United States Court of Appeals

For the First Circuit

No. 99-2028

UNITED STATES OF AMERICA,

Plaintiff, Appellee,

v.

JUDITH E. MURRAY,

Defendant, Appellant.

__________

MICHAEL E. MURRAY, EASTERN SAVINGS BANK,

HOUSEHOLD FINANCE CORPORATION, LEP PROFIT INTERNATIONAL

INCORPORATED, 

Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Richard G. Stearns, U.S. District Judge]

Before

 Boudin, Circuit Judge,

Bownes, Senior Circuit Judge,

and Stahl, Circuit Judge.

John C. Ottenberg with whom Ottenberg, Dunkless, Mandl & Mandl

LLP was on brief for appellant.

Annette M. Wietecha, Tax Division, Department of Justice, with

whom Paula M. Junghans, Acting Assistant Attorney General, Donald

K. Stern, United States Attorney, and Kenneth L. Greene, Tax

Division, Department of Justice, were on brief for the United

States.

July 6, 2000
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BOUDIN, Circuit Judge. On November 21, 1988, the

Internal Revenue Service made an administrative determination,

called an assessment, that Michael Murray owed $105,243.06 for

failure to pay over withheld income and Federal Insurance

Contributions Act ("FICA") taxes due from his company, All Air

Transportation Corp. 26 U.S.C. §§ 6201-03 (1994). As of that

date, a statutory lien arose in favor of the United States upon

"all property and rights to property, whether real or personal,"

belonging to Michael Murray. 26 U.S.C. §§ 6321-22 (1994). The

central question in this case is whether that lien has attached, or

will attach, to any interest of Michael Murray in the house located

at 9 Juliette Road in Saugus, Massachusetts, and, if so, with what

consequences.

The history can be briefly recounted. Michael Murray and

his then wife, Judith, purchased the Juliette Road property in

1976, taking title as tenants by the entirety. In December 1980,

they deeded the property to themselves and Frederick Chalifoux

(Judith's stepbrother) as trustees of the M & J Murray Family

Trust. The terms of the trust made Michael and Judith equal

beneficiaries and provided that the trust would be managed by a

majority vote of the three trustees.

In April 1988, Judith Murray--anticipating divorce and

predicting that the Juliette Road property would be awarded to her

in the divorce proceeding--moved in state probate court for prejudgment attachment of Michael's interest in the property. See

Mass. Gen. Laws ch. 208, § 34 (1998). The probate court approved
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an attachment in the amount of $180,000, and a writ of attachment

was issued on April 12, 1988.

Later that year, in September 1988, Judith and Michael

executed a separation agreement in which Michael agreed to convey

his right, title and interest in the Juliette Road property to

Judith within 30 days. Michael did not carry out that promise, and

thereafter, on November 21, 1988, the IRS made the assessment

against Michael Murray, described at the outset of this opinion,

establishing a lien on whatever property he then possessed. On

March 29, 1989, the day that the Murray divorce became final, the

three trustees (Judith, Michael, and Frederick) deeded the Juliette

Road property to Judith Murray, the deed being recorded on April 5,

1989.

On March 18, 1997, the government filed this action

against Michael Murray, Judith Murray and three companies (who did

or might have claims against the Juliette Road property), seeking

to reduce to judgment the assessment against Michael Murray and to

foreclose the lien on the Juliette Road property. See 26 U.S.C. §

7403 (1994) (action to enforce a lien). Now claiming taxes and

interest due from Michael Murray in the amount of $225,964.02, the

government claimed a lien on one-half the value of the Juliette

Road property and asked that the property be sold with the proceeds

being distributed as the court should determine. See id.

In due course, the government moved for summary judgment

and Judith Murray cross-moved for summary judgment in her favor.

(Michael Murray did not respond.) On March 5, 1999, the district
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court rendered its initial decision, United States v. Murray, 73 F.

Supp. 2d 29 (D. Mass. 1999), which it then revised in two decisions

on further reconsideration dated May 7, 73 F. Supp. 2d at 37, and

July 21, 1999, No. Civ.A. 97-10602-RGS, 1999 WL 1334883 (D. Mass.

July 21, 1999). The final resolution was embodied in a separate

judgment, dated July 21, 1999. United States v. Murray, No. Civ.A.

97-10602-RGS, 1999 WL 1334856 (D. Mass. July 21, 1999). The gist

of what the district court did, so far as pertinent here, is as

follows:

First, the court entered judgment against Michael Murray

in favor of the United States for $239,206.63 plus interest.

