Boresek v. United States Department of Agriculture Farm Service Agency et al

Filing 47

ORDER: Because the United States has waived sovereign immunity as to Boresek's claim of equitable subrogation, plaintiff's Motion for Summary Judgment 29 is Granted, in part. Defendants' Motions for Summary Judgment 27 and 35 are Denied. Within fourteen days, the parties shall contact Charlene Pew at 541-431-4105 with proposed dates for a status conference. Signed on 9/23/2014 by Judge Michael J. McShane. (cp)

IN THE lJNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
F.J. BORESEK, TRUSTEE OF THE F.J.
BORESEK TRUST,

Plaintiff,

Case No. 6:12-cv-02138-MC
OPINION AND ORDER

v.

UNITED STATES DEPARTMENT OF
AGRJCUL TURE, FARM SERVICE
AGENCY; CHRISTIAN BUSSMAN and
DEANA BUSSMAN,
Defendants.

MCSHANE, Judge:
This action deals with the priority of competing mortgages. The main question presented
is whether the United States has waived sovereign immunity from an equitable subrogation claim
against a senior government lien when that government lien is not a tax lien. This specific issue
appears to be a matter of first impression in any court, state or federal. Because the caselaw
indicates the United States has in fact waived such claims, plaintiffs motion for summary
.

1 -OPINION AND ORDER

\,

judgment, ECF No. 29, is GRANTED in part. Defendants' motions, ECF No. 27 and 35, are
DENIED.

'BACKGROUND
Defendants Christian and Deana Bussman own a house and a separate 50 acre cranberry
farm in Coos Bay. When buying the house, the Bussmans obtained two loans from a bank, both
secured by a deed of trust on the house. The bank recorded the mortgages.
In 2000, the Bussmans obtained several loans, secured with mortgages on both the house
and the farm, from defendant United States Department of Agriculture, Farm Service Agency
(FSA). The FSA recorded those mortgages.
The Bussmans ran into financial difficulties. They obtained a loan from plaintiffF.J.
Boresek, Trustee ofthe F.J. Boresek Trust. On their applications to Boresek, the Bussmans
neglected to mention the FSA loans. Boresek hired a title company to run a preliminary title
report. The report did not mention the FSA loans. lti fact, the report only mentioned the smaller
of the original loans the Bussmans obtained to first buy the house. The report did not mention the
larger of the original home loans, nearly $150,000 by that time.
Relying on the report, Boresek figured he could pay off the original loans and lend the
Bussmans $250,000 on a 12% interest only loan. As Boresek was unaware of the recorded FSA
mortgages, Boresek believed that if the Bussmans defaulted, he would have a first position
security interest. Boresek made the loan and recorded the mortgage (secured by the home only).
Unfortunately for Boresek, the FSA recorded its loans years earlier and Boresek in fact was
second-in-line, behind about $400,000 in FSA loans.
'
.
Two years later, in 2009, tthe Bussmans needed to refinance the FSA loans. The FSA

refinanced all the loans, added the accumulated interest into the principal, and then recorded

2- OPINION AND ORDER

another mortgage. The 2009 notes specifically state they are not paying off the 2000 loans, and
are not changing the priority of the 2000 recorded mortgage, but are simply refinancing. The
2000 loans and the 2000 mortgage contain language stating this is permissible. Additionally,
speci±l.c Oregon statutes explicitly allow this sort of refinancing without a±Tecting the priority of
the previously recorded mortgage.
A few years later, the Bussmans defaulted on the Boresek loan and Boresek attempted a
non-judicial foreclosure of the home. The FSA alerted Boresek to its senior interests.
Boresek filed this action bringing three claims. First, Boresek seeks to quiet title, arguing
its interest has priority over the FSA's interests. In the alternative, Boresek brings claims for
equitable subrogation and marshaling. The subrogation claim is based on the equitable doctrine
that one who makes a loan intending to pay off prior interests, who is unaware of other interests,
should be placed in the shoes of the interest they paid off. The third claim is for equitable
marshalling. As the FSA loans are secured by the home and the farm, and the Boresek loan is
secured solely by the home, Boresek requests an order that the FSA take its recovery first from
the farm and then, if necessary, from the home.

STANDARD OF REVIEW
The court must grant suminary judgment if there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56( a). An issue is
"genuine" if a reasonable jury could return a verdict in favor of the non-moving party. Rivera v.
Phillip lvforris, Inc., 395 F.3d 1142, 1146 (9th Cir. 2005) (citing Anderson v. Liberty Lobby, inc.,

477 U.S. 242, 248 (1986)). A fact is "material" if it could affect the outcome of the case.Jd. The
court reviews evidence and draws inferences in the lightmost favorable to the non-moving party.

