No. 96-1613 IN THE SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1997 UNITED STATES OF AMERICA, PETITIONER v. ESTATE OF FRANCIS J. ROMANI ON PETITION FOR A WRIT OF CERTIORARI TO THE SUPREME COURT OF PENNSYLVANIA PETITION FOR A WRIT OF CERTIORARI WALTER DELLINGER Acting Solicitor General LORETTA G. ARGRETT Assistant Attorney General LAWRENCE G. WALLACE Deputy Solicitor General KENT L. JONES Assistant to the Solicitor General WILLIAM S. ESTABROOK JOAN I. OPPENHEIMER Attorneys Department of Justice Washington, D.C. 20530-0001 (202)514-2217 ---------------------------------------- Page Break ---------------------------------------- QUESTION PRESENTED Since 1797, Congress has provided that any claim of the United States against an insolvent estate "shall be paid first" (31 U.S.C. 3713(a)). Since 1913, Con- gress has provided that a federal tax lien is not valid against a judgment lien creditor until notice of the tax lien has been filed (26 U.S.C. 6323(a)). The question presented in this case is whether a federal tax claim against an insolvent estate is to "be paid first" when a judgment lien arose before the notice of tax lien was filed. (I) ---------------------------------------- Page Break ---------------------------------------- TABLE OF CONTENTS Opinions below . . . . 1 Jurisdiction . . . . 1 Statutes involved . . . . 2 Statement . . . . 3 Reasons for granting the petition . . . . 8 Conclusion . . . . 21 Appendix A . . . . 1a Appendix B . . . . 4a Appendix C . . . . 21a TABLE OF AUTHORITIES Cases: Back v. IRS, 445 A.2d 1057 (Md. 1982) . . . . 19 Carter v. Carter, 681 F. Supp. 323 (E.D. Va. 1988) . . . . 19 City of Vormillion v. Stan Houston Equipment Co., 341 F. Supp. 707 (D.S.D. 1972) . . . . 20 Conard v. Atlantic Insurance Co., 26 U.S. (1 Pet.) 386 (1828) . . . . 10 Durham v. United States, 545 F. Supp, 1093 (D.N.J. 1982), aff'd without opinion, 720 F.2d 661 (3d Cir. 1983) . . . . 19 Estate of Berretta, In re, 426 A.2d 1098 (Pa. 1981) . . . . 5 Estate of Frazier v. District Director, Internal Revenue Service, 92-2 U.S. Tax Cas. (CCH) 60,120 (N.D. Ga. 1992) . . . . 19 Estate of Silberman, 46 Cal. Rptr. 2d 610 (Ct. App. 1995) . . . . 19 Exchange Bank & Trust Co. v. Tubbs Mfg. Co., 246 F.2d 141 (5th Cir.), cert. denied, 355 U.S. 868 (1957) . . . . 20 H.B. Agsten & Sons, Inc. v. Huntington Trust & Savings Bank, 388 F.2d 156 (4th Cir. 1967), cert. denied, 390 U.S. 1025 (1968) . . . . 19 ---------------------------------------- Page Break ---------------------------------------- IV Cases-Continued: Page Illinois ex rel. Gordon v. Campbell, 329 U.S. 362 (1946) . . . . 10 James v. United States, 366 U.S. 213 (1961) . . . . 14 Kentucky v. United States, 383 F.2d 13 (6th Cir. 1967) . . . . 5, 8, 12, 19 Massachusetts v. United States, 333 U.S. 611 (1948) . . . . 10,12 Nesbitt v. United States, 622 F.2d 433 (9th Cir. Cir. 1980), aff'g 445 F. Supp. 824 (N.D. Cal. 1978), cert. denied, 451 U.S. 984 (1981) . . . . 5, 7, 8, 13, 18, 19 New York v. Maclay, 288 U.S. 290 (1933) . . . . 10 Spira v. United States, 76-2 U.S. Tax Gas. (CCH) 9600 (1976) . . . . 19 Spokane County v. United States, 279 U.S. 80 (1929) . . . . 10 Succession of Nobles, 684 So.2d 973 (La. Ct. App. 1996) . . . . 20 Talcott, Inc. v. Roto American Corp., 302 A.2d 147 (N.J. Ch. 1973) . . . . 20 Thelusson v. Smith, 15 U.S. (2 Wheat.) 396 (1817) . . . . 9, 11 Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979) . . . . 9 United States v. Emory, 314 U.S. 423 (1941) . . . . 6, 8, 11, 12 United States v. Gilbert Associates, Inc., 345 U.S. 361 (1953) . . . . 10 United States v. Key, 397 U.S. 322 (1970) . . . . 6, 8, 11, 13, 17, 19 United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979) . . . . 7, 8, 14, 15, 16 United States v. New Britain, 347 U.S. 81 (1954) . . . . 13 United States v. Randall, 401 U.S. 513 (1971) . . . . 11 United States v. Snyder, 149 U.S. 210 (1893) . . . . 17 ---------------------------------------- Page Break ---------------------------------------- Cases-Continued Page United States v. Texas, 314 U.S. 480 (1941) . . . . 10, 11 United States v. Vermont, 377 U.S. 351 (1964) . . . . 10, 13 United States v. Waddill, Holland & Flinn, Inc., 323 U.S. 353 (1945) . . . . 10, 19 Statutes: Act of July 31, 1789, ch. 5, 21, 1 Stat. 29 . . . . 16 Act of March 3, 1797, ch. 20, 5, 1 Stat. 515 . . . . 4, 16 Act of March 2, 1799, ch. 22, 65, 1 Stat. 627 . . . . 16 Act of July 13, 1866, ch. 184, 9, 14 Stat. 101 . . . . 17 Act of March 4, 1913, ch. 166, 37 Stat. 1016 . . . . 4, 17 Act of November 6, 1978, Pub. L. No. 95-598, Tit. HI, 322(a), 92 Stat. 2562 . . . . 16 Act of September 13, 1982, Pub. L. No. 97-258, Subtit. III, 1, 96 Stat. 972 . . . . 16 Bankruptcy Act of 1898, ch. 541, $64,30 Stat. 544 . . . . 12 Federal Tax Lien Act of 1966, Pub. L. No. 89-719, 80 Stat. 1125 . . . . 17 Internal Revenue Code (26 U.S.C.): 6321 . . . . 3, 17 6323 . . . . 13, 14, 17 6323(a) . . . . passim 31 U.S.C. 3713 . . . . 4 31 U.S.C. 3713(a) . . . . 2, 4, 6, 10 31 U.S.C. 3713(a)(1) . . . . 4 31 U.S.C. 3713(a)(2) . . . . 11, 13, 16 33 Hen. VIII, ch. 39, 74 . . . . 16 13 Eliz. I, ch. 4 . . . . 16 Miscellaneous: American Bar Association, Final Report of the Com- mittee on Federal Liens (1959) . . . . 18 105 Cong. Rec. (1959) (Index): p. 1030 . . . . 18 p. 1258 . . . . 18 ---------------------------------------- Page Break ---------------------------------------- VI Miscellaneous-Continued: Page Hearings Before the House Committee on Ways and Means on the Priority of Federal Tax Liens and Levies, 89 th Cong., 2d Sess. (1959) . . . . 18 H.R. Rep. No. 1884, 89th Cong., 2d Sess. (1966) . . . . 17 H.R. Rep. No. 651, 97th Cong., 2d Sess. (1982) . . . . 16 Note, Nesbitt v. United States: Denying an Implied Tax Lien Exception to the Federal Priority in Insol- vency, 33 Cath. U.L. Rev. 741 (1984) . . . . 5 Plumb, The Federal Priority in Insolvency: Proposals for Reform, 70 Mich. L. Rev. 1 (1971) . . . . 18 S. 2197, 92d Cong., 1st Sess. (1971) . . . . 18 S. Rep. No. 1708, 89th Cong., 2d Sess. (1966) . . . . 17 ---------------------------------------- Page Break ---------------------------------------- In the Supreme Court of the United States OCTOBER TERM, 1997 No. UNITED STATES OF AMERICA, PETITIONER v. ESTATE OF FRANCIS J. ROMANI ON PETITION FOR A WRIT OF CERTIORARI TO THE SUPREME COURT OF PENNSYLVANIA PETITION FOR A WRIT OF CERTIORARI The Acting Solicitor General, on behalf of the United States of America, petitions for a writ of certiorari to review the judgment of the Supreme Court of Pennsylvania in this case. OPINIONS BELOW The opinion of the Supreme Court of Pennsylvania (App., infra, la-13a) is reported at 688 A.2d 703. The opinions of the Superior Court. (App., infra, 15a-20a) and the Court of Common Pleas (App, infra, 21a-25a) are not reported. JURISDICTION The judgment of the Supreme Court of Pennsylva- nia was entered on January 17, 1997. The jurisdiction of this Court is invoked under 28 U.S.C. 1257(a). (1) ---------------------------------------- Page Break ---------------------------------------- 2 STATUTES INVOLVED 1. 26 U.S.C. 6323(a) provides, irrelevant part: The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof * * * has been filed by the Secretary. 2. 31 U.S.C. 3713(a) provides, in relevant part: (1) A claim of the United States Government shall be paid first when- (A) a person indebted to the Government is insolvent and- (i) the debtor without enough property to pay all debts makes a voluntary assignment of property; (ii) property of the debtor, if absent, is attached; or (iii) an act of bankruptcy is committed; or (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor. . (2) This subsection does not apply to a case under title 11. ---------------------------------------- Page Break ---------------------------------------- 3 STATEMENT 1. On January 25, 1985, a judgment for $400,000 was entered in favor of Romani Industries, Inc., against Francis J. Romani in the Court of Common Pleas of the Commonwealth of Pennsylvania. Romani Indus tries did not obtain a writ of execution, or otherwise seize any property of the debtor, in satisfaction of the judgment. The judgment remains unpaid (App., infra, 22a). After the date of that judgment, the Internal Reve- nue Service filed notices of federal tax liens on the property of Francis J. Romani. A federal tax lien arises by operation of law in the property of any tax- payer who "neglects or refuses to pay the [tax] after demand" (26 U.S.C. 6321). A notice of the federal tax lien is filed in the office "designated by the laws of [the] State, in which the property subject to the lien is situated" (26 U.S.C. 6323(f)). The liens for which notices were filed in this case were for unpaid taxes and penalties totaling approximately $400,000 for the years 1982, 1985,1987,1988 and 1989 (App., infra, 2a). Mr. Romani died on January 13, 1992. The admin- istrator of his estate sought to transfer the only asset of the estate-real estate having a value of ap- proximately $53,000-to Romani Industries in satis- faction of its outstanding judgment claim. The United States objected to that transfer and filed a proof of claim for federal taxes and interest totalling approximately $489,000 (App., infra, 2a). Because the debts of the estate greatly exceed its assets, and the estate is thus insolvent (ibid.), the United States claimed first priority for payment of its claim from the assets of the estate under what is known as the "absolute priority" statute. That statute was first ---------------------------------------- Page Break ---------------------------------------- 4 enacted in 1797 (Act of March 3, 1797, ch. 20, 5, 1 Stat. 515) and is now codified at 31 U.S.C. 3713(a). It provides, in relevant part, that "[a] claim of the United States Government shall be paid first when * * * the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor." Ibid. 1 Romani Industries contended, however, that the "absolute priority" that Congress established in 31 U.S.C. 3713(a) for claims of the United States against. insolvent estates has been impliedly repealed, for tax claims, by 2 6 U.S.C. 6323(a). That statute, which was frost enacted in 1913 (Act of March 4, 1913, ch. 166, 37 Stat. 1016), provides that the federal tax lien "shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien credit or until notice there *** has been filed by the Secretary." 