US v. McCombs-Ellison, 87-CV-1475L.
Decision Date | 21 June 1993 |
Docket Number | No. 87-CV-1475L.,87-CV-1475L. |
Citation | 826 F. Supp. 1479 |
Parties | UNITED STATES of America, Plaintiff, v. Nancy McCOMBS-ELLISON, Jon Ellison, Columbia Banking Saving & Loan Association, Robert J. McCombs, State of New York, Kelly M. McCombs and Mary McCombs, Defendants. |
Court | U.S. District Court — Western District of New York |
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Andrew Pleplar, Tax Atty. U.S. Dept. of Justice, Washington, DC, for plaintiff.
Arnold Petralia, Appeal Atty., Rochester, NY, for defendants.
Michael J. Mazzullo, Rochester, NY, for Nancy McCombs-Ellison and Robert McCombs.
Christopher S. Ciaccio, Rochester, NY, for Kelly McCombs and Mary McCombs.
Peter A. Sparagna, Office of New York State Atty. Gen., Dept. of Law, Albany, NY, for State of N.Y.
AMENDED VERDICT and OPINION
The complaint in this action was filed on November 24, 1987, by the United States of America against Nancy McCombs-Ellison, Jon Ellison, Columbia Banking Saving & Loan Association ("Columbia Banking"), Robert J. McCombs, State of New York, Kelly M. McCombs and Mary McCombs.1 The United States asks the court to:
This matter was tried before me on March 19, 1992, pursuant to 28 U.S.C. ? 636(c) upon consent of the parties and by order of District Court Judge David G. Larimer, dated February 28, 1992. Immediately prior to trial, the government filed a trial brief with the court on March 17, 1992, in which it set forth its position in the case.
Government's Trial Brief, pp. 3-4. The government further argued that a lien in the amount of $26,925.79 was created on June 14, 1982, the date of assessment, which lien immediately attached to the property located at 74 Meadow Creek Lane, then owned by Ms. McCombs-Ellison. A Certificate of Assessment and Penalty was filed in the Monroe County Clerk's Office on September 22, 1982.
The government further argued that the facts also established a presumption of insolvency, a presumption which established prima facie that Ms. McCombs-Ellison fraudulently conveyed the 74 Meadow Creek Lane property to her daughters, Kelly and Mary McCombs, on September 15, 1982. In its case-in-chief, the government introduced 23 documents into evidence. After the first 22 of these exhibits were admitted into evidence, the government rested without presenting any witnesses.2
Defendants Ms. McCombs-Ellison and Robert McCombs immediately moved for summary judgment on the basis that the government failed to establish a prima facie case of liability on the part of the defendants. Defendants Kelly and Mary McCombs moved to dismiss the complaint, on the grounds that the government failed to prove all the elements necessary to establish a prima facie case of fraudulent conveyance.3 For the reasons set forth below, these motions are denied.
The following is my opinion and memorandum of decision finding the facts specifically in accordance with Fed.R.Civ.P. 52(a).
The Spinnaker Pole Corporation ("Spinnaker Pole") was incorporated in May, 1979, by Nancy McCombs-Ellison and Jon Ellison. Ms. McCombs-Ellison acted as President of the corporation, and owned 60% of the stock. Jon Ellison owned 40% of the stock.
Ms. McCombs-Ellison and Mr. Ellison were also partners of an entity called "The Port and Starboard," ("Port and "Starboard") of which they held 60% and 40% interests, respectively. On May 14, 1979, Port and Starboard purchased the Edgewater Restaurant ("Edgewater") for $235,000.00. To pay for the restaurant, Port and Starboard gave Edgewater a mortgage in the amount of $185,000.00. Ms. McCombs-Ellison supplied the remaining $50,000.00 by taking out a mortgage for that amount on her house at 74 Meadow Creek Lane, Rochester, New York. Transcript of Trial Proceedings, March 19, 1992, at p. 35, lines 23-28 ("Transcript"). The restaurant was then leased to and operated by Spinnaker Pole, for a monthly rental payment of $2,724.75 to Port and Starboard. Government Exhibit 18, ? 17.
