(b) Nominee/Alter Ego Theory

The United States claims that Deep Woods Trust is the nominee/alter ego of the Geisslers with respect to the real property at issue. The Geisslers have treated the subject real property as their own since the alleged conveyance to themselves as trustees of Deep Woods Trust. Further, at the time of the creation of Deep Woods Trust and the transfer of the subject real property, Francis and Nancy Geisslers' federal income tax liabilities had accrued for the tax year 1977. Edelson v. Commissioner, 87-1 USTC (CCH) ¶9547 at 89,594 (9th Cir. 1987). Thus, the property was placed in the name of the trustees (Geisslers) in anticipation of the tax liabilities and the Court may ignore the transfer. See G.M. Leasing Corp. v. United States [77-1 USTC ¶9140 ], 429 U.S. 338, 350-351 (1977); Towe Antique Ford Foundation v. IRS [92-1 USTC ¶50,115 ], 791 F.Supp. 1450 (D. Mont. 1992), aff'd, [93-2 USTC ¶50,430 ], 999 F.2d 1387 (9th Cir. July 22, 1993 ); Chick v. Tomlinson, 531 P.2d 573, 576 ( Idaho 1975).

State law determines whether there exists an alter ego from whom the government may satisfy the obligation of a taxpayer. Wolfe v. United States , 806 F.2d 1410, 1411 (9th Cir. 1986). In Idaho , courts will pierce an organization's veil and look behind the form of organization to determine the true character, disregarding form and considering the substance of the organization. O'Bryant v. City of Idaho Falls , 303 P.2d 672 ( Idaho 1956).

In the present case there exist many factors courts have used to determine nominee/alter ego status of an entity. The Geisslers, as the trustees of the Deep Woods Trust, maintain an absolute position of authority over the affairs of the trust. The Geisslers do not need to consult anyone else in making decisions for the Trust, indeed, they are empowered to do anything a citizen of the United States could do. There is no provision imposing fiduciary responsibility on any trustee. There has been no evidence of any consideration given for the transfer of the subject real property to the Trust. Finally, the Geisslers have continued to enjoy the benefits of the transferred property.

The circumstances of this case clearly show the Deep Woods Trust was the nominee/alter ego of the Geisslers. See Chick v. Tomlinson, 531 P.2d at 575-576; United States v. Miller Bros. Constr. [74-2 USTC ¶9817 ], 505 F.2d 1031 (10th Cir. 1974); United States v. Williams, 581 F.Supp. 756 (N.D.Ga. 1982) Wolfe v. Untied States [86-2 USTC ¶9655 ], 798 F.2d 1241, 1244 (9th Cir. 1986); Valley Fin., Inc. v. United States [80-2 USTC ¶9554 ], 629 F.2d 162, 171 (D.C. Cir. 1980). The United States properly levied upon the subject real property to satisfy the Geisslers' federal income tax liabilities. For this additional reason, title to the property will be quieted in the United States .

(c) Deep Woods Trust status under Idaho law.

The United States claims that Deep Woods Trust fails to meet the essential requirements of a trust, and should therefore be ignored. Deep Woods Trust, on the other hand, argues that it is valid under Idaho law. The five elements of a valid trust are (1) intent to create, (2) definite subject matter, (3) purpose, (4) at least one beneficiary and (5) acceptance by the trustee. A. W. Scott, Law of Trusts, Sec. 2 , p. 34 et seq. (3rd Ed. 1967). If the legal requirements for a trust are not met, the trust fails. In Idaho , the "essential characteristics of a trust are the separation of the legal from the beneficial interest and the existence of a fiduciary relationship." In re Eggan's Estate, 386 P.2d 563, 568 ( Idaho 1963).

The United States argues that the present trust fails because there is no intent to create a trust, there are no identifiable beneficiaries, there is no obligation of a fiduciary nature placed on the trustees and there has been no separation of the legal interest from the beneficial interest.

In Idaho an express trust is created only if the settlor manifests an intention to create a trust. Gardner v. Andreassen, 527 P.2d 1264 ( Idaho 1974). The manifestation of intention requires no particular words or conduct; the settlor simply must evidence his intention, upon transferring the property, or res, to the trustee, that the trustee will hold the res for the benefit of a third person, the beneficiary. Id. However, the party asserting the existence of a trust has the burden of proving the trust by clear and satisfactory, or clear and convincing evidence. Vaughan v. First Federal Savings & Loan Association, 378 P.2d 820 ( Idaho 1963); McGuire v. Hansen, 279 P. 413 ( Idaho 1954). Here, there is no intention of the settlors, the Geisslers, to hold the res for the benefit of a third person, as there are no beneficiaries designated in the trust. Thus, because there was never an intent to create a valid trust, Deep Wood Trust fails.

Secondly, under a valid trust, the legal title is lodged with the trustee and the equitable title with the beneficiary. The beneficiary has the beneficial interest to the property. Under the trust, the alleged beneficiaries have no beneficial interest in the trust property. To the extent that Trust Certificate owners could be deemed beneficiaries, no where in the trust agreement are the Trust Certificate owners given beneficial interest over the res. Given the broad powers vested in the trustees it is clear that the Geisslers, as the trustees, retained all beneficial interest in the trust res, which includes the subject real property. That the Geisslers have retained ownership of the property is also evidenced by their continued use of the property. The Geisslers treat the property as their own because it is, in fact, their property. As there is no separation of the legal title from the beneficial interest or equitable title, Deep Woods Trust is invalid under Idaho law.

Furthermore, when the alleged trust was created there were no beneficiaries, and there are none today. It is axiomatic that a trust cannot be created unless there are beneficiaries. Vol. II Scott, The Law of Trusts, 4th Ed. 1987, §112 (p. 154). While the Declaration of Trust allows the trustees to issue 100 Trust Certificate units, nowhere in the Declaration is there any description of the class of persons to whom the trustees are authorized to distribute the certificates.

"[I]t is essential to the creation and existence of a trust that a beneficiary be designated with sufficient clarity and certainty to be capable of identification, although not necessarily by name." 76 Am Jur. 2d §60, p. 88; First National Bank in Ord v. Schroeder, 222 Neb. 330, 383 N.W.2d 755, 757 ( Neb. 1986); United States v. Spurgeon [88-2 USTC ¶9583 ], 861 F.2d 181, 183 (8th Cir. 1988). These cases all dealt with trusts with language nearly identical with the present Deep Woods Trust. In each case, the court held that such a description of the beneficiaries was insufficient under state law to create a valid trust relationship. As Deep Woods Trust does not identify any beneficiaries it is invalid under Idaho law. In re Eggan's Estate, 386 P.2d 563, 568 ( Idaho 1963); Hedin v. Westdala Lutheran Church , 81 P.2d 741, 742 ( Idaho 1938).

Finally, the lack of guidelines or duties for the trustees makes Deep Woods Trust fail. Here, the trustees were given unbridled discretion over their management of the trust property and were not subject to any obligations, thus no fiduciary duties were imposed upon them. Therefore, the Deep Wood Trust also fails under Idaho law because it fails to impose enforceable obligations upon the trustees. In re Eggan's Estate, 386 P.2d at 568.

Under settled principles of Idaho law, the Geisslers failed to create a valid trust. As the Deep Woods Trust is invalid under Idaho law, it did not receive any ownership rights from the Geisslers through their quitclaim deed to the trust. As stated, between the United States and the Geisslers, the levy proceedings divested the Geisslers of all ownership interests they may have had in the subject property. As a result, title to the real property will be quieted in favor of the United States for these reasons as well.

(d) As the Trust did not bring a wrongful levy action within the applicable statute of limitation period, it cannot challenge the title of the United States .

The United States claims that Deep Woods Trust cannot challenge the title of the United States to the subject real property. The United States claims that section 7426 of the Internal Revenue Code provides the exclusive means by which a third party, such as Deep Woods, may contest an Internal Revenue Service levy on its property in satisfaction of the tax liability of another. Winebrenner v. United States [91-1 USTC ¶50,057 ], 924 F.2d 851 (9th Cir. 1991) (citations omitted).

Thus, in order to challenge the United States' seizure of the subject real property on September 3, 1987 , the Deep Woods Trust was required to commence a wrongful levy action against the United States under I.R.C. §7426 . If the trust had commenced such a wrongful levy action, and if the court had determined that the Internal Revenue Service's levy was wrongful, it could have prohibited the enforcement of the levy, prohibited the sale of the property levied upon, or ordered the return of the property as long as it remained in the possession of the United States . I.R.C. §7426(b) .

With respect to the levy upon the real property on September 3, 1987 , however, the nine-month period of limitations for such wrongful levy action had long expired before the United States commenced this action. The limitations period for wrongful levy actions is set forth in I.R.C. §6532(c)(1) , which provides that "no suit or proceeding under section 7426 shall be begun after the expiration of 9 months from the date of the levy." I.R.C. §6532(c)(1) ; United States v. Spurgeon [88-2 USTC ¶9583 ], 861 F.2d at 182 n.2. If a suit for wrongful levy is not timely filed, the Court is without jurisdiction to hear it. Winebrenner v. United States [91-1 USTC ¶50,057 ], 924 F.2d at 855-856. Accordingly, any wrongful levy action which Deep Woods Trust might have brought to challenge the 1987 levy in this case is time-barred. As a result, quiet title to the real property at issue will be granted in favor of the United States for this additional reason.

D. United States request for a Writ of Assistance.

The property at issue in this complaint was properly seized and sold by the United States as part of the Internal Revenue Service effort to collect delinquent taxes owed by the Geisslers. All appropriate steps were taken to seize and sell the property and the United States was issued a valid Certificate of Sale of Seized Property pursuant to I.R.C. §6335 . When the property was declared sold to the United States , the Geisslers were advised that they could redeem the property, pursuant to I.R.C. 6337, within the prescribed 180 day period. The Geisslers failed to redeem the property and a District Director's Deed was issued conveying title to the United States as provided in I.R.C. §§6338 and 6339 . The United States now has valid title to that property. The entire process was performed according to statutory and regulatory guidelines and the United States is now the rightful owner of the property in question. The Geisslers continue to unlawfully possess and use the property without the consent or permission of the United States .

A District Director's Deed is prima facie evidence that the sale was properly conducted and the deed conveys all title of the delinquent taxpayers. I.R.C. §§6339(b)(1) and (2) . In the present case, the United States has gone one step further and submitted conclusive evidence that all facets of the seizure and sale were in accord with the Internal Revenue Code and applicable regulations.

Under Idaho law, an ejectment action may be brought where a rightful owner is being unlawfully kept out of possession. The United States only need prove title as against the defendants. By its submissions the United States has established its rightful title as against the defendants in this action. The United States has further shown that the Geisslers, and/or the Deep Woods Trust Organization are unlawfully possessing and using the property. In sum, the United States has fully established its right to possession of the property as a matter of law and, therefore, a writ of assistance will issue to place the United States in possession of the property. Eagle Rock Corp. v. Idamont Hotel Co., 95 P.2d 838, 841 ( Idaho 1939); see also Harding v. Harker, 105 P. 788, 789 ( Idaho 1909).

CONCLUSION

Based on the foregoing and the court being full advised in the premises,

IT IS HEREBY ORDERED that the Deep Woods Trust Organization's Motion for Summary Judgment is hereby, DENIED;

IT IS FURTHER ORDERED that the United States ' Motion for Summary Judgment is hereby, GRANTED;

IT IS FURTHER ORDERED that Judgment be entered in favor of the United States and against Francis C. Geissler for the unpaid assessed balance of federal income taxes for the tax years 1977 through 1987 and related interest and penalties in the amount of $179,293.61, plus penalties and interest as provided by law after October 1, 1993 , pursuant to I.R.C. §§6601 , 6621 , and 6622 , and 28 U.S.C. §1961(c), until paid;

IT IS FURTHER ORDERED that Judgment be entered in favor of the United States and against Francis C. Geissler for the unpaid assessed balance of federal income taxes for the tax years 1977 through 1987 and related interest and penalties in the amount of $94,921.08, plus penalties and interest as provided by law after October 1, 1993 , pursuant to I.R.C. §§6601 , 6621 , and 6622 , and 28 U.S.C. §1961(c), until paid;

IT IS FURTHER ORDERED that the United States has a valid and superior title as to the defendants Francis C. Geissler, Nancy R. Geissler and Deep Woods Trust Organization, in the real property with the legal description:

Lot 3, Block 2, Alturas Vista Subdivision, Blaine County , Idaho , according to the official plat thereof recorded in Book 1 of Plats, page 14, Records of Blaine County, Idaho;

IT IS FURTHER ORDERED that a Writ of Assistance shall issue placing the United States in immediate and exclusive possession of the real property, together with all improvements thereon, with the legal description:

Lot 3, Block 2, Alturas Vista Subdivision, Blaine County, Idaho, according to the official plat thereof recorded in Book 1 of Plats, page 14, Records of Blaine County, Idaho; and

IT IS THEREFORE ORDERED THAT the Clerk shall enter judgment accordingly.

