Conveyances Part1 page7
admitted on cross-examination during the taking of his November 9, 1984
deposition at Eglin Federal Prison Camp that he probably made several
similar statements about Martha and the South Sequoia Boulevard house in
Florence as attributed to him by the foregoing described testimony but
flatly denied there was any condition of Martha coming back to him in
any remark he made. In substance he stated: "It sounds like
something I would say." (Deposition p. 36, line 19).
The Court attaches little
weight to this described testimony for a number of reasons. First of
all, this testimony from the defendant herself and from her best friend
and mother is highly suspect. Each such witness had a decided interest
in the outcome of the case. Secondly, this line of evidence offered to
contradict Glascock's own testimony that the acquisition of the
Florence, Alabama residential real estate in the name of his girl friend
(later his wife) was a planned and deliberate scheme on his part to
shield such property from the demands and claims of his creditors is
simply overwhelmed by the other facts appearing in this evidentiary
record which move one to the inevitable finding and conclusion that
Glascock indeed intended to defraud his creditors by such maneuvers and
that Martha A. Boogaerts, or Martha A. Roberts, or Martha A. Glascock,
by whatever name she chose to use from time to time, was a knowing and
willing accomplice to her lover and later husband in such fraudulent
efforts. Finally, this particular line of testimony is not believable
because of the lapse of time from the period in 1978 in which these
exclamations of Glascock were allegedly voiced until that period in
November 1984 in which the final bench hearing was held. There is not
one shred of evidence in this record pointing directly or indirectly to
any effort on Glascock's part to carry out his alleged threats. This
Court therefore rejects this effort of defendant Boogaerts to clothe
herself in a cloak of innocence woven by Glascock's ire.
13. The evidentiary record
in this action shows that as of the time of the final bench hearing in
this cause defendant William D. Glascock was a convicted felon several
times over. Indeed, he was incarcerated in a federal prison facility at
the time of the hearing. 6
On March 29, 1979 in the
United States District for the Northern District of Alabama in CR
78-M-0220-S William D. Glascock on plea of guilty to Count 2 of the
indictment therein was adjudged guilty by the Court of wilfully and
knowingly attempting to evade and defeat a large part of the income tax
due and owing by him and his wife to the United States of America for
the calendar year 1972 by filing a false and fraudulent income tax
return in violation of Section
7201 , Internal Revenue Code, 26 U.S.C. §7201
and was committed to the custody of the Attorney General of
the United States or his authorized representative for imprisonment for
a term of five (5) years (Defendants' Exhibit No. G).
Also on March 29, 1979 in
this Court in CR 79-M-0079-S William D. Glascock on plea of guilty to
Count 1 of the indictment therein was adjudged guilty of knowingly
making false statements to a bank for the purpose of influencing the
action of said bank on his application for a loan, the deposits of said
bank having been insured by the Federal Deposit Insurance Corporation,
in violation of 18 U.S.C. §1014
, and imposition of sentence was suspended and defendant
placed on probation for period of five (5) years, subject to the general
terms and conditions of probation of record in this Court and subject to
the special condition that defendant was to pay all income taxes,
penalties, interest and costs finally determined to be due and owing for
the tax years alleged in the indictment in CR 78-M-0220-S, Northern
District of Alabama, said probation to begin when due and lawful release
from custody (Defendants' Exhibit No. B).
Also on March 29, 1979 in
this Court in CR 79-M-0050-S William D. Glascock on plea of guilty to
Count 1 of the indictment therein was adjudged by the Court of wilfully
and unlawfully making false statements to a state bank and trust
company, the deposits of which were then insured by the Federal Deposit
Insurance Corporation, for the purpose of influencing the action of said
bank in violation of Title 18, United States Code, Section
1014 , and was thereupon committed to the custody of the
Attorney General of the United States or his authorized representative
for imprisonment for a period of two (2) years, said sentence to run
concurrently with the sentence imposed in CR 78-M-0220-S, Northern
District of Alabama (Defendants' Exhibit No. C).
Also on March 29, 1979 in
this Court in CR 79-M-0049-S William D. Glascock on plea of guilty to
Count 4 of the indictment therein was adjudged guilty by the Court of
knowingly making false statements in statement of condition for the
purpose of influencing the action of a bank in approving loans to him,
said bank having been insured by the Federal Deposit Insurance
Corporation, in violation of 18 U.S.C. §1014
, and was thereupon committed to the custody of the Attorney
General of the United States or his authorized representative for
imprisonment for a period of two (2) years, said sentence to run
concurrently with the sentence imposed in CR 78-0220-S, Northern
District of Alabama (Defendants' Exhibit No. E).
On December 12, 1983 in the
United States District Court for the Middle District of Louisiana
William D. Glascock on plea of guilty to Counts 1 and 2 of the
indictment therein was adjudged guilty of conspiring to violate 18
, 473 and 2, and 18 U.S.C. §472
--possession of forged and counterfeited obligations of the
United States, and was thereupon committed to the custody of the
Attorney General of the United States or his authorized representative
for imprisonment for a period of five (5) years on Count 1 with
impositions of sentence, as to imprisonment only, suspended and
defendant placed on probation for a period of five (5) years on Count 2
to commence upon defendant's release from custody. As a special
condition of probation the Court directed that defendant was to pay a
fine in the sum of $5,000.00 as directed by the Probation Department
(Defendants' Exhibit No. A).
In addition to the
foregoing described felony convictions, defendant William D. Glascock on
October 13, 1975 entered plea of guilty to An Attempt To Commit the
Offense of False Pretenses, a misdemeanor, in the Circuit Court of
Lauderdale County, Alabama, was adjudged guilty of such offense by such
state court, and fined $500.00 and court costs (Defendants' Exhibit No.
14. In weighing the
deposition testimony of William D. Glascock in this case and judging his
credibility or believability, the Court has carefully considered
Glascock's previous felony convictions, his previous state court
conviction of crime involving dishonesty, all other credible evidence in
this record which supports or contradicts his testimony, and his
interest in the outcome of the case. The Court has found and determined
and now finds and determines that Glascock's testimony herein is
credible and worthy of belief.
15. As of the time of the
final bench hearing the fair cash market value of the
119 South Sequoia Boulevard
residential property in the City of Florence, Alabama was $68,000.00 to
$78,000.00. (Testimony of David McFall, Vice President, First Federal
Savings and Loan Association of Florence, whom the Court recognizes and
accepts as an expert real estate appraiser in the Florence, Alabama
community.) And as of such date, the unpaid principal balance of the
first mortgage indebtedness thereon owed to First Federal Savings and
Loan Association of Florence, mortgagee, was $19,391.75 with maturity
date of July 1977.
16. At the time of her
execution of the Real Estate Contract dated June 22, 1972 (Government
Exhibit 1), at the time of her execution of the Lease-Sale Contract
dated August 7, 1972 (Government Exhibit No. 2), at the time of the
execution and delivery to her of the Deed of Conveyance dated February
17, 1976 (Government Exhibit No. 3) (in which she assumed and agreed to
pay the unpaid balance of the First Federal mortgage on such property),
at all times intervening between such transactions, defendant Martha A.
Boogaerts (known at such times by different names) had no assets of
consequence, no earned income, no source of funds other than from
William D. Glascock, and was completely unable from a financial
standpoint to personally meet the financial obligations imposed upon her
by the terms and provisions of such documents. Further, during the
period from February 17, 1976 until the time she and William D. Glascock
moved to the State of Louisiana, defendant Boogaerts (then Martha A.
Glascock but using the name of Martha A. Roberts in her business
dealings with all third party entities) was wholly financially dependent
upon her husband, William D. Glascock, and had no assets or funds or
source of funds in her own right to enable her to make the requisite
monthly mortgage payments required by the South Sequoia Boulevard
property mortgage to First Federal. Finally, defendant Boogaerts,
according to this evidentiary record, has expended no funds whatever
from her separate estate on the
South Sequoia Boulevard
17. Based on this
evidentiary record, the Court finds as a fact that defendant William D.
Glascock was insolvent at the time of the execution of the June 22, 1972
Real Estate Contract (Government Exhibit No. 1), at the time of the
execution of the August 7, 1972 Lease-Sale Contract (Government Exhibit
No. 2), at the time of the execution and delivery of the February 17,
1976 deed of conveyance (Government Exhibit No. 3), at all times
intervening between such transactions, and at all times from February
17, 1976 until defendants Glascock and Boogaerts (then Martha A.
Glascock) moved to the State of Louisiana.
18. The Court finds as a
fact from this evidentiary record that the payment by William D.
Glascock of the $3,950.00 earnest money payment required by the Real
Estate Contract dated June 22, 1972 (Government Exhibit No. 1), his
subsequent payment of the $2,550, plus interest, payment required by the
Lease-Sale Contract dated August 7, 1972 (Government Exhibit No. 2), his
payments of the $192.60 monthly payments to Hensley Construction Co.,
Inc. during the period from August 7, 1972 to February 17, 1976 as
required by such Lease-Sale Contract, and his monthly mortgage payments
of approximately $232.81 to First Federal (through Martha A. Glascock in
the name of Martha A. Roberts) from February 17, 1976 until September
1976 (date of move to Louisiana) as required by the terms and provisions
of the First Federal mortgage on the South Sequoia Boulevard property
substantially reduced William D. Glascock's financial worth and had the
effect of defeating or hindering his creditors, including the United
19. Defendant Martha A.
Boogaerts currently stands as the sole record owner of the
residential real estate in question. Her title and ownership, however,
is subject to the first mortgage on such property held and owned by
First Federal Savings and Loan Association of Florence.
20. From the facts shown in
this evidentiary record there is no question but that plaintiff United
States of America was an existing and most substantial creditor of
defendant William D. Glascock at the time of execution of the Real
Estate Contract dated June 22, 1972 by Hensley Contracting Co., Inc. and
defendant Martha A. Boogaerts (then Martha A. Roberts), at the time of
the subsequent delivery of possession of the South Sequoia Boulevard
real estate by Hensley Construction Co., Inc. to defendants Glascock and
Boogaerts (Roberts), at all times subsequent thereto until the time of
execution of the Lease-Sale Contract dated August 7, 1972 by Hensley
Construction Co., Inc. and defendant Martha A. Boogaerts (then Martha A.
Roberts), at all times subsequent to August 7, 1972 until the execution
and delivery of the February 17, 1976 deed of conveyance of such
property by Hensley Construction Co., Inc. to defendant Martha A.
Boogaerts (but in the name of Martha A. Roberts) and at all times during
the period of February 17, 1976 until September 1976 (move to
Louisiana), and that there was at the time of each such described real
estate transaction during each intervening period between such
transactions, and during the period of February 17, 1976 until September
1976, a conveyance of property out of which the plaintiff United States
of America could have satisfied its claims against defendant William D.
Glascock or some portion thereof.
1. Subject matter
jurisdiction exists under 28 U.S.C. §§1340 and 1345. 7
Personal jurisdiction and venue are not contested.
2. This is a fraudulent
conveyance suit brought by the
United States of America
") which has as its ultimate object the collection of federal taxes
which are and have been long owed and past due by and from defendant
William D. Glascock ("debtor"). The suit seeks to set aside as
fraudulent to the
in its capacity as a then creditor of debtor Glascock a February 1976
deed of conveyance of
real estate from a third party to debtor's then spouse sued here in her
present name of Martha A. Boogaerts. The
asserts that the consideration for such conveyance was furnished by
debtor and that the conveyance to the debtor's wife was made at debtor's
instance and direction and with his spouse's knowledge and connivance
for the purpose of preventing his creditors from subjecting such
property to their claims or demands. The defendant spouse, divorced from
Glascock since 1978, asserts in defense of the suit denial of any
fraudulent connivance on her part with her then husband and further
answers that the conveyance constituted a bona fide gift to her by her
then husband motivated by his love and affection for her as his wife, as
well as his appreciation for her devotion to him proven under rather
strained circumstances prior to their May 1974 marriage. An odd twist in
this scenario is that a part of the recited consideration for the
conveyance under consideration was the grantee wife's assumption and
agreement to pay the then unpaid balance of a first mortgage originally
imposed on the property by her grantor. 8
While this fact is undoubtedly relevant on the consideration issue
hereinafter discussed this factual aspect of consideration was not
mentioned or discussed in the final bench hearing nor has it been raised
or argued in the post-hearing briefs submitted by counsel for the
3. The United States became
a creditor of defendant William D. Glascock at the time Glascock failed
to pay withholding taxes of his employees in 1971, 1972 and 1975
pursuant to 26 U.S.C. §6672
and again on the respective April 15th federal income tax due dates
succeeding the calendar years 1971, 1972 and 1973 when he failed to pay
his lawful federal income taxes due for such calendar year periods.
Regardless of when federal taxes are actually assessed, taxes are
considered due and owing, and constitute a liability, as of the date the
tax return for the particular period is required to be filed. United
States v. Hickox [66-1
USTC ¶15,679 ], 356 F.2d 969 (5th Cir. 1966); 10
United States v. Ressler [77-1 USTC ¶9459 ], 433 F.Supp. 459 (S.D. Fla. 1977), aff'd
USTC ¶9571 ], 576 F.2d 650 (5th Cir. 1978). Thus, the United
States was clearly a creditor of William D. Glascock at the time of all
of the transactions respecting the purchase of the South Sequoia
Boulevard residential real estate, at all times intervening between such
transactions and at all times subsequent to the date of February 17,
1976 on which the deed of conveyance in question was executed and
delivered by Hensley Construction Co., Inc. to Glascock's wife but in
the name of Martha A. Roberts.
The United States properly
sought relief in the above entitled civil action under the applicable
fraudulent conveyance laws of the particular state in which the real
property and taxpayer were located--in this case, the law of Alabama. Commissioner
v. Stern [58-2 USTC ¶9594 ], 357 U.S. 39 (1958); 11
United States v. Kaplan, 277 F.2d 405 (5th Cir. 1960); United
States v. Ressler, [77-1 USTC ¶9459 ], 433 F.Supp. 459 (S.D. Fla. 1977), aff'd
USTC ¶9571 ], 576 F.2d 650 (5th Cir. 1978); United States
v. Grice [83-1 USTC ¶9399 ], 567 F.Supp. 113, 115, n. 2 (M.D. Ala.
5. Under Alabama law
"all conveyances . . . of any estate or interest in real or
personal property and every charge upon the same made with intent to
hinder, delay or defraud creditors . . . of their lawful actions,
damages, forfeitures, debts or demands . . . are void." Ala. Code, §8
-9-6 (1975), formerly codified as Code 1940, Title 20 §7
. This statute is declaratory of the common law and of
generally recognized equitable principles. Fleming v.
222 (1933). Section
8 -9-6 (Ala. Code 1975) does not require the debt, claim or
demand, which is protected by statute, to be reduced to judgment before
the [action] to set aside a conveyance as fraudulent is filed. The
action at law to reduce to judgment and the [action] to set aside are
concurrent remedies in point of time, though the latter is, in fact,
merely in aid of [the former]; that is, to give the plaintiff the fruits
of his judgment when recovered. Roddam v. Martin, 285
619, 622, 235 So.2d 654 (1970).
In construing the
predecessor statute to §8
-9-6 (Ala. Code 1975), identical in wording to the present
statute, the Supreme Court of Alabama stated in Roddam v. Martin,
supra, 285 Ala. at p. 623:
The concurrence of three
elements is essential before a conveyance can be declared fraudulent
under Title 20 §7
, quoted supra. It must be shown that there is: (1) a
creditor to be defrauded, (2) a debtor intending to defraud, and (3) a
conveyance of property out of which the creditor could have realized his
claim or some portion thereof. Adkins v. Bynum, 109
281, 19 So. 400.
this were the classical fraudulent conveyance fact pattern, the debtor
husband would be the grantor in the challenged conveyance, the grantor's
wife named grantee therein and Roddam v. Martin the easy
authoritative answer to finding the conveyance to be fraudulent,
assuming the presence and proof of the other Roddam factors. The
discussion would then shift to an analysis of the evidentiary record to
determine the presence of the other proof required before a conveyance
found to be fraudulent is due to be set aside. But here by reason of
the existence of a rather unusual fact pattern in this action to set
aside an alleged fraudulent conveyance from a non-participating third
party to the wife of the debtor with the grantee wife assuming an
existing mortgage on the property in question as a recited part of the
consideration for the conveyance, this federal court must explore even
further through the maze of somewhat confusing opinions by the Supreme
Court of Alabama dealing with the law of fraudulent conveyances in
some of ancient vintage, before the correct result emerges, at least to
the point of reasonable legal certainty.
6. the lending decisions
which articulate the principles governing fraudulent Alabama conveyances
are Smith v. Wilder, 270 Ala. 637, 120 So.2d 871 (1960), and its
progeny, J.C. Jacobs Banking Co. v. Campbell, 406 So.2d 834 (Ala.
In Wilder the Supreme Court of Alabama analyzed the conflicting
case law and enunciated the principles which it deemed correct
pertaining to a case of an existing creditor seeking to set aside, as
fraudulent, a conveyance by his debtor:
existing creditor seeking to set aside a conveyance may do so either
because of actual fraud or on account of what is termed constructive
fraud denotes the actual mental operation of intending to defeat or
delay the rights of the creditor.
fraud, on the other hand, is based on facts and circumstances which the
courts have said constititue legal fraud irrespective of actual intent.
The term "constructive fraud" is generally used in referring
to those instances where a grantor, indebted at the time, conveys
property on a good as distinguished from a valuable consideration. Such
conveyances are frequently referred to simply as voluntary conveyances.
at 649, 120 So. 871.
With respect to the burden
of proof, the Wilder court made the following declarations:
burden is upon an existing creditor alleging actual fraud to prove it. Birmingham
Trust & Savings Co. v.
62, 163 So. 593.
conveyance is sought to be vacated on the ground that it was voluntary,
the burden is upon the complainant to show that his debt antedated the
such proof is made the burden shifts to the grantee to go forward with
evidence shows that the alleged fraudulent grantor was insolvent,
failing or financially embarrassed when he made the conveyance, even
though the consideration paid by the grantee was a new one, the burden
is upon the grantee of showing a consideration both valuable and
if it does not appear that the grantor was insolvent, failing or
financially embarrassed when he made the conveyance and the evidence
shows that the consideration paid by the grantee was a new one, not
resting on prior indebtedness, the only burden upon the grantee is to
show that he paid a valuable consideration--substantial and not merely
proof of payment of a present substantial valuable consideration did not
in and of itself determine the rights of the parties.
though a consideration for the deed was a present valuable
consideration, the complainants could have the deed vacated in its
entirety by showing the grantor's intent to defraud and a participation
therein by the purchaser . . . with knowledge of such intent or with
notice of some fact calculated to put him on inquiry which, if followed
up, would have lead [sic] to a discovery of the grantor's fraudulent
intent. The burden of making such a showing was on the complainants. McClintock
v. McEachin, 249
591, 32 So.2d 305, and cases cited.
v. Wilder, 270
The facts of Smith v.
Wilder, involved, inter alia, a conveyance from father to
son, which plaintiff alleged to be both actually and constructively
fraudulent. The trial court found the son gave valuable and adequate
consideration and was not a participating grantee, having no knowledge,
either actual or implied, of any fraudulent intent on the part of the
grantor, his father. The Alabama Supreme Court affirmed the finding of
the trial court that the son had no knowledge of any fraudulent intent
on the part of his father, the grantor, or notice of any fact which, if
pursued, would have led to discovery of such intent, if any, and the
trial court's consonant conclusion that the conveyance should not be set
aside in its entirety. Nevertheless, the Supreme Court of Alabama
remanded the case for a determination of whether the grantor in fact
exercised a fraudulent intent, an issue about which the lower court had
made no finding. In so doing, the Court stated:
consideration paid by [the son] for the lands covered by the deed in
question, although valuable, was in our opinion substantially
inadequate. Therefore, we think the trial court should have considered
the question as to whether the deed was fraudulently made by the
grantor. This because of the equitable doctrine that, when a conveyance
is fraudulently made upon a consideration which is valuable, but
substantially inadequate, and the grantee is without notice of the
grantor's intent and himself intends no fraud, the conveyance will be
allowed to stand only as security for the value actually paid.
v. G.L. Anderson Brass Works, 197
16, 72 So. 359, and cases cited; Rogers v. Conaway, 226
334, 147 So. 152; Morrison v. Federal Land Bank of
138, 167 So. 288.
at 651, 120 So.2d 871.
Returning now to J.C.
Jacobs Banking Co. v.
, supra, 406 So.2d commencing at 841, for the purpose of reviewing
court's critique and subsequent modification of Wilder:
initial examination of the cross-appeals of
from judgments favorable to defendants Brooks Derrick, Izzy Derrick,
Payne, Self, and Words will prove helpful to an understanding of the
issues raised in the other appeals. Judgment was rendered in favor of
these defendants, each of whom was found by the trial court to have been
a bona fide purchaser from Bynum, having paid an adequate consideration
while not participating actively or constructively in his fraud.
contends the trial court misinterpreted applicable law in looking to
questions of the adequacy of the consideration paid by appellants, and
of their participation vel non in Bynum's fraudulent intent, as
determinative of whether the conveyances to them should be set aside.
-9-6, the basis of plaintiff's claim for relief, provides:
Conveyances or assignments of property, etc., to hinder creditors, etc.,
of statute omitted].
This statute is declaratory
of common law and of generally recognized equitable principles. Fleming
222, 146 So. 384 (1933).
