UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

UNITED STATES OF AMERICA,

Plaintiff, Case No. 15-11247

Paul D. Borman

v. United States District Judge

BRIAN KRASICKY AND PNC BANK, N.A.,

Defendants.

______________________________/

OPINION AND ORDER 

GRANTING DEFENDANTS’ MOTION TO DISMISS (ECF NO. 10)

On April 1, 2015, the United States of America filed the instant civil action against

Defendants Brian Krasicky and PNC Bank, NA. (ECF No. 1.) The United States alleges that

Defendant Krasicky distributed assets of Page Distribution, Inc. in violation of 31 U.S.C. § 3713(b)

and that Defendant PNC Bank, as a successor in interest to National City Bank, inequitably received

funds to which the United States was entitled to priority pursuant to § 3713(a). 

Now before the Court is Defendants’ Motion to Dismiss. (ECF No. 10.) The United States

filed its response and Defendants thereafter filed their reply. (ECF Nos. 13 & 15.) A hearing on this

matter was held on Thursday, January 7, 2016 at 2:00 PM.

For the following reasons, the Court finds Defendants’ motion to dismiss should be

GRANTED.

I. BACKGROUND

On or about April 5, 2007, National City Bank loaned $10 million dollars to Page

Distribution, Inc. (“Page”). (Defs.’ Mot. Ex. 1, at PG ID 60, Promissory Note.) Thereafter, in 2008,

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 1 of 18 Pg ID 220
the loan was increased to $12.5 million. (Id. at PG ID 68, Modification of Promissory Note.) These

loans were secured by a Commercial Security Agreement dated July 18, 2001, in which National

City Bank was granted a security interest in all existing or later acquired assets, including inventory. 

(Id. at PG ID 97.) National City Bank then filed a UCC-1 financing statement with the Ohio

Secretary of State on February 22, 2001 reflecting this security interest. (Id. at PG ID 103-105.)

Ultimately, Page defaulted on its obligations to National City Bank because it had

insufficient assets to pay its liabilities. (Compl. ¶ 7; see Defs.’ Mot., Ex. 2, Order Granting Motion

of the Appointment of a Receiver (“Order of Appointment”), PG ID 107.) On March 9, 2009, the

Court of Common Pleas of Lucas County, Ohio granted National City Bank’s Motion for

Appointment of Receiver (“Receiver Order”) and appointed Defendant Brian Krasicky as the

Receiver of the business operations and assets of Page. (Order of Appointment at PG ID 107,

Compl. ¶ 6.) The Court of Common Pleas of Lucas County also held that “National City has

perfected security interests in all of [Page’s] personal property, business operations, including its

accounts receivables, contracts, and other intangibles.” (Defs.’ Mot., Ex. 2, Order Granting Motion

of the Appointment of a Receiver, PG ID, 107, at ¶ 1.) 

Pursuant to the Children’s Health Insurance Program Reauthorization Act of 2009, P.L. 111-

3, § 701(h) (2009), a floor stocks tax (“FST”) arose on tobacco products held by Page on April 1,

2009. (Compl. ¶ 8; see P.L. 111-3, § 701(h)(3)(A) “A person holding tobacco products, cigarette

papers, or cigarette tubes on April 1, 2009, to which any tax imposed by paragraph (1) applies shall

be liable for such tax.”).) This tax was due on August 1, 2009. (Compl. ¶ 9; P.L. 111-3, §

701(h)(3)(C) (“The tax imposed by paragraph (1) shall be paid on or before August 1, 2009.”).)

2

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 2 of 18 Pg ID 221
Defendant Krasicky, as Receiver, was responsible for filing returns and paying taxes that

arose from the operations of Page. (Compl. ¶ 10.) 

On July 31, 2009, Defendant Krasicky sent an “unsigned and incomplete form entitled ‘2009

Floor Stocks Tax Return’ to the Alcohol and Tobacco Tax and Trade Bureau.” (Compl. ¶¶ 12-13;

see also Defs.’ Mot., Ex. 5, 7/31/2009 Letter and Form.) This form was accompanied by a

document entitled “Page Distribution Federal Excise Tax Ending Inventory 3-31-09” and a letter

signed by Defendant Krasicky which provided that Page owed a FST liability of $437,459.15. 

