Smith v. USA

Filing 53

ORDER granting in part and denying in part the Plaintiff's 47 Motion for Summary Judgment and granting in part and denying in part the Defendant's 48 Motion for Summary Judgment. See the attached memorandum of decision. Since default judgment was entered against David Smith pursuant to the Court's 27 Order and there are no other pending claims against any other Counterclaim Defendants, the Clerk is directed to enter judgment as detailed in the memorandum of decision and close this file. Signed by Judge Vanessa L. Bryant on 3/7/2014. (Burkart, B.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

DYANE V. SMITH,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.
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UNITED STATES O F AMERICA,
Counterclaim Plaintiff,
v.
DAVID R. SMITH, DYANE V. SMITH,
ARGENT MORTGAGE COMPANY, LLC,
JOWDY AND JOWDY, and TOWN OF
REDDING,
Counterclaim Defendants.

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CIVIL ACTION NO.
3:11-CV-01996 (VLB)

March 7, 2014

MEMORANDUM OF DECISION GRANTING IN PART AND DENYING IN PART
PLAINTIFF’S [DKT. 47] MOTION FOR SUMMARY JUDGMENT AND GRANTING IN
PART AND DENYING IN PART DEFENDANT’S [DKT. 48]
CROSS-MOTION FOR SUMMARY JUDGMENT

I.

Introduction

The Plaintiff and Counterclaim Defendant, Dyane V. Smith (hereinafter the
“Plaintiff”), filed an action to quiet title against the Defendant and Counterclaim
Plaintiff, the United States of America (hereinafter the “Defendant”), pursuant to
26 U.S.C. § 2409(a) and Conn. Gen. Stat. § 47-31 and to remove a federal tax lien
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on property located at 24 Ridgewood Drive in Redding, Connecticut (the
“Property”). The Defendant counterclaimed to foreclose on the Property. The
Plaintiff moved for summary judgment pursuant to Fed. R. Civ. P. 56(a), and the
Defendant cross-moved for summary judgment pursuant to Fed. R. Civ. P. 56(a).
For the reasons that follow, the Plaintiff’s motion for summary judgment in
GRANTED IN PART and DENIED IN PART, and the Defendant’s cross-motion for
summary judgment is GRANTED IN PART and DENIED IN PART.
II.

Background

The Plaintiff is a natural person residing in Redding, Connecticut. [Dkt. 47-6,
Local Rule 56(A)(1) Statement in Support of Plaintiff’s Motion for Summary
Judgment, ¶ 1; Dkt. 48-6, Local Rule 56(a)(2) Statement, Response to Plaintiff’s
Local Rule 56(a)(1) Statement, ¶ 1]. The Defendant is the Government of the
United States of America, acting through its agency, the Internal Revenue
Service. [Dkt. 47-6, ¶ 2; Dkt. 48-6, ¶ 2]. On June 2, 1993, the Plaintiff and the
Counterclaim Defendant David R. Smith (“Smith”), the Plaintiff’s ex-husband,
acquired title to the Property by warranty deed recorded on the Redding land
records on July 28, 1993 in volume 178, pages 250-251. [Dkt. 47-6, ¶ 4; Dkt. 48-6,
¶ 4].
However, on January 1, 2000, Smith moved out of the residence and began
residing at 84 North Salem Drive, Ridgefield, Connecticut, taking with him his
financial records as well. [Dkt. 47-2, Plaintiff’s Affidavit, ¶ 7]. On January 12,
2001, Smith initiated a contested dissolution of marriage in the Danbury Superior
Court in Connecticut. [Dkt. 47-6, ¶ 5; Dkt. 48-6, ¶ 5]. From the commencement of
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the divorce proceeding, Smith filed his income taxes as “married, filing
separately,” including income tax returns due to be filed in 2001, 2002, and 2003.
[Dkt. 47-6, ¶¶ 6, 8; Dkt. 48-6, ¶ 6]. Unbeknown to the Plaintiff, Smith did not file a
timely tax return for 2000 or 2001; instead, he filed those returns on February 2,
2003 on a form 4340 for 1040 taxes. [Dkt. 48-6, ¶ 6; Dkt. 48-4, Defendant’s Exhibit
1, Form 4340 for David R. Smith for 1040 taxes the tax period ended December 31,
2000; Dkt. 48-5, Defendant’s Exhibit 2, Form 4340 for David R. Smith for 1040
taxes the tax period ended December 31, 2001].
In early August 2001, while the divorce action was still pending, a lis pendens
was recorded by the Plaintiff on the Property pursuant to Connecticut law and
recorded in the Redding land records in volume 251, pages 949-950. [Dkt. 47-6, ¶
7; Dkt. 48-6, ¶ 7]. On March 3, 2003, a delegate of the Secretary of the Treasury
made an assessment against Smith for 1040 taxes for the tax period ending
December 31, 2000 in the amount of $95,304, and on March 10, 2003 another
assessment was made for the tax period ending December 31, 2001 in the amount
of $32,970. [Dkt. 47-6, ¶ 9; Dkt. 48-6; ¶ 9; Dkt. 48-4; Dkt. 48-5].
On July 15, 2003, the Regional Family Trial Court issued a Judgment of
Dissolution after a full hearing, dissolving the marriage of the Plaintiff and Smith.
[Dkt. 47-6, ¶ 11; Dkt. 48-6, ¶ 11; Dkt. 47-8, Plaintiff’s Exhibit 4]. Article 10 of the
Memorandum of Decision related to the dissolution judgment stated: “[b]y
judicial decree, [Smith’s] interest in the [Property] shall be transferred to the
[Plaintiff], and she shall be responsible for the first mortgage. She shall hold
[Smith] harmless and indemnified of the same. [The Plaintiff] shall be
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responsible for recording a certified copy of the dissolution of marriage judgment
on the Redding Land Records.” [Dkt. 47-8, p. 41, ¶ 10]. Article 11 stated that
Smith “is ordered to pay” $125,000 towards the Plaintiff’s legal fees and $65,500
for their minor child’s legal fees “due to his repeated contempt of court, the total
lack of credibility of his testimony regarding the couple’s finances, his
manipulation of family assets to put them beyond the reach of the court, his
repeated failures to comply with requests for the production of financial
documents, and his deliberate and intentional violation of the automatic orders
that prohibit the creation of debt during the course of dissolution proceedings.”
[Id. at p. 42, ¶ 11(a) and (c)]. The same article also provides that Smith “borrowed
against the 401K in the amount of $50,000. He has also paid his mother $60,000,
all without court order.” [Id. at p. 42, ¶ 11]. Finally, Article 13 provided that
[the Plaintiff] shall be only responsible for those
liabilities as reflected on her financial affidavit in her
name solely. [Smith] shall be responsible for all debts
on his financial affidavit, as well as all debts in his name
for which he could be liable, which are not yet reflected
as debts on his financial affidavit, particularly those
pertaining to taxes. [Smith] shall hold [the Plaintiff]
indemnified and harmless for the debts the court has
ordered him liable. This provision is in lieu of additional
spousal support and is intended to be nondischargeable in bankruptcy.
[Id. at p. 45, ¶ 13]. Accordingly, on August 14, 2003, a certified order by the
Superior Court conveying all rights and interests in the Property to the Plaintiff
was issued pursuant to Conn. Gen. Stat. § 46b-81(a), and was received for record
by the Town of Redding on August 20, 2003 and recorded in the land records in
volume 294, page 72. [Dkt. 47-8, Plaintiff’s Exhibit 5, Certified Order]. By August

