United States v. Lawrence

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 United States of America, No. CV-23-01091-PHX-JAT 10 Plaintiff, ORDER 11 v. 12 Dennis Lawrence, et al., 13 Defendants. 14 15 Pending before the Court are Defendant Pennymac Loan Services LLC’s 16 (“Pennymac”) motion for summary judgment, (Doc. 50), and Plaintiff United States of 17 America’s motion for summary judgment, (Doc. 69), both of which are fully briefed (Docs. 18 60, 64, 71, 73). The Court finds this case suitable for decision without oral argument. See 19 LRCiv 7.2(f). 20 I. BACKGROUND 21 a. Factual 22 The following facts are undisputed: Dennis and Melissa Lawrence (“the 23 Lawrences”) failed to file federal income tax returns from 2002 to 2007 and failed to pay 24 owed tax debts from 2008 to 2012. As a result, the United States filed numerous federal 25 tax liens against the Lawrences’ property, “reflect[ing] tax assessments against the 26 Lawrences, as individuals and collectively, for the years 2002 to 2012.” (Doc. 72 at 6). The 27 Lawrences bought their property with a loan from Evolve Bank and Trust. The loan is 28 secured by a deed of trust that names Pennymac as the beneficiary. 1 b. Procedural 2 On June 13, 2023, the United States filed a seven-count complaint. In short 3 summary, the United States seeks to foreclose on the Lawrences’ property to satisfy the 4 Lawrences’ outstanding tax debts. (Doc. 1). The remaining defendants are the Lawrences 5 and Pennymac. (See Docs. 22, 23, 29, 41). 6 The United States entered a settlement agreement with the Lawrences. (Doc. 71-5 7 at 5). The agreement allegedly “allow[s] the Lawrences to keep the property as a life estate, 8 avoiding the [United States’] foreclosure so long as certain conditions are met.” (Doc. 72 9 at 6). Although “the [United States] informed Pennymac that it reached an agreement with 10 the Lawrences,” the United States did not provide Pennymac with a copy of the agreement, 11 nor did Pennymac ask for one. (Doc. 61 at 2-3; Doc. 72 at 6; Doc. 71-5 at 3). Nonetheless, 12 it is undisputed that the settlement agreement exists, the United States informed Pennymac 13 of the existence of the agreement, and the agreement permits the Lawrences “to stay on the 14 property subject to the terms of the agreement.” (Doc. 71-5 at 5). 15 Pennymac moves for summary judgment on the only claim pending against 16 Pennymac: count VII, foreclosure on the federal tax liens on the subject real property. (Doc. 17 50). The United States moves for summary judgment on all remaining claims: Counts I to 18 VI against the Lawrences and Count VII against Pennymac. (Doc. 69). 19 II. LEGAL STANDARDS 20 a. Summary Judgment 21 A court must grant summary judgment “if the movant shows that there is no genuine 22 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 23 Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The 24 movant bears the initial responsibility of presenting the basis for its motion and identifying 25 those portions of the record, together with affidavits, if any, that it believes demonstrate 26 the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. 27 If the movant fails to carry its initial burden of production, the nonmovant need not 28 produce anything. Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Co., Inc., 210 F.3d 1099, 1 1102-03 (9th Cir. 2000). But if the movant meets its initial responsibility, the burden shifts 2 to the nonmovant to demonstrate the existence of a factual dispute and that the fact in 3 contention is material, i.e., a fact that might affect the outcome of the suit under the 4 governing law, and that the dispute is genuine, i.e., the evidence is such that a reasonable 5 jury could return a verdict for the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 6 242, 248, 250 (1986); see also Triton Energy Corp. v. Square D. Co., 68 F.3d 1216, 1221 7 (9th Cir. 1995). The nonmovant need not establish a material issue of fact conclusively in 8 its favor, First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968); 9 however, it must “come forward with specific facts showing that there is a genuine issue 10 for trial.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) 11 (internal citation omitted); see also Fed. R. Civ. P. 56(c)(1). 12 At summary judgment, the judge’s function is not to weigh the evidence and 13 determine the truth but to determine whether there is a genuine issue for trial. Anderson, 14 477 U.S. at 249. In its analysis, the court must believe the nonmovant’s evidence and draw 15 all inferences in the nonmovant's favor. Id. at 255. The court need consider only the cited 16 materials, but it may consider any other materials in the record. Fed. R. Civ. P. 56(c)(3). 17 “[W]hen simultaneous cross-motions for summary judgment on the same claim are before 18 the court, the court must consider the appropriate evidentiary material identified and 19 submitted in support of both motions, and in opposition to both motions, before ruling on 20 each of them.” Fair Hous. Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 21 1132, 1134 (9th Cir. 2001). 