(Compl. ¶ 13; Ex. 5, 7/31/2009 Letter, Form.)

It is undisputed that Defendant Krasicky, as Receiver for Page, did not make any payment

towards the FST liability and Plaintiff asserts that as of April 1, 2015, Page is indebted to the United

States for the tax, including penalties and interest, in the amount of $763,501.63. (Compl. ¶ 15.)

Plaintiff alleges that after April 1, 2009, and despite having notice of the FST liability, Defendant

Krasicky distributed more than the amount owed for the FST to “creditors other than the United

States, including PNC Bank.” (Id. ¶¶ 11, 19-20.) 

On April 1, 2015, the United States filed the current action against Defendants Krasicky and

PNC Bank, as a successor in interest to National City Bank. (Compl. ¶ 5.) The United States alleges

that Defendant Krasicky is personally liable for the FST and any penalties and interest pursuant to

31 U.S.C. § 3713(b) for “each distribution, to persons and entities other than the United States, of

Page Distribution, Inc.’s assets, to which the United States was entitled to priority under 31 U.S.C.

§ 3713(a).” (Compl. ¶ 21.) The United States also claims that Defendant PNC Bank is liable “for

restitution for each distribution that it or National City Bank received of Page Distribution, Inc.’s

assets to which the United States was entitled to priority under 31 U.S.C. § 3713(a), under Ohio law,

3

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 3 of 18 Pg ID 222
or under the Receiver Order.” (Id. ¶ 21.) 

II. STANDARDS OF REVIEW

FED. R. CIV. P. 12(b)(6) allows for the dismissal of a case where the complaint fails to state

a claim upon which relief can be granted. When reviewing a motion to dismiss under Rule 12(b)(6),

a court must “construe the complaint in the light most favorable to the plaintiff, accept its allegations

as true, and draw all reasonable inferences in favor of the plaintiff.” DirectTV, Inc. v. Treesh, 487

F.3d 471, 476 (6th Cir. 2007). But the court “need not accept as true legal conclusions or

unwarranted factual inferences.” Id. (quoting Gregory v. Shelby County, 220 F.3d 433, 446 (6th Cir.

2000)). “[L]egal conclusions masquerading as factual allegations will not suffice.” Eidson v. State

of Term. Dep’t of Children's Servs., 510 F.3d 631, 634 (6th Cir. 2007). 

The Supreme Court explained that “a plaintiff's obligation to provide the grounds of his

‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the

elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief

above the speculative level....” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal

citations omitted). Dismissal is only appropriate if the plaintiff has failed to offer sufficient factual

allegations that make the asserted claim plausible on its face. Id. at 570. In Ashcroft v. Iqbal, 556

U.S. 662 (2009) the Supreme Court clarified the concept of “plausibility” stating:

To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to “state a claim to relief that is plausible on its face.” [Bell Atlantic

Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007)]. A claim has facial plausibility

when the plaintiff pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged. Id. at 556. The

plausibility standard is not akin to a “probability requirement,” but it asks for more

than a sheer possibility that a defendant has acted unlawfully. Ibid. Where a

complaint pleads facts that are “merely consistent with” a defendant's liability, it

“stops short of the line between possibility and plausibility of ‘entitlement to relief.’”

Id., at 557 (brackets omitted).

4

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 4 of 18 Pg ID 223
Id. at 678. A plaintiff’s factual allegations, while “assumed to be true, must do more than create

speculation or suspicion of a legally cognizable cause of action; they must show entitlement to

relief.” LULAC v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citing Twombly, 550 U.S. at 555-

556) (emphasis in LULAC). Thus, “[t]o state a valid claim, a complaint must contain either direct

or inferential allegations respecting all the material elements to sustain recovery under some viable

legal theory.” Bredesen, 500 F.3d at 527 (citing Twombly, 550 U.S. at 562).

