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This
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STATE OF MICHIGAN
COURT OF APPEALS
| VILLAGE
OF DIMONDALE |
| |
Plaintiff-Appellee |
|
FOR
PUBLICATION
April 21, 2000
|
| v |
No.
213277
Eaton Circuit Court |
| LESLIE
A. GRABLE |
| |
Defendant-Appellant |
|
LC
No(s). 97-001253-CH |
Before:
Sawyer, P.J., and Hood and Whitbeck, JJ.
PER
CURIAM.
Defendant, Leslie A. Grable, appeals as of
right from an order granting summary
disposition in favor of Richard E. Albert,
for whom the village of Dimondale has been
substituted on appeal. Grable argues that
the trial court erroneously quieted title to
his land in Richard E. Albert, who later
sold the land to Dimondale, because the tax
deed Albert acquired to Grable's property
was void. We agree and reverse.
I. Statutory Background
This case involves the application of three
separate and distinct provisions of the
Internal Revenue Code, each of which relate
to the process by which the federal
government forecloses on property in order
to collect unpaid federal taxes. The first
of these provisions is the "notice and
demand" requirement of 26 USC 6303(a),
which prescribes the process the Internal
Revenue Service (IRS)[1]
must follow to notify a taxpayer of an assessment
of the tax following the taxpayer's failure
to pay the tax and states:
Where it is not otherwise provided by this
title, the Secretary [of Treasury] shall,
as soon as practicable, and within 60 days
after the making of an assessment of a tax
pursuant to section 6203, give notice to
each person liable for the unpaid tax,
stating the amount and demanding payment
thereof. Such notice shall be left at
the dwelling or usual place of business of
such person, or shall be sent by mail to
such person's last known address. [Emphasis
supplied.]
The second provision is the "notice
of seizure" requirement of 26 USC
6335(a), which delineates the process by
which the IRS must notify a taxpayer of a seizure
of property for failing to pay the tax and
states:
As soon as practicable after seizure of
property, notice in writing shall be
given by the Secretary [of the
Treasury] to the owner of the property
(or, in the case of personal property, the
possessor thereof), or shall be left at
his usual place of abode or business if he
has such within the internal revenue
district where the seizure is made. If
the owner cannot be readily located, or
has no dwelling or place of business
within such district, the notice may be
mailed to his last known address. Such
notice shall specify the sum demanded and
shall contain, in the case of personal
property, an account of the property
seized and, in the case of real property,
a description with reasonable certainty of
the property seized. [Emphasis supplied.]
As is readily apparent, the assessment and
demand statute, 26 USC 6303(a), requires
service by leaving the notice at the
dwelling or usual place of business of the
taxpayer or by mail. In contrast, the
seizure statute, 26 USC 6335(a), requires
the IRS to give notice by personal service
or by leaving the notice at the usual place
of abode or business of the taxpayer. Only
if the IRS cannot readily locate that
taxpayer or if the taxpayer has no dwelling
or place of business within the internal
revenue district can the IRS give notice
through the mail to the taxpayer's last
known address.
The third provision governs notice of a
proposed sale of seized property, 26
USC 6335(b), and requires the IRS to give
notice to the taxpayer of the proposed sale
in the same way the Secretary of Treasury
would give notice of the seizure under 26
USC 6335(a). Additionally, this sale
provision requires the IRS to give notice to
the public through publication or posting.
II. Factual Background
According to Grable, in 1974, he and his
wife acquired real property at 120 North
Bridge Street in Dimondale, Michigan. The
property is described as:
The Southwesterly 24 feet in width of the
northeasterly 56 feet in width of Lot 5,
Block 21, Original Plat to the Village of
Dimondale, Eaton County, Michigan, as
recorded in Liber 1 of Plats, Page 65,
Eaton County Records. Commonly known as
120 Bridge St; Dimondale, Michigan 48821;
Parcel: 21-081-000-621-053.
