U.S. v. Valley Nat. Bank

• Decision Date: 22 August 1975
• Docket Number: No. 74-1313,74-1313
• Citation: 524 F.2d 199
• Parties: 75-2 USTC P 9697 UNITED STATES of America, Appellant, v. The VALLEY NATIONAL BANK, Executor of the Estate of Maurice H. Berkson, Deceased, et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 199

524 F.2d 199

75-2 USTC P 9697

UNITED STATES of America, Appellant, v. The VALLEY NATIONAL BANK, Executor of the Estate of Maurice H. Berkson, Deceased, et al., Appellees.

No. 74-1313.

United States Court of Appeals, Ninth Circuit.

Aug. 22, 1975.

Dennis M. Donohue (argued), Tax Div., Dept. of Justice, Washington, D. C., for appellant.

Merle M. Allen, Jr. and Harry M. Beggs (argued), Phoenix, Ariz., for appellees.

OPINION

Before BARNES, WRIGHT and GOODWIN, Circuit Judges.

ALFRED T. GOODWIN, Circuit Judge:

The United States appeals from a judgment in favor of two banks in a contest among creditors claiming interests in broker's commissions earned by a taxpayer during his lifetime and assigned to a bank. We affirm.

The commissions at the time of trial had a value of $83,702.87. The taxpayer's estate is insolvent. The government bases its claim of first priority on two income-tax assessments for the year 1966. The first assessment, dated October 27, 1967, was for $25,980.64 plus interest. The notice of a tax lien for this assessment was filed on February 29, 1968. The second assessment, dated June 14, 1968 was for $15,211.69 plus interest. The second notice was filed December 30, 1970.

On February 22, 1966, approximately two years before the first notice of tax lien was filed, the taxpayer assigned the so-called "Tucson" commission to the predecessor in interest of appellee Great Western Bank & Trust as security for all the taxpayer's existing and future indebtedness. On January 30, 1967, approximately one year before the first notice of tax lien was filed, the taxpayer assigned the so-called "Phoenix" commission to Great Western's predecessor as security for all the taxpayer's existing and future indebtedness. These assignments were not recorded.

On August 29, 1967, appellee Ernest C. Herman obtained a judgment against the taxpayer for $5,000 plus interest and costs. Approximately four months before the first notice of tax lien was filed, Herman obtained a garnishment judgment against Great Western's predecessor.

On April 14, 1967, the predecessor in interest of appellee United Bank obtained a judgment against the taxpayer for $15,000 plus interest, costs, and attorney's fees. Like Herman, United Bank's predecessor caused a writ of garnishment to be issued against Great Western's predecessor in interest with respect to the "Phoenix" commission. In like manner, approximately four months before the first notice of tax lien was filed, United Bank's predecessor obtained a garnishment judgment against Great Western's predecessor for sums received by Great Western's predecessor in excess of sums owed it by the taxpayer.

The rights of all parties here except the United States, the State of Arizona, and the disinterested stakeholder of the "Tucson" commission were determined by a judgment of the Maricopa County Superior Court in June 1971. That judgment is res judicata and binds the parties to the state-court action. Thus, we are concerned only with the rights of the United States, the sole appellant, in the distribution scheme.

The United States urges that it should be prior to Great Western because the assignment to Great Western was either a mortgage or an assignment of an account receivable, and was not recorded.

The potential relevance of recordation lies in § 6323(a) of the Internal Revenue Code, which provides that a tax lien shall not be valid against a holder of a "security interest" until notice of lien is filed.

Here the notices of lien were filed February 29, 1968, and December 30, 1970, after the assignment of the "Tucson" commission. But the government urges that it nonetheless enjoys first priority because the assignment had not created a "security interest".

"Security interest" is defined by 26 U.S.C. § 6323(h)(1) as "any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time * * * if, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation * * * ."

The government argues that the unrecorded assignment did not give Great Western an interest protected against a subsequent judgment lien creditor.

Great Western's principal responses are:

(1) The United States did not make the mortgage argument below and should not be allowed to tender it for the first time on appeal.

(2) The assignment was not of an "account receivable" within the meaning of Arizona law.

(3) Because the Uniform Commercial Code was enacted in Arizona before the government filed its notice of lien, the U.C.C. should govern. Under the U.C.C. no recording is required to perfect Great Western's interest in the commission because (a) under Ariz.Rev.Stat. § 44-3104(4) (§ 9-104(d) of the U.C.C.) the Article 9 filing requirements do not apply to a ...