United States v. SpeersAnnotate this Case
382 U.S. 266 (1965)
U.S. Supreme Court
United States v. Speers, 382 U.S. 266 (1965)
United States v. Speers
Argued October 20, 1965
Decided December 13, 1965
382 U.S. 266
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
Federal taxes were assessed against a company, but, despite demand, were not paid. No notice was filed of the lien which ensued under § 6321 of the Internal Revenue Code of 1954. Thereafter, the company filed a petition in bankruptcy. The trustee treated the Government as an unsecured claimant whose lien was invalid as to him, basing his position on § 70c of the Bankruptcy Act and § 6323 of the Internal Revenue Code. Section 70c vests a trustee as of the bankruptcy date with all the rights of "a creditor then holding a lien" on a bankrupt's assets by "legal . . . proceedings"; §6323 permits a "judgment creditor" to prevail over an unrecorded federal tax lien. The trustee's position was upheld by the referee, District Court, and Court of Appeals.
Held: A bankruptcy trustee has the status of a statutory "judgment creditor," and, as such, prevails over an unrecorded federal tax lien. Pp. 382 U. S. 269-278.
(a) The language in United States v. Gilbert Associates,345 U. S. 361, that the term "judgment creditor" in the predecessor of § 6323 referred to a holder of a judgment of a court of record, must be read in context, and does not govern the rights conferred by Congress upon a trustee in bankruptcy. Pp. 382 U. S. 269-271.
(b) The language and legislative history of § 70c and § 6323 reflect a congressional purpose to confer all the rights of a judgment creditor upon the trustee in bankruptcy, including the right to avoid an unrecorded federal tax lien. Pp. 382 U. S. 271-275.
(c) That failure to accord the Government priority for its unrecorded lien may benefit other claimants in a bankruptcy proceeding by improving their relative positions as creditors (a result which the Government can avoid by promptly filing notice of the lien) is a matter of congressional policy. Pp. 382 U. S. 275-277.
(d) The provision in § 67b of the Bankruptcy Act that a statutory lien, including a federal tax lien, not perfected until after bankruptcy may nevertheless be valid as against the trustee does not preclude construing § 6323 to include the trustee, since the
purpose of § 67b insofar as tax claims are concerned is to protect them from § 60, which allows the trustee to set aside preferential transfers made within four months of bankruptcy. Pp. 382 U. S. 277-278.
335 F. 2d 311, affirmed.
MR. JUSTICE FORTAS delivered the opinion of the Court.
This case presents the question whether a federal tax lien, unrecorded as of the time of bankruptcy, is valid as against the trustee in bankruptcy.
On June 3, 1960, a District Director of Internal Revenue assessed more than $14,000 in withholding taxes and interest against the Kurtz Roofing Company. Demand for payment was made, and the taxpayer refused to pay. This gave rise to a federal tax lien. [Footnote 1] Notice of the lien was not filed either in the Office of the Recorder of Erie County, Ohio, where Kurtz had its principal place of business, or in the United States District Court at least
not before February of 1961. [Footnote 2] On June 20, 1960, Kurtz filed a petition in bankruptcy. In the ensuing proceedings, the trustee took the position that the federal tax lien was invalid as to him. He relied upon § 70, sub. c, of the Bankruptcy Act, 11 U.S.C. § 110, sub. c (1964 ed.), which, he asserted, vested in him the rights of a "judgment creditor," and upon 26 U.S.C. § 6323 (1964 ed.), which entitles a "judgment creditor" to prevail over an unrecorded federal tax lien. Section 70, sub. c provides in part:
"The trustee, as to all property, whether or not coming into possession or control of the court, upon which a creditor of the bankrupt could have obtained a lien by legal or equitable proceedings at the date of bankruptcy, shall be deemed vested as of such date with all the rights, remedies, and powers of a creditor then holding a lien thereon by such proceedings, whether or not such a creditor actually exists."
Section 6323 provides in part:
"[T]he lien imposed by section 6321 shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Secretary or his delegate. . . ."
The trustee's position, in short, was that his statutory lien attached to all property of the bankrupt as of the date of filing of the petition; that he was a statutory "judgment creditor"; and that, under § 6323, the unrecorded tax lien of the United States was not valid against him. This position, if sustained, would reduce the Government's claim for unpaid taxes to the status of an unsecured
claim, sharing fourth-class priority with unsecured state and local tax claims under § 64, sub. a(4) of the Bankruptcy Act, 11 U.S.C. § 104, sub. a(4) (1964 ed.), and ranking behind administrative expenses, certain wage claims, and specified creditors' expenses. [Footnote 3] The result in the present case is that, instead of recovering the full amount owing to it, the United States would receive only 53.48%.
