Simon v. Cebrick - Case Law

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit

4-26-1995

Simon v Cebrick
Precedential or Non-Precedential:

Docket 94-5429

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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________

No. 94-5429
____________

BETTY SIMON, TRUSTEE,

Appellant

JANET CEBRICK; RONALD CEBRICK; STATE OF NEW JERSEY;
PARLIAMENT LEASING CORPORATION; CLAYTON N. STERLING
ASSOCIATES, INC., A N.J. CORP.; WILLIAM T. HIERING, P.C.;
RAYMOND A. BIRCHLER, REALTOR; GENERAL MEDICAL NEW JERSEY;
DONALD B. WHITEMAN, d/b/a DONALD B. WHITEMAN AGENCY;
AFCO CREDIT CORPORATION; MARTA DITCHKUS; FEDERAL DEPOSIT
INSURANCE CORPORATION, AS RECEIVER FOR THE FIRST
NATIONAL BANK OF TOMS RIVER; UNKNOWN OWNERS, UNKNOWN CLAIMANTS,
their heirs, devisees and personal representatives, and
their or any of their successors in right, title
and interest.
____________

On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 93-cv-04616)
____________

Argued: Thursday, March 9, 1995

BEFORE: HUTCHINSON, ALITO
and SAROKIN, Circuit Judges
____________

Opinion filed April 26, 1995)

BEN J. SLAVITT (Argued)
RONALD G. SCHECTER
Slavitt, Fish & Cowen, P.A.
17 Academy Street, Suite 415
Newark, New Jersey 07102
Attorneys for Appellant

ANN S. DUROSS
Assistant General Counsel
RICHARD J. OSTERMAN, JR.
Senior Counsel
E. WHITNEY DRAKE (Argued)
Special Counsel
Federal Deposit Insurance
Corporation
550 17th Street, N.W.
Washington, D.C. 20429

JEANETTE F. FRANKENBERG
2227 U.S. Highway One #229
North Brunswick, New Jersey 08902
Attorneys for Appellee FDIC

____________

OPINION OF THE COURT
____________

SAROKIN, Circuit Judge:

The question presented is whether mortgages held by the FDIC

can be extinguished without the FDIC's consent through

foreclosure of plaintiff's superior real estate tax liens. We

hold that the district court correctly interpreted and applied 12

U.S.C. § 1825(b)(2) to protect the FDIC's lien interest from
foreclosure. Additionally, we hold that the Tax Injunction Act

does not divest the district court of jurisdiction over this

action and that the delay in the enforcement of plaintiff's tax

lien does not presently rise to the level of a compensable

taking. Accordingly, we affirm the district court's judgment.

I.
On October 26, 1990, Betty Simon ("plaintiff") purchased the

tax title to a parcel of New Jersey real estate (hereinafter the

"Cebrick Property") by paying the sum of $4,801.37. Plaintiff

subsequently purchased tax lien certificates for 1991, 1992, and

1993 for that property. At the time plaintiff purchased the tax

lien certificates, the First National Bank of Toms River, New

Jersey (the "Bank") held mortgage liens against the Cebrick

Property. The loans were made respectively in March 1987 for

$200,000 and in August 1987 for $330,000. On May 22, 1991, the

Comptroller of Currency closed the Bank. The Bank's assets were

taken into receivership by the Federal Deposit Insurance

Corporation (the "FDIC"). The FDIC is now the holder of the

mortgages at issue in its capacity as receiver for the Bank. In

1993, the market value of the Cebrick Property, based upon

plaintiff's valuation, was $251,328.54.

Under New Jersey law, plaintiff's tax liens are superior in

right to the FDIC's mortgage liens. N.J.S.A. 54:5-9. Plaintiff

requested that the FDIC consent to foreclosure of its lien

interest in the Cebrick Property, and the FDIC refused.

Thereafter, plaintiff filed foreclosure proceedings in state

court based upon the tax sale certificates. The FDIC removed the

case to federal court.

