United States v. Melchiorre

• Decision Date: 16 August 1968
• Docket Number: Civ. A. No. 5431.
• Citation: 292 F. Supp. 305
• Parties: UNITED STATES of America, Plaintiff, v. Ignazio MELCHIORRE, formerly t/a Italian-American Grocery Co., Lomin Company, Inc., Char-Ben Corp. and Ester Elson, Defendants.
• Court: U.S. District Court — Eastern District of Virginia

292 F. Supp. 305

UNITED STATES of America, Plaintiff, v. Ignazio MELCHIORRE, formerly t/a Italian-American Grocery Co., Lomin Company, Inc., Char-Ben Corp. and Ester Elson, Defendants.

Civ. A. No. 5431.

United States District Court E. D. Virginia, Norfolk Division.

August 16, 1968.

C. V. Spratley, Jr., U. S. Atty., Norfolk, Va., Clarence J. Grogan, Tax Division, Dept. of Justice, Washington, D. C., for plaintiff.

Fine, Fine, Legum & Schwan, Norfolk, Va., for Lomin Co.

Maurice Steingold, Norfolk, Va., for Char-Ben and Elson.

Melvin J. Radin, Norfolk, Va., for Elson.

Russo, White & Katherman, Norfolk, Va., for Norman Hecht.

No appearance for Melchiorre.

MEMORANDUM

WALTER E. HOFFMAN, Chief Judge.

Defendant landlords, Lomin Company, Inc., Char-Ben Corp., and Ester Elson, are competing for the fund presently in the possession of the defendant, Norman Hecht, Trustee, alleging that their claim to this fund is senior and prior to that of the federal tax liens asserted here by the Government. In response to requests for admissions filed and served in this case, defendants have admitted the following:

1. That the defendant, Ignazio Melchiorre, t/a Italian-American Grocery Company, was a tenant of the aforesaid defendants by virtue of a written lease calling for the payment of rent in the sum of $200.00 per month.

2. That the defendant taxpayer, Ignazio Melchiorre, defaulted in the payment of his rent, and the defendant landlords obtained a warrant of distress on June 21, 1963. The warrant of distress was in the sum of $600.00 covering rent at the rate of $200.00 per month for the months of April, May and June of 1963, and it was issued by a justice of the peace.

3. That the defendant, Ignazio Melchiorre, made an assignment for the benefit of his creditors on August 8, 1963.

4. That as a result of this assignment and the sale of Ignazio Melchiorre's stock in trade and fixtures by the defendant, Norman Hecht, Trustee, the said trustee is holding the sum of $1,093.48, subject to certain administrative expenses.

The District Director of Internal Revenue made an assessment on June 20, 1963 against the defendant, Ignazio Melchiorre, t/a Italian-American Grocery Co., for withholding taxes, penalties and interest for the four quarters of 1962 in the sum of $3,319.52, and for the first quarter of 1963 in the sum of $812.00. The assessment was based on the filing of no payment returns by the defendant taxpayer. On June 21, 1963 notice of this assessment was given to the taxpayer and demand was made for payment. There is still due and owing to the United States by Ignazio Melchiorre by virtue of the aforesaid assessment the sum of $3,909.91, plus statutory interest. A notice of federal tax lien covering the aforesaid assessment was filed with the Clerk of the Corporation Court in Norfolk, Virginia, on June 24, 1963. On July 5, 1963 and August 2, 1963 the District Director made assessments against Ignazio Melchiorre in the respective sums of $179.21 and $319.25, and duly gave the taxpayer notice of the assessments making demands for payment. These sums, plus statutory interest thereon, are still due and owing the United States.

The plaintiff, United States of America, moves this Court for summary judgment pursuant to Rule 56, Federal Rules of Civil Procedure. The issue before the Court is whether or not § 3466 of the Revised Statutes, 31 U.S.C. § 191, gives priority to a tax lien of the United States over a landlord's lien as a matter of law where the District Director of Internal Revenue made the assessment on June 20, 1963, and the defendant landlords obtained a warrant of distress on June 21, 1963. An affidavit as to the insolvency of the taxpayer on August 8, 1963 has been filed and is not controverted.

This issue is substantially the same as that in United States v. Waddill, Holland, & Flinn, Inc. (1945), 323 U.S. 353, 65 S.Ct. 304, 89 L.Ed. 294 (182 Va. 351, 28 S.E.2d 741). In this case Mrs. Oeland Roman operated a restaurant in Danville, Virginia, on premises leased from defendant landlords Waddill, Holland & Flinn, Inc. On June 19, 1941, she executed a general deed of assignment to a trustee for the benefit of creditors specifically conveying all personal property, fixtures and equipment used by her in the conduct of the restaurant and located on the premises. The property remained on the premises until sold by the trustee on July 12, 1941. After deduction of appropriate administrative expenses, a sum of $1,407.29 remained. Four creditors claimed priority of payment from the fund, two of which are not relevant to the issue under consideration.

