Smith Barney, Harris Upham & Co., Inc. v. Connolly
| Decision Date | 16 November 1994 |
| Docket Number | Civ. A. No. 92-10714-JLT. |
| Citation | 887 F. Supp. 337 |
| Court | U.S. District Court — District of Massachusetts |
| Parties | SMITH BARNEY, HARRIS UPHAM & COMPANY, INC., Plaintiff, v. Jane CONNOLLY, Edward L. Reservitz, Ilene B. Belinsky, Timothy McInerney and The United States of America, Defendants. |
COPYRIGHT MATERIAL OMITTED
Robert D. Hillman, Richelle S. Kennedy, Bingham, Dana & Gould, Boston, MA, John R. Snyder, Bingham, Dana & Gould, Hartford, CT, for Smith Barney, Harris Upham & Co., Inc.
Edward L. Reservitz, Reservitz & Steinberg, Brockton, MA, Edward DeFranceschi, Michele B. Hogan, Boston, MA, for Jane Connolly, and Edward L. Reservitz.
Timothy McInerney, pro se.
Ilene B. Belinsky, Reservitz & Steinberg, Brockton, MA, Edward DeFranceschi, Michele B. Hogan, Boston, MA, for Ilene B. Belinsky.
John Lindquist, U.S. Dept. of Justice, Tax Div., Washington, DC, for U.S.
This is an interpleader action brought by plaintiff Smith Barney, Harris Upham & Company, Inc. ("Smith Barney") to resolve the competing claims of defendants United States and Jane Connolly to $361,824.00 (the "Interplead Funds") currently held for defendant Timothy McInerney in a Boston Smith Barney Account (the "Account").
Presently before the court are the United States' and Connolly's cross-motions for summary judgment regarding the priority of their claims to the Interplead Funds. The court will also consider Smith Barney's motion for attorneys' fees and costs as well as the United States' motion in limine, contesting McInerney's ability to challenge the merits of his underlying tax liabilities in this action.
Plaintiff Smith Barney is a securities brokerage firm. Prior to this litigation, defendant Timothy McInerney of Derry, New Hampshire held an investment portfolio in Smith Barney's Boston office. This portfolio has since become subject to competing liens held by defendants Jane Connolly and the United States. Facing these adverse claims to McInerney's portfolio, Smith Barney liquidated the assets, placed the net equity in the Account and filed the present interpleader action. On July 22, 1993, the court granted a motion to interplead both the $361,824.00 held in the Account as well as the defendants' competing claims.1 The primary issue now faced by the court is the proper distribution of the Interplead Funds.2
The United States asserts the priority of its 1981, 1983 and 1984 federal tax liens against McInerney totalling $128,314.22, plus statutory interest from October 15, 1993.3 Connolly, who currently holds a judgment lien, admits the United States' 1983 lien has priority over her judgment lien. She, however, contests the priority of the 1981 and 1984 liens. Because the priority of these competing liens hinges on the timing of their creation and perfection, the court now reviews their history.
On September 25, 1985, a California Superior Court entered a $332,616.00 judgment against McInerney, in favor of Connolly.4 While McInerney appealed, Connolly commenced an action in the Suffolk Superior Court in Massachusetts to enforce the California judgment against McInerney. On September 26, 1988, the Suffolk Superior Court temporarily enjoined McInerney and his agents and representatives from disposing of the investment securities then held in McInerney's Smith Barney account in any way. The next week, on October 3, 1988, this temporary restraining order became a preliminary injunction.
On May 11, 1989, during the pendency of the Suffolk Superior Court action, the California Court of Appeals affirmed the California Superior Court judgment. Then, on August 25, 1989, the Clerk of the Court of Appeals for the State of California for the 1st Appellate Division, Division 4, issued a Remittitur, certifying that the decision entered by the Court of Appeals was final (the "California Judgment").
Finally, on March 14, 1990, the Suffolk Superior Court entered judgment in Connolly's favor in the amount of $430,280.09 (the "Massachusetts Judgment"). The Court ordered Smith Barney to transfer certificates of ownership for all stocks, bonds and securities owned or held by McInerney or over which McInerney had power of attorney to either Connolly or her attorneys, defendants Reservitz and Belinsky. The Massachusetts Appeals Court affirmed the Massachusetts Judgment on December 23, 1991 and, thereafter, the Massachusetts Supreme Judicial Court denied further review. A final judgment and order in favor of Connolly was entered on February 28, 1992. Then, on April 1, 1992, the Suffolk Superior Court issued an execution on the Massachusetts Judgment.
On September 24, 1984, defendant McInerney was assessed for his reported 1981 federal tax income liability in the amount of $141,593.00.5 On December 2, 1985, he was similarly assessed for his reported 1984 federal income tax liability in the amount of $40,089.00.6 Then, on October 16, 1989 and August 23, 1991 respectively, the Internal Revenue Service filed Notices of Federal Tax Liens for McInerney's unpaid federal income tax liability of 1984 and 1981 with the Town Clerk's Office, Derry, New Hampshire.
Based on these undisputed facts, the court now considers the proper disposition of the Interplead Funds.
