Spear v. United States of America

Filing 27

ORDER granting the United States' request for relief under Rule 56(d) 25 . The United States shall respond to Plaintiff's motion for summary judgment no later than 9/24/12. Signed by Senior Judge Paul G Rosenblatt on 6/6/12. (TLJ)

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1 WO 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE DISTRICT OF ARIZONA 7 8 9 10 11 12 13 ) ) Plaintiff, ) ) v. ) ) United States of America, ) ) Defendant. ) _________________________________ ) Thomas L. Spear, CIV. 11-1742-PHX-PGR ORDER 14 15 Before the Court is Plaintiff’s Motion for Summary Judgment. (Doc. 23.) Plaintiff 16 contends that he is entitled to summary judgment on his quiet titled claim based on the 17 doctrine of equitable subrogation. The United States asks the Court to refuse the motion or 18 grant a continuance under Rule 56(d) of the Federal Rules of Civil Procedure so that it can 19 conduct discovery before responding to the motion. (Doc. 25.) 20 Background 21 At issue is real property located in Maricopa County. Dennis Carlson owned the 22 property at the time of his death in 2007. He had a loan on the property with TCF Bank 23 (“TCF Loan”). The TCF loan was recorded on June 22, 2006. On August 15, 2008, Plaintiff 24 purchased the property from Carlson’s estate for $800,000. To fund the purchase, Plaintiff 25 obtained a loan of $417,000 (“Taylor Loan”). The Taylor Loan was used to satisfy the TCF 26 Loan. On December 10, 2009, Plaintiff refinanced the Taylor Loan with a loan from 27 Imortgage.com (“ICOM Loan”). The ICOM Loan was used to satisfy the Taylor Loan. On 28 May 10, 2010, Plaintiff received a notice from the IRS that it was going to seize the property 1 in order to satisfy the tax liability of the Carlson estate. Carlson’s estate had a tax liability of 2 $2.2 million at the time of his death, on July 2, 2007, at which point an estate tax lien was 3 automatically created. On September 2, 2011, Plaintiff filed a complaint to quiet title. (Doc. 4 1.) He filed an amended complaint on March 5, 2012. (Doc. 20.) 5 Equitable subrogation 6 “The doctrine of equitable subrogation allows a person who pays off an encumbrance 7 to assume the same priority position as the holder of the previous encumbrance.” Mort v. 8 United States, 86 F.3d 890, 893 (9th Cir. 1996). Plaintiff contends that the ICOM loan is 9 subrogated to the TCF loan, which had priority over the estate tax lien. (Doc. 23 at 2–3.) The 10 United States argues that equitable subordination does not apply because the ICOM Loan did 11 not pay off the TCF Loan, which had been discharged and was no longer in existence when 12 the ICOM Loan was recorded. (Doc. 25 at 5.) 13 “Equitable subrogation is a state-law doctrine,” so whether the doctrine applies in this 14 case is a matter of Arizona law. Mort, 86 F.3d at 893. In Sourcecorp, Inc. v. Norcutt, 229 15 Ariz. 270, 274 P.3d 1204, 1207 (2012), the Arizona Supreme Court, acknowledging that 16 “[t]here is thus some ambiguity in Arizona case law regarding the test for equitable 17 subrogation,”adopted the test set forth in the Restatement (Third) of Property, § 7.6.1 “Under 18 the Restatement test, a person who ‘fully performs an obligation of another, secured by a 19 mortgage, becomes by subrogation the owner of the obligation and the mortgage to the extent 20 necessary to prevent unjust enrichment.’” Id. (quoting Restatement § 7.6). The court 21 explained that “equitable relief may be appropriate, for example, if the person seeking 22 subrogation expected to receive a security interest in the real estate with the priority of the 23 24 25 26 27 28 Previous formulations of the test in Arizona stated that subrogation occurs if (1) a third person discharges an encumbrance on the property of another, (2) the person is not a volunteer, and (3) there is an express or implied agreement “that he will be substituted in place of the holder of the encumbrance.” Peterman-Donnelly Eng’rs & Contractors Corp. v. First Nat’l Bank of Ariz., 2 Ariz.App. 321, 325, 408 P.2d 841, 845 (1965); see Lamb Excavation, Inc. v. Chase Manhattan Mortg. Corp., 208 Ariz. 478, 480–82, 95 P.3d 542, 544–46 (App. 2004). 1 - 2 - 1 mortgage being discharged.” Id. The court held that application of equitable subrogation does 2 not depend whether on the person invoking the doctrine is a “volunteer” and does not require 3 an express or implied agreement. Id. at 1208. The court recognized that “equitable 4 subrogation depends on the facts of the particular case.” Id. at 1206 (quoting Mosher v. 5 Conway, 45 Ariz. 463, 468, 46 P.2d 110, 112 (1935)). 6 Rule 56(d) 7 Under Rule 56(d) (formerly Rule 56(f)), when a “nonmovant shows by affidavit or 8 declaration that, for specified reasons, it cannot present facts essential to justify its 9 opposition” to a motion for summary judgment, the court may “(1) defer considering the 10 motion or deny it; (2) allow time to obtain affidavits or declarations or to take discovery; or 11 (3) issue any other appropriate order.” The party opposing summary judgment must make 12 a timely request and clearly show “what information is sought and how it would preclude 13 summary judgment.” Margolis v. Ryan, 140 F.3d 850, 853 (9th Cir. 1998). The requesting 14 party must set forth in affidavit form the specific facts it hopes to elicit from further 15 discovery and show that the facts sought exist are essential to oppose summary judgment. 16 Family Home and Finance Center, Inc. v. Federal Home Loan Mortgage Corp., 525 F.3d 17 822, 827 (9th Cir. 2008). 