Asher v. U.S.

• Decision Date: 24 February 1978
• Docket Number: No. 77-1633,77-1633
• Citation: 570 F.2d 682
• Parties: 78-1 USTC P 9281 Donald L. ASHER and Garrett Vandenburgh, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 682

570 F.2d 682

78-1 USTC P 9281

Donald L. ASHER and Garrett Vandenburgh, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.

No. 77-1633.

United States Court of Appeals Seventh Circuit.

Argued Nov. 7, 1977.

Decided Feb. 24, 1978.

M. Carr Ferguson, David E. Carmack, Tax Div., U. S. Dept. of Justice, Washington, D. C., Thomas P. Sullivan, U. S. Atty., Chicago, Ill., for defendant-appellant.

William J. Wise, Chicago, Ill., for plaintiffs-appellees.

Before CASTLE, Senior Circuit Judge, WOOD, Circuit Judge, and WYZANSKI, Senior District Judge. ^*

CASTLE, Senior Circuit Judge.

The government appeals from the judgment below which found the plaintiffs to be judgment lien creditors with respect to the bank account of a third party debtor prior to the filling of a federal tax lien on the debtor's property. 26 U.S.C. §§ 6321 ¹ and 6323. ² Specifically, the appellant challenges the district court's holding that the appellees obtained a valid lien upon the debtor's bank account under Illinois law by delivering a writ of execution to the sheriff. Finding the district court properly interpreted Illinois law, we affirm.

The facts can be briefly stated. Plaintiffs Asher and Vandenburgh obtained a judgment for $83,193.75 against Wente Company (Wente) in the Circuit Court of Cook County, Illinois, on December 10, 1974. Plaintiffs delivered a writ of execution on that judgment to the sheriff of Cook County on December 12, 1974. On January 15, 1975, the Internal Revenue Service (IRS) filed with the Cook County Recorder of Deeds a notice of lien on all property of Wente pursuant to an October 7, 1974 assessment of unpaid taxes totalling $14,711.40. On January 22, 1975, the Bank of Northfield paid the $3,892.71 balance in Wente's account to the United States pursuant to a notice of levy served on the bank by the IRS. Plaintiffs obtained a citation to discover Wente's assets from the Circuit Court of Cook County on January 23, 1975, and, upon finding the bank account depleted, requested that the IRS return the money, claiming it was wrongfully seized. Upon the refusal of the IRS to honor the request, plaintiffs brought this suit in the district court which granted summary judgment in their favor. Asher v. United States, 436 F.Supp. 22 (N.D.Ill.1976).

We agree with the district court that before determining that a state lien has priority over a federal tax lien under the first in time, first in right rule of § 6323, two questions must be answered in the affirmative: whether a valid lien existed under state law when the federal lien was recorded; and, if so, whether that lien is "choate" under federal law. United States v. Pioneer American Insurance Co., 374 U.S. 84, 88, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963); Dragstrem v. Obermeyer, 549 F.2d 20, 22-23 (7th Cir. 1977). The government has presented only the first question for review in this appeal and, consequently, our inquiry is narrowed to whether the district court properly interpreted Illinois law. Fed.R.App.P. 28. We do not reach the federal "choateness" question. ³

The parties agree that, in Illinois, once a creditor obtains a judgment against a debtor, he obtains a lien upon the debtor's real property. Ill.Rev.Stat., ch. 77, § 1. It is also undisputed that a lien is created upon tangible personal property by delivery of a writ of execution to the sheriff, id. § 9, and upon intangible personal property by instituting a proceeding to discover assets under Ill.Rev.Stat., ch. 110, § 73. Mid-West National Bank v. Metcoff, 23 Ill.App.3d 607, 611, 319 N.E.2d 336, 340 (1974); Bank of Broadway v. Goldblatt, 103 Ill.App.2d 243, 247, 243 N.E.2d 501, 503 (1968). Since, in the present case, the federal tax lien was recorded subsequent to the delivery of the writ of execution to the sheriff but prior to the citation to discover assets proceeding, the parties differ as to whether delivery of the writ also gives rise to a lien upon intangible personal property such as Wente's bank account.

The district court agreed with the plaintiffs and followed Levine v. Pascal, 94 Ill.App.2d 43, 55, 236 N.E.2d 425, 430 (1968). In Levine, the plaintiff was held to have acquired a lien upon defendant's intangible personal property (a beneficial interest in a land trust) upon delivery of the writ of execution to the sheriff:

Clearly, plaintiff became a lien creditor as defined in Section 9-301(3) of the Commercial Code when the writ of execution was placed in the hands of the sheriff.

See chapter 77, section 9, Ill.Rev.Stats.1965, and Century Pipe & Supply Co. v. Empire Factors, 19 Ill.App.2d 165, at 169, 153 N.E.2d 298. While it may be doubtful whether the plaintiff could effectively enforce his lien by means of the writ of execution, there is no doubt that he could do so through citation proceedings.

Id.

The government argues that the result in Levine is against the weight of the law in Illinois and is dicta. Regarding the latter argument, it appears that the plaintiff in Levine had instituted a citation to discover assets proceeding, in addition to delivering the writ of execution to the sheriff, before the competing creditor (a bank) recorded its assignment. While, from the perspective of this case, it would have been sufficient for Levine to hold that the lien attached upon commencement of the citation to discover assets action, it was necessary for that court to make some determination of when the plaintiff's lien attached. Thus, we find that Levine cannot be ignored. ⁴

In support of the argument that Levine is contrary to Illinois law, the government cites Crawford v. Schmitz, 139 Ill. 564, 569, 29 N.E. 40, 41-42 (1891), which stated that intangible personal property "could not be taken on execution." The government also lists cases holding that the test in Illinois as to whether a lien on property has been established is whether the creditor has the power to sell that property. Commerce Vault Co. v. Barrett, 222 Ill. 169, 176, 78 N.E. 47, 48 (1906); Lehman v. Cottrell, 298 Ill.App. 434, 440, 19 N.E.2d 111, 114 (1939). Finally, the appellant notes that subsequent Illinois appellate cases citing Levine have done so only for the proposition that a lien on intangible personal property arises upon the institution of subsequent citation proceedings. Mid-West National Bank v. Metcoff, supra; Bank of Broadway v. Goldblatt, supra. See also Sterling Savings and Loan Association v. Schultz, 71 Ill.App.2d 94, 109, 218 N.E.2d 53, 61 (1966).

First, we do not view the cases following Levine as authority for the government's view since neither mentioned the consequences of a writ of execution being delivered to the sheriff. ⁵ In contrast, while possibly not strictly essential to the disposition of the case, Levine definitely states that the plaintiff became a lien creditor upon delivery of the writ of execution. Second, regarding the older Illinois authorities which required a right of sale before a lien arose, Levine could be interpreted as being consistent with those cases since the appellate court notes that the plaintiff had the right of sale which could be exercised through citation proceedings. Under this interpretation, it can be argued that parallel steps must be taken after delivery of the writ to the sheriff to exercise the right of sale for both tangible and intangible personal property: tangible property may be sold only after the sheriff physically takes possession of the property from the owner; intangible property may be sold only after the court orders the owner to relinquish possession to the judgment creditors. Thus, if a lien is given upon tangible personal property by delivery of the writ to the sheriff, a different method of exercising the right of sale should not prevent the similar creation of a lien on intangible personal property.

However, to the extent Levine cannot be completely reconciled with the Illinois...