United States Department of Justice, Tax Division v. Pflum et al

Filing 47

MEMORANDUM AND ORDER signed by District Judge Morrison C. England, Jr. on 9/12/2017 GRANTING 43 Motion for Summary Judgment; ORDERING that the tax liens on 1274 Dedi Avenue, South Lake Tahoe and 1278 Dedi Avenue, South Lake Tahoe be foreclosed and that the properties be sold by the IRS; ORDERING that the proceeds of the sale shall be paid according to the stipulations entered at ECF: 25 , 31 . CASE CLOSED. (Michel, G.)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 UNITED STATES OF AMERICA, 12 13 14 15 16 17 18 19 No. 2:15-cv-02659-MCE-CKD Plaintiff, v. MEMORANDUM AND ORDER DAVID PFLUM; PILOT ENTERPRISE, LLC; FRIDAY HARBOR WY, LLC; STATE OF CALIFORNIA FRANCHISE TAX BOARD; EL DORADO COUNTY; CITY OF STOCKTON; and AMIR AHMED, Defendants. In this case, Plaintiff the United States seeks to collect unpaid tax liabilities from 20 Defendant David Pflum. Plaintiff seeks a determination that Defendant is the true owner 21 of two properties in El Dorado County, California, and that the properties are therefore 22 subject to the tax liens imposed by Plaintiff. Joined in the suit are two other entities that 23 have a tax interest in the properties: the El Dorado County Tax Collector and the State 24 of California Franchise Tax Board. These parties have entered into stipulations with the 25 United States as to their relative interests in the properties. ECF Nos. 25, 31. The 26 United States now moves for summary judgment, asking for the Court to order the tax 27 liens foreclosed so that the properties can be sold and the proceeds distributed by the 28 parties as stipulated. ECF No. 43. Defendant Pflum has not filed an opposition or a 1 1 statement of non-opposition. Both the El Dorado County Tax Collector and the State of 2 California Franchise Tax Board have filed statements of non-opposition. ECF Nos. 44, 3 45. For the reasons that follow, the United States’ Motion is GRANTED.1 4 5 BACKGROUND2 6 7 On August 30, 2004, Pflum was found criminally liable for multiple counts of 8 failure to pay employment taxes and failure to file tax returns. Subsequently, beginning 9 on November 12, 2007, the Internal Revenue Service (“IRS”) opened an examination of 10 Pflum’s 1997 tax year, resulting in the imposition of federal and state tax liens for the tax 11 years of 1997 to 2007 against Pflum and Pilot Enterprise, LLC as a nominee of Pflum. 12 The United States then obtained a default judgment against Pflum in the amount of 13 $6,408,357.25 plus interest on May 16, 2013, for his federal tax liabilities. 14 The properties that are the subject of this litigation are located at 1274 Dedi 15 Avenue, South Lake Tahoe, and at 1278 Dedi Avenue, South Lake Tahoe (the “Dedi 16 properties”). Pflum acquired them on August 8, 2007, shortly before the IRS opened its 17 examination of Pflum’s 1997 tax year. On August 13, 2007, Pflum transferred the 18 1278 Dedi Property to Pilot Enterprise for no consideration, and the deed stated that the 19 grantor and grantee were the same parties. The next day, Pflum similarly transferred the 20 1274 Dedi Property to Pilot Enterprise for no consideration, and again the deed stated 21 that the grantor and grantees were the same parties. 22 Beginning in February of 2008, non-party Wendy Pierson rented the 1274 Dedi 23 Property. The rental agreement also entitled her to access to the 1278 Dedi Property. 24 Pierson made all rental payments for the property by check directly to Pflum. 25 Finally, on September 27, 2013, Pflum attempted to transfer the Dedi Properties 26 1 27 Because oral argument would not be of material assistance, the Court ordered the matter submitted on the briefs. E.D. Cal. Local Rule 230(g). 2 28 The facts in this section are taken from Plaintiff’s Statement of Undisputed Facts. ECF No. 43, at 4–11. 2 1 to Friday Harbor WY, LLC, but incorrectly paired each address with the other’s accessor 2 property number on the deeds. As with the transfers to Pilot Enterprise, the deeds 3 purporting to convey the properties to Friday Harbor stated that the grantor and grantee 4 were the same parties. 5 6 STANDARD 7 8 The Federal Rules of Civil Procedure provide for summary judgment when “the 9 movant shows that there is no genuine dispute as to any material fact and the movant is 10 entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. 11 Catrett, 477 U.S. 317, 322 (1986). One of the principal purposes of Rule 56 is to 12 dispose of factually unsupported claims or defenses. Celotex, 477 U.S. at 325. 