Sawyer et al v. United States of America

Filing 49

Judge William G. Young: ORDER entered. ORDER"The second mortgage encumbered only Albions one-halfinterest in the property. The first and second mortgages werepaid out of Albions share of the sale proceeds, and thus thesatisfaction of the mortgages exhausted Albions interest in theproperty. Accordingly, the money placed in escrow rightfullybelongs to the M.A.W. Revocable Trust.SO ORDERED."(Sonnenberg, Elizabeth)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
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MELISSA JORDAN,
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JENNIFER SAWYER,
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and KATE SAWYER,
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Plaintiffs,
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v.
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UNITED STATES OF AMERICA,
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Defendant.
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LAURA SAWYER,
individually, as Trustee of
M.A.W. Revocable Trust, and
as Trustee of 14 Avon Place
Realty Trust,

YOUNG, D.J.

CIVIL ACTION
NO. 1:13-cv-10590-WGY

January 6, 2015

ORDER
I.

INTRODUCTION
In 1996, Albion Sawyer (“Albion”) and his wife, Maria

Sawyer (“Maria”), granted a second mortgage on their property to
secure a debt owed by Albion.

Compl. ¶ 27, ECF No. 1.

After

Albion failed to pay taxes related to his business, the Internal
Revenue Service (“IRS”) put a lien on the couple’s property.
Id. ¶¶ 29-32.

In order to sell the property, an escrow account

1

was established in an amount equal to the tax lien.
43.

Id. ¶¶ 38-

Pursuant to the language of the second mortgage, one-half

of the proceeds from the sale of the property were used to pay
off the mortgages on the property.

See id. ¶¶ 46-48.

The Plaintiffs, the Trustee of the M.A.W. Revocable Trust
and Maria’s daughters, assert that Albion’s half-interest in the
property was exhausted through payment of the mortgages and,
therefore, the money in escrow belongs to Maria’s half-interest
- the M.A.W. Revocable Trust.

Id. ¶¶ 57-59.

The United States

asserts that the monies used to pay the first and second
mortgages came from Albion’s and Maria’s respective halfinterests and, therefore, the money in escrow is a residue of
Albion’s half-interest subject to the federal lien.

U.S.’ Mem.

Reasons Supp. Mot. Summ. J. (“Def.’s Mem.”), ECF No. 27.
A.

Procedural Posture

On April 1, 2008, Albion and Maria, individually and as
trustees of the 14 Avon Place Realty Trust (“Avon Trust”),
entered into a stipulated judgment with the United States, where
judgment was entered against Albion, pursuant to United States
tax law.

United States v. Sawyer, No. 06-cv-11686 (D. Mass.

April 1, 2008) (Gertner, J.).

In December 2012, the Avon Trust

and the IRS entered in an agreement (the “Escrow Agreement”) to
place $291,678.71 of the proceeds of the sale of the Sawyers’
property into escrow to remove a tax lien the IRS had placed on
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the property following the earlier judgment.
Escrow Agreement, ECF No. 1-7.

Compl., Ex. E,

The funds were set to be

released to the IRS on March 14, 2013, unless an action was
commenced in District Court.

Id. ¶ 8.

Laura Sawyer -

individually, as Trustee of the M.A.W. Revocable Trust, and as
Trustee of the Avon Trust - along with Melissa Jordan, Jennifer
Sawyer, and Kate Sawyer (collectively the “Plaintiffs”), brought
this suit March 13, 2013.

Compl.

On May 7, 2014, the United States moved for summary
judgment.

U.S.’ Mot. Summ. J., ECF No. 26; Def.’s Mem.

On June

20, the Plaintiffs filed a cross motion for summary judgment.
Pls.’ Mot. Summ. J., ECF No. 34; Pls.’ Mem. Supp. Mot. Summ. J.
(“Pls.’ Mem.”), ECF No. 35.

The same day, the Plaintiffs filed

their opposition to the motion of the United States.

Pls.’

Opp’n U.S.’ Mot. Summ. J., ECF No. 36; Pls.’ Mem. Supp. Opp’n
Def.’s Mot. Summ. J. (“Pls.’ Opp’n”), ECF No. 37.

The United

States filed its opposition to the Plaintiffs’ motion on July
10, 2014.

U.S.’ Mem. Law Opp’n Pls.’ Mot. Summ. J. (“Def.’s

Opp’n”), ECF No. 40.
September 23, 2014.

The Plaintiffs also filed a supplement on
Pls.’ Supplement Mem. Supp. Summ. J., ECF

No. 47.
B.

Case Stated

In lieu of summary judgment, the parties have agreed to
proceed with a “case stated” hearing, after which the Court will
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make findings of fact and rulings of law based on the record.
Electr. Notice, ECF No. 45.

