United States of America v. Bame et al
Filing
90
ORDER denying 60 Defendants' Motion for Summary Judgment; granting 66 Government's Motion for Summary Judgment. (Written Opinion). Signed by Judge Richard H. Kyle on 08/16/12. (kll)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
United States of America,
Plaintiff,
Civ. No. 11-62 (RHK/JJK)
MEMORANDUM OPINION
AND ORDER
v.
Jo Anna Bame, Hook ‘N Horn Ltd.,
Hook ‘N Horn Wilderness Camp, and
I Am Home, Inc.,
Defendants.
Daniel A. Applegate, Michael J. Roessner, United States Department of Justice,
Washington, D.C., for Plaintiff.
Adam S. Huhta, Huhta Law Firm, PLLC, Minneapolis, Minnesota, for Defendants.
INTRODUCTION
This case arises from the confluence of a fourth marriage, an involuntary
bankruptcy, a secret divorce and reconciliation, an erroneous tax refund deposited in a
Canadian bank account, an unexpected death, and an Ontario fishing lodge. The IRS
issued Fred Bame an erroneous refund of nearly $600,000 in 2005, which he deposited
into a Canadian account controlled jointly by his wife, Defendant Jo Anna Bame. The
money was quickly spent to cover Jo Anna’s debts and those of two of her companies,
Defendants I Am Home, Inc. (“I Am Home”) and Hook ‘n Horn Wilderness Camp
(“Hook ‘n Horn”). Efforts to collect the erroneous refund without litigation were
unsuccessful, and the Government filed suit against Fred Bame in July 2007. He died a
few weeks later, and the Government eventually obtained a judgment against his estate.
The Government was unsuccessful in collecting the judgment, and it brought the instant
action against Jo Anna Bame in January 2011, asserting claims of fraudulent transfer,
money had and received, and unjust enrichment. Presently before the Court are the
parties’ cross-Motions for Summary Judgment. For the reasons that follow, the Court
will deny Defendants’ Motion and grant the Government’s Motion.
BACKGROUND
The Parties
Jo Anna Bame lives in Minneapolis, Minnesota. In 2000, she purchased Hook ‘n
Horn, a fishing camp on Rowan Lake near Nestor Falls, Ontario, Canada, from her
husband, the late Fred Bame, pursuant to a settlement agreement with the trustee of
Fred’s involuntary bankruptcy estate. (Applegate Decl. Ex. 23; Bame Dep. at 147.) In
2008, Jo Anna sold the assets of Hook ‘n Horn (which she ran as a sole proprietorship) to
the newly incorporated Hook ‘n Horn Wilderness Camp Ltd. (“HnH Ltd.”) in exchange
for HnH Ltd. shares and a promissory note. (Bame Decl. Ex. 1.) She continues to
operate HnH Ltd. in much the same fashion as she did Hook ‘n Horn. I Am Home is the
corporate name on a checking account that Jo Anna uses for personal matters. (Bame
Dep. at 71-73, 173-74.)
The Bames’ Marriage
In 1992, before Fred and Jo Anna married, they entered into an antenuptial
agreement (“the Antenuptial”), which provided that Fred and Jo Anna would each
“separately hold and control all rights in and to his or her own property, whether such
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property is now owned or hereafter acquired . . . , free and clear of any and all claims by
the other party.” (Huhta Decl. Ex. 2.) In effect, what was his would stay his, and what
was hers would stay hers. The couple married on March 25, 1992, and the following
June, Jo Anna conveyed her property at 5110 Meadville Street, Excelsior, Minnesota to
herself and Fred as joint tenants. (Applegate Decl. Ex. 13.)
Bankruptcy and Divorce
Over the next few years, Fred and Jo Anna took out several mortgages on the
Excelsior property, ostensibly to support Fred’s business ventures. Those ventures turned
unprofitable, and an involuntary bankruptcy petition was filed against Fred in 1998. Just
before the petition was filed, Fred transferred Hook ‘n Horn (which Fred then owned) to
Jo Anna for $1. During bankruptcy, Jo Anna filed a proof of claim with the bankruptcy
trustee, asserting that Fred owed her $1,228,984. (Applegate Decl. Ex. 24.) The trustee
commenced an adversary proceeding against her to set aside several pre-petition
conveyances as fraudulent, and they settled that matter in March 2000. (Huhta Dep.
