Texas Oil & Gas Corporation v. United States

• Decision Date: 31 October 1972
• Docket Number: No. 72-1117.,72-1117.
• Citation: 466 F.2d 1040
• Parties: TEXAS OIL & GAS CORPORATION, Plaintiff, v. The UNITED STATES of America et al., Defendants-Appellees, The Pecos County State Bank, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

466 F.2d 1040 (1972)

TEXAS OIL & GAS CORPORATION, Plaintiff, v. The UNITED STATES of America et al., Defendants-Appellees The Pecos County State Bank, Defendant-Appellant.

No. 72-1117.

United States Court of Appeals, Fifth Circuit.

September 7, 1972.

Rehearing and Rehearing Denied October 31, 1972.

COPYRIGHT MATERIAL OMITTED

William Monroe Kerr, Midland, Tex., James R. Kerr, Fort Stockton, Tex., Kerr, Fitz-Gerald & Kerr, Midland, Tex., for defendant-appellant.

Charles M. Prock, Fort Stockton, Tex., for Texas Oil.

William S. Sessions, U.S. Atty., El Paso, Tex., Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, William S. Estabrook, Elmer J. Kelsey, Janet R. Spragens, Attys., Tax Div., Dept. of Justice, Washington, D.C., for United States.

Before BELL, GOLDBERG and RONEY, Circuit Judges.

Rehearing and Rehearing En Banc Denied October 31, 1972.

GOLDBERG, Circuit Judge:

We enter with some trepidation the tortured meanderings of federal tax lien law, intersected now by the somewhat smoother byway of the Uniform Commercial Code. Standing at this vantage-point in the instant case, we must decide the disposition of a fund of the taxpayer-debtor's accounts receivable that is claimed both by the Government under its tax lien authority and by the lender under the aegis of the Uniform Commercial Code. Amendments to the tax lien statutes in 1966 give us some shelter in our decision; under this lien-to we conclude that the tax lien must take priority over the claim of the private lien holder, and we affirm the judgment of the lower court, D.C., 340 F.Supp. 409.

The real parties in interest in this appeal are the Pecos Bank and the Internal Revenue Service. The nominal appellant Texas Oil & Gas Corporation, is merely the stakeholder in an interpleader action to determine the allocation of competing claims against $14,690.10, which Texas Oil & Gas admittedly owes for services rendered by the taxpayer, Hilton R. Blackmon, d/b/a Blackie's Oil & Gas Field Services. Internal Revenue's claim to the fund is based upon federal tax liens duly filed against the taxpayer in Pecos County, Texas, on February 27, 1970, for almost $55,000 in unpaid withholding and FICA taxes assessed in 1969. See 26 U.S.C.A. §§ 6321, 6323(f).¹

Pecos Bank claims an interest in the fund by virtue of a security agreement between the bank and taxpayer-debtor executed on March 25, 1967, and duly filed and perfected on March 29, 1967. See Tex.Bus. & Comm.Code Ann. §§ 9.401-9.408, V.T.C.A. Pursuant to that security agreement the bank agreed to advance money at various times to the taxpayer-debtor in exchange for a security interest in taxpayer-debtor's accounts receivable.² As is frequently the case in so-called "open" agreements, the amount of money to be loaned and the times at which the money was to be advanced were not specified in the contract. See 26 U.S.C.A. § 6323(c)(4), relating to obligatory disbursement agreements. Under the contract the lender's eventual acquisition of the accounts receivable was uncertain, contingent upon the performance of services by the taxpayer-debtor. The bank's security interest, however, attached automatically to any new accounts receivable without additional filing or perfection required by the bank. Tex.Bus. & Comm.Code Ann. § 9.204.³ Taxpayer agreed to factor his accounts receivable with the bank as soon as the accounts receivable arose in consideration for the loans. The bank continued to make loans and to factor taxpayer's accounts receivable under the agreement until October 15, 1970. Taxpayer-debtor completed his services to the plaintiff, Texas Oil & Gas, during the months of September, October, and November of 1970, apparently pursuant to a contract entered into in September.

During December of 1969 and January of 1970, the Government assessed federal withholding and FICA liabilities against Blackie's for the preceding tax year, 1969. A tax lien notice was duly filed on February 27, 1970, and the United States attempted to enforce part of its lien by serving notice of levy on Texas Oil & Gas. The bank first became aware of the tax lien on October 22, 1970, and shortly thereafter served notice on Texas Oil & Gas that it too claimed Blackie's accounts receivable. This interpleader action by Texas Oil & Gas followed. F.R.Civ.Proc. 22.

