USA v. Sullender et al

Filing 35

///ORDER granting 34 Motion for Default Judgment. Within fourteen days, the government shall submit its proposed order relating to the sale of the property. So Ordered by Judge Landya B. McCafferty.(gla)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

United States of America
v.

Civil No. 16-cv-523-LM
Opinion NO. 2018 DNH 054

Jeffrey Sullender, et al.

O R D E R
The United States of America brings suit to enforce federal
tax liens against two properties to satisfy a judgment against
defendant Jeffrey Sullender.

The government alleges that

Sullender has avoided paying federal taxes for several years,
and it asserts that Sullender transferred the two properties
“through an elaborate maze of sham trusts in a transparent
attempt to avoid . . . collection efforts.”
23.

Doc. no. 34-1 at

Defendants Thomas Budziszewski, as trustee for Paradigm

Trust (“Paradigm”), and Midway Holding Company (“Midway”), are
the putative holders of the properties, and are alleged to be
involved in the scheme.1

All three defendants have failed to

appear, and the government now moves for default judgment

The two other defendants—the Town of Hollis and City of
Nashua—are tax creditors of Sullender and hold interests in the
properties. The government states that it has come to an
agreement with these defendants that their interests hold
priority over the federal tax liens. See doc. no. 33 at 1.
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against them.

For the following reasons, the government’s

motion is granted.
STANDARD OF REVIEW
After default is entered and when the amount at issue is
not a sum certain, “the party must apply to the court for a
default judgment.”

Fed. R. Civ. P. 55(b)(2); see also KPS &

Assocs., Inc. v. Designs by FMC, Inc., 318 F.3d 1, 19 (1st Cir.
2003).

Before entering a default judgment, the court “may

examine a plaintiff’s complaint, taking all well-pleaded factual
allegations as true, to determine whether it alleges a cause of
action.”

Ramos-Falcón v. Autoridad de Energía Electríca, 301

F.3d 1, 2 (1st Cir. 2002) (quoting Quirindongo Pacheco v. Rolon
Morales, 953 F.2d 15, 16 (1st Cir. 1992)).

The defaulted party

is “taken to have conceded the truth of the factual allegations
in the complaint.”

Ortiz-Gonzalez v. Fonovisa, 277 F.3d 59, 62-

63 (1st Cir. 2002) (quoting Franco v. Selective Ins. Co., 184
F.3d 4, 9 n. 3 (1st Cir. 1999)).
The defaulted party does not, however, “admit the legal
sufficiency of those claims.”

10 James Wm. Moore, Moore’s

Federal Practice § 55.32[1][b] (3d ed. 2013).

In other words,

before entering default judgment, the court must determine
whether the admitted facts state actionable claims.

See Sykes

v. RBS Citizens, N.A., No. 13-cv-334-JD, 2016 WL 738210, at *1
2

(D.N.H. Feb. 23, 2016) (noting that the standard for default
judgment is “akin to that necessary to survive a motion to
dismiss for failure to state a claim”).

Further, when “[f]aced

with a motion for default judgment, a district court must
exercise sound judicial discretion in determining whether the
judgment should be entered.”

Fin. of Am. Reverse, LLC v.

Carmona-Vargas, No. 16-1661, 2018 WL 522317, at *1 (D.P.R. Jan.
23, 2018) (internal quotation marks omitted).
BACKGROUND
By virtue of their default, defendants concede the
following facts alleged in the amended complaint.

This is the

second action filed by the government against Sullender related
to his failure to file federal income tax returns between 2000
and 2005.

See generally United States v. Sullender, 12-cv-387-

JL (D.N.H. 2012) (“Sullender I”).

Although notices of tax

liabilities and demands were properly sent to Sullender, he
failed to fully pay the amounts, and the government instituted
the first action.
In Sullender I, as here, Sullender failed to appear, and
the government moved for a default judgment and to enforce
federal tax liens that arose as to the two properties.

The

undersigned, in her capacity as magistrate judge, wrote a Report
and Recommendation granting the government’s motion for a
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default judgment of $2,379,799.81 for unpaid taxes, penalties,
and interest.

See Sullender I, No. 12-cv-387-JL, 2013 WL

7390846, at *7 (D.N.H. Oct. 8, 2013).

