Leathers v. Leathers
856 F.3d 729
| 10th Cir. | 2017Background
- Brothers Michael and Ronald Leathers inherited equal (50/50) mineral rights to land in Haskell County, Kansas. A 1998 quitclaim deed from Ronald to Michael failed to reserve Ronald’s mineral interest, creating title confusion.
- Ronald and Theresa (his then-wife) divorced in 2002; the divorce decree awarded Theresa 25% of the mineral rights (half of Ronald’s asserted half). The title issue was unresolved at that time.
- Michael filed Kansas quiet-title actions (2007) after producers notified him of the deed defect; the case was removed to federal court after the IRS had filed tax liens against Ronald for unpaid taxes (1997–2005).
- Ronald purportedly assigned his mineral interests and related causes of action to the Dirt Cheap Mine Trust (created 2006), with James Holden trustee and attorney Joe Izen retaining a 45% contingent-fee interest; the trust was later characterized as created to shield assets from the IRS.
- The district court bifurcated: first phase — reformation/quiet title/unjust enrichment/conversion; second phase — taxation, lien priority, and validity of the trust. Court reformed the quitclaim deed (related back to 1998), quieted title (Michael 50%, Ronald 25%, Theresa 25%), limited unjust-enrichment recovery, found Ronald’s transfer to the Trust fraudulent as to IRS, reduced Ronald’s tax assessments to judgment (~$1.545M), and awarded Izen a limited attorney-fee priority under 26 U.S.C. § 6323(b)(8).
Issues
| Issue | Plaintiff's Argument (Michael/United States/Theresa) | Defendant's Argument (Ronald/Holden/Izen) | Held |
|---|---|---|---|
| State-court standing to bring quiet-title action | Michael claimed title under the recorded quitclaim deed and sought to clear adverse claims | Ronald contended Michael lacked standing because deed didn’t reserve minerals and divorce allocation controlled | Michael had standing when suit was filed; state court jurisdiction proper |
| Federal jurisdiction / removal under §§2410 and 1444 | United States removed under §2410 waiver and §1444 removal right after being added as party due to tax liens | Ronald argued lack of federal jurisdiction and defects in removal | Removal and federal jurisdiction proper under §§2410/1444; district court had jurisdiction |
| Reformation of deed and effect on divorce award to Theresa | Reformation for mutual mistake should relate back to 1998, validating Ronald’s ownership at time of divorce | Hold that divorce award was void because Ronald allegedly didn’t own minerals at divorce | Reformation allowed; relation-back means Ronald owned interest at divorce and Theresa’s 25% stands |
| Priority of IRS tax liens vs. Dirt Cheap Mine Trust assignment | U.S. argued transfer to Trust (Oct 2006) was fraudulent as to IRS and liens for 2003–2005 have priority | Ronald/Holden claimed the Trust assignment was valid and that counsel’s contingent-fee interest or trustee was in good faith | Transfer was fraudulent as to IRS (purpose to hinder collection); IRS liens have priority over Trust; judgment for IRS entered |
| Unjust enrichment / limitation of damages | Plaintiffs sought restitution for royalties misdirected to Michael; US/theresa sought full recovery | Michael argued limitations, unclean hands, statute of limitations; court limited recovery to royalties after date Michael had knowledge (Dec 2006) | Court limited unjust-enrichment recovery to amounts received after Michael had knowledge; limitation affirmed (appeal inadequate/waived) |
| Attorney-fee superpriority under 26 U.S.C. § 6323(b)(8) | Izen claimed 45% contingency and statutory lien under Kan. law; sought superpriority over IRS liens | Government argued contingency agreement unenforceable against judgment; only reasonable fees tied to obtaining judgment qualify | Contingency agreement not enforceable against judgment (not in writing for Ronald); court awarded Izen a limited §6323(b)(8) superpriority lien of $39,689.88 for reasonable fees/costs |
| Conversion claim and statute of limitations | Holden/Ronald argued conversion accrued upon demand/refusal in Nov 2005, so filing was timely | Michael argued conversion accrued when misdirected royalties were reasonably ascertainable (earlier) | Conversion accrued when injury was reasonably ascertainable (circa 2002); claim time-barred |
| Conflict of interest re: Izen representing both Ronald and Trust | Ronald alleged undisclosed concurrent conflict under professional rules | Izen/Holden contest or did not preserve argument below | Issue inadequately briefed and forfeited; not addressed on merits |
Key Cases Cited
- Conner v. Koch Oil Co., 777 P.2d 821 (Kan. 1989) (reformation for mutual mistake; relation-back rule)
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) (Rooker–Feldman doctrine scope)
- United States v. Wingfield, 822 F.2d 1466 (10th Cir. 1987) (federal tax lien priority principles)
- Hussain v. Boston Old Colony Ins. Co., 311 F.3d 623 (5th Cir. 2002) (interpretation of 26 U.S.C. § 6323(b)(8) attorney-fee superpriority)
- In re Krause, 637 F.3d 1160 (10th Cir. 2011) (fraudulent conveyances cannot defeat IRS liens)
- Univ. of Kan. Hosp. Auth. v. Bd. of Comm’rs, 327 P.3d 430 (Kan. 2014) (elements of unjust enrichment under Kansas law)