Simon v. Cebrick

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
4-26-1995
Simon v Cebrick
Precedential or Non-Precedential:
Docket 94-5429
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 94-5429
____________
BETTY SIMON, TRUSTEE,
Appellant
v.
JANET CEBRICK; RONALD CEBRICK; STATE OF NEW JERSEY;
PARLIAMENT LEASING CORPORATION; CLAYTON N. STERLING
ASSOCIATES, INC., A N.J. CORP.; WILLIAM T. HIERING, P.C.;
RAYMOND A. BIRCHLER, REALTOR; GENERAL MEDICAL NEW JERSEY;
DONALD B. WHITEMAN, d/b/a DONALD B. WHITEMAN AGENCY;
AFCO CREDIT CORPORATION; MARTA DITCHKUS; FEDERAL DEPOSIT
INSURANCE CORPORATION, AS RECEIVER FOR THE FIRST
NATIONAL BANK OF TOMS RIVER; UNKNOWN OWNERS, UNKNOWN CLAIMANTS,
their heirs, devisees and personal representatives, and
their or any of their successors in right, title
and interest.
____________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 93-cv-04616)
____________
Argued: Thursday, March 9, 1995
BEFORE: HUTCHINSON, ALITO
and SAROKIN, Circuit Judges
____________
Opinion filed April 26, 1995)
BEN J. SLAVITT (Argued)
RONALD G. SCHECTER
Slavitt, Fish & Cowen, P.A.
17 Academy Street, Suite 415
Newark, New Jersey 07102
Attorneys for Appellant
ANN S. DUROSS
Assistant General Counsel
RICHARD J. OSTERMAN, JR.
Senior Counsel
E. WHITNEY DRAKE (Argued)
Special Counsel
Federal Deposit Insurance
Corporation
550 17th Street, N.W.
Washington, D.C. 20429
JEANETTE F. FRANKENBERG
2227 U.S. Highway One #229
North Brunswick, New Jersey 08902
Attorneys for Appellee FDIC
____________
OPINION OF THE COURT
____________
SAROKIN, Circuit Judge:
The question presented is whether mortgages held by the FDIC
can be extinguished without the FDIC's consent through
foreclosure of plaintiff's superior real estate tax liens. We
hold that the district court correctly interpreted and applied 12
U.S.C. § 1825(b)(2) to protect the FDIC's lien interest from
foreclosure. Additionally, we hold that the Tax Injunction Act
does not divest the district court of jurisdiction over this
action and that the delay in the enforcement of plaintiff's tax
lien does not presently rise to the level of a compensable
taking. Accordingly, we affirm the district court's judgment.
I.
On October 26, 1990, Betty Simon ("plaintiff") purchased the
tax title to a parcel of New Jersey real estate (hereinafter the
"Cebrick Property") by paying the sum of $4,801.37. Plaintiff
subsequently purchased tax lien certificates for 1991, 1992, and
1993 for that property. At the time plaintiff purchased the tax
lien certificates, the First National Bank of Toms River, New
Jersey (the "Bank") held mortgage liens against the Cebrick
Property. The loans were made respectively in March 1987 for
$200,000 and in August 1987 for $330,000. On May 22, 1991, the
Comptroller of Currency closed the Bank. The Bank's assets were
taken into receivership by the Federal Deposit Insurance
Corporation (the "FDIC"). The FDIC is now the holder of the
mortgages at issue in its capacity as receiver for the Bank. In
1993, the market value of the Cebrick Property, based upon
plaintiff's valuation, was $251,328.54.
Under New Jersey law, plaintiff's tax liens are superior in
right to the FDIC's mortgage liens. N.J.S.A. 54:5-9. Plaintiff
requested that the FDIC consent to foreclosure of its lien
interest in the Cebrick Property, and the FDIC refused.
Thereafter, plaintiff filed foreclosure proceedings in state
court based upon the tax sale certificates. The FDIC removed the
case to federal court.
The district court granted the FDIC's 12(b)(6) motion for
failure to state a claim and remanded the case to the state court
for proceedings consistent with the dismissal of the FDIC.