However, the undersigned

recommended that the district judge deny the motion to the
extent it sought enforcement of the tax liens, concluding that
the government had not demonstrated that it was entitled to such
relief.

See id. at *4-7.

After the undersigned issued the Report and Recommendation,
the government filed a notice of conditional voluntary dismissal
as to its request for enforcement of the tax liens.

See Fed. R.

Civ. P. 41(a)(1)(B) (stating that a dismissal by notice is
generally without prejudice).

As a result, Chief Judge Laplante

approved the Report and Recommendation in part, upholding the
default judgment but declining to approve the denial of the
enforcement of the tax liens.

See Sullender I, No. 12-cv-387-

JL, 2013 WL 6728988, at *1 (D.N.H. Dec. 19, 2013).
The government subsequently filed this action pursuant to
26 U.S.C. § 7403.

See 26 U.S.C. § 7403(a), (c) (stating that a

civil action may be filed to enforce a federal tax lien and
allowing the district court to “adjudicate all matters involved
[] and finally determine the merits of all claims to and liens
upon the property”).

The court now turns to the allegations

relating to the properties.

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I.

The Nashua Property
The first property is located in Nashua (the “Nashua

Property”).

In 1991, Sullender acquired title to the Nashua

Property by warranty deed for $92,000.

The government alleges

that, at least by 1995, Sullender had decided to cease filing
federal income tax returns.

He began engaging in a “circuitous

series of purported transfers in order to convey the Nashua
Property beyond the reach of his creditors” while “still
retaining dominion and control over it.”

Doc. no. 1 at 7.

First, in January 1995, Sullender purported to convey the
Nashua Property to Aldebaran Assets Associates (“Aldebaran”).
Aldebaran was managed by John Merrick, who was affiliated with
various purported trusts and business entities formed by
Sullender to hold his assets.

Despite the fact that the Nashua

Property represented nearly all of Sullender’s known assets at
that time, the transfer of the property was made with “little or
no consideration,” and “Sullender and Aldebaran exchanged
nothing” following the conveyance.

Id. at 8.

The government

alleges that Sullender retained possession and control over the
property after the conveyance, noting that he continued to
operate his business from the property.

In addition, Sullender

filed “numerous extraneous documents” with the registry of
deeds, in order to “conceal the purported transfer of the Nashua

5

Property.”

Id. at 7.

At least since 1998, Sullender has not

filed federal income tax returns.
Second, in November 2002, for the stated consideration of
“21 U.S. silver dollars,” Aldebaran purported to convey the
Nashua Property to Seaside Management (“Seaside”).

Id. at 8.

Seaside is an entity owned, controlled, and managed by
Sullender.

Aldebaran received “little or no consideration” for

the purported transfer of the Nashua Property to Seaside.
at 9.

Id.

As with the previous transfer, the government alleges

that Sullender effectuated this conveyance in order to put the
property beyond the reach of creditors, and that Sullender
attempted to conceal the transfer by filing extraneous documents
with the registry of deeds.

On January 4, 2007, the government

filed notices of federal tax lien on the Nashua Property in the
registry of deeds, based on Sullender’s tax liabilities between
2000 and 2005.

The notices named Sullender and Seaside as

Sullender’s nominee.
The third transfer occurred in January 2010.

Seaside,

through Sullender, purported to convey the property to Paradigm,
via warranty deed.

At the time of the conveyance, Ronald

Ottaviano controlled Paradigm as trustee.2

The government

alleges that Ottaviano is a convicted tax evader, and it cites

It is unclear how Budziszewski came to be trustee of
Paradigm.
6
2

the case of United States v. Ottaviano, 738 F.3d 586 (3d Cir.
2013), which describes his tax-evasion scheme.

Through his

company Mid-Atlantic Trusts and Administrators, Ottaviano
marketed so-called “Pure Trust Organization[s],” which appeared
to be legitimate trusts but would actually provide customers
with unlimited access to and control over their accounts.
Ottaviano, 738 F.3d at 589; see also doc. no. 1 at 9.

The

warranty deed between Sullender and Paradigm describes the
latter as “c/o Mid-Atlantic Tr & Admin.”

Doc. no. 1 at 10.

The

government asserts that Paradigm is a sham trust, the purpose of
which is to assist Sullender in the evasion of his federal tax
liabilities.

