United States v. Vermont

PETITIONER:United States
RESPONDENT:Vermont
LOCATION:New York Supreme Court Appellate Division, First Department

DOCKET NO.: 509
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 377 US 351 (1964)
ARGUED: Apr 21, 1964
DECIDED: Jun 01, 1964

Facts of the case

Question

Audio Transcription for Oral Argument – April 21, 1964 in United States v. Vermont

Earl Warren:

Number 509 United States, Petitioner versus Vermont et al.

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

This is a federal tax lien case, here on the writ certiorari to the Court of Appeals for the Second Circuit in which a tax lien of the State of Vermont has been given priority over a federal tax lien.

The question presented is whether at the time the federal tax lien arose, the general lien of the State of Vermont was not then sufficiently perfected or as the phrase is used choate because it had not attached at that time to specific property of the taxpayer so that federal lien although arising later took priority over the earlier state general lien.

Arthur J. Goldberg:

Does the federal lien any more choate than the state lien?

Daniel M. Friedman:

Well Mr. Justice we think that what — first of my argument will be that the federal lien is presumed to be fully perfected and choate the minute it arises, but that the state lien in order to prevail against the federal lien must meet three criteria of choateness which this Court has developed and we think consistently applied, and which we think this lien did not meet because it did not attach to specific problem.

Arthur J. Goldberg:

(Inaudible)

Daniel M. Friedman:

That’s correct, that’s correct.

And we think if I may say Mr. Justice at first glance it might seem somewhat anomalous that you have two liens which are in substantially identical terms, we say one is sufficiently perfected, the other isn’t.

We think this basically, basically rests on the whole policy which underlines choate lien doctrine, the need to protect federal revenues as this Court has recognized in Gainy as I shall –that’s our basic position in the case.

The facts —

(Inaudible)

Daniel M. Friedman:

Well of course the states do have need for revenue Mr. Justice but I think this is an area where the federal power and the federal interest is paramount and if I may just say that the whole thrust of all the decisions of this Court which dealt with this problem we think have recognized that a state lien, state created liens and the federal liens do have different standards and different tests applied.

The basic facts in this case are very simple, not in dispute.

The taxpayer is a firm named Cutting & Trimming and the dispute between us and the State of Vermont is over some $1800 which the taxpayer had on deposit in a bank in Vermont.

The State of Vermont has an income tax system which is patterned on and is very similar to the federal income tax system, was done explicitly in fact.

One of its provisions is the requirement similar to the federal system that an employer withhold taxes on his employees’ wages.

And the Vermont statute provides that in the event an employer fails to withhold and pay over the tax to the state, the amount of the tax shall be a lien upon all property and rights to property of the taxpayer arising upon the assessment of the tax and demand and again this is basically the same provision as the federal provision.

The dates with respect to the assessment and the perfection of these liens are as follows.

The State of Vermont’s lien arose first.

It aroused on October 28th, — sorry October 21st, 1958 and that was occasioned by the fact that the Cutting & Trimming firm had filed a tax return for the third quarter of 1958 filling a substantial indebtednesses to the state in withholding taxes that it failed to pay those taxes.

So the state on the 21st of the October assessed the taxes and made a demand and under state law its lien arose at that point.

Seven months later on the 21st of May 1959, the State of Vermont took its next step toward enforcing its lien when it brought a suit in the state court against Cutting & Trimming and the bank in which the Cutting & Trimming had funds on deposit and four days later after the seven months it served a writ of attachment on the bank and I just may interpolate to say in the government’s view at that point, and at that point only that the lien of the State of Vermont acquired a sufficient degree of perfection that it would come ahead of the federal lien.

But the federal lien had arisen in the interval about three-and-a-half months later, I mean, three-and-a-half months after the state lien has arisen.

In February 1959, the Commissioner of Internal Revenue assessed against Cutting & Trimming taxes under the federal Unemployment Tax Act.

This is a statute which requires an employer to pay a tax of 3% of his payroll.

Unlike the state tax which was due quarterly this tax is due annually on the 31st day of January for the preceding year.

The government in turn, a few days thereafter, also served a notice of levy upon the bank and this suit was instituted approximately two years after we had filed our notice of levy.

