United States v. Dase, 4:18-cv-00501-ACA

• Decision Date: 27 February 2020
• Docket Number: 4:18-cv-00501-ACA
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. DAVID SCOTT DASE, doing business as Advance Tooling, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

UNITED STATES OF AMERICA, Plaintiff, v. DAVID SCOTT DASE, doing business as Advance Tooling, et al., Defendants.

4:18-cv-00501-ACA

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA MIDDLE DIVISION

February 27, 2020

MEMORANDUM OPINION AND ORDER

Before the court is the government's motion for entry of a decree of foreclosure and order of sale. (Doc. 60).

A person's failure "to pay any tax" after the government's demand for payment creates "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. The government may enforce the lien by requesting that the court order a judicial sale of that property, even when an innocent third party also holds an interest in the property. Id. § 7403(c); United States v. Rodgers, 461 U.S. 677, 680 (1983).

Here, the government obtained a default judgment against Defendant David Scott Dase, doing business as Advance Tooling, for unpaid taxes in the amount of $293,114.93, plus any statutory fees and interest that have accrued since September 1, 2017. (Doc. 45-2 at 3; see also United States v. Dase, case no. 4:16-cv-01957- KOB, Doc. 13 (M.D. Ala. Sept. 27, 2017)). Mr. Dase's only asset is his one-half interest in real property located in Alabama, which he shares as a tenant in common with his sister, Defendant Rachel Kleinatland. (See Doc. 57 at 10). The government requests that the court order the sale of the real property and apportion the proceeds between it and Ms. Kleinatland. (See Doc. 60 at 5). Mr. Dase and Ms. Kleinatland oppose a forced sale and request that the court exercise its limited discretion to deny the government's motion. (Docs. 61, 62).

I. BACKGROUND

The property at issue in this case is a plot of land located at 4624 Greensport Road, Asheville, Alabama 35953.¹ (See Doc. 21 at 2-3 ¶ 10; Doc. 45-3 at 1). More specifically, the property is described as:

Part of the NE ¼ of NE ¼ of Section 14, Township 14 South, Range 4 East, more particularly described as follows: From a ½ inch rod at the point where the East line of the NE ¼ of NE ¼ intersects the South boundary of the Beaver Valley Road, the point of beginning of property herein described; thence S 1 degrees 01 min. E 562.79 feet to a ½ inch rod; thence S 70 degrees 02 min. W 821.52 feet to a ½ inch rod; thence N 0 degrees 11 min. E 560.35 feet to a ½ inch rod on the South boundary of Beaver Valley Road; thence N 69 degrees 50 min. E along said boundary 820.77 feet to the point of beginning, being a part of the NE ¼ of NE ¼ of Section 14, Township 14 South, Range 4 East, St. Clair County, Alabama.

(Doc. 45-3 at 1).

This court has previously found that Mr. Dase and Ms. Kleinatland each have a one-half interest in the property, which they inherited by intestacy from their father. (Doc. 57 at 12-13). Although they each hold a one-half interest on the property, only Mr. Dase and his wife live on the property. (Doc. 47-1 at 17, 23, 36). Ms. Kleinatland has not lived on the property since the 1980s, when she was a child. (Id. at 36). Mr. Dase has made all of the mortgage payments on the property since 2004, and paid off the mortgage in July 2018. (Doc. 47-1 at 30-32, 34; see also Doc. 45 at 4 ¶ 10; Doc. 45-5; Doc. 45-6; Doc. 49 at 4 ¶ 10).

In October 2017, the government obtained a default judgment against Mr. Dase in the amount of $293,114.93 for federal employment taxes, federal unemployment taxes, and a federal civil penalty, plus statutory fees and interest. (Doc. 45-2 at 3); see also United States v. Dase, No. 4:16-cv-01957-KOB, Doc. 13 (M.D. Ala. Sept. 27, 2017). Mr. Dase has not satisfied that judgment, although the parties agree that he has made some payments toward the judgment in unspecific amounts. (See Doc. 45-2 at 4; Doc. 60 at 5). In March 2018, the government filed this lawsuit against Mr. Dase and Ms. Kleinatland, along with several other defendants who have been dismissed, seeking a forced sale of the property and distribution of the proceeds, to satisfy part of Mr. Dase's tax delinquency. (Docs. 1, 18, 34).

The court declined the government's earlier request to order a forced sale of the property because the record was insufficient to allow the court to determine whether a forced sale was appropriate under these circumstances. (Doc. 57 at 11). The parties have now briefed the issue whether a forced sale of the property to satisfy the government's tax lien is appropriate. (Docs. 60-63).

