United States v. Hickox

• Decision Date: 25 February 1966
• Docket Number: No. 22317.,22317.
• Parties: UNITED STATES of America, Appellant, v. Violet HICKOX et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

356 F.2d 969 (1966)

UNITED STATES of America, Appellant, v. Violet HICKOX et al., Appellees.

No. 22317.

United States Court of Appeals Fifth Circuit.

February 25, 1966.

Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Joseph Kovner, Edward L. Rogers, Attys., Dept. of Justice, Washington, D. C., Donald H. Fraser, U. S. Atty., Savannah, Ga., Richard M. Roberts, Acting Asst. Atty. Gen., Washington, D. C., Richard C. Chadwick, Asst. U. S. Atty., of counsel, for appellant.

Leon A. Wilson, II, Waycross, Ga., for appellees.

Before BROWN and COLEMAN, Circuit Judges, and GARZA, District Judge.

GARZA, District Judge:

The Government brought suit below against Paul Hickox, the taxpayer, his sister, his wife and a bank, to reduce the taxpayer's excise tax liability to judgment and to set aside conveyances from the taxpayer to his sister and from his sister to his wife as fraudulent, and to establish the priority of the Government's lien.

The taxpayer failed to answer, and in two separate judgments by default, the Government obtained judgment against Paul Hickox for distilled spirits excise taxes and wholesale liquor dealer taxes totaling $3,180.48 for the period March 1, 1955, through March 31, 1957, and distilled spirits excise taxes totaling $6,227.42 for the period of January 21, 1960. Before bringing the suit, the Government had apparently discovered that Paul Hickox was insolvent, but that he had transferred a farm that he owned and on which the first "still" was located, to his sister who, in turn, had deeded the property to his wife, and, therefore, the Government had asked that these conveyances be set aside as fraudulent. The Appellee bank had made loans to the wife who, in turn, mortgaged the farm to the bank to secure payment of said loans. After the debt of Paul Hickox had been reduced to judgment, the Government proceeded to trial before the district court without the intervention of a jury, on the remaining phases of its original action.

After the Government rested, the defendants sister and wife, and the bank, made a motion to the Court for "directed verdict" which was granted by the court and judgment entered against the Government. From this action of the district court, the Government appealed.

The district court made no findings of fact or conclusions of law, but the record reveals that the witnesses called by the Government, and several documents introduced by the Government, showed the facts sought to be proved by the Government to be as follows:

Paul Hickox obtained from his father on August 8, 1942, a farm of approximately 182 acres on which there was situated a farm house, a tobacco barn and other outbuildings. Paul Hickox and his wife, Violet Hickox, at all times relevant here made their home on this farm. On November 28, 1956, a Government agent raided a still located on the farm close to the home of Paul Hickox and his wife, and seized liquor on which no tax had been paid. On November 12, 1957, Paul Hickox was indicted for these liquor violations and he was convicted of the charges on February 24, 1959. After indictment but before conviction, Paul Hickox conveyed his farm to his sister, Dorothy Hickox Metz, by warranty deed to which no revenue stamps were attached. The deed recited that the conveyance was

"for and in consideration of the sum of Ten Dollars and other valuable considerations in hand paid at and before the sealing and delivery of these presents, the receipt whereof is hereby acknowledged, * * *."

This deed was filed on the same day and recorded in the office of the Clerk, Superior Court, Charlton County, Georgia, on September 26, 1958.

On December 20, 1958, Paul Hickox went to the Appellee bank and borrowed $400.00 and conveyed to said bank the farm herein in controversy to secure the payment of the same. In the deed to the bank, Paul Hickox covenanted that the fee simple title to the farm was vested in him and that there were no liens of any nature against him. This note was paid in full on February 15, 1959.

On November 6, 1959, the District Director of Internal Revenue, Atlanta, Georgia, assessed against Paul Hickox distilled spirits excise taxes, wholesale liquor dealer taxes, penalty, and interest for the period March 1, 1955, through March 31, 1957, in the total amount of $2,711.72, representing unpaid tax of $2,205.00 on 210 gallons of distilled spirits which were seized on November 28, 1956, the balance being the penalty and interest. On November 13, 1959, notice and demand to Paul Hickox was made by the Internal Revenue Service. The notice of the federal lien for these taxes was filed in the Clerk's office, Superior Court, Charlton County, on February 4, 1960.