Murray, 1999 WL 1334856, at *1. Next, the judgment decreed that

liens of the United States attach to "Michael Murray's beneficial

interest in the M & J Murray Trust" and that the United States'

liens "will attach directly to a one-half interest in the Juliette

Road property upon the earlier of the termination of the Trust by

the Trustees or its expiration on January 9, 2001." Id. Finally,

the judgment provided that when the trust ended, the United States

"may foreclose its liens on the one-half interest in the Juliette

[Road] property and may request a sale of the entire property."

Id.

In the decisions that led up to the final judgment, the

district court rejected the government's claim that the trust was

fraudulently established, Murray, 73 F. Supp. 2d at 34-35, but the

court also ruled that the trustees' purported transfer of the

Juliette Road property in March 1989 was a nullity, id. at 37.
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Neither side argues explicitly for overturning these conclusions,

although Judith Murray continues to believe that the purported

transfer was effective. In a further ruling directed to the

trustees' obligations in the period between the entry of the

district court judgment and the end of the trust (or payment of

Michael Murray's tax debt), the district court said: "[I]n the

interval, the trustees' actions with regard to the Trust and its

corpus are constrained by their fiduciary obligations to Michael

Murray and his creditor and by the weight of Massachusetts law

obligating his assets to his creditors." Murray, 1999 WL 1334856,

at *1; see also Murray, 73 F. Supp. 2d at 36 n.16.

Judith Murray now appeals from the final judgment entered

by the district court. The government has not cross-appealed;

despite its initial aim to foreclose on and sell the property

immediately, it now appears to be satisfied with waiting to

foreclose until the end of the trust, so long as the trust property

and Michael Murray's beneficial interest in the trust are preserved

intact in the interval.

Judith’s main attack on the district court’s judgment

rests on the proposition that Michael had no interest in the trust

property sufficient to permit a lien to attach or be foreclosed.

Obviously, as trustee, Michael (together with his co-trustees) held

legal title to 9 Juliette Road when the initial assessment was made

against him. But Judith properly says, and the government does not

contest, that a lien against Michael’s "property and rights to

property" under the federal statute refers to interests held by him
1Perhaps the April 1988 pre-divorce attachment was perfected

for purposes of state law by the divorce decree (which incorporated

the settlement agreement in which Michael promised to convey his

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in his personal capacity and not those that he might hold as a

trustee for others. See Markham v. Fay, 74 F.3d 1347, 1356 (1st

Cir. 1996). (Whether his status as settlor and beneficiary has

some importance is a different question, to which we will

eventually turn.)

What Michael had personally after the trust was first

created was a beneficial interest in (1) half the income and (2)

half the corpus of the trust, which corpus included the Juliette

Road property. (Under the terms of the trust, he had a further

contingent interest in Judith’s share of the corpus if he survived

her, and his own beneficial interest in the corpus terminated on

his death if he predeceased Judith.) Judith says that by the time

of this suit, she had a greater equitable claim to trust income and

property, because of a loan by the trust to Michael and her greater

contribution to maintaining trust assets. But subject to these

claims (to which we return later in the opinion), Michael remained

on paper a "beneficial" half owner of the trust’s income and

corpus.

If this beneficial interest was what Michael had in

January 1981 when the trust was created, then it is clear to us, as

it was to the district court, that he continued to possess it

through November 1988 when the government’s lien first arose on his

"property" or "rights to property." Judith does not claim that her

April 1988 pre-divorce attachment has priority over the tax lien,1
interest in the Juliette Road property). But as the divorce decree

was issued after the IRS filed notice of the tax lien, the tax lien

nonetheless takes priority. See 26 U.S.C. § 6323(a) (1994); United

States v. Dishman Indep. Oil, Inc., 46 F.3d 523, 526-27 (6th Cir.

1995).

2If the government's lien attached to an unconditional

interest in the trust corpus, it is clear enough that the lien

could not be defeated by a post-lien transfer of the corpus without

consideration. Cf. Rodriguez v. Escambron Dev. Corp., 740 F.2d

92, 93 (1st Cir. 1984) (tax lien continues to encumber land even

after legal transfer). To the extent Judith claims that Michael's

rights were conditional, i.e., subject to divestment by the

trustees, the trustees' ability to act adversely to the lien is

limited as discussed below.

