The opinion of the court was delivered by: BRYAN
The United States sues to enforce liens filed against defendant Webster Record Corporation (Webster) for withholding and excise taxes assessed by the Commissioner of Internal Revenue between 1957 and 1960. At the time suit was commenced the balance remaining unpaid totalled $ 84,050.70, exclusive of interest.
Bankers Trust Company (Bankers) and The Borden Chemical Company (Borden) are also named as parties defendant. Bankers holds a deposit of $ 8,634.20 in its Queens' Branch for the account of Webster and is a stakeholder of these funds. Borden is a judgment creditor of Webster, which claims the amount on deposit with Bankers under a judgment creditor's lien which it asserts has priority over the Government's tax liens.
There are cross-motions for summary judgment under Rule 56, F.R.Civ.P. 28 U.S.C., by the United States and by Borden.
The undisputed facts as they appear from the pleadings and affidavits are as follows:
Webster is a Massachusetts corporation doing business in New York. Between 1957 and 1960 the Commissioner of Internal Revenue assessed a total of $ 84,050.70 for withholding and excise taxes due and owing from Webster. Liens totalling these amounts were filed by the Commissioner between June, 1958 and August, 1960 in both Dudley and Worcester, Massachusetts.
Borden is a New York corporation with its principal place of business in New York County. On July 5, 1960 it secured a judgment in the New York Supreme Court, New York County, against Webster in the amount of $ 11,320.50 for an unpaid balance due for merchandise sold and delivered, plus interest. Borden then initiated supplementary proceedings in the New York courts and obtained an order restraining Bankers from paying out the amount on deposit in Webster's account. Borden then moved to compel Bankers to turn over the deposit to it in partial satisfaction of its judgment. The Government was at no time a party to the original action by Borden against Webster, nor did it appear in the supplementary proceedings instituted after entry of judgment.
On October 4, 1960, while Borden's turnover motion was still pending in the state court, the Commissioner served a demand on Bankers for the surrender to the Government of the Webster funds on deposit. Borden then served a copy of its motion papers for a turnover on the Government. The Government commenced its action in this court to foreclose its lien as against the deposit.
The Government then secured an order of this court restraining Bankers from paying the deposit to Borden and to enjoin Borden from taking any further steps with respect to the fund until this action is finally determined.
On its motion for summary judgment the Government asserts that tax liens in the amount of at least $ 37,686.58 had been filed against Webster prior to the entry of judgment in favor of Borden in the New York State court action. It contends that these liens were filed properly under 26 U.S.C. § 6323,
and therefore it is entitled to be paid the deposit held by Bankers in partial satisfaction of Webster's tax indebtedness.
On its cross-motion for summary judgment Borden takes the position that the Government's liens were improperly filed under § 6323 and therefore are invalid as against Borden as a judgment creditor of Webster. Borden claims that under § 6323(a)(1) the tax lien must be filed in the appropriate office designated by the law of the state where the property subject to the lien is located. It urges that the deposit in the Queens Branch of Bankers is located in New York where the bank is. Therefore it argues that New York law must apply and that under New York law the Government's tax lien, in order to have priority, had to be filed in the office of the City Register of the county in which the bank where the funds were on deposit was situated. Borden necessarily takes the position that the threshold problem of determining where property of a delinquent taxpayer is located for the purposes of § 6323(a)(1) is governed by state law.
The Government, on the other hand, contends that federal law and not state law must be applied to determine the situs of the property against which a tax lien is asserted and that under federal law bank deposits are treated as intangible personal property having their situs at the domicile of the owner. It asserts that the domicile of Webster is Massachusetts where it is incorporated and that therefore its liens were perfected when filed in Massachusetts in compliance with filing requirements of that state and have priority over the subsequent judgment lien of Borden.
The initial question to be resolved on these motions is what law is to be applied to determine where 'the property subject to the (tax) lien is situated.' As already noted, Borden takes the position that state law determines the situs of the property, that therefore New York law must be applied and that under that law a bank deposit has its situs where the bank is located.
This is a bootstrap argument and is unsound.
No good reason is advanced by Borden why New York rather than Massachusetts law should be applied to determine the situs of this property other than that New York law supports Borden's position. The adoption of Borden's position would result in reasoning in a complete circle. If state law is to be applied by the federal courts to determine the situs of property which may be situated in more than one state, then which state law is to be chosen? The answer, of course, is ...