The opinion of the court was delivered by: MORRILL
In each case the Borough of East Newark, with a standing as a priority claimant under § 64, sub. a(4) of the Bankruptcy Act, 11 U.S.C.A. § 104, sub. a(4) and abjuring any claim of lien for the personal property taxes due it, argued that the lien claim of the United States for taxes was invalid and that the Government claim should merely have a priority status under § 64, sub. a(4). This contention was upheld by the referee on the ground that since the Government had not filed notice of its lien claim under 26 U.S.C.A. § 6323,
the lien was invalid as against the trustee who was to be treated as a judgment creditor. It is unquestioned that the Government did have a line under § 6321 when bankruptcy proceedings were instituted.
The referee was in error. A trustee in bankruptcy is not a judgment creditor within the purview of § 6323(a). The Government's claim for taxes should not have been adjudicated to be a priority claim under § 64, sub. a(4) of the Bankruptcy Act and on a parity with the tax claim of the Borough of East Newark. Its lien is valid and is entitled to payment out of available proceeds prior to a distribution to priority claimants. 3 Collier, Bankruptcy, pp. 2054-2056; Miners Sav. Bank of Pittston, Pa. v. Joyce, 3 Cir., 1938, 97 F.2d 973, 978.
The doctrine that a trustee is not a judgment creditor was first enunciated in the Taylorcraft case.
In United States v. Sands, 2 Cir., 1949, 174 F.2d 384, this pronouncement was considered as a dictum not to be followed in view of the express provision to the contrary in § 70, sub. c of the BankruptcyAct, 11 U.S.C.A. § 110, sub. c-.
In 1953, the Gilbert Associates case was decided by the Supreme Court.
The New Hampshire court, 97 N.H. 411, 90 A.2d 499 had decided that a town's tax assessments were, under local law, in the nature of a judgment and that therefore the town was, vis-a-vis the United States tax claim, a judgment creditor under § 3672 (26 U.S.C.A. § 6323). In reversing, the Supreme Court held that while New Hampshire was free to give its interpretation as to the nature and effect of a New Hampshire tax proceeding for the purpose of its own internal administration, the meaning of a Federal statute was for the Supreme Court, and that under that statute the local tax proceeding and not result in making the town a judgment creditor within § 3672. The following key language was used: 'In this instance, we think Congress used the words 'judgment creditor' in § 3672 in the usual, conventional sense of a judgment of a court of record, since all states have such courts.'
In United States v. Scovil, 1955, 348 U.S. 218, 75 S. Ct. 244, 247, 99 L. Ed. 271, the Court ruled similarly as to the 'purchaser' exception of § 3672. In holding that a landlord with distress lien under South Carolina law was not a purchaser under § 3672, the Court said: 'A purchaser within the meaning of § 3672 usually means one who acquires title for a valuable consideration in the manner of vendor and vendee. Obviously, the landlord was not a purchaser.'
To the same effect, see United States v. England, 9 Cir., 1955, 226 F.2d 205; United States v. Hawkins, 9 Cir., 1955, 228 F.2d 517; In the Matter of Green, D.C.N.D.Ala.S.D.1954, 124 F.Supp. 481, and In re Ann Arbor Brewing Co., D.C.E.D.Mich.1951, 110 F.Supp. 111. And see Seligson, Creditors' Rights, 1957 Annual Survey of American Law, pp. 334-336, N.Y.U., 9 Mertens, Law of Federal Income Taxation, § 54.46 (Zimit rev.) and Plumb, Federal Tax Collection and Lien Problems, 13 Tax L.Rev. 247, 488.
Treasury Regulation § 301.6323-1(2) provides that '* * * (b) the term 'judgment creditor' means a person who has obtained a valid judgment in a court of record and of competent jurisdiction for the recovery of specifically designated property or for a certain sum of money * * *' This construction is entitled to some consideration. Fawcus Machine Co. v. United States, 282 U.S. 375, 51 S. Ct. 144, 75 L. Ed. 397.
Pending legislation, H.R. 5195, 85th Congress, 1st Sess. (1957) which would in effect protect the trustee both as a judgment creditor and as a purchaser, Plumb, supra, note 572 at page 488, further supports the contention that a trustee in bankruptcy is not a judgment creditor within the purview of § 6323.
A judgment in its usual, conventional sense imports the use of judicial process, Restatement, Judgments §§ 1, 2, 4, 14 and 32 (1942); Restatement, Conflict of Laws § 429 (1934); G. Amsinck & Co. v. Springfield Grocer Co., 8 Cir., 1925, 7 F.2d 855, 858. It involves a claim pressed and resisted (or the opportunity for resistance) by adversaries in a court, a hearing and an adjudication. A successful claimant then becomes a judgment creditor. This is a far cry from one claiming to be a judgment creditor by legislative fiat under § 70, sub. c of the Bankruptcy Act, such 'judgment' not being the usual and conventional one.
Seemingly holding that the trustee is a judgment creditor under § 6323 are the Fisher
and Sport Coal
cases. The Fisher case relied on the Sands case, supra, and was decided prior to the later decision of the Second Circuit in the Brust case, supra, and prior to the Gilbert Associates case, supra. Furthermore, the case also held that whether or not the trustee in bankruptcy was a 'purchaser' under § 3672 depended on the meaning given that term by the courts of Massachusetts, contrary to the holding of the Gilbert Associates case, supra. And see Ersa, Inc., v. Dudley, 3 Cir., 1956, 234 F.2d 178.
The Sport Coal case, supra, held that the trustee was a judgment creditor and his status under § 3672 was to be determined under the law of West Virginia. This runs counter to the statement of Justice Jackson in his concurring opinion in the Security Trust case
340 U.S. at page 52, 71 S. Ct. at page 114: 'The history of this tax lien statute (26 U.S.C.A. § 3670-3672) indicates that only a judgment creditor in the conventional sense is protected.' The Justice also concluded that the statute excluded from the provisions of this secret lien 'those types of interests which it specifically included in the statute and no others.'
The Gargill, Straub and Sayre Village cases are urged by the Borough of East Newark as sufficient authority to classify the ...