Conveyances to Related Parties page1
Isaac Cooper v.
United States of America
v. Roland T. Glass, et al.
District Court, East. Dist.
Div.; Civ. 9:02 CV 321, May 7, 2004.
Liens: Property interest: Quiet title actions. --
A federal tax lien did not
attach to a delinquent taxpayer's right to occupy property that she had
conveyed to her grandson before the lien was filed, and that was later
sold to a bona fide purchaser. Under state (
) law, the retention of the right of occupancy did not create a life
estate or any interest in the property that was transferable and,
therefore, a fee simple was conveyed to the grandson, subject to a
contractual right of occupancy. Since the taxpayer did not have any
rights in the property after she conveyed it to her grandson, the bona
fide purchaser obtained the property free of any tax lien.
HEARTFIELD, Chief District Judge: Before the Court is the Plaintiff's
Amended Motion for Summary Judgment (doc. #66) and the
' Cross Motion for Partial Summary Judgment (doc. #73). After careful
consideration of the motions and the applicable law, the Court is ready
to make its ruling.
Plaintiff brought this lawsuit against the
to quash two federal tax liens and to quiet title to a 5.7 acre parcel
of land in the A. Viesca Seven League Grant, #77, in
filed a counterclaim against Plaintiff and brought a Third Party
Complaint against Roland T. Glass, Krystal Lea McQueen Gay, Alvin T.
McQueen, and Wilma McQueen.
The relevant history of the ownership of property, for purposes of the
motions under consideration is as follows:
On April 28, 1977 Alvy T. McQueen conveyed the property to Wilma L.
McQueen, wife of Alvy T. McQueen, as her sole and separate property and
On July 17, 1986, Alvy T. McQueen and Wilma L. McQueen designated this
5.7 acres parcel as their homestead;
On June 30, 1997, Wilma L. McQueen conveyed the property to Roland
Thomas McQueen Glass, her grandson. The instrument contained the
following language: "Be it also known that Wilma McQueen is to be
able to reside on this property in the present home until the day she
On April 13, 1998 and April 20, 1998, Wilma MCQueen was assessed federal
excise taxes related to her involvement in the Livingston Oil Company
for the four quarters of 1987 and the first three quarters of 1988. On
July 17, 1998, the IRS filed a notice of federal tax lien in
in the real property records relating to Wilma McQueen.
On July 30, 2001, Deborah Isaac Cooper purchased the property from
Roland Glass, Wilma Lea McQueen and Alvy T. McQueen by General Warranty
Deed with Vendor's Lien Retained. The promissory note involved was for
$140,000.00. The grant was without reservations and the exceptions
listed were any easements, valid gas and mineral rights, and ad valorem
taxes for the year 2001. In connection with this sale, Wilma McQueen
signed an affidavit of marital status which stated that she was the
owner of a life estate in the 5.7 acre parcel.
Ms. Cooper paid $170,000.00 for the property and Roland Glass received a
net of $130,250.00 which he used to buy a house in North Zulch,
. His grandparents, Wilma and Alvy McQueen, moved into the house Roland
Glass purchased in North Zulch,
seeks to foreclose its tax lien upon the property while Plaintiff seeks
to quiet title to the property and removed the federal tax liens. Both
parties bring motions for summary judgment.
A motion for summary judgment is properly granted only if there is no
genuine issue as to any material fact. Fed.R.Civ.P. 56(c); Celotex
Corp. v. Catrett, 477
317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). An issue is material if
its resolution could affect the outcome of the action.
v. Liberty Lobby, Inc., 477
242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding whether a
fact issue has been created, we must view the facts and the inferences
to be drawn therefrom in the light most favorable to the nonmoving
party. Olabisiomotosho v. City of
, 185 F.3d 521, 525 (5th Cir. 1999). The standard for summary
judgment mirrors that for judgment as a matter of law. Celotex,
at 323, 106 S.Ct. 2548. Thus, the court must review all of the evidence
in the record, but make no credibility determinations or weigh any
evidence. Reeves v. Sanderson Plumbing Products, Inc., 530
133, 120 S.Ct. 2097, 2102, 147 L.Ed.2d 105 (2000).
The cross-motions for summary judgment raise an issue of law as to the
legal effect of the deed from Wilma McQueen to her grandson, Roland T.
takes the position that the interest retained by Wilma McQueen signified
by the language, "[b]e it also known that Wilma McQueen is to be
able to reside on this property in the present home until the day she
dies," created a life estate in Wilma McQueen. The
fails, however, to cite any law, from
or other jurisdictions, to support its position. It merely recites the
fact that the title insurance company treated Wilma McQueen's interest
as a life estate and the fact that both Wilma and Alvy McQueen were
parties to the General Warranty Deed with Vendor's Lien Retained when
the property was transferred to Plaintiff by Roland Glass on July 30,
The threshold question in any case involving the federal government's
assertion of its tax lien is whether and to what extent the taxpayer had
"property" within the meaning of the federal tax lien statute.
6321 of the Internal Revenue Code affords the government a
lien for delinquent taxes upon "all property and rights to
property" belonging to the taxpayer. The Supreme Court has held
that state law determines whether the taxpayer has property or the right
to property to which the tax lien may attach. See United States v.
National Bank of Commerce [ 85-2
USTC ¶9482], 472 U.S. 713, 722 (1985); Aquilino v. United
States [ 60-2
USTC ¶9538], 363 U.S. 509, 512-14, 80 S.Ct. 1277, 1280, 4
L.Ed.2d 1365 (1960). In United States v. Bess [ 58-2
USTC ¶9595], 357 U.S. 51, 55, 78 S.Ct. 1054, 1057, 2 L.Ed.2d
1135, the Court said that the federal tax lien provision "creates
no property rights but merely attaches consequences, federally defined,
to rights created under state law." The case relied on as authority
for that statement, Fidelity & Deposit Co. v. New York City
Housing Authority [ 57-1
USTC ¶9410], 241 F.2d 142, 144 (2d Cir. 1957), clearly
states that "the statute was fashioned to require the courts to
determine for federal purposes whether those state- created interests
are 'property' or 'rights to property.'" All of this indicates that
a federal court looks to state law to determine whether an interest
exists, and then determines under a federal standard whether such an
interest amounts to a "property" interest.
We thus look to the law of the State of
to determine what interest was created by the words of the deed cited
above. The primary duty of courts called upon to construe deeds is to
ascertain the intent of the parties from all of the language contained
in the particular deed by the fundamental rule of construction known as
the "four corners" rule. The actual intent of the parties as
expressed in the instrument, in its entirety, prevails over arbitrary
rules of construction. Neel v. Killam Oil Co., Ltd., 88 S.W.3d
Civ. App.- San Antonio 2002).
The process of deed construction has been described as three-tiered: (1)
the court attempts to ascertain the grantor's intent by examining the
plain language of the deed; (2) the court then applies applicable rules
of construction to the deed; and (3) the court considers extrinsic
evidence to aid interpretation. Cherokee Water Co. v. Freeman, 33
S.W.3d 349 (Tex. Civ. App. - Texarkana, 2000), citing Laura H. Burney,
The Regrettable Rebirth of the Two Grant Doctrine in Texas Deed
Construction, 34 S. TEX. L. REV. 73, 77-78 (1993). The third tier, the
admission of extrinsic evidence, is not reached unless the intent of the
parties is unclear because the deed is ambiguous. Cherokee Water,
33 S.W.3d at 353, citing Stauffer v. Henderson, 801 S.W.2d 858,
1990). The question of ambiguity in a deed, as with other written
instruments, is a question of law. Cherokee Water, 33 S.W.3d at
353. A document or deed that can be given a definite or certain legal
meaning from the words used is not ambiguous. Stewart Title Guaranty
Co. v. Aiello, 941 S.W.2d 68, 74 (
1997); Cherokee Water, 33 S.W.3d at 353. If the deed language is
susceptible to a single meaning, the court will be confined to the
writing. Cherokee Water, 33 S.W.3d at 353. If the language may be
interpreted in different ways, rules of construction may be used.
An instrument is ambiguous only when the application of these rules
leaves it unclear which of two reasonable meanings is the correct one.
The language of the right reserved by Wilma McQueen in her deed of the
property to Roland T. Glass, i.e., "[b]e it also known that
Wilma McQueen is to be able to reside on this property in the present
home until the day she dies," gives Wilma McQueen a right to
"reside" on the property "in the present home until the
day she dies." The words in question are unambiguous.
cases have held that similar language does not create a life estate. In Cruse
v. Reinhard, 208 S.W.2d 598 (Tex. Civ. App. Beaumont 1948), writ
refused n.r.e., the grant of permission to "live" on the
property did not create a life estate but a mere right of occupancy. See
also Setliff v. Fielder, 422 S.W.2d 527, 530 (Tex. Civ. App. -
Corpus Christi 1967). In Ahrens v. Lowther, 223 S.W. 235 (Civ.
App. 1920), error refused, the court held that language stating the
grantor was "to continue using said lot as she has always done, so
long as she may live," did not, as a matter of law, constitute a
reservation of a life estate. A grantor may reserve the right to occupy
a house on the premises conveyed. Sisk v. Randon, 33 S.W.2d 1082
(Tex. Civ. App. Galveston 1930), writ granted, (Mar. 4, 1931) and aff'd,
326, 70 S.W.2d 689; Setliff v. Fielder, 422 S.W.2d 527 (Tex. Civ.
App.- Corpus Christi 1967). In both Sisk and Setliff, the
language creating the right to occupy the house on the premises what not
held to create a life estate. It is apparent that under
law, the language used in the deed in question created in Wilma McQueen
a right of occupancy and did not create a life estate.
When a grantor conveys the fee, he or she may reserve specified rights
for himself or herself or his or her heirs and assigns. Hansen v.
Bacher, 299 S.W. 225 (Tex. Comm'n App. 1927). An estate in the land
less than the fee simple as well as an interest in land not amounting to
an estate known to the law may be reserved. Woodmen of the World,
Camp No. 1772 v. Goodman, 193 S.W.2d 739 (
iv. App. -
1945). However, if the reservation does not reserve to the grantor a
definite estate in the land, the deed may be construed as a grant of the
fee simple, subject to a mere contractual right. Emerson v. Pate,
165 S.W. 469 (Tex. Crim. App. 1914).
It appears that a right of occupancy, under
law, is not a definite estate in the land. The rationale supporting this
conclusion appears to be that the language creating a right of occupancy
only does not create any right or privilege that is transferable. It
would appear that Congress meant the tax lien to apply only to interests
which have or foreseeably will have value to the taxpayer, for only such
interests could serve to satisfy the tax debt. Transferability is the
primary value-imparting characteristic of most property interests.
Federal definitions of property have generally emphasized the elements
of transferability and leviability by creditors. See Note,
Property Subject to the Federal Tax Lien, 77 HARV. L.REV. 1485, 1487
(1964). A right of occupancy is a personal right which is not
transferable. Furthermore, the United States has provided no authority
showing that under federal law a right of occupancy is an inter[e]st
which amounts to "property" for tax lien purposes.
Having found that Wilma McQueen, in her deed to Roland T. Glass,
reserved only a personal right of occupancy, and therefore transferred
fee simple interest in the land to Roland T. Glass, we look to the legal
effect of the recording of the tax liens against Wilma McQueen and of
the transfer from Roland T. Glass to the Plaintiff, Deborah Cooper.
It is undisputed that the federal tax liens were filed against Wilma
McQueen and registered in the property records of
in April, 1998 after the land was deeded by Wilma McQueen to Roland
Glass on June 30, 1997. Thus the transfer to Roland T. Glass was free of
any prospective tax lien.
It is also apparently undisputed that Plaintiff, Deborah Isaac Cooper,
is a bone fide purchaser of the property from Roland Glass. The
in its Opposition to Plaintiff's Motion for Summary Judgment and its
Cross Motion for Summary Judgment asserts that there are only two
questions presented: 1. Whether Wilma McQueen owned a property interest
in the subject property and 2. Whether the
has valid tax assessments against Wilma McQueen. The
provides no argument, evidence or authority which would challenge Ms.
Cooper's affidavit and other evidence which establishes that she was a
bona fide purchaser for value who had no notice of the liens and
purchased the property in good faith for valuable consideration. See
v. Bertelsen, 724 S.W.2d 428, 429 (Tex. App. - Fort Worth 1987) no
For the above and foregoing reasons, the Court finds in answer to the
questions of the United States, that Wilma McQueen did not own a
property interest in the subject property at the time of its transfer to
Plaintiff and that Plaintiff is entitled to summary judgment on the
question of whether she took the property free and clear of any tax lien
later levied by the United States against Wilma McQueen.
The Court further find that the summary judgment evidence submitted by
is insufficient to determine the question of whether or not it has a
valid tax lien against Wilma McQueen. The
is not entitled to summary judgment on that issue.
IT IS THEREFORE ORDERED that Plaintiff's Amended Motion for Summary
Judgment (doc. #66) is hereby GRANTED.
IT IS ORDERED that the Cross Motion for Partial Summary Judgment of the
(doc. #73) is DENIED.
[2002-2 USTC ¶50,660]
United States of America
, Plaintiff v. Susan Snyder, et al., Defendants
District Court, Dist. Conn., Civ. 3:01cv796(PCD), 8/8/2002
Secs. 6303 and 7403
Enforcement of tax lien: Demand for payment: Lien theory:
Constructive trust.--Summary judgment was denied where the
government attempted to seize and sell a taxpayer's house to satisfy
trust fund recovery penalties assessed against her parents. A
constructive trust to hold the deed to the house was denied because no
demand for payment was made upon the parents before they transferred
money to the taxpayer for her to purchase the house.
Secs. 6321 , 6331
Enforcement of tax lien: Fraudulent conveyance: Nominee theory: Lien
theory: Constructive trust: Invocation of Fifth Amendment privilege:
Waiver of right to testify: District court.--Summary judgment to
recover a taxpayer's house to satisfy trust fund recovery penalties
assessed against her parents was denied. There was no proof that the
conveyance of funds from the parents to the taxpayer for purchase of the
house was fraudulent. A discrepancy between the taxpayer's reported
income and income reported on a mortgage application failed to establish
fraudulent intent. Also, there was no proof that the conveyance left the
parents unable to satisfy the tax penalties. The application of the
nominee theory was rejected.
UNITED STATES'S MOTION FOR SUMMARY JUDGMENT
DORSEY, Senior District
United States of America
, moves for summary judgment. Its motion is denied.
Subject matter jurisdiction
is pursuant to 28 U.S.C. §§1340, 1345 and 22 U.S.C. §§7402, 7403.