Campbell's position that a conveyance is void and due to be set aside as
fraudulent, without regard to adequacy of consideration or grantee
participation, upon proof of the three elements enumerated in Roddam
v. Martin, 285 Ala. 619, 235 So.2d 654 (1970):
from Roddam re three elements omitted.]
contends the language of Code 1976, §8
-9-6, consistently with Roddam, speaks only to the
grantor's fraudulent intent, noting that no mention is made of
consideration or grantee participation in fraud. As the first and third
elements of Roddam were not controverted at trial,
claims the conveyances to cross-appellees were due to be set aside once
Bynum's fraudulent intent in making them was proved.
re Wilder and quotes from Wilder omitted.]
does not contend Bynum was insolvent, failing, or financially
embarrassed at the time the conveyances in question were made, or that
any of them were made for less than a valuable consideration,
substantial and not merely nominal. Thus, cross-appellees assert, under Smith
v. Wilder, the issue to be resolved is whether Bynum transferred his
property with a fraudulent intent, in which his grantees participated
with either actual or constructive knowledge.
argues, however, that this interpretation of Smith v. Wilder
cannot result in harmony between the facts of that case and the result
reached by this court in it . . .
of facts of Wilder omitted.]
contends that this court, by remanding for a finding regarding the
father's intent, confirmed that it is the fraudulent intent vel non
of the grantor which determines whether a conveyance should be set aside
and, if it is due to be set aside, the court will then decide whether
the grantee should receive the benefit of equitable principles. Thus,
, the entire analysis regarding consideration and grantee participation
in Wilder is simply an equitable inquiry. The inquiry is whether
a conveyance due to be set aside because of the grantor's fraudulent
intent, is to be set aside in toto when the grantee is found to
be a participant in the fraud, or is to be set aside only partially,
with the grantee protected to the extent of consideration paid, when
found to be an innocent purchaser. In support of this proposition,
points to this court's phraseology that upon a showing of grantee
participation the deed could be vacated "in its entirety";
language, he says, that is meaningless unless used for the purpose of
making this distinction.
reasoning employed by
is logically unacceptable. Indeed, the three elements set out in Roddam
must be found in order that a conveyance be declared fraudulent under
the statutory proceeding whether the plaintiff is proceeding under a
theory of actual or constructive fraud. Further proof, however, is
required before a conveyance found to be fraudulent is due to be set
aside. [Emphasis added.]
appears the transfer in question was made for a valuable consideration,
a plaintiff seeking to invoke the protection of Code 1975, §8
-9-6, must show the mutual fraudulent intent of the parties
to the transaction. Proof of the grantor's intent alone is insufficient
to cause the conveyance to be set aside. See 37 Am.Jur.2d Fraudulent
reason for this requirement is that, failing such proof, the grantee is
a bona fide purchaser for value who is entitled to keep the fruits of
his bargain. See Harris, "Some Aspects of Fraudulent Conveyances in
," 6 Ala.Law. 170 (1945). The cases are replete with holdings that
where the grantor is not insolvent, failing, or financially embarrased,
a plaintiff creditor must prove participation by the grantee in the form
of knowledge of the grantor's fraudulent intent, or notice of facts
putting him on inquiry, which, if followed up, would lead to discovery
of the grantor's intent; this would be required in order to set aside a
fraudulent conveyance made for present valuable consideration. McClintock
v. McEachin, supra; Van Antwerp v. Van Antwerp, 242
92, 5 So.2d 73 (1941);
v. G.L. Anderson Brass Works, supra; Ledbetter v.
336, 45 So. 467 (1908); Pippin v. Tapia, 148
353, 42 So. 545 (1906); Smith v. Heineman, 118
195, 24 So. 364 (1897); Florence Sewing Machine Co. v. Zeigler,
221 (1877); Crawford v. Kirksey, 55
previously indicated, and stated somewhat differently, the only
recognized exception to this rule is the equitable principle applied
when the consideration paid is found to be substantially inadequate.
inadequacy of consideration is only a "badge" or indicium of
fraud. Where, however, the consideration is substantially or grossly
inadequate, fraud may be inferred as a matter of law from inadequacy
alone. Therefore, when the consideration, though valuable, is found to
be substantially inadequate, and the grantee is without knowledge of the
grantor's intent or of facts putting him on inquiry as to that intent,
the conveyance will be allowed to stand only as security for the value
Brass Works, supra, and cases cited therein; Morrison v. Federal
Land Bank of
equitable principle was correctly determined to be controlling in Wilder,
once it was found that the consideration given by the son was
substantially inadequate. In applying the principle, however, this court
inadvertently failed to recognize the very distinction it had drawn
between actual and constructive fraud. Constructive fraud was equated
only with voluntary consideration. A valuable but substantially
inadequate consideration, however, is also a part of constructive fraud;
the mutual fraudulent intent of the parties is inferred by law from the
great disparity between the real value and the consideration given. Longon
v. G.L. Anderson Brass Works, supra; Little v. Sterne, 125
609, 27 So. 972 (1899); Gordon v. Tweedy, 71
fraudulent intent in Wilder was established as a matter of law by
the son's payment of substantially inadequate consideration, it was not
necessary for this court to remand for a finding concerning the grantor
father's intent. This not too apparent, and understandable, flaw in the
opinion was astutely seized upon by
. It is what lends credence, however specious, to his arguments
regarding proper interpretation of Wilder.
therefore, overrule Smith v. Wilder to the limited extent that it
requires actual proof of the grantor's fraudulent intent before a
conveyance may be partially set aside because made for substantially
So.2d at 841-844. While the above quotes from J.C. Jacobs Banking Co.
v. Campbell have been far too lengthly, this Supreme Court of
Alabama decision has now supplanted Wilder as the seminal case on
the law of fraudulent Alabama conveyances and many of the principles
there enunciated or quoted from prior authoritative reported cases and
there reaffirmed are instructive in connection with the quest of this
Court for a correct reasoned result in the above entitled civil action.
For this reason the Court has the temerity to additionally include in
the within memorandum of decision the
court's reaffirmation of three long settled principles of
fraudulent conveyance law, 406 So.2d at 847:
The Gladishes also raise as
an issue the adequacy of consideration paid by them. Because we affirm
and approve the findings that the Gladishes were fraudulent participants
we see no need to address this issue. Where a conveyance is made upon
a present consideration, there being an intent on the part of the
grantor and the grantee to defraud the grantor's creditors, the
conveyance is void as to existing creditors, however valuable and
adequate the consideration. Smith v. Heineman, supra [118
195, 24 So. 364 (1897)] If the grantee has notice of facts putting
him on inquiry as to the grantor's fraudulent intent, it is the same as
if he too has the intent [Emphasis added]. Crawford v. Kirksey,
supra [55 Ala. 282 (1876)]; Waddle v. Great
. Co., 184
346, 63 So. 462 (1913); Smith v. Collins & Griffith, 94
394, 10 So. 334 (1891).
well settled that conveyances or transfers made to hinder, delay, or
defraud creditors are valid and operative between the parties when fully
consummated. Neither party can rescind or defeat them. Continental
Ins. Co. v. Dotson, 260
499, 70 So.2d 796 (1954). A fraudulent conveyance is valid as to all the
world except creditors of the grantor, notwithstanding the statute
declaring that such conveyances are void. Brown v. Andrews, 288
111, 257 So.2d 356 (1972); First National Bank v. Love, 232
327, 167 So. 703 (1936).
Where parties enter into an
arrangement pursuant to a fraudulent conveyance, a court will not
interfere between them, but will leave them where they have placed
themselves. This stems from the maxim "in pari delicto melior est
conditio possidentis": in the case of equal or mutual fault the
condition of the party in possession is the better one. Glover v.
540, 18 So. 251 (1894); King v. King, 61
7. An impressive array of
ancient but authoritative Alabama case law has firmly established the
fraudulent conveyance principle that a conveyance made from a third
party to a wife, at the instance of her husband, who paid the
consideration therefor, is void as against the latter's existing
creditors. Such conveyances are in equity regarded in the same light as
if they had been made directly from the husband as grantor to the wife. Smith's
Executor v. Cockrell, 66 Ala. 64 (1880); Peevey v. Cabiness,
70 Ala. 253 (1881); Stoutz v. Huger, 107 Ala. 248 (1895); Kelley
v. Connell, 110 Ala. 543 (1895); Southern Home Building &
Loan Ass'n v. Riddle, 129 Ala. 562 (1901); Wimberly v. Montgomery
Fertilizer Co., 132 Ala. 107 (1901); John Silvey & Co. v.
Vernon, 153 Ala. 570 (1907); Elam v. A.P. Brewer Lumber Co.,
176 Ala. 48 (1912); and Veal v. Whittemore, 176 Ala. 490 (1912).
8. While Martha A.
Boogaerts' assumption and agreement to pay (in her former name of Martha
A. Roberts which was not then her true name) the $25,556.76 unpaid
balance of the First Federal first mortgage indebtedness on the South
Sequoia Boulevard property as a part of the consideration moving Hensley
Construction Co., Inc. to execute and deliver to her in the name of
Martha A. Roberts the February 16, 1976 deed of conveyance to the
residential real estate in question would normally constitute a valid
and valuable consideration under the laws of the State of Alabama for
such conveyance, National Bank of Republic v. Dickinson, 107 Ala.
265, 18 So. 144 (1895), the complete failure of defendant Boogaerts to
prove that she was then or subsequently personally able (until the
property was rented by her upon the Glascocks' move to Louisiana in
September 1976) to pay such indebtedness negates what would otherwise be
considered and treated in the eyes of the law as valuable and
substantially adequate consideration for the conveyance. Where a
fraudulent conveyance is charged, the burden of proof that there was a
valuable and adequate consideration for the transfer rests upon the
grantee. Murphy v. Pipkin, 191
111 (1914); Alabama Credit Corporation v. Deas, 417 F.2d 135, 140
(5th Cir. 1969); Gordon v. Gorman, 436 So.2d 851, 854-855 (
1983). As a matter of fact, the Court has found as a fact from the
evidentiary record herein [Finding of Fact No. 16] this defendant's
personal financial inability to comply with the financial obligations
incurred by her on paper under the June 22, 1972 Real Estate Contract
(Government Exhibit No. 1), under the August 7, 1972 Lease-Sale Contract
(Government Exhibit No. 2) and under the February 17, 1976 deed of
conveyance (Government Exhibit No. 3). The record is replete with
unassailable proof of Martha Boogaerts' complete and total reliance upon
Glascock during this period for even her basic necessities of life. For
the lack of a better word, the Court will label this incurrence and
assumption of indebtedness as "paper consideration," here
holds that this evidentiary record shows that it was not worth the paper
on which it was written, and further holds that such mortgage assumption
under the facts here presented was not only not valuable but was in fact
and law substantially inadequate as against a creditor. See 6 A.L.R.2d
270: Annotation: "Assumption of mortgage as consideration for
conveyance attacked as in fraud of creditors." See generally, Roddam
v. Martin, 285
619, 623, 235 So.2d 657.
This evidentiary record
presents a conveyance of real property from a third party to the wife
but at the specific instance and direction of the husband who furnished
the entire consideration, although insolvent. 14
Under this state of facts, the Court concludes that the conveyance
should be scrutinized by the Court as one between husband and wife in
accordance with the teachings of the Supreme Court of Alabama. In Gurley
v. Blue Rents, Inc., 383 So.2d 531, 535 (Ala. 1980), a case in which
a creditor brought suit to set aside an alleged fraudulent conveyance
wherein husband debtor conveyed to wife his respective share in property
held by them as joint tenants with right of survivorship, the Alabama
Supreme Court gave clear directives for trial courts to follow in
considering a conveyance of the type now before the Court:
determined that the action was we find properly maintained, we now turn
our attention to the question of whether the trial court was correct in
finding that the present conveyance defrauded the appellee. In resolving
this issue, it is highly significant that we are dealing with a
conveyance of real property between husband and wife, one of whom was in
financial difficulty. Any time an alleged fraudulent conveyance involves
a husband and wife, the approach which must be taken by the court is
affected. Exactly how it is affected varies from state to state [In this
regard see Annot. 35 A.L.R. 2d 8 and 37 Am.Jur.2d Fraudulent
, the fact that a conveyance took place between a husband and wife does
not raise any presumption of fraud, nor does it represent a badge of
fraud. Instead, it alters the scrutiny with which the court must
consider the conveyance. In Umphrey v. Barfield, 238
11, 13, 189 So. 64, 65 (1939), this Court reasoned that ". . .
while this relationship [the husband-wife relationship] is not within
itself a badge of fraud, 'yet under all the authorities, supported by
reason and common sense,' transactions between persons occupying such
relationship are to be jealously watched and must be subjected to closer
scrutiny than would be required of a stranger." Thus, the very fact
that Mr. and Mrs. Gurley were the sole parties to the conveyance should
have completely changed the way in which the trial court viewed the
conveyance. It was essential that the conveyance be more closely
addition, the relationship of the parties necessitated a shift in the
burden of proof. This Court has held on numerous occasions that when a
husband conveys certain property to his wife and that conveyance is
attacked as a fraud on the husband's existing creditors, the wife bears
the burden of proving that the conveyance was based upon a valuable
consideration, substantial and not merely nominal. Smith v. Wilder,
637, 120 So.2d 871 (1960); Dutton v. Lindler, 238
363, 191 So. 210 (1939). The wife is thus laden with the initial
responsibility of proving the bona fide character of the underlying
reviewing the record and transcript of the trial, it is clear that the
trial court, hearing evidence ore tenus, did not approach the case in
the manner outlined above, but we find no error here. The trial court
required the appellee to carry the burden of proof in establishing fraud
in accordance with the requirements espoused by this Court in Roddam
v. Martin. 285
619, 235 So.2d 654 (1970). In doing so it determined that the appellee
had met its burden and further concluded that the appellants failed to
show the presence of any adequate consideration. Although the approach
thus taken by the trial court on who had the burden of proof was
incorrect because it placed an improper burden upon the appellee, we
hold that the appellants were not prejudiced thereby. After reviewing
the record, we find no clear or palpable error in the trial court's
determinations. We, therefore, affirm the trial court's finding that the
present conveyance perpetrated a fraud upon the appellee.
conformity with the mandate of Gurley v. Blue Rents, Inc., the
Court has closely scrutinized the conveyance here asserted by the United
States to be fraudulent in hinderance of its lawful claims and demands
against William D. Glascock, has in its deliberations shifted to the
wife (now known as Martha A. Boogaerts) the initial responsibility of
proving the bona fide character of the real estate transaction in
question, and has reached the finding and conclusion that defendant
Boogaerts abjectly failed to bear her burden of proving that the
February 17, 1976 conveyance was based upon a valuable consideration
supplied by her in her capacity as the then wife of defendant Glascock,
substantial and not merely nominal.
9. Applying the settled
legal principles of Alabama fraudulent conveyance law hereinabove set
out to the facts of this case heretofore found specially by the Court,
the Court concludes and holds that the overwhelming evidence in this
case proves the existence, presence and concurrence of the three
elements which Roddam v. Martin, supra, states to be essential
before a conveyance can be declared fraudulent under §8
-9-6 (Code 1975). Without question the
at all times here pertinent was a creditor [of Glascock] to be
defrauded. Without peradventure William D. Glascock, even by his own
admittance, intended to defraud the United States and his other
creditors from their lawful claims and demands against him and his
property by causing at his instance and direction the Real Estate
Contract of June 22, 1972 (Government Exhibit No. 1), the Lease-Sale
Contract of August 7, 1972 (Government Exhibit No. 2) and finally the
Deed of Conveyance of February 17, 1976 (Government Exhibit No. 3) to
each contain the name of Martha A. Roberts, first as his illicit
lover-purchaser, secondly as his paramour-lessee, and thirdly as his
wife-grantee. Finally, without dispute there was a conveyance of
property out of which the
, as creditor, could have realized its claims against Glascock, or some
portion thereof. It is indeed a happenstance that the equity value of
South Sequoia Boulevard
property is today worth far more than Glascock's equity value therein as
of the date of the execution and delivery of the February 17, 1976
fraudulent conveyance. Having found the three elements enumerated in Roddam
v. Martin to be here present and proved, the Court holds and
declares the February 17, 1976 deed of conveyance, the June 22, 1972
Real Estate Contract of Sale and purchase and the August 7, 1972
Lease-Sale Contract from Hensley Construction Co., Inc. to Martha A.
Roberts to be fraudulent under §8
-9-6 (Ala. Code 1975) and now further expressly finds and
holds, pursuant to the requirements of J. C. Jacobs Banking Co., Inc.
v. Campbell, supra, that this record abundantly shows that defendant
Boogaerts knowingly and wilfully, with full knowledge of Glascock's then
extreme financial distress and his intent to defraud the United States
and his other creditors by causing the South Sequoia Boulevard
residential property to be purchased by him but placed in her name for
the purpose of hindering and defrauding his creditors, including the
United States, and of preventing such creditors from being able to
realize their claims from the equity in the property, participated in
such fraudulent scheme with Glascock from June 22, 1972 to and including
at least the date on which Glascock and his wife moved to the State of
Louisiana September 1976, specifically including the date of February
17, 1976 on which the fraudulent conveyance was executed and delivered
to defendant Boogaerts (then Martha A. Glascock but using her former
name of Martha A. Roberts in business transactions). In other words,
there is in this evidentiary record powerful proof of the mutual
fraudulent intent of these defendants and their actual fraud respecting
the real estate transaction which this action attacks as fraudulent. And
now reiterating, the Court finds and holds that defendant Boogaerts
furnished only nominal consideration in this questioned transaction,
only her name . . . but not her true name. The Febraury 17, 1976 deed of
conveyance here found to be fraudulent and to have been executed,
delivered in violation of §8
-9-6 (Code Ala. 1975) is void as to William D. Glascock's
creditor, United States of America, and is due to be appropriately set
aside in such fashion that the title thereto will not revert to grantor
Hensley Construction Co., Inc. and that its public sale by the United
States Marshal for the Northern District of Alabama can be effected with
due dispatch after public notice as provided by law. The first mortgage
indebtedness of First Federal Savings and Loan Association of Florence
(including accrued interest) against such real property will be paid
from the first proceeds of such sale. Since the property is now occupied
by tenants under rental agreement with defendant Boogaerts all rentals
hereafter due from such tenants shall continue to be paid to Nadine
Darby, the real estate agent, who shall continue to make the First
Federal monthly mortgage payments from the rental fund until otherwise
directed by the Court and shall hold the balance of such funds in escrow
until further order of the Court. The occupancy rental rights of such
tenants shall be later terminated by order of the Court. The insurer of
such property shall be forthwith notified of the within memorandum of
decision and accompanying order.
An appropriate Order will
be entered in conformity herewith.
In conformity with
Memorandum of Decision entered contemporaneously in the above entitled
civil action, it is
ORDERED, ADJUDGED and
the June 22, 1972 Real Estate Contract of Sale and Purchase by and
between Hensley Contracting Co., Inc., as Seller, and Martha A. Roberts,
as Purchaser, wherein Seller agreed to sell and Purchaser agreed to
purchase for a consideration and on terms and conditions therein recited
Lot 151 in The Cedars, a subdivision in the City of Florence, Lauderdale
County, Alabama, according to plat thereof recorded in Plat Book 4 at
pages 50-51 in the Office of the Judge of Probate of Lauderdale County,
Alabama, commonly known as 119 South Sequoia Boulevard in the city of
Florence, Alabama [hereinafter referred to as "Lot 151 in The
Cedars"]; (2) the August 7, 1972 Lease-Sale Contract by and between
Hensley Construction Co., Inc., as Lessor, and Martha A. Roberts, as
Lessee, under the terms of which Lessor leased to Lessee and Lessee
hired and rented from Lessor that certain improved residential property
situated in the City of Florence, Lauderdale County, Alabama known as
Lot 151 in The Cedars for a term certain at stated rental and on recited
conditions, with option granted Lessee to purchase such real estate upon
her fulfillment of the terms and provisions of such lease-sale
agreement; and (3) the Deed of Conveyance dated February 17, 1976 by and
from Hensley Construction Co., Inc., as Grantor, to and with Martha A.
Roberts, as Grantee, conveying to such named Grantee that certain
improved residential real estate situated in the City of Florence,
Lauderdale County, Alabama known as Lot 151 in The Cedars for a
consideration therein recited, including Grantee's record assumption and
agreement to pay the then unpaid balance of the first mortgage
indebtedness on the property therein described to First Federal Savings
& Loan Association of Florence (hereinafter referred to as the
"February 17, 1976 deed of conveyance"), such February 17,
1976 deed of conveyance being recorded in Deed Book 1095 at pages 1152
and such First Federal mortgage being recorded in Mortgage Book 1043 at
pages 57-59 both in the Office of the Judge of Probate of Lauderdale
each hereby ADJUDGED and DECLARED to be fraudulent transactions and
conveyances made at the instance and direction of defendant William D.
Glascock with the knowledge and connivance of defendant Martha A.
Boogaerts then using the name of Martha A. Roberts for the purpose of
hindering, delaying or defrauding the plaintiff United States of America
in its then capacity as a substantial creditor of defendant Glascock,
all in violation of §8
-9-6 (Ala. Code 1975, predecessor statute Title 20 §7
(Code Ala. 1940)), that each such transaction and conveyance
hereinabove described is further hereby ADJUDGED and DECLARED to be VOID
as to plaintiff creditor United States of America, and that the record
fee simple title to and the legal and equitable ownership of the
described real estate which is the subject of such February 17, 1976
deed of conveyance, together with the appurtenances thereunto
appertaining, is hereby DIVESTED of record by decree of the Court under
its inherent powers first from and out of defendant Martha A. Boogaerts
(but in the name of Martha A. Roberts) and then from Hensley
Construction Co., Inc., a corporation, the respective designated grantee
and grantor in such void February 17, 1976 deed of conveyance and is
hereby simultaneously INVESTED in and to THOMAS C. GREENE, as United
States Marshal in and for the Northern District of the State of Alabama
who is herewith expressly AUTHORIZED, EMPOWERED and DIRECTED, in
addition to all powers conferred upon such United States Marshal by law,
to proceed with all due dispatch to sell subject real property, together
with all appurtenances thereunto appertaining, at public sale, free and
clear of all liens and encumbrances, including any and all federal tax
liens but excepting lien for current ad valorem taxes, to the highest
and best bidder for cash after first giving public notice of such sale
as provided by law and to thereafter execute and deliver to the
purchaser or purchasers thereof a good and merchantable title thereto by
proper deed of conveyance (subject only to lien for current ad valorem
taxes which shall be prorated as of date of closing), together with
quiet and peaceable possession to such property; provided, however, from
the proceeds of such sale the first mortgage indebtedness of First
Federal Savings & Loan Association of Florence hereinabove referred
to shall first be paid in full and next in succeeding order: (1) the
proper proration of ad valorem taxes; (2) cost of publication, cost of
insuring the improvements on such real estate against the hazard of loss
by fire and other customary hazards from the date hereof to the date of
conveyance to purchaser or purchasers, and other reasonable expenses of
sale; (3) court costs herein; and (4) the remaining balance of such
sales proceeds to be paid over to the plaintiff United States of America
for credit on the federal tax indebtedness owed the United States of
America by defendant Glascock (with application to first payment of such
tax penalties, interest and other items as duly prescribed by law).
