United States v. Brosnan Bank of America National Trust and Savings Association v. United States

• Decision Date: 13 June 1960
• Docket Number: Nos. 137 and 183,s. 137 and 183
• Citation: 80 S.Ct. 1108,4 L.Ed.2d 1192,363 U.S. 237
• Parties: UNITED STATES of America, Petitioner, v. William J. BROSNAN et al. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a National Banking Association, Petitioner, v. UNITED STATES of America
• Court: U.S. Supreme Court

363 U.S. 237

80 S.Ct. 1108

4 L.Ed.2d 1192

UNITED STATES of America, Petitioner,

v William J. BROSNAN et al.

BANK OF AMERICA NATIONAL TRUST AND SAVINGS

ASSOCIATION, a National Banking Association, Petitioner,

v. UNITED STATES of America.

Nos. 137 and 183.

Argued March 21, 22, 1960.

Decided June 13, 1960.

Mr. Daniel M. Friedman, Washington, D.C., for petitioner United states.

Mr. Samuel B. Stewart, San Francisco, Cal., for petitioner Bank of America Nat. Trust & Savings Assn.

Mr. William L. Jacob, Pittsburgh, Pa., for respondents Brosnan and others.

Mr. Justice HARLAN delivered the opinion of the Court.

In these two cases, the United States purports to hold federal tax liens on Pennsylvania and California real properties which are concededly junior to defaulted mortgages held on the same properties by the other parties to the suits. The basic issue in each case is whether the federal lien was effectively extinguished by state proceed- ings to which the United States was not, nor was required under state law to be, a party.

The course of proceedings giving rise to this issue was as follows: In No. 137, involving a tract of Pennsylvania land, the respondent mortgagees, under a confession-of-judgment provision of the mortgage bond, obtained an in personam judgment against the mortgagor-taxpayer, pursuant to which the property was sold under a writ of fieri facias.¹ Subsequently, the United States instituted this suit under 26 U.S.C. § 7403, 26 U.S.C.A. § 7403, seeking an enforcement of its tax lien by foreclosure and sale.² The District Court held that the Government's lien on the property in question had been effectively extinguished by the Pennsylvania proceedings, and it entered judgment for the defendants. The Court of Appeals affirmed. 3 Cir., 264 F.2d 762.

In No. 183, California real and personal properties, subject to a deed of trust and two chattel mortgages, were sold by the trustee-mortgagee pursuant to powers of sale contained in the respective instruments. The United States received no actual notice of the sale. Thereafter, the mortgagee, which had bought in at the sale, brought this suit against the Government under 28 U.S.C. § 2410, 28 U.S.C.A. § 2410, to quiet its title, claiming that the exercise of the powers of sale had effectively extinguished the federal tax lien. The Court of Appeals, reversing the District Court, dismissed the suit, holding that the federal lien could be divested 'only with the consent of the United States and in the manner prescribed by Congress.' 9 Cir., 265 F.2d 862, 869. The Court did not reach the question of the effect which California law purports to give to the exercise of the power of sale upon junior liens.

We brought the cases here, 361 U.S. 811, 80 S.Ct. 63, 4 L.Ed.2d 58, because of the importance of the issue in the administration of the tax laws and the conflict between the decisions of the Third and Ninth Circuits.

I.

Federal tax liens are wholly creatures of federal statute. Detailed provisions govern their creation, continusance, validity, and release.³ Consequently, matters directly affecting the nature or operation of such liens are federal questions, regardless of whether the federal statutory scheme specifically deals with them or not. See Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838. Yet because federal liens intrude upon relationships traditionally governed by state law, it is inevitable that the Court, in developing the federal law defining the incidents of such liens, should often be called upon to determine whether, as a matter of federal policy, local policy should e adopted as the governing federal law, or whether a uniform nationwide federal rule should be formulated.

In determining the extent of the 'property and rights to property' (§ 6321) to which a government tax lien attaches, we have looked to state law. United States v. Bess, 357 U.S. 51, 55, 78 S.Ct. 1054, 1057, 2 L.Ed.2d 1135. The mortgagees claim that the present cases are governed by the principle of Bess. They assert that since the taxpayer-mortgagors' interests were subject to being terminated by means of the state pro- ceedings here invoked, their 'property and rights to property' were limited to that extent; that under Bess, the Government's lien attaches only to property rights created under state law; and that therefore, the Government's interest was subject to being similarly terminated.

