Estate of Johnson

• Citation: 836 F.2d 940
• Decision Date: 04 February 1988
• Docket Number: No. 86-6026,86-6026
• Parties: -579, 56 USLW 2464, 88-1 USTC P 9165 In the ESTATE OF Norman L. JOHNSON, Deceased. Melvin M. ENGEL, Executor of the Estate of Norman L. Johnson, Deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 940

836 F.2d 940

61 A.F.T.R.2d 88-579, 56 USLW 2464, 88-1

USTC P 9165

In the ESTATE OF Norman L. JOHNSON, Deceased.

Melvin M. ENGEL, Executor of the Estate of Norman L.

Johnson, Deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 86-6026.

United States Court of Appeals, Fifth Circuit.

Feb. 4, 1988.

Rehearing Denied March 2, 1988.

Mark D. Wilson, Engel, Jones & Wilson, Houston, Tex., for plaintiff-appellant.

Henry K. Oncken, U.S. Atty., Houston, Tex., Kenneth W. Rosenberg, Steven Gremminger, Dept. of Justice, Tax Div., Michael L. Paup, Chief, Appellate Section, Roger M. Olsen, Asst. Atty. Gen., William S. Estabrook, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before WISDOM, GEE and KING ^*, Circuit Judges.

CAROLYN DINEEN KING, Circuit Judge:

Melvin M. Engel, the executor of the estate of Norman L. Johnson, appeals from the district court's dismissal of his suit to quiet title to property clouded by federal tax liens. The district court dismissed the executor's suit on the ground that the district court lacked subject matter jurisdiction over the dispute, given the United States' failure to waive sovereign immunity in such cases. Finding the district court in error on this point, we reverse and remand.

I.

The facts of this case are largely undisputed. On February 4, 1983, the United States Internal Revenue Service ("the IRS") ¹ issued a jeopardy assessment ² against Norman L. Johnson ("Johnson") in the amount of $7.5 million. The IRS subsequently placed a lien on all of Johnson's assets and seized cash and personal property pursuant to the lien. On April 4, 1983, the IRS issued notices of deficiency for Johnson's taxable years 1975 through 1979. Johnson countered by filing petitions with the Tax Court in July of 1983 to redetermine the deficiencies. Those cases are still pending before the Tax Court. ³ In May of 1983, Johnson brought an action in the United States District Court for the Eastern District of Louisiana to review the jeopardy assessment itself. See I.R.C. Sec. 7429. On September 28, 1983, that court ruled that the jeopardy assessment was reasonable.

On July 18, 1985, Johnson committed suicide. Melvin M. Engel ("the executor") was duly appointed as the executor of Johnson's estate on August 6, 1985. A few days later, the executor notified the IRS of Johnson's death, requested an abatement of the jeopardy assessment, ⁴ and requested release of the seized assets "so that they may be sold and the proceeds applied in accordance with the priorities established by law." ⁵ The IRS wrote the executor that it could neither abate the assessment nor release the assets. On September 26, 1985, the executor filed an "Application for Recovery of Property or, in the Alternative, to Show Cause" in Probate Court No. 2, Harris County, Texas. In that application, the executor requested the probate court "to enter an Order requiring the [IRS] to immediately return the property seized ... or, alternatively, to appear before this Court and to show cause, if any, why the [IRS] should not return the seized property." The executor alleged that the IRS' refusal to turn over the property was hindering his efforts to administer the estate. Specifically, the executor complained that he was unable to pay claims against the estate, particularly the administrative and funeral expenses incurred, in accordance with his obligations under state and federal law.

On October 25, 1985, the IRS petitioned for removal of the case from the probate court to the United States District Court for the Southern District of Texas. The petition was granted ⁶ and on November 4 1985, the district court remanded to the probate court all matters pending before the probate court prior to removal except for "the executor's application for recovery of property or in the alternative, to show cause, which seeks affirmative relief against the United States of America." On November 15, 1985, the IRS filed a motion to dismiss and application for award of attorney's fees. The executor responded on December 9, 1985. The district court held a conference in chambers on February 26, 1986 at which both sides argued their respective positions. The district court granted the IRS' motion to dismiss on November 30, 1986. In its opinion, the district court noted that the IRS' motion to dismiss was based on the contention that the United States had not waived sovereign immunity in this case and that, therefore, the district court was without subject matter jurisdiction. In granting the motion, the district court rejected the executor's argument that 28 U.S.C. Sec. 2410(a)(1) ⁷ constituted such a waiver of sovereign immunity. The district court concluded that "[t]here are no cases allowing a taxpayer, or his estate, to use Sec. 2410(a)(1) to lift a valid IRS lien so that the taxpayer can use the assets to satisfy other claims or needs of the estate."

