4500 Transway Rd., LLC v. Canavan
| Docket Number | Civil Action ELH-20-2068 |
| Decision Date | 23 November 2021 |
| Parties | 4500 TRANSWAY ROAD, LLC Plaintiff, v. KERRY CANAVAN, et al., Defendants. |
| Court | U.S. District Court — District of Maryland |
This action arises from a dispute regarding the sale of real property. Plaintiff 4500 Transway Road, LLC (“Transway”) entered into a contract with defendants Kerry and Bonnie Canavan (collectively, the “Canavans”) to buy a parcel of realty approximately five acres in size, located on Transway Road in Baltimore County, Maryland (the “Property”). However, the Canavans did not proceed to closing as required because they failed to clear the Property of various encumbrances, including two federal tax liens and one State tax lien.
As a result, Transway filed a “Complaint And Notice Of Lis Pendens” in the Circuit Court for Baltimore County against the Canavans and three parties who might have liens on the Property: Fatemah Ilkhan; the State of Maryland/Comptroller of Maryland (the “State”) and the United States/Internal Revenue Service (the “IRS”). See ECF 1-3 (the “Complaint”); ECF 4 (same). Several exhibits were appended to the Complaint. ECF 1-4; ECF 1-5; ECF 1-6. In sum Transway sought specific performance and an order to interplead the purchase price of $787, 500, for disbursement to creditors of the Canavans.
On July 15, 2020, the United States removed the suit to federal court. ECF 1 (“Notice of Removal”).[1] Removal was based on three grounds, pursuant to 28 U.S.C. §§ 1441, 1442, and 1444. Id. ⁋ 2.
The State answered the Complaint. ECF 15. The United States filed a combined Answer and Cross Claim against the interpleader defendants. ECF 16. It asserted, inter alia, that the federal tax liens lodged against the Canavans established the government's priority to the proceeds of the sale of the Property. ECF 16 at 5-8 (the “Cross Claim”). The Canavans answered the Cross Claim, disputing the extent of their tax liability to the United States. See ECF 20, ⁋⁋ 4, 10-12. Defendant Ilkhan has not responded to the suit or to the Cross Claim. Although the State filed an Amended Answer (ECF 26), it did not specifically respond to the Cross Claim.
The United States has moved for summary judgment as to its Cross Claim, which is supported by a memorandum of law (ECF 37; ECF 37-1) (collectively, the “Motion”) and one exhibit (ECF 37-2). The Motion is unopposed. See Docket.
By Order of September 2, 2021 (ECF 40), I noted that no party had responded to the Motion. Id. at 3. Therefore, I directed the parties to file a status report with the Court. Id.
Accordingly on September 16, 2021, plaintiff's counsel reported to the Court that “the closing on the sale of the Property has occurred, and all of the necessary documentation/releases have now been recorded.” ECF 41. Furthermore, the status report advised that plaintiff's “courier has (or will shortly) deliver a check consisting of the balance of the sale proceeds, for payment into the Court's escrow account, pursuant to the original Settlement Order issued in this case.” Id. Plaintiff's counsel also stated that it was his understanding that the Canavans did not intend to oppose the Motion. Id. The following day, plaintiff delivered the sum of $688, 158.52 for deposit into the Court's registry. See Docket. I shall refer to the deposit as the “Fund” or the “Interpleaded Fund.”
No hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I shall grant the Motion in part and deny it in part.
The facts of this case are not in dispute. On March 1, 2016, Transway entered into a contract with the Canavans to purchase the Property for the sum of $787, 500. ECF 1-3, ⁋⁋ 2-6; see ECF 1-4 (the “Purchase Agreement”). As part of the Purchase Agreement, the Canavans promised to “deliver good and marketable title to the Property, free and clear of any liens or other encumbrances.” ECF 1-3, ⁋ 6; see ECF 1-4, ⁋ 5. Further, the Purchase Agreement “provided that closing would occur on the earlier of two events: a) the month of February 2017, or (b) 60 days from the date that the Seller provides notice (after the buyer's due diligence period) that it is ready, willing, and able to close on the sale.” ECF 1-3, ⁋ 8; see ECF 1-4, ⁋ 13.
However, plaintiff did not receive the required notice from the Canavans by February 2017. ECF 1-3, ⁋ 9. Thereafter, it “provided written notice of the requirement that the parties proceed to closing, and the Canavans' continuing need to resolve all outstanding liens prior to closing, ” which included “significant tax lien issues.” Id. ⁋⁋ 10 & n.3; see ECF 1-5. In particular, the Complaint avers that the Canavans' Property is subject to two federal tax liens and one State tax lien. See ECF 1-3, ⁋ 20.