Ex. 3.) As part of the settlement, Jo Anna withdrew her proof of claim, surrendered any
and all claims against the trustee and Fred’s bankruptcy estate, and purchased Hook ‘n
Horn for $250,000. (Id.)
During the bankruptcy, the Bames’ relationship became severely strained, and in
October 2001, they filed a petition for divorce. (See Applegate Decl. Ex. 38.) The
petition listed Fred’s address as a used car dealership in Itasca County, although it is
unclear whether he ever resided there. (Montavon Decl. ¶¶ 3 & 4.) In the divorce decree,
the couple agreed that Fred would be responsible for $17,799.79 of marital debt, as well
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as several tax liens on the Excelsior property. (Applegate Decl. Ex. 38.) Fred and Jo
Anna each told only one person that they had divorced, and their children believed them
to be still married. (Bame Dep. at 41-43.) In January 2002, only a few months after
filing the divorce petition, they filed for Social Security benefits and listed themselves as
married. (Applegate Decl. Ex. 40.) They maintained a relationship and in 2003 were
living together again. Fred’s September 2007 obituary named Jo Anna as his wife. (Id.
Ex. 34.) Jo Anna acknowledges that she authored the obituary, but insists that one of
Fred’s children edited it to name her as his wife. (Bame Dep. at 51-52.) When the
Government sent requests for admission about Jo Anna’s Social Security benefits, she
responded to the Social Security Administration that she had lied about being married
because she did not think it would find out about the divorce. (Applegate Decl. Ex. 42.)
The Erroneous Refund
Fred’s bankruptcy estate generated income during the bankruptcy, and the trustee
agreed that the estate would pay approximately $580,000 to the IRS to satisfy its tax
obligations. The IRS received the payment on January 2, 2003, but it did not
immediately assess the tax against the estate. As a result, the estate had a credit balance
of about $580,000 with the IRS for more than two years following the January 2003
payment.
In May 2005, before the IRS assessed the tax and for unknown reasons, the
bankruptcy estate’s credit balance was transferred to Fred’s personal tax account for tax
year 1998; this resulted in an apparent overpayment of his 1998 taxes. The IRS sent Fred
notice that he would be receiving a refund of $519,360.31 plus interest for his individual
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1998 taxes. (Applegate Decl. Ex. 3.) Fred twice contacted the IRS to confirm that he
would be receiving the refund—once on June 13, 2005, and again on July 12, 2005. (Id.
Ex. 48.) Both times the IRS confirmed that its records showed that a refund was
forthcoming. Fred received a July 19, 2005 letter from Kathy Wells of the Taxpayer
Advocate Service, a division of the IRS, indicating that the refund would be sent to him.
After deducting $11,000 for individual taxes he owed from 1998, the IRS issued Fred a
refund check of $568,022.13 on Friday July 29, 2005. (Id. Ex. 50.)
When the check was received by the Bames, Fred and Jo Anna immediately drove
to Nestor Falls, Ontario, and on Wednesday, August 3, they deposited it into a joint
account at Lakewood Credit Union in Nester Falls, Ontario. (Id. Ex. 50-51.) Over the
next few days, they wrote several checks from that account, including: $95,000 to
National City as payment to a mortgage on Jo Anna’s property at 836 Thornton,
Minneapolis, Minnesota; $70,000 to Wells Fargo as payment to a mortgage on Jo Anna’s
property at 300 Ranchview, Wayzata, Minnesota; $185,000 to the I Am Home account at
Central Bank; and $100,000 to Hook ‘n Horn, via check deposited into the Hook ‘n Horn
account Jo Anna controlled. (Id. Ex. 55.) The checks to Hook ‘n Horn and I Am Home
cleared on August 11. On August 12, Hook ‘n Horn paid $11,949.20 for boat motors.
By August 15, Jo Anna had written checks totaling $162,468.31 from the I Am Home
account. The Lakewood Credit Union account balance on October 6, 2005, was
$4,731.52. (Id.)
