United States of America v. Staton et al

Filing 157

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON THE THIRD CLAIM IN THE COMPLAINT re 109 , 124 - Signed by JUDGE ALAN C KAY on 8/31/2015. "The Court further ORDERS that Ronald Staton's federal tax liens and Ronald and Brenda Staton's mortgage be foreclosed on the Residence, and ORDERS the sale of the Residence free and clear of all liens, including Capstead's senior mortgage. A separate Order of Foreclosure and Judicial Sale will follow this Order." "In addition, the Court DISMISSES with prejudice Count I of Plaintiff's Complaint, ECF No. 1 , pursuant to Fed. R. Civ. P. 41(a)(2) and Plaintiff's request." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Ronald B. Staton and Brenda Staton served by first class mail at the address of record on August 31, 2015.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
___________________________________
UNITED STATES OF AMERICA,
)
)
Plaintiff,
)
)
v.
) Civil No. 12-00319 ACK-KSC
)
RONALD B. STATON, BRENDA STATON,
)
NAVY FEDERAL CREDIT UNION,
)
CAPSTEAD MORTGAGE CORPORATION,
)
and STATE OF HAWAII,
)
)
Defendants.
)
___________________________________)
ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT ON THE
THIRD CLAIM IN THE COMPLAINT
For the reasons set forth below below, the Court GRANTS
Plaintiff United States’ Motion for Summary Judgment on the Third
Claim in the Complaint, ECF No. 109, ORDERS that Plaintiff’s
federal tax liens be foreclosed on the real property owned by
Defendants Ronald Staton and Brenda Staton, located at 233
Kalalau Street, Honolulu, Hawaii 96825 (the “Residence”), and
ORDERS the sale of the Residence free and clear of all liens,
including the senior mortgage of Defendant Capstead Mortgage
Corp. (“Capstead”).

A separate Order of Foreclosure and Judicial

Sale will follow this Order.
In addition, pursuant to Fed. R. Civ. P. 41(a)(2) and
Plaintiff’s request, the Court DISMISSES with prejudice Count I
of Plaintiff’s Complaint, ECF No. 1.

1

FACTUAL HISTORY
On or about August 19, 1987, Defendants Ronald Staton
and Brenda Staton (the “Statons”) entered into an Agreement of
Sale to purchase the Residence, located at 233 Kalalau Street,
Honolulu, Hawaii 96825.

Decl. of Charles M. Duffy (“Duffy

Decl.”) ¶ 8, Ex. G, ECF Nos. 109-2, 109-4.

The Statons were

granted the Deed to the Residence on or about July 30, 1990.
Duffy Decl. ¶ 9, Ex. H, ECF Nos. 109-2, 109-5.

The Agreement of

Sale and Deed indicate that the Statons purchased and own the
Residence as tenants by the entirety.

Duffy Decl. ¶¶ 8-9, Exs. G

§ 1.C, H § 3, ECF Nos. 109-2, 109-4, 109-5.
The Statons accrued assessments for unpaid federal
income taxes between 2000-2007.

As relevant to the instant

motion, tax and related assessments were made against Ronald
Staton individually for his 2001 through 2007 income tax years.1/

1/

As further discussed below, it appears that Brenda
Staton’s liability for federal income taxes for 2000, a year
during which she filed jointly with Ronald Staton, is no longer
an issue. Mem. in Support of Mot. at 2, ECF No. 89-1. Count I
of Plaintiff’s Complaint sought to reduce to judgment the
Government’s tax assessment against the Statons for the year
2000. Compl. ¶¶ 20-21, ECF No. 1.
However, Plaintiff has since indicated that the Statons have
paid that liability in full and has requested dismissal of that
claim. Mot. for Partial Summary Judgment at 2, ECF No. 89-1.
Plaintiff also clarified that the Statons’ tax debts for the year
2000 were the basis for a $93,962.41 federal tax lien that
remained reflected in a Title Report that had been submitted to
the Court. See United States’ Br. Regarding the Court’s July 31,
2015 Order at 1-2, ECF No. 144; Title Report at 4, ECF No. 138-2.
Plaintiff released that tax lien on August 11, 2015. See United
(continued...)
2

Despite the Government’s notice and demand for payment, Mr.
Staton did not pay the full assessment amounts.

Compl. ¶¶ 16-19,

ECF No. 1.
The Government filed notices of its federal tax liens
(“NFTL’s”) related to its tax and related assessments made
against Mr. Staton.

The same NFTL’s were filed with the State of

Hawaii Bureau of Conveyances on April 3, 2006, December 5, 2006,
July 10, 2007, April 7, 2009, and May 12, 2009.

Duffy Decl.

¶¶ 2-3, 5-7, Exs. A-B, D-F, ECF Nos. 109-2, 109-3.

The

Government also filed a Notice of Pendency of Action regarding
the instant lawsuit with the State of Hawaii Bureau of
Conveyances on June 15, 2012.

Duffy Decl. ¶ 11, Ex. I, ECF Nos.

109-2, 109-5.
Additional parties that appear to have an interest in
the Residence are Defendants State of Hawaii, Capstead, and Navy
Federal Credit Union (“NFCU”).

Discovery responses submitted by

Plaintiff indicate that Capstead owns, and NFCU services, a loan
that was made to the Statons to allow them to purchase the
Residence.

Duffy Decl. Ex. K ¶¶ 4, 6, ECF No. 109-5.

original amount of the mortgage was $393,750.00.
Charles Duffy Ex. 2 at 3, ECF No. 138-2.

1/

The

Declaration of

Capstead reports that

(...continued)
States’ Notice of Filing Release of Tax Lien Regarding the 2000
Tax Year, ECF No. 150. The Court therefore DISMISSES Count I of
the Complaint below.
3

as of July 31, 2015, the amount of principal and interest owed to
Capstead under the Staton mortgage was $294,708.82, including a
$26.00 recording fee.

