Bona Fide Purchaser for Value Page 1

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American Insurance Company, Plaintiff v. New York City Health and Hospitals Corporation, Defendant. New York City Health and Hospitals Corporation, Interpleader Plaintiff v. Levinson & Santoro Electric Corporation, et al., Interpleader Defendants.

U.S. District Court, So. Dist. N.Y. ; 99 Civ. 3891 (LAP), 265 FSupp2d 434, July 8, 2003 .

[ Code Sec. 6323]

Tax liens: Priority: Interpleader fund: Assignment of property interest. --

An assignment made by a delinquent taxpayer to an insurance company of certain contract funds constituted a complete transfer of the taxpayer's interest in those funds to the insurer pursuant to state ( New York ) law. Because the assignments effectively transferred the taxpayer's property interest in the funds before the government's federal tax lien could attach to the interpleaded monies, the insurer's claim had priority over the government's lien. However, the insurer's contention that it was entitled to priority over the tax lien because it qualified as a "purchaser" under federal law was rejected. The evidence did not establish that it met the adequate and full consideration standard of Code Sec. 6323(h)(6).

MEMORANDUM AND ORDER

PRESKA, District Judge: Interpleader defendant the United States (the "Government") and plaintiff American Insurance Company ("American") have cross-moved for summary judgment in this action concerning funds due Levinson & Santoro Electric Corporation ("L&S") under certain contracts with defendant-interpleader plaintiff New York Health and Hospitals Corporation ("NYHHC"). At issue is whether the Government or American has a priority claim to the interpleader fund.

BACKGROUND

The following facts are undisputed unless otherwise noted. In March 1987 and April 1994, L&S and certain others executed and re-executed a General Indemnity Agreement (collectively, the "Indemnity Agreements") as a precondition to American's issuance of payment and performance bonds on behalf of L&S in connection with certain construction projects. (American Rule 56.1 Statement ¶1). The Indemnity Agreements granted American certain rights including "an assignment of all monies due, or to be come due, to L&S in connection with bonded and unbonded projects, as well as a separate security interest in all monies due, or to become due, to L&S in connection with the bonded and unbonded projects." ( Id. at ¶ ¶2-3). In the fall of 19 95, L&S advised American that it needed financial assistance to complete its work under various construction contracts, and as a result, in December 1995, American and L&S entered into an agreement (the "Assistance Agreement"). ( Id. at ¶ ¶7-8). Under the Assistance Agreement, American "provided financial assistance to L&S for the completion of various bonded projects...." ( Id. at ¶8). On December 20, 1995, "as part of the consideration to American for the Assistance Agreement," L&S executed certain assignments (the "Assignments") "cumulative with American's existing rights under the [previously entered into] Indemnity Agreements, expressly assigning to American L&S' right to all contract funds in connection with various bonded and unbonded projects." ( Id. at ¶9). Specifically, L&S provided American "with an express assignment of its rights to receive existing or future Contract Funds" for two projects, the Queens Hospital Project and the Bellevue Project. ( Id. at ¶ ¶10-11). The Assignments, by their express terms, are "irrevocable" and provide that L&S "immediately assigns, transfers and sets over to" American "all right, title and ownership to all contract funds of any nature," whether those funds "are due now or shall, in the future, become due" for the Queens Hospital and Bellevue Projects. (American Rule 56.1 Statement at ¶ ¶13-14, 16-17). American states that in reliance on the Assignments and other agreements, it provided financial assistance to L&S and incurred "losses, costs, fees and expenses in the total amount of $11,741,485.90." ( Id. at ¶ ¶15, 18-19). The Government disputes the accuracy of this amount, arguing that American only provided financial assistance and/or incurred losses of no more than $7,050.71. (Gov. Response to American's Rule 56.1 Statement ¶ ¶15, 19).

L&S' tax liability for the tax periods ending September 30, 1995 and December 31, 1995 was assessed on March 11, 1996 and May 20, 1996, respectively. (Ex. A to the Declaration of David J. Kennedy, sworn to on July 30, 2002 ). On January 16, 1997 , the Internal Revenue Service (the "IRS") filed a federal tax lien against L&S in the amount of $753,393.33. (Gov. Rule 56.1 Statement ¶1). On March 10, 1997 , American served NYHHC with the Assignments. (American Rule 56.1 Statement ¶ ¶20-21). It is undisputed that as of that date, certain funds were due and owing to L&S under the Queens Hospital contract, although the Government disputes that American has proven that any funds were due and owing under the Bellevue Contract ¹ and that any funds under either contract remain due and owing L&S. ( Id. ¶22; Gov. Response to American Rule 56.1 Statement ¶ ¶23-25).

American commenced the instant action against NYHHC in 1999 in the Supreme Court of New York, New York County, and the case was subsequently removed to federal court. By notice of motion filed on or about July 31, 2002 , the Government moved for summary judgment in the amount of $758,174.73 plus interest from July 8, 2002 . American filed its cross-motion for summary judgment on or about August 21, 2002 . The Government argues that American does not qualify as either a purchaser or a holder of a security interest and that, therefore, the federal tax lien has a priority claim to the interpleader fund. In support of this argument, the Government points out that American has admitted that it did not file any U.C.C. financing statements with regard to the Assignments, thus defeating any claim that American holds a perfected security interest. In response, American argues that, contrary to the Government's characterization of its position, American does not base its claim on a security interest, but rather on the theory that it owns the monies due L&S based upon the Assignments. American argues that under New York law, the Assignments --executed in 1995 --made the funds the property of American and that, therefore, the federal tax lien against L&S --filed in 1997 --could not attach to the funds. ² In addition, or alternatively, American argues that it qualifies as a purchaser under 26 U.S.C. §6323(a) with an interest superior to that of the Government. American also adds a final argument regarding a subrogation claim under Article 3-A of the New York Lien Law for the approximately $7000 it expended on L&S' behalf.

