Patrick J. HANNON, Plaintiff, v. CITY OF NEWTON, Defendant. United States of America, Interested Party, Appellant, v. Commonwealth of Massachusetts; Rita S. Manning, Interested Parties, Appellees.
No. 13-1022.
United States Court of Appeals, First Circuit.
Feb. 28, 2014.
744 F.3d 759
We note as well that the jury did not convict Colon of all the offenses to which he confessed during his interrogations at the station. Rather, it convicted him only of the offenses to which he promptly confessed at the scene of the arrest, after receiving Miranda warnings but before being exposed to most of the tactics that Colon suggested at trial were coercive. And each of those confessions was buttressed by physical evidence and unburdened by the interrogative tactics of which counsel complained. In short, no one can realistically argue that this jury did not realize that it could decide how much weight the confessions deserved. See, e.g., United States v. Walker, 665 F.3d 212, 231-32 (1st Cir.2011) (noting that harmless error analysis “takes into account, among other things any telltales that furnish clues to the likelihood that the error affected the factfinder‘s resolution of a material issue” (internal quotation marks omitted)).
IV. Conclusion
We see no meaningful difference between the instruction called for by section 3501 and the instruction given at Colon‘s trial. Moreover, even were we to assume that a court should more closely hew to the language of section 3501, any error to that effect went unchallenged and is unlikely to have affected the outcome of Colon‘s trial. We therefore affirm the district court‘s judgment.
So ordered.
Anthony T. Sheehan, Attorney, Tax Division, Department of Justice, with whom Teresa E. McLaughlin, Attorney, Tax Division, Department of Justice, Kathryn Keneally, Assistant Attorney General, and Carmen M. Ortiz, United States Attorney, were on brief, for appellant.
Thomas J. Flannagan, with whom MacLean Holloway Doherty Ardiff & Morse, P.C. was on brief, for appellee.
Before LYNCH, Chief Judge, THOMPSON and KAYATTA, Circuit Judges.
LYNCH, Chief Judge.
This case presents an issue of first impression concerning the authority under federal law of the Internal Revenue Service to discharge a portion of its tax liens on a piece of real property taken by eminent domain in exchange for payment from that taking while asserting the remaining value of its liens on any proceeds that the taxpayer obtains in a state post-taking suit for undercompensation damages. The Internal Revenue Code,
We quickly summarize both the issue and our conclusions. In the spring of 2007, Patrick J. Hannon owed the United States over $4 million for unpaid taxes,
Three days later, on May 7, 2007, Newton paid $2.3 million to take Hannon‘s property at 20 Rogers Street by eminent domain. The IRS had authorized the tax lien discharge on 20 Rogers Street upon its receipt of $57,214.55, which was its estimate of what would remain of the $2.3 million paid by Newton after the mortgagee, a senior creditor, was paid in full.
Following the taking, on November 10, 2008, Hannon exercised his statutory right under Massachusetts eminent domain law to sue Newton in state court, claiming that Newton had not sufficiently compensated him for taking his property. See
There is no dispute that before the taking and the filing of the IRS Certificate, Manning‘s judgment lien was junior to the government‘s tax lien. The question of law before us is whether the IRS Certificate issued under
I.
A. The Discharge of the Real Property at 20 Rogers Street from Federal Tax Liens
On August 23, 2002, Hannon purchased a 1.5 acre beachfront residence located at 20 Rogers Street in Newton, Massachusetts for $3,000,000. That same day, Merrill Lynch Credit Corp. recorded its purchase money mortgage in the amount of $1,950,000 against the property.
Meanwhile, Hannon never paid his federal income tax and other federal taxes assessed against him for the years 1999, 2000, and 2001, even after the IRS had issued a notice and demand for payment of those taxes. Due to this outstanding tax liability, the IRS recorded notices in February 2003 of federal tax liens against Hannon‘s real property in the Middlesex County Registry of Deeds for taxes owed from years 1999 to 2001, totaling $5,447,154. See
The IRS also recorded notices, in late January and early February 2003, of federal tax liens against Hannon‘s personal property for the same amount in the District Court for the District of Massachusetts.2
About two years later, on March 17, 2005, Manning obtained a judgment against Hannon in the amount of $103,333.33. On June 9, 2005, she obtained an execution for that amount against Hannon‘s “goods, chattels or land,” which she recorded at the Middlesex Registry of Deeds on June 28, 2005. The IRS liens were obviously recorded first.
