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State Auto Property and Casualty Insurance Company v. Burnett

United States District Court, N.D. Mississippi, Oxford Division

September 29, 2017




         This interpleader action is before the Court on the United States of America's motion for summary judgment, Doc. #32; and State Auto Property and Casualty Insurance Company's motion for summary judgment and motion to strike. Doc. #34; Doc. #42.


         Procedural History

         On April 8, 2016, State Auto Property and Casualty Insurance Company filed a "Complaint for Interpleader and Declaratory Judgment" in this Court, naming as defendants "Eugene Burnett, Individually and d/b/a JB's Auto and Diesel, " and The Internal Revenue Service. Doc. #1. On May 9, 2016, State Auto filed an "Amended Complaint for Interpleader and Declaratory Judgment" against Burnett, "Individually and d/b/a JB's Auto and Diesel, " and the United States of America. Doc. #3. The amended complaint asserts an interpleader action based on Burnett's and the United States' competing claims to building coverage insurance proceeds, and seeks a declaratory judgment that State Auto has satisfied its obligations under the building coverage policy.

         On June 6, 2016, Burnett, acting pro se, filed an "Answer and Counter-Claim."[1] Doc. #5. State Auto filed an answer to the counterclaim on June 27, 2016. Doc. #11. On July 5, 2016, Burnett filed an "Amended Answer and Counter-Claim."[2] Doc. #12. Burnett's amended counterclaim alleges, among other things, bad faith by State Auto "for failing to timely make payment" on the policy to Burnett, which permitted the IRS time to make a claim for the policy proceeds when the IRS originally made no such claim. On July 18, 2016, State Auto answered Burnett's amended counterclaim. Doc. #14. The United States filed an answer to the amended complaint on August 3, 2016.[3] Doc. #16.

         On August 11, 2016, State Auto filed a motion to deposit the insurance proceeds into the registry of the Court pursuant to Rules 22 and 67 of the Federal Rules of Civil Procedure. Doc. #17. United States Magistrate Judge Jane M. Virden granted the motion on August 16, 2016. Doc. #19.

         On October 21, 2016, the United States filed a motion seeking summary judgment that the interpleaded insurance funds are subject to federal liens recorded against Burnett for unpaid federal income taxes and, as a result, should be distributed to the United States. Doc. #32. On December 14, 2016, State Auto filed a separate motion for summary judgment. Doc. #34.

         On May 19, 2017, Burnett filed "Defendants Response to the United States' Motion for Summary Judgment, " to which the defendants filed separate replies on, respectively, May 25 and May, 26, 2017. Doc. #38; Doc. #40; Doc. #41. Though Burnett's response is directed to the United States' summary judgment motion, State Auto moved to strike Burnett's response. Doc. #42.


         Motion to Strike

         State Auto has moved to strike Burnett's response to the United States' motion for summary judgment.[4] Doc. #42. State Auto argues that Burnett's response was (1) grossly untimely under the local rules, (2) lacks competent summary judgment evidence, and (3) fails to properly respond to State Auto's motion for summary judgment and, thus, State Auto's summary judgment motion should be granted.

Uniform Local Rule 7(b)(4) provides:
Counsel for respondent must, within fourteen days of service of movant's motion and memorandum brief, file a response and memorandum brief in support of the response. ... A party must make a request for an extension of time in writing to the judge who will decide the motion. Failure to timely submit the required motion documents may result in denial of the motion.

         Because Burnett failed to respond to the United States' summary judgment motion within fourteen days and did not seek an extension of the response period, his response is untimely.

         Dispositive motions, however, cannot be granted because they are unopposed. See Uniform Local Rule 7(b)(3)(E). Summary judgment can only be granted "if the motion and supporting materials-including the facts considered undisputed-show that the movant is entitled to it ...." Fed.R.Civ.P. 56(e)(3). "The Supreme Court has recognized that, even in the absence of a factual dispute, a district court has the power to 'deny summary judgment in a case where there is reason to believe that the better course would be to proceed to a full trial.'" Black v. J.I. Case Co., Inc., 22 F.3d 568, 572 (5th Cir. 1994) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). "Credibility determinations, the weighing of evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge ...." Liberty Lobby, Inc., 477 U.S. at 255.

         Though Burnett's response was untimely, in the interest of justice, the Court will consider Burnett's response, to which both parties replied without objecting to its untimeliness. Williams v. Taco Bell Corp., No. 01-21132, 2002 WL 1973807, at *2 n.l (5th Cir. Aug. 2, 2002) ("Although Williams's response was untimely pursuant to a local rule, the district court considered the response in the interest of justice. For purposes of this appeal, we follow the district court's lead and consider Williams's response to Taco Bell's motion for summary judgment.") (internal quotation marks and alterations omitted). Accordingly, State Auto's motion to strike is denied.


         Motions for Summary Judgment

         A. Standard

         Under Rule 56 of the Federal Rules of Civil Procedure, "[s]ummary judgment is proper only when the record demonstrates that no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law." Luv N' Care Ltd. v. Groupo Rimar, 844 F.3d 442, 447 (5th Cir. 2016). "A factual issue is genuine if the evidence is sufficient for a reasonable jury to return a verdict for the non-moving party, and material if its resolution could affect the outcome of the action." Burton v. Freescale Semiconductor, Inc., 798 F.3d 222, 226 (5th Cir. 2015) (internal quotation marks omitted). On a motion for summary judgment, a court must "consider the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in its favor." Edwards v. Cont'l Cas. Co., 841 F.3d 360, 363 (5th Cir. 2016).