Now before coming to the merits of the case, I just like to refer very briefly to a contention of the State of Vermont that the answer to this question whether the state lien outranks the federal lien should be decided not by federal law but by state law.

Daniel M. Friedman:

The state recognizes as indeed it must that this Court repeatedly has held that federal and not state law governs the relative priority of state and federal liens.

It urges, however, that despite the settled opinion that the Court should reexamine this position and reach the contrary conclusion.

We strongly urge that the settled rule is the correct rule and that the rule should be followed.

We have developed the argument in our brief, I won’t labor it here, but just like to indicate briefly why we think this is the correct rule.

The federal liens of course are created by Congress in the exercise of its constitutional power to levy and collect taxes, their scope and reach widely affect federal revenues, their interpretation is important to the policy underlying the lien statute, and we therefore think it is the federal law and not the state law that one must look in determining these questions.

Now, a suggestion has been made by the state that this Court’s decision in the Brosnan case, a few terms ago, points towards that that indicates it is appropriate here to look to state law.

In the Brosnan case this Court said that in determining the propriety of procedures by which a state discharged a junior lien federal law was governing but the federal law the court would adopt would be the state procedure.

We think that the basic rationale of that decision is inapplicable here.

The Court was concerned because of relationship between federal liens and private liens, that to apply a state law — to apply the federal law would result in disruption of well settled property interest and property principal, it was appropriate to defer.

There is not that policy involved here.

Here what we have is a basic conflict between the state on the one hand and the federal government on the other and what we have here is not a question as to the procedures which was all that was involved in Brosnan, the procedures for discharging liens but substantive question has been priority and we therefore think that that isn’t the matter to which federal law control.

I now like to come to the merits of the case.

We start I think fairly with a well settled proposition which this Court has repeated many times and we asserted only last term in the Pioneer case which is that before a state created lien can take priority over a federal lien, it must be a perfected and choate lien and the choate has —

Potter Stewart:

What’s a choate lien I have read it many times in the opinions of this Court, I just called for a dictionary, it was a small dictionary but the word isn’t there?

Daniel M. Friedman:

It’s apparently the opposite of inchoate, that’s all I can say and it’s a —

Potter Stewart:

How did it first — how did it first get into the jurisprudence?

Daniel M. Friedman:

Well I think it first came in the Spokane in which this Court quoted from a statement of the State Supreme Court of Washington in which they said that.

William O. Douglas:

You didn’t break the (Inaudible)

Daniel M. Friedman:

No, I think it’s an old word, it may even go back to some of the old cases?

Potter Stewart:

It’s old, it’s dropped out of this dictionary I guess.

Daniel M. Friedman:

Well I think it’s a — that’s a word that finds its presence lot during the opinions of this Court Mr. Justice Stewart.

Potter Stewart:

(Inaudible) perfected.

Daniel M. Friedman:

Perfected, yes that the lien — in effect nothing more remains to be done, then it has a fully perfected lien.

It’s just a short hand phrase I think, but I think the meaning of it is brought out in the standards which the Court has applied in determining whether a lien is perfected.

The Court has said many times that before a state created lien is sufficiently perfected, so that it finds an earlier arising federal lien, three conditions must be satisfied.

First the identity of the lienor must be known, first the identity of the lienor.

Second the amount of the lien must be known and third the property subject to the lien must be attached.

Now, this doctrine –

Arthur J. Goldberg:

But if all of those are satisfied here unless you (Inaudible) to mean it’s enforced.

Daniel M. Friedman:

Yes, well we think Mr. Justice that the decisions of this Court indicate the third criteria, the property subject to the lien is not satisfied here by the state’s lien, and I would like to refer briefly to the cases in which the doctrine was developed, which were the cases under the so called federal insolvency statute, Section 3466 of the revised statutes.

Daniel M. Friedman:

That is the provision that provides that in the event of insolvency debts due to the United States shall be first satisfied.

A series of cases arose in which the question was whether the federal insolvency priority prevails over a perfected state lien and in five cases decided between 1929 and 1946, this Court found it unnecessary to reach the question where you had a general state statute, because they said we don’t have to reach that question because this general state statute on all of the property of the tax payer is not a perfected choate lien which might present this problem.

