Atlantic Business and Community Development Corp., In re

• Decision Date: 07 June 1993
• Docket Number: No. 92-5561,92-5561
• Citation: 994 F.2d 1069
• Parties: -5095, 61 USLW 2775, 93-1 USTC P 50,333, Bankr. L. Rep. P 75,279 In re ATLANTIC BUSINESS AND COMMUNITY DEVELOPMENT CORPORATION, Debtor, INTERNAL REVENUE SERVICE, v. Thomas J. SUBRANNI, Trustee, United States of America, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 1069

994 F.2d 1069

72 A.F.T.R.2d 93-5095, 61 USLW 2775,

93-1 USTC P 50,333,

Bankr. L. Rep. P 75,279

In re ATLANTIC BUSINESS AND COMMUNITY DEVELOPMENT CORPORATION, Debtor,

INTERNAL REVENUE SERVICE, v. Thomas J. SUBRANNI, Trustee, United States of America, Appellant.

No. 92-5561.

United States Court of Appeals,

Third Circuit.

Argued April 27, 1993.

Decided June 7, 1993.

James A. Bruton, Acting Asst. Atty. Gen., Michael Chertoff, U.S. Atty., Gary R. Allen, Kenneth L. Greene, Bridget Rowan, (Argued), U.S. Dept. of Justice, Tax Div., Washington, DC, for appellant U.S.

Nona L. Ostrove, (Argued), Subranni & Ostrove, Atlantic City, NJ, for appellee Thomas J. Subranni, Trustee.

Present: BECKER, HUTCHINSON and WEIS, Circuit Judges.

OPINION OF THE COURT

HUTCHINSON, Circuit Judge.

Appellant the United States of America, through its Internal Revenue Service ("IRS"), appeals an adverse ruling of the United States District Court for the District of New Jersey which held that a broadcasting license granted by the Federal Communications Commission ("FCC") is not "property" subject to a lien under section 6321 of the Internal Revenue Code, 26 U.S.C.A. § 6321 (West 1989). The IRS contends that the proceeds from the sale of the license in a Chapter 7 bankruptcy proceeding are subject to its lien. The bankruptcy trustee, on the other hand, contends that a longstanding FCC prohibition against treating the licenses as property, coupled with legal authority denying private creditors any interest in broadcasting licenses, compels a contrary conclusion. Because we believe the policy behind the FCC's refusal to recognize liens obtained by private creditors against a broadcasting license is not applicable to the IRS's assertion of a secured claim in bankruptcy against the proceeds of a bankruptcy sale, we hold that a section 6321 lien does attach to the proceeds of a Chapter 7 sale. We note particularly that the FCC does not object to the sale of the FCC license issued to the debtor under the supervision of the bankruptcy court but has instead approved it. We will therefore reverse the order of the district court denying the IRS a lien against the proceeds of the bankruptcy sale attributable to sale of the license itself.

The bankruptcy court had jurisdiction over this adversary proceeding pursuant to 28 U.S.C.A. § 157(b)(2)(K) (West Supp.1993). The district court had jurisdiction over the appeal from the bankruptcy court pursuant to 28 U.S.C.A. § 158(a) (West Supp.1993). We have appellate jurisdiction over the government's appeal from the order of the district court pursuant to 28 U.S.C.A. § 158(d) (West Supp.1993).

I.

On May 15, 1986, Atlantic Business and Community Development Corporation ("Atlantic") filed a petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. On July 14, 1987, the United States filed a timely proof of claim on behalf of the IRS for unpaid employment taxes, plus statutory additions in the total amount of $322,008.77. The proof of claim the IRS filed identified $267,429.39 as a secured claim because of federal tax liens that were perfected before the bankruptcy petition was filed.

The United States Trustee appointed Thomas J. Subranni ("Trustee") to administer the estate while the case proceeded through Chapter 11. Subsequently, the Trustee moved to convert the case into a Chapter 7 liquidation. The bankruptcy court granted that motion and the Trustee continued to administer the estate after conversion.

Under order of the bankruptcy court, the Trustee sold the assets of Atlantic's bankrupt estate. The United States asserted a secured claim against the resulting fund by virtue of the tax lien it had previously asserted against the debtor. To resolve the government's claim, the Trustee filed an adversary proceeding to establish the extent and validity of the government's liens and, in particular, to determine whether the liens attached to a broadcast license the FCC had issued to Atlantic. The parties cross-moved for summary judgment. The bankruptcy court held that the lien did not attach to the broadcast license and entered judgment for the Trustee. The government appealed and the district court affirmed on July 31, 1992. The government filed its timely notice of appeal on September 29, 1992.

II.

