Annotations: Fraud--Right of Redemption- Levy
Properly: Fraud--Right of Redemption
United States of America
, Plaintiff v. Kim T. Kilgore and Shirley M. Garrity, et al.,
District Court, Dist. Kan., 93-1094-PFK,
6337 and 7403 ]
Action to enforce lien: Foreclosure: Redemption rights.--Two
individuals were not entitled to either a statutory or an
equitable period of redemption following the government's
foreclosure of its tax liens on property fraudulently transferred
from one individual to the other. Because the government brought a
judicial foreclosure action, no statutory right of redemption
existed. Since the property had been transferred with the intent
to delay, hinder, or defraud the
and the transferor had failed to pay federal income taxes,
equitable relief was also barred by the clean hands doctrine.
MEMORANDUM AND ORDER
matter comes before the court on defendants Kim T. Kilgore and
Shirley M. Garrity's motion to establish redemption rights.
Plaintiff United States brought this action, on behalf of the
Internal Revenue Service, against Kilgore and Garrity in an effort
to collect Kilgore's unpaid federal income taxes by asking the
court to allow the United States to foreclose its tax liens
against Kilgore's real property and to order the sale of the
property pursuant to 26 U.S.C. §7403 . On
June 27, 1994
, the court heard the parties' oral arguments and announced its
decision to deny the motion for redemption rights. The court
enters this memorandum and order in accordance with that decision.
legal description of the property at issue is:
4, Except the North Half Thereof, The Oaks, Replat of Reserve A,
Block A, The First Addition to The Village,
and Garrity began residing on the property in January 1984. By
October 2, 1985
, the property was transferred to Kilgore and duly filed in the
office of the Register of Deeds of Sedgwick County, Kansas.
November 21, 1990
, Kilgore pleaded guilty to travel in interstate commerce with
intent to distribute marijuana, a violation of 18 U.S.C. §1952.
By deed dated
January 30, 1991
, Kilgore deeded his interest in the property to Garrity, upon her
agreement to maintain the property and make the monthly mortgage
installment payments while Garrity was incarcerated. He began his
incarceration in September 1991 and was released to his home in
March 8, 1993
filed this action to reduce to judgment certain income tax
assessments against Kilgore. The government further sought to have
the transfer of the property from Kilgore to Garrity declared
fraudulent and set aside. Finally, the government asked the court
to determine that Garrity holds the title to the property as the
nominee to Kilgore and that Kilgore is the true owner of the
September 22, 1993
, the parties filed a joint stipulation that states in part:
Judgment may be entered in favor of the
, and against defendant Kim T. Kilgore, in the amount of
$341,652.00, plus statutory additions accruing after the
respective dates of assessment.
The transfer of real property from defendant Kim T. Kilgore to
defendant Shirley M. Garrity . . . was fraudulently made with
knowledge of the federal tax liabilities referred to above, and
was made for insufficient consideration, with the intent to delay,
hinder or defraud the United States of payment of those
liabilities pursuant to K.S.A. Section 33 -102.
Defendant Shirley M. Garrity holds title to the real property . .
. as the nominee of Kim T. Kilgore, who is the true owner of this
Defendant Shirley M. Garrity has no legal, or equitable right,
title or interest in the real property . . . and that title to
this property rightfully belongs in the name of defendant Kim T.
has valid federal tax liens against the real property . . . .
Defendants have no objection to allowing the
to foreclose its federal tax liens against the real property . . .
subject to the defendants' rights to redemption, if any.
Opp. to Motion, Ex. A.)
first claim they have a statutory right of redemption pursuant to
26 U.C.S. §6337(b) . Section
6337(b)(1) provides that any person having any interest
in real property sold in accordance with 26 U.S.C. §6335 "shall be
permitted to redeem the property sold, or any particular tract of
such property, at any time within 180 days after the sale
thereof." Section 6335 pertains to
the sale of property seized by the Secretary of the Internal
Revenue Department. Statutes that provide redemption rights should
be liberally construed in favor of the property owner-debtor. United
States v. Lowe [67-2 USTC ¶9650 ],
268 F.Supp. 190, 192 (N.D. Ga. 1966), affd, Lowe v. Monk [67-2 USTC ¶9654 ],
379 F.2d 555 (5th Cir. 1967), cert. denied, 389
government responds by arguing no right of redemption exists in a
foreclosure action brought under 26 U.S.C. §7403
. In United States v. Heasley [60-2 USTC ¶9744 ],
283 F.2d 422 (8th Cir. 1960), the court stated:
the sale of property under levy and distraint proceeding, where by
statute there is a specific provision for redemption of the
property, §6337(b) of the 1954
Internal Revenue Code, 26 U.S.C.A. §6337(b) , Congress has
not seen fit to provide that the right to redeem shall exist where
property is sold pursuant to a judicial decree. See §2001 , Title 28, . . .
F.2d at 427; see also United States v. Jones [89-2 USTC ¶9411 ],
699 F.Supp. 248, 251 (D. Kan. 1988) ("no right of redemption
exists in a foreclosure action to satisfy a judgment for tax
v. Curry, 561 F.Supp. 429 (D. Kan. 1983), the government
brought a foreclosure action on behalf of the Farmers Home
Administration. The defendants argued they had up to 12 months to
redeem the property pursuant to K.S.A. §60-2414. This court found
state redemption rights do not apply in foreclosures by federal
mortgagees. Furthermore, no statutory rights of redemption under
federal law applied to Farmers Home Administration loans. This
court, however, granted the defendants an equitable period of
redemption not to exceed 180 days. 561 F.Supp. at 431 (citing United
States v. Montgomery, 268 F.Supp. 787 (D. Kan. 1967).
on the foregoing,
redemption statutes do not apply here. Section 6337 of Title 26
does not apply because this is not a seizure pursuant to 26 U.S.C.
