In re Estate of Harless
| Decision Date | 23 May 2000 |
| Docket Number | No. CIV. A. 98-1072-RV-S.,CIV. A. 98-1072-RV-S. |
| Parties | In the Matter of the ESTATE OF Larry J. HARLESS, Deceased Maurine K. Harless, Administratrix of the Estate of Larry J. Harless, Petitioner, v. United States of America, Respondent. |
| Court | U.S. District Court — Southern District of Alabama |
William T. McGowin, IV, Mobile, AL, for Larry J. Harless.
Bradley R. Byrne, Mobile, AL, William T. McGowin, IV, McRight, Jackson, Myrick & Moore, LLC, Mobile, AL, for Maurine K. Harless.
William R. Sawyer, U.S. Atty. Office, Mobile, AL, Christopher M. Pietruszkiewicz, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, for U.S.
This matter comes before the court on cross-motions for summary judgment by petitioner Maurine Harless, as administratrix of the estate of Larry J. Harless, and respondent United States as to whether a divorce judgment recorded in 1992 takes priority over a federal tax lien filed in 1996. After carefully reviewing the law and considering the submissions of the parties,1 the court concludes that Ms. Harless, acting in her individual capacity, perfected her lien under the divorce judgment before the government filed notice of its federal tax lien. The court will therefore grant Ms. Harless's motion and deny the government's motion.
The facts are not in dispute. On August 27, 1991, the Circuit Court of Mobile County, Alabama, entered a judgment of divorce dissolving the marriage of Larry and Maurine Harless. Pursuant to the divorce judgment, Mr. Harless was required to make three $1,000,000.00 payments in January 1992, January 1993 and January 1994 into a trust for the benefit of Ms. Harless. In January 1992, Mr. Harless made his first and only payment into the trust. On February 13, 1992, he recorded a quit claim deed in the Mobile County Probate Records for two parcels of real property he purchased on Springhill Avenue in Mobile, Alabama (the "Springhill Property"). On July 15, 1992, Ms. Harless recorded a certified copy of the divorce judgment in the Mobile County Probate Records.
On August 3, 1992, the Internal Revenue Service ("IRS") made an assessment against Mr. Harless for outstanding tax liabilities in the amount of $81,110.40. The IRS made subsequent assessments against Mr. Harless on September 26, 1994, for $3,445,522.00, and on February 5, 1996, for $1,360.47.
In 1995, Mr. Harless died. He had not paid the 1993 or 1994 alimony installments, nor had he satisfied his delinquent tax liabilities. Thus, at the time of his death, Mr. Harless owed at least $2,000,000.00 in alimony to Ms. Harless and more than $3,500,000.00 in income taxes to the United States.
On August 20, 1996, the IRS filed a notice of federal tax lien in the Mobile County Probate Records for the outstanding tax liabilities of Mr. Harless in the amount of $3,527,993.62, plus accruals as provided by law.
On July 10, 1998, Ms. Harless was appointed administratrix of the estate of Mr. Harless. On October 8, 1998, Ms. Harless, acting in her capacity as administratrix, filed a "Petition to Determine the Priority of Lien (Quiet Title) and to Convey Property in Satisfaction of Lien" in the Probate Court of Mobile County. Through this petition, Ms. Harless alleged that the judgment lien she filed in her individual capacity against the Springhill Property had priority over the government's subsequently-filed tax lien. Ms. Harless also asserted that the Springhill Property was the only asset in the Estate's possession and that there were no other assets with which to pay the upkeep, taxes and insurance premiums on the property. According to Ms. Harless, then, it would be in the Estate's best interests for the probate court to confirm that her individual judgment lien takes priority over the government's tax lien and to vest title to the Springhill Property (which was valued at less than either lien) in Ms. Harless in her individual capacity.
On October 28, 1998, the United States removed Ms. Harless's quiet title petition pursuant to 28 U.S.C. § 1444.2 Thereafter, the parties filed cross-motions for summary judgment as to which lien has priority. During the pendency of those motions, the Springhill Property was sold for $309,469.07. The proceeds of the sale were then deposited into the registry of the court.
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). In reviewing a summary judgment motion, the court must view the evidence and all reasonable inferences drawn therefrom in the light most favorable to the non-moving party. See Alexander v. Fulton County, 207 F.3d 1303, 1335 (11th Cir.2000).