Case stated hearings provide an

efficacious procedural alternative to cross motions for summary
judgment.

See Continental Grain Co. v. Puerto Rico Mar.

Shipping Auth., 972 F.2d 426, 429 n.7 (1st Cir. 1992).

“In a

case stated, the parties waive trial and present the case to the
court on the undisputed facts in the pre-trial record.”

TLT

Constr. Corp. v. RI, Inc., 484 F.3d 130, 135 n.6 (1st Cir.
2007).

In contrast to summary judgment, where the Court must

draw all reasonable inferences in favor of the nonmovant, in a
case stated the Court is “entitled to ‘engage in a certain
amount of factfinding, including the drawing of inferences.’”
Id. (quoting United Paperworkers Int'l Union Local 14 v. Int'l
Paper Co., 64 F.3d 28, 31 (1st Cir. 1995)).
II.

FINDINGS OF FACT
A.

Background

On September 7, 1967, Albion and Maria purchased 12-14 Avon
Place in Cambridge, Massachusetts (the “property”).
10.

They held the house as tenants by the entirety.

Compl. ¶
Id. ¶ 11.

On October 6, 1993, the Sawyers, signing as co-mortgagors,
granted a mortgage (the “first mortgage”) to Cambridge Trust
Company (“Cambridge Trust”).

Id. ¶ 22-23.

On April 23, 1996, Albion and Maria entered into a
postnuptial agreement.

Pls.’ Mem., Ex. D, Postnuptial Agreement
4

(“Postnup”), ECF No. 35-4.
recorded.

Pls.’ Opp’n 4.

The postnuptial agreement was not
The postnuptial agreement was made in

consideration of the couple’s agreement to place a second
mortgage on the property.

Postnup ¶ 2.

The postnuptial

agreement dissolved the tenancy by the entirety and rendered it
a tenancy in common.

See Postnup ¶¶ 6-7 (permitting Maria, in

the event of a sale, to receive one-half of the net proceeds,
and in the event of Maria’s death, ensuring one-half of the
property will be left to Maria’s surviving children).
Prior to May 1996, Albion was in default on various
business loans from Cambridge Trust.

Compl. ¶ 24.

The business

loans were reorganized into a promissory note obligating him to
pay Cambridge Trust $525,000.

Compl. ¶¶ 25-26; Compl., Ex. D,

Promissory Note, ECF No. 1-6.

Albion, but not Maria, signed the

promissory note on May 20, 1996.
B.

Promissory Note.

Second Mortgage

On May 20, 1996, a second mortgage was granted to Cambridge
Trust by Albion and Maria to secure the business loan promissory
note obtained by Albion (the “second mortgage”).

Compl. ¶ 27.

The second mortgage contained several specially bargained-for
clauses.

See Pls.’ Mem. 9-10.

Section 14A of the second

mortgage allowed Maria to transfer her one-half interest in the
mortgaged property to her children without causing acceleration
of the due date for the underlying debt.
5

Pls.’ Mem., Ex. E,

Second Mortgage, Security Agreement, & Financing Statement
(“Second Mortgage”) 7, ECF No. 35-5.

Section 14B entitled

Cambridge Trust, in the event of a bona fide sale, to the lesser
of either one-half of the sale proceeds or the outstanding
balance due on the first and second mortgages.

Id. at 9.

Similarly, section 40 entitled Cambridge Trust, in the case of
foreclosure, to the lesser of either one-half of the sale
proceeds after expenses or the outstanding balance due on the
first and second mortgages.

Id. at 15.

Section 41 provided

that, as long as the property was the primary residence of
Maria, Cambridge Trust would have neither the right to foreclose
nor the right to collect rent from the property.

Id.

In October 1997, Albion and Maria conveyed the property to
the Avon Trust.

Compl. ¶ 12.

November 28, 1997.

The conveyance was recorded

Id. ¶¶ 12-13; Def.’s Mem. 5.

The

beneficiaries of the Avon Trust are the M.A.W. Revocable Trust
and the Albion Topliffe Sawyer Trust, each of which has an equal
fifty percent interest.

Compl., Ex. B, Schedule Beneficiaries

14 Avon Place Realty Trust, ECF No. 1-4.
C.

Tax Assessment and Lien

Acting through the IRS, the United States, on September 23,
1996, first assessed past-due taxes on Albion for employment tax
liabilities.

Def.’s Mem., Ex. 3, Stipulation J. & J. Entry

(“Stipulated J.”) 1-2, ECF No. 27-4.
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The IRS also assessed

trust fund recovery penalties on Albion relating to his
business.

Id. at 2.

On April 1, 2008, a Stipulation for

Judgment entered in favor of the United States against Albion in
the amount of $233,074.55, plus penalties and interest.
3.

