Heart K. Land & Cattle Co. v. Sakal et al

Filing 111

FINDINGS AND RECOMMENDATIONS re 84 MOTION for Summary Judgment filed by United States of America. Signed by Jeremiah C. Lynch on 1/22/2014. (TCL, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
HEART K LAND & CATTLE CO., INC.,

CV 12-162-BLG-DWM-JCL

Plaintiff,
FINDINGS AND
RECOMMENDATION

vs.
MICHAEL A. LONG, FRANCES A.
SAKAL, LAUREN C. LONG, UNITED
STATES OF AMERICA, MONTANA
DEPARTMENT OF REVENUE, et al.,
Defendants.

FRANCES A. SAKAL,
Counterclaimant,
vs.
HEART K LAND & CATTLE CO., INC.,
UNITED STATES GOVERNMENT
DEPARTMENT OF THE TREASURY,
MONTANA DEPARTMENT OF
REVENUE, et al.,
Counter-Defendants.

1

LAUREN C. LONG,
Counterclaimant,
vs.
HEART K LAND & CATTLE CO., INC.,
UNITED STATES GOVERNMENT
DEPARTMENT OF THE TREASURY,
MONTANA DEPARTMENT OF
REVENUE, et al.,
Counter-Defendants.

UNITED STATES OF AMERICA,
Counterclaimant,
vs.
HEART K LAND & CATTLE CO, INC.,
FRANCES A. SAKAL, LAUREN C.
LONG, MONTANA DEPARTMENT OF
REVENUE, and MICHAEL A. LONG,
Counter-Defendants.
This matter is before the Court on Defendant United States’ Fed. R. Civ. P.
56 motion for summary judgment on its counterclaims asserted in this action. For
the reasons discussed, the Court recommends the motion be granted in limited part
with respect to Defendant Michael Long’s 2010 federal tax liability, but denied in
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all other respects.
I.

BACKGROUND
Heart K Land and Cattle Co., Inc. (“Heart K”) commenced this quiet title

action to resolve issues as to competing interests the various parties to this lawsuit
possess in real property located in Park County, Montana. The property is
identified by the parties as the “Suce Creek Property.”
On July 12, 2010, the previous owners of the Suce Creek Property conveyed
the property by Warranty Deed to “Mike Long and Lauren Long, husband and
wife, as joint tenants[.]” (Doc. 86-2 at 48-51.) Defendant Frances Sakal, Lauren’s
mother, also asserts she acquired an interest in the property at that time because
she contributed financially to the purchase of the property, and she loaned money
to Michael and Lauren for the purchase of the property.
Michael operated a construction business under the name MTL Project
Management and Construction (“MTL”). He and MTL worked for Heart K.
During the course of Heart K’s business relationship with Michael and
MTL, Heart K discovered information indicating that Michael had engaged in
billing practices that caused Heart K to suffer financial losses. Consequently,
Heart K terminated its business relationship with Michael and MTL, and informed
Michael it would seek to recover its losses from him and MTL.
3

Around the time of the referenced dispute with Heart K, Michael conveyed
all of his interest in the Suce Creek Property by quitclaim deed to Sakal on
February 16, 2011.
On April 11, 2011, Heart K filed a lawsuit against Michael and MTL
regarding their business dispute. The law suit was filed in the Montana Sixth
Judicial District Court, Park County, Cause No. DV 2011-62 (the “Prior
Litigation”). Heart K obtained a favorable judgment against Michael and MTL,
and an award of monetary compensation for its losses.
Based on Heart K’s favorable judgment entered in the Prior Litigation,
Heart K commenced this action on June 21, 2012, in the Montana Sixth Judicial
District Court, Park County, Cause No. DV 2012-117. Heart K named the
Montana Department of Revenue and the United States of America as additional
defendants in this action because each had filed tax lien interests against the Suce
Creek Property based on taxes owed by Michael and Lauren Long. On December
20, 2012, the United States removed the action to this Court.
The United States filed counterclaims to collect federal taxes owed by
Michael and Lauren Long, and to assert and protect its tax lien interests. The
United States asserts Michael and Lauren are jointly liable for federal taxes owed
in 2009, and that Michael is liable for federal taxes owed in 2010. In its first claim
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for relief, the United States seeks to reduce Michael and Lauren’s 2009 tax
liability to a civil judgment, and in its second claim for relief the United States
seeks entry of a civil judgment as to the amount of Michael’s 2010 tax liability.
The United States also seeks to foreclose on its tax lien interests imposed
against Michael’s assets. In that regard, the United States’ third claim for relief
asserts Michael’s conveyance of his interest in the Suce Creek Property to Sakal
was a fraudulent conveyance. The United States requests the Court set that
conveyance aside as void, thereby including the Suce Creek Property in Michael’s
assets from which the United States can satisfy its lien interests.
Finally, in its fourth claim for relief the United States seeks to foreclose on
its lien interests. It alleges its liens attached to Michael and Lauren’s real property
interests in the Suce Creek Property, and that it is legally entitled to foreclose on
its lien interests to collect their tax liabilities.
The United States moves for summary judgment on all four of its
counterclaims.
II.