DISCUSSION

I. Summary Judgment Standard

"A motion for summary judgment may not be granted unless the court determines that there is no genuine issue of material fact to be tried and that the facts as to which there is no such issue warrant judgment for the moving party as a matter of law." Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 36 (2d Cir. 1994); see Fed. R. Civ. P. 56(c); see generally Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). An issue of fact is genuine when "a reasonable jury could return a verdict for the nonmoving party," and facts are material to the outcome of the particular litigation if the substantive law at issue so renders them. Anderson, 477 U.S. at 248.

The burden of establishing that no genuine factual dispute exists rests on the party seeking summary judgment. Chambers, 43 F.3d at 36. "In moving for summary judgment against a party who will bear the ultimate burden of proof at trial," however, "the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim." Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995); accord Gallo v. Prudential Residential Servs., 22 F.3d 1219, 1223-24 (2d Cir. 1994) ("The moving party may obtain summary judgment by showing that little or no evidence may be found in support of the nonmoving party's case."). The moving party, in other words, does not bear the burden of disproving an essential element of the nonmoving party's claim.

If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P.56(e); accord Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525-26 (2d Cir. 1994). The nonmoving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. Instead, the nonmovant must "`come forward with enough evidence to support a jury verdict in its favor, and the motion will not be defeated merely ... on the basis of conjecture or surmise."' Trans Sport v. Starter Sportswear, 964 F.2d 186, 188 (2d Cir. 1992) (citation omitted).

On cross-motions for summary judgment, the court applies the same standard as that for individual motions and treats the facts in the light most favorable to the non-moving party. See Aviall, Inc. v. Ryder Sys., 913 F.Supp. 826, 828 (S.D. N.Y. 1996). "Simply because the parties have cross-moved, and therefore have implicitly agreed that no material issues of fact exist, does not mean that the court must join in that agreement and grant judgment as a matter of the law for one side or the other. The court may conclude that material issues of fact do exist and deny both motions." Id. (internal citation omitted). See also Heublein, Inc. v. United States [ 93-2 USTC ¶50,397], 996 F.2d 1455, 1461 (2d Cir. 1993).



II. Analysis

As noted at the outset, resolution of these motions turns on which party has a priority claim to the interpleader fund. Federal law determines the priority of competing liens, governed by the traditional rule of "first in time is first in right." See United States v. City of New Britain [ 54-1 USTC ¶9191], 347 U.S. 81, 85-86 (1954); United States v. Hage [ 76-1 USTC ¶9459], 417 F.Supp. 74, 76 (N.D. N.Y. 1976). As against a federal tax lien, a state lien can take priority only if, in addition to being first in time, it is choate, or fully established, before the federal lien attaches. See Don King Prods., Inc. v. Thomas [ 91-2 USTC ¶50,474], 945 F.2d 529, 533 (2d Cir. 1991) ("A choate lien is one in which the identity of the lienor, the property subject to the lien and the amount of the lien are established."); United States v. 110-118 Riverside Tenants Corp. [ 90-2 USTC ¶50,493], 886 F.2d 514, 518 (2d Cir. 1989); Hage [ 76-1 USTC ¶9459], 417 F.Supp. at 76-77. A federal tax lien attaches to "all property and rights to property, whether real or personal," belonging to the taxpayer, here, L&S. 26 U.S.C. §6321. The nature of the taxpayer's property interest is determined by state law, here the law of the State of New York . Thus, in order to make a determination as to priority, I must first consider when each party's rights to the interpleader fund arose. See Jaffie Contracting Co. v. Doff, No. 94 Civ. 2670, 1995 U.S. Dist. LEXIS 11765, at *9 (S.D. N.Y. Aug. 16, 1995). A federal tax lien arises at the time of assessment. 26 U.S.C. §6322. The dates of assessment for L&S' tax liability were March 11, 1996 and May 20, 1996 .

As stated above, American bases its claim to the interpleader fund primarily on the Assignments it executed with L&S for the Queens Hospital and Bellevue Projects. American argues that the Assignments conveyed L&S' property interest in the funds to American and that, therefore, the federal tax lien could not attach to the funds. I find that the language of the Assignments in this case --providing that L&S "immediately assigns, transfers and sets over to" American "all right, title and ownership to all contract funds of any nature," whether those funds "are due now or shall, in the future, become due" for the Queens Hospital and Bellevue Projects --constituted a complete assignment under New York law of all rights under the Queens Hospital and Bellevue contracts to American because L&S and American "intended a complete and immediate transfer of the interest at the time of the [A]ssignment[s]." Jaffie Contracting, 1995 U.S. Dist. LEXIS 11765, at *10; see also Continental Oil Co. v. United States [ 71-1 USTC ¶9296], 326 F.Supp. 266, 269 (S.D. N.Y. 1971). Under the Assignments, American received "a complete transfer of the entire interest of the assignor in the particular subject of assignment, whereby the assignor is divested of all control over the thing assigned." Continental Oil [ 71-1 USTC ¶9296], 326 F.Supp. at 269 (quoting 3 N.Y. Juris. Assignments §28) (quotation marks omitted). It is undisputed that the Assignments were executed in December of 1995, while the IRS did not assess the taxes against L&S until 1996 and file its federal tax lien until January of 1997. Accordingly, I find that American is entitled to priority because the Assignments effectively transferred L&S' property interest in the funds before the Government's federal tax lien could attach. ³

