Oxy USA Inc. v. Holden

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 5, 2009
No. 07-20865 Charles R. Fulbruge III
Summary Calendar Clerk
OXY USA INC.
Plaintiff-Appellee
v.
JAMES HOLDEN, Trustee for Dirt Cheap Mine Trust; RONALD LEATHERS
Defendants-Appellants
v.
INTERNAL REVENUE SERVICE, an agency of the United States
Government
Defendant-Appellee
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:07-CV-683
Before SMITH, STEWART, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
James Holden and Ronald Leathers appeal the district court’s summary
judgment in favor of the Internal Revenue Service (“IRS”) in an interpleader
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 07-20865
action to determine who was the lawful recipient of certain mineral royalty
payments. We AFFIRM.
I. BACKGROUND
A. Leathers’s Land Dispute
In November 2005, Ronald Leathers and his brother, Michael Leathers,1
corresponded concerning a dispute over their respective rights to royalty
payments generated by mineral interests from land in Kansas that formerly
belonged to their late mother. Ronald wrote to Michael informing him that
Michael was receiving mineral royalty payments that Ronald believed were
rightfully his. In response, Michael wrote to remind Ronald that Ronald had
signed a quitclaim deed for the Kansas property in 1998, and that deed did not
reserve any mineral rights Ronald once had. Michael further noted that he had
informed Ronald about the “quit claim problem” in October 2001 but failed to
take any action to correct it.
In October 2006, Ronald Leathers and James Holden filed a petition in
Texas state court against Michael, his wife Nancy Leathers, the administrator
of the Kansas royalty payments–OXY USA, Inc. (“OXY”), and other petroleum
companies. The petition asserted that Holden, trustee for the Dirt Cheap Mine
Trust, a Colorado entity, was the assignee of “certain claims for recovery of real
property and mineral royalties,” including the disputed royalties from the
Kansas land. Ronald and Holden sought a reconveyance of the mineral
interests, as well as an accounting and restitution of royalties OXY improperly
paid to Michael or Nancy.
In January 2007, Michael filed a petition in Kansas state court to quiet
title to the property at issue. Michael alleged that he and Ronald had owned the
land with their mother, Louise Leathers, in a partnership called the “Leathers
1
Because multiple members of the Leathers family are involved in this dispute, they
are referred to by first name.
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No. 07-20865
Land Company.” He further alleged that during litigation following their
mother’s death, Michael exercised a “buy out” provision in the partnership
agreement to purchase the land in question. As part of the buy out, Ronald
signed a quitclaim deed for the land to Michael. There was no express
reservation of mineral rights in the deed.
B. Notice of Levy and Interpleader Action
By letter dated February 9, 2007, the IRS sent a notice of levy to OXY,
informing the company that Ronald owed over $800,000 in delinquent federal
income taxes. The notice instructed OXY to identify all property and rights to
property belonging to Ronald and to then turn over to the IRS any “property and
rights to property (such as money, credits, and bank deposits) that you have or
which you are already obligated to pay this person.”
On February 26, 2007, OXY brought this action against Holden (trustee
for the Dirt Cheap Mine Trust), Ronald, Michael, Nancy, and the Internal
Revenue Service (“IRS”), to interplead $25,784.27 in royalty payments. Citing
the Texas state court lawsuit filed by Holden and Ronald, as well as the IRS
notice of levy, OXY stated that it could be the subject of multiple suits by the
various interpleader defendants, all claiming an interest in the mineral royalty
payments. OXY also moved to deposit the royalty funds into the registry of the
court, which was granted.
Three answers were filed to OXY’s interpleader complaint, from Holden
and Ronald (who moved to dismiss), the IRS, and Michael and Nancy. During
a conference between counsel for the parties and the district court on September
17, 2007, Michael and Nancy conceded their claim to the funds.2 The district
court then found Holden to be a “fake trustee,” which the IRS agreed with, and
a characterization to which Holden and Ronald’s counsel acquiesced. The court
2
Specifically, counsel for Michael and Nancy Leathers told the court that they were
“willing to release it. . . [d]ollarwise, it’s not worth the fight.”
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No. 07-20865
also stated “[w]e established last time, didn’t we, that there is no substance to
the trust . . . [s]o [Ronald] Leathers is the real . . . non-taxpayer.”3 Again,
counsel to Holden and Ronald did not dispute this statement, but requested the
opportunity to take depositions and other discovery to determine the proper
amount of funds that OXY was holding.
Based on the parties’ concessions at the conference, the district court
entered a final judgment directing the funds to be disbursed to the United States
Treasury and credited to Ronald’s account with the IRS. Holden and Ronald
moved for a new trial, which the district court denied, and they now appeal the
judgment.
II. DISCUSSION
A. Standard of Review
We review the district court’s grant of summary judgment de novo. See
Crawford v. Formosa Plastics Corp., 234 F.3d 899, 902 (5th Cir. 2000).
