Schaumburg State Bank v. Seyffert

Decision Date04 May 1979
Docket NumberNo. 78-1479,78-1479
Citation71 Ill.App.3d 630,390 N.E.2d 388,28 Ill.Dec. 221
Parties, 28 Ill.Dec. 221, 44 A.F.T.R.2d 79-5633, 79-2 USTC P 9645 SCHAUMBURG STATE BANK, Plaintiff-Appellee, v. Walter J. SEYFFERT, Ruby A. Seyffert, American National Bank and Trust Company of Chicago, Chicago Federation, of Musicians, Local 10-208, Western Illinois University, Woodfield Bank and Unknown Owners, Defendants-Appellees, and United States of America, Defendant-Appellant.
CourtUnited States Appellate Court of Illinois

M. Carr Ferguson, Asst. Atty. Gen., and Gilbert E. Andrews, Crombie, J. D. Garrett and Wynette J. Hewett, Attys., Tax Div., Dept. of Justice, Washington, D. C. (Thomas P. Sullivan, U. S. Atty., and Mary M. Thomas, Asst. U. S. Atty., Chicago, of counsel), for appellant, U. S.

Lester Asher, Eugene I. Pavalon of Asher, Greenfield, Goldstein, Pavalon & Segall, Ltd., Chicago (Daniel A. Zazove, David P. Leibowitz of Schwartz, Cooper, Kolb & Gaynor, Chartered, Chicago, of counsel), for appellee, Chicago Federation of Musicians, Local 10-208.

MEJDA, Justice:

Defendant, United States of America (U.S.A.), appeals from orders granting summary judgment to co-defendant, Chicago Federation of Musicians, Local 10-208 (Union), and approving a decree for private sale of certain real estate. On appeal, U.S.A. contends that the trial court erroneously declared a Federal tax lien void and thereby subordinated it to a subsequent judgment lien on either of two grounds: (1) because Rule 601 of the Rules of Bankruptcy Procedure (11 U.S.C. (1976)) prohibits perfection of a tax lien after filing of a voluntary petition for bankruptcy; or (2) because the underlying tax liability had been discharged in bankruptcy.

On December 13, 1977, plaintiff, Schaumburg State Bank, brought suit against Walter J. and Ruby A. Seyffert to foreclose a mortgage executed by them on May 15, 1976, and recorded on May 24, 1976. U.S.A., American National Bank and Trust Company of Chicago (American National), the Union, Western Illinois University (Western), Woodfield Bank (Woodfield), and Unknown Owners were named as defendants who might have some right, title, interest or lien in the subject real estate. The complaint also stated that the U.S.A. had filed a notice of tax lien against Walter J. Seyffert in the amount of $14,747.84. From a later amendment to the complaint, it appears that this notice was filed in the Recorder's Office on February 25, 1977, as document number 23831506.

Woodfield did not admit or deny the allegations of the complaint but claimed to be judgment lien creditor of Ruby A. Seyffert in the amount of $2,079.16 by filing a copy of the judgment in the Recorder's Office on February 25, 1977, as document number 23832210.

Western claimed to be a judgment lien creditor of Ruby A. Seyffert in the amount of $474.25, a copy of which was filed with the Recorder's Office as document number 24121942.

U.S.A. answered that it claimed an interest in the property by reason of the assessment, demand, and notice of tax lien filed as alleged in Schaumburg's complaint. It denied that its claim was subordinate to plaintiff's claim and sought to have the property sold and the funds distributed to the competing parties according to their priorities as the court would determine.

An order of default was entered against the Seyfferts, American National, and the Unknown Owners for their failure to answer. Schaumburg then moved for summary judgment against the U.S.A. contending that since it had recorded first, its lien was superior to U.S.A.'s. Summary judgment was granted. That order is not challenged in this appeal.

The Union then answered Schaumburg's complaint, claiming to be a judgment lien creditor of Walter J. Seyffert in the amount of $49,691.25 by reason of nondischargeable judgment entered on July 21, 1977, by the Bankruptcy Court in Walter Seyffert's bankruptcy proceeding. 1 A memorandum of this judgment was filed with the Recorder of Deeds on July 21 The trial court entered an order granting Union's motion for summary judgment on March 30, 1978, finding that: "The filing of the notice of lien on February 25, 1977, without authorization of the Bankruptcy Court, was a void act in violation of Bankruptcy Rule 601" and declaring the lien void and thereby discharged. A motion to reconsider and set aside this order was denied on April 28, 1978.

[28 Ill.Dec. 223] 1977, as document number 24023209. The Union also moved for summary judgment against U.S.A. contending that: (1) the filing of the notice of Federal tax lien after Walter Seyffert's filing of a voluntary petition for bankruptcy violated Rule 601(a) of the Rules of Bankruptcy Procedure (11 U.S.C. (1976)), and the tax lien was of no force; and (2) the tax indebtedness of Walter Seyffert was discharged in the prior bankruptcy proceeding, citing In re Sotelo (7th Cir. 1977), 551 F.2d 1090.

