United States of America v. Cloninger et al

Filing 72

ORDER by Judge Joseph C. Spero granting 66 Motion for Summary Judgment (jcslc2, COURT STAFF) (Filed on 12/3/2012) (Additional attachment(s) added on 12/3/2012: # 1 Certificate/Proof of Service) (klhS, COURT STAFF).

1
2

UNITED STATES DISTRICT COURT
3

NORTHERN DISTRICT OF CALIFORNIA
4
5
6

UNITED STATES OF AMERICA,
Plaintiff,

7

v.

8
9

Case No.: 3:10-cv-04040-JCS
ORDER GRANTING PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT
[Dkt. No. 66].

ASHTON CLONINGER, et al.,
Defendants.

10

United States District Court
Northern District of California

11
12

I.

INTRODUCTION

13

The United States of America (“Plaintiff” or “Government”) filed this action to reduce to

14

judgment certain tax assessments made against Ashton Cloninger (“Defendant”), and to collect a

15

portion of the proceeds from the sale of the property located at 3039 St. James, Belmont,

16

California (“Property”) in part satisfaction of Defendant’s tax liability.1 The parties have

17

stipulated that Defendant owes the Government $309,685.24 in federal tax liability. The parties

18

have also stipulated that the Government has valid tax lien on Defendant’s interest in the

19

Property, and that 26 U.S.C. § 7403 entitles the Government to enforce its lien against the

20

Property. The Property has been sold, and sale proceeds in the amount of $532,951.97 have been

21

deposited with the Clerk of Court.

22
23

On October 5, 2012, the Government filed the instant Motion for Summary Judgment
(“Motion”) to collect one-half of the sale proceeds deposited with the Clerk of Court. Plaintiff

24
25
26
27
28

1

Defendant’s former wife, Sylvia Cloninger (“Ms. Cloninger”), as well as the Bank of
America and the State of California Franchise Tax Board, were also joined as defendants in this
action as parties which may have claimed an interest in the property. See Dkt. No. 1 (Complaint)
¶¶ 6-8; 26 U.S.C. § 7403(b). On May 13, 2011, the Clerk of Court entered default as to defendant
Bank of America. See Dkt. No. 25. On November 2, 2010, the California Franchise Tax Board
disclaimed any interest in the proceeds to the sale of the Property. Dkt. No. 6. Ms. Cloninger’s
interest in the property is discussed within this Order.

1

also disclaims any claim to the remaining proceeds, and requests the Court to dismiss the case and

2

direct transfer of the remaining proceeds to the Superior Court of California, County of San

3

Mateo--the court where Defendant’s and Ms. Cloninger’s dissolution proceedings are pending--to

4

be distributed in connection with the Cloningers’ property division. No party disputes the

5

Government’s entitlement to collect at least one-half of the sale proceeds. Defendant contends,

6

however, that the Government may not take less than Defendant’s full interest in the sale

7

proceeds, which Defendant argues is greater than one-half due to his separate property

8

contributions to the Property. The Motion came on for hearing November 30, 2012, at 9:30a.m.

9

For the reasons stated below, Plaintiff’s Motion for Summary Judgment is GRANTED.2

10

United States District Court
Northern District of California

11

II.

BACKGROUND3
Defendant and Ms. Cloninger were married in 1984 and purchased the Property at issue in

12

1985. Declaration of Ashton Cloninger (“Ashton Decl.”) ¶ 2-3; Declaration of Sylvia Cloninger

13

(“Sylvia Decl.”) ¶ 3. In September 1997, Defendant and Ms. Cloninger permanently separated.

14

Ashton Decl. ¶ 7; Sylvia Decl. ¶¶ 4-5. Ashton Cloninger filed a petition for the dissolution of

15

marriage on September 26, 1997, but did not pursue the dissolution action. Ashton Decl. ¶¶ 9-10;

16

Sylvia Decl. ¶ 4. When Ms. Cloninger filed a petition for the dissolution of the marriage on June

17

6, 2008, the two dissolution actions were consolidated. Sylvia Decl. ¶ 6. The marriage was

18

formally dissolved on March 27, 2012. Ashton Decl. ¶ 14; Sylvia Decl. and Exh. D thereto.

