United States v. Bluhm

• Decision Date: 05 September 1969
• Docket Number: No. 17228.,17228.
• Citation: 414 F.2d 1240
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Jerome B. BLUHM, Intervening Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

414 F.2d 1240 (1969)

UNITED STATES of America, Plaintiff-Appellee, v. Jerome B. BLUHM, Intervening Defendant-Appellant.

No. 17228.

United States Court of Appeals Seventh Circuit.

July 25, 1969.

As Modified on Denial of Rehearing September 5, 1969.

Maurice P. Raizes, Chicago, Ill., for appellant.

Thomas A. Foran, U. S. Atty., Chicago, Ill., Crombie J. D. Garrett, Stephen H. Hutzelman, Tax Div., Dept. of Justice, Washington, D. C., for appellee.

Before KILEY, FAIRCHILD and KERNER, Circuit Judges.

KERNER, Circuit Judge.

The United States sought to enforce a federal tax lien against a parcel of real estate owned by intervening defendant-appellant Bluhm. The District Court granted summary judgment for the United States from which Bluhm appeals.

On December 24, 1966, the United States filed suit to reduce various tax liens to judgment against defendants John A. Amos and Gertrude P. Amos. A default judgment was entered against John and Gertrude Amos in the amount of $210,101.13 and a separate judgment against John Amos, alone, for $9,575.25. The Amos' owned a parcel of real estate located at 831 Ashland, Wilmette, Illinois. Notices of federal tax liens were filed with the Recorder of Deeds as follows:

                   Taxable        Date of              Date Notice of
                   Year         Assessment             Tax Lien Filed
                _________________________________________________________
                   1950  May 23, 1958               September 3, 1958
                   1951  May 23, 1958               September 3, 1958
                   1952  May 23, 1958               September 3, 1958
                   1953  May 23, 1958               September 3, 1958
                   1954  February 3, 1961           April 10 and 24, 1961
                   1957  September 27, 1963         February 4, 1964
                   1958  September 27, 1963         February 4, 1964
                

On February 27, 1962, the Amos' not having paid the real estate taxes for 1960, the real estate was sold at a tax sale and a certificate of sale was issued to Bonded Municipal Corporation. No redemption having taken place within the provided time, Bonded sought the issuance of a tax deed in the Circuit Court of Cook County. In November, 1964, notice of the action in Circuit Court was given to the District Director of Internal Revenue, Chicago, Illinois, the United States District Attorney for the Northern District of Illinois and the Attorney General of the United States, Washington, D. C. The United States did not respond and on June 18, 1965, a tax deed was issued. By mesne conveyances defendant Jerome Bluhm acquired title. Bluhm intervened in the proceedings below and now appeals from an adverse determination.

The provisions of 28 U.S.C. § 2410 were not followed in the state court since, although the United States was given notice of this litigation, it was not named a party to the proceedings in the state court and, therefore, the United States claims that the tax sale in the state court constituted a suit against the United States without its consent.¹ However, in United States v. Brosnan, 363 U.S. 237, 80 S.Ct. 1108, 4 L.Ed.2d 1192 (1960), the Court held that § 2410 was not the exclusive remedy where the Government held a junior lien and that the sale of mortgaged property by the sheriff without joining the junior lienholders was not barred by sovereign immunity. Bluhm contends that under Brosnan it does not matter whether the United States was a junior or a senior lienholder.

This Court has repeatedly rejected the contention that because a fee owned by a taxpayer was already encumbered by a lien which enjoyed seniority under state law, the Government\'s lien necessarily attached subject to that lien. A fortiori, the "property" to which the federal lien can attach is not diminished by the particular means of enforcement possessed by a competing lienor to whom federal law concedes priority. 363 U.S. at 241, 80 S.Ct. at 1111.

The Court in Brosnan concluded that even as a junior lienholder, the Government had an interest in the property and rejected the criterion established in United States v. Cless, 254 F.2d 590, 592 (3d Cir. 1958), as to whether the Government was an indispensable party under the state law. In Minnesota v. United States, 305 U.S. 382, 59 S.Ct. 292, 83 L.Ed. 235 (1939), where the United States held the fee in trust for the Chippewa Indians and in United States v. Alabama, 313 U.S. 274, 61 S.Ct. 1011, 85 L.Ed. 1327 (1941), where the United States owned the fee, the Court held that the United States was an indispensable party to any proceeding as to the land. While the Court in Cless was incorrect in concluding that the criterion was whether or not the United States was an indispensable party under local law, whether or not the Government is an indispensable party under federal law may be determinative.

This court believes that where the United States is the senior lienholder, it is an indispensable party under federal law. The Internal Revenue Code sets out detailed provisions as to the attachment, continuation and release of tax liens. Int.Rev.Code of 1954 §§ 6321-6344. Questions arising under these provisions are to be determined under federal law "regardless of whether the federal statutory scheme specifically deals with them or not." United States v. Brosnan, 363 U.S. 237, 240, 80 S.Ct. 1108, 1110 (1960). Section 6323 of Int.Rev.Code of 1954 provides that a federal tax lien is not "valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed * * *." The implication of Section 6323 is that the Government's lien is senior if it attaches prior to a competing lienor and notice is given. United States v. Crest Finance Co., 291 F.2d 1 (7th Cir. 1961). If the Government's lien is not the first to attach, the lien of the Government is junior, and the Government under federal law is not an indispensable party in a state court proceeding. United States v. Brosnan, 363 U.S. 237, 80 S.Ct. 1108 (1960). However, where the Government is the holder of a senior lien, the Code would seem to require that the United States be an indispensable party to all litigation affecting its interest in the property. Cf. United States v. Roessling, 280 F.2d 933, 935-936 (5th Cir. 1960). As the Court said in United States v. City of Greenville, 118 F.2d 963, 965 (4th Cir. 1941), "After the lien provided by the statute attaches, the property has in a sense two owners, the taxpayer and, to the extent of the lien, the United States. Commissioner of Internal Revenue v. Coward, 3 Cir. 1940, 110 F.2d 725, 727. The lien cannot be affected by state legislation respecting the recording or registering of mortgages or liens."

We agree with the Government that the state proceedings, here, was an unconsented suit against the United States. While the Supreme Court in Brosnan refused to extend the doctrine of sovereign immunity when the United States and other junior lienholders "were not, nor required to be made, parties to the proceedings," 363 U.S. at 237, 80 S.Ct. at 1108, here, because the United States is an indispensable party, sovereign immunity is applicable. The Alien, 7 Wall. 152. The Government's senior lien cannot be extinguished in any proceeding without its consent to be sued, Metropolitan Life Insurance Co. v. United States, 107 F.2d 311, 314 (6th Cir. 1939), and consent was not given to the suit in the Circuit Court of Cook County.

Bluhm, relying on United States v. Bleasby, 257 F.2d 278 (3d Cir. 1958), claims that ownership of the property was determined in an in rem action in state court and the state court judgment cannot be collaterally attacked. In Bleasby, the state seized the proceeds of a bookmaking operation in a raid. Under the laws of New Jersey, contraband is forfeited to the state after a formal decree of forfeiture is obtained. While the state was in possession of the contraband, the United States filed a federal tax lien. The state court, in a proceeding in which the United States was not a party, entered a decree of forfeiture. The Third Circuit held that the in rem action in state court could not be collaterally attacked. Blea...