Source: https://www.legalcrystal.com/case/99842/aquilino-vs-united-states
Timestamp: 2018-02-23 15:00:42
Document Index: 138088760

Matched Legal Cases: ['§ 3670', '§ 36', '§ 475', '§ 3670', '§ 3672', '§ 3672', '§ 6321', '§ 44', '§ 36', '§ 13']

Aquilino Vs United States - Citation 99842 - Court Judgment | LegalCrystal
Aquilino Vs. United States - Court Judgment
LegalCrystal Citation legalcrystal.com/99842
Case Number 363 U.S. 509
Appellant Aquilino
aquilino v. united states - 363 u.s. 509 (1960) u.s. supreme court aquilino v. united states, 363 u.s. 509 (1960) aquilino v. united states no. 1 argued october 15, 1959 decided june 20, 1960 363 u.s. 509 certiorari to the court of appeals of new york syllabus a general contractor having defaulted both on the payment of federal taxes and on the payment of amounts due to subcontractors who had supplied labor and materials on a construction job in new york state, and the subcontractors having sued to foreclose their mechanics' liens, the owner of the real estate paid into court the amount remaining due under the construction contract. under §§ 3670 and 3671 of the internal revenue code of 1939, the united states claimed.....
Aquilino v. United States - 363 U.S. 509 (1960)
U.S. Supreme Court Aquilino v. United States, 363 U.S. 509 (1960)
Held: the judgment is vacated, and the case is remanded to the Court of Appeals of New York so that it may ascertain the property interests of the taxpayer under state law and then dispose of the case in accordance with established federal law. Pp. 363 U. S. 510 -516.
notice of federal tax liens in the office of the Clerk of the City of Mount Vernon, New York, which is the city wherein the taxpayer maintained its principal place of business. The Government claimed priority for its tax lien under Sections 3670 and 3671 of the Internal Revenue Code of 1939. [ Footnote 1 ] The petitioners contended that, since the contractor-taxpayer owed them more than $2,200 for labor and materials supplied to the job, under the New York Lien Law, Section 36-a, [ Footnote 2 ] he had no property interest in
"in the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property . . . sought to be reached by the statute. [ Footnote 3 ]"
Morgan v. Commissioner, 309 U. S. 78 , 309 U. S. 82 . Thus, as we held only two Terms ago, Section 3670 "creates no property rights but merely attaches consequences, federally defined, to rights created under state law. . . ." United States v. Bess, 357 U. S. 51 , 357 U. S. 55 . [ Footnote 4 ] However, once the tax lien has attached to the
taxpayer's state-created interests, we enter the province of federal law, which we have consistently held determines the priority of competing liens asserted against the taxpayer's "property" or "rights to property." [ Footnote 5 ] United States v. Vorreiter, 355 U. S. 15 , reversing 134 Colo. 543, 307 P.2d 475; United States v. White Bear Brewing Co., 350 U. S. 1010 , reversing 227 F.2d 359; United States v. Colotta, 350 U.S. 808, reversing 224 Miss. 33, 79 So.2d 474, 86 So.2d 19; United States v. Scovil, 348 U. S. 218 ; United States v. Liverpool & London & Globe Ins. Co., 348 U. S. 215 ; United States v. Acri, 348 U. S. 211 ; United States v. City of New Britain, 347 U. S. 81 ; United States v. Gilbert Associates, 345 U. S. 361 ; United States v. Security Trust & Sav. Bank, 340 U. S. 47 ; Illinois v. Campbell, 329 U. S. 362 ; United States v. Waddill, Holland & Flinn, Inc., 323 U. S. 353 . The application of state law in ascertaining the taxpayer's property rights and of federal law in reconciling the claims of competing lienors is based both upon logic and sound legal principles. This approach strikes a proper balance between the legitimate and traditional interest which the State has in creating and defining the property interest of its citizens and the necessity for a uniform administration of the federal revenue statutes.
