United States Internal Revenue Service v. Dermott

• Decision Date: 24 March 1993
• Docket Number: No. 91-1229,91-1229
• Citation: 123 L.Ed.2d 128,113 S.Ct. 1526,507 U.S. 448
• Parties: UNITED STATES By and Through INTERNAL REVENUE SERVICE, Petitioner, v. Bruce J. McDERMOTT, et al
• Court: U.S. Supreme Court

507 U.S. 448

113 S.Ct. 1526

123 L.Ed.2d 128

UNITED STATES By and Through INTERNAL REVENUE SERVICE, Petitioner,

v Bruce J. McDERMOTT, et al.

No. 91-1229.

Argued Dec. 7, 1992.

Decided March 24, 1993.

Syllabus ^*

The United States' federal tax lien on the respondent McDermotts' property applied to after-acquired property, Glass City Bank v. United States, 326 U.S. 265, 66 S.Ct. 108, 90 L.Ed. 56, but could "not be valid as against any . . . judgment lien creditor until notice thereof . . . has been filed," 26 U.S.C. §§ 6323(a). Before that lien was filed with the Salt Lake County Clerk, a bank docketed a state-court judgment it had won against the McDermotts, thereby creating a state-law judgment lien on all of their existing or after-acquired real property in the county. After both liens were filed, the McDermotts acquired certain real property in the county and brought this interpleader action. The District Court awarded priority in that property to the bank's lien. The Court of Appeals affirmed.

Held: A federal tax lien filed before a delinquent taxpayer acquires real property must be given priority in that property over a private creditor's previously filed judgment lien. 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. New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520. A state lien that competes with a federal lien is deemed to be in existence for "first in time" purposes only when it has been "perfected" in the sense that, inter alia, "the property subject to the lien [is] established." Id., at 84, 74 S.Ct., at 369. Because the bank's judgment lien did not actually attach to the property at issue until the McDermotts acquired rights in that property, which occurred after the United States filed its tax lien, the bank's lien was not perfected before the federal filing. See id., at 84-86, 74 S.Ct., at 369-371. United States v. Vermont, 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370, distinguished. It is irrelevant that the federal lien similarly did not attach and become perfected until the McDermotts acquired the property, since § 6323(c)(1) demonstrates that such a lien is ordinarily dated, for purposes of "first in time" priority against § 6323(a) competing interests, from the time of its filing. Pp. ____.

945 F.2d 1475 (CA10 1991), reversed and remanded.

SCALIA, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, BLACKMUN, KENNEDY, and SOUTER, JJ., joined. THOMAS, J., filed a dissenting opinion, in which STEVENS and O'CONNOR, JJ., joined.

James A. Feldman, Washington, DC, for petitioner.

T. Richard Davis, Salt Lake City, UT, for respondent.

Justice SCALIA delivered the opinion of the Court.

We granted certiorari to resolve the competing priorities of a federal tax lien and a private creditor's judgment lien as to a delinquent taxpayer's after-acquired real property.

I

On December 9, 1986 the United States assessed Mr. and Mrs. McDermott for unpaid federal taxes due for the tax years 1977 through 1981. Upon that assessment, the law created a lien in favor of the United States on all real and personal property belonging to the McDermotts, 26 U.S.C. §§ 6321 and 6322, including after-acquired property, Glass City Bank v. United States, 326 U.S. 265, 66 S.Ct. 108, 90 L.Ed. 56 (1945). Pursuant to 26 U.S.C. § 6323(a), however, that lien could "not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof . . . has been filed." (Emphasis added.) The United States did not file this lien in the Salt Lake County Recorder's Office until September 9, 1987. Before that occurred, however—specifically, on July 6, 1987 Zions First National Bank, N.A., docketed with the Salt Lake County Clerk a state-court judgment it had won against the McDermotts. Under Utah law, that created a judgment lien on all of the McDermotts' real property in Salt Lake County, "owned . . . at the time or . . . thereafter acquired during the existence of said lien." Utah Code Ann. § 78-22-1 (1953).

On September 23, 1987 the McDermotts acquired title to certain real property in Salt Lake County. To facilitate later sale of that property, the parties entered into an escrow agreement whereby the United States and the Bank released their claims to the real property itself but reserved their rights to the cash proceeds of the sale, based on their priorities in the property as of September 23, 1987. Pursuant to the escrow agreement, the McDermotts brought this interpleader action in state court to establish which lien was entitled to priority; the United States removed to the United States District Court for the District of Utah.