On May 26, 1978, Schaumburg filed a motion for a decree approving a private sale in lieu of foreclosure and attached a copy of a real estate contract entered into by the Seyfferts and certain purchasers. An order was entered June 5, 1978, denying U.S.A.'s motion for the trial court to reconsider the order of summary judgment for the Union, deny the decree for a private sale, and declare the real estate contract void.

On June 5, 1978, the trial court then entered a decree approving the private sale, that the U.S.A. had no lien upon the real estate 2 and that the sale proceeds be disbursed to plaintiff and the lien creditors as set forth in plaintiff's motion. U.S.A. brings this appeal seeking to have: (1) the private sale set aside; (2) the priorities of all parties reestablished; and (3) a judicial sale of the property and dismissal of Schaumburg's complaint. 3

OPINION

U.S.A. attacks the two apparent bases for the trial court's order granting summary judgment for Union: (1) that the tax liability of the debtor had been discharged in bankruptcy; and (2) Rule 601(a) of the Rules of Bankruptcy Procedure prohibits perfection of the tax lien after the filing of the petition for bankruptcy.

Although there may have been support for the trial court's order on the basis that Seyffert's tax liability had been discharged in bankruptcy, it is clear that this is not now the law. At the time of the order, In re Sotelo (7th Cir. 1977), 551 F.2d 1090, held that the taxpayer's liability under Internal Revenue Code § 6672 (26 U.S.C. § 6672), the section under which Mr. Seyffert's liability arose, was a penalty and not a tax, and was therefore discharged under section 17a(1) of the Bankruptcy Act. (11 U.S.C. § 35(a)(1) (1976).) The Supreme Court reversed the court of appeals, holding that the tax liability was not dischargeable under Bankruptcy Act § 17a(1)(e). (United States v. Sotelo (1978), 436 U.S. 268, 98 S.Ct. 1795, 56 L.Ed.2d 275.) As both parties concede, the trial court's order cannot be justified on the ground that the tax liability was discharged in bankruptcy.

The remaining justification is that Rule 601(a) of the Rules of Bankruptcy Procedure (11 U.S.C. (1976)) prohibits perfection of the tax lien after the filing of the petition for bankruptcy. That rule provides:

"(a) Stay Against Lien Enforcement. The filing of a petition shall operate as a stay of any act or the commencement or continuation of any court proceeding to enforce (1) a lien against property in the custody of the bankruptcy court, or (2) a lien against the property of the bankrupt obtained within 4 months before bankruptcy by attachment, judgment, levy, or other legal or equitable process or proceedings."

The Advisory Committee's note to this section makes it clear that the purpose of the rule is "to protect creditors against prejudicial dismemberment and disposition of the estate before a trustee or receiver can qualify."

U.S.A. contends that a distinction is drawn between enforcing a lien which would interfere with the administration of the bankruptcy estate and merely perfecting a lien to preserve priority Vis a vis other creditors. It is argued that since there is no interference with the debtor's property by perfection of the tax lien, the purpose of Rule 601(a) is fulfilled. Union maintains that "any act" to enforce a lien is prohibited.

U.S.A. cites United States v. A Certain Parcel of Land, Etc. (D.Mass.1944), 59 F.Supp. 65, in support of its position. Regarding this issue the court said:

"The recording of the notice of lien did not, in my opinion, constitute 'any act or other proceeding to enforce a lien,' but rather established or perfected the lien. I do not feel that Congress intended, by section 548, to stay or prevent the establishment or perfection of a lien." (59 F.Supp. 65, 69.)

This same issue was recently raised under the stay provisions of Rule 11-44 of the Rules of Bankruptcy Procedure (11 U.S.C. (1976)) which is applicable in Chapter XI proceedings under the Bankruptcy Act (11 U.S.C. §§ 701-799 (1976)) in the case of In re Marietta Baptist Tabernacle, Inc. (5th Cir. 1978), 576 F.2d 1237. The court held that recording a notice of a claim of lien does not constitute an act to enforce, but merely preserves the lien and does not dispose of property.

Rule 11-44 and Rule 601 which is involved in this case are similar in their provisions and purpose (see Baum v. Anderson (5th Cir. 1976), 541 F.2d 1166) and we feel the interpretation of the former is applicable to the latter. We agree with this reasoning and find that the filing of the notice of tax lien in the instant case did not act to dismember the assets in bankruptcy, but perfected U.S.A.'s position as a lien creditor and as such was not an attempt to enforce a lien.

However, U.S.A. in the present case not only perfected its lien after the bankruptcy petition was filed, but also created the lien afterwards. Internal Revenue Code § 6322 (26 U.S.C. § 6322) provides:

"Unless another date is specifically fixed by law, the lien imposed by section 6321 (...

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