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United States v. Stewart Mechanical Enterprises, Inc.

United States District Court, Sixth Circuit

November 27, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
STEWART MECHANICAL ENTERPRISES, INC., SCOTT A. DISTLER, KENTUCKY DEPARTMENT OF REVENUE, STEVEN J. KRIEGSHABER, THE CHUBB CORPORATION, AMERICAN TAX FUNDING, LLC, CAROLYN D. MOUNTJOY COMMONWEALTH OF KENTUCKY WORKFORCE DEVELOPMENT CABINET ex rel. DIVISION OF UNEMPLOYMENT INSURANCE, BIG SPRING COUNTRY CLUB, INC., and LOUISVILLE/JEFFERSON COUNTY METRO GOVERNMENT, Defendants.

MEMORANDUM OPINION

CHARLES R. SIMPSON, III, Senior District Judge.

This matter is before the court on the United States' motion for summary judgment. (DN 48). Defendant Scott A. Distler ("Distler") has responded to the motion (DN 49), and the United States has replied (DN 50). Fully briefed, the matter is now ripe for adjudication. For the reasons stated herein, the United States' motion for summary judgment (DN 48) will be granted.

I.

The following facts are undisputed. Stewart Mechanical Enterprises, Inc. ("Stewart Mechanical") is a Kentucky corporation that was administratively dissolved on November 1, 2007 for failure to file its 2007 annual report. The United States claims that at the time of Stewart Mechanical's dissolution, the United States had assessed over $1.4 million in federal employment and unemployment taxes against it. The United States filed notices of federal tax liens against Stewart Mechanical in Jefferson County, Kentucky on July 11, 2006, August 24, 2006, September 22, 2006, and November 24, 2006.

Distler is a former employee of Stewart Mechanical. Distler began working at Stewart Mechanical in 1977 and served as its president from 1994 until his employment was terminated in 2005. On October 1, 2001, Distler executed and conveyed a promissory note to Stewart Mechanical in the amount of $158, 008.64 with 6.75% annual interest. The note was secured by a mortgage on real property owned by Distler, which is located at 317 Sprite Road in Louisville, Kentucky ("Sprite Road property"). Distler is the sole owner of the Sprite Road property. The note gave Stewart Mechanical the right to demand immediate and full repayment of the note and foreclose upon the mortgaged real property if the note was not paid 30 days following its due date.[1] The note came due on October 1, 2006. Distler has yet to make any payments on the note and, before its dissolution, Stewart Mechanical did not attempt to enforce its rights under the terms of the note or the mortgage.

The United States filed this action in November 2010, seeking the following relief: (1) to reduce to judgment the unpaid assessments of federal employment and unemployment taxes, penalties, and interest made against Stewart Mechanical; (2) to foreclose the federal tax liens against the promissory note held by Stewart Mechanical and secured by the mortgage on the Sprite Road property; (3) to foreclose the federal tax liens against Stewart Mechanical's mortgage on the Sprite Road property; and (4) to sell the Sprite Road property and apply the proceeds of the sale toward payment of the unpaid taxes, penalties, and interest which Stewart Mechanical owes to the United States.

Several of the defendants named in this action have an interest in the Sprite Road property. Defendant Steven J. Kriegshaber holds a judgment against Distler and filed a lien against the Sprite Road property on December 20, 2006. The Kentucky Department of Revenue has lodged ad valorem tax liens against the Sprite Road property, and this court has previously determined that American Tax Funding, LLC ("ATF") may have purchased these liens. (DN 23). ATF originally filed a state court action against Distler, in which it sought an adjudication that its liens have priority over any liens or obligations associated with the Sprite Road property. In our prior order, this court removed that state court action and consolidated it with this action. (DN 23). Defendants The Chubb Corporation ("Chubb Corp.")[2] and Louisville/Jefferson County Metro Government ("Metro Government") also have interests in the Sprite Road property. Chubb Corp. is a division of the Federal Insurance Company and holds a judgment against Distler and Stewart Mechanical entered in Jefferson County on September 25, 2007. Metro Government has lodged ad valorem tax liens against the Sprite Road property. Defendants Carolyn D. Mountjoy, the Commonwealth of Kentucky Workforce Development Cabinet, and Big Spring County Club, Inc. have disclaimed any interest in the Sprite Road property.

On June 15, 2012, this court granted in part and denied in part the United States' motions for a default judgment and for summary judgment. (DN 23). In its order, the court provided the following relief: it granted the United States' motion for default judgment as to Stewart Mechanical and reduced to judgment the tax assessments against it; it granted the United States' motion for default judgment as to Steven J. Kriegshaber and subordinated his judgment liens to the claims of the United States; and it denied the United States' motion for default judgment as to the Kentucky Department of Revenue, on the ground that the motion was premature. The court also granted the United States' motion for summary judgment, to the extent that the United States sought to have the tax assessments against Stewart Mechanical reduced to judgment. Although the court held that Stewart Mechanical has a right to foreclose on the Sprite Road mortgage and that the United States had taken steps to perfect its federal tax liens in Kentucky, the decision regarding the priority of liens on the Sprite Road property was deemed premature. In addition, the court noted that it was unclear "whether federal tax liens may be found to attach to real property on which the tax debtor merely holds a mortgage pledged by another as collateral for a debt, or whether the United States may reach only the interest in property acquired by the debtor." (DN 22, p. 6).

The United States has now moved for summary judgment and seeks to enforce the federal tax liens it holds against Stewart Mechanical. The United States also requests that the court order the sale of the Sprite Road Property pursuant to 28 U.S.C. ยง 2001. Though it acknowledges that the ad valorem real property tax liens held by ATF and the Metro Government are superior in priority to its federal tax liens, the United States maintains that its liens are superior to those held by Chubb Corp. and Steven J. Kriegshaber.

II.

A court may grant a motion for summary judgment if it finds that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and of identifying the portion of the record that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies this burden, the nonmoving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

The evidence must be construed in a light most favorable to the party opposing the motion. Bohn Aluminum & Brass Corp. v. Storm King Corp., 303 F.2d 425 (6th Cir. 1962). However, the nonmoving party is required to do more than simply show there is some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmoving party cannot rely upon the assertions in its pleadings; rather, that party must come forward with probative evidence, such as sworn affidavits, to support its claims. Celotex, 477 U.S. at 324. It must present specific facts showing that a genuine factual issue exists by "citing to particular parts of materials in the record" or by "showing that the materials cited do not establish the absence... of a genuine dispute[.]" Fed.R.Civ.P. 56(c)(1). "The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party]." Anderson, 477 U.S. at 252.

III.

The United States seeks to exercise Stewart Mechanical's right to declare the promissory note in default, in addition to its right to foreclose upon the mortgage and order the sale of the Sprite Road property. For his part, Distler contends that the Sprite Road property is not "eligible for foreclosure" because Stewart Mechanical has not declared Distler in default on the note and the mortgage. Further, Distler requests that this court apply the ...


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