In Re James Warren May
| Decision Date | 01 December 2010 |
| Docket Number | CIVIL ACTION 10-0431-WS-N,Bankr. Adv. Case No. 09-01004 |
| Parties | IN RE JAMES WARREN MAY, Debtor. JAMES WARREN MAY, Plaintiff/Appellant, v. UNITED STATES OF AMERICA, Defendant/Appellee. |
| Court | U.S. District Court — Southern District of Alabama |
This matter comes before the Court on plaintiff/appellant James Warren May's Notice of Appeal (doc. 1) pursuant to 28 U.S.C. § 158(a) from the Bankruptcy Court's Orders entered on March 17, 2010 and May 25, 2010, as well as the Judgment entered on April 9, 2010.1 The briefing process having concluded, this appeal is now ripe for disposition.
On or about December 12, 2008, plaintiff/appellant, James Warren May, initiated Chapter 7 liquidation proceedings in the U.S. Bankruptcy Court for the Southern District of Alabama. May's bankruptcy schedules reflect that the principal debts from which he sought relief were unpaid state and federal personal income taxes, interest and penalties relating to the 1998 and 1999 tax years. A month later, on January 12, 2009, May filed an adversary complaint against the United States of America (the "Government") in the Bankruptcy Court. In his adversary complaint, May requested a discharge of his federal income tax liabilities for the 1998 and 1999 tax years pursuant to Section 523 of the Bankruptcy Code. (Doc. 1.)2 The Government responded by filing an Answer and Counterclaim wherein it asserted, among other things, that these tax liabilities are non-dischargeable pursuant to 11 U.S.C. § 523(a)(1)(C).3(Doc. 9.) The Counterclaim requested that the Bankruptcy Court decree May's 1998 and 1999 tax liabilities to be excepted from discharge on the ground that he had willfully attempted to evade or defeat such taxes, and further requested entry of judgment in the Government's favor for unpaid tax liabilities of $185,194.52, plus statutory additions dating from January 12, 2009. (Id.) May filed a Reply to Counterclaim alleging that he had made "substantial payments" to the Government for the outstanding tax liabilities and that "[b]ut for the malicious and vindictive actions of the revenue officers assigned to the case, the taxes would now be paid in full." (Doc. 27, ¶ 4.) The Reply also set forth May's express denial that he had willfully or intentionally failed to pay taxes, and indicated that May "has used all of his savings and nearly all of this income to pay delinquent taxes for the periods in question," although he was referring principally to payroll taxes, not the income taxes at issue here. (Id. at 2.)
The Government unsuccessfully moved for summary judgment on two occasions in the adversary proceeding. The matter went to trial before U.S. Bankruptcy Judge Shulman on January 11, 2010, and both sides were afforded a full and fair opportunity to present trial briefs, oral testimony, exhibits and closing arguments in support of their respective positions. The parties collectively offered nearly 200 exhibits into evidence as well as more than 40 pages of trial briefs for the Bankruptcy Court's review.
On March 17, 2010, Judge Shulman issued a 16-page written Order Determining Dischargeability of Debt Pursuant to 11 U.S.C. § 523(a)(1)(C), ruling that May's 1998 and 1999 federal income tax liabilities were nondischargeable. (See doc. 65.)
In a lengthy "Findings of Fact" section, the Bankruptcy Court recited the following findings, inter alia: (i) May is a 69-year old attorney who has practiced law in Baldwin County, Alabama since 1984; (ii) for the 1998 tax year, May reported adjusted gross income of $418,457, and federal tax liability of $143,777, compared to just $77,527 in withholdings; (iii) for the 1999 tax year, May did not file a federal income tax return until April 2003, showing tax liability of $28,973 against just $9,277 in withholdings; (iv) May's tax problems date back to the 1980s; (v) May transferred ownership of a jointly owned marital residence in Magnolia Springs to his then-wife in 1989 to prevent loss of the house to creditors; (vi) when May divorced and remarried in 1991, he had the Magnolia Springs property deeded directly from his ex-wife to his current wife, Lisa May ("Mrs. May"), as a purported "wedding gift"; (vii) in federal litigation in 2006, this District Court held that Mrs. May was May's nominee with respect to the Magnolia Springs property, such that May had a beneficial interest in that property;4 (viii) in 1998, May earned a substantial fee in excess of $400,000; (ix) that same year, May decided to renovate the Magnolia Springs home in his wife's name and spent approximately $180,000 for that purpose; (x) unexpected cost overruns in those renovations left May with insufficient funds to pay his 1998 and 1999 tax year liabilities; (xi) in court filings and tax documents over the years, May has made inconsistent and inaccurate representations concerning ownership and/or valuation of assets, such as the Magnolia Springs property, vehicles, and his professional corporation; (xii) May did not maintain a personal checking account because the IRS has previously pursued collection activities against such accounts, but instead placed his earnings in a separate business account from which Mrs. May withdrew funds for personal expenses; (xiii) in May 2005, May agreed to pay the IRS $500 per month on his past due income taxes, but only made approximately 15 such payments before stopping; (xiv) the Mays attempted to refinance the Magnolia Springs property to raise money to pay the IRS liabilities, but the lender backed out just prior to closing when the IRS announced its intention to file a nominee lien against the property; (xv) the Baldwin County Tax Assessor's Office appraises the Magnolia Springs home (which is located in a particularly desirable area of Baldwin County) at $650,000; and (xvi) in recent years, May has spent money on luxury vacations, including a trip for Mrs. May and the couple's children to Europe in 2007, plus stays at the Royal Sonesta Hotel in New Orleans, the Little Palm Island Resort in Florida, and continuing legal education trips in various locations around the country.
