United States of America v. Davis et al

Filing 33

OPINION AND ORDER GRANTING 19 MOTION for Partial Summary Judgment, and GRANTING 24 MOTION to Preserve Claim of Expenses. (Affidavit and proposed order due by 10/3/2014) Signed by District Judge Terrence G. Berg. (Chubb, A)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.

Case No. 13-11245
HON. TERRENCE G. BERG

RONALD DAVIS, and DIANE DAVIS,
Defendants.
____________________________________/
OPINION AND ORDER GRANTING:
(1) PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT; AND
(2) DEFENDANTS’ MOTION TO PRESERVE CLAIM OF EXPENSES
This is a civil action brought by the United States pursuant to 26 U.S.C. §§
7401 and 7403, in order to reduce federal tax assessments to judgment and enforce
its federal tax liens against property owned by Defendants in this district.
On January 9, 2014, the United States filed a motion for partial summary judgment
(Dkt. 19), seeking (1) entry of a judgment against Ronald Davis for penalties
assessed against him under 26 U.S.C. § 6672, and (2) foreclosure and the forced sale
of Ronald Davis’ personal residence, 6735 Meadowlake Road, Bloomfield Hills,
Michigan, in satisfaction of federal tax liens attached to his half-interest in that
property.
On January 25, 2014, Ronald Davis filed a response to the government’s
motion (Dkt. 23), consenting to an entry of judgment against him in the amount of
$1,150,054.46. The same day, his wife Diane Davis filed a separate response,
objecting to the government’s request for a forced sale of the couple’s shared home.

Thus, the only outstanding issue with respect to the government’s motion is
whether the Court should grant the Government’s request for a forced sale of the
Davis’ Bloomfield Hills residence.
Additionally, on February 27, 2014, Diane Davis filed a motion to preserve a
claim for expenses paid in conjunction with an agreed-to sale of a second property
owned by the couple.
Both motions were fully briefed and the Court heard oral argument on April
30, 2014. As discussed further below, because there are no factual issues in need of
resolution, the government’s motion for partial summary judgment shall be
GRANTED. Likewise, the Court shall exercise its authority under 26 U.S.C. § 7403
and direct the distribution of the proceeds of the agreed-to sale in accordance with
the interests of the parties, such that Defendant Diane Davis’ motion is also
GRANTED.
I.

ANALYSIS

A federal tax lien is created by operation of law when a taxpayer refuses or
neglects to pay a tax after payment is demanded. 26 U.S.C. § 6321. It is
undisputed that such a lien exists in this case. Further, the lien extends to “all
property and rights to property, whether real or personal, belonging to” Defendant
Ronald Davis. Id.
Pursuant to 26 U.S.C. § 7403, the United States now seeks to enforce the
federal tax lien in this suit, requesting a judicial order to sell that property and

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distribute the proceeds to the United States and such other claimants as may
establish an interest in the property.
“The threshold question ... in all cases where the Federal Government asserts
its tax lien, is whether and to what extent the taxpayer had property or rights to
property to which the tax lien could attach.” Blachy v. Butcher, 221 F.3d 896, 905
(6th Cir. 2000). Under Michigan law, the Davis’ residence is held by the couple as a
tenancy by the entireties. The parties do not dispute that (1) federal tax liens
arising out of liabilities assessed against Ronald Davis as an individual
nevertheless attach to his interest in property held in tenancy by the entireties, and
(2) those liens can be foreclosed upon, even as to property held in tenancy by the
entireties. United States v. Craft, 535 U.S. 274 (2002). Rather, Diane Davis argues
that the Court should exercise its equitable discretion and decline the Government’s
request for a forced sale. See United States v. Rodgers, 461 U.S. 677, 709-12 (1983).
“The plain language of § 7403 indicates that a district court may order the
sale of property, which allows the district court ‘limited room ... for the exercise of
reasoned discretion.’ However, the Supreme Court has stated that this discretion is
limited and ‘should be exercised rigorously and sparingly, keeping in mind the
Government’s paramount interest in prompt and certain collection of delinquent
taxes.’” United States v. Barr, 617 F.3d 370, 377 (6th Cir. 2010) (quoting Rodgers,
461 U.S. at 706, 711) (Batchelder, C.J., dissenting in part)); see also United States v.
Winsper, 680 F.3d 482, 489 (6th Cir. 2012) (explaining that “the Rodgers factors do

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not address the scope of the government's discretion to foreclose, but, rather, the
district court's discretion not to foreclose.”)
A.