A Supplemental Order will
be hereafter rendered and entered in the above entitled civil action
respecting: (1) notification of the entry of the within Order and
accompanying Memorandum of Decision to (i) First Federal Savings &
Loan Association of Florence; (ii) the present tenants of such property;
(iii) the present insurer of such property; (iv) Nadine Darby, real
estate rental agent; and (v) the Tax Assessor and Tax Collector of
Lauderdale County, Alabama; (3) the right of Nadine Darby, real estate
rental agent, to continue handling the rental of such property on a
short term basis for and on behalf of the United States Marshal on and
subject to the present rental terms and conditions, including monthly
rental, rental commission and the payment by such real estate rental
agent of the monthly mortgage payment to First Federal Savings &
Loan Association of Florence from the month to month rental funds
received by her from the tenants of such property; (4) the interception
by this Court as of the date hereof of any rental funds from the rental
of such property by defendant Martha A. Boogaerts through her Florence,
Alabama real estate rental agent now in the possession and control of
such real estate rental agent, for the use and benefit of plaintiff
United States of America in its capacity as a creditor of defendant
William D. Glascock; (5) the continuation of the present fire insurance
(plus other hazards) policy covering the improvements on such property
in the name of the United States Marshal, with First Federal Savings
& Loan Association of Florence named therein as first mortgagee, as
its interest may appear, and the authorized payment by the United States
Marshal of the premium therefor; (6) the right of the plaintiff United
States of America in its capacity as a creditor of defendant William D.
Glascock to have and receive any and all net rentals from
authorized rent interception and from the authorized rental of such
property from the date hereof to the date of the authorized conveyance
of such property by the United States Marshal to the purchaser or
purchasers of such property at the authorized public sale; and (7) any
other lawful matters.
DONE and ORDERED this 26th
day of March, 1986.
The within Order of the
Court entered in the above entitled civil action is supplemental in
nature to the Order of the Court entered herein on March 26, 1986 which
accompanied the Memorandum of Decision in this cause dated March 26,
It is ORDERED, ADJUDGED and
DECREED as follows:
1. Any and all rental funds
[from the rental of the Florence, Alabama residential real estate
hereinafter described] presently in the possession and control of Ms.
Nadine Darby, 100 Darby Avenue, Florence, Alabama 35630, in her capacity
as real estate rental agent for defendant Martha A. Boogaerts regarding
the rental of the improved residential real estate legally known as LOT
151 in The Cedars, a subdivision in the City of Florence, Lauderdale
County, Alabama, commonly known as 119 South Sequoia Boulevard,
Florence, Alabama, are hereby INTERCEPTED by the Court for the ultimate
use and benefit of the plaintiff United States of America in its
capacity as a creditor of defendant William D. Glascock and Ms. Nadine
Darby is hereby DIRECTED and REQUIRED to forthwith pay over and transfer
such funds to Thomas C. Greene, United States Marshal, Northern District
of Alabama, Room 128, Federal Courthouse, Birmingham, Alabama 35203.
2. Ms. Nadine Darby is
hereby AUTHORIZED and EMPOWERED to continue handling the rental of the
real estate hereinabove particularly described on a short term basis [no
more than month-to-month] for and on behalf of the United States Marshal
of the Northern District of Alabama on and subject to the present rental
terms and conditions, including present monthly rental, 10% rental
commission, and the payment by her, as real estate rental agent, of the
monthly mortgage payment [including pro rata taxes and insurance] to
First Federal Savings & Loan Association of Florence from the month
to month rental funds received by her from the tenants of such property,
with all remaining net rentals to be forthwith forwarded by her each
month to the United States Marshal who shall hold the same for the
ultimate use and benefit of plaintiff United States of America in its
capacity as creditor of defendant William D. Glascock. Such real estate
rental agent is specifically authorized to continue renting such
property to the present tenants on and subject to the present rental
terms and provisions, including present monthly rental, but only on a
month to month basis, if they so desire.
3. The present fire
insurance policy [and insurance against other hazards] covering the
improvements on the above described real estate issued by Allstate
Insurance Company to defendant Martha A. Boogaerts with First Federal
Savings & Loan Association of Florence named therein as first
mortgagee as its interest may appear may be continued in force and
effect in the name of the new owner and insured, Thomas C. Greene,
United States Marshal, Northern District of Alabama, Room 128, Federal
Courthouse, Birmingham, Alabama 35203, with same mortgagee clause, by
the authorization of the Court here given until such property is sold at
public sale and thereafter conveyed to the purchaser or purchasers and
the premiums therefor may continue to be paid from escrow funds held by
First Federal Savings & Loan Association of Florence, as mortgagee.
Any refund due the insured by the insurer upon the cancellation of such
policy [which shall be effected simultaneously with the conveyance of
such property to the purchaser or purchasers thereof at public sale] of
any unearned premiums shall be refunded by the insurer to the United
States Marshal for the use and benefit of Plaintiff United States of
America in its capacity as creditor of defendant William D. Glascock.
4. Upon the public sale of
such property by the United States Marshal and its conveyance to the
purchaser or purchasers the first mortgage indebtedness of First Federal
Savings & Loan Association of Florence [including accrued interest
to date of payoff] shall forthwith be paid by the United States Marshal
in full from the first proceeds of such sale. Any and all unused escrow
funds then held by First Federal Savings & Loan Association of
Florence shall be paid over by such Association to the United States
Marshal for the use and benefit of plaintiff
United States of America
in its capacity as creditor of defendant William D. Glascock.
5. The United States
Marshal is expressly authorized and empowered to permit the continued
rental of such property by Nadine Darby, as real estate rental agent, as
hereinabove provided, and to authorize and pay for from rental funds any
necessary repair and maintenance to such property which is the
obligation of the owner under the rental agreement. Such United States
Marshal is further expressly authorized and empowered by the Court to
insure such property against fire loss and other standard hazards in at
least the amount presently insured and to cause or permit the premiums
therefor to be paid from the escrow funds of First Federal Savings &
Loan Association of Florence. Preference shall be given to Allstate
Insurance Company as the insurer of such property if such insurer is
agreeable to continuing the present policy at the present rate in the
name of the new owner, the United States Marshal.
It is further ORDERED that
a certified copy of the Order of the Court entered in the above entitled
civil action and accompanying the Court's Memorandum of Decision herein
dated March 26, 1986 (hereinafter referred to as "the March 26,
1986 Order") be forthwith filed by the Clerk of this Court in the
Office of the Judge of Probate of Lauderdale County, Alabama for
recording in the land records of such county, the costs thereof to be
paid by the Clerk and taxed as a part of the costs of this cause. And it
ORDERED that a certified
copy of such March 26, 1986 Order be forthwith mailed by the Clerk of
this Court by United States Mail properly addressed and postage prepaid
to: (1) Mr. Grady Ward, President, First Federal Savings & Loan
Association, 102 S. Court Street, Florence, Alabama 35630; (2) Tax
Assessor, Lauderdale County, Courthouse, Florence, Alabama 35630; (3)
Tax Collector, Lauderdale County, Courthouse, Florence, Alabama 35630;
(4) Ms. Nadine Darby, 100 Darby Avenue, Florence, Alabama 35630; (5)
Thomas C. Greene, United States Marshal, Northern District of Alabama,
Room 128, Federal Courthouse, Birmingham, Alabama 35203; (6) Norman and
Carol Jacobs, tenants, 119 South Sequoia Boulevard, Florence, Alabama
35630; and (7) Mr. Robert G. Maxwell, Allstate Insurance Company, 1206
Helton Drive, Florence, Alabama 35630. And if it is further
ORDERED that a copy of the
March 26, 1986 Order of the Court herein, a copy of the March 26, 1986
Memorandum of Decision herein and a copy of the within Order be
forthwith mailed by the Clerk to all counsel of record and to defendant
William D. Glascock, #00962017, Federal Prison Camp, Maxwell Air Force
Base, Alabama 36112. And it is further
ORDERED that a copy of the
within Order be forthwith mailed by the Clerk to: (1) Nadine Darby, 100
Darby Avenue, Florence, Alabama 35630; (2) tenants Norman and Carol
Jacobs, 119 South Sequoia Boulevard, Florence, Alabama 35630; (3) Mr.
Robert G. Maxwell, Allstate Insurance Company, 1206 Helton Drive,
Florence, Alabama 35630; (4) Mr. Grady Ward, President, First Federal
Savings & Loan Association of Florence, 102 South Court Street,
Florence, Alabama 35630; and (5) Thomas C. Greene, United States
Marshal, Northern District of Alabama, Room 128, Federal Courthouse,
Birmingham, Alabama 35203; and (6) all counsel of record in the above
entitled civil action.
DONE and ORDERED this 27th
day of March, 1986.
An inmate of the federal correctional facility known as Eglin Prison
Camp, Eglin Air Force Base, Florida, prior to and at the time of the
final bench hearing herein.
At the time of the filing of this lawsuit this defendant bore the name
of Martha A. Boogaerts via her third marriage. She will appear in this
saga under other surnames via prior marriages but the surname she uses
on specific occasions cannot be accepted as being the surname of her
Other defendants, being judgment creditors of William D. Glascock, were
sued herein. However, such other defendants have either been dismissed
or the Court has relegated their priority claim to a status inferior to
the lien claim of
Martha A. Boogaerts position in this litigation was amplified at the
October 29, 1982 pre-trial conference herein. ¶5(c) of the Pre-Trial
positions. Martha A. Boogaerts contends that the property involved
was purchased by her from Billy Hensley Construction Company. It is her
contention that William D. Glascock has never had any right, title, or
interest in said property and that both legal and equitable title to
said property are vested in her in fee simple absolute. The property in
question was purchased out of Martha A. Boogaerts' own personal funds
with the exception of the down payment which was supplied by William D.
Glascock. For a number of years William D. Glascock supported Martha A.
Boogaerts both prior to and during their marriage. It is irrelevant that
some of the funds used to purchase the house were provided to her by
William D. Glascock. Subsequent to that period, Martha A. Boogaerts has
personally provided all the funds which have been used to make payments
on the property in question. There was never existing any intent or
purpose to delay, hinder, or defraud the creditors of William D.
Glascock not [sic] did a fraudulent conveyance ever occur. In the
alternative, Martha A. Boogaerts contends that this action by the United
States Government is barred by the applicable statute of limitations and
the Equitable Doctrine of Laches."
Who by this date bore the legal name of Martha A. Glascock by virtue of
Rebecca divorcing William D. Glascock in April 1974 and Martha's
marriage to Glascock in
on May 16, 1974. This act of defendant Boogaerts in taking title to the
residential real estate in question in her former name, Martha A.
Roberts, deserves and receives the later attention of the Court in its
Findings of Fact, infra.
The Court notes that Glascock is still confined in a federal
correctional facility at Maxwell Field,
. This is an observation, not a finding of fact.
28 U.S.C. §1340 provides in pertinent part: "The district courts
shall have original jurisdiction of any civil action arising under any
Act of Congress providing for internal revenue, . . ."
28 U.S.C. §1345 provides:
"Except as otherwise provided by Act of Congress, all district
courts shall have original jurisdiction of all civil actions, suits or
proceedings commenced by the United States, or by any agency or officer
thereof expressly authorized to sue by Act of Congress.
The Court has found that the evidentiary record that the unpaid balance
of such mortgage at the time of the execution and delivery of the deed
(and thus at the time of assumption) was $25,556.76 (Finding of Fact §7
Section 6672 makes a responsible officer liable for the unpaid taxes
withheld by a corporation for its employees. Section
3402 and accompanying regulations prescribe the method for
calculating withholding taxes. The regulations issued pursuant to Section
6302(a) provide the rules for payment. Generally, those taxes
are due within 30 days of the quarter the monies are withheld for.
The Eleventh Circuit, in the en banc decision Bonner v. City of
Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981), adopted as
precedent decisions of the former Fifth Circuit rendered prior to
October 1, 1981.
The Government's substantive rights in this case are precisely those
which other creditors would have under
The Alabama Supreme Court in Smith v. Wilder, 270
637, 120 So.2d 871 (1960), discussed hereafter, acknowledges that
historically the law of fraudulent conveyances in
laws has been marked by confusion and uncertainty.
court overruled Smith v. Wilder to the limited extent that Wilder
requires actual proof of the grantor's fraudulent intent before a
conveyance may be partially set aside because made for substantially
Under normal circumstances the wife-grantee's assumption and agreement
to pay an existing mortgage on the real property which was the subject
of the alleged fraudulent conveyance would constitute a valuable
law. However, the court has ruled otherwise here for the reasons
United States of America
, Plaintiff v. Irving R. Hoffman, et al., Defendants
District Court, East.
Dist. Wis., 84-C-1574, 8/28/86, 634 FSupp 346
Tax claims-bankruptcy: Discharge of debt.--An individual's tax
debt for two years was nondischargeable in bankruptcy because his tax
debt resulted from the failure to file a return and from a willful
attempt to defeat or evade tax payment. The individual mailed an
unsigned return with meritless objections stamped throughout for one of
the years at issue and failed to file any return for the second year.
Civil suits: Action to enforce lien: Res judicata.--The district
court found that the Tax Court's determination of an individual's tax
liability reduced to assessment was res judicata in the district court's
proceeding. The district court rejected the individual's claim that the
IRS reopened the question of the validity of the his tax deficiency by
initiating the action to reduce outstanding federal tax assessments plus
statutory additions to judgment, to foreclose tax liens against certain
real property, and to obtain, if necessary, a deficiency judgment
6321 , 6334
Collection: Lien for taxes: Homesteaded property: Civil suits: Action
to enforce lien: Foreclosure: Awarding of court costs: Awards.--The
district court ruled that the federal tax liens which attached to all
property and rights to property belonging to the individual attached to
the family home which had been fraudulently conveyed to a family trust.
Moreover, the court ruled that the lien existing in favor of the
and attaching to such property would be foreclosed and the property
sold. By applying state law (
), the court found that the individual's interest in the family home had
been fraudulently conveyed to the family trust because such conveyance
rendered him insolvent and he had received no meaningful consideration
in return for such conveyance. Moreover, the district court noted that a
state court had already come to the same conclusion and that the
individual was estopped from denying ownership of the home. Further, the
court ruled that the individual's family home was not exempt from levy
for collection of federal taxes owed due to the fact that it was
homestead property. Code Sec.
6334 enumerates the types of property exempt from federal tax
liens and homestead property was not one of the types so enumerated.
Finally, the IRS's request for attorney's fees was denied because the
court was not persuaded that the individual's position was patently
frivolous. However, the IRS was allowed to recover its costs.
Collection: Seizure of property: Return of property: Effect of
release.--The fact that the IRS had once levied upon an individual's
homestead property and subsequently released its levy did not preclude a
subsequent levy upon the same property. A release of the levy did not
operate to prevent any subsequent levy.
Francis D. Schmitz,
Assistant United States Attorney, Milwaukee, Wis., Mary Bielefeld,
Department of Justice, Washington, D.C. 20530, for plaintiff. Joseph W.
622 North Water Street
, for defendants.
GORDON, Senior Judge:
The United States filed
this action pursuant to 28 U.S.C. §§1340 and 1345 and 26
to reduce outstanding federal tax assessments plus statutory
additions to judgment, to foreclose tax, liens against certain real
property, and to obtain, if necessary, a deficiency judgment against the
also seeks attorneys' fees and costs. Following a stay resulting from
the defendants' petition to and ultimate discharge in bankruptcy court,
a trial to the court was held on July 28-29, 1986.
Based on the testimony and
other evidence elicited at trial, I find that the defendants are liable
for outstanding taxes, statutory additions and interest in the amount of
$46,321.01 plus interest and penalties accruing since June 30, 1984.
Furthermore, I find that a lien arises in favor of the
in the amount of the unpaid balance of assessment made against Irving
Hoffman, including real property conveyed by Irving Hoffman to the
Irving R. Hoffman Family Equity Pure Trust.
Irving Hoffman filed an
unsigned, incomplete tax form for the tax year 1974. This form 1040 was
stamped "OBJECT, 5TH AMEND. U.S.C." in numerous places and
submitted along with many attachments, including portions of the Magna
Carta. Mr. Hoffman failed to file any semblance of a tax return for the
1975 tax year. In the absence of proper returns for either 1974 or 1975,
the Internal Revenue Service reconstructed Mr. Hoffman's income for
these years and concluded that he owed taxes of $12,164 for 1974 and
$10,596 for 1975. The IRS also concluded that Mr. Hoffman owed statutory
additions to taxes exceeding $6,900. Mr. Hoffman sought review of these
computations in the
The tax court judge
concluded that Mr. Hoffman failed to offer sufficient evidence to
dispute the IRS determination. Accordingly, a judgment reflecting this
decision and the IRS determinations was entered on October 13, 1982. On
February 11, 1983, a delegate of the secretary of the treasury made an
assessment for the deficiencies in federal income tax and additions
thereto in the amount determined by the tax court. Interest on the tax
court's figure was also assessed for 1974 and 1975 resulting in a total
assessment of $43,140.76.
Despite the tax court's
decision and a series of notices from the IRS, Irving Hoffman refused to
pay. The IRS proceeded to take enforcement action. In filing notices of
federal tax liens against all property owned by Mr. Hoffman, the IRS
learned that Mr. Hoffman had transferred all of his property into trust.
Most significant to the case now before me is the fact that on January
30, 1976, Irving Hoffman transferred and conveyed all of his interest in
the Hoffman family home in Racine, Wisconsin, to Ann Hoffman and Dennis
Hoffman, trustees for the Irving R. Hoffman Family Equity Pure Trust.
Mr. Hoffman received a receipt for property held in trust in exchange
for his conveyance. This conveyance rendered Mr. Hoffman insolvent.
In its continuing effort to
collect back taxes from Mr. Hoffman, the IRS imposed a levy on the
Hoffman family home. A sealed bid auction was held on the house but no
bidders would pay a fair price; on December 2, 1983, the levy was
released. Still other methods were employed by the IRS to secure payment
from Irving Hoffman. Notices of levy were served on the banks where the
Hoffman trust held checking accounts. Approximately $5,800 was secured
by virtue of this procedure. However, the IRS, unsuccessful in
satisfying the remainder of the Hoffman deficiency, ultimately turned to
this court for relief pursuant to 26 U.S.C. §7403
by filing an enforcement action on December 17, 1984.
Only days before trial,
defendants filed a motion to dismiss this action on grounds that the
claim for back taxes was discharged in bankruptcy. Although back taxes
more than three years overdue at the time of discharge in bankruptcy are
generally deemed dischargeable, the bankruptcy code does not discharge a
tax debt resulting from the failure to file a return or from a willful
attempt to defeat or evade tax payment. 11 U.S.C. §523(a)(1). This
statutory provision renders Mr. Hoffman's 1974 and 1975 tax debt
nondischargeable. In 1974, Mr. Hoffman mailed an unsigned return with
meritless objections stamped throughout; in 1975, Mr. Hoffman failed to
file any return at all. His consequent tax liability cannot be
discharged. I, therefore, must deny defendants' motion to dismiss.
The defendants' tax
liability has already been determined by the tax court; it is not ripe
for reconsideration in this action. Generally "if a claim of
liability or non-liability relating to a particular tax year is
litigated, a judgment on the merits is res judicata as to any subsequent
proceeding involving the same claim and the same tax year." Commissioner
of Internal Revenue Service v. Sunnen [48-1 USTC ¶9230 ], 333 U.S. 591, 598 (1948).
Relying only on United
States v. O'Connor [61-2
USTC ¶9495 ], 291 F.2d 520 (2d Cir. 1961), the defendants
attempt to contravene this general rule by asserting that when the
United States initiated this action, it reopened the question of the
validity of the Hoffman tax deficiency. I disagree. In O'Connor,
jeopardy assessments, entered without a tax court judgment, were sought
to be enforced by the
pursuant to 26 U.S.C. §7403
. In that situation, the court held, assessments are open to
judicial scrutiny. O'Connor, supra, 291 F.2d at 527. By contrast,
in the instant case, a full hearing in tax court has already resulted in
a determination of a tax deficiency on the part of the Hoffmans.
Pursuant to Sunnen, supra, the tax courts findings for the years
1974 and 1975, reduced to assessment, are res judicata in this
Even if the validity of
Irving Hoffman's liability were open to scrutiny in this court, my
ultimate conclusion on this issue would be the same. Certificates of
assessments and payments, once introduced, are presumptively correct. Welch
v. Helvering [3
USTC ¶1164 ], 290 U.S. 111, 115 (1933); Frick v.
Phillips, 518 F. Supp, 1329, 1331 (E.D. Wis. 1981). The defendants
have failed to produce any competent evidence to overcome this
presumption. Therefore, the IRS determinations have not been disproved.
In light of his federal tax
liability, the court may order foreclosure on any property in which
Irving Hoffman has an interest in order to facilitate collection of
taxes due. 26 U.S.C. §7403
. Ascertaining the taxpayer's rights in certain property for
purposes of foreclosure under §7403
is determined by state law. Slodov v. United States [78-1
USTC ¶9447 ], 436 U.S. 238, 256 n.19 (1978); National
Bank & Trust Co. v. United States [79-1 USTC ¶9101 ], 589 F.2d 1298, 1302 (7th Cir. 1978). Thus,
turning to Wisconsin law, I find that the conveyance by Irving Hoffman
of his property interest in the family home on Indiana street to the
Hoffman family trust was fraudulent and should be set aside pursuant to
Wis. Stat. §242.09.
law, a Wisconsin court has already come to the same conclusion, and Mr.
