United States of America v. Urioste et al

Filing 44

MEMORANDUM OPINION AND ORDER GRANTING 35 MOTION for Summary Judgment from the standpoint of the tax lien enforcement relief that it seeks against the Urioste Defendants. Plaintiff is ORDERED to file a proposed Order of Final Judgment no later than 5:00 p.m. on February 13, 2017. Any Objections to Plaintiff's proposed Final Judgment Order are due 7 days after it has been filed into the record. Signed by Judge Virginia Emerson Hopkins on 1/12/2017. (JLC)

FILED
2017 Jan-12 AM 11:24
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
MIDDLE DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.
FELIX URIOSTE, et al.,
Defendants.

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)
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) Case No.: 4:15-CV-1787-VEH
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)

MEMORANDUM OPINION AND ORDER
I.

Procedural Background
Plaintiff United States filed this federal tax lien enforcement action against

numerous Defendants1 on October 13, 2015, pursuant to 26 U.S.C. § 7403.2 (Doc. 1).
1

Plaintiff sued seven Defendants originally: (i) Felix Urioste, individually and as a personal
representative of the estate of Michael A. Urioste; (ii) Michael A. Urioste, Jr., individually and as
a personal representative of the estate of Michael A. Urioste; (iii) Mary D. Urioste; (iv) Alabama
Scrap and Salvage, LLC; (v) Teja Jouhal; (vi) Metro Bank; and (vii) the City of Gadsden. The City
of Gadsden is no longer a party, having been dismissed on January 5, 2016, after it disclaimed any
interest in the action. (Doc. 18). Defendants Metro Bank and Teja Jouhal have separately entered into
agreements with Plaintiff about their respective priority of interests. (Docs. 29, 31, 32, 37).
2

28 U.S.C. § 7403 provides in part that:

In any case where there has been a refusal or neglect to pay any tax, or to discharge
any liability in respect thereof, whether or not levy has been made, the Attorney
General or his delegate, at the request of the Secretary, may direct a civil action to be
filed in a district court of the United States to enforce the lien of the United States
under this title with respect to such tax or liability or to subject any property, of
whatever nature, of the delinquent, or in which he has any right, title, or interest, to
the payment of such tax or liability.

The suit pertains to the outstanding tax liability of the deceased taxpayer–Michael A.
Urioste (the “Taxpayer”)–and his single-member limited liability company–Salrecon
LLC (“Salrecon”).
Pending before the court are Plaintiff’s Motion for Summary Judgment (Doc.
35) (the “Motion”) and attached evidentiary materials, all of which were filed on July
13, 2016. The Motion seeks summary judgment against the Urioste Defendants–Felix
Urioste, Michael A. Urioste, Jr., Mary D. Urioste, and Alabama Scrap and Salvage,
LLC (“Alabama Scrap”). (Id. at 1-2). More specifically, Plaintiff seeks an order
authorizing it to foreclose upon certain property owned by the Taxpayer to satisfy
“unpaid federal income tax liabilities for 2002 through 2006, as well as [Salrecon’s]
unpaid federal employment and unemployment tax liabilities . . . incurred . . . between
2002 and 2007[.]” (Doc. 35 at 3). Plaintiff also asks the court to issue an order
requiring the Taxpayer’s personal representatives to provide an inventory of the
deceased’s estate.
The Urioste Defendants opposed the Motion on August 8, 2016 (Docs. 41, 42),
and Plaintiff followed with its reply (Doc. 43) on August 22, 2016. For the reasons
discussed below, the Motion is GRANTED.

28 U.S.C. § 7403(a).
2

II.

Summary Judgment Standard
Summary judgment is proper only when there is no genuine issue of material

fact and the moving party is entitled to judgment as a matter of law. FED. R . CIV. P.
56(a). All reasonable doubts about the facts and all justifiable inferences are resolved
in favor of the non-movant. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115
(11th Cir. 1993) (instructing that “district court should resolve all reasonable doubts
about the facts in favor of the non-movant, and draw all justifiable inferences in his
[or its] favor” (internal quotation marks omitted) (quoting United States v. Four
Parcels of Real Property, 941 F.2d 1428, 1438 (11th Cir. 2006) (en banc))). A
dispute is genuine “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, 106
S. Ct. 2505, 2510, 91 L. Ed. 2d. 202 (1986). When, such as here, the moving party is
the plaintiff, satisfying this initial Rule 56 burden means “affirmatively . . .
support[ing] its motion with credible evidence …. [and] show[ing] that, on all the
essential elements of its case on which it bears the burden of proof at trial, no
reasonable jury could find for the non-moving party.” Fitzpatrick, 2 F.3d at 1115
(citations and internal quotation marks omitted) (emphasis in original) (quoting Four
Parcels, 941 F.2d at 1438). Only “[o]nce the moving party has properly supported its
motion for summary judgment, [does] the burden shift[] to the nonmoving party to
3

‘come forward with specific facts showing that there is a genuine issue for trial.’”
International Stamp Art, Inc. v. U.S. Postal Serv., 456 F.3d 1270, 1274 (11th Cir.
2006) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587,
106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986)).
III.