26 U.S.C. 6323(a). Romani Indus- tries claimed that, because it became a "judgment lien creditor" before notice of the federal tax lien" was filed, it is entitled to priority under 26 U.S.C. 6323(a) and that the "absolute priority" rule of 31 U.S.C. 3713 is therefore inapplicable to this case. 2. a. The Court of Common Pleas agreed with Ro- mani Industries that 26 U.S.C. 6323(a) impliedly repealed-for federal tax debts-the "absolute prior- ity" rule of 31 U.S.C. 3713(a) (App., infra, 21a-25a). ___________________(footnotes) 1 Under this "absolute priority" statute, the claims of the United States are also to be paid first when an insolvent debtor "makes a voluntary assignment of property," when property of an absent debtor is attached, or when "an act of bankruptcy is committed" (31 U.S.C, 3713(a)(1)). In 1978, however, Congress amended the statute to make it inapplicable to bankruptcy cases brought "under title 11" of the United States Code (31 U.S.C. 3713(a)(2)). See note 6, infra. ---------------------------------------- Page Break ---------------------------------------- 5 The court did not discuss or cite the several federal decisions that have rejected this interpretation of these federal statutes. See, e.g., Nesbitt v. United States, 622 F.2d 433 (9th Cir. 1980), aff'g 445 F. Supp. 824 (N.D. Cal. 1978), cert. denied, 451 U.S. 984 (1981); Kentucky v. United States, 383 F.2d 13, 14 (6th Cir. 1967). Instead, the court adopted the reasoning of one of the conflicting opinions of the equally-divided court in In re Estate of Berretta, 426 A.2d 1098 (Pa. 1981), which concluded that the provisions of 26 U.S. C. 6323(a) evidence a congressional intent to limit the "absolute priority" otherwise established for the collection of federal claims (App., infra, 24a). 2 The court stated that this conclusion is supported by the policy concern that application of the "absolute priority" statute to federal tax claims could "frus- trate legitimate commercial expectations" (id. at 23a). b. The Superior Court affirmed (App., infra, 15a- 20a). The court concluded that the governing princi- ple of statutory construction is that an inconsistency between conflicting provisions is to be resolved by allowing the more specific provision to prevail over ___________________(footnotes) 2 The Pennsylvania courts have long taken a narrow view of the "absolute priority" statute, in a series of cases that are collected and criticized in Note, Nesbitt v. United States: Denying an Implied Tax Lien Exception to the Federal Priority in Insolvency, 33 Cath. U.L. Rev. 741, 753-759 (1984). The opinion from Estate of Berretta on which the court chose to rely in this case was criticized by the opposing opinion from the equally-divided court in Estate of Berretta because it "trans- formed its view of what Congress should do into the presump- tion that Congress has in fact impliedly repealed the Insolvency Statute as to tax liens." In re Estate of Berretta, 426 A.2d at 1108 (Roberts, J.). ---------------------------------------- Page Break ---------------------------------------- 6 the more general one (id. at 20a). The court stated that 26 U.S.C. 6323(a) is the more specific provision and should therefore prevail over "the general provi- sions of Section 3713" in any conflict between them (App., infra, 20a). The Superior Court acknowledged that this Court has held that "[o]nly the plainest inconsistency would warrant * * * finding an implied exception to the operation of so clear a command as that of" the abso- lute priority statute (App., infra, 18a, quoting United States v. Emory, 314 U.S. 423,433 (1941)). The Supe- rior Court concluded, however, that this exacting standard is met-and that the two statutes are "most certainly, conflicting"- because "[i]n the present context * * * the government's relative priority as a creditor differs depending upon which sect ion is applied" (App., infra, 19a). c. The Supreme Court of Pennsylvania affirmed (App., infra, 1a-13a). The court acknowledged that the test applied by this Court in United States v. Key, 397 U.S. 322 (1970), governs in determing whether 26 U.S.C. 6323(a) impliedly repealed the "absolute priority" rule of 31 U.S.C. 3713(a) for the collection of tax debts (App., infra, 5a-6a). In Key, the Court stated that an implied repeal of the "absolute prior- ity" statute cannot be found unless (i) there is a facial or "logical[] inconsistency]" between the two stat- utes, (ii) the allegedly conflicting statute would "be rendered redundant" if the "absolute priority" statute applied or (iii) the `language or legislative history" of the allegedly repealing provision reveals "a purpose incongruous with * * * application" of the absolute priority rule. 397 "U.S. at 326. The Pennsylvania Supreme Court determined that the two statutes are facially inconsistent because, ---------------------------------------- Page Break ---------------------------------------- 7 "with respect to tax liens, section 6323 provides for a `first in time' priority while section 3713 gives abso- lute priority to the United States" (App., infra, 6a-7a footnote omitted). The court concluded that the his- tory and purpose of Section 6323(a) evidence "a con- gressional intent that federal priorities be limited in the tax area, regardless of whether the debtor is in- solvent" (App., infra, 13a). 3 The Pennsylvania Supreme Court stated that its conclusions were reinforced by the rationale of this Court's decision in United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979). In Kimbell Foods, this Court held that,, in the absence of any federal statu- tory directive, the relative priority of private liens and consensual liens that arise from government lending programs is to be determined under nondis- criminatory state laws. 440 U.S. at 740. 4 This Court noted in Kimbell Foods that commercial transactions ___________________(footnotes) 3 Although the court sought generally to rely on the legislative policies reflected in the Federal Tax Lien Act, nothing in the history of that Act addresses the specific issues presented in this case. See Nesbitt v. United States, 445 F. Supp. at 829. To the contrary, in enacting the Federal Tax Lien Act (and on one later occasion as well) Congress declined to enact a proposal to repeal the "absolute priority" statute as applied to federal tax claims (ibid.): This Court cannot lightly disregard the fact that Con- gress has been requested on at least two occasions to amend 3466 in a manner which would achieve the result sought here by plaintiff, but it has not yet so amended that section. 4 The Pennsylvania Supreme Court recognized that "Kimbell Foods involves the priority to be accorded a federal consensual loan where the debtor is solvent, and the case at bar involves the question of the priority to be accorded a federal tax lien where the debtor is insolvent" (App., infra, 11a). ---------------------------------------- Page Break ---------------------------------------- 8 are ordinarily formed in reliance upon state com- mercial law and that a different rule for commercial transactions involving the federal government could upset ordinary business expectations. Id. at 739. The Pennsylvania Supreme Court reasoned that this same concern applies to the present case, for "the grant of absolute federal priority in insolvency cases, as in solvency cases, would be destructive of commercial stability and would frustrate legitimate commercial expectations" (App., infra, 13a). The Pennsylvania Supreme Court noted that its holding conflicts with the decisions of the "federal courts that have held that section 3713 provides for absolute priority in tax lien cases" (App., infra, 12a n.17, citing, e.g., Nesbitt v. United States, supra). The court stated, however, that it was "not persuaded by the reasoning of" those decisions (ibid.). REASONS FOR GRANTING THE PETITION The decision of the Pennsylvania Supreme Court fails to honor this Court's repeated admonition that "[o]nly the plainest inconsistency would warrant our finding an implied exception to the operation of so clear a command as that of [31 U.S.C. 3713]" (United States v. Key, 397 U.S. at 324-325, quoting United States v. Emory, 314 U.S. 423, 433 (1941). `The deci- sion in this case directly conflicts with the decisions of two federal courts of appeals and numerous other federal courts. E.g., Nesbitt v. United States, 622 F.2d 433 (9th Cir. 1980), aff'g 445 F .Supp. 824 (N.D. Cal. 1978), cert. denied, 451 U.S. 984 (1981); Kentucky v. United States, 383 F.2d 13, 14 (6th Cir. 1967); App., infra, 12a n. 17. The question presented is one of re- curring importance- to the administration of the tax laws. Resolution of the conflict on this recurring ---------------------------------------- Page Break ---------------------------------------- 9 question is needed to assure uniform treatment of taxpayers and to "ensure as far as possible that similarly situated taxpayers pay the same tax." Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 544 (1979). 1. a. One hundred and eighty years ago, this Court held that the "absolute priority" statute requires that debts owed to the United States be paid first from insolvent estates even if a competing creditor had previously obtained a valid and enforceable judgment lien. In Thelusson v. Smith, 15 U.S. (2 Wheat.) 