6323 - Hawaii

Home Services FAQ Site Map Contact Us

Articles by Alvin Brown
Tax Preparation
Offer In Compromise
State Offers in Compromise
Levy
IRS Tax Liens
IRS Tax Liens - continued
IRS Tax Liens - continued 2
Levy - continued
Audit Techniques Guide
Congressional Contacts
Criminal Investigation
D.O.J Criminal Tax Manual
Tax Litigation
Penalty
Installment Agreements
Statute of Limitations
Frivolous Tax Argument
Interest Abatement
IRS Misconduct
IRS Abuses
Tax Fraud
Fraud Statutes
Bankruptcy
Tax Reform Legislation
Tax Shelters
Tax Court
Trust Fund Penalty
Legislation
Innocent Spouse Relief
Important Links

Liens 

Additional Information:

 

6323 - Alabama
6323 - Alabama2
6323 - Alaska
6323 - Alaska2
6323 - Allocation of Liens
6323 - Arizona
6323 - Arkansas
6323 - Arkansas2
6323 - Assignment of Funds p1
6323 - Assignment of Funds p2
6323 - Assignment of Funds p3
6323 - Assignment of Funds p4
6323 - Bankruptcy p1
6323 - Bona Fide Purchaser for Value p1
6323 - Bona Fide Purchaser for Value p2
6323 - Bona Fide Purchaser for Value p3
6323 - Bona Fide Purchaser for Value p4
6323 - California
6323 - California2 p1
6323 - California2 p2
6323 - Claims After Death
6323 - Clerk's Error
6323 - Colorado
6323 - Condemnation Proceedings
6323 - Conflicts of Law p1
6323 - Conflicts of Law p2
6323 - Conflicts of Law p3
6323 - Connecticut
6323 - Consideration
6323 - Constructive Trust
6323 - Contract Assignment p1
6323 - Contract Assignment p2
6323 - Conveyance by Taxpayer p1
6323 - Conveyance by Taxpayer p2
6323 - Copyright Act
6323 - Debenture Holders
6323 - Decedent
6323 - Deeds of Trust
6323 - Delaware
6323 - Disclosure of Lien
6323 - Distribution of Proceeds
6323 - District of Columbia
6323 - District of Columbia2
6323 - District Where Filed p1
6323 - District Where Filed p2
6323 - Employee's Claims
6323 - Equitable or Secret Lien
6323 - Equitable Principles
6323 - Escrow
6323 - Escrow2
6323 - Estate Claims
6323 - Estoppel p1
6323 - Estoppel p2
6323 - Extension
6323 - Fact-Finding p1
6323 - Fact-Finding p2
6323 - Fact-Finding p3
6323 - Fact-Finding p4
6323 - Fact-Finding p5
6323 - Fact-Finding p6
6323 - Fire Insurance Proceeds p1
6323 - Fire Insurance Proceeds p2
6323 - Florida
6323 - Florida2
6323 - Form of Notice
6323 - Garnishment
6323 - Georgia
6323 - Hawaii
6323 - Idaho
6323 - Illinois
6323 - Illinois2
6323 - Indiana
6323 - Indiana2
6323 - Inherited Property p1
6323 - Inherited Property p2
6323 - Interest on Mortgage
6323 - Interpleader p1
6323 - Interpleader p2
6323 - Interpleader p3
6323 - Interpleader p4
6323 - Interpleader p5
6323 - Interpleader p6
6323 - Interpleader p7
6323 - Interpleader2 p1
6323 - Interpleader2 p2
6323 - Iowa
6323 - Iowa2
6323 - Judgment Creditor p1
6323 - Judicial Sale
6323 - Jurisdiction p1
6323 - Jurisdiction p2
6323 - Jurisdiction p3
6323 - Kentucky
6323 - Kentucky2
6323 - Louisiana
6323 - Maritime Liens
6323 - Marshalling of Assets
6323 - Maryland
6323 - Maryland2
6323 - Massachusetts
6323 - Michigan p1
6323 - Michigan P2
6323 - Michigan2
6323 - Minnesota
6323 - Mississippi
6323 - Mississippi2
6323 - Missouri
6323 - Montana
6323 - Money Forfeited to State
6323 - Mortgage
6323 - Name Changed
6323 - Nebraska
6323 - New Hampshire
6323 - New Hampshire2
6323 - New Jersey
6323 - New York p1
6323 - New York p2
6323 - New York p3
6323 - New York2
6323 - North Carolina
6323 - North Carolina2
6323 - North Dakota
6323 - Tax Lien Not Filed
6323 - Notice or Knowledge of Lien p1
6323 - Notice or Knowledge of Lien p2
6323 - Notice or Knowledge of Lien p3
6323 - Obligatory Disbursement Agreement
6323 - Ohio
6323 - Ohio2
6323 - Oklahoma
6323 - Oklahoma2
6323 - Oregon
6323 - Oregon2
6323 - Partners and Partnerships
6323 - Pennsylvania p1
6323 - Pennsylvania p2
6323 - Pennsylvania2 p1
6323 - Pennsylvania2 p2
6323 - Personal Property of Another
6323 - Personality p1
6323 - Personality p2
6323 - Possessory Liens
6323 - Prior Law p1
6323 - Prior Lien of Attorney
6323 - Prior Lien of U.S. p1
6323 - Prior Lien of U.S. p2
6323 - Priority over Attachment Lien p1
6323 - Priority over Attachment Lien p2
6323 - Priority over Chattel Mortgages
6323 - Priority over Landlord's Lien
6323 - Priority Recorded Mortgage p1
6323 - Priority Recorded Mortgage p2
6323 - Priority Recorded Mortgage p3
6323 - Property Subject to Lien p1
6323 - Property Subject to Lien p2
6323 - Property Subject to Lien p3
6323 - Protection of Property
6323 - Purchaser p1
6323 - Purchaser p2
6323 - Purchaser p3
6323 - Purchaser p4
6323 - Purchaser p5
6323 - Purchaser p6
6323 - Purchaser p7
6323 - Purchasers Entitled to Notice
6323 - Receivership Expenses
6323 - Recordation of Interest p1
6323 - Recordation of Interest p2
6323 - Recordation of Interest p3
6323 - Recordation of Interest p4
6323 - Recordation of Interest p5
6323 - Refiling
6323 - Release by Other Creditors
6323 - Remanded Cases
6323 - Res Judicata p1
6323 - Res Judicata p2
6323 - Revival of Judgment
6323 - Rhode Island
6323 - Rhode Island2
6323 - Seamen
6323 - Security Interest p1
6323 - Set-Off p1
6323 - Set-Off p2
6323 - Set-Off p3
6323 - Set-Off p4
6323 - Sheriff's Clerk