In addition to the United States’ allegations in its complaint, the Court will consider the

documents attached to Defendants’ motion and referenced in the pleadings: the filings in the Lucas

County Court of Common Pleas, including the Receiver’s Reports; the agreements between National

City Bank and Page; and Defendant Krasicky’s signed cover letter dated July 31, 2009. Although

these documents are outside the pleadings, the Sixth Circuit has recognized that a lower court “may

consider any matter of which a court may take judicial notice without converting a party’s motion

to dismiss into a motion for summary judgment.” Weiner v. Klais and Co., Inc., 108 F.3d 86, 88

(6th Cir. 1997). Further, the “documents that a defendant attaches to a motion to dismiss are

considered part of the pleadings if they are referred to in a plaintiff’s complaint and are central to

her claim.” Id. at 89. In a motion to dismiss, a court may also rely upon matters of public record.

See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Bassett v. Nat’l

Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th Cir. 2008). As the attached documents are

referenced in the United States’ complaint, central to its claims, and in the instance of the filings in

Lucas County Court of Common Pleas, are matters of public record; these documents will be

considered by the Court in evaluating the Defendants’ Motion to Dismiss.

5

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 5 of 18 Pg ID 224
III. ANALYSIS

A. Defendant Krasicky

The Federal Priority Statute (also sometimes referred to as the Federal Insolvency Statute)

provides: 

(a)(1) A claim of the United States Government shall be paid first when –

(A) a person indebted to the Government is insolvent and – 

(i) the debtor without enough property to pay all debts makes a

voluntary assignment of property;

(ii) property of the debtor, if absent is attached; or

(iii) an act of bankruptcy is committed; 

(B) the estate of a deceased debtor, in the custody of the executor or

administrator, is not enough to pay all debts of the debtor.

(2) This subsection does not apply to a case under title 11.

(b) A representative of a person or an estate (except a trustee acting under title

11) paying any part of a debt of the person or estate before paying a claim of

the Government is liable to the extent of the payment for unpaid claims of the

Government.

31 U.S.C. § 3713(a).

The United States argues that it has a claim for the FST imposed against the receivership

estate of Page. It further contends that the Receivership Order was an “act of bankruptcy” under the

Federal Priority Statute, and that Defendant Krasicky violated the same when he paid other debts

before the United States’ claim for the FST liability. (Pl.’s Resp. at 3.) 

The Federal Priority Statute “grants an unqualified priority of payment for all claims due to

the United States from an insolvent debtor.” Straus v. United States, 196 F.3d 862, 864 (7th Cir.

1999). The text of the statute has remained “virtually unchanged since its enactment in 1797.” 

6

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 6 of 18 Pg ID 225
United States v. Estate of Romani, 523 U.S. 517, 524 (1998). However, the Supreme Court has

concluded on several occasions that a specific policy set forth in a later federal statute should control

over the Federal Priority Statute, despite the fact that the Federal Priority Statute was not expressly

amended. Romani, 523 U.S. 517, 530-31 (1998) (finding that the specific provisions of the Tax Lien

Act of 1966 controlled when the United States claimed a preference in the insolvent estate of a

delinquent taxpayer); United States v. Guaranty Trust Co. of N.Y., 280 U.S. 478, 485 (1930) (finding

the Federal Priority Statute inapplicable to the insolvency of a railroad under the Transportation Act

of 1920). 

Here, Defendants rely upon the Supreme Court’s decision in Romani to argue that Count I

of the United States’ claim against Defendant Krasicky fails as a matter of law because the Tax Lien

Act of 1966, 26 U.S.C. § 6321, et seq. (the “Tax Lien Act”) provides that Defendant PNC Bank’s

perfected security interest has priority over the United States’ later tax lien. 

The Tax Lien Act provides that: 

If any person liable to pay any tax neglects or refuses to pay the same after demand,

the amount (including any interest, additional amount, addition to tax, or assessable

penalty, together with any costs that may accrue in addition thereto) shall be a lien

in favor of the United States upon all property and rights to property, whether real

or personal, belonging to such a person. 

