UNITED STATES BY AND THROUGH INTERNAL REVENUE SERVICE v. MCDERMOTT
Legal provision: Internal Revenue Code
Argument of James A. Feldman
Chief Justice Rehnquist: We'll hear argument first this morning in No. 91-1229, United States, by and through the Internal Revenue Service v. Bruce J. McDermott.
Mr. Feldman: Mr. Chief Justice, and may it please the Court:
This case concerns the relative priority of a Federal tax lien and a private state law lien as to a specific piece of real property that was acquired by the debtor after the date the Federal tax lien was filed.
It is after-acquired property in that sense.
The relevant facts can be summarized simply.
The Federal tax liens at issue in this case arose on December 29, 1986 at the time the taxes against the debtor were assessed.
On July 6, 1987 respondent Zions docketed its judgment against the debtors.
That judgment under state law constituted a lien against the debtors' real property, then owned and after-acquired.
On September 9, 1987, about 2 and a half months later, the IRS filed a notice of Federal tax lien.
And finally about 2 weeks after that on September 23, 1987 the debtors acquired the subject property known as the South Street property, the right to which are at issue in this case.
The order therefore was the Federal tax lien arose, then the state judgment was docketed, then the Federal tax lien was filed, and then the debtors acquired the property.
And the question is whether the IRS's lien has priority as to that piece of after-acquired property.
The general rule as to the priority of a Federal tax lien is that a Federal tax lien has priority over all competing interests unless at the time the Federal tax lien arose the competing interest was specific and perfected.
The rationale, I think, of that rule is that the Federal tax lien can only take so much of the property as is the debtors' and if at the time the Federal tax lien arises some other lien has come and essentially grabbed a part of that property, the Federal tax lien can only take the balance of the interest that was the debtors'.
Now, there are exceptions to that rule and one of the exceptions is section 6323(a), and that provides that a Federal tax lien is not valid against a judgment lien until the Federal tax lien is filed.
Now respondent claims that in this case, this case arises, he is entitled to the benefit of 6323(a), and the effect of that provision therefore is just to move the date from the date of assessment, from the date the tax lien arises on which you determine priorities, to move the date until the date the tax lien was filed, which in this case was September 9, 1987.
I think there are thus two issues in this case.
The primary question and the one that the court of appeals got wrong was whether the debtors' interest was specific and perfected as of September 9, 1987.
In our view, I mean, in our view the lienholder's interest was not specific and perfected as of that date, and accordingly the tax lien would have priority.
There is a second question which the court of appeals didn't rely on, but I think maybe the district court did, and that is whether the fact that the Federal tax lien attached to the property at the same time as the state tax, as the judgment lien, whether that alters the result that would follow from a finding that the state lien wasn't specific and perfected as of the date of filing of the Federal tax lien.
Unknown Speaker: May I ask, Mr. Feldman, now, if we weren't dealing with after-acquired property but had a judgment lien on all property of the debtor, would you think a subsequently filed Federal lien would take priority?
Mr. Feldman: If, well, I think that that is exactly what this Court decided in the case of United States against Vermont.
Unknown Speaker: Yes, I thought so too.
Mr. Feldman: And the issue in that case was whether a lien is sufficiently specific, that is if it just identifies all of the debtor's property rather than giving a specific legal description of the property.
Unknown Speaker: That's pretty specific, if it attaches to all.
Mr. Feldman: Right.
And this Court held that that was sufficiently specific.
And I think the task that is derived from Vermont is whether, on the date of filing of the Federal tax lien whether, if you can determine on that date that a particular piece of property was subject to the judgment lien, then it was specific and perfected on that date.
If you can't--
Unknown Speaker: Well, is it enough that you can say it's clear that any subsequently acquired property will be immediately covered by the judgment lien?
And it is clear that it would be, isn't it?
Mr. Feldman: --Yes, I don't think... there's no question under state law that judgment lien--
Unknown Speaker: So specificity isn't a problem.
Mr. Feldman: --Right.
We don't think specificity is a problem.
The problem is that under the settled task for whether a judgment lien is specific and perfected is whether the identity of the lien or the amount of the lien and the property subject to the lien were established.
In this case the property subject to the lien was not established as of the date on which you measure the priorities, which is September 9, 1987.
Unknown Speaker: Well, whose lien attached first in your view, or were they simultaneous?
