Eskanos v. Alpha 76, Inc., Civ. A. No. 87-C-435.

• Decision Date: 26 April 1989
• Docket Number: Civ. A. No. 87-C-435.
• Parties: Mel R. ESKANOS, et al., Plaintiffs, v. ALPHA 76, INC., et al., Defendants.
• Court: U.S. District Court — District of Colorado

712 F. Supp. 819

Mel R. ESKANOS, et al., Plaintiffs, v. ALPHA 76, INC., et al., Defendants.

Civ. A. No. 87-C-435.

United States District Court, D. Colorado.

April 26, 1989.

Mel R. Eskanos, Colorado Springs, Colo., pro se.

Don A. McCullough, Denver, Colo., for Daniel A. Nigbur.

John Randolph Torbet, Colorado Springs, Colo., for Daniel A. Nigbur and Mark R. Nigbur.

Jerry Atencio, Asst. U.S. Atty., Denver, Colo. and Mark G. Fraase, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for the U.S.

MEMORANDUM OPINION AND ORDER

CARRIGAN, District Judge.

Pro se plaintiffs Mel R. Eskanos and Rochelle Barkan, d/b/a/ Eskanos & Co., a partnership, commenced this action on May 17, 1985 by filing a complaint in the state district court for El Paso County, Colorado. On May 23, 1985, Elwood Henderson, d/b/a Henderson Auctioneer, was allowed to interplead and deposit into the court registry the proceeds of an auction (the "Fund"). The government then intervened in the state court action and removed it to this court. Plaintiffs claim a right to a security interest in the Fund. The government claims a right to the Fund because of assessments made against the defendants for unpaid federal employment taxes. Jurisdiction is predicated upon 28 U.S.C. §§ 1331 and 1340.

The following facts appear undisputed: Plaintiffs entered into a business lease agreement with the defendants Daniel A. Nigbur and Mark R. Nigbur, d/b/a Alpha 76, Inc. ("Alpha 76"), on February 24, 1983. The four-year agreement leased a parcel of real property in Colorado Springs, Colorado. Beginning on March 15, 1984, Alpha 76 failed to pay its monthly rent, and by April 15, 1985, Alpha 76 owed the plaintiffs approximately $7,000 for rent and utilities.

On April 15, 1985, the plaintiffs served on the defendants a demand for payment of rent or possession. In late April 1985, the plaintiffs had Alpha 76's personal property auctioned. The auction netted $4,493.56, which amount constitutes the Fund here at issue.

On May 21, 1984, and again on January 28, 1985, Alpha 76 had been assessed by the federal government for unpaid federal employment taxes. Pursuant to 26 U.S.C. § 6323(f)(1)(A)(ii), notices of tax liens were filed with the Colorado Secretary of State on October 3, 1984 and May 8, 1985. On May 10, 1985, the Internal Revenue Service ("IRS") mailed a notice of levy for Alpha 76's unpaid taxes to the auctioneer, Henderson, who at that time was still in possession of the Fund. The notice of levy stated that Alpha 76 owed $9,847.94 in delinquent taxes.

On May 17, 1985, the plaintiffs commenced this action in state court to recover the amounts owed for rent and utilities. On April 9, 1986, judgment by default was entered against Alpha 76 in the amount of $32,342.80. On April 15, 1986, Henderson filed a motion requesting permission to disperse the Fund to the IRS. On February 18, 1987, the federal government moved to intervene in the state court action and filed a claim to the Fund. On March 9, 1987, the state court granted the motion to intervene, and on March 25, 1987, the government filed its petition for removal. The Fund was then transferred into this court's registry.¹

Currently pending is the government's motion for summary judgment. Under Fed.R.Civ.P., Rule 56(c) summary judgment is proper "if admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In Catrett, the Court held that Rule 56 mandates the entry of summary judgment, upon motion made after adequate time for discovery, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party ultimately will bear the burden of proof at trial. Id. at 322, 106 S.Ct. at 2552-53.

The parties have briefed the issues and oral argument would not materially assist my decision.

