Russell v. U.S., 07-1438.

Citation551 F.3d 1174
Decision Date19 December 2008
Docket NumberNo. 07-1438.,07-1438.
PartiesTimothy J. RUSSELL; Anita L. Russell, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant, and Holly Williams, Public Trustee of El Paso County, Defendant.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Philip J. Giacinti, Jr., of Procopio, Cory, Hargreaves and Savitch LLP, Denver, CO, for Plaintiffs-Appellees.

Patrick J. Urda (Nathan J. Hochman, Assistant Attorney General, Bruce R. Ellisen, Attorney, and Troy A. Eid, of Counsel, with him on the briefs), U.S. Department of Justice, Washington, D.C., for Defendant-Appellant.

Before MURPHY, BRORBY and HARTZ, Circuit Judges.

BRORBY, Circuit Judge.

Appellant United States (hereafter "government") appeals the district court's judgment in favor of Timothy and Anita Russell (the Russells) in their federal action to quiet title in their real property on which the government holds a recorded federal tax lien. The government contends the district court erred in relying on Colorado law in granting the Russells judgment because a provision of the Internal Revenue Code, 26 U.S.C. § 7425(b), preempts state law and leaves federal tax liens undisturbed where the government did not receive notice of a nonjudicial sale. We exercise our jurisdiction under 28 U.S.C. § 1291 and reverse and remand with instructions for the district court to vacate its prior judgment and enter judgment in favor of the government on its motion to dismiss the complaint.

I. Factual and Procedural Background

During the underlying action, the parties agreed to the following undisputed pertinent facts. In August 2003, Ashcroft Homes, Inc. (Ashcroft) obtained a construction loan in the amount of $506,400 from U.S. Bank in exchange for a deed of trust to the property in question. Almost a year later, in July 2004, the Internal Revenue Service (IRS) filed a notice of a federal tax lien against Ashcroft on the property in the amount of $160,353.09, and on July 23, 2004, the Clerk and Recorder of El Paso County, Colorado, recorded the lien. On October 24, 2004, U.S. Bank assigned the deed of trust to Timber Creek Holdings, L.P. (Timber Creek).

In February 2005, after Ashcroft defaulted on its loan, Timber Creek commenced foreclosure proceedings. On April 13, 2005, the Public Trustee of El Paso County conducted a foreclosure sale at which Timber Creek purchased the property for $630,987.94. However, the government was not provided notice of the foreclosure sale. In November 2005, Timber Creek sold the property to the Russells.

On March 7, 2007, the Russells filed a complaint against the United States seeking to quiet title to their property under Colo.Rev.Stat. § 38-38-506(2)(a). The government moved to dismiss the complaint in conjunction with 26 U.S.C. § 7425(b)(1), contending it preempted Colorado law and required the lien remain undisturbed unless it received notice of the sale, which it did not.

At a hearing held on the government's motion to dismiss, the district court heard argument from both parties, determined no factual disputes existed, and granted judgment in favor of the Russells, relying on Colo.Rev.Stat. § 38-38-506(2) and 26 U.S.C. 7425(d), a redemption provision, in holding the government must redeem or purchase the property for $710,959.42 within 120 days or forfeit its lien, making title to the property "free and clear of any claim of lien" by the government. This appeal followed.

II. Discussion

On appeal, the government poses the same argument it made before the district court, contending the Colorado statute on which the district court relied conflicts with and is preempted by provisions of the Internal Revenue Code governing the validity of federal tax liens after a nonjudicial sale. In making this argument, it points out that a government lien generally attaches to the delinquent taxpayer's property and rights to that property, and the lien remains attached even if the property is transferred to a third party. In a case, like here, where a nonjudicial sale occurs on property in which the government holds a tax lien, it argues these general principles continue to apply through 26 U.S.C. § 7425(b), which requires, as intended by Congress, for the lien to remain undisturbed if the Secretary of Treasury did not receive notice of the sale at least twenty-five days prior to the sale and the government properly recorded notice of the lien at least thirty days before the sale. The government points out this remedy allows it to enforce its junior lien against the property through administrative or judicial proceedings, which is incompatible with the remedy in Colo.Rev.Stat. § 38-38-506, which provides the interest of a lien holder who did not receive notice of nonjudicial sale must be terminated if the lien holder is given the opportunity to exercise rights to cure and redeem the property and fails to do so. It also argues subsection (d) of 26 U.S.C. § 7425, allowing the government to redeem property, merely gives the United States a permissive right to redeem property referenced in § 7425(b) within 120 days and is only one of several options the government may pursue to enforce its lien.1

