Novoselsky v. United Stated of Am.

CourtUnited States District Courts. 7th Circuit. United States District Court of Eastern District of Wisconsin
Docket NumberCase No. 18-C-836
Decision Date03 December 2018


Case No. 18-C-836


December 3, 2018


Plaintiff David Novoselsky is a lawyer; he is representing himself and his wife, Charmain Novoselsky, in this action. On May 4, 2018, the Novoselskys initiated this action in state court to test the validity of a federal tax lien on their residence and to determine its priority relative to other liens on the same property. They amended their complaint on May 11, 2018, and a documented titled "First Amended Action to Quiet Title" became the operative pleading in this action. The United States subsequently removed the action to federal court and then moved for and was granted an extension of time to file an answer on grounds that the real property in issue was the subject of motions then pending in bankruptcy court. The United States answered the amended complaint on July 30, 2018, and then moved for summary judgment on August 21, 2018.

Plaintiffs subsequently moved to amend their complaint for a second time, both to flesh out the facts and legal theories supporting their quiet title action, and to assert new allegations based on the United States' conduct after the original complaint was filed. I will construe the portion of plaintiffs' motion seeking to further develop plaintiffs quiet title

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claim as a motion to amend under Fed. R. Civ. Pro. 15(a)(2), and the portion that alleges conduct that happened after the filing of the original complaint as a motion to supplement the pleadings under Fed. R. Civ. Pro. 15(d). Plaintiffs' motion to amend/supplement and defendant's earlier motion for summary judgment are both now pending before me.


a. The Novoselskys' Dealings with the IRS

The legal issues raised in the United States' motion for summary judgment and its opposition to plaintiff's motion to amend and supplement the complaint require some factual context. The facts outlined in this section of the Decision and Order are not disputed and are derived from the original complaint, the United States' answer to the original complaint, and exhibits and statements of fact filed by both parties in connection with the United States' motion for summary judgment.

On various dates between April 2014 and November 2016, the IRS assessed on David and Charmain Novoselsky income taxes for years 2010, 2014 and 2016, gave notice of those taxes and demanded payment of the taxes. ECF No. 14-1; ECF No. 14-2. On January 10, 2017, the IRS entered into an Installment Agreement with David and Charmain Novoselsky. ECF No. 15-1. Under the Installment Agreement, the Novoselskys agreed that the amount they owed as of that date totaled $290,261.14, and that they would make installment payments of $200 per month toward that liability, commencing in March, 2017. Id. In exchange, the IRS agreed to refrain from levying on the Novoselskys' property to collect those taxes if the Novoselskys stayed current on their installment payment obligations. ECF No. 15 at ¶ 5.

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One of the terms of the Agreement was the following:

[The IRS] may file a Notice of Federal Tax Lien if one has not been filed previously which, [sic] may negatively impact your credit rating, but [the IRS] will not file a Notice of Federal Tax Lien with respect to the individual shared responsibility payment under the Affordable Care Act.

ECF No. 15-1 at 4. A Notice of Federal Tax Lien ("NFTL") notifies other creditors that the United States has a claim against certain property and establishes the priority of the United States' claim. IRS Publication 594. On March 19, 2018 the IRS filed an NFTL against Charmain Novoselsky for the 2010, 2014, and 2015 income tax years with the Recorder of Deeds of Kenosha County. ECF No. 8 at ¶ 2. On April 10, 2018, the IRS filed an NFTL against David Novoselsky for the same tax years. Id.

b. The Operative Complaint and the United States' Motion for Summary Judgment

In their first amended complaint, currently operative in this case, plaintiffs claim that the IRS's lien on plaintiffs' property is "not valid." ECF No. 1-1 at *10, ¶11. First, they argue that the installment agreement between the Novoselskys and the IRS barred the IRS from "placing" the lien on the property. Id. at *10, ¶ 7. Second, they argue that the IRS is precluded from "placing" the lien because it had previously "withdraw[n]" a lien on the same property. Id.

