LiButti v. U.S., s. 98-6003

CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)
Citation178 F.3d 114,1999 WL 339705
Docket NumberNos. 98-6003,98-6023,s. 98-6003
Parties-2640, 99-1 USTC P 50,562 Edith LiBUTTI, doing business as Lion Crest Stable, a sole proprietorship, Plaintiff-Appellant-Cross-Appellee, Margaux Stallions, LLC, Intervenor-Cross-Appellee, v. UNITED STATES of America, Defendant-Appellee-Cross-Appellant.
Decision Date28 May 1999

Page 114

178 F.3d 114
83 A.F.T.R.2d 99-2640, 99-1 USTC P 50,562
Edith LiBUTTI, doing business as Lion Crest Stable, a sole
proprietorship, Plaintiff-Appellant-Cross-Appellee,
Margaux Stallions, LLC, Intervenor-Cross-Appellee,
UNITED STATES of America, Defendant-Appellee-Cross-Appellant.
Nos. 98-6003, 98-6023.
United States Court of Appeals,
Second Circuit.
Argued Oct. 2, 1998.
Decided May 28, 1999.

Frank T. Becker, Lexington, Kentucky (Michael D. Meuser, Miller, Griffin & Marks, PSC, Lexington, Kentucky; Paul T. Sheppard, Hinman, Howard & Kattell, Binghamton, New York, of counsel), for Plaintiff-Appellant-Cross-Appellee.

Kenneth W. Rosenberg, Washington, D.C. (Thomas J. Maroney, United States Attorney, Northern District of New York, Syracuse, New York; Loretta C. Argrett, Assistant Attorney General, William S. Estabrook, Tax Division, Department of Justice, Washington, D.C., of counsel), for Defendant-Appellee-Cross-Appellant.

Richard E. Vimont, Lexington, Kentucky (Bernard F. Lovely, Vimont & Wills PLLC, Lexington, Kentucky; George F. Carpinello, Barrett Gravante Carpinello & Stern LLP, Albany, New York, of counsel), for Intervenor-Cross-Appellee.

Before: CARDAMONE, CALABRESI, and STRAUB, Circuit Judges

CARDAMONE, Circuit Judge:

The object of the present appeal--as in three previous federal court proceedings--is to decide who owns a prize thoroughbred racehorse named "Devil His Due." Plaintiff, Edith LiButti (Ms. LiButti, plaintiff, or appellant), claims that she is the owner, and the Internal Revenue Service (IRS) insists that her father, Robert LiButti, is the owner and that the plaintiff is merely his nominee. If the horse is shown to be the property of the father, the IRS would be in a position to levy upon it to satisfy over $4 million in unpaid income taxes owed by him.

One of the matters weighing heavily against appellant is the adverse inference drawn from her father's refusal to testify and answer questions on the horse's ownership at the 1995 trial. Two years later, in an apparent change of heart, he filed an affidavit saying that now he would testify. His neglect to act promptly illustrates the truth of the apt, in this case, insight--it is too late to close the barn door after the horse has bolted.

Ms. LiButti appeals from an amended judgment entered July 31, 1997 in the United States District Court for the Northern District of New York following a bench trial before Chief Judge Thomas J. McAvoy. The district court found in favor of the defendant United States (defendant, IRS, or the government), granting the IRS the right to levy on plaintiff's property interest in the horse. Plaintiff also appeals from an order entered December 2, 1997 denying her motion for a new trial. The United States cross-appeals from an August 6, 1997 order that granted only a portion of the restitution the government sought, and from the December 1997 order insofar as it denied the government's motion to amend the order of restitution. This order also denied the government's request for court-ordered restitution from Margaux Stallions (Margaux), which appears in these proceedings as an intervenor-cross-appellee, based upon the district court's conclusion that it lacked personal jurisdiction over Margaux.


Because this is the fourth time this case has been written on in federal court, the background will be brief. Unable to locate any assets in Robert LiButti's name, the IRS issued a levy against "Devil His Due," declaring that the delinquent taxpayer was its owner and that he had put ownership in the name of Lion Crest Stable, a business owned by his daughter, Edith. Ms. LiButti brought a wrongful levy action against the IRS pursuant to 26 U.S.C. § 7426 seeking a permanent injunction barring the IRS from enforcing its levy against "Devil His Due." See LiButti v. United States, 894 F.Supp. 589, 590-91 (N.D.N.Y.1995) (LiButti I ).

After a bench trial, the district court ruled in August 1995 that Ms. LiButti was the sole owner of the horse at the time it was levied upon because the government had failed to prove any transfer of ownership from the father to the daughter. See id. at 598-99. The trial court refused to draw any adverse inference against Ms. LiButti's claim of ownership arising from the fact that when her father was questioned about the racehorse's ownership he invoked his Fifth Amendment privilege and refused to answer any questions. See id. at 597.

