IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 95-10276
(Summary Calendar)
IN THE MATTER OF: CHARLIE D. DAVIS,
Debtor.
STATE NATIONAL BANK, BIG
SPRING, TEXAS
Appellant,
versus
CHARLIE D. DAVIS and
INTERNAL REVENUE SERVICE,
Appellees.
Appeal from the United States District Court
For the Northern District of Texas
(6:94-CV-074-C)
January 8, 1995
Before GARWOOD, WIENER, and PARKER, Circuit Judges.
PER CURIAM:*
Debtor-Appellee Charlie D. Davis ("Debtor") filed a petition for
relief under Chapter 7 of the Bankruptcy Code. In an effort to
*
Local Rule 47.5 provides: "The publication of opinions that
have no precedential value and merely decide particular cases on
the basis of well-settled principles of law imposes needless
expense on the public and burdens on the legal profession."
Pursuant to that Rule, the Court has determined that this opinion
should not be published.
reduce his nondischargeable tax liability, the Debtor initiated
this action to determine the validity and relative priority of a
judgment lien held by Appellant State National Bank, Big Spring,
Texas ("Bank") and a tax lien held by Appellee Internal Revenue
Service ("IRS"). Concluding that the IRS's federal tax lien is
valid and has priority over the Bank's judgment lien, we affirm the
decision of the bankruptcy court.
I
FACTS AND PROCEEDINGS
In 1986, the Bank recovered a judgment against the Debtor in the
amount of $100,000 plus interest, attorney's fees, and costs. The
Bank filed an abstract of that judgment on December 12, 1986 in
Sterling County, Texas. This abstract of judgment not only failed
to show the Debtor's address, but also failed to show the nature of
citation and the date and place of service of citation. In
addition, the abstract omitted the rate of interest specified in
the judgment, although it did state the amount of daily interest
accruing.
On August 13, 1990, the IRS filed a $41,676.67 federal tax lien
against the Debtor in Sterling County, Texas, for unpaid 1985
income taxes, penalties, and interest.1 Although the Notice of
Federal Tax Lien stated that the place of filing was "County Clerk
- Personal Property," it was in fact recorded in both the real
property and personal property records of Sterling County.
1
The Notice of Federal Tax Lien filed on August 13, 1990
reflected an unpaid balance of $19,846.07. The amount of the IRS
lien at the time the Debtor filed for bankruptcy was $41,676.67.
2
The Debtor filed a petition for relief under Chapter 7 of the
Bankruptcy Code on August 28, 1991. Both the Bank and the IRS
timely filed proofs of claim.
Almost a year later, on July 28, 1992, the Bank filed a second
abstract of judgment against the Debtor in Sterling County, which
abstract was related to the same 1986 judgment. This second
abstract was a product of the Chapter 7 proceedings in the
bankruptcy court: On May 27, 1992, the bankruptcy court had
entered an Agreed Judgment which excepted the Debtor's obligation
to the Bank from discharge. The Debtor and the Bank also entered
into an Agreement for Payment of Agreed Judgment, which provided
that the Debtor would pay the Bank in installments totaling $50,000
in full satisfaction of the judgment. The Bank obtained this
second abstract of judgment after the Debtor failed to make the
agreed payments.
The bankruptcy court later authorized the sale of real property
in Sterling County of which the Debtor was a co-owner. The
proceeds of the sale that were attributable to the Debtor's net
interest in the property were paid into the registry of the court.
Both the Bank and the IRS claim these proceeds, which approximate
$13,000.
After determining as a matter of law that the Bank's 1986
abstract of judgment did not create a valid lien under the Texas
statute, the bankruptcy court concluded that the government's tax
lien entitled the IRS to the contested funds. In addition, the
bankruptcy court rejected the Bank's estoppel and "relation back"
3
arguments. The district court affirmed this decision, and the Bank
now appeals to us.
