United States v. Allahyari

• Decision Date: 31 March 2022
• Docket Number: C17-668 TSZ
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. KOMRON M. ALLAHYARI; and SHAUN ALLAHYARI, Defendants.
• Court: U.S. District Court — Western District of Washington

UNITED STATES OF AMERICA, Plaintiff, v. KOMRON M. ALLAHYARI; and SHAUN ALLAHYARI, Defendants.

No. C17-668 TSZ

United States District Court, W.D. Washington, Seattle

March 31, 2022

ORDER

Thomas S. Zilly, United States District Judge

THIS MATTER comes before the Court on remand from the United States Court of Appeals for the Ninth Circuit. See Mandate (docket no. 174); Opinion (docket no. 167). The parties have submitted briefing, docket nos. 177 and 179-81 pursuant to this Court's Minute Order, docket no. 176. Having reviewed all the briefing, the Court enters the following Order.

Background

As the parties are familiar with the facts of this case, the Court gives only a brief overview of the relevant procedural history. On September 13, 2018, this Court entered Findings of Fact and Conclusions of Law (“FFCL”) after a two-day bench trial. FFCL (docket no. 94). The Court determined that: (1) Defendant Shaun Allahyari (“Shaun”)^[1]did not qualify for protection under 26 U.S.C. § 6323(a) because he knew of Komron's tax liabilities prior to recording the 2005 Deed of Trust^[2] and because he did not part with “money or money's worth” in connection with the granting or recording of the 2005 Deed of Trust, (2) the Subject Property^[3] was fraudulently encumbered by Komron with the 2005 Deed of Trust, which is therefore voidable under Washington's Uniform Fraudulent Transfer Act, and (3) Shaun is entitled to the same priority position that Boeing Employees Credit Union (“BECU”) held with the respect to the amount that he paid to BECU for an assigned deed of trust (the “BECU Deed of Trust”). Conclusions of Law (“CL”) Nos. 15-17, 19-23 25-26, & 37.

The parties cross-appealed to the Ninth Circuit. Notice of Appeal (docket no. 103); Notice of Cross-Appeal (docket no. 117). The Ninth Circuit held that § 6323(a) protects security interests acquired with or without knowledge of unfiled or later filed tax liens and that this Court erred by failing to consider whether past consideration was sufficient to give rise to a security interest under Washington law. United States v. Allahyari, 980 F.3d 684, 689-91 (9th Cir. 2020). The Ninth Circuit also held that this Court applied the incorrect standard of proof under Washington's Uniform Fraudulent Transfer Act and that the United States could assert any affirmative defenses that would be available to Komron regarding the BECU Deed of Trust. Id. at 692-94. The Ninth Circuit remanded for (1) reconsideration of whether Shaun had parted “with money or money's worth” when acquiring the 2005 Deed of Trust, (2) application of the correct standard of proof regarding Washington's Uniform Fraudulent Transfer Act, and (3) recalculation of the value of the senior lien. See id. at 686.

On remand, the Court set a briefing schedule and directed the parties to address the following issues:

(1) whether Shaun Allahyari parted “with money or money's worth” when acquiring the 2005 Deed of Trust under Washington law; (2) whether the 2005 Deed of Trust was a fraudulent transfer, applying the clear and substantial proof standard, under Washington law; (3) the effect of the six-year statute of limitations when calculating the value of Shaun Allahyari's senior lien under the BECU Deed of Trust; (4) whether and to what extent the Court can decide these issues without further hearing or trial; and (5) if a further hearing or trial is necessary, when the parties will be prepared to proceed to a hearing, how long any hearing is likely to last, the number of witness [sic] each side is likely to call, whether the parties agree to conduct the trial virtually, and setting forth any issues that might affect the case schedule.

Minute Order at ¶ 2 (docket no. 176). The parties submitted their briefing, both sides indicated that the Court could decide the issues on remand without further fact-finding, hearing, or trial, ^[4] and neither party challenged the Court's factual findings on appeal. Thus, the Court incorporates its previous factual findings to this Order.

Discussion

I. Fraudulent Transfer

In Washington, a transfer is fraudulent if the debtor makes it “[w]ith actual intent to hinder, delay, or defraud any creditior[.]” RCW 19.40.041(1)(a). To determine whether a debtor acted with actual intent to defraud, the Court must consider the following nonexclusive list of eleven factors, or “badges of fraud”:

(a) The transfer or obligation was to an insider;

(b) The debtor retained possession or control of the property transferred after the transfer;

(c) The transfer or obligation was disclosed or concealed;

(d) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

(e) The transfer was of substantially all the debtor's assets;

(f) The debtor absconded;

(g) The debtor removed or concealed assets;

(h) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

(i) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

(j) The transfer occurred shortly before or shortly after a substantial debt was incurred;

(k) The debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.

