Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-93-05269/USCOURTS-ca10-93-05269-0/pdf.json

Parties Involved:
LMS Holding Company
Appellee
Petroleum Marketing Company
Appellee
Retail Marketing Company
Appellee
United States of America
Appellant

Document Text:

PUBLISH 

UNITED STATES COURT OF 

TENTH CIRCUIT 

In re: LMS HOLDING COMPANY, PETROLEUM 

MARKETING COMPANY, and RETAIL MARKETING 

COMPANY, 

Debtors. 

UNITED STATES OF AMERICA, ) 

) 

Appellant, ) 

) 

v. ) 

) 

LMS HOLDING COMPANY, PETROLEUM MARKETING) 

COMPANY, and RETAIL MARKETING COMPANY, ) 

) 

Appellees. ) 

. F I leo! P,Appta~ Ualted S~!~b Circuit 

APPEALS APR 0 4 1995 

PATRICK FlSH~R C\~rk 

No. 93-5269 

Appeal from the United States District Court 

for the Northern District of Oklahoma 

(D.C. No. 92-C-1198-B) 

Thomas J. Clark, Attorney, Tax Division (Loretta C. Argrett, Assistant Attorney General; Of counsel: Stephen Charles Lewis, 

United States Attorney; Gary D. Gray, Attorney, Tax Division, 

Department of Justice, Washington, D.C., with him on the briefs) 

for Appellant. 

Thomas A. Creekmore III (Pamela H. Goldberg, also of Hall, Estill, 

Hardwick, Gable, Golden & Nelson, Tulsa, Oklahoma, with him on the 

brief) for Appellees. 

Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 1 
Before BALDOCK and LOGAN, Circuit Judges.* 

LOGAN, Circuit Judge. 

The United States appeals the bankruptcy court's decision, 

affirmed by the district court, granting summary judgment for 

plaintiffs LMS Holding Company, Petroleum Marketing Company, and 

Retail Marketing Company (RMC) (collectively, debtors). The only 

issue on appeal is whether RMC was entitled to avoid an Internal 

Revenue Service (IRS) lien thereby leaving the IRS with only an 

unsecured claim against RMC. We have jurisdiction pursuant to 28 

u.s.c. § 158 (d). See Adelman v. Fourth National Bank and Trust 

Company (In re Durability, Inc.), 893 F.2d 264, 266 (lOth Cir. 

1990).1 

The IRS perfected a notice of federal tax lien against MAKO, 

Inc. based on assessments for unpaid federal taxes of more than 

$330,000. MAKO later filed a petition for relief under Chapter 11 

of the Bankruptcy Code. Pursuant to the MAKO plan of liquidation 

(MAKO Plan), RMC, an unrelated entity, acquired all of the assets 

of the MAKO bankruptcy estate and assumed all of MAKO's secured 

* The late Honorable Juan G. Burciaga, United States District 

Judge, United States District Court for the District of New Mexico, sitting by designation, heard oral argument in this case but 

did not participate in the final decision. 

1 The United States filed a notice of appeal from the district 

court's order affirming the bankruptcy court's determination that 

RMC was entitled to avoid the lien of the United States. The 

bankruptcy court then found, pursuant to Bankruptcy Rule 7054(a) 

and Fed. R. Civ. P. 54(b), that although it had not yet adjudicated other claims and cross-claims raised by parties in this 

adversary proceeding, there was no just reason for delaying 

adjudication of the debtors' dispute with the United States. 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 2 
liabilities. The IRS consented to the liquidation plan and the 

parties agree that it retained its lien against the property 

securing the IRS claim. The IRS interests were represented 

through counsel during the administration of the MAKO bankruptcy. 

The bankruptcy court confirmed the MAKO plan in August 1989. The 

IRS never filed any federal tax lien notices in the name of RMC. 

In September 1991 RMC, together with LMS Holding Company and 

Petroleum Marketing Company, filed Chapter 11 bankruptcy petitions. Thereafter the debtors jointly filed a complaint alleging 

they were entitled to avoid the federal tax lien on assets RMC 

acquired from MAKO. The bankruptcy court found that RMC was 

entitled to avoid the IRS lien under 11 U.S.C. § 544(a) (1), and 

the district court affirmed that decision. 

