Yanoff, J.c.c., Temporarily Assigned.
This case is the second round of litigation resulting from an assignment of a contract by a person whose assets were subject to a lien for withholding taxes due the United States. For a complete understanding it is necessary to summarize the facts of that transaction.
Richard J. Morrow, as corporate officer, became indebted to the United States for withholding of FICA taxes. After
he became so indebted he entered into a contract with defendant and third-party plaintiff, Graphic Color Plate, Inc. (Graphic) to sell its products on a commission basis. A portion of the Government's claim was perfected into lien prior to the contract with Graphic, and another portion of it was perfected into lien after the contract with Graphic. All of the liens were perfected before Morrow became entitled to any commissions under his contract with Graphic. Effective April 19, 1971 Morrow entered into a contract with plaintiff, Adco Service, Inc. (Adco), under which he assigned to Adco all rights "under such commissions arrangements and/or contracts." All of the commissions in question were earned after April 19, 1971. In September 1973 Adco started suit against Graphic for the assigned commissions. Graphic joined the United States as third-party defendant. There was a dispute as to the amount due from Graphic under the commissions agreement. While that dispute was pending Graphic moved to interplead the sum it owed. The court deferred ruling on the motion for interpleader until the question of the amount due was determined. Thereafter, Adco and Graphic agreed upon $17,521.88 as the amount due and the court granted the interpleader. The tax lien is greater by far than this sum.
The contest then resolved itself into two issues: (1) whether Adco or the United States was entitled to the sum; (2) whether the interpleading party was entitled to counsel fees. These were resolved by an opinion dated February 25, 1974, which ruled that the United States was entitled to the money, and that no counsel fees would be allowed to the interpleading party. This ruling was affirmed by the Appellate Division under date of July 2, 1975.
Now the attorneys for Adco seek to enforce a lien upon the fund by virtue of a retainer agreement with Adco, dated September 21, 1973, for one-third of all sums collected, and a non-contingent fee of $750.
In brief, the attorneys' position is that they have a special or charging lien under N.J.S.A. 2A:13-5, which is prior to the lien of the United States for taxes, both because it is specifically given a super-priority under the Federal Tax Lien Act (26 U.S.C.A. § 6323) and upon equitable grounds because they created the fund to which the lien attached. Other grounds are urged which need not be considered, since I have concluded that the attorneys are entitled to priority over the lien of the United States.
The complexity of the problem of the order of priority between federal tax liens and liens created by state law is amply demonstrated by the opinions in Continental Fin. Inc. v. Cambridge Lee Metal , 100 N.J. Super. 327 (Law Div. 1968), aff'd 105 N.J. Super. 406 (App. Div. 1969) aff'd 56 N.J. 148 (1970), for reasons other than those set forth in the trial court. Legal writing on the subject has been profuse. See Plumb, "Federal Liens and Priorities -- Agenda for the Next Decade," 77 Yale L.J. 228, 605, 1104 (1968); Coogan, "Tax Liens and the U.C.C.," 81 Harv. L.R. 1369 (1968); Note, 86 Harv. L. Rev. 1570, and literature cited in 56 N.J. 148. Pertinent is the observation of Judge Goldberg in Texas Oil & Gas Corp. v. United States , 466 F.2d 1040, 1043 (5 Cir. 1972)*fn1 "We enter with some trepidation the tortured meanderings of federal tax lien law * * *"
The federal "choateness" doctrine was well summarized in Continental Finance, Inc., supra:
Under that doctrine, a recorded federal lien, though subordinate to an earlier "specific and perfected" state lien, takes priority over any so-called inchoate lien which is not specific and perfected. The state lien is said to be specific and perfected (or choate) when "there is nothing more to be done -- when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." [56 N.J. at 151]
To the same effect, see United States v. Fidelity Philadelphia Trust Co. , 459 F.2d 771, 773 (3 Cir. 1972); Plumb, supra , at 230.
In 1966 Congress amended the Federal Tax Lien Act by enacting, inter alia , 26 U.S.C.A. § 6323 which reads in pertinent part:
(a) Purchases, holders of security interests, mechanic's lienors, and judgment lien creditors. -- The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the ...