Factual Background3
Felix Urioste is the Taxpayer’s father and a duly appointed personal

representative of the Taxpayer’s estate. AF No. 1.4 Michael A. Urioste, Jr. is the
Taxpayer’s son and also a duly appointed personal representative of the Taxpayer’s
estate. AF No. 2. The Taxpayer’s Last Will and Testament names Felix Urioste,
Michael A. Urioste, Jr., and Mary D. Urioste as heirs to the deceased’s estate. AF No.
3

Keeping in mind that, when deciding a motion for summary judgment, the court must view
the evidence and all factual inferences in the light most favorable to the party opposing the motion,
the court provides the following statement of facts. See Optimum Techs., Inc. v. Henkel Consumer
Adhesives, Inc., 496 F.3d 1231, 1241 (11th Cir. 2007) (observing that, in connection with summary
judgment, a court must review all facts and inferences in a light most favorable to the non-moving
party). This statement does not represent actual findings of fact. See In re Celotex Corp., 487 F.3d
1320, 1328 (11th Cir. 2007). Instead, the court has provided this statement simply to place the
court’s legal analysis in the context of this particular case or controversy.
4

Under Appendix II of the court’s uniform initial order (Doc. 2) entered on October 14,
2015, “[a]ll statements of fact must be supported by specific reference to evidentiary submissions.”
(Id. at 16). The designation “AF” stands for admitted fact and indicates a fact offered by Plaintiff that
it has adequately supported through citations to underlying evidence as Appendix II mandates. The
Urioste Defendants “do not dispute any of the numbered statements of fact set forth by the
Government in its summary judgment motion . . . .” (Doc. 41 at 4). The court’s numbering of
admitted facts (e.g., AF No. 1) corresponds to the numbering of Plaintiff’s factual background as set
forth in Doc. 35. A number following a decimal point corresponds to the particular sentence within
the numbered statement of facts. For example, (AF No. 2.2) would indicate the second sentence of
paragraph 2 of Plaintiff’s statement of undisputed facts is the subject of the court’s citation to the
record.
4

3.
Alabama Scrap is a limited liability company organized under the laws of
Alabama. AF No 4. Alabama Scrap is a salvaging and recycling business located in
Gadsden, Alabama. (Doc. 42 at 5).5 Michael A. Urioste, Jr.–the Taxpayer’s
son–formed Alabama Scrap on April 25, 2006, and is its sole member. AF No. 5;
(Doc. 42 at 5). Alabama Scrap’s articles of organization were recorded in the public
records of Etowah County, Alabama, on April 26, 2006. AF No. 6.
Taxpayer’s Individual Income Tax Assessments
For tax years 2002 through 2006, the Taxpayer filed Forms 1040–individual
income tax returns–reporting the individual income taxes he owed (AF No. 7) but did
not remit payment of the individual income tax liabilities reported on his federal
income tax returns. AF No. 8. A delegate of the Secretary of the Treasury issued
assessments against the Taxpayer on various dates for these delinquent individual tax
payments, plus interest and applicable penalties.
TAX

2002

ASSESSMENT

8/7/2006
5/14/2007
10/27/2014

2003

5

9/4/2006

TYPE OF ASSESSMENT
Tax Owed Per Return
Penalty for Filing Return Late
Penalty for Failure to Pay Tax
Interest
Penalty for Failure to Pay Tax
Interest
Tax Owed Per Return
Estimated Tax Penalty
Penalty for Filing Return Late

AMOUNT
$86,164.00
$19,386.90
$17,232.80
$20,580.26
$4,308.20
$33,523.08
$104,370.00
$2,692.88
$23,483.25

All page references to Doc. 42 correspond with the court’s CM/ECF numbering system.
5

5/14/2007
10/27/2014
2004

11/13/2006

5/14/2007
10/27/2014
2005

2/4/2008

10/24/2011
10/27/2014
2006

2/9/2009

10/24/2011
10/27/2014

Penalty for Failure to Pay Tax
Interest
Penalty for Failure to Pay Tax
Interest
Tax Owed Per Return
Estimated Tax Penalty
Penalty for Filing Return Late
Penalty for Failure to Pay Tax
Interest
Penalty for Failure to Pay Tax
Interest
Tax Owed Per Return
Estimated Tax Penalty
Penalty for Filing Return Late
Penalty for Failure to Pay Tax
Interest
Penalty for Failure to Pay Tax
Interest
Tax Owed Per Return
Estimated Tax Penalty
Penalty for Filing Return Late
Penalty for Failure to Pay Tax
Interest
Penalty for Failure to Pay Tax
Interest

$15,133.65
$19,540.76
$6,784.05
$49,925.67
$133,394.00
$3,655.00
$30,013.65
$12,672.43
$18,958.82
$6,669.70
$59,455.72
$52,892.00
$2,121.58
$11,900.70
$5,818.12
$9,343.16
$3,491.46
$12,820.75
$23,644.00
$1,119.00
$5,319.90
$1,655.08
$3,772.15
$4,255.92
$8,118.84

AF No. 9.
A delegate of the Secretary of Treasury properly gave the Taxpayer notice of
the unpaid tax described in AF No. 9 and demanded payment. AF No. 10. Despite
notice and demand for payment, the individual income taxes, penalties, and interest
assessed against the Taxpayer for tax years 2002 through 2006 remain unpaid. AF
No. 11.

6

Salrecon’s Employment and Unemployment Tax Assessments
Salrecon is a limited liability company organized under the laws of Delaware.
AF No. 12. The Taxpayer was the sole member of Salrecon and elected to treat
Salrecon as a sole proprietorship for tax purposes. AF No. 13. Salrecon filed Forms
941–quarterly federal employment tax returns–reporting employment taxes it incurred
during the quarterly tax periods ending on September 30, 2002; March 31, 2003; June
30, 2003; September 30, 2003; December 31, 2003; June 30, 2004; September 30,
2004; December 31, 2004; March 31, 2005; June 30, 2005; September 30, 2005;
December 31, 2005; March 31, 2006; June 30, 2006; December 31, 2006; March 31,
2007; March 31, 2008; June 30, 2008; and September 30, 2008. AF No. 14. Salrecon
did not remit payment of the reported employment tax liabilities for any of the
foregoing quarterly periods. AF No. 15.
On the dates and in the amounts described in the table below, a delegate of the
Secretary of the Treasury assessed against Salrecon the employment taxes reported
on its returns, plus interest and applicable penalties.