         In seeking summary judgment, "[t]he moving party bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact." Nola Spice Designs, L.L.C. v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015) (internal quotation marks and alterations omitted). If the moving party satisfies this burden, "the non-moving party must go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Id. (internal quotation marks omitted). "Where the nonmoving party bears the burden of proof at trial, the moving party satisfies this initial burden by demonstrating an absence of evidence to support the nonmoving party's case." Celtic Marine Corp. v. James C. Justice Cos., Inc., 760 F.3d 477, 481 (5th Cir. 2014).

         B. Relevant Facts

         1. Insurance policy and payments

         Burnett purchased a commercial insurance policy from State Auto to cover his commercial building and business property. Doc. #34-4. As the named insured, the policy lists "Eugene Burnett dba JB's Auto and Diesel." Id. at 2. The policy term was for one year, from January 25, 2015, to January 25, 2016. Id. at 12. The policy provided $246, 637 of commercial building coverage, and $29, 026 of business personal property coverage. Doc. #34-5 at 1-2.[5]

         On November 14, 2015, Burnett suffered a fire loss to his commercial building. Burnett filed a claim for the loss with State Auto. At the time of the loss, Covenant Bank held a mortgage and multiple deeds of trust securing multiple loans on the insured building, and was named the mortgagee under the policy. Doc. #34-5 at 2.

         On November 20, 2015, Burnett was tendered $10, 000 as an advance for business personal property and, on January 27, 2016, an additional $11, 911.80. Id. at 2-3 & Exs. 1, 2. After Burnett submitted receipts verifying replacement of business personal property lost in the fire, he was tendered an additional $3, 465.84. Doc. #34-5 at 3 & Ex. 3. This left $3, 648.36 remaining as recoverable depreciation under the policy for business personal property. Doc. #34-5 at 3.

         Sometime before January 5, 2016, State Auto conducted a title search of the insured property and discovered the property was subject to a federal tax lien filed in the land records of Panola County, Mississippi, in the sum of $216, 925.65 plus interest. Id. at 3; Doc. #1-2. On January 5, 2016, State Auto spoke with Burnett and obtained contact information from his IRS representative, Pamela Brown, to discuss the tax lien. Doc. #34-5 at 3. After State Auto left a voicemail for Brown, on January 14, 2016, IRS representative Jureen Metzler called State Auto. Id. Metzler left a voicemail advising that the IRS should be included on the check for the remaining building proceeds and that the IRS's standard protocol was to sign the check and return it to the policyholder. Id.

         On January 26, 2016, State Auto received the amount of Covenant Bank's mortgage and interest totaling $158, 144.26. Doc. #34-5 at 3-1 & Ex. 4. The next day, State Auto issued a check jointly to Eugene Burnett d/b/a JB's Auto and Diesel and Covenant Bank for $158, 144.26. Doc. #34-5 at 3-1 & Ex. 1. These payments left a balance of building coverage under the policy in the amount of $88, 492.74. Doc. #34-5 at 4.

         On January 27, 2016, State Auto requested a check in the amount of $81, 736.74 payable to "Eugene Burnett and Ernestine Burnett and Department of Treasury-IRS" and a check for $6, 756 payable to "Eugene Burnett and Ernestine Burnett and State of Mississippi Department of Revenue." Id. These checks were issued on January 28, 2016. Id. & Ex. 5. State Auto notified Burnett of these payments in a letter dated January 27, 2016. Doc. #34-5 at 4 & Ex. 6. After learning that the Mississippi Department of Revenue lien had been cancelled, State Auto voided the $6, 756 check. Doc. #34-5 at 4-5. On February 1, 2016, State Auto, through counsel, sent a letter to the Advisory Group Manager with the Department of Treasury, memorializing State Auto's understanding of the voicemail-that the IRS would endorse the check and return it to Burnett-enclosing the $81, 736.74 check. Doc. #34-5 at 5 & Ex. 7.

         In response to the February 1, 2016 letter, Metzler called State Auto and left a voicemail requesting additional documents concerning the policy and stating that if the IRS has an interest in the remaining building coverage under the policy, the IRS will collect that amount. Doc. #34-5 at 5-6. On February 3, 2016, State Auto sent a letter to Metzler enclosing a copy of the policy declarations, photos of the fire damage, and a copy of the title opinion. Id. & Ex. 8. On March 7, 2016, State Auto's counsel sent a letter to Burnett and State Auto informing them that the IRS was making a claim for the remaining $88, 492.74, stating that the amount "is encumbered by the Federal Tax Lien (IRC §6321) and should be submitted to the Internal Revenue Service as payment toward [Burnett's] current tax liability." Doc. #34-5 at 6 & Ex. 9.

         As of December 12, 2016, Burnett had not provided State Auto with any written report of debris removal expenses, or any receipts, invoices or estimates for debris removal expenses. Doc. #34-5 at 6.

         2. IRS documents

         The IRS produced four documents, each entitled, "Certificate of Assessments, Payments and Other Specified Matters, " which the IRS states "are certified official transcripts of computer entries identifying assessments, payments, and credits on the Burnetts' accounts for given taxable periods." Doc. #32-1 at¶ 4; Doc. #32-2.

         The 2007 "Certificate of Assessments, Payments and Other Specified Matters" shows the following events recorded include:

08-26-2013 SUBSEQUENT PAYMENT $395.00

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