Opinion
CIVIL ACTION NO. 05-11746-GAO.
September 21, 2007
OPINION AND ORDER
As mortgagee of Jeffrey and Lisa Bayko's marital home, GMAC Mortgage Corporation conducted a foreclosure sale on the property. The sale resulted in a surplus proceeds, in which Jeffrey and Lisa Bayko each had a fifty percent interest. After satisfying certain uncontested claims, Jeffrey Bayko's share of the surplus was valued at $82,326.29, plus accrued and accruing interest. Lisa Bayko, Michael and Helen Bayko (Jeffrey's parents), Hans Hailey (Jeffrey's former lawyer), and the United States (specifically, the Internal Revenue Service) all claimed to be creditors of Jeffrey Bayko and thus entitled to some portion of Jeffrey Bayko's share of the surplus proceeds. GMAC brought this complaint in interpleader requesting that the Court determine the rights of various claimants.
The creditors have respectively filed their own motions for full or partial summary judgment, and respectively (and sometimes selectively) opposed other claimants' motions. Collectively the motions presented the question of the priority in which claims against Jeffrey's share should be allowed. The several motions were referred to Magistrate Judge Bowler, who after hearing issued two thorough and carefully reasoned Reports and Recommendations. Magistrate Judge Bowler found the following priority of claims:
Hans R. Hailey
United States of America
Lisa Bayko
Michael and Helen Bayko
The upshot was that she recommended that the motions by the United States (dkt. no. 78) and by Hans Hailey (dkt. no. 39) be granted, that the motion by Lisa Bayko be granted in part (dkt. no. 47), and that all other motions be denied.
Pursuant to Federal Rule of Civil Procedure 72(b), I have conducted a de novo review of the record, including the Magistrate Judge's two Reports and Recommendations and all objections submitted by the parties. After review, I ADOPT both Reports and Recommendations in their entirety. I agree with the Magistrate Judge's reasoning and resolution of the issues presented, and there is no reason to add further comment to her clear exposition of her reasons.
There is one minor new matter to be addressed. In her objection to the second Report and Recommendation, dated August 29, 2007, Lisa Bayko raises for the first time an argument that her claim should have priority over that of the United States by reason of a declaration of homestead recorded pursuant to Massachusetts law. Because the argument is raised for the first time in an objection to the Report and Recommendation, I decline to consider it. See Guillemard-Ginorio v. Contreras-Gómez, 490 F.3d 31, 36-37 (1st Cir. 2007) ("[T]he district court did not abuse its discretion in holding that Defendants waived their [argument not properly raised before the Magistrate Judge]."); Paterson-Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 990-91 (1st Cir. 1988) ("We hold categorically that an unsuccessful party is not entitled as of right to de novo review by the judge of an argument never seasonably raised before the magistrate.").
Accordingly,
1. Hans Hailey's Cross-Motion for Partial Summary Judgment (dkt. no. 39) is GRANTED to the extent that it is determined that his attorney's lien has first priority among the claims to Jeffrey Bayko's share of the surplus proceeds of the foreclosure sale. 2. The Cross-Motion by the United States for Summary Judgment (dkt. no. 78) is GRANTED to the extent that it is determined that the federal tax lien has second priority. 3. Lisa Bayko's Motion for Summary Judgment (dkt. no. 47) is GRANTED IN PART to the extent that it is determined that her claim has third priority and in particular that the claim is prior to the claim(s) of Helen and Michael Bayko, but otherwise DENIED. Lisa Bayko's Motion for Summary Judgment as to the United States of America (dkt. no. 70) is DENIED. 4. Helen and Michael Bayko's Motion for Partial Summary Judgment (dkt. no. 32) is DENIED. Hans Hailey and the United States, whose claims will exhaust Jeffrey Bayko's surplus, are directed to confer and to submit within ten days of the entry of this Order a proposed form of judgment specifying the exact division of the surplus in accordance with the priority determination stated in this Order.
It is SO ORDERED.REPORT AND RECOMMENDATION RE: DEFENDANTS HELEN AND MICHAEL BAYKO'S MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 32); DEFENDANT HANS. R. HAILEY'S CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT (DOCKET ENTRY # 39); DEFENDANT LISA BAYKO'S MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 47) Pending before this court are three motions for summary judgment. The first, filed by defendants Helen E. Bayko and Michael J. Bayko ("Helen and Michael Bayko" or "defendants Helen and Michael Bayko") (Docket Entry # 32), is opposed by defendant Lisa J. Bayko ("Lisa Bayko" or "defendant Lisa Bayko") (Docket Entry # 35) and opposed in part by defendant Hans R. Hailey ("Hailey" or "defendant Hailey") (Docket Entry # 38). The second, filed by defendant Lisa Bayko (Docket Entry # 47) is opposed by defendants Helen and Michael Bayko (Docket Entry # 51). The third, a cross motion for partial summary judgment filed by defendant Hailey (Docket Entry # 39), is opposed by defendant Lisa Bayko (Docket Entry # 43). After conducting a hearing on June 11, 2006, this court took the motions (Docket Entry ## 32, 39 47) under advisement.
PROCEDURAL BACKGROUND
This case arises out of a foreclosure sale ("the foreclosure") of a property located at 7A Graham Avenue, Newbury, MA ("the property"). Following the foreclosure, GMAC Mortgage Corporation ("GMAC") was ultimately left holding $100,616.36 in surplus funds ("the surplus"), including accrued interest on the account (Docket Entry # 26). On August 24, 2005, GMAC filed a complaint in interpleader (Docket Entry # 1) requesting that the court apportion the surplus amongst the claimants stipulated therein. "An [i]nterpleader action may be brought . . . where two or more adverse parties are claiming or may claim money, property, or other benefits held by a third party stakeholder." U.S. Indus., Inc. v. Laborde, 794 F.Supp. 454, 459 (D.P.R. 1992). The interpleader has been developed as a procedural mechanism for protecting parties from being "caught in the middle" between multiple lawsuits involving multiple claimants. Equitable Life Assurance Soc'y v. Porter-Englehart, 867 F.2d 79, 89 (1st Cir. 1989); see also Nat'l Lumber Co. v. Canton Inst. For Sav., Bank of Canton, 775 N.E.2d 1241, 1243 (Mass.App.Ct. 2002) (noting that "principles of judicial economy, as well as the avoidance of inconsistent results, suggest that all claims affecting the determination of lien priorities should be joined in [interpleader]").
The joint statement submitted by counsel on November 14, 2005, was adopted by the court.
GMAC also seeks payment of its attorneys' fees and costs in the sum of $7,000.00.
An action in interpleader proceeds in two stages. Collins v. Teachers Ins. Annuity Ass'n of Am., 587 F.Supp. 403, 405 (D.R.I. 1984). During the first stage, the stakeholder files an action and joins a set of claimants to the stake. During the second stage, the claimants litigate their entitlement to res or property. The stakeholder does not participate in the second stage of the interpleader proceeding. Collins v. Teachers Ins. Annuity Ass'n of Am., 587 F.Supp. at 405.
