Shelden v. U.S.

• Decision Date: 15 October 1993
• Docket Number: No. 92-5154,92-5154
• Citation: 7 F.3d 1022
• Parties: Carl and Mary SHELDEN, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1022

7 F.3d 1022

62 USLW 2262

Carl and Mary SHELDEN, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.

No. 92-5154.

United States Court of Appeals Federal Circuit.

Oct. 15, 1993.

Brenda Grantland, Mill Valley, CA, argued for plaintiffs-appellants. With her on the brief was Landon Dowdey, Washington, DC, of counsel.

Evelyn S. Ying, Atty., Dept. of Justice, Washington, DC, argued for defendant-appellee. With her on the brief were Myles E. Flint, Acting Asst. Atty. Gen., Jacques B. Gelin and David L. Shuey, Attys.

Before MAYER, MICHEL and LOURIE, Circuit Judges.

MICHEL, Circuit Judge.

Carl and Mary Shelden appeal from the June 24, 1992 decision of the United States Claims Court, ¹ Shelden v. United States, 26 Cl.Ct. 375 (1992) (Shelden II ), vacating the same court's January 12, 1990 decision, Shelden v. United States, 19 Cl.Ct. 247 (1990) (Shelden I ). In Shelden II the Claims Court held that the Sheldens, as mortgagees of property forfeited to the United States, suffered no taking by the government that would be compensable under the Fifth Amendment. Because the United States took a well-recognized property right held by the Sheldens when it acquired the mortgagor's interest in the forfeited property, we reverse and remand for a determination of just compensation.

I. BACKGROUND

Appellants Carl and Mary Shelden sold real property located in Moraga, California, to Ralph and Freddie Washington in May, 1979, secured by a deed of trust. The note contained a "due on sale" clause which gave the Sheldens the right to declare the mortgage balance immediately due and payable if "the Beneficiary, [Washington] sells, agrees to sell, transfers or conveys its interest in the real property or any part thereof or any interest therein." On February 15, 1983, the Washingtons were indicted for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq. (1982). The indictment alleged that the Moraga property was subject to forfeiture under RICO.

On October 7, 1983, with the note held by the Sheldens $6264 in arrears, the Sheldens' trustee filed a notice of default and election to sell the Moraga property. The Sheldens intended to sell the property at a foreclosure sale in January, 1984, following expiration of the three month reinstatement period required under California law to allow the defaulting party to cure. Cal.Civ.Code §§ 2924, 2924c (West 1993). Prior to the foreclosure date, however, the Washingtons' attorney incorrectly informed the Sheldens that their foreclosure agent had improperly recorded the notice of default. Consequently, the trustee re-recorded the notice of default and postponed the foreclosure sale until April 10, 1984.

On December 1, 1983, a jury found Ralph Washington guilty of RICO violations and declared all his properties, including the Moraga property, forfeited pursuant to 18 U.S.C. § 1963. The government filed a notice of lis pendens on December 9, 1983, reciting the jury verdict and declaration of forfeiture. The district court entered an "Order re Forfeiture of Properties and Disposition Thereof Pending Appeal" on January 31, 1984. The order provided that Washington's interest in the properties was transferred to the United States, but that record title would remain in Washington's name, pending appeal. The order, as it applied to the Moraga property, stated:

3. Any and all interest of the defendant Ralph Huey Washington in and to the aforesaid real properties is hereby deemed transferred to plaintiff United States of America effective January 20, 1984, although for the convenience of the parties and to put into effect the terms of this order[,] record title to the properties shall remain, (where applicable) in the name of Ralph Huey Washington.

. . . . .

5. (A) Defendant Ralph Huey Washington, or his designated representative, shall be entitled to remain in physical possession of, and to have the management and control of, the following parcels of real property: [the Moraga property]

(B) Defendant, so long as he is not in custody, shall be entitled to reside in [the Moraga property]; in the event that said defendant is in custody, said real property shall be rented at a commercially reasonable rental, on a month to month basis.

. . . . .

11. Upon final disposition of defendant's appeal, the property declared forfeitable shall forthwith be irrevocably vested in plaintiff United States of America, or released to defendant Ralph Huey Washington, as the result of said appeal shall indicate.

