Dimmitt & Owens Financial, Inc. v. U.S., 85-1059

• Decision Date: 09 April 1986
• Docket Number: No. 85-1059,85-1059
• Citation: 787 F.2d 1186
• Parties: -1145, 86-1 USTC P 9326, 5 Fed.R.Serv.3d 811 DIMMITT & OWENS FINANCIAL, INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1186

787 F.2d 1186

57 A.F.T.R.2d 86-1145, 86-1 USTC P 9326,

5 Fed.R.Serv.3d 811

DIMMITT & OWENS FINANCIAL, INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 85-1059.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 28, 1986.

Decided April 9, 1986.

Howard J. DePree, Bates, DePree, Bard & Wilson, Chicago, Ill., for plaintiff-appellant.

Murray S. Horwitz, Asst. Atty. Gen., Dept. of Justice, Tax Div., Washington, D.C., for defendant-appellee.

Before POSNER and FLAUM, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

POSNER, Circuit Judge.

This case involves the validity of a federal tax lien, and a jurisdictional and a procedural question. The case grows out of assessments that the Internal Revenue Service made in April 1979 against Unique Industries, Inc., for unpaid taxes. In July the Service filed a federal tax lien with the Recorder of Deeds of DuPage County, Illinois (and also, a few days later, in California but arguably in the wrong office--a point of some significance, as will appear). One month earlier Dimmitt & Owens Financial, Inc., a factor, had begun buying accounts receivable from Unique, obtaining a security interest which it recorded that month in Illinois by filing a financing statement with the Secretary of State of Illinois, and in September in California by filing a similar statement with the secretary of that state. The federal tax lien (provided it was filed in the right place) came into effect on the forty-fifth day after it was filed, 26 U.S.C. Sec. 6323(c)(2)(A), but Dimmitt & Owens, unaware of the lien, kept on factoring Unique's accounts. The Internal Revenue Service served it with a notice of levy on several hundred thousand dollars worth of accounts receivable that Dimmitt & Owens had collected after the (alleged) effective date of the tax lien. Dimmitt & Owens brought suit against the United States under 26 U.S.C. Sec. 7426 to enjoin the alleged wrongful levy. The government counterclaimed, seeking a judgment foreclosing its lien against the proceeds of the accounts receivable. The plaintiff joined as additional defendants Unique, a subsidiary of Unique, and Unique's president, Dudley Olsen. The claim against Unique and its subsidiary was for default on the factoring agreement; against Olsen it was for fraudulent concealment of the liens. The basis of federal jurisdiction against these additional defendants was diversity of citizenship. None of these defendants appeared, and a default order was entered against all of them, and later a default judgment against Olsen.

The plaintiff did not fare as well against the government. The basis of its claim was that the government had filed the tax lien in the wrong place. The lien must be filed at "the place at which the principal executive office" of the taxpaying corporation is located, 26 U.S.C. Sec. 6323(f)(2), and Dimmitt & Owens contended that Unique's principal executive office had been in California rather than Illinois, and that although the Internal Revenue Service had filed in California too, it had filed in the wrong office there. The district judge held that Illinois was the right place to file, and (since there was no question that, if so, the government had filed in the right office in Illinois) granted the government's motion for summary judgment. 589 F.Supp. 14 (N.D.Ill.1983). The judge invited the government to present a judgment order for his signature. The government failed to appear at the appointed time and the judge entered a default judgment for Dimmitt & Owens. Later however he granted the government's motion under Fed.R.Civ.P. 60(b) to vacate that judgment, and entered a new judgment, dismissing the complaint and ordering Dimmitt & Owens to pay the government some $300,000 in satisfaction of the government's lien. Dimmitt & Owens appeals.

The initial question (characteristically not addressed by either party) is whether the judgment is final within the meaning of 28 U.S.C. Sec. 1291, and hence appealable to us. No judgment was ever entered against two of the three private defendants, and no order was entered under Rule 54(b) of the Federal Rules of Civil Procedure that would have allowed the judgment that the district court had entered in favor of the United States against Dimmitt & Owens to be appealed without waiting for the entire litigation to be concluded. A Rule 54(b) order would have been proper because the judgment against Dimmitt & Owens wound up the entire dispute between two of the parties (the government and Dimmitt & Owens). Walker v. Maccabees Mutual Life Ins. Co., 753 F.2d 599, 601 (7th Cir.1985). And, if the other parties remained in the lawsuit, such an order would have been essential to the appealability of the judgment against Dimmitt & Owens--provided the suit that Dimmitt & Owens had brought was really one lawsuit, and not two (one against the United States, and the other against the private defendants). But it was one suit. Although Dimmitt & Owens could have brought separate lawsuits against the United States on the one hand and the private defendants on the other, the joinder of all the defendants in one suit was proper. See Fed.R.Civ.P. 20(a).