The following facts are
undisputed. During 1989, 1990, and 1991, Russell and Stelle Mahler
("Russell and Stelle") accrued federal tax debt for willfully
failing to collect, account for, and pay taxes on the wages of their
company's employees. On July 12, 1995, Stelle gave her daughter,
Defendant Susan Snyder, $44,000 for the purpose of purchasing the
property located at
14 Michele Lane
14 Michele Lane
"). To her Uniform Loan Application for the purpose of purchasing
14 Michele Lane
, Defendant attached a "Certificate of Gift," signed by Stelle
indicating that the $44,000 was a gift. On or about August 4, 1995,
Defendant used the $44,000 as a down payment on the purchase of
14 Michele Lane
for $282,500. The
14 Michele Lane
deed remains in Defendant's name. Defendant's place of residence before
and after the purchase of
14 Michele Lane
12577 McIntire Drive
. Russell and Stelle maintain
14 Michele Lane
as their residence. Evidence submitted in the form of bank checks shows
that Russell regularly makes the mortgage payments from funds over which
Defendant has no control. On September 30, 2000, the
received a judgment pursuant to 26 U.S.C. §6672 (trust fund recovery
penalty) against Russell and Stelle for their unpaid tax debt. On
February 28, 2001, the federal tax lien judgment was amended and
principal amounts were entered against Russell and Stelle of $200,991
and $200,249, respectively. Pursuant to IRC §6321, unpaid federal tax
liens remain against all property and rights of Russell and Stelle.
now moves for summary judgment. In the alternative, the
moves to preclude Defendant from testifying in her defense.
The United States argues
that (1) Defendant holds bare legal title to 14 Michele Lane as a
nominee for her parents; (2) that there are no genuine issues of
material fact as to whether the lien against Russell and Stelle can
attach to 14 Michele Lane; and (3) the $44,000 transfer was fraudulent
and that a constructive trust should therefore be imposed as an
equitable remedy. Defendant asserts that the $44,000 was intended to be
a gift from Stelle, and as a gift, there is no presumption of a
A. Standard of Review
Rule 56(c) provides that
summary judgment "shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, and admissions on file . . .
show that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law." FED. R.
CIV. P. 56(c). The mere existence of an alleged factual dispute is not,
on its own, sufficient to defeat a motion for summary judgment. Anderson
v. Liberty Lobby, Inc., 477
242, 247-48 (1986).
While the court is required
to view the inferences to be drawn from the facts in the light most
favorable to the opposing party, Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted), a
party may not "rely on mere speculation or conjecture as to the
true nature of the facts to overcome a motion for summary
judgment," Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d
The party without the
burden at trial may defeat summary judgment by providing sufficient
facts to establish that there exists a genuine issue of material fact
necessary for trial. See Celotex Corp. v. Catrett, 477
317, 322 (1986). Mere denials or conclusory allegations in legal
memoranda are not, on their own, evidence and cannot create a genuine
issue of material fact where none would otherwise exist. See Quinn v.
Syracuse Model Neighborhood Corp., 613 F.2d 438, 445 (2d Cir. 1980)
(citation omitted). "[A] party who asserts the privilege against
self-incrimination must bear the consequence of lack of evidence, and
the claim of privilege will not prevent an adverse finding or even
summary judgment if the litigant does not present sufficient evidence to
satisfy the usual evidentiary burdens in the litigation." United
States v. 4003-4005 5th Ave., 55 F.3d 78, 83 (2d Cir. 1995)
(internal citation and quotation marks omitted).
B. Nominee Theory
Under the nominee doctrine,
an owner of property may be considered a mere "nominee" and
thus may be considered to hold only bare legal title to the property.
The District Court of New York, in deciding a case on remand from the
Second Circuit, applied the nominee doctrine in the case of LiButti
v. United States [97-2
USTC ¶50,601 ], 968 F.Supp. 71 (N.D. N.Y. 1997). The
, in an attempt to collect unpaid tax debt, asked that court to declare
a father the "true" owner of a race horse, title to which was
in his daughter's name.
at 75. In reviewing
state law, that court found no reported
cases applying the nominee doctrine.
Nonetheless, that court chose to apply six factors used by other states'
courts for the purpose of determining whether a transferee is a mere
nominee of the transferor.
at 76. The six factors considered by LiButti in determining
whether a transferee is a nominee are: (1) whether inadequate or no
consideration was paid by the nominee; (2) whether the property was
placed in the nominee's name in anticipation of a lawsuit or other
liability while the transferor remains in control of the property; (3)
whether there is a close relationship between the nominee and the
transferor; (4) whether they failed to record the conveyance; (5)
whether the transferor retains possession; and (6) whether the
transferor continues to enjoy the benefits of the transferred property.
presents no case law wherein a
court has applied the nominee theory, nor is this court aware of any.
This court declines the invitation to make the nominee theory
state law, especially in light of the available statutory remedies the
legislature has already provided. Even if this court did apply these six
factors to the $44,000 transfer from Stelle to Defendant, the
has failed to successfully show that Defendant holds title to
14 Michele Lane
as a mere nominee. The second factor, whether the property was placed in
the nominee's name in anticipation of a lawsuit or other liability, is
not satisfied. The
proffers no evidence to show that in 1995, Stelle and Russell
anticipated a lawsuit or other liability. Also, the
concedes the fourth factor, whether they failed to record the
conveyance, is not satisfied. Therefore, the
would not benefit at summary judgment from this court's adoption of the
six-factor nominee test.
C. Lien Theory
The Internal Revenue Code,
26 U.S.C. §§6321, 6322, governs the IRS's authority to place a lien in
favor of the United States upon the property, and rights to property, of
any person liable to pay taxes, and who, after a demand has been made,
refuses or neglects to pay his taxes. 1
Where, as in this case, an employer willfully fails to collect, account
for, and pay over taxes withheld from the wages of employees,
"[a]fter assessment, notice, and demand, the IRS may, therefore,
create a lien upon the property of the employer, §6321, and levy,
distrain, and sell the employer's property in satisfaction." Slodov
v. United States [78-1
USTC ¶9447 ], 436 U.S. 238, 244 (1978) (footnote omitted).
"Assessment is made by recording the liability of the taxpayer in
the office of the Secretary of the Treasury, 26 U.S.C. §6203, and
notice of the assessment and demand for payment generally are required
to be made within 60 days of the assessment. 26 U.S.C. §6303(a)."
at 244 n.5.
Pursuant to 26 U.S.C. §6321,
the United States argues that Russell's and Stelle's judgment for
willfully failing to pay taxes authorizes federal tax liens upon all
Russell's and Stelle's property and rights to property, including 14
Michele Lane. In order for this argument to succeed, the
must show that "assessment, notice, and demand" were made
prior to the $44,000 transfer of funds from Stelle to Defendant in 1995.
Unless a demand had been made, a lien against property of Russell and
Stelle did not yet exist at that time. Though trust fund recovery
penalties were assessed against Russell and Stelle in 1996 and though
received judgments against Russell and Stelle in 2000, the
has not submitted evidence which shows that a demand was made prior to
the $44,000 transfer in 1995. As to whether the unpaid federal tax liens
against Russell and Stelle can be applied to
14 Michele Lane
under a lien theory, summary judgment is denied.
D. Fraudulent Conveyance
Statute of limitations
Pursuant to CONN. GEN.
STAT. §52-552j, the statute of limitations with respect to a fraudulent
transfer extinguishes a claim unless the action is brought within four
years of the transfer or, if later, within one year of when the transfer
could have reasonably been discovered by the claimant. However,
three-year statute of limitations for setting aside fraudulent transfers
is not applicable to a suit by the
to recover the value of allegedly fraudulently conveyed property in
partial satisfaction of outstanding tax deficiencies." United
States v. Upton [97-1
USTC ¶50,366 ], 967 F.Supp. 57, 58 (D. Conn. 1997) (citing United
States v. Fernon [81-1 USTC ¶9287 ], 640 F.2d 609, 612 (5th Cir. 1981)). Since
this case involves a suit by the
to partially satisfy outstanding tax liens by recovering allegedly
fraudulently conveyed property, the four-year statute of limitations is
Merits of fraudulent conveyance theory
argues that since Defendant acquired
14 Michele Lane
fraudulently, Defendant holds only bare legal title to the property and
so a constructive trust should be imposed as an equitable remedy. The
proposed constructive trust would provide the
a source of partial satisfaction towards Russell's and Stelle's
outstanding tax deficiencies. The Connecticut Supreme Court has held
that "the party seeking to set aside a conveyance as fraudulent
bears the burden of proving either: (1) that the conveyance was made
without substantial consideration and rendered the transferor unable to
meet his obligations; or (2) that the conveyance was made with a
fraudulent intent in which the grantee participated." Wendell
Corp. Tr. v. Thurston, 239
109, 115-16 (1996) (citation, alteration, and emphasis omitted); Bizzoco
v. Chinitz, 193
304, 312 (1984); Zapolsky v. Sacks, 191
194, 200 (1983). Either test defined by the Connecticut Supreme Court is
sufficient to set aside the conveyance. Wendell Corp. Tr., 239
at 116. A fraudulent conveyance must be proven by "clear and
convincing" evidence. Tessitore v. Tessitore, 31
App. 40, 43 (1993). A party who seeks to set aside a transfer as
fraudulent bears the burden of proving fraudulent intent. Tyers v.
8, 11 (1990). "[T]he determination of the question of fraudulent
intent is clearly an issue of fact which must often be inferred from
surrounding circumstances. . . . Such a fact is, then, not ordinarily
proven by direct evidence, but rather, by inference from other facts
proven--the indicia or badges of fraud." Dietter v. Dietter,
App. 481, 487 (1999) (citation omitted; ellipsis in original).
An imposition of a
constructive trust can be an appropriate remedy where property has been
fraudulently conveyed. See generally Wendell Corp. Tr., 239
109. "A constructive trust is the formula through which the
conscience of equity finds expression. When property has been acquired
in such circumstances that the holder of the legal title may not in good
conscience retain the beneficial interest, equity converts him into a
trustee." Cohen v. Cohen, 182
193, 203 (1980) (citation omitted). A constructive trust arises against
one who by actual or constructive fraud or questionable means has
obtained or holds the legal right to property which in the interest of
equity he should not hold. Giulietti v. Giulietti, 65 Conn. App.
813, 856, cert. denied, 258 Conn. 946, cert. denied sub nom.
Giulietti v. Vernon Vill., Inc., 258 Conn. 947, and cert. denied,
258 Conn. 947 (2001).
The first fraudulent
transfer test, requiring the conveyance to have been made without
substantial consideration and to have rendered transferor unable to meet
his obligations, is not fully satisfied. Defendant concedes the $44,000
was conveyed without substantial, or indeed any, consideration and was
used to purchase
14 Michele Lane
. That being said, the
has not put forward any evidence to prove that the transfer left Russell
and Stelle unable to meet their obligations. 2
The second fraudulent
transfer test, requiring proof that conveyance was made with fraudulent
intent, is not satisfied. In order to set aside a conveyance as
must show that Russell and Stelle knew of their indebtedness to the
at the time of the $44,000 transfer of funds. The
puts forward some evidence to the effect that
14 Michele Lane
was conveyed with fraudulent intent. In particular, the
submits documents which show significant discrepancies between
Defendant's reported income on her mortgage application for
14 Michele Lane
and income reported on her tax returns submitted to the IRS. On the
first page of Defendant's 1995 Uniform Residential Loan Application for
the purpose of purchasing
14 Michele Lane
, Defendant indicated that she was employed as a "Director"
for Broad Store Corporation, a corporation controlled by Russell.
Defendant further submitted to the loan company an IRS W-2 form showing
that as Director of Broad Store Corporation she earned $88,000 in 1993
and $94,000 in 1994. In contrast to these representations, Defendant's
1993 and 1994 federal income tax returns show no income from Broad Store
Corporation. Rather, Defendant listed her occupation as
"Homemaker/PT Recept." The presumably fraudulent IRS W-2 forms
submitted to the loan company were never submitted to the IRS as part of
Defendant's federal income tax returns, as would have been required by
law. The foregoing pertains to the purchase of
14 Michele Lane
, not to the conveyance of the $44,000, which may be related. These
factors, while regardable as evidence of fraud in the purchase of the
home, are not so determinative that every reasonable jury must determine
that it is clear and convincing evidence of the intent to defraud the
at the time of the alleged fraudulent $44,000 transfer.
The conveyance which the
seeks to set aside as fraudulent is the $44,000 transferred from Stelle
to Defendant. The chronological order of events does not, as a matter of
law, prove fraudulent intent with regard to the $44,000 transfer. The
submits no evidence that in 1995, at the time of the $44,000 transfer,
Russell and Stelle knew of their indebtedness to the
. Judgments for the tax deficiencies were not entered against Russell
and Stelle until 2000. Therefore, a genuine issue of material fact
exists as to the existence of fraudulent intent at the time of the
$44,000 conveyance in 1995. The "clear and convincing"
standard of proof required in order to set aside the conveyance as
fraudulent is not satisfied, especially when considered as a matter of
summary judgment. Since Russell's and Stelle's intent at the time of the
transfer has not been conclusively established, it would therefore be
improper to impose a constructive trust on
14 Michele Lane
as a matter of law. Rather the issue of fraudulent intent is a question
E. Intent to Gift
Where the nominal grantee
is the natural object of the payor's bounty the law presumes a donative
intent. E.g., Walter v. Home Nat'l Bank & Trust Co. of Meriden,
635, 639 (1961); see RESTATEMENT (SECOND) OF TRUSTS §442.
Particularly, where purchase money is provided by parents to their
child, there is a presumption of a gift of money, rather than an
intention of a trust. See Zack v. Guzauskas, 171
98, 102 n.1 (1976). This presumption is one of fact, not of law, and may
be rebutted. Whitney, 171
at 33. For instance, the presumption of a gift was rebutted in the case
of LiButti v. United States [97-1
USTC ¶50,235 ], 107 F.3d 110, 125 (2d Cir. 1997)
(interpreting New Jersey state law), where the Second Circuit held, in
remanding an injunction barring the IRS from enforcing a tax levy
against Plaintiff, that a nominee ownership could be determined based on
the fact that a father who transferred money to his daughter for the
purchase of a racehorse, did so with the intent to hide the funds from
creditors. In LiButti, the facts showed that the father had
supplied money to his daughter to purchase a race horse, in her name,
subsequent to his being assessed by the IRS for several million dollars
in unpaid income taxes.
