13, 1965. On-A ~~ LO . writ of ‘Saute: to an including September 10, 1965.. -. The petition was filed on September 7, 1965. The ~ jurisdiction of this Court is invoked under 28 U. S. C.. renal otha paddle 34 2 ina eke, saa” fete > QUESTION ED . v mee ) "Whether a bank may defeat a levy upon the tax- * ‘.. payer’s bank accounts by a claim to a:setoff for a debt ineurred after. the: ‘federal tax lien was recorded. P “STATUTES INVOLVED Tuternal Revenue Code of 1954: Suc. 6321. [26 U.S. C. 6321] LIEN BEE es “——~.. Tf any person tiable 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 iptrenel, belonging ~ to such person, | Sko. 6331. [26 USC. 6351] Lee ix Dis ase . HRAINT. fay | - (a) Authority of Beoretory or Delegate —_it . aie " < any person liable to pay. any tax neglects or re- Rete - fuses to. pay» the same within 10 days after + notice and démand*:it shall be lawful. for the *. Secretary .or his delegate to collect such tax - ,. (and such further gum as shall be’ sufficient, to © _eover the expenses of the levy) by levy upon all . - property and rights to property (except such c - property .as is exempt under ‘séction 6334). be- . ' |" 4. longing to such person or dn which there is a $ - 42 — . \ » e \ > Hien caiveddgait in this denice f - the payment — & of such tax. eo - @): Séizure and. Bale si aan —The. . term “levy” as used in title includes the | power ‘of distraint and seizure by’ any means. ‘In any’ case in which the Secretary or his dele- ~“gate may levy upon property or rights to prop- * erty, he may ‘seize and sell such property or. : ie Tights to property (whether real or \ cues ay : Mangible or angle). heh de ed * * _SEc. 6332. Pe ee S. C. 6332] Sunaexons OF Prov- ‘’ ERTY SUBJECT TO Levy. | (a) Requirement _—Any person in possession ) , . . of (or obligated with respect to) property or ae rights to property subject to.levy upon which:a » levy has been made shall, upon demand of the ” Secretary or his delegate, surrender such prop- erty or rights (or:discharge such obligation) to * ' the Seeretary or his delegate, except such part of the property or rights as is, at the time’ of "such demand, subject to an a exe- cution ‘under any judicial process. .* ®.. (b) Penalty for Veojation. ——Any. person. whe ; fails or refuses. to.surrender as required by sub- - section (a) aity property or rights $0. property, cae “subject to levy, upon demand byt the Seeretary _* _ or his delegate, shall be liable in-his own person — - and-estate to the United: States in a sum equal te the value of the property or rights not ‘so - surrendered, but not exceeding the amount of ~~ the*taxes for ‘the collection of whieh’ such: levy _ has been made, together with costs and. interest - on.such sum at thé rate of 6] retepht eo from the date > such ee ‘ ‘ ~+@ rs to * 5 -* . is MBO ES . . . a oe Se es Code of Civil Procedure, 14 West's Annotated Cali- fornia Codes: : $440. Counterclaim; vomipeneated demande ; effect of assignment or death © ». When cross-demands have existed between ee "persons under such circumstances that, tf one “had brought: an action . against the. other, a ae counterclaim could have been set up, ‘the two . demands shall be deemed tompensated, so far as + « they equal each other, and neither can be de- -prived of the benefit thereof by sre sapqgenent ‘or — of the. other. STATEMENT The United States. brought this actio® ’ ‘under’ Sec- tion 6332(b) of the 1954 Code‘ (supra, p. . 