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20, 2003, the Plaintiff received no notice of the assessments made against Smith
or the existence of any lien, nor did she receive a certificate of delinquency. [Dkt.
47-2, ¶ 22]. Accordingly, the Plaintiff did not appeal the judgment in her divorce
action. [Id. at ¶ 18].
On September 15, 2003, a Notice of Federal Tax Lien was recorded on the
Redding land records in volume 296, page 211, against Smith in the amounts of
$49,789.92 and $13,508.96 for the tax years 2000 and 2001, respectively, for a total
of $63,298.88. [Dkt. 47-4, Plaintiff’s Exhibit 6, Notice of Federal Tax Lien]. The
notice also lists Smith’s residence as 84 N. Salem Rd., Ridgefield, CT 06877, not
at the Property. [Id.].
On January 21, 2005, the Plaintiff entered into a mortgage contract with Argent
Mortgage Company, LLC (“Argent”), in the principal amount of $359,200, and on
January 26, 2005, a Commitment of Title Insurance letter was issued by
Connecticut Attorneys Title Insurance Company (“CATIC”) to the insured and
Argent evidencing clear title to the property. [Dkt. 47-4, Plaintiff’s Exhibit 7]. On
January 26, 2005, the Argent mortgage was recorded on the Redding land
records. [Dkt. 47-6, ¶ 20; Dkt. 48-6, ¶ 20].
The Plaintiff avers that she only became aware of the existence of the lien in
July 2009 when she conducted a title search for the Property as study practice for
the bar exam. [Dkt. 47-2, ¶ 25]. Yet, on March 12, 2009, CATIC reissued a
Commitment for Title Insurance, which included in an attached schedule, the
details of the federal tax lien on the Property. [Dkt. 47-4, Plaintiff’s Exhibit 9,
Commitment for Title Insurance Letter]. The Plaintiff avers that this letter was in
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response to her concern that a lien existed on the Property. She alleges that after
discovering the lien, she contacted CATIC and First American Title Insurers to
question them regarding the lien, but that both assured her that she had clear title
to the Property and that the federal lien did not attach to the Property under
Connecticut law. [Dkt. 47-2, ¶¶ 25-26].
Nearly two years later on May 9, 2011, John R. Mikalchus, an IRS staff Attorney
wrote an internal memorandum to Donald Angotta, Revenue Officer, regarding
whether “a transferee notice of federal tax lien should be filed against property
that was transferred to the taxpayer’s ex-wife pursuant to the divorce decree.”
[Dkt. 47-3, Plaintiff’s Exhibit 10, IRS Memorandum]. The memorandum cites the
relevant history discussed above and also states that “[o]n January 21, 2005,
Dyane refinanced the property for $359,200 with Argent Mortgage recording a lien
on the property. Dyane’s closing attorney informed her that the Connecticut
Attorneys Title Insurance Company issued a title insurance policy on the property
to the lender indicating that the title was clear.” [Id.]. “On May 5, 2010,
Mortgagesmith, LLC conveyed the property back to Dyane. Property records
indicate that [the Property] has been appraised at $759,200, while www.zillow.com
estimates the value at $573,000. In the meantime, the IRS has placed David into
currently not collectible status.” [Id.]. The memorandum goes on to state that
“[t]he revenue officer has determined that, at the time of the transfer, the property
was worth approximately $517,000 . . . [and t]he revenue officer has examined all
liens recorded against the property and determined that the only encumbrance
was a mortgage recorded on April 28, 1997 by Savings Institute bank & Trust in

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the amount of $380,000.” [Id.]. In a footnote to the provision related to the
mortgage amount, the memorandum states that “[w]ith six years of payments on
this mortgage, the balance would presumably have been reduced to less than
$380,000 at the time of the transfer. A decision was made not to issue a
summons for the exact balance at the time of the transfer due to the likelihood
that this would trigger litigation involving a petition to quash by either David
Smith or Dyane Smith.” [Id.]. Even though the legal analysis in the memorandum
found that the federal lien attached to the Property before the transfer, it
ultimately recommended that
the present notice of federal tax lien filed in David’s
name does not provide sufficient notice to third parties
of the IRS lien attached to the property. As a result, we
recommend that a notice of transferee lien be filed with
respect to the property with the following language on
the notice next to the “Name of Taxpayer” . . . “Dyane V.
Smith, transferee and/or nominee of David R Smith.”. . .
Under the list of the tax liabilities, the lien should also
state . . . “This lien attaches to the property located at 24
Ridgewood Drive, Redding, Connecticut.”
[Id.]. However, this recommendation is tempered by the later legal conclusion
that the Internal Revenue Code only requires that notice be provided to the liable
taxpayer, here David Smith. [Id.].
After receipt of this memorandum, on July 1, 2011, a letter signed by Angotta
was issued, claiming that the Plaintiff is the nominee or alter ego of Smith. [Dkt.
47-6, ¶ 25; Dkt. 48-6, ¶ 25]. On June 13, 2011, a Notice of Federal Tax Lien was
recorded in the Redding land records against the Plaintiff as “transferee and/or
nominee of David R. Smith” in the amount of $20,849.41 for tax year 2000 and
$15,541.33 for tax year 2001, totaling $36,390.74, but the notice erroneously lists
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the Plaintiff’s residence as “84 North Salem Rd., Ridgefield, Connecticut” and
contains no language stating that the lien attaches to the Property. [Dkt. 47-6, ¶
2[6]; Dkt. 48-6, ¶ 26]. On July 28, 2011, the Plaintiff, through counsel, submitted a
Request for Collection Due Process Appeal to the IRS. [Dkt. 47-6, ¶ 2[7]; Dkt. 486, ¶ 27]. The Plaintiff avers that since 2000, she has had sole ownership of the
Property and has resided there with her son. [Dkt. 47-2, ¶ 3]. She also avers that
she maintains her home law office out of the Property and has made investments
to the Property of over $300,750.00, based on her monthly mortgage payments,
not including expenditures for improvements. [Id. at ¶¶ 5, 28].
Subsequent to that administrative appeal, the Plaintiff filed the present action
against the Defendant. The Defendant counterclaimed against the Plaintiff and
cross-claimed against Smith, Argent, Jowdy and Jowdy, and the Town of
Redding. Default entry pursuant to Fed. R. Civ. P. 55(a) and default judgment
pursuant to Fed. R. Civ. P. 55(b) were entered against Smith in the amount of
$66,987.63, plus interest and other statutory accruals after October 24, 2012.
[Dkt. 27]. The Town of Redding, having pled that it had no interest in the Property
as all municipal taxes have been paid, was excused from the case. [Dkt. 35]. The
Defendant further moved for an entry of judgment pursuant to Fed. R. Civ. P.
54(b) as to Smith so that it could “engage in post-judgment discovery against Mr.
Smith in order to determine if there are alternative sources of collection of the
judgment other than the potential judicial sale of the real property which is the
subject of ongoing litigation concerning plaintiff’s quiet title action.” [Dkt. 37].
That motion was denied without prejudice to refiling, however, due to a

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scrivener’s error in the Defendant’s motion and proposed order, but the
Defendant never refiled its request for an entry of judgment. [Dkt. 44]. These
motions for summary judgment followed.
III.

