United States District Court, E.D. Michigan, Southern Division
LOIS L. FIELD, Plaintiff,
UNITED STATES OF AMERICA, Defendant
For Lois L. Field, Plaintiff: Joseph Falcone, LEAD ATTORNEY, Joseph Falcone Assoc., Southfield, MI USA.
For United States of America, Counter Claimant, Defendant: Teresa M. Abney, U.S. Department of Justice, Tax Division, Washington, DC USA; Julie C. Avetta, U.S. Department of Justice - Tax Division, Washington, DC USA.
For Lois L. Field, Counter Defendant: Joseph Falcone, LEAD ATTORNEY, Joseph Falcone Assoc., Southfield, MI USA.
ORDER GRANTING FIELD'S MOTION FOR SUMMARY JUDGMENT (document no. 23) AND DENYING THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT (document no. 24)
HONORABLE STEPHEN J. MURPHY, III, United States District Judge.
Lois L. Field filed a complaint against the United States (" United States" or " Government") to quiet title to a piece of property in Rochester Hills, Michigan (" Rochester Hills property"). The United States removed the case to this Court. The parties filed cross-motions for summary judgment, which are fully briefed. A hearing was held on November 18, 2014 and the Court took the matter under advisement. For the reasons stated below, the Court will grant Lois' motion for summary judgment and deny the United States' motion for summary judgment.
Marshall A. Field (" Marshall") and Lois L. Field (" Lois"), a married couple, purchased the Rochester Hills property in 1979, and they owned it as tenants by the entirety. In 2008, the IRS filed a tax lien against Marshall for $194, 728.03. Pl.'s Mot. Summ. J., Federal Tax Lien, ECF No. 23-10. Because the lien was only filed against Marshall, and not Lois, it did not encumber the Rochester Hills property, nor did it encumber another property, also owned by the Fields as tenants by the entirety, in Gladwin County, Michigan (" Gladwin County property").
On January 20, 2010, the Fields executed a deed that, on its face, transferred the Rochester Hills property to a revocable trust controlled by Lois as trustee. Id., Rochester Hills Deed, ECF No. 23-6. The deed was prepared by the Fields' attorney, Julius Giarmarco, who was to hold the deed in escrow until whichever spouse died first. Id., Giarmarco Dep. 13:8-11, ECF No. 23-4. Marshall was terminally ill at the time the deed was prepared and it was expected that he would pre-decease Lois. As agreed, Giarmarco held the deed until Marshall's death on June 6, 2010, at which point he gave it to Brenna Mansfield, an attorney in his office who handled post-death legal work. Id., Mansfield Dep. 9:3-8, ECF No. 23-8. Mansfield met with Lois and explained the normal process of administering a trust, recommended that they record the deed, and subsequently recorded it at Lois' direction with the Oakland County Register of Deeds on June 15, 2010. Id. at 9:17-20; id., Rochester Hills Deed, ECF No. 23-6.
At issue is whether the tax lien currently encumbers one-half of the Rochester Hills property. The question ultimately hinges on whether the deed was " delivered" before Marshall's death. If it was, as the Government claims, then the property was transferred to Lois' trust when the deed was signed, the tenancy by the entirety was severed, and the tax lien is attached to the interest previously held by Marshall. If not, as Lois claims, then both Marshall's interest and the tax lien were extinguished upon his death. Lois then took the property in fee simple, via her right of survivorship, and the subsequent delivery of the deed transferred the property to her trust, unencumbered by the lien against Marshall.
This action presents an interesting issue involving elements of both property and estate-planning law. The precise issue appears to be a novel one in the State of Michigan. After careful consideration, the Court finds that the tenancy by the entirety remained intact until Marshall's death, at which point Lois took the property in fee simple and subsequently conveyed it to her revocable trust. Because the federal tax lien was filed against only Marshall, and the tenancy was not severed during his lifetime, the lien was extinguished upon his death and no longer encumbers the Rochester Hills property.
Summary judgment is warranted " if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is " material" for purposes of summary judgment if proof of that fact would establish or refute an essential element of the cause of action or defense. Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir. 1984). A dispute over material facts is genuine " if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To show that a fact is, or is not, genuinely disputed, both parties are required to either " cit[e] to particular parts of materials in the record" or " show that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed.R.Civ.P. 56(c)(1).
