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«No. 13-2249 In Re: RESTIVO AUTO BODY, INC., d/b/a Restivo Auto Body & Towing, Inc., Debtor. -SUSQUEHANNA BANK, Plaintiff - Appellee, v. UNITED STATES ...»

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No. 13-2249

In Re: RESTIVO AUTO BODY, INC., d/b/a Restivo Auto Body &

Towing, Inc.,


-----------------------SUSQUEHANNA BANK,

Plaintiff - Appellee,



Defendant - Appellant.

Appeal from the United States District Court for the District of Maryland, at Baltimore. Ellen L. Hollander, District Judge.

(1:12-cv-03597-ELH; 11-18718; 11-00734) Argued: September 16, 2014 Decided: October 31, 2014 Before NIEMEYER, WYNN, and FLOYD, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Floyd joined. Judge Wynn wrote a separate opinion concurring in part and dissenting in part.

ARGUED: Bethany B. Hauser, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant. Ian Thomas Valkenet, YOUNG & VALKENET, Baltimore, Maryland, for Appellee. ON BRIEF: Kathryn Keneally, Assistant Attorney General, Bridget M. Rowan, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.;

Rod J. Rosenstein, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Baltimore, Maryland, for Appellant. Thomas C.

Valkenet, YOUNG & VALKENET, Baltimore, Maryland, for Appellee.

NIEMEYER, Circuit Judge:

In this appeal, we determine priority as between a tax lien filed by the Internal Revenue Service (“IRS”) and a bank’s security interest created by a deed of trust that was executed before the IRS filed its lien but recorded thereafter.

On January 4, 2005, Restivo Auto Body, Inc., of Eldersburg, Maryland, borrowed $1 million from Susquehanna Bank and secured repayment of the loan by executing and delivering to the Bank a deed of trust with respect to two parcels of real property. Six days later, on January 10, 2005, the IRS filed notice of a federal tax lien against Restivo Auto Body for unpaid employment taxes. On February 11, 2005, Susquehanna Bank recorded the deed of trust it had received on January 4, 2005.

Susquehanna Bank commenced this adversary proceeding in Restivo Auto Body’s Chapter 11 bankruptcy case, seeking a judgment declaring that the security interest it acquired on January 4, 2005, had priority over the IRS’s tax lien filed on January 10, 2005, regardless of the fact that it did not record its security interest until after the IRS had filed notice of its tax lien.

The district court granted Susquehanna Bank priority, ruling (1) that Md. Code Ann., Real Prop. § 3-201, related back Susquehanna Bank’s subsequent recordation of its deed of trust to the date the deed of trust was executed and delivered, thus giving Susquehanna Bank a security interest effective before the IRS recorded its tax lien; and alternatively (2) that Maryland common law, under the doctrine of equitable conversion, gave

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Restivo Auto Body’s property, regardless of recordation, when Restivo Auto Body executed the deed of trust in exchange for the $1 million loan on January 4, before the IRS recorded its tax lien.

We reject the district court’s holding that Md. Code Ann., Real Prop. § 3-201 gives Susquehanna Bank retroactive priority over the IRS, concluding that 26 U.S.C. § 6323(h)(1)(A)’s use of the present perfect tense precludes giving effect to Real Prop.

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for payment of these deficiencies on or before September 20, 2004, giving rise to a tax lien on all property owned by Restivo Auto Body. On January 10, 2005, the IRS filed notice of its federal tax lien for the relevant quarters in the land records in the Circuit Court for Carroll County, Maryland.

On January 4, 2005, six days before the IRS filed notice of its federal tax lien, Restivo Auto Body borrowed $1 million from Susquehanna Bank, giving the Bank a note and a deed of trust on two adjacent parcels of real property on Enterprise Street in Eldersburg, Maryland -- Lots 17 and 39 -- to secure repayment of the loan. The deed of trust, however, was not recorded until February 11, 2005, more than a month after the IRS filed notice of its tax lien.

