Turcar, LLC v. Internal Revenue Service , 451 F. App'x 509 ( 2011 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 11a0843n.06
No. 10-1340
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
TURCAR, LLC,
Dec 15, 2011
Plaintiff - Appellant, LEONARD GREEN, Clerk
v. ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR THE
INTERNAL REVENUE SERVICE, EASTERN DISTRICT OF MICHIGAN
Defendant - Appellee.
/
BEFORE: MARTIN, CLAY, and WHITE, Circuit Judges.
CLAY, Circuit Judge. Plaintiff Turcar, LLC (“Turcar”) filed this civil action against the
government to quiet title and for wrongful levy on a piece of real property located in Dearborn,
Michigan (the “Property”). Plaintiff appeals the district court’s order granting summary judgment
in the government’s favor and the district court’s denial of Plaintiff’s motion for reconsideration.
Plaintiff argues that the district court erred in deciding the government’s summary judgment motion
on a sua sponte basis that was not argued by the parties. For the reasons set forth below, we disagree
and AFFIRM the district court’s rulings.
BACKGROUND
This action stems from a 1985 tax assessment made against an individual, Manuel Turchan,
for unpaid employee withholding taxes during the 1982 tax period. When Turchan failed to pay the
assessment, a lien in the government’s favor was created that automatically attached to all property
No. 10-1340
and rights to property belonging or thereafter acquired by Turchan. Over ten years later, on March
20, 1996, Turchan entered into a land contract with FRD Realty Investment (“FRD”) for Turchan’s
purchase of the Property at issue in this suit.
On May 27, 1997, the IRS filed a Notice of Federal Tax Lien against Turchan and the
Property with the Wayne County, Michigan, Register of Deeds. Separately, by letter dated
December 12, 1997, FRD notified Turchan that their land contract was deemed forfeited due to
Turchan’s failure to cure a missed payment from September 1, 1997, within a 90-day grace period.
Turchan did not challenge the forfeiture or attempt to redeem the contract.
Despite the forfeiture, on April 21, 1998, Turchan executed several documents purporting
to transfer the Property. First, Turchan quitclaimed his interest to Plaintiff Turcar, a limited liability
company of which Turchan was a member. Turcar was incorporated in Michigan and was located
at the Property’s address. The consideration provided on the transaction was zero dollars. On the
same day, Turchan and Turcar jointly entered into a “Collateral Assignment of Land Contract,”
assigning their collective interests to Diamond Tech Lenders (“DTL”) in exchange for a purchase
money secured interest loan. Several weeks later, on May 14, 1998, Turchan recorded the original
land contract between Turchan and FRD, the quitclaim deed between Turchan and Turcar, and the
collateral assignment to DTL with the Wayne County Register of Deeds.
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On August 12, 1998, Turchan recorded three additional deeds dated May 15, 1998; June 24,
1998; and June 30, 1998.1 The deeds purported to quitclaim the Property back to Turchan for a total
consideration of $325,000.
On October 25, 2007, the IRS issued a Notice of Seizure made out to Plaintiff at the
Property’s address. The Notice cited Turchan’s nonpayment of $756,888.24 in past due federal taxes
as the reason supporting seizure.
On November 21, 2007, Plaintiff filed the present suit. Plaintiff sought declaratory relief
voiding the government’s seizure attempt and declaring Turcar the sole owner of the Property.
Plaintiff argued that when Turchan forfeited the land contract to FRD, Turchan lost all attachable
interest, and despite the interim quitclaim deeds executed thereafter, the Property was not
encumbered by any of Turchan’s personal tax liabilities. Plaintiff further claimed that it took
ownership of the Property by deed from FRD around May 15, 1998. Plaintiff alleged that it thus
took the Property free of Turchan’s encumbrances, rendering the IRS’s attempt to seize the Property
from Turcar wrongful.
On March 6, 2009, the IRS moved for summary judgment. The government asserted that
because of the ongoing tax lien against Turchan, the IRS held a superior interest in the Property to
any that could be claimed by Plaintiff.
During the pendency of the summary judgment motion, the government discovered and
apprised the court that its lien on the Property was erroneously released in May 2008. In June 2008,
1
The three quitclaim deeds were executed by FRD, a W. Kent Clarke, Jr., and Fred Ferber,
the President of FRD according to the May 15 deed. The record does not indicate what relationship
Clarke had to FRD.
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the IRS reinstated the lien. At Plaintiff’s request, the court allowed Plaintiff to submit additional
evidence and argument as to whether the lien’s release and reinstatement affected its interest in the
Property. Plaintiff provided no additional documentation and maintained its original arguments.