19

During the period of separation between 1997 and 2012, Ms. Cloninger remained in the

20

Property while Defendant moved elsewhere. Ashton Decl. ¶ 8. During this time, Defendant paid

21

for all costs associated with the Property, including the mortgage payments, homeowners

22

association dues, real property taxes, and for major repairs. Ashton Decl. ¶ 15 and Exh. B (Sylvia

23

Cloninger’s Declaration in State Court Dissolution Action) at 4-5. Since their separation in 1997,

24

Defendant and Ms. Cloninger have filed separate tax returns. Ashton Decl. ¶ 12.

25
26
2

27
28

The parties have consented to the jurisdiction of the undersigned magistrate judge
pursuant to 28 U.S.C. § 636(c).
3
Unless noted otherwise, the facts included herein are those facts which the parties
stipulated are undisputed or which the Court found to be undisputed.
2

1

During the dissolution proceedings, the state court ordered Ms. Cloninger to list the

2

Property for sale. Sylvia Decl. Exh. B (Findings and Order After Trial) ¶ 7. In the order

3

dissolving the marriage dated March 27, 2012, the state court wrote that Ms. Cloninger “shall

4

receive one-half of any proceeds from the sale of the house and $15,000 from Husband’s one-half

5

share of the proceeds shall be used to pay reimbursement of property taxes and additional sums

6

owed to her.” Sylvia Decl. Exh. D at 4. In two orders prior to the order dissolving the marriage,

7

the state court reserved jurisdiction over any disputes arising with respect to the distribution of

8

funds from the sale of the Property. See Sylvia Decl. Exh. B (Findings and Order After Trial

9

(Dec. 14, 2010)) ¶ 7 (“The Court reserves jurisdiction over any disputes that may arise with
respect to the sale and distribution of funds from the sale of the marital residence”); Sylvia Decl.

11

United States District Court
Northern District of California

10

Exh. C (Attachment to Findings and Order After Hearing (March 3, 2011)) ¶ 4 (“The Court shall

12

retain jurisdiction over all aspects of the listing, sale and division of the sale proceeds of 3039 St.

13

James Road, Belmont, California.”).

14

During the period of separation, Defendant became delinquent on his federal tax liability.

15

On September 8, 2010, while the dissolution proceedings were pending in state court, the

16

Government filed the instant action. See Dkt. No. 1 (“Compl.”) ¶ 1. Defendant stipulated on

17

February 7, 2012 that he owed $309,685.24 to the Government plus statutory interest from

18

August 31, 2010. Dkt. Nos. 42-43 (Stipulation and Order) ¶¶ 2-3.

19

After the Property was sold, the sale proceeds in the amount of $532,951.97 were

20

deposited with the Clerk of Court. Dkt. No. 65 (Receipt). This was the stipulated amount after

21

paying the property taxes, the mortgage recorded in deed of trust, and the fees associated with the

22

sale. See Dkt. Nos. 55-56 (Stipulation and Order) ¶ 12. On July 18, 2012, all interested parties,

23

including Defendant, stipulated that the Government “has valid and subsisting tax liens on all

24

property and rights to property of Defendant Ashton Cloninger,” and that “26 U.S.C. § 7403

25

entitles the United States to enforce its liens against the Subject Property in order to apply the

26

proceeds towards the tax liabilities of Defendant Ashton Cloninger.” Id. ¶¶ 8-9.

27
28

On October 5, 2012, Plaintiff filed the instant Motion for Summary Judgment. Dkt. No.
66 (“Motion”). The Government requests the Court to allocate one-half of the sale proceeds
3

1

deposited with the Clerk of Court to the Government, and transfer the remaining proceeds to the

2

state court to be allocated pursuant to the state court’s property division. In support of its Motion,

3

the Government filed as an exhibit a “stipulation” between the United States and Ms. Cloninger,

4

where those parties agreed “that the Internal Revenue Service is entitled to (at least) one-half of

5

the net proceeds from the sale of the Subject Property, which is equal to $266,475.98.”

6

Declaration of Thomas Newman (“Newman Decl.”) Exh. 5 ¶ 10. The Government disclaimed an

7

interest to the remaining proceeds from the sale of the Property. Id. The United States and Ms.