II
ANALYSIS
A. STANDARD OF REVIEW
The bankruptcy court's findings of fact are reviewed under the
clearly erroneous standard, and its conclusions of law are reviewed
de novo.2
B. VALIDITY AND PRIORITY OF THE LIENS
The priority between a validly filed federal tax lien and a
competing judgment lien is governed by the principle that the
"first in time is the first in right."3 Before a competing state
lien is entitled to temporal priority over a tax lien, however, the
former must meet the federal standard of perfection, or
"choateness."4 A state lien is "choate" when the identities of the
lienor, the property subject to the lien, and the amount of the
lien are established.5
The bankruptcy court held that the Bank's 1986 abstract of
judgment did not create a valid lien because it failed to comply
2
In re Midland Indus. Serv. Corp., 35 F.3d 164, 165 (5th
Cir. 1994), cert. denied, __ U.S. __, 115 S. Ct. 1359, 131 L.Ed.2d
216 (1995).
3
United States v. McDermott, __ U.S. __, 113 S. Ct. 1526,
1528, 123 L.E.2d 128 (1993) (citations and internal quotation marks
omitted). See 26 U.S.C. § 6323(a).
4
Rice Inv. Co. v. United States, 625 F.2d 565, 568 (5th Cir.
1980).
5
Id. (citing United States v. City of New Britain, 347 U.S.
81 (1954)).
4
with the Texas judgment lien statute.6 Accordingly, the bankruptcy
court concluded that, as this purported lien was never legally in
existence, much less "choate," the tax lien was "first in time" and
thus carried the day.
The Bank contends on appeal that this conclusion is in error
because Texas law requires only "substantial compliance" with the
elements of the statute.7 The Bank insists that, as the 1986
abstract of judgment should have charged third parties with notice
of the lien notwithstanding the omission of certain statutory
requirements, the lien should have attached. We disagree.
At the time that the Bank filed its 1986 abstract of judgment,
Texas Property Code section 52.003 provided:
An abstract of judgment must show:
(4) the defendant's address, or if the address is not shown
in the suit, the nature of citation and place of service of
citation;
....
(7) the rate of interest specified in the judgment.8
None dispute that these required items were not shown on the Bank's
1986 abstract of judgment.
Under Texas law, the mere rendition of a judgment does not create
6
See TEX. PROP. CODE ANN. § 52.003 (Vernon 1984).
7
See Citizens State Bank v. Del-Tex. Inv. Co., 123 S.W.2d
450, 452 (Tex.Civ.App.SQSan Antonio 1938, writ dism'd judgm't
cor.).
8
TEX. PROP. CODE ANN. § 52.003(a) (Vernon 1984).
5
a lien.9 To acquire a lien on real property owned by a judgment
debtor, the judgment creditor must take the specified steps
necessary to comply with the judgment lien statute.10 In addition,
the judgment creditor bears the responsibility of ensuring that the
clerk of court correctly abstracts the judgment.11 Moreover,
substantial compliance with the statutory requirements is
"essential and mandatory to the creation of the lien itself and is
not required solely to ensure that subsequent purchasers are
provided notice."12
Although substantial compliance with the statute is sufficient
to create a valid judgment lien, the Texas courts have construed
substantial compliance to allow only a minor deficiency in an
element of the abstract.13 An abstract that completely omits a
required statutory element, on the other hand, does not
substantially comply with the statute.14 Furthermore, the Texas
courts have specifically held that the omission of the defendant's
address and citation information on the abstract of judgment
9
Burton Lingo Co. v. Warren, 45 S.W.2d 750, 751-52
(Tex.Civ.App.SQEastland 1931, writ ref'd).
10
Citicorp Real Estate, Inc. v. Banque Arabe Int'l
D'Investissement, 747 S.W.2d 926, 929 (Tex. App.SQDallas 1988, writ
denied).
11
Texas Am. Bank v. Southern Union Exploration Co., 714
S.W.2d 105, 107 (Tex. App.SQEastland 1986, writ ref'd n.r.e.).
