                                                                                                                           Opinions of the United
2001 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-1-2001

Kabakjian v. USA
Precedential or Non-Precedential:

Docket 00-1423




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Filed October 1, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 00-1423

EDWARD KABAKJIAN;
NANCY B. KABAKJIAN

v.

UNITED STATES OF AMERICA;
JACK P. PARMER; LUANN PARMER;
WILLIAM SNIDER; NANCY SNIDER

       Edward Kabakjian,
       and Nancy Kabakjian,

        Appellants

On Appeal From the United States District Court
For the Eastern District of Pennsylvania
(D.C. Civ. No. 97-cv-05906)
District Judge: Honorable Jay C. Waldman

Argued: June 25, 2001

Before: NYGAARD, WEIS, and
REAVLEY,* Circuit Judges

(Filed: October 1, 2001)

       Edward Kabakjian (Argued)
       Nancy Kabakjian
       1730 Fels Road
       Pennsburg, PA 18073

       Counsel For Appellants
_________________________________________________________________
* Honorable Thomas M. Reavley, United States Circuit Judge for the Fifth
Circuit, sitting by designation.
       Paula M. Junghans, Esq.
       Acting Assistant Attorney General

       David English Carmack, Esq.
       Annette M. Wietecha, Esq.
       Sara Ann Ketchum, Esq. (Argued)
       Attorneys, Tax Division
       United States Department of Justice
       P. O. Box 502
       Washington, D.C. 20044

       Of Counsel:

       Michael R. Stiles, Esq.
       United States Attorney

       Counsel for Appellee USA

OPINION OF THE COURT

REAVLEY, Circuit Judge.

Edward and Nancy Kabakjian appeal a take-nothing
judgment in their suit against the federal government and
relating to the seizure and sale of their real property. We
affirm.

BACKGROUND

The Kabakjians sued the government after property they
owned was seized and sold at an auction to recoup unpaid
income taxes. The Kabakjians do not dispute the
underlying tax obligation. Their complaint alleged that the
government failed to comply with 26 U.S.C. S 6335, which
governs the seizure of property to cover unpaid taxes.

Count 1 of the complaint sought to quiet title to the
property. Counts 2 and 3 sought money damages for the
wrongful seizure of the property and for failing to release
liens on the property. The Kabakjians moved for partial
summary judgment, arguing that the notices they received
under S 6335 were defective because they were delivered by
certified mail rather than by personal delivery. The
government moved to dismiss count 1 for lack of subject

                                  2
matter jurisdiction. The district court agreed with the
government and dismissed count 1, holding that the
government was immune from suit on this count. The
district court discussed the "substantial compliance"
provision found at 26 U.S.C. S 6339(b)(2), which we discuss
below, but as we read the district court's ruling it
ultimately held, as to count 1, that it lacked subject matter
jurisdiction.

The court later granted a summary judgment on the
remaining federal claims for damages, and dismissed the
pendent state law claims. The Kabakjians do not argue on
appeal that the district court erred in dismissing the state
law claims and in dismissing count 3, which alleged money
damages caused by the government's failure to release its
liens on the property. We therefore consider whether the
district court correctly ruled against appellants on the
claims they asserted in counts 1 and 2.

The record discloses that on December 11, 1995, the
government sent to the Kabakjians, at their personal
residence, a notice of seizure of the property in issue. This
notice was sent by certified mail. The Kabakjians received
this notice. On December 17, 1995, the IRS seized the
property. On January 24, 1996, the government sent the
Kabakjians a notice of a sealed bid sale of the property,
stating that the sale would take place February 23, 1996.
Again, there is no dispute that the Kabakjians received this
notice, which was again sent by certified mail. On February
23 the sale took place. On September 18, 1996, after the
expiration of a statutory 180-day redemption period, see 26
U.S.C. S 6337(b)(1), the government conveyed the Kabakjian
title to the third parties by written deed. On September 19,
1997, this suit was filed.

The Kabakjians claim that the notices were defective
because they were sent by certified mail and the relevant
statute requires personal delivery. Under 26 U.S.C.
S 6335(a) a notice of seizure

       in writing shall be given by the Secretary to the owner
       of the property . . . or shall be left at his usual place
       of abode or business if he has such within the internal
       revenue district where the seizure is made. If the owner

                               3
       cannot be readily located, or has no dwelling or place
       of business within such district, the notice may be
       mailed to his last know address.

Section 6335(b) requires a notice of sale, to be given in the
same manner as the notice of seizure specified inS 6335(a).
In the pending case a notice of seizure under S 6335(a) and
a notice of sale under S 6335(b) were sent to the home of
the Kabakjians, but the notices were sent by certified mail
rather than hand delivery.

