Court Opinion

ID: 3019434
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:21:00.489651+00
Date Added: 2024-06-11T08:33:14.075314
License: Public Domain

United States Bankruptcy Appellate Panel
                     FOR THE EIGHTH CIRCUIT
                            _______________

                              No. 97-6010
                            _______________

In re:                                *
                                      *
R. EUGENE JANSSEN and EUNICE          *
JANSSEN,                              *
          Debtors.                    *
                                      *   Appeal from the United
R. EUGENE JANSSEN and EUNICE          *   States Bankruptcy Court
JANSSEN,                              *   for the Northern District
                                      *   of Iowa
          Plaintiff-Appellees,        *
                                      *
v.                                    *
                                      *
UNITED STATES OF AMERICA,             *
                                      *
          Defendant-Appellant.        *

                            _______________

                 Submitted: September 18, 1997
                     Filed:   October 24, 1997
                         _______________

Before KOGER, Chief Judge, HILL, and DREHER, Bankruptcy Judges.
                         _______________

WILLIAM A. HILL, Bankruptcy Judge:

     The Internal Revenue Service (“IRS”), through the United
States, appeals from a judgment in favor of the debtors, R. Eugene
Janssen and Eunice Janssen (“Janssens”).        The bankruptcy court
permitted avoidance of an IRS tax lien pursuant to Section 545(2)
of the Bankruptcy Code.   The court further held that the IRS lien
did not reach property held in the name of REJ Farm Enterprises,
Inc. (“REJ”), a corporation wholly owned by the Janssens.    For the
reasons set forth below we reverse, in part, and affirm, in part
the rulings of the bankruptcy court.
                                     I
     The Janssens formed REJ as an Iowa corporation on December 27,
1983.     At that time, they personally held warranty deeds to nine
parcels    of   real   property   located    in    Woodbury   County,   Iowa,
consisting of both farmland and their homestead.
     On January 2, 1984, the Janssens transferred by quitclaim deed
their entire interest in the nine parcels of real property, as well
as all interest in their farm machinery and livestock, to REJ, in
exchange for stock in the corporation.            Although they retained no
residual interest in any of the transferred property, the Janssens
continued to live on the homestead.               Also on January 2, the
Janssens, as directors of REJ, called its first organizational
meeting, in the course of which R. Eugene Janssen was elected
president and treasurer, Eunice Janssen was elected secretary, and
the Janssen’s son, Darloe Janssen, was elected vice-president.
     On December 27, 1985, the Janssens amended their timely filed
federal income tax returns for the tax years of 1980 and 1981 to
show previously unreported income.          On February 10, 1986, the IRS
assessed the Janssens’ tax liability for the tax years of 1980 and
1981 at $275,359.22 and $140,157.98, respectively.            On February 9,
1987, the IRS filed a Notice of Federal Tax Lien Under Internal
Revenue Law with the Register of Deeds for Woodbury County against
the Janssens in the amount of $245,725.38.             The IRS renewed the
notice on February 16, 1992.
     In 1992, the IRS filed a complaint in the United States
District Court for the Northern District of Iowa against the
Janssens, their son Darloe, and REJ, in order to establish that REJ
was effectively the alter ego of the Janssens, as well as to
foreclose the federal tax liens on property formerly owned by the
Janssens but which was subsequently titled in REJ.            On October 28,
1993, the Janssens filed a petition for relief under Chapter 11 of
the United States Bankruptcy Code.          At the time of their filing,

                                     2
the Janssens’ only non-exempt assets consisted of money and REJ
stock.
     On November 15, 1993, the IRS filed a Proof of Claim for
Internal Revenue Taxes in the amount of $592,371.50, for the unpaid
federal income tax, statutory penalties, and accrued interest owed
by the Janssens as of the petition date.                  On April 14, 1995, the
Janssens commenced this adversary proceeding against the IRS, in
which they disputed both the amount and validity of the IRS’ proof
of claim, and additionally sought, inter alia, to determine the
validity of, and to avoid, the lien claimed by the IRS on their
money and REJ stock.         The IRS answer to the Janssens’ complaint
raised an “affirmative defense,” to wit, that REJ is the alter ego
of the debtors, and further sought a determination that the IRS
claim was both valid and wholly secured by the federal tax lien
which attached to all property and rights to property held by the
debtors in their own name and in the name of REJ, as their alleged
alter ego.     The IRS did not, however, take any steps to make REJ a
party.
     Both the Janssens and the IRS moved for summary judgment.                   The
Janssens sought a judgment in their favor avoiding the IRS lien on
their REJ stock and their money under both the Bankruptcy Code, 11
U.S.C. § 545(2), and the Internal Revenue Code, 26 U.S.C. §
6323(b)(1).     They asserted that Section 545(2) of the Bankruptcy
Code permits a trustee, and accordingly a debtor in possession, to
avoid    any   statutory     lien    that     is    not     enforceable   at    the
commencement of a case against a bona fide purchaser.               They further
asserted     that    Internal   Revenue      Code   Section    6323(b)(1)      voids
statutory tax liens asserted against purchasers of securities and
that they, as debtors in possession, met the requirements of
“purchaser,”        as   defined    in    Internal    Revenue     Code    Section
6323(h)(6).    The IRS responded that the Janssens did not qualify as
purchasers within the meaning of Section 6323(h)(6) even though

