Opinion
CIV-1-00-6054 REC SMS
February 12, 2001
On January 8, 2001, the court heard defendant United State's Motion for Summary Judgment, defendant B.F. George's Motion for Summary Judgment, and plaintiff Housekey Financial's Motion for Award of Costs and Attorney Fees and Order of Discharge. Upon due consideration of the written and oral arguments of the parties and the record herein, the court grants defendant United State's motion, denies defendant B.F. George's motion, and denies plaintiff Housekey Financial's motion for attorneys' fees and costs for the reasons set forth herein.
I. Factual Background
On January 10, 1996, the IRS filed a Notice of Federal Tax Lien with the Fresno County Recorder's Office against the property of Gary and Mardys Hofer for their unpaid taxes for 1994. On October 18, 1996, the IRS filed another Notice of Federal Tax Lien with the Fresno County Recorder's Office against the Hofers for their unpaid tax liabilities for 1992 and 1993. As of July 14, 2000, the United States liens total $362,410.
On February 25, 1997, J.F. George Enterprises, Inc. dba Westwood Distributors recorded an Abstract of Judgment, in its favor, against Gary Hofer with the Fresno County Recorder's Office.
On November 29, 1999, plaintiff Housekey Financial, acting as trustee on behalf of the foreclosing beneficiary, Household Finance Corp., foreclosed the Hofers' real property at 1080 Clovis Avenue, Clovis, California. The foreclosure sale was conducted pursuant to a Deed of Trust that was executed by the Hofers in favor of Household Finance Corp. on February 12, 1990. The Deed of Trust was recorded on February 22, 1990. After the costs and expenses of the sale and the lien on the property were satisfied, a sum of $14,172.11 remained from the sale proceeds.
On January 5, 2000, Housekey Financial mailed a Notice of Excess Proceeds and Demand for Claims to the IRS. The Notice required that the claim submittal, which includes all supporting information to support the claim, be notarized or submitted under penalty of perjury. The IRS responded by submitting a Notice of Federal Taxes Due, which did not refer to any recorded document, to establish that it had filed the liens. The form was neither notarized nor signed under penalty of perjury. J.F. George Enterprise also submitted a claim. The claim detailed the basis of the claim, was notarized and included the Abstract of Judgment recorded on February 25, 1997 as supporting document.
On March 13, 2000, plaintiff Housekey Financial filed a Complaint in Interpleader and deposited the amount of $14,172.11 with the Fresno County Superior Court. Plaintiff named the following parties as defendants: Gary Hofer, Mardys Hofer, IRS, J.F. George Enterprises, Inc. dba Westwood Distributors, State of California Employment Development Department, Sunshine Wholesale Roofing and Building Supplies, Inc. and ABC Supply, Inc. In the complaint, plaintiff sought costs and reasonable attorneys fees to be paid out of the interpleader funds pursuant to Cal. Civ. P. Code § 386.6. The United States removed the action to this court on July 17, 2000.
On March 21, 2000, plaintiff personally served Gary and Mardys Hofer. Both the Hofers have neither appeared nor contacted Housekey Financial's counsel. On April 4, 2000, defendant State of California Employment Development Department filed a Disclaimer of Interest to the interpleader funds with the court. Similarly, on May 31, 2000, defendant ABC Supply, Inc. filed a Disclaimer of Interest with respect to the interpleader funds. In addition, on October 4, 2000, defendant Sunshine Wholesale Roofing Building Supplies, Inc. also disclaimed its interest to the funds. Thus, the United States and J.F. George are the two remaining claimants to the excess proceeds from the foreclosure of the Hofers' property.
Plaintiff has incurred and will incur reasonable attorney's fees and costs in the amount of $5,151.00 for services rendered in connection with the interpleader action.
II. Summary Judgment Pursuant to Fed.R.Civ.P. 56(c)
A. Standard
Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions to 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). The party seeking summary judgment bears the initial burden of proving that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). However, rule 56(c) requires the nonmoving party to go beyond its pleadings to prove specific facts showing a genuine issue for trial. Id. at 324. Summary judgment may not be granted if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986).
