United States v. BANK OF AMERICA NAT. TRUST & S. ASS'N

• Decision Date: 01 May 1959
• Docket Number: No. 16034.,16034.
• Citation: 265 F.2d 862
• Parties: UNITED STATES of America, Appellant, v. BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, a national banking association, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

265 F.2d 862 (1959)

UNITED STATES of America, Appellant, v. BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, a national banking association, Appellee.

No. 16034.

United States Court of Appeals Ninth Circuit.

February 2, 1959.

Rehearing Denied May 1, 1959.

Charles K. Rice, Asst. Atty. Gen., Helen A. Buckley, Lee A. Jackson, A. F. Prescott, George F. Lynch, Attorneys, Department of Justice, Washington, D. C., Lloyd H. Burke, Robert H. Schnacke, U. S. Attys., Charles Elmer Collett, Asst. U. S. Atty., San Francisco, Cal., for appellant.

Samuel B. Stewart, George Chadwick, Jr., Eldon C. Parr and Kenneth M. Johnson, San Francisco, Cal., for appellee.

Before HEALY and CHAMBERS, Circuit Judges, and JAMESON, District Judge.

JAMESON, District Judge.

Appellee was the owner and holder of a deed of trust and two chattel mortgages executed on February 13th and April 9th, 1953, covering property of Sierra Wood Products Corporation. In February and April, 1954, appellant filed notices of lien for unemployment withholding taxes owed by this corporation. Upon default in the performance of the obligations secured by the deed of trust and chattel mortgages, appellee foreclosed the trust deed pursuant to power of sale therein contained and the chattel mortgages pursuant to a pledgee's power of sale and the provisions of the chattel mortgages. It was stipulated that all "necessary and proper procedures" for these foreclosures "were duly performed," and the property was sold at public auction on March 15th, 1956. No actual notice of the sale was given appellant, and no request for notices of sales or default was filed for record as provided in Cal.Civ.Code, § 2924(b).¹

On May 3, 1957, appellee instituted this action to quiet title in the Superior Court of the State of California, in and for the County of Calaveras. Appellant removed to the United States District Court for the Northern District of California, Southern Division, pursuant to 28 U.S.C.A. § 1444. Both parties filed motions for summary judgment. The District Court granted the motion of appellee and entered judgment decreeing the liens of the United States extinguished.

Two contentions were advanced by appellant: (1) that the District Court lacked jurisdiction; and (2) assuming jurisdiction, the court erred in holding that a junior federal tax lien may be extinguished by a non-judicial sale by a mortgagee under a contractual power of foreclosure.

The California Constitution conferred jurisdiction of the subject matter upon the Superior Court of Calaveras County.² By 28 U.S.C.A. § 2410, the United States consented to be sued in the State Court.³ The District Court acquired jurisdiction upon removal pursuant to 28 U.S.C.A. § 1444.⁴

It is true, as the Government contends, that Section 2410 does not confer jurisdiction upon district courts to entertain quiet title actions, but simply waives sovereign immunity from suit.⁵ Nor may federal jurisdiction be predicated merely on the fact that the United States is a party.⁶ Here, however, the state court in which the action was instituted had jurisdiction, and appellant invoked jurisdiction in the federal courts by removal.

Appellant contends that the remedy provided in Section 7424, Int.Rev.Code of 1954⁷ is the exclusive method of clearing title to property covered by a federal tax lien. This section provides that the holder of a prior lien or interest of record "or any person purchasing the property at a sale to satisfy such prior lien or interest," may make written request to the Secretary or his delegate to authorize the filing of a civil action as provided in Section 7403.⁸ If suit is not authorized within six months, "such person or purchaser" may file a petition in a United States District Court for leave to file a civil action for a final determination of all claims to or liens upon the property. After a full hearing, the district court "may in its discretion" enter an order granting leave to file such civil action, in which the United States and all persons having liens upon or claiming any interest in the property shall be made parties.

28 U.S.C.A. § 2410⁹ specifically provides that the United States may be named as a party defendant in an action to quiet title or foreclose a mortgage on which the United States has a mortgage "or other lien." It provides in subsection (d) that the holder of a lien upon property on which the United States has a "junior lien, other than a tax lien" may make written request to have the lien extinguished in the same manner as a tax lien. This provision in subsection (d) clearly implies that subsections (a), (b) and (c) are general in nature and include tax liens.