22 III. DISCUSSION 23 a. Settlement Agreement 24 As a threshold issue, the Court will proceed with summary judgment analysis as if 25 the settlement agreement between the United States and the Lawrences does not exist 26 because, procedurally speaking, it does not. No settlement agreement has been presented 27 to the Court. 28 1 b. Counts I, II, III 2 The United States argues it is entitled to summary judgment on the first three counts, 3 wherein the United States seeks to reduce federal tax assessments to judgments against 4 Dennis Lawrence (Count I), Melissa Lawrence (Count II), and the Lawrences jointly 5 (Count III). (Doc. 1 at 8-9; Doc. 69 at 5-7). The Lawrences did not file a response. 6 “In an action to collect tax, the government bears the initial burden of proof. The 7 government, however, may satisfy this initial burden by introducing into evidence its 8 assessment of taxes due.” Oliver v. United States, 921 F.2d 916, 919 (9th Cir. 1990). When 9 the government presents a Form 4340 Certificate of Assessments and Payments, there is a 10 presumption that the tax was validly assessed. Huff v. United States, 10 F.3d 1440, 1445 11 (9th Cir. 1993); see also Hughes v. United States, 953 F.2d 531, 535 (9th Cir. 1992) 12 (“Official certificates, such as Form 4340, can constitute proof of the fact that the [tax] 13 assessments were actually made.”). 14 Here, the United States has met its burden. The Lawrences admit the allegations and 15 do not dispute the validity of the taxes assessed against them, (Doc. 9 at 2-3), and the 16 United States submitted copies of Forms 4340, (Docs. 69-2, 69-3, 69-4, 69-16), along with 17 additional, relevant evidence, (Docs. 69-11, 69-12, 69-13). For these reasons, the Court 18 grants summary judgment to the United States on Counts I, II, and III. 19 c. Counts IV, V, VI 20 Counts IV, V, and VI have to do with the Bull Holdings Trust and whether it holds 21 title to the property. (Doc. 1 at 9-13). After the United States brought this suit, the Bull 22 Holdings Trust executed a quitclaim deed transferring any interest it may have held in the 23 property back to the Lawrences as joint tenants. (Doc. 69-15 (the deed)). The relief sought 24 in Counts IV, V, and VI is thereby moot.1 25 1 Count IV asks the Court to “determine that the Bull Holdings Trust holds title to the Subject Property subject to the United States’ federal tax liens.” (Doc. 1 at 9). Count V 26 asks the Court to “determine that the Bull Holdings Trust holds title to the subject property as nominee and/or alter ego of Dennis and Melissa Lawrence.” (Doc. 1 at 11). Because the 27 Trust no longer holds title, the relief sought in Counts IV and V is moot. Count VI asks the Court to “set aside any purported transfer or encumbrance of the subject property to the 28 Bull Holdings Trust as fraudulent.” (Doc. 1 at 12). The Court need not set aside the transfer because the Trust already transferred any interest it had back to the Lawrences. 1 d. Count VII 2 In Count VII, the United States asks the Court to “foreclose the federal tax liens on 3 the real property” under 26 U.S.C. § 7403(c). (Doc. 1 at 14). Both Pennymac and the United 4 States filed for summary judgment on Count VII. (Docs. 50, 69). Generally, 26 U.S.C. § 5 7403 permits the United States to file a civil action to enforce its lien(s). After the United 6 States files such an action, the Court is directed to “adjudicate all matters involved [] and 7 [] determine the merits of all claims to and liens upon the property.” 26 U.S.C. § 7403(c). 8 “[I]f the court concludes the United States has a ‘claim or interest,’ it will generally be 9 obliged to ‘decree a sale of such property.’” United States v. Allahyari, 980 F.3d 684, 693 10 (9th Cir. 2020). 11 Here, the United States has clearly established a “claim or interest” to the 12 Lawrences’ property, and Pennymac does not dispute that this Court may order the United 13 States to foreclose on the property. (Doc. 71 at 2 (“Pennymac does not dispute that 26 14 U.S.C. § 7403(c) permits [an order allowing the United States to foreclose on the subject 15 property] but any judgment must also affirm Pennymac’s first lien interest.”)). Thus, it 16 seems that there is no dispute that the Court may order a judicial sale and, in fact, is 17 “obliged” to do so.2 The remaining issues seemingly surround the exact terms of such a 18 sale. 19 As indicated above, Pennymac asks that if the Court enters a decree of sale pursuant 20 to § 7403(c) that the Court also affirm “that Pennymac’s lien remains senior on the 21 property.” (Doc. 71 at 7). The United States agrees that Pennymac has a senior interest in 22 the subject property. (Doc. 69 at 10). However, it is the Court’s understanding that entering 23 a decree of sale under Section 7403(c) “extinguishe[s] not only the interests of the person 24 liable to pay the tax, but also any other interests that had attached to the property.” United 25 2 Because Pennymac agrees that 26 U.S.C. § 7403(c) permits “an order allowing [the 26 United States] to foreclose on the subject property pursuant to its tax liens,” (Doc. 71 at 2), the Court need not engage in an analysis of whether Pennymac’s third-party interests fall 27 within the narrow set of “special circumstances” that outweighs “the Government’s paramount interest in prompt and certain collection of delinquent taxes” such that the Court 28 should decline to force the sale authorized by § 7403. United States v. Rodgers, 461 U.S. 677, 711 (1983). 