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priorities of the parties’ secured interests, and the parties filed cross-motions for summary judgment. In claiming priority for the deed of trust that it received before the IRS filed its tax lien but recorded thereafter, Susquehanna Bank relied on Md.

Code Ann., Real Prop. § 3-201, which relates back a deed of trust’s effective date upon recordation to the date when the

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States, Civil Action No. DKC 2009-1239, 2010 WL 3221845 (D. Md.

Aug. 13, 2010), to hold that Md. Code Ann., Real Prop. § 3-201 relates back the effective date of Susquehanna Bank’s deed of trust to January 4, 2005, six days before the IRS recorded its

tax lien. The court explained:

Why [Susquehanna Bank] would wait so long to record the lien, who knows? But that doesn’t really matter for purposes of the analysis. [The] effective date is the most important thing, and the deed was recorded in such a way as... give it priority pursuant to [Md.

Code Ann., Real Prop. § 3-201] over the government’s claim.

The district court affirmed, again relying on WC Homes.

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granted the deed of trust as of the date the deed of trust was delivered (not the date it was recorded) regardless of whether the creditor did or did not have notice of the deed of trust at any time.” United States v. Susquehanna Bank (In re Restivo Auto Body, Inc.), Civil Action No. ELH-12-3597, 2013 WL 4067624, at *7 (D. Md. Aug. 12, 2013) (quoting Chi. Title Ins. Co. v.

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(1960). Under federal law, a lien in favor of the IRS attaches to all property owned by a person who “neglects or refuses” to pay taxes for which he is liable after the IRS demands payment.

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performance of an obligation or indemnifying against loss or liability,” id. § 6323(h)(1), and its existence at any given time depends on whether, inter alia, “the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation,” id. § 6323(h)(1)(A).

The issue, in this context, is whether Maryland law gave

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under local law.” Emphasizing the text’s use of the present perfect tense, it argues that Susquehanna Bank did not obtain an effective security interest as of January 10, but only as of

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Susquehanna Bank was not a holder of a security interest on January 10, according to the IRS, the federal tax lien became valid against the Bank by September 20, 2004, the last date on which the IRS assessed the tax deficiencies, and therefore the federal tax lien takes priority under the common-law rule of first in time, first in right.

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executed -- that is,“[e]very deed, when recorded, takes effect from its effective date,” presumptively defined as the later of the date of the last acknowledgment or the date stated on the deed. Id. § 3-201. This means, according to Maryland case law, that a “recorded deed of trust is effective against any creditor of the person who granted the deed of trust” -- including a holder of a judgment lien -- “as of the date the deed of trust

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a deed of trust was executed on July 15, 2005, but remained unrecorded for over two years, the effective date of the deed of trust was nonetheless July 15, 2005, giving the deed of trust priority over a lien arising from a judgment rendered after the

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see also, e.g., Angelos v. Md. Cas. Co., 380 A.2d 646, 648 (Md.

Ct. Spec. App. 1977) (holding that a mortgage took priority over a judgment lien under Real Prop. § 3-201, where the mortgage had been executed before, but recorded after, the institution of a lawsuit to obtain the judgment lien).

Thus, under Maryland law, when Susquehanna Bank recorded its deed of trust on February 11, 2005, the effective date of the deed of trust related back to January 4, 2005, when it was executed and delivered.

That conclusion, however, does not dispose of the question presented in this case, because the question here is not what interest Susquehanna Bank had on February 11, but rather, under 26 U.S.C. § 6323(a), whether Susquehanna Bank had a “security

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Bank’s subsequent recordation on February 11 gave its deed of trust an earlier effective date by operation of Real Prop. § 3that statute had not yet been triggered as of the date on

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particularly telling where Congress uses multiple tenses within the same section. See Dickerson v. New Banner Inst., Inc., 460 U.S. 103, 116 (1983) (deriving meaning from Congress’ use of the present and present perfect tenses within 18 U.S.C. § 922);

Barrett v. United States, 423 U.S. 212, 217 (1976) (“[Congress]

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obtain priority. Here, that means that as of January 10, 2005, Susquehanna Bank’s security interest must have become protected by local law against subsequent judgment liens to deny the IRS priority. Yet, under Maryland law, as of January 10, Md. Code

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“has become” in § 6323(h)(1)(A), the court rejected the Bank’s

interpretation of the statute:

Congress intended the protection to cover present security interests which have been perfected at some point prior to the imposition of the federal tax lien.

