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10/16/89 Robert Knodle Et Al., v. Jeanne M. Jeffrey Et Al.

October 16, 1989

ROBERT KNODLE ET AL., PLAINTIFFS AND COUNTERDEFENDANTS-APPELLANTS

v.

JEANNE M. JEFFREY ET AL., DEFENDANTS AND COUNTERPLAINTIFFS-APPELLEES



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

545 N.E.2d 1017, 189 Ill. App. 3d 877, 137 Ill. Dec. 256 1989.IL.1632

Appeal from the Circuit Court of Stephenson County; the Hon. Lawrence A. Smith, Jr., Judge, presiding.

APPELLATE Judges:

JUSTICE LINDBERG delivered the opinion of the court. UNVERZAGT, P.J., and REINHARD, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE LINDBERG

Plaintiffs and counterdefendants, Robert and Priscilla Knodle (Knodles), appeal from a judgment of the circuit court of Stephenson County entered in favor of defendant and counterplaintiff, Jeanne M. Jeffrey, finding title to the subject real property to be in Ms. Jeffrey, free of any claims by the Knodles. The Knodles have appealed pursuant to Supreme Court Rule 304(a) (124 Ill. 2d R. 304(a)) from a final judgment as to less than all the parties and/or claims where the trial court entered the requisite written finding that there was no just reason to delay enforcement or appeal.

The Knodles purchased the subject property located in Stephenson County, Illinois, at a sale conducted by the United States Internal Revenue Service on May 20, 1982. The subject property had been seized by the IRS from its owners in joint tenancy, William Hill and his ex-wife, Dianna Carlson, F/K/A Dianna Hill, due to their failure to pay a delinquent tax bill. Ms. Jeffrey purchased the subject property in November 1983 from William Hill and Dianna Carlson, and a warranty deed from William Hill and Dianna Carlson to Ms. Jeffrey was recorded on November 17, 1983. The Knodles sued Ms. Jeffrey, among others, to quiet title, gain possession of the subject property and recover rents. Ms. Jeffrey answered, filed affirmative defenses and counterclaimed against the Knodles to quiet title. The Knodles filed answers and affirmative defenses to Ms. Jeffrey's counterclaim. Ms. Jeffrey also sued William Hill and Dianna Carlson for breach of the warranty deed in the event Ms. Jeffrey was determined not to have a clear title to the subject property. The Knodles and Ms. Jeffrey entered into a stipulation of facts upon which the trial court entered judgment in favor of Ms. Jeffrey and from which the Knodles now appeal. The issue before this court concerns the legal effect of a prior Federal suit to set aside the tax sale due to a lack of notice, filed by Ms. Jeffrey's predecessor in interest, Dianna Carlson. Dianna Carlson dismissed her Federal suit with prejudice on November 21, 1983, only a short time after the subject property was sold to Ms. Jeffrey.

The following facts are contained in the stipulation of facts entered between the Knodles and Ms. Jeffrey. On July 15, 1981, the IRS recorded a lien against the subject real property, owned by William Hill and Dianna Carlson, then known as Dianna Hill, for delinquent taxes alleged to be due for the year 1976. The subject property was seized by the IRS in April of 1982. The property was sold by the IRS at public auction to the Knodles on May 20, 1982. A certificate of the tax sale was recorded on May 28, 1982.

On August 4, 1982, Dianna Carlson, then a resident of the State of Washington, filed suit in the District Court of the United States for the Northern District of Illinois, Western Division (district court), against her ex-husband, William Hill, as well as the Knodles, the United States of America and others in an attempt to obtain a declaration that the tax sale of May 20, 1982, was invalid and for other relief. Dianna Carlson had divorced William Hill on May 14, 1978, and because no property settlement has been effected, Dianna Carlson claimed an interest in the property. In her Federal complaint, Dianna Carlson alleged that the property was sold at auction without notice to her and further that she was not liable for the underlying tax debt. On August 13, 1982, a certificate of release of the Federal tax lien was recorded. On August 20, 1982, a lis pendens notice of the Federal suit was recorded. Dianna Carlson sought a preliminary injunction prohibiting the government from issuing a tax deed. The government moved to dismiss the entire action on the grounds that section 7421(a) of the Anti-Injunction Act (26 U.S.C. § 7421(a) (1982)) deprived the district court of subject-matter jurisdiction. The government agreed not to issue the tax deed pending the court's ruling on the request for a preliminary injunction. After an evidentiary hearing, the court, finding it had jurisdiction, further found that Dianna Carlson was not given proper notice by the IRS in that written notice was not mailed to her last known address. (See Reece v. Scoggins (5th Cir. 1975), 506 F.2d 967.) Finding other factors necessary to the issuance of a preliminary injunction present, the district court on December 30, 1982, entered a preliminary injunction enjoining the Federal government from issuing a tax deed to the Knodles.