Mr. Feldman: Well, that actually gets to the second question I mentioned.
Both liens attached to the property at the same time, but there's nothing hinges on when the Federal lien attached to the property.
The case turns on, the question is whether as of the date of notice whether the state lien had already attached to the property.
And since, in our view since it hadn't--
Unknown Speaker: Well, what's the statute designed to protect, reliance interests--
Mr. Feldman: --Yes.
Unknown Speaker: --of the creditor?
Mr. Feldman: Yes, primarily.
Unknown Speaker: And does the creditor have the judgment lien credit or have any reliance interest on property subsequently acquired, do you think?
Mr. Feldman: I don't think he does.
I think actually if you look at the statute and you look at what Congress did in 1966 when it overhauled the statute and passed the Tax Lien Act, it specifically dealt with the question of after-acquired property and it looked at all the types of after-acquired property and types of security interests and made a narrow exception to the general rule of Federal priority as of the date of notice was filed, a narrow exception to that rule for certain kinds of commercial financing transactions, only as to certain kinds of property, and only for a limited period of time, that is 45 days after the tax lien was filed.
Unknown Speaker: If there had been no Federal Government here but we had a situation of private parties, what would be the result under the Uniform Commercial Code of state law generally for after-acquired property?
Mr. Feldman: It's a little bit hard to answer that question because the Federal Tax Lien, I'm not sure what, how, that is not something that is governed by the Uniform Commercial Code.
There would be some interest in property, certainly the interest of a purchased money lender or the interest of an inventory financier or an accounts receivable financier, just the parties who are protected by the Tax Lien Act.
Those interests under the UCC as a general matter, although it's quite complex, would have priority over a judgment lien creditor as to the after-acquired property.
But, on the other hand, a Federal tax lien itself is not subject to the UCC and it's difficult to say what, there's no, really no other way to answer that question.
Unknown Speaker: Is your argument that nothing turns on when the Federal tax lien was perfected?
Mr. Feldman: Nothing turns on when it attached, and I think that follows from a number of--
Unknown Speaker: Well, is that the same as perfected?
Mr. Feldman: --Yes, I think that's part of perfection.
If you look at the test for perfection it's whether the identity of the lienholder, the amount of the lien, and the property subject to the lien was established.
And I think part of establishing that the property was subject to the lien was establishing that this particular lien had taken hold of this particular property.
Unknown Speaker: So everything turns on when the judgement creditor's lien perfected, but nothing turns on when the Government's lien was perfected?
Mr. Feldman: Right.
The relevant thing you do is take, what you do is you take a snap shot of the situation as of, in ordinary cases as of the date the Federal taxes were assessed, but in cases under 6323(a) at the date that the tax lien was filed.
You take a snap shot of that situation and say as of that date had the judgment lien attached to the property at, was a definite amount, was the identity of the lienholder specific.
If it wasn't, then the tax lien takes the property and the judgment lien is junior to it.
If it had already attached to that property and was established as of that date that that particular piece of property was subject to the lien, then that lien would be superior to the Federal tax lien.
Unknown Speaker: What happens with the proceeds in a title company?
Suppose the judgment lien creditor is superior to the Government because its lien was perfected before the assessment and before notice of the lien, and then the property is sold and money is sitting in the escrow company.
Does the judgment creditor's lien follow that money, or is this after-acquired property so that the Government's subsequent lien could now attach and be superior?
Mr. Feldman: The question there would be whether you trace the proceeds of the property, whether the lien on the property attaches also... you trace the priorities through to the proceeds.
I can't tell you for sure.
I think that you do, but I can't give you a firm answer on that.
Unknown Speaker: What if the South Street property here had been purchased with an exchange of other real property to which the judgment creditor's lien had attached, then surely it would carry over to the South Street property, would it not?
Mr. Feldman: Right.
I would think it would.
In this case it wasn't, the debtor had no rights in the South Street property to which the judgment lien could attach as of September 9.
Unknown Speaker: Well, how was the, what was the consideration for the acquisition of the South Street property?
Mr. Feldman: The debtor had previously owned the property and had sold the property.
He had essentially what amounts to a mortgage, except that under Utah state law in this circumstance it was considered an interest in real property, in personal property and not real property.
Unknown Speaker: And therefore the judgment creditor lien didn't attach?
Mr. Feldman: It didn't attach because it was personal property at that time and the judgment lien only attaches under state law to real property.