B. Priority of Liens
Under 26 U.S.C. § 6321 and 6322, a federal tax lien attaches to the property of the taxpayer upon assessment. However, the lien is valid against a purchaser, security interest holder, mechanic lienor or judgment lien creditor only if notice is filed by the government. 26 U.S.C. § 6323 (a). Federal law determines whether a federal tax lien has been filed properly. Kivel v. United States, 878 F.2d 301, 303 (9th Cir. 1989). Under 26 U.S.C. § 6323 (f)(1)(A), in the case of real property, notice of the federal tax lien must be filed where the property is situated. The form and content of the notice is valid notwithstanding any other provision of law regarding the form or content of a notice of lien. 26 U.S.C. § 6323 (f)(3). Once a federal tax lien has attached to a taxpayer's state-created interests, federal law determines the priority of the competing liens asserted against the taxpayer's property. Aquilino v. United States, 363 U.S. 509, 513-14 (1960). "Absent a 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). In addition, federal law requires that the state lien seeking priority over the tax lien be choate. "[A] competing state lien is deemed to be in existence for `first in time' purposes only when it has been `perfected' in the sense that "the identity of the leinor, the property subject to the lien, and the mount of the lien are established.'" Id. (quoting United States v. New Britain, 347 U.S. 81, 84 (1954)).
The United States moves for summary judgment contending that it is entitled to the interpleader funds because its tax liens are prior in time to S.F. George's judgment lien.
B.F. George also moves for summary judgment. S.F. George acknowledges that the United States is entitled to a tax lien on the real estate under 26 U.S.C. § 6321. It also concedes that when the two Notice of Federal Tax Lien were recorded pursuant to 26 U.S.C. § 6323, the filings created tax liens on the property that were prior in time to the lien created by B.F. George's filing of its Abstract of Judgment. However, B.F. George argues that its judgment lien is superior to the tax liens because the United States failed to perfect its claim to the excess funds. B.F. George contends that the United States failed to make a proper claim because it did not comply with the requirements imposed by Housekey Financial and California Civil Code §§ 2924j and 2924k.
California Civil Code § 2924k sets forth the priority for the distribution of proceeds from a trustee's sale. Under § 2924k, the trustee distributes the proceeds from the sale in the following order: (1) to the costs and expenses of exercising the power of sale and of the sale including payment of the trustee's fees and attorney's fees; (2) to the payment of the obligations secured by the deed of trust or mortgage which is the subject of the trustee's sale; (3) to satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority; (4) to the trustor or the trustor's successor in interest.
California Civil Code § 2924j establishes the trustee's duties with respect to surplus proceeds resulting from the sale. "Section 2924j provides in pertinent part:
(a) Unless an interpleader action has been filed, within 30 days of the execution of the trustee's deed resulting from a sale in which there are proceeds remaining after payment of the amounts required by paragraphs (1) and (2) of subdivision (a) of Section 2924k, the trustee shall send written notice to all persons with recorded interests in the real property as of the date immediately prior to the trustee's sale who would be entitled to notice pursuant to subdivisions (b) and (c) of Section 2924b. The notice shall be sent by first-class mail in the manner provided in paragraph (I) of subdivision (c) of Section 2924b and inform each entitled person of each of the following:
(1) That there has been a trustee's sale of the described real property.
(2) That the noticed person may have a claim to all or a portion of the sale proceeds remaining after payment of the amounts required by paragraphs (1) and (2) of subdivision (a) of Section 2924k.
(3) That before the trustee can act, the noticed person may be required to represent proof that the person holds the beneficial interest in the obligation and the security interest therefor . . . The noticed person shall also submit a written claim to the trustee, executed under penalty of perjury, stating the following:
(A) The amount of the claim to the date of trustee's sale.
(B) An itemized statement of the principal, interest, and other charges.
(C) That claims must be received by the trustee at the address stated in the notice no later than 30 days after the date the trustee sends notice to the potential claimant.
(b) The trustee shall exercise due diligence to determine the priority of the written claims received by the trustee to the trustee's sale surplus proceeds from those persons to whom notice was sent pursuant to subdivision (a). In the event there is no dispute as to priority of the written claims submitted to the trustee, proceeds shall be paid within 30 days after the conclusion of the notice period. If the trustee has failed to determine the priority of written claims within 90 days following the 30-day notice period, then within 10 days thereafter the trustee shall deposit the funds with the clerk of the court pursuant to subdivision (c) or file an interpleader action pursuant to subdivision (e). Nothing in this section shall preclude any person from pursuing other remedies or claims as to surplus proceedings.
