United States v. Weathers
| Decision Date | 31 March 2021 |
| Docket Number | CASE NO. C18-5189 BHS |
| Parties | UNITED STATES of America, Plaintiff, v. Thomas WEATHERS, et al., Defendants. |
| Court | U.S. District Court — Western District of Washington |
Boris Bourget, Charles J. Butler, US Department of Justice, Washington, DC, for Plaintiff.
Hertsel Shadian, Tualatin, OR, for Defendants Thomas Weathers, Kathy Weathers.
Charles R. Markley, Greene & Markley, Donald H. Grim, Pro Hac Vice, Williams Kastner, Portland, OR, for Defendants TKW Limited Partnership, T&K Weathers Limited, Precision Property Management Corporation.
Dana E. Gigler, Cowlitz County Prosecutor's Office, Kelso, WA, for Defendant Cowlitz County.
Arnold Michael Willig, Hacker & Willig, Seattle, WA, for Defendant Wapiti Ventures LLC.
Frederic E. Cann, Cann Lawyers, Long Beach, WA, for Defendant Marlene M. Bennett.
ORDER GRANTING IN PART AND DENYING IN PART THE UNITED STATES’ MOTION FOR SUMMARY JUDGMENT
This matter comes before the Court on Plaintiff the United States’ motion for summary judgment. Dkt. 137. The Court has considered the briefs filed in support of and in opposition to the motion and the remainder of the file and hereby grants in part and denies in part the motion for the reasons stated herein.
In 1996, Defendants Thomas and Kathy Weathers created two entities, T&K, a limited partnership, and TKW, a limited partnership, purportedly for estate planning purposes. They then transferred at least eight properties to T&K and TKW. In 2005, the Weathers were convicted of tax evasion for conduct beginning in the mid-1990s. The convictions were based in part upon these transfers. The Weathers owe the IRS approximately $4 million.
The United States seeks to reduce the Weathers’ tax liabilities for 1998 through 2011 and T&K and TKW's tax liabilities for certain years from 1998 through 2011 to judgment. These liabilities give the United States liens against the Weathers’ property and, it alleges, T&K and TKW's properties and rights to property. The United States contends that the Weathers still control T&K and TKW as their nominees or alter egos, so the properties are subject to the tax liens against the Weathers. Alternatively, the United States contends that the properties are subject to the liens because the Weathers fraudulently transferred them to T&K and TKW. In addition to seeking to foreclose federal tax liens on the eight domestic properties, the United States seeks an order directing the Weathers to liquidate their interest in a condominium in Belize.
The Weathers’ children, Brian, Bradley, Katie, and Kayla,1 have ownership interests in the domestic properties through T&K and TKW, which they hold through an entity called BKKB, Inc. BKKB owns Precision Property Management ("PPM"), which manages properties for T&K and TKW. T&K and TKW assert that the Weathers’ children's ownership interests are legitimate and that the United States cannot seize their property to pay for their parents’ misdeeds.
There are eight domestic properties at issue; seven purportedly owned by T&K (one property encompassing approximately 30 duplexes and cabins, a separate duplex, a former hotel converted into housing units and adjacent plot of undeveloped land, a multiunit building, and two unspecified properties) and one purportedly owned by TKW (a five-acre undeveloped lot). Dkt. 138-1 at 85, 88, 89, 90, 93; Dkt. 138-3 at 10, 34–38, 53.2 Seven of the properties are located in Longview, Washington, and one is located in neighboring Kelso, Washington.
Thomas Weathers declares, without supporting detail, that he and Kathy purchased the properties "for nothing or very little down and assumed the existing encumbrances," so the properties had no equity at the time of purchase, and in 1996 "due to continued deferred maintenance and minimal principal payments" the debt on the properties was equal or greater to their value." Dkt. 146, ¶ 2. Brian Weathers declares the lot TKW owns "produces expenses by way of property tax and brush control, but no income." Dkt. 149, ¶ 3.
It is undisputed that the Weathers purported to transfer seven of these properties to T&K and one to TKW in 1996 via quitclaim deed. Dkt. 138-2 at 128, 143, 155, 166; Dkt. 138-3 at 4, 18. The quitclaim deeds all state that "[t]he true and actual consideration paid for this conveyance is for the purposes of estate planning and consists of value wholly other than of cash." Dkt. 138-2 at 128, 143, 155, 166; Dkt. 138-3 at 18, 4.
The Weathers later recorded $1.5 million or $2 million in mortgages against each property in favor of either "Southwind Software Development Corp." or "Mountain Peak Management Corp." and then assigned these mortgages to "Financial Assistance."3 T&K, TKW, PPM, and the Weathers have all stipulated that the mortgages on seven of the eight properties were not valid. Dkt. 138 at 15–16, 17. Thomas Weathers (signing on behalf of Financial Assistance) later prepared and recorded a false satisfaction of mortgage for six of the eight properties. See Dkt. 138 at 185; Dkt. 138-1 at 87, 90, 91; 138-2 at 135, 150–51, 162, 173–74; Dkt. 138-3 at 62–63. He did this in order to obtain real loans from Wapiti Ventures to save those properties from tax foreclosure in 2013.
