UNITED STATES OF AMERICA v. THE ESTATE OF LORRAINE M. KELLEY et al
Filing
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OPINION filed. Signed by Judge Brian R. Martinotti on 10/22/2020. (jmh)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
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UNITED STATES OF AMERICA,
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Case No. 3:17-cv-965-BRM-DEA
Plaintiff,
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v.
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OPINION
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THE ESTATE OF LORRAINE M.
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KELLEY, et al.,
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Defendants.
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MARTINOTTI, DISTRICT JUDGE
Before this Court is a Motion by Plaintiff United States of America (“United States” or
“Plaintiff”) for Summary Judgment on Counts II through V of the Complaint against Defendants
the Rose Saloom and the Estate of Richard Saloom. 1 (ECF No. 32.) Defendant Rose Saloom 2 filed
an Opposition to the United States’ Motion. (ECF No. 37.) Having reviewed the submissions filed
in connection with the motions and having declined to hold oral argument pursuant to Federal Rule
of Civil Procedure 78(b), for the reasons set forth below and for good cause shown, the United
States’ Motion for Summary Judgment is GRANTED in part and DENIED in part.
1
On March 2, 2020, the Court entered a Consent Judgment as to Count I of the Complaint against
the Estate of Lorraine M. Kelley and Robert J. Lecky. (ECF No. 41.)
2
Rose Saloom is the daughter of Richard Saloom.
I.
PROCEDURAL AND FACTUAL BACKGROUND 3
A.
Tax Liability of the Estate of Lorraine M. Kelley
Lorraine M. Kelley (“Kelley”) died on December 30, 2003. (ECF No. 32-3 ¶ 1.) Richard
Saloom—Kelley’s brother—and Richard J. Lecky (“Lecky”) were co-executors of her estate. (Id.
¶ 2.) On September 23, 2004, Richard Saloom and Lecky, as co-executors of the Estate of Lorraine
M. Kelley (“the Kelley Estate”), filed on its behalf Form 706 (United States Tax Return), reporting
an estate tax liability of $214,412 and a gross estate of over $1.7 million. (Id. ¶ 5.) On October 28,
2004, the IRS opened an examination of the Kelley Estate’s estate tax returns. (Id. ¶ 6.) On June
27, 2006, Richard Saloom, as co-executor of the Kelley Estate, consented on its behalf to the
assessment of an additional tax liability of $448,367, which was based on a corrected gross estate
of over $2.6 million, a taxable estate of over $2.3 million, and a total tax of $662,780. (Id. ¶ 7-8.)
As of September 2, 2019, the total unpaid balance of the Kelley Estate’s estate tax liability is
$688,644 plus statutory additions accruing after that date. (Id. ¶ 10.)
B.
The Administration of the Kelley Estate
Kelley’s gross estate included property valued at over $2.6 million on the date of her death,
including:
a. her primary residence, valued at $490,000;
b. an annuity, valued at over $1 million; and
c. stocks and securities, valued at over $900,000
(Id. ¶ 11.)
Richard Saloom, the sole beneficiary of the Kelley Estate, distributed and received all the
property of the Kelley Estate for free. (Id. ¶¶ 11-12.) On August 20, 2004, Richard Saloom and
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Unless otherwise noted, the facts detailed in this section are not opposed by Defendants.
2
Lecky sold Kelley’s primary residence for $490,000. (Id. ¶ 14.) Additionally, Richard Saloom
received over $1 million in proceeds from Kelley’s annuity, $50,000 of which he gave to Rose
Saloom via check cashed on November 8, 2004. (Id. ¶¶ 15-16.) Richard Saloom used these
proceeds to run his business and buy and develop other property. (See id. ¶ 17.) By January 2008,
the Kelley Estate had no property, yet still owed over $400,000 in estate tax. (Id. ¶¶ 18-19.)
C.
Richard Saloom’s Efforts to Pay
In late 2007, Richard Saloom tried to resolve the Kelley Estate’s tax liability and enter into
an installment agreement with the IRS, eventually making several significant payments toward the
tax liability. (Id. ¶¶ 20-21.) Some time before his death in March 2008, Richard Saloom instructed
Rose Saloom to continue to make payments to the IRS for the Kelley Estate’s tax liability. (Id.