Defendant submits an
affidavit signed by Stelle which states that the $44,000 was a gift to
Defendant, to be utilized as a down payment for
14 Michele Lane
. In her affidavit, Stelle asserts her belief that at the time of the
14 Michele Lane
, Defendant planned to relocate from
14 Michele Lane
for the purpose of assisting in the family gasoline station and
convenience store business. Defendant also submitted a
"Certification of Gift" signed by Stelle as part of
Defendant's Uniform Loan Application for the purchase of
14 Michele Lane
. In response, the
correctly argues that the intent of a gift is irrelevant where a
transfer is deemed fraudulent. However, since the
has failed to show conclusively that the $44,000 transfer from Stelle to
Defendant was made with fraudulent intent, a genuine issue of material
facts exists as to Defendant's assertion of an intent to give the
$44,000 as a gift.
F. Motion to Preclude
Susan Snyder from Testifying in Her Defense
Defendant asserted her
Fifth Amendment privilege against self-incrimination during discovery.
In doing so, the
and Defendant agree that Defendant waived her right to testify at trial.
However, Defendant requests to reserve her right to move this court to
modify the preclusion order and reopen discovery should she subsequently
decide to waive her privilege. "[S]o long as a district court
attempts to accommodate a claimant's fifth amendment interests, the
nature and extent of accommodation should be left primarily to that
v. Parcels of Land, 903 F.2d 36, 44 (1st Cir. 1990). In cases
where a litigant chooses to withdraw their Fifth Amendment privilege,
"[t]he district court should, in general, take a liberal view
towards such applications, for withdrawal of the privilege allows
adjudication based on consideration of all the material facts to
4003-4005 5th Ave.
, 55 F.3d at 84. In deciding whether to allow such a litigant to waive
his or her privilege, it should be taken into consideration whether the
privilege was originally invoked in a manner as to manipulate or gain an
unfair advantage over opposing parties.
at 85. Evidence has not been submitted to the effect that Defendant has
asserted her Fifth Amendment privilege in an abusive or manipulative
manner. Therefore, Defendant retains the right to rescind the invocation
of her right not to incriminate herself and thus any preclusion of her
testimony, as to which this court will not now comment.
G. Order Approving
Still pending is the
's motion to approve a stipulation between the Bank of America, N.A. and
. As the underlying stipulation has already been approved, (Dkt. No. 15,
margin endorsement), the motion is denied as moot.
The United States's motion
to approve stipulation between Bank of America, N.A. and the United
States as an order of the court, (Dkt. No. 16-2), is denied as
's motion for summary judgment, (Dkt. No. 25-1), is denied. The
's motion to preclude Defendant from testifying at trial of this matter
in her defense, (Dkt. No. 25-2), is granted.
26 U.S.C. §6321 provides, "If any person liable to pay any tax
neglects or refuses to pay the same after demand, the amount (including
any interest, additional amount, addition to tax, or assessable penalty,
together with any costs that may accrue in addition thereto) shall be a
lien in favor of the United States upon all property and rights to
property, whether real or personal, belonging to such person."
Also left unresolved is whether Russell and Stelle even knew they had
outstanding tax obligations to the
at the time of the transfer.
Presumably, as it is possible that the IRS W-2 forms submitted to the
loan company were accurate and her 1993 and 1994 federal income tax
forms were fraudulent. Or both were fraudulent.
United States of
, Appellee v. Francis
Taylor, Defendant, Mary E. Taylor, Appellant.
Court of Appeals, 8th Circuit; 01-2874/3872, 338 F3d 947, July 31, 2003.
Reversing and remanding an unreported DC Minn. decision; related opinion
at DC Minn. 2002-1
Secs. 6321 and 6323]
Tax liens: Priority: Conveyances made by taxpayer to ex-wife:
Qualified domestic relations order: Employee plan proceeds: Relation
back of interest in proceeds. --
A divorced wife became the
owner of 90 percent of her former husband's interest in employee plan
proceeds on the date when a state (Texas) court issued a domestic
relations order (DRO), even though details of qualification remained to
transform the DRO into a qualified domestic relations order (QDRO).
Thus, as a judgment lien creditor, her interest in the proceeds had
priority over an IRS tax lien against the husband that was filed
subsequent to the entry of the DRO but before the order became a QDRO.
On the date the DRO was granted, her identity was clear, the subject
property was identified, the amount was fixed, and the husband no longer
owned 90 percent of the plan proceeds at issue.
Before: Loken, Bye and Riley, Circuit Judges.
RILEY, Circuit Judge: This case arises out of an April 1996 Northwest
Airlines (Northwest) interpleader of the
and Mary Taylor (Mary) to determine whether the Internal Revenue Service
(IRS) or Mary has priority and is entitled to the benefits of three
Northwest sponsored employee benefits plans. On cross motions for
summary judgment, the district court ruled generally for the IRS and
against Mary, finding Mary's right to the plans under a
domestic relations order (DRO) was subject to a prior federal tax lien.
We disagree and reverse.
As is often the case, the sequence of events is critical. Francis Taylor
(Francis) worked as a pilot for Northwest from 1966 to 1994. During his
employment, Francis participated in a retirement plan, a stock plan, and
a savings plan administered by Northwest under ERISA. 1
Francis retired from Northwest in September 1994, at which time he filed
state court for divorce from Mary, his wife of more than thirty years.
The following month, in October 1994, a tax court concluded that Francis
had not filed tax returns from 1981 through 1985. On May 1, 1995, the
IRS assessed deficiencies totaling approximately $984,310 (including
penalties and interest) for those tax years. On July 28, 1995, the
court entered a divorce decree and approved a marital settlement
agreement. The agreement provided that "to settle all obligations
of the marriage," Mary would receive a 90 percent interest in
Francis's Northwest employee benefits proceeds (plan proceeds). Also in
July, the court entered a purported qualified domestic relations order
(QDRO), directing the plan administrator to distribute Mary's interest
in the plan proceeds directly to her. The
court, in the July order, retained jurisdiction to amend or reform the
order as necessary to conform with plan requirements and qualify as a
In October 1995, Northwest informed Mary and Francis that the July DRO
did not qualify as a QDRO. In December 1995, the IRS filed a lien
against the plan proceeds in
, where Francis claimed he resided at the time of the divorce, and where
the DRO issued. In October 1996, the IRS filed another lien in
, where the plans were administered. Meanwhile, Mary and Francis
attempted to correct the DRO's identified deficiencies. Among other
things, the order: (1) did not specify the period to which it applied;
(2) did not address how to treat amounts accrued, but had not yet been
credited to the account; and (3) would have required Northwest to make
an extra payment. Twice the
court, at Mary's request, reformed the DRO to address Northwest's
concerns. Northwest finally pronounced the DRO a QDRO in January 1997.
The district court dismissed Northwest from the interpleader action, and
the IRS and Mary were left to determine who was entitled to the plan
proceeds. The IRS claimed its interest in the plan proceeds was first in
time, while Mary argued her interest had priority because she was both a
"judgment lien creditor" and a "purchaser" under 26
a statute that in certain situations requires the IRS to file notice of
its lien to obtain priority.
The district court concluded Mary was neither a purchaser nor a judgment
lien creditor under section
6323(a). Specifically, the court determined Mary was not a
purchaser because her consideration was not "adequate and
full," as defined in 26 C.F.R. §301.6323(h)-1(f)(3)
(2001) (consideration must have reasonable relationship to true value of
interest in acquired property). Further, the district court found Mary
was not a judgment lien creditor because there was no evidence she had
perfected her lien by executing the judgment as required under
law. Because Mary was not entitled to the protections of section
6323, the district court held the IRS tax liens assessed on
May 1, 1995, became effective against Mary as of that date and were
first in time and entitled to priority.
On appeal, Mary argues: (1) the Texas divorce court had exclusive
jurisdiction over this dispute; thus, there was no federal question and
the interpleader action was not proper; (2) under Texas community
property law, Mary had substantial property rights in the plan proceeds
even before the divorce; (3) she was a purchaser under section
6323(a); and (4) she was a judgment lien creditor under section
This court reviews de novo the district court's grant of summary
judgment. Mayberry v. United States [ 98-2
USTC ¶50,632], 151 F.3d 855, 858 (8th Cir. 1998). Initially,
we reject Mary's first two arguments: (1) federal jurisdiction does
exist, see 29 U.S.C. §1132(a)(3) (civil action may be brought by
fiduciary to enjoin violations of ERISA plan, or to obtain appropriate
equitable relief); and (2)
community property law does not vest her with an interest in the plan
proceeds. See 29 U.S.C. §1144(a) (ERISA supersedes state law
insofar as such law relates to ERISA-governed plans); Boggs v. Boggs,
833, 850 (1997) (QDRO provisions define scope of nonparticipant spouse's
community property interest in pension plans).
We turn next to whether Mary became a judgment lien creditor under section
6323(a) within sufficient time to have priority over the IRS.
An IRS lien attaches automatically on the date a penalty is assessed, 26
(lien arises at time of assessment), and is enforceable as of that date
against creditors except any "purchaser," "holder of
security interest," "mechanic's lienor," or
"judgment lien creditor," within the meaning of section
6323(a). If the creditor falls into one of these categories,
then the IRS must provide adequate notice to establish the priority of
its lien. See 26 U.S.C. §6323(a);
USTC ¶9401], 697 F.Supp. 1508, 1511 (D. Minn. 1988) (as to §6323(a)
creditors, tax lien will have priority only if notice has been filed in
accordance with §6323(f)).
A Treasury Regulation defines "judgment lien creditor" as
... a person who has
obtained a valid judgment, in a court of record and of competent
jurisdiction, for the recovery of specifically designated property or
for a certain sum of money. In the case of a judgment for the recovery
of a certain sum of money, a judgment lien creditor is a person who has
perfected a lien under the judgment on the property involved. A judgment
lien is not perfected until the identity of the lienor, the property
subject to the lien, and the amount of the lien are established.
Accordingly, a judgment lien does not include an attachment or
garnishment lien until the lien has ripened into judgment, even though
under local law the lien of the judgment relates back to an earlier
If under local law levy or
seizure is necessary before a judgment lien becomes effective against
third parties acquiring liens on personal property, then a judgment lien
under such local law is not perfected until levy or seizure of the
personal property involved.
26 C.F.R. §301.6323(h)-1(g).
A state law created lien's priority depends on when it attaches and
becomes choate, and federal law will determine when the lien has
acquired sufficient substance and becomes so perfected as to defeat a
later federal tax lien. United States v. Pioneer Am. Ins. Co. [ 63-2
USTC ¶9532], 374 U.S. 84, 88 (1963). Liens are perfected,
under the federal rule, when there is nothing more to be done to have a
choate lien, that is, "when the identity of the lienowner, the
property subject to the lien, and the amount of the lien are
at 89 (citations omitted). Here, Mary obtained a valid judgment from a
divorce court for 90 percent of Francis's plan proceeds creating an
exclusive property interest in the plan proceeds for Mary. On the date
court granted the DRO, Mary's identity was clear, the subject property
was identified, and the amount (90 percent) was fixed.
Mary was not required to comply with any state law requirements for
purposes of establishing lien priority over the IRS's interest in the
plan proceeds. ERISA provides a mechanism for enforcing QDROs, and this
mechanism supersedes any contrary state law. See
Constitution art. VI, cl. 2, Heart of Am. Grain Inspection Serv.,
Inc. v. Mo. Dep't of Agric., 123 F.3d 1098, 1103 (8th Cir. 1997)
(under Supremacy Clause, federal laws are supreme law of land and may
preempt state law); cf. Chevron U.S.A. Inc. v. Natural Res.
Def. Council, Inc., 467 U.S. 837, 843-44 (1984) (agencies may
elucidate, through regulations, specific provisions of statutes that
agencies administer). Specifically, 29 U.S.C. §1056(d) provides for
alienation of pension plan benefits in accordance with a QDRO, and gives
plan administrators or courts eighteen months to determine whether a DRO
qualifies as a QDRO, directing the plan administrator to segregate the
amounts in question during that period. See 29 U.S.C. §1056(d)(3)(H).
In this case, Northwest determined, within eighteen months of the date
the first payment would have been made under the DRO, that the DRO, as
modified, was a QDRO. Thus, Mary satisfied ERISA's requirements for
alienating pension plan proceeds. Requiring Mary to satisfy state law
perfection requirements would conflict with ERISA's policy of ensuring
that plan sponsors are subject to a uniform body of law. See Egelhoff
v. Egelhoff, 532 U.S. 141, 148 (2001) (principal goal of ERISA is to
establish uniform scheme with standard procedures; uniformity is
impossible if plans are subject to different legal obligations in
different states); Minnesota Chapter of Associated Builders &
Contractors, Inc. v. Minn. Dep't of Pub. Safety, 267 F.3d 807,
810-11 (8th Cir. 2001) (ERISA's goal is to minimize administrative and
financial burden of complying with conflicting state directives, and to
prevent potential for conflicts in substantive law requiring tailoring
of plans to peculiarities of multiple local laws), cert. denied,
122 S.Ct. 2292 (2002); Compagnoni [ 2001-2
USTC ¶50,626], 162 F.Supp.2d at 710 (imposing state law
perfection requirements would create choice-of-law difficulties,
frustrating objective of ensuring uniformity of ERISA administration).
We further conclude that Mary's interest in the plan proceeds relates
back to the date of the initial DRO. See Nelson v. Ramette,
322 F.3d 541, 544 (8th Cir. 2003) ("A person awarded a lump-sum
distribution from an ERISA plan pursuant to a divorce decree has a
direct interest in plan funds while the plan reviews the DRO to
determine whether it constitutes a QDRO."); Gendreau v. Gendreau,
122 F.3d 815, 818 (9th Cir. 1997) (wife's interest in pension plans was
established at time of divorce decree; husband's interest was
concomitantly limited at that time, or subject to being limited at any
time wife obtained QDRO, much like property owner's rights may be
subject to divestment by contingent interest); Compagnoni [ 2001-2
USTC ¶50,626], 162 F.Supp.2d at 711-12 (wife had possessory
interest in benefits once first DRO had been entered although interest
was unenforceable until QDRO was obtained); cf. 29 U.S.C. §1056(d)(3)(H)
(any determination made within eighteen months of the order, or
modification of the order, will be applied prospectively). Mary had
eighteen months pursuant to section 1056(d)(3)(H)(ii) to qualify her
DRO, and "[i]f within the 18-month period ... the order (or
modification thereof) is determined to be a qualified domestic relations
order, the plan administrator shall pay the segregated amounts
... to the person...." (Emphasis added). The plan administrator, by
plan procedures, cannot shorten this eighteen month qualification
Because the DRO preceded the IRS's notice of tax lien, and Northwest
determined within the requisite eighteen months that the DRO qualified
as a QDRO, see 29 U.S.C. §1056(d)(3)(H)(v) (computation of
time), Mary was a judgment lien creditor with priority as of July 1995,
when the DRO was entered. She is thus entitled to the plan proceeds free
of the IRS lien.
