233 F.3d 358 (6th Cir. 2000), 99-1734, Craft v USA

Docket Nº:99-1734, 99-1737
Citation:233 F.3d 358
Party Name:Sandra L. Craft, Plaintiff-Appellee/Cross-Appellant, v. United States of America, acting through the Commissioner of Internal Revenue, Defendant-Appellant/Cross-Appellee.
Case Date:November 22, 2000
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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233 F.3d 358 (6th Cir. 2000)

Sandra L. Craft, Plaintiff-Appellee/Cross-Appellant,

v.

United States of America, acting through the Commissioner of Internal Revenue, Defendant-Appellant/Cross-Appellee.

Nos. 99-1734, 99-1737

United States Court of Appeals, Sixth Circuit

November 22, 2000

Argued: August 10, 2000

Appeal from the United States District Court for the Western District of Michigan at Grand Rapids. No. 93-00306--Gordon J. Quist, District Judge.

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Jeffrey Alan Moyer, DONOVAN, LOVE & TWINNEY, Grand Rapids, Michigan, for Appellee.

Joan I. Oppenheimer, David English Carmack, U.S. DEPARTMENT OF JUSTICE, APPELLATE SECTION TAX DIVISION, Washington, D.C., for Appellant/Cross-Appellee.

COLE, J., delivered the opinion of the court, in which KEITH, J., joined. GILMAN, J. (pp. 376-79), delivered a separate opinion concurring in the judgment.

Before: KEITH, COLE, and GILMAN, Circuit Judges.

OPINION

R. GUY COLE, JR., Circuit Judge.

This case is before us for the second time. In Craft v. United States, 140 F.3d 638 (6th Cir. 1998) (hereinafter, "Craft I"), we held that a federal tax lien against Plaintiff-Appellee Sandra L. Craft's now-deceased husband, Don, did not attach to property held by the couple in a "tenancy by the entirety" under Michigan law. On remand, the district court found that Defendant-Appellant the United States of America ("IRS," or "the government") was nonetheless entitled to $6,693 with which Don had fraudulently enhanced the entireties property. Now, the IRS appeals the district court's judgment on the basis that the Craft I panel misconstrued the law. Sandra responds that the IRS is precluded from raising this argument on appeal by the "law of the case" doctrine and other principles. Sandra also raises a number of claims in a cross-appeal. For the following reasons, we DISMISS the IRS's effort to overturn Craft I as precluded by both the law of the case doctrine and the rule that one panel of this court may not overrule the prior decision of another panel. We AFFIRM the decision of the district court regarding Sandra's claims.

I. BACKGROUND

The essential facts of the case are as follows1. In May 1972, Sandra Craft and

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her husband, Don, purchased real property (known as the "Berwyck Property," for the road on which it was located) in Michigan as tenants by the entirety. Craft I, 140 F.3d at 639. Don failed to file federal income tax returns for tax years 1979 through 1986, and, in July 1988, the IRS assessed $482,446.73 against him in unpaid tax liabilities. Id. Don failed to pay his tax debts, and the IRS filed a notice of federal tax lien in March 1989 against all of Don's property and rights to property. Id.; see also I.R.C. §6321. Don was insolvent during the period from April 1980 through August 1989.

On August 28, 1989, Don and Sandra transferred the Berwyck Property to Sandra by way of a quitclaim deed, in exchange for one dollar. Craft I, 140 F.3d at 639. In June 1992, Sandra sold the property to a third party for $119,888.20. Id. at 640. Pursuant to an agreement between Sandra and the IRS, Sandra kept half of the proceeds ($59,944.10); the other half was placed in a non-interest-bearing escrow account, subject to the same right, title, and interest that the federal tax lien had on the property. Id. In April 1993, Sandra filed a complaint pursuant to 28 U.S.C. §2410(a), seeking to quiet title to the proceeds in the escrow account. Id. In its answer, the government argued that it was entitled to half of the proceeds from Sandra's sale of the property because its lien attached to Don's interest in the Berwyck Property, even though Don and Sandra had held the property as tenants by the entirety. Id. The government also claimed that Don had fraudulently conveyed his interest in the property to Sandra. Id.

Both parties moved for summary judgment in September 1993. The district court denied Sandra's motion and granted the government's motion in September 1994. See id. at 640. The district court held that at the time of the August 1989 conveyance, Don and Sandra's entireties estate terminated and each spouse took an equal half interest in the estate. Id. Accordingly, the district court held that the federal tax lien attached to Don's interest at that time. Id. Upon Sandra's motion, the court conducted further proceedings to determine the value of Don's interest at the time of the termination of the tenancy by the entirety. See id. After a telephonic hearing, the court found in October 1996 that the value of Don's property to which the IRS lien attached was $50,293.942. See id. at 641. The court then ordered that the IRS receive that amount from the escrowed proceeds. Id.

