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).

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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

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