Crow Creek Sioux Tribal Farms, Inc. v. USIRS

• Decision Date: 06 January 2010
• Docket Number: No. Civ. 09-3031-RAL.,Civ. 09-3031-RAL.
• Citation: 684 F. Supp.2d 1152
• Parties: CROW CREEK SIOUX TRIBAL FARMS, INC., and Crow Creek Sioux Tribe, Plaintiffs, v. UNITED STATES INTERNAL REVENUE SERVICE and James Daugherty, E. Hannifin, and Steve Hopkins, Employees of the Internal Revenue Service, Defendants.
• Court: U.S. District Court — District of South Dakota

684 F.Supp.2d 1152

CROW CREEK SIOUX TRIBAL FARMS, INC., and Crow Creek Sioux Tribe, Plaintiffs, v. UNITED STATES INTERNAL REVENUE SERVICE and James Daugherty, E. Hannifin, and Steve Hopkins, Employees of the Internal Revenue Service, Defendants.

No. Civ. 09-3031-RAL.

United States District Court, D. South Dakota, Central Division.

January 6, 2010.

Terry L. Pechota, Mario Gonzalez, Rapid City, SD, for Plaintiffs.

Curtis J. Weidler, U.S. Department of Justice, Washington, DC, for Defendants.

OPINION AND ORDER DENYING PLAINTIFFS' MOTION FOR TEMPORARY RESTRAINING ORDER

ROBERTO A. LANGE, District Judge.

On December 2, 2009, Plaintiffs Crow Creek Sioux Tribe ("the Tribe") and Crow Creek Sioux Tribal Farms, Inc. filed a motion seeking a temporary restraining order ("TRO motion") to stop a public auction of land set for the next day, December 3, 2009. (Doc. 7). The TRO motion was filed one day after the Plaintiffs filed their Verified Complaint seeking injunctive relief. (Doc. 1).

Counsel for Defendants notified the Court on December 2 that they opposed the TRO motion. The Court held a hearing on the TRO motion on December 2, at 12:00 p.m., with the attorneys for all parties appearing and participating. The Court posed multiple questions to the parties concerning the real estate at issue and scheduled public auction of that real estate. From the hearing and review of the record, the Court gained as full an understanding of this case as possible under the limited time available before the necessity of a ruling on the TRO motion. For the reasons explained during the hearing and elaborated upon below, the Court has denied the TRO motion, declines to grant preliminary injunctive relief, but has set a trial of the case for March 29 and 30, 2010, to avert irreparable injury to any party.

I. INTRODUCTION

II. SUMMARY OF FACTS

III. DISCUSSION

The Court draws the facts from the pleadings of record, matters of which the Court takes judicial notice such as the bankruptcy court filing by Crow Creek Tribal Farms, Inc., and information provided at the hearing on December 2, 2009. The Court had to rule on extremely short notice and a limited record, so nothing in this opinion and order is meant to be taken as a final ruling.

The Tribe is a federally recognized Indian Tribe with certain sovereign power and authority within the Crow Creek Indian Reservation. In 2003, the Tribe became delinquent in payment of employment taxes collected by the Internal Revenue Service ("IRS"). The Tribe claims that it relied on erroneous advice from the Bureau of Indian Affairs for not remitting employment taxes, but does not dispute in its Verified Complaint that it owes substantial amounts to the IRS. (Doc. 1).

In order to collect the delinquent employment taxes, the IRS has levied on property and money of the Tribe. The Tribe has made some attempts to pay the arrearage and subsequent amounts as they come due, but has been unable to bring the employment taxes current. That arrearage, plus penalties and interest sought by the IRS, presently exceeds $3.1 million. (Doc. 1).

The land at issue, called the LeMaster Ranch, is located primarily in Hyde County, South Dakota, and apparently was part of the original Crow Creek Indian Reservation as established by the Treaty of 1868 and congressional enactments in 1868 and 1889. The land, previously held in trust by the United States government for the Tribe and its members, was sold out of trust in fee status some years ago and ultimately was purchased by the LeMasters. As part of its land consolidation efforts, the Tribe purchased the land, consisting of approximately 7,100 acres, from the LeMasters in 1998. The land is currently leased to Todd Cowan under a long-term lease. Mr. Cowan has made the payment for 2009 to the Tribe or to the entity that the Tribe created under tribal law called Crow Creek Tribal Farms, Inc. ("the Tribal corporation"). (Doc. 1).

The bankruptcy court file provides a history of the IRS's efforts to seize and sell the land. The IRS served notice of federal tax liens on the Tribe and filed those notices in the Register of Deeds Office for Hyde County on July 18, 2005; November 14, 2005; April 20, 2006; April 12, 2007; August 28, 2007; January 2, 2008; January 22, 2008; and October 14, 2008, and with the Register of Deeds Office for Hughes County on April 12, 2007; January 2, 2008; January 22, 2008; and October 34, 2008. These Notices of Federal Tax Lien related to the Form 668B Levy. The Form 668B Levy identified both employer payroll obligations and employment taxes owed by the Tribe through December 31, 2008. (D.S.D. Bankruptcy 09-30021, Doc. 35).