3). to eolleet the amount of a tax levy served on petitioner pursu- ant to Section 6332(a) (supra, p. 3). ‘The govérn- -. ment’s complaint alleged (R. 3-6),* and the ‘triaf court - found, that at the time of the levy,’ petitioner held : property of taxpayer J. B. Edmondson which was subject to prior federal tax liens. On the first ap- . peal; the court of appeals reversed on- the ground that th8 stipulation,as to the facts was inadequate (Pet. App. 5-8). On ‘remand, a fuller stipulation of facts was. agreed to and .the district court again found in favor of the government (R. 8-18; 21-27 Jas “The court of appeals aed per curtam Git. App. 15-16). ‘ Om various dates in 1955, federal withholding and Federal ‘Insurance. Contributions Act taxes were as- : +R.” refers to.the printed record inthe oourt! below in - No. 19,469. ° e ° . ee fit, 6 eZ | bie aoe “e a 7: ¢ } =¢ * ¢ ‘es ® ‘3 x a 3 a } scene ‘gaiiet 3. By Wamondion, of which $8874.44 a remained unpaid at the time of trial. The taxpayer was served with notice ‘and demand for payment of “a such taxes, and notices of federal. tax liens were duly: a ' filed in Orange County; California, on October 19, 2 1955,.as to the asséssment for the first quarter of 1955, and on J anuary 28, 1958, as to the assessments for the: . second and third quarters of 1955 (R., 9-10). On? | eS _; August, 27, 1959, the District’ Director served peti- tioner “with ‘a notice of levy and a demand for pay- . : “ ment of all amounts, petitioner was then holding i in the | taxpayer’s. checking and savings accounts, to the ex: - tent of unpaid taxes{R: 10), On the date of the levy; - ‘petitioner’ 3 bookg wed that the: taxpayer. had de- ° _ posits + his credit in several commercial checking o counts; arid one savings account totaling $6,658. 31 ( 11), The “commercial accounts were active accounts, into which deposits were made and upon which checks vee gs were drawn by the Sexpayer up to the'date of the lévy - - (Rea): : On August 27, 1959; ‘fe faa was 5 indebted io sf: , Petitioner i in the amount of $11,570.40 on several notes. : All of these notes. were executed after Jantiary 28, 1958, the date the latest notices of federal tax liens were filed (R; 13-17): ‘On August 28, 1959; ‘the day ~ after ‘recaiving® the notice of lew, petitioner. made" - entries on its books purporting to credit the $6,658.31 | balance then standing in the taxpayer’s-checking and - savings acegpnts aunnet nn cbtigationgunden the notes | | ‘Be pet " Petitioner ‘defended its itideal to sina the sidemtate "demanded in the eens levy on the. ground, , a 7 mS: _ a“ c . * ‘ ad er : tty : : ° - * < eu rod ° aon i . . 4 ~ « ~\ 6 as & ~S ‘ . ¥ . ‘ a . .” » nr among: others,’ that the amounts shown on’ its books | ‘to the taxpayer's credit on the dete of lavy had.been - ‘automatically’ extinguished at. the instant.of. deposit. by operation of. California Code of Civil Procedure § 440 (supra, p. 4), and that; therefore, the ‘deposits Were no longer in existence on August 27, 1959. Re- . " ying primarily on Bank of Nevada v. United. States, _ 251.F. 2d 820 (CA. 9), certiorari denied, 356 U.S. 938, the district court, on‘two oe¢asions,’ and the éourt of appeals pejontad na aoner s contention. & ARGUMENT ow, vere Pa This “case eee only. a Re Se of ‘California | ' _ law, whick was correctly decided in the courts below. Petitioner contends that, under California Jaw, it had . no “property tor] rights to property”’ belonging to the antnieampemninnntis) * Petitioner has abandoned any claim that it wes entitled Ro actual notice of the: federal tax liens before making the loans to°the taxpayer as well as any claim to a Banker’s lien under California Civil e § 3054. * The first opinion of the district court, which 3 is unreported, reads in pertinent part as follows: : pe Counsel for defendant Bank have ioe ® strong argu- ment in the face of .a difficult set of facts.: Acceptance of | the: position they-have advpcated, however, would result in , & situation where, ws virtue of state law, California banks _ conld gain advantage b purposely avoiding procedures that ‘would inform them of preexisting