3 -OPINION AND ORDER

~Miller

v. Glenn ~Miller Prods., Inc., 454 F.3d 975, 988 (9th Cir. 2006) (quoting Hunt v.

Cromartie, 526 U.S. 541, 552 (1999))

DISCUSSION
Sovereign immunity limits a district court's subject matter jurisdiction over actions
brought against the United States. Vacekv. United States Postal Service, 447 F.3d 1248, 1250
(9th Cir. 2006). The United States "is immune from suit unless it has expressly waived such
immunity and consented to be sued." Dunn & Black, P.S v. United States, 492 F.3d 1084, 108788 (9th Cir. 2007). The scope of any waiver of sovereign immunity is to be strictly construed in
favor of the United States. Id at 1088 (citation omitted). The party suing the United States bears
the burden of demonstrating the ex1stence of "an unequivocal waiver of immunity.'' Holloman v.
Watt, 708 F.2d 1399, 1401 (9th Cir. 1983).

28 U.S.C. § 2410(a)(l) states:
[T]he United States may be named a party in any civil action or suit in any district
court, or in any State court having jurisdiction of the subject matter [] to quiet title
to ... real or personal property on which the United States has or claims a
mortgage or other lien.
The parties agree the United States has waived sovereign immunity as to the quiet title
claim. They disagree as to whether sovereign immunity bars the equitable subrogation or
marshaling claims.

J. Quiet Title
."In an action to quiet title, plaintiffs must prove that they have a substantial interest in, or
claim to, the disputed property and that their title is superior to that of defendants." Howe v.
Greenleaf, 260 Or. App. 692, 700 (2014) (internal quotations omitted). It is undisputed that the

FSA recorded its interests before Boresek recorded his interest. Boresek argues that the parties
intended that the 2009 notes extinguished the 2000 ~otes because the FSA assigned a new loan
4- OPINION AND ORDER

number with the 2009 refinancing and then recorded a new mortgage. Boresek argues the 2000
mortgage must be extinguished as a matter of law, and the Boresek mortgage is actually senior to
the FSA mortgage. Boresek argues the 2009 notes were a "novation" of the earlier loans.
A "novation" is "the substitution by mutual agreement of one debtor or of one creditor
for another, whereby the old debt is extinguished, or the substitution of a new debt or obligation
for an existing one, which is thereby extinguished." Credit Bureaus Adjustment Dept., Inc. v.
Cox Bros., 207 Or. 253, 257 (1956) (quoting 66 C.J.S., Novation,§ 1 a, 681). Whether a

novation occurred depends on the intentions of the parties.Jd. at 258. Absent "a clear and
definite intention on the paft of all concerned to extinguish the old obligation by substituting the
new one therefore, a novation is not effected." ld. Boresek bears the burden of demonstrating the
defendants intended that the 2009 loans were a novation of the 2000 loans. Jd.
The language of the FSA notes and mortgages clearly state the 2009 loans are not meant
to impact the priority of the 2000 mortgages. The 2009 note states that the note is simply a
"rescheduling" of the earlier notes. Thompson Decl., Ex. E, 1 ~ 9. Specifically, it states "this
note is given to ... reschedule ... but not in satisfaction of, the unpaid principal and interest on
the [2000 notes]." I d. at ~ 17. Regarding the underlying securitx interest, the note states:
Security interests taken in connection with the loans evidenced by these described
notes and other related obligations are not a±Iected by this consolidation, write
down, rescheduling, or reamortization. These security interests shall continue to
remain in effect and the security given for the loans evidenced by the described
notes shall continue to remain as security for the loan evidenced by this note, and
for any other related obligations.
!d.

at~

18. In addition to the express language of the 2009 notes indicating they were not

intended

~s

a novation of the earlier obligations, the Bussmans testified the 2009 loans were

simply a refinance. Finally, Oregon Revised Statute 86.095(1) specifically allows parties to
adjust the interest rate or extend the tenn of a loan without affecting the priority of a lien. ln this
5 - OPINION AND ORDER

instance, defendants did just that. It is clear the 2009 loans were simply intended to refinance the
2000 loans.
Recording statutes are intended to provide notice to persons buying property or persons
intending to loan funds that will be secured by property. Because the FSA recorded the 2000 and
2009 mortgages, a person checking the land records could think: there were separate mortgages
and conclude the property was encumbered with twice the amount of the actual debt secured by
the property. Boresek appears to argue the 2009 mortgages provided too much notice and
therefore the court must order the 2000 loans extinguished. Although the FSA was not required
to record the 2009 mortgages, that does not mean the FSA and the Bussmans clearly intended the
2009 loans to extinguish the 2000 loans. An unnecessary recording of a mortgage does not
obligate a court to order a prior loan extinguished. Boresek has not met its Durden demonstrating
defendants intended the 2009 loans as a novation.
The FSA's motion for summary judgment on Boresek's claim to quiet title is
GRANTED.

