Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-01983/USCOURTS-ca10-88-01983-0/pdf.json

Parties Involved:
Craig R. Garrett
Appellee
Kendra J. Garrett
Appellee
Internal Revenue Service
Appellant
United States of America
Appellant

Document Text:

CRAIG R. GARRETT; 

KENDRA J. GARRETT, 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

Plaintiffs-Appellees, 

F LED 

Uoit d States Court of Appeals 

Tenth Circuit 

JAN 2 4 1990 

&OBERT L. HOECKER 

Clerk 

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No. 88 - 1983 

INTERNAL REVENUE SERVICE, 

UNITED STATES OF AMERICA, 

(D. C. No. 87-F-0731) 

(D. Colo.) 

Defendant-Appellant, 

CAPITOL FEDERAL SAVINGS AND 

LOAN ASSOCIATION OF DENVER, 

Defendant. 

ORDER AND JUDGMENT* 

Before HOLLOWAY, Chief Judge, BRORBY, 

BOHANON,** District Judge. 

Circuit Judge, and 

The Internal Revenue Service (IRS) appeals an order of the 

district court holding the IRS waived the statutory requirement of 

* This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

** The Honorable Luther L. Bohanon, Senior United States District 

Judge for the Western District of Oklahoma, sitting by 

designation. 

Appellate Case: 88-1983 Document: 01019961663 Date Filed: 01/24/1990 Page: 1 
delivery of notice of foreclosure. We REVERSE and REMAND with 

instructions. 

The essential facts are undisputed. In 1978 the Garretts 

conveyed a first deed of trust upon their house and real property 

to Capitol Federal Savings and Loan Association of Denver as 

security for a purchase money loan. In 1983 Garretts conveyed the 

property to taxpayer, subject to the deed of trust, and taxpayer 

conveyed to the Garretts a second deed of trust that secured the 

balance of the purchase price. In 1984 the IRS filed a notice of 

lien against the property. Taxpayer thereafter defaulted upon the 

first deed of trust and nonjudicial foreclosure proceedings were 

instituted by Capitol. Default had also occurred on the second 

deed of trust although no foreclosure proceedings were instituted 

thereon. Notices of this foreclosure were sent to the IRS via 

regular mail rather than by certified or registered mail. In 1985 

the foreclosure sale was held, and Capitol was the successful 

bidder. In February 1986 the Garretts redeemed the property by 

paying the public trustee the amount due under the first deed of 

trust, and in April 1986 the public trustee conveyed the property 

to the Garretts by deed. In 1987 the IRS took the position that 

it held the first and paramount lien upon the property and 

proposed to sell it. The Garretts instituted this action, asking 

the court to quiet title to the property against the IRS upon the 

theory that the IRS had no lien or claim against the property. 

The Garretts also sought money damages against Capitol, alleging 

negligent foreclosure, fraud, and unjust enrichment. 

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Appellate Case: 88-1983 Document: 01019961663 Date Filed: 01/24/1990 Page: 2 
All three of the parties, i.e., the Garretts, Capitol, and 

the IRS, filed motions for summary judgment. The trial court, 

relying upon an IRS regulation, 1 found that the IRS had received 

actual notice, and as the IRS failed to give notice under the 

regulation, the court held the IRS had waived any deficiencies in 

the notice. The trial court thereupon entered summary judgment in 

favor of the Garretts. This judgment, entered on April 26, 1988, 

ordered the parties to file a stipulated order disposing of the 

remaining claims against Capitol no later than May 5, 1988. 

On May 13, 1988, the Garretts and Capitol filed a stipulation 

reciting that the Garretts' claims against Capitol were moot due 

to the decision of the court and: "In order to dispose of all of 

the pending claims so that this case can be a final judgment for 

the purposes of appeal,'' the parties jointly requested the 

district court to dismiss the Garretts' claims against Capitol 

"without prejudice.'' On May 19, 1988, the district court entered 

its order: 

1 

THIS MATTER is before the Court on Stipulated 

Motion to Dismiss filed May 13, 1988, to dismiss the 

above-captioned action without prejudice, and the Court 

being fully advised in the premises, 

26 C.F.R. § 301.7425-3(d)(2), which provides: 

In any case where the person who submitted a timely 

notice which indicates his name and address does not 

receive, more than 5 days prior to the date of the sale, 

written notification from the district director that the 

notice is inadequate, the notice shall be considered 

adequate for purposes of this action. 

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Appellate Case: 88-1983 Document: 01019961663 Date Filed: 01/24/1990 Page: 3 
IT IS HEREBY ORDERED 

matter is DISMISSED without 

bear their own costs. 

that the 

prejudice, 

above-captioned 

each party to 

The IRS filed its notice of appeal from the April 26 order on June 

23, 1988. 

These facts were brought to the attention of this court 

during oral argument, with the IRS arguing that this court lacked 

jurisdiction. The parties were requested to file a supplemental 

brief concerning the jurisdiction of this court, and both parties 

have now done so. 

It is contended that the order from which the Government 

appealed was not final because it did not dispose of the Garretts' 

claims against Capitol and the district court did not direct entry 

of the judgment upon an express determination that there is no 

just reason for delay as required by Fed. R. Civ. P. 54(b). 

A fair reading of the order of the district court dated May 

19, 1988 clearly shows that the district court intended to grant 

only the parties' stipulated motion to dismiss the claims against 

Capitol, and not Garretts' claim against the IRS. The district 

court's order of April 26, 1988 therefore became and is a final 

judgment. As the notice of appeal was filed after the dismissal 

of May 19, 1988, we hold this court has jurisdiction. 

We have this date filed the published opinion in Colorado 

Property Acquisitions v. United States, F.2d (No. 87-2564, 

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Appellate Case: 88-1983 Document: 01019961663 Date Filed: 01/24/1990 Page: 4 
January , 1990). We view Colorado Property as being dispositive 

of the issues presented in this case. 

We first hold that service via regular mail is insufficient 

and that actual notice is not a substitute for the statutorily 

required method of delivery of notice to the United States. 

The Garretts argue to us, as they argued to the district 

court, that the lien of the deed of trust was not extinguished by 

the public trustee's sale and continues as a lien with priority 

over the lien of the IRS. See United States v. State of Colorado, 

872 F.2d 338 (10th Cir. 1989). We agree. 

Here both Capitol and the Garretts' interest clearly support 

an inference that they intended to preserve Capitol's lien upon 

the property. As stated in United States v. State of Colorado, it 

would be an absurd result to conclude that Capitol or Garretts 

intended to destroy their own lien, which in this case would 

preclude collecting any part of their debt by taking action that 

arguably benefited the junior lienholder. 872 F.2d at 340. 

Absent evidence of intent to the contrary, we therefore presume 

that Capitol and Garretts intended to preserve their liens. 

We therefore REVERSE the decision of the district court and 

REMAND this case to the district court with instructions to 

conduct such further proceedings as may be necessary to carry into 

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Appellate Case: 88-1983 Document: 01019961663 Date Filed: 01/24/1990 Page: 5 
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effect the results dictated by this opinion. 

Entered for the Court: 

WADE BRORBY 

Circuit Judge 

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