On cross-appeals to this court, the Craft I panel reversed the district court's ruling, holding that "[b]ecause Michigan law does not recognize one spouse's separate interest in an entireties estate, a federal tax lien against one spouse cannot attach to property held by that spouse as an entireties estate." 140 F.3d at 643. The panel also held that, under Michigan law, "Don did not possess a separate future interest in the Berwyck Property; therefore, the federal tax lien could not attach to a future interest that did not exist under Michigan law." Id. at 644. After finding that Don had no present or future interest in the disputed property, the court remanded the case for determination of "whether a fraudulent conveyance occurred in this case." Id. at 644. Judge Ryan concurred in the majority's result, but argued that Don had a separate, future interest in the entireties property to which the tax lien might attach if the August 1989 transfer to Sandra were set aside as fraudulent. See id. at 649.

On remand, the district court conducted a bench trial. In written findings of fact and conclusions of law made in March 1999, the district court concluded that, although

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the transfer of the Berwyck Property to Sandra by quitclaim deed did not constitute a typical fraudulent conveyance under Michigan law, the government was entitled to relief under an exception to that law, see McCaslin v. Schouten, 292 N.W. 696, 699 (Mich. 1940). The court found that under the exception, a creditor may obtain relief "where the debtor, while insolvent, places non-exempt funds beyond the reach of his creditors by enhancing the entireties property." See id. The court reasoned that from 1980 through 1985, while he was insolvent, Don and Sandra had used Don's funds to enhance the property by making a total of $6,693 in mortgage payments (excluding interest) on its behalf. The court found that Don's actions constituted a type of fraudulent conveyance under Michigan law, and that the government was entitled to recover the value of the mortgage payments ($6,693) plus interest (from the date of the court's October 1995 judgment) from the escrowed sales proceeds3. Sandra filed a motion to amend the judgment, arguing that the court should reverse its award of interest on the $6,693 it awarded to the IRS. Sandra also moved the court to award her interest, pursuant to 28 U.S.C. § 2411, on the funds that the IRS would have to return to her4. The court granted Sandra's motion in part, deleting the interest awarded to the IRS, but denied her request for interest.

The government filed a timely notice of appeal and Sandra filed a timely notice of cross-appeal in June 1999. In October 1999, the government petitioned this court for en banc review of the CraftI decision. The government argued that the Craft I decision -- as well Cole v. Cardoza, 441 F.2d 1337 (6th Cir. 1971) (holding that federal government may not, under Michigan law, attach lien to entireties property to satisfy individual tax liability of one spouse), a prior decision upon which the Craft I court relied -- conflicted with established, controlling precedent. This court rejected the petition in December 1999.

II. THE GOVERNMENT'S APPEAL

At this juncture, this case is not really about federal tax liens. Nor is it about state law property rights. This case is about the extent to which a prior decision of this court binds a subsequent panel when neither the facts, the parties, nor the law has changed. On appeal, the IRS reasserts its argument that a § 6321 federal tax lien against an individual taxpayer attaches to a tenancy by the entirety that the taxpayer shares, pursuant to Michigan law, with his spouse. This is, of course, the very argument we rejected in Craft I. For the reasons that follow, the government is precluded from re-arguing its case at this time.

A. Law of the Case

Under the law of the case doctrine, a court ought not reopen issues decided at an earlier point in the same litigation. See Agostini v. Felton, 521 U.S. 203, 236 (1997). "Issues decided at an early stage of the litigation, either explicitly or by necessary inference from the disposition, constitute the law of the case." Hanover Ins. Co. v. American Eng'g Co., 105 F.3d 306, 312 (6th Cir. 1997) (citation and quotation marks omitted). Although the doctrine of law of the case is "not an inexorable command," and courts must use "common sense" in applying it, see id., the power of this court to reach a result inconsistent with a prior decision reached in the same case is "to be exercised very sparingly, and only under extraordinary

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conditions." General Am. Life Ins. Co. v. Anderson, 156 F.2d 615, 619 (6th Cir. 1946) (citation and quotation marks omitted). We have delineated three such extraordinary conditions in which we will reconsider a prior ruling in the same case: "(1) where substantially different evidence is raised on subsequent trial; (2) where a subsequent contrary view of the law is...

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