12
Citicorp Real Estate, Inc., 747 S.W.2d at 931 (second
emphasis added).
13
Id. at 930.
14
Id.
6
prevents the creation of a valid judgment lien.15 Therefore, no
valid lien was created by the 1986 abstract of judgment.
Accordingly, the IRS lien was "first in time" and thus "first in
right."
As the omission of the § 52.003(a)(4) element renders the 1986
abstract of judgment ineffectual, we need not consider whether the
amount of daily interest accruing listed in the abstract
substantially satisfies the statutory requirement regarding
interest.
C. VALIDITY OF IRS LIEN WITH RESPECT TO REAL PROPERTY
One of the blanks to be completed on a Notice of Federal Tax Lien
is entitled "Place of Filing." Although that blank on the Notice
of Federal Tax Lien in the instant case reflected that the place of
filing was "County Clerk - Personal Property," that Notice was
actually filed in both the real property and personal property
records of Sterling County. The Bank nevertheless contends that a
federal tax lien must be strictly correct and that the description,
"County Clerk - Personal Property," as the place of filing prevents
the IRS from having a lien on the proceeds from a sale of real
property. In support of its position, the Bank cites cases
invalidating federal tax liens on the basis of misspelling or error
in the taxpayer's name.16
15
Id.; Texas Am. Bank v. Southern Union Exploration Co., 714
S.W.2d 105, 107 (Tex. App.SQEastland 1986, writ ref'd n.r.e.);
Allied First Nat'l Bank v. Jones, 766 S.W.2d 800, 802 (Tex.
App.SQDallas 1988, no writ).
16
E.g., Haye v. United States, 461 F.Supp. 1168 (C.D. Cal.
1978).
7
As an initial matter, the IRS responds that, inasmuch as this
argument was not raised in either the bankruptcy court or the
district court, we should refuse to consider it on appeal.17 The
record is unclear as to whether this particular argument was raised
below; yet the record does reflect that an argument was made
concerning the place-of-filing designation. Giving the Debtor the
benefit of the doubt, we address this argument, but ultimately find
it unpersuasive.
Again, a federal tax lien "shall not be valid as against any ...
judgment lien creditor until notice thereof which meets the
requirements of subsection (f) has been filed by the Secretary."18
Section 6323(f) provides that "[t]he form and content referred to
in subsection (a) shall be prescribed by the Secretary." The
applicable regulations state that the notice must be filed on a
Form 668 and that it "must identify the taxpayer, the tax liability
giving rise to the lien, and the date the assessment arose."19
The sufficiency of a notice of federal tax lien is a question of
federal law.20 Contrary to the Debtor's assertion, to be valid this
notice need not be flawless.21 For, as many courts have stated,
17
See C.F. Dahlberg & Co., Inc. v. Chevron U.S.A., Inc., 836
F.2d 915, 920 (5th Cir. 1988).
18
26 U.S.C. § 6323(a).
19
Treas. Reg. § 301.6323(f)-1(d).
20
United States v. Brosnan, 363 U.S. 237, 240 (1960).
21
See Richter's Loan Co. v. United States, 235 F.2d 753, 754-
55 (5th Cir. 1956) (holding that a notice of federal tax lien was
valid even though the taxpayer's name was erroneously spelled
"Freidlander" instead of "Friedlander").
8
"[t]he essential purpose of the filing of the [federal tax] lien is
to give constructive notice of its existence. The test is not
absolute perfection in compliance with the statutory requirement
for filing the tax lien, but whether there is substantial
compliance sufficient to give constructive notice and to alert one
to the government's claim."22
The Notice of Federal Tax Lien here at issue was filed in the
proper place and on the proper form. All information concerning
the identity of the taxpayer and the tax liability was correct.
