United States v. Harry Saidman, Trustee, Lobel Enterprises, Inc.

231 F.2d 503

• Court: Court of Appeals for the D.C. Circuit
• Decided: April 23, 1956
• Docket: 12623_1
• Status: Published

Opinions

WASHINGTON, Circuit Judge.

This appeal presents these questions: whether under Section 3466 of the Revised Statutes, 31 U.S.C.A. § 191, the claim of the United States for unpaid taxes is entitled to prior payment (1) over a landlord’s lien for rent created by Section 45-915 of the D.C.Code, 1951, and (2) over a tax claim of the District of Columbia given priority by Section 47-2609, D.C.Code, 1951.

Lobel Enterprises, Inc. operated a grocery business in the District of Columbia on premises leased from Square Deal Market, Inc. On August 17, 1953, alleging that it was unable to pay its debts in full, Lobel assigned all of its property in trust to an assignee for the benefit of creditors. The assignee sold the assets on September 14, 1953, and, after payment of the expenses of administration, there remains in the hands of the successor trustee Saidman the amount of $1,548.81 for distribution to creditors.

On the date of the assignment Lobe! was indebted to its landlord in the amount of $900 on account of two monthly rental payments of $450 each due July 1, 1953, and August 1, 1953. Lobel was also indebted on the date of the assignment to the United States for unpaid Federal taxes in the amount of $934.88, plus interest, and to the District of Columbia for unpaid sales and compensating-use taxes in the amount of $753.93, plus interest. Each of these creditors urged that its claim was entitled to prior payment from the available fund. The successor trustee filed his final account which was referred to the Auditor of the District Court. The Auditor recommended that the balance of $1,548.81 available for creditors be distributed to pay the landlord's claim of $900 in full and to pay the claim of the United States to the extent of $648.-81, the amount remaining. Objections were filed to the Auditor’s report by both the United States and the District of •Columbia. After a hearing, the District Court ordered that the landlord’s claim be paid in full, and that the District of •Columbia take the remainder of the fund, or $648.81. The United States has appealed, claiming that Section 3466 of the Revised Statutes gives it priority •over the claims of both the landlord and the District of Columbia.

3. Priority as between the United, States and the landlord.

Section 3466 of the Revised Statutes, 31 U.S.C.A. § 191, provides that—

“Whenever any person indebted to the United States is insolvent * * * the debts due to the United States shall be first satisfied; and the priority established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof * *

Its purpose is to secure adequate public revenue to sustain the public burdens, .and it is to be construed liberally to effectuate that purpose.¹ United States v. Emory, 1941, 314 U.S. 423, 426, 62 S.Ct. 317, 86 L.Ed. 315. The section gives an “absolute priority” to “the payment of indebtedness owing the United States, whether secured by liens or •otherwise.” United States v. City of New Britain, 1954, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520. Its words “are broad and sweeping and, on their face, admit of no exception to the priority of claims of the United States.” United States v. Waddill Co., 1945, 323 U.S. 353, 355, 65 S.Ct. 304, 306, 89 L.Ed. 294.

Notwithstanding the unqualified preference given by Section 3466, persons claiming that they held a perfected and specific lien on the debtor’s property have frequently contested the right of the United States to have the debts due it satisfied first. The Supreme Court has, however, never decided whether the absolute priority accorded by Section 3466 would be overcome by a fully perfected and specific lien upon the property, since it has always found that the lien involved was not sufficiently specific and perfected. United States v. State of Texas, 1941, 314 U.S. 480, 484-486, 62 S.Ct. 350, 86 L.Ed. 356, and cases there cited; United States v. Waddill Co., supra, 323 U.S. at page 355, 65 S.Ct. 304; People of State of Illinois ex rel. Gordon v. Campbell, 329 U.S. at pages 370-371, 67 S.Ct. 340; United States v. Gilbert Associates, 1953, 345 U.S. 361, 365, 73 S. Ct. 701, 97 L.Ed. 1071. United States v. Waddill Co. indicates that for this purpose a lien is not sufficiently specific when, on the date of the assignment, the lien has not been actually asserted, and the amount of the lien or the precise property to which the lien has attached is unknown or unascertainable, 323 U.S. at pages 357-358, 65 S.Ct. 340, 89 L.Ed. 294; and that a lien is not perfected when, on the date of the assignment, the debtor has not been divested of title to, or possession of, the property involved. 323 U.S. at pages 358-359, 65 S.Ct. 340. Other cases reiterate that the priority of the United States is not destroyed where the lien-holder has not taken possession of, or acquired title to, the debtor’s property subject to the lien prior to the time when Section 3466 becomes effective.² See Spokane County v. United States, 1929, 279 U.S. 80, 93-94, 49 S.Ct. 321, 73 L.Ed. 621; United States v. State of Texas, 314 U.S. at page 488, 62 S.Ct. 350, 86 L.Ed. 356; People of State of Illinois ex rel. Gordon v. Campbell, 329 U.S. at page 376, 67 S.Ct. 340, 89'L.Ed. 294; United States v. Gilbert Associates, supra. In the last case the Supreme Court said, 345 U.S. at page 366, 73 S.Ct. at page 704:

“In claims of this type ‘specificity’ requires that the lien be attached to certain property by reducing it to possession, on the theory that the United States has no claim against property no longer in the. possession of the debtor. Thelusson v. Smith, 2 Wheat. 396, 4 L.Ed. 271. Until such possession, it remains a general lien. There is no ground for the contention here that the Town had perfected its lien by reducing the property to possession. * * * The taxpayer had not been divested by the Town of either title or possession. ’ The' Town, therefore, had v only a general, unperfected lien.”

In this case the District Court concluded as a matter of law that the landlord had a “specific lien” on specific property. No conclusion was stated that the lien was “perfected.” The landlord contends, however, that its lien was both! specific and perfected. Our first task is then to ascertain whether this contention is correct, under the tests laid down by the Supreme Court for our guidance.³

The lien of the landlord arose under Section 45-915 of the D.C.Code, 1951,' which gives a landlord a

“tacit lien for his rent upon such of the tenant’s personal chattels, on the premises, as are subject to execution for debt, to commence with the tenancy and continue for three months after the rent is due and until the termination of any action for such rent brought within said three months.”

The lien may be enforced under Section 45-916⁴ by attachment issued on affidavit; by execution on the chattels, after judgment against the tenant, wherever they are found; and by action •against any purchaser of the chattels with notice of the lien.

We said in Moses v. Labofish, 1942, 76 U.S.App.D.C. 401, 402, 132 F.2d 16, 17, that the lien is created by the statute and exists independently of the several means of enforcement.⁵ But for present purposes this is not enough. In the Waddill case, the Supreme Court noted that the landlord’s lien there involved had been declared by the Supreme Court of Appeals of Virginia to be a fixed and specific statutory lien on all goods found on the premises, not merely an inchoate lien, and “ ‘that such a lien exists independent of the right of distress or attachment, which are merely remedies for enforcing it’ ”. 323 U.S. at page 356, 65 S.Ct. at page 306, 89 L.Ed. 294. Yet it held that this did not determine whether the lien was “sufficiently specific and perfected to raise questions as to the applicability” of the Federal priority. 323 U.S. at pages 356-357, 65 S. Ct. at page 306. Its conclusion was that the landlord's lien was unspecific and unperfected in its actual legal effect, and was therefore inferior to the claim of the United States.

While Section 45-915 of the Code creates a lien, described as tacit, for rent for three months upon such of the personal chattels on the premises as are subject to execution for debt, the section does not state that the lien shall have priority nor does it purport to place title to, or possession of, the chattels in the landlord. The landlord may acquire title to or possession of the chattels on which the lien exists by following the first or second method prescribed by Section 45-916 for enforcing the lien, but affirmative action to accomplish this is required. The statutory provisions then do not of their own force create a specific and perfected lien in the sense long understood as essential to overturn the Federal priority.

