United States v. Shipley
| Decision Date | 29 August 2022 |
| Docket Number | 13-cv-05721-WHO |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. DALE L. SHIPLEY, et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
The United States moves for partial summary judgment to foreclose tax liens against the stock of DSGI Technologies, Inc. (“DSGI”) held in the name of tax-debtor defendant Dale Shipley. Dkt. No. 304. It also moves for summary judgment on cross-claims for quiet title and wrongful levy asserted by a group of Intervenors who claim rights to some of the DSGI stock. The Intervenors oppose the United States' motion and themselves move for summary judgment on their quiet title and wrongful levy claims against the United States, as well as their breach of contract cross-claims against defendant Dale Shipley (“Shipley”) and DSGI.
The issue central to both motions is whether Shipley effectuated a sale of his restricted DSGI stock to the Intervenors. I conclude that he did not. Among other reasons, the transfers did not follow the restrictions imposed on the stock certificates by DSGI and are not reflected in the books of DSGI. Accordingly, the United States has the ability to foreclose its tax liens against all DSGI stock in Shipley's name as reflected on DSGI's stock ledger. I GRANT the United States' motion and DENY the Intervenors' motion.
Shipley founded DSGI in 2004 and served as Chairman of the Board until he resigned from the company on June 18, 2013. DSGI Bus. Plan [Dkt. No. 307-2, Ex. 1] at 1; Dep. of Dale L. Shipley (“Shipley Dep.”) [Dkt. No. 307-5, Ex. 2] at 14:17-23. In July 2004, Shipley was granted and initially owned 266,078.81 shares of DSGI stock. Shipley 2004 Stock Certificate [Dkt. No. 307-5, Ex. 3, Certificate No. 2, DSGI00122].
On December 11, 2013, the United States filed this action to Reduce Federal Tax Assessments to Judgment and Foreclose Liens. Dkt. No. 1. The action was filed against Dale and his wife Helen Anne Shipley, and named other entities who the Shipleys owed taxes to[1] and entities who held assets of the Shipleys. Id. The complaint covers multiple tax liens assessed against the Shipleys, but one lien is primarily at issue in this case-it is dated December 4, 2006, against all of Dale and Helen Anne Shipley's property and property rights. Decl. of Amanda Dudley (“Dudley Decl.”) [Dkt. No. 304-6] ¶ 4. Notice of that lien was recorded on June 12, 2007, at the Santa Clara County Recorder's Office. Notice of Federal Tax Lien (“NFTL,” Dkt. No. 3047, Ex. E).
On April 4, 2013, the IRS issued a Notice of Levy to DSGI, seeking to collect on the Shipleys' overdue tax liability. Dudley Decl. ¶ 5. The IRS served copies of the Levy, as well as copies of the liens “attaching to any property rights or other interests” of the Shipleys, on DSGI on April 9, 2013. Id. The cover letter noted that the tax lien Id. IRS Notice of Levy (“Levy” or “Notice of Levy,” Dkt. No. 304-8, Ex. F). The Notice of Levy itself states that Id. The Notice of Levy also explains that the levy “required you to turn over to us this person's property and rights to property . . . that you have or which you are already obligated to pay to” the Shipleys. Id. The levy is continuous until the tax liability is released. Id.
On April 18, 2014, at the request of the government, I issued an order preventing the Shipleys from moving, selling, or dissipating any of their assets, real or personal, and appointing a receiver to identify, appraise, account for, marshal, and sell the Shipley's real and personal property in a manner that maximizes recovery and directed the receiver to “complete the liquidation process in a reasonably short time.” Preliminary Injunction Against Shipleys and Order Appointing Robert P. Mosier as Receiver [Dkt. No. 75] 4. On the same date, I granted the United States' Motion for Partial Summary Judgment, reducing the federal income tax assessments against the Shipleys to judgment. Dkt. No. 76.[2]
Following the entry of that judgment, individuals who purported to own or have rights to DSGI stock through agreements with Shipley moved to intervene in this case (Brian Potter, Ann Potter, Michael Weiland, Sr., and MW Investment Group, LLC, collectively, “Intervenors”). Dkt. No. 78. The motion was granted (Dkt. No. 90) and the Intervenors filed their answer and the following cross-claims on May 30, 2014: (i) claim for Quiet Title - 28 U.S.C. § 2410(a)(1) -against the United States; (ii) claim for Wrongful Levy - 26 U.S.C. § 7426 - against the United States; (iii) Breach of Contract against Dale Shipley and DSGI; (iv) Fraud against DSGI; and (v) Negligent Misrepresentation against DSGI. Dkt. No. 95.
