Matagorda County v. Russell Law

Decision Date21 April 1994
Docket NumberNo. 92-7756,92-7756
Parties-1775, 62 USLW 2659 MATAGORDA COUNTY, Bay City Independent School District and City of Bay City, Plaintiffs-Appellants, v. RUSSELL LAW and Federal Deposit Insurance Corporation, as Receiver for Bay City Bank & Trust Co., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Kent M. Rider, Owen M. Sonik, Calame, Linebarger, Graham & Pena, Austin, TX, for plaintiffs-appellants.

Michael F. Duhl, Chicago, IL, Lawrence H. Richmond, Washington, DC, for defendants-appellees.

Russell Law, pro se.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, HIGGINBOTHAM, Circuit Judge and PICKERING *, District Judge.

PICKERING, District Judge:

This case presents the issue of whether a lien interest held by the FDIC can be extinguished without the FDIC's consent as a result of foreclosure of liens securing the payment of local property taxes. The FDIC contends, and the district court below held, that 12 U.S.C. Sec. 1825(b)(2), recently enacted as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), expressly requires protection of the FDIC's interest.

In 1987, Bay City Bank & Trust Company acquired a lien on several lots in Bay City, Texas, under a deed of trust executed by Russell Law given to secure repayment of a $1,100,000 loan. In August 1990 Bay City Bank was declared insolvent by the Texas State Banking Commissioner and the FDIC was appointed receiver and succeeded to Bay City's lien interest in the subject property. In September 1991, Matagorda County, Bay City Independent School District and the City of Bay City (the Taxing Units) sued Russell Law and Bay City Bank in state court to recover delinquent ad valorem property taxes, penalties, interest, attorney's fees and other costs for the years 1988 through 1990 on the subject property. The Taxing Units joined the FDIC as a defendant in the state court action in January 1992, and the FDIC removed the case to the district court in March 1992. The Taxing Units sought a personal judgment against Russell Law for the taxes and penalties, and foreclosure of the Taxing Units' lien without the permission of the FDIC and without preserving the lien the FDIC had acquired from Bay City.

The court below entered summary judgment against Russell Law and in favor of the Taxing Units in the amount of $51,899.01 for delinquent taxes, penalties and interest and decreed the existence of a lien to secure that sum. The court in its well-reasoned opinion further held that this lien "is prior and superior to all claims, rights, title, interest, or liens asserted by all of the parties Defendant herein", but then denied foreclosure of that lien absent consent of the FDIC, requiring that any foreclosure be subject to the FDIC's lien. It is from this ruling that the Taxing Units have perfected their appeal.


This Court reviews a grant of summary judgment de novo. Hanks v. Transcontinental Gas Pipeline Corp., 953 F.2d 996, 997 (5th Cir.1992). "In reviewing the summary judgment, we apply the same standard of review as did the district court." Waltman v. International Paper Co., 875 F.2d 468, 474 (5th Cir.1989). Summary judgment is appropriate if the record discloses "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Federal Rules of Civil Procedure 56(c). Sims v. Monumental General Ins. Co., 960 F.2d 478, 479 (5th Cir.1992). The pleadings, depositions, admissions, and answers to interrogatories, together with affidavits, must demonstrate that no genuine issue of material fact remains. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). To that end we must "review the facts drawing all inferences most favorable to the party opposing the motion." Reid v. State Farm Mutual Auto Ins. Co., 784 F.2d 577, 578 (5th Cir.1986). If the record taken as a whole cannot lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

We review the district court's legal decisions, including the proper interpretation of a statute, de novo. AFCO Steel, Inc. v. TOBI Engineering, Inc., 893 F.2d 92, 93 (5th Cir.1990).


