Dugan v. Missouri Neon & Plastic Advertising Company

• Decision Date: 06 February 1973
• Docket Number: 72-1230.,No. 72-1177,72-1177
• Parties: M. R. DUGAN, d/b/a M. R. Dugan Auction Company, v. MISSOURI NEON & PLASTIC ADVERTISING COMPANY and Tubelite Company, Inc., Appellant, v. UNITED STATES of America, Appellee. ALL-TEMP, INC., a corporation, Plaintiff-Appellee, v. Lloyd WILLIAMS, d/b/a Williams Heating and Plumbing Company, Defendant, v. RALPH E. BOYER, CONTRACTOR, INC., a corporation, Garnishee-Plaintiff, v. INTERNAL REVENUE SERVICE, DEPARTMENT OF the TREASURY OF the UNITED STATES of America, Defendant-Appellant, and Lloyd Williams et al., Defendants.
• Court: U.S. Court of Appeals — Eighth Circuit

472 F.2d 944 (1973)

M. R. DUGAN, d/b/a M. R. Dugan Auction Company, v. MISSOURI NEON & PLASTIC ADVERTISING COMPANY and Tubelite Company, Inc., Appellant, v. UNITED STATES of America, Appellee.

ALL-TEMP, INC., a corporation, Plaintiff-Appellee, v. Lloyd WILLIAMS, d/b/a Williams Heating and Plumbing Company, Defendant, v. RALPH E. BOYER, CONTRACTOR, INC., a corporation, Garnishee-Plaintiff, v. INTERNAL REVENUE SERVICE, DEPARTMENT OF the TREASURY OF the UNITED STATES of America, Defendant-Appellant, and Lloyd Williams et al., Defendants.

Nos. 72-1177, 72-1230.

United States Court of Appeals, Eighth Circuit.

Submitted December 4, 1972.

Decided February 6, 1973.

COPYRIGHT MATERIAL OMITTED

James B. Fleischaker, Joplin, Mo., for appellant in No. 72-1177.

Paul Anthony White, Asst. U. S. Atty., Kansas City, Mo., for appellee in No. 72-1177.

Karl Schmeidler, Atty., Tax Div., Dept. of Justice, Washington, D. C., for appellant in No. 72-1230.

Lewis Blanton, Sikeston, Mo., for appellee in No. 72-1230.

Before MATTHES, Chief Judge, and GIBSON and HEANEY, Circuit Judges.

GIBSON, Circuit Judge.

These cases present questions of lien priorities reaching for limited assets. At issue is the priority of a garnishment summons issued in aid of execution of a judgment as against a federal tax lien. In the Dugan case,¹ the District Court, the Honorable William R. Collinson, granted priority to the federal tax lien. In the All-Temp case,² the Honorable James H. Meredith, granted priority to the judgment lien creditor. These cases were heard and submitted separately, but since they involve a common legal question, both cases are considered in this opinion.

The essential factual circumstances in both cases are nearly identical. A brief background of each case is set forth with any important factual differences noted.

DUGAN

This interpleader action was filed directly in the United States District Court for the Western District of Missouri, pursuant to 28 U.S.C. § 1335. Dugan, an auctioneer, paid into court the sum of $6,274.03, representing the net proceeds from an auction of equipment owned by Told Brothers Sign Company, Inc.³ These proceeds were claimed by the United States to satisfy tax liens and by Tubelite Company, Inc., a judgment creditor of Told Brothers.

In May 1970 Tubelite filed suit against Told Brothers in the state court and obtained a default judgment on October 2, 1970. On June 5, 1970, United States made an assessment for withholding taxes against Told Brothers and filed a tax lien notice on August 19, 1970. The United States made a second assessment against Told Brothers on October 2, 1970.

On October 15, 1970, Dugan, the auctioneer, auctioned at public sale tangible property owned by Told Brothers and received therefor gross proceeds in the amount of $7,081.75 in the form of cash and checks. Of this amount Dugan was entitled to receive varying commissions, 10 per cent on small items sold and 5 per cent on trucks. Immediately after the auction, Dugan was served with a summons of garnishment in aid of execution of Tubelite's judgment in which the sheriff did "attach, levy upon and seize . . . all debts owing . . . to . . . Told Brothers, Inc. together with all personal property, money, . . . drafts, checks, and other choses in action" to the extent of $4,421.92 plus costs of execution and sheriff's fees. This writ of garnishment is shown to have been executed on October 15, 1970, at 12:30 a. m.

Dugan deposited the sum of $6,274.03 into court (net proceeds of the auction less commission and expenses) and requested an allowance of costs and attorney's fees. Tubelite claimed the amount of its judgment, $4,421.92, with interest from date of garnishment, October 15, 1970. The United States claimed $3,065.78 plus interest and penalties under its tax lien of August 19, 1970, and $2,391.66 plus interest and penalties under its tax lien of November 20, 1970.

