US v. Diemer

• Decision Date: 01 August 1994
• Docket Number: Civ. A. No. 91-5662.
• Citation: 859 F. Supp. 126
• Parties: UNITED STATES of America, Plaintiff, v. James D. DIEMER, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

859 F. Supp. 126

UNITED STATES of America, Plaintiff, v. James D. DIEMER, et al., Defendants.

Civ. A. No. 91-5662.

United States District Court, D. New Jersey.

August 1, 1994.

COPYRIGHT MATERIAL OMITTED

Beverly A. Moses, U.S. Dept. of Justice, Tax Div., Washington, DC, for plaintiff.

Donald L. Berlin, Berlin, Kaplan, Dembling & Burke, Morristown, NJ, for defendants.

OPINION

WOLIN, District Judge.

At issue in this matter is what claim does the United States currently have in real property to which its tax lien originally gave it a tenancy by the entirety interest in 1980. Before the Court is the motion of the United States for partial summary judgment wherein the Government seeks a ruling that its tax lien attaches to an outright one-half interest in the subject property and the cross-motion of defendants First National Bank of New Jersey, James D. Diemer and Julia Diemer (collectively "Diemers") which seeks a ruling that the Government's lien only attached to the debtor/taxpayer's tenancy by the entirety interest subject to the non-debtor's right of survivorship. For the following reasons, the Court will deny the Government's motion but will grant the cross-motion to the extent that the Court finds that the Government has a claim on the property to the extent of the debtor/taxpayer's interest.

Additionally, the Diemers' cross-motion for partial summary judgment seeks a ruling that they are entitled to be equitably subrogated to those liens which have priority over the tax lien, to the extent that such liens were satisfied by their grantor. The Court will deny this cross-motion.

BACKGROUND

Herbert Sylvester and his then wife Frances Sylvester acquired their marital residence in the Borough of Leonia, Bergen County, New Jersey (the "Property") as tenants by the entirety in 1973. Due to Mr. Sylvester's failure to pay income and social security taxes of the employees of his construction firm, the Internal Revenue Service ("IRS" or "Government") filed a tax lien against him on June 26, 1980. The lien was properly filed with the Bergen County Clerk's Office in the amount of $62,523.21.

In October, 1980, Mr. Sylvester conveyed his interest in the Property subject to the IRS lien and other "unsatisfied mortgages or liens of record" to his wife. Mrs. Sylvester then mortgaged the property to Midlantic National Bank. This mortgage was also properly recorded. Pursuant to a subordination agreement, the IRS expressly agreed to subordinate its lien to this mortgage. On June 4, 1985, its penalty assessment remaining unpaid, the IRS refiled the lien against Mr. Sylvester.

The Sylvesters' marriage was dissolved on December 19, 1986 pursuant to a Judgment of Divorce. That Judgment incorporated a "Property Settlement Agreement", dated December 11, 1986, which inter alia, provided that the Property was to be sold, that prior liens (including the IRS lien) were to be paid from the proceeds of the sale, and that Frances Sylvester would be entitled to retain any surplus proceeds.

On November 4, 1988, Mrs. Sylvester entered into a contract for sale with Fred A. Avila and Molly Avila (collectively "Avilas") for the purchase of the property for $580,000. Closing was held on April 18, 1989. The Avilas secured TICOR Title Insurance Company ("Ticor") for a title insurance commitment. Ticor noted as an exception to title the existence of the IRS lien. However, the exception for this lien was omitted, apparently upon the belief that the original 1980 lien had expired and that the 1985 lien was a new lien, arising at a time when Mr. Sylvester no longer had an interest in the Property. Accordingly, while a portion of the purchase money was used to satisfy other liens and claims against the Property, the IRS lien remained unpaid.

The Avilas, after commencing litigation in the state court to compel Mrs. Sylvester to satisfy the lien,¹ sold the Property to the Diemers.

By way of this action, the IRS seeks to foreclose the tax lien which attached to Mr. Sylvester's interest in the Property and to use the proceeds of the foreclosure sale to satisfy the lien, plus inter alia interest.

DISCUSSION

I. Standard of Review

Summary judgment shall be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Hersh v. Allen Products Co., 789 F.2d 230, 232 (3d Cir.1986). In making this determination, a court must draw all reasonable inferences in favor of the non-movant. Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n. 2 (3d Cir.1983), cert. dismissed, 465 U.S. 1091, 104 S.Ct. 2144, 79 L.Ed.2d 910 (1984). Whether a fact is "material" is determined by the substantive law defining the claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); United States v. 225 Cartons, 871 F.2d 409, 419 (3d Cir.1989).