I have also considered American's argument that it qualifies as a "purchaser" under federal law. A federal tax lien imposed by Section 6321 is not valid "as against any purchaser [or] holder of a security interest ... until notice thereof ... has been filed by the Secretary," 26 U.S.C. §6323(a), and thus, if American qualified as a purchaser, it would be entitled to priority over the federal tax lien. As defined by 26 U.S.C. §6323(h)(6), a "purchaser" is "a person who, for adequate and full consideration in money or money's worth, acquires an interest (other than a lien or security interest) in property which is valid under local law against subsequent purchasers without actual notice." The requirement of adequate and full consideration is what sets a purchaser apart from a regular assignee and is a matter of federal law. See United States v. Paladin [ 82-1 USTC ¶9360], 539 F.Supp. 100, 103 (W.D. N.Y. 1982); see also 26 C.F.R. 301.6323(h)-1(f)(3) ("the term `adequate and full consideration in money or money's worth' means a consideration in money or money's worth having a reasonable relationship to the true value of the interest in property acquired"). While American states that it "provided good and valuable consideration for the Assignments, based on the monies advanced by American under the Assistance Agreement exceeding $11,741,485.90," (American Memo. at 12), I find there is insufficient evidence in the record supporting American's claim that it meets the "adequate and full consideration" standard. American has put in a spreadsheet of payments made on L&S' behalf, (Ex. A to the Declaration of Stacey M. Fleming, sworn to October 17, 2002 ("Fleming Reply Decl.")), and claims that these payments "demonstrat[e] the exchange of adequate and full consideration for the Assignments." (Fleming Reply Decl. at ¶4). While the spreadsheet indicates that some payments were made on the date the Assignments were executed, the payments appear to relate to work on the Mt. Sinai Electrical Multipurpose Building , and not for either the Queens or Bellevue Hospital Projects. (Ex. A to Fleming Reply Decl. at 2-3). Accordingly, I find that American has not demonstrated that it qualifies as a purchaser.

Finally, L&S has submitted papers attesting to settlement negotiations between the L&S and the Government, in the apparent hope that the Court will reduce the amount of the federal tax lien. However, L&S takes no position on whether American or the Government should be entitled to a priority claim to the interpleader fund. In response, the Government argues that L&S' submissions should be stricken from the docket as violating Fed. R. Evid. 408. Having found that American has a priority claim to the interpleader fund, I decline to make a finding on this issue.

CONCLUSION

For the foregoing reasons, the Government's motion for summary judgment is denied. American's motion for summary judgment is granted to the extent that I find American is entitled to a priority claim to the interpleader fund. Counsel shall confer and inform the Court by letter no later than July 14, 2003 of the steps necessary to resolve the action.

SO ORDERED

¹ However, the Government does not dispute that American made demands on NYHHC for payment under both the Queens Hospital and Bellevue contracts. (Gov. Response to American's Rule 56.1 Statement ¶ ¶26-29).

² In support of this argument, American points to a case decided in the Supreme Court of the State of New York , Nassau County , to which the Government was not a party. I agree with the Government that the conclusions reached by the court in that case are irrelevant for purposes of this case.

³ Because I find that American is entitled to a priority claim to the interpleader fund, I decline consideration of American's subrogation claim pursuant to Article 3-A of the New York Lien Law.

 

[99-2 USTC ¶50,861] Jo Ellen Kaiser, Administrator of the Estate of Joseph H. Hans, Plaintiff v. Shirley A. Stedman, et al., Defendants

U.S. District Court, So. Dist. Ohio , East. Div., C:2-95-1074, 9/9/99

[Code Sec. 6321 ]

Liens and levies: Fraudulent conveyances: Badges of fraud: Conveyance made in consideration of dissolution of marriage.--The government failed to prove that real estate transfers made by a delinquent taxpayer before his death were fraudulent. Although sufficient badges of fraud existed in connection with the transfers to shift the burden to the transferees to show that the transfers were valid, including the intimate relationship between the transferor and the primary transferee, the parties' extensive cash dealings, the transferor's possession and control over the property following the transfer and the use of nominees or fictitious parties in the transactions, the transferee rebutted the presumption of fraud with her allegation that the transfers were made in consideration of the dissolution of her common-law marriage to the taxpayer and pursuant to a related decree.

[Code Sec. 6323 ]

Priority of liens: Bona fide purchaser for value: Form of notice: Notice or knowledge of lien.--An individual who bought land from a delinquent taxpayer's wife was a bona fide purchaser for value whose interest was superior to a tax lien on the property. The government failed to show that she knew that the taxpayer's conveyance of the property to his wife was allegedly fraudulent. The IRS also filed inadequate notice of the lien since a reasonable inspection would not have revealed the lien's existence, and it failed to clearly identify that the property was held by the taxpayer's wife.

[Code Secs. 6323 and 6502 ]

Liens and levies: Real estate: Fraudulent conveyance: Action to set aside conveyance: Foreclosure: Collection after assessment: Statute of limitations: Sovereign immunity: Federal and state law.--Although issues of material fact precluded summary judgment that the government was entitled to foreclose against real property that a delinquent taxpayer transferred to others before his death, the foreclosure action was timely. The government's sovereign status exempted it from compliance with the limitations period applicable to the state ( Ohio ) fraudulent conveyance statute. Furthermore, since it instituted timely collection actions under Code Sec. 6502 against the taxpayer, the government was not bound by the six-year statute of limitations of Code Sec. 6502 in its efforts to enforce a levy against the transferees. M. Weintraub (CA-6), 80-1 USTC ¶9172 , followed.

[Code Sec. 6323 ]

Nominees: Theory not viable under state law: State law controlling: Summary judgment: Issue of material fact.--The U.S. was not entitled to partial summary judgment in its levy enforcement action with respect to its claim that tax liens attached to real property under the nominee doctrine. Neither the U.S. Court of Appeals for the Sixth Circuit nor state ( Ohio ) courts had recognized the applicability of that doctrine as part of Ohio law. Furthermore, the government could not circumvent state law to apply the nominee theory since Ohio law directly controlled a determination of whether a delinquent taxpayer's transfers could be set aside as fraudulent. The U.S. also failed to demonstrate conclusively that, under Ohio law, a corporation owned by the transferee had no separate existence from her. Since genuine issues of material fact existed as to that claim, the government could not pierce the corporate veil.

