Hannon v. City of Newton
| Decision Date | 24 September 2012 |
| Docket Number | CIVIL ACTION NO. 11-10021-DPW |
| Parties | PATRICK J. HANNON, Plaintiff, v. CITY OF NEWTON, Defendant, and UNITED STATES OF AMERICA, COMMONWEALTH OF MASSACHUSETTS, and RITA S. MANNING, Intervenors. |
| Court | U.S. District Court — District of Massachusetts |
This case involves the disposition of the proceeds of an undercompensation action related to the eminent domain taking of property at 20 Rogers Street in Newton, Massachusetts, formerly owned by Plaintiff Patrick J. Hannon. The United States and Rita S. Manning intervened in order to assert their separate interests in the proceeds.
On October 24, 2011, I issued a Memorandum and Order holding that the United States had discharged its lien on Hannon's property pursuant to 26 U.S.C. § 6325(b)(2)(A) and, in doing so, surrendered its priority claim to proceeds generated by litigation after the discharge. Final judgment entered that day directing that the funds from the lawsuit be distributed first to Manning and then to the United States as an unsecured creditor.
The United States timely filed a Motion for Reconsideration of my October 24, 2011 Memorandum and Order. Julie Foshay, a third party who had previously recorded a judgment against Hannon, thereafter moved to intervene.
At various times from December 17, 2001 through October 15, 2005, Hannon and his wife were assessed income tax, penalties, and interest for the years 1999, 2000, and 2001 by a delegee of the Secretary of the Treasury. Notices of Federal Tax Liens for the assessed liabilities were filed at the United States District Court in Boston at various times between January 24, 2003 and February 6, 2004, and at the Registry of Deeds for Southern Middlesex County at various times between February 8, 2003 and February 23, 2004.
On April 14, 2004, Julie Foshay recorded a writ of attachment of Hannon's "goods or estate" in Massachusetts in the amount of $1,553,730 at the Middlesex Registry of Deeds.
Rita Manning obtained a judgment against Hannon on March 17, 2005 in the Middlesex Superior Court in the amount of $103,333.33. She obtained an execution for that amount against Hannon's "goods, chattles [and] land" on June 9, 2005, and she recorded that execution at the Middlesex County Registry of Deeds on June 28, 2005.
Approximately one year later, on June 6, 2006, Foshay recorded a second writ of attachment at the Middlesex Registry of Deeds increasing the amount of her attachment to $1,877,520. On August 10, 2006, Foshay recorded a copy of a judgment she was awarded against Hannon for "$1,001,134 plus interest in the amount of $636,114 through and including March 20, 2006 plus interest from and after said date at the statutory rate (currently 12% or $329.14 per diem), and her costs of action."
At the time of these recordings, Hannon owned property at 20 Rogers Street in Newton, Massachusetts ("the Property"). On May 7, 2007, the City of Newton took the Property under the power of eminent domain and made a pro tanto payment of $2,300,000. Three days beforehand, the Internal Revenue Service ("IRS") had issued a Certificate of Discharge for the Property pursuant to 26 U.S.C. § 6325(b)(2)(A). The Certificate was recorded on July 17, 2007, and stated that the value of the interest of the United States in the Property was $57,214.55. This amount was collected by the United States in exchange for the discharge.
On November 10, 2008, Hannon filed this action in the Middlesex Superior Court against the City of Newton, alleging under-compensation for the taking of the Property. On May 14, 2010, Manning moved to intervene and her motion was allowed on May 20, 2010. On May 19, 2010, the IRS issued a Notice of Levyto the City of Newton with respect to all property and rights to property belonging to Hannon. Two months later, judgment entered for Hannon against the City of Newton for the sum of $420,000.00 with interest in the sum of $31,245.72 as well as the costs of the action.
The motion was allowed on September 23, 2010. On October 4, 2010, the City of Newton deposited the amount due, plus interest, with the court.
On December 7, 2010, the United States moved to intervene and its motion was granted. On December 22, 2010, the court ordered that $151,761.73 be paid out to Hannon's attorneys, leaving $299,483.99 to be distributed. The United States removed the case to this court on January 6, 2011.
After Manning and the United States respectively filed cross-motions for summary judgment, I issued the October 24, 2011 Memorandum and Order denying the United States' motionfor summary judgment and granting Manning's cross-motion for summary judgment and judgment was entered accordingly.
In response, the United States filed its Motion for Reconsideration. While that motion was pending, Julie Foshay filed her Motion to Intervene as of right, which has been opposed by the United States.
