Green Tree Servicing, LLC v. United States of America et al

Filing 21

ORDER denying 19 Motion for Reconsideration re 18 Order on Motion for Summary Judgment and/or for leave to file for summary judgment. The case is scheduled for a final pretrial conference on October 11, 2011 at 10:30 a.m., bench trial is scheduled for October 17, 2011 at 9:30 a.m. and the parties' final pretrial filings are due accordingly. So Ordered by Judge Joseph N. Laplante. (jb)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Green Tree Servicing, LLC
v.

Civil No. 09-cv-191-JL

United States of America et al.
MEMORANDUM ORDER
The government has moved for reconsideration of this court’s
order denying the plaintiff’s motion for summary judgment in this
case, which seeks the equitable restoration of an allegedly
mistakenly discharged mortgage to a position of priority over
subsequent federal tax liens.

Green Tree Servicing, LLC v.

United States, ___ F. Supp. 2d ___, 2011 DNH 056.

In the

alternative, the government seeks leave to file its own motion
for summary judgment, even though the deadline for those motions
set forth in the court’s scheduling order passed on December 15,
2010 (and the government did not properly cross-move for summary
judgment in response to the plaintiff’s motion for summary
judgment).

Both forms of relief are denied.

Again, the court denied the plaintiff’s motion for summary
judgment.

So the government is seeking reconsideration of an

order denying relief to the adverse party, which is unusual, to
say the least.

The government’s theory is that, not only should

this court have denied the plaintiff’s motion for summary
judgment, it should also have granted summary judgment for the

government--even though the government filed no summary judgment
motion of its own, but merely stated, on the last page of its
objection to the plaintiff’s motion, that the court should enter
summary judgment for the government.
for two reasons:

The court did not do so,

(1) given its rulings on the legal arguments

the government made in opposing the plaintiff’s motion, the
government was not entitled to that relief as a substantive
matter, and (2) the government was also not entitled to that
relief as a procedural matter, because its request violated Local
Rule 7.1(a)(1)’s command that “[o]bjections to pending motions
and affirmative motions for relief shall not be combined into a
single filing.”
As the government acknowledges, a successful motion for
reconsideration of an interlocutory order, such as the order
denying the plaintiff’s motion for summary judgment, must
“demonstrate that the order was based on a manifest error of fact
or law.”

L.R. 7.2(e).

The government has come nowhere close to

showing that either the substantive or the procedural aspect of
the court’s summary judgment ruling was a “manifest error.”
The government argues principally that this court
misapplied the decision by the court of appeals in Progressive
Consumers Federal Credit Union v. United States, 79 F.3d 1228
(1st Cir. 1996).

As this court observed in its prior order,

Progressive “expressly holds that federal law allows the use of a
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state-law equitable doctrine to restore a mistakenly discharged
mortgage to its position of priority over federal tax liens.”
2011 DNH 056, 17.
The government does not question (and, indeed, appears to
agree with) this characterization of Progressive’s holding.
Instead, the government argues that the Progressive court
“explicitly grounded its decision on [26 U.S.C.] § 6323(i)(2),”
which recognizes the doctrine of equitable subrogation against
federal tax liens, and therefore does not apply here, where the
plaintiff is seeking equitable restoration against federal tax
liens.

This is a blatant misreading of Progressive, which this

court rejected in its prior order.

2011 DNH 056, 17-19.

That

much is clear from the Progressive court’s own words:
The government argues that because section 6323(i)(2)
explicitly authorizes the application of local laws of
subrogation and is silent as to the doctrine of unjust
enrichment, the district court was correct in deeming
the latter doctrine inapplicable to [the plaintiff’s]
claim. We disagree. While the court was correct in
stating that Congress gave an “explicit directive with
respect to determining the priority of federal tax
liens,” it was incorrect in holding that “there is no
basis upon which to presume the applicability of a
common law doctrine” not expressly provided for by the
statute. To essentially translate a directive for a
federal scheme of priority into a preemption of state
law governing the nature and extent of state created
liens was unwarranted. To the contrary, federal courts
should presume applicability of state common law
doctrines in determining the status of state created
liens. Such determinations do not contravene federal
law simply because they ultimately bear on the federal
issue of who was first in time in determining priority.

3

79 F.3d at 1235-36.1

So the government has it backwards.

Progressive did not allow the equitable restoration of a
mistakenly discharged mortgage to a position of priority over
subsequent tax liens because of § 6323(i)(2), but in spite of it.
Indeed, the government’s motion for reconsideration betrays
the fact that its real problem is not with this court’s reading
of Progressive, but with Progressive’s reading of federal tax
lien law.

