United States v. O'Callaghan

• Citation: 805 F.Supp.2d 1321,108 A.F.T.R.2d 2011
• Decision Date: 04 August 2011
• Docket Number: Case No. 8:09–cv–384–T–23–TGW.
• Parties: UNITED STATES of America, Plaintiff, v. William O'CALLAGHAN, et al., Defendants.
• Court: U.S. District Court — Middle District of Florida

108 A.F.T.R.2d 2011-5600

805 F.Supp.2d 1321

UNITED STATES of America, Plaintiff,

v.William O'CALLAGHAN, et al., Defendants.

Case No. 8:09–cv–384–T–23–TGW.

United States District Court, M.D. Florida,Tampa Division.

Aug. 4, 2011.

Pascale Guerrier, Stephen Christopher Dowdell, US Department of Justice, Washington, DC, for Plaintiff.

Dennis A. Creed, III, Ford & Harrison, LLP, Tampa, FL, Vincent B. Lynch, Lynch & Robbins, PA, St. Petersburg, FL, Salvatore J. Liga, Salvatore J. Liga, Esq., Ossining, NY, for Defendants.

ORDER

STEVEN D. MERRYDAY, District Judge.

Because William O'Callaghan's residence is subject to a prompt foreclosure sale unless a stay is granted, the district court has examined closely and afresh the circumstances and status of this case. O'Callaghan bought the residence at a moment years ago when he both owed delinquent taxes and had money; he could have paid his delinquent taxes with the money, but he bought the residence, instead. The IRS placed a lien on the residence but collection fell victim to protracted but fruitless negotiation and a bankruptcy. O'Callaghan has nothing approaching a meritorious defense to the foreclosure; his persistence in combatting the foreclosure emits the unmistakable aroma of programmatic tax resistance or opportunism or both.

The record is devoid of any reason in fact or law to grant a stay. Unless the judiciary chooses to grant an automatic stay in any case—regardless of merit—if a residence is subject to foreclosure (and the judiciary has never so chosen), the motion for a stay warrants denial. A detailed explanation follows.

DISCUSSION

For nearly twenty-five years, O'Callaghan resisted and avoided paying his federal income tax for 1981, 1982, and 1983. See, e.g., (Doc. 91 at 3, 12 n. 4) (finding that in 1987 and 1988 O'Callaghan avoided an IRS officer's numerous attempts to schedule a meeting); In re O'Callaghan, 316 B.R. 550, 559 (M.D.Fla.2004) (finding that O'Callaghan “persistently avoided payment” of taxes). For more than two years, the United States pursued this action to win a money judgment against O'Callaghan for unpaid 1999, 2000, and 2001 income tax and to foreclose a tax lien on O'Callaghan's residence for the 1981, 1982, and 1983 tax delinquency, which is more than $2 million with interest and penalties. The United States prevails, and O'Callaghan and the other defendants appeal.¹ Without offering a supersedeas bond, the defendants move (Docs. 108, 116, 117) to stay pending the appeal both a money judgment (Doc. 106) for $81,386.19 plus interest against O'Callaghan and an order of sale (Doc. 112) of O'Callaghan's residence.

The defendants seek a stay under Rule 62(d), Federal Rules of Civil Procedure, and in the alternative under Rule 62(c) and Rule 62(f). A stay is unwarranted under Rule 62(d) because the defendants are unable to secure the United States' judgment during the appeal and the United States, the prevailing party, should not bear the risk of loss during the appeal. Rule 62(c) and Rule 62(f) are inapplicable and in any event are not satisfied.

I. The Order of Sale

1. Rule 62(d)

A supersedeas bond serves to fully secure a judgment during an appeal and to compensate the judgment creditor in the event of loss caused by the stay. Moore v. Townsend, 577 F.2d 424, 427 (7th Cir.1978). The practice of providing a judgment creditor full security during an appeal dates at least to the early seventeenth century, see Omaha Hotel v. Kountze, 107 U.S. 378, 381–84, 2 S.Ct. 911, 27 L.Ed. 609 (1883), and was incorporated into early American law. Section 22 of the Judiciary Act of 1798 requires a “judge signing a citation on any writ of error [to] take good and sufficient security, that the plaintiff in error shall prosecute his writ to effect, and answer all damages and costs if he fails to make his plea good.” Ch. 20, sec. 22. In 1824, Justice Story confirmed that Section 22 requires a bond to secure the entire judgment. Catlett v. Brodie, 22 U.S. 553, 9 Wheat. 553, 6 L.Ed. 158 (1824). In 1874, Chief Justice Waite wrote in a foreclosure action that:

the judge who [considers a stay] is called upon to determine what amount of security will be sufficient to secure the amount to be recovered for the use and detention of the property, and the costs of the suit, and just damages for the delay and costs and interest on the appeal. All this, by the rule, is left to his discretion.

