Before the Court is pro per Defendants' motion for a stay pending proceedings in the U.S. Tax Court and any possible appeal to the Ninth Circuit. (Dkt. No. 65.) An opposition was filed. (Dkt. No. 69.) Defendants filed a reply. (Dkt. No. 75.) Pursuant to the Court's order, Plaintiff filed a sur-reply on September 20, 2018. (Dkt. Nos. 76, 77.) A hearing was held on October 12, 2018. Jessica Reimelt, Esq. appeared on behalf of the United States, and Defendants Charles Le Beau and Victoria Le Beau, proceeding pro se, appeared. Based on the reasoning below, the Court GRANTS in part Defendants' motion for a stay.
Procedural Background
On May 23, 2017, the United States of America ("Plaintiff") filed a complaint to
On June 6, 2018, after briefing by the parties, the Court granted Plaintiff's motion for leave to file a second amended complaint. (Dkt. No. 47.) On June 11, 2018, Plaintiff filed a second amended complaint ("SAC") seeking to: (1) determine that the United States' judgment and tax liens attaches to all property held by Victoria LeBeau, including real property located at 1999 Via Segovia, La Jolla, CA 92037 (the "Property"); (2) determine that Victoria LeBeau holds Charles LeBeau's one-half interest in the Property as nominee for Charles LeBeau or, in the alternative, set aside the transfers of Charles LeBeau's interest in the Property to Victoria LeBeau and Casa de Erin, LLC as fraudulent conveyances; and, (3) to enforce the United States' judgment and tax liens against Charles and Victoria LeBeau upon the Property. (Dkt. No. 58.) On July 17, 2018, the Court denied Defendants' motion for declaratory judgment. (Dkt. No. 63.)
During the pendency of this case, on August 30, 2017, Victoria filed a request for innocent spouse relief for multiple tax years, 1992-1995 and 1997-1999. (Dkt. No. 36-4, Ds' RJN, Ex. 1.) On May 16, 2018, the IRS issued a Final Determination as to all these tax years. (Dkt. No. 65-4, Charles' Decl., Exs., 1, 2.) As to tax year 1992, the IRS denied innocent spouse relief pursuant to
On June 22, 2018, Victoria filed a petition with the United States Tax Court challenging the IRS' determinations. (Id., Ex. 2.) On July 30, 2018, Defendants filed a motion for a stay of the case pending a ruling by the U.S. Tax Court as well as any appeal to the Ninth Circuit. (Dkt. No. 65.) Around July 31, 2018, Defendants filed a "First Amendment to Petition" in the U.S. Tax Court. (Dkt. No. 75, Ds' Reply, Charles' Decl., Ex. 1 at 8.) Around September 5, 2018, Charles filed a Notice of Intervention in the Tax Court case. (Dkt. No. 75, Ds' Reply, Charles' Decl., Ex. 2 at 16.)
Factual Background
According to the SAC, Charles and Victoria LeBeau were married, now legally separated and currently reside together at 1999 Via Segovia, La Jolla, CA 92037 (the "Property"). (Dkt No. 58, SAC ¶ 3.) The United States has judgment and federal tax liens against both Charles and Victoria Le Beau, and the United States seeks to enforce its judgment and tax liens against their interests in the Property. (Id. )
Between 1994 and 2008, a delegate of the Secretary of the Treasury made assessments against Charles and Victoria LeBeau for federal individual income taxes, penalties and interest for the tax years 1992, 1993, 1994, 1995, 1997, 1998 and 1999. (Id. ¶ 11.) Despite timely notice and demand, the LeBeaus failed to pay the assessments. (Id. ¶ 13.) As a result, federal tax liens arose in favor of the United States and against all property and rights to property belonging to Charles and Victoria LeBeau as of the assessment dates. (Id. ¶ 14.) From 1995 to 2008, a delegate of the Secretary of the Treasury made assessments against Charles LeBeau for federal payroll taxes owed by him and his sole proprietorship, the Law Offices of Charles P. LeBeau, for eighteen tax periods between 1994 and 2001. (Id. ¶ 15.)
