Candyce Martin 1999 Irrevocable Trust v. United States

Decision Date06 October 2011
Docket NumberNo. C 08-5150 PJH,C 08-5150 PJH
CourtU.S. District Court — Northern District of California

This matter came on for a court trial on August 22, 23, 25, 26, 29, and 30, 2011. The parties appeared through counsel at trial and filed post-trial proposed findings of fact and conclusions of law on September 9, 2011. Having carefully considered the papers, the evidence presented at trial, the argument of counsel and the relevant legal authority, and good cause appearing, the court hereby DENIES the petition for readjustment of partnership items pursuant to 26 U.S.C. § 6226, and makes the following findings of fact and conclusions of law.


This action was consolidated on May 22, 2009, with the case of Constance Goodyear 1997 Irrevocable Trust et al. v. United States of America, C-08-5151 (PJH), for all purposes. Petitioners contest the adjustment of certain partnership items proposed by the Internal Revenue Service ("IRS") in Notices of Final Partnership Administrative Adjustment ("FPAAs") dated June 19, 2008, issued to First Ship 2000-A, LLC ("2000-A") for the taxable year 2000, and to First Ship, LLC ("First Ship") for the taxable year 2001. The court has jurisdiction over this action pursuant to 28 U.S.C. § 1346(e) and 26 U.S.C.§ 6226(b)(1). See doc. no. 74, Stipulated Facts set forth in Joint Pretrial Statement, ("Stip.") ¶ 1.

A. The Chronicle Publishing Company

Michael deYoung ("M.H. deYoung") and his brother, Charles deYoung, founded the San Francisco Chronicle in 1865. Trial Transcript ("Tr.") at 48:21-23; Stip. ¶ 23. Charles deYoung was shot and killed in his office in the Chronicle in 1880 by a disgruntled politician who shot him over an editorial Charles deYoung had written. Tr. 48:23-25; 307:13-15. At the time of his death, Charles deYoung wasn't married and had no children, and sole ownership of the San Francisco Chronicle passed to M.H. deYoung. Tr. 48:25-49:1; 307:15-17. In 1906, M.H. deYoung incorporated the Chronicle Publishing Company ("CPC") as a Nevada corporation. Stip. ¶ 23. M.H. deYoung had five children, one boy, Charles, who died with no children, and four girls, Helen Cameron, who had no children, and Constance Tobin, Phyllis Tucker, and Kathleen Thieriot, each of whom had children. Tr. 49:1-6; 307:15-17. M.H. deYoung placed the ownership of CPC into trust for the benefit of his five children. Tr. 307:20-21. M.H. deYoung ran CPC until his death in 1925. Tr. 49:16.

Upon the death of M.H. deYoung, Helen Cameron's husband, George Cameron became the C.E.O. or President of CPC, and ran CPC until his death in 1955. Tr. 49:17-24. During his tenure, CPC acquired one of the very first television stations, KRON, and then other properties, including book publishing. Tr. 49:20-23. Upon George Cameron's death in 1955, Kathleen Thieriot's son, Charles, took over control of CPC, and ran the company until he died in 1977. Upon his death, his son, Richard, became the C.E.O. Tr. 49:24-50:4. Michael deYoung's trust for the benefit of his five children did not end until 1988, when his last child, Phyllis Tucker, died. Tr. 307:21-24. Constance Tobin had three children, Patricia, Michael and Consuelo. Tr. 49:6-9. Consuelo Tobin Martin ("CTM") is the mother of the "Martin siblings:" Candyce Martin, Francis A. Martin, III, Constance Martin Goodyear, Priscilla Martin Tamkin, and Helen Spalding (collectively, the "Martin family"). Tr. 48:10-14.

During Richard Thieriot's tenure as C.E.O. of CPC, Francis Martin was the head of Chronicle Broadcasting Company. Richard Thieriot's cousin, Peter Thieriot, was the head of CPC's Real Estate company. They retained these roles until 1993, when Phyllis Tucker's sole surviving child, Nan McEvoy, became Chairman of the CPC Board, and brought in John Sias as C.E.O., and together they did some "housecleaning" by firing Richard Thieriot, Francis Martin, Peter Thieriot, and others who had previously held positions at CPC. Tr. 50:14-51:3. The other deYoung family members who were shareholders of CPC, retaliated and, in 1995, Nan McEvoy was fired. She later sued the company for age discrimination and lost. Tr. 51:4-5.

In 1995, CPC, which had before then elected to be treated as a Delaware S Corporation, owned largely four businesses: (a) the newspaper business, including the San Francisco Chronicle, the Worcester paper, and the Pantagraph paper in Illinois; (b) a television business, including television station KRON and a couple of other stations; (c) a cable business; and (d) Chronicle Books. Tr. 49:21-22; 309:24-310:3.