Thus, the language would exclude security interests which have not yet become perfected under local law, as well as those interests which have been released.... [T]he language “has become” suggests that Congress intended to cover only those security interests which exist presently, and have become valid prior to the federal tax lien.

Id. (emphasis added).

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recorded its tax lien.

This interpretation is precisely the one adopted in Treas.

Reg. § 301.6323(h)-1(a)(2). That regulation provides:

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For purposes of this subdivision, the dates described in (A) and (B) of this subdivision... shall be determined without regard to any rule or principle of local law which permits the relation back of any requisite action to a date earlier than the date on which the action is actually performed.

Treas. Reg. § 301.6323(h)-1(a)(2) (emphasis added).

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not, as of that date, recorded its deed of trust, the relationback provision in Real Prop. § 3-201, which applies only to a deed “when recorded,” did not yet apply.

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demonstrate a statutory ambiguity, the Treasury Regulation would nonetheless be enforceable if it were a permissible construction of the statute. “[A] court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would

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until the condition set forth here” -- namely, the requirements listed in § 6323(h)(1) -- “are met even though local law may relate a security interest back to an earlier date....”

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expresses the same view:

For purposes of [§ 6323(h)(1)(A)], a security interest becomes protected against a subsequent judgment lien on the date on which all actions required under local law to establish the priority of the security interest against such a judgment lien have been taken, or, if later, the date on which all such actions are deemed effective, under local law, to establish such priority. Therefore, a security interest comes into existence only at the time prescribed in the preceding sentence notwithstanding any rule or principle of local law which permits the relation back of any requisite action to a date earlier than the date on which it is actually performed.

H.R. Rep. No. 89-1884, at 49 (1966) (emphasis added).

Our conclusion that the Treasury Regulation is a reasonable construction of 26 U.S.C. § 6323(h)(1)(A) is bolstered by the fact that federal courts have, with one exception, uniformly applied it to bar state laws that would otherwise permit later actions to relate back in time, without any suggestion that it

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perfection of the mortgage to the original recording date, in violation of Treas. Reg. § 301.6323(h)–1(a)(2)); Flagstar Bank, FSB v. Eerkes, No. C12-1951RSL, 2014 WL 4384063, at *1-2 (W.D.

Wash. Sept. 4, 2014) (granting reformation of a deed of trust

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reformed deed was inferior to a federal tax lien under Treas.

Reg. § 301.6323(h)–1(a)(2)’s prohibition against relation-back rules); Regions Bank v. United States, No. 3:12-cv-21, 2013 WL 635615, at *3 (E.D. Tenn. Feb. 20, 2013) (reaching same result as Haas under similar facts); Bank of N.Y. Mellon Trust Co., Nat’l Ass’n v. Phipps, Civil No. L-10-1271, 2011 WL 1322393, at *2-3 (D. Md. Apr. 1, 2011) (assuming that a deed of trust could be amended to include a mistakenly omitted purchaser or that an equitable lien could be imposed under state law, but

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effects pursuant to Treas. Reg. § 301.6323(h)–1(a)(2)). But see WC Homes, LLC v. United States, Civil Action No. DKC 2009-1239, 2010 WL 3221845, at *3-4 (D. Md. Aug. 13, 2010) (concluding that Treas. Reg. § 301.6323(h)–1(a)(2) was not entitled to deference because the statute was unambiguous).

In short, while we read § 6323(h)(1)(A) unambiguously to preclude the application of Md. Code Ann., Real Prop. § 3-201, we also conclude that the Treasury Department’s construction of § 6323(h)(1)(A) in explicitly precluding the application of a

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Apart from its application of Md. Code Ann., Real Prop.

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