Raybro Elec. Supplies, Inc. v. Barclay, C89-0124-BG(M).

• Citation: 813 F. Supp. 1267
• Decision Date: 27 October 1992
• Docket Number: No. C89-0124-BG(M).,C89-0124-BG(M).
• Court: U.S. District Court — Western District of Kentucky
• Parties: RAYBRO ELECTRIC SUPPLIES, INC., Plaintiff, v. D.J. BARCLAY et al., Defendants.

813 F. Supp. 1267

RAYBRO ELECTRIC SUPPLIES, INC., Plaintiff, v. D.J. BARCLAY et al., Defendants.

No. C89-0124-BG(M).

United States District Court, W.D. Kentucky, at Bowling Green.

October 27, 1992.

Kurt W. Maier, English, Lucas, Priest & Owsley, Bowling Green, KY, for plaintiff.

John L. Caudill, Louisville, KY, Stuart Fischbein, U.S. Dept. of Justice, Tax Div., Washington, DC, for department of Treasury and IRS.

MEMORANDUM OPINION

HEYBURN, District Judge.

The parties dispute the priority of certain liens attached to a parcel of land in Warren County, Kentucky. The realty had been owned by D.J. Barclay and his wife, Marjorie, as tenants by the entirety. The land has since been sold, and its entire proceeds will pass to the litigant who prevails in this suit.

D.J. and Marjorie Barclay became owners of seventy acres of land in June, 1972, as tenants by the entirety. The plaintiff, Raybro, sued D.J. Barclay in Florida some years later and recovered a judgment of nearly $150,000.00. In January, 1986, Raybro obtained a judgment lien against D.J. Barclay's interest in the Warren County property described above. D.J. Barclay's debt to Raybro now stands at nearly $237,000.00.

The Barclay family had encountered tax difficulties during this period, as well. The Internal Revenue Service identified shortfalls in three of the Barclays' joint tax returns. The I.R.S. secured this debt in January and September, 1988, by filing tax liens against all property owned by D.J. and Marjorie Barclay. The United States is currently owed nearly $328,000.00.

Marjorie died in November, 1988. Raybro and the United States asked this Court to sell the Warren County property, by then held solely by D.J. Barclay as the surviving spouse, and to determine the priority of their liens. The sale of the land yielded net proceeds of $1,717.00. This modest amount remains to be distributed to the party this Court identifies as the senior lienholder.

ANALYSIS

Federal law grants a lien to the United States against all property held by citizens who fail to pay taxes. 26 U.S.C. § 6321. This lien is subordinate, however, to security interests perfected by other creditors before the United States provides public notice of its tax lien. 26 U.S.C. § 6323. Competing security interests qualify for priority only when they have been "perfected", which occurs at the moment that "the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. Pioneer Am. Ins., 374 U.S. 84, 89, 83 S.Ct. 1651, 1655-56, 10 L.Ed.2d 770 (1963). No controversy attends the effective date of the United States' lien: it was perfected by the notice filing of September, 1988, because it attached to the joint interests of D.J. and Marjorie Barclay in the Warren County land. It is equally clear that Raybro's lien, which encumbered the sole interest of D.J. Barclay, became perfected at least upon the date of Marjorie's November, 1988 death. The central question governing the priority of the liens in this case is whether Raybro's security interest was capable of perfection at some moment before D.J. Barclay became full owner of the land. The answer turns on whether D.J. Barclay's property rights before his wife's death were equivalent to the absolute ownership he later gained by right of survivorship: in other words, whether the "property subject" to Raybro's lien in 1986 was identical to the joint interests subject to the United States' lien of September, 1988.

State law defines the nature of D.J. Barclay's interest in the property during the time prior to his wife's death. United States v. Brosnan, 363 U.S. 237, 240, 80 S.Ct. 1108, 1110-11, 4 L.Ed.2d 1192 (1960).

Ancient property law had permitted the husband, but not the wife, to sell or encumber unilaterally land that the spouses held as tenants by the entirety. Hoffmann v. Newell, 249 Ky. 270, 60 S.W.2d 607, 610 (1932). This disparity resulted from the now-abandoned premise that the two spouses constituted one single legal person, which person was the husband. Id. A creditor in antiquity therefore could gain full immediate possession of marital land to recover a debt owed solely by the husband: in other words, the rights of the husband were virtually the same as those held jointly by husband and wife.

As early as 1846 Kentucky law addressed this inequity by insulating marital land from the husband's individual debts. Id. These statutes assured that a judgment against one spouse alone did not become a lien on the land during the joint lives of the spouses, but became enforceable only when the debtor-spouse became full owner by right of survivorship. Id. at 611. Under ordinary circumstances, then, the property interests of the individual spouses are inferior to their joint rights as tenants by the entirety: a creditor of one spouse cannot perfect a lien against the land itself until the land passes entirely into the hands of the debtor-spouse.

Though neither spouse can deliver full present possession or ownership of marital land by unilateral act, each spouse independently holds a severable, contingent interest in the estate: the right to succeed to the entirety of title upon the death of the other spouse. Hoffmann at 613. Kentucky statute further permits creditors to encumber land "in which the defendant has a contingent interest...." Ky.Rev.Stat. 426.190. Thus a judgment creditor may obtain a lien...