26 U.S.C. § 6321. The Tax Lien Act further provides that: “[t]he lien imposed by section 6321 shall

not be valid as against any purchaser, holder of a security interest,1

 mechanic’s lienor, or judgment

1

 “Security Interest” is defined in 26 U.S.C. § 6323(h)(1) as “any interest in property

acquired by contract for the purpose of security payment or performance of an obligation or

indemnifying against loss or liability. A security interest exists at any time (A) if, at such time,

the property is in existence and the interest has become protected under local law against

subsequent judgment lien arising out of an unsecured obligation, and (B) to the extent that, at

such time, the holder has parted with money or money’s worth.”

7

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 7 of 18 Pg ID 226
lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by

the Secretary.”2 26 U.S.C. § 6323(a) (emphasis added).

Defendants argue that these provisions of the Tax Lien Act and the Federal Priority Statute

result in a “plain inconsistency,” because the Federal Priority Statute states that the United States

shall be paid first when the debtor is insolvent, but the Tax Lien Act provides that a federal tax lien

is not valid against an earlier “holder of a security interest” such as Defendant PNC Bank. 

Defendant contends that pursuant to § 6321, the United States’ FST liability became a tax lien upon

Defendant Krasicky’s failure to pay, and because Defendant PNC Bank was a “holder of a security

interest” (as recognized by the Ohio State Court in its order granting the motion for appointment of

a receiver), the FST lien was not valid against it without the required filing pursuant to § 6323(a).3

Defendants assert that the Supreme Court’s decision of United States v. Estate of Romani, 523 U.S.

517 (1998), resolved this conflict and held that the Tax Lien Act controls. 

In Romani, a court entered a judgment for $400,000 in favor of a third-party, Romani

Industries, and against Francis J. Romani. 523 U.S. at 519. This judgment was recorded and

therefore was, as a matter of state law, considered a “perfected” lien on Romani’s real property. Id. 

Thereafter, the IRS filed multiple tax liens on the same property in the amount of $490,000. Id. at

520. 

2

 Subsection (f) of this section provides that the notice shall be filed in the office within

the State as designated by the laws of such State where in the property (real or personal) subject

to the lien is situated, or with the clerk of the district court for the judicial district in which the

property subject to the lien is situated if the State has not designated an office. 26 U.S.C. §

6322(f).

3

 There does not seem to be any dispute that the United States did not file the required

filings pursuant to subsection (f).

8

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 8 of 18 Pg ID 227
When Romani died years later, his estate consisted of only $53,001. Id. Because Romani’s

property was “encumbered by both the judgment lien and the federal tax liens” the estate’s

administrator sought permission from the state court to transfer the property to the judgment creditor

in lieu of execution. Id. 

The Federal Government acknowledged that its tax liens were not valid as against

the earlier judgment lien; but giving new meaning to Franklin’s aphorism that “in

this world nothing can be said to be certain, except death and taxes,” it opposed the

transfer on the ground that the priority statute (§3713) gave it the right to “be paid

first.”

Id. (internal footnote omitted). The state courts then denied the Government’s objection to the

transfer and found an inconsistency between the Federal Priority Statute, that required that the

United States be paid first over all competing claims, and the Tax Lien Act which stated that a

federal tax lien is not valid against judgment lien creditors until certain notice is given. Id. 

In Romani, the Supreme Court examined the history of both the Tax Lien Act and the Federal

Priority Statute and clarified that “the proper inquiry is how best to harmonize the impact of the two

statutes on the Government’s power to collect delinquent taxes.” Id. at 523-30. The Supreme Court

reasoned that “the 1966 amendments to the Tax Lien Act bespeak a strong condemnation of secret

liens, which unfairly defeat the expectations of innocent creditors and frustrate ‘the needs of our

citizens for certainty and convenience in the legal rules governing their commercial dealings.’” Id.

at 534 (citation omitted). The Supreme Court ultimately held that the Tax Lien Act should control

and the prior judgment lien had priority over the United States’ federal tax liens. Id. 