In 2007, Newton sought to take Hannon‘s beachfront property on 20 Rogers Street by eminent domain. Newton intended to fix an unstable retaining wall on the property that abutted Newton‘s public beach area and that posed a public safety risk to swimmers. As a result, on March 26, 2007, Newton submitted an application
Newton‘s application for a discharge certificate complied with the IRS requirements that it: a) describe the property from which it sought to remove the federal tax lien; b) provide the address of the real property; c) identify the basis for the discharge under
The IRS knew that Hannon believed that his property was worth more than Newton‘s $2.3 million estimate and that Newton had a budget limit of $2.3 million to acquire that property. Under Massachusetts law, a city is authorized to take privately owned “real estate or any interest therein” by eminent domain.
To facilitate the taking as Newton requested, the IRS approved the discharge of 20 Rogers Street from federal tax liens on May 4, 2007, well aware that the property might be worth more than the $2.3 million that Newton was able to pay for it, and that there could be a post-taking claim by Hannon for a larger sum. According to the IRS‘s notes from April 2007, the IRS issued the Discharge Certificate because it believed its tax liens would follow any proceeds that Hannon would obtain if he successfully sued Newton for additional damages.
The Certificate of Discharge, contained in relevant part in the Appendix, discharged 20 Rogers Street, “[a] certain parcel of land more fully described at the Registry of Deeds,” from federal tax liens while “saving and reserving, however, the force and effect of said tax lien[s] against and upon all other property or rights to property to which said lien[s] [are] attached, wheresoever situated.” The discharge was issued pursuant to
there is paid over to the Secretary in partial satisfaction of the liability secured by the lien an amount determined by the Secretary, which shall not be less than the value, as determined by the Secretary, of the interest of the United States in the [property] to be so discharged[.]
Newton issued its order of taking on May 7, 2007, by which it acquired 20 Rogers Street by eminent domain in exchange for a $2.3 million damages award. The IRS later recorded the Discharge Certificate in the Middlesex County Registry of Deeds on July 17, 2007. The Certificate was explicit that it applied only to real property located at 20 Rogers Street, so the IRS did not record the Certificate of Discharge in the District of Massachusetts District Court, where it must file tax lien notices for personal property.
B. Procedural History
On November 10, 2008, a little over a year after the taking, Hannon sued Newton in Middlesex County Superior Court, asserting that the damages award was inadequate compensation for the taking of 20 Rogers Street. See
On July 6, 2010, the Superior Court entered judgment in favor of Hannon, awarding him $420,000 in damages for undercompensation and $31,245.72 in interest. On October 4, 2010, Newton paid $451,649.82 into the registry of the court, and $151,761.73 of the interpleaded funds were paid to Hannon‘s counsel with the consent of all parties, leaving $299,888.09 to be distributed.
The government moved to intervene in this post-taking undercompensation suit on December 3, 2010. The Superior Court granted the government‘s motion on December 7, 2010, based on the federal tax liens, and the government later removed the case to federal court. As of November 1, 2010, Hannon‘s outstanding tax liability totaled $7,307,687. Only the government and Manning timely asserted an interest in these undercompensation damages, and the government moved for summary judgment, asserting that its tax liens had priority over Manning‘s judgment lien and that the Discharge Certificate only applied to real property located at 20 Rogers Street and not to any additional damages recovered by Hannon. Manning opposed the motion and cross-moved for summary judgment.
In an October 24, 2011 memorandum and order, the district court granted summary judgment in favor of Manning. The district court, in a theory it advanced sua sponte, held that by proceeding under
The district court also noted that Massachusetts‘s eminent domain law treats the right to sue for damages, and any award resulting from that suit, as a substitute for and representation of the land that was taken. Manning had priority because the IRS had discharged its lien on the land, whereas Manning had not. Id. at 259-61. As a result, the district court issued a judgment awarding Manning $103,333.33, the amount of her judgment lien, out of the undercompensation damages with the remainder distributed to the government “as an unsecured creditor.” Id. at 261.
On November 21, 2011, the government moved for reconsideration, arguing: (1) that its federal tax liens attached to Hannon‘s undercompensation damages regardless of its discharge of 20 Rogers Street under
The government timely appealed.
II.
This court reviews a grant of summary judgment de novo. Colon v. Tracey, 717 F.3d 43, 49 (1st Cir.2013). Neither party points to any disputed facts. Further, the issues here involve statutory interpretation questions, subject to de novo review. See United States v. Strong, 724 F.3d 51, 55 (1st Cir.2013).
A. Scope of the Discharge of Property from Federal Tax Liens Under § 6325(b)(2)(A)
Under federal law, if a person, such as Hannon, fails to pay federal taxes despite a demand for payment, tax liens “in favor of the United States” automatically attach to all of that person‘s “property and rights to property, whether real or personal.”
