Source: http://www.chanrobles.com/usa/us_supremecourt/363/237/case.php
Timestamp: 2017-12-12 02:26:37
Document Index: 633046474

Matched Legal Cases: ['§ 7424', '§ 2410', '§ 7403', '§ 7403', '§ 2410', '§ 6321', '§ 7403', '§ 7424', '§ 2410', '§ 7424', '§ 2410', '§ 2410', '§ 7424', '§ 2410', '§ 6321', '§ 6322', '§ 6323', '§ 6325', '§ 2410', '§ 7424', '§ 2410', '§ 7424', '§ 6325', '§ 7403', '§ 7424', '§ 7403', '§ 7424', '§ 2410', '§ 2410', '§ 2410', '§ 7424']

UNITED STATES V. BROSNAN, 363 U. S. 237 (1960) - US SUPREME COURT DECISIONS ON-LINE
US Supreme Court Decisions On-Line> Volume 363 > UNITED STATES V. BROSNAN, 363 U. S. 237 (1960)
UNITED STATES V. BROSNAN, 363 U. S. 237 (1960)
Subscribe to Cases that cite 363 U. S. 237
1. Federal tax liens on real estate which are junior to defaulted mortgages held on the same properties by other parties may be effectively extinguished by state proceedings to which the United States is not, and is not required under state law to be, a party. Pp. 363 U. S. 238-252.
(a) Since federal tax liens are wholly creatures of federal statute, matters directly affecting their nature or operation are federal questions, regardless of whether or not the federal statutory scheme deals with them specifically. Pp. 363 U. S. 240-241.
(b) Nevertheless, it is believed desirable to adopt as federal law state law governing divestiture of junior federal tax liens (except to the extent that Congress may have entered the field), since this will avoid the severe dislocation of local property relationships which would result from disregarding state procedures. Pp. 363 U. S. 241-242.
(c) By the enactment of 26 U.S. C. § 7424 and 28 U.S. C. § 2410, Congress did not intend to make the proceedings under those sections the only means by which a junior federal tax lien could be extinguished; it did not intend to exclude the application of all state procedures, whatever their existence or effectiveness might be. Pp. 363 U. S. 242-250.
2. Under Pennsylvania law, mortgagees of a tract of Pennsylvania land on which the United States held a junior federal tax lien proceeded under a confession of judgment provision of the mortgage bond to obtain an in personam judgment against the mortgagor taxpayer, pursuant to which the property was sold under a writ of fieri facias. Subsequently, the United States sued under 26 U.S.C. § 7403 to enforce its junior tax lien on the same land by foreclosure and sale.
Held: under Pennsylvania law, the sheriff's sale under a writ of fieri facias was a judicial sale; but the doctrine of sovereign immunity from unconsented suits has not yet been chanroblesvirtualawlibrary
applied to such proceedings, and will not be extended to them now. Therefore, the Government's junior tax lien on the property was effectively extinguished by the Pennsylvania proceedings. Pp. 363 U. S. 239, 363 U. S. 250.
Held: the doctrine of sovereign immunity from unconsented suits does not apply to such private sales without judicial proceedings. Therefore, the exercise under California law of the powers of sale conferred by the deed of trust and chattel mortgages effectively extinguished the junior federal tax liens. Pp. 363 U. S. 239-240, 363 U. S. 250-252.
In these two cases, the United States purports to hold federal tax liens on Pennsylvania and California real properties which are concededly junior to defaulted mortgages held on the same properties by the other parties to the suits. The basic issue in each case is whether the federal lien was effectively extinguished by state proceedings chanroblesvirtualawlibrary
The course of proceedings giving rise to this issue was as follows: in No. 137, involving a tract of Pennsylvania land, the respondent mortgagees, under a confession of judgment provision of the mortgage bond, obtained an in personam judgment against the mortgagor taxpayer, pursuant to which the property was sold under a writ of fieri facias. [Footnote 1] Subsequently, the United States instituted this suit under 26 U.S.C. § 7403 seeking an enforcement of its tax lien by foreclosure and sale. [Footnote 2] The District Court held that the Government's lien on the property in question had been effectively extinguished by the Pennsylvania proceedings, and it entered judgment for the defendants. The Court of Appeals affirmed. 264 F.2d 762.