[91-2 USTC ¶50,323] Orville R. Goodwin, Plaintiff-Appellant v. United States of America, Calvin E. Esselstrom, Joseph Phillips, Defendants-Appellees

(CA-9), U.S. Court of Appeals, 9th Circuit, 90-15192, 6/11/91 , Affirming and reversing an unreported District Court decision

[Code Secs. 6335 , 6338 , 6501 , and 7430 ]

Sale of seized property: Notice of sale: Deed of real property: Mootness of appeal: Statute of limitations: Issue of statute raised: Awarding of court costs: Reasonableness of government's position.--A sale of property seized for delinquent payroll taxes was improper because the government did not comply with notice requirements to the taxpayer-owner. The fact that the taxpayer-owner had actual notice and was unable to show prejudice resulting from de minimis noncompliance was irrelevant. The extraordinary powers granted to the government of levying, seizing, and selling property for tax collection purposes without prior judicial hearing are dependent upon strict compliance with the procedures prescribed by statute. Failure by the taxpayer-owner to apply for a stay of the district court judgment approving the sale did not render the appeal moot because he filed a timely lis pendens that gave adequate notice to the purchaser of the property under California law. The judgment of the district court was therefore reversed on this point. Although the taxpayer pleaded the statute of limitations as a bar to the sale, he did not raise any material issues of fact in opposition to the government's motion for summary judgment; the judgment of the district court on this point was therefore affirmed. Finally, the taxpayer's request for attorneys' fees and costs was rejected because he failed to show that the government's position was not substantially justified.

David M. Kirsch, 4 N. Secomb St. , San Jose , Calif. , for plaintiff-appellant. Steven W. Parks, Kenneth L. Greene, Department of Justice, Washington , D.C. 20530 , for U.S.

Before CHAMBERS, BEEZER and NOONAN, JR., Circuit Judges.

OPINION

BEEZER, Circuit Judge:

Orville R. Goodwin appeals the district court's summary judgment order which upheld the government's seizure and sale of his property for delinquent payroll taxes. Goodwin contends that the seizure and sale should be set aside because the government did not literally comply with the notice requirements of 26 U.S.C. §6335 . He also contends that the district court erred by ruling that the statute of limitations had not expired prior to seizure of the subject property.

I

In 1974, Goodwin failed to pay payroll taxes amounting to $34,704.98. On July 12, 1976 , the Internal Revenue Service (IRS) assessed those taxes, and on July 27, 1976 , the IRS filed a notice of federal tax lien on Goodwin's undivided one-half interest in residential real property located at 1709 Gladstone Avenue , San Jose , California (the Gladstone property). From 1976 to 1985, Goodwin entered into various agreements with the IRS to pay the taxes in installments but failed to make any payments. He also signed four separate waiver forms which extended the statute of limitations for collecting the taxes. The last waiver expired on December 31, 1990 .

On April 9, 1985 , two IRS agents went to the Gladstone property and attempted to deliver a notice of levy and seizure. Goodwin was not there so they mailed the notices by certified mail. Goodwin contacted the IRS, promised to pay the taxes, but made no payments.

On June 19, 1986 , the IRS mailed Goodwin a Seizure and Sale Worksheet that stated that the minimum bid price for the Gladstone property would be $32,859.37. Goodwin promised to pay the minimum bid price by July 15, 1986 , but made no payment. On July 16, 1986 , the IRS posted a Notice of Public Auction Sale to be held on August 5, 1986 .

The sale was held, but no bidders appeared. The property was declared sold to the United States at the minimum bid price, pursuant to 26 U.S.C. §6335(e)(1)(C) . On March 24, 1987 , the District Director's Deed to the Gladstone property, which had been executed pursuant to 26 U.S.C. §6338(c) , was filed with the Santa Clara County Recorder's Office. On May 26, 1989 , Goodwin filed a complaint in district court seeking an order restraining the government from selling the Gladstone property. He alleged that the seizure and sale were invalid because of defective service and because the statute of limitations on the government's right to seize the property had expired.

The district court found that the notice received by Goodwin was sufficient and refused to issue the restraining order. On September 27, 1989 , the district court granted the government's summary judgment motion. The court ruled that serving the notices by certified mail satisfied the requirements of §6335 and further ruled that the statute of limitations had not run.

Goodwin did not seek a stay of the district court's rulings, and on October 10, 1989 , the IRS sold the property to a third party. Goodwin timely appealed the summary judgment order, and we have jurisdiction pursuant to 28 U.S.C. §1291 .

II

Initially we must determine whether the sale of Goodwin's property to a third party has rendered Goodwin's appeal moot. The government contends that Goodwin should have obtained an order from this court enjoining the sale of the Gladstone property pending appeal in order to preserve his rights on appeal. According to the government, once a quitclaim deed was issued to a third party pursuant 26 C.F.R. §301.7506-1 , Goodwin's opportunity for appellate relief in this court was foreclosed.

Goodwin counters with the fact that he filed a Notice of Pendency of Action (lis pendens) prior to the recording of the quitclaim deed. He contends that the timely filing of the lis pendens preserved his rights to pursue this appeal.

Under California law, the timely filing of a lis pendens provides constructive notice to any subsequent purchaser or encumbrancer that a judgment in the pending action will be binding as against them. See Putnam Sand & Gravel Co. v. Albers, 92 Cal. Rptr. 636, 638 (1971). "A judgment favorable to the plaintiff relates to, and receives its priority from, the date the lis pendens is recorded, and is senior and prior to any interests in the property acquired after that date." Stagen v. Stewart-West Coast Title Co., 196 Cal. Rptr. 732, 737 (1983).

The government cites In Re Onouli-Kona Land Co., 846 F.2d 1170 (9th Cir. 1988) and In Re The Brickyard, 735 F.2d 1154 (9th Cir. 1984), as authority for its contention that the filing of a lis pendens simply provides notice of a pending action but does not substitute for obtaining a stay pending appeal. Both cases, however, are concerned with the effect a lis pendens has on a sale in bankruptcy in light of the mootness rule in 11 U.S.C. §363(m).

There is no similar mootness provision in the Internal Revenue Code, and thus our analysis is limited to "whether changes in the circumstances that prevailed at the beginning of litigation have forestalled any occasion for meaningful relief." Stevedoring Services of America v. Ancora Transport, 884 F.2d 1250, 1253 (9th Cir. 1989). Goodwin's action in district court requested both injunctive relief and a judgment to quiet title through a finding that the seizure and sale of the Gladstone property were invalid.

Goodwin's failure to attempt to preserve the status quo pending appeal has forestalled our ability to grant relief on his request that the district court enjoin the government from selling the Gladstone property. However, we may still determine the validity of the seizure and lien foreclosure sale through which the government obtained a District Director's Deed pursuant to 26 U.S.C. §6338(c) . See Kulawy v. United States [90-2 USTC ¶50,565 ], 917 F.2d 729, 733-734 (2d Cir. 1990) (government's sale of automobiles to third party did not moot first party's action against the government to quiet title to those automobiles). This action was correctly instituted under 28 U.S.C. §2410(a)(1) to quiet title to the Gladstone property. We find "nothing in §2410(a)(1) that permits the government to oust the court of jurisdiction validly invoked." Id. at 734.

Goodwin and the government are before us on appeal. Goodwin filed a timely lis pendens that will render our judgment enforceable against any subsequent purchaser or encumbrancer. Goodwin's appeal of the district court's grant of summary judgment against his action to quiet title is therefore not moot.

III

We review de novo the district court's grant of summary judgment. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, 110 S. Ct. 3217 (1990). We also review de novo the district court's interpretation of 26 U.S.C. §6335 . See Batchelor v. Oak Hill Medical Group, 870 F.2d 1446, 1447 (9th Cir. 1989).

Goodwin contends that the seizure and sale of his property was invalid because the IRS failed to comply with the service requirements of §6335 . The requirements in relevant part are as follows:

§6335 . Sale of seized property

(a) Notice of seizure.--As soon as practicable after seizure of property, notice in writing shall be given by the Secretary to the owner of the property, ... or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last known address....

(b) Notice of sale--The Secretary shall as soon as practicable after the seizure of the property give notice to the owner, in the manner prescribed in subsection (a) ....

26 U.S.C. §6335 (1988).

The government concedes that under a literal reading of §6335 , service by certified mail, as received by Goodwin, is defective. A literal reading requires the government to have personally served a written notice to Goodwin or to have left the written notice at Goodwin's usual place of abode. The government contends, however, that a literal reading of §6335 is not required. According to the government, Goodwin cannot demonstrate a lack of actual notice, and therefore he cannot show prejudice resulting from the de minimis noncompliance.

The Second Circuit, in Kulawy v. United States [90-2 USTC ¶50,565 ], 917 F.2d 729 (1990), recently addressed the question whether there must be strict compliance with the notice requirements of §6335 . The Second Circuit held that the extraordinary powers granted to the government of levying, seizing and selling property for tax collection purposes without prior judicial hearing are dependent upon strict compliance with the procedures prescribed by statute. Id. at 734.

Although the notice provision considered by the Second Circuit in Kulawy, 26 U.S.C. §6335(d) , concerned notice to potential buyers rather than notice to the property owner, we find the reasoning in Kulawy persuasive on the question before us. The concern with ensuring notice to potential purchasers surely could be no greater than the concern with ensuring notice to the property owner that his property is in jeopardy.

Thus, the necessity for complying with §6335(d) could be no greater than the necessity for complying with §§6335(a) and 6335(b) . In following the Second Circuit, we hold that the language and purpose of §6335(a) and §6335(b) require that the government be held accountable for failure to strictly comply with the procedures prescribed by the two provisions. See Kulawy [90-2 USTC ¶50,565 ], 917 F.2d at 735.

Moreover, because §6335 requires strict compliance, Goodwin did not have the burden of demonstrating prejudice. Cf id. As the Second Circuit noted, the government insists that taxpayers strictly comply with statutory requirements in quiet-title actions. See Colorado Property Acquisitions, Inc. v. United States [90-1 USTC ¶50,055 ], 894 F.2d 1173, 1174-1175 (10th Cir. 1990). "A stickler for enforcing the statutory notice it is entitled to receive, the government should be no less punctilious with respect to the statutory notice it is required to give." Kulawy [90-2 USTC ¶50,565 ], 917 F.2d at 735.

In Reece v. Scoggins [75-1 USTC ¶9202 ], 506 F.2d 967 (5th Cir. 1975), the Fifth Circuit also addressed the issue of whether §6335 must be followed literally. As in the instant case, the plaintiff in Reece had received actual notice of the seizure and sale. The government, however, had not served the plaintiff in person or left written notice at his usual place of abode as was required by §6335 . The Fifth Circuit required strict compliance with §6335 . Id. at 971. Applying reasoning that was adopted by the Second Circuit in Kulawy, the Fifth Circuit held that §6335 is "clear and mandatory" and that "absent literal compliance with its provisions, the government sale of land cannot stand." Reece [75-1 USTC ¶9202 ], 506 F.2d at 971.

Although we would not apply a literal reading of a statute that required a result demonstrably in conflict with the drafter's intentions, no such apparent conflict exists here. Cf. United States v. Locke, 471 U.S. 84, 93 (1985). Congress has set forth precise requirements for notice of seizure and sale of property in tax deficiency situations. "[W]hen the government seeks to enforce the laws, it must follow the steps which Congress has specified." Reece [75-1 USTC ¶9202 ], 506 F.2d at 971. The government did not give Goodwin the notice required by §6335 . Accordingly, as between Goodwin and the government, the seizure and sale of the Gladstone property was invalid.

IV

Goodwin also contends that the district court incorrectly granted summary judgment on the issue of whether the statute of limitations had expired on the government's right to seize and sell the Gladstone property. Goodwin alleges that the statute of limitations issue was not before the district court on the government's motion for summary judgment, and thus the district court should not have reached that issue.

A review of the record indicates that the government moved for summary judgment as to the entire action rather than for a partial summary judgment that was limited to the validity of the notices. Goodwin raised the statute of limitations issue in his complaint, and that issue was put before the district court when the government moved to dismiss the entire action. The government's motion for summary judgment incorporated earlier papers that had addressed the statute of limitations issue. These papers included the declarations of a revenue agent who stated that Goodwin had signed tax collection waiver forms which extended the statute of limitations for the seizure and sale of the Gladstone property.

The statute of limitations issue was raised in the government's motion for summary judgment, and Goodwin failed to raise any material issues of fact in opposition to the motion. The district court, therefore, did not err in granting summary judgment in favor of the government on the issue of whether the statute of limitations had expired.

V

Finally, Goodwin requests attorneys' fees and costs pursuant to 26 U.S.C. §7430 . He is entitled to fees and costs under this provision only if he is able to show that the government's position in this proceeding "was not substantially justified." 26 U.S.C. §7430(c)(2) (1988). Goodwin has failed to make such a showing, therefore, he is not entitled to any fees or costs on appeal.

