Metropolitan Life Ins. Co. v. United States

• Decision Date: 14 November 1939
• Docket Number: No. 8264.,8264.
• Parties: METROPOLITAN LIFE INS. CO. v. UNITED STATES.
• Court: U.S. Court of Appeals — Sixth Circuit

107 F.2d 311 (1939)

METROPOLITAN LIFE INS. CO. v. UNITED STATES.

No. 8264.

Circuit Court of Appeals, Sixth Circuit.

November 14, 1939.

Harold R. Smith, of Detroit, Mich., and George E. Walton, of New York City, for appellant.

Wm. B. Waldo, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., Sewall Key, J. Louis Monarch, and Wm. B. Waldo, Sp. Assts. to Atty. Gen., and John C. Lehr and J. Thomas Smith, both of Detroit, Mich., on the brief), for appellee.

Before ALLEN, HAMILTON, and ARANT, Circuit Judges.

HAMILTON, Circuit Judge.

During the years 1929 and 1930, appellant, an insurance corporation organized under the laws of the State of New York, by assignment acquired three mortgages, upon separate parcels of real estate, located in Detroit, Michigan. Each mortgage contained an acceleration clause and a provision which gave the mortgagee the right to sell the premises in event of default, with the King-Kelly Corporation as debtor. The mortgage assignments and conveyances were duly recorded.

On August 17, 1932, prior to foreclosure, an assessment for corporation income taxes for the year 1930 was made against the King-Kelly Corporation and the United States acquired a valid and subsisting lien on its property pursuant to the Revenue Act of 1928, chap. 852, § 613, 45 Stat. 791, 26 U.S.C.A. §§ 1560-1567.

On default, appellant declared the entire indebtedness due, and pursuant to power of sale, prescribed by Sections 14425-14444, inclusive, of the Compiled Laws of Michigan for 1929 (Mich.Stat.Ann. Vol. 21, Secs. 27.1221-27.1240), the properties were publicly sold on September 12, 1934, for a sum insufficient to satisfy the mortgage indebtedness, appellant becoming the purchaser. The government was not a party to the proceedings and neither consented to nor ratified the sale.

On March 17, 1936, appellant instituted this action under the provisions of Section 3207 of the Revised Statutes, 26 U.S.C.A. §§ 1568, 1569, asking that the lien, if any, theretofore held by the United States on the property be decreed extinguished by reason of appellant's sale and purchase of it.

The District Court held the tax lien of appellee was not thus extinguished but was inferior to the appellant's mortgages and ordered the property sold and the proceeds first applied to appellant's claims and the balance, if any, paid to appellee. From this decree appellant appeals.

The government has plenary power over the property of taxpayers to collect taxes and is in no wise subject to state laws. Fink v. O'Neil, 106 U.S. 272, 285, 1 S.Ct. 325, 27 L.Ed. 196. The statutes governing the collection of taxes are broad and comprehensive. By 26 U.S.C.A. § 115 (see 26 U.S.C.A. § 1560) taxes are a lien "upon all property and rights to property whether real or personal" belonging to the taxpayer.

The lien of the government attaches to all of the property in possession of the taxpayer to the extent of his interest in and rights thereto, depending upon contracts and unexecuted instruments and relates back to the date of the refusal to pay the tax after demand and, "unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time." 26 U.S.C.A. § 1561.

Since the Federal Statutes do not define the term "property" or the rights attaching thereto, we must turn to the state law for their meaning. Poe v. Seaborn, 282 U.S. 101, 118, 51 S.Ct. 58, 75 L.Ed. 239.

Appellant insists that its right to sell the premises in default of its mortgages was a right in property which it had purchased and which could not be impaired by the tax lien of the government. The fallacy of this contention is readily apparent when appellant concedes, as it does, that the taxpayer-mortgagor had an interest in the property at the time the lien of the United States attached.

Appellant, mortgage creditor of the taxpayer-mortgagor, did not acquire title to the lands in lien to it until their sale in 1934. Dawson v. Peter, 119 Mich. 274, 77 N.W. 997; White v. Fulton, 260 Mich. 346, 244 N.W. 498, and at the time the lien of the United States was perfected on the interest of the mortgagor in the land, the latter had title to and an interest in the property. Kollen v. Sooy, 172 Mich. 214, 137 N.W. 808.

The statute imposing a lien for federal taxes is derived from the Act of July 13, 1866 (R.S. § 3186) and since that time has been in substantially the same form. From a study of it and derivatives, it is certain that no policy of the states may interfere with the power of Congress to levy and collect taxes. Burnet v. Harmel, 287 U.S. 103, 110, 53 S.Ct. 74, 77 L.Ed. 199; United States v. Snyder, 149 U.S. 210, 214, 13 S.Ct. 846, 37 L.Ed. 705. The Federal statutes create specific liens for taxes and as a corollary give a specific remedy for their removal and when such liens once attach, they may be lifted only as provided thereunder.

