UNITED STATES v. ESTATE OF DONNELLY
Legal provision: Internal Revenue Code
Argument of Matthew J. Zinn
Chief Justice Warren E. Burger: I think we are on 104, United States against Donnelly.
Mr. Zinn, you may proceed whenever you're ready.
Mr. Matthew J. Zinn: Mr. Chief Justice, may it please the Court.
This is a federal tax lien case here on a writ of certiorari to the United States Court of Appeals for the Sixth Circuit.
It involves the question whether a federal tax lien with respect to a parcel of improved real property, located in Livingston County, Michigan is prior to the interest in that property of subsequent purchases of the property.
The United States acquired its lien in 1950, when it secured a tax court judgment against Thomas Donnelly for some $26,000.00.
When that judgment went unpaid, United States acquired a lien under Section 3670 of the Internal Revenue Code of 1939, which appears at page 17 of our brief in the appendix and the lien arose in favor of the United States ?upon all property and rights to property whether real or personal belonging to such person.
In 1945 in this Court's decision in the Glass City Bank case, it was held that the lien of the United States under Section 3670 applies not only to a taxpayer's present property, but also to any after acquired property.
To ensure that its lien would be prior to the interest of subsequent purchases and others however, the United States must give due notice of the lien by filing a notice of the lien in accordance with the provisions of Section 3672 of the Internal Revenue Code, which also appear beginning on page 17 of our brief.
Section 3672 provides that ?such lien shall not be valid as against any mortgagee, pledgee, purchaser or judgment creditor until notice thereof has been filed by the collector; one, in the office in which the filing of such notice is authorized by the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law authorized the filing of such notice in an office within the State or Territory; Or Two, in the office of the Clerk of the United States District Court for the judicial district in which the property is subject to the lien is situated whenever the State or Territory has not by law authorized the filing of such notice in an office within the State or Territory.
? In short, the question whether the United States is to file locally under Subdivision 1 of Section 3672 A or Subdivision 2 thereof, turns on whether the local law authorizes local filing.
The Michigan statute which purported to authorize local filing here appears on page 18 of our brief, and with respect to real property, it provides in the pre penultimate line on page 18 that a description of the land upon which a lien is claimed is to be included in the notice of the lien.
The consistent practice of the United States, however, is not to describe any property in a notice of lien but simply to file what is commonly referred to as a blanket notice of lien which merely re-echoes the provisions of Section 3670, names the taxpayer and specifies the amount of his indebtedness to the United States.
In United States against Union Central Life Insurance Company, decided by this Court in 1961, it was held that the Michigan law because of its description requirement did not authorize local filing and that the United States in that case had properly filed its notice of lien in the Federal District Court.
Quoting from the opinion of Mr. Justice Black, 368 U.S. at 296, the Michigan law authorizing filing only if a description of the property was placed, was given, placed obstacles to the enforcement of federal tax liens that Congress had not permitted and consequently no state officer was quote ?authorized? for filing within the meaning of the federal statute.
It was therefore error for the Michigan courts to fail to give priority to the Government's lien here, notice of which had been filed in the District Court in accordance with federal law.
As in the Union Central case, the United States here filed its tax lien in the Eastern District Court for Michigan rather than would be local office of the recorder of deeds for Livingston County and the question is whether its filing was proper under Section 3672 of the 1939 Code.
The taxpayer, Thomas Donnelly, acquired the property in question here in 1949 by purchase with his wife as tenants by the entireties and it was held by the entireties until 1960 when Mrs. Donnelly died and by operation of law, Mr. Donnelly became a sole owner.
Shortly after Mrs. Donnelly's death, Mr. Donnelly sold the property to Mr. and Mrs. Carlson, who are the real parties in interest here.
The Carlsons where bona fide purchasers of the property, admittedly.
They had an abstract prepared by the Livingston County Abstract Office which covered only the local filings in Livingston County, Michigan, and with specifically accepted covering any filings that were made in the federal district court for the Eastern District of Michigan.
The Attorneys, who passed upon the marketability of the title for the Carlsons, relied upon the abstract that had been prepared by the Livingston County Abstract Office and accordingly, they did not find notice of the federal tax lien that had been filed in the District Court.
After the Carlsons purchased the property in 1960, the United States move to foreclose its tax lien, and the Carlsons objected.
They move for summary judgment in the District Court and summary judgment in their favor was granted.
The Sixth Circuit affirmed on appeal without opinion.
Justice John M. Harlan: Is this a -- rather the unique situation is involved the States or just the -- elsewhere in the country to --
Mr. Matthew J. Zinn: So far as description requirement, Your Honor?
Justice John M. Harlan: No, so far as the position the Governments in this case [Inaudible] spoiled to that matter --
Mr. Matthew J. Zinn: We don't think it is.
There are several hundreds of cases in Michigan alone which we think that the decision here would control and in addition as we pointed out in our brief, there are some 40,000 tax liens that might be cast in jeopardy in four other states, Illinois, Pennsylvania, Wisconsin, and Massachusetts if the Court were to affirmed the judgment below.
Justice William J. Brennan: That is -- what is the tendency of Wisconsin [Inaudible]
Mr. Matthew J. Zinn: I frankly don't know Your Honor.
It seems to us that they had every reason to do so as I hope to explain later on.
Justice William J. Brennan: But either pushing off some other if [Inaudible] to the lawyers the extent knowledge of this case?
Mr. Matthew J. Zinn: That's right.
We concede that they're bona fide purchasers.
