First NH Bank v. Carrabassett Inv.
| Decision Date | 18 February 1993 |
| Docket Number | Civ. No. 92-112-M. |
| Citation | 813 F. Supp. 919 |
| Parties | FIRST N.H. BANK, NATIONAL ASSOCIATION v. CARRABASSETT INVESTMENT CORP., and The United States Government. |
| Court | U.S. District Court — District of New Hampshire |
Robert R. Lucic, Manchester, NH, for plaintiff.
Leslie M. Singer, Washington, DC, Gretchen Leah Witt, Concord, NH, for U.S.
Donald J. Williamson, Manchester, NH, for Carrabassett Inv. Corp.
ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
This interpleader action involves a lien priority dispute between the Internal Revenue Service ("IRS") and Carrabassett Investment Corp. ("Carrabassett"). Carrabassett and the IRS each have liquidated claims against Abigail D. Kimball ("Kimball"). Each seeks to reach and apply her beneficial interest in the Berger Trust, administered by First N.H. Bank1, to satisfy its claim to the exclusion of the other. The facts are undisputed, the issues are legal in character, and the parties agree that summary judgment is an appropriate means by which to resolve the case. The Court also agrees. Fed.R.Civ.P. 56(c). Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Santoni v. Federal Deposit Ins. Corp., 677 F.2d 174, 179 (1st Cir.1982).
Resolution of the pending cross motions requires an analysis of at least the following factors: (1) Carrabassett's status as a "judgment lien creditor"; (2) the lien perfection requirements imposed on the IRS by 26 U.S.C. § 6323(a); and (3) the effect upon competing creditors of an IRS Notice of Levy (26 U.S.C. § 6331). For the reasons set out below, Carrabassett's Motion for Summary Judgment (document No. 18) is granted, and the IRS' motion is denied (document No. 13).
Kimball owes the United States approximately $76,937.00, plus statutory interest and penalties, arising out of her operation of a business that neglected to collect, account for, and pay withholding and FICA taxes. She also owes Carrabassett approximately $170,000, plus interest, on a commercial demand note she executed as a co-maker.
Both the IRS and Carrabassett took action to collect the amounts owed. That action, particularly its timing, is relevant in determining the priority of the parties' respective liens on Kimball's trust fund interest. The race for superiority is fairly summarized by the following time line.
IRS Event Date Carrabassett Event
Federal Tax Assessments August 3, 1989—|
|
Against Kimball February 26, 1990—|
|
|—December 10, 1990 Prejudgment Attachment
| on Trust Funds, NH Superior
| Court
|
Notice of Levy Served on February 8, 1991—|
Kimball's Interest in |
Berger Trust |
|—April 15, 1991 Default Judgment Against
| Kimball, NH Superior
| Court
Final Notice of Levy April 24, 1991—|
Served on Trust |
|
Notice of Federal Tax May 6, 1991—|
Lien Filed, Bedford, NH |
(conceded not to be Kimball's |
Residence or Situs |
of Trust Funds) |
|
Final Demand on Bank May 7, 1991—|
(Trust) to Pay Levy |
|
|—August 19, 1991 Judgment Against Kimball
| ($170,000) NH Superior
| Court
|
|—September 19, 1991 NH Superior Court Grants
| Motion to Charge Trustee
| and Stay Partial Execution
| of Judgment (Until
| May 6, 1996, Payment is
| Due) ($109,934.86)
Notice of Federal Tax July 21, 1992—|
Lien Filed in San Diego, |
California (allegedly Kimball's |
Residence and Situs |
of Trust Funds) |
A federal tax lien arose and attached to Kimball's trust interest when, after notice and demand, she failed to pay her taxes.2 Federal law governs the effect and priority of federal tax liens. Rodriguez v. Escambron Dev. Corp., 740 F.2d 92, 97 (1st Cir.1984) (citing United States v. Rodgers, 461 U.S. 677, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983)); Hinkley & Donovan v. Paine, 424 F.Supp. 1013, 1015 (D.N.H. 1977). The general rule applicable in determining priority between a tax lien and other competing liens is the familiar "first in time, first in right." Rodriguez, 740 F.2d at 97 (citing United States v. City of New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954)). Competing creditor liens generally take priority over IRS liens only if they are perfected and choate3 when the taxes giving rise to the federal lien are assessed. Id.