The last case of that group was a case called Illinois against Campbell in 329 U.S. 1946 and in that case for the first time the Court weaving together the strands of its prior decisions specified the three criteria to which I have referred, it listed them by number one, two and three; the identity of the lienor, the amount of the lien and third the property to which the lien attaches and it then went on to particularize what it meant by the property to which the lien attaches.

It said and I quote “The lien must attach to specific property of the debtor.

In other words, it was not enough that you had a lien in that case on all the personal property of the debtor used in the conduct of his business.

It had to be something more than that.

It had to attach to the specific property to attach.

Byron R. White:

Does that mean reduce the debt?

Daniel M. Friedman:

It will depend on the particular type of thing.

We think in this case it was satisfied when they actually attached the property in the hands of the bank.

Now I think it’s significant here.

Byron R. White:

Well, it really had requested to identifying the property isn’t it?

Daniel M. Friedman:

It’s attaching to the property.

Byron R. White:

Yes, if the fellow has only one piece — owns only one piece of property and everybody admits it, there is not question that what property of lien is going to relate to isn’t it, no question at all?

Daniel M. Friedman:

Well, I would think — I think Mr. Justice if the statute spoke in terms of all property of the tax payer and it just so happened that the tax payer only had one piece of property I would think something further was required —

Byron R. White:

That’s what I — you do not need identification of the property.

Daniel M. Friedman:

No, it has to do something more than that.

Byron R. White:

It has to be an actual what you call an attachment?

Daniel M. Friedman:

It might be an attachment.

Byron R. White:

The personal property is actually —

Daniel M. Friedman:

A levy perhaps.

Byron R. White:

A seizure.

Daniel M. Friedman:

Maybe, it maybe in the case of real property the obtaining of a judgment and the filing of the judgment lien.

Byron R. White:

And why is it that you think that the federal government, the federal lien isn’t subject to the same requirement, because you have other remedies to perfect your own lien, you couldn’t go and have the (Inaudible)

Daniel M. Friedman:

Yes we can Mr. Justice.

Byron R. White:

You have to do regularly to seize the property.

Daniel M. Friedman:

We do regularly seize property, but we think that this Court’s decision in New Britain makes it clear that the federal lien even though we have not taken any steps is treated as a perfected lien from the moment it arises and is a different situation —

Byron R. White:

This lien, the federal lien under the New Britain is that — even against mortgages where there is a — would you say a mortgage is under local law is a more perfected lien?

You say that — do you think mortgage is a choate lien?

Daniel M. Friedman:

We have always acknowledged the priority of a mortgage as against a — it could actually be recorded, we have the other provisions.

Daniel M. Friedman:

But we concede that a mortgage is a perfected lien.

Byron R. White:

Well do you think that recording the federal lien adds some choateness that don’t have the full recording?

Daniel M. Friedman:

No, no I’m just saying that the recording is necessary only for our federal lien to prevail against the mortgage at all.

Byron R. White:

So in terms of choateness say federal lien, if it’s recorded — I mean a federal lien when it arises, is choate enough to prevail even against say later state choate lien in the form of a mortgage.

Daniel M. Friedman:

Well if — yes because once the liens are of equal dignity, once the liens of equal degree of perfection we think as New Britain indicates, the rule is the first in right — is first in time is the first in right, but we think that before that rule comes into play the state lien does have to meet these standards.

Byron R. White:

Well I would think you would argue that if the federal lien a fortiori ought to prevail against an unfiled or an inchoate state lien —

Daniel M. Friedman:

Oh yes.

Byron R. White:

— it would prevail against the mortgage lien.

Daniel M. Friedman:

No, we say for the earlier federal — if the federal lien arises first, it prevails against the mortgage, conversely if the mortgages arises first it takes precedence over the federal because it is a perfected lien, it’s attached to specific property, the amount of the mortgage debt is settled and the identity of the lienor is known.

We think that particular security interest does meet these three criteria.

Byron R. White:

What are the — and what do you think the test the Court (Inaudible)

Daniel M. Friedman:

That the identity of the lienor must be established.

Byron R. White:

There is no question about that.

Daniel M. Friedman:

No question about that.

The amount of the lien must be established, no question about that here.

The lien must attach to specific property, we deny if that that’s happened.