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and Michael's September 1988 promise to convey to Judith his

interest in the Juliette Road property did not effect that

conveyance unless and until the promise was performed. See

Restatement (Second) of Trusts § 134 cmt. b (1959); see also

Pavluvcik v. Sullivan, 395 N.E.2d 869, 872 (Mass. App. Ct. 1986).

As for his effort in March 1989 to convey the Juliette Road

property to Judith, this occurred after the government’s lien had

attached to his beneficial interest in the trust, if it did so--the

issue to which we now turn.2

It is now settled that under the federal tax lien

statute, state law determines what interest a taxpayer possesses

with respect to property; the federal statute creates no property

rights. United States v. National Bank of Commerce, 472 U.S. 713,

722 (1985). But federal law determines whether that state-lawcreated interest constitutes "property" or "rights to property"

under the federal lien statute. Id. at 727; see also Drye v.

United States, 120 S. Ct. 474, 481 (1999). In other words, the

"bundle of rights" that Michael had vis-à-vis the trust income and
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corpus, including the Juliette Road house, depends on Massachusetts

law; but regardless of what label Massachusetts may attach to that

bundle, federal law determines whether this interest rises to the

level of "property" or "rights to property" for purposes of the

federal tax lien statute. As the Supreme Court explained in Drye

v. United States, "[w]e look initially to state law to determine

what rights the taxpayer has in the property the Government seeks

to reach, then to federal law to determine whether the taxpayer's

state-delineated rights qualify as 'property' or 'rights to

property' within the compass of the federal tax lien legislation."

120 S. Ct. at 481.

Given the purposes of the tax laws, one might expect

"property and rights to property" to be construed broadly, and it

is, Drye, 120 S. Ct. at 480, but there are limits that reflect both

common usage and policy. For example, the lien would likely not

attach to land owned by a still-living relative of Michael, or to

Michael's expected inheritance of it, even if the relative had

provided in his will that the land would go to Michael on the

relative’s death. See id. at 482 n.7. It is not common to call

Michael's interest in such land "property" (lawyers would call it

an "expectancy"), and, practically speaking, if the tax lien were

allowed to attach to such an interest, the relative might be

expected thereafter to alter the will. 

Unfortunately, no clear-cut definition of "property" is

supplied by either the federal tax lien statute or the governing

Supreme Court cases. Drye, the most recent Supreme Court
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pronouncement, suggests that transferability and pecuniary value

are touchstones of "property" under the lien statute, but Drye then

goes on to say that "transferability" may not be essential and

"pecuniary value" is not necessarily enough. Id. at 482 & n.7.

Elsewhere Drye refers to the taxpayer’s ability to "control" the

property. Id. at 483 (quoting Morgan v. Commissioner, 309 U.S. 78,

83 (1940)). In yet another case under the statute, the Court

referred to the ability of the taxpayer to "enjoy" or "possess" the

property during his own lifetime. United States v. Bess, 357 U.S.

51, 55-56 (1958). Perhaps the situations are too numerous and

varied to permit a single comprehensive definition, and such

elements--transferability, pecuniary value, control, enjoyment--

should be treated as among the relevant considerations in a highly

fact-specific inquiry.

In arguing that Michael's interest in the trust was not

"property," Judith's principal argument is that it was subject to

being terminated by Judith and her stepbrother at any time under an

article of the trust instrument, and this rendered the interest so

contingent, uncertain or speculative that it did not constitute

"property" or "rights to property" under the lien statute. The

pertinent language of Article VII of the trust instrument, relating

to termination and amendments of the trust, reads as follows:

"Notwithstanding any provisions contained in this instrument, this

Indenture of Trust may be changed, modified, altered or terminated,

including a change in the identity of the Trustees, by an

instrument in writing executed and duly acknowledged in the manner
3Article III(2), dealing with "trustees," provides that "[a]t

least two" shall act in administering the trust or exercising their

powers, and Article IV lists various customary powers. The

authority to alter the terms of the trust appears only in Article

VII which refers to action by the "trustees" without specifying

numbers. The common law rule is that private trustees must act by

unanimity unless the trust instrument provides otherwise.

Restatement (Second) of Trusts § 194 (1959).

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required for deeds . . . ." Judith also relies on our decision in

Markham v. Fay, 74 F.3d 1347 (1st Cir. l996), for the proposition

that a power in a third party to cut off rights to a trust corpus

means that such an interest is not "vested" under Massachusetts law

and is therefore not "property" to which a federal lien may attach.