Nor did the landlord have a specific and perfected lien in actual fact. The identity of the lienor, the landlord, and the amount of the lien, or $900, were of course known on the date of the assignment. But at that time the landlord had done nothing to indicate that it would insist upon its statutory lien. It had not filed the required affidavit and attached the tenant’s property, or any part thereof; it had not obtained judgment against the tenant and levied execution on its property or any part thereof. Thus, although the statute makes the lien apply generally to such personal property on the premises as is subject to execution for debt,⁶ the specific part of the property required to satisfy the lien had not been segregated and the debtor had not been divested of title or possession as to any part of his property. Apart from any other factors, the failure of the landlord to acquire title or take possession prior to the assignment compels the holding, under the Supreme Court cases cited, that its lien was not perfected in the sense required to defeat priority under Section 3466. The landlord here had merely “a caveat of a more perfect lien to come”, People of State of New York v. Maclay, 1933, 288 U.S. 290, 294, 53 S.Ct. 323, 324, 77 L.Ed. 754, a lien which might have been, but was not, made perfect before the determinative date.

We must conclude that the United States is entitled to have its tax claim paid in full before the claim of the landlord becomes eligible for payment.

II. Priority as between the United States and the District of Columbia.

The United States bases its claim to priority on the unrestricted right to first payment of its debts accorded by Section 3466, already discussed, whereas the claim of the District for priority rests on Section 47-2609 of the District of Columbia Code, 1951.⁷ Section 47-2609 is found in the title relating to sales taxes and is made applicable to compensating-use taxes by Section 47-2707 of the Code. It provides that where property is assigned for the benefit of creditors, these taxes for which the debtor is liable “shall be a prior and preferred claim”; and it is the duty of any United States marshal, receiver, assignee, or any other officer to “first pay to the Collector the amount of said taxes * * * before making any payment of any moneys to any judgment creditor or other claimants of whatsoever kind or nature.” Personal liability for the tax is imposed if the officer violates the terms of the section.⁸

In District of Columbia v. Greenbaum, 1955, 96 U.S.App.D.C. 168, 171, 223 F.2d 633, 636, we stated in footnote 13 of the opinion that the scope of Section 47-2609⁹ will be similar to that of Section 3466 of the Revised Statutes in local insolvency proceedings, as distinguished from bankruptcy proceedings under the Federal Bankruptcy Act. But that statement was not a holding that the District’s priority will be equivalent to that of the United States under Section 3466 in contests between the two. Although the United States was an appellee in that case, it did not urge priority for its tax claim under Section 3466, the Supreme Court having already decided that in proceedings under the Bankruptcy Act the taxes due the United States take the priority accorded them by Section 64, sub. a of the Bankruptcy Act, rather than having a first priority under Section 3466. See Guarantee Title & Trust Co. v. Title Guaranty & Surety Co., 1912, 224 U.S. 152, 32 S.Ct. 457, 56 L.Ed. 706, and cf. State of Missouri v. Ross, 1936, 299 U.S. 72, 57 S.Ct. 60, 81 L.Ed. 46, and United States v. Emory, 1941, 314 U.S. 423, 427-429, 62 S.Ct. 317, 86 L.Ed. 315. Thus, our statement in the Greenbaum case, at footnote 13, related to the scope, in local insolvency proceedings, of the District’s first priority for sales and use taxes in relation to creditors other than the Federal Government. A fortiori the District’s claim would be prior to that of a landlord who has not perfected his lien, for the reasons already given in connection with our discussion of Section 3466 and the landlord’s lien. But the question here, as to the rights of the United States and the District under statutes giving each a first priority, was not present or decided in the Greenbaum case.

That question must now be decided. We are faced with the dilemma of choosing between two statutes enacted by Congress, each giving a first priority in terms absolute, each applicable here, and each imposing a personal liability on the assignee if he pays any other debt of the insolvent assignor first. Obviously, neither statute can be applied as it is written without violating the other, and we must therefore find some solution from extraneous aids.

