Hill, Christopher & Phillips v. US Postal Serv.

Decision Date15 January 1982
Docket NumberCiv. A. No. 79-3228.
Citation535 F. Supp. 804
PartiesHILL, CHRISTOPHER AND PHILLIPS, P. C., et al., Plaintiffs, v. UNITED STATES POSTAL SERVICE, et al., Defendants.
CourtU.S. District Court — District of Columbia

Richard E. Schwartz, Collier, Shannon, Rill & Scott, Washington, D. C., for plaintiffs.

John J. McCarthy, Edward J. Snyder, Paige E. Reffe, Tax Div., Dept. of Justice, Washington, D. C., for defendants.

MEMORANDUM OPINION

SIRICA, District Judge.

This matter is before the Court on the plaintiffs' motion for summary judgment and the defendants' motion to dismiss on grounds, among others, of failure to state a claim upon which relief can be granted. The underlying cause of action has been brought for monetary and declaratory relief arising from a controversy over the priority of liens.

The plaintiff, Hill, Christopher and Phillips, P. C. (Hill), is a law firm which was retained by a company known as Unidex Systems Corporation (Unidex), which is not a party to this action, to pursue a number of claims by Unidex against the United States Postal Service (Postal Service) before the Postal Service Board of Contract Appeals. Those claims arise from contracts performed by Unidex for the Postal Service during 1970 and 1971.

The plaintiff Hill represented Unidex under a contingent fee agreement which provided that it would receive one-third of any monies recovered on these claims in addition to the expenses of litigation. Unidex has been awarded $35,533.04 in partial resolution of its claims, of which amount, the plaintiff claims entitlement to a fee of $12,542.75, representing one-third of the award plus $698.40 in expenses. This amount is not in dispute. In addition, a second law firm, the plaintiff Collier, Shannon, Rill & Scott (Collier) has indicated that it intends to pursue appeals of the remaining claims on behalf of Unidex, which have been denied, should the plaintiffs prevail in the instant action.

Prior to these awards being made to Unidex, the company had received tax assessments for its failure to pay employment taxes due the Internal Revenue Service in amounts initially totaling $239,250.76. Unidex has been unable subsequently to satisfy these assessments due to the fact that it has effectively ceased business operations and is without financial resources other than its claims against the Postal Service. Accordingly, pursuant to Internal Revenue Code § 6321,1 tax liens in favor of the United States have arisen on the unpaid amount of those tax assessments against Unidex.

In addition, in accordance with Internal Revenue Code § 6672,2 a penalty has been assessed against an officer of Unidex in an amount equal to the remaining unpaid employment taxes which resulted from the failure of Unidex to collect and pay them over to the Internal Revenue Service (IRS). It is important to note, however, that while important for purposes of background, the penalty assessment, the tax assessments, the amount of the attorney's fees, and the claims of Unidex against the Postal Service are not presently issues before the Court for determination.

Instead, the issue before the Court is simply one of lien priority. It arises from the fact that the tax assessments against Unidex have been partially satisfied by the Postal Service and IRS offsetting the amounts awarded Unidex on its Postal Service claims against its outstanding tax liability. In offsetting the funds awarded Unidex from the Postal Service, the IRS did not recognize the priority of Hill's attorney's lien and so did not set aside and pay over a part of the award to Hill as its attorney's fee. Moreover, the IRS has indicated that attorney's fees will not be paid out of any future awards in favor of Unidex against the Postal Service as a result of the representation of Collier. Instead, any amounts will presumably only be offset by the IRS in satisfaction of the tax liability of Unidex.

Hill and Collier have responded by bringing this action to enforce the attorney's lien and challenge the propriety of the actions of the Postal Service and the IRS. In defense of their position, the Postal Service and the IRS maintain (1) that those tax liens asserted against Unidex by the IRS pursuant to 26 U.S.C. § 6321 take precedence over any lien for attorney's fees asserted by Hill or Collier in their capacity as counsel for Unidex in any of its claims against the Postal Service; and (2) that the liability of the Postal Service may be offset without regard to attorneys' liens so long as Unidex has an outstanding tax liability.

