Opinion
No. UWY-CV09-6001577
June 9, 2010
MEMORANDUM OF DECISION RE: MOTION TO STRIKE
Plaintiff brings this action by Complaint dated June 25, 2009 seeking to foreclose tax liens it purchased from the defendant City of Waterbury (hereinafter "the City"). Plaintiffs purchased the liens at issue pursuant to Connecticut General Statutes § 12-195h, which permits municipalities to sell their tax liens to private entities or individuals. The liens at issue represent unpaid taxes on real property located on Mattatuck Heights in Waterbury, Connecticut from the 1993 and 1994 Grand Lists. Plaintiff named the City as a defendant, listing it as a subsequent encumbrancer based on the fact that the City holds several tax liens on the property that accrued after the City assigned the liens at issue to plaintiff. By Motion to Strike dated August 19, 2009, the City claims that it has been misjoined as a defendant subsequent encumbrancer in this action because its subsequently accruing liens are of equal priority with plaintiff's liens. Plaintiff filed an Objection dated February 18, 2010 and the parties presented lengthy oral argument before the court on February 24, 2010.
The possibility exists that one or more of the liens was actually assigned pursuant to Special Act § 97-14, which created a pilot program allowing certain municipalities to sell their tax liens prior to the enactment of § 12-195h. Regardless, there is no dispute that § 12-195h governs the relationship of the parties.
"The exclusive remedy for misjoinder of parties is a motion to strike." Practice Book § 11-3. "A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court." Bernhard-Thomas Building Systems, LLC v. Dunican, 286 Conn. 548, 552-53 (2008). "The allegations of the pleading involved are entitled to the same favorable construction a trier would be required to give in admitting evidence under them and if the facts provable under its allegations would support a defense or a cause of action, the motion to strike must fail." Mingachos v. CBS, Inc., 196 Conn. 91, 108-09 (1985).
There is no question that municipal tax liens on real property enjoy priority over all other encumbrances, regardless of when they accrue. C.G.S. § 12-172. The dispositive issue in this case is whether a municipal tax lien assigned to a private entity or individual pursuant to § 12-195h enjoys priority over a subsequently accruing municipal tax lien on the same property. Plaintiff's Complaint lists the City as a subsequent encumbrancer, alleging that the liens purchased by plaintiff enjoy priority over the subsequently accruing tax liens on the property still held by the City. The City argues that its subsequently accruing liens enjoy equal priority with the liens purchased by plaintiff and, as a result, the City is misjoined in this action as a subsequent encumbrancer. C.G.S. § 12-195h, the statute that assignment of liens and governs the relationship between the parties, reads as follows: "The assignee or assignees of such liens shall have and possess the same powers and rights at law or in equity as such municipality and municipality's tax collector would have had if the lien had not been assigned with regard to the precedence and priority of such lien, the accrual of interest and the fees and expenses of collection." (Emphasis added). The court interprets this language as unequivocally dictating that plaintiff's tax liens enjoy the same priority rights as they would if the liens had never been assigned and were still held by the City.
At first blush, it appears remarkable that this issue has not been litigated since the 1993 enactment of § 12-195h. However, in instances where there is sufficient equity in the property to satisfy the liens of both an assignee and a municipality, there is no reason to determine which party has priority. Rather, priority only becomes an issue in those rare instances where the total municipal tax liability on the property exceeds the property's value.
As a result, the court is neither required nor permitted to consult the statute's legislative history or other extrinsic sources in interpreting the statute as it relates to the issue of priorities. See, C.G.S. § 1-2z. This is not to say, however, that the statute is unambiguous in all respects. See, e.g., Municipal Funding v. Galullo, Docket No. CV00-0161142S, Judicial District of Waterbury (Apr. 30, 2001, Rogers, J.) [ 29 Conn. L. Rptr. 682], affirmed, 72 Conn.App. 755 (2002).