II. Equitable Subrogation
A party bringing an equitable subrogation claim admits their title is subordinate but
argues equity demands the court place them in front of the party with priority. In Dimeo v. Gesik,
164 Or. App. 567, 571 (1999), the court provided a concise description of the doctrine of
equitable subrogation:
If the holder of a mortgage takes a new mortgage as a substitute for a former one,
and cancels and releases the latter in ignorance of the existence of an i~tervening
lien upon the mortgaged premises, although such lien be-of record, equity will, in
the absence of the intervening rights of third parties, restore the lien of the first
mortgage and give it is original priority.
!d. (quoting Pearce v. Buell, 22 Or. 29 (1892) (internal brackets omitted)).

6- OPINION AND ORDER

Equitable subrogation seeks to avoid a windfall to the junior lienholder, who knew all
along it held a junior lien and moved to a senior position orJy through the excusable neglect of
the party making the loan. Equitable subrogation ordinarily will not prejudice any party because
if the party seeking equitable subrogation ki'1ew of the intervening lien, it never would have made
the loan to pay off the original senior lien in the first place. In that instance, the party seeking to
avoid equitable subrogation-here the FSA- would have simply remained in a junior position
all along. At the time it made the 2000 loans, the FSA knew it held second position security
interests.
Other than the sovereign immunity issue, Dimeo is largely analogous to our facts here.
Two trust deeds encumbered a property. The owner sold the property subject to the two trust
. deeds. The new owner then received a loan from the plaintiff, secured by a trust deed. The
defendant bank then offered the owner a home equity line of credit, even.though plaintiff's trust
deed appeared on the preliminary title report. Defendant instructed. the title company that the
loan could be made as long as plaintiff's trust deed was subordinated to the defendant's trust
deed or removed altogether. In other words, the defendant only authorized the loan to occur on
the condition that its interest was the senior interest on the property. Jd. at 569-70. The title
compa11.y representative assured defendant that would occur.
The final title report did not show· the plaintiff's interest, instead showing defendant's
trust deed in first position. The owner used the funds in part to pay off the original two trust
. deeds (in front of the plaintiff's). Like FSA's interest, the plaintiff's interest in Dimeo jumped to
first position, followed by the interest of the defendant bank.
The plaintiff filed an action for judicial foreclosure, naming the defendant bank. The
bank sought equitable subrogation, arguing it reasonably believed plaintiff's lien had been

7- OPINION AND ORDER

discharged. The trial court concluded defendant's reliance on the title report was not reasonable
and granted plaintiffs motion for summary judgment. Plaintiff argued the bank had actual
knowledge of its lien and was negligent in releasing the funds without following up. The Court
of Appeals reversed.
The court noted equitable subrogation only applies when "the lender proves that it was
ignorant of the existence of the intervening lien and that its ignorance was not a result of
inexcusable negligence." !d. at 571. Although the preliminarytitle report gave the defendant
actual knowledge of the liens, the court concluded a question of fact existed as to whether
defendant was negligent in relying on the final title report in releasing the funds. Although
plaintiff argued the subsequent title report could not erase defendant's actual knowledge of the
intervening liens, the defendant argued "it is routine for lenders to rely on final title reports that
provide different information from what was provided in a preliminary title report." !d. at 572.
The court stated:
It may be appropriate in certain circumstances to rely on information in a
subsequent report. We are not prepared to' say that it is always and in all
circumstances appropriate to flo so, as a matter oflaw. In particular, we cannot
say that it is always appropriate to rely on a subsequent title report that makes no
reference to the disposition of intervening liens that had been reported previously.
That said, we are likewise unprepared, on this record, to say that, as a matter of
law it was not reasonable for [defendant] to have relied on the final title report.
The issue simply is not one that can be resolved by way of summary judgment, at
least not on a record that contains no information about what is commercially
reasonable under these circumstances.

!d. (emphasis in original).

The parties dispute whether "actual ignorance" of the FSA loans is required. Boresek
argues it need only prove it acted in a commercially reasonable manner to bring a claim of
equitable subrogation. This dispute arises based on discovery Boresek turned over indicating its

8- OPINION AND ORDER

agent was aware of the Bussmans' debt to FSA. Even if this document is admissible, the
document indicates the FSA debts are unsecured. Although Boresek may have known of the
Bussman's FSA debts, the real issue is whether Boresek "proves it was ignorant of the existence
of the intervening lien and that its ignorance was not a result of inexcusable neglect. ld. at 571.
The document simply lists a FSA debt, which is not a "lien."