In the case at bar, the stakeholder, GMAC, has joined the following claimants: Lisa Bayko and defendant Jeffrey Bayko ("Jeffrey Bayko" or "defendant Jeffrey Bayko"), the former holders of the equity of redemption; Helen and Michael Bayko, the parents of Jeffrey Bayko, as holders of two mortgages on the property; Hailey, holder of an attorneys' lien against the interests of Jeffrey Bayko; and the Internal Revenue Service ("IRS"), holder of tax liens against the interest of Jeffrey Bayko. (Docket Entry # 26). This court is now called to determine which of the parties are entitled to surplus proceeds from the foreclosure on the property at 14A Graham Avenue, Newbury, MA.
No party has addressed the IRS tax lien dated May 1, 2004. Accordingly, the issue is not presently before this court and need not be addressed at this time.
This matter came before the court previously in a prior proceeding (Civil Action No. 04-12448-GAO) but it was dismissed upon motion by the Massachusetts Department of Revenue ("DOR"). The DOR successfully asserted that it could not be compelled to litigate the matter in a federal forum. Subsequent to the dismissal, the DOR's claim was paid in full and this similar interpleader action was refiled under its current docket number. Ordinarily, Helen and Michael Bayko would be next in line to take from the surplus. Lisa Bayko, however, alleges, inter alia, that the mortgages held by Helen and Michael Bayko are fraudulent and that her interest in Jeffrey Bayko's share pursuant to a judgment of divorce nisi takes precedence. (Docket Entry # 47). Lisa Bayko claims that Helen and Michael Bayko should not share at all in the surplus. She maintains that she has valid and enforceable child support orders against Jeffrey Bayko. Moreover, she also argues that Jeffrey Bayko should be responsible for his portion of the DOR lien, which she alleges was paid out of her share to resolve the aforementioned jurisdictional matter.
Helen and Michael Bayko claim that they have valid and enforceable liens of record which should be paid without being made subject to a lien or claim by any other party. (Docket Entry # 32). Helen and Michael Bayko assert that Lisa Bayko has made no cognizable claim against their interest. They maintain that she is solely responsible for the DOR lien.
Finally, Hailey claims that he has a valid lien against Jeffrey Bayko's interest in the surplus. (Docket Entry # 3). Hailey argues that under Massachusetts law his security interest accrued before the divorce judgment was entered.
In addition to the claims discussed above, GMAC also seeks recovery of its attorneys' fees and costs from Lisa Bayko. (Docket Entry # 23).
STANDARD OF REVIEW
The standard of review for a summary judgment motion is well established. "Summary judgment is appropriate when 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 judgment as a matter of law.'"Fed. Refinance Co., Inc. v. Klock, 352 F.3d 16, 30 (1st Cir. 1995) (quoting Fed.R.Civ.P. 56).The moving party bears the initial burden of informing the "court of the basis for the motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact." DeNovellis v. Shalala, 124 F.3d 298, 306 (1st Cir. 1997). "As to issues on which the summary judgment target bears the ultimate burden of proof, she [or he] cannot rely on an absence of competent evidence, but must affirmatively point to specific facts that demonstrate the existence of an authentic dispute." McCarthy v. Nw. Airlines, Inc., 56 F.3d 313, 315 (1st Cir. 1995); accord DeNovellis v. Shalala, 124 F.3d at 306. Thus, once the moving party makes a proper showing as to the "absence of evidence to support the nonmoving party's case, the burden of production shifts to the nonmovant," Dow v. United Bhd. of Carpenters, 1 F.3d 56, 58 (1st Cir. 1993), who may not rest on allegations in his briefs. Borshow Hosp. Med. v. Cesar Castillo, 96 F.3d 10, 14 (1st Cir. 1996).
In the First Circuit, "[m]aterial facts of record set forth in the statement required to be served by the moving party will be deemed for purposes of the motion to be admitted by opposing parties unless controverted by the statement required to be served by opposing parties." LR. 56.1; see also Cochran v. Quest Software, Inc., 328 F.3d 1, 12 (1st Cir. 2003) (holding that the plaintiff's failure to contest date in LR. 56.1 statement of material facts caused date to be admitted on summary judgment);Stonkus v. City of Brockton School Dept., 322 F.3d 97, 102 (1st Cir. 2003) (citing LR. 56.1 and deeming admitted undisputed material facts that the plaintiff failed to controvert).
The summary judgment record is as follows. Disputes, where applicable, are noted.
FACTUAL BACKGROUND
Defendants Jeffrey Bayko and Lisa Bayko were divorced on May 24, 2002. A judgment of divorce nisi was entered by the Essex County Probate Court ("probate court") on the same day. (Docket Entry # 36, Ex. 1). As part of that judgment, the probate court affirmed that the accompanying separation agreement was an "independent contract" binding upon the two parties. (Docket Entry # 36, Ex. 1). Section J of the separation agreement, captioned "Liabilities," reads as follows:
Each party agrees that he or she shall neither contract nor incur any expenses, debts, charges or liabilities in the name of or upon the credit of the other nor for which the other or the other's legal representative, property or estate will or may become liable.
(Docket Entry # 36, Ex. 1).
Despite assenting to these terms, Jeffrey Bayko subsequently mortgaged his interest in the property at 7A Graham Avenue to his parents, Helen and Michael Bayko. At the time, the property was held by Lisa Bayko and Jeffrey Bayko as tenants in common with each retaining a 50% equal share. On August 12, 2002, Helen and Michael Bayko secured loans made to Jeffrey Bayko with a promissory note payable to them for $46,340.00 plus interest and a mortgage on the property. (Docket Entry # 32, Ex. 1 2). On July 8, 2003, Helen and Michael Bayko secured a second loan made to Jeffrey Bayko with another promissory note payable to them for $6,300.00 plus interest and an additional mortgage on the property. (Docket Entry # 32, Ex. 3 4).
Helen and Michael Bayko argue that "most of the funds advanced by [them] were used by [Jeffrey Bayko] to pay child support and attorneys' fees related to the divorce." (Docket Entry # 32). Nevertheless, on August 13, 2003, Lisa Bayko filed a complaint in equity to set aside the mortgages. That complaint was dismissed without prejudice by the probate court for lack of subject matter jurisdiction. (Docket Entry # 47, Ex. 9). On September 23, 2004, however, the probate court found Jeffrey Bayko in contempt for violating the terms of the separation agreement, holding that the mortgages were invalid as to Lisa Bayko. (Docket Entry # 47, Ex. 10).
The foreclosure on the property at 7A Graham Avenue took place on March 12, 2004. The property was sold to a third party for $307,500.00. Upon completion of the mortgage foreclosure sale and payment to GMAC, the first mortgage holder, GMAC was left holding $186,742.59 in surplus funds, which was deposited in an interest bearing account maintained by Harmon Law Offices, P.C. Lisa Bayko and Jeffrey Bayko each claimed a 50% interest in the surplus, subject to claims against their respective interests by other creditors. Thus, initially, each held an interest in the sum of $93,371.29.