Defendant construed plaintiffs' complaint as claiming that "the IRS violated the installment-payment agreement when it filed the [NFTLs]," and "seek[ing] declaratory relief determining that the [NFTLs] were illegally filed." ECF No. 16 at 4. Defendant moved

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for summary judgment arguing that plaintiffs' claims fail as a matter of law because the Installment Agreement expressly permits the IRS to file NFTLs. Id.

c. The Proposed Amended Complaint's Allegations

As described above, plaintiffs have now moved to file a Second Amended Complaint. The proposed amended complaint makes the following new allegations.

In February 2017, the IRS entered an NFTL1 against the plaintiffs' residence. ECF No. 21, ¶ 24. At that time, the Novoselskys were in bankruptcy and protected by an automatic stay. Id. In January, 2018, the IRS agreed to withdraw the NFTL on the property in order to facilitate a settlement of the bankruptcy case. Id., ¶ 27. However, the case did not settle. On April 10, 2018, while the automatic stay remained in effect, the IRS entered a second NFTL against plaintiffs' residence. Id., ¶ 25.

In May, 2018, the IRS "issued a levy seeking to seize funds" then in the control of the Novoselskys' bankruptcy trustee. ECF No. 21, ¶¶ 14, 34. At that time, counsel for the IRS represented to the Bankruptcy Court that the Installment Agreement, which barred the IRS from levying on plaintiffs' property while it was in effect, had been terminated; however, the IRS allegedly later disclosed that the Installment Agreement actually remained in effect until June 1 of 2018. Id., ¶¶ 16-17. The IRS later moved the bankruptcy court to lift the automatic stay. Id., ¶ 35. On July 14, 2018, the IRS again "issued a levy to the attorney for the Bankruptcy Trustee holding $100,000 in funds." Id. The IRS ultimately seized those funds. Id., ¶¶ 14, 35, 39. Plaintiffs allege that the trustee was

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holding the funds because the bankruptcy proceedings were then close to a settlement resolution, and that the settlement was undermined in part because the IRS seized these funds. Id., ¶ 35,

Plaintiffs also allege that the IRS's stated reasons for terminating the Installment Agreement have been inconsistent: they say the IRS originally claimed that the basis for the termination was plaintiffs' failure to make timely payments, but later stated that the reason was the plaintiffs' failure to properly represent their financial circumstances. Id., ¶ 18. They also allege that they have filed multiple requests for due process hearings regarding the termination of the installment agreement using the IRS' internal appeals processes. Id, ¶¶ 19, 36. They allege that no hearings have been held, and that the IRS has informed them that it cannot conduct these hearings using its own internal processes, because plaintiffs' accounts are now under the jurisdiction of the Department of Justice. Id.

Plaintiffs also allege that they have used the administrative procedures provided for by 26 U.S.C. § 7433 to seek relief from certain conduct of Curtis Weidler, the Department of Justice attorney representing the United States in the Bankruptcy case and the present case. Id., ¶¶ 47-48. Plaintiffs allege that they made these requests "on various occasions prior to the issuance of the 2018 levies," and that they received no response from the IRS. Id. Plaintiffs allege that they also requested administrative procedures under § 7433 "when the levy activity began in May of 2018 and just prior to that." Id., ¶ 48. They say that the Taxpayer Advocate Service initially responded to this request, but soon informed them that it was the decision of the IRS that Mr. Weidler of

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the Department of Justice had "the exclusive right to address and to decide within his own discretion any concerns or requests made by plaintiffs." Id., ¶ 49.

The proposed amended complaint asserts three claims for relief: (1) the quiet title action, as allowed by 28 U.S.C. § 2410; (2) a claim for injunctive relief related to the July 2018 levy on the funds held by the Novoselsky's bankruptcy trustee; and (3), a claim for damages under 26 U.S.C. § 7433.


a. Legal Standard.

Under Fed. R. Civ. Pro. 15(a)(2), a party may amend its pleading with the leave of the court, and "[t]he court should freely give leave when justice so requires." Fed. R. Civ. Pro. 15(a)(2). However, a court is justified in denying a motion to amend a complaint if the proposed amendment would be futile, meaning...

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