Apparently, during calendar years 1980,
1981, 1983, 1984, 1985, and 1986, Grable did
not pay his federal taxes, and the Internal
Revenue Service began the process of
assessing, seizing, and selling the property
at 120 North Bridge Street. The record does
not make clear when the IRS gave Grable a
"notice and demand" related to a
tax assessment under 26 USC 6303(a).
However, the IRS gave the 26 USC 6335(a)
"notice of seizure" to him on May
13, 1994,and gave the 26 USC 6335(b)
"notice of sale" notice to him on
November 26, 1994. While the IRS personally
served Grable with the 26 USC 6335(b)
"notice of sale," it is undisputed
that the IRS mailed the 26 USC
6335(a) "notice of seizure" to
Grable. Clearly, this was not in strict
compliance with 26 USC 6335(a).
III. Federal Procedural History
At roughly the same time the IRS gave these
two notices to Grable in 1994, it also began
the process of assessing, seizing, and
selling property owned by Grable & Sons
Metal Products, Inc. (Grable Corporation) to
enforce a levy for $2,916,474.58 in unpaid
taxes. Apparently, the IRS took action with
respect to property located at 116 Bridge
Street, Dimondale, Michigan, and 601-701
Plains Road, Eaton Rapids, Michigan. The
Grable Corporation contested the matter and,
on June 3, 1994, the United States District
Court for the Western District of Michigan,
Gordon J. Quist, J., issued an opinion
categorizing the case, along with several
additional cases involving Grable, the
Grable Corporation, and others, as "tax
protester" cases (the court later
deemed the cases against these individuals
and corporations as "tax evader"
cases). In any event, the court determined,
among other things, that the government had
given the proper "notice and
demand" under 26 USC 6303(a) to the
Grable Corporation. In an unpublished
opinion, the United States Court of Appeals
for the Sixth Circuit affirmed the judgment
of the district court.
This federal litigation, however, has little
relevance to this action to quiet title for
three reasons. First, the litigation
involved the Grable Corporation and not
Grable himself. Second, the litigation did
not, as Dimondale conceded during oral
argument before this Court, explicitly
involve the property at 120 North Bridge
Street. Third, the litigation involved the
"notice and demand" requirement of
26 USC 6303(a), not the "notice of
seizure" requirement of 26 USC 6335(a).
IV. The Instant Quiet Title Action
In December 1994, Grable filed a notice
(hereinafter the Grable notice) with the
Register of Deeds for Eaton County to inform
all bidders that he would challenge any sale
of enumerated pieces of property in the
United States District Court for the Western
District of Michigan. According to the
village of Dimondale, among the properties
described in the Grable notice was the
property at 120 North Bridge Street. Rather
clearly, then, in December 1994, Grable had
received some type of actual notice of, in
the words of the Grable notice, "the sale
of personal or real property of Grable
and Sons Metal Products, Inc. and Leslie
A. Grable." (Emphasis supplied.)
The IRS sold the property at 120 North
Bridge Street at auction to James T. Holberg
in December 1994. Holberg obtained a tax
deed to the property in November 1995 and,
in June 1997, Holberg conveyed the property
at 120 North Bridge Street to Richard E.
Albert. Albert filed this action to quiet
title in September 1997. Grable answered the
complaint and asserted his affirmative
defense that the tax sale to Holberg was
invalid from its inception because the IRS
failed to comply with the notice
requirements in 26 USC 6335. In his answer
to the complaint, Grable asked the court to
dismiss the complaint and grant "such
further relief as is just and proper."
In early 1998, Albert and Grable filed
cross-motions for summary disposition.
Grable moved for summary disposition under
MCR 2.116(C)(10), again claiming that
because the sale was void, Albert had no
valid title to the property. In this motion,
for the first time, Grable requested that
the trial court quiet title to the property
at 120 North Bridge Street in him.