The property was sold by William Hill and Dianna Carlson to Ms. Jeffrey and on November 17, 1983, a warranty deed for the subject property to Ms. Jeffrey was recorded. On November 21, 1983, pursuant to a stipulation by the parties to the Federal suit as authorized by Federal Rule of Civil Procedure 41(a)(1)(ii) an order dismissing the Federal suit with prejudice was entered by the district court. On March 28, 1984, a deed to the subject property from the district director of the IRS to the Knodles was recorded. No party has ever redeemed the property

The Knodles filed their complaint in the instant suit in the circuit court of Stephenson County on May 30, 1984. After the Knodles and Ms. Jeffrey entered into the stipulation of facts, both parties filed written briefs, and argument was heard before the court. The Knodles argued that Ms. Jeffrey, as a successor in interest to William Hill and Dianna Carlson after the tax sale and after the certificate of sale had been recorded, was required to redeem the property within 120 days pursuant to section 6337(b) of the Internal Revenue Code (26 U.S.C. § 6337(b) (1982)) or obtain a judicial determination that the seizure and the sale were invalid or otherwise void and stop the issuance of the tax deed to the purchasers, the Knodles. Neither Dianna Carlson nor her successor redeemed the property. The Knodles also argued that at the time Ms. Jeffrey purchased the subject property in November 1983, a proper lis pendens notice of the Federal suit had been recorded by Dianna Carlson which bound Ms. Jeffrey to the outcome of the Federal suit. Since that suit was dismissed with prejudice by Dianna Carlson, Ms. Jeffrey could not reassert a claim or defense in the present action where her predecessor in interest abandoned the claim now sought to be asserted by Ms. Jeffrey.

Ms. Jeffrey argued that the IRS failed to give proper notice of the tax sale to Dianna Carlson, and, therefore, the deed issued to the Knodles as purchasers at the improper tax sale was void. (26 U.S.C. § 6335 (1982); Reece v. Scoggins (5th Cir. 1975), 506 F.2d 967; Kelly v. Lunding (1985), 131 Ill. App. 3d 410, 475 N.E.2d 1093.) The trial court, relying on Scoggins and Lunding, ruled that since no notice of the tax sale was given to Dianna Carlson, the sale was void and so was the tax deed issued to the Knodles. The trial court quieted title to the subject property in Ms. Jeffrey, clear of any claims of the Knodles.

On appeal, the Knodles contend that since a lis pendens notice of the Federal suit had been properly recorded prior to Ms. Jeffrey's purchase of the subject property, she took the property subject to the right of the parties to the litigation, including her predecessor in interest, Dianna Carlson, as finally determined in the pending Federal litigation. Since the Federal suit was dismissed with prejudice by the district court, the Knodles contend that principles underlying lis pendens and res judicata bar Ms. Jeffrey as a successor in interest to Dianna Carlson from relitigating the validity of the tax sale and deed. Ms. Jeffrey argues that the issues of res judicata and lis pendens are waived on appeal due to the Knodles' failure to raise these issues in the trial court.

The Knodles did not waive the issue of whether the Federal suit filed by Ms. Jeffrey's predecessor in interest precluded Ms. Jeffrey's attempts to gain relief in the State court. The Knodles, as part of their answers to Ms. Jeffrey's counterclaim under the heading of affirmative defense, expressly and plainly pled the specific facts surrounding the prior Federal judgment entered in Dianna Carlson's suit as well as the filing of the lis pendens notice. This pleading complied with the requirements of section 2-613(d) of the Code of Civil Procedure concerning the pleading of affirmative defenses. (Ill. Rev. Stat. 1987, ch. 110, par. 2-613(d); First National Bank v. Village of Mundelein (1988), 166 Ill. App. 3d 83, 519 N.E.2d 476.) Further, legal arguments addressing effects of the lis pendens notice and possible res judicata effects of the Federal suit were specifically raised in the Knodles' written arguments filed for the trial court's consideration as well as in the oral arguments made at the hearing before the trial court entered its judgment. The ...


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