The standard for summary judgment in this circuit is well known. "Summary judgment is warranted where the record, viewed in the light most favorable to the nonmoving party, reveals that there is no genuine factual dispute and the moving party is entitled to judgment as a matter of law." Siegal v. American Honda Motor Co., 921 F.2d 15, 17 (1st Cir.1990); Fed.R.Civ.P. 56(c). "The moving party is entitled to judgment as a matter of law if the nonmoving party does not adduce enough evidence to permit a reasonable trier of fact to find for the nonmoving party on any element essential to its claim." Milton v. Van Dorn Co., 961 F.2d 965, 969 (1st Cir.1992).
Guided by this standard, the court now addresses the cross-motions for summary judgment.
Determination of the defendants' rights to the Interplead Funds turns on a two step inquiry. First, as a threshold matter, the court must assess whether the United States properly established its federal tax liens for 1981 and 1984. Failure to have done so would be fatal to the Government's case. Next, provided the Government met the requirements for creation of valid federal tax liens, the court must determine the defendants' liens' relative priority. Whether Connolly became a "judgment lien creditor" prior to the Government's filing Notices of Federal Tax Liens for 1981 and 1984 controls this issue.
Defendant Connolly first argues that the Government failed to properly establish federal tax liens which could be entitled to priority on the Interplead Funds. The Court disagrees.
Pursuant to Sections 6321 and 6322 of the Internal Revenue Code,7 a federal tax lien arises automatically upon assessment and nonpayment of a tax liability, once notice of the assessments and demand for payment are duly given. 26 U.S.C.A. §§ 6321, 6322 (West 1989). The Code specifies that such notice "shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person's last known address." 26 U.S.C.A. § 6303 (West 1989).
As proof of the satisfaction of its statutory notice and demand obligations, the United States submitted Certificates of Assessments and Payments for the tax years 1981 and 1984. These Certificates list a "First Notice" date for each assessment. Although defendant Connolly challenges the validity of this notice and demand, it is well established that Certificates of Assessments and Payments, listing "First Notice" dates for each assessment, are presumptive proof that the IRS gave notice of the assessments and made demand for payment. Geiselman v. U.S., 961 F.2d 1, 6 (1st Cir.1992), cert. denied, ___ U.S. ___, 113 S.Ct. 261, 121 L.Ed.2d 191 (1992). The United States, therefore, created valid federal tax liens for the years 1981 and 1984.8
To properly allocate the Interplead Funds, the court must now determine whether Connolly became a "judgment lien creditor" prior to the Government's filing its Notices of Federal Tax Liens.
Where there are competing claims to a delinquent taxpayer's property by a federal tax lien and a state-law lien, priority is determined by federal law. Aquilino v. United States, 363 U.S. 509, 513-14, 80 S.Ct. 1277, 1280, 4 L.Ed.2d 1365 (1960). Generally, "priority for purposes of federal law is governed by the common law principle that `the first in time is the first in right.'" United States v. McDermott, ___ U.S. ___, ___, 113 S.Ct. 1526, 1528, 123 L.Ed.2d 128 (1993) (quoting United States v. City of New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954)). This federal rule of priority is modified by Section 6323 of the Internal Revenue Code, which governs competition between federal tax liens and state-law judgment liens. 26 U.S.C.A. § 6323 (West 1989 & Supp.1994).
Under Section 6323(a), a federal tax lien is not perfected against a "judgment lien creditor" until Notice of a Federal Tax Lien is filed with the appropriate authorities in accordance with the requirements of Section 6323(f).9 26 U.S.C.A. § 6323(a) (West 1989 & Supp.1994). In other words, in order to be "first in right" over a "judgment lien creditor," Notice of a Federal Tax Lien must be filed "first in time." See McDermott, ___ U.S. at ___, 113 S.Ct. at 1528 (1993); United States v. Kimbell Foods, Inc., 440 U.S. 715, 738, 99 S.Ct. 1448, 1463, 59 L.Ed.2d 711 (1979).
A "judgment lien creditor" is defined in the Treasury Regulations as "a person who has obtained a valid judgment, in a court of...
To continue reading
Request your trial
-
Cooper Industries, Inc. v. Compagnoni
...(requiring that judgment lien be recorded in case of real property where state law so required); Smith Barney, Harris Upham & Co. v. Connolly, 887 F.Supp. 337, 344 (D.Mass.1994) (same). See also Palandjoglou, 821 F.Supp. at 1185 ("In order to perfect a judgment lien in Texas on personal pro......
-
Servicing v. U.S., Civil No. 09–cv–191–JL.
...the kind of “relation back” to which most courts have applied 26 C.F.R. § 301.6323(h)–1. See, e.g., Smith Barney, Harris Upham & Co. v. Connolly, 887 F.Supp. 337, 345 n. 20 (D.Mass.1994); Assured Inv. & Loan, Inc. v. United States, 732 F.Supp. 94, 96 (D.Kan.1990); In re Jasper–O'Neil, 149 N......
-
South Adams Savings Bank v. Martel
...discretion to award reasonable costs and attorneys' fees to a stakeholder in an interpleader action." Smith Barney, Harris Upham & Co. v. Connolly, 887 F.Supp. 337, 346 (D.Mass. 1994) (citing Wright, Miller & Kane). See also Ferber Co. v. Ondrick, 310 F.2d 462, 467 (1 st Cir.1962) ("An inte......
-
Astrowsky v. First Portland Mortg. Corp., Inc.
... ... Great Atlantic and Pacific Tea Co., 871 F.2d 179, 181 (1st Cir.1989). As the ... Merrill Lynch, Pierce, Fenner & Smith, Inc., 611 F.Supp. 344 (S.D.N.Y.1984); see also ... ...