The United States filed a Motion for Reconsideration and to Alter or Amend Judgment under Federal Rule of Civil Procedure 59(e). The motion raises three arguments: (1) federal tax liens attach to Hannon's claim for under-compensation regardless of 26 U.S.C. § 6325(b); (2) the October 24, 2011 Memorandum and Order misapplied 26 U.S.C. § 6325(b)(3); and (3) the October 24, 2011 Memorandum and Order's reliance on United States v. Holtzclaw, Civil No. S-84-402 MLS, 1988 U.S. Dist. LEXIS 16355 (E.D. Cal. Dec. 12, 1988); In re Miller, 98 B.R. 110, 112 (N.D. Ga. 1989); and Estate of Frazier v. Dist. Dir., I.R.S., No. 1:91-CV-1877-JTC, 1992 WL 472026 (N.D. Ga. Oct. 14, 1992) was misplaced. I find none of these arguments persuasive.
Although there is no formal rule of civil procedure that provides by terms for a motion for "reconsideration," Federal Rule of Civil Procedure 59(e) gives a party 28 days from the entry of judgment to move to alter or amend that judgment. Fed.R. Civ. P. 59(e). "Reconsideration under Rule 59 is proper in four circumstances: 1) if the initial ruling was based on an inadequate record; 2) if there has been a material change in controlling law; 3) if there is newly discovered evidence that bears on the question; or 4) if the earlier decision is clearly erroneous and would work a manifest injustice." In re iBasis, Inc. Derivative Litigation, 551 F. Supp. 2d 122, 123 (D. Mass. 2008) (citing Ellis v. United States, 313 F.3d 636, 647-48 (1st Cir. 2002)). However, "[s]uch problems rarely arise; therefore the motion for reconsideration should be equally rare." Reyes Canada v. Rey Hernandez, 224 F.R.D. 46, 48 (D.P.R. 2004) (citing Bank of Waunakee v. Rochester Cheese Sales, Inc. , 906 F.2d 1185, 1191 (7th Cir. 1990)).
The United States contends that federal tax liens attached to Hannon's claim for undercompensation. It presents four arguments in support of this proposition.
First, the United States contends that "the discharge was of the realty only, for the purpose of giving the City clear title." Again, I disagree. A discharge was not necessary to give the City of Newton clear title; the exercise of the power of eminent domain itself accomplished this goal. When the government exercises its power of eminent domain, all liens on the propertyare generally extinguished. New England Cont'l Media, Inc. v. Town of Milton, 588 N.E.2d 1382, 1384 (Mass. App. Ct. 1992). This is longstanding Massachusetts law: Chief Justice Holmes wrote in 1901 that "if there is such a thing as a new title known to the law, one founded upon a taking by the right of eminent domain is as clear an example as can be found." Emery v. Boston Terminal Co., 59 N.E. 763, 765 (Mass. 1901). The United States's decision to discharge its lien on Hannon's property cannot be justified on the basis of the necessity to clear title.
Second, the United States contends that "[n]othing in § 6325 or the regulations states that the issuance of a certificate of discharge under § 6325(b)(2)(A), rather than § 6325(b)(3), overrides the general rule that federal tax liens apply to all of the taxpayer's property and rights to property." Again, I disagree. Both the statutory scheme of 26 U.S.C. § 6325, considered in its entirety, and the particular requirements of § 6325(b)(2)(A) indicate that a discharge pursuant to that section discharges any lien on the proceeds of the sale of the property at issue.1
The structure of § 6325 as a whole indicates that a certificate of discharge under § 6325(b)(2)(A) discharges all interest in the proceeds from the sale of that property. As I wrote in the October 24, 2011, Memorandum and Order:
Congress provided the IRS with two options for discharging a lien on property without waiving the right of the United States to priority payment. Under 26 U.S.C. § 6325(b)(3), the IRS discharges the property while expressly maintaining its right to the proceeds after the sale is complete. Under 26 U.S.C. § 6325(b)(2)(A), the IRS calculates its interest and collects the value of that interest in exchange for a discharge of the property.
Hannon v. City of Newton, 820 F. Supp. 2d 254, 258 (D. Mass. 2011). The juxtaposition of § 6235(b)(2)(A) and § 6235(b)(3) makes clear that, unlike a discharge pursuant to § 6235(b)(3), a discharge pursuant to § 6235(b)(2)(A) does not preserve the IRS's right to the proceeds of the sale.
Further, the language...
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