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TROTT & TROTT, P.C. 31440 NORTHWESTERN

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

NORTHERN DIVISION

COUNTRYWIDE HOME LOANS, INC. as servicer Case No. 08-14614-BC

for the UNITED STATES DEPARTMENT OF Hon. Thomas L. Ludington

VETERANS AFFAIRS, Plaintiff, v

ROBERT J. KLEINE, not individually, but in his

capacity as STATE OF MICHIGAN TREASURER, et al, Defendants. ________________________________________________________________________/

PLAINTIFFíS RESPONSE AND BRIEF IN SUPPORT TO THE COURTíS

APRIL 24, 2009 SHOW CAUSE ORDER

NOW COMES Plaintiff, COUNTRYWIDE HOME LOANS (hereinafter referred to as ìCHLî), as servicer for the UNITED STATES DEPARTMENT OF VETERANS

AFFAIRS (hereinafter referred to as the ìVAî) (hereinafter collectively referred to as the

ìPlaintiffî), by and through its attorneys, TROTT & TROTT, P.C., by Richard Welke, who

responds to this Courtís April 24, 2009 ORDER TO SHOW CAUSE WHY PLAINTIFFíS

COMPLAINT SHOULD NOT BE DISMISSED FOR LACK OF SUBJECT MATTER

JURISDICTION and, in support thereof, states as follows:

A. INTRODUCTION

The VA was the record owner of the Subject Property since 1995 and at all relevant

times. See Plaintiffís Complaint, Dkt. #1-6, Ex. D. The State Treasurer foreclosed and

sold the property of the VA at public auction, without authority and in direct contradiction

of the Property and the Supremacy clause of the Federal Constitution. This Court has expressed uncertainty and concern whether it has subject matter

jurisdiction over the complaint in this matter. The issue is presumably based on Defendant

Marvin D. Hareís Answer to Plaintiffís Complaint, See Dkt. #1 at ¶3 and Dkt. #13 at ¶3,

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TROTT & TROTT, P.C. 31440 NORTHWESTERN

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where Mr. Hare disputes this Courtís jurisdiction ìunder either 28 USC ß1331 or 28 USC

ß2410î and alleges that ìMCL ß211.78l(2), specifically provided that the court of claims

has original and exclusive jurisdiction in any action taken to recover monetary

damagesÖî. Accordingly, a Order to Show Cause issued from this Court to Plaintiff on

April 24, 2009 to show cause in writing why Plaintiffís Complaint should not be dismissed

for lack of subject matter jurisdiction. The court correctly notes that federal courts have an independent obligation to

investigate and police the boundaries of their own jurisdiction. Douglas v. E.G. Baldwin &

Assocs., 150 F.3d 604, 606 (6th Cir. Ohio 1998). This Court is also correct in noting that

Seattle Assín of Credit Men v. United States, 240 F.2d 906 (9

th Cir 1952); Norman v. United States, 962 F.Supp. 936 (S.D. Miss. 1996) and Pac. Mut. Life Ins. Co. v. Amer. Nat

Bank and Trust Co. of Chicago, 642 F.Supp. 163, (N.D.Ill. 1986) all agree that the limited

purpose of ß 2410 is to waive sovereign immunity from suit, and 'presupposes that the

court in which such suit is pending or brought has jurisdiction thereof on grounds

independent of the statute.' As stated above, the VA was the record owner of the Subject Property at all relevant

times. Plaintiff takes issue with Defendant Hareís assertion that this Court does not have

jurisdiction and will argue below, with citations to authority, that this Court does have

subject matter jurisdiction over this Complaint. B. THIS COURT DOES HAVE SUBJECT MATTER JURISDICTION

UNDER 28 U.S.C ß1331

Federal courts are courts of limited jurisdiction which may exercise only those powers

authorized by Constitution and statute. Kokkonen v. Guardian Life Ins. Co. of America, 511

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U.S. 375, 377, 114 S. Ct. 1673, 128 L. Ed. 2d 391 (1994); Douglas v. E.G. Baldwin &

Assocs., 150 F.3d 604, 606 (6th Cir. Ohio 1998). Congress has defined the province of federal judicial authority in two basic

jurisdictional statutes: (1) 28 U.S.C.A. ß 1331, which confers jurisdiction upon federal

courts over civil actions "arising under the Constitution, laws, or treatises of the United

States;" and, (2) 28 U.S.C.A. ß 1332, also known as "diversity jurisdiction." Only ß1331

is at issue in the instant matter. Plaintiffís Complaint, Dkt. #1 at ¶3, alleges ìThat this court has jurisdiction pursuant

pursuant 28 U.S.C. ß1331 and 28 USCS ß 2410.î As stated above, ß1331 confers

jurisdiction upon federal courts over civil actions "arising under the Constitution, laws, or

treatises of the United States.î (emphasis added)

Plaintiffís Complaint, Dkt. #1 at ¶¶27 and 29, allege claims under the Property clause

of the Federal Constitution, USCS Const. Art. IV, ß 3, Cl 2 and the Supremacy clause of

the Federal Constitution, USCS Const. Art. VI, Cl 2. The Complaint alleges that the State

Treasurer foreclosed and sold the property of the VA at public auction, without authority

and in direct contradiction of the Property and the Supremacy clause of the Federal

Constitution. This court should not dismiss this Complaint for lack of subject matter jurisdiction

because this Court does have subject matter jurisdiction notwithstanding any statement to

the contrary by Defendant Hareís answer to Plaintiffís Complaint, Dkt. #13 at ¶3. ARGUMENT ONE - THE STATE JUDGMENT OF FORECLOSURE WAS

ENTERED IN VIOLATION OF THE PROPERTY CLAUSE OF THE FEDERAL

CONSTITUTION OF THE UNITED STATES

The Property clause of the Federal Constitution states: The Congress shall have Power

to dispose of and make all needful Rules and Regulations respecting the Territory or other

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Property belonging to the United States; and nothing in this Constitution shall be so

construed as to Prejudice any Claims of the United States, or of any particular State. USCS

Const. Art. IV, ß 3, Cl 2. The VA was the record owner of the Subject Property at all

relevant times. A Court, State or Federal, bears an independent obligation to assure itself that

jurisdiction is proper before proceeding to the merits. Steel Co. v. Citizens for Better

Environment, 523 U.S. 83, 94-95, 118 S. Ct. 1003, 140 L. Ed. 2d 210 (1998). In the

Federal area of Native American issues, whether a tribal court has adjudicative authority

over nonmembers is a federal question. Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 15, 107 S. Ct. 971, 94 L. Ed. 2d 10 (1987); National Farmers Union Ins. Cos. v. Crow Tribe, 471 U.S. 845, 852-853, 105 S. Ct. 2447, 85 L. Ed. 2d 818 (1985). If the tribal court is

found to lack such jurisdiction, any judgment as to the nonmember is necessarily null and

void. Plains Commerce Bank v. Long Family Land & Cattle Co., 128 S. Ct. 2709, 2716- 2717 (U.S. 2008).

In the matter presently before this court, had the foreclosing governmental unit and/or

the State Court, reviewed the record properly they would have discovered the VAís

property interest and realized that they had no jurisdiction to foreclose on property of the

U.S. Government. Accordingly, Plaintiff has stated a claim under the Property clause of

the U.S. Constitution and this Court has subject matter jurisdiction over the Complaint. Land in which United States has interest is not subject to state taxation. Lincoln County

v Pacific Spruce Corp. (1928, CA9 Or) 26 F2d 435. State has no power to tax property of

United States or any of its instrumentalities within its limits without consent of Congress, whether such tax be strictly for state purposes or for local and special objects; although

Congress may consent to taxation of federal instrumentalities, such grant should clearly and

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unequivocally confer privilege. Board of Directors v Reconstruction Finance Corp. (1948, CA8 Ark) 170 F2d 430. USCS Const. Art. IV, ß 3, Cl 2

The State Treasurer foreclosed and sold the property of the VA at public auction

without authority and in direct contradiction of the Property clause of the Federal

Constitution. Had the foreclosing governmental unit reviewed the record properly, they

would have discovered the VAís property interest and realized that they had no jurisdiction

to foreclose on property of the U.S. Government. Plaintiff argues that the judgment of [tax]

foreclosure was entered in violation of the property clause of the Federal Constitution of

the United States as well as other Federal and State law. Accordingly, Plaintiff has stated a

claim under the Property clause of the U.S. Constitution and this Court has subject matter

jurisdiction over the Complaint. ARGUMENT TWO - THE JUDGMENT OF FORECLOSURE WAS ENTERED

IN VIOLATION OF THE SUPREMACY CLAUSE OF THE FEDERAL

CONSTITUTION OF THE UNITED STATES

The Supremacy clause of the Federal Constitution states: ìThis Constitution, and the

Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law

of the Land; and the Judges in every State shall be bound thereby, any Thing in the

Constitution or Laws of any State to the Contrary notwithstanding.î USCS Const. Art. VI, Cl 2. It is well settled that the United States is immune unless it consents to suit. United

States v. Testan , 424 U.S. 392 (1976); Blackmar v. Guerre, 342 U.S. 512 (1952);

Sherwood v. United States , 312 U.S. 584 (1941). The Supremacy Clause of the United States Constitution required the federal courts to

disregard state law if it would frustrate the implementation of a federal statutory scheme, enacted by Congress pursuant to one of its enumerated powers. In re Gwinn, 34 B.R. 936

(Bankr. S.D. Ohio 1983). In the matter presently before this court, the foreclosing