Given the fact that the plain language of C.G.S. § 12-195h requires that plaintiff's liens be treated as if they were still held by the City when considering issues of priority, the dispositive question in this case becomes whether older municipal tax liens take priority over newer ones. Plaintiff argues that because its liens accrued prior to those held by the City, they are afforded priority based on the venerable principle of "the first in time is the first in right" as enunciated by Chief Justice John Marshall in Rankin v. Scott, 25 U.S. 177 (1824): "The principle is believed to be universal, that a prior lien gives a prior claim, which is entitled to prior satisfaction, out of the subject it binds, unless the lien be intrinsically defective, or be displaced by some act of the party holding it, which shall postpone him in a Court of law or equity to a subsequent claimant." Id., 179. The City, on the other hand, argues that its liens are of equal priority with those held by plaintiff, regardless of when they accrued.
The issue of whether older municipal tax liens enjoy priority over newer ones is not necessarily a settled issue: "[C]urrent law does not ascribe priorities between different liens of the municipality for different assessment years." Caron, Connecticut Foreclosures, Fourth Ed. § 4.12B (2004). However, the Court suspects that "the paucity of cases [on this issue] . . . is more a function of a failure to litigate the obvious rather than a failure to raise and decide the issue." Paulus v. Lasala, 56 Conn.App. 139, 150 (1999), cert. denied, 252 Conn. 928 (2000). While no court has directly confronted the issue, it has been dealt with tangentially. In Brown v. General Laundry Service, Inc., 19 Conn.Sup. 335 (Super.Ct. 1955), the court issued a Supplemental Judgment in response to a remand from the United States Supreme Court. The critical issue in the Brown case was the relative priority of municipal tax liens and federal liens. Originally, the Superior Court issued a Supplemental Judgment giving municipal tax liens held by the City of New Britain priority over federal liens for unpaid withholding taxes. "The United States of America appealed to the Supreme Court of Errors, claiming that the tax and water liens of the city of New Britain did not take precedence of the claims of the United States of America for taxes . . . The judgment of the Superior Court was affirmed by the Supreme Court of Errors. Brown v. General Laundry Service, Inc., 139 Conn. 363 (1952). On writ of certiorari, the judgment of the Connecticut court was reviewed by the Supreme Court of the United States. United States v. New Britain, 347 U.S. 81 (1954). The Supreme Court vacated the judgment of the Connecticut Supreme Court of Errors and remanded the case to have determined the order of the various liens asserted in accordance with the opinion." Id., 337. In determining the priorities in response to the U.S. Supreme Court remand, the Brown court stated: "The Supreme Court laid down the following rules which this court is obliged to follow in determining the order of priority of the various liens asserted: (1) The first in time is the first in right. (2) The priority of each statutory lien contested must depend on the time it attached to the property in question and became choate." Id., 339. The Brown court then prioritized each municipal lien separately and chronologically according to its date of accrual, "in the order of their priority," with the intervening federal liens interspersed according to their dates of accrual. Id., 343. This result supports plaintiff's argument that their liens have priority over the City's subsequent accrued liens.
Plaintiff's position also finds support in the language contained in C.G.S § 12-144b, which requires that tax payments be applied to older liens first. While the statute applies to tax payments rather than priorities, it does evidence a state policy embracing the principle of "first in time, first in right" in relation to municipal tax liability. In addition, public policy considerations support the application of the "first in time, first in right" approach under these circumstances. Were the court to rule that liens assigned to private entities or individuals pursuant to C.G.S § 12-195h enjoyed equal priority with subsequently accruing liens still held by municipalities, all assigned tax liens would instantly be converted into diminished assets that lost value as subsequent liens accrued, which could have a deleterious effect on the secondary tax lien market.
Counsel for the parties presented detailed arguments regarding the effect a ruling on this Motion will have on the survivability of their interests in the event the court eventually enters a judgment of strict foreclosure or foreclosure by sale. While these issues will no doubt need to be resolved at some point during this litigation, most likely upon the filing of a motion for determination of priorities, it would be premature to do so in ruling on this motion to strike. Based on the foregoing, the court concludes that the Connecticut law clearly requires that municipal tax liens be afforded priority by date of accrual and that plaintiff's liens enjoy priority over the subsequently accruing liens still held by the City. A favorable construction of plaintiff's complaint leads the court to the conclusion that the City is properly before the court as a subsequent encumbrancer and the City's Motion to Strike is hereby denied.