United States District Court, D. Arizona
2006, the United States Internal Revenue Service
(“United States”) made federal tax assessments
against Walter E. King. In July of 2013, the United States
recorded notices of federal tax liens pursuant to 26 U.S.C.
§ 6321 with the Maricopa County Recorder against the
real property and King's rights to the property located
at Lot 646, Cottonflower Unit VI, 2267 South 173rd Drive,
Goodyear, Arizona 85538 (“Lot 646”). The United
States determined that King was using entities to shield his
property from creditors, and in April of 2014, recorded
federal tax liens against Lot 646 and any rights to it
belonging to King's nominees Magic Asset Management Trust
and Titanium International Investments Trust. (Docs. 1; 32-1
in October of 2013, Cottonflower Goodyear Community
Association, Inc. filed a lien against Lot 646, believed to
be owned by individual named Malik Bey, in connection with
unpaid homeowners association assessments and related fees.
(Doc. 1-1 at 99-100.) Cottonflower then filed a lawsuit
against Bey in the Maricopa County Superior Court, Case No.
CV2013-015763, bringing a claim for breach of contract and
for foreclosure its lien on Lot 646. (Doc. 1-1 at 2.) On May
28, 2014, the Superior Court entered judgment in favor of
Cottonflower against “Malik Bey Trustee of Magic Asset
Management Trust a.k.a. M. Tariq-Bey Trustee of Titanium
International Investments Trust” in the amount of $8,
220.89, plus interest and post-judgment attorneys' fees.
The judgment foreclosed Cottonflower's lien, directed
sale of Lot 646 at public auction, and ordered the Maricopa
County Sheriff to disburse the sale proceeds to Cottonflower
in the amount of the judgment awarded. (Doc. 1-2 at 22-27.) A
Writ of Special Execution was issued (Doc. 1-3 at 213-214),
and on December 3, 2015, Lot 646 was sold for $104, 000.00
(Doc. 1-3 at 211-212). On December 29, 2015, the Sheriff
deposited $76, 804.00 in surplus sale proceeds with the
Superior Court. (Doc. 1-3 at 208-209.)
March of 2017, the United States became aware of the state
court action, the judicial sale of Lot 646, and the remaining
surplus proceeds. (Doc. 1 ¶ 3.) The United States
intervened as a defendant pursuant to 26 U.S.C. § 7424,
and on May 9, 2017, removed this case to federal court citing
28 U.S.C. §§ 2410, 1444, 1441(a), and 1442(a)(1).
On June 2, 2017, the United States filed an answer to
Cottonflower's complaint in which it asserted a claim to
the surplus proceeds. (Doc. 11.) In turn, Cottonflower
disclaimed any interest in the surplus proceeds, and on
stipulation of the parties, was deemed a
“non-party.” (Doc. 13.) Since that time, King and
the United States have filed several motions which are
presently at issue.
the Court denies the United States' request to strike
King's filings on the basis that he “is not a party
to this action.” (Doc. 31.) It has been previously
recognized by the state court, and is undisputed by the
parties, that Malik Bey and M. Tariq-Bey are King's
aliases. (See, e.g., Doc. 1-2 at 48
(“Discussion is held regarding Malik Bey/M.
Tariq-Bey/Walter Edward King's special
appearance”); Doc. 26 (“Walter King… is
Defendant Malik Bey and Defendant M. Tariq Bey”); Doc.
21 at 1-2 (same); Doc. 1-2 at 60 (asserting that Malik Bey
and M. Tariq-Bey are King's “trade names”).)
King is therefore effectively a party to this case. For this
reason, King's request to intervene as a party (Doc. 33)
is also denied.
King moves for leave to file an answer, crossclaim and/or
counterclaim. (Docs. 30, 33.) The request will be denied. The
deadline for amending or filing supplemental pleadings was
September 1, 2017. (Doc. 23); see also Fed. R. Civ.
P. 13, 15. Permitting King an opportunity to bring new claims
against Cottonflower and/or the United States at this
juncture would not serve the interests of justice in this
case. See Ryan v. Editions Ltd. West, Inc., 786 F.3d
754, 767 (9th Cir. 2015); AmerisourceBergen Corp. v.
Dialysist West, Inc., 465 F.3d 946, 952 (9th Cir. 2006);
Johnson v. Mammoth Recreations, Inc., 975 F.2d 604
(9th Cir.1992). King offers no compelling explanation for why
he did not file a pleading earlier and instead waited until
almost one year after the United States intervened, and
months after he participated in the Rule 26(f) conference to
seek relief. See U.S. v. $11, 500.00 in U.S.
Currency, 710 F.3d 1006, 1018 (9th Cir. 2013);
Jackson v. Bank of Hawaii, 902 F.2d 1385, 1388 (9th
Cir. 1990) (relevant to evaluating undue delay is whether the
moving party knew or should have previously known the facts
and theories raised in the amended pleading).
