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United States v. Z Investment Properties LLC

United States District Court, N.D. Illinois, Eastern Division

April 2, 2018




         Plaintiff United States sued to enforce federal tax liens that it claims attach to a parcel of real property in Mundelein, Illinois. The collective defendants represent private and government entities with interests in the property. Defendants Z Investment Properties, LLC, and Chicago Title Land Trust Company (Defendants) moved for summary judgment [24], and Plaintiff cross-filed for summary judgment [30]. For the reasons explained below, this Court denies Defendants' motion and grants Plaintiff's motion.

         I. Background

         A. This Case

         The parties agree on nearly all the facts of this case. From 2000 to 2004, the Internal Revenue Service (IRS) assessed federal income taxes against Carroll V. Raines. PSOF ¶ 5; [30-2].[1] For each of those years, a delegate of the Secretary of the Treasury assessed various sums against Raines for unpaid federal income taxes, penalties, and interest. PSOF ¶ 5. In July 2007, a delegate of the Secretary notified Raines of those assessments and demanded payment for the balance due. Id. ¶ 6. Raines never paid his federal income tax liabilities. Id. ¶ 7.

         At the time of the July 2007 tax assessment, Raines held an interest in the property at issue in this case (the Property), located at 18952 W. Oak Avenue, Mundelein, Lake County, Illinois. PSOF ¶¶ 1, 11. Raines owned the Property with his wife. Id. ¶ 10. Raines died in July 2009. DSOF ¶ 2. Because his wife predeceased him, Raines was the sole owner of the Property at the time of his death. PSOF ¶ 13.

         In August 2010, the IRS filed a Notice of Federal Tax Lien for Raines' federal income tax liabilities with the Lake County Recorder of Deeds. Id. ¶ 14. The IRS incorrectly filed the notice in the name of “Carrol V. Raines, ” rather than “Carroll V. Raines.” Id. ¶ 14; DSOF ¶ 3. The notice indicated that the IRS had assessed taxes and penalties against Raines in the amount of $115, 022.42, which remained unpaid. [16-1] at 8. As a result, liens “in favor of the United States” attached to “all property and rights to property belonging to this taxpayer” for the amount owed. Id. The notice identified Raines' residence as the Property by listing its street address. Id. It did not contain any further description of the Property or a permanent index number. Id.; DSOF ¶ 7.

         In November 2010, Keith Raines-Carroll's son-recorded an Affidavit of Heirship with the Lake County Recorder, stating that Carroll Raines died intestate and left six heirs, including Keith. See PSOF ¶ 15; [16-1] at 5. That month, all six heirs conveyed their interest in the Property to Defendant Chicago Title Land Trust Company by quitclaim deeds in trust. PSOF ¶¶ 16-21.

         The Lake County Recorder's website allows anyone to search its land records through an online database. Id. ¶ 22. Members of the public can conduct unlimited searches for a fee of $5.00 per day. Id.; see also Lake County, Illinois Recorder of Deeds, Land Records Search, (last visited Mar. 12, 2018).[2] Users can search the Recorder's database in a number of ways: by a person's exact first and/or last name; by a first and/or last name beginning with certain letters (the “Begins With” search function); or by first and/or last names that sound similar to the search term (the “Sounds Like” search function). PSOF ¶ 23; [30-1] ¶ 3.

         A search of the Recorder's database for the exact first and last name “Carroll Raines” (the correct spelling) shows judgments against Raines[3] that note his aliases, including “C V Raines” and “Carol Raines.” See [30-1] ¶ 6; [30-5] at 7; PSOF ¶ 24. That search does not, however, display the federal tax liens. See [30-5]. A search of the database for all last names beginning with “Raines” and first names beginning with “C” reveals the federal tax liens, despite the misspelling of Raines' first name. PSOF ¶ 25. A “Sounds Like” search for all last names like Raines and all first names like Carroll also turns up the federal tax liens. Id. ¶ 26. Finally, a title search performed by the Chicago Title Insurance Company on behalf of the IRS revealed the Notice of Federal Tax Lien. See [37-3] at 1, 3; PSAF ¶ 8.

         Plaintiff sued to enforce the federal tax liens on the Property in June 2017. [1]. Defendants seek to block enforcement and moved for summary judgment in August 2017, amending their brief in September. [16, 25]. The remaining named defendants (PNC Bank; Lake County, Illinois; and the Village of Mundelein) entered into a stipulation with Plaintiff in November 2017 on the priority of their liens relative to the federal tax liens. [28]. That same month, Plaintiff moved for summary judgment on the sole remaining issue of the enforceability of the federal tax liens. See [22] at 3; [30]. This opinion addresses the parties' pending motions for summary judgment, and one evidentiary dispute.

         B. Evidentiary Rules

         In their response to Plaintiff's motion, Defendants submitted a signed declaration from William Bond, a title insurance executive. See [35-1]. In his declaration, Bond offers sworn statements describing a title search that he conducted on the Property; the type of index maintained by the Lake County Recorder of Deeds; and his opinions as to whether the federal tax liens against Raines are within the chain of title, whether “a reasonable and diligent” search would find the liens, and what methods an “experienced and capable title searcher” would use to conduct that search. See, e.g., Id. ¶¶ 2, 4-5, 11, 14. Plaintiff objects to Bond's declaration in full as undisclosed expert testimony and in part as improper legal conclusions. [41] at 4, 6.

         To the extent that Bond's statements purport to offer expert opinions, this Court strikes those paragraphs. Defendants never disclosed an expert witness or offered an expert report, as required by Federal Rule of Civil Procedure 26(a); in fact, Defendants never disclosed Bond as a witness at all. See [41] at 5; [22] at 3, 4; [26]. Under Rule 37(c)(1), “exclusion of non-disclosed evidence is automatic and mandatory unless non-disclosure was justified or harmless.” Tribble v. Evangelides, 670 F.3d 753, ...

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