Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-03209/USCOURTS-ca10-89-03209-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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ROBERT L. HOECKER 

CLERK 

~uitdt jtatez filoud of J\ppeals 

TENTH CIRCUIT 

OFFICE OF THE CLERK 

C404 UNITED STATES COURTHOUSE 

DENVER, COLORADO 80294 

October 24, 1990 

TO: ALL RECIPIENTS OF THE CAPTIONED OPINION 

RE: 89-3209; In re: Billie Lamont Gardner, Debtor; 

Gardner vs. Zimmerman 

Per Curiam Opinion filed September 18, 1990 

TELEPHONE 

(303 > 844·3157 

(FTS) 564·3157 

Attached is a new cover page to be substituted for the 

cover page in the original opinion which was sent to you on 

September 18, 1990. The spelling of Billy has been changed 

to Billie in the caption arid now reads In re: Billie Lamont 

Gardner, Debtor. 

RLH/pf/mt 

Enclosure 

Very truly yours, 

ROBERT L. HOECKER, Clerk 

By: 

Patrick Fisher 

Chief Deputy Clerk 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 1 
PUBLISH 

FILED 

UNITED STATES COURT OF APPEALS Unit.ed St.ates Court of Appeals 

TENTH CIRCUIT 

In re: BILLIE LAMONT GARDNER, 

Debtor, 

TERRYL A. GARDNER, 

Plaintiff-Appellee, 

v. 

UNITED STATES OF AMERICA, 

Defendant-Appellant, 

and 

WILLIAM H. ZIMMERMAN, JR., Trustee, 

Defendant. 

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SEP 1 8 1990 

ROBERT L. HOECKER 

Clerk 

No. 89-3209 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF KANSAS 

(D.C. No. 89-1006-K) 

J. Michael Morris of Klenda, Mitchell, Austerman & Zuercher, 

Wichita, Kansas, for Plaintiff-Appellee. 

Kimberly s. Stanley, Attorney (Shirley D. Peterson, Assistant 

Attorney General, Gary R. Allen, Williams. Estabrook, Attorneys, 

Tax Division,· Department of Justice) (Benjamin L. Burgess, Jr., 

United States Attorney, of Counsel), Washington, D.C., for 

Defendant-Appellant. 

Before MOORE, BRIGHT,* and BRORBY, Circuit Judges. 

*Honorable Myron H. Bright, Circuit Judge, United States Court of 

Appeals for the Eighth Circuit, sitting by designation. 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 2 
PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

.t'lL..tLJ. 

United States Court of Appeals 

Tenth Circuit 

SEP 18 1990 

ROBERT L. HOECKER 

· Clerk 

In re: BILLY LAMONT GARDNER, ) 

) 

Debtor, ) 

) 

TERRYL A. GARDNER, ) 

) 

Plaintiff-Appellee, ) 

) No. 89-3209 

v. ) 

) 

UNITED STATES OF AMERICA, ) 

and 

WILLIAM H. 

) 

Defendant-Appellant, ) 

) 

) 

) 

ZIMMERMAN, JR.' Trustee, ) 

) 

Defendant. ) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF KANSAS 

(D.C. No. 89-1006-K) 

J. Michael Morris of Klenda, Mitchell, Austerman & Zuercher, 

Wichita, Kansas, for Plaintiff-Appellee, 

Kimberly S. Stanley, Attorney (Shirley D. Peterson, Assistant 

Attorney General, Gary R, Allen, Williams. Estabrook, Attorneys, 

Tax Division, Department of Justice) (Benjamin L. Burgess, Jr., 

United States Attorney, of Counsel), Washington, D.C., for 

Defendant-Appellant. 

Before MOORE, BRIGHT,* and BRORBY, Circuit Judges. 