In No. 183, California real and personal properties, subject to a deed of trust and two chattel mortgages, were sold by the trustee mortgagee pursuant to powers of sale contained in the respective instruments. The United States received no actual notice of the sale. Thereafter, the mortgagee, which had bought in at the sale, brought this suit against the Government under 28 U.S.C. § 2410 to quiet its title, claiming that the exercise of the powers of sale had effectively extinguished the federal tax lien. The Court of Appeals, reversing the District Court, dismissed the suit, holding that the federal lien could be chanroblesvirtualawlibrary
Federal tax liens are wholly creatures of federal statute. Detailed provisions govern their creation, continuance, validity, and release. [Footnote 3] Consequently, matters directly affecting the nature or operation of such liens are federal questions, regardless of whether the federal statutory scheme specifically deals with them or not. See Clearfield Trust Co. v. United States, 318 U. S. 363. Yet, because federal liens intrude upon relationships traditionally governed by state law, it is inevitable that the Court, in developing the federal law defining the incidents of such liens, should often be called upon to determine whether, as a matter of federal policy, local policy should be adopted as the governing federal law, or whether a uniform nationwide federal rule should be formulated.
In determining the extent of the "property and rights to property" (§ 6321) to which a government tax lien attaches, we have looked to state law. United States v. Bess, 357 U. S. 51, 357 U. S. 55. The mortgagees claim that the present cases are governed by the principle of Bess. They assert that, since the taxpayer mortgagors' interests were subject to being terminated by means of the state proceedings chanroblesvirtualawlibrary
here invoked, their "property and rights to property" were limited to that extent; that, under Bess, the Government's lien attaches only to property rights created under state law; and that therefore the Government's interest was subject to being similarly terminated.
The fallacy of this contention is evident. In Bess, we held that a deceased's property in insurance policies on his own life was limited to their cash surrender value, and did not extend to their proceeds, which he could never enjoy. Here, however, the mortgagors owned the entire fee interests in the properties, subject only to the mortgages. This Court has repeatedly rejected the contention that, because a fee owned by a taxpayer was already encumbered by a lien which enjoyed seniority under state law, the Government's lien necessarily attached subject to that lien. [Footnote 4] A fortiori, the "property" to which the federal lien can attach is not diminished by the particular means of enforcement possessed by a competing lienor to whom federal law concedes priority.
We nevertheless believe it desirable to adopt as federal law state law governing divestiture of federal tax liens, except to the extent that Congress may have entered the field. It is true that such liens form part of the machinery for the collection of federal taxes, the objective of which is "uniformity, as far as may be." United States v. Gilbert Associates, 345 U. S. 361, 345 U. S. 364. However, when Congress chanroblesvirtualawlibrary
resorted to the use of liens, it came into an area of complex property relationships long since settled and regulated by state law. We believe that, so far as this Court is concerned, the need for uniformity in this instance is outweighed by the severe dislocation to local property relationships which would result from our disregarding state procedures. Long accepted nonjudicial means of enforcing private liens would be embarrassed, if not nullified, where federal liens are involved, and many titles already secured by such means would be cast in doubt. We think it more harmonious with the tenets of our federal system and more consistent with what Congress has already done in this area, not to inject ourselves into the network of competing private property interests, by displacing well established state procedures governing their enforcement, or superimposing on them a new federal rule. Cf. Board of Comm'rs v. United States, 308 U. S. 343.
As early as 1868, Congress had authorized a suit by the United States to enforce its own tax lien. [Footnote 5] A similar provision now appears as 26 U.S.C. § 7403. [Footnote 6] However, chanroblesvirtualawlibrary
it was already then well established that the United States was an indispensable party to any suit affecting property in which it had an interest, and that such a suit was therefore a suit against the United States which could not be maintained without its consent. [Footnote 7] Furthermore, the laws of many States themselves required all persons claiming an interest in property to be joined as parties to any suit to foreclose a lien or quiet title to the property. Thus, there was no way in which a party who held a lien on property senior to that of the United States could get a judicial decree extinguishing the Government's interest.
