USA v. Talmage et al
Filing
62
MEMORANDUM DECISION AND ORDER granting 31 Motion to Set Aside Default; vacating 17 Certificate of Default; finding as moot 24 Motion for Default Judgment. Signed by Judge David Nuffer on 11/22/16 (alt)
Mark H. Howard, #1549
William B. Ingram, #10803
STRONG & HANNI
102 South 200 East, Suite 800
Salt Lake City, Utah 84111
Telephone: (801) 532-7080
Facsimile: (801) 596-1508
Attorneys for the Western Defendants
IN THE UNITED STATES DISTRICT COURT,
IN AND FOR THE DISTRICT OF UTAH, NORTHERN DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.
RONALD B. TALMAGE, ANNETTE C.
TALMAGE,
WESTERN
LAND
&
LIVESTOCK,
LLC,
and WESTERN
RESERVE MORTGAGE, LLC,
MEMORANDUM DECISION AND
ORDER GRANTING
[31] MOTION TO SET ASIDE
ENTRY OF DEFAULT
Case No. 1:16-cv-19
Judge David Nuffer
Defendants.
THIS MATTER comes before the Court on the Motion to Set Aside Entry of Default 1
(Motion to Set Aside) filed by Defendants Western Land & Livestock, LLC (Western Land) and
Western Reserve Mortgage, LLC (Western Reserve) (together the “Western Defendants”).
Having considered the written submissions of the parties, the Court hereby GRANTS the Motion
to Set Aside.
1
Docket no. 31, filed July 29, 2016.
BACKGROUND
On February 18, 2016, the Government filed the complaint in this case to reduce federal
tax assessments to judgment against Defendants Ronald B. Talmage and Annette C. Talmage
(together, the “Talmages”) and to foreclose federal tax liens against certain real property located
in Liberty, Utah (the “Liberty Property”). 2 The Liberty Property is titled to Western Land, and
Western Reserve has recorded a trust deed against the property. The Government claims that the
Western Defendants are the purported nominees and/or alter egos of the Talmages, who have
resided at the Liberty Property. The Government also claims that Western Land’s title to the
Liberty Property and Western Reserve’s trust deed are fraudulent as to the United States. The
Western Defendants dispute these claims.
On August 26, 2016, the Court entered default judgment against the Talmages. 3
Therefore, the only remaining claim in this case is whether the Government may foreclose the
Liberty Property under 26 U.S.C. § 7403 to satisfy the Talmages’ tax liabilities. 4
Service of process upon the Western Defendants was completed on March 2, 2016,
through the entities’ registered agent. On April 29, 2016, the Government requested entry of
default against the Western Defendants, which was entered by the Clerk of Court on May 6,
2016, pursuant to Federal Rule of Civil Procedure 55(a). 5 The Court has not entered default
judgment against the Western Defendants under Rule 55(b).
2
Complaint to Reduce Federal Tax Assessments to Judgment and Foreclose Federal Tax Liens on Real Property,
docket no. 2, filed February 2, 2016.
3
Order Granting United States’ Motion for Default Judgment Against Defendants Ronald B. Talmage and Annette
C. Talmage, docket no. 38, filed August 26, 2016.
4
United States’ Response to Motion to Set Aside Entry of Default at 2 (Response to Motion), docket no. 45, filed
October 14, 2016.
5
Default Certificate, docket no. 17, filed May 6, 2016.
The Western Defendants have submitted evidence stating the following in support of the
Motion to Set Aside: The Western Defendants are owned and managed by non-party John
Wadsworth through various entities, which are operated and controlled by him. Mr. Wadsworth
lives outside of the continental United States and does business in various international locations.
Because of travel related to his business, it is common for several months to pass before Mr.
Wadsworth receives mail and other correspondence. During the months that the complaint was
filed and default was entered, Mr. Wadsworth was embroiled in an international investigation
uncovering a multi-million-dollar embezzlement and Ponzi scheme perpetrated by Ron Talmage
against Mr. Wadsworth and other investors in Asia.
The investigation distracted Mr.
Wadsworth’s attention from emails that may have otherwise made him aware of the lawsuit. As
such, Mr. Wadsworth did not understand that a complaint had been filed against the Western
Defendants until July 2016, when he attempted to evict Ron Talmage from the Liberty Property
and take possession. As soon as Mr. Wadsworth learned of the lawsuit, he engaged counsel and
motioned the Court to set aside the entry of default (the Motion to Set Aside). The Government
has opposed the Motion to Set Aside. 6
DISCUSSION
Under Federal Rule of Civil Procedure 55(c), “[t]he court may set aside an entry of
default for good cause[.]” The good cause required for setting aside an entry of default under
Rule 55(a) poses a lesser standard than excusable neglect, which must be shown for relief from
default judgment under Rule 60(b). 7
In determining whether good cause exists, the court
considers three factors: “(1) whether the default was willful; (2) whether defendant has a
6
7
Response to Motion.