[Code Sec. 6323 ]

Liens and levies: Fraudulent conveyances: State ( Ohio ) law.--Property conveyances made by a delinquent taxpayer before his death could be considered fraudulent as to the government, even though his deficiencies were first assessed after the transfers. Since part of the taxpayer's deficiency arose during the tax year in which the transfers occurred, the government was deemed a present creditor for taxes due at the end of that year, and a future creditor as to subsequent tax years. Consequently, the government could invoke the Ohio fraudulent conveyance act to set aside the transfers as long as it could show that they were made with the intent to defraud the IRS.

[Code Sec. 6901 ]

Direct transferee liability: In rem action: Judgment liens.--The Code Sec. 6901 limitations period did not apply to the government's levy enforcement suit against real property that a delinquent taxpayer transferred to others before his death because the suit was an in rem action to set aside the transfers, rather than an in personam action to hold the transferees liable for his debts. The government also had a valid and simultaneously enforceable judgment lien against the taxpayer.

MEMORANDUM AND ORDER

PROCEDURAL HISTORY

HOLSCHUH, District Court Judge:

This action was originally filed on October 12, 1995 in the Court of Common Pleas, Franklin County, Ohio by Plaintiff Jo Ellen Kaiser, admin istrator of the Estate of Joseph H. Hans. Plaintiff has named as Defendants: Shirley Stedman, Garland by the Sea, Ltd. ("Garland"), S. Ann Douglas, ¹ National Wood Products, Inc., ² Federal Home Loan Mortgage, Olga Tokar, Maxine Ruzich, Catherine Hans, the Franklin County Treasurer, the Department of Taxation for the State of Ohio, ³ the United States, the City of Columbus, Rino Borean, Meredith Dale Oglesby, and Nancy K. Oglesby. The action was removed to this Court by Defendant United States on October 31, 1995 . (R. 1.)

Plaintiff in this action is the daughter of Mr. Joseph Hans, who died intestate on March 17, 1994 . Plaintiff, in her role as the admin istrator of Mr. Hans's estate, initiated an action in Franklin County, Ohio Probate Court on September 27, 1994 . In the Probate Court, Plaintiff filed an inventory of the estate listing $4800 in personal property and two parcels of real estate, 20.1467 acres of land on Reynoldsburg-New Albany Road (the "New Albany property") and a residence at 5648 Indian Mound Court: (the "Indian Mound property"). Defendant Shirley Stedman filed an exception to the inventory in which she claimed that she owned the two parcels of land which had been included in the inventory filed by JoEllen Kaiser.

In this action, Plaintiff Kaiser seeks to quiet title in the two parcels of real property at issue in the probate proceeding. Plaintiff Kaiser has alleged that these two parcels were fraudulently transferred by the decedent to Defendant Stedman. With regard to the New Albany property, title was subsequently transferred by Stedman to Defendant Garland. ⁴ With regard to the Indian Mound property, title was transferred in 1977 to the Billy G Corporation, a company owned by William H. Garland, and then back to Defendant Stedman. In 1983, the Indian Mound property was the subject of a land contract between Stedman and Defendant Nancy Oglesby for the purchase price of $109,585.

The named defendants are alleged to have interests in the two parcels of real property. Plaintiff has alleged seven causes of action: the first claim is brought under Ohio Rev. Code §§2721.03 and 1336.01, et seq. and 28 U.S.C. §2410, the second claim is for fraud, the third claim added M. Dale Oglesby and Nancy K. Oglesby (husband and wife) as defendants, the fourth claim is brought under Ohio Rev. Code §2127.40, the fifth claim alleges that Defendant Stedman is the nominee of decedent, the sixth claim alleges that Defendant Garland by the Sea is the nominee or alter-ego of Stedman, and the seventh claim added Defendants Rino Borean and S. Ann Douglas as nominees of the decedent.

Defendant United States has asserted counterclaims against Plaintiff and cross-claims against Defendant Stedman and Defendant Garland to set aside the allegedly fraudulent conveyances and to foreclose certain federal tax liens and judgment liens upon the property. Defendant United States also added the Oglesbys as third party defendants and Rino Borean and S. Ann Douglas (trustee) as nominees. Defendant United States has alleged seven claims: in Count One, the United States seeks to foreclose on federal tax assessments and judgments; in Counts Two and Three, the United States seeks a finding that certain conveyances to Defendants Stedman and Garland were fraudulent; in Count Four, the United States seeks a lien against Defendant Nancy Oglesby; in Count Five, the United States alleges that Nancy Oglesby is the nominee of Defendant Stedman and the decedent; in Count Six, the United States alleges that Defendants Borean and Douglas are nominees of Defendant Stedman and the decedent; and in Count Seven, the United States seeks a finding that certain conveyances to Defendants Borean and Douglas were fraudulent.

Defendants Meredith Dale Oglesby and Nancy Oglesby have also asserted counterclaims against Plaintiff and cross-claims against Defendant Stedman seeking specific performance or, in the alternative, compensatory damages and attorney fees.

Defendants Stedman and Garland filed a motion to dismiss on October 10, 1996 and a motion for summary judgment on October 22, 1997 . Pursuant to Plaintiff's request, a hearing was held on the motions on August 18, 1998 . On August 21, 1998 , the Court issued an opinion granting in part and denying in part these two motions. The Court granted the motions of Defendant Stedman and Garland as to Plaintiff's claims brought pursuant to Ohio Revised Code §§1336.01 and 2721.03 and purporting to be brought pursuant to 28 U.S.C. §2410. As to Plaintiffs claims under Ohio Revised Code §2127.40, the Court granted the motions of Stedman and Garland to the extent Plaintiff sought to set aside the allegedly fraudulent conveyances on behalf of the estate or heirs of the decedent, but denied the motions to the extent the claims were brought in Plaintiff's role as admin istrator on behalf of creditors of the estate.