To remedy this situation, Congress, in 1924, passed the predecessor of 26 U.S.C. § 7424, [Footnote 8] which gives the holder chanroblesvirtualawlibrary
In 1931, Congress, for similar reasons, passed the predecessor of 28 U.S.C. § 2410, which gives a private lienor chanroblesvirtualawlibrary
the right to name the United States a party in any action or suit to foreclose a mortgage or lien or to quiet title to property on which the United States claims any kind of mortgage or lien, whether or not a tax lien. [Footnote 9] The action chanroblesvirtualawlibrary
can be brought in a state court, but is removable to a federal court. [Footnote 10] If a judicial sale is conducted in such an action or suit, it is to have the same effect as it would have under local law, but the United States is given one year to redeem.
(1) Both sections are purely permissive in tenor. A private lienor "may . . . file a petition in the district court" under § 7424, or "the United States may be named a party" under § 2410. (Emphasis added.)
(3) The specific permission of § 2410(a) to institute a quiet title suit against the United States obviously contemplates a declaration by the federal courts of previously created legal consequences. If § 7424 or § 2410 were invoked to extinguish a federal lien, a subsequent suit to chanroblesvirtualawlibrary
The Government, however, argues that the legislative history indicates that Congress believed a suit against the United States to be the only way in which a federal lien could be extinguished. But the statements relied on [Footnote 11] chanroblesvirtualawlibrary
reveal simply a recognition that competing lienors were put at an unfair disadvantage because of inability to join effectively the Government as a party to judicial proceedings. As to the extent of that disadvantage, it is not chanroblesvirtualawlibrary
clear whether Congress thought that the Government's sovereign immunity barred an attempt to affect a federal lien in any manner; that a nonjudicial procedure might be effective to divest federal liens, but that state procedures chanroblesvirtualawlibrary
The question remains whether the state procedures followed in these cases were nonetheless ineffective to defeat the government liens because they should de regarded as being unconsented suits against the United States. Because no judicial proceeding was there involved, No. 183 presents no such problem, unless we are now to hold, beyond anything this Court has heretofore decided, that, because the private sale of its own force was effective under California law to extinguish all junior liens, [Footnote 12] what was done in this instance amounted to a "suit" against the United States. We do not think that the doctrine of sovereign immunity reaches so far.
No. 137, however, presents a different and more difficult question on this score. Under Pennsylvania law, the Sheriff's sale of the mortgaged land under a writ of fieri facias was a judicial sale, having the effect of extinguishing junior liens even though their holders were not, nor required to be made, parties to the proceedings. [Footnote 13] Under chanroblesvirtualawlibrary
the decisions of this Court, a judicial proceeding against property in which the Government has an interest is a suit against the United States which cannot be maintained without its consent. @ 74 U. S. 386. Nevertheless, no case in this Court, so far as we can find, has yet applied the doctrine of sovereign immunity in the precise situation before us. Much can be said for the view that this Pennsylvania procedure should not be considered as being an unconsented suit against the United States [Footnote 14] any more than the wholly private proceeding in the California case. In both cases, the practical effect upon junior liens is exactly the same.
Be that as it may, we shall not so extend the principle of sovereign immunity. To do so would not only produce incongruous results as between these two cases, but would trespass upon the considerations which have led to our refusal to fashion a federal rule of uniformity respecting the extinguishment of federal junior liens under state procedures. It must be recognized that the factors supporting a federal rule of uniformity in this field, and those chanroblesvirtualawlibrary
* Together with No. 183, Bank of America National Trust and Savings Association v. United States, on certiorari to the United States Court of Appeals for the Ninth Circuit, argued March 22, 1960.
See 26 U.S.C. § 6321 (Lien for taxes); § 6322 (Period of lien); § 6323 (Validity against mortgagees, pledgees, purchasers, and judgment creditors); and § 6325 (Release of lien or partial discharge of property).
