Source: https://www.law.cornell.edu/supremecourt/text/363/237
Timestamp: 2019-08-20 02:18:06
Document Index: 238093987

Matched Legal Cases: ['§ 7403', '§ 2410', '§ 7403', '§ 7424', '§ 7403', '§ 2410', '§ 2410', '§ 7424', '§ 2410', '§ 7424', '§ 6325', '§ 7424', '§ 2410', '§ 2410', '§ 2410', '§ 2410', '§ 7424', '§ 2410', '§ 6321', '§ 6322', '§ 6323', '§ 6325', '§ 2410', '§ 1444', '§ 2410', '§ 6325']

UNITED STATES of America, Petitioner, v. William J. BROSNAN et al. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a National Banking Association, Petitioner, v. UNITED STATES of America. | US Law | LII / Legal Information Institute
363 U.S. 237 (80 S.Ct. 1108, 4 L.Ed.2d 1192)
Argued: March 21, 22, 1960.
dissent, CLARK, BLACK, FRANKFURTER, THE CHIEF JUSTICE [HTML]
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. 1 Subsequently, the United States instituted this suit under 26 U.S.C. 7403, 26 U.S.C.A. § 7403, seeking an enforcement of its tax lien by foreclosure and sale. 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. 3 Cir., 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, 28 U.S.C.A. § 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 divested 'only with the consent of the United States and in the manner prescribed by Congress.' 9 Cir., 265 F.2d 862, 869. The Court did not reach the question of the effect which California law purports to give to the exercise of the power of sale upon junior liens.
Federal tax liens are wholly creatures of federal statute. Detailed provisions govern their creation, continusance, validity, and release. 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, 63 S.Ct. 573, 87 L.Ed. 838. 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 e adopted as the governing federal law, or whether a uniform nationwide federal rule should be formulated.
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. 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.
As early as 1868, Congress had authorized a suit by the United States to enforce its own tax lien. 5 A similar provision now appears as 26 U.S.C. 7403, 26 U.S.C.A. § 7403. 6 However, 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. 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, 26 U.S.C.A. § 7424, 8 which gives the holder of a prior-filed lien the right to enforce it by civil action against the United States, subject to the exhaustion of certain administrative remedies. The court is to proceed to 'a final determination of all claims to or liens upon the property in question' in the same manner as if the action had been brought by the Government to enforce its lien under § 7403. The latter section requires the court to determine the merits of all claims to the property, and in case the United States establishes such a claim, permits, but does not require, the court to order a judicial sale. The details of the procedure to be followed in case of judicial sale are not specified, nor is the United States expressly given any right to redeem.
In 1931, Congress, for similar reasons, passed the predecessor of 28 U.S.C. 2410, 28 U.S.C.A. § 2410, whih gives a private lienor 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. 9 The action can be brought in a state court, but is removable to a federal court. 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.
The Government, however, aruges 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 11 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 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 by and large required junior lienors to be joined as parties to judicial proceedings; or that regardless of the existence and effectiveness of state procedures, a cloud on the title could only be removed conclusively by a judicial determination binding on the United States. In any event, the basic question is not what the existing state of the law was, or even what Congress believed it to be, but whether Congress intended to exclude the application of all state procedures, whatever their existence or effectiveness might be. No such inference can be drawn from the legislative statements referred to.
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, 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. 13 Under 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. The Siren, 7 Wall. 152, 19 L.Ed. 129; State of Minnesota v. United States, 305 U.S. 382, 59 S.Ct. 292, 83 L.Ed. 235; United States v. State of Alabama, 313 U.S. 274, 61 S.Ct. 1011, 85 L.Ed. 1327. It has been suggested that this rpinciple applies only where the Government holds a fee interest or such other interest in the property as to render it an indispensable party under state law. See United States v. Cless, 3 Cir., 254 F.2d 590, 592. That, however, seems a dubious distinction, since whether or not the United States is an indispensable party to a judicial proceeding cannot depend on state law. See State of Minnesota v. United States, supra, 305 U.S. at page 386, 59 S.Ct. at page 294. 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, 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.
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.' 1 The Committee pointed out that 'there is no method whereby the lien for taxes may be discharged without payment. Although the lien may * * * be valueless to the United States, it remains a cloud on the title which the prior lienor is powerless to remove.' 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. * * *' It declared that '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 lien holder 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.' (Italics added.) Furthermore, the Congress understood and intended that foreclosure under state proceduresby court or private sale without notice to the United States 'could not possibly discharge the Government's lien.' (Chairman Graham of the House Judiciary Committee, manager of the bill on the floor.)
The fact about it is that the Court presupposes, wholly apart from 28 U.S.C. 2410, 28 U.S.C.A. § 2410 and 26 U.S.C. 7424, 26 U.S.C.A. § 7424, that the 'long-standing 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 priorfiled 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 his delegate to release the lien under § 6325 of the Internal Revenue Code. 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 of a bond conditioned on the payment of the amount of the lien, or (2) to execute a partial release of the property involved where such a discharge will not jeopardize the Government's interest. This provision, in itself, seems entirely adequate to protect moneylenders from suffering any injustice, but the Congress did not stop there. It gave such a lienholder two additional remedies. These alternative and additional methods are set out in 26 U.S.C. 7424, 26 U.S.C.A. § 7424 and 28 U.S.C. 2410, 28 U.S.C.A. § 2410.
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 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, 1941, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581, and is by no means the test. See Commonwealth of Pennsylvania v. Nelson, 1956, 350 U.S. 497, 76 S.Ct. 477, 100 L.Ed. 640. 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 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 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.
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. Only in those cases where government liens are involved would lienholders have to give notice to the United States. This would protect the public revenue and cause no more hardship on money-lenders than they agreed to and have up until today had to bear under § 2410 and § 7424.
Subsequent to the entry of judgment, but prior to the sale, the mortgagees attempted to join the United States as a party under 28 U.S.C. 2410, 28 U.S.C.A. § 2410. We agree with the District Court that that attempt did not comply with the statute.
See 26 U.S.C. 6321, 26 U.S.C.A. § 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).
46 Stat. 1528, as amended, 56 Stat. 1026. As presently codified, 28 U.S.C. 2410, 28 U.S.C.A. § 2410, provides:
28 U.S.C. 1444, 28 U.S.C.A. § 1444.
The House Committee which reported a bill designed to achieve the sae objective as § 2410 stated (H.R.Rep. No. 95, 71st Cong., 2d Sess. 13):
For the sake of brevity, see note 11, at pages 247249 of 363 U.S., page 1114 of 80 S.Ct., 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
'(b) Partial Discharge of Property.
'(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.' 68A Stat. 781, 26 U.S.C. 6325, 26 U.S.C.A. § 6325.
UNITED STATES, Petitioner, v. BUFFALO SAVINGS BANK.