Capital Sav. Ass'n v. Runnels

• Decision Date: 10 July 1978
• Docket Number: No. 12058,12058
• Citation: 361 So.2d 458
• Parties: CAPITAL SAVINGS ASSOCIATION v. A. J. RUNNELS, Jr.
• Court: Court of Appeal of Louisiana — District of US

Page 458

361 So.2d 458

CAPITAL SAVINGS ASSOCIATION v. A. J. RUNNELS, Jr.

No. 12058.

Court of Appeal of Louisiana, First Circuit.

July 10, 1978.

W. Frank Gladney and W. Steven Mannear, Baton Rouge, of counsel for respondent-appellee R. Lowenbaum Manufacturing Co. et al.

Ralph W. Brewer, Baton Rouge, of counsel for respondent-appellee United Fashions, Inc.

John S. Campbell, Jr., Baton Rouge, of counsel for plaintiff-appellee Capital Savings Association.

M. Carr Ferguson, Gilbert E. Andrews, Crombie J. D. Garrett, Thomas M. Walsh, Washington, D. C., and George Hardy and Darrell D. White, Asst. U. S. Attys., Baton Rouge, of counsel for defendant-appellant United States.

A. J. Runnels, Jr., in pro per.

Before LANDRY, SARTAIN and ELLIS, JJ.

SARTAIN, Judge.

This is a concursus proceeding brought by the Sheriff of East Baton Rouge Parish to determine the priority of lien claims to the sum of $18,961.00, the balance of the proceeds of the sheriff's sale of property owned by the defendant, A. J. Runnels, Jr., after payment of the sums due plaintiff, Capital Savings Association, and the costs of the sale. The facts are undisputed. They were stated as follows by the trial court:

"The defendants' claims and the priority to be assigned thereto are based on the following sequence of events:

1. Recordation of a conventional mortgage on the subject property in favor of Capital Savings Association on February 21, 1967.

2. Recordation of a judgment for $2,165.33 in favor of United Fashions, Inc., against Runnels on February 10, 1971.

3. Recordation of a notice of a federal tax lien for $7,191.81 against Runnels later on February 10, 1971.

4. Recordation of a judgment for $1,139.84 in favor of R. Lowenbaum Manufacturing Co., against Runnels on May 7, 1971.

5. Recordation of a judgment for $178.72 in favor of Caron Jewelry and Gift Co., against Runnels on June 23, 1971.

6. Recordation of a notice of a federal tax lien for $2,182.00 on July 23, 1971.

7. Recordation of a judgment for $783.00 in favor of C.B.S. Dress and Sportswear Co., against Runnels on September 3, 1971.

8. Recordation of a notice of a federal tax lien for $4,573.44 on September 13, 1971.

9. Recordation of a notice of a federal tax lien for $2,982.27 on October 18, 1971.

10. Seizure of the property by the United States Government on July 18, 1975, pursuant to provisions of the Internal Revenue Code. 26 U.S.C. 6331 11. Sale of the property by the government, following advertisement, on September 9, 1975. At the sale, the minimum bid price of $7,304.50 was not received. The property was then declared to be purchased by the government pursuant to 26 U.S.C. 6335(e). A deed to the property was executed on February 4, 1976, and recorded with the Clerk of Court of East Baton Rouge Parish on February 6, 1976, pursuant to 26 U.S.C. 6338(c).

12. Seizure of the property by the East Baton Rouge Parish Sheriff's office on February 8, 1977, pursuant to a writ of seizure issued at the request of Capital Savings Association.

13. Sheriff's sale of the property to Donald V. Regner for $35,250.00.

Costs and attorney's fees incurred in connection with the Sheriff's sale, amounting to $1,279.85 have been paid. The claim of Capital Savings Association amounting to $13,132.25 has been satisfied. The balance of $18,961.00 remains to be distributed."

All parties agree that United Fashions, Inc., should be paid first out of the balance remaining. We must determine the rights of the remaining claimants: the United States of America, R. Lowenbaum Manufacturing Co., Jack M. Caron, d/b/a Caron Jewelry & Gift Co., and C.B.S. Dress & Sportswear Co. In the remainder of this opinion the United States of America will be referred to as the Government and the other claimants as the junior lienors.

The main issue for our determination is the effect of the purported "sale" to the Government on September 9, 1975. The Government urges that the sale along with the recordation of its deed to the property discharged the property from all encumbrances inferior to that of its first tax lien. 26 U.S.C. § 6339(c). ¹ Therefore the Government as owner should receive the surplus after payment to United Fashions, since there would then remain no inferior encumbrances. C.C.P. Art. 2373. ²

The junior lienors urge that the surplus should be paid to lienors inferior to United Fashions in the order in which their liens were placed on the property. They argue first that state law is applicable under which the "sale" to the Government would be considered a Datien en paiement which would not extinguish their rights. See Quality Finance Co. of Donaldsonville, Inc. v. Bourque, 315 So.2d 656 (La.1975). They then argue that even under federal law the "sale" did not extinguish their rights. Finally, they urge that the deprival of their lien rights in this manner constitutes the denial of due process. We will discuss these assertions of the junior lienors in turn.

