U.S. v. Tellez

• Decision Date: 06 June 2011
• Docket Number: EP-08-CV-303-KC
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. JOSE R. TELLEZ, et al., Defendants.
• Court: U.S. District Court — Western District of Texas

UNITED STATES OF AMERICA, Plaintiff,

v.JOSE R. TELLEZ, et al., Defendants.

EP-08-CV-303-KC

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS EL PASO DIVISION

Dated: June 6, 2011.

ORDER

The government brought this suit on August 6, 2008, seeking to seize and sell a property described as Tract 18-D-1 Block 15, Ysleta Grant, an addition to the City of El Paso, El Paso County, Texas, whose address is 8134 Knowles Way, El Paso, Texas ("the Property"). See Am. Compl., ECF No. 7. The Property allegedly belongs to Jose Tellez, at least in part. Id. The government is seeking to sell the Property to satisfy a tax lien concerning certain unpaid taxes owed individually by Jose Tellez. See id. ¶ 8; see also 26 U.S.C. § 7403 (providing for such seizures and sales).

In January 2009, the Court entered default judgment against Jose Tellez and his wife Lazara Tellez ("Jose" and "Lazara"; collectively, "Tellezes"). Order, Jan. 14, 2009, ECF No. 18. Several months later, in June 2009, the Tellezes objected to the seizure and sale, see Mot. to Set Aside Default Judgment, ECF No. 28, and the Court set aside the default judgment. See Order, July 13, 2009. The Tellezes' subsequent defense during two rounds of summary judgment motions and at trial has been that Lazara has a share of a homestead interest in the Property under Texas law, and that the government should not be allowed to liquidate her homestead interest because she is not liable for the taxes at issue. See Defs.' Answer ¶ 11, ECF No. 43.

The Tellezes have also asserted that the Property is Jose and Lazara's community property through their common law marriage. Id.; Defs.' Mot. for Summ. J. ¶ 5, ECF No. 45; see also Defs.' 2d Mot. for Summ. J. 3 n.6, ECF No. 59. During the year and a half of pretrial motions, the government did not contest the issue. Gov't's Resp. to Defs.'s Mot. for Summ. J. 2, ECF No. 46. But in its trial preparation filings, the government withdrew its proposed stipulation as to Lazara's community property ownership, and instead stated its position to be that "[t]he United States agrees with GECU that Lazara Tellez has no interest in this property." Gov't's Trial Prep. "Section C" Material 3, ECF No. 100 (emphasis in original).

G EC U was joined as a defendant in this case because it had a lien on the property to secure a mortgage issued to Jose Tellez. Def. GECU's Resp. to Gov't's Mot. for Summ. J. ¶¶-13, ECF No. 81. GECU asserted at the beginning of the case that its held a purchase money mortgage, and therefore its lien on the Property was superior to the government's lien. Id. Neither the government nor the Tellezes ultimately disputed this assertion. See Defs.' Jose and Lazara Tellez's Trial Prep. "Section C" Material 3-4, ECF No. 101; Def. GECU's Section C Am. Trial Prep. Order Compliance 3, ECF No. 102. However, on May 20, 2011, GECU represented to the Court that it had released its lien and asked that it be dismissed from the case. Mot. to Dismiss GECU, ECF No. 105. Consequently, with neither the government nor the Tellezes objecting to GECU's motion to be dismissed, the Court dismissed GECU as a defendant on June 3, 2011. See Order, June 3, 2011, ECF No. 109.

The Court determined by summary judgment that Jose owes the United States in excess of $58,825.69 for unpaid taxes. Order 11, Mar. 25, 2011, ECF No. 92. The Court also determined that the government has a valid lien for the same amount against all of Jose's real and personal property, including the Property. Id.

On May 26, 201 1, the Court held a trial on the merits of this case. Having reviewed the evidence on the record, the Court makes the following findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.¹

I. FINDINGS OF FACT

The Court finds the following facts:

1. Jose is the sole owner of the Property, and to the extent that he is married to Lazara the Property is Jose's separate property.

2. Jose currently resides at 520 Martha Way, El Paso, Texas ("520 Martha Way"), so as to care for his sister and elderly parents who live at 529 Martha Way.

3. Jose operates a business out of the Property.

4. Lazara has worked intermittently at the business operated by Jose Tellez.

5. Jose and Lazara listed their address on their 2005, 2006, and 2007 tax returns and IRS Forms W-2 as 520 Martha Way. The tax returns for all three years were filed in April 2008.