Legal Standard

Summary judgment should be granted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as
a matter of law.” Fed. R. Civ. P. 56(a). The moving party bears the burden of
proving that no factual issues exist. Vivenzio v. City of Syracuse, 611 F.3d 98,
106 (2d Cir. 2010). “In determining whether that burden has been met, the court is
required to resolve all ambiguities and credit all factual inferences that could be
drawn in favor of the party against whom summary judgment is sought.” Id.
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91
L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 587, 106 S. Ct. 1348, 89 L.Ed.2d 538 (1986)). “If there is any evidence in the
record that could reasonably support a jury's verdict for the nonmoving party,
summary judgment must be denied.” Am. Home Assurance Co. v. Hapag Lloyd
Container Linie, GmbH, 446 F.3d 313, 315–16 (2d Cir. 2006) (citation and internal
quotation marks omitted).
“A party opposing summary judgment cannot defeat the motion by relying on
the allegations in his pleading, or on conclusory statements, or on mere
assertions that affidavits supporting the motion are not credible. At the summary
judgment stage of the proceeding, Plaintiffs are required to present admissible
evidence in support of their allegations; allegations alone, without evidence to
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back them up, are not sufficient.” Welch–Rubin v. Sandals Corp., No.
3:03cv481(MRK), 2004 WL 2472280, at *1 (D. Conn. Oct. 20, 2004) (internal
quotation marks and citations omitted); Martinez v. Connecticut, No.
3:09cv1341(VLB), 2011 WL 4396704, at *6 (D. Conn. Sept. 21, 2011). Where there
is no evidence upon which a jury could properly proceed to find a verdict for the
party producing it and upon whom the onus of proof is imposed, such as where
the evidence offered consists of conclusory assertions without further support in
the record, summary judgment may lie. Fincher v. Depository Trust and
Clearance Co., 604 F.3d 712, 720 (2d Cir. 2010).
A. Due Process
The Plaintiff first argues that she was denied her due process rights as
protected by the Fifth Amendment because she was never given notice of the
existence of the lien prior to entry of the divorce judgment. [Dkt. 47-1, Plaintiff
and Counterclaim Defendant’s Memorandum in Support of her Motion for
Summary Judgment, p. 3-4]. The Defendant argues that it gave the requisite
notice to Smith and that it was not required to provide another notice. [Dkt. 48-1,
Defendant and Counterclaim Plaintiff United States of America’s Cross-motion for
Summary Judgment, p. 16-17].
The Fifth Amendment of the United States Constitution requires that no
person “be deprived of life, liberty, or property, without due process of law . . . .”
U.S. Const. amend. V. The statutory notice requirement related to tax
assessments states that the Secretary shall, “as soon as practicable, and within
60 days, after the making of an assessment of a tax pursuant to section 6203,
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give notice to each person liable for the unpaid tax, stating the amount and
demanding payment therefor. Such notice shall be left at the dwelling or usual
place of business of such person, or shall be sent by mail to such person’s last
known address.” 26 U.S.C. § 6303(a). Furthermore, “[n]o levy may be made on
any property or right of any person unless the Secretary has notified such person
in writing of their right to a hearing under this section before such levy is made.
Such notice shall be required only once for the taxable period to which the
unpaid tax” relates. 26 U.S.C. § 6330(a)(1). Finally, to effectuate a lien “[i]n the
case of real property,” the lien shall be filed “in one office within the State . . . as
designated by the laws of such State, in which the property subject to the lien is
situated.” 26 U.S.C. § 6323(f)(1)(A)(i). Under Connecticut law, “[n]otices of liens
upon real property for taxes payable to the United States and notices of liens
upon real property for costs and damages payable to the United States, and
certificates and notices affecting such liens shall be filed in the office of the clerk
of the town in which the real property subject to a federal tax lien or other federal
lien is situated.” Conn. Gen. Stat. § 49-32a. Pursuant to these statutes, the IRS is
only statutorily required to provide notice to the person liable for the tax once
during a taxable period and must file any lien on real property in Connecticut in
the office of the clerk of the town in which the property sits.
Here, notice was only statutorily required to be given to Smith as he was the
liable taxpayer. The Plaintiff’s argument that the IRS violated her due process
rights by not providing her notice as a non-liable third party before the transfer of
the Property does not stem from any statutory obligation. The Plaintiff,

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furthermore, cites no authority for her position. In fact, her only support for her
claim is the IRS Memorandum, which recommended providing third parties with
notice of the lien. Even though the Memorandum stated “the present notice of
federal tax lien filed in David’s name does not provide sufficient notice to third
parties of the IRS lien attached to the property,” it goes on to state that “the only
person entitled to notice in the present case is David, since he is the only one
liable for the tax.” [Dkt. 47-3]. Therefore, the Plaintiff does not have standing to
allege that she received improper notice in violation of her due process rights
because she was not the party that was liable for the tax. Indeed, the lien that
attached to the Property did not attach to any interest held by the Plaintiff, it
attached to Smith’s property interest that was subsequently transferred to the
Plaintiff.
Aside from statutory due process, courts have also held that constitutional
due process is protected when a property owner has the ability to contest and
challenge the validity of the lien at some point before a foreclosure or levy action.
In Myers v. United States, the Fifth Circuit held that the third-party transferee’s
due process rights were not violated when the transferee had the ability to
contest the validity of the levy, even though he did not have the ability to contest
the underlying assessment of the tax liability placed on the first owner. Myers v.
United States, 647 F.2d 591, 603-604 (5th Cir. 1981); see also In re Wren Alexander
Invs., LLC, No. 08-52914(RBK), 2011 WL 748131, at *4-5 (Bankr. W.D. Tex. Feb. 23,
2011) (no due process problems when post-transfer IRS procedures allow the
new property owner to contest the validity of the lien even though the owner

