First of America Bank-West Michigan v. Alt

• Decision Date: 22 December 1993
• Docket Number: No. 1:91-CV-1020.,1:91-CV-1020.
• Citation: 848 F. Supp. 1343
• Parties: FIRST OF AMERICA BANK — WEST MICHIGAN, Plaintiff, v. William J. ALT, M.D., Lind Alt, Harbor Laboratory, Inc., United States of America, and Cote La Mer, Inc., Defendant.
• Court: U.S. District Court — Western District of Michigan

848 F. Supp. 1343

FIRST OF AMERICA BANK — WEST MICHIGAN, Plaintiff, v. William J. ALT, M.D., Lind Alt, Harbor Laboratory, Inc., United States of America, and Cote La Mer, Inc., Defendant.

No. 1:91-CV-1020.

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

December 22, 1993.

COPYRIGHT MATERIAL OMITTED

Alvin D. Treado, Culver, Lague & McNally, Muskegon, MI, for plaintiff.

Michael H. Dettmer, Asst. U.S. Atty., Grand Rapids, MI, John A. Lundquist, U.S. Dept. of Justice, Tax Div., Washington, DC, for defendant.

MEMORANDUM OPINION

McKEAGUE, District Judge.

This is a civil action brought by plaintiff First of America Bank — West Michigan ("FOA" or "Bank") to foreclose its mortgage on certain real property previously owned by William and Rosalinda ("Lind") Alt, and to determine the priority of its lien. The subject property is a condominium located in Cote La Mer, a subdivision in Ottawa County, Michigan. The property was recently sold by judicial sale, yielding net proceeds of $79,710.45. Those proceeds have been placed in escrow with the Court.

The United States contends that its tax lien against Lind Alt has priority over plaintiff's claimed mortgage interest in the property pursuant to the Internal Revenue Code, 26 U.S.C. § 6323. Both parties are now before the Court on contesting motions for summary judgment.

FACTS

Lind Alt purchased the disputed Cote La Mer property on December 30, 1971. On April 16, 1982, Lind and William Alt filed their 1981 tax return with the Internal Revenue Service ("IRS"). A few months later, on October 11, 1982, the IRS made an assessment against the Alts for their unpaid taxes from 1981. On June 27, 1984, the Alts borrowed $501,000 from FOA in the form of a commercial loan, securing the loan with a mortgage on the condominium and two other pieces of property located in Muskegon County. The Bank recorded the mortgages by filing in Muskegon County, but not in Ottawa County where the Cote La Mer condo is located.

On or before April 15, 1985, the government contends that it issued a statutory notice of deficiency for the Alts' unpaid 1981 taxes.¹ Later in April of that year, the Alts commenced a Tax Court proceeding relating to their 1981 return. On May 27, 1986, the Tax Court entered a judgment against the Alts for taxes due in the sum of $83,655.40, plus negligence penalties. A few days later, on June 2, 1986, Lind Alt transferred the condominium to a corporation called Harbor Laboratory, Inc. ("Harbor Lab"), by quit-claim deed. Although the facts are unclear, Harbor Lab is apparently owned by Lind Alt. The deed was recorded on August 1, 1986, in Ottawa County. The IRS later found Harbor Lab to be a nominee or alter ego of the Alts. On June 13, 1986, the IRS made another assessment against the Alts, this time pursuant to the Tax Court's ruling in May.

On November 3, 1986, the IRS filed a tax lien against Lind and William Alt, but not Harbor Lab, in Ottawa County. The tax lien was for $178,280.87, for the tax period ending December 31, 1981. This lien initially referenced the assessment of October 11, 1982. On April 28, 1987, however, the IRS filed an amended tax lien, changing the assessment date to June 13, 1986, the date of the assessment which followed the Tax Court's ruling.

In August of 1987, the IRS sold other property of the Alts, realizing net proceeds of $94,770.80. These proceeds were applied against the Alts' 1981 tax liability.

By letter dated December 31, 1987, FOA requested proof of fire insurance for the Cote La Mer property from the Alts. Lind Alt responded that the loan had been paid in full. Subsequent negotiations between the Alts and the Bank ensued, whereby FOA agreed to refinance the Alts' loan on March 8, 1988, secured by the same property, including the condominium. This time, however, the mortgage was recorded in Ottawa County on April 28, 1988. On June 12, 1991, the IRS filed a notice of Federal Tax Lien against Harbor Lab in Ottawa County.

