Myers v. U.S., 80-3245
| Decision Date | 12 June 1981 |
| Docket Number | No. 80-3245,80-3245 |
| Citation | 647 F.2d 591 |
| Parties | 81-2 USTC P 9490 Thomas Jerry MYERS, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. . Unit A |
| Court | U.S. Court of Appeals — Fifth Circuit |
David M. Touchstone, Shreveport, La., for plaintiff-appellant.
M. Carr Ferguson, Asst. Atty. Gen., Michael L. Paup, William S. Estabrook, John A. Dudeck, Jr., Tax Div., Dept. of Justice, Washington, D. C., for defendant-appellee.
Appeal from the United States District Court for the Western District of Louisiana.
Before BROWN and TATE, Circuit Judges, and SMITH *, District Judge.
Property owner Thomas Jerry Myers brings this appeal from a judgment of the district court that upheld the validity of an Internal Revenue Service levy made pursuant to the provisions of the Federal Tax Lien Act of 1966, 26 U.S.C. §§ 6323 et seq. The property in question had been foreclosed upon and sold, and the federal tax liens cancelled, pursuant to Louisiana's executory foreclosure proceedings. The plaintiff-appellant Myers acquired the property through a private transaction from the purchaser at that foreclosure sale. We agree with the district court that the foreclosure sale did not discharge the tax liens, because the executory foreclosure constituted an "other sale" within the meaning of 26 U.S.C. § 7425(b), so that therefore the foreclosing creditor's failure to serve notice upon the United States as required by that section prevented the discharge of the federal liens through the foreclosure sale. Furthermore, we hold that the levy procedures established by the Act, 26 U.S.C. § 6331, do not violate the due process clause of the Fifth Amendment.
The judgment below is therefore affirmed.
The facts of this case are largely undisputed.
On April 21, 1978, Peoples Bank & Trust of Blanchard, Inc. (Peoples Bank) instituted foreclosure proceedings via Louisiana's executory process 1 against certain immovable property located in Caddo Parish, Louisiana, and owned by Fitts & Associates, Inc. (Fitts).
At the time the foreclosure proceedings were commenced, the Peoples Bank mortgage was the senior encumbrance on the property. Among the several inferior encumbrances was a duly recorded federal tax lien against Fitts in the amount of $17,754.18 that had been filed for recordation in Caddo Parish on April 5, 1978. Pursuant to the foreclosure proceedings, the property was seized and a notice of seizure was recorded on April 24, 1978.
On April 25, 1978, four days after the foreclosure proceedings were commenced, a second federal tax lien against Fitts, this one in the amount of $15,809.33, was duly recorded as an encumbrance on the property.
On June 7, 1978, more than forty days after the filing of the second federal tax lien, a sheriff's sale was held. The property sold to Peoples Bank for $170,000.00 less than the amount of the debt secured by the Peoples Bank mortgage. In accordance with state law, as instructed by the sheriff, the Caddo Parish clerk of court therefore noted in the public records the cancellation of all inferior encumbrances on the property, including the two federal tax liens.
At no time during the foreclosure proceedings was the United States joined as a party or served with notice of the sale.
Subsequently, on June 16, 1978, Peoples Bank sold the property to appellant Myers, whose title examination had disclosed that all encumbrances on the property (including the federal tax liens) had been discharged.
On June 21, 1978, after Myers' purchase and the recordation of his deed, the government served Fitts with a levy against the property, and served Myers with a notice of seizure. Notices of seizure were posted on the property, and the property was secured. (Myers' second complaint, based on the Fifth Amendment, is that no predeprivation hearing was held before he was dispossessed of his property and that no meaningful postdeprivation hearing was afforded him to contest the validity of the tax claim against Fitts, the tax debtor and prior owner of the property.)
On July 5, 1978, Myers brought this action for wrongful levy 2 in the United States District Court for the Western District of Louisiana. The district court ordered the property released from seizure after requiring Myers to deposit the amount of the tax assessment (with interest) secured by the two tax liens into the registry of the court.
After trial on the merits, the district court concluded that Louisiana's executory process is not a "judicial proceeding" within the meaning of the Act's discharge provisions, see 26 U.S.C. § 7425(a), and that the foreclosing creditor (Peoples Bank) was therefore required to serve notice upon the government, as provided by 26 U.S.C. § 7425(b), in order to discharge the federal tax liens through the foreclosure sale. Since such notice was not given in this case, the district court held that the liens had not been discharged, and that the government had properly levied upon and seized the property.