The government alleges that, notwithstanding these

putative transfers, Sullender has continued to exercise dominion
and control over, and enjoy the benefits of, the Nashua
Property.
II.

The Hollis Property
The second property is in Hollis (the “Hollis Property”).

The first relevant conveyance occurred on June 21, 2004, when
John H. Baltz conveyed the property to Lisa Pollard.
at 12.

Doc. no. 1

The complaint alleges that “[t]he titling of the Hollis

Property in Pollard’s name . . . was itself fraudulent.”

Id.

In its motion, the government explains that Lisa Pollard is the
maiden name of Sullender’s wife, Lisa Sullender.
7

Sullender

placed title in the name of Pollard because, by that time,
Sullender had incurred substantial federal tax liabilities and
was seeking to “hinder, delay, or defraud his creditors.”
at 13.

Id.

The government had already initiated efforts to collect

Sullender’s unpaid tax liabilities at that point.

Sullender

paid 72 percent of the purchase price for the Hollis Property,
and retained possession and control over it, using the property
as his personal residence.

Like the transfers of the Nashua

Property, Sullender attempted to conceal the conveyance of the
Hollis Property by filing extraneous documents with the registry
of deeds.
On March 25, 2005, for the stated consideration of “2
ounces of gold in coin,” Pollard purported to convey the Hollis
Property to Seaside.

Id.

On January 4, 2007, the government

filed a notice of federal tax lien for the years 2000 through
2005 with the registry of deeds as to Sullender.
On May 5, 2007, as a purported gift, Seaside, through
Sullender, conveyed the Hollis Property to Staci Barba,
Sullender’s sister.

The government alleges that Barba initially

had no knowledge that the Hollis Property was titled in her
name.

It was not until Sullender I that she discovered this

fact, and she disclaimed any interest in the property during
that litigation.

In summer 2007, the government filed notices

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of federal tax liens for Sullender’s 2000-2005 tax liabilities
against Barba, as Sullender’s nominee.
In June 2009, a quitclaim deed was filed in the registry of
deeds, in which Barba purportedly conveyed the property to
Midway for $10.

Midway is operated by John Baltz—who originally

conveyed the property to Sullender’s wife—and has an identical
address to that of Paradigm.

The government alleges that

Sullender has continued to exercise dominion and possession over
the Hollis Property, notwithstanding the purported transfers.
The government commenced this action in November 2016, and
default was entered against Sullender, Midway, and Budziszewski
in June 2017.

See doc. nos. 23, 27.
DISCUSSION

The government moves for default judgment against
Sullender, Midway, and Paradigm, and requests that the court
permit the government to enforce the tax liens on the
properties.
Under 26 U.S.C. § 6321, if a person liable to pay tax fails
to do so after demand, the government obtains a lien in its
favor “upon all property and rights to property, whether real or
personal, belonging to such person,” 26 U.S.C. § 6321, which
includes property “that is held by a third party as the
taxpayer's nominee,” Fourth Inv. LP v. United States, 720 F.3d
9

1058, 1066 (9th Cir. 2013); see also Berkshire Bank v. Town of
Ludlow, Mass., 708 F.3d 249 (1st Cir. 2013).

The lien arises at

the time of assessment and continues until the amount is
satisfied or becomes unenforceable due to lapse of time.
U.S.C. § 6322.

26

Based on the allegations in the complaint, as

well as the disposition in Sullender I, a lien has arisen in the
government’s favor as to, among other things, Sullender’s real
property.

See 26 U.S.C. § 6321.

Accordingly, the next question is whether the third parties
which hold the Nashua and Hollis Properties do so as Sullender’s
nominees or otherwise subject to the federal tax liens.

The

government argues that, with respect to the Nashua Property,
Paradigm is Sullender’s nominee.3

With respect to the Hollis

Property, the government contends that either Barba or Seaside
acted as Sullender’s nominee, such that the conveyance to Midway
was made subject to the tax lien.
“The nominee theory focuses upon the taxpayer's
relationship to a particular piece of property, asking whether
the taxpayer has engaged in a legal fiction by placing legal
title to property in the hands of a third party while actually
retaining some or all of the benefits of true ownership.”