The statute does not explicitly require hand delivery of
the notices, but since it requires notice "to the owner" or
notice at the residence or business, and alternatively allows
for notice by mail only if the owner cannot be located or he
lacks a home or business in the district, courts have
interpreted the statute to require notice by hand delivery,
and to allow for notice by mail only if the attempt at hand
delivery fails. See Goodwin v. United States, 935 F.2d 1061,
1064 (9th Cir. 1991) ("The government concedes that under
a literal reading of S 6335, service by certified mail, as
received by Goodwin, is defective."). The government
concedes that delivery of the notices by certified mail
violates the statute.

A. Quiet Title Claim

1. Jurisdiction

Absent an explicit waiver of sovereign immunity, the
federal government cannot be sued and the district court
lacks jurisdiction to hear a claim against the government.
United States v. Dalm, 494 U.S. 596, 608 (1990); Clinton
County Comm'rs v. EPA, 116 F.3d 1018, 1021 (3d Cir.
1997). Regarding the quiet title claim asserted in count 1,
we conclude that the government was not immune from
suit.

Under 28 U.S.C. S 2410(a), "the United States may be
named a party in any civil action or suit in any district
court . . . to quiet title to . . . real or personal property on
which the United States has or claims a mortgage or other
lien." In the pending case, the government had seized and
sold the property before the suit was filed. Other courts
have held that the federal district courts lack jurisdiction to

                               4
hear a quiet title action against the government if the
government has sold the subject property to a third party
prior to the time plaintiff files suit. See Koehler v. United
States, 153 F.3d 263, 267 (5th Cir. 1998), and cases cited
therein.

However, the record in the pending case indicates that
the government filed federal tax liens on all of appellants'
property, and did not release these liens until it prepared a
"Certificate of Release of Federal Tax Lien" on November 2,
1998, after the Kabakjians filed suit. See 26 U.S.C. S 6321
(providing for tax lien on all property of taxpayer after
demand and refusal to pay tax); 26 U.S.C. S 6325 (providing
for issuance of certificate of release of lien). The seizure of
the property and sale to third parties, which took place
before this suit was filed, did not purport to release the
then-existing tax liens. The deed from the government to
the third parties only purported to convey the interest of
the Kabakjians in the property. It did not purport to convey
the government's interest or release the federal tax liens on
the property. The county real property records did not
indicate that the lien on the property had been released
until, after this suit was filed, the government prepared and
filed its certificate of release of lien.

The existence of the federal tax liens, in our view, vested
the district court with jurisdiction to hear the quiet title
claim. This result is consistent with our decision in Aqua
Bar & Lounge, Inc. v. United States, 539 F.2d 935 (3d Cir.
1976). There we held that the district court had jurisdiction
to hear a quiet title case where the plaintiff claimed that the
government had failed to comply with S 6335 procedural
requirements when it seized and sold his personal property.
Id. at 936, 939-40. The property in question was a liquor
license. Id. at 936. We held that the suit was properly
treated "as an action to quiet title to property on which the
United States has a lien," and noted the existence of the tax
lien at the time of the proceedings below. Id. at 937.

A related, thornier question is whether the district court
retained jurisdiction after the government issued the
certificate of release of tax lien on November 2, 1998. This
release was issued after suit was filed but before the
district court ruled on the government's motion to dismiss

                               5
count 1 and motion for summary judgment and entered a
final judgment. We hold that the district court retained
jurisdiction even after the government released the federal
tax lien.

We have recognized as a general principle that
jurisdiction is determined at the time the suit is filed. New
Rock Asset Partners, L.P. v. Preferred Entity Advancements,
Inc., 101 F.3d 1492, 1503 (3d Cir. 1996). However, we
noted in New Rock that this principle is most often
recognized in diversity cases and "has been applied only
rarely to federal question cases." Id. Even in diversity cases
the rule admits to at least one exception, as 28 U.S.C.
S 1447(e) provides that "[i]f after removal the plaintiff seeks
to join additional defendants whose joinder would destroy
subject matter jurisdiction, the court may deny joinder, or
permit joinder and remand the action to the State court."
Hence, a district court can sometimes, after suit is filed,
permit the destruction of subject matter jurisdiction.

There is also a provision of the Quiet Title Act, 28 U.S.C.
S 2409a, which gives us pause. This Act provides that "[t]he
United States may be named as a party defendant in a civil
action under this section to adjudicate a disputed title to
real property in which the United States claims an
interest." Id. S 2409a(a). The federal district courts have
exclusive jurisdiction over actions brought underS 2409a.
28 U.S.C. S 1346(f). However, the Quiet Title Act goes on to
provide:

       If the United States disclaims all interest in the real
       property or interest therein adverse to the plaintiff at
       any time prior to the actual commencement of the trial,
       which disclaimer is confirmed by order of the court, the
       jurisdiction of the district court shall cease unless it
       has jurisdiction of the civil action or suit on ground
       other than and independent of the authority conferred
       by section 1346(f) of this title.

