Progressive Consumers Federal Credit Union v. U.S.

• Decision Date: 07 November 1995
• Docket Number: No. 95-1712,95-1712
• Citation: 79 F.3d 1228
• Parties: -1419, 96-1 USTC P 50,160 PROGRESSIVE CONSUMERS FEDERAL CREDIT UNION, Plaintiff, Appellant, v. UNITED STATES of America, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1228

79 F.3d 1228

77 A.F.T.R.2d 96-1419, 96-1 USTC P 50,160

PROGRESSIVE CONSUMERS FEDERAL CREDIT UNION, Plaintiff, Appellant, v. UNITED STATES of America, Defendant, Appellee.

No. 95-1712.

United States Court of Appeals,

First Circuit.

Heard Nov. 7, 1995.

Decided March 19, 1996.

Appeal from the United States District Court for the District of Massachusetts; Hon. Reginald C. Lindsay, U.S. District Judge.

Stephen M. Sheehy, with whom Kaye, Fialkow, Richmond & Rothstein were on brief, Boston, MA, for appellant.

Kevin M. Brown, with whom Donald K. Stern, United States Attorney, Boston, MA, Loretta C. Argrett, Assistant Attorney General, Gary R. Allen, and William S. Estabrook, Tax Division, Department of Justice, were on brief, Washington, DC, for appellee.

Before BOUDIN, Circuit Judge, BOWNES, Senior Circuit Judge, and STAHL, Circuit Judge.

BOWNES, Senior Circuit Judge.

On October 8, 1993, Progressive Consumer Federal Credit Union ("Progressive"), plaintiff-appellant, filed a complaint against the Internal Revenue Service ("the government"), defendant-appellee, in the Land Court Department of the Trial Court of Plymouth County, Commonwealth of Massachusetts. Progressive sought a declaration that its mortgage had priority over properly recorded federal tax liens. The government filed a notice of removal pursuant to 28 U.S.C. § 1444, removing the action to the United States District Court for the District of Massachusetts. The district court entered a memorandum and order granting the cross-motion of the United States for summary judgment on May 26, 1995, holding that Progressive's mortgage was not entitled to priority over the federal tax liens under the Massachusetts common law doctrines of equitable subrogation or unjust enrichment.

The mortgage at issue is secured by real property located in Marshfield, Massachusetts. In 1987, as owners of the property, Jeremiah and Deborah Folkard ("the Folkards") executed a $150,000.00 mortgage note which was properly recorded in favor of the Miles Standish Federal Credit Union ("MSFCU"). Between 1988 and 1990, the government recorded six notices of tax liens on the Folkards' property for unpaid federal taxes. The total amount of the liens, exclusive of interest accrued since recording, was $94,560.93. In 1990, the Folkards refinanced their mortgage debt, then $130,905.55, with MSFCU, executing a new note and mortgage to secure a debt of $142,000.00. At the time of this transaction, MSFCU was presumably unaware of the existing tax liens. The 1987 mortgage was discharged at the moment the new mortgage was recorded on November 26, 1990. This resulted in priority of the federal tax liens, because of their recording dates, over the new mortgage. On October 19, 1992, MSFCU assigned its interest in the 1990 note and mortgage to Progressive. The record does not reflect when Progressive became aware of the record priority of the federal tax liens over its mortgage.

I. JURISDICTION

The threshold issue to be decided in this case, whether the district court properly exercised subject-matter jurisdiction over Progressive's claim, was raised for the first time on appeal. The government argues that the district court lacked jurisdiction on two grounds: (1) the government has not waived its sovereign immunity and therefore cannot be sued; and (2) the Declaratory Judgment Act, 28 U.S.C. § 2201(a), specifically bars the relief requested. ¹ Lack of subject-matter jurisdiction can be raised at any point during litigation. There can be no doubt of our power and duty to decide the issue. See Bender v. Williamsport Area School Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986); Wells Real Estate v. Greater Lowell Bd. of Realtors, 850 F.2d 803, 813 (1st Cir.1988).

A. Waiver of Sovereign Immunity

It has long been established that the United States is not subject to suit without a waiver of sovereign immunity, and that any such waiver is to be strictly construed. Nickerson v. United States, 513 F.2d 31, 32-33 (1st Cir.1975). The government correctly argues that Progressive wrongly relies on the Declaratory Judgment Act ("the Act"), 28 U.S.C. § 2201(a), to constitute a waiver of sovereign immunity because the Act "neither provides nor denies a jurisdictional basis for actions under federal law, but merely defines the scope of available declaratory relief." McCarthy v. Marshall, 723 F.2d 1034, 1037 (1st Cir.1983). Title 28 U.S.C. § 2410(a)(1) provides the only basis for finding a waiver of sovereign immunity in this case. ²

Under section 2410, the government waives its sovereign immunity in both quiet title and foreclosure actions. See 28 U.S.C. §§ 2410(a)(1), (2). A party bringing a foreclosure under this section, however, must seek a judicial sale of the underlying property. 28 U.S.C. § 2410(c). We begin by discussing whether Progressive's claim of priority constitutes a quiet title action within the meaning of 28 U.S.C. § 2410(a)(1).