In response, the Russells argue in favor of the district court's application of Colo. Rev.Stat. § 38-38-506(2)(a). They contend 26 U.S.C. § 7425(b) does not contain language expressly or impliedly preempting state law and that this circuit's existing case law establishes Colo.Rev.Stat. § 38-38-506 does not contravene 26 U.S.C. § 7425(b). In addition, they point out that subsection (d) of 26 U.S.C. § 7425, like § 38-38-506, also prescribes redemption as a remedy so that the state and federal remedies are similar and not in conflict. They further argue the purpose of the Federal Tax Lien Act of 19662 is not served by the government's argument because 26 U.S.C. § 6323(a) and (f) make federal lien priorities subject to a state's priority scheme, and 28 U.S.C. § 2410(a) and (d)3 reference both state court jurisdiction and laws of the situs state, illustrating state, rather than federal, law should be applied.

We begin with our standard of review for a motion to dismiss, which is the procedural vehicle on which the government sought resolution and the district court disposed of the case. "Because the sufficiency of a complaint is a question of law, we review de novo the district court's grant of a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), applying the same standards as the district court." Sunrise Valley, LLC v. Kempthorne, 528 F.3d 1251, 1254 (10th Cir.2008) (internal quotation marks and citation omitted), petition for cert. filed, 77 USLW 3267 (Oct. 20, 2008) (No. 08-537). "Those standards require that we must accept as true all well-pleaded facts, and construe all reasonable allegations in the light most favorable to the plaintiff." Id. Dismissal is appropriate for "failure to state a claim upon which relief can be granted," Fed. R. Civ. Proc. 12(b)(6), which, in rare instances, may occur on the "basis of a dispositive issue of law." Neitzke v. Williams, 490 U.S. 319, 326, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989); see also Gregory v. United States, 942 F.2d 1498, 1500 (10th Cir.1991).

We next turn to the issue of preemption, on which the government brought its motion to dismiss and its appeal. A fundamental principle in the Constitution under the Supremacy Clause "is that Congress has the power to preempt state law." Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 372, 120 S.Ct. 2288, 147 L.Ed.2d 352 (2000). The preemptive effect of federal law may be apparent from the express terms of the statute, or it may be implicit. See Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm'n, 461 U.S. 190, 203-04, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983). Implicit preemption of state law may occur in at least two circumstances, when: (1) Congress intends federal law to "occupy the field," or (2) state law is naturally preempted to the extent it conflicts with a federal statute. See Crosby, 530 U.S. at 372, 120 S.Ct. 2288. Such conflict occurs when "compliance with both federal and state regulations is a physical impossibility" or when the state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Pacific Gas, 461 U.S. at 204, 103 S.Ct. 1713 (internal quotation marks and citations omitted).

In determining whether a statute expressly or implicitly preempts state law, we look to the principles of statutory construction. "We review a district court's statutory interpretation de novo," and "[i]t is our primary task in interpreting statutes to determine congressional intent, using traditional tools of statutory construction." United States v. Manning, 526 F.3d 611, 614 (10th Cir.2008) (internal quotation marks and citations omitted), cert. dismissed, 2008 WL 4656882 (Dec. 19, 2008). In ascertaining such congressional intent, "[w]e begin by examining the statute's plain language," and "[i]f the statutory language is clear, our analysis ordinarily ends." Id. Moreover, "it is an elemental canon of statutory construction that where a statute expressly provides a particular remedy or remedies, a court must be chary of reading others into it." Cuba Soil & Water Conservation Dist. v. Lewis, 527 F.3d 1061, 1065 (10th Cir.2008) (internal quotation marks and citation omitted), petition for cert. filed, 77 USLW 3252, 2009 WL 56222 (Oct. 13, 2008) (No. 08-499). "If the statute's plain language is ambiguous as to Congressional intent, we look to the legislative history and the underlying public policy of the statute." Manning, 526 F.3d at 614 (internal quotation marks and citation omitted).

With these principles in mind, we turn to the statutes at issue in this appeal. Under Colorado law, when a person or entity with a recorded interest, such as a lien holder, is not named as a party defendant in the foreclosure action or properly notified of the...

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