United States v. Liverpool & London & Globe Ins. Co., Limited , 209 F.2d 684 ( 1953 )

RIVES, Circuit Judge

(dissenting).

On April 21, 1952, the ássessment list as to the income tax lien here in controversy was received by the collector, and, thereupon, under the terms of the statute, 26 U.S.C.A. §§ 3670, 3671, a lien arose “in favor of the United States upon all property and rights to property * * * belonging to” the taxpayer. On April 26, 1952, notice of the lien was duly filed by the collector, and, thereupon, the lien became valid “as against any mortgagee, pledgee, purchaser, or judgment creditor”, 26 U.S. C.A. § 3672(a). On the latter date, the appellee furniture company had not secured a judgment against the taxpayer. Its writ of garnishment attaching the funds in aid of its pending suit had, however, been served on the insurer’s agent on April 9, 1952 before the income tax lien arose. The question then is whether in the interim period between the service of the writ of garnishment and the securing of judgment, the funds “belonged to” the taxpayer.

The garnishing creditor bore the burden of securing a judgment without which the lien of its garnishment would amount to nothing. No presumption can be indulged that a judgment would be secured. If anything, the presumption is to the contrary. It has been expressly ruled that the doctrine of relation back of the judgment has no application against the Government. United States v. Security Trust & Savings Bank, 340 U.S. 47, 50, 71 S.Ct. 111, 95 L.Ed. 53. The funds “belonged to” the taxpayer until they had been taken from him by due process of law, and that means until he had had his day in. court and a judgment rendered against him. Before that occurred, the income tax lien had arisen and had become valid even as against a judgment creditor.

It is important to note the specific statute with which we are concerned, namely the statute giving the United States a lien for its taxes, 26 U.S.C.A. § 3670, and not the statute giving the United States priority as to all debts against insolvent debtors, 31 U.S.C.A. § 191. The latter statute was the one involved in United States v. Knott, 298 U.S. 544, 56 S.Ct. 902, 80 L.Ed. 1321, and Illinois v. Campbell, 329 U.S. 362, 67 S.Ct. 340, 91 L.Ed. 348, and the one considered in determining priorities of liens in United States v. Gilbert Associates, 345 U.S. 361, 365, 366, 73 S.Ct. 701. Even a3 to the general priority statute, the Supreme Court has been careful to point out that it has never actually decided whether the priority is overcome by a fully perfected and specific lien. Illinois v. Campbell, supra, 329 U.S. at page 370, 67 S.Ct. 340, 91 L.Ed. 348; United States v. Gilbert Associates, supra, 345 U.S. at page 365, 73 S.Ct. 701, 704.

True, in the case last cited, the Court said that the United States was “a general lienholder on all the taxpayer’s property”, referring to 26 U.S.C.A. § 3670. I agree, however, with what Judge Parker said in United States v. City of Greenville, 4th Cir., 118 F.2d 963, 965:

“To say that the lien provided by this statute is a general lien on all the property of the taxpayer does not help in the solution of the problem presented; for a lien is not deprived of validity because it attaches to a number of pieces of property instead of to a single piece, nor is it for that reason to be subordinated to a junior lien attaching to a single piece of property.

“After the lien provided by the statute attaches, the property has in a sense two owners, the taxpayer and, to the extent of the lien, the United States. * * *”

Like observations to those last expressed by Judge Parker do not hold true as to the furniture company’s garnishment lien. The mere service of the writ of garnishment did not divest the taxpayer’s title. Thereafter and before judgment rendered the property did not have in any sense two owners, the taxpayer, and, to the extent of the lien of the garnishment, the furniture company. The taxpayer continued the sole owner until the lien of the United States fastened, and even thereafter, insofar as concerns the furniture company, until it secured a judgment against him.

Again reverting to the general priority statute, 31 U.S.C.A. § 191, the Supreme Court has recently said:

“In claims of this type ‘specificity’ requires that the lien be attached to certain property by reducing it to possession, on the theory that the United States has no claim against property no longer in the possession of the debtor. The-lusson v. Smith, 2 Wheat. 396, 4 L. Ed. 271. Until such possession, it remains a general lien.” United States v. Gilbert Associates, supra, 345 U.S. at page 366, 73 S.Ct. at page 704.

The service of the writ of garnishment effected no actual change in the possession of the property. The only way in which it can be claimed to have effected even a theoretical change of possession is that it may be said to have placed the property within the custody of the law, or to have the effect of segregating that portion of the taxpayer’s property which might be necessary to satisfy a future judgment against him. That is not enough. Who would share in the property would not be known until the judgment was rendered. What was said in United States v. Knott, 298 U.S. 544, 550, 56 S.Ct. 902, 905, 80 L.Ed. 1321, is applicable here:

“Obviously, the deposit did not divest the company’s title to the securities. No one was appointed trustee; and, at the time of the deposit, there was no ascertainable-beneficiary. Who would share in the proceeds of the securities could not be known until they were exhausted in satisfaction of judgments, or until the entry of the decree of distribution in a suit authorized by the 1933 amendment. While in the case at bar the Supreme Court declared that the deposit created a ‘trust fund,’ the term appears to-have been used to connote an inchoate general lien for the benefit of' those persons who may become entitled to be paid from the proceeds, either as unsatisfied judgment creditors, or as Florida creditors at the time when insolvency supervenes. Such an interest lacks the characteristics of a specific perfected lien which alone bars the priority of the United States.”

Also pertinent is Illinois v. Campbell,. 329 U.S. 362, 376, 67 S.Ct. 340, 348, 91 L.Ed. 348, where the Court said:

“The state has acquired neither title nor possession, Thelusson v. Smith, 2 Wheat. 396, 4 L.Ed. 271; New York v. Maclay, 288 U.S. at page 290, 53 S.Ct. 323, 77 L.Ed. 754, since the receiver’s possession was that of the court, not of the state; and did not sever the property from the debtor’s general assets as of the crucial date.”

If reality rather than terminology is; to be the guide, the lien of this garnishment was no more specific and perfected than was the lien of the attachment in United States v. Security Trust & Savings Bank, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53. The decision of this case seems to me contrary to the decision in-that case.

As to the five hundred dollars attorney’s fee allowed by the district court, to the insurance company for inter-pleading the parties, it seems even clearer to me that that portion of the fund belonged to the taxpayer at the-time the lien of the United States arose, and that the attorney’s fee could not be allowed out of the funds available for the payment of the tax lien of the United States.

I, therefore, respectfully dissent.