United States v. Florida, 1141.

• Citation: 178 F. Supp. 627
• Decision Date: 02 December 1959
• Docket Number: No. 1141.,1141.
• Parties: UNITED STATES of America, Plaintiff, v. Andrew J. FLORIDA et al., Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

178 F. Supp. 627

UNITED STATES of America, Plaintiff, v. Andrew J. FLORIDA et al., Defendants.

No. 1141.

United States District Court E. D. Arkansas, Jonesboro Division.

December 2, 1959.

Osro Cobb, U. S. Atty., and James W. Gallman, Asst. U. S. Atty., Little Rock, Ark., and Homer R. Miller, Atty., U. S. Dept. of Justice, Washington, D. C., for plaintiff.

Leon B. Catlett of Catlett & Henderson, Little Rock, Ark., E. J. Ball, Fayetteville, Ark., E. L. McHaney of Owens, McHaney, Lofton & McHaney, Little Rock, Ark., and Edward P. Russell of Canada, Russell & Turner, Memphis, Tenn., for defendants.

HENLEY, Chief Judge.

This is a civil action brought by the United States, pursuant to 26 U.S.C.A., 1954 Edition, Sections 7402(a) and 7403, to establish alleged income tax liabilities of certain of the defendants, to foreclose tax liens, and to obtain the appointment of a receiver. The cause is now before the Court upon the question of whether a receiver should be appointed.

The Court has considered the oral testimony and documentary evidence introduced by the parties, affidavits of agents of the Internal Revenue Service filed in support of the Government's application for a temporary restraining order and for the appointment of a receiver, memorandum briefs filed by the parties, and oral argument of counsel, and being well and sufficiently advised, files this memorandum opinion incorporating herein its findings of fact and conclusions of law bearing on the question of a receivership.¹

The defendants are Andrew J. Florida and George H. Florida of Osceola, Arkansas, sometimes referred to herein as the "Florida brothers," their respective wives, a number of Tennessee and Arkansas corporations wholly owned and controlled by the Florida brothers, Reserve Estate Life Insurance Company, an Arkansas corporation, sometimes referred to as "Reserve Estate," the Union Planters National Bank of Memphis, Tennessee, and numerous other defendants, both individual and corporate.

The amended complaint alleges in substance that over a period extending from 1949 through 1955 the Florida brothers, acting personally and through their wholly owned and controlled corporations, engaged in the banking and insurance businesses, dealt extensively in real estate, made loans, and built and sold residential housing. It is alleged that during that period the Floridas and their corporations incurred very large income tax liabilities to the Federal Government, and that they undertook by various schemes and devices to evade the payment of said liabilities. It is further alleged that prior to the commencement of this action the Florida brothers by one means or another had dissipated and wasted assets to such an extent that it is doubtful that enough property remains to satisfy the claims of the Government for taxes, penalties, and interest. The prayer is for a determination of the defendants' tax liabilities, for appropriate judgments against various defendants, for foreclosure of the plaintiff's tax liens, and for appointment of a receiver or receivers pendente lite.²

The application for a receivership is resisted by the Florida brothers and their corporations, and also by the Union Planters National Bank, which holds in pledge certain collateral belonging to the Floridas. The Insurance Commissioner of the State of Arkansas has filed an intervention wherein he asserts that if there is to be a receivership, a separate receiver should be appointed for the Reserve Estate Life Insurance Company.

The Commissioner of Internal Revenue has made assessments of income taxes against certain of the defendants as follows:

a. Against the defendants, Andrew J. Florida and his wife, personally, for the year 1949 and for the years 1951 to 1954, inclusive, the sum of $3,882,466.55, plus interest.

b. Against the defendants, George H. Florida and his wife, personally, for the years 1951 to 1954, inclusive, the sum of $1,662,052.49, plus interest.

