Shelter Mut. Ins. v. Gregory

• Decision Date: 08 January 2008
• Docket Number: No. 3:07-0112.,3:07-0112.
• Citation: 555 F.Supp.2d 922
• Parties: SHELTER MUTUAL INSURANCE, Plaintiff, v. Robert H. GREGORY and United States of America, Defendants.
• Court: U.S. District Court — Middle District of Tennessee

555 F.Supp.2d 922

SHELTER MUTUAL INSURANCE, Plaintiff, v. Robert H. GREGORY and United States of America, Defendants.

No. 3:07-0112.

United States District Court, M.D. Tennessee, Nashville Division.

January 8, 2008.

N. Mark Kinsman, Baker, Kinsman, Hollis, Clelland & Winer, P.C., Chattanooga, TN, for Plaintiff.

Daniel J. Healy, Joshua D. Smeltzer, Department of Justice, Washington, DC, for Defendants.

MEMORANDUM ORDER

JOHN T. NIXON, Senior District Judge.

Two (2) dispositive motions are pending before the Court in the above-captioned matter. Defendant Robert H. Gregory ("Gregory") filed a Motion to Dismiss (Doc. No. 12) to which Plaintiff Shelter Mutual Insurance ("Plaintiff' or "Shelter"), and Defendant United States of America ("United States" or "Government") each filed a Response in Opposition (Doc. Nos. 16 and 18). The United States has also filed a Motion for Summary Judgment (Doc. No. 32), to which Gregory has filed a Response (Doc. No. 34). The Government subsequently filed a Reply to Gregory's Response (Doc. No. 44).

For the reasons stated herein, Defendant Gregory's Motion to Dismiss is DENIED and Defendant United States' Motion for Summary Judgment is GRANTED in part and DENIED in part.

I. FACTUAL OVERVIEW AND PROCEDURAL HISTORY

Defendant Robert Gregory owns a dwelling located in Davidson County, Tennessee that was insured under policy #41-73-^8573878-4 issued by Plaintiff with a dwelling coverage limit of $173,000.00. After the dwelling was damaged by fire in .September 2006, Gregory submitted an insurance claim to Shelter in the amount of $173,000.00 for the fire damage and a claim for $3,600.00 for loss of rental income. Through the course of the investigation of the fire loss, however, Plaintiff learned that the Internal Revenue Service ("IRS") filed a Notice of Federal Tax Lien with the Register of Deeds for Davidson County, Tennessee on February 10, 2005 against all property and rights to property belonging to Gregory due to unpaid tax assessments for 1997,1998,1999, and 2001. (See Doc. No. 8-1.) Gregory subsequently informed Shelter in writing of his objection to any payment made from the policy proceeds to the IRS. (See Doc. Nos. 8-2, 31.)

Plaintiff concedes that a total of $176,900.00 is payable under Gregory's insurance policy, but remains uncertain whether that sum is payable to Gregory and/or the IRS due to the tax lien. Accordingly, on January 25, 2007, Plaintiff brought an interpleader action against Gregory and the United States before this Court to resolve the adverse claims to the property, and to discharge Plaintiff from any liability to the Defendants. (Doc. No. 1.) Plaintiffs original Interpleader Complaint ("Original Interpleader Complaint") stated generally that the case was brought pursuant to 28 U.S.C. § 2410,¹ and alleged that this Court's jurisdiction to hear the matter was based on diversity of citizenship pursuant to 28 U.S.C. § 1332,² as well as 28 U.S.C. § 1346.³ (Id.)

On January 30, 2007, Magistrate Judge Knowles ("Magistrate Judge") filed a Report and Recommendation that this action be dismissed without prejudice because this Court lacks subject matter jurisdiction over the case based on Plaintiffs claim of diversity of citizenship. (Doc. No. 7.) The Magistrate Judge reasoned that 28 U.S.C. § 1332 cannot apply in the present interpleader action because the United States cannot be sued in diversity, as it is not a citizen of any state. (Id.); see also Gen. Ry. Signal Co. v. Corcoran, 921 F.2d 700, 703 (7th Cir.1991); Koppers Co., Inc. v. Garling & Langlois, 594 F.2d 1094,1097 n. 1 (6th Cir.1979). The Magistrate Judge also found 28 U.S.C. § 1346 inapplicable to the instant case, noting that the statutory provision provides federal district courts with original jurisdiction for certain classes of cases, none of which applied to" the instant matter. See 28 U.S.C. § 1346. Further, the Magistrate Judge stated that to the extent Plaintiff relied on 28 U.S.C. § 2410 to establish jurisdiction, such reliance was misplaced as "that statute is merely a waiver of the sovereign immunity of the United States, which allows the United States to be named as a Defendant in certain circumstances" but first requires that the court have proper jurisdiction of the subject matter, which remained absent in this case. (Doc. No. 7.)