Defendant Capstead Mortgage Corp.’s First

Supplemental Report Pursuant to Order of July 31, 2015
(“Capstead’s Supp. Rpt.”) at 2, ECF No. 151; Affidavit of D.
Christopher Sieber (“Sieber Affd.”) ¶ 5, ECF No. 156.2/
The Court notes that Capstead’s interest in the
Residence was clarified through a recent assignment related to
the subject mortgage.

On April 6, 2015, Plaintiff was directed

to file a Title Report for the Residence with the Court, which it
did on April 7, 2015.

See Minute Order, ECF No. 124; Notice of

Filing Title Report Provided by Internal Revenue Service, ECF No.
125.

That Title Report indicated that the Statons’ mortgage had

been assigned to an entity named Texas Commerce Bank N.A. (“Texas
Commerce Bank”) on September 25, 1993, without any further
indication that the interest was assigned back to Capstead at any

2/

The parties appear to dispute certain additional amounts
that may be owed to Capstead and NFCU in attorneys’ fees. See
Mem. in Support of Mot. at 5-6, ECF No. 109-1. Specifically,
Capstead seeks to recover approximately $49,000.00 in attorneys’
fees and costs in addition to the aforesaid $294,708.82 owed
under the Staton mortgage. See Capstead’s Supp. Rpt. at 2, ECF
No. 151; Sieber Affd. ¶ 12, ECF No. 156; Defendant Capstead
Mortgage Corp.’s Report Pursuant to Order of July 31, 2015 at 4,
ECF No. 147. Plaintiff opposes Capstead’s recovery of fees and
costs in excess of $35,000.00. See United States’ Response to
Defendant Capstead Mortgage’s Recent Court Filings at 1-2, ECF
No. 152.
To the extent that this issue remains disputed, it will be
addressed following the sale of the Residence and prior to the
disbursement of the sale proceeds.
4

point.

Minute Order, ECF No. 128.

The Court therefore directed

Plaintiff to file an updated Title Report.

Id.

Plaintiff did so

on April 29, 2015, but the updated Title Report continued to show
Texas Commerce Bank as the “custodian or trustee” of the
mortgage.

See Notice of Filing Updated Title Report, ECF No. 30;

Declaration of Charles Duffy Ex. A at 3, ECF No. 130-2.
In view of Texas Commerce Bank’s apparent interest in
the Residence, the Court directed on May 1, 2015 that it should
be made a party to this lawsuit.

Minute Order, ECF No. 134.

However, Plaintiff informed the Court on May 22, 2015 that Texas
Commerce Bank, now apparently part of JP Morgan Chase Bank, was
“transferring any interest that it may have in the subject
mortgage” to Capstead.

Status Report at 2, ECF No. 135.

On July

29, 2015, Plaintiff provided the Court with a certified copy of a
July 6, 2015 Assignment of Mortgage and a July 24, 2015 revised
Title Report confirming this assignment of interest to Capstead.
See Declaration of Charles Duffy Ex. 1-2, ECF Nos. 138-1, 138-2.
The Government and Defendant State of Hawaii,
meanwhile, have stipulated that the United States’ federal tax
liens shall be completely satisfied before any liens of the State
of Hawaii, in the event that the Court orders the foreclosure of
the Residence.

See Stipulation regarding Priority between the

United States of America and the State of Hawaii ¶ 3, ECF No.

5

70.3/
PROCEDURAL HISTORY
On June 4, 2012, Plaintiff United States of America
(the “Government”) filed its Complaint against the Statons,
Capstead, NFCU, and the State of Hawaii.

The Complaint seeks to

reduce to judgment the federal tax assessments against the
Statons filing jointly (Count I) and Ronald Staton filing
individually (Count II).

It also seeks to foreclose the

Government’s federal tax liens on the Residence (Count III).
Compl. ¶¶ 20-32, ECF No. 1.

Plaintiff’s Complaint further

requests that the Residence be sold at a judicial sale and that
the sales proceeds be distributed “in accordance with the Court’s
findings as to the validity and priority” of the parties’
interests in the Residence.

Id. at 10.

On June 27, 2014, Plaintiff filed a partial motion for
summary judgment (“MSJ”) related to Counts I and II of the
Complaint.

ECF No. 89 (“Plf.’s First MSJ”).

Plf.’s First MSJ

indicated that Count I “should be dismissed,” because the
Statons’ joint tax assessments, related solely to their filing
for the 2000 tax year, have been paid in full.

3/

Mem. in Support

As discussed below, a proposed stipulation regarding
priority between Capstead, NFCU, and Plaintiff was also
submitted. The Court was unable to issue an Order approving it,
given that certain amounts of attorneys’ fees referenced therein
had not been established by the parties. Minute Order of March
2, 2015, ECF No. 115.
6

of Mot. at 2, ECF No. 89-1.

As to Count II, Plf.’s First MSJ

sought entry of judgment against Ronald Staton for the tax and
related assessments made against him for his 2001 through 2007
separate income tax years.

Id. at 14-15.

Plf.’s First MSJ did

not address Count III of the Complaint.
On September 30, 2014, pursuant to a stipulation filed
by Plaintiff and Ronald Staton, the Court entered judgment
against Mr. Staton with respect to his 2001, 2002, 2003, and 2005
income tax liabilities.

ECF No. 104.

The amount of that

judgment is $273,715.67, plus interest accruing after July 1,
2014 and less any payments made or credits applied after that
date.

Id. at 2.

On November 25, 2014, pursuant to another

stipulation filed by Plaintiff and Ronald Staton, the Court
entered judgment against Mr. Staton with respect to his remaining
2004, 2006, and 2007 income tax liabilities at issue in the
Complaint.

ECF No. 108.