The district court granted the FDIC's 12(b)(6) motion for

failure to state a claim and remanded the case to the state court

for proceedings consistent with the dismissal of the FDIC.
Plaintiff filed a timely notice of appeal. The district court

had subject matter jurisdiction pursuant to 12 U.S.C. §

1819(b)(2). We have jurisdiction over the district court's final

order pursuant to 28 U.S.C. § 1291.

II.

We exercise plenary review over a district court's order

dismissing a complaint under Fed. R. Civ. Proc. 12(b)(6) for

failure to state a claim. Moore v. Tartler, 986 F.2d 682, 685

(3d Cir. 1993); Ditri v. Coldwell Banker Residential Affiliates,

954 F.2d 869, 871 (3d Cir. 1992). The test for reviewing a

12(b)(6) motion is whether under any reasonable reading of the

pleadings, plaintiff may be entitled to relief. Holder v. City

of Allentown, 987 F.2d 188, 193 (3d Cir. 1993). When reviewing

such an order, we must accept as true the factual allegations in

the complaint. D.R. v. Middle Bucks Area Vocational Technical

School, 972 F.2d 1364, 1367 (3d Cir. 1992), cert. denied,

U.S. , 113 S.Ct. 1045 (1993); Ransom v. Marrazzo, 848 F.2d

398, 401 (3d Cir. 1988).

We have plenary review over the district court's legal

conclusions, including the proper interpretation of a statute.

Moody v. Sec. Pac. Business Credit, 971 F.2d 1056, 1063 (3d Cir.
1992); Manor Care, Inc. v. Yaskin, 950 F.2d 122, 124 (3d Cir.

1991); Juzwin v. Asbestos Corp., 900 F.2d 686, 689 (3d Cir.),

cert. denied, 498 U.S. 896 (1990).

III.
In the instant case, the FDIC does not contest the

municipality's authority to assess taxes against real property in

which it has an interest, nor does it contest the superiority of

plaintiff's tax liens over its mortgages. See 12 U.S.C. §

1825(b)(1) (providing that the Corporation shall be exempt from

all state and local taxation, "except that any real property of

the Corporation shall be subject to State, territorial, county,

municipal, or local taxation to the same extent according to its

value as real property is taxed"); N.J.S.A. 54:5-9 (declaring the

superiority of municipal liens). The FDIC maintains, however,

that the express language of 12 U.S.C. § 1825(b)(2) precludes

plaintiff from extinguishing the FDIC's mortgages through

foreclosure of the tax liens without its consent.

Enacted as part of the Financial Institutions Reform,

Recovery and Enforcement Act of 1989 ("FIRREA"), section

1825(b)(2) provides:
No property of the Corporation shall be subject to
levy, attachment, garnishment, foreclosure, or sale
without the consent of the Corporation, nor shall any
involuntary lien attach to the property of the
Corporation.

12 U.S.C. § 1825(b)(2). The district court in the instant case

concluded that, in light of the clear language of section

1825(b)(2), the FDIC's mortgages must be protected from

extinguishment through foreclosure of plaintiff's tax liens.

Accordingly, the district court granted the FDIC's motion to

dismiss. We agree.
On appeal, plaintiff contends that the district court erred

by construing the language of § 1825(b)(2) literally and in

isolation from the remainder of the statute. Relying on two

additional sections of FIRREA, plaintiff argues that the FDIC has

180 days in which to choose one of the following alternatives:

(1) abandon its interest in the property, (2) consent to be

foreclosed, or (3) pay the tax liens.

Long before the enactment of § 1825(b)(2), the Supreme Court

addressed the question of whether cities had the right to assess

taxes and enforce collection by selling properties in which the

federal government held a mortgage. See New Brunswick v. United

States, 276 U.S. 547 (1928). In New Brunswick, the Supreme Court

determined that a city could lawfully assess taxes against the

owners of the property and enforce the collection of delinquent

taxes by selling the owner's interest in the property. 276 U.S.

at 555-56. The Court held, however, that any sale of the

property must protect the federal mortgage. 276 U.S. at 556

(citing Clallam County v. United States, 263 U.S. 341 (1923)).