Amidst this backdrop,
For example, the application form allows either the delinquent taxpayer or the pur
To that end,
Subject to such regulations as the Secretary [of Treasury] may prescribe, the Secretary may issue a certificate of discharge of any part of the property subject to the lien if—
(A) there is paid over to the Secretary in partial satisfaction of the liability secured by the lien an amount determined by the Secretary, which shall not be less than the value, as determined by the Secretary, of the interest of the United States in the part to be so discharged....
In determining the value of the interest of the United States in the part to be so discharged, the Secretary shall give consideration to the value of such part and to such liens thereon as have priority over the lien of the United States.
A fundamental purpose of
Here, the Discharge Certificate was precise and discharged only 20 Rogers Street, Newton, Massachusetts, defined as “[a] certain parcel of land more fully described at the Registry of Deeds, Southern Middlesex, State of Massachusetts in Book 36209, Page 167.” Of the “bundle of sticks” or collection of rights that comprised Hannon‘s ownership of 20 Rogers Street, see United States v. Craft, 535 U.S. 274, 278-79 (2002), the Certificate discharged only a specific piece of real property that Hannon was parting with and Newton was taking. It did not discharge the other sticks that made up Hannon‘s ownership interest in 20 Rogers Street, such as his contingent rights to property if that parcel of land was taken by eminent domain; these included the right to receive an initial damages award, which accrued after the parcel of land was taken by eminent domain, and the right to sue for more damages if Hannon deemed the initial award inadequate. Were there any doubt as to the limited scope of the discharge, the Certificate saved and reserved the “force and effect of [said] tax lien[s] against and upon all other property or rights to property to which said lien is attached, wheresoever situated.” (emphasis added).
Nor was the scope of the discharge limited here by
Manning‘s argument is that a different subsection,
Subject to such regulations as the Secretary may prescribe, the Secretary may issue a certificate of discharge of any part of the property subject to the lien if such part of the property is sold and, pursuant to an agreement with the Secretary, the proceeds of such sale are to be held, as a fund subject to the liens and claims of the United States, in the same manner and with the same priority as such liens and claims had with respect to the discharged property.
To begin, interpreting
On appeal, Manning adopts the district court‘s interpretation of
It was an error of law to interpret subsection (b)(3) as providing the exclusive means for maintaining liens on the proceeds of post-taking compensation proceedings. Section
Manning does not and cannot dispute that before the IRS had discharged 20 Rogers Street from a portion of the federal tax liens, the IRS‘s federal tax liens of over $4 million had priority over Manning‘s judgment lien. In this case, the IRS had properly filed its notices of federal tax liens against Hannon‘s real and personal property, in compliance with both federal and Massachusetts law, by February 2003.8 Manning did not file her judg-
ment lien in the Middlesex County Registry of Deeds until June 28, 2005, clearly making her interest junior to the federal tax liens.
Supreme Court case law establishes that in this case, where the government‘s federal tax liens were imposed and recorded before Manning had recorded her judgment lien against Hannon, the government‘s liens retain their preexisting priority to any property that Hannon later acquires, including the $420,000 in undercompensation damages he received in July 2010. See United States v. McDermott, 507 U.S. 447, 455 (1993); Glass City Bank of Jeanette, Pa., 326 U.S. at 268.
The unambiguous language of the Certificate and the statute resolve this case. The IRS could not have waived, relinquished, or surrendered its remaining tax liens on May 4, 2007, when the IRS issued the Discharge Certificate in this case. Newton did not take 20 Rogers Street by eminent domain until three days later on May 7, when it issued an order of taking for that parcel of land, and the taxpayer‘s cause of action for additional compensation arose after May 7. See
B. Massachusetts Law of Equitable Conversion Does Not Remove the Government‘s Tax Liens from Any Property that Was Not Expressly Discharged in a Discharge Certificate
Manning argues that the IRS discharge encompassed discharge of the proceeds of a post-taking undercompensation suit under the state law doctrine of equitable conversion. She starts with the proposition that Massachusetts law treats any damages awarded for a taking by eminent domain as a substitute for the land taken. See Cornell-Andrews Smelting Co. v. Bos. & P.R. Corp., 209 Mass. 298, 95 N.E. 887, 890 (1911) (“[C]ompensation paid for land taken by the exercise of the power of eminent domain in equity represents the land and is subject to all the rights of persons who had rights in the land....“). She contends this equitable conversion doctrine means the government‘s discharge of 20 Rogers Street from tax liens also gave up its interest in the later award of post-taking damages. In contrast, she argues her liens attached to all of Hannon‘s eminent domain damages precisely because she never discharged her lien on 20 Rogers Street, while the IRS did. This argument is wrong on several grounds.