We review the district court's grant of summary judgment 

under the same standards that governed the district court's 

review. United States v. Berger (In re Tanaka Bros. Farms, Inc.), 

36 F.3d 996, 998 (lOth Cir. 1994). "Summary judgment is appropriate if 'there is no genuine issues as to any material fact and 

. . . the moving party is entitled to a judgment as a matter of 

law.'" Hagelin for President Committee v. Graves, 25 F.3d 956, 

959 (lOth Cir. 1994) (quoting Fed. R. Civ. P. 56 (c)), cert. 

denied, 115 S. Ct. 934 (1995). 

The Bankruptcy Code provides that a trustee has the right 

"without regard to any knowledge of the trustee or of any creditor" to avoid "any obligation incurred by the debtor that is 

voidable by . [a subsequent judgment lien creditor] or a bona 

fide purchaser of real property . . . [who] has perfected such 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 3 
transfer at the time of the commencement of the case, whether or 

not such a purchaser exists." 11 U.S.C. § 544(a). More specifically as to lien avoidance, 11 U.S.C. § 545(2) provides that 

"[t]he trustee may avoid the fixing of a statutory lien on prop-

~rty of the debtor to the extent that such lien . . is not 

perfected or enforceable at the time of the commencement of the 

case against a bona fide purchaser that purchases such property at 

the time of the commencement of the case, whether or not such a 

purchaser exists."2 A debtor in possession in a Chapter 11 proceeding, as here, has essentially the same rights, powers and 

duties of a bankruptcy trustee. See 11 U.S.C. § 1107(a). We must 

determine whether the federal tax lien was perfected as against a 

hypothetical bona fide purchaser at the time RMC filed for bankruptcy. 

A federal tax lien arises when a person fails to pay assessed 

taxes; the amount due becomes a lien on "all property and rights 

to property" belonging to the person assessed. I.R.C. § 6321. 

However, this lien is not "valid as against any purchaser .. or 

judgment lien creditor until notice thereof which meets the 

requirements of subsection (f) has been filed by the Secretary." 

Id. § 6323(a). The first two subsections of§ 6323(f) provide for 

filing as the state of locus requires when, as here, the state has 

applicable law. It is undisputed that the IRS properly filed its 

2 In their summary judgment motion debtors relied on 11 U.S.C. 

§ 544; the bankruptcy and district courts also applied § 544. 

While we believe that the more specific provision for avoidance of 

statutory liens under § 545 is applicable here, either section 

provides the same avoidance power. 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 4 
lien against MAKO in Oklahoma, and apparently also in other states 

in which MAKO had property.3 

Subsection 6323(f) (3) provides that "[t]he form and content 

of the notice referred to in subsection (a) shall be prescribed by 

the Secretary. Such notice shall be valid notwithstanding any 

other provision of law regarding the form or content of a notice 

of lien." The regulations promulgated under this statute require 

that the notice of lien be filed on a Form 668 "Notice of Federal 

Lien under Internal Revenue Laws" and "identify the taxpayer, the 

tax liability giving rise to the lien, and the date the assessment 

arose." Treas. Reg. § 301.6323 (f) -1 (d) (1) and (2). These 

"statutory" regulations have the force and effect of law. United 

States v. Correll, 389 U.S. 299, 305-06 (1967). 

As debtors acknowledge, the filing of the tax lien notice 

naming MAKO as taxpayer perfected a lien against MAKO, and that 

lien "continued in the actual assets transferred by MAKO to RMC. 

As a result, the tax lien against MAKO followed the MAKO assets 

into the hands of RMC and was enforceable against RMC prior to 

RMC's bankruptcy." Answer Brief of Appellees at 20-21; see United 

3 Oklahoma has adopted the Uniform Federal Lien Registration Act, 

Okla. Stat. Ann. tit. 68, §§ 3401-3407, which requires filing 

notices of liens on real property in the office of the county 

clerk where the property is located. Liens on personal property 

of corporations with their principal executive office in Oklahoma 

are filed in the office of the county clerk of Oklahoma County, 

Oklahoma. Id. § 3403B, C. Apparently the IRS filed notices of 

federal tax liens against MAKO in Arkansas, Missouri and Kansas as 

well. See Appellee's Supp. App. tab 6 at 3. The arguments and 

briefs focused on the Oklahoma filings, which we discuss here. 