The judgment was not recorded.
Maria died April 4, 2011.

Id. at

Compl. ¶ 34.

Compl. ¶ 16.

On July 26, 2012,

Laura Sawyer, as Trustee of the Avon Trust, entered into a
purchase and sales agreement to sell the property for
$1,725,000.

Compl. ¶¶ 36-37.

On December 14, 2012, the Avon

Trust and the IRS executed the Escrow Agreement, which removed
the tax liens contingent on $291,678.71 being placed in escrow.
Escrow Agreement.

The property contract sales price of

$1,725,000 was reduced by $86,250 for broker’s fees, $2,000 for
legal fees, and $7,866 for stamp tax, resulting in a final sales
price of $1,628,884 (half of which is $814,442).
33.

Pls.’ Mem. ¶

Cambridge Trust discharged the first mortgage and the

second mortgage for payment of $814,442, although the mortgage
balances totaled $841,185.46, a difference of $26,743.46.
33, 36.

Id. ¶

Pursuant to the Escrow Agreement, $291,678.71 plus

interest is currently held in escrow.

Compl. ¶ 42.

III. RULINGS OF LAW
A.

The Tax Liens Arose at the Time of Assessment

If a person liable to pay tax either neglects or refuses to
pay it after demand, the amount owed shall be a lien in favor of
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the United States upon all property and rights to property
belonging to that person.

26 U.S.C. § 6321.

Absent another

date fixed by law, the section 6321 lien arises at the time the
assessment is made and continues until the liability for the
amount assessed is satisfied.

26 U.S.C. § 6322.

Because Albion and Maria had converted their holding of the
property into a tenancy in common and granted the second
mortgage by May 20, 1996, Second Mortgage, and the earliest IRS
lien date did not occur until September 23, 1996,1 the lien
attached to Albion’s property interest as of that date.

By the

time Albion and Maria transferred their respective halfinterests to the Avon Trust in October 1997, Compl. ¶ 12, Albion
had been assessed $18,552.62 in past-due taxes, See Stipulated
J. 1.

The remaining liens, totaling $214,521.93, attached after

the Avon Trust was established.

Id. at 1-2.

B.
The Second Mortgage is Unambiguous and There is Only
One Reasonable Interpretation of the Parties’ Obligations
Under Massachusetts law, a “court interprets a contract
that is free from ambiguity according to its plain meaning.”
Southern Union Co. v. Dep't of Pub. Utils., 458 Mass. 812, 820
(2011).

Whether a provision of a contract is ambiguous or not

1

While the United States asserts Albion was assessed
employment taxes in June 1996, Def.’s Mem. 18; Def.’s Mem., Ex.
5, Notice of Fed. Tax Lien, ECF No. 27-6, the Stipulated
Judgment shows the earliest assessment with regard to the lien
in question was September 23, 1996, Stipulated J.
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is a matter of law.

LPP Mortgage, Ltd. v. Sugarman, 565 F.3d

28, 31 (1st Cir. 2009).

“Contract language is usually

considered ambiguous where an agreement's terms are inconsistent
on their face or where the phraseology can support reasonable
difference of opinion as to the meaning of the words employed
and obligations undertaken.”

Fashion House, Inc. v. K Mart

Corp., 892 F.2d 1076, 1083 (1st Cir. 1989).

It is important to

note that “[t]he words of a contract must be considered in the
context of the entire contract rather than in isolation.”
General Convention of New Jerusalem in the U.S. , Inc. v.
MacKenzie, 449 Mass. 832, 835 (2007).
Courts generally ought not consider extrinsic evidence in
determining if the contract language is ambiguous.

Smart v.

Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 179 (1st
Cir. 1995).

If, however, a court holds that part of a contract

is ambiguous, the resolution of the ambiguity typically turns on
the parties’ intent, which is often illuminated by extrinsic
facts and the reasonable inferences that flow from those facts.
Id. at 178.

Interpreting intent from extrinsic evidence,

however, is a question of fact for a jury.

See id.

The terms of the second mortgage are not ambiguous.

While

the second mortgage does not explicitly describe the interest
conveyed, reading the mortgage as a whole makes clear this
mortgage is not a standard mortgage.
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Cambridge Trust was

securing a one-half interest in the property.

Section 1 of the

second mortgage is clear that the mortgage secures the
promissory note signed by Albion.

Second Mortgage 1.

Section

14A, titled “Other Security Interests,” prohibits a change in
ownership, with the exception that Maria is allowed to transfer
her one-half interest without causing acceleration of the debt
due on the underlying promissory note.

Id. at 7.