The Romani decision resulted in an IRS “policy not to assert its priority under section §

3713(a) over a prior perfected interest that otherwise has priority under section 6323 of the Internal

Revenue Code.” IRS Chief Counsel Advice, 200210063, 2002 WL 368437 (March 8, 2002)

9

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 9 of 18 Pg ID 228
(attached as Defs.’ Ex. 7). Indeed, the IRS Manual provides that “The Federal Priority Statute does

not apply if, before the insolvency proceeding begins, another person has obtained an interest in the

property that would prevail over the federal tax lien under IRC 6323.” IRM, 5.17.13.3, at (1) (07-

09-2012) (attached as Pl.’s Ex. 1). The IRS Manual goes on to clarify that:

(b) Under IRC 6323(a), the following creditors prevail unless the IRS has filed

a Notice of Federal Tax Lien: (a) purchasers, (b) holders of security interests,

(c) mechanic’s lienors, and (d) judgment lien creditors. Generally, creditors

meeting the requirements in IRC 6323(a), (b), (c), or (d), will have a higher

priority claim than the IRS if the creditor’s interest arises prior to the

insolvency proceeding and prior to the filing of the Notice of Federal Tax

Lien. 

...

(d) The general rule is that if the creditor would prevail against the IRS under

IRC 6323 outside of an insolvency, it will also prevail against the IRS in the

insolvency.

Id. at (1)(b), (d).

The United States attempts to distinguish Romani by arguing that the FST liability is not a

“tax lien” for purposes of § 6323(a), but rather must be considered an “administrative expense” that

arose during the receivership. Therefore, the United States contends that the FST liability does not

fit into one of the narrow provisions (i.e., purchaser, holder of security, mechanic’s lienor, or

judgment creditor) of the Tax Lien Act. The United States then argues that there is a difference

between pre-receivership and post-receivership priority. 

In Romani, it was agreed by the parties that by the terms of § 6323(a) the federal liens “were

not valid against the lien created by the earlier recording of Romani Industries’ judgment.” Id. at

524. In the instant action, the United States does not concede that its FST liability is invalid against

the earlier perfected security interest of Defendant PNC Bank - rather, the United States argues that

10

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 10 of 18 Pg ID 229
the Tax Lien Act does not apply because the FST liability is an “administrative expense” versus a

“tax lien.” 

At its base, the United States’ argument rests upon finding the timing of the tax accrual

dispositive. The United States claims that because the FST accrued after the receivership order was

entered, it must be classified as an “administrative expense,” and pursuant to Ohio case law (all

predating 1966) secured creditors are not protected from such an expense. The United States argues

that the Tax Lien Act recognizes such a scheme in its definition of “security interest” which provides

that a security interest exists “if, at such time, the property is in existence and the interest has

become protected under local law...” 26 U.S.C. § 6323(h)(1). The United States contends that this

indicates that the validity of the security interest is relative to whether it would be protected under

local law from a similarly situated creditor. (ECF No. 13, Pl.’s Br. at 6-7.)

First, it appears from the clear terms of the Tax Lien Act that Defendant PNC Bank had a

security interest in Page’s assets. Its interest was recorded in 2001 and later recognized as

“perfected” by an Ohio Court. The United States argues that a secured interest only exists to the

extent that it is generally protected by local law, and here, local law would allow the payment of

administrative expenses, and therefore, Defendant PNC Bank does not have a security interest

against administrative expenses. This argument ignores the rest of the pertinent statutory definition

that provides a “security interest” exists if “the interest has become protected under local law against

a subsequent judgment lien arising out of an unsecured obligation.” 26 U.S.C. § 6323(h)(1)

(emphasis added). The statutory definition of “security interest” does not indicate that a security

interest is dependent upon the relative position of the creditor. Rather, the definition states, clearly,

that a security interest exists where the interest is protected under local law “against a subsequent

11

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 11 of 18 Pg ID 230
judgment lien.” Here, it is not disputed that Defendant PNC Bank’s interest was protected against

a later arising judgment lien arising out of an unsecured obligation. Accordingly, the United States’

reliance on this statutory definition does not further its case.4

The United States relies upon Southern Railroad Co. v. United States, 306 F.2d 119 (5th Cir.