RCW 19.40.041(b). Proof of actual intent to defraud must be presented by clear and satisfactory proof. Clearwater v. Skyline Constr. Co., Inc., 67 Wn.App. 305, 321, 835 P.2d 257 (1992); see Allahyari, 980 F.3d at 692. Regarding fraudulent transactions, clear and satisfactory evidence is that which convinces the mind that the conveyance is in reality fraudulent. Allahyari, 908 F.3d at 692 (quoting Rohrer v. Snyder, 29 Wn. 199, 206, 69 P. 748 (1902)). “[T]he burden of proof rests on the party alleging the fraudulent transfer.” Sedwick v. Gwinn, 73 Wn.App. 879, 885, 873 P.2d 528 (1994).

The Court concludes that the United States has met its burden to demonstrate that the 2005 Deed of Trust was a fraudulent transfer by clear and satisfactory proof. Under the clear and satisfactory standard, a majority of the factors listed in RCW 19.40.041(b) support the conclusion that Komron acted to hinder, delay, and defraud the United States. Specifically, the United States established the following seven factors by clear and satisfactory proof: (a) Komron transferred the property to an insider, his father, (b) Komron retained possession of the property at the time of and after the transfer, ^[5] (c) Komron concealed a document he now claims is related to the transfer, namely, the 1991 Promissory Note, from the IRS during administrative proceedings, ^[6] (d) the transfer occurred after Komron was threatened with legal action by the IRS, (e) the transfer was of substantially all of Komron's assets, (i) at the time of the transfer, Komron was generally not paying his debts as they became due and was presumptively insolvent under RCW 19.40.021(2)^[7], and (j) the transfer occurred shortly before and shortly after a substantial debt was incurred.

Shaun's argument that the 2005 Deed of Trust was not a fraudulent conveyance because it was made pursuant to the 2000 Addendum is not persuasive. Washington law “does not preclude a finding of actual intent to defraud when a transfer is made to a creditor for an antecedent debt.” Martin v. McEvoy, No. 34253-1-I, 1996 WL 335996, at *5 (Wash.Ct.App. June 17, 1996). Shaun also contends that the Court considered the wrong facts in its FFCL by basing its conclusion on the indicia of fraud apparent in 2005. Opening Br. at 9 (docket no. 177). But “[i]t is the [debtor's] intent at the time of the conveyance which is relevant.” United States v. Nichols, No. 13-cv-0167, 2015 WL 13047134, at *3 (E.D. Wash. Mar. 10, 2015) (emphasis added). Shaun contends “that Komron's only volitional act with respect to the 2005 Deed of Trust came in 2000 when Komron agreed to the 2000 Addendum.” Opening Br. at 9 (emphasis removed). But the 2005 Deed of Trust was prompted after Komron went to Shaun in 2005 and told him of his outstanding tax liabilities. Additionally, the Court found “Komron's trial testimony not credible to the extent he minimized his own involvement in drafting the 2005 Deed of Trust and to the extent he suggested the transfer was done without intent to hinder, delay, or defraud the United States.” FFCL at 12 n.2.

Since the 2005 Deed of Trust was recorded with actual intent to hinder, delay, or defraud the United States, it is voidable and subject to being set aside.^[8] United States v. Sygitowicz, No. C15-405, 2016 WL 3438489, *6 (W.D. Wash. June 23, 2016); United States v. Smith, No. C11-5101, 2012 WL 1977964, *6 (W.D. Wash. June 1, 2012); United States v. Black, 725 F.Supp.2d 1279, 1292 (E.D. Wash. July 16, 2010); see also Clearwater, 67 Wash.App. at 317 (“A creditor's remedies for fraudulent transfer include, inter alia, avoidance of the transfer or the attachment of the transferred property.”). Furthermore, because the Court concludes that the 2005 Deed of Trust is voidable as a fraudulent transfer under RCW 19.40.041, the Court need not determine whether Shaun is entitled to simple or compound interest on the 2005 Deed of Trust or calculate the precise amount of the debt purportedly secured by the 2005 Deed of Trust; the Court must only and does conclude that any security related to the 2005 Deed of Trust would not be prior to the BECU Loan or the federal tax liens, respectively.^[9]

II. Recalculation of BECU Loan

In its opinion, the Ninth Circuit held that, via a § 7403 action, the United States stepped into Komron's shoes and could assert, with respect to the BECU Deed of Trust, the defense that some past-due payments are barred by the six-year statute of...