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could not contest the amount of the assessment), aff'd sub nom., 530 F. App'x
302 (5th Cir. 2013).
The Sixth Circuit also quickly dismissed the contention that “due process
requires a hearing prior to the imposition of a nominee tax lien” as being “clearly
foreclosed by nearly 100 years of precedent holding that the ‘pay first, sue later’
principle embodied in the Internal Revenue Code is constitutional.” Morris v.
United States, 540 F. App’x 477, 479 (6th Cir. 2013) (citing Dodge v. Osborn, 240
U.S. 118, 122 (1916); Phillips v. Comm’r of Internal Revenue, 283 U.S. 589, 595
(1931); Bob Jones Univ. v. Simon, 416 U.S. 725, 746-48 (1974); G.M. Leasing Corp.
v. United States, 429 U.S. 338, 352 n.18 (1977)). In so holding, the court was
referencing the decision from the district court in which the district court stated
the “imposition of a federal tax lien without prior notice or process does not
violate the Fifth Amendment.” Morris v. United States, 889 F. Supp. 2d 1010, 1012
(N.D. Ohio 2012), vacated on other grounds, 540 F. App’x 477. Therefore, as these
authorities make clear, the Plaintiff’s due process rights were protected as long
as she was able to challenge the validity of the lien. Since the Plaintiff’s property
was not foreclosed and will not be until a judgment of this Court is issued, her
due process rights have been protected.
Furthermore, the Plaintiff cannot argue that she was denied due process
because she was not given sufficient notice of the lien. She was given notice of
the lien in July 2011, well before any foreclosure action commenced, and “[a]ctual
notice of the commencement of the proceeding is all due process require[s].”
Weigner v. City of New York, 668 F. Supp. 135, 138 (E.D.N.Y. 1987), aff'd, 852 F.2d
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646 (2d Cir. 1988). Given the 2011 notice, she was permitted to file an
administrative appeal with the IRS and has now been able to file this quiet title
action. While the imposition of the lien was an inconvenience, its existence did
not create or deprive the Plaintiff of any property interest, only a final judgment of
this Court as related to the foreclosure action can do that. Therefore, there has
not yet been a deprivation of property. It appears that the Plaintiff’s due process
argument is really that she “waived her fundamental due process right to appeal
the [divorce judgment] because she lacked notice that this ‘secret’ creditor would
someday come knocking at her door.” [Dkt. 51, Plaintiff’s Memorandum in
Opposition to Defendant’s Cross Motion for Summary Judgment, p. 15].
However, the Fifth Amendment protects the deprivation of property without the
due process of law. An appeal from a divorce decree is not a property right, and,
therefore, the Fifth Amendment is really inapplicable to the Plaintiff’s argument.
Moreover, nothing prevented the Plaintiff from appealing the divorce judgment;
she merely chose not to. Accordingly, the Court finds that the Defendant gave
the notice as required under the relevant statutes, and the Plaintiff’s
constitutional due process rights have been protected because no deprivation of
any property right has occurred and will not occur until after this Court renders a
judgment in this action.
B. The Validity of the 2003 Lien
The Plaintiff next argues that the 2003 lien was invalid because Smith had no
identifiable interest in the Property at the time the assessments were made
because the Property was conveyed to her before the tax lien was recorded in the
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Redding land records, and the lis pendens, filed in 2001, was effective from that
date given the divorce decree. [Dkt. 47-1, p. 4-10]. The Defendant argues that the
lis pendens was inchoate until judgment was entered in the divorce action, so
Smith’s property interest was not dissolved until July 2003. [Dkt. 48-1, p. 19-20].
“If any person liable to pay any tax neglects or refuses to pay the same after
demand, the amount . . . shall be a lien in favor of the United States upon all
property and rights to property, whether real or personal, belonging to such
person.” 26 U.S.C. § 6321. Furthermore, “[u]nless another date is specifically
fixed by law, the lien imposed . . . shall arise at the time the assessment is made
and shall continue until the liability for the amount so assessed . . . is satisfied.”
26 U.S.C. § 6322; United States v. McCombs, 30 F.3d 310, 321 (2d Cir. 1994) (“A
lien imposed pursuant to section 6321, moreover, is deemed to arise at the time
that the assessment is made and continues until the amount of liability set forth
in the assessment is satisfied.”). Here, a federal tax was assessed against Smith
on March 3, 2003 and March 10, 2003 for the taxes owed for the 2000 and 2001
taxable years respectively. Pursuant to the statute, the lien attached to Smith’s
interest in the Property at the date of those assessments.
However, the imposition of a tax lien must be limited to the actual property
interest of the taxpayer then existing because a federal tax lien itself “creates no
property rights but merely attaches consequences, federally defined, to rights
created under state law.” United States v. Bess, 357 U.S. 51, 55 (1958).
Therefore, the question as to whether Smith had an interest in the Property on
March 3, 2003 and March 10, 2003 is determined by looking to Connecticut state
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law. See Aquilino v. United States, 636 U.S. 509, 512-513 (1960); United States v.
110-118 Riverside Tenants Corp., 886 F.2d 514, 518-19 (2d Cir. 1989) (“Whether
Broady had a property interest when the Government filed its lien is a question of
state law.”).
The Plaintiff and Smith acquired the Property by warranty deed on July 28,
1993 and held such property until title was conveyed to the Plaintiff by the
divorce judgment dated July 15, 2003. The judgment was further recorded at the
Office of the Town Clerk in Redding on August 20, 2003. Therefore, it appears
that Smith had an interest in the Property until July 15, 2003. However, the tax
assessments occurred in March 2003 and were recorded in September of that
year. “A federal tax lien, described as a ‘secret lien’ . . . is effective upon
assessment against all persons, even in the absence of recordation of the lien.”
Don King Prod., Inc. v. Thomas, 945 F.2d 529, 533 (2d Cir. 1991) (citing United
States v. Sec. Trust & Sav. Bank of San Diego, 340 U.S. 47, 53 (1950) (Jackson, J.,
concurring); Rice Inv. Co. v. United States, 625 F.2d 565, 568 (5th Cir. 1980)); see
also United States v. Vermont, 377 U.S. 351, 355 (1964) (“The federal tax liens are
general and, in the sense above indicated, perfected.” (citations and internal
quotation marks omitted)). Therefore, it is clear that if Smith had an interest in
the Property, the lien would have attached to that interest in March 2003, well
before the judgment in the divorce action was issued and the lien was actually
recorded.
The Plaintiff argues that the lis pendens filed in 2001 worked to prevent the
imposition of the lien because the ultimate divorce judgment relates back to the
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lis pendens and gives effect to its terms the date it was filed. Indeed, lis pendens
are an important component of divorce proceedings because, as the Plaintiff
correctly points out, they provide notice to all other third parties that obtaining an
interest in any property on which a lis pendens notice is made is done at the third
party’s own “peril.” Ghent v. Meadowhaven Condo., Inc., 77 Conn. App. 276, 284
(Conn. App. 2003). However, “[g]enerally, a notice of lis pendens is simply a
notice that, when properly recorded, warns third parties, such as prospective
purchasers, that the title to the property is in litigation.” Id. “Clearly the placing
of a notice of lis pendens on the land records does not deprive the property
owner of his right to occupy and use the land in question. Just as clearly,
however, a notice of lis pendens does interfere with an owner’s right to sell or
mortgage his real estate. Kukanskis v. Griffith, 180 Conn. 501, 509 (1980). Yet,
[w]hile the notice may have an effect on the defendant’s
ability to alienate the property, the defendant is not
prevented from doing so. As Chief Justice Rehnquist
noted, “[T]he filing of such notice will have an effect
upon the defendant’s ability to alienate the property, or
to obtain additional security on the basis of title to the
property, but the effect of the lis pendens is simply to
give notice to the world of the remedy being sought in
the lawsuit itself. The lis pendens itself creates no
additional right in the property on the part of the
plaintiff, but simply allows third parties to know that a
lawsuit is pending in which the plaintiff is seeking to
establish such a right.”
Wallingford Staffordshire Commons Ass’n, Inc. v. Staffordshire Assocs., 42 Conn.
Supp. 241, 249-50, 615 A.2d 188, 193 (Conn. Sup. Ct. 1992) (quoting Connecticut
v. Doehr, 501 U.S. 1, 29 (1991) (Rehnquist, C.J., concurring)). Therefore, the

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reason that the third party operates at his own “peril” is because the property
interest may or may not be later defined to negatively affect his purchase.
The United States Supreme Court has consistently held that under federal law,
the rights established by a lis pendens, even though they may relate back to the
date of the filing, are not perfected until the date of judgment. For example, in
United States v. Sec. Trust & Sav. Bank, the Court noted that
[t]he attachment lien gives the attachment creditor no
right to proceed against the property unless he gets
judgment within three years or within such extension as
the statute provides. Numerous contingencies might
arise the [sic] would prevent the attachment lien from
ever becoming perfected by a judgment awarded and
recorded. Thus the attachment lien is contingent or
inchoate—merely a lis pendens notice that a right to
perfect a lien exists.
Sec. Trust & Sav. Bank of San Diego, 340 U.S. at 50; United States v. Vermont, 377
U.S. at 351 (repeating the same). The Supreme Court of Connecticut has also
agreed in stating that “the filing of the state’s liens pursuant § 17-82c did not
create liens that were, in advance of foreclosure proceedings, choate as a matter
of federal law. Such liens amounted to no more than ‘a lis pendens notice that a
right to perfect a lien exists.’ . . . Because the state’s liens were still inchoate
according to federal law at the time when the federal tax liens arose, the federal
liens were entitled to priority in this case.” Danbury Sav. & Loan Ass’n, Inc. v.
Delaney, 207 Conn. 743, 754-55 (1988).
Accordingly, the lis pendens, when filed, was inchoate as a matter of federal
law because it only served as a notice that a right to the Property might at some
future point be redefined. While third parties may be liable for damages if
18

acquiring the property after the notice has been filed, no definite change in
property interest occurs until the date of judgment. Since the lis pendens was
not perfected, it cannot defeat a federal tax lien that attached after the date of the
notice but before the date of the judgment which rendered the lis pendens
“choate.” See U.S. v. 110-118 Riverside Tenants Corp., 886 F.2d 514, 518 (2d Cir.
1989) (for a state lien to take priority over a federal lien, the state lien must have
been perfected). Here, the Plaintiff filed the notice of lis pendens in 2001, well
before the tax assessments in March 2003, but that notice was not perfected until
the judgment in the divorce action was entered in July 2003. Therefore, Smith
had an interest in the Property at the time of the tax assessments, and the lien
attached immediately because federal tax liens are perfected at the time of
assessment. The filing of the lis pendens notice did not affect the validity of the
federal lien or Smith’s interest in the Property.
Even so, the Plaintiff argues that several Supreme Court precedents support
her contention that Connecticut’s law on lis pendens should prevent the
application of the federal superiority rule. For example, she cites Comm’r v.
Stern, in which the Supreme Court held that a widow beneficiary of her deceased
husband’s insurance policy was not liable for his unpaid income tax deficiencies
because state statutes determining liability governed the issue, and Kentucky
law, which was applicable to the case, imposed no liability upon the beneficiary
of a decedent’s life insurance policy to the insured’s creditors absent a finding of
fraud. Comm’r v. Stern, 357 U.S. 39, 46-47 (1958). This case is not really related
to the issue before this Court. In Stern, the Court was interpreting the