The amount of that judgment is

$81,811.07, plus interest accruing after October 31, 2014 and
less any payments made or credits applied after that date.

Id.

at 2.
Mr. Staton’s total outstanding liability reduced to
judgment is therefore $355,526.74, plus accrued interest and
minus any payments and credits.

Documentation filed by Plaintiff

on August 18, 2015 shows that the current balance owed on the
judgments against Mr. Staton, with interest calculated to

7

September 1, 2015, is $370,437.03.

See United States’ Notice of

the Updated Balance Due on the Judgments Previously Entered by
the Court (Interest Calculated to September 1, 2015) at 1, ECF
No. 154.
On December 29, 2014, Plaintiff filed its Motion for
Summary Judgment on the Third Claim in the Complaint.
109 (“Plf.’s Second MSJ”).

ECF No.

Plf.’s Second MSJ requests that the

Government’s federal tax liens and judgments be foreclosed and
that the Residence be sold pursuant to the terms set forth in
Plaintiff’s Proposed Order of Foreclosure and Judicial Sale,
submitted concurrently with Plf.’s Second MSJ.

Although

Plaintiff has not submitted any formal valuation of the
Residence, it reports that counsel’s “Internet search” showed
that the fair market value of the Residence is at least $1
million.

Mem. in Support of Mot. at 6, 11, ECF No. 109-1.

The

latest Title Report submitted by Plaintiff also shows the
Residence’s assessed value for 2015 for real property tax
purposes as $979,600.00.

Title Report at 11, ECF No. 138-2.

Plf.’s Second MSJ further requests the proceeds of its
requested foreclosure sale be used first to cover the costs of
sale and any outstanding property taxes on the Residence.
Plaintiff suggests that the remaining proceeds should then be
distributed among the parties through a stipulation or order of
the Court, after the parties are given an opportunity to brief

8

their arguments regarding priority.4/

Id.

Plf.’s Second MSJ

also reiterates the Government’s request that Count I of its
Complaint, relating to assessments for tax year 2000 which have
since been paid by the Statons, should be dismissed.

Id. at 2.

Plf.’s Second MSJ was set for hearing on April 6,
2015.5/

On March 25, 2015, having received no response to Plf.’s

Second MSJ from any Defendant, the Court directed Defendants to
file oppositions or statements of no opposition, pursuant to

4/

Plf.’s Second MSJ admits that there “is an issue of lien
priority” among the parties. The parties do not appear to
dispute the order in which their liens should be satisfied from
the foreclosure sale proceeds; rather, Plaintiff challenges
Capstead and NFCU’s request to collect certain amounts of
attorneys’ fees as provided under the mortgage. Mem. in Support
of Mot. at 4-6, ECF No. 109-1. However, the Government currently
“is not requesting the Court to resolve the priority dispute.”
Rather, the Government proposes that the Court should order the
sale of the Residence and that the proceeds, after payment of
sale expenses, should be paid into the Court’s escrow to be
distributed at a later date following the resolution of the
priority disagreement. Id. at 6.
Although the Court believes that it may have been more
efficient for the parties to have resolved their dispute
regarding priority at an earlier date, the Government’s proposed
approach is permissible. See, e.g., Order of Foreclosure and
Judicial Sale, United States v. Lindsey, et al., Civ. No. 1100664 JMS-KSC, Dkt. No. 81 * 11-12 (D. Haw. July 30, 2013)
(distribution of sale proceeds to be determined through
stipulation or Court order at a later date); Order of Foreclosure
and Judicial Sale, United States v. Webb, et al., Civ. No. 0700564 JMS-KSC, Dkt. No. 83 * 13 (D. Haw. Oct. 23, 2008) (same).
5/

An electronic notice of hearing on Plaintiff’s MSJ was
delivered to case participants registered to receive such
notifications through the Court’s electronic filing system.
Participants not registered to receive electronic notifications
were served by first-class mail on January 6, 2015. Court’s
Certificate of Service, ECF No. 111.
9

Local Rule 7.4, by March 27, 2015.

ECF No. 116.6/

On March 25, 2015, Defendant State of Hawaii filed a
Statement of No Opposition to Plf.’s Second MSJ.

ECF No. 117.

The statement indicates that it is filed “provided that the
Director’s claim to the subject property is acknowledged and the
respective priorities in the proceeds of the sale of the subject
property be determined at a later date and hearing.”

Id. at 2.

On March 25, 2015, Defendants NFCU and Capstead also filed a
Position Statement regarding Plf.’s Second MSJ.

ECF No. 118.

The statement indicates that NFCU and Capstead “take no position”
regarding Plf.’s Second MSJ but “reserve their right to assert
their priority interests in the proceeds of the sale of the real
property at issue, if any, and defend said priority interests at
the trial of this action if necessary.”

Id. at 2.

Brenda Staton has filed no response to Plf.’s Second
MSJ.

On March 27, 2015, Ronald Staton initially filed with the

Court correspondence indicating that he “takes no position” on
Plf.’s Second MSJ.

ECF No. 121.

Later that day, however, Mr.

Staton filed with the Court additional correspondence indicating
that he “opposes” Plf.’s Second MSJ.

ECF No. 122.

Each of the

foregoing letters contains one sentence of body text, and neither

6/

A copy of the Court’s order was served on Defendants
Ronald and Brenda Staton by first-class mail to their address of
record and by e-mail using an address provided by the Statons to
the Court on March 25, 2015. Court’s Certificate of Service, ECF
No. 116.
10

explains the legal basis for Mr. Staton’s position.
A hearing was held on the instant motion on April 6,
2015.

On the same day, as discussed above, the Court ordered

Plaintiff to submit an updated Title Report for the Residence,
which ultimately resulted in an assignment of interest in the
subject mortgage to Capstead.

