United States District Court, E.D. Michigan, Southern Division
Mona
K. Majzoub United States Magistrate Judge
ORDER
(1) GRANTING PLAINTIFF'S MOTION FOR ORDER DETERMINING
THAT DEFENDANT SWEWAT, LTD HAS SUCCEEDED TO THE POSITION OF
DEFENDANT HAROLD AND IS BOUND BY ALL PRIOR RULINGS IN THIS
CASE, AND (2) DENYING DEFENDANT'S EMERGENCY MOTION TO
VACATE ORDER
Paul
D. Borman United States District Judge
I.
Introduction
The
relative rights and obligations of the parties involved in
this action by Plaintiff United States of America (United
States) to enforce federal tax liens against Defendant Dr.
Patrice Harold have been the subject of some confusion since
Dr. Harold informed the Court that she sold her land contract
interest in a property on Dwight Street, in Detroit, to
Defendant SWEWAT, LTD (SWEWAT). The motions at issue seek to
clear up that confusion.
On the
one hand, the United States asks the Court to affirm that, as
a party joined under Federal Rule of Civil Procedure 25(c),
SWEWAT is bound by all the prior rulings in this matter,
including the grant of summary judgment in favor of the
United States. (ECF No. 96, Motion to Substitute, PgID 2032.)
On the other hand, the Defendants ask the Court to conclude
that SWEWAT should not have been joined under Rule 25(c) and
to vacate its joinder. (See ECF No. 101, Dr.
Harold's Objection, PgID 2073-75.) The Defendants are
also asking to be relieved from the Court's August 16,
2019 Order Appointing Receiver. (See ECF No. 91,
Emergency Joint Motion, PgID 1842.) For the reasons outlined
below, the Court grants Plaintiffs motion and denies the
Defendants' motion.
II.
Background
On
January 18, 2018, Plaintiff United States initiated this
against Defendant Dr. Harold seeking to enforce several
federal tax liens against Dr. Harold's interest in a
property located at 9110 Dwight Street, Detroit, Michigan
(the Property). (ECF No. 1, Complaint.) Dr. Harold owned an
interest in the Property pursuant to a land contract with the
Sara Rose Revocable Living Trust. (See ECF No. 70-4,
Harold Dec, PgID 1370.)
On
November 21, 2018, the United States filed a motion for
summary judgment, which it later amended on December 10,
2018. (ECF No. 24, Motion for Summary Judgment; ECF No. 32
Amended Motion for Summary Judgment.) Resolution of that
motion was delayed for several months for various reasons,
and the Court ordered the parties to attend a settlement
conference in front of Magistrate Judge Majzoub on March 19,
2019. (ECF No. 46, Notice to Appear.) The parties attended
the conference but did not reach a settlement, so a hearing
on the United States' Motion for Summary Judgment was set
for May 29, 2019. (ECF No. 53, Notice of Hearing.) After the
hearing, which had been rescheduled to June 5, 2019, the
Court granted the Motion for Summary Judgment and entered a
judgment in favor of the United States on June 21, 2019. (ECF
No. 61, Judgment.)
Shortly
thereafter, on July 3, 2019, the United States filed a Motion
to Appoint Receiver in order to enforce the judgment by
having the receiver take custody of the Property and arrange
for its sale. (ECF No. 62, Motion to Appoint Receiver.) Two
weeks later, on July 17, 2019, Defendant Harold filed a
response to Plaintiffs Motion arguing that the motion was
moot because she had already sold the subject property.
(See ECF No. 63, Dr. Harold's Objection to
Motion to Appoint Receiver, PgID 1205-13.) She said that
"[o]n March 3, 2019, Dr. Harold transferred her land
contract interest by sale to SWEWAT, LLC via a Quit Claim
Deed." (Id. at PgID 1210.) The attached Quit
Claim Deed indicated that it was executed on May 13, 2019 and
recorded on June 27, 2019, (Id. at PgID 1216), but
Dr. Harold signed the "Agreement to Purchase Interest in
Land Contract" on March 3, 2019. (ECF No. 70-1, Harold
Dec, PgID 1356-59.)
To
summarize, on July 17, 2019, Dr. Harold informed the Court
and the United States, for the first time, that on March 3,
sixteen days before she attended the settlement conference,
she agreed to sell the Property upon which the United States
was trying to enforce its liens, and that on May 13, less
than a month before she attended the hearing on the United
States' Motion for Summary Judgment, she finalized that
sale by executing a Quit Claim Deed, which she had recorded
six days after the Court entered a judgment allowing the
United States to enforce its liens against that property.
Upon
learning that Dr. Harold had already transferred her interest
in the Property to SWEWAT, on July 24, 2019, the United
States filed an emergency motion to join SWEWAT as a
defendant in the case and to require disclosure of
information regarding the sale of the Property. (ECF No. 68,
Emergency Motion for Order.) The following day, the Court
granted that motion, joined SWEWAT as a defendant, ordered it
to show cause why it should not be bound by all prior orders
and proceedings in this case and why a receiver should not be
appointed, and set a hearing for August 1, 2019. (ECF No. 69,
Order for S WE WAT.)
At the
August 1 hearing, the Court heard arguments from the United
States in support of its Motion to Appoint a Receiver as well
as arguments from Dr. Harold and S WE WAT in support the
Emergency Motion to Vacate the July 25, 2019 Order (ECF No.
77) that Dr. Harold had filed on the previous day. During the
hearing, the Court denied Dr. Harold's Motion, granted
the United States' Motion, directed the United States to
submit a proposed order appointing a receiver and directed
the parties to submit nominations for the receiver.
(See ECF No. 83, Transcript of Motion Hearing held
on August 1, 2019, PgID 1826-27.) On August 16, 2019 the
Court entered an order appointing Austin Black II, the person
proposed by the United States (Defendants had not yet
proposed anyone), to the position of receiver. The parties
then filed the motions addressed in this Order.
III.
Standard of Review
The
primary question the Court must answer is whether SWEWAT was
properly joined as a defendant under Rule 25(c). Rule 25(c)
does not identify a method or standard for District Courts to
use in determining that a third party is a successor in
interest who may be joined or substituted. See Luxliner
P.L. Export, Co. v. RDI/Luxliner, Inc., 13 F.3d
69, 72 (3rd Cir. 1993) (comparing Rule 25(c) with Rule 56
which does specify a standard).
Facing
the question of how a District Court should determine a
contested motion under Rule 25(c), the Third Circuit first
noted that there can be some due process concerns with
holding a party that has not had the opportunity to
participate in litigation bound by the litigation's
outcome, and then held that the following procedure addressed
those due process concerns:
"in a context such as this in which a decision on a Rule
25(c) motion effectively imposes liability, the court must
first determine whether the [evidence before the court]
"show[s] that there is no genuine issue as to any
material fact and that the moving party is entitled to
[joinder or substitution] as a matter of law." Cf.
Fed.R.Civ.P. 56(c). If [it] do[es], the court should grant
the motion; if [it] do[es] not, however, the ...