Little v. U.S.

• Decision Date: 14 July 1986
• Docket Number: No. 85-6030,85-6030
• Citation: 794 F.2d 484
• Parties: 86-2 USTC P 9558 William LITTLE, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 484

794 F.2d 484

86-2 USTC P 9558

William LITTLE, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 85-6030.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 10, 1986.

Decided July 14, 1986.

Kenneth G. Gordon, Los Angeles, Cal., for plaintiff-appellant.

Steven Frahm, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before WRIGHT and NELSON, Circuit Judges, and HOLLAND, ^* District Judge.

EUGENE A. WRIGHT, Circuit Judge:

In this case we must decide whether a property owner, holding title pursuant to a foreclosure sale under a second deed of trust, can obtain redemption reimbursement for preredemption payments to a senior lienor. We reverse the district court's conclusion that the property owner is collaterally estopped from seeking reimbursement. But we affirm its conclusion that the property owner failed to comply with valid Treasury Regulations in seeking reimbursement. We hold that, despite this noncompliance with reimbursement procedures, the government's title upon redemption is encumbered by the first deed of trust until it reimburses the property owner for his payment to a senior lienor.

FACTS AND PROCEEDINGS BELOW

Detailed factual background information is presented in this court's opinion in Little v. United States, 704 F.2d 1100 (9th Cir.1983). Key facts and proceedings through the prior appeal are summarized in the Appendix to this opinion.

In this appeal, Little seeks to enforce his right to receive reimbursement from the government for payments made to a senior lienor. On the previous appeal, we remanded the determination of the correct amount of the government's redemption tender under the Second Trust Deed foreclosure.

The district court heard argument on the parties' cross-motions for summary judgment. Based on stipulated facts, it found that Little had failed to follow Treasury Regulation Sec. 301.7425-4(b)(4) in requesting reimbursement for his purchase of the First Trust Deed. It concluded also that he was estopped from claiming reimbursement as a result of adverse rulings on this issue in two prior district court proceedings. Judgment was entered for the government.

Little timely appealed. He presents these issues for our review:

(1) Did the district court err in concluding that redemption price determinations in related district court actions barred further claims for reimbursement of payments to a senior lienor?

(2) Is Treasury Regulation Sec. 301.7425-4(b)(4) invalid as applied by the district court?

(3) Did the district court err in concluding that it lacked subject matter jurisdiction to consider reimbursement for Little's payments to a senior lienor because Little had failed to follow procedural requirements?

(4) Is the government's title free and clear of any claims of Little?

(5) Must the government reimburse Little for the value of removing the First Trust Deed encumbrance from its title?

ANALYSIS

I. Introduction

Section 7425(b) of the Internal Revenue Code provides that a non-judicial sale of real property to which the government claims a title derived from enforcement of a lien "shall ... be made subject to and without disturbing such lien or title, if notice of such lien was filed ... more than 30 days before such sale and the United States is not given [written] notice [at least 25 days prior to] such sale ...." 26 U.S.C. Sec. 7425(b)(1). Both the First Trust Deed and Second Trust Deed foreclosures and sales at issue here were such non-judicial sales.

When Section 7425(b) applies, Section 7425(d)(1) gives the government a right to redeem the property within 120 days. The amount to be paid under such redemption is governed by 28 U.S.C. Sec. 2410(d). 26 U.S.C. Sec. 7425(d)(2).

Under Section 2410(d), the redemption price "shall be the sum of--(1) the actual amount paid by the purchaser at such sale ... (2) interest on the amount paid ... and (3) ... expenses necessarily incurred ...."

Treasury regulations implementing 26 U.S.C. Sec. 7425(d) and 28 U.S.C. Sec. 2410(d) provide that the amount to be paid under a Section 7425(d) redemption is to include "the amount, if any, of a payment made by the purchaser ... after the foreclosure sale to a holder of a senior lien (to the extent provided under paragraph (b)(4) of this section)." Treas.Reg. Sec. 301.7425-4(b)(1)(iv).

Paragraph (b)(4) of the Regulations establishes the procedure by which the purchaser at a foreclosure sale can claim reimbursement from the government for payments made to a senior lienor after the foreclosure sale but prior to the government's redemption. ¹

II. Collateral Estoppel

Little initiated two related actions regarding this property while the prior appeal to this court was pending. In April 1982, Little filed a complaint in California Superior Court for declaratory relief and an equitable lien, alleging that the government was enriched by $76,000 due to repair expenses ($16,000) and the foreclosure sale on the First Trust Deed ($60,000). He sought to have the sale rescinded or declared null and void. The action was removed to federal district court and was dismissed without prejudice in June 1982. Little v. United States, No. CV 82-2679, slip op. (C.D.Cal. June 30, 1982). Little did not appeal or attempt to amend his complaint.

