Brent M. Wasik, Plaintiff-appellee, v. Eric A. Adams; Clara R. Adams; Crabill Real Estatecompany; and Cummings, Mcclorey, Davis & Acho,p.c., Defendants-appellants, v. United States Internal Revenue Service, Defendant-appellant, v. Robert E. Grawe, Third-party Defendant-appellee, 951 F.2d 351 (6th Cir. 1991)

Plaintiff Brent M. Wasik ("Wasik") brought this suit to quiet title to real property located in Plymouth, Michigan. Defendants Eric and Clara Adams ("the Adamses"), the law firm of Cummings, McClorey, Davis & Acho ("CMDA") and the United States Internal Revenue Service ("IRS") claim an interest in the property based on a purchase agreement between the Adamses and the previous land contract vendee of the property. Defendants appeal dismissal of the IRS as a party to this action and the remand of the case to state court. We find that the Adamses had no ownership interest in the property at issue and that because the IRS derives any claim it has to the property from the Adamses' interest, the IRS is not a party to this action. We therefore AFFIRM the District Court's dismissal of the IRS as a party and REMAND to the state court.

In October 1979, Joseph Lengyel, ("Lengyel") as fee simple owner of property in Plymouth, Michigan, entered into a land contract with Robert Grawe ("Grawe"). Grawe, in 1984, agreed to sell the subject property to Eric and Clara Adams. At the time Grawe and the Adamses entered into the purchase agreement, the Adamses also signed an addendum to the purchase agreement in which they agreed to rent the property until the closing of the sale. During 1985, Grawe was unable to obtain title to the subject property because a receiver had been appointed for Lengyel's interest in the property. In early 1986, the Adamses moved off the premises and terminated the purchase agreement and lease with Grawe. Grawe stopped payment on the land contract with Lengyel because of Lengyel's failure to tender the deed.

The Adamses and Grawe entered into a second purchase agreement in February 1986 which excluded any lease or rental terms. This purchase agreement required the Adamses to apply for a mortgage within seven days of the date of the purchase agreement and to obtain a mortgage commitment within 45 days. When the Adamses could not obtain a mortgage within the allotted time, Grawe ceased efforts to obtain title from Lengyel. Grawe forfeited his interest in the property and allowed his ownership interest to revert to Lengyel. The Adamses signed a waiver and hold harmless agreement in which they agreed to discharge the realtors involved in the purchase agreement from any liability resulting from non-performance of the purchase agreement. The Adamses' $1,000 deposit on the property was returned.

Following the Adamses' failure to obtain financing, they entered into a purchase agreement with Wasik in which the Adamses agreed to sell the property at issue to Wasik. When the Adamses were unable to meet the terms of the agreement, Wasik purchased the land contract vendor's interest in the subject property directly from Lengyel's receiver and instituted a forfeiture action against Grawe. Grawe executed a deed in lieu of forfeiture, forfeiting any interest he still maintained in the subject property to Wasik.

This suit was originally filed by Wasik in an attempt to force the Adamses to obtain title from Lengyel and perform on the purchase agreement between Wasik and the Adamses. Once Wasik purchased the property through Lengyel's receiver, he intended to dismiss the suit against the Adamses. CMDA filed a motion to intervene in the original lawsuit in Wayne County Circuit Court to protect a lien which the Adamses had assigned to them in September 1986. The Wayne County Circuit Court denied CMDA's motion but did allow Wasik to amend his original complaint to include additional counts to quiet title. The complaint was also amended to add two other defendants who were lienholders against the Adamses' interest in the property--the IRS and CMDA.

The IRS filed a notice of removal to the federal district court on January 13, 1989. The Adamses and CMDA both filed third-party complaints against Grawe seeking specific performance of the 1986 purchase agreement between the Adamses and Grawe.

Wasik and Grawe filed a joint motion for summary judgment on July 25, 1989. Following oral argument on the motion, District Judge Cook granted Wasik's and Grawe's motion and declared Wasik the fee simple owner of the estate. An order quieting title and dismissing all claims of CMDA and the Adamses was issued. On March 14, 1990, Chief Judge Cook¹  denied motions for rehearing and reconsideration of the order granting the summary judgment. District Judge Zatkoff, taking the case on transfer, certified the grant of summary judgment as a final order, and dismissed the IRS as a party to the complaint. Judge Zatkoff remanded the case back to the state court for a determination of the remaining issues. The appellants appeal the order for summary judgment, the District Court order denying rehearing or reconsideration and the certifying order of Judge Zatkoff.

