Opinion
NO. CIV. S-99-680 FCD/PAN
April 4, 2001
MEMORANDUM AND ORDER
Plaintiff's Estate of Walter Fong ("Estate") and Edward Wong seek reimbursement in the amount of $198,050.00 from the government for payments they made in connection with land jointly owned by them and Farmers Market of South Sacramento, Inc. This matter is before the court on the government's motion for summary judgment. In its motion, the government concedes that plaintiff's are entitled to reimbursement in the amount of $60,865.55 for Farmers Market's share of real estate taxes paid by plaintiffs, but that "[t]here are no other theories under which the plaintiffs could recover." Thus, the government requests that judgment should be against it and for plaintiffs in the amount of $60,865.55. Because the court finds that there are other theories under which plaintiffs may recover, the government's motion is granted as to the real estate taxes and denied in all other respects.
BACKGROUND
This case began with a 12.85 acre parcel located in Sacramento, California. The ownership interests in the land were as follows: Estate (20%); Edward Wong (10%); and Farmers Market (70%).
From 1989 to 1993, Farmers Market was assessed federal income takes which it failed to pay after notice and demand. As a result, liens arose which attached to all property and rights to property belonging to Farmer's Market, including the property it jointly owned with plaintiffs. The assessment dates and lien amounts are as follows:
Assessment Date Unpaid Balance
7/7/89 $ 1,514.30 7/7/89 $ 31,686.18 11/2/92 $ 35,197.32 11/23/92 $146,132.61 11/23/92 $141,664.97 9/10/93 $358,608.00 Total $714,803.38
On March 10, 1993, the IRS seized Farmers Market's interest in the subject property. In 1993, the IRS attempted to sell Farmers Market's interest at public auctions, setting the minimum bid for Farmers Market's interest as low as $98,682.30. The IRS was unable to sell the property at any of its public actions, and thereafter agreed to a public sale.
In 1993, the Estate listed the property with real estate agent Peggy Fong. In 1998, an offer of $1,000,000 was made for the property. The IRS determined that the value of its interest, after the costs of sale agreed to by the IRS were deducted, was $669,739.92. That amount was paid to the IRS, and on December 16, 1998, the IRS discharged the property for the tax liens pursuant to 26 U.S.C. § 6325 (b)(4).
The IRS agreed to the following costs of sale: $416.23 to the Franchise Tax Board; $17,500 in commission to the selling agent; and $9,530.48 in delinquent and past county taxes and penalties. As discussed below, plaintiffs argue that these costs represent a fraction of expenses incurred by plaintiff in the preservation, maintenance, marketing and sale of the property.
Plaintiffs now contend that the government's interest in the proceeds was less than the amount paid, and that they are entitled to recover $198,050.00. Plaintiffs contend that they are entitled to reimbursement out of the sale proceeds for all expenses they incurred in the preservation, maintenance, marketing and sale of the property. Among other things, plaintiffs contend that they are entitled to recover for Farmer's Market's share of the following expenditures paid by them:
Estate seeks a judgment for not less than $172,733; Edward Wong seeks judgment for not less than $25,317. Plaintiffs also seek costs, consequential damages and attorney's fees.
Type of Estate Wong Total Farmers Expenditure Market's share (70%)
Real estate $59,032.16 $27,918.63 $86,950.79 $60,865.55 taxes before 9/10/93
Other expenses $ 962.95 0 962.95 $ 674.07 before 9/10/93
Other expenses $28,959.86 $ 9,469.32 $ 38,429.07 $26,900.35 after 9/10/93
Totals $88,954.86 37,387.95 $126,342.81 $88,439.97
As set forth above, the total amount plaintitfs claim they are owed is $198,050.00. The government contends that these are the expenses plaintiffs have established they paid. Plaintiffs submit that the above is a non-exhaustive list of some such expenses.
