Matagorda County v. Russell Law

United States Court of Appeals,

Fifth Circuit.

No. 92-7756.

MATAGORDA COUNTY, Bay City Independent School District and City

of Bay City, Plaintiffs-Appellants,

v.

RUSSELL LAW and Federal Deposit Insurance Corporation, as

Receiver for Bay City Bank & Trust Co., Defendants-Appellees.

April 21, 1994.

Appeal from the United States District Court for the Southern

District of Texas.

Before POLITZ, Chief Judge, HIGGINBOTHAM, Circuit Judge and

PICKERING*, District Judge.

PICKERING, District Judge:

This case presents the issue of whether a lien interest held

by the FDIC can be extinguished without the FDIC's consent as a

result of foreclosure of liens securing the payment of local

property taxes. The FDIC contends, and the district court below

held, that 12 U.S.C. § 1825(b)(2), recently enacted as part of the

Financial Institutions Reform, Recovery, and Enforcement Act of

1989 (FIRREA), expressly requires protection of the FDIC's

interest.

In 1987, Bay City Bank & Trust Company acquired a lien on

several lots in Bay City, Texas, under a deed of trust executed by

Russell Law given to secure repayment of a $1,100,000 loan. In

August 1990 Bay City Bank was declared insolvent by the Texas State

*

District Judge of the Southern District of Mississippi,

sitting by designation.

1

Banking Commissioner and the FDIC was appointed receiver and

succeeded to Bay City's lien interest in the subject property. In

September 1991, Matagorda County, Bay City Independent School

District and the City of Bay City (the Taxing Units) sued Russell

Law and Bay City Bank in state court to recover delinquent ad

valorem property taxes, penalties, interest, attorney's fees and

other costs for the years 1988 through 1990 on the subject

property. The Taxing Units joined the FDIC as a defendant in the

state court action in January 1992, and the FDIC removed the case

to the district court in March 1992. The Taxing Units sought a

personal judgment against Russell Law for the taxes and penalties,

and foreclosure of the Taxing Units' lien without the permission of

the FDIC and without preserving the lien the FDIC had acquired from

Bay City.

The court below entered summary judgment against Russell Law

and in favor of the Taxing Units in the amount of $51,899.01 for

delinquent taxes, penalties and interest and decreed the existence

of a lien to secure that sum. The court in its well-reasoned

opinion further held that this lien "is prior and superior to all

claims, rights, title, interest, or liens asserted by all of the

parties Defendant herein", but then denied foreclosure of that lien

absent consent of the FDIC, requiring that any foreclosure be

subject to the FDIC's lien. It is from this ruling that the Taxing

Units have perfected their appeal.

STANDARD OF REVIEW

This Court reviews a grant of summary judgment de novo. Hanks

2

v. Transcontinental Gas Pipeline Corp., 953 F.2d 996, 997 (5th

Cir.1992). "In reviewing the summary judgment, we apply the same

standard of review as did the district court." Waltman v.

International Paper Co., 875 F.2d 468, 474 (5th Cir.1989). Summary

judgment is appropriate if the record discloses "that there is no

genuine issue as to any material fact and that the moving party is

entitled to judgment as a matter of law." Federal Rules of Civil

Procedure 56(c). Sims v. Monumental General Ins. Co., 960 F.2d

478, 479 (5th Cir.1992). The pleadings, depositions, admissions,

and answers to interrogatories, together with affidavits, must

demonstrate that no genuine issue of material fact remains.

Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d

265 (1986). To that end we must "review the facts drawing all

inferences most favorable to the party opposing the motion." Reid

v. State Farm Mutual Auto Ins. Co., 784 F.2d 577, 578 (5th

Cir.1986). If the record taken as a whole cannot lead a rational

trier of fact to find for the non-moving party, there is no genuine

issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538

(1986).

We review the district court's legal decisions, including the

proper interpretation of a statute, de novo. AFCO Steel, Inc. v.

TOBI Engineering, Inc., 893 F.2d 92, 93 (5th Cir.1990).

TAX LIENS UNDER TEXAS LAW

Under Texas law, assessed but unpaid taxes on real property

become a lien on the property on January 1 of the year for which

3

they are levied. TEX.PROP.TAX CODE ANN. § 32.01 (Vernon 1992).

This lien has priority over any preexisting or subsequently imposed

lien. TEX.PROP.TAX CODE ANN. § 32.05 (Vernon 1992). The taxes

become delinquent if not paid prior to February 1 of the year

following the year in which they were imposed. TEX.PROP.TAX CODE

ANN. § 31.02 (Vernon 1992). At any time after its tax on property

becomes delinquent, a taxing unit may file suit to foreclose the

lien securing payment of the tax, to enforce personal liability for

the tax, or both. TEX.PROP.TAX CODE ANN. § 33.41(a) (Vernon 1992).