The only defect alleged by the Debtor is in the description of the
place of filing, an item that the regulations do not even require
to be stated on a Form 668. Thus, we conclude that the instant
notice was filed in substantial, if not full, compliance with the
statute and that it was more than sufficient to alert one to the
government's claim. Moreover, the Bank's contention that the
description of the place of filing on a Notice of Federal Tax Lien
trumps the actual place of filing is pure sophistry. We are
satisfied that the IRS had a valid lien against the Debtor's real
property in Sterling County.
D. RELATION BACK
Not to be deterred, the Bank insists that its formally valid 1992
abstract of judgment cured any defects in the 1986 abstract and
"relates back" to 1986, thereby giving the Bank priority. The Bank
22
E.g., Tony Thorton Auction Serv., Inc. v. United States,
791 F.2d 635, 639 (8th Cir. 1986) (quoting United States v. Sirico,
247 F.Supp. 421, 422 (S.D. N.Y. 1965)); Du-Mar Marine Serv., Inc.
v. State Bank & Trust Co., 697 F.Supp. 929, 935 (E.D. La. 1988).
9
cites no relevant authority for this assertion, however.
In rejecting this argument by the Debtor, the bankruptcy court
held that because noncompliance with the statute kept the Bank's
lien from coming into existence in 1986, there can be no relation
back to this putative lien. Finding no authority on our own for
the Debtor's contention and agreeing with the reasoning of the
bankruptcy court, we conclude that the relation back doctrine is
inapplicable in this circumstance. Thus, the Bank's 1992 abstract
of judgment did not relate back to 1986.23
E. COLLATERAL ESTOPPEL
The Bank and the Debtor were parties in a previous bankruptcy
case in which Southern States Energy, Inc. was the debtor.24 The
same 1986 abstract of judgment involved in the instant case was
also implicated in the Southern States Energy bankruptcy case. The
Bank contends that the Debtor could have challenged the validity of
the Bank's lien in that earlier case, but elected instead to
recognize its efficacy by accepting a particular conveyance
pursuant to Southern States Energy's Chapter 11 plan. The Bank
argues that the Debtor and the IRS are thus collaterally estopped
from claiming now that the 1986 abstract of judgment did not create
a valid lien.
Federal law determines the res judicata or collateral estoppel
23
We note that even if Texas law did provide that this
abstract of judgment relates back to 1986, this relation back would
be ineffective with respect to a validly filed federal tax lien.
United States v. Allen, 328 F.2d 377, 379 (5th Cir. 1974).
24
In re Southern States Energy, Inc., No. 687-060046-JCA-11
(Bankr. N.D. Tex. 1988).
10
effect of prior federal court proceedings, regardless of the basis
of federal jurisdiction in either the prior or the present action.25
The doctrine of collateral estoppel, or issue preclusion, provides
that "when an issue of ultimate fact has once been determined by a
valid and final judgment, that issue cannot be again litigated by
the same parties in any future lawsuit."26 The three elements of
collateral estoppel are (1) the issue at stake must be identical to
the one involved in the prior action; (2) the issue must have been
actually litigated in the prior action; and (3) the determination
of the issue must have been a necessary part of the judgment in the
prior action.27
In addition to the fact that the IRS was not a party to that
previous action, the second element of collateral estoppel is not
satisfied because the validity of the Bank's 1986 abstract of
judgment was not actually litigated. Under these circumstances, we
agree with the bankruptcy court that neither the Debtor nor the IRS
is collaterally estopped from challenging the validity of the 1986
abstract of judgment.
For the foregoing reasons, the judgment of the bankruptcy court
is
AFFIRMED.
25
Avondale Shipyards, Inc. v. Insured Lloyd's, 786 F.2d 1265,
1269 n.4 (5th Cir. 1986).
26
RecoverEdge L.P. v. Pentecost, 44 F.3d 1284, 1290 (5th Cir.
1995) (quoting Ashe v. Swenson, 397 U.S. 436, 443, 90 S. Ct. 1189,
1194, 25 L.E.2d 469 (1970)).
27
Id.
11