VI

Goodwin's appeal of the district court's order of summary judgment against his action to quiet title to the Gladstone property is not moot. The seizure and sale of the Gladstone property to the government pursuant to 26 U.S.C. §6335(e)(1)(C) was invalid due to defective notice. The district court correctly granted summary judgment in favor of the government on the issue of whether the statute of limitations had expired on the government's right to seize and sell the property. Goodwin is not entitled to attorneys' fees or costs on appeal.

REVERSED in part; AFFIRMED in part.

[96-2 USTC ¶50,448] Ronald L. Anderson, Josephine Anderson, Plaintiffs v. Maria S. Zenali, Irene Salazar, and United States of America, Defendants Maria S. Zenali, an individual, Irene Salazar, an individual, Counterclaimants v. Ronald L. Anderson, an individual, Josephine Anderson, an individual, Counter-Defendants Maria S. Zenali, an individual, Irene Salazar, an individual, Third-party Claimants v. Ahmad Zenali, an individual, Third-party Defendant

U.S. District Court, Cent. Dist. Calif. , West. Div., CV-95-4035-WJR (VAPx), 7/3/96

[Code Sec. 6339 ]

Tax sales: Bona fide purchaser: Constructive notice: Quiet title.--An individual who purchased certain real property at a tax sale in which the IRS failed to comply with the law was not, under state (California) law, a bona fide purchaser. He had constructive notice that the IRS was required to substantially comply with the law in order to transfer property rights but simply ignored the possibility that the IRS might not have done so. Further, the purchaser had constructive notice that other parties had asserted an interest in the property because they had brought a quiet title suit against him before he received and recorded the deed. However, since there were many disputed facts pertaining to the situation, the court was unable to resolve the outcome of the quiet title claims and denied a motion for summary judgment.

[Code Sec. 7433 ]

Claim for damages: Statute of limitations.--A claim for damages against the IRS filed by several individuals who held an interest in certain real property was barred by the two-year statute of limitations. Despite their argument that they did not incur any damage until the deed was issued, the individuals had actual knowledge of the damages they suffered as a result of the improper sale of the property at the time they filed a quiet title suit against the purchaser.

Ronald L. Anderson, Josephine Anderson, 2275 W. 25th St., San Pedro, Calif. 90732, pro se. Robert G. Klein, Schreiber & Schreiber, 16501 Ventura Blvd., Encino, Calif. 91436-2068, Edward M. Robbins, Jr., Gregory A. Roth, Los Angeles, Calif. 90012, for defendant. Robert G. Klein, Schreiber & Schreiber, 16501 Ventura Blvd. , Encino , Calif. 91436-2068 , for counter-claimant. Robert G. Klein, Schreiber & Schreiber, 16501 Ventura Blvd. , Encino , Calif. 91436-2068 , for cross-claimant. Edward M. Robbins, Jr., Gregory A. Roth, Los Angeles , Calif. 90012 , for cross-defendant. Robert G. Klein, Schreiber & Schreiber, 16501 Ventura Blvd. , Encino , Calif. 91436-2068 , for third-party plaintiff. Robert G. Klein, Schreiber & Schreiber, 16501 Ventura Blvd. , Encino , Calif. 91436-2068 , for third-party defendant.

REA, District Judge:

On June 10, 1996 , (1) Plaintiffs' Motion for Summary Judgment on the Quiet Title Claims; (2) Defendant United States' and Plaintiffs' Cross-Motions for Summary Judgment on the Claim for Unauthorized Tax Collection, came on for hearing before the Honorable William J. Rea, United States District Judge.

The Court:

(1) DENIES summary judgment to plaintiffs on the first cause of action and the counterclaim to quiet title. At this stage, the Court cannot determine an equitable solution to these claims.

(2) GRANTS summary judgment to the United States on the third cause of action for damages for unauthorized collection of taxes because the statute of limitations has run.

DISCUSSION

I. STANDARD FOR SUMMARY JUDGMENT

Summary judgment under Rule 56 of the Federal Rules of Civil Procedure is appropriate "after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which the party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Summary judgment may only be granted, however, where the moving party demonstrates that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Richards v. Neilsen Freight Lines, 810 F.2d 898, 902 (9th Cir. 1987).

For the moving party to prevail on a motion for summary judgment, the moving party must identify "those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 274-75 (1986) (citation omitted). To defeat the motion, the nonmoving party need only present evidence from which a jury might return a verdict in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

II. PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT TO QUIET TITLE

A. Whether A. Zenali was a BFP

In the previous summary judgment motion, the Court ruled that A. Zenali was not a BFP under California law, holding that he had constructive notice of plaintiffs' rights.

In opposing this motion, the individual defendants argue that the Court wrongly decided that A. Zenali was not a BFP. California law provides that "[f]acts which should put a reasonable person on inquiry ... may amount to constructive notice." 4 Witkin §209 (citing, e.g., Whitney v. Sherman, 178 Cal. 435, 439 (1918); Chapman v. Ostergard, 73 Cal. App. 539, 545 (1925); and Olson v. Cornwell, 134 Cal. App. 419, 428 (1933)). In a similar case, the purchaser was found to have had notice of 26 U.S.C. §6339(b)(2) , requiring the IRS to substantially comply with the law before it can transfer property rights. Martin v. Rubel Enters., No. CV 92-3184 DT (Tx), Findings of Fact and Conclusions of Law at 4 (C.D. Cal. Dec. 30, 1994 ). A reasonable purchaser of property from an IRS tax sale has constructive notice that the IRS must substantially comply with the law in order to convey property. The Court now finds that the issue of whether A. Zenali inquired as to whether or not the IRS complied with the law is a disputed material factual issue.

M. Zenali and Salazar argue that the Court should follow Martin in holding that A. Zenali was a BFP. In Martin, the court held, as stated above, that the buyer had notice of §6339(b)(2) , but also held that the buyer was a BFP. The court there failed to do the analysis under California law the Court has performed above. Instead, the court there conclusorily held that the buyer was a BFP without stating its basis for doing so. It is possible that the buyer in Martin did make inquiry as to the propriety of the tax sale; otherwise, its holdings seem contradictory. In addition, the Court notes that the outcome of Martin was not affected by the court's holding that the buyer was a BFP because the deed to the buyer was held to be void ab initio. Therefore, the Court agrees with Martin's holding that a buyer at a tax sale has constructive notice that the IRS must comply with the provisions of law, and the Court finds A. Zenali was not a BFP if he simply ignored the possibility that the IRS may not have followed the law, as in fact occurred.

Furthermore, by the time A. Zenali received and recorded the deed in late June, 1993, plaintiffs had already brought a quiet title suit against him. The quiet title suit gave Zenali constructive notice that plaintiffs asserted an interest in the Property. See Goodwin at 1063 ("Under California law, the timely filing of a lis pendens provides constructive notice to any subsequent purchaser or encumbrancer that a judgment in the pending action will be binding as against them. See Putnam Sand & Gravel Co. v. Albers, 14 Cal. App.3d 722 (1971)."). The parties did not address the effect of the filing of the quiet title action after the sale yet before the deed was given and recorded; however, the Court finds that these facts make this situation distinguishable from Martin as well as Chittenden v. United States, No. CV 90-1035 RSWL (GHKx), Statement of Uncontroverted Facts and Conclusions of Law (C.D. Cal. May 15, 1992 ).

B. Disputed Facts

Even if the Court were to hold that A. Zenali was not a BFP, the Court is unable at this time to resolve the outcome of the quiet title claims due to the many disputed facts regarding an equitable solution. Equitable principles apply in a quiet title action. See Jones v. Sacramento Sav. & Loan Ass'n, 248 Cal.App.2d 522 (1967); Talbot v. Gadia, 123 Cal.App.2d 712 (1954). ¹

At the time of the sale, the Property was encumbered with two trust deeds and three abstracts of judgment totaling $190,581.77, all of which had priority over the IRS lien foreclosed upon at the foreclosure sale. The individual defendants allege that A. Zenali borrowed $21,843.00 from the individual defendants to buy the Property at the tax sale and $190,581.77 to satisfy the senior encumbrances, which were paid on dates from April 8, 1994 , to August 10, 1994 . The individual defendants allege that they received the Property as part of a property settlement in the Zenali's divorce proceedings and as consideration for the sums paid on the Property. Plaintiffs dispute these allegations, and argue that defendants acted with negligence, or perhaps even recklessness, in assuming that they had title to the Property under the circumstances and in failing to seek title insurance prior to paying the encumbrances. The Court cannot, at this stage, evaluate the propriety of defendants' actions. The first quiet title action was filed in state court on June 8, 1993 ; the Court has not been informed as to any proceedings in that matter, and knows only that a second quiet title claim, in this action, was filed June 15, 1995 . There is no evidence which would allow the Court to determine whether defendants were negligent or reckless in 1994 when they paid the encumbrances and did not obtain title insurance.

Furthermore, defendants are not the only parties accused of denigrating plaintiffs' claims on the Property. The individual defendants argue that plaintiffs also had constructive notice that the IRS did not follow the procedural requirements of §6335 in making the sale. Furthermore, when Ronald Anderson filed a Chapter 7 bankruptcy, he did not list in his schedule that he had any right to reclaim the Property, although he knew all of the operative facts since at least June 8, 1993 , when he filed a quiet title action against the Zenalis alleging the identical facts as are alleged in the complaint here. In fact, on October 6, 1993 , the bankruptcy court granted A. Zenali's application for relief from the automatic stay, finding that Anderson had no equity interest in the Property.

Defendants ask that their payment of the encumbrances have priority over the IRS tax lien, resulting in an equitable subrogation. Plaintiffs argue that not only is there insufficient proof to show that defendants actually paid these sums, but also that subrogation would, in essence, allow defendants to have had free possession of the Property for three years; thus, plaintiffs argue, defendants would be unjustly enriched by subrogation.

Without knowing the rental value or fair value of the Property, the Court cannot determine whether subrogation of some or all of the encumbrances would result in unjust enrichment. See Petersen v. Ridenour, 135 Cal.App.2d 720 (1955). In a quiet title action, the parties must do equity to obtain relief, and relief must be equitable to all parties. United States v. Fallbrook Public Utility Dist., 193 F.Supp. 342 (S.D. Ca. 1961), rev'd in part on other grounds, 347 F.2d 48 (9th Cir. 1965). Due to the paucity of undisputed facts on these issues, the Court must deny the motion for summary judgment on the quiet title claims.

III. CROSS-MOTIONS FOR SUMMARY JUDGMENT ON CLAIM FOR DAMAGES FOR UNAUTHORIZED COLLECTIONS

A. Statute of Limitations

An action for a claim under 26 U.S.C. §7433 must be brought "within 2 years after the date the right of action accrues." 26 U.S.C. §7433(d)(3) . A cause of action does not accrue under §7433 until "the taxpayer has a reasonable opportunity to discover all essential elements of a possible cause of action." 26 C.F.R. §301.7433-1(g)(2) ); see also Hurt v. United States , 914 F.Supp. 1346, 1356 n.6 (S.D.W. Va. 1996).

The complaint in this action was filed on June 15, 1995 . The sale of the Property took place on December 2, 1992 . In its original summary judgment motion, the United States contended that the statute of limitations began to run on December 2, 1992 . In the alternative, the United States argued that plaintiffs knew of the defects in the sale in February or March of 1993. Plaintiffs argued that a "reasonable opportunity" for them to have discovered the elements of their cause of action did not occur until June 1993. The Court denied the United States ' motion for summary judgment on the basis that the date the statute of limitations should start running was a disputed material factual issue.

In their renewed motion, the United States argues that plaintiffs knew by June 8, 1993 at the latest that they had a cause of action. On June 8, 1993 , plaintiffs filed a complaint to quiet title in state court against A. Zenali. The United States first learned of this complaint at the April 29, 1996 hearing on the original summary judgment motion. The United States argues that by June 8, 1993 , plaintiffs had had a reasonable opportunity to discover all the essential elements of the cause of action.

Damages for violation of §7433 are limited to the lesser of $100,000 or the "actual, direct economic damages" occurring "as a proximate result of the reckless or intentional actions of the officer or employee" plus costs of the action. 26 U.S.C. §7433(b) . Plaintiffs argue that no actual damage occurred until the IRS deed conveying their interest in the Property was issued, June 15, 1993 , hence, that they had no reasonable opportunity to discover their actual damages until the deed was issued. The United States argues that the issuance of the deed and its recordation on June 22, 1993 were merely ministerial tasks and did not actually damage plaintiffs.

Despite plaintiffs' argument, the evidence shows that plaintiffs had actual knowledge of the damages they suffered as a result of the improper sale of the Property by June 8, 1993 at the latest. See Complaint to Quiet Title, in Third Roth Decl., Exh. Z. In their state-court complaint, plaintiffs alleged that the Certificate of Sale and the District Director's Deed issued to A. Zenali were invalid. Id. at 6, 8. Plaintiffs alleged that the certificate and deed were defective due to the procedural errors the IRS made. Id. at 7-8. The IRS arguably violated §7433 in making these errors. It is disingenuous for plaintiffs to argue that they did not have a reasonable opportunity to discover that they were harmed by the sale until the deed had been issued, when they had already instituted an action against the purchaser of the Property.

Plaintiffs argue that "the deed--and nothing else--... resulted in the loss (damage) to the plaintiffs of their interest in the property." The deed of sale "operate[s] as a conveyance of all the right, title, and interest the party delinquent had in and to the real property thus sold at the time the lien of the United States attached thereto." 26 U.S.C. §6339(b) . However, the plaintiffs suffered damage, and hence their cause of action accrued, even before the deed to the Property was placed in A. Zenali's name. See Simmons v. United States , 875 F.Supp. 318, 320 (W.D.N.C. 1994) (a cause of action accrues under §7443 when the property is levied). Plaintiffs received the levy on August 11, 1992 , and the Property was actually sold on December 3, 1992 . There is no authority to support plaintiffs' argument that they did not incur any damage until the deed was actually issued.

Plaintiffs argue that they had "prematurely" filed the complaint to quiet title before the deed had been issued. Whether or not that action was premature, the filing of that action supports the Court's finding that as of June 8, 1993 , plaintiffs knew all the relevant facts to support their §7433 cause of action. Because the complaint in this action was filed over two years later, the §7433 claim is barred by the two-year statute of limitations.

Because the Court grants summary judgment to the United States based on the running of the statute of limitations, the Court need not reach the issue of whether or not plaintiffs exhausted their administrative remedies before filing the complaint, as required under §7433(d)(1) . Apparently plaintiffs attempted to file an administrative claim, but they omitted pertinent facts and supporting documentation; they also erroneously mailed the claim to a P.O. Box number in the IRS's Examination Division, rather than the Special Procedures Branch, in the Collection Division, as required by the IRS regulations. See 26 C.F.R. §301.7433 .1(e)(1).

IT IS SO ORDERED.

¹ The Court notes that it is puzzled by the parties' failure to analyze the quiet title claims under the many California cases on quieting title.

[97-1 USTC ¶50,139] Raymond C. Babb and Robin R. Babb, Plaintiffs v. Craig Frank and Maynard Lindvig, as power of attorney for Clifford L. Lindvig, Defendants

U.S. District Court, West. Dist. Wis., 96-C-0778-C, 12/2/96 , 947 FSupp 405, 947 FSupp 405

[Code Sec. 6337 ]

Collection of taxes: Seizure of property: Redemption of property: Transfer of redemption rights: Interest of delinquent taxpayer.--A delinquent taxpayer whose real property was seized and sold by the IRS could convey title and assign his right of redemption before the expiration of the 180-day redemption period. The statute allowing redemption applies not only to persons who have an interest in the property at the time of the tax sale but also to persons who acquire interests in the property after the sale date but before the period for redemption has run.

[Code Sec. 6339 ]

Collection of taxes: Seizure of property: Tax sale: Interest of purchaser: Certificate of sale.--A delinquent taxpayer retained an interest in his property that could be conveyed to an assignee after a tax sale and before the period for redemption expired. The tax-sale purchaser did not acquire title to the property prior to exchanging the certificate of sale for the deed following the statutory redemption period.

Ronald S. Stadler, Stadler & Schott, 16655 W. Bluemound Rd. , Brookfield , Wis. 53005 , for plaintiffs. Susan V. Kelley, P.O. Box 2189 , Madison , Wis. 53701 , for defendants. Maynard Lindvig, Route 3, CTH "Y", Viroqua , Wis. 54665 , pro se.

OPINION AND ORDER

CRABB, District Judge:

This is an action to quiet title that arises out of a tax sale of real property conducted by the Internal Revenue Service pursuant to 26 U.S.C. §6335. Both sides have moved for summary judgment on the sole issue raised in the case: whether a delinquent taxpayer whose real property is seized and sold by the IRS can convey title in his property and assign his right of redemption before the running of the 180-day period for redemption. I conclude that he can and will grant judgment for defendants.

From the findings of fact proposed by the parties, I find that the following material facts are not in dispute. (In determining the undisputed facts, I have ignored the paragraphs in the affidavits of defendant Frank and Pamela Kern that are the subject of a motion to strike by plaintiffs. The averments are largely hearsay, as plaintiffs contend, and they are immaterial as well.)

UNDISPUTED FACTS

All of the parties are adult residents of the state of Wisconsin . Plaintiffs live in Crawford County ; defendants Craig Frank and Maynard Lindvig live in Vernon County . Defendant Lindvig has power of attorney for his brother, Clifford Lindvig, who was the owner of a parcel of land in Vernon County that was seized by the Internal Revenue Service in January 1996, for nonpayment of taxes.

Pursuant to 26 U.S.C. §6335, the IRS sold Clifford Lindvig's property by sealed bid at a public sale held on February 15, 1996 . Plaintiffs and defendant Craig Frank bid on the property. Revenue Officer Neil Duresky certified plaintiffs' bid as highest and issued plaintiffs a certificate of sale on February 20, 1996 , which plaintiffs recorded with the Vernon County Register of Deeds the same day.

On August 8, 1996 , Clifford Lindvig executed a power of attorney in the name of his brother Maynard. Acting pursuant to that power, defendant Maynard Lindvig executed a quit claim deed to the property on August 13, 1996 , conveying Clifford Lindvig's interest to Craig Frank, and at the same time, signed a document entitled "Assignment of Right of Redemption," granting Craig Frank a right to redeem the property. The power of attorney, quit claim deed and assignment of right to redeem were filed with the Vernon County Register of Deeds on August 20, 1996 . On August 13, 1996 , Craig Frank tendered to the IRS a cashier's check for $210,767.50, payable to plaintiffs, a sum equal to the amount paid by plaintiffs plus interest at the rate of 20% a year to August 13, 1996 .

By letter dated August 16, 1996 , plaintiffs requested a deed to the property. The Secretary of the Department of Treasury has declined to provide one and has refused to cause entry of the redemption to be made upon the record pending resolution of the parties' dispute.

OPINION

 

The applicable statute, 26 U.S.C. §6337, makes the following provisions for redemption of real estate after sale:

(b) Redemption of real estate after sale.--

(1) Period.--The owners of any real property sold as provided in section 6335, their heirs, executors, or administrators, or any person having any interest therein, or a lien thereon, or any person in their behalf, shall be permitted to redeem the property sold, or any particular tract of such property, at any time within 180 days after the sale thereof.

Any interpretation of a law or regulation starts with the plain meaning. Pennsylvania Dep't of Public Welfare v. Davenport , 495 U.S. 552, 557-58 (1990); Illinois E.P.A. v. United States E.P.A., 947 F.2d 283, 289 (7th Cir. 1991). In many instances, that is also the end of the inquiry. In this case, however, the meaning of the statute is not plain as it relates to the question the parties pose. It is not possible to tell from merely reading the statute whether Congress intended it to apply only to persons who have an interest in the property at the time of sale (or earlier, at the time the notice of levy is posted) or whether it would apply, as defendants urge, to persons who acquire interests in the property after sale but before the period of redemption has run. Although plaintiffs assert in their brief that "Congress chose not to allow such assignments," they cite nothing in the statutory language or in any legislative history to support their assertion. Given this uncertainty about the plain meaning of the statute, it is helpful to turn to the relevant canons of statutory construction.

An owner's right to redeem property seized by the United States for failure to pay taxes was well-established long before the passage of 26 U.S.C. §6337. See Corbett v. Nutt, 77 U.S. 464 (1870); Bennett v. Hunter, 76 U.S. 326 (1869). Leniency to the owner in the exercise of this right has always been the rule of thumb. See Corbett, 77 U.S. at 474-75 ("It is the general rule of courts to give to statutes authorizing redemption from tax sales a construction favorable to owners ..."); Anselmo v. James [78-2 USTC ¶9696], 449 F. Supp. 922, 925 (D. Mass. 1978) (same); United States v. Lowe [67-2 USTC ¶9650], 268 F. Supp. 190, 192 (N.D. Ga. 1966), aff'd Lowe v. Monk [67-2 USTC ¶9654], 379 F.2d 555 (5th Cir. 1967) (same). Courts give the benefit of the doubt to owners with respect to redemption rights because of the harsh consequences of losing one's property to the government.

To divest ownership, without personal notice and without direct compensation, is the instance in which a constitutional government approaches most nearly to an unrestrained tyranny. Whatever tends to modify this right is favorable to the citizen, and ought to be liberally construed, on the principle that remedial statutes are to be beneficially expounded.

McCampbell v. DiNuzzio, 270 N.Y.S.2d 685, 689-90 (Sup. Ct. 1966) (citing 2 Cooley on Taxation, 3d Ed., pp. 1023-1024); Krassner v. Veneman, 23 Cal. Rptr. 673, 675 (Dist. Ct. App. 1962) (citing Cooley on Taxation).

Section 6337 extends the right to redeem to "heirs, executors, or administrators, or any person having an interest [in the property], or a lien thereon, or any person in ... behalf [of the owner]." 26 U.S.C. §6337(b)(1); see also Lowe [67-2 USTC ¶9650], 268 F. Supp. at 193 (tenant in common who held quit claim deed entitled to redeem); Samet v. United States [65-2 USTC ¶9520], 242 F. Supp. 214 (M.D. N.C. 1965) (spouse claiming inchoate right to dower in property owned by husband and subject to tax lien had sufficient interest to permit exercise of redemption rights). Congress's inclusion of such a broad array of individuals in the list of those with redemption rights is an indication that it views redemption rights in an expansive fashion. Nonetheless, the Supreme Court has characterized the right of redemption as "a statutory right exclusively ... Courts cannot ... make any exceptions not made in the statute." Keely v. Sanders, 99 U.S. 441, 445-46 (1878); see also Krassner, 23 Cal. Rptr. at 677 ("The rule that redemption statutes are to be liberally construed does not mean their provisions can be disregarded.").

Plaintiffs contend that the court would be making an exception in §6337 if it allowed defendant Frank to exercise redemption rights on the property, when he did not gain an interest in the property until after the tax sale. But to make an exception, there must be a specified norm from which the exception departs. No such norm is apparent in a reading of §6337. The statute does not rule out an exercise of redemption rights by individuals in defendant's position. Keely, 99 U.S. 441, instructs courts not to violate explicit statutory language in an attempt to reach what the court believes to be the proper equitable result, as would be the case if courts extended the statutory time limits for redemption after they had expired. Id.; see also Howard v. Adle [82-1 USTC ¶9176], 538 F. Supp. 504 (E.D. Mich. 1982) (court lacks power to extend redemption period by even one day). Keely's warning not to violate explicit statutory provisions is of little relevance to this case, in which neither side's interpretation of §6337 is mandated specifically by the statutory language. To the extent that any canon of construction controls the interpretation of §6337, it can only be the one favoring the interests of the owner.

B. Property Interest Held by Clifford Lindvig After Tax Sale

Although the statutory language does not dictate a clear resolution to this case, defendant Frank's position would be nullified if the delinquent taxpayer, Clifford Lindvig, did not have a property interest to pass Frank at the time Maynard Lindvig issued the quitclaim deed and assignment of redemption rights. Accordingly, it is necessary to determine whether Clifford Lindvig retained any interest in the property after the tax sale that could be conveyed to defendant Frank.

When the government sells seized property in accordance with 26 U.S.C. §6335, it provides the purchaser with a certificate of sale. 26 U.S.C. §6338(a). In the case of real property, the tax sale purchaser can exchange the certificate of sale for a deed to the property after the statutory redemption period has expired. 26 U.S.C. §6338(b). The tax sale purchaser does not receive the delinquent taxpayer's right, title and interest to the property until he obtains the deed. 26 U.S.C. §6339(b)(2); Taylor v. United States [93-2 USTC ¶50,583], No. CIV 90-1929-PCT-SMM, 1993 WL 597379 at * 3 (D. Ariz. Sept. 27, 1993 ). Possession of a certificate of sale does not pass title. United States v. Cassel Brothers, Inc. [82-1 USTC ¶9189], No. 79-1285, 1981 WL 1944 at * 3 (M.D. Pa. Oct. 27, 1981 ).

Plaintiffs disagree with this reading of §6339(b), contending that title to property and a deed to that property are not always linked. Although plaintiffs concede that tax sale purchasers do not obtain a deed to the property until the redemption period has expired, they argue that title passes to such purchasers upon completion of the tax sale. Citing S.R.A., Inc. v. Minnesota, 327 U.S. 558 (1946), plaintiffs argue that the tax sale divests the delinquent taxpayer of all ownership rights and leaves him with redemption rights that are his purely "as a matter of grace." Id. at 567.

Plaintiffs' interpretation of §6339(b) is strained. Section 6339(b)(2) states explicitly that a deed operates as "a conveyance of all the right, title, and interest the party delinquent had in and to the real property thus sold at the time the lien of the United States attached thereto." If title to the property were conveyed to the tax sale purchasers at the time of the tax sale, Congress would have had no reason to enact §6339(b), providing for the conveyance of title to these purchasers once the redemption period had expired. There is simply nothing in the statutory scheme to suggest that title passes before the deed does.