Plaintiff filed a timely notice of appeal. The district court
had subject matter jurisdiction pursuant to 12 U.S.C. §
1819(b)(2). We have jurisdiction over the district court's final
order pursuant to 28 U.S.C. § 1291.
II.
We exercise plenary review over a district court's order
dismissing a complaint under Fed. R. Civ. Proc. 12(b)(6) for
failure to state a claim. Moore v. Tartler, 986 F.2d 682, 685
(3d Cir. 1993); Ditri v. Coldwell Banker Residential Affiliates,
954 F.2d 869, 871 (3d Cir. 1992). The test for reviewing a
12(b)(6) motion is whether under any reasonable reading of the
pleadings, plaintiff may be entitled to relief. Holder v. City
of Allentown, 987 F.2d 188, 193 (3d Cir. 1993). When reviewing
such an order, we must accept as true the factual allegations in
the complaint. D.R. v. Middle Bucks Area Vocational Technical
School, 972 F.2d 1364, 1367 (3d Cir. 1992), cert. denied,
U.S. , 113 S.Ct. 1045 (1993); Ransom v. Marrazzo, 848 F.2d
398, 401 (3d Cir. 1988).
We have plenary review over the district court's legal
conclusions, including the proper interpretation of a statute.
Moody v. Sec. Pac. Business Credit, 971 F.2d 1056, 1063 (3d Cir.
1992); Manor Care, Inc. v. Yaskin, 950 F.2d 122, 124 (3d Cir.
1991); Juzwin v. Asbestos Corp., 900 F.2d 686, 689 (3d Cir.),
cert. denied, 498 U.S. 896 (1990).
III.
In the instant case, the FDIC does not contest the
municipality's authority to assess taxes against real property in
which it has an interest, nor does it contest the superiority of
plaintiff's tax liens over its mortgages. See 12 U.S.C. §
1825(b)(1) (providing that the Corporation shall be exempt from
all state and local taxation, "except that any real property of
the Corporation shall be subject to State, territorial, county,
municipal, or local taxation to the same extent according to its
value as real property is taxed"); N.J.S.A. 54:5-9 (declaring the
superiority of municipal liens). The FDIC maintains, however,
that the express language of 12 U.S.C. § 1825(b)(2) precludes
plaintiff from extinguishing the FDIC's mortgages through
foreclosure of the tax liens without its consent.
Enacted as part of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), section
1825(b)(2) provides:
No property of the Corporation shall be subject to
levy, attachment, garnishment, foreclosure, or sale
without the consent of the Corporation, nor shall any
involuntary lien attach to the property of the
Corporation.
12 U.S.C. § 1825(b)(2). The district court in the instant case
concluded that, in light of the clear language of section
1825(b)(2), the FDIC's mortgages must be protected from
extinguishment through foreclosure of plaintiff's tax liens.
Accordingly, the district court granted the FDIC's motion to
dismiss. We agree.
On appeal, plaintiff contends that the district court erred
by construing the language of § 1825(b)(2) literally and in
isolation from the remainder of the statute. Relying on two
additional sections of FIRREA, plaintiff argues that the FDIC has
180 days in which to choose one of the following alternatives:
(1) abandon its interest in the property, (2) consent to be
foreclosed, or (3) pay the tax liens.
Long before the enactment of § 1825(b)(2), the Supreme Court
addressed the question of whether cities had the right to assess
taxes and enforce collection by selling properties in which the
federal government held a mortgage. See New Brunswick v. United
States, 276 U.S. 547 (1928). In New Brunswick, the Supreme Court
determined that a city could lawfully assess taxes against the
owners of the property and enforce the collection of delinquent
taxes by selling the owner's interest in the property. 276 U.S.
at 555-56. The Court held, however, that any sale of the
property must protect the federal mortgage. 276 U.S. at 556
(citing Clallam County v. United States, 263 U.S. 341 (1923)).
