United States v. Allahyari

Decision Date13 November 2020
Docket Number No. 18-36076,No. 18-35956,18-35956
Citation980 F.3d 684
Parties UNITED STATES of America, Plaintiff-Appellee, v. Komron M. ALLAHYARI, Defendant, and Shaun Allahyari, Defendant-Appellant. United States of America, Plaintiff-Appellant, v. Komron M. Allahyari; Shaun Allahyari, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Avi J. Lipman (argued), Gregory J. Hollon, and Curtis C. Isacke, McNaul Ebel Nawrot & Helgren PLLC, Seattle, Washington, for Defendant-Appellant/Cross-Appellee.

Komron R. Allahyari, Mercer Island, Washington, pro se Defendant/Cross-Appellee.

Karen G. Gregory (argued) and Deborah K. Snyder, Attorneys; Richard E. Zuckerman, Principal Deputy Assistant Attorney General; Tax Division, United States Department of Justice; for Plaintiff-Appellee/Cross-Appellant.

Before: Milan D. Smith, Jr. and N. Randy Smith, Circuit Judges, and John R. Tunheim,* Chief District Judge.

TUNHEIM, Chief District Judge:

Shaun Allahyari ("Shaun") appeals the district court's determination that his alleged security interest in property owned by his son, Komron Allahyari ("Komron"), a tax delinquent, was not entitled to priority over later-recorded federal tax liens. He argues that the district court erred when it found that the alleged security interest was fraudulent under Washington's Fraudulent Transfer Act, Wash. Rev. Code. § 19.40.041(a)(1). The United States cross-appeals the district court's conclusion that it could not, under 26 U.S.C. § 7403, assert a state-law statute-of-limitations defense to the court's valuation of a security interest that was found to be senior to federal tax liens.

We first conclude that the district court erred: (1) by holding that the deed of trust between Shaun and Komron recorded on July 26, 2005 ("2005 Deed of Trust") was not entitled to priority over the later-recorded federal tax liens under local law; the 2005 Deed of Trust is protected under Washington law; and (2) by failing to consider whether past consideration is sufficient to support an agreement giving rise to a security interest under Washington law. Second, we conclude that the district court applied the incorrect standard of proof to its finding under the Fraudulent Transfer Act. Lastly, we conclude that, because § 7403(a) authorizes the United States to "subject any property, of whatever nature, of the delinquent, or in which [the delinquent] has any right, title, or interest, to the payment of such tax or liability," the United States may assert any affirmative defenses that would be available to the delinquent—including that the statute of limitations has run on payments due to senior liens.

Accordingly, we reverse and remand to the district court for reconsideration of whether Shaun had parted "with money or money's worth" when acquiring the 2005 Deed of Trust, and for application of the correct standard of proof and for recalculation of the value of the senior lien, taking into account any statute of limitations defense raised by the United States regarding Washington's six-year statute of limitations.

FACTUAL AND PROCEDURAL BACKGROUND

At issue in this case are property owned by Komron on Mercer Island and two related instruments: (1) the 2005 Deed of Trust; and (2) a deed of trust ("BECU Deed of Trust") that secured a $400,000 loan Komron took out from the Boeing Employees’ Credit Union ("BECU") to refinance the Mercer Island property in 2003.

I. Mercer Island Property Transactions

Komron and Shaun have a long history of financial transactions and entanglements relating to the Mercer Island property. On March 29, 1991, Komron executed a promissory note ("1991 Promissory Note") to his parents, in which Komron promised to pay $50,000 in satisfaction of a loan his parents had given him to purchase the Mercer Island property. On April 22, 1991, Komron and his parents acquired the property. During the years following the 1991 Promissory Note, Shaun regularly requested payment on the note, and Komron failed to make payments until he repaid a significant part of the loan in 1998. Afterwards, Komron's parents transferred their joint interest in the Mercer Island property to Komron, who solely owned it from September 1999 onward.

In 2003, Komron took out a $400,000 loan from BECU, which was secured by the BECU Deed of Trust on the Mercer Island property. In 2010, Shaun learned that Komron was at risk of losing the Mercer Island property because he had defaulted on the BECU loan. In order to prevent foreclosure, Shaun paid off and took an assignment of the 2003 BECU loan and loan security.

After years of failing to file federal income-tax returns, Komron filed for tax years 19992002 and 2004 in April of 2005. The IRS subsequently determined that Komron owed unpaid income taxes, trust-fund recovery penalties, and interest. Komron failed to make payment in full on these assessments and, at the time of the district court decision in September 2019, owed the United States $3.9 million.