United States v. Security Trust & Savings Bank, 340 U. S. 47; United States v. City of New Britain, 347 U. S. 81; United States v. Acri, 348 U. S. 211; United States v. Liverpool & London & Globe Ins. Co., Ltd., 348 U. S. 215; United States v. Scovil, 348 U. S. 218; United States v. I. J. Colotta, 350 U.S. 808; United States v. White Bear Brewing Co., 350 U. S. 1010; United States v. W. H. Vorreiter, 355 U. S. 15; United States v. R. F. Ball Construction Co., Inc., 355 U. S. 587; United States v. Hulley, 358 U. S. 66.
"(a) Filing. In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate at the request of the Secretary or his delegate, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability."
"(b) Parties. All persons having liens upon or claiming any interest in the property involved in such action shall be made parties thereto."
"(c) Adjudication and decree. The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sales according to the findings of the court in respect to the interests of the parties and of the United States."
"(d) Receivership. In any such proceeding at the instance of the United States, the court may appoint a receiver to enforce the lien, or, upon certification by the Secretary or his delegate during the pendency of such proceedings that it is in the public interest, may appoint a receiver with all the powers of a receiver in equity."
74 U. S. 386; United States v. Alabama,@ 313 U. S. 274, 313 U. S. 282.
"(a) Obtaining leave to file."
"(1) Request for institution of proceedings by United States. Any person having a lien upon or any interest in the property referred to in section 7403, notice of which has been duly filed of record in the jurisdiction in which the property is located, prior to the filing of notice of the lien of the United States as provided in section 6323, or any person purchasing the property at a sale to satisfy such prior lien or interest, may make written request to the Secretary or his delegate to authorize the filing of a civil action as provided in section 7403."
"(2) Petition to court. If the Secretary or his delegate fails to authorize the filing of such civil action within 6 months after receipt of such written request, such person or purchaser may, after giving notice to the Secretary or his delegate, file a petition in the district court of the United States for the district in which the property is located, praying leave to file a civil action for a final determination of all claims to or liens upon the property in question."
"(3) Court order. After a full hearing in open court, the district court may in its discretion enter an order granting leave to file such civil action, in which the United States and all persons having liens upon or claiming any interest in the property shall be made parties."
"It should be observed in this connection that, under existing law, there is no provision whereby the owner of real estate may clear his title to such real estate of the cloud of a Government mortgage or lien. Welch v. Hamilton (S.D.Calif.), 33 F.(2d) 224, and U.S. v. Turner (C.C.A.8), 47 F.2d 86."
I submit that the over-all purpose of Congress in the adoption of § 2410 and § 7424 was "to afford to a holder of a lien prior in time to that of the United States . . . a method of procedure for clearing the title to the property." [Footnote 2/1] The Committee pointed out that
And the House Committee stated, among other things, that real estate interests had recommended the legislation for years because a prior recorded lienholder was, "in effect, defeated of his own right to foreclose," and that the "simple and just method of proceeding" under the bill "is fair to the holder of the prior lien on the real estate and . . . amply and fully protects the rights of the Federal Government. . . ." chanroblesvirtualawlibrary
"equity dictates that the Government's lien in such circumstances should have a junior status, yet, under the present practice, the inability of the plaintiff to bring the United States in as a party to the proceeding to foreclose or have execution and sale on a court judgment . . . ties the hands of a prior lienholder by making it impossible for him to grant a clear title to the property, and thus . . . deprives him of the benefits of his security or court judgment, as the case may be."