In considering a motion for summary judgment, the Court must view the facts and draw all reasonable inferences in the light most favorable to the nonmoving party. 60 Ivy St. Corp. v. Alexander, 822 F.2d 1432, 1435 (6th Cir. 1987). The Court must take care, in evaluating the motion, not to make judgments on the quality of the evidence, because the purpose of summary judgment is to determine whether a triable claim exists. Doe v. Metro. Nashville Pub. Schs., 133 F.3d 384, 387 (6th Cir. 1998) (" [W]eigh[ing] the evidence . . . is never appropriate at the summary judgment stage."). Of particular relevance to this case is the idea that " state of mind issues are not necessarily inappropriate for summary judgment." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir. 1989).
I. Delivery Of A Deed Under Michigan Law
If an individual neglects or refuses to pay taxes owed, federal law provides for " a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." 26 U.S.C. § 6321. In determining whether an interest constitutes " property" or " rights to property, " state law governs. See United States v. Nat'l Bank of Commerce, 472 U.S. 713, 722, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985) (citations omitted). Michigan recognizes tenancy by the entirety, a type of concurrent ownership in real property that is unique to married persons. Tkachik v. Mandeville, 487 Mich. 38, 790 N.W.2d 260 (2010). Separate alienation by one spouse is barred. Id. at 46. Michigan law insulates entireties property from the claims of creditors of only one spouse. A federal tax lien that, as in this case, is filed against only one spouse, does not survive the death of the taxpayer. Rather, the taxpayer's interest in the property is extinguished, and the surviving non-liable spouse takes the property unencumbered by the federal tax lien. See Pl.'s Mot. Summ. J., IRS Notice 2003-60, ECF No. 23-12. If the tenancy is severed before either spouse's death, however, the lien would then encumber the liable spouse's interest. United States v. Bank of Celina, 721 F.2d 163, 169 (6th Cir. 1983) (citing United States v. Bess, 357 U.S. 51, 57, 78 S.Ct. 1054, 2 L.Ed.2d 1135, 1958-2 C.B. 934 (1958)). One way to sever a tenancy by the entirety is for the spouses to convey the property to a third party. Id.
The parties agree that, under Michigan law, " [a] deed takes effect from the time of its delivery, and not from the time of its date, execution or record[ing]." Ligon v. City of Detroit, 276 Mich.App. 120, 128, 739 N.W.2d 900 (2007) (quoting Power v. Palmer, 214 Mich. 551, 559, 183 N.W. 199 (1921)). The United States makes two arguments based on this rule. First, the Government argues that the Fields intended to presently convey the Rochester Hills property to Lois' trust on January 20, 2010, when they signed the deed. Such a transfer would sever the tenancy by the entirety, and the tax lien would then attach to Marshall's independent one-half interest. Alternatively, the Government argues that even if the Fields did not intend to transfer the property when they signed the deed, the tax lien nonetheless encumbers half of the property because the Fields' estate plan--to transfer the property to a trust after the death of the first spouse--was flawed because, according to the United States, a deed signed and delivered after the death of the first spouse " relates back" to the date the deed was signed. Def.'s Resp. to Pl.'s Mot. Summ. J. 16, ECF No. 27. Again, according to this argument, the law would consider the transfer to have occurred on January 20, 2010, severing the tenancy and allowing the lien to encumber half of the Rochester Hills property then owned by Lois' trust.
The relevant question, therefore, is whether the deed was delivered--if at all--on January 20, 2012, when it was signed by the Fields, or not until it was presented to Lois (and recorded) after Marshall's death. " The whole object of the delivery of a deed is to indicate an intent upon the part of the grantor to give effect to the instrument." Gibson v. Dymon, 281 Mich. 137, 140, 274 N.W. 739 (1937). The physical transfer of a deed from grantor to grantee is neither sufficient nor necessary to perfect delivery. See Thatcher v. Wardens, etc. of St. Andrew's Church of Ann Arbor, 37 Mich. 264, 269 (1877). Rather, " it is that act of the grantor, indicated either by acts or words or both, which shows an intention on his part to perfect the transaction." Id.