Byron R. White:

Then you say that the third provision is — the property must be specifically identified isn’t it?

Daniel M. Friedman:

No, it must attach.

The identity of the property must be established, but we suggest that the way the identity of the property must be established, the way that is shown under the Campbell case is that the lien must attach to the specific property, must single out property and attach to it.

Byron R. White:

So that you think that something beyond this identification in those three — the way this Court has stated those three requirements, there is something beyond just identification.

Daniel M. Friedman:

I think so Mr. Justice and I think —

Byron R. White:

In what case do you think this is?

Daniel M. Friedman:

I think that is Illinois against Campbell in 329 U.S.

Now I think it’s significant that the formulation of the rule in Illinois against Campbell in terms of these three conditions was carried over by this Court into the cases under the lien statute, that is in the opinions in the both New Britain and Pioneer the Court again repeated the three criteria.

Byron R. White:

They repeated the three criteria, but none of these cases indicated that there was any dimension in that third requirement other than identification?

Daniel M. Friedman:

Well, Mr. Justice in New Britain, as we read New Britain, we think the touchstone of the decision there, the reason why some of the state liens were deemed perfected is because they attached to specific property.

The Court repeatedly said that those liens attached to specific property.

There you had contest between the federal general lien and specific liens of the City of New Britain and the Court said that the fact that the liens of the City of New Britain was specific didn’t give them any priority over the federal government, any —

Byron R. White:

Which liens in New Britain, which state liens, some state liens one in New Britain and some state liens in law.

Daniel M. Friedman:

That’s right because —

Byron R. White:

And which one is one?

Daniel M. Friedman:

The ones that one where the ones that had become perfected.

Byron R. White:

By how?

Daniel M. Friedman:

By attaching to specific property and —

Byron R. White:

In what manner?

Daniel M. Friedman:

What?

Pardon?

Byron R. White:

In what manner?

Daniel M. Friedman:

Well they were lien on the particular property, it was real estate lien or lien for what attaches which related only to the particular piece of property.

Byron R. White:

Exactly, exactly, but they did nothing else, other than a statutory lien which as of a certain day attached to a specific piece of property.

Daniel M. Friedman:

That’s right.

Byron R. White:

That was after identification —

Daniel M. Friedman:

Because that was all —

Byron R. White:

They have the states of no act whatsoever.

Daniel M. Friedman:

Because I think Mr. Justice that’s all that’s necessary when you are dealing with liens on real property.

There is nothing more but when you are dealing with personal property which is in mass something more is needed and always the liens on real property by definition is a particular lien relating only to the particular piece of property, whereas a lien when you are dealing with personality it’s a general lien that has to go on something more.

Byron R. White:

So you would have to make the difference and if the fellows only owned one piece of personal property or one piece of real property you would have to — would that make any difference?

Daniel M. Friedman:

Well, I would say Mr. Justice, as far as real property — if the lien is on all property, if the lien is on all property the tax payer, I think something more is required, if it was a real estate lien, a lien for real estate taxes, which attached to only the particular piece of property, then I would say at that point this was a fully perfected lien.

Hugo L. Black:

Is that the only difference there?

Is that the only difference?

Daniel M. Friedman:

I’m not quite —

Hugo L. Black:

Number one, you say that this is a general lien on all the property that a tax payer owes — owns; therefore it is not sufficiently specific and whatever —

Daniel M. Friedman:

In fact yes —

Hugo L. Black:

Choate to come ahead of a government lien which is later perfected.

Daniel M. Friedman:

That’s correct as we say —

Hugo L. Black:

That’s the only issue, isn’t it?

Daniel M. Friedman:

That’s the only issue in the case and we say that the government lien by its very nature is perfected when it arises.

I’d like to make two points on this.

First of all let me just start by saying that the Court of Appeals, Judge Friendly for the unanimous court below expressly recognized that if this case had arisen under the insolvency statute under Section 3466, under the Illinois v. Campbell decision our lien would come ahead of the state’s lien.

He suggested, however, that the rule is otherwise when the government’s priority is asserted not under the insolvency statute but under the federal lien law.

Daniel M. Friedman:

Now this it seems to us is a wrong result for at least two reasons, three reasons.

