Consolidated Film Industries v. U.S., 75-1850
| Decision Date | 06 January 1977 |
| Docket Number | No. 75-1850,75-1850 |
| Citation | 547 F.2d 533 |
| Parties | 77-1 USTC P 9188, 20 UCC Rep.Serv. 1360 CONSOLIDATED FILM INDUSTRIES, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
William Thomas Thurman of McKay, Burton, McMurray & Thurman, Salt Lake City, Utah (William T. Thurman of McKay, Burton, McMurray & Thurman, Salt Lake City, Utah, on the brief), for plaintiff-appellee.
Carleton D. Powell, Atty., Tax Div., Dept. of Justice, Washington, D.C. (Scott P. Crampton, Asst. Atty. Gen., Gilbert E. Andrews Jr., Karl Schmeidler and George G. Wolf, Attys., Tax Div., Dept. of Justice, Washington, D.C., and of counsel, Ramon M. Child, U. S. Atty., Salt Lake City, Utah, on the brief), for defendant-appellant.
Before LEWIS, Chief Judge, BARRETT and DOYLE, Circuit Judges.
The question in this case is whether the district court erred in granting relief to appellee enjoining the United States Internal Revenue Service from enforcing a levy. A more ultimate and specific issue is whether a financing statement is required under the pertinent Uniform Commercial Code provision, Utah Statutes, Section 70A-9-302(1)(e), Utah Code (1968), which section relates to requiring the filing of a financing statement in order to perfect security interests. This in turn is dependent upon construction of the exemption provision contained in the above cited provision of the Utah Uniform Commercial Code. This issue is the crucial one. If a financing statement is required, the appellee loses and the cause must be reversed. If appellee enjoyed an exemption from filing the statement, the Internal Revenue Service's levy is not enforceable and the judgment is affirmed. Section 70A-9-302(1)(e) provides in pertinent part as follows A financing statement must be filed to perfect all security interests except the following:
(e) An assignment of accounts or contract rights which does not alone or in conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts or contract rights of the assignor.
The government's levy was served on Inflight Motion Pictures, Inc., but appellee Consolidated Film Industries is the party in interest affected by it and so the suit is brought by it.
Due to the many participants and the several assignments the facts appear complicated, but they boil down to the described conflict as to whether a financing statement was required for perfection of the assignment and so the various formal legal motions simply provide a backdrop.
Consolidated Film Industries brought the suit for injunction against the United States to enjoin it from enforcing a levy served by the government on Inflight Motion Pictures, Inc. The trial court granted the relief and the government appeals. We reverse.
In July 1971, Interwest Film Corporation, which has its principal place of business in Utah, obtained ownership rights in a film "The RA Expedition." In order to acquire financing to enable it to market the film, Interwest entered into a sale and lease back, with option allowing it to repurchase the contract from Lowell Berry Foundation. Under the contract Interwest sold its property in the film to Lowell Berry for $375,000. Lowell Berry in turn granted back to Interwest exclusive marketing rights in the film until March 1, 1972. Interwest retained an option to repurchase the film for $562,500 in cash and in stock, payable in installments. The option to buy back was to be exercised by Interwest's paying Lowell Berry.$93,750 in cash between February 1, 1972, and March 1, 1972. This was to be followed by the payment of installments until the full purchase price was completed. The completion date was March 1, 1973.
Interwest entered into a contract with the plaintiff-appellee, Consolidated Film Industries, for the production of several prints of the film and Interwest was obligated to pay $15,484 to Consolidated Film Industries to compensate for the making of the prints. Consolidated Film is now the successor in interest to Lowell Berry's rights.
In February 1972, Interwest exercised its option to repurchase by making the stipulated payment of.$93,750 to Lowell Berry, but that was the first and last payment made on the repurchase obligation. On June 27, 1972, Interwest assigned to Lowell Berry its rights in a contract it had entered into with Inflight. This allowed Inflight to show the film aboard planes for a fee or royalty. This contract was thus security and amounts received under it were to reduce Interwest's obligation to Lowell Berry. Notice of the assignment to Lowell Berry was given to Inflight by Interwest. On July 27, 1973, Lowell Berry assigned its rights in the Interwest-Inflight contract to Consolidated Film Industries. No financing statement was filed with the Utah Secretary of State evidencing either assignment of the rights in the Interwest-Inflight contract.
In the same contract in which Interwest assigned to Lowell Berry its rights in the Interwest-Inflight contract, Interwest also assigned to Lowell Berry rights which it had in a contract with Bell & Howell and, in addition, there was a provision in which Lowell Berry agreed to allow Interwest to perform screenings of the film provided Interwest remitted daily to Lowell Berry certain percentages of the gross proceeds derived from such screenings.
On June 19, 1972, the United States, through the Internal Revenue Service, assessed against Interwest for unpaid federal employment taxes in the amount of $56,548.98. A further assessment was made against Interwest for unpaid federal employment taxes in the amount of $43,376.77 on September 25, 1972. Notice and demand for payment was made on Interwest on the dates of the respective assessments. Notice of the first federal tax lien was filed September 1, 1972. On October 31, 1972, notice of levy was served on Inflight demanding that the latter pay the United States the money which it was obligated to pay on the Inflight-Interwest contract. Inflight failed to honor this levy and failed to pay the money over to Interwest, Lowell Berry or Consolidated Film Industries.
In the suit which was filed by Consolidated Film Industries (on July 30, 1973), in the United States District Court for the Central District of California, it alleged that its rights in the fund held by Inflight were superior to the rights of the United States by virtue of Interwest's assignment of its rights in the Interwest-Inflight contract to Consolidated Film Industries, the successor in interest of Lowell Berry. It sought to enjoin the United States from enforcing its levy against Inflight and to collect money damages as well. Consolidated Film Industries moved to transfer the case to the United States District Court for the District of Utah on November 26, 1973. The cause was transferred. On December 5, 1974, and on December 6, 1974, the United States and Consolidated, respectively, moved for summary judgment. The government's contention in the action was that Interwest's assignment of its contract rights to Lowell Berry constituted the transfer of a security interest which was subject to Article 9 of the Uniform Commercial Code, and that it had not been perfected because no financing statement had been filed. Consolidated claimed that Lowell Berry's acquisition of the Interwest-Inflight contract was a purchase transaction not protected by Article 9 and hence superior to the government's levy. Subsequently, Consolidated claimed that even if the assignment was a security interest it was subject to being perfected without filing pursuant to Section 9-302(1)(e), supra.
The trial court (Judge Anderson) held that the assignment was a security interest covered by Article 9, but further held that there was insufficient evidence to decide whether it came within the filing exception contained in Section 9-302(1)(e).
After the mentioned decision of Judge Anderson, Consolidated Film Industries filed affidavits of Lowell Berry's executive vice-president together with an affidavit of Consolidated Film...
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