Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_01-cv-02301/USCOURTS-caed-2_01-cv-02301-0/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7403 Suit to Enforce Federal Tax Lien

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26 As there are two separate motions, the motion for partial 1

summary judgment will be cited as (“PSJ Mot.”), and the motion

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA, 

Plaintiff,

v.

J. LEONARD PADILLA, NELLY

PATINO, ROSE MORENO-PADILLA, 

et al., 

Defendants. 

 CIV-S-01-2301 DFL GGH

MEMORANDUM OF OPINION 

AND ORDER

Plaintiff United States ("the government") moves for partial

summary judgment against defendants J. Leonard Padilla

("Padilla") and Nelly Patino ("Patino"). The government

separately moves for summary judgment on count one of the

complaint against defendant Rose Moreno-Padilla ("MorenoPadilla"). 

1

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for summary judgment on count one will be cited as (“Count 1

Mot.”)

 Carlos Alcala was dismissed from this suit by agreement of 2

the parties on November 18, 2004. 

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I.

The government filed this suit on December 17, 2001, seeking

to foreclose on a sixty-acre property in Natomas (the “property”

or the “Natomas property” to satisfy tax liabilities owed by

Padilla, Moreno-Padilla, and Carlos Alcala, and to reduce to

judgment the tax liability of Moreno-Padilla and Alcala. The 2

tax assessments against Padilla are the same as those at issue in

the related suit, United States v. J. Leonard Padilla, Alejandro

Reid Padilla, and State of Cal. Franchise Tax Bd., No.

CIV-S-01-2300-DFL-GGH (E.D.Cal. filed December 17, 2001). (FAC

¶¶ 10-48.) The tax assessments against Moreno-Padilla arise out

of her unpaid income tax liability from the tax years 1996 and

1997. (Id. ¶¶ 49-54.) 

The Natomas property was purchased by Padilla and MorenoPadilla in 1980 “in trust” for their children. (PSJ Mot. at 3.) 

As part of Padilla and Moreno-Padilla’s divorce proceeding in

1993 in Sacramento County Superior Court, the court ruled that

the two “intended the trust to be revocable and not to benefit

the three children,” such that legal title to the property was

held equally by Padilla and Moreno-Padilla. (FAC ¶¶ 72, 78.) 

Part of the purchase price for the Natomas property was paid with

a $25,000 loan from the prior owners, memorialized in a note and

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secured by a deed of trust. (Schrock Decl. Ex. 3.) In 1987, the

note and deed of trust were purchased by Patino, giving her the

legal right to collect the $25,000 from Padilla and MorenoPadilla. (FAC ¶¶ 74-75.) In February 2000, Patino paid

$45,655.29 in property taxes owed on the Natomas property. 

(Patino Opp'n Ex. C.) 

On October 18, 2004, the government moved for partial

summary judgment on two issues: (1) whether the tax liens against

Padilla attach to a one-half interest in the Natomas property,

and (2) whether Patino has a valid lien interest in the property. 

(PSJ Mot. at 2.) On February 11, 2005, the government filed a

separate motion for summary judgment on count one of the

complaint, to reduce to judgment the tax assessments against

Moreno-Padilla. (Count 1 Mot. at 1.) 

II.

A. Attachment of Liens to Padilla’s Interest in the 

Natomas Property

A federal tax lien arises automatically at the time of the

assessment of any unpaid tax and applies against all property and

rights to property, whether real or personal, belonging to the

taxpayer. 26 U.S.C. §§ 6321, 6322. To establish that a tax lien

attached to Padilla's one-half interest in the Natomas property,

the government must show that: (1) Padilla's tax liability was

properly assessed; and (2) Padilla had an interest in the Natomas

property after the tax liability arose. These two issues have

been decided by other courts, such that collateral estoppel bars

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relitigation. 

Collateral estoppel prevents relitigation of issues that

have been actually, necessarily, and finally determined by a

court of competent jurisdiction. Montana v. United States, 440

U.S. 147, 153, 99 S.Ct. 970 (1979). The issue of whether

Padilla’s tax liability was properly assessed was actually and

necessarily determined in United States v. J. Leonard Padilla,

Alejandro Reid Padilla, and State of Cal. Franchise Tax Bd., No.

CIV-S-01-2300-DFL-GGH (E.D.Cal. filed December 17, 2001). The

pendency of an appeal in that case does not affect the finality

of the judgment for purposes of collateral estoppel. See, e.g.,

Robi v. Five Platters, Inc., 838 F.2d 318, 327 (9th Cir. 1988);

Hawkins v. Risley, 984 F.2d 321, 325 (9th Cir. 1993). 

Additionally, the issue of whether Padilla has an interest in the

property was necessarily and finally decided by the Sacramento

County Superior Court in the 1993 proceeding. (Schrock Decl. Ex.

