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First Sentinel Bank v. United States

United States District Court, W.D. Virginia, Abingdon Division

May 29, 2018

FIRST SENTINEL BANK, Plaintiff,
v.
UNITED STATES OF AMERICA, ET AL., Defendants.

          Mark L. Esposito and M. Shaun Lundy, PennStuart, Bristol, Tennessee, for Plaintiff;

          Catriona M. Coppler and Ryan O. McMonagle, Trial Attorneys, Tax Division, U.S. Department of Justice, Washington, D.C., for United States.

          OPINION AND ORDER

          JAMES P. JONES UNITED STATES DISTRICT JUDGE

         In this civil case, the plaintiff bank seeks a determination that its mortgage lien survived a non-judicial foreclosure sale of the subject real property and that tax liens against the property are inferior and must be discharged, despite statutorily inadequate notice of the sale to the Internal Revenue Service. The United States has moved to dismiss the Complaint for lack of subject-matter jurisdiction, contending that the United States has not waived its sovereign immunity as to this kind of case. For the reasons that follow, I conclude that the instant case is a quiet title action for which the United States has waived its sovereign immunity, and therefore the court has jurisdiction.[1]

         I.

         The Complaint alleges the following facts, which appear to be undisputed. Edson L. Knapp and Renda K. Knapp owned real property in Richlands, Virginia (the “Property”). The Knapps executed a credit line deed of trust (the “Deed of Trust”) for the benefit of First Sentinel Bank (“First Sentinel”), which granted First Sentinel a first lien security on the Property. In 2010, after First Sentinel recorded the Deed of Trust, the Internal Revenue Service (“IRS”) filed federal tax liens against the Property. The tax liens total $305, 439.78.

         On June 11, 2013, Frederick W. Harman was appointed Substitute Trustee under the Deed of Trust. On June 28, 2013, Harman conducted a non-judicial foreclosure sale of the Property, which was purchased by First Sentinel. The Knapps owed approximately $160, 000 in principal to First Sentinel, and the appraised value of the Property was $130, 000.

         Internal Revenue Code § 7425(b) provides that property subject to a tax lien remains subject to the lien following a non-judicial foreclosure sale unless the IRS is given at least 30 days notice of the foreclosure sale. Trustee Harman gave the IRS less than 30 days notice of the sale of the Property. Following the sale, First Sentinel requested that the IRS discharge the tax liens because the amount of principal owed to First Sentinel on the promissory note secured by the Deed of Trust exceeded the appraised value of the Property. The IRS denied the application for a Certificate of Discharge on the ground that Harman had failed to provide adequate notice of the foreclosure sale. First Sentinel appealed the denial, and the IRS denied the appeal.

         First Sentinel then filed this declaratory judgment action asking the court to declare that First Sentinel's lien on the Property survived the foreclosure sale and is superior to the tax liens. First Sentinel also seeks a declaration that the tax liens constitute a cloud on the title of the Property and that any future sale of the Property will be free and clear of the tax liens unless the sale proceeds exceed the amount owed to First Sentinel under the note secured by the Deed of Trust.

         The United States responded to First Sentinel's Complaint by filing a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), asserting that this court lacks subject-matter jurisdiction because the United States has not waived its sovereign immunity for this type of claim. The motion has been fully briefed and I have heard oral argument from the parties.

         II.

         A motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure raises the fundamental question of whether the court is competent to hear and adjudicate the claims brought before it. The court must determine questions of subject-matter jurisdiction first, as a threshold matter, before it can address the merits of the case. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998). “The plaintiff has the burden of proving that subject matter jurisdiction exists.” Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999). In evaluating a facial challenge to subject-matter jurisdiction, “the plaintiff, in effect, is afforded the same procedural protection as he would receive under a Rule 12(b)(6) consideration.” Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). The court should grant a motion to dismiss under Rule 12(b)(1) “if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.” Richmond, Fredericksburg & Potomac R.R. v. United States, 945 F.2d 765, 768 (4th Cir. 1991).

         The United States is immune from suit unless it gives specific consent to be sued. United States v. Mitchell, 445 U.S. 535, 538 (1980). The United States has waived its immunity from suits “to quiet title to . . . real or personal property on which the United States has or claims a mortgage or other lien.” 28 U.S.C. § 2410(a). The question presented by the Motion to Dismiss is whether First Sentinel's suit is an action to quiet title to real property.

         The United States argues that this case is controlled by the Fourth Circuit's decision in Kasdon v. United States, 707 F.2d 820 (4th Cir. 1983), and that I must therefore dismiss the Complaint for lack of jurisdiction. In Kasdon, the plaintiffs had purchased three properties at a tax sale, and the United States held tax liens on the properties. Id. at 822. Under Maryland law, the plaintiffs had filed a petition in equity to foreclose all rights of redemption, which would have allowed the plaintiffs to take the properties free of the tax liens. Id. At the time they filed their suit, the plaintiffs did not have possession of the properties. The court of appeals agreed with the district court's conclusion that “Congress could not have intended to include the involved type of action within the meaning of a quiet title action in section 2410(a)(1) principally because the plaintiffs did not have actual or constructive possession of the properties.” Id. at 823. The Kasdon court held that the case was neither a quiet title action nor a proper judicial foreclosure action, and therefore sovereign immunity barred the suit. The lower court in Kasdon had stated that “[p]riorities among valid interests are the subject of foreclosure suits; the alleged invalidity of ...


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