Opinion
Case No. 00-71944
January 17, 2003
ORDER DENYING DEFENDANT'S MOTION FOR RECONSIDERATION
This matter comes before the Court on Defendant's motion for reconsideration of the order granting summary judgment for Plaintiff. For the reasons below, the Court DENIES Defendant's motion.
I. Facts
On December 5, 1996, two significant events occurred. Salah Gouda wrote a letter to attorney David Walter seeking tax planning advice. Specifically, he wrote that he faced an "end of the year tax crisis," and that his objectives were to pay no taxes or pay minimum taxes, and to render himself as uncollectible as possible "especially to the IRS". Plaintiff's Ex. 4. At the time Gouda wrote the letter, he had already filed tax returns reporting a total of $118,082 in outstanding federal tax liabilities for the years 1993, 1994 and 1995.
Also on December 5, 1996, Salah Gouda and Anna Patej, his wife, signed a sales agreement for the purchase of property known as 2158 Haverford. The Goudas offered to pay $620,000 in cash for the Haverford property, by land contract. Mr. Gouda paid a $340,000 down payment on the property, and then made periodic payments, eventually paying off the balance on March 16, 1998. The down payment and all subsequent payments were paid out of his own accounts which he kept in his name only, On April 1, 1998, the sellers conveyed by warranty deed title to the Haverford property to Salah A. Gouda and Anna Patej-Gouda, his wife, as tenants by the entireties.
On June 22, 1998, the IRS made jeopardy tax assessments against Salah Gouda totaling $1,101,213.35 for the tax years 1993, 1994, 1995 and 1996. On August 5, 1998, the IRS recorded a Notice of Federal Tax Lien against Salah Gouda with the Oakland County Register of Deeds in that amount.
Mr. Gouda was a medical doctor licensed to practice medicine in Michigan. In December 1998, after an 18 month undercover investigation by the DEA, Mr. Gouda's medical license was suspended and he faced both federal and state criminal charges for improperly writing medical prescriptions. In April 1998, he fled the United States and is believed to be in Egypt.
On June 22, 1999, Anna Patej obtained a Default Judgment of Divorce from Salah Gouda. The judgment awarded her title to the Haverford property, and the next day she quit claimed the deed to herself in her maiden name.
II. Procedural Background
On April 27, 2000, the United States filed a collection action against Anna Patej. The United States is seeking to collect the unpaid jeopardy federal income tax assessments against Salah Gouda by setting aside the purchase of the Haverford property and foreclosing upon the property. On August 24, 2000, this Court denied Salah Gouda's motion to intervene as a party. On July 8, 2002, the United States moved for summary judgment because (1) Salah Gouda's use of personal funds to create a tenancy by the entirety in the Haverford property was a fraudulent conveyance. (2) the United States' liens arose and attached to Gouda's 100% interest in the property prior to the divorce judgment, and therefore (3) the transfer was made subject to the United States' liens and the liens should be foreclosed thereon. After full briefing and oral arguments, the Court granted Plaintiff's motion on October 8, 2002.
On October 23, 2002, Defendant moved for reconsideration. Plaintiff, pursuant to a court order, filed a response brief.
III. Standard of Review
Pursuant to Rule 7.1(g) of the Local Rules for the Eastern District of Michigan. a motion for reconsideration may be filed within ten days after the order to which it objects is issued. It should be granted if (1) the movant demonstrates that the Court and the parties have been misled by a palpable defect and (2) that a different disposition of the case must result from a correction of such palpable defect. A motion that merely presents the same issues already ruled upon by the Court shall not be granted.
IV. Analysis
Defendant argues that she owns a dower interest in the Property which has priority over the federal lien, and that she owns a separate interest in the assets used to purchase the Haverford property (the "Property") due to her legitimate pre-conveyance Interest in the marital assets by operation of law. She further argues that a trial is necessary to determine the amount of her separate property interest, and that ordering foreclosure through summary judgment amounts to a taking with due process of law. While this Court's order granting summary judgment could easily be interpreted as impliedly rejecting these arguments, in rejecting Defendant's motion for reconsideration the Court explains why these arguments are unavailing.
1. Dower
"The threshold question . . . in all cases where the Federal Government asserts its tax lien, is whether and to what extent the taxpayer had property or rights to property to which the tax lien could attach. Although state law creates legal interests and rights in property, federal law determines whether and to what extent those interests will be taxed." Blachy v. Butcher, 221 F.3d 896, 905 (6th Cir. 2000) (internal quotations and citations omitted). Furthermore, federal law governs the priority of a federal tax lien against other claims, Id.