18 Discussion 19 The United States’s request is timely. Where a summary judgment motion is filed 20 early in the litigation before a party has had a realistic opportunity to pursue discovery 21 relating to its theory of the case, district courts should grant a Rule 56(d) motion “fairly 22 freely.” Burlington Northern Santa Fe R. Co. v. Assiniboine and Sioux Tribes of Fort Peck 23 Reservation, 323 F.3d 767, 773 (9th Cir. 2003); see Metabolife Int’l, Inc. v. Wornick, 264 24 F.3d 832, 846 (9th Cir. 2001) (“Although Rule 56(f) facially gives judges the discretion to 25 disallow discovery when the non-moving party cannot yet submit evidence supporting its 26 opposition, the Supreme Court has restated the rule as requiring, rather than merely 27 permitting, discovery ‘where the non-moving party has not had the opportunity to discover 28 - 3 - 1 information that is essential to its opposition.’”) (citing Anderson v. Liberty Lobby, Inc., 477 2 U.S. 242, 250 n.5 (1986)). 3 Plaintiff filed its First Amended Complaint on March 5, 2012. The United States filed 4 its Answer on March 19. (Doc. 21.) Plaintiff filed his Motion for Summary Judgment 10 days 5 later, on March 29. (Doc. 23.) The deadline for the completion of discovery is September 24, 6 2012. (Doc. 17.) Dispositive motions are due by October 19. (Id.) 7 The United States has submitted a declaration by its counsel, Kaycee Sullivan. (Doc. 8 25, Ex. 1.) The declaration indicates that the only discovery completed in this case is the 9 exchange of initial disclosures. (Id., ¶ 6.) This disclosure included documents from the 10 escrow files of the real estate transactions at issue, along with documents from related 11 litigation in Minnesota, in which Plaintiff is suing Bryon Bequette, the representative of the 12 Carlson estate, for failing to pay the estate tax lien on the property. Id. 13 The Sullivan declaration sets forth the facts the United States hopes to elicit and why 14 they are essential to its defense. (Doc. 25, Ex. 1.) According to the declaration, the United 15 States has a good faith belief that further discovery will reveal relevant facts concerning the 16 “applicability of the doctrine of equitable subrogation in the case.” (Id., ¶ 13.) The sought- 17 after information “is necessary in evaluating the parties’ knowledge of potentially competing 18 lien priority claims and the equitable remedies available.” (Id., ¶ 12. ) 19 The United States seeks copies of the escrow files of the underlying real estate 20 transactions and intends to depose Plaintiff regarding his knowledge of the estate tax lien 21 prior to entering into the real estate transactions at issue. (Id., ¶¶ 6, 11.) It will also depose 22 Plaintiff about his efforts to obtain damages from Bequette, as well as his efforts to file a 23 claim or receive proceeds from a title insurance policy. (Id., ¶ 9.) The United States also 24 intends to depose Bequette and subpoena documents from the title insurance company. (Id., 25 ¶¶ 8, 12.) 26 The United States asserts that this information is necessary for a determination of the 27 equities of the case and to rebut factual allegations made by Plaintiff. For example, Plaintiff 28 - 4 - 1 contends that he purchased the property without knowledge of the tax lien and that he and 2 his lenders intended the deeds to maintain a first position secured interest in the property, as 3 evidenced by loan documents and escrow instructions. (Doc. 23 at 5–6.) 4 In Sourcecorp, the Arizona Supreme Court held that neither the plaintiff’s status as 5 a “volunteer” nor the absence of an agreement is a categorical bar to application of equitable 6 subrogation. 274 P.3d at 1208. Nevertheless, application of the doctrine depends on the 7 specific facts of the case, id. at 1206, and the United States has identified questions relevant 8 to the equities involved, particularly questions concerning Plaintiff’s intent and expectations 9 when purchasing the property. See In re Mortgages Ltd., 459 B.R. 739, 742 (Bkrtcy.D.Ariz. 10 2011) (denying summary judgment based on conflicting facts as to the existence of an 11 agreement to subrogate). 12 Conclusion 13 Plaintiff’s motion for summary judgment was filed just 10 days after the United States 14 answered the First Amended Complaint. The parties are still involved in discovery. Because 15 the United States has identified specific, material facts that it may elicit from discovery, 16 which are essential to its opposition to the motion for summary judgment, see Family Home 17 & Finance Center, 525 F.3d at 827, the court will grant the United States’ request for relief 18 under Rule 56(d).2 Accordingly, 19 20 /// 21 /// 22 /// 23 24 Plaintiff asserts that pursuant to LRCiv. 56.1(b)(1), the Court must accept as true the facts set forth in his statement of facts because the United States did not controvert them in its response to the summary judgment motion. (Doc. 26 at 6–7.) This argument is not well taken, given that the United States is seeking relief under Rule 56(d). Without having conducted discovery, the United States is not in a position to contest Plaintiff’s factual assertions. (See Doc. 25 at 3 n.1.) 2 25 26 27 28 - 5 - 1 IT IS HEREBY ORDERED granting the United States’ request for relief under Rule 2 56(d) (Doc. 25). The United States shall respond to Plaintiff’s motion for summary judgment 3 no later than September 24, 2012. 4 DATED this 6th day of June, 2012. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 6 -

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