Property seized or ordered sold pursuant to foreclosure of a tax

lien is subject to sale to the highest bidder at a tax sale,

subject only to the owner's right of redemption and certain

covenants and easements running with the land which were recorded

prior to January 1 of the year the tax lien arose. TEX.PROP.TAX

CODE ANN. § 34.01 (Vernon 1992). The owner of real property sold

at a tax sale may redeem the property within two years after the

date on which the purchaser's deed is filed for record.1

TEX.PROP.TAX CODE ANN. § 34.21 (Vernon 1992).

A tax lien on real property in Texas secures four different

components:

(1) the tax itself;

(2) a one time penalty of twelve percent (12%) if the tax is not

paid by July 1 of the year in which it becomes delinquent,

1

The redemption period for certain classes of property not

homestead or designated for agricultural use was reduced to six

months by the 1993 session of the Texas Legislature by way of a

constitutional amendment to be acted upon by the citizens of

Texas. For purposes of this action, the outcome of the vote on

that amendment is of no consequence.

4

TEX.PROP.TAX CODE ANN. § 33.01(a) (Vernon 1982);

(3) interest at the rate of one percent (1%) per month until the

tax is paid "to compensate the taxing unit for revenue lost

because of the delinquency", TEX.PROP.TAX CODE ANN. § 33.01(c)

(Vernon Supp.1992); and

(4) an amount not to exceed fifteen percent (15%) of the total tax,

the twelve percent (12%) penalty, and the interest of one

percent per month, this being "an additional penalty to defray

costs of collection", and which precludes the recovery of an

attorney's fee in a suit brought to collect delinquent taxes.

TEX.PROP.TAX CODE ANN. § 33.07 (Vernon 1982).

PRIORITY OF TAXING UNITS' LIEN VERSUS THE FDIC'S LIEN

Appellants strenuously argue that their ad valorem tax lien is

superior to the consensual mortgage lien acquired by the FDIC.

Indeed, the court below held that appellants' lien, "... is prior

and superior to all claims, rights, title, interest, or liens

asserted by all of the parties Defendant herein." However, the

priority of the relative liens is not the determinative question to

be addressed. The decisive question is whether or not the court

below was correct in ruling that the appellants' ad valorem tax

lien could not be foreclosed without the permission of the FDIC,

regardless of the relative priority of the liens.

FIRREA

The Federal Deposit Insurance Corporation, when acting in its

capacity as a receiver, is exempted from the extinguishment of its

property interests through sale, foreclosure or levy, unless it has

given its consent. 12 U.S.C. § 1825(b)(2) provides;

No property of the Corporation shall be subject to levy,

attachment, garnishment, foreclosure or sale without the

consent of the corporation, nor shall any involuntary lien

attach to the property of the corporation.

Subsection (b) of § 1825 was adopted by Congress in the

5

Financial Institutions Reform, Recovery and Enforcement Act of 1989

(FIRREA), Pub.L. No. 101-73, 103 Stat. 183, which became effective

on August 9, 1989. FIRREA was enacted in response to the national

crisis involving failed financial institutions. Its purpose was,

among other things, to strengthen enforcement powers of federal

regulators of depository institutions. FIRREA § 101, Reprinted in

1989 USCCAN (103 Stat.) 187.

The 1989 passage of 12 U.S.C. § 1825 extended the FDIC's

immunity from state taxation, previously limited to its corporate

function, to its role as receiver. Irving Independent School Dist.

v. Packard Properties, 970 F.2d 58, 61 (5th Cir.1992). As this

Court recognized in Irving. "The result of § 1825(b)(2) is that

liens may not attach to that property while the FDIC owns it, but

a property previously encumbered must remain so." Irving

Independent School Dist. v. Packard Properties, 970 F.2d at 61. We

went on to assert in Irving;

The FDIC enjoyed sovereign immunity from state tax

penalties to facilitate its reconsolidation of failed banks;

in addition to the constitutional requirements, an admirable

goal underlies that immunity. Whenever the FDIC can reduce

the charges connected to property it has acquired, it can

increase the value of the property, decrease its own losses,

expedite resale, and save the nation's taxpayers and insured

depositors a great deal of money. The ability to extinguish

liens securing unpaid tax penalties incurred by earlier owners

would certainly further these goals. But to endow the FDIC

with such a valuable tool would come at a great cost to state

and local taxing authorities. Using this case as an example,

local governments and school districts have operated with

reliance on the recovery of unpaid ad valorem taxes and

penalties through liens on real property. To deny them their

justified expectations of receiving those funds would threaten

their ability to operate their schools. The policy arguments

in this case are strong on both sides. Perhaps in

consideration of these countervailing interests, Congress

limited its grant of power to the FDIC.