*Honorable Myron H. Bright, Circuit Judge, United States Court of 

Appeals for the Eighth Circuit, sitting by designation. 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 3 
) 

PER CURIAM 

Defendant-appellant United States of America appeals from an 

order of the district court affirming a bankruptcy court order 

holding that the tax lien on the vested, indeterminate interest in 

property of debtor Billie L. Gardner was extinguished by an award 

of the property to plaintiff-appellee Terryl A. Gardner in a state 

court divorce proceeding and that Mrs. Gardner's interests in the 

property were superior to those of the United States. We affirm 

the determination that Mr. Gardner had no interest in the marital 

property after the final divorce decree and remand for dismissal 

for lack of jurisdiction the bankruptcy court's determination and 

district court's affirmance that Mrs. Gardner's interests were 

superior to those of the government. 

The facts in this case either were stipulated or are 

undisputed. On January 22, 1985, Mrs. Gardner commenced divorce 

proceedings in Kansas state court. The Internal Revenue Service 

1 filed a tax lien against Mr. Gardner on August 4, 1986. Two days 

later, Mr. Gardner filed for bankruptcy under Chapter 7. On 

September 19, 1986, the bankruptcy court lifted the automatic stay 

to allow the divorce proceedings, including division of property, 

to continue, but cautioned that any division of property would not 

1 Initially, the tax lien was filed against both Mr. and Mrs. 

Gardner. At a later date, the I.R.S. released the lien against 

Mrs. Gardner. 

2 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 4 
be conclusive as to the bankruptcy trustee. On January 12, 1987, 

the divorce court entered a decree of divorce, awarding nearly all 

of the property to Mrs. Gardner. At that time, all but the exempt 

property was held by the trustee. 

Mrs. Gardner brought an adversary action against the 

bankruptcy trustee on February 2, 1988, to obtain the bankruptcy 

estate property awarded to her in the divorce action. Defining 

the action as a conflict over ownership rights of property rather 

than a controversy concerning priorities, the bankruptcy court 

determined that Mr, Gardner had a "vested but an as yet 

undetermined ownership interest" in all marital 

time of commencement of the divorce action. 

property at the 

The entry of the 

divorce decree, however, served to divest any interest Mr, Gardner 

had in the property, Because the state court divested Mr. 

Gardner's interest in the property by entry of the final divorce 

decree, the bankruptcy court held that any interest the government 

claimed to the property as a result of the tax lien was 

extinguished. 

The government appealed to the district court raising issues 

relating to the bankruptcy court's jurisdiction over exempt 

property and to the priority of its tax lien. The district court 

did not resolve the jurisdictional issue on the ground that Mrs, 

Gardner's complaint had only requested award of the nonexempt 

property. The district court affirmed the bankruptcy court's 

decision that Mrs. Gardner was entitled to the nonexempt property. 

In doing so, the district court determined that Mr. Gardner held a 

vested interest in the marital property during the divorce 

3 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 5 
proceedings that the tax lien attached to, but the interest was 

divested by the divorce decree, thereby subjecting the tax lien to 

divestiture. 

The first issue on appeal relates to the jurisdiction of the 

bankruptcy court. The government contends the bankruptcy court 

lacked jurisdiction to determine the priority of two competing 

third-party lienors over property that was exe~pt from the 

bankruptcy estate. We believe the jurisdictional issue is even 

more fundamental and concerns the bankruptcy court's jurisdiction 

to determine which lienor was entitled to property no longer a 

part of the bankruptcy estate. We conclude .the bankruptcy court 

lacked jurisdiction to determine whether Mrs. Gardner's interests 

were superior to those of the government after concluding Mr. 

Gardner had no interest in the property. 

Bankruptcy courts have only the jurisdiction and powers 

expressly or by necessary implication granted by Congress. 

Johnson v. First Nat'l Bank of Montevideo, 719 F.2d 270, 273 (8th 

Cir. 1983), cert. denied, 465 U.S. 1012 (1984), Bankruptcy courts 

have jurisdiction over core proceedings. See 28 U.S.C. § 157. 

Core proceedings are proceedings which have no existence outside 

of bankruptcy. In re Alexander, 49 Bankr. 733, 736 (Bankr. D.N.D. 

