Hatchett v. I.R.S.
| Citation | 126 F.Supp.2d 1038 |
| Decision Date | 31 March 2000 |
| Docket Number | No. 94-CV-74708-DT.,94-CV-74708-DT. |
| Parties | Elbert L. HATCHETT, and Laurestine Hatchett, Plaintiffs, v. INTERNAL REVENUE SERVICE, and United States of America, Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
Martin L. Fried, Robert N. Bassel, Goldstein, Bershad, Southfield, MI, for plaintiffs.
Thomas R. Jones, U.S. Dept. of Justice, Tax Div., Washington, DC, for defendant.
ORDER DENYING DEFENDANTS' MOTION FOR RECUSAL AND GRANTING IN PART AND DENYING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT
This matter is before the Court on the Government's motion to have this Court recuse itself. The Government contends that this Court obtained extra-judicial knowledge about the instant wrongful levy action while sitting on a three judge panel which presided over Plaintiff Elbert Hatchett's attorney reinstatement proceeding. The matter is also before the Court on cross motions for summary judgment filed by the parties. The Government argues in opposition to Plaintiffs that taxes levied against four properties and a mortgage owned by Plaintiffs were not wrongful under four theories: fraudulent conveyance, lien tracing, nominee/alter ego, and instantaneous lien attachment. For the reasons set forth herein, the Court denies the Government's motion for recusal, denies in part and grants in part the Government's and Plaintiffs' cross motions for summary judgment.
Elbert and Laurestine Hatchett, who are husband and wife, filed this wrongful levy action against the IRS and the United States (referred to collectively as the "Government") on November 21, 1994, requesting that this Court enjoin the tax sale of four real properties and the seizing of mortgage payments due to the Hatchetts on another real property because the properties are either owned by Elbert and Laurestine Hatchett as tenants by the entireties under Michigan law or are owned individually by Laurestine Hatchett.
Elbert and Laurestine Hatchett received a Tax Levy and four Notices of Seizure dated October 24 and 25, 1994, which indicated that the four parcels of real property had been seized for nonpayment of past due taxes owed by Elbert Hatchett. Several days later, Plaintiffs received Notices of Public Auction Sale which indicated that the real properties would be sold at a public auction on November 30, 1994 ("Tax Sale"). The four properties are as follows:
1) 285 West Hickory Grove, Bloomfield Hills, Michigan;
2) 79 Bloomfield Blvd., Bloomfield Township, Michigan;
3) 82 Franklin Blvd., Pontiac, Michigan;
4) 352 South Saginaw, Pontiac, Michigan.
Plaintiffs claim that the tax levies on 285 West Hickory Grove and 352 South Saginaw are wrongful because they were owned by Elbert and Laurestine Hatchett as tenants by entirety at the time of the levy and as of the date of the Complaint. The Government claims that the property at 285 West Hickory Grove was purchased as tenants by the entirety in April 1974, but was quit claimed to Laurestine Hatchett and the Hatchetts' daughter, Ayanna Hatchett, in August 1991. The Government claims the property at 352 South Saginaw was quit claimed into a tenancy by entirety in March 1984, and quit claimed to Elbert's wife and daughter in August 1994.
Plaintiffs claim the tax levies on 82 Franklin Blvd. and 79 Bloomfield Blvd. are wrongful because they were owned individually by Laurestine Hatchett. The Government claims Elbert Hatchett bought the property at 79 Bloomfield in his own name in October 1973 and conveyed it into tenancy by entirety in May 1984. The Government claims the Hatchetts quit claimed the property at 82 Franklin out of the tenancy by entirety and conveyed it to Laurestine and Ayanna Hatchett in 1984.
On June 26, 1995, Plaintiffs filed their First Amended Complaint for Injunctive Relief requesting that the Government be enjoined from levying or seizing mortgage payments due to the Hatchetts from Ernest and Hermetha Jarrett on property located on 6300 Cyclone Road, Otter Lake, Michigan. This request was prompted by Plaintiff receiving a notice of levy against Elbert Hatchett's interest in real property located at 6300 Cyclone Road, Otter Lake, Michigan. Plaintiffs claim, and the Government agrees, that the Hatchetts owned this property as tenants by the entirety until they sold it to the Jarretts on August 19, 1991. The Jarretts granted a mortgage to the Hatchetts dated August 18, 1991. The Hatchetts claim they own the mortgage as tenants by the entirety.
