UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: ARC ENERGY CORPORATION,
a/k/a Colburn Energy Corporation,
Debtor.
WALLACE RESOURCES, LIMITED, No. 96-1529
Plaintiff-Appellant,
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude M. Hilton, District Judge.
(CA-95-1591-A, BK-88-582-AB)
Argued: March 7, 1997
Decided: September 16, 1997
Before ERVIN, WILKINS, and NIEMEYER, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Robert Mason Goolrick, McLean, Virginia, for Appel-
lant. Alice Lizbeth Ronk, Tax Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Loretta C. Argrett, Assistant Attorney General, William S.
Estabrook, Helen F. Fahey, United States Attorney, Tax Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
This appeal was filed by Wallace Resources, Ltd. (Wallace) subse-
quent to the district court's affirmance of a bankruptcy court decision
holding that the Internal Revenue Service's (IRS or United States) tax
liens on the claim of Colstar Petroleum (Colstar) against ARC Energy
Corporation (ARC) were superior to Wallace's judgment against Col-
star (which arose from a default judgment). Subsequent to ARC filing
for bankruptcy, the company was required under a confirmed liquida-
tion plan to pay $37,797 on the claim of Colstar to Colstar's creditors.
Wallace and the IRS are competing claimants and creditors of Colstar
and both seek to enforce their claims by receiving Colstar's $37,797
distribution from ARC. For the reasons hereinafter explored, we
affirm the order of the district court.
I.
ARC filed for Chapter 11 bankruptcy on March 17, 1988, in the
United States Bankruptcy Court for the Eastern District of Virginia.
Colstar submitted proof of claim as a creditor of ARC. On November
13, 1991, Wallace filed a motion pursuant to Fed. R. Bankr. P.
3001(e)(2), seeking to be substituted for Colstar as the transferee of
Colstar's bankruptcy claim against ARC. In support of its motion,
Wallace asserted that it had obtained a default judgment in the
amount of $120,000 against Colstar on May 23, 1990, in the Circuit
Court of Fairfax County, Virginia, and on May 31, 1990, had dock-
2
eted the judgment. On February 19, 1992, the bankruptcy court
ordered that Wallace be substituted as claimant of Colstar's claim.
On July 16, 1992, the IRS served ARC with a notice of levy with
respect to taxes assessed against Colstar on December 3, 1990, requir-
ing ARC to turn over all property and rights to property due and
owing to Colstar. Along with the notice of levy, the IRS included a
letter stating that the notice of levy was not an accelerated demand for
payment insofar as ARC was in bankruptcy. On February 19, 1991,
the IRS had filed notices of two federal tax liens with the Virginia
State Corporation Commission. Notices of the liens were also filed
with the Clerk of the Circuit Court in Fairfax County, one on Febru-
ary 21 and the other on February 25, 1991.
On January 17, 1995, the bankruptcy court entered a consent order
allowing Colstar's claim against ARC in the amount of $41,797, but
providing that only $4,000 of that amount be paid to Colstar and the
remaining $37,797 (the funds) be set aside for Colstar's creditors.
This $37,797 is the amount claimed by both Wallace and the IRS.
On January 30, 1995, the United States filed a motion in bank-
ruptcy court for summary judgment claiming that its tax liens were
entitled to priority over competing creditors' claims to Colstar's
funds. In its supporting memorandum, the IRS stated that under the
Internal Revenue Code, 26 U.S.C. § 6321, the federal tax liens arose
on the date of assessment, December 3, 1990, upon all of Colstar's
property and its rights to property. The IRS stated that those liens
were superior to other creditors' claims of entitlement to those funds.
Wallace opposed the summary judgment motion on several
grounds. First, Wallace argued that its claim to the funds had priority
because its judgment had been entered and docketed in the lien
records of Fairfax County in May, 1990, approximately seven months
before the federal tax liens arose in December of that year, and
roughly nine months before notices of those liens were filed in Febru-
ary, 1991. Second, Wallace argued that the tax liens could not extend
to the funds because the filing of the notices of those liens during
ARC's bankruptcy violated the automatic stay provision of the Bank-
ruptcy Code, 11 U.S.C. § 362. Third, Wallace contended that it was
not required to perfect its lien on the funds because "[b]ankruptcy law
3
does not permit state court execution." Wallace finally maintained
that the transfer of Colstar's claim to Wallace, pursuant to Fed. R.
Bankr. P. 3001(e)(2), stripped the federal tax liens from that claim.