The trustee's position was affirmed by the referee, the District Court, and the Court of Appeals for the Sixth Circuit. 335 F.2d 311. Certiorari was granted, 379 U.S. 958, to resolve the conceded conflict between decisions of Courts of Appeals for the Second, Third, and Ninth Circuits [Footnote 4] and the decision below. We affirm.
Despite the language of the applicable statutory provisions, § 70, sub. c and § 6323, most of the Courts of Appeals passing on the question have sustained the validity of an unrecorded federal tax lien as against the trustee in bankruptcy. They have arrived at this result on the authority of a statement in United States v. Gilbert Associates, Inc.,345 U. S. 361, 345 U. S. 364, that the phrase
"judgment creditor" in § 3672, the predecessor of § 6323, was used by Congress "in the usual, conventional sense of a judgment of a court of record. . . ."
It is clear, however, that this characterization was not intended to exclude a trustee in bankruptcy from the scope of the phrase "judgment creditor." The issue before the Court in Gilbert was quite different.
Gilbert involved neither a bankruptcy proceeding nor the rights of a trustee in bankruptcy. Gilbert arose out of a state insolvency proceeding. The issue was whether an unrecorded federal tax lien was valid as against a municipal tax assessment which had neither been reduced to judgment nor accorded "judgment creditor" status by any statute. The asserted superior position of the local tax claim was based upon the fact that the New Hampshire court, in the Gilbert insolvency proceeding, had, for the first time, conveniently characterized the local tax claim as "in the nature of a judgment," relying upon the procedures used by the taxing authorities. [Footnote 5] Because the effect of federal tax liens should not be determined by the diverse rules of the various States, the Court held that the municipality was not a "judgment creditor" for purposes of the federal statute. The Court said:
"A cardinal principle of Congress in its tax scheme is uniformity, as far as may be. Therefore, a 'judgment creditor' should have the same application in all the states. In this instance, we think Congress used the words 'judgment creditor' in § 3672 in the usual, conventional sense of a judgment of a court of record, since all states have such courts. We do not think Congress had in mind the action of taxing authorities who may be acting judicially as in New Hampshire and some other states, where the end result is something 'in the nature of a judgment,'
In view of the nature of the claim for which superiority was asserted, and because its dominant theme was the need for uniformity in construing the meaning of § 3672, Gilbert cannot be considered as governing the entirely different situation with respect to the rights conferred by Congress upon a trustee in bankruptcy. In the latter circumstance, we are confronted with a specific congressional Act defining the status of the trustee. We have no problem of evaluating widely differing state laws. We have no possibility or unequal application of the federal tax laws, depending upon variances in the terms and phraseology of different state and local tax assessment statutes and judicial rulings thereon. Here, we are faced with a uniform federal scheme -- the rights of the trustee in bankruptcy in light of an unequivocal statement by Congress that he shall have "all" the rights of a judicial lien creditor with respect to the bankrupt's property.
The legislative history lends support to the conclusion drawn from the statutory language that the purpose of Congress was to invalidate an unrecorded federal tax
lien as against the trustee in bankruptcy. It was in 1910 that Congress enacted the predecessor of § 70, sub. c, vesting the trustee "with all the rights, remedies, and powers of a judgment creditor." [Footnote 7] Three years later, in 1913, Congress enacted the predecessor of § 6323, providing that an unrecorded federal tax lien was invalid as against a "judgment creditor." [Footnote 8] These two statutes, with their corresponding references to "judgment creditor," coexisted for nearly 40 years. During that period, and prior to our decision in Gilbert in 1953, the only Court of Appeals squarely to pass upon the question decided that the trustee was a "judgment creditor" for purposes of avoiding an unrecorded federal tax lien. United States v. Sands, 174 F.2d 384, 385 (C.A.2d Cir.), rejecting contrary dictum in In re Taylorcraft Aviation Corp., 168 F.2d 808, 810 (C.A.6th Cir.).