13 Rule 56 also allows a court to grant summary judgment on part of a claim or 14 defense, known as partial summary judgment. See Fed. R. Civ. P. 56(a) (“A party may 15 move for summary judgment, identifying each claim or defense—or the part of each 16 claim or defense—on which summary judgment is sought.”); see also Allstate Ins. Co. v. 17 Madan, 889 F. Supp. 374, 378–79 (C.D. Cal. 1995). The standard that applies to a 18 motion for partial summary judgment is the same as that which applies to a motion for 19 summary judgment. See Fed. R. Civ. P. 56(a); California ex rel. Cal. Dep’t of Toxic 20 Substances Control v. Campbell, 138 F.3d 772, 780 (9th Cir. 1998) (applying summary 21 judgment standard to motion for summary adjudication). 22 In a summary judgment motion, the moving party always bears the initial 23 responsibility of informing the court of the basis for the motion and identifying the 24 portions in the record “which it believes demonstrate the absence of a genuine issue of 25 material fact.” Celotex, 477 U.S. at 323. “However, if the nonmoving party bears the 26 burden of proof on an issue at trial, the moving party need not produce affirmative 27 evidence of an absence of fact to satisfy its burden.” In re Brazier Forest Prods. Inc., 28 921 F.2d 221, 223 (9th Cir. 1990). If the moving party meets its initial responsibility, the 3 1 burden then shifts to the opposing party to establish that a genuine issue as to any 2 material fact actually does exist. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 3 475 U.S. 574, 586–87 (1986); First Nat’l Bank v. Cities Serv. Co., 391 U.S. 253, 288–89 4 (1968). 5 In attempting to establish the existence or non-existence of a genuine factual 6 dispute, the party must support its assertion by “citing to particular parts of materials in 7 the record, including depositions, documents, electronically stored information, 8 affidavits[,] or declarations . . . or other materials; or showing that the materials cited do 9 not establish the absence or presence of a genuine dispute, or that an adverse party 10 cannot produce admissible evidence to support the fact.” Fed. R. Civ. P. 56(c)(1). The 11 opposing party must demonstrate that the fact in contention is material, i.e., a fact that 12 might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, 13 Inc., 477 U.S. 242, 248, 251–52 (1986); Owens v. Local No. 169, Assoc. of W. Pulp and 14 Paper Workers, 971 F.2d 347, 355 (9th Cir. 1987). The opposing party must also 15 demonstrate that the dispute about a material fact “is ‘genuine,’ that is, if the evidence is 16 such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 17 477 U.S. at 248. In other words, the judge needs to answer the preliminary question 18 before the evidence is left to the jury of “not whether there is literally no evidence, but 19 whether there is any upon which a jury could properly proceed to find a verdict for the 20 party producing it, upon whom the onus of proof is imposed.” Anderson, 477 U.S. at 251 21 (quoting Improvement Co. v. Munson, 81 U.S. 442, 448 (1871)). As the Supreme Court 22 explained, “[w]hen the moving party has carried its burden under Rule [56(a)], its 23 opponent must do more than simply show that there is some metaphysical doubt as to 24 the material facts.” Matsushita, 475 U.S. at 586. Therefore, “[w]here the record taken as 25 a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 26 ‘genuine issue for trial.’” Id. at 587. 27 28 In resolving a summary judgment motion, the evidence of the opposing party is to be believed, and all reasonable inferences that may be drawn from the facts placed 4 1 before the court must be drawn in favor of the opposing party. Anderson, 477 U.S. at 2 255. Nevertheless, inferences are not drawn out of the air, and it is the opposing party’s 3 obligation to produce a factual predicate from which the inference may be drawn. 4 Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244–45 (E.D. Cal. 1985), aff’d, 5 810 F.2d 898 (9th Cir. 1987). 6 7 ANALYSIS 8 9 Though Plaintiff’s motion is unopposed, a district court may not grant a motion for 10 summary judgment solely because the opposing party has failed to file an opposition. 11 Cristobal v. Siegel, 26 F.3d 1488, 1494–95 n.4 (9th Cir.1994). The Court may, however, 12 grant an unopposed motion for summary judgment if the movant’s papers themselves 13 are sufficient to support the motion and do not on their face reveal a genuine issue of 14 material fact. See United States v. Real Prop. at Incline Vill., 47 F.3d 1511, 1520 (9th 15 Cir.1995) (citing Marshall v. Gates, 44 F.3d 722 (9th Cir.1995); Henry v. Gill Indus., Inc., 16 983 F.2d 943, 949 (9th Cir. 1993)), rev'd on other grounds, 517 U.S. 820 (1996). 