396, 425 (1817), as in the present case, the facts fell "precisely within" the scope of the absolute priority statute. The Court stated that (ibid.) (emphasis supplied): the question still remains * * * whether this right of preference [under the absolute priority statute] can cut out a prior judgment creditor? The law declares "that in all cases of insol- vency, &c., the debts due to the United States shall be first satisfied * * *. These expressions are as general as any which could have been used, and exclude all debts due to individuals, whatever may be their dignity. * * * The law makes no exception in favour of prior judg- ment editors; and no reason has been, or w e think can be, shown to warrant this court in making one. The Court concluded in Thelusson that, whenever title and possession remain in "the debtor's estate," the claim of the United States is to "be first satis- fied" under the statute. Id. at 426. As Justice Car- dozo explained for the Court more than a century later, "[t]he ruling [in Thelusson] was that the ---------------------------------------- Page Break ---------------------------------------- 10 general lien of a judgment upon the lands of an insolvent debtor is subordinate to the preference established by the [absolute priority] statute unless seizure by marshal or some other equivalent act has made the lien specific and brought about a change of title or possession." New York v. Maclay, 2%8 U.S. 290, 293 (1933). Accord, United States v. Gilbert Associates, Inc., 345 U.S. 361, 366 (1953); United States v. Texas, 314 U.S. 480,485-486 (1941)! ___________________(footnotes) 5 This Court has "repeatedly reserved the question whether the priority given the United States by [31 U.S.C. 3713(a)] can be overcome even by a prior specific and perfected lien." United States v. Vermont, 377 U.S. 351, 358 n.8 (1964). The Court has never decided the issue because it has found, in each case, that the competing lien had not divested the debtor of title or possession and that. the lien was therefore not sufficiently specific for the question to be squarely raised. See, e.g., ibid.; United States v. Gilbert Associates, Inc., 345 U.S. 361,365-366 (1953); Illinois ex rel, Gordon v. Campbell, 329 U.S. 362, 370 (1946); United States v. Waddill, Holland & Flinn, Inc., 323 U.S. 353, 355-356 (1945); United States v. Texas, 314 U.S. 480, 484-486 (1941); New York v. Maclay, 288 U.S. 290, 294 (1933); Spokane County v. United States, 279 U.S. 80, 95 (1929). The Court has concluded that a mortgage may effect a transfer of title, taking the property outside the estate of the debtor and therefore beyond the reach of the absolute priority statute. See Conard v. Atlantic Insurance Co., 26 U.S. (1 Pet.) 386, 445-446 (1828). In so ruling, the Court did "not contem- plate that exceptions were being made" from the absolute priority statute instead, it "conceived that the funds or property affected, being covered by mortgage, belonged in fact to third persons, not to the insolvent debtor." Massachusetts v. United States, 333 U.S. 611, 634 n.38 (1948). The Court "has been loath to expand" such an exception "to include other types of lien." Ibid. The Court has emphasized that none of its decisions lend "support to the assumption that the doctrine of the mortgage cases, whatever its current vitality, would re- ---------------------------------------- Page Break ---------------------------------------- 11 Recognizing that "[t]he law makes no exception in favour of prior judgment creditors" (Thelusson v. Smith, 15 U.S. (2 Wheat.) at 425), the Court has con- sistently held that "[o]nly the plainest inconsistency would wan-ant * * * finding an implied exception to the operation" of the absolute priority statute (United States v. Emory, 314 U.S. at 433). Under the analysis applied by the Court in United States v. Key, 397 U.S. at 324-325, such a "plain[l inconsistency" could be said to exist only if (i) the competing statute is logically inconsistent with the absolute priority statute; (ii) an unconditional application of the abso- lute priority statute would deprive the competing statute of any meaning; or (iii) the history and text of the competing statute reflect an actual intent by Congress to modify the absolute priority statute. See also id. at 326-332? ___________________(footnotes) quire the subordination of unsecured claims of the United States to a specific and perfected lien." United States v. Texas, 314 U.S. at 486. 6 Outside of bankruptcy proceedings, which are now expressly excepted from the coverage of the statute (31 U.S.C. 3713(a)(2)), this Court has never upheld a claim that Congress has impliedly repealed any aspect of the absolute priority statute. In United States v. Randall, 401 U.S. 513, 517 (1971), the Court noted that the absolute priority statute had been superseded, for bankruptcy cases, by the specific priorities granted by Congress [to claims of the United States] in the Bankruptcy Act" (401 U.S. at 517). In United States V. Key, 397 U.S. at 326-330, however, the Court emphasized that the absolute priority statute "must apply according to its terms except where expressly superseded, or where excluded by a later enactment `plainly inconsistent' with it" (397 U.S. at 332). Applying this standard, the Court concluded in Key that bankruptcy provisions requiring "fair and equitable" treat- ment of creditors did not justify a departure from the absolute ---------------------------------------- Page Break ---------------------------------------- 12 The test applied by this Court in determining whether an implied exception from the statute exists is not satisfied in this case. As the Sixth Circuit explained in Kentucky v. United States, 383 F.2d at 14-15, the plain language of the "absolute priority" statute refutes the contention that it has been impliedly repealed for tax claims by 26 U. S. Cl. 6323(a): We at once emphasize `that, of the statutes involved, one * * * is a priority statute, and the other-26 U.S.C. 6323-is a lien statute. If we employ a literal reading of [the absolute priority statute], its language provides the answer to the question before us. We requote it for emphasis: "Whenever * * * the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied. ___________________(footnotes) priority Congress established for the claims of the United States. Similarly, in United States v. Emory, the Court rejected the contention that Section 64 of the Bankruptcy Act of 1898, ch. 541, 30 Stat. 544, which gave certain wage claim- ants priority over tax and non-tax claims of the United States, impliedly repealed the absolute priority statute in non- bankruptcy cases. In a holding equally applicable to the pre- sent case, the Court stated in Emory (314 U.S. at 427): Neither the language of 64a nor the Congressional history of the legislation here involved supports the proposition that 64a was intended to eliminate, either partially or wholly, the priority of claims of the United States in non-bankruptcy proceedings, See also Massachusetts v. United States, 333 U.S. 611 (1948). ---------------------------------------- Page Break ---------------------------------------- 13 The essentials for application of the statute are here present-the taxpayer is deceased; he was a debtor of the United States; his estate is insuf- ficient to pay all his debts. Present these essen- tials, the debts owing the United States "shall be first satisfied." The Ninth Circuit reached the same conclusion in Nesbitt v. United States, 445 F. Supp. at 828, adopted by reference, 622 F.2d at 433: 7 There is nothing in either the language or the legislative history of [26 U.S.C. 6323] to indi- cate that Congress intended to make tax liens the federal government's sole remedy for the collection of unpaid taxes. To the contrary, Congress intended tax liens to supplement existing means for the collection of taxes, in- cluding [the absolute priority statute]. There is therefore no basis for saying that Congress, by ___________________(footnotes) 7 The Pennsylvania Supreme Court did not suggest that 26 U.S.C. 6323(a) would have no meaning if it did not impliedly repeal the absolute priority statute. The two statutes obviously differ in their scope and are not logically inconsistent: the absolute priority statute governs the priority of claims of the United States only in insolvencies outside of bankruptcy court (see 31 U.S.C. 3713(a)(2)); by contrast, 26 U.S.C. 6323(a) gov- erns the validity of the federal tax lien against specific types of security interests in cases involving solvent debtors and also in the many insolvency situations to which the absolute priority statute is inapplicable. This Court has often noted that Con- gress has intentionally chosen to establish greater protection for the United States in cases involving insolvent debtors than in cases "[w]here the debtor is not insolvent." United States v. Vermont, 377 U.S. at 358. See also United States v. Key, 397 U.S. at 329; United States v. New Britain, 347 U.S. 81, 85 (1954). ---------------------------------------- Page Break ---------------------------------------- 14 creating federal tax liens, intended to modify the absolute priority statute] in any way. Justice Whittaker expressed the same views in his concurring opinion in James v. United States, 366 U.S. 213,252 & n.4 (1961), in which he concluded that the absolute priority statute remains applicable to tax claims notwithstanding the enactment of 26 U.S.C. 6323. He stated that, "even though the tax claim of the Government may be only a general lien, with notice thereof not yet filed in the proper local office pursuant to 26 U.S.C. 6323, we have held that it must be accorded priority over the claims of all prior general lienholders" and it therefore has priority in insolvency cases "over the claims of others, including `judgment creditors." 366 U.S. at 252 & n.4. The Pennsylvania Supreme Court acknowledged (App., infra, 12a n.17) that its decision in this case directly conflicts with numerous federal decisions. Because of these conflicting decisions, taxpayers, creditors and the United States will receive different treatment of identical claims solely as a result of geographical happenstance. b. The Pennsylvania Supreme Court erred in relying on United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979), as guidance the policy considera- tions that underlie the question of whether the gov- ernment in the tax arena is-to be treated as an ordi- nary creditor or as a creditor with super-priority" (App., infra, 7a). The Kimbell Foods case did not in- volve federal tax claims; nor did it involve insolvent debtors. Instead, it involved "the priority to be ac- corded a federal consensual loan where the debtor is solvent" (App., infra, 11a). The Court expressly noted in Kimbell Foods that, when the government is ---------------------------------------- Page Break ---------------------------------------- 15 an involuntary creditor of an insolvent taxpayer, an entirely different set of statutory rules and policy concerns becomes applicable (440 U.S. at 734): That collection of taxes is vital to the function- ing, indeed existence, of government cannot be denied * * * . The importance of securing ade- quate revenues to discharge national obligations justifies the extraordinary priority accorded fed- eral tax liens through the choateness and first-in- time doctrines. By contrast, when ,the United States operates as a moneylending institution under carefully circumscribed programs, its interest in recouping the limited sums advanced is of a different order. Thus, there is less need here than in the tax lien area to provoke protective measures against defaulting debtors in a manner disruptive of existing credit markets. As an involuntary creditor of delinquent taxpayers, the government cannot "control the factors that make tax collection likely." Id. at 736. As a consensual len- der, however, the government acts "voluntarily, with detailed knowledge of the borrower's financial status" (ibid.). Recognizing the significant difference between federal tax liens and the consensual liens created under government loan programs, the Court stated in Kimbell Foods that " `[a]s a quasi-commercial lender, [the government] does not require . , . the special priority which it compels as sovereign' in its tax collecting capacity." 