Albert moved for summary disposition under
MCR 2.116(C)(9), asserting three main
arguments. First, Albert argued that because
the federal courts had repeatedly held
Grable's challenges to the IRS procedures to
be meritless, res judicata barred this
latest defense, which was or could have been
raised in the federal litigation. Second,
Albert claimed that a tax deed is prima
facie evidence of the facts stated therein
and effective to convey all rights, title,
and interest of the delinquent taxpayer,
leaving Albert with title superior to any
interest Grable had in the property. Third,
Albert contended that Grable had actual
notice and every opportunity to raise the
issue of the inadequate notice before the
tax sale but had failed to redeem the
property within a reasonable amount of time,
which was inequitable. In a supplemental
brief, Albert also argued that this Court
had held that "under 26 USC 5335 [sic]
service of notice of sale by mail was
entirely permissible."[2]
Grable responded that none of the litigation
in the federal courts involved issues raised
in the present litigation because (1) those
cases did not involve the notice
requirements of 26 USC 6335(a), (2) those
cases concerned only personal property owned
by a corporation, and (3) the IRS did not
sell the property in issue in this case
until after that litigation was final in the
federal district court, and, up to the time
of the sale, the IRS could have complied
with the requirements of 26 USC 6335(a) by
giving him notice of the seizure by personal
service.
In May 1998, the trial court granted
Albert's motion for summary disposition. The
trial court reasoned that the general rule
in Michigan is that where "a serious
defect occurs in the tax sale, it may be
attacked by the owner of the premises,
provided he acts promptly and does
equity." The trial court acknowledged
that Grable notified prospective buyers that
he would sue concerning the validity of the
seizure. However, the trial court also noted
that Grable presented many arguments to the
federal district court challenging the
seizure of the property at 120 North Bridge
Street, including an argument that notice
from the IRS was insufficient under 26 USC
6303, but lost those arguments repeatedly in
the federal court. (Indeed, the federal
district court sanctioned Grable for
instituting frivolous litigation.) The trial
court also stated that the purpose of the
notice requirement is to prevent disputes
over whether a taxpayer received notice, but
Grable never disputed that he received
actual notice of the seizure. The trial
court also remarked that Grable had the
opportunity to redeem the property, did not
do so, and then remained silent for two
years and nine months after the sale; Grable
only acted to defend his rights in the
property at 120 North Bridge Street when
Albert brought the action to quiet title,
and only then did Grable contend that notice
of the seizure was improper. The trial court
concluded that Grable had acted in an
untimely and inequitable fashion and
ultimately entered judgment quieting title
in favor of Albert.
After the trial court quieted title to the
property at 120 North Bridge Street in
Albert, Albert conveyed that property to
Dimondale. When Grable appealed the trial
court's decision to quiet title in Albert,
this Court granted Dimondale's motion to be
substituted as the appellee in this case.
V. The Parties' Arguments
Grable does not explicitly challenge the
trial court's decision to grant Albert
summary disposition pursuant to MCR
2.116(C)(9). Rather, he claims that the sale
to Holberg was void because the IRS failed
to comply strictly with the statutorily
mandated notice procedure in 26 USC 6335(a).
Therefore, according to Grable, Albert, and
ultimately Dimondale, had no title in the
property at 120 North Bridge Street and the
trial court should have quieted title in
him. Grable also asserts that equitable
doctrines may not override the IRS's duty to
comply strictly with the notice procedures
delineated in 26 USC 6335.
Dimondale, arguing in Albert's stead,
responds that the trial court properly
granted summary disposition because (1)
Grable failed to plead a valid defense, (2)
the tax title is prima facie evidence of the
facts stated therein, and (3) Grable had
actual notice and every opportunity to raise
the issue of the inadequacy of notice before
the sale, but inequitably delayed acting.
VI. Standard Of Review
This Court reviews de novo a trial court's
decision with respect to a motion for
summary disposition. Spiek v Dep't of
Transportation, 456 Mich 331, 337; 572
NW2d 201 (1998).