Additionally,

Cambridge Trust agreed to accept the lesser of one-half of the
net proceeds or the balance on the first and second mortgages in
the event of a sale (section 14B) or foreclosure (section 40).
Id. at 8, 15.

Finally, Section 41 establishes that as long as

Maria’s primary residence is the property, Cambridge Trust shall
not have the right to foreclose due to a default nor could it
collect rent from the property.

Id. at 15.

While Section 32 of

the second mortgage defines the term “mortgagor” as “the
mortgagor or mortgagors named herein,” id. at 13, the mortgage,
like all contracts, must be read as a whole, see MacKenzie, 449
Mass. at 835.

When reading it as a whole, the mortgage

establishes that Cambridge Trust was securing only a one-half
interest in the property.
Cambridge Trust took a loss of $26,743.46 when it
discharged the first and second mortgages for one-half of the
net sale price, Pls.’ Mem., Ex. H, Cambridge Trust Payoff
Letter, ECF No. 35-8 (discharging the first and second mortgages
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for a payment of $814,442 when the balance owed totaled
$841,185.46), and it would be nonsensical to conclude that
Cambridge Trust was willing to take a loss while allowing
Albion, the original debtor, to partake in proceeds from the
sale or foreclosure of the property.

The only reasonable

conclusion is that Cambridge Trust’s interest encumbered only
Albion’s fifty percent interest in the property, and, therefore,
after Cambridge Trust exhausted Albion’s interest in the
property, it discharged the mortgage at a loss.
The United States is correct in noting that a mortgagee may
be entitled to be paid from both mortgagors, even if one of the
co-mortgagors does not sign the underlying promissory note.
Def.’s Mem. 9 (citing Berg v. eHome Credit Corp., 848 F. Supp.
2d 841 (N.D. Ill. 2012)).

The facts of Berg, however, differ

from the current case in significant ways.

In Berg, nothing on

the record, including the mortgage or other extrinsic evidence,
supported the Bergs’ argument that their intent was to convey
only Mr. Berg’s interest in the property.

Id. at 845.

Thus,

the only reasonable interpretation of the Bergs’ mortgage was
that it applied to the entire property.

Id.

Unlike the Bergs’

mortgage, the plain language of the Sawyers’ second mortgage
implies that the mortgage encumbered only a half-interest in the
property.

See Second Mortgage.

Additionally, the postnuptial

agreement between Albion and Maria sheds light on the intention
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of the mortgagors to convey only Albion’s interest.

Postnup.

Therefore, the only reasonable conclusion is that the second
mortgage was granted with the intention that it encumbered only
Albion’s interest in the property.
C.

Fraudulent Conveyance Was Not Pled

The United States raises the issue, in light of In re Lodi,
375 B.R. 33 (D. Mass. 2007) (Rosenthal, Bankr. J.), that the
postnuptial agreement potentially divided the Sawyers’ property
interest in detriment to its creditors, including the United
States.

Def.’s Opp’n 11-12.

Yet the United States did not file

a cross claim seeking to set aside a fraudulent conveyance.
Moreover, similar to the plaintiff in Lodi, the United States
has proffered no evidence that the postnuptial agreement or the
second mortgage was made with intent to “hinder, delay, or
defraud.”

Id. at 40.

Accordingly, the Court will not decide

the merits of the United States’ argument on this point.
D.

Awarding of Costs and Fees

The Plaintiffs have requested legal fees and costs pursuant
to 26 U.S.C. § 7430.

Compl.

Section 7430 allows the prevailing

party to be awarded reasonable litigation costs incurred in
connection with any court proceeding brought “by or against the
United States in connection with the determination, collection,
or refund of any tax.”

26 U.S.C. § 7430(a)(2).

But “if the

United States establishes that [its position] in the proceeding
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was substantially justified,” the party seeking costs and fees
will not be treated as the prevailing party.
7430(c)(4)(B)(i).

26 U.S.C. §

The government’s position is substantially

justified “if a reasonable person could think it correct, that
is, if it has a reasonable basis in law and fact.”
Underwood, 487 U.S. 552, 566 n.2 (1988).

Pierce v.

The United States’

position in this case is reasonable, and, therefore, with regard
to section 7430, the Plaintiffs will not be treated as the
prevailing party.

Each side is to bear their own legal fees and

costs.
IV.

CONCLUSION
The second mortgage encumbered only Albion’s one-half

interest in the property.

The first and second mortgages were

paid out of Albion’s share of the sale proceeds, and thus the
satisfaction of the mortgages exhausted Albion’s interest in the
property.

Accordingly, the money placed in escrow rightfully

belongs to the M.A.W. Revocable Trust.
SO ORDERED.

_/s/ William G. Young_
WILLIAM G. YOUNG
DISTRICT JUDGE

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