Kimbell Foods, Inc. v. Republic Nat. Bank of Dallas

Decision Date05 September 1975
Docket NumberCiv. A. No. 3-74-56-D.
Citation401 F. Supp. 316
PartiesKIMBELL FOODS, INC., a corporation, f/k/a Kimbell Milling Company, d/b/a Kimbell Grocery Company, Plaintiff, v. REPUBLIC NATIONAL BANK OF DALLAS and United States of America, Defendants, State of Texas and City of Dallas, Intervenors.
CourtU.S. District Court — Northern District of Texas



Vernon O. Teofan, Ungerman, Hill, Ungerman, Angrist, Dolginoff & Teofan, Dallas, Tex., for plaintiff.

John L. Hill, Atty. Gen., Lewis A. Jones, Asst. Atty. Gen., Austin, Tex., for State of Texas.

N. Alex Bickley, City Atty., Ted P. McMaster, Asst. City Atty., Dallas, Tex., for City of Dallas.

Frank J. Betancourt, Gardere, Porter & DeHay, Dallas, Tex., for defendant.

Frank D. McCown, U. S. Atty., Claude Brown, Asst. U. S. Atty., Dallas, Tex., for United States.


STEGER, District Judge.

This suit concerns the relative priorities of various parties to $86,672.00, which is being held in escrow by Republic National Bank. Jurisdiction is based upon Title 28, United States Code, Section 2410, this suit being brought to quiet title and foreclose liens upon personal property in which the United States claims an interest.

It will be necessary to cover each of the conflicting claims in greater detail later, however, a brief rendition of the facts might be helpful at this point. The claim of the plaintiff, Kimbell Foods, stems from weekly inventory purchases made on open account by O.K. Super Markets, Inc., a supermarket chain that operated in Dallas, Texas. Kimbell Foods claims that this indebtedness was secured by future advance clauses in security agreements executed by O.K. Super Markets in 1966 and 1968. The Republic Bank and the United States claim entitlement to the entire proceeds in escrow due to a default by O.K. Super Markets on a $300,000.00 Small Business Administration guaranteed loan made by Republic National Bank in February of 1969. Intervenors State of Texas and the City of Dallas are seeking sums owed by O.K. Super Markets for delinquent sales taxes. Additionally, the City of Dallas is asserting a small claim for delinquent ad valorem taxes on O.K. Super Markets' personal property.

As noted previously, all of these parties are asserting claims against funds being held in escrow by Republic National Bank. The source of these funds was a bulk sale of all the fixtures, equipment and inventory at three of O.K. Super Markets' stores. These stores were purchased on February 8, 1971, by Grand City Groceries, Inc., Pat H. Hood and Charles W. Logan.1 The stores were sold pursuant to an agreement entered into on February 3, 1971, between O.K. Super Markets and the Republic National Bank and approved as to form and substance by the Small Business Administration and Kimbell Foods. This agreement was the result of a meeting held on December 30, 1970, between a representative from the bank, the acting Regional Director of the Small Business Administration (hereinafter referred to as the SBA) and Mr. Harold Kindle, the President of O.K. Super Markets. This agreement allowed O.K. Super Markets to find bulk purchasers for the stores and in return the bank released the debtor to the extent of $95,000.00 owing on the $300,000.00 note. The agreement further provided that the bank would hold the total sum in escrow pending voluntary settlement or court adjudication of the claims of the SBA, Republic Bank and Kimbell Foods.

Kimbell Foods contends that its claim for $24,445.372 is first and prior to the other claims of the parties herein. O.K. Super Markets executed three security agreements and financing statements in favor of Kimbell Foods to secure the payment of certain notes. The first of these agreements was executed on August 30, 1966, to secure a note in the sum of $20,000.00 and it was duly filed with the Secretary of State on September 2, 1966. The list of collateral which was attached to the agreement consisted of various types of equipment that would be needed in the operation of food stores. The agreement had a standard printed "dragnet" clause which said that the security interest in the listed collateral was also given to secure all other future advances to the debtor.3 Subsequently, on April 17, 1968, and November 14, 1968, additional security agreements and financing statements were entered into between O.K. Super Markets and the plaintiff, securing a note in the sum of $27,000.00. These were both filed with the Secretary of State. New collateral was listed in each of these agreements and each contained an identical future advance clause as the 1966 security agreement and financing statement. These future advance clauses are said by Kimbell Foods to encompass the later inventory purchases on open account and, therefore, the security interest in the inventory is perfected as of the first filing in 1966. No termination statements have been filed on any of these security agreements.

The United States is involved in this case due to the fact that the SBA guaranteed 90% of a $300,000.00 loan made by Republic National Bank to O.K. Super Markets on February 12, 1969. This loan was sought and was needed by O.K. Super Markets because consumer boycotts at some of their stores caused heavy losses. Prior to this loan, the bank and the SBA tried to get some of the larger creditors of O.K. Super Markets to guarantee the loan in proportion to the amount owed each creditor by O.K. Super Markets but this effort proved to be unsuccessful.

To secure this $300,000.00 note O.K. Super Markets executed a security agreement and financing statement in favor of Republic Bank, which provided that the bank would have a security interest in all of the debtor's machinery, fixtures, equipment and inventory. A financing statement had been previously filed with the Secretary of State on August 7, 1968, but the financing statement was refiled on February 18, 1969, following the making of the loan.