 

Hawaii

Back Next

 

[95-1 USTC 50,124] Theo. H. Davies & Co., Ltd., d/b/a Pacific Machinery, Plaintiff v. Long & Melone Escrow, Ltd., and United States of America, Defendants

U.S. District Court, Dist. Hawaii, Cv. 94-00325 ACK, 2/3/95, 876 FSupp 230

[Code Secs. 6323 and 7426 ]

Validity of liens: Spouses: Property held by entirety: Wrongful levy: Judgment creditors: Standing.--A Judgment creditor's lien against a married couple's residence that was filed subsequent to an IRS lien for taxes owed by the husband was nonetheless entitled to priority because, under applicable state (Hawaii) law, the IRS lien could not attach to property held as tenants by the entirety. No lien for the debts of one spouse could attach to the entirety property while both spouses were alive because the debtor spouse did not hold a separate interest to which a lien could attach. The IRS lien could likewise not attach to proceeds from the foreclosure sale of the property because the proceeds were also held as entirety property under state law. However, because the judgment creditor's interest in the property was extinguished by its failure to intervene before the state court issued the decree of foreclosure, the creditor did not have standing to challenge the IRS levy.

Wesley H. Sakai, Jr., Scott I. Batterman, Bendet, Fidell, Sakai & Lee, 841 Bishop St., Honolulu, Hawaii 96813, for plaintiff (Theo H. Davies & Co., Ltd.). Frederick W. Rohlfing III, Lorrie L. Stone, Richard A. Kersenbrock, Jr., Stubenberg & Durrett, 1001 Bishop St., Honolulu, Hawaii 96813, for defendant (Long & Melone Escrow, Ltd.). Michael Chun, Elliot Enoki, United States Attorney's Office, Prince Kuhio Federal Building, 300 Ala Moana Blvd., Suite 6100, Honolulu, Hawaii 96850, Thomas J. Sawyer, Department of Justice, Washington, D.C. 20530, for defendant (U.S.). Frederick W. Rohlfing III, Lorrie L. Stone, Richard A. Kersenbrock, Jr., Stubenberg & Durrett, 1001 Bishop St., Honolulu, Hawaii 96813, for cross-claimant ( Long & Melone Escrow, Ltd.)

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT'S CROSS MOTION FOR SUMMARY JUDGMENT

FACTS

Charles D. Barton and Nanette A. Barton, husband and wife, held a one-third interest, as tenants by the entirety, in a parcel of property ("the property") registered with the Land Court of the State of Hawaii ("Land Court") pursuant to H.R.S. 501 . Associates Financial Services Company of Hawaii, Inc. ("Associates") held a first mortgage on the property, recorded May 20, 1988 with the Land Court .