On or about May 12, 2005, GMAC released funds in the amount of $10,220.90 to the DOR. (Docket Entry # 1). The sum was paid without prejudice from Lisa Bayko's share of the proceeds. Lisa Bayko alleges that her payment was made to remove the jurisdictional issue with the DOR while reserving her right to claim a lien against Jeffrey Bayko.
On or about June 23, 2005, GMAC entered into an indemnification agreement with BankNorth Group ("BankNorth"), holder of an uncontested second mortgage on the property, and released funds to BankNorth in the amount of $22,090.00. (Docket Entry # 1). The funds came equally from Lisa Bayko and Jeffrey Bayko's shares in the surplus.
Subsequent to the dismissal of the first action, Lisa Bayko was also paid sums of $54,978.35 and $955.00 as undisputed portions of her share in the surplus. (Docket Entry # 26). The funds were subsequently used to satisfy the liens of Attorneys Christine Faro and Charles Rotondi.
In total, as a result of these partial payments, GMAC currently holds a surplus in the amount of $100,616.36, including accrued interest on the account. (Docket Entry # 26). Lisa Bayko's remaining share of the surplus is $17,000.00. (Docket Entry # 26). Jeffrey Bayko's remaining share of the surplus is $82,326.29. (Docket Entry # 26).
This amount consists of $10,000.00 as a reserve and $7,000.00 for payment of GMAC's attorneys' fees and costs.
Although the figures identified as individual shares held by Lisa Bayko and Jeffrey Bayko do not precisely total $100,616.36, they reflect the amounts approved by the court in the joint statement. (Docket Entry # 26).
Helen and Michael Bayko presently seek $100,470.03 in funds allegedly owed to them and secured by their two mortgages. (Docket Entry # 32). Lisa Bayko maintains she is owed $116,457.95 from Jeffrey Bayko in expenses due under the terms of the separation agreement. (Docket Entry # 47). Finally, Hailey claims to be the holder of an attorney's lien dated February 6, 2003, and recorded February 10, 2003, in the Essex County Registry of Deeds ("Registry of Deeds") at Book 20139, Page 71 in the original amount of $33,902.24. (Docket Entry # 3).
Although, as indicated above, no party has addressed the IRS tax lien, the United States of America also claims to be the holder of a federal tax lien dated May 1, 2003, and recorded on June 3, 2003, in the Registry of Deeds at Book 20949, Page 90 in the original amount of $47,196.80. (Docket Entry # 26).
DISCUSSION
As noted above, three of the claimants move for summary judgment on the interpleader action brought by GMAC.
Because the size of the claims far exceeds the available surplus, this discussion focuses on the question of which claims should take precedence.
I. Helen and Michael Bayko's Interest in Surplus Proceeds
Helen and Michael Bayko maintain that "both mortgages . . . are valid mortgages [which were] used to secure loans made to Jeffrey L. Bayko." (Docket Entry # 32). Although they concede that the second mortgage they recorded on July 8, 2003, for $6,300.00 is junior to the attorney's lien held by Hailey, which was recorded on February 10, 2003, Helen and Michael Bayko nevertheless argue that the first mortgage they recorded on August 12, 2002, for $46,340.00 is next in line for payment from the foreclosure surplus. (Docket Entry # 32). Both of the mortgages held by Helen and Michael Bayko were supported by consideration and recorded with the Essex South District Registry of Deeds. (Docket Entry # 32, Ex. 1-4). In the promissory notes issued with each mortgage, Jeffrey Bayko attested to the following terms:
The indebtedness hereby evidenced shall immediately become due and payable, without notice or demand, upon the appointment of a receiver or liquidator, whether voluntary or involuntary, for the Borrower or for any of his property. . . .
(Docket Entry # 32, Ex. 1, 3). Moreover, under the statutory power of sale, a foreclosure sale "shall forever bar the mortgagor and all persons claiming under him from all right and interest in the mortgaged premises, whether at law or in equity." Mass. Gen. Laws ch. 183, § 21.
Ordinarily, the mortgage recorded by Helen and Michael Bayko on August 12, 2002, would be next in line for the surplus. The statutory power of sale does not terminate a junior mortgagee's lien once the first mortgage has been foreclosed. First Colonial Bank for Sav. v. Bergeron, 646 N.E.2d 758, 759 (Mass. 1995) (citing Pilot v. Bednarski, 119 N.E. 360, 360 (Mass. 1918);Dennet v. Perkins, 101 N.E. 994, 994 (Mass. 1913)). Following a foreclosure sale on a property, a junior mortgagee has an equitable lien in the surplus proceeds. First Colonial Bank for Sav. v. Bergeron, 646 N.E.2d at 759. Section 27 of Massachusetts General Laws Chapter 183 requires a foreclosing mortgagee to pay any surplus proceeds to "the mortgagor, or his heirs, successors or assigns." Because the junior mortgagee is considered to be a successor or assignee of the mortgagor, the junior mortgagee is typically entitled to surplus proceeds under the statute. First Colonial Bank for Sav. v. Bergeron, 646 N.E.2d 758, 759 (Mass. 1995) (citing Krikorian v. Grafton Co-op Bank, N.E.2d 665 (Mass. 1942)).
Nevertheless, both of the mortgages held by Helen and Michael Bayko were conveyed in clear violation of the separation agreement signed by Lisa Bayko and Jeffrey Bayko. As noted above, the probate court has already entered a contempt judgment against Jeffrey Bayko stipulating that the mortgages held by Helen and Michael Bayko are invalid as to Lisa Bayko. (Docket Entry # 36, Ex. 10).
That said, however, despite Lisa Bayko's assertions to the contrary (Docket Entry # 48), the doctrine of res judicata does not bar Helen and Michael Bayko from bringing their present claim. For claim preclusion to apply, three elements are required: "(1) the identity or privity of the parties to the present and prior actions; (2) [the] identity of the cause of action; and (3) [a] prior final judgment on the merits."Gloucester Marine Rys. Corp. v. Charles Parisi, Inc., 631 N.E.2d 1021, 1024 (Mass.App.Ct. 1994) (citing Franklin v. North Weymouth Coop. Bank, 186 N.E. 641, 642 (Mass. 1933)). Helen and Michael Bayko were never parties to the divorce action or to the contempt action arising out of the divorce. Thus, their claim is not barred by res judicata. See Mongeau v. Boutelle, 407 N.E.2d 352, 356 (Mass.App.Ct. 1980) (holding that "the rules of prior adjudication apply to nonparties only where a person's interest was represented by a party to the prior litigation"); see also Rudow v. Fogel, 382 N.E.2d 1046, 1048 (Mass. 1978) (holding that the familial relationship between parent and child is not in itself sufficient to create privity between parties). Yet, even if Helen and Michael Bayko are entitled to bring their claim, it does not follow that the mortgages conveyed to them are necessarily valid. A separation agreement is a "judicially sanctioned contract." Bell v. Bell, 468 N.E.2d 859, 862-63 (Mass. 1984) (Abrams, J., dissenting). Judges have an independent duty to ensure that the division of the marital state is fair and reasonable in accordance with the elements put forth in Massachusetts General Laws Chapter 208, Section 34. Knox v. Remick, 358 N.E.2d 432, 435-36 (Mass. 1976). Once assented to, "a separation agreement, fair and reasonable at the time of a judgment nisi, and constituting a final resolution of spousal support obligations, should be specifically enforced, absent countervailing equities." O'Brien v. O'Brien, 623 N.E.2d 485, 487 (Mass. 1993).