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The Present Litigation
At some later time, the Government determined that the refund check had been
issued by mistake. Its efforts to contact Fred and Jo Anna were unsuccessful, and on
August 30, 2006, a notice that the IRS would levy Fred’s Social Security benefits was
sent to his last known address at 836 Thornton. The letter was sent back marked “return
to sender.” (Applegate Decl. Ex. 58.) Jo Anna testified in her deposition that she and
Fred saw no reason to respond to the Government’s collection efforts because “the
money was gone.” (Bame Dep. at 199.) After its collection efforts failed, the
Government brought suit against Fred in this Court to recover the erroneous refund. (See
United States v. Estate of Fred H. Bame, Civ. No. 07-3527 (PAM/JSM).) Fred died a
short time later, and his estate was substituted as a defendant. The estate then stipulated
to the entry of judgment for the full amount sought by the Government. (See Doc. Nos.
11-12, Civ. No. 07-3527 (PAM/JSM).)
The Government then commenced the instant action to recover the erroneous
refund described above under the Federal Debt Collection Procedures Act, 28 U.S.C.
§§ 3301 et seq., the Minnesota Uniform Fraudulent Transfer Act, Minn. Stat.
§ 513.44(a)(1), money had and received, and unjust enrichment. After undertaking
discovery, the parties now cross-move for summary judgment. The issues have been
fully briefed, the Court heard oral argument on June 29, 2012, and the Motions are now
ripe for disposition.
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STANDARD OF DECISION
Summary judgment is proper if, drawing all reasonable inferences in favor of the
nonmoving party, there is no genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986). The moving party bears the burden of showing that the
material facts in the case are undisputed. Id. at 322; Whisenhunt v. Sw. Bell Tel., 573
F.3d 565, 568 (8th Cir. 2009). The Court must view the evidence, and the inferences that
may be reasonably drawn from it, in the light most favorable to the nonmoving party.
Weitz Co., LLC v. Lloyd’s of London, 574 F.3d 885, 892 (8th Cir. 2009); Carraher v.
Target Corp., 503 F.3d 714, 716 (8th Cir. 2007). The nonmoving party may not rest on
mere allegations or denials, but must show through the presentation of admissible
evidence that specific facts exist creating a genuine issue for trial. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 256 (1986); Wingate v. Gage Cnty. Sch. Dist., No. 34, 528
F.3d 1074, 1078-79 (8th Cir. 2008).
Where, as here, the Court confronts cross-motions for summary judgment, this
approach is only slightly modified. When considering the Government’s Motion, the
Court views the record in the light most favorable to Defendants, and when considering
Defendants’ Motion, the Court views the record in the light most favorable to the
Government. “Either way, summary judgment is proper if the record demonstrates that
there is no genuine issue as to any material fact.” Seaworth v. Messerli, Civ. No. 093437, 2010 WL 3613821, at *3 (D. Minn. Sept. 7, 2010) (Kyle, J.), aff’d, 414 Fed. App’x
882 (8th Cir. 2011).
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ANALYSIS
I.
Liability
The Government’s statutory claims raise several issues concerning statutes of
limitation, insider status, the effect of the Bames’ antenuptial agreement, possible
estoppel, and more that the Court need not address. Even if Defendants’ arguments were
to prevail, equity dictates that they return the erroneously distributed funds under the
doctrine of unjust enrichment. In Minnesota, an unjust-enrichment claim requires a
plaintiff to show that the defendant (1) has knowingly received a benefit (2) to which he
is not entitled (3) in circumstances under which retaining the benefit would be unjust.
Southtown Plumbing, Inc. v. Har-Ned Lumber Co., Inc., 493 N.W.2d 137, 140 (Minn. Ct.
App. 1992) (citing In re Stevenson Assocs., Inc., 777 F.2d 415, 421 (8th Cir. 1985)).
“The theory unjust enrichment is based on what the person allegedly enriched has
received, not on what the opposing party has lost.” Georgopolis v. George, 54 N.W.2d
137, 143 (Minn. 1952).
