Talbot v. US

• Decision Date: 03 May 1994
• Docket Number: No. 93-CV-1035-B.,93-CV-1035-B.
• Citation: 850 F. Supp. 969
• Parties: Jim K. TALBOT and Tara Lee Talbot, Norwest Mortgage, Inc., and First American Title Insurance Company, Plaintiffs, v. UNITED STATES of America, Acting By and Through Its Secretary of The Treasury and Its Internal Revenue Service, Defendant.
• Court: U.S. District Court — District of Wyoming

850 F. Supp. 969

Jim K. TALBOT and Tara Lee Talbot, Norwest Mortgage, Inc., and First American Title Insurance Company, Plaintiffs, v. UNITED STATES of America, Acting By and Through Its Secretary of The Treasury and Its Internal Revenue Service, Defendant.

No. 93-CV-1035-B.

United States District Court, D. Wyoming.

May 3, 1994.

Richard L. Williams, Barry G. Williams, Casper, WY, for plaintiffs.

Susan Laughlin, U.S. Dept. of Justice, Washington, DC, Donald R. Wrobetz, Asst. U.S. Atty., Cheyenne, WY, for defendant.

ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

BRIMMER, District Judge.

The above-entitled matter having come before the Court upon parties' cross-motions for summary judgment, and the Court having reviewed the materials on file herein, having heard argument from the parties, and being fully advised in the premises, FINDS and ORDERS as follows:

Background

The plaintiffs and the defendant have filed a stipulation of uncontroverted facts which discloses the following sequence of events upon which the controversy between the parties is based.

On May 20, 1985, Gerald and Michelle Dikes purchased a residential property in Evanston, Wyoming, as tenants by the entireties. On June 21, 1985, the Dikes' executed a real estate mortgage, secured by the property in question, to Rocky Mountain Federal Savings & Loan Association. The mortgage and the warranty deed were recorded in the Uinta County Clerk's office on June 24, 1985.

On March 11, 1985, defendant Internal Revenue Service ("IRS") made two assessments against Mr. Dikes for certain tax liabilities arising under 26 U.S.C. § 6672(a). On July 11, 1986, a Notice of Federal Tax Lien was filed in the Uinta County Clerk's office reflecting a lien on the property which the IRS claimed by virtue of those assessments.

On May 4, 1989, Rocky Mountain Federal Savings Bank, as successor in interest to Rocky Mountain Federal Savings & Loan Association, issued to Mr. and Mrs. Dikes a notice of intent to foreclose their mortgage by advertisement and sale. This notice of intent was published in Uinta County on May 24 & 31 and on June 7 & 14. On June 21, 1989, the Sheriff of Uinta County held a foreclosure sale involving the Dikes' property. The purchaser at the sale was the mortgagee, Rocky Mountain Federal Savings Bank. No notice of the foreclosure sale was mailed to or served upon the IRS.

At the expiration of the statutory redemption period, the Sheriff executed a Sheriff's Deed to the property to the bank. The bank recorded this deed on November 9, 1989. On October 25, 1989, the bank conveyed the property to HUD. The HUD deed was also recorded on November 9, 1989. A number of conveyances followed. HUD conveyed the property by special warranty deed on April 10, 1992, to Barbara J. Slavens and her deed was recorded on April 11, 1992. Ms. Slavens then conveyed the property by warranty deed dated May 5, 1992, to Sharon Batwin. That deed was recorded on May 6, 1992. Sharon Batwin conveyed the property by warranty deed dated August 31, 1993, to the plaintiffs in this case, Jim and Tara Talbot. On September 1, 1993, plaintiff Norwest Mortgage, Inc. recorded a mortgage on the property, executed by the Talbots. Plaintiff First American Title Insurance Company has issued title insurance on the property with respect to the various conveyances.

The central issue to be determined by the Court is whether the Federal tax liens assessed against Mr. Dikes and recorded in the Uinta County Clerk's office, attached to the property owned by Mr. and Mrs. Dikes as tenants by the entireties. The plaintiffs argue, in essence, that the lien did not attach to the property. The IRS contends that the lien did attach and was not extinguished by the foreclosure sale because no notice was provided to the IRS of that sale.