Three (3) days after the filing of the Magistrate Judge's Report and Recommendation and prior to the filing of any responsive pleadings, Plaintiff filed an Amended Interpleader Complaint ("Amended Interpleader Complaint"), this time specifying that the interpleader action was brought pursuant to Federal Rule of Civil Procedure ("FRCP") 22, and alleging subject matter jurisdiction based on the presence of a federal question rather than diversity.⁴ According to Plaintiffs Amended Interpleader Complaint, federal question jurisdiction is created through 26 U.S.C. §§ 6321,⁵ 7403,⁶ and 28 U.S.C. §§ 1331 and 1340.⁷ (Doc. No. 8.) Gregory filed a Motion to Dismiss on March 14, 2007, alleging that dismissal of the Amended Interpleader Complaint was appropriate for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. (Doc. No. 12); FED. R.CIV.P. 12(b).

The Government, thereafter, filed a counterclaim against Shelter and a cross-claim against Gregory, both pursuant to 26 U.S.C. §§ 7401-7403. The Government alleges in its Amended Answer, Counterclaim and Cross-Claim that it has valid and subsisting federal tax liens on all Gregory's property and rights to property as a result of his unpaid federal income taxes, interest and penalties from years 1997, 1998, 1999, 2001, 2002, and 2003, totaling $139,656 as of March 26, 2007. Further, the Government asserts that Gregory failed to pay his tax liabilities for years 2004 and 2005, resulting in an additional amount owed as of June 29, 2007 of $74,297. The Government seeks an Order from the Court: (a) declaring that the United States has valid and subsisting federal tax liens on Gregory's property and rights to property, including the $176,900 of insurance proceeds held by Plaintiff; (b) determining that Gregory has a tax liability for the years 2004 and 2005; and (c) foreclosing the federal tax liens for tax years 1997,1998,1999, 2001, 2002 and 2003 and the judgment liens for tax years 2004 and 2005 against the insurance proceeds held by Plaintiff. (Doc. No. 29.)

On August 16, 2007, the Government filed a Motion for Summary Judgment, seeking judgment on its counter-claim and cross claim. (Doc. No. 32.) The merits of Gregory's Motion to Dismiss and the Government's Motion for Summary Judgment are discussed below.

II. DEFENDANT GREGORY'S MOTION TO DISMISS

A. LEGAL STANDARD

When considering a motion to dismiss, the allegations in the complaint will be construed broadly and liberally in conformity with FRCP 8(F). FED.R.CIV.P. 12(b)(1); Fed.R.Civ.P. 8(f). Additionally, all well-pleaded facts in the Complaint are taken as true, and the Court will draw all reasonable inferences in favor of the pleader from the underlying facts. Ludwig v. Bd. of Trs. of Ferris State Univ., 123 F.3d 404, 408 (6th Cir.1997).

"Where subject matter jurisdiction is challenged pursuant to 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion." Mich. S. R.R. Co. v. Branch & St. Joseph Counties Rail Users Ass'n, 287 F.3d 568, 573 (6th Cir.2002). The plaintiff must therefore show that the complaint alleges a substantial claim based on federal law. The motion to dismiss is defeated upon a showing of "any arguable basis in law for the claims set forth in the complaint." Id. (internal quotations omitted).

A motion under FRCP 12(b)(6) tests whether a cognizable claim has been pled in the complaint. Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988). Under Rule 8(a), a complaint "shall contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." FED.R.CIV.P. 8(a). However, a complaint "need not set down in detail all the particularities of a plaintiffs claim." Gazette v. City of Pontiac, 41 F.3d 1061, 1064 (6th Cir.1994) (quoting Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir.1976)). Dismissal of a claim pursuant to Rule 12(b)(6) is appropriate only if it appears beyond doubt that a plaintiff can prove no set of facts in support of his or her claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

B. Analysis

Gregory argues in his Motion to Dismiss that the Court lacks subject matter jurisdiction based on diversity, referencing the Magistrate Judge's conclusions in the Report and Recommendation, and therefore contends that dismissal is appropriate pursuant to FRCP 12(b)(1). (Doc. No. 13.) Gregory also asserts that dismissal is appropriate under FRCP 12(b)(6), contending that Plaintiffs interpleader action falsely alleges that Shelter faces double liability should payment be made to either Defendant, and does not constitute a cause of action. According to Gregory, double liability is not a realistic concern since, "the funds held by [P]laintiff are not reachable by levy and could not properly be made subject to levy," and therefore Plaintiff cannot be held liable by the Government for releasing the funds to Gregory. (Id.)

Shelter's Response to the Motion to Dismiss maintains that subject matter jurisdiction in this case is not based on diversity but rather on the presence of a federal question pursuant to 28 U.S.C. § 1331. (Doc. No. 9.)⁸ In support of its claim of jurisdiction under § 1331, Plaintiff contends that federal jurisdiction is proper in an interpleader action among non-diverse parties if federal question jurisdiction exists in a potential coercive action by the defendant. (Doc. No. 9); see CPS Elec, Ltd. v. United States, 166 F.Supp.2d 727, 729-30 (N.D.N.Y.2001). Therefore, Plaintiff asserts that because the Government can file (and...