Atlantic, a New Jersey corporation, owned an AM radio station in Atlantic City, New Jersey using the call letters WUSS. Atlantic operated WUSS pursuant to a broadcast license it had obtained from the FCC prior to filing its bankruptcy petition.

In 1986 Atlantic sought protection under Chapter 11 of the Bankruptcy Code. Following a failed reorganization attempt, on motion of the Trustee the case was converted to a Chapter 7 proceeding. Subsequently, the bankruptcy court authorized the Trustee to sell all the assets of WUSS-AM.

Before the sale, the Trustee retained an appraiser who inventoried, itemized, and valued the station assets. The appraiser determined the station had assets worth $254,283, including the value of the license which the appraiser set at $250,000. The sale proceeded with the government and the Trustee agreeing that all liens would be transferred to the fund acquired from the sale, retaining whatever priority they had in the property to be sold, with the further understanding that the validity and priority of those liens would be subsequently litigated. On December 14, 1988, the Trustee entered into an agreement of sale for the station and all its assets. The agreement transferred the station and its license to James Cuffee for $350,000 pending FCC approval of the assignment of the license. The FCC approved the assignment and the Trustee received the entire purchase price.

The Trustee brought an adversary proceeding to determine the government's interest in the proceeds from the sale of the license and station. After cross-motions for summary judgment, the bankruptcy court held that the FCC license did not qualify as property or an interest in property to which a tax lien could attach under section 6321 of the IRS Code. ¹ Accordingly, the court held the government had no lien on any funds the bankruptcy estate received attributable to assignment of the license. The district court affirmed and the government appealed.

III.

The only issue in this case is the construction of section 6321 of the Internal Revenue Code. This is a question of statutory interpretation subject to plenary review. See, e.g., Manor Care, Inc. v. Yaskin, 950 F.2d 122, 124 (3d Cir.1991); see generally 21 West Lancaster Corp. v. Main Line Restaurant, Inc., 790 F.2d 354 (3d Cir.1986) (exercising plenary review over whether section 6321 reaches state liquor license).

Section 6321 provides:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

26 U.S.C.A. § 6321. The government asserts a section 6321 lien on Atlantic's assets for unpaid employment taxes. These liens reach property in the violator's possession at the time of the lien as well as after-acquired property. Glass City Bank v. United States, 326 U.S. 265, 267, 66 S.Ct. 108, 110, 90 L.Ed. 56 (1945). Section 6321 should be interpreted broadly in order to effect the congressional purpose of making the property of a delinquent taxpayer available to satisfy his tax liability. See, e.g., United States v. National Bank of Commerce, 472 U.S. 713, 719-20, 105 S.Ct. 2919, 2923-24, 86 L.Ed.2d 565 (1985) ("The statutory language 'all property and rights to property,' appearing in § 6321 ... is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have."). ² It is well settled that federal tax liens reach interests immune from attachment by private creditors. See, e.g., United States v. Rodgers, 461 U.S. 677, 697, 103 S.Ct. 2132, 2144, 76 L.Ed.2d 236 (1983). Federal law determines whether statutorily created interests include property rights to which a federal tax lien may attach. 21 West Lancaster Corp., 790 F.2d at 356; Bavely v. United States (In re Terwilliger's Catering Plus, Inc.), 911 F.2d 1168, 1171 (6th Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 2815, 115 L.Ed.2d 987 (1991); see also In re Halprin, 280 F.2d 407, 409 (3d Cir.1960) ("[T]he ultimate question whether an interest thus created and defined falls within a category stated by a Federal statute requires an interpretation of that statute, which is a Federal question.").

The government likens the instant situation to state liquor licenses which both federal and state courts have held are property within the reach of section 6321's lien. See, e.g., 21 West Lancaster Corp., 790 F.2d at 358 (Pennsylvania liquor license); see also United States v. Battley (In re Kimura), 969 F.2d 806, 811 (9th Cir.1992) (Alaskan liquor license); Terwilliger's Catering, 911 F.2d at 1171-72 (Ohio liquor license); Kempf v. IRS (In re American Way Food Serv. Corp.), 48 B.R. 79, 82 (Bankr.W.D.Mich.1985) (Michigan liquor license). For example, in Boss Company v. Board of Commissioners, 40 N.J. 379, 192 A.2d 584 (1963), the New Jersey Supreme Court held that section 6321 reached a liquor license, id. 192 A.2d at 587, despite the presence of a state statute that provided, " 'Under no circumstances' " could a liquor license " 'be deemed property, subject to ... lien, ... seizure for debts, or any other transfer or disposition whatsoever, except to the extent expressly provided by [state statute].' " Id. at 586 (quoting N.J.S.A. 33:1-26). Because the license was protected from arbitrary revocation or suspension and had transferrable value, the supreme court held it was...