United States v. Mackoy

DILLON, . Circuit Judge. This bill is brought in this court under section 106 of the act of July 20, 1868 (15 Stat. 167), to enforce the lien of the United States upon the distillery property which belonged to Mackoy & Co., for taxes which were assessed against them from October, 1868. to March, 1869, inclusive, covering the whole period during which the firm operated the distillery. A portion of these taxes accrued prior to the seizure of the property, on the 22d day of December, 1868, and a portion after the property was released on bond (which was on the 14th day of January. 1869), and placed again in the hands of Mackoy & Co. Pending the proceedings in the district court to have the property declared forfeited, Mackoy & Co. were adjudicated bankrupts. Afterwards, viz. September 2, 1869, judgment of forfeiture was entered against the distillery property. The bond which had been given for the release of the property (January 14, 1809), was conditioned to the effect that if the property shall be condemned as forfeited, the obligors will thereupon pay into court the appraised value thereof, viz: $15,410.06. On the 8th day of February, 1S70, judgment was rendered against the sureties on this bond for the amount of the appraised value of the property. On the 14th day of February, 1870, the court overruled the motion of the sureties to have the property sold and the proceeds applied towards the satisfaction of the judgment against them, but at the same time caused to be entered of record an order “that the marshal do proceed to sell, after giving thirty days notice, the property heretofore seized in this proceeding, and return the proceeds arising therefrom into the registry of this court, to abide the further order of the court.” Pursuant to this order, the marshal sold the distillery property May 3, 1870, to S. D. Mageath, for $12.100. and the rectifying establishment to the same person for $2.800, and the proceeds of such sales are still in the registry of the district court. Tins sale was confirmed by the district court, and the purchaser, after the confirmation, and before this bill was filed, had made' improvements upon the property to the amount of $24.000. Respecting this sale, the present bill cohtains the following averment: “That the order for said sale was made by the district court, at the request, and by the consent of all parties interested in the said property.” When the United States asked for or consented to the sale of the property, the present bill subsequently amended, had been filed in this court, asking to have the taxes declared to be a lien upon the distillery property. When the sale was ordered the property was lying idle, and becoming dilapidated. After the sale was made it was [1125] repaired and improved, and has since paid revenues to the government to an amount stated to exceed $200,000. These circumstances vindicate the propriety of ordering the sale, but the question is now made that the sale is void on the ground that the district court had no jurisdiction to order it, because the property had been released upon bond, and was not then in its custody. It ought to be mentioned that, subsequent to its release on bond, it had again, May 11, 1S69, been seized by the collector for nonpayment of taxes, and advertised for sale, July 2, 1869, but that, before that date, to-wit: June 30, 1S09, the proceedings under this seizure were abandoned, and the district attorney instructed to commence proceedings upon the bond, given under section 7 of the act of July 20, 1868. I am of the opinion that the district court had jurisdiction to order the sale of property, and that the sale which was made to the purchaser, who has acted in good faith upon it, must be upheld. By the act of July 20, 1S6S, the government has a bond for the security of taxes which may accrue to it (section 7), and taxes due it are made a lien upon the property from the “time the spirits are distilled until the said tax shall be paid” (section 1), and the lien for taxes may be enforced by a bill in chancery, filed in a district or circuit court of the United States (section 106). Such taxes are-made a lien or in-cumbrance on the property. Other provisions of the statute, however, denounce an absolute forfeiture, by the owner, of all his interest in the property, to the- United States for certain acts and omissions of the distiller, and it was for «uch acts and omissions that it was seized, on the 22d day of December, 1S6S, and subsequently judicially declared to be forfeited by the government. The release of the property on bond does not divest the court of its jurisdiction to go on with the condemnation proceedings. The Little Charles [Case-No. 15,612]. The effect of a release of the property on bond is, that it may be sold bona fide, and give the purchaser a good title, or liens or rights may be acquired after such release, which will be protected; but, saving the rights of purchasers and third persons, lawfully acquired after the release, I think the court may, if it sees proper, as where the bond is worthle-'S and the property is accessible, or where it has been deceived into taking inadequate security, or where justice will be promoted by such a course, re-seize the property, and order the same to be sold. See The Gran Para, 10 Wheat. [23 U. S.] 497; The Little Charles [supra]; The Empire [Case No. 4,472]; Livingston v. The Jewess [Id. 8,412], per Betts, J. Compare The Union [Id. 14.346]. and The Hero, Brown & L. 447. And this was, in substance, the nature of the order upon which the property was sold. As that proceeding was pending when the bankruptcy of Mackoy & Co. (the claimants) occurred, it is evident that the jurisdiction of the district court, as a revenue court, was not divested by that event. The title to the property passed, therefore, to Mageath, under the sale and deed to him by the marshal, and this sale was one made for the benefit, of the United Slates, as the owner of the property, by reason of the forfeiture of the same to it. At the time of the sale the United States was the owner of the property, under a forfeiture judicially ascertained, and had been such owner from the time of the violation of the law, for which it was seized. Gilson v. Hoyt, 3 Wheat. [16 U. S.] 246, 311; U. S. v. 1,960 Bags of Coffee, 8 Cranch [12 U. S.] 398. Perhaps an order might have been made to sell the property subject to the lien of the United States for taxes, but no such reservation was made. There is no evidence to show that the United States intended to keep alive a tax lien upon the property. On the contrary, there is evidence that it abandoned the proceedings by which the property had been seized to secure the taxes now sought to be enforced, and the district attorney was instructed to commence suit on the bond. Under the circumstances