InRe: Spearing Tool v. ( 2005 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 05a0271p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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In re: SPEARING TOOL AND MANUFACTURING CO.,
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INC.,
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Debtor.
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No. 04-1053
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UNITED STATES OF AMERICA, -
Appellant, -
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v.
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CRESTMARK BANK; CRESTMARK FINANCIAL
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Appellees. -
CORPORATION,
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Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 03-72070—Nancy G. Edmunds, District Judge.
Argued: March 11, 2005
Decided and Filed: June 21, 2005
Before: BOGGS, Chief Judge; COOK and BRIGHT, Circuit Judges.*
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COUNSEL
ARGUED: Teresa E. McLaughlin, DEPARTMENT OF JUSTICE, TAX DIVISION, Washington,
D.C., for Appellant. Steven P. Ross, SHAHEEN, JACOBS & ROSS, Detroit, Michigan, for
Appellees. ON BRIEF: Teresa E. McLaughlin, Michael J. Haungs, DEPARTMENT OF JUSTICE,
TAX DIVISION, Washington, D.C., for Appellant. Steven P. Ross, William R. Huffman,
SHAHEEN, JACOBS & ROSS, Detroit, Michigan, Richard E. Shaw, HAMOOD &
FERGESTROM, Troy, Michigan, for Appellees. Joseph A. Kuiper, Jeffrey O. Birkhold, WARNER,
NORCROSS & JUDD, Grand Rapids, Michigan, Laurie A. Thompson, Michael W. Ullman,
ULLMAN, ULLMAN & VAZQUEZ, Boca Raton, Florida, Lloyd M. Green, OTTERBOURG,
STEINDLER, HOUSTON & ROSEN, New York, New York, for Amici Curiae.
*
The Honorable Myron H. Bright, Circuit Judge of the United States Court of Appeals for the Eighth Circuit,
sitting by designation.
1
No. 04-1053 In re Spearing Tool and Manufacturing Co. Page 2
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OPINION
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COOK, Circuit Judge. In this case arising out of bankruptcy proceedings, the government
appeals the district court’s reversal of the bankruptcy court’s grant of summary judgment for the
government. For the following reasons, we reverse the district court, and affirm the bankruptcy
court.
I. Background and Procedural History
In April 1998, Spearing Tool and Manufacturing Co. and appellee Crestmark1 entered into
a lending agreement, which granted Crestmark a security interest in all of Spearing’s assets. The
bank perfected its security interest by filing a financing statement under the Uniform Commercial
Code, identifying Spearing as “Spearing Tool and Manufacturing Co.,” its precise name registered
with the Michigan Secretary of State.
In April 2001, Spearing entered into a secured financing arrangement with Crestmark, under
which Crestmark agreed to purchase accounts receivable from Spearing, and Spearing granted
Crestmark a security interest in all its assets. Crestmark perfected its security interest by filing a
UCC financing statement, again using Spearing’s precise name registered with the Michigan
Secretary of State.
Meanwhile, Spearing fell behind in its federal employment-tax payments. On October 15,
2001, the IRS filed two notices of federal tax lien against Spearing with the Michigan Secretary of
State. Each lien identified Spearing as “SPEARING TOOL & MFG. COMPANY INC.,” which
varied from Spearing’s precise Michigan-registered name, because it used an ampersand in place
of “and,” abbreviated “Manufacturing” as “Mfg.,” and spelled out “Company” rather than use the
abbreviation “Co.” But the name on the IRS lien notices was the precise name Spearing gave on its
quarterly federal tax return for the third quarter of 2001, as well as its return for fourth-quarter 1994,
the first quarter for which it was delinquent. For most of the relevant tax periods, however, Spearing
filed returns as “Spearing Tool & Manufacturing”—neither its precise Michigan-registered name,
nor the name on the IRS tax liens.