APPLICABLE LAW
A.

Summary Judgment Standards

Federal Rule of Civil Procedure 56(a) entitles a party to summary judgment
“if the movant shows that there is no genuine dispute as to any material fact and
5

the movant is entitled to judgment as a matter of law.” Once the moving party has
satisfied its burden, the non-moving party must go beyond the pleadings and
designate by affidavits, depositions, answers to interrogatories, or admissions on
file, “specific facts showing that there is a genuine issue for trial.” Celotex Corp.
v. Cattrett, 477 U.S. 317, 324 (1986). In deciding a motion for summary
judgment, the Court views the evidence in the light most favorable to the nonmoving party and draws all justifiable inferences in the non-moving party’s favor.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Betz v. Trainer
Wortham & Co., Inc., 504 F.3d 1017, 1020-21 (9th Cir. 2007).
B.

Application of Montana Law

In view of the Court’s original jurisdiction over the United States’
counterclaims, jurisdiction over the other parties’ claims that are advanced under
Montana law is founded upon the Court’s supplemental jurisdiction under 28
U.S.C. § 1367(a). “[A] federal court exercising supplemental jurisdiction over
state law claims is bound to apply the law of the forum state to the same extent as
if it were exercising its diversity jurisdiction.” Bass v. First Pacific Networks,
Inc., 219 F.3d 1052, 1055 n.2 (9th Cir. 2000). “The task of a federal court in a
diversity action is to approximate state law as closely as possible in order to make
sure that the vindication of the state right is without discrimination because of the
6

federal forum.” Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir. 1980).
III.

DISCUSSION
Heart K and Defendant Montana Department of Revenue do not oppose the

United States’ summary judgment motion as presented, but seek to contest the
order of priority of the parties’ respective interests in the Suce Creek Property.
(Doc. 84 at 3.) The United States recognizes the issue of the priority of the
parties’ interests remains to be determined at trial. (Doc. 85 at 29 n.2.)
Sakal filed a brief in opposition to the United States’ motion with which
Lauren Long joins. Michael, however, has not filed any brief in opposition to the
United States’ motion for summary judgment, and the time for doing so has
passed. Under Local Rule 7.1(d)(1)(B), Michael’s “failure to file a response brief
may be deemed an admission that the motion is well-taken.”
But the Ninth Circuit has made clear that a district court may not grant
“summary judgment simply because a party fails to file an opposition or violates a
local rule,” and must “analyze the record to determine whether any disputed
material fact [is] present.” Ahanchian v. Xenon Pictures, Inc., 624 F.3d 1253,
1258 (9th Cir. 2010). See also Martinez v. Stanford, 323 F.3d 1178, 1182 (9th Cir.
2003) (explaining that “a nonmoving party’s failure to comply with local rules
does not excuse the moving party’s affirmative duty under Rule 56 to demonstrate
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its entitlement to judgment as a matter of law”).
A.

Michael Long and Lauren Long’s Tax Liability

The United States moves for summary judgment to establish the existence
of Michael and Lauren Long’s tax liability for the 2009 and 2010 tax years, and to
reduce that liability to a civil judgment in favor of the United States. The Court
concludes the United States is entitled to a civil judgment, but only with respect to
Michael’s 2010 tax liability.
1.