STANDARD
The Federal Rules of Civil Procedure provide for summary adjudication when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with 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). One of the principal purposes of the rule is to dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).In considering a motion for summary judgment, the court must examine all the evidence in the light most favorable to the non-moving party.United States v. Diebold. Inc., 369 U.S. 654, 655 (1962). If the moving party does not bear the burden of proof at trial, he or she may discharge his burden of showing that no genuine issue of material fact remains by demonstrating that "there is an absence of evidence to support the non-moving party's case." Celotex, 477 U.S. at 325. Once the moving party meets the requirements of Rule 56 by showing there is an absence of evidence to support the non-moving party's case, the burden shifts to the party resisting the motion, who "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Genuine factual issues must exist that "can be resolved only by a finder of fact, because they may reasonably be resolved in favor of either party." Id. at 250. In judging evidence at the summary judgment stage, the court does not make credibility determinations or weigh conflicting evidence. See T.W. Elec. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630-31 (9th Cir. 1987) (citingMatsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
ANALYSIS
Following the discharge of a federal tax lien under section 6325(b) (4), an action against the United States may be brought to determine "whether the value of the interest of the United States (if any) in such property is less than the value determined by the Secretary." 26 U.S.C. § 7426 (a)(4). "If the court determines that the Secretary's determination of the value of the interest of the United States in the property for purposes of section 6325(b)(4) exceeds the actual value of such interest, the court shall grant a judgment ordering a refund in the amount deposited. . . ." Id. § 7426(b)(5).
Here, the parties dispute the value of the United States' interest in the subject property. Specifically, plaintiffs contend that they are entitled to reimbursement out of the sale proceeds for all expenses they incurred in the preservation, maintenance, marketing and sale of the property. In other words, plaintiffs contend that they were entitled to reimbursement for said expenses before the IRS liens were paid off. The government disagrees. It argues that plaintiffs have already been reimbursed for all expenses they were entitled to, and that under principles of subrogation they are entitled to recover only for Farmers Market's share of real estate taxes paid by them.
1. Real Estate Taxes
As set forth above, the government concedes that "plaintiffs are entitled to recover their expenditures for Farmers Market's share of real estate taxes that they paid," $65,865.554 Mem. of PA at 5, filed Jan. 5, 2001. of this amount, the Estate paid $41,322.51 and Edward Wong paid $19,543.04. Judgement: shall be entered in plaintiffs' favor in these amounts.
2. Other Expenses
In addition to the real estate taxes, it is undisputed that plaintiffs expended $39,392.02 "for the preservation, maintenance, marketing, and sale of the property." According to plaintiffs, these expenditures included advertising and legal fees incurred in connection with toxic cleanup, title and sales issues.
A. 26 U.S.c. § 6342
Title 26 of the United States Code Section 6342 provides in pertinent part:
Any money realized by proceedings under this subchapter (whether by seizure, by surrender under section 6332 (except pursuant to subsection (c)(2) thereof), or by sale of seized property) or by sale of property redeemed by the United States (if the interest of the United States in such property was a lien arising under the provisions of this title) shall be applied as follows:
(1) Expense of levy and sale. — First, against the expenses of the proceedings. . . .
Here, the subject property was seized on March 10, 1993, but was released prior to its sale. The government argues that plaintiffs are not entitled to reimbursement because the regulation and statutes plaintiffs rely on apply specifically to the sale of property seized by the government, and the property which is the subject of this action was sold via private sale.
In United States v. 110-118 Riverside Tenants, 886 F.2d 514, 520 (2d Cir. 1989), the Second Circuit held that the government was liable for attorney's fees incurred in the sale of the taxpayer's shares of stock in a cooperative apartment notwithstanding the fact that the shares were sold via, a private sale. The court reasoned such fees were recoverable because:
The attorneys' fees incurred by the Corporation for selling the shares for the Government are in the fame category as expenses of foreclosure and sale proceedings which the Government would have been I required to incur. . . . They are, in reality attorneys' fees and expenses which would be charged to the Government if it had foreclosed its own lien and sold the shares of stock.Id. at 521.
The court finds this analysis persuasive. The government is responsible for those expenses it would have incurred had it foreclosed on its own liens and sold the property. Such expenses "include the expenses of protection and preservation of the property during the period subsequent to the levy, as well as the actual expenses incurred in connection with the sale thereof." See 26 C.F.R. § 301.6341-1. A triable issue of material fact exists as to which of the expenses incurred by plaintiffs would have been incurred by the government had it foreclosed on its own lien and sold the property. Accordingly, the government's motion for summary judgment as to plaintiffs' remaining claims is denied.