440 U.S. at 737-738, quoting 557 F.2d at 500. The Pennsylvania Supreme Court thus plainly erred in relying on Kimbell Foods in deter- mining the scope of the priority created by statute for the collection of non-consensual debts owed by insol- ---------------------------------------- Page Break ---------------------------------------- 16 vent debtors to the United States "in its tax col- lecting capacity" (440 U.S. at 738). c. The Pennsylvania Supreme Court also erred in concluding that the legislative history of 26 U.S.C. 6323(a) reflects an intent by Congress impliedly to repeal the absolute priority statute. (i) The absolute priority statute is derived from ancient English practice, under which the Crown asserted for itself a priority over all other creditors of an insolvent debtor.* In the United States, this priority of the sovereign initially applied only to debts due on bonds and for customs duties. See Act of July 31, 1789, ch. 5, 21, 1 Stat. 29. By 1797, however, it was made applicable to all debts due the United States from the estate of an insolvent debtor, under a statute whose language has since- remained substantially unchanged. See Act of March 3, 1797, supra; Act of March 2, 1799, ch. 22, 65, 1 Stat. 627. Congress has frequently amended, codified and remodified the absolute priority statute. Indeed, it has done so twice within the past twenty years. In 1978, Congress amended the absolute priority statute to make it inapplicable to bankruptcy cases. See 31 U.S.C. 3713(a)(2); Act of November 6, 1978, Pub. L. No. 95-598, Tit. III, 322(a), 92 Stat. 2562. In 1982, Con- gress recodified the absolute priority statute to make minor revisions in its terminology. See Act of Sep- tember 13, 19827 Pub. L. No. 97-258, Subtit. III, 1, 96 Stat. 972. In doing so, however, Congress noted that no substantive change in the law was intended. H.R. Rep. No. 651, 97th Cong., 2d Sess. 2-3 (1982). Congress has never modified the absolute priority statute to eliminate its application to federal tax ___________________(footnotes) 8 See 33 Hen. VIII, ch. 39, 9 74; 13 Eliz. I, ch. 4. ---------------------------------------- Page Break ---------------------------------------- 17 claims. Indeed, the two most recent amendments reflect that Congress, having repeatedly revisited the statute, has determined to make no changes to its scope other than those expressly enacted. As this Court has often observed, the statute contains as "clear a command" now as ever, United States v. Key, 397 U.S. at 325. (ii) The legislative history of 26 U.S.C. 6323 does not support any conclusion to the contrary. Begin- ning in 1866, Congress established a federal tax lien upon all property owned by a delinquent taxpayer. See 26 U.S.C. 6321; Act of July 13,1866, ch. 184,$9, 14 Stat. 101. In response to a decision of this Court hold- ing that an unrecorded tax lien had priority in a delinquent taxpayer's property even over a purchaser for value without notice (United States v. Snyder, 149 U.S. 210 (1893)), the statute was amended in 1913 to make the tax lien ineffective against a mortgagee, purchaser, or judgment creditor whose interests arose before notice of the tax lien was filed. Act of March 4, 1913, ch. 166,37 Stat. 1016. In 1966, Congress determined to give similar pro- tection to additional types of secured transactions. The Federal Tax Lien Act of 1966, Pub. L. No. 89-719, 80 Stat. 1125, amended the statute to protect holders of various additional types of commercial security interests from an unfiled tax lien. See H. It. Rep. No. 1884, 89th Cong., 2d Sess. 1-2 (1966); S. Rep. No. 1708, 89th Cong., 2d Sess. 1-2 (1966). The legislative his- tory of that Act, however, reflects that these amend- ments to the tax lien statute did not intend to repeal or modify the absolute priority statute-for Congress declined to enact proposals that had been made at that time for that very purpose. The American Bar Asso- ciation, which proposed the legislation that resulted ---------------------------------------- Page Break ---------------------------------------- 18 in the Federal Tax Lien Act, had also proposed that the absolute priority statute be amended to subject that statute to the priorities established under the Bankruptcy Act and the Internal Revenue Code. See American Bar Association, Final Report of the Committee on Federal Liens 7, 124 (1959) (Final Report), contained in Hearings Before the House Committee on Ways and Means on the Priority of Federal Tax Liens and Levies, 89th Cong., 2d Sess. 85, 199 (1959).9 The ABA proposal and report were submitted to Congress, and three bills were intro- duced containing this proposed revision of the abso- lute priority statute. House Hearings, supra, at 75- 88, 196-201. These bills, along with the ABA proposal, died in committee. 105 Cong. Rec. 1020, 1258 (1959) (Index). In 1970, the ABA submitted to the Senate Judiciary Committee a similar proposed amendment to the abso- lute priority statute. S. 2197, 92d Cong., 1st Sess. (1971); see Plumb, The Federal Priority in Insol- vency: Proposals for Reform, 70 Mich. L. Rev. 1, 9-10 (1971). This bill also died in committee. Congress has thus-on at least two occasions- declined to enact legislation-to limit the application of ___________________(footnotes) 9 The ABA proposed to amend the absolute priority statute to "preserve, ahead of the priority of non-lien federal claims, any non-federal lien or security that would have been entitled to priority over the claim of the United States immediately prior to the divestment of the debtor's property" and to "assure, contrary to the suggestions made in some decisions, that any lien which would qualify for priority in the absence of insolvency would continue to enjoy such priority." Final Report, supra, at 124. Under the ABA's proposal, the order of priorities specified in 26 U.S.C. 6323(a) would thus have been applicable in insolvency. ---------------------------------------- Page Break ---------------------------------------- 19 the absolute priority statute to tax claims. As the Ninth Circuit concluded in Nesbitt v. United States, 622 F.2d at 433, aff'g 445 F. Supp. at 829, this history reflects that Congress did not intend to change that statute. To the contrary, by remodifying the absolute priority statute in 1982 without making any change in its application to tax claims, Congress reaffirmed the broad and "clear * * * command" of the statute (United States v. Key, 397 U.S. at 325). The words that Congress has employed in the absolute priority statute remain "broad and sweeping and, on their face, admit of no exception to the priority of claims of the United States" (United States v. Waddill Co., 323 Us. 353,355 (1945)). 3. Whether 26 U.S.C. 6323(a) impliedly repealed application of the absolute priority statute to federal tax claims is a question of substantial, recurring im- portance. The question is frequently raised, fre- quently litigated and often placed in doubt. See App., infra, 12a n.17. Many decisions have agreed that the absolute priority statute remains applicable to tax claims. E.g., Nesbitt v. United Slates, supra; Ken- tucky v. United States, supra; H.B. Agsten & Sons, Inc. v. Huntington Trust & Savings Bank, 388 F.2d 156, 160 (4th Cir. 1967) (Haynsworth, J., concurring), cert. denied, 392 U.S. 1025 (1968); Durham v. United States, 545 F. Supp. 1093, 1096 (D.N.J. 1982), aff'd without opinion, 720 F.2d 661 (3d Cir. 1983); Carter v. Carter, 681 F. Supp. 323,328 (E.D. Va. 1988); Estate of Frazier v. District Director, Internal Revenue Service, 92-2 U.S. Tax Cas. (CCH) 60,120 (N.D. Ga. 1992); Spira v. United States, 76-2 U.S. Tax Cas. (CCH) 9600 (1976); Estate of Silberman 46 Cal. Rptr. 2d 610 (Ct. App. 1995); Back v. IRS, 445 A.2d 1057 (Md. Ct. Apec. App. 1982). ---------------------------------------- Page Break ---------------------------------------- 20 Other decisions, however, have agreed with the con- trary view adopted by the Pennsylvania Supreme Court in this ease. E.g., City of Vermilion v. Stan Houston Equipment Co., 341 F. Supp. 707 (D.S.D. 1972); Talcott, Inc. v. Roto American Corp., 302 A.2d 147 (N.J. Ch. 1973); see also Exchange Bank & Trust Co. v. Tubbs Mfg. Co., 246 F.2d 141 (5th Cir.), cert. denied, 355 U.S. 868 (1957). The question frequently arises in connection with estate proceedings in state courts (e.g., Succession of Nobles, 684 So.2d 973 (La. Ct. App. 1996). This yields an even greater potential for disparate results than ordinarily occurs in federal tax litigation. In the absence of a decision by this Court resolving this conflict, the question whether Section 6323(a) has impliedly repealed application of the absolute priority statute to federal tax claims will continue to foment recurring and wasteful litigation. Disparate treatment of otherwise identically situated taxpayers and creditors would occur, for the applicable rule of priority would then depend upon geographic happen- stance. Resolution of this recurring question by this Court is needed to avoid continuing uncertainty and to assure even-handed application of the revenue laws. ---------------------------------------- Page Break ---------------------------------------- 21 CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. WALTER DELLINGER Acting Solicitor General LORETTA G. ARGRETT Assistant Attorney General LAWRENCE G. WALLACE Deputy Solicitor General KENT L. JONES Assistant to the Solicitor General WILLIAM S. ESTABROOK JOAN I. OPPENHEIMER Attorneys APRIL 1997 ---------------------------------------- Page Break ---------------------------------------- APPENDIX A IN THE SUPREME COURT OF PENNSYLVANIA WESTERN DISTRICT No. 59 W.D. Appeal Docket 1995 IN RE: ESTATE OF FRANCIS J. ROMANI v. APPEAL OF: THE UNITED STATES OF AMERICA Appeal from the Judgment of Superior Court entered at No. 1358 Pittsburgh 1994 on May 12, 1995, affirming the order of the Court of Common Pleas, Cambria County, Orphan's Court Division entered July 7, 1995 at No. 11-94-14 [Argued: Sept. 17, 1996] [Decided: Jan. 17, 1997] OPINION OF THE COURT Before: FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE, NIGRO and NEWMAN, JJ. FLAHERTY, Chief Justice. The United States appeals a judgment of the Supe- rior Court which affirmed an order of the Court of (la) ---------------------------------------- Page Break ---------------------------------------- 2a Common Pleas of Cambria County granting a petition filed by the Estate of Francis J. Romani to transfer real estate in lieu of execution. We affirm. 