United States v. Fleming

• Decision Date: 13 August 1979
• Docket Number: No. 77 Civ. 3969(MP).,77 Civ. 3969(MP).
• Parties: UNITED STATES of America, Plaintiff, v. Joseph G. FLEMING, Elinor Fleming, Nancy A. Codello, as Executrix of the Estate of Bartholomew Ruggiero, Deceased, New York State Tax Commission, New York City Department of Finance and Royal Indemnity Company, Defendants.
• Court: U.S. District Court — Southern District of New York

474 F. Supp. 904

UNITED STATES of America, Plaintiff, v. Joseph G. FLEMING, Elinor Fleming, Nancy A. Codello, as Executrix of the Estate of Bartholomew Ruggiero, Deceased, New York State Tax Commission, New York City Department of Finance and Royal Indemnity Company, Defendants.

No. 77 Civ. 3969(MP).

United States District Court, S. D. New York.

August 13, 1979.

Robert B. Fiske, Jr., U. S. Atty., S. D. New York by Nancy E. Friedman, Asst. U. S. Atty., New York City, for the United States.

Robert Abrams, Atty. Gen. of the State of New York by Marion R. Buchbinder, Asst. Atty. Gen., New York City, for State Tax Commission.

Allen G. Schwartz, Corp. Counsel, by Gale Zareko, C. Roche, and Charles Himmelman, New York City, for New York City.

DECISION

POLLACK, District Judge.

The plaintiff, United States of America, moves for summary judgment in its favor under Fed.R.Civ.P. 56. The only defendants that oppose the motion are the State and the City of New York. For the reasons shown hereafter, the motion will be granted in part.

This is an action under § 7403 of the Internal Revenue Code to enforce four Federal Tax Liens against the defendants Joseph and Elinor Fleming. Also lodged against the Flemings are three New York State tax warrants, one New York City tax warrant, one judgment, and one security interest in certain valuable coins owned by the Flemings.

The United States now moves to foreclose upon the valuable coins and for a determination of the order of priority in which the competing claimants are to be paid from the proceeds of the sale of the coins.

Judgment by default has been taken against the Flemings. Neither the defendant Codella, holder of the security interest in the coins, nor the defendant Royal Indemnity Company, holder of the judgment against Mr. Fleming, has contested the motion of the United States or asserted any right to the proceeds of the sale. Both the State and the City, however, do assert a right to be satisfied out of the proceeds.

The parties agree on the following facts:

1. On September 30, 1970, the State filed with the Westchester County Clerk a tax warrant against Mr. Fleming for $8,643.18.

2. On January 6, 1971, the City issued a tax warrant against Mr. Fleming for $440.00, and on January 22, 1972, that warrant was filed with the Westchester County Clerk.

3. On June 5, 1972, the Internal Revenue Service assessed a tax liability of $4,578.30 for 1971 against Mr. and Mrs. Fleming. A notice of a lien for this assessment was filed with the Westchester County Clerk on October 10, 1972. A payment of $3,095.00 was made against this assessment, leaving an assessed balance of $1,483.30.

4. On August 4, 1972, the State filed with the Westchester County Clerk a tax warrant against Mr. Fleming for $3,474.94.

5. On March 5, 1973, the IRS assessed a tax liability of $13,779.56 for certain quarters of 1966, 1967 and 1968 against Mr. Fleming. A notice of a lien for this assessment was filed with the Westchester County Clerk on May 8, 1973.

6. On May 7, 1973, the IRS assessed a tax liability of $6,491.05 for 1972 against Mr. and Mrs. Fleming. A notice of a lien for this assessment was filed with the Westchester County Clerk on December 31, 1973.

7. On December 6, 1973, a judgment for $3,068.78 was entered in court against Mr. Fleming in favor of the defendant Royal Indemnity Company as subrogee. On February 5, 1974, this judgment was filed with the Westchester County Clerk.

8. Between January and May, 1974, the Flemings purchased valuable coins for $25,000. To do so they borrowed $25,000 from Bartholomew Ruggiero, now deceased, on March 1, and May 3, 1974, and pledged the coins to Ruggiero to secure the loan. The defendant Codella is the Executrix of Ruggiero's estate.

