Opinion
CIVIL ACTION NO. 03-0511, SECTION "R" (1)
October 28, 2003
ORDER AND REASONS
Before the Court is plaintiffs' motion for summary judgment. For the following reasons, the Court grants plaintiffs' motion.
I. Background
On June 21, 1996, plaintiff Lacoste Builders, L.C., purchased from Laurel Wood, Inc., certain real property located in St. Tammany Parish, Louisiana ("Lot 35"). The sale was recorded in the St. Tammany Parish records on June 27, 1996. Neither Lacoste Builders nor Laurel Wood paid the property taxes due for 1996. As a result, defendant Sheriff Rodney Strain conducted a tax sale of the property on June 27, 1997. The Sheriff gave advance notice to Laurel Wood of the tax deficiency and imminent tax sale. The Sheriff also advertised the tax sale of the property in the St. Tammany Farmer on May 15, 1997 and June 19, 1997. The record of the tax sale proceeding does not reflect that any notice was sent to Lacoste Builders, the owner of record at the time of the tax sale. Defendant Betty White purchased the property at the tax sale. The tax sale was recorded in the St. Tammany Parish records on July 10, 1997.
In February of 1999, Lacoste Builders placed a collateral mortgage on Lot 35 in favor of plaintiff First American Bank and Trust. The mortgage was recorded in the St. Tammany Parish records on March 2, 1999. Lacoste Builders filed a voluntary Chapter 11 bankruptcy petition in the Eastern District of Louisiana in September 2001. It listed Lot 35 as an asset of the bankruptcy estate. First American filed a motion for relief from the bankruptcy stay so that it could bring foreclosure proceedings against Lot 35. The bankruptcy court lifted the stay on March 21, 2002. First American foreclosed on Lot 35 and purchased the property through the foreclosure sale conducted by Sheriff Strain on August 7, 2002. The foreclosure deed was registered in the St. Tammany Parish records on August 27, 2002.
On December 23, 2002, the bankruptcy court converted Lacoste Builders1 Chapter 11 bankruptcy proceeding to a Chapter 7 proceeding. The court appointed Claude C. Lightfoot as interim trustee on December 27, 2002. In mid-January 2003, the court terminated Mr. Lightfoot's appointment as interim trustee and appointed Michael Chiasson as interim trustee.
On February 18, 2002, plaintiffs Lacoste Builders, through its trustee Mr. Lightfoot, and First American filed suit in this Court to annul the tax sale. In their complaint, plaintiffs aver that the tax sale is defective because Lacoste Builders was not notified of the tax sale. Plaintiffs now move for summary judgment. Defendant Betty White opposes the motion on several grounds. For the following reasons, the Court grants plaintiffs' motion.
II. Discussion
A. Jurisdiction
Defendants first argue that the Court lacks subject matter jurisdiction because this case involves neither a federal question nor diverse parties. In their complaint, plaintiffs assert that this Court has jurisdiction under Title 1.2, United States Code, Section 1819(b)(2). Under Section 1819(b)(2), "all suits of civil nature at common law or in equity" to which the Federal Deposit Insurance Corporation is a party shall be deemed to arise under the laws of the United States. See 12 U.S.C. § 1819 (b)(2)(A); see also Weems v. McCloud, 619 F.2d 1081, 1087 (5th Cir. 1980). The Federal Deposit Insurance Corporation is not a party to this lawsuit; therefore Section 1819(b)(2) is inapplicable here.
The Court notes, however, that plaintiffs allege that Lacoste Builders did not receive proper notice of the tax sale by Sheriff Strain, which violated its due process rights under the United States Constitution. See Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 795 (1983). Accordingly, although the Court does not have jurisdiction under Section 1819(b)(2) as alleged by the plaintiffs, the Court finds that it has jurisdiction over this matter because plaintiffs' claim arises under the Constitution. See 28 U.S.C. § 1331.
B. Summary Judgment
1. Applicable Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-3 (1986). The court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the burden of establishing that there are no genuine issues of material fact. See Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1445 (5th Cir. 1993). In Louisiana, "[t]ax sales are presumed valid and the party attacking the tax sale bears the burden of proving its alleged invalidity." Dennis v. Vanderwater, 498 So.2d 1097, 1098 (La.App. 3d Cir. 1986).
2. Plaintiffs' Standing
In addition to contesting the Court's jurisdiction, the defendant contends that the plaintiffs lack standing in this action, Lacoste Builders is currently in bankruptcy under Chapter 7, and Michael Chiasson is the trustee of the bankruptcy estate, "[T]he general rule is that `once a trustee is in a bankruptcy case, the trustee, not the debtor or the debtor's principal, has the capacity to represent the estate and to sue and be sued. . . .'" Vega v. Gasper, 36 F.3d 417, 422 (5th Cir. 1994) (quoting In Re Gulph Woods Corp., 116 B.R. 423, 428 (Bank. E.D.Pa. 1990)); see also 11 U.S.C. § 323. The defendant notes that when Lacoste Builders brought this suit on February 18, 2003, it was represented by Lightfoot as its trustee, but Lightfoot was no longer the bankruptcy trustee at that time. Lightfoot was terminated effective January 15, 2003, when Chiasson became the bankruptcy trustee. (Def.'s Exhibit List, Exh. 2, Successor Interim Trustee Appointment Letter.) In their complaint, the plaintiffs seek only to annul the tax sale of Lot 35 to defendant Betty White. As discussed below, the Court finds that plaintiff First American has standing in this lawsuit and grants its motion for summary judgment. The tax sale is therefore annulled. The Court's decision to annul the tax sale is not dependent on Lacoste Builders' standing in this suit. Because the both First American and Lacoste Builders seek the same relief, and the Court grants that relief in favor of First American, the Court need not decide whether Lacoste Builders has standing.
