United States v. Wolin

• Decision Date: 28 September 2020
• Docket Number: 17-CV-2927 (RRM) (CLP)
• Citation: 489 F.Supp.3d 21
• Parties: UNITED STATES of America, Plaintiff, v. Chava WOLIN as Fiduciary of the Estate of Leo Ziegel, Annette Wiesel, and Doris Greenberg, Defendants.
• Court: U.S. District Court — Eastern District of New York

489 F.Supp.3d 21

UNITED STATES of America, Plaintiff,

v.Chava WOLIN as Fiduciary of the Estate of Leo Ziegel, Annette Wiesel, and Doris Greenberg, Defendants.

17-CV-2927 (RRM) (CLP)

United States District Court, E.D. New York.

Signed September 28, 2020

Philip Leonard Bednar, DOJ-Tax, Washington, DC, for Plaintiff.

Elliot Jeffrey Rosner, Snitow Kaminetsky Rosner & Snitow, LLP, New York, NY, for Defendant Annette Wiesel.

Matthew Benjamin Wolin, Teaneck, NJ, for Defendant Chava Wolin.

Irene Tenedios, Levitt LLP, Mineola, NY, for Defendant Doris Greenberg.

MEMORANDUM AND ORDER

ROSLYNN R. MAUSKOPF, Chief United States District Judge.

Plaintiff United States of America (the "United States" or the "Government") brings this action against defendant Chava Wolin in her capacity as Fiduciary of the Estate of Leo Ziegel and against defendants Annette Wiesel and Doris Greenberg (collectively, "the Daughters"), who inherited Ziegel's beneficial interests in a foreign trust and a Swiss bank account. The United States seeks to recover an FBAR penalty posthumously assessed on Ziegel for failing to disclose his interest in the bank account to the Internal Revenue Service. Wiesel now moves pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the Government's second amended complaint. For the reasons set forth below, the motion to dismiss is denied.

BACKGROUND

The following facts are drawn from the United States’ second amended complaint ("SAC") and are assumed to be true for purposes of this memorandum and order. Sometime prior to April 1983, Ziegel engaged the services of Auctoriana Anstalt, a Swiss company with offices in Lichtenstein. (SAC (Doc. No. 31) ¶¶ 8, 9.) On April 18, 1983, Auctoriana Anstalt established in Lichtenstein a foundation named Assadah Stiftung ("Assadah"). (Id. ¶¶ 10–11.) That same day, an Auctoriana Anstalt's employee who served as Assadah's trustee, opened a bank account (the "Account") with the Union Bank of Switzerland ("UBS"). (Id. ¶¶ 12–13.) Ziegel subsequently signed a UBS signature card for the Account and created a trust agreement between Assadah and UBS with regards to the Account. (Id. ¶¶ 14–15.)

On July 19, 2002, Assadah appointed a new trustee, Prokurations Anstalt of Valduz, Lichtenstein ("Prokurations"). (Id. ¶ 16.) On both August 28, 2002, and November 22, 2004, a representative of Prokurations signed UBS forms identifying Ziegel as the beneficial owner of Assadah and the Account. (Id. ¶ 17.) On various occasions between 2002–2009, Ziegel met or spoke with UBS employees about withdrawing cash from the Account and about investments of the Account's assets. (Id. ¶ 18.) Between 1999 and 2008, Ziegel made cash withdrawals from, and wrote checks on, the account. (Id. ¶ 19.) In addition, from 1999 to 2009, Ziegel earned interest and dividend income and received investment sales proceeds from the Account. (Id. ¶ 20.)

Ziegel did not report any income or loss from the Account, or otherwise disclose the existence of the Account, to the IRS on his 2008 federal income tax return or at any other time. (Id. ¶ 21.) Indeed, he did not even advise the accountant who prepared his 2008 federal income tax return that the Account existed. (Id. ) Ziegel also failed to file a Report of Foreign Bank and Financial Accounts ("FBAR") with regard to the 2008 calendar year on or before June 30, 2009, as required by 31 U.S.C. § 5314 and 31 C.F.R. § 103.27(c) (2009). (Id. ¶¶ 27–28.)

Ziegel died testate on April 4, 2014. (Id. ¶ 2.) On May 15, 2015, in accordance with 31 U.S.C. § 5321(a)(5)(C)(i), a delegate of the Secretary of Treasury assessed a civil penalty against Ziegel's estate (an "FBAR penalty") in the amount of $1,435,235.00 for the willful failure of Ziegel to disclose the Account to the IRS. (Id. ¶ 30.)

This Action

On May 12, 2017 – more than three years after Ziegel's death – the United States commenced this action to recover the FBAR penalty from his estate. The only defendant named in the original complaint was Ziegel's daughter, Wiesel, who was named executrix of the estate in Ziegel's will. (Compl. (Doc. No. 1) at ¶ 3.) On June 26, 2017, the day before her answer was due, Wiesel's attorney notified James Yu, counsel for the plaintiff, that Wiesel was declining to serve as executrix. (Motion for Extension (Doc. No. 6).) In early August 2017, Yu learned that Ziegel's granddaughter, Wolin, was petitioning the Surrogate's Court in Queens County for Letters of Administration cum testament annexo. (Id. ) Until that petition was granted on January 2, 2018, Yu was forced to repeatedly request extensions of time to serve process on the estate because there was not yet a fiduciary to serve. (Docs. No. 6, 8, 9, 31.)