This action is now before the Court on a motion for partial summary judgment filed by the United States on August 29, 1997, (R. 91), an October 22, 1997 motion by Defendants Stedman and Garland for summary judgment against the United States, (R. 98), and the October 19, 1998 motion of Defendants Dale and Nancy Oglesby to dismiss or for summary judgment against the United States and Plaintiff Kaiser, (R. 126). ⁵

The United States has also filed a motion for oral argument on its motion for partial summary judgment on the grounds of the complexity of the factual issues presented. (R. 120.) Based upon the representations of counsel at the latest status conference held in this case, it appears that oral argument is no longer desired by the parties. Even if the Court is mistaken in its understanding that the parties no longer desire oral argument, the Court finds that, despite the voluminous evidence on the record, oral argument is unnecessary and would further delay resolution of the pending motions. The motion for hearing is therefore denied.

FACTS

The decedent, Joseph Hans, purchased the Indian Mound property in February of 1967, a few days before he married Sally O. Hartlerode. ( U.S. Ex. 2; U.S. Ex. 50.) In October of 1967, Mr. Hans quitclaimed a one-half interest to Sally. ( U.S. Ex. 3.) In March of 1969, an adjacent .708 acre tract was purchased by Mr. Hans and placed in Sally's name. ( U.S. Ex. 4.) On May 15, 1967 Mr. Hans executed another quitclaim deed on the Indian Mound property, releasing his interest in favor of Sally. ( U.S. Ex. 5.)

In January 1974, Mr. Hans purchased the New Albany property, consisting of 20.1467 acres of raw land. ( U.S. Ex. 23.) Title to the property was placed in Sally's maiden name. ( U.S. Ex. 23.) The land was acquired so that a residence could be constructed on it, and between February and October of 1974, several improvements to the land were made, including brush clearing, landscaping, and the building of a pond, bridge, and a driveway. (Stedman Dep. at 25-26, U.S. Ex. 42.)

In October 1974, Sally filed for divorce from Mr. Hans. ( U.S. Ex. 50.) On February 11, 1975 , a decree of divorce was entered which provided that Sally was awarded the New Albany property, the Indian Mound property, and the adjacent .708 acre tract. ( U.S. Ex. 51.) Shirley Stedman testified at her deposition that during the divorce proceeding, Sally and Mr. Hans reached a "side agreement" in which they agreed that Sally would transfer title to the three parcels back to Mr. Hans. (Stedman Dep. at 128, U.S. Ex. 42.) Pursuant to this agreement, Sally prepared and delivered to Mr. Hans deeds for the Indian Mound property and the New Albany property. The .708 acre tract was inadvertently not placed in either deed. (Stedman Dep. at 128, U.S. Ex. 42.) At Mr. Hans's request, Sally left the grantee clauses of both deeds blank and Mr. Hans did not record the deeds at that time. (Stedman Dep. at 130-32, 211-12, U.S. Exs. 42, 43.)

In January or February of 1974, Defendant Shirley Stedman, who had previously worked for Mr. Hans as a legal assistant, moved into the Indian Mound residence. (Stedman Dep. at 120-23, 285, U.S. Exs. 42, 43.) Initially, her duties were to care for Mr. Hans's son, Joey, who was 13 or 14 at the time. Soon thereafter, Ms. Stedman and Mr. Hans became intimate and she began to work again as Mr. Hans's legal assistant. (Stedman Dep. at 133-34, U.S. Ex. 42.)

On June 2, 1975, Sally, then divorced from Mr. Hans, recorded deeds purporting to transfer title to the Indian Mound property, the New Albany property, and the .708 acre tract to Laura Archer, Sally's daughter from another marriage. ( U.S. Exs. 6, 24.) On June 25, 1975, Mr. Hans recorded the two deeds he had previously received from Sally for the Indian Mound property and the New Albany property, after allegedly inserting "S. Ann Douglas ⁶ and Joseph Hans, Trustees" in the grantee clauses of both deeds. ( U.S. Exs. 7, 25.) Mr. Hans did not record a deed for the .708 acre tract.

In November of 1975, Mr. Hans and Sally each filed suit claiming title to the three parcels. On March 22, 1977 , after a consolidated appeal, the Court of Appeals of Franklin County held that Mr. Hans was entitled to specific performance as to the Indian Mound property and the New Albany property, but not the .708 acre tract. See Hans v. Hans, No. 76AP-853, slip op. (Ohio Ct. App. Mar. 22, 1977) (U.S. Ex. 53.) On remand, the Court of Common Pleas entered a judgment on September 1, 1977 declaring that the deed transferring the .708 acre tract from Sally to Laura Archer was valid and that the deeds transferring the New Albany property and the Indian Mound property from Sally to S. Ann Douglas and Mr. Hans were valid. See Hans v. Hans, No. 75CV-07-2961, slip op. (Franklin Cty. C.P. Ct. Sept. 1, 1977 ) ( U.S. Ex. 16.)

On January 9, 1976 , Mr. Hans was contacted by an agent with the Criminal Investigation Division ("CID") of the Internal Revenue Service for the purpose of conducting an interview with respect to his omission of income for the 1972, 1973, and 1974 tax years. ( U.S. Exs. 57, 58.) Further contacts between the CID and Mr. Hans occurred in March of 1976. ( U.S. Exs. 57, 58.) On November 8, 1976 , Mr. Hans was advised that the IRS would be contacting third parties due to his failure to cooperate. ( U.S. Exs. 57, 58.) Ms. Stedman testified at her deposition that she became aware of the IRS investigation perhaps in late 1977 or early 1978. (Stedman Dep. at 136-37, U.S. Ex. 42.)

On March 25, 1977 , three days after the Court of Appeals decision finding that Mr. Hans was entitled to the Indian Mound property and the New Albany property, Mr. Hans and Ms. Stedman filed a petition for dissolution of their alleged common law marriage. ( U.S. Ex. 56.) The petition alleged that Mr. Hans and Ms. Stedman had been holding themselves out as husband and wife since November 5, 1976 . ( U.S. Ex. 56.) Ms. Stedman alleges that she and Mr. Hans entered into the common law marriage at her insistence because in late 1976, she discovered she was pregnant. (Stedman Dep. at 11-12, U.S. Ex. 42.) About a month after the beginning of the alleged common law marriage, Ms. Stedman decided to terminate the pregnancy. (Stedman Dep. at 15 Ex. 42; Stedman & Garland Ex. 8.) Mr. Hans and Ms. Stedman filed for a dissolution after four months of purported common law marriage.