B. Co-Tenant Lien
Under California law, a co-tenant who makes advancements to preserve the common estate is entitled to reimbursement for his entire advancement. See Southern Adjustment Bureau, Inc. v. Nelson, 230 Cal.App.2d 539 (1964). The government acknowledges that "California case law speaks of a `cotenant's lien' that may arise when one cotenant makes payments for the benefit of jointly-owned property," but argues that even if a lien was created, it arose after September 10, 1993 when all of the government's liens were in place. Plaintiffs appear to agree that they are not entitled to reimbursement under this theory for expenses incurred after the amount of the government's lien exceeded Farmers Market's interest in the property, as it did on September 10, 1993. Plaintiffs contend, however, that they are entitled to reimbursement for expenses made prior to that date. For example, plaintiffs point to $962.95 in advertising expenses that the government acknowledges were incurred prior to September 10, 1993 Plaintiffs also submit that they are entitled to reimbursement for expenses paid between 1982 and 1989.
The government makes much of the fact that pursuant to the contract between the Estate and the real estate agent, the Estate agreed to "pay for all advertising costs and to provide the necessary office staff and expense support required in agents sales efforts" to sell the property. The court rejects the government's contention that the Estate's agreement with the real estate agent to pay such costs precludes such costs from being considered an expense under 26 U.S.C. § 6342 and 26 C.F.R. § 301.6341-1.
A triable issue of material fact exists as to what recoverable expenses, if any, plaintiff incurred prior to September 10, 1993.
C. Unjust Enrichment
Plaintiffs also contend their expenditures resulted in the property being sold at a much higher price, and thus, a higher recovery for the government. The court agrees that plaintiff's unjust enrichment claim is barred under the doctrine of sovereign immunity.
Plaintiffs argue that the government waived its sovereign immunity pursuant to 26 U.S.C. § 7426 (a)(4) and (b)(5) Plaintiffs are correct, but as set forth above, that wavier was limited. Indeed, § 7426(a)(4) provides in pertinent part:
If a certificate of discharge is issued to any person under section 6325(b)(4) with respect to any property, such person may, within 120 days after the day on which such certificate is issued, bring a civil action against the United States in a district court of the United States for a determination of whether the value of the interest of the United States (if any) in such property is less than the value determined by the Secretary. No other action may be brought by such person for such a determination .
(Emphasis added.)
It is a fundamental precept of sovereign immunity law that the government may only be sued where it has agreed to be sued. The doctrine of unjust enrichment is not based on agreement but is equitable in nature. It "proceed[s] from a perception that a party ought to be bound rather than from a conclusion that a party has agreed to be bound." Aetna Cas. Surety Co. v. United States, 655 F.2d 1047, 1059-60 (Ct.Cl. 1981). The government has not waived its sovereign immunity with respect to contracts implied-in-law. Id.; see also Haberman v. United States, 18 Cl.Ct. 302, 307 (1989) ("It is well established . . . that the government cannot be sued on contract obligations implied-in-law.")
Although courts have recognized a narrow exception for defendants/counter-claimants who seek to offset the amount of the sovereign's recovery, that exception is not applicable here because plaintiffs, not the government, initiated this action. See Presidential Gardens v. United States, 175 F.3d 132, 140 (9th Cir. 1999); United States v. Forma, 42 F.3d 759, 764 (2d Cir. 1994); United States v. Westlands Water Dist., 2001 WL 263417 *33-34 (E.D. Cal. Mar. 13, 2001). Indeed, in Forma, the Second Circuit declined to extend the exception to tax cases even though in tax, unlike other areas of the law, payment precedes the opportunity to raise a defense in the district court. 42 F.3d at 765-769. Accordingly, plaintiffs cannot recover under theory of unjust enrichment.
Plaintiff's rely on United States v. 110-118 Riverside Tenants, 886 F.2d 514 (2d Cir. 1989) for their assertion that an action for unjust enrichment does lie. There, the United States sued a cooperative apartment to establish its rights the proceeds from the sale of a taxpayer's shares in the cooperative. The Second Circuit found that, to the extent that the cooperative had created a fund that benefitted the government, the cooperative should recover expenses it incurred in the sale. Id. at 521. Nowhere in that decision, however, is the issue of sovereign immunity discussed. Thus, while the court allowed the cooperative to retain certain proceeds under the doctrine of unjust enrichment, the issue of immunity apparently was not raised.
CONCLUSION
1. The government's motion for summary judgment is GRANTED as to plaintiff's claim for real estate taxes incurred before September 10, 1993. Judgment is entered in plaintiffs' favor in the following amounts: $41,322.51 and Edward Wong paid $19,543.04.2. The government's motion is DENIED in all other respects.
IT IS SO ORDERED.