Hoffman is now estopped from denying ownership. The doctrine of
collateral estoppel relieves parties of the burden of relitigating
identical issues and promotes judicial economy by preventing needless
litigation. Allen v. McCurry, 449
322, 326. Mutuality of parties is not required in order for the doctrine
to apply. Blonder-Tongue Laboratories, Inc. v.
Thus, although the United
States was not a party to the state action, the following factors
support application of the doctrine of collateral estoppel to the
instant case: (1) there was a final determination on the merits by the
Racine County Circuit Court; (2) Irving Hoffman had a full opportunity
to address the ownership issue in the state action; (4) Irving Hoffman
was represented by counsel; and (5) the ownership issue in the state
action is identical to the ownership issue in this case. See
Continental Can Company v.
, 604 F.2d 590 (7th Cir. 1979).
Even if Mr. Hoffman were
not collaterally estopped from disputing the fraudulent nature of the
conveyance at issue, enough evidence has nevertheless been presented in
the course of this action to warrant such a finding. Indeed, in a
situation where a taxpayer disposes of property prior to the existence
of federal tax liens, the
may seek relief under the fraudulent conveyance law of the particular
state in which the property and taxpayer are located. Commissioner v.
Stern [58-2 USTC ¶9594 ], 357 U.S. 39 (1958); United States v.
USTC ¶9459 ], 433 F.Supp. 459 (S.D.
, fraudulent conveyance law is set forth in chapter 242 of the
statutes. "Every conveyance made . . . by a person who is or will
be thereby rendered insolvent is fraudulent as to creditors without
regard to his actual intent if the conveyance is made . . . without a
In the instant case, it is
not disputed that the conveyance rendered Irving Hoffman insolvent. In
addition, Irving Hoffman received no meaningful consideration in return
for his conveyance to the trust. All that was received in exchange for
his conveyance to the trust was a receipt for trust property. This
receipt cannot fairly be construed as a "fair equivalent for said
Stat. §242.03. See also Running v. Widdes, 52 Wis.2d 254 (1971)
(holding that the definition of fair consideration under the terms of
the fraudulent conveyance statute be given construction which benefits
creditors, not grantees).
Because the transaction of
January 30, 1976, rendered Irving Hoffman insolvent and was made without
fair consideration, I conclude that the conveyance was fraudulent as to
the United States pursuant to Wis. Stat. §242.04 and is, therefore,
void and shall be set aside.
Stat. §242.09. Consequently, federal tax liens, attaching to all
property and rights to property belonging to Irving Hoffman, may attach
to the Hoffman family home fraudulently conveyed to the Hoffman Family
Trust on January 30, 1976. Moreover, the lien existing in favor of the
and attaching to Irving Hoffman's property shall be foreclosed and the
Defendants contend that
even if ownership interest in the Hoffman family home is determined to
vest in Irving Hoffman, foreclosure is improper because the home is
exempt homestead property. Even though homestead property might be
exempt under state law from the claims of private creditors, "[n]o
provision of a state law may exempt a property from levy for the
collection of federal taxes owed." Treas. Reg. on Proc. and Admin. §301.6334-1(c)
. Only 26 U.S.C. §6334
enumerates the types of property exempt from federal tax
liens; nowhere on this list does homestead property appear. "[T]he
. . . homestead exemption does not erect a barrier around a tax payer
sturdy enough to keep out the Commissioner of Internal Revenue." United
States v. Estes [71-2 USTC ¶9677 ], 450 F.2d 62, 65 (5th Cir. 1971). See
also United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677 (1983).
Thus, the state homestead
exemption does not protect defendants from foreclosure. Moreover, the
fact that the IRS once levied upon the Hoffman homestead and
subsequently released its levy does not preclude another foreclosure
attempt at this time. Release of the levy "shall not operate to
prevent any subsequent levy." 26 U.S.C. §6343(a)
. See also Stewart Title & Trust v. Ordean [76-1
USTC ¶16,214 ], 528 F.2d 844 (9th Cir. 1976) (government's
release of levy on escrow account did not operate to exempt levy
pursuant to civil action under section
7403 ). In sum, I am persuaded that the
is entitled to foreclosure of the Hoffman homestead.
To the extent that proceeds
from the sale of the property are insufficient to satisfy the claim of
against Irving Hoffman, the
shall have a deficiency judgment in the amount of the unpaid tax plus
requested attorney's fees in this case. Despite my holding in favor of
the government, I am not persuaded that the defendants' position is
patently frivolous so as to warrant imposition of fees pursuant to 28
U.S.C. §§1927 and 2412(b). Cf. Lovell v. United States [84-1
USTC ¶9298 ], 579 F.Supp. 1047 (W.D. Wis. 1984); Schultz
v. Stark [83-2 USTC ¶9542 ], 554 F.Supp. 1219 (E.D. Wis. 1983). The
shall, however, recover its costs.
Therefore, IT IS ORDERED
that defendants' motion to dismiss on grounds of discharge in bankruptcy
be and hereby is denied.
IT IS ALSO ORDERED that the
plaintiff have and recover of the defendant, Irving R. Hoffman, judgment
in the amount of $46,321.01, representing the defendant's deficiency as
of June 30, 1984, together with costs and disbursements as taxed by the
clerk of court.
IT IS FURTHER ORDERED that
the plaintiff have and recover of the defendant, Irving R. Hoffman,
interest on the assessed deficiency of $46,321.01, accruing from June
30, 1984, until the date of judgment and properly calculated by a
delegate of the secretary of the treasury pursuant to 26 U.S.C. §6601
. Such calculation shall be submitted to the clerk of this
court on or before September 22, 1986.
IT IS FURTHER ORDERED that
the federal tax lien arising from the unpaid federal tax liability of
the defendant, Irving R. Hoffman, shall attach to the real property
2319 Indiana Street
, more particularly described as follows:
Single family frame house
2319 Indiana St.
76' by 135', House 24' by 301/2' with 16' by 30' Addition.
and 10, Block 23, Doris Park Addition, according to the recorded plat
Said Land being in the City
IT IS FURTHER ORDERED that
the federal tax lien attaching to the above-described property be
foreclosed and the property sold at auction in accordance with 26 U.S.C.
IT IS FURTHER ORDERED that
the proceeds of such sale be paid to the plaintiff to be applied towards
the satisfaction of the unpaid federal tax liability of the defendant,
Irving R. Hoffman.
IT IS FURTHER ORDERED that
the plaintiff have a deficiency judgment against the defendant for any
portion of the indebtedness of Irving R. Hoffman remaining unsatisfied
after disposition of the proceeds of the above-described property.
IT IS FURTHER ORDERED that
the plaintiff's request for attorney's fees be and hereby is denied.
IT IS FURTHER ORDERED that
the entry of the entire judgment in this case be withheld by the clerk
of this court until the interest factor referred to above is determined
so that a single judgment may be entered.
United States of
, Plaintiff v. Leonhard and June Wodtke, Individually and as Trustees
for Life Science
Church of Oto
, and Order of Almighty God, Oto, Iowa, John Hancock Mutual Life
Insurance Company, Defendants
District Court, N.D.
. W. D., C 82-4004, 12/26/85, 627 F.Supp. 1034.
Records required to be kept: Substantiation of deductions.--The
assessment of taxes made against the taxpayer was presumptively correct
where she failed to make available proof of the amount of her
6321 and 6502
Lien for taxes: Fraudulent conveyance: Collection period for
assessment: Suspension of collection period.--Real and personal
property purportedly transferred by the taxpayers to the Life Science
Church remained subject to federal tax liens against the taxpayers and
could be levied on the satisfy their tax liabilities because the
transfer was fraudulent. The "church" was actually the
"alter ego" of the taxpayers, who retained control over the
property and who made the transfer in an attempt to leave themselves
with no assets to pay their present and future tax liabilities. Also,
the collection on the lien was not barred by the six-year collection
period since the government filed suit to reduce the tax assessments
against the taxpayers to judgment within the six-year period.
Asher E. Schroeder,
Assistant United States Attorney, Sioux City, Ia. 51102, David A.
Slacter, Department of Justice, Washington, D.C. 20530, for plaintiff.
Leonhard and June Wodtke, Oto, Ia. 51044, pro se, Willis A. Buell, 830
Frances Bldg., Sioux City, Ia., for John Hancock Mutual Life Ins. Co.,
Mark Bennett, Allen, Babich & Bennett, 5835 Grand Ave., Des Moines,
Ia. 50312, for defendants.
OF FACT, CONCLUSIONS OF LAW, MEMORANDUM DECISION AND ORDER
O'BRIEN, Chief Judge:
This matter comes before
the Court after a three-day trial to the Court. The Court finds for the
United States of America
. The Court hereby makes the following Findings of Fact and Conclusions
1. This matter came on for
trial. Plaintiff, the
, was represented by David A. Slacter and Asher E. Schroeder. Defendants
Leonhard and June Wodtke appeared pro se and Defendant John
Hancock Mutual Life Insurance Company (John Hancock) was represented by
2. Plaintiff instituted
this action to reduce tax assessments made against Leonhard and June
Wodtke to judgment. The plaintiff also sought to foreclose its tax liens
against certain real property, a farm owned by Leonhard and June Wodtke.
3. Leonhard and June Wodtke
are husband and wife residing on a 300-acre farm in Oto,
, in the
4. The Wodtkes purchased
this farm in 1954. (Plaintiff's Exh. 10).
5. The Wodtkes obtained a
mortgage from John Hancock in order to purchase the farm. (Defendants'
Exh. 102). As of the day prior to trial, the outstanding balance due on
the mortgage with interest and attorneys' fees was $20,557.75. Interest
continues to accrue on this amount.
6. During the years 1973
and 1974, the Wodtkes derived income from their farm and a gasoline
service station operated by Leonhard Wodtke.
7. The Wodtkes filed timely
tax returns for 1973 and 1974 and paid the amount of tax shown to be due
and owing on these returns. (Plaintiffs Exhs. 6 and 7).
8. In January of 1975,
Revenue Agent John Mansfield of the
office of the Internal Revenue Service was assigned to audit the
Wodtkes' tax returns for the years 1973 and 1974.
began working on the audit in early July of 1975 at which time he wrote
a letter to the Wodtkes informing them of the audit.
began his audit shortly thereafter. The Wodtkes refused to supply
substantiation for the deductions they claimed on their tax returns.
had to leave
for additional training, the audit was taken over by Revenue Agent
Robert Ackerman, also of the Sioux City Internal Revenue Service office.
12. Mr. Ackerman served an
Internal Revenue Service summons on the Wodtkes which asked them to
produce all records and other documents which substantiated the
deductions claimed on their tax returns for 1973 and 1974.
13. The Wodtkes refused to
comply with the summons based on Fifth Amendment grounds. The United
States District Court for the Northern District of Iowa ultimately
determined that the Wodtkes had interposed the Fifth Amendment in good
faith and they therefore did not have to produce any records.
returned from training by the time the summons issue was decided. In
order to complete his audit he used the information left that was
available. This information included a letter from Standard Oil listing
the amount expended by the Wodtkes during 1973 and 1974 for gasoline and
other products and for rent.
also had some employment tax forms which were produced by the Wodtkes.
15. Because the Wodtkes
refused to supply any further substantiation of expenses, Mansfield
disallowed all deductions claimed by the Wodtkes on their tax returns
for these two years other than the deductions substantiated by the
documents he did have.
authored a report which set forth the results of his audit. This report
broke down each of the two years into farm and service station expenses.
In each area,
disallowed all business deductions claimed by the Wodtkes other than
those substantiated by written documentation.
's stated reason for so doing was the Wodtkes' failure to produce any
written substantiation for their deductions. (Plaintiff's Exh. 2).
's audit report was incorporated into a notice of deficiency mailed to
the Wodtkes by certified mail on March 21, 1977. (Plaintiff's Exh. 1).
18. The notice of
deficiency proposed deficiencies for the years 1973 and 1974 as follows:
Year Addition to Tax Negligence Penalty
1973 ................................. $ 70,787.60 $ 3,539.38
1974 ................................. 95,865.62 4,793.28
The notice of deficiency was essentially the same as Mansfield's audit
report except that certain math errors were corrected and a penalty for
negligence or intentional disregard for rules and regulations was
imposed pursuant to §6653(a) of the Internal Revenue Code.
19. Mr. Wodtke filed a
timely petition with the United States Tax Court to contest the audit
determination of the Internal Revenue Service.
20. Mrs. Wodtke did not
petition the Tax Court.
21. The Internal Revenue
Service is precluded by statute from assessing taxes proposed in a
notice of deficiency for 90 days after mailing of the notice. This is to
give a taxpayer time to petition the Tax Court. If a petition is filed,
the taxes cannot be assessed until after the Tax Court decision is
22. The Internal Revenue
Service assessed the taxes proposed in the notice of deficiency against
Mrs. Wodtke after the expiration of the 90-day period on August 24, 1977
Year Tax Penalty Interest Lien Fees
1973 $70,787.60 $3,539.38 $16,621.99 1
1974 95,865.62 4,793.28 16,758.75 --
23. Later, because there
was some confusion as to whether Mrs. Wodtke had also filed a petition
with the Tax Court or whether Mr. Wodtke's petition included Mrs.
Wodtke, the Internal Revenue Service abated the taxes assessed against
Mrs. Wodtke. This abatement occurred on July 19, 1977.
24. Later, the Internal
Revenue Service determined that the petition filed by Mr. Wodtke only
covered Mr. Wodtke's liability and not that of Mrs. Wodtke. The Internal
Revenue Service then reassessed the taxes against Mrs. Wodtke on August
24, 1977. (Plaintiff's Exh. 4).
25. Mr. Wodtke was accorded
a hearing by the Tax Court in
. Mrs. Wodtke, Revenue Agent Mansfield and others were present.
26. By decision dated
November 21, 1978 the Tax Court upheld the notice of deficiency. The
Eighth Circuit affirmed on appeal in an unpublished opinion.
(Plaintiff's Exh. 3).
27. The Internal Revenue
Service assessed taxes against Mr. Wodtke on August 10, 1979 for the
years 1973 and 1974 as follows:
Year Tax Penalty Interest Lien Fees
1973 $70,787.60 $3,539.38 $22,545.85 2
1974 95,865.62 4,793.28 24,781.27 --
(Plaintiff's Exh. 5).
28. The Internal Revenue
Service filed notices of federal tax liens against all property and
rights to property belonging to the Wodtkes with the Office of the
. A tax lien was filed with respect to Mrs. Wodtke on February 20, 1980
and against Mr. Wodtke on the same day. A second tax lien was filed with
respect to Mr. Wodtke on July 31, 1980 to correct the spelling of his
first name. 3
29. As of July 29, 1985,
Mr. Wodtke was indebted to the
in the amount of $442,625.08. This amount includes the amount of his
assessment, plus interest of $101,812.71 for 1973 and $137,601.73 for
1974 together with penalties for each year.
30. As of July 29, 1985,
Mrs. Wodtke was indebted to the
in the amount of $447,031.75. This total includes the amount of her
assessment, plus interest of $103,517.77 for 1973 and $139,910.87 for
1974 together with penalties for each year.
31. Interest continues to
accrue on the amounts by which the Wodtkes are indebted to the
at the rate specified by law.
32. On December 7, 1976,
Mr. Wodtke executed a "vow of poverty" by which he purported
to give all of his present and future possessions and all income to an
Order of the
called The Order of Almighty God, Alpha Chapter. The gift stated it was
irrevocable except provided that all property would revert to the donor
if certain events occurred. (Defendants' Exh. B, p. 1).
33. Approximately one year
later, on December 27, 1977, Mrs. Wodtke executed a similar
"vow." By her vow, Mrs. Wodtke purported to give
"all" of her property to The Order of Almighty God 904,
Chapter. (Defendants' Exh. B, p. 2).
34. The Wodtkes testified
that these various names were all synonyms for the Life Science Church
of Oto, Iowa.
35. The Wodtkes each
testified that the Church had documents describing its existence and
purpose but declined to produce such documents or state where such
documents were located. The Court concludes that the Church has never
36. The Wodtkes testified
that the Church was run by a board of directors and a number of
trustees. However, the Wodtkes declined to name any of these
individuals. The only names ever appearing on documents relating to the
Church are Leonhard and June Wodtke.
37. By two quit claim deeds
dated December 31, 1977, the Wodtkes purportedly transferred to
themselves as Trustees of the Life Science Church of Oto, Iowa, and the
Order of Almighty God, a portion of their 300-acre farm for the recited
consideration of $1.00. There was no other consideration for the
transfer; therefore, the transaction lacked sufficient consideration.
(Plaintiff's Exh. 9, p. 1).
38. By quit claim deed
dated September 13, 1978, the remainder of the farm purportedly was
transferred to the Church and Order. Again, the deed recited token
consideration of $1.00; there was insufficient consideration for the
transfer. (Plaintiff's Exh. 9, p. 3).
39. The three deeds
affecting title to the farm were recorded in the Woodbury County
Recorder's office on September 14, 1978. (Plaintiff's Exh. 9).
40. In August of 1978,
Special Agent James Whelan of the Internal Revenue Service attended a
. The speaker discussed setting up one's own church and taking a vow of
poverty in order to avoid payment of income taxes.
41. Mr. Whelan was present
pursuant to an investigation of a third party. By coincidence, he
happened to sit next to Mr. Wodtke. At the end of the seminar, Mr. and
Mrs. Wodtke encouraged Mr. Whelan to set up his own church and take a
vow of poverty in order to avoid payment of federal taxes. Mr. Wodtke
represented that he had done those very things in order to avoid payment
42. The Wodtkes' residence
is located on the farm. They continued to reside there both before and
after the purported conveyance to the Church and live there at the
present time. Throughout this proceeding, the Wodtkes referred to the
property as the "Wodtke farm."
43. Both before and after
the purported conveyance to the Church, the Wodtkes and their family
made all decisions affecting the farm. These decisions included what to
plant, how much of each crop to plant, when to plant, when to harvest
and when to sell.
44. After the transfer, the
Wodtkes testified that a board of directors controlled the farm. The
Wodtkes would not testify who these board of directors were although
they did admit that initially they alone controlled the farm.
45. No individuals other
than the Wodtkes are identified as having a say in Church affairs. The
Court concludes that the Wodtkes have failed to persuade the Court that
anyone but themselves operate the farm.
46. Both prior to and after
the purported transfer of the farm, the Wodtkes belonged to the National
Farmers Organization (NFO), a group that assists farmers in selling
their crops. The NFO sells the crops and remits the proceeds to the
farmer. Both prior to and after the purported transfer, Leonhard Wodtke
continued receiving payment in his own name. This only changed after
June Wodtke began working for the NFO in November of 1977. Initially,
Mrs. Wodtke, as a signatory on checks written by the NFO, wrote checks
payable to Leonhard Wodtke individually. This continued through November
of 1979. Thereafter, she wrote checks out to the Life Science Church.
(Plaintiff's Exh. 16).
47. Through December of
1977, Mr. Wodtke endorsed the NFO checks in his own name. Thereafter,
whether made payable to him or the Church, the checks were endorsed
"Life Science Church" except in those instances where the
checks were endorsed over to third parties in which case Mr. Wodtke
signed his own name. (Plaintiff's Exh. 16).
48. The Wodtkes deposited
the NFO checks in a Life Science Church account at Mapleton Trust and
Savings Bank. Leonhard and June Wodtke were the only individuals with
signature authority on this account. (Plaintiff's Exh. 17).
49. Both prior to and after
the conveyance, the Wodtkes controlled the farm and enjoyed the fruits
of their labors. The proceeds of farm crops went to the benefit of the
Wodtkes and their family.
50. After the Wodtkes
purportedly transferred all of their real and personal property to
themselves as Trustees for the Life Science Church, they continued to
retain beneficial enjoyment of all the property purportedly transferred.
51. The Wodtkes control all
disbursements from the income earned by the farm. They have controlled
such disbursements from the time of the purported conveyance until the
52. The Wodtkes use funds
purportedly belonging to the Church to provide all of their necessities,
including food, heat, electricity and clothing. Food and clothing is
paid for out of a so-called $100.00 monthly allowance given the Wodtkes
from the Church. The Church funds come from funds earned by the Wodtkes
in their farming operation.
53. After the purported
conveyance to the Church in 1977, Mr. Wodtke applied for and received
from at least 1975 to 1981 crop insurance through the Federal Crop
Insurance Corporation (FCIC) in his own name. At all times the farm was
listed as being owned by Leonhard and June Wodtke. The Wodtkes never
notified the FCIC of a change in ownership. Mr. Wodtke made repeated
contract changes throughout the years in his own name. On January 17,
1981, the FCIC mailed Mr. Wodtke a check for $1,929.17 for a 1980 crop
year loss he suffered. Previously, Mr. Wodtke had failed a claim for
indemnity in his own name. (Plaintiff's Exh. 15).
54. Mr. Wodtke also
participated in a program sponsored by the Agricultural Stabilization
and Conservation Service (ASCS). Under this program, farmers received
payments for low yields. Mr. Wodtke submitted crop yield information to
the ASCS from 1975 through 1981 although he only participated in the
ASCS program in 1980. ASCS records list Leonhard Wodtke as the owner and
operator of the farm. In 1981, Mr. Wodtke received a check in his own
name for $196.73 from the ASCS because of his low yields for the 1980
crop year. (Plaintiff's Exh. 14).
55. Mr. Wodtke also farmed
some property owned by Edna Kloster during pertinent years. Mr. Wodtke
paid cash rent for use of the property. ASCS records list Leonhard
Wodtke as the operator of this farm but show Edna Kloster as the owner.
Because of low yields on this farm, Mr. Wodtke was mailed a check by
ASCS for $917.89 in his own name.
56. The Wodtkes claimed and
received a homestead exemption in their own names with the county
assessor's office through 1981. This resulted in a lower tax bill for
each year the exemption was claimed. Although the Wodtkes claim their
home and farm is a church and a church exemption would be a total
exemption, they had never claimed a church exemption with the assessor's
office. (Testimony of Harold Zar).
57. The Wodtkes never
notified John Hancock of a change in ownership of the farm. John Hancock
sent all notices relating to the mortgage to Leonhard and June Wodtke
and continues, through the present, to look to them for payment.