1985), Actions which do not depend on the bankruptcy laws for 

their existence and which could proceed in another court are not 

core proceedings. In re Wood, 825 F.2d 90, 96 (5th Cir. 1987), 

Although determination of whether the marital property is part of 

the bankruptcy estate is a core proceeding, the later 

determination of the ownership of the marital property as between 

4 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 6 
third parties, such as Mrs. Gardner and the government, is not a 

core proceeding. See In re Holland Indus., Inc., 103 Bankr. 461, 

466 (Bankr. S.D.N.Y. 1989)(ba?kruptcy courts determine validity of 

tax liens under rubric of core proceedings only when lien concerns 

debtor's property); cf. In re Jackson, 102 Bankr. 82 (Bankr. N.D. 

Tex. 1988)(court had jurisdiction to determine validity, extent or 

priority of liens on homestead property pursuant to 28 u.s.c. 

§ 157(b)(2)(K) and (0) as a 

proceeding even though 

core proceeding 

property was no 

and 

longer 

as a related 

property of 

bankruptcy estate; jurisdiction retained only to determine what 

debts are discharged and unsecured indebtedness of debtor's 

estate). Accordingly, this action is not a core bankruptcy 

proceeding. 

Bankruptcy courts also have jurisdiction over related 

proceedings, under the authority of 28 u.s.c. § 1471(b), which 

confers jurisdiction on district courts for cases related to title 

11 proceedings. In re Fietz, 852 F.2d 455, 456 (9th Cir. , 1988); 

see also 28 U.S.C. § 157. Related proceedings are civil 

proceedings that, in the absence of a bankruptcy petition, could 

have been brought in a district court or state court. In re 

Colorado Energy Supply, Inc., 728 F.2d 1283, 1286 (10th Cir. 

1984). "[T]he test for determining whether a civil proceeding is 

related in bankruptcy is whether the outcome of that proceeding 

could conceivably have any effect on the estate being administered 

in bankruptcy." Pacer, Inc. v. Higgins, 743 F.2d 984, 994 (3d 

Cir. 1984)(emphasis omitted). Although the proceeding need not be 

against the debtor or his property, the proceeding is related to 

5 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 7 
the bankruptcy if the outcome could alter the debtor's rights, 

liabilities, options, or freedom of action in any way, thereby 

impacting on the handling and administration of the bankruptcy 

estate. Id.; see also In re Wood, 825 F.2d at 93 (related matters 

conceivably have effect on administration of bankruptcy estate); 

=I=n ___ ..;;:r'-'e"----'D"'"o;;:;..g=p=a=t=c=h=---'U=-·:....:S:....:....:. A=-=-·..._, --=I=n=cc...:... , 810 F . 2 d 7 8 2 , 7 8 6 ( 8th Cir . 

1987)(same); In re Bobroff, 766 F.2d 797, 802 (3d Cir. 

19 8 5 ) ( same ) . 

A bankruptcy court has jurisdiction over disputes regarding 

alleged property of the bankruptcy estate at the outset of the 

case. In re Xonics, Inc., 813 F.2d 127, 131 (7th Cir. 1987). 

When property leaves the bankruptcy estate, however, the 

bankruptcy court's jurisdiction typically lapses, In re Hall's 

Motor Transit Co., 889 F.2d 520, 523 (3d Cir. 1989); In re Xonics, 

Inc., 813 F.2d at 131; In re Muller, 72 Bankr. 280, 284 (C.D. Ill. 

1987), aff'd, 851 F.2d 916 (7th Cir. 1988), cert. denied, 109 

S. Ct. 1645 (1989), and the property's relationship to the 

bankruptcy proceeding comes 

Transit Co., 889 F.2d at 523. 

to an end. See In re Hall's Motor 

Thus, the bankruptcy court lacks 

related jurisdiction to resolve controversies between third party 

creditors which do not involve the debtor or his property unless 

the court cannot complete administrative duties without resolving 

the controversy. In re Shirley Duke Assocs., 611 F.2d 15, 18 (2d 

Cir. 1979). 

