US v Baker

2015 DNH 003

• Court: District Court, D. New Hampshire
• Decided: January 8, 2015
• Docket: 13-cv-213-PB
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

United States of America

v. Case No. 13-cv-213-PB Opinion No. 2015 DNH 003

Scott G. Baker and Robyn Baker

O R D E R

Robyn Baker filed a motion to recover attorneys’ fees as a

prevailing defendant in this tax case. See 26 U.S.C. § 7430.

The United States has responded by arguing that the motion

should be denied because its decision to sue Baker was

“substantially justified.”

I. BACKGROUND

The United States brought this action in an effort to force

the sale of property that Robyn Baker acquired from her ex-

husband pursuant to a divorce decree. The government’s claim

was based on tax liens it obtained against her ex-husband.

Although it is undisputed that the tax liens accrued after the

effective date of Baker’s divorce decree, the government

nevertheless argued that the liens covered Baker’s property

because they accrued before a deed transferring the property was recorded at the registry of deeds. I rejected the government’s

legal theory in ruling on the parties’ cross motions for summary

judgment. See United States v. Baker, 13-cv-213-PB, 2014 DNH

176.

II. ANALYSIS

The government’s lien against a taxpayer for unpaid taxes

extends to “all property and rights to property, whether real or

personal, belonging to such person.” 26 U.S.C. § 6321.

Construing this provision, the First Circuit held that property

is not subject to a tax lien if the taxpayer relinquishes all

interest in the property before the tax lien accrues. United

States v. V & E Eng’g & Constr. Co., 819 F.2d 331, 333 (1st Cir.

1987); see also United States v. Gibbons, 71 F.3d 1496, 1501

(10th Cir. 1995); Thomson v. United States, 66 F.3d 160, 162-63

(8th Cir. 1995); but see United States v. Creamer Indus., Inc.,

349 F.2d 625 (5th Cir. 1965). In reaching this conclusion, the

First Circuit rejected the government’s argument that a taxpayer

retains an interest in transferred property that can be subject

to a tax lien until the deed is recorded and the property is

protected from claims of subsequent purchasers. As the court

noted:

2 The government’s argument amounts to asking that we construe the term “right to property” in Section 6321 as referring to the possibility that the seller might fraudulently convey the sold property to an innocent third party. We cannot accept that Congress intended the term “right” to include the possibility that a party might engage in fraud.

V & E Eng’g & Constr. Co., 819 F.2d at 333. The Tenth Circuit

reached a similar conclusion when, in following the First

Circuit’s reasoning, it noted that the government stands in the

shoes of the taxpayer rather than his creditors when it attempts

to enforce a tax lien against transferred property. Gibbons, 71

F.3d at 1501.

As I explained in my prior ruling granting Baker’s motion

for summary judgment, a divorce decree apportioning real estate

among divorcing parties ordinarily occurs under New Hampshire

law as soon as the decree becomes effective rather than when a

deed reflecting the transfer is recorded. See Mamalis v.

Bornovas, 112 N.H. 423, 424, 428 (1972) (citing Swett v. Swett,

49 N.H. 264, 264 (1870)). The failure to record a deed

reflecting the transfer thus does not affect the validity of the

transfer between the grantor and the grantee. See N.H. Rev.

Stat. Ann. § 477:7 (specifying that no conveyance of real estate

“shall be valid to hold the same against any person but the

grantor and his heirs only, unless such deed or lease be

3 acknowledged and recorded, according to the provisions of this

chapter”)(emphasis added).

Because the First Circuit has determined that the federal

government cannot enforce a tax lien against property that the

taxpayer has transferred before the lien accrued even if a deed

reflecting the transfer has not been properly recorded, and New

Hampshire law provides that a transfer of property pursuant to a

divorce decree occurs as soon as the divorce decree becomes

effective, it should have been obvious to the government that

its tax liens against Baker’s ex-husband cannot apply to her

property because the decree transferring the property became

effective before the tax liens accrued. In short, because

Baker’s ex-husband had no interest in the property when the tax

liens accrued, the liens simply do not cover the property.

The government’s contention that its litigation position

was substantially justified is based on an untenable reading of

First Circuit precedent and New Hampshire law. Accordingly, I

agree that Baker is entitled to recover her reasonable

attorneys’ fees.1

1 I decline to address the government’s argument that the fee request is excessive and insufficiently supported. Instead, I direct the parties to meet and confer in an effort to resolve this issue by agreement. If an agreement cannot be reached within 30 days, the defendant may renew her motion and the

4 III. CONCLUSION

Baker’s motion for fees (Doc. No. 40) is granted to the

extent that it seeks an award of reasonable fees. In all other

respects, the motion is denied without prejudice.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge January 8, 2015

cc: Michael R. Pahl, Esq. Jeffrey J. Cymrot, Esq. Anthony M. Ambriano, Esq. D. Sean McMahon, Esq. Terri L. Pastori, Esq.

matter will be referred to the magistrate judge for resolution.