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United States v. Harold

United States District Court, E.D. Michigan, Southern Division

October 17, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
PATRICE L. HAROLD, LESLIE DRURY, as SUCCESSOR TRUSTEE of the SARA ROSE REVOCABLE LIVING TRUST u/a/d May 21, 1997, as may be now or hereafter amended, STATE OF MICHIGAN, TREASURER OF WAYNE COUNTY, and SWEWAT, LTD. Defendants.

          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 ...

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