The separation agreement submitted to the court provided that Ms. Stedman was to receive the Indian Mound property and the New Albany property, and that Ms. Stedman would be responsible for the $225 monthly mortgage payments on the Indian Mound property. ( U.S. Ex. 56.) During the pendency of the dissolution action, however, deeds were recorded which transferred title to the Indian Mound property to third parties.

Although the property was titled in the name of "S. Ann Douglas and Joseph Hans, Trustees," Mr. Hans alone recorded a quit-claim deed in April of 1976 transferring the Indian Mound party to Rino Borean, a cement contractor who supplied concrete for a small bridge built on the New Albany property. ( U.S. Ex. 9; Borean Dep. at 12, U.S. Ex. 49.) Mr. Borean testified at his deposition that Mr. Hans told him that Mr. Hans was "getting ready to get a divorce," and asked Mr. Borean to put the property in his name "until [Mr. Hans] got through this mess." (Borean Dep. at 17, 20, U.S. Ex. 49.) Although the deed states a consideration of one dollar "and other good and valuable considerations," (U.S. Ex. 9), at Mr. Borean's deposition, he could not recall paying any consideration other than one dollar. (Borean Dep. at 25, U.S. Ex. 49.)

During the pendency of the dissolution proceeding, title to the Indian Mound property was conveyed to Billy G Corporation, a company owned by William Garland, by means of three deeds: (1) a deed from Rino and Shirley Borean to Billy G Corporation; (2) a deed from S. Ann Douglas and Joseph Hans as trustees to Billy G Corporation; and (3) a deed from Joseph Hans and Shirley Stedman Hans to Billy G Corporation. ( U.S. Exs. 10, 11, 12.) These three deeds were all recorded on April 22, 1977 and each deed stated consideration in the amount of one dollar "and other valuable consideration." ( U.S. Exs. 10, 11, 12.)

Mr. Borean testified that prior to the transfer to Billy G Corporation, Mr. Hans called him and told him, " 'I'm having someone come over there.' " (Borean Dep. at 26, U.S. Ex. 49.) Mr. Garland came to Mr. Borean's house and Mr. Borean signed the papers. (Borean Dep. at 26, U.S. Ex. 49.) Mr. Borean does not recall giving any consideration for the transfer to Billy G Corporation other than one dollar. (Borean Dep. at 25, U.S. Ex. 49.) Mr. Borean testified that he conveyed the property for one dollar because he considered the property to be owned by Mr. Hans, and further that the transaction "was between Joe [Hans] and Mr. Garland." (Borean Dep. at 27, U.S. Ex. 49.) Mr. Borean never lived on the Indian Mound property, and never considered himself the owner of the Indian Mound property. (Borean Dep. at 10, 31, U.S. Ex. 49.)

On September 26, 1976 , a deed was recorded transferring a one-half interest in the New Albany property from Mr. Hans to Mr. Borean. ( U.S. Ex. 26.) The deeds states consideration of one dollar "and other good and valuable considerations." ( U.S. Ex. 26.) Mr. Borean testified that, although he agreed to place the Indian Mound property in his name, he was not aware that the New Albany property had been transferred to his name. (Borean Dep. at 22, U.S. Ex. 49.)

The Ohio Court of Common Pleas entered the decree of dissolution of the common law marriage of Mr. Hans and Ms. Stedman on May 2, 1977 . ( U.S. Ex. 56.) Within a few weeks after entry of dissolution and after title was transferred to Billy G Corporation, deeds were recorded which transferred title of the Indian Mound property and the New Albany property to Ms. Stedman's name.

Title to the Indian Mound property was conveyed to Ms. Stedman by means of three deeds: (1) a quitclaim deed from Billy G Corporation to Mr. Hans; (2) a quitclaim deed from Mr. Hans to Ms. Stedman; and (3) a quitclaim deed from Billy G Corporation to Ms. Stedman. ( U.S. Exs. 13, 14, 15.) The first two deeds transferring the Indian Mound property were recorded in May of 1977, and the third was recorded in June of 1977. ( U.S. Exs. 13, 14, 15.)

Title to the New Albany property was transferred to Ms. Stedman by means of two deeds, a quitclaim deed from Mr. Hans to Ms. Stedman recorded in May of 1977, and a quitclaim deed from Rino and Shirley Borean to Ms. Stedman recorded in September of 1977. ( U.S. Exs. 27, 33.) Mr. Borean has no recollection of signing the quitclaim deed transferring his interest to Ms. Stedman, or receiving consideration from her. (Borean Dep. at 30, U.S. Ex. 49.) Mr. Borean never lived on the New Albany property, and never considered himself the owner of the property. (Borean Dep. at 10, 30-31, U.S. Ex. 49.)

Despite the dissolution of the marriage, Mr. Hans and Ms. Stedman continued to live together for 17 more years, until his death in 1994. (Stedman Dep. at 17-18, 24-25, 185, 289-300, U.S. Exs. 42, 43.) Ms. Stedman testified at her deposition that she continued to work with Mr. Hans in his law practice, and that she was paid for her work. (Stedman Dep. at 19, 100-18, U.S. Ex.42; U.S. Ex. 59.) Ms. Stedman testified that she was paid in cash, cashiers' checks and money orders, that she never received a payroll check, and that no Form 1099 or other governmental tax documents were ever issued that would show that she was, in fact, paid by Mr. Hans for working as his legal assistant. (Stedman Dep. at 19-20, 114, U.S. Ex. 42.)