The government argues that “[i]f [§] 6323(i)(2) is not

the basis for that court’s decision”--which, as just explained,
it plainly was not--then “there is no statutory basis for the
court’s decision,” meaning that it was “based on federal common
law.”

And if that was the case, the government continues, then

the court of appeals “ignored the federal tax lien statute and
instead adopted its own interpretation of the law” in “an
instance of the First Circuit overreaching its authority.”
As the passage just quoted makes clear, Progressive’s
holding was indeed based on common law because, as the court
explained, “federal courts should presume applicability of state
common law doctrines in determining the status of state created
liens.”

79 F.3d at 1235.

This would not appear to be the sort

of judicial “overreaching” the government tries to portray it as,

1

As noted in the prior order, the court of appeals used the
term “unjust enrichment” to refer to equitable restoration. 2011
DNH 056, 16 n.6.
4

see, e.g., Samantar v. Yousuf, 130 S. Ct. 2278, 2289 n.13 (2010)
(“when a statute covers an issue previously governed by the
common law, we interpret the statute with the presumption that
Congress intended to retain the substance of the common law”),
but, in any event, this court’s view of the soundness of
Progressive is beside the point.

This court is bound to follow

controlling circuit precedent, regardless of what it--or, for
that matter, the government--thinks of it, and it certainly
cannot be a “manifest error of law” to do so.
The government’s remaining arguments in its motion for
reconsideration also either explicitly or implicitly invite this
court to disregard Progressive and likewise come nowhere near the
standard for relief on a motion for reconsideration:
1.

The court misapplied the hypothetical judgment lien

creditor test.

As the court observed, this test “places the IRS

‘in the shoes of any subsequent judgment creditor, including the
most favorable shoes’” in determining the priority of its liens
as a matter of the applicable state law.

2011 DNH 056, 12

(quoting Haas v. IRS (In re Haas), 31 F.3d 1081, 1090 (11th Cir.
1994) (footnote omitted in prior quotation)).

In opposing the

plaintiff’s motion for summary judgment, the government had
argued that applying this test here “would result in the priority
of its liens ‘[b]ecause a class of New Hampshire judgment lien
creditors (those without actual notice of [the plaintiff’s]
5

unrecorded mortgage) could have priority over [the plaintiff’s]
‘mortgage.’”2

Id. at 12 (quoting Gov’t’s Opp’n to Pl.’s Mt. for

Summ. J. at 10).

But the court rejected the premise of this

argument, ruling that “there is no ‘class of judgment creditors’
under New Hampshire law whose interest would necessarily have
been superior to [the plaintiff’s] mortgage.”

Id. at 13.

As the

court explained, New Hampshire law “does allow for erroneously
discharged mortgages to have priority over intervening judgment
liens, even if the lienors were unaware that the discharge was
erroneous.”

Id. (footnote omitted).

In moving for reconsideration, the government argues that “a
state law judgment creditor that relied upon a recorded discharge
could have priority” over the discharged mortgage under New
Hampshire law, even if the discharge was erroneous.

But, as just

stated, this court ruled precisely to the contrary in the summary
judgment order, and the government does not explain how that
ruling was an error, let alone a “manifest” one.

Indeed, the

government does not cite any New Hampshire law at all.3

2

The mortgage was actually given to the plaintiff’s alleged
predecessor-in-interest, Conseco Financing Servicing Corp.,
rather than the plaintiff itself, but because that distinction is
unimportant for present purposes the court will refer to them
here interchangably as “the plaintiff.”
3

Instead, the government seems to suggest that the
hypothetical judgment lien creditor test automatically prevents
the equitable restoration of an erroneously discharged mortgage
to a position of priority over intervening tax liens, since the
6

2.

The plaintiff has no security interest protected under

federal law because it has not yet demonstrated its right to
equitable restoration.

The government maintains that this

requirement proceeds from “certain aspects of the Treasury
Regulations” which this court “appears to have overlooked” in
ruling that “[t]he simple fact that the discharge of [the
plaintiff’s] mortgage was recorded before notices of the federal
tax liens . . . does not necessarily mean that the mortgage was
not ‘protected’ against the liens as a matter of federal law.”
2011 DNH 56, 11.

To the contrary, the government now argues,

Treasury Regulations, namely 26 C.F.R. § 301.6323(h)-(1)(a)(2),
demand that to be protected against a federal tax lien a lienor
take “all actions required under local law to be protected
against a state law-judgment lien,” and that the plaintiff has
not done that, because those actions include proving its right to
equitable restoration under New Hampshire law.
First, though, the government did not make this argument in
its opposition to the plaintiff’s summary judgment motion, and a
motion for reconsideration is not an appropriate vehicle for
raising arguments that could have been made previously but were
not.