Nevertheless, the Court has brushed aside all of these protections and, without regard to the congressional mandate, has turned these acts into booby traps in which the Government has now been caught up by its own benevolence. Giving the California mortgagees in No. 183 a carte blanche to wipe out the Government's lien by summary action at a trustee's sale, without even giving the Government notice, the Court declares its extraordinary action to be in recognition "of longstanding state procedures." chanroblesvirtualawlibrary
The fact about it is that the Court presupposes, wholly apart from 28 U.S.C. § 2410 and 26 U.S.C. § 7424, that the "longstanding state procedures" applicable to the extinguishment of junior private liens apply equally to junior government ones. In the light of the fact that federal law with regard to the manner in which liens of the United States may be released or extinguished has been on the books in one form or another for over 90 years, this is indeed a violent assumption. Under federal law, a prior-filed lienholder has for some 30 years enjoyed three specific remedies that he may follow to secure the release or extinguishment of a junior government lien. First, he may apply to the Secretary of the Treasury or chanroblesvirtualawlibrary
his delegate to release the lien under § 6325 of the Internal Revenue Code. [Footnote 2/2] Section 6325 authorizes that official (1) to execute a release when the liability is satisfied or has become legally unenforceable or upon the furnishing chanroblesvirtualawlibrary
Section 7424 grants the mortgagee the privilege of enforcing his prior-filed lien by civil action against the United States as provided in § 7403, which was originally passed in 1868 as a remedy available only to the Government. As a protection to the United States, § 7424 first requires that the mortgagee request the Secretary of the Treasury to authorize the filing of an action under § 7403. Upon the Secretary's failure to authorize such an action within six months, the mortgagee may apply to the District Court for relief. Notice to all lienholders, including the United States, is required. The majority opinion emphasizes that no redemption right is given the Government in a proceeding under § 7424, and seems to place some reliance for its action on the absence of such relief. However, this policy of the Congress is entirely understandable chanroblesvirtualawlibrary
Now let us take up seriatim the grounds on which the Court disregards this carefully devised scheme for protecting the Government's liens. It says that certain "features" of the acts make "clear" that the federal remedies are not exclusive. The first two features have to do with the use by the Congress of the word "may" in granting permission to file the suit and the phrase the court "may decree a sale" in dealing with the action to be taken in the same. But statutory interpretation must not be reduced chanroblesvirtualawlibrary
to an exercise in semantology. In stating that a mortgagee "may . . . file a petition," Congress did not -- because it could not -- require him to do so. He "may" file suit if he wishes, or he can take his chances that his title is superior, as thousands have in such matters. Likewise, in granting the privilege that "the United States may be named a party," the Congress employed the word "may" in its ordinary, familiar usage and understanding. Congressional expression, after all, must not necessarily be of Addisonian diction. Reaching the Court's further objection to the word "may" in the congressional language that the court "may decree a sale," it is submitted in all logic that, since other relief is available in the suit, i.e., receivership, quieting of title, et cetera. Congress could use no other word. Certainly the word "shall" would be inapplicable. It was left up to the court to decree the appropriate relief after a full hearing and if a sale was in order to fix the manner, time and condition of the same. These are details the Congress appropriately and traditionally leaves to courts.
The third "feature" of which the majority makes much is the fact that the federal Acts do not, "on their face," exclude state procedures. But this is a commonplace in federal legislation, Hines v. Davidowitz, 312 U. S. 52 (1941), and is by no means the test. See Pennsylvania v. Nelson, 350 U. S. 497 (1956). The majority says that, since § 2410(a) grants specific permission to file a quiet title suit, this "contemplates a declaration by the federal courts of previously created legal consequences." This provision was suggested in 1941 by the then Attorney General Jackson. Being a practical lawyer with a large general practice, he knew that many titles were then clouded by government liens, and that, many times in the future, "persons acting in good faith . . . without knowledge of the Government lien or in the belief that the lien had been extinguished" would likewise have no remedy chanroblesvirtualawlibrary
under which to clear their titles. This moved him to make the suggestion. But, being the lawyer he was, I am confident he never dreamed that his suggestion would strip the Government he was so capably representing of notice in private trustee sales, and deprive it of any defense in such a quiet title suit. Such a construction of this clause in § 2410(a) acts as a repealer of all other provisions of these federal statutes. Why would the Congress give its consent to sue the United States as a quid pro quo of the Government's having a fair chance to test out the validity of the prior-claimed private lien, and then turn right around and let the state procedure, through a trustee's sale, wipe out the government lien without notice, hearing or redemption rights? In this manner, action under state law wipes out federal procedure entirely -- with the exception of the quiet title suit and, even in it, the Government, according to the holding today, has none of the federal statutory protections. The trustee's deed under the deed of trust sale has, the Court says, extinguished the inferior government lien under state law, and that is binding on the Government. It cannot contest the bona fides and priority of the deed of trust, the amount due under it, the regularity, fairness or validity of the exercised power of sale, or any other infirmities in the sale, including fraud or collusion -- unless allowed by state law. To be able to construe a federal statute so as to wipe out the government lien, which, on the face of the statute, was to be tested on specific conditions written therein "for the protection of the United States," stretches the imagination for me beyond the breaking point.
