RUFF vs

RUFF vs. ISAAC

MI Court of Appeals

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RUFF v. ISAAC

October 17, 1997

No. 192615

ROBERT RUFF and GEORGETTE RUFF, Plaintiffs-Appellants,

Genesee Circuit Court

LC No. 95-039515 CH

ISAAC,

Defendant-Appellee.

Before: Doctoroff, P.J., and Kelly and Young, JJ. YOUNG, J.

This case involves a challenge to an Internal Revenue Service (IRS) tax sale of real property owned by plaintiffs. Plaintiffs brought suit to quiet title following the sale and transfer of the property's title to defendant. Plaintiffs appeal as of right from the trial court's order granting defendant's motion for summary disposition pursuant to MCR 2.116(C)(10). On appeal, plaintiffs assert that, because the IRS failed to adhere to federal statutorily-prescribed procedural notice provisions, plaintiffs have superior title to the property. We reverse and remand.

On January 31, 1995, the IRS seized real property (a residence) owned by plaintiffs due to their failure to pay income tax. Defendant submitted a bid on the property at a closed-bid sale conducted by the IRS. Defendant's was the highest bid; consequently, a certificate of sale was issued to him in May 1995. After waiting the 180-day redemption period required by 26 USC 6337, the IRS presented defendant with a deed for the property at issue on October 24, 1995. Plaintiffs did not attempt to redeem their property. M Instead, on September I!, 1995, plaintiffs filed a two-count complaint to quiet title, alleging (1) that defendant failed to exercise due diligence in determining whether the IRS complied with all statutory procedures required to divest plaintiffs of their interest in the property and consummate its sale to defendant, and (2) that, because of these procedural defects, defendant possessed no valid title to plaintiffs' property.IQ Defendant filed a motion for summary disposition which, following an evidentiary hearing, the trial court granted pursuant to MCR 2.116(C)(10). Plaintiffs then filed the present appeal. On appeal, plaintiffs essentially argue that the trial court erred in granting defendant's motion for summary disposition pursuant to MCR 2.116(C)(10) because genuine issues of material fact remained concerning whether the IRS complied with all necessary statutory notice procedures. We agree.

This Court reviews a motion for summary disposition de novo. Stehlik v Johnson (On Rehearing), 206 Mich App 83, 85- 520 NW2d 633 (1994). A motion for summary disposition pursuant to MCR 2.116(C)(I 0) tests the factual basis underlying a plaintiff s claim. Radtke v Everett, 442 Mich 368, 374; 501 NW2d 155 (1993). MCR 2.116(C)(I 0) permits summary disposition when "[e]xcept as to the amount of damages, there is no genuine issue as to any material fact, and the moving party is entitled to judgment or partial judgment as a matter of law." Id. A court reviewing such a motion, therefore, must consider the pleadings, affidavits, depositions, admissions, and any other admissible evidence in favor of the party opposing the motion, granting that party the benefit of any reasonable doubt, and determine whether there is a genuine issue of disputed fact. Id.

We note initially that although plaintiffs' complaint to quiet title invoked the trial court's equity jurisdiction, Howard v Adle, 53 8 F Supp 504, 508 (ED Mich, 1982), the question of the validity of the tax deed at issue must be determined in accordance with federal law. Popp v Eberlein, 409 F2d 309, 311 (CA 6, 1969). State courts have Jurisdiction to decide such a question. Id. When a delinquent taxpayer contests a third-party purchaser's title to property acquired through a tax sale, the general rule is that "the burden of showing literal compliance with statutes governing the sale of land for taxes is upon the claimant under the tax sale." McAndrews v Belknap, 141 F2d 11 1, 115 (CA 6, 1944)- Johnson v Gartlan, 470 F2d 1104,1106 (CA 4, 1973). This rule was initially announced in Marx v Hanthorn, 148 US 172; 13 S Ct 508; 37 L Ed 4 1 0 (1 893), where the Supreme Court held: "[I]t is the rule, when not modified by statute, that the [burden] of proof is on the holder of a tax deed to maintain his title by affirmatively showing that the provisions of the law have been complied with." Id. at 180. This rule is consistent with the inarguable proposition that the tax sale purchaser cannot obtain a clear title if the government failed to perfect its right to sell one. Consequently, if a delinquent taxpayer presents a claim contesting the govermnenf s ability to pass a clear title because the government failed to follow statutorily-required procedural safeguards, the purchaser bears the burden of proving that his title is superior by demonstrating that such requirements were met.

Plaintiffs specifically raised four defects in the trial court concerning the govemment's perfection of its night to seize and sell their home. Plaintiffs argued below that the IRS failed to provide the required statutory notices of (1) tax deficiency, (2) intent to levy, (3) seizure, and (4) sale, each of which is required by federal law. See 26 USC 6212, 633 1, and 6335.IM We begin our analysis with a brief discussion of the relevant notice provisions.

