Middlesex Sav. Bank v. Johnson, Civ. A. No. 90-12711-WD.

• Decision Date: 09 September 1991
• Docket Number: Civ. A. No. 90-12711-WD.
• Citation: 777 F. Supp. 1024
• Parties: MIDDLESEX SAVINGS BANK, Plaintiff, v. Raymond A. JOHNSON, et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

777 F. Supp. 1024

MIDDLESEX SAVINGS BANK, Plaintiff, v. Raymond A. JOHNSON, et al., Defendants.

Civ. A. No. 90-12711-WD.

United States District Court, D. Massachusetts.

September 9, 1991.

COPYRIGHT MATERIAL OMITTED

Arnold I. Zaltas, Zaltas, Medoff & Raider, Natick, Mass., for plaintiff.

Stephen Wald, Craig & Macauley, Boston, Mass., James A. Frieden, Los Angeles, Cal., for defendants Thomas W. Nadolski, Rosemary C. Nadolski and Robert C. Lyons.

Susan M. Poswistilo, U.S. Atty.'s Office, John W. McCormack Poch, Boston, Mass., Henry J. Riordan, U.S. Dept. of Justice, Tax Div., Washington, D.C., for defendant U.S. I.R.S.

MEMORANDUM AND ORDER

WOODLOCK, District Judge.

Plaintiff, Middlesex Savings Bank, commenced this interpleader action in the state court after foreclosing a lien against real estate owned by defendant Raymond Johnson ("Johnson") at 27-29 Crane Ave., in Maynard, Massachusetts. The foreclosure resulted in surplus proceeds of $56,115.11, to which Middlesex Savings Bank makes no claim. Excluding Johnson,¹ six other defendants were named, each appearing to have an interest in the aforementioned real property.

Now before me are three motions for summary judgment and one motion to compel discovery.² No matters of fact seem to be in dispute. The United States, as a defendant under 28 U.S.C. § 2410, removed the case to this court pursuant to 28 U.S.C. § 1444. The United States has now moved for summary judgment based on its alleged lien on Johnson's property, which arose from the federal tax assessment of $51,273.31³ made against him on April 10, 1989, pursuant to 26 U.S.C. § 6672. The motion of the United States is well founded and will be allowed. The motion by one set of defendants to delay ruling on summary judgment and to compel the United States to respond to their discovery requests has no foundation in the law and will be denied. As a consequence of these decisions, the issues raised by the other two pending summary judgment motions are moot, and those motions will also be denied.⁴

I

I will consider the property interests of the various parties and their claims to priority seriatim.

A. Tax Lien of the United States

Johnson's failure to pay the federal tax assessment made against him, after notice and demand, created a federal lien attaching to all his property effective April 10, 1989 — the date the assessment was made. 26 U.S.C. §§ 6321-6322. Under federal law, the rule of "first in time, first in right" generally determines priority. See United States v. New Britain, 347 U.S. 81, 85-86, 74 S.Ct. 367, 370-371, 98 L.Ed. 520 (1954). And, it is well established that "the effect of a lien in relation to a provision of federal law for the collection of debts owing the United States is always a federal question." United States v. Security Trust & Savings Bank, 340 U.S. 47, 49, 71 S.Ct. 111, 113, 95 L.Ed. 53 (1950).

However, a federal tax lien is "valid" against certain third persons (e.g., judgment lien creditors) only after being recorded by filing a notice of the lien pursuant to § 6323(f). 26 U.S.C. § 6323(a). On July 19, 1989, the United States filed notice of the lien arising from the assessment. Thus, the federal tax lien on property belonging to Johnson is superior to any subsequently perfected claim.⁵

B. Tax Lien of Commonwealth

The Commissioner of Revenue initially moved for summary judgment in favor of the Commonwealth (hereinafter both the Commissioner and the State of Massachusetts will be referred to as "the Commonwealth") on the basis of its allegedly superior tax lien pursuant to Mass.Gen.L. ch. 62C, § 50. That motion has been opposed by the five other participating defendants. However, the Commonwealth has not filed an opposition to the motion of the United States for summary judgment.

The tax lien of the Commonwealth against the assets of Johnson arose on July 7, 1989 — the date the assessment was made. See Mass.Gen.L. ch. 62C, § 50(a). The notice of the state tax lien against Johnson was not filed until August 24, 1989.⁶

The tax lien in favor of the United States arose prior to that of the Commonwealth, and consequently the claim of the United States has priority. It does not matter that the Commonwealth's lien arose prior to the date on which the federal lien was filed. The lien of the Commonwealth does not come within any of the classifications of persons (e.g., purchasers, judgment lien creditors) to whom the federal law accords priority until notice of the federal tax lien has been filed. See 26 U.S.C. § 6323(a); see also New Britain, 347 U.S. at 88, 74 S.Ct. at 371 (predecessor statute indicates Congress did not intend antecedent federal tax liens to rank behind any but the specific categories of interests set out); United States v. Gilbert Associates, Inc., 345 U.S. 361, 363-65, 73 S.Ct. 701, 703-04, 97 L.Ed. 1071 (1953) (under predecessor statute, state tax assessments are not "judgments" and notice is not required for federal tax lien to have priority over them).