                                         3
they may have qualified as bona fide purchasers within the meaning
of Section 545(2).   Alternatively, the IRS asserted that REJ was
the alter ego of the Janssens and, accordingly, the assets of REJ
were assets of the estate, not of the Janssens.
     On August 21, 1996, the bankruptcy court issued its Partial
Summary Adjudication, in which it made two rulings which are now
before us on this appeal.   First, as to the matter of the alter ego
status of REJ, the court, relying in part on Zenith Radio Corp. v.
Hazeltine Research, Inc., 395 U.S. 100, 110-11, 89 S. Ct. 1562,
1569-70 (1969),   held that “[a]s a matter of law, the alter ego
claim is not a defense to the claims raised by the Janssens.    It is
a direct claim against the corporation.      Moreover, the IRS cannot
obtain an enforceable judgment against REJ in this adversary
proceeding because REJ is not a party.”      On this basis, and as to
this matter, the court granted the Janssens’ motion for partial
summary judgment and struck as insufficient the alter ego defense
of the IRS.
     Second, as to the issue of lien avoidance, the court found the
Janssens’ money and their shares of REJ stock to be securities
within the meaning of 26 U.S.C. § 6323(a), and found the purchasers
of these securities to be protected from the enforcement of tax
liens against them under 26 U.S.C. § 6323(b)(1)(A).        The court
found the Janssens, as Chapter 11 debtors in possession, to be
invested with the avoidance powers of a trustee, pursuant to 11
U.S.C. § 1107(a), including the power to avoid statutory liens
pursuant to 11 U.S.C. § 545(2).       Relatedly, the court determined
that a federal tax lien is a statutory lien which is subject to
avoidance under Section 545(2).
     The court then weighed the Janssens’ contention that the tax
lien which attached to the stock in REJ and the money is avoidable
because it would not be enforceable against hypothetical bona fide
purchasers, against the argument by the IRS that the lien is not

                                  4
avoidable because the bankruptcy trustee’s status as a bona fide
purchaser under 11 U.S.C. § 545(2) is not equivalent to status as
a “purchaser” under 26 U.S.C. § 6323.                 In doing so, the court
considered case law which directly addresses this issue:                Askanase
v. United States (In re Guyana Dev. Corp.), 189 B.R. 393 (Bankr.
S.D. Tex. 1995), which found that “the trustee as a bona fide
purchaser under 11 U.S.C. § 545 meets the requirements of a
purchaser under [26 U.S.C. §] 6323,” id. at 397, and United States
v. Hunter (In re Walter), 45 F.3d 1023 (6th Cir. 1995), which found
that the status of “hypothetical bona fide purchaser” under the
Bankruptcy Code did not rise to that of “purchaser” under the
Internal Revenue Code, id. at 1030.
     The     court   was   persuaded       by   the    reasoning   of     Guyana
Development, and made the following conclusions in accordance
therewith:

          The trustee acquires the highest status as a bona fide
          purchaser that there may be under the law.        In re
          Rench, slip op. at 14.      I see no reason to treat
          trustees as having given nominal or inadequate
          consideration in their capacity as bona fide purchasers
          solely because minimal consideration is sufficient, in
          some circumstances, to meet a definition of ‘value.’
          The court is also persuaded by the Janssen’s argument
          that the good faith element of bona fide purchaser
          status implies adequate consideration. . . .          I
          conclude that a trustee’s status as a bona fide
          purchaser, and thereby the Janssen’s status as debtors-
          in-possession with all powers of a trustee, is
          sufficient to avoid the lien on the REJ stock.

On January 16, 1997, after having resolved remaining issues, the
bankruptcy court entered a final judgment overruling the Janssens’
objection to the IRS’ claim, and ordering that the IRS’ lien on the
Janssens’ money and REJ stock be avoided pursuant to 11 U.S.C. §
545(2).

