US v. Vellalos, Civ. No. 91-00068 HMF.
| Decision Date | 10 January 1992 |
| Docket Number | Civ. No. 91-00068 HMF. |
| Citation | 780 F. Supp. 705 |
| Parties | UNITED STATES of America, Plaintiff, v. Gloria VELLALOS, Matio Vellalos, Vernon Raymond Vellalos, Countrywide Funding Corp., McCabe Paving Co., Defendants. COUNTRYWIDE FUNDING CORP., Third Party Plaintiff, v. AKAMAI ELECTRICAL SERVICES, INC., Third Party Defendant. |
| Court | U.S. District Court — District of Hawaii |
Daniel Bent, Michael Chun, Thomas Moore, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for U.S Cades Schutte Fleming & Wright, Edward Delappe Boyle, Ernest H. Nomura, Honolulu, Hawaii, for Countrywide Funding Corp.
Gerson Grekin & Wynhoff, William J. Wynhoff, Honolulu, Hawaii, for Gloria and Matio Vellalos.
Hall & Crumpton, David W. Hall, Honolulu, Hawaii, for Vernon Raymond Vellalos.
Torkildson Katz Jossem Fonseca, Jaffe & Moore, Ronald I. Heller, Honolulu, Hawaii, for Akamai Elec. Services, Inc.
ORDER GRANTING DEFENDANT VERNON RAYMOND VELLALOS' MOTION TO DISMISS CLAIM BASED ON HAWAII UNIFORM FRAUDULENT TRANSFER ACT
On Monday, December 2, 1991, the court held a hearing on a motion to dismiss filed by defendant Vernon Raymond Vellalos ("Vernon") on October 17, 1991. Third party defendant Akamai Electrical Services, Inc. filed a joinder in this motion on November 6, 1991. On November 13, 1991, plaintiff United States of America filed a memorandum in opposition. Defendants Gloria and Matio Vellalos filed a statement of no opposition to Vernon's motion to dismiss on November 27, 1991.
This case is a civil action brought by the United States to reduce to judgment outstanding federal tax assessments made against defendants Gloria Vellalos and Matio Vellalos and to foreclose the federal tax liens on one parcel of real property. These taxes and penalties were assessed on June 26, 1986 for taxes which should have been paid during the years 1982 through 1985. The amounts are as follows:
1982 $ 220,139.11
1983 197,385.43
1984 71,174.87
1985 289,469.64
Defendants Gloria and Matio have not paid these assessments. Pursuant to 26 U.S.C. § 6321, tax liens arose in favor of the United States against all property and rights to property of Gloria and Matio as of the assessment date of June 26, 1986. A notice of tax lien was filed with the Bureau of Conveyances, Registrar, State of Hawaii ("Registrar") on June 26, 1986. On September 26, 1989, a notice of tax lien was filed against Gloria and Matio, and on January 19, 1990, the IRS filed a notice of federal tax lien relative to each assessment against Gloria and Matio in which it designated Vernon as the nominee and/or agent of Gloria and Matio. Vernon is the son of Gloria and Matio.
By deed dated February 26, 1986, and recorded March 20, 1986 (before the government filed notice of the assessments), defendant Vernon acquired record title to certain real property in Honolulu, Hawaii (the "Mililani property"). The government now seeks to foreclose on this property, notwithstanding that it is held in Vernon's name. In support of foreclosure, the government first contends that Vernon was the nominee or agent of Gloria and Matio when the Mililani property was conveyed to him. Alternatively, the government contends that this conveyance was fraudulent because it was designed and executed by defendants Gloria and Matio with the actual or constructive intent to hinder, delay, or defraud their creditors, and was, therefore, of no effect pursuant to the Uniform Fraudulent Transfer Act, codified at Haw.Rev.Stat. §§ 651C-1 to 651C-10. The government has also filed a claim against defendants CountryWide Funding Corporation and McCabe Paving Company, who may claim an interest in the Mililani property.
Defendant Vernon filed the instant motion claiming that the Hawaii claim extinguishment period has run on the fraudulent conveyance claim by the government, and therefore, that the portion of the complaint alleging fraudulent conveyance under the Hawaii statute must be dismissed.
It is not disputed that the state claim brought by the United States falls outside the time limitations period established by this provision.1 The United States asserts, however, that it "is not bound by state statutes of limitations or subject to the defense of laches in enforcing its rights." United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84 L.Ed. 1283 (1940).
The Summerlin case that the government relies upon involved a Florida statute which provided that "any ... claim or demand against an estate not so filed within eight months from the time of the first publication of the notice to creditors shall be void." Id. at 416, 60 S.Ct. at 1020. The Supreme Court held the United States was not bound by this state limitations period in pursuing a claim which it had acquired against an estate. Summerlin stands for the proposition that the state may not limit the federal government's general common law right to collect debts owed to it.
However, the instant case does not involve a scenario where the United States is being prevented from collecting a debt. In fact, the United States has a valid claim for tax assessments against Gloria and Matio Vellalos. At issue, rather, is whether this court should apply the Hawaii fraudulent transfer statute to hold that Gloria and Matio are the true owners of the Mililani property which is currently held in Vernon's name. If the state statute is applicable, then the United States may be able to reach the Mililani property to satisfy the debt owed by Gloria and Matio Vellalos.
There is an important distinction between cases involving the government's common law right to collect on a debt and cases involving a carefully delimited state statutory right. In the instant case, the government seeks to take advantage of rights created by Haw.Rev.Stat. §§ 651C-1 to 651C-10, which are a codification of the Uniform Fraudulent Transfer Act ("UFTA"). In contradistinction to the statute of limitations present in the Florida statute considered in Summerlin and its progeny,2 the UFTA contains an "extinguishment" provision. Where a statute of limitations bars the remedy after the expiration of a certain period of time, the UFTA's extinguishment provision bars the entire cause of action. Furthermore, the Commission on Uniform Laws has explicitly stated that this extinguishment provision was designed to bar actions asserted by the United States under the Summerlin principle:
This section is new. Its purpose is to make clear that lapse of the statutory periods prescribed by the section bars the right and not merely the remedy.... The section rejects the rule applied in the United States v. Gleneagles Inv. Co., 565 F.Supp. 556, 583 (M.D.Pa.1983) ().
Unif. Fraudulent Transfer Act § 9, 7A U.L.A. 665-66 (1984) (Commentary).
It is clear that the intent of the UFTA is to completely extinguish the statutory cause of action following the expiration of the delineated time period. The next question, then, is whether the state of Hawaii has the authority to do so with respect to rights initially acquired by the United States under the state statute.
The Tenth Amendment to the United States Constitution provides:
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
U.S. Const. amend. X. The law of real property has traditionally been within the...
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