Standard of Review

"By its very terms, the Rule 56(c) standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there is no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (emphasis in original).

The trial court decides which facts are material as a matter of law. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. at 248, 106 S.Ct. at 2510; see also Carey v. United States Postal Service, 812 F.2d 621, 623 (10th Cir.1987). Summary judgment may be entered "against a party who fails to make a sufficient showing to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Carey, 812 F.2d at 623. The relevant inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Carey, 812 F.2d at 623. In considering a party's motion for summary judgment, the court must examine all evidence in the light most favorable to the nonmoving party. Barber v. General Elec. Co., 648 F.2d 1272, 1276 n. 1 (10th Cir.1981).

In this case there are no factual disputes and the parties agree that the matter can be resolved on the cross-motions for summary judgment which are currently before the Court.

Discussion

A. The Federal Statutory Scheme

The IRS claims an interest in the plaintiffs' property by virtue of the federal tax liens against the property which were recorded in the Uinta County Clerk's office at the time Gerald and Michelle Dikes owned the property as tenants by the entireties. The section of the Internal Revenue Code which allows the creation of federal tax liens states that:

if any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

26 U.S.C. § 6321 (emphasis added). The Supreme Court has held that "the statutory language `all property rights and rights to property,' ... is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." United States v. National Bank of Commerce, 472 U.S. 713, 719-20, 105 S.Ct. 2919, 2924, 86 L.Ed.2d 565 (1985).

Once the IRS has a lien on a person's property, the IRS must be notified of any sale or nonjudicial foreclosure on the property in order to extinguish the lien. The Internal Revenue Code provides that if notice is not provided to the IRS, the sale is made subject to the lien. Section 7425(b) provides, in pertinent part, as follows:

a sale of property on which the United States has or claims a lien, ... shall, except as otherwise provided, be made subject to and without disturbing such lien or title, if notice of such lien was filed or such title recorded ... more than 30 days before such sale and the United States is not given notice of such sale....

26 U.S.C. § 7425(b).

The plaintiffs contend that the federal tax lien never attached to the property and as a result, no notice was required under § 7425 to extinguish the lien against the property. Thus, the first question that the Court must address is whether the property owned by Gerald and Michelle Dikes by tenants by the entirety was property belonging to Gerald Dikes to which a federal tax lien could attach.

It is a well-established rule that state law controls whether and to what extent a taxpayer has property or rights to property to which a federal tax lien can attach. The Supreme Court stated in Morgan v. Commissioner, 309 U.S. 78, 82, 60 S.Ct. 424, 426, 84 L.Ed. 585 (1940), that "in the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property ... sought to be reached by the statute." In Aquilino v. United States, 363 U.S. 509, 514, 80 S.Ct. 1277, 1281, 4 L.Ed.2d 1365 (1960), the Court explained that "once the tax lien has attached to the taxpayer's state-created interests, we enter the province of federal law, which we have consistently held determines the priority of competing liens asserted against the taxpayer's `property' or `rights to property.'" Therefore, the Court now turns to Wyoming law regarding tenancies by the entirety to determine whether Mr. Dikes had a property interest to which the federal tax lien could attach.

B. Tenancies by the Entirety

The plaintiffs argue that the Wyoming law defining tenancies by the entirety is well-established and indicates that neither the husband nor the wife has a separate interest in the property which is capable of alienation. The IRS, on the other hand, takes the position that the Wyoming law on tenancies by the entirety concerns the indivisibility and inalienability of the estate without mutual consent of the spouses, not whether each spouse has an independent interest in the property.

In 1936, the Wyoming Supreme Court defined the tenancy by the entireties estate as follows:

"A conveyance or devise to two persons, who are husband and wife at the time property vests in them," says 2 Thompson on Real Property, 939, § 1735, "creates an estate by the entireties. By reason of their unity by marriage, they together take the whole estate as one person. Neither has a separate estate or interest in the land but each has the whole estate. Upon the death of one, the entire estate and the interest belongs to the other, not by virtue of survivorship, but by virtue of the title that vested under the original limitation."

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