There is no evidence to suggest that the separation agreement signed by Lisa Bayko and Jeffrey Bayko was not "fair and reasonable." Instead, the question of whether the agreement should be enforced as to Helen and Michael Bayko hinges on whether the two had actual notice of its contents. Section 15 of Massachusetts General Laws Chapter 184 reads as follows:
A wit of entry or other proceeding that affects the title to real property or the use and occupation thereof or the buildings thereon, shall not have any effect except against the parties thereto, their heirs and devisees and persons having actual non-record notice thereof. . . .
Although the statute reads "wit," the proper terminology is writ. Mass. Gen. Laws ch. 184, § 15, n. 1 (explaining that the term "wit" appears in the original statute but that the statute "probably should read 'writ'").
Mass. Gen. Laws ch. 184, '15. Actual notice is a question of fact. Emmons v. White, 788 N.E.2d 557, 566 (Mass.App.Ct. 2003). In the context of real property, actual notice can be satisfied by "[s]omething less than positive personal knowledge of the fact of the conveyance." Emmons v. White, 788 N.E.2d at 566 (quotingCurtis v. Mundy, 3 Met. 405, 407 (1841)). "Intelligible information of a fact, either verbally or in writing, and coming from a source which a party ought to give heed to, is generally considered as notice of it." Emmons v. White, 788 N.E.2d at 566 (quoting George v. Kent, 7 Allen 16, 18 (1863)). Nevertheless, the term is construed with "considerable strictness" and mere "[k]nowledge of facts which would ordinarily put a party upon inquiry is not enough." Emmons v. White, 788 N.E.2d at 566 (quoting Tramontozzi v. D'Amicus, 183 N.E.2d 295 (Mass. 1962)).
The record establishes as a matter of law that Helen and Michael Bayko had actual notice of the separation agreement signed by Lisa Bayko and Jeffrey Bayko. It is true that Helen and Michael Bayko were not present at the signing of the separation agreement, nor were they necessarily aware of all the "financial details" surrounding their son's divorce proceedings. (Docket Entry # 51, Ex. 4 5). Even so, Helen and Michael Bayko clearly recognized that the funds they loaned to Jeffrey Bayko were being used to discharge obligations required of him by the separation agreement. (Docket Entry # 51, Ex. 4 5). Moreover, Helen and Michael Bayko undoubtedly realized that Lisa Bayko, their former daughter-in-law, had a strong interest in the marital property they were encumbering; an interest which they reasonably should have expected her to have protected under the terms of the separation agreement.
The issue thus arises as to whether this court should set aside the mortgages held by Helen and Michael Bayko, a decision that requires an analysis of the Massachusetts Court of Appeals decision in Feldman v. Feldman, 480 N.E.2d 45 (Mass.App.Ct. 1985). The parties disagree on how to apply the decision to the case at bar. The court in Feldman set aside a mortgage which had been conveyed by a husband to his "woman friend" in violation of an earlier unrecorded separation agreement, holding that there had been a "conspiracy" to encumber the marital property. Feldman v. Feldman, 480 N.E.2d at 48. Whereas Lisa Bayko maintains that the drafting and recording of Helen and Michael Bayko's mortgages was likewise "a conspiracy to encumber a marital asset" (Docket Entry # 48), Helen and Michael Bayko disagree, arguing that "there was no conspiracy to deprive Lisa Bayko of her interest in the property as existed in Feldman." (Docket Entry # 52).
Even if Helen and Michael Bayko were motivated by a genuine desire to aid their son, the former characterization is nonetheless applicable. Simply put, Feldman is indistinguishable from the case at bar. Both the husband in Feldman and Jeffrey Bayko had difficulty making the childcare payments required of them as part of their respective separation agreements. Feldman v. Feldman, 480 N.E.2d at 46. Like the husband in Feldman who was furnished $10,100.00 by his "woman friend" in return for a promissory note and a mortgage of his interest on the marital home he had shared with his ex-wife, Jeffrey Bayko was given payments of $46,340.00 and $6,300.00 by his parents in exchange for promissory notes and mortgages on his marital home. Id. The court in Feldman determined that such "an interference with the division of the marital estate" amounted to a "conspiracy" and concluded that the mortgage in question should be set aside. Id. at 48. Accordingly, the mortgages held by Helen and Michael Bayko should also be set aside by this court.
Helen and Michael Bayko attempt to distinguish the facts here by arguing that in Feldman the "woman friend" had a "close business and personal relationship" with the husband. (Docket Entry # 52). While it is true that a probate court found some form of business relationship between the two in a "corporation formed in New Hampshire to distribute Montessori school supplies," the specific nature of that relationship was neither specified nor determinative to the decision. See Feldman v. Feldman , 480 N.E.2d at 47.
II. Hailey's Interest in Surplus Proceeds
Hailey argues that his claim should take precedence over Lisa Bayko's interest in the surplus because "[t]he priority of his security interest accrued long before the divorce judgment entered." (Docket Entry # 57). Furthermore, Hailey maintains that the fact he represented Jeffrey Bayko in the divorce proceedings and had knowledge of the separation agreement prior to recording his lien is immaterial. (Docket Entry # 57). Massachusetts law provides that an attorney's lien attaches "from the authorized commencement of the action." Mass. Gen. Laws ch. 221, § 50 ("section 50"). Once a judgment is entered, the lien relates back to the date the action was filed. In Re Rothwell, 159 B.R. 374, 380 (D.Mass. 1993). "As a result, [an] attorney's lien [is] superior in priority to any other interest in the recovery which arose between the time the action was filed and when an order entered." In re Albert, 206 B.R. 636, 640 (D.Mass. 1997). Thus, although Hailey's lien was not recorded until February 10, 2003, under Massachusetts law the lien relates back before the settlement agreement was signed to the date when the divorce action was initially filed. As a result, Hailey's lien takes precedence over any of Lisa Bayko's interests stemming from the separation agreement.
Hailey actually took the position that Helen and Michael Bayko's first mortgage should have priority over his lien. (Docket Entry # 39). Having already decided that the mortgage does not take precedence, this court shall proceed to examine the merits of Hailey's claim.