On January 25, 1993 , Defendant United States of America ("IRS") issued a Notice of Federal Tax Lien against Charles Barton. This lien was recorded at the Bureau of Conveyances of the State of Hawaii on February 9, 1993 , pursuant to H.R.S. 505 -1. Subsequently, on July 23, 1993 and October 29, 1993 , the IRS recorded two more tax liens against Barton with the Bureau. The total amount due on the federal tax liens was $97,320.

On May 19, 1993 , Associates initiated a foreclosure action in the First Circuit Court of the State of Hawaii . Associates named the IRS in this action by reason that it may have an interest in the property because of the January 25, 1993 tax lien. Associates filed notice of this proceeding in the band Court pursuant to H.R.S. 501 -151, Hawaii 's lis pendens statute for property registered with the Land Court . The circuit court ordered foreclosure of the property on September 22, 1993 . The order of foreclosure provided that the defendants in that action owed Associates $129,429.49, plus interest and ordered that the property be sold at foreclosure. The order further provided that the property would be sold "free and clear of all liens and encumbrances."

On November 18, 1993 , plaintiff Theo. H. Davies and Co. ("Davies") was awarded a judgment in the amount of $245,356.55 plus costs and attorneys' fees against Charles and Nanette Barton in the Second Circuit Court of the State of Hawaii . Davies recorded this award with the Land Court on November 18, 1993 , pursuant to H.R.S. 501 -102.

The property was subsequently sold pursuant to the foreclosure action at public auction for $221,000. On January 31, 1994 , the First Circuit Court of the State of Hawaii approved the sale and directed distribution of the proceeds, with the surplus proceeds to be distributed directly to the mortgagees. Accordingly, Charles and Nanette Barton's share of the surplus was $21,168.88. The state court order made no mention of the Internal Revenue Service or of Davies. Davies did not attempt to intervene or participate in the state action in any manner. Likewise, although the IRS was a party to the state action, it did not file a cross-claim or counterclaim for the proceeds of the sale of the property pursuant to its lien.

On March 2, 1994 , the IRS served levy on the escrow agent holding the proceeds of the foreclosure sale, requesting the funds payable to the Bartons. On or around this same time, the IRS obtained the consent of Nanette Barton for the payment of the entire amount of the escrow proceeds to the IRS for application to her husband's tax liabilities. The escrow agency delivered a check in the amount of $21,168.88 to the IRS on March 3, 1994 . On March 11, 1994 , Davies sent a letter to the IRS, requesting that the IRS pay the $21,168.88 to Davies. The IRS refused Davies' request and the company filed this action pursuant to 26 U.S.C. 7426 .

STANDARD OF REVIEW

Summary judgment shall be granted where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). One of the principal purposes of the summary judgment procedure is to identify and dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The United States Supreme Court has declared that summary judgment must be granted against a party who fails to demonstrate facts to establish an element essential to his case where that party will bear the burden of proof of that essential element at trial. Id. at 322. "If the party moving for summary judgment meets its initial burden of identifying for the court the portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact [citations omitted], the nonmoving party may not rely on the mere allegations in the pleadings in order to preclude summary judgment." T.W. Electrical. Serv. v. Pacific Elec. Contractors Assoc., 809 F.2d 626, 630 (9th Cir. 1987). Instead, Rule 56(e) requires that the nonmoving party set forth, by affidavit or as otherwise provided in Rule 56, specific facts showing that there is a genuine issue for trial. Id. At least some "significant probative evidence tending to support the complaint" must be produced. Id. Legal memoranda and oral argument are not evidence and do not create issues of fact capable of defeating an otherwise valid motion for summary judgment. British Airways Bd. v. Boeing Co., 585 F.2d 946, 952 (9th Cir. 1978).

The standard for a grant of summary judgment reflects the standard governing the grant of a directed verdict. See Eisenberg v. Ins. Co. of North America, 815 F.2d 1285, 1289 (9th Cir. 1987), citing, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). Thus, the question is whether "reasonable minds could differ as to the import of the evidence." Id.

The Ninth Circuit has established that "[n]o longer can it be argued that any disagreement about a material issue of fact precludes the use of summary judgment." California Architectural Bldg. Products, Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987). Moreover, the United States Supreme Court has stated that "[w]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Indeed, "if the factual context makes the nonmoving party's claim implausible, that party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue for trial." Franciscan Ceramics, 818 F.2d at 1468 (emphasis original), citing, Matsushita, supra, 475 U.S. at 587. Of course, all evidence and inferences to be drawn therefrom must be construed in the light most favorable to the nonmoving party. T.W. Elec. Services, 809 F.2d at 630-31.