Justice William J. Brennan: It's been charged --
Mr. Matthew J. Zinn: Yes sir, we do.
We say so because we think Union Central said so.
Justice William J. Brennan: [Inaudible]
Mr. Matthew J. Zinn: Yes it is.
Justice Potter Stewart: Well, except that the -- there wasn't every reason to do so for the title searchers to do so at the time the search of this title was made, unless I misunderstand something here because of the existing decision in the United States Court of Appeals for the Sixth Circuit, isn't that correct?
Mr. Matthew J. Zinn: We think there was every reason for them to do so, even though they had the Youngblood decision as that the one that you're referring to?
Justice Potter Stewart: As a matter of fact, yes in which -- and that was the law, so far as Michigan liens went at the time that this search was made, wasn't it?
Mr. Matthew J. Zinn: I don't think it was.
Chief Justice Warren E. Burger: What's the date of Union Central?
Mr. Matthew J. Zinn: 1944, and Union Central held that a local register of deeds was not permitted to accept for filing a non-descriptive federal notice.
Moreover, in 1945 --
Justice William J. Brennan: Did you say, the date of Union Central was 1944 municipal --
Mr. Matthew J. Zinn: The day of Youngblood --
Justice Potter Stewart: Youngblood --
Mr. Matthew J. Zinn: Was 1944.
Justice Potter Stewart: Yes.
Mr. Matthew J. Zinn: And Youngblood held that a local register of deeds was not entitled to accept for filing a non-descriptive federal notice.
Now, went on -- that was the only issue in that case Your Honor.
The United States moved to mandamus to register of deeds at Wayne County there and the court did go on, we concede and quite clearly to say that the Michigan law wasn't authorized law within the meaning of Section 3672, but we would suggest that that was all dictum.
The only issue in that case was whether the United States was entitled to file a non-descriptive notice in the local Michigan courts.
But there are a number of other reasons why a title searcher in 1960 should have searched the federal files as well as the local files.
One year after the Youngblood was decided, this Court held in the Glass City Bank case that the United States tax lien under Section 3670 applied to after acquired property.
Now obviously, after acquired property cannot be described in a notice which previously filed, so we think a reasonable lawyer or reasonable title searcher would well have been on notice as to the possibility of liens that federally filed.
Moreover, in 1952 as we pointed out in our brief, an article appeared in the Michigan law review which said that lawyers should perhaps even need to check federal filings.
In 1958 --
Justice Potter Stewart: On what grounds?
Mr. Matthew J. Zinn: On the ground that Glass City Bank and the ground that the statute and legislative history as construed by the Sixth Circuit was just construed wrong.
Justice Potter Stewart: On the ground that that decision might be wrong unless --
Mr. Matthew J. Zinn: Yes.
Justice Potter Stewart: -- some day be overruled?
Mr. Matthew J. Zinn: Well, I don't know overruled.
As I say, we view the remainder of the opinion in Youngblood beyond the point where the Court held that a federal non-descriptive notice was not on top to filing as dictum.
Justice Potter Stewart: Yes.
Mr. Matthew J. Zinn: Now, I can see that the Court made it quite clear that it was reaffirming its decision in the Maniaci case, but nevertheless was dictum.
Glass City and Youngblood, it seems to us cannot stand together and Glass City was decided only a year after Youngblood.
The Wright article in 1952, we think suggested that a problem existed, and in 1958 in the Rasmussen case, the Eighth Circuit reached exactly the contrary conclusion from the conclusion which the Sixth Circuit had reached in its dictum in Youngblood.
And so, by the time the Carlsons purchase this property in 1960, it seems to us it was clear enough that there was a problem and we don't say that the law was clear.
We do say that there was confusion and we think this confusion was recognized by title searchers in Michigan and that is the reason why they accepted from the abstract to get themselves off the hook from federal filings.
All of these reasons we think undercut the argument that the Carlsons made that they justifiably relied on --
Chief Justice Warren E. Burger: It would not in terms of the hardship or the good faith, would not the exception in the title opinion for the reasonable person on notice that there might be an inquiry to be made at the District Court clerk's office?
Mr. Matthew J. Zinn: We think it would, but respondents tell us that everybody did it the other way and nobody paid attention to the federal filings.
Our position here is where they are asking that Union Central be applied prospectively only is it they have to show some real justifiable reliance to warrant an exception to the general rule applied by this Court that its decisions apply retrospectively as well as prospectively and we don't think they have.
Indeed, the mortgagee in the Union Central case was in precisely the same position as the Carlsons where here.
They couldn't have known that Youngblood was going to be discredited by this Court, but there is no hint in Mr. Justice Black's opinion that that decision was to be prospective only.
Regarding this question of prospectiveness versus retroactivity, we have reviewed the --
Justice William O. Douglas: May I ask you Mr. Zinn, notice requirement is still at the filing in the District Court?
Mr. Matthew J. Zinn: Either the District Court Your Honor or locally --
Justice William O. Douglas: In other words, it flows the same today?
Mr. Matthew J. Zinn: Yes, for all practical purposes, although at some of more complicated as almost provisions of the Internal Revenue Code now.
There have been several amendments --
Justice William O. Douglas: I would not make to vote?
Mr. Matthew J. Zinn: Eh --
Justice Hugo L. Black: I would not ready to vote
Mr. Matthew J. Zinn: Ah --
Justice Potter Stewart: But the Michigan laws now have been changed, doesn't it?
Mr. Matthew J. Zinn: Yes, it was changed in August of 1956 --
Justice Potter Stewart: Right.