Michael and Lauren Long’s 2009 Tax Liability

The United States filed Form 4340, Certification of Assessments, as proof
of the assessment of Michael and Lauren’s federal tax liability for 2009. (Doc. 862 at 2-5.) The United States asserts their total joint tax liability for 2009 is
$12,335.43. (Doc. 86-1 at ¶ 9.)
Sakal opposes the United States’ summary judgment motion with respect to
Michael and Lauren’s 2009 tax liability. Sakal asserts that on December 20, 2013,
Lauren paid the full amount of their joint tax liability. Sakal also submitted a copy
of a Certificate of Release of Federal Tax Lien dated December 31, 2013, issued
as a result of Lauren’s tax payment. (Doc. 99-3 at 67-68.) The Certificate, signed
by an employee of the Internal Revenue Service, recognizes that Michael and
Lauren’s federal tax liability and obligations for the 2009 tax year have been
8

satisfied. The Certificate also releases the federal tax lien that arose in favor of the
United States with respect to that 2009 tax liability.
Based on the foregoing, Sakal has submitted evidence sufficient to raise a
genuine issue of material fact as to whether Michael and Lauren are still liable for
any further federal taxes assessed for the 2009 tax year, and whether the United
States is entitled to a judgment on that liability. Thus, the United States’ summary
judgment motion as to its first claim for relief should be denied.
2.

Michael Long’s 2010 Tax Liability

With respect to Michael’s federal tax liability for the 2010 tax year, the
United States filed Form 4340, Certification of Assessments, as proof of the tax
assessments supporting that liability. (Doc. 86-2 at 21-24.) As of December 31,
2013, Michael’s tax liability for 2010 was $142,994.68. (Doc. 86-1 at ¶ 9.) Sakal
does not oppose the United States’ motion as to Michael’s 2010 federal tax
liability.
The Certificate of Assessments filed by the United States in this case
constitutes prima facie evidence of Michael’s taxpayer liability to the United
States. United States v. Jones, 33 F.3d 1137, 1139 (9th Cir. 1994); Oliver v. United
States, 921 F.2d 916, 921 (9th Cir. 1990). Because no party has opposed the
United States’ motion relative to Michael 2010 tax liability, the Court finds no
9

evidence exists in the record that raises a genuine issue of material fact as to that
liability. Thus, the United States’ summary judgment motion should be granted on
its second claim for relief reducing Michael’s 2010 tax liability to a civil
judgment.
B.

Fraudulent Transfer of Michael Long’s Real Property Interest

The United States moves for summary judgment to establish that Michael’s
February 16, 2011 conveyance of his interest in the Suce Creek Property to Sakal
was a fraudulent transfer. Sakal opposes this aspect of the United States’ motion,
and for the reasons discussed the Court agrees that she has established that
genuine issues of material fact exist as to the United States’ fraudulent transfer
claim.
To establish that Michael’s conveyance to Sakal was fraudulent, the United
States relies upon the provisions of the Montana Uniform Fraudulent Transfer Act,
Mont. Code Ann. § 31-2-327 et seq. Montana law deems a transfer of an interest
in property as fraudulent under the following circumstances:
(1) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor, whether the creditor's claim arose before or after the transfer was
made or the obligation was incurred, if the debtor made the transfer or
incurred the obligation:
(a) with actual intent to hinder, delay, or defraud any creditor of the
debtor; or
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(b) without receiving a reasonably equivalent value in exchange for
the transfer or obligation and the debtor:
(i) was engaged or was about to engage in a business or a
transaction for which the remaining assets of the debtor were
unreasonably small in relation to the business or transaction; or
(ii) intended to incur, or believed or reasonably should have
believed that the debtor would incur, debts beyond the debtor's
ability to pay as they became due.
Mont. Code Ann. § 31-2-333(1).
1.