DISCUSSION

I. 26 U.S.C. 7426

United States Code 7426 grants persons, other than the person against whom the tax is assessed, the right to bring an action against the United States in a district court of the United States to return property wrongfully levied upon by the Internal Revenue Service. The person bringing the action must have an interest in or lien on the property levied against by the IRS. Accordingly, this Court only has jurisdiction over the present action if Plaintiff Davies has a valid interest in the surplus funds levied by the IRS.

II. Davies Interest

A. Priority

Davies' judgment lien was filed subsequent to the government's tax lien and would normally be subordinate. 1 Davies claims, however, that the tax lien against Charles Barton was invalid because the property against which that lien was filed was held by the Bartons as tenants by the entirety. The Court agrees.

Under Hawaii law, the interest of a husband or a wife in an estate held as tenants by the entireties is not subject to the claims of his or her individual creditors during the lifetime of the other spouse. Sawada v. Endo, 57 Haw. 608, 612 (1977). Likewise, no lien for the debts of one spouse may attach against entirety property while both spouses are alive because the individual does not hold a separate interest to which a lien could attach. Id. at 614. To hold otherwise would permit a lien attachment to convert a tenancy by the entireties into a joint tenancy or tenancy in common.

Although the Hawaii courts have not directly addressed whether this rule applies to the tax liability of an individual, several federal courts that follow the same general rule against attachment of property held as tenants by the entirety have held that it does. United States v. Hutcherson [51-1 USTC 9249 ], 188 F.2d 326, 330 (8th Cir. 1951); United States v. American National Bank of Jacksonville [58-2 USTC 9564 ], 255 F.2d 504, 507 (5th Cir. 1958); United States v. Nathanson [45-1 USTC 9194 ], 60 F.Supp. 193, 194 (E.D. Mich. 1945). Directly on point is the case of American National Bank in which the Fifth Circuit held that a mortgage lien on entirety property had priority over an earlier lien based on a husband's tax liability because the tax lien did not attach until the death of his wife.

The Bartons held their share in the property as tenants by the entirety. Because the tax liability was only assessed against Charles Barton, the tax lien could not attach to the Bartons' property. Davies' subsequent lien thus had priority over the IRS' tax lien.

The IRS argues that its lien was valid because it attached to the surplus proceeds, not the property held by the Bartons as tenants by the entirety. This argument is without merit. Under Hawaii law proceeds from the sale of property held as tenants by the entirety are likewise held as entirety property. Estate of David Au, 59 Haw. 474, 478 (1978).

Finally, the IRS contends that because Nanette Barton consented to its receipt of the proceeds of the sale of land, its claim is not affected by the rule against attaching property held as tenants by the entirety. Although the Court would agree that Nanette's consent could effectively destroy the tenancy by the entirety and entitle the IRS to the entire proceeds, her subsequent actions do not affect the priority of the liens. Davies' lien had already attached prior to Nanette's consent and would still have priority over any subsequent attachment of the government's lien. See American National Bank [58-2 USTC 9564 ], 255 F.2d at 507.

B. Effect of Foreclosure

The IRS contends that Davies' lien was discharged by the foreclosure order which distributed the surplus proceeds directly to the Bartons. Because notice of the foreclosure proceeding was filed with the Land Court prior to the attachment of Davies' lien, the Court agrees.

It is well established that a decree of foreclosure in a mortgage foreclosure action extinguished the liens of junior lienors who are parties to the action. H.R.S. 667 -3; Powers v. Ellis, 56 Haw. 587, 588 (1976). Thus, the state court adjudicating the foreclosure action must decide how the surplus proceeds will be disbursed to the junior lienors. Bank of Hawaii v. Horwoth, 71 Haw. 204, 209 n.7, 215 (1990). Junior lienors must plead their claims to any surplus remaining after satisfaction of the senior mortgage as cross-claims pursuant to Fed. R. Civ. P. 13. Powers, 56 Haw. at 588. The state court may then adjudicate the status of the junior liens during the proceeding to foreclose the senior mortgage or may reserve these issues for later determination. Id.

In the case at bar, the state court addressed disbursement of the surplus proceeds when it approved the commissioner's sale of the foreclosed property. At that time, the court awarded the surplus to the mortgagees. Although the IRS was a party to this action, Davies was never named as a party nor did it seek to intervene. No appeal has been taken in the state action.