The Government issued a trial subpoena, which the Hatchetts objected to on the ground that it raised issues not within the pleadings. As a result, the Government filed a Motion to Amend its Answer to the Verified First Amended Complaint on April 30, 1996, seeking to add a theory of fraudulent conveyance. In its Memorandum Opinion and Order, dated February 28, 1997, this Court granted the Hatchetts' Motion to Quash Trial Subpoena and reversed Magistrate Judge Donald A. Scheer's Orders which had granted the Government's motion to add the fraudulent conveyance defense. The Court based this opinion on a number of reasons: 1) the Government lacked standing to pursue a fraudulent conveyance defense given that the bankruptcy trustee did not pursue this allegation;1 2) laches prevented the Government from filing the affirmative defense; 3) and res judicata barred the issue because a settlement had been reached and no appeal was taken. As to the Motion to Quash, the Court agreed with Plaintiffs' assertion that information relating to the respective incomes of the Hatchetts was irrelevant. The Court ruled:
Given that the current rule in the Sixth Circuit is that a federal tax liability of one spouse does not attach to the property held by the entireties, the information sought by the United States regarding the entireties properties is not relevant. Also, the Court finds that the trial subpoena is a belated discovery request filed long after discover has been completed. The Court further finds that the requested information would be overly burdensome to the Plaintiffs since it requests information which spans over 20 years. The Magistrate Judge erred in denying Plaintiffs' Motion to Quash on this issue. The Government filed a motion for reconsideration of this order on March 17, 1997, which the Court later denied in an order filed April 9, 1998.
The Government's Motion for Recusal stems from the April 22, 1997, petition for reinstatement to the bar of this court filed by Plaintiff Elbert Hatchett. See In re: Elbert Hatchett, Misc. Case No.91-X-74656. Plaintiff Hatchett had been suspended from practice in this court as a result of his suspension by the Michigan Attorney Discipline Board which began September 27, 1991. The suspension by the Michigan Attorney Discipline Board was for a period of 120 days and occurred as a result of Elbert Hatchett's April 1989 conviction in this court on four misdemeanor counts of wilful failure to pay income taxes. The order of suspension in this court was entered on October 7, 1992. Petitioner was reinstated to practice in the Michigan courts on October 18, 1993, following a hearing where he was required to establish by clear and convincing evidence a number of factors bearing on his ability and fitness to practice law in the State of Michigan.2
Reinstatement to practice before the Michigan state courts does not automatically result in reinstatement to practice before this federal court. See E.D. Mich. Local R. 83.22(g)(3). Attorneys are required to petition for reinstatement. Upon such petition a three judge panel is appointed by the Chief Judge to consider the petition. On March 24, 1997, such a panel granted Plaintiff's Petition for Limited Reinstatement affording him the opportunity to handle one criminal matter in this court. During the hearing on the limited petition, Plaintiff requested full reinstatement. The panel refused to consider full reinstatement because full reinstatement was not properly before it.3
On April 22, 1997, Plaintiff petitioned this federal court for full reinstatement. On May 7, 1997, Chief Judge Anna Diggs Taylor appointed a panel of three different judges to hear the petition for full reinstatement. The panel consisted of Judges Horace Gilmore, Judge Bernard Friedman, and Judge Denise Page Hood. In the usual course and practice of this court Chief Judge Taylor's order referred the petition to the Grievance Administrator of the Michigan Attorney Grievance Commission for investigation and the Grievance Administrator was directed to send the Grievance Commission's investigative reports and transcripts of its reinstatement proceedings to the three judge panel and the Clerk of this court. The record before the Michigan Attorney Grievance Commission is voluminous.
On May 29, 1997, prior to the first hearing on Plaintiff's reinstatement petition, this court set a status conference for June 16, 1997, in the wrongful levy action. The first hearing on Plaintiff's reinstatement petition was held on June 12, 1997. Prior to the hearing date, this judge informed the other members of the three judge panel of the civil litigation pending in her court between the Government and the Hatchetts. The other judges agreed to proceed. At the onset of this hearing, this Judge disclosed that the instant civil lawsuit was pending before her. No one objected to her presence as a member of the panel. During this first hearing the court did question the attorney from the Grievance Commission regarding the attorney's comments regarding the Plaintiff's financial disclosure which the attorney had indicated had been an issue at the hearing on the limited reinstatement petition. The hearing was continued to June 19, 1997.
A status conference in this wrongful levy case was held as scheduled on June 16, 1997, and the parties were granted leave to file cross motions...
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Hatchett v. U.S.
...Defendants' Motion for Recusal and Granting in Part and Denying in Part Cross-Motions for Summary Judgment, Hatchett v. Internal Revenue Serv., 126 F.Supp.2d 1038 (E.D.Mich.2000), the district court ruled that the Government's nominee and lien tracing theories were unpersuasive. The court b......