Summary judgment is appropriate where “the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine
issue as to any material fact and that the movant is entitled to a judgment as a
matter of law.” FED. R. CIV. P. 56(c). All reasonable doubts and inferences must
be resolved in the light most favorable to the non-movant. Crawford, 234 F.3d
at 902.
B. Sua Sponte Summary Judgment for the IRS
The district court is authorized to grant summary judgment sua sponte,
provided that the losing party receives ten days’ notice to come forward with all
of its evidence in opposition to summary judgment. Love v. Nat’l Med. Enters.,
230 F.3d 765, 770 (5th Cir. 2000). Failure to provide ten days notice is harmless
where either the “nonmovant has no additional evidence or if all of the
3
There was no transcript or recording of the prior conference conducted by the court on
July 8, 2007.
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No. 07-20865
nonmovant’s additional evidence is reviewed by the appellate court and none of
the evidence presents a genuine issue of material fact.” Ross v. Univ. of Texas
at San Antonio, 139 F.3d 521, 527 (5th Cir. 1998) (quoting Nowlin v. Resolution
Trust Corp., 33 F.3d 498, 504 (5th Cir. 1994)).
In this case, although the record shows that Holden and Ronald were not
given any notice before the district court made its summary judgment ruling, the
lack of notice was harmless. At the conclusion of the conference it was apparent
that no material facts remained at issue in the suit. Michael and Nancy, and
stakeholder OXY, disclaimed any ownership of the $25,784.27. The parties
conceded that Dirt Cheap Mine Trust was a fake trust, and therefore Holden did
not have an interest in the funds superior to Ronald and the IRS. At that point,
the only remaining ownership dispute as to the funds was between Ronald and
the IRS. The district court then concluded that the IRS notice of levy meant that
its claim to the funds was superior to Ronald’s. No party disputes that the IRS
properly served OXY with a notice of levy, which requires OXY to turn over any
property owned by Ronald to the IRS. Once it is established that a taxpayer has
property rights under state law to which a federal tax lien attaches, the priority
of competing interests asserted against that property is governed by federal law.
United States v. Nat’l Bank of Commerce, 472 U.S. 713, 722 (1985). The district
court found, after considering the concessions of the parties, that Ronald had
property rights to the funds at issue. There was no error in the district court
directing the disbursement of funds to the U.S. Treasury, because only Ronald
and the IRS were left asserting a claim to the royalty payment and there is a
valid IRS levy on his royalty income from OXY.
Holden and Ronald do not state how they were prejudiced by the lack of
notice or what evidence they/he would have produced to create a material fact
issue. Ronald asserted that he did not owe the IRS as much as the nearly
$900,000 claimed by the government, but he did not contend that he owed less
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No. 07-20865
than the $25,784.27 in royalty payments at issue. Finally, Holden and Ronald
did not dispute the court’s finding at the conference that there was no substance
to the Dirt Cheap Mine Trust and that “[Ronald] Leathers is the real . . . non-
taxpayer.” While they contest this assessment on appeal, they offer no evidence
to demonstrate a fact issue on this point. Instead, they requested discovery only
regarding whether the $25,784.27 was truly the amount collected by OXY, an
issue that does not require resolution in this case because the IRS sought all of
the funds that OXY put at issue in its interpleader complaint.
Although Holden and Ronald requested a new trial, that request did not
state what evidence they offered to create a material fact issue as to the
ownership of the disputed funds.4 Similarly, Holden and Ronald Leathers have
not specified on appeal what evidence they would produce to preclude summary
judgment for the IRS. Holden and Ronald argue that they should be given the
opportunity for discovery. However, Rule 56 does not require that any discovery
take place before summary judgment can be granted. Washington v. Allstate Ins.
Co., 901 F.2d 1281, 1285 (5th Cir. 1990). Further, Holden and Ronald still fail
to articulate what evidence in support of their claims would be found with
additional discovery. Finally, contrary to Holden and Ronald’s assertions, the
district court was not required to enter additional formalized Findings of Fact
and Conclusions of Law. The relevant legal and factual bases for the judgment,
while thin, are sufficiently clear in the conference transcript to allow review of
their appeal. See Gupta v. East Texas State Univ., 564 F.2d 411, 415 (5th Cir.
1981) (“Scanty findings and conclusions such as those in the instant case are not
advisable and, in another case, might well require a reversal and remand. In
this instance, however, the failure to meet the technical requirements of Rule
4
Holden and Ronald’s argument that the district court “coerced” a settlement is without
merit. The court simply ascertained the positions of the various parties and found that there
was no material fact preventing it from determining that the IRS had the superior claim to the
funds and was entitled to judgment as a matter of law.
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No. 07-20865
52(a) is not fatal because the purposes behind the rule have been effectuated. .
. . After reading the record, we are able to discern that the trial judge did not
clearly err in making her findings and did not apply erroneous principles of law
in reaching her conclusions.”).
III. CONCLUSION
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
7