One other related issue should be addressed regarding the finality of
the July 1995 Texas DRO. The
judge signed an order prepared and approved by the parties which stated:
The Court retains
jurisdiction to amend this Order so that it will constitute a qualified
domestic relations order under the Plan even though all other matters
incident to this action or proceeding have been fully and finally
adjudicated. If the Plan determines at any time that changes in the law,
the administration of the Plan, or any other circumstances make it
impossible to calculate the portion of a distribution awarded to
Alternative Payee by this Order and so notifies the parties, either or
both parties shall immediately petition the Court for reformation of
The intent of the July 1995 DRO, to qualify under the applicable
Northwest plans, is clear. The parties and the court recognized the
order may need changes to qualify. Northwest did require certain changes
to qualify. Mary asked the
court twice to reform the DRO before Northwest accepted the DRO as a
QDRO. This process is anticipated by the law, which provides for
segregation of the funds by the plan administrator for up to eighteen
months to qualify the DRO as a QDRO. See 29 U.S.C. §1056(d)(3)(H).
Our holdings in Nelson and here, recognizing the DRO establishes
a "direct interest in plan funds," and upon qualification, the
interest relates back to the initial DRO date, further the statutory
scheme to protect employee retirement benefits for beneficiaries of the
plans, including divorced spouses.
As a legal matter, when the DRO issued, Francis was no longer the owner
of 90 percent of the
plans. Mary was awarded this share as part of the divorce. Mary, the
property, and the amount were identified clearly, only the details of
qualification remained to transform the DRO into a QDRO.
Since we conclude Mary was a judgment lien creditor, we do not address
whether she was also a purchaser under section
6323(a). Accordingly, we reverse the summary judgment with
regard to Mary Taylor, and remand with instructions to enter judgment in
conformity with this opinion.
LOKEN, Circuit Judge, dissenting: The lien priority issue in this case
involves the interplay of two federal statutory regimes, ERISA and the
Internal Revenue Code. The Code provides that a judgment lien, when
perfected, has priority over an existing federal tax lien unless
notice of the tax lien has been filed in accordance with state law. See
26 U.S.C. §6323(a),
(f). ERISA provides that a former spouse may acquire an enforceable
right to a participant's pension plan benefits pursuant to the
provisions of a "qualified domestic relations order" (QDRO). 5
Here, the IRS more or less concedes that the
divorce court's domestic relations order granted Mary Taylor a judgment
lien on Francis Taylor's ERISA plan benefits. The issue, then, is
whether her lien on those plan benefits is entitled to priority over the
IRS's tax liens under §6323(a).
Federal law governs whether a judgment lien created by state law is
perfected for purposes of §6323(a).
The federal rule is that a lien is perfected, or choate, "when the
identity of the lienor, the property subject to the lien, and the amount
of the lien are established." United States v. Pioneer Am. Ins.
Co. [ 63-2
USTC ¶9532], 374 U.S. 84, 89 (1963) (quotation omitted). A
Treasury Regulation now codifies this principle. 26 C.F.R. §301.6323(h)-1(g).
Though Mary Taylor's judgment lien was created by state law, ERISA
provides that, to be perfected --that is, enforceable against Francis
Taylor's plan benefits --the state court order must be a QDRO. And
Congress's definition of a QDRO incorporates the substance of the
federal law definition of a perfected lien: a domestic relations order
qualifies as a QDRO if it clearly specifies the plan participant, the
alternative payee (the lienholder), each plan to which the order
applies, the amount or percentage of the benefits to be paid to the
alternate payee, and the number of payments or period to which the order
applies. 26 U.S.C. §414(p)(2).
Given this overlap between the judicially developed federal rule of
perfection, and the statutory elements of a QDRO, I agree with the court
that a QDRO is a perfected judgment lien for purposes of the priority
rules of §6323(a).
Like the court, I reject the IRS's argument that, to be perfected under §6323(a),
the judgment lien created by a QDRO must also satisfy any levy or
seizure requirements generally applicable to liens created by the laws
of that State. Congress codified the perfection requirements for a QDRO
in another section of the Internal Revenue Code, and ERISA would preempt
any local law that interfered with its anti-alienation provisions. In
the absence of a Treasury Regulation specifically addressing the
relationship between Code §§6323(a)
and 414(p)(2), I decline to apply a general reference to local law in a
pre-existing Treasury Regulation, 26 C.F.R. §301.6323(h)-l(g), in a
manner inconsistent with the QDRO perfection provisions of ERISA.
There remains the question whether Mary's judgment lien was perfected
(acquired QDRO status) prior to the IRS filing notice of its tax liens
, in late December 1995. Mary's judgment lien arose on July 28, 1995,
divorce court entered a domestic relations order awarding her a 90%
interest in Francis Taylor's ERISA plan benefits. Northwest Airlines as
plan administrator determined that amended versions of that order
qualified as QDROs, long after the tax liens were filed in December
1995. The court nonetheless concludes that Mary's QDRO-perfected lien
has priority because "Mary's interest in the plan proceeds relates
back to the date of the initial [divorce court order]." Ante
at 7. I disagree.
ERISA provides that, when a domestic relations order is submitted for a
QDRO determination, the plan administrator must make the determination
"within a reasonable period after receipt of such order," 26
and must segregate plan benefits that would be payable to the alternate
payee (here, Mary Taylor) for up to eighteen months while it makes that
See Hogan v. Raytheon, Co., 302 F.3d 854, 857 (8th Cir.
2002). If the administrator determines within the eighteen-month
approval period that the submitted order or a "modification"
of that order is a QDRO, it must pay the segregated amounts to the
alternate payee. 26 U.S.C. §414(p)(7)(B);
see Trustees of the Dirs. Guild of Am.-Producer Pension
Benefits Plans v. Tise, 255 F.3d 661, 2000 U.S. App. LEXIS 38507, at
**16 (9th Cir. 2000). In that situation, although the issue is not free
from doubt, I do not take issue with the court's conclusion that QDRO
status should "relate back" to the entry of the initial
domestic relations order for purposes of §6323(a)
lien priority because ERISA has conferred a direct interest in the
segregated plan funds at that earlier date. 6
Cf. Nelson v. Ramette, 322 F.3d 541, 544 (8th Cir. 2003) (for bankruptcy
purposes, alternative payee acquires QDRO interest in plan funds on the
date the domestic relations order is first entered); Gendreau v.
Gendreau, 122 F.3d 815, 818 (9th Cir. 1997) (same), cert. denied, 523
U.S. 1005 (1998).
But assuming the court has adopted a correct relation-back principle, it
has misapplied that principle to the facts of this case. Unlike the plan
administrator in Cooper Indus., Inc. v. Compagnoni [ 2001-2
USTC ¶50,626], 162 F.Supp.2d 702 (S.D. Tex. 2001), Northwest
Airlines did not invite Mary and Francis Taylor to submit a modified
domestic relations order to cure defects in the July 28, 1995, order.
Rather, Northwest Airlines as plan administrator issued three letters
between October 16 and November 3, 1995, initially determining that the
July 28, 1995, domestic relations order did not qualify as a QDRO with
respect to any of the three plans, and advising the Taylors that these
initial determinations would become final at the conclusion of the
sixty-day appeal period provided for in the three plans. When the
did not appeal, Northwest Airlines issued three final negative
determinations. At that point, ERISA expressly provides that Mary as
alternate payee had no further interest in any segregated plan benefits.
26 U.S.C. §414(p)(7)(C).
Consistent with the statute, Northwest Airlines then paid the segregated
benefits for the months from July 1995 to January 1996 to Francis
Taylor. At that point, though the eighteen-month period had not
expired, Mary's claim to a perfected judgment lien as of July 28, 1995,
was finally rejected. 7
As the court notes, the
court entered a modified domestic relations order on January 8, 1996,
after the plan administrator's final negative determinations. The
submitted that order to Northwest Airlines as plan administrator.
Northwest Airlines again issued three notices that it had received a
domestic relations order (one notice for each plan), which is the first
step in the QDRO-determination process. See 26 U.S.C. §414(p)(6)(A)(i).
In June 1996, Northwest Airlines finally determined that the January 8,
1996, order qualified as a QDRO with respect to Francis Taylor's savings
plan and stock plan benefits. However, on April 15, 1996, Northwest
Airlines initially determined that the January 8 order did not qualify
as a QDRO with respect to Francis Taylor's retirement plan benefits.
failed to appeal within the plan's sixty-day appeal period, and that
determination became final. Again, after the appeal period expired, the
submitted another modified domestic relations order, entered by the
court on August 29, 1996, which Northwest Airlines finally determined to
be a QDRO on January 7, 1997.
On this undisputed record, I conclude that the plan administrator's QDRO
determinations did not grant Mary Taylor a perfected judgment lien
interest in Francis Taylor's plan benefits prior to January 8, 1996. As
the IRS properly filed notice of its liens in late December 1995, the
federal tax liens have priority over Mary's judgment lien under §6323(a).
Accordingly, I respectfully dissent.
Employee Retirement Income Security Act of 1974 (ERISA), as amended, 29
U.S.C. §§1001-1461 (2000).
26 U.S.C. §6323(a)
states: "Purchasers, holders of security interests, mechanic's
lienors, and judgment lien creditors. The lien imposed by section
6321 shall not be valid as against any purchaser, holder of a
security interest, mechanic's lienor, or judgment lien creditor until
notice thereof which meets the requirements of subsection (f) has been
filed by the Secretary [of the Treasury]."
The IRS has authority to proceed against Francis's interest in any ERISA
plan benefits and "is not constrained by ERISA's anti-alienation
provision." United States v. McIntyre [ 2000-2
USTC ¶50,613], 222 F.3d 655, 660 (9th Cir. 2000). After the
DRO, Francis effectively no longer has any ownership interest in Mary's
90 percent share of the
Pension benefit plans are distinguishable from welfare benefit plans,
which do not provide an enforcement mechanism. See Mackey v.
Lanier Collection Agency & Serv., Inc., 486
825, 831-33 (1988); Cooper Indus., Inc. v. Compagnoni [ 2001-2
USTC ¶50,626], 162 F.Supp.2d 702, 709-10 (S.D. Tex. 2001).
Significantly, the QDRO provisions of ERISA appear in both the Internal
Revenue Code and the Title 29 labor laws. See 29 U.S.C. §1056(d);
26 U.S.C. §414(p).
I will cite to the Code provisions in this dissent.
My doubt stems from the fact that the initial domestic relations order,
if seriously deficient, may not satisfy the QDRO requirements in §414(p)(2)
that correspond to the elements that make a judgment lien choate under
federal common law. Here, for example, the July 28, 1995, order did not
identify to which of the three Northwest Airlines plans it applied and
thus did not clearly define the 90% interest that Mary was awarded. In
such a case, for purposes of priority against a federal tax lien, I am
not sure whether QDRO status should only relate back to the date the
deficient domestic relations order was modified, or all the way back to
the entry of the initial, non-choate domestic relations order. I need
not resolve that question here.
The court has no support for its assertion that "[t]he plan
administrator, by plan procedures, cannot shorten [the] eighteen month
qualification period." Ante at 7. The assertion is contrary
to the plain language of the statute, which requires a QDRO
determination "within a reasonable period," provides that
affected benefits must be segregated while the determination is made,
but places an eighteen-month limit on the plan administrator's duty to
segregate. The assertion is also contrary to the Department of Labor's
interpretation of the QDRO provisions: "the `18-month period'
during which a plan administrator must preserve the `segregated' amounts
... is not the measure of the reasonable period for determining the
qualified status of an order and in most cases would be an unreasonably
long period of time to take to review an order." U.S. Dep't of
Labor, Employee Benefits Sec. Admin., QDROs --The Division of
Pensions Through Qualified Domestic Relations Orders, Question 2-12
at p.19, available online at
[2002-1 USTC ¶50,198]
United States of America
, Plaintiff v. Francis Taylor and Mary Taylor, Defendants
District Court, Dist. Minn., Civ. 3-96-335 (RHK/FLN), 10/24/2001
Secs. 6321 and 7401
Jurisdiction: Suits by U.S.: Tax liens: Property subject to liens:
Fraudulent conveyances.--Jurisdiction was lacking over the
government's claim that the transfer made by an individual whose
property was subject to federal tax liens of his interest in his pension
plan to his ex-wife during their divorce proceedings was fraudulent. The
so-called Rooker-Feldman doctrine prevented the district court from
changing the state (
) court's judgment in the taxpayer's divorce proceedings.
Sec. 1 ]
Tax liens: Property subject to liens: Nominee status.--The
government's contention that the an individual's ex-wife, to whom the
taxpayer had transferred his pension plan during their divorce
proceedings, was an alter ego or nominee of the taxpayer failed. There
was no evidence that the taxpayer, whose property was subject to federal
tax liens, retained control over the benefits payable under his
transferred pension plan or that he had an unrestricted right to the
funds his ex-wife was entitled to receive after the transfer.
KYLE, District Judge:
On July 25, 2001, the Court
entered an Order and Order for Judgment which, inter alia,
determined that "the statutory tax liens that arose on April 14,
1997, and May 19, 1997, are valid and subsisting federal tax liens in
favor of the United States upon all property and rights to property,
whether real or personal, belonging to Francis Taylor at the time those
liens attached." (July 25, 2001 Order at 7.) The Court also
determined that "the 1997 tax liens did not attach to those
proceeds of Francis Taylor's retirement Plans that were conveyed to Mary
Taylor by means of the Qualified Domestic Relations Order [QDRO] issued
by the Texas divorce court." (
at 7-8 (emphasis added).) Furthermore, the Court dismissed as moot
Counts III, IV, and V of the
' Answer, Second Amended Cross Claim, and Second Amended Counterclaim. (
at 7.) Those counts asserted that (a) the QDRO issued by the
divorce court violated the Texas Fraudulent Transfer Act, (b) the QDRO
violated the Federal Debt Collection Procedures Act, and (c) Mary Taylor
was the alter ego or nominee of Francis Taylor, respectively.
