United States v. Rapower-3, LLC
| Decision Date | 22 August 2018 |
| Docket Number | Civil No. 2:15-cv-00828 DN EJF |
| Citation | 325 F.Supp.3d 1237 |
| Parties | UNITED STATES of America, Plaintiff, v. RAPOWER-3, LLC, International Automated Systems, Inc., LTB1, LLC, R. Gregory Shepard, Neldon Johnson, and Roger Freeborn, Defendants. |
| Court | U.S. District Court — District of Utah |
Erin Healy Gallagher, Pro Hac Vice, Erin R. Hines, Pro Hac Vice, Christopher R. Moran, Pro Hac Vice, U.S. Department of Justice, Washington, DC, John K. Mangum, U.S. Attorney's Office, Salt Lake City, UT, for Plaintiff.
David E. Leta, Jeffrey D. Tuttle, Snell & Wilmer LLP, Salt Lake City, UT, Daniel B. Garriott, Joshua D. Egan, Steven R. Paul, Denver C. Snuffer, Jr., Nelson Snuffer Dahle & Poulsen, Sandy, UT, for Defendants.
This order GRANTS the United States' second motion to freeze Defendants' assets and appoint a receiver, ECF Doc. No. 414, filed June 22, 2018.
On November 23, 2015, the United States filed its complaint against Defendants, seeking to enjoin Defendants from organizing, promoting, and selling the "solar energy scheme" that they have been promoting since on or before 2010.1 The United States also seeks disgorgement of Defendants' ill-gotten gains from the promotion of their abusive tax scheme.2
The United States previously moved for an order freezing the assets of Defendants Neldon Johnson, RaPower-3, and IAS's assets and for an order appointing a receiver on November 17, 2017.3 On March 2, 2018, the United States' motion was denied without prejudice in part because the United States relied upon the facts set forth in its motion for partial summary judgment including the "disputed material facts as to Defendants' knowledge at the time they made certain statements."4 The Motion for Partial Summary Judgement was also denied in that same order.5 Trial is now completed. The Court made extensive findings on the record at the end of trial;6 intends to enter detailed Findings of Fact and Conclusions of Law including a disgorgement order; and has already entered an interim injunction based on summary findings7 and a preservation order.8 On the basis of the evidence adduced at trial, as laid out below, the United States' motion is granted.
I. Statement of Facts...1240
II. The injunctive relief requested by the United States – in the form of an asset freeze and appointment of a receiver – is necessary or appropriate to enforce the Internal Revenue Laws...1246
A. The United States has succeeded on the merits....1247
B. The United States will suffer irreparable injury if an order granting the asset freeze and appointing a receiver is not issued....1248
C. The balance of harm to the United States in not issuing the injunctive relief outweighs the harm to be caused to Defendants by issuing the requested relief....1249
D. An injunction will benefit, not disserve, the public interest....1250
E. A receiver is necessary or appropriate to effect the asset freeze....1250
III. Order...1253
I. Statement of Facts
1. Neldon Johnson is and has been the manager, and a direct and indirect owner of, RaPower-3, LLC, International Automated Systems, Inc. and LTB1, LLC (among other entities). He is the sole decision-maker for each entity.9
2. Johnson claims to have invented certain solar energy technology that involves solar thermal lenses placed in arrays on towers.10
3. In or around 2006 through 2008, Johnson directed IAS to erect, at most, 19 towers on "the R & D Site" near Delta, Utah, in Millard County.11
4. Johnson also directed that IAS install solar lenses in those towers.12
5. To make money from this purported solar energy technology, Johnson decided to sell a component of the purported technology: the solar lenses.13
6. Johnson recognized that his strength was not in sales, so he directed that IAS use independent sales representatives to sell lenses.14
7. Johnson drafted some promotional materials to describe the arrangement, "IAUS Solar Unit Purchase Overview" and IAS "Solar Equipment Purchase."15
8. Johnson showed IAS salespeople these descriptive materials about the structure of the transaction, the purported technology, and the federal tax benefits that Johnson said a customer could lawfully claim when he bought a lens from IAS.16
9. He told IAS's initial salespeople what he understood the tax laws to mean.17
10. R. Gregory Shepard has been an IAS shareholder since the mid-1990s.18 He became one of IAS's initial salespeople in or around September 2005, and began selling solar lenses.19
11. Shepard's information about Johnson's purported solar energy technology came from Johnson or members of Johnson's family, and Shepard's own observations on his site visits over the years.20
12. Johnson told Shepard that a depreciation deduction and the solar energy tax credit are related to the sale of lenses.21
13. Johnson created, owns, and controls at least three entities that sell or have sold solar lenses: SOLCO I,22 XSun Energy,23 and RaPower-3, LLC.24 SOLCO I and XSun Energy are not defendants in this action.