Under Section 2410 as originally enacted in 1931, the United States gave the holder of a mortgage on real property, subject to a government lien, an additional remedy by consenting to be made a defendant in a suit to foreclose the mortgage. The provisions of the 1931 Act were expanded in 1942 to include actions to quiet title to real and personal property and actions to foreclose liens on personal property.⁹

The provisions of Section 7424, Int. Rev.Code of 1954, were first enacted in Section 1030, Int.Rev.Code of 1924, and re-enacted in Section 1127 of the Revenue Act of 1926 and Section 3679, Int. Rev.Code of 1939. The Codes of 1939 and 1954 both contained express cross-references to Section 2410.¹⁰ It is our conclusion that Section 7424, Int.Rev. Code of 1954 and Section 2410 of Title 28 prescribe alternative remedies for removal of a federal tax lien.

In addition, administrative procedures are set forth in Section 6325, Int.Rev. Code of 1954,^* whereby the Secretary of the Treasury or his delegate may release the lien where the liability is satisfied, a bond is furnished, or the interest of the United States is determined to have no value.

Appellee here proceeded under Section 2410 of Title 28. It contends that the tax lien was extinguished by the sale held under the power of sale in the trust deed and chattel mortgages, and that this action merely seeks to quiet title to property upon which the lien has already been extinguished. The Government contends that Section 2410 requires a judicial sale, relying upon the provisions of subsection (c), which contemplate a "judicial sale" on foreclosure, give the United States, in case of real property, one year within which to redeem, and provide that the United States may ask by way of affirmative relief for foreclosure of its own lien.¹¹ The Bank argues that subsection (c) relates only to foreclosure actions and not to quiet title actions.

The federal tax lien here involved was created by Section 3670, Int.Rev.Code of 1939 (Section 6321 of 1954 Code) which provides that "if any person liable to pay any tax neglects or refuses to pay the same after demand, the amount" (with interest, penalty and costs) "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." Section 3670 "creates no property rights but merely attaches consequences, federally defined, to rights created under state law."¹² "However, once it has been determined that state law creates sufficient interests * * * to satisfy the requirements of § 3670, state law is inoperative to prevent the attachment of liens created by * * * the United States."¹³ And, as this Court said in Bank of Nevada v. United States, 1957, 251 F.2d 820, 824, certiorari denied 356 U.S. 938, 78 S.Ct. 780, 2 L.Ed.2d 813, "The Supreme Court has repeatedly tax liens and the provisions for their collection are strictly Federal and strictly statutory."

The federal tax lien attached to "all property and rights to property" belonging to the taxpayer. The interest of a and emphatically stated that Federal taxpayer at the time the liens attached was subject to defeasance under state law upon exercise of power of sale contained in the deed of trust.¹⁴ But can a federal tax lien upon a mortgagor's interest in property be extinguished by the exercise of such a power of sale?

There is a conflict of authority on this question. Metropolitan Life Ins. Co. v. United States, 6 Cir., 1939, 107 F.2d 311, certiorari denied 310 U.S. 630, 60 S.Ct. 978, 84 L.Ed. 1400, tends to support the Government's position. There, a suit was brought under R. S. § 3207, a predecessor of Section 7424, asking that a junior federal tax lien be decreed extinguished by reason of a sale of property pursuant to a power contained in the mortgage. The District Court held that the Government's lien had not been extinguished and ordered the property sold and the proceeds first applied to the mortgagee's claims and the balance, if any, paid to the Government. The Court of Appeals affirmed on the theory that the District Court had no jurisdiction to extinguish the lien other than by judicial sale, and said that the question was not "what binding effect the power of sale conferred by the mortgage had on subsequent lienors." However, it is evident from the opinion that the court did not consider the lien extinguished. The court stated that "Federal statutes create specific liens for taxes and as a corollary give a specific remedy for their removal and when such liens once attach, they may be lifted only as provided thereunder." 107 F.2d at page 313. "The United States as a sovereign may be sued only with its consent. It follows that the Congress has the power to prescribe not only the methods by which and the conditions under which tax liens on real estate may be released but also to limit the right to sue therefor and no suit may be maintained against the United States for such purpose unless strictly within the terms of the Statute * * *, under which consent is given." 107 F.2d at page 314.¹⁵

On the other hand, the Fifth Circuit in United States v. Boyd, 1957, 246 F.2d 477, certiorari denied 355 U.S. 889, 78 S.Ct. 261, 2 L.Ed.2d 188, held that the non-judicial foreclosure of a mortgage lien...