The Scope of Quiet Title Actions Under 28 U.S.C. § 2410(a)(1)

The government contends that Progressive's claim does not fall within the coverage of section 2410(a)(1) because its claim of priority is not a quiet title action within the meaning of the statute. It follows, argues the government, that because no judicial sale has taken place, there can be no waiver of sovereign immunity and hence Progressive cannot maintain its cause of action. We disagree for the reasons that follow.

Section 2410(a)(1) has never been read to incorporate the formalistic distinctions state law pleading rules. United States v. Coson, 286 F.2d 453, 457 (9th Cir.1961). In Coson, the Ninth Circuit held that "[i]t is plain that the words 'quiet title' ... are not intended to refer to a suit to quiet title in the limited sense in which that term is sometimes used ... but that as used in the section here referred to it comprehends a suit to remove a cloud upon the title of a plaintiff." Id. Both the text and the history of section 2410 support this view. The quiet title provision was inserted by amendment to the predecessor statute, following a recommendation by the Attorney General of the United States (future Justice Jackson). The heart of the recommendation stated:

[U]nder existing law there is no provision whereby the owner of real estate may clear his title to such real estate of the cloud of a Government mortgage or lien.... In many instances persons acting in good faith have purchased real estate without knowledge of the Government lien or in the belief that the lien had been extinguished.... It appears that justice and fair dealing would require that a method be provided to clear real estate titles of questionable or valueless Government liens.

H.R.Rep. No. 1191, 77th Cong., 1st Sess. 2 (1941); S.Rep. No. 1646, 77th Cong., 2d Sess. 2 (1942).

The government points out that, under Massachusetts law, a plaintiff must have both actual possession and legal title to maintain a quiet title action, see MacNeil Bros. Co. v. State Realty Co. of Boston, Inc., 333 Mass. 770, 131 N.E.2d 178 (1956 (citing cases)), and suggests that the contours of the state law cause of action should guide our interpretation of section 2410(a)(1), particularly where the state law is consistent with federal common law (as the government argues it is here). That is, the government argues that Congress intended to waive sovereign immunity only in those cases that would traditionally have been termed "quiet title" actions; because Progressive did not bring and could not have brought such an action, ³ we should deem this case to be outside the scope of section 2410(a)(1).

If, in substance, the relief the plaintiff sought here--a declaration of the priority of Progressive's mortgage over the government's tax lien--is congruent with the relief available in a quiet title suit, it would frustrate congressional intent to block plaintiff's access to relief. Congress, after all, was concerned not with the niceties of common law pleading, but with practical problems facing owners whose property was encumbered by government liens. What label the state has attached to the cause of action is a helpful but not determinative guide to the proper interpretation of the federal statute. See Harrell v. United States, 13 F.3d 232, 235 (7th Cir.1993).

The government, however, contends that the relief that Progressive seeks would not have been available in a quiet title action. Progressive does not seek to remove the government's lien as invalid, but rather to establish the priority of its own mortgage over the concededly valid federal tax lien. Such relief would not have been available in a traditional quiet title action, only in a foreclosure action, where valid but junior liens are extinguished in favor of a senior lien. It follows, argues the government, that because no judicial sale has taken place, see § 2410(c), there can be no waiver of sovereign immunity.

A careful reading of the authorities, however, does not support the government's narrow portrayal of the relief available to quiet title plaintiffs. The government principally relies on Kasdon v. G.W. Zierden Landscaping, Inc., 541 F.Supp. 991 (D.Md.1982), aff'd sub nom. Kasdon v. United States, 707 F.2d 820 (4th Cir.1983). In Kasdon, suits were brought by tax sale purchasers to foreclose all equities of redemption in properties on which the United States held tax liens. The district court held that the suits were more properly characterized as foreclosure actions than quiet title actions and that judicial sale was required in order for sovereign immunity to be waived. Id. at 995-96.

Unlike the plaintiffs in Kasdon, Progressive seeks only a determination of priority between competing liens; it never initiated a foreclosure action and did not seek to extinguish the federal lien. The Kasdon court cited United States v. Morrison, 247 F.2d 285, 289 (5th Cir.1957), for the proposition that "priorities among valid interests are the subject...