On December 3, 2008, the IRS served the Levy and a Form 2433 Notice of Seizure upon the Tribe seizing the approximately 7, 100 acres of non-trust real property located in Hyde County known as the LeMaster Ranch, a Lease Agreement (between the Tribe and Todd Cowan) for the same property, and ten acres in Hughes County. (Bankr. Doc. 35). Custody of the seized LeMaster Ranch property was turned over to a Property Asset and Liquidation Specialist for disposition. A seizure sale was scheduled for 10:00 a.m., on May 8, 2009, in Highmore, South Dakota, with the proceeds of the auction sale to be applied to the Form 668B Levy dated November 6, 2008, and subsequent tax liabilities of the Tribe. (Bankr. Doc. 35).

On May 8, 2009, the Tribe or the Tribal corporation filed a warranty deed with the Hyde County Register of Deeds at 9:40 a.m., twenty minutes before the scheduled sale, transferring title to the LeMaster Ranch from the Tribe to the Tribal corporation. The only consideration explicitly listed in the deed and certificate of value filed with the deed was one dollar, (Doc. 1, Exhibit 3). At the hearing of the TRO motion, the parties acknowledged that there was minimal consideration for the transfer. The Tribal corporation then filed a bankruptcy petition, triggering an automatic stay. As a result, the public auction set for May 8, 2009, did not occur.

Then, the IRS, through its employees, who are named as individual defendants in this case, exercised collection rights through a Notice of Public Auction Sale dated October 23, 2009, to sell the 7,100 acre LeMaster Ranch, owned by the Tribe or the Tribal corporation on December 3, 2009, at 10:00 a.m. at the Hyde County Courthouse in Highmore, South Dakota. (Doc. 1, Exhibit 2). The public auction notice, dated October 23, 2009, included a right of redemption provision as follows:

(1) Period.—The owners of any real property sold as provided in section 6635, their heirs, executors, or administrators, or any person having any interest therein, or a lien thereon, or any person in their behalf, shall be permitted to redeem the property sold, or any particular tract of such property at any time within 180 days after the sale thereof.

(2) Price.—Such property or tract of property shall be permitted to be redeemed upon payment to the purchaser, or in case he cannot be found in the county in which the property to be redeemed is situated, then to the Secretary, for the use of the purchasers, their heirs, or assigns, the amount paid by such purchaser and interest thereon at the rate of 20 percent per annum.

(Doc. 1, Exhibit 2).

Under this provision, the Tribe and the Tribal corporation have a 180-day period after the sale during which the property can be redeemed. A party exercising redemption rights must pay the sale price plus a 20 percent per annum interest rate to the purchaser at the public auction. At the hearing, neither Plaintiffs nor Defendants explained how either party's injury would be irreparable if the case were resolved within 180 days of the public auction, in light of the opportunity to redeem. Neither party gave reason why the Court could not order the Defendants to redeem if the sale were found to have been unlawful. The Plaintiffs' attorneys argued that the Tribe is impoverished, that the Tribe has been pursuing financing, that the Tribe needs more time to come up with the money owed, that negotiations are ongoing with the IRS over possible reduction of the amount, and that the land has great value culturally and economically for the Tribe. For reasons discussed below, the Plaintiffs' arguments do not satisfy the irreparable harm element to justify the requested injunction, especially in light of the redemption rights.

A. Legal Standard

The Plaintiffs moved under Rule 65(b) of the Federal Rules of Civil Procedure for a temporary restraining order directing the Defendants to cease, desist from and suspend any and all further actions directed towards seizing and selling the LeMaster Ranch. Defendants received notice of the TRO motion and appeared at the December 2, 2009 hearing on the motion. Therefore, the Court looks both to the standards governing TRO motions and to those applicable to preliminary injunction motions. See Saint v. Nebraska School Activities Ass'n, 684 F.Supp. 626, 627 n. 1 (D.Neb. 1988).

An injunction is an extraordinary remedy that is not routinely granted and generally reserved for when the right to relief is clear. Weinberger v. Romero-Barcelo, 456 U.S. 305, 312, 102 S.Ct. 1798, 72 L.Ed.2d 91 (1982); Ferry-Morse Seed Co. v. Food Corn, Inc., 729 F.2d 589, 593 (8th Cir.1984); 11A Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice & Procedure, § 2942 at p. 43. In determining whether to issue such injunctive relief, the Court considers the factors set forth in Dataphase Systems, Inc. v. C.L. Systems, Inc., 640 F.2d 109, 113 (8th Cir.1981):(1) the threat of irreparable harm to plaintiffs; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on the defendants; (3) the probability of plaintiffs' success on the merit s; and (4) the public interest. See Winter v. Natural Resources Defense Council, Inc., ___ U.S. ___, 129 S.Ct. 365, 374, 172 L.Ed.2d 249 (2008); Oglala Sioux Tribe...