U.S. v. Beauchamp, Case No. 07-211 S.
| Decision Date | 04 May 2009 |
| Docket Number | Case No. 07-211 S. |
| Citation | 611 F.Supp.2d 194 |
| Parties | UNITED STATES of America, Plaintiff, v. Keith BEAUCHAMP, Wayne Beauchamp and Dean Cooperative Bank, Defendants. |
| Court | U.S. District Court — District of Rhode Island |
Robert J. Kovacev, U.S. Department of Justice, Tax Division, Washington, DC, for Plaintiff.
James P. Marusak, Gidley, Sarli & Marusak, Providence, RI, for Defendants.
DECISION AND ORDER
Before the Court are cross-motions for summary judgment. The dispute involves what the United States describes as a complex income tax evasion scheme dating back to 1993 involving a residential property in Narragansett, Rhode Island. With its Complaint pursuant to 26 U.S.C. § 7403 and instant motion, the United States seeks to foreclose on the property to satisfy a tax lien. The now-record title owners, brothers Keith and Wayne Beauchamp (who by all accounts never engaged in or had notice of any fraudulent conduct), vigorously object and contend that the lien is null and void, extinguished by the United States' own inaction. After careful consideration, for the following reasons judgment will be granted in favor of Defendants.1
The events engendering this conflict are largely undisputed, though the validity of each transaction in the title chain is not clear cut. The Court describes each step by what it purports to be, and then summarizes the United States' (hereinafter referred to as the Government) theory as to the underlying fraud. The ranch style residence at the center of this dispute is located at 25 Raymond Drive in Narragansett. It was built in 1977 and has a current assessed value of approximately $475,000. The first owner for instant purposes was Nomar Realty Trust (Nomar), which took title in 1988 with Jeffrey Rose as Trustee.2 In 1993, Nomar granted and duly recorded a mortgage on the property to Kaleb Realty General Partnership (Kaleb) for $52,000, 16.75% per annum interest with monthly payments due. In 2002, Nomar as owner granted the property to Borland Realty, Inc. (Borland). In 2004, the Internal Revenue Service (IRS) assessed and recorded a lien on the property for unpaid income taxes from tax years 1993 to 1997 totaling $709,9613 against Jeffrey Rose and (then-owner) "Borland Realty, Inc., As Nominee, Alter Ego, Or Transferee of Jeffrey Rose." The recorded liens do not mention Nomar or Kaleb.
In July of 2005, Kaleb assigned its $52,000 mortgage (given in 1993) to Raymond 25 Associates, LLC. (Raymond), an entity that appears to have been comprised of three individual principals. Following the assignment, in December of 2005 Raymond, through its counsel John Sheehan, provided notice of its intention to foreclose upon the $52,000 mortgage (the amount then due with interest was $427,621.85) pursuant to 26 U.S.C. 7425(c)(1). Notice was provided via certified mail return receipt requested to the IRS offices in both Andover, Massachusetts and Warwick, Rhode Island. The IRS received the notices but did not contact Raymond as the senior foreclosing creditor, nor respond or otherwise object to the foreclosure or attempt to redeem the property.
On January 19, 2006, Raymond (the only bidder) foreclosed on the mortgage and took title to the property from then-owner Borland by a duly recorded foreclosure deed. On or about May 12, 2006, Raymond and Defendant Keith Beauchamp (represented by counsel) entered into a purchase and sale agreement for the property, with a purchase price of $330,000. Keith and Wayne Beauchamp then took title from Raymond by quitclaim deed dated June 28, 2006. It is undisputed that this conveyance occurred more than 120 days after the January 19, 2006 Raymond foreclosure sale.4 Dean Bank currently holds a commercial mortgage on the property dated June 28, 2006, granted by the Beauchamps in the amount of $344,000.5
Prior to closing, the Beauchamps, Dean Bank and/or their attorney discussed the Government's 2004 tax lien with Raymond's attorney Mr. Sheehan and, according to Mr. Sheehan, discussed the "complex title . . . relating to the timing or the priority . . . of liens and on the United States statute in connection with foreclosures and the right [of] the U.S. Government as far as a foreclosure sale occurred." At the buyer's request, prior to closing Mr. Sheehan provided an affidavit in which he set forth to whom notice of foreclosure was sent (IRS, Nomar, JEV Financial Corp., Borland, and Kaleb), and affirmed both that he had received certified mail receipts from the IRS (which were presented) and that no party had contacted Raymond following the sale.