TAX
PERIOD

9/30/2002

ASSESSMENT
DATE
2/24/2003

TYPE OF ASSESSMENT
Tax Owed Per Return
Penalty for Filing Return Late
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax

7

AMOUNT
$64,568.60
$2,905.59
$6,456.86
$1,291.37

3/31/2003
3/31/2003

7/7/2003
8/11/2003

6/30/2003

10/20/2003

11/24/2003
9/30/2003

TAX
PERIOD

11/05/2007

ASSESSMENT
DATE
12/10/2007

12/31/2003

5/10/2004

6/14/2004
6/30/2004

10/11/2004
11/15/2004

9/30/2004

2/28/2005
4/4/2005

12/31/2004

4/4/2005

Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Penalty for Filing Return Late
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Penalty for Filing Return Late
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax

TYPE OF ASSESSMENT
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Penalty for Filing Return Late
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
8

$1,195.33
$3,228.43
$35,238.62
$2,095.21
$15.00
$9.36
$50.00
$34,689.90
$1,181.01
$2,694.86
$393.67
$290.80
$1,312.24
$53,290.67
$11,990.40
$5,329.07
$13,056.21

AMOUNT
$18,918.15
$2,664.53
$40,331.75
$1,814.93
$4,033.17
$804.60
$508.42
$2,009.82
$53,077.35
$1,806.54
$225.15
$123.11
$750.50
$47,232.31
$4,717.10
$943.42
$780.68
$2,358.56
$39,523.55
$3,952.34
$592.85

5/9/2005
3/31/2005

7/4/2005
8/8/2005

6/30/2005

6/4/2007

7/9/2007
9/30/2005

12/26/2005
1/30/2006

12/31/2005

6/4/2007

3/31/2006

10/9/2006

TAX
PERIOD

ASSESSMENT
DATE

11/13/2006
6/30/2006

12/31/2006

10/2/2006

4/2/2007
5/7/2007

3/31/2007

6/25/2007

Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Penalty for Filing Return Late
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Tax Owed Per Return

TYPE OF ASSESSMENT
Penalty for Filing Return Late
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax
Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Penalty for Failure to Pay Tax

9

$346.92
$1,976.18
$34,423.08
$3,442.30
$516.35
$369.75
$1,721.15
$34,738.28
$7,816.11
$3,473.81
$3,693.84
$5,833.76
$1,593.55
$42,881.39
$2,222.62
$105.94
$114.38
$529.68
$57,263.38
$1,168.90
$74,284.17

AMOUNT
$889.63
$1,235.88
$148.27
$200.68
$247.12
$60,856.18
$1,499.46
$0.06
$0.06
$46,260.26
$3,120.82
$364.62
$327.14
$1,215.39
$42,739.94
$1,343.19
$64.97

7/30/2007
6/9/2008

3/31/2008
6/30/2008

7/6/2009
7/20/2009
11/02/2009
12/1/2008

9/30/2008

7/6/2009
8/17/2009

Interest
Federal Tax Deposit Penalty
Tax Owed Per Return
Federal Tax Deposit Penalty
Additional Tax Assessed
Tax Owed Per Return
Federal Tax Deposit Penalty
Tax Owed Per Return
Additional Tax Assessed
Federal Tax Deposit Penalty
Federal Tax Deposit Penalty

$80.22
$324.83
$47,820.51
$4,782.02
$2,217.84
$9,610.64
$872.99
$13,610.81
$5,174.96
$517.49
$ 258.75

AF No. 16.
For tax years 2005 through 2007, Salrecon filed Forms 940–annual federal
unemployment tax returns—reporting the unemployment taxes it incurred during
these years. AF No. 17. For tax years 2005 through 2007, Salrecon did not remit
payment of the unemployment tax liabilities reported on its unemployment tax
returns. AF No. 18.
On the dates and in the amounts described in the table below, a delegate of the
Secretary of the Treasury assessed against Salrecon the unemployment taxes reported
on its returns, plus interest and applicable penalties.
TAX
PERIOD

ASSESSMENT
DATE

12/31/2005

7/17/2006

12/31/2006

4/23/2007

12/31/2007

9/29/2008

TYPE OF ASSESSMENT
Tax Owed Per Return
Penalty for Failure to Pay Tax
Interest
Tax Owed Per Return
Penalty for Failure to Pay Tax
Interest
Tax Owed Per Return
Penalty for Late Filing
Penalty for Failure to Pay Tax
Interest
10

AMOUNT
$2,313.88
$11.38
$12.53
$2,110.30
$31.65
$38.27
$2,693.55
$295.93
$6.04
$59.52

AF No. 19. A delegate of the Secretary of Treasury properly gave the Taxpayer
notice of the unpaid tax described in AF Nos. 16 and 19 and demanded payment. AF
No. 20. Despite notice and demand for payment, the employment and unemployment
taxes, penalties, and interest assessed against Salrecon, for which the Taxpayer is
liable as its sole member, remain unpaid. AF No. 21.
Taxpayer’s Installment Agreement and Bankruptcy Petition
To pay the taxes assessed against him, the Taxpayer requested an installment
payment agreement from the Internal Revenue Service (the “IRS”). AF No. 22.1. The
agreement was pending between November 8, 2006, and November 2, 2007. AF No.
22.2. Having failed to pay his tax debts under the installment agreement, the Taxpayer
filed a petition for relief under Chapter 11 of the Bankruptcy Code on May 29, 2008
(Case No. 08-41076-JJR (Bankr. N.D. Ala.) (Robinson, J.)). AF No. 23.
The Taxpayer received a general discharge under Section 727 of the
Bankruptcy Code on August 5, 2009. AF No. 24. The Taxpayer’s individual income
tax returns for tax years 2002 through 2006 were either due within three years of the
petition date, or filed late within two years of that date. AF No. 25. The penalties
assessed against the Taxpayer for tax years 2005 and 2006 and reflected in AF No.
9 relate to his failure to timely file his returns and pay the tax he owed and accrued
within three years of the petition date. AF No. 26.
11