We review a grant of summary judgment de novo. McKee v. Cutter Laboratories, Inc., 866 F.2d 219, 220 (6th Cir. 1989); Storer Communications, Inc. v. National Ass'n of Broadcast Employees & Technicians, AFL-CIO, 854 F.2d 144, 146 (6th Cir. 1988). Summary judgment is improper if "there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). In order for summary judgment to be appropriate, there must be no genuine issue of material fact and the moving party must be entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Fed. R. Civ. P. 56(c).

The Adamses' claim to an interest in the subject property is based on their 1986 purchase agreement with Grawe. If the purchase agreement was terminated, the Adamses are precluded from making any ownership claim against the property. The claims of the Adamses' lienholders are derivative from any claim the Adamses have against the property. Therefore, if the purchase agreement was properly terminated, the IRS and CMDA have no claim against the subject property and Wasik would be the fee simple owner.

This Court must first determine the evidentiary issue presented by the parties. Federal Rules of Appellate Procedure 10(a) states that "The original papers and exhibits filed in the district court, ... and a certified copy of the docket entries prepared by the clerk of the district court shall constitute the record on appeal in all cases." Three circuit courts have interpreted the language of this rule to mean that the Court of Appeals may only review the record before the court at the time the summary judgment motion was granted and not depositions or discovery materials obtained at a later date. Frito-Lay, Inc. v. Willoughby, 863 F.2d 1029 (D.C. Cir. 1988); Hicks v. Mickelson, 835 F.2d 721 (8th Cir. 1987); Kirshner v. Uniden Corporation of America, 842 F.2d 1074 (9th Cir. 1988). District Judge Cook granted Wasik's and Grawe's motion for summary judgment on December 4, 1989. On March 14, 1990, Chief Judge Cook denied motions for rehearing and reconsideration by CMDA and the Adamses. The depositions the appellants cite in support of their arguments were taken April and May 1990. We adopt the position of the D.C., Eighth and Ninth Circuits and decline to consider the depositions taken after the summary judgment order and after any motions to rehear that judgment have been decided.

The Adamses make several arguments in support of their claim that they maintain some ownership interest in the subject property. First, they argue that the purchaser, under an executory contract for the purchase of land, has equitable title under Michigan law. They base this argument on Rosenthal v. Shapiro, 333 Mich. 302, 52 N.W.2d 859 (1952), which held that the exercise of an option for a land contract sale by a lessee in possession vests in the purchaser an equitable ownership. We find that the decision in Rosenthal is limited to the special relationship of vendor and vendee created by a land contract or lease with an option to purchase. The execution of a land contract implicates the Doctrine of Equitable Conversion. Pittsfield Township v. City of Saline, 103 Mich.App. 99, 302 N.W.2d 608 (1981). There is no such doctrine applicable to purchase agreements such as the one between the Adamses and Grawe. Any ownership interest that rests with the Adamses must arise from the purchase agreement itself.

Second, the Adamses claim that the waiver and hold harmless agreement, contrary to the findings of the District Court, did not terminate the 1986 purchase agreement. Rather, the waiver released the realtors from liability for failure to execute a closing and of the right to collect a commission on the sale. An affidavit attached to the motion for summary judgment suggests that the realtors believed that the purchase agreement was in fact terminated. The Adamses received a refund of all funds given in consideration of the purchase. These facts indicate that the waiver and hold harmless agreement supports the inference that the purchase agreement had been terminated effectively.

Third, the Adamses dispute the District Court finding that their failure to secure a mortgage terminated the 1986 agreement. The language of the contract states,

If a firm commitment for such mortgage cannot be obtained within 45 days of acceptance, at Seller's option, this offer can be declared null and void and deposit shall be returned.

This language indicates that Grawe had the option to terminate the agreement if the Adamses failed to perform as promised. Grawe himself was unable to perform his promise under the agreement to tender a deed of title. The failures by both parties in meeting the terms of the contract lead to the conclusion that the contract was in effect terminated. Grawe acted reasonably when he assumed the contract was terminated after the Adamses received a refund from the realtor for the consideration money they advanced. No other acts of termination would be necessary since it was clear to all parties that the terms of the contract had not been satisfied and that the purchase/sale was not going to occur.

We agree with the District Court that the purchase agreement between Grawe and the Adamses was effectively terminated prior to Wasik's purchase of the land. Therefore CMDA and the IRS have no interest in the property as lienholders since their interest is contingent on the Adamses' ownership.

For the reasons stated above, we AFFIRM the decision of the District Court to grant Wasik's and Grawe's motion for summary judgment and REMAND the case to the courts of the State of Michigan for a determination on the remaining issues.