First the basic policy underlying the two statutes seems to us is the same, both the grant of priority and insolvency to the government and the creation of liens to the government for its taxes are designed to accomplish the collection of the debts due to the government.

And in the light of this it seems to us most peculiar to say that in the one case the government’s lien is good enough, the government’s claim is good enough as against the state lien; in the other case it isn’t.

Indeed it seems to us most unusual to say that in this situation the government would prevail if all it had was an unsecured claim for a debt based upon the insolvency priority, but that the government loses when it has the higher claim of a lien —

Arthur J. Goldberg:

(Inaudible)

Daniel M. Friedman:

Well you don’t have an explicit term but this Court I think in the Security Trust case has recognized that if the – if I may just quote two sentences Mr. Justice from what the Court said in the Security Trust case in 340 United States, we have set forth a quotation 16 and 17 of our brief.

That’s the case in which for the first time the Court applied under the tax lien statute the principles of choateness and perfection which it had developed previously under Section 3466.

And the Court said and I quote, ‘in cases involving a kindred matter, i.e., the federal priority under R.S. 3466, it has never been held sufficient to defeat the federal priority merely to show a lien effective to protect the lienor against others than the Government, but contingent upon taking subsequent steps to enforce it,’ citing Illinois v. Campbell.”

“If the purpose of the federal tax lien statute to insure prompt and certain collection of taxes due the United States from tax delinquents is to be fulfilled, a similar rule must prevail here.”

Now following that decision in both New Britain and in Pioneer, the Court again reiterated these three criteria.

Arthur J. Goldberg:

(Inaudible)

Daniel M. Friedman:

That’s correct.

Arthur J. Goldberg:

(Inaudible)

Daniel M. Friedman:

Well I suggest Mr. Justice that the — what the Court said in New Britain has to be read in the light of the contentions made to it and the argument that the city made in New Britain was because the city’s lien was specific and the federal lien was general that the city’s lien prevailed over the federal lien and I think it’s in that context that the Court made this statement at Page 84 that the federal liens are general and in the sense above perfected that is that nothing more need to be done to have a choate lien perfected.

Now that I think — I think New Britain, well New Britain held only that the specific lien was good, it seems to me it’s a recognition, it’s a recognition by the Court that in order to reach the degree of perfection as against the federal lien to bring in the first in time, first in right rule it is necessary that the city, the local lien be attached to specific property.

Arthur J. Goldberg:

(Inaudible)

Daniel M. Friedman:

Well that being so that — well, that being so it is a choate and perfected lien.

The — for example the court said in New Britain the priority of each statutory lien contested here must depend on the time it attached to the property in question and became choate and I would like to suggest to the Court that if the state is correct here and that this general lien satisfies the standard of choateness which it must in order to prevail against the federal lien, we think as a practical matter, the third condition of attachment to specific property which this Court has repeatedly stated as the basis for choate liens disappears because liens basically are of two types.

They are either a lien on specific property that is for example a lien on real estate, the lien an innkeeper has on luggage, the lien a lawyer has on his papers are general liens.

Now if in fact a general lien on all the property of the taxpayers satisfies the standard of choateness then it seems to me every lien, every lien by definition will necessarily meet the requirement of the attachment to specific property and that to us, seems to me, eliminates the third condition and yet this Court repeatedly has stressed that the three conditions have to be met before the state created lien can prevail over the federal lien.

Thank you.

Earl Warren:

Mr. Gibson.

Charles E. Gibson, Jr.:

Mr. Chief Justice, please the Court.

In essence what the, United States is trying to do here is to take two identical tax liens out of the State of Vermont and that of the United States and apply a different standard to them.

United States has claimed that the cases which this Court has decided involving insolvency should be treated the same as solvency cases, and the United States is trying to justify a double standard for policy reasons saying that the needs of the federal revenue are paramount here and in their brief they have indicated some need for uniformity.

Now the State of Vermont takes the viewpoint that there is nothing here which requires a different treatment of the two types of liens that the cases do not require a different treatment and indicate that they ought to be treated the same although there is no case directly in point.

We further claim that they should be treated the same and that non-insolvency and insolvency matters should be distinguished because of difference in statutory language and we also cannot see any justification on policy reasons for treating solvency and insolvency matters the same.