Dimeo leads to the conclusion that absent an issue of sovereign immunity, the facts here
fall squarely into a situation where equitable subrogation is an available remedy. As described
below, there remains a question of fact as to whether Boresek acted in a commercially reasonable
matter in relying on an inaccurate preliminary title report. Although Dimeo would be controlling
in a case without sovereign immunity issues, this case invoh;es that important issue. Therefore, I
tum to the question of whether the United States has waived sovereign immunity as to Boresek' s
equitable subrogation claim.
As noted, 28 U.S.C. § 2410(a)(l) states, "[T]he United States may be named a party in
any civil action or suit in any district court, or in any State court having jurisdiction of the
subject matter []to quiet title to ... real or personal property on which the United States has or
claims a mortgage or other lien."
Each case Boresek cites allowing equitable subrogation claims to proceed against the
United States involves tax liens. The FSA argues the equitable subrog::ttion waiver is limited to
tax cases and does not apply to equitable subrogation claims not involving IRS liens. I see no
reason not to extend the waiver of sovereign immunity to equitable subrogation claims outside of
the tax context.
26 U.S.C. § 6323(i) in the tax code outlines several special rules for determining the
priority and enforceability of tax liens placed on a property by the IRS. Section 6232(i)(2), titled

9- OPINION AND ORDER

"Subrogation," states "Where, under local law, one person is subrogated to the rights of another
with respect to a lien or interest, such person shall be subrogated to such rights for purposes of
any lien imposed by [certain tax regulations]."
Although section 6323 waives sovereign immunity to equitable subrogation claims
against tax liens, it does not provide a federal court subject matter jurisdiction over those claims.
Most plaintiffs challenging tax liens use. section 241 0( a)(l) as a jurisdictional hook. The question
in those cases is whether equitable subrogation claims fall under a claim to quiet title under
section 241 O(a). If not, the federal court lacks subject matter jurisdiction over the claim. Most
courts examining the issue conclude equitable subrogation claims challenging the priority of tax
liens are in fact claims to quiet title under section 241 0( a)( 1).
There are no cases, state or federal, concluding section 2410(a)(l) contains an express
waiver of sovereign immunity for equitable subrogation claims outside of the ta,>c lien context.
That being said, there are also no cases saying section 241 0( a)(l) does not contain an express
waiver of sovereign immunity for equitable subrogation claims outside of the tax lien context. As
noted, the FSA argues that with the exception of tax liens, the government has not waived
sovereign immunity as to claims of equitable subrogation.
The FSA relies largely on two cases, Dep 't of the Army v. Blue Fox, Inc., 525 U.S. 255
(1999) and Lumbermens Mut. Cas. Co. v. United States, 654 F.3d 1305 (9thCir. 2011). Neither
case is instructive here. Blue Fox involved a subcontractor on an army project seeking an
equitable lien on funds held by the army. The subcontractor sought a lien on government
property after the contractor went baiLlaupt before paying the subcontractor. The alleged waiver
was not under 28 U.S.C. § 2410(a), but under the Administrative Procedures Act

(AP~)

-

which

allows actions against the USA in certain circumstances for "relief other than money damages."

10- OPINION AND ORDER

·.. ~1

Blue Fox, 525 U.S. at 260. The issue there was whether an equitable lien against the army itself
was "relief other than money damages." The Court concluded the equitable lien was a claim for
"money damages" falling outside of the APA's waiver of sovereign immunity. Jd. at 263. That
conclusion was consistent with longstanding precedent that "sovereign immunity bars creditors
from attaching or garnishing funds in the Treasure, or enforcing liens against property owned by
the United States." Jd. at 264 (internal citations omitted).
Boresek alleges waiver of sovereign immunity not under the AP A, but under 28 U.S. C.
§ 241 O(a). Additionally, this action does not deal with a party attempting to enforce a lien on

property owned by the United States. We deal not with any property owned by the United States,
but instead with the priority of mortgages, some of which are held by the FSA. Blue Fox simply
does not apply.
Likewise, Lumbermens Mut. is not helpful. The plaintiff in Lumbermens Mut. was a
surety who brought equitable subrogation claims in the Court of Federal Claims (under the
Tucker Act) against the government. 654 F.3d at 1307. The surety posted a bond for a
contractor's work on a navy project. The contractor defaulted after completing 20% of the work
(but being paid for 40% ). The surety had to hire another contractor to complete the work and
brought an equitable subrogation claim against the government, in part for failing to follow
federal law limiting contract payouts to work performed. The court noted the Tucker Act
provided the Court of Federal Claims jurisdiction over only express contracts with the
government or contracts "implied in fact" with the government. I d. at 1316. As the surety
proceeded on an "implied in-law contract theory," the court concluded it lacked jurisdiction. I d.
Boresek argues sovereign immunity is waived under 28 U.S.C. § 2410(a), not the Tucker
Act. And.while Lumbermens contains language stating the government has not waived sovereign