There are circumstances, however, which will discharge an attorney's lien even if the lien would ordinarily take precedence over other interests. Disbarment or suspension of an attorney for ethical misconduct related to the services he has rendered prior to the disciplinary action bars an attorney from recovering compensation, whether on a contingent fee agreement or in a proceeding to enforce the statutory lien. See Kourouvacilis v. Am. Fed'n of State, County, 841 N.E.2d 1273, 1282 (Mass.App.Ct. 2006). In the case at bar, however, Lisa Bayko does not point to any comparable level of impropriety on Hailey's part. Instead, she simply maintains that because Hailey was an "architect of the separation agreeement" he should be estopped from taking anything from Jeffrey Bayko's share of the surplus because of "unclean hands." (Docket Entry # 43). While Hailey undoubtedly did have actual notice as to Lisa Bayko's unrecorded interest in the marital property, such facts are not sufficient to avoid the application of section 50 and to discharge Hailey's lien.
III. Lisa Bayko's Interest in Surplus Proceeds
Lisa Bayko maintains that she is entitled to recover $116,457.95 from Jeffrey Bayko's share of the surplus proceeds. (Docket Entry # 47). In tabulating this sum, Lisa Bayko points to an array of debts and expenses that she alleges are owed to her by Jeffrey Bayko under the terms of the separation agreement. (Docket Entry # 47). Significantly, Jeffrey Bayko's total share of the foreclosure surplus is only $82,326.29. Moreover, as discussed above, Hailey's lien takes priority over Lisa Bayko's interests. Thus, the sole remaining question is whether Lisa Bayko is entitled to the $48,424.05 remainder ("the remainder") in Jeffrey Bayko's surplus once Hailey's lien has been paid. Helen and Michael Bayko claim that the figures submitted by Lisa Bayko "have no relationship to [the] separation agreement." (Docket Entry # 51). This is incorrect. The claims Lisa Bayko has brought are claims for precisely the sort of damages contemplated by the separation agreement. Many of the objections made by Helen and Michael Bayko in their opposition to Lisa Bayko's motion for summary judgment are unsupported by affidavits or other documentary material in compliance with Rule 56, Fed.R.Civ.P. (Docket Entry # 51). Nevertheless, even deducting the amounts that Helen and Michael Bayko specifically and numerically identify, Lisa Bayko is still left with a balance of $76,043.96, well in excess of the surplus remainder.
Lisa Bayko's claims include those for child support, college tuition, credit card liability and medical expenses, all of which were contemplated under the terms of the separation agreement. (Docket Entry # 47, Ex. 1).
In their opposition to Lisa Bayko's motion for summary judgment (Docket Entry # 51), Helen and Michael Bayko object specifically to the $33,000 Lisa Bayko seeks as "joint credit card debt" and the college tuition figure she cites of $7,413.99.
CONCLUSION
In accordance with the foregoing discussion, this court RECOMMENDS that the cross motion for partial summary judgment by defendant Hailey (Docket Entry # 39) be ALLOWED to the extent of declaring that his claim in the amount of $33,902.24 has priority over the claim proffered by Helen and Michael Bayko based upon their first and second mortgages and the claim proffered by Lisa Bayko. Furthermore, this court also RECOMMENDS 14 that the motion for summary judgment by defendant Lisa Bayko (Docket Entry # 47) be ALLOWED in part to the extent of declaring that her claim in the surplus remainder has priority over the claim proffered by Helen and Michael Bayko based upon their first and second mortgages. This court RECOMMENDS 14 that the motion for summary judgment by defendant Helen and Michael Bayko (Docket Entry # 32) be DENIED.
Any objections to this Report and Recommendation must be filed with the Clerk of Court within ten days of receipt of the Report and Recommendation to which objection is made and the basis for such objection. Any party may respond to another party's objections within ten days after service of the objections. Failure to file objections within the specified time waives the right to appeal the order. United States v. Escoboza Vega , 678 F.2d 376, 378-79 (1st Cir. 1982); United States v. Valencia-Copete , 792 F.2d 4, 6 (1st Cir. 1986).
REPORT AND RECOMMENDATION RE: DEFENDANT LISA J. BAYKO'S MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 70); DEFENDANT UNITED STATES OF AMERICA'S CROSS MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 78) Pending before this court are two motions for summary judgment. The first, filed by defendant Lisa J. Bayko ("Lisa Bayko") (Docket Entry # 70), is opposed by defendants Helen E. Bayko and Michael J. Bayko ("Helen and Michael Bayko") (Docket Entry # 74) and defendant United States of America ("United States") (Docket Entry # 77) and opposed in part by defendant Hans R. Hailey ("Hailey") (Docket Entry # 75). The second, a cross motion for summary judgment by the United States (Docket Entry # 78), is opposed by Lisa Bayko (Docket Entry # 80). After conducting a hearing on June 4, 2007, this court took the motions (Docket Entry ## 70 78) under advisement.
PROCEDURAL BACKGROUND
This case arises out of a foreclosure sale ("the foreclosure") of a property located at 7A Graham Avenue in Newbury, Massachusetts ("the property"). Following the foreclosure, GMAC Mortgage Corporation ("GMAC") was left holding $100,616.36 in surplus funds ("the surplus"), including accrued interest on the account. (Docket Entry # 26). On August 24, 2005, GMAC filed a complaint in interpleader (Docket Entry # 1) requesting the court to apportion the surplus amongst the claimants stipulated therein."An [i]nterpleader action may be brought . . . where two or more adverse parties are claiming or may claim money, property, or other benefits held by a third party stakeholder." U.S. Indus., Inc. v. Laborde, 794 F.Supp. 454, 459 (D.P.R. 1992). The interpleader constitutes a procedural mechanism for protecting parties from being "caught in the middle" between multiple lawsuits involving multiple claimants. Equitable Life Assurance Soc'y v. Porter-Englehart, 867 F.2d 79, 89 (1st Cir. 1989); see also Nat'l Lumber Co. v. Canton Inst. For Sav., Bank of Canton, 775 N.E.2d 1241, 1243 (Mass.App.Ct. 2002) (noting that "principles of judicial economy, as well as the avoidance of inconsistent results, suggest that all claims affecting the determination of lien priorities should be joined in [interpleader]").
An action in interpleader proceeds in two stages. Collins v. Teachers Ins. Annuity Ass'n of Am., 587 F.Supp. 403, 405 (D.R.I. 1984). During the first stage, the stakeholder files an action and joins a set of claimants to the stake. During the second stage, the claimants litigate their entitlement to res or property. The stakeholder does not participate in the second stage of the interpleader proceeding. Collins v. Teachers Ins. Annuity Ass'n of Am., 587 F.Supp. at 405.
In the case at bar, the stakeholder, GMAC, has joined the following claimants: Lisa Bayko and defendant Jeffrey Bayko ("Jeffrey Bayko"), the former holders of the equity of redemption; Helen and Michael Bayko, the parents of Jeffrey Bayko, as holders of two mortgages on the property; Hailey, holder of an attorneys' lien against the interests of Jeffrey Bayko; and the Internal Revenue Service ("IRS"), holder of tax liens against the interest of Jeffrey Bayko. (Docket Entry # 26).
