U.S. v. STONEHILL, Cite as 48 AFTR 2d 81-5689, 05/19/1980 , Code Sec(s) 6323
U.S., PLAINTIFF v. Harry S. STONEHILL; Robert P. Brooks; Tierra Ranch, Inc.; Contracts Discount, Inc.; John E. Fort; Julius Baer & Co.; Title Insurance and Trust Company; Sam Steinberg; Murray M. Otstott; Herminiz Otstott; Joe Steinberg; Mrs. Lourdes Blanco Stonehill; Irving Sulmeyer; Holexa, S.A.; and Petramonte Productions Corporation Establishment, DEFENDANTS, Trammell, Rand, Nathan & Lincoln, a Partnership, Intervenor.
Code Sec(s): 6323
Court Name: U.S. District Court, Central Dist. of California,
Docket No.: Civil No. 65-127-GJS,
Date Decided: 05/19/1980
Tax Year(s): Years 1958, 1959, 1960, 1961.
Disposition: Decision for Govt.
Cites: 48 AFTR 2d 81-5689.
1. COLLECTION—Lien for taxes—priority of certain competing claims—other superpriorities. Law firm didn't have lien on taxpayer-corp.'s property superior to tax lien on same property. Conveyance of security interest in property to law firm violated court order entered to preserve taxpayer's property, firm didn't have equitable lien on property, IRS wasn't required to refile notice of lien after levy, no judgment amount in favor of taxpayer (i.e: creating attorney's lien) was created by firm's efforts, taxpayer was bound by stipulation entered by its shareholders, and intervenor-law firm couldn't relitigate validity of tax lien.
Reference(s): 1981 P-H Fed ¶35,802(40). Code Sec. 6323 .
M. Carr Ferguson, Asst. Atty. Gen., Arthur L. Biggins, John McCarthy, Attys., Tax Div., Dept. of Justice, Wash., D.C., for Plaintiff.
Bert Rand, Hans A. Nathan, Joel R. Weinstein, Trammell, Rand, Nathan & Lincoln, 1730 K St., N.W., Wash., D.C., Attys. for Defendants.
James R. Moore, Wendall Wyatt, Schwabe, Williamson, Wyatt, Moore & Roberts, Standard Plaza, Portland, Ore., Attys. for Intervenor.
Judge: SOLOMON, Judge:
Trammell, Rand, Nathan & Lincoln, a law partnership, (Intervenor) seeks a judgment holding that it has a valid lien against property owned by Harry S. Stonehill and Robert P. Brooks (taxpayers) and that its lien is prior to the liens of the Government. The Intervenor seeks to foreclose the lien to satisfy attorneys' fees owed by taxpayers.
The case was tried before the Court on the issue of liability on October 10, 1979. I hold that Intervenor has no valid lien against this property and that any rights it may have are inferior to those of the Government.
On January 18, 1965, the Commissioner of the United States Internal Revenue Service (Government) assessed income tax deficiencies for the tax years 1958 through 1961 against Stonehill and Brooks for millions of dollars, which the Government asserts the taxpayers owe. One week later, the Government filed actions to foreclose the tax liens on property owned by the taxpayers. The taxpayers were and still are represented by the Intervenor.
In 1965, Hans Nathan, one of the partners in the intervenor law firm, negotiated a Stipulation and Order which contains the following provision:
Upon the approval hereof by the Court, this stipulation shall constitute an order of the Court effective forthwith and restraining defendant Harry S. Stonehill, his agents, employees and attorneys, from in any manner, either directly or indirectly, selling, mortgaging, pledging, encumbering, assigning, or otherwise disposing of, or withdrawing or removing all or part of the properties or assets which he owns in the United States, including, but not limited to those listed in the attached Schedule A, from the jurisdiction of this Court or from the jurisdiction of the United States District Court for the Northern District of California or from the United States District Court for the District of Hawaii (as the case may be) or from the territorial confines of the United States.
(9.) Pine Street Management Corp., San Francisco, Cal.
(10.) Marinship Enterprises, Inc., San Francisco, Cal.
(13.) Harroman Co., Inc., San Francisco, Cal.
Thereafter Brooks joined in this Stipulation.
