Equity Investment Partners, Lp v. Lenz
| Decision Date | 29 January 2010 |
| Docket Number | No. 09-11887.,09-11887. |
| Citation | 594 F.3d 1338 |
| Parties | EQUITY INVESTMENT PARTNERS, LP, Plaintiff-Counter-Defendant-Appellant, v. Karin LENZ, Defendant-Cross-Defendant-Appellee, United States of America, Internal Revenue Service, Defendant-Cross-Claimant-Counter-Claimant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Eric Allan Lee, Lee & Amtzis, P.L., Boca Raton, FL, for Plaintiff.
Carol A. Barthel, Randolph L. Hutter, Jonathan S. Cohen, Bruce R. Ellisen, U.S. Dept. of Justice, App. Tax Div., Washington, DC, for Defendants.
Appeal from the United States District Court for the Southern District of Florida.
Before WILSON and COX, Circuit Judges, and RESTANI,* Judge.
Equity Investment Partners, LP ("Equity") claims to hold a security interest in certain real property owned by Karin Lenz ("Karin"). The Internal Revenue Service ("IRS") placed a lien on the real property due to Karin's and her husband's unpaid tax liabilities. Equity filed an action against Karin and the United States seeking to foreclose its mortgage and to establish the priority of its security interest over the federal tax lien. The IRS counterclaimed to establish the priority of its tax lien. The district court granted the IRS summary judgment establishing that the tax lien was a superior interest. The court held that Equity did not qualify as a "holder of a security interest" under I.R.C. § 6323. Equity appeals. We vacate and remand for further proceedings.
Equity is an investment partnership; its majority owners, Stacie Daley ("Daley") and Corbett Lenz ("Corbett") are the children of Karin and her husband Randolph Lenz ("Randolph"). Randolph and Karin suffered financial difficulties as a result of various proceedings brought against them by the Federal Deposit Insurance Corporation ("FDIC"). To assist with personal expenses and costs related to the FDIC proceedings, Daley and Corbett loaned their parents over $3 million. The funds were loaned through Equity and several other entities these children owned and controlled. Most of the loaned monies were transferred to Randolph's personal bank account, but they were used for the joint expenses of Randolph and Karin. Some of the loaned monies were transferred directly to a law firm to cover the costs of legal representation in the FDIC proceedings. In addition to the loans, Costa Corporation, another entity owned and controlled by these children, transferred over $8 million to the FDIC as part of a settlement of all claims against Randolph, Karin, Corbett, Daley, and other entities.
Karin held title to certain real property located in Florida. After Daley and Corbett began loaning their parents money through Equity and other entities, Equity entered into a mortgage and security agreement with Karin. The agreement granted Equity a security interest in the real property in exchange for a loan of $1 million. Equity and Karin signed a promissory note, referenced by the mortgage, establishing the terms of the loan. On October 21, 2004, the mortgage was recorded in public records. Equity did not make a contemporaneous payment of $1 million to Karin at the time the mortgage and promissory note were executed. Daley and Corbett assert that the purpose of the mortgage was to secure repayment of the monies they had advanced to their parents as of the time of the mortgage transaction. Approximately ten months later, after the amounts loaned to Karin and Randolph increased to over $3 million and after the FDIC settlement payment, Equity and Karin entered into a mortgage modification agreement. The agreement increased the loan amount secured by the mortgage by an additional $2 million. The promissory note was amended to include the amount of the additional loans and set forth repayment terms. On August 12, 2005, this mortgage modification was recorded in public records. Once again, Equity did not contemporaneously pay Karin the $2 million specified in the agreement.
Daley asserts that it was agreed and understood that when the various family members entered into the settlement agreement with the FDIC, the real property would be used to secure repayment of funds advanced to Randolph and Karin. (R.46 Ex. 13 at 3 ¶ 22.) And, she asserts it was agreed that the mortgage would be issued in Equity's name "as the overall entity entitled to recover repayment of the loans on behalf of the various entities owned and controlled by [Daley] and [Corbett]." (Id. at ¶ 23.) Karin testified in a deposition that she does not recall why she signed the mortgage, but in the same deposition she also testified that the purpose of the mortgage modification was "[p]robably so I can pay my children back." (R.43 Ex. 11 at 20.) Karin failed to make any payments on the mortgage debt and was in default within a few months after the mortgage modification agreement was executed. According to Daley, Equity did not immediately foreclose its mortgage because it wanted to afford Karin the opportunity to sell the real property and realize its full value.