6. Jose and Lazara listed their address on their 2003 and 2004 tax returns as 8134 Knowles Way. The tax returns for 2003 and 2004 were filed in November 2008.

7. Jose filled out an IRS form in March 2008 indicating he had lived at 520 Martha Way for twenty-six years.

II. CONCLUSIONS OF LAW

In light of the foregoing findings, the Court makes the following conclusions of law.

A. Governing Law

The government brought this action pursuant to I.R.C. § 7403, which provides that the United States may bring an action to enforce a tax lien. Section 7403 states that in such an action,

The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States.

I.R.C. § 7403(c).

The nature and validity of parties' claims to property that is subject to a tax lien are governed by state law. United States v. Rodgers, 461 U.S. 677, 683 (1983) ("[I]t has long been an axiom of our tax collection scheme that, although the definition of underlying property interests is left to state law, the consequences that attach to those interests is a matter of federal law."). The placement of the burden and weight of proving the validity of such claims is also a matter of state law. See Computer Econ., Inc. v. Gartner Grp., Inc., 50 F. Supp. 2d 980, 990-91 (S.D. Cal. 1999) ("State rules that define the elements of a cause of action, affirmative defenses, presumptions, burdens of proof, and rules that create or preclude liability are so obviously substantive that their application in diversity actions is required.") (citing, inter alia, Guaranty Trust Co. of New York v. York, 326 U.S. 99, 109-11 (1945) (federal court must apply state law specifying length of applicable statute of limitations); Dick v. N.Y. Life Ins. Co., 359 U.S. 437, 446-47 (1959) (federal court must apply state law presumptions and burdens of proof); Woods v. Interstate Realty Co., 337 U.S. 535, 538 (1949) (federal court must apply state statute precluding corporations not qualified to do business in state from filing suit)).

Under Texas law, a homestead is a "family home or place of business . . . exempted from the reach of most creditors," and the "'owner or claimant of the property claimed as a homestead may not, if married, sell or abandon the homestead without the consent of the other spouse.'" Rodgers, 461 U.S. at 684-85 (quoting Tex. Const. art. XVI, § 50). A homestead interest is an estate in land,rather than just an economic right. Dominguez v. Castaneda, 1 63 S.W.3d 31 8, 329 (Tex. App. 2005) (citing Sanchez v. Telles, 960 S.W.2d 762, 769 (Tex. App. 1997); Laster v. First Huntsville Props. Co., 826 S.W.2d 125, 129 (Tex. 1991)). If a homestead is established by a couple, it has the effect of "'reducing the underlying ownership rights in [the property] to something akin to remainder interests and vesting in each spouse an interest akin to an undivided life estate in the property.'" Id. at 329-330 (quoting Sanchez, 960 S.W.2d at 769). The burden is on the individual or couple asserting the homestead interest to establish that they have such an interest, and to do so they must "show a combination of both overt acts of homestead usage and the intention . . . to claim the land as a homestead." Id. at 330 (citing Sanchez, 960 S.W.2d at 770). Mere ownership of a property alone is insufficient to establish it as a homestead, as is mere residence; it is "[p]ossession and use of land by one who owns it and who resides upon it [that] makes it the homestead in law and fact." Id. at 331 (citing Sanchez, 960 S.W.2d at 770; Silvers v. Welch, 91 S.W.2d 686, 688 (Tex. 1936)).

If a court determines that a party who is not liable to the government for unpaid taxes has an interest in property subject to a tax lien, that court may prevent the government from conducting a forced sale. Rodgers, 461 U.S. at 706. Proceedings under § 7403 are proceedings in equity, and "some limited discretion is left in the statute for the exercise of reasoned discretion." Id. This discretion is not "unbridled," however. Id. at 709. When deciding whether to protect an innocent third party's interest by preventing foreclosure, a "certain fairly limited set of considerations will almost always be paramount." Id. at 709-10. These factors include prejudice to the government from preventing a forced sale, whether the third party could expect that the property would be subject to forced sale by the debtor or the debtor's creditors, the prejudice to the third party from being dislocated or undercompensated by a forced sale, and the character and value of the thirdparty's interest relative to the debtor's interest. Id. at 710-11. These four factors are not exhaustive, however, and are not to be applied as a mechanical checklist. Id. at 71 1.

B. Analysis

Having already established by summary judgment that Jose Tellez is indebted to the United States for an amount in excess of $58,000 and that the United States has a valid lien against Jose's interest in the Property for the same amount, and having dismissed GECU based on its representation that it no longer has an interest in the property, the Court proceeds to examine the only interests the remaining Defendants...