United States v. Cohen

• Decision Date: 13 July 1967
• Docket Number: Civ. No. 66-1496.
• Citation: 271 F. Supp. 709
• Parties: UNITED STATES of America, Plaintiff, v. Max B. COHEN et al., Defendants.
• Court: U.S. District Court — Southern District of Florida

271 F. Supp. 709

UNITED STATES of America, Plaintiff, v. Max B. COHEN et al., Defendants.

Civ. No. 66-1496.

United States District Court S. D. Florida.

July 13, 1967.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lavinia L. Redd, Asst. U. S. Atty., Miami, Fla., and Harry Shapiro, Trial Atty. for Dept. of Justice, Washington, D. C., for the Government.

Arnold D. Levine, Tampa, Fla., and Robert E. Manuel, Washington, D. C., for defendant Max B. Cohen.

Sibley, Giblin & Levenson, Miami Beach, Fla., for defendant Fontainebleau Corp.

Burns, Middleton, Rogers & Farrell, Palm Beach, Fla., for defendants Elwyn Middleton and Annie Middleton.

Clinton A. Curtis, Lake Wales, Fla., for defendant Corneal B. Myers.

Richard & Nelson, Miami Beach, Fla., for defendant Theodore Nelson.

Jack Geddy Goldberg, Jersey City, N. J., pro se.

Bernard A. Wieder, Miami Beach, Fla., pro se.

Philena C. Cohen, pro se.

ORDER

FULTON, Chief Judge.

This cause came on to be heard before the Court upon the Government's Motion for Partial Summary Judgment on the issue of priority of liens as between the Government and the Defendant, Fontainebleau. The Court has heard argument of counsel, has carefully studied the memoranda of law and pleadings filed herein, as well as the affidavit submitted by the Government in support of said motion, and is otherwise fully advised in the premises.

By virtue of a contract of purchase and sale between defendant Middleton as Trustee and defendant Myers dated September, 1962, and the consummation of that transaction, defendant Cohen, the taxpayer herein, has owned a beneficial interest in a mortgage indebtedness owed by defendant Myers to defendant Middleton as Trustee. Middleton, a resident of Palm Beach County, Florida, holds this indebtedness for the benefit of Cohen and others. The mortgage covers property situate in Citrus and Levy counties, and it is Cohen's interest in this indebtedness upon which the Government now claims and seeks foreclosure of its tax lien.

As Judge Gewin of the Court of Appeals for the Fifth Circuit observed when confronted with a similar problem,

This is a case in which the Government is diligently pursuing the taxpayer in an effort to satisfy tax liens for delinquent taxes, penalties and interest; but in doing so, it is challenged by others who claim to be innocent bystanders, admitting the right of the Government to collect, but contending that they are being seriously injured by the procedure, and that their property rights are being jeopardized to satisfy tax liens against another. The case therefore, is drawn down to the narrow margin that sometimes arises between the rights of the Government to have its taxes paid and its liens satisfied, and the rights of individuals who do not owe the tax but who claim they are being injured by the efforts of the Government to collect. Folsom v. United States, 306 F.2d 361 (5th Cir. 1962.)

The facts which gave rise to this controversy are not disputed. According to Cohen's uncontroverted affidavit, from September, 1963 to December, 1964, he was a domiciliary and resident of Manatee County, Florida, and from December, 1964 to October, 1965, he was a domiciliary and resident of Dade County, Florida. He has never resided in Citrus, Levy or Palm Beach counties, Florida.

Inasmuch as the chronology of the accrual and recording of the Government and Fontainebleau liens are the crux of this litigation, these undisputed facts are probably most clearly set forth in timeline fashion.

May 12, 1961 District Director of the Internal Revenue Service made an assessment of income tax liability of defendant, Max Cohen, in the amount of $83,639.48, of which a balance remains due of $39,415.40.

September 7, 1961 District Director caused notice of tax lien, based on the first assessment, to be filed with the Clerk of the Manatee County Circuit Court.

September 8, 1961 District Director caused notice of tax lien based on the first assessment to be filed with the Clerk of the Dade County Circuit Court.

July 14, 1963 District Director of the Internal Revenue Service made a second assessment of income tax liability of defendant, Max Cohen, in the amount of $257,732.38.

September 5, 1963 District Director caused notice of tax lien based on the second assessment to be filed with the Clerk of the Manatee County Circuit Court. Notice of tax lien based on both assessments was filed with the Clerk of the Citrus County Circuit Court.

October 23, 1963 District Director caused notice of tax lien based on both assessments to be filed with the Clerk of the Hillsborough County Circuit Court.

October 24, 1963 District Director caused notice of tax lien based on the second assessment to be filed with the Clerk of the Dade County Circuit Court.