The IRS made assessments against Randolph and Karin for unpaid income taxes. It prepared a Notice of Federal Tax Lien on all property and rights to property belonging to Randolph and Karin. The IRS filed the notice in public records on August 16, 2005, after the mortgage and mortgage modification agreements between Equity and Karin had been filed.
Equity filed suit in the United States District Court for the Southern District of Florida against Karin and the United States seeking to foreclose its mortgage and establish the priority of its security interest over the tax lien. Karin did not respond to Equity's Complaint, and the Clerk entered her default. See Fed. R.Civ.P. 55(a). The IRS answered the Complaint, filed a counterclaim against Equity to establish the priority of its tax lien over Equity's security interest, and filed a crossclaim against Karin seeking to foreclose its tax lien. Equity moved for summary judgment, and the IRS moved for partial summary judgment; both motions sought to establish the priority of their respective interests in the real property. Equity asserted that because the mortgage and mortgage modification were filed before the notice of the tax lien was filed, Equity's security interest takes priority pursuant to I.R.C. § 6323(a). The IRS countered that Equity's mortgage and mortgage modification could not take priority because they did not create a security interest under I.R.C. § 6323. And, even if these mortgages did create a security interest, the IRS argued, the transfer of an interest to Equity was fraudulent and was therefore unenforceable against the tax lien.
The district court concluded that because Equity did not "produce objective evidence that `money or money's worth' was exchanged for an interest in the Property, the Mortgage Modification does not qualify as a security interest under Section 6323(a), and the IRS tax lien takes priority." (R.67 at 13.) The court also concluded that whether the conveyance was fraudulent is a disputed question of fact which could not be resolved on summary judgment.1 (Id. at 14.) Because it held Equity did not have a security interest under section 6323, it granted the IRS partial summary judgment and denied Equity's motion for summary judgment. (Id. at 15).
Equity filed a motion to reconsider based on newly discovered evidence in the form of a loan and security agreement purporting to show that money or money's worth was exchanged for its interest in the real property. The court declined to consider the evidence and denied Equity's motion because the agreement was in Equity's possession during the discovery period, and Equity did not exercise reasonable diligence to discover and produce the evidence. (R.80 at 7.) The court also explained that, even if it were to consider the evidence, the newly discovered agreement would fail to demonstrate that Equity held a security interest under section 6323(a). (Id. at 8.)
After it was granted partial summary judgment, the IRS moved to amend its counterclaim and crossclaim by adding Merrill Lynch Credit Corporation as a defendant because it also has an interest in the real property and was therefore an indispensable party to the case. The court denied the IRS's motion, and the parties stipulated to the dismissal without prejudice of the IRS's counterclaim and crossclaim. The court dismissed these claims without prejudice and entered a final judgment in the case.2 Equity appeals the grant of partial summary judgment to the IRS, the denial of its motion for summary judgment, and the denial of its motion to reconsider.
The main issue on appeal is whether there exists a disputed issue of material fact that precludes summary judgment establishing the priority of interests in the real property owned by Karin. Equity contends that evidence shows the mortgage and mortgage modification agreements created a security interest in the real property. And, because the agreements were recorded in public records prior to the recording of the tax lien, Equity argues it is entitled to summary judgment establishing the priority of its security interest. The IRS counters that the tax lien is a superior interest because the mortgage and mortgage modification agreements are not security interests. It argues that evidence shows Equity did not part with "money or money's worth" as required for the formation of a security interest under I.R.C. § 6323. Therefore, the IRS argues, summary judgment establishing the priority of the tax lien was appropriate.
Equity also argues that the court abused its discretion in denying its motion for reconsideration. To prevent manifest injustice, Equity contends the court should have reconsidered its judgment in light of a newly discovered loan and security agreement purporting to show that it parted with "money or money's worth" in exchange...
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