Mr. Matthew J. Zinn: -- at which time, Michigan adopted the Uniform Tax Lien Registration Act.
In addition to the justifiable reliance point, the Court in its decision in the Linkletter case and the progeny of that case largely in the criminal area in deciding whether decision should be applied prospectively only or retroactively.
And more recently in Cipriano against City of Houma, voting rights case, have looked to three factors to determine whether the decision should be retroactive or not.
The first as we have mentioned is justifiable reliance and for the reasons I've outlined, we don't think that the Carlsons could have justifiably relied.
The second factor is whether the purpose of the new rule would be frustrated, if the decision were applied prospectively only.
And here, we think it would because as a result of the change in the Michigan law to which Mr. Justice Stewart referred, there will be no other cases probably that govern by Union Central and Union Central will stand by itself as one and only decision having no application outside of its four corners.
Finally, the Court has looked to whether the affect of holding a decision prospective in the criminal area whether the affect of that would impair the administration of criminal justice and it seems to us that the analogy here is what it would do to other federal tax liens and again as I've noted it, it would cast cloud on some 40,000 of them.
So for all of these reasons, we don't think Union Central can be considered a prospective only decision that it is clearly governing here.
The same law was construed by this Court, only eight years ago, and it was held not to authorize a federal filing.
I might add that the --
Justice Hugo L. Black: When did the Court first told that you can file on prospectively only?
Mr. Matthew J. Zinn: When did the first -- yes --
Justice Hugo L. Black: What was that case?
What date, do you remember?
Mr. Matthew J. Zinn: Well, the early -- one of the earliest cases would be the Georgia -- Chicot County case, but as I say, I think that since Linkletter in 1965, the courts been faced with the series of problems, largely in the criminal area but more recently in Cipriano against City of Houma.
Justice Hugo L. Black: Well, Linkletter was after the --
Mr. Matthew J. Zinn: Oh, yes.
Justice Hugo L. Black: -- Union Central?
Mr. Matthew J. Zinn: Yes.
Justice Potter Stewart: But in civil cases and particularly in cases involving property rights in reliance, the several cases that Chicot County Gray district case, isn't it?
Mr. Matthew J. Zinn: Yes, but the --
Justice Potter Stewart: -- was long before the Union Central?
Mr. Matthew J. Zinn: That's true Your Honor.
But that case, it seems to us was a largely based on considerations of res judicata, the parties and interest there having themselves litigated the case, whereas here the Carlsons admitted they where not parties to the Union Central decision.
And we don't think that the considerations are all the same, and in any event, we don't think the reliance was justifiable for the reasons I've outlined.
I might say that the Carlsons did have a terrible problem here, but so does the Internal Revenue Service in filing in his liens.
In the Maniaci case which was decided by the Sixth Circuit in 1940, the United States filed its lien both federally and locally, and its interest was still held subordinate to the interest of a subsequent bona fide purchaser.
In Union Central, in Youngblood rather, it tried to file its notice federally and it was held that it was not entitled to file its notice federally and here again, it has done so.
The Sixth Circuit, it seems to us has held that no matter what the United States does to file a federal tax lien, whether it would be local or federal, it cannot prevail.
The court below -- the District Court in addition to relying on its prospectivity argument also found that Union Central was distinguishable.
It said that there was an unsuccessful filing attempt in the Union Central case with the local register of deeds.
That is not the case so far as the opinion of this Court and the record show, although it was stipulated in that case, that the Oakland County register of deeds had a policy of not accepting non-descriptive federal filings.
The point the District Court seems to make is that had the United States' attempted to file federally or locally, it would have been accepted by the register of deeds here, and therefore this would have given notice to the Carlsons.
We don't know if that's the case or not because the United States did file a non-descriptive notice in Maniaci and it was held that the subsequent purchases nevertheless prevail.
Moreover, the law as expounded by the Michigan Attorney General in 1953 in his decision that federal non-descriptive notices were not entitled to be filed locally was nothing new.
If I may quote from the decision in Youngblood in 1944, ?No ambiguity in here is in the Michigan statute.
Its mandate that the notice of lien shall contain a description of the land is unmistakable and the authority of the register of deeds, a ministerial officer, is clearly limited to the recordation of only such notices of United States tax liens as comply with the requirements of the statute.
? This is what the Sixth Circuit held in 1944, and this is what the Attorney General held in his opinion in 1953.
It was nothing new.
The question is not whether a local register of deeds would or would not have accepted a non-descriptive federal filing.
Justice Potter Stewart: What are the -- you did file a -- you did make a non-descriptive federal filing in Wayne County, Michigan --
Mr. Matthew J. Zinn: In Wayne County, Michigan, yes.
Yes, we did.
Justice Potter Stewart: -- and accepted --
Mr. Matthew J. Zinn: Yes, it was.
Justice Potter Stewart: -- by the register?
Mr. Matthew J. Zinn: Apparently contrary to what the clear law of Michigan was as construed by this Court by the Sixth Circuit in the Youngblood case.
But the point is that whether a filing would or would not have been accepted is not the issue.
The question is whether the local law authorized a filing on the basis and on the conditions that the Michigan statute plainly imposed and that question was answered by this Court in the Union Central case, in the negative.
We think that Union Central is controlling here and that the judgment below must therefore be reversed on the authority of Union Central.
Argument of Daniel N. Pevos
Mr. Daniel N. Pevos: Mr. Chief --
Chief Justice Warren E. Burger: Mr. Pevos?
Mr. Daniel N. Pevos: Mr. Chief Justice and may it please the Court.