This conflict should not be resolved by this Court, but by the highest court of the State of New York. We cannot say from the opinion of the Court of Appeals that it has been satisfactorily resolved. [ Footnote 6 ] We find no discussion in the court's opinion to indicate the nature of the property rights possessed by the taxpayer under state law. Nor is the application to be made of federal law clearly defined. We believe that it is in the interests of all concerned to have these questions decided by the state courts of New York. We therefore vacate the judgment
Subsequent to the Court of Appeals' decision in the instant case, and after this Court's decision in United States v. Bess, 357 U. S. 51 , the New York Court of Appeals decided the case of In re City of New York, 5 N.Y.2d 300, 184 N.Y.S.2d 585, 157 N.E.2d 587, on petition for a writ of certiorari sub nom. United States v. Coblentz, 363 U.S. 841. The Coblentz case is not authority for the disposition of the instant case. The latter involves a determination of property rights under § 36-a of the New York Lien Law, whereas the Coblentz case was concerned with the taxpayer's property interests under an assignment contract, § 475 of the New York Judiciary Law, McKinney's Consol.Laws, c. 30 and § B15-37.0 of the New York City Administrative Code.
I am unable to subscribe to the reasoning which underlies the Court's disposition of these cases. By holding that they both turn on whether the taxpayer had "property" under state law to which the Government's lien could attach, the Court has sanctioned a result consistently prohibited by us in a line of cases dealing with the priority of federal tax liens. [ Footnote 2/1 ]
against a taxpayer's property under §§ 3670 and 3671 of the Internal Revenue Code of 1939, [ Footnote 2/2 ] prevails over all other claims against such property except (1) those which attach and become "choate" before the federal lien attaches, and (2) those specifically protected by § 3672(a). [ Footnote 2/3 ] It is conceded that the interests of the subcontractors in the present cases are not protected by § 3672(a), and would not be considered choate under the applicable decisions. See United States v. Kings County Iron Works, 224 F.2d 232 (C.A. 2d Cir. 1955).
The Court believes, however, that the present cases are different because, under state law, the general contractor in Aquilino held his claim against the owner in trust for the subcontractors to the extent of their claims, and because the subcontractors in Durham Lumber were given, to the extent of their claims, a direct right of action against the owner in respect of his debt to the general contractor, and that, in these circumstances, the rights of the subcontractors in the owner's debt are superior to those of the general contractor. It is said that, to the extent of the subcontractors' claims, the general contractor, under state law, thus had no "property" interest in the amounts due him from the owner, and that, under the principles enunciated in United States v. Bess, 357 U. S. 51 , a federal tax lien can attach only to a property interest which exists under state law.
I cannot see how it makes any difference, for purposes of the federal tax lien statute, whether state law purports to prefer subcontractors over the general contractor and parties claiming through him by giving the subcontractors a lien on the general contractor's right of action against the owner or by giving them a prior right to collect the debt itself. In both instances, the owner is under a contractual duty to pay the general contractor, and the latter is under a contractual duty to pay the subcontractors. In both instances, the subcontractors are attempting to satisfy their claims against the general contractor. And in both instances, they are seeking to satisfy themselves by claiming precisely the same thing -- a prior right in the proceeds of the debt which arises by virtue of the contractual relationship between the owner and the general contractor. [ Footnote 2/4 ] In neither instance can the subcontractors collect more than that to which the subcontract entitles them, and in neither can the owner be required to pay more than that to which the main contract obligates him. If federal law requires that subordination of the general contractor's interest be ignored in the one instance, it does so equally in the other.