Even with this boost, the financial difficulties of O.K. Super Markets continued and they defaulted on the note with the bank. Therefore, the United States on February 3, 1971, paid Republic National Bank 90% of the outstanding indebtedness, which totaled $252,313.93 on that date. The note and the financing statement were assigned to the SBA and the assignment was filed with Secretary of State on January 21, 1971.

When the SBA guaranteed loan was made by Republic National Bank on February 12, 1969, there was a balance owing on the April 17, 1968, note between O.K. Super Markets and Kimbell Foods in the sum of $24,893.10. This was the only outstanding note balance remaining on that date, however, there was a running balance on the open account for inventory purchases. Out of the $300,000.00 loaned to O.K. Super Markets, $24,893.10 was immediately paid to the plaintiff on February 12, 1969, thereby extinguishing the last remaining promissory note balance.

The claim of the State of Texas and the City of Dallas is principally for sales taxes that were due and payable by O.K. Super Markets when they sold the stores to Charles Logan, Pat Hood and Grand City Groceries. The State is seeking $29,887.51 in taxes, penalties and interest, and the City of Dallas claims $12,229.64. The intervenors contend that under State law they have a preferred lien which is first and prior to all others on all property purchased from O.K. Super Markets. They further contend that their liens follow the proceeds in escrow received from the sale of the stores.

Although recordation was not required until January 1, 1970, for a valid tax lien on personalty, the State did record its tax liens prior to that date. After this suit was filed, the State and City obtained a default judgment in the District Court of Travis County, Texas, on February 13, 1973, against O.K. Super Markets for past due taxes.

Aside from these sales taxes, the City of Dallas claims $2,530.10 for delinquent ad valorem personal property taxes, penalties and interest for the years 1969 through 1972. These ad valorem tax liens have not been recorded nor has a judgment been obtained thereon.

The above is a summary of the claims of each of the parties. The Court will now discuss the law applicable to this case.

The initial inquiry for this Court is whether state or federal law or a combination of both controls the disposition of these conflicting claims. Jurisdiction is based upon a federal statute, 28 U.S.C.A. § 2410, and it has long been the rule that federal law applies when a debt owing the United States is involved. United States v. Security Trust & Savings Bank, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53 (1950); Clearfield Trust Company v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943); United States v. General Douglas MacArthur Sr. Vil., Inc., 470 F.2d 675 (2d Cir. 1972); Texas Oil & Gas Corporation v. United States, 466 F.2d 1040 (5th Cir. 1972); United States v. City of Albuquerque, New Mexico, 465 F.2d 776 (10th Cir. 1972); United States v. Oswald and Hess Company, 345 F.2d 886 (3d Cir. 1965); In re Lehigh Valley Mills, Inc., 341 F.2d 398 (3d Cir. 1965); W. T. Jones and Company v. Foodco Realty, Inc., 318 F.2d 881 (4th Cir. 1963). The reason for this rule is that the United States, in exercising its governmental functions, must be protected by a uniform federal law and should not be subjected to differing rules of the various states. Clearfield Trust Co. v. United States, supra. Therefore, federal law applies to a consideration of all the claims in this case, unless of course there is a federal statute directing this Court to apply state law. See Annot. 17 A.L.R.Fed. 874 (1973).

The federal rule for determining the relative priority between a federal lien and a state created lien is first in time is first in right. United States v. New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954). In applying this rule, the Supreme Court has...

To continue reading

Request your trial
7 cases
  • United States 77 1359 v. Kimbell Foods, Inc United States 77 1644 v. Crittenden
    • United States
    • U.S. Supreme Court
    • April 2, 1979
    ...priority over state and private liens where the governing statute does not specify priorities. Kimbell Foods, Inc. v. Republic Nat. Bank of Dallas, 401 F.Supp. 316, 321-322 (N.D. Tex.1975). See, e. g., United States v. Security Trust & Sav. Bank, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53 (1950......
  • Beaty v. U.S., s. 90-5265
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • June 26, 1991 operation of a transfer, the lien never becomes attached to the proceeds of the exchange. See Kimbell Foods, Inc. v. Republic National Bank of Dallas, 401 F.Supp. 316, 327 (N.D.Tex.1975); 51 Am.Jur.2d Liens Sec. 60 (1970). Accordingly, we hold that the lien never attached to the three pa......
  • Estate of Simpson, Matter of
    • United States
    • Iowa Supreme Court
    • April 15, 1987
    ...debtor to its inclusion may be inferred." In re Johnson, 9 B.R. 713, 715 (Bankr.M.D.Tenn.1981); see also Kimbell Foods v. Republic Nat'l Bank, 401 F.Supp. 316, 325 (N.D.Tex.1975), reversed on other grounds, 557 F.2d 491 (5th Cir.1977), aff'd. sub nom. United States v. Kimbell Foods, 440 U.S......
  • McCollough Const. Co., Inc. v. Agricultural Products Corp.
    • United States
    • U.S. District Court — Northern District of Indiana
    • August 24, 1977 which ignores the relation-back aspect of perfection under state mechanic's liens statutes. In Kimbell Foods, Inc. v. Republic Nat. Bank of Dallas, 401 F.Supp. 316 (N.D.Tex. 1975), the court was faced with a situation similar to the case at bar. In Kimbell, the SBA did not actually loan......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT