No. 2--96--0833
________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
________________________________________________________________
AMERICAN NATIONAL BANK AND ) Appeal from the Circuit Court
TRUST COMPANY, ) of Du Page County.
)
Plaintiff, ) No. 94--CH--409
)
v. )
)
ROBERT C. THOMAS; OAK BROOK )
BANK, as Trustee under Trust )
Agreement dated 2/25/77, and )
known as Trust No. 8-1297; and )
UNKNOWN OWNERS and NONRECORD )
CLAIMANTS, )
)
Defendants )
)
(Grazyna M. Thomas; Robert C. )
Thomas, Sr.; Lynn M. Thomas )
(Trotter); and Robert C. )
Thomas, Jr., Third-party )
Plaintiffs-Appellants; )
The United States of America; )
The Department of Treasury; and )
The Internal Revenue Service, ) Honorable
Third-party Defendants- ) Bonnie M. Wheaton,
Appellees). ) Judge, Presiding.
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JUSTICE INGLIS delivered the opinion of the court:
This action arose from a suit brought to quiet title to the
beneficial interest in an Illinois land trust on which third-party
defendant, the Internal Revenue Service (IRS), claims a lien for
the unpaid income taxes of third-party plaintiff, Robert C. Thomas,
Sr. (Thomas, Sr.). Third-party plaintiffs, Thomas, Sr., Grazyna
Thomas, Robert C. Thomas, Jr., and Lynn Trotter (collectively,
plaintiffs), appeal from the order of the circuit court granting
the IRS' motion to dismiss for lack of jurisdiction pursuant to
section 2--619(a)(1) of the Code of Civil Procedure (735 ILCS 5/2--
619(a)(1) (West 1994)).
On February 25, 1977, Oak Brook Bank (Bank) and Dane and
Virginia Erickson established Oak Brook Bank trust No. 8-1297
(trust). The res of the trust was a single family residence
located in Hinsdale. The trust instrument provided:
"No assignment of any beneficial interest hereunder shall be
binding on the Trustee until the original or a duplicate
copy of the assignment, in the form as the Trustee may
approve, is lodged with the Trustee and its acceptance
indicated thereon, and the reasonable fees of the Trustee
for the acceptance thereof paid; and every assignment of any
beneficial interest hereunder, the original or duplicate of
which shall not have been lodged with the trustee, shall be
void as to all subsequent assignees or purchasers without
notice."
On November 13, 1979, the Ericksons assigned the beneficial
interest in the trust to Thomas, Sr., making him the sole
beneficiary. The assignment was lodged with and acknowledged by
the Bank on December 21, 1979. Thomas, Sr., amended the terms of
the trust on January 31, 1980, to provide that the beneficial
interest would vest in his children upon his death; Thomas, Sr.,
still retained the full power of direction with respect to the
beneficial interest. This amendment was also lodged with and
acknowledged by the Bank.
On January 19, 1988, Thomas, Sr., obtained a home equity line
of credit from American National Bank which he secured by a
mortgage on the res of the trust. The line of credit was for 5
years and renewable for a period of up to 15 years.
On April 21, 1990, Thomas, Sr., married his current wife,
Grazyna, and assigned his entire beneficial interest in the trust
to Grazyna and his children. The assignment form stated that an
executed copy of the form should be lodged with the Bank as trustee
and that the assignment was not binding on the trustee unless and
until the assignment was lodged with the trustee and its acceptance
was indicated thereon. The plaintiffs never presented the
assignment form to the Bank for acceptance.
On August 6, 1990, and on September 10, 1990, the IRS made
assessments against Thomas, Sr., for unpaid income taxes for the
years 1984 and 1985. The IRS filed a lien against Thomas, Sr., on
May 14, 1991, for the taxes assessed against him.
Thomas, Sr.'s home equity line of credit expired on January
19, 1993, and American National Bank refused to renew the line of
credit because of the federal tax lien. Late in 1993 or early in
1994, Thomas, Sr., disclosed the existence of the trust and the
assignment of his beneficial interest to his wife and children to
the IRS during negotiations. The IRS served a notice of levy on
Thomas, Sr., and the Bank on February 4, 1994, and served the Bank
with a summons to testify and produce its records concerning the
trust. On May 10, 1994, the IRS seized the beneficial interest in
and power of direction of the trust.
On May 25, 1994, American National Bank instituted foreclosure
proceedings against Thomas, Sr., and the Bank, seeking to foreclose
its mortgage on the res of the trust. The next day, Grazyna and
the children filed a quiet title action against the IRS, alleging
that they owned the beneficial interest which the IRS was
wrongfully trying to levy. Grazyna and the children and the IRS
entered an agreed order on June 2, 1994, that the IRS would not
sell the beneficial interest during the pendency of the litigation
and on August 12, 1994, the two cases were consolidated.
The IRS informed Grazyna and the children that it believed
their state action was improper and that the only way to contest
the seizure was to bring a wrongful levy action in federal court.
Grazyna and the children voluntarily dismissed the quiet title
action without prejudice and asked the IRS to release the levy in
a letter dated October 12, 1994. The IRS denied their request on
November 1, 1994, by letter. The IRS' letter indicated that
Grazyna and the children would have six months in which to bring
suit in federal court to contest the denial of their request. They
filed their wrongful levy action on June 5, 1995, and, following
the IRS' motion to dismiss the action as untimely, voluntarily
dismissed the action on September 8, 1995.
On August 16, 1995, the circuit court denied Grazyna and the
children's motion to reinstate the quiet title suit. Instead, the
court gave them leave to file a third-party complaint. On
September 6, 1995, plaintiffs filed the complaint to quiet title
which is at issue in this appeal.