It was only when that interest became a real property interest of the debtors, which was on September 23, after the Federal tax lien was filed, it was only then that the judgment lien attached to the property.
Unknown Speaker: Mr. Feldman, in a case of simultaneous perfection do you take the position that 6323(a) breaks the tie?
Mr. Feldman: I think our position is that, if you mean a case of simultaneous attachment, if we're talking specifically about that type of perfection--
Unknown Speaker: Yes.
Mr. Feldman: --It would be our view that both the amendments, the clear intent of the amendments which is to limit the extent of a security interest in after-acquired property for a period of 45 days and only in certain given cases which did not include judgment liens, it would be our position that both that and 6323(a) and (c), I'm sorry, 6321 and 6323(a), all of those support our position.
6321, which is the basic rule, says that the Federal tax lien arises at the time the taxes are assessed.
It doesn't say at the time the taxes are assessed or attached, whichever is later, or if there is some kind of perfection that it arises at a different time.
That states a Federal rule that for purposes of, for Federal law the Federal tax lien arises at the date the taxes are assessed.
Now, 6323(a) switches that, moves that, just simply moves that date back to the date that the notice is filed, but you still do the same thing on that date that you would do in one of the other cases under 6321, which is you look as of that date as to whether the judgment lien had attached.
Unknown Speaker: What does that tell you about simultaneity, when two of them attach at precisely the same moment?
Mr. Feldman: I guess, I think the import of our argument is that the date that the Federal tax lien attaches in an after-acquired property case is not a legally significant date, that Congress set those legally significant dates as being either when they're assessed or when the tax lien is filed.
The fact that it attached at a later date is not legally significant.
And in fact when Congress considered the after-acquired property issue, in all cases of after-acquired property you're going to have situations similar to this in which the state lien and the Federal lien, or the judgment lien and the tax lien attach at the same moment to the property.
Congress wanted to limit the cases in which a private party could have superiority over the Federal tax lien among those cases of after-acquired property in very limited ways, only for a period of 45 days, for example.
If the court of appeals were right here the judgment creditor has a far superior interest to those the Congress specifically wanted to give priority to in the Tax Lien Act because the judgment lien would be good indefinitely for after-acquired property.
If the debt... it's true in this case it was 2 weeks, but if the debtor had acquired the property a year later under the court of appeals' opinion the result would have been exactly the same.
And I don't think that's consistent with what was Congress' decision to limit very carefully the classes of after-acquired property that would have, as to which a private creditor would have superiority over the Federal lien.
Unknown Speaker: Mr. Feldman, are you talking about Congress' decision... you're talking about the 1966 decision?
Mr. Feldman: Yes, because that's where it--
Unknown Speaker: Is it your view that the law with respect to the issue that's before us today changed in 1966?
Mr. Feldman: --No, it's not.
Unknown Speaker: So we really, the 1966 act really does shed any light on the problem that we have before us, does it?
Mr. Feldman: --Well, let me put it this way.
The, I think the rule of law that we're suggesting governs this case was clear long before 1966.
Unknown Speaker: So you don't need to rely on it.
Mr. Feldman: I don't have to rely on that, but I do think Congress then enacted those amendments in 1966 in reliance on that.
Unknown Speaker: In other words you're relying on what you perceive to be Congress' understanding in 1966 as to what the law then was?
Mr. Feldman: That's correct.
And I think that by enacting the statute that it did in 1966 it really adopted that prior law, and the exceptions to the rules about after-acquired that it enacted in 1966 wouldn't make any sense if it turned out that other, all kinds of other security interests other than the ones Congress named had a priority over the Federal lien that was so much more substantial than the priority that Congress chose to give the particular classes of creditors.
Unknown Speaker: Where do you first quote the 1966 statute in your briefs or cert petition?
Mr. Feldman: In the brief... excuse me?
Unknown Speaker: Where do you first quote it in your papers, the 1966... I know it's in the reply brief.
Was it in the--
Mr. Feldman: Oh, no, it was in our brief.
It was on about page 15, the section from 15 to 18 addresses the 1966 act.
I think there is another line of cases that--
Unknown Speaker: --Oh, I had the wrong brief.
Yes, thank you.
Mr. Feldman: --There's another line of cases that also suggests the same result, and that is this Court has never specifically addressed a case involved after-acquired property but it has addressed cases involving a very closely analogous situation, and that is what might be called after-acquired debt or after-incurred debt.