1962) for the proposition that taxes should be construed as administrative expenses if the tax accrues 

after receivership. In Southern Railroad, the Fifth Circuit addressed the issues of tax priority and

administrative costs in the context of a railroad that was subject to an equity receivership for

decades. The lower court “allowed the tax claims of the United States and various State political

entities to share pro rata the whole of this balance [for distribution] as partial, but preferential,

payment of their allowed claims.” Id. at 122. The holder of all bonds and “disappointed business

creditor” Southern Railway Company appealed and argued that “the mortgage lien is superior to tax

claims as there can be no question of equitable priority or apportionment” and failing that status

sought to have the Fifth Circuit evaluate the “relative priority” between its claims and the tax claims. 

Id. at 123. Critically, in Southern Railroad, the Fifth Circuit recognized that “the tax claims are not

asserted in the usual terms of a lien having an absolute statutory priority. Thus, the Federal

Government candidly acknowledges that it does not in any way rely on” the Federal Priority Statute

and that is a “forthright recognition of at least this fact of life that this statutory priority gives way

4

 The Court notes that while the United States argues that state law should be controlling

regarding whether a the FST is considered an administrative expense versus a tax lien, the

United States dismisses the Receivership Order entered by the Ohio state court in this action

which gave the receiver discretion regarding the payment of taxes accruing after the receivership

was created on the basis that federal law controls priority (see Pl.’s Br. at 9). Here, the Tax Lien

Act defines a tax lien and the statute does not on its face make exceptions for state law

administrative expenses or reference the timing of the accrual of the tax lien in reference to its

validity against prior secured interests. 

12

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 12 of 18 Pg ID 231
to a valid recorded first mortgage.” Id. (emphasis added) (citing 31 U.S.C.A. § 191 and 31 U.S.C.

§ 3466, earlier versions of 31 U.S.C. § 3713.) In the present action, however, the United States

claims priority for its one-time tax pursuant to the Federal Priority Statute, in the face of a perfected

security interest as defined by the Tax Lien Act. Additionally, the parties themselves agreed that

the payroll taxes at issue “should be classified as operating expenses of the Railroad,” while in the

present action, there is no agreement between the parties that the one time FST should constitute an

administrative expense. 

The United States also argues that the inconsistency in Romani only arises when a tax lien

arises before a receivership. However, the Court finds that the pertinent issue in this case is not the

timing of the liability but whether it falls within the ambit of the federal Tax Lien Act, i.e. whether

the FST liability is a “tax lien.” As defined by the Tax Lien Act, it appears that the FST liability

became a tax lien automatically when the tax was assessed and not paid after demand. See United

States v. Galletti, 541 U.S. 114, 118, 122 (2004) (discussing and explaining the “assessment” of

taxes under the federal system, summarizing an assessment occurs “where the Secretary rejects the

self-assessment of the taxpayer or discovers that the taxpayer has failed to file a return, the Secretary

calculates the proper amount of liability and records it in the Government’s books.”). The United

States admitted during oral argument that a lien was “incidentally created” through the United

States’ demand for payment of the FST. 

While true that this case does not implicate the concerns of “secret liens” that the Supreme

Court warned of in Romani, it appears that upon its plain terms, the Tax Lien Act controls where the

FST was a “tax lien” pursuant to § 6321. Further, while the United States cites the IRS Manual to

support its paradigm of post-receivership taxes being distinguishable from pre-receivership taxes,

13

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 13 of 18 Pg ID 232
the IRS Manual does not actually support such an interpretation and in fact states in no uncertain

terms: “The general rule is that if the creditor would prevail against the IRS under IRC 6323 outside

of an insolvency, it will also prevail against the IRS in the insolvency.” IRM 5.17.13.3 (1)(d). In

the present case, outside of an insolvency, the Defendants’ perfected interest would prevail against

the FST tax lien. 

