Hatchett, et al v. USA, 060403 FED6, 00-1645

Docket Nº:060403 FED6, 00-1645
Party Name:Hatchett
Case Date:June 04, 2003
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Hatchett, et al v. USA

00-1645

FED6

6/4/2003

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

ELECTRONIC CITATION: 2003 FED App. 0176P (6th Cir.)

File Name: 03a0176p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

Elbert L. Hatchett and Laurestine Hatchett,

Plaintiffs-Appellees,

v.

United States of America,

Defendant-Appellant.

No. 00-1645

Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

No. 94-74708--Denise Page Hood, District Judge.

Argued: February 4, 2003

Decided and Filed: June 4, 2003

Before: SILER, DAUGHTREY, and COLE, Circuit Judges.

_________________

COUNSEL

ARGUED: Joan I. Oppenheimer, UNITED STATES DEPARTMENT OF JUSTICE, APPELLATE SECTION TAX DIVISION, Washington, D.C., for Appellant. Robert N. Bassel, KEMP, KLEIN, UMPHREY, ENDELMAN & MAY, Troy, Michigan, for Appellees. ON BRIEF: Joan I. Oppenheimer, David English Carmack, UNITED STATES DEPARTMENT OF JUSTICE, APPELLATE SECTION TAX DIVISION, Washington, D.C., for Appellant. Robert N. Bassel, KEMP, KLEIN, UMPHREY, ENDELMAN & MAY, Troy, Michigan, for Appellees.

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OPINION

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R. GUY COLE, JR., Circuit Judge. Defendant-Appellant United States appeals the judgment entered by the United States District Court for the Eastern District of Michigan in favor of Plaintiffs-Appellees Elbert L. Hatchett and his wife Laurestine Hatchett. In an attempt to collect a portion of the more than $8,000,000 owed by Elbert in unpaid taxes, the United States commenced administrative levy proceedings by filing levies and notices of sale for four parcels of real property, and a levy for the seizure of mortgage payments due to the Hatchetts on a fifth parcel. In order to stop the proceedings, the Hatchetts brought a wrongful levy action against the United States claiming that the levies were wrongful because they were against properties held by the Hatchetts as tenants by the entirety. The district court, relying on a decision of this Court, Craft v. United States, 140 F.3d 638 (6th Cir. 1998) agreed with the Hatchetts and found that the levies were wrongful. The United States primarily argues that this Court's decision in Craft was wrong as matter of law and that the levies may attach to property held as a tenancy by the entirety. The United States also argues that the levies were not wrongful under three other legal theories: (1) a fraudulent conveyance theory, in which the Government claims that Elbert used his individual funds to purchase and enhance property that was titled as a tenancy by the entirety; (2) a nominee theory, in which the Government claims that other individuals are holding the entireties properties as Elbert's nominees; and (3) a lien tracing theory, in which the Government claims that since it has a lien on Elbert's money, it is entitled to place a lien on the properties improved or purchased with that money.

After notice of appeal had been filed and the case had been set for oral argument, the Supreme Court granted certiorari on Craft and agreed with the Government's position that federal tax liens may attach to property held by a delinquent taxpayer as a tenancy by the entirety. Because the Supreme Court has answered the question of whether the Government may levy against real property held as a tenancy by the entirety, we REVERSE the decision of the district court and REMAND for entry of judgment consistent with current Supreme Court precedent. Furthermore, we REVERSE and REMAND the district court's refusal to allow the Government to amend its complaint and to assert its claim of fraudulent conveyance; we REVERSE and REMAND the district court's grant of summary judgment for the Hatchetts on the Government's nominee and lien tracing theories.

  1. BACKGROUND

    This case began more than twenty-five years ago when Elbert, a prominent Detroit trial attorney, decided to forego payment of federal and state income taxes. In 1989, Elbert was convicted by a jury of four misdemeanor counts of willful failure to pay federal income taxes. United States v. Hatchett, 918 F.2d 631, 633 (6th Cir. 1990). He was sentenced to three consecutive one-year sentences, placed on five years' probation, fined $100,000 and ordered to pay "all back taxes" as a condition of probation. Id. We affirmed that sentence, and Elbert spent three years in prison. Id. at 644.

