First Sentinel Bank v. United States of America et al

Filing 13

OPINION and ORDER denying 8 Motion to Dismiss. Signed by Judge James P. Jones on 5/29/18. (ejs)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION
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Plaintiff,
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v.
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UNITED STATES OF AMERICA, ET )
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AL.,
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Defendants.
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FIRST SENTINEL BANK,

Case No. 1:17CV00043
OPINION AND ORDER
By: James P. Jones
United States District Judge

Mark L. Esposito and M. Shaun Lundy, PennStuart, Bristol, Tennessee, for
Plaintiff; Catriona M. Coppler and Ryan O. McMonagle, Trial Attorneys, Tax
Division, U.S. Department of Justice, Washington, D.C., for United States.
In this civil case, the plaintiff bank seeks a determination that its mortgage
lien survived a non-judicial foreclosure sale of the subject real property and that
tax liens against the property are inferior and must be discharged, despite
statutorily inadequate notice of the sale to the Internal Revenue Service. The
United States has moved to dismiss the Complaint for lack of subject-matter
jurisdiction, contending that the United States has not waived its sovereign
immunity as to this kind of case. For the reasons that follow, I conclude that the
instant case is a quiet title action for which the United States has waived its
sovereign immunity, and therefore the court has jurisdiction.1
1

The plaintiff has sued both the United States and the Internal Revenue Service,
but the United States’ motion covers jurisdiction over the cause of action against both.

I.
The Complaint alleges the following facts, which appear to be undisputed.
Edson L. Knapp and Renda K. Knapp owned real property in Richlands, Virginia
(the “Property”). The Knapps executed a credit line deed of trust (the “Deed of
Trust”) for the benefit of First Sentinel Bank (“First Sentinel”), which granted First
Sentinel a first lien security on the Property. In 2010, after First Sentinel recorded
the Deed of Trust, the Internal Revenue Service (“IRS”) filed federal tax liens
against the Property. The tax liens total $305,439.78.
On June 11, 2013, Frederick W. Harman was appointed Substitute Trustee
under the Deed of Trust. On June 28, 2013, Harman conducted a non-judicial
foreclosure sale of the Property, which was purchased by First Sentinel. The
Knapps owed approximately $160,000 in principal to First Sentinel, and the
appraised value of the Property was $130,000.
Internal Revenue Code § 7425(b) provides that property subject to a tax lien
remains subject to the lien following a non-judicial foreclosure sale unless the IRS
is given at least 30 days notice of the foreclosure sale. Trustee Harman gave the
IRS less than 30 days notice of the sale of the Property. Following the sale, First
Sentinel requested that the IRS discharge the tax liens because the amount of
principal owed to First Sentinel on the promissory note secured by the Deed of
Trust exceeded the appraised value of the Property.
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The IRS denied the

application for a Certificate of Discharge on the ground that Harman had failed to
provide adequate notice of the foreclosure sale. First Sentinel appealed the denial,
and the IRS denied the appeal.
First Sentinel then filed this declaratory judgment action asking the court to
declare that First Sentinel’s lien on the Property survived the foreclosure sale and
is superior to the tax liens. First Sentinel also seeks a declaration that the tax liens
constitute a cloud on the title of the Property and that any future sale of the
Property will be free and clear of the tax liens unless the sale proceeds exceed the
amount owed to First Sentinel under the note secured by the Deed of Trust.
The United States responded to First Sentinel’s Complaint by filing a
Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), asserting
that this court lacks subject-matter jurisdiction because the United States has not
waived its sovereign immunity for this type of claim. The motion has been fully
briefed and I have heard oral argument from the parties.
II.
A motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil
Procedure raises the fundamental question of whether the court is competent to
hear and adjudicate the claims brought before it.

