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March 28, 1958


The opinion of the court was delivered by: WILLSON

The plaintiff is The First National Bank of Emlenton, Pennsylvania, which has its place of business in the Western District of Pennsylvania. It sued the United States for the sum of $ 7,359.49, claiming that it was entitled to this sum because of its chattel mortgage on certain personal property seized and sold by the District Director of Internal Revenue.

The case came on for trial at Erie nonjury. At the pretrial conference the admitted allegations in the pleadings were introduced into evidence and the other facts essential to a decision have been stipulated by the parties. The facts are:

 On May 3, 1955, the District Director of Internal Revenue for the Western District of Pennsylvania posted a notice of sale for property seized from the Barrett Machine Tool Corporation, Meadville, Pennsylvania, for the non-payment of delinquent withholding taxes. The Government issued warrants on all of its tax liens and the sale was held June 3, 1955, at Meadville. The proceeds realized at the sale amounted to $ 25,500, which was paid by the purchaser, one Phillip Noll. The property sold was encumbered by a chattel mortgage of the plaintiff. The unpaid balance on this chattel mortgage was $ 50,500. The Government had eleven tax liens against the delinquent mortgagor in the sum total of $ 33,177.42. Of these eleven tax liens, four were filed prior to the filing of the chattel mortgage on the following respective dates: No. 1, May 27, 1949; No. 2, January 14, 1953; No. 3, June 17, 1953; No. 4, September 3, 1953. Plaintiff's valid chattel mortgage on the machinery and equipment of Barrett Machine Tool Corporation was duly entered of record on December 29, 1953, in the Office of the Prothonotary of Crawford County, Meadville, Pennsylvania. The remaining seven tax liens totaling $ 12,553.39 were filed at various dates from February 4, 1954, to February 24, 1955. The District Director was paid the sale price in the sum of $ 25,500. He then paid the costs of sale which came to $ 1,349,33. Then he applied the residue of the fund to all the Government liens, $ 16,791.18 being paid to satisfy those Government tax liens which were recorded prior to the recording of the chattel mortgage and the remaining $ 7,359.49 was applied to those liens which were filed and recorded subsequent to the filing of the chattel mortgage.

 The plaintiff made demand for those proceeds in excess of the costs and the first four prior recorded liens. This demand was refused and plaintiff filed its complaint on May 6, 1957.

 The Government says that the first question presented is whether the court has jurisdiction over a suit brought by a non-taxpayer to recover money realized by the United States in a distraint sale of the taxpayer's interest in personal property. The Government's contention is that there is no jurisdiction in this court. At the pretrial the Government moved to dismiss for lack of jurisdiction. The defendant refers to the Internal Revenue Code of 1954, Section 6331, 26 U.S.C.A., which authorizes the Secretary or his delegate to levy and distrain upon all property and rights to property in order to collect the same. It was under this section that the Director proceeded in the instant case. Plaintiff in the complaint asserts that jurisdiction for this action is found in 28 U.S.C.A. §§ 1340 and 1346(a)(1) and (2).

 Plaintiff poses two questions for decision. They are: (1) Can a mortgage lien creditor sue the United States for a part of the proceeds received from a tax sale of property when the District Director of Internal Revenue has wrongfully applied those proceeds toward the payment of taxpayer's subsequent delinquent taxes instead of in payment of the prior mortgage lien? (2) When a District Director of Internal Revenue sells a taxpayer's property upon warrants issued on Government tax liens, some of which are prior to and some subsequent to plaintiff's mortgage lien on the property and the Government receives proceeds in excess of the prior liens and costs of sale, should the District Director pay those excess proceeds in satisfaction of the plaintiff's lien before applying those excess proceeds toward the subsequent tax liens?

 The first question posed by plaintiff relates to the jurisdiction and the second to the merits of the case. As the plaintiff says, to decide the preliminary question of jurisdiction, that is, the right to sue the Government, it must be conceded for present purposes that the District Director has wrongfully distributed the proceeds of the sale in disregard of a valid lien on the property and that plaintiff entitled to the proceeds.

 Plaintiff, of course, is in agreement with the general well-established principle that the United States, like any other sovereign, may not be sued without its consent and when it consents by act of Congress, the action may be brought only in the court designated by that body. However, plaintiff asserts that authority for the suit has been clearly expressed and it is found in the following statutes:

 (1) Congress has given the District Court general jurisdiction over the subject matter of actions arising under the Internal Revenue laws of the United States: 28 U.S.C.A. § 1340 provides as follows:

 'The district courts shall have original jurisdiction of any civil action arising under any Act of Congress providing for internal revenue, or revenue from imports or tonnage except matters within the jurisdiction of the Customs Court. June 25, 1948, c. 646, 62 Stat. 932.'

 (2) The District Court is given original jurisdiction concurrent with the Court of Claims in Act of Congress, 28 U.S.C.A. § 1346(a)(1), which reads as follows:

 '(a) The district courts shall have original jurisdiction, concurrent with the Court of Claims, of:

 * * * * * *

 '(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any ...

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