U.S.A v. Spencer

• Decision Date: 17 February 2011
• Docket Number: Case No. 10-CV-229-TCK-PJC
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. ANTHONY L. SPENCER, and PATRICK G. WALTERS, individually and as Trustee of the Spencer Irrevocable Trust, Defendants.
• Court: U.S. District Court — Northern District of Oklahoma

UNITED STATES OF AMERICA, Plaintiff,

v. ANTHONY L. SPENCER, and PATRICK G. WALTERS, individually andas Trustee of the Spencer Irrevocable Trust, Defendants.

Case No. 10-CV-229-TCK-PJC

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA

Dated: February 17, 2011

OPINION AND ORDER

Before the Court is Defendant Patrick G. Walters' ("Walters") Motion to Dismiss (Doc. 7).

I. Background

The following facts are alleged in the United States' Complaint. On July 3, 1997, Anthony Spencer ("Spencer") was charged with thirty-seven (37) criminal tax offenses, including one count of conspiracy, five (5) counts of subscribing to a false or fraudulent tax return, and thirty-one (31) counts of aiding and assisting the preparation of a fraudulent tax return. On January 23, 1998, Spencer pled guilty to all thirty-seven (37) criminal offenses, and he was thereafter sentenced to sixty (60) months in prison on count one, and to three (3) months in prison on each of the remaining counts. Spencer began serving his sentence on October 28, 1998.

In the time between his July 14, 1998 sentencing and his incarceration on October 28, 1998, Spencer transferred the entirety of his assets to others. Specifically, on October 9, 1998, Spencer's then-wife, Evelyn Caton ("Caton"), filed for divorce. Eleven days later, on October 20, 1998, Spencer and Caton agreed to a division of property whereby they each took approximately half of the marital assets. As a result of this agreement, Caton received all the real property owned in the marriage and Spencer received liquid assets. Thereafter, on October 22, 1998, Spencer wrote a letterto Walters, wherein he estimated that he would owe the United States $2 or $3 million in taxes. Spencer instructed Walters to take his "entire worth" and make "enough money to pay off these suck-ass bastards or blow it all trying." (Oct. 22, 1998 Letter, Ex. 1 to Compl.) On October 28, 1998, Spencer executed a written agreement to place his purported "entire worth" in trust with Walters through the creation of the Spencer Irrevocable Trust ("Trust"). The corpus of the Trust consisted of a $610,000 check drawn on Caton's bank account dated October 22, 1998, which represented all of Spencer's remaining assets after the divorce. The trust agreement provided that Spencer was the sole designated beneficiary but entitled him to the "residue of the Trust" only "upon final payment of [Spencer's] income tax liability." (Trust, Ex. 2 to Compl., at Article III.B.) The $610,000 was given to the Trust with "little or inadequate consideration, " and Spencer was left insolvent after transferring these assets to the Trust. (Compl. ¶¶ 20, 21.)

The United States alleges that Walters abused his position as trustee of the Trust because: (1) he did not pay any money from the Trust to the United States to cover any portion of Spencer's income tax liability; and (2) rather than "invest[ing] the funds... to repay [Spencer's] proposed tax liability, " as was provided for in the Trust, (Trust, Ex. 2 to Compl., at Article IV.A.1), Walters "used the trust funds for his own personal benefit and in violation of his fiduciary duties as trustee, " (Compl. ¶ 24). The Complaint contains specific allegations outlining how Walters used funds from the Trust for his personal benefit. First, Walters paid James Garland ("Garland"), with whom he had a personal and business relationship, $200,000 in order to assist Garland in "engag[ing] in fraudulent transfers 'meant to keep Garland one step ahead of the IRS's collections actions against him.'" (Id.} 26 (quoting In re Garland, 385 B.R. 280, 292 (Bankr. E.D. Okla. 2008).) This money was not repaid to the Trust, and Walters did not take any action to recoup this money from Garland. Second, Walters paid Joe Branscum ("Branscum") $100,000 from the Trust as a purported investment in NBFB, Inc. However, NBFB, Inc. was only authorized to issue 50, 000 shares of stock at $1 per share, and Walters did not obtain repayment for or account for the $50,000 he gave to Branscum that was not used to purchase the 50, 000 shares of stock. Further, Walters did not give any of the 50, 000 shares of stock to Spencer, nor has Spencer received any money from NBFB, Inc. Third, Walters made payments from the Trust to subsidize 5001-5013 N. Peoria LLC, a business entity in which Walters retained managerial control. In so doing, Walters "placed the [Trust] into a partnership with Walters and... mingled assets under his personal control... with assets of the [Trust]." (Id. ¶ 37.) Fourth, Walters made payments from the Trust to Joe Linkenheimer ("Linkenheimer"). Walters and Linkenheimer shared an office, and the payments to Linkenheimer were for the "personal benefit of Walters and not for Spencer." (Id. ¶ 40.) Finally, the Complaint alleges that "Walters did not maintain accurate books of the Trust's assets and 'investments' [or] provide an annual accounting." (Id. ¶ 42.)