In the cases of United States against Pioneer American Insurance, United States against Equitable Life Insurance, those cases involved mortgages that included clauses providing that if the mortgage was foreclosed that the attorneys' fees for the foreclosure would be added to the principal amount of the debt due secured by the property.
In both of those... and so those cases involved after-incurred debt, a debt that is added on to the secured amount.
In both of those cases those attorneys' fees were incurred after the Federal tax lien was filed, and in both of those cases this Court held that that after-incurred debt, that the security interest as to that after-incurred debt was junior to that of the Federal tax lien.
I think the same result, there's no reason not to adopt the same reasoning and the same result--
Unknown Speaker: What was the reasoning in those cases?
Would interest that accrued later be junior too?
Mr. Feldman: --You know, I'm not sure what the rule was before 1966 as to interest.
I believe that in 1966 Congress specifically provided for interest and actually provided for some other kinds of costs that were attendant, for instance on a mortgage, to be included in the principal amount as a specific exception to the general rule.
But the point was that these after-incurred debts in this Court, this Court decided in two different decisions that these after-incurred debts, even if they were relatively certain in amount and relatively certain to be incurred, that the security interest as to those debts was junior to the Federal tax lien.
Unknown Speaker: What was the reasoning of the Court?
Mr. Feldman: It was applying the test for perfection that I have suggested here, which is, in those cases the amount of the debt... you remember the test requires the identity of the lienholder, the amount of the debt, and the property subject to the debt be established.
Unknown Speaker: That would go for interest too, I would think.
Mr. Feldman: It probably would, yes.
I think that's right.
Unknown Speaker: It seems a rather strange ruling.
Mr. Feldman: That's right.
Well, Congress did take care of some of those situations elsewhere in the amendments in provisions other than those that I was talking about before.
In any event, I don't, there's no reason why the, why if the amount of the debt was not clear because the debt hadn't actually been incurred at the date of filing, therefore the interest in that, that after-incurred debt was not superior to the Federal tax lien, there's no reason why the court of appeals ruling that after-acquired property should be treated any better.
I think those cases provide a close analogy to the decision that should be reached here.
Unknown Speaker: You agree, don't you, Mr. Feldman, that if the South Street property had been owned by the debtor here at the time that the judgment lien was filed in Salt Lake County, then the judgment creditor lien would be prior?
Mr. Feldman: Yes.
If the taxpayer acquired an interest in that property, a real property, an interest in the property recognized by state law between July 9, 1987 and September 9, 1987, at any point during that time, that interest, the judgment lien would have a superior interest in that property to the Federal tax lien.
But it's our, in this case because the debtors' interest in the property was not acquired until after the Federal tax lien was filed, the Federal lien should be superior.
If there are no other questions I'd like to reserve the balance of my time.
Unknown Speaker: Very well, Mr. Feldman.
Mr. Davis, we'll hear from you.
Argument of T. Richard Davis
Mr. Davis: Mr. Chief Justice, and may it please the Court:
In 1827 Justice John Marshall enunciated what was, he deemed, a cardinal rule, which was a prior lien gives a prior claim entitled to prior satisfaction from the subjected binds.
This has become known as the doctrine of first in time as first in right, and it has become the general Federal common law in the area of competing lien claims.
This has also been adopted and codified by use of the, for the Government in establishing the competing liens between a Federal tax lien and certain competing liens as provided in section 6323.
Because of a contractual stipulation which preceded the litigation in this matter and the acquiescence by the IRS in the Tenth Circuit opinion in all but one issue, the facts of this case are very simple and make a singular issue presented to this Court.
That is will this Court apply the first in time rule in favor of a prior perfected judgment lien over a subsequently filed Federal tax lien when property purchased by the, as against property purchased by the debtor subsequent to all the liens, the after-acquired issue.
The facts are not in dispute.
It is important to note that Zions Bank did everything that was required of it to perfect under state law a general lien on all real property owned by the debtor located in the County of Salt Lake.
Section 6232 does not explicitly resolve the issue of after-acquired property, but it provides the framework which, very compatibly with prior decisions of this Court and with the intentions of Congress as shown since the institution of the Federal tax lien in 1866, allows a consistent pattern of recognizing the integrity of a judicial judgment lien obtained by a private party.