Throughout early 1991, FOA requested that the Alts obtain fire insurance on the Cote La Mer property. Effective June 26, 1991, the Bank independently obtained its own insurance coverage for the condo. A few months later, on November 1, 1991, FOA filed the present foreclosure action in Ottawa County Circuit Court. On November 12, 1991, the IRS filed further liens against the Alts' property for tax years subsequent to 1981.

The IRS contends that Lind Alt owes the United States $188,794.83 as of August 1, 1993, on the 1981 tax liability. At the judicial sale of the Cote La Mer condo, the property grossed approximately $91,500. After payment of back taxes on the property, U.S. Marshal fees, dues owed to the condominium association, and utility costs incurred by the association in maintaining the property, $79.710.45 remained. This sum was escrowed with the Court, pending disposition of this matter.

In October of 1992, FOA served its first set of interrogatories and document production requests in this case on the IRS. The IRS objected to most of these requests and inquiries. On January 25, 1993, Magistrate Judge Scoville granted the Bank's motion to compel discovery, and the IRS was ordered to furnish FOA with supplemental answers. In its subsequent answers, the IRS indicated that it was appropriate for it to file a notice of deficiency for the tax year 1981 in the spring of 1986, as the Alts misrepresented their 1981 income by over 25%, giving the IRS a six-year statute of limitations. These subsequent answers proved inadequate to FOA, however, and on March 31, 1993, Judge Scoville issued another order compelling the IRS to comply with discovery requests. In this set of answers, the IRS no longer claimed that the Alts had misrepresented their income by over 25%. Rather, the IRS claimed that notice of deficiency had issued on or before April 15, 1985, pulling it within the three-year statute of limitations applicable in most situations. The IRS also revealed for the first time that the Alts had filed a Tax Court petition in 1985.

DISCUSSION

Both FOA and the United States are now before this Court on cross-motions for summary judgment. The briefs in this case present a myriad of issues for resolution. First and foremost, is the question, "Who has priority in the property?" Although it appears the IRS does, FOA challenges the priority of the federal tax lien on several grounds. The second issue is whether the equitable doctrines of laches or estoppel apply in this case. The third issue concerns whether the doctrine of marshalling may be applied to the IRS. The fourth question presented by the briefs asks whether FOA is entitled to discovery sanctions due to IRS actions (or nonactions) in the course of this litigation. The final issue presented for resolution is whether FOA is entitled to reimbursement for the insurance it obtained on the Cote La Mer property. Applying the standards for summary judgment, the Court will examine each of these issues in turn.

Summary judgment is appropriate when the record reveals that there are no issues as to any material fact in dispute and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Sims v. Memphis Processors, Inc., 926 F.2d 524, 526 (6th Cir.1991) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986), and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)). The standard for determining whether summary judgment is appropriate is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Booker v. Brown & Williamson Tobacco Co., 879 F.2d 1304, 1310 (6th Cir. 1989) (quoting Anderson, 477 U.S. at 251-52, 106 S.Ct. at 2511-12). "By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48, 106 S.Ct. at 2510 (emphasis in original).

The moving party bears the burden of clearly and convincingly demonstrating the absence of any genuine issues of material facts. Sims, 926 F.2d at 526. The court must consider all pleadings, depositions, affidavits, and admissions on file and draw all justifiable inferences in favor of the party opposing the motion. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). If the moving party carries this burden, the nonmoving party must present significant probative evidence showing that genuine, material factual disputes remain to defeat summary judgment. Sims, 926 F.2d at 526. The court's function is not to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. Id. The court must make purely legal judgments that go to the nature and sufficiency of the complaint as well as the evidence put forward to support it. Val-Land Farms, Inc. v. Third Nat'l Bank, 937 F.2d 1110, 1113 (6th Cir.1991). Applying these principles to the present case, this memorandum concludes that FOA's motion for summary judgment shall be denied. The government's motion shall be granted.

I. Priority of Lien

The first question presented for resolution in this matter is whose interest in the Cote La Mer property has priority. FOA contends that its mortgage on the condominium has priority, while the United States claims that the federal tax lien prevails. This is a question of both federal and state law.

In Michigan, interests in real property are recorded with the register of deeds in the county where the property is located. All recorded liens, rights, and interests in property take priority over subsequent owners and encumbrances. M.C.L.A. § 565.25. Where an individual fails to record a lien or interest...