This matter came before the court previously in a prior proceeding (Civil Action No. 04-12448-GAO) that was dismissed upon motion by the Massachusetts Department of Revenue ("DOR"). The DOR successfully asserted that it could not be compelled to litigate the matter in a federal forum. Subsequent to the dismissal, the DOR's claim was paid in full and this similar interpleader action was refiled under its current docket number (Civil Action No. 05-11746-GAO).
In the current action, this court issued a Report and Recommendation (Docket Entry # 61) on August 10, 2006, regarding Helen and Michael Bayko's motion for summary judgment (Docket Entry # 32), Hailey's cross motion for partial summary judgment (Docket Entry # 39) and Lisa Bayko's motion for summary judgment (Docket Entry # 47). First, this court recommended that Helen and Michael Bayko's motion for summary judgment (Docket Entry # 32) be denied. Second, this court recommended that Hailey's cross motion (Docket Entry # 39) be allowed to the extent of declaring that his claim in the amount of $33,902.24 has priority over the claim proffered by Helen and Michael Bayko and the claim proffered by Lisa Bayko. Finally, this court recommended that the motion for summary judgment by Lisa Bayko be allowed in part to the extent of declaring that her claim has priority over the claim proffered by Helen and Michael Bayko.
Presently, Lisa Bayko moves for summary judgment to establish priority to the surplus over the United States. (Docket Entry # 70). Lisa Bayko contends that the May 24, 2002 judgment of divorce nisi and separation agreement, issued before the IRS tax lien, entitle her to the surplus. The United States opposes Lisa Bayko's motion, arguing that the IRS tax lien takes priority over her unperfected interest in the surplus. (Docket Entry # 77). In addition, Helen and Michael Bayko oppose Lisa Bayko's motion. (Docket Entry # 74). Hailey objects to Helen and Michael Bayko's opposition and partially objects to Lisa Bayko's motion to the extent of not waiving his priority over Lisa Bayko. (Docket Entry ## 74 75). Finally, the United States cross moves for summary judgment against Lisa Bayko, further elaborating that the valid IRS tax lien takes priority over Lisa Bayko's interest in the surplus. (Docket Entry # 78). Lisa Bayko opposes the United States' motion by, in essence, restating her summary judgment argument. (Docket Entry # 80).
STANDARD OF REVIEW
Summary judgment is appropriate when "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); Buchanan v. State of Maine, 469 F.3d 158, 166 (1st Cir. 2006). A "genuine" factual issue exists where "the evidence on the point is such that a reasonable jury, drawing favorable inferences, could resolve the fact in the manner urged by the nonmoving party." Blackie v. State of Maine, 75 F.3d 716, 721 (1st Cir. 1996). A factual issue is "material" where it "has the potential to alter the outcome of the suit under the governing law." Id.
The moving party bears the initial burden of informing the "court of the basis for the motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact." DeNovellis v. Shalala, 124 F.3d 298, 306 (1st Cir. 1997). "As to issues on which the summary judgment target bears the ultimate burden of proof, she [or he] cannot rely on an absence of competent evidence, but must affirmatively point to specific facts that demonstrate the existence of an authentic dispute." McCarthy v. Nw. Airlines, Inc., 56 F.3d 313, 315 (1st Cir. 1995); accord DeNovellis v. Shalala, 124 F.3d at 306. Thus, once the moving party makes a proper showing as to the "'absence of evidence to support the nonmoving party's case, the burden of production shifts to the nonmovant," Dow v. United Bhd. of Carpenters, 1 F.3d 56, 58 (1st Cir. 1993), who may not rest on allegations in his brief. Borshow Hosp. Med. v. Cesar Castillo, 96 F.3d 10, 14 (1st Cir. 1996).
In the First Circuit, "[m]aterial facts of record set forth in the statement required to be served by the moving party will be deemed for purposes of the motion to be admitted by opposing parties unless controverted by the statement required to be served by opposing parties." LR. 56.1; Stonkus v. City of Brockton School Dept., 322 F.3d 97, 102 (1st Cir. 2003) (citing LR. 56.1 and deeming admitted undisputed material facts that the plaintiff failed to controvert).
The summary judgment record is as follows. Disputes, where applicable, are noted.
FACTUAL BACKGROUND
Jeffrey and Lisa Bayko were divorced on May 24, 2002. A judgment of divorce nisi was entered by the Essex County Probate Court ("probate court") on the same day. (Docket Entry # 36, Ex. 1). As part of that judgment, the probate court affirmed that the accompanying separation agreement was an "independent contract" binding upon the two parties. (Docket Entry # 36, Ex. 1). Section J of the separation agreement, captioned "Liabilities," reads as follows:
Each party agrees that he or she shall neither contract nor incur any expenses, debts, charges or liabilities in the name of or upon the credit of the other nor for which the other or the other's legal representative, property or estate will or may become liable.
(Docket Entry # 36, Ex. 1).
Despite assenting to these terms, Jeffrey Bayko subsequently mortgaged his interest in the property at 7A Graham Avenue to his parents, Helen and Michael Bayko. At the time, the property was held by Lisa Bayko and Jeffrey Bayko as tenants in common with each retaining a 50% equal share. On August 12, 2002, Helen and Michael Bayko secured loans made to Jeffrey Bayko with a promissory note payable to them for $46,340.00 plus interest and a mortgage on the property. (Docket Entry # 32, Ex. 1 2). On July 8, 2003, Helen and Michael Bayko secured a second loan made to Jeffrey Bayko with another promissory note payable to them for $6,300.00 plus interest and an additional mortgage on the property. (Docket Entry # 32, Ex. 3 4).
Helen and Michael Bayko argue that "most of the funds advanced by [them] were used by [Jeffrey Bayko] to pay child support and attorneys' fees related to the divorce." (Docket Entry # 32). Nevertheless, on August 13, 2003, Lisa Bayko filed a complaint in equity to set aside the mortgages. That complaint was dismissed without prejudice by the probate court for lack of subject matter jurisdiction. (Docket Entry # 47, Ex. 9). On September 23, 2004, however, the probate court found Jeffrey Bayko in contempt for violating the terms of the separation agreement, holding that the mortgages were invalid as to Lisa Bayko. (Docket Entry # 47, Ex. 10).
The foreclosure on the property at 7A Graham Avenue took place on March 12, 2004. The property was sold to a third party for $307,500.00. Upon completion of the foreclosure sale and payment to GMAC, the first mortgage holder, GMAC, was left holding a surplus of $186,742.59, which was deposited in an interest bearing account maintained by Harmon Law Offices, P.C. (Docket Entry # 77). Lisa Bayko and Jeffrey Bayko each claimed a 50% interest in the surplus, subject to claims against their respective interests by other creditors. Thus, initially, each claimed an interest in the sum of $93,371.29. (Docket Entry # 77).
On or about May 12, 2005, GMAC released funds in the amount of $10,220.90 to the DOR. The sum was paid without prejudice from Lisa Bayko's share of the proceeds. Lisa Bayko alleges that her payment was made to remove the jurisdictional issue with the DOR while reserving her right to claim a lien against Jeffrey Bayko. (Docket Entry # 77).