More recently, the Ninth Circuit in Rust v. Johnson, 597

F.2d 174 (9th Cir.), cert. denied, 444 U.S. 964 (1979), relying
on New Brunswick, held that the Supremacy Clause prevented the

City of Los Angeles from foreclosing a special assessment tax

lien against property in which the Federal National Mortgage

Association held a mortgage. In the course of concluding that

the city's lien could not be enforced without protecting the
federal interest, the court held that the mortgage interest of

federal instrumentalities should be treated the same as other

property of the United States. 597 F.2d at 177.

When a court interprets a statute, "[i]t is not lightly to

be assumed that Congress intended to depart from a long

established policy." United States v. Wilson, 503 U.S. 329, 112

S.Ct. 1351, 1355 (1992) (quoting Robertson v. Railroad Labor

Board, 268 U.S. 619 (1925)). The New Brunswick line of cases

exhibits a policy to protect federal mortgage interests from

extinguishment through foreclosure of municipal tax liens. The

express language of 12 U.S.C. § 1825(b)(2) evidences Congress'

intent to protect the property interests of the FDIC, in

particular, from foreclosure without their consent.

Other circuits have similarly interpreted and applied 12

U.S.C. § 1825(b)(2). In Matagorda County v. Russell Law, 19 F.3d

215, 222 (5th Cir. 1994), the Fifth Circuit, relying on the

express language of § 1825(b)(2), held that local taxing units

could not foreclose the lien interests of the FDIC without the

consent of the FDIC. See also Donna Independent School Dist. v.
Balli, 21 F.3d 100, 101 (5th Cir. 1994) (holding that taxing

units could not foreclose on property subject to FDIC liens

without FDIC's consent); F.D.I.C. v. Lowery, 12 F.3d 995 (10th

Cir. 1993) (relying on the "unassailably clear language" of 12

U.S.C. § 1825(b)(2), the Tenth Circuit held that local taxing

authorities could not sell property owned by FDIC to satisfy tax
liens without FDIC's consent, even though tax liens attached

prior to FDIC's acquisition of property), cert. denied, U.S.

, 114 S.Ct. 2674 (1994). Like the district court in the instant

case, we also find the reasoning in Matagorda persuasive.

Plaintiff in the instant case relies on Birdville

Independent School v. Hurst Assoc., 806 F. Supp. 122 (N.D. Tex.

1992), in which a district court held that the phrase "property

of the Corporation" under § 1825(b)(2) did not include lien

interests of the Resolution Trust Corporation. However, the

Fifth Circuit effectively overruled Birdville in Matagorda. See

Matagorda, 19 F.3d at 221 (citing Birdville, 806 F. Supp. at

127). In Matagorda, the Fifth Circuit concluded that the lien

interests held by the FDIC were clearly "property of the

Corporation" as contemplated by the statute because "[i]t has

been settled federal law since 1928 that in the context addressed

herein, 'property' embraces both fee and lien interests." 19 F.3d

221 (citing Clallam County, supra; New Brunswick, supra; Rust v.

Johnson, supra) (other citations omitted). We agree that the

term "property" in § 1825(b)(2) encompasses all forms of interest

in property, including mortgages and other liens.

Furthermore, plaintiff argues that the district court

incorrectly interpreted and applied § 1825(b)(2) and offers an

alternative reading of the statute. Plaintiff stresses that a

literal reading of the statute discourages the private purchase

of real estate tax liens and thus interferes with municipal real
estate tax collection. Plaintiff contends that her alternative

interpretation of § 1825(b)(2) does not interfere with the local

real estate tax machinery. Plaintiff proposes that we read

§ 1825(b)(2) in conjunction with two other sections of FIRREA--

§ 1821(d)(5)(A)-(F), the claims processing provision, and

§ 1825(b)(1), the general exemption from taxation provision.