The rulings we make, based on the Internal Revenue Code, are 

equally applicable to notices filed in other states, and inform 

the district court's analysis on remand as to claims made against 

assets located in those states. 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 5 
States v. Bess, 357 U.S. 51, 57-59 (1958); United States v. Cache 

Valley Bank, 866 F.2d 1242, 1244-45 (lOth Cir. 1989). But the 

bankruptcy and district courts determined that when debtors filed 

for bankruptcy the lien was not valid against a hypothetical bona 

fide purchaser from RMC. Those courts reasoned that when RMC 

assumed federal tax liabilities secured by the lien against MAKO, 

RMC became "the taxpayer"; that to comply with I.R.C. § 6323 (f) 

and the corresponding regulations, the IRS was required to refile 

or correct the lien notice by substituting "RMC" for "MAKO" as the 

taxpayer in order to preserve its priority.4 

In holding that the lien was "unperfected as the IRS failed 

to file a new notice of tax lien showing RMC as the new taxpayer," 

App. 30, the bankruptcy court relied on Davis v. United States, 

705 F. Supp. 446 (C.D. Ill. 1989), and United States v. Clark, 81-

1 T.C.M. (CCH) ' 9406 (S.D. Fla. 1981). Both Davis and Clark 

involved changes in a woman's name when she married, in circumstances in which the court found that the IRS had clear notice of 

the taxpayers' name change. The bankruptcy court reasoned that 

the IRS's duty to file a notice of tax lien against RMC was "even 

more compelling [than in the name change cases] because there was 

not only a name change, but a total change in the taxpayer entity." App. 30. We do not agree. 

4 Under the MAKO Plan, RMC became contractually responsible for 

MAKO's tax debt. When RMC failed to meet those obligations, the 

IRS could have made a demand for payment, and if RMC did not pay, 

a lien would have arisen under I.R.C. § 6321. The IRS then could 

have filed a notice of federal tax lien against RMC, and if the 

notice met the requirements of § 6323, the lien would have 

attached to all assets of RMC, and would have been perfected and 

enforceable against a hypothetical bona fide purchaser or later 

perfect judgment lien creditor. 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 6 
The name change cases are distinguishable because in them 

there truly was a change in the identity of "the taxpayer." RMC 

is not a new entity emerging from the bankruptcy of MAKO, analogous to a change of identity. Rather, RMC is "an unrelated third 

party entity," LMS Holding Co. v. Core-Mark Mid-Continent. Inc., 

No. 94-5130, 1995 WL 113351 at *2 (lOth Cir. March 16, 1995), to 

which the assets of MAKO were transferred. That RMC also assumed 

MAKO's liabilities does not make it "the taxpayer." An entity in 

RMC's position, purchasing another corporation's assets and 

assuming its liabilities, whether in a bankruptcy reorganization 

or otherwise, has long been characterized as the transferee and 

not the taxpayer. See, ~, California Iron Yards Corp. v. 

Commissioner of Internal Revenue, 82 F.2d 776, 779 (9th Cir.), 

cert. denied, 299 U.S. 553 (1936); Continental Baking Co. v. 

Helvering, 75 F.2d 243, 244 (D.C. Cir. 1934), cert. denied, 295 

U.S. 756 (1935); Helvering v. Wheeling Mold & Foundry Co., 71 F.2d 

749, 752 (4th Cir.), cert. denied, 293 U.S. 603 (1934). 

Our conclusion that RMC is not the taxpayer, however, does 

not resolve the question of the need to refile. The regulations 

do not speak directly to the need to refile against the transferee 

in circumstances like that before us. The only provisions in 

§ 6323 that specifically reference refiling relate to time limits, 

requiring refiling essentially every eleven years. I.R.C. 

§ 6323(g). Nevertheless, Congress was concerned with the problem 

of notice to those who deal with debtors whose property is subject 

to the government's tax lien. 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 7 
I.R.C. § 6323(f) {4) answers the refiling question, we 

believe, in the context of tax liens against real estate. When 

the state maintains an adequate system for public indexing of 

federal tax liens, the bona fide purchaser of real estate prevails 

unless the notice of lien is "entered and recorded in [a public 

index at the place of filing] in such a manner that a reasonable 

inspection of the index will reveal the existence of the fien." 

Because Oklahoma has adopted the Uniform Federal Lien Registration Act, it apparently has a satisfactory method of indexing 

federal tax liens. MAKO's ownership of the realty presumably was 

recorded. Thus, the government's tax lien filed against MAKO 

would show in any search of the chain of title by a person buying 

real property from MAKO's transferee, RMC. In those 

circumstances--because any purchaser would be considered to have 

notice of the unreleased tax lien against MAKO, RMC's predecessor 

in the title--§ 6323 (f) (4) dictates that the government's lien 

would be valid against the debtor in possession of RMC's bankruptcy estate. 