Intent to Hinder, Delay, or Defraud the United States

The United States argues the evidence before the Court establishes that
Michael’s intent in transferring his interest in the Suce Creek Property to Sakal
was to hinder, delay or defraud the United States with respect to the taxes he
owed. But, the Court finds Sakal has sufficiently raised genuine issues of material
fact regarding Michael’s intent.
The Montana Uniform Fraudulent Transfer Act provides guidance in
considering a transferor’s intent. The statute states as follows:
(2) In determining actual intent under subsection (1)(a), consideration may
be given, among other factors, to whether:
(a) the transfer or obligation was to an insider;
(b) the debtor retained possession or control of the property
transferred after the transfer;

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(c) the transfer or obligation was disclosed or concealed;
(d) before the transfer was made or obligation was incurred, the
debtor had been sued or threatened with suit;
(e) the transfer was of substantially all the debtor's assets;
(f) the debtor absconded;
(g) the debtor removed or concealed assets;
(h) the value of the consideration received by the debtor was
reasonably equivalent to the value of the asset transferred or the
amount of the obligation incurred;
(i) the debtor was insolvent or became insolvent shortly after the
transfer was made or the obligation was incurred;
(j) the transfer occurred shortly before or shortly after a substantial
debt was incurred; or
(k) the debtor transferred the essential assets of the business to a
lienor who transferred the assets to an insider of the debtor.
Mont. Code Ann. § 31-2-333(2).
The United States asserts that consideration of the foregoing factors in the
facts of this case supports the conclusion that Michael intended to defraud the
United States.1 But Sakal has raised genuine issues of material fact relative to

1

Undisputedly, Michael’s transfer to Sakal qualifies as a transfer to an
“insider” under section 31-2-333(2)(a) because Sakal was Michael’s mother-inlaw at the time of the transfer. Mont. Code Ann. § 31-2-328(7)(a)(i). But this
factor is not dispositive.
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these statutory factors.
a.

Retained Possession or Control

The United States argues Michael retained possession or control of the Suce
Creek Property after he transferred his interest to Sakal. Following the February
16, 2011 transfer, Michael resided on the property from September 2011 to
January 2012.
But Sakal asserts that Michael resided on the property during the referenced
period of time because he was working as a general contractor constructing a
house on the property. (Doc. 99-3 at 27-29.) Also, Sakal points out that
Michael’s occupancy of the property did not begin until six months after he
transferred his interest to Sakal.
The United States also submitted evidence of utility bills related to the Suce
Creek Property. The electricity and gas records from 2010, 2011, and 2013 were
in Michael and Lauren’s names. (Doc. 86-2 at 55-66.)
But Sakal has pointed to Lauren’s deposition testimony wherein she states
she and Sakal, not Michael, paid the utility bills for the Suce Creek Property.
(Doc. 99-3 at 30.)
The United States next contends Michael made financial contributions to
the construction of the house on the Suce Creek Property in the fall of 2011. Sakal
13

does not directly dispute this contention, but adds that she also paid for the
construction of the house. (Doc. 99-3 at 28-29, 38.)
Based on the foregoing, the Court finds Sakal has identified genuine issues
of material fact relative to the issue of whether Michael retained sufficient
possession and control of the Suce Creek Property to suggest his transfer of his
interest to Sakal was fraudulent. Thus, the facts relevant to this factor do not
conclusively establish Michael’s intent in support of the United States’ motion.
b.

Threat of Lawsuit and Liability

The United States argues the evidence establishes Michael transferred his
interest in the Suce Creek Property to Sakal because he knew he was facing
significant liability exposure to Heart K. The chronology of events relative to that
issue are as follows:
On July 12, 2010, the previous owners of the Suce Creek Property conveyed
the property by Warranty Deed to “Mike Long and Lauren Long, husband and
wife, as joint tenants[.]” (Doc. 86-2 at 48-51.)
During the relevant time period, Michael operated a construction business
under the name MTL Project Management and Construction (“MTL”). At some
point, Heart K engaged Michael and MTL to oversee renovation projects on
unrelated property that Heart K owned.
14