                                       5
                                    II
     Two issues have been presented for our consideration on this
appeal:    first, whether the bankruptcy court erred in equating the
status of “bona fide purchaser” under the Bankruptcy Code, with
that of a     “purchaser” under the Internal Revenue Code, thereby
allowing the debtors to avoid the federal tax lien of the IRS
pursuant to 11 U.S.C. § 545(2) and 26 U.S.C. § 6323(b)(1)(A);              and
second, whether the bankruptcy court erred in holding that it could
not consider the alter ego status of REJ without REJ’s presence as
a party in this adversary proceeding.

                                    III
     On    appeal,   the   bankruptcy     court’s   findings   of   fact   are
reviewed for clear error and its legal determinations are reviewed
de novo.     O’Neal v. Southwest Missouri Bank of Carthage (In re
Broadview Lumber Co.), 118 F.3d 1246, 1250 (8th Cir. 1997);           Natkin
& Co. v. Myers (In re Rine & Rine Auctioneers, Inc.), 74 F.3d 848,
851 (8th Cir. 1996);       see also FED. R. BANKR. P. 8013.1
     The facts as determined by the bankruptcy court in this matter
are not in dispute.        We turn to the legal issues which have been
presented to us.

     1
          Rule 8013 of the Federal Rules of Bankruptcy Procedure
reads as follows:

          On an appeal the district court or bankruptcy
          appellate panel may affirm, modify, or reverse a
          bankruptcy judge’s judgment, order, or decree or
          remand with instructions for further proceedings.
          Findings of fact, whether based on oral or
          documentary evidence, shall not be set aside unless
          clearly erroneous, and due regard shall be given to
          the opportunity of the bankruptcy court to judge the
          credibility of the witnesses.

FED. R. BANKR. P. 8013.

                                     6
                                     IV
     Bankruptcy Code Section 545(2) grants the bankruptcy trustee
the power to “avoid the fixing of a statutory lien on property of
the debtor to the extent that such lien . . . is not perfected or
enforceable at the time of the commencement of the case against a
bona fide purchaser that purchases such property at the time of
the commencement of the case, whether or not such a purchaser
exists . . . .”      11 U.S.C. § 545(2).    Bankruptcy Code Section 1107
delineates     the   “rights,   powers,    and   duties”   of   a    debtor   in
possession,    and   provides   in   relevant    part   that    “a   debtor   in
possession shall have all of the rights . . . and powers, and shall
perform all the functions and duties . . . of a trustee . . . .”
11 U.S.C. § 1107(a).        These sections, in tandem, allocate the
bankruptcy trustee’s avoidance powers as a hypothetical bona fide
purchaser, to a debtor in possession.
     Internal Revenue Code Section 6323(b)(1)(A) provides that,
“[e]ven though notice of a lien imposed by section 6321 has been
filed, such lien shall not be valid . . . with respect to a
security . . . as against a purchaser of such security who at the
time of purchase did not have actual notice or knowledge of the
existence of such lien . . . .”        26 U.S.C. § 6323(b)(1)(A).        Thus,
a “purchaser” is empowered under Internal Revenue Code Section
6323(b)(1)(A) to avoid the fixing of a Section 6321 lien on
securities.2

     2
          The term “security” is defined under Internal Revenue
Code Section 6323(h)(4) as meaning,

         any bond, debenture, note, or certificate or other
         evidence of indebtedness, issued by a corporation or
         a government or political subdivision thereof, with
         interest coupons or in registered form, share of
         stock, voting trust certificate, or any certificate
         of interest or participation in, certificate of
         deposit or receipt for, temporary or interim
         certificate for, or warrant or right to subscribe to

                                      7
     The IRS possesses a statutory tax lien on money and REJ stock
which the Janssens owned at the time of the filing of their
bankruptcy petition, pursuant to Internal Revenue Code Section
6321.3   The money and stock, which are the subjects of the Section
6321 lien, constitute securities within the definition of Internal
Revenue Code Section 6323(h)(4).
     The Section 6321 lien arose on February 10, 1986, pursuant to
Internal Revenue Code Section 6322,4 upon the IRS’s assessment of
the Janssens’ tax liability for their deficient 1980 and 1981 tax
returns.    Pursuant   to   Internal    Revenue   Code   Section      6323,
subsections (a) and (f)(1)(A)(i),5 the lien became valid as against

         or purchase, any of the foregoing;       negotiable
         instrument; or money.