Section 1821(d)(5) sets forth the procedure for filing

claims against an institution that has been put under FDIC

receivership. The statute provides that the Corporation shall

determine within 180 days "whether to allow or disallow the claim

and shall notify the claimant of any determination with respect

to such claim." 12 U.S.C. § 1821(d)(5)(A)(i). Section

1825(b)(1) provides that the Corporation shall be exempt from all

state and local taxation, "except that any real property of the

Corporation shall be subject to State, territorial, county,

municipal, or local taxation to the same extent according to its

value as real property is taxed. . . ." 12 U.S.C. § 1825(b)(1).

Plaintiff maintains that these sections read together require

that the FDIC choose, within 180 days, from one of the following

alternatives: (1) abandon its interest in the property, (2)

consent to be foreclosed, or (3) pay the tax liens.

First, we reject plaintiff's attempt to meld the 180-day

time limit in the claims evaluation process with the rights of

the FDIC under § 1825(b)(2) to withhold its consent to

foreclosure. The claims processing provision nowhere references
§ 1825(b)(2), and § 1825(b)(2) itself contains no time limit on

the ability of the FDIC to withhold its consent to the

foreclosure of its rights. To the extent that the claims process

might apply here, it would apply only as a timeliness requirement

for filing a judicial action challenging the denial of a claim.

Second, we reject plaintiff's argument based on FIRREA's

general tax exemption provision. Plaintiff relies on §

1825(b)(1) which provides that the Corporation is exempt from all

state and local taxation, except that any real property of the

Corporation shall be subject to state and local taxation "to the

same extent according to its value as other real property is

taxed. . . ." 12 U.S.C. § 1825(b)(1). Plaintiff cites to cases

interpreting statutes other than FIRREA which include the

previously quoted phrase. Plaintiff stresses that courts have

interpreted this phrase as communicating Congress' intent not to

interfere with the local real estate tax machinery. See

Reconstruction Finance Corp. v. Beaver County, 328 U.S. 204, 210

(1946). We agree with the judicial interpretations of this

statutory phrase. Specifically, in the case of FIRREA, §

1825(b)(1) requires the payment of taxes on real property which

the FDIC holds, so as not to deprive municipalities of the income

they would have received had the property continued to be

privately owned. Congress, however, has also enacted a more

specific provision providing that no property of the Corporation

shall be subject to foreclosure without the Corporation's
consent. This is the section of FIRREA that is at issue in the

instant case, and it is this provision on which we must focus.

Moreover, plaintiff cites to the recent Supreme Court

decision in BFP v. Resolution Trust Corp., U.S. , 114

S.Ct. 1757 (1994), as support for her contention that this court

should not engage in a literal reading of § 1825(b)(2) but should

instead look to other provisions of FIRREA and to the purpose of

the Act. Plaintiff argues that this court should follow the

example of the Supreme Court in BFP and interpret a federal

statute in a way that does not interfere with state and local

laws governing real estate tax assessment and collection.

However, the Supreme Court noted in BFP that it was taking into

account the state regulatory background "[a]bsent a clear

statutory requirement to the contrary." BFP, 114 S.Ct. at 1762.

In the instant case, 12 U.S.C. § 1825(b)(2) is a clear statutory

requirement which prevents the FDIC's mortgages from being

extinguished without its consent through the foreclosure of tax

liens.

Plaintiff also advances the FDIC's Tax Policy Statement as

support for her position. Because the statute's language is

clear, any reference to the FDIC's Tax Policy Statement is

unnecessary. See Matagorda, 19 F.3d at 220 (stating that it need
not rely on FDIC's Tax Policy Statement because statute's

language is unambiguous); cf. First State Bank v. United States,

599 F.2d 558, 564 (3d Cir. 1979) (holding that bank could not
predicate claim on alleged violation of FDIC Manual which was

issued only for internal operating purposes), cert. denied, 444

U.S. 1013 (1980).

In conclusion, we reject plaintiff's alternative reading of

12 U.S.C. § 1825(b)(2) and affirm the district court's

interpretation and application of the statute to protect the

FDIC's mortgages from being extinguished without its consent

through foreclosure of plaintiff's tax liens.

IV.