Tax liens have had a mixed history in the law. See generally Coogan, "The Effect of the Federal Tax Lien Act of 1966 Upon Security Interests Created Under the Uniform Commercial Code," 81 Harv.L.Rev. 1369 (1968); United States v. Vermont, 2 Cir.1963, 317 F.2d 446 (Friendly, J.), aff'd, 1964, 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370. For the past two decades, however, the federal tax lien has held the upper hand in its battles with competing private liens. The genesis of that advantage, as it applies to the instant case, appears to be United States v. Security Trust & Savings Bank, 1950, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53. Prior to Security Trust, the courts had carved out a doctrine concerning the priority granted to a federal tax lien in competition with a private lien in situations in which the taxpayer-debtor was insolvent. 31 U.S.C.A. § 191.⁴ Under the tax lien law as it developed for insolvent taxpayer-debtors, a private lien competing with a federal tax lien had to be "choate" and perfected. See Spokane County v. United States, 1929, 279 U.S. 80, 49 S.Ct. 321, 73 L.Ed. 621; see generally Kennedy, "The Relative Priority of the Federal Government: The Pernicious Career of the Inchoate and General Lien," 63 Yale L.J. 905 (1954); Kennedy, "From Spokane to Vermont: The Campaign of the Federal Government Against the Inchoate Lien," 50 Iowa L.Rev. 724 (1965). Choateness, a concept entirely court-made, see Plumb, "Federal Liens and Priorities-Agenda for the Next Decade," 77 Yale L.J. 228, 230 (1967), requires that the private lien holder establish the identity of the lienor, the property subject to the lien, and the fixed amount of the lien. See, e. g., United States v. New Britain, 1953, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520; United States v. Pioneer American Insurance Co., 1963, 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770. The Choateness requirement has generally been harsh in insolvency situations. See, e.g., United States v. Gilbert Associates, Inc., 1953, 345 U.S. 361, 73 S.Ct. 701, 97 L.Ed. 1071, where the Supreme Court indicated that only possession or reduction to judgment would allow a private lien to prevail over a competing federal tax lien. But United States v. Security Trust, supra, marked the first time in which the Supreme Court applied the choateness doctrine to a competing lien situation in which the debtor was not insolvent. And in United States v. R. F. Ball Construction Co., 1958, 355 U.S. 587, 78 S.Ct. 442, 2 L.Ed.2d 510, the Supreme Court applied its choateness doctrine to a situation in which the private lien, an assignment of sums due for performance of a subcontract which was competing with a federal tax lien, had been created entirely by contract between private parties. See especially United States v. R. F. Ball, supra (Whittaker, J., dissenting), and United States v. Pioneer American Insurance Co., 1963, 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770, for an explanation of the rather abbreviated opinion of the majority in United States v. R. F. Ball, supra.⁵ Prior to Ball the choateness doctrine had been applied only to statutory liens or to liens created by attachment or garnishment. At the same time that the Supreme Court was extending the perimeters of the types of private liens that were subject to the choateness doctrine, it also gave some indication that the doctrine would not operate as severely when applied to the private liens newly-added to the choateness test as it had when applied to federal priority under the insolvency statute. See United States v. New Britain, supra; Coogan, 81 Harv.L.Rev. at 1378-1379. Even for that proposition, however, there is some conflicting authority from the Supreme Court. In United States v. White Bear Brewing Co., 1956, 350 U.S. 1010, 76 S.Ct. 646, 100 L.Ed. 871, a majority of the Supreme Court reversed a lower court conclusion that a federal tax lien did not have priority over a statutory mechanics' lien ". . . even though the mechanics' lien was specific, prior in time, perfected in the sense that everything possible under state had been done to make it choate, and was being enforced before the federal tax lien arose." United States v. White Bear Brewing, 350 U.S. at 1010, 76 S.Ct. at 646, 100 L.Ed. at 871 (Douglas, J., dissenting).⁶

Two later opinions appear to reaffirm the intimation in United States v. R. F. Ball, supra, that the choateness tests were not so severe for liens arising under section 6321 as they were for liens arising under R.S. 3466. See Crest Finance Co. v. United States, 1961, 368 U.S. 347, 82 S.Ct. 384, 7 L.Ed.2d 342, and United States v. Vermont, 1964, 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370.

Against this historical background Congress in 1966 amended the tax lien provisions of section 6323 in a number of ways. The amendments are

". . . in part an attempt to conform the lien provisions of the internal revenue laws to the concepts developed in this Uniform Commercial Code. It represents an effort to adjust the provisions in the internal revenue laws relating to the collection of taxes of delinquent persons to the more recent developments in commercial practice (permitted and protected under State law) and to deal with a multitude of technical problems which have arisen over the past 50 years."

S.Rep. No. 1708, 89th Cong., 2d Sess. (1966); see also H.R.Rep. No. 1884, 89th Cong., 2d Sess., U.S.Code Cong. & Admin.News, p. 3722 (1966). We must construe but a small part of these amendments for purposes of this appeal, primarily the amendments to section 6323(c).⁷

The parties have submitted their own theories of this case, and we find ourselves in the not too unusual...