See Platten v. HG Bermuda Exempted Ltd., 437 F.3d 118, 139

equitable nature of that relief means it will not be available in
every case of an erroneous discharge. Whatever else can be said
of that argument, it cannot be reconciled with the decision by
the court of appeals in Progressive.
7

(1st Cir. 2006).

Second, the government’s argument would

categorically disallow the use of state-law equitable doctrines
to restore an erroneously discharged mortgage to a position of
priority over intervening federal tax liens4--a result which,
whatever else may be said of it, is directly contrary to the
holding of Progressive, as just discussed.
3.

The equitable restoration of the plaintiff’s mortgage

amounts to “relation back” which cannot alter the record priority
of the federal tax liens.

The court’s order denying the

plaintiff’s motion for summary judgment rejected this argument,
at least as the government had formulated it in its summary
judgment objection.

As previously articulated, the government’s

argument was based on Haas’s alternative holding that “Treasury

4

In this sense, the government’s argument here suffers from
the same fatal logical flaw as one of the arguments it did make
in its summary judgment objection: that the plaintiff’s “claim
for equitable reinstatement is moot because, even if this court
enters a judgment granting it, ‘that interest will not be
perfected until that judgment is recorded’ and will therefore
remain junior to the government’s existing liens.” 2011 DNH 056,
19 n.8. The court observed that “[a] judgment granting equitable
reinstatement of an erroneously discharged mortgage to a prior
position over subsequent liens would always be meaningless if the
mortgage nevertheless remained junior to the liens in this way.”
Id. Likewise, a mortgagor trying to obtain equitable
reinstatement of its mistakenly discharged mortgage to a position
of priority over subsequent federal tax liens--which requires
proving its entitlement to that relief--could never succeed if
the mortgagor had to prove, in essence, that it had proven its
entitlement to that relief before the federal tax liens had been
recorded. Indeed, that would seem to be a metaphysical
impossibility. So this argument--like the government’s prior
mootness argument--“verges on the nonsensical.” Id.
8

Regulations forbid application of a relation back principle to
award an unperfected lien priority over the tax lien.”
at 1091 (citing 26 C.F.R. § 301.6323(h)-1).

31 F.3d

In declining to

adopt that holding, this court reasoned that (1) the Haas court
had mistakenly treated equitable reinstatement as a form of
relation back, and (2) in any event, “this aspect of Haas was
squarely rejected by our court of appeals in Progressive.”

2011

DNH 056, 14-17.
The government’s motion for reconsideration does not address
this second conclusion, apart from a single sentence that
Progressive “never analyzes” the relevant Treasury Regulations.5

5

Instead, the government attacks, as “not supported by the
cases cited” in the summary judgment order, this court’s
conclusion that the New Hampshire doctrine of equitable
reinstatement does not amount to relation back, but “treats [a]
discharge as a nullity if it was the product of mistake and
intervening lienholders have not relied on it.” 2011 DNH 056,
15. That attack is irrelevant, in light of Progressive, and it
is also ill-founded. First, the government still fails to cite
any New Hampshire case--or, for that matter, any case at all
besides Haas--that equates equitable restoration with relation
back. See id. at 15. Second, as specifically discussed in the
summary judgment order, id. at 25, the New Hampshire Supreme
Court has explained, in discussing equitable restoration, that
“where the acts of the parties are not legally effective to
accomplish the acts which they intended, equity may intervene to
correct the mistake and produce the intended result when the
rights of third parties will not be affected thereby.” Anatole
Caron, Inc. v. Manchester Fed. Sav. & Loan, 90 N.H. 560, 564
(1940) (discussing Int’l Trust Co. v. Davis & Farnum Mfg. Co., 70
N.H. 118 (1899)). The government does not explain how that
differs from treating the “discharge as a nullity if it was the
product of mistake and intervening lienholders have not relied on
it,” as this court described equitable restoration.
9

But that criticism of Progressive does not change the fact that
its holding--again, that federal law allows the use of a statelaw equitable doctrine to restore a mistakenly discharged
mortgage to a prior position over federal tax liens--simply
cannot be reconciled with Haas’s holding that doing so amounts to
an impermissible use of “relation back” under the Treasury
Regulations.

So, as this court explained in its prior order, it

must follow Progressive, “whatever it may think of the decision
to the contrary in Haas.”

Id. at 17.

It bears repeating that

following controlling authority is not a manifest error of law.
4.

Progressive is “distinguishable.”