"At the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249, 106 S.Ct. at 2511. Summary judgment must be granted if no reasonable trier of fact could find for the non-moving party. Id.

When the non-moving party will bear the burden of proof at trial, the moving party's burden can be "discharged by `showing' — that is, pointing out to the District Court — that there is an absence of evidence to support the non-moving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). If the moving party has carried its burden of establishing the absence of a genuine issue of material fact, the burden shifts to the nonmoving party to "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). When the non-moving party's evidence in opposition to a properly-supported motion for summary judgment is merely "colorable" or "not significantly probative," the Court may grant summary judgment. Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2511.

Further, when a non-moving party who bears the burden of proof at trial has failed, in opposition to a motion for summary judgment, to raise a disputed fact issue as to any essential element of his or her claim, summary judgment should be granted because "a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex, 477 U.S. at 322-233, 106 S.Ct. at 2552.

In opposing summary judgment, a non-movant may not "rest upon mere allegations, general denials, or ... vague statements." Quiroga v. Hasbro, Inc., 934 F.2d 497, 500 (3d Cir.), cert. denied, ___ U.S. ___, 112 S.Ct. 376, 116 L.Ed.2d 327 (1991); Schoch v. First Fidelity Bancorporation, 912 F.2d 654, 657 (3d Cir.1990) ("unsupported allegations in a nonmovant's memorandum and pleadings are insufficient to repel summary judgment"); see Fed.R.Civ.P. 56(e). The summary judgment procedure enables a party "who believes there is no genuine issue as to a specific fact essential to the other side's case to demand at least one sworn averment of that specific fact before the lengthy process of litigation continues." Lujan v. National Wildlife Federation, 497 U.S. 871, 888-89, 110 S.Ct. 3177, 3188-89, 111 L.Ed.2d 695 (1990). The "unsupported statements of counsel in memoranda submitted to the court are even less effective in meeting the requirements of Rule 56(e) than are unsupported allegations in the pleadings." Schoch, 912 F.2d at 657.

II. The Government's Interest

The Government seeks a ruling that its tax lien attached to an outright one-half interest in the current value of the Property. The Diemers seek a ruling that the lien is constrained by Mrs. Sylvester's right of survivorship. An analysis of the facts and law clearly show that neither party is wholly entitled to the ruling it seeks.

It is undisputed that the United States has an interest in the Property by virtue of the tax lien.² To determine the nature of the legal interest which the lien attaches, state law controls. United States v. National Bank of Commerce, 472 U.S. 713, 722, 105 S.Ct. 2919, 2925, 86 L.Ed.2d 565 (1985) (citations omitted); United States v. Mitchell, 403 U.S. 190, 197, 91 S.Ct. 1763, 1768, 29 L.Ed.2d 406 (1971) (citations omitted); Talbot v. United States, 850 F.Supp. 969 (D.Wyo.1994) quoting, Morgan v. Commissioner, 309 U.S. 78, 82, 60 S.Ct. 424, 426, 84 L.Ed. 1035 (1940). This follows from the fact that the federal revenue acts "create no property rights but merely attach consequences, federally defined, to rights created under state law." Id. 472 U.S. at 722, 105 S.Ct. at 2925 (citation omitted). Therefore, the Court must turn to New Jersey law to determine the property interest to which the lien attached.³

All parties agree that at the time the lien arose, Mr. and Mrs. Sylvester owned the Property as tenants by the entirety. Under New Jersey law, tenants by the entirety each "hold as tenants in common for their joint lives," Freda v. Commercial Trust Co., 118 N.J. 36, 570 A.2d 409 (1990), quoting King v. Greene, 30 N.J. 395, 412, 153 A.2d 49 (1959), subject to the other spouse's right of survivorship. While the rights of each spouse are alienable, the right of ownership is "indestructible by unilateral action." State v. U.S. Currency, 239 N.J.Super. 241, 246, 570 A.2d 1304 (Sup.Ct.1990), quoting King v. Greene, 30 N.J. 395, 412, 153 A.2d 49 (1959). Because a tax lien extends only so far as the taxpayer's interest in the property to which it attaches, U.S. v. Durham Lumber Co., 363 U.S. 522, 526, 80 S.Ct. 1282, 1284, 4 L.Ed.2d 1371 (1960), the lien attached to an undivided one-half interest...