EState Shapiro v. U.S.

• Decision Date: 22 February 2011
• Docket Number: No. 08–17491.,08–17491.
• Citation: 634 F.3d 1055
• Parties: ESTATE OF Bernard SHAPIRO; Clyde E. Pitchford; Steven R. Scow, Plaintiffs–Appellants,v.UNITED STATES of America, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

634 F.3d 1055

107 A.F.T.R.2d 2011-942

2011-1 USTC P 60,614

11 Cal. Daily Op. Serv. 2293

2011 Daily Journal D.A.R. 2746

ESTATE OF Bernard SHAPIRO; Clyde E. Pitchford; Steven R. Scow, Plaintiffs–Appellants,

v.UNITED STATES of America, Defendant–Appellee.

No. 08–17491.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 10, 2010.Filed Feb. 22, 2011.

John M. Youngquist (argued), San Francisco, CA, Donald L. Feurzeig of Feurzeig, Mark & Chavin, LLP, San Francisco, CA, for the appellant.Carol Barthel (argued) and Jonathan S. Cohen, United States Department of Justice, Tax Division, Washington, DC, for the appellee.Appeal from the United States District Court for the District of Nevada, Robert Clive Jones, District Judge, Presiding. D.C. No. 2:06–cv–01149–RCJ–LRL.Before: ROBERT E. COWEN ^*, A. WALLACE TASHIMA, and BARRY G. SILVERMAN, Circuit Judges.Opinion by Judge SILVERMAN; Partial Concurrence and Partial Dissent by Judge TASHIMA.

OPINION

SILVERMAN, Circuit Judge:

Bernard Shapiro and Cora Jane Chenchark lived together for twenty-two years, but they never married. Over those twenty-two years, Chenchark cooked, cleaned, and managed their household. When they broke up, she filed a palimony suit against him in state court. While the suit was pending, he died. In the context of this tax refund lawsuit filed by Shapiro's estate, the district court held that Chenchark's homemaking services did not, as a matter of law, provide sufficient consideration to support a cohabitation contract between Shapiro and Chenchark, and that therefore, an estate tax deduction for the value of Chenchark's claim was properly disallowed. Because the district court's holding was premised upon a misconstruction of Nevada law regarding contracts between cohabitating individuals, we reverse.

I. Background

Shapiro and Chenchark met in 1977 and began dating shortly thereafter. Chenchark moved in with Shapiro in 1978. They lived together for the next twenty-two years, but they never married. During the relationship, Chenchark provided homemaking services to Shapiro, including cooking, cleaning, and managing the household employees, such as the gardener and housekeeper. Shapiro paid for Chenchark's living expenses and provided her with a weekly spending allowance. Chenchark contributed no financial assets to the household.

In 1999, after learning that Shapiro was involved with another woman, Chenchark sued Shapiro in Nevada state court, claiming breach of express and implied contract, breach of fiduciary duty, and quantum meruit. According to Chenchark's complaint, she and Shapiro had agreed to pool their resources and to share equally in each others' assets.

Shapiro died on February 12, 2000, while Chenchark's action was still pending. Shapiro's estate filed an estate tax return in May 2001 and paid $10,602,238 in estate tax and generation-skipping transfer tax. The Estate continued to defend against Chenchark's claim, and in September 2001 a jury returned a verdict in favor of the Estate, specifically finding that Shapiro and Chenchark did not enter into any express or implied contract. Chenchark appealed, and while the appeal was pending the parties settled Chenchark's claim, along with another lawsuit in which she contested Shapiro's will, for approximately $1 million.

In June 2003, some time after settling Chenchark's claim, the Estate filed an amended estate tax return seeking, among other adjustments, to deduct $8 million from the value of the taxable estate under 26 U.S.C. § 2053(a)(3) for Chenchark's claim. Based on the amended return, the Estate claimed a refund of approximately $3.5 million. The IRS disallowed any deduction for Chenchark's claim, and only refunded $361,483 as result of unrelated adjustments.

In August 2006, the Estate brought suit in federal court seeking a refund of approximately $2 million. According to the Estate's complaint, an expert valued Chenchark's claim at just over $5 million as of the date of Shapiro's death. The Estate later amended its complaint to include an additional claim for relief, seeking a refund for the decrease in property value due to notices of lis pendens recorded by Chenchark on Shapiro's properties during the pendency of her lawsuit. In its amended complaint, the Estate sought a total refund of $4,863,480.