Tubelite conceded that the United States was entitled to the moneys due under its original tax lien notice filed on August 19, 1970, but claims a priority over the second tax lien notice filed on November 20, 1970, on the ground that it was a judgment lien creditor for the balance of the auction proceeds prior to the filing of notice of the second tax lien. The District Court held that Tubelite Company was not a judgment lien creditor within the meaning of 26 U.S.C. § 6323(a) prior to the filing of the federal tax lien notice. The basis of the District Court's decision rested on the conclusion that the service of garnishment summons served upon the garnishee auctioneer does not create a lien upon specific property under Missouri law until the property comes into possession of the sheriff. Since the sheriff did not take possession of specific property, namely the checks and cash held by the auctioneer, no judgment lien was established under Missouri law, nor was an equitable lien created.

ALL-TEMP

This interpleader action was commenced in the state court and removed to the United States District Court for the Eastern District of Missouri under 28 U.S.C. § 1444. The plaintiff-appellee, All-Temp, Inc., held a judgment against Lloyd Williams for over $15,000, which was entered on May 9, 1969. A summons in aid of execution on the judgment was issued on November 20, 1969, against garnishee Ralph E. Boyer, who owed Williams $3,770.27 on a contract indebtedness. Williams owed the United States some $5,700 for delinquent withholding of income and F.I.C.A. taxes, which had been assessed at various times, and proper notices of federal tax liens had been filed with the recorder of deeds for Scott County, Missouri, on December 11, 1969, and on February 21, 1970. The Government served a notice of levy on Boyer on March 20, 1970.

Williams filed a voluntary petition in bankruptcy and was adjudged bankrupt on March 30, 1970. Boyer, after the competing demands by creditors of Williams, filed an interpleader which was accepted by the court, thus allowing the corpus of the debt to be paid into court; whereupon the garnishee Boyer was discharged and allowed $300 attorney's fees. The summons of garnishment in aid of execution antedated both the notice of federal tax liens filed in the recorder's office and the service of notice of the levy upon the garnishee Boyer.

Relying on § 6323(a), Ferneau v. Armour & Co., 303 S.W.2d 161 (Mo.App. 1957), and United States v. 52.11 Acres of Land in St. Charles County, Mo., 73 F.Supp. 820 (E.D.Mo.1947),⁴ the District Court held that All-Temp's garnishment summons in aid of execution created a lien superior to the tax lien.

LEGAL ISSUES

1. In Dugan, the Government first argues that this Court lacks jurisdiction due to the failure of the appellant to comply with Rule 4 of the Federal Rules of Appellate Procedure. The District Court entered judgment in this case on November 29, 1971, and since the Government is a party to this suit, the appellant would normally have had 60 days in which to file a notice of appeal to this Court. On February 15, 1972, the District Court granted an extension of 30 days from the expiration of the original time for the appellant to appeal. The appellant filed his notice of appeal on February 22, 1972, within the extended time.

The appellant's counsel said that he first decided not to appeal because the decisions of the Missouri courts on the nature of a garnishment summons were not definitive. However, after he became aware through publication of the favorable decision of Vittert Const. & Inv. Co. v. Wall Covering Contr., Inc., 473 S.W.2d 799 (Mo.App. 1971) (published January 25, 1972),⁵ he took the necessary steps to appeal. Under the totality of the circumstances of this case, we think that the appellant demonstrated "excusable neglect" under Rule 4 and was entitled to the extension of time granted by the District Court. Although generally failure to learn of the entry of judgment constitutes the major reason for excusable neglect, the District Court does have the power to grant extensions in extraordinary cases so that injustice may be avoided. Winchell v. Lortscher, 377 F.2d 247, 252 (8th Cir. 1967). Because of the timing of the decision in Vittert Construction and Dugan, the close similarity of the two cases, the importance of the similar issues, and the fact that the Government was a party to both cases, we think that the District Court did not err in its discretion in finding "excusable neglect" and allowing the extension of time for appeal.

2. The United States tax lien attached on the funds and property in question at the time of assessment by virtue of 26 U.S.C. § 6321.⁶ The assessment and demand for payment by the United States is the operative fact creating the lien, but this lien is not valid as against other lienholders and does not defeat other lienholders' interests until notice thereof has been filed in accordance with 26 U.S.C. § 6323(a), which in pertinent part provides:

"The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic\'s lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary or his delegate."⁷

The only significant difference in the factual situation of the two cases is that the parties conceded in All-Temp that the property attached and garnisheed was an intangible, namely the contract debt Boyer owed Williams, whereas, in Dugan, the parties' conceptual view of the transaction differs. The Government in Dugan viewed the property sought to be attached or garnished as the drafts, checks, or cash in the hands of the auctioneer, while the appellant Tubelite viewed the attachment and garnishment as reaching the debt that Dugan owed Told Brothers resulting from the auction of Told Brothers' property. A debt of course would be classified as intangible personal property. If viewed as specific tangible property, admittedly the funds had not been...