Plaintiffs citations to S.R.A., 327 U.S. 558, Van Brocklin v. Tennessee, 117 U.S. 151 (1886) and Bennett v. Hunter, 76 U.S. 326 (1869) do not alter this determination. Those cases were decided under an earlier tax code that did not include a provision like §6339(b), conveying right, title and interest to the property at a date six months after the tax sale. It is true that in United States v. Whiting Pools, Inc. [83-1 USTC ¶9394], 462 U.S. 198 (1983), the United States Supreme Court cited Bennett for the proposition that "ownership of the property is transferred only when the property is sold to a bona fide purchaser at a tax sale." Id. at 211. Thus, Bennett may still apply in some contexts today. However, in Whiting Pools, the Court was discussing rules applicable to personal property, not to real property. Under 26 U.S.C. §6339(a)(2), right, title and interest to personal property pass to the purchaser upon receipt of the certificate of sale. Nothing in the Whiting Pools decision indicates that the Supreme Court intended its application of Bennett to extend beyond the personal property context; the Court followed its citation to Bennett with a reference to §6339(a)(2), a statute concerned specifically with personal property. In addition, the opinion makes clear that the government does not obtain title to a delinquent taxpayer's property upon the imposition of its levy or completion of the tax sale. An IRS lien or levy does not transfer ownership of the seized property to the IRS. Id. at 210-11. The Supreme Court took the opportunity to disavow dictum in Phelps v. United States [75-1 USTC ¶9467], 421 U.S. 330 (1975), that might have suggested an opposite conclusion. Id. at 210 n. 18. This explicit repudiation of Phelps renders suspect a key case on which plaintiffs rely, American Acceptance Corp. v. Glendora Builders, Inc. [77-1 USTC ¶9348], 550 F.2d 1220 (9th Cir. 1977), a case in which the Court of Appeals for the Ninth Circuit considered itself bound by Phelps, Id. at 1222 ("Phelps ... controls in this case"). Relying on Phelps, the court of appeals held that once a levy is imposed "no subsequent party c[an] gain any rights in th[e] property ... [because] ... [a]ll rights [a]re held by the IRS." Id. at 1222-23; see also United States v. Hemmen [95-1 USTC ¶50,210], 51 F.3d 883, 887 (9th Cir. 1995) (levy confers upon government right to all property levied upon and creates custodial relationship so that property comes into constructive possession of government); but see Southern Rock, Inc. v. B&B Auto Supply [83-2 USTC ¶9529], 711 F.2d 683, 688 (5th Cir. 1983) (questioning basis of American Acceptance). Now that the Supreme Court has renounced its discussion of IRS ownership in Phelps, the precedential value of American Acceptance is questionable.

The Supreme Court's repudiation of Phelps [75-1 USTC ¶9467], 421 U.S. 330, casts doubt on another of plaintiff's citations, Roig Commercial Bank Dueno [85-1 USTC ¶9390], 617 F. Supp. 913, 915 (D. P.R. 1985), a case relying on American Acceptance for the proposition that a "seizure of a property by the I.R.S. operates as a transfer to it and precludes other parties from gaining any rights to the property." Id. at 915. Even if American Acceptance were still good law on this point, Roig, misstates the law in asserting that a tax sale certificate transfers title to the purchaser from the moment of sale. Id. at 915. That is not what 26 U.S.C. §6338 provides. No title or deed passes hands when the IRS imposes its tax lien or grants the tax sale purchaser a certificate of sale. In this case, Clifford Lindvig retained ownership of his property, subject, of course, to the lien of the IRS. When he exercised the quitclaim deed and assignment of redemption rights, those documents were not invalid per se. Lindvig retained an ownership interest to pass. Nonetheless, it is necessary to determine whether any other barriers stand in the way of Lindvig's transfer to Frank.

C. Relevant Precedent

There is very little case law on point. Spruill v. Cage [59-1 USTC ¶9165], 262 F.2d 355 (6th Cir. 1958), raises the identical question, but the court was able to resolve the issue on jurisdictional grounds without reaching the issue. McCampbell, 270 N.Y.S. 2d 685, has similar facts; again however, the court disposed of the case without deciding the issue. Cassel Brothers [82-1 USTC ¶9189], 1981 WL 1944, comes close but does not address the issue directly. The delinquent taxpayer corporation, Cassel Brothers, Inc., attempted to assign its right of redemption to its president. The court determined, however, that any redemption rights exercised by the president were exercised on behalf of the corporation and thus avoided the question whether a delinquent taxpayer may assign its redemption rights. But see id. at * 4 ("No mention is made of the right to assign the redemption right to another").

Roig [85-1 USTC ¶9390], 617 F. Supp. 913, supports plaintiffs' position to the extent that it holds that §6337 allows only those parties who had an interest in the property "before" the tax sale to redeem the property. Id. at 915. However, the court reached this conclusion after finding that "it betrays logic to interpret ... 26 U.S.C. §6337, as allowing the attachment subsequent to a tax sale of the purchaser's property which consequently strips the purchaser of its acquired rights to that property." Id. As explained previously, the court misinterpreted the extent of the tax sale purchaser's rights, leading it to view redemption by an individual with an interest acquired after a tax sale as stripping the tax sale purchaser of lawfully obtained title. Section 6338 does not vest title in the tax sale purchaser until the period of redemption has expired; therefore redemption does not take title away from the tax sale purchaser. Instead it invalidates the tax sale purchaser's certificate of sale, a far less invasive intrusion into the tax sale purchaser's rights.

Tax sale purchasers buy property with full knowledge that the owner or one of a number of other individuals might redeem during the next six months. They are protected financially if redemption rights are exercised by the requirement that the redeeming party pay them 20% interest on their investment in the property. 26 U.S.C. §6337(b)(2). Rather than defying logic, it seems perfectly sensible to allow a delinquent taxpayer to transfer ownership and redemption rights in his property after a tax sale. Such an arrangement benefits the owner, who is the most important entity in the process.

Allowing owners to transfer redemption rights after the tax sale permits them to recoup whatever remaining value there may be in their property. If they can negotiate with a prospective purchaser who is willing to pay the purchase price plus 20% interest and to pay the owner some additional amount, the owner stands to gain additional profit on property that is already being taken away from him by the government. Plaintiffs and defendants agree that a prospective purchaser such as defendant Frank takes the property subject to the tax lien of the IRS, which may operate to relieve the delinquent taxpayer of a significant burden if the tax lien exceeds the value of the property. Allowing the owner to transfer redemption rights comports with the canon that redemption rights are to be construed liberally in favor of the owner. Central Life Assurance Society v. Spangler, 216 N.W. 116 ( Iowa 1927) and Lancaster County v. Schwarz, 45 N.W.2d 432 ( Neb. 1950) reach this same conclusion, albeit construing redemption rights under state statutes rather than under §6337. In Spangler, 216 N.W. 116, the court summed up the principle in the following terms.

The practical effect of [a redemption] statute is that, when the distressed, and perhaps helpless, owner of real estate is approaching the end of his period of redemption, he may barter to another the remnant of his rights, both contractual and statutory. In such case, the right of redemption carries the only value which the ownership has. Such value is potential, and can be realized only by the exercise of the right of redemption. The exercise of such right saves the ownership. If the owner is not able to exercise such right, then neither ownership nor right of redemption has any value.

Id. at 117; see also Town of Lynnfield v. Owners Unknown, 492 N.E.2d 86 ( Mass. 1986) ("Redemption is no less favored where an individual or entity has acquired an ownership interest in the subject property subsequent to the initiation of foreclosure proceedings ..."). Id. at 88.

The government stands to benefit by allowing transfer before the expiration of the redemption period. If tax sale purchasers know that delinquent taxpayers will be able to assign their redemption rights, they are likely to make bids closer to fair market value at the tax sale so that other prospective purchasers do not have a financial incentive to pay the 20% interest plus some undefined amount to the owner in order to obtain redemption rights. The fact that defendant Frank was still willing to pay 20% interest after six months in order to obtain the property suggests that plaintiffs obtained the property at the tax sale for less than its true worth.

No benefit would accrue to owners if allowing them to convey their property had the effect of dissuading people to purchase land at tax sales, but it seems unlikely that this will occur. Tax sale purchasers know that certain individuals and entities have redemption rights. They make their bids with this in mind. They know the risk. It is one worth taking, because they receive 20% interest on their investment, a far better return than a savings account and competitive with the very best mutual fund rates.

Although plaintiffs suggest that a decision for defendants will inspire potential purchasers to wait in the wings until the highest tax sale bid is made and then try to purchase the property directly from the delinquent taxpayer, the suggestion is not compelling. There is too much risk in such a move: serious purchasers can never be certain they will be able to reach a purchase agreement with the owner or that other prospective purchasers will not offer more for the property.

ORDER

IT IS ORDERED that the motion for summary judgment of defendants Craig Frank and Maynard Lindvig as attorney for Clifford L. Lindvig is GRANTED. The motion for summary judgment of plaintiffs Raymond C. Babb and Robin R. Babb is DENIED. Plaintiffs' motion to strike paragraphs from the affidavits of defendant Frank and Pamela Kern is DENIED as moot.

[2004-2 USTC ¶50,311]Grable & Sons Metal Products, Inc., Plaintiff-Appellant v. Darue Engineering & Manufacturing, Defendant-Appellee.

U.S. Court of Appeals, 6th Circuit; 02-1678, July 27, 2004 .

Affirming a DC Mich. decision, 2002-1 USTC ¶50,384.

[ Code Sec. 6335]

Tax sale: Sale of seized property: Notice of sale or seizure: Substantial compliance. --

Service by the government of notices of levy and auction by certified mail on a delinquent taxpayer rather than by personal service did not comply with the requirement that notice must be given or left with the taxpayer. However, substantial compliance with the notice requirements was sufficient where the delinquent taxpayer received actual notice, could point to no injury suffered as a result of the defective service, and waited six years to bring an action to quiet title.


[ Code Sec. 6339]

Tax sale: Sale of seized property: Notice of sale or seizure: Substantial compliance. --

Substantial compliance by the IRS with tax sale notice requirements was sufficient to pass title to the buyer of real property previously owned by a delinquent corporate taxpayer. Although the IRS served the notices of levy and auction by certified mail on the delinquent taxpayer rather than by personal service, substantial compliance was sufficient since the delinquent taxpayer did receive actual notice, could point to no injury suffered as a result of the defective service, and waited six years to bring an action to quiet title.

Charles E. McFarland, for plaintiff-appellant. Michael C. Walton, Rhoades, McKee, Boer, Goodrich & Titta, for defendant-appellee.

Before: Boggs, Chief Circuit Judge, and Daughtrey, Circuit Judge, and Aldrich, ^* District Judge.

OPINION

BOGGS, Chief Circuit Judge: Grable & Sons Metal Products Inc., ("Grable") argues that the district court committed two errors in granting judgment to Darue Engineering & Manufacturing ("Darue") in Grable's action to quiet title against Darue. First, Grable argues that its claim, although based on federal tax law, does not present a federal question, and, therefore, that the district court did not have subject matter jurisdiction to adjudicate the case after Darue removed it from Michigan state court. Secondly, Grable appeals the district court's judgment denying its quiet-title claim in property Darue had purchased at a tax sale after the IRS seized it from Grable in 1994.

Grable's quiet-title action is based on provisions of the Internal Revenue Code concerning proper procedures for notifying delinquent taxpayers that their property has been seized. Its claim implicates a substantial federal interest, thereby presenting a federal question. Furthermore, the district court correctly denied Grable's action because the Internal Revenue Code allows for substantial, rather than literal, compliance with regulations regarding tax-seizure notification. Neither federal law nor principles of equity supports Grable's claim, asserted six years after the sale of its property, that notice by certified mail, rather than in person, rendered the IRS sale to Darue invalid. Accordingly, we affirm the judgment of the district court in its entirety.

I

The facts in this case are not disputed. In 1994, the IRS seized property at 601-701 W. Plains Road , in Eaton Rapids, Michigan , to satisfy Grable's tax debt resulting from not paying its corporate income taxes for six years. The IRS served notice of the seizure by certified mail, although 26 U.S.C. §6335(a), the relevant statute, provides that notice must be "given" personally to the owner of the property. The parties agree that the IRS failed to adhere to the exact provisions of the statute but that Grable nevertheless received actual notice of the seizure. The IRS sold the property to Darue on December 13, 1994 , for $44,500. The record before us contains no clear evidence that Grable challenged the sale at the time or attempted to redeem the property at issue in this case. Following its standard procedure, the IRS executed a quitclaim deed to Darue on November 13, 1995 .