In a separate "Conclusions of Law" section, the March 17 Order found that the totality of May's conduct (including the titling of the Magnolia Springs home in his wife's name, transfer of $180,000 to his wife to refurbish that home, use of nominee checking accounts, omissions or understatement of property on bankruptcy schedules, and an extravagant lifestyle) demonstrated that he had attempted to evade or defeat the tax debt. (Doc. 65, at 10-12.) In so doing, Judge Shulman observed that May's actions "have a striking similarity to those of the debtor in In re Jacobs, 490 F.3d 913 (11th Cir. 2007)." (Id. at 11.) The March 17 Order further concluded that in addition to meeting § 523(a)(1)(C)'s "conduct" requirement, the evidence showed that the statute's "mental state" requirement was satisfied. In that regard, the Bankruptcy Court found that several "badges of fraud" indicated that May had voluntarily and intentionally violated a known duty to pay income taxes, inasmuch as he had titled the Magnolia Springs property to his wife when he was experiencing tax problems, he had drawn down his own assets by funneling $180,000 into renovations for a house titled to someone else rather than paying off his own personal tax liabilities, he had engaged in a "consistent pattern of action... to conceal" by titling his property (home, vehicles, bank accounts) exclusively in others' names, and he had misstated the existence and valuation of assets on 2008 bankruptcy schedules in a manner indicative of "a knowing and deliberate plan to conceal [his] property and values, and a cavalier disregard for accurately filling out his bankruptcy schedules which were signed under oath." (Doc. 65, at 1315.) As to willfulness, the Bankruptcy Court rejected May's protestations at trial that he was an innocent victim of contractor cost overruns, pointedly stating that "[i]t is clear from the Debtor's efforts to prevent holding any real or personal property in his own name and his unexplained failure to properly schedule assets in his bankruptcy schedules that he acted knowingly and consciously." (Id. at 15.) And the Bankruptcy Court was unmoved by May's argument that he strived to pay down his 1998 and 1999 tax bills after the IRS began pursuing him, reasoning that subsequent "efforts to pay his taxes do not mean that he did not willfully avoid paying them in the first place." (Id. at 16.)
In light of these determinations, the March 17 Order concluded with a specific finding that May had acted willfully to evade or defeat payment of his 1998 and 1999 federal income taxes, and that those liabilities were therefore nondischargeable under § 523(a)(1)(C). On April 9, 2010, the Bankruptcy Court entered final judgment in favor of the Government, and against May, in the adversary proceeding. (Doc. 72.)
In the wake of the Bankruptcy Court's ruling that his tax liabilities were not dischargeable, May filed a Motion for New Trial (doc. 77) identifying a whopping 19 assignments of error, as well as a contemporaneous Motion to Alter or Amend (doc. 78) requesting nine sets of revisions to the findings of fact contained in the March 17 Order.
On May 25, 2010, the Bankruptcy Court entered a written Order Denying Motion for New Trial and Motion to Alter or Amend (doc. 81). With respect to the Motion to Alter or Amend, the May 25 Order explained that it was not well taken because three of May's requested modifications dealt with facts that would not affect the underlying ruling and the remaining requests amounted to quibbling "with the way the Court presented the facts rather than their accuracy." (Doc. 81, at 4.) The Bankruptcy Court...
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