Unknown Speaker: The Government's argument, Mr. Davis, as I understand it, is that the property used to purchase the South Street property was property to which the judgment creditor's lien did not attach under Utah law.
Do you dispute that?
Mr. Davis: I do not.
That is correct.
Unknown Speaker: So that when the South Street property came into the hands of the debtor it had not been previously subject to any lien under state law.
Mr. Davis: Not pursuant... that is correct as the facts in this case have been shaved down.
Both parties have, they abandon whatever rights they had to any property of Mr. McDermott, or any rights they had to this property until the property was repurchased by McDermott at the foreclosure sale.
Then both liens attached to that property simultaneously.
The question is whether the prior entry of the judgment lien has any effect at all as against a subsequent filing of the notice of tax lien.
We believe it does.
The choateness doctrine, as it has been declared by this Court, was codified by the Treasury Department in its regulations.
It requires, it sets forth, as counsel has stated, a requirement of the establishment of the amount of the lien, the identity or the lienor, and the establishment of what property is to be liened.
The property, being general in nature, is sufficient under prior pronouncements of this Court.
Unknown Speaker: I don't know... I don't see how the third requirement is met.
You don't know what property it attaches to until some property is after-acquired.
If other real estate had been acquired it would have attached to other real estate.
If this real estate had not been foreclosed upon, this real estate, it would not have attached to this real estate.
How can you possibly say that the property has been identified?
Mr. Davis: This issue, I think it's a difference between the word identified and established.
The standard is not now, nor ever has it been through this Court or by statute, that the property must be identified, merely that it must be established.
That was the issue which came before this Court in both the New Britain and Vermont cases.
Both of them sought... well, the most relevant one would be the Vermont case wherein a prior state lien which was general in nature was attacked by the general Federal tax lien, which was also general.
This Court held that the fact that the state lien was general in nature, covering all of the property, it identified no property in particular, was sufficient.
Unknown Speaker: It was all, it covered all extant property.
If you ask what property is covered you could have pointed, you say it's this property or this property or the other property.
In your case if you asked what real estate is covered by this lien you'd say well, gee, I, I, it covers this current real estate, but what future real estate I can't tell you until he acquires it.
That's quite different from the Vermont case, it seems to me.
Mr. Davis: There's no question the facts are different, and I agree, but I think this is not an illogical step to say that a general lien which is established upon all property, either now or hereafter acquired, is still on all property, whether now or hereafter acquired.
And the establishment is set forth.
It's not the identity that's important, but it's the establishment of that property, the fact that it's all property.
That's how I read that case.
Unknown Speaker: Well, I don't find, I find that not only not in accord with the 1966 understanding of Congress, but not in accord with what in general commercial law is regarded to be the perfection of a lien.
I think just the common law understanding is that the lien doesn't attach until the property is identified, and that's why the provision of the Uniform Commercial Code containing an after-acquired property clause was a real innovation, because it was generally understood in the common law that you can't attach until you know what the property is.
Mr. Davis: I believe that's the case with the Uniform Commercial Code.
I believe there is a distinction between personal property and real property, and we're only dealing with real property.
The common law in the State of Utah and the Federal common law is predicated upon first in time and first in right and does not require that that property be specifically identified.
All property which is covered by a lien is subject to that lien when it states all property.
I believe that the Uniform Commercial Code is directed only to personal property because of its nature, which can, it can be consumed or transported and other issues that way.
As far as real property it stays and is subject to permanency as set forth in the recorder's office in the relevant county.
Unknown Speaker: --I understand, of course the UCC applies only to personal property, but what I'm suggesting is that it made an innovation with respect to personal property, and that the old law with respect to personal property was the same as the old law with respect to real property, that you don't have a perfected lien until you know what the property is.
Do you think in common law it was, there was a distinction between personal and real property, you could perfect a lien before you knew what the property was?
Mr. Davis: Certainly there could be no lien until the property was established upon which that lien could be set.
Unknown Speaker: Sure.
In the Vermont case, Mr. Davis, the, as I understand it under Vermont law the lien attached to all of the debtor's real property and it wasn't any more specific than that, but you could at least go into county or I guess in Vermont town recording offices and find out what property the debtor had as of the time.
Here in July there was no way to identify the South Street property as property of the debtor.
Mr. Davis: The debtor had no real property interest in that, in the South Street property, that's correct.