26 U.S.C. § 6323(h)(4).
     3
           Section 6321 provides:

         If any person liable to pay any tax neglects or refuses to
         pay the same after demand, the amount (including any
         interest, additional amount, addition to tax, or
         assessable penalty, together with any costs that may
         accrue in addition thereto) shall be a lien in favor of
         the United States upon all property and rights to
         property, whether real or personal, belonging to such
         person.

26 U.S.C. § 6321.
     4
           Section 6322 provides:

         Unless another date is specifically fixed by law, the lien
         imposed by section 6321 shall arise at the time the
         assessment is made and shall continue until the liability
         for the amount so assessed (or a judgment against the
         taxpayer arising out of such liability) is satisfied or
         becomes unenforceable by reason of lapse of time.

26 U.S.C. § 6322.
     5
          Section 6323(a) provides that, “The lien imposed by
section 6321 shall not be valid as against any purchaser, holder
of security interests, mechanic’s lienor, or judgment lien

                                    8
purchasers, holders of security interests, mechanic’s lienors and
judgment lien creditors upon the IRS’ filing of its Notice of
Federal Tax Lien Under Internal Revenue Law with the Register of
Deeds for Woodbury County, Iowa, on February 9, 1987.
       The Janssens, as debtors in possession, possess the status of
“hypothetical bona fide purchasers” under Bankruptcy Code Section
545(2). They contend that this status is sufficiently equivalent to
that    of   a   “purchaser”   under   Internal      Revenue   Code   Section
6323(h)(6), so as to enable them to avoid the IRS’ Section 6321
lien under 26 U.S.C. § 6323(b)(1) and 11 U.S.C. § 545(2).                   The
nature of their avoidance power in this respect, if indeed any
exists, turns entirely upon the scope and meaning of these two
terms.
       “Bankruptcy is a creature of statute [and] [a]pplications to
the    bankruptcy   code   must,   therefore,   be    consistent   with     long
established canons of statutory construction.”          Windsor on the River
Assocs., Ltd. v. Balcor Real Estate Fin., Inc. (In re Windsor on the
River Assocs., Ltd.), 7 F.3d 127, 130 (8th Cir. 1993).                       The
Bankruptcy Code is silent as to the meaning of bona fide purchaser.
“Unless otherwise defined, words will be interpreted as taking their
ordinary, contemporary, common meaning.”          Perrin v. United States,
444 U.S. 37, 42,      S. Ct. 311, 314, 62 L.Ed.2d 199 (1979);           accord
United States v. Brummels, 15 F.3d 769, 773 (8th Cir. 1994);
Groseclose v. Bowen, 809 F.2d 502, 505 (8th Cir. 1987).               The

creditor until notice thereof which meets the requirements of
subsection (f) has been filed by the Secretary.” 26 U.S.C. §
6323(a). Subsection (f)(1)(A)(i), in turn, provides as to real
property that, “The notice referred to in subsection (a) shall be
filed [i]n the case of real property, in one office within the
State (or the county, or other governmental subdivision), as
designated by the laws of such State, in which the property
subject to the lien is situated. . . .” 26 U.S.C. §
6323(f)(1)(A)(i).

                                       9
ordinary meaning of     bona fide purchaser is generally understood to
be “‘[o]ne who has purchased property for value without notice of
any defects in the title of the seller.’”           United States v. Hunter
(In re Walter), 45 F.3d 1023, 1030 (6th Cir. 1995) (quoting BLACK’S
LAW DICTIONARY 177 (6th ed. 1990));        accord Internal Revenue Service
v. Diperna, 195 B.R. 358, 361 (E.D.N.C.1996);               United States v.
Battley (In re Berg), 188 B.R. 615, 619 (B.A.P. 9th Cir. 1995);             cf.
Carrens v. Carrens (In re Carrens), 198 B.R. 999, 1006 (Bankr.
M.D.Fla. 1996) (“It is generally established that a bona fide
purchaser for purposes of 11 U.S.C. § 545(2) is a purchaser who
takes for value without notice or knowledge of any adverse claim to
the property.”).
     The Internal Revenue Code defines the term “purchaser” for
purposes of Section 6323(b)(1)(A), under Internal Revenue Code
Section   6323(h)(6),    as   “a   person    who,   for   adequate   and   full
consideration in money or money’s worth, acquires an interest (other
than a lien or security interest) in property which is valid under
local law against subsequent purchasers without actual notice.”              26
U.S.C. § 6323(h)(6).
     A survey of recent case law addressing the interplay between
the bona fide purchaser status contemplated under the Bankruptcy
Code and the purchaser status defined under the Internal Revenue
Code, for purposes of lien avoidance under Internal Revenue Code
Section 6323 and Bankruptcy Code Section 545(2), reveals a variance
of opinion.    Two courts, including the bankruptcy court in this
matter, equate the two terms so as to provide for lien avoidance.6

