Ruggerio v. United States

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1387
RUSSELL G. RUGGERIO,
Plaintiff - Appellee,
versus
UNITED STATES OF AMERICA,
Defendant - Appellant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District Judge.
(CA-04-639-WDQ)
Argued: October 25, 2005 Decided: November 17, 2005
Before MOTZ, TRAXLER, and SHEDD, Circuit Judges.
Reversed and remanded by unpublished opinion. Judge Shedd wrote
the opinion, in which Judge Motz and Judge Traxler joined.
ARGUED: Bethany Buck Hauser, UNITED STATES DEPARTMENT OF JUSTICE,
Tax Division, Washington, D.C., for Appellant. Griffin Vann
Canada, Jr., MILES & STOCKBRIDGE, Rockville, Maryland, for
Appellee. ON BRIEF: Eileen J. O’Connor, Assistant Attorney
General, Frank P. Cihlar, Tax Division, Allen Loucks, United States
Attorney, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.,
for Appellant. Rachel T. McGuckian, MILES & STOCKBRIDGE,
Rockville, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
SHEDD, Circuit Judge:
Russell G. Ruggerio brought this action against the United
States to quiet title to a condominium (“the Property”) in
Worcester County, Maryland. Specifically, Ruggerio sought a
declaration that the Property was not encumbered by federal tax
liens assessed against Rocky A. Kimbrew, the prior owner of the
Property. After both parties moved for summary judgment, the
district court granted Ruggerio’s motion based on the doctrine of
equitable conversion. The United States now appeals. For the
reasons set forth below, we reverse and remand for further
proceedings consistent with this opinion.
I.
We review de novo a district court's award of summary
judgment, viewing the facts and inferences drawn therefrom in the
light most favorable to the non-moving party. Scott v. United
States, 328 F.3d 132, 137 (4th Cir. 2003). An award of summary
judgment is appropriate only "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law." Fed. R. Civ. P. 56(c).
Between 1998 and 2002, the Commissioner of Internal Revenue
(“the Commissioner”) assessed payroll taxes of $143,000 against
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Kimbrew, a delinquent taxpayer. On January 14, 2003, Kimbrew
entered into a contract to sell the Property to Ruggerio. At the
time of contracting, Ruggerio had no knowledge of Kimbrew’s tax
delinquency.
On April 7, 2003, the Commissioner filed notices of federal
tax liens against Kimbrew in Worcester County. The next day,
Kimbrew executed and delivered the deed to the Property to Ruggerio
in exchange for approximately $210,000. Ruggerio filed the deed
with Worcester County land records several days later.
The Commissioner then demanded that Ruggerio pay the
government for release of the federal tax liens. Ruggerio brought
this suit to quiet title, arguing that because he signed the
contract of purchase before the Commissioner filed the notices of
federal tax liens, the Property was not encumbered by those liens.
On cross-motions for summary judgment, the district court granted
summary judgment in favor of Ruggerio on the basis of equitable
conversion and denied the United States’ motion. The district
court concluded that, because Kimbrew’s interest in the Property
after contracting was limited to his anticipated proceeds from the
sale, the tax liens did not attach to the Property but rather to
Kimbrew’s interest in the sales proceeds. Thus, the district court
held that the Commissioner could not enforce the federal tax liens
against Ruggerio.
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II.
Section 6321 of the Internal Revenue Code (“IRC”) provides
that “[i]f any person liable to pay any tax neglects or refuses to
pay the same after demand, the amount . . . shall be a lien in
favor of the United States upon all property and rights to
property, whether real or personal, belonging to such person.” 26
U.S.C. § 6321. Further, “the lien imposed by section 6321 shall
arise at the time the assessment is made and shall continue until
the liability for the amount so assessed is satisfied.” Id. at
§ 6322. “For the lien to become valid and effective under these
sections, notice, filing or recording are not required.” United
States v. Bond, 279 F.2d 837, 841 (4th Cir. 1960). Therefore,
because federal tax liens attach at the time the assessment is
made, the liens attached to the Property by 2002, before Kimbrew
and Ruggerio entered into their contract.
However, § 6323 of the IRC provides that liens imposed under
§ 6321 will not be valid against certain third parties, such as
“purchasers,” until the filing of notice. 26 U.S.C. § 6323(a); see
also United States v. Gold, 178 F.3d 718, 721 (4th Cir. 1999)
(“Liens created by § 6321 become ‘valid’ as against third parties
upon the IRS’s filing notice of the lien in any recording office
within the state in which the property is located.”). The IRC
defines “purchaser” as “a person who, for adequate and full
consideration in money or money’s worth, acquires an interest
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(other than a lien or security interest) in property which is valid
under local law against subsequent purchasers without actual
notice.” 26 U.S.C. § 6323(h)(6) (emphasis added). Ruggerio argues
that because of his prior contract with Kimbrew, he became a
“purchaser” under § 6323 before April 7, 2003, the date the
Commissioner filed notices of federal tax liens. Specifically,
Ruggerio contends that upon contracting he possessed equitable
title to the Property and Kimbrew possessed only legal title under
the doctrine of equitable conversion. See Watson v. Watson, 497
A.2d 794, 800 (Md. 1985).
Ruggerio’s status as a “purchaser” under the IRC turns on
whether his interest was valid against subsequent purchasers
without actual notice under Maryland law before April 7, 2003. The
Maryland recording statute provides that:
Every recorded deed or other instrument takes effect from
its effective date as against the grantee of any deed
executed and delivered subsequent to the effective date,
unless the grantee of the subsequent deed has:
(1) Accepted delivery of the deed or other instrument:
(i) In good faith;
(ii) Without constructive notice under § 3-202; and
(iii) For a good and valuable consideration; and
(2) Recorded the deed first.
Md. Code Ann., Real Prop. § 3-203 (2005) (emphasis added). We have
noted that “the Maryland law is that legal title to land does not
pass until a deed is properly executed and recorded, and . . .
until this is done a vendee’s equity in property is subject to
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destruction by a conveyance of the legal title to a bona fide
purchaser without notice.” Bourke v. Krick, 304 F.2d 501, 504 (4th
Cir. 1962) (emphasis added). Hence, under Maryland law Ruggerio’s
interest in the Property would be invalid against subsequent
purchasers without actual notice. See Price v. McDonald, 1 Md.
403, 414-15 (1851) (stating that “an equitable claim . . . will be
enforced in a court of equity, except against a bona fide purchaser
without notice”). Because Ruggerio’s interest in the Property was
subject to destruction under Maryland law by subsequent purchasers
without actual notice, he did not qualify as a “purchaser” under
§ 6323(h) of the IRC before April 7, 2003. Thus, the federal tax
liens on the Property remain valid against Ruggerio.*
III.
Accordingly, we reverse the district court's order granting
summary judgment in favor of Ruggerio and remand this case for
further proceedings consistent with this opinion.
REVERSED AND REMANDED
*
To the extent that Ruggerio may have achieved “purchaser”
status after April 7, 2003, the federal tax liens on the Property
remain valid against him based on the antecedent filing of tax
notices. 26 U.S.C. § 6323(a); see also Gold, 178 F.3d at 721(“Liens created by § 6321 become ‘valid’ as against third parties
upon the IRS’s filing notice of the lien in any recording office
within the state in which the property is located.”).
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