2.) Therefore, the motion for summary judgment on the issue of

the attachment of Padilla’s established tax liability to the

Natomas Property is GRANTED. A tax lien of $2,158,760.41, plus

interest and penalties accruing by operation of law since

February 29, 2004, attaches to Leonard Padilla’s one-half

interest in the Natomas property. 

B. Patino’s Interest in the Natomas Property

The government moves for summary judgment on the issue of

whether Patino has a valid, superior lien on the Natomas

property. (PSJ Mot. at 7-9.) Patino asserts two separate lien

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26 In its supplemental brief, the government asks that the 3

court determine the amount of this lien. However, that issue is

beyond the scope of this motion. 

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interests in the property: (1) a lien interest arising from the

1987 purchase of the note and deed of trust; and (2) a lien

interest arising from the payment of property taxes. (Id.) 

The government asserts that any lien created by the note and

deed of trust has now expired, relying on Cal. Civ. Code 

§ 882.020(a)(1). (Id.) However, as the government concedes,

this provision is inapplicable unless the last date fixed for

payment is ascertainable from a recorded document. (Pl.'s

Supplement to PSJ Mot. at 2-3; Reply at 3.) As the government

has not provided evidence that the note, or any other document

containing the final payment date of July 2, 1987, was recorded,

summary judgment cannot be granted on this basis.3

The government argues that no valid and superior lien was

created by the payment of property taxes in the absence of a

written and recorded lien agreement. (PSJ Mot. at 8-9.) In

opposition, Patino argues that she has an “equitable interest” in

the property as either a lender, investor, or surety, and that

there are factual issues regarding the nature of her interest. 

(Patino Opp’n at 3, 6-7.) 

Although the California codification of the statute of

frauds generally requires a written agreement to create an

interest in property, the “equitable lien” doctrine is an

exception to this general requirement. Cal. Civ. Proc. Code §

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1971; Jones v. Sacramento Sav. & Loan Ass'n, 248 Cal.App.2d 522,

530-31, 56 Cal.Rptr. 741 (1967); Grappo v. Coventry Fin. Corp.,

235 Cal.App.3d 496, 509, 286 Cal.Rptr. 714 (1991). An equitable

lien arises where the claimant advances money to the real

property owner and both parties anticipate that the real property

will serve as security for the debt. Id. 

In her deposition testimony, Patino indicates that although

she voluntarily paid the property taxes, she considered her

payment an “investment” and assumed she would be reimbursed for

the taxes, with interest, at the time the property was sold. 

(Schrock Decl. Ex. 4.) This evidence supports, or at the least,

does not negate, an equitable lien on the property. There is no

evidence of Moreno-Padilla or Padilla’s intentions concerning

Patino’s payment of the property taxes. Because the government

has not conclusively demonstrated the absence of a valid

equitable lien on all or part of the Natomas property, the

Statute of Frauds does not preclude Patino’s lien.

However, the government, citing Cal. Civ. Code § 1217, also

advances an alternative argument, that even if Patino has a valid

lien, it is not superior to the government’s tax lien. (PSJ Mot.

at 9.) However, § 1217 merely clarifies that an unrecorded

instrument is valid as between the parties; it does not support

the contrary assertion that an unrecorded agreement is never

valid as against third-parties. Indeed, under California’s

“race-notice” priority system, an unrecorded agreement may be

valid to establish priority over all except subsequent bona fide

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purchasers or encumbrancers for value who first record their

interest. Cal. Civ. Code § 1214. A judgment creditor is not a

bona fide purchaser or encumbrancer for purposes of the statute. 

See, e.g., Livingston v. Rice, 131 Cal.App.2d 1, 3, 280 P.2d 52

(1955); Wells Fargo Bank v. Pal Inv., Inc., 96 Cal.App.3d 431,

438, 157 Cal.Rptr. 818 (1979). Beyond this, California law

provides that “[o]ther things being equal, different liens upon

the same property have priority according to the date of their

creation.” Cal. Civ. Code § 2897. 

Moreover, California law regarding priority is largely

irrelevant to this case because federal law governs the relative

priority of tax liens, as laid out in 26 U.S.C. § 6323. Feiler

v. United States, 62 F.3d 315, 316-17 (9th Cir. 1995). In

general, in the absence of a controlling federal statute, the

priority of a federally created tax lien is determined by the

rule of "first in time is first in right." In re Kimura, 969

F.2d 806, 813 (9th Cir. 1992). 

However, § 6323 also creates certain exceptions to this

general rule of first in time, first in right. Specifically, §

6323(a) provides that the automatic tax lien imposed by § 6321

“shall not be valid as against any . . . holder of a security

interest . . . until notice” of the tax lien has been filed. A

"security interest" is defined as:

any interest in property acquired by contract for the

purpose of securing payment or performance of an 

obligation or indemnifying against loss or liability. 

A security interest exists at any time (A) if, at such 

time, the property is in existence and the interest has 

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become protected under local law against a subsequent

judgment lien arising out of an unsecured obligation, 

and (B) to the extent that, at such time, the holder has 

parted with money or money's worth. 