Although Davies was not a party to the state action, its lien was extinguished by the foreclosure proceeding. Davies is bound by the state court decision pursuant to Hawaii 's lis pendens statute for property registered with the Land Court which provides:

No . . . action affecting the title to real property . . . shall have any effect upon registered land as against persons other than the parties thereto, unless a full memorandum thereof, containing also a reference to the number of certificate of title of the land affected is filed or recorded or registered. H.R.S. 501 -151 (Supp. 1994).

Under the statute, parties obtaining an interest in property that is subject to an action properly recorded in the Land Court have constructive notice of the claims being asserted before the Land Court and will be bound by the outcome of that suit. See Harada v. Ellis, 4 Haw. App. 439, 443 (1983) (discussing analogous statute for pendant actions recorded in the bureau of conveyances); Kaapu v. Aloha Tower Development Corporation, 72 Haw. 267, 269 (1931) (same). Davies obtained and recorded its judgment after Associates filed pendency of its foreclosure action with the Land Court . Therefore, Davies had constructive notice of the law suit and is bound by the state court's orders.

Because Davies' interest in the property was extinguished by the state court foreclosure proceeding, Davies does not have a legal interest in the surplus proceeds levied by the IRS. Therefore Davies does not have the right to bring an action in this Court pursuant to 26 U.S.C. 7426 .

CONCLUSION

For the foregoing reasons, the Court DENIES Plaintiff's motion for summary judgment and GRANTS Defendant's cross motion for summary judgment.

IT IS SO ORDERED.

1 Although the subject property was registered with the Land Court , the IRS properly filed its tax lien in the Bureau of Conveyances pursuant to H.R.S. 501 -102, 505-1. Section 501 -102, governing the attachment of encumbrances to land registered in the Land Court , specifically exempts federal tax liens. Recordation of tax liens is prescribed by 505 -1 which provides:

Notices of liens for internal revenue taxes payable to the United States . . . may be recorded in the bureau of conveyances.

 

 

[65-2 USTC 9576]Don D. Baucom, Successor Trustee for the Creditors and Stockholders of Hawaii Properties, Limited, a dissolved Hawaii corporation, Plaintiff v. Edward J. Burns, Director of Taxation of the State of Hawaii, and Earl M. Kato, Defendants, and United States of America, Intervenor

U.S. Circuit Court, First Circuit, State of Hawaii, Civil No. 16051, 6/24/65

[1954 Code Sec. 6323]

Tax liens: Priorities: Cemetery perpetual care fund: Contractual obligation.--Neither an unrecorded written agreement nor a convenant in a deed, both of which called for the establishment of a cemetery perpetual care fund, constituted a lien or other charge which was superior to the Government's tax lien on funds derived from the sale of cemetery premises. The agreement and covenant were mere contractual obligations.

Ralph T. Yamaguchi, Yamaguchi & Tanaka, 552 Alexander Young Bldg., Honolulu , Hawaii , for plaintiff. Melvin K. Soong, Deputy Attorney General, Iolani Palace, Honolulu, Hawaii, for E. J. Burns; George R. Ariyoshi, Norman H. Suzuki, Suite 1210, First National Bank Bldg., Honolulu, Hawaii, for E. M. Kato, defendants. Yoshimi Hayashi, Assistant United States Attorney, Honolulu , Hawaii , for Intervenor.

Findings of Fact and Conclusions of Law

OKINO, Judge:

This cause came on for trial on June 4, 1965 , and the Court, having considered the evidence presented and the stipulations of the parties, finds the facts and states the conclusions of law as follows:

Findings of Fact

1. Plaintiff Don D. Baucom, Successor Trustee, defendant Edward J. Burns, Director of Taxation of the State of Hawaii, hereinafter referred to as "Director of Taxation," and defendant Earl M. Kato, hereinafter referred to as "Kato," are all residents of the City and County of Honolulu, State of Hawaii.

2. Plaintiff is the duly appointed Successor Trustee for the Creditors and Stockholders of Hawaii Properties, Limited, a dissolved Hawaii corporation.

3. The Director of Taxation submitted to the jurisdiction of this Court by its appearance and answer, and the United States of America , hereinafter referred to as " United States ," submitted to the jurisdiction of this Court by intervening in this cause.

4. Plaintiff brought this action under Section 172-133, Revised Laws of Hawaii 1955, as amended, which empowers plaintiff as trustee to file a bill for instructions on matters concerning the admin istration of assets under his control.

5. On February 6, 1962 , the Treasurer of the State of Hawaii entered a decree dissolving Hawaii Properties, Limited, a Hawaii corporation, for failure to file annual exhibits as required by law, and appointed Ernest C. Gonsalves, Trustee for the Creditors and Stockholders of Hawaii Properties, Limited, with full powers to settle its affairs. See Plaintiff's Exhibit No. 1 in evidence.

