NLT Computer Services v. Capital Computer Systems, Civ. No. 82-3558.
| Decision Date | 31 January 1983 |
| Docket Number | Civ. No. 82-3558. |
| Citation | 31 BR 960 |
| Parties | NLT COMPUTER SERVICES CORPORATION, Plaintiff, v. CAPITAL COMPUTER SYSTEMS, INC., Manuel Eskind, Edward Eskind, Robert Eskind, Testa Distributing Company, Inc., Richard Distributing Company, Gallo Sales Company, Inc., Jerome S. Frankel, and United States of America, Defendants. |
| Court | U.S. District Court — Middle District of Tennessee |
Don L. Smith, Manier, White, Herod, Hollabaugh & Smith, Nashville, Tenn., for plaintiff.
Robert E. Rice, Tax Atty., Civ. Div., Dept. of Justice, Washington, D.C., Joe B. Brown, U.S. Atty., Gary Brown, Claude Ramer, James A. Davis, Jr., Thomas B. Cresswell, Jr., Barrett B. Sutton, Jr., David N. Shearon, Harlan Dodson, III, Nashville, Tenn., for defendants.
This interpleader action came before the Court on January 10, 1983, for oral argument on the motion of the United States for summary judgment. It has been stipulated by the parties that there are only four claimants to the $150,000 which has been paid into the registry of the Court: Gallo Sales Co., Inc.; Testa Distributing Co., Inc.; Richard Distributing Co.;1 and the United States. The action was brought by NLT Computer Services to determine the rights of the claimants to payments which it had intended to make to Capital Computer Systems, Inc., (Capital) pursuant to a certain contract dated December 28, 1981. The claim of the United States to those payments is based on unpaid withholding tax liabilities of Capital which are stipulated to be "in excess of $500,000"; the other three claimants are judgment creditors of Capital. In its motion for summary judgment the United States relies on the priority afforded to it by the provisions of 31 U.S.C. Sec. 3713(a).2 That statute provides, in relevant part:
Whenever any person indebted to the United States is insolvent, * * * the debts due to the United States shall be first satisfied; and the priority hereby established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed. The priority established under this section does not apply, however, in a case under title 11.
Before proceeding to a substantive discussion of the effect of Section 3713(a) in this action, a preliminary matter must be first addressed. At the January 10, 1983 hearing, counsel for Testa and Richard announced that they had, that morning, filed an involuntary petition in bankruptcy against Capital. Two questions are thereby presented: first, whether this Court is stayed from proceeding in this matter by 11 U.S.C. Sec. 362 (the "automatic stay"); secondly, whether the filing removes this case from the effect of Section 3713(a) because of the last sentence of that statute.
The Court concludes that, for several reasons, the automatic stay does not prevent continuation of this action. First, it appears that the automatic stay is not applicable by the express terms of 11 U.S.C. Sec. 362. The several subsections of Section 362(a) stay acts and judicial proceedings "against" the debtor and/or property of the estate. This interpleader action is certainly not one "against" the debtor, especially where the debtor has specifically disclaimed any interest in the funds. In addition, the funds in question are not property of the estate because the debtor claims no interest in them and because Capital's right to payment, which gave rise to the funds, had been previously levied upon by the United States. See Cross Electric v. United States, 664 F.2d 1218 (4th Cir.1981).3
An important consideration in this matter is this Circuit's adoption of a model rule to deal with bankruptcy matters in light of the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), which held the jurisdictional grant contained in the Bankruptcy Code unconstitutional. In essence, the rule provides that although the District Court has jurisdiction over bankruptcy cases, all bankruptcy cases are referred to the bankruptcy court for disposition, with certain limitations on the powers of the bankruptcy judges. One of these limitations is that a bankruptcy judge may not conduct a proceeding to enjoin a court. Rule (d)(1). Moreover, the rule gives this Court the power to withdraw the reference at any time upon its own motion. Therefore, this Court, at the hearing, withdrew the reference to bankruptcy court regarding the involuntary petition filed against the debtor; lifted the automatic stay (if it applies at all) as it pertains to this interpleader action; and remanded the bankruptcy case to the bankruptcy court for any further proceedings in that matter.
The second question is whether the filing of the bankruptcy petition removes this case from the effect of Section 3713(a), as contended by Testa and Richard. The last sentence of the statute provides: "the priority established under this section does not apply, however, in a case under title 11."
