Internal Revenue Service v. Davis et al
MEMORANDUM RULING re 32 MOTION for Summary Judgment filed by U S Internal Revenue Service, 33 MOTION for Summary Judgment filed by Andrew Davis, Jr, Willie J Singleton, S P Davis, Sr. Signed by Judge S Maurice Hicks on 01/05/2017. (crt,McDonnell, D)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
UNITED STATES OF AMERICA
CIVIL ACTION NO. 15-0050
JUDGE S. MAURICE HICKS, JR.
S.P. DAVIS, SR., ET AL.
MAGISTRATE JUDGE HAYES
Before the Court are the United States of America’s (“the Government”) Motion for
Summary Judgment (Record Document 32) and Defendants S.P. Davis, Sr. (“Davis”),
Andrew Davis, Jr., and Willie J. Singleton’s (“Singleton”) Motion for Summary Judgment
(Record Document 33). Because the Court finds that there is no genuine issue of material
fact and that the Government is entitled to judgment as a matter of law, the Government’s
Motion is hereby GRANTED, and Defendants’ Motion is hereby DENIED.
FACTUAL AND PROCEDURAL BACKGROUND
This case is the latest in a series of cases involving the failure of three related
businesses partially owned by Defendants Davis and Singleton to pay federal payroll
taxes in the late 1990s. The factual circumstances leading to the failure to pay these taxes
are described in detail in Davis v. United States, 2008 U.S. Dist. LEXIS 80918 (W.D. La.
2008), aff’d, 402 Fed. Appx. 915 (5th Cir. 2010). In 2002, the Internal Revenue Service
(IRS) made assessments against Davis, Singleton, and others for these unpaid taxes.
See Record Document 32-1 at ¶ 1. In 2003, the IRS filed a Notice of Federal Tax Lien in
the records of the Clerk of Court of Caddo Parish, Louisiana regarding these unpaid taxes
as to Davis and Singleton. See Record Documents 32-5 and 32-6. The IRS re-filed these
liens in 2011. See id.
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In 2006, Davis filed suit in this Court seeking a refund of the amounts he had paid
toward the federal tax liabilities that the IRS had assessed against him. See Davis, 2008
U.S. Dist. LEXIS 80918 at *9. The Government counterclaimed against Davis for full
payment of the amounts owed, and it also added Singleton and others as parties seeking
judgments against them for the amounts owed. See id. This Court granted the
Government’s Motion for Summary Judgment in that action, holding that Davis and
Singleton were jointly and severally liable for the amounts owed. See id. at *33-34. The
Court issued a judgment against Davis for $3,152,652.85 and against Singleton for
$3,152,757.49. See id. at *34.
In 2012, the Government filed suit for forfeiture and forced sale of Davis’
homestead under 26 U.S.C. § 7403. See United States v. Davis, 2015 U.S. Dist. LEXIS
58947 (W.D. La. 2015). The Court granted the Government’s Motion for Summary
Judgment in this suit as well. See id. The Court rejected Davis’ argument that his children
were entitled to a portion of the sale proceeds because they had inherited a portion of the
property from Davis’ deceased wife under Louisiana’s intestate succession law. See id.
On May 15, 2012, Defendant Boardwalk Investors/US Bank (“Boardwalk
Investors”) purchased tax sale title to the property at 4050 Linwood Avenue, Shreveport,
Louisiana 71108 after the property taxes were not paid. See Record Document 32-9.
Defendants Davis, Singleton, and Andrew Davis, Jr. had purchased this property in 1984,
with each taking an undivided one-third interest in the property. See Record Document
32-3. Though notice of the sale was provided in a local newspaper in accordance with
Louisiana law, notice of the sale was not provided to the Government in the manner
required by 26 U.S.C. § 7425(c).
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The Government filed the instant lawsuit on January 9, 2015, seeking forfeiture
and forced sale of Davis and Singleton’s interests in this property. See Record Document
1 at 2. Both Andrew Davis, Jr., and Boardwalk Investors were included as Defendants in
the instant suit under the requirements of 26 U.S.C. § 7403(b) even though they are not
liable for Davis and Singleton’s tax debt.
The parties (with the exception of Boardwalk Investors) filed cross-Motions for
Summary Judgment, with each side contending that there are no genuine issues of
material fact and that it is entitled to judgment as a matter of law. See Record Documents
33 and 34. The Government seeks a judgment permitting foreclosure on the property and
permission to sell the property as a whole, with payment of a portion of the proceeds to
Andrew Davis, Jr. for his interest and repayment of the property taxes paid by Boardwalk
Investors. See Record Document 1 at 8.
