Estate of Silberman
| Decision Date | 10 October 1995 |
| Docket Number | No. A065688,A065688 |
| Citation | 39 Cal.App.4th 1533,46 Cal.Rptr.2d 610 |
| Court | California Court of Appeals Court of Appeals |
| Parties | , 95-2 USTC P 50,636, 95 Cal. Daily Op. Serv. 8670, 95 Daily Journal D.A.R. 14,980 ESTATE OF Howard SILBERMAN, deceased. Judith SILBERMAN, as Executor, etc., Petitioner and Respondent, v. UNITED STATES of America, Claimant and Appellant; Household Finance Corporation et al., Claimants and Respondents. |
Michael J. Yamaguchi, Jay R. Weill, Assistant United States Attorneys, San Francisco, U.S. Department of Justice, Joan Oppenheimer, Washington, D.C., Jeffery M. Micklas, Richmond, for Appellants.
Judith Silberman, San Leandro, in Pro. Per.
The United States appeals an order establishing the relative priority of claims to the proceeds of the sale of real property owned by decedent Howard Silberman. The United States contends that, pursuant to the FEDERAL INSOLVENCY STATUTE (31 U.S.C. § 3713) its unnoticed tax liens take priority over the prior recorded judgment liens of respondents Household Finance Corporation and Household Retail Services, Inc.
The executor filed a report of sale and a petition for an order confirming the sale of the property free and clear of liens and for distribution of the sale proceeds. In support of the petition, the executor filed a declaration asserting that the Estate's liabilities for administrative expenses and claims against the decedent exceeded it assets by $215,497, and an amended petition which stated that the Estate was unable to pay certain liabilities as they became due. The court appointed a special master to determine whether the Estate was insolvent. The special master concluded that the estate had been insolvent since February 25, 1992.
The claimants competing for the sale proceeds were the United States, the California Franchise Tax Board, judgment creditors, and holders of claims for administrative expenses. The United States' claim was for unpaid federal taxes totaling $169,296.57, plus interest and penalties. A notice of federal tax lien had been filed on September 26, 1990, for $30,086.19. No notices had been filed with respect to the balance of the federal tax liens. Nevertheless, the United States claimed that it was entitled to priority ahead of respondents' judgment liens pursuant to the FEDERAL INSOLVENCY STATUTE (31 U.S.C. § 3713). 1 Household Finance Corporation and Household Retail Services, Inc. (hereinafter respondents) held recorded judgments of $11,162.28 and $25,276.97. Respondents contended that Internal Revenue Code section 6323(a) ( 26 U.S.C. § 6323(a)), which provides that a tax lien shall not be valid against a judgment lien creditor until notice thereof has been properly filed, governed the validity of the tax liens. Pursuant to section 6323(a), the United States was entitled to priority only with respect to its noticed tax lien of $30,086.19.
On November 5, 1993, the court found that the estate was insolvent as of February 25, 1992, but denied the United States claim of priority based upon the Federal Insolvency Statute. The United States moved for reconsideration, citing Nesbitt v. United States (N.D.Cal.1978) 445 F.Supp. 824, affirmed 622 F.2d 433 (9th Cir.1980), certiorari denied 451 U.S. 984, 101 S.Ct. 2315, 68 L.Ed.2d 840 (1981), in which the court held that section 6323(a) does not create an implied exception to the federal insolvency statute. Respondents opposed the motion on procedural grounds and on the merits, relying on an opposing line of authority, exemplified by City of Vermillion, S.D. v. Stan Houston Equipment Co. (D.S.D.1972) 341 F.Supp. 707.
The court denied the motion for reconsideration on the merits. The court explained its decision as follows:
On March 29, 1993, the court entered an order regarding disposition of sale proceeds, which reiterated the finding that the estate was insolvent on or about February 25, 1992. The order accorded first priority to administrative expenses owing to three claimants. 2 The court ruled that the next in order would be judgment lienors and governmental entities with filed tax liens, in the order in which they were recorded. Consequently, only the filed tax lien of the United States was accorded sixth priority in the amount of $30,086.19. The remainder of the proceeds, if any, were to be held in a reserve account pending further court order. The United States appealed from the March 29, 1994, order.