26 U.S.C. § 6323(h). 

Assuming Patino can establish the existence of an equitable

lien, her security interest, for purposes of § 6323(h), came into

existence on the date she paid the taxes. Therefore, although

the lien authorized by § 6321 attached automatically to Padilla's

interest in the property, that lien is not valid as against

Patino unless the government filed proper notice of its lien

prior to February 2000. As the government has not provided any

evidence as to when it filed notice of its lien in accordance

with § 6323(f), it has not demonstrated, as a matter of law, the

superiority of its lien. 

Summary judgment is DENIED on the issue of the existence and

superiority of Patino’s liens. 

C. Moreno-Padilla’s Tax Liability

The government separately moves for summary judgment on the

amount of Moreno-Padilla's tax liability. (Count 1 Mot. at 2.) 

The IRS assessed unpaid tax liabilities in the amount of

$239,284.00 for 1996 and $445.00 for 1997. (Id.) Moreno-Padilla

submitted unsigned "amended returns" on or about September 2,

2003. (Id.) The government asserts that the original

assessments were correct and that the amended returns contain

improper deductions. (Id.)

In an action to collect taxes, the government bears the

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burden of proof. United States v. Stonehill, 702 F.2d 1288, 1293

(9th Cir. 1983). A presumption of correctness attaches to the

federal tax assessments, and their introduction establishes a

prima facie case. Id. Where an assessment is based on a

disallowance of claimed deductions, the government need not

provide evidence to support the assessment for the presumption of

correctness to attach. Karme v. Comm'r of Internal Revenue, 673

F.2d 1062, 1065 (9th Cir. 1982). If the presumption of

correctness attaches, the burden of proof shifts to the taxpayer

to show that the determination is arbitrary or erroneous. Palmer

v. United States, 116 F.3d 1309, 1312 (9th Cir. 1997). 

As all of the issues in this case involve the propriety of

Moreno-Padilla's claimed deductions, a presumption of correctness

attaches to the assessments, which Moreno-Padilla must rebut. 

Even considering her untimely opposition, Moreno-Padilla has not

made a sufficient showing to establish a question of fact as to

the validity of the deductions. In opposing summary judgment,

Moreno-Padilla disputes only the disallowance of the net

operating loss carryback deduction and not any of the other

disallowed deductions. (Opp’n 2-4.) 

The only evidence Moreno-Padilla offers to support her

argument that the net operating loss carryback deduction was

proper is that her tax preparer believed it was proper. However,

Moreno-Padilla does not offer an affidavit in support of this

position. She instead relies on the following evidence: (1) the

deduction was included in the amended return; and (2) a statement

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 The court declines to grant a continuance to permit 4

Moreno-Padilla to obtain additional factual support for her

opposition. Moreno-Padilla has had ample time to prepare her

opposition to this motion. The motion was filed on February 11,

2005 and originally set for hearing on March 11, 2005. The

hearing was continued only after Moreno-Padilla failed to file an

opposition or statement of non-opposition, resulting, on March 2,

2005, in the issuance of an order to show cause. 

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that her tax preparer will testify at trial as to the validity of

the deduction. (Id. at 2, 5.) Reliance on the amended tax 4

return is insufficient, given the presumption of correctness

attaching to the government’s assessment. Moreno-Padilla has the

burden of demonstrating the validity of the deduction. The

amended tax return does not specify the basis for the net

operating loss carryback deduction or provide factual support for

the deduction. (Schrock Decl. Ex. 5.) Reliance on the tax

preparer’s proposed trial testimony, in the absence of an

affidavit, is likewise unavailing to create a genuine issue of

material fact. Fed. R. Civ. P. 56(e); See also, S.A. Empresa De

Viacao Aerea Rio Grandense v. Walter Kidde & Co., 690 F.2d 1235,

1238 (9th Cir. 1980) (holding that a party cannot create a

genuine issue of material fact merely by making assertions in its

legal memoranda). 

The government is entitled to a presumption of correctness

as to its assessments of Moreno-Padilla’s tax liability. MorenoPadilla has failed to offer sufficient evidence to rebut that

presumption. Therefore, the motion for summary judgment as to

count one of the complaint is GRANTED. The court finds that the

government’s assessments are correct and that Moreno-Padilla has

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unpaid accrued tax liabilities in the amounts of $429,755.03 for

tax year 1996 and $734.23 for tax year 1997, plus any interest

and penalties accruing since August 16, 2001.

III.

For the reasons set forth above, the motion for partial

judgment is GRANTED as to the issue of the attachment of a tax

lien to Padilla’s interest in the property, but DENIED as to the

issue of the existence and superiority of Patino’s liens. The

motion for summary judgment on count one is GRANTED. 

IT IS SO ORDERED.

Dated: 6/6/2005

DAVID F. LEVI

United States District Judge

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