We have searched the legislative history in vain for some indication from the Congress as to whether, in enacting the District statute, it intended to create an exception from Section 3466 of the Revised Statutes with respect to the District sales and use taxes. As we noted in the Greenbaum ease,¹⁰ the section follows almost verbatim the Maryland sales tax statute, Md.Ann.Code, 1951, art. 81, § 339. In fact, sales-tax officials of Maryland were invited to sit with the subcommittee and advise it in writing the bill. 95 Cong.Rec. 6087 (1949). Obviously, the Maryland statute, even though in terms absolute, could not and did not make the state taxes prior to the claims of the United States in insolvency proceedings of the types covered by Section 3466.¹¹ But in legislating for the District of Columbia Congress is not subject to the same limitations as are state legislatures, Neild v. District of Columbia, 1940, 71 App.D.C. 306, 309-311, 110 F.2d 246, 249-251, and we can hardly impute to it without more an intent to have the District taxes occupy a priority status equivalent only to that of state taxes.

Other factors lead us to resolve the priority dispute in favor of the District. Section 47-2609 is a more recently enacted statute awarding priority to only one kind of tax claim whereas the Federal statute prescribes a general priority for all kinds of debts. The limited nature of the District’s priority given by a later statute using language just as forceful as that of Section 346612 requires the inference that Congress intended to create an exception from the broad and general Federal priority in this one respect. Cf. Cook County National Bank v. United States, 1882, 107 U.S. 445, 2 S.Ct. 561, 27 L.Ed. 537; Mellon v. Michigan Trust Co., 1926, 271 U.S. 236, 46 S.Ct. 511, 70 L.Ed. 924; United States v. Guaranty Trust Co., 1930, 280 U.S. 478, 50 S.Ct. 212, 74 L.Ed. 556. In all of the cases just cited the Supreme Court held that later acts of Congress created an exception, as to specific debts due the United States, from the general priority accorded by Section 3466, even though the act did not in terms refer to Section 3466 and the legislative history was apparently silent on the matter. The repugnancy between the two priority statutes here is far clearer than the inconsistency in any of the cited cases.

We conclude that Section 47-2609 as the later, more specific, and more limited enactment creates an exception to Section 3466 to the extent of the District’s claim for sales and use taxes, and that the District’s claim for such taxes has first priority in local insolvency proceedings over the United States. We are reinforced in this conclusion by the consideration that since Congress has the obligation to provide revenues for both the District and the Federal Government, there could have been no real incentive for subordinating the District’s taxes in an insolvency proceeding.

Our decision requires that the case be remanded. It remains to consider how the available fund of $1,548.81 is to be distributed on remand. The District did not appeal from the order of the District Court. Under it the District was awarded $648.81 although, had it appealed, it would have been entitled to the full amount of its claim. We will not direct the District Court to increase the amount allowed the District. On remand the District Court may either order that the $900 previously allowed to the landlord be paid to the United States, or if it can justify so doing despite the failure to appeal, allow the District its full claim and allot the balance to the United States.

Remanded for proceedings consistent with this opinion.

1 . Section 3466 is derived from Section 5 of the Act of March 3, 1797, c. 20, 1 Stat. 515, which was enacted as an aid in the collection of taxes. Price v. United States, 1926, 269 U.S. 492, 500-501, 46 S.Ct. 180, 70 L.Ed. 373. Its provisions have been in force since 1797 without significant modification. United States v. Emory, 314 U.S. at page 428, 62 S.Ct. 317; People of State of Illinois ex rel. Gordon v. Campbell, 1946, 329 U.S. 362, 370, 67 S.Ct. 340, 91 L.Ed. 348. For a review of the early history of the provision, see United States v. Fisher, 1805, 2 Cranch 358, 6 U.S. 358, 2 L.Ed. 304.

2 . The early cases are entirely consistent with this rule. In Conard v. Atlantic Ins. Co., 1928, 1 Pet. 386, 26 U.S. 386, 7 L.Ed. 189, the debtor had assigned a cargo of tea to the insurance company to secure a loan prior to the time the priority of the United States attached to the debtor’s property. It was held that the tea was not covered by the priority, since title to it had been transferred to the mortgagee. it was stated as dictum in Thelusson v. Smith, 1817, 2 Wheat. 396, 15 U.S. 396, 4 L.Ed. 271, that if, before the right of preference has accrued to the United States, the debtor has conveyed bona fide his estate to a third person, or has mortgaged it to secure a debt, or if his property has been seized under a fieri facias, the property cannot be made liable to the United States because divested out of the debtor. The actual decision in the Thelusson case was, however, that the United States had priority over a prior judgment creditor who had a lien but who had not perfected it by levying on the property itself. See also Brent v. Bank of Washington, 1836, 10 Pet. 596, 35 U.S. 596, 9 L.Ed. 547, decided on the ground that the debtor did not have legal or equitable title to bank stock and thus the priority of the United States did not attach to the stock. As stated in United States v. State of Texas, 314 U.S. at pages 484-485, 62 S.Ct. at page 352, these cases seem to have been decided on the “theory that mortgaged property passes to the mortgagee and is uo longer a part of the estate of the mortgagor.”