¶ 22.) Rose Saloom made several payments on her father’s behalf. (Id. ¶ 23.)
D.
The Administration of the Richard Saloom Estate
Richard Saloom died on March 21, 2008 (Id. ¶ 25.) Rose Saloom was the executrix of his
estate. (Id. ¶ 26.) Richard Saloom’s gross estate included property valued at over $1.1 million on
the date of his death, including:
a. his primary residence, valued at $220,000;
b. real property valued at $225,000; and
c. interests in two companies valued at $305,400 and $312,000,
respectively
(Id. ¶ 27.)
Rose Saloom, as executrix of the Richard Saloom Estate, filed on his behalf a New Jersey
inheritance tax return that listed his debt as including $456,406 in “indebtedness” for “federal tax.”
(Id. ¶ 28.) Additionally, Rose Saloom was the sole beneficiary of the Richard Saloom Estate. (Id.
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¶ 30.) Eventually, Rose Saloom distributed and received all the property of the Richard Saloom
Estate. (See id. ¶ 31.) As of now, the Richard Saloom Estate no longer has any property, and Rose
Saloom no longer has any property from the Richard Saloom Estate. (Id. ¶¶ 32-33.)
E.
Procedural History
On February 10, 2017, the United States filed a five-count Complaint against Defendants
for: reduction of estate tax assessment to judgment against the Kelley Estate (Count I), transferee
liability against the Richard Saloom Estate (Count II), fiduciary liability against the Richard
Saloom Estate (Count III), fiduciary liability against Rose Saloom (Count IV), and liability against
Rose Saloom under the New Jersey Uniform Fraudulent Transfer Act (“UTFA”) (Count V). (ECF
No. 1.)
On May 5, Rose Saloom filed a Motion to Dismiss the Complaint. (ECF Nos. 7, 9.) 4 On
November 28, 2017, this Court denied Rose Saloom’s Motion. (ECF No. 13.) On May 23, 2018,
Rose Saloom filed an Answer to the Complaint. (ECF No. 19.)
On August 27, 2019, the United States filed a Motion for Summary Judgment against
Defendants. (ECF No. 32.) On October 16, 2019, Rose Saloom filed an Opposition to the United
States’ Motion. (ECF No. 37.) On October 29, 2019, the United States filed a Motion to Approve
Consent Judgment as to Count I of the Complaint. (ECF No. 39.) On March 2, 2020, this Court
entered a Consent Judgment and Order with respect to Count I of the Complaint against the Kelley
Estate and Lecky in the amount of $688,644 as of September 2, 2019 and closed the case. (ECF
No. 41.) On March 4, 2020, the United States, by letter, requested this Court re-open the case and
restore the Motion for Summary Judgment against Rose Saloom and the Richard Saloom Estate
4
Rose Saloom filed two responses to the Complaint, which the Court construed as a joint Motion
to Dismiss. (See ECF No. 13 at 3.)
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for Counts II through V of the Complaint. (ECF No. 42.) On March 5, 2020, this Court reopened
the case and restored Plaintiff’s Motion for Summary Judgment. (ECF No. 43.)
II.
LEGAL STANDARD
Summary judgment is appropriate “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter
of law.” Fed. R. Civ. P. 56(c). A factual dispute is genuine only if there is “a sufficient evidentiary
basis on which a reasonable jury could find for the non-moving party,” and it is material only if it
has the ability to “affect the outcome of the suit under governing law.” Kaucher v. Cty. of Bucks,
455 F.3d 418, 423 (3d Cir. 2006); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). Disputes over irrelevant or unnecessary facts will not preclude a grant of summary
judgment. Anderson, 477 U.S. at 248. “In considering a motion for summary judgment, a district
court may not make credibility determinations or engage in any weighing of the evidence; instead,
the non-moving party’s evidence ‘is to be believed and all justifiable inferences are to be drawn in
his favor.’” Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson,
477 U.S. at 255)); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587,
(1986); Curley v. Klem, 298 F.3d 271, 276-77 (3d Cir. 2002). “Summary judgment may not be
granted . . . if there is a disagreement over what inferences can be reasonably drawn from the facts
even if the facts are undisputed.” Nathanson v. Med. Coll. of Pa., 926 F.2d 1368, 1380 (3rd Cir.