As my learned colleague indicated, this is really the case, the United States versus Oscar and Genevieve Carlson and not the estate of Donnelly who has been dead now for some six years, and who would care less as to what the outcome of this matter is.
But as indicated, the home of the respondent Carlson stands in jeopardy of some $36,000.00 in tax liability of the late Mr. Donnelly whose relationship with Carlson was merely that of seller to buyer and Carlson is the admitted --
Justice William J. Brennan: Would you mind talking the other.
Why is it the Michigan [Inaudible] to the lawyer?
Mr. Daniel N. Pevos: Mr. Justice Brennan, in 1923 --
Justice William J. Brennan: In fact, this was his contemplation that is I guess, it is just ordinarily.
You just avoid that when you a private search you want with satisfied at the District Court for -- with the rest of local county court with secretary of state or?
Mr. Daniel N. Pevos: Well, perhaps my learned colleague didn't quite make it clear is to what the Internal Revenue Code Section 3670 or as presently Section 6323 (A) provided that notice of the lien, in order to be effective against subsequent purchasers, mortgagees, etcetera would be filed would be filed with the local office if the local office had designated -- if the state had designated such a local office and then provided that in the event the state had not designated such a local office then the federal filing would be applicable.
As a matter of fact, in the State of Michigan since August of 1956, there has not been a federal filing because at that time, Michigan adopted the Uniform Federal Tax Lien Registration Act and brought itself into line with the probably all the other 50 States with the exception of the states now that the Government contends has adopted a bad form, I think, four states where named by my learned colleague.
But once the State has designated such a local office for the filing of a federal tax lien notice, then there is no requirement of filing these with the Federal Government and the Federal Government --
Justice William J. Brennan: We didn't have that, is it not?
It is the Whiteman-Olsen case or the Whiteman against United States court order after that they would -- every part
Mr. Daniel N. Pevos: Well, --
Justice William J. Brennan: I wonder that part merely did not obtain this --
Mr. Daniel N. Pevos: I don't believe that obtains in most states Mr. Justice because most states have adopted the --
Justice William J. Brennan: In New Jersey almost a year.
Mr. Daniel N. Pevos: This maybe so, but in those States that have a state law designating the place to file a federal tax lien notice, the notices are filed in that state office, and not with the clerk of the federal court which was the problem of Michigan -- yes sir.
Chief Justice Warren E. Burger: Excuse me, go ahead finish your answer.
Mr. Daniel N. Pevos: Well, they are not filed with the federal court.
Chief Justice Warren E. Burger: What's your hypothesis as to why the title attorney would put an exception indicating that he had not searched for the federal tax land?
Mr. Daniel N. Pevos: Well Mr. Chief Justice, I don't think that the fact was correctly stated by my learned colleague.
In 1944 as had been indicated, the Youngblood case was announced by the Circuit Court of -- Court of Appeals for the Sixth Circuit and as a matter of fact, there was never any attempt on the part of the Government to even ask for certiorari of that case.
So from 1944 on, as far as practitioners were concern in the State of Michigan, the Youngblood case represented the highest interpretation of the validity of the Michigan Recording Act and the Michigan Recording Act designated a local office for the filing of federal tax liens.
Now, this Court in its wisdom in the Union Central case in 1961, decided that this particular Michigan Act was invalid as to the facts involved in that case because of that one Clause in the Michigan Act which required the Government to put a description of land in the notice that they where filing.
But until this Court made that pronouncement in the end of 1961, as far as practitioner's were concerned in the State of Michigan, notwithstanding a Leonard Law Review article and the few other people that may have had some doubts about the Youngblood case, the Youngblood case was the law.
Chief Justice Warren E. Burger: What was the date of the opinion, the title opinion?
Mr. Daniel N. Pevos: The title opinion in this case Mr. Chief Justice was in either July or August of 1960.
The purchase was shortly thereafter and the purchase was consummated approximately 16 months before the decision of this Court in the Union Central case.
Chief Justice Warren E. Burger: But something led the title examiner, the title searcher to draw attention to the federal tax lien problem, did it not?
Mr. Daniel N. Pevos: No, Mr. Chief Justice.
Let me explain.
In a state that has a version of the Uniform Federal Tax Lien Registration Act, all these notices must be filed, federal notices must be filed in the local office.
So, if a state has the Uniform Act, the title company is not going to go to the federal office to check for tax liens because the liens aren't going to be there.
As I indicate since August 1956 in Michigan, there has not been federal tax lien notices filed with the federal court.
They have all been filed with the registers of deeds in the counties because Michigan at that time went into line with the rest of the states and adopted the Uniform Recording Act.
Justice Byron R. White: But why that would -- why then as Mr. Chief Justice asked would you put in this exception of the title here?
Mr. Daniel N. Pevos: Because the title company would be justified in relying on the records of the registered deeds office Mr. Justice White.
Justice Byron R. White: What did the exception say?
Mr. Daniel N. Pevos: The exception said that this abstract of title does not -- excuse me, this abstract of title covers, matters on file in the office of the register of deeds for Livingston County, Michigan.
It does not contain matters of record in the circuit federal or probate courts.
If an examination of these matters is required an extra charge will be made or words to that effect.
Justice Byron R. White: Didn't mention taxes?
Mr. Daniel N. Pevos: No.
It just said federal courts -- the State Circuit Courts and probate courts.
In other words, it didn't single out the federal tax liens as a something to disregard I'll say.
Justice Byron R. White: Would it that something in this regard the judgments?
Mr. Daniel N. Pevos: That is correct.