6. On August 3, 10, 17 and 24, 1962, said Ernest C. Gonsalves, as Trustee, published a notice to creditors in the Honolulu Star-Bulletin, as required by law. See the Affidavit of Publication which is Plaintiff's Exhibit No. 2 in evidence.

7. Said Ernest C. Gonsalves resigned as such Trustee, and on June 26, 1963, the Director of Regulatory Agencies of the State of Hawaii appointed plaintiff Don D. Baucom as Successor Trustee for the Creditors and Stockholders of Hawaii Properties, Limited, with full powers to settle the affairs of the dissolved corporation, according to law. See Plaintiff's Exhibit No. 3 in evidence.

8. The United States, Director of Taxation, and Kato each claims a lien against assets held by plaintiff. The claims and liens of said parties, together with penalty and/or interest computed to and including June 30, 1965 , are as follows:



United States

 ...........         $17,466.53

Director of Taxation ....          17,656.38

Kato ....................          23,347.17

Total ...................         $58,470.08

 

9. Plaintiff has cash in excess of $66,000.00 derived mainly from the sale of the cemetery property, more specifically described below, owned by the dissolved corporation.

10. By written agreement dated August 25, 1964, entered into by and between plaintiff, the Director of Taxation, the Internal Revenue Service of the United States Treasury Department, and Kato, it was mutually agreed that the Director of Taxation, the Internal Revenue Service and Kato release their respective claims and liens on the parcel of land known as Kaneohe Bay View Memorial Park Cemetery and identified on the tax map as Zone 4--Section 5--Plat 04--Parcel 2, hereinafter referred to as the "cemetery premises," in order that said property may be conveyed to the purchasers in fee simple, free and clear of all encumbrances, claims and liens. It was further provided in said agreement that all payments of purchase money received by plaintiff from this sale shall be deposited or placed with commercial banks and/or savings and loan associations, shall be held by plaintiff subject to said claims and liens, and such claims and liens shall in essence be transferred to the purchase money realized, and that the relative priorities of all claimants shall be undisturbed and maintained and determined in judicial proceedings to be initiated by a bill for instructions to be filed by plaintiff. See Plaintiff's Exhibit No. 4 in evidence.

11. On or about November 8, 1954 , the Trustees of the Kaneohe Congregational Church entered into an unrecorded written agreement with Gordon Wongham, F. Lang Akana and Rob ert C. Ching for the sale of the cemetery premises and other land. In said agreement the purchasers agreed, among other things, to erect a building for the Church, to use the land for a new cemetery, to establish a Permanent Perpetual Care Fund, to set aside about 100 interment plots to be sold to Church members, to pay the Church $10.00 for each interment plot sold, to disinter certain graves, and to build a suitable bronze plaque. See Plaintiff's Exhibit No. 5 in evidence.

12. By an unrecorded written agreement dated December 3, 1954, by and between Kaneohe Congregational Church, said Gordon Wongham, F. Lang Akana and Rob ert C. Ching, and Hawaii Properties, Limited, the Church agreed to release said Wongham, Akana and Ching, and said Wongham, Akana and Ching agreed to convey the cemetery premises and other land to Hawaii Properties, Limited, which in turn agreed to be bound by the terms of said agreement dated November 8, 1954. See Plaintiff's Exhibit No. 6 in evidence.

13. The cemetery premises and other land were conveyed by Kaneohe Congregational Church, as Grantor, to Gordon Wongham, F. Lang Akana and Rob ert C. Ching, as Grantees, by deed dated December 3, 1954 , and recorded in the Bureau of Conveyances at Honolulu in Liber 2902, Pages 278-281. See Plaintiff's Exhibit No. 7 in evidence.

14. The cemetery premises and a portion of the other land were then conveyed by said Wongham, Akana and Ching, their respective wives releasing dower, to Hawaii Properties, Limited, by deed dated December 3, 1954 , and recorded in Liber 2902, Pages 282-285. See Plaintiff's Exhibit No. 8 in evidence.

15. By deed dated October 14, 1960, and recorded in Liber 3952, Pages 353-357, Hawaii Properties, Limited, as Grantor, conveyed a portion of the land, conveyed to it by deed of December 3, 1954, to Kaneohe Congregational Church, as Grantee, said portion being referred to as "Lot A (Church Lot)." In said deed dated October 14, 1960, Hawaii Properties, Limited, convenanted to use the cemetery premises retained by it as a cemetery, and, among other things, to "establish, in line with the best modern practice, a Permanent Perpetual Care Fund for the maintenance and care of said cemetery, and to invite one representative from the Grantee to act as one of the three members of the Board of Trustees of said Perpetual Fund." See Plaintiff's Exhibit No. 9 in evidence.

