McLaughlin, Van Dusen and Aldisert, Circuit Judges.
This appeal by the government from an order of the district court, 321 F. Supp. 7, awarding $5,000 to attorney claimants from an escrow fund requires us to decide whether the claimants had perfected an attorney's lien under Pennsylvania law and were, therefore, entitled to priority over a federal tax lien.
The government brought an action in the district court seeking to enforce a 1964 levy on an escrow account in the Fidelity-Philadelphia Trust Company, held in the names of Samuel Kagle and Frank Truscott, Attorneys, for the benefit of O'Brian Buick, Inc., or Carl H. O'Brian and/or Miriam O'Brian, his wife. In 1961, a delegate of the Secretary of the Treasury made an assessment of $116,158.67 for 1947, 1948, and 1949 corporate income taxes against O'Brian Buick, Inc., and in 1963, an assessment of $83,423.89 for 1951, 1952, and 1953 personal income taxes, penalties and interest against the O'Brians. It was alleged that there was some $22,000.00 in the account. Named with the bank as defendants were Truscott, Kagle and Attorney George D. Kline, because they had asserted a claim to a portion of the funds as attorneys' fees.
The funds on deposit represented proceeds from a 1956 sale of the assets of O'Brian Buick, Inc., whose stock was owned by Carl O'Brian and Jules DeHaan. Because the sellers were in disagreement over the proposed distribution of the proceeds, the purchaser imposed as a condition to the sale the creation of an escrow account in the names of Attorneys Truscott and Kline representing O'Brian, and Attorney Myron Jacoby representing DeHaan. After the account was opened, Kagle succeeded Jacoby as DeHaan's attorney.
In their brief filed in this court, appellees assert:
The legal services for which claim is made consisted of negotiations with respective clients as to conflicting claims; adjustment of claims of creditors, including accountants; and the preservation of corporate records in a center city office for use by accountants and the respective parties and for the use and benefit of agents of The Internal Revenue Service who were investigating the affairs of O'Brian and DeHaan.
The district court found for the lawyer claimants:
The answer to the question of when the attorney's lien became choate is not crystal clear. There is no doubt as to the identity of the lienors, nor the identity of the property subject to the lien, but there is no direct evidence on the record which sets a specific date that the $5,000 fee was agreed upon. However, there is considerable testimony which gives a strong indication that an agreement as to this fee was reached in the early stage in the matters which eventually led to these proceedings . . . it is apparent that an agreement had been reached as to the fee to be paid as early as 1956 or 1957. As such, they have established a choate lien which has priority over the federal tax lien.
Therefore, a blend of strong evidence that this attorney's lien was choate prior to the attachment of the government's tax lien, together with the equitable principles analogous to the doctrine of unjust enrichment compel this court to rule that the fair and reasonable value of these attorneys' services be paid out of the fund in question.
The court concludes that the fair and reasonable value of these attorneys' services is $5,000.
When a lien under state law has acquired sufficient substance and has become so perfected as to defeat a later arising or later filed federal tax lien is a matter of federal law. United States v. Pioneer American Ins. Co., 374 U.S. 84, 88, 83 S. Ct. 1651, 10 L. Ed. 2d 770 (1963); United States v. Acri, 348 U.S. 211, 213, 75 S. Ct. 239, 99 L. Ed. 264 (1955). Under federal law a state lien is "perfected in the sense that there is nothing more to be done to have a choate lien -- when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. New Britain, 347 U.S. 81, 84, 74 S. Ct. 367, 369, 98 L. Ed. 520 (1954).
A federal tax lien is a perfected, choate lien on the date the lien arises. United States v. Security Trust & Savings Bank, 340 U.S. 47, 71 S. Ct. 111, 95 L. Ed. 53 (1950); United States v. New Britain, supra. The lien arises at the time of assessment and continues until the liability is satisfied or becomes unenforceable. 26 U.S.C. § 6322. Here it was uncontroverted that assessment was made on December 1, 1961, on the corporation, on November 9, 1962, on Mr. O'Brian, and on June 14, 1963, on both O'Brians. The priority of a lien created by state law depends upon the time it attached to the property and became choate. Thus, to obtain priority over the federal lien, it became the burden of the attorney claimants to prove (1) they had a lien under Pennsylvania law, and (2) that it was perfected prior in time to the 1961, 1962, and 1963 assessments.
Pennsylvania recognizes two types of attorneys' liens: a charging lien and a retaining lien. To establish a charging lien "it must appear (1) that there is a fund in court or otherwise applicable for distribution on equitable principles, (2) that the services of the attorney operated substantially or primarily to secure the fund out of which he seeks to be paid, (3) that it was agreed that counsel look to the fund rather than the client for his compensation, (4) that the lien claimed is limited to costs, fees or other disbursements incurred in the litigation by which the fund was raised and (5) that there are equitable considerations which necessitate the recognition and application of the charging lien." Recht v. Urban Redevelopment Authority of Clairton, 402 Pa. 599, 608, 168 A.2d 134, 138-139 (1961).
The record is far from clear as to the precise role played by the attorneys in attending their principals during the negotiations leading up to the sale. Mr. Kline testified:
We met with Mr. Frankel, and we met with Mr. Jacoby, and we met with various sales managers of the various Buick agencies, one of which was the Wilkie Buick Agency, but there were two other Buick ...