The government appealed this adverse decision in October 1995. While that appeal was pending, Ms. LiButti entered into a syndicate agreement under which the ownership of "Devil His Due" was divided into 50 equal shares, 25 of which were sold to Margaux Stallions, LLC, a Kentucky limited liability company, for $1,224,000. Margaux later sold 12 of its 25 shares to third parties scattered in various states throughout the country.

On appeal from the August 1995 judgment in LiButti I, we vacated the district court's order and remanded the case because we did not believe, as the district court had, that the government was required to prove a money trail from Robert LiButti to "Devil His Due." See LiButti v. United States, 107 F.3d 110, 119-20 (2d Cir.1997) (LiButti II ). Instead, we stated that it would be sufficient for the government to show Robert LiButti effectively owned Lion Crest Stable and controlled its finances. We also considered the factors relevant to the admissibility of a non-party's invocation of the Fifth Amendment privilege in the course of civil litigation and ruled, as a matter of law, that an adverse inference could be drawn against Ms. LiButti based on her father's invocation of the Fifth Amendment. See id. at 123-24.

On July 2, 1997, with the case before it on remand, the district court held that Ms. LiButti held title to "Devil His Due" only as her father's nominee. Thus, the trial court lifted the injunction it had previously imposed against the enforcement of the IRS levy upon the horse. See LiButti v. United States, 968 F.Supp. 71, 77 (N.D.N.Y.1997) (LiButti III ). In reaching this conclusion, Chief Judge McAvoy considered evidence that shortly before purchasing the horse, Edith LiButti--in her certification for increased support from her ex-husband--had sworn that she and Lion Crest Stable were without funds. After her father deposited $185,000 into Lion Crest's bank account, as a partial repayment of a debt he allegedly owed the stable, Lion Crest had sufficient funds to purchase the horse. The New York State Racing and Wagering Board denied her a license because she did not know the source of the funds she used to start her stable's business. Nor did she know the purpose or use of millions of dollars of loans signed in her name. A bank employee testified that she signed Ms. LiButti's name to checks and bills of sale at her father's direction.

With respect to Robert LiButti's involvement with Lion Crest Stable, the record reveals that it carried over $1 million in loans for him from 1984-92. The father was actively involved in the sale and management of the stable's horses, and expended Lion Crest funds for his personal use, including the leasing of two automobiles, one a 1995 Mercedes, and the payment of his cellular phone and American Express bills, which for the three years from 1991 to 1994 totaled $192,558.25. Further, the rent of the home where Robert LiButti and his wife, Joan, resided was paid by Lion Crest Stable, as were subsequent real estate taxes and payments after the house was purchased by them. On top of all this proof, the trial court also considered, as a factor on the issue of ownership of the horse, the adverse inference it drew from the father's invocation of the Fifth Amendment in response to questions directly bearing on that issue.

Following the July 2, 1997 issuance of the judgment in LiButti III, Ms. LiButti moved for a new trial and an amendment of the judgment pursuant to Federal Rule of Civil Procedure 59. Attached to the motion was her father's affidavit stating that he was now willing to testify. The motion requested that the court entertain Robert LiButti's testimony and draw new findings of fact and conclusions of law. In December 1997 the district court denied plaintiff's motion, ruling that a new trial was not warranted because there was no showing that such testimony would change the outcome of the case.

Meanwhile, the government had sought to obtain a court order compelling Ms. LiButti to make restitution by payment to it of the full value of "Devil His Due," and to account to it for all the income she had received on the horse's earnings since August 3, 1995, the date of the district court's original decision in LiButti I. But, the trial court was of the view, expressed in an August 1997 ruling, that the government was only entitled to restitution of monies derived from the racehorse after July 2, 1997, the date it had held that Ms. LiButti was her father's nominee. It would be inequitable, the court continued, to grant restitution for the nearly two-year period between August 3, 1995 and July 2, 1997 because in that interim, pursuant to the court's previous judgment, appellant had entered into the syndicate agreement with Margaux. Further, Chief Judge McAvoy noted that the government had neglected to file for a stay pending appeal to prevent the transfer of the horse as part of that agreement.

In the same August 1997 ruling the court said it could not pass on the government's claim for restitution against Margaux because it had no jurisdiction over that entity. It is from portions of these rulings embodied in the July 2, August 6, and December 2, 1997 orders that Edith LiButti appeals and the government cross-appeals.


This appeal presents four issues for resolution: (1) the denial of Edith LiButti's request for a new trial on the grounds of new proof; (2) the adverse inference drawn against her claim by her father's refusal to answer questions...

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