16. A purchaser paid or was required to pay $35.00 as and for endowment or perpetual care for each interment plot purchased. See Plaintiff's Exhibit No. 24 in evidence for a form of Agreement to Purchase Interment Property. Although, prior to dissolution, Hawaii Properties, Limited had sold or contracted to be sold approximately 1,200 interment plots and approximately 250 urn sites, no perpetual care fund had ever been established.

17. Kaneohe Congregational Church filed a claim on October 9, 1962, for $1,185.70, the principal amount on a promissory note, together with interest thereon from October 14, 1960, and reasonable attorney's fee in the sum of $250.00, as well as for the sum of $10.00 for every interment plot sold by Hawaii Properties, Limited, save and except plots sold to Church members. Said claim further alleged that Hawaii Properties, Limited should create a Permanent Perpetual Care Fund and that the summ of $35.00 from the sale of each plot should be paid into such Fund. See Plaintiff's Exhibit No. 10 in evidence. The claim was later withdrawn by Kaneohe Congregational Church. See Plaintiff's Exhibits Nos. 15 and 16 in evidence.

18. Edward Kahale, also known as Reverend Edward Kahale, filed a claim on October 9, 1962, claiming that Hawaii Properties, Limited agreed to establish Permanent Perpetual Care Fund for the maintenance and care of the cemetery and invite one representative from Kaneohe Congregational Church to act as one of the three members of the Board of Trustees of said Permanent Perpetual Care Fund. He further claimed that he was the designated representative of Kaneohe Congregational Church to act as a member of the Board of Trustees of the Permanent Perpetual Care Fund and claimed on behalf of such trust fund the sum of $35.00 per interment plot sold or contracted to be sold. See Plaintiff's Exhibit No. 11 in evidence. The claim was later withdrawn by said Edward Kahale. See Plaintiff's Exhibits Nos. 17 and 18 in evidence.

19. Moses Hoapili filed a claim on October 9, 1962 , claiming that he had purchased a cemetery plot from Hawaii Properties, Limited, which had agreed to devote $35.00 of the money he paid to a Perpetual Care Trust Fund for the cemetery. He alleged that Hawaii Properties, Limited had failed to create such a Fund although making similar promises to hundreds of other purchasers of cemetery plots. He claimed, on his own behalf, and on behalf of all others similarly situated, upon behalf of such a Trust Fund, for such a sum as represented $35.00 per plot sold or contracted to be sold. See Plaintiff's Exhibit No. 12 in evidence. The claim was later withdrawn by Moses Hoapili for himself and for others similarly situated. See Plaintiff's Exhibits Nos. 19 and 20 in evidence.

20. During the month of June, 1964, plaintiff advertised in newspapers of general circulation in Honolulu an invitation to bid for the cemetery premises, and also mailed invitations to numerous prospects. Bids were received from two parties, amounting to $40,000.00 and $44,500.00, respectively, but plaintiff considered even the higher of the two bids to be inadequate and rejected all bids.

21. Thereafter, plaintiff negotiated with several parties and eventually, on September 2, 1964, entered into an agreement to sell the cemetery premises to James I. Motoyama, Ginichi Iwaoka, R. C. Ching and F. J. Brickner, all of Honolulu, for the sum of $66,000.00, together with various other considerations, including the settlement of the claims of Kaneohe Congregational Church, Edward Kahale and Moses Hoapili, as well as an agreement on the part of the purchasers to establish and fund the Permanent Perpetual Care Fund. See Plaintiff's Exhibits Nos. 13 and 14 in evidence. As a result, the claims of Kaneohe Congregational Church, Edward Kahale, and Moses Hoapili, for himself and for others similarly situated, were withdrawn as aforesaid.

22. Said James I. Motoyama, Ginichi Iwaoka, R. C. Ching and F. J. Brickner assigned and transferred all of their right, title and interest in and to said purchase agreement to Cimb Investments, Inc., a Hawaii corporation. See Plaintiff's Exhibit No. 21 in evidence.

23. Plaintiff conveyed the cemetery premises to Cimb Investments, Inc. by deed dated October 9, 1964 , subject, among other things, to the covenants and restrictions set forth in the deed from Hawaii Properties, Limited to Kaneohe Congregational Church, dated October 14, 1960 (Plaintiff's Exhibit No. 9). See Plaintiff's Exhibit No. 22 in evidence.