Under the provisions of R.S. § 3207 (26 U.S.C.A. § 136, re-enacted as Section 1127 of the Revenue Act of 1926, 26 U.S.C.A. §§ 1568, 1569) any person having a lien upon real estate which was recorded prior to the filing of the notice of the United States tax lien or any person purchasing real estate at a sale to satisfy such antecedent lien, may file a bill in chancery in the District Court for the removal of the tax lien. As conditions precedent, the plaintiff must obtain an order of the District Court for filing and must show a written request of six months or more to the Commissioner of Internal Revenue to file a bill in chancery to enforce the government's lien.

In all such cases where a claim or interest of the United States in the property is established, the court "shall decree a sale of such real estate, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States." 26 U.S.C.A. § 1568.

The jurisdiction of Federal District Courts is limited not only by the Constitution (U.S.C.A. Const. art. 3, § 2, cl. 1), but also by the Acts of the Congress (Jud. Code § 24, 28 U.S.C.A. § 41), and where the latter, in conferring it, points out the manner in which it shall be exercised, only that method expressly or impliedly conferred may be followed. Michaelson et al. v. United States ex rel., etc., 266 U.S. 42, 71, 45 S.Ct. 18, 69 L.Ed. 162, 35 A.L.R. 451; Kline v. Burke Construction Company, 260 U.S. 226, 235, 43 S.Ct. 79, 67 L.Ed. 226, 24 A.L.R. 1077; Ex parte Robinson, 19 Wall. 505, 22 L.Ed. 205; Aetna Life Insurance Company v. Haworth, 300 U.S. 227, 240, 57 S.Ct. 461, 81 L.Ed. 617, 108 A.L.R. 1000.

The United States as a sovereign may be sued only with its consent. It follows that the Congress has the power to prescribe not only the methods by which and the conditions under which tax liens on real estate may be released but also to limit the right to sue therefor and no suit may be maintained against the United States for such purpose unless strictly within the terms of the Statute (Jud. Code § 24(20), 28 U.S.C.A. § 41(20), under which consent is given. Banco Mexicano, etc. v. Deutsche Bank, 53 App.D.C. 266, 289 F. 924, affirmed in 263 U.S. 591, 44 S.Ct. 209, 68 L.Ed. 465; Rand v. United States, 249 U.S. 503, 510, 39 S.Ct. 359, 63 L.Ed. 731; Price v. United States & Osage Indians, 174 U.S. 373, 379, 19 S.Ct. 765, 43 L.Ed. 1011; United States v. Michel, 282 U.S. 656, 660, 51 S.Ct. 284, 75 L.Ed. 598; Tucker v. Alexander, 275 U.S. 228, 232, 48 S.Ct. 45, 72 L. Ed. 253.

The right of the plaintiff to a release of the lien here in question is purely statutory and the jurisdiction of the Court may not be enlarged by implication. The question to be determined is not what binding effect the power of sale conferred by the mortgage had on subsequent lienors, and it matters not what may seem to the Court equitable in the premises. Appellant's action was predicated on the theory that the United States had some sort of lien on the premises which it was seeking to lift in accordance with the terms of the Statute. Since the statute does not expressly or impliedly give the Court power to discharge the lien by decree, the only statutory method by which it may be done is sale. The decree of the District Court is affirmed.

ARANT, Circuit Judge (dissenting).

The lien of the United States involved herein was based upon an income tax, not a property tax, and attached only to "property and rights to property, whether real or personal, belonging to" the tax debtor. R. S. Sec. 3186, U.S.C., title 26, Sec. 1560, 26 U.S.C.A. § 1560. Since the tax debtor's interest was subject to appellant's mortgage when the tax claim accrued, the majority concedes that the tax lien upon the property involved herein was subordinate to appellant's mortgage. See 5 Paul and Mertens Law of Federal Income Taxation, Sec. 47.51.

I am in general accord with the view of the majority as to the plenary nature of the federal power of taxation. However, I cannot concede that this power enables the United States to acquire a lien upon any greater property interest than its tax debtor owns. In the case at bar, the interest of the tax debtor was subject to destruction by exercise of the power of sale. While Michigan statutes recognize the validity of such a power, it was not conferred by statute but was created by contract. Had a statute conferred the power, however, I do not understand the majority to suggest that it would have been unconstitutional as an interference with the federal power of taxation. On the contrary, it expressly concedes that the extent of the property interest of a tax debtor is dependent upon state law. The conclusion is inescapable, therefore, that the tax lien attaches only to the destructible interest that remains in a mortgagor after execution of a mortgage with...