UNITED STATES OF AMERICA, Appellant in 14-4237, 15-1247 & 15-3433
GARY S. CARDACI; BEVERLY M. CARDACI; ED WOOD CUSTOM DRYWALL, INC.; LEWIS J. MOREY; TRI-COUNTY BUILDING SUPPLIES, INC.; BRANDI L. WATSON Gary S. Cardaci; Beverly M. Cardaci, Appellants in 15-3469
November 3, 2016
Appeal from the United States District Court for the District
of New Jersey (D.C. Civil Action No. 1-12-cv-05402) District
Judge: Hon. Jerome B. Simandle
C. Avetta [ARGUED] Michael J. Haungs Curtis C. Pett United
States Department of Justice Tax Division Counsel for
Anthony P. Monzo [ARGUED] Monzo Catanese Hillegass Counsel
Before: JORDAN, GREENAWAY, JR., and RENDELL, Circuit Judges.
JORDAN, Circuit Judge.
government has been trying to collect unpaid taxes assessed
against Gary S. Cardaci, and, to that end, it sought the
judicial sale of the home he owns in New Jersey with his
wife, Beverly. The United States District Court for the
District of New Jersey concluded that a forced sale would be
inequitable and instead ordered that Mr. Cardaci make monthly
rent payments to the government. Unhappy with that outcome,
the government has appealed. The Cardacis, who should have
been delighted with the decision, have filed a cross appeal
to challenge both the requirement to pay rent and the monthly
rental amount. Even though no sale was ordered, the Cardacis
also question the authority of the District Court to order a
sale. We confirm the District Court's authority to
consider whether the Cardacis' property should be subject
to a forced sale but will vacate and remand for recalculation
of Mr. and Mrs. Cardacis' respective interests in the
property and reconsideration of the equitable factors
weighing for and against a sale.
Cardaci was the owner of Holly Beach Construction Company
("Holly Beach" or "the Company"). In 2000
and 2001, the business began to fail, and, in an effort to
shore it up, Mr. Cardaci used approximately $49, 600 in taxes
withheld from the wages of his employees to pay suppliers and
wages rather than payroll taxes. During that two-year period,
Mr. Cardaci took approximately $20, 000 in salary from Holly
Beach. He used that income to support his family, including
making mortgage payments and paying private school tuition
for one of his sons.
Company eventually folded and Mr. Cardaci tried
unsuccessfully to start other businesses. He has not had a
regular income since 2009. On top of those financial
frustrations, he also has medical problems that limit his
employment options. Since 2005, Beverly Cardaci has been the
primary wage earner in the family. She earns about $62, 000 a
year as a public school teacher.
Cardacis own property in Cape May County, New Jersey, that
they purchased in 1978 as their home. They claim no
dependents now, but two of their adult children live in the
house with them at least part of each year. Their son Garrett
lives there full time with his wife and three children.
Garrett earns approximately $37, 600 a year. He emerged from
bankruptcy a year and a half before the bench trial in this
case. He and his wife do not pay rent. Another son, Robert,
lives in the house during the summer while he does seasonal
work. He earns just under $4, 000 a year.
Cardacis' house has been their marital domicile
continuously since they bought it, and the only mortgage on
the property was paid in full in 2009. Mr. Cardaci made the
majority of the monthly mortgage payments from 1978 through
2005, but, after that, Mrs. Cardaci was the sole payor. The
District Court determined that the house has a fair market
value of $150, 500. If the house were put to a forced sale,
the government would set the minimum bid at 60 percent of the
assessed value, which is $90, 300.
time of the District Court's order, Mr. Cardaci was
fifty-eight and Mrs. Cardaci was sixty-two. Neither party
submitted evidence of the Cardacis' life expectancies, so
the District Court, using the Social Security
Administration's Actuarial Life Table, calculated the
expectancies on the assumption that they were the same.
August 2012, the government brought this action to reduce to
judgment federal tax assessments against Mr. Cardaci and to
force the sale of the Cardaci home. It sought to collect half of
the proceeds to pay for Mr. Cardaci's tax liability and
to distribute the remainder to Mrs. Cardaci. Upon the
government's motion for summary judgment, the District
Court, recognizing that Mr. Cardaci owed $80, 083.87 plus
interest and that the government had a valid lien on the
Cardaci property, granted partial summary judgment to that
effect. The Court also held that the suit was timely because
an assessment was first made in 2002, and the suit was
brought within 10 years of that assessment. The Court did
not, however, grant summary judgment with regard to the
request to foreclose on the property.
the District Court determined that it had "limited
discretion" to order an alternative remedy instead of a
foreclosure sale. United States v. Cardaci, No. CIV.
12-5402 (JBS), 2014 WL 7524981, at *6 (D.N.J. Aug. 21, 2014).
It noted that federal law does authorize such a sale and that
New Jersey state law treats marital property as at least
occasionally subject to partition, so the Court recognized
that it could order a sale of the property, despite Mrs.
Cardaci's interest in the property and her objection to
foreclosure. But it decided that additional factual
development at a trial would be needed before it could
properly weigh the equities and determine whether foreclosure
two-day bench trial, the Court issued a judgment based on its
consideration of the equitable factors set out in the Supreme
Court's decision in United States v. Rodgers,
461 U.S. 677, 710-11 (1983). The District Court examined: (1)
"the extent to which the [g]overnment's financial
interests would be prejudiced if it were relegated to a
forced sale of the partial interest actually liable for the
delinquent taxes;" (2) whether Mrs. Cardaci had "a
legally recognized expectation that [the] separate property
would not be subject to forced sale by the delinquent
taxpayer or his or her creditors;" (3) the likely
prejudice to Mrs. Cardaci "in personal dislocation costs
and … practical undercompensation;" and (4)
"the relative character and value of the non-liable and
liable interests held in the property[.]"
Rodgers, 461 U.S. at 710-11. It also
considered additional equitable factors such as the impact a
forced sale would have on other non-liable parties.
Ultimately, the Court concluded that it would be inequitable
to force the sale of the property.
conclusion was based in some measure on the Court's
method of valuing Mr. and Mrs. Cardacis' respective
interests in their home. In calculating those interests, the
Court refused to find them equal. It determined that Mrs.
Cardaci's interest in the property, in the event of a
forced sale, would be eighty-six percent, because she
"owns an undivided one-half interest in the whole of the
property, plus a right of survivorship."
Cardaci, 2014 WL 7524981, at *9. Using life estate
interest tables published by the Health Care Financing
Administration in the New Jersey Medicaid Manual, the Court
decided that Mrs. Cardaci's life estate interest was
worth approximately seventy-two percent of the value of her
interest in the property. The Court then added that life
estate value (seventy-two percent times the fifty percent
value of her interest, to equal thirty-six percent of the
value of the property) to her one-half survivorship interest
and concluded that she had an eighty-six percent interest in
the value of the property, leaving the government to recover
only fourteen percent of the proceeds from a forced
sale.Based on that calculation and consideration
of the equitable factors from Rodgers, the Court
found that "[t]he equities of this case warrant the
exercise of the Court's 'very limited discretion not
to order a sale.'" Id. at *17 (citation
omitted). It therefore fixed an imputed monthly rental value
of $1, 500 for the property and ordered Mr. Cardaci to pay
half of that value to the IRS each month.
after the final judgment was entered, the Cardacis filed a
motion for reconsideration under Fed.R.Civ.P. 59(e). They
argued that the imputed rental value was inaccurate and, in
support, submitted declarations from two different realtors.
Concluding that such evidence should have been ...