The United States relies upon Southern Railroad Co. v. United States, 306 F.2d 119 (5th Cir.

1962), for the proposition that taxes should be construed as administrative expenses if the tax

accrues after receivership. The Court finds Southern Railroad is distinguishable. In Southern

Railroad, the Fifth Circuit addressed the issues of tax priority and administrative costs in the context

of a railroad that was subject to an equity receivership for decades. The lower court “allowed the

tax claims of the United States and various State political entities to share pro rata the whole of this

balance [for distribution] as partial, but preferential, payment of their allowed claims.” Id. at 122. 

The holder of all bonds and “disappointed business creditor” Southern Railway Company appealed

and argued that “the mortgage lien is superior to tax claims as there can be no question of equitable

priority or apportionment” and failing that status sought to have the Fifth Circuit evaluate the

“relative priority” between its claims and the tax claims. Id. at 123. Critically, in Southern

Railroad, the Fifth Circuit recognized that “the tax claims are not asserted in the usual terms of a

lien having an absolute statutory priority. Thus, the Federal Government candidly acknowledges

that it does not in any way rely on” the Federal Priority Statute and that is a “forthright recognition

of at least this fact of life that this statutory priority gives way to a valid recorded first mortgage.” 

Id. (emphasis added) (citing 31 U.S.C.A. § 191 and 31 U.S.C. § 3466, earlier versions of 31 U.S.C.

§ 3713.) In the present action, however, the United States claims priority for its one-time tax

14

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 14 of 18 Pg ID 233
pursuant to the Federal Priority Statute, in the face of a perfected security interest as defined by the

Tax Lien Act. Additionally, the parties themselves agreed in Southern Railroad that the payroll

taxes at issue “should be classified as operating expenses of the Railroad,” while in the present

action, there is no agreement between the parties that the one time FST should constitute an

administrative expense. Southern Railroad, 306 F.2d at 127-28. 

Further, to the extent that the United States relies upon Law Offices of Jonathan A. Stein v.

Cadle Co., 250 F.3d 716 (9th Cir. 2001) and Straus v. United States, 196 F.3d 862 (7th Cir. 1999),

such reliance is misplaced because both cases are consistent with Defendants’ argument and do not

speak to administrative expenses or the relevance of a when a tax lien accrues. 

In Cadle, a taxpayer incurred a tax liability to the United States and the government

attempted to levy his compensation. Cadle, 250 F.3d at 718. The employer refused to honor the

levy and continued to pay the taxpayer. Id. The government then sued to enforce the levy on that

taxpayer’s wages and obtained a judgment pursuant to 26 U.S.C. § 6332(d). However, prior to the

United States filing a notice of lien and judgment as required by state law, a different party had

successfully sued the employer on an unrelated matter and filed his judgment with the Secretary of

State. Id. Both of the parties claimed priority; the judgment creditor under the Tax Lien Act and

the government under the Federal Priority Statute. The Ninth Circuit held that the government did

not have a tax lien as described in § 6321 against the employer and therefore, the Tax Lien Act was

not applicable and the Federal Priority Statute controlled. Specifically, the Ninth Circuit explained: 

The IRS is given authority to assess taxes, and must do that in a particular manner. 

See 26 U.S.C. §§§6201-6204. Thereafter, it must give notice to the taxpayer and

demand payment. See id. §6303. If the tax is not paid, the lien provided for in 26

U.S.C. § 6321 springs into being. Under § 6323, notice of that “secret lien” against

the taxpayer’s assets must be given.

15

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 15 of 18 Pg ID 234
Id. at 719. The Ninth Circuit then distinguished the liability at issue, “failure to surrender property

subject to a levy” verus the creation of a tax lien, noting that “Quicksilver did not fail to pay a tax;

it failed to honor a levy. It did not become liable for a tax; it became liable for the value of the

property it failed to turn over.” Id. at 720. 