Unknown Speaker: Well, no... yeah, no real property, so this is certainly a case that is not in any way controlled by the Vermont case.
Mr. Davis: It's not controlled by it, it's just the same reasoning that I would put forth that a specific lien is not required, a general is sufficient.
Unknown Speaker: Well, but, but in, the words may not be all that important but under Vermont law as of the time the lien was filed you could, you knew what specific pieces of real property that lien attached to.
Mr. Davis: It would be discoverable, that's correct.
Unknown Speaker: Yeah.
And under your theory certainly that wouldn't be the case.
Mr. Davis: Generally that is correct.
This case had specific facts which made it different as a matter of fact.
Zions did understand and the fact that it would, that the debtor would be obtaining title to that property soon or there was a good chance that was happening, because--
Unknown Speaker: But that doesn't, that doesn't affect the lien.
Mr. Davis: --That did not affect the lien, but it gave, Zions had knowledge that that would be coming into, that the property would be coming into Mr. McDermott's hands because of the nature and the assessing of the foreclosure notices.
Unknown Speaker: But that can't bind another judgment and it certainly can't bind the Government, the fact that Zions may have had knowledge.
Mr. Davis: All parties had knowledge because that was recorded.
For the foreclosure a lien, a notice of the foreclosure had to be filed.
That was why, and it's that issue of reliance which was addressed earlier which is important.
Reliance was important to a judgment lien.
A creditor who has a lien or who has a claim against a party will not pursue that party if he knows the party is impecunious, if he knows there will be no property thereafter to obtain.
In this case and in many cases where the creditor understands that the party is going to be obtaining property either through foreclosure or gift or devise or some such way, there would be a reliance that was exercised on the half of that judgment lien creditor.
Unknown Speaker: But how does that fit into the congressional statute here, the fact that the competing judgment lien creditor may have relied on the judgment debtor to eventually acquire property?
Mr. Davis: I think the statute is silent as to after acquired property.
I think the framework which allows the recognition of a general lien is as far as we can go in looking at the statute to find whether this will fit within the choateness doctrine.
Unknown Speaker: I didn't know that choateness had anything to do with reliance.
Mr. Davis: I think the reason for, the choateness doctrine requires that the lien be, that the lienor be identified, the amount be ascertained, and the property be established.
I believe the reason for that is so that anyone else can rely upon what that lien is all about.
I think the service is entitled to reliance also upon the actions of other entities.
I think that Congress, not only in 1966 but beginning in 1913 and again in 1939, began not to cut back on private competitors with Federal tax liens, rather to allow those liens to compete fairly as on an equal footing with the Federal tax lien.
I think the, it's important to understand the time of perfection in either lien or both liens is important in any case, whether it's before or after the acquisition of property to which that lien will apply, to encourage the diligence of filing, the diligence of enforcement of claims and liens upon property.
If that does not happen the secret lien doctrine, which was the beginning doctrine which was used in 1866, then carries over.
Basically what we have here is a secret lien of the United States which comes in and primes a lien which was placed by a private lien claimant.
I believe that the congressional intent clearly, under 1966 acts and prior to that as reviewed by various Federal courts, states that the purpose of that act was merely to put them on equal footing and encourage both parties to act diligently in obtaining what rights they are going to receive.
Only two circuits have looked at simultaneous attaching or perfection.
Those are the Fifth Circuit in the Southern Rock case, and the Tenth Circuit in McDermott.
Both circuits saw that it was important to encourage the diligence, encourage that parties can rely upon record title acts in the various counties in which the liens are set.
Zions acted diligently.
It performed all acts required of the bank to perfect its general lien on all of Mr. McDermott's real property located in Salt Lake County.
It is neither logical nor equitable to allow a 2 month later lien come and prime and subordinate the bank's lien.
The integrity of the record title acts throughout the county or the country relies on the consistent judicial support of preferring a prior recorded lien to those subsequently recorded.
The judicial and legislative preference for Justice Marshall's cardinal rule over the IRS's current desire to resurrect the secret lien doctrine must continue to protect all creditors and preserve confidence in the system.
If I might digress a bit on the 1966 act, as the, as counsel mentioned, that several amendments to that act showed that Congress tried to cut back on private rights.
Basically those concerned issues which are not relevant to this matter.
The UCC issue, the purchased money security interest, neither of those are relevant to this case nor the issues at this Court.