Defendant also argues that First American lacks standing to bring this suit, and that it is simply trying to "boot-strap" itself into the place of Lacoste Builders. To support her position, defendant cites Commercial Credit Equip. Corp. v. Noodson, 471 So.2d 321 (La.App. 3d Cir. 1985). In Woodson, Commercial Credit Equipment Corporation sued to collect the outstanding balance on a promissory note that was secured by a mortgage on the debtor's airplane. 471 So.2d at 322. The debtor defaulted, and the Sheriff sold the airplane at a public auction. After the sale, the Sheriff filed a motion with the court, requesting that the court rank all the interested creditors before he distributed the proceeds of the sale. See id. Louisiana Aircraft, Inc., intervened, alleging that it had priority over all of the other creditors because of a judicial mortgage and that it was entitled to all of the proceeds of the judicial sale. See id. The court dismissed Louisiana Aircraft!s petition for failure to state a cause of action. See id. On appeal, Louisiana Aircraft argued that the judicial sale was null because the plaintiff did not give proper notice to the defendant of the default judgment. See id. at 322-23. The court held that Louisiana Aircraft, as an intervenor, may not plead a personal or special defense of the mortgage debtor because it may not object to any defects or informalities personal to the original parties. See id. at 323. Louisiana Aircraft was therefore "precluded from using the procedural defect of inadequate notice to his [sic] advantage." Id.
The defendant's reliance on Woodson is misplaced. First American purchased Lot 35 in a foreclosure sale in 2002. Under Louisiana law, when First American purchased Lot 35, "the right to attack the tax sale was conveyed to [First American] along with any and all other rights in the property." Murchison v. Marzullo, 705 So.2d 1129, 1131, 97-815 (La.App. 3 Cir. 12/10/97); see also Wood v. Zor, 154 So.2d 632, 634-35 (La.App. 4th Cir. 1963); cf. Dockery v. DuPont, 635 So.2d 679, 685, 93-1021 (La.App. 3 Cir. 4/6/94) (affirming annulment of tax sale in favor of transferee, whose claim was based on improper notice to previous owner). Therefore, unlike American Aircraft: in Woodson, First American is not an intervenor attempting to assert a personal defense of another party. Rather First American asserts a right that it received when it purchased Lot 35 in the foreclosure sale. See Marzullo, 705 So.2d at 1131. First American, therefore, has standing to bring this suit to contest the validity of the tax sale. See id.
White also contends that First American lacks standing because it failed to perform due diligence when it failed to discover the tax deed before it placed the collateral mortgage on Lot 35 in 1999. White alleges that First American therefore assumed the risk that Lacoste Builders did not have proper title to Lot 35. Defendant does not cite, nor is the Court able to find, any authority for this proposition. Nor does the Court find this argument persuasive. The Court rejects defendant's proposition that First American's lack of due diligence prevents it from contesting the tax sale.
3. Peremptive Period
White also argues that this action is barred by a five-year peremptive period that applies to suits challenging irregularities in a tax sale. See La. Const. Art. VII, § 25(C). Here, plaintiffs filed this suit more than five years after the tax sale. The five-year time limitation "announces the public policy of [the] state to set at rest tax titles once and for all." Security First Nat'l Bank v. Murchison, 739 So.2d 803, 810, 1998-1225 (La.App. 3 Cir. 3/17/99), writ denied, 748 So.2d 1147, 1999-1712 (La. 10/15/99). The Court notes a conflict in Louisiana jurisprudence as to whether the failure to give proper notice of a tax delinquency and the pending tax sale is a relative nullity that can be cured by the expiration of the five — year peremptive period or is an absolute nullity that cannot be cured by the expiration of the peremptive period. See Dockery, 635 So.2d at 683-84 (comparing Thompsons. Walker, 104 So.2d 721 (La. 1958); Preston v. McGehee, 502 So.2d 171 (La.App. 3d Cir. 1987); and Kemper v. Dearing, 369 So.2d 1208 (La.App. 2d Cir. 1979)) with Murphy v. Estate of Sam, 527 So.2d 1190, 1193 (La.App. 3d Cir. 1988); Mennonite Board of Missions v. Adams, 462 U.S. 791 (1983); and State v. Knight, 631 So.2d 714, 93-767 (La.App. 3 Cir. 2/2/94)). The more recent jurisprudence has held that lack of notice renders the tax sale an absolute nullity. See, e.g., Gunter v. Moore, 838 So.2d 118, 123, 2002-1126 (La.App. 3 Cir. 2/5/03); Bank One La., N.A. v. Gray, 792 So.2d 29, 30-31, 34, 802 (La.App. 2 Cir. 6/20/01); Security First Nat'l Bank, 739 So.2d at 810-11; Smith v. Brooks, 714 So.2d 735, 739 (La.App. 3 Cir. 4/15/98); Dockery, 635 So.2d at 685; Drury v. Watkins, 546 So.2d 1280, 1285-86 (La.App. 1 Cir. 1989) writ denied, 551 So.2d 1323 (La. 1989); see also Henderson v. Kingpin Development Co., 2003 WL 21801535, at *7, 2001-2115 (La.App. 1 Cir. 8/6/03) (affirming district court's denial of defendants' peremptory exception because plaintiff alleged improper notice under the Fourteenth Amendment regarding foreclosure sale). The more recent jurisprudence is based on the federal due process requirements described in Mennonite, and the Court finds the reasoning of the opinions that hold that lack of proper notice renders a tax sale an absolute nullity to be more persuasive.