Only claims which are choate under the federal standard can take priority over a federal tax lien. Id. In Michigan, a widow is statutorily entitled to dower, or the use during her natural life, of one-third of all lands whereof her husband was seized of an inheritable estate at anytime during the marriage unless she is lawfully barred." Matter of Estate of Stroh, 392 N.W.2d 192, 194 (Mich.Ct.App. 1986) (defining dower rights under Michigan law). In Michigan, "the estate of dower involves three essentials: Marriage, seisin of the husband during coverture, and the death of the husband with the survivorship of the wife." In re Wheeler, 252 B.R. 420, 426 (W.D. Mich. 2000). Under Michigan law, the right of dower is inchoate until the death of the widow's husband. See id; Cummings v. Schreur, 214 N.W. 199, 200 (Mich. 1927). Consequently, while Defendant and Gouda were married, and when the federal tax lien attached in 1998, Defendant's dower interest in the Property was inchoate under state law.
Likewise, Defendant's dower interest was inchoate under federal law when the federal tax lien attached. Under federal law, "a state-created lien is choate only when `there is nothing more to be done,' i.e., `when the identity of the lienor, the property subject to the lien, and the amount of the lien are established.'" Id. . The "something more" required to make Defendant's dower interest choate was the death of her husband. Therefore, because her dower rights were inchoate when the federal lien attached in 1998, her dower does not defeat the federal lien. See United States v. Forrester, No. C-1-98-839, 2001 WL 429811, *5 (S.D. Ohio 2001) (holding that spouse's dower interest was inchoate, and thus insufficient to defeat federal lien, when both spouses are alive).
The I.R.S. rules on which Plaintiff relies do not convince the Court otherwise. They address the issue of whether a federal tax lien has priority over a surviving spouse's dower rights, In order for those rules to apply, a spouse must be deceased. See, e.g., Rev. Rul. 79-399, 1979-2 C.B. 398 (holding that "a federal tax lien arising before the death of a taxpayer is not superior to a competing claim by a surviving spouse for a dower or curtesy interest or statutory right if the marriage occurred before the federal tax lien arose and if, under state law, such dower or curtesy interest cannot be defeated by the other spouse or by that spouse's creditors prior to death"): IRM 5.17.3.4.2.5 ("There is no property or right to property in the wife until the death of her husband"). Likewise, U.S. v. Ettleson, 67 F. Supp. 257 (E.D. Wis. 1946), rev'd on other grounds, 159 F.2d 193 (7th Cir. 1947), involved a surviving spouse's argument that her dower right could not be defeated by a federal tax lien: "[w]hen her husband died on May 9, 1938, she received a vested interest in the real estate owned by him."
Internal Revenue Manual § 5.17.3.4.2.5 concludes "[a]lthough real property of the husband may be levied upon and sold to satisfy his delinquent tax liabilities, the wifes [sic] right to dower cannot be destroyed and the purchaser takes subject to the wife surviving her husband which entitles her to an assignment of dower." However, Defendant relinquished her dower rights in her divorce judgment:
IT IS FURTHER ORDERED AND ADJUDGED that each party hereto shall forthwith exchange with the other party their respective dower rights in the lands of the other in mutual consideration and in full satisfaction of all dower claims which either party may have in any property which the other had, has, or may hereafter have any interest, and each party shall hereafter hold his or her remaining lands free, clear and discharged from any such dower right or claim.
(J. Divorce at 6.)
Therefore, even if Defendant possessed a dower right that at one time was superior to Plaintiff's lien, her dower rights were discharged June 22, 1999, the date of the divorce judgment.
2. Marital Assets
Similarly, Defendant's interest in "marital assets", including the assets Gouda used to purchase the home, was inchoate until her divorce. The Michigan case law on which Defendant relies addresses a spouse's entitlement to marital assets upon divorce. See Hanaway v. Hanaway, 527 N.W.2d 792 (Mich.Ct.App. 1995); Reeves v. Reeves, 575 N.W.2d 1 (Mich.Ct.App. 1997); Thames v. Thames, 477 N.W.2d 496 (Mich.Ct.App. 1991). Defendant cites no law, nor is this Court able to find, any Michigan authority holding that one spouse has an ownership interest while married in the other spouse's property such that a creditor or lienholder cannot reach the other spouse's property. In a case interpreting Kansas law, the United States attached a tax lien to a married debtor's property twenty months after his wife, the plaintiff in the case, filed for divorce but before the divorce decree was entered. Gardner v. United States, 814 F. Supp. 982, 983-4 (D. Kan. 1993). The court rejected the government's contention that the plaintiff had only an inchoate interest the marital property because Kansas law vests rights in the marital property upon filing a divorce action. Id. at 984. it is the filing of the divorce action that "creates a species of common or co-ownership in one spouse in the jointly acquired property held by the other, the extent of which is determined by the trial court . . ." Id. Impliedly, up until the divorce action is filed, co-ownership of marital property is not created. Even though Gardner interprets property rights under Kansas state law, it is the correct analysis.
V. Conclusion
Defendant has failed to show that a different disposition of the case must result from a correction of any palpable defect of the order granting Plaintiff summary judgment. Accordingly, Defendant's motion for reconsideration is DENIED.