US v. Wood
| Decision Date | 06 May 1987 |
| Docket Number | Civ. A. No. 85-0815-L(J). |
| Citation | 658 F. Supp. 1561 |
| Parties | UNITED STATES of America, Plaintiff, v. Charles WOOD, Jane Wood, John J. Guarnaschelli, Martha D. Guarnaschelli, and Ina B. Johnson, Defendants. |
| Court | U.S. District Court — Western District of Kentucky |
COPYRIGHT MATERIAL OMITTED
Charles A. Baer, Trial Atty., Tax Div., U.S. Justice Dept., Joseph M. Whittle, U.S. Atty., Richard Dennis, Asst. U.S. Atty., W.D. Ky., for plaintiff.
D.H. Robinson, Robinson Tackett & Conway, Louisville, Ky., for Jane Wood.
Glenn L. Schilling, Schilling & Schilling, Louisville, Ky., for Charles Wood.
W. Plumer Wiseman, Jr. and Richard J. Emmett, Greenebaum Doll & McDonald, Louisville, Ky., for Ina Johnson.
Irwin G. Waterman and Robert V. Waterman, Morris Garlove Waterman & Johnson, Louisville, Ky., for John & Martha Guarnaschelli.
This matter is before the Court on cross-motions for summary judgment filed by Plaintiff United States of America (the Government), Defendant Jane Wood (Mrs. Wood), and Defendant Ina B. Johnson (Mrs. Johnson). The Government brings suit under the internal revenue laws of the United States, 26 U.S.C. §§ 1-9602, to collect unpaid taxes, interest, and penalties owed by Defendant Charles Wood (Mr. Wood) through the foreclosure of federal tax liens on property known as Berry Hill — a residence located in Jefferson County, Kentucky, which at one time or another has been owned by each of the defendants. The action was commenced pursuant to 26 U.S.C. §§ 7401 & 7403; jurisdiction lies in this Court pursuant to 26 U.S.C. §§ 7402 & 7403 and 28 U.S.C. §§ 1340 & 1345; venue is in this Court pursuant to 28 U.S.C. § 1396.
The instant action arose following the judicial sale of Berry Hill, the former residence of Mr. and Mrs. Charles Wood, pursuant to a judgment entered by the Jefferson Circuit Court ordering the enforcement of liens issued to secure monies adjudged due under a mortgage held by the Bank of Louisville. The parties' pleadings are in agreement on or have otherwise established the following facts:
1. On September 13, 1982, the Government filed a Notice of Federal Tax Lien against Mr. Wood in the land records of Jefferson County, Kentucky. The lien recorded unpaid tax assessments totaling $85,008.35 for 1980 and $41,462.66 for 1981 against "all property and rights to property belonging to this taxpayer for the amount of these taxes, and additional penalties, interest, and costs that may accrue." A second tax lien covering 1982 tax liabilities totaling $25,347.80 was filed on August 3, 1983.
2. On February 8, 1984, the Bank of Louisville filed the above referenced action in which Mr. and Mrs. Wood and the Government were named as defendants.
3. On March 30, 1984, Mr. and Mrs. Wood executed a property settlement agreement requiring Mr. Wood to convey Berry Hill to Mrs. Wood, and requiring Mrs. Wood to sell the property thus conveyed at a listed price of $715,000.00. The agreement stipulated that upon sale of the property, Mrs. Wood would be entitled to any sale proceeds which might remain after paying off existing liens and mortgages which included "a federal tax lien ... in the amount of $126,471.01 with interest thereon", a first mortgage lien to the Bank of Louisville, and a mortgage to First National Bank. The agreement further stipulated that Mr. Wood was to make payments on the first mortgage lien pending sale of the property. Mr. Wood later informed Internal Revenue Officer Roy Wyatt of the terms of the property settlement.
4. On July 9, 1984, the very day that the Jefferson Circuit Court entered its judgment ordering the sale of Berry Hill, Mr. Wood conveyed Berry Hill to Mrs. Wood by general warranty deed. The judgment ordered the property "sold free and clear of all liens and encumbrances" excepting certain easements and assessments and a "right of redemption in favor of the United States of America for 120 days from the date of the Commissioner's sale pursuant to Title 28 U.S.C. § 2410(c)."
5. On August 21, 1984, Berry Hill was sold at public auction to Dr. and Mrs. John J. Guarnaschelli on a bid of $205,000, approximately $44,000 more than the Bank of Louisville lien but less than two-thirds the appraised value of the property. The sale thus created a right of redemption under KY.REV.STAT. § 426.530(1) which provides:
If real property sold in pursuance of a judgment or order of a court, other than an execution, does not bring two-thirds of its appraised value, the defendant and his representatives may redeem it within a year from the day of sale, by paying the original purchase money and ten percent (10%) per annum interest thereon.