6

Irving Independent School Dist. v. Packard Properties, 970 F.2d at

62-63.

LOCAL AND STATE TAXES IMPOSED ON PROPERTY OF THE UNITED STATES

It is well established that "a state may not, consistent with

the Supremacy Clause, U.S. Const., Art. VI, Cl. 2, lay a tax

"directly upon the United States.' " Irving Independent School

Dist. v. Packard Properties, 970 F.2d at 61; quoting, U.S. v. New

Mexico, 455 U.S. 720, 733, 102 S.Ct. 1373, 1382, 71 L.Ed.2d 580

(1982), and Mayo v. U.S., 319 U.S. 441, 447, 63 S.Ct. 1137, 1140,

87 L.Ed.2d 1504 (1943). "No state or county can tax the property

interest of the United States in the absence of Congressional

consent." U.S. v. Allegheny County, PA, 322 U.S. 174, 191, 64

S.Ct. 908, 917-18, 88 L.Ed. 1209 (1944). "There is no

constitutional prohibition against a state or county assessing

taxes against property on which the United States holds a lien on

the basis of the full value of that property, but, in the absence

of Congressional consent the state or county is without authority

to enforce the collection of the taxes thus assessed so as to

destroy the pre-existing federal lien." City of New Brunswick v.

United States, 276 U.S. 547, 556, 48 S.Ct. 371, 372-73, 72 L.Ed.

693 (1928); S.R.A., Inc. v. State of Minnesota, 327 U.S. 558, 569,

66 S.Ct. 749, 756, 90 L.Ed. 851 (1946).

THE FDIC's TAX POLICY STATEMENT

The FDIC contends that the central issue to be reviewed by

this Court is a purely legal one—interpretation of 12 U.S.C. §

1825(b)(2). The FDIC further asserts that the standard of review

7

is potentially affected by the fact that it has already interpreted

this statute in its Tax Policy Statement and accompanying Legal

Memorandum. FDIC's position is that should this Court agree with

the District Court that the statute is clear on its face, the

FDIC's interpretation will have no effect on the outcome of the

case. Appellee-FDIC stresses that should the Court conclude that

the statute is unclear however, the FDIC's interpretation should be

accorded deference under the well-established doctrine that an

agency's interpretation must be accepted if it reflects a plausible

construction of the statute and does not otherwise conflict with

Congress' expressed intent. Rust v. Sullivan, 500 U.S. 173, 111

S.Ct. 1759, 1767, 114 L.Ed.2d 233 (1991); Chevron, U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104

S.Ct. 2778, 2781-2782, 81 L.Ed.2d 694 (1984); Sybrandy v. U.S.

Dept. of Agriculture, Agr. Stabilization and Conservation Service,

937 F.2d 443, 446 (9th Cir.1991); Resolution Trust Corp. v.

CedarMinn Bldg. Ltd. Partnership, 956 F.2d 1446, 1450-51 (8th

Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 94, 121 L.Ed.2d 56

(1992).

This Court has previously addressed the FDIC's Tax Policy

Statement and Accompanying Legal Memorandum in Irving Independent

School Dist. v. Packard Properties, supra. In Irving, this Court

declined to accord deference to the FDIC's Tax Policy Statement and

Legal Memorandum because it found that the statute at issue in that

case, § 1825(b)(3), clearly compelled an interpretation different

from the FDIC's. The Court went further and explained,

8

We conclude that the FDIC's Legal Memorandum should be given

no deference, not only because of the clarity of the federal

statute but because the Memorandum's strategically timed

publication—especially when the statutory language is

clear—imprints its contents with the stamp of biased

opportunism.

Irving Independent School Dist. v. Packard Properties, 970 F.2d at

64.

In response the FDIC stresses that this case is unlike the

facts addressed by the Court in Irving. The FDIC asserts that

several courts in addition to the District Court below have agreed

with the FDIC's interpretation of § 1825(b)(2). The FDIC points

out that in Irving, the Court declined to defer to the FDIC's

interpretation of § 1825(b)(3) on the ground that it was issued

"during pending litigation." The FDIC points out that the Tax

Policy Statement and underlying Legal Memorandum were issued three

months before the Taxing Units filed suit herein and six months

before the FDIC was made a party to this suit.

The FDIC's Tax Policy Statement was formally adopted by the

FDIC's board of directors and is published at 1 FDIC, Law,

Regulations and Related Acts (FDIC), 5331. The Legal Memorandum

which accompanied the Tax Policy Statement, and which was also

adopted by the FDIC board, is published at Fed.Banking L.Rep.

