Van Dyk Mortg. Corp. v. U.S.

• Decision Date: 05 April 2007
• Docket Number: No. 1:06-CV-626.,1:06-CV-626.
• Citation: 503 F.Supp.2d 876
• Parties: VAN DYK MORTGAGE CORPORATION, Plaintiff, v. UNITED STATES of America, Roger J. Buffum and Dawn M. Buffum, Defendants.
• Court: U.S. District Court — Western District of Michigan

Page 876

503 F.Supp.2d 876

VAN DYK MORTGAGE CORPORATION, Plaintiff, v. UNITED STATES of America, Roger J. Buffum and Dawn M. Buffum, Defendants.

No. 1:06-CV-626.

United States District Court, W.D. Michigan, Southern Division.

April 5, 2007.

Joseph John Bernardi, Bernardi Ronayne & Glusac PC, Plymouth, MI, for Plaintiff.

Christine Soczawa Hooks, U.S. Department of Justice, Tax Division (Northern Region), Washington, DC, Michael L. Shiparski, U.S. Attorney (Grand Rapids), Grand Rapids, MI, for Defendant.

Roger J. Buffum, Grand Rapids, MI, Pro se.

Dawn M. Buffum, Grand Rapids, MI, Pro se.

OPINION

QUIST, District Judge.

Plaintiff, Van Dyk Mortgage ("Van Dyk"), filed its complaint in this action in the Kent County Circuit Court on or around July 27, 2006, against Defendants Roger J. Buffum and Dawn M. Buffum (the "Buffums") and the United States of America ("Government" or "IRS") alleging three counts. Count I alleged a claim for quiet title/equitable subrogation against the Government, Count II alleged a claim for breach of mortgage covenants against the Buffums, and Count III alleged a claim against all Defendants for unjust enrichment. The Government filed a notice of removal on August 31, 2006, pursuant to 28 U.S.C. §§ 1442(a) and 1444. Now before the Court is the Government's motion to dismiss Van Dyk's quiet title/equitable subrogation and unjust enrichment claims. For the reasons set forth below, the Court will grant the motion with regard to the unjust enrichment claim but deny it with regard to the quiet title/equitable subrogation claim.

Facts

The following facts are taken from Van Dyk's complaint and are taken as true for purposes of this motion. On January 11, 2002, the Buffums granted a mortgage to Van Dyk on real property commonly known as 2898 Alson Drive, N.E., Grand Rapids, Michigan (the "Property"), to secure a loan in the principal amount of $120,400.00 (the "2002 mortgage"). The mortgage was recorded on January 28, 2002, in Liber 5837, Page 220, Kent County Records.

In 2004, the Buffums applied with Van Dyk to refinance the Property, presumably for the purpose of taking advantage of a more favorable interest rate. On June 2, 2004, the Buffums granted a mortgage on the Property to Van Dyk in the principal amount of $148,500 (the "2004 mortgage"). The proceeds of the 2004 mortgage were used, in large part, to pay off the 2002 mortgage. The 2004 mortgage was recorded on June 17, 2004, and Van Dyk discharged the 2002 mortgage by recording a discharge on that date. On June 7, 2004, five days after the Buffums executed the 2004 mortgage but prior to the date the 2004 mortgage was recorded and the 2002 mortgage discharged, the IRS recorded two Notices of Federal Tax Lien against the Property, the first against the Buffums in the amount of $20,803.91, and the second against Roger Buffum in the amount of $46,615.86.

Van Dyk alleges that it had no actual or constructive notice of the IRS' purported interest in the Property at the time the 2004 mortgage was executed and funded. It also alleges that the Buffums never informed it that they were obligated to the IRS or that liens were being recorded against the Property.

Motion Standard

An action may be dismissed if the complaint fails to state a claim upon which relief can be granted. Fed. R.Civ.P. 12(b)(6). The moving party has the burden of proving that no claim exists. Although a complaint is to be liberally construed, it is still necessary that the complaint contain more than bare assertions or legal conclusions. In re De-Lorean Motor Co., 991 F.2d 1236, 1240 (6th Cir.1993) (citing Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988)). All factual allegations in the complaint must be presumed to be true, and reasonable inferences must be made in favor of the non-moving party. 2 Moore's Federal Practice, § 12.34[1][b] (Matthew Bender 3d ed.2003). The Court need not, however, accept unwarranted factual inferences. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir.1987). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957)).

Discussion

As mentioned above, the Government has moved for dismissal of both Counts I and III for equitable subrogation and unjust enrichment, respectively. The Government contends that Count I must be dismissed because Van Dyk's claim for equitable subrogation fails for the reason that Van Dyk was a mere "volunteer" in paying off the 2002 mortgage and, thus, under Michigan law, is not entitled to be subrogated to the rights of the 2002 mortgage.