More recently, the Ninth Circuit in Rust v. Johnson, 597
F.2d 174 (9th Cir.), cert. denied, 444 U.S. 964 (1979), relying
on New Brunswick, held that the Supremacy Clause prevented the
City of Los Angeles from foreclosing a special assessment tax
lien against property in which the Federal National Mortgage
Association held a mortgage. In the course of concluding that
the city's lien could not be enforced without protecting the
federal interest, the court held that the mortgage interest of
federal instrumentalities should be treated the same as other
property of the United States. 597 F.2d at 177.
When a court interprets a statute, "[i]t is not lightly to
be assumed that Congress intended to depart from a long
established policy." United States v. Wilson, 503 U.S. 329, 112
S.Ct. 1351, 1355 (1992) (quoting Robertson v. Railroad Labor
Board, 268 U.S. 619 (1925)). The New Brunswick line of cases
exhibits a policy to protect federal mortgage interests from
extinguishment through foreclosure of municipal tax liens. The
express language of 12 U.S.C. § 1825(b)(2) evidences Congress'
intent to protect the property interests of the FDIC, in
particular, from foreclosure without their consent.
Other circuits have similarly interpreted and applied 12
U.S.C. § 1825(b)(2). In Matagorda County v. Russell Law, 19 F.3d
215, 222 (5th Cir. 1994), the Fifth Circuit, relying on the
express language of § 1825(b)(2), held that local taxing units
could not foreclose the lien interests of the FDIC without the
consent of the FDIC. See also Donna Independent School Dist. v.
Balli, 21 F.3d 100, 101 (5th Cir. 1994) (holding that taxing
units could not foreclose on property subject to FDIC liens
without FDIC's consent); F.D.I.C. v. Lowery, 12 F.3d 995 (10th
Cir. 1993) (relying on the "unassailably clear language" of 12
U.S.C. § 1825(b)(2), the Tenth Circuit held that local taxing
authorities could not sell property owned by FDIC to satisfy tax
liens without FDIC's consent, even though tax liens attached
prior to FDIC's acquisition of property), cert. denied, U.S.
, 114 S.Ct. 2674 (1994). Like the district court in the instant
case, we also find the reasoning in Matagorda persuasive.
Plaintiff in the instant case relies on Birdville
Independent School v. Hurst Assoc., 806 F. Supp. 122 (N.D. Tex.
1992), in which a district court held that the phrase "property
of the Corporation" under § 1825(b)(2) did not include lien
interests of the Resolution Trust Corporation. However, the
Fifth Circuit effectively overruled Birdville in Matagorda. See
Matagorda, 19 F.3d at 221 (citing Birdville, 806 F. Supp. at
127). In Matagorda, the Fifth Circuit concluded that the lien
interests held by the FDIC were clearly "property of the
Corporation" as contemplated by the statute because "[i]t has
been settled federal law since 1928 that in the context addressed
herein, 'property' embraces both fee and lien interests." 19 F.3d
221 (citing Clallam County, supra; New Brunswick, supra; Rust v.
Johnson, supra) (other citations omitted). We agree that the
term "property" in § 1825(b)(2) encompasses all forms of interest
in property, including mortgages and other liens.
Furthermore, plaintiff argues that the district court
incorrectly interpreted and applied § 1825(b)(2) and offers an
alternative reading of the statute. Plaintiff stresses that a
literal reading of the statute discourages the private purchase
of real estate tax liens and thus interferes with municipal real
estate tax collection. Plaintiff contends that her alternative
interpretation of § 1825(b)(2) does not interfere with the local
real estate tax machinery. Plaintiff proposes that we read
§ 1825(b)(2) in conjunction with two other sections of FIRREA--
§ 1821(d)(5)(A)-(F), the claims processing provision, and
§ 1825(b)(1), the general exemption from taxation provision.
