United States v. Liverpool & London & Globe Ins. Co.

• Citation: 209 F.2d 684
• Decision Date: 21 December 1953
• Docket Number: No. 14404.,14404.
• Parties: UNITED STATES v. LIVERPOOL & LONDON & GLOBE INS. CO., Limited et al.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

209 F.2d 684 (1953)

UNITED STATES v. LIVERPOOL & LONDON & GLOBE INS. CO., Limited et al.

No. 14404.

United States Court of Appeals Fifth Circuit.

December 21, 1953.

Charles S. Lyon, Asst. Atty. Gen., Ellis N. Slack, Sp. Asst. to Atty. Gen., H. Brian Holland, Asst. Atty. Gen., Louise Foster, Washington, D. C., A. F. Prescott, John J. Kelley, Jr., Sp. Assts. to Atty. Gen., Frank B. Potter, U. S. Atty., Midland, Tex., William Cantrell, Jr., Asst. U. S. Atty., for appellant.

James R. Alexander, Will C. Thompson, Vernon Coe and R. B. Cousins, III, Dallas, Tex., Goldberg & Alexander, Dallas, Tex., Thompson & Coe, Dallas, Tex., for appellees.

Before HUTCHESON, Chief Judge, and BORAH and RIVES, Circuit Judges.

BORAH, Circuit Judge.

This is an appeal from a final judgment of the United States District Court for the Northern District of Texas holding that the appellee Sunnyland Wholesale Furniture Company had a garnishment lien upon funds of D. Ray Adams and his wife which was superior to a federal income tax lien claimed by the United States of America, appellant.

The undisputed facts are these. In the month of December, 1951, assessments were executed by the Commissioner of Internal Revenue covering withholding taxes and interests thereon which were assessed against D. Ray Adams, d/b/a Adams Furniture & Hardware Company, for the year 1951. The assessment lists were received on December 26, 1951, and February 26, 1952, respectively, by the Acting Collector of Internal Revenue for the First Collection District of Texas and on March 24, 1952, he filed a notice of tax lien in the office of the County Clerk of Bell County, Texas, in favor of the United States in the sum of $2,520.05.

On March 8, 1952, fire destroyed certain stock, furniture, and fixtures of the Adams Company in Bell County which was the community property of D. Ray Adams and Mary Martha Adams, his wife. The loss was covered by fire insurance policies in force with appellee Liverpool & London & Globe Insurance Company, Ltd., and another insurer not here involved. Adjusters for the insurance companies determined the extent of the loss to be $15,153.06, and an agreement was entered into between Adams and his wife and the insurance companies to settle for that amount, each company agreeing to share one-half of the liability or $7,576.53. On April 7, 1952, the Acting Collector issued warrants of distraint and served on insurer's local agent a notice of levy in the amount of $2,784.56, together with copies of the warrants of distraint and notice of tax lien.

On April 8, 1952, and prior to the payment of the insurance proceeds to any party the appellee furniture company filed suit on sworn accounts against Adams in the District Court of Dallas County, Texas, to obtain a judgment in the amount of $2,329.27. At the same time a garnishment suit was brought against the appellee insurance company to establish and enforce its garnishment lien in the sum of $2,329.27 with interest and costs against the funds held by its local agent. A writ of garnishment issued and on the following day it was served on the agent, attaching these funds.

On April 18, 1952, during the pendency of the state court proceedings, additional assessments were executed by the Commissioner of Internal Revenue covering income taxes and interests thereon which were assessed against Adams and his wife for the years 1948 to 1950, inclusive. The assessment list was received on April 21, 1952, by the Acting Collector and on April 26, 1952, he filed a notice of tax lien in the office of the County Clerk of Bell County in favor of the United States in the sum of $10,417.57 plus interest. Thereafter, the Acting Collector served on the insurer's local agent a copy of the notice of tax lien together with warrants of distraint and notice of levy in the amount of $10,469.96.