We think the correct principle to apply here is that which was applied in the City of New Britain and which was enunciated many years ago by Chief Justice Marshall in Rankin versus Scott, that of first in time, first in write, that even in olden days was considered a universal principle.

It should be fair to all concerned, easily applicable, and universal.

We don’t think the strict choateness test which this Court has developed in the insolvency cases should be applied in cases where no insolvency is involved or – and in particular, in this particular case, in this case.

Charles E. Gibson, Jr.:

In fact, we don’t think the choateness test need be applied at all but if the Court is going to look at it in the light of choateness, that we think that under the circumstances here were as choate as the federal government as the Court indicated in New Britain and then we certainly have satisfied enough requirements here, so that under the circumstances of this case we should prevail.

Now, the state has first and every stage of the proceedings here we assessed our tax first, we filed a notice of tax lien with a proper recording office first.

We brought suit to enforce our lien first.

I’m not aware that the United States filed any notice of levy on the bank.

As far as I know from the record I think they filed a notice of — they filed a demand on the tax payer on February 10th, but I’m not aware that there was ever a notice of levy on the bank, but not — that’s particular important, but that statement was made.

At what stage (Inaudible)

Charles E. Gibson, Jr.:

Our lien as of the date of assessment.

As of the date of assessment.

Charles E. Gibson, Jr.:

Assessment and demand under our statute which was October 21, 1958.

Well, that’s the same as the Federal?

Charles E. Gibson, Jr.:

Yes sir.

Arthur J. Goldberg:

(Inaudible)

Charles E. Gibson, Jr.:

Yes.

Our income tax from the filing provisions were and lien statutes were copied after the Federal income and tax provisions.

Arthur J. Goldberg:

(Inaudible)

Charles E. Gibson, Jr.:

Assessment and demand was made and then we filed a notice of lien with our recording office which in Vermont is your town clerk and then eventually we filed suit in this case although our statute provides for other methods of enforcement.

Tom C. Clark:

When (Inaudible)

Charles E. Gibson, Jr.:

That was in May 21, 1958.

Tom C. Clark:

(Inaudible)

Charles E. Gibson, Jr.:

Yes four days later, which was after the date that the Federal lien aroused as far as assessment and demand.

Tom C. Clark:

That is not the (Inaudible)

Charles E. Gibson, Jr.:

Yes, we claim that this doesn’t depend on the time when a garnishee, in Vermont we call the trustee process was issued against the bank but that question is whether our lien being first in time and being identical with Federal lien should prevail.

Arthur J. Goldberg:

(Inaudible)

Charles E. Gibson, Jr.:

Well Security Trust case is a case of garnishee case now, this as far as the type of enforcement that the state chose here is a garnishee case in a way and yet it isn’t because in Security Trust the private party was being sued and of course the resort to, California tried to resort or the party tried to resort to the doctrine of relation back to the time the attachment took place to say that its lien took effect then and numerous contingencies in the language of the Court could arise from the time that that attachment took place until final judgment.

In other words, the party might not prevail in the case which we say is not the case here where the state of Vermont has made an assessment and demand on it’s tax for taxes and particularly in a case where the taxpayer has filed a revolving return indicating the amount due and it was after that was done that the state brought suit.

So that there is no question about these numerous contingencies arising in between the time the lien took effect and the state brought suit, which —

Arthur J. Goldberg:

(Inaudible)

Charles E. Gibson, Jr.:

Well, if the attaching, in Security Trust —

Arthur J. Goldberg:

(Inaudible)

Charles E. Gibson, Jr.:

If they had a, if the attaching party acquired judgment of what prior to the Federal lien horizons, yes.

Arthur J. Goldberg:

(Inaudible)

Charles E. Gibson, Jr.:

Well my distinction in this case as I see the difference in the cases that was not a case of a state tax lien.

It was a case of a private party bringing suit and they had to battle it out in the lawsuit to see who is going to win, whether anybody won or did not win.

In this case that is not the situation.

Assessment and demand was made by the state of Vermont on the basis of withholding tax return filed by the tax payer, so there is no question to what the state of Vermont was owed taxes and the amount was certain as to what it was owed, just the method of enforcement was the only thing to be concerned with here and the state does have several methods of enforcement.