In an attempt to prevent the Sheldens' scheduled foreclosure in April, 1984, the United States and the Washingtons intervened before the district court which had presided over the RICO proceedings. The district court mediated a stipulated one month postponement of the foreclosure sale. The Washingtons avoided the May, 1984 foreclosure sale by paying arrearages on the mortgage.

The Sheldens filed another notice of default in April, 1986, stating that the Washingtons were again in arrears on their mortgage payments. Because the Washingtons did not cure during the three month reinstatement period, a foreclosure sale was noticed for August 20, 1986. However, a few hours before the sale was to occur, the Washingtons filed for protection under Chapter 11 of the bankruptcy code. The property was placed under the bankruptcy court's jurisdiction and, as a result, the foreclosure sale did not take place at that time.

During proceedings in the bankruptcy court, the Sheldens learned that the hill supporting the house on the Moraga property had eroded badly since the time the property had been forfeited to the United States, causing structural and cosmetic damage to the house. The Sheldens claim that the property which was appraised at $325,000 in 1983 was worth only $60,000 by early 1987. Because no equity remained in the property, the bankruptcy court released it from the bankruptcy estate. The Sheldens noticed a foreclosure sale for February 23, 1987 at which they bought the Moraga property for $115,500.

On August 20, 1986, the same day that the Washingtons filed for bankruptcy, the Court of Appeals for the Ninth Circuit vacated Ralph Washington's conviction and remanded the case. United States v. Washington, 797 F.2d 1461 (9th Cir.1986). On September 26, 1988, however, Washington entered a guilty plea which forfeited the Moraga property to the United States even though the Sheldens had already foreclosed on and bought the property. Between the time of the appellate decision and Washington's guilty plea, the trial judge who had entered the forfeiture order had never ruled on whether the Ninth Circuit's decision vacating Washington's conviction affected the forfeiture verdicts; nor did he ever vacate the forfeiture judgment as to the Moraga property. Not until the summer of 1990 did the Sheldens learn that Washington's guilty plea irrevocably vested title to the Moraga property in the United States. However, the government gave the Sheldens a quitclaim deed and a release of the lis pendens on October 9, 1990.

On March 11, 1988, the Sheldens filed a complaint in the Claims Court, alleging that the government's actions effected an uncompensated taking of their property in violation of the Fifth Amendment. They sought compensation for the diminution of the value of the Moraga property caused by the erosion occurring after the forfeiture based on Washington's December 1, 1983 conviction.

On cross motions for summary judgment on the issue of liability, the Claims Court held that the government had taken the Sheldens' property without just compensation. Shelden I, 19 Cl.Ct. 247. The court concluded that the government's filing of the notice of lis pendens "announced to the world that the United States had a lien on the property, and it effectively destroyed the value of the Sheldens' security interest." This amounted to a taking. Id. at 252. A trial was set to determine damages.

On August 9, 1990, the United States filed a motion for relief from the Claims Court's decision under R.U.S.C.C. 60(b)(2), alleging newly discovered facts that undermined the basis of the court's determination of liability. The court vacated Shelden I and granted the government's motion for summary judgment or, in the alternative, granted the government's motion for relief and dismissed the case. The court held that because the Sheldens failed to show any actual damage suffered as a result of the government's placing a notice of lis pendens on the property, there was no taking. Shelden II, 26 Cl.Ct. 375. The court reasoned that the government's actions never prevented the Sheldens from foreclosing. They were prevented by the Washingtons' curing their default on the mortgage and by the declaration of bankruptcy. Id. at 380.

The Sheldens appealed to this court. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3) (1988).

II. STANDARD OF REVIEW

We review Claims Court decisions de novo for errors of law and for clear error on findings of fact. Yancey v. United States, 915 F.2d 1534, 1537 (Fed.Cir.1990). The parties do not dispute the facts of this case. Therefore, the only issue on appeal is whether the government's actions amount to a compensable taking. Because the Claims Court decided liability as a matter of law by granting the government's motions to dismiss and for summary judgment, our standard of review is de novo. Turner v. United States, 901 F.2d 1093, 1095 (Fed.Cir.1990) ("We review the grant of summary judgment motions by the Claims Court de novo.").

III. ANALYSIS

The Fifth Amendment to the United States Constitution provides in part, "nor shall private property be taken for public use, without just compensation." The purpose of the "takings clause" is "to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Armstrong v. United States, 364 U.S. 40, 49, 80...