58. On April 20, 1982, the
Wodtkes caused to be recorded a purported mortgage in the amount of
$375,000.00 from International Trust and Mortgage Ltd., an entity in the
British West Indies
. (Plaintiff's Exh. 11). The mortgage purportedly encumbered the
Wodtkes' farm. Although the Wodtkes signed the mortgage as Trustees of
the Life Science Church, they claim to have no knowledge of where the
mortgage money has gone or whether the mortgage is being repaid. The
Wodtkes stated that the other directors of the Church, whom they refused
to name, have knowledge of the mortage. No appraisal of the property was
made prior to the recording of the purported mortgage.
59. The above-mentioned
purported mortgage is, based on the evidence, a sham, filed in an
attempt to cloud title to the farm and is of no force and effect. It is
unlikely that any lender would loan such a large amount without an
appraisal and with tax liens encumbering the property. It is also
unlikely that the Wodtkes would not know anything about the mortgage
even if one actually had been executed.
60. The purported transfer
of the farm and other property occurred at a time when the Wodtkes knew
they were facing a significant tax liability for 1973 and 1974.
61. The purported transfer
of the farm and other property occurred at a time when the Wodtkes knew
they did not file tax returns for 1975 and 1976, even though they had
continued to earn income and were liable for federal income taxes. At
the time of the purported transfer, the Wodtkes had no intention of
filing any future tax returns or paying income taxes.
62. The purported transfer
was made for no consideration.
63. Mrs. Wodtke made the
purported transfer after she had received the notice of deficiency and
after she had been assessed for 1973 and 1974 taxes.
64. Although Mr. Wodtke
took his "vow of poverty" prior to receiving the notice of
deficiency, the vow did not actually "convey" the real
property. The "conveyance", if it occurred at all, took place
when the quit claim deeds were executed and filed. The quit claim deeds
were filed after the notice of deficiency was sent and after Mr. Wodtke
had filed a petition with the Tax Court.
65. The Wodtkes attempted
to place all of their assets beyond the reach of the
by their purported transfer of property to themselves as Trustees of the
Life Science Church of Oto, Iowa.
66. The Wodtkes attempted
to avoid paying their tax liabilities by the purported transfer.
67. The purported transfer
was made with actual intent to hinder, defraud or otherwise delay the
from collecting taxes owed to it.
68. The Wodtkes
purposefully attempted to render themselves insolvent by their purported
transfer. The purported transfer left them with little or no assets in
their own names. Their remaining assets were insufficient to pay their
then existing and anticipated debts.
69. The purported transfer
of the Wodtkes' property was fraudulent as to the
and should be set aside in order to allow the
to foreclose its tax liens.
70. The purported transfer
of the Wodtkes' property is a nullity because both before and after the
purported conveyance, the Wodtkes enjoyed the beneficial use of such
property and controlled the use of such property.
71. The purported transfer
is of no force and effect because the evidence before the Court is
persuasive that the Church has no existence separate and apart from the
Wodtkes. No competent evidence to the contrary was produced. The Church
is the alter ego of the Wodtkes. In essence, the Wodtkes conveyed
the property to themselves.
The Court has jurisdiction
over this matter pursuant to 28 U.S.C. §§1340 and 1345 and 26
Defendants contend that
Title 26 is not positive law and therefore this Court has no
jurisdiction. Title 1, United States Code, Section 204(a) states:
United States Code.--The
matters set forth in the edition of the Code of Laws of the United
States current at any time shall, together with the then current
supplement, if any, establish prima facie the laws of the United States,
general and permanent in their nature . . . provided, however,
That whenever titles of such Code shall have been enacted into positive
law, the test thereof shall be legal evidence of the laws therein
contained, in all the courts of the United States. . . .
(Emphasis in original).
If construction of a section of the United States Code which has not
been enacted into positive law is necessary, recourse must be had to the
original statutes themselves.
v. Welden, 377
95, 84 S.Ct. 1082, 12 L.Ed.2d 152 (1964). Under §204, the United States
Code cannot prevail over the statutes at large if the two are
inconsistent. Stephan v. United States, 319 U.S. 423, 63 S.Ct.
1135, 87 L.Ed. 1490 (1943). The Wodtkes have not identified specific
code sections which they challenge. They have not cited a single
instance wherein any portion of Title 26 differs from the Internal
Revenue Code as passed and amended. The Court therefore rejects
defendants' contention that Title 26 is not law.
The Wodtkes contend that
the Sixteenth Amendment to the Constitution was not properly ratified.
Because the federal income tax laws are derived from the Sixteenth
Amendment, the Defendants Wodtke reason that they have no tax liabiity.
The validity of the
enactment of a constitutional amendment is not a justiciable issue. It
is a political question upon which the courts cannot rule. Coleman v.
Miller, 307 U.S. 433, 447-451, 59 S.Ct. 972, 979-981, 83 L.Ed. 1385
(1939); Luther v. Borden, 48 U.S. (7 How.) 1, 38-39, 12 L.Ed. 581
The validity of the
Sixteenth Amendment was first upheld nearly seventy years ago in Brushaber
v. Union Pacific Railroad Co. [1
USTC ¶4 ], 240 U.S. 1, 36 S.Ct. 236, 60 L.Ed. 493 (1916).
Recent decisions have been no different. Parker v. Commissioner [84-1 USTC ¶9209 ], 724 F.2d 469, 471 (5th Cir. 1984); Baker
v. Commissioner [CCH
Dec. 34,976(M) ], 37 T.C.M. (CCH) 307, 309 (1978) aff'd
without published opinion, 639 F.2d 787 (9th Cir. 1980), cert.
denied, 451 U.S. 1018, 101 S.Ct. 3008, 69 L.Ed.2d 390 (1981); Ginter
v. Southern, 611 F.2d 1226, 1229 (8th Cir. 1979). The defendants'
argument that the Sixteenth Amendment is a nullity is rejected.
The Wodtkes have moved to
dismiss this civil matter claiming that it is really a criminal case.
Part of this case involves an alleged fraudulent conveyance. However,
this is a civil fraud, not criminal fraud. See Rouse v. Rouse,
174 N.W.2d 660 (Iowa 1970).
This case involves the
Wodtkes' tax liabilities for the years 1973 and 1974. There is no
possibility of the Wodtkes being prosecuted for a tax offense relating
to these years as the statute of limitations for offenses arising under
the internal revenue laws has passed. (26 U.S.C. §6531 .) Section
6531 prescribes three-year and six-year periods for certain
offenses. The Government has taken the position that the period in which
the Government could have sought to indict the Wodtkes for tax offenses
occurring in 1973 and 1974 has expired.
The Wodtkes have argued
that the Government cannot foreclose its tax liens as these liens have
expired. This argument is unpersuasive. Section
6321 of the Internal Revenue Code (26 U.S.C.) provides for a
lien in favor of the United States against all property and rights to
property belonging to a taxpayer. This lien arose at the time the taxes
were assessed and continues until the liability is satisfied or becomes
unenforceable because of lapse of time. Section
6502(a) provides for a six-year period for tax collection.
However, the six-year period is extended if the Government commences
suit to reduce the liability to judgment within that period. The suit
tolls the statutory period, United States v. Ettelson [47-1 USTC ¶9137 ], 159 F.2d 193, 196 (7th Cir. 1947), the
obtaining of a judgment will keep the time for collection open
indefinitely, United States v. Overman [70-1 USTC ¶9342 ], 424 F.2d 1142 (9th Cir. 1970), and will
correspondingly extend the life of the lien. §6322
. The lien is effective against the taxpayer even if not
filed. United States v. Trilling [64-1
USTC ¶9292 ], 328 F.2d 699, 702 (7th Cir. 1964).
The Wodtkes referred the
Court to §6323(g)
which provides that tax liens must be refiled within six
years and one month of the assessment. They then argue that the liens
have expired because they were not refiled. Defendants ignore that §6323
provides for the filing of tax liens in order to protect
certain classes of individuals which include purchases, holders of
security interests, mechanics liens and judgment lien creditors. §6323(a)
. These terms are defined in §6323(h)
. Neither the Wodtkes nor their Church meet the definition of
a protected party.
So long as the persons
being foreclosed are not one of the enumerated classes, the Government
can foreclose its tax liens arising by virtue of §6321
even if no tax lien was ever filed. United States v.
Trilling, supra. The §6321
liens arise by operation of law and continue so long as the
period for collection remains open. By filing this suit, the Government
has extended the collection period. Thus, the tax liens remain in effect
and may be foreclosed if appropriate.
It is true, of course, that
because the tax liens were not refiled, a purchaser, holder of a
security interest or other enumerated person could acquire priority over
the tax lien. Whether such a person could be a bona fide purchaser in
the face of the notices of lis pendens filed by the Government is a
separate question. Nevertheless, since there are no parties present
claiming protected status, further discussion of the point is moot. 4
The assessment of taxes
against Mr. Wodtke was based on a decision by the United States Tax
Court and affirmed by the Eighth Circuit Court of Appeals. The liability
of Mr. Wodtke is therefore fixed and must be accepted as valid and
correct. Commissioner v. Sunnen [48-1 USTC ¶9230 ], 333 U.S. 591, 597-602, 68 S.Ct. 715,
719-721, 92 L.Ed. 898 (1948); United States v. Annis [80-2 USTC ¶9801 ], 634 F.2d 1270, 1272 (10th Cir. 1980); Russell
v. United States [79-1
USTC ¶9367 ], 592 F.2d 1069, 1071 (9th Cir. 1979).
Because Mrs. Wodtke did not
petition the Tax Court, she may litigate her tax liability in this case.
Mrs. Wodtke moved for a jury trial on this issue but waived her right to
a jury prior to trial. The United States agreed to this waiver and
accordingly this issue was tried to the Court. Rule 38(d), Federal Rules
of Civil Procedure.
An assessment of taxes is
presumptively correct. A taxpayer has the burden of proving the
assessment is in error and proving his or her correct tax liability. United
States v. Janis [76-2
USTC ¶16,229 ], 428 U.S. 433, 96 S.Ct. 3021, 49 L.Ed.2d 1046
(1976); Welch v. Helvering [3 USTC ¶1164], 290 U.S. 111, 54
S.Ct. 8, 78 L.Ed. 212 (1933).
Every person who may owe a
tax is required to keep records which will enable a correct tax return
to be filed. A taxpayer is obligated to make these records available to
the Government so that a reported tax liability may be verified. 26
; Carr Enterprises, Inc. v. United States, [83-1 USTC ¶9202 ], 698 F.2d 952 (8th Cir. 1983); Lukovsky
v. Commissioner [82-2
USTC ¶9704 ], 692 F.2d 527 (8th Cir. 1982). Taxpayers are
not exempt from this record-keeping requirement because they are
farmers. See 26 C.F.R. §1.6001-1(b)
A taxpayer has the burden
of proving his entitlement to a tax deduction. Burnet v. Houston
USTC ¶710 ], 283 U.S. 223, 51 S.Ct. 413, 75 L.Ed. 991
(1931); Lukovsky v. Commissioner, supra at 528.
A tax deduction is a matter
of legislative grace. Congress could choose, if it desired, to impose a
tax on gross income without allowance of deductions. A taxpayer who
claims a deduction has the burden of showing that he is entitled to the
deduction and the exact amount of the deduction. Commissioner v.
National Alfalfa Dehydrating & Milling Co. [74-1
USTC ¶9456 ], 417 U.S. 134, 148-49, 94 S.Ct. 2129, 2136-37,
40 L.Ed.2d 717 (1974); Interstate Transit Lines v. Commissioner [43-1
USTC ¶9486 ], 319 U.S. 590, 593, 63 S.Ct. 1279, 1281, 87
L.Ed. 1607 (1943).
Mrs. Wodtke was
uncooperative with the audit and failed to provide any proof of the
amount of her deductions. Where a taxpayer fails or refuses to provide
documentation, the Internal Revenue Service must disallow every
deduction taken. Accordingly, the assessment of taxes made against her
is valid and correct. Burnet v. Houston, supra; Oliver v.
USTC ¶9577 ], 364 F.2d 575 (8th Cir. 1966); Roberts v.
Commissioner [CCH Dec. 32,789 ], 62 T.C. 834 (1974).
The abatement of the first
tax assessment made against Mrs. Wodtke does not render the subsequent
assessment invalid so long as the subsequent assessment was made in a
timely manner. Schildhaus v. Commissioner [CCH
Dec. 29,890(M) ], 28 T.C.M. (CCH) 1463, 1475 (1969), aff'd,
[74-1 USTC ¶9452 ] 442 F.2d 1343 (2d Cir. 1971) (per
The statute of limitations
for assessing taxes for 1973 normally would have expired on April 15,
1977. However, if a notice of deficiency is issued, the statute of
limitations is suspended for 90 days during which time the taxpayer can
file a petition with the United States Tax Court. If no petition is
filed, the limitation period is extended for an additional sixty days,
plus however much time was left remaining between the date of the notice
and the original statute of limitations date. 26 U.S.C. §6503(a)
; Ramirez v. United States [76-2 USTC ¶9537 ], 538 F.2d 888, 210 Ct.Cl. 537 (1976), cert.
denied, 429 U.S. 1024, 97 S.Ct. 642, 50 L.Ed.2d 625 (1976).
The notice of deficiency
was mailed March 21, 1977. For the next 90 days, the Service was
precluded from assessing taxes against the Wodtkes. After this 90-day
period expires, the Service has 60 days, plus whatever time was left on
the three-year limitation period. Because the notice of deficiency was
mailed 25 days prior to April 15, 1977, the Service had 90 days, plus 60
days, plus 25 days to assess Mrs. Wodtke for 1973 taxes.
The assessment of taxes
made against Mrs. Wodtke on August 24, 1977 was made in a timely manner.
Taxes for 1973 could have been assessed against her through September
12, 1977. Ramirez v. United States, supra; 26 C.F.R. §301.6503(a)-1(a)(2)
As of July 29, 1985, Mrs.
Wodtke was indebted to the United States for federal income taxes,
interest, penalties and lien fees in the amount of $182,495.57 for 1973
and $264,536.18 for 1974. Interest continues to accrue on those amounts
at the rate specified in 26 U.S.C. §6621
, compounded daily only on those amounts accruing after
December 31, 1982. (§6622
As of July 29, 1985, Mr.
Wodtke was indebted to the United States for federal income taxes,
interest, penalties and lien fees in the amount of $180,398.84 for 1973
and $262,227.04 for 1974. Interest continues to accrue on these amounts
at the rate specified in 26 U.S.C. §6621
, compounded daily only on interest accruing after December
31, 1982. §6622
As of the dates of the
assessments against Mr. and Mrs. Wodtke, tax liens arose against all of
their property and interests in property. 26 U.S.C. §6322
The vows of poverty taken
by the Wodtkes were not sufficient to transfer their real property under
Iowa law since the purported vows contained no description of the land
affected. Iowa Code §558.19
; Leighton v. Leighton, 196 Iowa 1191, 194 N.W. 276,
The purported conveyance of
the farm from the Wodtkes to themselves as Trustees of Life Science
Church of Oto, Iowa, by quit claim deeds recorded on September 14, 1978
was subject to the tax lien against Mrs. Wodtke which arose on August
24, 1977, the date of her tax assessment. 26 U.S.C. §6323(a)
; District Divine Science Church of Allen County v. United
States, 80-1 USTC ¶9119 (N.D.Ind. Dec. 4, 1979).
The Life Science Church of
Oto, Iowa held all property purportedly transferred from the Wodtkes as
their nominee. From its inception, the Church has been the alter ego
of Leonhard and June Wodtke; the evidence failed to demonstrate that it
has any existence separate and apart from the Wodtkes. Therefore, the
real and personal property purportedly transferred remained subject to
federal tax liens against the Wodtkes and could be levied on to satisfy
the Defendant Wodtkes' tax liabilities. Loving Savior Church v.
United States [84-1 USTC ¶9261 ], 728 F.2d 1085 (8th Cir. 1984).
discretionary powers in a trustee negative the existence of a trust
relationship." Hansen v. Birmingham [50-2
USTC ¶9417 ], 92 F.Supp. 33, 42 (N.D.Iowa 1950). The
purported transfers of property from the Wodtkes to themselves as
Trustees of the Life Science Church of Oto, Iowa were ineffective to
transfer ownership, since the grantors also were trustees of the
property and retained beneficial interest to the property and
unrestricted control of the assets.
Chapter 504A of the Iowa
Code contains the Iowa Nonprofit Corporation Act. The Act permits
nonprofit organizations, including religious organizations, to be
incorporated under its terms. To comply with the Act, an organization
must perform certain acts which include adopting bylaws and adopting
articles of incorporation which must be filed with the Secretary of
State. A qualifying nonprofit corporation may sue and be sued and can
own and receive property. Iowa Code §§504A.4.2, 504A.4.4. The Life
Science Church of Oto, Iowa is an unincorporated organization which has
not complied with the requirements of the Act.
Iowa law does not require
that religious organizations comply with the Nonprofit Corporation Act.
However, a religious organization that does not incorporate has no legal
existence, can neither sue nor be sued and cannot hold property in its
own name. Iowa Code ch. 504A; Presbyterian Church of Osceola v.
Harken, 177 Iowa 195, 158 N.W. 692, 694 (1916). Because the Life
Science Church of Oto, Iowa has no legal existence, the purported
transfer of real and personal property to it by the Wodtkes did not
transfer title. Title to all the purportedly transferred property
remains with the Wodtkes.
In summary, the purported
transfers of real and personal property by the Wodtkes were fraudulent
as to the United States. The transfers were made with knowledge of their
outstanding tax liabilities and in an attempt to avoid the payment of
such taxes. The transfers were made in an attempt to leave themselves
with no assets to pay their present and future tax liabilities. The
purported transfers were without consideration and the Wodtkes retained
possession, control and full use of the property purportedly
transferred. Rouse v. Rouse, 174 N.W.2d 660, 667 (1970).
The tax liens of the United
States are prior to all other interests in the property with the
exception of the outstanding balance of the mortgage and other fees owed
to John Hancock. 5
The farm shall be sold by
an officer of the Court with proceeds first being applied to costs of
sale and thereafter to John Hancock in the total amount of the Wodtkes'
indebtedness to it and thereafter to the United States in satisfaction
of the tax liabilities of the Wodtkes. Excess proceeds, if any, shall be
paid to the Wodtkes.
Because the Court
determines that the conveyance of the property to the church was
ineffective and the Wodtkes have had the beneficial use of the farmland
from which they earn income, there is no evidence of pauper status. The
Court taxes costs of this action to the Defendant Wodtkes.
IT IS ORDERED that the
Government shall prepare a judgment consistent with this Memorandum
Decision and Order with updated tax liability figures for Leonhard and
June Wodtke to be filed effective January 15, 1986.
Lien fee assessed February 19, 1980 when lien was prepared.
Lien fee assessed February 19, 1980 when lien was prepared.
No additional lien fee was assessed on this second tax lien.
All Motions to Dismiss by the Wodtkes are denied.
The matter of Hancock's entitlement to other fees will be addressed in a
later order only if it is shown that resolution of that matter is
necessary to clear title and there is a dispute concerning them.
United States of America, Plaintiff v. Bobby G.
Braswell and Lennie T. Braswell, Defendants
S. District Court, So. Dist. Ala., So. Div., Civil Action No.
[Code Sec. 6672]
Employment taxes: Failure to collect and pay over: Penalties:
Corporate officers.--A corporation's president and general manager,
who admitted that he was a responsible person as defined in Code Sec.
6672, was liable for the 100% penalty for failure to pay over
withholding taxes for eight quarterly periods. The taxpayer used the
money, that he knew should have been withhold for the government, to pay
creditors, salaries, and other operating expenses of his business.
[Code Secs. 6321 and 6901]
Transferees: Liability for taxes: Liens: State law: Fraudulent
transfers.--The wife of a corporate officer (who was liable for the
100% withholding tax penalty and interest thereon) was required to pay
over the proceeds of an undivided one-half interest in real estate
which, under state law, was fraudulently transferred to her by her
husband. Because she had used the proceeds from the sale of the original
property that was fraudulently transferred to make a succession of
residence purchases, the court places a judgment against the wife's most
recent real estate purchase. Under state law, the IRS was also awarded
judgment against the corporate officer, who was considered an owner of
an undivided one-half interest in the last residence purchased by his
wife, subject to the rights of intervening creditors.
THOMAS, District Judge:
The Court having considered
all the matters of record herein, the testimony and exhibits, and the
arguments propounded by counsel, together with the applicable law, finds
1. This action was
instituted at the direction of the Attorney General of the United States
and pursuant to the authorization of a delegate of the Secretary of the
Treasury. The defendants reside in Mobile County, Alabama.
2. During the years 1970,
1971 and 1972, Bobby G. Braswell, one of the defendants herein, was
President and General Manager of Braswell and Boykin, Inc.
3. With respect to each of
the four quarters of 1970 and 1971, defendant Bobby G. Braswell was a
person responsible for the withholding of, truthfully accounting for, or
paying over to the United States or its agents, Internal Revenue taxes
from the compensation of employees of Braswell and Boykin, Inc.
4. During the eight
quarters of 1970 and 1971, Mr. Braswell was aware that such taxes were
not being withheld or paid over to the United States or its agents and
with such knowledge continued to pay other creditors and operating
expenses, including his own salary, and otherwise placed back into the
operation of the business, those monies required to be withheld and paid
over to the United States or its agents.
5. On April 11, 1974, and
prior thereto, defendant Bobby G. Braswell and his wife, Lennie T.
Braswell, one of the defendants herein, each owned a one-half interest
in two parcels of real property located in Mobile County, Alabama. One
parcel consisted of a vacant lot and the other parcel consisted of a lot
improved with a dwelling house in which both defendants resided (known
as the "Old Pascagoula Road property").
6. Prior to April 12, 1974,
a Revenue Officer of the Internal Revenue Service contacted Mr. Braswell
concerning his failure to truthfully account for or pay over to the
United States or its agents internal revenue taxes which were withheld,
or should have been withheld, from the compensation of employees of
Braswell and Boykin, Inc.