We now turn to the question of whether the Tax Injunction

Act ("TIA"), 28 U.S.C. § 1341, applies in the instant case to

divest the district court of jurisdiction over this action. The

TIA provides that:
The district courts shall not enjoin, suspend or
restrain the assessment, levy, or collection of any tax
under State law where a plain, speedy and efficient
remedy may be had in the courts of such State.

28 U.S.C. § 1341. Plaintiff maintains that the FDIC, by invoking

the protection of 12 U.S.C. § 1825(b)(2) in federal court, has

restrained the collection of taxes and thus implicated the

jurisdictional bar of the TIA. Relying on FIRREA's state tax

immunity provision, 12 U.S.C. § 1825(b)(1), the foreclosure

provision at issue in the instant case, 12 U.S.C. § 1825(b)(2),

and FIRREA's jurisdictional provision, 12 U.S.C. § 1819(b)(2),

the FDIC contends that Congress intended to allow tax cases

involving the FDIC to be litigated in federal court. In essence,
the FDIC argues that Congress has impliedly created an exception

to the TIA by subsequent legislation.

We do not necessarily agree with plaintiff that the district

court's application of § 1825(b)(2) to protect the mortgage

interests of the FDIC violates the TIA because it suspends the

collection of taxes under state law until the FDIC consents to

foreclosure of the tax liens. Withholding consent to foreclose

from a private citizen does not implicate the assessment, levy,

or collection of any tax. The statute is intended to prevent

interference with taxation by governmental entities; however,

upon the sale of the tax certificate, the tax obligation is

satisfied. The holder's inability to foreclose does not affect

the governmental entity's ability to assess, levy, or collect any

tax, and thus, the TIA is not applicable.

We do, however, reject the FDIC's reliance on FIRREA's

removal provision. See Moe v. Confederated Salish and Kootenai

Tribes of Flathead Reservation, 425 U.S. 463, 472 (1976) (holding

that jurisdictional statute is insufficient by itself to

establish implied repeal of TIA). We also find that the express

language of § 1825(b) is not sufficient evidence of Congress'

intent to exempt the FDIC from the TIA.

We also hold that the TIA does not oust the district court

of jurisdiction because the FDIC in these particular

circumstances qualifies for the federal instrumentality exception

to the TIA. See Federal Deposit Ins. Corp. v. New Iberia, 921
F.2d 610, 613 (5th Cir. 1991). Under a judicially-created

exception to the TIA, the United States and its instrumentalities

can initiate actions in federal court to protect themselves from

"unconstitutional state exactions." See Department of Employment

v. United States, 385 U.S. 355, 358 (1966); see also Moe v.

Confederated Salish and Kootenai Tribes, 425 U.S. at 470.

Congress enacted FIRREA as part of a comprehensive federal

program to meet a financial crisis. The statute provides that

the FDIC shall act as receiver for failed banking institutions.

In its role as receiver, the FDIC's assets are protected from

foreclosure while it is winding up the affairs of a failed

banking institution. 12 U.S.C. § 1825(b)(2). The district

court's application of this section to protect the FDIC's lien

interest from being foreclosed without its consent does not

violate the TIA, even if it were applicable, because the FDIC is

acting in a governmental capacity when it winds up the affairs of

failed banking institutions pursuant to FIRREA. In light of the

governmental role played by the FDIC in the instant case, we find

that it qualifies for the federal instrumentality exception to

the TIA. In sum, the TIA did not oust the district court of

jurisdiction over this action.

In Bank of New England Old Colony, N.A. v. Clark, 986 F.2d

600 (1st Cir. 1993), the First Circuit held that the FDIC was not

a federal instrumentality for purposes of the TIA. The First

Circuit's decision is distinguishable. First, only state tax
issues were involved in Clark; the FDIC alleged only state law

grounds for relief. 986 F.2d at 601, n.4 602. In contrast, the

FDIC in the instant case has invoked the protection of a federal

statute, 12 U.S.C. § 1825(b)(2). Second, in Clark the FDIC was

the assignee of a failed bank's claim for a refund of state

excise taxes. 986 F.2d at 601. Thus, the FDIC's governmental

role was minimal. However, in the instant case, the FDIC sought

the protection afforded by a federal statute to prevent its

assets from being foreclosed without its consent while it

attempted to wind up the affairs of a failed bank.