Spencer was released from prison on November 30, 2001. Following his release, Spencer contacted Walters on multiple occasions regarding the status of the Trust. After not receiving a response from Walters, Spencer wrote Walters a letter dated October 21, 2002, wherein he outlined his attempts to get information about the Trust, claimed that Walters had refused "to handle [Spencer's] investment portfolio in a normal and reasonable manner, " and demanded that Walters return his entire portfolio. (Oct. 21, 2002 Letter, Ex. 4 to Compl.) Spencer also stated that, "[d]uring our business relationship and when I put my entire worldly assets in your care, you expressed the need for trust in each other. I have kept my trust in you, however, you failed." (Id.) The Complaint alleges that Walters never returned any assets from the Trust to Spencer. Spencersubsequently sued Walters in the District Court for Tulsa County, alleging claims for, inter alia, breach of contract and breach of fiduciary duty. The Complaint states that this suit is still pending. (See Compl. ¶ 46.)

In this action, the United States alleges three claims against Walters. First, the United States alleges that Spencer fraudulently conveyed his assets to Walters and that the United States may recover from Walters, as a transferee, for Spencer's unpaid income tax liability.¹ Alternatively, the United States claims that if the Trust was truly created for the purpose of paying off Spencer's tax debts, Walters breached the Trust and his fiduciary duties, and the United States is entitled to damages from these breaches as an intended third-party beneficiary of the Trust. Finally, the United States also requests that the Court impose a constructive trust on all assets of the Trust. Walters has moved to dismiss these counts for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)").

II. Rule 12(b)(6) Standard

In considering a motion to dismiss under Rule 12(b)(6), a court must determine whether the plaintiff has stated a claim upon which relief may be granted. The inquiry is "whether the complaint contains 'enough facts to state a claim to relief that is plausible on its face.'" Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544)). In order to survive a Rule 12(b)(6) motion to dismiss, a plaintiff must "'nudge [ ] [his] claims across the line from conceivable to plausible.'" Schneider, 493 F.3d at 1177 (quoting Twombly, 550 U.S. at 570). Thus, "the mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims." Schneider, 493 F.3d at 1177.

The Tenth Circuit has interpreted "plausibility, " the term used by the Supreme Court in Twombly, to "refer to the scope of the allegations in a complaint" rather than to mean "likely to be true." Robbins v. Okla. ex rel. Okla. Dep't of Human Servs., 519 F.3d 1242, 1247 (10th Cir. 2008). Thus, "if [allegations] are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims across the line from conceivable to plausible." Id. (internal quotations omitted). "The allegations must be enough that, if assumed to be true, the plaintiff plausibly (not just speculatively) has a claim for relief." Id. "This requirement of plausibility serves not only to weed out claims that do not (in the absence of additional allegations) have a reasonable prospect of success, but also to inform the defendants of the actual grounds of the claim against them." Id. at 1248. In addition, the Tenth Circuit has stated that "the degree of specificity necessary to establish plausibility and fair notice, and therefore the need to include sufficient factual allegations, depends on context, " and that whether a defendant receives fair notice "depends on the type of case." Id.

III. Discussion

Walters offers five arguments in support of his Motion to Dismiss. Specifically, Walters moves to dismiss the claims against him, arguing that: (1) the United States cannot seek transferee liability against Walters because it has not issued a notice of deficiency under 26 U.S.C. § 6901 ("Section 6901"); (2) the statute of limitations for pursuing transferee liability under Section 6901has run, barring any claim to recover from Walters as a transferee; (3) the United States lacks standing to assert a claim for breach of fiduciary duty; (4) the statute of limitations bars the United States' claim for breach of fiduciary duty; and (5) the United States' request for a constructive trust fails because no other right of recovery exists in the Complaint.²

A. Notice of Deficiency Requirement

Walters first cites to Section 6901, arguing that the United States cannot recover from Walters as Spencer's...