U.S. Bank, N.A. v. Gillham
| Docket Number | Case No. 1:21-cv-376 |
| Decision Date | 12 August 2022 |
| Parties | U.S. BANK, N.A., Plaintiff, v. Drew GILLHAM, et al., Defendants. |
| Court | U.S. District Court — Southern District of Ohio |
621 F.Supp.3d 848
U.S. BANK, N.A., Plaintiff,
v.
Drew GILLHAM, et al., Defendants.
Case No. 1:21-cv-376
United States District Court, S.D. Ohio, Western Division
Signed August 12, 2022
Jordan A. Konig, U.S. Department of Justice, Washington, DC, Ryan D. Galisewski, DOJ-Tax, Washington, DC, for Defendants.
Drew Gillham, Loveland, OH, Pro Se.
Stacy Gillham, Loveland, OH, Pro Se.
ORDER
Karen L. Litkovitz, Chief United States Magistrate Judge
This is an interpleader action filed by plaintiff U.S. Bank, N.A. ("U.S. Bank") against the United States of America and Drew Gillham concerning the rights to the final distribution of trust assets from two irrevocable life insurances trusts.1 U.S. Bank has deposited the Interpleader Funds into the Court's registry and has been dismissed from this case. (Doc. 27). This matter is now before the Court on the United States of America's motion for summary judgment (Doc. 28), Drew and Stacy Gillham's memorandum in opposition (Doc. 32), the United States' reply memorandum (Doc. 33), and the Gillham's surreply memorandum (Doc. 39).
I. Procedural and Factual Background2
A. The Trusts
The following facts are undisputed. U.S. Bank is the Trustee of the Gillham Family Trust (the Family Trust) and the Helen M. Gillham Trust (the Helen Trust). Drew Gillham is a beneficiary of both Trusts, which were created under two irrevocable life insurance trusts established by his parents, Helen M. and Ralph O. Gillham. Upon the death of both parents, on November 24 and 27, 2020 respectively, the Trusts were funded with the proceeds of life insurance policies owed to the Trustee, and the Trustee created subtrust accounts for each of the Trusts' beneficiaries, including Drew Gillham, and apportioned assets of each trust to each subaccount in accordance with the terms of each Trust.
Section 4.2 of the Family Trust provides, in relevant part:
Distribution Upon Death of both Settlors: Upon the death of the last surviving of both Settlors, the Trustee shall distribute all assets in equal and outright shares to Settlors' children, or to the issue of any deceased child of Settlors, per stirpes (subject to Section 4.3) . . . .3
(Doc. 7-2 at PAGEID 156). The Helen Trust likewise provides, in relevant part:
Upon the death of Settlor, the Trust shall cease and terminate, and all assets thereof shall be distributed and paid over to Settlor's Children, in equal shares; if any of Settlor's Children predeceases Settlor, such child's share shall be distributed 10% to such child's spouse (if such spouse was married to a child of Settlor at the time of such child's death), and 90% to such child's then-living lineal descendants, per stirpes . . . .
(Doc. 7-3 at PAGEID 164) (emphasis in the original).
Each Trust also contained a so-called "spendthrift provision" that is at issue in this case. In particular, Section 5.1 of the Family Trust states:
No Assignment Or Transfer Of Trust Assets By Beneficiaries. No income or corpus of the Trust shall be subject in
any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, charge or alienation. If the Trustee determines that any beneficiary of the Trust has become insolvent or bankrupt or has attempted to anticipate, sell, transfer, assign, pledge, encumber, charge or otherwise in any manner alienate any benefit or other amount payable to such beneficiary under the Trust, or that there is any danger of any levy or attachment or other court process or encumbrance on the part of any creditor of such beneficiary against any income or corpus payable to such beneficiary under the Trust, the Trustee may, at any time, in its absolute discretion, withhold any or all income or principal payable to such beneficiary under the Trust and apply the same for the benefit of any such beneficiary, or his/her spouse, children or other dependents, or any of them, in such manner and in such proportion as the Trustee may deem proper . . . .
(Doc. 7-2 at PAGEID 145). The Helen Trust contains a substantially similar provision, also in Section 5.1. (Doc. 7-3 at PAGEID 166).
B. Tax Liability
Drew Gillham was previously convicted on three counts of tax evasion under 26 U.S.C. § 7201, for income tax years 1999, 2000, 2001, and one count of obstruction of tax administration under 26 U.S.C. § 7212(a). See United States v. Gillham, Case No. 1:06-cr-00057 (S.D. Ohio). Mr. Gillham was sentenced to a term of imprisonment and three years of supervised release, which included the condition that Mr. Gillham "comply with all tax authorities and follow laws" and "file tax returns for the years of 1998-2005." (Id., Doc. 82 at PAGEID 563).
Mr. Gillham failed to file tax returns for tax years 2000 through 2011, 2013 through 2018, or 2020. (Doc. 28, Kovacevic Decl. ¶¶ 6-7). Because he failed to make income tax returns, the Internal Revenue Service ("IRS") prepared returns for Drew Gillham for the tax years at issue here, namely tax years 2000 and 2001 (which were the subject of the criminal conviction) and 2012, pursuant to 26 U.S.C. ("Internal Revenue Code" or "I.R.C.") § 6020(b).4 (Id., Kovacevic Decl. ¶ 6).