The United States argues that, " [w]hen interpreting a deed, intention of the parties should be ascertained 'by viewing the deed from its four corners.'" Def.'s Reply to Pl.'s Resp. to Def.'s Mot. Summ. J. 4, ECF No. 29 (quoting Bice v. Holmes, 309 Mich. 110, 115, 14 N.W.2d 800 (1944)). But the dispute in Bice centered around the interest itself--whether certain mineral rights were reserved, or included, in a deed. The Bice court quoted Derham v. Hovey for the rule that, " [i]n interpreting devises and reservations in deeds, the purpose is to discern the intention of the testator, or grantor, from the words employed." 195 Mich. 243, 247, 161 N.W. 883 (1917) (emphasis added). Here, in contrast, the property interest conveyed by the instrument is not ambiguous; the Fields clearly sought to transfer the Rochester Hills property and all corresponding rights. The issue is one of delivery, and intent is paramount. See Thatcher, 37 Mich. at 269.
II. Fields' Intent
The Fields wanted to convey the Rochester Hills property to Lois' trust to prevent the United States from collecting on its tax lien, and also to avoid probate. Pl.'s Mot. Summ. J., Giarmarco Dep. 13:8-16, ECF No. 23-4. To accomplish these goals, the Fields could have waited until the death of the first spouse and had the surviving spouse--having taken ownership over the property in fee simple following the termination of the deceased spouse's interest--subsequently prepare, deliver, and record a deed transferring the property to the trust. The Fields did not do that, however, because they were advised to do otherwise by their estate planning attorney, Julius Giarmarco. Giarmarco encouraged the Fields to have him prepare the deed while both spouses were still living. Doing so would protect against the possibility that, after the death of the first spouse, the surviving spouse would die or becomes incompetent before he or she was able to meet with Giarmarco again to prepare a deed.
Giarmarco, an experienced estate planner, repeatedly testified at his deposition that he intended to hold the deed in escrow to be delivered after the death of the first spouse. He knew that delivery of the deed would trigger a transfer of title, disjoining the tenancy by the entirety. Id. at 18:10-11, 19:10-14. He held the deed with the tax lien in mind, but stated that " even without the tax lien, " he would " never want to disjoin tenancy by the entireties property, which affords a married couple protection from predators."  Id. at 13:13-16. According to Giarmarco's uncontroverted testimony, this strategy is " a very common practice for most estate planning lawyers, " id . at 12:22-23, and one Giarmarco himself had employed for more than 11, 000 clients. Id. at 22:19-24:6.
That Giarmarco did not immediately record the deed--it was later recorded by Lois, after Marshall's death, at the recommendation of Mansfield--further supports Field's argument. Giarmarco testified that if he and the Fields had wanted to sever the tenancy by the entirety, he would have recorded the deed. Id. at 23:17. " I had the deed to be recorded if I wanted to record it . . . . [y]ou don't want to be sued by a client because you disjoined their property." Id. at 23:17-18, 24:1-2. The Government has provided no rationale or excuse to explain why, if the Fields and Giarmarco intended on January 20, 2012 to presently transfer the Rochester Hills property to Lois' trust, Giarmarco held the deed to be recorded at a later date. Instead, the Government asserts that Giarmarco's intent, " which does not make logical sense, " is simply irrelevant. Def.'s Resp. to Pl.'s Mot. Summ. J. 4, ECF No. 27. The Court disagrees.
There is also evidence that the Fields had knowledge of what Giarmarco sought to accomplish, and adopted his plan. There is evidence that Marshall understood the harm that would result by severing the tenancy, as Giarmarco testified he told Marshall that his half of the house would be lost if the tenancy was disjoined. Pl.'s Mot. Summ. J., Giarmarco Dep. 25:13-25, ECF No. 23-4. Giarmarco told the Fields he " was going to hold [the Rochester Hills and Gladwin County deeds] in escrow to be delivered to the surviving spouse and we could record it at that time." Id. at 13:9-11. The Government does not dispute that the Fields were informed of Giarmarco's plan, nor does it suggest that he acted in some manner against their wishes.
The United States does argue, however, that Lois' conduct following Marshall's death evidences her and Marshall's earlier intent to presently convey the property. First, Lois recorded the deed (at the recommendation of Mansfield), an act the United States claims would serve no purpose had the property not already been conveyed. Second, Lois never attempted to transfer the property to the trust after Marshall's death. Third, when the Gladwin County property was sold in November 2010, the deed was executed by Lois L. Field, trustee, and the sale proceeds were paid to Lois L. Field, trustee. Def.'s Mot. Summ. J., Exs. 12-13, ECF No. 24. The second and third facts, together according to the United States, suggest that Lois already believed the trust owned the property.
