Hannon v. City of Newton
820 F. Supp. 2d 254
D. Mass.2011Background
- US and Manning intervened in Hannon’s land-damage suit against the City of Newton to assert priority in proceeds.
- Hannon’s property was taken by eminent domain on May 7, 2007; a pro tanto payment was made and later a judgment for additional compensation was awarded.
- City deposited $299,483.99 after $151,761.73 to attorneys; this left proceeds to be distributed.
- Manning holds a preexisting judgment against Hannon and recorded an execution in 2005 affecting land.
- The IRS issued NFTLs and, on May 4, 2007, the IRS issued a Certificate of Discharge under 26 U.S.C. § 6325(b)(2)(A) discharging the property from the tax lien but reserving the lien on other property.
- The United States discharged its lien on the Property under § 6325(b)(2)(A) rather than § 6325(b)(3), and Manning contends the discharge did not affect its priority in the litigation proceeds; the court must decide the effect of the discharge and the priority of claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Effect of § 6325(b)(2)(A) discharge on US lien against the proceeds | US contends it retains a continuing interest in the chose in action and proceeds | Manning argues discharge relinquished priority to proceeds | US discharge relinquished its priority; Manning has priority over proceeds |
| Whether state-equitable conversion principles support Manning’s lien over US in litigation proceeds | US asserts its lien cannot be defeated by state law fiction of equitable conversion | Manning’s interest as substituted for land remains subject to federal lien only to the extent allowed by discharge | Manning’s lien priority preserved; US lien does not attach to the proceeds after discharge |
Key Cases Cited
- Craft v. United States, 535 U.S. 274 (2002) (federal tax lien attaches to rights created by state law; assesses property rights broadly)
- Drye v. United States, 528 U.S. 49 (1999) (heir/inheritance rights can be property for tax lien purposes)
- Gibson v. Cooke, 42 Mass. 75 (1840) (damages from eminent domain treated as substituted capital for land)
- Cornell-Andrews Smelting Co. v. Boston & Providence Railroad Corp., 209 Mass. 298 (1911) (compensation for land represents land and is subject to rights in land)
- Spadea v. Stewart, 350 Mass. 218 (1966) (compensation represents land and rights in land; equitable conversion context)