On October 8, 2009, the district court granted summary judgment to the government. Instead
of adopting the government’s argument of superior interest, however, the district court held that
Plaintiff failed to establish a legally cognizable interest in the Property, as required for success on
either of its claims. Turcar, LLC v. Internal Revenue Serv., No. 07-14975, 2009 WL 3241968, at
*2–3 (E.D. Mich. Oct. 8, 2009) (Turcar I).
Following the unfavorable judgment, Plaintiff moved for reconsideration. Plaintiff argued
that, because the government had not contested Turcar’s interest in the Property, the district court’s
grant of summary judgment on this basis was an impermissible sua sponte action.
In support of its motion, Plaintiff attached an additional quitclaim deed, dated July 17, 1998,
that purported to convey the Property from Turchan to Turcar. Plaintiff faulted the IRS for failing
to include the deed in its presentation of title and argued that the new deed called for reversing the
grant of summary judgment. On March 1, 2010, the district court refused to consider the new deed,
as untimely, and denied Turcar’s motion for reconsideration. Turcar, LLC v. Internal Revenue Serv.,
No. 07-14975, 2010 WL 746238, at *1–2 (E.D. Mich. Mar. 1, 2010) (Turcar II).
Turcar timely appealed. Original jurisdiction exists pursuant to 28 U.S.C. §§ 1346(e)
(wrongful levy) and § 1444 (allowing removal of suits to quiet title against the United States).
Sovereign immunity is waived for both counts pursuant to 26 U.S.C. § 7426(a)(1) (wrongful levy)
and 28 U.S.C. § 2410(a)(1) (quiet title). Appellate jurisdiction exists under 28 U.S.C. § 1291.
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DISCUSSION
I. Summary Judgment Ruling
A. Standard of Review and Legal Standard
Typically, a district court’s grant of summary judgment is reviewed de novo. Bell v. United
States, 355 F.3d 387, 391 (6th Cir. 2004). However, when a district court grants summary judgment
sua sponte—including deciding the motion on an alternative basis not argued by the parties—its
decision is subject to two separate standards of review. Bennett v. City of Eastpointe, 410 F.3d 810,
816 (6th Cir. 2005) (quoting Shelby Cnty. Health Care Corp. v. S. Council of Indus. Workers Health
& Welfare Trust Fund, 203 F.3d 926, 931 (6th Cir. 2000)). “The district court’s procedural decision
to enter summary judgment sua sponte . . . is reviewed for abuse of discretion,” while the “substance
of the district court’s decision is reviewed de novo under the normal standards for summary
judgment.” Id. If the district court’s procedural decision was an abuse of its discretion, the
appropriate action by this Court is to remand the case “so that the district court can decide the motion
for summary judgment, in the first instance implementing procedures in conformity with law.” Excel
Energy, Inc. v. Cannelton Sales Co., 246 F. App’x 953, 959 (6th Cir. 2007).
If the district court did not abuse its discretion in granting summary judgment sua sponte, we
next analyze the merits of the summary judgment decision de novo. Bennett, 410 F.3d at 816.
Summary judgment is appropriate where there is no genuine issue as to any material fact such that
the prevailing party is entitled to judgment as a matter of law. Bell, 355 F.3d at 391–92; Fed. R. Civ.
P. 56. In reviewing a summary judgment decision, this Court must view the facts and all inferences
to be drawn from the facts in the light most favorable to the party against whom summary judgment
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was entered. Id. at 392. A genuine issue of material fact exists where there is sufficient evidence
for a jury to return a verdict in favor of either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250 (1986).
B. Procedural Summary Judgment Analysis
Plaintiff complains that the district court abused its discretion when it granted summary
judgment on the basis of an issue never contested through the summary judgment proceedings.
Plaintiff claims that the source of Turcar’s interest in the Property was not in dispute, and therefore,
Plaintiff was not on notice of a need to present additional items, such as a deed of ownership, to
prove its interest in the Property.
While a sua sponte entry of judgment is “disfavored,” the practice is not prohibited per se,
and a district court may do so “in certain limited circumstances,” provided the losing party is
afforded “notice and [a] reasonable opportunity to respond to all the issues to be considered by the
court.” Shelby Cnty. Health Care Corp., 203 F.3d at 931 (quoting Employers Ins. of Wausau v.