At the time of the dissolution of the common law marriage on May 2, 1977 , there was no residence on the New Albany property. (Stedman Dep. at 25-26, U.S. Ex. 42.) On May 5, 1977 , three days after the decree of dissolution was entered, a building permit was filed for the New Albany residence, listing Mr. Hans as the owner. ( U.S. Ex. 60.) In September of 1977, Mr. Hans and Ms. Stedman jointly signed a $65,000 promissory note to obtain a construction loan. ( U.S. Ex. 61.) Construction of the New Albany residence began in June of 1977. (Stedman Dep. at 260, U.S. Ex. 43.) On June 23, 1997 , a $50,000 mortgage from Ms. Stedman to National Wood Products Inc. on the New Albany property was recorded. ( U.S. Ex. 28.) Ms. Stedman testified at her deposition that the mortgage was recorded to protect Herman Fry of National Wood Products, that there was no $50,000 debt owed to National Wood Products, Inc., and no payments were made on the purported $50,000 mortgage. ⁷ (Stedman Dep. at 51-55, 65-69, U.S. Ex. 42.)

Ms. Stedman testified that she paid all of the construction bills by cash, money orders or cashiers' checks. (Stedman Dep. at 61-62, 88-90, U.S. Ex. 42.) Ms. Stedman testified that Mr. Hans had "contributed" to at least some of the cost of the house. (Stedman Dep. at 201-02, U.S. Ex. 43.) Thomas Culp, an owner of National Wood Products, the company that supplied the wood for the New Albany residence, testified that he dealt with and was paid by Mr. Hans, not Ms. Stedman. (Culp Dep. at 8-10, U.S. Ex. 48.) Mr. Hans signed an "Affidavit of owner and/or original contractor," which stated that the architect was paid in full. ( U.S. Ex. 63.) The address for the real estate tax bill for the New Albany property was Mr. Hans's business address on High Street. ( U.S. Ex. 64.) Mr. Hans and Ms. Stedman moved into the New Albany residence in July of 1978. (Stedman Dep. at 260, 298-300, U.S. Ex. 43.)

On January 21, 1980 , Ms. Stedman executed a quitclaim deed transferring the New Albany property to " Garland by the Sea, Ltd." ( U.S. Ex. 37.) The deed was not recorded until March 13, 1980 . ( U.S. Ex. 37.) "Garland by the Sea, Ltd." is listed on the deed as a "company incorporated under the laws of the Commonwealth of the Bahamas ." ( U.S. Ex. 37.) Ms. Stedman testified that, despite this purported transfer, she considers the New Albany property to be her property, and that the title is only nominally in the name of Garland by the Sea, Ltd. (Stedman Dep. at 162-63, 169, U.S. Ex. 42.) In 1984, she signed " Garland by the Sea, Ltd." on a warranty deed in which a strip of the New Albany property was conveyed to Franklin County , but she reported the $19,000 sale price on her individual tax return. ( U.S. Exs. 38, 39; Stedman Dep. at 163-67, U.S. Ex. 42.)

On April 7, 1978 , two mortgages on the New Albany property were recorded: a $23,000 mortgage in favor of Catherine Hans (now deceased), mother of Mr. Hans; and a $15,000 mortgage in favor of Maxine Ruzich. ( U.S. Exs. 35, 36.) Ms. Stedman admits that she did not receive any money from Mrs. Ruzich, but alleges that she received the $15,000 from Steve Ruzich, Mrs. Ruzich's husband. (Stedman Dep. at 43, U.S. Ex. 42.) Ms. Stedman admits that she never informed Mrs. Ruzich that a mortgage had been placed in her name. (Stedman Dep. at 44-47, U.S. Ex. 42.) Maxine Ruzich had no knowledge of the purported loan or mortgage. (Ruzich Dep. at 12, 29-30, 34-36, 50-51, U.S. Ex. 44.) Mrs. Ruzich testified that her husband never mentioned loaning money to Ms. Stedman, that she and her husband did not socialize or conduct business with Mr. Hans or Ms. Stedman, that she never saw any interest income from Ms. Stedman on her tax returns, that she would have noticed if $15,000 was taken out of her joint checking account with her husband, and that during the admin istration of her husband's estate, there were no papers indicating that her husband had loaned money to Ms. Stedman. (Ruzich Dep. at 37-38, 43-45, 53, U.S. Ex. 44.)

On April 11, 1978 , another mortgage on the New Albany property was recorded: a $15,000 mortgage in favor of Olga Tokar, Ms. Stedman's mother. ( U.S. Ex. 34.) Ms. Stedman admits that, contrary to the terms of the mortgage, she did not receive any money from her mother. (Stedman Dep. at 36, U.S. Ex. 42.) Ms. Stedman alleges that she received the money from her father, who is now deceased. (Stedman Dep. at 36, U.S. Ex. 42.) No documentation of the loan, other than the mortgage, was ever made, and Ms. Stedman's father is the only person alleged to have knowledge of the loan. (Stedman Dep. at 41, U.S. Ex. 42.) Ms. Tokar had no knowledge of the loan. Her husband never mentioned it to her, she never saw $15,000 removed from her joint checking account with her husband, and never saw any interest payments from Ms. Stedman on her tax returns. (Tokar Dep. at 29, 30, 34, 36, U.S. Ex. 45.)

Based upon the criminal investigation that began in January 1976, a Grand Jury for the Southern District of Ohio returned a tax-related four count indictment against Mr. Hans on April 8, 1980 . After an evidentiary ruling adverse to the Government, the jury returned a verdict of not guilty on two counts, and was deadlocked on the other two counts. The Sixth Circuit Court of Appeals reversed the district court's evidentiary ruling. See United States v. Hans, 684 F.2d 343, 346 (6th Cir. 1982). The district court then dismissed the indictment based upon Mr. Hans's claim of double jeopardy, United States v. Hans, 548 F. Supp. 1119, 1126 (S.D. Ohio 1982), and the Government declined to appeal the dismissal.