In this case, the dispute between the government and Mrs. 

Gardner does not involve identification of the debtor's property 

interest, since the bankruptcy court had determined Mr. Gardner 

6 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 8 
had no interest in the property. See In re Xonics, Inc., 813 F.2d 

at 131. Rather, this case involves the conflict between two 

creditors ove! property no longer a part of the bankruptcy estate. 

The conflict between the government and Mrs. Gardner is irrelevant 

to the bankruptcy estate, because the disputes regarding their 

stake in Mr. Gardner's property have been resolved, see In re 

Incor, Inc., 100 Bankr. 790, 799 (Bankr. D. Md. 1989), and neither 

Mr. Gardner nor the bankruptcy estate are affected by the dispute 

between Mrs. Gardner and the government, see In re Alexander, 49 

Bankr. at 737 (bankruptcy court "lacks the jurisdiction to either 

hear or decide private lien priority disputes involving secured 

creditors whose dispute does not either directly or indirectly 

affect the debtor or property of the estate"); see also In re 

Federal Shopping Way, Inc., 717 F.2d 1264, 1272 (9th Cir. 

1983)(when property is outside bankruptcy court's possession and 

trustee claims no interest in property, bankruptcy court is 

without jurisdiction to adjudicate conflicting claims to ownership 

of property). 

Since the dispute is not otherwise related and would not 

affect the distribution of assets and administration 

bankruptcy estate, we hold the bankruptcy court 

jurisdiction to resolve the dispute between Mrs. Gardner 

of the 

lacked 

and the 

government regarding a lien on nonestate property. See In re 

Holland Indus., Inc., 103 Bankr. at 469; In re Dickenson Lines, 

Inc., 47 Bankr. 653, 656 (Bankr. D. Minn. 1985). To hold 

otherwise would lead 

bankruptcy court. 

to almost unlimited jurisdiction by the 

In re Dickenson Lines, Inc., 47 Bankr. at 656. 

7 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 9 
Either the federal district court or the state courts are the 

proper forum for resolving this dispute regarding property not 

belonging to Mr. Gardner. 

Because we conclude the bankruptcy court lacked jurisdiction 

to resolve the dispute between Mrs. Gardner and the government, we 

need not reach the government's argument that the lower courts 

erred in holding tpat Mrs. Gardner's interest in the nonexempt 

property had priority over the government's perfected tax lien. 

The judgment of the United States District Court for the 

District of Kansas is AFFIRMED to the extent it affirmed the 

bankruptcy court's determination that Mr. Gardner had no interest 

in the marital property after the final divorce decree. The 

judgment is VACATED, and the action is REMANDED with instructions 

to remand to the bankruptcy court to dismiss for lack of subject 

matter jurisdiction the portion of the bankruptcy court's opinion 

and judgment adjudicating the property rights of Mrs. Gardner and 

the government. 

ENTERED FOR THE COURT 

PER CURIAM 

8 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 10 
BRIGHT, J., dissenting. 

The majority today decides that a state court decree can 

divest a federal bankruptcy court of jurisdiction even though the 

bankruptcy court acquired jurisdiction at the commencement of the 

case. This ruling elevates state law over federal law in 

contravention of well settled principles and leads to an incorrect 

result. Accordingly, I dissent. 

Mrs. Gardner brought this action against Mr. Gardner's 

bankruptcy trustee and the Government seeking property of the 

estate held by the trustee. The Government objected on the 

grounds that it had a federal tax lien with priority over Mrs. 

Gardner's claim to the property. 

The majority concedes that at the start of the action the 

bankruptcy court had jurisdiction to determine whether to decide 

the controversy between Mr. Gardner and his divorced wife. 