     6
          See Askanase v. United States (In re Guyana Dev.
Corp.), 189 B.R. 393, 397 (Bankr. S.D. Tex. 1995) (“This court .
. . finds that the trustee as a bona fide purchaser under 11
U.S.C. § 545 meets the requirements of a purchaser under section
6323.”); In re Janssen, Bankr. No. 93-51776XS, 1996 WL 604226,
at *8 (Bankr. N.D. Iowa Aug. 21, 1996) (“I conclude that a
trustee’s status as a bona fide purchaser, and thereby the
Janssens’ status as debtors-in-possession with all the powers of

                                      10
The vast majority of courts, however, including the only two circuit
courts to have ruled on this issue, do not equate the meaning of the
terms, but rather, differentiate strongly between them.7   Our own

a trustee, is sufficient to avoid the lien on the REJ stock.”).
     7
          See Battley v. United States (In re Berg), No. 95-
36205, 1997 WL 461564, at *2 (9th Cir. Aug. 14, 1997) (“The
Trustee [as bona fide purchaser] does not qualify for the
exception provided by § 6323(b)(1).”), aff’g 188 B.R. 615 (B.A.P.
9th Cir. 1995); United States v. Hunter (In re Walter), 45 F.3d
1023, 1030 (6th Cir. 1995) (“Because a bona fide purchaser is not
necessarily a purchaser for purposes of Internal Revenue Code §
6323(b)(2), it follows that a trustee standing in the shoes of a
hypothetical bona fide purchaser does not fall within the
protection of this statute.”); Internal Revenue Service v.
Diperna, 195 B.R. 358 (E.D.N.C. 1996) ( “Although the trustee
steps into the shoes of a bona fide purchaser, this is all he or
she does; the court will not assume that the trustee has
characteristics beyond that which a hypothetical bona fide
purchaser would have.”); United States v. Weissing, No. 93-1507-
CIV-T-17A, 1995 WL 579928, at *5 (M.D. Fla. July 20, 1995) (“This
Court . . . distinguishes between a purchaser . . . and a trustee
standing in the shoes of a bona fide purchaser. . . . trustees
may not use the exceptions created under 26 U.S.C. § 6323 to
escape federal tax liens.”); Straight v. First Interstate Bank
of Commerce (In re Straight), 200 B.R. 923, 929-30 (Bankr. D.
Wyo. 1996) ( “A trustee standing in the shoes of a bona fide
purchaser is not the purchaser without knowledge that § 6323 is
intended to protect.”) aff’d,, 207 B.R. 217 (B.A.P. 10th Cir.
1997); Cleary v. United States (In re Cleary), 210 B.R. 741,
744-45 (Bankr. N.D. Ill. 1997) (“[A] trustee standing in the
shoes of a hypothetical bona fide purchaser who has been deemed
to have ‘purchased’ the debtor’s estate for ‘value’ will not find
protection under § 6323 where a purchaser must have paid
‘adequate and full consideration.’”); Mitchell v. United States
(In re Mitchell), No. 95-31553-B-11, 1997 WL 265716, at *3
(Bankr. E.D. Cal. Jan.17, 1997) (“[T]he status of a trustee as a
‘bona fide purchaser’ for purposes of 11 U.S.C. § 545(2) may not
be used in connection with 26 U.S.C. § 6323(b) lien voidance
rights.”); In re Linn, No. 96-34634-BKC-SHF, 1997 WL 547844, at
*2 (Bankr. S.D. Fla. Aug. 26, 1997) (“This Court . . . interprets
Congress’ definition of ‘purchaser’ in Section 6323 as a
different entity than a bona fide purchaser as contemplated in
Section 545 of the Bankruptcy Code. Because the Trustee does not
have the characteristics of a ‘purchaser’, she cannot avoid the
IRS lien on the Debtor’s property.”); Carrens v. United States

                                 11
analysis of this issue leads us to conclude that the reasoning of
these latter courts is correct.
     Specifically, on a purely definitional basis, we find it
untenable to equate the meaning of the term “bona fide purchaser”
under    the Bankruptcy Code with that of “purchaser” under the
Internal Revenue Code, for the two are not one and the same.    As the
Court of Appeals for the Sixth Circuit noted in United States v.
Hunter (In re Walter), 45 F.3d 1023 (6th Cir. 1995):

         ‘[V]alue’ is a much lower standard than ‘adequate and
         full consideration in money or money’s worth.’
         Because a bona fide purchaser is not necessarily a
         purchaser for purposes of Internal Revenue Code §
         6323(b)(2), it follows that a trustee standing in the
         shoes of a hypothetical bona fide purchaser does not
         fall within the protection of this statute.

