In re Dulaney
| Decision Date | 21 December 1982 |
| Docket Number | Bankruptcy No. 7-82-00101. |
| Citation | 29 BR 79 |
| Court | U.S. Bankruptcy Court — Western District of Virginia |
| Parties | In re Dennis Dale DULANEY, Jr., a/k/a Dale Dulaney & Narlene Belcher Dulaney, Debtors. |
Tonita M. Foster, Roanoke, Va., for debtors.
J. Glenwood Strickler, Roanoke, Va., trustee.
Daniel D. Hamrick, Christiansburg, Va., for Corrine Chapman and Ramona Sisson.
Thomas R. King, Jr., Asst. U.S. Atty., Roanoke, Va., and Paige E. Reffe, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for I.R.S.
The issue before the Court involves the proper priority of parties claiming funds held by the Trustee in bankruptcy for final distribution. Resolution of the issue turns on whether creditors Corrine Chapman (Chapman) and Ramona C. Sisson (Sisson) had obtained the status of judgment lien creditors within the meaning of 26 U.S.C. § 6323(a) Internal Revenue Code of 1954 before the Internal Revenue Service (IRS) filed a notice of tax lien.
Dennis Dulaney and Narlene B. Dulaney (Debtors), now in bankruptcy, and Mr. Dulaney's wholly-owned corporation, Interstate Auto Sales, Inc. (Interstate Auto), filed suits in the Circuit Court of the City of Roanoke against Straub & Dalch, a Virginia accounting partnership, asking for damages in excess of $1,000,000.00 for breach of contract and negligence arising from accounting service rendered during the fiscal year ending November 1979. The cases progressed until October 27, 1981, at which time a compromise was reached whereby Interstate Auto and the Dulaneys would release and discharge the Defendants in exchange for $25,000.00. The sum was to be paid at that time to Interstate Auto. On October 30, 1981, IRS sent a Notice of Levy against Interstate Auto in the amount of $8,614.90 addressed to counsel for the corporation and counsel for Straub & Dalch. The Dulaneys then decided it would be advantageous to have the settlement proceeds paid to them or to IRS to satisfy a lien against the Dulaneys for unpaid tax assessments for the calendar years 1973, 1976, 1977, 1978 and 1979. A Notice of Federal Tax Lien was filed with respect to these unpaid liabilities on October 8, 1980, in the Clerk's Office of the Circuit Court of Montgomery County. Notice of the lien was delivered to Dulaneys' counsel on March 3, 1981, and to the attorney for Straub & Dalch on February 20, 1981. It appeared, therefore, in November of 1981 that the proceeds remaining after payment of counsel fees were destined to be delivered to the Dulaneys to satisfy their tax debts.
On September 18, 1980, Corrine Chapman and Ramona Sisson obtained judgments against the Dulaneys in Montgomery County Circuit Court. These judgments were docketed and executions issued on the same day. Writs of fieri facias were delivered to the Sheriff of Montgomery County on September 22, 1980, and were subsequently returned "no effects" on March 9, 1981. On November 27, 1981, Chapman and Sisson filed an Attachment Petition and a Memorandum of Notice of Writ of Fieri Facias was sent to counsel for the Dulaneys and counsel for Straub & Dalch. On December 2, 1981, writs of fieri facias were again issued on the judgments and delivered to the Sheriff for execution. These were returned "no effects" on April 22, 1982.
A petition in interpleader was filed by the Dulaneys in the Circuit Court of Roanoke City on January 6, 1982. On January 22, 1982, Dennis and Narlene Dulaney filed a Chapter 7 petition in bankruptcy in this Court. The $25,000.00 settlement proceeds were paid over to the Trustee in bankruptcy pending a determination of the proper order of distribution.
The United States bases a claim of right on a statutory tax lien under § 6321 of the Internal Revenue Code of 1954 (I.R.C. § 6321). Under I.R.C. § 6322, that lien arose when the assessment of taxes was made against the Dulaneys. I.R.C. § 6323(a), however, provides that such lien "shall not be valid as against any . . . judgment lien creditor until notice thereof . . . has been filed by the Secretary of his delegate." Chapman and Sisson contend they were judgment lien creditors within the meaning of § 6323(a) prior to the time notice of the tax lien was filed on October 8, 1980. Some twenty days earlier, Chapman and Sisson had executed upon their judgments by means of fieri facias writs. IRS claims its lien has priority because Chapman and Sisson were not judgment lien creditors within the meaning of § 6323(a); their liens were not choate and perfected under local law as against third parties.
When priority of a federal tax lien is asserted against a state-created lien, state law determines the existence and characteristics of the state lien, but federal law sets the standards for priority. It would be contrary to the federal policy of uniformity in the federal tax laws to permit the priority of federal tax liens to be determined by the diverse rules of the various states. United States v. Equitable Life Assur. Soc., 348 U.S. 323, 86 S.Ct. 1561, 16 L.Ed.2d 593 (1966); United States v. Pioneer Amer. Ins. Co., 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963); United States v. Acri, 348 U.S. 211, 75 S.Ct. 239, 99 L.Ed. 264 (1955). With respect to 26 U.S.C. § 6323(a), it has been held that insofar as it may conflict with state law, state law must yield under the supremacy clause of the Federal Constitution, and while the state law may be given weight, the meaning of the statute and the terms used therein is a matter to be determined finally by the U.S. Supreme Court. Specifically, federal law determines whether the status of "judgment lien creditor" within the meaning of § 6323(a) of the Internal Revenue Code was attained before Notice of the Federal Tax Lien was filed. United States v. Gilbert Associates, Inc., 345 U.S. 361, 73 S.Ct. 701, 97 L.Ed. 1071 (1953); United States v. E. Regensburg & Sons, 124 F.Supp. 687 (1954), aff'd. 221 F.2d 336 (2nd Cir.1955), cert. den. 350 U.S. 842, 76 S.Ct. 83, 100 L.Ed. 751.
Treasury Regs. § 301.6323(h)-1(g) provides the following definition of a judgment lien creditor:
The term...
To continue reading
Request your trial