1 Francis J. Romani, who died on January 13, 1992, left an insolvent estate with debts greatly exceeding the value of the sole asset, a piece of real estate valued at $53,001.00. This real estate is burdened by a judg- ment lien and a federal tax lien. On January 25, 1985, a judgment lien was entered and properly revived against Mr. Romani in favor of Romani Industries, Inc. in the amount of $400,000 Subsequent to the entry of judgment against decedent, the Internal Revenue Service filed notice of a federal tax lien against the decedent for unpaid taxes and an unpaid civil penalty that, with interest, totaled $489,720.04. The administrator of the Estate of Francis J. Ro- mani filed a petition in the Court of Common Pleas of Cambria County to transfer the real estate in lieu of execution on behalf of the judgment creditor, Romani Industries, Inc., and `the United States opposed the petition. Both parties claimed priority to the pro- perty. The lower court granted the administrator's request for relief, holding that the status of Romani Industries, Inc. as a first-in-time judgment lien credi- tor gave it priority over the government's subse- ___________________(footnotes) 1 As the Superior Court noted, although there was no order of final distribution in this case, the practical effect of the court's order was to end the administration of the estate by awarding its sole asset to one of the competing creditors. Therefore, the order is final and appealable. See Estate of Montgomery, 367 Pa. Super. 31,532 A.2d 439 (1987). 2 The original judgment was entered at No. 1985-205 and it was subsequently revived on June 7, 1989. The 1989 judg- ment was entered at No. 1989-1311 and remains unpaid. ---------------------------------------- Page Break ---------------------------------------- 3a quently filed tax lien. Order dated July 7, 1994, Court of Common Pleas of Cambria County, G.D. No. 11-94-14. The Superior Court affirmed per curium. In re Estate of Francis Romani, 445 Pa. Super. 637, 664 A.2d 1064 (1995). This appeal followed. The question presented is whether section 6323(a) of the Tax Lien Act,3 26 U.S.C. 5 6323(a), ("section 6323"), limits the operation of section 3713(a)(l) of the federal insolvency statute, 31 U.S.C. 3713(a)(l), ("section 3713") as to tax debts. 4 Romani Industries, Inc. argues that its judgment lien has priority over a tax claim of the United States because, under section 6323, the holder of a properly entered judgment lien has priority over subsequently filed tax lien debts. The United States disagrees, arguing that it has an absolute priority under section 3713 to all proceeds remaining in an insolvent estate, regardless of the time of filing of the tax liens. Section 6323 provides for a "first in time" priority to the rival lien in federal tax lien matters as follows: ___________________(footnotes) 3 Tax Lien Act of 1966, Pub. L. No. 89-719, 80 Stat. 1125, amending 26 U.S.C. 6323. 4 We addressed this issue in Estate of Berretta, 493 Pa. 441, 426 A.2d 1098 (1981) where an evenly divided plurality held that section 6323 impliedly repealed the operation of the relevant insolvency statute, Revised Statutes $3466, 31 U.S.C. 191, with respect to tax lien debts of a decedent's insolvent estate. Berretta dealt with the relative priority of a "first in time" judgment creditor, a bank, and the United States to certain proceeds remaining from the sale of two parcels of real property included in the insolvent estate of the taxpayer. ---------------------------------------- Page Break ---------------------------------------- 4a Validity And Priority Against Certain Persons (a) Purchasers, Holders of Security Inter- ests, Mechanic's Lienors and Judgment Lien Creditors The lien imposed by section 6321 [a federal tax lien] shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary . . . . 5 Tax liens have been authorized by predecessor tax lien statutes. See, Act of July 13, 1866, ch. 184, 9, 14 Stat. 107. It was not until 1966 with the amendment of section 6323, however, that the statute specified priority rules to resolve conflicts between federal tax liens and rival liens} Section 3713 provides for an absolute priority for federal tax claims in insolvency as follows: Priority Of Government Claims (a)(1) A claim of the United States shall be paid first when- (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all the debts of the debtor. ___________________(footnotes) 5 Section 6321, 26 U.S.C. 6321, creates a lien in "favor of the United States for the amount of tax that anyone has ne- glected to pay on the property belonging to such person. 6 Although section 6323 is undoubtedly a lien statute, it also addresses the priority of federal tax liens against judgment lien creditors. Thus, both statutes address priority of com- peting liens. ---------------------------------------- Page Break ---------------------------------------- 5a The predecessor to section 3713 was Revised Statute 3466,31 U.S.C. 3191, which has been substantially unchanged since 1797. ("section 3466"). See, Act of March of [sic] March 3, 1797 ch. 20,5, 1 Stat. 515. The Court has not decided the question presented. It has cautioned, however, that in considering whether other provisions of the tax lien act operated as implied exceptions to the insolvency statute, "[o]nly the plainest inconsistency would warrant our finding an implied exception to the operation of so clear a command as that of section 3466." United States v. Emory, 314 U.S. 423, 433, 62 S. Ct. 317, 322-23, 86 L.Ed. 315,325 (1941) United States v. Key, 397 U.S. 322, 90 S. Ct. 1049,25 L.E d.2d 340 (1970).8 In Key, the Court said that a reviewing court is to ___________________(footnotes) 7 Emory involved a federally guaranteed loan under the National Housing Act ("NHA"). When the debtor became in- solvent, the United States was owed $5,988.88 as the guarantor of the NHA loan and claimed priority under section 3466. The nonfederal parties claimed "about $900" for wages. The Court held that Section 3466 and the NHA were not plainly incon- sistent because there was no provision in the NHA that ex- pressly relinquished the priority of the United States with respect to claims arising under it. 314 U.S. at 430, 62 S.Ct. at 321, 86 L.Ed. at 323. 8 Key involved a bankruptcy reorganization plan that pro- vided for payment of claims of unsecured creditors before full payment of the federal tax claims. The Court found that section 3466 prevailed because no inconsistency existed between that section and three relevant sections of the Bankruptcy Act which required that the United States be paid its taxes under a reorganization plan. The Court concluded that neither the requirement that the United States be paid nor the require- ment that the payment be fair and equitable conflicted with the command of section 3466 that the United States be paid first. 397 U.S. at 328-29, 90 S. Ct. at 1053,25 L.Ed.2d at 346-47. ---------------------------------------- Page Break ---------------------------------------- 6a determine whether the statutes are facially incon- sistent and, if so, whether the legislative history of the competing statute reflects a congressional intent to modify the effect of the insolvency statute. Id. at 324,90 S. Ct. at 1051,25 L.Ed.2d at 344 (1970).9 The first issue is whether there is a plain incon- sistency between the priority of section 6323 and the absolute priority granted the United States by section 3713. Here, the government's relative prior- ity as a creditor differs depending on which section is applied. Section 6323 states that nonfederal claims that have been duly filed prior to the filing of the federal tax claim are valid as against federal tax claims. On the other hand, section 3713 gives an absolute priority to the United States against other creditors of insolvent debtors for tax liens regardless of when the tax lien was filed. We are constrained to find a facial inconsistency because, with respect to tax liens, section 6323 provides for a "first in time" ___________________(footnotes) 9 We could utilize a principle of statutory construction to resolve the conflict and conclude that section 6323 limits section 3713. That principle is that a conflict between various statutes is to he avoided and, if possible, the apparent conflicting pro- visions must be construed together with the more specific provisions prevailing over the general ones. Busic v. United States, 446 U.S. 398, 100 S. Ct. 1747, 64 L.Ed.2d 381 (1580); Morton v. Mancari, 417 U.S. 535, 94 S. Ct. 2474, 41 L. Ed.2d 290 (1974). Here, section 6323 is the more specific provision be- cause it applies only to federal tax liens, whereas section 3713 is the more general provision in that it applies to any unpaid claim of the government against an insolvent debtor. There- fore, applying this principle of statutory construction, the general provisions of section 3713 are limited by the specific provisions of section 6323. ---------------------------------------- Page Break ---------------------------------------- 7a priority while section 3713 gives absolute priority to the United States. 