In amending the Bankruptcy Act in 1950, Congress deleted from § 70, sub. c the phrase "judgment creditor," providing instead that, whether or not the bankrupt's property was in possession or control of the court, the trustee was to have "all the rights, remedies, and powers" of a creditor holding a judicial lien. [Footnote 9] Elsewhere in the same
legislation it was recognized that the category of those holding judicial liens includes judgment creditors, [Footnote 10] and a judicial lienholder generally has "greater rights than a judgment creditor," [Footnote 11] It is clear, therefore, that, with respect to the present problem, it was not the purpose of the 1950 amendments to reduce the powers of the trustee. As the House report accompanying the legislation noted, the revision of § 70, sub. c
"has been placed in the bill for the protection of trustees in bankruptcy . . . also to simplify, and to some extent expand, the general expression of the rights of trustees in bankruptcy. [Footnote 12]"
In 1954, Congress dealt explicitly with the question whether the trustee ought to prevail against unrecorded federal tax liens. An unsuccessful effort was made, reflected in the House version of the proposed § 6323, expressly to exclude "artificial" judgment creditors like the trustee in bankruptcy. [Footnote 13] At conference, the House
conferees acceded to the views of the Senate, which deemed it "advisable to continue to rely upon judicial interpretation of existing law instead of attempting to prescribe specific statutory rules." [Footnote 14] The Government suggests that the "existing law" sought to be preserved was this Court's decision in Gilbert. But, as of the date of the 1954 amendments, Gilbert had not yet been applied by any court to displace the rights of the trustee in bankruptcy as against an unrecorded federal tax lien. So far as that issue is concerned, it is more likely that reference to "existing law" was to the specific and then unchallenged rule announced by the Second Circuit in United States v. Sands, supra, and by other courts in other cases holding the trustee to have the rights of a judgment creditor. [Footnote 15] As we have already noted, Gilbert is not inconsistent with the rule announced in Sands.
In recent years, and since the view began to spread that Gilbert compelled exclusion of the trustee from the benefits of § 6323, legislation has been introduced expressly to reiterate the trustee's power to upset unrecorded federal tax liens. [Footnote 16] Such legislation was proposed
not to alter the statutory scheme, but to remove what was thought to be an erroneous gloss placed upon it by the courts. Thus, both Senate and House committee reports accompanying a recent bill, H.R. 394, 88th Cong., reflect the belief that those decisions upon which the Government now relies "would appear to be contrary to the legislative purpose which gave the trustee all the rights of an ideal judicial lien creditor." [Footnote 17]
In light of these legislative materials -- the adoption of the phrase "judgment creditor" in both statutes, the legislative broadening of § 70, sub. c in 1950, and the expressions of congressional discontent with recent decisions excluding the trustee from § 6323 -- we are persuaded that, read together, § 6323 and § 70, sub. c entitle the trustee to prevail over unrecorded federal tax liens.
The Government seeks to ward off this result with the argument that so to read the statutes is to confer upon certain classes of creditors "windfalls" unwarranted by the equities of their situation. The question may, however, be stated less invidiously than the argument indicates: it is whether the Government, unlike other creditors, and contrary to the general policy against secret liens, should be given advantage of a lien which it has not recorded as of the date of bankruptcy. [Footnote 18] It is true that the consequence of depriving the United States of claimed priority for its secret lien is to improve the relative position of creditors -- if there are any not already protected by § 6323 -- whose security was obtained subsequent to the Government's lien and who, once the federal lien is invalidated, have a prior claim to
the secured assets. And our decision will enhance the possibility that there will be something in the bankrupt's estate for those claimants whose priorities are higher than that afforded unsecured tax claims, [Footnote 19] as well as for state and local tax claims which share with the Federal Government the priority in § 64, sub. a(4), 11 U.S.C. § 104, sub. a(4). Whether this result is inadvisable need not detain us, [Footnote 20] for the question is one of policy, which, in our view has been decided by Congress in favor of the trustee. In any event, it is possible for the Government, in cases which it deems appropriate, to avoid a result which it regards with unhappiness by promptly filing notice of its lien. [Footnote 21] Should experience indicate that inclusion
of the trustee within § 6323 is inadvisable, the fact will not be lost upon Congress.