October 30, 1963 District Director caused notice of tax lien based on both assessments to be filed with the Clerk of the Levy County Circuit Court.

April 20, 1965 The Defendant Fontainebleau Hotel Corp. obtained a personal judgment against the defendant-taxpayer Max Cohen in the Dade County Circuit Court.

April 22, 1965 Fontainebleau Hotel Corp. recorded that judgment in Citrus County.

July 26, 1965 Execution having been returned nulla bona, Fontainebleau Hotel Corp. filed a complaint in the nature of a creditors bill in the Citrus County Circuit Court, seeking to reach Cohen's beneficial interest in the Myers-Middleton mortgage.

November 17, 1965 The Citrus County Circuit Court issued a temporary stay order, enjoining Cohen from encumbering or transferring any funds held by Middleton as trustee for Cohen's benefit.

December 17, 1965 District Director caused notice of tax liens based on both assessments to be filed with the Clerk of the Palm Beach County Circuit Court.

May 18, 1966 The Fontainebleau Hotel Corp. obtained a final decree in its Citrus County creditors suit, which decree declared Fontainebleau's lien on Cohen's equity in the mortgage indebtedness. Cohen's interest was ordered to be sold by a special master.

Thereafter, but prior to the sale of Cohen's interest in the mortgage indebtedness, the Government attempted to intervene in the Citrus County Circuit Court proceedings. The intervention was strenuously and successfully opposed by Fontainebleau, on the grounds that (1) the Fontainebleau's final decree in the creditors suit in no way affected the Government's rights because the Government could maintain a separate and independent suit to test the priority of its claim as against Fontainebleau, (2) intervention after the final decree was not timely, and (3) the proposed intervention was not subordinate to and in recognition of the propriety of the main proceedings, as required by the Florida Rules of Civil Procedure, 30 F.S.A Cohen's beneficial interest in said mortgage was sold at public outcry, pursuant to the Citrus County Circuit Court final decree. For the price of $50,000, Fontainebleau purchased Cohen's interest in the mortgage, the purchase price being applied towards satisfaction of Fontainebleau's judgment against Cohen.

After being thwarted in its Citrus County attempt to reach Cohen's interest in said mortgage, the Government filed its complaint herein. Plaintiff now seeks a judgment against Cohen in the amount of the two unpaid assessments, foreclosure of its tax liens on Cohen's equitable interest in the mortgage, sale of that interest, and if appropriate, a deficiency judgment against Cohen for the balance.

The taxpayer in his answer admits his indebtedness to the Government and not only asserts that the tax liens are prior to any other liens claimed by defendants to this cause, but joins in the Government's prayer for relief. Fontainebleau raises the following defenses to foreclosure of the Government's lien:

1. Priority of Fontainebleau's lien or interest as purchaser.

2. Estoppel by judgment, arising by virtue of the Government's failure to appeal the denial of its petition for intervention and the final judgment in the Citrus County creditors suit.

3. Release of its claim of lien by the Government.

By way of counterclaim, Fontainebleau asks this Court to marshal all of Cohen's assets subject to the Government's tax lien in accordance with equity and good conscience.

I. THE GOVERNMENT'S LIEN

26 U.S.C. § 6321 creates a lien in favor of the Government on "all property and rights to property, whether real or personal" belonging to a taxpayer who, after demand, neglects or refuses to pay his income tax. Whether the taxpayer has an interest in property to which a lien can attach is a matter of state law. United States v. Bess, 357 U.S. 51, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958). That the Government has made demand, and Cohen has neglected or refused to pay his income tax is uncontroverted.

In the instant case, the Government seeks to levy upon its tax lien imposed on the taxpayer-Cohen's interest in said mortgage indebtedness. Florida law determines whether this interest is "property" or a "right to property" within the meaning of § 6321, and under Florida law, an equitable interest in a mortgage is intangible personal property, which may be reached by a creditor. Evins v. Gainesville National Bank, 80 Fla. 84, 85 So. 659 (1920); Ratliff v. Nowery, 102 Fla. 1072, 136 So. 895 (1931); Thalheimer Bros. v. Tischler, 55 Fla. 796, 46 So. 514, 17 L.R.A.,N.S., 841 (1908). Thus it may be subject to a tax lien.

II. PRIORITY AS BETWEEN THE GOVERNMENT AND FONTAINEBLEAU

The tax lien created by § 6321 arises automatically upon the ripening of the taxpayer's tax liability and attaches to all property and rights to property then owned and subsequently acquired by the taxpayer. Once the tax lien has attached to the taxpayer's property or rights to property, Federal law determines the priority of competing liens asserted to that interest. Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960). However, in order to enforce its lien as against certain persons...