(CCH), Paragraph 81,426. The 1991 Tax Policy Statement replaced an

interim Tax Policy Statement that had been issued on July 12, 1990,

almost one year earlier. The 1991 Tax Policy Statement adopted

exactly the same interpretation of § 1825(b)(2) as set forth in the

interim policy statement. That interpretation was accepted by the

Court below. Thus appellee argues that its interpretation of §

9

1825(b)(2) is not merely a convenient litigating position as was

criticized by this Court in Irving, but instead reflects consistent

administrative practice entitled to judicial deference.

The entire argument of whether or not the Tax Policy Statement

issued by the FDIC is entitled to deference or not hinges on this

Court's finding of whether or not the statute at issue, §

1825(b)(2), is ambiguous. "A court may discount the FDIC's Legal

Memorandum when reliance upon an agency interpretation is

unnecessary because the statutory language the agency interprets is

unambiguous." Irving Independent School Dist. v. Packard

Properties, 970 F.2d at 63.

Section 1825(b)(2) says no "property" of the corporation shall

be subject to levy, attachment, garnishment, foreclosure, or sale

without the consent of the corporation.2 (Emphasis added.) "If

the intent of Congress is clear, that is the end of the matter;

for the Court, as well as the agency, must give effect to the

unambiguously expressed intent of Congress." Chevron, U.S.A., Inc.

v. Natural Resources Defense Council, Inc., 467 U.S. at 842-43, 104

S.Ct. at 2781-2782. "It is axiomatic that "[t]he starting point in

every case involving construction of a statute is the language

itself.' " Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105

S.Ct. 2297, 2301, 85 L.Ed.2d 692 (1985); quoting Blue Chip Stamps

v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 1935, 44

L.Ed.2d 539 (1975). This Court has previously ruled that

Congressional intent, as codified in § 1825, is clear and

2

12 U.S.C. § 1825(b)(2).

10

unambiguous and that there was no need for an extraneous

interpretation of the FDIC's Tax Policy Statement nor its

accompanying Legal Memorandum. See Irving Independent School Dist.

v. Packard Properties, supra. The clear language of the statute

has become no less clear since Irving.

IS THE FDIC ACQUIRED LIEN A "PROPERTY INTEREST"?

The operation of § 1825(b)(2) is limited to "property" of the

corporation.3 Appellants Taxing Units contend that this Court

should rely on Texas State law for a determination of whether or

not the consensual mortgage lien acquired by the FDIC is a

"property" interest as contemplated in § 1825. As a first line of

support, the appellants cite several Texas cases which hold that

consensual mortgage liens are not "property" under Texas law.

Appellants assert that Texas law is controlling in determining what

the FDIC holds as the successor beneficiary of the consensual deed

of trust lien created on the Law lots. They further contend that

the FDIC does not possess an interest in the property nor is it a

property owner. Under Texas law, a lienholder does not have legal

title to the property on which he holds the lien. First Nat. Bank

of Bellaire v. Huffman Independent School Dist., 770 S.W.2d 571,

573 (Tex.App.—Houston [14th Dist.] 1989, writ denied), cert.

denied, 494 U.S. 1091, 110 S.Ct. 1838, 108 L.Ed.2d 967 (1990).

Appellants thus argue that if the FDIC does not have legal title,

3

"No property of the Corporation shall be subject to levy,

attachment, garnishment, foreclosure or sale without the consent

of the corporation, nor shall any involuntary lien attach to the

property of the corporation." 12 U.S.C. § 1825(b)(2).

11

then it has no property interest. See Birdville Independent School

Dist. v. Hurst Associates, 806 F.Supp. 122, 127 (N.D.Tex.1992).

However, Texas law does recognize that lienholders have an

equitable interest in the secured property. E.g., Flag-Redfern Oil

Co. v. Humble Exploration Co., Inc., 744 S.W.2d 6, 8 (Tex.1987).

Additionally, at least one Texas Court has found that an FDIC

acquired lien is "property" under § 1825. See State v. Bankerd,

838 S.W.2d 639, 641 (Tex.App.—San Antonio 1992, writ denied).

However, the definition of "property" in this case is governed

by federal law. Clearfield Trust Co. v. United States, 318 U.S.

363, 366-67, 63 S.Ct. 573, 574-75, 87 L.Ed. 838 (1943). It has

been settled federal law since 1928 that in the context addressed

herein, "property" embraces both fee and lien interests. See,

Clallam Co., Wash. v. U.S., 263 U.S. 341, 44 S.Ct. 121, 68 L.Ed.

328 (1923); City of New Brunswick v. United States, 276 U.S. 547,

48 S.Ct. 374, 71 L.Ed. 693 (1928); U.S. v. Roessling, 280 F.2d

933, 936 (5th Cir.1960); Rust v. Johnson, 597 F.2d 174 (9th Cir.),

cert. denied, 444 U.S. 964, 100 S.Ct. 450, 62 L.Ed.2d 376 (1979);

U.S. v. General Douglas MacArthur Senior Village, Inc., 470 F.2d

675, 680 (2nd Cir.1972), cert. denied, sub nom., County of Nassau

v. U.S., 412 U.S. 922, 93 S.Ct. 2732, 37 L.Ed.2d 149 (1973); U.S.

v. Richland County, 500 F.Supp. 312, 316-317 (D.S.C.1980); U.S. v.