On December 14, 2000 , about six years after Darue bought the property, Grable challenged the sale in Eaton County Circuit Court by filing a quiet-title action. Darue removed the case to the United States Court for the Western District of Michigan under 28 U.S.C. §1441(b). Grable filed a motion to remand based on lack of subject matter jurisdiction. 28 U.S.C. §1447(c). The district court held that it had jurisdiction to hear the case because the application of §6335(a) implicates a substantial federal interest, meaning that Grable's claim was based on a federal question. On March 29, 2002 , the district court denied Grable's motion to quiet title and awarded judgment to Darue. Grable appealed to this court in a timely manner.

II

Federal Question Jurisdiction

A defendant may remove to federal district court "any civil action brought in a state court of which the district courts of the United States have original jurisdiction." 28 U.S.C. §1441(a). District courts have original jurisdiction over any civil action "arising under any Act of Congress providing for internal revenue ...." 28 U.S.C. §1340. This court reviews district court decisions regarding subject matter jurisdiction de novo. Caudill v. N. Am. Media Corp., 200 F.3d 914, 916 (6th Cir. 2000). Because we may not rule on the merits of a case over which a district court did not have subject matter jurisdiction, we must decide that issue first. See Thomas v. United States [ 99-1 USTC ¶50,222], 166 F.3d 825, 828 (6th Cir. 1999). The parties do not have diversity of citizenship, 28 U.S.C. §1332(a), nor is the United States a party to this action. ¹

Federal courts also have original jurisdiction over claims "arising under the Constitution, laws, or treaties of the United States ." 28 U.S.C. §1331. Whether a claim presents a federal question "must be determined from what necessarily appears in the plaintiff's statement of his own claim." Taylor v. Anderson , 234 U.S. 74, 75-76 (1914). In its original complaint to quiet title, Grable alleged that Darue's quitclaim deed was invalid because it "was given with improper notice pursuant to 26 U.S.C. §6331 et seq. ... [and] since the tax deed was given pursuant to improper notice as required by 26 U.S.C. §6335(a), said transfer and claim through the tax deed is null and void and void ab initio." The key question is whether Grable's quiet-title action, based as it is on the faulty process in a tax seizure, "arises under" federal law and thus invokes federal court jurisdiction. We hold that it does.

The statute upon which Grable bases his complaint reads:

As soon as practicable after seizure of property, notice in writing shall be given by the Secretary to the owner of the property ... or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last known address.

26 U.S.C. §6335(a) (emphasis added). The parties agree that the IRS failed to "give" or "leave" notification and that therefore the service of notice did not comply with the statute. See Goodwin v. United States [ 91-2 USTC ¶50,323], 935 F.2d 1061, 1064 (1991) (noting government concession that the literal meaning of the statute requires personal service); Howard v. Adle [ 82-1 USTC ¶9176], 538 F.Supp. 504, 507 (E.D. Mich. 1982) (demonstrating that certified mailing is insufficient for compliance with the statute by quoting 26 C.F.R. §301.6335-1(b)(1) (1981) and IRS Manual §5356.1(2) (1980); the latter specifies that the "original notice of sale will be delivered to the taxpayer personally"). Although Grable's complaint hinges on a violation of the Internal Revenue Code, Grable insists that its cause of action does not arise under federal law.

The long history of Supreme Court guidance concerning the meaning of "arising under" the laws of the United States has been synthesized into a three-part test. Although formulations differ slightly among the circuits, a federal question may arise out of a state law case or controversy if the plaintiff asserts a federal right that 1) involves a substantial question of federal law; 2) is framed in terms of state law; and 3) requires interpretation of federal law to resolve the case. Long v. Bando Mfg. of America, 201 F.3d 754, 759 (6th Cir. 2000); see e.g., Howery v. Allstate Insurance Co., 243 F.3d 912, 918 (5th Cir.), cert. denied, 534 U.S. 993 (2001); Seinfeld v. Austen, 39 F.3d 761, 763 (7th Cir. 1994), cert. denied sub nom. Abbott Labs v. Seinfeld, 514 U.S. 1126 (1995). The asserted federal right in this case, personal notification of seizure of property as provided by IRS regulations, fulfills these three requirements.



Substantial Federal Interest

To identify a federal question, we must make "a pragmatic assessment of the nature of the federal interest at stake," Howery, 243 F.3d at 917 (citing commentators), a simple task in this context. The federal government cannot function without effective tax collection. See United States v. Kimbell Foods, 440 U.S. 715, 734 (1979) (citing McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 425, 428, 431 (1819)). Society has a strong interest in clear rules for handling delinquent taxpayers. The IRS must have transparent procedures for seizing and selling property so that people will be willing to purchase property at tax sales, allowing the IRS to provide a predictable stream of tax revenue. Determining the scope of the IRS's authority to seize property to satisfy a tax debt undoubtably [ sic] implicates a substantial federal interest.



Presentation as a state law claim

Grable sued to quiet title, which is generally a state law cause of action. However, the scope of a taxpayer's right to due process in the form of notice of the tax seizure and sale is the essential element of this claim. Grable would not have any cause of action, and Darue would have undisputed title to the property, were it not for the technical notice requirements of §6335(a). Therefore the Internal Revenue Code, not state property law, lies at the center of this dispute. The state and federal claims are sufficiently entwined to allow us to find that Grable has presented a federal question.



Interpretation of the federal law required

Disposition of all the aspects of this case, including those related to the traditional state law property issues, turn on construction of federal tax law. Both parties agree that the only way to resolve the underlying controversy is to evaluate whether §6335(a), which mandates notice for IRS seizure of property for non-payment of taxes in person, requires strict, or merely substantial, compliance with its provisions to allow the IRS deed to convey title. If strict compliance is necessary, then Grable is entitled to get his property back because the IRS did not comply with the letter of the statute. If substantial compliance is sufficient, then further analysis and weighing of the equities of the situation is required. Therefore the final requirement is met: interpretation of the federal tax code is necessary to resolve the state law issue.

In sum, Grable's quiet title action presents a federal question because it is rooted in the Internal Revenue Code, the correct interpretation of which represents a substantial federal interest.

III

Action to Quiet Title

The district court also correctly granted summary judgment to the appellee, Darue. At issue is whether serving notice through a certified letter, which Grable in fact received, constitutes sufficient compliance with the statute to make the resulting quitclaim deed valid. Evaluating whether substantial compliance is applicable is a question of law that is reviewed de novo. In re Eagle-Picher Indus., Inc. 285 F.3d 522, 527 (6th Cir. 2002) (applying substantial compliance analysis to notice requirements in a bankruptcy case). However, the rule itself is an equitable doctrine, so that a district court's decision to apply it is reviewed for abuse of discretion. Id. at 529. See Cleveland Newspaper Guild Local 1 v. Plain Dealer Pub. Co. , 839 F.2d 1147, 1155 (6th Cir. 1988).

The Internal Revenue Code states that:

b) Deed of real property. --In the case of the sale of real property pursuant to section 6335 --

...

(2) Deed as conveyance of title. --If the proceedings of the Secretary as set forth have been substantially in accordance with the provisions of law, such deed shall be considered and operate as a conveyance of all the right, title, and interest the party delinquent had in and to the real property thus sold at the time the lien of the United States attached thereto.

26 U.S.C. §6339(b)(2) (emphasis added). Therefore, if the IRS substantially complied with the provisions of §6335(a), then the tax sale is valid.

Grable counsels against reading the substantial compliance provision of §6339(b)(2) as applying to §6335(a) seizures, in spite of the statutory language to the contrary, since doing so would render the notice provisions "totally ineffective." Appellant Br. at 31. This argument is not persuasive. Grable is correct that a basic rule of statutory construction mandates that a court should read statutes as a whole and not interpret one provision in a way that would render another meaningless or superfluous. Beck v. Prupis, 529 U.S. 494, 506 (2000) (calling the rule a "longstanding canon of statutory construction"); Lake Cumberland Trust v. EPA, 954 F.2d 1218, 1222 (6th Cir. 1992).

Allowing substantial compliance does not undermine the purpose of §6335(a), nor make its provisions superfluous. Should the IRS fail to adhere to the strict statutory notice provisions, it then has the burden of showing it substantially complied with them. Proving that a recalcitrant taxpayer actually received notice of a seizure or sale could be quite difficult. No court would uphold a seizure without notice. Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950) (stating that "there can be no doubt that at a minimum [the due process clause] require[s] that deprivation of life, liberty or property by adjudication be preceded by notice and opportunity for hearing appropriate to the nature of the case").

Ignoring the provisions of §6335(a) puts the IRS at risk that a court will find its alternative notification procedures inadequate and invalidate the tax sale. Gauging how much variation will be tolerated puts the IRS in very uncertain territory. For instance, a simple public announcement of a tax sale, as provided for in 26 U.S.C. §6335(b), is "constitutionally inadequate." Verba v. Ohio Cas. Ins. Co. [ 88-2 USTC ¶9425], 851 F.2d 811, 816 (6th Cir. 1988). Attempting twice to notify the taxpayer in person of the public sale of his property, and then sending a certified letter, which was returned, and a regular letter, which was not, is insufficient notice to validate the tax sale. Reece v. Scroggins [ 75-1 USTC ¶9202], 506 F.2d 967, 969 (5th Cir. 1975). Nor will a court be swayed by the facts that taxpayer received proper notice of the initial property seizure and found out about the auction before the bidding began. Ibid. Adjudication of substantial compliance cases is very fact-specific, and the outcome is uncertain for the litigants. We do not believe that the latitude allowed by §6339(b)(2) undermines the strong motivation for the IRS to follow the letter of §6335(a). Only by doing so can it ensure the validity of its tax sales, effectively collect back taxes, and avoid litigation.

The Third Circuit approved the application of the substantial compliance doctrine to §6335(a) in Kabakjian v. United States [ 2001-2 USTC ¶50,684], 267 F.3d 208, 213 (2001), a case that is directly on point, and upon which the district court relied. Like Grable, Kabakjian owed the IRS taxes, and his property was seized and sold at auction. He sued the government, claiming that the notices he received pursuant to §6335(a) were defective because he received them by certified mail, rather than personal delivery. The Third Circuit held that the notices "were not so defective as to void the seizure of property and its transfer to third parties" because §6339(b)(2) allowed for substantial compliance. Ibid. Because Kabakjian could not demonstrate any prejudice beyond a theoretical deprivation of his right to notice, the court ruled that all his property rights had transferred to a third party, and his claim failed on the merits. Ibid.

Protecting the interests of bona fide purchasers is an important aspect of quiet title analysis. In the one opportunity the Sixth Circuit has had to address the question of substantial compliance in the context of a tax seizure and sale, we too held that procedural irregularities could not void a tax sale. PM Group Inv. Corp. v. PYK Enter. [ 98-2 USTC ¶50,529], No. 97-1335, 1998 WL 242337, at **3 (6th Cir. May 8, 1998) (unpublished opinion) (holding that issuance of a certificate of sale was conclusive evidence of the regularity of the sale). We noted that §6339(b)(2) was enacted to protect bona fide purchasers, such as Darue in this case. Ibid. (citing United States v. Whiting Pools [ 83-1 USTC ¶9394], 462 U.S. 198, 211 (1983)).

Grable argues that "provisions of law" in §6339(b)(2) means provisions of state law, citing Fuentes v. United States [ 88-1 USTC ¶9204], 14 Cl.Ct. 157, 167 (1987), and, therefore, that strict adherence to the statute is required. Fuentes dealt with a homeowner's suit against the IRS for delivering a quitclaim deed that was invalid under Puerto Rican law. The Court of Claims noted "that a sharp focus must be placed on the distinction between the law applicable to the efficacy of a tax sale and the law applicable to the execution of a deed stemming therefrom. As to the former, we find that federal law is applicable; and as to the latter, local law governs." Id. at 166. This case deals with the efficacy of the tax sale, rather than the validity of the deed, ² and is thus a question of federal law. See also Reece [ 75-1 USTC ¶9202], 506 F.2d at 970 (holding that faulty notice provisions made the sale voidable ab initio) (emphasis added). We also adopt the district court's analysis rejecting Grable's reading of Fuentes. The district court correctly pointed out that the substantial compliance language of §6339(b)(2) does not refer to the execution of the deed, but rather to the proceedings by which the Secretary sells real property pursuant to §6335, and therefore the statute directly contradicts Grable's theory that the substantial compliance provisions only apply to state law. Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg. [ 2002-1 USTC ¶50,384], 207 F.Supp.2d 694, 697 (W.D. Mich. 2002) (emphasis in the original).

Some courts have determined that substantial compliance is not acceptable in the context of a tax seizure. This view follows that of Chief Justice Marshall that "the person invested with such a power [to convey land] must pursue with precision the course prescribed by the law, or his act is invalid ...." Thatcher v. Powell, 19 U.S. (6 Wheat.) 119, 125 (1821). In Reece v. Scroggins, the leading case advocating strict construction, the court voided a tax sale because the IRS "handled this sale of land in a somewhat casual fashion," including failure to comply with notice requirements and irregularities in the subsequent public auction. Reece [ 75-1 USTC ¶9202], 506 F.2d at 970. The main rationale behind the court's holding was a recognition of the "Damoclean nature" of the IRS's ability to seize property to satisfy legitimate tax deficiencies and of the importance of strict adherence to the statute to protect the taxpayer. Id. at 971; Aqua Bar & Lounge, Inc. v. United States Dept. of Treasury [ 76-2 USTC ¶9554], 539 F.2d 935, 939 (2d Cir. 1976) (same).