7. On April 12, 1974, Mr.
Braswell conveyed by warranty deed to his wife, Lennie T. Braswell, his
one-half interest in the two aforementioned parcels of real property for
a consideration of $500.00. The fair market values of the two parcels,
at the time of the April 12, 1974 conveyance, are found to be $5,500.00
with respect to the vacant lot and $58,715.00 with respect to the lot
improved with the dwelling house. At the time of the April 12, 1974
conveyance, to lot improved with a dwelling house was encumbered with a
mortgage of $31,750.00. The court therefore finds that, at the time of
the April 12, 1974 conveyance, Bobby G. Braswell had an equity in the
two parcels on which execution could issue.
8. Subsequent to Mr.
Braswell's April 12, 1974 conveyance to his wife, he continued to reside
in the dwelling house and treat the property as his own.
9. On May 11, 1976, Mrs.
Braswell sold that parcel consisting of the lot improved with the
dwelling house for a consideration of $64,500.00, receiving $34,054.00
in cash with the purchaser assuming the outstanding mortgage. The
proceeds received by Mrs. Braswell from the sale of the lot improved
with a dwelling house were used to purchase residential real estate
known as the "Cottage Hill Road Property".
10. Thereafter, Mrs.
Braswell acquired a succession of residential properties known as the
"Grand Bay Property", the "North Levert Street
Property", the "Winford Road Property", and the
"Winford Way Property". The equity realized from the sale of
each of these properties was invested in the next property purchased
except that Mr. Braswell invested $51,000.00 in new money in the
"North Levert Street Property." Mr. Braswell was a joint
venturer in the purchases and sales and his income, at least in part,
was used to pay off installments of the indebtedness incurred in
connection with such purchases. The defendants now reside at 8840
Winford Way, Mobile County, Alabama (the "Winford Way
11. On August 8, 1977, a
100% penalty in the amount of $75,067.45 was assessed against Mr.
Braswell as a person responsible for the willful failure to withhold or
pay over taxes accruing for the eight quarters of 1971 and 1972 pursuant
to section 6672 of the Internal Revenue Code of 1954. Notice and demand
for payment of the assessment has been made.
12. At the time this action
was instituted, the unpaid portion of the original assessment against
Mr. Braswell had, as a result of various payments and credits, been
reduced to $71,385.26, plus statutory interest and additions.
13. By its action herein,
the plaintiff requests the court to adjudge: (1) that defendant Bobby G.
Braswell is indebted to the United States in the amount of $71,385.26,
plus statutory interest and additions as provided by law; (2) that the
April 12, 1974 conveyance from Mr. Braswell to his wife, was, and is,
fraudulent and therefore null and void and of no effect as to the liens
and claims of the United States; and (3) that defendant Lennie T.
Braswell is indebted to the United States in the amount of the proceeds
she received from the sale of the "Old Pascagoula Road
Property" on May 11, 1976.
14. In their answer, the
defendants have denied that they are indebted to the United States and
further deny that they have committed any fraudulent acts herein.
15. Any of the foregoing
which may constitute conclusions of law are hereby incorporated therein.
1. This court has
jurisdiction over the action pursuant to Sections 1340 and 1345 of Title
28 of the United States Code and Section 7402 of the Internal Revenue
Code of 1954.
2. Sections 3102 and 3402
of the Internal Revenue Code require employers to withhold Federal
Income Tax and Social Security taxes from their employees' wages. The
money withheld constitutes a special fund held in trust for the United
States. I. R. C. §7501 (1977). Each employee is credited by the
government with the taxes withheld from his wages, even if those funds
are never remitted to the government. Mazo v. United States [79-1
USTC ¶9284], 591 F. 2d 1151 (5th Cir. 1979), cert. denied, 444
U. S. 842, 100 S. Ct. 82, 62 L. Ed. 2d 54 (1979).
3. When a corporate
employer neglects to pay the required taxes, the government is
authorized by Section 6672 of the Internal Revenue Code of 1954 to
assess the full amount due against the corporation's responsible
officers in the form of a penalty. Slodov v. United States [78-1
USTC ¶9447], 436 U. S. 238, 98 S. Ct. 1778, 56 L. Ed. 2d 251 (1978); Howard
v. United States [83-2 USTC ¶9528], 711 F. 2d 729 (5th Cir. 1983); Moore
v. United States [72-2 USTC ¶9569], 465 F. 2d 514 (5th Cir. 1972), cert.
denied, 409 U. S. 1108, 93 S. Ct. 907, 34 L. Ed. 2d 688 (1973). This
penalty is distinct from, and in addition to, the employer's liability
for these taxes. Newsome v. United States [70-2 USTC ¶9597], 431
F. 2d 742 (5th Cir. 1970).
4. The IRS is not obligated
to pursue every person with responsibility for paying taxes of this
nature. The fact that there may be other fiscally "responsible
does not relieve the officer of his duty to pay over these taxes. Hornsey
v. IRS, 588 F. 2d 952 (5th Cir. 1979).
5. Upon the government's
introduction into evidence properly certified copies of the certificate
of assessment a prima facie case of tax liability is established.
The burden is then shifted to the defendant to overcome the presumption
of liability arising from the assessment. United States v. Rindskopf,
105 U. S. 418, 26 L. Ed. 1131 (1882); United States v. Molitor
[64-2 USTC ¶9820], 337 F. 2d 917 (9th Cir. 1964); Adams v. United
States, 358 F. 2d 986 (Ct. Cl. 1966). The court concludes that
defendant Bobby G. Braswell has failed to illustrate that the assessment
made against him was incorrect, and the mere general denials of
liability found in the defendants' answer, reply to request for
admissions, and answers to interrogatories, unsupported by tangible
evidence introduced at trial are insufficient to rebut the prima
facie case made against him regarding the amount of tax liability.
In any event, Mr. Braswell, in his response to the government's request
for admissions, has admitted to being a "person responsible"
within the meaning of Section 6672 of the Internal Revenue Code of 1954
and further, the court concludes that Mr. Braswell possessed sufficient
status, duty and authority so as to allow a determination that he was a
"person responsible" within the meaning of Section 6672. See Mazo
v. United States, supra at 1156; Hornsby v. IRS, supra at
953; Liddon v. United States [71-2 USTC ¶9591], 448 F. 2d 509
(5th Cir. 1971), cert. denied, 406 U. S. 918, 92 S. Ct. 1769, 32
L. Ed. 2d 117 (1972). Accordingly, the court concludes that defendant
Bobby G. Braswell is indebted to the United States in the amount of
$71,385.26, plus such additional statutory additions and interest as
provided by law.
6. Federal tax liens do not
come into existence with respect to all property and rights to property
belonging to defendant Braswell until the date of assessment. 26 U. S.
C. §6322. The assessment was made on August 8, 1977. Therefore, a
federal tax lien did not attach to the legal title of the property
conveyed from Mr. Braswell to Mrs. Braswell on April 12, 1974.
In such a situation, where
a taxpayer disposes of property prior to the existence of a federal tax
lien, the United States may seek relief under the applicable fraudulent
conveyance laws of the particular state in which the property and
taxpayer are located. Commissioner v. Stern [58-2 USTC ¶9594],
357 U. S. 39, 78 S. Ct. 1047, 2 L. Ed. 2d 1126 (1958); United States
v. Kaplan, 277 F. 2d 405 (5th Cir. 1960); United States v.
Ressler [77-1 USTC ¶9459], 433 F. Supp. 459 (S. D. Fla. 1977),
aff'd, [78-2 USTC ¶9571], 576 F. 2d 650 (5th Cir. 1978).
7. Under Alabama law, 2
a conveyance of assignment or property with the intent to "hinder,
delay, or defraud creditors . . . [is] void." However, the
concurrence of three elements is essential before a conveyance can be
declared fraudulent. It must be shown that there is: (1) A creditor to
be defrauded; (2) A debtor intending to defraud, and (3) A conveyance of
property out of which the creditor could have realized his claim or some
portion thereof. Roddam v. Martin, 285 Ala. 619, 235 So. 2d 654
(Ala. 1970); J. C. Jacobs Banking Co. v. Campbell, 406 So. 2d 834
(Ala. 1981); United States v. Grice [83-1 USTC ¶9399], 567 F.
Supp. 113 (M. D. Ala. 1983); Foy v. Foy, 447 So. 158 (Ala. 1984).
8. It must also be noted
that an action to set aside or attack a conveyance as being fraudulent
may be brought, in Alabama, even though the debt, claim, or demand has
not been reduced to a judgment. Roddam v. Martin, supra at 666; Almon
v. Byrd, 336 So. 2d 183 (Ala. 1976).
9. Regardless of when it is
actually assessed, a liability arising under the Internal Revenue Code
(26 U. S. C.) is considered due and owing, and constitute a liability,
at the latest, as of the date the tax return for the particular period
is required to be filed. 3
United States v. Hickox [66-1 USTC ¶15,679], 356 F. 2d 969 (5th
Cir. 1966); United States v. Grice, supra at 115; United
States v. Ressler, supra at 463. Therefore, the full amount assessed
Mr. Braswell was due and owing at least by the close of 1972. The United
States was thus an existing creditor of Bobby G. Braswell at the time of
the April 12, 1974, conveyance. Accordingly, there existed a creditor to
be defrauded at the time Mr. Braswell conveyed the subject property to
his wife on April 12, 1974.
10. At the time of the
April 12, 1974, conveyance, Mr. Braswell had an equity in the subject
property. The court therefore concludes that, at the time of the April
12, 1974, conveyance, the United States, as a creditor, could have
realized a portion of its claim out of the property conveyed.
11. The actionable fraud
may be actual fraud or what is termed constructive fraud. Smith v.
Wilder, 270 Ala. 637, 120 So. 2d 871 (1960). Actual fraud denotes
the actual mental operation of intending to defeat or delay the rights
of the creditor. Constructive fraud, however, is based on facts and
circumstances which the courts have said constitute legal fraud
irrespective of actual intent. The term "constructive fraud"
is generally used in referring to those instances where a grantor,
indebted at the time, conveys property on a good, as distinguishable
from a valuable, consideration. Smith v. Wilder, supra; Gordon v.
Gorman, 436 So. 2d 851 (Ala. 1983).
12. In Alabama, the fact
that a conveyance took place between a husband and wife does not raise
any presumption of fraud, nor does it represent a badge of fraud.
Instead, it requires the court to more strictly scrutinize the
conveyance at issue. Gurley v. Blue Rents, Inc., 383 So. 2d 531
(Ala. 1980); Umphrey v. Barfield, 238 Ala. 11, 189 So. 64 (1939).
13. In addition, when a
husband conveys certain property to his wife and that conveyance is
attacked as a fraud on the husband's existing creditors, the wife bears
the burden of proof that the conveyance was based on a valuable
consideration, substantial and not merely nominal. Gurley v. Blue
Rents, Inc., supra at 535; Gordon v. Gorman, supra at 854-55;
United States Shoe Corp. v. Beard, 463 F. Supp. 754 (S. D. Ala.
1979). The court concludes that Mrs. Braswell has failed to establish
that the conveyance was based on a valuable consideration in that the
wife's payment of $500.00 for property valued at over $58,000.00
constitutes nominal consideration as distinguished from valuable
consideration. Consequently, the court concludes that defendant Bobby G.
Braswell's April 12, 1974, conveyance to his wife, Lennie T. Braswell,
14. A fraudulent grantee
occupies the position of trustee and is liable to account therefore as a
trustee for such creditors. American Nat. Bank & Trust Co. v.
Powell, 235 Ala. 236, 178 So. 21 (1937); Yates v. Guest, 416
So. 2d 973 (Ala. 1982).
15. If the fraudulent
grantee has sold the property, she must account for its fair and
reasonable value at the time and place she received it, with interest. Dickinson
v. National Bank of Republic, 14 So. 550 (Ala. 1893); American
National Bank & Trust Co. v. Powell, supra; Yates v. Guest, supra
at 977. Accordingly, the court concludes that Mrs. Braswell is
accountable to the United States in the amount of $17,027.00, plus
interest at the legal rate from May 11, 1976, for which execution may
issue. Said amount constitutes defendant Bobby G. Braswell's one-half
interest in the $34,054.00 in cash which Mrs. Braswell received as
proceeds from the sale of the Old Pascagoula Road Property.
16. When a wife, acting
alone, purchases and sells a succession of residences following her
husband's conveyance to her without valuable consideration of his
one-half interest in a residence previously held by them in joint
ownership, the husband is, as to his creditors existing at the time of
his conveyance to his wife, considered to be, subject to the rights of
intervening creditors, the owner of an undivided one-half interest in
the last residence acquired by the wife. Gordon v. Gorman, supra.
The court therefore concludes that defendant Bobby G. Braswell is to be
considered the owner of an undivided one-half interest in the residence
located at 8840 Winford Way, Mobile County, Alabama.
17. Any of the foregoing
which constitute findings of fact are hereby incorporated therein.
Judgment will be entered in
accordance with the foregoing Findings of Fact and Conclusions of Law.
Pursuant to the Findings of
Fact and Conclusions of Law entered this date, it is ORDERED, ADJUDGED
and DECREED that a judgment in the amount of SEVENTY-ONE THOUSAND, THREE
HUNDRED EIGHTY-FIVE AND 26/100 DOLLARS ($71,385.26) be, and hereby is,
entered in favor of the plaintiff, United States of America, and against
the defendant, Bobby G. Braswell, together with interest and statutory
additions as provided by law. Said amount of interest and statutory
additions to be computed by the plaintiff, United States of America.
It is FURTHER ORDERED,
ADJUDGED and DECREED that a Judgment in the amount of SEVENTEEN
THOUSAND, TWENTY-SEVEN DOLLARS ($17,027.00) be, and hereby is, entered
in favor of the plaintiff, United States of America and against the
defendant, Lennie T. Braswell, together with interest at the legal rate
from May 11, 1976, until paid, for which execution may issue. Payments
made in partial or full satisfaction of this judgment shall be applied pro
tanto to the payment of the foregoing judgment against defendant
Bobby G. Braswell.
It is FURTHER ORDERED,
ADJUDGED and DECREED that defendant Bobby G. Braswell is the undivided
one-half owner of the property located at 8840 Winford Way, Mobile
County, Alabama, for which execution may issue, subject to the rights of
any intervening creditors.
It is FURTHER ORDERED,
ADJUDGED and DECREED that in no event shall payments exceed SEVENTY-ONE
THOUSAND, THREE HUNDRED EIGHTY-FIVE and 26/100 DOLLARS ($71,385.26) plus
interest and statutory additions as provided by law.
Costs are to be taxed
against the defendant, Bobby G. Braswell.
Pursuant to the findings of
fact and conclusions of law entered on July 24, 1985, it is ORDERED,
ADJUDGED AND DECREED that a judgment in the amount of One Hundred
Fifty-Four Thousand, Seven Hundred Ninety-Six Dollars and Fifty-Five
Cents ($154,796.55) (consisting of $71,385.26 in principal indebtedness
and $83,411.29 in interest for the period August 8, 1977, through July
31, 1985, computed at the respective rates of interest established under
Section 6621 of the Internal Revenue Code of 1954 as they were in effect
from time to time during said period) be, and hereby is, entered in
favor to the plaintiff, United States of America, and against defendant,
Bobby G. Braswell, together with interest thereon after July 31, 1985,
on the unpaid balance thereof at the respective rate or rates
established under Section 6621 of the Internal Revenue Code of 1954 as
they are in effect from time to time after said date.
It is FURTHER ORDERED,
ADJUDGED AND DECREED that a Judgment in and amount of Thirty-Eight
Thousand, Nine Hundred Fifty-Seven Dollars and Seventy-Six Cents
($38,957.76) (consisting of $17,027 in principal indebtedness and
$21,930.76 in interest for the period May 11, 1976, through July 31,
1985, computed at the respective rates of interest established under
Section 6621 of the Internal Revenue Code of 1954 as they were in effect
from time to time during said period) be, and hereby is, entered in
favor of the plaintiff, United States of America, and against defendant,
Lennie T. Braswell, together with interest after July 31, 1985, on the
unpaid balance thereof at the respective rate or rates established under
Section 6621 of the Internal Revenue Code of 1954 as they are in effect
from time to time after said date, for which execution may issue.
Payments made in partial or full satisfaction of this Judgment shall be
applied pro tanto to the judgment against defendant Bobby G.
It is FURTHER ORDERED,
ADJUDGED AND DECREED that defendant Bobby G. Braswell is the undivided
one-half owner of the property located at 8840 Winford Way, Mobile
County, Alabama, for which execution may issue, subject to the rights of
any intervening creditors. The property located at 8840 Winford Way,
Mobile County, Alabama, is that certain lot or parcel of improved real
property which was conveyed by William Donald Neville, grantor, to
Lennie T. Braswell, grantee, as evidenced by that certain vendors lien
deed recorded in Real Property Book 2682, at pages 854-857, in the
office of the Judge of Probate, Mobile County, Alabama, the said
property being properly described therein as follows, to wit:
Lot 13, Winford, Unit 2,
Block "A", according to plat thereof recorded in Map Book 30,
page 92, of the records in the office of the Judge of Probate Mobile
It is FURTHER ORDERED,
ADJUDGED AND DECREED that in no event shall payments exceed One Hundred
Fifty-Four Thousand, Seven Hundred Ninety-Six Dollars and Fifty-Five
Cents ($154,796.55) plus interest after July 31, 1985, on the unpaid
balance thereof at the respective rate or rates established under
Section 6621 of the Internal Revenue Code of 1954 as they are in effect
from time to time after said date.
Costs are to be taxed
against defendant, Bobby G. Braswell.
The term "person", as used in Section 6672, is defined to
include any officer or employee of a corporation . . . who, as such
officer [or] employee . . . is under a duty to perform the act in
respect of which the violation occurs. 26 U. S. C. §6671(b).
Code 1975, §11-51-120.
On these facts, the court need not address the question of at what
precise time the personal liability of a responsible person arises in
connection with Section 6672 liability.
Ronald H. Schock, dba Environmental Systems and
Services, Plaintiff v. Internal Revenue Service of United States of
America, M & T Sperling, Inc., Thomas Sperling, Andrew Quick, John
A. Paro, Wesco and Does I through X, inclusive, Defendants
S. District Court, No. Dist. Calif., No. C-84-0033 WWS (FSL), 1/10/85
[Code Secs. 6321 and 6323]
Lien for taxes: Property subject to: Fraudulent conveyances:
Priority: Interpleader: Attorney's fees.--Federal tax liens with
respect to a company's delinquent employment taxes had priority over
other judgment creditors as to proceeds of a promissory note originally
given to the company in exchange for its operating assets. The transfer
of the note by the company to third parties was set aside as a
fraudulent conveyance under California law because fair consideration
was not given for the note and the company was rendered insolvent by the
transfer. The court awarded attorney's fees to the stakeholder in this
interpleader action, to be paid after the claims of the IRS and other
Thomas F. Johnson, 525
South Main Street, Ukiah, Calif. 95482, for plaintiff. Michael D.
Howard, Assistant United States Attorney, San Francisco, Calif. 94102,
for United States. William T. Murphy, Schaeger, Walerk & Murphy, 155
North Redwood Drive, San Rafael, Calif. 94903, for Wesco. Robert J.
Stumpf, Bronson, Bronson & McKinnon, P. O. Box 7358, San Francisco,
Calif. 94120, for Andrew Quick and John Paro. Thomas Sperling, 950
Brooklyn, Roseburg, Ore. 97470. Anthony Young, 1640 Fifth Street, Santa
Monica, Calif. 90401, for Meteorology Research, Inc. J. D. Calhoun,
Tarkington & Carey, 505 Sansome Street, San Francisco, Calif. 94111,
for Matheson Gas Products and J. Goldman.
of Fact and Conclusions of Law
This action was tried
before this Court on October 22 and 23, 1984. These Findings of Fact and
Conclusions of Law are filed pursuant to Rule 52(a), Federal Rules of
1. M. & T. Sperling,
Inc. (hereinafter the "Company") is a non-operating California
corporation which was formed in 1975 by Thomas Sperling (hereinafter
"Sperling") and four associates. In 1976 Sperling purchased
all the Company stock and thereafter was the Company's sole shareholder.
2. From 1976 through
October 1, 1981, the Company's primary business activity was in the
field of environmental quality analysis, and the Company conducted
business under the fictitious name-style of "Environmental Systems
and Services" (hereinafter "ES&S").
3. The Company's gross
revenues from 1979 to October 1981 were as follows:
1979 .... $340,000
1980 .... 680,000
1981 .... 390,000
4. In October 1981, all the
Company's operating assets were sold to Ronald Schock (hereinafter
"Schock"). Schock purchased the Company's assets for $30,000
cash and three notes. Two of the notes were secured; one was for
$150,000, and one was computed on gross income. The remaining note was
unsecured in the amount of $18,000.
5. It is the $150,000 note
given from Schock to the Company (hereinafter the "note")
which is the subject of this lawsuit. The note was secured by equipment,
a lease, and an option to purchase a building, all of which belonged to
6. Prior to Schock's
purchase of the Company's operating assets, the Company owned
approximately 300 gold mining claims. Because the Company failed to file
claim renewals, pay the renewal fees, or expend requisite additional
development costs, the claims lapsed in September 1981, and the Company
failed to renew the claims during the 90-day grace period which expired
in December 1981. The Company never listed its gold mining claims as
assets on its balance sheets. At best, the claims were without value in
the latter half of 1981, and the Company no longer owned the claims
following December 1981.
7. From January 1982
through April 1982, the Company had no other income than that received
on the notes given by Schock in exchange for the Company's operating
assets. Moreover, as of April 23, 1982, Sperling had no assets of any
significant value which were available to pay his or the Company's
creditors. In December 1982, Sperling sold his remaining interest in an
airport at Lakeport and sustained a net loss on the property as a result
of the sale.
8. From January 1982
through April 1982, numerous irate creditors of the Company attempted to
collect on overdue bills. During this period of time, Andrew Quick
(hereinafter "Quick") leased business space from Sperling in
the Company building. Quick's secretary was also the secretary for the
Company. In their attempts to collect the overdue bills, some of the
creditors telephoned Schock, and Schock referred such calls to a
telephone number which was answered either by Quick's secretary or by
Quick when Sperling was not available. Also during this time, Quick
personally assisted in having Sperling's power reinstated following a
cut-off of the power for non-payment of the bill. On April 1, 1982, the
sheriff served the Company with at least three lawsuits. Service of the
lawsuits was made at the building occupied by Quick and the Company.
