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Neighborhood Improvement Projects LLC v. United States

United States District Court, D. Arizona

November 25, 2015

Neighborhood Improvement Projects LLC, Plaintiff,
v.
United States Internal Revenue Service, et al., Defendants.

ORDER

Douglas L. Rayes United States District Judge

Before the Court is Plaintiff Neighborhood Improvement Projects LLC’s (“NIP”) Motion for Summary Judgment (on Count One Only), (Doc. 19), and Defendant United States of America’s (“United States”) Cross-Motion for Summary Judgment, (Doc. 22). The motions are fully briefed, and neither party has requested oral argument. For the following reasons, the United States’ motion is granted and NIP’s motion is denied.

BACKGROUND

This case involves competing liens on certain real property located in Scottsdale, Arizona (“the Property”), formerly owned by Sandra Rutter. (Doc. 20, ¶ 2; Doc. 24, ¶¶ 1-2.) On July 4, 2011, the Internal Revenue Service (“IRS”) made assessments against Rutter for taxes, penalties, and interest associated with her 2008 federal income taxes. (Doc. 24, ¶ 3.) At the time those assessments were entered, a federal tax lien attached to all property owned by Rutter. See 26 U.S.C. §§ 6321-22. At some point prior to December 23, 2011, Rutter also failed to pay annual and special assessments to the Casa Norte Homeowner’s Association (“the HOA”) in connection with the Property, (Doc. 20, ¶ 3; Doc. 24, ¶ 5), giving rise to an HOA lien.[1] See A.R.S. § 33-1807.

On December 23, 2011, the HOA filed an action in Maricopa County Superior Court seeking to foreclose its HOA lien against Rutter, along with a Notice of Lis Pendens in the Maricopa County Recorder’s Office. (Doc. 20, ¶¶ 2, 4; Doc. 24, ¶¶ 6, 8.) The HOA did not name the United States or the IRS as co-defendants in the foreclosure action. (Doc. 24, ¶ 7.) On November 20, 2012, the IRS recorded a notice of its federal tax lien with the Maricopa County Recorder’s Office. (Doc. 24, ¶ 4.) The HOA obtained a foreclosure judgment against Rutter on May 13, 2013. (Doc. 20, ¶ 6; Doc. 24, ¶ 9.)

NIP purchased the property at a sale held by the Maricopa County Sheriff’s Office on July 25, 2013. (Doc. 20, ¶ 7; Doc. 24, ¶ 10.) NIP thereafter sent a letter to the IRS demanding that it release its tax lien on the Property. (Doc. 24, ¶ 13.) As a result of the priority dispute, NIP filed an action against the United States and the IRS in Maricopa County Superior Court, seeking to quiet title to the Property and to recover damages pursuant to A.R.S. § 33-420(C). (Doc. 1-1.) The United States removed the matter to this Court. (Doc. 1.) NIP seeks summary judgment only on its quiet title claim. The United States seeks summary judgment on all claims.

LEGAL STANDARD

Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a).

DISCUSSION

I. Quiet Title

The parties agree that resolution of NIP’s quiet title action depends solely on the priority of the HOA and federal tax liens. The priority of a federal tax lien vis-à-vis a competing state law lien is a matter of federal law. Aquilino v. United States, 363 U.S.509, 513-14 (1960). “Federal tax liens do not automatically have priority over all other liens. 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.’” United States v. McDermott, 507 U.S. 447, 449 (1993) (quoting United States v. New Britain, 347 U.S. 81, 85 (1954)). “Unless the competing lien falls into one of the limited categories of liens enumerated in [26 U.S.C.] § 6323(a), the federal tax lien need not be filed to gain priority over other interests; it is perfected at the time the lien is assessed.” In re Terwilliger’s Catering Plus, Inc., 911 F.2d 1168, 1176 (6th Cir. 1990); see 26 U.S.C. §§ 6321-22. “The priority of a state lien depends on when it ‘attached to the property in question and became choate.’” Monica Fuel, Inc. v. I.R.S., 56 F.3d 508, 511 (3d Cir. 1995) (quoting New Britain, 347 U.S. at 86). Although a state’s classification of a lien is instructive, the effect of a state law lien relative to a federal tax lien “is always a federal question.” United States v. Sec. Trust & Sav. Bank of San Diego, 340 U.S. 47, 49-50 (1950).

A competing state lien is choate for purposes of federal law “only when it has been ‘perfected’ in the sense that ‘the identity of the lienor, the property subject to the lien, and the amount of the lien are established.’” McDermott, 507 U.S. at 449 (quoting New Britain, 347 U.S. at 84) (emphasis omitted). Additionally, a state law lien is considered sufficiently choate only when it is summarily enforceable. See Sec. Trust & Sav. Bank of San Diego, 340 U.S. at 51 (“It has never been held sufficient to defeat the federal priority merely to show a lien effective to protect the lienor against others than the Government, but contingent upon taking subsequent steps for enforcing it.”); Monica Fuel, 56 F.3d at 512-13 (“[A] right to enforce a lien summarily (that is, without a judicial proceeding) is a requirement of choateness in addition to the tripartite rule of fixed identity, property and amount . . . .”); In re Terwilliger’s, 911 F.2d at 1176 (“[T]he state lien holder must show that he had the right to enforce the lien at some time prior to the attachment of the federal lien.”); In re Rogers, No. 05-1119-PHX-DGC, 2005 WL 3278043, at *2 (D. Ariz. Nov. 9, 2005) (“The first in time, first in right principle requires that the state lien be both choate and summarily enforceable.”). A lien is summarily enforceable if a creditor can enforce it without resort to judicial processes. See Monica Fuel, 56 F.3d at 512-13. If a creditor lacks the ability to enforce its lien automatically or through purely ministerial acts, the lien is not summarily enforceable because “[n]umerous contingencies might arise that would prevent the attachment lien from ever becoming perfected by a judgment awarded and recorded.” Sec. Trust & Sav. Bank of San Diego, 340 U.S. at 50.

A. Choateness

Here, the federal tax lien arose and was perfected on July 4, 2011, because the IRS assessed taxes, penalties, and interest against Rutter on that date. Accordingly, unless the HOA lien fell into one of the limited categories of liens enumerated in 26 U.S.C. ยง 6323(a), it was senior to the federal tax lien only if it was choate prior to July 4, ...


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