Before the Court is the
' Motion to Alter or Amend the Judgment. The
contends that the Court erred in not considering whether the fraudulent
transfer, fraudulent conveyance, or alter ego claims justified setting
aside or disregarding the transfer of 90% of Francis Taylor's interest
in his Northwest Airlines pension plans to his wife Mary Taylor. That
transfer was accomplished by the QDRO and Divorce Decree issued in the
Standard of Decision under Rule 59.
Rule 59 of the Federal
Rules of Civil Procedure provides that a "motion to alter or amend
a judgment shall be filed no later than 10 days after entry of the
judgment." Fed. R. Civ. P. 59(e).
Federal Rule of Civil
Procedure 59(e) was adopted to clarify a district court's power to
correct its own mistakes in the time period immediately following entry
of judgment. . . . Rule 59(e) motions serve a limited function of
correcting manifest errors of law or fact or to present newly discovered
evidence. . . . Such motions cannot be used to introduce new evidence,
tender new legal theories, or raise arguments which could have been
offered or raised prior to entry of judgment.
Home Health Care, Inc. v. P.T.-O.T. Assocs. of the Black Hills,
141 F.3d 1284, 1286 (8th Cir. 1998) (internal quotations marks and
In late 2000, the
brought motions for summary judgment against both Francis and Mary
sought a determination that its 1995 tax liens (which pertained to the
1981 through 1985 tax deficiencies) had priority over any interest Mary
Taylor claimed in the Plans by reason of her divorce. The Government's
arguments concerning fraudulent transfers and an alter ego theory were
merely alternative arguments that did not need to be decided if the
Court resolved the lien priority issue for the 1995 tax liens in favor
did not argue that the fraudulent transfer and alter ego doctrines
applied to permit enforcement of the Government's 1997 tax liens.
Indeed, the Government's motions for summary judgment did not seek a
determination of any sort regarding the 1997 tax liens.
In its Memorandum Opinion
and Order granting the
' Motion for Partial Summary Judgment, this Court directed counsel to
file a letter identifying what issues, if any, remained for trial. By a
letter dated June 25, 2001, the United States argued, in a section
entitled "Priority of 1997 statutory liens in Count VII," that
the Court's earlier ruling that Mary Taylor was not a person entitled to
notice of the federal tax liens pursuant to 26 U.S.C. §6323(a) as
either a judgment lien creditor or purchaser "would also apply with
respect to the 1997 additional tax assessments against Francis Taylor.
Thus there was no need for the
to file a tax lien for it to be effective against her." (June
28 letter from
' counsel at 2 (emphasis added).) In the same section of the letter, the
United States further stated that "[i]f the Court does not believe
the 1997 priority issue has been resolved, that issue could, in our
view, be decided on the evidence and briefs already submitted." (
at 3.) That sentence was followed by a footnote referring the Court to
sections of several memoranda filed by the
in connection with the motions for summary judgment. (
at 3, n.6.) Thus, in its June 25, 2001 letter, the
did not clearly articulate its desire to have the fraudulent transfer
and alter ego claims decided vis-a-vis the 1997 tax liens. The Court
accordingly concluded that they were moot.
Not until the Motion to
Alter or Amend the Judgment did the United States expressly state its
position that "[t]here would be no issue of priority between Mary
Taylor and the United States as to the 1997 tax liens if the Court found
the conveyance by Francis of his interest in the Plans to Mary to be
fraudulent." (Mem. Supp. Mot. to Alter or Amend J. at 3-4.) The
Court has carefully considered the record and the proceedings in this
matter and concludes that Counts III, IV, and V of the
' Answer, Second Amended Cross Claim, and Second Amended Counterclaim
should not have been dismissed as moot, in light of the pending case or
controversy over the 1997 tax liens. Accordingly, the Court will grant
' motion and will consider the merits of the claims asserted in Counts
III, IV, and V. The parties have previously briefed whether the
is entitled to judgment, as a matter of law, on its claims that either
the QDRO was a fraudulent transfer or that Mary Taylor was the
"alter ego" or nominee of Francis Taylor. The Court considers
each theory in turn.
The Court turns first to
the counts alleging that the transfer accomplished by the
family court's QDRO violated state or federal fraudulent transfer law.
As a threshold matter, the Court must resolve whether it has
jurisdiction to decide such claims. Francis Taylor and the
briefed the applicability of the Rooker-Feldman doctrine in
connection with Francis Taylor's Motion to Dismiss. 2
"The Rooker-Feldman doctrine recognizes that, with the
exception of habeas corpus petitions, lower federal courts lack subject
matter jurisdiction over challenges to state court judgments." Lemonds
v. St. Louis County, 222 F.3d 488, 492 (8th Cir. 2000), cert.
denied sub nom. Halbman v.
, 121 S.Ct. 1168 (2001). "The Rooker-Feldman doctrine
forecloses not only straightforward appeals but also more indirect
attempts by federal plaintiffs to undermine state court decisions."
In District of Columbia
Court of Appeals v. Feldman, 460 U.S. 462, 482 n.16 (1983), the
Supreme Court stated that a federal district court cannot decide constitutional
claims that are "inextricably intertwined" with the state
court's proceedings because such a ruling would essentially be a review
of the state court's decision. The Eighth Circuit has not limited the
doctrine to federal constitutional claims but has also applied it to
claims seeking relief under state consumer protection laws that were
before the district court pursuant to its supplemental jurisdiction. Fielder
v. Credit Acceptance Corp., 188 F.3d 1031, 1034-35 (8th Cir. 1999).
A claim, constitutional or otherwise, is "inextricably
intertwined" for purposes of the Rooker-Feldman doctrine if
it " 'succeeds only to the extent that the state court wrongly
decided the issues before it [or] if the relief requested . . . would
effectively reverse the state court decision or void its ruling.' "
at 1035 (quoting Charchenko v. City of Stillwater, 47 F.3d 981,
983 (8th Cir. 1995)); accord Neal v.
, 112 F.3d 351, 356 (8th Cir. 1997). A lower federal court can
exercise jurisdiction over a claim, however, "if it is 'separable
from and collateral to the merits of the state-court judgment.' " Fielder,
188 F.3d at 1034 (quoting Pennzoil Co. v. Texaco, Inc., 481
1, 21 (1987) (Brennan, J., concurring)).
argues that Rooker-Feldman does not apply because the doctrine
"only applies to litigants who were parties of both the state court
decision and the federal claim." (
' Opp'n to Mot. to Dismiss at 7.) In Lemonds, however, the Eighth
Circuit Court of Appeals rejected the reasoning of cases such as the one
cited by the United States in support of that argument: 3
Insisting that the parties
must be identical, it seems to us, confuses the Rooker-Feldman
doctrine with principles of res judicata. These doctrines are not
the same. . . . Although the two rules often overlap in their practical
effects, they rest on contrasting foundations and serve distinct
purposes. Thus, whereas res judicata is largely a matter of
common law and involves the impropriety of permitting parties to have
"two bites at the apple," Rooker-Feldman is based
squarely on federal law and is concerned with federalism and the proper
delineation of the power of the lower federal courts. Such courts are
simply without authority to review most state court
judgments--regardless of who might request them to do so.
222 F.3d at 495. 4
The Eighth Circuit further observed, however, that some courts of appeal
have declined to apply the doctrine "where the federal plaintiffs
lacked a reasonable opportunity, through intervention or otherwise, to
litigate their claims in state court."
at 496 (citing Long v. Shorebank Dev. Corp., 182 F.3d 548, 558
(7th Cir. 1999); Valenti v. Mitchell, 962 F.2d 288, 296 (3d. Cir.
1992); Wood v. Orange County, 715 F.2d 1543, 1546-48 (11th Cir.
1983) ("The rule can apply only where the plaintiff had a
reasonable opportunity to raise his federal claim in state proceedings.
Where the plaintiff has had no such opportunity, he cannot fairly be
said to have 'failed' to raise the issue.")). The Seventh Circuit
observed that lower federal courts have not applied Rooker-Feldman
where the federal litigants did not have a "reasonable
opportunity" to raise their federal claims in state proceedings and
the federal litigants have
pointed to some factor independent of the actions of the opposing party
that precluded the litigants from raising their federal claims during
the state court proceedings. Typically, either some action taken by the
state court or state court procedures in place have formed the barriers
that the litigants are incapable of overcoming in order to present
certain claims to the state court.
182 F.3d at 558.
makes no argument that it was unable, by intervention or
otherwise, to litigate in
state court the fraudulent nature of the transfer effectuated by the
acknowledges that it knew of the
's divorce in late 1995. The process of obtaining a valid QDRO from the
state court took well over a year. (June 8, 2001 Memorandum Opinion and
Order at ¶¶13, 16, 18, 20, 25, 26, and 28.) The
cites to no procedural rule or action by the
court that prevented it from bringing the fraudulent nature of the
transfer to the Texas Court's attention. Rather, the
argues that it was not required to intervene in the divorce
proceeding after learning of it in late 1995. (
' Opp'n to Mot. to Dismiss at 8.) The
has had a full and fair opportunity to address the application of the Rooker-Feldman
doctrine to its fraudulent transfer claims. The Court concludes, based
on the record before it, that the "no reasonable opportunity"
exception does not apply here.
Determining whether Rooker-Feldman
deprives the district court of subject matter jurisdiction in a given
case " 'requires determining exactly what the state court held' to
ascertain whether granting the requested federal relief would either
void the state court's judgment or effectively amount to a reversal of
its holding." Lemonds, 222 F.3d at 493 (quoting Charchenko,
47 F.3d at 983); see also Suzanna Sherry, Judicial Federalism
in the Trenches: Rooker-Feldman Doctrine in Action, 74 Notre
Dame L. Rev. 1085, 1099 (1999) (opining that the Rooker-Feldman
doctrine applies whenever the federal district court "is in effect
reviewing the state court judgment even if it is not reviewing
the decision.") (emphasis in original). 5
In the present case, the
state court approved a marital property settlement whereby Francis
Taylor transferred to Mary the right to receive 90% of the pension
payments that were payable to him by Northwest Airlines.
argues that "it cannot be said that the issue of whether there was
fraud in the transfer was 'inextricably intertwined' with the prior
state court decision, for the parties to the divorce proceeding were the
very parties perpetrating the fraud." (
' Opp'n to Mot. to Dismiss at 9.) The
' formulation of the issue misses the mark, however. There can be no
doubt that deciding the fraudulent transfer issue in the United States'
favor--that is, holding that the transfer to Mary Taylor of the vast
majority of Francis Taylor's right to payment from the Plans via the
state court's QDRO and Divorce Decree was fraudulent and therefore
void--would effectively nullify the QDRO and the Divorce Decree.
asserts that "it is doubtful that the Rooker-Feldman
doctrine is designed to perpetrate fraud on any court." (
' Opp'n to Mot. to Dismiss at 7.) The
has not cited any authority, however, establishing the scope or nature
of a "fraud" exception to the Rooker-Feldman doctrine
or why this case would fall within such an exception. 6
The Court concludes that the Rooker-Feldman doctrine deprives
this Court of jurisdiction to consider the
' fraudulent transfer claims in Counts III and IV. Accordingly, those
counts are dismissed.
Mary Taylor as an Alter Ego/Nominee of Francis Taylor
also argues that, although Mary Taylor holds legal title to the sums
payable under the Plans as a result of the QDRO entered by the
state court, she holds title as a "mere nominee" or
"alter ego" for Francis Taylor. Therefore, the
contends, the transfer effectuated by the QDRO was subject to the
taxpayer's liability to the
government may collect the tax debts of a taxpayer from assets of the
taxpayer's nominee, instrumentality, or 'alter ego.' See G.M. Leasing
Corp. v. United States [77-1 USTC ¶9140], 429 U.S. 338, 350-51, 97
S.Ct. 619, 50 L.Ed.2d 530 (1977); Horton Dairy, Inc. v. United States
[93-1 USTC ¶50,195], 986 F.2d 286, 291 (8th Cir. 1993); F.P.P.
[87-2 USTC ¶9536], 830 F.2d 114, 117-18 (8th Cir. 1987). In
determining the economic reality of a transaction, courts must analyze
the substance of a transaction and are not restricted by its form. See,
e.g., Gregory v. Helvering [35-1 USTC ¶9043], 293 U.S. 465, 469-70,
55 S.Ct. 266, 79 L.Ed. 596 (1935); Estate of Sachs v. Comm'r
[88-2 USTC ¶13,781], 856 F.2d 1158, 1164 (8th Cir. 1988).
States v. Scherping
[99-2 USTC ¶50,758], 187 F.3d 796, 801 (8th Cir. 1999), cert. denied,
1162 (2000). "Alter ego means 'other self'--where one person or
entity acts like, or, for another to the extent that they may be
(quoting Loving Saviour Church v. United States [83-1 USTC ¶9215],
556 F.Supp. 688, 691 (D. S.D. 1983), aff'd [84-1 USTC ¶9261],
728 F.2d 1085 (8th Cir. 1984) (per curiam). The analysis of
whether an individual is an "alter ego" of another individual
differs somewhat from the analysis involved when a business entity (such
as a corporation) is alleged to be an individual's "alter
[S]ince a corporation is a
fiction, it is easier to manipulate, especially when it is closely held.
The same cannot be said for individuals as alter egos for each other,
since there will always be at least two human voices to explain the
relationship. This is not to say that a human being cannot be another's
alter ego; it is only to say that the proving an alter ego relationship
between individuals is likely to be more difficult.
v. United States
[99-1 USTC ¶50,252], 1998 WL 1038068, at *9 (W.D. Pa. Dec. 28, 1998).
Courts generally consider several factors in deciding whether a person
is a taxpayer's nominee:
(1) whether inadequate or
no consideration was paid by the nominee;
(2) whether the property
was placed in the nominee's name in anticipation of a lawsuit or other
liability while the transferor remains in control of the property;
(3) whether there is a
close relationship between the nominee and the transferor;
(4) whether they failed to
record the conveyance;
(5) whether the transferor
retains possession, dominion or control over the property; and
(6) whether the transferor
continues to enjoy the benefits of the transferred property.
v. United States
[97-2 USTC ¶50,943], 1997 WL 1038197 at *2 (W.D. N.Y. Oct. 29, 1997); United
States v. Mayfield [95-1 USTC ¶50,066], 1994 WL 764114 at *5 (S.D.