The Taxpayer’s individual income tax liabilities for tax years 2002 through
2006, and the penalties assessed against him for tax years 2005 and 2006, were
excepted from his 11 U.S.C. § 727(a) discharge. AF No. 27. The IRS abated the
penalties assessed against the Taxpayer for tax years 2002 through 2004. AF No. 28.
The Taxpayer’s personal liability for the trust-fund component of the
employment taxes incurred by Salrecon for the tax periods summarized in AF No. 16,
were excepted from discharge by 11 U.S.C. § 523(a)(1)(A) as a tax required to be
withheld for which the Taxpayer was personally liable as Salrecon’s sole member. AF
No. 29. Salrecon’s federal employment tax returns (Forms 941) for the tax periods
ending June 30, 2005, and December 31, 2005, through September 30, 2008, reflected
in AF No. 16 and Salrecon’s federal unemployment tax returns (Forms 940) for tax
years 2005 through 2006, reflected in AF No. 19 were all due to be filed within three
years of May 29, 2008–the date of the Taxpayer’s bankruptcy petition. AF No. 30.
The Taxpayer’s personal liability for the non-trust-fund component of the
employment taxes incurred by Salrecon for the tax periods ending June 30, 2005 and
December 31, 2005 through September 30, 2008, reflected in AF No. 16, as well as
his liability for the unemployment taxes the LLC incurred for tax years 2005 through
2006, were excepted from discharge by 11 U.S.C. § 523(a)(1)(A). AF No. 31. The
Taxpayer’s employment tax liabilities for taxable periods ending September 30, 2003;
12

March 31, 2008; June 30, 2008; and September 30, 2008, as well as his
unemployment tax liability for tax year 2007, were also excepted from discharge by
11 U.S.C. § 523(a)(1)(B)(i) because the Forms 941/940 for those periods were not
filed when due and were filed after two years before the Taxpayer filed for
bankruptcy. AF No. 32.
The IRS abated all of the penalties assessed against the Taxpayer for conduct
that occurred more than three years before he filed for bankruptcy. AF No. 33.1.
Similarly, the IRS abated the unpaid non-trust fund portion of the employment taxes
assessed against Salrecon (but for which the Taxpayer was personally liable) for
taxable periods where Forms 941 were due more than three years before the filing of
the Taxpayer’s bankruptcy petition. AF No. 33.2.
Adjusted Assessments Currently Claimed by Plaintiff
As of July 12, 2016, the deceased Taxpayer owes the United States a total of
$576,132.40 on the income tax assessments described in AF No. 9, $528,242.19
on the employment tax assessments described in AF No. 16, and $6,716.13 on the
unemployment tax assessments described in AF No. 19. AF No. 34.
Notices of Federal Tax Liens
A delegate of the Secretary of Treasury has properly recorded (and, in some
instances, re-recorded) Notices of Federal Tax Liens against the Taxpayer and
13

Salrecon for 940, 941, and 1040 tax liability in the public records of Etowah County,
Alabama, pursuant to 26 U.S.C. § 6323(f) and Ala. Code § 35-4-51. AF No. 35.
Rainbow Drive Parcel
The Taxpayer acquired title to the real property located at 958 Rainbow Drive
in Gadsden, Alabama (the “Rainbow Drive Parcel”) on September 5, 2003, by
quitclaim deed recorded in the public records of Etowah County on May 28, 2004,
as Document Number D-2004-2246. AF No. 36.1. A corrected quitclaim deed was
recorded on January 4, 2012, as Instrument Number 3360407. AF No. 36.2.
Metro Bank holds a first mortgage on the Rainbow Drive Parcel. AF No. 37.1.
This mortgage was recorded on March 16, 2006, as Instrument Number 3242904 in
the public records of Etowah County. AF No. 37.2.
Teja Jouhal holds a second mortgage on the Rainbow Drive Parcel, which was
recorded on April 18, 2007, as Instrument Number 3269163 in the public records of
Etowah County. AF No. 38.1. By its terms, this second mortgage is subordinate to the
first mortgage held by Metro Bank and the Notices of Federal Tax Lien originally
recorded as Instrument Numbers 3247131 and 3259924 in the public records of
Etowah County. AF No. 38.2.
River Road Parcel
The Taxpayer acquired title to the real property located at 126 River Road in
14

Gadsden, Alabama (the “River Road Parcel”) on December 6, 2005, by warranty deed
recorded as Document Number D-2005-5797 in the public records of Etowah County,
subject to a development agreement with the City of Gadsden dated November 22,
2005. AF No. 39. The City of Gadsden disclaims any legal or equitable interest in any
property that is the subject of this action, including the River Road Parcel. AF No. 40.
Teja Jouhal holds a first mortgage on the River Road Parcel, which was
recorded on April 18, 2007, as Instrument Number 3269163 in the public records of
Etowah County. AF No. 41.1. By its terms, this mortgage is subordinate to the
Notices of Federal Tax Lien originally recorded as Instrument Numbers 3247131 and
3259924 in the public records of Etowah County. AF No. 41.2. Metro Bank holds a
non-exclusive right of ingress and egress over any driveways or roads as they
presently exist or as they may be altered in the future over the River Road Parcel. AF
No. 42.
Forrest Avenue Parcels
The Taxpayer acquired title to the real property located at 1733 Forrest Avenue
in Gadsden, Alabama (the “Forrest Avenue Parcels”) by warranty deed recorded on
April 21, 2006, as Instrument Number 3245269 in the public records of Etowah
County. AF No. 43. The Taxpayer granted a first mortgage on the Forrest Avenue
Parcels to Metro Bank. AF No. 44.1. This mortgage was recorded on April 21, 2006,
15

as Instrument Number 3245270 in the public records of Etowah County. AF No 44.2.
At the time of the acquisition of the Forrest Avenue Parcels by the Taxpayer, it was
in the contemplation of the parties that the Forrest Avenue Parcels would later be
conveyed by the Taxpayer to another entity that would assume and pay the Metro
Bank mortgage, and Metro Bank consented to the anticipated conveyance. AAF No.
11.6
The Taxpayer conveyed the Forrest Avenue Parcels to Alabama Scrap by
warranty deed recorded on November 13, 2006, as Instrument Number 3269094. AF
No. 45. The warranty deed conveying title from the Taxpayer to Alabama Scrap was
made subject to several exceptions, including: “[t]hat Internal Revenue Services [sic]
tax lien in the amount of $264,720.26 recorded in Instrument # 3247131, Page 1
UCC, Probate Office, Etowah County, Alabama.” AF No. 46. The Taxpayer caused
the deed conveying the Forrest Avenue Parcels to Alabama Scrap to be prepared,
executed and recorded. AAF No. 12.