LAW AND ANALYSIS
A. The Summary Judgment Standard
Rule 56 of the Federal Rules of Civil Procedure governs summary judgment. This
rule provides that the court "shall grant summary judgment 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). Also, "a party asserting that a fact cannot be or is
genuinely disputed must support the motion by citing to particular parts of materials in the
record." Fed R. Civ. P. 56(c)(1)(A). "If a party fails to properly support an assertion of fact
or fails to properly address another party's assertion of fact as required by Rule 56(c), the
court may . . . grant summary judgment." Fed. R. Civ. P. 56(e)(3).
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In a summary judgment motion, "a party seeking summary judgment always bears
the initial responsibility of informing the district court of the basis for its motion, and
identifying those portions of the pleadings . . . [and] affidavits, if any, which it believes
demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett,
477 U.S. 317, 323 (1986) (internal quotations and citations omitted). If the movant meets
this initial burden, then the non-movant has the burden of going beyond the pleadings
and designating specific facts that prove that a genuine issue of material fact exists. See
id. at 325; see Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). A non-movant,
however, cannot meet the burden of proving that a genuine issue of material fact exists
by providing only "some metaphysical doubt as to the material facts, by conclusory
allegations, by unsubstantiated assertions, or by only a scintilla of evidence." Little, 37
F.3d at 1075.
Additionally, in deciding a summary judgment motion, courts "resolve factual
controversies in favor of the nonmoving party, but only when there is an actual
controversy, that is when both parties have submitted evidence of contradictory facts." Id.
Courts "do not, however, in the absence of any proof, assume that the nonmoving party
could or would prove the necessary facts." Id.
B. Foreclosure Actions Pursuant to 26 U.S.C. § 7403
Section 7403 of the Internal Revenue Code provides a method for the Court to
enforce a federal tax lien when the Government files a civil action to enforce the lien
against a delinquent taxpayer’s property. The Government must include all parties with
an interest in the property at issue as parties to the action. See 26 U.S.C. § 7403(b). This
Section sets out the following procedure for such a suit:
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The court shall, after the parties have been duly notified of the action,
proceed to adjudicate all matters involved therein and finally determine the
merits of all claims to and liens upon the property, and, in all cases where
a claim or interest of the United States therein is established, may decree a
sale of such property, by the proper officer of the court, and a distribution of
the proceeds of such sales according to the findings of the court in respect
to the interests of the parties and of the United States.
26 U.S.C. § 7403(c).
Thus, the Court must determine whether the Government has a valid lien upon the
property at issue in the suit and the interests of the other parties in the property. Then,
the Court may allow foreclosure of the lien on the property and order a sale. The decision
to allow foreclosure on the property is one in which the Court may exercise a “degree of
equitable discretion,” as proceedings under § 7403 are by their nature proceedings in
equity. United States v. Rodgers, 461 U.S. 677, 708 (1983). However, such discretion is
not “unbridled discretion.” Id. at 709. There are “virtually no circumstances, for example,
in which it would be permissible to refuse to authorize a sale simply to protect the interests
of the delinquent taxpayer himself or herself.” Id.
A court may exercise its limited discretion to decline to sell a property against which
there is a federal tax lien when the delinquent taxpayer co-owns the property with
someone else. See id. In such situations, there are certain factors that the court must
consider: (1) “the extent to which the Government’s financial interests would be
prejudiced if it were relegated to a forced sale of the partial interest actually liable for the
delinquent taxes;” (2) whether the third party with a nonliable 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;” (3) “the likely prejudice to the third party, both in personal
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dislocation costs and in . . . undercompensation;” and (4) “the relative character and
value of the nonliable and liable interests held in the property.” Id. at 710-11. Thus,
consideration of these factors allows the Court to balance “the Government’s interest in
prompt and certain collection of delinquent taxes and the possibility that innocent third
parties will be unduly harmed by that effort.” Id. at 709.
The Government’s Motion makes a straightforward argument that it is entitled to
foreclosure and sale of the subject property because it holds duly-recorded federal tax
liens and judgments imposing joint and several liability upon Davis and Singleton for their
unpaid taxes. See Record Document 32-2. Davis, Singleton, and Andrew Davis, Jr. argue
that: (1) under the factors outlined in Rodgers, foreclosure and sale of the property is
inappropriate; and (2) even if foreclosure and sale is appropriate, Davis’ children should
each receive 1/12 of the proceeds because they each inherited a 1/12 interest in the
property at the death of Davis’ wife through Louisiana’s intestate succession law. See
Record Document 33-1. In response, the Government contests both of these arguments.