In addition, on April 9, 2015, the

Court directed Plaintiff and any other party that wished to do so
to file a brief regarding Plaintiff’s authority under 26 U.S.C. §
7403 to seek a foreclosure sale under a tax lien to include the
foreclosure of the apparent senior lien held by Capstead under
its mortgage.

See Minute Order, ECF No. 138.

Plaintiff filed a Brief Regarding the Court’s April 9,
2015 Order on April 14, 2015.

ECF No. 129.

As the Court noted

in its Minute Order of July 31, 2015, the Court “received no
opposition to the property being sold free and clear of all
liens, including the senior mortgage now held by Capstead,” in
response to its April 9, 2015 Minute Order inviting briefing on
Plaintiff’s authority to seek a foreclosure sale under a tax lien
to include the foreclosure of the apparent senior lien held by
Capstead under its mortgage.
ECF No. 139.

See Minute Order of July 31, 2015,

Accordingly, the Court directed Capstead to file

the current amounts due under its mortgage and whether Capstead
would be seeking a deficiency judgment and minimum upset price
related to the foreclosure sale of the Residence.

11

Capstead and

Plaintiff were also directed to confer regarding a foreclosure
sale commissioner.

Id.

The Court set a hearing on the foregoing

matters for August 14, 2015.
Capstead filed documentation pursuant to the Court’s
July 31, 2015 Minute Order on August 10, 2015.

ECF No. 147.

also filed a supplement thereto on August 12, 2015.

It

ECF No. 151.

Capstead reported the amount due under the Staton mortgage as
$294,708.82 and requested a $350,000 minimum upset price for the
foreclosure sale, the right to credit bid, and a deficiency
judgment in the event that the sale proceeds do not cover the
Statons’ full indebtedness under their mortgage.

See Capstead’s

Supp. Rpt. at 2-3, ECF No. 151.
Ronald Staton also submitted a letter request to the
Court on August 10, 2015, requesting a 90-day continuance of the
Court’s upcoming August 14, 2015 hearing in a continuing effort
to satisfy his federal tax debts.

See Letter of Ronald B. Staton

to Hon. Alan C. Kay, Aug. 10, 2015, ECF No. 145.
The Court held a hearing on Ronald Staton’s continuance
request and the matters addressed in its July 31, 2015 Minute
Order on August 14, 2015.
for a continuance.
(“Tr.”), 9:13-14.

The Court denied Mr. Staton’s request

Transcript of Proceedings, Aug. 14, 2015
Capstead confirmed its request for a minimum

upset price of $350,000.00 for the foreclosure sale, to which
Plaintiff did not object.

Tr. 10:21-24, 12:3-17.

12

Capstead and

Plaintiff also requested deficiency judgments in the event that
the foreclosure sale proceeds do not cover their outstanding
liens.

Tr. 14:15-21, 15:8-10.

In addition, the Statons did not

object to Capstead’s report of the amount owed under their
mortgage, Tr. 15:11-18, and no party objected to a sale of the
Residence free and clear of all liens, Tr. 10:4-19.
On August 18, 2015, pursuant to the Court’s direction,
Plaintiff filed United States’ Notice of the Updated Balance Due
on the Judgments Previously Entered by the Court (Interest
Calculated to September 1, 2015), ECF No. 154, reporting the
current amount owed on Plaintiff’s judgments against Mr. Staton
as $370,437.03.

On August 25, 2015, Capstead confirmed the

current amount owed under the Staton mortgage as $294,708.82.
Sieber Affd. ¶ 5, ECF No. 156.
STANDARD
I.

Summary Judgment

A party is entitled to summary judgment on any claim or
defense if it can be shown “that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a
matter of law.’”

Maxwell v. Cnty. of San Diego, 697 F.3d 941,

947 (9th Cir. 2012) (quoting Fed. R. Civ. P. 56(a)).

A party

asserting that a fact cannot be or is genuinely disputed must
support the assertion by either “citing to particular parts of
materials in the record” or “showing that the materials cited do
13

not establish the absence or presence of a genuine dispute, or
that an adverse party cannot produce admissible evidence to
support the fact.”

Fed. R. Civ. P. 56(c)(1).

The movant has the burden of persuading the court as to
the absence of a genuine issue of material fact.
596 F.3d 583, 587 (9th Cir. 2010).

Avalos v. Baca,

If the movant satisfies its

burden, the nonmovant must present evidence of a “genuine issue
for trial,” Fed. R. Civ. P. 56(e), that is “significantly
probative or more than merely colorable,”7/ LVRC Holdings LLC v.
Brekka, 581 F.3d 1127, 1137 (9th Cir. 2009) (citation omitted).
When evaluating a motion for summary judgment, the court must
“view the facts and draw reasonable inferences in the light most
favorable to the party opposing the summary judgment motion.”
Scott v. Harris, 550 U.S. 372, 378 (2007).

If the nonmoving

party cannot produce sufficient evidence to demonstrate that a
triable issue of fact exists, the moving party is entitled to
summary judgment as a matter of law.

Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 252 (1986).

7/

The Ninth Circuit has explained that “[l]egal memoranda
and oral argument, in the summary-judgment context, are not
evidence, and do not create issues of fact capable of defeating
an otherwise valid motion for summary judgment.” Flaherty v.
Warehousemen, Garage and Service Station Emp. Local Union No.
334, 574 F.2d 484, 486 n.2 (9th Cir. 1978), see also Barcamerica
Intern. USA Trust v. Tyfield Importers, 289 F.3d 589, 593 n.4
(9th Cir. 2002).
14

II.

Special Considerations for Pro Se Litigants

The Ninth Circuit has cautioned that courts must treat
pro se litigants with liberality.

See, e.g., Waters v. Young,

100 F.3d 1437, 1441 (9th Cir. 1996) (explaining that courts seek
to ensure that pro se litigants do not “unwittingly fall victim
to procedural requirements that they may, with some assistance
from the court, be able to satisfy”).