United States v. Acri, 348 U. S. 211 , 348 U. S. 213 . It is one thing to say, as the Court did in Bess, that the federal interest in uniform application of federal tax liens does not require, as a general rule, that state property concepts be disregarded. It is quite another to permit such concepts to control the extent of a federal lien's application in situations indistinguishable from those where the Court has in fact, rightly or wrongly, enforced a uniform federal rule. Given federal supremacy in this field, it surely cannot be that the federal courts may not appraise for themselves the true impact of state-created rights upon the priority of federal tax liens within the criteria established by this Court. Cf. Carpenter v. Shaw, 280 U. S. 363 , 280 U. S. 367 ; City of Detroit v. Murray Corporation, 355 U. S. 489 , 355 U. S. 492 . To recognize the substantial equivalence of the situations is not to create a new rule of federal property law, but to require an evenhanded application of an already established one. It seems to me that Judge Fuld of the New York Court of Appeals was quite right in holding in the Aquilino case that New York could not, consistently with the past decisions of our Court, defeat the otherwise superior federal lien upon the owner's debt to the general
contractor by converting the debt into a trust for the benefit of the subcontractor. [ Footnote 2/5 ]
To read Bess as the Court does can only lead to confusion in the administration of the federal tax lien statute. A taxpayer's property in a debt is surely diminished by the imposition of a lien on his interest, for he has no right to collect the liened portion nor to alienate it. Yet, in precisely this situation, we have held that the federal tax lien is not affected by such diminution. United States v. Liverpool & London Globe Ins. Co., 348 U. S. 215 . If this holding is to be preserved after today's decision, subsequent cases must turn on the elusive distinction between diminishing a greater property interest and initially conferring a lesser one. [ Footnote 2/6 ] The very difficulty
* [No. 23 is United States v. Durham Lumber Co. et al., post, p. 363 U. S. 522 .]
The text of these sections, applicable in the Aquilino case, are set forth in note 1 of the Court's opinion in No 1, ante, p. 363 U. S. 511 . The comparable provisions of the Internal Revenue Code of 1954, §§ 6321 and 6322, applicable in the Durham Lumber case, are printed in notes 1 and 2 of the Court's opinion in No. 23, post, p. 363 U. S. 524 .
It is noteworthy that the North Carolina law involved in the Durham Lumber case requires the general contractor to furnish the owner with a statement of subcontractors' claims "before receiving any part of the contract price, as it may become due, " and that it is thereafter the duty of the owner to retain an appropriate amount "from the money then due the contractor. " N.C.Gen.Stat.1950, § 44-8. (Emphasis added.) Although this section indicates that the general contractor has no right to collect the proceeds of the main contract until the statutory conditions are satisfied, it obviously recognizes the owner's contractual obligation as the real basis of the transaction and the source of the subcontractors' rights. The subcontractors' claims are thus not akin to liens on the owner's real estate, as this Court suggests, but are asserted solely in respect of the monetary claim held by the general contractor against the owner.
"It is, by now, exceedingly well settled that no state-created rule may defeat the paramount right of the United States to levy and collect taxes uniformly throughout the land. See United States v. Vorreiter, 355 U. S. 15 , revg. 134 Colo. 543, 307 P.2d 475; United States v. White Bear Brewing Co., 350 U. S. 1010 , revg. 227 F.2d 359; United States v. Colotta, supra, 350 U.S. 808, revg. 224 Miss. 33, 79 So.2d 474; United States v. Scovil, supra, 348 U. S. 218 , 348 U. S. 220 -221; United States v. City of New Britain, supra, 347 U. S. 81 , 347 U. S. 84 -87; United States v. Kings County Iron Works, supra, 224 F.2d 232, 237. That being so, it follows that the provision in this state's Lien Law, to which respondents point -- that funds received by a contractor from the owner for the improvement of real property shall be deemed 'trust funds' for the payment of subcontractors (§ 36-a; § 13, subd. (7)) -- may not be construed to affect the rights of the government or the priority of its tax lien."
MR. JUSTICE BLACK, while adhering to the dissenting views expressed by him in Commissioner v. Stern, 357 U. S. 39 , 357 U. S. 47 , and United States v. Bess, 357 U. S. 51 , 357 U. S. 59 , concurs in this opinion.