11 - OPINION AND ORDER

immunity to contracts implied by state law absent an express waiver, this case involves 28
U.S.C. § 2410(a)(l), which contains an express waiver for claims to quiet title to property in
which the United States has a lien.
The FSA's best argument appears to be the fact that there are no cases concluding the
United States has waived sovereign irmnunity as to equitable subrogation claims outside of the
tax lien arena. While that may be so, looking into the analysis of those tax lien cases is
instructive as those cases examine the reach of section 241 O(a)(l) to determine whether federal
courts have subject matter jurisdiction over equitable subrogation claims.
In 1960, the Supreme Court discussed the history of28 U.S.C. § 2410 and 26 U.S.C. §
7424 (in the tax code) in a case involving state law foreclosures on properties encumbered with
tax liens. United States v. Brosnan, 363 U.S. 237. The Court detailed how in 1924, Congress
passed section 26 U.S.C. § 7424 allowing a senior lienholder to bring a civil action against the
United States to determine the priority of competing liens. ld. at 243-44. Congress enacted the
statute because prior to that time, due to sovereign immunity, a senior lienholder had no way to
extinguish junior tax liens held by the United States (as state law requires all parties with an
interest in property be joined in an action for foreclosure).ld. at 243. Then, in 1931, for similar
reasons, Congress passed section 2410, which is the statute at issue in this case and is similar to
section 7427 except it allows actions to quiet title to prope1iy on which the United States holds
any lien, whether or not a tax lien.ld. at 244-45.
The Court noted "These statutes on their face evidence no intent to exclude otherwise
·.-::-·

available state procedures. Their only apparent purpose is to lift the bar of sovereign immunity
which had theretofore been considered to work a pariicular injustice on private lienors." ld. at
247. In discussing the legislative history of the statutes, the Court pointed to a 1941 letter sent by

12- OPINION AND ORDER

.

then Attorney General Jackson to the Chairman of the Senate Judiciarv Chairman. Section 2410
.
.

as originally proposed did not contain a waiverfor claims to quiet title. In his letter, Jackson
requested section 2410 be amended to include actions to quiet title:
In many instances persons acting in good faith have purchased real estate without
knowledge of the Government lien or in the belief that the lien had been
extinguished. In other instances, mortgagees have foreclosed on property and have
failed to join the United States. It appears that justice and fair dealing wou.ld
require that a method be provided to clear real-estate titles of questionable or
valueless Government liens. Accordingly, I suggest that the bill be amended by
inserting the phrase 'to quiet title or' between the words 'matter' and 'for the
foreclosure of' in line 4 of page 2 of the bill.

Id. at 250 (Emphasis added).
The Court then determined whether the two cases there--Dne a judicial foreclosure and
one a non-judicial foreclosure.--constituted instances in which the government had waived
sovereign immunity. In one case, the government did not receive advance notice of the sale. Still,
the Court concluded Congress had expressly waived sovereign immunity in both instapces, and
that junior federal tax liens could be extinguished via state law, even though state laws vary. I d.
at 116-17.
One year later, the Ninth Circuit discussed Brosnan in United States v. Cason, 286 F.2d
· 453 (1961), another tax lien case. Coson sought a declaration that he owned the property and that
the government did not have a valid tax lien on the property. Although Cason is a tax case,
plaintiff alleged jurisdiction under section 241 0( a)(l ), the section at issue here. The court had to
determine whether the waiver of sovereign immunity to claims to quiet title contained in

secti~m

2410(a)(l) extended to Cason's challenge there, which was not in fact a traditional claim to
"quiet title" under state law.

13 -OPINION AND ORDER

In discussing whether the action fell under section 2410(a)(1) as one "to quiet title" to
property on which the United States held a lien, the court noted "quiet title" as used in that
section did not refer to the "lirnited sense in which that term is sometimes used," but rather
"comprehends a suit to remove a cloud upon the title of a plaintiff" Id. at 457. The court relied
not only on the text of section 2410, but also specifically on the legislative history behind the
addition of "quiet title" into 241 0( a). I d. The court explicitly mentioned the letter of then
Attorney General Jackson and noted the "quiet title" amendment was inserted pursuant to the
recommendation in that letter. Id. The court concluded "it is clear that the waiver of immunity [in
section 241 O(a)] exists for the specific type of suit here brought, namely, one to remove a cloud
on the title." Id. Colson did not bring a claim for equitable subrogation. Instead, he challenged
the validity of the tax lien, in part on the basis that he did not owe the tax (which was owed by a
corporation). Still, the case is instructive as it examines the reach of section 2410's quiet title
waiver beyond claims explicitly bringing claims to "quiet title" under state law.
In Progressive Consumers Fed. Credit Union v. United States, 79 F.3d 1228 (1st Cir.
1996), a bank brought an equitable subrogation claim under Massachusetts law seeking a
declaration that its later-filed lien had priority over an IRS lien. The court had to determine if that
claim constituted a claim to quiet title under section 241 O(a). I d. at 1231.
The court agreed with the Ninth Circuit's conclusion in Cos on that the text and history of
section 2410(a) support the view that "quiet title" in that section referred not to a limited and
formalistic claim to quiet title, but to an action brought to remove a cloud upon title. Id. Again,
the court specifically referenced the letter from then Attorney General Jackson. Id.
The government argued that plaintiff could not bring a "quiet title'" action as defined in
section 24fO(a)(1) because, under Massachusetts law, a party bringing a claim to quiet title must