Petroleum Specialties, Inc., 69 F.3d 98, 105 (6th Cir. 1995)); Salehpour v. Univ. of Tenn., 159 F.3d
199, 204 (6th Cir. 1998); see also Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986). We have held
that a court must provide a party with a reasonable opportunity to respond by adhering to the same
ten-day time frame prescribed for a party’s motion for summary judgment. See Yashon v. Gregory,
737 F.2d 547, 552 (6th Cir. 1984) (citing Kistner v. Califano, 579 F.2d 1004 (6th Cir. 1978)).2 A
2
Although not applicable to the present dispute, we note that Rule 56(c) was amended in 2010
and 2011. The revised rules now expressly provide that a district court may act sua sponte. Under
Rule 56(f), after giving notice and a reasonable time to respond, the court may: (1) grant summary
judgment for a nonmovant; (2) grant summary judgment on grounds not raised by a party; or (3)
consider summary judgment on its own after identifying for the parties material facts that may not
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No. 10-1340
district court’s failure to adhere to the ten-day rule is subject to harmless error review. Meyer v.
AmerisourceBergen Drug Corp., 264 F. App’x 470, 478 (6th Cir. 2008) (citations omitted).
The “key inquiry” is whether the losing party was on sufficient notice that it needed to come
forward with all its evidence required to withstand summary judgment. Excel Energy, 246 F. App’x
959–60. In making this inquiry, this Court looks to the totality of the proceedings below to
determine whether the losing party had sufficient notice of the possibility that summary judgment
could be granted against it. Id. at 960. In evaluating this question, this Court considers whether the
prevailing party moved for summary judgment; whether the losing party moved for summary
judgment; what issues the parties focused on in their briefs; what factual materials the parties
submitted to the court; and whether motions were filed by co-defendants. See id. (citing cases).
Generally, procedural concerns are highest where summary judgment was granted absent a party
motion or where the court granted summary judgment in the non-moving party’s favor. By contrast,
a decision in the moving party’s favor, even if on an alternative basis than those argued before the
court, is a less extreme sua sponte action, because the moving party’s motion puts its opponent on
at least some notice that defensive action is required. See id. at 960 n.7; Meyer, 264 F. App’x at 478.
In order to obtain appellate relief, the party seeking to overturn the summary judgment
decision must also demonstrate prejudice. Yashon, 737 F.2d at 552. “[E]ven in circumstances where
the procedure implemented by the district court did not provide adequate notice,” this Court need
not remand the case to the district court where doing so “would merely entail an empty formality
be genuinely in dispute. Fed. R. Civ. P. 56(f); see also J.D. Fields & Co., Inc. v. United States Steel
Int’l Inc., 426 F. App’x 271, 280 n.9 (5th Cir. 2011).
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No. 10-1340
with no appreciable possibility of altering the judgment.” See Excel Energy, Inc., 246 F. App’x at
960 (citing United Rentals (N. Am.), Inc. v. Keizer, 355 F.3d 399, 411 (6th Cir. 2004); additional
citations omitted).
In the instant case, the district court easily could have informed the parties that it was
considering summary judgment on an alternative basis. Although we question why the court chose
not to do so, we cannot say that the court’s sua sponte action requires reversal. Plaintiff was on
notice that the chain of title before the district court was facially insufficient to support its claims.
Moreover, Plaintiff has not shown prejudice.
First, the district court granted the moving party’s motion based on “issue[s] and evidentiary
material” that were “the same [as those] set forth in” the parties’ arguments. Cottrell v. Yuetter, No.
93-4336, 1994 WL 560967, at *3 (6th Cir. Oct. 11, 1994). This is not a case where the parties
provided “little to no argument” regarding the Property’s ownership. Excel Energy, Inc., 246 F.
App’x at 962. In order to address the government’s superior interest theory, both parties were
required to extensively brief the Property’s chain of title. Accordingly, a defense sufficient to
withstand summary judgment necessarily required Plaintiff to examine the government’s
presentation of chain of title. Similarly, the response provided Plaintiff with an opportunity to
supplement the government’s evidence, if required.
Moreover, both of Plaintiff’s claims required that it prove its interest as a prima facie
element. See Sumpter v. United States, 302 F. Supp. 2d 707, 719 (E.D. Mich. 2004) (quiet title) and
McGinness v. United States, 90 F.3d 143, 145 (6th Cir. 1996) (wrongful levy). Despite this burden,
Plaintiff offered little evidence to support its claims. Plaintiff’s complaint was barren of supporting
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No. 10-1340
documentation, and on summary judgment, Plaintiff relied primarily on the exhibits provided by the
government. The Property’s lengthy chain of title obscures the fact that only two of the documents
even named Turcar. We cannot take seriously Plaintiff’s claim that this glaring gap in the evidence
caught it unaware.
On summary judgment, the sole document evidencing Plaintiff’s acquisition of interest was
the quitclaim deed dated April 21, 1998, purporting to convey Turchan’s interest to Turcar.