VII. Summary Disposition In Favor of
Albert Under MCR 2.116(C)(9)
The trial court did not specify the
subsection of MCR 2.116(C) under which it
granted summary disposition. However,
because the trial court granted summary
disposition in favor of Albert on the basis
of his argument that Grable had failed to
assert a valid defense, we assume that it
ruled under MCR 2.116(C)(9), the court rule
Albert cited in his motion for summary
disposition.
Summary disposition under MCR 2.116(C)(9) is
proper if a defendant fails to plead a valid
defense to a claim. Nicita v Detroit
(After Remand), 216 Mich App 746, 750;
550 NW2d 269 (1996). A motion under MCR
2.116(C)(9) tests the sufficiency of a
defendant's pleadings by accepting all
well-pleaded allegations as true. Lepp v
Cheboygan Area Schools, 190 Mich App
726, 730; 476 NW2d 506 (1991). If the
defenses are "'so clearly untenable as
a matter of law that no factual development
could possibly deny plaintiff's right to
recovery,'" then summary disposition
under this rule is proper. Id.,
quoting Domako v Rowe, 184 Mich App
137, 142; 457 NW2d 107 (1990).
Albert alleged that the tax deed
extinguished Grable's interest in the
property at 120 North Bridge Street. Grable
answered that the tax sale had not
transferred his interest and affirmatively
claimed that the deed was void because of
the IRS's failure to comply with the
requisite notice procedures in 26 USC
6335(a). Thus, Grable categorically denied
the material allegations of the complaint
and stated a legally cognizable defense. See
Nasser v Auto Club Ins Ass'n, 435
Mich 33, 47; 457 NW2d 637 (1990), quoting Pontiac
School Dist v Bloomfield Twp, 417 Mich
579, 585; 339 NW2d 465 (1983) ("'[W]hen,
as here, a material allegation of the
complaint is categorically denied, summary
[disposition] under [MCR 2.116(C)(9)] is
improper.'" [alterations in Nasser]).
Further, a court may look only to the
parties' pleadings in deciding a motion
under MCR 2.116(C)(9). MCR 2.116(G)(5).
"Pleadings," as defined in MCR
2.110(A), include only a complaint, a
cross-claim, a counterclaim, a third-party
complaint, an answer to any of these, and a
reply to an answer. A motion for summary
disposition is not a responsive pleading
under MCR 2.110(A). Huntington Woods v
Ajax Paving Industries, Inc (On Rehearing),
179 Mich App 600, 601; 446 NW2d 331(1989).
The trial court in this case noted many
alleged facts presented to it only in the
wealth of documentary evidence submitted by
the parties, not in the pleadings. The trial
court relied on these alleged facts when it
determined that Grable had acted
inequitably, which is an improper foundation
for granting summary disposition under MCR
2.116(C)(9). Thus, the trial court clearly
erred in granting summary disposition under
MCR 2.116(C)(9).
VIII. Summary Disposition In Favor
Of Grable Under MCR 2.116(C)(10)
The trial court's error in granting Albert
summary disposition does not end our
analysis, because, in granting that motion,
the trial court simultaneously denied
Grable's motion for summary disposition
under MCR 2.116(C)(10). Accordingly, we must
determine whether the trial court also erred
in denying Grable's motion.
Under MCR 2.116(C)(10), summary disposition
may be granted if there "is no genuine
issue as to any material fact, and the
moving party is entitled to judgment . . .
as a matter of law." MCR 2.116(C)(10).
A court must consider the pleadings as well
as affidavits, depositions, admissions, and
other documentary evidence in the light most
favorable to the nonmoving party. Ritchie-Gamester
v City of Berkley, 461 Mich 73,
76; 597 NW2d 517 (1999). However, the
nonmoving party must produce evidence
showing a material dispute of fact left for
trial in order to survive a motion for
summary disposition under this court rule.
MCR 2.116(G)(4); Etter v Michigan Bell
Telephone Co, 179 Mich App 551, 555; 446
NW2d 500 (1989).