See Record Document 39.
A. The Rodgers Factors Weigh in Favor of Foreclosure and Sale.
Defendants correctly point out that the Court has some discretion in deciding
whether to grant a foreclosure and sale in § 7403 proceedings under Rodgers. See
Record Document 33-1 at 5-6. Defendants argue that (1) the property in question would
not sell for its appraisal value and would represent a tiny portion of the overall tax debt;
(2) the Government cannot show that it will be prejudiced if the Court decides not to allow
a forced sale to proceed; (3) allowing a forced sale would be “an unjust and harsh
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remedy;” (4) the Government is pursuing this remedy out of a “punitive and retaliatory
motive” evidenced by the fact that the Government has not pursued such remedies
against Davis and Singleton’s former co-owners of the companies; (5) Davis and
Singleton would be greatly prejudiced by allowing a forced sale of the property. See
Record Document 33-1 at 6-7.
Defendants’ arguments are mostly irrelevant under the Rodgers factors, and the
Court finds that there is no genuine issue of material fact in how these factors apply to
the instant case. The property’s likely sale price as a portion of the total tax debt of the
taxpayer is simply not a relevant consideration under Rodgers. See 461 U.S. at 709-11.
The Government is not obligated to show that it will be prejudiced if the Court declines to
order foreclosure and sale. See id. Allowing a foreclosure and forced sale is a harsh
remedy, but it is one that is expressly allowed by 26 U.S.C. § 7403 to satisfy a federal tax
debt. Whether the forced sale is an unjust remedy in a particular case is an equitable
determination to be made under the Rodgers framework, but the Court in Rodgers
expressly declined to give any weight to considerations of fairness to the delinquent
taxpayer. See id. at 709. The Government’s motive in filing the foreclosure action is also
not relevant under Rodgers. See id. at 709-11. Finally, as previously stated, prejudice to
the delinquent taxpayers is not a consideration to be given any weight in deciding whether
to grant foreclosure and sale. See id. at 709.
The Government’s arguments correctly apply the Rodgers factors. See Record
Documents 32-1 and 39. The important consideration under the first Rodgers factor is
whether the Government would be prejudiced if it were forced to foreclose upon and sell
only the portion of the property owned by the delinquent taxpayers themselves and not
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the portion owned by nonliable co-owners. See id. at 710. The Court finds that the
Government’s overall recovery would be lower if it were forced to foreclose upon only the
portion of the property owned by Davis and Singleton. Such a sale would not include the
1/3 interest owned by Andrew Davis, Jr., or the tax sale title owned by Boardwalk
Investors. Partial interests in property often sell for less than an equivalent pro rata share
of the whole property, and courts have recognized this fact in the context of valuing
property interests for tax purposes. See Estate of John L. Baird v. Commissioner, 2001
Tax Ct. Memo LEXIS 292 at *24-29 (T.C. 2001) (recognizing that “under Louisiana law,
there are uncertainties and disabilities associated with an undivided minority interest in
property” that reduce the value of such an interest to less than its pro rata value and
approving a 60 percent valuation discount in fractional interests in immovable property
for estate tax purposes). Thus, the first Rodgers factor weighs in the Government’s favor,
as the Government would be prejudiced if it were only able to foreclose upon and sell
Davis and Singleton’s interests in the property.
The second factor asks “whether the third party with a nonliable separate interest
in the property would, in the normal course of events . . . have a legally recognized
expectation that” his or her interest in the property “would not be subject to forced sale by
the delinquent taxpayer or his creditors.” Rodgers, 461 U.S. at 710. Discussing this factor,
the Court contrasted the extensive protections against forced sale of a Texas homestead
property under Texas law with the fact that all co-owners have the right to seek a partition
by judicial sale of the property in which they own an interest. See id. at 711. The Court
stated that this type of ownership interest is “further along the continuum” of property
interests in terms of protection against forced sale, meaning that there is a much weaker
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argument against foreclosure and sale when the nonliable property interest is a mere
fractional undivided interest in the property rather than a protected interest like a
homestead interest. See id.