However, Plaintiff argued that this deed be disregarded, on the theory that Turchan did not have an
interest to convey when he executed the transaction. This argument was self-defeating, even if
viewed in Plaintiff’s favor, because it completely undercut the only evidence linking Turcar to the
Property. Having severed its interest by its own argument, Plaintiff provided only two additional
documents to reestablish its position. One replicated an exhibit already provided by the government,
which showed Turchan and Turcar relinquishing interest in the Property. The second evidenced
Turchan’s forfeiture of interest to FRD, but did not name Turcar. The fact that Plaintiff
supplemented the record on these points demonstrates that it had notice and an opportunity to correct
any links it believed were omitted in the government’s presentation of chain of title, including
whatever documents it believed demonstrated a ruling in its favor.
Additionally, contrary to Plaintiff’s protestations, the summary judgment motion notified
Plaintiff that the government questioned Turcar’s source of interest in the Property. Although the
government moved on a theory of superior interest, Plaintiff overstates the government’s position
when it claims that the IRS conceded this point. In fact, the IRS specifically highlighted this issue,
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No. 10-1340
but stated that it would presume, for purposes of the summary judgment motion only, that Turcar
could present facts to establish its interest.
A review of the chain of title as presented to the district court shows that Plaintiff should
have been aware of the facts supporting a grant of summary judgment in the government’s favor.
As such, the burden fell to Plaintiff to contradict the government’s case with specific facts showing
a genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986). The district court’s basis for granting summary judgment was embraced within the evidence
and arguments presented by the parties, and the government did not concede Turcar’s interest.
Under the totality of these circumstances, Plaintiff cannot show that it was deprived of notice and
an opportunity to present the facts necessary to survive summary judgment.
Furthermore, in order to warrant remand, Plaintiff is required to show prejudice. A losing
party is prejudiced where the court’s entry of summary judgment deprived it of its ability to develop
the record or to present legal arguments that would disturb the prevailing party’s entitlement to
judgment as a matter of law. See Erickson’s Flooring & Supply Co., Inc. v. Tembec, Inc., 212 F.
App’x 558, 567 (6th Cir. 2007); Meyer, 264 F. App’x at 479. “[W]hen the legal issue has already
been fully briefed and no factual dispute exists, that party has not been prejudiced by the court’s
noncompliance with Rule 56(c).” Harrington v. Vandalia-Butler Bd. of Educ., 649 F.2d 434, 436
(6th Cir. 1981).
Here, Plaintiff was presented with multiple opportunities to develop the record and arguments
in its favor. Yet, Plaintiff has not demonstrated that it could have produced new favorable evidence
or arguments had more notice been given. Erickson’s Flooring & Supply Co., Inc., 212 F. App’x
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No. 10-1340
at 567 (citing Hoopes v. Equifax, Inc., 611 F.2d 134, 136 (6th Cir. 1979)). Plaintiff had the
opportunity in its complaint, in its response to the government’s motion for summary judgment, and
on its motion for reconsideration to point to evidence that might alter the district court’s judgment.
Id. Likewise, Plaintiff could have attempted to supplement the record on appeal. Id. Plaintiff has
not done so.
The sole additional document provided by Plaintiff following summary judgment is the July
1998 quitclaim deed conveying the Property from Turchan to Turcar. However, Plaintiff did not
provide any argument, either before the district court or on appeal here, to show that this document
changes the district court’s after-acquired title merits analysis. Likewise, Plaintiff’s contention that
the court should have taken judicial notice of the deed showing Turcar’s conveyance to DTL is
unconvincing. The fact that a party ostensibly gave away property does not show that the party had
anything to give.
Accordingly, Plaintiff cannot show that it was prejudiced by the district court’s failure to
notify the parties of its alternative sua sponte basis for granting summary judgment.
C. Substantive Summary Judgment Analysis
In an action to quiet title under Michigan Law, the claimant bears the burden of establishing
a prima facie case for title. See Mich. Comp. Laws §600.2932(1); Sumpter, 302 F. Supp. 2d at 719.
If the claimant establishes its legal interest, the burden of proof shifts to the defendant to prove its
superior right or title to the property. Sumpter, 302 F. Supp. 2d at 719 (citations omitted). Similarly,
an action for wrongful levy requires the claimant to prove a legally cognizable interest in the
property. See McGinness, 90 F.3d at 146.
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No. 10-1340
In its complaint, Plaintiff originally claimed that it gained its interest in the Property by deed
from FRD in May 1998. To this day, Plaintiff has not provided evidence to support this contention.