19

applicability of a procedural collection statute when no federal tax liability was
actually imposed against the beneficiary. Id. at 47. The Court specifically stated
that “[w]e agree that state law may not destroy a tax lien which has attached in
the insured’s lifetime.” Id. Here, we are looking to Connecticut law only to
determine the nature of Smith’s interest in the Property at the time of the
assessments. Since the “tax collector steps into the taxpayer’s shoes,” the only
question here is whether at that point, Smith had any interest in the Property.
United States v. Gibbons, 71 F.3d 1496, 1501 (10th Cir. 1995). Since we found that
his property interest existed until July 2003, the lien attached to his share of the
Property before conveyance of that interest to the Plaintiff.
Finally, the Plaintiff argues that if this Court were to permit the enforcement of
the lien even though the Superior Court was unaware of its existence, we would
be permitting federal law to redefine the distribution of marital property rights in a
dissolution action, a domain exclusive preserved for the states. [Dkt. 47-1, p. 710]. The Plaintiff argues that the divorce judgment, which was rendered by the
state without notice of the existing federal tax lien, would be attacked by
enforcement of the lien because the state court was unable to weigh properly that
liability in determining how to divide the marital assets. The Defendant does not
contest that the State of Connecticut has the power to determine property rights
with respect to the dissolution of marriages. Furthermore, it does not contest
that the divorce judgment is a valid exercise of state law, and the conveyance of
the property in July 2003 operated to divest any interest in the Property held by
Smith as of that date.

20

Before addressing the legal merits of the Plaintiff’s position, it is not clear
from the record that the state court failed to consider the possibility of a secret
tax lien when dividing the marital estate. The judgment states that Smith was
required to pay legal fees due to his “repeated contempt of court, the total lack of
credibility of his testimony regarding the couple’s finances, his manipulation of
family assets to put them beyond the reach of the court, his repeated failures to
comply with requests for the production of financial documents, and his
deliberate and intentional violation of the automatic orders that prohibit the
creation of debt during the course of dissolution proceedings.” [Dkt. 47-8, ¶ 11a].
Moreover, the decree stated “[Smith] shall be responsible for all debts on his
financial affidavit, as well as all debts in his name for which he could be liable,
which are not yet reflected as debts on his financial affidavit, particularly those
pertaining to taxes.” [Id. at p. 45, ¶ 13]. Clearly, the judge was aware of the
possibility that there could be unknown tax and other liabilities. While, the
Plaintiff accurately states that the divorce judgment was crafted without notice of
this particular lien, Smith’s unethical behavior put the judge on notice of that
exact possibility.
As related to the legal merits, the Plaintiff cites two authorities from
neighboring circuits as support for her position that the conveyance of Smith’s
interest in the property related back to the date her divorce proceeding was filed.
In Gardner v. United States, the Tenth Circuit denied imposition of a federal tax
lien when the assessment was made after the filing of the divorce action.
Gardner v. United States, 34 F.3d 985,988-89 (10th Cir. 1994). However, the court

21

relied on a Kansas-specific approach to property rights in divorce actions, which
are deemed “vested on the date the divorce petition was filed.” Id. at 988.
Therefore, the court reasoned that because property rights in Kansas are vested
from the moment the divorce action is filed, not when judgment is rendered, any
assessment would need to be performed before the filing of the divorce action to
exist as a lien on property later divested from the liable tax payer. Id. at 988-89.
The Plaintiff, however, cites no support that Connecticut law treats divorce
actions similarly. Conversely, in Connecticut, it is the “entering” of “a decree
annulling or dissolving a marriage” that vests the property interests of the
parties. Conn. Gen. Stat. § 46b-81(a). Indeed, “[t]he court may pass title to real
property to either party or to a third person or may order the sale of such real
property, without any act by either spouse, when in the judgment of the court is it
the property mode to carry the decree into effect.” Id. Furthermore, “[a]
conveyance made pursuant to the decree shall vest title in the purchaser, and
shall bind all persons entitled to life estates and remainder interests in the same
manner as a sale ordered by the court . . . .” Id. at 46b-81(b) (emphasis added).
Given the language of the statutes, it is clear that Connecticut treats property
rights differently than Kansas. Instead of automatically vesting property rights at
the time of filing a dissolution action, Connecticut permits the use of prejudgment
remedies such as attachment and lis pendens to secure property interests, but,
unlike in Kansas, those rights are not perfected until entry of judgment in the
action. Gardner, therefore, does not stand for the sweeping proposition asserted
by the Plaintiff.

22

Moreover, in the second case cited by the Plaintiff, the assessment was made
after entry of the divorce decree; so the issues before the court were the
interpretation of the provisions in the decree and the application of Idaho’s
recording statutes, not the timing of the imposition of the liens. See Filicetti v.
United States, No. 1:10-cv-00595(EJL), 2012 WL 602717, at *3-4 (D. Idaho Feb. 23,
2010). In short, the Plaintiff has cited no authority for the proposition that
enforcing a federal tax lien would limit or otherwise attack the state’s power in
dividing marital assets pursuant to dissolution actions. This Court finds that its
role is to determine the state of Smith’s interest in the Property at the time of the
assessments pursuant to Connecticut law. Since the divorce judgment was
entered after the assessments and since the lien was perfected on Smith’s
interest in the Property at the moments of assessment, the lien is valid. Neither
subsequent conveyance, even without notice of the lien, nor a prior lis pendens
affects its validity. See Bess, 357 U.S. at 57 (“The transfer of property
subsequent to the attachment of the lien does not affect the lien, for it is the very
nature of the lien, that no matter into whose hands the property goes, it passes
cum onere.”).
C. Exceptions Requiring Notice
As discussed above, the relative priority of tax liens is governed by federal
law, but where “the priority of a federal tax lien is challenged by a subsequent
purchaser and/or the holder of a security interest in the encumbered property . . .
the relative priority of the interests is controlled by 26 U.S.C. § 6323.” McCombs,
30 F.3d at 321. 26 U.S.C. § 6323(a) provides that a federal tax lien “shall not be
23

valid as against any purchaser, holder of a security interest, mechanic’s lienor, or
judgment lien creditor until notice thereof . . . has been filed by the Secretary.”
Therefore, if the Plaintiff falls into one of the statutory exceptions to the
automatic imposition of the lien without prior notice, then the lien is invalid. The
Plaintiff argues that she was a “purchaser” as defined in the statute. [Dkt. 47-1, p.
10-14]. The Defendant argues, however, that the Plaintiff is not a purchaser, and,
therefore, no notice exception applies. [Dkt. 48-1, p. 11-13].
The term “‘purchaser’ means any person who, for adequate and full
consideration in money or money’s worth, acquires an interest (other than a lien
or security interest) in property which is valid under local law against subsequent
purchasers without actual notice.” 26 U.S.C. § 6323(h)(6). The regulations
promulgated pursuant to that section describe “adequate and full consideration”
as consideration that “bears a relationship to the true value of the interest in
property acquired.” 26 C.F.R. § 301.6323(h)-1(f)(3). The regulations further
provide that “[a] relinquishment or promised relinquishment of . . . marital rights
is not a consideration in money or money’s worth.” 26 C.F.R. § 301.6323(h)1(a)(3). However, courts have held that waivers of certain rights, such as
alimony, can constitute adequate consideration. See United States v. Brynes, 848
F. Supp. 1096, 1098 (D.R.I. 1994); Moroch v. United States, 647 F. Supp. 2d 137,
141 (D. Conn. 2009). Even so, considering that the statute requires adequate and
full consideration, which has been interpreted to require a relationship to the true
value of interest in the property acquired, courts “have required that the
consideration and property value in this equation be relatively close.” United

