Opinion
Case No. 1:04-CV-212.
June 28, 2004
ORDER OF TRANSFER
In accordance with the Opinion of this date;
IT IS HEREBY ORDERED that Defendant United States of America's Motion to Dismiss (Dkt. No. 7) is DENIED. IT IS FURTHER ORDERED that the Clerk shall transfer this action, due to lack of jurisdiction, pursuant to 28 U.S.C. § 1631, to the Eastern District of Michigan.
OPINION
What is at issue here is an arguable procedural snafu, one which does not (in the modern age of transportation and communication) in any way threaten the procedural interests of the United States of America to seek a fair resolution of the underlying controversy on the merits. But it is one which the United States seeks to use, via a hoary common law doctrine, to wholly prevent recovery on the merits by a spouse cheated as part of divorce property settlement. The argument is a shame to our Government.I. BACKGROUND
This matter is before the Court on Defendant United States of America's Motion to Dismiss. This suit was originally filed in the Circuit Court for Ingham County, Michigan on or about March 12, 2004 (some 15 days before the expiration of the statute of limitations by the reckoning of the parties). The suit seeks real estate foreclosure against Defendant George Raymond of property located in Jackson, Michigan. The alleged default is that Defendant Raymond failed to pay monies owed as part of a divorce decree that was entered in Ingham County in September 1979. According to the Complaint, a real estate mortgage was issued in February 1980 in favor of Plaintiff to secure payment of the property settlement. The property settlement went unpaid and the Raymonds reached a later Settlement Agreement in January 1990 establishing the amount of the unpaid balance as of that time. On September 17, 1991, the United States also filed a notice of tax lien with the Recorder of Deeds for Jackson County against the property. The notice concerned Defendant Raymond's 1977-1982 and 1984 unpaid federal income taxes. On December 27, 1996, the United States filed a further notice of tax lien against the property concerning Defendant Raymond's unpaid 1992 and 1993 federal income taxes. Plaintiff also joined Defendant State of Michigan in this suit in the event that the State is claiming a lien based on unpaid state income taxes. This suit seeks foreclosure of the mortgage and payment of the large remaining balance of the debt owed to Plaintiff.
By Notice of Removal of March 28, 2004, the United States removed the action to this Court. It did so pursuant to 28 U.S.C. § 1444 and 2410(a), which expressly permit such removals of cases wherein the United States has a legal interest in property which is the subject of a foreclosure action.
On May 3, 2004, the United States filed its Motion to Dismiss, arguing that this suit is subject to dismissal under the local action doctrine, which provides generally that a federal in rem suit against realty may only be maintained in the judicial district in which the property is located ( i.e., the Eastern District of Michigan). Further, the United States has argued that this defect may not be cured pursuant to 28 U.S.C. § 1404(a) because the defect is jurisdictional. Plaintiff opposes each of these arguments by the United States. The Court has also ordered and received supplemental briefing from the parties regarding whether transfer of jurisdiction is permitted under 28 U.S.C. § 1631.
As is obvious from the synopsis, this controversy relates to a pure legal disagreement about the nature of the district court's jurisdiction and authority under the federal tax laws and the removal and transfer statutes.
II. STANDARDS FOR DISMISSAL
Defendant's Motion is for dismissal due to lack of subject matter jurisdiction. Though the dismissal standards were not discussed in the Motion, it is clear that this is a facial attack on subject matter jurisdiction. Thus, the pertinent standards for review are those identified in RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134-35 (6th Cir. 1996) for facial attacks: namely, the district court must assume that Plaintiff's allegations are true and must construe them in a light most favorable to Plaintiff. Id. Relief is appropriate only if, after such construction, it is apparent to the district court that there is an absence of subject matter jurisdiction. Id. See also United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) (citing Scheuer v. Rhodes, 416 U.S. 232, 235-37 (1974)). This is the same standard as is employed under Rule 12(b)(6), except the focus of Rule 12(b)(1) is lack of subject matter jurisdiction as opposed to the viability of the alleged cause of action. See, e.g., Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Hishon v. King Spalding, 467 U.S. 69, 73 (1984).
III. LEGAL ANALYSIS
Defendant United States' dismissal argument faces many legal obstacles — any one of which results in its failure. First of all, the Motion assumes that the defect of filing in the wrong judicial district is a jurisdictional one, as opposed to a mistake of venue (which may be cured). This is a very significant and questionable assumption. There is currently a significant split in authority between the Courts of Appeals as to whether the filing in the wrong district constitutes a jurisdictional defect or a defect of venue. Compare Raphael J. Musicus, Inc. v. Safeway Stores, Inc., 743 F.2d 503 (7th Cir. 1984) (treating issue as one of venue); Eddington v. Texas New Orleans R. Co., 83 F. Supp. 230 (S.D. Tex. 1949) (same); Hayes v. Gulf Oil Corp., 821 F.2d 285, 287 (5th Cir. 1987) (treating issue as one of jurisdiction); Keller v. Millice, 838 F. Supp. 1163, 1171 (S.D. Tex. 1993) (same); Trust Co. Bank v. United States Gypsum Co., 950 F.2d 1144, 1149 (5th Cir. 1992) (acknowledging that the issue was unclear).
Although this issue is clouded, the Court believes that the better view is the view announced in Hayes — that the local action rule establishes a jurisdictional requirement as opposed to a rule of venue. This is so because the most reasonable explanation of the rule, other than as an undeserved accident of history, is to confine jurisdiction in in rem cases to suits in which the presiding court, and its court officers, have authority and control over the res ( e.g., to make execution sales et cetera). This purpose would not be served by permitting the exercise of jurisdiction by districts outside the location of the res (as would occur if the matter were treated as a waivable rule of venue).