C. Attachment by South Shore Bank

Defendant South Shore Bank ("South Shore") originally filed a "limited opposition" to the summary judgment motion made by the Commonwealth, objecting to the extent that the motion sought to establish that the claim of the Commonwealth to the interpled monies was superior to its own. Although South Shore requested an extension of time to oppose the motion of the United States for summary judgment, it has not filed any opposition.

South Shore bases its claim to the interpled funds on a prejudgment attachment against Johnson of $150,000. According to South Shore, the attachment was filed with the Registry of Deeds on November 30, 1988, but as of December, 1990, no judgment had been entered in its favor.

The tax lien of the United States is superior to the claim of South Shore. In this case, as in Security Trust, "the federal tax lien was recorded subsequent to the date of the attachment lien but prior to the date the attaching creditor obtained judgment." 340 U.S. at 48, 71 S.Ct. at 112. As Justice Jackson noted in Security Trust, in relation to the predecessor of the current tax lien statute, a federal tax lien is not valid against a judgment creditor without notice, but this protection only applies to "a judgment creditor in the conventional sense." Id. at 52, 71 S.Ct. at 114 (Jackson, J., concurring). South Shore was not a judgment creditor at the time of the filing of the federal tax lien, even if it eventually becomes one by receiving a judgment in its favor.⁷ Because an attachment is contingent or inchoate — giving the attachment creditor "no right to proceed against the property unless he gets a judgment" — it is insufficient to defeat the federal priority. Id. at 50-51, 71 S.Ct. at 113-114; accord United States v. Acri, 348 U.S. 211, 213, 75 S.Ct. 239, 241, 99 L.Ed. 264 (1955). Clearly, the lien claimed by South Shore was not choate before the United States filed notice of its federal tax lien. Thus South Shore is not entitled to priority.

D. Interest of the Judgment Creditors

Only defendants Thomas Nadolski, Rosemary Nadolski and Robert Lyons (collectively, "the Judgment Creditors") have formally opposed the summary judgment motion of the United States. Earlier, they also opposed the motion of the Commonwealth and sought summary judgment against the Commonwealth.

The Judgment Creditors obtained a prejudgment attachment for $80,000 against Johnson's property on December 1, 1988, which was filed with the Registry of Deeds on December 7, 1988. Subsequently, they obtained a judgment against Johnson in the amount of $672,505.41 on September 26, 1989, and a writ of execution for the property in Maynard on January 12, 1990, which was levied and recorded on January 31, 1990.⁸

The lien of the Judgment Creditors cannot defeat the priority of the federal lien any more than the attachment by South Shore could. The Judgment Creditors did not qualify as "judgment lien creditors" on July 19, 1989 — the date the United States filed its notice of tax lien. Prior to attaining the judgment, the Judgment Creditors had only an attachment: an inchoate lien, not protected under 26 U.S.C. § 6323. See supra, § I,C. As conceded by the Judgment Creditors themselves, the federal lien has priority because their judgment was obtained after the federal tax lien was filed.

II

Despite their concession concerning the superiority of the federal tax lien, the Judgment Creditors object to summary judgment in favor of the United States on grounds that

the Government has presented no evidence whatsoever that (1) the taxes on which it relies were properly assessed and levied and (2) that the Judgment Creditors were given any notice of the assessments or opportunity to challenge such assessments.

Opp. to S.J. for U.S., docket no. 20, at 1. Echoing this first theme, the Judgment Creditors pray, in the alternative, for a delay to examine the tax file for Johnson and they have separately moved to compel compliance with discovery requests which seek a range of documents including the entire IRS file on Johnson.

A. Challenging The Assessment

Authority addressing a variety of related issues suggests that a third party may not collaterally challenge a tax assessment, and thus the assessment is conclusively presumed valid in an action under § 2410.⁹ Generally, a third party lacks standing and "is not entitled to contest the tax liability of another." In re Campbell, 761 F.2d 1181, 1185-86 (6th Cir.1985). The fact that a party may bear the ultimate economic burden as a result of payment of a tax does not make that party the taxpayer or establish standing. See Lac Courte Oreilles Band of Lake Superior Chippewa Indians v. United States IRS, 845 F.2d 139, 142 (7th Cir.1988) (manufacturer is taxpayer of excise tax, even if passed on directly to consumer).

In a variety of contexts courts have recognized that tax assessments are not open to collateral attack by non-taxpayers. See Myers v. United...