U.S. v. Hunt

• Decision Date: 21 March 1975
• Docket Number: No. 74-1406,74-1406
• Citation: 513 F.2d 129
• Parties: 75-1 USTC P 9327 UNITED STATES of America, Plaintiff-Appellant, v. Richard B. HUNT et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 129

513 F.2d 129

75-1 USTC P 9327

UNITED STATES of America, Plaintiff-Appellant, v. Richard B. HUNT et al., Defendants-Appellees.

No. 74-1406.

United States Court of Appeals Tenth Circuit.

Argued and Submitted Jan. 23, 1975.

Decided March 21, 1975.

Ann Belanger Durney, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen.; Gilbert E. Andrews, Bennet N. Hollander, Robert A. Bernstein, Tax Div., Dept. of Justice, Washington, D. C., on the brief; of counsel: Richard V. Thomas, U. S. Atty.), for appellant.

H. Clandillon Phibbs, II, Jackson, Wyo., for appellee, Hunt.

Before HILL, SETH and BARRETT, Circuit Judges.

BARRETT, Circuit Judge.

The United States, plaintiff below (hereinafter referred to as Government, Internal Revenue Service or IRS), appeals from a District Court order granting Summary Judgment to Richard B. Hunt, one of the defendants below (hereinafter referred to as Hunt or appellee), together with an order dismissing its complaint and cause of action. Jurisdiction vests by reason of 28 U.S.C. § 1291.

The Summary Judgment filed by the trial court was based upon the pleadings, a stipulation of agreed material facts, exhibits and hearing. The contentions on appeal involve alleged errors of law. We shall treat them after reviewing the agreed facts.

On May 21, 1968, the joint income tax return of David N. and Betty Burns for the calendar year 1967 was filed. On December 11, 1969, Hunt filed suit against David N. Burns in the Wyoming District Court of Teton County for recovery of sums alleged to be due and owing under two promissory notes and for a partnership accounting. In June, 1970, Hunt caused garnishments and attachments to be issued. Mr. and Mrs. F. Meadows, who had been garnisheed, answered that they held an option to purchase certain stock from Burns. The Meadows exercised the option with Burns on January 29, 1971, and, pursuant to the garnishment commands, tendered the purchase sum of $16,086.94 to the Clerk of the District Court of Teton County.

On June 27, 1971, taxpayer Burns died. Probate proceedings governing his estate were commenced in July and September, 1971. On August 6, 1971, IRS made an assessment of delinquent taxes owing from the tax year 1967, against the estate of the deceased taxpayer Burns and his widow. On January 13, 1972, the IRS filed a claim for taxes in the Burns probate # 832, one of the two petitions filed in connection with his death. On February 23, 1972, the two probates were consolidated effective October 11, 1971, by the District Court of Teton County.

On April 11, 1972, the First National Bank of Kemmerer, Wyoming, was appointed Administrator With Will Annexed of the Estate of Burns. On April 18, Hunt filed a creditor's claim in the Burns probate proceedings, which was thereafter duly set down and heard by the Wyoming Probate Court (the District Court sitting in probate). The Court rendered oral judgment in favor of Hunt on all counts on August 9, 1972, reserving only the matter of computation of attorney's fees and interest.

On August 14, 1972, IRS received actual knowledge of the oral judgment rendered. Thereafter, on September 12, 1972, IRS filed Federal Tax Levy Notices upon the Clerk of the District Court of Teton County. ¹ On October 10, 1972, a written, formal judgment of the District Court in favor of Hunt was formally entered in the office of the clerk of the District Court of Teton County.

On August 21, 1973, IRS initiated suit in the United States District Court for the District of Wyoming to foreclose its Federal Tax Liens against the funds held by the Clerk of Court of Teton County. The defendants are Richard B. Hunt, Mrs. Jean Boyce, Clerk of the District Court of Teton County, and the First National Bank of Kemmerer, Administrator of the Burns Estate. The IRS alleged that by virtue of the failure of the taxpayer to pay the assessments of $11,412.80, together with interest and additions, liens in favor of the United States arose and attached to all of the property of the taxpayer by virtue of the provisions of Section 6321 of the Internal Revenue Code of 1954, ² including the garnisheed funds in possession of the Wyoming State District Court, held by the Clerk thereof. The IRS alleged that its tax liens were superior to and had priority over the claims of Hunt and the Clerk of the District Court, Mrs. Jean Boyce. The IRS prayed for an order declaring that its unpaid tax liens of $11,412.80, together with interest and additions, be declared valid and subsisting liens on all of the property and rights to property of the taxpayer, Burns, including the garnisheed funds, that the Court order the foreclosure of said liens against said funds and that the United States have a deficiency judgment against the Burns estate of any sum which may remain unsatisfied.

