dissenting:
I. Introduction
The majority’s conclusion that respondent has a right under the California Uniform Fraudulent Transfer Act to enforce a liability against petitioner fails to recognize and apply the distinction between statutes of limitations, which set maximum time periods during which certain actions can be brought or rights enforced, and temporal rights created by State statutes. Therefore, I dissent.
II. Section 6901
To use the courts to enforce a liability, the Government, like any other creditor, must establish a basis in law for that liability. Section 6901 does not provide any such basis.1 See Commissioner v. Stern, 357 U.S. 39, 42 (1958) (interpreting section 311, I.R.C. 1939, the predecessor of section 6901). Section 6901(a) merely establishes the deficiency procedure as a mechanism for collecting certain existing, enumerated liabilities. One of the enumerated liabilities is the liability of a transferee of property of a taxpayer in the case of the income tax. Sec. 6901(a)(l)(A)(i). Section 6901(c) imposes a period of limitations for the assessment of the enumerated liabilities. Granting that petitioner is the transferee of property of a taxpayer, the first question we must address is whether there is any basis in law for respondent’s claim that petitioner has some liability to respondent on account thereof.
III. California Uniform Fraudulent Transfer Act
A. Introduction
As the majority acknowledges, with the exception of proving that the taxpayer (Jaussaud) was liable for the tax, respondent has the burden of proving all of the elements necessary to establish petitioner’s liability as the, transferee of property of the taxpayer. Sec. 6902(a); Rule 142(d). The majority is also correct in stating that we must examine the law of California to determine petitioner’s liability, if any. Majority op. p. 180. Respondent argues, and petitioner and the majority agree, that the applicable law of California is the California Uniform Fraudulent Transfer Act, Cal. Civ. Code sec. 3439 through 3439.12 (West 1997) (hereafter, the CUFTA and section 3439.xx, respectively). The CUFTA provides remedies to creditors with respect to fraudulent transfers made by debtors. Section 3439.04 defines a fraudulent transfer, and section 3439.07 provides remedies to creditors. Those remedies delimit both the right of the creditor to demand something from a transferee and the offsetting duty (liability) of the transferee to comply (that duty hereafter being referred to as transferee liability). Section 3439.09 sets forth certain time limits within which an action must be brought and provides for the extinguishment of the cause of action created by the CUFTA if those time limits are exceeded. In the case of a fraudulent transfer within the meaning of section 3439.04(b), the cause of action is extinguished unless an action is brought or a levy is made pursuant to section 3439.07 within 4 years after the fraudulent transfer is made.
B. Section 3439.09
Section 3439.09 is part of the CUFTA and, like the section 3439.07 remedies, it delimits the right (and offsetting transferee liability) created by the CUFTA. It delimits that right, however, not in terms of specifying the available remedies, as does section 3439.07 but, rather, in terms of specifying the temporal dimension of the right. Section 3439.09 is not a statute of limitations. It does not operate by making the judicial mechanism unavailable to enforce the right. Rather, it delimits the existence of the State-created right; thus, the question of enforcement is moot. The distinction between a statute of limitations and a temporally delimited right is widely recognized. See, e.g., Crandall v. Irwin, 39 N.E.2d 608, 610 (Ohio 1942), in which the Supreme Court of Ohio held:
A wide distinction exists between pure statutes of limitation and special statutory limitations qualifying a given right. In the latter instance time is made an essence of the right created, and the limitation is an inherent part of the statute or agreement out of which the right in question arises, so that there is no right of action whatever independent of the limitation. A lapse of the statutory period operates, therefore, to extinguish the right altogether.
C. Respondent’s Failure To Carry the Burden of Proof
The Government did not demonstrate that the transfer occurred within 4 years of the date of the notice of transferee liability against petitioner. Majority op. p. 183. Therefore, I conclude that the Government has not sustained its burden of proving that petitioner was liable as a transferee under California law.
IV. The Summerlin Issue
A. Quod Nullum Tempus Occurrit Regi
The majority rests its holding on the ancient rule of quod nullum tempus occurrit regi — “that the sovereign is exempt from the consequences of its laches, and from the operation of statutes of limitations”. See Guaranty Trust Co. v. United States, 304 U.S. 126, 132 (1938). The majority explains that the Supreme Court has already addressed the distinction between statutes of limitations and “non-claim” statutes in United States v. Summerlin, 310 U.S. 414 (1940). The majority applies Summerlin here to dispose of the case on the theory that section 3439.09 amounts to a nonclaim statute, and that is the equivalent of a statute of limitations. The Supreme Court in Summerlin held that “if the statute * * * undertakes to invalidate the claim of the United States, so that it cannot be enforced at all, because not filed within * * * [the statutory period], we think the statute in that sense transgressed the limits of state power.” Id. at 417.
