SUPREME COURT OF THE UNITED STATES

No. 91–1229

UNITED STATES by and through INTERNAL REVENUE SERVICE, PETITIONER v.

BRUCE J. McDERMOTT et al.

on writ of certiorari to the united states court of appeals for the tenth circuit

[March 24, 1993]

Justice Thomas, with whom Justice Stevens and Justice O'Connor join, dissenting.

I agree with the Court that under 26 U. S. C. §6323(a) we generally look to the filing of notice of the federal tax lien to determine the federal lien's priority as against a competing state-law judgment lien. I cannot agree, however, that a federal tax lien trumps a judgment creditor's claim to after-acquired property whenever notice of the federal lien is filed before the judgment lien has "attached" to the property. Ante, at 5. In my view, the Bank's antecedent judgment lien "ha[d] [already] acquired sufficient substance and ha[d] become so perfected," with respect to the McDermotts' after-acquired real property, "as to defeat [the] later-filed federal tax lien." United States v. Pioneer American Ins. Co., 374 U. S. 84, 88 (1963).

Applying the governing "first in time" rule, the Court recognizes—as it must—that if the Bank's interest in the property was "perfected in the sense that there [was] nothing more to be done to have a choate lien" before September 9, 1987 (the date the federal notice was filed), United States v. New Britain, 347 U. S. 81, 84 (1954), "that is the end of the matter; the Bank's lien prevails," ante, at 3. Because the Bank's identity as lienor and the amount of its judgment lien are undisputed, the choateness question here reduces to whether "the property subject to the lien" was sufficiently "established" as of that date. New Britain, supra, at 84. Accord, Pioneer American, supra, at 89. See 26 CFR §301.6323(h)-1(g) (1992). The majority is quick to conclude that "establish[ment]" cannot precede attachment, and that a lien in after-acquired property therefore cannot be sufficiently perfected until the debtor has acquired rights in the property. See ante, at 5–6. That holding does not follow from, and I believe it is inconsistent with, our precedents.

We have not (before today) prescribed any rigid criteria for "establish[ing]" the property subject to a competing lien; we have required only that the lien "become certain as to . . . the property subject thereto." New Britain, supra, at 86 (emphasis added). Our cases indicate that "certain" means nothing more than "[d]etermined and [d]efinite," Pioneer American, supra, at 90, and that the proper focus is on whether the lien is free from "contingencies" that stand in the way of its execution, United States v. Security Trust & Savings Bank, 340 U. S. 47, 50 (1950). In Security Trust, for example, we refused to accord priority to a mere attachment lien that "had not ripened into a judgment," New Britain, supra, at 86, and was therefore "contingent upon taking subsequent steps for enforcing it," 340 U. S., at 51. And in United States v. Vermont, 377 U. S. 351 (1964), we recognized the complete superiority of a general tax lien held by the State of Vermont upon all property rights belonging to the debtor, even though the lien had not "attach[ed] to [the] specifically identified portions of that property" in which the Federal Government claimed a competing tax lien. Id., at 355. With or without specific attachment, Vermont's general lien was "sufficiently choate to obtain priority over the later federal lien," because it was "summarily enforceable" upon assessment and demand. Id., at 359, and n. 12.

Although the choateness of a state-law lien under §6323(a) is a federal question, that question is answered in part by reference to state law, and we therefore give due weight to the State's "`classification of [its] lien as specific and perfected.'" Pioneer American, supra, at 88, n. 7 (quoting Security Trust, supra, at 49). Here, state law establishes that upon filing, the Bank's judgment lien was perfected, even as to the real property later acquired by the McDermotts, in the sense that it was definite as to the property in question, noncontingent, and summarily enforceable. Pursuant to Utah statute, from the moment the Bank had docketed and filed its judgment with the clerk of the state court on July 6, 1987, it held an enforceable lien upon all nonexempt real property owned by the McDermotts or thereafter acquired by them during the existence of the lien. See Utah Code Ann. §78–22–1 (1953). The lien was immediately enforceable through levy and execution against all the debtors' property, whenever acquired. See Belnap v. Blain, 575 P. 2d 696, 700 (Utah 1978). See also Utah Rule Civ. Proc. 69. And it was "unconditional and not subject to alteration by a court on equitable grounds." Taylor National, Inc. v. Jensen Brothers Constr. Co., 641 P. 2d 150, 155 (Utah 1982). Thus, the Bank's lien had become certain as to the property subject thereto, whether then existing or thereafter acquired, and all competing creditors were on notice that there was "nothing more to be done" by the Bank "to have a choate lien" on any real property the McDermotts might acquire. New Britain, 347 U. S., at 84. See Vermont, supra, at 355.