Section 1821(d)(5) sets forth the procedure for filing
claims against an institution that has been put under FDIC
receivership. The statute provides that the Corporation shall
determine within 180 days "whether to allow or disallow the claim
and shall notify the claimant of any determination with respect
to such claim." 12 U.S.C. § 1821(d)(5)(A)(i). Section
1825(b)(1) provides that the Corporation shall be exempt from all
state and local taxation, "except that any real property of the
Corporation shall be subject to State, territorial, county,
municipal, or local taxation to the same extent according to its
value as real property is taxed. . . ." 12 U.S.C. § 1825(b)(1).
Plaintiff maintains that these sections read together require
that the FDIC choose, within 180 days, from one of the following
alternatives: (1) abandon its interest in the property, (2)
consent to be foreclosed, or (3) pay the tax liens.
First, we reject plaintiff's attempt to meld the 180-day
time limit in the claims evaluation process with the rights of
the FDIC under § 1825(b)(2) to withhold its consent to
foreclosure. The claims processing provision nowhere references
§ 1825(b)(2), and § 1825(b)(2) itself contains no time limit on
the ability of the FDIC to withhold its consent to the
foreclosure of its rights. To the extent that the claims process
might apply here, it would apply only as a timeliness requirement
for filing a judicial action challenging the denial of a claim.
Second, we reject plaintiff's argument based on FIRREA's
general tax exemption provision. Plaintiff relies on §
1825(b)(1) which provides that the Corporation is exempt from all
state and local taxation, except that any real property of the
Corporation shall be subject to state and local taxation "to the
same extent according to its value as other real property is
taxed. . . ." 12 U.S.C. § 1825(b)(1). Plaintiff cites to cases
interpreting statutes other than FIRREA which include the
previously quoted phrase. Plaintiff stresses that courts have
interpreted this phrase as communicating Congress' intent not to
interfere with the local real estate tax machinery. See
Reconstruction Finance Corp. v. Beaver County, 328 U.S. 204, 210
(1946). We agree with the judicial interpretations of this
statutory phrase. Specifically, in the case of FIRREA, §
1825(b)(1) requires the payment of taxes on real property which
the FDIC holds, so as not to deprive municipalities of the income
they would have received had the property continued to be
privately owned. Congress, however, has also enacted a more
specific provision providing that no property of the Corporation
shall be subject to foreclosure without the Corporation's
consent. This is the section of FIRREA that is at issue in the
instant case, and it is this provision on which we must focus.
Moreover, plaintiff cites to the recent Supreme Court
decision in BFP v. Resolution Trust Corp., U.S. , 114
S.Ct. 1757 (1994), as support for her contention that this court
should not engage in a literal reading of § 1825(b)(2) but should
instead look to other provisions of FIRREA and to the purpose of
the Act. Plaintiff argues that this court should follow the
example of the Supreme Court in BFP and interpret a federal
statute in a way that does not interfere with state and local
laws governing real estate tax assessment and collection.
However, the Supreme Court noted in BFP that it was taking into
account the state regulatory background "[a]bsent a clear
statutory requirement to the contrary." BFP, 114 S.Ct. at 1762.
In the instant case, 12 U.S.C. § 1825(b)(2) is a clear statutory
requirement which prevents the FDIC's mortgages from being
extinguished without its consent through the foreclosure of tax
liens.
Plaintiff also advances the FDIC's Tax Policy Statement as
support for her position. Because the statute's language is
clear, any reference to the FDIC's Tax Policy Statement is
unnecessary. See Matagorda, 19 F.3d at 220 (stating that it need
not rely on FDIC's Tax Policy Statement because statute's
language is unambiguous); cf. First State Bank v. United States,
599 F.2d 558, 564 (3d Cir. 1979) (holding that bank could not
predicate claim on alleged violation of FDIC Manual which was
issued only for internal operating purposes), cert. denied, 444
U.S. 1013 (1980).
In conclusion, we reject plaintiff's alternative reading of
12 U.S.C. § 1825(b)(2) and affirm the district court's
interpretation and application of the statute to protect the
FDIC's mortgages from being extinguished without its consent
through foreclosure of plaintiff's tax liens.
IV.