But contrary to the Government's assertions, Lois' conduct--recording the deeds and receiving the proceeds from the sale of the Gladwin County property as Lois M. Field, trustee--are also consistent with two other possibilities. First, Lois could have believed that Marshall's signature on the deed was effective, even after his death. Second, Lois could have believed that, even though the deed was originally signed by both her and Marshall, his signature was mere surplusage and her signature alone was sufficient to transfer the property to her trust after his death.
The party relying on the deed bears the burden of proving delivery by a preponderance of the evidence. Camp v. Guar. Trust Co., 262 Mich. 223, 226, 247 N.W. 162 (1933). The material facts of the case here are not in dispute, and to the Court concludes, having reviewed the evidence, that the Government has failed to satisfy its burden. The Court finds that the Fields simply did not intend to presently convey the Rochester Hills property to Lois' trust when they signed the deed on January 20, 2012.
III. Effect Of Delivery After Marshall Field's Death
The next question is what effect, if any, was caused by the delivery of the deed after Marshall's death. The United States argues that the jointly-signed deed was not effective to convey the Rochester Hills property from Lois, as the property's owner in fee simple, to her trust, because the deed was signed as " husband and wife." Def.'s Reply to Pl.'s Resp. to Def.'s Mot. Summ. J. 2, ECF No. 29. For the deed to be delivered, it would have to be a joint conveyance, and the legal date of " delivery" would " relate back" to when the Fields executed the deed. The Government relies on " the common-law fiction that the husband and wife were one person at law." United States v. Craft, 535 U.S. 274, 281, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002). That is, " [n]either spouse was considered to own any individual interest in the estate; rather, it belonged to the couple." Id. The Government argues, therefore, that the Rochester Hills deed was ineffective to convey the property once the marital unit ceased to exist, unless the conveyance was already effective before Marshall's death. Def.'s Reply to Pl.'s Resp. to Def.'s Mot. Summ. J. 3, ECF No. 29.
Rarely has this issue ever been litigated. But dictum in one recent Michigan case, Estate of Tremblay v. Burgin, No. 289480, 2010 WL 2507035 (Mich. Ct. App. June 22, 2010), contradicts the Government's position. In Tremblay,
Bernice and Wilfred Tremblay, executed and delivered a warranty deed that
purported to convey land to a third party in 1988. The deed was recorded four
years later. The court found that the deed was delivered in 1988 and ultimately
ruled against the plaintiffs, the Tremblays' successors-in-interest, for
bringing untimely claims. But in a footnote in the unpublished opinion, the
court noted that " [e]ven if the 1988 deed were delivered after Bernice's death,
it would still be effective as to Wilfred." Id. at *6 n.2. That is, because Wilfred would have obtained full title to the property as Bernice's survivor, " the delivery of the deed after Bernice's death was still effective to transfer full title to the property at issue to [defendant] and his successors." Id.
Tremblay echoes the rationale and result of earlier, similar common-law cases. See, e.g., Creighton v. Elgin, 387 Ill. 592, 603, 56 N.E.2d 825 (1944) (finding valid delivery of a deed executed by husband and wife, and delivered by the wife to the grantee after the husband's death, despite the wife having only an inchoate right of dower at the time of execution); Miller v. Miller, 110 Ind.App. 191, 38 N.E.2d 343, 345-46 (Ind. App. 1942) (rejecting the contention that, when a widow sought to deliver a deed--previously executed by her and her husband--after her husband's death, valid delivery would require a new signing as well as a subsequent delivery); Goodman v. Goodman, 20 Ohio App. 419, 423-24, 4 Ohio Law Abs. 386, 152 N.E. 200 (1926) (allowing a widow with a vested dower to convey her interest to her son, the owner of the fee by inheritance, by delivering a deed of gift for the whole property previously signed by her and her husband). The Government has provided no case, and the Court has not been able to find one, that holds the contrary.
The line of cases analyzed above also comports with common sense. Assuming, as the Court does, that delivery of the deed did not occur on January 20, 2012, Lois owned both the Rochester Hills and Gladwin County properties in her individual capacity upon Marshall's death. And the ...