Judith's reading of the trust instrument may well be

mistaken. Whether the power to act by a two-thirds vote in

administering the trust extends to an alteration in its terms could

be disputed. One might reasonably expect very clear language

before reading an instrument to permit a majority of trustees--one

interested as a beneficiary and the other related to her--to

terminate the interest of the other beneficiary in trust property

that he settled. The language relied upon by Judith is far from

crystal clear.3

However, even if we assume arguendo that Judith and her

stepbrother could (prior to the attachment of the lien) have cut

off Michael's interest, the outcome is the same. Markham does say

that an explicit power in a third party to cut off a beneficiary

from a residual interest in the corpus would make that an interest

not yet "vested" under Massachusetts law and (according to Markham)
4The Markham decision held the opposite with respect to

ongoing entitlement to interest income, Markham, 74 F.3d at 1364.

The district court on reconsideration rewrote its decree in an

attempt to make it conform more closely to what the district court

thought Markham required. See Murray, 73 F. Supp. 2d at 38.

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therefore an interest too frail to support a lien.4 Markham, 74

F.3d at 1365. However, Markham's holding on this point depended on

its assumption that the federal tax lien issue turned on whether

"under Massachusetts law . . . a right in a trust has vested . . .

." Id.

What Drye now makes clear is that labels like "vesting"

and "nonvesting" under Massachusetts law are not determinative, and

that federal law determines whether an interest that exists under

state law is sufficiently substantial that it should be treated as

"property" or "rights to property" for purposes of the federal tax

lien statute. Thus, even if we assume that Judith and her

stepbrother did have a right to take away Michael's interest in

income and corpus, the question remains whether their power to do

so--which had not been exercised before November 1988--meant that

Michael's interest in income, corpus or both was too insubstantial,

transitory or hollow to be attached. We can find no Supreme Court

or circuit precedent directly on point.

An otherwise valuable pecuniary interest that can be cut

off at the absolute discretion of another person is an unusual

creature in the law, and the touchstones mentioned in earlier

Supreme Court decisions are not very helpful in characterizing

Michael's interest as property vel non. Michael's interest in the

trust prior to November 1988 clearly had "pecuniary value" to him
5It is well-settled under trust law that this anti-alienation

provision had no effect on the government for two separate reasons:

both because Michael was settlor as well as beneficiary,

Restatement (Second) of Trusts § 156(1) (1959); Cohen v.

Commissioner of the Div. of Med. Assistance, 668 N.E.2d 769, 777-78

(Mass. 1996), cert. denied, 519 U.S. 1057 (1997), and because even

if the trust had been created by a third party, spendthrift trust

clauses are not enforceable against certain kinds of claims,

including a claim by the United States against a beneficiary,

Restatement (Second) of Trusts § 157(d) (1959).

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but was arguably subject to termination (if we assume that two of

the trustees could cut if off); "transferability" of that interest

was limited by a standard spendthrift clause, but this has no

application to the government's claim as lienor or creditor;5

"enjoyment" of the trust income and corpus was in principle

available to Michael upon distribution but again subject to

termination (on Judith's reading); and "control" of the property

was formally in the hands of the trustees but subject to

substantial constraints for Michael's benefit under state trust

law, see Old Colony Trust Co. v. Silliman, 223 N.E.2d 504, 507

(Mass. 1967).

 What seems to us decisive is that the Supreme Court did

have occasion to deal with a different form of property equally

subject to divestiture at the control of a third party, namely, a

taxpayer's interest in a joint bank account which gave either

account holder the right to withdraw the proceeds. In a square

holding, the Supreme Court said that this interest of the taxpayer

in the bank account, although it could be fully defeated by the

other holder's withdrawal of the account proceeds, was (prior to

such a withdrawal) nonetheless "property" or "rights to property"
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of the taxpayer for federal tax collection purposes. United States

v. National Bank of Commerce, 472 U.S. 713, 724-26 (1985). 

Given this decision, we hold that Michael's interest in

income and corpus constitutes property for purposes of the federal

tax lien statute, even if we assume arguendo that Judith and her

stepbrother could have divested Michael of his interest prior to

November 1988. This view does not impeach the result reached in

Markham: there, the trust property that we held could not be

attached by the government could be enjoyed only after the

taxpayer's death unless the trust was amended, Markham, 74 F.3d at

1365, and independent Supreme Court authority says that such an

interest does not constitute attachable property under the tax lien

statute, United States v. Bess, 357 U.S. 51, 55-56 (1958).