Allowing King to bring claims now would unnecessarily
prologue proceedings. See Divkovic v. Southern California
Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002);
Lockheed Martin Corp. v. Network Solutions, Inc.,
194 F.3d 980, 986 (9th Cir. 1999); Jackson, 902 F.2d
at 1387 (“Putting the defendants through the time and
expense of continued litigation on a new theory, with the
possibility of additional discovery, would be manifestly
unfair and unduly prejudicial.” (internal quotation
omitted)). In light of the undue delay, King's failure to
explain the reason for the delay, and the resulting
prejudice, the request for leave to assert a
counterclaim/crossclaim will be denied.
the United States' motion for judgment on the pleadings
will be denied. The Court lacks a pleading that sets forth a
live case and controversy against or by the United States
arising under the Internal Revenue Code on which judgment can
be entered. See 28 U.S.C. § 1340 (granting
district courts jurisdiction over “civil action[s]
arising under any Act of Congress providing for internal
revenue”); United States v. Coson, 286 F.2d
453 (9th Cir. 1961) (in an action under § 2410, the
requirements of § 1340 are satisfied where there are
specific allegations that a federal tax lien is invalid, and
basis for invalidity concerns the construction or effect of a
provision of the Internal Revenue Code); 28 U.S.C. §
1345 (granting district courts jurisdiction over “all
civil actions, suits or proceedings commenced by the United
States”); 26 U.S.C. § 7402(a) (granting district
courts jurisdiction in civil actions commenced by the United
States to issue “writs and orders of injunction…
orders appointing receivers, and such other orders and
processes, and to render such judgments and decrees as may be
necessary or appropriate for the enforcement of the internal
case is not a foreclosure action within the meaning of 28
U.S.C. § 2410(a)(2), in which the plaintiff seeking to
foreclose on its lien disputes the priority or validity of a
federal tax lien attached to the property. See Huff v.
U.S., 10 F.3d 1440, 1445 (9th Cir. 1993); Hughes v.
U.S., 953 F.2d 531, 538 (9th Cir. 1992); Elias v.
Connett, 908 F.2d 521, 527 (9th Cir. 1990). Rather, the
United States intervened in this case as a defendant after
the judicial foreclosure sale occurred and the funds were
disbursed to Cottonflower to satisfy the state court
judgment. Nor is this case an interpleader action under 28
U.S.C. § 2410(a)(5); there are no competing claims of
priority to the deposited surplus proceeds for this Court to
resolve. See Quality Loan Service Corp. v. 24702 Pallas
Way, Mission Viejo, CA 92691, 635 F.3d 1128, 1132 (9th
Cir. 2011); Hussain v. Boston Old Colony Ins. Co.,
311 F.3d 623, 631 (5th Cir. 2002); also cf. 26
U.S.C. § 7425(a) (discussing priority of claims to
proceeds of a judicial foreclosure made prior to
distribution). The United States has not filed a counterclaim
asserting an interest in the sale proceeds disbursed to
Cottonflower, nor claims that its tax lien remains attached
to the real property sold at auction. Cf. 28 U.S.C.
while United States claims that its tax lien on Lot 646
attached to the surplus sale proceeds, see 26 U.S.C.
§ 6322, it has not commenced an action by filing a
crossclaim against King (aka Bey or Tariq-Bey) to enforce its
tax lien under 26 U.S.C. § 7403. A tax lien or other
interest claimed is not self-executing; affirmative legal
action by the United States is required to enforce collection
of the unpaid taxes. U.S. v. National Bank of
Commerce, 472 U.S. 713, 720 (1985) (identifying 26
U.S.C. § 7403 and 26 U.S.C. § 6331 as two
procedures to perfect a tax lien and enforce collection of
unpaid); U.S. v. Rodgers, 461 U.S. 677, 678 (1983);
Stead v. U.S., 419 F.3d 944, 946 (9th Cir. 2005); 26
U.S.C. § 7401. Indeed, the United States argues that,
due to the limitations of actions brought under § 2410,
King cannot challenge the underlying tax assessment.
(See Doc. 32; Doc. 31 at 8); cf. U.S. v.
Stonehill, 702 F.2d 1288, 1294 (9th Cir. 1983) (in a
§ 7403 action, taxpayer has burden of proof to rebut the
presumption of correctness of assessments) (citing United
States v. Janis, 428 U.S. 433, 441-42 (1976)). And, to
the extent that the United States asks the Court to enter
judgment on the surplus proceeds, as compared to deciding the
parties' respective interests in them, it fails to
identify grounds which would give this Court the authority to
do so, as those proceeds are still in the custody of the
state court. See Muntwyler v. U.S., 703 F.2d 1030,
1034 (7th Cir. 1983) (observing the distinction between
claiming an interest in property and seizing property);
see also Law Offices of David Efron, P.C. v.
Candelario, 842 F.3d 780, 782 (1st Cir. 2016)
(discussing doctrine of custodia legis).
absence of a judiciable case and controversy, the Court lacks
jurisdiction and will remand this action. See 28
U.S.C. § 1447(c) (“If at any time before final
judgment it appears that the district court lacks subject
matter jurisdiction, the case shall be remanded.”);
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.
375, 377 (1994); Carnegie-Mellon Univ. v. Cohill,
484 U.S. 343, 350 n.7 (1988); Polo v. Innoventions
International, LLC, 833 F.3d 1193, 1196 (9th Cir. 2016)
(“Remand is the correct remedy because a failure of
federal subject-matter jurisdiction means only that the
federal courts have no power to adjudicate the matter. State
courts are not bound by the constraints of Article
III”); Chapman v. Pier 1 Imports Inc., 631
F.3d 939 (9th Cir. 2011) (explaining that the Court may
sua sponte examine jurisdictional issues);
Wolfson v. Brammer, 616 F.3d 1045, 1053 (9th Cir.
2010) (“Article III of the United States Constitution
limits federal court jurisdiction to ‘actual, ongoing
cases or controversies.'”) (quoting Lewis v.
Cont'l Bank Corp., 494 U.S. 472, 477 (1990)).
IT IS ORDERED:
King's Motion for Extension of Time (Doc. 30) and Motion
for Leave to Intervene and File Counterclaim and/or
Crossclaim (Doc. 33) are denied;
the United States' Motion to Strike (Doc. 31) and Motion
for Judgment on the Pleadings (Doc. 32) are
the United States' Motion for Extension of Time (Doc. 35)
is denied as moot; and
the Clerk of Court shall remand this case to
the Maricopa County Superior ...