This suit is an outgrowth of the state court garnishment proceeding which was instituted by appellee Sunnyland Wholesale Furniture Company. By an amendment to its answer therein the appellee insurance company named the United States as an additional party defendant on the grounds, among others: (1) that it had been served with the aforementioned notices of levy and warrants of distraint notifying garnishee that all property, rights to property, monies, credits and/or bank deposits in appellee's possession and belonging or owing to D. Ray Adams, Adams Furniture & Hardware Company, and Mary Martha Adams were seized and levied upon for the payment of the tax liens in the amounts of $2,784.56 and $10,469.96; (2) that demand was made upon the appellee insurer for these sums or for such lesser sum as it may owe to the tax debtors; and (3) that the garnishee did not know and was unable to learn what the attitude of the United States, the Acting Collector of Internal Revenue or the plaintiff in the garnishment proceeding would be relative to the matter of priorities as between them. The relief asked was that citation issue against the United States and the Acting Collector requiring them to answer and appear and set up their claims for lien or such other claims as they or either of them assert in connection with either of the levies above mentioned; that the garnishee be protected against liability in excess of its liability to the assured; and that it be granted a reasonable attorney's fee. This amendment was allowed and process was issued commanding the impleaded defendant, the United States of America, to appear in the state court. The suit was thereafter removed to the United States District Court for the Northern District of Texas on petition of the United States. Subsequently, and upon the ground that it had not consented to be made a party defendant the Government moved that the action against it be dismissed and that it be allowed to intervene as a party plaintiff for the purpose of seeking foreclosure of its lien. This motion was granted and the United States filed its petition in intervention naming Adams and his wife and the two appellees herein as defendants and claiming first and prior tax liens under Section 3670 et seq. of Title 26, U.S.C., on any and all property and rights to property belonging to the taxpayers. The appellee insurance company filed responsive pleadings in which it tendered its loss draft in the sum of $7,500.39 into the registry of the court and prayed for an order directing the clerk to receive and collect this draft and place the proceeds in the registry of the court and that Adams and his wife, the United States, and the appellee furniture company be required to interplead setting up the rights of each of them in and to the fund. It further prayed for a discharge from any other or further liability and for a reasonable attorney's fee in the sum of $500.00. Thereafter and on motion of the insurer the court entered an order directing the clerk to receive and collect the draft and place the proceeds thereof in the court's registry subject to the further order of the court. After the pleadings were closed a trial was had on the merits upon the pleadings, evidence and an agreed written stipulation of facts.

The District Court made fact findings and concluded as a matter of law that the appellee furniture company had a fixed lien by virtue of the execution of its writ of garnishment which was prior in point of time and superior to the Federal income tax lien claimed by the United States. The court was further of opinion that there was no contest between the appellee insurance company and any other parties to the cause and concluded that the insurer was entitled to a reasonable attorney's fee. Judgment was accordingly entered in favor of the appellee furniture company and against the United States for the specified amount due on its lien and it was ordered that the insurance company be allowed a $500.00 attorney's fee and that the remaining balance of the tender into the registry of the court by the appellee insurer be paid to the United States. From this judgment the United States has appealed and the defendant garnishee below, Liverpool & London & Globe Insurance Company, Ltd., and the plaintiff, Sunnyland Wholesale Furniture Company, are appellees herein.

The tax liens asserted by the United States stem from 53 Stat. 448, 449, 26 U.S.C. (1946 ed.) §§ 3670, 3671, 3672. Section 3670 provides: "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) 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 3671 provides that unless some other date is specified by law the lien arises when the assessment lists are received by the collector, which effective dates are December 26, 1951, and February 26, 1952, as to the withholding tax liens and April 21, 1952, as to the income tax lien. Section 3672 provides that the lien shall not be valid against mortgagees, pledgees, purchasers or judgment creditors, until notice thereof has been filed in the office provided by the law of the state for such filing — in this case, the office of the County Clerk of Bell County. The appellee furniture company does not claim to be within the classes of persons specified in § 3672, and, accordingly, that section is not material to our present inquiry. Furthermore, it was conceded during oral argument that the withholding tax liens are prior in time to the garnishment lien and it follows that the United States is entitled to a priority in payment of $2,578.55 out of the funds on deposit in the registry of the District Court. The important question here is whether at the time the Government's income tax lien arose appellee's garnishment lien possessed "the characteristics of a specific perfected lien which alone bars the priority of the United States." See ...