Nevertheless, the majority decides that the state court decree 

awarding Mr. Gardner's property to Mrs. Gardner divested the 

bankruptcy court of jurisdiction to consider the Government's 

objection. Thus, under the majority's analysis, the court had 

jurisdiction over the action brought by Mrs. Gardner and could 

award her the property held by the trustee, but could not consider 

whether the Government had a superior claim to the property. 

The Internal Revenue Code "creates no property rights but 

merely attaches consequences, federally defined, to rights created 

under state law .... " United States v. Bess, 375 U.S. 51, 55 

(1958). The bankruptcy court and the district court misapplied 

this principle in deciding that Mr. Gardner had no interest in the 

1 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 11 
property of the estate and that the federal tax lien, which had 

previously attached to the property held by the trustee, somehow 

evaporated when the state court awarded the property to Mrs. 

Gardner. The majority recasts this analysis in jurisdictional 

terms, by deciding that the bankruptcy court no longer had 

jurisdiction over the property once it determined, based on the 

state decree, that Mr. Gardner no longer possessed ownership 

rights in the property. 

The analysis is flawed in my view. Once the bankruptcy court 

acquired jurisdiction over the debtor's property, that 

jurisdiction continued to determine all controversies relating to 

claims of any and all parties to that property. Thus, the 

bankruptcy court could determine the priorities between the 

parties. In this case, the bankruptcy court proceeded to decide 

the priority between the Government and Mrs. Gardner but erred in 

its determination. 

The bankruptcy court and the district court fail to recognize 

a line of Supreme Court cases directly governing this situation. 

In United States v. Security Trust & Savings Bank, 340 U.S. 47 

(1950), and its progeny,

1 the Supreme Court developed a set of 

principles to govern issues of priority between federal tax liens 

and security interests created by state law. This line of cases 

applies to the situation at hand because Mrs. Gardner's interest 

in the property at the time the federal tax lien attached upon 

1 See, e.g., United States v. Kimbell Foods, Inc., 440 U.S. 715 

(1979); United States v. Pioneer Am. Ins. Co., 374 U.S. 84 (1963); 

United States v. New Britain, 347 U.S. 81, 85 (1954). 

2 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 12 
examination represents nothing more than a type of security 

interest, regardless of the state law characterization of the 

interest as "a species of common or co-ownership .. II Smith 

v. AIFAM Enters., Inc., 737 P.2d 469, 474 (Kan. 1987). 

The effect of Mrs. Gardner's interest in relation to the 

federal tax lien presents a question of federal law. Security 

Trust, 340 U.S. at 50. Upon the filing of a divorce, Kansas law 

creates an interest in one spouse in all the property owned 

jointly by both spouses or owned individually by the other spouse. 

See Smith, 737 P.2d at 474; Kan. Stat. Ann.§ 23-201(b). 2 The 

extent of the interest created, 

determination by the divorce court. 

however, is subject to 

In other words, at the filing of the action one spouse gets 

an interest in the other spouse's property, but the extent of that 

interest, if any, depends upon the outcome of the divorce 

proceedings. Thus, there exists no significant distinction for 

federal tax lien purposes between the interest created under 

Kansas law and a traditional attachment lien filed at the 

beginning of a lawsuit. 

2 The Kansas Legislature adopted section 23-201 to avoid the 

result of the Supreme Court's decision in United States v. Davis, 

370 U.S. 65 (1962), holding that inchoate rights granted to a wife 

in the separate property of her husband do not reach the dignity 

of co-ownership, and thus, the transfer to the wife pursuant to a 

property settlement agreement of appreciated stock owned solely by 

the husband was a taxable event. See Wachholz v. Wachholz, 603 

P.2d 647 (Kan. Ct. App. 1979). Under the majority's 

jurisdictional analysis and the lower courts' analysis of the 

merits, section 23-201 now provides a loophole around federal tax 

liens also. 