The party seeking summary judgment has the initial burden of showing that there is no genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Once the moving party meets that burden, the non-moving party must set forth specific facts which demonstrate that there is a genuine issue of material fact for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986). A genuine issue of material fact exists for trial if a reasonable jury could return a verdict in favor of the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
To avoid an adverse ruling on a motion for summary judgment, the non-moving party "may not rest upon the mere allegations or denials of [its] pleading." Fed R. Civ. P. 56(e). Nor may the non-moving party defeat summary judgment by providing a mere "scintilla" of evidence. See Burger King Corp. v. Weaver, 169 F.3d 1310, 1321 (11th Cir.1999). Instead, there must be a genuine factual conflict in the evidence to support a jury question. See Continental Cas. Co. v. Wendt, 205 F.3d 1258, 1261 (11th Cir.2000).
The sole question before the court is which lien has priority. Resolution of this issue is determinative of whether Ms. Harless, in her individual capacity, or the United States is entitled to the proceeds of the sale of the Springhill Property, as the Estate does not have sufficient funds to satisfy either lien. Ms. Harless asserts that the divorce judgment lien takes priority over the later-filed federal tax lien. The government counters that the prior recording of the divorce judgment did not create a choate (or "perfected") lien and that such "perfection"is necessary to obtain priority. To resolve this issue, the court has no choice but to confront "the tortured meanderings of federal tax lien law." Texas Oil & Gas Corp. v. United States, 466 F.2d 1040, 1043 (5th Cir.1972).
The Internal Revenue Code provides for the imposition of a federal tax lien against all "property and rights to property" belonging to a taxpayer who, after assessment and demand, fails to pay taxes to the United States. 26 U.S.C. § 6321. Federal tax liens arise automatically upon assessment. See 26 U.S.C. § 6322. But, such liens are "not valid against any ... judgment lien creditor" until proper notice is filed. 26 U.S.C. § 6323(a). Moreover, in determining the priority of competing liens, courts apply the general principle that a lien "first in time is the first in right." United States v. City of New Britain, 347 U.S. 81, 84, 74 S.Ct. 367, 369, 98 L.Ed. 520 (1954). Therefore, a federal tax lien has priority over a competing judgment lien only if the IRS serves notice of its lien before the judgment lien is perfected under state law. See United States v. Estate of Romani, 523 U.S. 517, 118 S.Ct. 1478, 140 L.Ed.2d 710 (1998).
Ms. Harless argues that the divorce judgment lien has priority over the federal tax lien because she properly recorded the divorce judgment before the government recorded its lien. Specifically, Ms. Harless contends that she, in her individual capacity, became a judgment lien creditor by recording the divorce judgment in the Mobile County Probate Records. A "judgment lien creditor" is a person who (1) has obtained a valid judgment (2) in a court of record and of competent jurisdiction (3) for the recovery of a certain sum of money; and (4) has perfected a lien under that judgment. See Treas. Reg. § 301.6323(h)-1(g). Thus, if Ms. Harless, in her individual capacity, satisfies all four requirements, then her divorce judgment lien takes priority over the subsequently-filed federal tax lien.
The government does not contest any of the first three elements. What the government does dispute is the fourth element, namely, that Ms. Harless, in her individual capacity, perfected a lien under the divorce judgment. To be perfected under federal law, a state-created judgment lien must establish: (1) the identity of the lienor; (2) the property subject to the lien; (3) and the amount of the lien. See Treas. Reg. § 301.6323(h)-1(g). In this case, the government takes the position that the judgment lien does not satisfy the second and third criteria.
The court will first address the government's assertion that the judgment lien was not perfected "inasmuch as the property subject to the purported lien could not be identified because no lien existed under state law." According to the government, because the circuit court did not exercise its discretion to impose a lien on the Springhill Property in the divorce judgment, Ms. Harless could not subsequently place a lien on the property herself.
It is well established that an Alabama state court "may secure payment of alimony by declaring a lien on the husband's property." Davis v. Davis, 274 Ala. 277, 147 So.2d 828, 830 (1962) (citing Phillips v. Phillips, 221 Ala. 455, 129 So. 3 (1930); ...
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