Initially, Komron hid these debts from Shaun. When Komron eventually told Shaun about the outstanding tax liabilities, Shaun became concerned that the United States would be able to record tax liens against the Mercer Island property and then force the sale of the property to satisfy the liens. Shaun and Komron then executed the 2005 Deed of Trust on the Mercer Island property, which purported to secure payment of $471,322 at 12% interest. This amount apparently represented the preexisting debts owed by Komron to Shaun, because Shaun stated (both in his deposition and at trial) that he did not loan Komron any additional money at the time the 2005 Deed of Trust was executed.

The 2005 Deed of Trust was recorded on July 26, 2005. The first notice of federal tax liens was recorded against Komron on October 4, 2005.

When the United States filed a civil action to enforce the tax liens in April 2017, Komron and Shaun argued that the 2005 Deed of Trust and Shaun's interest in the BECU loan should be senior to the tax liens. The United States argued that the 2005 Deed of Trust was not a security interest under the Internal Revenue Code because it was a fraudulent conveyance under Washington law. It also argued that some scheduled payments under the BECU Deed of Trust were time barred by Washington's six-year statute of limitations and therefore should not be included in the value of any senior claim under the BECU Deed of Trust.

II. Proceedings in the District Court

After a bench trial, the district court found that the United States had valid federal tax liens on the Mercer Island property and was therefore entitled to foreclose those liens and sell the property. The district court also found that Shaun had priority position over the federal tax liens based on the BECU Deed of Trust but not the 2005 Deed of Trust.

The district court reasoned that Shaun did not have priority based on the 2005 Deed of Trust because it was not a security interest under 26 U.S.C. § 6323(a) and because the 2005 Deed of Trust was a fraudulent conveyance under state law. First, the district court determined that the 2005 Deed of Trust did not entitle Shaun to priority position because Shaun had either actual or constructive knowledge of Komron's tax liabilities prior to recording the 2005 Deed of Trust. It also determined that, because there had been no exchange of money or money's worth when the 2005 Deed of Trust was granted or recorded, it was not a security interest under federal law. Finally, the district court found that the 2005 Deed of Trust was invalid under Washington's Uniform Fraudulent Transfer Act. Therefore, Shaun did not qualify as a holder of a security interest based on the 2005 Deed of Trust and the United States’ tax liens had priority.

However, the district court did conclude that Shaun was entitled to priority over the United States’ federal tax liens with respect to the BECU Deed of Trust. Shaun "stepped into BECU's ‘shoes’ when he purchased the BECU loan," so the assignment was a bona fide debt. The district court determined that Shaun is entitled to the same priority position as BECU would have had based on the original loan.

The district court ordered the Mercer Island property to be sold and, after deducting the costs of sale and any amount owing in back taxes to King County, found that Shaun was entitled to the next $510,766.26 of the proceeds, based on the principal and interest owing on the BECU Deed of Trust. The district court then held that the United States was entitled to the remainder of the proceeds of the sale until its tax liens were satisfied.

Plaintiffs timely appealed and the United States timely cross-appealed.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction pursuant to 28 U.S.C. § 1291. We review factual findings by the district court for clear error and review its conclusions of law de novo. Magnuson v. Video Yesteryear , 85 F.3d 1424, 1427 (9th Cir. 1996) (citing Fed. R. Civ. P. 52(a).

ANALYSIS

When a person is "liable to pay any [federal] tax" but, "after demand," neglects or refuses to pay, a lien equal to the amount past due—plus penalties, costs, and interest—attaches to "all property and rights to property, whether real or personal, belonging to such person." 26 U.S.C. § 6321. A tax lien created under § 6321 "shall not be valid as against any ... holder of a security interest ... until notice thereof" is given. Id. § 6323(a). The putative holder of such a security interest bears the burden of showing that they qualify for the protection of § 6323(a). See, e.g. , MacKenzie v. United States , 109 F.2d 540, 542 (9th Cir. 1940) (holding that, under the predecessor of § 6323(a), "in order to be protected, the claimant must show" that they are within one of the protected third-party classes).

The district court found that Shaun had failed to meet his burden. United States v. Allahyari , No. C17-668, 2018 WL 4357487, at *7 (W.D. Wash. Sept. 13, 2018). It held that the 2005 Deed of...

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