Co-owners (owners in indivision) under Louisiana law, like tenants in common and
joint tenants under the common law property system, have a right to demand partition in
kind or by sale. See La. C.C. arts. 807, 809-11. Andrew Davis, Jr. owns a 1/3 interest in
the property at issue here, an interest he acquired in 1984 with Davis and Singleton. See
Record Document 32-3 (the original property conveyance). Thus, Andrew Davis, Jr. owns
a fractional undivided interest in the property, and has little protection against a forced
sale. Therefore, the second factor also weighs in favor of the Government.
The third factor requires the Court to “consider the likely prejudice to the third party,
both in personal dislocation costs and . . . undercompensation.” Rodgers, 461 U.S. at
711. The property at issue is commercial property used for the operation of Davis and
Singleton’s law offices. See Record Document 33-1 at 7. Defendants make no argument
that Andrew Davis, Jr. currently uses any part of the property for a commercial purpose,
such as the operation of a business of his own, so there is no evidence that any prejudice
in the form of personal dislocation costs to him would result from foreclosure and sale. As
explained at 7-8, supra, sale of the entire property will result in a higher sale price for all
involved, including Andrew Davis, Jr.; thus, he will suffer no prejudice from
undercompensation. The same is true of Boardwalk Investors’ tax sale title, as such title
conveys no possessory rights to its owner. See La. R.S. § 47:2121 et seq.
Finally, the fourth factor requires the Court to “consider the relative character and
value of the nonliable and liable interests held in the property.” Rodgers, 461 U.S. at 711.
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The Court stated that when the nonliable party “has no present possessory or fee interest
in the property, there may be little reason not to allow the sale.” Id. “If, on the other hand,
the [nonliable] 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. As discussed, Boardwalk Investors’ rights in the property
are limited and nonpossessory, so it is miniscule compared to the portion of the property
subject to the federal tax lien. See La. R.S. § 47:2121 et seq. Andrew Davis, Jr.’s interest
is an undivided 1/3 interest in the property, which means that it falls somewhere between
the two extremes mentioned in Rodgers. However, the Court finds that this factor weighs
in favor of the Government, as 2/3 of the property is subject to the Government’s tax lien.
Thus, the Court rejects Defendants’ arguments regarding the Rodgers factors. All
four of these factors weigh in favor of granting the Government’s requested relief of
foreclosure and sale of the entire property at issue, with compensation to Andrew Davis,
Jr. for his 1/3 interest and repayment of the property taxes paid by Boardwalk Investors.
B. The Government’s Tax Liens Attach to the Entirety of Davis’ One-Third
Interest in the Property.
As an alternative to the Rodgers-based arguments addressed above, Davis argues
that if the Court grants the Government’s requested relief of foreclosure and sale, his
children should each receive 1/12 of the proceeds of the sale. See Record Document 331 at 8-10. Davis asserts that under Louisiana law, his 1/3 interest in the property in
question was community property, and that a 1/6 interest in the property therefore passed
immediately at the death of his wife to his children. See id. Thus, Davis asserts that the
Government would only be entitled to the 1/3 of the proceeds of sale attributable to
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Singleton’s interest and the 1/6 of the proceeds of sale attributable to Davis’ remaining
1/6 interest. See id. at 10.
The Court rejects this argument. It is true that, assuming that Davis’ 1/3 interest
was community property, his wife’s 1/6 interest in the property passed to their children in
equal proportions at her death. See La. C.C. arts. 880 et seq. This leaves each of them
as 1/12 naked owners of the property, with their interests subject to the usufruct of Davis.
See id. However, it is also true that if the interest Davis and his wife had in the property
at issue was community property, it is liable for the tax obligation that Davis incurred to
the Government. Louisiana Civil Code Article 2357 governs the satisfaction of an
obligation after the termination of a community property regime, stating:
An obligation incurred by a spouse before or during the community property
regime may be satisfied after termination of the regime from the property of
the former community and from the separate property of the spouse who
incurred the obligation.
Thus, under Louisiana law, the property at issue is property of the former
community regime of Davis and his spouse. Davis’ federal tax obligation was incurred
during the existence of the community property regime. Thus, the entire 1/3 interest that
Davis and his wife took in the property is liable for payment of the federal tax obligation
that Davis incurred during the existence of the community property regime. The Court
reached the same conclusion in addressing the same argument in United States v. Davis,
2015 U.S. Dist. LEXIS 58947 (W.D. La. 2015).
C. The Government’s Tax Lien Survived Boardwalk Investors’ Purchase of
Tax Sale Title, but Boardwalk Investors Is Entitled to Reimbursement for
Property Taxes Paid.