Under 26 USC 633 1 (a) and (b) of the Internal Revenue Code, the Secretary of the Treasury is authorized to collect a delinquent tax by levy upon, and seizure of, all property and rights to property belonging to the taxpayer. Troy Industrial Catering Service v Michigan Dept of Treasury, 2 Bankr 521, 523 (ED Mich, 1980). Congress has also set forth procedures to which the IRS must adhere when proceeding with a tax sale. Upon determining that the taxpayer has failed to maintain his tax burden, the Secretary of the Treasuryw is authorized to send a letter notifying the taxpayer of the deficiency. 26 USC 6212. The IRS is then required to notify the taxpayer regarding the levy, seizure, and sale of the property. 26 USC 633 1; 26 USC 6335(a) and (b); see also Troy Industrial, supra at 523. Strict compliance with these provisions is required. Goodwin v United States, 935 F2d 1061, 1065 (CA 9, 199 1). We note that plaintiffs do not challenge the trial court's finding regarding the required notice of levy, and, therefore, the issue has been effectively abandoned. Froling v Carpenter, 203 Mich App 368, 373; 512 NW2d 6 (1994).

Notices of Seizure and Sale

Plaintiffs first argue that the IRS failed to provide them with notice of the seizure and sale of their property. Notice of seizure and sale of property based on taxpayer delinquency is governed by 26 USC 6335. The statute provides in relevant part:

(a) As soon as practicable after seizure of property, notice in writing shall be given by the secretary to the owner of the property ... or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If' the owner cannot be readily located, or has no dwelling orplace of business within such district, the notice may be mailed to his last known address. Such notice shall specify the sum demanded and shall contain, in the case of personal property, an account of the property seized and, in the case of real property, a description with reasonable certainty of the property seized.

(b) The Secretary shall as soon as practicable after the seizure of the property give notice to the owner, in the manner prescribed in subsection (a), and shall cause a notification to be published in some newspaper published or generally circulated within the county wherein such seizure is made, or if there be no newspaper published or generally circulated in such county, shall post such notice at the post office nearest the place where the seizure is made, and in not less than two other public places. [26 USC 6335(a), (b) (Emphasis added).]

Plaintiffs' challenge to the notices of seizure and of sale in the instant case is based on the argument that the statute requires the government personally to serve them and that no personal service was effected in this case. We disagree. The language of the statute clearly provides that linotice in writing shall be given by the Secretary to the owner of the property ... or shall be left at his usualplace ofabode...... 26 USC 6335(a) (emphasis added). When a statute is unambiguous it should be given its plain and ordinary meaning, and 'udicial interpretation is therefore prohibited. Robinson v Shell Oil Co, _ US _; 117 S Ct 843; 136 L Ed 2d 808 (1997). Separate meanings should be given to clauses that are separated by the disjunctive term ivor'l unless the context of the statute dictates otherwise. Resolution Trust Corp v CedarMinn Building Limited Partnership, 956 F2d 1446, 1452 (CA 8, 1992).

In the present case, the uncontested evidence indicates that an IRS agent left the notice of seizure at plaintiffs'usual place of abode. This was an appropriate means of service under 26 USC 6335(a). Because the statute employs the term "or," Congress made clear that leaving notice at the taxpayer's abode is an acceptable alternative means of giving notice to the delinquent taxpayer.

While the notice of seizure was posted at plaintiffs' abode, the evidence establishes that the notice of sale was sent to plaintiffs by certified mail. This method is permitted under the language of 26 USC 6335(a): "If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last known address." Because plaintiffs in this case could not be "readily located," mailing of the notice was sufficient. [5Compare Powelson v United States, 979 F 2d 141 (CA 9, 1992). In sum, therefore, we conclude that no genuine issue of material fact exists regarding whether the IRS' service of the notices of seizure and sale was proper.

Notice of Deficiency

Plaintiffs also maintain that the IRS failed to deliver a notice of deficiency as required by 26 USC 6212. The statute provides:

(a) If the Secretary determines that there is a deficiency in respect of any tax imposed by subtitles A or B or chapter 41, 42, 43 or 44, be is authorized to send notice of such deficiency to the taxpayer by certified mail or re 'stered mail.

(b)(1) In the absence of notice to the Secretary under section 6903 of the existence of a fiduciary relationship, notice of a deficiency in respect of a tax imposed by subtitle A, chapter 12, chapter 4 1, chapter 42, chapter 43, or chapter 44, if mailed to the taxpayer at his last known address, shall be sufficient for purposes of subtitle A, chapter 12, chapter 4 1, chapter 42, chapter 43, chapter 44, and this chapter even if such taxpayer is deceased, or is under a legal disability, or, in the case of a corporation, has ten-ninated its existence.