On January 30, 2018 – less than one month after the Surrogates’ Court granted Wolin's petition – the United States filed an amended complaint (the "FAC"). (FAC (Doc. No. 11).) The FAC substituted Wolin, in her capacity as "Fiduciary of the Estate of Leo Ziegel," for Wiesel. (Id. )

On July 5, 2019, the United States amended the summons and complaint for a second time, adding the Daughters as defendants. According to the SAC, sometime prior to Ziegel's death, the Daughters were identified as contingent co-beneficiaries of his interest in Assadah and the Account. (SAC ¶ 40.) Accordingly, when Ziegel died, his entire interest in Assadah and the Account automatically transferred to Wiesel and Greenberg in equal shares. (Id. ¶ 41.)

The SAC, the subject of the instant motion to dismiss, alleges four causes of action. The first cause of action, brought solely against Wolin as Fiduciary of the Estate, principally seeks to recover the FBAR penalty from the estate, along with a late-payment penalty pursuant to 31 U.S.C. § 3717(c)(2) and 31 C.F.R. § 5.5(a), and accrued interest. (Id. ¶¶ 32–33.) The SAC specifically alleges that this claim is timely under 31 U.S.C. § 5321(b)(2) because it was filed within two years of May 15, 2015 – the date that the FBAR penalty was assessed. (Id. ¶ 35.)

The second cause of action, brought solely against the Daughters, alleges that the transfer of Ziegel's interest in Assadah and the Account to these defendants upon Ziegel's death was constructively fraudulent under 28 U.S.C. § 3304 and voidable by the United States. (Id. ¶ 45.) The Government alleges that Ziegel was in violation of 31 U.S.C. § 5314(a) when these assets automatically transferred to the Daughters at the time of his death in 2014; that the Estate did not receive "reasonably equivalent value in exchange" for the transfer; and, upon information and belief, that the transfer rendered Ziegel and/or the estate insolvent. (Id. ¶¶ 42–44.) Based on these allegations, the SAC alleges that the transfer is voidable because it was "constructively fraudulent as to the United States as a creditor" of Ziegel, and that the Daughters "are each personally liable to the United States in the amount of the lesser of the value of Mr. Ziegel's interest in Assadah and the Account as of the date of transfer, or the amount of the FBAR penalty (plus statutory accruals)." (Id. ¶ 45.)

The third cause of action also seeks to void the transfer of Assadah and Account assets from Ziegel to the Daughters, but on the theory that it constitutes a fraudulent conveyance in violation of sections 273 and 278 of New York Debtor and Creditor Law. The allegations supporting the cause of action are nearly identical to those supporting the second cause of action; the SAC alleges that the estate did not receive "fair consideration in exchange" for the transfer which, upon information and belief, rendered Ziegel insolvent. (Id. ¶¶ 47–48.) As in the second cause of action, the Government alleges that this transfer is voidable because it was "constructively fraudulent as to the United States as a creditor" of Ziegel and argues that the Daughters "are each personally liable to the United States in the amount of the lesser of the value of ... Ziegel's interest in Assadah and the Account as of the date of transfer, or the amount of the FBAR penalty (plus statutory accruals)." (Id. ¶ 45.)

The fourth cause of action, brought solely against the Daughters, alleges that these defendants were unjustly enriched from the transfer of Ziegel's interest in Assadah and the Account. (Id. ¶ 54.) It argues that the Daughters "each have actual or constructive knowledge of the FBAR penalty and that it should be paid from the funds in the Account." (Id. ) Therefore, the Daughters "should have reasonably expected to pay and were unjustly enriched from the transfer of ... Ziegel's interest in Assadah and the Account." (Id. )

Wiesel's Motion to Dismiss

Wiesel now moves to dismiss the SAC pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Defendant's Memorandum in Support of Motion to Dismiss ("Defendant's Memo") raises a total of four arguments. First, Wiesel argues that the United States’ FBAR claim must be dismissed because an FBAR penalty does not survive the death of the party on whom the penalty was imposed. (Defendant's Memo (Doc. No. 57-2) at 6.) Wiesel claims that this an issue of first impression but, citing to United States v. NEC Corp , 11 F.3d 136 (11th Cir. 1993) (as amended Jan. 12, 1994), urges the Court to utilize a three-factor test which is used in other contexts. Applying this test, she argues that an FBAR penalty is penal in nature, and not a remedial action which would survive the death of Ziegel. (Defendant's Memo at 6–10.)

Second, Wiesel argues that the FBAR claim should be dismissed as untimely under 31 U.S.C. § 5321(b)(2), which requires an action to be commenced within two years of the date the FBAR penalty was assessed. (Defendant's Memo at 11.) Wiesel concedes that the original complaint naming her as executrix was filed within the two-year period but argues that the amended complaint which first named Wolin as fiduciary should not relate back to the date of the original complaint under Fed. R. Civ. P. 15(c)(1). (Defendant's Memo at 11–12.) In...