28 U.S.C. S 2409a(e) (emphasis added).

Subsection (e) of the Quiet Title Act can be read to
provide that the government can, after suit is filed, sell the
property in issue and thereby divest the district court of
jurisdiction. Some courts have suggested otherwise,

                               6
although they discuss the Quiet   Title Act generally without
focusing on subsection (e). See   Delta Sav. & Loan Ass'n v.
IRS, 847 F.2d 248, 249 n.1 (5th   Cir. 1988); Bank of Hemet
v. United States, 643 F.2d 661,   664-65 (9th Cir. 1981).

Regardless, the Quiet Title Act is not applicable to the
pending suit, since it expressly provides that it does not
apply to "actions which may be or could have been brought
under sections . . . 2410 of this title . . . ." 28 U.S.C.
S 2409a(a). Both sides agree that S 2410 is applicable to the
pending suit, as it applies to actions "to quiet title to . . .
real or personal property on which the United States has or
claims a mortgage or other lien." In this case, the
government seized and sold the property in issue pursuant
to a tax lien. Moreover, Congress chose, for whatever
reason, to include subsection (e) in the Quiet Title Act and
failed to include an analogous provision in S 2410, the more
narrowly drawn statute. This is, we think, a case where "a
precisely drawn, detailed statute pre-empts more general
remedies." Brown v. General Servs. Admin., 425 U.S. 820,
834 (1976). We therefore follow the general rule for
determining jurisdiction, and conclude that jurisdiction
under S 2410 is determined by looking to the facts existing
at the time the suit was filed. The government cannot
thereafter divest the court of jurisdiction by selling the
property in issue or releasing its lien on the property. See
Kulawy v. United States, 917 F.2d 729, 733-34 (2d Cir.
1990) (holding that government cannot "oust the court of
jurisdiction validly invoked" under S 2410 by selling the
property on which it had a lien at the time suit was
commenced).

2. Merits of Quiet Title Claim

Although we conclude that the district court had
jurisdiction to hear the quiet title claim, we nevertheless
hold that the claim was properly dismissed. We may affirm
a judgment on any ground apparent from the record, even
if the district court did not reach it. See Resolution Trust
Corp. v. Fidelity and Deposit Co. of Maryland, 205 F.3d 615,
635 (3d Cir. 2000). Although there was a failure to comply
with the notice requirements of 26 U.S.C. S 6335 because
the Kabakjians received the required notices by certified
mail rather than personal delivery, the record shows that

                                  7
the Kabakjians received actual notice of the seizure and
notice of the planned sale of the property. We hold that the
notices were not so defective as to void the seizure of the
property and its transfer to a third parties. Under 26 U.S.C.
S 6339(b)(2), where a deed to real property conveys property
seized under S 6335, such a deed operates as a conveyance
of all the delinquent taxpayer's right, title and interest in
the property so long as the proceedings "have been
substantially in accordance with the provisions of law." The
Kabakjians rely on Kulawy v. United States, 917 F.2d 729
(2d Cir. 1990) but that case involved the sale of personal
property not covered by this substantial compliance
provision.

Section 6339(b)(2) therefore provides that title transfers if
there has been substantial compliance with the notice and
other procedures set out in S 6335. The Kabakjians received
actual notice under S 6335, and although the issue was
joined below they failed to show that they were
meaningfully prejudiced by receipt of the S 6335 notices by
certified mail instead of personal delivery. For example,
when Mr. Kabakjian was asked in his deposition how he
was prejudiced by receipt of the notice of sale by mail
rather than personal delivery, he answered that"[a]ny time
a citizen's rights are denied they are being prejudiced." Mrs.
Kabakjian testified that she agreed with the statement that
she had "no independent information or claim for damages
other than what your husband has told you." We hold that
there was substantial compliance with S 6335, and that
under 6339(b)(2), all title to the property once vested in the
Kabakjians therefore transferred. Their quiet title claim
therefore fails on the merits.

B. Claims for Damages

The Kabakjians sought money damages for the allegedly
defective seizure and sale of their property. Again, they do
not deny that they owed back taxes.

Under 26 U.S.C. S 7433(a), a cause of action lies where
an IRS employee recklessly or intentionally disregards any
provision of the Internal Revenue Code. Under S 7433(b),
the taxpayer can recover his "actual, direct economic
damages sustained" as a "proximate result" of an IRS
employee's improper actions under S 7433(a).

                                8
The count 2 claim for damages is based on the alleged
violations of S 6335. As discussed above, on December 11,
1995, the government sent by certified mail to the
Kabakjians a notice of seizure of the property. On
December 17, the IRS seized the property. On January 24,
1996, the government sent the Kabakjians by certified mail
a notice of a sealed bid sale of the property, stating that the
sale would take place February 23, 1996. There is no
dispute that the Kabakjians received the notices. On
February 23 the sale took place.

In this case no attempt at hand delivery of the notices
was made, as required by S 6335. However, the purpose of
the notice requirements was met, since the Kabakjians
received actual notice. They did not show "actual, direct
economic damages sustained" as a "proximate result" of the
technical noncompliance with the statutory notice
requirements. Accordingly summary judgment was properly
granted on the money damages claim.

The judgment of the district court will be AFFIRMED.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                9