Two federal statutes, the Federal Tax Lien Act of 1966, specifically 26 U.S.C. § 6323(a) (hereinafter the "Federal Tax Lien Act"), 3 and the federal insolvency statute (31 U.S.C. § 3713) (hereinafter the "Federal Insolvency Statute"), would produce conflicting resolutions of the competing claims in this case. The United States contends its claims were entitled to first priority ahead of the respondents' judgment liens and the other secured creditors pursuant the Federal Insolvency Statute. The trial court, however, found that the Federal Tax Lien Act created an implied exception to the Federal Insolvency Statute with respect to federal claims based upon tax liens. Therefore, only the noticed tax lien was entitled to priority ahead of other liens recorded thereafter.
The United States Supreme Court has not decided the specific question whether the Federal Tax Lien Act created an implied exception to the first priority of claims of the United States established by the Federal Insolvency Statute. The Court has, however, established fairly stringent requirements for finding an implied exception to the Federal Insolvency Statute in other contexts. In United States v. Emory (1941) 314 U.S. 423, 62 S.Ct. 317, 86 L.Ed. 315, the court stated that: "Only the plainest inconsistency would warrant our finding an implied exception to the operation of so clear a command as that of [the Federal Insolvency Statute]." (Id. at p. 433, 62 S.Ct. at 322-323.) The Emory court concluded that, absent an express relinquishment of the government's priority it would not find that the National Housing Act created an implied exception to the Federal Insolvency Statute. (Id. at p. 430, 62 S.Ct. at 321.) In United States v. Key (1970) 397 U.S. 322, 90 S.Ct. 1049, 25 L.Ed.2d 340, the court considered the following factors in determining whether another federal statute created an implied exception to the Federal Insolvency Statute: (1) Is the statute alleged to create an implied exception facially inconsistent with the Federal Insolvency Statute; (id. at pp. 328-329, 90 S.Ct. at 1053-1054), (2) Would the application of the Federal Insolvency Statute render the competing statute meaningless. (Id. at pp. 328-329, 90 S.Ct. at 1053-1054); and (3) Does the legislative history of the competing federal statute suggest that the Legislature intended to relinquish or create an exception to the operation of the Federal Insolvency Statute? (Id. at pp. 329-332, 90 S.Ct. at 1053-1056.)
The lower federal courts and several state courts have applied and analyzed these factors with conflicting results. The superior court chose to adopt the reasoning of those courts that have found that the Federal Tax Lien Act created an implied exception to the Federal Insolvency Statute. These cases include City of Vermillion, S.D. v. Stan Houston Equipment Co., supra, 341 F.Supp. 707; 4 James Talcott, Inc. v. Roto American Corporation (1973) 123 N.J.Super. 183, 302 A.2d 147; In re Decker's Estate (1946) 355 Pa. 331, 49 A.2d 714, cert. den. sub nom Decker v. Kann (1947) 331 U.S. 807, 67 S.Ct. 1190, 91 L.Ed. 1828; In re Meyer's Estate (1946) 159 Pa.Super. 296, 48 A.2d 210; but see Estate of Berretta (1981) 493 Pa. 441, 461, 426 A.2d 1098, 1108 (). 5
These cases find that the purpose of the Federal Tax Lien Act was to protect the specified class of creditors from unnoticed federal tax liens. (See, e.g., City of Vermillion, S.D. v. Stan Houston Equipment Co., supra, 341 F.Supp. 707, 713.) They reason that the issue of priority only matters when the debtor is insolvent, and that therefore the protection against unnoticed federal tax liens accorded by the Federal Tax Lien Act would be rendered meaningless if federal claims based on unnoticed or later filed tax liens are nevertheless entitled to priority under the Federal Insolvency Statute whenever the debtor is insolvent. (See, e.g., In re Decker's Estate, supra, 49 A.2d 714, 720.) They further reason that to give an unnoticed federal tax lien priority would undermine the reliability of the notice filing system which is an essential provision for certainty and stability in commercial dealings. (Estate of Berretta, supra, 493 Pa. 441, 457, 426 A.2d 1098, 1106.)
By contrast, a series of more recent federal decisions have concluded that Congress did not intend the Federal Tax Lien Act to...
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...Prob. Code, § 10361 [rules for the application of money received from the sale of encumbered property]; Estate of Silberman (1995) 39 Cal.App.4th 1533, 1535 [appeal taken from "an order establishing the relative priority of claims to the proceeds of the sale of real property owned by decede......