1. The United States claimed the sum of $1,559.63, plus interest, representing certain unpaid federal unemployment compensation taxes and a debt arising out of a Federal Housing Administration transaction.

2. The Virginia Unemployment Compensation Commission made a tax claim which was conceded to be subordinate to 1 above and hence not considered.

3. The City of Danville claimed $300.55 as personal property taxes still unpaid. On July 2, 1941, the city distrained on all of the property on the leased premises.

4. The defendant landlord Waddill, Holland & Flinn, Inc. claimed $1,500.00 for six months' rent due and to become due. On July 1, 1941, twelve days after the deed of assignment was executed, the defendant landlords obtained a distress warrant for 3 2/5 months' past due rent and an attachment for 2 3/5 months' future installments of rent. On the same day the firm levied the warrant and attachment on the assignor's property located on the leased premises.

The trustee under the deed of assignment filed a petition in the Corporation Court of Danville, reciting the various claims and requesting advice as to the proper distribution. That court held that the landlord was entitled to priority in payment over the claims of the United States and the Virginia Unemployment Compensation Commission, but that its claim was subordinate to that of the City of Danville. On appeal by the United States, the Supreme Court of Appeals of Virginia affirmed this order of distribution. On certiorari the Supreme Court reversed the holding of the lower court.

Justice Murphy delivered the opinion of the court:

"Section 3466 of the Revised Statutes provides in pertinent part that `the debts due to the United States shall be first satisfied' whenever any person indebted to the United States is insolvent or, `not having sufficient property to pay all his debts, makes a voluntary assignment thereof.' We hold that this statute clearly subordinates the claims of both the landlord and the municipality to that of the United States. The judgment of the court below must accordingly be reversed.

"The words of § 3466 are broad and sweeping and, on their face, admit of no exception to the priority of claims of the United States. Thelusson v. Smith, 2 Wheat. 396, 425 4 L.Ed. 271, United States v. State of Texas 314 U.S. 480, 484, 62 S.Ct. 350, 352, 86 L.Ed. 356. But this Court in the past has recognized that certain exceptions could be read into this statute. The question has not been expressly decided, however, as to whether the priority of the United States might be defeated by a specific and perfected lien upon the property at the time of the insolvency or voluntary assignment. Conard v. Atlantic Insurance Co., 1 Pet. 386, 441, 444 7 L.Ed. 189; Brent v. Bank of Washington, 10 Pet. 596, 611, 612, 9 L.Ed. 547, Spokane County v. United States, 279 U.S. 80, 95, 49 S.Ct. 321, 325, 73 L.Ed. 621 United States v. Knott, 298 U.S. 544, 551, 56 S.Ct. 902, 905, 80 L.Ed. 1321 People of State of New York v. Maclay, 288 U.S. 290, 293, 294, 53 S.Ct. 323, 324, 77 L.Ed. 754; United States v. State of Texas, 314 U.S. 480, 485, 486, 62 S.Ct. 350, 352, 353, 86 L.Ed. 356. It is within this suggested exception that the landlord and the municipality seek to bring themselves. Once again, however, we do not reach a decision as to whether such an exception is permissible for we do not believe that the asserted liens of the landlord and the municipality were sufficiently specific and perfected on the date of the voluntary assignment to cast any serious doubt on the priority of the claim of the United States.

"The landlord rests its claim upon certain provisions of the Virginia Code of 1936. Sections 5519¹ and 5523² authorize a landlord to levy distress for six months' rent upon `any goods of the lessee * * * found on the premises, or which may have been removed therefrom not more than thirty days * * * for not more than six months' rent if the premises are in a city or town.' Section 5524<sup>3</sup> provides that the goods of the tenant on leased premises in a city or town may not be removed by a lienor or purchaser, nor taken under legal process, save `on the terms of paying to the person entitled to the rent so much as is in arrear, and securing to him so much as is to become due,' not to exceed six months' rent. Other sections provide for officers making the distress under warrant from a justice, founded upon an affidavit of the person claiming the rent, and for such officers to make returns of their actions and proceedings upon such warrants. Provisions are also made for legal proceedings looking toward the possession and sale of the property to satisfy the debt.

"The Supreme Court of Appeals of Virginia has here held that these sections `give the landlord a lien which is fixed and specific, and not one which is merely inchoate, and that such a lien exists...