Sunz Insurance Company v. U.S. Treasury Department, Internal Revenue Servic
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 22-12336 (11th Circuit, Jan 08,2025) Published
- Tag(s):
-
- Ruling:
- A federal tax lien attaches to all of a debtor's assets and has priority from the date on which notice of the lien is filed. As a result, a secured creditor's security interest, even though perfected before the date on which the notice of lien is filed, may be junior to the federal tax lien if the creditor's security interest does not attach until after the filing date of the federal tax lien.
- Procedural context:
- Sunz Insurance Company, a secured creditor of the debtor, filed an adversary proceeding seeking a declaration that its perfected security interest had priority over the federal tax lien of the Internal Revenue Service. The bankruptcy court disagreed, and Sunz appealed to the district court.
The district court affirmed, and Sunz appealed to the United States Court of Appeals for the Eleventh Circuit.
- Facts:
- Payroll Management, Inc. ("PMI"), a staffing company in Fort Walton Beach, Florida, filed a chapter 11 bankruptcy petition. After the commencement of its case, PMI received more than $1 million in compensation from British Petroleum, Inc. ("BP") for damages from the Deepwater Horizon oil spill. PMI received this compensation after filing a claim in 2012 in the Deepwater Horizon multidistrict litigation ("MDL"). In exchange for this compensation, PMI signed a settlement agreement with BP's claim agent five months after the commencement of its chapter 11 case (approximately August 2018).
After filing its claim in the Deepwater Horizon MDL, PMI's financial condition deteriorated. Starting in 2013, PMI failed to make federal tax payments on its employees. By 2015, PMI struggled to pay its employees' workers' compensation claims.
In October 2015, PMI sought workers' compensation insurance to cover its liability for its employees. Sunz Insurance Company ("Sunz") agreed, requiring PMI to grant Sunz a quasi-blanket security interest in PMI's assets. The security interest attached to PMI's business assets, including "all tangible and intangible property which is or may be used in the business" and "existing contracts and policies." Sunz perfected its security interest by filing the security agreement with the Florida Secured Transaction Registry.
While waiting for compensation from BP for the Deepwater Horizon oil spill damages, PMI defaulted on its payment obligations to Sunz and failed to pay more federal employment taxes.
In March 2017, the IRS filed a $23 million tax lien notice against PMI with the Florida Secretary of State.
PMI then filed its chapter 11 petition, and Sunz filed a complaint in the bankruptcy court seeking a declaration that it had a first-priority security interest in the compensation. The IRS argued that its federal tax lien had priority, even though its notice of lien was not filed until 16 months later, because the Sunz security interest did not attach to PMI's tort claim and its proceeds. The IRS argued that its federal tax lien did attach to PMI's tort claim and its proceeds.
The bankruptcy court agreed, holding that (1) PMI's tort claim did not become a contract until PMI executed the settlement agreement with BP, (2) the federal tax lien attached to the tort claim itself, and (3) Sunz's security interest did not attach to the tort claim. Thus, the federal tax lien notice, filed in 2017, attached before the date on which Sunz's security interest attached to the settlement agreement (i.e., August 2018).
- Judge(s):
- RANCH and LUCK, Circuit Judges, and BERGER, District Judge
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