Basically the Congress gave the judgment lien creditor a priority to act on an equal footing requiring recording, perfection in a traditional manner of perfection of real estate liens, equally, without regard to the supreme rights of the sovereign.
This Court can accomplish the reaffirmation of the principle of first in time by reaffirming, by affirming the decision of the Tenth Circuit and allowing the general lien to have attached effectively to the after-acquired property.
Unknown Speaker: Thank you, Mr. Davis.
Mr. Feldman, you have 12 minutes remaining.
Rebuttal of James A. Feldman
Mr. Feldman: I just wanted to mention, Mr. Chief Justice section 6323(e), in response to your question before, would give the holder of a security interest that's superior to a tax lien a right to the interest that accrues even after the tax lien was filed.
Unknown Speaker: Thank you.
Mr. Feldman: If there's no other questions--
Unknown Speaker: Mr. Feldman, I do have a question.
I meant to ask this before.
At page 14 of your brief you address the hypothesis that the liens were, became, were perfected simultaneously, and you say in effect that the statute says that if the private lien were not, did not attach first then the Government, the Government wins a tie.
And you seem to be quoting the statute, but I don't think the statute says that.
And I wonder could you comment a little bit on what, why you would say if there were a tie you wouldn't somehow or other share the proceeds or something, but rather would give the Government priority?
Mr. Feldman: --Yeah, I mean, there's two, I think there's two distinct questions there.
One is where there really is a tie would be a case, I would regard a case as for instance the Fifth Circuit case, the Southern Rock case, where there really was simultaneously with the Federal filing there was a state filing, and that would be a real tie case.
I think the underlying rationale, even in a case like that the Government should win, because I think the underlying rationale is that unless the prior, is that the Federal tax lien is a very potent form of lien and unless at the time the Federal tax lien either arises or is filed, if at that moment the other lien hasn't already taken the property the Federal tax lien is what attaches to the debtor's property and has a superior interest then.
Unknown Speaker: But this is, there's no specific statutory provision addressing the question, is there?
Mr. Feldman: I think that you could read the word until in 6323(a) to accomplish that.
Unknown Speaker: That's what you'd rely on?
Mr. Feldman: Yes.
Unknown Speaker: Is there a regulation specifically on the point you're making?
Mr. Feldman: I don't think there's a regulation specifically on the point I'm making.
There is, the regulation does make clear that in a case like this the respondent is not a judgment lien creditor because in order to, it can't take advantage of the 6323(a) exception because under the statute you're not a judgment lien creditor unless, as this Court has said repeatedly, your interest, the identity of the lienholder, the amount of the lien, and the property subject to the lien are established at that point in time.
Unknown Speaker: You say in this case there wasn't any tie at all--
Mr. Feldman: No, in this case there wasn't a tie.
In this case--
Unknown Speaker: --because your lien was filed earlier.
Mr. Feldman: --That's... well, we were... no, we filed later than they filed, but as of the time we filed they didn't have any interest in this property at all.
In fact it's a stronger case than the numerous cases--
Unknown Speaker: But you, your lien, you think your lien attached to this after-acquired property as of the date that you filed, first filed your lien?
Mr. Feldman: --That would be one way to put it.
I think that the--
Unknown Speaker: Well, that's the only, that's what you're claiming.
Mr. Feldman: --Right.
Unknown Speaker: Otherwise there would be a tie.
Mr. Feldman: I think the question of when our lien attached to the property is not a legally, there's nothing that makes that a legally significant question.
If it... then that is really to say the same thing as the date of attachment was as of the date that it was filed, or in the case that didn't come within one of the 6323(a) exceptions it would be when the Federal tax lien arises, which Congress provided was the date of assessment.
Unknown Speaker: And why did your, why did the Government's Federal tax lien in September attach to the South Street property when the earlier July lien didn't?
Mr. Feldman: Again, I think the key point is that the date--
Unknown Speaker: Well, answer my question.
Mr. Feldman: --Right.
We did, we attached to the property on September 23, 1987, on the same date as respondent--
Unknown Speaker: Why?
Because your lien covered personal property as well as real property?
Mr. Feldman: --Well, that's a separate question.
We, our lien did cover real property as well as personal property.
It was the holding of the district court that we waived our rights to the taxpayer's personal property.
We think that was mistaken, but we didn't, don't challenge that here.
Unknown Speaker: So when did your lien take effect?