On cross-motions for partial summary judgment, the District Court awarded priority to the Bank's judgment lien. The United States Court of Appeals for the Tenth Circuit affirmed. McDermott v. Zions First Nat'l Bank, N.A., 945 F.2d 1475 (1991). We granted certiorari. 504 U.S. ----, 112 S.Ct. 2272, 119 L.Ed.2d 199 (1992).

II

Federal tax liens do not automatically have priority over all other liens. Absent provision to the contrary, 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. New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954); cf. Rankin & Schatzell v. Scott, 12 Wheat. 177, 179, 6 L.Ed. 592 (1827) (Marshall, C.J.). For purposes of applying that doctrine in the present case—in which the competing state lien (that of a judgment creditor) benefits from the provision of § 6323(a) that the federal lien shall "not be valid . . . until notice thereof . . . has been filed"—we must deem the United States' lien to have commenced no sooner than the filing of notice. As for the Bank's lien: our cases deem a competing state lien to be in existence for "first in time" purposes only when it has been "perfected" in the sense that "the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. New Britain, 347 U.S., at 84, 74 S.Ct., at 369 (emphasis added); see also id., at 86, 74 S.Ct., at 370; United States v. Pioneer American Ins. Co., 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963).

The first question we must answer, then, is whether the Bank's judgment lien was perfected in this sense before the United States filed its tax lien on September 9, 1987. If so, that is the end of the matter; the Bank's lien prevails. The Court of Appeals was of the view that this question was answered (or rendered irrelevant) by our decision in United States v. Vermont, 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370 (1964), which it took to "stan[d] for the proposition that a non-contingent . . . lien on all of a person's real property, perfected prior to the federal tax lien, will take priority over the federal lien, regardless of whether after-acquired property is involved." ¹ 945 F.2d, at 1480. That is too expansive a reading. Our opinion in Vermont gives no indication that the property at issue had become subject to the state lien only by application of an after-acquired-property clause to property that the debtor acquired after the federal lien arose. To the contrary, the opinion says that the state lien met (presumably at the critical time when the federal lien arose) "the test laid down in New Britain that . . . 'the property subject to the lien . . . [be] established.' " 377 U.S., at 358, 84 S.Ct., at 1271 (citation omitted).² The argument of the United States that we rejected in Vermont was the contention that a state lien is not perfected within the meaning of New Britain if it "attach[es] to all of the taxpayer's property," rather than "to specifically identified portions of that property." 377 U.S., at 355, 84 S.Ct., at 1269 (emphasis added).³ We did not consider, and the facts as recited did not implicate, the quite different argument made by the United States in the present case: that a lien in after-acquired property is not "perfected" as to property yet to be acquired.

The Bank argues that, as of July 6, 1987, the date it docketed its judgment lien, the lien was "perfected as to all real property then and thereafter owned by" the McDermotts, since "[n]othing further was required of [the Bank] to attach the non-contingent lien on after-acquired property." Brief for Respondents 21. That reflects an unusual notion of what it takes to "perfect" a lien.⁴ Under the Uniform Commercial Code, for example, a security interest in after-acquired property is generally not considered perfected when the financing statement is filed, but only when the security interest has attached to particular property upon the debtor's acquisition of that property. §§ 9-203(1) and (2), 3 U.L.A. 363 (1992); § 9-303(1), 3A U.L.A. 117 (1992). And attachment to particular property was also an element of what we meant by "perfection" in New Britain. See 347 U.S., at 84, 74 S.Ct., at 369 ("when . . . the property subject to the lien . . . [is] established"); id., at 86, 74 S.Ct., at 370 ("the priority of each statutory lien contested here must depend on the time it attached to the property in question and became [no longer inchoate]").⁵ The Bank concedes that its lien did not actually attach to the property at issue here until the McDermotts acquired rights in that property. Brief for Respondents 16, 21. Since that occurred after filing of the federal tax lien, the state lien was not first in time.⁶

But that does not complete our inquiry: Though the state lien was not first in time, the federal tax lien was not necessarily first in time either. Like the state lien, it applied to the property at issue here by virtue of a (judicially inferred) after-acquired-property provision, which means that it did not attach until the same instant the state lien attached, viz., when the McDermotts...