Id. at 1030 (footnotes omitted).
     Moreover, equating the terms becomes even less palatable when
considered in light of the substantial policy implications inherent
to the Internal Revenue Code, generally, and thus, to the codal
provisions at issue on this appeal.     As the Ninth Circuit stated in
Battley v. United States (In re Berg), 121 F.3d 535 (9th Cir.
1997):

              ‘[T]axes are the lifeblood of government.’ Bull
         v. United States, 295 U.S. 247, 259, 55 S. Ct. 695,
         699, 79 L.Ed. 1421 (1935). A court will not lightly
         assume that Congress intended to subordinate the
         efficacy   of   the  federal   tax   laws  to   other
         considerations.     Here § 6321 is general and
         peremptory. The exceptions permitted under § 6323 are

(In re Carrens), 198 B.R. 999, 1006 (Bankr. M..D. Fla. 1996)
(“[T]he Bankruptcy Code does not grant hypothetical possession or
other hypothetical characteristics to a bona fide purchaser.
Since a purchaser must have these characteristics to satisfy the
specific requirements of 26 U.S.C. § 6323(b), the Trustee may not
avoid the lien under 11 U.S.C. § 545(2).”).

                                   12
         carefully crafted and narrowly limited. There is no
         reference whatsoever to a particular exception for a
         trustee in bankruptcy.
              Giving §§ 6321 and 6323 the dominant position
         they deserve, we hold that the powers conferred by
         Bankruptcy Code § 545(2) on the Trustee as a
         hypothetical [bona fide purchaser] are not sufficient
         to satisfy the conditions of [Internal Revenue Code]
         § 6323. As the Sixth Circuit has held, a good faith
         purchaser is not necessarily a purchaser ‘for adequate
         and full consideration.’    In re Walter, 45 F.3d at
         1030. The Trustee does not qualify for the exception
         provided by §6323(b)(1).”

Id. at 537.    Each of these considerations, in isolation, leads us
to conclude that the debtors must not prevail upon this issue.
         However, our determination is additionally supported by
reasons quite apart from the definitional and policy considerations
which factor into our independent analysis of this issue.         The
United States Bankruptcy Appellate Panel of the Ninth Circuit
presaged our instant concerns in      United States v. Battley (In re
Berg), 188 B.R. 615 (B.A.P. 9th Cir. 1995), when it stated that,

              Unlike the bankruptcy judge, we find the
         interpretation of Internal Revenue Code section
         6323(b) by the Sixth Circuit to be both reasonable and
         authoritative. Consistent application of federal law
         is an important goal, and a lower federal court should
         only deviate under compelling circumstances from the
         interpretation placed on a federal statute by the only
         Circuit to have spoken [thereon]. . . .

Id. at 620.
     This issue is one of first impression for us, and one upon
which the Court of Appeals for the Eighth Circuit has not yet
spoken.8    Absent precedential directive from the Eighth Circuit,

     8
          The Eighth Circuit addressed a related issue in its
decision in Drewes v. Carter (In re Woods Farmers Coop. Elevator
Co.), 946 F.2d 1411 (8th Cir. 1991). In Woods Farmers, the court
addressed the question of whether the status of a trustee as a
hypothetical bona fide purchaser under Bankruptcy Code Section

                                 13
and very mindful of the purpose and placement of the Bankruptcy
Appellate Panels within the framework of the United States Courts,
we are not therefore indifferent to the only decisions rendered on
this issue by other Circuit Courts of Appeals.      Indeed, in light of
their unity of approach in addressing this matter, we afford them
significant precedential weight.
      Therefore, after careful consideration of the claims between
the parties in the instant matter, the law upon which they rely to
support their respective arguments, and the case law concerning
this relatively novel issue, we will follow the well-reasoned
decisions of the only other circuit courts to have ruled on this
issue. We conclude, in accordance with the decisions rendered by
the   Courts   of   Appeals   for   the   Sixth   and   Ninth   Circuits,
respectively, in Walter and Battley, as discussed herein, that the
Janssens’ status as hypothetical bona fide purchasers under the
Bankruptcy Code does not rise to the level of that of a purchaser,
as defined under Internal Revenue Code Section 6323(h)(6), so as to

545(2), and as further defined under North Dakota law, was
coterminous with that of a buyer in the ordinary course of
business, as defined under North Dakota law, for the purposes of
statutory lien avoidance under N.D. CENT. CODE § 60-02-25.1
(1985), which provided that:

        The lien created under this section shall be preferred to
        any lien or security interest in favor of any creditor of
        the warehouseman regardless of the time when the
        creditor’s lien or security interest attached to the
        grain. The lien created by this section is discharged as
        to grain sold by the warehouseman to a buyer in the
        ordinary course of business.