The distinction between “pure” statutes of limitations and “non-claim” statutes relates to how the statute achieves the limitation.2 The Supreme Court held that such a distinction is irrelevant if the result is that the sovereign’s claim is invalidated. Id. That is not, however, a relevant distinction here.
The issue here is not how the statute limits a right (i.e., by denying the means of enforcing the right or by extinguishing the right), but rather upon what right the limitation acts. The United States’ claim in Summerlin arose when the Federal Housing Administrator became the assignee of a claim against a decedent’s estate. The Government had an existing right that would have been invalidated by the provisions of a State statute had the State statute been held applicable. To the contrary, respondent’s cufta claim against petitioner, as a transferee, is not created by Federal or common law. Respondent makes no claim except under the CUFTA, and, therefore, the issue is whether respondent has any rights as a creditor under the CUFTA. The issue here does not involve an extension or modification of the Summerlin doctrine, where the Supreme Court refused to apply a State statute of limitations to cut off the Government’s existing cause of action. Rather, the Summerlin doctrine is inapposite to these circumstances.
B. The Supreme Court
The Supreme Court has held that temporal limitations contained in State statutory rights are not statutes of limitations that are subject to the rule of quod nullum tempus occurrit regi. See Custer v. McCutcheon, 283 U.S. 514 (1931). In Custer, the Supreme Court reversed the decision of the Court of Appeals for the Ninth Circuit (Ninth Circuit) affirming a judgment of the District Court for Idaho in favor of a U.S. marshal. The marshal had levied an execution against Custer upon a judgment entered in favor of the United States 9 years earlier. The Idaho statute governing the execution process, which applied to proceedings in the District Court as if Congress had enacted the statute, provided that “[t]he party in whose favor judgment is given, may, at any time within five years after the entry thereof, have a writ of execution issued for its enforcement.” Id. at 515. The Supreme Court, recognizing that absent specific provisions to the contrary, statutes of limitations do not bind the sovereign, held that the statute was not a statute of limitations. Rather, the Court held that it was a statute granting a right of execution, and the time element is an integral part of the statutory right conferred. Id. at 516-517. Although the marshal argued that, on grounds of public policy, the sovereign ought not be subject to restrictions binding on private suitors, the Supreme Court saw no valid reason for making such an exception:
The time limit for issuing executions is, strictly speaking, not a statute of limitations. On the contrary, the privilege of issuing an execution is merely to be exercised within a specified time, as are other procedural steps in the course of a litigation after it is instituted. * * * [Id. at 519.]
The Supreme Court has also recognized that the right of the Government to be free from statutes of limitations does not mean the Government can pursue a cause of action where none exists under State law or otherwise. See United States v. California, 507 U.S. 746 (1993); Guaranty Trust Co. v. United States, supra.
C. The Court of Appeals for the Ninth Circuit
The Ninth Circuit has similarly recognized that the Summerlin doctrine is inapplicable to State statutes that provide a time limitation as an element of a cause of action. See United States v. California, 655 F.2d 914 (9th Cir. 1980). In California, the Ninth Circuit held that the claim filing requirements of California Government Code section 911.2, which required that all claims for money or damages for which the State is liable be presented within 1 year of the date that the claim arose, was applicable to the Federal Government. The Government was pursuing a claim against the State of California pursuant to California Health and Safety Code section 13009 for the Government’s expense of fighting a fire negligently set to a national forest. The majority conveniently dismisses such relevant precedent, relegating its mention to a footnote, and noting that the Ninth Circuit has never applied this exception in transferee liability cases. The majority does not, however, provide any reasoning as to why there is a relevant distinction between substantive claims provided for by California State law that regard transferee liability versus liability in connection with the expenses incurred for fighting negligently set fires.
Another relevant Ninth Circuit case is United States v. Hartford Accident & Indem. Co., 460 F.2d 17, 18 (9th Cir. 1972). There, the Ninth Circuit held that the United States “was barred from recovery because of its failure to comply with the California Insurance Code” requiring suit to be brought within 1 year. Id. The Ninth Circuit recognized that United States v. Summerlin, 310 U.S. 414 (1940), provided “clear authority for the proposition that an action vested in the United States cannot be defeated by a state statute of limitations”. United States v. Hartford Accident & Idem. Co., supra at 19. However, the Ninth Circuit determined that neither Summerlin nor its progeny “hold that considerations of federal supremacy can create a cause of action where none exists under state law or otherwise.” Id. (citing United States v. Summerlin, supra at 417). Therefore, the Ninth Circuit distinguished pure statutes of limitations from State-created temporal rights. .