At the same time the Weathers created T&K and TKW in March 1996, they Weathers created irrevocable trusts for each of their four children. Dkt. 149-1 at 3. Thomas Weathers declares that later that year, he and Kathy filed and fully paid their 1995 income taxes. Dkt. 146, ¶ 3.
Each child's trust was given a 1.5% ownership interest in T&K as a limited partner, and the Weathers each had a 1% interest as general partners. Dkt. 138-1 at 43–44. The "Thomas D. Weathers and Kathy J. Weathers Family Trust" held the remaining 92%. Id.
Thomas Weathers testified that when he formed TKW in 1996, he held a 1% share as a general partner and assigned 99% to "First Fidelity Trust Ltd., Nevis" as a limited partner on the advice of his attorney at the time. Id. at 7–8, 207. Thomas testified that he did not recall anything about First Fidelity. Id. at 7–8. T&K, TKW, and PPM's representative, David Tacke, also testified that he was not familiar with First Fidelity. Id. at 79. TKW asserts that it initially had the same ownership structure as T&K—1.5% held by each of the children's trusts, 92% held by the family trust, and 1% each held by Thomas and Kathy. Id. at 230.
Thomas Weathers declares that on October 15, 1997, he and Kathy timely filed their 1996 tax return, but did not pay all tax due because he believed their preparer had made an error. Dkt. 146, ¶ 4. He declares that "[a]t that time, I had not formed the idea to object to federal income tax." Id. Kathy Weathers makes the same contention in her declaration. Dkt. 147, ¶ 4.
In January 1998, the interests in T&K were purportedly revised so that the Weathers’ children's trusts each held a 17.5% interest in T&K for a total of 70%, and Thomas and Kathy Weathers held the remaining 30%. Dkt. 138-1 at 16; Dkt. 149-1 at 56. TKW similarly asserts that in 1998, each of the Weathers’ children's trusts acquired a 17.5% interest in TKW. Dkt. 138-1 at 230. The Weathers retained a 96% stake in T&K's profits and losses through at least 2012. Id. at 105–27.
In July 1998, Thomas Weathers filed an amended tax return claiming $0 income in 1996. Dkt. 146, ¶ 6. He declares that "[a]t that time, I began to consider objecting to federal income tax." Id. He contends that in 1996 and 1997, all of his and Kathy's income came from hotel leases in Oregon, while the Washington properties at issue in this case "never had sufficient income to pay their expenses and did not produce any net income." Id. , ¶ 8. He also asserts that he and Kathy remained solvent "at least through October of 1998." Id.
In 2004, the Weathers were indicted for tax evasion for 1996 and for failure to file returns for 1998 through 2002. Dkt. 138 at 37–44. The tax evasion charge alleged the Weathers "plac[ed] jointly owned personal properties in the name of nominees to conceal defendants’ ownership of such properties from the IRS." Id. at 38. A jury found them guilty on all counts. Id. at 46–58. Thomas was sentenced to five years in prison, and Kathy was sentenced to two years of probation. Id.
In March 2009, Brian Weathers (the Weathers’ oldest child) incorporated PPM. Dkt. 138-2 at 50. PPM manages properties for both T&K and TKW—most of the properties in this litigation. Dkt. 138-1 at 101. Brian Weathers declares that T&K's expenses exceeded the income earned by the properties, and PPM paid some of T&K's expenses each year "just to keep the properties rentable and out of foreclosure." Dkt. 149, ¶ 18.
In March 2013, Brian Weathers and his siblings formed BKKB, which purchased PPM from Brian and his associate. Dkt. 138-1 at 81, 136, 138; Dkt. 149-1 at 91. Each sibling purportedly transferred their 17.5% of T&K to BKKB, giving it a 70% stake in T&K. Dkt. 138-1 at 81, 136. TKW similarly asserts that BKKB owns 70% of TKW. Id. at 230. Brian contends that he and his siblings began to control and manage their property interests at that point because they had all reached the age of majority and gained sufficient experience to manage the property. Dkt. 149, ¶ 12. The minutes of PPM's 2013 annual shareholder's meeting reflect that as the Weathers’ children will be assuming management of "the Longview and Kelso properties," they were therefore "offering to buy Precision Property from its shareholders and continue operating the same under a new management agreement." Dkt. 149-1 at 91. Minutes of a subsequent PPM shareholder's meeting note that the T&K properties "are in dire need of repairs, improvements, and general maintenance," but could become profitable if PPM advanced repair funds to T&K. Id. at 92. The minutes also note that PPM will seek to arrange "a new lease ... for the Joyce Hotel –...
To continue reading
Request your trial