During the course of Heart K’s business relationship with Michael and
MTL, Heart K discovered information indicating that Michael had engaged in
billing practices that caused Heart K to suffer financial losses. As a result, Heart
K terminated its business relationship with Michael and MTL, and informed
Michael it would seek to recover its losses from them. According to Heart K’s
presentation of the facts in this case, that termination and notice of remuneration
occurred on February 14, 2011. (Doc. 86 at ¶ 3 (citing Heart K’s Preliminary PreTrial Statement (Doc. 23).)
On February 16, 2011, Michael conveyed, by quitclaim deed, all of his
interest in the Suce Creek Property to Sakal. (Doc. 86-2 at 53.)
On April 11, 2011, Heart K filed a lawsuit against Michael and MTL in the
Montana Sixth Judicial District Court, Park County, Cause No. DV 2011-62 (the
“Prior Litigation”). Through that Prior Litigation Heart K sought to recover its
business losses allegedly caused by Michael in their prior business relationship.
Included within Heart K’s claims for relief in the Prior Litigation was a claim
seeking to establish that Michael’s February 16, 2011 quitclaim conveyance of his
interest in the Suce Creek Property to Sakal was a fraudulent transfer which he
allegedly made to avoid loss of the property by virtue of his potential liability to
Heart K.
15

On May 4, 2012, the Montana Sixth Judicial District Court, Park County,
entered its legal ruling and default judgment in the Prior Litigation against
Michael and MTL, and in favor of Heart K. The court granted Heart K an award
of monetary compensation for its losses in the total amount of $792,916.04. (Doc.
86-2 at 90.)
The United States asserts the timing of Michael’s transfer of his interest in
the Suce Creek Property to Sakal is evidence of his fraudulent intent. The United
States contends the record demonstrates that Michael transferred his interest just 2
days after he had been informed by Heart K that his business relationship with
Heart K was terminated, and that Heart K intended to seek remuneration of its
financial losses from Michael and MTL.
Sakal, however, disputes that Michael was terminated on February 14, 2011.
She points out there is no evidentiary material in the record of this case
establishing February 14, 2011, as the actual date of Michael’s termination.
Rather, the United States relies only upon information in Heart K’s Preliminary
Pre-Trial Statement suggesting that was the date of Michael’s termination, but the
United States does not identify any evidentiary material in the record supporting
that fact.
In contrast, Michael testified in his deposition that an agent of Heart K
16

confronted him regarding the billing discrepancies in February, 2011, but that the
parties spent a couple weeks discussing and sorting out the dispute. (Doc. 86-4 at
128.) Further, Michael believed the dispute with Heart K would get resolved
without litigation. (Doc. 86-4 at 131.) Therefore, the United States has not
established the absence of a genuine issue of material fact as to the specific date
that Michael’s business relationship with Heart K was terminated.
Additionally, although Michael was aware of his dispute with Heart K
around the time he transferred his interest to Sakal (doc. 86-4 at 11, 17, 130-131),
it is important to note that there exists no evidence in the record suggesting
Michael knew, as of the time of his transfer to Sakal, that his potential liability to
Heart K would be in excess of $792,000. Rather, he stated he thought the dispute
with Heart K would be resolved without litigation. (Doc. 86-4 at 131.)
Accordingly, the Court finds genuine issues of material fact exist relative to
the issue of the timing of Michael’s transfer of his property interest and the legal
dispute with Heart K. This factor does not conclusively support the United States’
motion to establish the transfer as fraudulent.
c.

Michael Long’s Assets

The United States next suggests that Michael’s interest in the Suce Creek
Property was his only asset from which the Internal Revenue Service could collect
17

taxes that he owed. But Michael testified that he had set aside $150,000 in a bank
account to pay his tax liabilities. (Doc. 86-4 at 124, 131.) Also, although he was
aware in general that federal tax liens could attach to real property he owned, he
states he did not consider that as a possibility in February, 2011. (Doc. 86-4 at
133.) This testimony raises genuine issues as to the assets Michael had available
to pay liabilities he had at the time he transferred his interest to Sakal.
d.

