RESPONDENT: Equitable Life Assurance Soc. of United States
LOCATION: Baconsfield Park
DOCKET NO.: 645
DECIDED BY: Warren Court (1965-1967)
CITATION: 384 US 323 (1966)
ARGUED: Apr 21, 1966
DECIDED: Jun 06, 1966
Facts of the case
Media for United States v. Equitable Life Assurance Soc. of United States
Audio Transcription for Oral Argument - April 21, 1966 in United States v. Equitable Life Assurance Soc. of United States
Number 645, United States, Petitioner versus the Equitable Life Assurance Society of the United States.
Robert S. Rifkind:
Mr. Chief Justice, may it please the Court.
This case is here on writ of certiorari to the Supreme Court of the State of New Jersey.
It brings once again to this Court an aspect of the recurring problem of the relationship of the federal tax lien to conflicting state created liens.
The question here arises from the application of a state court rule, which you may find in page 19 of our brief, which provides that in mortgage foreclosure actions, an allowance for an attorney's fee determined as a stated percentage of all sums adjudged to be paid the plaintiff, mortgagee, shall be included in the tax costs of the action and paid to the mortgagee out of the proceeds of the foreclosure sale.
The question presented is whether the court below was correct as a matter of federal law in holding that the mortgagee is entitled to recover, not only his principle in interest, but also the attorney's fee ahead of a federal tax lien which had attached after the mortgage but subsequent to the default which led to the foreclosure -- but before the default which led to the foreclosure, I'm sorry.
The facts from which the controversy arise are not complex.
In December 1960, respondent Equitable Life Assurance Society loaned one Albert Bagin and his wife $30,000 to be repaid at 6% interest over a period of 28 years.
To secure repayment, Equitable received a mortgage covering real estate owned by the Bagins.
The mortgage was properly record in the next few days.
Second and third mortgagees were subsequently conveyed to other mortgagees but are not directly involved here.
More than a year later, in March 1962, the United States filed notice of the federal tax lien against Bagin.
The lien secured a liability for $7700 in unpaid taxes.
The lien arose under provisions of the Internal Revenue Code upon the assessment of the tax liability under Section 6321, which is at page 17 of our brief.
It was a lien in favor of the United States upon all property and rights to property belonging to the taxpayer.
And under Section 6323, the lien was not valid as against any mortgagee, pledgee, purchaser or judgment creditor until notice was prompt -- properly filed.
Such notice was filed on March 21, 1962.
A year later, on March 1, 1963 the Bagins for the first time defaulted on their monthly payments to Equitable.
After that default, it continued for more than 30 days, Equitable exercised its rights under the mortgage to declare the principal sum and unpaid interest immediately due.
And on June 4, 1963 Equitable filed a complaint in the Superior Court of Bergen County seeking foreclosure of the mortgage.
The United States was named as a defendant in that action and summoned to answer the complaint.
In its answer, the United States conceded that the principle and interest on Equitable's mortgage was prior to the federal lien, but denied that the federal lien was subordinate to any claim Equitable might acquire to counsel fees.
On motion for summary judgment, the Superior Court held that the federal tax lien was junior to the claim for principal and interest under the mortgage but senior to Equitable's claim for counsel fees and that any counsel fee awarded should be allowed in a surplus money proceeding.
The court thought that this conclusion was required by this Court's decision recently in United States v.Pioneer American Insurance Company.
Equitable appealed the appellate division and while the case was pending there the appeal was certified to the New Jersey Supreme Court on that court's own motion.
The Supreme Court reversed.
It held that the Equit -- that Equitable was entitled to priority over the federal lien not only for its principal and interest and costs but also for its counsel fee under the rules of the New Jersey courts.
That fee had in the meantime been determined to be 425 odd dollars.
Because the total claims exceeded the net proceeds of the foreclosure sale, the practical immediate consequence of the decision was to reduce the Government's recovery on its $7700 tax lien from $491 to $66.