By agreement of the parties and Intervenors, I stayed proceedings regarding the DSGI stock and any rights the Intervenors had to DSGI stock pursuant to agreements with Shipley. Dkt. No. 208. In October 2021, the stay was lifted to allow for limited discovery and briefing “to determine the ownership of the DSGI stock held in the receivership to which there is a dispute and the priority of payout if and when there is a stock liquidity event for the DSGI stock.” Dkt. No. 297.
The United States and the Intervenors then filed cross-motions for summary judgment. Dkt. Nos. 304, 307. DSGI joins the United States' motion for summary judgment and opposes the Intervenors' motion. Dkt. No. 305. The Shipleys join the Intervenors' motion for summary judgment and oppose the United States' motion. Dkt. No. 312.
On July 1, 2004, Shipley and cross-defendant DSGI entered into a Stock Purchase Agreement through which Shipley secured 266,078.81 shares of DSGI stock. DSGI, Inc. Stock Purchase Agreement (“DSGI SPA”) [Dkt. No. 304-1, Ex. 20] at 1. The agreement includes the following statement:
(e) Restricted Securities. The Company has disclosed to Purchaser in writing that (i) the sale of the Shares has not been registered under the Securities Act of 1933, as amended (the “Act”), and the Shares must be held indefinitely unless a transfer of the Shares is subsequently registered under the Act or an exemption from such registration is available[.]
Id. at 2. On the back of the stock certificate that Shipley received in 2004, the following restrictions regarding subsequent sale or distribution of the stock appeared:
The securities represented by this certificate have been acquired for investment and not with a view to or in connection with the sale or distribution thereof. No sale or distribution shall be effected without an effective registration statement related thereto or an opinion of counsel satisfactory to the corporation that such registration is not required under the Securities Act of 1933.
Shipley 2004 Stock Certificate. [Dkt. No. 304-1, Ex. 21 Certificate No. 2, DSGI00122].
On April 28, 2006, in his capacity as a “private individual” Shipley entered into an “Agreement to Purchase DSGI Common Stock from Dale L. Shipley” with Intervenors Brian and Ann Potter, where the Potters purported to purchase 6,250 shares of DSGI stock from Shipley at $40 per share. Dkt. No. 95, Ex. A, “Potter SPA” at 1.
On July 1, 2006, Intervenor MW Investment Group, LLC (“MWIG”) and DSGI entered into a “DSGI Technologies Inc. Subscription Agreement for Common Stock.” Dkt. No. 95, Ex. B. This agreement was between DSGI and MWIG for 2,500 shares of DSGI stock for $100,000. Id. The agreement was “accepted” by and signed by Jeffrey Kowalski (“Kowalski”), the co-founder, President, and CEO of DSGI. Id. DSGI issued MWIG a stock certificate covering that purchase. Decl. of Jeffrey M. Kowalski in Supp. of DSGI Technologies, Inc.'s Joinder in the United States' MSJ (“Kowalski Decl.”) [Dkt. No. 305-2] ¶ 9.
On July 15, 2006, in his capacity as a “private individual,” Shipley entered into an “Agreement to Purchase DSGI Common Stock from Dale L. Shipley” with MWIG. Dkt. No. 95, Ex. C, “MWIG SPA.” The MWIG SPA purported to sell 7,500 of Shipley's DSGI shares to MWIG at $40 per share. Id.
Intervenor Michael Weiland, Sr., Shipley's brother-in-law, claims he also entered into an agreement with Shipley to purchase 1,125 shares of Shipley's DSGI stock at $40 per share on July 15, 2006. Decl. of Michael Weiland (“Weiland, Sr. Decl.”) [Dkt. No. 307-3] ¶¶ 6, 12 & Ex. 1 (“Agreement to Purchase DSGI Common Stock from Dale L. Shipley” as a “private individual,” “Weiland SPA”). The Weiland SPA is unsigned and was only produced during briefing on these motions for summary judgment after Weiland, Sr. found it on an old computer that he did not recall using since 2008 or 2009. Weiland, Sr. Decl., ¶ 12. Weiland, Sr. asserts that Shipley asked him to purchase the stock directly from Shipley instead of DSGI so that Shipley could gain from the sale. Id. ¶ 5.
On August 10, 2006, Shipley transferred 18,500 shares of his restricted DSGI stock to his wife's Individual Retirement Account (“IRA”). Shipley Dep. [Dkt. No. 304-1] at 27:5-28:5. On June 1, 2007, Shipley transferred 6,250 shares of his restricted DSGI stock to his attorney, Stephen P Cohn. Id. at 31:14-32:14. DSGI issued stock certificates to Mrs. Shipley and Mr. Cohn to reflect the transfers. See DSGI Stock Certificate for Helen Anne Shipley [Dkt. No. 304-1, Ex. 24, ...
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