Under Texas law, assessed but unpaid taxes on real property become a lien on the property on January 1 of the year for which they are levied. TEX.PROP.TAX CODE ANN. Sec. 32.01 (Vernon 1992). This lien has priority over any preexisting or subsequently imposed lien. TEX.PROP.TAX CODE ANN. Sec. 32.05 (Vernon 1992). The taxes become delinquent if not paid prior to February A tax lien on real property in Texas secures four different components:

                1 of the year following the year in which they were imposed.  TEX.PROP.TAX CODE ANN. Sec. 31.02 (Vernon 1992).  At any time after its tax on property becomes delinquent, a taxing unit may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both.  TEX.PROP.TAX CODE ANN. Sec. 33.41(a) (Vernon 1992).  Property seized or ordered sold pursuant to foreclosure of a tax lien is subject to sale to the highest bidder at a tax sale, subject only to the owner's right of redemption and certain covenants and easements running with the land which were recorded prior to January 1 of the year the tax lien arose.  TEX.PROP.TAX CODE ANN. Sec. 34.01 (Vernon 1992).  The owner of real property sold at a tax sale may redeem the property within two years after the date on which the purchaser's deed is filed for record. 1  TEX.PROP.TAX CODE ANN. Sec. 34.21 (Vernon 1992)

(1) the tax itself;

(2) a one time penalty of twelve percent (12%) if the tax is not paid by July 1 of the year in which it becomes delinquent, TEX.PROP.TAX CODE ANN. Sec. 33.01(a) (Vernon 1982);

(3) interest at the rate of one percent (1%) per month until the tax is paid "to compensate the taxing unit for revenue lost because of the delinquency", TEX.PROP.TAX CODE ANN. Sec. 33.01(c) (Vernon Supp.1992); and

(4) an amount not to exceed fifteen percent (15%) of the total tax, the twelve percent (12%) penalty, and the interest of one percent per month, this being "an additional penalty to defray costs of collection", and which precludes the recovery of an attorney's fee in a suit brought to collect delinquent taxes. TEX.PROP.TAX CODE ANN. Sec. 33.07 (Vernon 1982).


Appellants strenuously argue that their ad valorem tax lien is superior to the consensual mortgage lien acquired by the FDIC. Indeed, the court below held that appellants' lien, "... is prior and superior to all claims, rights, title, interest, or liens asserted by all of the parties Defendant herein." However, the priority of the relative liens is not the determinative question to be addressed. The decisive question is whether or not the court below was correct in ruling that the appellants' ad valorem tax lien could not be foreclosed without the permission of the FDIC, regardless of the relative priority of the liens.


The Federal Deposit Insurance Corporation, when acting in its capacity as a receiver, is exempted from the extinguishment of its property interests through sale, foreclosure or levy, unless it has given its consent. 12 U.S.C. Sec. 1825(b)(2) provides;

No property of the Corporation shall be subject to levy, attachment, garnishment, foreclosure or sale without the consent of the corporation, nor shall any involuntary lien attach to the property of the corporation.

Subsection (b) of Sec. 1825 was adopted by Congress in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183, which became effective on August 9, 1989. FIRREA was enacted in response to the national crisis involving failed financial institutions. Its purpose was, among other things, to strengthen enforcement powers of federal regulators of depository institutions. FIRREA Sec. 101, Reprinted in 1989 USCCAN (103 Stat.) 187.

The 1989 passage of 12 U.S.C. Sec. 1825 extended the FDIC's immunity from state taxation, previously limited to its corporate function, to its role as receiver. Irving Independent School Dist. v. Packard Properties, 970 F.2d 58, 61 (5th Cir.1992). As this Court recognized in Irving. "The result of Sec. 1825(b)(2) is that liens may not attach to that property while the FDIC owns it, but a property previously encumbered must remain so." Irving Independent School Dist. v. Packard Properties, 970 F.2d at 61. We went on to assert in Irving;

The FDIC enjoyed sovereign immunity from state tax penalties to facilitate its reconsolidation of failed banks; in addition to the constitutional requirements, an admirable goal underlies that immunity. Whenever the FDIC can reduce the charges connected to property it has acquired, it can increase the value of the property, decrease its own losses, expedite resale, and save the nation's taxpayers and insured depositors a great deal of money. The ability to extinguish liens securing unpaid tax penalties incurred by earlier owners would certainly further these goals. But to endow the FDIC with such a valuable tool would come at a great cost to state and local taxing authorities. Using this case as an example, local governments and school districts have operated with reliance on the recovery of unpaid ad valorem taxes and penalties through liens on real property. To deny them their justified expectations of receiving those funds would threaten their ability to operate their schools. The policy arguments in this case are strong on both sides. Perhaps in consideration of these countervailing interests, Congress limited its grant of power to the FDIC.

Irving Independent School...

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