Adequacy of Consideration Received for Transfer

The United States suggests Michael did not receive adequate compensation
from Sakal for his transfer of his interest in the Suce Creek Property to her. It
contends the Suce Creek Property was valued at around $625,000 in the fall of
2011, and in June, 2013.2 (Doc. 86-4 at 94, 206.)
But, as argued by Sakal, the value of property involved in an alleged
fraudulent transfer must be assessed as of the date of the challenged transfer.
Montana Association of Credit Management, 593 P.2d 1059, 1065 (Mont. 1979).
The original purchase price for the Suce Creek Property in 2010, purchased as
bare land, was around $150,000. (Doc. 86-4 at 95.) And by February, 2011, when
Michael transferred his interest to Sakal, the only construction that had occurred
2

Sakal has similarly identified evidence suggesting the estimated market
value of the property as of December 19, 2013, after the house was constructed on
the property, was $550,000 to $575,000. (Doc. 99-3 at 101.)
18

on the house was the concrete foundation. (Doc. 86-4 at 182.) Based on those
facts, Sakal suggests the value of the property would have been closer to $200,000
at the time Michael transferred his interests.
In any event, although the United States has identified evidence of the value
of the Suce Creek Property after the house was constructed, it is significant that it
has not presented any evidentiary material establishing the fair market value of the
property as of the date of the February 16, 2011 transfer to Sakal. The United
States, therefore, has failed to demonstrate the absence of a genuine issue of
material fact as to the value of the property on February 16, 2011.
Further, as discussed in more detail below, Sakal has presented evidence
suggesting she had loaned Michael and Lauren approximately $260,000, and that
they still owed Sakal approximately $148,000 on the loan at the time Michael
transferred his interest to Sakal. Also as discussed below, Michael, Lauren and
Sakal assert Michael transferred the property to Sakal in exchange for her
forgiveness of the balance of the loan in the amount of $148,000. Consequently,
the United States has not established the absence of genuine issues of material fact
as to whether Michael received adequate consideration for his transfer.
e.

Transfer Following Incurrence of Substantial Debt

The United States asserts that Michael transferred his interest to Sakal
19

shortly after he had incurred substantial federal tax liabilities in 2009 and 2010.
Federal “tax liabilities, though unassessed, are deemed obligations due and owing
at the close of the taxable year.” Edelson v. Commissioner of Internal Revenue,
829 F.2d 828, 834 (9th Cir. 1987). Michael and Lauren filed their 2009 federal tax
return reflecting taxes owed in the amount of $9,149. (Doc. 86-2 at 8.) And
Michael filed his 2010 federal tax return identifying federal taxes he owed in the
amount of $128,469. (Doc. 86-2 at 27.) Thus, Michael was aware of his total
federal tax liability as of the end of the 2010 tax year before he transferred his real
property interest to Sakal.
Notwithstanding, Sakal has presented evidence indicating that Michael had
set aside $150,000 to pay his taxes. (Doc. 86-4 at 124, 131.) Therefore, although
Michael had incurred federal tax liability prior to his transfer to Sakal, there exists
a genuine issue of material fact as to whether that debt was substantial in view of
his remaining assets, and whether the debt was one which he could not pay.
Based on all of the foregoing, the Court finds there remain numerous issues
of material fact relative to the United States’ fraudulent transfer claim under Mont.
Code Ann. § 31-2-333(1)(a). Its summary judgment motion should be denied in
that respect.

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2.

Receipt of Value for Transfer, and Debt Beyond Debtor’s
Ability to Pay

In the alternative, the United States moves to establish Michael’s transfer of
his interest in the Suce Creek Property to Sakal as fraudulent under the provisions
of Mont. Code Ann. § 31-2-333(1)(b)(ii). It contends Michael did not receive
adequate compensation, consideration or value from Sakal in exchange for his
transfer to her. It also argues Michael transferred his interest at a time when he
knew he was incurring debts beyond his ability to pay them as they came due. But
for the reasons discussed, the Court finds the facts relevant to the issues under
section 31-2-333-(1)(b)(ii) are not undisputedly established in the United States’
favor.
In support of its argument that Michael did not receive any consideration for
the transfer of his interest to Sakal, the United States suggests that before the date
of Michael’s transfer he and Lauren had returned funds to Sakal that she had given
to them to acquire the property. On May 11, 2010, Sakal paid Michael and Lauren
$112,000, purportedly to purchase the Suce Creek Property and to acquire
Michael’s interest in the property. (Doc. 86-4 at 79, 207.)
But the United States argues Lauren returned the $112,000 to Sakal, on June
1, 2010, before the Suce Creek Property was conveyed to Michael and Lauren on