In other words, if a judgment was entered in the Circuit Court which may have affected land unless the parties to that suit saw that their judgment was filed with the register of deeds, then the abstract company wasn't going to pick it up.
In an affect under Michigan law, there'd be a question whether BFP would be affected by such judgment without that recording.
Justice Potter Stewart: Or is the title opinion in the appendix somewhere or?
Mr. Daniel N. Pevos: Ah, the --
Justice Potter Stewart: Where is this disclaimer or caveat appear in the record we have before us here?
Mr. Daniel N. Pevos: I believe, it is in the appendix, I believe Mr. Justice Stewart.
But I believe, it's in the argument portion, the abstract itself was not appended to the record in the lower court and it's not part of -- it's not an exhibit in this particular matter.
Justice Potter Stewart: I just want to --
Mr. Daniel N. Pevos: But I believe that it was read to the trial court during argument and it would appear in the appendix under the record of the decision --
Justice Potter Stewart: During the colloquy here somewhere.
Mr. Daniel N. Pevos: Yes.
Justice Potter Stewart: I just wondered how --
Mr. Daniel N. Pevos: I believe so.
Justice Potter Stewart: How we know how my brothers know this --
Mr. Daniel N. Pevos: Yes, that appears that way.
Justice Potter Stewart: This one will appear in the opinion, in the title opinion.
It's somewhere here in the appendix in the colloquy --
Mr. Daniel N. Pevos: Yes, in the colloquy between counsel and the Court, yes sir.
My learned colleague also has ignored the fact that in the spring of 1961, which was approximately eight months after the Carlsons bought the property in Livingston County.
The Government filed notices of tax lien with the register of deeds in Livingston County and the register of deeds in Genesee County, Michigan.
Now, the late Mr. Donnelly was a resident of Wayne County and it's admitted that in 1950 when the day before the federal tax lien notice was filed with the federal court, a filing was made and accepted by the Wayne County, Michigan, register of deeds, the county in which Donnelly resided.
The filings in 1961, eight months after the Carlsons' purchase were eight months before the Union Central case.
Now, the Government says that these filings don't mean anything, that they're superfluous, but the question here involves the whether this Court should consider the Union Central case to be prospective or retroactive and if the Government was confused as to its responsibility of filing notices with the register of deeds then Mr. Carlson certainly have no more knowledge than the Government of what this Court would do months later in the Union Central case.
The Government filed locally if there was no requirement or if it didn't feel that it had a requirement of filing locally, it could have relied.
Justice William J. Brennan: When did you say that Government filed with the relation of decision in the Union Central?
Mr. Daniel N. Pevos: The Union Central was in December of 1961.
This property was purchased in August of 1960.
About half way between the time of purchase and the time of the Union Central decision, the Government took a notice of lien and filed it in Livingston County, the very same county where this property is located, but it was months after Carlson bought the property.
Justice Potter Stewart: That was for some other lien arising from some other --
Mr. Daniel N. Pevos: No.
It was the same lien Mr. Justice, the same lien against Donnelly from 1950.
They just took the notice out to that county.
Now in practice, if a man lives in a county, the state has a valid reporting law and they will normally file that lien in the county of residence.
But if the Internal Revenue Service becomes aware of the fact that the man has property in another county, they will take a similar notice to that other county and file at the register of deeds.
Well they became aware in 1961 that Mr. Donnelly may have had property in Livingston County, they filed a notice of that time, but that filing didn't help the Carlsons because they have purchase the property and paid the money and that was it.
Justice Potter Stewart: Your point, your point is it didn't help the Government?
Mr. Daniel N. Pevos: Well, it didn't help the Government, but it showed that the Government was no -- had no greater idea of what the end result of this confusion of Michigan law, because of perhaps the Youngblood case, then the Carlsons had.
The Carlsons and their Attorneys relied on an abstract, this was a pre exception.
It was not something that the abstract company single out for the Carlsons.
This exception appeared in each and every page of every abstract issued by this Livingston County office.
Now, the Michigan statute that this Court construed in the Union Central case was on the books in the State of Michigan for approximately 36 years before it was repealed in 1956.
At the time of the Union Central case, the Michigan statute had been in the books almost 40 years.
The Youngblood case was the highest pronouncement of law at that time, the time that Carlsons' purchase.
And as the trial court and as affirmed by the Court of Appeals believed the statute, the Michigan statute, had every appearance of being upheld.
This Court had a situation before it in the Union Central case where the -- in 1953, the Michigan Attorney General rendered an opinion saying that from that time on, the register of deeds couldn't take federal notices without a legal description.
And in the Union Central case, it says from the time of that opinion until 1956, which was the repeal date of that Michigan statute, it was construed by this Court, the register of deeds would not accept federal tax lien noticed.
And the trial court, and we concur, found that this Court made its interpretation of the 1923 Michigan statute in light of the facts which existed between 1953 and 1956.
And that this Court did not intend in the Union Central case to go back 30 years and strike out the entire series of transactions and filings in Michigan for a 30-year period.
At the very most, this Court talked about a three-year period.
The Carlsons' purchase -- the lien in this matter was filed in 1950 at the time before the facts which were referred to in Union Central occurred and the trial court distinguished this case from the Union Central case.
But the trial court went on further with the decision in the Chicot County case and the other decisions of this case indicating that where vested rights are involved that this Court may, in those circumstances, determine that the -- it's decisions will be prospective rather than retrospective as to the effects of transactions which occurred before the decision of this Court.