14- OPINION AND ORDER

have actual possession of the property, which the plaintiff did not have. Therefore, the
government arg>c1ed plaintiff was not bringing a claim to "quiet title" after all and Congress did
not waive sovereign im..munity to plaintiff's equitable subrogation claim. The government also
argued claims to determine the priority of competing liens must be brought as a foreclosure
action (available under section 2410(a)(2)), because quiet title claims under Massachusetts law
could extinguish liens but not determine priority. Because a party seeking foreclosure under
section 2410(a) must seek a judicial sale under 2410(c), and because plaintiffthere did not seek a
judicial sale (but only a priority determination), the government argued plaintiffs speciflc relief
or claim did not precisely fit anywhere in section 241 0( a). Therefore, the government argued
there was no express waiver of sovereign immunity.
Citing Fifth Circuit cases, the court rejected the government's arguments. Those Fifth
Circuit cases examined section 241 0( a)(l) claims to quiet title and determined the relief sought
in such claims was a "judicial determination of the validity and rank of the competing liens." !d.
at 1232 (emphasis in original) (quoting Kasdan v. G. W Zierden Landscaping, Inc., 541 F.Supp.
991, 995 (D. Md. 1982)). Kasdan rejected the argument that quiet title actions must seek to
extinguish the government's lien, noting a section 2410(a)(l) claim to quiet title actually seeks
"a determination that a tax lien does not exist, has been extinguished, or is inferior in rank." 541
F.Supp.

at 995. The court in Progressive Consumers emphasized the language "or is inferior in

rank," and cited another Fifth Circuit case for the proposition that quiet title claims encompass
claims regarding priority of competing liens:
[W]e think that section 2410, an integral part of the Judicial Code rather than an
administrative mechanism of the tax structure, establishes a specific jurisdiction
for these suits as bills to quiet title or for foreclosure of the private lien. The
jurisdiction does not depend on the specific relief sought, [e.g.] foreclosure.
Rather, it rests on the existence of the traditional controversy in which a private

15- OPINION AND ORDER

party asserts an ownership [interest] which is superior to the claimed lien of the
United States government.
79 F.3d at 1232 (quoting Estate of Johnson, 836 F.2d 940, 945 (5th Cir. 1988)). The court noted
other courts "have adopted this logic," citing a district court case that concluded challenges to the
priority of competing liens fell under "quiet title" actions of section 241 0( a). Id. (citing
Brightwell v. United States, 805 F.Supp. 1464 (S.D. Ind. 1992)). Noting its conclusion was
"Consistent v;ith the broad constmction accorded section 2410's quiet title provision by a
number of other jurisdictions," the court held "that section 2410(a)(1) controversies encompass
disputes concerning both the 'validity and priority of liens,' as distinguished from actions
seeking 'their extinguishment in a manner not permitted by the statutes."' Id. at 1233 (quoting
Remis v. United States, 273 F. 2d 293, 294 (1st Cir. 1960)).
The clear weight of authority supports a broad interpretation regarding claims to "quiet
title" under section 241 0( a)(1 ). This broad interpretation includes claims to determine the
priority of competing liens, and includes equitable subrogation claims. See Mort v. United States,
86 F.3d 890 (9th Cir. 1996); Progressive Consumers Fed. Credit Union, 79 F.3d 1228; Hussain
v. Boston Old Colony Ins. Co., 311 F.3d 623, 629 (5th Cir. 2002) (Congress "specifically passed
[section 241 O(a)] to waive the sovereign immunity of the United States so that private parties
could get the government into court when necessary to quiet title or resolve priority of liens or
mortgages."); Estare of Johnson, 836 F.2d 940; Brightwell, 805 F. Supp. 1464. Only the
Eleventh Circuit takes a narrow view of the "quiet title" waiver of sovereign immunity contained
in section 2410(a). See Raulerson v. United States, 786 F.2d 1090, 1091 (1986) ("section 2410
waives sovereign immunity only in actual quiet title actions, not suits analogous to quiet title
actions.") (emphasis in original)). The entirety of the discussion in Raulerson is contained in one
brief paragraph. Considering the weight of opposing authority in the 30 years since Raulerson,
16- OPINION AND ORDER