Accordingly, a pro se

litigant’s pleadings must be read more liberally than those
drafted by counsel.
Cir. 2004).

Wolfe v. Strankman,392 F.3d 358, 362 (9th

In considering a pro se party’s opposition to

summary judgment, the Court must consider such party’s
contentions in motions and pleadings that are verified or offered
under penalty of perjury.

See Jones v. Blanas, 393 F.3d 918, 923

(9th Cir. 2004).
However, a pro se litigant “is not excused from knowing
the most basic pleading requirements.”

Am. Ass’n of Naturopathic

Physicians v. Hayhurst, 227 F.3d 1104, 1107-08 (9th Cir. 2000)
(citations omitted) (declining to consider pro se litigant’s
personal jurisdiction challenge where he had already filed a
responsive pleading not raising that defense).

“Ignorance of

court rules does not constitute excusable neglect, even if the
litigant appears pro se.” Swimmer v. IRS, 811 F.2d 1343, 1345
(9th Cir. 1987).

15

DISCUSSION
In the instant case, the Court has already entered
judgment against Ronald Staton for his income tax liabilities and
associated penalties plus statutory interest.

As noted above,

Mr. Staton’s total outstanding liability is $370,437.03, with
interest calculated to September 1, 2015.

See United States’

Notice of the Updated Balance Due on the Judgments Previously
Entered by the Court (Interest Calculated to September 1, 2015)
at 1, ECF No. 154.

He is also jointly liable with Brenda Staton

on a senior mortgage on the Residence now held by Capstead,
originally in the amount of $393,750.00.
ECF No. 138-2.

Title Report at 3-4,

The Statons have not objected to Capstead’s

report of the current amount owed under their mortgage, which is
$294,708.82 as of July 31, 2015.

See Tr. 15:11-18; Capstead’s

Supp. Rpt. at 2, ECF No. 151; Sieber Affd. ¶ 5, ECF No. 156.

The

remaining question before the Court, presented in the Complaint’s
Count III, is whether the Government is entitled to foreclosure
of its liens against the Residence and an order for sale of the
property.
I.

Foreclosure of Ronald Staton’s Federal Tax Liens
against the Residence

The United States obtains a lien upon “all property and
rights to property, whether real or personal” belonging to a
person who fails to pay any tax owed, after providing notice and
demand for payment.

26 U.S.C. § 6321.
16

Spouses that own property

as tenants by the entirety under Hawaii law hold “property” or
“rights to property” subject to liens under 26 U.S.C. § 6321.
See, e.g., U.S. v. Lindsey, Civ. No. 11-00664 JMS-KSC, 2013 WL
3947757 * 5 (D. Haw. July 30, 2013) (citations omitted).

The

amount of the Government’s lien includes the tax amount owed as
well as “any interest, additional amount, addition to tax, or
assessable penalty,” plus costs.

Id.

The lien arises as of the

date of the assessment and continues until the tax liability is
satisfied or becomes unenforceable.

26 U.S.C. § 6322.

The Government’s tax liens are perfected upon
assessment and effective against the taxpayer without notice.
See Lindsey, 2013 WL 3947757 at * 6 (citing United States v.
Vermont, 377 U.S. 351, 355 (1964); 26 U.S.C. §§ 6321, 6323(a)).
However, to be valid against purchasers, mechanic’s lienors,
judgment lien creditors, or holders of security interests, the
Government must file a notice of its lien that complies with
state law.

26 U.S.C. § 6323(a), (f).

In Hawaii, such notice

must be filed with the state’s Bureau of Conveyances.

See Midway

Fin. Corp., Ltd. v. Walters, Civ. No. 84-0289, 1989 WL 201204 * 3
(D. Haw. July 25, 1989) (tax lien is perfected under 26 U.S.C.
§ 6323 upon filing notice with the Hawaii Bureau of Conveyances).
In order to enforce its tax liens, the Government is
empowered, under 26 U.S.C. § 7403, to join all parties with an
interest in the subject property and request a judicial sale of

17

the property.

United States v. Rodgers, 461, 677, 691-92 (1983)

(citing 26 U.S.C. § 7403).

The Government may seek the sale not

only of the debtor’s interest in the property, but the entire
property held by the debtor and his spouse in a tenancy by the
entirety.

Id. at 693-94; see also In re Pletz, 221 F.3d 1114,

1118 (9th Cir. 2000).

In such instances, the Court may order the

sale of the entire property and compensate the nondebtor spouse
for her ownership interest.
omitted).

Pletz, 221 F.3d at 1117 (citations

Each spouse owns a fifty percent interest in property

held as tenants by the entirety under Hawaii law.

Lindsey, 2013

WL 3947757 at * 6 n.3 (citations omitted); United States v. Webb,
Civ. No. 07-00564 JMS-KSC, 2008 WL 4761745 * 6 n.12 (D. Haw. Oct.
23, 2008) (citations omitted).
In this case, Defendants have raised no genuine issue
of material fact regarding the enforceability of the Government’s
tax liens through foreclosure and sale of the Residence.

The

evidence shows that Ronald Staton and Brenda Staton purchased and
own the Residence as tenants by the entirety, as reflected in the
Agreement of Sale and Deed.

Duffy Decl. ¶¶ 8-9, Exs. G, H, ECF

Nos. 109-2, 109-4, 109-5.
Tax and related assessments were made against Ronald
Staton individually for his 2001 through 2007 income tax years;
despite the Government’s notice and demand for payment, Mr.
Staton has not paid the full assessment amounts.

18

Compl. ¶¶ 16-

19, ECF No. 1.

Mr. Staton’s current outstanding tax liability is

$370,437.03, with interest calculated to September 1, 2015.

See

United States’ Notice of the Updated Balance Due on the Judgments
Previously Entered by the Court (Interest Calculated to September
1, 2015) at 1, ECF No. 154.