We now turn to the question of whether the Tax Injunction
Act ("TIA"), 28 U.S.C. § 1341, applies in the instant case to
divest the district court of jurisdiction over this action. The
TIA provides that:
The district courts shall not enjoin, suspend or
restrain the assessment, levy, or collection of any tax
under State law where a plain, speedy and efficient
remedy may be had in the courts of such State.
28 U.S.C. § 1341. Plaintiff maintains that the FDIC, by invoking
the protection of 12 U.S.C. § 1825(b)(2) in federal court, has
restrained the collection of taxes and thus implicated the
jurisdictional bar of the TIA. Relying on FIRREA's state tax
immunity provision, 12 U.S.C. § 1825(b)(1), the foreclosure
provision at issue in the instant case, 12 U.S.C. § 1825(b)(2),
and FIRREA's jurisdictional provision, 12 U.S.C. § 1819(b)(2),
the FDIC contends that Congress intended to allow tax cases
involving the FDIC to be litigated in federal court. In essence,
the FDIC argues that Congress has impliedly created an exception
to the TIA by subsequent legislation.
We do not necessarily agree with plaintiff that the district
court's application of § 1825(b)(2) to protect the mortgage
interests of the FDIC violates the TIA because it suspends the
collection of taxes under state law until the FDIC consents to
foreclosure of the tax liens. Withholding consent to foreclose
from a private citizen does not implicate the assessment, levy,
or collection of any tax. The statute is intended to prevent
interference with taxation by governmental entities; however,
upon the sale of the tax certificate, the tax obligation is
satisfied. The holder's inability to foreclose does not affect
the governmental entity's ability to assess, levy, or collect any
tax, and thus, the TIA is not applicable.
We do, however, reject the FDIC's reliance on FIRREA's
removal provision. See Moe v. Confederated Salish and Kootenai
Tribes of Flathead Reservation, 425 U.S. 463, 472 (1976) (holding
that jurisdictional statute is insufficient by itself to
establish implied repeal of TIA). We also find that the express
language of § 1825(b) is not sufficient evidence of Congress'
intent to exempt the FDIC from the TIA.
We also hold that the TIA does not oust the district court
of jurisdiction because the FDIC in these particular
circumstances qualifies for the federal instrumentality exception
to the TIA. See Federal Deposit Ins. Corp. v. New Iberia, 921
F.2d 610, 613 (5th Cir. 1991). Under a judicially-created
exception to the TIA, the United States and its instrumentalities
can initiate actions in federal court to protect themselves from
"unconstitutional state exactions." See Department of Employment
v. United States, 385 U.S. 355, 358 (1966); see also Moe v.
Confederated Salish and Kootenai Tribes, 425 U.S. at 470.
Congress enacted FIRREA as part of a comprehensive federal
program to meet a financial crisis. The statute provides that
the FDIC shall act as receiver for failed banking institutions.
In its role as receiver, the FDIC's assets are protected from
foreclosure while it is winding up the affairs of a failed
banking institution. 12 U.S.C. § 1825(b)(2). The district
court's application of this section to protect the FDIC's lien
interest from being foreclosed without its consent does not
violate the TIA, even if it were applicable, because the FDIC is
acting in a governmental capacity when it winds up the affairs of
failed banking institutions pursuant to FIRREA. In light of the
governmental role played by the FDIC in the instant case, we find
that it qualifies for the federal instrumentality exception to
the TIA. In sum, the TIA did not oust the district court of
jurisdiction over this action.
In Bank of New England Old Colony, N.A. v. Clark, 986 F.2d
600 (1st Cir. 1993), the First Circuit held that the FDIC was not
a federal instrumentality for purposes of the TIA. The First
Circuit's decision is distinguishable. First, only state tax
issues were involved in Clark; the FDIC alleged only state law
grounds for relief. 986 F.2d at 601, n.4 602. In contrast, the
FDIC in the instant case has invoked the protection of a federal
statute, 12 U.S.C. § 1825(b)(2). Second, in Clark the FDIC was
the assignee of a failed bank's claim for a refund of state
excise taxes. 986 F.2d at 601. Thus, the FDIC's governmental
role was minimal. However, in the instant case, the FDIC sought
the protection afforded by a federal statute to prevent its
assets from being foreclosed without its consent while it
attempted to wind up the affairs of a failed bank.