Similarly, Plaintiff has failed to produce viable evidence showing that it took title following
Turchan’s repurchase of the Property from FRD in August 1998.
Without proof of these transactions, the evidence of Turcar’s interest consists of the April
21, 1998, quitclaim deed, recorded May 14, 1998, transferring the Property from Turchan to Turcar,
and the July 17, 1998, deed, recorded July 31, 1998, produced at the Motion for Reconsideration
involving the same parties. On appeal, Plaintiff does not challenge the district court’s analysis that
the doctrine of after-acquired title defeats Turchan’s first effort to convey a subsequently-obtained
interest by quitclaim deed. See Turchan I, 2009 WL 3241968, at *2–3. Plaintiff has provided no
argument that the second transaction would be subject to a different analysis.
While the bulk of Plaintiff’s argument on appeal seeks to prove its prioritized status over the
government’s lien, Plaintiff’s efforts are misplaced. The district court correctly noted that this
argument is inapposite unless and until Turcar can successfully prove the origin of its legal interest.
Because Turcar has failed to do so, its claim of title remains fatally flawed and it cannot succeed on
either of its claims. See Celotex Corp., 477 U.S. at 322–23 (summary judgment appropriate against
a party who fails to provide a sufficient showing to establish an essential element of its case).
Accordingly, we hold that the district court properly granted summary judgment in favor of
the government on Plaintiff’s claims to quiet title and for wrongful levy. We hold that the district
court did not procedurally err in doing so on the alternative sua sponte basis.
II. Motion for Reconsideration
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No. 10-1340
Although we usually review a district court’s denial of a motion to reconsider for abuse of
discretion, when a party moves for reconsideration of a grant of summary judgment, we review the
district court’s decision de novo. Med. Mut. of Ohio v. K. Amalia Enters. Inc., 548 F.3d 383, 389–90
(6th Cir. 2008). A district court’s refusal to consider evidence produced for the first time on a
motion for reconsideration will be reversed only if the refusal was an abuse of discretion. Id. at 390.
A Rule 59(e) motion to alter or amend a judgment “may be granted if there is a clear error
of law, newly discovered evidence, an intervening change in controlling law, or to prevent manifest
injustice.” GenCorp, Inc. v. Am. Int’l Underwriters, 178 F.3d 804, 834 (6th Cir. 1999) (internal
citations omitted). “To constitute newly discovered evidence, the evidence must have been
previously unavailable.” Id. (internal quotations omitted). The Eastern District of Michigan’s Local
Rule 7.1(g)(3), which mirrors these standards, also applies and was considered by the district court
See Turcar II, 2010 WL 746238, at *1.
Plaintiff contends that the district court erred in refusing to consider its additional evidence
and erred in denying its motion for reconsideration. Although Plaintiff concedes it never brought
the deed presented with the Motion for Reconsideration to the court’s attention in opposing summary
judgment, Plaintiff blames the IRS for omitting this link in the chain of title and argues that this
evidence should have been considered because it defeats the summary judgment ruling.
Plaintiff’s arguments are without merit. Plaintiff admits that the deed was available during
the pendency of the summary judgment proceedings. Once the government provided sufficient facts
to support a grant of summary judgment in its favor, the burden shifted to Plaintiff to put forward
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No. 10-1340
specific facts to defeat the government’s motion. Matsushita, 475 U.S. at 587. The government
cannot be blamed for failing to provide Plaintiff’s evidence.
We note, however, that one purpose of a motion for reconsideration is to correct a clear error
of law. See Westerfield v. United States, 366 F. App’x 614, 619 (6th Cir. 2010). To the extent that
Plaintiff argued that it was denied the opportunity to present the additional deed because of the
district court’s sua sponte action, the court should have considered whether its decision deprived
Plaintiff of notice that the deed was required. See J.D. Fields & Co., Inc., 426 F. App’x at 281.
(finding that a motion for reconsideration can provide the district court with a means for rectifying
any procedural errors in granting summary judgment sua sponte).
Nevertheless, we cannot say that this failure warrants reversal because the pleadings
sufficiently notified Plaintiff of its need to supplement the evidence and because Plaintiff has not
provided this Court with a sufficient argument that the new deed should alter the district court’s
ruling.
III. Release and Reinstatement of Lien
Finally, Plaintiff argues that the government’s mistaken release and reinstatement of the lien
extinguished the government’s claim of interest. The district court did not reach this claim because
it found that Plaintiff failed to prove an interest in the Property. We similarly decline to reach this
question.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s orders granting summary
judgment for the government and denying Plaintiff’s motion for reconsideration.
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