In August 1982, Little filed an action in federal district court, Little v. United States, No. CV 82-4303, slip op. (C.D.Cal. Dec. 21, 1982), seeking the same declaratory and equitable relief. Again, he alleged that the government was unjustly enriched by his repair expenses and the foreclosure of the First Trust Deed. The action was dismissed with prejudice. The court found that Little had been paid the appropriate amount upon the government's redemption of the Second Trust Deed (purchase price plus interest). He did not appeal.

On remand in this action, the district court found that the issue of the correct government reimbursement for Little's payment to a senior lienor had been raised by Little in these two earlier proceedings. The court concluded that because it had already ruled that Little was fully paid, Little was estopped from asserting any further claims in the present action.

Whether collateral estoppel is available is a mixed question of law and fact in which the legal issues predominate. We review this question de novo. Davis & Cox v. Summa Corp., 751 F.2d 1507, 1519 (9th Cir.1985).

Collateral estoppel bars relitigation of issues actually litigated and necessarily determined by a court. Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979). The party asserting estoppel bears the burden of pleading and proving the identity of issues decided in the previous action. Hernandez v. City of Los Angeles, 624 F.2d 935, 937 (9th Cir.1980). Here, the government "must introduce a record sufficient to reveal the controlling facts and pinpoint the exact issues litigated in the prior action." Davis & Cox, 751 F.2d at 1518.

The record indicates that the issue actually litigated in the two prior actions was whether to nullify the First Trust Deed foreclosure sale, not whether the government's tendered redemption under the Second Trust Deed was adequate to reimburse Little for his purchase of the First Trust Deed (prior to the foreclosure sale on the First Trust Deed). "Similarity between issues is not sufficient; collateral estoppel is applied only when the issues are identical." Shapley v. Nevada Board of State Prison Commissioners, 766 F.2d 404, 408 (9th Cir.1985) (emphasis added). The district court's statement in 82-4303-WMB that Little had been appropriately paid upon redemption by the government makes this a close question.

"Necessary inferences from the judgment, pleadings and evidence will be given preclusive effect." Davis & Cox, 751 F.2d at 1518. But if there is doubt, collateral estoppel will not be applied, especially if the previous decision could have been rationally grounded on an issue other than that which the defendant seeks to foreclose from consideration. Id. at 1518-19.

We find that the government did not carry its burden of showing that the two previous dismissals necessarily decided the issue of the government's proper redemption reimbursement of Little's payment to a senior lienor. ²

III. Validity of Treasury Regulations

Little did not challenge the validity of the Treasury Regulations in district court. Issues not raised below will generally not be considered on appeal. Grauvogel v. Commissioner, 768 F.2d 1087, 1090 (9th Cir.1985). We conclude that this case falls within one of the narrow exceptions for exercising discretion to hear such an issue. See Bolker v. Commissioner, 760 F.2d 1039, 1042 (9th Cir.1985) ("issue presented is purely one of law and ... the pertinent record has been fully developed").

Little claims that Equity Mortgage Corp. v. Loftus, 504 F.2d 1071 (4th Cir.1974), establishes a substantive right under 26 U.S.C. Sec. 7425(d) to receive reimbursement for payments made to a senior lienor. He claims that this statutory right to reimbursement cannot be limited by requiring compliance with procedural regulations.

Under 26 U.S.C. Sec. 7805(a), "the Secretary or his delegate shall prescribe all needful rules and regulations for the enforcement of this Title ...." Little argues that, because Congress did not explicitly direct the Secretary to promulgate regulations implementing 26 U.S.C. Sec. 7425(d) or 28 U.S.C. Sec. 2410(d), the Treasury Regulations here are invalid.

Regulations promulgated under the Secretary's authority in Section 7805(a) "if found to 'implement the congressional mandate in some reasonable manner,' must be upheld." United States v. Cartwright, 411 U.S. 546, 550, 93 S.Ct. 1713, 1716, 36 L.Ed.2d 528 (1973) (quoting United States v. Correll, 389 U.S. 299, 307, 88 S.Ct. 445, 449, 19 L.Ed.2d 537 (1967)). The courts are "not in the business of...