CIM Intern. v. U.S.
| Decision Date | 22 December 1980 |
| Docket Number | No. 78-2701,78-2701 |
| Citation | 641 F.2d 671 |
| Parties | 81-1 USTC P 9146, 31 UCC Rep.Serv. 309 CIM INTERNATIONAL, a Utah Corporation, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
James Victor Jordan, Solish & Jordan, Los Angeles, Cal., for plaintiff-appellant.
Appeal from the United States District Court for the Central District of California.
Before MARKEY, * Chief Judge, United States Court of Customs and Patent Appeals, and WALLACE and SKOPIL, Circuit Judges.
CIM International (CIM), alleged owner of an aircraft, appeals the grant of summary judgment upholding the seizure and sale of the aircraft in satisfaction of tax liens against Austin Milling Co., a Nevada Corporation (Austin), a third party taxpayer. We reverse and remand.
The appeal being from a summary judgment, the facts set forth in the affidavits of record must be accepted as true.
On July 7, 1976 Austin bought a 1953 Beachcraft aircraft from Woodall Motor Company (Woodall), giving Woodall a promissory note for the entire $37,092.34 purchase price, secured by an agreement granting a security interest in the aircraft to Woodall. On July 26, 1976 Austin filed an ownership statement with the Federal Aviation Administration (FAA) in accordance with Section 1403 of the Federal Aviation Act of 1958, 49 U.S.C. § 1403 et seq. (Act). 1
On August 2, 1976 the Empire Savings Bank of Springfield, Missouri (Empire), having been assigned Woodall's interest with recourse, filed with the FAA copies of Austin's note, Woodall's security agreement and Woodall's assignment to Empire. On August 6, 1976, Empire filed a financing Austin made no payment at any time on its note, and never gave any other form of consideration for the aircraft.
statement with the Secretary of State of Nevada indicating the respective interests of Empire, Woodall and Austin.
On January 10, 1977 Empire, for a consideration, released Woodall from its "with recourse" obligation and reassigned Empire's interest to Woodall.
On January 20, 1977 and April 7, 1977 the government, having on this record conducted no search of the FAA register, and no search of Nevada state records, filed two tax liens against Austin with the Secretary of State of Nevada, as it is authorized to do under 26 U.S.C. § 6323(f)(1)(A)(ii) and (2)(B).
The government at no time filed anything with the FAA. 2
On May 9, 1977, with apparent knowledge of the reassignment to Woodall, CIM purchased Woodall's interest in the aircraft. CIM asserted in an affidavit that it searched the FAA register prior to its purchase. It obtained possession of the aircraft in Salt Lake City on or about May 12, 1977.
On May 27, 1977 CIM received a bill of sale from Austin. At no time did Austin have any equity interest in the aircraft whatsoever. Nor did it receive at any time any consideration for the transfer of title in the bill of sale to CIM. Though the bill of sale reflects a consideration, the affidavit record establishes that reflection as a false formalism.
On June 6, 1977, CIM filed an ownership registration certificate with the FAA.
In June 1977, Mr. Carrano, President of Austin Milling Company, requested CIM to allow him personally to use the aircraft for a short period for personal reasons unconnected with the business of Austin. With CIM approval, Carrano had the aircraft flown to New Mexico, where it was to board Mrs. Carrano and some personal possessions for transport to Santa Ana, California. Enroute to Santa Ana, the aircraft developed an oil leak and was forced to land at Riverside, California. CIM was notified of the problem and of the need to fly the aircraft elsewhere for repair.
On August 24, 1977 the government seized the aircraft at Riverside, California, for non-payment of taxes by Austin.
On September 28, 1977, Empire filed with the FAA a notice of the release and reassignment to Woodall it had executed on January 10, 1977.
CIM filed its original complaint on November 14, 1977, praying for a preliminary and permanent injunction against a tax sale of the aircraft and for an order that the aircraft be returned as wrongfully seized. CIM maintained it would suffer irreparable harm if a tax sale were held in that a prospective purchaser, known to CIM, was a foreign business which would remove the aircraft to Japan.
On March 2, 1978, the district court denied injunctive relief, saying it would entertain a government motion to dismiss. The next day the government moved for summary judgment.
On April 25, 1978, CIM paid the full $9,935.17 in delinquent taxes and penalties owed by Austin. The government released its levy and returned the aircraft to CIM.
