Arlin Geophysical Co. v. United States, No. 18-4166

• Decision Date: 14 January 2020
• Docket Number: No. 18-4166
• Parties: ARLIN GEOPHYSICAL COMPANY ; Laura Olson, Plaintiffs, v. UNITED STATES of America, Defendant - Crossclaim Plaintiff - Appellee, v. Debra Green Udy; Claudia Green Burton; Rebecca Green Eggers; Bank of America Home Loans; Cipra Non-revocable Trust; Nancy Kimmerly; Mortgage Electronic Registration Systems; New Century Mortgage; Barney J. Ng; Securitized Asset Backed Receivables ; Susan Slattery ; James H. Woodall, Fujilyte Corporation, Counter Defendants, and John E. Worthen, Counter Defendant - Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

946 F.3d 1234

ARLIN GEOPHYSICAL COMPANY ; Laura Olson, Plaintiffs,

v.UNITED STATES of America, Defendant - Crossclaim Plaintiff - Appellee,

v.Debra Green Udy; Claudia Green Burton; Rebecca Green Eggers; Bank of America Home Loans; Cipra Non-revocable Trust; Nancy Kimmerly; Mortgage Electronic Registration Systems; New Century Mortgage; Barney J. Ng; Securitized Asset Backed Receivables ; Susan Slattery ; James H. Woodall, Fujilyte Corporation, Counter Defendants,andJohn E. Worthen, Counter Defendant - Appellant.

No. 18-4166

United States Court of Appeals, Tenth Circuit.

FILED January 14, 2020

David E. Ross II, Park City, Utah, for Counter Defendant-Appellant.

Paul A. Allulis, Attorney, Department of Justice, Tax Division, Washington, D.C. (Richard E. Zuckerman, Principal Deputy Assistant Attorney General, Bruce R. Ellisen, Attorney, with him on the briefs), for Defendant-Crossclaim Plaintiff-Appellee.

Before LUCERO, HOLMES, and MORITZ, Circuit Judges.

LUCERO, Circuit Judge.

We consider the existence of redemption rights in actions under 26 U.S.C. § 7403 to enforce federal tax liens. After John Worthen amassed over eighteen million dollars in unpaid tax liabilities, the federal government placed liens on properties it claimed belonged to his alter egos or nominees. Following a court-ordered sale of the properties, Worthen sought to exercise a statutory right to redeem under Utah state law. The district court concluded there are no redemption rights following sales under § 7403. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm. Neither § 7403 nor 28 U.S.C. § 2001, which governs the sale of realty under court order, explicitly provides for redemption rights. Moreover, federal tax proceedings provide sufficient protection for taxpayers and third parties.

I

Worthen owes the United States more than eighteen million dollars in unpaid taxes. In 2000, the government filed a Notice of Federal Tax Lien concerning Worthen’s outstanding tax liability. In 2008, the Internal Revenue Service ("IRS") filed additional Notices of Tax Lien against fifteen properties that it claimed were owned by Worthen’s nominees or alter egos. Laura Olson, who is Worthen’s wife, and Arlin Geophysical Company, which is owned by Worthen and Olson, brought an action to quiet title to these properties. Naming counterclaim-defendants with potential interests in the properties, the government filed a counterclaim seeking to reduce to judgment its tax assessments against Worthen and to foreclose the liens. The district court issued orders addressing the claims regarding thirteen of the properties, ruling that Worthen is indebted to the government in the amount of eighteen million dollars, plus interest, for his federal income tax liabilities. At issue in this case are claims to the two remaining properties, Properties 14 and 15,¹ by (1) the government; (2) Fujilyte, a company owned by Worthen that held title to Properties 14 and 15; (3) John Green’s heirs, who purported to hold a trust deed to the properties; and (4) Stephen Homer, who purported to be a successor in interest to Green’s trust deed.

Concluding in part that Fujilyte, as Worthen’s nominee, holds title to Properties 14 and 15, the district court granted summary judgment to the government regarding the primacy of its claim over those of Homer and Green’s heirs. Subsequently, the court granted final judgment for the government and ordered the properties sold. Worthen and Fujilyte appealed. This court vacated the district court’s judgment and order of sale and remanded for further proceedings. Arlin Geophysical Co. v. United States, 696 F. App'x 362, 371 (10th Cir. 2017) (unpublished). Because Worthen and Fujilyte were not parties to the summary judgment proceeding, they had not been given "an adequate opportunity to respond to the government’s assertion that Fujilyte holds title to these properties as Worthen’s alter ego or nominee." Id.

