U.S. v. Miller, 10721

• Decision Date: 20 January 1960
• Docket Number: No. 10721,10721
• Citation: 331 S.W.2d 436
• Parties: 60-2 USTC P 9479 UNITED STATES of America, Appellant, v. George F. MILLER et al., Appellees.
• Court: Texas Court of Appeals

Page 436

331 S.W.2d 436

60-2 USTC P 9479

UNITED STATES of America, Appellant, v. George F. MILLER et al., Appellees.

No. 10721.

Court of Civil Appeals of Texas, Austin.

Jan. 20, 1960.

Rehearing Denied Feb. 10, 1960.

Charles K. Rice, Asst. Atty. Gen., Meyer Rothwacks, I. Henry Kutz, Fred E. Youngman, Attys., Dept. of Justice, Washington, D. C. Russell B. Wine, U. S. Atty., Arthur L Luethcke, Asst. U. S. Atty., San Antonio, for appellant.

Cofer & Cofer, Douglass D. Hearne, Austin, for appellee.

HUGHES, Justice.

This suit involves the relative priority of labor liens fixed under the provisions of Art. 5486, Vernon's Ann.Civ.St. ¹ and claims (based on liens and priorities) of the United States for withholding and unemployment taxes as against the assets of an insolvent taxpayer-employer.

The material facts are undisputed. They are:

Appellees are George F. Miller and nine other persons who were employees of Capitol Coach Manufacturing Company, Inc., during most of 1958. These employees were not paid their earned wages, aggregating $1,130.29 for the months of July and August, 1958. On August 30 and September 2, 1958, these employees filed liens for their unpaid wages in accordance with the provisions of Art. 5486, V.A.C.S.

On September 19, 1958, Capitol Coach was placed in receivership by the Court below. On November 4, 1958, all assets of the insolvent corporation were, by order of the Court, sold for $2,650. On January 12, 1959, appellees intervened in the receivership proceedings and prayed that their liens be foreclosed and their claims paid out of the money received from the sale of the corporate assets.

The Commissioner of Internal Revenue having assessed certain withholding and unemployment taxes against Capitol Coach, on January 22, 1959, filed notice of a Federal tax lien with the County Clerk of Travis County on January 27, 1959, in the amount of the assessed taxes.

On February 16, 1959, the Court established and foreclosed appellees' liens and ordered that the funds held by the receiver after paying costs of Court and receivership, $1,000, be applied toward the satisfaction of appellees' claims. Nothing, of course, remained for the Government.

The Trial Court filed these conclusions of law:

'1. The employees perfected and fixed their liens upon the specific property of the corporation prior to the commencement of the Receivership action and prior to the filing by the United States Government of its Federal Tax Liens.

'2. The employees' liens have priority over all other claims filed with the Receiver, including the Federal Tax Liens.'

Appellant has two points the first of which is that the Court erred in not recognizing as paramount the lien of the United States under Sec. 6321, 6322 and 6323 of the Internal Revenue Code of 1954. 26 U.S.C.A. Secs. 6321, 6322, 6323, respectively.

Sections 6321, 6322 and the pertinent portion of 6323 read:

'Sec. 6321. Lien for taxes.

'If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any cost that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

'Sec. 6322. Period of lien.

'Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time.

'Sec. 6323. Validity against mortgagees, pledgees, purchasers, and judgment creditors.

'(a) Invalidity of lien without notice.--Except as otherwise provided in subsection (c), the lien imposed by section 6321 shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Secretary or his delegate----

'(1) Under state or territorial laws.--In the office designated by the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law designated an office within the State or Territory for the filing of such notice; or

'(2) With clerk of district court.--In the office of the clerk of the United States district court for the judicial district in which the property subject to the lien is situated, whenever the State or Territory has not by law designated an office within the State or Territory for the filing of such notice; or

'(3) With clerk of district court for District of Columbia.--In the office of the clerk of the United States District Court for the District of Columbia, if the property subject to the lien is situated in the District of Columbia.' ²

It is well settled 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. United States v. Security Trust & Savings Bank of San Diego, 1950, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53.

It is our opinion that the question here presented has been decided many times by the Supreme Court of the United States adversely to appellees.