1991) (citing Gans v. Mundy, 762 F.2d 338, 340 (3d Cir.), cert. denied, 474 U.S. 1010 (1985));
Ideal Dairy Farms, Inc. v. John Labatt, Ltd., 90 F.3d 737, 744 (3d Cir. 1996).
The party moving for summary judgment has the initial burden of showing the basis for its
motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party bears the burden
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of persuasion at trial, summary judgment is appropriate only if the evidence is not susceptible to
different interpretations or inferences by the trier of fact. Hunt v. Cromartie, 526 U.S. 541, 553
(1999). On the other hand, if the burden of persuasion at trial would be on the nonmoving party,
the party moving for summary judgment may satisfy Rule 56’s burden of production by either (1)
“submit[ting] affirmative evidence that negates an essential element of the nonmoving party’s
claim” or (2) demonstrating “that the nonmoving party’s evidence is insufficient to establish an
essential element of the nonmoving party’s claim.” Celotex, 477 U.S. at 330 (Brennan, J.,
dissenting). Once the movant adequately supports its motion pursuant to Rule 56(c), the burden
shifts to the nonmoving party to “go beyond the pleadings and by her own affidavits, or by the
depositions, answers to interrogatories, and admissions on file, designate specific facts showing
that there is a genuine issue for trial.” Id. at 324; see also Matsushita, 475 U.S. at 586; Ridgewood
Bd. of Ed. v. Stokley, 172 F.3d 238, 252 (3d Cir. 1999). In deciding the merits of a party’s motion
for summary judgment, the court’s role is not to evaluate the evidence and decide the truth of the
matter, but to determine whether there is a genuine issue for trial. Anderson, 477 U.S. at 249.
Credibility determinations are the province of the factfinder. Big Apple BMW, Inc. v. BMW of N.
Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992).
There can be “no genuine issue as to any material fact,” however, if a party fails “to make
a showing sufficient to establish the existence of an element essential to that party’s case, and on
which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322-23. “[A] complete
failure of proof concerning an essential element of the nonmoving party’s case necessarily renders
all other facts immaterial.” Id. at 323; Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir.
1992).
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III.
DECISION
A.
Transferee Liability against the Richard Saloom Estate (Count II)
The United States contends it is entitled to summary judgment against the Richard Saloom
Estate for transferee liability under 26 U.S.C. § 6324(a)(2) for the estate tax liability of the Kelley
Estate. (ECF No. 32-2 at 4.)
Section 6324(a)(2) “imposes liability on the transferees of the decedent’s estate when the
estate itself fails to pay its federal taxes.” U.S. v. Geniviva, 16 F.3d 522, 524 (3d Cir. 1994). A
transferee who receives property from a decedent’s estate is personally liable for any unpaid estate
tax based on the value of the property received. 26 U.S.C. § 6324(a)(2).
As of September 2, 2019, the Kelley Estate’s estate tax liability is $688,644. (ECF No. 325.) Richard Saloom received $2.6 million in property from that estate. (See ECF No. 32-3 ¶¶ 1113.) Although—as discussed infra—Rose Saloom presents arguments for why she is not liable for
the Kelley Estate tax liability, she has not presented evidence to dispute the transferee liability
against the Richard Saloom Estate. As such, no genuine issue of material fact exists with respect
to the transferee liability against the Richard Saloom Estate.
Accordingly, the United States’ Motion for Summary Judgment on Count II of the
Complaint is GRANTED.
B.
Fiduciary Liability against the Richard Saloom Estate (Count III)
The United States also contends it is entitled to Summary Judgment against the Richard
Saloom Estate for fiduciary liability under 31 U.S.C. § 3713(b) for the estate tax liability of the
Kelley Estate. (ECF No. 32-2 at 5.)
Section 3713 places personal liability on an executor of an estate who pays the debts of the
estate, or distributes assets to himself, before paying a claim of the United States. 31 U.S.C.
