Taxation – Government liens

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Where the United States, in an attempt to collect income taxes and associated moneys from the taxpayer, moved for summary judgment to enforce its liens on the taxpayer’s property and to dismiss the claims and counterclaims against it, (1) the government is immune from suit by the taxpayer and (2) the government’s liens have priority over a bank’s lien, despite the fact that it is on after-acquired real property.

“The government first argues that [taxpayer John] Malouf’s suit against it must be dismissed. The United States, as a sovereign, is immune from suit unless it consents to be sued. … In the present case, the plaintiff has failed to identify a waiver of sovereign immunity that would permit his suit.

“A taxpayer under certain circumstances may bring an action against the government for damages under 26 U.S.C. section7432 or section7433. Both of those statutes, however, require that administrative remedies be exhausted before remedies are available. … Malouf has not alleged such administrative remedies have been exhausted and, in his opposition brief, does not dispute the government’s assertions that he has not even filed an administrative claim. …

“The government also seeks dismissal of or, alternatively, summary judgment on JPMorgan Chase Bank’s (‘JPMCB’) counterclaim of equitable subordination and subrogation.

“ … In its opposition brief, … JPMCB alleges that its predecessor in interest, American Mortgage Network (‘AMN’), lent Malouf money and took a mortgage from him under circumstances that gave its claim against the mortgaged property a higher priority than the government’s claim.

“I conclude that the government’s lien has priority, because I agree with the government as to two disputed propositions concerning the significance of its judgment lien, established by the recording of an Abstract of Judgment in November 2002. The first is that the delivery of the deed transferring the subject property from Malouf’s trust to Malouf personally on November 21, 2005, vested the property in him as of that date. … The second proposition is that when Malouf accepted the reconveyance, the property became his and thus became subject to the judgment lien. AMN’s, and therefore JPMCB’s, mortgage lien only arose with the recording of the mortgage on December 5, 2005.

“The statutory language creating judgment liens is broad. It provides that judgment liens cover ‘all real property of a judgment debtor.’ …  This broad language encompasses a judgment debtor’s after-acquired real property. …

“In sum, the statute, case law, and practical considerations all counsel that a judgment lien applies to judgment debtors’ after-acquired property.”

Malouf v. United States, and United States v. Malouf, et al. (Lawyers Weekly No. 02-475-12) (4 pages) (O’Toole, J.) (USDC) (Civil Action No. 10-11596-GAO and 10-12006-GAO) (Sept. 28, 2012).

 Click here for the full-text opinion.