Now, I grant you the Government argues in this case that the Chicot case and the Rockaway New Supply Company case and the Linkletter case, all dealt with other areas.
But the premise is there and that if rights become vested that this Court has a right to make such a determination that these rights shall not be affected by a decision, and these decisions should not be retroactive where the affect would be such as it is in this Carlson case.
The Government is well able to protect itself in tax lien matters and has shown the ability to protect itself.
This Court should keep in mind in deciding whether to make the Union Central case retrospective as far as the Carlsons are concerned, the fact that the tax liens where filed in 1950, the foreclosure was not filed until December 30, 1966, almost four years after Donnelly died during which time the assets of Donnelly, if he had any could of have dissipated.
And 16 years, almost 17 years, after the tax lien notices where filed during which time, they were two extensions of Donnelly's liability, one extension which we don't admit that validity of was signed after Donnelly sold this property to the Carlsons.
So in other words, Donnelly in 1961 signed an extension agreement with the Government continuing that liability for another fiver years and he didn't own the property anymore.
Now, this issue was not litigated in lower court, but it shows the equities of the situation in this matter and the equities are basically what the trial court in the Court of Appeals felt should be considered in whether or not this Court should be retrospective or prospective.
Chief Justice Warren E. Burger: What are the equities any different really for a man who got in this predicament after the holding in Union Central, if he did not exercise the cautious approach and check with the federal --
Mr. Daniel N. Pevos: Well Mr. Chief Justice, I would not defend the same position of the man who after Union Central, it becomes a law of the land, would go ahead and buy piece of property without inquiring it to the question of whether the notice was property recorded.
As far the Union Central is the law of the land, as far as that is concerned, we're not taking the position that there can be any argument at that point.
This is exactly the point that I would like to make in regard to this scare tactic that I feel the Government has used here.
I'm talking about the affect on 40,000 titles in four other states other than the State of Michigan.
Each of the statutes involved in that situation was adopted after the Union Central case.
So if property purchasers, lawyers, title examiners, etcetera, in the four states concern, went to determine the relative effects of their statutes, they have Union Central to look at.
They don't have a case on the books for 15 years that says just the opposite of the Union Central, which was the case in Michigan with the Youngblood, that on appeal from the decision of the second highest court, deciding that the Michigan had a valid statute.
Illinois, Wisconsin, Pennsylvania, these are post Union Central statutes and I say that the people in those states should let the chips fall where they may, but the Government shouldn't use this decision as a way of litigating the validity of the statutes in these four states.
Justice Hugo L. Black: Have you read the briefs in the Union Central case?
Mr. Daniel N. Pevos: Not all of them Mr. Justice Black.
Justice Hugo L. Black: You know whether anyone suggests any possibility of prospective application or retrospective application as distinguished from one another?
Mr. Daniel N. Pevos: I cannot answer that truthfully.
I do not know that this issue was raised in that case Mr. Justice.
I -- the Union Central seemed to be rather unique case at the time.
Michigan is the only state that had that particular section at the time.
Justice Hugo L. Black: I haven't read the briefs recently, but I do not recall any such question came up in any --
Mr. Daniel N. Pevos: I don't --
Justice Hugo L. Black: -- point in that case?
Mr. Daniel N. Pevos: I don't believe that the issue was raised.
I believe that the trial court and the Court of Appeals here has the question before of the situation that occurred before this Court's decision and whether this Court's decision should be made retroactive or not.
Justice William J. Brennan: Tell me Mr. Pevos?
Mr. Daniel N. Pevos: Yes, Mr. Justice?
Justice William J. Brennan: If Union Central is held to be retroactive, would the Carlson include?
Mr. Daniel N. Pevos: The Carlsons will be faced with a $36,000.00 foreclosure.
Justice William J. Brennan: To include?
Mr. Daniel N. Pevos: That is right.
Justice Potter Stewart: Well, I thought that --
Mr. Daniel N. Pevos: Yes.
Justice Potter Stewart: -- you have other claims before the District Court, but that Court did not reach because it decided the case on this issue, but even if the Union Central is retroactive, it would be, in my understanding that you had other claims, peculiar perhaps to your case?
Mr. Daniel N. Pevos: That is correct, Mr. Justice Stewart.
Justice Potter Stewart: And even if we should hold that Union Central decision is fully retroactive, then our actions should be in your submission, we should remand the case for the courts to turn their attention with the other -- to your other claims?
Mr. Daniel N. Pevos: This would be correct Mr. Justice.
I misspoke myself.
But, we have among other things that we -- Mr. Justice, we contest some of the factual allegations such as the signing of extensions.
We don't know whether the amount shown is correct.
Justice Hugo L. Black: Is it a fact?
Mr. Daniel N. Pevos: There are factual issues.
This was up on summary judgment before the District Court, Mr. Justice.
We do have the issue that I mentioned as to the validity of the signing of an extension after the property is sold by the taxpayer.0
There's been no precedent on this in the -- by this Court or for that matter by any other court that I can find and the issue was not litigated before and would have to be litigated.
Justice Byron R. White: Wasn't it noted in the Union Central case here that the Court in Union Central was viewing a decision of the State Supreme Court of Michigan?
Mr. Daniel N. Pevos: That is right Mr. Justice White.
Justice Byron R. White: And it was recited here that the Michigan decision was in conflict with the Court of Appeals' decision in the Eighth Circuit?
Mr. Daniel N. Pevos: That is correct, but the time sequence would indicate that the Michigan decision was after the Carlsons' purchase and it came to this Court after the Carlsons' purchase.