Jerome v. McCarter, 88 U.S. 17, 30, 21 Wall. 17, 22 L.Ed. 515 (1874). In 1878, Section 1000 of the Revised Statutes codified Section 22 of the Judiciary Act of 1798; Section 1000 retained the requirement that an appellant “answer all damages and costs” if an appeal fails. See Tennessee Valley Authority v. Atlas Mach. & Iron Works, Inc., 803 F.2d 794, 799 (4th Cir.1986); see also Martin v. Clarke, 105 F.2d 685, 687 (7th Cir.1939) (“a long line of cases” requires that a bond secure a money judgment creditor “for the full amount of the judgment stayed, with interest and costs”). Beginning in 1938, Rule 73(d), Federal Rules of Civil Procedure, governed a stay pending appeal. “That rule, before its 1968 abrogation, required that the supersedeas bond ... be for the full amount of the judgment plus interest, costs, and an estimate of any damages attributed to the delay.” 12 Moore et al., Moore's Federal Practice, § 62.03[1] (3d ed. 2010). Although replaced by Rule 62(d), “the pre–1968 version of Rule 73(d) set[s] out what is, in effect, the practice in most federal district courts [today].” Moore et al., supra, § 62.03[1]; accord Poplar Grove Planting and Refining Co., Inc. v. Bache Halsey Stuart, Inc., 600 F.2d 1189, 1191 (5th Cir.1979).

Like each supersedeas bond requirement since 1798, Rule 62(d) ensures that a defendant can and will pay a victorious plaintiff if the judgment is affirmed. Lightfoot v. Walker, 797 F.2d 505, 506–07 (7th Cir.1986). “The posting of a bond protects the prevailing plaintiff from the risk of a later uncollectable judgment and compensates him for delay in the entry of final judgment.” NLRB v. Westphal, 859 F.2d 818, 819 (9th Cir.1988).

The defendants request a stay with no attendant supersedeas bond to secure the United States. However:

If a court chooses to depart from the usual requirement of a full security supersedeas bond ... it should place the burden on the moving party to objectively demonstrate the reasons for such departure. It is not the burden of the judgment creditor to initiate contrary proof.

Poplar Grove, 600 F.2d at 1191. Even if a judgment debtor presents sufficient reason to depart from the requirement of a full bond, Poplar Grove strongly suggests that the judgment debtor must provide substitute security that “furnish[es] equal protection to the judgment creditor.” 600 F.2d at 1191; see, e.g., Morgan Guar. Trust Co. of New York v. Republic of Palau, 702 F.Supp. 60, 65 (S.D.N.Y.1988) (“a partial supersedeas bond [must not] unduly endanger the judgment creditor's interest in ultimate recovery”). Also, if the judgment debtor posts no bond, whether to grant a stay is a matter “strictly within the judge's discretion.” In re Combined Metals Reduction Co., 557 F.2d 179, 193 (9th Cir.1977); see also United States v. Certain Real and Personal Property Belonging to Hayes, 943 F.2d 1292, 1296 (11th Cir.1991); Moore et al., supra, § 62.03[1].

One typical ground for reducing or waiving the bond requirement pending appeal is that a judgment debtor is sufficiently solvent to “facilely respond to a money judgment.” 600 F.2d at 1191. Conversely, another ground is that a judgment debtor's posting a bond would endanger other creditors. Olympia Equip. v. Western Union Tel. Co., 786 F.2d 794, 796 (7th Cir.1986). Neither ground is present here, and the unpublished cases cited by the defendants do not suggest that the foreclosure of a tax lien is cause for departure from the bond requirement.² Rather, “a party is not entitled to a waiver of the supersedeas bond ... solely because the judgment res consists of real property.” United States v. Route 7, Box 7091, Chatsworth, Ga., 1997 WL 412477, *2 (N.D.Ga.1997), aff'd 117 F.3d 1433 (11th Cir.1997).

The defendants argue that the United States' tax lien on O'Callaghan's residence fully secures the judgment. To the contrary, to secure a judgment, real property must typically retain higher value than the base value of the judgment.³ See, e.g., Brooktree Corp. v. Advanced Micro Devices, Inc., 757 F.Supp. 1101, 1104 (S.D.Cal.1990) (requiring “real property security with a value twice the amount of the judgment”). To secure the United States' judgment with O'Callaghan's residence alone would leave the judgment subject to the whims of the housing market and O'Callaghan's willingness to maintain the value of the residence. “The exception to the rule requiring full security should [not] permit a defendant to post security of uncertain value in place of a full supersedeas bond.” Advanced Estimating System, Inc. v. Riney, 171 F.R.D. 327, 328 (S.D.Fla.1997) (Ryskamp, J.). Especially today, “[r]eal property values are subject to substantial variation.” Brooktree Corp., 757 F.Supp. at 1104–05. Worse, a person has little incentive to maintain a property he is likely to lose. O'Callaghan has even less incentive to maintain a property he is likely to relinquish to the IRS, toward which O'Callaghan is overtly hostile.⁴ Even if the housing market remains stable and O'Callaghan maintains the residence, absent a bond the United States lacks protection against damage to the house. Cf. Route 7, 1997 WL 412477, *1 (“an assortment of natural disasters [ ] could dramatically alter the value of the forfeited property”). In short, the defendants propose alternate security of both uncertain and inadequate value. Therefore, a stay would disserve the fundamental purpose of Rule 62(d) “to protect the judgment creditor's position from erosion during [the] period that its right to execute is obstructed by a stay pending appeal.”...