Brightwell v. US

• Decision Date: 10 November 1992
• Docket Number: No. IP 89-59-C.,IP 89-59-C.
• Parties: James A. and Catherine L. BRIGHTWELL, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Indiana

805 F. Supp. 1464

James A. and Catherine L. BRIGHTWELL, Plaintiffs, v. UNITED STATES of America, Defendant.

No. IP 89-59-C.

United States District Court, S.D. Indiana, Indianapolis Division.

November 10, 1992.

COPYRIGHT MATERIAL OMITTED

A. Donald Wiles, Jeffrey W. Scripture, Harrison & Moberly, Indianapolis, Ind., for plaintiffs.

Sue Hendricks Bailey, Asst. U.S. Atty., Office of the U.S. Atty., Indianapolis, Ind., Charles M. Greene, Peter Sklarew, Trial Attys., Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendant.

ORDER ON MOTIONS FOR SUMMARY JUDGMENT

McKINNEY, District Judge.

This case addresses two issues: (1) whether a federal tax lien is valid, when the notice of lien lists an incorrect middle initial for the taxpayer, and inserts an extra space in his last name; and (2) whether the senior lien of a mortgagee, who forecloses and buys the property at a foreclosure sale, can be asserted by the mortgagee's transferee against a junior lien-holder who was not a party to the foreclosure action.

I. FACTS AND PROCEDURAL BACKGROUND

The key facts are undisputed. William B. VanHorn purchased three parcels of real property from the Indianapolis Spring Corporation ("ISC") on November 10, 1982, executing a purchase money mortgage in ISC's favor.¹ On May 24, 1984, VanHorn was assessed for $10,247.53 in unpaid federal tax liabilities. On July 13, 1984 the Internal Revenue Service ("IRS") executed a lien against VanHorn for this amount (the "first lien"), and filed a Notice of Federal Tax Lien (the "first notice") in the Marion County, Indiana Recorder's Office.

Every tax lien notice filed in the recorder's office before 1987 was indexed according to a standardized procedure: office staffers would transcribe information from the notice onto a card, which then was placed in the county's federal tax lien index.² These cards contained only basic information — the taxpayer's name, a reference number, and the filing date — and were filed alphabetically according to the last name of the taxpayer. The first notice was indexed no differently, but unbeknownst to the IRS, it contained a mistake: it listed the taxpayer's name as "William S. Van Horn," rather than "William B. VanHorn."³ When it was transcribed onto the index card, this error found its way into the lien index.

The IRS executed a second tax lien against VanHorn and his wife for $875.82 in late 1984 (the "second lien"), and filed a corresponding notice on December 11, 1984 (the "second notice"). The second notice correctly identified the taxpayer(s) as "William B. VanHorn & Carlotta VanHorn." As a result, it was correctly indexed, and its index card was filed immediately in front of the card for the first lien. Both cards are still in the index, right next to one another.

By June 1986, VanHorn defaulted on his mortgage payments, so ISC brought an action to foreclose. ISC hired the Lawyer's Title Insurance Company to research the status of VanHorn's title, but the company failed to discover either of the two tax liens against the property, even though the second notice was correct and properly indexed. Therefore, the IRS never learned of, and did not become a party to, ISC's foreclosure action. ISC eventually achieved a consent judgment foreclosing the interests of VanHorn, a second mortgagee, and a judgment creditor in the property. ISC then purchased the property at a sheriff's sale on September 18, 1986.

Sometime afterward ISC, in preparing the property for sale to a third party, hired the Chicago Title Insurance Company to research title and provide insurance. This time a search revealed the second notice, but the first notice remained undiscovered. ISC's attorney checked with the IRS about satisfying the second lien, and was told that it would be released upon payment of the total deficiency ($875.82) and interest. ISC paid this amount, and the IRS released the lien — never mentioning that a prior, larger tax lien still encumbered the property.

On July 1, 1987, ISC sold the property by warranty deed to plaintiffs James and Catherine Brightwell, representing that no tax liens encumbered its title. As a result, the plaintiffs believed that the property was theirs free and clear. Before long, however, they learned about the first lien, the first notice, and the mistake the IRS had made in naming VanHorn as the taxpayer.