The bankruptcy court subsequently delivered an oral opinion in
which it concluded that the tax liens had priority over Wallace's
claims. The court held that Wallace's judgment never attached to Col-
star's bankruptcy claim because, under Virginia law,"a judgment that
is rendered and docketed attaches only to real property." According
to the court, in order to acquire a lien on intangible property, such as
Colstar's claim in the instant case, a judgment creditor must obtain a
writ of fieri facias and deliver it to the sheriff for execution.1 Since
Wallace presented no proof that it had obtained such a writ, the bank-
ruptcy court concluded that Wallace was not a "judgment lien credi-
tor" and thus was not entitled to priority over federal tax liens.
The bankruptcy court rejected Wallace's argument that the IRS had
violated the automatic stay, noting that the stay provision only prohib-
its creditor process against a debtor such as ARC and the bankruptcy
estate, not against a creditor such as Colstar who has a claim against
ARC. See 11 U.S.C. § 362(a). Further, the bankruptcy court rejected
Wallace's claim that the transfer of ARC's claim to it under Fed. R.
Bankr. P. 3001(e)(2) divested the tax liens from that claim. The bank-
ruptcy court noted that bankruptcy rules "cannot abridge or modify
any substantive right of a party in interest." J.A. at 48 (citing 28
U.S.C. § 2075). Thus, Wallace acquired Colstar's claim subject to the
tax liens.
Wallace appealed the order of the bankruptcy court to the district
court. The district court subsequently affirmed the decision of the
lower court and issued its final order on February 9, 1996. Wallace
again appeals.
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1 A writ of fieri facias is simply a "[j]udicial writ directing sheriff to
satisfy a judgment from the debtor's property." Black's Law Dictionary
627 (6th ed. 1990).
4
II.
"Because the district court sits as an appellate court in bankruptcy,
our review of the district court's decision is plenary. In other words,
we apply the same standard of review as the district court applied to
the bankruptcy court's decision." Southeast Hotel Properties Ltd.
Partnership v. Atlanta Motor Speedway, 99 F.3d 151, 154 (4th Cir.
1996). The bankruptcy court's findings of fact are reviewed for clear
error, while questions of law are reviewed de novo. Id.; In re Varat
Enters., Inc., 81 F.3d 1310, 1314 (4th Cir. 1996).
III.
The Internal Revenue Code establishes that unpaid taxes become
a lien in favor of the government on all property and rights to prop-
erty of the delinquent taxpayer. See 26 U.S.C. § 6321. State law deter-
mines what constitutes property for purposes of attachment. See
United States v. Nat'l Bank of Commerce, 472 U.S. 713, 722 (1985).
Federal law, however, determines the priority of various creditors'
claims on that property. See, United States v. Rodgers, 461 U.S. 677,
683 (1983).
The parties do not dispute Colstar's claim to those monies distrib-
uted to it under the terms of ARC's bankruptcy. The IRS, however,
points out that Colstar's contingent right to payment from ARC is
intangible personal property, property to which federal tax liens
could attach. See Va. Code Ann. § 8.9-106 ("`General intangibles'
means any personal property (including things in action) other than
goods, accounts, chattel paper, documents, instruments and money.").
The general rule of priority under federal law is that federal tax liens
attach to a taxpayer's property and are entitled to absolute priority
unless otherwise provided by statute. See 26 U.S.C. § 6323; United
States v. City of New Britain, 347 U.S. 81, 85-86 (1954). Section
6323(a) provides exceptions to the tax lien priority rule:
The lien imposed by section 6321 shall not be valid against
any purchaser, holder of a security interest, mechanic's
lienor, or judgment lien creditor until notice thereof which
meets the requirements of subsection (f) has been filed by
the Secretary.
5
26 U.S.C. § 6323(a) (emphasis added). Although the IRS did not file
notices of its liens until nine months after Wallace docketed its judg-
ment against Colstar, the bankruptcy court determined that Wallace
was not entitled to priority "because, although Wallace was a judg-
ment creditor, it had no lien on the property at issue, much less a valid
lien arising prior to the creation or filing of federal tax liens."
Wallace was, according to the bankruptcy court, not a "judgment
lien creditor" under the Code since it did not file and deliver to the
sheriff a writ of fieri facias as required by Virginia law in order to
perfect a lien on intangible personal property, in this case Colstar's
claim against ARC.2 See Va. Code Ann. §§ 8.01-478, 8.01-501; see
also Johnston Memorial Hosp. v. Hess, 44 B.R. 598, 600 (Bankr.
W.D. Va. 1984); Virginia Nat'l Bank v. Blofeld , 362 S.E.2d 692, 693
(Va. 1987).
A.
