Plaintiff Charles E. Villanueva, Esq. ("stakeholder") holds $11,014.61 in an interest-bearing account pursuant to a closing agreement between defendant Engineers Incorporated, a Maine corporation ("seller"), and defendant New Generation Car Wash, Inc., a New Jersey corporation ("buyer"), for the sale of real estate located in West Caldwell, Essex County, New Jersey.
The sum of $11,014.61 was placed in escrow to cover the amount of liens filed by the IRS against defendants William M. Wolff and Louise L. Wolff, his wife (the Wolffs), who had owned said real estate and conveyed it to Engineers by deed
dated June 3, 1976 and recorded June 7, 1976 in the Office of the Register of Deeds of Essex County. Seller conveyed to buyer by deed dated June 21, 1977.
Stakeholder filed a complaint in interpleader alleging that seller was demanding the sum held, buyer was demanding the sum be applied to the federal tax liens. By a consent order the United States had been joined as a party and was asserting that it had valid and enforceable liens against the Wolffs, and by reason of their nexus to Seller, against the real estate prior to the conveyance to buyer. The date, amounts and recording data for the federal liens are set forth in the footnote below.*fn1
In response to stakeholder's motion for summary judgment to be permitted to deposit the funds in court, be allowed a counsel fee and to enjoin all suits against the stakeholder, all parties agreed to a consent order for the deposit of the funds in court and an injunction against further suits, but the United States objected to the allowance of a counsel fee until the priority of its lien was determined. Thus, the only issue before the court is the awarding now of counsel fees under R. 4:42-9(a)(2) which is supported by an adequate affidavit of services.
The United States opposes stakeholder's request for counsel fees and costs, alleging that such an award may impair the lien interest which it claims in the interpleaded fund. The United States contends that an award of counsel fees to stakeholder might reduce its eventual recovery and thus create a priority over the federal tax lien for which federal law makes no
provision. The United States proposes that consideration of stakeholder's request for counsel fees must be deferred until after its lien priority is determined, at which time an award may be made, provided such an award does not diminish the lien priority of the United States. In an affidavit supporting its position the United States also contends that the transfer from the Wolffs to seller was in fraud of Wolffs' creditors, including the United States, and should be set aside to the extent of the fund held by stakeholder.
In contrast to these assertions, stakeholder initially contends that the federal tax lien or levy is not "specific or perfected." Stakeholder reasons that if the United States were to prove its liens against the Wolffs, i.e. , the individuals against whom the United States recorded its liens and issued its levies, it is still left with the task of proving that the Wolffs and seller are legally indistinguishable. Accordingly, stakeholder further urges that in the absence of a specific or perfected lien, i.e. , a lien where "there is nothing more to be done," United States v. Equitable Assurance Soc. , 384 U.S. 323, 86 S. Ct. 1561, 16 L. Ed. 2d 593 (1966), an award of counsel fees to the disinterested stakeholder is not contrary to the applicable federal law and should be granted in the exercise of the court's discretion pursuant to R. 4:42-9(a)(2). Alternatively, he argues that if the court finds that the United States has perfected its lien with respect to the notice of lien for $843.24, recorded prior to the Wolff-Sellers transaction, then the court should "freeze" that portion of the interpleaded funds while allowing the award of counsel fees from the balance.
In his affidavit of services rendered stakeholder made application under R. 4:42-9(a)(2). R. 4:42-9(a)(2) entitled "out of a fund in court," provides, in pertinent part, that "[t]he court in its discretion may make an allowance out of such a fund, but no allowance shall be made as to issues triable of right by a jury." Although a New Jersey court has never considered the interaction between an allowance of counsel fees under R. 4:42-9(a)(2) and a federal tax lien created pursuant to 26 U.S.C.A. § 6323(e) and (f), guidance may be obtained from a review of a similar issue which arose under R. 4:42-9(a)(4).
It is well settled that when the United States asserts the priority of a federal tax lien over a competing claimant, the outcome is "always a federal question to be determined finally by the federal courts." United States v. Acri , 348 U.S. 211, 213, 75 S. Ct. 239, 241, 99 L. Ed. 264, 267 (1955); United States v. Waddill Co. , 323 U.S. 353, 356-357, 65 S. Ct. 304, 306, 89 L. Ed. 294, 299, 300 (1945). Therefore, this court must resort to an analysis of the applicable federal law.
In United States v. Equitable Life Assurance Soc. , 384 U.S. 323, 86 S. Ct. 1561, 16 L. Ed. 2d 593 (1966), rev'g sub nom. Equitable Life Assurance Soc. v. Bagin , 45 N.J. 206 (1965), the United States Supreme Court considered a question analogous to that presented here. There the court, in reversing a decision of our Supreme Court, held that a federal tax lien was entitled to priority over a claim for attorney's fees arising under former R.R. 4:55-7(c), now R. 4:42-9(a)(4). The precise question addressed in Equitable Life was "whether a federal tax lien is entitled to priority over the mortgagee's claim for such an attorney's fee, where notice of the tax lien is recorded prior to default by the mortgagor." 384 U.S. at 324, 16 L. Ed. 2d at 595. New Jersey's highest court had held that the state-created lien was superior.
In that case Albert Bagin and his wife had executed to Equitable Life a first mortgage on certain real property in New Jersey. The mortgage was recorded on December 19, 1960. On March 21, 1962, the United States filed and recorded, in accordance with 26 U.S.C.A. § 6323 (1964 ed.), a federal tax lien against Bagin for $7,448.91 under 26 U.S.C.A. §§ 6321-22. Less than one year later the Bagins defaulted on the mortgage and Equitable Life foreclosed. Equitable Life claimed the principal and interest due under the mortgage, as well as an attorney's fee under R.R. 4:55-7(c). Although it conceded the ...