Id. Noting that the status of a buyer in the ordinary course of
business required “something more than [that required of] a bona
fide purchaser,” the court disallowed the trustee, as a
hypothetical bona fide purchaser, to avoid the statutory liens
there in question under Bankruptcy Code Section 545(2). 946 F.2d
at 1414.

                                    14
permit them to avoid the statutory tax lien of the IRS under 11
U.S.C. § 545(2) and 26 U.S.C. § 6323(b)(1)(A).

                                   V
     The IRS next urges us to overturn the bankruptcy court’s

ruling below which dismissed the “affirmative defense” of the IRS,

thereby preventing the IRS lien from reaching the assets the

Janssens had transferred to REJ.    The bankruptcy court’s reasoning

was twofold.    First, the court held that as a matter of law, the

alter ego claim was not an affirmative defense, but rather a direct

claim against the corporation.   Second, the court reasoned that the

IRS could not obtain a judgment against REJ in this adversary

proceeding because REJ was not made a party to the adversary

proceeding.    On both counts, the bankruptcy court was correct.9

     First, the claim that REJ is the alter ego of the Janssens10

     9
          We note that, by reason of our prior holding concerning
the validity of the IRS lien, this issue has less significance.
As the IRS lien on the REJ stock cannot be superseded, the IRS
will be able to recover REJ assets by enforcing its lien.
     10
          The Eighth Circuit examined the alter ego doctrine in
the context of bankruptcy in Constellation Dev. Corp. v. Dowden
(In re B.J. McAdams, Inc.), 66 F.3d 931(8th Cir. 1995), cert.
denied, --- U.S. ----, 116 S. Ct. 2546, 135 L.Ed.2d 1067 (1996).
The Eighth Circuit’s discussion on this matter provides
background context to the claims of the parties before us:

          ‘[A] bankruptcy court has full power to inquire into
          the validity of any claim asserted against the
          estate and to disallow it if it is ascertained to be
          without lawful existence. Pepper v. Litton, 308
          U.S. 295, 305, 60 S. Ct. 238, 244, 84 L.Ed. 281
          (1939). . . .
               Under the alter ego doctrine, the legal fiction
          of the separate corporate entity may be rejected in

                                   15
so as to allow creditors of the Janssens to reach corporate assets

to satisfy their claims was not an affirmative defense.             An

affirmative defense is a “matter asserted by a defendant which,

assuming the complaint to be true, constitutes a defense to it.”

BLACK’S LAW DICTIONARY 60 (6th ed. 1990).   In this case, the Janssens’

complaint objected to the amount and validity of the IRS’s claim

and sought to avoid any tax lien the IRS might have against the

Janssens’ stock and the money.      Regardless of whether REJ is the

alter ego of the Janssens, we fail to see how such a determination

would constitute a defense to either of the Janssens’ claims.

Accordingly, the IRS’ alter ego claim was properly characterized by

the bankruptcy court as being a separate claim against REJ.11

          the case of a corporation that (1) is controlled by
          another to the extent that it has independent
          existence in form only, and (2) is used as a
          subterfuge to defeat public convenience, to justify
          wrong, or to perpetrate a fraud. Lakota Girl Scout
          Council, Inc. v. Havey Fund-Raising Management,
          Inc., 519 F.2d 634, 638 (8th Cir. 1975). ‘The
          essence of the [alter ego] test is whether, under
          all the circumstances, the transaction carries the
          earmarks of an arm’s length bargain. If it does
          not, equity will set it aside.’ Pepper, 308 U.S. at
          307, 60 S. Ct. at 245.

Id. at 936-37.
     11
          The IRS cites In re Velis, 133 B.R. 497 (D.N.J. 1991)
and United States v. Charnock (In re Charnock), 97 B.R. 619 (M.D.
Fla. 1989) for the proposition that Section 541 renders property
of a corporation wholly owned by a debtor property of the debtor
and does not require a separate adjudication on an alter ego
claim. Neither case stands for this proposition. Indeed, both
support the notion that a separate action which includes the
corporation is a necessary prerequisite to piercing the corporate
veil.