24

States v. McCombs, 928 F. Supp. 261, 268 (W.D.N.Y. 1995) (citing United States v.
Carson, 741 F. Supp. 92, 95 (E.D. Pa. 1990) (taxpayer's daughter did not qualify as
a “purchaser” where the $1.00 she gave as consideration for the repurchase of
three properties from the taxpayer was not “adequate and full consideration”);
STV Engineers, Inc. v. Ash, 1986 WL 3862, 57 A.F.T.R.2d at 86–1141, 86–1 U.S.T.C.
¶ 9352 (dictum) (purchase of annuity by transferee from taxpayer was not for
“adequate and full consideration” as a matter of law where under transferee's
calculation of annuities' value, value of annuity acquired was 25% more than the
value of the consideration given); United States v. Mac Cement Finishing Corp.,
546 F. Supp. 52, 53 (N.D.N.Y. 1982) (consideration given in the form of cash and
an assumption of a mortgage for the acquisition of taxpayer's property that was
only forty-five percent of the property's fair market value was not “adequate and
full consideration”); United States v. Paladin, 539 F. Supp. 100, 103 (W.D.N.Y.
1982) (“[b]ecause the assignment of the insurance proceeds ... was supported by
consideration in the amount of only one dollar, it was not supported by adequate
and full consideration”); Dist. Divine Sci. Church of Allen Cnty. v. United States,
80–1 U.S.T.C. ¶ 9119, 1979 WL 1523 (N.D. Ind. Dec. 4, 1979) (consideration in the
form of a mortgage assumption worth $42,794.19 in exchange for a purchase of
property worth at least $59,000 was not adequate and full consideration)).
Accordingly, this Court must compare the value of the consideration given for the
Property and the true value of the Property to see whether they are comparable.
The Plaintiff relies on a case from this district in which the court held that a
non-liable third party divorcee was a “purchaser” when she waived past due

25

support payments totaling $166,467 for a ten percent interest in net proceeds
from any future sale of real property valued at $1,480,700 that was conveyed to
her pursuant to the divorce decree. Moroch, 647 F. Supp. 2d at 142.
Here, the Plaintiff alleges that she waived her right to alimony payments in
receipt of the Property just as in Moroch, so she should be deemed a purchaser.
As a preliminary matter, Plaintiff cites no law entitling her to alimony. Instead, she
cites the paragraph in the divorce judgment which states that
[t]he [Plaintiff] shall be responsible only for those
liabilities as reflected on her financial affidavit in her
name solely. [Smith] shall be responsible for all debts
on his financial affidavit, as well as all debts in his name
for which he could be liable, which are not yet reflected
as debts on his financial affidavit, particularly those
pertaining to taxes. [Smith] shall hold the [Plaintiff]
indemnified and harmless for the debts the court has
ordered him liable. This provision is in lieu of additional
spousal support and is intended to be nondischargeable in bankruptcy.
[Dkt. 47-8, ¶13]. It is true that the judgment provides that Smith will be liable for
his debts and that the court took his debts into consideration in determining not
to award extra alimony, aside from what was otherwise provided. However, there
is no evidence explaining why the court ruled as it did. In fact, in view of Smith’s
conduct during the course of the proceeding, the court may have considered an
award of extra alimony as futile.
Even assuming Plaintiff was entitled to more alimony and the conveyance was
intended to offset that right, the court did not quantify the amount of alimony the
conveyance offset. In Moroch, the court explicitly compared the amount of past
alimony payments due and the value of the interest obtained by the ex-wife,
26

finding that “[i]n effect, she exchanged one chose in action worth $166,467 for
another worth approximately $148,070. In doing so, she provided adequate
consideration for the conveyance by” the ex-husband. Moroch, 647 F. Supp. 2d
at 142. While the Plaintiff is correct that you need not wait until the support
payments are in arrears to waive them in order to become a purchaser, the
amount of the waived support or alimony must be definite enough to permit the
court to engage in the type of comparison required by the statute and its
regulations. Since the Plaintiff nowhere cited to any specific amount that was
waived, it is impossible for the Court to determine if the true value of the Property
was comparable to the consideration given.
Furthermore, at issue here is whether the Plaintiff is a purchaser of the
Property. The provision related to divorcing couple’s debts was made “in lieu of
additional spousal support . . . .” As related to the Property, the divorce judgment
only states that it is conveyed to the Plaintiff, and she shall be responsible for the
mortgage; it nowhere states that the Property was conveyed to the Plaintiff in lieu
of extra support payments.
The Plaintiff argues that “[o]ne element that the State Court was obligated to
consider prior to rendering its financial order was the ‘particular debt’ to the
Plaintiff that arose when Mr. Smith unauthorizedly [sic] took $110,000.00—a
‘readily ascertainable dollar value’—from the family’s account in violation of
automatic orders. . . . As cancellation of the $110,000.00 debt the Court
substituted an equivalent in money’s worth—the equity in the Property—
amounting to $137,000 thus mooting the Plaintiff’s need to exercise her legal right
27

to recover those funds.” [Dkt. 51, p. 13]. If this claim were substantiated
anywhere in the divorce judgment, the Plaintiff could have a strong argument that
she is a purchaser as defined in the statute. Unfortunately, the judgment and
record presented to this Court in no way corroborate the Plaintiff’s claim that the
Property was awarded to her as compensation for Smith’s fraudulent
conveyance. Moreover, as discussed above, it seems that the language of the
judgment itself contradicts this reading because the provision related to the
Property does not discuss Smith’s debts or his fraudulent behavior. Those
issues are discussed in the section awarding legal fees and indemnification from
his unknown debts. Regardless, the Plaintiff has not provided a definite amount
of spousal support that she waived in order to receive Smith’s interest in the
Property, so the Court is unable to determine if the Property was acquired for
adequate and full consideration. Accordingly, she cannot be a purchaser as
defined in the statute.
D. Validity of the 2011 Lien
Even though the Defendant sent “Notice of Federal Tax Lien Filing—Nominee
or Alter-Ego” to the Plaintiff in July 2011, the Defendant claims that it “does not
suggest that [the Plaintiff] is a nominee or alter ego of Mr. Smith as those terms
are defined in law. Moreover, the use of the term ‘transferee’ on the [notice] does
not imply that the government considers the conveyance of the Property to [the
Plaintiff] a fraudulent transfer.” [Dkt. 48-1, p. 21]. Furthermore, “[t]he 2011
[notice], which identified [the Plaintiff] as a nominee and/or transferee of Mr.
Smith, imposed no separate personal liability on [the Plaintiff], nor does the
28