1 States v. Rodgers, 461 U.S. 677, 694 (1983) (emphasis added). Nonetheless, the Court is 2 inclined to specify the order of the distribution of proceeds of the sale.3 If such a 3 specification is desired, the United States should include relevant language in its proposed 4 form of judgment, as discussed below. 5 Separately, the Court also notes that Pennymac asks the Court to “affirm” that 6 Pennymac’s lien “remains fully in effect—and independently enforceable—until the IRS’s 7 foreclosure occurs.” (Doc. 71 at 3). As the Court has already explained, (Doc. 66 at 4), this 8 hybrid approach—in which Pennymac’s lien would reattach to the property post- 9 foreclosure by the United States such that Pennymac would retain a right to foreclose on 10 the United States—is not a remedy the United States seeks nor one the Court is inclined, 11 or legally permitted, to craft. 12 In ordering a judicial sale, the Court directs the “terms and conditions.” 28 U.S.C. 13 § 2001(a). However, here, the Court is unclear as to the “terms and conditions” sought by 14 the United States. First, the United States notes that it “has attempted to negotiate a 15 settlement wherein [the Lawrences], in exchange for compliance with the United States’ 16 terms, would be permitted to remain on the Subject Property provided they maintain the 17 Subject Property.” (Doc. 69 at 9). Based on that settlement agreement, the United States 18 asks the Court to “enter judgment on Count VII for the United States, while also allowing 19 the life estate.” (Doc. 69 at 9 (emphasis added)). But in its conclusion, the United States 20 makes no mention of the Lawrences’ life estate and instead asks the Court “grant this 21 motion and enter summary judgment . . . [t]hat the Subject Property be sold . . . subject to 22 the asserted above.” (Doc. 69 at 14-15 (emphasis added)). This language raises a few 23 concerns. First, the language is in passive voice and does not identify the actor. Second, 24 there is no timing included.4 Hypothetically, if the Court uses such language, this case 25 3 It appears undisputed that the distribution order would be: (1) Maricopa County costs and 26 any taxes, (2) Pennymac, (3) the United States, (4) the Lawrences. (Doc. 69 at 11). 4 Other district courts in the Ninth Circuit have tied the timing of a judicial sale to the end 27 of a life estate. See, e.g., United States v. Wight, No. C16-1556-JCC, 2018 WL 2849773, at *2 (W.D. Wash. June 11, 2018) (“The tax liens are foreclosed and the property shall be 28 sold once [the defendant’s] life estate terminates.”); United States v. Victory, CV 22-645- PHX-JAT (D. Ariz. April 21, 2023). 1 || could remain open indefinitely. Third, it is unclear what “subject to the asserted above” 2|| references. As a result, the United States must file a proposed form of judgment. Pennymac || may object, as detailed below. 4 IV. CONCLUSION 5 Accordingly, 6 IT IS ORDERED Defendant Pennymac’s motion for summary judgment, (Doc. 50), is DENIED and the United States’ motion for summary judgment, (Doc. 69), is 8 || GRANTED as specified above. 9 IT IS FURTHER ORDERED that within ten (10) days, the United States must file a proposed form of judgment that carries out this Order. Pennymac may object to the || proposed form of judgment within ten (10) days of when it is submitted.° If Pennymac || objects, the United States may reply to the objection within five (5) days of when the 13 || objection is filed. 14 Dated this 12th day of May, 2025. 15 16 17 James A. Teilborg 18 Senior United States District Judge 19 20 21 22 23) 5 If the United States renews its request for a life estate in its proposed form of judgment and Pennymac plans to obec. Fennymac must first review the Order at Document 20 in 24! United States v. Victory, CV 22-645-PHX-JAT (D. Ariz. April 21, 2023). In any objection to a life estate, Pennymac must explain why its interests are not adequately protected if the 25 || terms of the life estate are in this Court’s judgment. Specifically, Pennymac must explain why a motion to enforce the judgment would be ina quate to protect its interest in the 26 timing of the sale. Furthermore, Fennymac must also address the United States’ argument that Pennymac’s only recourse to enforce its interests is by seeking relief in this case (in 271 other words, the United States’ argument that non-judicial foreclosure was unavailable to Pennymac once this case was initiated). Finally, if Pennymac objects to the United States’ 28 proposed form of judgment, Pennymac must submit its own proposed for of judgment consistent with the law and this Order. -7-