Justice Byron R. White: But the -- I would take that the Union Central case had been in litigation for some time?
Mr. Daniel N. Pevos: No.
The -- in the state of Michigan, only at that time, only the Supreme Court decisions were printed.
I cannot say when the Circuit Court litigation which was involved initially in the Union Central case was actually filed.
But my recollection is that it was brought before the Michigan Supreme Court for a decision which became known to the public in 1961 and when the Michigan Court ruled against the Government, certiorari was granted by this Court and case heard also that year, all of these events were after the Carlsons' purchase.
There was no knowledge in their part or for that matter by the bar in general that this issue was going to be litigated by this Court in 1961.
Justice Byron R. White: Was there anyway for it to acquire Donnelly?
Mr. Daniel N. Pevos: Only by word of mouth Mr. Justice.
As I say at that time, the only Michigan decisions that were printed were the Supreme Court.
Now, there is a intermediate appeals court in Michigan where they have printed decisions, they did not have that court at that time.
So the Michigan Supreme Court decision was printed in 1961 which was again as I say, after the Carlsons' purchase.
Justice Byron R. White: But it was decided in 1960?
Mr. Daniel N. Pevos: I believe it was decided in 1961 Mr. Justice.
Justice Byron R. White: But the Union Central by --
Mr. Daniel N. Pevos: That was decided in December of 1961, and I believe that the Michigan --
Justice Byron R. White: No, but in the Michigan Court?
Mr. Daniel N. Pevos: The Michigan Court if I recall, was in the early part of 1961.
It was after the Carlsons' purchase, that I'm sure of.
Justice Byron R. White: Well, but the date on the opinion is September 16, 1960?
Mr. Daniel N. Pevos: Right.
Than I stand corrected, except that it was again, about six weeks after the Carlsons' purchase.
Justice Byron R. White: So it went to the lower courts of -- it had been decided in the circuit court obviously before the purchase?
Mr. Daniel N. Pevos: This is true.
As a circuit court in another county --
Justice Byron R. White: And then the District Court?
Mr. Daniel N. Pevos: Not in -- no.
The District Court was not involved.
Justice Byron R. White: There was after -- just two levels.
Mr. Daniel N. Pevos: At that time, there was the Circuit Court and an appeal directly to the State Supreme Court, and the decision of the circuit court was not generally made public, unless somebody happen to be familiar with it or come across it in the newspaper.
We have not discussed today, the issue that we have raised here in regard to the necessity of recording a tax lien notice, when after acquired property is involved.
Now, this matter is covered in our brief.
We feel that is an issue that is never been passed upon by this Court and this is that the entireties property which was acquired by Donnelly and his wife in 1949, was not Donnelly's, or for that matter was not Donnelly's for the tax lien notice to attach to until 1960 when Mrs. Donnelly died and the property at that time became that of Donnelly.
And we cited in our brief, the Hutchinson case as well as the Nathanson case, and the American National Bank case dealing with law similar to Michigan or the Nathanson case, the Michigan law, all of which says that in an estate by the entireties, neither the husband or the wife individually own an interest in a piece of -- in the entireties property which is capable of standing alone of being levied upon for the tax liability of one spouse.
The Hutchinson case by the Court of Appeals, as well as the American National Bank case, both indicate that the federal tax lien does not attach to entireties property until the death of one of the spouses.
It is our position that a clear reading of the Internal Revenue Code Recording Provisions would require the filing of a notice as against after acquired property in a state where such a notice had not been previously filed at the time such property is acquired by the taxpayer.
Now, the Glass City Bank case is my learned colleague indicated, says that a tax lien attaches to after acquired property.
But there is a void as far as the law is concerned, as to what the Government must do to perfect that tax lien against such after acquired property.
The lien is a legal status.
The notice of that lien is a notice to the world which perfects that lien as against intervening third parties.
And in this situation, the Government has said in affect that if Union Central applies to the federal filing of the notice in this case, the 1950, that that notice in 1950 is good in perpetuity to all notices filed in the federal court on forever until those liens are no longer enforceable.
We feel that this is not the law and it is not the intent of the law.
The Internal Revenue Code says, that notice shall be filed whenever the state has designated a state office and the word whenever means at such time as and I don't think that the Internal Revenue Code has to be construed to mean that a notice filed in the federal court is good forever.
I'm not saying that it affects liens that were existence against property, in the existence when the lien was filed.
But if the state adopts a valid state recording law, it is our contention that the Government must at that time go an comply with that state law as to property which comes into existence after that state law is adopted.
Chief Justice Warren E. Burger: Mr. Pevos.
Mr. Daniel N. Pevos: Yes.
Chief Justice Warren E. Burger: The record as I read it, indicates that the Court, I think it was the Court, United States District Judge made some inquiry about whether the purchasers had any right of action back against the abstract company, the title company that had prepared the abstract in either your response to that of someone else speaking for this litigating party as I think it was, your statement.
But there was no action against the abstract company because they protected themselves by making an exception with respect to liens which were on the file in the federal district court among other places.
Now, wasn't that enough when we're talking about the equities?
Wasn't that situation enough to put the purchaser and his attorney on notice?
Mr. Daniel N. Pevos: Mr. Chief Justice as I said before.
This exception was not something that they typed in just for Mr. Carlson.
Chief Justice Warren E. Burger: No, they typed in for everybody.
Mr. Daniel N. Pevos: For everybody.
Chief Justice Warren E. Burger: For what reason?
Mr. Daniel N. Pevos: On hindsight.