my judgment is. that the marshal’s sale and deed passed and conveyed to the purchaser all of the interest of the United States in the property sold, and that the United States is estopped to set up as against the purchaser any lien thereon for taxes in existence, and known to it at the time the order for the sale was made. Mills v. Comstock, 5 Johns. Ch. 214; Star v. Ellis, 6 Johns. Ch. 393. It is distinctly admitted on the face of the present bill that the government consented to the order of sale, and it is quite plain upon the evidence that it was the intention to sell, to whomsoever should purchase, a clear and perfect title, and that the parties interested should litigate thereafter over the proceeds of such sale. As against the government, which, if it did not procure the order of sale, consented to it, the purchaser takes all its interest. Frische v. Kramer's Lessee, 16 Ohio, 125; Jackson v. Bowen, 7 Cow. 13. If the foregoing views are correct, the bill, so far as it seeks to enforce a lien upon the property purchased by Mageath, must fail. Can it be retained for the purpose of settling the rights and equities of the different parties with respect to the fund produced by the sale? That fund is in the district court, and not in this court. It was returned there to abide its further order. That court is entitled to - retain the fund, and itself to make orders disposing of it, and its action in this respect is subject to revision here in the usual mode. But this court cannot lay its hands upon that fund, and withdraw it from the dis ■ trict court, nor can it enter a decree directing how that fund shall be disposed of. The jurisdiction of that court continues until the proceedings out of which the fund arose are ended, and the final order for distribution made. Among those asserting an interest in the fund are two persons who claim as in [1126] •formers, and whose rights have never been ■determined. The express provision of the law is that those rights shall “be ascertained by the court which decrees the forfeiture” (Act June 30, 1864, § 179), which is the district court, and not this court. Among those, also, who make a claim upon the fund, are certain mechanics, who furnished the material for, and did work upon the distillery prior to its seizure, and certain judgment creditors of Mackoy & Co. and also the assignee in bankruptcy. These lienors did not intervene in the condemnation proceedings, ■ and hence are bound by the decree therein, and cut off thereby from all resort to the property sold. The Mary, 9 Cranch [13 U. S.] 126. But they may, notwithstanding the decree of condemnation, and while the fund is still in court, apply in proper manner to establish their alleged rights and equities in respect to it. The Siren, 7 Wall. [74 U. S.] 152, 159; Mutual Safety Ins. Co. v. Cargo of The George [Case No. 9,981]; Andrews v. Wall, 3 How. [44 U. S.] 568; The Sibyl, 4 Wheat. [17 U. S.] 98; Keen v. Gloucester, 2 Dall. [2 U. S.] 36. But this application must be made to, and in the first instance decided by, the court in which the fund remains. NOTE. Lien for tax as against innocent purchaser.' Section 32 of the act of July 13. 1866 (14 Stat. 157), was construed by Mr. Justice Swayne in the United States circuit court for the Southern district of Ohio, in the case of U. S. v. Turner [Case No. 16,548]. The case was heard upon bill brought to subject a distillery to payment of tax upon whiskey, claimed to be a lien thereon. The tax accrued in February, 1867, while the Turners were owning and operating the distillery. It was, in the same month, removed upon transportation bonds, but was, without the payment of tax, sold in the markets. Suits were begun in September, 1867, upon the bonds, and judgment recovered thereon in March and April, 1871, for the aggregate sum of $31,533.26. In June, 1867, the Turners sold their distillery, and in April, 1868, Stoltz became the innocent owner for value. In his answer Stoltz claimed: First, that being an innocent purchaser, without notice of the alleged lien of the government, he took the premises discharged therefrom. Second, that the lien of the United States upon the distillery for tax is upon the whiskey, and was disoharged by the taking of the transportation bond. Justice Swayne held that the provisions of section 32 of the act of July 13, 1866, upon which the claim of the plaintiff is founded, providing that the tax in question should be a lien on the interest of said distiller in the tract of land whereon the said distillery is situated from the time said spirits are distilled until said tax should be paid, is absolute and unconditional, and secures to the government a lien upon the distillery premises as against innocent purchasers without notice. The learned justice alluded to a case he had decided some years previously, in which he had held, after consideration, that the lien of the government for unpaid taxes, under the same section, upon spirits fraudulently recovered from the distillery, was good as against innocent purchasers. Decree was passed in favor of the government for sale of the property. Whether, under the peculiar provisions of the act of July 20, 1868 (see sections 1, 7, 8, 44, 106), the liens of mechanics and judgment creditors, which, under the laws of the state, fully attached before the acts were done or suffered for which the property was forfeited to the United States, have priority over claims of the government under the forfeiture, is a question upon which I do not find it necessary or deem it proper to give any opinion at this time. In any event, all interest of Mackoy & Co. in the property was forfeited to the government, and this forfeiture has been judicially ascertained and decided, and, therefore, it is not perceived what interest the bankrupt’s estate lias in the fund. The argument that the sale was void because not made by the order of the bankruptcy court, and that the bankruptcy court alone has jurisdiction to settle the equities of all parties to the fund, and to distribute it, has no foundation upon which to rest, for the reason that the decree of condemnation conclusively settles that the bankrupts had forfeited all their rights in the property before the petition in bankruptcy was filed, and it is certain that such forfeiture is not subject to the rights of general creditors. The bill filed in this court must, therefore, be dismissed; but since all parties have taken proofs to sustain their respective claims, I recommend that by agreement all the pleadings and proofs be filed in the district court, and the cause submitted thereon to it, reserving, if desired, the right of all parties to appeal. This will save time and expense, and facilitate the closing of this complicated and already long protracted litigation. No costs will be allowed to any of the parties. Bill dismissed.