The executor timely filed notice of appeal from that judgment. On appeal, we are faced with a single issue: Whether the district court had jurisdiction under the limited waiver of sovereign immunity in 28 U.S.C. Sec. 2410(a) to hear a claim by the executor of a taxpayer's estate seeking to "quiet title" to property subject to federal tax liens.

II.

"It long has been established, of course, that the United States, as sovereign, 'is immune from suit save as it consents to be sued ... and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit.' " United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953, 47 L.Ed.2d 114 (1976) (quoting United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed. 1058 (1941)). Waivers of sovereign immunity must be narrowly read, Garcia v. United States, 776 F.2d 116, 118 (5th Cir.1985), and, in construing such waivers, we are not at liberty to extend or narrow the waiver beyond what Congress intended, Houston v. United States Postal Service, 823 F.2d 896, 898 (5th Cir.1987).

Under section 2410 as originally enacted in 1931, ⁸ the government consented to be made a defendant in suits "for the foreclosure of a mortgage or other lien upon real estate, for the purpose of securing an adjudication touching any mortgage or other lien the United States may have or claim on the premises involved." ⁹ The words "to quiet title to" were added in 1942 as part of an amendment primarily intended to broaden the statute to include personal property. ¹⁰ 0] See Falik v. United States, 343 F.2d 38, 41 (2nd Cir.1965). The addition of suits to quiet title resulted from a request of Attorney General, later Justice, Jackson in a 1941 letter to the Chairman of the Senate Judiciary Committee. ¹¹ In that letter, Jackson wrote that "justice and fair dealing would require that a method be provided to clear real-estate titles of questionable or valueless government liens." H.R.Rep. No. 1191, 77th Cong., 1st Sess. 2 (1941); S.Rep. No. 1646, 77th Cong., 2d Sess. 2 (1942); see also United States v. Perry, 473 F.2d 643, 645 (5th Cir.1973). The amendment "was in response to the recognized need for a way to force disputes over government tax liens to resolution, rather than leaving the United States in complete control of the timing." Id.; see also United States v. Brosnan, 363 U.S. 237, 246, 80 S.Ct. 1108, 1114, 4 L.Ed.2d 1192 (1960) ("[The statute's] only apparent purpose is to lift the bar of sovereign immunity which had theretofore been considered to work a particular injustice on private lienors.").

Section 2410(a) has been the subject of lively judicial debate. Much of that debate has centered on the question of whether taxpayers are entitled to bring suit under section 2410(a). ¹² Several circuits have held that a taxpayer may use section 2410(a) to contest the procedural regularity of a lien. Pollack v. United States, 819 F.2d 144, 145 (6th Cir.1987); Aqua Bar &amp Lounge v. United States Dept. of Treasury, 539 F.2d 935, 939 (3d Cir.1976); Falik, 343 F.2d at 42. Likewise, courts have held that a taxpayer may not mount a collateral attack on the merits of an assessment under the guise of an action to quiet title under section 2410(a). Mulcahy v. United States, 388 F.2d 300, 302 (5th Cir.1968); Pollack, 819 F.2d at 145-46. The instant case is in a unique posture. The executor neither attacks the underlying assessment nor challenges the procedural regularity of the lien; rather, as the district court found, the executor seeks "a determination that the estate's administrative and funeral expenses take priority over the Government's lien, and a distribution of the assets pursuant to that determination."

The IRS maintains that the executor is the equivalent of Johnson for all federal tax purposes. Therefore, the argument goes, since Johnson, as a taxpayer, could not have brought this suit under section 2410(a), neither can the executor's action fall within the ambit of section 2410(a), for the estate can enjoy no greater rights than the taxpayer had before his death. While the district court apparently accepted this argument, we are not nearly so confident that taxpayers can use section 2410(a) only to challenge the procedural validity of tax liens and not to declare rights in the property--in other words, to quiet title. We see no need to decide that issue, however, since we conclude that under the circumstances of this case, the executor's suit is akin to an action to quiet title brought by a third party and, as such, is maintainable under section 2410(a).

As background, the executor points to our decision in United States v. Morrison, 247 F.2d 285 (5th Cir.1957). In Morrison, a vendor sought to establish the primacy of his equitable vendor's lien in a taxpayer's property over a federal tax lien. We found that while jurisdiction over the removal action was proper under section 2410, the vendor's lien was inferior to the tax lien....