Carmody v. Peck

• Decision Date: 09 September 1986
• Docket Number: No. 240108,240108
• Citation: 515 A.2d 669,40 Conn.Supp. 484
• Court: Connecticut Superior Court
• Parties: , 58 A.F.T.R.2d 86-5828, 86-2 USTC P 9765 David C. CARMODY, Administrator, D.B.N. (ESTATE OF Anna F. ROESSLER) v. Arnold PECK et al. File

Page 669

515 A.2d 669

40 Conn.Supp. 484, 58 A.F.T.R.2d 86-5828,

86-2 USTC P 9765

David C. CARMODY, Administrator, D.B.N. (ESTATE OF Anna F. ROESSLER) v. Arnold PECK et al.

File No. 240108.

Superior Court of Connecticut Judicial District of New Haven.

Sept. 9, 1986.

David C. Carmody, West Haven, pro se.

Berchem & Moses, Milford, for named defendant.

Stanley Twardy, U.S. Atty., for intervening plaintiff U.S.

Albert E. Sheary, Asst. Tax Com'r, and Morris L. Klein, Tax Atty., for defendant Tax Com'r.

Harry M. Lessin, Norwalk, for defendant Slavitt, Connery & Vardamis.

Berkowitz, Balbirer, Weisman & Lubell, Westport, for defendant Genovese and Massaro, Inc.

DiPietro, Kantrovitz & Brownstein, New Haven, for defendant G. & H. Poultry and Provisions, Inc.

MULCAHY, Judge.

This is an action in the nature of an interpleader seeking a determination regarding priorities in the distribution of monies realized on the sale of real estate from the decedent's estate. Both the United States and the state of Connecticut have substantial claims for unpaid taxes. The action, as initially brought by the administrator, d.b.n., named both the state and the internal revenue service of the United States as party claimants. On November 25, 1985, the court, D. Dorsey, J., dismissed the internal revenue service as a party defendant and granted the government's motion to file a complaint in intervention. Appropriate pleadings in response to that complaint have been filed by the following: David C. Carmody, administrator, d.b.n.; the tax commissioner, state of Connecticut; Arnold Peck, successor in interest to a mortgage deed, dated April 2, 1973, originally held by Connecticut National Bank; and the law firm of Slavitt, Connery and Vardamis (Slavitt), claiming legal fees earned in conjunction with the administration of the estate. All other parties have been defaulted.

This dispute has been submitted to the court upon stipulation, brief testimony and a number of joint exhibits. The information before the court establishes the following facts: The decedent, Anna F. Roessler, died intestate February 28, 1969, and the decedent's son, Fred C. Roessler, her sole heir, was named the original administrator. The decedent's final federal income and estate tax returns were filed July, 1972. At that time, the internal revenue service had assessed the estate for nearly $400,000 in tax obligations. Thereafter, various payments were made in partial satisfaction of the tax indebtedness. On November 13, 1972, delinquency penalties and interest were further assessed in excess of $192,000.

At the time of her death, the decedent had ownership interests in several parcels of real estate. Among those parcels were two properties, 50 Edgehill Road and 324-326 Shelton Avenue, both in the city of New Haven. In 1975, these properties were sold with the authorization of the Probate Court, and the net proceeds from the sales were placed in escrow. On March 12, 1976, Herbert D. Fischer, Acting Judge of Probate for the district of New Haven, brought an interpleader action in the United States District Court seeking a determination regarding entitlement to the escrow fund (approximately $116,000 plus interest) resulting from the sale of these two parcels. Numerous parties were joined in that action including the United States by virtue of its claim for unpaid estate and fiduciary income taxes, the state of Connecticut because of its claim for unpaid succession taxes, and Slavitt with its claim of fees for professional services rendered on behalf of the estate. ¹ Both Slavitt and the government filed motions for summary judgment asserting priority of their respective claims. The Slavitt motion was granted on the basis that its claim was entitled to priority as an administration expense. The government's motion was accompanied by its supporting memorandum of law wherein the priority of its claim was asserted on the basis that the estate was insolvent and, therefore, under §§ 191 (now § 3713) and 192 (now 31 U.S.C. § 3713[b] of title 31 of the United States Code, the federal tax claim was entitled to first payment. ² The government's motion was granted by the United States magistrate on December 1, 1980, "absent objection," and summary judgment was entered by the United States District Court ordering distribution to the United States, from the escrow fund, of the sum of $92,216. ³

