Coson v. United States

• Decision Date: 30 December 1958
• Docket Number: Civ. No. 20872-TC.
• Citation: 169 F. Supp. 671
• Court: U.S. District Court — Southern District of California
• Parties: James R. COSON, Plaintiff, v. UNITED STATES of America, Defendant.

169 F. Supp. 671

James R. COSON, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. 20872-TC.

United States District Court S. D. California, Central Division.

December 30, 1958.

Wadsworth, Fraser & McClung, Los Angeles, Cal., for plaintiff.

Laughlin E. Waters, U. S. Atty., Edward R. McHale, Asst. U. S. Atty., Chief, Tax Division, Los Angeles, Cal., for defendant.

CLARKE, District Judge.

This action is one to quiet title to specific parcels of real property owned by plaintiff, against which the United States claims a lien for unpaid withholding, employment, and cabaret taxes. Viewed in the light of the pleadings and the evidence adduced at trial, plaintiff's main contention is that the United States has no lien because these taxes never have been assessed against him.

Between March and August of 1955, plaintiff invested $31,000 in a newly organized Las Vegas, Nevada, hotel and gambling establishment known as the "Moulin Rouge," and obtained a 1.70 per cent interest therein. He reasonably and in good faith thought he was investing as a limited partner in a limited partnership. The Moulin Rouge was not, however, a limited partnership. Upon first ascertaining this, plaintiff promptly mailed notices of renunciation.

On November 15, 1955, there was filed with the County Recorder of Los Angeles County, California, a Notice of Federal Tax Lien for unpaid withholding, employment, and cabaret taxes in the sum of over $133,000 against the "Moulin Rouge Partnership," and many individuals, including the plaintiff, James R. Coson.

Notice and demand for the payment of these taxes was first individually given James R. Coson subsequent to the commencement of this action.

Plaintiff asserts this court has jurisdiction over the subject matter of this action under section 1340 of Title 28 U.S.C.¹

In Merchants Loan Co. v. United States, D.C.Ariz.1957, 169 F.Supp. 227, an action to quiet title to an automobile, the disputed point was whether a federal tax lien should be afforded priority over a chattel mortgage. The court, merely citing § 2410(a) of Title 28 U.S.C.² concluded it had jurisdiction. The court, being within the Ninth Judicial Circuit, presumably followed the rule laid down by the Court of Appeals for the Ninth Circuit in Seattle Ass'n of Credit Men v. United States, 1957, 240 F.2d 906 and Wells v. Long, 1947, 162 F.2d 842 to the effect that § 2410 is only a waiver of sovereign immunity, and does not confer jurisdiction upon the federal courts. Since no seizure of property was involved in this case, the court could not have resorted to section 2463 of Title 28 U.S.C.³ The only basis for the court's having assumed jurisdiction would appear to have been § 1340.

A like view might be taken of Macatee, Inc., v. United States, 5 Cir., 1954, 214 F.2d 717, but for some uncertainty as to whether the Fifth Circuit likewise views § 2410 as amounting solely to a waiver of sovereign immunity. This is true notwithstanding Maule Industries, Inc., v. Tomlinson, 5 Cir., 1957, 244 F.2d 897, wherein § 1340 was held nonapplicable, for that case turned upon the question of ownership of property which had been levied upon by the District Director for unpaid taxes.

Both City of New York v. Evigo Corp., D.C.S.D.N.Y.1954, 121 F.Supp. 748 and Phillips v. Jonas, D.C.E.D.Wis.1952, 122 F.Supp. 773, involved the question of whether a federal tax lien should be afforded priority, and jurisdiction was based on § 1340. It should be noted, however, that in City of New York, the United States had removed the action to the federal court pursuant to section 1444 of Title 28 U.S.C.⁴ The case of Hood v. United States, 9 Cir., 1958, 256 F.2d 522, which held no original federal jurisdiction was necessary for a removal by the Government under § 1444, casts doubt upon the necessity for the court's having discussed the applicability of § 1340. In addition, both City of New York and Phillips involved seizures; thus, § 2463 was available as an alternative ground for jurisdiction.

Gerth v. United States, D.C.S.D.Cal. 1955, 132 F.Supp. 894 and Colorado Milling & Elevator Co. v. Glenn, D.C.W.D. Ky.1954, 118 F.Supp. 943 both cite § 1340 as a basis for jurisdiction, but are of questionable authority, since both turned upon a question of title to the property involved. Also, the court in Gerth cited § 1340 only after having first concluded it had jurisdiction by virtue of § 2463. Likewise, in the Colorado Milling Co. case, a levy having been involved, the court could have relied upon § 2463.⁵

In the instant case, plaintiff asserts the invalidity of the Government's claim of lien against his property under the Internal Revenue Code of 1954. The basic question raised is whether or not such a lien exists. This court concludes that this is a controversy arising under an internal revenue law⁶ and that it has jurisdiction of the action by virtue of § 1340.