The Government’s tax liens were

perfected as against Ronald Staton at the time of the assessments
for tax years 2001-2007.

The Government’s liens were also

perfected as against other creditors when it filed NFTL’s for its
assessments against Mr. Staton with the State of Hawaii Bureau of
Conveyances, on April 3, 2006, December 5, 2006, July 10, 2007,
April 7, 2009, and May 12, 2009.

Duffy Decl. ¶¶ 2-3, 5-7, Exs.

A-B, D-F, ECF Nos. 109-2, 109-3; see also Compl. ¶¶ 28-32, ECF
No. 1.8/

Accordingly, the Court ORDERS that the Government’s tax

liens against Ronald Staton be foreclosed against the Residence.
II.

Judicial Sale of the Residence

The Government has complied with the requirements of 26
U.S.C. § 7403 for entry of an order of judicial sale.

Defendant

Ronald Staton has failed to pay his federal tax liabilities, and
the Court has foreclosed the Government’s federal tax liens
against the Residence.

Plaintiff commenced this action in the

district court, and it appears that all parties “having liens

8/

The above-referenced NFTL’s cover all of Mr. Staton’s tax
liabilities for the 2001-2007 tax years. The Government also
filed a Notice of Pendency of Action regarding the instant
lawsuit with the State of Hawaii Bureau of Conveyances on June
15, 2012. Duffy Decl. ¶ 11, Ex. I, ECF Nos. 109-2, 109-5.
19

upon or claiming any interest in the property involved in such
action,” 26 U.S.C. § 7403(b), have been named as Defendants.
Compl. ¶¶ 5-9, ECF No. 1.
The Court does, however, address two special
considerations presented in this case: the existence of a
mortgage senior to the Government’s tax liens and the interest of
Brenda Staton in the property.
First, as noted above, the Court requested on April 9,
2015 that Plaintiff and any other party that wished to do so file
a brief regarding Plaintiff’s authority under 26 U.S.C. § 7403 to
seek a foreclosure sale under a tax lien to include the
foreclosure of the apparent senior lien held by Capstead under
its mortgage.

See Minute Order, ECF No. 138.

Plaintiff filed a

Brief Regarding the Court’s April 9, 2015 Order on April 14,
2015.

ECF No. 129.
As Plaintiff points out, there is “no language in

Section 7403 which suggests that it does not apply when the
United States’ tax liens are junior to other liens.”

Id. at 3.

Moreover, as a practical matter, the Government must often seek
to foreclose on property where there is a first priority mortgage
holder.

In such cases, this Court has allowed the sale of the

real property to satisfy federal tax liabilities and has ordered
that the mortgage interest be satisfied before the liens are paid
from sale proceeds.

Id. at 3-4 (citing Webb, 2008 WL 4761745;

20

Lindsey, 2013 WL 3947757).
Other federal courts have adopted the same practice.
As the court explained in Banner Grp. Corp. v. U.S., No. 6:06-cv706-Orl-22KRS, 2008 WL 859037 * 1 (M.D. Fla. Jan. 7, 2008):
[The senior lienholder] seeks a summary
judgment ruling9/ that either the United
States must satisfy [its] mortgage prior
to any foreclosure sale, or any foreclosure
sale be subject to [its] mortgage interest
. . . [the senior lienholder] is adequately
protected by satisfaction of its mortgage
from the proceeds of the foreclosure sale.
See also, e.g., Washington v. U.S., 402 F.2d 3, 6 (4th Cir. 1968)
(affirming order of foreclosure and judicial sale under 26 U.S.C.
§ 7403 and directing that senior liens should be satisfied from
the sale proceeds, with the balance applied to the government’s
tax lien); U.S. v. Hardin, Civ. A. 93-62-VALWDO, 1995 WL 454144
* 3 (M.D. Ga. Mar. 21, 1995) (ordering foreclosure and judicial
sale under 26 U.S.C. § 7403, notwithstanding existence of three

9/

The Court observes that, in this case, Capstead has made
no such request and does not appear to oppose an order of
foreclosure and judicial sale. To the contrary, Capstead filed a
Statement of No Opposition regarding the instant motion. ECF No.
118. Capstead also submitted a proposed Stipulation Regarding
Priority among itself, Plaintiff, and NFCU with respect to the
proceeds of a judicial sale of the Residence, although the Court
was unable to issue an order approving that stipulation given the
parties’ failure to establish the amounts of certain legal fees
referenced therein. See ECF No. 118.
Capstead does, moreover, seek a $350,000 minimum upset price
for the foreclosure sale, the right to credit bid, and a
deficiency judgment in the event that the sale proceeds do not
cover the Statons’ full indebtedness under their mortgage. See
Capstead’s Supp. Rpt. at 2-3, ECF No. 151.
21

senior liens with priority over plaintiff’s); Reid v. U.S., No.
C98-5423, 2001 WL 260056 * 7 (W.D. Wash. Jan. 31, 2001) (ordering
foreclosure and judicial sale under 26 U.S.C. § 7403, with
proceeds to be used in satisfaction of senior mortgage before
federal tax lien); U.S. v. Scharfman, No. 79 Civ. 4224(JMC), 1981
WL 1855 * 7 (S.D.N.Y. Aug. 14, 1981) (same); U.S. v. Conry, No.
C-77-2722 SC, 1977 WL 1272 * 4 (N.D. Cal. Sept. 27, 1977) (same).
The Court is therefore satisfied that it is appropriate to order
foreclosure of Plaintiff’s tax liens and a judicial sale of the
Residence in this case, with the understanding that Capstead’s
senior mortgage will be satisfied from the sale proceeds before
Plaintiff’s liens.10/
Second, Brenda Staton has an interest in the Residence
that must be taken into account.

According to the Title Report

for the Residence, she and Ronald Staton own the Residence as
tenants by the entirety.