The IRS must mail a notice of deficiency by certified or registered mail before it can make an assessment for delinquent taxes, which in turn is a prerequisite to the seizing and selling of the taxpayer's property. Wiley v United States, 20 F 3d 222, 224 (CA 6, 1994). However, all that is required is that the IRS mail the notice of deficiency either through certified or registered mail to the taxpayer's last known address; actual receipt is not necessary. Wiley, supra at 224.

Plaintiffs alleged in their complaint and argued at the motion for summary disposition that a notice of deficiency was never received. Plaintiffs also filed identical affidavits in the trial court averring: "Neither the Internal Revenue Service District Director nor his delegate have issued a Notice of Deficiency (90 day letter) to the affiant. " An IRS agent testified at the hearing as to the manner in which service was effected for all statutorily-required notices except the notice of deficiency. At the point that the agent was asked to explain how the notice of deficiency was served, if at all, an objection was interposed by an assistant United States attorney who appeared as the agent's "attorney" at the hearing. The trial court sustained the objection and no evidence was presented to establish whether the notice of deficiency was served on plaintiffs in any fashion.Ig Hence, an issue of material fact remained.

Accordingly, we conclude that, construing all reasonable inferences in plaintiffs'favor, plaintiffs' affidavits, at a minimum, created a disputed issue of material fact regarding the govemment's compliance with the statutory notice requirements. This fact question and defendant's burden under federal law to establish the validity of his title by demonstrating statutory compliance precluded the trial court from granting defendant's motion for summary disposition pursuant to MCR 2.116(C)(10).

Defendant contends that, notwithstanding a failure of proofs on one of the statutory notice provisions, we may yet affirm the trial court's decision upon equitable grounds because: (1) plaintiffs' complaint to quite title invokes the equity jurisdiction of the court; and (2) plaintiffs' conduct was inequitable because they had actual notice of the events which led to the seizure and sale of their home, but failed to take any action to raise the procedural deficiencies they now allege until after defendant received title. See, e.g., Howard, supra at 508 (holding that even though the government had not strictly complied with the statutory requirements, the plaintiffs led to rel' were not entit lef because they failed to challenge that noncompliance in a prompt fashion). While defendant's appellate argument may have men't, M it was not considered by the trial court. Because defendant's argument depends upon a fact-sensitive predicate, we decline to address it for the first time on appeal. Zwolinski v Dept of Transportation, 205 Mich App 532, 539; 517 NW2d 852 (1994). Defendant is, of course, free to raise this issue before the trial court on remand.

Reversed and remanded. We do not retain j uri sdiction. /s/ Robert P. Young, Jr.

/s/ Martin M. Doctoroff

/s/ Michael J. Kelly

FOOTNOTES:

[11 There is no evidence in the record that plaintiffs attempted prior to the expiration of the redemption period or prior to commencing this action to quiet title to infonn the goverm-nent or defendant of the claimed procedural invalidity of the seizure or sale.

[21 Count I of plaintiffs'complaint alleged that defendant failed to exercise "due diligence" to assure that the IRS followed the statutorily-required notice procedures, and that this caused plaintiffs to suffer "emotional, physical, and monetary damages." Plaintiffs also make reference in their appellate brief to defendant's failure to use "due diligence." The trial court never addressed this aspect of plaintiffs'complaint. While this appears to be at first glance a claim sounding in negligence (and, in fact, defendant treated it as such below and on appeal), plaintiffs have since expressly denied that they were ever asserting such a claim. Therefore, we deem this claim abandoned.

PI It is important to note that, with respect to the notices of seizure and sale, plaintiffs claim deficiencies not based on plaintiffs failure to receive actual notice of each event, but because the government failed personally to serve plaintiffs with each notice as they contend the statutes require.

[41 When refem'ng to the Secretary of the Treasury, such designation includes, "any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority, to perform the function mentioned or described in the context. " 26 USC 770 1 (a)(I 2)(A)(i).

[51 The IRS agent testified that he had attempted unsuccessfully personally to serve plaintiffs at their home ten times.

[61 In the trial court and on appeal defendant attempts to bridge this failure of proof by relying on the presumption of validity that attaches to a tax sale deed by virtue of 26 USC 6339. The presumption of validity was challenged by plaintiffs'affidavits in which they alleged the absence of service of the required notice of deficiency. Insofar as defendant, upon challenge to the presumption of validity of its deed, bore the burden of proof that the statutory notices were made, this failure of proof was fatal to defendant's motion for summary disposition under (C)(10).

[71 See n 1.