Opinion ID: 507186
Heading Depth: 3
Heading Rank: 1

Heading: Does existing case law foreclose the availability of equitable relief?

Text: 14 On the basis of Southern Bank v. I.R.S., 770 F.2d 1001 (11th Cir.1985), cert. denied sub nom. Mid-State Homes, Inc. v. United States, 476 U.S. 1169, 106 S.Ct. 2890, 90 L.Ed.2d 977 (1986), the district court concluded that equitable relief was unavailable to Provident and First American. In Southern Bank, two senior lienors conducted nonjudicial foreclosure sales without notifying the IRS. Each lienor purchased the property at the respective sales. The Eleventh Circuit held that the senior liens were extinguished, leaving the property subject only to the government's liens. Id. at 1009. 15 In reaching this decision, the court applied Alabama's rule of merger. Id. at 1007. When the lienors contended that elevating the government's junior liens would be inequitable, they did not argue that Alabama law would allow an equitable exception to the merger rule. Instead, after the court determined that the liens did not survive the sale, the lienors apparently argued that Alabama law would provide equitable relief on the priority issue. The court disagreed, stating we cannot permit states to nullify the effectiveness of the federal tax lien ... by applying various equitable principles recognized by the state. Id. at 1009. 16 We agree with the Eleventh Circuit that, as to priority issues, state equitable principles do not apply. If a federal statute does not address a priority issue, courts generate a federal rule to decide the issue. Brosnan, 363 U.S. at 240, 80 S.Ct. at 1110. In the case before us, however, we deal with a property issue because we must determine whether Provident's lien survived the sale. Aquilino v. United States, 363 U.S. 509, 512-14, 80 S.Ct. 1277, 1279-80, 4 L.Ed.2d 1365 (1960), and United States v. Brosnan, 363 U.S. 237, 240-42, 80 S.Ct. 1108, 1110-11, 4 L.Ed.2d 1192 (1960), both specify that courts look to state law to determine the extent of an individual's property interest in cases involving the federal tax liens. Aquilino makes clear that the property issue is analytically distinct from the priority issue. 363 U.S. at 512-14, 80 S.Ct. at 1279-80. Because Southern Bank dealt with a priority issue, the case does not apply here. 17 We reject the government's contention that United States v. Polk, 822 F.2d 871 (9th Cir.1987), precludes the availability of equitable relief on the merger issue. In Polk, the senior lienors conducted a foreclosure sale without notifying the IRS. Id. at 872. The court held that, under Arizona law, the senior liens were extinguished regardless of the senior lienors' intent. Id. at 874 (quoting Best Fertilizers of Arizona, Inc. v. Burns, 116 Ariz. 492, 493, 570 P.2d 179, 180 (1977)). Polk deals with Arizona law and has no bearing on whether equitable relief is available under California law. The senior lienor's intent is irrelevant under Arizona law, but not under California law. See Ito v. Schiller, 213 Cal. 632, 3 P.2d 1, 2 (1931); Strike v. Trans-West Discount Corp., 92 Cal.App.3d 735, 155 Cal.Rptr. 132, 137-38 (1979). Polk therefore does not preclude the availability of equitable relief. 18