The IRS assessed against Drew Gillham individual income taxes, penalties for fraudulent failure to file a return under I.R.C. § 6651(f)5, penalties for not prepaying tax under I.R.C. § 66546, and penalties for late payment of tax under I.R.C. § 6651(a)(2)7 for the 2000, 2001, and 2012
tax years. As of November 16, 2021, the assessments for those years are:
| Tax Period Ending | Assessment Date | Assessment Type | Amount Assessed |
| 12/31/2000 | 2/6/2012 2/6/2012 2/6/2012 2/6/2012 | Tax (I.R.C. § 6020(b)) Failure to Pre-Pay Fraudulent Failure-to-File Penalty Late Payment Penalty | $69,801.00 $3,754.22 $50,605.73 $17,450.25 |
| 12/31/2001 | 2/6/2012 2/6/2012 2/6/2012 2/6/2012 | Tax (I.R.C. § 6020(b)) Failure to Pre-Pay Fraudulent Failure-to-File Penalty Late Payment Penalty | $44,704.00 $1,786.55 $32,410.40 $11,176.00 |
| 12/31/2012 | 11/2/2015 11/2/2015 11/2/2015 10/30/2017 | Tax (I.R.C. § 6020(b)) Late Filing Penalty Late Payment Penalty Late Payment Penalty | $3,341.00 $751.73 $517.85 $317.40 |
(Id., Kovacevic Decl. ¶¶ 5, 11).
The IRS also assessed interest on those amounts through November 16, 2021. Mr. Gillham's tax liabilities for the income tax years 2000, 2001, and 2012, as of November 16, 2021, after taking into account the assessment of taxes, penalties, interest, and other statutory additions, and all payments, credits, abatements, and accruals as of that date are as follows:
| Tax Period Ending | Balance Due as of Nov. 16, 2021 |
| 12/31/2000 | $340,826.39 |
| 12/31/2001 | $204,567.35 |
| 12/31/2012 | $6,714.89 |
| TOTAL | $552,108.63 |
(Id., Kovacevic Decl. ¶¶ 10-11; Exs. A & B).
Demand for payment was made in 2012 and 2015, but Drew Gillham refused to make payment. (Id., Kovacevic Decl. ¶¶ 8, 9, 12; Exs. A & B). In March 2016, IRS recorded Notices of Federal Tax Lien against Drew A. Gillham for these liabilities in Clermont County, Ohio and Lafayette Parish, Louisiana. (Id., Kovacevic Decl. ¶ 17).
C. The Interpleader Action
On January 7, 2021, an attorney representing Drew Gillham sent correspondence to Trustee U.S. Bank advising that a distribution of assets to Mr. Gillham would create "the danger of a levy, attachment, or other court process or encumbrance against income or corpus payable to Mr. Gillham as a beneficiary of the two trusts[.]"8 (Probate State Court Record, Doc. 7-2, ¶ 20; Doc. 7-3 at PAGEID 177). A copy of a tax bill from the IRS to Mr.
Gillham dated October 26, 2020 was attached to the January 7, 2021 correspondence. (Id., Doc. 7-2, ¶ 21; Doc. 7-3 at PAGEID 179). The letter requested "that US Bank make out the check or checks to Stacy Gillham, wife of Drew Gillham, pursuant to section 5.1, the spendthrift provision of each of these two trusts." (Id., Doc. 7-3 at PAGEID 177).
On March 15, 2021, Drew Gillham requested that the Trustee hold his share of the distribution for approximately one year rather than distribute it to him as the Trusts' terms provide. (Id., Doc. 7-2, ¶ 26). The Trustee has not distributed any funds held in Mr. Gillham's subtrusts. (Id., Doc. 7-2, ¶ 27).
U.S. Bank then initiated this interpleader action to deposit funds from the two trusts in the Court's registry and obtain a judicial determination regarding the proper distribution of the funds, based on the competing claims to the Interpleader Funds from Drew Gillham and the IRS.
The United States answered the Trustee's complaint asserting its superior claim to the Interpleader Funds; counterclaimed against U.S. Bank to request distribution of the Interpleader Funds; crossclaimed against Drew Gillham to enforce the federal tax liens on the Interpleader Funds and to obtain a judgment for unpaid tax liabilities; and added Drew's spouse, Stacy Gillham, as an additional defendant to the counterclaim so that she could assert a claim to the Interpleader Funds.
As U.S. Bank has deposited the Interpleader Funds in the Court's registry and been dismissed (Doc. 27), this matter is now ripe for review on the United States' motion for summary judgment.
II. Summary Judgment Standard
A motion for summary judgment should be granted if the evidence submitted to the Court demonstrates that there is no genuine issue as to any material fact, and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Under Federal Rule of Civil Procedure 56(c), a grant of summary judgment is proper if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Satterfield v. Tennessee, 295 F.3d...
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