So, the plaintiffs decided to sue. On December 27, 1988, they filed a strict foreclosure petition in Marion County Superior Court, seeking to cut off the government's lien on the property. The government removed the case to federal court on January 20, 1989, where it was assigned to Judge John Daniel Tinder. On April 24, 1989, the plaintiffs amended their complaint to add a claim to quiet title. The government thereafter filed a motion for summary judgment,⁴ which became ripe for ruling on August 22, 1989. The plaintiffs moved for summary judgment on August 7, 1989, and this motion became ripe on September 18, 1989. In November 1991, the case was transferred from Judge Tinder to the docket of this Court, which ordered the parties to file superseding briefs on their motions. This briefing was finished on March 20, 1992.

The plaintiffs assert that the first lien is invalid, because they never received constructive notice of its existence.⁵ Their claim hinges on one contention: that the difference between the name "William S. Van Horn," which was on the first lien's index card, and "William B. VanHorn," which is the correct taxpayer name, is so great that no reasonable search of the index for liens against "Williams B. VanHorn" would have led to the first lien's discovery. The IRS disagrees, claiming that the two names are substantially identical, and that a reasonable searcher, noticing this similarity, would have looked at the actual lien notices and discovered the existence of the first lien. Alternatively, the plaintiffs contend that even if the first lien is valid, their interest nevertheless has priority, because they are equitable assignees of ISC's mortgage lien against the property.

II. LEGAL STANDARD

Rule 56(c) of the Federal Rules of Civil Procedure provides that a motion for summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." A party moving for summary judgment initially has the burden of showing the absence of any genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Covalt v. Carey Canada, Inc., 950 F.2d 481, 482 (7th Cir.1991). If the moving party carries this burden, the opposing party then must "go beyond the pleadings" and present specific facts which show that a genuine issue exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Co., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Becker v. Tenenbaum-Hill Assocs., 914 F.2d 107, 110 (7th Cir.1990). The opposing party, however, must do more than create a mere "colorable" factual dispute to defeat summary judgment; disputed facts must be outcome determinative. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); International Bhd. of Boilermakers v. Local D354, 897 F.2d 1400, 1406 (7th Cir.1990); Clampitt v. Ft. Wayne, 682 F.Supp. 401 (N.D.Ind.), aff'd, 864 F.2d 486 (7th Cir. 1988).

In considering a summary judgment motion, a court must draw all reasonable inferences "in the light most favorable" to the opposing party, Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991), and must resolve any doubt against the moving party. Becker, 914 F.2d at 110. Still, if the opposing party fails to meet the standards of Rule 56(c), summary judgment becomes mandatory. Celotex, 477 U.S. at 322-23, 106 S.Ct. at 2552-53; Anderson, 477 U.S. at 248-50, 106 S.Ct. at 2510-11. Summary judgment is not a disfavored procedural shortcut; rather, it is an integral part of the federal rules, which are designed to secure the just and expeditious determination of every action. Celotex, 477 U.S. at 327, 106 S.Ct. at 2555; see Patrick v. Jasper County, 901 F.2d 561, 565 (7th Cir.1990); Spellman v. Commissioner, 845 F.2d 148, 151-52 (7th Cir.1988).

III. DISCUSSION

A. Jurisdiction

Initially, the Court must determine if it has jurisdiction over the plaintiffs' suit. The United States cannot be sued, and no court can have jurisdiction over a suit against it, unless its sovereign immunity has been waived in the area at issue. Raulerson v. United States, 786 F.2d 1090, 1091 (11th Cir.1986). In cases that involve tax liens against property, sovereign immunity has been waived, at least in part:

The United States may be named a party in any civil action or suit in any district court, or in any State court having jurisdiction of the subject matter —

(1) to quiet title to,

(2) to foreclose a mortgage or other lien upon,

(3) to partition,

(4) to condemn, or

(5) of interpleader or in the nature of interpleader with respect to,

real or personal property on which the United States has or claims a mortgage or other lien.

28 U.S.C. § 2410(a).

To the extent that the plaintiffs seek to quiet title, this Court clearly has jurisdiction. Traditionally, actions to quiet title have sought determinations of who owns particular property, by forcing adverse claimants — i.e., those whose claims are "clouds" on the plaintiff's title — to establish them or be estopped from asserting them ever again. Black's Law Dictionary 255, 1249 (6th ed. 1990); see Raulerson v. United States, 786 F.2d 1090, 1092 (11th Cir.1986). Under federal law, the definition is somewhat broader; a party may maintain a quiet title action against the United States when...