§6335 , but instead is a
judicial foreclosure brought under §7403
. Section 7403 sales are
governed by 28 U.S.C. §§2001
et seq., which do not contain a redemption provision.
Thus, Kilgore and Garrity do not have a statutory right of
contend that even if they do not have a period of redemption
pursuant to any applicable statute, they should be granted an
equitable redemption by the court. In
, 268 F.Supp. 787 (D. Kan. 1967), the
brought a foreclosure action on behalf of the Small Business
Administration. As discussed above, Judge Brown found "state
redemption rights do not apply to judicial foreclosures in federal
courts of mortgages held by federal agencies." 268 F.Supp. at
788. The court, however, went on to state:
U.S.C. §2001 , which authorizes
judicial sales of realty, provides in subsection (a) that
"Such sale shall be upon such terms and conditions as the
court directs." We think it unnecessarily harsh and
inflexible to hold that such language, of itself, precludes any
redemption rights in defaulting mortgagors. We conclude that,
although defendants are not entitled to the
statutory eighteen month period of redemption, they are entitled
to an equitable period of time in which to redeem, which we deem
to be sixty days, from the date of sale.
F.Supp. at 790.
government responds by arguing the clean hands doctrine bars the
equitable relief Kilgore and Garrity seek. Plaintiff contends a
taxpayer who fails to pay federal income taxes and has
fraudulently transferred real property with the intent to delay,
hinder, or defraud the
is barred from equitable relief. The clean hands doctrine
who comes into equity must come with clean hands." This maxim
is far more than a mere banality. It is a self-imposed ordinance
that closes the doors of a court of equity to one tainted with
inequitableness or bad faith relative to the matter in which he
seeks relief, however improper may have been the behavior of the
defendants. That doctrine is rooted in the historical concept of
count of equity as a vehicle for affirmatively enforcing the
requirements of conscience and good faith. This presupposes a
refusal on its part to be "the abettor of iniquity."
Thus while "equity does not demand that its suitors shall
have led blameless lives," as to other matters, it does
require that they shall have acted fairly and without fraud or
deceit as to the controversy in issue.
maxim necessarily gives wide range to the equity court's use of
discretion in refusing to aid the unclean litigant. It is
"not bound by formula or restrained by any limitation that
tends to trammel the free and just exercise of discretion."
Accordingly one's misconduct need not necessarily have been of
such a nature as to be punishable as a crime or as to justify
legal proceedings of any character. Any willful act concerning the
cause of action which rightfully can be said to transgress
equitable standards of conduct is sufficient cause for the
invocation of the maxim by the chancellor.
Instrument Mfg. Co. v. Automotive Maintenance Machinery Co.,
806, 814-15 (1945) (citations omitted).
cites several taxpayer cases in which the clean hands doctrine was
applied. See, e.g, Irving v. Gray [73-2 USTC ¶9581 ],
479 F.2d 20, 22 (2d Cir. 1973) (persons involved in the
"Hughes hoax" biography embezzled money from publisher
and failed to pay over $500,000.00 in income tax); Findley v.
Odland, 127 F.2d 948, 952 (6th Cir. 1942) (bank failed to
perform statutory duty of collecting taxes, and therefore was not
entitled to enjoin enforcement of their tax collection
obligation); Blum v. Internal Revenue Service, 91-1 USTC
(CCH) ¶50,140 (W.D. Mo. 1991) ("A party who has violated the
law by not paying taxes is doubtless subject to an 'unclean hands'
bar to equitable relief"); Lampenfield v. Internal Revenue
Service, 91-1 USTC (CCH) ¶50,038 (W.D. Pa. 1991) (taxpayer
not entitled to equitable relief because of his "failure to
file a tax return for the time period in question--an omission
which precluded his filing a suit for refund"); Williamson
v. United States, 79-2 USTC (CCH) ¶9640 (D. N.J. 1979)
(taxpayer received a check that he did not deserve, cashed it, and
then retained the proceeds without a colorable claim that the
money belonged to him).
government points out that Kilgore and Garrity have stipulated to
the following facts: (1) Kilgore owes the
$341,652.00 in unpaid income taxes, plus statutory additions; (2)
the transfer of real property from Kilgore to Garrity was
fraudulent; and (3) Garrity has no legal or equitable right, title
or interest in the real property at issue. Applying the principles
discussed in the cases cited by the government to these facts, the
argues Kilgore and Garrity are not entitled to an equitable right
of redemption. Moreover, plaintiff contends
v. Curry, supra, and
, supra, can be distinguished because they addressed
consensual debtor-creditor relationships in which federal agencies
sought to foreclose mortgages.
court agrees with the government. Kilgore and Garrity do not have
the requisite clean hands and therefore are not entitled to an
equitable period of redemption.
June 13, 1994
, defendants Kilgore and Garrity filed a motion for summary
judgment on plaintiff's prayer for foreclosure and judicial sale
of real property. Plaintiff shall have 10 days from the date of
this memorandum and order to file a response to that motion.
IS ACCORDINGLY ORDERED this 5 day of July, 1994, that defendants'
motion to establish redemption rights (Dkt. No. 28) is denied.