Danbury Sav. and Loan Ass'n, Inc. v. Delaney

• Decision Date: 14 June 1988
• Docket Number: No. 13229,13229
• Citation: 207 Conn. 743,542 A.2d 1153
• Court: Connecticut Supreme Court
• Parties: DANBURY SAVINGS AND LOAN ASSOCIATION, INC. v. Colin M. DELANEY et al.

Page 1153

542 A.2d 1153

207 Conn. 743

DANBURY SAVINGS AND LOAN ASSOCIATION, INC. v. Colin M. DELANEY et al.

No. 13229.

Supreme Court of Connecticut.

Argued May 5, 1988.

Decided June 14, 1988.

Robert A. Nagy, Asst. Atty. Gen., with whom, on the brief, was Joseph I. Lieberman, Atty. Gen., for appellant (State).

Michael J. Roach, pro hac vice, Washington, D.C., with whom were John B. Hughes, Asst. U.S. Atty., Lauren McCurry, Sp. Asst. U.S. Atty., New Haven, and, on the brief, William S. Rose, Jr., Asst. U.S. Atty. Gen., Washington, D.C., Stanley A. Twardy, Jr., U.S. Atty. for the District of Connecticut, New Haven, and Gary R. Allen and William S. Estabrook, Washington, D.C., for appellee (defendant U.S. of America).

Before PETERS, C.J., and CALLAHAN, GLASS, COVELLO and HULL, JJ.

PETERS, Chief Justice.

The commissioner of income maintenance has authority, under General Statutes § 17-82c, ¹ to record a lien on the real property of a recipient of state public assistance grants. The sole issue in this appeal is when such a lien becomes sufficiently choate to give it priority over a competing federal tax lien. This case began as an action by the plaintiff, Danbury Savings and Loan Association, Inc., to foreclose a mortgage lien on real property owned by the defendants Colin M. Delaney and Valerie E. Delaney. In this foreclosure action, numerous other lienholders, including the United States and the state of Connecticut, were named as parties defendant. The trial court, Lavery, J., approved a foreclosure by sale to Jack R. Hanna for $141,000. Thereafter, the United States filed a motion for a determination of priorities, claiming that its status as a holder of federal tax liens entitled it to reimbursement from the foreclosure sale proceeds in advance of reimbursement to the state as a holder of public assistance liens. The state has appealed from a judgment of the trial court, Moraghan, J., assigning first priority to the federal tax liens. We find no error.

The underlying facts are not at issue. The liens of the United States arise out of liabilities of Colin M. Delaney and Valerie E. Delaney for arrearages in federal income taxes for the taxable years 1978 and 1982, together with interest, penalties and lien fees. Pursuant to I.R.C. §§ 6321 and 6322, ² the United States assessed the 1978 arrearage on September 21, 1981, and the 1982 arrearage on October 23, 1985. These assessments automatically imposed liens on all of the taxpayers' property. I.R.C. §§ 6321, 6322. Notices of these liens were filed, pursuant to I.R.C. § 6323, ³ on January 11, 1983, with regard to the 1978 deficiency and on September 10, 1986, with regard to the 1982 deficiency. In an affidavit of debt filed in the present proceedings on March 31, 1987, the United States asserted that its federal tax liens then totalled $34,410.51.

The liens of the state of Connecticut arise out of grants of public assistance to Valerie Delaney by the department of income maintenance pursuant to the program of aid to families with dependent children. In an affidavit of debt filed herein on May 20, 1987, the state asserted that such assistance payments had begun on December 18, 1979, and continued through September 9, 1986, in a total amount of $60,248.38. To secure reimbursement of these grants, the state, on August 24, 1981, pursuant to General Statutes § 17-82c, recorded separate certificates of lien against the interests of Valerie Delaney and Colin Delaney in the land records of the town of Bethel where their real property was located.

The trial court ruled that the federal liens should be given priority even though they postdated the filing of the state's certificates of lien. The court noted that, under applicable precepts of federal law embodied in I.R.C. §§ 6321 and 6322, a federal lien ordinarily takes its place in the priority race at the time when the federal tax is assessed, while a state lien only receives such standing when it has become specific, perfected and choate. ⁴ United States v. Equitable Life Assurance Society of the United States, 384 U.S. 323, 327-28, 86 S. Ct. 1561, 1564-65, 16 L.Ed.2d 593 (1966); United States v. Pioneer American Ins. Co., 374 U.S. 84, 87, 83 S.Ct. 1651, 1654, 10 L.Ed.2d 770 (1963); United States v. New Britain, 347 U.S. 81, 85-86, 74 S.Ct. 367, 370-71, 98 L.Ed. 520 (1954). It held that the state's liens in this case could not meet this test because they had not been reduced to possession before the attachment of the federal liens. In arriving at this conclusion, the court relied on definitions of choateness that have been developed in cases arising under 31 U.S.C. § 3713. ⁵ See, e.g., United States v. Gilbert Associates, 345 U.S. 361, 366, 73 S.Ct. 701, 704, 97 L.Ed. 1071 (1953). Although we disagree with the court's reliance on the insolvency statute, we nonetheless concur in its judgment that the federal tax liens were entitled to priority because the state liens were still inchoate on October 23, 1985.