The Court brushes aside the relevance of our Vermont opinion with the simple observation that that case did not involve a lien in after-acquired property. Ante, at 3–4. This is a wooden distinction. In truth, the Government's "specificity" claim rejected in Vermont is analytically indistinguishable from the "attachment" argument the Court accepts today. Vermont's general lien applied to all of the debtor's rights in property, with no limitation on when those rights were acquired, and remained valid until the debt was satisfied or became unenforceable. See 377 U. S., at 352. The United States claimed that its later-filed tax lien took priority over Vermont's as to the debtor's interest in a particular bank account, because the State had not taken "steps to perfect its lien by attaching the bank account in question" until after the federal lien had been recorded. Brief for United States in United States v. Vermont, O. T. 1963, No. 509, p. 12. "Thus," the Government asserted, "when the federal lien arose, the State lien did not meet one of the three essential elements of a choate lien: that it attach to specific property." Ibid. In rejecting the federal claim of priority, we found no need even to mention whether the debtor had acquired its property interest in the deposited funds before or after notice of the federal lien. If specific attachment is not required for the state lien to be "sufficiently choate," 377 U. S., at 359, then neither is specific acquisition.

Like the majority's reasoning today, see ante, at 5, the Government's argument in Vermont rested in part on dicta from New Britain suggesting that "attachment to specific property [is] a condition for choateness of a State-created lien." Brief for United States in United States v. Vermont, supra, at 19. See New Britain, 347 U. S., at 86 ("[T]he priority of each statutory lien contested here must depend on the time it attached to the property in question and became choate") (emphasis added). New Britain, however, involved competing statutory liens that had concededly "attached to the same real estate." Id., at 87. The only issue was whether the liens were otherwise sufficiently choate. Thus, like Security Trust (and, in fact, like all of our cases before Vermont), New Britain provided no occasion to consider the necessity of attachment to property that was not specifically identified at the time the state lien arose.

Nothing in the law of judgment liens suggests that the possibility, which existed at the time the Bank docketed its judgment, that the McDermotts would not acquire the specific property here at issue was a "contingency" that rendered the Bank's otherwise perfected general judgment lien subordinate to intervening liens. Under the relevant background rules of state law, the Bank's interest in after-acquired real property generally could not be defeated by an intervening statutory lien. In some States, the priority of judgment liens in after-acquired property is determined by the order of their docketing. 3 R. Powell, Law of Real Property ¶481[1], p. 38–36 (P. Rohan rev. 1991) (hereinafter Powell). See, e. g., Lowe v. Reierson, 201 Minn. 280, 287, 276 N. W. 224, 227 (1937). In others, the rule is that "[w]hen two (or more) judgments are successively perfected against a debtor and thereafter the debtor acquires a land interest[,] these liens, attaching simultaneously at the time of the land's acquisition by the debtor, are regarded as on a parity and no priority exists." 3 Powell ¶481[1], pp. 38–35 to 38–36. See, e. g., Bank of Boston v. Haufler, 20 Mass. App. 668, 674, 482 N. E. 2d 542, 547 (1985); McAllen State Bank v. Saenz, 561 F. Supp. 636, 639 (SD Tex. 1982). Thus, under state common law, the Bank would either retain its full priority in the property by virtue of its earlier filing or, at a minimum, share an equal interest with the competing lienor. The fact that the prior judgment lien remains effective against third parties without further efforts by the judgment creditor is enough for purposes of §6323(a), since the point of our choateness doctrine is to respect the validity of a competing lien where the lien has become certain as to the property subject thereto and the lienor need take no further action to secure his claim. Under this federal-law principle, the Bank's lien was sufficiently choate to be first in time.

I acknowledge that our precedents do not provide the clearest answer to the question of after-acquired property. See ante, at 8. But the Court's parsimonious reading of Vermont undercuts the congressional purpose—expressed through repeated amendments to the tax lien provisions in the century since United States v. Snyder, 149 U. S. 210 (1893)—of "protect [ing] third persons against harsh application of the federal tax lien," Kennedy, The Relative Priority of the Federal Government: The Pernicious Career of the Inchoate and General Lien, 63 Yale L. J. 905, 922 (1954). The attachment requirement erodes the "preferred status" granted to judgment creditors by §6323(a), and renders a choate judgment lien in after-acquired property subordinate to a "secret lien for assessed taxes." Pioneer American, 374 U. S., at 89. I would adhere to a more flexible choateness principle, which would protect the priority of validly docketed judgment liens.

Accordingly, I respectfully dissent.