We can foreclose as we do on real-estate or chattel mortgages, or under Title 32 V.S.A 6067 we can — an income tax matters and withholding income, is a income tax matter of course, levy on personal property and real estate and so forth.

So that although the state did not enforce this by levy neither did the United States and of course if somebody — the possible controversy over varying interest in a particular piece of property, I think probably the state would be opt to and does go to Court does this with their own government and rather than just jump in with a levy.

There was some question in this particular case and so the state showed this method of enforcing its lien.

Hugo L. Black:

How do you (Inaudible)

Charles E. Gibson, Jr.:

I didn’t get that Mr. Justice Black.

Hugo L. Black:

How do you (Inaudible)

Charles E. Gibson, Jr.:

Campbell is an insolvency case and we distinguish in our brief insolvency cases from non-insolvency cases.

In first place the statutes are different as Mr. Justice Goldberg pointed out, you have a statute which is now 26 U.S.C 191 I believe it is, which used to be 3466 which clearly gives the United States priority in insolvency cases and the cases in which this very choateness developed were in insolvency cases, in other words the Court had to decide were this broad sweeping statute before which gives the United States a priority in all insolvency matters.

The Court had to decide when if something been taken from a tax payer so that this priority of the United States does not prevail and so in developing the rules of choateness the Court was merely withdrawing step-by-step trying to determine when anything was withdrawn from a broad sweep of the Federal statute.

Now, there is no Federal statute like this in tax lien cases, the Federal tax lien statute merely says that the United States shall have a lien on all the property and rights to property and it says when that arises, but that statute does not confer priority on the U.S by it’s terms, there is no expressed priority there at all.

And therefore we say that if Congress had intended to give the United States priority in all tax matters it certainly would have said so.

As we’ve indicated in our brief, this tax lien statute I think originated in 1865 and within one or two years thereafter Congress passed bankruptcy statute and it gave the United States priority in bankruptcy matters as to it’s taxes over state taxes and United States debts over state debts so Congress knew when to say that it — United States should have priority and when not to.

We don’t think — and I think the — no policy reasons really that require the same treatment of solvency and insolvency matters.

The government points to the need for — the paramount needs of the Federal revenue and Federal supremacy and so forth as the reason of treating solvency cases the same as insolvency cases, but we don’t think that that is so because if the taxpayer is insolvent, United States is going prevail under Section 191, which is the old Section 3466.

If the taxpayer is not insolvent then everybody ought to be able to collect its fair share and the United States resources are much broader than the states.

It can go outside state boundaries whereas the State of Vermont is going to be limited to it’s own boundaries as to the property in which it — from which it can collect the tax.

So that actually the Federal revenues are not going to be frustrated or reported by treating these two cases the same and as a matter of fact we think that it would be arbitrarily frustrating the state and the collection of its revenues to give a different treatment to the state lien which is identical to the Federal.

(Inaudible)

Charles E. Gibson, Jr.:

I don’t think there is any case exactly in point to Mr. Justice Harlan, except we claim that the language of New Britain is in our favor and United States claims of course is in their favor.

Some — there are couple of bankruptcy cases in the Circuit Courts which have — for now the Federal taxes and the State taxes are treated equally since 1898 and they have held as the Second Circuit Court that in these circumstances choateness test of the 3466 the ordinary insolvency case didn’t apply and they applied first in time first in right, but I don’t think there was a question of the identical type of tax payment we have here.

The — apparently the rules for choateness which the Court has developed as a fear that as its been expressed in New Britain and some of the other cases that the various municipalities and states can put a lien into effect just by statute at some arbitrary time in the past so that even before the amount is determined or certain and that is not a problem here, because there the amount is certain and I don’t think that if the two liens are the same that there is any need to fear that the state lien is arbitrary if the state lien is identical to Federal lien, like I don’t see how these government can say it’s arbitrary unless they say their lien is arbitrary.

And to say that theirs is presumed to be perfected when the states — when there is noting in any statute indicate that and say the states isn’t again its justifying an unjustifiable double standard particularly in a case like this where the amount of liability is determined.