Plaintiffs alleged in their complaint that the lien and levy
against the property were invalid because the IRS failed to
advertise or sell the property in a timely manner, because the IRS
failed to record its lien against the property, and because the
property was exempt from levy as it was Thomas, Sr.'s principal
residence. Plaintiffs also alleged in the alternative that the IRS
levy was wrongful because Grazyna and the children alone held the
beneficial interest in the land trust and because they were not
liable for Thomas, Sr.'s unpaid taxes.
The IRS made a special appearance in the circuit court in
order to challenge the court's jurisdiction over plaintiff's suit
to quiet title. On April 23, 1996, the IRS filed a section 2--619
motion to dismiss on the grounds that plaintiffs lacked standing to
bring a quiet title suit because the transfer of the beneficial
interest to them was invalid with respect to the IRS. The circuit
court granted the IRS' motion to dismiss on June 17, 1996.
Plaintiffs timely appealed.
Our review of a dismissal pursuant to section 2--619(a)(1) is
de novo. Village of Riverwoods v. BG Ltd. Partnership, 276 Ill.
App. 3d 720, 724 (1995). We will dismiss the complaint only if
there exists no set of facts which could entitle the plaintiff to
recover, and we regard all well-pleaded facts in the plaintiff's
complaint as true. Village of Riverwoods, 276 Ill. App. 3d at 724.
We may affirm the trial court's ruling on any ground supported by
the record, even if it differs from the trial court's reasoning.
Shramuk v. Snyder, 278 Ill. App. 3d 745, 748 (1996).
The jurisdiction of the trial court is the only matter before
us on appeal as it was the basis upon which the IRS' motion to
dismiss was brought. The United States, as sovereign, is immune
from suit unless it consents to be sued, and this consent is a
prerequisite to jurisdiction over the subject matter of the suit.
Amwest Surety Insurance Co. v. United States, 28 F.3d 690, 694 (7th
Cir. 1994). Where Congress has attached conditions to the waiver
of sovereign immunity, those conditions are strictly construed.
Amwest, 28 F.3d at 694.
We first examine whether the court has jurisdiction to hear
Grazyna's and the children's action to quiet title. If, as the IRS
asserts, Thomas, Sr.'s assignment was ineffective, then Grazyna and
the children hold no title to the beneficial interest and may not
challenge the IRS' actions. If, however, the assignment was
effective, as plaintiffs assert, then Grazyna and the children are
still barred from pursuing the present action.
The only remedy Grazyna and the children are permitted to seek
is through a wrongful levy action. Section 7426(a)(1) of the
Internal Revenue Code provides:
"(1) Wrongful Levy.--If a levy has been made on property
*** , any person (other than the person against whom is
assessed the tax out of which such levy arose) who claims an
interest in or lien on such property and that such property
was wrongfully levied upon may bring a civil action against
the United States in a district court of the United States."
(Emphasis added.) 26 U.S.C.A. §7426(a)(1) (West 1989).
This statute does not extend the United States' waiver of sovereign
immunity to state courts; the waiver extends only to federal
district courts. Moreover, a wrongful levy suit is the exclusive
remedy "where suit is by a nontaxpayer third party and §7426(a)(1)
applies, and the alternative basis proffered for waiver of
sovereign immunity is an action to quiet title under §2410(a)(1)
[(28 U.S.C.A. §2410(a)(1) (West 1994))]." Fidelity & Deposit Co.
v. City of Adelanto, 87 F.3d 334, 335 (9th Cir. 1996). The instant
case is exactly the situation depicted in the holding of Fidelity
& Deposit, and, thus, the only action that may lie is a wrongful
levy suit under section 7426(a)(1).
Plaintiffs assert that a quiet title suit is a proper action
to challenge an IRS levy, citing to Harrell v. United States, 13
F.3d 232 (7th Cir. 1993). Harrell is distinguishable, however,
because the individual bringing the action to quiet title was both
the titleholder and the taxpayer. Harrell, 13 F.3d at 233. Here,
however, the titleholders are not the taxpayers, but are third
parties. Fidelity & Deposit is squarely in point and prohibits
Grazyna and the children from bringing a quiet title action.
Fidelity & Deposit, 87 F.3d at 335. Assuming that Grazyna and the
children held the title to the beneficial interest and are not the
taxpayer, they may challenge the IRS' action only through a
wrongful levy suit. Accordingly, regardless of whether or not
Grazyna and the children hold title to the beneficial interest, the
circuit court was without jurisdiction to hear their claim. The
trial court thus correctly dismissed the action with respect to
Grazyna and the children.
We now consider whether Thomas, Sr., may maintain the action.
The IRS concedes that Thomas, Sr., is a proper party to bring a
quiet title action because he is the owner of the beneficial
interest. Further, Harrell explicitly allows the taxpayer to bring
a quiet title action to challenge the IRS' lien on his property.
Harrell, 13 F.3d at 234. As Thomas, Sr., is the taxpayer and
conceded owner of the beneficial interest, he may properly bring a
quiet title action pursuant to the section 2410 waiver of the
government's sovereign immunity. Accordingly, we hold that the
trial court erred by dismissing Thomas, Sr.'s quiet title action
with prejudice. We note, parenthetically, that the action is
styled as a third-party complaint and may have been properly
dismissed as to its form. We direct the trial court to allow
Thomas, Sr., to reinstate his quiet title action as a first-party
plaintiff.
For the foregoing reasons, the judgment of the circuit court
of Du Page County is affirmed in part and reversed in part, and the
cause is remanded for further proceedings consistent with this
opinion.
Affirmed in part and reversed in part; cause remanded.
GEIGER, P.J., and McLAREN, J., concur.