6

“AAF” stands for additional admitted fact indicates a fact offered by the Urioste
Defendants that they have adequately supported through citations to underlying evidence as
Appendix II mandates. For the purposes of summary judgment, Plaintiff does not contest any of the
additional disputed and undisputed facts offered by the Urioste Defendants. (Doc. 43 at 2). The
court’s numbering of additional admitted facts (e.g., AAF No. 1) corresponds to the numbering of
the Urioste Defendants’ additional undisputed facts section as set forth in Doc. 41 at 4-6. Concerning
the Urioste Defendants’ additional disputed facts section (Doc. 41 at 6-8 ¶¶ 1-5), the court has
renumbered these paragraphs as AAF No. 11 through AAF No. 15, to avoid duplicative numerical
factual references.
16

As consideration for the conveyance of the Forrest Avenue Parcels by the
Taxpayer, Alabama Scrap assumed and agreed to pay the purchase money mortgage
indebtedness in the approximate amount of $60,000.00 owed to Metro Bank that
encumbered the Forrest Avenue Parcels. AAF No. 1. The intention of Alabama Scrap
in acquiring the Forrest Avenue Parcels was to have property from which to operate
the business of Alabama Scrap. AAF No. 7.
The Metro Bank mortgage against the Forrest Avenue Parcels had priority over
all of the tax liens filed by Plaintiff against the Taxpayer. AAF No. 6. Alabama Scrap
eventually paid the outstanding mortgage owed to Metro Bank on the Forrest Avenue
Parcels. AAF No. 4. Metro Bank recorded a satisfaction of its mortgage lien on the
Forrest Avenue Parcels on May 19, 2011, as Instrument Number 3349912 in the
public records of Etowah County. AF No. 47. When Alabama Scrap paid the Metro
Bank purchase money mortgage against the Forrest Avenue Parcels, Alabama Scrap
intended and expected to acquire the same priority of the Metro Bank mortgage in the
Forrest Avenue Parcels, to-wit: good and marketable title free and clear of any junior
liens or encumbrances. AAF No. 13.
After acquiring the Forrest Avenue Parcels, Alabama Scrap made various
improvements to the property including the construction and/or installation of truck
scales; concrete approaches to the scales; fabrication of a scale house; installation of
17

company signs; spreading crushed rock for a suitable surface for the scrap yard; and
the installation of step railing. AAF No. 2.1. Alabama Scrap values these
improvements at $140,900.00. AF No. 2.2.
Except for the tax lien recorded by Plaintiff on May 22, 2006 (Instrument No.
3247131), all other tax liens asserted by Plaintiff in this case were recorded after the
November 13, 2006 recording of the deed of the Forrest Avenue Parcels from the
Taxpayer to Alabama Scrap and are not encumbrances on the Forrest Avenue Parcels.
AF No. 3. The tax lien recorded on May 22, 2006, corresponds with claims for 941
taxes for the following periods: 3rd Quarter 2002; 1st Quarter 2003; 2nd Quarter
2003; 4th Quarter 2003; 2nd Quarter 2004; 3rd Quarter 2004; 4th Quarter 2004; 1st
Quarter 2005; and 3rd Quarter 2005. AAF No. 5.
From the time Alabama Scrap assumed the Metro Bank mortgage, until the
filing of this civil action, neither Alabama Scrap, nor its members, had any actual
knowledge of the intervening federal tax lien. AAF No. 14. No person connected with
Alabama Scrap saw the deed of conveyance for the Forrest Avenue Parcels or were
aware of the details of its contents until after this civil action was commenced and a
copy of the deed was reviewed. AAF No. 15.
IV.

Analysis
The Urioste Defendants’ opposition in no way challenges the merits of
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Plaintiff’s prima facie case to enforce its tax liens. (Cf. Doc. 41 at 8 (“The Urioste
Defendants do not contest the tax liability of the deceased Taxpayer as set forth in
[Plaintiff’s Motion].”)). They also do not challenge Plaintiff’s right to foreclose upon
the Rainbow Drive and River Road Parcels. (Doc. 41 at 8).
Instead, the scope of the Urioste Defendants’ opposition is limited to Plaintiff’s
tax lien interest in the Forrest Avenue Parcels. Id. More specifically, the Urioste
Defendants raise three equitable defenses to Plaintiff’s enforcement efforts
concerning the Forrest Avenue Parcels:

(i) equitable subrogation; (ii) unjust

enrichment; and (iii) marshaling of assets. None of these is sufficient to prevent the
entry of summary judgment in favor of Plaintiff’s right to foreclose upon the Forrest
Avenue Parcels.
A.

Preliminary Considerations

Both sides have directed this court to evaluate the substance of the Urioste
Defendants’ equitable theories primarily in reference to Alabama law. Absent any
disagreement, the court accepts the parties’ proposed framework for the purposes of
deciding Plaintiff’s Motion. See United States v. Bess, 357 U.S. 51, 55, 78 S. Ct.
1054, 1057, 2 L. Ed. 2d 1135 (1958) (recognizing that federal tax code “creates no
property rights but merely attaches consequences, federally defined, to rights created
under state law”), superseded by statute on other grounds as stated in United States
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v. Metro. Life Ins., 874 F.2d 1497, 1499-1500 (11th Cir. 1989); United States v. Craft,
535 U.S. 274, 278, 122 S. Ct. 1414, 1420, 152 L. Ed. 2d 437 (2002) (same); see also
Morgan v. Comm’r of Internal Revenue, 309 U.S. 78, 80, 60 S. Ct. 424, 426, 84 L.
Ed. 585 (1940) (“State law creates legal interests and rights. The federal revenue acts
designate what interests or rights, so created, shall be taxed.”).
B.