Mr. Feldman: Our lien attached to the property on, at the same time as respondents', on September 23, 1987, but the priority of the Federal lien should be determined as of the date of filing.
The question is whether as of the date we filed, whether at that point respondents' lien was specific and perfected, and it wasn't in this case.
Unknown Speaker: So you say your lien as of the date of filing covered the South Street property?
Mr. Feldman: Yes.
I mean, that would, legally that would be, that would have the same effect as the--
Unknown Speaker: Obviously, you know, you're not, you don't feel comfortable saying yes.
Mr. Feldman: --Well, I think the Federal lien attached on September 23, 1987.
I just don't think that attachment is a relevant question to ask in determining who has, attachment of the Federal lien--
Unknown Speaker: Well, permit me an irrelevant question then.
Mr. Feldman: --Yes.
I'm comfortable in saying that on September 23, 1987 that was the date that the Federal lien attached.
Unknown Speaker: Attached to the South Street property.
Mr. Feldman: That's right.
But that the priority of the United States, as is the case with many of the exceptions in the Tax Lien Act and elsewhere in the UCC when you're dealing with prior, with private creditors, it is frequently the case that the priority is not measured from the date of attachment but is measured from some other date.
And it's our position that under Federal law the priority is measured from the date of filing in the 6323(a) case.
Unknown Speaker: Well, this is, you know that there is no such word as choate, but choate is to inchoate as sult is to insult.
I mean-- [Laughter]
Mr. Feldman: Have I used the word?
Unknown Speaker: Somebody has used it around here.
I heard it.
Mr. Feldman: I've been trying not to.
Chief Justice Rehnquist: Thank you, Mr. Feldman.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court of No. 91-1229, United States against McDermott will be announced by Justice Scalia.
Argument of Justice Scalia
Mr. Scalia: The case is here on writ of certiorari to the Tenth Circuit.
The dispute involves competing priorities of a federal tax lien and a private creditor's judgment lien.
The United States assessed respondents Mr. and Mrs. McDermott for unpaid federal income taxes for the years 1977 through 1981.
That assessment automatically created a lien in favor of the United States upon all of the McDermotts' property, both existing and to be acquired in the future.
Under 25 U.S.C. Section 6323(a) however, this federal tax lien could "not be valid as against any judgment lien creditor until notice thereof has been filed".
Before the United States filed the lien with the Salt Lake County Clerk, a bank the other competing lienor here, docketed a State Court judgment it had won against the McDermotts.
Thereby, creating a state law judgment lien on all of the Mcdermotts' existing and after acquired real property in the County.
Thereafter, the United States filed its lien and later still the McDermotts acquired the property that is the subject of this action.
It is an interpleader action, that is to say, a suit by the McDermotts against both the bank and the United States asking the court to decide which of the two has superior security rights in the property.
The District Court awarded priority to the bank's lien with the bank lien and the Tenth Circuit affirmed.
In an opinion filed with the Clerk today, we reverse and remand for further proceedings.
Priority for purposes of the federal law governing tax liens is determined by the common law principle that the first in time is the first in right.
A state created lien that compete with a federal lien, however, is deemed to be in existence for first in time purposes only when it has been perfected in the sense that, the identity of the lien or the property subject to the lien and the amount of lien are all established.
The bank argued that its judgment lien was perfected as to all real property then and hereafter acquired by the McDermotts as of the date that the bank docketed its judgment lien.
We reject that notion.
As indicated in our earlier cases and as we think common usage prescribes, a lien is not perfected until it has actually attached to identifiable property.
The bank's lien did not become perfected with respect to the property at issue here in other words until McDermotts acquired that property.
Since, that occurred after filing of the federal tax lien, the bank's lien was not first in time.
Though, the bank's lien was not first in time, the federal tax lien was not necessarily first in time either.
It could have been a tie, it also, was a lien in covering after acquired property and it also attached and became perfected when the McDermotts acquired the property.
We think , however, that under the language and Section 6323(a), the filing of the notice renders the federal tax lien extant for first in time purposes regardless of whether it has yet attached to identifiable property.
That reading is confirmed by the Provision, two subsections later and Section 6323(c)(1) which, for reasons too tedious to describe, reflects the assumption at the tax lien once filed will prevail regardless it when it attaches.
Justice Thomas has filed a dissenting opinion in which Justice Stevens and Justice O'Connor join.