The government argues in the alternative that Sullender
fraudulently transferred the Nashua Property through Aldebaran,
Seaside, and Paradigm, in violation of New Hampshire law. Given
the court’s conclusions, it need not address this argument.
10
3

United States v. Isaacson, No. 09-cv-332-JL, 2011 WL 2783993, at
*2 (D.N.H. July 15, 2011) (internal quotation marks omitted)
(quoting Holman v. United States, 505 F.3d 1060, 1065 (10th Cir.
2007)).

Relevant factors include:


No consideration or inadequate consideration is
paid by the nominee;



Property is placed in the name of the nominee in
anticipation of a suit or occurrence of liabilities
while the transferor continues to exercise control
over the property;



A close relationship between the transferor or the
nominee exists;



Conveyances were not recorded;



The transferor retained possession of the property;



The transferor continued to enjoy the benefits of
the transferred property.

Id. (quoting United States v. Kattar, 81 F. Supp. 2d 262, 274
(D.N.H. 1999)).4

The First Circuit has held that “whether a particular asset
belongs to a taxpayer is a question of state law.” Berkshire
Bank, 708 F.3d at 251 (brackets omitted). The above factors are
derived from federal case law. See Isaacson, 2011 WL 2783993,
at *2. Nevertheless, the court applies them here; as noted by
the Isaacson court, there appears to be no material distinction
between how the issue would be analyzed under either federal or
state law. See id. at *2 n.3; see also May v. A Parcel of Land,
458 F. Supp. 2d 1324, 1337 (S.D. Ala. 2006) (“Federal courts
confronting nominee issues have routinely used the law of other
jurisdictions to flesh out amorphous or ill-defined state
standards for determining nominee status.”).
4

11

The court first concludes that the admitted facts state an
adequate claim that the Nashua Property is subject to a tax lien
under a nominee theory.

See id.

The above-described factors

are sufficiently supported by the allegations in the complaint,
including the following: Paradigm received inadequate
consideration for the property; the property was placed with the
trust as part of Sullender’s scheme to avoid federal tax
liability; Paradigm is associated with Ottaviano and MidAtlantic Trusts and Administrators; Sullender filed extraneous
documents with the registry of deeds; and Sullender continued to
operate his business from the property.

The government has also

sufficiently described the relationships between Sullender and
the various entities that have purportedly held title to the
Nashua Property.

For purposes of the present motion, the

government has stated an actionable claim that the tax lien
attaches to the Nashua Property.

See id. at *2-3.

Likewise, the admitted facts support the government’s
theory regarding the Hollis Property—that Barba was Sullender’s
nominee at the time the government filed its notice of federal
tax lien.

As set forth in the complaint, Sullender (via

Seaside) purported to convey the property to Barba, but
continued to reside on the property and enjoy its benefits.
Barba, meanwhile, did not know of the transfer and later
disclaimed any interest in the property.
12

In light of the

relevant factors and other allegations in the complaint, there
is a basis to conclude that Sullender attempted to place legal
title with Barba while retaining “all of the benefits of true
ownership.”

Id. at *2.

Consequently, the allegations are

sufficient to establish that the federal tax lien was valid when
filed with the registry of deeds in summer 2007, and the
conveyance to Midway was made subject to that lien.

See

Rodriguez v. Escambron Dev. Corp., 740 F.2d 92, 93 (1st Cir.
1984) (“Under federal law, a federal tax lien continues to
encumber land, even after the legal transfer of the land.”);
United States v. Tempelman, 111 F. Supp. 2d 85, 93 (D.N.H. 2000)
(collecting cases); see also 26 U.S.C. § 6323.
In sum, the government’s complaint states an actionable
claim that it has valid tax liens on the Nashua and Hollis
Properties.

Finding no other cause that would militate against

entering a default judgment, the court grants the government’s
motion.

See Hutchins v. Cardiac Sci., Inc., 456 F. Supp. 2d

173, 190 (D. Mass. 2006) (listing considerations governing entry
of default judgment).
CONCLUSION
For the foregoing reasons, the government’s motion for
default judgment (doc. no. 34) is granted.

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Within fourteen

days, the government shall submit its proposed order relating to
the sale of the property.
SO ORDERED.
__________________________
Landya McCafferty
United States District Judge
March 16, 2018
cc:

Counsel of Record

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