This action is one to quiet title. It is not one for declaratory judgment, forbidden by section 2201 of Title 28 U.S.C.⁷ It does not seek to restrain the assessment or collection of any tax; rather, its purpose is to quiet plaintiff's title to certain real property against a claimed lien for taxes by the United States. Thus, it is not within the prohibition of section 7421 of Title 26 U.S.C.⁸

Plaintiff relies upon section 2410 of Title 28 U.S.C. as authorizing this action against the United States. As noted above, § 2410 is a waiver of sovereign immunity, and is not limited to actions seeking to foreclose and obtain a judicial sale, but extends to actions to quiet title. United States v. Morrison, 5 Cir., 1957, 247 F.2d 285; Seattle Ass'n of Credit Men v. United States, supra, 240 F.2d at page 908.

The critical question is whether § 2410(a) authorizes an action to quiet title against a lien asserted by the Government for taxes allegedly owed by the plaintiff.

In Commercial Credit Corp. v. Schwartz, D.C.E.D.Ark.1954, 126 F.Supp. 728, a mortgagee brought a foreclosure action in a state court. He named as a defendant the United States, which claimed a lien against the property for unpaid taxes of the mortgagor. The Government removed the case to the federal district court pursuant to § 1444. The mortgagees, defendants in the action, sought leave to file an amended answer, whereby they might "attack the validity of the assessment upon which the Government's lien is based on the ground that the Commissioner of Internal Revenue in computing their income tax for that year erroneously treated as income certain moneys which were not in fact such." at page 729. In denying the motion, the court observed "it should be kept in mind that the movants are not seeking merely to remove a lien from the fund which now stands in the place of their property; the Government's lien for unpaid taxes is one thing, and the assessment upon which such lien is based is quite a different thing. * * *" (Emphasis added.) at page 729.

In Sanders v. Andrews, D.C.W.D.Okl. 1954, 121 F.Supp. 584, rev'd sub nom Sanders v. Commissioner, 10 Cir., 1955, 225 F.2d 629, another case involving a taxpayer's action to quiet title against a federal tax lien, the court observed: "The defendants contend that it is an attempt on the part of the plaintiffs to have this court determine their tax liability. This court would have no jurisdiction in a purely income tax controversy, but this is not an income tax case. The mere fact that the liens claimed are for a tax lien does not deprive this court of jurisdiction. Under the statutes this court has jurisdiction in this character of case to quiet title against liens asserted if under the record it is disclosed to the satisfaction of the court that the liens are invalid or the result of arbitrary and capricious conduct." 121 F. Supp. at page 593.⁹

§ 2410(a), as first enacted in 1931¹⁰ was limited to foreclosure actions. In 1942¹¹ it was amended to include actions to quiet title. The Reports by the Committees on the Judiciary of both Houses of Congress are identical.¹² One stated purpose of the bill was "to provide a method to clear real-estate titles of questionable or valueless Government liens."¹³ The Committee Reports then printed a letter from the Attorney General of the United States pertaining to certain suggestions concerning a previous bill, which had been incorporated in the bill then before the committees. That letter stated:

"It should be observed * * * that under existing law there is no provision whereby the owner of real estate may clear his title to such real estate of the cloud of a Government mortgage or lien. Welch v. Hamilton, D.C. (S.D.Cal.), 33 F.2d 224, and United States v. Turner (8 Cir.), 47 F.2d 86.

"In many instances persons acting in good faith have purchased real estate without knowledge of the Government lien or in the belief that the lien had been extinguished. In other instances, mortgagees have foreclosed on property and have failed to join the United States. It appears that justice and fair dealing would require that a method be provided to clear real estate titles of questionable or valueless Government liens. Accordingly, I suggest that the bill be amended by inserting the phrase `to quiet title' between the words `matter' and `for the foreclosure of' * * *."

Clearly, the bringing of a quiet title action solely against the United States was contemplated. Although the examples discussed by the Attorney General in his letter both dealt with situations where one other than a taxpayer might seek to quiet title to his property against liens asserted by the Government, the statute contains no language precluding such an action by a taxpayer.

In this case, plaintiff does not seek to contest the correctness of an assessment; instead, he contends there just never was any assessment of the taxes in question against him. Since the taxes were not income, estate, or gift taxes, he did not have the alternative of filing a petition with the Tax Court.¹⁴ This court concludes...