Ind. Dec. 22, 1994); Simpson v. United States [89-1 USTC ¶9285],
1989 WL 73212 at *6 (M.D. Fla. Apr. 6, 1989).
argues that Mary Taylor is the nominee of Francis Taylor because
' divorce was a sham, designed and intended to place Francis Taylor's
assets beyond the reach of the IRS." (
' Mem. Supp. Mot. for Summ. J. against Mary Taylor at 29.) The case on
relies, however, Boyter v. Commissioner [82-1 USTC ¶9117], 668
F.2d 1382 (4th Cir. 1981), is not clearly on point. The Boyters--husband
and wife--sought to avoid the federal income tax's "marriage
penalty" in 1975 and 1976 by divorcing from each other shortly
before the end of each calendar year and then remarrying early in the
following year. Thus, in 1975, the Boyters traveled to
and obtained a divorce "on the ground of incompatibility of
character, notwithstanding that the parties occupied the same hotel room
prior to and immediately after the granting of the decree," Boyter
[82-1 USTC ¶9117], 668 F.2d at 1384. The Boyters remarried in
on January 9, 1975.
In November of 1976, the Boyters traveled to the
and obtained a divorce decree "on the ground of 'incompatibilities
of temperaments existing between (the parties) that has made life
together unbearable.' "
The Boyters remarried in February 1977.
Recognizing that "the
sham transaction doctrine has been applied primarily with respect to the
tax consequences of commercial transactions," id. at 1387,
the Fourth Circuit Court of Appeals held that, in principle, the
doctrine might also apply to the conduct of the Boyters. 7
Boyter [82-1 USTC ¶9117], 668 F.2d at 1388. In reaching its
holding, the Fourth Circuit reasoned that "[i]t is the prompt
remarriage that defeats the apparent divorce when assessing the
taxpayers' liability, just as the prompt reincorporation of a business
enterprise in continuous operation defeats the apparent liquidation of
the predecessor corporation."
at 1387 (emphasis added) (citing Atlas Tool Co. v. Commissioner
[80-1 USTC ¶9177], 614 F.2d 860, 866-67 (3d Cir. 1980)).
In the present case, there
has been no remarriage by the
, let alone a prompt remarriage. Accordingly, the rule articulated in Boyter
does not apply here. As for the six above-listed factors that courts
generally consider in evaluating whether an individual is the nominee or
alter ego of a taxpayer, the Court observes that the
has not come forward with sufficient evidence to establish a genuine
issue of material fact as to the last three. The nominee/alter ego
doctrine bears a number of similarities to the fraudulent transfer
doctrine. A critical distinction, however, is that the nominee/alter ego
doctrine requires proof that the taxpayer retains control over and
continues to enjoy the benefits of the property transferred. In this
case, there is no evidence that Francis Taylor retains such control over
the benefits payable under the Plans or that he has an unrestricted
right to the funds Mary Taylor is to receive. The
' alter ego/nominee theory fails as a matter of law, and the Court will
enter summary judgment against the
on Count V.
Based on the foregoing, and
all of the files, records and proceedings herein, IT IS ORDERED
' Motion to Alter or Amend the Judgment (Doc. No. 295) is GRANTED.
The Court's Judgment (Doc. No. 294) is amended as follows:
1. That paragraph of the
Judgment which ordered, adjudged and decreed that Counts III, IV, and V
' Answer, Second Amended Cross Claim, and Second Amended Counterclaim
were dismissed as moot is VACATED;
2. Counts III and IV of the
United States' Answer, Second Amended Cross Claim, and Second Amended
Counterclaim are DISMISSED WITH PREJUDICE for lack of subject
matter jurisdiction under the Rooker-Feldman doctrine; and
3. Count V of the
' Answer, Second Amended Cross Claim, and Second Amended Counterclaim is
hereby DISMISSED WITH PREJUDICE. LET JUDGMENT BE ENTERED ACCORDINGLY
See Mem. Supp.
' Mot. for Summ. J. against Mary Taylor at 25 (discussing application of
the Texas Uniform Fraudulent Transfer Act in the context of the May 1,
1995 tax lien);
' Mem. Opp'n to Mary Taylor's Mot. for Summ. J. at 20 ("Given that
has already established its priority to the funds in question [secured
by the May 1, 1995 tax lien], this Court need not consider Francis
Taylor's fraudulent transfer.") (emphasis added); United
States' Reply to Mary Taylor's Opp'n at 5 ("As noted previously,
because the United States' tax liens [arising on May 1, 1995] encumbered
the property in question before the transfer [accomplished by the QDRO],
this Court need not consider the question of whether the transfer was
fraudulent.") (emphasis added); see also United States'
Opp'n to Francis Taylor's Mot. to Dismiss at 7 n.10 ("The court
need not determine whether the Rooker-Feldman doctrine deprives
it of jurisdiction over the United States' cross claim (i.e.,
that the transfer by Francis Taylor to Mary Taylor of his interests in
the Plans was a fraudulent transfer), if it decides the lien priority
issue contained in the pending cross-motions for summary judgment in
favor of the United States.").
Because the Rooker-Feldman doctrine is jurisdictional, the Court
may, in any event, consider it sua sponte. Lemonds v. St.
Louis County, 222 F.3d 488, 492 (8th Cir. 2000), cert. denied sub
nom. Halbman v.
, 121 S.Ct. 1168 (2001).
The Lemonds opinion was issued four months before the
filed its opposition brief to Francis Taylor's motion to dismiss. It was
not, however, cited by the
The Lemonds court also discussed Johnson v. De Grandy, 512
U.S. 997 (1994), a case cited by the United States in support of its
argument that, because it was not a party to the Texas divorce case, the
Rooker-Feldman doctrine does not apply. The Lemonds panel
noted that "[t]he absence of the United States from the state court
proceedings was not critical to the outcome in De Grandy . . .
since the Court additionally found, first, that the state court
considered its own decision to have been a mere 'preliminary look' at
the relevant claims and, second, that the United States 'ha[d] not
directly attacked [the state court judgment] in this proceeding." Lemonds,
222 F.3d at 495 n.6.
"The prevailing view is that Rooker-Feldman is at least
somewhat broader, or perhaps more rigid, than the state law of claim
preclusion, a view that is sensibly based upon the notion that whether a
state court judgment should be subject to collateral attack or review is
an issue best left to the state courts." Fielder, 188 F.3d
at 1036 (citing Kamilewicz v. Bank of Boston, 92 F.3d 506 (7th
Cir. 1996), cert. denied, 520
Indeed, the case cited by the
in support of its assertion pre-dates both the Feldman case from
1994 and the Rooker case from 1923. (See
' Opp'n to Mot. to Dismiss at 7 n.12 (citing McNeil v. McNeil, 78
F. 834 (N.D. Cal. 1897).)
[99-2 USTC ¶50,733]
United States of America
, Plaintiff v. Larry M. Barson, et al., Defendants
District Court, Dist.
, Cent. Div., 2:97-CV-551 C, 7/16/99
Sec. 6321 ]
Tax liens: Property not subject to: Transfer of real property:
Transfer to relatives: Fraudulent conveyance: Badges of fraud: Recording
of deed: Not in anticipation of litigation: Insolvency.--Federal tax
liens did not attach to a residence that a delinquent taxpayer
transferred to his wife and child because the transfer did not
constitute a fraudulent conveyance under state (Utah) law. Although the
taxpayer transferred his interest in the property to relatives for no
consideration and he continued to live in the residence rent-free, it
did not appear that the conveyance was intended to defraud the
government. The taxpayer promptly recorded the transfer and did not
attempt to hide it in any way, there were no suits filed or threatened
against him or his family before the transfer, he was not insolvent at
the time of the transfer and he did not abscond or attempt to hide his
assets after the transfer.
Kirk C. Lusty, Department
, for plaintiff. James C. Haskins, Haskins & Assocs., 357 S. 200 E.,
Salt Lake City, Utah 84111-2827, Stephen W. Lewis, P.O. Box 140874, Salt
Lake City, Utah 84114-0874, for defendants.
OF FACT AND CONCLUSIONS OF LAW
ALBA, Magistrate Judge:
The above-entitled case
came before United States Magistrate Judge Samuel Alba for trial on May
12, 1999, with Kirk C. Lusty, Trial Attorney Tax Division, U.S.
Department of Justice, representing the United States, James Haskins and
Thomas N. Thompson of Haskins & Associates representing defendants
Larry M. Barson, Irene Barson and Eric L. Barson, and Gale K. Francis,
Utah State Assistant Attorney General representing the Utah State Tax
Commission. The Court having considered the evidence presented at trial,
the briefs submitted by the parties, and being fully advised in this
matter, enters the following findings of fact and conclusions of law.
1. This action involves an
undivided one-half interest in a parcel of real property located at 4081
South 6400 West,
West Valley City
, described in the Warranty Deed as "All of Lot 13, KING VALLEY
SUBDIVISION NO. 1, according to the official plat thereof."
Defendants Larry M. Barson, Irene Barson and Eric Barson reside at that
property. For purposes of simplicity, this property will be referred to
herein as "the Barson residence" or "the residential
2. As of April 28, 1998,
Larry Barson is indebted to the
for the following:
Tax Period Due Type of Tax Tax Due Penalty Due Interest Due
1983 .......... 09/07/87 Income $ 0.00 $ 418.59 $15,996.18
1984 .......... 08/31/87 Income $4,267.00 $1,783.04 $14,017.21
1987 .......... 07/14/88 Income $2,362.48 $ 587.12 $ 3,386.13
1988 .......... 06/05/89 Income $2,519.00 $ 599.75 $ 3,100.53
1989 .......... 06/25/90 Income $1,117.00 $ 320.75 $ 1,332.85
1991 .......... 03/29/93 Income $3,170.00 $ 551.75 $ 2,022.38
1989 .......... 04/12/93 Civ. Penalty $ 0.00 $ 500.00 $ 0.00
1990 .......... 04/12/93 Civ. Penalty $ 0.00 $ 500.00 $ 0.00
1991 .......... 04/12/93 Civ. Penalty $ 0.00 $ 500.00 $ 0.00
3. The defendant Larry
Barson is indebted to the State of
income taxes for the calendar years 1980, 1981, 1982, 1987, 1988, 1989,
1990, 1991, 1993, 1994, 1995, 1996 and 1997, in the total amount of
$21,026.89, including penalties assessed. Liens were created by the Utah
State Tax Commission by the filing of Warrants for Delinquent Tax.
4. Larry M. Barson and his
wife, Irene Barson, purchased the residential property in June of 1978.
When the residence was first purchased, the title to that property was
taken by Larry M. Barson and Irene Barson as joint tenants. Irene Barson
received the down payment for the purchase of the residential property
as a gift from her parents.
5. The property was
purchased, in part, by assuming a prior mortgage in the amount of
$23,934.65, from the Farmers Home Administration, and by borrowing the
additional amount of $13,420.00 from the mortgage company. The mortgage
payments have always been, and continue to be, made by Irene Barson from
a separate bank account held in her name only.
6. On February 28, 1983,
Defendant Larry M. Barson transferred his undivided one-half interest in
the residential property by quitclaim deed to his wife and son,
Defendants Irene B. Barson and Eric L. Barson. The transfer was recorded
by the Salt Lake County Recorder's Office on February 28, 1983. At the
time of the transfer, Eric Barson was not yet three years old. The
timing of the transfer coincided with marital difficulties the Barsons
7. No consideration was
paid to Larry Barson for the conveyance of his interest in the
residential property, and neither Irene Barson nor Eric Barson were
informed of the conveyance until several years later.
8. Since the time Larry
Barson conveyed his interest in the residential property, he has
continued to live there with his wife and son. Although Larry Barson has
never paid any rent to his wife or son for his continued occupancy of
the residential property, he contributes approximately $500.00 per month
toward family living expenses. That money is deposited into a bank
account controlled by Irene Barson.
9. The Barsons consider the
mortgage payment to be Irene Barson's responsibility, even though Larry
Barson has never obtained a release of his obligation on the mortgage
with the Farmers Home Administration.
10. The utilities
associated with the Barson residence are listed in Larry M. Barson's
11. Irene Barson claims
that she and Larry M. Barson had an understanding that the Barson
residence would belong to her. She admits, however, that there are no
written documents reflecting their understanding. Additionally, despite
that "agreement," title to the residence was placed in both
Larry Barson's and Irene Barson's names.
12. In 1980 and succeeding
years, Larry M. Barson did not file federal income tax returns, and at
some point during that time, he stopped having any sums withheld from
his wages for payment of federal taxes. Mr. Barson admits that when he
stopped the withholdings from his wages, he did not do anything else to
see that the federal taxes were paid. However, at the time of the
transfer at issue in this case, Defendant Larry Barson was unaware of
any outstanding federal or state tax liabilities. It should be noted
has not established that Larry Barson had a federal tax liability for
the 1980 or 1981 tax periods. Additionally, an assessment for Larry
Barson's 1982 tax liability was not made until until October 21, 1985,
some two and one-half years after the transfer. 1
13. As of 1985, the
Internal Revenue Service took no action to seize and sell the realty at
issue in this case because there was no equity in the Barson home, since
there was more owed on the home than it was worth at the time.
14. At the time of the
transfer at issue in this case, Defendant Larry M. Barson owned a truck
with an estimated value of $3,000.00; tools with an estimated value of
$1,000.00; and household furnishings with an estimated value of
$3,000.00. Additionally, Larry Barson was employed by the Utah Transit
Authority from 1980 through approximately January, 1985, and has worked
periodically as an independent contractor for A-1 Pioneer since November
Based on the foregoing
Findings of Fact, the Court adopts the following:
United States of America
filed its complaint in the instant action on July 15, 1997.
2. The Court has
jurisdiction of this action under 28 U.S.C. §§1340 and 1345, and 26
U.S.C. §7402. Venue is proper pursuant to 28 U.S.C. §1396.
Additionally, the United States Magistrate Judge has jurisdiction of
this case by consent of all of the parties, in accordance with 28 U.S.C.
636(c)(1). An Order of Reference to that effect was entered on April 27,
1999, by United States District Judge Tena Campbell.
3. Section 6321 of the
Internal Revenue Code of 1986 (26 U.S.C.) provides:
If any person liable to pay
any tax neglects or refuses to pay the same after demand, the amount
(including any interest, additional amount, addition to tax, or
assessable penalty, together with any costs that may accrue in addition
thereto) shall be a lien in favor of the United States upon all property
and rights to property, whether real or personal, belonging to such
4. Accordingly, if, as
here, after assessment, notice and demand for payment, a taxpayer fails
or refuses to pay outstanding federal taxes, a lien attaches to all
property and rights to property belonging to him or her. Glass City
Bank v. United States [45-2 USTC ¶9449], 326 U.S. 265, 267-268
5. "The statutory
language 'all property and rights to property,' appearing in 6321 *****
is broad and reveals on its face that Congress meant to reach every
interest in property that a taxpayer might have." United States
v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713,
719-720 (1985). "Stronger language could hardly have been selected
to reveal a purpose to assure the collection of taxes." Glass
City Bank v. United States [45-2 USTC ¶9449], 326
6. The tax lien created
automatically upon the assessment of the tax continues until the tax
liability is satisfied or the lien becomes unenforceable by reason of
lapse of time. 26 U.S.C., §6322.