Equitable Subrogation

As the Supreme Court of Alabama has explained the doctrine of equitable
subrogation:
(1) The loan or advancement must have been made and used to pay off
the debt secured by the prior lien and it is the lender’s duty to see that
the money is so applied, for the right of subrogation does not arise when
the money advanced is to be applied at the discretion of the debtor; (2)
the parties must contemplate that the lender will have security of equal
dignity with the lien discharged by the payment; (3) the whole debt must
be paid before subrogation can be enforced, that is, pro tanto
subrogation is not recognized; (4) the lender at the time of the loan must
be ignorant of the intervening lien or encumbrance and such ignorance
must not be the consequence of culpable negligence; (5) the intervening
lienor must not be burdened or embarrassed.
Federal Land Bank of New Orleans v. Henderson, Black & Merrill Co., 253 Ala. 54,
59, 42 So.2d 829, 833 (1949) (citing Groom v. Fed. Land Bank of New Orleans, 240
Ala. 335, 337, 199 So. 237, 239 (1940)); see also Tilley’s Alabama Equity § 23:5 at
443 (5th ed. 2012) (“The doctrine of equitable subrogation arises usually in situations
where a creditor advances money to pay off one mortgage or encumbrance without
20

notice of another encumbrance, whether a lien or mortgage, or without notice of
defect in title, which otherwise would have priority over the creditor’s mortgage.”).
The Urioste Defendants assert that Alabama Scrap should be entitled to
equitable subrogation because that entity assumed the obligation of the Taxpayer and
paid off the superior lien–the Metro Bank mortgage–encumbering the Forrest Avenue
Parcels. (Doc. 41 at 11). Further, the Urioste Defendants emphasize that Alabama
Scrap (and its sole member–Michael A. Urioste, Jr.) had no prior notice of the federal
tax lien when it was paying off the Metro Bank mortgage. (Doc. 41 at 13).
What is substantively missing from their equitable contention is any evidence
that Alabama Scrap ever expressly or implicitly acted as a lender to the
Taxpayer–Alabama Scrap did not advance funds to the Taxpayer to pay off the Metro
Bank loan. To the contrary and by virtue of the Taxpayer’s conveyance of the Forrest
Avenue Parcels to it, Alabama Scrap received the benefit of using the land, stood in
the shoes of the Taxpayer who originally took out the purchase-money mortgage to
pay for the property, and paid the debt owed to Metro Bank over a period of time.
Thus, the first element of equitable subrogation is missing.7
The second element is also lacking. Although Alabama Scrap contends that it

7

The parties disagree over whether culpable negligence–the fourth element–exists on this
record. Because the court finds equitable subrogation to be lacking in other aspects, it does not reach
this particular disputed issue.
21

intended and expected to acquire the same priority of the Metro Bank mortgage in the
Forrest Avenue Parcels, no comparable understanding by the Taxpayer or Metro Bank
is reflected in the record. Instead, when the Taxpayer recorded the warranty deed
conveying the Forrest Avenue Parcels to Alabama Scrap, he specifically
acknowledged the attached federal tax lien.
The court further finds equitable subrogation to be inappropriate in the absence
of any authority cited by the Urioste Defendants in which a court applied the doctrine
in a situation similar to this one–to benefit a conveyee who incrementally satisfied a
preexisting mortgage to the detriment of the United States in its enforcement of a
federal tax lien that had attached to that property before the conveyance took place.
The court, therefore, rejects equitable subrogation as a defense to Plaintiff’s Motion.
C.

Unjust Enrichment

The Urioste Defendants also maintain “[u]nder the circumstances of this case
it would be inequitable and unjust to allow the Government to reap the benefit of the
expenditures of Alabama Scrap when Alabama Scrap has no liability for the tax debt
of the Taxpayer.” (Doc. 41 at 16). Consequently, they urge the court to apply unjust
enrichment in the form of an equitable lien in favor of Alabama Scrap “equal to the
value of the expenditures and improvements made to or for the benefit of the Forrest
Avenue [Parcels].” Id.
22

One of the cases cited by the Urioste Defendants is the class certification
decision of Wyeth, Inc. v. Blue Cross & Blue Shield of Alabama, 42 So. 3d 1216 (Ala.
2010). In Wyeth, the Supreme Court of Alabama discussed the debate over whether
Alabama law required “proof of mistake on the part of the plaintiff or of wrongful
conduct by a defendant” to establish unjust enrichment, 42 So. 3d at 1224, or whether
the jurisdiction recognized the less demanding “‘equity and good conscience’ type of
unjust-enrichment claim[.]” 42 So. 3d at 1225. While the Wyeth court suggested that
“the better argument as to the requirements of Alabama law regarding unjust
enrichment” favored following the more stringent former framework, ultimately it did
“not definitively address this question . . . . [because the case involved] certification
of a nationwide class. . . . [and] [t]here ha[d] been no adequate showing . . . that the
laws of all (or even most of) the 49 other states would allow unjust-enrichment claims
to proceed [as equity and good conscience ones] . . . .” 42 So. 3d at 1225 (emphasis
in original).
Since the Wyeth decision, the Alabama Court of Civil Appeals has quoted the
opinion and required a plaintiff to show some type of “mistake or fraud” (versus
merely meeting an equity-and-good conscience test) to maintain this equitable theory.
See Kruse v. City of Birmingham, 67 So. 3d 910, 915 (Ala. Civ. App. 2011) (“Kruse
does not explain how his payment of the allegedly time-barred fines was made
23

