Redondo Const. Corp. v. U.S.

• Decision Date: 09 December 1998
• Docket Number: No. 96-6741,96-6741
• Parties: -6675, 98-2 USTC P 50,841 REDONDO CONSTRUCTION CORPORATION, Plaintiff-Appellant, v. UNITED STATES of America; Internal Revenue Service; UHL Truck Sales of Kentuckiana, Inc.; Modern Concrete Supply Company; Norman Greer, d/b/a Greer Construction Company; Harry B. Greer, d/b/a Greer Construction Company; Stout's Feed Store, Inc.; Irvin T. Diemer; Cecelia Diemer; North County Breaker Rentals, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1060

157 F.3d 1060

82 A.F.T.R.2d 98-6675, 98-2 USTC P 50,841

REDONDO CONSTRUCTION CORPORATION, Plaintiff-Appellant, v. UNITED STATES of America; Internal Revenue Service; UHL Truck Sales of Kentuckiana, Inc.; Modern Concrete Supply Company; Norman Greer, d/b/a Greer Construction Company Harry B. Greer, d/b/a Greer Construction Company; Stout's Feed Store, Inc.; Irvin T. Diemer; Cecelia Diemer; North County Breaker Rentals, Inc., Defendants-Appellees.

No. 96-6741.

United States Court of Appeals Sixth Circuit.

Argued April 21, 1998.

Decided Oct. 15, 1998.

Rehearing Denied Dec. 9, 1998.

B. Keefe Montgomery (briefed), Louisville, KY, Stuart A. Weinstein-Bacal (argued), Indiano, William & Weinstein-Bacal, San Juan, PR, for Plaintiff-Appellant.

David English Carmack (briefed), John A. Dudeck, Jr. (argued and briefed), U.S. Department of Justice, Appellate Section Tax Division, Washington, DC, for Defendants-Appellees.

Before: KENNEDY and BATCHELDER, Circuit Judges; HULL, ^* District Judge.

BATCHELDER, Circuit Judge.

Plaintiff-Appellant Redondo Construction Corporation ("Redondo"), a Puerto Rican corporation, filed suit in the Bullitt Circuit Court of Kentucky seeking (1) to enjoin a seizure and intended sale by the Internal Revenue Service ("IRS") of property formerly owned by Theresa Hiter; (2) to determine lien priorities; (3) to quiet title; and (4) to collect damages for the IRS's allegedly unlawful and tortious conduct. The IRS removed the case to the Western District of Kentucky, and Redondo and the IRS both filed motions for summary judgment. The district court determined that the IRS liens had priority, and consequently granted the IRS's motion for summary judgment, denied Redondo's motion, and declared that Redondo's damages claim was moot. ¹ The district court subsequently denied Redondo's motion to reconsider, and Redondo now appeals. For the reasons that follow, we AFFIRM the judgment of the district court.

I.

In November 1991, United States District Court of Puerto Rico awarded Redondo a civil judgment against Theresa Hiter and a number of other defendants. This judgment, as amended in January 1992, was in the amount of $415,134.14, plus interest, costs, and attorney's fees; the defendants, including Hiter, were made jointly and severally liable.

Redondo's present dispute with the IRS surfaced during its attempt to collect this judgment. At the time of the Puerto Rican judgment, Theresa Hiter owned real property, located in Bullitt County, Kentucky ("Property"); shortly after the judgment, Hiter transferred title of the Property to her mother, Fern Hiter. On December 6, 1993, Redondo filed a complaint with the Bullitt Circuit Court that (1) stated that on a date unspecified, Redondo had filed and registered copies of the Puerto Rican judgment with the "Clerk of the Court" in accordance with the Uniform Enforcement of Foreign Judgments Act ("UEFJA"), KY.REV.STAT. ANN. § 426.950 et seq. (Banks-Baldwin 1994), ² and was therefore entitled to Kentucky's On August 3, 1994, the IRS filed with the Bullitt County Clerk a federal tax lien against the Property in the amount of $157,313.85, seeking to recover back taxes owed by Teresa Hiter. On October 17, 1994, the IRS filed another lien on the Property in the amount of $114,266.93, seeking payment of additional back taxes.

full faith and credit; (2) sought to void the transfer as fraudulent; and (3) requested that the Property be "applied" to the payment of Redondo's judgment. On December 14, 1993, Redondo filed with the Bullitt County Clerk a lis pendens notice that specifically described the Property and stated that Redondo had filed a claim in the Bullitt Circuit Court that "affects the right, title and interest of Fern P. Hiter and Theresa A. Hiter" to the Property. In its brief on appeal, Redondo states that this lis pendens notice was served upon Theresa Hiter, but Redondo has failed to provide any record-support for this assertion.

On October 18, 1994, the Bullitt Circuit Court voided the transfer of the Property to Fern Hiter and revested title in Theresa Hiter. On November 21, 1994, the Bullitt Circuit Court entered an order formally affording Redondo's Puerto Rican judgment full faith and credit by Kentucky ("Full Faith and Credit Order") and ordering that the property be sold after priority determinations were made. Almost a year later, on September 28, 1995, the Bullitt Circuit Court entered another order, this time granting the Full Faith and Credit Order retroactive effect to December 13, 1993 ("Nunc Pro Tunc Order"), the date Redondo had filed the lis pendens notice. On September 29, 1995, Redondo filed with the Bullitt County Clerk a Notice of Judgment Lien against the Property, which included a certification stating that a copy of the Notice had been mailed to Theresa Hiter.