On appeal, Myers contends (I) that the district court erred in concluding that the second federal tax lien, filed for recordation after the commencement of the executory foreclosure proceedings, was not discharged by virtue of the foreclosure sale, and (II) that the levy procedures established by the Act are unconstitutional in that they violate the due process clause of the Fifth Amendment. 3
The resolution of Myers' first contention that the foreclosure sale effectively discharged the second federal tax lien turns on the proper characterization of the foreclosure sale under the discharge provisions of the Act.
The methods by which an inferior tax lien of the United States may be discharged through foreclosure and sale under local law are set out in 28 U.S.C. § 2410 and 26 U.S.C. § 7425. 4 See Mertens, Federal Income Taxation: Code Commentary § 7425:1 (1980). When the United States is not joined as a party to the foreclosure proceedings, the statutory scheme embodied in those sections draws a distinction between sales pursuant to "judicial proceedings," the effect of which is governed by 26 U.S.C. § 7425(a), 5 and "other sales," the effect of which is governed by 26 U.S.C. § 7425(b). 6 See generally Mertens, Code Commentary, supra, § 7425:1-:2. The distinction is made by 26 U.S.C. § 7425, enacted by the Federal Tax Lien Act of 1966, which was intended to protect the United States, where its tax lien is junior, from its discharge under state law without prior notice to the United States of proceedings by which the property is sold. Id.
For present purposes, the relevance of the distinction is that, if the Louisiana executory foreclosure is a "judicial proceeding," the second federal tax lien was discharged, because it was not filed at the time the foreclosure process was commenced. 7 However, if the Louisiana executory foreclosure was an "other sale," the second federal lien (filed more than thirty days before the date of the sale) is not discharged, because the federal government was not afforded notice of the sale as required by statute. 8 Although under state law the inferior mortgages and liens were discharged by the foreclosure sale, it is not disputed that, if the proper type of notice required by federal statute is not afforded where so required, the federal tax lien then remains unaffected by the foreclosure process and will follow the property into the hands of the subsequent purchaser, even though (due to improvident cancellation) that purchaser had no record notice of the lien.
In the present case, the foreclosure sale was held pursuant to Louisiana's executory process. Executory process is an expedited in rem action derived from the civil law. Hood Motor Company, Inc. v. Lawrence, 320 So.2d 111, 112-13 (La.1975). See generally McMahon, The Historical Development of Executory Process in Louisiana, 32 Tul.L.Rev. 555 (1958). By means of the executory process, a creditor may effect the seizure and sale of property in an ex parte proceeding, without previous citation and judgment, in order to enforce a mortgage or privilege that is evidenced by an authentic act 9 importing a confession of judgment. 10 La.C.Civ.P. art. 2631.
In order to obtain the ex parte order of seizure and sale, the creditor must file a petition that comports with the general pleading requirements of Louisiana law, La.C.Civ.P. arts. 2634, 891, and must attach thereto the authentic evidence necessary to prove his right to use executory process the instruments evidencing the obligation, the authentic act of mortgage or privilege importing the confession of judgment, and any other evidence necessary to complete the proof of his right to use executory process, La.C.Civ.P. art. 2635; Hood Motor Company, Inc. v. Lawrence, supra, 320 So.2d at 113. However, the order may be issued by a judge, or by the clerk of court in the exercise of his quasi-judicial powers, La.C.Civ.P. art. 283(2); Hood Motor Company, Inc. v. Lawrence, supra, 320 So.2d at 114-16, 115 n. 4, and is not considered a judgment "in any technical sense," Hood Motor Company, Inc. v. Lawrence, supra, 320 So.2d at 113 n.3.
The Louisiana executory proceeding, founded upon "authentic" (sworn, pre-suit) evidence, is designed to be an expeditious, effective, and inexpensive foreclosure proceeding. McMahon, supra, 32 Tul.L.Rev. at 532. Once the order has issued and the property has been seized, the debtor may contest the seizure only by taking a suspensive appeal or by instituting an injunction proceeding to arrest the seizure and sale. La.C.Civ.P. art. 2642. This in rem action may be instituted...
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