First, federal law, not Massachusetts law, controls both the scope the IRS discharge in this case and the attachment of federal tax liens to Hannon‘s property and rights to property. Under controlling federal statutory law, a lien in favor of the government attaches to “all property and rights to property” held by a delinquent taxpayer.
Second, a state law doctrine of equitable conversion, which might define the rights of state law creditors, does not extend the IRS‘s discharge of real property located at 20 Rogers Street to Hannon‘s post-taking right to sue for undercompensation damages. Section 6321 governs whether Hannon‘s right to sue for undercompensation damages is a “property or right to property” subject to the government‘s federal tax liens. For example, in Drye v. United States, 528 U.S. 49, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999), the IRS had made assessments against a taxpayer and so had valid tax liens against all of his property and property rights under
We look to Massachusetts law only for the purpose of determining the nature of the substantive rights it grants Hannon as to 20 Rogers Street. See Craft, 535 U.S. at 278-79. Massachusetts statutory law gives Hannon the right to an initial payment of a “reasonable amount” if his land is taken by eminent domain, as well as a right to sue for undercompensation and receive additional damages for the taking.
As a matter of federal law, once Newton took 20 Rogers Street by eminent domain, Hannon‘s right to sue for and receive undercompensation damages for that taking qualifies as “property” or a “right to property” to which federal tax liens attach, and Manning does not argue otherwise. Rather, she claims that Massachusetts‘s equitable conversion doctrine transferred creditors’ liens on 20 Rogers Street to Hannon‘s post-taking undercompensation damages, such that only creditors that had existing liens on 20 Rogers Street at the time of the taking could later claim an interest in those damages.9 However,
Finally, Manning‘s argument misstates the relevant state law. She claims that due to equitable conversion, Massachusetts law recognizes only “one continuing interest” in real property and the statutory right to sue and receive damages when that property is taken by eminent domain. However, it is Massachusetts statutory law that divided Hannon‘s property interests in 20 Rogers Street, recognizing his right, which arose after the taking of the land, to receive and sue for eminent domain damages as distinct from his right to possess the land. See
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Accordingly, we reverse with instructions that the district court enter summary judgment in the government‘s favor.
Appendix
Certificate of Discharge:
Department of the Treasury—Internal Revenue Service
CERTIFICATE OF DISCHARGE OF PROPERTY FROM FEDERAL TAX LIEN
(Under Section
WHEREAS, Patrick J & Elizabeth Hannon ... is/are indebted to the United States for unpaid internal revenue tax, as evidenced by:
| Notice of Federal Tax Lien Serial Number (A) | Recording Information (B) | Date Recorded (C) | Tax Identification Number (D) | Amount Shown on Lien (E) |
|---|---|---|---|---|
| 40318073 | Book: 37941 Page: 130 | 02-08-2003 | $2,739,256.88 | |
| 40318586 | Book: 38015 Page: 259 | 02-15-2003 | $2,707,897.12 | |
| 156245104 | Book: 42081 Page: 591 | 02-23-2004 | $ 17,408.00 |
WHEREAS, to secure the collection of said tax, notice of the lien of the United
WHEREAS, the lien of the United States, listed above, for said tax has attached to certain property described as:
20 Rogers Street, Newton, MA
A certain parcel of land more fully described at the Registry of Deeds, Southern Middlesex, State of Massachusetts in Book 36209, Page 167.
WHEREAS, the Area Director of Internal Revenue has determined that the value of the interest of the United States in the foregoing property, under and by virtue of its aforesaid tax lien, amounts to the sum of $57,214.55. In addition, under the provisions of section 6325(d)(2), the United States subordinates its tax lien to all reasonable and necessary expenses incurred in connection with the sale of the property or administration of the sale proceeds and any interest I have determined will increase the amount realized and facilitate collection of the tax liability. I have, therefore authorized the issuance, under the provisions of section
NOW, THEREFORE, THIS INSTRUMENT WITNESSETH, that I, [Collection Area Director, North Atlantic Area of the Internal Revenue Service,] charged by law with the duty of collecting and enforcing the collection of internal revenue taxes due to the United States, and charged with the assessment hereinbefore stated, do, pursuant to the provisions of section
WITNESS my hand at Boston, Massachusetts, on May 4, 2007.
[Signature Omitted]