With regard to the unjust enrichment claim in Count III, the Government contends that it is immune from such claims and has not waived its sovereign immunity for unjust enrichment claims. Van Dyk did not address the unjust enrichment claim in its response and, therefore, appears to concede that it is barred by sovereign immunity. In any event, the Court concludes that the motion must be granted on this claim because it is well established that, in the absence of an explicit waiver, there is no general waiver of sovereign immunity by the United States for unjust enrichment claims. See United States v. Mitchell 445 U.S. 535, 538, 100 S.Ct. 1349, 1351, 63 L.Ed.2d 607 (1980) (noting that a waiver may not be implied but must be unequivocally expressed and that absent clear congressional consent to be sued in a particular court, there is no jurisdiction against the United States); Chem-Nuclear Sys., Inc. v. Arivec Chems., Inc., 978 F.Supp. 1105, 1110 (N.D.Ga.1997) (dismissing the plaintiffs unjust enrichment claim because the plaintiff failed to identify any waiver by the United States of its sovereign immunity for such claims). Thus, the only contested issue presented in the instant motion is whether Van Dyk is entitled to equitable subrogation based upon the facts alleged in its complaint.

Pursuant to 26 U.S.C. § 6321, "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... 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." State law applies to the determination of the rights an individual possesses in property, see United States v. Brosnan, 363 U.S. 237, 240, 80 S.Ct. 1108, 1111, 4 L.Ed.2d 1192 (1960), but federal law dictates whether those rights are "property" or "rights to property" under 26 § 6321. When the priority of competing federal and state liens is at issue, federal law controls. See Aquilino v. United States, 363 U.S. 509, 513-14, 80 S.Ct. 1277, 1280-81, 4 L.Ed.2d 1365 (1960); Blachy v. Butcher, 221 F.3d 896, 905 (6th Cir.2000). Pursuant to 26 U.S.C. § 6323(a), when the non-federal interest is a security interest, a federal tax lien arising under 26 U.S.C. § 6321 is perfected only upon the Secretary's filing of a valid notice of the tax lien. See United States, ex rel. IRS v. McDermott, 507 U.S. 447, 449, 113 S.Ct. 1526, 1528, 123 L.Ed.2d 128 (1993). A state lien is entitled to priority over an unrecorded federal tax lien when the state lien is perfected under local law. 26 U.S.C. § 6323(h)(1). "Absent provision to the contrary, priority for purposes of federal law is governed by the common-law principle that the first in time is the first in right." Id. (quoting United States v. New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954)) (internal quotations omitted). Thus, as between a state law lien and a federal tax lien, the first perfected lien is entitled to priority. See United States v. Dishman Indep. Oil, Inc., 46 F.3d 523, 526 (6th Cir.1995). However, § 6323(i)(2) directs that "[w]here, under local law, one person is subrogated to the rights of another with respect to a lien or interest, such person shall be subrogated to such rights for purposes of" a federal tax lien. Therefore, a court must examine state law in determining whether the doctrine of equitable subrogation applies.¹ See United States v. Baran, 996 F.2d 25, 28 (2d Cir.1993).

The Michigan Supreme Court has described the basic concept of equitable subrogation as follows:

Equitable subrogation is a legal fiction through which a person who pays a debt for which another is primarily responsible is substituted to all the rights and remedies of the other. It is well-established that the subrogee acquires no greater rights than those possessed by the subrogor, and that the subrogee may not be a "mere volunteer."

Hartford Accident & Indem. Co. v. Used Car Factory, Inc., 461 Mich. 210, 215, 600 N.W.2d 630, 632 (1999) (quoting Commercial Union Ins. Co. v. Med. Protective Co., 426 Mich. 109, 117, 393 N.W.2d 479, 482 (1986) (Williams, C.J.)) (citations omitted). It is "a flexible, elastic doctrine of equity," id. (citing Atlanta Int'l Ins. Co. v. Bell, 438 Mich. 512, 521, 475 N.W.2d 294 (1991) (Brickley, J.)), and [i]ts application `should and must proceed on the case-by-case analysis characteristic of equity jurisprudence.'" Id. at 215, 600 N.W.2d at 632-33 (quoting Atlanta Int'l Ins. Co., 438 Mich. at 516 n. 1, 475 N.W.2d at 295 n. 1).

Michigan courts have recognized two forms or types of subrogation, as explained in French v. Grand Beach Co., 239 Mich. 575, 215 N.W. 13 (1927):

The doctrine of subrogation rests upon the equitable principle that one, who, in order to protect a security held by him, is compelled to pay a debt for which another is primarily liable, is entitled to be substituted in the place of and to be vested with the rights of the person to whom such payment is made, without agreement to that effect. This doctrine is sometimes spoken of as "legal subrogation," and has long been applied by courts of equity. Stroh v. O'Hearn, 176 Mich. 164,...