Also included in the estate of Anna F. Roessler were three parcels of real property located in Milford: 32 Bristol Terrace, 86 Maple Street, and West River Street. On April 2, 1973, Fred C. Roessler, individually and apparently as sole heir of the intestate estate, had mortgaged the Milford real property to Connecticut National Bank to secure a note payable to the bank in the sum of $309,650 executed by him individually and as president of Roessler Packing Co., Inc. ⁴ On December 9, 1983, Connecticut On June 20, 1985, the three Milford properties were sold by the administrator, d.b.n., with authorization of the Probate Court, to Maple Street Associates for $460,000. After the deduction of property taxes and closing costs, the net proceeds to the estate from the sale of the three properties were $302,282.47. As of the date of trial, the then current amount with accrued interest was $325,560.97. By written stipulation executed by all parties, the proceeds of the sale were placed in escrow by E. Michael Heffernan, Judge of Probate Court, pending final judgment in the present action. Pursuant to the stipulation, liens against the realty attached to the escrow fund with their respective priorities.

                National Bank assigned its interest in the mortgage to Maple Street Associates, a Connecticut partnership with its principal office in Milford, for $97,500. 5  The mortgage had been recorded on the Milford land records on April 3, 1973.   The assignment was recorded January 4, 1984
                

The following parties were asserting priority claims to the escrow fund: (1) the United States, on the basis of assessments of November 13, 1972, and October 6, 1976, and the outstanding federal tax lien filed June 4, 1979, in the total amount, as of May 20, 1986, of $1,956,797.70; (2) the tax commissioner of the state of Connecticut, on the basis of succession and transfer tax liens recorded December 23, 1974, for an undetermined amount; (3) Arnold Peck, by virtue of the Connecticut National Bank mortgage, recorded April 3, 1973, in the amount, as of the date of trial, of $352,146.47; and (4) Slavitt, for legal fees.

The parties have stipulated on the record to the following pertinent facts: (1) The estate was solvent as of February 28, 1969, the date of the death of Anna F. Roessler; (2) the estate was insolvent as of April 23, 1980, the date of the appointment of the administrator, d.b.n.; and, (3) Fred C. Roessler, the son of Anna F. Roessler, was the sole heir to the estate. It is further found, on the basis of the credible testimony presented, that the state of Connecticut never took possession of the Milford real estate during the administration of the estate by the administrator, d.b.n., and that its lien is inchoate. ⁶

I

CLAIMS OF THE ADMINISTRATOR, D.B.N., AND SLAVITT LAW FIRM.

Under Connecticut law, the expenses of administration are deductible items and are entitled to first priority. General Statutes §§ 12-350, 45-204c. ⁷ Here, the administrator, d.b.n., is claiming first priority for the expenses of administration, taxes to be paid by him to the United States and the It is hereby found that the claims of the administrator, d.b.n., and Slavitt are proper expenses of administration, are entitled to first priority, and are to be paid initially from the escrow fund. ⁸

                state of Connecticut on the escrow fund's earned interest and capital gains, and attorney's fees.   Slavitt is claiming reasonable fees for legal services rendered to the estate
                

II COMPETING CLAIMS OF THE UNITED STATES AND THE STATE OF CONNECTICUT

The federal tax assessments were made on November 13, 1972 and October 10, 1976. The notice of federal tax liens was recorded with the town clerk of Milford, on June 4, 1979. The state succession and transfer tax liens were recorded December 23, 1974. Thus, the state filings were prior in time to those of the federal government.

Generally, the fundamental principle governing priority is that "the first in time is the first in right." United States v. New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954); United States v. Estate of Young, 592 F.Supp. 1478, 1482 (E.D.Pa.1984). With respect to the priority of debts due the federal government, however, the general precept enunciated in i United States v. New Britain is subject to significant qualification, by statute and otherwise. The government's tax liens are statutorily premised on §§ 6321 and 6322 of title 26 of the United States Code. ⁹ Under these sections, the government's "general" tax liens arise when assessed and continue until the tax liability is satisfied or becomes unenforceable. The state tax liens, on the other hand, although filed prior in time, remain inferior until they become specific, perfected or choate. United States v. Equitable Life, 384 U.S. 323, 327, 86 S.Ct. 1561, 1563-64, 16 L.Ed.2d 593 (1966); State v. Bucchieri, 176 Conn. 339, 346-47, 407 A.2d 990 (1978). Here, the liens relied on by the United States are general tax liens arising under § 6321. These liens arose at the time of assessment; 26 U.S.C. § 6322; remain unsatisfied, and have not become "unenforceable by reason of lapse of time" since any period of limitation was extended by agreement to December 31, 1986. The state's claim that its liens are entitled to priority because the government's liens were special estate tax liens; 26 U.S.C. § 6324(a)(1); which expired upon the passage of ten years is without merit. ¹⁰

In this case, the government maintains that its general tax liens are entitled to priority over the state liens...