federal tax liens, such ‘fis the examination of county, tien’ tecords. California banks, by avoiding notice, could make loans and spoept deposits subsequent to the filing of federal tax liens. and then, even after notice of levy of the tax. lien, could — ‘effect a setoff without any liability to the federal govern- ment. This result. could not be reached under the rpssoning - of Bank of Nevada v. United States, 251 F. W, 90 Safad pees Cor « _, eee oe 6 . g< . ee, Ww ¢ 74 “s ’ | ” salina in tisns of the Seltessiniimlssitas / There « it is no eontention; as indeed. there’ cannot be, that a'banik . - aecount in California is not the kind of property: which: ..is-subject toa lien under Section, 6821 of the,J954 Code (sapra, * 'p. 3). yBee See MacKenate. ¥.' United: States, 109. Bi2d 540, 542 ‘OK. 9),."Nor does. petitioner appeat to dispute-the proposition. that the’ right toa setoff __ for debts arising %fter the recording of a federal tax: 2 lien does not take priority’ over°the lien:* Bee've.g., > ; ada ¥. subeaete B, 2.820, 8M— > i , raham, “06 F. “Supp. 318 (BD. Calif), ; b nom. Califorma v. United 530 (C. A, 9); certiorari denied, 344 . 3 ion, basically is that, California Code of Civil Procedyre § MGs nat “a-mhere ‘statutory. 1 weyreeh asserts (Pet 13, n> 8) ‘that, the: dette aio in Bank of Nevada: conflict with decisions “upholding | the right. of setoff in the face of a federal: tax lien.” But none - of the cases relied on are apposite here.« In United State, v. ._ Bank’ of Shelby, 68 F. 2d 538 (C.A. 5), and United States v. Bank of United States, 5 F. Supp. 942 (S.D.N.Y.),, the setoff rights, were for debts whiclrarose and matured before the, fed- eral tax lien was retorded. /United States v: Long [lana any, Co., 115 F. 2d 988 (C.A. 2), held a ta& ‘lien subordimate to a” oz later-arieing debt on the-theory that the tq lien could ot at-"” ‘ tach to ‘future earnings. . This Court expressly. disapproved that. theory in Glass City Bank v. United States, 326 U.S. 265, 267. In Rarno-Bmith Oo. v. Maloney, 112 F..2d 690 (Ci. 3), as. well . - as Aguilino vy. United States, 863 U.S. 509, and United: States’ v. Durham. Lumber Co., 363 U.S. 522, also cited by petitioner, it was Held that & defaulting contractor acquired no interest in # - payments due under the contract against. which*the government **: asserted a tax lien. . Similarly, 7n re Halprin, 280 F. 2d 407 (C.A. 8) held that the taxpayer acquired no interest ‘ins pay- “~~ments under a contract until the party ar the work’ had. been. a rim. ‘wit ~ - \ ~, ‘ 5 ? | ; 8. . vight! of setoff under state law’.”’ (Pet. 12) but is“an* extra-judicial, : irercnersenaet ee. of cross~ deniands’’ (Pet. 8). 5 We submit that the courts below, oni ‘het spellibaiser; 9 have correctly apprehended the California law ap-. plicable to: this cise. | Petitione? secks to ‘disparage’ the court’s application of Section 440 by . noting that the court’ described the provision’ asa “statutory, Tight of ‘setoff” (Pet: 12), but the Cali-. — fornia courts have described the provision in the same terms. See, e.g., Ainsworth v. Bank of California, 119 Cal. 470, 475, 51 Pac. 952;7963 (“our statute of setoff”’) ; Murchison v. Murchison; 219 Cal. App. 2d 600, ‘605 (Dist. Ct: App.) (‘‘[t]his principle of set-- -—_ off”); ef. Saladin v. Mitchell, 42 Neb. 859, 862, 61 — N.W. 127, 128 (construing substantially identical Ne- braska statute). The fact that Section 440 is derived from the civil law. and is traceable to the Roman law of comtpensatio (Pet. 8) does not preclude its appli- cation in the same manner as an equitable setoff so far'as the issue involved here is concerned. To the = contrary, the civil law developed a specific restriction - on compensatio.to the ‘effect that a bank. may not — automatically extinguish