Arlin Geophysical v. United States
696 F. App'x 362
| 10th Cir. | 2017Background
- IRS filed a notice of federal tax lien against John Worthen in 2008, identifying Fujilyte Corporation as his alter ego/nominee; two Utah properties (Props. 14 & 15) were held in Fujilyte’s name.
- The government sued to enforce the lien under 26 U.S.C. § 7403 and named over 30 potential interest-holders; Worthen and Fujilyte denied the nominee/alter-ego and fraudulent-transfer allegations.
- Homer (on behalf of Green/heirs) moved for partial summary judgment asserting trust-deed interests in Props. 14 & 15; government opposed, asserting statute-of-limitations bar to Homer’s interests and arguing the properties were effectively Worthen’s via constructive/resulting trusts and nominee status of Fujilyte.
- Court, after repeated opportunities for Homer to reply (which he did not take), denied Homer’s motion and granted summary judgment to the government under Rule 56(f)(1) on the statute-of-limitations issue; that order contained findings that Fujilyte was Worthen’s nominee.
- Months later the government moved for final judgment and sale of the properties; Worthen and Fujilyte — who were not parties to the Homer summary-judgment proceeding — objected, arguing they lacked notice and a meaningful opportunity to defend against the nominee finding.
- The district court nonetheless entered final judgment for the government and ordered sale, reasoning Worthen and Fujilyte were bound by the earlier summary-judgment findings; the Tenth Circuit vacated and remanded, holding they were not bound because they lacked meaningful notice/opportunity to be heard on the nominee issue.
Issues
| Issue | Plaintiff's Argument (Worthen/Fujilyte) | Defendant's Argument (Government) | Held |
|---|---|---|---|
| Whether Worthen/Fujilyte were bound by nominee findings in a summary-judgment order resolving Homer’s motion when they were not parties to that proceeding | They were not parties and therefore were not given a meaningful opportunity to defend against nominee findings; cannot be bound | They participated by objecting to the proposed order, failed to appeal, and are therefore bound under law-of-the-case; alternatively final judgment should be treated as sua sponte summary judgment with sufficient notice | Not bound; district court erred to rely on findings from a proceeding to which they were not parties and where they lacked a meaningful opportunity to respond |
| Whether the district court’s final judgment can be treated as sua sponte summary judgment under Rule 56(f)(3) against Worthen/Fujilyte | N/A (primary contention is lack of notice/opportunity) | The court gave multiple opportunities (objection to proposed order, response to motion for final judgment, hearing) — sufficient notice to treat it as sua sponte summary judgment | Rejected: because the government moved for final judgment, the court could not properly ‘‘consider summary judgment on its own’’; even if treated as sua sponte, notice was inadequate |
| Whether law-of-the-case or failure-to-appeal principles preclude Worthen/Fujilyte from relitigating the nominee issue | They did not have a final adverse interlocutory order against them to appeal; law-of-the-case inapplicable | Earlier rulings and lack of appeal should preclude relitigation | Law-of-the-case and failure-to-appeal defenses do not apply because the earlier order was not a final decision as to them and they were not parties to the interlocutory proceeding |
| Whether district court gave due-process (meaningful opportunity to be heard) before adjudicating Fujilyte’s status for purposes of sale | They lacked meaningful notice and chance to marshal evidence on nominee issue; due process violated | The court provided multiple chances and time to respond; objections and motion practice were adequate | Due process violated: Worthen/Fujilyte were not given a meaningful opportunity to defend against the nominee determination before property sale was ordered |
Key Cases Cited
- Drye v. United States, 528 U.S. 49 (1999) (explains IRS lien can reach property held by a third party as taxpayer’s nominee)
- Holman v. United States, 505 F.3d 1060 (10th Cir. 2007) (discusses nominee and alter-ego inquiry under federal law)
- Grant v. Phoenix Mut. Life Ins. Co., 106 U.S. 429 (1882) (decree of sale in foreclosure that settles all rights is final for appeal purposes)
- A.M. v. Holmes, 830 F.3d 1123 (10th Cir. 2016) (standards for sua sponte summary judgment and adequacy of notice)
- Scull v. New Mexico, 236 F.3d 588 (10th Cir. 2000) (affirming sua sponte summary judgment where losing party had adequate notice and suffered no prejudice)
- Mathews v. Eldridge, 424 U.S. 319 (1976) (due-process requirement of meaningful opportunity to be heard)