In response, the Canavans indicated that they needed more time to clear the liens on the Property. Id. ⁋ 11. Therefore, the parties agreed to extend the deadline for closing until June 30, 2017. Id. ⁋ 12. Instead, on April 29, 2016, the Canavans further encumbered their Property by executing a Deed of Trust, in favor of defendant Ilkhan, in order to secure a debt in the amount of $130, 000. Id. ⁋⁋ 14-15; see ECF 1-6.
Plaintiff filed the instant action in State court, seeking specific performance of the Purchase Agreement, id. ⁋ 32A; a court order “allowing [plaintiff] to interplead funds in the amount of the purchase price into Court, for disbursement as directed by the Court, ” id. ⁋ 36; and a declaratory judgment resolving “any issues concerning the attachment of the purported liens and/or the priority of each parties' respective interest.” Id. ⁋ 41. As noted, on July 15, 2020 the United States removed the case to federal court (ECF 1). And, it filed a Cross Claim against the other interpleader defendants, asserting its priority to the proceeds from the sale of the Property. ECF 16, ⁋⁋43-54.
Specifically, the United States asserts that the IRS assessed income taxes against the Canavans for each year between 2005 and 2016, with the exception of 2015. Id. ⁋ 46. The dates and the amounts of the federal tax assessments are specified in the table below. Notably, the table reflects that for 2008 and 2009, the assessment was not made until August 2016, and for 2016, the assessment was not issued until March 2018.
Assessment Date
Tax Amount
2005
April 21, 2014
$45, 264
2006
April 21, 2014
$163, 934
2007
April 21, 2014
$17, 057
2008
August 1, 2016
$62, 066
2009
August 1, 2016
$104, 810
2010
June 15, 2015
$3, 538
2011
June 22, 2015
$2, 896
2012
June 15, 2015
$2, 029
2013
June 22, 2015
$1, 303
2014
July 13, 2015
$728
2016
March 19, 2018
Moreover the Cross Claim asserts that the IRS issued notice of each tax assessment and a demand for payment to the Canavans, in accordance with 26 U.S.C. § 6303. ECF 16, ⁋ 47. Thus, according to the United States, a federal tax lien arose on the date of each assessment and attached to all the Canavans' “property and rights to property then owned or thereafter acquired.” Id. ⁋ 49 (citing 26 U.S.C. §§ 6321, 6322). According to the government, “[t]he Canavans' property included the Transway property before the completion of the land sale . and the Canavans' rights to property include their right to any sales proceeds following the sale.” ECF 37-1 at 3 (internal quotation marks and citation omitted).
In addition, the Cross Claim alleges that on May 6, 2015, the IRS recorded a lien against the Canavans' Property for income tax assessments for 2005 through 2007. ECF 16, ⁋ 50. And, on September 25, 2017, the IRS recorded a notice of tax liens on the Canavans' Property for the period of 2008 through 2014. Id.
The United States avers that the Canavans “have failed to pay . . . the full amount owed as a result of these assessments.” Id. ⁋ 51. Thus, accounting for interest and the relevant statutory penalties, the “Canavans' liability with respect to the income tax assessments for 2005 through 2007 totals $628, 752.33, ” and “the notice of federal tax liens, recorded on September 25, 2017 is for an amount that greatly exceeds the remaining interpleaded funds . . . .” ECF 16, ⁋⁋ 53, 54. In sum, according to the United States, the Canavans face federal tax liability in the amount of more than $1 million. Id. ⁋ 52.
Based on these facts, the United States asks the Court to find that it has valid federal tax liens. ECF 16, ⁋ 54A. Moreover, it asks the Court to award the government the sum of $628, 752.33 from the Interpleaded Fund, pursuant to the federal liens recorded on May 6, 2015, “plus statutory additions . . . .” Id. ⁋ 54B. It also asks the Court to Order “that the remaining interpleaded funds be distributed to the United States and other creditors according to the respective priorities of their liens and claims . . . .” Id. ⁋ 54C. And, the United States seeks “costs of defending this action and prosecuting its cross claims against the other interpleaded defendants.” Id. ⁋ 54D.
Thereafter, on September 30, 2020, the Canavans answered the Complaint and the Cross Claim. See ECF 19; ECF 20. Of import here, the Canavans admit that they failed to pay the assessed federal income taxes in full and that they received notice and demands for payment of their assessed tax liability. ECF 20, ⁋⁋ 5, 6, 9; ECF 16, ⁋⁋ 47, 48, 51. But, the Canavans denied the extent of the tax liability as asserted by the United States. ECF 20, ⁋⁋ 4, 10-12; ECF 16, ⁋⁋ 46, 52-54.
In the State's Amended Answer (ECF 26), it asserts that the State Comptroller assessed individual income tax, penalty and statutory interest against the Canavans for the tax years of 2005, 2006, and 2007. Id. ⁋ 1. Further, it...
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