Ringer v. Basile

• Decision Date: 20 October 1986
• Docket Number: Civ. A. No. 85-K-2161.
• Citation: 645 F. Supp. 1517
• Parties: Diona S. RINGER, Plaintiff, v. Thomas M. BASILE; G.L. Mihlbacher, Juan Rodriguez, Anthony Roybal, and the United States of America (in the form of its agency the Internal Revenue Service, IRS) and All Unknown Parties Who May Claim an Interest in the Real Estate In Question, Defendants.
• Court: U.S. District Court — District of Colorado

645 F. Supp. 1517

Diona S. RINGER, Plaintiff, v. Thomas M. BASILE; G.L. Mihlbacher, Juan Rodriguez, Anthony Roybal, and the United States of America (in the form of its agency the Internal Revenue Service, IRS) and All Unknown Parties Who May Claim an Interest in the Real Estate In Question, Defendants.

Civ. A. No. 85-K-2161.

United States District Court, D. Colorado.

October 20, 1986.

James A. Mundt, Colorado Springs, Colo., for plaintiff.

John D. Steffan, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., Nancy Rice, Dahil Goss, Asst. U.S. Attys., Denver, Colo., for defendants.

MEMORANDUM OPINION AND ORDER

KANE, District Judge.

I. BACKGROUND

In August, 1984, co-defendant Internal Revenue Agents Juan Rodriguez and Anthony Roybal sold plaintiff Diona Ringer's home to co-defendant Thomas Basile for $1,725.00 in satisfaction of past due taxes owed by plaintiff. On March 11, 1985, a quitclaim deed of the property was transferred to Basile by co-defendant G.L. Mihlbachler, District Director of the Internal Revenue. According to plaintiff (plaintiff is now deceased, however, she willed her interests in the subject property to her daughter and son who continue to represent those interests in this matter), she did not receive notice of the sale until April 11, 1985, when Basile informed her he had obtained ownership of the property. Although plaintiff thought all of her tax liability was being satisfied by garnishment of her wages, as it turned out, only part of the liability was actually being satisfied by the garnishment. There are factual disputes concerning plaintiff's notice of the sale which can only be resolved at trial.

Pursuant to Colo.R.Civ.P. 105, plaintiff filed a quiet title action in the state district court against Basile, Mihlbachler, Rodriguez, Roybal, and the United States (all co-defendants in this case except for the United States which was dismissed as a defendant for lack of personal jurisdiction). In her complaint, plaintiff requested an order (1) declaring she was the rightful owner of the property and (2) an injunction against defendants prohibiting them from claiming any interest in or title to her house. Additionally, after this case was removed to federal court, plaintiff amended her complaint adding a claim against Mihlbachler, Roybal, and Rodriguez for "inequitable conveyance".

In her Second Claim for Relief set forth in the amended complaint, plaintiff contends the sale of her property by the federal defendants to satisfy unpaid federal tax liabilities constituted an inequitable conveyance in violation of the spirit of the statutes and regulations governing the sale of taxpayer property, since the federal defendants failed to realize, and even failed to attempt to realize, anything approaching a reasonable price for the property. Plaintiff argues the house was sold for a grossly inadequate amount—a mere $1,725.00 when the house, plaintiff asserts, was worth over $40,000.00 (and she had over $40,000.00 paid in equity). Thus, plaintiff seeks an award of damages and invalidation of the sale.

On June 10, 1986, I issued a Memorandum Opinion and Order in which I ruled this action may proceed against the federal defendants. I reserved ruling on whether plaintiff may assert a claim for an "inequitable conveyance". I instructed the parties to file memorandum briefs on the issue of "inequitable conveyance". The parties have done so. The matter is now before me on the United States' motion to dismiss the amended complaint, specifically on the issue of inequitable conveyance.

II. DEFENDANTS' ARGUMENT ON INEQUITABLE CONVEYANCE IN SUPPORT OF THE MOTION TO DISMISS

Defendant argues: (1) plaintiff's second claim for relief in the amended complaint fails to state a claim upon which relief can be granted; and, (2) this court lacks subject matter jurisdiction over plaintiff's second claim for relief. I shall address each argument, and sub-arguments thereof, in turn.