Emergency Land Fund, Inc., 569 F.Supp. 62, 65 (S.D.Miss.1983),

aff'd., 738 F.2d 434 (5th Cir.1984). "No basis in law exists for

treating mortgage interests of federal instrumentalities

differently from other property of the United States." Rust v.

12

Johnson, 597 F.2d at 177; citing City of New Brunswick v. United

States, supra; and U.S. v. Roessling, 280 F.2d at 936.

Appellants next argue that 28 U.S.C. § 2410 controls the

outcome of this case. That statute addresses suits naming the

United States as a party in a civil action "... to foreclose a

mortgage or other lien upon ... property on which the United States

has or claims a mortgage or other lien." 28 U.S.C. § 2410(a). In

such a suit, "[a] judgment or decree ... shall have the same effect

respecting the discharge of the property or other lien held by the

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

the local law of the place where the court is situated." If § 2410

applies, the Taxing Units' prior lien would extinguish the junior

FDIC lien.

Section 2410, which substantially predates FIRREA, was enacted

in 1931 to "lift the bar of sovereign immunity which had

theretofore been considered to work a particular injustice to

private lienors." U.S. v. Brosnan, 363 U.S. 237, 246, 80 S.Ct.

1108, 1114, 4 L.Ed.2d 1192 (1960). FIRREA, on the other hand, is

a comprehensive system of statutes enacted fifty-eight years later

to address a crisis in the financial institutions industry.

Section 1825 was enacted to protect assets involuntarily acquired

by the FDIC from losing value because of its lack of knowledge

about local and state tax liens. Section 2410 is not mentioned in

FIRREA, and to the extent that it is inconsistent with that

statute, it does not control, since more specific and recent

statutes prevail over more general older ones absent a clear

13

intention otherwise. See, e.g., Morton v. Mancari, 417 U.S. 535,

550-51, 94 S.Ct. 2474, 2482-83, 41 L.Ed.2d 290 (1974); U.S. v.

Crittenden, 600 F.2d 478, 480 (5th Cir.1979); Sam Bassett Lumber

Co. v. City of Houston, 145 Tex. 492, 198 S.W.2d 879, 881 (1947).

Section 1825 is clearly a later, more specific statute designed and

enacted to protect assets acquired by the FDIC in its efforts to

strengthen the banking industry.

The Taxing Units cite two cases applying state law to divest

federal liens under § 2410. U.S. v. Brosnan, supra; and U.S. v.

Cless, 254 F.2d 590 (3rd Cir.1958). However, both of those cases

recognized that divestiture was proper only if Congress had not

acted to prevent it. Brosnan, 363 U.S. at 241, 242, 80 S.Ct. at

1111, 1112; Cless, 254 F.2d at 594. Congressional action pursuant

to the enactment of § 1825 of FIRREA defeats the operation of §

2410 in this case.

The appellants next argue that federal common law, as

developed from state law, controls. For this proposition,

Appellants rely on U.S. v. Kimbell Foods, Inc., 440 U.S. 715, 99

S.Ct. 1448, 59 L.Ed.2d 711 (1979). Kimbell Foods held, "We

conclude that the source of law is federal, but that a national

rule is unnecessary to protect the federal interest underlying the

loan programs. Accordingly we adopt state law as the appropriate

federal rule for establishing the relative priority of these

competing federal and private liens." U.S. v. Kimbell Foods, Inc.,

440 U.S. at 718, 99 S.Ct. at 1453. The holding of Kimbell Foods

would seem to support the appellants' position. However, that case

14

contains this caveat: "Thus, the prudent course is to adopt the

readymade body of state law as the federal rule of decision until

Congress strikes a different accommodation." U.S. v. Kimbell

Foods, Inc., 440 U.S. at 740, 99 S.Ct. at 1464. Appellants ignore

the holding in Kimbell Foods, "... that absent a Congressional

directive, the relative priority of private liens and consensual

liens arising from these government lending programs is to be

determined under non-discriminatory state laws." 440 U.S. at 740,

99 S.Ct. at 1465. (Emphasis added.) In the situation presented to

the Court in the case at bar, there has been direct Congressional

action by virtue of 12 U.S.C. § 1825(b)(2)—not concerning the

priority of the relative liens—but dealing with a taxing unit's

ability to enforce that lien absent FDIC consent. As the Ninth

Circuit stated in Rust, "Appellants' contention confuses validity

and priority of the lien with the real issue in this lawsuit. We

are not concerned with authority of the city to make the assessment

or with the priority under state law of the street improvement

lien.... What we have decided is that under federal law the

improvement lien cannot be enforced without protecting the federal

interest." Rust v. Johnson, 597 F.2d at 180.