The Government's characterization of these facts is as follows: Jeffrey Rose6 used 25 Raymond Drive to evade paying federal income taxes. The first owner, Nomar, was merely a nominee of Rose; Rose was Trustee and enjoyed the benefits of and exercised control over the property. The $52,000 mortgage from Nomar to Kaleb in 1993 was "bogus" and secured no real obligation because Kaleb was yet another sham. According to a "Kaleb Realty Partnership Agreement," the partners who supposedly provided the loan were Rose, his father and the "Rose Family Trust." The amortization schedule Raymond provided to the Beauchamps at or prior to closing suggests Nomar made no payments on the mortgage.
Borland, which took title from Nomar in 2002, was also a sham entity; Rose was sole officer, director and shareholder. In 2004, after the IRS lien, Rose devised a plan to circumvent the lien, sell the property to an unknowing purchaser, and walk away free and clear of the Government's interest. To do this, Kaleb assigned the $52,000 "mortgage" to yet another sham entity: Raymond.7 To wipe out the junior tax lien, Raymond held a foreclosure sale and bought the property for $300,000.
The potential hiccup in this plan was the foreclosure notice Raymond as purported senior lien holder would have to provide to junior lienholders of record—namely, the IRS. There is no dispute Raymond fulfilled its statutory obligations in this regard. According to a document submitted by the Government, Rose enlisted Attorney Sheehan and others to follow a wait and see approach with respect to the IRS:
Raymond 25 will present the first bid for the property at the foreclosure with a bid of, oh say $425,000. In the event the IRS wishes to exercise it's [sic] rights to redeem it will have to pay the bid price.
. . . .
In the above manner, all are protected. Our side goes through the expense and effort of the foreclosure, your father's side is secured for the purchase price pending the 120 day time period and the deal is done. In the event IRS rears it's [sic] head in any significant degree, (files a court challenge), we either fight, negotiate with them or collapse our tents and go home.
Gov't Ex. 6 to Statement of Undisputed Facts (No. 23-7).
The IRS did not "rear its head," and the Beauchamps bought the property following foreclosure. Following the Government's theory, Rose and his "partners" walked away with the proceeds—but at whose expense: the Beauchamps or the Government? That is the pivotal question in this case, and it offers an unsatisfying choice between the lesser of two evils.
Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). An issue is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party," and a fact is material if it has the "potential to affect the outcome of the suit." Velazquez-Garcia v. Horizon Lines of Puerto Rico, Inc., 473 F.3d 11, 15 (1st Cir.2007) (citations omitted). The Court reviews the evidence in the light most favorable to the nonmoving party and draws all reasonable inferences in that party's favor. Cadle Co. v. Hayes, 116 F.3d 957, 959 (1st Cir.1997). "[C]rossmotions for summary judgment neither dilutes nor distorts this standard of review." Specialty Nat'l Ins. Co. v. OneBeacon Ins. Co., 486 F.3d 727, 732 (1st Cir.2007) (quoting Mandel v. Boston Phoenix, Inc., 456 F.3d 198, 205 (1st Cir.2006)). The Court simply determines if either party deserves judgment on undisputed facts. Curran v. Cousins, 509 F.3d 36, 44 (1st Cir.2007).
Upon assessment in 2004, it is undisputed a tax lien arose on Jeffrey Rose's property. See 26 U.S.C. §§ 6321, 6322. Such a lien continues in effect until the liability is satisfied, or the lien is lifted by statute, or withdrawn or becomes unenforceable. Id. at §§ 6322, 6323(a). It continues to attach to Rose's property regardless of subsequent transfers or sales, but is not valid against certain perfected "first in time, first in right" prior interests, such as a security interest perfected by a recorded mortgage. Id. at § 6323; United States v. Kimbell Foods, Inc., 440 U.S. 715, 720-21, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). It is well-settled that a properly conducted foreclosure of a mortgage terminates interests that are junior to the foreclosing mortgagee, assuming junior lienholders are joined or notified per applicable law, and subject to any statutory redemption rights those junior lienholders may have. See Restatement (Third) of Prop.: Mortgages § 7.1 (1997).
The United States has a "formidable arsenal of collection tools" at its disposal when seeking to recover a tax debt. United States v. Verduchi, 434 F.3d 17, 19-20 (1st Cir.2006) (quoting United States v. Rodgers, 461 U.S. 677, 683, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983)). In a case involving alleged fraud to evade tax obligations, the Government may (as it did here) bring an action pursuant to 26 U.S.C. § 7403 to enforce a lien, or alternatively may sue one or more transferees of the taxpayer. Verduchi, 434 F.3d at 19-20.
The threshold question here is whether, as a matter of law, one or more of the socalled Rose...
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