3 . There is no contention that the United States does not have the benefit of whatever rights Section 3466 may give it. The conditions necessary to bring that section into play are present. Lobel was indebted to the United States, since taxes are debts. Price v. United States, 1926, 269 U.S. 492, 499, 46 S.Ct. 180, 70 L.Ed. 373; State of Illinois ex rel. Gordon v. United States, 1946, 328 U.S. 8, 9, 66 S.Ct. 841, 90 L.Ed. 1049. It voluntarily assigned its property for the benefit of creditors, alleging that it was unable to pay its debts in full. It actually was insolvent.

4 . Section 45-916 reads as follows:

“The said lien may be enforced—

“First. By attachment, to be issued ' upon aifidavit that the rent is due and unpaid; or, if it be not due, that the defendant is about to remove or sell some part of said chattels.

“Second. By judgment against the tenant and execution, to be levied on said chattels, or any of them, in whosesoever hands they may be found.

“Third. By action against any purchaser of said chattels, with notice of the lien, in which action the plaintiff may have judgment for the value of the chattels purchased by the defendant not exceeding the rent in arrear.”

5 . In the Moses case, the lien would seem actually to have been specific and perfected within the tests laid down by the Supreme Court for purposes of applying Section 3466, although that section was not there involved. The landlord had obtained judgment against the tenant, and the marshal had levied on the chattels before the tenant filed his voluntary petition in bankruptcy.

6 . It is agreed that the whole fund available for distribution here was derived from personal property on the premises that was subject to execution for debt.

7 . This section reads:

“Whenever the business or property of any person subject to tax under the terms of this chapter, shall be placed in receivership or bankruptcy, or assignment is made for the benefit of creditors, or if said property is seized under distraint for property taxes, all taxes, penalties, and interest imposed by this chapter for which said person is in any way liable shall be a prior and preferred claim. Neither the United States marshal, nor a receiver, assignee, or any other officer shall sell the property of any person subject to tax under the terms of this chapter under process or order of any court without first determining from the Collector the amount of any such taxes due and payable by said person, and if there be any such taxes due, owing, or unpaid under this chapter it shall be the duty of such officer to first pay to the Collector the amount of said taxes out of the proceeds of said sale before making any payment of any moneys to any judgment creditor or other claimants of whatsoever kind or nature. Any person charged with the administration or distribution of any such property as aforesaid who shall violate the provisions of this section shall be personally liable for any taxes accrued and unpaid which are chargeable against the person otherwise liable for tax under the terms of this section.”

8 . This provision is comparable to Section 3467 of the Revised Statutes, as amended, 31 U.S.O.A. § 192, which states:

“Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.”

9 . There referred to as Section 132 of the District of Columbia Revenue Act of 1949.

10 . See 96 U.S.App.D.C. at pages 170-171, 223 F.2d at pages 635-636.

11 . See, for example, Spokane County v. United States, 1929, 279 U.S. 80, 49 S.Ct. 321, 73 L.Ed. 621; United States v. State of Texas, 1941, 314 U.S. 480, 62 S.Ct. 350, 86 L.Ed. 356; People of State of Illinois ex rel. Gordon v. Campbell, 1946, 329 U.S. 362, 67 S.Ct. 340, 91 L.Ed. 348; United States v. Gilbert Associates, 1953, 345 U.S. 361, 73 S.Ct. 701, 97 L.Ed. 1071.

12 . It may, indeed, be more forceful.