Bank of Hemet v. U.S.

• Decision Date: 24 April 1981
• Docket Number: No. 79-3188,79-3188
• Citation: 643 F.2d 661
• Parties: 81-1 USTC P 9379 BANK OF HEMET, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 661

643 F.2d 661

81-1 USTC P 9379

BANK OF HEMET, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 79-3188.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Dec. 2, 1980.

Decided April 24, 1981.

Terry S. Kaplan, Peter Collisson, Cohen & Ziskin, Beverly Hills, Cal., for plaintiff-appellant.

Robert S. Pomerance, Atty., Washington, D.C., argued, for defendant-appellee; Gilbert E. Andrews, Dept. of Justice, Washington, D.C., on brief.

Appeal from the United States District Court for the Central District of California.

Before GIBSON ^*, SNEED and SKOPIL, Circuit Judges.

SNEED, Circuit Judge:

This is a contest between two junior lienholders arising because the security, while adequate to satisfy the debt of the senior lienholder, is not enough to satisfy the respective debts of each junior lienholder. Broadly speaking, the issues are which of the junior lienholders is to suffer the most and by what amount, if any, is each to suffer.

As of July 7, 1977, the appellant Bank of Hemet held a non-purchase-money second deed of trust on the property, a residence, to secure an indebtedness of $47,854.42; the government held tax liens against that residence junior to the Bank of Hemet deed of trust in the amount of $35,798.11; and a third party held the first deed of trust on the property securing a debt of $33,134.64. Apparently all debts were then due and owing. The third party initiated foreclosure and gave the Bank and the government notice sufficient to foreclosure their interests in the property. The foreclosure sale occurred on July 8, 1977, at which sale the Bank of Hemet bought the residence with a bid of $33,136.64, two dollars more than the amount of the first lien. On November 7, 1977, the government sought to exercise its right to redeem the property pursuant to 26 U.S.C. § 7425 by tendering to the Bank a check for $33,891.69, which is the amount of the Bank's bid plus interest at the statutory rate. To accept this offer would leave the Bank without a practical means to recover its debt. The Bank, however, eventually accepted the government's check, reserving all rights to contest the tender. It then filed its complaint in the district court on January 4, 1978 and effected service on the government on February 14, 1978. On January 30, 1978, the government sold the redeemed property, the residence, to a purchaser for $55,000. This amount, while greater than that tendered to Bank of Hemet, was less than the sum of the first and second liens on the property as of July 7, 1977.

In its January 4, 1978 complaint, the Bank of Hemet sought to restrain the sale of the property, declaratory relief to quiet title to the property in the Bank, and damages. The Bank also contended that the amount tendered to it was improper under 26 U.S.C. § 7425, and, in the alternative, that the redemption constituted a taking of property without just compensation in violation of the Fifth Amendment to the Constitution. The government for its part contested the Bank's claims and asserted that the district court had no jurisdiction because there was no applicable waiver of sovereign immunity.

After a hearing, the district court found that it had jurisdiction, but granted the government's motion for summary judgment. The Bank filed a timely notice of appeal on January 22, 1979. This court has jurisdiction under 28 U.S.C. § 1291. We reverse and remand for findings in accord with this opinion.

I. SUMMARY OF ARGUMENTS

Three major questions confront us: Was there a waiver of the sovereign immunity under which jurisdiction was proper in the district court? Do the redemption provisions of 26 U.S.C. § 7425 and 28 U.S.C. § 2410, as applied here, deprive Bank of With respect to the first question, the government argues that, because it had sold the residence before the Bank of Hemet effected service of process, the waiver of immunity for suits seeking to quiet title to property in which the United States claims an interest, 28 U.S.C. § 2409a, is inapplicable. The Bank, on the other hand, argues that the United States claimed title to the residence at the time they commenced suit and that their failure to effect service of process prior to the sale of the property was due to the tardiness of the United States Marshall in carrying out the procedure for service on the United States and to the refusal of agents of the United States to accept service at the sale of the property.

Hemet of its property without just compensation in violation of the Fifth Amendment? Did the provisions of 26 U.S.C. § 7425 and 28 U.S.C. § 2410 require the government, in its IRS capacity, to tender $33,891.69, plus interest, or some other amount?