14. Johnson created RaPower-3 in 2010. He is it manager and the sole decision-maker for the company.25
15. Once formed, RaPower-3, rather than IAS, sold solar lenses to individuals.26
16. RaPower-3's only business activity is selling solar lenses through a multi-level marketing (otherwise known as "network marketing") approach to increase sales.27
17. Selling lenses through RaPower-3 gave Johnson "much needed revenue" to continue his operations.28
18. Johnson directed RaPower-3 to create a site online (https://rapower3.net ) where a customer can access and sign a contract to buy lenses and sign other transaction documents that Johnson provides (described below).29
19. Among other things, Shepard created the website www.rapower3.com30 and moderates an online discussion board called "IAUS & RaPower[-]3 Forum."31
20. Shepard gets paid for his work with RaPower-3 through his company, Shepard Global.32
21. On the RaPower-3 website, Shepard describes the solar energy technology (including the solar lenses) and the transactions underpinning the solar energy scheme, promotes sales, and provides links to the website with the transaction documents.33 Shepard also uses the IAUS and RaPower-3 Forum and emails to communicate with RaPower-3 members and prospective members.34
22. Shepard also organizes groups of people to visit the R & D Site, the site where component parts of the purported solar technology system are manufactured (the "Manufacturing Facility"), and the site on a large field with a few semi-constructed component parts (the "Construction Site").35
23. Shepard directs customers to use tax return preparers who are part of the solar energy scheme, like John Howell in Wichita Falls, Texas; Kenneth Alexander in Florida; and Richard Jameson in St. George, Utah.36
24. From 2009 through 2016, RaPower-3 had received at least $25,874,066 from its role in the solar energy scheme.37
25. From 2008 through 2016, IAS has received at least $5,438,089 from its role in the solar energy scheme.38
26. From 2011 through 2016, XSun Energy has received at least $1,126,888 from its role in the solar energy scheme.39
27. From 2010 through 2016, SOLCO I has received at least $3,434,992 from its role in the solar energy scheme.40
28. From 2005 through February 28, 2018, all lens-selling entities have received at least $32,796,196.
29. Testimony at trial showed that the total sales price of lenses which appears to have been paid is at least $50,025,480.41
30. From 2008 through 2016, Shepard received $702,001 from his role in the solar energy scheme.42
31. While selling the solar lenses, Defendants told customers they could buy "lenses" and claim tax benefits.43
32. While they sold solar lenses and organized efforts to sell solar lenses, Defendants told their customers that if they bought a solar lens and signed the transaction documents Defendants provide, their customers were in the "trade or business" of "leasing" solar lenses.44
33. According to Defendants, because their customers are in the trade or business of leasing solar lenses, their customers are allowed to claim on their federal income tax returns a business tax deduction for depreciation on the solar lenses and a solar energy tax credit.45
34. Defendants told customers that IAS, RaPower-3, or LTB "placed in service" or "put into service" their solar lenses in the year that the customers purchased the lenses.46
35. Starting in 2010, RaPower-3 sold lenses for a price of $3,500 per lens.47
Johnson determined the price that RaPower-3 would charge for the lenses.
36. Customers started purchasing lenses via the internet at rapower.net. On that site, a potential customer enters the number of lenses he wishes to purchase, and the website "figures" the amount the customer owes and the amount of the customer's down payment.48
37. The site also provides all transaction documents for customers to sign electronically: an Equipment Purchase Agreement, an Operations & Maintenance Agreement ("O & M"), and, at times in the past, a bonus contract.49
38. Customers do not negotiate the price of a lens, or other terms of the transactions Defendants promote.50
39. Over the years, Defendants told customers about Johnson's purported solar energy technology and the progress being made by Defendants.51 Defendants emphasized progress being made despite their knowledge that the system was not up and running.52
40. From the start, Defendants have told their customers that they can "zero out" their federal income tax liability by buying enough solar lenses and claiming both a depreciation deduction and solar energy tax credit for the lenses.53
41. Defendants knew that when they made statements to customers and prospective customers about the tax benefits and their purported solar lens leasing "trade or business," that the only way a customer has ever "made money" from buying a lens is from the tax benefits; no...
To continue reading
Request your trial
-
United States v. Smith, 5:17CV86-JRG-CMC
...26 U.S.C. § 7402, the Court has "a broad range of powers necessary to compel compliance with the tax laws." United States v. RaPower-3, LLC, 325 F. Supp. 3d 1237, 1246 (D. Utah 2018). On its face, § 7402(a) authorizes a court to issue an injunction when "necessary or appropriate for the enf......
-
United States v. TEG Rest. Grp.
...authority under 26 U.S.C. § 7402(a) and traditional equitable factors under Fed. R. Civ. P. 65. See, e.g., United States v. RaPower-3, LLC, 325 F. Supp. 3d 1237, 1247 (D. Utah 2018); United States v. Colo. Mufflers Unlimited, Inc., No. 03-cv-1310-WDM-CBS, 2007 WL 987459, at *4 (D. Colo. Mar......