I

The state maintains, in its first claim of error, that the trial court erred in importing into this litigation, brought under the federal tax lien statutes, the priority standards that govern cases brought under the federal insolvency statute, 31 U.S.C. § 3713. The state makes three arguments: (1) the insolvency statute was not pleaded at trial; (2) no evidence of insolvency was introduced at trial; and (3) the test for determining the choateness of a competing lien is more stringent under 31 U.S.C. § 3713 than it is under the federal tax lien statutes. We agree.

Although there is much to be said in favor of all three of these assertions, the first two are clearly correct and their resolution is dispositive of this issue. The absence at trial of pleading or proof with respect to any claim of insolvency cannot be remedied on appeal. The United States concedes that its trial memorandum in support of its motion for determination of priorities nowhere invoked the federal insolvency statute. Cf. Practice Book § 109A; Orticelli v. Powers, 197 Conn. 9, 14-15, 495 A.2d 1023 (1985); Leone v. Knighton, 196 Conn. 494, 495-98, 493 A.2d 887 (1985). The United States relies nonetheless on two facts dispersed throughout these foreclosure proceedings: Valerie Delaney's long history of receiving public assistance payments; and her filing of a petition in bankruptcy while the foreclosure was pending. We are unpersuaded. Although insolvency may be determined without a formal adjudication of bankruptcy, such a determination always requires a finding of fact based on a proper evidentiary foundation. Community Progress, Inc. v. White, 187 Conn. 128, 135-36, 444 A.2d 1369 (1982). In this case, the state has not been afforded an opportunity to present evidence, or indeed to make argument, that would inform a trier of fact about the validity of the inference of insolvency that the United States finds so compelling. ⁶ The trial court therefore erred in determining the choateness of the state's liens in accordance with the priority rules developed pursuant to the federal insolvency statute.

II

The state further maintains that the trial court could not have found that its liens were inchoate if the trial court had properly employed the test for choateness that pertains to priority contests between federal tax liens and state statutory liens. A state statutory lien is choate, under federal law, when it is specific and perfected so that "there is nothing more to be done" to establish the identity of the lienor, the property subject to the lien, and the amount of the lien. United States v. Equitable Life Assurance Society of the United States, supra. Choateness does not require enforcement of a local tax lien by seizure or sale unless local law itself incorporates a requirement of further judicial proceedings to effectuate the lien. United States v. Vermont, 377 U.S. 351, 358-59, 84 S.Ct. 1267, 1271-72, 12 L.Ed.2d 370 (1964); United States v. Security Trust & Savings Bank, 340 U.S. 47, 50, 71 S.Ct. 111, 113, 95 L.Ed. 53 (1950). We disagree with the state that its liens can pass this test.

In this case, the state's recordation, on August 24, 1981, of certificates of lien under § 17-82c clearly fulfilled some of the requirements for a choate state statutory lien. The certificates identified each lienor by name and described with specificity the property subject to the state's lien. The certificates were, however, entirely open-ended with regard to the amount of the secured indebtedness, which, without any dollar amount, was described only as "assistance payments heretofore or hereafter made to or in behalf of the said Valerie Delaney and said dependent child or children." No supplemental recordations ever detailed the amounts of the secured indebtedness. Even in the priority proceedings herein, the state's affidavit of debt did not allocate assistance payments to periods predating either its filings or the federal tax lien filings. To this date, therefore, the record does not reveal the precise amount of the state's liens that antedate those of the United States. Furthermore, the record indicates that, prior to the mortgage foreclosure proceedings initiated by the named plaintiff, the state had taken no steps to foreclose its liens, a process that, under the express terms of § 17-82c would have required the commissioner of income maintenance to bring "an action ... in a court of competent jurisdiction." The question that we must answer is whether under these circumstances the state has established that, when the federal tax liens arose, it had liens for which, under federal law, "there is nothing more to be done."

The United States would have us answer this question "No." It maintains that the amount of the state's liens could not be determined unless and until the commissioner of income maintenance obtained a judgment in a specific amount and an order directing foreclosure. Until that time, it argues, the state's...