United States assert that any other assessment of such liability has been made.
Rather, the second [notice], which identified only the liabilities assessed against
Mr. Smith on March 3, 2003 and March 10, 2003, was filed purely to provide record
notice of the United States’ continuing claim to the Property.” [Id.]. Accordingly,
there is no 2011 lien and no claim made by the Defendant against the Plaintiff as
to her individual personal liability aside from that as related to the 2003 lien.
E. Foreclosure
Pursuant to 26 U.S.C. § 7403, the United States may enforce tax liens through
the forced sale of residential property owned by a party other than the liable
taxpayer as long as the non-liable third party is compensated for his or her
interest in the property. See United States v. Rodgers, 461 U.S. 677, 680 (1983);
see also Celauro v. U.S. I.R.S., 411 F. Supp. 2d 257, 264-65 (E.D.N.Y. 2006) (“After
notice and an opportunity to be heard under § 6330, a District Director of the IRS
is empowered to collect the assessed tax by levy and sale of all property, or
rights to property, of the delinquent person or any property on which there is a
lien for payment of tax.”), aff’d sub nom, 214 F. App’x 95 (2d Cir. 2007); United
States v. Allen, No. CivB-86-210(WWE), 1989 WL 91137, at *3 (D. Conn. June 12,
1989). That power, however, is subject to the Court’s limited equitable discretion.
Rodgers, 461 U.S. at 709. While the policy behind the statute favors the “prompt
and certain collection of delinquent taxes,” the Supreme Court noted that nonliable third parties may be unfairly harmed by foreclosure on real property and
that “financial compensation may not always be a completely adequate substitute
for a roof over one’s head.” Id. at 704 (citing United States v. 564.54 Acres of
29

Land, 441 U.S. 506, 510-13 (1979)). The Supreme Court provided a nonexhaustive list of factors that district courts should consider in determining
whether to order a forced sale of property: (1) the likely financial prejudice to the
government if it were unable to sell the entire property to satisfy the judgment; (2)
whether the non-liable spouse would normally (without regard to § 7403 or other
eminent domain proceedings) have a legally recognized expectation that the
property would not be subject to a forced sale by the delinquent taxpayer or his
creditors; (3) the likely prejudice to the non-liable party; and (4) the relative
character and value of the non-liable and liable interests in the property. Id. at
710-11; United States v. Anderson, No. 08-cv-6426(MAT), 2010 WL 5072958, at *2
(W.D.N.Y. Dec. 10, 2010) (citing the same); see also In re Persky, 893 F.2d 15, 21
(2d Cir. 1989) (citing Rogers as a comparison for factors to consider when
weighing detriment to a non-debtor spouse in a bankruptcy proceeding). Even
though these factors should not be used “as a ‘mechanical checklist’ to the
exclusion of common sense and consideration of special circumstances . . ., the
limited discretion accorded by § 7403 should be exercised rigorously and
sparingly, keeping in mind the Government’s paramount interest in prompt and
certain collection of delinquent taxes.” Rodgers, 461 U.S. at 711.
i. Financial Prejudice to the Government
“Courts have held, and common sense dictates, that the sale of a partial
interest in property, particularly where the remaining interest is held by someone
who resides at the property, will generally yield less than if entire property is
sold.” Anderson, 2010 WL 5072958, at *3; United States v. Digiulio, No. 95-cv30

219S, 1997 WL 834820, at *15 (W.D.N.Y. Nov. 5, 1997). The Defendant argues that
it will be substantially prejudiced if it were forced to sell only a portion of the
Property because a single-family residence is not amenable to partition. [Dkt. 481, p. 24-25]. Indeed, in Digiulio, the court noted that residential property “is
probably not susceptible to physical partition, nor is it likely that purchasers
would be interested in purchasing a half interest in a home to be shared with a
current occupant.” Digiulio, 1991 WL 834820, at *15; see also United States v.
Bierbrauer, 936 F.2d 373, 376 (8th Cir. 1991) (finding that since“[t]here is no real
prospect that [the tax payer’s] interest could be sold separately” when the
property was a co-tenancy with a non-liable third party, the first factor weighed in
favor of the Government). However, the court denied summary judgment in
Digiulio because the Government did not present any evidence showing the
extent of the financial prejudice that would result since it failed to provide
information related to the property value or how much a partial sale of the
residence was expected to produce. Id. Unlike that case, this Court does have
information related to the approximate value of the Property; in 2011, the
Defendant’s memorandum quoted an appraised value of the Property of $759,200
and cited another quoted value by www.zillow.com of $573,000. The tax lien
initially placed on the Property was for $66,987.63, but the Plaintiff, in 2011,
received a notice that the total amount of the lien was $36,390.74. Either way,
sale of the Property should easily satisfy the tax liability and any accrued
penalties given the substantial difference in the fair market value of the Property

31

and the tax liability due, even though the foreclosure sale amount will likely be
much lower than the fair market value.
Courts do, however, consider the Government’s dilatory conduct in collecting
the tax as weighing against the prejudice it will experience. When addressing the
first factor in United States v. Reid, the court noted that “the Government is
partially to blame for the confusion. After assessing taxes on Reid in 1986, the
Government waited until 1996 to bring this action. Delays persisted. The case
came to trial only after Reid filed a motion to dismiss the case for want of
prosecution. During the intervening fourteen years, the likelihood of collecting
Reid's indebtedness has presumably declined because of the Government's own
conduct.” United States v. Reid, 127 F.Supp.2d 1361, 1382 (S.D. Ga. 2000).
Similarly here, the Government assessed the tax on Smith in 2003, but failed to
attempt to collect that tax until the Plaintiff brought this quiet title action. The
Defendant even admitted in its 2011 memorandum that the reason no summons
was issued at the time of the Property’s transfer to determine the exact mortgage
balance was “due to the likelihood that this would trigger litigation involving a
petition to quash by either David Smith or Dyane Smith.” In the intervening
years, Smith’s ability to pay the tax declined, such that the Defendant determined
that Smith was “uncollectible” in 2011. Had the Defendant been more diligent in
its efforts to collect the liability, the Plaintiff’s investment in the property and the
amount of penalties incurred would have been substantially less. Therefore, on
balance of these factors, it is clear that the Government’s interests would be
prejudiced by a partial sale of the residence, but at least part of the blame rests

32

squarely on the Government for its dilatory efforts to collect the tax. In any event
this factor is either neutral or rests slightly in favor of a sale.
ii. The Plaintiff’s Expectation of Foreclosure
The second Rodgers factor is “whether the third party with a non-liable
separate interest in the property would, in the normal course of events . . . have a
legally recognized expectation that that separate property would not be subject to
forced sale by the delinquent taxpayer or his or her creditors.” Rodgers, 461 U.S.
710-11. The Defendant argues that the Plaintiff had no reasonable expectation
that the Property would be free from liens against Smith because the divorce
judgment did not quash any existing liens or creditor interests, it only provided
for indemnification and because the lien was recorded one month after the
divorce judgment. [Dkt. 48-1, p. 25]. In response, the Plaintiff argues that she
was not provided notice of the lien at the time of the Judgment. [Dkt. 47-1, p. 19].
In Digiulio, the court held that the non-liable third party had a reasonable
expectation that her house could not be seized for her husband’s debts when the
tax liabilities arose “long after his divorce from Valerie Digiulio, which occurred in
1968, and the partial transfer to his children, which occurred in 1984.” Digiulio,
1997 WL 834820, at *17. Also in United States v. Jones, the court ruled that the
second factor weighed against foreclosure when the non-liable third party was
“the sole owner of the property” which created a “legally legitimate expectation
that no other person or entity could disturb her ownership of the property.”
United States v. Jones, 877 F. Supp. 907, 918 (D.N.J. 1995), aff’d, 74 F.3d 1228 (3d
Cir. 1995); see also, United States v. Johns, No. 3:05cv308(RVMD), 2006 WL
33