While this court was considering Fujilyte and Worthen’s appeal, Properties 14 and 15 were sold to Salt Lake County. Although this court’s order and judgment subsequently vacated the order of sale, the parties stipulated to confirmation of the sale because of the difficulty of unwinding it.

Following the stipulation, Worthen claimed a right under Utah Code §§ 78B-6-906(1) and 59-2-1357 to redeem the property for the purchase price, $145,000.² The Salt Lake County District Attorney refused to honor Worthen’s claimed right, stating that Properties 14 and 15 were not subject to redemption rights and, in any event, Worthen had not complied with the requisite steps to exercise redemption rights under Utah law. Worthen repeatedly asked the district court for an equitable extension of the redemption period, which the district court denied because Worthen had not shown good cause.

Disputing in pertinent part whether Worthen had redemption rights in Properties 14 and 15, the parties filed cross-motions for summary judgment. The district court granted the government’s motion, holding that Worthen had no redemption right because neither § 7403 nor § 2001 provides for a right of redemption. Worthen appealed.

II

We review a district court’s grant of summary judgment de novo. Cillo v. City of Greenwood Vill., 739 F.3d 451, 461 (10th Cir. 2013). A party is entitled to summary judgment if "there is no genuine dispute as to any material fact." Fed. R. Civ. P. 56(a). "A fact is material if, under the governing law, it could affect the outcome of the lawsuit." Cillo, 739 F.3d at 461 (quotation omitted). "A factual dispute is genuine if a rational jury could find in favor of the nonmoving party on the evidence presented." Id. (quotation omitted).

26 U.S.C. § 6321 grants the United States a lien "upon all property and rights to property, whether real or personal," of a person "liable to pay any tax neglects." Id. Section 7403 authorizes the government to enforce its lien by filing a civil action in a federal district court, where

[t]he court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the parties and of the United States.

Id. When, as in this case, the action is to enforce the federal tax lien against realty, § 2001 outlines the requirements for the sale "upon such terms and conditions as the court directs." Id.

Utah law confers a statutory right to redeem. §§ 78B-6-906(1) ; 59-2-1357. But state-created rights do not automatically apply in federal tax proceedings. Although federal law looks to state law for the existence of property rights, federal law itself determines what consequences those rights have in the context of federal tax lien proceedings. See United States v. Craft, 535 U.S. 274, 278, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002). Courts "look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer’s state-delineated rights qualify as ‘property’ or ‘rights to property’ within the compass of the federal tax lien legislation." Id. (quotation omitted). We assume without deciding that Utah state law would grant Worthen redemption rights in Properties 14 and 15 because, in any case, we conclude those rights are inapplicable in proceedings under § 7403.

Neither § 7403 nor § 2001 explicitly addresses redemption rights. Worthen argues that this silence means Congress did not intend to disturb state-created rights, which "shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply."³ 28 U.S.C. § 1652. But state-created rights are not the rules of decision for actions in which the government seeks to enforce a federal tax lien. Instead, such proceedings are governed by federal law, which defines the applicability of state-defined property rights. See Drye v. United States, 528 U.S. 49, 58, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999) ("The question whether a state-law right constitutes ‘property’ or ‘rights to property’ is a matter of federal law." (quotation omitted)). In the context of realty sales in actions under § 7403, applicable federal law does not affirmatively attach any consequences to state redemption rights.⁴

Moreover, Congress’s silence in §§ 7403 and 2001 contrasts with its express inclusion of redemption rights in other sections of the Internal Revenue Code. See, e.g., 26 U.S.C § 6337(b) (providing for redemption of property which has been levied upon within 180 days after sale); 28 U.S.C. § 2410(c) (granting the government a redemption right in sales made to satisfy liens with priority over those of the government). When Congress intends to provide redemption rights in federal tax proceedings, it does so explicitly. See United States v. Heasley, 283 F.2d 422, 427 (8th Cir. 1960) ("Unlike the sale of property under levy and distraint proceeding, where by statute there is a specific provision for redemption of the property, Congress has not seen fit to provide that the right to redeem shall exist where a property is sold pursuant to a judicial decree." (citation omitted)).

Further, Congress has already provided robust procedural protections for taxpayers and innocent third parties. When the lien is placed, taxpayers receive written notice that includes specific information regarding the claimed amount of unpaid tax, the available procedural protections, and the potential consequences related to "certification of seriously delinquent tax debts." 26 U.S.C. § 6320(a). Delinquent taxpayers are also entitled to an administrative appeal. 26 U.S.C. § 6326. Moreover, enforcement of the lien under § 7403 only occurs after a court has...