UNITED STATES BY AND THROUGH INTERNAL REVENUE SERVICE v. McDERMOTT ET AL.

Citation507 U.S. 447
Decision Date24 March 1993
CourtUnited States Supreme Court
Syllabus

UNITED STATES BY AND THROUGH INTERNAL REVENUE SERVICE v. McDERMOTT ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

No. 91-1229. Argued December 7, 1992-Decided March 24,1993

The United States' federal tax lien on respondent McDermotts' property applied to after-acquired property, Glass City Bank v. United States, 326 U. S. 265, but could "not be valid as against any ... judgment lien creditor until notice thereof ... has been filed," 26 U. S. C. § 6323(a). Before that lien was filed with the Salt Lake County Clerk, a bank docketed a state-court judgment it had won against the McDermotts, thereby creating a state-law judgment lien on all of their existing or after-acquired real property in the county. Mter both liens were filed, the McDermotts acquired certain real property in the county and brought this interpleader action. The District Court awarded priority in that property to the bank's lien. The Court of Appeals affirmed.

Held: A federal tax lien filed before a delinquent taxpayer acquires real property must be given priority in that property over a private creditor's previously filed judgment lien. Priority for purposes of federal law is governed by the common-law principle that" 'the first in time is the first in right.''' United States v. New Britain, 347 U. S. 81, 85. A state lien that competes with a federal lien is deemed to be in existence for "first in time" purposes only when it has been "perfected" in the sense that, inter alia, "the property subject to the lien [is] established." Id., at 84. Because the bank's judgment lien did not actually attach to the property at issue until the McDermotts acquired rights in that property, which occurred after the United States filed its tax lien, the bank's lien was not perfected before the federal filing. See id., at 84-86. United States v. Vermont, 377 U. S. 351, distinguished. It is irrelevant that the federal lien similarly did not attach and become perfected until the McDermotts acquired the property, since § 6323(c)(1) demonstrates that such a lien is ordinarily dated, for purposes of "first in time" priority against § 6323(a) competing interests, from the time of its filing. Pp. 449-455.

945 F. 2d 1475, reversed and remanded.

SCALIA, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and WHITE, BLACKMUN, KENNEDY, and SOUTER, JJ., joined.

448

THOMAS, J., filed a dissenting opinion, in which STEVENS and O'CONNOR, JJ., joined, post, p. 455.

James A. Feldman argued the cause for the United States.

On the briefs were Solicitor General Starr, Acting Assistant Attorney General Bruton, Deputy Solicitor General Wallace, Kent L. Jones, and William S. Estabrook.

T. Richard Davis argued the cause for respondents and filed a brief for respondent Zions First National Bank, N. A.

JUSTICE SCALIA delivered the opinion of the Court.

We granted certiorari to resolve the competing priorities of a federal tax lien and a private creditor's judgment lien as to a delinquent taxpayer's after-acquired real property.

I

On December 9, 1986, the United States assessed Mr. and Mrs. McDermott for unpaid federal taxes due for the tax years 1977 through 1981. Upon that assessment, the law created a lien in favor of the United States on all real and personal property belonging to the McDermotts, 26 U. S. C. §§ 6321 and 6322, including after-acquired property, Glass City Bank v. United States, 326 U. S. 265 (1945). Pursuant to 26 U. S. C. § 6323(a), however, that lien could "not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof ... has been filed." (Emphasis added.) The United States did not file this lien in the Salt Lake County Recorder's Office until September 9, 1987. Before that occurred, however-specifically, on July 6, 1987-Zions First National Bank, N. A. (Bank), docketed with the Salt Lake County Clerk a state-court judgment it had won against the McDermotts. Under Utah law, that created a judgment lien on all of the McDermotts' real property in Salt Lake County, "owned ... at the time or ... thereafter acquired during the existence of said lien." Utah Code Ann. § 78-22-1 (1953).

449

On September 23, 1987, the McDermotts acquired title to certain real property in Salt Lake County. To facilitate later sale of that property, the parties entered into an escrow agreement whereby the United States and the Bank released their claims to the real property itself but reserved their rights to the cash proceeds of the sale, based on their priorities in the property as of September 23, 1987. Pursuant to the escrow agreement, the McDermotts brought this interpleader action in state court to establish which lien was entitled to priority; the United States removed to the United States District Court for the District of Utah.

