The opinion of the court was delivered by: POLLACK
Plaintiff, the United States of America, moves pursuant to Fed. R. Civ. P. 56 for summary judgment of foreclosure of liens and sale of the real property of defendant, Harry Martin. The liens derive from income tax jeopardy assessments issued on April 17, 1961 relating to the tax years 1958 and 1959. A money judgment against Martin based on the same jeopardy assessments was heretofore obtained by default, on August 12, 1971. United States v. Martin, S.D.N.Y. Dkt. #69 Civ. 5722.
Martin opposes summary judgment against him contending that he has valid defenses to the jeopardy assessments, consisting of lack of the notice of deficiency required by statute and use of information elicited in violation of his Fourth and Fifth Amendment rights. In addition, Martin cross-moves pursuant to Rule 60(b) for relief from the August 12, 1971 default money judgment. Martin asserts that the default was taken by the government contrary to an oral agreement by an Assistant United States Attorney not to do so without prior notice as well as having been taken in contravention of the notice requirements of Rules 55(b) and 77(d), Fed. R. Civ. P.
For the reasons indicated below, Martin's Rule 60(b) cross-motion must be denied and summary judgment in favor of the government must be granted. The facts follow.
On April 17, 1961, the Internal Revenue Service ("IRS" hereafter) issued jeopardy assessments against Harry Martin for income tax deficiencies relating to the tax years 1958 and 1959 in the amount of $138,601.27. Notice and demand for payment were made on the same day. Martin, also known as St. Julian Harrison, then a parolee of the State of New York, had been questioned by New York City Police on February 8, 1960, and a search of the candy store which he operated revealed a number of policy slips and other gambling materials. Martin was arrested, charged with various violations, including policy, and tried. The trial resulted in an acquittal. The New York City Police then turned over to the IRS the defendant's statements, which had been stenographically recorded, together with the gambling materials seized from his candy store. Martin was thereafter committed to Dannemora State Prison for violation of parole imposed upon an earlier and unrelated offense.
In March 1961 Martin was interviewed at Dannemora State Prison by a Special Agent of the Intelligence Division of the IRS. Without counsel, and without being advised of his constitutional rights (according to his pleading in this case), Martin responded to questions about his income, assets, expenditures and income tax returns for 1958 and 1959, as well as other years.
Allegedly based upon the information so obtained, the IRS issued the jeopardy assessments mentioned above which included fifty percent fraud penalties and interest for a total claim of $138,601.27. Federal tax liens in that amount were then filed against Martin on April 27, 1961 and June 5, 1961 with the Register of New York County and were refiled on May 5, 1969.
In 1965 the defendant was indicted criminally on two counts of income tax evasion for understating his 1958 and 1959 income. The understatement charged was substantially lower than the amount of the jeopardy assessment previously stated. This indictment was nolle prosequed after Judge Tyler on February 2, 1967 suppressed all of the defendant's statements to the New York City Police Department and to the Special Agent of the Intelligence Division of the IRS as well as the gambling materials turned over by The New York City Police Department to the IRS. United States v. Harrison, 265 F. Supp. 660 (S.D.N.Y. 1967).
On March 20, 1967 Martin executed an extension of the statute of limitations for the collection of the tax deficiencies on his 1958 and 1959 returns to December 31, 1969. One day before expiration of the extended period, on December 30, 1969, the government brought suit in this Court for a money judgment against Martin on the income tax obligations outstanding under the jeopardy assessments. Martin was served with a copy of the summons and complaint on February 10, 1971 at Dannemora State Prison where he was then confined. Upon his default in answering the complaint, judgment by default for the amount of the assessment with interest, $192,732.19, was entered by the Clerk of the Court on August 12, 1971 in favor of the government. Martin was notified of this judgment by letter dated November 10, 1971 sent to his last home address, and prompt payment was demanded therein. He informed his attorney of this default judgment some time in or about early 1972.
Martin claims here that the taking of the default judgment violated an understanding with government counsel that no default would be entered and that judgment would not be taken without prior notice, and that the violation deprived Martin of the right to interpose meritorious defenses to the complaint. By letter of June 22, 1972 to government counsel, Martin's lawyer outlined the Fourth and Fifth Amendment violations claimed by Martin to require that the jeopardy assessments and the attendant liens be set aside. The same letter stated that while Martin and his counsel believed that the defenses would prevail, Martin wanted to dispose of the matter and was willing to deed to the government one of his houses, at 467 West 165th Street, which he said he owned free and clear, except for the government's lien, in full settlement of the tax claims asserted for the years 1958 and 1959.
The Department of Justice rejected that offer of settlement and so advised the United States Attorney's Office in September 1972. Martin's attorney, however, states that he never received notice that the settlement offer had been rejected. Matters remained in this posture until the present foreclosure suit was filed on July 24, 1974.
In the present action, the government asserts that it seeks to foreclose the federal tax lien against any and all property and rights to property belonging to Martin. The complaint further states that the action has been authorized by a delegate of the Secretary of the Treasury and that the Court's jurisdiction is based on 26 U.S.C. § 7403(a) which authorizes an action to enforce a lien or to subject property to the payment of a tax through a civil action to be filed in a District Court.
In addition to Martin, who is presently located at the Bronx House of Detention, the defendants in the present action are Fehrmans Simmons, a mortgagee of 472 West 144th Street, New York City; 467 West 165th Street Corp., a mortgagee of the premises at that address; and The City of New York, Department of Tax and Finance, a lien holder against defendant Harry Martin for real estate tax arrears. Notice of pendency of this action was filed on July 24, 1974 reciting that the suit is for "the foreclosure of a federal tax lien". The defendants Simmons and 467 West 165th Street Corp. have defaulted in answering the complaint. The Answer of The City of New York to the complaint contends that its liens for real estate taxes and assessments have priority over the federal tax lien pursuant to Section 6323(b)(6) of the Internal Revenue Code of 1954 and Section 415(1)-7.0 of the Administrative Code of the City of New York. The plaintiff concedes that the City is entitled to such priority, and subject to proof by the City of the existence and extent of its real estate tax liens, plaintiff has agreed that any sale herein should be made subject or subordinate to such liens.
The summons and complaint herein were served on Martin on July 26, 1974. He interposed an answer thereto on November 4, 1974 setting up in affirmative defense the alleged invalidity of the jeopardy ...