Opinion
CASE NO. 06-61796-CIV-MARRA/JOHNSON.
March 13, 2007
ORDER
This cause is before the Court upon Plaintiff United States's Motion to Dismiss Count II of the Complaint [DE 12] and Defendants Jesse Gaddis and Susan Gaddis' Motion to Dismiss Count II of the Complaint with Prejudice [DE 14]. The Court has carefully considered the motions and is otherwise fully advised in the premises.
On December 1, 2006, Plaintiff United States of America filed a two-count Complaint pursuant to 26 U.S.C. §§ 7401 and 7403 of the Internal Revenue Code of 1986. In Count one of the Complaint, Plaintiff seeks to reduce to judgment unpaid federal income tax liabilities assessed against Defendants Hugh T. Maloney and Nani B. Maloney ("the Maloney Defendants"). (Compl. ¶ 1.) In Count two, Plaintiff seeks foreclosure of liens. Plaintiff has filed a motion to dismiss count two of the Complaint without prejudice. Defendants oppose this motion, and request that the Court dismiss count two with prejudice.
The Complaint alleges the following facts: The Maloney Defendants acquired real property located in Fort Lauderdale, Florida which was subject to a mortgage with Employer Professional Service Retirement Savings Plan ("Employer Professional"). (Compl. ¶ 15.) Defendants Jesse and Susan Gaddis ("the Gaddis Defendants") are the directors of Employer Professional. (Compl. ¶ 16.) On February 13, 1997, the United States filed a Notice of Federal Tax Lien against the Maloney Defendants with respect to the 1995 tax year. (Compl. ¶ 17.) Employer Professional purported to foreclose on the subject property on November 20, 1997. (Compl. ¶ 18.) On December 20, 1997, a Certificate of Title was executed, stating that the property was sold to Defendant Jesse Gaddis. (Compl. ¶ 19.) On March 18, 1998, Plaintiff filed a Notice of Federal Tax Lien against the Maloney Defendants with respect to the 1996 tax year. (Compl. ¶ 20.) Subsequently, on May 21, 2001, Defendant Jesse Gaddis, for less than adequate consideration, recorded a quit claim deed purporting to transfer the subject property from him to the Gaddis Defendants. (Compl. ¶ 21.) On May 11, 2006, Plaintiff filed a Notice of Federal Tax Lien with respect to the 1998, 1999, 2000, 2002, 2003 and 2004 tax years. (Compl. ¶ 22.)
The Maloney Defendants continue to reside on the subject property and allegedly rent the property from Defendant Jesse Gladis. (Compl. ¶ 23.) There is no rental agreement and the monthly rental payments approximates the monthly cost of property taxes, insurance, and mortgage payments for the subject property. (Compl. ¶ 23.) According to the Complaint, the purported foreclosure and transfer of the subject property was a fraudulent conveyance to allow the Maloney Defendants to retain possession of and live on the subject property. (Compl. ¶ 27.)
In their Answer, the Gaddis Defendants state that Plaintiff was a party to the foreclosure. (Answer ¶ 30; Pl. Mot. 2.) Counsel for the Gaddis Defendants sent Plaintiff a letter providing details of the foreclosure and demanded that Plaintiff dismiss the foreclosure count of the Complaint. (Pl. Mot. 2.) In response, Plaintiff agreed to dismiss count two of the Complaint, but the Gaddis Defendants would not agree to a dismissal without prejudice. (Pl. Mot. 2.)
The Gaddis Defendants state that the letter was a good faith letter under Rule 11 of the Federal Rules of Civil Procedure. (Def. Resp. 2.)
The Gaddis Defendants state that the matters to be decided in count two were resolved in the state action. (Def. Mot. 2.) According to them, Plaintiff was a party to that action and acknowledged that the mortgage holder had priority over Plaintiff. (Def. Mot. 2.) As such, the Gaddis Defendants assert that count two of the Complaint is barred by collateral estoppel. (Def. Mot. 2.) In support, the Gaddis Defendants claim that Plaintiff would not lose any substantial rights by a dismissal with prejudice because the fraudulent conveyance issue has already been decided. (Def. Mot. 3.)
Plaintiff, however, insists that a voluntary dismissal without prejudice should be granted unless the Gaddis Defendants can show clear legal prejudice. (Pl. Reply 2.) Moreover, Plaintiff notes that the state action did not address whether there had been a fraudulent conveyance, as the Gaddis Defendants had yet to acquire title to the subject property. (Pl. Reply 3.) At this juncture, Plaintiff states that it lacks sufficient facts to assert a claim against the subject property, but that it may seek, at a later date, to bring a claim under a nominee theory based on the relationship amongst the Defendants. (Pl. Reply 3.)
Turning first to Plaintiff's motion, the Court notes that a notice of "a voluntary dismissal should be granted unless a defendant would suffer clear legal prejudice, other than the mere prospect of a subsequent lawsuit as a result." Ponteberg v. Boston Scientific Corp., 252 F.3d 1253, 1255 (11th Cir. 2001). Rule 41(a)(2) expressly provides that a dismissal is without prejudice unless otherwise specified. Fed.R.Civ.P. 41(a)(2). Here, the Gaddis Defendants fail to allege any prejudice besides the threat of a subsequent lawsuit. Instead, the Gaddis Defendants state that collateral estoppel bars Plaintiff from reasserting this claim at a later date. Significantly, although the Gaddis Defendants claim that the 1997 state action resolved the fraudulent conveyance claim, they have not provided any record evidence regarding the prior state action. Moreover, this argument rests entirely on factual issues that address the merits of this case and thus cannot be resolved at this stage in the proceeding. Defendants, however, may reassert this argument as a defense at a later date, if applicable. Hence, the Court concludes that a dismissal without prejudice pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure is appropriate with respect to count two of the Complaint.
The Gaddis Defendants claim that Plaintiff would not lose any substantial rights by a dismissal without prejudice. (Def. Mot. 3.) Defendants fail to provide authority that would require an inquiry into Plaintiff's rights. In any event, Plaintiff states that further investigation may demonstrate that the Gaddis Defendants are holding the subject property as nominees for the Maloney Defendants.
According to Plaintiff, the Gaddis Defendants had not acquired the subject property at the time of the state action. At this stage of the proceeding, the Court is unable to accept or reject any factual argument made by either party.
Lastly, the Gaddis Defendants have moved to dismiss with prejudice count two of the Complaint [DE 14]. Their motion states that it is brought pursuant to Rule 42(a)(2) of the Federal Rules of Civil Procedure. (Def. Mot. 1.) That rule, however, does not pertain to the dismissal of a complaint. Nor can Defendants bring this motion pursuant to Rule 41 of the Federal Rules of Civil Procedure, as that rule does not permit a defendant to dismiss a complaint unilaterally. Finally, given that the Gaddis Defendants filed an answer to the Complaint, they may not seek dismissal pursuant to Rule 12 of the Federal Rules of Civil Procedure.
Accordingly, the Court denies the Gaddis Defendants' motion.
Accordingly, it is hereby ORDERED AND ADJUDGED as follows:
1) Plaintiff United States's Motion to Dismiss Count II of the Complaint [DE 12] is GRANTED. Count II of the Complaint is dismissed without prejudice.
2) The Gaddis Defendants' Motion to Dismiss Count II of the Complaint with Prejudice [DE 14] is DENIED.DONE AND ORDERED in Chambers at West Palm Beach, Palm Beach County, Florida.