The validity and priority of a tax lien arising under 26 U.S.C. § 6321 as it relates to attorneys' liens is governed by the provisions of Internal Revenue Code § 6323(b)(8).3 That section provides that a tax lien shall not be valid

with respect to a judgment or other amount in settlement of a claim or of a cause of action, as against an attorney who, under local law, holds a lien upon a contract enforceable against such judgment or amount, the extent of his reasonable compensation for obtaining such judgment or procuring such settlement, except that this paragraph shall not apply to any judgment or amount in settlement of a claim or of a cause of action against the United States to the extent that the United States offsets such judgment or amount against any liability of the taxpayer to the United States. (emphasis added)

In view of this statutory provision, it is apparent that the plaintiffs' attorneys' liens will take priority over the tax liens unless the exception set forth in the statute applies. That exception, according to the statute, applies only to judgments secured against the "United States." With this in mind, the plaintiffs have asserted that the exception does not apply here, arguing that the judgments they obtained were against the United States Postal Service, which should not be considered to be an entity within the scope of the term "United States" as used in the statute.

The Court cannot agree. Inasmuch as 26 U.S.C. § 6323(b)(8) is the operative statute, the Court's analysis should begin there. That particular section of the Code was added with the enactment of the Federal Tax Lien Act of 1966.4 While the language of the Act itself does not speak to the scope to be accorded to the term "United States" as used therein, the legislative history, as reflected in the House and Senate Reports accompanying H.R.11256, the bill which became the Federal Tax Lien Act,5 does provide some insight. More specifically, these reports, by way of explanation, state that:

Under the bill, in a proceeding against the Government, the Government retains its right to set off against any recoveries from it any amounts due it by the taxpayer on account of any tax or any other debt or claim. This setoff means that the attorney's lien "superiority" does not apply with respect to judgments he obtains for the taxpayer against the Government. (emphasis added)

Thus it appears that the legislative history of the Federal Tax Lien Act equates the United States with the broad concept of "the Government." Moreover, as there is no limiting language elsewhere in the Act or its legislative history, it should be assumed that "the Government" includes all those agencies and instrumentalities through which "the Government" functions.

This language in the operative statute assumes added significance for the purposes of analysis when read in light of the subsequently enacted Postal Reorganization Act (Postal Act)6 codified as Title 39 of the United States Code, which established and governs the United States Postal Service in its present form. Three sections of the Postal Act are particularly important in this regard. The first of these is section 101,7 which sets forth the policy which is to govern the Postal Service, providing in pertinent part that:

The United States Postal Service shall be operated as a basic and fundamental service provided to the people by the Government of the United States, authorized by the Constitution, created by Act of Congress, and supported by the people. (emphasis added)

This section is followed by section 102 of the Postal Act,8 which defines the Postal Service as "the United States Postal Service established by section 201 of this title." Looking then to section 201, the last of the three sections, it provides that:

There is established, as an independent establishment of the executive branch of the Government of the United States, the United States Postal Service. (emphasis added)

The only conclusion which can be drawn from these sections of the Postal Act, particularly when they are read in conjunction with one another, is that the Postal Service is an entity of the United States Government and that the services it provides are indeed services provided by the Government of the United States. Implicit support for this conclusion is found elsewhere in the Postal Act in the language of a number of its other provisions. For example, section 101(c) of the Act,9 requires the Postal Service to emphasize career advancement opportunities for its employees and "the achievement of worthwhile and satisfying careers in the service of the United States." Similarly, section 205(d)10 permits a governor of the Postal Service to accept outside employment not inconsistent with his duties and powers as "an officer of the Government of the United States in the Postal Service."

The Court's interpretation of the Federal Tax Lien Act in light of the Postal Act must be based upon an analysis which treats the two pieces of legislation in the most consistent and harmonious manner. Inasmuch as the Postal Act explicitly and implicitly recognizes the Postal Service as an entity of the Government, and the legislative history of the Federal Tax Lien Act equates the Government with the United States, the preferred interpretation in this instance is one which views the Postal Service as falling within the scope of the term "United States" as...

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