Meanwhile, on November 29, 1994, Theresa Hiter had filed for bankruptcy; Redondo filed two adversary proceedings in the bankruptcy case. In settlement of the bankruptcy proceeding, on October 21, 1995, Redondo received the Property, subject to the liens noted in the settlement agreement. Although it appears that the bankruptcy court originally determined that the IRS liens were junior to Redondo's interest, the court apparently withdrew that decision sua sponte on September 25, 1995. In April 1996, the IRS notified Redondo that it was seizing the Property, and in response, Redondo filed the present suit. ³

The district court concluded that Redondo's lien on the Property did not attach until September 29, 1995, the date that Redondo filed the Notice of Judgment Lien with the Bullitt County Clerk. The court further concluded that under Kentucky law, one cannot assert a lien on real estate until one has first obtained a final judgment actually issued by a Kentucky court, as opposed to an out-of-state court. Thus, according to the district court, even with the Nunc Pro Tunc Order, at best, the judgment lien would be retroactive to November 21, 1994, the date that the Kentucky court issued the Full Faith and Credit Order.

II.

Section 6321 of the Internal Revenue Code creates a statutory lien against all property and rights to property belonging to a delinquent tax payer. 26 U.S.C.A. § 6321 (West 1989 & Supp.1998). The lien arises at the time of assessment and attaches to all after-acquired property, 26 U.S.C.A. § 6322; United States v. McDermott, 507 U.S. 447, 452-55, 113 S.Ct. 1526, 1529-31, 123 L.Ed.2d 128 (1993); Glass City Bank of Jeanette v. United States, 326 U.S. 265, 267, 66 S.Ct. 108, 110, 90 L.Ed. 56 (1945); United States v. Dishman Indep. Oil, Inc., 46 F.3d 523, 525 (6th Cir.1995), but is valid against a "judgment lien creditor" only after the IRS files the appropriate notice, see 26 U.S.C.A. § 6323(a), (f). The federal rule is first in time, first in right: a properly filed federal tax lien has priority over a competing state-created lien unless the competing lien has "attached" to the property in question and is "choate" prior to the perfection of the federal tax lien. See United States v. City of New Britain, 347 U.S. 81, 86, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954); United States v. Security The primary issue in this case is not the usual question of choateness, but rather one of simple attachment, i.e., had Redondo's judgment attached to the Property and created a state judgment lien before the IRS noticed its tax lien? ⁴ Under Kentucky law, a Kentucky judgment acts as a lien against and attaches to real property situated in Kentucky as soon as the judgment creditor complies with the statutory requirements of KY.REV.STAT. ANN. § 426.720 (Banks-Baldwin 1994). That section provides:

Trust & Sav. Bank of San Diego, 340 U.S. 47, 51, 71 S.Ct. 111, 113-14, 95 L.Ed. 53 (1950); S & S Gasket Co. v. United States, 635 F.2d 568, 570 (6th Cir.1980).

A final judgment for the recovery of money or costs in the courts of record in this Commonwealth, whether state or federal, shall act as a lien upon all real estate in which the judgment debtor has any ownership interest, in any county in which the following first shall be done:

(1) The judgment creditor or his counsel shall file with the county clerk of any county a notice of judgment lien containing the court of record entering the judgment, the civil action number of the suit in which the judgment was entered, and the amount of the judgment, including principal, interest rate, court costs, and any attorney fees;

(2) The county clerk shall enter the notice in the lis pendens records in that office, and shall so note the entry upon the original of the notice;

(3) The judgment creditor or his counsel shall send to the last known address of the judgment debtor ... or shall deliver to the debtor personally, a copy of the notice of judgment lien, which notice shall include the text of KRS 427.060 ⁵ and also the following notice, or language substantially similar:

"Notice to Judgment Debtor. You may be entitled to an exemption under KRS 427.060, reprinted below. If you believe you are entitled to assert an exemption, seek legal advice."; and

(4) The judgment creditor or his counsel shall certify on the notice of judgment lien that a copy thereof has been mailed to the judgment debtor in compliance with subsection (3) of this section.

KY.REV.STAT. ANN. § 426.720 (Banks-Baldwin 1994) (emphasis added). Thus, before any Kentucky judgment will operate as a lien and attach to Kentucky property, the judgment holder must comply with the steps required by § 426.720.

Redondo attempts to create post hoc justifications for its failure to follow the § 426.720 procedures. The statute clearly spells out the necessary steps. Rather than follow these steps, Redondo filed a lis pendens notice.

A.

Redondo now argues that in December 1993, it could not follow the requirements Redondo's theory is without merit. Pursuant to the UEFJA, KY.REV.STAT. ANN. § 426.950 et seq. (Banks-Baldwin 1994), Kentucky accords full faith and...