On May 3, 1978, CIM sought leave to amend its complaint, to add a separate cause of action for refund of wrongfully collected taxes. On the same day, the district court granted the government's March 3 motion for summary judgment, taking no action on CIM's motion to amend.
On May 16, 1978, the district court filed findings of fact and conclusions of law, and entered judgment for the government. The findings are essentially those listed above. Among the conclusions, those numbered 8-11 and 13 are material to this appeal:
8. The Federal Aviation Act requires that the reassignment of a security interest must be recorded to be valid. 49 U.S.C. § 1403(a)(1), (a)(2) and (c). See, Feldman v. Chase Manhattan Bank, N.A., 368 F.Supp. 1327 (S.D.N.Y.1974), rev'd on other grounds, 511 F.2d 468 (2nd Cir. 1975).
9. By failing to record its interest, Woodall became the holder of an unperfected security interest. U.C.C. § 9-302 (3) and (4), 49 U.S.C. § 1403(a) (1), (a)(2) and (3).
10. CIM, the plaintiff herein, as the assignee of Woodall, became entitled to no more right, title or interest than held by its assignor.
11. Any right, title or interest acquired by Woodall through subrogation from Empire Bank was extinguished when the release of Empire Bank's interest in the aircraft was filed on September 28, 1977.
13. The federal tax lien attached to all property interests of Austin, including the aircraft herein in issue. 26 U.S.C. § 6321. The defendant's levy was a valid exercise of its authority to collect unpaid taxes. 26 U.S.C. § 6331.
The determinative issue is whether the district court erred in its Conclusions of Law 8, 9, 11 and 13. 3 Resolution of that issue involves determination of these sub-issues:
1. Section 1403. Are all security interests in aircraft invalid if not recorded under 49 U.S.C. 1403?
2. Subrogation. May an assignee who has not filed with the FAA be the subrogee of its assignor who had filed?
3. Release By Subrogor. Is a subrogee's interest in an aircraft extinguished when its subrogor files with the FAA a release of the subrogee's obligation to the subrogor?
4. Wrongful Levy. Was the levy "wrongful," as defined by 26 U.S.C. § 7426?
OPINION(1) Section 1403
The purpose of the recording provisions set forth in Section 1403 is to protect persons who have dealt on the faith of the FAA register, as to whom it would be fraud to give effect to unrecorded interests to their detriment. Marsden v. Southern Flight Service, Inc., 227 F.Supp. 411, 415 (M.D.N.C.1961). Protection of a subsequent good faith purchaser of a security interest against nonregistered interest holders thus facilitates stability in a nationwide market for aircraft, a highly mobile product.
The government argued below that a security interest "must be recorded to be valid." The district court adopted that view as its Conclusion 8, and the government repeats that facile position before us. That statement, however, does not fully accord with the statute. The more complete statement of the law expressed in section 1403(c) reads: "No conveyance or instrument ... shall be valid ... against any person other than ... any person having actual notice thereof, until such conveyance or instrument is filed for recordation...." Nothing in the Act makes all unrecorded interests in aircraft at all times, against all persons, under all circumstances, and for all purposes, invalid solely because they are not recorded. On the contrary, section 1403(c) makes plain that unrecorded interests may under appropriate circumstances be valid, for example against persons who have actual notice thereof. Conclusion of Law 8 is thus an overbroad statement of the law, and is accordingly erroneous as here applied. 4
That section 1403 is a recording statute, effecting the validity of security interests insofar as necessary to protect a good faith purchaser without notice, and, under normal circumstances governing priority of liens recorded and unrecorded, is further confirmed by section 1406 of the Act. 5 That section describes section 1403 as merely providing for recording, and specifies that the validity of any instrument recordable under section 1403 shall be governed by state law. 6
All potentially involved states (California, Nevada, Missouri) have adopted the relevant portions of the Uniform Commercial Code (UCC). 7 The government says state law mandates that a security interest in aircraft must be "perfected" by registration under section 1403, :
U.C.C. § 9-302. When Filing Is Required to Perfect Security Interest; Security Interests to Which Filing Provisions of This Article Do Not Apply.
(3) The filing provisions of this Article do not apply to a security interest in property subject to a statute
(a) of the United States which provides for a national registration or filing of all security interests in such property; ....
U.C.C. § 9-302 thus compels reference to section 1403 in relation to filing provisions for security interests in aircraft, and renders filing of such interests with state authorities ineffective. It does not, however, compel the interpretation of section...
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