Title Report at 1, ECF No. 138-2.

In

this jurisdiction, a court may order the sale of the entire
property under 26 U.S.C. § 7403 and compensate a nondebtor spouse
for her fifty percent interest from the sale proceeds.

See

Pletz, 221 F.3d at 1117; Lindsey, 2013 WL 3947757 at * 6 n.3
(citations omitted); Webb, 2008 WL 4761745 * 6 n.12 (citations
omitted).

10/

In any event, as noted above, the parties in this case
have not objected to a sale of the Residence free and clear of
all liens. Tr. 10:4-19.
22

However, the Title Report also shows that Brenda and
Ronald Staton are jointly liable on the Capstead mortgage for the
Residence.

See Title Report at 3, ECF No. 138-2.

The

uncontested amount owed under the Statons’ mortgage is
$294,708.82 as of July 31, 2015.

See Capstead’s Supp. Rpt. at 2,

ECF No. 151; Sieber Affd. ¶ 5, ECF No. 156; Tr. 15:11-18.
Accordingly, since the Court has determined that the
Statons’ Residence should be foreclosed and sold free and clear
of all liens, including Capstead’s senior mortgage, without
objection from any party, the foreclosure of Capstead’s mortgage
necessarily includes Brenda Staton’s one-half interest in the
Residence.11/
Depending on the circumstances of the judicial sale of
the Residence, the Court will therefore need to determine an
amount of appropriate compensation for Brenda Staton’s one-half
interest in the property that takes into account her joint and
several liability on the mortgage held by Capstead, which is
being foreclosed.12/

11/

The
not subject
jointly and
interest in
foreclosure

Court notes that even if the Statons’ Residence was
to Capstead’s mortgage under which Brenda Staton is
severally liable the Court would still find her
the Statons’ Residence to be included in the
sale of Plaintiff’s liens.

12/

A district court does enjoy “limited discretion” not to
order a foreclosure sale of a jointly-owned residence pursuant to
26 U.S.C. § 7403, in order to “take into account both the
Government’s interest in prompt and certain collection of
(continued...)
23

12/

(...continued)
delinquent taxes and the possibility that innocent third parties
will be unduly harmed by that effort.” Rodgers, 461 U.S. at 709,
711. Such discretion should, however, be exercised “rigorously
and sparingly,” recognizing the Government’s “paramount” interest
in effective tax collection. Id. at 711.
In this balancing of equities, courts are to consider:
(1) the extent to which the Government’s financial interests
would be prejudiced if it were able to sell only a partial
interest in the property, rather than the whole property, (2)
whether the non-liable owner would have a legally recognized
expectation that her property would not be subject to forced
sale, (3) dislocation costs and potential under-compensation to
the non-liable owner, and (4) the comparative property interests
of the liable and non-liable owners. Id. at 710-11.
Courts within this Circuit have held that it is
Defendants’ burden to show that the Court should exercise its
limited discretion to refrain from ordering a foreclosure sale.
See, e.g., U.S. v. McGrew, Civ. No. 14-02647, 2014 WL 7877053 * 9
(C.D. Cal. Dec. 19, 2014); U.S. v. Padilla, Civ. No. S-01-2300
DFL-GGH, 2004 WL 2827891 * 1 (E.D. Cal. Oct. 25, 2004). Here,
Brenda Staton has filed no written response to Plf.’s Second MSJ,
and Ronald Staton has simply indicated, without explanation, that
he “opposes” it. ECF No. 122. The Statons did present orally at
the Court’s hearing of August 14, 2015, requesting a continuance
of that proceeding, discussing hardships related to the sale of
their home, and indicating that they hoped to be able to raise
new financing in satisfaction of Mr. Staton’s tax debts that they
had been unsuccessful in obtaining over the last three years.
They did not, however, raise a genuine issue of material fact
bearing on whether to order a foreclosure sale.
In any event, an examination of the Rodgers factors,
set forth above, shows that they favor the Government’s position.
The first factor, economic prejudice to the Government, favors a
sale of the Residence. The Residence appears to be a singlefamily home, which the legal description of the property
indicates is located on a single lot of 11,537 square feet. See
Duffy Decl. Ex. H at 7, ECF No. 109-5; see also Proposed Order,
Ex. A, ECF No. 109-7; Notice of Filing Certified Copy of
Assignment and Revised Report of Title Guaranty of Hawaii, Inc.
Ex. A, ECF No. 137-1. Accordingly, the Court finds that a sale
of a partial interest in the property would be impractical and
likely to cause prejudice to Plaintiff. See, e.g., McGrew, 2014
WL 7877053 at * 10 (finding that the sale of partial interest in
a single family residence would be impractical and cause “severe
(continued...)
24