a general deposit and credit© it against a past due note. See Comment, Automatic — Eztinction of Cross-Demands: Oompensatio From Rome to California, 53 Calif. L. Rev. 224, 276; Com- ment, The Right of a Bank Depositor in Louisiana To | Components, Hie: Debt £6; the. Dank, BFE Pe 423, 427 & n. 26. .. It ix well settled in California and ecillanas that the right to setoff, under Section 440 or on general — ) — gy - eqtitable principles, does not: defeat third: parties’ ' otherwise superior interests in the property claimed: to have heen set off or “compensated.” Keck v. Keck, 219 Cal. 316, 26 P. 2d 300 (alimony: rights); Roverte: __v. Spies, 195 Cal: 267, 282 Pac. 708'(subeontractors’ .. liens) ;: Walters ‘v. Bank of ‘America National Prust “ ~& Savings Association, 9 Cal. 2a 46,’ 54-57, 69 P. 2d 839 (garnishment) ; United States v. Graham, 96. Supp. 318 (S.D. Calif. ), affirmed per curiam sub nom. California v. United States, 195,F. 2d 530 (C.A. 9), cer- tiorari denied, 344 U.S. 831 (tax liens) ; ef. Middle At- lantic Credit Corp.” v. First Pennsylvania Banking & Trust Co., 199 Pa, Super. 456, 185 A. 2d 818 (faetors’ liens), None of the California cases cited by petitioner | involved third-party interests, ‘but the. comprehensive | law review comment on Section 440 relied on by peti- | tioner (Pet. 8) expressly recognizes that: A[f]unds subject to liens may not. Re, compensated | away” (53 Calif. L. Rev. at 276) and accepts the district court’s decisior. in the case at bar as wholly consonant with | California law on the limitations of Séction 440 (id. : : ~ at 277). ae | Petitioner’ 8 contention that the cannes 8 deposits were extinguished at the instant. they were made is. belied. by the fact. that: the deposits ¢ontinued to ap- pear on petitioner’s books and the taxpayer continued. -to use his: aceounts after his deposits were made and his obligations to petitioner were in-default. The cru- ial determination for federal tax lien’ puipésés is’ - whether,.at the time of the levy, the deposits, were in . reality being held in the taxpayer’s accounts... Con-- . ceptual een of. the Se UL under me doctrines: Z '® ours ee i. | of compensation and relation. back: is of no, conse. quence here. United: States v.. Security Trust & Sav- tnys Bank, 340 US. 47, 5 United States v. Allen, 328 BE 24:87 (C.A. 5). ry “There is no pbs Uilhle, in petitioner’ 8 platy ) the decision below will have a serious adverse effect on. California banks. Lach g neh oan We : any respect, by the present decision, A the ” decision mig t lead them to. inquire into the existence of tax liens before extending credit.’ -The primary _ effect of the decision below .is to_afford the United. ~ States the same right as any. private lien Ateditor to. priority over banks’ ‘later-arising claims to their cus-. tomers” deposits. The reading petitioner seeks to .give Seca on the other hand, would result in impossible eeping problems for ‘banks and their borrower-customers. See. Comment, supra, 53 Calif. L. Rev. at 276, siagiigtts ‘ 3 ‘comcrumrom ‘For the ‘foregoing reasons, it ‘is sedecttine sub-_ mitted that the petition for a writ. of certiorari should. be denied. ‘THURGOOD Mansrrarz, . Solicitor General. adit M. | babe ~ Acting Assistant Attorney ‘General. HHA i Ss4 wit debe Rioosdin.s900 0 TE ba showiostow 2.) Dpepermok Hy Youneman,. . «: Po. dis" ob Af ono Nenoiited o Atlorniyse cf cians 1965. yatei ig TS ie ' £0. i ageties : ‘ ‘6TH thé pte caise: the loans made by petitioner to the tak? ena — pais part, secuted ;by prime. Jiéns; on | new: Pp PEPREr Tyo RE ce sales arrangements, in - ers mes gr is subject to federal tax liens. ©. S. GOVERNMENT PRINTIN. OFFICE: 1968 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385602_0904%3A3. Public record. Not legal advice.