Brown v. State of Md.

• Decision Date: 20 October 1987
• Docket Number: Civ. No. H-87-1.
• Citation: 699 F. Supp. 1149
• Parties: Philip C. BROWN, Plaintiff, v. STATE OF MARYLAND and United States of America, Defendants.
• Court: U.S. District Court — District of Maryland

699 F. Supp. 1149

Philip C. BROWN, Plaintiff, v. STATE OF MARYLAND and United States of America, Defendants.

Civ. No. H-87-1.

United States District Court, D. Maryland.

October 20, 1987.

Jack I. Leibovitch, Towson, Md., for plaintiff.

John K. Barry, Asst. Atty. Gen., Annapolis, Md., for defendant State of Md.

Karen L. Elias, Dept. of Justice, Washington, D.C., and Larry D. Adams, Asst. U.S. Atty., Baltimore, Md., for defendant U.S.

MEMORANDUM AND ORDER

ALEXANDER HARVEY, II, Chief Judge.

In this civil action, the Court is asked to determine the priority of liens asserted by the parties against certain real property located in Anne Arundel County, Maryland. The principal parties are the plaintiff Philip C. Brown (hereinafter "Brown") and defendants State of Maryland (hereinafter "Maryland") and United States of America (hereinafter "United States"). The amended complaint named as another defendant Estate of Richard F. Moschell. However, all parties agree that Moschell's claim of $205 is a first lien on the property and is entitled to priority over the claims of the other parties. Accordingly, counsel for Moschell have not participated in these proceedings.

Suit was originally filed by plaintiff Brown in the Circuit Court for Anne Arundel County. In his complaint, plaintiff Brown asked the state court to quiet title to the real property in question and enter a declaratory judgment finding that plaintiff's rights were superior to those of other parties named in the action. Claiming that it had an income tax lien on the property, the United States removed the case to this Court pursuant to 28 U.S.C. § 1442(a)(1).

All parties have asserted claims against Charles W. Marmon or against Charles W. Marmon and his wife, Eileen T. Marmon. The Marmons were the record owners of two lots located in Anne Arundel County (hereinafter "the property"). Plaintiff's claim of $76,000 arises as a result of a judgment in that amount obtained by plaintiff against Charles W. Marmon on June 13, 1986 in the Circuit Court for Anne Arundel County. Brown v. Marmon, Case No. 1108050, (Cir.Ct. for Anne Arundel County, June 13, 1986). The United States has asserted two claims against the property, both of which result from assessments made by the federal government against the Marmons for unpaid income taxes. An assessment in the amount of $2,048.51 was made against the Marmons on December 5, 1983 for unpaid income taxes for 1981 and an assessment in the amount of $907,340.52 was made on June 25, 1984 for unpaid income taxes for the year 1983. Maryland's claim against the property, like that of the United States, arises as a result of an assessment made by the State against the Marmons for unpaid income taxes. On June 26, 1984, an assessment was made by Maryland against the Marmons in the amount of $162,383.33 for unpaid state income taxes for the year 1983.

Presently before the Court are separate motions for summary judgment filed by plaintiff Brown and by each of the defendants. Memoranda and exhibits have been submitted in support of and in opposition to the pending motions. Oral argument has been heard in open court. For the reasons to be stated herein, the motion for summary judgment of defendant United States will be granted, and the motions for summary judgment of plaintiff Brown and of defendant Maryland will be denied.

I Background Facts

In June of 1984, there was pending in the Circuit Court for Anne Arundel County an action in equity brought by plaintiff against Charles W. Marmon. Brown v. Marmon, Case No. 3104775 (Cir.Ct. for Anne Arundel County). In lieu of a bond of $45,000, the state court required the Marmons to post the property as security in the case. On April 27, 1984, the Marmons executed a deed transferring the property to Jack I. Leibovitch, Steven R. Kuney, and James A. McGuire as trustees to hold the property in trust subject to further order of the Circuit Court for Anne Arundel County. Mr. Leibovitch was and is counsel for plaintiff Brown. Messrs. Kuney and McGuire were counsel for Charles Marmon in the suit brought by Brown against him in the state court. On June 11, 1984, the Circuit Court accepted the property as meeting the bond requirements and transferred Case No. 3104775 from the equity docket to the law docket as Case No. 1108050.

