MEYER v. UNITED STATES

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Case Basics
Docket No. 
13
Petitioner 
Ethel Meyer
Respondent 
United States
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Facts of the Case 

In 1943, Peter Meyer took out life insurance policies in his own name worth $50,000. He pledged his insurance policies to Huntington National Bank of Columbus, Ohio as collateral security for a loan. This gave the bank the right to satisfy its claim out of the ‘net proceeds of the policy when it becomes a claim by death.’ After Peter Meyer pledged the policies to the bank, the United States determined that he owed $6,159.09 plus interest in unpaid taxes. The United States filed notice of tax lien on July 11, 1955.

Peter Meyer died on December 28, 1955, owing $26,844.66 to Huntington National Bank. Ethel Meyer, the petitioner and Peter Meyer’s widow, was named executrix of his estate and received $441.21, representing the remainder of the full cash surrender from Peter Meyer’s insurance policies after payment to the bank.

The United States brought suit against Ethel Meyer under 26 U.S.C.A. 6321 and 6322, arguing that it should be compensated for the full tax lien by marshalling the funds already paid to Huntington National Bank. At trial, Ethel Meyer argued that she owed nothing to the government because she was not personally liable for Peter Meyer’s tax lien. She also argued that the tax lien did not and could not attach to the net proceeds of the cash surrender because those proceeds would be exempt under New York Insurance Law.

District court Judge Edmund Palmieri held that the government was entitled to recover the full tax lien through the insurance policy’s full cash surrender. The court relied on United States v. Behrens, where the court ordered a defendant to pay both a bank lien and tax lien from the same cash surrender. Although most of Peter Meyer’s cash surrender was pledged to the bank for the payment of loans, this did not preclude the government from collecting on its full tax lien first. The U.S. Court of Appeals, Second Circuit, affirmed in a per curiam ruling. The court agreed that Behrens controlled the case.

Question 

Can a federal tax lien attach to the net proceeds of life insurance policies paid to Peter Meyer’s widow?

Conclusion 
Decision: 6 votes for United States, 3 vote(s) against
Legal provision: Internal Revenue Code

No. Justice Thomas Clark, writing for the majority in a 6-3 decision, held that New York state law controlled the case; New York exempted the net proceeds of insurance policy cash surrenders from attaching to tax liens. There was not clear guidance in federal law on this matter, whereas New York law protected the cash surrender in question. As the priority of liens is then determined by “first in time first in right,” the United States did not have a right to marshal the cash surrender to recover its tax lien because the bank’s debt had priority.

Justice Byron White, joined by Justices John Harlan and Potter Stewart, dissented. He argued that federal law should control the case to avoid inconsistent results in different states; once a tax lien has attached to a taxpayer’s interests, federal law then determines the priority of liens. He also disputed the majority’s interpretation of New York law, and did not find a clear, consistent policy of protecting the net proceeds of insurance policies’ cash surrenders from creditors.

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MEYER v. UNITED STATES. The Oyez Project at IIT Chicago-Kent College of Law. 14 December 2014. <http://www.oyez.org/cases/1960-1969/1960/1960_13>.
MEYER v. UNITED STATES, The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/1960-1969/1960/1960_13 (last visited December 14, 2014).
"MEYER v. UNITED STATES," The Oyez Project at IIT Chicago-Kent College of Law, accessed December 14, 2014, http://www.oyez.org/cases/1960-1969/1960/1960_13.