The IRS filed its notice of tax lien against CMA on November 19, 1985 in the office of the clerk of the Circuit Court for Montgomery County, Md.
There are two issues before the court. First, whether plaintiff received a common law assignment of the proceeds of the CMA/Centex contract or merely a security interest in the proceeds of the contract. Second, if plaintiff has a security interest in the proceeds, whether that interest is superior to the IRS tax lien. In order for the plaintiff's interest to take priority over the defendant's interest, plaintiff's interest must have been perfected under Maryland law before the IRS notice of tax lien was filed.
Maryland Commercial Code § 9-401(1) requires that a creditor file its finance statement in two places: the Maryland State Department of Assessments and Taxation and the office of the clerk of the Circuit Court of Montgomery County, where debtor CMA is located. Since plaintiff filed in only one of the two places required under that section, plaintiff can only prevail under the good faith exception of the Code, § 9-401(2). Under that section, plaintiff must show that the IRS knew or had reason to know of the contents of plaintiff's financing statement.
I. The Determination of Plaintiff's Interest in the CMA/Centex Contract.
Before reaching the question of the defendant's knowledge, this court must decide whether plaintiff received a common law assignment from CMA, which was exempt from the recordation and knowledge requirements of the Uniform Commercial Code ("U.C.C."), or whether plaintiff received a security interest subject to the U.C.C. requirements.
Plaintiff believes this court should follow In re Halperin, 280 F.2d 407 (3rd Cir. 1960), which held that an irrevocable assignment of proceeds under an executory contract was a common law assignment. That court determined that the assignment was not subject to a tax lien on the assignor since it was no longer the assignor's property.
This court does not find Halperin applicable in this case. Instead, this court believes that the instant case is similar to Mantovani v. Fast Fuel Corp., 494 F. Supp. 72 (S.D.N.Y 1980). In that case the taxpayer executed an "assignment" of amounts due the taxpayer from a third party. The court held that the assignment was not a common law assignment but a security interest. The "assignment of interest" possessed all the earmarks of a collateral agreement and none of the earmarks of a genuine transfer. Id. at 76. The court pointed to language in the agreement that "this assignment is made to secure the indebtedness due [the Mantovanis]. . . ." Id.
Here, as in Mantovani, the purported assignment was merely collateral for a debt owed by debtor CMA to creditor Security Finance. Security Finance is in the business of making loans and securing collateral from its customers, which is precisely the situation that Article 9 of the U.C.C. was intended to cover.
Indeed, the language in the "Assignment of Interest" executed by plaintiff and CMA states that the CMA/Centex contract is "assigned . . . as collateral security for a loan made by [Security Finance] to [CMA]." Thus the purported assignment in the immediate case is nothing but a misnomer for the financing arrangement between plaintiff Security Finance and the debtor.
II. The Perfection of Plaintiff's Security Interest.
Since the disputed transaction was a security interest and not an assignment, the next issue is whether plaintiff is entitled to prevail over the defendant as a prior perfected creditor under the good faith filing exception of the Maryland Commercial Law Code, Art. 9-401(2).
Both parties agree that if the interest at issue is a security interest, then the plaintiff is considered a competing creditor with the IRS. Under section 6323(a) of the Internal Revenue Code,
The lien imposed by [the Internal Revenue Service] shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgement lien creditor until notice thereof . . . has been filed by the Secretary.
26 U.S.C. § 6323(a). Once notice of a tax lien has been properly filed, any subsequent "security interest" is subordinated to the IRS. Any "security interest" in existence before a tax lien is filed takes precedence over the tax lien. The Internal Revenue Code defines a "security interest" as
any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time (A) if, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation . . . (emphasis added).