First Nat. Bank of Cartersville v. Hill

• Decision Date: 23 December 1975
• Docket Number: Civ. A. No. 2422.
• Citation: 406 F. Supp. 351
• Parties: The FIRST NATIONAL BANK OF CARTERSVILLE v. Lamar B. HILL v. UNITED STATES of America.
• Court: U.S. District Court — Northern District of Georgia

406 F. Supp. 351

The FIRST NATIONAL BANK OF CARTERSVILLE v. Lamar B. HILL v. UNITED STATES of America.

Civ. A. No. 2422.

United States District Court, N. D. Georgia, Rome Division.

December 23, 1975.

Neel & Smith, Frank D. (Tony) Smith, Jr., Cartersville, Ga., for plaintiff.

Gettle, Fraser & Berthold, Donald W. Gettle, Atlanta, Ga., for defendant.

William D. Mallard, Jr., Asst. U. S. Atty., Atlanta, Ga., for the United States.

ORDER

O'KELLEY, District Judge.

This action is before the court on the motion of the United States for partial summary judgment. The issue for determination is whether the federal tax lien has priority over an equitable lien claimed by the First National Bank of Cartersville (hereinafter referred to as "the Bank") as to certain real property. This case arises out of the following factual situation. Lamar B. Hill was president of the Bank from January 1, 1969, until February, 1972, and during this period he embezzled approximately $4,700,000.00 from the Bank. The United States made assessments for Hill's unpaid tax liabilities plus interest and statutory penalties on these embezzled funds in the amount of $3,621,511.04, and notices of the federal tax liens were duly recorded in the office of the Clerk of Bartow County Superior Court on June 6, 1972, and June 21, 1972. Judgment was entered on June 30, 1975, in favor of the United States against Hill for the unpaid amount of these assessments including interest and statutory additions accrued to date of judgment in the amount of $4,052,842.60, plus interest on that amount from the date of judgment. On June 30, 1975, judgment was also entered in favor of the Bank against Hill in the amount of $4,694,212.59 principal, plus interest of $1,249,770.17 through June 23, 1975, interest from June 24, 1975, to June 30, 1975, at the rate of seven percent per annum, contractual attorneys' fees of $14,270.43, and costs. Of this amount, approximately $4,601,546.33 represented the principal claim of the Bank against Hill for embezzlement.

The property which is the subject of this action is property which was owned by Hill. The Bank claims that to the extent it can trace the embezzled funds to some or all of this property, it has a claim superior to the federal tax lien by virtue of an equitable lien resulting from a constructive trust pursuant to Ga.Code Ann. §§ 108-106 and -107. This order will deal only with the question of who has priority as to the property which the Bank claims by the equitable lien. The Bank makes some reference to other property which is in its possession, custody, or control and to which the Bank claims priority by virtue of a security interest pursuant to a dragnet clause in a note; however, there is not presently sufficient information in the record to rule on that question.

The Bank relies essentially on Ga. Code Ann. § 108-106(2), which provides that a trust is implied "where, from any fraud, one person obtains the title to property which rightly belongs to another." This section is implemented by Ga. Code Ann. § 108-107 which provides: "Whenever the circumstances are such that the person taking the legal estate, either from fraud or otherwise, cannot enjoy the beneficial interest without violating some established principle of equity, the court will declare him a trustee for the person beneficially entitled, if such person shall not have waived his right by subsequent ratification or long acquiescence." Where funds are embezzled, the victim can trace such funds into the property in which the embezzler invested them and obtain an equitable lien on such property under Georgia law. United States Fidelity and Guaranty Co. v. Richmond County, 174 Ga. 599, 163 S.E. 482 (1932). The Bank thus contends that since it has alleged that some or all of the property which is the subject of this suit was purchased with funds which were embezzled from it, the property is impressed with a constructive trust in its favor. Since the embezzlement and the purchase of the property occurred prior to filing of the tax lien and since the Bank filed a notice of lis pendens in connection with its suit to impress a constructive trust on the property prior to the filing of the tax lien, the Bank contends that its equitable lien takes priority over the federal tax lien.

The Bank fails to recognize that it is a matter of federal and not state law as to when a lien has acquired sufficient substance and has become so perfected as to defeat a federal tax lien. United States v. Pioneer American Ins. Co., 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963); United States v. Morrison, 247 F.2d 285 (5th Cir. 1957). For a lien to be sufficiently established to defeat a federal tax lien, the identity of the lienor, the property subject to the lien, and the amount of the lien must be established. United States v. Pioneer American Ins. Co., supra. In the case sub judice, it is clear that the property subject to the lien is not established, nor was the amount of the lien established at the time of the filing of the federal tax lien. Whether the equitable lien exists in this case is contingent upon the Bank's proof in its suit. Until it establishes that the embezzled funds were used to purchase some or all of the property involved, and until it gets a judgment by a court pursuant to Ga.Code Ann. § 108-107 impressing a lien on such property, its lien is not perfected to the extent required by federal law so that it will defeat a valid federal tax lien. Several analogous cases amplify this situation. In ...