Chief Justice Warren E. Burger: To protect themselves.
Mr. Daniel N. Pevos: On hindsight Mr. Chief Justice.
In other words, --
Chief Justice Warren E. Burger: I would regard that as foresight on the part of the abstract company.
Now, hindsight --
Mr. Daniel N. Pevos: Well --
Chief Justice Warren E. Burger: -- they protected themselves as you indicated to the trial judge by having that exception saying they were calling attention to possible liens that they had not searched for them.
Mr. Daniel N. Pevos: Well Mr. Chief Justice and again, this is from my own knowledge and whether I can say this to be considered by this Court, I will say that as of 1970, the abstract companies in Michigan used that same exception.
The difference being that now, they aren't tax liens filed in the federal court anyway and the exception doesn't mean anything.
But if for some reason, this Court in some other situation, a year from now, determined that the present Michigan law was invalid then we have the same problem all over again.
In other words, they have that in there because they don't look at the federal court and they didn't look at the federal court recordings of 1960 at this transaction because it was assumed for almost 40 years that they didn't file tax liens in Michigan in the federal court.
Chief Justice Warren E. Burger: But absent that statement by the abstract company, they might well be liable to the purchaser, would they not?
Mr. Daniel N. Pevos: If they did not indicate that a separate request would have to be made for federal court lien, it very well could be, yes Mr. Chief Justice.
Chief Justice Warren E. Burger: So that their foresight as distinguished from hindsight, their foresight as protected them and in the same manner, the purchaser could have protected himself by saying in effect if his lawyer was not experienced enough, what do you mean by this and how much does it cost and upon finding that it will cost $3.00 or $4.00 perhaps to make that search routinely or even less, depending on the number of entries, even he would have then been protected, wouldn't he?
Mr. Daniel N. Pevos: I would say that may have been, but at the time, they would have been a question whether or not the even the entry of a federal recording would have been anything except actual notice as opposed to constructive notice until the Union Central case was handed down.
The federal filing may not have been a valid filing, even if it was there.
And I believe that there is a void Mr. Chief Justice in the law as to whether actual notice stands in the place of constructive notice in regard to the federal tax lien notice filings.
That, I don't think is been clearly raised.
Chief Justice Warren E. Burger: Thank you Mr. Pevos.
Justice William J. Brennan: Mr. Zinn, may I ask at the outset?
Rebuttal of Matthew J. Zinn
Mr. Matthew J. Zinn: Yes sir.
Justice William J. Brennan: The question I asked to Pevos.
If we hold that Union Central, is effective only as Government lose?
Mr. Matthew J. Zinn: Yes it does.
Mr. Chief Justice.
Chief Justice Warren E. Burger: Mr. Zinn.
Mr. Matthew J. Zinn: May it please the Court, just two or three brief points.
First, here that the respondents are asking that a decision of this Court be applied prospectively only.
They point to the fact that the United States filed locally in Wayne County in 1950 and locally in Genesee in Livingston County in 1960.
This is the case.
The law was confused, but the respondents are the ones that are asking that it'd applied prospectively only, and contrary to what the District Court said on page 56 of the record, the next to last line, it says, prior to that decision referring to this Court's decision in Union Central, there was no indication that such statute would be declared per se illegal.
On the contrary, every indication was that the statute would be upheld.
We have outlined previously that it was not just a law review article in 1952 pointing out the problem, Glass City Bank and Youngblood cannot stand together.
That was the decision of this Court, and that should have put on notice, reasonable purchasers of property and others in Michigan.
Justice Hugo L. Black: What two cases could not stand together?
Mr. Matthew J. Zinn: Youngblood, decided by the Sixth Circuit in 1944, and holding that a description -- no, and Glass City Bank.
Because Glass City Bank said that the United States lien applies to after acquired property, and there is no way who describe that for acquired property in a notice because we don't know what that property is going to be.
Respondents seek to support the judgment below on the ground that the United States should have refiled in 1960 after Michigan had passed the Uniform Tax Lien Registration Act in 1956.
With regard to that, I think that the differences between this Court's views and that of the Sixth Circuit are made quite clear.
With reference to the Sixth Circuit's opinion in the Faulk case which has pending on the Government's petition for certiorari in number 844, and the statement of Mr. Justice Black's in the Union Central case.
In order for the United States to re-file, every time a delinquent taxpayer acquires property afterwards it has to follow that taxpayer around and keep tabs on him.
Now in the Faulk case which is quoted on page 13 of respondent's brief, the Sixth Circuit said ?some Government scrutiny of the affairs of delinquent taxpayers sufficient to enable it, to know where to properly file notice of lien? seem to have been contemplated by this entire statutory scheme.
Requiring the Government to investigate the affairs of the delinquent taxpayer to determine to what property the statutory lien attaches and therefore, where to properly file the required notice of lien in no way cuts down on the broad scope of the lien.
That is not the case and that is to be compared with the statement of Mr. Justice Black, 368 U.S. 294 and ?it seems obvious that this expansive protection for the Government, that is the protection that its lien runs to after acquired property would be greatly reduced if to enforce it, Government agents were compelled to keep aware at all times of all property coming into the hands of its tax delinquents.?
The Sixth Circuit has been out of steps since the Maniaci case in 1940. United States filed both locally and federally in that case and it lost.
It attempted to file locally in Youngblood and it lost.
Union Central is controlling here and there's no basis for a prospective only holding.
Chief Justice Warren E. Burger: Thank you, Mr. Zinn.
Thank you, Mr. Pevos.
The case is submitted.