Jo Anna argues that Fred transferred the refund to her in satisfaction of debts that
he owed under the divorce decree. When a defendant “is enriched by what he is entitled
to under a contract or otherwise,” unjust enrichment provides no recovery. Schaaf v.
Residential Funding Corp., 517 F.3d 544, 554 (8th Cir. 2008) (quotation and citation
omitted). On its face, however, the only debts listed on the divorce decree are $17,799.79
in marital debt and various tax liens. (Applegate Decl. Ex. 38.) Jo Anna has produced no
evidence that she paid the listed marital debt and thereby obligated Fred to reimburse her.
With respect to the tax liens, Jo Anna’s settlement with the bankruptcy trustee “fully,
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completely, and finally settle[d], compromise[d] and dispose[d] of any and all
controversies and claims” between Jo Anna and the estate. Because all of Fred’s legal
and equitable interests were transferred to the bankruptcy estate when the petition was
filed, see United States ex rel. Gebert v. Transp. Admin. Servs., 260 F.3d 909, 913 (8th
Cir. 2001), Jo Anna irrevocably withdrew all claims against Fred’s estate as part of the
settlement, and she retained no power to collect on any debts that accrued before
January 27, 2000. The argument that Fred used the erroneous tax return to pay a preexisting debt that arose from the divorce decree simply has no support in the record.
Accordingly, the Court determines that Fred’s deposit into the joint account was not to
satisfy a pre-existing contractual obligation to Jo Anna.
Defendants also argue that they were not unjustly enriched because Jo Anna did
not know that the refund was erroneous. If she did not know and had no reason to know
that she was receiving money by mistake, then the Government’s equitable claim fails.
Jo Anna does not argue that Fred was in fact entitled to the refund. Instead, she
argues that she reasonably relied on the IRS’s assurances that the refund was appropriate.
As a matter of law, however, Jo Anna cannot rely on the mistaken advice of an IRS
agent. United States v. MacPhail, 149 F. App’x 449, 454 (6th Cir. 2005) (“[W]e have
been very clear in the past that a mistake of law by a Government agent, acting without
audit or examination, does not amount to an act or interpretation upon which [the
taxpayer] could justifiably rely.”); see also Heckler v. Cmty. Health Servs., 467 U.S. 51,
63 (1984) (“[T]hose who deal with the government are expected to know the law and
may not rely on the conduct of government agents contrary to the law.”). Here, Jo Anna
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argues that she reasonably relied on IRS information that Fred was legally entitled to the
refund, while at the same time conceding that he was not. Accordingly, Jo Anna cannot
rely on any advice the IRS gave Fred regarding whether he was entitled to the refund.
Moreover, based on the information available to her, Jo Anna reasonably should
have known that Fred was not entitled to the refund, and her subsequent conduct shows
that she did. She knew that Fred had undergone a bankruptcy in 1998, the same year for
which the IRS informed him that he would be receiving a refund. When the check
arrived, the couple wasted no time and immediately drove to Canada and deposited the
refund check in a Canadian bank. Most of the money was gone within a matter of days.
Jo Anna and Fred avoided the IRS when it began to seek recovery of the erroneous
refund and marked letters the Government sent to Fred “return to sender.” Importantly,
Jo Anna did not report any of the proceeds she received from the refund on her 2005 tax
return. See MacPhail, 149 F. App’x at 454 (“[T]he fact that [Defendant] did not report
the 1996 overpayment on his 1997 return indicates rather forcefully that he had no
expectation that any of that money was his.”). Looking at her conduct immediately after
receiving the erroneous refund check combined with the fact that she could not
reasonably rely on the IRS agents’ advice, there is no genuine issue Jo Anna knew that
Fred was not legally entitled to the refund. Her good-faith defense fails.
II.
Damages
What remains for the Court is to determine Defendants’ liability. The amount the
Government is able to recover from Jo Anna, I Am Home, and HnH Ltd. “is based on
what the person allegedly enriched has received, not on what the opposing party has
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lost.” Georgopolis, 54 N.W.2d at 142. The record shows that Fred withdrew $42,000
from the Lakewood Credit Union account (Huhta Decl. Ex. 9), and there is no evidence
to indicate that Jo Anna received a benefit of those funds.