7. A court proceeding to
collect unpaid tax assessments must be instituted within ten years after
assessment, or prior to the expiration of any period for collection
agreed upon in writing by the taxpayer and the Internal Revenue Service.
26 U.S.C., §6502(a). The earliest assessment in the present case was
made against the defendant, Larry M. Barson on August 31, 1987.
Accordingly, this action was timely filed for all taxable periods in
8. The relevant statutory
provision defining a fraudulent transfer is found in §25-6-5 of the
Utah Code Annotated, which states:
(1) A transfer made or
obligation incurred by a debtor is fraudulent as to a creditor, whether
the creditor's claim arose before or after the transfer was made or the
obligation incurred, if the debtor made the transfer or incurred the
(a) with actual intent to
hinder, delay or defraud any creditor of the debtor; or
(b) without receiving a
reasonably equivalent value in exchange for the transfer or obligation;
and the debtor:
(i) was engaged or was
about to engage in a business or a transaction for which the remaining
assets of the debtor were unreasonably small in relation to the business
or transaction; or
(ii) intended to incur, or
believed or reasonably should have believed that he would incur, debts
beyond his ability to pay as they became due.
intent" under the Uniform Fraudulent Transfer Act is determined by
considering, inter alia, whether:
(2)(a) the transfer or
obligation was to an insider;
(b) the debtor retained
possession of the property transferred after the transfer;
(c) the transfer or
obligation was concealed;
(d) before the transfer was
made or obligation incurred, the debtor had been sued or threatened with
(e) the transfer was of
substantially all the debtor's assets;
(f) the debtor absconded;
(g) the debtor removed or
(h) the value of the
consideration received by the debtor was reasonably equivalent to the
value of the asset transferred or the amount of the obligation incurred;
(i) the debtor was
insolvent or became insolvent shortly after the transfer was made or the
obligation was incurred;
(j) the transfer occurred
shortly before or shortly after a substantial debt was incurred; and
(k) the debtor transferred
the essential assets of the business to a lienor who transferred the
assets to an insider of the debtor.
Code Ann. §25-6-5(2).
10. With respect to a claim
arising before a transfer of property has occurred:
(1) A transfer made or
obligation incurred by. a debtor is fraudulent as to a creditor whose
claim arose before the transfer was made or the obligation was incurred
(a) the debtor made the
transfer or incurred the obligation without receiving a reasonably
equivalent value in exchange for the transfer or obligation; and
(b) the debtor was
insolvent at the time or became insolvent as a result of the transfer or
(2) A transfer made by a
debtor is fraudulent as to a creditor whose claim arose before the
transfer was made if the transfer was made to an insider for an
antecedent debt, the debtor was insolvent at the time, and the insider
had reasonable cause to believe that the debtor was insolvent.
Code Ann. §25-6-6.
under the Fraudulent Transfer Act is defined as follows:
(1) A debtor is insolvent
if the sum of the debtor's debts is greater than all of the debtor's
assets at a fair valuation.
(2) A debtor who is
generally not paying his debts as they become due is presumed to be
. . .
(4) Assets under this
section do not include property that has been transferred, concealed, or
removed with intent to hinder, delay, or defraud creditors or that has
been transferred in a manner making the transfer voidable under this
(5) Debts under this
section do not include an obligation to the extent it is secured by a
valid lien on property of the debtor not included as an asset.
Code Ann. §25-6-3.
12. In cases decided under
the earlier version of the Utah Uniform Fraudulent Conveyance Act, the
courts recognized common elements or "badges of fraud" in
determining fraudulent intent. These "badges of fraud," which
are in many cases identical or are similar to the factors entitled to
"consideration" under Utah Code Ann. §25-6-5, are therefore
still relevant in determining whether a particular transfer was
fraudulent. The existence of one or more of these badges in a case does
not necessarily constitute fraud per se, nor is the presence of one or
more of the elements conclusive. In Dahnken, Inc. of Salt Lake City,
726 P.2d 420 (
1986), the Utah Supreme Court stated:
Although actual fraudulent
intent must be shown to hold a conveyance fraudulent pursuant to 25-1-7,
its existence may be inferred from the presence of certain indicia of
fraud or "badges of fraud" [citations omitted].
13. In United States v.
Christensen [90-2 USTC ¶50,543], 751 F. Supp. 1532, 1536 (D. Utah
1990), appeal dismissed, 961 F.2d 221 (10th Cir. 1992), this
Court considered the following to be among the "badges of
1. insolvency of the
3. the transfer of all of
the debtor's property;
4. the transfer was made in
anticipation of a suit or liabilities;
5. a close relationship
between the transferor and transferee;
6. the conveyance was not
made in the ordinary course of business;
7. failure to record the
8. the retention of
possession by the transferor;
9. the reservation of an
interest or benefit by the grantor;
10. the security given by
the transferor is in excess of the debt;
11. secrecy or haste in the
12. the state taxes or real
property taxes are paid by transferor.
at 1536; see also
Dahnken, Inc. of
Salt Lake City
v. Wilmarth, 726 P.2d 420 (
1986); Meyer v. Great American Corp., 569 P.2d 1094 (
1977); Boccalero v. Bee, 126 P.2d 1063, 1065 (
14. Some of the factors
used in determining whether Larry Barson actually intended to defraud
the United States when he transferred his undivided one-half interest in
the residential property to his son and wife are present here.
(a) An "insider"
is defined under the Act as, inter alia, "a relative of the
debtor or of a general partner of the debtor."
Code Ann. §26-6-2(7)(a)(i). The transfer in dispute in this case,
whether to defendant Larry M. Barson's wife, Irene, and their son, Eric,
or only to Eric, as the defendant intended, was to an
"insider" as that term is defined in the statute.
Code Ann. §25-6-5(2)(a).
(b) Larry Barson continued
to live in the residential property after he transferred his interest to
his son and wife.
Code Ann. §25-6-5(2)(b).
(c) Larry Barson did not
receive any consideration for the conveyance of his interest in the
residential property. 3
Code Ann. §25-6-5(2)(h).
15. Other factors used in
determining fraudulent intent are not present here and the court cannot
conclude that Larry Barson transferred his interest in the residential
property with actual intent to hinder, delay or defraud the
(a) Defendant Larry M.
Barson caused the transfer in dispute in this case to be recorded
contemporaneously with the transfer, and made no attempt to conceal the
transfer in any fashion, and disclosed it by filing the deed of record.
Code Ann. §25-6-5(2)(c).
(b) None of the defendants
in this case had been sued or threatened with suit before the disputed
transfer was made.
Code Ann. §25-6-5(2)(d).
(c) The mortgage
obligations against the subject realty are not included as debts for the
purpose of determining whether a party is insolvent under the Act.
Code Ann. §26-6-3(5). Defendant Larry M. Barson had no other
outstanding debts at the time of the transfer, and was unaware of any
specific tax liabilities at the time the transfer was made. Defendant
Larry M. Barson's assets at the time of the disputed transfer included
an automobile with an estimated value of $3,000.00; tools with an
estimated value of $1,000.00; and household furnishings with an
estimated value of $3,000.00. He was also employed with the Utah Transit
Authority during that period. Consequently, as of February, 1983, when
the disputed transfer was made, Defendant Larry M. Barson was not
Code Ann. §25-6-5(2)(i). Further, the transfer was not of
"substantially all of the debtor's assets."
Code Ann. §25-6-5(2)(e).
(d) Defendant Larry M.
Barson has not absconded.
Code Ann. §25-6-5(2)(f).
(e) Defendant Larry M.
Barson has not removed or concealed assets.
Code Ann. §25-6-5(2)(g).
(f) There is no evidence
that the transfer at issue occurred shortly before or shortly after a
substantial debt was incurred.
Code Ann. §25-6-5(2)(j). The tax assessments in this case were made
well after the disputed transfer.
16. As of February, 1983,
the Defendant Larry M. Barson did not engage, and was not about to
engage, in a business or transaction for which his remaining assets were
unreasonably small in relation to the business or transaction.
Code Ann. §25-6-5(b)(i).
17. As of February, 1983,
the Defendant Larry M. Barson did not incur, nor did he reasonably
believe he would incur, debts beyond his ability to pay as they became
due. Utah Code Ann. §25-6-5(b)(ii).
18. The court finds no
basis in fact or law to conclude that the transfer at issue was a
fraudulent conveyance within the meaning of the Act.
19. There are no particular
factors that establish that property held in the name of one individual
is actually the property of another. However there are several common
factors that indicate that property held by one party actually belongs
to another party. 4
The party holding title to the property of another is often termed the
"nominee" of the other party. The Court, in Towe Antique
Ford Foundation v. I.R.S. [92-1 USTC ¶50,115], 791 F. Supp. 1450
(D. Mont. 1992), aff'd [93-2 USTC ¶50,430], 999 F.2d 1387 (9th
Cir. 1993), summarized the factors various courts have considered to be
relevant in determining if an individual holds property as the
"nominee" of another. Those factors are as follows:
1. No consideration or
inadequate consideration paid by the nominee;
2. Property placed in the
name of nominee in anticipation of a suit or occurrence of liabilities
while the transferor continues to exercise control over the property;
3. Close relationship
between the transferor and the nominee;
4. Failure to record
5. Retention of possession
by the transferor;
6. Continued enjoyment by
the transferor of benefits of the transferred property.
20. Considering the above
factors, the court finds that Eric Barson and Irene Barson do not hold
legal title to the property as nominees of Larry M. Barson. As set forth
above, while some of the factors exist in this case, the court finds no
evidence that the residential property was transferred by Larry Barson
to Eric Barson and Irene Barson in anticipation of suit or based on any
awareness of a federal tax liability. Furthermore, the conveyance of the
residential property was recorded contemporaneously with the transfer.
Consequently, Eric Barson and Irene Barson hold legal title to the
residential property in question.
21. Any conclusion of law
set forth herein which is more properly characterized as a finding of
fact, shall be deemed to be a finding of fact.
Accordingly, the court
finds and orders as follows:
A. That the conveyance of
the real property described in paragraph 13 of the complaint to
defendants Eric Barson and Irene Barson was not a fraudulent conveyance.
B. That defendants Eric
Barson and Irene Barson do not hold title to the real property described
in paragraph 13 of the complaint as the nominees of defendant Larry M.
C. That the federal tax
liens of the
may not attach to the real property described in paragraph 13 of the
The only evidence before the court concerning any outstanding federal
tax liability for Larry Barson prior to the transfer at issue, is found
in the Proof of Claim for Internal Revenue Taxes, filed by the
in the Bankruptcy proceeding involving defendant Larry M. Barson
(Exhibit 13). The Proof of Claim reflects that Larry Barson's tax due
for the 1982 tax period was $3,768.00, not including penalties and
interest, and that the assessment of that tax was made on October 21,
In their opening statement, defendants Larry M. Barson, Irene Barson and
Eric Barson claimed that the
' fraudulent transfer claim is barred by the applicable statute of
limitations. The defendants did not cite any authority in support of
that proposition. That same claim, however, has been rejected by this
Court. In United States v. Christensen [90-2 USTC ¶50,543], 751
F. Supp. 1532 (D. Utah 1990), appeal dismissed, 961 F.2d 221
(10th Cir. 1992), (now) Chief Judge David Sam stated:
Utah Code Ann. §78-12-26(3)
provides that an action to set aside a fraudulent conveyance is barred
if not brought within three years of the transfer. There is no question
that this action was not brought within that period of time. However,
case law is overwhelmingly in support of the proposition that the United
States is not bound by a state statute of limitations unless Congress so
provides. Congress has remained silent. See United States v. Decker
[65-1 USTC ¶9369], 241 F. Supp. 283 (D. Az. 1965) (specifically ruling
statute of limitations does not bind the
). It is clear, therefore, that the present action is not barred by the
statute of limitations.
at 1535. Concomitantly,
the instant action is not barred by the
statute of limitations governing fraudulent transfer claims.
Additionally, it should also be noted that the
' "nominee" claim does not arise under the Utah Fraudulent
Transfer Act. Thus, even if the
' fraudulent transfer claim were time barred, the "nominee"
claim would not be time barred.
The court does not find this factor highly significant because there is
some question as to whether Larry Barson's undivided one-half interest
in the residential property had any value at the time of the transfer.
At least as of 1985, it appears that there was little, if any, equity in
the residential property.
These factors are the functional equivalent of the "badges of
fraud" historically used by courts to determine whether a
particular transfer was fraudulent as to a creditor.
[97-2 USTC ¶50,974] In re Carlos J. Klutts,
Cynthia Klutts, Debtors.
(Internal Revenue Service), Plaintiff v. Carlos J. Klutts, et al.,
Bankruptcy Court, West.
Dist. Tex., Austin Div., 96-11577FM, 11/17/97
Sec. 6321 ]
Liens for taxes: Property transferred to third parties: Fraud.--
A federal tax lien filed subsequent to the sale of real property was not
valid since the IRS did not establish an actual intent to defraud by the
taxpayer or that the property was transferred without the receipt of its
reasonably equivalent value. The IRS presented no evidence and no
indicia of fraud was present. The taxpayers sold the property to their
parents for good and valuable consideration and did not retain
possession or any incidents of ownership. There was no evidence that the
conveyance was in anticipation of suit, that there was a transfer of all
of the taxpayers' assets, or that the parents had knowledge that the
taxpayers owed the IRS money.
MONROE, Bankruptcy Judge:
The Court held a hearing on
July 7, 1997, on the Motion of Klutts Land, Inc. to Dismiss
("Motion"). On June 26, 1997, Klutts Land, Inc. filed a Notice
of Intent to Present Matters Outside the Pleadings Re: Adversary
Complaint and Request that 12(b)(6) Motion by Treated as One for Summary
Judgment ("Request"). The IRS failed to respond and the Court
granted the Request. At the conclusion of the hearing the Court made
findings on the record of those facts established by summary judgment
evidence. The Court took one legal issue under advisement. Counsel for
both parties were requested to file briefs on that issue. To date no
briefs have been received from either counsel. Therefore, the Court has
conducted its own independent legal research on the issue. This
Memorandum Opinion is issued as a statement of material facts that are
not in genuine dispute and conclusions of law under Bankruptcy Rule
7056. In addition, those findings stated on the record are incorporated
herein by reference as well.