9. On May 12, 1975, the IRS assessed a tax liability of $5,218.38 for 1974 against Mr. and Mrs. Fleming. A notice of a lien for this assessment was filed with the Westchester County Clerk on June 3, 1975.

10. On September 10, 1975, the State filed with the Westchester County Clerk a tax warrant against Mr. Fleming for $2,561.02.

In order to compete for priority with a federal tax lien, a local lien must be "choate," that is, "the identity of the lienor, the property subject to the lien, and the amount of the lien" must be established. United States v. New Britain, 347 U.S. 81, 84, 74 S.Ct. 367, 369, 98 L.Ed. 520 (1954). All three State warrants identified the lienor as the State Tax Commission of the State of New York; the property subject to the lien as "the real and personal property in said county Westchester belonging to said debtor and the debts due to him at the time when said copy of this warrant is so docketed in the office of the Clerk of such county or at any time thereafter"; and the amounts of the liens as stated above. The City warranted identified the lienor as the City of New York Finance Administration; the property subject to the lien in virtually the same language used in the State warrants; and the amount of the lien as $440.00. Language of the generality used in the State and City warrants satisfies the requirement of choateness. United States v. Vermont, 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370 (1964).

The State warrants were issued pursuant to § 692 of the New York Tax Law, which governs warrants for personal income tax and provides in pertinent part:

(d) . . . Any sheriff or officer or employee who receives a warrant under subsection (c) shall within five days thereafter file a copy with the clerk of the appropriate county. The clerk shall thereupon enter in the judgment docket, in the column for judgment debtors, the name of the taxpayer mentioned in the warrant, and in appropriate columns the tax or other amounts for which the warrant is issued and the date when such copy is filed; and such amount shall thereupon be a binding lien upon the real, personal and other property of the taxpayer to the same extent as other judgments duly docketed in the office of such clerk.

(e) . . . When a warrant has been filed with the county clerk the tax commission shall, in the right of the people of the state of New York, be deemed to have obtained judgment against the taxpayer for the tax or other amounts. (Emphasis added.)

The United States argues that under the italicized portion of § 692, the lien created by a tax warrant is to be treated in every respect as a lien of a judgment creditor.

Under N.Y.C.P.L.R. § 5202(a), the lien of a judgment creditor on personalty arises when the "creditor has delivered an execution to a sheriff." In tax cases, the warrant takes the place of the execution: "there is no need for the state to issue another paper called an execution." Corrigan v. United States Fire Insurance Co., 427 F.Supp. 940, 943 (S.D.N.Y.1977). The sheriff must return the execution within 60 days of its issuance. C.P.L.R. § 5230(c). When he does so, the judgment creditor's lien is extinguished, International Ribbon Mills Ltd. v. Arjan Ribbons, Inc., 36 N.Y.2d 121, 124, 365 N.Y.S.2d 808, 810, 325 N.E.2d 137, 138 (1975), unless the duration of the execution is extended in writing, C.P.L.R. § 5230(c). Thus, the United States concludes, the State's liens expired 60 days after the warrants were filed because the warrants were never renewed.

The State argues that its lien was not extinguished after 60 days. It relies on three cases, Hyams v. New York State Tax Commission (Sup.Ct. Queens Co., June 5, 1974) (unreported); Marine Midland Bank—Central v. Gleason, 47 N.Y.2d 758, 417 N.Y.S.2d 458, 391 N.E.2d 294 (1979) (memorandum); and In re Thriftway Auto Rental Corp., 457 F.2d 409 (2d Cir. 1972).

In Hyams the State filed a warrant on August 18, 1967, and the United States assessed a tax liability on September 29, 1967. The United States argued that the mere filing of the warrant did not give the State a lien on the taxpayer's personalty. The Court disagreed, holding that the filing of a warrant caused "a lien upon personalty to exist." Slip op. at 5. Here the United States admits that the filing of the State warrants created liens, but argues that the liens expired after 60 days. The Court in Hyams did not address the issue of expiration, since the competing liens of the United States in that case arose within 60 days after the filing of the State warrants.

In Marine Midland Bank—Central v. Gleason, supra, the New York Court of Appeals interpreted Tax Law § 1141(...