Since no Rule 54(b) order was entered, it becomes important whether any of the private defendants are still parties to this lawsuit. A default order was entered against them, it is true, but a default order against a defendant is not a final judgment that concludes the lawsuit against that defendant, even on the matters covered by the order. 10 Wright, Miller & Kane, Federal Practice and Procedure Sec. 2692, at pp. 465-66 (2d ed. 1983). Only against Olsen was a default judgment entered. A default order is an interim ruling which merely establishes that the defendant is liable to the plaintiff. It does not determine the extent of the liability. A plaintiff in whose favor a default order is entered must still establish how much the defendant owes him, and the defendant must be ordered to pay the amount; and these steps were not taken here against Unique and its subsidiary. An order that establishes liability but leaves damages still to be fixed is a classic example of a nonfinal, nonappealable order. See, e.g., Liberty Mutual Ins. Co. v. Wetzel, 424 U.S. 737, 744, 96 S.Ct. 1202, 1206, 47 L.Ed.2d 435 (1976); Parks v. Pavkovic, 753 F.2d 1397, 1401 (7th Cir.1985).

However, inquiry at argument disclosed that Unique and its subsidiary are in fact no longer parties to this lawsuit. They are in bankruptcy and any effort by Dimmitt & Owens to recoup the cost of this judgment from them will be pursued if at all in the bankruptcy court. Although they have never been formally dismissed in the district court we conclude that they ceased to be parties there before the judgment for the United States was entered, so nothing of the lawsuit was left for later decision by the district court. But there should have been an order dismissing those parties. We implore the bench and bar of this circuit to tie up all jurisdictional loose ends in the district court and not allow unnecessary, and occasionally fatal, jurisdictional uncertainties to dog the appeal. See, e.g., Wisconsin Knife Works v. National Metal Crafters, 781 F.2d 1280, 1282-83 (7th Cir.1986); Kanzelberger v. Kanzelberger, 782 F.2d 774 (7th Cir.1986); Tenneco Inc. v. Saxony Bar & Tube, Inc., 776 F.2d 1375 (7th Cir.1985).

The principal issues on the merits are whether the district judge was correct in ruling that there was no genuine issue of material fact concerning the location of Unique's "principal executive office," and whether he acted permissibly in vacating the default judgment that he had entered against the government after ruling in the government's favor. On the first issue, Dimmitt & Owens contends that Unique's principal place of business was in California rather than Illinois. It supports this contention with cases construing this term as it appears in 28 U.S.C. Sec. 1332(c), which defines the state of citizenship of a corporation for purposes of the diversity jurisdiction. This procedure, however, uncritically assumes that "principal executive office" in 26 U.S.C. Sec. 6323(f)(2) means the same thing as "principal place of business" in 28 U.S.C. Sec. 1332(c), and it need not.

The statutes have different purposes, and statutory language must always be interpreted in light of statutory purpose. The purpose of section 1332(c) in making a corporation a citizen of the state where it has its principal place of business as well as the state where it is incorporated is to exclude from the federal diversity jurisdiction cases between a citizen of a state and a corporation whose center of gravity is in the same state even though it may be incorporated elsewhere; for such a corporation should be sufficiently "local"--sufficiently identified with the state--to avoid the obloquy that may attach to a "foreign" corporation in litigation with a local resident and that provides the modern rationale of the diversity jurisdiction. The words "principal place of business" are to be construed with this purpose in mind.

The purpose of the corresponding words in section 6323(f)(2) is different. It is to fix the place where a tax lien must be filed in order to be valid. Here the most important thing is to have a simple and definite test so that the government knows where to file its liens and prospective lenders (such as Dimmitt & Owens) know where to look for tax liens against the borrower. There are thousands of counties in the United States. It would be preposterous to have a system under which either the government had to file its liens in every county or prospective lenders had to search for liens in every county. It hardly matters whether the place in which to look for liens is also the corporation's center of gravity, the ascertainment of which might require counting employees and toting up assets rather than just locating corporate headquarters....