On or about June 23, 2005, GMAC entered into an indemnification agreement with BankNorth Group ("BankNorth"), holder of an uncontested second mortgage on the property, and released funds to BankNorth in the amount of $22,090.00. (Docket Entry # 1). The funds came equally from Lisa Bayko and Jeffrey Bayko's shares in the surplus.
Subsequent to the dismissal of the first action, Lisa Bayko was also paid sums of $54,978.35 and $955.00 as undisputed portions of her share in the surplus. (Docket Entry # 26). The funds were subsequently used to satisfy the liens of Attorneys Christine Faro and Charles Rotondi.
In total, as a result of these partial payments, GMAC currently holds a surplus in the amount of $100,616.36, including accrued interest on the account. (Docket Entry # 26). Lisa Bayko's remaining share of the surplus is $17,000.00. (Docket Entry # 26). Jeffrey Bayko's remaining share of the surplus is $82,326.29. (Docket Entry # 26).
This amount consists of $10,000.00 as a reserve and $7,000.00 for payment of GMAC's attorneys' fees and costs.
Although the figures identified as individual shares held by Lisa Bayko and Jeffrey Bayko do not precisely total $100,616.36, they reflect the amounts approved by the court in the joint statement. (Docket Entry # 26).
In the current stage of this interpleader action there are multiple claims to Jeffrey Bayko's share of the surplus. Lisa Bayko maintains she is owed $133,423.07 from Jeffrey Bayko in expenses due under the terms of the separation agreement. (Docket Entry # 70). The United States claims to be the holder of two federal tax liens against Jeffrey Bayko, totaling $202,882.80. The first lien, dated May 1, 2003 in the amount of $47,196.80, was recorded on June 3, 2003, in the Southern Essex County Registry of Deeds. This lien was also filed electronically in the United States District Court on May 5, 2003. (Docket Entry # 78, Ex. 3). The second lien, also dated May 1, 2003, for $155,686.00, was recorded on May 7, 2003, in the Northern Middlesex County Registry of Deeds. (Docket Entry # 78, Ex. 3). Helen and Michael Bayko also seek $100,470.03 in funds allegedly owed to them and secured by their two mortgages. (Docket Entry # 32). Finally, Hailey is the holder of an attorney's lien dated February 6, 2003, and recorded February 10, 2003, in the Essex County Registry of Deeds at Book 20139, Page 71 in the original amount of $33,902.24. (Docket Entry # 3). Because the size of the claims far exceeds the available surplus, this court must determine the priority of the various claims.
This lien was initially assessed against Lisa and Jeffrey Bayko but on May, 25, 2003, Lisa was released from liability by the IRS pursuant to 26 U.S.C. § 6015. The lien was not released as it related to Jeffrey Bayko.
In the prior Report and Recommendation, this court determined that Hailey's lien of $33,902.24 has priority over the claim proffered by Helen and Michael Bayko and the claim proffered by Lisa Bayko. (Docket Entry # 39).
DISCUSSION
In her motion for summary judgment Lisa Bayko posits three main arguments. First, she argues that the judgment of divorce nisi and the incorporated separation agreement of May 24, 2002, which predate the IRS tax liens, give her priority to the surplus over the United States. Second, Lisa Bayko argues that she has an equitable right to the enforcement of the divorce judgment and therefore priority pursuant to Massachusetts General Laws chapter 209, section 32D and chapter 184, section 15. Finally, she maintains that 26 U.S.C. § 6334(a)(8) ("section 6334(a)(8)") prohibits the United States from levying any monies that are meant for the support of minor children.
The United States, in opposition to Lisa Bayko's motion for summary judgment and in the separate cross motion for summary judgment, argues that Lisa Bayko's claim does not have priority over the federal tax lien. The main contention of the United States is that Lisa Bayko's claim to Jeffrey Bayko's share of the surplus is unperfected and incohate according to federal law and therefore does not have priority. The United States further submits that Lisa Bayko's arguments based on state law and section 6334(a)(8) are irrelevant. Because the analysis of Lisa Bayko's motion for summary judgment (Docket Entry # 70) and the United States' cross motion for summary judgment (Docket Entry # 78) is virtually identical, the following discussion applies to both motions.
A federal tax lien arises when a person liable to pay any tax neglects or refuses to pay the amount after demand. 26 U.S.C. § 6321. The lien in favor of the United States is upon "all property and rights to property, whether real or personal, belonging to such person." 26 U.S.C. § 6321; United States v. Murray, 217 F.3d 59 (1st Cir. 2000) (noting this language is to be construed broadly). The lien imposed by 26 U.S.C. § 6321 ("section 6321") arises at the time assessment is made and continues until the liability for the amount assessed is satisfied or becomes unenforceable by reason of lapse of time. 26 U.S.C. § 6322.
"Where there are competing claims to a delinquent taxpayer's property by a federal tax lien and a state-law lien, priority is determined by federal law." Smith Barney, Harris Upham Co., Inc. v. Connolly, 887 F.Supp 337, 342 (D.Mass. 1994) (citingAquilino v. United States, 363 U.S. 509, 513-14 (1960)). Generally, priority of a federal tax lien against a state lien is governed by the "first in time is the first in right" common law rule. United States v. McDermott, 507 U.S. 447, 449 (1993) (quoting United States v. City of New Britain, 347 U.S. 81, 85 (1954)). This common law rule of priority is qualified by 26 U.S.C. § 6323(a) ("section 6323(a)"), which states that:
The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary.26 U.S.C. § 6323(a).
Internal Revenue Code section 6323(f) provides, in pertinent part, that notice must be filed, "[i]n the case of real property, in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated." 26 U.S.C. § 6323(f)(1)(A)(I). The situs of the property subject to the lien is its physical location. 26 U.S.C. § 6323(f)(2)(A).
Treasury Regulations define a "judgment lien creditor" as "a person who has obtained a valid judgment in a court of record and of competent jurisdiction, for the recovery of specifically designated property or a certain sum of money." Smith Barney, Harris Upham Co., Inc. v. Connolly, 887 F.Supp at 343 (citing Treas.Reg. § 301.6323(h)-1(g)). A judgment lien creditor must perfect a lien on the property involved according to local law, Treas.Reg. § 301.6323(h)-1(g), and satisfy the choateness test set out in United States v. City of New Britain, 374 U.S. at 84, and Treasury Regulation section 301.6323(h)-1(g), such that "there is nothing more to be done to perfect." Baybank Middlesex v. Electronic Fabricators, Inc., 751 F.Supp. 304, 310 (D.Mass. 1990). If these conditions are met prior to the IRS filing a Notice of Federal Tax Lien then the judgment lien creditor has priority over the United States. Smith Barney, Harris Upham Co., Inc. v. Connolly, 887 F.Supp at 343.
The choateness test requires that a state lien specifically set forth (1) the identity of the lienor (2) the property subject to the lien, and (3) the amount of the lien. United States v. City of New Britain, 374 U.S. at 84; Treas.Reg. § 301.6323(h)-1(g).
