Cipriano v. Tocco, Civ. A. No. 89-CV-73517-DT.

• Citation: 757 F. Supp. 1484
• Decision Date: 26 February 1991
• Docket Number: Civ. A. No. 89-CV-73517-DT.
• Parties: John CIPRIANO and Pasqualina Cipriano, Plaintiffs, v. Peter J. TOCCO, Anne M. Tocco, The United States Internal Revenue Service, and Frank Ioli, Defendants.
• Court: U.S. District Court — Western District of Michigan

757 F. Supp. 1484

John CIPRIANO and Pasqualina Cipriano, Plaintiffs, v. Peter J. TOCCO, Anne M. Tocco, The United States Internal Revenue Service, and Frank Ioli, Defendants.

Civ. A. No. 89-CV-73517-DT.

United States District Court, E.D. Michigan, S.D.

February 26, 1991.

Frederick A. Petz, Grosse Pointe Woods, Mich., for plaintiffs.

Vincent LoCicero, St. Clair Shores, Mich., for defendants Peter J. and Anne M. Tocco.

Elizabeth J. Larkin, Detroit, Mich., Mark D. Lansing, Washington, D.C., Frank Pollock, Bloomfield Hills, Mich., for defendant IRS.

OPINION AND ORDER REGARDING PENDING MOTIONS

ROSEN, District Judge.

Presently before the Court are the following Motions: 1) the Plaintiffs' Motion for Summary Judgment Against the United States, Only; 2) the United States' Motion for Summary Judgment; 3) the Plaintiffs' Motion for Summary Judgment against Defendants Peter Tocco and Anne Tocco and Defendant Frank Ioli, Only; and 4) the United States' Motion to Dismiss Defendant Frank Ioli's Cross-Claim. These motions were brought before the Court for hearing on Tuesday, February 19, 1991, at which time the Court heard the arguments of counsel for each of the parties.

FACTS AND BACKGROUND:

Pursuant to the Court's Scheduling Order Dated September 26, 1990, the parties have filed a joint Stipulated Statement of Facts, with exhibits. The Court relies upon the Stipulated Statement of Facts in rendering this decision, but, for purposes if clarity and context, sets forth the following summary of the stipulated facts, which includes certain explanatory remarks concerning the procedural posture of the case:

STIPULATED FACTS

The Plaintiffs commenced this action both: 1) to recover the $184,504.48 sum they allege is owing to them by Defendants Peter Tocco and Anne Tocco, husband and wife, under the terms of a promissory note; and 2) to determine the priority of their interest in certain real property located in Farmington Hills, Michigan with respect to the Tocco and the other Defendants in this case, each of whom claim, or once claimed, an interest in that property.

On September 1, 1982, Defendants Peter and Anne Tocco purchased Premier Produce Company from Plaintiffs for $300,000.00 to be paid through monthly installments of $4,830.00 commencing August 1, 1983 and continuing thereafter for 90 consecutive months. The Toccos simultaneously executed a promissory note in the amount of $300,000.00. The note was secured by an increase in the amount due Plaintiffs from the Toccos under an existing land contract for the sale of the Grosse Pointe Shores residence purchased by the Toccos from the Plaintiffs.

In late 1983, the Toccos sold the Greenbriar residence in Grosse Pointe Shores and purchased another residence on East Jefferson in Grosse Pointe Park, Michigan. On December 7, 1983, in exchange for the Plaintiff's release of their land contract vendors' interest in the Greenbriar property, the Toccos executed a second mortgage to the Plaintiffs on the Grosse Pointe Park property in the amount of $300,000.00. This second mortgage was recorded with the Wayne County Michigan Register of Deeds on February 7, 1984.

On May 14, 1987, the Toccos sold the Grosse Pointe Park residence and entered into a land contract for the purchase of a residence in Farmington Hills, Michigan known as 25765 Surrey Court. This is the real property that is at issue in this case. Concurrently with the purchase of the Farmington Hills property by the Toccos, the Plaintiffs and the Toccos executed the following new documents:

A. Agreement to Transfer Liens, dated May 14, 1987, and executed by Plaintiffs and the Toccos. Pursuant to this agreement, the Toccos agreed, in part, to execute a second promissory note in the amount of $195,000.00 (representing the balance due on the original note) payable to Plaintiffs, to pay the Plaintiffs an additional $30,000.00 to be credited against any amounts owed on the original note, and to execute an Assignment of Purchaser's Interest in Land Contract. The Agreement to Transfer Liens specifically provides that the Plaintiffs may record the Assignment of Purchaser's Interest in Land Contract only in the event that the Toccos default under the terms of the May 14, 1987 Promissory Note. The Assignment of Purchaser's Interest in Land Contract has not been recorded by Plaintiffs to date. Pursuant to the Agreement to Transfer Liens, Plaintiffs agreed, "in part," to release and discharge their mortgage on the Grosse Pointe Park property.