12/

(...continued)
prejudice” to the Government); U.S. v. Burtsfield, 556 F. Supp.
2d 1172, 1176 (D. Mon. 2008) (finding that the Government would
“undoubtedly be prejudiced” if allowed to foreclose only on one
spouse’s partial interest in a single property).
The second factor, considering the non-liable owner’s
legally recognized expectations that her property would be
shielded from forced sale, also does not favor Defendants.
Brenda Staton has filed no position regarding Plf.’s Second MSJ
and did not present at the Court’s August 14, 2015 hearing any
authority that would shield her interest in the Residence against
a foreclosure sale to satisfy her husband’s tax debts; as a
result, the Court can only guess at her actual expectations as to
her property rights. Regardless, she could have no legally
cognizable expectation that the Residence could not be sold in
order to satisfy Ronald Staton’s tax debts. Under Hawaii law,
spouses that own property as tenants by the entirety hold
“property” or “rights to property” within the meaning of 26
U.S.C. § 6321. See Lindsey, 2013 WL 3947757 at * 5 (citations
omitted). It is established within this jurisdiction that a
Court may order the sale of the entire property under 26 U.S.C.
§ 7403 and compensate the nondebtor spouse for her fifty percent
interest. See Pletz, 221 F.3d at 1117; Lindsey, 2013 WL 3947757
at * 6 n.3 (citations omitted); Webb, 2008 WL 4761745 * 6 n.12
(citations omitted).
The third factor, potential prejudice to the non-liable
owner due to relocation costs and possible undercompensation,
also does not favor Defendants. As noted above, Hawaii law
allows the Court to order the sale of the Residence and fair
compensation to Brenda Staton for her one-half interest in the
property. As to relocation costs, Brenda Staton addressed at the
Court’s August 14, 2015 hearing the anticipated hardship of
moving from her home but did not present evidence of prejudice
greater than would occur in other cases involving foreclosures.
Moreover, “the inherent inequity of being removed from one’s
home” is not sufficient to defeat foreclosure sale. If that were
the rule, “the government could never foreclose on a jointlyowned residence – a result clearly untenable under § 7403.” U.S.
v. Bierbrauer, 936 F.2d 373, 375-76 (8th Cir. 1991).
Courts have considered, therefore, whether a particular
defendant’s dislocation costs would be “greater than in any other
foreclosure action against a residence.” Burtsfield, 556 F.
Supp. 2d at 1177 (citing Bierbrauer, 936 F.2d at 375-76). The
record shows no potential for unusual dislocation costs to Brenda
Staton. Courts examining similar cases have held the same. See
(continued...)
25

Accordingly, the Court ORDERS the sale of the Residence
to satisfy Mr. Staton’s federal tax liabilities.

The property

will be sold free and clear of all liens, including Capstead’s
mortgage.
III. Dismissal of Count I of Plaintiff’s Complaint
As a final matter, it appears that Plaintiff has
repeatedly mentioned that the Court should dismiss Count I of its
Complaint.

Plf.’s First MSJ indicated that Count I “should be

dismissed,” because the Statons’ joint tax assessments, related
solely to their filing for the 2000 tax year, have been paid in
full.13/

Mem. in Support of Mot. at 2, ECF No. 89-1.

However, it

12/

(...continued)
Burtsfield, 556 F. Supp. 2d at 1177-78 (ordering foreclosure sale
despite non-liable spouse’s claim of prejudice where she was 63
years old, was unemployed, had lived on the property for nine
years, had no dependent children living on the property, and
would be unable to purchase a new home but could secure
alternative housing using the proceeds of the sale).
The fourth factor, regarding property owners’
comparative interests, also weighs in favor of a foreclosure
sale. Where owners’ property interests are equivalent, as here,
courts have declined to prevent foreclosure sales under 26 U.S.C.
§ 7403. See, e.g., U.S. v. Barr, 617 F.3d 370, 376 (6th Cir.
2010) (affirming district court’s determination that this factor
did not prevent foreclosure sale, because non-liable spouse had
only a half interest in the property); Burtsfield, 556 F. Supp.
2d at 1178 (reaching same conclusion). In sum, the Rodgers
factors do not weigh against the sale of the Residence pursuant
to 26 U.S.C. § 7403.
13/

As discussed above, Plaintiff has clarified that the
Statons’ tax debts for the year 2000 were the basis for a
$93,962.41 federal tax lien that remained reflected in a Title
(continued...)
26

does not appear that the claim was subsequently dismissed.
Plf.’s Second MSJ reiterates the Government’s request that Count
I of its Complaint be dismissed.

Mem. in Support of Mot. at 2,

ECF No. 109-1.
Plaintiff has not submitted a formal notice of
dismissal or stipulation relating to Count I of its Complaint.
However, the Court may order such dismissal at Plaintiff’s
request, without prejudice and “on terms that the court considers
proper.”

Fed. R. Civ. P. 41(a)(2).

As it appears that the tax

liabilities at issue in Count I of the Complaint have been
resolved, and there being no prejudice to Defendants in
dismissing that claim, the Court DISMISSES with prejudice Count I
of Plaintiff’s Complaint.
CONCLUSION
For the reasons set forth above, the Court GRANTS
Plaintiff’s Motion for Summary Judgment on the Third Claim in the
Complaint, ECF No. 109.

The Court further ORDERS that Ronald

Staton’s federal tax liens and Ronald and Brenda Staton’s
mortgage be foreclosed on the Residence, and ORDERS the sale of
the Residence free and clear of all liens, including Capstead’s

13/

(...continued)
Report that was submitted to the Court. See United States’ Br.
Regarding the Court’s July 31, 2015 Order at 1-2, ECF No. 144;
Title Report at 4, ECF No. 138-2. Plaintiff released that tax
lien on August 11, 2015, in view of the Statons’ payment. See
United States’ Notice of Filing Release of Tax Lien Regarding the
2000 Tax Year, ECF No. 150.
27

senior mortgage.

A separate Order of Foreclosure and Judicial

Sale will follow this Order.
In addition, the Court DISMISSES with prejudice Count I
of Plaintiff’s Complaint, ECF No. 1, pursuant to Fed. R. Civ. P.
41(a)(2) and Plaintiff’s request.
The Court understands the Statons are retired and Mr.
Staton has a health problem, and the Court does not like to see
people lose their homes.

However, Plaintiff has been working

with the Statons for almost three years to resolve these tax
problems.

The foreclosure process will take several weeks; if

the Statons are successful in raising the necessary funds to pay
Plaintiff, they should notify the Court immediately, and the sale
will be stopped.

IT IS SO ORDERED.
DATED:

Honolulu, Hawai’i, August 31, 2015.

________________________________
Alan C. Kay
Senior United States District Judge

United States v. Staton, et al., Civ. No. 12-00319 ACK-KSC, Order
Granting Plaintiff’s Motion for Summary Judgment on the Third
Claim in the Complaint.

28