10 Since we have determined that the statutes are plainly inconsistent, we next address whether the Tax Lien Act of 1966 evidences a congressional intent that federal priorities in insolvency be limited in the tax area. We look to United States v. Kimbell Foods, Inc., 440 U.S. 715,99 S. Ct. 1448,59 L.Ed.2d 711 (1979) as the most recent expression of the Court on the policy considerations that underlie the question of , whether the government in the tax arena is to be treated as an ordinary creditor or as a creditor with super-priority. In Kimbell Foods, the Court held that Congress intended that the "first in time is first in right" principle of section 6323 applied in federal government lending cases involving solvent debtors. 11 ___________________(footnotes) 10 The United States argues, and other courts have held, that no plain inconsistency exists between the statutes. See, e.g., Carter v. Carter and T-Cas of America, Inc., 681 F .Supp. 323, 326 (E.D. Va. 1988) where the court said that because Con- gress was silent on the matter, the court would infer that Congress intended the Tax Lien Act of 1966 to supplement section 3713 and not to displace it so that in certain cases of taxpayer insolvency, section 3713 governs, and in all other cases, section 6323 controls. We disagree with this conclusion and find support in other federal cases. See note 17, infra. 11 In Kimbell Foods, O.K. Super Markets, ("O.K.") bor- rowed, during 1968, $27,000 from Kimbell Foods. The parties executed security agreements containing a standard "dragnet" clause that provided that the collateral would secure future advances from Kimbell Foods. Kimbell Foods properly per- fected its security interest. In February, 1969, O.K. borrowed $300,000 from Republic National Bank, ("bank") with the bank accepting as security the same property specified in Kimbell Foods' 1968 agree- ---------------------------------------- Page Break ---------------------------------------- 8a The Court ruled that government lending agencies, such as the Small Business Administration, are to be afforded the same priority as private lenders under non-discriminatory state laws, absent a congressional directive to the contrary. 440 U.S. at 740, 99 S. Ct. at 1465,59 L.Ed.2d at 731. The Court articulated two reasons for its holding. First, Congress, by the passage of the Tax Lien Act of 1966, expressed its disapproval of "unrestricted federal priority" in tax matters. 440 U.S. at 738, 99 S. Ct. at 1463, 59 L.Ed.2d at 730. See, 26 U.S.C. 6323(b), (c), (d), and (e). The Court explained that, ___________________(footnotes) ments. The bank perfected its security interest. The Small Business Administration ("SBA") guaranteed 90% of this loan under the Small Business- Act, which does not, in this situation, specify priority rules to govern the SBA's security interests. O.K. used the bank loan to satisfy the remainder of the 1968 obligation to Kimbell Foods and to discharge a debt for in- ventory purchased from Kimbell Foods on open account. In late 1970, the bank assigned its security interest to the SBA. O.K. defaulted on the SBA-guaranteed loan shortly before mid- January, 1971. Kimbell Foods continued to sell to O.K. on open account until the debt was over 18,258.57 on January 15, 1971, when Kimbell Foods sued O.K. to recover on its inventory debt. The SBA recorded the bank's assignment on January 21, 1971. The United States honored its guarantee on the defaulted loan and paid the bank 90% of the outstanding debt on February 3, 1971. That same day, O.K., with the approval of its creditors, sold its equipment and inventory and placed the proceeds in escrow pending the resolution of the competing claims to the funds. A year later, the state court entered judgment against O.K. and awarded Kimbell Foods $24,445.37, which represented the inventory debt and other items. Kimbell Foods then brought suit in early 1972 in federal court to foreclose on its lien, claim- ing it had a security interest in the escrow fund that was superior to the SBA's interest. ---------------------------------------- Page Break ---------------------------------------- 9a prior to the 1966 law, it had formulated the "choate lien'' test which modified the "first in time is first in right" idea by requiring that the nonfederal lien be sufficiently specific and perfected to overcome the priority of the United States in insolvency cases. 440 U.S. at 720, 99 S. Ct. at 1454, 59 L.Ed.2d at 719.12 The practical effect of the choateness test, the Court said, was that rival liens were defeated because they failed to pass its strict test. Id. 13 The Court concluded that the Tax' Law of 1966 reflected congressional intent to disapprove unrestricted federal priority in tax matters'4 and to displace the "choateness" doctrine. ___________________(footnotes) 12 The Court also stated that it applied the choateness doc- trine in the solvency context to give federal tax liens special priority. See United States v. Security Trust & Savings Bank, supra, 340 U.S. at 51, 71 S. Ct. at 111, 95 L.Ed. at 53. For a discussion of the history of the choate lien test, see Kennedy, The Relative Priority of the Federal Government: The Perni- cious Career of the Inchoate and General Lien, 63 Yale L.J. 905 (1954). Kimbell Foods, 440 U.S. at 721 n. 8, 99 S. Ct. at 1454 n. 8, 59 L.Ed2d at 719 n. 8. 13 We observe that the Court has not yet held that a perfected and specific lien is excepted from the operation of section 3466 or section 3713. Rather, the Court has raised but avoided the issue in cases before 1966 by holding that the asserted lien was not sufficiently perfected and specific to qualify under any possible exception. See, United States v. Gilbert Associates, Inc., 345 U.S. 361, 73 S. Ct. 701, 97 L. Ed. 1071 (1953); Illinois v. Campbell, 329 U.S. 362, 67 S. Ct. 340, 91 L. Ed. 348 (1946); United States v. Waddill, Holland & Flinn, Inc., 323 U.S. 353, 65 S. Ct. 304, 89 L. Ed. 294 (1945); United States v. Texas, 314 U.S. 480,62 S. Ct. 350, 86 L.Ed. 356 (1941); and, New York v. Maclay, 288 U.S. 290, 53 S. Ct. 323, 77 L. Ed. 754 (1933). 14 The Court further explained that . . . Of particular relevance here, the Act added mechanic's liens to the list of private interests already protected ---------------------------------------- Page Break ---------------------------------------- 10a 440 U.S. at 720 n. 6,99 S. Ct. at 1454 n. 6, 59 L. Ed.2d at 719 n. 6. 15 Second, the Court explained that restrictions on federal tax lien priority are necessary to facilitate commercial stability and to avoid the frustration of expectations of superior lien holders. The Court recognized that federal lien priority undercuts the reliability of the notice filing system, which plays a crucial role in commercial dealings. 440 U.S. at 739 n. 42,99 S. Ct. at 1464 n. 42,59 L. Ed.2d at 731 n. 42. Prior creditors either have no trustworthy means of dis- covering the undisclosed security interest or, if they are aware of the federal lien, have to adjust ___________________(footnotes) against unrecorded tax liens. 26 U.S.C. 6323(a). Holders of conseneual security interests also receive priority over unrecorded tax liens. Ibid. Moreover, the Act gives priority to many types of nonfederal liens even when the Government had filed notice of the tax lien. 6323(b). Included in this group are repairman's liens in personal property, S 6323(b)(5), . . . and in limited situations, liens securing advances. 6323(c). 440 U.S. at 738 n. 41, 99 S. Ct. at 1464 n. 41, 59 L. Ed.2d at 730 n. 41. 15 We also note that the legislative history of the Tax Lien Act of 1966 indicates a Congressional intent that priority to the "first in time" lien exists whether a lien was "choate" or not. See Senate Finance Committee's Report 1708 which stated: [I]t is intended that, under the bill, the various types of interests defined in this provision are to have a priority over a nonfiled Federal tax lien if they come within the definitions of these terms [e. g., "purchaser," "judgment lien creditor," etc.] . . . whether or not in all other regards they are definite and complete at the time notice of the tax lien is filed. U.S. Code Congressional and Administrative News, 89th Con- gress, 2d Sess., v. 3,1966,3722,3724-25. ---------------------------------------- Page Break ---------------------------------------- 11a their lending arrangements to protect against the stringent choateness requirements. Id. 16 Further, the Court said, considerable uncertainty would also result from the choateness approach because the development of priority rules on a case-by-case basis, depending on the types of competing liens involved, leaves creditors without a definite body of law they require in structuring sound business transactions. Id. For these reasons, the Court concluded, Congress intended that restrictions on federal tax lien priority exist. Although Kimbell Foods involves the priority to be accorded a federal consensual loan where the debtor is solvent, and the case at bar involves the question of the priority to be accorded a federal tax lien where the debtor is insolvent, we believe that Kimball Foods and other cases 17 provide guidance as to how the ___________________(footnotes) 16 Judge Haynsworth observed that the Tax Lien Act of 1966 would be essentially meaningless if the insolvency statute always prevailed. See, the concurring opinion of Judge Hayns- worth in H.B. Agsten & Sons, Inc. v. Huntington Trust & Savings Bank, 388 F.2d 156, 161 (4th Cir. 1967), cert. den. 390 U.S. 1025, 88 S.Ct. 1413,20 L.Ed.2d 282 (1968): . . . The question of priorities [between section 6323 and section 3713] is wholly or largely academic, unless the debtor is insolvent, and the clearly stated purpose of the Federal Tax Lien Act of 1966 was to regulate the priority of federal tax claims when competing for payment out of the assets of an insolvent taxpayer with secured claims which would enjoy priority under state law. 17 See United States v. Randall, 401 U.S. 513, 91 S. Ct. 991, 28 L.Ed.2d 273 (1971) (specific priorities of the Bankruptcy Act override the general priority of the United States under section 3466). See also, United States v. S.K.A. Associates, Inc., 