17 Plaintiff here argues it is entitled to summary judgment because the Dedi 18 Properties are subject to the tax liens under three theories: (1) Pilot Enterprise and 19 Friday Harbor are Pflum’s nominees; (2) the transfer to Friday Harbor, made after the 20 imposition of the liens and default judgment award, was made subject to the liens; and 21 (3) the transfers to Pilot Enterprise and Friday Harbor were fraudulent and therefore 22 void. As set out below, because the Court finds that Pilot Enterprise and Friday Harbor 23 are Pflum’s nominees, which renders the properties subject to the liens and is therefore 24 dispositive, the Court need only address Plaintiff’s first argument. 25 Pursuant to 26 U.S.C. § 6321, a lien for unpaid taxes is created in favor of the 26 United States upon all property and property rights of the taxpayer. The IRS is 27 authorized to levy upon all property and rights to property belonging to the taxpayer or 28 on which there is a lien for the payment of tax. Id. § 6331; see also United States v. 5 1 Donahue Indus. Inc., 905 F.2d 1325, 1332 (9th Cir. 1990) (“The law is settled that a levy 2 may effectively reach property on which a federal tax lien has attached . . . .”). The IRS 3 may consequently seize and sell any property upon which levy is permitted. Id.; see 4 also Myers v. United States, 647 F.2d 591, 601 (5th Cir. 1981) (“[W]here levy is proper, 5 the United States may seize and sell the property levied upon.”). 6 “A nominee is one who holds bare legal title to property for the benefit of another.” 7 Fourth Inv. LP v. United States, 720 F.3d 1058, 1066 (9th Cir. 2013) (quoting Scoville v. 8 United States, 250 F.3d 1198, 1202 (8th Cir. 2001)). Thus, a federal tax lien attaches to 9 “property that is held by a third party as the taxpayer's nominee.” Id. “[I]n making 10 nominee determinations in a tax lien context, [courts] must ‘look initially to state law to 11 determine what rights the taxpayer has in the property the Government seeks to reach.’” 12 Id. (quoting Drye v. United States, 528 U.S. 49, 58 (1999)). California courts, however, 13 “have not yet specified the factors relevant to determining whether a person or entity 14 holds title as a nominee.” Id. at 1068. In predicting which factors a California court 15 would evaluate under the nominee theory of property, the Ninth Circuit has held that they 16 “would adopt the uniform set of factors recognized by federal courts.” Id. at 1069; see 17 also United States v. Bell, 27 F. Supp. 2d. 1191, 1195 (E.D. Cal. 1998) (applying the 18 same set of factors under California law prior to Fourth Investment). 19 Those factors are: 20 (1) whether inadequate or no consideration was paid by the nominee; (2) whether the property was placed in the nominee's name in anticipation of a lawsuit or other liability while the transferor remains in control of the property; (3) whether there is a close relationship between the nominee and the transferor; (4) whether they failed to record the conveyance; (5) whether the transferor retained possession; and (6) whether the transferor continues to enjoy the benefits of the transferred property. 21 22 23 24 25 Spotts v. United States, 429 F.3d 248, 253 n.2 (6th Cir. 2005). “[C]ourts focus on the 26 totality of the circumstances without regarding any single factor as the sine qua non of a 27 nominee relationship.” Dalton v. Comm’r, 682 F.3d 149, 158 (1st Cir. 2012). 28 /// 6 1 Here, five of the six factors are present, demonstrating that Pilot Enterprise and 2 Friday Harbor are Pflum’s nominees and that, therefore, the tax liens attach to the Dedi 3 Properties. The properties were transferred without consideration, immediately following 4 steps taken by the IRS to collect Pflum’s tax obligations, and the transfers left Pflum in 5 control of the properties and allowed him to collect rent from them. Of the six factors, 6 only the failure to record conveyance factor is not present. Accordingly, Pilot Enterprises 7 and Friday Harbor are mere nominees. See Fourth Inv., 720 F.3d at 1070 (“[T]he 8 overarching consideration is ‘whether the taxpayer exercised active or substantial control 9 over the property.’” (quoting In re Richards, 231 B.R. 571, 597 (E.D. Pa. 1999))). 10 11 CONCLUSION 12 13 For the reasons provided above, Plaintiff’s Motion for Summary Judgment, ECF 14 No. 43, is GRANTED, and the Court orders that the tax liens on 1274 Dedi Avenue, 15 South Lake Tahoe, and 1278 Dedi Avenue, South Lake Tahoe be foreclosed and the 16 properties sold by the IRS. See 26 U.S.C. § 7403(c)–(d) (granting federal courts the 17 authority to order a foreclosure and sale of a property subject to a tax lien). The 18 proceeds of the sale shall be paid according to the stipulations entered by the United 19 States, El Dorado County Tax Collector, and the State of California Franchise Tax 20 Board. ECF Nos. 25, 31. 21 IT IS SO ORDERED. 22 Dated: September 12, 2017 23 24 25 26 27 28 7

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