Similarly, the governmental role played by the FDIC in
Federal Deposit Ins. Corp. v. New York, 928 F.2d 56 (2d Cir.
1991), was also minimal, and it is on this basis that the Second
Circuit held that the FDIC could not invoke the federal
instrumentality exception. In New York, the FDIC was the
assignee of a bank's claims against a city and state for
assessing taxes on interest payments in contravention of a
federal statute. Without reaching the question of whether the
FDIC is a federal instrumentality, the court held that the FDIC
could not invoke the exception because by bringing suit the FDIC
was attempting to protect the interests of a commercial lending
institution rather than the federal government. New York, 928
F.2d at 59.
In conclusion, even if the TIA were applicable, because the
FDIC sought the protection of § 1825(b)(2) while acting in a
governmental capacity, it is entitled to invoke the federal
instrumentality exception to the TIA.
V.
For the first time in her reply brief,1 plaintiff raises the
contention that the district court's application of 12 U.S.C. §
1825(b)(2) works a compensable taking of her property under the
Fifth Amendment.2 Both parties acknowledge that the statute does
not extinguish plaintiff's tax liens nor does it subordinate them
to the FDIC's liens. The FDIC's withholding of their consent to
foreclosure merely delays plaintiff's enforcement of the tax lien
against the FDIC. Plaintiff contends, however, that, without
just compensation, this indeterminate delay is unconstitutional.
Plaintiff relies on Matagorda in which the Fifth Circuit
confronted this precise issue. Even though it concluded that the
delay involved did not constitute a compensable taking, the Fifth
1Where an issue is raised for the first time in a reply
brief, we deem it insufficiently preserved for review before this
Court. Republic of the Philippines v. Westinghouse Electric
Corporation, 43 F.3d 65, 71 n.5 (3d Cir. 1995); see also Fed. R.
App. P. 28(a)(3); Third Cir. Loc. App. R. 28.1(a)(i). In the
instant case, we deviate from this general rule because appellee
has addressed appellant's "takings" argument in its appellate
brief. Moreover, both parties addressed this issue at oral
argument.
2
Plaintiff also argues that 12 U.S.C. § 1825(b)(2) as
interpreted by the district court violates the Due Process Clause
of the Fourteenth Amendment and her constitutional right of
access to the courts. We find these contentions to be without
merit. The "takings" issue, however, is a closer question and
requires additional discussion.
Circuit in Matagorda cautioned that "[u]nmitigated delay, coupled
with distinct investment-backed expectations, may, at some point,
infringe on the entire "bundle" of rights enjoyed by the
Appellants to the point that a compensable taking occurs." 19
F.3d at 225. See also Donna Independent School District v.
Balli, 21 F.3d at 101 (holding that delays in foreclosing
property tax liens did not constitute compensable takings under
Fifth Amendment). We agree with the Fifth Circuit in Matagorda
that at some point a delay in the ability to exercise property
rights may constitute a compensable taking.
Furthermore, we hold that any delay should be measured from
the point at which plaintiff could first have foreclosed under
state law until the district court's decision. Thus measured,
the delay in the instant case consists of one year and seven
months. Plaintiff argues that this delay constitutes a taking
for which she should receive just compensation. The FDIC
counters that plaintiff is being fairly compensated for the delay
by the interest accruing at the rate of 17-18% per annum on the
tax liens. The FDIC also stresses that plaintiff's liens have
priority over the FDIC's liens and that the property is much more
valuable--10 times more valuable--than plaintiff's liens.
Finally, the FDIC suggested at oral argument that a compensable
taking will occur when the tax liens plus accrued interest exceed
the fair market value of the property.
Without adopting that formula, based upon the foregoing
facts and circumstances, we hold that plaintiff has not
established that she is presently deprived of a sufficient
property interest to create a compensable taking.
VI.
For the foregoing reasons, the judgment of the district
court is affirmed.