Once the government's tax lien did attach in November

1988, Judith and her stepbrother were not allowed to terminate

Michael's interest even if the trust instrument were read as they

propose. The Massachusetts cases have held that if a trustee

otherwise has discretion not to distribute trust assets to a

beneficiary's creditors, the trustee cannot exercise that

discretion where the trust is self-settled. Ware v. Gulda, 117

N.E.2d 137, 138 (Mass. 1954) (adopting Restatement (Second) of

Trusts § 156(2) (1959)); Restatement (Second) of Trusts § 156(2)

(1959); 2A Scott & Fratcher, The Law of Trusts § 156.2, at 175-78

(4th ed. 1987). The purported transfer of the trust property to

Judith in March 1989 was thus ineffective.
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The reason for the rule is that "a settlor cannot place

property in trust for his own benefit and keep it beyond the reach

of creditors," Merchants Nat'l Bank v. Morrissey, 109 N.E.2d 821,

823 (Mass. 1953). "It is against public policy to permit a man to

tie up his own property in such a way that he can still enjoy it

but can prevent his creditors from reaching it." 2A Scott &

Fratcher, supra, § 156, at 167; see also Cohen v. Commissioner of

the Div. of Med. Assistance, 668 N.E.2d 769, 777 (Mass. 1996)

(explaining that the rule for self-settled trusts is addressed to

an arrangement "concocted for the purpose of having your cake and

eating it too"), cert. denied, 519 U.S. 1057 (1997).

On appeal, Judith argues that even if a tax lien did

attach to Michael's interest in the trust and restricted the

trustees' power to diminish that interest, Michael's interest is

itself subject to an equitable reduction to account for a loan made

by the trust to Michael and allegedly disproportionate expenditures

made by Judith to maintain the trust assets. Indeed, Judith

asserts that these adjustments would essentially wipe out Michael's

one-half share in the trust, so an order to sell the property makes

no sense. The government says, and we agree, that whatever

equitable claims Judith may have can be determined if and when a

foreclosure is attempted and there is property to distribute.

Next, Judith says that under United States v. Rodgers,

461 U.S. 677 (1983), the district court has, and should have

exercised, equitable discretion to refuse to order a sale. The

Rodgers decision says that under the tax lien statute, the district
6Citing United States v. Davenport, 106 F.3d 1333, 1338 (7th

Cir. 1997), the government also says that the Rodgers factors need

be considered only if the court decides not to order a sale, but

this makes no sense to us. Where a party has asked the court to

exercise its discretion to refuse to order a sale under section

7403, Rodgers directs the court to consider various factors to

determine whether or not to do so. See, e.g., Rodgers, 461 U.S. at

710 ("First, a court should consider . . . ." (emphasis added)).

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court has limited discretion to refuse to order a sale in order to

protect the interests of innocent parties. Id. at 709-11. The

government says that although the district court did not explicitly

address the Rodgers factors, it must have implicitly found that

those factors are consistent with an order of sale and that this

was not an abuse of discretion.6

As we read the district court's judgment, it has done no

more than say that when the trust terminates, the United States may

foreclose on Michael's one-half interest in the Juliette Road

property "and may request a sale of the entire property pursuant to

26 U.S.C. § 7403(c) and United States v. Rodgers." United States

v. Murray, No. Civ.A. 97-10602-RGS, 1999 WL 1334856 (D. Mass. July

21, 1999) (emphasis added). In other words, just as the government

concedes that Judith's "loan and advances" claim has been

preserved, so the court's judgment defers until the occasion for a

sale the question whether such a sale should be ordered and would

be consistent with the Rodgers factors.

Finally, Judith suggests, without much vigor, that the

district court should have considered her equitable interests and

the Rodgers factors before entering the decree, but she makes no

effort to explain why she is prejudiced by the deferral. Her
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argument that no sale should be ordered if it would produce nothing

for the government sounds reasonable on its face; but as we read

the district court's judgment, Judith is free to renew this

argument before any sale is actually ordered. If conditions change

and make an earlier determination critical, Judith may apply to the

district court to address the issues it has reserved. In all

events, no sale may be ordered until the district court resolves

the equitable claims and the Rodgers issues.

Affirmed.