Not in Genuine Dispute
Klutts Land, Inc. is a
corporation which was incorporated on May 5, 1969, by Alvis Vandygriff,
Frank Scolfield and James K. Presnal. From the inception of the
corporation, Barney C. Klutts and Hazel Joyce Klutts (the
"Parents" of Debtor Carlos J. Klutts") have been members
of the board of directors. Mr. Klutts is the president and registered
agent for the corporation. Mrs. Klutts is the secretary/treasurer. There
are no other officers. Neither of the Debtors, Carlos Klutts or his
wife, Cynthia, have ever been on the board of directors, nor have they
ever been officers of Klutts Land, Inc. Barney and Joyce Klutts, the
sole shareholders of Klutts Land, Inc., formed it for the purpose of
buying, selling, and developing real estate. This is the only business
the corporation has been involved in since its inception. The Debtors
have never owned any interest in Klutts Land, Inc.
On March 1, 1991, Debtor's
Parents purchased 68.93 acres of land situated in the Francis Berry
Survey, A-2, in
from the Debtors ("Tract One"). The consideration paid for the
purchase was the assumption of the Debtors' first lien indebtedness owed
to Victoria Bank and Trust as successor in interest to First National
Bank of San Marcos which was then in the approximate amount of $192,000.
Subsequently, on May 2,
1991, Debtor's Parents negotiated a payoff of that debt; and, in fact,
they did pay it off with their personal funds thereby securing a release
of the lien.
On January 15, 1993, Klutts
Land, Inc. purchased in the ordinary course of its business Lot 20,
Stratford Place, in Travis County, Texas from Sage Land Company
("Tract Two"). The settlement statement reflects that the
purchase price paid for this property was $105,000. There is no dispute
that the Debtors had no part in the purchase of this property by Klutts
On October 19, 1993, Klutts
Land, Inc. transferred Tract Two to the Debtor's Parents in exchange for
Tract One. The issues of equal consideration or gain on the transaction
are not material for purposes of this Memorandum Opinion. The IRS
alleges it had an enforceable lien on Tract One on the date that the
Debtor's Parents purchased the property from the Debtors, March 1, 1991,
and that their lien is enforceable against Tract One in the hands of
Klutts Land, Inc. However, it was not until February 10, 1992, that the
IRS filed its first tax lien of record against the Debtors,
Carlos and Cynthia Klutts.
On December 2, 1993, the
Debtor's Parents created the Stratford Place Trusts, and named Mr. Alan
Bergstrom as Trustee. They then transferred Tract Two into that trust.
The beneficiaries of the trust are the Debtors and the Debtors'
children. The extent of the IRS claim against Tract Two is not an issue
in Klutts Land, Inc.'s Motion and is not dealt with herein.
Did the IRS have a lien on
Tract One it can enforce against Klutts Land, Inc.?
The first lien filed
of record by the IRS against the Debtors was on February 10, 1992,
almost one year after the Debtors sold Tract One to Debtor's
Parents for an effective consideration of $192,000.
The IRS, however, contends
that the transfer from the Debtors to the Debtor's Parents was a
fraudulent transfer and that, therefore, the Debtors were the legal
owners of Tract One at the time the first federal tax lien was
filed. But, the IRS failed to submit any summary judgment evidence on
that issue. Their argument is, therefore, totally devoid of any
substantiation or merit as we shall more fully illustrate later.
Next, the IRS argues that
pursuant to 26 U.S.C. §6321 1
a lien attached to Tract One while the Debtors owned it, and that under
26 U.S.C. §7425 notice of the transfer of that property had to be given
to the United States or the lien followed the property as a matter of
There is no dispute that
the first federal tax lien filed of record was filed long after
the date that the Debtors sold Tract One to the Debtor's Parents. The
IRS did not favor us with the date of their alleged §6321 lien; but,
even assuming its existence of March 21, 1991, subsequent purchasers for
value, without notice, would acquire title to the property free from it.
Thus, it is clear that the entire success of the IRS's argument hinges
on whether or not the Debtors' sale of Tract One to the Debtor's Parents
The Fifth Circuit has held
that if a taxpayer transfers property prior to the time a tax lien
arises, the United States may set aside the transfer if it is
fraudulent under the law of the state where the property is located.
United States v. Jones [86-2 USTC ¶9832], 631 F. Supp. 57 (D.C.
W.D. Mo. 1986) citing, United States v. Kaplan, 277 F.2d 405, 408
(5th Cir. 1960) (emphasis added).
The Court in Jones
looked to applicable Missouri state law and found several "badges
of fraud," i.e. (1) the taxpayers had transferred almost all
of their assets at a time when they were facing three different
foreclosure actions and federal tax liens, (2) the transfers occurred at
a time when the taxpayers were insolvent, (3) the consideration was less
than one-sixth the purchase price of two years before, (4) the transfer
was subject to a secret trust in favor of the debtors and their son, and
(5) the debtors had unlimited use of the property and bore substantially
all the responsibilities of ownership.
As in Missouri, Texas has
adopted the Uniform Fraudulent Transfer Act. In pertinent part, it
states that a transfer is fraudulent as to present and future creditors
". . . .the debtor
made the transfer or incurred the obligation:
(1) with actual intent
to hinder, delay, or defraud any creditor of the debtor; or
(2) without receiving a
reasonably equivalent value in exchange for the transfer or
obligation, and the debtor:
(A) was engaged or was
about to engage in a business or a transaction for which the remaining
assets of the debtor were unreasonably small in relation to the business
or transaction; or
(B) intended to incur, or
believed or reasonably should have believed that the debtor would incur,
debts beyond the debtor's ability to pay as they became due."
Bus. & Com. Code Ann. §24.005 (Vernon Supp. 1997).
Thus, if reasonably
equivalent value is not paid for the property or if actual intent to
hinder, delay, or defraud established, then the transfer is fraudulent.
Even though the Texas
statute provides two alternative grounds for inferring a fraudulent
transfer, none of the cases the Court has researched, including the
Texas cases, have treated inadequate consideration as a separate grounds
for inferring fraudulent transfer. They have considered inadequate or no
consideration as merely one element in proving fraudulent intent,
i.e. an "indicia of fraud".
Thus, the Fifth Circuit in
applying Texas law has stated,
"[when several of
these indicia of fraud are found, they can be the proper basis for an
inference of fraud. . . . Such indicia of fraud, we stated, include (1) the
debtor's transfer of valuable property without consideration; (2) a
close personal relationship between the parties to the conveyance; (3)
the debtor's retention of possession and indicia of ownership of the
property; and (4) the debtor's transfer of all of his property,
especially if to different members of his family, leaving him unable to
pay his debts." (citations omitted) (emphasis added).
v. U.S. [88-1
USTC ¶9219], 838 F.2d 1400, 1402 (5th Cir. 1988).
In Roland the
taxpayers had transferred their home to themselves and to their 15 year
old son as Trustee's of a "church" existing solely on paper,
without consideration. Proceeds from a subsequent sale of their home
were then used to purchase property in Detroit, Texas. The deed of trust
to that property listed the son as buyer. However, the taxpayers made
the mortgage payments, and lived continuously on the property while
their son remained in Irving to finish high school. The Rolands also
paid or helped their son pay the taxes, utility bills, and the insurance
on the Detroit property. No rental income was ever reported by the son.
Although the taxpayers did not transfer all of their assets, the Fifth
Circuit found that the facts were sufficient indicia of fraud and upheld
the right of the IRS to levy on the property to satisfy back taxes.
Once these indicia of fraud
are shown, and the presumption of fraud arises, then the burden shifts
to the defendant to establish that the transfer was not fraudulent. U.S.
v. Kaplan, 277 F.2d 405, 408-9 (5th Cir. 1960).
Here the IRS must,
therefore, establish a presumption of fraud. If they have failed to do
so, then the case is ripe for summary judgment. BMG Music v. Martinez,
74 F.3rd 87, 90 (5th Cir. 1996).
In BMG the Fifth
Circuit held that,
"[i]ntent to defraud,
however, can be decided as a matter of law. For example, summary
judgment is appropriate in "intent to defraud" cases when the
defendant admits the fraud, the conveyance instrument is fraudulent on
its face, the defendant retains an interest in the property inconsistent
with the conveyance alleged, or the evidence indisputably reveals that
the transfer was made without an intent to defraud."
74 F.3rd at 90.
Thus, the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with affidavits on file (none were filed by the IRS) must show
pursuant to the Texas fraudulent transfer statute (1) actual intent of
the debtors to hinder, defraud or delay or, in the alternative, (2) that
reasonably equivalent value was not received for the property. If they
do not, but instead indisputably reflect that the transfer was made
without an intent to defraud, then the matter is ripe for a motion for
Here, the IRS has shown
neither actual intent or lack of adequate consideration. In fact, the
IRS has produced no evidence at all.
First, there is no evidence
that property was sold for other than a reasonably equivalent value. The
Debtor's Parents gave valuable consideration for the property. They
assumed the first lien indebtedness on the property in the amount of
$192,000, which indebtedness they later paid in full. No evidence has
been produced by the IRS to show that the property was actually worth
more than $192,000. Thus, this indicia of fraud does not exist.
Secondly, the IRS has not
established an intent to defraud. The only possible indicia of
fraud present is that the Debtors (1) sold the property to their
paternal parents in 1991 for good and valuable consideration, (2) that
the paternal parents conveyed that property to a corporation they owned
in trade for a different piece of property almost 2 1/2 years later in
1993, and (3) 6 weeks later the paternal parents placed Tract Two into a
trust for the Debtors and their children. This does not, without more,
create even a fact issue.
The undisputed facts
establish that the 1991 sale of Tract One was an arms-length
transaction. There is no evidence that the Debtor's Parents had
knowledge of the, as of yet, unrecorded IRS tax lien. There is no
evidence that the Debtor's Parents had knowledge that the Debtors owed
the IRS any money. There is no evidence that the Debtors were rendered
insolvent by this transaction. There is no evidence that this was a
transfer of all or nearly all of the Debtors' assets. There is no
evidence that this was a conveyance in anticipation of suit. The
transfer documents contained no unusual clauses. Lastly, there was no
retention of possession by the Debtors or any incidents of ownership of
The IRS has failed
miserably to come forward with even a scintilla of evidence to support
their bold allegations.
The Fifth Circuit has
"summary judgment is
appropriate in any case 'where critical evidence is so weak or
tenuous on an essential fact that it could not support a judgment in
favor of the non-movant' ".
v. Liquid Air Corp.,
37 F.3rd 1069, 1075 (5th Cir. 1994) (en banc) (citing Armstrong
v. City of Dallas, 997 F.2d 62 (5th Cir. 1993)).
Rule 56(c) governs summary
judgments. Summary judgment must be rendered forthwith if,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law."
56(c) of the Federal Rules of Civil Procedure.
Once the moving party has
met this burden by establishing an absence of a genuine issue of
material fact, as they have here, it is incumbent upon the non-moving
party to submit "competent summary judgment evidence" that
there is indeed a "material factual dispute." Clark v.
America's Favorite Chicken Co., 110 F.3d 295,297 (5th Cir. 1997)
citing McCallum Highlands, Ltd. v. Washington Capital Dus. Inc.,
66 F.3d 89, 92 (5th Cir. 1995) (citing Little v. Liquid Air Corp.,
37 F.3d 1069, 1075 (5th Cir. 1994) (en banc)).
allegations or affidavit or deposition testimony setting forth ultimate
or conclusory facts and conclusions of law are insufficient to defeat a
motion for summary judgment. Duffy v. Leading Edge Products. Inc.,
44 F.3d 308, 312 (5th Cir. 1995) (citing Anderson v. Liberty Lobby.
Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202
110 F.3d at 297.
The IRS has failed to met
their required burden. 3
In fact, they have failed to submit to submit any competent
summary judgment evidence to controvert the movant. Klutts Land, Inc.
has, on the other hand, met their burden of proof by establishing that
no genuine issue of material facts exists and that they are entitled to
summary judgment as a matter of law.
As such, an Order of even
date herewith will be entered in accordance with this Court's Memorandum
Section 6321 states,
"[i]f any person
liable to pay any tax neglects or refuses to pay the same after demand,
the amount (including any interest, additional amount addition to tax,
or assessable penalty, together with any costs that may accrue in
addition thereto) shall be a lien in favor of the United States upon all
property and rights to property, whether real or personal, belonging to
Section 7425 states in pertinent part,
". . . a sale of
property on which the United States has or claims a lien, or a title
derived from enforcement of a lien, under the provisions of this title,
made pursuant to an instrument creating a lien on such property,
pursuant to a confession of judgment on the obligation secured by such
an instrument, or pursuant to a nonjudicial sale under a statutory lien
on such property--
(1) shall, except as
otherwise provided, be made subject to and without disturbing such lien
or title, if notice of such lien was filed or such title recorded in the
place provided by law for such filing or recording more than 30 days
before such sale in the manner prescribed in subsection (c)(1). .
The non-movant's burden was discussed at length by the Fifth Circuit in Little
v. Liquid Air Corp., 37 F.3d at 1075. The Fifth Circuit said,
"[t]his burden is not
satisfied with 'some metaphysical doubt as to the material facts,' Matsushita,
475 U.S. at 586, 106 S.Ct. at 1356 by 'conclusory allegations' Lujan,
497 U.S. at 871-73, 110 S.Ct. at 3180, by 'unsubstantiated assertions,' Hopper
v. Frank, 16 F.3d 92 (5th Cir. 1994), or by only a 'scintilla' of
evidence, Davis v. Chevron U.S.A., Inc., 14 F.3d 1082 (5th Cir.
[97-2 USTC ¶50,639] United States of America v.
JEB Properties, Inc., Regina Keever, John Elms, Jr., and Elms, Roche
& Lagarde, a dissolved
District Court, East. Dist. La., CIV. 95-3449, 6/17/97
Secs. 6321 and 6323
Lien for taxes: Transferred assets: Family transfers: Alter ego.--Summary
judgment was denied on the issue of whether the IRS could foreclose upon
a residential property that had been owned by a realty partnership in
order to satisfy the tax liabilities of an amusement company
partnership. The realty partnership had distributed the property to its
partners who were members of the same family and were the partners of
the amusement partnership. A genuine issue of material fact existed as
to whether the real estate partnership was the alter ego of the
partnership that owned the amusement company. Funds were frequently
transferred between the two enterprises without observing traditional
business formalities and properties listed on one entity's books were
actually owned by the other. Moreover, since the realty company had no
employees or investment capital, the amusement company appeared to have
conducted the daily operations of the rental business.