Hunt contends that none of the IRS assessments were made prior to the filings of Notice of Federal Tax Liens for the assessments in the records of Teton County, Wyoming, on September 12, 1972, after Hunt was granted judgment (orally from the bench) following the August 9, 1972 proceedings. He thus contends: that notwithstanding the IRS assessments and recordation, still the oral judgment established a prior lien in his favor to the attached funds; that the IRS did not, at any time prior to the instant action, undertake to impress its delinquent tax claims, notwithstanding knowledge of the existence of the probate proceedings relative to the Estate of David Norman Burns, and publication of Notice to Creditors (Hunt filed a creditor's claim on August 8, 1972, which was denied, apparently considered by the state court and the parties as a statutory condition precedent to the hearing held leading to the rendition of oral judgment on August 9th); that once the garnisheed funds were delivered into the custody of the court, they were no longer funds in the custody and control of taxpayer Burns, and that the Wyoming District Court had exclusive jurisdiction to determine all right, interest and ownership thereto.

The Trial Court submitted a detailed Memorandum concurrent with execution and entry of the Summary Judgment. The Court declared that a single question was at issue: Does a federal tax lien take priority over a prior unrecorded (Wyoming) judgment lien when the Government (IRS) had actual knowledge of the rendition of the judgment? The Court found that the District Court for Teton County heard and decided the case between Hunt and the taxpayer on August 9, 1972, ". . . rendering judgment (orally from the bench) in favor of Hunt on the promissory notes, reserving only the computation of attorney's fees and interest." (R. Vol. I, p. 59); that on August 14, 1972, the IRS received and had actual knowledge that the judgment had been rendered; that on September 12, 1972, the IRS filed federal tax levy notices with the Clerk of that court; that ". . . on October 10, 1972, judgment was formally entered in the suit by Hunt against taxpayer, based on the decision rendered on August 9, 1972." (R. Vol. I, p. 59).

Further, the Trial Court found that under § 6321, supra, a lien arises and attaches to all property of any person who has failed or refused to pay taxes due when the assessment is made, as provided under § 6322, supra; that the lien imposed by § 6321, shall not be valid against any judgment lien creditor until notice thereof has been filed in the office where the property subject to the lien (the amount deposited with the Clerk of the District Court upon attachment), is situated as provided by § 6323(f), supra; and that the notice perfecting the assessment was filed on September 12, 1972, after the judgment had been rendered but before it was formally entered. (Emphasis supplied).

While recognizing 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, the Trial Court relied on Platte County State Bank v. Frantz, 33 Wyo. 326, 239 P. 531 (1925), for the rule that a Writ of Attachment creates a lien as of the date of service, and that the garnisheed monies were properly in the custody of the court, giving creditor Hunt a paramount and choate right, although not title, until judgment, to the property as security for his claim. Even so, the Court leaned heavily upon the fact that the IRS had actual notice long before entry of the formal judgment and that by reason thereof, "the government cannot be heard to claim that it was an innocent bystander." The Court recognized that a federal tax lien cannot be defeated by a prior state-created lien, unless the latter is choate. The detailed Trial Court memorandum covered many other points and issues.

The IRS appeals, alleging error in that: (1) Hunt was not a judgment lien creditor on September 12, 1972, because his lien was inchoate at that time and was not perfected under state law until the subsequent entry of the judgment; and (2) even assuming that it was proper to grant Hunt's motion for summary judgment, the District Court erred in dismissing the entire complaint, because certain issues raised by the complaint were never reached or considered.

I.

At the threshold we must consider the IRS contention that the Trial Court erred in treating Hunt as a judgment lien creditor on September 12, 1972, allegedly because at that time his lien was inchoate and not perfected under the law of Wyoming, and could not have been perfected until the entry of judgment. (Emphasis supplied).

We note, just as did the Trial Court, that the question of when a state-created lien has acquired sufficient substance and has become so perfected that it will defeat a later-arising or later-filed federal tax lien is a matter of federal law. United States v. Pioneer American Insurance Co.,374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963); United States v. Scovil,348 U.S. 218, 75 S.Ct. 244, 99 L.Ed. 271 (1955); T. H. Rogers Lumber Company v. Apel, 468 F.2d 14 (10th Cir. 197...