United States v. White Bear Brewing Co.

• Citation: 227 F.2d 359
• Decision Date: 18 November 1955
• Docket Number: No. 11431.,11431.
• Parties: The UNITED STATES of America, Plaintiff-Appellant, v. WHITE BEAR BREWING CO., Inc., and Chicago Title and Trust Company as Trustee, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

227 F.2d 359 (1955)

The UNITED STATES of America, Plaintiff-Appellant, v. WHITE BEAR BREWING CO., Inc., and Chicago Title and Trust Company as Trustee, et al., Defendants-Appellees.

No. 11431.

United States Court of Appeals Seventh Circuit.

November 18, 1955.

Robert Tieken, U. S. Atty., Chicago, Ill., H. Brian Holland, Asst. Atty. Gen., Joseph F. Goetten, U. S. Dept. of Justice, Ellis N. Slack, Hilbert P. Zarky, Stanley P. Wagman, Special Assts. to the Atty. Gen., for the United States.

William H. Avery, Jr., Kenneth F. Burgess, Chicago, Ill., Edward P. Saltiel, Chicago, Ill., for appellee. George Ragland, Jr., Walter J. Cummings, Jr., Henry A. Preston, Chicago, Ill., for White Bear Brewing Co., and Chicago Title and Trust Co., as Trustee, defendants-appellees, Sidley, Austin, Burgess & Smith, Chicago, Ill., of counsel.

Before DUFFY, Chief Judge, and FINNEGAN and LINDLEY, Circuit Judges.

FINNEGAN, Circuit Judge.

Defendant White Bear Brewing Co., Inc., is the record title-holder of property which the government, as plaintiff, by its action, filed below, would have sold, and the proceeds distributed. Chicago Title and Trust Company is a co-defendant in its capacity under defendant's purchase-money mortgage in trust deed form.

Defendant filed a motion to dismiss the government's complaint, and as the district judge cogently summarized this aspect of the record: "The defendant has filed with its motion an affidavit setting forth additional facts, and plaintiff has in its brief presented certain facts which it offers to support by affidavit. I will assume that the latter are correct without requiring a formal affidavit. Since matters outside the pleadings have been introduced, the motion will be treated under Rule 12(c) as a motion for summary judgment and disposed of under Rule 56 Fed.Rules Civ.Proc. 28 U.S. C.." Both parties filed briefs. By his final decree, supported by a memorandum of opinion, the trial judge allowed fendants' motion to dismiss the complaint. That decree is now before us. No question of the taxpayer's solvency is involved.

Absent material issues of fact, we can present a sequential listing of events which will bring into sharp relief significance of certain timing:

                  May 19, 1947       — Deutsch completed work pursuant to contract entered
                                        into on February 14, 1946 with Frederick's Brewing Co
                                        for improvements on real estate in question
                  September 2, 1947  — Deutsch recorded his Illinois mechanics lien. This sworn
                                        claim of lien contained a legal description of the real estate
                                        involved in the present appeal and stated the amount
                                        of lien as $8,286.00
                  November 13, 1947  — Deutsch filed suit in the Circuit Court of Cook County
                                        Illinois, in equity, to foreclose his mechanics lien. Case
                                        No. 47C 14529.
                  November 13, 1947  — Commissioner of Internal Revenue made an assessment
                                        of $8,709.70 against Frederick's Brewing Co., also known
                                        as McAvoy Brewing Co., Inc., for income taxes owing
                                        for the year 1947.
                  November 15, 1947  — Summons in the lien foreclosure suit served on Frederick's
                                       Brewing Company.
                  November 17, 1947  — Assessment list received by the U. S. Collector, First
                                       District, Illinois.
                  December 14, 1948  — Assessments by Collector against McAvoy Brewing Co.,
                                       Inc., for:
                                          (i) withholding taxes owing for the 3rd quarter, 1947.
                                       $6,362.91.
                                          (ii) withholding taxes owing for the 4th quarter, 1947.
                                       $4,047.81.
                                          (iii) withholding taxes owing for the 1st quarter,
                                       1948. $2,312.55.
                  December 16, 1948  — Notice of tax liens concerning assessments listed under
                                       date of December 14, 1948, supra filed in Recorder's office,
                                       Cook County, Ill.
                  December 17, 1948  — Collector received assessment list.
                  December 17, 1948  — Assessments by Collector against McAvoy Brewing Co.,
                                       for:
                                          (i) Federal Insurance Contributions Act, 26 U.S.C. §
                                       1400 et seq., taxes owing for 3rd quarter, 1947. $911.17.
                                          (ii) Federal Insurance Contributions Act taxes owing
                                       for 4th quarter, 1947. $245.41.
                                          (iii) Federal Insurance Contributions Act taxes owing
                                       for 1st quarter, 1948. $520.22.
                                          (iv) Federal Unemployment Tax Act, 26 U.S.C. § 1600
                                       et seq., taxes owing for year 1947. $1,817.39.
                  December 22, 1948  — Assessment list received by Collector, First District, Ill.
                  December 29, 1948  — Notice of tax liens filed with Recorder of Deeds, Cook
                                       County, Illinois.
                  April 28, 1949     — Notice of Federal tax lien filed with Recorder of Deeds,
                                       Cook County, Illinois. (Covering income taxes of 1947,
                                       T. R. 8.)
                  April 28, 1949     — Decree of foreclosure and sale entered in Deutsch's case
                                       No. 47C 14529. Judgment entered in favor of Deutsch,
                                       the materialman, for $10,502.35.
                  