D. Distinguishing a Temporal Right From a Temporal Limitation
The cases cited from the Courts of Appeals by the majority in order to further its approach do not address the issue of whether a State can provide a limited temporal right, as opposed to temporally limiting the sovereign from exercising a right that is not otherwise so limited. See United States v. Moore, 968 F.2d 1099 (11th Cir. 1992) (holding without citation of the Georgia statute in issue that the statute is a State statute of limitations); United States v. Wurdemann, 663 F.2d 50 (8th Cir. 1981) (holding without any analysis that State “statutes of limitation” do not apply to the sovereign); United States v. Fernon, 640 F.2d 609 (5th Cir. 1981) (interpreting Florida statute section 95.11(6) to be a statute of limitations, and not an element of a State-created right). I agree with the criticisms made in United States v. Vellalos, 780 F. Supp. 705, 708 n.3 (D. Haw. 1992), appeal dismissed 990 F.2d 1265 (9th Cir. 1993), that these cases are “an overly mechanical application of the dicta in Summerlin without serious consideration of the significant implications such a rule has for state sovereignty.” 3
It is true that we are not bound to follow United States v. Vellalos, supra. The majority, however, attempts to distinguish it by noting that, in Vellalos, the Government was “unable to invoke section 6901 because it missed the limitations period prescribed by subsection (c). Therefore, it relied on State foreclosure proceedings as a means for collection.” Majority op. pp. 186-187. The majority explains that it is not clear whether the District Court in Vellalos would have reached its same conclusion had the Government proceeded timely under section 6901, which is the case here. I disagree. The District Court in Vellalos was explicit in holding that
The Tenth Amendment to the United States Constitution provides:
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
U.S. Const, amend. X. The law of real property has traditionally been within the province of the states. The government has cited no federal statute that would restrict the states’ rights to legislate in the area of fraudulent real estate transfers.
Here, the government is seeking to take advantage of a right that is entirely within the domain of the state. This right was created by a state statute and specifically limited by the text of that statute. This is not a straightforward question of debt collection under the common law as was addressed by the Supreme Court in Summerlin. * * *
[United States v. Vellalos, supra at 707-708.]
Further, the majority’s review of United States v. Bacon, 82 F.3d 822 (9th Cir. 1996), ignores a significant holding. The issue in Bacon was whether Washington State’s Uniform Fraudulent Transfer Act (WSUFTA) may be applied retroactively. The Ninth Circuit concluded that it is precisely because the WSUFTA contains an extinguishment provision, rather than a remedial or procedural limitation, that it does not apply retroactively absent an express provision to the contrary.
V. Conclusion
For the foregoing reasons, I believe that the time period contained in CUFTA section 3439.09 is not a statute of limitations, but rather is an inherent element of the right created. Although the effect of the provision is one of “non-claim” (i.e., it extinguishes the underlying substantive right), rather than a mere bar to enforcement, this difference is not controlling. What is dispositive is that the right that the Government claims to possess against petitioner as a transferee is nonexistent but for the provisions of California State law, and California has decided to provide only a temporal right against transferees in these instances. Respondent and the majority may regret that California did not provide a different rule than it did, but it is not our province to legislate on behalf of the States. In limited circumstances, as illustrated by the Summerlin doctrine, we may ignore State statutes of limitations, but that is the extent of our authority. To hold otherwise is an encroachment on State sovereignty and raises problematic constitutional issues.
Whalen, Beghe, and Thornton, JJ., agree with this dissenting opinion.Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
A “pure” statute of limitations merely limits or restricts the time within which a right, otherwise unlimited, may be enforced. Vaughn v. United States, 43 F. Supp. 306, 308 (E.D. Ark. 1942). A “non-claim” statute operates by extinguishing the underlying substantive right. See United States v. Summerlin, 310 U.S. 414 (1940). Both “pure” statutes of limitations and “non-claim” statutes are, however, statutes of limitations in that they are statutes that limit causes of action. Beach v. Mizner, 3 N.E.2d 417, 419 (Ohio 1936).
There are numerous cases that deal with the question of whether, in substance, a temporal limitation should be treated as a temporally limited right. See, e.g., Fairbanks-Morse & Co. v. Alaska Palladium Co., 32 F.2d 233, 234 (9th Cir. 1929) (quoting Partee v. St. Louis & S.F.R. Co., 204 F. 970, 972 (8th Cir. 1913)):
A statute which in itself creates a new liability, gives an action to enforce it unknown to the common law, and fixes the time within which that action may be commenced, is not a statute of limitations. It is a statute of creation, and the commencement of the action within the time it fixes is an indispensable condition of the liability and of the action which it permits. Such a statute is an offer of an action on condition that it be commenced within the specified time. If the offer is not accepted in the only way in which it can be accepted, by the commencement of the action within the specified time, the action and the right of action no longer exist, and the defendant is exempt from liability.