Mrs. Wood continued to live at Berry Hill after the judicial sale, remaining there until she sold the property to Mrs. Johnson in April 1985.
6. On October 15, 1984, the Government filed a third tax lien against Mr. Wood for 1983 tax liabilities totaling $49,802.48, bringing total assessments under the liens (less penalties, interest, and costs) to $201,621.29.
7. On December 10, 1984, Mr. and Mrs. Wood executed an addendum to their property settlement agreement whereby Mr. Wood quitclaimed his right of redemption, if any, arising out of the judicial sale of Berry Hill and by which he waived all interest in proceeds realized upon any subsequent sale of the property.
8. On February 12, 1985, Mrs. Wood entered into a contract for the sale of Berry Hill to Mrs. Johnson for the sum of $575,000 conditioned upon Mrs. Wood first securing such title as could be insured by a reputable title insurance company. On March 4, 1985, the Commonwealth Land Title Insurance Company issued a title commitment on condition that the Guarnaschellis, the purchasers at the judicial sale, secure and record a Commissioner's Deed for Berry Hill and in turn convey the property to Mrs. Wood by warranty deed.
9. On March 5, 1985, the Government served Mrs. Wood with a Notice of Seizure of her husband's statutory right of redemption for payment of tax liabilities totaling $285,096.09. Several weeks later, on April 19, 1985, the Government served Mrs. Wood with a Notice of Levy on all property and rights to property which belonged to her husband and which were then in her possession, and demanded payment of tax liabilities totaling $292,571.90.
10. Following negotiations between Mrs. Wood and the Guarnaschellis in which Mrs. Wood claimed a present ability to redeem the property, Dr. & Mrs. Guarnaschelli agreed to secure a Commissioner's Deed for Berry Hill and to quitclaim the property to Mrs. Wood in exchange for a sum equal to their $40,000 deposit plus interest expenses incurred since the judicial sale. On April 22, 1985, the Guarnaschellis secured the Commissioner's Deed and, as agreed, immediately conveyed the property to Mrs. Wood. Later that day, Mrs. Wood conveyed Berry Hill to Mrs. Johnson for $575,000.
11. On August 15, 1985, the Government filed the instant action against Mr. and Mrs. Wood, Mrs. Johnson, and the Guarnaschellis alleging an "elaborate, sophisticated attempt to evade federal tax liens." On November 12, 1985, the Guarnaschellis were dismissed by agreement of the parties.
The Government argues that it is entitled to a judgment against Mr. Wood for tax liabilities totaling $291,839.52, plus additional statutory interest and penalties that have accrued since July 15, 1985. The Government further argues that Mrs. Wood, as holder of the proceeds of the sale of Berry Hill, and Mrs. Johnson, as owner of the property, are liable for the judgment because the tax liens which attached to Berry Hill later attached to a right of redemption which arose in Mr. Wood, followed that right into Mrs. Wood's hands, and reattached to the property when Mrs. Wood exercised that right. Accordingly, the Government now seeks to foreclose on the property and on the proceeds of the sale thereof. The defendants counter that the judicial sale stripped the tax liens from the property and left the Government with nothing but a 120 day right of redemption which it lost through inaction. They reject the Government's contention that Mr. Wood's "lien infected" right of redemption merged with Mrs. Wood's right, and argue that even if a merger did occur, it affords the Government nothing for Mrs. Wood never exercised that right.
In addition to the foreclosure claim, the Government contends that the defendants' conveyances should be set aside as fraudulent and claims that Mrs. Wood and Mrs. Johnson are liable for the tortious conversion of property subject to federal tax liens. The Government's complaint contains additional claims against Mrs. Wood for failure to surrender her husband's alleged right of redemption in accordance with the Notice of Seizure and for failure to turn over the proceeds of the sale of Berry Hill in accordance with the Notice of Levy. Finally, the Government claims damages as a third party creditor beneficiary of the March 30, 1984 property settlement agreement in which Mrs. Wood agreed to pay off a part of her husband's tax liabilities with proceeds from the sale of Berry Hill.
The summary judgment claim against Mr. Wood will be considered first, the foreclosure claim second, the fraudulent conveyance, tortious conversion, and levy claims third, and the third party beneficiary claim last.
The record reflects that the Government made repeated assessments and filed numerous liens against Defendant Charles Wood for tax liabilities incurred for the years 19...
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