3086869, at *5 (N.D. Fla. Oct. 27, 2006) (“Consequently, I find that Ms. Johns had a
legally recognized expectation that the property on which she has lived for the
past 16 years would not be foreclosed upon in order to satisfy a debt owed by her
ex-husband, from whom she has been divorced for 14 years.”); cf. Digiulio, 1997
WL 834820, at *16 (finding that a third party who had constructive knowledge of a
tax lien because the tax returns for the relevant years were filed jointly did not
have a legitimate expectation against foreclosure). Just as in Digiulio and Jones,
the Plaintiff here had no knowledge, either actual or constructive, of the tax
liability before entry of the divorce decree because no notice of the lien was
provided, and Smith and the Plaintiff filed their taxes for the relevant years
separately. Furthermore, when the Plaintiff refinanced in 2005, the evidence
shows that she was still unaware that there was an existing lien on the Property
because the title search provided to her showed that her interest was
unencumbered. Starting in 2003, she also was the sole owner of the Property,
which was conveyed to her pursuant to a legally binding divorce judgment. Since
she had no knowledge of the existing lien at the time of the divorce judgment and
has been the sole owner of the Property for almost eleven years, this Court finds
that the Plaintiff had a reasonable expectation that the Property would not be
subject to foreclosure based on her ex-husband’s tax liabilities. This factor
weighs against a forced sale.
iii. Prejudice to the Plaintiff
The third Rodgers factor is the prejudice to the non-liable interest holder in
terms of personal dislocation costs and under-compensation of interest.
34

Rodgers, 461 U.S. at 711. The Defendant argues that the Plaintiff is only
prejudiced by normal relocation expenses which courts have held is insufficient
to cause this factor to weigh against foreclosure. [Dkt. 48-1, p. 25-26]. The
Plaintiff argues that she will be substantially prejudiced because she has been
living in the home since 1993, has been the sole mortgage payer since 2000,
invested over $300,000 in the Property in mortgage payments, maintains an office
in the home, and resides there with her son. [Dkt. 47-1, p. 19-20]. While it is true
that courts, including in this district, have held that typical relocation expenses
are alone insufficient to cause the factor to weigh in favor of denying foreclosure,
we must take into consideration all of the circumstances of the particular case. In
United States v. Lauer, the court held that normal relocation expenses for the
liable parties wife and minor children were not atypical in any foreclosure
proceeding, but the court noted that its equitable powers were particularly
strained in that case because the wife and minor children had no ownership
interests in the property. United States v. Lauer, No. 3–06–CV–1724(JCH), 2008
WL 905924, at *4 (D. Conn. March 28, 2008). In our case, however, the facts are
different because the Plaintiff not only has an ownership interest in the Property,
she has the sole ownership interest. In a more recent decision, the court found
that even though the record was incomplete on the prejudice to the plaintiff
factor, the factor was either neutral or weighed slightly against a sale because the
plaintiff would need to spend money on relocation expenses and there was a
possibility of the plaintiff taking sole ownership of the property after the death of
her husband. United States v. Cardaci, No. Civ. 12-5402(JBS/AMD), 2013 WL

35

5816823, at *9 (D.N.J. Oct. 29, 2013). In United States v. Anderson, even though
the court took into consideration the advanced age of the non-liable party and the
fact that she was unemployed and on social security in determining the prejudice
to her if forced to sell, the court noted that the non-liable third party also “lived at
the Property for over 40 years and has paid for the majority of the costs
associated with the Property for the last several years.” Anderson, 2010 WL
5072958, at *4. Here, the Plaintiff has lived in the home for over twenty years and
has paid all of the payments related to the mortgage and investments for the last
fourteen years. She also has alleged that her son lives at the home with her, and
she maintains her law practice out of her home. Furthermore, the question of
whether she would be undercompensated by a forced sale is also clear. The debt
owed to the government is either $66,987.63 or $36,390.74, as no explanation was
provided to the Court explaining why the 2011 notice had a substantially lower
lien amount, and the latest value of the home was between $573,000 and
$759,200. Since the debt is at most between 8% and 11.7% of the value of the
home, without interest or penalties, it seems unfair to force the sale of the
Property in order to pay such a small percentage. Moreover, the Court again
notes that the Defendant’s dilatory efforts in collecting the tax liability resulted in
continued investment by the Plaintiff in excess of $300,000 in mortgage payments
alone. She should not now lose the extent of that investment, her home, and her
office because the Defendant feared a “petition to quash.” See also Jones, 877 F.
Supp. at 918 (“To dispossess an unemployed individual who has no source of
income and who still has a minor son residing with her at her home in order to

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satisfy a debt owed solely by her husband presents a grossly unfair solution and
one that violates New Jersey’s policy of protecting the marital home.”). Even
though the record is not particularly developed on this issue as the Plaintiff has
not clearly alleged the exact cost of relocation, we can infer that the costs would
be substantial, and the risk of under-compensation by selling the Property in
which the Plaintiff made substantial investment at a foreclosure proceeding,
which generally produces a value much lower than the fair market worth, to
satisfy a debt owed solely by her husband would produce an unfair result.
Accordingly, the Plaintiff has alleged more than the typical relocation expenses,
and this factor weighs against a forced sale.
iv. Relative Character and Value of Smith and the Plaintiff in the
Property
The final factor highlighted in Rodgers is the “relative character and value of
the non-liable and liable interests held in the property . . . .” Rodgers, 461 U.S. at
711. The Supreme Court explained that “if, for example, in the case of real
property, the third party has no present possessory interest or fee interest in the
property, there may be little reason not to allow the sale; if, on the other hand, the
third party not only has a possessory interest or fee interest, but that interest is
worth 99% of the value of the property, then there might well be virtually no
reason to allow the sale to proceed.” Id. The Defendant argues that this factor
weighs in favor of a sale because Smith and the Plaintiff each had a 50% interest
in the Property at the time of the assessment. [Dkt. 48-1, p. 27]. The Plaintiff
argues that she has paid 100% of the mortgage and property taxes, and

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maintained and improved the Property solely since 2000, so this factor weighs in
her favor. [Dkt. 47-1, p. 20-21].
The Defendant seems to interpret the Rodgers factor to apply to the interests
in the property at the time of the assessment, not when the foreclosure request
was brought. However, that conflicts with the plain language of the decision. In
the Supreme Court’s example, it looked to the “present possessory interest” of
the parties, not the past possessory interest. This reading has been confirmed
by other courts. In Johns, the court held that the fourth factor weighed heavily
against a sale because the non-liable thirty party “has resided in and had
possession of the property for the past 16 years.” Johns, 2006 WL 3086869, at
*7. Here, there is no debate that the Plaintiff has at present a 100% ownership
interest in the Property and Smith has none. Therefore, this factor weighs heavily
against a forced sale.
On balance of the factors, it is clear that the only factor that potentially weighs
slightly in favor of foreclosure is the prejudice to the Defendant. However, given
the peculiar aspects of this case, the remaining factors weigh heavily against a
forced sale. In hoping to avoid an unfair result, this Court views it as appropriate
to use its limited discretion to avoid ordering foreclosure in this case.
IV.

Conclusion

For the foregoing reasons, the Plaintiff’s Motion for Summary Judgment is
DENIED in part and GRANTED in part, and the Defendant’s Cross-motion for
Summary Judgment is GRANTED in part and DENIED in part. The 2003 lien
attached to the Property and is valid as a matter of law and attached to a valid
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interest in the Property. However, the Court refuses to order foreclosure on the
Property pursuant to its equitable discretion. Since default judgment was entered
against Smith and there are no other pending claims against any other
counterclaim defendants, as they were made parties pursuant to 26 U.S.C. §
7403(b), for the reason that they have, or may claim, an interest in the Property,
the case is DISMISSED. The Court encourages, however, the parties to agree to
some form of settlement so that the lien can be removed from the Property.
IT IS SO ORDERED.

________/s/______________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: March 7, 2014

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