Business at the Edgewater did well for a while. There came a time, however, when Port and Starboard was unable to make its monthly mortgage payments to Edgewater. Edgewater filed a foreclosure action against Port and Starboard on April 10, 1981. Government Exhibit 6. Port and Starboard then filed for bankruptcy under Chapter 11 on April 24, 1981. Government Exhibit 7, Complaint, ? 1. Spinnaker Pole also filed for bankruptcy in September, 1981.
Government's Trial Brief, pp. 1-2.
The government now seeks to reduce these liens, totalling $30,035.07, to judgment and foreclose them against property previously owned by Ms. McCombs-Ellison, located at 74 Meadow Creek Lane, Rochester, New York.
The property at 74 Meadow Creek Lane was originally purchased by Robert J. McCombs and his former wife, Ms. McCombs-Ellison, on February 16, 1962. The McCombs financed the property by giving a $30,000.00 mortgage to Columbia Banking, Saving and Loan Association. After the McCombs' divorced, Mr. McCombs conveyed his interest in the property to Ms. McCombs-Ellison by quit claim deed dated May 5, 1978. On September 15, 1982, Ms. McCombs-Ellison conveyed the property to her daughters, Kelly M. McCombs and Mary McCombs, by warranty deed, which was recorded in the Monroe County Clerk's Office on September 16, 1982. As consideration for the property, the daughters agreed to assume the unpaid principal remaining on the mortgage loan to Columbia Banking in the amount of $10,469.29. They also took the property subject to the remainder of Ms. McCombs-Ellison's $50,000.00 Marine Midland Bank mortgage, which was then $47,328.65. No other consideration is recited in the deed. On January 18, 1985, Kelly and Mary McCombs obtained a $53,000.00 mortgage on the 74 Meadow Creek Lane property from their father, Robert J. McCombs. This mortgage was recorded in the Monroe County Clerk's Office on January 24, 1985.
This court has subject matter jurisdiction over this case pursuant to 28 U.S.C. ?? 13404 and 1345,5 and 26 U.S.C. ? 7402(a).6 This action was properly commenced by the United States pursuant to 26 U.S.C. ? 74017 and 7403(a).8
The Internal Revenue Code (26 U.S.C.) requires employers to deduct, withhold and pay over to the federal government, federal income and social security taxes from their employees' wages. 26 U.S.C. ?? 3402(1) & 3102(a); Carter v. United States, 717 F.Supp. 188, 190 (S.D.N.Y.1989). The amounts so withheld from the employees' paychecks "are held by the employers as a special trust fund for the benefit of the United States..." Id., 717 F.Supp. at 191; 26 U.S.C. ? 7501(a).9 The withheld amounts are commonly referred to as "trust fund taxes," Slodov v. United States, 436 U.S. 238, 243, 98 S.Ct. 1778, 1783, 56 L.Ed.2d 251 (1978), and the trust is created "at the moment the relevant payments" to the employees are made. Begier v. I.R.S., 496 U.S. 53, 60, 110 S.Ct. 2258, 2264, 110 L.Ed.2d 46 (1990). "As the employer withholds taxes from employees' wages a contingent liability is created," which liability "becomes fixed on the due date." Kalb v. United States, 505 F.2d 506, 509 (2d Cir.1974), cert. denied, 421 U.S. 979, 95 S.Ct. 1981, 44 L.Ed.2d 471 (1975).
"Should employers fail to pay trust fund taxes, the government may collect an equivalent sum directly from the officers or employees of the employer who are responsible for collecting the tax." United States v. Energy Resources Co., Inc., 495 U.S. 545, 547, 110 S.Ct. 2139, 2141, 109 L.Ed.2d 580 (1990); 26 U.S.C. ? 6672.10 A penalty imposed pursuant to 26 U.S.C. ? 6672 "is itself referred to as a `tax' in Section 6671." Mazo v. United States, 591 F.2d 1151, 1153 (5th Cir.1979), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979); 26 U.S.C. ? 6671(a...
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