B. The Martin Family Trusts

As of the year 1999, the Martin siblings collectively owned through various trusts or outright, 630,000 shares (or 16.67%) of the stock of CPC. Stip. ¶ 24; Ex. 25. Each of the Martin siblings owned an equal amount of 126,000 CPC shares, either through various trusts or outright. Tr. 54:25-55:10; 313:24-314:1; Ex. 25. Of the 630,000 shares of CPC Stock held by the Martin siblings, 380,500 shares were held in fourteen (14) trusts related to the Martin family (the "14 Martin Family Trusts"). Stip. ¶ 25; Ex. 25. The 14 Martin Family Trusts included five non-grantor trusts that Consuelo Tobin Martin created in 1988 for the benefit of each of her five children as the income beneficiaries, with her grandchildren as the remaindermen (the "1988 Trusts"). Tr. 52:17-21; Stip. ¶ 5.a; Ex. 25. Consuelo Tobin Martin placed 23,100 shares of CPC stock into each of the five 1988 Trusts. Tr. 53:20-23; 259:17-19; 311:9-13; Ex. 25. The 1988 Trusts included:

a. The CTM Children's Trust FBO Candyce Martin (1988 Trust);
b. The CTM Children's Trust FBO Francis Martin, III (1988 Trust);c. The CTM Children's Trust FBO Constance Goodyear (1988 Trust);
d. The CTM Children's Trust FBO Priscilla Tamkin (1988 Trust); and
e. The CTM Children's Trust FBO Helen Spalding (1988 Trust).

Stip. ¶ 5.a.; Ex. 25.

The 14 Martin Family Trusts also included five grantor trusts that Consuelo Tobin Martin created for the benefit of her five children in 1999 (the "1999 Trusts"). Tr. 54:18-24; 310:22-23; 311:14-16; Stip. ¶ 26. Consuelo Tobin Martin placed 26,000 shares of CPC stock into each of the five 1999 Trusts. Tr. 54:25-55:2; 259:20-22; 311:15-23; Stip. ¶ 26; Ex. 25. The 1999 Trusts included:

a. CTM 1999 Trust FBO Margaret Candyce Martin;
b. CTM 1999 Trust FBO Francis Augustus Martin, III;
c. CTM 1999 Trust FBO Constance Martin Goodyear;
d. CTM 1999 Trust FBO Priscilla Martin Tamkin; and
e. CTM 1999 Trust FBO Helen Martin Spalding.

Stip. ¶ 26; Ex. 25.

The 14 Martin Family Trusts also included four trusts created by three of Consuelo Tobin Martin's children for the benefit of their own children, into which they placed a varying number of shares of CPC stock they had previously owned outright. These trusts included the following into which the reflected amounts of shares were contributed:

a. The Francis A. Martin III 1997 Irrevocable Trust, 50,000 CPC shares;
b. The Francis A. Martin III 1998 Irrevocable Trust, 25,000 CPC shares;
c. The Constance M. Goodyear 1997 Irrevocable Trust, 40,000 shares; and
d. The Candyce Martin 1999 Irrevocable Trust, 20,000 shares.

Stip. ¶ 27; Ex. 25; Tr. 310:23-25. In addition to the CPC stock, certain of the 14 Martin Family Trusts also owned, directly or indirectly, stock in Liberty Media Group ("Liberty Media"), AT&T, and TCI Satellite. Stip. ¶ 34.

Peter M. Folger, a management labor lawyer who co-founded the San Francisco law firm Folger, Levin & Kahn, LLP, was appointed to act as trustee of the 14 Martin FamilyTrusts. Tr. 53:24-54:1; 258:10-20; 258:24-259:12; 318:9-10; 687:15-17; Ex. 25. Mr. Folger had graduated from Stanford University and obtained his law degree from the University of San Francisco law school. Tr. 258:4-8. Mr. Folger had been a long time close family friend of the Martin family. Tr. 54:2-7; 258:22-23; 318:11-15. His parents had been friends of Consuelo Tobin Martin and her husband. Id. Consuelo Tobin Martin wanted someone of her children's generation with whom she felt comfortable. Tr. 54:15-17. Members of the Martin family testified that Mr. Folger had "some really wonderful personal characteristics that make him a great trustee for everybody. No one feels that he's closer to and would represent one sibling's interest over another. He listens to everybody. He takes everybody's views into account. And that's really a rare quality." Tr. 318:15-21. He had a calming influence and relied on a consensus among the beneficiaries. Tr. 91:16-25.

Mr. Folger was also the Trustee of the trusts of Richard Thieriot, including the Richard T. Thieriot 1997 Trust and the Thieriot Family 1999 Irrevocable Trusts. Richard Thieriot was a cousin of the Martin siblings and also a shareholder of CPC. Ex. 25; Tr. 279:18-22.

From 1988 through 1998, Mr. Folger's position as Trustee required only that he periodically attend CPC's annual meetings and give stock voting proxies to the Trusts' beneficiaries. Tr. 259:23-260:7. Mr. Folger generally did not receive a fee for his services as trustee, except for a period when he received compensation at an hourly rate for his time spent dealing with reformation issues surrounding the five 1988 Trusts. Tr. 65:1-3; 259:14-16; 260:17-261:4.

On June 2, 1999, Consuelo Tobin Martin formed LMGA Holdings, Inc. ("LMGA Holdings") as a Delaware S Corporation. Prior to November 1, 2000, Francis Martin was the director of LMGA Holdings, and Peter Folger was a corporate officer. Tr. 287:23-288:19; Ex. 1 at 110, 111. On November 1, 2000, Francis Martin resigned as President of LMGA Holdings and on November 2, 2000, Peter Folger became President of LMGA Holdings. Tr. 287:23-288:19; Ex. 1 at 110, 111. On June 15, 1999, each of the five 1999 Trusts purchased a 20% share of LMGA Holdings. Stip. ¶¶ 8, 29. On June 15 and June 16, 1999, 4,130,728 shares of Liberty...

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