24. By an agreement dated June 3, 1965, entered into by, between and among Cimb Investments, Inc., Kaneohe Congregational Church, and Rob ert C. Ching, James I. Motoyama and Reverend Edward Kahale (the latter three as Trustees), a trust fund for the perpetual care of the cemetery premises has been established. See Plaintiff's Exhibit No. 23 in evidence.

25. Plaintiff has sufficient funds to pay all admin istrative expenses and the claims of the United States , Director of Taxation and Kato, if such funds are not subject to a prior lien or charge in favor of the Permanent Perpetual Care Fund.

Conclusions of Law

1. The Court has jurisdiction over all parties herein and the subject matter of this cause.

2. By virtue of federal law, the United States had valid liens upon all property and rights to property of Hawaii Properties, Limited, including the cemetery premises, on account of unpaid taxes, which total $17,466.53, inclusive of interest and penalty computed up to and including June 30, 1965 .

3. By virtue of Chapter 128, Revised Laws of Hawaii 1955, as amended, the Director of Taxation had valid liens upon all property and rights to property of Hawaii Properties, Limited, including the cemetery premises, on account of unpaid real property taxes, which total $17,656.38, inclusive of interest and penalty computed up to and including June 30, 1965.

4. Kato had a valid judgment lien upon the cemetery premises on account of a judgment in his favor in Civil No. 7371 in this Circuit Court, which totals $23,347.17, inclusive of interest computed up to and including June 30, 1965 .

5. By agreement (Plaintiff's Exhibit No. 4), the United States , Director of Taxation and Kato transferred their respective liens from the cemetery premises to the purchase money realized from the sale of the cemetery premises.

6. In the light of Finding of Fact No. 25 and the following conclusion of this Court concerning the Permanent Perpetual Care Fund, it is unnecessary to determine the relative priorities of the respective liens of the United States, Director of Taxation and Kato.

7. Concerning the funds derived from the sale of the cemetery premises, there is no lien or other charge on the cemetery premises in favor of the Permanent Perpetual Care Fund arising by virtue of the agreement or covenant on the part of Hawaii Properties, Limited or its predecessors in interest to establish a Permanent Perpetual Care Fund. See Findings of Fact Nos. 11 and 15. Such agreement or covenant was not a burden on the cemetery premises, but merely a contractual obligation which Hawaii Properties owed to Kaneohe Congregational Church and the purchasers of cemetery plots.

8. Concerning assets other than the funds derived from the sale of the cemetery premises, there was no trust impressed on such assets in favor of the Permanent Perpetual Care Fund inasmuch as Hawaii Properties, Limited had never established such fund. See Finding of Fact No. 16.

9. Plaintiff is instructed to pay the claims and liens of the United States , Director of Taxation and Kato in full, subject to the priority accorded the payment of all expenses of admin istration incurred or to be incurred by plaintiff as Successor Trustee.

IT IS SO ORDERED, and counsel for plaintiff will submit an appropriate judgment in accordance herewith.

Judgment

In accordance with the Findings of Fact and Conclusions of Law heretofore entered and filed herein,

IT IS HEREBY ORDERED, ADJUDGED and DECREED:

1. That the United States of America, hereinafter referred to as "United States," Edward J. Burns, Director of Taxation of the State of Hawaii, hereinafter referred to as "Director of Taxation," and Earl M. Kato, hereinafter referred to as "Kato," have valid claims including penalty and/or interest computed to and including June 30, 1965, against Plaintiff as Successor Trustee, as follows:



United States

 ...........         $17,466.53

Director of Taxation ....          17,656.38

Kato ....................          23,347.17

Total ...................         $58,470.08

 

2. That plaintiff shall pay the foregoing claims of the United States , Director of Taxation and Kato in full, subject, however, to the priority accorded the payment of all expenses of admin istration incurred or to be incurred by plaintiff, as Successor Trustee.

3. That the Permanent Perpetual Care Fund for the Kaneohe Bay View Memorial Park Cemetery has no lien or charge upon the funds and assets held by plaintiff prior to those of the United States, Director of Taxation and Kato.

4. That the funds and assets held by Plaintiff are not impressed with a trust for the benefit of said Permanent Perpetual Care Fund.

 

Home ] Services ] FAQ ] Site Map ] Contact Us ]

Presented by Alvin Brown and Associates, tax attorney, formerly with the Office of the Chief Counsel of the IRS. 
Call us for all IRS tax issues, problems and emergencies
Protect yourself from IRS intimidation, errors, and penalties.
www.irstaxattorney.com - ab@irstaxattorney.com - (888) 712-7690 - (703) 425-1400