Sperling discussed the receipt of the lawsuits with Quick sometime prior
to April 23, 1982. Also on April 1, 1982, Sperling had a telephone
conversation with Internal Revenue Service Officer Robert Yakerson
concerning the Company's unpaid employment and unemployment taxes. That
telephone conversation was followed up by a meeting between Messrs.
Sperling and Yakerson in the Company's building on April 7, 1982. Quick
was aware of the April 7 meeting, and asked Sperling if the Internal
Revenue Service was going to "throw him in jail." During the
same month, Sperling told Quick that the airport in which Sperling owned
a personal interest was in foreclosure.
9. On or about April 23,
1982, the Company transferred to Quick and John A. Paro (hereinafter
"Paro") its sole remaining asset of value, i. e., the
note. The then remaining principal owed on the note was $147,826, with
an interest rate on the balance of ten and one-half percent. The minimum
monthly payment on the note was $1,300; the maximum monthly payment on
the note was $2,024.02. Regardless of whether the minimum or the maximum
was paid, the total yearly payment on the note was $24,288.24.
10. In exchange for the
note, Quick and Paro paid $40,000 ($20,000 each). Although the note was
held in the name of the Company, the entire $40,000 purchase price was
paid to Sperling individually. From the April 23, 1982 transfer of the
note until the present date, the Company has received no further income
from any source and has had no assets of value. At the time of the
transfer of the note, the Company owed 55 creditors a total of
approximately $120,000 in overdue bills. Of the $40,000 payment received
from Quick and Paro, less than $5,000 was used to pay off the Company's
creditors, and the remainder of the payment was used for Sperling's
11. Sperling testified that
he believed at the time of the transfer of the note that the transfer
would delay the Company's creditors from collecting on their respective
accounts. Although Quick testified that he had no knowledge of
creditors' claims against the Company on the date of the transfer, the
Court finds that he was aware of the fact that Sperling had serious
financial difficulties before the note was transferred. Prior to the
transfer, neither Quick nor Paro made any meaningful inquiry into the
financial status of the Company or of Sperling. Considering Quick's
proximity to Sperling's office, and the repeated instances upon which
Quick was advised of Sperling's financial straits, the Court finds that
Quick would have had intentionally to look the other way to avoid being
aware of Sperling's creditor problems.
12. As stated before,
neither Quick nor Paro paid the Company anything for the transfer of the
note held in the name of the Company. Quick and Paro have alleged that
Sperling was the alter ego of the Company, but even if that were true,
the Court finds that fair consideration was not given for the note. In
addition to Schock's promise to repay the $150,000 note in full,
Sperling gave his own personal guarantee for payment of the note.
Furthermore, the note was secured by equipment, a lease and an option to
buy the Company building, and Schock had timely made all payments from
the time of the origination of the note until its transfer to Quick and
Paro. Regardless of the value of these various items of security, it is
clear that together with Schock's and Sperling's guaranties, the note
was worth considerably more than the $10,000 to $15,000 alleged by Quick
and Paro to be the value of the note at the time it was transferred. The
Court is likewise unpersuaded by Quick and Paro's expert, who testified
that the note was worth approximately $10,000 on the date of transfer.
13. Prior to the initiation
of the instant interpleader action by Schock, Quick and Paro received
approximately $22,000 of their $40,000 purchase price for the note.
Since the date of filing this action, Schock's monthly payments have
been made directly into the Court.
14. On April 7, 1982,
Sperling gave the Internal Revenue Service a $10,000 check as partial
payment for the Company's delinquent employment and unemployment taxes,
and requested that the Internal Revenue Service refrain from filing any
liens against the Company until the end of the month. The check was
dishonored by the bank, but the Internal Revenue Service records do not
reflect notification of the check's return until June 7, 1982. On April
30, 1982, federal tax liens with respect to the Company's delinquent
employment taxes were prepared, and the liens were filed with the Lake
County Recorder's Office during the first week of May, 1982. The
Internal Revenue Service has never collected any funds with respect to
the subject federal tax liens. Those tax liens are as follows:
August 10, 1981: Federal employment taxes against the Company for the
first quarter of 1981 in the amount of $20,241, exclusive of interest
December 7, 1981: Federal employment taxes against the Company for the
second quarter of 1981 in the amount $15,850, exclusive of interest and
February 8, 1982: Federal employment taxes against the Company for the
third quarter of 1981 in the amount of $17,982, exclusive of interest
and penalties; and
March 8, 1982: Federal unemployment taxes against the Company for 1980
in the amount of $816.36, exclusive of interest and penalties.
15. On March 21, 1983,
Meteorology Research, Inc. (hereinafter "MRI") obtained a
judgment against the Company in the amount of $17,456.33, plus interest
at seven percent that date. On March 15, 1983, J. Goldman/Matheson Gas
Products (hereinafter "Goldman") obtained a judgment against
the Company in the amount of $3,253.52, plus interest in the amount of
$567.36. Neither of these judgments have been satisfied.
16. Sperling testified that
the claims made by the IRS, MRI and Goldman were due and owing by the
Company on the date of the transfer of the note to Quick and Paro.
1. Federal tax liens come
into existence with respect to all property and rights to property
belonging to taxpayers such as the Company on the date the taxes are
assessed. Where a taxpayer transfers property after taxes are due but
prior to the filing of a tax lien, the United States may seek relief
under the fraudulent conveyance laws of the state in which the property
is located. Accordingly, California law governs the substantive issues
in this interpleader action.
2. Under California law, a
conveyance without adequate consideration, made by a person who is
insolvent or who as a result of the conveyance becomes insolvent, is
void. Likewise, California law provides that a conveyance made without
fair consideration, when the grantor believes that he will incur debts
beyond his ability to pay as such debts occur, is fraudulent both as to
present and future creditors. Moreover, a conveyance the grantor makes
to hinder, delay or defraud creditors is similarly void. The Court
concludes, based on grantor Sperling's testimony, that the transfer of
the note was made with his actual intent to hinder or delay the present
or future creditors of the Company.
3. So long as there is
insufficient consideration and the transferor is rendered thereby
insolvent, and the creditor has a claim at the time of the conveyance,
it is not necessary under California law to show actual fraudulent
intent to set aside a conveyance. When a transferor has existing
indebtedness, a voluntary conveyance is presumptively fraudulent when it
is made without fair consideration. The question then becomes whether
the grantee gave fair consideration for the note; that is, whether the
values exchanged were equivalent and whether the grantee acted in good
faith. The Court has concluded that Quick and Paro did not give fair
consideration for the note, and that Quick did not act in good faith.
Because Quick acted as the agent for Paro with respect to the
acquisition of the note, Paro is chargeable with Quick's lack of good
faith. The transfer of the note, therefore, must be set aside.
4. In this action, it is
clear that the IRS liens were filed before the judgments of MRI and
Goldman were entered. The Court concludes that the creditors are
entitled to the proceeds on a first in time, first in right basis, as
follows: first, the IRS; second, MRI; and third, Goldman.
5. The Court also concludes
that pursuant to its discretion to award attorneys' fees in interpleader
actions, Schock is entitled to payment for his attorney's fees in this
action. Those fees are to be paid after the principal claims of the IRS,
MRI and Goldman, respectively, are paid.
6. Next, the Court
concludes that the IRS, MRI, and Goldman, respectively, should be paid
interest and/or penalties in accordance with the judgment filed
7. Finally, the Court
concludes that any remaining proceeds from the note should be divided
equally between Quick and Paro.
IT IS SO ORDERED.
Based on Findings of Fact and Conclusions of Law
On October 1, 1981, Ronald
H. Schock and Lorna Schock (hereinafter "Schock") signed a
promissory note in the amount of $150,000.00 and made payable to M &
T Sperling, Inc. (hereinafter "the note"). On April 23, 1982,
the note was assigned to Andrew M. Quick and John A. Paro (hereinafter,
respectively, "Quick" and "Paro"). Based on the
Findings of Fact and Conclusions of Law filed contemporaneously
IT IS HEREBY ORDERED that
the transfer of the note to Messrs. Quick and Paro is set aside.
IT IS FURTHER ORDERED that
the Clerk of the Court, so long as it has proceeds from the note, and
therefore Schock, shall disburse the proceeds from the note to the
entities and in the amounts designated below:
First, the Internal
Revenuw Service shall receive the principal amount of its claim, i.
e., $54,889; then
Research, Inc. shall receive the principal amount of its claim, i.
e., $17,456.33; then
Goldman/Matheson Gas Products shall receive the principal amount of its
claim, i. e., $3,235.52; then
Fourth, Schock shall
receive attorney's fees incurred in connection with this interpleader
action, i. e., $2,775.00; then
Fifth, Messrs. Quick
and Paro shall receive the amount necessary to recoup their full $40,000
purchase price of the note, i. e., approximately $18,000, subject
to proof; then
Sixth, the Internal
Revenue Service shall receive interest according to law on the principal
amount of its claim; then
Research, Inc. shall receive interest at the rate of seven percent (7%)
on the unpaid balance of the principal amount from March 21, 1983; then
Goldman/Matheson Gas Products shall receive interest in the amount of
$567.36 plus seven percent (7%) on the unpaid balance of the principal
amount from March 15, 1984; then, and finally
Ninth, the balance
of the note proceeds shall be paid equally to Messrs. Quick and Paro.
IT IS FURTHER ORDERED that
Schock shall maintain a descending balance statement which indicates the
disbursement of the proceeds from the note, and shall forward copies of
the statement to the entities above listed on or before June 30th and
January 1st of each year until the note has been paid in full.
IT IS SO ORDERED.
On October 1, 1981, Ronald
H. Schock and Lorna Schock (hereinafter "Schock") signed a
promissory note in the amount of $150,000.00 an made payable to M &
T Sperling, Inc. (hereinafter "the note"). On April 23, 1982,
the note was assigned to Andrew M. Quick and John A. Paro (hereinafter,
respectively, "Quick" and "Paro"). The transfer of
the note to Messrs. Quick and Paro is hereby set aside pursuant to the
California Uniform Fraudulent Conveyance Act, California Civil Code
Section 3439, et seq., and the liens of the Internal Revenue
Service, Meteorology Research, Inc., J. Goldman/Matheson Gas Products
(hereinafter the "creditors") and the attorney's fees of
Schock shall attach to the proceeds of the note. The funds held by the
Clerk of the Court and future payments made by Schock shall be
distributed pursuant to the Court's Order entered contemporaneously
herewith, with the creditors' liens being paid in the order of their
creation and Schock's attorney's fees paid thereafter.
United States of America, Plaintiff v. Eddie L.
May, et al., Defendants
S. District Court, So. Dist. Calif., Civil No. 83-0214-E, 10/31/84
[Code Sec. 6323]
Collection: Validity of lien: Conveyance by taxpayer: Fraudulent
conveyance by taxpayer.--Pursuant to California law, the court set
aside the taxpayer's transfer of real estate as fraudulent. The court
also foreclosed the taxpayer's interest in that property by judicial
sale and granted the United States a deficiency judgment in the event
that the proceeds from the sale were insufficient to satisfy the
taxpayer's obligation to the government. Seven days after the taxpayer
stipulated to a deficiency for two tax years, she gratuitously
transferred her one-half interest in her homestead to her half brother
thus rendering herself insolvent. Furthermore, the taxpayer could not
create a genuine issue of fact by contradicting her own testimony;
therefore, summary judgment was properly granted. The taxpayer initially
testified that she received no consideration for the transfer, but later
testified that she received $5,000 in a debt forgiveness. In looking to
the numerous badges of fraud, the court concluded that the transfer was
made with fraudulent intent with little or no consideration.
Kathryn A. Snyder,
Assistant United Attorney, Nancy Morgan, Department of Justice,
Washington, D. C. 20530, for plaintiff. A. Lee Estep, 2120 San Diego
Avenue, San Diego, Calif. 92110, Anthony E. Erbacher, 9745 Prospect Ave,
Santee, Calif. 92071, Dennis D. Burns, 118 Rea Avenue, El Cajon, Calif,
92020, for defendants.
ENRIGHT, District Judge.
This is an action by the
United States to recover tax deficiencies owed for the years 1969 and
1970 by defendants Eddie L. May and his former wife, Margarita Woolf.
In a Memorandum Decision
dated June 20, 1984, this court granted summary judgment in the
government's favor on several claims. The court held that the United
States is entitled to judgment against Eddie May in the amount of
$105,289.01 as a result of tax deficiencies. Margarita Woolf was held to
owe $52,257.98, plus interest, on her tax deficiencies. In light of
these deficiencies, the United States was held to possess tax liens on
all property owned by May and Woolf. Finally, as to the property known
as "Hidden Glen Ranch," conveyed by Eddie May to his second
wife, Efigenia May, the court held that the conveyance was fraudulent
and should be set aside. The court permitted the foreclosure of the tax
lien on the ranch property and ordered that if the proceeds of the sale
of the ranch were insufficient to satisfy May's liability, the United
States was entitled to a deficiency judgment against him.
At present, the court has
before it an attempt by the United States to satisfy Margarita Woolf's
tax liability out of property formerly owned by Woolf, located at 3705
Fairmount Avenue, San Diego, California, and conveyed to Woolf's half
brother, J. deJesus Munoz. The government moves for summary judgment in
its favor setting aside the transfer of that property as fraudulent,
foreclosing Woolf's interest in that property by judicial sale, and
granting the United States a deficiency judgment in the event the
proceeds from the sale of the property are insufficient to satisfy
Woolf's obligation to the government.
The facts relating to the
transfer of the Fairmount property from Woolf to Munoz are as follows.
The property was originally purchased in 1977 by Margarita Woolf and J.
deJesus Munoz as tenants in common. After an assessment in 1977 by the
Secretary of the Treasury for the deficiency on her 1969 federal income
tax return, Margarita Woolf stipulated through counsel to a
determination of tax deficiency in the amount of $38,083.18 in the
United States Tax Court. This amount was never paid, however, and, as
noted, this court has recently held that Woolf owes $52,257.98 to the
Margarita Woolf transferred
her interest in the property to her half brother and coowner on February
8, 1979, seven days after she stipulated to the deficiency in the tax
court. The transfer was accomplished by quitclaim deed and the deed
recited that the transfer was for no consideration.
Despite the language of the
deed, however, there is some confusion as to the consideration for the
transfer. Neither Woolf nor her half brother appear certain as to what
the consideration was, if anything. Early in her deposition, Woolf
states that there was no consideration for the transfer. Later, she
indicates that the property may have been transferred in exchange for
forgiveness of all her prior debts to her brother, unspecified in
amount. Still later, Woolf states that she had received a $5,000 loan
from Munoz which he forgave as consideration, but that was the only debt
forgiven. Finally, on her 1979 tax return Woolf states that she received
$23,800 for the sale of her share of the property to Munoz.
The following exchange is
indicative of the ambiguity surrounding the transaction:
you just received that $5,000. Was there any other cancellation of
indebtedness? I mean, the other money that you owed your brother, did he
cancel that indebtedness?
have adjusted as we go along, because he did help me and he has sent me
money. Whenever I need it, he sent me money.
you don't have any more cash. You never received any more money on the
sale of the Fairmount Street?
on that property, no.
of Ms. Woolf by Ms. Nancy Morgan, Tax Division, United States Department
In his deposition, Woolf's
half brother Munoz testified that he paid Woolf for the Fairmount
property. He testified that the payment he made to her was in the form
of bank drafts and cash. He stated in his deposition that he could not
remember the exact amount, however:
not to repeat, how much did you pay her?
Exactly, I would not be able to say.
She can give you more exact amount than I can.
just asking for your recollection. Is it $20,000, can you approximate?
No I can't give you an exact amount.
questioning of Mr. Munoz by Ms. Karen Stifter, Tax Division, United
States Department of Justice).
At the time of the transfer
from Woolf to May, both deponents indicate that the fair market value of
the property was $40,000. Munoz added roughly $20,000 in improvements to
the property during this period.
It is this court's
conclusion that the government's motion for summary judgment should be
California has adopted the
Uniform Fraudulent Conveyances Act, Cal. Civ. Code §§ 3439 to 3439.12
(West 1970). Under Section 3439.04 of the California Civil Code, a
conveyance made by
a person who is or will be
thereby rendered insolvent is fraudulent as to creditors without regard
to his actual intent if the conveyance is made . . . without a fair
is evident from the statutory language itself, no intent to defraud
creditors by way of the transfer need by shown under this section. Headen
v. Miller, 141 Cal. App. 3d 169, 172, 190 Cal. Rptr. 198 (1983).
Under this section, the
conveyance of the Fairmount Avenue property from Woolf to Munoz must be
set aside as fraudulent. After the conveyance of her interest in the
property, Woolf had no assets and an indebtedness of $35,000, according
to her deposition testimony. The conveyance thus rendered Woolf
insolvent. Cal. Civ. Code §3439.02(a) (West 1970); Tri-Continental
Leasing Corp., Inc. v. Zimmerman, 485 F. Supp. 495, 498 (N. D. Cal.
Further, while there is
some uncertainty as to the consideration Woolf received for the
property, it is this court's review that there was no fair consideration
as it is defined in the Act, Cal. Civ. Code §3439.03 (West 1970), as a
matter of law.
Fairness of the
consideration received is to be viewed from the creditor's perspective. Patterson
v. Missler, 238 Cal. App. 2d 759, 766, 48 Cal. Rptr. 215 (1965).
Woolf has testified, and the deed supports this testimony, that she
received no consideration for the transfer. Alternatively, she has
testified that she received $5,000 in the form of debt forgiveness from
her half brother. Her tax return for the year in question would suggest
that she received $23,800, but there is no supporting evidence in her
testimony that she received that amount, nor can her brother remember
paying that sum to her for the property. There is some suggestion that
the transfer was in exchange for a cancellation of past indebtedness to
Munoz accumulated over the years 1970 to 1979 and amounting to in excess
"consideration" is discovered for the first time in Woolf's
response to the present motion, however: She never referred to the
cancellation of indebtedness in this amount as consideration in her
deposition testimony and even asserted that $5,000 debt to Munoz that
was also allegedly cancelled in exchange for the property was the only
debt forgiven in exchange for the transfer.
Summary judgment is
properly granted only when there is no genuine issue of material fact
and the moving party is entitled to judgment in its favor as a matter of
law. Retail Clerks Union Local 648, AFL-CIO v. Hub Pharmacy, Inc.,
707 F. 2d 1030, 1033 (9th Cir. 1983). But the fact that there is
confusion in defendants' own minds about the consideration for the
transfer does not preclude summary judgment in the present case; a party
cannot create a genuine issue of fact by contradicting his own
testimony. Mesirow v. Pepperidge Farm, Inc., 703 F. 2d 339, 344
(9th Cir. 1983), cert. denied, -- U. S. --, 104 S. Ct. 83 (1983);
Lopez v. General Motors Corp., 697 F. 2d 1328, 1333 (9th Cir.
Thus, the evidence before
the court establishes that the conveyance from Woolf to Munoz was
fraudulent under Section 3439.03 and should be set aside. In addition,
this conveyance is also fraudulent under Section 3439.04 of the
California Civil Code which provides that conveyances made with actual
intent to defraud present and future creditors are void as to such
As discussed in the earlier
Memorandum Decision in this case, proof of actual intent to defraud is
difficult to obtain, therefore proof of such intent is generally made
through circumstantial evidence. United States v. Bertie, 529 F.
2d 506, 508 (9th Cir. 1976).
Certain "badges of
fraud" are viewed as particularly indicative of fraudulent intent.
The numerous badges of fraud in the instant transaction lead this court
to conclude that the transfer was made with fraudulent intent. In so
holding, the court looks to
close personal relationship between the transferor Woolf and the
fact that Woolf was rendered insolvent by the transaction,
inadequacy of the consideration, if any,
lack of documentation of the alleged loans, and
fact that the lawsuit was imminent at the time of transfer.
529 F. 2d at 509, n. 5.
In addition, it is worth noting that Woolf continued to reside on the
property with her daughter after the alleged transfer, paying only
nominal rent and receiving full support from Munoz. This, too, is a
badge of fraud. Id. at 509.
Upon due consideration of
the parties' memoranda and exhibits, the arguments advanced at the
hearing, and for the reasons set forth herein, the court grants
plaintiff's motion for summary judgment.
The Indiana National Bank, Plaintiff v. Robert N.
Gamble, M.D. Church of Christian Liberty, Defendants v. United States of
America Intervenor v. Golf Mill State Bank, Third-Party Defendant
S. District Court, No. Dist. Ill., East. Div., No. 83 C 0403, 612 FSupp
[Code Secs. 6321, 6323, 7402 and 7403]
Federal tax lien: Fraudulent conveyance: Church related tax
schemes.--The conveyance of the taxpayer's residence, purchased one
year earlier for $127,000, to the Church of Christian Liberty for $10.00
was set aside as fraudulent because at the time he made the quit-claim
transfer, the taxpayer was in default on three promissory notes issued
to the Indiana National Bank and he had been notified that his 1975
income taxes were being audited. The taxpayer, who had become an
ordained minister of the church, had taken a vow of poverty, transferred
all his and his immediate family's assets to the church, and assigned
all his future income to the church in return for a monthly stipend.
Even though the property had been quit-claimed to the church, the
mortgage coupons and the insurance were still in the taxpayer's and his
wife's names and the mortgage payments were made by the taxpayer's
mother-in-law who was the only member of the household who was not
subject to a vow of poverty.
Julie Friedman Alcorn,
Berman, Maragos, Haber and Fagel, Chicago, Ill., for plaintiff. Robert
N. Gamble, M.D. pro se. Rev. Paul D. Lindstrom for Church of
Christian Liberty. Assistant United States Attorney Michael S.
O'Connell, Ms. Ellen Carpenter, Department of Justice, Washington, D. C.
20530, for intervenor. David J. Zeller, Arnstein and Zeller, Skokie,
Ill., for third-party defendant.