In this case, however, Grable was amply protected. It received actual notice of the tax sale, which was one of several resulting from a six-year hiatus from paying taxes. It has not alleged any actual prejudice as a result of receiving notice through certified mail, nor did it take any action against Darue for six years. The protections in the statute are designed to prevent the government from seizing property without warning. The district court did not err in refusing to extend these protections to a delinquent taxpayer who knew that its property was being seized but waited years to assert its rights.

Although the statute allows for substantial compliance, the district court also analyzed the case under equitable principles, coming to the same favorable conclusion for Darue. Because we may affirm the district court on any ground supported by the record, we do not have to review the district court's application of equity, Shaw v. Deaconess Hosp., 355 F.3d 496, 498 (6th Cir. 2004), but we make two short points. In a case with similar defects in notice, the United States District Court for the Eastern District of Michigan applied equity in holding that substantial compliance was sufficient to validate the sale. Howard [ 82-1 USTC ¶9176], 538 F.Supp. at 508 (applying Michigan law to resolve the quiet title action). Secondly, the district court's decision to apply equity to dismiss Grable's quiet title motion does not contradict an earlier Michigan Court of Appeals quiet-title action that was decided in Grable's favor. Village of Dimondale v. Grable, 618 N.W.2d 23 ( Mich. App. 2000). In defending an action to quiet title to another piece of property that Mr. Grable owned personally, he argued that the tax sale was not valid because of defective IRS notice. The state appeals court held that, as a defendant, he did not have to worry about sleeping on his rights but was entitled to assert any valid defense. Dimondale, 618 N.W.2d at 31-32. The court also noted that "equity is a shield, not a sword." Id. at 32. The district court properly relied on that maxim when it held that a delay of approximately six years in pressing a claim provided sufficient basis in equity to deny Grable relief.

IV

For the reasons set out above, we AFFIRM the decision of the district court to deny Grable summary judgment and to award judgment to Darue.

^* The Honorable Ann Aldrich, United States District Judge for the Northern District of Ohio, sitting by designation.

¹ In order to be a party to a quiet title action, the United States must have an interest in the property, which it no longer has in this case. 28 U.S.C. §2410(a).

² See Robert Kratovil, Real Estate Law 49 (6th ed. 1974) (explaining that a "quitclaim deed purports to convey only the grantor's present interest in the land, if any, rather than the land itself .... If he has no interest, none will be conveyed.") (Emphasis in original.)

[2005-1 USTC ¶50,405]Grable & Sons Metal Products, Inc., Petitioner v. Darue Engineering & Manufacturing.

Supreme Court of the United States ; 04-603, June 13, 2005 .

On Writ of Certiorari to the United States Court of Appeals for the Sixth Circuit.

Affirming CA-6, 2004-2 USTC ¶50,311.

[28 USC 1331 and Code Secs. 6335, 6339 and 7402]

Federal-question jurisdiction: Actions arising under Constitution, laws, or treaties of the United States : State quiet title action: Interpretation of federal levy statute. --

A federal district court properly removed jurisdiction over a quiet title action arising under state ( Michigan ) law from the state court. Resolution of the case depended primarily upon the proper interpretation of federal income tax statutes involving the requirement that written notice be given to a delinquent taxpayer before the seizure and sale of property. The national interest in providing a federal forum for the proper interpretation of federal tax law was sufficiently substantial to support the exercise of federal jurisdiction even though the cause of action did not arise under federal law. An earlier decision ( Merrell Dow Pharmaceuticals Inc., v. Thompson, 478 U.S. 804 (1986)) in which the Court denied federal jurisdiction over a state tort claim that alleged negligence based on a drug company's violation of a federal misbranding statute should not be interpreted as always requiring a federal cause of action to support federal jurisdiction.

Syllabus

The Internal Revenue Service seized real property owned by petitioner (hereinafter Grable) to satisfy a federal tax delinquency, and gave Grable notice by certified mail before selling the property to respondent (hereinafter Darue). Grable subsequently brought a quiet title action in state court, claiming that Darue's title was invalid because 26 U. S. C. §6335 required the IRS to give Grable notice of the sale by personal service, not certified mail. Darue removed the case to Federal District Court as presenting a federal question because the title claim depended on an interpretation of federal tax law. The District Court declined to remand the case, finding that it posed a significant federal-law question, and it granted Darue summary judgment on the merits. The Sixth Circuit affirmed, and this Court granted certiorari on the jurisdictional question.

Held: The national interest in providing a federal forum for federal tax litigation is sufficiently substantial to support the exercise of federal-question jurisdiction over the disputed issue on removal. Pp. 3-11.

(a) Darue was entitled to remove the quiet title action if Grable could have brought it in federal court originally, as a civil action "arising under the...laws...of the United States," 28 U. S. C. §1331. Federal-question jurisdiction is usually invoked by plaintiffs pleading a cause of action created by federal law, but this Court has also long recognized that such jurisdiction will lie over some state-law claims that implicate significant federal issues, see, e.g., Smith v. Kansas City Title & Trust Co., 255 U.S. 180. Such federal jurisdiction demands not only a contested federal issue, but a substantial one. And the jurisdiction must be consistent with congressional judgment about the sound division of labor between state and federal courts governing §1331's application. These considerations have kept the Court from adopting a single test for jurisdiction over federal issues embedded in state-law claims between nondiverse parties. Instead, the question is whether the state-law claim necessarily stated a federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing a congressionally approved balance of federal and state judicial responsibilities. Pp. 3-6.

(b) This case warrants federal jurisdiction. Grable premised its superior title claim on the IRS's failure to give adequate notice, as defined by federal law. Whether Grable received notice is an essential element of its quiet title claim, and the federal statute's meaning is actually disputed. The meaning of a federal tax provision is an important federal-law issue that belongs in federal court. The Government has a strong interest in promptly collecting delinquent taxes, and the IRS's ability to satisfy its claims from delinquents' property requires clear terms of notice to assure buyers like Darue that the IRS has good title. Finally, because it will be the rare state title case that raises a federal-law issue, federal jurisdiction to resolve genuine disagreement over federal tax title provisions will portend only a microscopic effect on the federal-state division of labor. This conclusion puts the Court in venerable company, quiet title actions having been the subject of some of the earliest exercises of federal-question jurisdiction over state-law claims. E.g., Hopkins v. Walker , 244 U.S. 486, 490-491. Pp. 6-7.

(c) Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, is not to the contrary. There, in finding federal jurisdiction unavailable for a state tort claim resting in part on an allegation that the defendant drug company had violated a federal branding law, the Court noted that Congress had not provided a private federal cause of action for such violations. Merrell Dow cannot be read to make a federal cause of action a necessary condition for federal-question jurisdiction. It disclaimed the adoption of any bright-line rule and expressly approved the exercise of jurisdiction in Smith, where there was no federal cause of action. Accordingly, Merrell Dow should be read in its entirety as treating the absence of such cause as evidence relevant to, but not dispositive of, the "sensitive judgments about congressional intent," required by §1331. Id. , at 810. In Merrell Dow, the principal significance of this absence was its bearing on the consequences to the federal system. If the federal labeling standard without a cause of action could get a state claim into federal court, so could any other federal standards without causes of action. And that would mean an enormous number of cases. A comparable analysis yields a different jurisdictional conclusion here, because state quiet title actions rarely involve contested federal-law issues. Pp. 7-11.

[ 2004-2 USTC ¶50,311], 377 F.3d 592, affirmed.

SOUTER, J., delivered the opinion for a unanimous Court. THOMAS, J., filed a concurring opinion.

JUSTICE SOUTER delivered the opinion of the Court: The question is whether want of a federal cause of action to try claims of title to land obtained at a federal tax sale precludes removal to federal court of a state action with non-diverse parties raising a disputed issue of federal title law. We answer no, and hold that the national interest in providing a federal forum for federal tax litigation is sufficiently substantial to support the exercise of federal question jurisdiction over the disputed issue on removal, which would not distort any division of labor betweenthe state and federal courts, provided or assumed by Congress.

I

In 1994, the Internal Revenue Service seized Michigan real property belonging to petitioner Grable & Sons Metal Products, Inc., to satisfy Grable's federal tax delinquency. Title 26 U. S. C. §6335 required the IRS to give notice of the seizure, and there is no dispute that Grable received actual notice by certified mail before the IRS sold the property to respondent Darue Engineering & Manufacturing. Although Grable also received notice of the sale itself, it did not exercise its statutory right to redeem the property within 180 days of the sale, §6337(b)(1), and after that period had passed, the Government gave Darue a quitclaim deed. §6339.

Five years later, Grable brought a quiet title action in state court, claiming that Darue's record title was invalid because the IRS had failed to notify Grable of its seizure of the property in the exact manner required by §6335(a), which provides that written notice must be "given by the Secretary to the owner of the property [or] left at his usual place of abode or business." Grable said that the statute required personal service, not service by certified mail.

Darue removed the case to Federal District Court as presenting a federal question, because the claim of title depended on the interpretation of the notice statute in the federal tax law. The District Court declined to remand the case at Grable's behest after finding that the "claim does pose a significant question of federal law," Tr. 17 (Apr. 2, 2001), and ruling that Grable's lack of a federal right of action to enforce its claim against Darue did not bar the exercise of federal jurisdiction. On the merits, the court granted summary judgment to Darue, holding that although §6335 by its terms required personal service, substantial compliance with the statute was enough. [ 2002-1 USTC ¶50,384], 207 F.Supp.2d 694 (WD Mich. 2002).

The Court of Appeals for the Sixth Circuit affirmed. [ 2004-2 USTC ¶50,311], 377 F.3d 592 (2004). On the jurisdictional question, the panel thought it sufficed that the title claim raised an issue of federal law that had to be resolved, and implicated a substantial federal interest (in construing federal tax law). The court went on to affirm the District Court's judgment on the merits. We granted certiorari on the jurisdictional question alone, 543 U. S. ___ (2005) to resolve a split within the Courts of Appeals on whether Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), always requires a federal cause of action as a condition for exercising federal-question jurisdiction. We now affirm.

II

Darue was entitled to remove the quiet title action if Grable could have brought it in federal district court originally, 28 U. S. C. §1441(a), as a civil action "arising under the Constitution, laws, or treaties of the United States," §1331. This provision for federal-question jurisdiction is invoked by and large by plaintiffs pleading a cause of action created by federal law ( e.g., claims under 42 U. S. C. §1983). There is, however, another longstanding, if less frequently encountered, variety of federal "arising under" jurisdiction, this Court having recognized for nearly 100 years that in certain cases federal question jurisdiction will lie over state-law claims that implicate significant federal issues. E.g., Hopkins v. Walker , 244 U.S. 486, 490-491 (1917). The doctrine captures the commonsense notion that a federal court ought to be able to hear claims recognized under state law that nonetheless turn on substantial questions of federal law, and thus justify resort to the experience, solicitude, and hope of uniformity that a federal forum offers on federal issues, see ALI, Study of the Division of Jurisdiction Between State and Federal Courts 164-166 (1968).

The classic example is Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921), a suit by a shareholder claiming that the defendant corporation could not lawfully buy certain bonds of the National Government because their issuance was unconstitutional. Although Missouri law provided the cause of action, the Court recognized federal-question jurisdiction because the principal issue in the case was the federal constitutionality of the bond issue. Smith thus held, in a somewhat generous statement of the scope of the doctrine, that a state-law claim could give rise to federal-question jurisdiction so long as it "appears from the [complaint] that the right to relief depends upon the construction or application of [federal law]." Id. , at 199.

The Smith statement has been subject to some trimming to fit earlier and later cases recognizing the vitality of the basic doctrine, but shying away from the expansive view that mere need to apply federal law in a state-law claim will suffice to open the "arising under" door. As early as 1912, this Court had confined federal-question jurisdiction over state-law claims to those that "really and substantially involv[e] a dispute or controversy respecting the validity, construction or effect of [federal] law." Shulthis v. McDougal, 225 U.S. 561, 569 (1912). This limitation was the ancestor of Justice Cardozo's later explanation that a request to exercise federal-question jurisdiction over a state action calls for a "common-sense accommodation of judgment to [the] kaleidoscopic situations" that present a federal issue, in "a selective process which picks the substantial causes out of the web and lays the other ones aside." Gully v. First Nat. Bank in Meridian , 299 U.S. 109, 117-118 (1936). It has in fact become a constant refrain in such cases that federal jurisdiction demands not only a contested federal issue, but a substantial one, indicating a serious federal interest in claiming the advantages thought to be inherent in a federal forum. E.g., Chicago v. International College of Surgeons, 522 U.S. 156, 164 (1997); Merrell Dow, supra, at 814, and n. 12; Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 28 (1983).