We have noted that federal law must govern "in matters relating to
the treatment or priority a judgment lien is to be accorded when com-
peting with a federal tax lien." Air Power, Inc. v. United States, 741
F.2d 53, 57 (4th Cir. 1984). Wallace concedes the holding of Air
Power, but the company also cites several cases for the proposition
that, under federal law, a judgment creditor may have priority without
post-judgment execution. Each of these cases, however, fails to bol-
ster this proposition and is distinguishable from the instant case
because priority in each depended on the state law governing the ini-
tial question of when the property was subject to a lien. See, e.g.,
Hartford Provision Co. v. United States, 579 F.2d 7, 10 (2d Cir. 1978)
(concluding that judgment holder had priority because, under Con-
necticut law, a judgment automatically makes attached property sub-
ject to a lien for 60 days even without execution); In re Fornabi, 227
F.Supp. 928, 930 (D.N.J. 1965) (giving judgments priority because,
under New Jersey law, "a judgment docketed . . . is a lien"); In re
Eabco, Inc., 108 B.R. 61, 63 (Bankr. W.D. Pa. 1989) (finding, under
Pennsylvania law, that a confession judgment created a perfected
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2 The IRS does not dispute Wallace's status as a judgment lien creditor
with respect to Colstar's real property since Virginia law does not require
a writ of fieri facias to perfect a lien on real property.
6
lien). The cases cited by Wallace fail to contradict the fact that, under
Virginia law, Wallace did not obtain a perfected lien against Colstar's
personal property because it did not file the requisite writ of fieri facias.3
B.
Wallace next argues that the automatic stay provision in the Bank-
ruptcy Code, 11 U.S.C. § 362, prevented it from perfecting a lien on
Colstar's bankruptcy claim. That provision provides:
[A bankruptcy] petition . . . operates as a stay . . . of--
[. . .]
(2) the enforcement, against the debtor or against property
of the estate, of a judgment obtained before the commence-
ment of the case under this title;
(3) any act to obtain possession of property of the estate or
of property from the estate or to exercise control over prop-
erty of the estate;
(4) any act to create, perfect, or enforce any lien against
property of the estate;
(5) any act to create, perfect, or enforce against property of
the debtor any lien to the extent that such lien secures a
claim that arose before the commencement of the case under
this title . . . .
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3 The government also points out that Wallace is not a judgment lien
creditor for purposes of priority pursuant to Department of Treasury reg-
ulations. These regulations define a "judgment lien creditor" as follows:
The term "judgment lien creditor" means a person who has
obtained a valid judgment . . . for the recovery of specifically
designated property or for a certain sum of money. In the case
of a judgment for the recovery of a certain sum of money, a
judgment lien creditor is a person who has perfected a lien
under the judgment on the property involved."
26 C.F.R. § 301.6323(h)-1(g) (emphasis added).
7
11 U.S.C. § 362(a) (emphases added). Accordingly, the bankruptcy
court explained why the stay did not prevent Wallace from perfecting
a judgment lien against the property of Colstar:"[T]he automatic stay
prohibits the creditor process against the debtor and the bankruptcy
estate. It does not prohibit collection of actions against a creditor who
in turn has a claim against the bankrupt debtor . . . ." J.A. at 50-51
(citing Willford v. Armstrong World Indus., Inc. , 715 F.2d 124, 126-
127 (4th Cir. 1983) (holding that §362(a) "provides only for an auto-
matic stay of any judicial proceeding `against the debtor' . . . [and]
[t]hat insulation . . . belongs exclusively to the `debtor' in bankruptcy"
(emphasis added)).4
Wallace cites In re Tour Train Partnership, 15 B.R. 401, 402-03
(Bankr. D. Vt. 1981), to support its position that"[t]he Section 362
stay precludes judgment execution against the interest of a creditor in
the property of the bankruptcy estate." Brief for Appellant at 10. In
Tour Train, the plaintiff held a judgment against a creditor of the
bankruptcy debtor. The plaintiff sought relief from the automatic stay
on actions against the debtor and requested permission to proceed
against the debtor and the creditor. The bankruptcy court held that the
plaintiff, "[a]s a stranger to the bankruptcy proceeding[,] [did] not
qualify as a party in interest which may request the lifting of the auto-
matic stay under § 362 of the Bankruptcy Code." Id. at 402. The hold-
ing of Tour Train, however, does not squarely apply in the instant
case since Wallace would not need to lift the stay on actions against
ARC, or allow execution against ARC, in order to perfect a lien.
C.
Wallace further contends that, in order to receive a lien against the
intangible property claimed by Colstar, Virginia law required Wallace
to file a writ of fieri facias and obtain a garnishment summons. Tem-
porarily abandoning its contention that it was not required to file a
writ of fieri facias, Wallace argues that, even if it had filed the writ,
it would not have been entitled to priority unless it also garnished the
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4 In fact, the filing of a writ of fieri facias in Virginia creates a lien on
the personalty of the judgment debtor only, Colstar in the instant case.