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governmental unit, the Treasurer, essentially argues that state law, including limitations

periods should trump the Supremacy Clause and the Property Clause of the United States

Constitution. This court should summarily reject that argument. Under the Supremacy Clause of the Constitution state legislation must yield to the

interests of the United States when the legislation as applied interferes with the federal

purpose or operates to impede or condition the implementation of federal policies and

programs. See Yunis v. United States, 118 F.Supp.2d 1024, 1032 (C.D.Cal. July 24, 2000). Permitting a private entity to sell property owned by the United States hinders the

government's purpose in owning the property in the first place. Congress has the power to determine the conditions upon which property of the United

States is sold or otherwise disposed. Butte City Water Co., v. Baker, 196 U.S. 119, 126, 25

S. Ct. 211, 49 L. Ed. 409 (1905). An individual or entity may not dispose of federally

owned property unless Congress has conferred, expressly or implicitly, such power. Id.; see

also Royal Indemnity Co. v. United States, 313 U.S. 289, 61 S. Ct. 995, 85 L. Ed. 1361, 1941-1 C.B. 391 (1941). The statutory scheme is clear, only the United States may sell

property acquired pursuant to 21 U.S.C. ß 853. United States v. West, 2007 U.S. Dist. LEXIS 15109, 7-8 (D. Tenn. 2007). The Court addressed this issue in Yunis v. United States, 118 F. Supp. 2d 1024, CV 97- 7863, in its Order granting the United States' motion for partial summary judgment. Although, the non-judicial foreclosure sale in that case involved property acquired by the

VA under its Loan Guaranty Program, the critical legal issues are identical.

In Yunis, the Court agreed with the United States that its property could not be sold

through a non-judicial foreclosure proceeding to collect homeowner association assessment

fees without specific congressional authorization. Finding no such authorization, the Yunis

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Court concluded that such a sale violated the Constitution's Property and Supremacy

Clauses and voided the sale. Because there are no factual disputes regarding HUD's failure

to pay assessment fees and the events leading up to the foreclosure sale, the legal issue

raised by HUD, i.e. whether the Supremacy and Property Clauses of the Constitution

preclude the use of non-judicial foreclosure by a private party to sell property owned by the

United States in order to satisfy a debt it admittedly owes, is ripe for partial summary

judgment. Upon consideration of the parties' cross motions for partial summary judgment

and summary judgment, the Yunis Court has concluded, for the reasons set forth below, that

HUD's motion should be granted and that the cross-motions by defendants should be

denied. Secretary of HUD v. Secretary of HUD, 117 F. Supp. 2d 970, 972 (D. Cal. 2000). In the matter presently before this court, had the foreclosing governmental unit

reviewed the record properly, they would have discovered the VAís property interest and

realized that they had no jurisdiction to foreclose on property of the U.S. Government. The

State Treasurer foreclosed and sold the Subject Property of the VA at public auction, without authority and in direct contradiction of the Supremacy Clause of the Federal

Constitution. Plaintiff argues that the judgment of [tax] foreclosure was entered in

violation of the Supremacy clause of the Federal Constitution of the United States as well

as other Federal and State law. Accordingly, Plaintiff has stated a claim under the

Supremacy clause of the U.S. Constitution and this Court has subject matter jurisdiction

over the Complaint. ARGUMENT THREE - THE JUDGMENT OF [TAX] FORECLOSURE WAS

ENTERED IN VIOLATION OF FEDERAL LAW

28 USCS ß 2410, Actions affecting property on which United States has lien, states in

pertinent part;

(a) Under the conditions prescribed in this section and section 1444

of this title [28 USCS ß 1444] for the protection of the United

States, the United States may be named a party in any civil action

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or suit in any district court, or in any State court having jurisdiction

of the subject matter--

(1) to quiet title to, (2) to foreclose a mortgage or other lien upon, Ö

real or personal property on which the United States has or claims

a mortgage or other lien. The State Treasurer foreclosed the Subject Property in state circuit court and sold the

Subject Property at public auction, all without naming the VA, without authority and in

direct contradiction of 28 USCS ß 2410. Had the foreclosing governmental unit reviewed

the record properly, they would have discovered the VAís property interest and realized

that they had no jurisdiction to foreclose on property of the U.S. Government. Plaintiff has

stated a claim under ß 2410 and ìthe court in which such suit is pending or brought has

jurisdiction thereof on grounds independent of the statuteî, i.e. the Property and

Supremacy clause of the U.S. Constitution. Seattle Assín of Credit Men; Norman; and Pac. Mut. Life Ins. Co. Accordingly, this Court has subject matter jurisdiction over the

Complaint. 28 USCS ß 2410(c), Actions affecting property on which United States has lien, states

in pertinent part;