Although Grable did not dispute that he
received actual notice of the seizure of the
property at 120 North Bridge Street by
certified mail, Albert declined to admit
that notice by certified mail was defective
and specifically asserted that he needed an
opportunity to review the IRS records to
determine whether the claimed defect
actually existed. Accordingly, Albert argued
that if the trial court denied his motion
under MCR 2.116(C)(9), it should deny
Grable's motion under MCR 2.116(C)(10)
because discovery was not yet complete.
"As a general rule, summary disposition
is premature if granted before discovery on
a disputed issue is complete." Dep't
of Social Services v Aetna Casualty &
Surety Co, 177 Mich App 440, 446; 443
NW2d 420 (1989). "However, summary
disposition may be proper before discovery
is complete where further discovery does not
stand a fair chance of uncovering factual
support for the position of the party
opposing the motion." Prysak v R L
Polk Co, 193 Mich App 1, 11; 483 NW2d
629 (1992).
It is clear that Albert did not carry his
burden of providing proof of proper notice
at the time the trial court ruled on the
motions for summary disposition. Etter,
supra. Albert did not assert or
provide an evidentiary basis for what he
believes he might find to support the
existence of a factual dispute. See Bellows
v Delaware McDonald's Corp, 206 Mich App
555, 561; 522 NW2d 707 (1994) ("If a
party opposes a motion for summary
disposition on the ground that discovery is
incomplete, the party must at least assert
that a dispute does indeed exist and support
that allegation by some independent
evidence."). Nor is it apparent what
other information the parties might be able
to produce concerning this issue beyond an
official IRS record indicating that IRS
staff mailed a written notice of the seizure
to Grable by certified mail. There is no
reason to believe that the IRS provided
duplicate notice to Grable by certified mail
and one of the proper means
identified in 26 USC 6335(a). Indeed, the
IRS evidently thought the notice of seizure
by certified mail was sufficient, because it
went ahead with the tax sale. Thus, summary
disposition before discovery closed was not
premature because additional discovery was
unlikely to reveal "factual support
for" Albert's, and now Dimondale's,
arguments. Prysak, supra.
The absence of this evidence of proper
notice had a conclusive effect on the action
to quiet title. The law is clear that a tax
sale purchaser cannot obtain clear title if
the government failed to perfect its right
to sell clear title by strict compliance
with the provisions for notice of the levy,
seizure, and sale. Ruff v Isaac, 226
Mich App 1, 5-6; 573 NW2d 55 (1997); Goodwin
v United States, 935 F2d 1061, 1065 (CA
9, 1991). Absent literal compliance with the
provisions of 26 USC 6335(b), a tax sale of
land is "void." Aqua Bar &
Lounge, Inc v United States, 438 F Supp
655, 658 (ED Pa, 1977). In Howard v Adle,
538 F Supp 504, 507 (ED Mich, 1982), the
federal court stated that notice of sale by
certified mail was insufficient to comply
with the statute. The Howard Court
rejected the government's interpretation of
26 USC 6335(b), which would have permitted
certified mail delivery, as contrary to the
plain language of the statute. Id.
While these federal cases deal with IRS
failures to comply with the notice procedure
for the sale of property under 26 USC
6335(b), there is little justification to
read 26 USC 6335(a), the provision on notice
of seizures, differently because the
procedure for notice under 26 USC 6335(b)
incorporates the procedure for notice under
26 USC 6335(a).
Recently, this Court determined that the IRS
complied with the notice procedure of 26 USC
6335(a) when it served the plaintiffs by
certified mail because they could not be
"readily located." Ruff, supra
at 8. However, this Court stated that the
statute is unambiguous and should be given
its plain meaning. Id., citing Robinson
v Shell Oil Co, 519 US 337; 117 S Ct
843; 136 L Ed 2d 808 (1997). Here, there is
no evidence that Grable could not be
"readily located."