In the present action, although the United States expends much effort in casting its FST

liability as an “administrative expense” it appears on its face that the FST is a tax that arose against

Page, that was owed, demanded, and not paid. At that time, under the terms of the Tax Lien Act,

the FST became a “tax lien.” Therefore, unlike Cadle, which involved a judgment to enforce a levy,

the present action involves the failure to pay a tax after demand. For this reason, the United States’

reliance on Cadle is unpersuasive. 

In Straus, a furniture retailer entered into an assignment for the benefit of creditors with

Anita Straus, who then liquidated the assets of the corporation. Straus, 196 F.3d at 863. Prior to

the assignment the retailer had been liable to both the United States and Illinois for unpaid taxes. 

Id. The United States and Illinois both claimed priority over the net proceeds of the liquidation of

the retailer. Id. All but one of Illinois’ assessments predated the United States assessments, and

based on this fact, Illinois argued that it had priority over the United States claims. Id. at 864. The

Seventh Circuit examined the recent Supreme Court decision in Romani, but rejected Illinois’

argument that Romani should be interpreted broadly based on policy concerns “to protect choate

liens from later-arising federal tax liens” based on “the policies of protecting commercial

expectations and the uniform treatment of solvent and insolvent taxpayers alike.” Id. The Seventh

Circuit concluded that while the Supreme Court did justify its decision in Romani with reference to

policy concerns, “it ultimately relied on the long-standing proposition noted above that the general

16

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 16 of 18 Pg ID 235
federal priority rule should give way to a specific, inconsistent provision in a later federal statute.” 

Id. at 865-66 (citation omitted). The Seventh Circuit found that Illinois had failed to show “its tax

liens fall within the specifically enumerated categories in the Tax Lien Act” or any other later

statutory provision that was inconsistent with the Federal Priority Statute. Id. at 866.

The United States’ reliance on Straus is misplaced. In Straus, Illinois based its arguments

solely upon the policy concerns regarding the protection of commercial expectations regarding

choate liens against solvent and insolvent taxpayers. More to the point, the Seventh Circuit found

for the federal government because Illinois’ tax liens did not fall within one of the enumerated

categories in the Tax Lien Act. Here, while it is true that the policy concern in Romani regarding

secret liens is not present, it is undisputed that Defendant PNC was a holder of a perfected security

interest and therefore falls within one enumerated categories of § 6323(a). 

In summary, the United States’ reliance on the Straus and Cadle decisions are unpersuasive. 

Further, while the United States attempts to categorize the federal tax that accrued during the

receivership as an administrative expense pursuant to state law, the FST became a “tax lien”

pursuant to the clear terms of the Tax Lien Act when the government made its demand for payment

that went unheeded. The Tax Lien Act controls over Ohio’s treatment of post-receivership taxes. 

In such a situation, the Court finds that pursuant to Romani the United States’ FST tax lien is not

valid against Defendant PNC’s earlier recorded security interest.

Accordingly, the Court finds that under the clear terms of the Tax Lien Act and Romani, the

United States’ claim against Defendant Krasicky fails as a matter of law. 

17

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 17 of 18 Pg ID 236
B. Defendant PNC Bank

The Court notes that there is no dispute that the claim against Defendant PNC Bank is a

derivative claim that rises and falls upon the liability of Defendant Krasicky. Accordingly, where

the Court has found that the claim against Defendant Krasicky fails as a matter of law, the claim

against Defendant PNC Bank also fails. 

IV. CONCLUSION

For all these reasons, the Court GRANTS Defendant’s Motion to Dismiss (ECF No. 10). 

IT IS SO ORDERED.

s/Paul D. Borman 

PAUL D. BORMAN

UNITED STATES DISTRICT JUDGE

Dated: March 30, 2016

CERTIFICATE OF SERVICE

The undersigned certifies that a copy of the foregoing order was served upon each attorney or party

of record herein by electronic means or first class U.S. mail on March 30, 2016.

s/Deborah Tofil 

Case Manager

18

2:15-cv-11247-PDB-RSW Doc # 16 Filed 03/30/16 Pg 18 of 18 Pg ID 237