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The Bank of New York Mellon v. Ashley

United States District Court, D. Maryland

March 20, 2017



          DEBORAH K. CHASANOW, United States District Judge

         Presently pending and ready for resolution in this priority of liens case are: (1) a motion for partial summary judgment filed by Defendants United States Department of the Treasury and Internal Revenue Service (collectively, the “United States”) (ECF No. 54); and (2) a cross motion for partial summary judgment filed by Plaintiff Bank of New York Mellon, f/k/a the Bank of New York, as Trustee for the Holders of GE-WMC Asset-Backed Pass-Through Certificates, Series 2005-1 (“BONY”) (ECF No. 57). The issues have been briefed and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, both motions will be granted in part and denied in part.

         I. Background

         A. Factual Background

         This case involves the question of the priority of liens in the real property known as 2902 Matapeake Drive, Upper Marlboro, Maryland (the “Property”). Pursuant to a deed dated October 5, 1999, the Property was conveyed by recorded deed to Defendant Holly G. Smith, n/k/a Holly G. Ashley. (ECF No. 57-3). Pursuant to a recorded deed dated November 24, 2003, Mrs. Ashley conveyed the Property to herself and Defendant Michael Ashley, her husband, as tenants by the entirety. (ECF No. 57-4).

         On December 22, 2004, Mr. and Mrs. Ashley refinanced their mortgage on the Property using proceeds obtained from a loan granted by WMC Mortgage in the amount of $400, 000 (the “Prior Loan”) in exchange for a deed of trust to the Property (the “Prior DOT”). (See ECF No. 63-2). Both Mr. and Mrs. Ashley were signatories to the Prior Loan, which paid off an existing $337, 500.00 mortgage lien; both Mr. and Mrs. Ashley were identified as grantors on the Prior DOT; and both Mr. and Mrs. Ashley executed the Prior DOT. The Prior DOT was recorded in the land records of Prince George's County on July 7, 2005. (Id.). On July 5, 2005, Mr. Ashley applied for and was granted a refinance loan from WMC Mortgage in the amount of $475, 000 (the “Subject Loan”). (ECF No. 63-4). The Subject Loan was funded and a closing was conducted in the ordinary course of the loan. Disbursement of the proceeds went to pay off the Prior DOT, in the amount of $405, 450.06. (ECF No. 57-6). Mr. Ashley - but not Mrs. Ashley - was identified as a grantor on the corresponding deed of trust (the “Subject DOT”), which Mr. Ashley executed on July 14. (ECF No. 63-3). The Subject DOT was recorded on December 21, 2005. (Id. at 1). BONY is the successor in interest to WMC Mortgage and, accordingly, the current holder of the Subject Loan and beneficiary of the Subject DOT.[1] (ECF No. 43 ¶ 21).

         On June 5, 2007, Mr. and Mrs. Ashley together conveyed the Property to the Ashley Family Trust by recorded deed (the “Trust DOT”). (ECF No. 57-10). Under the terms of the Ashley Family Trust, both Mr. Ashley and Mrs. Ashley held an undivided 50% interest in the Property. (ECF No. 57-11 at 8-9). On November 5, 2012, the United States filed Notices of Federal Tax Liens in the amount of $428, 227.50, noticed on October 11, 2012 and assessed on December 12, 2011, as to Mr. and Mrs. Ashley. (ECF No. 54-5). Finally, on December 21, 2012, the Ashley Family Trust conveyed the Property to Mr. Ashley by recorded quitclaim deed. (ECF No. 57-12).

         B. Procedural Background

         BONY filed this action requesting that the court determine the priority of liens against the Property on September 12, 2014. (ECF No. 1). The operative amended complaint was filed on October 29, 2015. (ECF No. 43). The six-count amended complaint asserts claims against four groups of interested parties: (1) Mr. and Mrs. Ashley; (2) CitiFinancial, Trustee Nancy J. Liberto, and Trustee Betty Lou Crumrine (concerning a now-discharged CitiFinancial deed of trust dated December 18, 2000 (the “CitiFinancial DOT”)); (3) the United States; and (4) the State of Maryland, Comptroller of Maryland (“Maryland Comptroller”). BONY seeks: declaratory relief determining that it holds a first-priority lien on the Property (Count I); a determination that it holds a first-priority lien by reason of equitable subrogation (Count II); to use quiet title to determine the owner of the Property and hold that the Subject DOT constitutes a valid first-priority lien (Count III); to obtain a decree reforming the Subject DOT to include the signature of Mrs. Ashley (Count IV); to obtain a constructive trust in its favor (Count V); and to obtain an equitable mortgage against the Property as of July 13, 2005 (Count VI). (ECF No. 43).