In 1969, in an affidavit filed with this Court explaining the meaning of the Stipulation, Hans Nathan stated:
I personally negotiated and reached an understanding with opposing counsel to the effect that, to effect an orderly disposition of this case without causing any prejudice to the United States, the Defendant would be permitted to obtain funds from sources abroad; to expend these funds freely to defray his living expenses and for the expenses of this suit during the pendency thereof. Defendant in turn would not attempt to dispose of any assets located in the [pg. 81-5691] United States at the time the entering into of said agreement. The agreement was implemented by a stipulation and order dated April 9, 1965 and filed herein.
On April 27, 1977, Stonehill, on behalf of three of the corporations listed in the Stipulation, executed a deed of trust which granted the Intervenor a security interest in real property covered by the lien of the Government. Shortly thereafter, the Intervenor filed the deed of trust and a Notice of Pendency of Action with the County Recorder of Marin County, California.
 The intervenor contends that under the deed of trust it has a valid security interest in the property. I disagree. The deed of trust violated this Court's order. In my view the Intervenor's contention that the order was intended to only prevent removal of assets from the Court's jurisdiciton ignores the wording of the order and has no merit.
Intervenor also contends that under California law it has an equitable lien on the property. For this contention it cites Isrin v. Superior Court of Los Angeles County, 403 P.2d 728, 63 Cal. 2d 153 (Cal. 1965); Wagner v. Sariotti, 133 P.2d 430, 56 Cal. 2d 693 (Cal. App. 1943); and, Weiss v. Marcus, 124 Cal. Rptr. 297 (Cal. App. 1975). In each of these cases, the attorney's services, if successful, would create a fund for his client out of which his fees would be paid.
This is not such a case. In spite of the great ability and industry of the law firm of Trammell, Rand, Nathan & Lincoln, it did not create a fund for the taxpayers. It did succeed in materially reducing the amount of the Government's claim, but that does not entitle it to an equitable lien against the property of its clients. Even if it had a valid lien, its lien would be inferior to that of the Government.
There is no merit in Intervenor's contention that the Government lost its lien when it failed to refile its notices within the "required refiling period" contained in 26 U.S.C. §6323(g)(3)(A). 1 Although more than seven years has elapsed since the Government filed its notice of lien, Treasury Regulations make it unnecessary to refile when the Government filed its action and levied upon the property before the expiration of the required filing period. 26 C.F.R. §301.6323(g)-1(a)(3)(i) and (ii). 2 Here the Government filed its action within seven days after the notice of levy and intervenor concedes that it knew of the filing of the notice of levy and the action to foreclose the lien almost immediately after the government filed. In addition, it joined in the stipulation preventing the sale or encumbering of the properties.
Intervenor next contends that it is entitled to a "super priority" lien for attorney's fees under 26 U.S.C. §6323(b)(8). Such a lien is only effective against a "judgment or other amount in settlement of a claim ...." Here there is no judgment or settlement in favor of the taxpayers.
Counsel for the Intervenor in his oral argument on October 10, 1979, contended that the corporations on whose behalf Stonehill executed the deed of trust were not bound by the stipulation. This argument has no merit. Stonehill and Brooks and their wives were the only shareholders of these corporations and the corporations were specifically listed in the schedule of properties bound by the Stipulation.
Intervenors have once again attempted to relitigate its contentions that the United States does not have a valid tax lien. In my opinion of July 23, 1976, I held "that the Commissioner's determinations of tax deficiencies, as modified by this opinion, are correct and not arbitrary. The Government is therefore entitled to judgments against the taxpayers for tax deficiencies." This contention is also without merit.
The action in intervention is dismissed with prejudice.
This opinion shall constitute findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.
26 U.S.C. §6323(g)(3)(A) Required refiling period.—In the case of any notice of lien, the term "required refiling period" means—(A) the one-year period ending 30 days after the expiration of 6 years after the date of the assessment of the tax,
26 C.F.R. §301.6323(g)-1(a)(3)(i)(ii) states. "[T]he failure of the district director to refile a notice of lien during the required refiling period will not, following the expiration of the refiling period, affect the effectiveness of the notice with respect to: (i) Property which is the subject matter of a suit, to which the United States is a party, commenced prior to the expiration of the required refiling period, or (ii) Property which has been levied upon by the United States prior to the expiration of the refiling period ...."