c. Against the Tennessee corporate defendants for various years during the period in question, an aggregate of $2,547,853.96, plus interest. Those defendants are: McAdams Company, Inc.; Norfolk Company, Inc.; R. M. Supply Company; Southern Housing Company; Joel Construction Company; Evans & Evans, Inc.; Frayser Company, Inc.; Gaylord Co., Inc.; Mason Company, Inc.; Speck Company, Inc.; Wells Station Company, Inc.; Acme Insurance Agency, Inc.; and Yow Company, Inc.

d. Against certain Arkansas corporations, defendants herein, for various years during the period, an aggregate of $1,191,305.97, plus interest. Those corporations are: Continental Mortgage Company (now Montgomery Investment Company); Williams Investment Company; Continental Company; Florida Real Estate Loan Company; Continental Investment Company; and Continental Land Company.

Notices of the foregoing assessments have been given by the Commissioner, and demands for payment have been made and refused. Hence, the taxes assessed, plus interest and penalties, to the extent that they are owed, are now due and payable.

All of the Tennessee and Arkansas corporations above listed are wholly owned by the Florida brothers, and all of them appear to be insolvent and to have insufficient assets to pay the tax claims asserted against them. The Florida brothers are probably insolvent personally, and they are certainly so if the tax claims of the plaintiff are sustained in full or in major part.

Reserve Estate Life Insurance Company is not now actively engaged in the sale of life insurance, but, according to the testimony of the Insurance Commissioner, it had on its books at the close of 1958 outstanding policies totalling $2,402,551. The Commissioner also testified that as of the same time it had assets totalling $2,762,692, with a capital of $250,000 and liabilities of $141,268 (evidently exclusive of policy obligations), and the Commissioner in his intervention described the condition of the company as "wholly solvent". Assets of Reserve Estate include certain valuable lands in Poinsett County, Arkansas, which lands are producing rentals in excess of $170,000 per year; and the company also owns valuable securities, some of which are on deposit with the Insurance Commissioner.

Reserve Estate has outstanding 25,000 shares of capital stock, all of which shares are owned, directly or indirectly, by the Florida brothers.³ All of this stock is in pledge however, 17,900 shares being held by the Union Planters National Bank, and 7,100 shares being held by Mrs. Corinne Watson of Lexington, Mississippi, who is a relative of the Floridas.

The record is meager as to the pledge of Mrs. Watson, but it does appear that at some time in the past she advanced about $135,000 to Andrew J. Florida and received Reserve Estate stock in pledge.

In January 1958, both of the Florida brothers and certain of their corporations were heavily indebted to the Union Planters National Bank and to other creditors. In addition, the brothers were about to be indicted on charges of income tax evasion. It was feared by those concerned that the expected indictments, which were believed imminent, would have extremely adverse effects upon the Florida enterprises, and it was desired to consolidate their obligations so as to minimize the financial impact of the anticipated criminal charges. It was also desired to strengthen the position of the Mississippi County Bank of Osceola, which bank the Florida brothers then owned.

In order to assist the brothers in their predicament, another brother, Thomas P. Florida, approached the Union Planters National Bank and induced it to make further advances for the benefit of Andrew and George Florida in sums totalling more than $1,500,000. Those advances were made to Stephens Co., Inc., a corporation which was wholly owned by Thomas Florida. Said advances were guaranteed by the Florida brothers, and Thomas Florida also assumed certain personal responsibility with respect thereto. The advances were secured by a pledge of the 17,900 shares of Reserve Estate stock, that have been mentioned, together with other collateral, and the proceeds of the advances were used to retire obligations of the Florida brothers, and to bolster the position of the Mississippi County Bank.

Another of the corporate defendants, Laran, Inc., the stock in which is wholly owned by the Florida brothers, holds legal title to a valuable residence in Osceola which is presently occupied by George H. Florida and his wife. It is claimed that Laran serves no useful business purpose, and is merely the alter ego of the Florida brothers, being employed to hold legal title to property which in fact belongs to them.

Andrew J. Florida and his wife, like the George Floridas, reside in a home of substantial value in Osceola, the title to which is in the defendant, Florida Real Estate Loan Company, against which...