The fallacy of this contention is evident. In Bess, we held that a deceased's property in insurance policies on his own life was limited to their cash surrender value and did not extend to their proceeds, which he could never enjoy. Here, however, the mortgagors owned the entire fee interests in the properties, subject only to the mortgages. 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.⁴ 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.

II.

We nevertheless believe it desirable to adopt as federal law state law governing divestiture of federal tax liens, except to the extent that Congress may have entered the field. It is true that such liens form part of the machinery for the collection of federal taxes, the objective of which is 'uniformity, as far as may be.' United States v. Gilbert Associates, 345 U.S. 361, 364, 73 S.Ct. 701, 703, 97 L.Ed. 1071. However, when Con- gress resorted to the use of liens, it came into an area of complex property relationships long since settled and regulated by state law. We believe that, so far as this Court is concerned, the need for uniformity in this instance is outweighed by the severe dislocation to local property relationships which would result from our disregarding state procedures. Long accepted nonjudicial means of enforcing private liens would be embarrassed, if not nullified where federal liens are involved, and many titles already secured by such means would be cast in doubt. We think it more harmonious with the tenets of our federal system and more consistent with what Congress has already done in this area, not to inject ourselves into the network of competing private property interests, by displacing well-established state procedures governing their enforcement, or superimposing on them a new federal rule. Cf. Board of Com'rs of Jackson County v. United States, 308 U.S. 343, 60 S.Ct. 285, 84 L.Ed. 313.

III.

This conclusion would not, of course, withstand a congressional direction to the contrary. The Government argues that by the enactment of certain statutes relating to judicial proceedings for the enforcement and extinguishment of federal liens, Congress has, at least impliedly, so spoken.

As early as 1868, Congress had authorized a suit by the United States to enforce its own tax lien.⁵ A similar provision now appears as 26 U.S.C. § 7403, 26 U.S.C.A. § 7403.⁶ However it was already then well established that the United States was an indispensable party to any suit affecting property in which it had an interest, and that such a suit was therefore a suit against the United States which could not be maintained without its consent. ⁷ Furthermore, the laws of many States themselves required all persons claiming an interest in property to be joined as parties to any suit to foreclose a lien or quiet title to the property. Thus there was no way in which a party who held a lien on property senior to that of the United States could get a judicial decree extinguishing the Government's interest.

To remedy this situation, Congress in 1924 passed the predecessor of 26 U.S.C. § 7424, 26 U.S.C.A. § 7424,⁸ which gives the holder of a prior-filed lien the right to enforce it by civil action against the United States, subject to the exhaustion of certain administrative remedies. The court is to proceed to 'a final determination of all claims to or liens upon the property in question' in the same manner as if the action had been brought by the Government to enforce its lien under § 7403. The latter section requires the court to determine the merits of all claims to the property, and in case the United States establishes such a claim, permits, but does not require, the court to order a judicial sale. The details of the procedure to be followed in case of judicial sale are not specified, nor is the United States expressly given any right to redeem.

In 1931, Congress, for similar reasons, passed the predecessor of 28 U.S.C. § 2410, 28 U.S.C.A. § 2410, whih gives a private lienor the right to name the United States a party in any action or suit to foreclose a mortgage or lien or to quiet title to property on which the United States claims any kind of mortgage or lien, whether or not a tax lien.⁹ The action can be brought in a state court, but is removable to a federal court.¹⁰ If a judicial sale is conducted in such an action or suit, it is to have the same effect as it would have under local law, but the United States is given one year to redeem.

These statutes on their face evidence no intent to exclude otherwise available state procedures. Their only apparent purpose is to lift the bar of sovereign immunity which had theretofore been considered to work a particular injustice on private lienors. Several features of the statutes make this clear:

(1) Both sections are purely permissive in tenor. A private lienor 'may * * * file a petition in the district court' under § 7424, or 'the United States may be named a party' under § 2410. (Emphasis added.)

(2) Under neither section is there a federally imposed requirement that there be any judicial sale at all. Nor is there any uniformity of procedure under the statutes. Under § 7424, the court 'may decree a sale' of the property, but no...