Crestmark periodically submitted lien search requests to the Michigan Secretary of State,
using Spearing’s exact registered name. Because Michigan has limited electronic-search
technology, searches disclose only liens matching the precise2 name searched—not liens such as the
IRS’s, filed under slightly different or abbreviated names. Crestmark’s February 2002 search
results came back from the Secretary of State’s office with a handwritten note stating: “You may
wish to search using Spearing Tool & Mfg. Company Inc.” But Crestmark did not search for that
name at the time, and its exact-registered-name searches thus did not reveal the IRS liens. So
Crestmark, unaware of the tax liens, advanced more funds to Spearing between October 2001 and
April 2002.
On April 16, 2002, Spearing filed a Chapter-11 bankruptcy petition. Only afterward did
Crestmark finally search for “Spearing Tool & Mfg. Company Inc.” and discover the tax-lien
1
We refer to both Crestmark Bank and Crestmark Financial Corporation as “Crestmark,” the difference between
them being immaterial here.
2
The search engine ignores various “noise words” and their abbreviations, including “Incorporated” and
“Company,” but not “Manufacturing” or “and.”
No. 04-1053 In re Spearing Tool and Manufacturing Co. Page 3
notices. Crestmark then filed the complaint in this case to determine lien priority. The bankruptcy
court determined the government had priority; the district court reversed. The questions now before
us are whether state or federal law determines the sufficiency of the IRS’s tax-lien notices, and
whether the IRS notices sufficed to give the IRS liens priority.
II. Federal law controls whether the IRS’s lien notice sufficed.
Crestmark argues Michigan law should control the form and content of the IRS’s tax lien
with respect to taxpayer identification. The district court, though it decided in favor of Crestmark
on other grounds, rightly disagreed.
When the IRS files a lien against a taxpayer’s property, it must do so “in one office within
the State . . . 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). The Internal Revenue Code provides that the form and
content “shall be prescribed by the [U.S. Treasury] Secretary” and “be valid notwithstanding any
other provision of law regarding the form or content of a notice of lien.” 26 U.S.C. § 6323(f)(3)
(emphasis added). Regulations provide that the IRS must file tax-lien notices using IRS Form 668,
which must “identify the taxpayer, the tax liability giving rise to the lien, and the date the assessment
arose.” 26 C.F.R. § 301.6323(f)-1(d)(2). Form-668 notice “is valid notwithstanding any other
provision of law regarding the form or content of a notice of lien. For example, omission from the
notice of lien of a description of the property subject to the lien does not affect the validity thereof
even though State law may require that the notice contain a description of property subject to the
lien.” § 301.6323(f)-1(d)(1); see also United States v. Union Cent. Life Ins. Co., 368 U.S. 291, 296
(1961) (Michigan’s requirement that tax liens describe relevant property “placed obstacles to the
enforcement of federal tax liens that Congress had not permitted.”).
The plain text of the statute and regulations indicates Form-668 notice suffices, regardless
of state law. We therefore need only consider how much specificity federal law requires for
taxpayer identification on tax liens.
III. The notice here sufficed.
An IRS tax lien need not perfectly identify the taxpayer. See, e.g., Hudgins v. IRS (In re
Hudgins), 967 F.2d 973, 976 (4th Cir. 1992); Tony Thornton Auction Serv., Inc. v. United States,
791 F.2d 635, 639 (8th Cir. 1986); Reid v. IRS (In re Reid), 182 B.R. 443, 446 (Bankr. E.D. Va.
1995). The question before us is whether the IRS’s identification of Spearing was sufficient. We
conclude it was.
The critical issue in determining whether an abbreviated or erroneous name sufficiently
identifies a taxpayer is whether a “reasonable and diligent search would have revealed the existence
of the notices of the federal tax liens under these names.” Tony Thornton, 791 F.2d at 639. In Tony
Thornton, for example, liens identifying the taxpayer as “Davis’s Restaurant” and “Daviss (sic)
Restaurant” sufficed to identify a business correctly known as “Davis Family Restaurant.” Id. In
Hudgins, the IRS lien identified the taxpayer as “Hudgins Masonry, Inc.” instead of by the
taxpayer’s personal name, Michael Steven Hudgins. This notice nonetheless sufficed, given that
both names would be listed on the same page of the state’s lien index. 967 F.2d at 977.