21

July 12, 2010, and long before Michael transferred his interest to Sakal in
February, 2011. The United States has submitted a copy of a check dated June 1,
2010, for $112,000 written by Lauren to Sakal. (Doc. 86-4 at 81.) And Michael
confirmed in his deposition testimony that he did not receive any consideration
from Sakal on the day he executed the quitclaim deed to Sakal. (Doc. 86-4 at
134.) Consequently, the United States suggests the evidence of record
conclusively establishes that Michael did not receive any consideration or value
from Sakal in exchange for his transfer of his interest in the Suce Creek Property
to Sakal.3
Sakal, in turn, has submitted evidentiary materials challenging the United
States’ suggestion. Under the Uniform Fraudulent Transfer Act, “value” is
deemed to be given to a transferor if, “in exchange for the transfer [...,] an
antecedent debt is [...] satisfied[.]” Mont. Code Ann. § 31-2-330(1). Sakal has
submitted evidence indicating that the total amount of money she loaned to
Michael and Lauren from 2008 through 2011 was in excess of $260,000, and that
the $112,000 identified by the United States was not the only money she loaned to
Michael and Lauren. (Doc. 99-3 at 58-65). Sakal asserts the $260,000 was a loan
3

The United States suggests that Michael and Lauren instead purchased the
Suce Creek Property from a $160,000 deposit made from Michael and MTL’s
account to Michael and Lauren’s personal checking account. (Doc. 86-4 at 83.)
22

she made to Michael and Lauren, and that they were obligated to repay that money
to her. (Doc. 99 at 5, and Doc. 99-3 at 8.) Thus, even if Lauren transferred
$112,000 to Sakal on June 1, 2010, as repayment of Sakal’s prior $112,000 loan,
Sakal asserts that was only a partial repayment of the total $260,000 loan, leaving
$148,000 as the balance due on the loan which Michael and Lauren owed Sakal.
Furthermore, Sakal, Michael, and Lauren all assert that Michael’s
conveyance of his interest in the Suce Creek Property to Sakal was made for the
purpose of repaying Sakal for the balance of the total amount of the loans she had
made to the Longs. Sakal had contributed financial resources for the purchase of
the Suce Creek Property, and she asserts Michael and Lauren knew they owed
Sakal repayment on the loans she had made to them. (Doc. 99-3 at 7, 8.) Michael
confirmed in his deposition testimony that the transfer of his interest to Sakal was
to repay her “for all of the good faith loans she had given” Michael and Lauren
over the years. (Doc. 86-4 at 134.) Lauren’s deposition testimony also confirms
Michael transferred his interest to Sakal to repay her for loans she had provided to
Michael and Lauren. (Doc. 99-3 at 26.) Thus, Sakal has presented sufficient
evidence to raise a genuine issue of material fact as to whether Michael transferred
his interest in the Suce Creek Property to satisfy an antecedent debt – the balance
of which was $148,000 – that he owed to Sakal and, consequently, whether he
23

received value for his transfer to Sakal.
The United States further argues under Mont. Code Ann. § 31-2333(1)(b)(ii) that Michael knew he was incurring debt beyond his ability to pay
that debt around the time he transferred his interest to Sakal. The United States
points to Michael’s federal tax liability of which he was aware at the time, and to
his potential liability exposure to Heart K.
But the record does not conclusively support the United States’ position.
The record reflects Michael had set aside $150,000 to pay his tax liability.
Further, there is no evidence indicating Michael knew the full extent of his
potential liability to Heart K as of February 16, 2011. Therefore, the United States
has failed to establish the absence of genuine issues of material fact in support of
its fraudulent conveyance claim under Mont. Code Ann. § 31-2-333(1)(b)(ii).
C.