pursuant to a mistake or fraud so as to make the City’s collection and retention of his
payment unjust.”); see also Willow Lake Residential Ass’n, Inc. v. Juliano, 80 So. 3d
226, 244 (Ala. Civ. App. 2010) (mentioning Wyeth and defining unjust enrichment
to include either “mistake or misreliance by the donor or wrongful conduct by the
recipient” as quoted in Mantiply v. Mantiply, 951 So.2d 638, 654–55 (Ala. 2006));
Givianpour v. Citizens Trust Bank, No. 2:12-CV-00325-SLB, 2013 WL 839922, at
*4 (N.D. Ala. Mar. 6, 2013) (quoting Wyeth and concluding that “[t]o prevail on an
unjust enrichment claim, the plaintiff must establish ‘mistake or misreliance by the
donor or wrongful conduct by the recipient’”); cf. Gunter v. Chase Bank USA, N.A.,
731 F. Supp. 2d 1238, 1248-49 (S.D. Ala. 2010) (quoting Wyeth and concluding that
“Alabama courts require unconscionable conduct on the part of the defendant in order
to make a claim for unjust enrichment”).
In light of the foregoing cases, this court is persuaded that under Alabama law
a party, like Alabama Scrap, attempting to invoke unjust enrichment as a defense to
a lien foreclosure has the option of showing either a mistake or misreliance on its part
or, alternatively, wrongful conduct by the lienholder. Turning to the second option
first, the court easily concludes that the Urioste Defendants have no evidence
showing that Plaintiff engaged in any wrongful conduct. Therefore, the Urioste
Defendants are left only with the possibility of meeting the mistake/misreliance prong
24

of Alabama’s unjust enrichment test.
Ultimately, the court finds that the Urioste Defendants’ efforts to support this
alternative avenue are also deficient. Importantly, the Urioste Defendants have not
explained how Alabama Scrap’s paying off the Metro Bank mortgage or making
improvements to the land was premised upon the type of mistake or misreliance that
would support unjust enrichment in favor of Alabama Scrap–the Metro Bank debt
was undisputedly owed and Alabama Scrap knew it had to be paid off for it to
continue to occupy and use the Forrest Avenue Parcels. Further, the improvements
were necessary for Alabama Scrap to run its business on the Forrest Avenue Parcels
which it was able to do for approximately ten years. In that sense, the expenditures
made by Alabama Scrap to extinguish the Metro Bank debt and improve the Forrest
Avenue Parcels were not “mistaken,” but rather necessary for Alabama Scrap to
operate for the benefit of Michael A. Urioste, Jr., Alabama Scrap’s sole member, and
another unidentified person who was involved in Alabama Scrap’s salvage and
recycling business via a contractual arrangement. (Doc. 42 at 5).
The Urioste Defendants’ position seems to be that, had they known about the
preexisting federal tax lien on the Forrest Avenue Parcels (that they claim the
Taxpayer failed to tell them about), then Alabama Scrap never would have
“mistakenly” accepted the conveyance of the Forrest Avenue Parcels from the
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Taxpayer in the first place. However, noticeably absent from this contention is any
authority cited by the Urioste Defendants demonstrating that a defendant’s acceptance
of a conveyance from a third party with an undisclosed but recorded federal tax lien
is an acceptable instance for invoking an unjust enrichment defense to that plaintiff’s
right to enforce the otherwise valid lien.
Moreover, the court is persuaded that applying unjust enrichment to impose the
requested equitable lien in Alabama Scrap’s favor to the detriment of Plaintiff’s
interest because of the Taxpayer’s omission would be inequitable under Alabama law,
given the lack of any contributing conduct on the part of Plaintiff. Cf., e.g., Costanza
v. Costanza, 346 So. 2d 1133, 1136 (Ala. 1977) (“Our cases make clear that, whether
the equitable grounds essential to give the ‘equitable lien’ principle a field of
operation are expressed in terms of ‘fraud’, ‘unclean hands’, or ‘unjust enrichment’
mere passive conduct on the part of the party against whose interest the lien [is]
sought is not sufficient.”) (emphasis added); id. (“Our careful review of the record
fails to disclose any conduct on the part of Mrs. Costanza which even approaches any
culpability of the nature required to invoke the operative effect of the equitable lien
doctrine.”). Akin to Costanza, because Plaintiff’s conduct in this instance is, at best,
merely passive, the imposition of a lien in Alabama Scrap’s favor premised upon any
equitable theory would be inappropriate. Thus, the court rejects the Urioste
26

Defendants’ unjust enrichment defense to Plaintiff’s Motion.
D.

Marshaling of Assets

Lastly, the Urioste Defendants maintain that this court should impose the
equitable concept of marshaling assets upon Plaintiff and require it to execute and
liquidate the liens on Rainbow Drive and River Road Parcels before being allowed
to foreclose upon the Forrest Avenue Parcels to satisfy any remaining tax lien
deficiency. (Doc. 41 at 19-20). “The equitable doctrine of marshaling rests upon the
principle that a creditor having two funds to satisfy his debt may not, by his
application of them to his demand, defeat another creditor, who may resort to only
one of the funds.” Sowell v. Fed. Reserve Bank of Dallas, Tex., 268 U.S. 449, 456-57,
45 S. Ct. 528, 530, 69 L. Ed. 1041 (1925) (emphasis added). Consistent with Sowell’s
framework for marshaling of assets, Plaintiff counters that Alabama Scrap, as a noncreditor, lacks standing to rely upon this doctrine.
As the Supreme Court of Alabama has explained the contours of this equitable
doctrine:
Nor to aid in redemption has the purchaser the right to require that the
mortgagee shall exhaust other securities for the payment of the mortgage
debt.--Ste[v]ens v. Church, 41 Conn. 369. The principle prevailing in
the marshaling of assets, or between creditors with liens or
incumbrances, that when one has a lien on two different parcels of land,
or on two funds, and another has a junior lien on one only of the parcels,
or on one only of the funds, the prior creditor or incumbrancer will be
27