During the time of the criminal investigation and criminal trial for the tax years 1972 to 1974, Mr. Hans was litigating his civil tax liabilities for tax years 1975 to 1983 in the United States Tax Court. See Hans v. Commissioner [CCH Dec. 41,397(M)], 48 TCM (CCH) 766, 767 (1984); Hans v. Commissioner [CCH Dec. 41,424(M)], 48 TCM (CCH) 885 (1984). The civil Tax Court cases were decided in the Government's favor. After completion of the Tax Court cases, the IRS assessed the taxes and filed notices of federal tax liens against Mr. Hans. ( U.S. Exs. 65, 66.) The IRS also filed notices of federal tax liens against Garland by the Sea, Ltd., with respect to the New Albany property, and against Ms. Stedman and Rino Borean as nominees with respect to the Indian Mound property. ( U.S. Exs. 67, 68.) During this time, the IRS attempted, unsuccessfully, to locate other assets of Mr. Hans that could be seized. ( U.S. Ex. 69.)

The IRS filed the nominee lien against the Indian Mound property on August 24, 1983 . ( U.S. Ex. 68.) On September 27, 1983, a land contract between Ms. Stedman and Nancy Oglesby on the Indian Mound property was recorded. ( U.S. Ex. 20.) Dale Oglesby and Mr. Hans signed the land contract as witnesses. ( U.S. Ex. 20.) The land contract stated a purchase price of $109,585. ( U.S. Ex. 20.) The land contract provided for an initial payment of $9,585 and eighteen monthly payments of $700, with the balance to be paid on May 1, 1985. ( U.S. Ex. 20.)

Payments on the land contract were made by check from a joint account of Dale and Nancy Oglesby. ( U.S. Ex. 71.) Although Ms. Stedman was the only payee listed on the checks, several of the checks were endorsed by Mr. Hans as well as Ms. Stedman. ( U.S. Ex. 71.) Ms. Stedman testified that Mr. Hans's signature may be on those checks because she asked him to cash the checks for her. (Stedman Dep. at 192-93, U.S. Ex. 43.)

Ms. Oglesby made the $700 monthly payments through April 1, 1985 . (D. Oglesby Dep. at 52, U.S. Ex. 46.) The Oglesbys did not, however, pay the remaining balance on May 1, 1985. Instead, Dale Oglesby alleges that the Oglesbys were permitted to make a one-time payment of $17,000 and on October 15, 1986, began to make monthly payments of $1000 instead of $700. (D. Oglesby Dep. at 52, U.S. Ex. 46; Stedman & Garland Ex. 11.)

In early 1990, the Oglesbys decided to purchase the Indian Mound property outright, and determined from their records that they would need to pay $30,000 to purchase the property. (D. Oglesby Dep. at 53-54, U.S. Ex. 46.) Mr. Hans, however, told them that they would need to pay $85,000 to purchase the property. (D. Oglesby Dep. at 54, U.S. Ex. 46.) In February of 1990, the Oglesbys made arrangements to obtain a loan from a bank. (D. Oglesby Dep. at 53-55, U.S. Ex. 46.) A title search conducted in anticipation of the purchase revealed the existence of the IRS nominee lien on the property. (D. Oglesby Dep. at 15-16, 45-46, U.S. Ex. 46.) Mr. Oglesby testified that after the IRS lien was discovered, Mr. Hans told Mr. Oglesby that he was not "ready to fight this battle yet" and instructed Mr. Oglesby not to make any further payments until he could convey clear title. (D. Oglesby Dep. at 15-16, 40-41, U.S. Ex. 46.) When asked why the Oglesbys stopped making payments one year prior to learning about the IRS lien, Mr. Oglesby testified that Mr. Hans may have permitted them to stop making payments in 1989 because the Oglesbys were starting a new business at that time. (D. Oglesby Dep. at 55, U.S. Ex. 46.) The Oglesbys continue to reside at the Indian Mound residence, but have made no payments on the contract since March 5, 1989, and have made no rental payments on the property. (Def. Stedman Ex. 11; D. Oglesby Dep. at 51, 55-56, U.S. Ex. 46.)

On June 21, 1985, the United States filed suit against Mr. Hans to reduce to judgment the assessments for tax years 1975 to 1983. Four years later, on April 25, 1989, the district court entered a judgment in favor of the United States for tax years 1976 to 1983. The district court held against the United States with respect to the 1975 year on the ground that the claim was barred by the statute of limitations. On December 14, 1989, the Sixth Circuit Court of Appeals reversed, holding that the 1975 year was not time-barred. See United States v. Hans [90-2 USTC ¶50,600], 921 F.2d 81, 82 (6th Cir. 1990). On March 15, 1993, the district court entered a final judgment against Mr. Hans with respect to the 1975 to 1983 income tax assessments. ( U.S. Ex. 72.) The United States served collection discovery upon Mr. Hans on May 26, 1993, but there was no response. (Riordan Aff. ¶¶2-3, U.S. Ex. 73.)

On March 17, 1994, Mr. Hans died of cancer at the age of 63 while still living with Ms. Stedman in the New Albany residence. ( U.S. Ex. 74.) In April of 1995, Jo Ellen Kaiser, Mr. Hans's daughter and the admin istrator of his estate, filed an inventory in the probate court of Franklin County claiming the New Albany realty and the Indian Mound realty as property of Mr. Hans's estate. Ms. Stedman filed exceptions to the inventory. The estate thereafter filed an action in the Common Pleas Court for Franklin County .

DISCUSSION

The United States argues that it is entitled to judgment on the following claims: Count Two for the fraudulent conveyance to Shirley Stedman; Count Four for the lien of Nancy and Dale Oglesby; Count Five against Shirley Stedman as nominee of Mr. Hans; and Count Six against Defendant Garland as nominee of Shirley Stedman. Plaintiff Kaiser supports the motion for partial summary judgment filed by the United States .

Defendants Stedman and Garland contest the motion for partial summary judgment filed by the United States on the grounds that genuine issues of material fact preclude an entry of judgment as a matter of law. Defendants Stedman and Carland also assert that they are entitled to summary judgment on the claims against them because there exists no genuine issues of material fact relating to several elements of the claims, and the