The balance of the funds, however, went to benefit either Jo Anna directly or one
of her corporations. The funds paid to Wells Fargo ($70,000) and National City
($95,000), both to pay mortgages on property Jo Anna owned, are a benefit to which she
was plainly not entitled and that it would be unjust to allow her to retain. The
Government also asserts, and Jo Anna does not contest, that I Am Home is an
incorporated entity that she uses to conduct her personal business. It does not observe
any corporate formalities, keeps no corporate records, and is simply a façade for Jo
Anna’s individual dealings. Shortly after Fred deposited the erroneous refund check, I
Am Home received $185,000 from the joint account. As such, Jo Anna is also liable for
the $185,000 deposited in the I Am Home account.
The Government further argues that HnH Ltd. is Jo Anna’s alter ego and,
therefore, it should be allowed to recover the erroneously issued refund from HnH Ltd.
See United States v. Sherping, 187 F.3d 796, 801 (8th Cir. 1999) (holding that the
government may recover debts from a defendant’s alter ego). When discerning whether
an entity is one’s alter ego,
[f]irst, the court considers the relationship between the individual and the
entity, focusing on factors including the failure to observe corporate
formalities, siphoning of funds by the individual, the nonfunctioning of
other officers and directors, the absence of corporate records, and the
existence of the corporation as merely a façade for individual dealings.
Second, the court examines the relationship between the entity and the
party seeking to disregard the entity. Satisfaction of this prong requires the
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showing of an element of injustice or fundamental unfairness, which can be
made through evidence that the entity has been operated as a constructive
fraud or in an unjust manner.
United States v. Bigalk, 654 F. Supp. 2d 983, 994 (D. Minn. 2009) (Ericksen, J.) (internal
citations and quotation marks omitted).
Jo Anna asserts that HnH Ltd. operates as a separate entity, keeps appropriate
records, and avoids comingling funds. The Court disagrees. Jo Anna is the sole
shareholder and continues to run the business the same as she did when it was a sole
proprietorship. When HnH Ltd. acquired Hook ‘n Horn, nothing changed. The HnH Ltd.
bank account remains under her exclusive control. Jo Anna still runs the camp as she did
before it was incorporated, and she retains control of the camp’s assets. Indeed, she has
used a bank account under the name “Hook ’n Horn Ltd.” to run the camp since 2005,
three years before HnH Ltd. was incorporated. Taking the above into consideration, the
Court determines that the Government satisfies the first prong of the alter-ego test with
respect to HnH Ltd.
To satisfy the second prong, the Government argues that HnH Ltd. has been used
as a constructive fraud to avoid Fred and Jo Anna’s creditors. Indeed, Fred transferred
the camp to Jo Anna just before the 1998 bankruptcy was filed against him, a transaction
that the trustee moved to set aside as fraudulent. (See Applegate Decl. Ex. 20.) After the
Government issued the erroneous refund in 2005, Fred deposited the funds into a joint
account and Jo Anna received the funds as Hook ‘n Horn. She incorporated the camp
only after the Government instituted a collection action against Fred in 2007. It would be
fundamentally unfair to allow the corporate form of HnH Ltd., which operates in much
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the same manner as when it received the erroneously issued Government funds, to
prevent the Government from collecting those funds to which it has a superior claim.
Accordingly, the Court determines that HnH Ltd. is an alter-ego of Jo Anna Bame.
Altogether, Defendants have been unjustly enriched to the amount of $526,022.13 as a
result of the erroneous refund.
CONCLUSION
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
ORDERED that Defendants’ Motion for Summary Judgment (Doc. No. 60) is DENIED
and the Government’s Motion for Summary Judgment (Doc. No. 66) is GRANTED.
The Government shall recover of Defendant Jo Anna Bame the sum of $526,022.13. Of
this amount, she and HnH Ltd. are jointly and severally liable for $100,000, and she and I
Am Home are jointly and severally liable for $185,000.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Date: August 16, 2012
s/Richard H. Kyle
RICHARD H. KYLE
United States District Judge
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