PRAY v. USA

Filing 9

ORDER dismissing 5 Motion to Dismiss without prejudice; granting 5 Motion to Stay; a status report must be filed every 6 months from April 1, 2011 onward and, in any event, counsel are to apprise the Court within 7 days after the Tax Court case becomes final By JUDGE JOHN A. WOODCOCK, JR. (mlm)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
ROBERT M. PRAY in his capacity as
Trustee of the J&J Trust,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.

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2:10-cv-00394-JAW

ORDER ON MOTION TO DISMISS OR TO STAY
The parties agree that the decision of another court may resolve the dispute
before this Court once the other court‟s decision becomes final; this Court therefore
grants a motion to stay this action until the other court‟s decision becomes final.
I.

STATEMENT OF FACTS
A.

The Trust’s Complaint

On September 20, 2010, Robert M. Pray in his capacity as Trustee of J&J
Trust (Trust) filed suit against the United States of America (United States),
alleging that the United States had filed two liens—the “Arthur Lien” and the
“Beverly Lien”—against Trust property, that there is no legal basis for either lien,
and that the liens constitute clouds upon the Trust‟s title to the property. Compl.
(Docket # 1). The Trust claims it “is entitled to a declaratory judgment declaring
that neither the Arthur Lien nor the Beverly Lien encumbers the Trust Property.”
Id. ¶ 21. More specifically, it seeks an order “declaring that the liens recorded by the
Internal Revenue Service against J&J Trust as nominee for Arthur Dalton Jr. and

Beverly Dalton are ineffective and null and void and are effectively discharged as to
the Trust Property.” Id. at 2.
B.

The United States’ Motion

On November 22, 2010, the United States filed a motion to dismiss or to stay
the Trust‟s Complaint. Def.’s Mot. to Dismiss or Stay Action (Docket # 5) (Def.’s
Mot.).

The United States represented that on September 23, 2010, the United

States Tax Court “issued an opinion in Arthur Dalton, Jr. and Beverly Dalton v.
Commissioner of Internal Revenue, Docket No. 23510-06L, an action brought
pursuant to 26 U.S.C. § 6330 seeking judicial review of the Internal Revenue
Service‟s determination concerning collection with respect to each of the petitioners
sustaining levy action.” Id. at 1-2 (citing Dalton v. Comm’r, 135 T.C. No. 20, 2010
WL 3719274 (2010)). It represented that the Tax Court “held that the Internal
Revenue Service‟s determination to proceed with a levy was an abuse of discretion
because the IRS rejected the Daltons‟ offer-in-compromise on the basis that it did
not include a nominee interest in the Poland, Maine property held by J&J Trust.”
Id. at 2. Further, the United States stated that the Tax Court “determined that
J&J Trust is not a nominee of Arthur and Beverly Dalton under Maine law and held
that J&J Trust is not the Daltons‟ „nominee under the Federal factors analysis.‟” Id.
The United States further indicated that “[a]n order and decision will be
entered for the petitioners in Dalton v. Commissioner based on the September 23rd
opinion.” Id. The United States said that the “decision will become final upon the
expiration of the time allowed for filing a notice of appeal, if no such notice is filed

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within that time.” Id. Noting that a notice of appeal must be filed within ninety
days after the decision is entered, the United States suggested that “[o]nce the Tax
Court decision becomes final, under the doctrine of collateral estoppel, the United
States will be bound by the Tax court‟s determination of the nominee issue” and as
“the Tax Court has decided the one issue raised by the complaint in this action, that
is whether J&J Trust is a nominee of Arthur and Beverly Dalton, in the interest of
judicial economy, this action should be dismissed or stayed pending a final decision
in Dalton v. Commissioner.” Id. at 2-3.
C.