         The Clerk of Court entered default against Defendants CitiFinancial, Trustee Nancy J. Liberto, and Trustee Betty Lou Crumrine for their failure to plead or otherwise defend as directed in the summonses and as provided by the Federal Rules of Civil Procedure. (ECF Nos. 12; 14; 16). Accordingly, CitiFinancial and its trustees do not contest that the CitiFinancial DOT has been paid and satisfied and that any error in its release does not affect BONY's interest. (See ECF Nos. 43 ¶ 4; 53, at 6). The court also previously granted a joint motion establishing the priority of liens as to the Maryland Comptroller, but ordered that the order of judgment would not be entered until the entire case was resolved. (ECF No. 53).[2]

         Plaintiff previously filed a motion for consent judgment as to Mr. and Mrs. Ashley (ECF No. 28), which the United States opposed (ECF No. 31). The consent motion, inter alia, would have provided that the Subject DOT is equitably subrogated to the position and priority of the Prior DOT and the CitiFinancial DOT, and that Mr. and Mrs. Ashley intended for the Subject DOT to be a first-priority deed of trust against the Property. (ECF No. 28-1, at 2). On March 14, 2016, the court denied the consent motion without prejudice to its renewal because its resolution would have affected the priority of the United States' tax liens. Mr. and Mrs. Ashley answered the amended complaint on June 23. (ECF No. 72). In their answer, they request that the court enter judgment in favor of BONY establishing that the Subject DOT is the first-priority lien on the property. (Id.).

         The United States answered the amended complaint on December 21, 2015 (ECF No. 47), and filed the instant motion for partial summary judgment on March 21, 2016 (ECF No. 54). Plaintiff filed its cross motion for partial summary judgment on April 20. (ECF No. 57). The United States filed a response in opposition and reply in support of its motion (ECF No. 63), and Plaintiff replied (ECF No. 68).

         II. Standard of Review

         A motion for summary judgment will be granted only if there exists no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir. 2008). Summary judgment is inappropriate if any material factual issue “may reasonably be resolved in favor of either party.” Liberty Lobby, 477 U.S. at 250; JKC Holding Co. v. Wash. Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001).

         The moving party bears the burden of showing that there is no genuine dispute as to any material fact. If the nonmoving party fails to make a sufficient showing on an essential element of its case as to which it would have the burden of proof, however, then there is no genuine dispute of material fact. Celotex, 477 U.S. at 322-23. Therefore, on those issues on which the nonmoving party has the burden of proof, it is that party's responsibility to confront the summary judgment motion with an “affidavit or other evidentiary showing” demonstrating that there is a genuine issue for trial. See Ross v. Early, 899 F.Supp.2d 415, 420 (D.Md. 2012), aff'd, 746 F.3d 546 (4th Cir. 2014). “A mere scintilla of proof . . . will not suffice to prevent summary judgment.” Peters v. Jenney, 327 F.3d 307, 314 (4th Cir. 2003). “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Liberty Lobby, 477 U.S. at 249-50 (citations omitted). In other words, a “party cannot create a genuine dispute of material fact through mere speculation or compilation of inferences.” Shin v. Shalala, 166 F.Supp.2d 373, 375 (D.Md. 2001) (citation omitted); see Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003). Indeed, this court has an affirmative obligation to prevent factually unsupported claims and defenses from going to trial. See Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993). At the same time, the court must construe the facts that are presented in the light most favorable to the party opposing the motion. Scott v. Harris, 550 U.S. 372, 378 (2007); Emmett, 532 F.3d at 297.

         “When cross-motions for summary judgment are before a court, the court examines each motion separately, employing the familiar standard under Rule 56 of the Federal Rules of Civil Procedure.” Desmond v. PNGI Charles Town Gaming, LLC, 630 F.3d 351, 354 (4th Cir. 2011). The court must deny both motions if it finds there is a genuine dispute of material fact, “[b]ut if there is no genuine issue and one or the other party is entitled to prevail as a matter of law, the court will render judgment.” 10A Charles A. Wright, et al., Federal Practice & Procedure § 2720 (3d ed. 1998).

         The United States moves for summary judgment against BONY on the ground that it has a first-priority lien senior to the Subject DOT against 50% of the Property. (ECF No. 54). BONY opposes the United States' motion and cross moves for summary judgment on Count II (Equitable Subrogation), Count V (Constructive Trust), and Count VI (Equitable Mortgage) of the amended complaint. (ECF No. 57). BONY argues that it enjoys a first-priority lien against 50% of the Property pursuant to the after-acquired property doctrine, and in addition, that it should enjoy a first-priority lien as the remaining 50% of the Property under equitable doctrines.

         III. Analysis

         Federal law governs the priority of federal tax liens, which are created pursuant to 26 U.S.C. § 6321 et seq. Aquilinov. United States, 363 U.S. 509, 512 (1960); Collier v. United States, 432 F.3d 300, 304 (4th Cir. 2005). “The threshold question . . . is whether and to what extent the taxpayer had ‘property' or ‘rights to property' to which the tax lien could attach, ” and “both federal and state courts must look to state law” to answer this question. Aquilino, 363 U.S. at 512-513. If the taxpayer had property or property rights to which the tax lien could attach, then priority must be determined under federal law. “Federal tax liens do not automatically have priority over all other liens. Absent provision to the contrary, priority for purposes of federal law is ...

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