compelled to exhaust that fund first, to which the junior cannot resort,
cannot be invoked by the purchaser. He stands in the place of the
mortgagor, having no other or greater rights, and is subject to his
disabilities. A debtor, bound absolutely to the payment of his debt,
(unless his homestead rights are involved, and as to these we express no
opinion,) can have no equity to compel the election of his creditor, as to
which of two funds equally liable, shall be applied in payment of the
debt. Rogers v. Meyer, 68 Ill. 92. Payment of the debt, his legal and
moral duty will relieve each fund. The rights of the purchaser of the
equity of redemption are no other or greater than the rights of the
mortgagor.
Lovelace v. Webb, 62 Ala. 271, 279 (1878) (emphasis by underling added).
In light of the foregoing language from Sowell and Lovelace, the court agrees
with Plaintiff that the marshaling of assets theory suffers from the same type of flaw
already examined in the Urioste Defendants’ ineffective reliance upon the doctrine
of equitable subrogation–Alabama Scrap has not established its status as a creditor
of the Taxpayer. Instead, Alabama Scrap is simply a conveyee of the Taxpayer.
Consequently, Alabama Scrap is a purchaser and stands in the shoes of the Taxpayer.
Consistent with Lovelace, Alabama Scrap has no standing to invoke marshaling of
assets to prevent Plaintiff’s foreclosure upon the Forrest Avenue Parcels. Cf. also
Sowell, 268 U.S. at 457, 45 S. Ct. at 530 (“The debtor may not ordinarily invoke the
doctrine, for by doing so he would disregard the express provisions of his contract on
which the creditor is entitled to rely.”).
Therefore, the court concludes that Alabama law prohibits a non-creditor such
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as Alabama Scrap from relying upon a marshaling of assets theory to prevent
Plaintiff’s enforcement of its tax lien. Bolstering this conclusion is the absence of any
authority cited by the Urioste Defendants demonstrating that the doctrine is ever
rightfully invoked by a non-creditor or a non-lienholder.
Additionally, and assuming that Alabama Scrap’s paying off the Metro Bank
loan somehow transforms Alabama Scrap into an equitable creditor of the Taxpayer,
as Plaintiff points out, several courts have been unwilling to require the United States
to marshal assets for the benefit of junior lienholders when it is seeking to enforce a
federal tax lien. See, e.g., United States v. Cohen, 271 F. Supp. 709, 718 (S.D. Fla.
1967) (“The Court’s usual equity powers are said to be limited by the special statutory
provisions of § 6325 regarding discharge of tax liens, which provisions make no
mention of discharge by marshaling other assets of the taxpayer.”); Cohen, 271 F.
Supp. at 718 (“This Court finds the line of cases refusing to apply the doctrine of
marshaling assets to be more convincing. This is especially so in view of the equities
appearing in the instant case.”); United States v. Herman, 310 F.2d 846, 848 (2d Cir.
1962) (“Nor will we subject the government to a requirement that it marshal assets
in favor of junior lienors, as this would create an extreme burden on collection of the
revenue, unauthorized by statute.”); United States v. Valley Nat’l Bank (In re Decker),
199 B.R. 684, 688 (9th Cir. BAP 1996) (“The Ninth Circuit Court of Appeals has
29

expressly rejected the application of the doctrine of marshaling to the enforcement of
federal tax liens.” (citing Silverstein v. United States (In re Ackerman), 424 F.2d
1148, 1150 (9th Cir. 1970))).
Without adopting a per se rule that would prohibit a marshaling of assets
defense in any federal tax lien enforcement action, see Ramette v. United States (In
re Bame), 279 B.R. 833, 838 (B.A.P. 8th Cir. 2002) (“[W]e decline to hold that the
application of marshaling to governmental taxing authorities is per se prohibited[;
r]ather . . . marshaling must be evaluated on a case by case basis, regardless of
whether a taxing authority is involved.”), the court concludes that the equities in this
lawsuit do not favor the doctrine’s application for the benefit of Alabama Scrap. In
particular, the Urioste Defendants have made no showing that the Taxpayer’s liability
owed to Plaintiff would likely be extinguished by Plaintiff’s execution on the
Rainbow Drive and River Road Parcels only. The court, therefore, rejects marshaling
of assets as a bar to Plaintiff’s Motion.
E.

Plaintiff’s Right To Receive an Inventory of the Taxpayer’s
Estate

In the last section of its Motion, Plaintiff seeks summary judgment on Count
IV of its complaint, which “asks the Court to order an inventory of the property in the
estate” pursuant to 26 U.S.C. § 7402. (Doc. 35 at 27); see also 26 U.S.C. § 7402(a)

30

(“The district courts of the United States at the instance of the United States shall
have such jurisdiction to make and issue in civil actions, writs and orders of
injunction . . . and such other orders and processes, and to render such judgments and
decrees as may be necessary or appropriate for the enforcement of the internal
revenue laws.”). An order requiring an inventory of the Taxpayer’s estate plainly falls
within the jurisdictional powers bestowed upon district courts under § 7402(a).
Further, the Urioste Defendants have offered no opposition to this particular portion
of Plaintiff’s Motion. Cf., e.g., Wilkerson v. Grinnell Corp., 270 F.3d 1314, 1322
(11th Cir. 2001) (finding claim abandoned when argument not presented in initial
response to motion for summary judgment). Accordingly, the remainder of Plaintiff’s
Motion is also GRANTED.
V.

Conclusion
Thus, Plaintiff’s Motion is GRANTED from the standpoint of the tax lien

enforcement relief that it seeks against the Urioste Defendants. With no other
disputed claims pending, Plaintiff is ORDERED to file a proposed order of final
judgment that incorporates the rulings contained in this memorandum opinion as well
as the priority of interests set forth in the orders (Docs. 31, 37) previously entered in
this action, no later than 5:00 p.m. on February 13, 2017. Plaintiff also shall submit

31

a copy8 to the court via chambers email: [e-mail]. Any
objections by any party to Plaintiff’s proposed final judgment order are due 7 days
after it has been filed into the record. At the end of such 7-day period, the proposed
final judgment order will be under submission and final judgment in favor of Plaintiff
will be entered shortly thereafter.
DONE and ORDERED this 12th day of January, 2017.

VIRGINIA EMERSON HOPKINS
United States District Judge

8

Preferably in WordPerfect format.
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