a.t1d considering the Ninth Circuit's opinion to the contrary in Cason, Raulerson is not
persuasive.
Like the vast majority of other courts to examine the scope of waiver contained in section
241 0( a)(J ), I conclude the waiver extends to cases seeking a judicial determination of the
validity and priority of competing liens. As there is no reason to limit those cases solely to cases
involving tax liens, I conclude section 241 O(a)(l)'s waiver of sovereign immunity to claims of
equitable subrogation extends to all cases in which the government holds a competing lien,
whether or not the lien is a tax lien.
The above conclusion does not resolve the pending motions. The FSA argues allowing .
equitable subrogation in this instance will unfairly prejudice the FSA while letting the negligent
title company off the hook. The Ninth Circuit, however, has rejected this same argument when
made by the IRS in Mort, a tax lien case. There, the court rejected the IRS's argument that
equitable subrogation would "work an injustice" on its rights. Finding the IRS's argument
"wholly without merit," the court explained:
At the time the IRS filed its tax lien, the tax 1ien was subordinate to the Kern
· mortgage. If the Morts are equitably subrogated to the priority position of the
Kern mortgage, the IRS will be in the same position it was in at the time the tax
lien was filed. If equitable subrogation is denied, however, the goveiTJ11)ent will
receive a windfall, i:noving up to a better position than it originally had. Under
these circumstances, there is no basis for the government's argument that it will
suffer harm from equitably subrogating the Morts' interest.
86 F.3d at 895. As in Jvfort, allowing equitable subrogation here will mereLy place the FSA in the
position it was in before Boresek paid off the original loans.
The FSA's argument that the negligent title company, not Boresek, is the real party in
interest also fails. The FSA argues that if anyone should pay here, it is the title company "who
caused this mess in the first place." J'vfort, however, also dispatches with that argument. The court
17- OPINION AND ORDER

rejected the government's argument that the title company would be unjustly enriched. I d. The
court noted the lien holders were the plaintiffs, not the title company, and that the title company
itself was not seeking equitable subn?gation. See id. at n.5 ("The IRS's argument that the title
insurer is the real party of interest in this case is also without merit. There is no evidence of
collusion between the Morts and Fidelity."). That reasoning applies equally well here. Boresek is
the narned plaintiff. Even though it appears the title company is directing this litigation through a
subrogation agreement with Boresek, the fact remains that Boresek is the named party and it is
Boresek's interest at issue. The FSA has failed to present any "evidence of collusion" between
Boresek and the title company.
The Seventh Circuit used the "no evidence of collusion" language from }vfort in
distinguishing the facts there, where the attorney at oral argument conceded the negligent title
company was paying the costs of litigation (brought in the name of the lien holder). First
Federal Sav. Bank of Wabash v. United States, 118 F .3d 532, 534 (1997). The court noted

Indiana courts were "reluctant to invoke the doctrine of equitable subrogation in cases where to
do so would benefit a negligent title insurer." Id. The court concluded:
Any remaining doubt we might have as to how an Indiana court would rule is
dispelled by our own assessment of the equities. We can assume that the title
insurer, a profit maximizer like any other business, would agree to pay First
Federal's legal fees only ifthe expected savings, in the form of reduced overall
payouts resulting from successful litigation, exceeded the legal costs of pursuing
these actions. The flip side ofthis calculus is that the government's overall
recovery in these cases is reduced both by adverse judgments and by the costs of
additional litigation. In other words, the fee-paying agreement amounts to an
attempt by the insurer to shift some of its expected payout cost to the public fisc.
·It may be that a portion of this savings is passed along to the bank in the form of
reduced insurance costs. Either way, we are not inclined in this case, where an
equitable remedy is sought, to elevate form over substance by disregarding the
insurer's interest in the outcome of this litigation.

Id. at n.3.
18- OPINION AND ORDER

Although the FSA quotes the above language, the "collusion" language in Mort referred
not to the insurer paying for the litigation, but to a prearranged agreement between the plaintiff
and the insurer to purposefully overlook the government's interest. There is no reason to think
the Ninth Circuit equates "collusion" ~with paying for litigation.
An unpublished Ninth Circuit Bankruptcy Appellate Panel decision came to the same

conclusion. See In re Tiffany, 2007 WL 7 541013 * 11. The defendant there argued equitable
subrogation was unavailable because the negligent title company was paying for the litigation.
The court stated "collusion" referred to in _Mort was not synonymous with an insurance company
paying for the defense of its insured. Id. Because there was no evidence that the insurer and the
plaintiff were working together to defraud the defendant, or that the insurer was the real party in
interest, the panel rejected the defendant's collusion argument. I d.
An Eastern District of California tax case noted Mort,.In re Tiffany, and First Federal