On January 21, 1960, another still was seized and an additional 495 gallons of alcohol mash were seized on or near the farm of Paul Hickox. Paul Hickox later told the agent that the still was located just across the stream from his house, and that it was not actually on his property. At the time of the seizure, a tractor and homemade trailer which were owned by Paul Hickox and were being used in the still operation were also seized, and Paul Hickox was arrested at the time of the seizure. This seizure gave rise to the judgment for the $6,227.42 mentioned above.

On April 9, 1960, after the raid on the second still and the arrest of Paul Hickox, his sister, Dorothy Hickox Metz, conveyed the farm in question to his wife, Violet Hickox, by warranty deed to which revenue stamps in the amount of $1.10 were attached and canceled. This deed was filed and recorded in the Clerk's office, Superior Court, Charlton County, on April 11, 1960.

On February 24, 1961, taxes were assessed on the second batch of liquor seized on January 21st, and notice and demand were made on Paul Hickox in the amount of $5,537.90. Of this total amount, $5,197.50 represents the unpaid taxes on the 495 gallons of alcohol mash seized on January 21, 1960. Notice of the federal lien for these taxes was filed with the Clerk, Superior Court, Charlton County, on April 21, 1961.

The Government called the taxpayer, Paul Hickox, to the stand as an adverse witness for the purpose of cross-examination, and proved through his testimony that on the date he transferred his farm to his sister he had no other property of any kind, and immediately after the conveyance he was insolvent. He also did not have any assets on the date that his sister transferred the farm to his wife. Appellees concede that Paul Hickox was rendered insolvent by the conveyance to his sister. Other testimony adduced by the Government showed that in 1963, Paul Hickox told the Government agent that he owned the farm. The evidence also showed that the fair market value of the Paul Hickox farm on September 15, 1958, and on April 9, 1960, was approximately $14,900.00, and that at forced sale the farm would bring approximately $13,500.00.

With this evidence before it, the court below granted the defendants' motion for a "directed verdict", and ordered that judgment be entered against the Government and for the defendants. We reverse.

As stated above, this suit was brought by the Government against Paul Hickox, the taxpayer, Violet Hickox (his wife), Dorothy Hickox Metz (his sister), and the Citizens Bank, a subsequent mortgagee of record of Violet Hickox, to reduce Paul Hickox' distilled spirits excise tax (and related) liabilities to judgment, to set aside the conveyances of the farm to his sister and wife as fraudulent, to foreclose the Government's tax liens against the property of Paul Hickox, and to determine the validity and priority of all liens and claims of the defendants to the action as against those of the Government.

The Government in its suit specifically alleged that the conveyances to the sister and to the wife were without a fair and adequate consideration or any consideration; or, in the alternative, the said transfers were made with the intent or purpose to delay, hinder and defraud the creditors of Paul Hickox, and more particularly the United States of America.

The tax liability of Paul Hickox has been reduced to judgment and the validity of the same has to be assumed.

The wife and the sister, in their answer, admitted the conveyances, but denied that they were without a fair and adequate consideration or that they were made with intent or purpose to delay, hinder and defraud the creditors of Paul Hickox, and particularly the United States of America.

The Citizens Bank answered that Violet Hickox had executed two security deeds of the farm in question to it in April, 1962, and in November, 1962, to secure debts of $699.60 and $2,529.75 on which debts she still owed an amount of $2,948.25 plus interest; that it had taken these deeds as security in good faith and without intent to delay, hinder and defraud the creditors of Paul Hickox, and particularly the United States of America.

Georgia law provides creditors with the right to set aside fraudulent transfers. §§ 28-101, 28-102, 28-201 and 28-202, of 11 Georgia Code Annotated (1952), Title 28.¹ This remedy is available to any creditor at the time of the transfer who thereafter reduces his claim to a judgment lien.

The Government became a creditor of Paul Hickox on or before November 28, 1956, when the first still and the 210 gallons of nontax-paid spirits were seized on his farm. §§ 5001 and 5005 of the Internal Revenue Code of 1954,² 26 U.S.C. §§ 5001 and 5005. United States Fidelity & Guaranty Co. v. United States, 220 F. 592, 594, CA 4, 1914.

Besides becoming a creditor on or before November 28, 1956, the Government became a lien creditor on November 6, 1959, and on February 24, 1961, when the taxes here...