As pointed out previously, appellants seem to be operating

under the same misapprehension as was the City of Los Angeles in

Rust. The FDIC has not contested the Taxing Units' authority to

assess the taxes against the Law property nor the validity or

priority of their subsequently imposed lien for the failure to pay

taxes. The FDIC's only contention is that the tax lien cannot be

15

foreclosed so as to extinguish its (the FDIC's) interest in the

property unless it (the FDIC) consents. The FDIC's acquired lien

interest in the Law lots is clearly a "property" interest as

contemplated in the statute.4

Appellants' other arguments regarding the Legislative history

and the asserted retroactive application of the statute are without

merit. The fact that this suit relied on events occurring before

the 1989 enactment of FIRREA does not make its application

retroactive. See U.S.E.P.A. v. New Orleans Public Service, Inc.,

826 F.2d 361, 365 (5th Cir.1987). The Taxing Units' suit to

foreclose their tax lien is the triggering event that is prohibited

by FIRREA—specifically by § 1825(b)(2). For purposes of the

prohibition contained in the statute, it does not matter when the

lien came into existence, the attempted enforcement occurred in

1991. See GWN Petroleum Corp. v. OK-Tex Oil & Gas, Inc., 998 F.2d

853 (10th Cir.1993).

If the taxing units were allowed to foreclose their tax lien

without the consent of the FDIC, the consensual mortgage lien

executed by Law and acquired by the FDIC as a result of the failure

of Bay City Savings Bank would be extinguished. This is clearly

forbidden by the plain wording of § 1825(b)(2). Again, this appeal

does not involve the priority of the liens involved, it only

involves the question of when and how the foreclosure can be

conducted.

THE "TAKINGS CLAUSE"

4

12 U.S.C. § 1825(b)(2).

16

The final point of error asserted by the Taxing Units is that

the district court erred in holding that 12 U.S.C. § 1825 prohibits

a foreclosure of the ad valorem tax lien without awarding the

Taxing Units recovery against the FDIC for the amount of the value

secured by the tax lien.5 In other words, the FDIC has effectively

"taken" the property of the Taxing Units (the value secured by the

tax lien) without just compensation as required by the United

States Constitution.6

The FDIC contends that the application of § 1825 to protect

its lien interest from foreclosure is not a compensable taking

under the Fifth Amendment because all the statute requires is that

the FDIC lien be protected. It does not extinguish the Taxing

Units' lien nor does it even subordinate it to the FDIC lien—it

5

The FDIC argues that there can be no "taking" by virtue of

the Constitution's Supremacy Clause, because, absent express

Congressional waiver, a local taxing authority could never

enforce a tax lien so as to destroy a federal lien interest.

E.g., Clallam County, 263 U.S. at 344, 44 S.Ct. at 121-22; New

Brunswick, 276 U.S. at 556, 48 S.Ct. at 372-73; U.S. v.

Roessling, 280 F.2d at 936; Rust v. Johnson, 597 F.2d at 178-79.

Since 12 U.S.C. § 1825(b)(1) provides that State and local

governments may impose real property taxes on property acquired

by the FDIC, there has been an "express Congressional waiver" of

the Supremacy Clause. Thus, the FDIC's Supremacy Clause argument

is not entirely relevant, except for historical purposes.

6

The relevant portion of the Fifth Amendment to the United

States Constitution provides that, "... nor shall private

property be taken for public use, without just compensation."

Although the language of the "Takings Clause" is couched in terms

of "private property", it is recognized that the "Takings Clause"

also applies to "independently held and controlled property of a

state or of a local subdivision...." U.S. v. Carmack, 329 U.S.

230, 242, 67 S.Ct. 252, 257, 91 L.Ed.2d 209, 217 (1946); See

also, U.S. v. 50 Acres of Land, 469 U.S. 24, 105 S.Ct. 451, 83

L.Ed.2d 376 (1984).

17

merely delays its enforcement.7 Appellants counter that it is this

indeterminate delay that constitutes a compensable taking.

While eschewing any " "set formula' for determining when

"justice and fairness' require that economic injuries caused by

public action be compensated by the government,"8 the Supreme Court

has identified three factors that have "particular significance."9

They are; (1) the economic impact of the regulation on the

claimant; (2) the extent to which the regulation has interfered

with distinct investment-backed expectations; and, (3) the

character of the governmental action.10

The first significant factor is the economic impact of § 1825

on the Appellants. In order for regulatory action to rise to the

level of an unconstitutional taking, there must be a complete

deprivation of the owner's economically viable use of his property.

See Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 138,

n. 36, 98 S.Ct. 2646, 2666, n. 36, 57 L.Ed.2d 631, 657 (1978);

Agins v. City of Tiburon, 447 U.S. 255, 260, 100 S.Ct. 2138, 2141,

65 L.Ed.2d 106, 112; and Lucas v. South Carolina Coastal Council,

7

The FDIC points out that under its interpretation of §

1825(b)(2), the Taxing Units can foreclose their lien, as long as

the FDIC lien is protected; that the FDIC has stated that it

will provide for payment of delinquent taxes on property in which

it holds an interest; and that tax liens having priority over

the FDIC's mortgage liens under state law will be recognized.

8

Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104,

124, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631, 648 (1978).

9

Id.

10

Id. See also, Connolly v. Pension Ben. Guar. Corp., 475

U.S. 211, 225, 106 S.Ct. 1018, 1026, 89 L.Ed.2d 166, 179 (1986).

18

--- U.S. ----, ----, 112 S.Ct. 2886, 2893, 120 L.Ed.2d 798, 813

(1992). Where virtually all of the owner's possessory rights are

left intact, the interference cannot be a taking. Penn Cent., 438

U.S. at 130-31, 98 S.Ct. at 2662-63. As the Supreme Court has

stated, "where an owner possesses a full "bundle' of property

rights, the destruction of one "strand' of the bundle is not a

taking, because the aggregate must be viewed in its entirety."

Andrus v. Allard, 444 U.S. 51, 65-66, 100 S.Ct. 318, 327, 62

L.Ed.2d 210 (1979). Both parties analogize to the "bundle" of

rights. The FDIC contends that the Taxing Units' property interest

is to the taxes due on the property which secures the tax lien and

the mortgage lien. That property interest includes a bundle of

rights including the power to assess and levy taxes, assess

penalties, to foreclose on tax liens, and to obtain personal

judgments against landowners. All of this bundle remains after the

application of FIRREA except the right to foreclose. As long as

some strands remain in the bundle, the fact that the Taxing Units

suffer economic loss does not create a taking. See Penn Cent.

Transp. Co. v. City of New York, supra. The Taxing Units assert

that the tax lien itself is the affected property right. They

argue that the FDIC's power to delay foreclosure makes the entire

lien worthless for the period of delay and further, may make the

entire lien completely worthless when it does finally give its

consent if the accumulation of debt (interest) on the property

makes it unmarketable. Thus, the ultimate question confronting the

Court is whether or not a delay in allowing the Taxing Units to

19

foreclose their lien constitutes a taking. The Taxing Units have

cited no cases which hold that mere delay in exercising a property

right is a compensable taking. The main case relied upon by the

Appellants is Louisville Joint Stock Land Bank v. Radford, 295 U.S.

555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935). However, Louisville dealt

not only with delay but also with a bankruptcy provision which

allowed the underlying debt to be written down. Under § 1825, the

FDIC does not have the power to change the amount of taxes due—nor

does it prevent the Taxing Units pursuing collection of their

personal judgment against the landowner, Russell Law. While the

operation of § 1825 creates a delay which impairs the ability of

the Taxing Units to collect on their tax lien, mere delay—at least

the period of delay experienced to this point—does not infringe on

Appellants' total "bundle" of rights to the point of creating a

compensable taking.

The Taxing Units concede that they may not have the same type

of investment-backed expectations present in a traditional analysis

of the next prong of the tri-partite test, but they argue that they

certainly expected to be able to collect the delinquent taxes owed

to them or to be able to foreclose on the underlying security and

sell it in order to recover the unpaid taxes, penalties and

interest. The Taxing Units have relied on the fact that their lien

generally takes priority over all other liens, and indeed it still

has priority over the FDIC acquired lien. However, the Taxing

Units routinely deal with banks holding security instruments on

real property and must recognize that, "Banking is one of the

20

longest regulated and most closely supervised of public callings."

Fahey v. Mallonee, 332 U.S. 245, 250, 67 S.Ct. 1552, 1554, 91 L.Ed.

2030 (1947). Those who deal with regulated industries are charged

with notice that Congress may enact legislation to meet a given

legislative goal. See Connolly, supra; and McAndrews v. Fleet

Bank of Massachusetts, N.A., 989 F.2d 13 (1st Cir.1993).

Regardless of the foregoing, prior to the 1989 enactment of FIRREA,

Appellants would have likely been entitled to enforcement of their

tax lien irrespective of who held the mortgage lien. This factor

tends to militate in favor of finding a taking but for the fact

that in the final analysis, FIRREA has not ultimately deprived the

Appellants of the essence of their claim—it has merely delayed

enforcement of that claim.