and concluded, at least under "more liberal California law," "instigation and control of the
litigation by the insurer is not the sort of 'collusion' as would defeat relief." Bedrock Fin., Inc. v.
United States, 2012 WL 5499403 *6-7. Enforcing contractual rights and oblig~tions to "obtain

an equitable remedy authoriz.ed by law" is not collusion. ld. Even assuming the title insurer here
controls this litigation, this does not change the equitable subrogation analysis. While the result
would differ under Indiana law, the "collusion" referred to in J\1ort refers to more than simply
paying for and directing litigation. There is no evidence Boresek and the insurer acted in
collusion to defraud anyone.
Although I conclude Boresek may proceed with the equitable subrogation claim,
questions of fact preclude summary judgment. On this record, it is impossible to determine
whether Boresek acted in a commercially reasonable manner in relying on the,preliminary title

19 - OPINION AND ORDER

report. Boresek submits a declaration of Martin Hall, who works for Advanced Investment
Company (AIC). AIC investigated the loan on Beresek's behalf. Hall states:
[I]t is a commercially reasonable and common industry practice, and a specific
practice of AIC, to rely upon title companies to issue an accurate preliminary title
report, and to follow the instructions issued by AIC and/or its lenders in order to
assure that only approved liens of record remain on the title of the property that is
to serve as collateral security for loans.
Hall Decl. 4\3, ECF No. 34, 2.
It is undisputed that the Bussmans informed Boresek of both original loans. It is also

undisputed that the title report did not show the larger of the two original loans. Although Hall
states it is a common industry practice "to rely upon title companies to issue an accurate
.preliminary title report," Boresek had information demonstrating the preliminary title report was
in fact inaccurate. On this record, questions of fact preclude concluding, as a matter of law, that
Boresek acted in a commercially reasonable manner.
Ill. Equitable Marshaling

The equitable remedy of marshaling securities, with that of marshaling assets,
depends upon the principle that a person having two funds to satisfy his demands
shall not, by his election, disappoint a party having but one fund. The general rule
is, that if one creditor, by virtue of a lien or interest, can resort to two funds, and
another to one of them only, as for example, where a mortgagee holds a prior
mortgage on two parcels ofland, and a subsequent mortgage on but one of the
parcels is given to another, the former must seek satisfaction out of that fund
which the latter cannot touch. If, therefore, the prior creditor resorts to the doubly
charged fund, the subsequent creditor will be substituted, as far as possible, to his
rights.
Comm. Bankv. Jones, 278 Or. 647, 679 (quoting Pomeroy's Equity Jurisprudence 1062-63 (5th

Ed. 1941) (internal citations omitted)). Even ifBoresek is entitled to equitable subrogation,
Boresek is only placed in the shoes of the creditor it paid off. As Boresek loaned the Bussmans

20- OPINION AND ORDER

' I

around $250,000, but the paid off loan was only around $170,000, equitable subrogation will not
cover Boresek' s entire loan.
Oregon foLlows the "basic principle of equity that where a senior creditor has recourse to
two funds and a junior creditor has recourse to but one of them, the senior creditor must seek to
satisfy itself first out of the fund in which the junior creditor has no interest." Id at 678. For
marshaling to apply: 1) there must be at least two creditors of the same debtor; 2) there are two
funds that belong to the same debtor; 3) the senior creditor alone has an interest in both funds;
at1d 4) neither creditor nor any third party will be prejudiced by the marshaling order.

In re Luby,

89 B.R. 120, 125 (D. Or. 1988).
Even assuming the United States has waived sovereign immunity as to equitable
marshaling, questions of fact preclude summary judgment. At this point, it is unclear if
marshaling would prejudice the Bussmans or the United States. Nothing in the record indicates
the FSA is seeking to foreclose its interest at this time, or if a ruling for Boresek on this claim
would influence the FSA's decision regarding foreclosure or rescheduling ofthe loans.
Additionally, as of May 2014, the Bussmans owed the FSA over $400,000.

ft~

exhibit provided

by the FSA indicates the cranberry farm parcel is worth approximately $350,000. As questions of
fact exist as to whether defendants will be prejudiced from equitable marshaling, summary
judgment on this claim is DENIED.

I II I
I I II

II I I
II I I
Ill!

21- OPINION AND ORDER

CONCLUSION
Because the United States has waived sovereign immunity as to Boresek's claim of
equitable subrogation, plaintiffs motion for summary judgment, ECF No. 29, is GRANTED in
part. Defendants' motions, ECF No. 27 and 35, are DENIED. Within fourteen days, the parties
shall contact Charlene Pew at 541.431.4105 with proposed dates for a status conference.
IT IS SO ORDERED.
DATED this

;2)

day of September, 2014.

~ichael~cShane

United States District Judge

22-

OPll~ION

AND ORDER