Similarly, the governmental role played by the FDIC in

Federal Deposit Ins. Corp. v. New York, 928 F.2d 56 (2d Cir.

1991), was also minimal, and it is on this basis that the Second

Circuit held that the FDIC could not invoke the federal

instrumentality exception. In New York, the FDIC was the

assignee of a bank's claims against a city and state for

assessing taxes on interest payments in contravention of a

federal statute. Without reaching the question of whether the

FDIC is a federal instrumentality, the court held that the FDIC

could not invoke the exception because by bringing suit the FDIC

was attempting to protect the interests of a commercial lending

institution rather than the federal government. New York, 928
F.2d at 59.

In conclusion, even if the TIA were applicable, because the

FDIC sought the protection of § 1825(b)(2) while acting in a
governmental capacity, it is entitled to invoke the federal

instrumentality exception to the TIA.

For the first time in her reply brief,1 plaintiff raises the

contention that the district court's application of 12 U.S.C. §

1825(b)(2) works a compensable taking of her property under the

Fifth Amendment.2 Both parties acknowledge that the statute does

not extinguish plaintiff's tax liens nor does it subordinate them

to the FDIC's liens. The FDIC's withholding of their consent to

foreclosure merely delays plaintiff's enforcement of the tax lien

against the FDIC. Plaintiff contends, however, that, without

just compensation, this indeterminate delay is unconstitutional.

Plaintiff relies on Matagorda in which the Fifth Circuit

confronted this precise issue. Even though it concluded that the

delay involved did not constitute a compensable taking, the Fifth

1Where an issue is raised for the first time in a reply
brief, we deem it insufficiently preserved for review before this
Court. Republic of the Philippines v. Westinghouse Electric
Corporation, 43 F.3d 65, 71 n.5 (3d Cir. 1995); see also Fed. R.
App. P. 28(a)(3); Third Cir. Loc. App. R. 28.1(a)(i). In the
instant case, we deviate from this general rule because appellee
has addressed appellant's "takings" argument in its appellate
brief. Moreover, both parties addressed this issue at oral
argument.
2
Plaintiff also argues that 12 U.S.C. § 1825(b)(2) as
interpreted by the district court violates the Due Process Clause
of the Fourteenth Amendment and her constitutional right of
access to the courts. We find these contentions to be without
merit. The "takings" issue, however, is a closer question and
requires additional discussion.
Circuit in Matagorda cautioned that "[u]nmitigated delay, coupled

with distinct investment-backed expectations, may, at some point,

infringe on the entire "bundle" of rights enjoyed by the

Appellants to the point that a compensable taking occurs." 19

F.3d at 225. See also Donna Independent School District v.

Balli, 21 F.3d at 101 (holding that delays in foreclosing

property tax liens did not constitute compensable takings under

Fifth Amendment). We agree with the Fifth Circuit in Matagorda

that at some point a delay in the ability to exercise property

rights may constitute a compensable taking.

Furthermore, we hold that any delay should be measured from

the point at which plaintiff could first have foreclosed under

state law until the district court's decision. Thus measured,

the delay in the instant case consists of one year and seven

months. Plaintiff argues that this delay constitutes a taking

for which she should receive just compensation. The FDIC

counters that plaintiff is being fairly compensated for the delay

by the interest accruing at the rate of 17-18% per annum on the

tax liens. The FDIC also stresses that plaintiff's liens have

priority over the FDIC's liens and that the property is much more

valuable--10 times more valuable--than plaintiff's liens.

Finally, the FDIC suggested at oral argument that a compensable

taking will occur when the tax liens plus accrued interest exceed

the fair market value of the property.
Without adopting that formula, based upon the foregoing

facts and circumstances, we hold that plaintiff has not

established that she is presently deprived of a sufficient

property interest to create a compensable taking.

VI.

For the foregoing reasons, the judgment of the district

court is affirmed.