                  June 28, 1949      — Date of Master's sale.
                  June 28, 1949      — Property in question sold to Deutsch, Mechanic's lienholder,
                                       at public auction for $11,500 pursuant to decree
                                       in No. 47C 14529.1
                  September 22, 1949 — Certificate of sale issued to Deutsch and recorded in
                                       Cook County, Illinois.
                  September 30, 1949 — By its decree, Illinois Court approved sale of property to
                                       Deutsch by the Master in Chancery.
                  November 1, 1949   — McAvoy Brewing Co., Inc., shutdown.
                  September 27, 1950 — Deutsch assigned his certificate of sale to Yavitz.
                  September 28, 1950 — Master's deed issued to Yavitz, in the absence of redemption.
                  November 2, 1950   — Yavitz recorded the Master's deed.
                  July 22, 1952      — Yavitz and wife conveyed property in question to Emma
                                       Janninga.
                  July 22, 1952      — Recording date of Janninga's transference of title to
                                       White Bear Brewing Co., Inc. (one of the defendants
                                       here). A part purchase-money mortgage in trust deed
                                       form, from White Bear to Chicago Title and Trust Co.,
                                       to secure grantor's $31,000 note, was also recorded at
                                       this time. The total purchase price paid by defendant
                                       White Bear was $36,000.
                  November 10, 1953  — Government suit seeking to have property sold and proceeds
                                       distributed, filed below.
                

According to the "Statement"² (mentioned in the District Judge's memorandum) sponsored by the government, in its brief opposing defendants' motion to dismiss, notices were filed of liens for the assessments itemized in its complaint amounting to $16,217.46 and, it appears, another notice of lien, in the amount of $7,922.01 was filed on April 28, 1949. But after examining the government's complaint, filed below, we find this latter notice of lien unmentioned, while the total amount claimed, in that pleading, was $16,217.46 plus interest. However, a marginal note in the plaintiff's brief suggests an explanation:³

"Although the District Court's memorandum does not mention employment taxes, they are nevertheless a part of this total amount. The amounts appearing in paragraphs 5 through 11 of the complaint (R. 7-9) and the next to last paragraph on page 4 of plaintiff-appellant's statement (R. 27) are exclusive of penalties or interest where due, and total $24,139.47. However, defendant-appellees admitted in their answer (R. 12) that notices of federal tax liens totaling $25,359.16 were filed in amounts including interest and penalties. The exact amounts are not material to the issues before this Court since the amount of liens exclusive of interest and penalties still exceeds the amount of proceeds from the foreclosure of the materialman's lien, $11,500. (R. 26.)"

Mirrored against the backdrop of dates and facts, we have already shown, plaintiff sought the following relief below:⁴

"That all persons having lien upon or claiming any interest in the property or rights to property hereinabove described be required to submit their claims; that the merits of all claims to and liens upon the property be finally determined; that the defendants and all persons claiming under them or any of them subsequent to the commencement of this action be barred and foreclosed of all right, title and interest, or lien and claim to the property and all part thereof; that the lien of this plaintiff for its taxes assessed be established and enforced against property described in its complaint; that the property be ordered sold in accordance with the law and the practice of this Court and that the fund resulting from such sale be ordered distributed according to the findings of the Court, in accordance with the rights and interests of the parties defendant in this suit and the United States." (Italics added.)

Because there are several cases (See: Appendix I) which on first blush seem to dispose of this appeal, adversely to defendants, we think dissecting the two liens asserted, will be revealing.

I. The Government Tax Lien

Section 3670 of the Internal Revenue Code of 1939⁵ creates the lien pressed by the government in this appeal:

"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...