600 F.2d 513 (5th Cir. 1979) (SBA lien in an insolvency held not entitled to priority under section 3466); United States ---------------------------------------- Page Break ---------------------------------------- 12a federal courts would resolve the case at bar. 18 Here, there is a plain inconsistency between the competing ___________________(footnotes) v. Burlington Industries, 600 F.2d 517 (5th Cir.1979) (contest between federal agency's security interest and a warehouseman to be decided under nondiscriminatory state law); City of Ver- milion, S.D. v. Stan Houston Equipment Co., 341 F. Supp. 707, 713 (D.S.D. 1972). Court decisions announced before the tax Lien Act of 1966 support an opposite result. While we do not disregard these cases, we believe that Congressional enactments in the federal tax lien area place the older cases in a less persuasive per- spective. See United States v. Vermont, 377 U.S. 351, 84 S. Ct. 1267, 12 L.Ed.2d 370 (1964) (in dictum: section 3466 applies to all an insolvent's debts to the government, whether or not arising from taxes); United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L. Ed. 520 (1954) (in dictum: section 3466 imposes an absolute in insolvency, but not applied because the record did not establish that the debtor was insolvent); United States v. Gilbert Associates, Inc., 345 U.S. 361, 73 S.Ct 701, 97 L.Ed. 1071 (1953) (United States tax lien held to have priority under section 3466); United States v. Security Trust and Savings Bank, 340 U.S. 47171 S.Ct. 111, 95 L. Ed. 53 (1950) (in dictum: section 3466 permits no exception and applies to all debts of the United States whether or not arising from taxes whether or not secured by a lien). We also are not persuaded by the reasoning of other federal courts that have held that section 3713 provides for absolute priority in tax lien cases for, we believe, those courts did not adequately address the policy considerations weighed in Kimbell Foods. See, e.g., Jonathan's Landing, Inc. v. Town- send, 960 F.2d 1538 (11th Cir. 1992); Westmoreland v. West- moreland, Executrix, and the United States, 716 F. Supp. 217 (D.S.C. 1988); Carter v. Carter and T-Cas of America, Inc., 681 F. Supp. 323 (E.D. Va. 1988) and Nesbitt v. u. S., 445 F.Supp. 824 (N.D. Cal. 1978). 18 Since we are construing federal statutes, federal law con- trols. A state cannot impair the standing of federal liens without the consent of Congress. United States v. City of New ---------------------------------------- Page Break ---------------------------------------- 13a statutes. Also, the Tax Lien Act of 1966 evidences a congressional intent that federal priorities be limited in the tax area, regardless of whether the debtor is insolvent. Further, to hold otherwise would frustrate the congressional purpose by defeating in insolvency the very interests that were specifically protected against federal priority in non-insolvency situations. Finally, the grant of absolute federal priority in insolvency cases, as in solvency eases, would be de- structive of commercial stability and would frustrate legitimate commercial expectations. We hold, there- fore, that section 6323 limits the operation of section 3713 as to tax debts. 19 Order affirmed. Messrs. Justice Castille and Nigro concur in the result. JUDGMENT ENTERED THIS 17TH DAY OF JANUARY, 1997, /s/ CANDACE FRY CHIEF CLERK ___________________(footnotes) Britain, 347 U.S. 81, 84, 74 S. Ct. 367, 369, 98 L.Ed. 520, 525 (1954). 19 Finally, the United States argues that the lien of Romani Industries, Inc. was not sufficiently specific and perfected to displace the first priority of the United States under section 3713. Since this issue was not addressed by the lower courts, it is inappropriate for us to consider it at this time. ---------------------------------------- Page Break ---------------------------------------- 14a APPENDIX B SUPERIOR COURT OF PENNSYLVANIA PITTSBURGH DISTRICT No. 1358 PITTSBURGH 1994 IN RE: ESTATE OF FRANCIS J. ROMANI v. APPEAL OF: THE UNITED STATES OF AMERICA JUDGMENT ON COSIDERATION WHEREOF, it is now here ordered and adjudged by this Court that the judgment of the Court of Common Pleas of Cambria County be, and the same is hereby affirmed. BY THE COURT: /s/ ELEMYOR R. VALECHO DEPUTY PROTHONTARY DATED: May 12,1995 ---------------------------------------- Page Break ---------------------------------------- 15a IN THE SUPERIOR COURT OF PENNSYLVANIA No. 1358 PITTSBURGH 1994 IN RE: ESTATE OF FRANCIS J. ROMANI v. APPEAL OF: THE UNITED STATES OF AMERICA Appeal from the Order Entered July 7, 1994 in the Court of Common Pleas, Orphans Division Cambria County, No. G.D. No. 11-94-14 [MAY 12, 1995] MEMORANDUM Before: CAVANAUGH, JOHNSON and SAYLOR, JJ. This is an appeal by the United States from an order granting appellee's petition to transfer real estate in lieu of execution. We affirm.1 ___________________(footnotes) 1 Although there was no order of final distribution in this case, the practical effect of the court's order was to end the administration of the estate by awarding its sole asset to one of the competing creditors. Therefore the order is final and appealable. Estate of Montgomery, .367 Pa. Super. 31, 531 A.2d 439 (1987). ---------------------------------------- Page Break ---------------------------------------- 16a Francis J. Romani, the decedent, died on January 13, 1992. Prior to his death, on January 25, 1985, a judgment lien was entered against him in favor of Romani Industries Inc. in the amount of $400,000. The judgment was entered at No. 1985-205. The judg- ment was subsequently revived on June 7, 1989. It was entered at No. 1989-1311, and remains unpaid. The sole asset of the decedent's estate is a piece of real estate valued at $53,001. The estate is insolvent, as its debts greatly exceed the value of this sole asset. Subsequent to the entry of judgment against dece- dent, the Internal Revenue Service filed notice of a federal tax lien against the decedent for unpaid taxes and an unpaid civil penalty, that with interest totaled $489,720.04. The administrator of the estate filed a petition to transfer real estate in lieu of execution on behalf of the judgment creditor, Romani Industries, Inc. The United States opposed the petition. A hearing was conducted on April 141994, at which time the argu- ments of counsel were heard. Romani Industries, Inc. claimed priority pursuant. to the Federal Tax Lien Act, 26 U.S.C. 6323(a) which provides that a federal tax lien shall not be valid against a judgment lien creditor until notice thereof has been properly filed.' On `the other hand, the ___________________(footnotes) 2 The Federal Tax Lien Act provides in pertinent part: 6323. VALIDITY AND PRIORITY AGAINST CER- TAIN PERSONS. (a) Purchasers, holders of security interests, mechanic's lienors and judgment lien creditors. - The lien imposed by section 6321 [a federal tax lien] shall not be valid against any purchaser, holder of a security ---------------------------------------- Page Break ---------------------------------------- 17a United States claimed priority pursuant to the Federal Insolvency Statute, 31 U.S.C. 3713(a)(l)(B), which provides that the United States is entitled to first priority among creditors of an insolvent estate? The court granted the petition, holding that Romani Industries' status as a first in time judgment lien creditor gave it priority over the government's subsequently filed tax lien. The court based its decision, in part, on In Re Estate of Berretta, 453 Pa. 441, 426 A.2d 1098 (1981), a case in which an evenly divided plurality of the Pennsylvania Supreme Court held that Section 6323 of the Federal Tax Lien Act impliedly repealed Section 3713 of the Federal In- solvency Statute: The present appeal by the United States follows and requires us to determine which statute should properly be given effect. ___________________(footnotes) interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets with the requirements of subsection (f) has been filed by the Secretary. 26 U.S.C. 6323(a). 3 The Federal Insolvency Statute provides in pertinent part: 3713. PRIORITY OF GOVERNMENT CLAIMS. (a)(1) -a claim of the United States government shall be paid first when- (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all the debts of the debtor. 31 U.S.C. 3713(a)(l)(B). 4 We are, of course, not bound by this decision, as an equally divided plurality decision has no binding precedential value as a ruling on the merits. Commonwealth v. Rightnour, 469 Pa. 107, 364 A.2d 927 (1976); Commonwealth v. Covil, 474 Pa. 375, 378 A.2d 841 (1977). ---------------------------------------- Page Break ---------------------------------------- 18a We initially note that since we are construing federal statutes, federal law controls. See United States v. New Britain, 347 U.S. 81, 74 S. Ct. 367, 98 L.Ed. 510 (1953) (a state cannot impair the standing of federal liens without the consent of Congress). The United States Supreme Court has never squarely considered the question whether Section 6323 con- stitutes an implied exception to the Insolvency Statute. It has, however, had occasion to consider whether other provisions operate as implied excep- tions. In so doing, the Court has held that "[o]nly the plainest inconsistency would warrant our finding an implied exception to the operation of so clear a command as that of [Section 3713 of the Insolvency Statute]." United States v. Emory, 314 U.S. 423,433, 62 S. Ct. 317,322-23,66 L.Ed. 315 (1941). In United States v. Key, 397 U.S. 322,90 S. Ct. 1049, 25 L.Ed 340 (1970), a case cited by the United States to support its argument for priority status, the Supreme Court considered whether a "plainest incon- sistency' existed between the Insolvency Statute and Chapter X of the Bankruptcy Act. In deciding that no such inconsistency existed, the Court set forth a three part test to be used in determining whether a "plainest inconsistency" exists sufficient. to warrant an implied exception to federal priority in insolvency. Applied to the present case, the test requires that in order to establish the existence of a "plainest inconsistency" between the statutes, it must be dem- onstrated that 1) the Insolvency Statute and Section 6323 are facially inconsistent; or 2) an unconditional application of the