The government

explains that in Progressive, the plaintiff’s mortgage “was
recorded and in effect” at the time the notices of tax liens were
filed, but was later “released in ignorance of the tax liens”

The government also argues that, even if New Hampshire law
operates this way (i.e., the way the New Hampshire Supreme Court
has said it does), then “that would constitute a ‘legal fiction’
that could not take the matter out of the federal principle that
relation back cannot apply to federal tax liens.” But that
argument is unavailing here because (1) the government failed to
make it in its summary judgment objection, see Platten, 437 F.3d
at 139, and (2) the sole case cited in support, Drye v. United
States, 528 U.S. 49 (1999), does not stand for the proposition
that a state-law “legal fiction”--a term the decision uses once
and does not define--has no effect on the priority of federal tax
liens, as the government seems to suggest. Id. at 52 (holding
that a taxpayer’s “interest as an heir to his mother’s estate
constituted ‘property’ or a ‘right to property’ to which []
federal tax liens attached . . . despite [his] exercise of the
prerogative state law accorded him to disclaim the interest
retroactively”) (bracketing by the Court omitted).
10

when the plaintiff refinanced the mortgage and recorded a new
one.

Here, in contrast the plaintiff had already discharged its

mortgage as of record by the time the notices of tax liens were
filed.

Thus, the government maintains, while the result in

Progressive served “to restore the parties to their original
priorities,” i.e., prior to the mistaken discharge, “granting
[the plaintiff] priority here would not restore the parties to
the status quo, but instead place [it] into a position that it
never rightfully occupied.”

Indeed, the government argues, the

plaintiff here is in the same situation as the holder “of an
unrecorded mortgage that was executed, but not recorded, prior to
a subsequent lien being filed.”
In the summary judgment order, however, this court rejected
the government’s attempt to liken a mistakenly discharged
mortgage to an unrecorded one as inconsistent with New Hampshire
law, 2011 DNH 056, 13 n.4, and the government does not even argue
that conclusion was wrong, let alone manifestly so.

And the

argument the government does make misses the point.

Yet again,

this court relied on Progressive for the proposition that
“federal law does not render the doctrine of equitable
reinstatement inapplicable here.”

Id. at 18-19.

It did not rely

on Progressive to find the doctrine applicable here, which, as
the government seems to acknowledge, is a question of New
Hampshire law, not the Massachusetts law discussed in
11

Progressive.

This court did reject the government’s argument

that the plaintiff was not entitled to equitable reinstatement as
a matter of New Hampshire law, but that ruling relied on state
law, not on Progressive, id. at 23-28, and, again, the government
does not even claim that ruling was wrong.

So the government’s

argument that Progressive is “distinguishable” because there,
unlike here, the mistaken discharge followed rather than preceded
the federal tax liens, fails to show any error, manifest or
otherwise, in the summary judgment order.
Finally, the government challenges the court’s procedural
ruling that it could not consider the government’s request for
summary judgment in its favor, contained in a sentence or two of
its objection, because of L.R. 7.1(a)(1), quoted at the outset.
The government emphasizes that a court has the power to enter
summary judgment sua sponte, see, e.g., Sanchez v. Triple-S Mgmt.
Corp., 492 F.3d 1, 7 (1st Cir. 2007), or against the party who
moves for summary judgment, see Fed. R. Civ. P. 56(f)(1).

Of

course, while there is no doubt that a court can do those things,
it does not follow that a court errs--let alone manifestly--by
not doing them, even if, as the government says is the case here,
the non-moving party is entitled to summary judgment so that
withholding that relief “would serve no practical purpose.”
In any event, the government is not entitled to summary
judgment here, because, as this court previously ruled, “the
12

court of appeals has rejected the argument that federal law bars
the equitable reinstatement of a mortgage to a position of
seniority over federal tax liens.”
Progressive, 79 F.3d at 1234-35).

2011 DNH 056, 2 (citing
The government clearly

disagrees with the court of appeals and, in fairness, at least
one other federal circuit court has seen the issue differently.
The proper means for voicing that disagreement, however, is not
by asking this court to reconsider its decision to follow binding
circuit precedent, but by asking the court of appeals to
reconsider that precedent through the appropriate mechanisms.
Until those mechanisms become available, however, the
plaintiff is entitled to pursue its claim in this court.

The

government’s motion for reconsideration or, in the alternative,
for leave to file a summary judgment motion (document no. 19) is
DENIED.

The case is scheduled for a final pretrial conference on

October 11, 2011 at 10:30 a.m., the bench trial is scheduled for
October 17, 2011 at 9:30 a.m. and the parties’ final pretrial
filings are due accordingly.

SO ORDERED.

____________________________
Joseph N. Laplante
United States District Judge
Dated:

August 4, 2011
13

cc:

Jeffrey J. Hardiman, Esq.
Austin L. Furman, Esq.
Albert E. Souther, Esq.

14