The Rogers Factors and Discretion Under § 7403
Under Rodgers, the factors that a district court should consider before

ordering a sale include the following: 1) “the extent to which the Government's
financial interest 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 non-liable separate interest in the property would, in the normal course of
events (leaving aside § 7403 and eminent domain proceedings, of course), have a
legally recognized expectation 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 dislocation costs and in … practical
undercompensation;” and 4) “the relative character and value of the non-liable and
liable interests held in the property.” Rodgers, 461 U.S. at 710-11.
As to the first factor, there can be no real dispute that the financial interest
of the United States would be substantially prejudiced if sale of the entire property
were denied; even assuming that Ronald Davis’ entireties interest could be reduced
to a half-interest in a tenancy in common, it is exceedingly unlikely that any
purchaser could be found for such a half-interest in the property. Further, based on
the $400,000 estimated fair-market value of the Davis’ property, the federal tax lien
is of such a size that it would fully consume the 50% of the proceeds to which

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Ronald Davis would be entitled in the event of a sale. Thus, the first factor weighs
in favor of foreclosure and allowance of a forced sale of the property.
The second factor, the expectation of the third-party as to alienation, weighs
in favor of Diane Davis, as in the normal course of events there is “a legally
recognized expectation that property owned by a husband and wife as tenants by
the entirety will not be subject to forced sale to satisfy the debts of one spouse.”
U.S. v. Winsper, 680 F.3d at 491.
The third Rogers factor, whether there would be prejudice to the third-party,
weighs slightly in the government’s favor. Despite Diane Davis’ assertions that she
would face practical undercompensation based on the fact that a 50% division of the
proceeds would fail to compensate her for survivorship interest in the property (or,
more specifically, for the actuarial likelihood that she would inherit the home free
and clear of her husband’s interest), this argument has already been considered and
rejected by the Sixth Circuit. See Barr, 617 F.3d at 374-76 (establishing that
spouses have equal interests in the marital home).1 Further, the Sixth Circuit has
repeatedly discounted arguments as to sentimental value. See id. (citing United
States v. Bierbrauer, 936 F.2d 373, 375-76 (8th Cir. 1991)); Winsper, 680 F.3d at 492
Although this Court appreciates the rationale behind Diane Davis’ argument concerning this factor,
she has failed to persuade the Court that she would be unduly harmed by having to relocate or that
she would be unable to acquire adequate housing using her portion of the sale proceeds (presumed to
be roughly $200,000, and which does not include her portion of the proceeds of the agreed-to sale of
the couples’ other property). The Court has also considered Diane Davis’ supplemental brief arguing
in favor of an evidentiary hearing (Dkt. 32), and nevertheless concludes that she has failed to
articulate a genuine dispute as to any material question of fact—as stated previously, Diane Davis’
“practical undercompensation” argument is grounded in a reasoning that has been largely rejected
by the Sixth Circuit. And, to the extent that she may believe her finances (either presently, or with
the addition of her interest in the proceeds of a forced sale) would be insufficient to allow her to
acquire a life interest in an equivalent property, she has failed to present any non-speculative
argument or a sufficiently-detailed sworn statement to that effect.
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(same). Because any potential prejudice that may result from a forced sale would be
no greater than the prejudice that would befall any other non-liable third-party in
the event of any other foreclosure sale, this alone cannot be a sufficient basis to
deny the government’s request for foreclosure.
Finally, the fourth Rodgers factor, the relative character and value of the
non-liable and liable interests held in the property, is largely irrelevant as the Sixth
Circuit has already concluded that under Michigan law there is a presumption that
the interests of the liable and non-liable spouses are equal. Barr, 617 F.3d at 376;
see also United States v. Barczyk, 434 F. App’x 488, 494 (6th Cir. 2011); Winsper,
680 F.3d at 492-93.2
Therefore, having considered the factors articulated in Rodgers and the
relevant Sixth Circuit precedents, the Court concludes that foreclosure is warranted
and that the government is entitled to summary judgment. The Government’s
motion for partial summary judgment (Dkt. 19) is thus GRANTED; the government
is directed, within fourteen days, to prepare and submit a Proposed Order of Sale
for the Court’s consideration.
B.