"Judgment lien creditors," however, are among that statutory class whose liens will prime tax liens so long as they are perfected and choate before the IRS properly files its Notice of Federal Tax Lien under 26 U.S.C. § 6323(a) and (f). McDermott v. Zions First Nat'l Bank, 945 F.2d 1475, 1479 (10th Cir.1991), cert. granted, ___ U.S. ___, 112 S.Ct. 2272, 119 L.Ed.2d 199 (1992). That is, "the lien imposed by § 6321 shall not be valid as against any ... judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary." 26 U.S.C. § 6323(a).
The notice of federal tax lien referred to in § 6323(a) must be filed "in one office within the state ... as designated by the laws of such State, in which the property subject to the lien is situated." 26 U.S.C. § 6323(f)(1)(A)(ii). Personal property, such as Kimball's interest in the Berger Trust, is deemed to be situated at the residence of the taxpayer at the time the government's notice of lien is filed. § 6323(f)(2)(B).
For purposes of applying the provisions of § 6323(a), a "judgment lien creditor" is defined by the Treasury Department as:
... A person who has obtained a valid judgment, in a court of record and of competent jurisdiction, for the recovery of specifically designated property or for a certain sum of money. In the case of a judgment for the recovery of a certain sum of money, a judgment lien creditor is a person who has perfected a lien under the judgment on the property involved. A judgment lien is not perfected until the identity of the lienor, the property subject to the lien, and the amount of the lien are established. Accordingly, a judgment lien does not include an attachment or garnishment lien until the lien has ripened into judgment, even though under local law the lien of the judgment relates back to an earlier date.... If under local law levy or seizure is necessary before a judgment lien becomes effective against third parties acquiring liens on personal property, then a judgment lien under such local law is not perfected until levy or seizure of the personal property involved.
26 C.F.R. § 301.6323(h)-1(g) (1992).
From the time line summary above, it would appear that Carrabassett became a judgment lien creditor, as defined by applicable regulations, on September 19, 1991, the date on which the New Hampshire Superior Court granted its motion to charge the trustee of the Berger Trust and to stay partial execution of the judgment until Kimball's May 6, 1996, disbursement becomes due. During oral argument, the government seemed willing to concede that Carrabassett became a judgment lien creditor even earlier, on August 19, 1991, when judgment was entered. Either date will suffice under these facts. However, for convenience and clarity, the Court will refer to September 19, 1991, as the date of Carrabassett's judgment lien.
Unarguably, as of September 19, 1991, Carrabassett had obtained a valid judgment in the New Hampshire Superior Court, a court of record and of competent jurisdiction, for the recovery of specifically designated property, in a sum certain. At that point, Carrabassett's judgment lien was perfected, and choate, since the identity of the lienor (Carrabassett), the property subject to the lien (Kimball's beneficial interest in the Berger Trust), and the amount of the lien ($109,934.86) were all established. 26 C.F.R. § 301.6323(h)-1(g).
In order for the government to prevail over Carrabassett's perfected judgment lien, it must demonstrate that its own lien was perfected prior in time, that is, before September 19, 1991. The government concedes that its first notice of tax lien filing, in Bedford, New Hampshire, on May 6, 1991, was ineffective. Bedford, New Hampshire, was neither Kimball's place of residence at the time of filing, nor the situs of Kimball's trust fund interest, the personal property subject to the lien. § 6323(f)(2)(B).
The government's second effort to file a notice of tax lien under § 6323(a) in San Diego, California,4 was not...
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