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United States v. Brown

United States District Court, D. New Hampshire

March 29, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
ELAINE BROWN, et al., Defendants.

          ORDER ON DISTRIBUTION OF PROCEEDS

          George Z. Singal United States District Judge.

         Before the Court are two motions filed by the Town of Plainfield (“Plainfield”): (1) the Motion for Distribution of Proceeds of Judicial Sale (ECF No. 72) and (2) the Motion for Hearing (ECF No. 88). Additionally, the United States opposed Plainfield's Motion for Distribution in part by filing a cross-motion regarding the distribution of proceeds (ECF No. 77). The Court held a telephonic conference of counsel on December 27, 2016. Thereafter, the Court received supplemental briefing from Plainfield and the United States (ECF Nos. 91-94). Having considered all of the briefing, exhibits, and the entire record, the Court now concludes that no further hearing is necessary and DENIES the Motion for Hearing (ECF No. 88). The Court GRANTS IN PART AND DENIES IN PART both the Town's Motion for Distribution of Proceeds of Judicial Sale and the Cross-Motion by the United States, as explained herein.

         I. PROCEDURAL HISTORY

         This case began with the United States' filing of a civil forfeiture complaint on December 7, 2011.[1] On June 5, 2013, this Court ordered that the United States' valid federal tax liens be enforced through the sale of two pieces of real property, one located in Plainfield, New Hampshire (“Property A” or the “Plainfield Property”) and the other located in Lebanon, New Hampshire (“Property B” or the “Lebanon Property”). See Order on United States Motion for Default Judgment Entry, Final Judgment Entry and Order of Lien Enforcement and Sale (ECF No. 58). Pursuant to this Order, the Plainfield Property would be sold at auction “on the same day and hour” as the Lebanon Property with a minimum bid of $250, 000 on Property A and a minimum bid of $507, 500 on Property B. Id. at 7. The same Order indicated:

[T]he U.S. Marshal shall deduct his expenses in selling [each property], and remit the remainder to the Clerk of the Court . . . . The clerk shall distribute the proceeds of sale . . . as follows: First, to satisfy any remaining costs of the sale, including advertising and other expenses; second, to satisfy any outstanding real property taxes within the meaning of 26 U.S.C. Section 6323(b)(6); third, to satisfy the claims of the United States; to the extent that any sale proceeds remain after the satisfaction of the judgment of the United States, such proceeds shall be paid to the Court because all other defendants have disclaimed or have been defaulted.

Id. at 8. In the summer of 2014, an auction conducted pursuant to the Court's orders yielded no bidders.

         On July 28, 2015, the Court entered an Amended Order of Sale (ECF No. 69). This June 28, 2015 Order dropped the minimum bid price on the Plainfield Property to $125, 000 and the minimum bid on the Lebanon Property to $250, 000. See Am. Order of Sale (ECF No. 69) at 7. In relevant part, the Amended Order of Sale, which was entered without objection, ordered that sale proceeds be deposited with the Clerk of Court and then distributed, after confirmation of the sale, according to the following priorities:

a. First, by agreement of the parties, to the Town of Plainfield, New Hampshire to repay the costs of advertising the first unsuccessful sale of the property.
b. Second, to the United States Treasury, for the expenses and sale, including any expenses incurred to secure or maintain the property. Should the Town of Plainfield credit bid at the sale, it shall be required to reimburse the United States, in cash within a reasonable time after the sale, for all of the expenses of the sale, including any expenses incurred to secure or maintain the property.
d. Third, to the Town of Plainfield, New Hampshire, or other local taxing authority, for real property taxes and other local assessments due and owing, if any, in accordance with 26 U.S.C. § 6323(b)(6).
e. Fourth, to the plaintiff United States of America to be applied toward the federal tax liens securing the tax liabilities of defendants Edward and Elaine Brown.
f. Fifth, to the Clerk of the United States District Court for the District of New Hampshire pending a further determination of entitlement to any remaining proceeds.

Am. Order of Sale (ECF No. 69) ¶ 8.[2] Additionally, this Amended Order of Sale authorized the Internal Revenue Service Property Appraisal and Liquidation Specialists (“PALS”) to “dispose of [any personal property remaining on the two properties] in any manner they see fit, including sale, in which case the proceeds of the sale are to be applied to the liens of the United States.” Am. Order of Sale (ECF No. 69) at 10.

         An auction was held pursuant to this Amended Order on October 22, 2015, at which the Plainfield Property sold for $205, 000 and the Lebanon Property sold for $415, 000. On December 23, 2015, the Court confirmed this sale, which allowed for the conveyance of a deed to the buyer of both properties. See Order Confirming Judicial Sale (ECF No. 71). Notably, the Town of Plainfield, the initial movant on the motions currently pending before this Court, joined in the request for confirmation; in doing so, Plainfield acknowledged that sale proceeds would be distributed at a later date because the United States was still calculating its expenses of sale. See Joint Motion for Entry of Attached Order Confirming Sale (ECF No. 70) at 2-3.