Preservation of Claim of Expenses of Sale
Also before the Court is Diane Davis’ motion to preserve a claim as to

recoupment of certain expenses related to the sale of the couple’s condominium
Although the Court is bound by the fifty-percent allocation rule announced by the majority in
United States v. Barr, the Court notes that, in the absence of this clear precedent, it finds the
approach of the dissent on this point to be more persuasive and practical. See Barr, 617 F.3d at 379
(Batchelder, C.J., dissenting in part). Both former Chief Judge Batchelder, and Judge White in her
concurrence in United States v. Barczyk, have expressed the view that actuarial evidence should be
considered when calculating the spouses’ respective shares in the property. Their reasoning makes
logical sense, but it is not the precedent of this Circuit, which this Court must apply. See Barczyk,
434 F. App’x at 494 (White, J., concurring).
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property, Wilderness #9, Glen Arbor, Michigan, which was identified in the
complaint and—as far as the Court is aware—previously disposed of through an
agreed-to sale. Essentially, Davis argues that the Government has been unjustly
enriched by one-half of the value of certain costs and expenses she incurred in
preparing the second property for sale, as well as one-half the condominium
assessments that were required to be paid as a condition of sale.
Although the Government raises a variety of arguments in opposition to
Davis’ motion, none of them are logically persuasive. Upon the filing of the
complaint under § 7403, this Court was empowered to “adjudicate all matters
involved therein and finally determine the merits of all claim to and liens upon the
property.” The Court’s powers under the statute include the authority to appoint a
receiver to enforce the lien, and to grant that receiver all the powers of a receiver in
equity. Here, instead of requiring the Court to appoint a receiver to dispose of their
condominium, Defendants worked with the Government to prepare the property for
sale and to dispose of it through an agreed-to transaction. Diane Davis should not
be penalized for her cooperation. The legal fees necessary to compel the owners of
the unit beneath the property to pay for damage that they had caused to the Davis’
unit, as well as the association fees, are all expenses that would have been paid by
the receiver had the property been put into receivership. Moreover, Davis cites to
several cases where other district courts provided for the expenses of sale to be paid
prior to a division of proceeds. Thus, the costs of this sale should be split equally

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between the parties, as equally as they would have been split in the event of a
judicial sale.
Section 7403 explicitly allows the Court in ordering a judicial sale to “decree .
. . a distribution of the proceeds of such sale according to the findings of the court in
respect to the interest of the parties and of the United States.” That express grant
of authority is given at the conclusion of a sentence that starts by directing the
Court to “to adjudicate all matters involved therein and finally determine the
merits of the all claims to and liens upon the property” identified in the complaint.
The fact that the parties agreed to a non-judicial sale of such a property does not
divest the Court of its authority to distribute the sale proceeds with respect to the
parties’ interests. Likewise, the Government has offered no case law contrary to
this reading of the statute. Accordingly, Diane Davis’ motion (Dkt. 24) is
GRANTED; Defendant Diane Davis is directed, within fourteen days, to submit to
the Court an affidavit and proposed Order attesting to the total amount of expenses
actually paid by Defendants.
SO ORDERED.
Dated: September 18, 2014

s/Terrence G. Berg
TERRENCE G. BERG
UNITED STATES DISTRICT JUDGE
Certificate of Service

I hereby certify that this Order was electronically submitted on September
18, 2014, using the CM/ECF system, which will send notification to all parties.
s/A. Chubb
Case Manager
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