Furthermore: "[w]hen a delinquent
taxpayer contests a third-party purchaser's
title to property acquired through a tax
sale, the general rule is that 'the burden
of showing literal compliance with statutes
governing the sale of land for taxes is upon
the claimant under the tax sale.'" Ruff,
supra at 5, quoting McAndrews v
Belknap, 141 F2d 111, 115 (CA 6, 1944).
On the facts presented, Albert, and now
Dimondale, did not meet this burden. While
this may appear to be an anomalous result in
light of the evidence in the Grable notice
that Grable minimally had actual
notice of the proposed sale of the
property at 120 North Bridge Street, we find
nothing in the record that can serve to
excuse the IRS from strict compliance with
the requirements of 26 USC 6335(a) for
notice of seizure. In the absence of
that notice, the tax deed was invalid and
the trial court should have quieted title in
Grable by granting him summary disposition
under MCR 2.116(C)(10) and entering a
judgment to that effect.
Dimondale's additional arguments do not
persuade us to reach a different result. For
instance, Dimondale, as did Albert, contends
that under 26 USC 6339(b), a tax deed is
valid on its face because the deed is prima
facie evidence of the facts stated in it. We
do not quibble with that statement of the
law. However, here, the tax deed stated:
WHEREAS, the sale was conducted in
compliance with all of the requirements of
Sub-chapter D, Chapter 64, of the Internal
Revenue Code and Regulations thereunder.
Grable has rebutted this statement by
showing inadequate notice, which neither
Albert nor Dimondale has proved wrong by
submitting contrary evidence. See Margiotta
v Dist Director of Internal Revenue Service,
Brooklyn, 214 F2d 518, 522 (CA 2, 1954).
Therefore, the statement in the tax deed
that it complied with all relevant statutory
provisions has no effect on our decision.
Dimondale's and Albert's argument that
Grable's inequitable delay in acting on his
rights bars his claim to the property is
similarly without merit. It is not at all
clear in Michigan that the general rule that
a party aggrieved by a defective tax sale
must act promptly and equitably to avoid the
sale applies when there was defective notice
of a tax assessment, seizure, or sale. See Howard,
supra at 508, quoting Detroit Trust
Co v Lieberwitz, 275 Mich 429, 436; 266
NW 406 (1936). In both Howard and Ruff,
the taxpayers were plaintiffs who
attempted to quiet title and, in doing so,
opened the door to the respective
defendants' claims that the plaintiffs acted
inequitably. In this case, Grable, the defendant,
did not institute the equitable action to
quiet title. Therefore, we see no reason to
bar him from asserting an otherwise valid
defense to the claim against his property.
See generally Stabile v General
Enterprises, 70 Mich App 711, 718; 246
NW2d 375 (1976) (equity is a shield, not a
sword).
IX. Conclusion
The trial court erred in three ways. First,
it erroneously considered evidence outside
the pleadings when granting summary
disposition to Albert under MCR 2.116(C)(9).
Second, the trial court ignored that Grable
had pleaded a valid defense when asserting
that the tax deed Albert possessed was
invalid for lack of proper notice under 26
USC 6335(a). Finally, the trial court
erroneously denied summary disposition to
Grable when there was no issue of material
fact left in dispute regarding whether
Grable received proper notice when the IRS
seized his property.
Reversed and remanded for an order of
summary disposition in favor of Grable and
judgment quieting title to the disputed
property in him. We do not retain
jurisdiction. Grable, having prevailed in
full, may tax costs pursuant to MCR 7.219.
/s/ David H. Sawyer
/s/ Harold Hood
/s/ William C. Whitbeck
1 In actuality, the Internal
Revenue Service acts on behalf of the
Secretary of Treasury. Therefore, we refer
to the Secretary of Treasury's obligations
as the obligations of the IRS.
2 Albert's reference to Ruff
v Isaac, 226 Mich App 1; 573 NW2d 55 (1997),
makes it clear that the provision referred
to was 26 USC 6335.
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