The Trust’s Response

The Trust objects to the United States‟ motions. Pl.’s Opp’n to Def.’s Mot. to
Dismiss or Stay Action (Docket # 6) (Pl.’s Opp’n). The Trust says that although it
agrees that the United States will be bound by the final decision of the Tax Court, it
disputes whether the Tax Court decision will be dispositive of this case regardless of
its outcome. Id. at 1. The Trust points out that it is not a party to the Tax Court
case, will not be bound by its decision, and will have no legal right to enforce it. Id.
at 1-2. More significantly from the Trust‟s perspective, the Tax Court decision will
not give the Trust the relief it seeks, namely a judicial determination that the
Dalton liens do not extend to the Trust property. Id. at 2. Revealing his case
strategy, the Trust divulges that when the Tax Court decision becomes final, it
intends to “use the Tax [Court] decision to establish the factual predicate necessary
for obtaining his requested relief” and to file a motion for summary judgment to
obtain a declaratory judgment. Id. at 2. Once the Tax Court decision becomes final,

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the Trust fully intends, it says, to press against the United States the doctrine of
collateral estoppel or issue preclusion and demand a declaratory judgment in
accordance with the decision. Id. at 2-4.
D.

The United States’ Reply

In its Reply, the United States observes that an “order and decision will be
entered for the petitioners in Dalton v. Commissioner based on the September 23rd
opinion.” Reply to Pl.’s Opp’n to United States’ Mot. to Dismiss or Stay Action at 2
(Docket # 7). The United States notes that, although the Trust contends the Tax
Court decision will become final upon entry, this is incorrect because the United
States will have ninety days following the entry of the decision to appeal, and if the
United States appeals, the decision will only become final upon the expiration of the
time allowed for filing a petition for certiorari, upon affirmance of the Tax Court
decision, or upon the United States‟ determination not to file a petition for
certiorari. Id. at 3. The United States contends that “[a] party seeking to invoke
the doctrine of issue preclusion needs to establish that the issue has been
„determined by a valid and binding final judgment.‟” Id. (quoting Keystone Shipping
Co. v. New England Power Co., 109 F.3d 46, 51 (1st Cir. 1997)).
E.

Status Report

In late March, 2011, the Court requested an update on the Tax Court case,
and in response, counsel filed a joint Status Report. Status Report (Docket # 8).
The Status Report confirmed that although the Tax Court issued its Dalton decision
on September 23, 2010, as of March 28, 2011, the Tax Court had not yet entered its

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decision and consequently, the ninety day appeal period had not yet begun to run.
Id. at 1.
II.

DISCUSSION
Having reviewed the memoranda, the Court is not clear what the immediate

dispute is about. The Trust argues that the United States must be bound by the
final decision of the Tax Court and to prove this point, it reveals that it intends to
file a motion for summary judgment, demanding that the United States accede to
the Tax Court determination. But in its motion, the United States conceded that it
will be bound by the final determination of the Tax Court. So it seems that the
Trust is picking an unnecessary fight.
The United States‟ only point is that the Tax Court decision is not yet final
and the United States will not be collaterally estopped until it is. Ashe v. Swenson,
397 U.S. 436, 443 (1970); Ramallo Bros. Printing, Inc. v. El Dia, Inc., 490 F.3d 86,
89 (1st Cir. 2007) (stating that among the requirements for collateral estoppel or
issue preclusion is “a valid and final judgment”).

The Trust offers no real

counterpoint to the notion that it cannot hold the United States to a court decision
that is not yet final.
The answer seems obvious. There are many good reasons one court will not
interfere with a pending action in another one, and will not litigate an issue that
has been or may be resolved elsewhere. Here, it appears the parties agree that once
the Tax Court decision becomes final, it may well conclusively resolve their dispute.
The only reasonable course of action is for this Court to stay this action until the

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Tax Court ruling becomes final. However, rather than simply allow the matter to
disappear, the Court will require counsel to file periodic status reports on the Tax
Court action and once the Tax Court decision becomes final, the Court will confer
with counsel as to the proper next step in this case.
III.

CONCLUSION
The Court GRANTS the United States of America‟s Motion to Stay this action

until the September 23, 2010 decision of the United States Tax Court in the matter
of Arthur Dalton, Jr. and Beverly Dalton v. Commissioner of Internal Revenue
Service, Docket No. 23510-06L becomes final; the Court DISMISSES the United
States of America‟s Motion to Dismiss without prejudice (Docket # 5). The Court
further ORDERS counsel to file with the Court a report concerning the status of the
Tax Court case of Dalton v. Commissioner every six months from April 1, 2011
onward and, in any event, to apprise the Court within seven days after this Tax
Court case becomes final.
SO ORDERED.

/s/ John A. Woodcock, Jr.
JOHN A. WOODCOCK, JR.
CHIEF UNITED STATES DISTRICT JUDGE
Dated this 25th day of April, 2011

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