(e) Nothing in this section restricts the ability of a trustee to file an interpleader action in order to resolve a dispute about the proceeds of a trustee's sale. Once an interpleader action has been filed, thereafter the provisions of this section shall not apply.
Contrary to B.F. George's assertion, § 2924j plainly does not require that the United States submit a written claim executed under penalty of perjury and prove that the tax lien was recorded to preserve its claim and priority with respect to the surplus funds. Rather, § 2924j(a) directs Housekey Financial to provide notice to the junior lienors of the following: (1) that there is a surplus from the sale, (2) that the junior lienors may be required to present proof of their respective interests, and (3) that the written claims must be executed under penalty of perjury. Moreover, § 2924j (e) explicitly states that the provisions of the section no longer apply once an interpleader action has been filed. Because Housekey Financial filed an interpleader action on March 13, 2000, the requirements that Household Financial imposed on the claimants to the surplus proceeds, which were based on § 2924j(a), no longer apply. Given that the United States is not required to take additional steps to perfect its claim to the surplus proceeds under both California and federal law and its tax liens were first in time to B.F. George's judgment lien, the United States is entitled to summary judgment.
C. Award of Attorneys Fees and Costs
"A trustee may charge costs and expenses incurred for such items as mailing and a reasonable fee for services rendered in connection with the distribution of the proceeds from a trustee's sale, including but not limited to, the investigation of priority and the validity of claims and the disbursement of funds. If the fee charged for the services rendered pursuant to this subdivision does not exceed one hundred dollars ($100), or one hundred twenty-five dollars ($125) where there are obligations [with respect to satisfying the outstanding balance of obligations secured by junior liens and encumbrances], the fee is conclusively presumed to be reasonable." Cal. Civ. Code § 2924k(b). Additionally, under California Civil Procedure Code § 386.6, a party may request allowance for costs and reasonable attorney fees in its complaint for interpleader.
The court has discretion to award such party his costs and reasonable attorney fees. Cal. Civ. P. Code § 386.6. However, although the courts generally have discretion to award the plaintiff its costs and attorney's fees, the Ninth Circuit has held that the existence of prior federal tax liens gives the government a statutory priority over the interpleader plaintiff's ability to diminish the fund by an award of fees. Abex Corp. v. Ski's Enters., Inc., 748 F.2d 513, 516 (9th Cir. 1984). According to the Ninth Circuit, the governmental priority established under the tax lien statutes precludes an award of fees to the plaintiff stakeholder from an interpleader fund when such an award would deplete the fund prior to the satisfaction of the lien. Id. at 517.
In the present case, Housekey Financial seeks recovery for costs and attorney's tees it incurred in the prosecution of the interpleader action. Housekey Financial contends that it is entitled to an award of fees from the interpleader funds because its right to attorney's fees and costs derived from the deed of trust, which was recorded prior to the tax liens and judgment lien. Housekey Financial argues that its right to fees under the deed of trust has statutory basis in California Civil Code §§ 2924j and 2924k. Plaintiff states that §§ 2924j and 2924k authorize the trustee to recover fees for the investigation of the validity of the competing claims and to utilize the interpleader process.
While § 2924k(b) does permit the trustee to charge costs and expenses incurred for such items as mailing and a reasonable fee for services provided in connection with the distribution of the surplus proceeds, the provision does not specifically provide for an award of fees in the event that the trustee brings an interpleader action. Moreover, § 2924k(b) states that a fee of $125 is conclusively presumed to be reasonable, where there are junior lienors, suggesting that the provision does not address the award of fees with respect to an interpleader action. In addition, Housekey Financial's argument that its right to attorney's fees and costs from the surplus funds derives from the trust deed is unpersuasive. Rather, the court agrees with the United States that plaintiff's right to fees incurred in connection with its interpleader action did not come into existence until the interpleader action was filed. More importantly, the court must follow federal law when determining whether a state interest or lien has priority over a federal tax lien. Therefore, the court is bound by the Ninth Circuit'sAbex Corp. decision and must deny Housekey Financial's request for an award of fees and costs.
ACCORDINGLY, the United States' summary judgment motion is granted; B.F. George's summary judgment motion is denied; Housekey Financial's request for an award of fees is denied; and Housekey Financial's motion for discharge is granted. The court clerk is directed to enter judgment for the United States.