But this interpleader action is not one "under title 11." The complaint herein was filed on June 22, 1982, and is in no way related to the bankruptcy petition filed on January 10, 1983, under Title 11.
The Court is unaware of, and neither Testa nor Richard have cited, any statutory provision or other authority which would somehow convert the instant interpleader action into one "under Title 11" simply because an involuntary bankruptcy petition has been filed against a party to this proceeding. The Court therefore finds that the filing of the petition does not stay this action.
The Court now turns to the effect of Section 3713(a) as it relates to the priority of the competing claimants to the fund. The Supreme Court has often stated that the statute is to be liberally construed to effect the public purpose of securing debts owed to the United States. Bramwell v. United States Fidelity & Guaranty Co., 269 U.S. 483, 46 S.Ct. 176, 70 L.Ed. 368 (1926); United States v. Whitney, 654 F.2d 607 (9th Cir.1981). The purpose and primacy of the statute are revealed in the following statement:
* * * And it is manifest, that Congress intended to give priority of payment to the United States over all other creditors, in the cases cited therein. It, therefore, lies upon those who claim exemption from the operation of the statute, to show that they are not within its provisions.
Beaston v. Farmer's Bank, 37 U.S. (12 Pet.) 102, 134, 9 L.Ed. 1017 (1838), quoted in Bramwell, supra, and Whitney, supra.
Thus, the United States is entitled to the funds on deposit with this Court if the debtor, Capital, is "insolvent" within the meaning of the statute. It is stipulated that Capital is and has been "insolvent." An involuntary petition in bankruptcy has been filed against it. The debtor has allowed judgments against him to stand unsatisfied for more than 30 days.4Ideco v. Chance Drilling Co., 422 F.2d 165 (5th Cir. 1963); United States v. Dyna-Tex, Inc., 372 F.Supp. 278 (E.D.Tenn.1972); United States v. Williams, 139 F.Supp. 94, 97-98 (M.D.N.C.1956). The statute is therefore applicable to the instant case. Ibid.
The other claimants to the fund assert, however, that because their interests would be superior to the tax lien of the United States pursuant to 26 U.S.C. Sec. 6323 (), their claims are also superior where the United States asserts priority under Section 3713(a). That is, they argue that Section 6323 is an implied exception to Section 3713(a). In the alternative, they argue that even if Section 6323 is not an exception to Section 3713(a), their claims are "perfected and specific" so as to prime the claim of the United States.
It has long been recognized by the Supreme Court and lesser courts that the test for superiority over a claim of the United States differs depending on whether the United States makes its claim pursuant to a tax lien on the one hand or the "insolvency statute", as Section 3713(a) is often called, on the other. United States v. Vermont, 377 U.S. 351, 357, 84 S.Ct. 1267, 1270, 12 L.Ed.2d 370 (1964); United States v. Gilbert Associates, 345 U.S. 361 at 366, 73 S.Ct. 701 at 704, 97 L.Ed. 1071 (1952); Commonwealth of Kentucky v. United States, 383 F.2d 13 at 15 (6th Cir.1967); Spira v. United States, 76-2 U.S.T.C. para. 9600 (N.D.Ill. 1976); Nesbitt v. United States, 445 F.Supp. 824, 830-831 (N.D.Cal.1978); United States v. Davis, 247 F.Supp. 84, 88 (E.D.Mich.1965); Durham v. United States, 82-2 U.S.T.C. para. 85,043 at 85,045 (D.N.J. 1982). Although a lienholder may defeat a federal tax lien when his claim was "choate" prior to the filing of the notice of tax lien (or is listed as an exception to federal priority in Section 6323), this is not enough to defeat a claim of the United States where Section 3713(a) is applicable. Ibid. Indeed, the Supreme Court has studiously avoided deciding whether any interest can prime a United States claim in a Section 3713(a) case. Gilbert, supra, 345 U.S. at 365, 73 S.Ct. at 704; Commonwealth of Kentucky, supra at 15; Nesbitt, supra at 830. It has avoided this question by consistently finding that the competing lien was not sufficiently "perfected and specific" to possibly qualify as an exception to Section 3713(a). Ibid. This is because, to be "perfected and specific" in the Section 3713(a) context, a competing lien must be reduced to actual possession:
In claims of this type, "specificity" requires that the lien be attached to certain property by reducing it to possession, on the theory that the United States has no claim against property no longer in possession of the debtor. citation omitted * * * Here the taxpayer had not been divested by the Town of either title or possession. The Town, therefore, had...
To continue reading
Request your trial