Federal law is clearly controlling as to the operation and enforcement of federal tax liens. See, e. g., United States v. Equitable Life Assurance Society, 384 U.S. 323, 86 S.Ct. 1561, 16 L.Ed.2d 593 (1966); United States v. Speers, 382 U.S. 266, 86 S.Ct. 411, 15 L.Ed.2d 314 (1965); Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960); S. D'Antoni, Inc. v. Great Atlantic & Pacific Tea Co., 496 F.2d 1378 (5th Cir. 1974); Bank of Nevada v. United States, 251 F.2d 820 (9th Cir. 1957), cert. den. 356 U.S. 938, 78 S.Ct. 780, 2 L.Ed.2d 813 (1958). The definition of sale under Louisiana law is therefore irrelevant. The Government proceeded in accord with the federal statutory scheme in having itself declared owner of the property in question. It first levied on the property pursuant to 26 U.S.C. § 6331 ³ in a summary effort to collect its first lien of $7191.81 which the debtor had refused to pay after notice and demand. The property was advertised as required by statute. 26 U.S.C. § 6335(b). ⁴ In accordance with 26 U.S.C. § 6335(e)(1) ⁵ the Government set a minimum price of $7304.50 at which the property could be sold. When this price was not bid the property was declared to be purchased by the Government at the minimum price. 26 U.S.C. § 6335(e)(1). When neither Runnels nor the junior lienors redeemed the property within one hundred twenty days as provided by 26 U.S.C. § 6337(b), ⁶ a deed in favor of the Government was executed. 26 U.S.C. § 6338(c). ⁷

The Government asserts that this deed discharged the property from all junior encumbrances. 26 U.S.C. § 6339(c).

The Government appears to be correct. The clear wording of the statute is that "a deed to real property executed pursuant to section 6338 shall discharge such property from all liens, encumbrances, and titles over which the lien of the United States with respect to which the levy was made had priority." The junior lienors, however, argue that the statute was never intended by Congress to cover this situation and that this lacuna in the law should be filled by resort to the equitable principle of "first in time, first in right."

The wording of the statute is clearly broad enough to cover the situation where the Government has adjudicated the property to itself. The statute was intended as a codification of prior jurisprudence. See H.Rep. No. 1884, 89th Cong., 2d Sess., p. 62 citing Blacklock v. United States, 208 U.S. 75, 28 S.Ct. 228, 52 L.Ed. 396 (1908) and Commercial Credit Corp. v. Schwartz, 130 F.Supp. 524 (E.D.Ark.1955); S.Rep. No. 1708, 89th Cong., 2d Sess., p. 20, U.S.Code Cong. & Admin.News 1966, p. 3722. Under these cases it is clear that if a third party had purchased the property from the Government after the distraint sale and adjudication he would have received the property free and clear from the claims of the inferior lienors. Blacklock, above. Likewise, if a third party had purchased at the distraint sale he would be protected. Commercial Credit Corp., above. We see no reason to give the Government less protection. It, in effect, paid $7304.50 for the property. Its first lien of $7191.81 was satisfied and it itself absorbed the cost of the sale and the distraint proceedings. 26 U.S.C. § 6335(e)(1).

Under Louisiana procedure the seizing creditor may always bid in the property. C.C.P. Art. 2339. ⁸ In such a situation if the amount of his accepted bid is the amount of his security plus costs, he will simply pay the amount of costs to the sheriff. The federal procedure is the same, except since the seizing creditor itself is acting as "sheriff" costs are not paid but are simply absorbed. Under Louisiana law if the seizing creditor bid the property in this manner he would obtain it free and clear of all junior encumbrances, just as did the federal government under its procedure. C.C.P. Arts. 2375-2377. ⁹ The property would likewise remain subject to superior encumbrances, as under federal law. C.C.P. Art. 2372. ¹⁰ Although such Louisiana procedure is certainly not controlling in this action, it shows that the federal procedure is not at all unusual.

We are forced to conclude that the district court fell into error when it, by analogy, applied the holding in Commercial Credit Corporation v. Schwartz, above, to the facts in the instant case. In that case the court was concerned with the proceeds from a distraint sale of property, the title to which was never vested in the Government. There was no intervening statute adversely affecting inferior liens. We are in complete accord with its holding. See: Summer v. Allison, 127 Ga.App. 217, 193 S.E.2d 177 (1972).

In the case at bar, however, title to the property had been vested in the Government and there was an intervening statute adversely affecting inferior liens, namely, Sec. 6339(c).

The district judge conceded that had a third party purchased the property at the distraint sale they would have received the same free and clear of inferior liens. The judge a quo then reasoned that equitable considerations...