As to the Fifth Amendment issue, the Bank argues that, because 26 U.S.C. § 7425 and 28 U.S.C. § 2410 permit the United States to acquire property from a purchaser at a foreclosure sale for less than its fair market value, redemptions under those sections constitute takings of private property without just compensation. The government responds by asserting that the Bank's argument begs the question. What property the Bank acquired at the foreclosure sale is the precise issue this case presents. To find a taking requires that the issue be resolved wholly in the Bank's favor, while a finding for the government eliminates the possibility of a taking.

The Bank, in keeping with its insistence that its debt in some manner be discharged in full, contends that under California law it is not entitled to a deficiency judgment against its debtor, the owner of the foreclosed residence, and that 28 U.S.C. § 2410 accordingly requires that, disregarding interest, the government tender to the Bank the sum of its bid on the property at foreclosure ($33,136.64), plus the amount of the unrecoverable deficiency. This sum is the "amount" it paid for the property, the Bank insists, and the purpose of section 2410 is to provide reimbursement of that amount. For its part the government insists the Bank, a second lienholder who purchased at the foreclosure sale for the benefit of the first lienholder, is not precluded by California law from seeking a deficiency judgment against its debtor and that as a consequence the amount it tendered to the Bank is all that is required under 28 U.S.C. § 2410 and 26 U.S.C. § 7425.

We shall address each of these arguments separately.

II. SOVEREIGN IMMUNITY

To sue the United States, Congress must have waived sovereign immunity with respect to the claim being asserted and provided jurisdiction to hear the claim in the court in which the suit is brought. The Bank finds the required waiver of sovereign immunity in 28 U.S.C. §§ 2409a, 2410, or 26 U.S.C. §§ 7425, 7426, and jurisdiction in the district court under 28 U.S.C. §§ 1331, 1340.

Both the Title 28 sections appear applicable to the sovereign immunity issue. Section 2409a permits the United States to be "named as a party defendant in a civil action under this section to adjudicate a disputed title to real property in which the United States claims an interest, other than a security interest or water rights." Section 2410 permits the United States to be named a party in a suit "to quiet title to" real property "on which the United States has or claims a mortgage or other lien." Somewhat less directly applicable are 26 U.S.C. §§ 7425 and 7426 which are designed primarily to delineate and protect the rights of the government and third parties when property is sold to satisfy the claims of others.

Unfortunately, none of these provisions fit precisely the situation with which we are confronted. Section 2409a comes closest. The government rejects its application because, although it had possession of, and an interest in, the property at the time the Bank filed its complaint, nothing of the sort existed at the time service was effected on February 14, 1978. The sale occurred on January 30, 1978 and the government thereafter held only the proceeds.

We are unconvinced by the government's position. The Bank correctly points out that the United States claimed an interest in the property at the time the complaint was filed and that it had filed a lis pendens on the property prior to the January 30, 1978 sale. It also appears that the Bank gave notice of the pendency of this suit at the time of the sale and that the Treasury agents conducting the sale refused service of the complaint. The Bank also asserts that its failure to effect service on the United States prior to the sale was caused by the U.S. Marshall.

We hold that under the circumstances of this case the presence of a waiver of sovereign immunity should be determined as of the date the complaint was filed, viz, January 4, 1978. The time is long past when the bar of sovereign immunity should be preserved through strained and hyper-technical interpretations of the relevant acts of Congress. Not only does this interpretation permit the Bank to have its day in court, it also restrains any tendency on the part of the government to manipulate its position subsequent to the filing of the complaint so as to present a situation that falls between the cracks of applicable waiver statutes.

Therefore, because at the time the Bank filed suit the United States claimed title to the property, we find that 28 U.S.C. § 2409a waived the immunity of the United States to the Bank's quiet title action. ¹ Jurisdiction poses no problems. Section 1346(f) of Title 28 confers exclusive jurisdiction on the federal district courts over actions brought under 28 U.S.C. § 2409a. ² The district court did not err in holding that it had jurisdiction.

III. THE FIFTH AMENDMENT

The contention that there was a taking proscribed by the Fifth Amendment

need not long detain us. When real property on which the United States has a tax lien is sold by means other than a judicial sale to satisfy a lien prior to that of the United States, 26 U.S.C. § 7425(d) authorizes the Secretary of the Treasury...