8

Cloninger further agreed “to transfer the remaining $266,475.99 to the Clerk of the Court for the

9

Superior Court for San Mateo County, 400 County Center, Redwood City, California 94063, and
the Defendants can resolve the State law claims as part of cases numbered FAM0099539 and

11

United States District Court
Northern District of California

10

FAM044728.” Id. ¶ 11.
Defendant opposes the Government’s Motion. Dkt. No. 68 (“Opp.”). Defendant does not

12
13

dispute the Government is entitled to at least one-half of the sale proceeds, but does argue the

14

Government is not entitled to take less than the full amount of Defendant’s property interest in the

15

sale proceeds. Opp. at 3. Defendant contends he has greater than one-half interest in the sale

16

proceeds because during his separation with Sylvia Cloninger, he contributed his separate

17

property to pay for all costs associated with the Property, such as mortgage payments, housing

18

association dues, property taxes, and major repairs. Opp. ¶ 5; Ashton Decl. ¶ 15 and Exh. A

19

thereto. Therefore, Defendant argues, his property interest in the sale proceeds is measured by his

20

one-half community property interest plus his right to “equitable subrogation” as measured by the

21

payments he made out of his separate property. Defendant makes this argument to guard against

22

the Government’s subsequent pursuit of the deficiency of his tax debt. Opp. at 5 (“plaintiff’s

23

disclaimer will leave money on the table while at the same time leaving plaintiff free to hound

24

defendant Ashton Cloninger with the unrequited balance of the tax lien”).

25

III.

26

LEGAL STANDARD
Summary judgment is appropriate “if the movant shows that there is no genuine dispute as

27

to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P.

28

56(a). In order to prevail, a party moving for summary judgment must show the absence of a
4

1

genuine issue of material fact with respect to an essential element of the non-moving party's

2

claim, or to a defense on which the non-moving party will bear the burden of persuasion at trial.

3

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Further, “Celotex requires that for issues on

4

which the movant would bear the burden of proof at trial, that party must show affirmatively the

5

absence of a genuine issue of material fact,” that is, “on all the essential elements of its case on

6

which it bears the burden of proof at trial, no reasonable jury could find for the non-moving

7

party.” Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993) (internal quotation

8

omitted). Once the movant has made this showing, the burden then shifts to the party opposing

9

summary judgment to designate “specific facts showing there is a genuine issue for trial.”
Celotex, 477 U.S. at 324. On summary judgment, the court draws all reasonable factual

11

United States District Court
Northern District of California

10

inferences in favor of the non-movant. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 255 (1986).

12

IV.

13

DISCUSSION
In this action, the Government now seeks only one-half of the proceeds of the sale of the

14

Property. It has disclaimed any interest in the remaining proceeds. No party disputes that the

15

Government is entitled, at least, to one-half of the proceeds. The Government is entitled to

16

enforce its liens against the Property in order to apply the proceeds toward the tax liabilities of

17

Ashton Cloninger. See 26 U.S.C. § 7403; Dkt. Nos. 55-56 (Stipulation and Order) ¶ 9.

18

Therefore, the Court finds the Government is entitled to one-half of the proceeds.

19

Defendant’s only contention is that the Government cannot take less than his purported

20

interest of the sale proceeds. Assuming arguendo Defendant does have greater than one-half

21

interest in the sale proceeds, Defendant has cited no case or statute which prohibits the

22

Government from collecting less than the taxpayer’s entire property interest in the sale proceeds.

23

Contrary to Defendant’s contention, United States v. Rogers, 461 U.S. 677 (1093) (“Rogers”),

24

does not stand for this proposition. The Supreme Court in Rogers held that the Government is

25

entitled to force the sale of a home to collect on a federal tax lien, even if a non-debtor spouse

26

also owns a separate property interest in the home. Id. at 680. The Court further held that while a

27

court may decline to order the forced sale by exercise of equitable discretion, such discretion

28

“should be exercised rigorously and sparingly, keeping in mind the Government’s paramount
5

1

interest in prompt and certain collection of delinquent taxes.” Id. at 711. The holding in Rogers

2

had nothing to do with Defendant’s argument here--namely, that the Government must collect a

3

debtor’s entire property interest in the proceeds derived from the sale of the home.

4

No legal principle prevents this Court from allocating one-half of the sale proceeds to the
Government based on Defendant’s unsubstantiated contentions that he is entitled to more. This

6

Court is not, as Defendant suggests, “remand[ing] the matter of federal tax lien enforcement to the

7

state’s family court.” Opp. at 4. This Court’s judgment is fully dispositive of the federal tax lien

8

at issue in this case. Nor is the Court defining Defendant’s property interest contrary to federal

9

law principles, as Defendant implies by citing Drye v. U.S., 528 U.S. 49 (1999). In Drye, the

10

Supreme Court held that “the [Internal Revenue] Code and interpretative case law place under