The Government advances one last and quite novel [Footnote 22] argument predicated upon § 67, sub. b of the Bankruptcy Act, 11 U.S.C. § 107, sub. b (1964 ed.), which provides:
"The provisions of section 60 of this Act to the contrary notwithstanding, statutory liens [including those] for taxes and debts owing to the United States or to any State or any subdivision thereof . . . may be valid against the trustee, even though arising or perfected while the debtor is insolvent and within four months prior to the filing of the petition. . . . Where by such laws such liens are required to be perfected and arise but are not perfected before bankruptcy, they may nevertheless be valid, if perfected within the time permitted by and in accordance with the requirements of such laws. . . . "
The contention is that the lower court's reading of § 70, sub. c and § 6323 cannot be correct, for it precludes the possibility which appears to be contemplated by § 67, sub. b -- that a federal tax lien not perfected until after bankruptcy may nevertheless be "valid against the trustee." We find no such inconsistency. The purpose of § 67, sub. b, insofar as tax claims are concerned, is to protect them from § 60, 11 U.S.C. § 96 (1964 ed.), which permits the trustee to avoid transfers made within four months of bankruptcy. Thus, § 67, sub. b permits an otherwise inchoate federal tax claim to be "perfected" by assessment and demand within the four months prior to bankruptcy or afterwards. [Footnote 23] It does not nullify or purport to nullify the consequences which flow from the Government's failure to file its perfected lien prior to the date when the trustee's rights as a statutory judgment creditor attach -- namely, on filing of the petition in bankruptcy. [Footnote 24] There is no indication in the language of § 67, sub. b, in the legislative history, or in decisions of any court, that the subsection was intended to affect the construction or application of § 6323. In any event, we should hesitate to read § 67, sub. b, as relevant to the relationship between § 70, sub. c, and § 6323, for Congress, in the very legislation proposed to clarify the trustee's rights under § 6323, did consider § 67, sub. b, and evidenced no awareness of interrelationship or of inconsistency. [Footnote 25]
26 U.S.C. § 6321 (1964 ed.) provides:
"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, 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."
26 U.S.C. § 6322 (1964 ed.) provides:
"Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time."
In its brief in the Court of Appeals, the Government for the first time stated that notice of the lien was in fact filed with the Recorder on February 9, 1961. The Statement, in the referee's certificate that notice of the lien was never filed was not controverted in the District Court, and, as respondent contends, there is no proof of the February filing in the record.
See §§ 64, sub. a(1)-(3), 11 U.S.C. §§ 104, sub. a(1)-(3) (1964 ed.). Secured creditors, including those whose security was obtained subsequent to creation of the Government's lien, would have recourse to their security before any of the Bankruptcy Act priorities come into play. Goggin v. California Labor Div.,336 U. S. 118; City of Richmond v. Bird,249 U. S. 174. Administrative expenses and wage claims precede all other statutory liens on personal property not accompanied by possession if not enforced by sale prior to bankruptcy. § 67, sub. c, 11 U.S.C. § 107, sub. c (1964 ed.); Goggin, supra,336 U. S. 126-130.
See Brust v. Sturr, 237 F.2d 135 (C.A.2d Cir.); In re Fidelity Tube Corp., 278 F.2d 776 (C.A.3d Cir.) (Kalodner and Hastie, JJ., dissenting), cert. denied sub nom. Borough of East Newark v. United States, 364 U.S. 828; Simonson v. Granquist, 287 F.2d 489 (C.A.9th Cir.) (Hamley, J., expressing contrary views), rev'd on other grounds,369 U. S. 369 U.S. 38. See also United States v. England, 226 F.2d 205 (C.A.9th Cir.); In re Taylorcraft Aviation Corp., 168 F.2d 808, 810 (C.A.6th Cir.) (dictum).
345 U.S. at 345 U. S. 363, quoting from Petition of Gilbert Associates, Inc., 97 N.H. 411, 414, 90 A.2d 499, 502.
The Government's brief also emphasized this concern for uniformity in administration of the federal tax laws. See brief for petitioner in Gilbert, No. 440, 1952 Term, pp. 22-24, where the Government argued:
"Congress did not intend to subordinate federal tax liens to local tax liens merely because by state statute or state court decisions the local tax assessments are for local purposes denominated 'judgments'. . . . Moreover, in holding that, under our 'decisions' and in 'this jurisdiction,' the Town's tax assessments are 'judgments,' the court below failed to give sufficient heed to the repeated declarations of this Court that the federal revenue laws should be interpreted 'so as to give a uniform application to a nationwide scheme of taxation,' and hence their provisions are not to be deemed subject to state law unless the language of the section involved, expressly or by necessary implication, so requires."
The Act of June 25, 1910, c. 412, 36 Stat. 840, § 8, provided in part:
"[S]uch trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied."
Act of March 4, 1913, c. 166, 37 Stat. 1016.
Act of March 18, 1950, c. 70, § 2, 64 Stat. 26, now 11 U.S.C. § 110, sub. c (1964 ed.). Prior to the amendment, § 70, sub. c characterized the trustee as a lien holder as to property in the court's possession or control and as a "judgment creditor" as to property not so reduced to possession. Seen 7, supra; Lewis v. Manufacturers National Bank,364 U. S. 603, 364 U. S. 605-606.
Act of March 18, 1950, c. 70, § 1, 64 Stat. 25, now 11 U.S.C. § 96, sub. a(4) (1964 ed.). See 4 Collier, Bankruptcy
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