Insolvency Statute would render Section 6323 meaningless; or 3) the legislative his- ---------------------------------------- Page Break ---------------------------------------- 19a tory of Section 6323 reflects a Congressional intent to, modify the effect of the Insolvency Statute. The United States argues that none of these three criteria are met, and that, therefore, Section 6323 contains no implied exception to the Insolvency Stat- ute. In particular, the United States argues that, as regards the first prong of the test, the two statutes are not facially inconsistent. It avers: Section 3713 and Section 6323 are not facially in- consistent. Section 6323(a) is a lien statute which applies regardless of the solvency of the debtor and protects enumerated third parties from un- recorded federal tax liens when the debtor conveys property. The Federal Insolvency Statute, on the other hand, is a priority statute, not a lien statute, and encompasses all federal claims. We find this argument unpersuasive. Rather, our review persuades us that both sections clearly ad- dress the question of the federal government's prior- ity as a competing creditor. Although the Federal Tax Lien Act is undoubtedly a lien statute, Section 6323 thereof clearly addresses the priority of federal tax liens against judgment lien creditors. Similarly, the Insolvency Statute addresses the priority of all federal claims against other creditors of insolvent debtors. In the present context there can be no dispute that the government's relative priority as a creditor differs depending upon which section is applied. Since this inconsistency between the respec- tive statute sections produces conflicting results, we are constrained to find that the statute sections in question are arguably facially inconsistent, and are, most certainly, conflicting. We therefore turn to ---------------------------------------- Page Break ---------------------------------------- 20a traditional rules of statutory construction to resolve the conflict. It is a familiar and time honored principle of statu- tory construction that a conflict between various statutes is to be avoided and if possible the apparent conflicting provisions must be construed together with the more specific provisions prevailing over the general ones. Townsend v. Little, 109 U.S. 504, 3 S. Ct. 357, 27 L.Ed. 1012 (1883); Kepner v. United States, 195 U.S. 100,24 S. Ct. 797,49 L.Ed. 114 (1904); Bulova Watch Co. v. United States, 365 U.S. 753, 81 S.Ct. 864, 6 L. Ed.2d 72 (1961); Morton v. Mancari, 417 U.S. 535,94 S. Ct. 2474,41 L.Ed.2d 290 (1974); Busic v. United States, 446 U.S. 398, 100 S. Ct. 1747, 64 L.Ed.2d 381 (1980). In the case sub judice, Section 6323 is the more specific provision because it applies only to federal tax liens, whereas the Insolvency Statute is the more general provision in that it applies to any unpaid claim of the government against an insolvent debtor. Therefore, the general provisions of Section 3713 of the Insolvency Statute must be limited by the specific provisions of Section 6323 of the Federal Tax Lien Act. For this reason, we conclude that the court's determination that Romani Industries, Inc. possessed priority over the United States by virtue of its status as a first in time judgment lien creditor was proper. We affirm the court's grant of Romani Industries Inc's petition to transfer real estate in lieu of execution. Order affirmed. ---------------------------------------- Page Break ---------------------------------------- 21a APPENDIX C IN THE COURT OF COMMON PLEAS OF CAMBRIA COUNTY, PENNSYLVANIA ORPHANS COURT DIVISION No. 11-94-14 IN RE: THE ESTATE OF FRANCIS J. ROMANI APPEARANCES: FOR ESTATE: Lawrence L. Davis 103 S. Center St. Ebensburg, PA 15931 FOR INTERNAL REVENUE SERVICE: Angelo A. Frattarelli Trial Attorney, Tax Division U.S. Dept. of Justice Washington, D.C. 20044 OPINION AND ORDER Before: THE HONORABLE THOMAS A. SWOPE, JR., JUDGE OF THE FORTH-SEVENTH JUDICIAL DISTRICT OF PENNSYLVANIA This matter is before the court on a Petition To Transfer Real Estate In Lieu Of Execution filed by the Administrator of the above captioned estate, on behalf of the creditor, Romani Industries, Inc. The United States opposes the Petition. A hearing was held on April 18, 1994, at which time arguments of counsel were heard. The court grants the Petition. ---------------------------------------- Page Break ---------------------------------------- 22a The facts in this case are not in question. The decedent died on January 13,1992. Prior to his death, on January 25, 1985 a judgement was entered against the decedent in favor of Romani industries, Inc. in the amount of $400,000. The judgement was entered to No. 1985-205 and was subsequently revived on June 7, 1989, entered to No, 1989-1311. No amount of the judgement has been paid. Romani Industries, Inc. is the first in time judgement lien creditor. The sole known asset of the Estate is a piece of real estate located in Portage Borough, valued at $53,001.00. The Internal Revenue Service holds a tax lien, filed after Romani Industries, Inc. perfected its lien. The assets of the estate are completely inadequate to satisfy the debts of the estate. The issue to be resolved is "whether the United States' tax lien has priority over the first in time judgement lien of Romani Industries, Inc. Romani Industries argues it has priority pursuant to the Federal Tax Lien Act, which provides in relevant park (a) Purchases, holders of security interests, me- chanic's lienors and judgement lien creditors The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgement creditor until notice thereof which meets the requirements of subsection (f) has been fled by the Secretary or his delegate. 26 U.S.C. 6323. Concomitantly, the United States argues that it has priority by virtue of the Insolvency Statute, which states in pertinent part: (a)(l)-a claim of the United States government shall be paid first when- ---------------------------------------- Page Break ---------------------------------------- 23a (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor. 31 U.S.C. 3713. This exact issue was addressed in In re Barretta, 493 Pa. 441 (1981), in which a plurality of the Supreme Court held that a judgement lien creditor had priority over a federal tax lien where the judgement lien was first in time. The plurality concluded that a plain inconsistency exists between the two statutes. Id. at 457. In addition, "the Tax Lien Act evidences a Congressional intent that federal priority be limited in the tax area," whereby the Act impliedly repeals the absolute federal priority of the Insolvency Statute as to tax debts owed to the United States. Id. The court reasoned that the United States Supreme Court had restricted federal priority in federal lending cases for reason which are equally applicable in tax lien cases. Id. Moreover, "to grant absolute federal priority would be destructive of commercial stability and would frustrate legitimate commercial expectations." Id.. This court adopts the reasoning of the plurality in Barretta. As a matter of statutory construction, specific statutory provisions should prevail over con- flicting general provisions. In re Meyer's Estate, 159 Pa. Super. 296, 305 (1946). The Insolvency Statute is a general mandate for federal priority in insolvency situations. However, the subsequently enacted Tax Lien Act specifically addresses the priority of federal tax liens. In the case sub judice, a different result would be reached depending on whether the Act or the Statute is applied. Faced with this conflict, the Act should be applied because it was enacted to govern tax ---------------------------------------- Page Break ---------------------------------------- 24a debts specifically, whereas the Statute references federal debts generally. The court finds the argument, advanced by the dis- sent in Baretta, that the an unconditional application of the Insolvency Statute would not preclude the meaningful operation of the Tax Lien Act, untenable. Attempting to fit the Tax Lien Act into the legal gaps in the Insolvency Statute limits the tax lien priori- ties arbitrarily, so that they bear little relation to the intended scope of the Act. To limit the operation of the Tax Lien exclusively to cases involving solvent tax debtors, would render the lien priorities meaning- less, as the issue of priority is moot if the debtor possessed sufficient assets to satisfy all claims. Indeed, the question of lien priorities is significant only when the debtor is insolvent. Consequently, interpreting the Tax Lien Act so as to avoid conflict with the Insolvency Statute would effectively reduce the Act to little more than an academic exercise. The effect of the Tax Lien Act is to promote commercial stability by assuring members of the favored classes, as set forth in the Act, such as judgement lien creditors, that their legitimate secu- rity interests in the property of a debtor will not be disturbed by the existence of an unrecorded federal tax lien. Eliminating this assurance in insolvency cases "would undercut the reliability of the notice filing system, which plays a crucial role in com- mercial dealings." Barretta, 493 Pa. at 455. Other- wise, the fundamental unfairness of denying the un- suspecting and innocent lien holder priority over a subsequent federal tax lien frustrates legitimate commercial expectations, thereby preventing the exercise of reasonable business forethought. The Tax Lien Act by its very language is designed to ---------------------------------------- Page Break ---------------------------------------- 25a protect certain classes of creditors from the reach of later filed tax liens and promote commercial dealings. ACCORDINGLY THE FOLLOWING ORDER IS ENTERED. ---------------------------------------- Page Break ---------------------------------------- 26a IN THE COURT OF COMMON PLEAS OF CAMBRIA COUNTY, PENNSYLVANIA ORPHANS COURT DIVISION No. 11-94-14 IN RE: THE ESTATE OF FRANCIS J. ROMANI ORDER Before: THE HONORABLE THOMAS A.. SWOPE, JR., JUDGE OF THE FORTH-SEVENTH JUDICIAL DISTRICT OF PENNSYLVANIA AND NOW, this 7th day of July, 1994, it is hereby ORDERED and DECREED that the Petition To Transfer Real Estate In Lieu Of Execution is GRANTED. BY THE COURT /s/ SWOPE THOMAS A. SWOPE, JR., JUDGE