The Internal Revenue Code is less explicit as to refiling 

against a transferee when the lien is against personal property. 

But we believe § 6323 provides a method of analysis that we can 

5 Both the Davis and Clark cases, relied upon by the bankruptcy 

and district courts, involved real estate and bona fide purchasers 

who took the property without actual knowledge of the taxpayers' 

name changes. Importantly, in both cases a search of the filing 

record would not show the lien against the taxpayer in the chain 

of title. In Clark, the real property at issue was acquired in 

the changed name after the marriage. In Davis, at the time the 

federal tax lien was filed the real property was titled in the 

name of a trustee who later conveyed it to taxpayer under her 

changed married .name. 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 8 
utilize to determine the refiling requirement. The relative 

priority of a federal lien for unpaid taxes is a matter of federal 

law. United States v. Equitable Life Assurance Society, 384 U.S. 

323, 330 (1966). But I.R.C. § 6323(h) (6) defines "purchaser" for 

purposes of federal tax lien avoidance as "a person who, for 

adequate and full consideration in money or money's worth, 

acquires an interest (other than a lien or security interest) in 

property which is valid under local law against subsequent purchasers without actual notice." (emphasis added). Thus, the 

federal law looks to state law to define the rights of a bona fide 

purchaser--the position occupied by a bankruptcy trustee or debtor 

in possession under Chapter 11. See Woodson v. Utica Square Nat'l 

Bank of Tulsa (In re McClain), 447 F.2d 241, 243-44 (lOth Cir. 

1971) (bankruptcy trustee "is in the position of a third-party 

lien creditor without notice. His priority is determined by the 

substantive law of the state where the property is located."), 

cert. denied, 405 U.S. 918 (1972). 

Under the Uniform Commercial Code, adopted in Oklahoma, a 

lien creditor has priority over an unperfected secured creditor. 

Okla. Stat. Ann. tit. 12A, § 9-301(1) (b), (3). To acquire a 

perfected security interest the creditor must file a financing 

statement describing the collateral subject to the security 

interest and naming the debtor. Id. §§ 9-302(1), 9-402(1). A 

federal tax lien becomes a lien on all property of the debtor, so 

the property need not be described. But I.R.C. § 6323(f) (1) (A) 

(ii) contemplates essentially the same kind of filing, under state 

law, to perfect the lien against a debtor's personal property. On 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 9 
the need to refile after a transfer of the property subject to the 

secured interest, Okla. Stat. Ann. tit. 12A, § 9-402(7) states 

that "[a] filed financing statement remains effective with respect 

to collateral transferred by the debtor even though the secured 

party knows of or consents to the transfer."6 This statement was 

added to the Uniform Commercial Code in 1972, and adopted in 

Oklahoma in 1981. The official UCC Comment 8 to the addition 

states the following: 

Subsection (7) also deals with a different problem, 

namely whether a new filing is necessary where the 

collateral has been transferred from one debtor to 

another. This question has been much debated both in 

pre-Code law and under the Code. This Article now 

answers the question in the negative. Thus, any person 

searching the condition of the ownership of a debtor 

must make inquiry as to the debtor's source of title, 

and must search in the name of a former owner if circumstances seem to require it. 

Under this analysis a purchaser from RMC would have a duty to ask 

RMC's source of title--here MAKO--and search under MAKO's name for 

liens. Such a search would reveal the government's tax lien. 

We have recently dealt with this issue in the instant bankruptcy proceedings, with respect to a nongovernment creditor. We 

held that the creditor's security interest remained perfected in 

collateral actually transferred to RMC under the MAKO plan, LMS 

Holding Co. at *3, but that a new filing naming RMC would be 

required to establish the security interest in RMC's afteracquired property. Id. at *5. 

6 Cf. Okla. Stat. Ann. tit. 12A, § 9-302(2). "If a secured party 

assigns a perfected security interest, no filing as provided for 

in this article is required to continue the perfected status of 

the security interest against creditors of and transferees from 

the originaf debtor." (emphasis added). 

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Appellate Case: 93-5269 Document: 01019282927 Date Filed: 04/04/1995 Page: 10 
Consistent with LMS Holding Co., we here hold that the government's tax lien remained perfected in the assets transferred to 

RMC from the MAKO bankruptcy, but that property acquired by RMS 

after the transfer would not be subject to the tax lien because 

the IRS did not refile against RMS. 

REVERSED and REMANDED for further proceedings consistent 

herewith. 

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