A. THE STATUTORY REQUIREMENTS AND EXISTING CASE LAW FOR THE SEIZURE AND SALE OF PROPERTY FOR THE COLLECTION OF TAXES¹

The government argues plaintiff's cause of action for inequitable conveyance fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). According to the government, the Internal Revenue Service is under no obligation to sell seized property at its fair or reasonable market value. See Crump v. United States, 17 A.F.T.R.2d 637, 639 (N.D.Ga.1966) (claim that the sale of petitioner's automobile should be set aside because the minimum bid price was not based upon his equity in the automobile and did not state a valid cause of action); Kjar v. United States, 36 A.F.T.R. 1593, 1594-1595, 47-1 U.S.T.C. para. 2985, 12,624-12,625 (Ct.Cl.1947) (there is no provision of law which casts upon a collector the duty to realize from a sale of property its full market value, and which makes the United States liable if he fails to do so); Miracle Span Corporation v. United States, 50 A.F.T.R.2d, para. 82-5101 (D.S.D.1982) (rejected the notion that the government has the same duties as in the Uniform Commercial Code §§ 1-203 and 9-504 which require disposing of collateral in good faith and in a commercially reasonable manner).

Thus, defendants assert the language of § 6335(e) and the regulations thereunder (See footnote 1, supra): (1) merely require the government to set a minimum bid price which takes into account the costs of levy and sale; and, (2) do not require the government to realize any price from a sale of seized property other than the minimum bid price. Defendants argue there is no language in the statute or the regulations which would give rise to an inference that the government is under an obligation to realize from a forced sale the full, fair market value of the taxpayer's asset, or the taxpayer's equity in any asset. Therefore, plaintiff's inequitable conveyance claim should be dismissed as a matter of law.

Plaintiff responds by asserting her position is not to request the full, fair market value of her property. To the extent she so implies in certain instances in her brief that she should receive the full, fair market value, her claim, as a matter of law, must fail based on the cases cited by defendant. She realizes the Secretary is permitted to set a minimum price pursuant to his discretion for which the property shall be sold. Plaintiff contends, however, this discretion does not authorize the Secretary or his delegees to take a "cavalier attitude" toward a taxpayer's property, but requires, at least, a good faith effort in obtaining a price which is, at least, somewhere in the "ball park" of reason.

This argument is a very subtle one, but subtlety does not mean it is necessarily a weak one. It simply means the argument must be explained and reasoned with greater care than a pellucid one. First, plaintiff is not requesting the full market value for her house (over $40,000.00) or the full equity in her house (also over $40,000.00)². Much of defendant's legal argument and cited authority, however, announce law that is not in point. The cases state the "full, fair market value" is not required to be realized by the IRS. Full fair market value, however, is not what plaintiff requests. Secondly, plaintiff does not attack the Secretary's right to set a minimum price far below the fair market value. From the nature of plaintiff's argument, a price of, say, $30,000.00, or perhaps even $20,000.00, for this $40,000.00 house, would be considered by plaintiff to be "low" but not, as yet, "unconscionable" so as to make it an actionable wrong. Such differences in price, though large they may be, are still considered to be within the proper discretion of the Secretary. The cases defendant has cited clearly support this proposition. See Crump, Kjar, and, Miracle-Span, supra.

1) The Cases Cited By Defendant Do Not Address the Issue Raised By Plaintiff.

In Crump, supra, for example, a 1964 Ford Mercury automobile was sold for $81.00 plus the assumption of a $2,400.00 chattel mortgage against it. It was not necessary to take into account the taxpayer's equity in the automobile in determining the minimum bid price. The difference in the equity and corresponding fair market value of the car, however, and the actual IRS selling price in the Crump case, was nowhere near the same magnitude of price disparity as in the instant case. The IRS selling price of the car was only $81.00. When the assumption of the mortgage is taken into account in determining the price as was the case in Crump, however, the price of the car was actually $2,481.00.³ Indeed, the court stated the price was "fair" because the IRS took the assumption of this mortgage into account when it determined the minimum bid price.

In the instant case, assumption of the mortgage is not part of the sale of the house, nor is there any indication that, because of the mortgage, the minimum bid price is "fair". Apparently, there are some mortgage payments left to be paid on the house, but the exact amounts have not been submitted (See footnote 2, supra). Based on the information available to me in the record, the remaining mortgage amount is very small relative to the equity in the house (and its fair market value) which is "over $40,000.00". Thus, the mortgage is but a small percentage of the equity plaintiff has accrued in the house.

The most important point, however, is that the government has never stated the mortgage was "part of the deal" with purchaser and co-defendant Basile, as was the case in Crump. In fact, Basile's last pro se motion requested an order to compel plaintiff to pay the arrears on the house. Plaintiff had been paying the mortgage payments but in the last few months of her life she either refused to pay pending the outcome of this case or, because of her illness, was simply unable to pay them.

The reason I have digressed into these fact-specific explanations is to demonstrate the different manner in which the...