In this case, First American obtained Lacoste Builders' right to contest the tax sale as a part of its acquisition of Lot 35 through the foreclosure sale. Because First America alleges a violation of due process rights, the five-year peremptive period does not bar its suit to annul the tax sale.
4. Improper Notice
Plaintiffs allege that the tax sale is an absolute nullity because Lacoste Builders did not receive notice of the tax sale in violation of the Due Process Clause of the Fourteenth Amendment. See Mennonite, 462 U.S. at 800. In Mennonite, the Supreme Court held that a party with a legally protected property interest, "is entitled to notice reasonably calculated to appraise [it] of a pending tax sale." 462 U.S. at 798. To determine if proper notice existed, "[t]he test is not whether the tax debtor actually received notice, but whether the method used to notify the tax debtor complies with due process [.]" Dennis, 498 So.2d at 1098. The notice must be reasonably calculated to apprise the interested parties of the pending action. Id. at 1099 (citing Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 314 (1950)). Case law establishes that publication must be supplemented by mailed notice or personal service to those parties with a legally protected property interest that are reasonably identifiable. See Mennonite, 462 U.S. 797-98; Security First Wat'l Bank, 739 So.2d at 807.
Lacoste Builders purchased Lot 35 from Laurel Woods in 1996, and that sale was promptly recorded in the St. Tammany Parish records. Neither Laurel Wood nor Lacoste Builders paid the 1996 property taxes, and Sheriff Strain initiated the tax sale of the property. The sheriff sent notice of the tax deficiency and pending tax sale to Laurel Woods, but not to Lacoste Builders, the owner of record. The sale of Lot 35 from Laurel Woods to Lacoste Builders was recorded in the St. Tammany Parish records a full year before the tax sale. Sheriff Strain admits that Lacoste Builders was the owner of record of Lot 35 at the time, and that the tax sale records fail to indicate any attempt to notify Lacoste Builders of the tax deficiency or tax sale. ( See Plaintiffs1 Mot. for Summ. J., Ex. D, Sheriff Strain's Answers to Mot. to Admit or Dent.) The Court finds that there is no question of fact regarding whether Lacoste Builders was an easily identifiable, interested party at the time of the tax sale of Lot 35 and whether it received adequate notice of the pending sale. Because there is no evidence of any attempt to notify Lacoste Builders through mail or personal service, Lacoste Builders did not receive the due process to which they were entitled under the Fourteenth Amendment and Mennonite. See 462 U.S. at; 798. Accordingly, the Court finds as a matter of law that the tax sale is an absolute nullity. The Court therefore grants plaintiffs1 summary judgment motion and annuls the tax sale.
Defendant further contends that she did not receive the requisite notice under Mennonite of the foreclosure sale initiated by First American and therefore the foreclosure sale is void. Because the Court concludes that the tax sale to White is invalid, however, White has no property interest in Lot 35 other than a right to reimbursement of the price and all taxes and costs paid plus ten percent per annum interest on the amount of the price and taxes paid from the date of payment of such amounts. See LA. CONST, art. VII, § 25(C); Schneider v. Mayo, 647 So.2d 606, 61, 94-527 (La.App. 3 Cir. 12/7/94) (holding that a judgment annulling a tax sale is not effective until the purchaser receives "reimbursement of the price, all taxes and costs paid and ten percent per annum interest on such amounts," citing La. Const, art. VII Section 25(C)). White therefore had no legally protected property interest in Lot 35 at the time of the foreclosure sale. Because she had no valid protected property interest in Lot 35, White was not entitled to notice of the foreclosure sale. The Court rejects defendants allegation that the foreclosure sale is void.
III. Conclusion
For the foregoing reasons, the Court grants plaintiffs' summary judgment motion and annuls the tax sale of Lot 35, subject to appropriate reimbursement of defendant for the price and all taxes and costs paid, plus ten percent per annum interest on the amount of the price and taxes paid from date of the respective payments.