Opinion and Order
The plaintiff, Indiana
National Bank, originally instituted this action in the Circuit Court of
Cook County to set aside as fraudulent the conveyance by defendant
Robert N. Gamble of his residence at 9 Beechnut Drive, South Barrington,
Illinois to the Church of Christian Liberty. The United States,
asserting a tax lien on the property, intervened in that action and had
the case removed to this Court pursuant to 28 U. S. C. §1441. The
matter is now before the court on the motions of the United States and
Indiana National Bank for summary judgment. For the reasons stated
below, both motions are granted.
For the purposes of the
present motion, the facts will be interpreted in the light most
favorable to the defendant. However, as the following summary will show,
the material facts of this case are not in dispute. Dr. Robert N. Gamble
is a cardiac, thoracic, and vascular surgeon, who began religious
training with the Church of Christian Liberty in 1972. In 1974, Dr.
Gamble became ordained as a minister of the Church and a member of the
Order of John Calvin the Reformer. Gamble's relationship with the Church
involves several complex financial arrangements. As part of his
ordination, Gamble underwent a vow of poverty which required him to
transfer all his and his immediate family's assets (except for his
personal library) and to assign all his future income to the Church. In
exchange, Gamble received assurances of a monthly stipend to cover all
the family's bills, such as the mortgage and insurance on the Beechnut
property, utility payments and grocery bills. Under this arrangement,
Gamble's family remains substantially free to dispose of his income as
they see fit.
Gamble's financial system
with the Church also involves use of two corporations. In 1976, Gamble
entered into an agreement with R. V. Tatooles Associates Service
Corporation whereby his salary was assigned directly to the Order on a
monthly basis. In September 1983, Gamble formed the John Knox Surgery
Corporation, in which Gamble is president, his wife vice-president and
secretary, and their daughter treasurer. Gamble is the only physician
presently associated with Knox. Under this new arrangement, Gamble
receives no salary. The corporation's funds remaining after expenses are
paid are sent to the Order as a fee for Gamble's services, and the Order
continues to provide the Gambles with a monthly allowance.
On June 15, 1976, Gamble
and his wife executed a trust deed to purchase the Beechnut property.
The mortgage on this property was, and still is, held by the third-party
defendant, Golf Mill State Bank. According to Gamble, the Order provided
the funds for the down payment; title was taken in his and his wife's
name, however, because Golf Mill refused to finance any purchases under
the Church's name. Although Gamble denies that he ever "owned"
the Beechnut property, Gamble admitted having signed the trust deed and
the loan application to Golf Mill along with accompanying documents
relating to the loan. These documents identify Gamble as one of the
co-obligors on the mortgage, and as the record owner of the property.
On July 1, 1977, title to
the Beechnut property was conveyed by quit-claim deed from the Gambles
to the Church. The stated consideration for the conveyance was $10.00.
According to Gamble, this consideration was never paid, but the Gambles
did receive an oral assurance that the Church would cover all future
mortgage payments, along with payments for matters such as food,
utilities, and clothing. Gamble further testified that this conveyance
was made voluntarily. Gamble did not notify Golf Mill of the quit-claim
transfer since they had previously refused to deal with the Church. The
Gambles pay no rent for the use of the house. The mortgage coupons and
the insurance are still in his and his wife's names. Gamble has assigned
to Mrs. Helen Koerner, his mother-in-law, the task of writing the
monthly mortgage checks, which are drawn on her personal checking
account. Mrs. Koerner is the only member of Gamble's household who is
not subject to his vow of poverty.
At the time that Gamble
made the quitclaim transfer, he was in default on three promissory notes
issued to plaintiff Indiana National Bank in the amounts of $2,692.57
dated December 12, 1973; $7,304.75 dated December 22, 1972, and
$2,798.93 dated June 15, 1973. Consequent to the above default, on or
around October 16, 1975, the Bank filed suit against Gamble in Minnesota
state court to collect on the notes, plus interest, costs and attorney
fees. Due to his religious convictions and the ecclesiastical position
of the Order regarding legal counsel, Gamble did not contest the suit,
and judgment was rendered against him on September 1, 1977 in the amount
of $18,037.80. Gamble has testified that the summons and complaint in
that case had been served on him in Minnesota, that he was aware of the
lawsuit, and that he was aware of the judgment rendered. The Bank later
filed suit against Gamble in Cook County to register its Minnesota
judgment in Illinois. Gamble was again aware that he had been made a
defendant in that case but again did not appear, and the Bank obtained a
registration of the judgment on October 20, 1978.
Also at the time of the
quit-claim transfer, Gamble's 1975 income taxes were being audited. The
I. R. S. notified Gamble that his 1975 return was being examined by
letter dated March 25, 1977. On May 5, Gamble was sent a Report of
Individual Tax Audit Changes. Although Gamble's testimony is somewhat
conflicting on the matter of receiving these documents, Gamble admitted
to mailing a response to the District Director in Edina, Minnesota on
May 16, 1977, in which he requested an appointment to discuss the audit.
On May 19, 1978, Gamble
filed a petition with the Tax Court for a redetermination of the
deficiency in his 1975 income taxes. The Tax Court dismissed Gamble's
petition for want of prosecution, and found that there was a deficiency
in Gamble's 1975 income tax in the amount of $7,840.66. On July 13,
1981, the Secretary of the Treasury assessed $11,129.71 in unpaid taxes
and interest against Gamble. Gamble has refused to pay the assessment,
and a Notice of Federal Tax Lien was filed with the Cook County
Recorder's office on January 20, 1982. The Government now requests this
court to set aside the conveyance, to reduce its tax assessment against
Gamble to judgment, to determine the validity of its lien, and to order
that the Beechnut property be sold by a proper officer of the Court with
the proceeds to be distributed to the various parties in order of
Law of Fraudulent Conveyance
The law underlying this
case is wellsettled. Under Ill. Rev. Stat., ch. 59, §4, "[e]very
gift, grant, conveyance, assignment or transfer of, or charge upon any
estate . . . made with the intent to disturb, delay, hinder or defraud
creditors or other persons . . . shall be void as against such
creditors, purchasers, and other persons." The Illinois courts have
divided transfers voidable under this section into two categories: fraud
in law and fraud in fact. Tcherepnin v. Franz, 457 F. Supp. 832,
836 (N. D. Ill. 1978); Harris v. Aimco, Inc., 66 Ill. App. 3d 60,
62, 383 N. E. 2d 631, 633 (5th Dist. 1978); Wilkey v. Wax, 82
Ill. App. 2d 67, 70, 225 N. E. 2d 813, 814 (1st Dist. 1967). To prove
fraud in fact, the plaintiff seeking to set aside a transfer must
demonstrate an actual intent to hinder creditors. However, a voluntary
transfer which is made without consideration or which directly impairs
the rights of creditors "will be regarded as fraudulent in law,
irrespective of the honesty of the grantor's motives." First
Security Bank v. Bawoll, 120 Ill. App. 3d 787, 458 N. E. 2d 193, 198
(2d Dist. 1983). See also Capitol Indemnity Corp. v. J. H. Keller,
717 F. 2d 324, 327 (7th Cir. 1983) (transfer without consideration
constructive fraud and void under Illinois law); Tcherepnin, 457
F. Supp. at 836 (fraudulent intent immaterial in fraud in law cases).
To sustain a claim of fraud
in law, a creditor must prove three elements: (1) a voluntary gift; (2)
an existing or contemplated indebtedness; and (3) failure of the debtor
to retain sufficient assets to pay the indebtedness. Tcherepnin v.
Franz, 475 F. Supp. 92, 96 (N. D. Ill. 1979) (Tcherepnin II);
Mills v. Susanka, 394 Ill. 439, 448, 68 N. E. 2d 904, 909 (1946).
Because actual intent to impair creditors is irrelevant, the presumption
of fraud in such cases can be rebutted only if the debtor shows that he
retained sufficient property to pay his or her obligations, Tcherepnin,
457 F. Supp. at 840, or that adequate consideration was given for the
transfer. Harris v. Aimco, Inc., 66 Ill. App. 3d 60, 62, 383 N.
E. 2d 631, 633 (5th Dist. 1978). If the presumption of fraud is
successfully rebutted, then the creditor must prove actual intent to
defraud. Till v. Till, 87 Ill. App. 2d 358, 361, 231 N. E. 2d
641, 643 (1st Dist. 1967).
In the present case, the
United States and Indiana National Bank have offered the following to
demonstrate that Gamble's quit-claim conveyance of his Beechnut Drive
home should be deemed fraudulent. First, Gamble has testified that the
transfer was voluntary in all respects. The property was purchased one
year before the transfer for $127,000, but was quit-claimed for a mere
$10.00, a manifestly inadequate consideration. Under Illinois law, which
this court is bound to follow, a transfer for grossly inadequate
consideration is deemed to be a "voluntary gift." Till,
87 Ill. App. 2d at 361; 231 N. E. 2d at 643.
Second, at the time of the
transfer, Gamble was in default on loans from the Indiana National Bank
and knew of legal proceedings being brought against him to reduce that
claim to judgment. Gamble was also aware no later than May 16, 1977 that
the IRS was auditing him for his 1975 taxes. Although those taxes had
not yet been assessed, the law is well settled, for fraudulent
conveyance purposes, tax liabilities are due and owing on the date the
returns are required to be filed and not the date of assessment. United
States v. St. Mary [72-1 USTC ¶9319], 334 F. Supp. 799, 803 (E. D.
Pa. 1971); United States v. van der Horst [67-2 USTC ¶9669], 270
F. Supp. 365, 368 (D. Del. 1967). See also Zeddies v. United States
[66-1 USTC ¶9273], 357 F. 2d 897, 899 (7th Cir. 1966) (holding that
statutory liens under 26 U. S. C. §6322 by contrast arise at time of
assessment and that government was therefore relegated to its rights as
a creditor to avoid a preassessment conveyance). Therefore, the second
element of constructive fraud--an existing or contemplated
indebtedness--is also met.
Finally, Gamble has
repeatedly testified that he is subject to a vow of property and owns no
property of his own. Although Gamble's financial arrangements with the
Church might in fact allow him to reach the funds necessary to pay his
creditors, the Church's property is presently beyond his creditors'
reach. See Cairo Lumber Co. v. Landenberger, 313 Ill. App. 1, 9,
39 N. E. 2d 596, 600 (1942) (property concealed in the names of third
parties is not readily available for creditor satisfaction and therefore
not to be considered in determining amount of property retained by
transferor). The court therefore agrees that Gamble has not retained
sufficient assets to pay his indebtedness to them.
In his response, defendant
Gamble has not presented any opposing affidavits to refute the above
facts but instead has relied on unsupported factual obligations and bare
legal conclusions to create a factual dispute. While this would
ordinarily be insufficient to defeat a motion for summary judgment, the
court notes that both Dr. Gamble and the Church, through its
representative Reverend Paul Lindstrom, are appearing pro se, and
should be held to a standard of pleading and argument less stringent
than that applied to expertly trained members of the legal profession,
see Hughes v. Rowe, 449 U. S. 5, 9-10 (1981). The court therefore
entertains these arguments in full.
Gamble first contends that
the Indiana National Bank fraudulently induced him to sign the
promissory notes at issue and that the
' tax assessment is invalid in law and was obtained only as a result of
his inability to represent himself in those earlier proceedings. As the
movants note, the bank's judgment on the promissory notes and the Tax
Court's decision with respect to Gamble's 1975 tax liability are res
judicata and cannot be relitigated in the present action. That
religious convictions may have influenced Dr. Gamble not to contest
those suits does not alter this conclusion. Dr. Gamble does not argue
that allowing those earlier cases to proceed to judgment violated his
first amendment rights, and, even if he did, the record shows that Dr.
Gamble's decision was due to the Church's inability at that time to
provide him with counsel of choice from within the Order, and his own
busy schedule preventing him from representing himself. In this respect,
Gamble's decisions not to defend the Bank suit and not to prosecute his
Tax Court petition were as much due to personal convenience as to
religious scruples. The court therefore finds no grounds for questioning
the application of ordinary res judicata principles to the
The court also finds that
Gamble's arguments about the merits of the judgments against him does
not affect the conclusion that there was an existing or contemplated
indebtedness against the debtor. Under Illinois law, a party with a
subsisting claim against a debtor at the time of the conveyance is a
pre-existing creditor, even though his claim may not have matured or
been reduced to judgment until after the conveyance was made. See Tcherepnin,
457 F. Supp. at 839; Menconi v. Davidson, 80 Ill. App. 2d 1, 5,
225 N. E. 2d 139, 142 (1st Dist. 1967). That Gamble believed the Bank's
suit to be without merit and believed that he owed no taxes is
irrelevant to the existence of those debts. Tcherepnin, 457 F.
Supp. at 839.
Defendant Gamble next
argues that such property was never in reality owned by him, despite the
use of his and his wife's names in the title, since the Church had
financed both the downpayment and all subsequent payments. As the
government argues, the bona fides of Gamble's financial arrangements
with the Church must be seriously questioned, since these arrangements
allow Gamble to claim tax exemptions and protection from creditors while
enjoying full use of his income and property. Even assuming good faith
in Gamble's relations with the Church, however, the facts are
uncontested that Gamble took title in his own name because the mortgagee
Golf Mill Bank had refused to finance a purchase by the Church. The
trust deed and all other legal documents relating to the realty were
signed by the Gambles without any suggestion that they might have been
acting as agents for the Church.
In essence, Gamble's
argument amounts to the contention that the 1977 quit-claim deed was a
nullity intended merely to formalize his own understanding of what the
relative property interests between himself and the Church had been all
along. Gamble's understanding, however, is irrelevant. It has long been
held in Illinois that a mortgagor who warrants title "will not be
heard to say that at the time of the execution of the mortagage he had
no title but that there was an outstanding title in a third
person." Kronan Building & Loan Ass'n v. Medeck, 368
Ill. 118, 122, 13 N. E. 2d 66, 68 (1938). Moreover, in his brief Gamble
contends that the 1977 quit-claim deed was used to transfer the Beechnut
property into the Church's name for the purpose of obtaining a tax
exemption. Thus, Gamble himself has admitted that the property was
"legally" his at the time of the transfer, his relations with
the Church notwithstanding.
Gamble finally argues that
the transfer was supported by a valuable consideration--namely the
Church's promise of continued support--and therefore cannot be avoided
absent a showing of actual intent to defraud. The government has argued
that such intent can be inferred from the circumstances of this case.
The court does not reach the issue of intent, however, since a transfer
of property for future services or support creates a trust for the
transferor's benefit and is void against creditors. People's Bank v.
Wood, 207 Ill. App. 602 (1917). Moreover, insofar as the Church had
promised in 1974 to pay Gamble's mortgage payments and other living
expenses, Gamble received absolutely no benefit from the contract that
he did not have before. Thus, Gamble's argument that he received a
valuble consideration must be rejected. The three elements of
constructive fraud having been proven and not rebutted, the court finds
that the conveyance may be set aside.
The conveyance having been
ordered set aside, the court now addresses the question of relief. The
United States has requested that its tax liens on the property be
reduced to judgment and foreclosed and that the property be sold, with
the proceeds to be distributed pursuant to the court's determination.
The court finds that Gamble's previous default judgment in the Tax Court
in Gamble v. Commissioner, No. 5289-78, (Tax Court Jan. 15,
1981), is res judicata in this action and that the government's
assessment may therefore be reduced to judgment. See United States v.
Bottenfield [71-1 USTC ¶9371], 442 F. 2d 1007, 1008 (3rd Cir.
The court also concludes
that the property should be sold. In United States v. Rodgers
[83-1 USTC ¶9374], 103 S. Ct. 2132 (1983), the Supreme Court held that
Section 7403 of the Internal Revenue Code, 26 U. S. C. §7403, empowers
a federal district court to order the forced sale of a family home in
which a delinquent taxpayer had an interest at the time he incurred his
indebtedness, even though the taxpayer's spouse has an unencumbered
separate "homestead" interest under state law in the same
property. The Court noted that to the extent third-party property
interests are "taken" in the process, §7403 provides
compensation by requiring the court to distribute the proceeds of the
sale according to the interests of the respective parties. Id. at
2145. However, the Court also concluded that §7403 does not
require a "forced sale under all circumstances," but leaves
"some limited room . . . for the exercise of reasoned
discretion." Id. at 2149.
In carving out an exception
to the government's power of forced sale, the court emphasized that the
discretionary power of the district courts to refuse authorization for a
judicial sale should be "exercised rigorously and sparingly,
keeping in mind the Government's paramount interest in prompt and
certain collection of delinquent taxes." Id. at 2152. The
Court noted that it could think of "virtually no
circumstances" in which a court should refuse to authorize a sale
to protect the interests of the taxpayer himself instead of the
interests of innocent third parties. Id. at 2151. And the Court
noted that even where innocent third party interests are at stake, a
"fairly limited set of considerations will almost always be
paramount." Id. at 2151. The Court identified these
considerations as follows: the extent to which the Government's interest
would be prejudiced by a forced sale of the debtor's partial interest
only; whether the third party with a nonliable separate interest in the
property has a legally recognized expectation that the separate property
would not be subject to forced sale by the delinquent taxpayer; the
likely prejudice to the third party; and the relative character and
value of the non-liable and liable interests held in the property. Id.
Keeping in mind the Supreme
Court's admonition in Rodgers that the above factors not be used
as a mechanical checklist to the exclusion of common sense, the court
applies these factors to the present case. The property is a residence
jointly owned by Dr. and Mrs. Gamble. To sell only Dr. Gamble's
interest would significantly prejudice the United States' financial
interests in the property since few, if any, purchasers would pay half
of the residence's fair market value simply to be a co-owner with Mrs.
Gamble. Second, the court finds that Mrs. Gamble, having attempted to
convey her interest in the property to the Church, cannot be said to
have a solid exception that her interest in the home was beyond
foreclosure for another's debts. Although a forced sale would, of
course, cause personal dislocation to Mrs. Gamble, the only way to avoid
that dislocation would be to allow Dr. Gamble to continue in possession
of his home without paying off his creditors first. Such a result would
go against the equities in this case, and would wholly undermine the
"Government's paramount interest in prompt and certain collection
of delinquent taxes." Rodgers, 103 S. Ct. at 2152.
Accordingly, the court
holds that the federal tax lien on the Beechnut property be foreclosed
and the property sold, with the proceeds to be distributed according to
the respective interests of the parties. The parties have not yet
briefed the issue, but the court assumes that distribution would follow
the priorities of 26 U. S. C. §6323. That statute would give the United
States's lien priority over that of the unperfected judgment creditor
Indiana National Bank, but would subordinate the government's lien to
Golf Mill State Bank, which held a perfected security interest prior to
the time the government recorded its tax lien. It also appears that Mrs.
Gamble may be entitled to a homestead estate in the Beechnut property
under Ill. Rev. Stat., ch. 110, ¶12-901 (1981). If so, Rodgers
clearly mandates that the taking of that estate through forced sale be
compensated. The court will not enter a final order as to distribution,
however, until such time as the parties have had an opportunity to be
heard on the issue.
Therefore, the motion for
summary judgment is granted. The conveyance is set aside, the
government's tax lien is reduced to judgment, and the property is
ordered sold to satisfy the claims of Gamble's creditors. The case is
set for status on October 26, 1984, to discuss the priority of
It is so ordered.
United States of America, Plaintiff v. Samuel L.
Ambrose, et al., Defendants
S. District Court, No. Dist. Ohio, East. Div., Case No. C79-2147Y,
[Code Sec. 6321]
Lien: Fraudulent conveyance.--Conveyances of the taxpayer's
property to relatives were set aside since they were made to shield the
property from the government's lien for taxes. Title to the property was
originally held by the taxpayer's minor son, who supposedly received the
funds to purchase the property from an inheritance. Such an inheritance
was doubtful and the father remained in control of the property--even
later when the property was transferred to his mother without
consideration. The taxpayer was a man known for forgery, failing to file
returns, efforts to defraud other creditors and a prior conviction for
tax cheating. A lien against another piece of property formerly owned by
the taxpayer could not be foreclosed because, despite the queer nature
of conveyances of the property to relatives, the original conveyance did
not appear fraudulent.
John M. Siegel, Assistant
United States Attorney, Cleveland, Ohio 44114, Jason M. Green,
Department of Justice, Washington, D. C. 20530, for plaintiff. John
Kennedy Lynch, 711 Statler Office Tower, Cleveland, Ohio 44115, for
Down, District Judge:
This case came before the
Court for a bench trial. The Court deferred decision pending filing of
the transcript and post-trial requests for findings of facts and
conclusions of law by the parties. Briefing was complete on August 22,
1984, and the case is now ready for decision.
At the outset, a brief
overview of the case is appropriate. The parties have stipulated that
Samuel Ambrose owes the government for back taxes for the years 1970,
1971, and 1972. 1
The government now seeks to collect those back taxes by foreclosing upon
two pieces of property located at 1007 North Ward Avenue and 725 Esme
Drive in Girard, Ohio.
During the past fifteen
years, these two properties have been held by relatives of Samuel
Ambrose and have been the subject of number of conveyances. The
government contends that these conveyances were sham transactions
conducted by Samuel Ambrose to avoid his tax liabilities, and that they
should be set aside, placing title to return the properties to Samuel
Ambrose's name. The government would then foreclose on the properties in
satisfaction of its outstanding claims against Samuel Ambrose.
Although this case involves
a federal tax claim, the issues for decision are ones of state law.
Where a conveyance or
obligation is fraudulent as to a creditor, such creditor, when his claim
has matured, may, as against any person . . .
the conveyance set aside . . . to the extent necessary to satisfy his
disregard the conveyance and attach or levy execution upon the property
Rev. Code §1336.09(a). Under this statute, the government may have the
conveyances annulled and levy execution upon the property if the
conveyances are fraudulent. The statute goes on to define fraudulent
conveyances to include
Every conveyance made and
every obligation incurred with actual intent, as distinguished from
intent presumed in law, to hinder, delay, or defraud either present or
future creditors. . . .
Rev. Code §1336.07. Under this statute, therefore, the government may
succeed in perfecting its liens on the property if the conveyances were
made with actual intent to hinder, delay, or defraud the government's
collection of its claims.