Entry of a judgment in and of itself, however, does not create a lien against a defendant's property in favor of a plaintiff.Smith Barney, Harris Upham Co., Inc. v. Connolly, 887 F.Supp at 345. A perfected attachment or levy of execution against a defendant's property is necessary to create a lien. See L. Rudolph Electrical Co. v. Gibbs Oil Co., 454 N.E.2d 1288, 1288 (Mass.App.Ct.), review den., 457 N.E.2d 283 (1983) (the defendant did not become judgment lien creditor within the meaning of section 6323(a) and Treas.Reg. § 301.6323(h)-1(g) until: (1) judgment was entered; and (2) writ of attachment was issued on the judgment and recorded in the appropriate registry of deeds).
While Lisa Bayko had a valid divorce judgment as of May 24, 2002, she did not and has not become a judgment lien creditor within the meaning of the Internal Revenue Code. There is no evidence that Lisa Bayko ever recorded a pre or post judgment attachment on the marital home to secure her claim. Without a perfected attachment or levy of execution, Lisa Bayko does not have a valid lien with priority over the federal lien. See L. Rudolph Electrical Co. v. Gibbs Oil Co., 454 N.E.2d at 1288. Additionally, Lisa Bayko's claim fails to satisfy the City of New Britain choateness test. While the identity of the lienor and the amount of the lien may have been sufficiently specific, without an attachment the property subject to the lien was not sufficiently identified. Lisa Bayko's claim therefore remains inchoate.
In opposition to the United States' cross motion for summary judgment, Lisa Bayko argues that, according to a recent unreported Massachusetts Superior Court decision, a Massachusetts creditor becomes a judgment lien creditor under federal law as a result of obtaining a Massachusetts judgment. See Citibank v. Leahy, 2005 WL 937338 at *1 (Mass.Super. March 28, 2005) (citingSmola v. Camara, 449 N.E.2d 678, 679 (Mass.App.Ct. 1983)). Unlike the instant case, in Citibank the defendant became a judgment lien creditor on entry of judgment because it had recorded a writ of attachment to the property prior to the judgment. Citibank v. Leahy, 2005 WL 937338 at * 1. Lisa Bayko is correct that Citibank holds that Smith Barney does not require a judgment creditor to obtain a writ of execution in order to be a judgment lien creditor for purposes of priority. Id. To achieve the status of a judgment lien creditor, however, an attachment identifying the property subject to the lien is required. Id. at * 2 n. 8 ("[the defendant's] writ of attachment became a perfected judgment lien upon judgment"); United States v. Murray, 217 F.3d at 63 n. 1 ("perhaps the . . . pre-divorce attachment was perfected for purposes of state law by the divorce decree").
Because Lisa Bayko never became a judgment lien creditor under section 6323(a), the notice requirements of 26 U.S.C. § 6323(f) ("section 6323(f)") do not apply. The statute is clear on its face that the notice procedures of section 6323(f) only apply to those parties specifically enumerated in section 6323(a). The federal tax liens of May 1, 2003, against Jeffrey Bayko's share of the surplus became valid at the time of assessment and therefore have priority over Lisa Bayko's unperfected and inchoate claims.
In addition, Lisa Bayko's state law notice arguments are not well taken. State law is relevant in assessing whether a state lien is perfected and what rights a taxpayer has in property subject to a tax lien, Drye v. United States, 528 U.S. 49, 52 (1999), but federal law governs priority of competing state and federal liens. Aquilino v. United States, 363 U.S. at 513-14. The United States may have had notice of Lisa Bayko's divorce judgment when she filed for personal release from her tax liabilities pursuant to 26 U.S.C. § 6015 but, as discussed above, she never attained the status of a judgment lien creditor under federal law.
Lisa Bayko finally contends that, pursuant to section 6334(a)(8), the United States is prohibited from levying "salary, wages or income" required to be paid to satisfy a judgment for the support of minor children. She argues that Jeffrey Bayko owes her $87,000.00 for support of their minor children. While there is substantial evidence on the record that Jeffrey Bayko has not complied with the separation agreement and is in considerable arrears on his support payments, this section of the Internal Revenue Code is not applicable to the case at bar. The IRS has not decided to pursue an administrative levy under 26 U.S.C. § 6331 and therefore the exemptions under section 6334 are immaterial.
The Internal Revenue Code has a "number of distinct enforcement tools available to the United States for the collection of delinquent taxes." United States v. Rodgers, 461 U.S. 677, 682-683 (1983). An administrative levy is a "provisional remedy" without judicial intervention to quickly and inexpensively satisfy a tax debt. See United States v. National Bank of Commerce, 472 U.S. 713, 720-721 (1985). A tax lien action under section 6321, on the other hand, requires judicial intervention but the lien "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." Id. at 719-720; United States v. Murray, 217 F.3d at 59; see United States v. Rye, 550 F.2d 682, 685 (1st Cir. 1977) (delinquent taxpayer's right to support payments from ex-husband was a property right to which section 6321 lien could attach). In addition, the discussion of the opinions of several circuits in the American Trust case, cited in the United States' opposition to Lisa Bayko's motion for summary judgment regarding the distinction between levies and liens (Docket Entry # 77), is persuasive. See American Trust v. American Community Mut. Ins. Co., 142 F.3d 920, 923-925 (6th Cir. 1998). The property intended for the support of Lisa Bayko's minor children that may have been exempt from section 6334 administrative levy is therefore not exempt from a section 6321 tax lien.
As a final matter, it behooves this court to set out the priority of the claims to Jeffrey Bayko's share of the surplus. Pursuant to the August 10, 2006 Report and Recommendation (Docket Entry # 61), Hailey's choate and perfected attorney's lien has priority over the claims of Lisa Bayko and Helen and Michael Bayko. Furthermore, the United States concedes that Hailey's attorney's lien takes priority over its section 6321 tax lien. (Docket Entry # 67, Ex. 2) Hailey's attorney's lien is therefore first in time and first in right. As discussed above, the tax lien of the United States is next in line, followed by Lisa Bayko's claim. Because Helen and Michael Bayko's mortgages are invalid for reasons set out in the Report and Recommendation of August 10, 2006 (Docket Entry # 61), their claim to the surplus is junior to all others.
CONCLUSION
Accordingly, in light of the above discussion, this court RECOMMENDS that Lisa Bayko's motion for summary judgment (Docket Entry # 70) be DENIED and that the United States' cross motion for summary judgment (Docket Entry # 78) be ALLOWED.
Any objections to this Report and Recommendation must be filed with the Clerk of Court within ten days of receipt of the Report and Recommendation to which objection is made and the basis for such objection. Any party may respond to another party's objection within ten days after service of the objections. Failure to file objections within the specified time waives the right to appeal the order. United States v. Escoboza Vega, 678 F.2d 376, 378-379 (1st Cir. 1982); United States v. Valencia-Copete, 792 F.2d 4, 6 (1st Cir. 1986).