Boardwalk Investors filed an answer in the instant lawsuit, but it did not file a
response to the Government’s Motion for Summary Judgment. See Record Document 7.
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In its answer, Boardwalk Investors asserted two affirmative defenses and sought to move
to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(6) and 9(c). See
id. at 4. This attempt at making motions to dismiss is inadequate under Local Rule 7.4 of
the Western District of Louisiana, as such motions must be accompanied by a
Memorandum in Support; thus, the Court will not address them. As the Government seeks
relief against Boardwalk Investors in the instant action, as well, however, the Court must
at least address Boardwalk Investors’ interest.
As a threshold matter, it must be noted that Boardwalk Investors’ purchase of tax
sale title did not affect the Government’s lien on the property. Boardwalk Investors
purchased tax sale title to the property on May 15, 2012. See Record Document 32-8 (the
tax sale certificate). As part of its summary judgment evidence, the Government attached
Boardwalk Investors’ response to the Government’s interrogatories. See Record
Document 32-7. From these interrogatories, the tax sale certificate, and the other
summary judgment evidence, there is no indication that the Government was ever
provided with the written notice required for sale of property in which the Government has
an interest in accordance with 26 U.S.C. § 7425(b).
Such notice is required if the Government’s lien is on file for more than 30 days in
the real property records of Caddo Parish. See id. As the Government filed the Notice of
Federal Lien for the property in question in 2002 and renewed it in 2011, notice in
accordance with 26 U.S.C. § 7425(b) was required. See Record Documents 32-5 and 326. Because the Government never received such notice, Boardwalk Investors’ purchase
of tax sale title did not affect the Government’s lien on the property. See Myers v. United
States, 647 F.2d 591, 595-601 (5th Cir. 1981).
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The matter of how much of the sale proceeds Boardwalk Investors is entitled to
receive remains an open question. In its Memorandum in Support of its Motion for
Summary Judgment, the Government seeks a judgment ordering that a portion of the
sale proceeds be paid to Boardwalk Investors “for reimbursement of its payment of
property taxes.” Record Document 32-2. In its answers to the Government’s
interrogatories, Boardwalk Investors claims that it is entitled to a total of $7,413.63 for its
interest in the property, with $5,544.14 representing actual property taxes paid, $1,703.59
representing interest, and $165.90 representing fees. See La. R.S. §§ 47:2127(B) and
Thus, though the Government agrees that Boardwalk Investors is at least entitled
to reimbursement for the actual amount of property taxes paid, it is unclear whether the
Government agrees with the assertion that Boardwalk Investors is also entitled to interest
and fees. Because the Government has not adequately addressed the issue and
Boardwalk Investors has made no response to the Government’s Motion for Summary
Judgment, the Court will issue judgment for the Government using the language it seeks
without determination of the specific amount owed to Boardwalk Investors. See
Cottonwood Dev. v. Moter, 2016 U.S. Dist. LEXIS 167708 at *7-8 n.6 (W.D. La. 2016)
(reaching a similar conclusion regarding interest and fees when the parties had not
adequately addressed the issue).
From the summary judgment evidence, it is clear that there is no genuine dispute
as to any material fact and that the Government is entitled to judgment as a matter of law.
Defendants Davis, Singleton, and Andrew Davis, Jr.’s arguments regarding the Rodgers
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factors misapply these factors, and Davis’ argument regarding his children’s interests in
the property at issue disregard Louisiana law permitting satisfaction of Davis’ tax debt
from former community property. The Government correctly applied the Rodgers factors
and is entitled to seize and sell the property at issue under 26 U.S.C. § 7403. The
Government is entitled to judgment (1) foreclosing its federal tax lien against 4050
Linwood Avenue, Shreveport, Louisiana 71108; (2) ordering that the property be sold
according to law, free and clear of the claims of all other parties herein; and (3) ordering
that the proceeds of the sale be paid first to Boardwalk Investors for reimbursement of its
payment of property taxes, then to the Government for the costs of the sale, and finally
1/3 of the remainder to Andrew Davis, Jr. for his interest and 2/3 of the remainder to the
Government to be applied to the tax debts of Davis and Singleton.
Therefore, IT IS ORDERED that the Government’s Motion for Summary Judgment
(Record Document 32) be and is hereby GRANTED, and Defendants Davis, Singleton,
and Andrew Davis, Jr.’s Motion for Summary Judgment (Record Document 33) be and is
THUS DONE AND SIGNED at Shreveport, Louisiana, on this the 5th day of
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