         Before turning to the disputed matters regarding the distribution of the Plainfield Property proceeds, it is important to note what is not in dispute: First, the United States and the two municipalities, Plainfield and Lebanon, agree that the July 28, 2015 Amended Order of Sale (ECF No. 69) provides the framework for distribution. Second, as it relates to Property B in Lebanon, there is no dispute as to how the $415, 000 in sale proceeds should be distributed under that framework.[3] Thus, the Court, by this Order, is distributing the Lebanon Property proceeds in accordance with the United States' proposed order (ECF No. 77-9).

         II. DISCUSSION

         The Court turns its attention to Property A. At the outset, the United States and Plainfield agree that pursuant to Paragraph 8(a) of the Amended Order of Sale, the Court should first disburse $1, 370.62 to Plainfield; said amount reflecting Plainfield's costs of advertising the first unsuccessful sale of the property. After that distribution, $203, 629.38 remains from the sale of the Plainfield property.

         The United States seeks $173, 462.64 pursuant to Paragraph 8(b) of the Amended Order of Sale, which indicates that the second priority for disbursement of the Property A sale proceeds is “the United States Treasury, for the expenses and sale, including any expenses incurred to secure or maintain the property.” Am. Order of Sale (ECF No. 69) at 11. Plainfield asserts objections to a majority of these expenses and indicates that the reimbursement due to the United States under Paragraph 8(b) should total only $47, 164.20. See Plainfield Response to Cross-Motion (ECF No. 81) at 7. Both the United States and Plainfield acknowledge whatever amounts are not paid to the United States Treasury for “the expenses and sale” are to be disbursed to the Town of Plainfield in accordance with Paragraph 8(d) of the Amended Order of Sale.[4] Simply put, the remaining dispute involves whether $126, 298.44 is to be disbursed to the United States under Paragraph 8(b) or to Plainfield under Paragraph 8(d).[5]

         After reviewing the parties' initial submissions regarding distribution of the remaining sale proceeds for the Plainfield Property, the Court held a conference of counsel and requested briefing on two specific legal issues: (1) whether an expense connected to the “expenses and sale” must be reasonable under Paragraph 8(b) of the Amended Order of Sale; and (2) which side bears the burden of proof on any reasonableness determination. Ultimately, neither the supplemental briefs nor the Court's own research has provided clear answers to these two issues.

         With respect to the standard required for an expense to be deemed reimbursable under Paragraph 8(b) of the Amended Order of Sale, the Court agrees with the United States that the “plain language” of the Amended Order of Sale does not require that a particular expense be reasonable or appropriate. U.S. Supp. Brief (ECF No. 92) at 4-5. Likewise, the Court finds the United States' argument that Plainfield's reasonableness objections are subject to waiver somewhat compelling.[6] See id. at 7. However, Section 7403 ultimately empowers the Court in ordering a judicial sale “to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property” and to “decree . . . a distribution of the proceeds of such sale according to the findings of the court in respect to the interest of the parties and of the United States.” 26 U.S.C. § 7403(c). Moreover, the Amended Order of Sale, like any court order, must ultimately be construed and administered “to secure the just, speedy, and inexpensive determination” of this matter. See generally Fed.R.Civ.P. 1. In the Court's view, construing Paragraph 8(b) of the Amended Order of Sale such that the Court would be required to allow the reimbursement of any documented expense-even one that was clearly unreasonable in light of the need to secure and maintain the premises-would not serve the interests of justice.[7] In short, although the Amended Order of Sale does not contain any explicit requirement that expenses be reasonable or appropriate, the Court assumes without deciding that the Amended Order of Sale should be construed to give the Court discretion to limit reimbursement for expenses that the Court finds unreasonable or unconnected to the goals of securing and maintaining the Plainfield Property for sale.

         With respect to the burden of proof, the Court similarly assumes without deciding that the United States bears the burden of proof, given its status as the Plaintiff in this civil forfeiture action.[8] See 26 U.S.C. §§ 7403 & 7491. Additionally, as the party tasked with supervising the maintenance and sale of the Plainfield Property and now seeking reimbursement, it is logical that the United States bear the burden of proving that expenses were reasonable and connected to the maintenance and sale of the premises. That said, placing the burden on the United States does not mandate that the Court conduct an evidentiary hearing. As the United States pointed out, it is common for such distributions to be determined without an evidentiary hearing. See U.S. Supp. Brief (ECF No. 92) at 8 (collecting cases). In the Court's assessment, Plainfield has not come forward with a proffer that calls into question the reliability of the submitted exhibits or the credibility of the affiants and declarants presented by the United States. In short, the Court concludes that an evidentiary hearing is not necessary and would not serve the interests of achieving a just, speedy, and inexpensive determination of the distribution questions raised by the pending motions.

         Proceeding on the assumption that the United States bears the burden of proving that any challenged expenses are reasonable and connected to the sale, security, and maintenance of the Plainfield Property, the Court examines the specific objections asserted by Plainfield asking whether the preponderance of the evidence supports each expense.

         Plainfield's ...


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