B. Promissory Note, in the amount of $195,000.00, dated May 14, 1987, naming Plaintiffs as the "Holder" and the Toccos as the "Maker." In February, 1988, the Toccos ceased making payments on the Promissory Note. On May 18, 1988, the Plaintiffs filed suit against the Toccos in the Oakland County (Michigan) Circuit Court seeking a declaration of the Toccos' breach of the contract and requesting the right to record the "purported"¹ Assignment of Purchaser's Interest in Land Contract, and to obtain possession of the premises. In September, 1989, Plaintiffs amended their Complaint in the Oakland County Circuit Court action, adding the United States and Frank Ioli as defendants. The United States was not served with the original Complaint, but it was served with the First Amended Complaint on November 6, 1989. The United States removed the Oakland County Circuit Court case to this Court on November 29, 1989 (where it is now pending as the instant action).

C. Affidavit of Interest, executed by the Plaintiffs only, reciting that on May 14, 1987, Plaintiffs entered into certain agreements including the Collateral Assignment of Purchaser's Interest in Land Contract. On June 12, 1987, Plaintiffs recorded the Affidavit of Interest with the Oakland County, Michigan, Register of Deeds. The Assignment of Purchaser's Interest in Land Contract was not attached to the Affidavit at the time the Affidavit was recorded with the Register of Deeds.

D. Assignment of Purchaser's Interest in Land Contract, dated May 14, 1987, executed by the Toccos, and "purporting"² to assign to the Plaintiffs the Toccos' Interest, as land contract purchaser, in the Farmington Hills property. This Assignment of Purchaser's Interest in Land Contract has never been recorded.

On February 12, 1988, the Internal Revenue Service filed with the Oakland County Register of Deeds a Notice of Federal Tax Lien on the Farmington Hills property, in the amount of $9,025.33. On July 26, 1988, the Internal Revenue Service filed a second Notice of Federal Tax Lien in the amount of $17,306.50. These notices were filed because of unpaid tax liabilities of the Toccos individually and as general partners of Premier Produce Company (the entity originally purchased by the Toccos from the Plaintiffs back in 1982).

On October 21, 1988, without any notice to the Plaintiffs, the Internal Revenue Service conducted a tax lien sale of the Farmington Hills property. In its Notice of Public Auction Sale, and in its written Notice of Encumbrances and Minimum Bid Worksheet, the IRS listed the following encumbrances against the Farmington Hills property: (1) unpaid property taxes in the amount of $3,170 and (2) the land contract vendor's interest of the Bates (husband and wife) from whom the Toccos were purchasing the Farmington Hills property. Plaintiffs' Affidavit of Interest was not known to the IRS or Defendant Frank Ioli at the time of the sale. Both the IRS and Defendant Ioli believed that the interest of the Toccos that was sold at the auction sale was the Toccos' land contract vendees' interest in the Farmington Hills property and that the only encumbrances against such interest were the $3,170 unpaid property taxes and the interest of the land contract vendors.

The October, 1988 Notice of Public Auction Sale stated:

Only the right, title, and interest of Peter J. and Anne Tocco in and to the property will be offered for sale. If requested the Internal Revenue Service will furnish information about possible encumbrances, which may be useful in determining the value of the interest being sold.... (emphasis added).

On the reverse side of the Notice of Public Auction Sale appears the following language:

The right, title, and interest of the taxpayer (named on the front of the form) in and to the property is offered for sale subject to any prior valid outstanding mortgages, encumbrances, or other liens in favor of third parties against the taxpayer that are superior to the lien of the United States. All property is offered for sale "where is" and "as is" and without recourse against the United States. No Guaranty or warranty, express or implied, is made as to the validity of title, quality, quantity, weight, size, or condition of any of the property, or its fitness for any use or purpose. (emphasis added).

The October, 1988 Notice of Encumbrance stated on the front side:

NOTE: The Internal Revenue Service does not warrant the correctness or completeness of the above information, and provides the information solely to help the prospective bidders determine the value of the interest being sold. Bidders should, therefore, verify for themselves the validity, priority, and amount of encumbrances against the property offered for sale. (emphasis added).

On the reverse side of this Notice of Encumbrance, the following is stated:

Pursuant to authority contained in sections 6331 and 6335 of the Internal Revenue Code and the regulations thereunder, and by virtue of a levy issued by authority of the District Director of Internal Revenue, the right, title, and interest in the property described in the notice of sale of the taxpayer whose name appears on the reverse side of this document will be sold.

Such interest is offered subject to any prior outstanding mortgages, encumbrances, or other liens in favor of third parties, which are valid against the taxpayer and are superior to the lien of the United States. The reverse of this document provides information

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