But even when the state action discloses a contested and substantial federal question, the exercise of federal jurisdiction is subject to a possible veto. For the federal issue will ultimately qualify for a federal forum only if federal jurisdiction is consistent with congressional judgment about the sound division of labor between state and federal courts governing the application of §1331. Thus, Franchise Tax Bd. explained that the appropriateness of a federal forum to hear an embedded issue could be evaluated only after considering the "welter of issues regarding the interrelation of federal and state authority and the proper management of the federal judicial system." Id. , at 8. Because arising-under jurisdiction to hear a state-law claim always raises the possibility of upsetting the state-federal line drawn (or at least assumed) by Congress, the presence of a disputed federal issue and the ostensible importance of a federal forum are never necessarily dispositive; there must always be an assessment of any disruptive portent in exercising federal jurisdiction. See also Merrell Dow, supra, at 810.

These considerations have kept us from stating a "single, precise, all-embracing" test for jurisdiction over federal issues embedded in state-law claims between nondiverse parties. Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 821 (1988) (Stevens, J., concurring). We have not kept them out simply because they appeared in state raiment, as Justice Holmes would have done, see Smith, supra, at 214 (dissenting opinion), but neither have we treated "federal issue" as a password opening federal courts to any state action embracing a point of federal law. Instead, the question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.

III

A

This case warrants federal jurisdiction. Grable's state complaint must specify "the facts establishing the superiority of [its] claim," Mich. Ct. Rule 3.411(B)(2)(c) (West 2005), and Grable has premised its superior title claim on a failure by the IRS to give it adequate notice, as defined by federal law. Whether Grable was given notice within the meaning of the federal statute is thus an essential element of its quiet title claim, and the meaning of the federal statute is actually in dispute; it appears to be the only legal or factual issue contested in the case. The meaning of the federal tax provision is an important issue of federal law that sensibly belongs in a federal court. The Government has a strong interest in the "prompt and certain collection of delinquent taxes," United States v. Rodgers [ 83-1 USTC ¶9374], 461 U.S. 677, 709 (1983), and the ability of the IRS to satisfy its claims from the property of delinquents requires clear terms of notice to allow buyers like Darue to satisfy themselves that the Service has touched the bases necessary for good title. The Government thus has a direct interest in the availability of a federal forum to vindicate its own administrative action, and buyers (as well as tax delinquents) may find it valuable to come before judges used to federal tax matters. Finally, because it will be the rare state title case that raises a contested matter of federal law, federal jurisdiction to resolve genuine disagreement over federal tax title provisions will portend only a microscopic effect on the federal-state division of labor. See n. 3, infra.

This conclusion puts us in venerable company, quiet title actions having been the subject of some of the earliest exercises of federal-question jurisdiction over state-law claims. In Hopkins, 244 U.S. , 490-491, the question was federal jurisdiction over a quiet title action based on the plaintiffs' allegation that federal mining law gave them the superior claim. Just as in this case, "the facts showing the plaintiffs' title and the existence and invalidity of the instrument or record sought to be eliminated as a cloud upon the title are essential parts of the plaintiffs' cause of action." Id. , at 490. As in this case again, "it is plain that a controversy respecting the construction and effect of the [federal] laws is involved and is sufficiently real and substantial." Id. , at 489. This Court therefore upheld federal jurisdiction in Hopkins, as well as in the similar quiet title matters of Northern Pacific R. Co. v. Soderberg, 188 U.S. 526, 528 (1903), and Wilson Cypress Co. v. Del Pozo y Marcos, 236 U.S. 635, 643-644 (1915). Consistent with those cases, the recognition of federal jurisdiction is in order here.

B

Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), on which Grable rests its position, is not to the contrary. Merrell Dow considered a state tort claim resting in part on the allegation that the defendant drug company had violated a federal misbranding prohibition, and was thus presumptively negligent under Ohio law. Id. , at 806. The Court assumed that federal law would have to be applied to resolve the claim, but after closely examining the strength of the federal interest at stake and the implications of opening the federal forum, held federal jurisdiction unavailable. Congress had not provided a private federal cause of action for violation of the federal branding requirement, and the Court found "it would...flout, or at least undermine, congressional intent to conclude that federal courts might nevertheless exercise federal-question jurisdiction and provide remedies for violations of that federal statute solely because the violation...is said to be a...`proximate cause' under state law." Id. , at 812.

Because federal law provides for no quiet title action that could be brought against Darue, Grable argues that there can be no federal jurisdiction here, stressing some broad language in Merrell Dow (including the passage just quoted) that on its face supports Grable's position, see Note, Mr. Smith Goes to Federal Court: Federal Question Jurisdiction over State Law Claims Post-Merrell Dow, 115 Harv. L. Rev. 2272, 2280-2282 (2002) (discussing split in Circuit Courts over private right of action requirement after Merrell Dow). But an opinion is to be read as a whole, and Merrell Dow cannot be read whole as overturning decades of precedent, as it would have done by effectively adopting the Holmes dissent in Smith, see supra, at 5, and converting a federal cause of action from a sufficient condition for federal-question jurisdiction into a necessary one.

In the first place, Merrell Dow disclaimed the adoption of any bright-line rule, as when the Court reiterated that "in exploring the outer reaches of §1331, determinations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system." 478 U.S. , at 810. The opinion included a lengthy footnote explaining that questions of jurisdiction over state-law claims require "careful judgments," id., at 814, about the "nature of the federal interest at stake," id., at 814, n. 12 (emphasis deleted). And as a final indication that it did not mean to make a federal right of action mandatory, it expressly approved the exercise of jurisdiction sustained in Smith, despite the want of any federal cause of action available to Smith's shareholder plaintiff. 478 U.S. , at 814, n. 12. Merrell Dow then, did not toss out, but specifically retained the contextual enquiry that had been Smith's hallmark for over 60 years. At the end of Merrell Dow, Justice Holmes was still dissenting.

Accordingly, Merrell Dow should be read in its entirety as treating the absence of a federal private right of action as evidence relevant to, but not dispositive of, the "sensitive judgments about congressional intent" that §1331 requires. The absence of any federal cause of action affected Merrell Dow's result two ways. The Court saw the fact as worth some consideration in the assessment of substantiality. But its primary importance emerged when the Court treated the combination of no federal cause of action and no preemption of state remedies for misbranding as an important clue to Congress's conception of the scope of jurisdiction to be exercised under §1331. The Court saw the missing cause of action not as a missing federal door key, always required, but as a missing welcome mat, required in the circumstances, when exercising federal jurisdiction over a state misbranding action would have attracted a horde of original filings and removal cases raising other state claims with embedded federal issues. For if the federal labeling standard without a federal cause of action could get a state claim into federal court, so could any other federal standard without a federal cause of action. And that would have meant a tremendous number of cases.

One only needed to consider the treatment of federal violations generally in garden variety state tort law. "The violation of federal statutes and regulations is commonly given negligence per se effect in state tort proceedings." Restatement (Third) of Torts (proposed final draft) §14, Comment a. See also W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Torts, §36, p. 221, n. 9 (5th ed. 1984) ("[T]he breach of a federal statute may support a negligence per se claim as a matter of state law" (collecting authority)). A general rule of exercising federal jurisdiction over state claims resting on federal mislabeling and other statutory violations would thus have heralded a potentially enormous shift of traditionally state cases into federal courts. Expressing concern over the "increased volume of federal litigation," and noting the importance of adhering to "legislative intent," Merrell Dow thought it improbable that the Congress, having made no provision for a federal cause of action, would have meant to welcome any state-law tort case implicating federal law "solely because the violation of the federal statute is said to [create] a rebuttable presumption [of negligence]...under state law." 478 U.S. , at 811-812 (internal quotation marks omitted). In this situation, no welcome mat meant keep out. Merrell Dow's analysis thus fits within the framework of examining the importance of having a federal forum for the issue, and the consistency of such a forum with Congress's intended division of labor between state and federal courts.

As already indicated, however, a comparable analysis yields a different jurisdictional conclusion in this case. Although Congress also indicated ambivalence in this case by providing no private right of action to Grable, it is the rare state quiet title action that involves contested issues of federal law, see n. 3, supra. Consequently, jurisdiction over actions like Grable's would not materially affect, or threaten to affect, the normal currents of litigation. Given the absence of threatening structural consequences and the clear interest the Government, its buyers, and its delinquents have in the availability of a federal forum, there is no good reason to shirk from federal jurisdiction over the dispositive and contested federal issue at the heart of the state-law title claim.

IV

The judgment of the Court of Appeals, upholding federal jurisdiction over Grable's quiet title action, is affirmed.

It is so ordered.

Accordingly, we have no occasion to pass upon the proper interpretation of the federal tax provision at issue here.

Compare Seinfeld v. Austen, 39 F.3d 761, 764 (CA7 1994) (finding that federal-question jurisdiction over a state-law claim requires a parallel federal private right of action), with Ormet Corp. v. Ohio Power Co., 98 F.3d 799, 806 (CA-4 1996) (finding that a federal private action is not required).

The quiet title cases also show the limiting effect of the requirement that the federal issue in a state-law claim must actually be in dispute to justify federal-question jurisdiction. In Shulthis v. McDougal, 225 U.S. 561 (1912), this Court found that there was no federal question jurisdiction to hear a plaintiff's quiet title claim in part because the federal statutes on which title depended were not subject to "any controversy respecting their validity, construction, or effect." Id. , at 570. As the Court put it, the requirement of an actual dispute about federal law was "especially" important in "suit[s] involving rights to land acquired under a law of the United States," because otherwise "every suit to establish title to land in the central and western states would so arise [under federal law], as all titles in those States are traceable back to those laws." Id. , at 569-570.

Federal law does provide a quiet title cause of action against the Federal Government. 28 U. S. C. §2410. That right of action is not relevant here, however, because the federal government no longer has any interest in the property, having transferred its interest to Darue through the quitclaim deed.

For an extremely rare exception to the sufficiency of a federal right of action, see Shoshone Mining Co. v. Rutter, 177 U.S. 505, 507 (1900).

Other jurisdictions treat a violation of a federal statute as evidence of negligence or, like Ohio itself in Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), as creating a rebuttable presumption of negligence. Restatement (Third) of Torts (proposed final draft) §14, Comment c. Either approach could still implicate issues of federal law.

At oral argument Grable's counsel espoused the position that after Merrell Dow, federal-question jurisdiction over state-law claims absent a federal right of action, could be recognized only where a constitutional issue was at stake. There is, however, no reason in text or otherwise to draw such a rough line. As Merrell Dow itself suggested, constitutional questions may be the more likely ones to reach the level of substantiality that can justify federal jurisdiction. 478 U. S. , at 814, n. 12. But a flat ban on statutory questions would mechanically exclude significant questions of federal law like the one this case presents.

[Concurring Opinion]

JUSTICE THOMAS, concurring: The Court faithfully applies our precedents interpreting 28 U. S. C. §1331 to authorize federal-court jurisdiction over some cases in which state law creates the cause of action but requires determination of an issue of federal law, e.g., Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921); Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986). In this case, no one has asked us to overrule those precedents and adopt the rule Justice Holmes set forth in American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257 (1916), limiting §1331 jurisdiction to cases in which federal law creates the cause of action pleaded on the face of the plaintiff's complaint. Id. , at 260. In an appropriate case, and perhaps with the benefit of better evidence as to the original meaning of §1331's text, I would be willing to consider that course. ^*

Jurisdictional rules should be clear. Whatever the virtues of the Smith standard, it is anything but clear. Ante, at 4 (the standard "calls for a `common-sense accommodation of judgment to [the] kaleidoscopic situations' that present a federal issue, in `a selective process which picks the substantial causes out of the web and lays the other ones aside' " (quoting Gully v. First Nat. Bank in Meridian, 299 U.S. 109, 117-118 (1936))); ante, at 5 ("[T]he question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities"); ante, at 9 ("`[D]eterminations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system' "; "the absence of a federal private right of action [is] evidence relevant to, but not dispositive of, the `sensitive judgments about congressional intent' that §1331 requires" (quoting Merrell Dow, supra, at 810)).

Whatever the vices of the American Well Works rule, it is clear. Moreover, it accounts for the "`vast majority' " of cases that come within §1331 under our current case law, Merrell Dow, supra, at 808 (quoting Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 9 (1983)) --further indication that trying to sort out which cases fall within the smaller Smith category may not be worth the effort it entails. See R. Fallon, D. Meltzer, & D. Shapiro, Hart and Wechsler's The Federal Courts and the Federal System 885-886 (5th ed. 2003). Accordingly, I would be willing in appropriate circumstances to reconsider our interpretation of §1331.

^* This Court has long construed the scope of the statutory grant of federal-question jurisdiction more narrowly than the scope of the constitutional grant of such jurisdiction. See Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 807-808 (1986). I assume for present purposes that this distinction is proper --that is, that the language of 28 U. S. C. §1331, "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States " (emphasis added), is narrower than the language of Art. III, §2, cl. 1, of the Constitution, "[t]he judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority..." (emphases added).