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§ 3713(b). “The federal insolvency statute, 31 U.S.C. § 3713, ‘provides that when a person is
insolvent or an estate has insufficient assets to pay all of its debts, priority must be given to debts
due the United States.’” United States v. Tyler, 528 F. App’x 193, 200-02 (3d Cir. 2013) (citing
United States v. Coppola, 85 F.3d 1015, 1019 (2d Cir. 1996)). Personal liability may be imposed
upon a fiduciary of an estate in accordance with 31 U.S.C. § 3713(b). Under the federal priority
statute, a fiduciary “paying any part of a debt of . . . [an] estate before paying a claim of the
Government is liable to the extent of the payment for unpaid claims of the Government.” 31 U.S.C.
§ 3713(b).
“Personal liability can attach, to the extent of the distribution, if the government establishes
three elements: (1) the fiduciary distributed assets of the estate; (2) the distribution rendered the
estate insolvent; and (3) the distribution took place after the fiduciary had actual or constructive
knowledge of the liability for unpaid taxes.” United States v. Tyler, No. 10-1239, 2012 U.S. Dist.
LEXIS 34093, at *10 (E.D. Pa. Mar. 13, 2012). “The purpose of imposing personal liability on
estate representatives ‘is to make those into whose hands control and possession of the debtor's
assets are placed, responsible for seeing that the Government's priority is paid.’” Tyler, 528 F.
App’x at 201 (citing King v. United States, 379 U.S. 329, 337 (1964)). Of course, for liability to
attach, the executor “must have knowledge of the debt owed by the estate to the United States or
notice of facts that would lead a reasonably prudent person to inquire as to the existence of the
debt owed before making the challenged distribution or payment.” Id. (citing Coppola, 85 F.3d at
1020). The Third Circuit stated:
In recognition of the insolvency statute’s “broad purpose of securing
adequate revenue for the United States Treasury, courts have
interpreted it liberally.” [Coppola, 85 F.3d at 1020.] With respect to
“the type of payments or ‘distributions’ from the estate for which an
executor may be held liable,” “a fiduciary, e.g., an executor, may be
held liable under the federal insolvency statute for a distribution of
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funds from the estate that is not, strictly speaking, the payment of a
debt.” Id. (alteration and internal quotation marks omitted). He may,
for example, be held liable for “stripp[ing]” an otherwise solvent
estate “of all of its assets and render[ing] it insolvent” by
“provid[ing] for the distribution of all of the estate assets” to the
heirs of the estate. Id. (internal quotation marks omitted).
Id.
The United States contends it is entitled to summary judgment because Richard Saloom,
as executor of the Kelley Estate, “distributed all of its approximately $2.6 million in property to
himself, which rendered the estate insolvent.” (ECF No. 32-2 at 6.) Additionally, the United States
argues Richard Saloom had at least constructive knowledge of the unpaid tax liability for the
Kelley Estate. (Id.)
Defendants have not presented any evidence to dispute any of the three elements listed
above. First, there exists no genuine dispute of material fact that Richard Saloom distributed the
assets of the Kelley Estate and that such distribution rendered the Estate insolvent. (ECF No. 323 ¶¶ 11-17.) Additionally, there is no genuine dispute of material fact that Richard Saloom had at
least constructive knowledge that there existed at least some tax liability for the Kelley Estate.
Indeed, even if the United States has not shown that Richard Saloom had actual knowledge, the
facts here would lead a “reasonably prudent person” to inquire as to the existence of the debt owed.
A reasonably prudent person would certainly inquire as to the existence of tax liability on a $2.6
million estate such as the Kelley Estate. Additionally, Richard Saloom indicated he had knowledge
of the debt by entering into an installment agreement with the IRS and making periodic payments
to satisfy the estate tax liability. (See ECF No. 32-3 ¶¶ 20-21.)
Accordingly, the United States’ Motion for Summary Judgment on Count III of the
Complaint is GRANTED.
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C.
Fiduciary Liability against Rose Saloom (Count IV)
The United States contends it is entitled to Summary Judgment against Rose Saloom for
fiduciary liability under 31 U.S.C. § 3713(b) for the estate tax liability of the Richard Saloom
Estate. (ECF No. 32-2 at 7.) Specifically, the United States claims, as executor of the Richard
Saloom Estate, Rose Saloom (1) distributed all of the approximately $1.1 million of property of
the Richard Saloom Estate to herself, (2) rendered the Richard Saloom Estate insolvent, and (3)
made such distributions despite knowing her father’s tax liabilities. (Id. at 7-8.)