Now if the state tried to have a tax lien take effect at some date prior to a liability there is some time prior to the amount was certain or amount was due or at the beginning of a year or something like that then I think that the Court could and might well say well, this is arbitrary but I think in this kind of case the Court ought to look to the question of whether arbitrary rather than applying these specific rules of choatness which were developed in the insolvency cases which we don’t think are applicable here.

Arthur J. Goldberg:

(Inaudible)

Charles E. Gibson, Jr.:

Well I don’t want to actually spare any time arguing this particular point here.

Charles E. Gibson, Jr.:

I raise it in my brief but with the 30 minutes I didn’t want to take any time on it.

I think that the Court should apply to state law but I really don’t want to press that point as far as oral argument is concerned, because I’m — the court is tending in a direction of applying state law and more and more instances in these matters but I would rather in the short time I have stress the other points.

Arthur J. Goldberg:

(Inaudible)

Charles E. Gibson, Jr.:

But I think so that if once you say — I mean I would say that the state law should be determined but then if you don’t do that then if you are applying Federal law then look at this case here we have identical liens and is a state lien arbitrary to take effect at some arbitrary time is what should be applied.

Now the — as we’ve indicated the statutes indicate that the that Congress knew how to give the United States priority when it wanted to in the bankruptcy cases it did so in a distillers tax back in the 1860s also and then expressly gave the United States priority.

The Court has at times talked about choatness in various cases like Pioneer American Insurance and the mechanics liens, well the Court didn’t talk about anything in mechanics lien, because of reversed merely but again all these type of cases are between private parties where these numerous contingencies could arise between bring of suit or the date of the lien and final judgment, which is not the case here.

Finally, we should say that double standard we think is unjustified because the state needs are just as great as United States these days and in terms of revenue the state and local municipalities are certainly in great need of their funds.

The United States has much broader resources, the state is limited to state boundary whereas the United States can go anywhere outside of the state as far as collecting and effectuating its — the collection of it’s taxes and that again when you have a non-insolvency matter there should be no problem for the United States to collect, the state may have a problem because it can’t go out of it’s boundaries but the United States can go if there is some property outside the state and if it’s an insolvency matter the United States undoubtedly will prevail anyway.

And in terms of uniformity, if the Court applies rule of arbitrariness then we think that the need for uniformity would be satisfied and that all lien owers within any particular jurisdiction or state ought to be treated equally and that includes the United States and the various competing municipalities of states.

Earl Warren:

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice, may I please the Court.

There are just two points I would like to make in rebuttal.

First in terms of the basic policy which both the solvency statute and the lien statute serve as this Court has indicated protecting Federal revenues and helping the Federal government in collecting revenues it needs, the need is just as great whether the tax payer is solvent or insolvent.

Secondly in terms of the state’s contention that there is a fundamental unfairness here in applying a double standard, now the point I’m going to make is admittedly not dispositive, but we think — look at in terms of this case and this is the case which the court has to decide we think this is a significant test.

If the State, when the state’s lien came on in October, there was approximately three and a half months between the time when the state’s lien arose and when the Federal lien arose on the assessment of the taxes.

During that period the state had ample opportunity to take any steps to perfect its lien, had it done so admittedly its lien would prime the Federal lien, conversely the Federal payroll tax which covered part of the same period as the state’s tax did not become due until the end of the following year in January, January 31st, the Federal lien arose on the 6th of February.

If the state as I say had moved promptly and reduced it’s lien to judgment taken the steps which this Court has indicated necessary for a perfected lien, the state would have prevailed over the Federal government.

If on the other hand the state’s lien upon its arising as a choate lien there was no possible way in which the Federal government could protect its need for collection by doing anything because automatically even though the state have taken no further steps.

Now, we have indicated in our brief that some of the old cases involving the insolvency case have dealt with similar situations where the timing of the state statute is such that unless you have a doctrine like this the net effect is that the state always prevails over the Federal government.

We are not saying it’s dispositive of course, we do think there is a persuasive consideration to indicate why the choate lien doctrine which this Court has repeatedly applied and which sometimes involves primarily the question of whether the amount of the lien is satisfied.

In the case of Security Trust case, you didn’t know how much of it’s going to be, in this case you don’t know what property attaches to it.

We think the same principle is applicable in both situations and we therefore think that this lien like so many other state created liens which has been held not upon Federal lien but similarly (Inaudible) into it.

Thank you.