    The Internal Revenue Service ("IRS") made an assessment on October 24, 1994 that Hatchett owed more than $6.6 million in federal income taxes and penalties for the tax years 1975 to 1991. As of March 25, 1998, Elbert's tax liabilities totaled more than $8.6 million.

    In an attempt to collect the delinquent taxes, the IRS levied against four parcels of real estate owned by the Hatchetts and one series of mortgage payments owed to the Hatchetts on a fifth parcel pursuant to 26 U.S.C. § 6331 (2002). The Hatchetts received a Tax Levy, dated October 24, 1994, and four Notices of Seizure, dated October 25, 1994. Two of the properties are owned jointly by the Hatchetts as tenants by the entirety: (1) their primary residence ("West Hickory"); and (2) a property operated as a car wash ("South Saginaw"). Two properties are held individually by Laurestine: (1) a property occupied by Elbert's mother ("Franklin Boulevard"); and (2) a property in Bloomfield Township. The IRS scheduled a public auction to sell the real properties on November 30, 1994.

    On January 24, 1995, the IRS levied mortgage payments due to the Hatchetts from a property previously owned by the Hatchetts and used for horsebreeding and entertaining clients ("Cyclone"). The Cyclone property was sold to a husband and wife, Ernest and Hermetha Blythe Ann Jarrett, in 1991. The Hatchetts took back a mortgage of $80,000 on the Cyclone property, to be paid in semiannual installments of $6,000 on interest and principal, beginning February 19, 1992 and continuing until August 19, 2001.

    At the time the IRS issued the four levies in 1994, the Hatchetts held title to the West Hickory and South Saginaw properties as tenants by the entirety. Laurestine has held individual title to the Franklin Boulevard property since 1994, but it was held by the Hatchetts as tenants by the entirety when the federal tax lien first attached in 1978. The Hatchetts held the Cyclone property as tenants by the entirety until it was conveyed by warranty deed to the Jarretts on August 19, 1991.

    On November 21, 1994, the Hatchetts commenced a wrongful levy action in the district court pursuant to 26 U.S.C. § 7426 (2002) to enjoin the tax sale of the four parcels of real estate and the seizure of the mortgage payments due. The district court entered two stipulated orders, on December 7, 1994 and June 23, 1995, enjoining the IRS from conducting the public auction or levying on the pending mortgage payments until the propriety of the levies was determined. On June 25, 1996, Magistrate Judge Donald A. Scheer issued two orders, consistent with his bench rulings: (1) an order granting the Hatchetts' Petition to Quash the Government's request for a number of documents from 1972 to the present; and (2) an order granting the Government's motion to amend its answer to the Hatchetts' complaint and assert fraudulent conveyance as an affirmative defense. The district court issued a Memorandum Opinion and Order on February 28, 1997, reversing the two orders of the magistrate judge.

    On March 31, 2000, the district court entered a judgment deciding the cross-motions for summary judgment filed by the Hatchetts and the Government. The court granted the Hatchetts' summary judgment motion and denied the Government's motion with respect to the West Hickory, Franklin Boulevard, South Saginaw, and Cyclone properties; the court granted the Government's summary judgment motion and denied the Hatchetts' motion with respect to the Bloomfield Township property. In its decision to grant the Hatchetts summary judgment, the district court relied on our decision in Craft v. United States, 140 F.3d 638 (6th Cir. 1998) ("Craft I") and held that the Government was not entitled to levy property held in tenancies by the entirety. This timely appeal followed on June 1, 2000.

  2. DISCUSSION

    1. Standard of Review

      This Court reviews the district court's summary judgment decision de novo. See Watkins v. Battle Creek, 273 F.3d 682, 685 (6th Cir. 2001). Summary judgment should be granted when "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). Summary judgment is appropriate if a party who has the burden of proof at trial fails to make a showing sufficient to establish the existence of an element that is essential to that party's case. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In deciding a motion for summary judgment, the court must view the factual evidence and draw all reasonable inferences in favor of the nonmoving party...

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