In United States v. Colotta, 224 Miss. 33, 79 So.2d 474, 86 So.2d 19, by the Supreme Court of Mississippi, the question was stated to be:

'The question presented on this appeal is whether a tax lien of the United States for delinquent income taxes is prior in right to a mechanic's lien asserted under Section 356 et seq., of the Mississippi Code of 1942, where the Federal tax lien attached subsequent to the effective date of the mechanic's lien.'

In the course of the opinion the Court stated:

'It is the contention of the appellant, however, that the mechanic's lien granted by the Mississippi statute, until perfected by judgment, is contingent or inchoate and that it amounts to no more than a lis pendens notice that the right to perfect a lien exists. To this we do not agree. The contention of the appellant is based upon the provision of the statute requiring that any person entitled to and desiring the benefit of the lien shall commence his suit in the circuit court within twelve months next after the time when the money became due and payable. This provision of the State statute merely provides a limitation upon the period within which suit may be begun to enforce the lien. In other words, the statute preserves the lien in effect for a period of twelve months but not longer. The existence of the lien during this twelve months period is not disturbed.'

Federal cases aside, the Mississippi Supreme Court in Colotta wrote a strong and well-reasoned opinion sustaining the priority of the mechanic's lien over the Federal tax lien.

This case was carried to the United States Supreme Court which in a memorandum opinion found in 350 U.S. 808, 76 S.Ct. 82, 100 L.Ed. 725, held, and we quote the opinion in full:

'Per Curiam. The petition for writ of certiorari in this case is granted and the judgment is reversed. Mr. Justice Douglas dissents.'

In United States v. White Bear Brewing Co., Inc., 227 F.2d 359, 369, a case very similar to Colotta, the Circuit Court of Appeals for the Seventh Circuit held a recorded mechanic's lien superior to a subsequent Federal Tex Lien. In the course of the opinion it was stated:

'We think both the government and Deutsch [mechanic's lien holder] had liens and by force of the applicable statutes were, respectively required, to bring suit 'to enforce (their) liens.' Clearly, these two liens simply had different periods of gestation.'

The Court, one Justice dissenting, concluded:

'Since we do not find ourselves barred legislatively from adherence to the principle of time priority enunciated in the New Britain case [United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520], still unreversed, we will follow it. Of course, the most serious deference is to be accorded Security Trust & Savings Bank [340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53], Acri [348 U.S. 211, 75 S.Ct. 239, 99 L.Ed. 264], Liverpool & London Ins. Co. [348 U.S. 215, 75 S.Ct. 247, 99 L.Ed. 268], and Scovil [348 U.S. 218, 75 S.Ct. 244, 99 L.Ed. 271], opinions, yet we think in the factual setting presented by the current appeal, the issue of relative priority must yield to the rule reported by Chief Justice Marshall, quoted in New Britain and adumbrated by Mr. Justice Story. We are unable to view Sec. 3670 as a citadel for the federal tax lien invulnerable to the time when Deutsch's lien attached to the taxpayer's property.'

This case was carried to the United States Supreme Court whose memorandum opinion, 350 U.S. 1010, 76 S.Ct. 646, 100 L.Ed. 871, we quote in full:

'The petition for writ of certiorari is granted and the judgment is reversed.'

Mr. Justice Douglas, joined by Mr. Justice Harlan, dissented and we quote from his opinion:

'The Court apparently holds that under 26 U.S.C. Sec. 3670, 26 U.S.C.A. Sec. 3670, a lien that is specific and choate under state law, no matter how diligently enforced, can never prevail against a subsequent federal tax lien, short of reducing the lien to final judgment. That is new doctrine, not warranted by our decisions, and supportable only if the New Britain case were overruled.'

In United States v. Vorreiter, 1957, 134 Colo. 543, 307 P.2d 475, 476, the Court considered the relative priority of mechanic's and laborer's liens over Federal tax liens. The Government contended that such liens 'being inchoate, imperfected liens, are inferior to the tax liens of the United States which arose and were recorded before Vorreiter's liens were reduced to judgment.' In overruling this contention the Court said:

'It must be remembered that when the federal lien attached, the improvements giving rise to the plaintiff's liens were not in existence. To permit the federal government to have the benefit of the value of these...