Other than these "features" of the federal Acts, the "longstanding state procedures" and the "matter of federal policy," the Court gives no reason for adopting state procedures in extinguishing government liens. Of course, if, as the Court holds, the principle of sovereign immunity were not applicable, and if the Congress had not acted in chanroblesvirtualawlibrary
the field, the Court could "fashion the governing rule of law." Clearfield Trust Co. v. United States, 318 U. S. 363, 318 U. S. 367 (1943). But the adoption of local law, even in that event, would be "singularly inappropriate." The tax liabilities involved here, as well as the liens securing the same, are all federally created, and the rights arising therefrom would be governed by federal law. The enforcement of these rights, however, would be controlled by state law. Would this include the validity of the tax as assessed by the collector and asserted in the lien? While § 2410 and § 7424 do not permit the validity of the tax to be tested under their procedures, what about state law? Certainly this would open up endless problems. But, be that as it may, the procedures of enforcement themselves would vary in each State, resulting in 50 separate and different rules of procedure, entailing varying interpretations, practices and pitfalls peculiar to each jurisdiction. Would it not be better to have a uniform system in the tax collection machinery of the Nation? In Clearfield, the Court concluded that:
318 U.S. at 318 U. S. 367. I submit that these grounds for uniformity so forcefully spelled out in Clearfield are even more compelling here, where the revenue of the United States is imperiled. The importance of uniformity in tax procedures is well illustrated chanroblesvirtualawlibrary
in United States v. Gilbert Associates, 345 U. S. 361, 345 U. S. 364 (1953), where we again emphasized its necessity in these words:
While I would hold the federal procedures exclusive, if the Court insists that state law be made applicable, would not a "just method of proceeding" at least include a rule that tax liens of the United States cannot be extinguished in any state proceeding -- by trustee's sale or through judicial process -- without giving the United States notice thereof? With all of its millions of tax transactions, how else can the public treasury be protected? Nor would such a requirement "inject ourselves into the network of competing private property interests," or displace "well established state procedures governing their enforcement." The State could proceed as it wishes, within Fourteenth Amendment requirements, to set up and enforce its own procedures as to private lienholders. chanroblesvirtualawlibrary
For the sake of brevity, see note 11 at 247-249 of the majority opinion for references to and citations of authorities for, these quotations.
"(a) Release of lien. Subject to such rules or regulations as the Secretary or his delegate may prescribe, the Secretary or his delegate may issue a certificate of release of any lien imposed with respect to any internal revenue tax if --"
"(1) Liability satisfied or unenforceable. The Secretary or his delegate finds that the liability for the amount assessed, together with all interest in respect thereof, has been fully satisfied, has become legally unenforceable, or, in the case of the estate tax imposed by chapter 11 or the gift tax imposed by chapter 12, has been fully satisfied or provided for; or"
"(2) Bond accepted. There is furnished to the Secretary or his delegate and accepted by him a bond that is conditioned upon the payment of the amount assessed, together with all interest in respect thereof, within the time prescribed by law (including any extension of such time), and that is in accordance with such requirements relating to terms, conditions, and form of the bond and sureties thereon, as may be specified by such rules or regulations."
"(b) Partial Discharge of Property. --"
"(1) Property double the amount of the liability. Subject to such rules or regulations as the Secretary or his delegate may prescribe, the Secretary or his delegate may issue a certificate of discharge of any part of the property subject to any lien imposed under this chapter if the Secretary or his delegate finds that the fair market value of that part of such property remaining subject to the lien is at least double the amount of the unsatisfied liability secured by such lien and the amount of all other liens upon such property which have priority to such lien."
"(2) Part payment or interest of United States valueless. Subject to such rules or regulations as the Secretary or his delegate may prescribe, the Secretary or his delegate may issue a certificate of discharge of any part of the property subject to the lien if --"
"(c) Effect of certificate of release or partial discharge. A certificate of release or of partial discharge issued under this section shall be held conclusive that the lien upon the property covered by the certificate is extinguished."