Foreclosure on Suce Creek Property

The United States’ fourth claim for relief in its counterclaims requests
foreclosure of it federal tax liens which it asserts attached to Michael and Lauren’s
interests in the Suce Creek Property.4 For the reasons stated, however, the United
4

The parties have since entered a Stipulated Agreement permitting Sakal and
Lauren to sell the Suce Creek Property. (Doc. 98-1.) The parties have also agreed
that Heart K, the Montana Department of Revenue, and the United States’ interests
they possessed with respect to the Suce Creek Property will be enforced against
the proceeds of sale of the property. (Id.)
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States has failed to establish its entitlement to the foreclosures requested.
As a matter of law, the United States’ statutory tax liens securing Michael
and Lauren’s tax liability arose under 26 U.S.C. § 6321 as of the date of the tax
liability assessments made by the United States. 26 U.S.C. § 6322. The
assessment dates for Michael and Lauren’s 2009 tax-year liability are as follows:
Assessment Dates

Amount Assessed

October 4, 2010

$9,194.00 (Tax)

March 19, 2012

$1,643.00 (Penalty)

March 19, 2012

$11,202.00 (Tax)

March 19, 2012

$678.11 (Interest)

(Doc. 86 at ¶ 8.) And the assessment dates for Michael’s 2010 tax-year liability
are as follows:
Assessment Dates

Amount Assessed

November 21, 2011

$128,469.00 (Tax)

November 21, 2011

$2,682.82 (Penalty)

November 21, 2011

$1,551.63 (Interest)

(Doc. 86 at ¶ 11.) Thus, the United States contends the tax liens for Michael’s tax
liability arose on October 4, 2010, November 21, 2011, and March 19, 2012, in the
amounts stated. (Doc. 85 at 26.)
The record reflects that Michael and Lauren originally acquired their legal
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interests in the Suce Creek Property by Warranty Deed on July 12, 2010. Michael,
however, conveyed his legal interest to Sakal by a quit claim deed on February 16,
2011. Therefore, based solely on the assessment dates established by the United
States, the only tax lien that arose and would have attached to Michael’s interest in
the Suce Creek Property before he transferred that interest is the October 4, 2010
tax lien stemming from the 2009 tax year.
But, as discussed, Sakal has presented evidence indicating that Michael and
Lauren’s 2009 federal tax obligations were satisfied on December 20, 2013, and
the liens arising from the October 4, 2010, and the March 19, 2012 tax
assessments for the 2009 tax year were released on December 31, 2013. (Doc. 993 at 67-68.) Consequently, Sakal has raised a genuine issue of material fact as to
the United States’ right to foreclose on its tax lien arising from the October 4,
2010 tax assessment that would have attached to Michael’s interest in the Suce
Creek Property.
The balance of the United States’ tax liens asserted against Michael arose
after he transferred his interest in the property to Sakal. A federal tax lien attaches
only to property owned by the taxpayer at the time of the tax assessment. United
States v. Abbott, 2003 WL 21968724, *2 (D. Nev. 2003). Because Michael
transferred his interest in the Suce Creek Property to Sakal on February 16, 2011,
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the United States’ federal tax lien for the November 21, 2011 tax assessments
made with respect to Michael’s tax liability for the 2010 tax year did not arise
until after Michael transferred his interest. Consequently, the United States’ tax
lien for the 2010 tax year did not, as a matter of law, attach to Michael’s interest in
the Suce Creek Property unless, of course, the United States can establish
Michael’s transfer was a fraudulent transfer. As discussed, however, the Court
finds genuine issues of material fact exist with respect to the United States’
fraudulent transfer claims. Therefore, the United States has not established that, as
a matter of law, it is entitled to foreclose on its lien interests that arose from
Michael’s 2010 tax liability.
IV.

CONCLUSION
Based on the foregoing, IT IS RECOMMENDED that the United States’

summary judgment motion be GRANTED with respect to the amount of Michael
Long’s federal tax liability stemming from the 2010 tax year, and a civil judgment
for the amount of that tax liability should be entered. IT IS FURTHER
RECOMMENDED that the balance of the United States’ motion be DENIED.
DATED this 22nd day of January, 2014.

Jeremiah C. Lynch
United States Magistrate Judge
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