The Estate and the United States filed cross-motions for summary judgment. The district court ruled in favor of the United States, holding that, “[w]ithin the uncontested facts, no evidence exists that Chenchark ever contributed anything other than love, support, and management of Shapiro's household to the relationship. These factors do not provide for sufficient consideration to support a contractual agreement.” The district court went on to conclude that, “because Chenchark did not make sufficient contributions to the Estate to provide consideration for the support she received from Shapiro,” there “was no contract between them, [and] the money she sought in the Contract Action was, in fact, a gift from Shapiro.” As a gift, Chenchark's claim against the Estate did not qualify as a deduction under § 2053, according to the district court. The court further held that the Estate was judicially estopped from arguing that Shapiro and Chenchark entered an employment agreement of sorts, with Chenchark's homemaking services as consideration, because the Estate had taken the opposite position in defending against Chenchark's lawsuit.

II. Discussion

A. Standard of Review

“We review the district court's grant of summary judgment de novo, to determine whether, viewing the evidence in the light most favorable to the non-moving party, there are genuine issues of material fact and whether the lower court correctly applied the relevant substantive law.” Fed. Trade Comm'n v. Network Servs. Depot, Inc., 617 F.3d 1127, 1138 (9th Cir.2010).

We review the district court's application of judicial estoppel for abuse of discretion. Abercrombie & Fitch Co. v. Moose Creek, Inc., 486 F.3d 629, 633 (9th Cir.2007).

B. Consideration

In determining the value of the taxable estate for purposes of calculating the amount of estate tax owed, the tax code allows a deduction for “claims against the estate ... as are allowable by the laws of the jurisdiction ... under which the estate is being administered.” 26 U.S.C. § 2053(a). In the case of claims against the estate that are founded on a promise or agreement, this deduction is limited “to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth.” Id. § 2053(c)(1)(A).

Here, the district court concluded as a matter of law that Chenchark's contributions to the Estate—twenty-two years of cooking, cleaning, and other homemaking services—did not constitute sufficient consideration to allow the Estate to deduct her claim against it. The district court did not base its ruling on an application of § 2053(c)(1)(A)'s requirement that the underlying promise or agreement be contracted “for an adequate and full consideration in money or money's worth”; instead, the court rejected the Estate's deduction for Chenchark's claim based on an incorrect reading of Nevada state law regarding contracts between cohabitating partners. The district court erroneously concluded that Chenchark did not have a valid contract claim under Western States Construction, Inc. v. Michoff, 108 Nev. 931, 840 P.2d 1220 (1992), because her love, support, and homemaking services did not, as a matter of law, provide sufficient consideration to support a contractual agreement.

In recent decades, widespread social acceptance of nonmarital cohabitation has triggered an expansion of cohabitants' legal rights. In Marvin v. Marvin, 18 Cal.3d 660, 134 Cal.Rptr. 815, 557 P.2d 106 (1976), a watershed case concerning such rights, the California Supreme Court held that courts should enforce express or implied contracts between nonmarital partners except when such a contract is inseparably based upon the provision of sexual services. Id., 134 Cal.Rptr. 815, 557 P.2d at 114. “[A]dults who voluntarily live together and engage in sexual relations are nonetheless as competent as any other persons to contract respecting their earnings and property rights.... [T]hey may agree to pool their earnings and to hold all property acquired during the relationship in accord with the law governing community property[.]” Id., 134 Cal.Rptr. 815, 557 P.2d at 116.

In Hay v. Hay, 100 Nev. 196, 678 P.2d 672 (1984), the Nevada Supreme Court adopted Marvin's holding and ruled that unmarried cohabitants may sue to enforce contracts concerning property rights. Id. at 674. Even an implied contract to share property, in which the terms of the agreement are “manifested by conduct,” rather than stated in words, is enforceable. Id. The court reaffirmed the right of cohabitants to contract in Western States Construction, 840 P.2d at 1224. In Western States Construction, the court affirmed the trial court's finding that Lois Michoff and Max Michoff impliedly agreed to hold their property as though they were married, based on evidence that the couple filed joint tax returns, designated property as community property in their Subchapter S election form, and signed a spousal consent form for a partnership. Id. at 1224–25.

Here, the district court compared the facts of Chenchark and Shapiro's relationship to that of Lois and Max Michoff in Western States Construction, and concluded that Chenchark “did not make sufficient contributions to the Estate to provide consideration for the support that she received from Shapiro.” Because Chenchark did not provide sufficient consideration, the court held that Chenchark did not have a valid contract claim. But the Nevada Supreme Court in Western States Construction did not consider the amount or type of consideration necessary to support a contractual agreement between cohabitants—instead, the court just examined Lois and Max's...