11

United States District Court
Northern District of California

5

federal, not state, control the ultimate issue whether a taxpayer has a beneficial interest in any

12

property subject to levy for unpaid taxes.” Id. at 58. The issue in Drye was whether an insolvent

13

taxpayer’s inheritance qualified as “property” or a “right to property” which the federal

14

government could collect to satisfy a tax lien, despite an Arkansas law which permitted the

15

taxpayer to disclaim his inheritance to effectuate the transfer of the inherited property directly

16

from the deceased to the next lineal heir. Id. at 52. In Drye, there was a direct conflict between

17

Arkansas law and federal law when applied to define whether the taxpayer’s inheritance was

18

“property” subject to federal tax liens. On the one hand, Arkansas law created a “legal fiction”

19

that the disclaimant predeceased the decedent, and therefore, never held an interest in the property

20

at issue. Id. at 53 (citing Ark. Code Ann. §§ 28-2-101, 28-2-107 (1987)). Federal law, on the

21

other hand, recognized the taxpayer’s property interest in the inheritance because the taxpayer had

22

complete authority to either inherit or disclaim the property. Id. at 61. The Court in Drye was

23

faced with a conflict of between state and federal definitions of the taxpayer’s property. There is

24

no such conflict here. The Government only seeks to collect Defendant’s property as defined by

25

state law; there is no federal principle which defines Defendant’s property rights otherwise. The

26

principles articulated in Drye are therefore irrelevant to this case.

27
28

There were two federal claims in this case. The first, to reduce the tax assessments to
judgment, has been disposed of by the parties’ stipulation. See Dkt. Nos. 42-43 (Stipulation and
6

1

Ord ¶¶ 2-3. The second, foreclosure of the Gove
der)
,
e
ernment’s ta lien, is dis
ax
sposed of by this Order.
y

2

By its stipulatio the Gove
on,
ernment only seeks one-h the proc
y
half
ceeds--an am
mount to whi all
ich

3

par
rties agree th Governme is entitled That onehe
ent
d.
-half interest will be awa
t
arded to the Plaintiff.

4

As to the remai
ining procee the Gove
eds,
ernment has no claim--h
having explic
citly waived on any

5

furt
ther claim to those funds According judgmen will be en
o
s.
gly,
nt
ntered in fav of the Pla
vor
aintiff on its

6

lien in the amou of $266,475.98, and the Clerk of Court is dir
n
unt
f
rected to pay that amoun to the
y
nt

7

Pla
aintiff.

8

The disp on the remaining fu
pute
r
unds are mat
tters between Defendant and Ms. Clo
n
t
oninger and

9

rais only issue of state law
se
es
w--including Mr. Clonin
g
nger’s “equit
table subrog
gation” claim There are
m.
no further feder claims to adjudicate, and the Cou declines t exercise p
ral
o
urt
to
pendant juris
sdiction

11

United States District Court
Northern District of California

10

er
ngers’ proper division. Those issu are alread the subjec of the diss
rty
ues
dy
ct
solution
ove the Clonin

12

pro
oceedings at the San Mat County Superior Cou The Cle of Court, after paying
teo
S
urt.
erk
,
g

13

$26
66,475.98 to Plaintiff, sh pay the remaining pr
hall
r
roceeds to th Superior C
he
Court to the County of

14

San Mateo, for distribution in accordan with the orders of tha court.
n
n
nce
at

15

V.

16

CONCL
LUSION
For the reasons state above, th Governme
ed
he
ent’s Motion for Summa Judgmen is
n
ary
nt

17

GR
RANTED in its entirety. The Clerk of Court is d
o
directed to pa one-half o the sale pr
ay
of
roceeds

18

($2
266,475.98) to the United States and transfer the remaining p
t
d
proceeds to t Superior Court of
the

19

Cal
lifornia, Cou
unty of San Mateo, 400 County Cent Redwood City, Calif
M
C
ter,
fornia 94063 to be
3,

20

dist
tributed by that court in connection with cases F
t
w
FAM044728 and FAM09
99539. The Clerk of

21

Cou is also di
urt
irected to rep to the Court on the s
port
C
status of this transfer wit
s
thin THIRTY (30) days
Y

22

from the date of this Order.
m
o
.

23
24

IT IS SO ORDERE
O
ED.
Dat
ted: Decemb 3, 2012
ber

25
26

___
__________
___________
___
Jos
seph C. Sper
ro
Un
nited States M
Magistrate Ju
udge

27
28

7