II. DISCUSSION

The government has obtained against Mr. Dase a default judgment in the amount of $293,114.93 for federal employment taxes, federal unemployment taxes, and a federal civil penalty, plus statutory fees and interest. See United States v. Dase, No. 4:16-cv-01957-KOB, Doc. 13 (M.D. Ala. Sept. 27, 2017). Under 26 U.S.C. § 6321, the government automatically acquires a lien on "all property and rights to property, whether real or personal, belonging to" someone who has failed or refuses to pay a tax after demand. Accordingly, the court FINDS that the government has a valid lien against Mr. Dase's interest in the St. Clair County property. And because the government has a valid lien against the property, 26 U.S.C. § 7403(c) permits the court to "decree a sale of such property, . . . and a distribution of the proceeds of such sale."

But "§ 7403 does not require a district court to authorize a forced sale under absolutely all circumstances, and . . . some limited room is left in the statute for the exercise of reasoned discretion." United States v. Rodgers, 461 U.S. 677, 706(1983).² "[T]he exercise of limited equitable discretion in individual cases can take into account both the Government's interest in prompt and certain collection of delinquent taxes and the possibility that innocent third parties will be unduly harmed by that effort." Id. at 709. This case involves an innocent third party: Mr. Dase's sister, Ms. Kleinatland, who also owns a one-half interest in the property at issue and opposes the sale of that property.

"[W]hen the interests of third parties are involved, . . . a certain fairly limited set of considerations will almost always be paramount." Rodgers, 461 U.S. at 709-10. The court must consider, among other circumstances, (1) "the extent to which the Government's financial interests would be prejudiced if it were relegated to a forced sale of the partial interest actually liable for the delinquent taxes"; (2) "whether the third party with a non-liable separate interest in the property would, in the normal course of events, . . . have a legally recognized expectation that that separate property would not be subject to forced sale by the delinquent taxpayer or his or her creditors"; (3) "the likely prejudice to the third party, both in personal dislocation costs and in the sort of practical undercompensation described [earlier inthe Rodgers opinion]; and (4) "the relative character and value of the non-liable and liable interests held in the property." Rodgers, 461 U.S. at 710-11. In considering those factors, the court must keep in mind that its discretion under § 7403 is limited and that the government has a "paramount interest in prompt and certain collection of delinquent taxes." Id. at 711.

1. First Factor

The first factor enumerated in the Rodgers decision is "the extent to which the Government's financial interests would be prejudiced if it were relegated to a forced sale of the partial interest actually liable for the delinquent taxes." Rodgers, 461 U.S. at 710. The government contends that this factor weighs in its favor because "[t]he forced sale value of the Subject Property is approximately $180,000," and although it would receive only half of that amount (the other half being distributed to Ms. Kleinatland), $90,000 would be a substantial payment toward Mr. Dase's tax liability. (Doc. 60 at 5). The government argues that selling anything other than the entire property would be prejudicial because a one-half interest would result in a lower recovery for the government, and there is no evidence that the property actually can be partitioned for sale. (Id.). Ms. Kleinatland and Mr. Dase do not dispute the government's assertion that the property as a whole would sell for approximately $180,000, but they contend that the government has not presentedsufficient evidence to determine whether a partial sale would be prejudicial. (Doc. 61 at 4-5; Doc. 62 at 5).

Other courts have recognized that "[p]artial interests in property often sell for less than an equivalent pro rata share of the whole property." United States v. Davis, 228 F. Supp. 3d 756 (W.D. La. 2017); see also United States v. Anderson, No. 08-cv-6426-MAT, 2010 WL 5072958, at *3 (W.D.N.Y. Dec. 10, 2010) ("Courts have held, and common sense dictates, that the sale of a partial interest in property, particularly where the remaining interest is held by someone who resides at the property, will generally yield less than if entire property is sold."). Indeed, in Rodgers, the Supreme Court stated: "It requires no citation to point out that interests in property, when sold separately, may be worth either significantly more or significantly less than the sum of their parts." 461 U.S. at 694. And when the property is worth more as a whole, "it makes considerable sense to allow the Government to seek the sale of the whole, and obtain its fair share of the proceeds, rather than satisfy itself with a mere sale of the part." Id.

This court agrees with the common sense proposition that attempting to sell Mr. Dase's one-half interest in the property while allowing Ms. Kleinatland to retain her one-half interest would result in a lower price than selling the entire property and dividing the proceeds in half. Thus, attempting a sale of Mr. Dase's interest alone would prejudice the government.

The question of partition of the property, however, is different. No party in this case has presented any evidence about whether the property can be...