See Va. Code Ann. §§ 8.01-478, 8.01-501; International Fidelity Ins. Co.
v. Ashland Lumber Co., 463 S.E.2d 664, 667 (Va. 1995).
8
funds--an act it was precluded from doing under the automatic stay.
Thus, according to Wallace, the bankruptcy court's decision placed
the company in a no-win situation. In fact, a lien of fieri facias does
not require garnishment for perfection.5 See In the matter of Acorn
Elec. Supply, Inc., 348 F.Supp. 277, 280 (E.D. Va. 1972) ("The rem-
edy afforded by garnishment was designed simply to enforce [a] lien
of execution. `The lien itself is as complete and perfect without (it)
and with (it).'") (applying Virginia law) (quoting Trevillian's Ex'ors
v. Guerrant's Ex'ors, 31 Gratt. (72 Va.) 525 (1879)).
Wallace's apparent belief in the necessity of garnishment for lien
perfection is also incorrect simply because, as discussed supra, gar-
nishment cannot proceed where there is not first a lien. See Va. Code
Ann. §§ 8.01-511; 8.01-512.3. We conclude that Wallace has no lien
given that it failed to file the necessary writ of fieri facias.
D.
Finally, Wallace argues that the bankruptcy court's decision to
transfer Colstar's claim to Wallace under Fed. R. Bankr. P. 3001(e)(2)
operated to strip the federal tax liens from that claim.6 The bankruptcy
court, however, noted the purpose and limitations of the rule:
Rule 3001(e) is designed to ensure that sufficient notice is
given when a claim against the debtor is transferred or
assigned post-petition. [See In Re: Wilson , 96 B.R. 257, 261
(B.A.P. 9th Cir. 1988)]. This bankruptcy rule cannot abridge
or modify any substantive right of a party in interest. See 28
U.S.C. § 2075.
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5 Wallace cites In re Dulaney , 29 B.R. 79 (Bankr. W.D. Va. 1982) to
support its position that garnishment is required to impose a lien on per-
sonalty in Virginia. That case held that garnishment was required to
accompany the filing of a writ of fieri facias in order to constitute notice
to a bona fide purchaser. The Dulaney court found, however, that the
judgment liens perfected by writs were "perfected as against all subse-
quent lienholders." Id. at 82.
6 Fed. R. Bankr. P. 3001(e)(2) provides that, "[i]f the court finds . . .
that the claim has been unconditionally transferred, it shall enter an order
substituting the transferee for the original claimant . . . ."
9
J.A. at 48 (emphasis added). The bankruptcy rules, 28 U.S.C. § 2075,
state that "[s]uch rules shall not abridge, enlarge, or modify any sub-
stantive right." Thus, the federal tax liens which attached to Colstar's
claim were not divested upon the claims' transfer:"The transfer of
property subsequent to the attachment of the lien does not affect the
lien, for `it is of the very nature and essence of a lien, that no matter
into whose hands the property goes, it passes cum onere . . . .'" United
States v. Bess, 357 U.S. 51, 57 (1958) (citations omitted).
The cases cited by Wallace do not contradict the bankruptcy
court's evaluation of Rule 3001(e)(2). In In re Ocean Downs Racing
Ass'n, Inc., 164 B.R. 249, 255-56 (Bankr. D. Md. 1993), the court
determined that the judgment creditors of the debtor's sole stock-
holder should have followed Rule 3001(e)(2) when they attempted to
substitute their claims for that of the stockholder against the debtor's
estate. Further, in In re Wilson, 96 B.R. 257, 261 (B.A.P. 9th Cir.
1988), the bankruptcy court simply held that the claimant had failed
in her obligation under Rule 3001(e)(2) requiring a transferee to file
evidence of the terms of a transfer of claim (notice of transfer of
claim). Thus, Wallace cites no authority implying that Rule
3001(e)(2) is anything other than a rule requiring a transferee of a
claim to give notice of the transfer. Given the rule's purpose, and the
fact that it "shall not abridge, enlarge, or modify any substantive
right," the rule provides no basis for granting Wallace's judgment pri-
ority over the IRS's federal tax liens. See 28 U.S.C. § 2075.
IV.
Wallace has not refuted the bankruptcy court's application of Vir-
ginia law, requiring a judgment creditor to file a writ of fieri facias
in order to acquire a lien on intangible personal property. Wallace did
not obtain and execute such a writ and, therefore, had no lien on Col-
star's bankruptcy claim. Thus, Wallace's judgment against Colstar is
not entitled to priority over the IRS's federal tax liens. Accordingly,
we affirm the order of the district court.
AFFIRMED
10