Crestmark argues, and we agree, that those cases mean little here because in each, creditors
could search a physical index and were likely to notice similar entries listed next to or near one
another—an option which no longer exists under Michigan’s electronic-search system. So the
question for this case becomes whether Crestmark conducted a reasonable and diligent electronic
search. It did not.
No. 04-1053 In re Spearing Tool and Manufacturing Co. Page 4
Crestmark should have searched here for “Spearing Tool & Mfg.” as well as “Spearing Tool
and Manufacturing.” “Mfg.” and the ampersand are, of course, most common abbreviations—so
common that, for example, we use them as a rule in our case citations. Crestmark had notice that
Spearing sometimes used these abbreviations, and the Michigan Secretary of State’s office
recommended a search using the abbreviations. Combined, these factors indicate that a reasonable,
diligent search by Crestmark of the Michigan lien filings for this business would have disclosed
Spearing’s IRS tax liens.
Crestmark argues for the unreasonableness of requiring multiple searches by offering the
extreme example of a name it claims could be abbreviated 288 different ways (“ABCD Christian
Brothers Construction and Development Company of Michigan, Inc.”). Here, however, only two
relevant words could be, and commonly are, abbreviated: “Manufacturing” and “and”—and the
Secretary of State specifically recommended searching for those abbreviations. We express no
opinion about whether creditors have a general obligation to search name variations. Our holding
is limited to these facts.
Finally, we note that policy considerations also support the IRS’s position. A requirement
that tax liens identify a taxpayer with absolute precision would be unduly burdensome to the
government’s tax-collection efforts. Indeed, such a requirement might burden the government at
least as much as Crestmark claims it would be burdened by having to perform multiple lien searches.
“The overriding purpose of the tax lien statute obviously is to ensure prompt revenue collection.”
United States v. Kimbell Foods, Inc., 440 U.S. 715, 734-35 (1979). “[T]o attribute to Congress a
purpose so to weaken the tax liens it has created would require very clear language,” which we lack
here. Union Central, 368 U.S. at 294. Further, to subject the federal government to different
identification requirements—varying with each state’s electronic-search technology—“would run
counter to the principle of uniformity which has long been the accepted practice in the field of
federal taxation.” Id.
Crestmark urges us to require IRS liens to meet the same precise-identification requirement
other lien notices now must meet under Uniform Commercial Code Article 9. See Mich. Comp.
Laws § 440.9503(1) (“A financing statement sufficiently provides the name of [a] debtor [that is]
a registered organization, only if the financing statement provides the name of the debtor indicated
on the public record of the debtor’s jurisdiction of organization which shows the debtor to have been
organized.”). We decline to do so. The UCC applies to transactions “that create[] a security interest
in personal property or fixtures by contract.” Mich. Comp. Laws § 440.9109(1)(a) (emphasis
added). Thus, the IRS would be exempt from UCC requirements even without the strong federal
policy favoring unfettered tax collection.
More importantly, the Supreme Court has noted that the United States, as an involuntary
creditor of delinquent taxpayers, is entitled to special priority over voluntary creditors. See, e.g.,
Kimbell Foods, 440 U.S. at 734-35, 737-38. Thus, while we understand that a requirement that the
IRS comply with UCC Article 9 would spare banks considerable inconvenience, we conclude from
Supreme-Court precedent that the federal government’s interest in prompt, effective tax collection
trumps the banks’ convenience in loan collection.
IV. Conclusion
We reverse the district court and affirm the bankruptcy court’s grant of summary judgment
for the government.