3 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 13 
In Security Trust, the Supreme Court considered whether a 

federal tax lien takes priority over an attachment lien, where the 

federal tax lien was recorded subsequent to the date of the 

attachment lien, but prior to the date the attaching creditor 

obtained judgment. The Court held that the federal tax lien took 

priority in that case, despite having been filed later, because 

"[n]umerous contingencies might arise that would prevent the. 

attachment lien from ever becoming perfected by a judgment awarded 

and recorded. Thus the attachment lien is contingent or 

inchoate--merely a lis pendens notice that a right to perfect a 

lien exists." Security Trust, 340 U.S. at 50. 

Under the federal law of tax liens then, a competing lien 

must not only become effective first, it must be choate--"the 

identity of the lienor, the property subject to the lien, and the 

amount of the lien [must be] established"--in order to take 

precedence over a competing federal tax lien. United States v. 

New Britain, 347 U.S. 81, 84 (1954); see also United States v. 

Kimbell Foods, Inc., 440 U.S. 715, 721 (1979). In the case at 

hand, the.amount of Mrs. Gardner's interest in Mr. Gardner's 

property had not yet been established and thus remained inchoate 

at the time the federal tax lien became effective. Accordingly, 

the federal tax lien was entitled to priority and the Government's 

position in this appeal should be sustained. 3 

3 Moreover, under the analysis applied by the bankruptcy and 

district courts, a dishonest taxpayer could defeat a federal tax 

lien with the help of an equally dishonest spouse. 

4 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 14 
The district court's and bankruptcy court's error in this 

case resulted from viewing the facts of the case in hindsight. 

Both courts recognized that the federal tax lien attached only to 

Mr. Gardner's interest in the property. But the courts then asked 

what interest of Mr. Gardner's remained after the state court 

issued its divorce decree. The proper time frame for determining 

the extent of property to which a federal tax lien attaches, 

however, is the date on which the tax lien becomes effective. 

This is implicit in the Court's discussion in Security Trust of 

the doctrine of relation back: 

Nor can the doctrine of relation back--which by 

process of judicial reasoning merges the attachment lien 

in the judgment and relates the judgment lien back to 

the date of attachment--operate to destroy the realities 

of the situation. When the tax liens of the United 

States were recorded, [the creditor] did not have a 

judgment lien. He had a mere "caveat of a more perfect 

lien to come." 

340 U.S. at 50 (citation omitted). On the date that the tax lien 

in this case became effective, the date the Government recorded 

the tax lien, Mr. Gardner still had ownership rights in the 

property and the tax lien attached to those rights. 

The majority commits a similar error. As discussed above, 

the proper time frame for determining whether the Government's tax 

lien or Mrs. Gardner's interest takes priority is the date the 

Government recorded the tax lien. But the majority examines the 

case from a point later in time, after the state court awarded 

Mrs. Gardner virtually all of Mr. Gardner's property. This 

represents nothing more than a jurisdictional variant of the 

5 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 15 
doctrine of relation back, which the Supreme Court specifically 

rejected in Security Trust. 

. 

Moreover, it would be a waste of time for a bankruptcy court 

to bifurcate the proceedings in the unusual manner prescribed by 

the majority. Bankruptcy courts have jurisdiction to decide 

priority disputes between creditors claiming rights in property of 

the estate held by the trustee. At the time Mrs. Gardner brought 

this action seeking 

trustee, the court 

to be 

had 

awarded the 

jurisdiction 

property held by 

4 

over the property. 

.t~ 

The 

majority decides that the court could decide that Mrs. Gardner was 

entitled to the property but could not consider the Government's 

competing claim. In summary, my view is that once jurisdiction 

attached, that jurisdiction continued for the full resolution of 

the rights to the property. 

I would reverse the judgment of the district court and remand 

this case for entry of an appropriate judgment consistent with 

this dissenting opinion. 

4 I agree with the district court that Mrs. Gardner's suit and 

its disposition relates only to the nonexempt property held by the 

trustee. 

6 

Appellate Case: 89-3209 Document: 01019844415 Date Filed: 09/18/1990 Page: 16