(c) A judgment or decree in such action or suit shall have the same effect

respecting the discharge of the property from the mortgage or other lien

held by the United States as may be provided with respect to such matters

by the local law of the place where the court is situated. However, an

action to foreclose a mortgage or other lien, naming the United States as a

party under this section, must seek judicial sale. The United States cannot be party to suit to foreclose tax sales certificates without its

consent. Kenilworth v Corwine (1951, DC NJ) 96 F Supp 68, 43 AFTR 1. Similarly and

by analogy, Lien interest held by FDIC cannot be extinguished without FDIC's consent as

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result of foreclosure of liens securing payment of local property taxes Matagorda County v

Russell Law (1994, CA5 Tex) 19 F3d 215, 94 TNT 80-16. Plaintiff alleges that the judgment of [tax] foreclosure was entered in violation of the

Constitution and Federal as well as State law. Accordingly, Plaintiff has stated a claim

under the Property and Supremacy clause of the Constitution, as well as other Federal law

and this Court has subject matter jurisdiction over the Complaint independent of ß 2410. ARGUMENT FOUR - DEFENDANT HAREíS ASSERTION THAT THE COURT

OF CLAIMS HAS ORIGINAL AND EXCLUSIVE JURISDICTION IS SIMPLY

NOT ACCURATE

Defendant Hareís assertion that the court of claims has exclusive jurisdiction in any

action taken to recover monetary damages is incorrect on at least two bases. First, Plaintiffís seeks primarily to vacate the judgment of foreclosure entered by the Treasurer

and, second, the Michigan Supreme Court, in Wayne County Treasurer v. Perfecting

Church, 478 Mich. 1 (2007), has sanctioned challenges to a tax foreclosure in the State

Circuit Courts. Prior to Perfecting Church, state and local Treasurers, as foreclosing

governmental units, throughout the State have almost universally interpreted this section to

preclude any action in the State Circuit Courts challenging a tax foreclosure. Perfecting

Church has, at the very least, put the term ìexclusive jurisdictionî in MCL ß211.78l(2) in

question. Even if this Court accepts Defendant Hareís interpretation that the State Court of

Claims has ìexclusive jurisdictionî, under the Supremacy Clause of the Constitution state

legislation must yield to the interests of the United States when the legislation as applied

interferes with the federal purpose or operates to impede or condition the implementation

of federal policies and programs. See Yunis v. United States, 118 F.Supp.2d 1024, 1032

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(C.D.Cal. July 24, 2000). This court should not dismiss this Complaint for lack of subject

matter jurisdiction because this Court has subject matter jurisdiction notwithstanding any

statement to the contrary by Defendant Hareís answer to Plaintiffís Complaint. C - CONCLUSION

The VA was the record owner of the Subject Property and the State Treasurer

foreclosed and sold the property of the VA without legal authority. This court has subject

matter jurisdiction notwithstanding any statement to the contrary by Defendant Hareís

answer to Plaintiffís Complaint. Dkt. #13 at ¶3. Plaintiffís Complaint, Dkt. #1 at ¶27 and

29, allege claims under the Property clause of the Federal Constitution, USCS Const. Art.

IV, ß 3, Cl 2, and the Supremacy clause of the Federal Constitution USCS Const. Art. VI, Cl 2. The State Treasurer foreclosed and sold the property of the VA at public auction, without authority and in direct contradiction of the Property and the Supremacy clause of

the Federal Constitution as well as other federal and state law cited above. WHEREFORE, for the arguments presented and reasons stated herein and in the

accompanying brief in support, Defendants respectfully request the Court exercise its

subject matter jurisdiction over Plaintiffís Complaint against these Defendants. Dated: May 4, 2009 s/Richard Welke

Attorney for Plaintiff, 31440 Northwestern Highway

Farmington Hills, MI 48334

(248) 723-5765

Email: rwelke@trottlaw.com

P44403

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CERTIFICATE OF SERVICE

I hereby certify that on May 4, 2009, I electronically filed the foregoing papers with

the Clerk of the Court using the ECF system, which served a copy upon all ECF

participants, including:

Kevin R. Smith

State of Michigan, Attorney General

P.O. Box 30754

Lansing, MI 48909

Christina M. Grossi

Lawrence W. Smith

Gilbert, Smith

721 S. Michigan Avenue

Saginaw, MI 48602

with a copy mailed to:

Vicki Staton

1001 Webber Street

Saginaw, MI 48601

Ms. Vertis Smith

2725 W. Auburn

Saginaw, MI 48601

Larry Staton

377 Shady Lane, Apt. 4

El Cajon, CA 92021

Kenneth Baker

5137 Geraldine Drive

Lansing, MI 48917

Dated: May 4, 2009 s/Richard Welke

Attorney for Plaintiff, 31440 Northwestern Highway

Farmington Hills, MI 48334

(248) 723-5765

Email: rwelke@trottlaw.com

P44403

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