Under 26 U.S.C. § 6321, the federal government may impose a tax lien upon "all property and rights to property" belonging to a delinquent taxpayer. Such a lien is created when the IRS makes an assessment against the taxpayer. Pittsburgh Nat. Bank v. United States, 657 F.2d 36, 38 (3d Cir.1981). If the taxpayer fails to pay the assessment after notice and a demand for payment, the IRS may levy upon "all property and rights to property" that belong to the taxpayer and are subject to a federal tax lien. 26 U.S.C. § 6321.

Federal law is controlling for purposes of determining whether a lien will attach to such property or rights to property. Viva Ltd. v. United States, 490 F.Supp. 1002, 1005 (D.Colo.1980). In order for a state-law created lien to be superior to a federal tax levy, it must be both choate and first in time. United States v. Pioneer American Insurance Co., 374 U.S. 84, 88, 83 S.Ct. 1651, 1654-55, 10 L.Ed.2d 770 (1963). "To be choate, the lien must be perfected so that there is nothing more to be done, that the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. Bell Credit Union, 635 F.Supp. 501, 504 (D.Kan.1986). "These requirements of first in time and choateness give federal tax liens an extraordinary priority, justifiable only by the importance of securing adequate revenues to discharge national obligations, and limited therefore to tax liens." Id.

The government contends that because federal tax liens arose on the dates of assessment on all property rights belonging to Alpha 76, including the auctioned personal property, the tax liens attached to the auction proceeds.

Plaintiffs, in their Answer to the Claim of the United States, assert four arguments in support of their contention that they held a security interest in the auctioned personal property entitling them to priority over the federal tax lien. Specifically, they contend that: (1) they held a security interest in the property by virtue of the business lease agreement between Alpha 76 and them, and an insurance policy covering Alpha 76's personal property; (2) they were pledgees of the personal property; (3) the 45-day safe-harbor provisions contained in 26 U.S.C. § 6323(c) and (d) are applicable in the present action based on "equitable grounds"; and (4) as landlords they were entitled to priority status pursuant to 26 U.S.C. § 6323(b)(6)(C), for utility charges.

In response, the government correctly asserts that the plaintiffs' first three arguments all depend on whether the plaintiffs held a security interest in Alpha 76's personal property, as that term is defined in § 6323(h)(1). The government insists that the plaintiffs did not hold a security interest in Alpha 76's personal property because the federal tax liens were prior and superior to the plaintiffs' claims, and that the plaintiffs had no security interest within the meaning of the § 6323 exceptions.

With respect to the plaintiffs' fourth argument, the government contends that the plaintiffs are not entitled to a landlord's lien pursuant to § 6323(b)(6)(C) for amounts owed for utilities because that section is inapplicable to this case.

I shall address these two contentions in the order just presented.

A. Superpriority Status under § 6323.

A federal tax lien is perfected on the date of assessment and is entitled to priority as to all liens except those persons and liens described in 26 U.S.C. § 6323. Sgro v. United States, 609 F.2d 1259, 1261 (7th Cir.1979).

Section 6323, 26 U.S.C., provides, in relevant part:

"(a) Purchasers, Holders of Security Interests, Mechanic's Lienors, and Judgment Lien Creditors—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.

"(b) Protection for Certain Interests Even Though Notice Filed—Even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid—

(1) Securities—With respect to a security (as defined in subsection (h)(4))—

(A) as against a purchaser of such security who at the time of purchase did not have actual notice or knowledge of the existence of such lien; and

(B) as against a holder of a security interest in such security who, at the time such interest came into existence, did not have actual notice or knowledge of the existence of such lien.

* * * * * *

"(h) The term `security interest' means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time (A) if, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment or lien arising out of an unsecured obligation, and (B) to the extent that, at such time, the holder has parted with money or money's worth." (Emphasis added.)

Thus if the plaintiffs can establish that they held a security interest in the Alpha 76 property, as that term is defined in § 6323(h), and that they had no actual notice or knowledge of the federal tax liens at the time of possession, then the exception of § 6323(b)(1)(B) applies, and the plaintiffs are entitled to superpriority status over the United States' liens on the Fund.

In order to come under the § 6323(h) definition of "security interest," the plaintiffs must establish the following three elements: (1) the existence of property that was acquired by contract for the purpose of securing payment or performance of an obligation, or indemnifying against loss or liability; (2) that their interest in such property was protected under local law against a subsequent judgment or lien arising out of an unsecured obligation; and (3) that they parted with money or money's...