This reading of the local action rule is also consistent with its long history. The rule was adopted from the English common law by American precedent, the most famous of which is Chief Justice John Marshall's decision, acting as a circuit justice, in Livingston v. Jefferson, 15 F. Cas. 660 (C.C.D. Va. 1811). The Livingston decision, and the many cases following it, seem dipped and flavored in the language of jurisdiction — so as to suggest that a faulty filing deprives the district court of subject matter jurisdiction. This understanding of the rule makes particular sense in the context of a real estate foreclosure action — wherein the relief sought includes a foreclosure sale (which, if it be carried out, requires the exercise of authority over the res — in this case in Jackson County). Accordingly, the Court concludes that the United States is correct that this suit was filed in the wrong district such that this district lacks subject matter jurisdiction.
Nevertheless, this ruling hardly resolves the dispute. The Hayes case, which likewise addressed the local action rule, was remanded to the district court to determine whether the lack of jurisdiction should be corrected by a transfer of jurisdiction to another district. Hayes, 821 F.2d at 286 n. 1. This practice is typical of federal courts which routinely remedy a lack of jurisdiction by transfer orders pursuant to 28 U.S.C. § 1631. See, e.g., United States v. Mottaz, 476 U.S. 834, 848 n. 11 (1986); Anchor Pointe Boat-A-Minium Inc. v. Meinke, 860 F.2d 215, 219 (6th Cir. 1988). Under the statute, this practice is condoned and encouraged whenever it is in the "interest of justice."
In this case, the exercise of the authority is most certainly in the interest of justice. The transfer would result in an adjudication of the foreclosure claim on the merits — as opposed to an adjudication based on the statute of limitations (which would most likely result in the event of dismissal and re-filing of the suit). A transfer is also just from the viewpoint that this suit itself arises from a failure to pay a divorce property settlement — a failure which, in the ordinary course of things, impoverishes the creditor spouse and delays collections as a result of impoverishment. Transfer is also just from the perspective that, under Michigan law, the suit itself was filed within the jurisdiction of the Ingham County Circuit Court and the defect arose only because the United States exercised its statutory right of removal under 28 U.S.C. § 1444. See Mich. Comp. Laws §§ 600.1601, 600.1605, 600.1645, 600.1651 (treating state local action rule as a waivable matter of venue). Under such circumstances, transfer is clearly warranted.
Notwithstanding the justice of transfer, the United States argues against it on a technical basis. Its technical argument is that the transfer statute, 28 U.S.C. § 1631, assumes that the suit could originally be filed in the transferee district. According to the United States, this action could not originally be filed in the transferee district, although it could be filed in the Jackson County Circuit Court and then removed by the United States pursuant to 28 U.S.C. § 1444 (which statute permits removal by the United States in an action involving property subject to government lien). This argument is a disgrace to any nation which seeks, through its laws, to accomplish a just division of property and a resolution of legal controversies based on the merits as opposed to inconsequential and unforeseen technicalities. Such an argument is inconsistent with the legislative history of section 1631 — which indicates that the statute was enacted with a broad remedial purpose and should be broadly construed to work its remedial purposes. See Piazza v. Upjohn Co., 570 F. Supp. 5, 8 (M.D. La. 1983) (quoting legislative history).
Apart from the fact that the United States' argument is offensive to justice and would require a narrow and overly technical application of a remedial statute, the fundamental premise of the argument — that the action could not have been filed in the Eastern District of Michigan — is wrong. The United States makes this argument by characterizing the suit as merely a foreclosure action against George Raymond. While doing so, the United States forgets the allegations of the Complaint which are aimed at it. Those allegations state that Plaintiff's mortgage was recorded before the pertinent tax liens. (Compl. at ¶¶ 6, 11-15.) The ad damnum clause of the Complaint also requests a determination of the legal priority of the mortgage over the tax liens. (Compl., at 4 ¶ E.) Thus, as the Complaint has been pled, it is not only a foreclosure action against Defendant Raymond, but also an action to clear the resulting title from the asserted tax liens of the United States. An action to clear title against the United States is expressly permitted by Title 28 U.S.C. § 2410, and possibly also section 2409a. See Estate of Johnson v. United States, 836 F.2d 940, 943-46 (5th Cir. 1988) (holding that section 2410 expressly permits tax lien quiet title actions against the United States and was in fact amended with the express legislative purpose of allowing quiet title actions involving federal tax liens, including the priority of those liens); Progressive Consumers Fed. Credit Union v. United States, 79 F.3d 1228, 1233 (1st Cir. 1996) (following Johnson and citing cases); Commerce Bancshares, Inc. v. Lenard, 826 F. Supp. 396, 397-98 (D. Kan. 1993); Logan Planing Mill Co. v. Fidelity Cas. Co. of New York, 212 F. Supp. 906, 913 (S.D.W.V. 1962) (citing cases).
Therefore, this action could have been originally brought in the Eastern District of Michigan and transfer to the Eastern District is expressly permitted by 28 U.S.C. § 1631. In light of such, this action will be transferred to the Eastern District of Michigan for further adjudication.
CONCLUSION
An Order shall enter consistent with this Opinion both denying Plaintiff United States' Motion to Dismiss and transferring this action to the Eastern District of Michigan pursuant to 28 U.S.C. § 1631.