The court must determine

questions of subject-matter jurisdiction first, as a threshold matter, before it can
address the merits of the case. See Steel Co. v. Citizens for a Better Env’t, 523
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U.S. 83, 94-95 (1998). “The plaintiff has the burden of proving that subject matter
jurisdiction exists.” Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999).
In evaluating a facial challenge to subject-matter jurisdiction, “the plaintiff, in
effect, is afforded the same procedural protection as he would receive under a Rule
12(b)(6) consideration.” Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). The
court should grant a motion to dismiss under Rule 12(b)(1) “if the material
jurisdictional facts are not in dispute and the moving party is entitled to prevail as a
matter of law.” Richmond, Fredericksburg & Potomac R.R. v. United States, 945
F.2d 765, 768 (4th Cir. 1991).
The United States is immune from suit unless it gives specific consent to be
sued. United States v. Mitchell, 445 U.S. 535, 538 (1980). The United States has
waived its immunity from suits “to quiet title to . . . real or personal property on
which the United States has or claims a mortgage or other lien.” 28 U.S.C. §
2410(a).

The question presented by the Motion to Dismiss is whether First

Sentinel’s suit is an action to quiet title to real property.
The United States argues that this case is controlled by the Fourth Circuit’s
decision in Kasdon v. United States, 707 F.2d 820 (4th Cir. 1983), and that I must
therefore dismiss the Complaint for lack of jurisdiction. In Kasdon, the plaintiffs
had purchased three properties at a tax sale, and the United States held tax liens on
the properties. Id. at 822. Under Maryland law, the plaintiffs had filed a petition
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in equity to foreclose all rights of redemption, which would have allowed the
plaintiffs to take the properties free of the tax liens. Id. At the time they filed their
suit, the plaintiffs did not have possession of the properties. The court of appeals
agreed with the district court’s conclusion that “Congress could not have intended
to include the involved type of action within the meaning of a quiet title action in
section 2410(a)(1) principally because the plaintiffs did not have actual or
constructive possession of the properties.” Id. at 823. The Kasdon court held that
the case was neither a quiet title action nor a proper judicial foreclosure action, and
therefore sovereign immunity barred the suit. The lower court in Kasdon had
stated that “[p]riorities among valid interests are the subject of foreclosure suits;
the alleged invalidity of adverse interests are the subjects of quiet title actions.”
Kasdon v. G. W. Zierden Landscaping, Inc., 541 F. Supp. 991, 995 (D. Md. 1982).
The United States relies heavily on that distinction in support of its contention that
First Sentinel’s suit is more properly characterized as a foreclosure action than an
action to quiet title.
The Fourth Circuit’s opinion in Kasdon is brief, and the facts of that case are
not identical to the case presently before me.

Notably, First Sentinel has

possession of the Property and is not seeking to foreclose on the Property in this
action. In Kasdon, the plaintiff sought to foreclose rights of redemption and

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thereby extinguish the federal tax liens; they did not seek to establish lien priority
by declaratory judgment.
SunTrust Mortgage, Inc. v. United States, No. RDB-12-3631, 2013 WL
5566173 (D. Md. Oct. 8, 2013), is more similar to this case. The SunTrust court
noted that “[t]he majority rule is that suits to adjudicate lien priority should be
construed as claims to quiet title, and therefore, the United States has consented to
suit with respect to such claims.” Id. at *4. The court thoroughly examined the
Kasdon decisions and the precedent on which they relied, as well as the legislative
history of section 2410(a). The SunTrust court analyzed the decisions of other
courts of appeals in cases with facts comparable to this case, including Progressive
Consumers Federal Credit Union v. United States, 79 F.3d 1228, 1232-33 (1st Cir.
1996), in which the court of appeals distinguished Kasdon and held that
§ 2410(a)(1) encompasses suits concerning the validity and priority of liens. Based
on its careful reading of Kasdon, the SunTrust court found that the Fourth Circuit
had never “held that a quiet title action may not be employed to establish the
priority of a mortgage over a federal tax lien without a challenge to the validity of
the government’s lien.” SunTrust, 2013 WL 5566173, at *5.
I find the SunTrust and Progressive cases to be persuasive, and I adopt their
reasoning. I do not believe that Congress intended § 2410(a)(1) to be interpreted
as narrowly as the United States would construe it. I find that First Sentinel’s suit
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is an action to quiet title to real property, and I conclude that it falls within §
2410(a)’s waiver of sovereign immunity. I therefore hold that this court possesses
subject-matter jurisdiction.
III.
For the foregoing reasons, it is ORDERED that the United States’ Motion
to Dismiss, ECF No. 8, is DENIED.
ENTER: May 29, 2018
/s/ James P. Jones
United States District Judge

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