                                   16
      Second, the bankruptcy court correctly held that no such

separate claim could be made against, or be binding upon, REJ in

its absence as a party to this action.              For this, we begin with an

examination of Zenith Radio Corp. v. Hazeltine Research, Inc., 395

U.S. 100, 89 S. Ct. 1562, 23 L.Ed.2d 129 (1969), which the

bankruptcy court cited in support of its ruling that it lacked

jurisdiction       over   REJ.     In   this    decision,     the   Supreme   Court

addressed       circumstances      in   which       Zenith    Radio   Corporation

(“Zenith”) had won, in part, a judgment for treble damages in the

amount     of   $35,000,000.00      against     its   former    patent    licensor

Hazeltine Research, Inc., (HRI), as well as against HRI’s wholly

owned subsidiary Hazeltine Corporation (Hazeltine), despite the

fact that “Hazeltine was not named as a party, was never served and

did not formally appear at the trial.”              Id., 395 U.S. at 110, 89 S.

Ct. at 1570.       Addressing this failure to name Hazeltine as a party

and   to   serve    it    with   process,     the   Court    made   the   following

determinations:

           The Court of Appeals was quite right in vacating the
           judgments against Hazeltine. It is elementary that
           one is not bound by a judgment in personam resulting
           from litigation in which he is not designated as a
           party or to which he has not been made a party by
           service of process.    The consistent constitutional
           rule has been that a court has no power to adjudicate
           a personal claim or obligation unless it has
           jurisdiction over the person of the defendant.

Id., 395 U.S. at 110, 89 S. Ct. at 1569;               cf. Class Plaintiffs v.

City of Seattle, 955 F.2d 1268, 1277 (9th Cir.) (citing Insurance

                                         17
Corp. of Ireland v. Campagnie des Bauxites de Guinee, 456 U.S. 694,

702, 102 S. Ct. 2099, 2104, 72 L.Ed.2d 492 (1982), and Hansberry v.

Lee, 311 U.S. 32, 41, 61 S. Ct. 115, 117, 85 L.Ed.2d 22 (1940))

(“This general rule of constitutional fair play represents a

restriction on judicial power that flows from the due process

guarantees of the fifth and fourteenth amendments.”), cert. denied

sub nom. Hoffer v. City of Seattle, 506 U.S. 953, 113 S. Ct. 408,

121 L.Ed.2d 333 (1992),   Id. at 1277.   Pertinent to this appeal,

the Zenith Court went on to address the impact of the potential

alter ego status of the unnamed and unserved party upon the

jurisdictional question before it, as follows:

            Perhaps Zenith could have proved and the trial
       court could have found that HRI and Hazeltine were
       alter egos; but absent jurisdiction over Hazeltine,
       that determination would bind only HRI. If the alter
       ego issue had been litigated, and if the trial court
       had decided that HRI and Hazeltine were one and the
       same entity and that jurisdiction over HRI gave the
       court jurisdiction over Hazeltine, perhaps Hazeltine’s
       appearance before judgment with full opportunity to
       contest jurisdiction would warrant entry of judgment
       against it. But that is not what occurred here.

Id., 395 U.S. at 110, 89 S. Ct. at 1569-70.

     Under the facts at hand, REJ has not been named a party, has

not been served with process, and has not made an appearance before

the bankruptcy court or this Panel.   Under Zenith and its progeny,

even had the bankruptcy court found REJ to be the Janssens alter

ego, that finding alone, absent the court’s jurisdiction over REJ,

would be binding only upon the Janssens, and not upon REJ.   Id.;

                                18
Panther Pumps & Equip. Co. v. Hydrocraft, Inc., 566 F.2d 8, 23 (7th

Cir. 1977), cert. denied sub nom. Beck v. Morrison Pump Co., Inc.,

435 U.S. 1013, 98 S. Ct. 1887, 56 L.Ed.2d 395 (1978).         Thus, we

conclude that the IRS may not, as it claims, reach the assets

titled in REJ in order to satisfy the individual tax liabilities of

the Janssens, for the simple reason that REJ has not been named as

a party in these proceedings.

                                 VI

     ACCORDINGLY, the judgment in favor of the Janssens, permitting

them to avoid the IRS lien on their money and REJ stock, is

REVERSED.    In all other respects the judgement is AFFIRMED.

     A true copy.

            Attest:

                 CLERK, U.S. BANKRUPTCY   APPELLATE   PANEL   FOR   THE
                 EIGHTH CIRCUIT

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