With respect to the final significant factor, the character of

the governmental action, the FDIC has not physically invaded or

permanently appropriated any assets belonging to the Taxing Units

for its own use. "It is well settled that a " "taking" may more

readily be found when the interference with property can be

characterized as a physical invasion by government, ... than when

interference arises from some public program adjusting the benefits

and burdens of economic life to promote the common good.' ...

While the Court has almost invariably found that the permanent

physical occupation of property constitutes a taking, ... the Court

has repeatedly upheld regulations that ... adversely affect real

property interest." Keystone Bituminous Coal Ass'n v.

DeBenedictis, 480 U.S. 470, 488, n. 18, 107 S.Ct. 1232, 1243, n.

21

18, 94 L.Ed.2d 472 (1987). The indeterminate postponement of the

Taxing Units' ability to collect on their tax lien, while not a

"physical invasion" or a "permanent appropriation" of their assets,

is certainly a severe impairment of those assets. The Taxing Units

make a persuasive argument that their ongoing viability—the ability

to provide necessary community services, schools, fire and police

protection, etc.—are greatly compromised by their inability to

collect delinquent taxes. This argument does not fall on deaf

ears.

After a careful analysis of all of the facts of this case,

this Court is not convinced that the Appellants have been deprived

of a sufficient property interest to create a compensable taking.11

11

The Court would note that the court below authorized the

Taxing Units to foreclose on the property in question provided

the lien of the FDIC is preserved. That is not a realistic

solution. As the record indicates, when the final judgment was

entered in the trial court below on November 10, 1992, the

adjudged value of the lots was only $333,660. The last unpaid

balance of the Russell Law note appearing in the record was for

an original principal sum of $891,000 in March 1989. The FDIC

lien further involves interest that has accrued since that date.

As a practical matter the Taxing Units cannot sell this

property which has a value of only some $333,000 with a

potential FDIC lien of almost one million dollars. The

practical effect of 12 U.S.C. § 1825(b)(2) is that at some

point either one or both of the parties will find a

purchaser who will discharge the tax lien and pay a sum to

the FDIC which will represent a part of the FDIC's total

lien, based upon the market value of the property in

question and finding a willing buyer; the FDIC will

foreclose on the subject property and either some other

entity will buy it in and then have the responsibility of

discharging the tax lien to the Taxing Units, or the FDIC

will take it into inventory at which time the FDIC will have

to discharge the tax lien as per its policy; or, the FDIC

will eventually have to abandon its interest in the property

in accordance with its policy. That is the practical effect

of 12 U.S.C. § 1825(b)(2).

22

Congress was presented with the phenomenal task of addressing an

impending catastrophe in the failure of financial institutions and

in response enacted FIRREA. Certain provisions therein are the

classic example of a "public program that adjusts the benefits and

burdens of economic life to promote the common good." Penn Cent.,

supra 438 U.S. at 124, 98 S.Ct. at 2659, 57 L.Ed.2d at 648. As the

Court has stated, "Legislation designed to promote the general

welfare commonly burdens some more than others." Id. at 133, 98

S.Ct. at 2664, 57 L.Ed.2d at 654. This Court has found that delay

in the exercise of a valuable property right alone is not

sufficient to create a compensable taking. That finding is

tempered, indeed limited, by the acknowledgement that delay to this

point is not sufficient to constitute a compensable taking.

The Court would further note that the consensual lien

on the subject property became the property of FDIC when it

was appointed receiver in August 1990. The judgment below

was entered on November 10, 1992, some two years and three

months after this lien became an asset of the FDIC. FIRREA

was adopted to allow the FDIC to take over failed financial

institutions so that the ultimate loss to the taxpayers

would be reduced. An inordinate delay on the part of the

FDIC could not only result in defeating the reason for

adopting FIRREA, but it could, if continued long enough,

result in an unconstitutional taking. The Supreme Court

discussed the limits that a governmental body can go to in

diminishing property rights of another without their being

an unconstitutional taking and said, "One fact for

consideration in determining such limits is the extent of

the diminution. When it reaches a certain magnitude, in

most if not in all cases there must be ... compensation...."

Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. at

474, 107 S.Ct. at 1236, 94 L.Ed.2d at 481. Although two

years and three months, under the facts of this case

involving a piece of property worth in excess of $330,000,

does not constitute a taking, it is approaching what this

Court considers to be the maximum amount of time that should

be allowed to resolve matters such as this without there

being a "taking" requiring compensation.

23

Unmitigated delay, coupled with diminishment of distinct

investment-backed expectations, may, at some point, infringe on the

entire "bundle" of rights enjoyed by the Appellants to the point

that a compensable taking occurs. With the forgoing admonition and

as the record now stands, the Court rejects the Taxing Units'

"Takings Clause" argument.

For the foregoing reasons, the judgment of the district court

is AFFIRMED.

24