Dennis Garberg & Assocs. v. Pack-Tech Intl. Corp., 115 F.3d 767, 775 n.6 (10th Cir. 1997).
meritorious defense; and (3) whether any prejudice will result to the nondefaulting party if relief
is granted.” 8 Because defaults are disfavored, the court resolves disputes connected with a
motion to set aside default in favor of the defendant “so as to encourage a decision on the
merits.” 9
Applying this standard, and resolving all doubts in favor of the Western Defendants, the
Court grants the Motion to Set Aside. First, the written submissions of the Western Defendants,
which includes the signed declaration and deposition testimony of Mr. Wadsworth, show that the
entry of default was not willful. Because of his international business travel and being consumed
by the investigation of Ron Talmage in Asia, Mr. Wadsworth was not aware of the lawsuit until
July 2016 when he attempted to take possession of the Liberty Property. As soon as he learned
of the lawsuit, Mr. Wadsworth engaged legal counsel who promptly notified the Government
and filed the Motion to Set Aside. Thereafter, Mr. Wadsworth cooperated with the Government
by providing documents evidencing ownership of the Western Defendants through his various
entities and the purchase of the Liberty Property. Mr. Wadsworth also agreed to sit for a
deposition even though discovery in this case has not yet commenced. These circumstances are
vastly different than those in the cases cited by the Government, which have denied relief under
Rule 55(c). 10 Instead, they show Mr. Wadsworth’s good faith actions under a time of extreme
personal difficulty and justify setting aside the entry of default.
8
Heber v. U.S., 145 F.R.D. 576, 577–78 (D. Utah 1992).
Id. (citation omitted).
10
Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988) (finding the defendant “had actual
knowledge of the filing of the complaint” and was avoiding service and that his “attorneys monitored the court
docket”); Hunt v. Ford Motor Co., 65 F.3d 178, at *4 (10th Cir. 1995) (finding that the defendant, who never
appeared in the case, had “receiv[ed] actual notice of the complaint [and] demonstrated a willful disregard for the
court”).
9
Second, in response to the Government’s foreclosure claim, the Western Defendants have
raised several affirmative defenses and claims in an answer and counterclaim for quiet title. 11
These defenses and claims assert that the Western Defendants hold valid title and a security
interest in the Liberty Property and are not the purported alter egos or nominees of the Talmages.
The answer also asserts that the Government cannot prove its claim by clear and convincing
evidence. 12 This pleading is supported by the testimony of Mr. Wadsworth, which states, among
other things, that he organized the Western Defendants; that the Liberty Property is 100% owned
by the Western Defendants, which are in turn owned by entities and trusts that Mr. Wadsworth
owns and controls; that Ron Talmage has never been involved with the real estate business of
Mr. Wadsworth or the Western Defendants; that Mr. Wadsworth negotiated and performed all
due diligence and made the decision to purchase the Liberty Property; that Mr. Wadsworth used
his own funds and personal guarantee to acquire the Liberty Property; that the Liberty Property
was leased to “Mrs. Chen” (the purported wealthy patron related to Ron Talmage’s
embezzlement and Ponzi scheme) and not to the Talmages; that Ron Talmage was only involved
in the lease of the Liberty Property as the purported trustee of Mrs. Chen; that the Western
Defendants paid for all utilities and taxes on the Liberty Property and paid for improvements and
repairs; that the improvements performed by Ron Talmage were either discussed with Mr.
Wadsworth or performed without his knowledge; and that when lease payments ceased and the
embezzlement and Ponzi scheme were discovered, Mr. Wadsworth shut off the utilities and
attempted to take possession of the Liberty Property (the Government has not opposed this
11
Western Defendants’ Answer and Counterclaim, docket no. 49, filed October 28, 2016.
See U.S. v. Tingey, 716 F.3d 1295, 1304 (10th Cir. 2013) (stating that the Government has the burden to prove a
constructive trust and nominee claim “by clear and convincing evidence”); In re Taylor, 133 F.3d 1336, 1341 (10th
Cir. 1998) (same); see also id. at 1338 (stating that a fraudulent transfer claim also requires proving “actual fraud by
a clear and convincing standard”).
12
eviction). Construing these defenses and testimony in favor of the Western Defendants, 13 the
Court finds that they have a meritorious defense.
Finally, by granting the Motion to Set Aside, the Government will not suffer prejudice.
The Court assumes that when this lawsuit was filed, the Government did so with the
understanding that it would be required to prove the merits of its claim. 14 The Government still
has the opportunity to litigate its claim.
13
Crapnell v. Dillon Cos., Inc., no. 14-cv-01713-KLM, 2015 WL 328524, at *8 (D. Colo. Jan. 23, 2015) (“In
determining whether a defendant has [a] sufficiently meritorious defense to set aside an entry of default, ‘the court
examines the allegations contained in the moving papers to determine whether the movant’s version of the factual
dispute, if true, would constitute a defense in the action.’” (quoting In re Stone, 588 F.2d 1316, 1319 (10th Cir.
1978)).
14
Heber, 145 F.R.D. at 578.
ORDER
For the foregoing reasons, the Motion to Set Aside is GRANTED and the Court orders as
follows:
1.
The Clerk’s Default Certificate 15is VACATED and set aside;
2.
The United States’ Motion for Default Judgment Against Defendants Western
Land & Livestock, LLC and Western Reserve Mortgage, LLC 16 is MOOT; and
3.
The Western Defendants’ Answer and Counterclaim 17 is deemed filed and the
Government shall have 21 days from the date of this Order to file an answer to the counterclaim.
Signed November 22, 2016.
BY THE COURT
________________________________________
David Nuffer
United States District Judge
15
Docket no. 17, entered May 6, 2016.
Docket no. 24, filed July 15, 2016.
17
Docket no. 49, filed October 28, 2016.
16
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