On cross-motions for partial summary judgment, the District Court awarded priority to the Bank's judgment lien. The United States Court of Appeals for the Tenth Circuit affirmed. McDermott v. Zions First Nat. Bank, N. A., 945 F. 2d 1475 (1991). We granted certiorari. 504 U. S. 939 (1992).

II

Federal tax liens do not automatically have priority over all other liens. Absent provision to the contrary, priority for purposes of federal law is governed by the common-law principle that "'the first in time is the first in right.'" United States v. New Britain, 347 U. S. 81, 85 (1954); cf. Rankin v. Scott, 12 Wheat. 177, 179 (1827) (Marshall, C. J.). For purposes of applying that doctrine in the present case-in which the competing state lien (that of a judgment creditor) benefits from the provision of § 6323(a) that the federal lien shall "not be valid ... until notice thereof ... has been filed"-we must deem the United States' lien to have commenced no sooner than the filing of notice. As for the Bank's lien: Our cases deem a competing state lien to be in existence for "first in time" purposes only when it has been "perfected" in the sense that "the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. New Britain, 347 U. S., at 84

450

(emphasis added); see also id., at 86; United States v. Pioneer American Ins. Co., 374 U. S. 84 (1963).

The first question we must answer, then, is whether the Bank's judgment lien was perfected in this sense before the United States filed its tax lien on September 9, 1987. If so, that is the end of the matter; the Bank's lien prevails. The Court of Appeals was of the view that this question was answered (or rendered irrelevant) by our decision in United States v. Vermont, 377 U. S. 351 (1964), which it took to "stan[d] for the proposition that a non-contingent ... lien on all of a person's real property, perfected prior to the federal tax lien, will take priority over the federal lien, regardless of whether after-acquired property is involved." 1 945 F. 2d, at 1480. That is too expansive a reading. Our opinion in Vermont gives no indication that the property at issue had become subject to the state lien only by application of an after-acquired-property clause to property that the debtor acquired after the federal lien arose. To the contrary, the opinion says that the state lien met (presumably at the critical time when the federal lien arose) "the test laid down in New Britain that ... 'the property subject to the lien ... [be] established.''' 377 U. S., at 358 (citation omitted).2

1 As our later discussion will show, we think it contradictory to say that the state lien was "perfected" before the federal lien was filed, insofar as it applies to after-acquired property not acquired by the debtor until after the federal lien was filed. The Court of Appeals was evidently using the term "perfected" (as the Bank would) in a sense not requiring attachment of the lien to the property in question; our discussion of the Court of Appeals' opinion assumes that usage.

2 The dissent cannot both grant the assumption "that the debtor in Vermont acquired its interest in the bank account before the federal lien arose," post, at 459, n. 2, and contend that "the debtor's interest in the bank account ... could have been uncertain or indefinite from the creditors' perspective," ibid. In the same footnote, the dissent misdescribes the "critical argument that we rejected" in Vermont. Ibid. It was not that "the State's claim could not be superior unless the account had been 'specifically identified' as property subject to the State's lien," ibid., but rather that the State's claim could not be superior unless it had

451

The argument of the United States that we rejected in Vermont was the contention that a state lien is not perfected within the meaning of New Britain if it "attach[es] to all of the taxpayer's property," rather than "to specifically identified portions of that property." 377 U. S., at 355 (emphasis added).3 We did not consider, and the facts as recited did not implicate, the quite different argument made by the United States in the present case: that a lien in afteracquired property is not "perfected" as to property yet to be acquired.

The Bank argues that, as of July 6, 1987, the date it docketed its judgment lien, the lien was "perfected as to all real property then and thereafter owned by" the McDermotts, since "[n]othing further was required of [the Bank] to attach the non-contingent lien on after-acquired property." Brief for Respondent 21. That reflects an unusual notion of what it takes to "perfect" a lien.4 Under the Uniform

"attach[ed] to specifically identified portions of that property," United States v. Vermont, 377 U. S., at 355 (emphasis added).

3 The dissent claims that "the Government's 'specificity' claim rejected in Vermont is analytically indistinguishable from the 'attachment' argument the Court accepts today," since "[i]f specific attachment is not required for the state lien to be 'sufficiently choate,' then neither is specific...

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