As noted, the United States made separate assessments against the Marmons on December 5, 1983 and again on June 25, 1984 in the respective amounts of $2,048.51 and $907,340.52. Maryland's assessment against the Marmons in the amount of $162,383.33 was made on June 26, 1984, a day after the federal government's assessment of $907,340.52. Maryland's assessment was recorded in the Land Records of Anne Arundel County on September 18, 1984. The United States recorded its $2,048.51 assessment on November 9, 1984 and recorded its $907,340.52 assessment on March 20, 1985. On December 13, 1985, Maryland executed on its tax lien and conducted a sheriff's sale of the Marmons' property. Although Maryland was the sole bidder at the sale, no deed conveying the property to the State was ever recorded in the Land Records.¹

By Order of the Circuit Court dated June 13, 1986, plaintiff Brown was awarded a judgment against Charles Marmon in the amount of $76,000. Thereafter, on August 8, 1986, the deed of April 27, 1984 from the Marmons to Leibovitch, et al. was recorded in the Anne Arundel County Land Records. As a result of the competing claims against the property, plaintiff filed this suit in state court on October 16, 1986.

II Discussion

Insofar as the claim of priority asserted by the United States in this case is concerned, federal law is clearly controlling. 26 U.S.C. § 6321 provides as follows:

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. § 6322 provides:

Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.

Relying on these statutory provisions, the United States contends that liens arose in its favor on December 5, 1983 and on June 25, 1984 when assessments were made against the Marmons for unpaid income taxes for the years 1981 and 1983. On the record here, this Court would agree. The federal government's tax liens are entitled to first priority against the property. Were it necessary to decide the question,² this Court would further conclude that Maryland's lien is superior to that of plaintiff Brown.

(a) Plaintiff's Claim

In support of his motion for summary judgment, plaintiff Brown relies principally on the deed executed on April 27, 1984 by the Marmons in favor of Leibovitch, et al. as trustees. However, this deed does not establish any superior lien in favor of plaintiff Brown. Plaintiff Brown was not a party to that transaction. Moreover, there was no finality to the purported conveyance. The trustees were to hold the property in trust until further order of the Circuit Court and the conveyance to plaintiff was not recorded in the Land Records of Anne Arundel County until August 8, 1986.

Plaintiff argues that he succeeded to the trustees' interest in the Marmons' property. But the trustees had no fixed interest in the property which would be entitled to priority over the liens created by the federal government's tax assessments. The deed to them was not recorded in the Land Records of Anne Arundel County, and the trustees were holding the property subject to further order of court. Plaintiff's interest did not become fixed until plaintiff secured his judgment in June of 1986 and the deed to him was recorded in August of 1986. These dates are well after the dates when the liens of the United States became fixed. By the unrecorded deed of April 27, 1984, the Marmons did not give up all their right, title and interest to the property. On the contrary, the property was merely posted as a bond in the suit pending in the Circuit Court between plaintiff and Charles Marmon. Indeed, the bond was posted expressly "to provide property from which a possible judgment and cost" might be paid. When the federal tax assessments were made, the Marmons still retained an interest in the property. Such interest was not extinguished until later when plaintiff was awarded his judgment on June 13, 1986. Thus, plaintiff's claim against the property was conditional upon the outcome of his suit against Marmon. His contingent interest is not entitled to priority over the federal tax liens.

Plaintiff's reliance on United States v. Lebanon Woolen Mills Corporation, 241 F.Supp. 393 (D.N.H.1964), is misplaced. The facts of that case are quite different from those present here. In this case, the taxpayers still retained an interest in the property when the federal government's assessments were made. Since the taxpayers had an interest in the property when the federal tax liens were created and since plaintiff's interest in the property was contingent upon his obtaining a judgment against one of the taxpayers, the lien of the United States is entitled to priority over that of plaintiff.

As a second argument, plaintiff relies on 26 U.S.C. § 6323. Section 6323(a) provides that the tax lien imposed by § 6321 "shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof...." The notice in question is that required by state filing requirements. However, this argument must likewise fail because plaintif...