As stated above, personal liability can attach under § 3713(b) if the government establishes
three elements: (1) the fiduciary distributed assets of the estate; (2) the distribution rendered the
estate insolvent; and (3) the distribution took place after the fiduciary had actual or constructive
knowledge of the liability for unpaid taxes.” Tyler, No. 10-1239, 2012 U.S. Dist. LEXIS 34093,
at *10.
In opposition, Rose Saloom contends the United States is not entitled to summary judgment
because the United States omitted certain facts from its motion, including that: the IRS conducted
an audit of the Kelley Estate, Richard Saloom made several payments toward the Kelley Estate’s
tax liability, and Rose Saloom “was in contact” with several IRS agents in 2010 and 2012. (See
ECF No. 37 at 3.) However, these assertions are insufficient to create a genuine dispute of material
fact as to whether the United States has satisfied the three elements under § 3713(b).
First, Rose Saloom does not dispute that she distributed all the property of the Richard
Saloom Estate to herself. (See ECF No. 32-3 ¶ 31.) Additionally, Rose Saloom acknowledges the
Richard Saloom Estate is insolvent. (See id. ¶ 32.) Finally, Rose Saloom had knowledge of her
father’s tax liabilities, which is demonstrated by her filing of a New Jersey inheritance tax return
that listed “indebtedness” for “federal tax.” (Id. ¶ 28.) Despite her assertions, the United States has
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demonstrated that no genuine dispute of material fact exists as to the three elements. As such, Rose
Saloom is liable under 31 U.S.C. § 3713(b) for the Kelley Estate estate tax liability.
Accordingly, the United States’ Motion for Summary Judgment on Count IV of the
Complaint is GRANTED.
D.
Liability against Rose Saloom Under the UFTA (Count V)
Finally, the United States’ contends it is entitled to summary judgment against Rose
Saloom under the UFTA for her father’s 31 U.S.C. § 3713(b) liability because she is a fraudulent
transferee of his property. (ECF No. 32-2 at 8.)
The UFTA states, in relevant part:
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 b. Without receiving
a reasonably equivalent value in exchange for the transfer or
obligation, and the debtor:
(1) 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
(2) 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 become due.
N.J. Stat. Ann § 25:2-25.
The purpose of the UFTA is to prevent a debtor from placing his or her property beyond a
creditor’s reach. Gilchinsky v. Nat’l Westminster Bank, 732 A.2d 482, 488 (N.J. 1999) (citations
omitted). The premise behind the Act is that “a debtor cannot deliberately cheat a creditor by
removing his property from ‘the jaws of execution.’” Id. A fraudulent conveyance claim negates
the wrongful transaction, thus allowing a creditor “to bring the property within the ambit of
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collection.” Id. The plaintiff bears the burden of proving that the conveyance was fraudulent.
Jecker v. Hidden Valley, Inc., 27 A.3d 964, 969 (N.J. Super. Ct. App. Div. 2011).
The United States has failed to demonstrate that the conveyance of property from the
Richard Saloom Estate to Rose Saloom was fraudulent. In the cases on which the United States
relies, courts have entered summary judgment and enforced personal money judgment against
transferees who were explicitly engaged in schemes to defraud creditors. For example, in United
States v. Patras, the court entered a personal money judgment against a transferee where the
transferor moved property that put that property beyond the reach of the United States. United
States v. Patras, 909 F. Supp. 2d 400, 412 (D.N.J. 2012). Here, no such intent existed. The transfer
of property from the Richard Saloom Estate to Rose Saloom was the result of inheritance.
Additionally, the property remained within the reach of the United States via transferee liability as
stated above. In looking at the premise of the UFTA, it is clear this type of testamentary transfer
is outside the scope of the types of transfers the UFTA is designed to protect against. As such, the
United States has failed to demonstrate Richard Saloom had an intent to defraud them.
Accordingly, the United States’ Motion for Summary Judgment on Count V of the
Complaint is DENIED.
IV.
CONCLUSION
For the reasons set forth above, the United States’ Motion for Summary Judgment is
GRANTED as to Counts II, III, and IV and DENIED as to Count V. An appropriate order will
follow.
Date: October 22, 2020
/s/ Brian R. Martinotti___________
HON. BRIAN R. MARTINOTTI
UNITED STATES DISTRICT JUDGE
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