On April 19, 2010, the United States brought a civil action against Victoria LeBeau, Charles LeBeau, and Charles LeBeau's sole proprietorship
On August 18, 1980, Charles and Victoria LeBeau acquired the Property as "Husband and Wife, as joint tenants." (Id. ¶ 24.) On April 1, 1987, by quitclaim deed, Charles and Victoria transferred title to the Property to Victoria LeBeau for no consideration. (Id. ¶ 25.) By grant deed dated May 6, 1988, Victoria LeBeau transferred title to the Property to Charles and
By interspousal transfer grant deed dated March 22, 1991, Charles LeBeau again transferred his interest in the Property to his wife, Victoria LeBeau, for no consideration. (Id. ¶ 29.) On April 10, 2003, Charles LeBeau signed and filed Articles of Organization with the California Secretary of State for an entity known as Casa de Erin, LLC, for which he was the registered agent, and which has since been suspended by the California Secretary of State. (Id. ¶ 30.) During its existence, Casa de Erin, LLC was the alter ego/nominee of Charles LeBeau and/or Victoria LeBeau. (Id. ¶ 31.) By quitclaim deed dated April 22, 2003, Victoria LeBeau transferred title to the Property to Casa de Erin, LLC, for no consideration. (Id. ¶ 32.) By quitclaim deed dated January 12, 2006, Casa de Erin, LLC rescinded the deed and transferred the Property back to Victoria LeBeau, for no consideration, who currently remains the Property's nominal title holder. (Id. ¶ 33.) Upon information and belief, Charles LeBeau has continued to reside at the Property and has retained all the benefits and burdens of ownership. (Id. ¶¶ 25, 28, 29)
Despite Victoria LeBeau's purported sole ownership in the Property, on July 24, 2014, Charles LeBeau executed a mortgage modification agreement for the Property with Bank of America, the Trustee for the Property's mortgage, and he is listed as the borrower in documents recorded with the San Diego County Recorder's Office on August 1, 2014. (Id. ¶ 35.) For the 2014 tax year, Bank of America issued an IRS Form 1098 to Charles LeBeau for $4,598 in interest paid for the mortgage on the Property; for the 2015 tax year, Bank of America issued an IRS Form 1098 to Charles LeBeau for $4,652 in interest paid for the Property's mortgage. (Id. ¶ 36.)
The SAC claims that Charles and Victoria LeBeau continue to be the true and beneficial owners of the Property and Victoria LeBeau holds Charles LeBeau's interest in the Property as his nominee. (Id. ¶¶ 38, 39.) Alternatively, on information and belief, the transfers of the Property were sham transactions made with the intent and purpose to hinder, delay, or defraud the creditors of Charles and Victoria LeBeau, including the United States, and are therefore void. (Id. ¶ 40.) Alternatively, on information and belief, the transfers were not reasonably equivalent exchanges in value and were made at a time when Charles LeBeau knew he had, would have, or intended to incur debts beyond his ability to pay as they became due. (Id. ¶ 41.)
On March 14, 2013, the United States recorded an abstract of the two judgments obtained in Case No. 10cv817 with the San Diego County Recorder's Office. (Id. ¶ 43.) Pursuant to
Discussion
A. Request for Innocent Spouse Relief
A husband and wife filing a joint return are jointly and severally liable for the entire tax liability.
1. It relieves an innocent spouse from an understatement of tax attributable to the other spouse's taxable income where the innocent spouse had no reason to know of the income,26 U.S.C. § 6015 (b) ;
2. It relieves a separated spouse from an understatement of tax attributable to the other spouse if the joint filers are living apart, no longer married, or legally separated,id. § 6015(c) ; and
3. It authorizes equitable relief from an understatement or underpayment of tax if a petitioning spouse does not qualify for relief under either of the first two options,id. § 6015(f).
Christensen v. Comm'r of Internal Revenue,
Under
B. Motion for a Stay
The district court has broad discretion to stay proceedings as an incident to its power to control its own docket. Clinton v. Jones,
On the third factor, Defendants seek a stay pending resolution of the issues of "fraudulent transfers" and "nominee theory of ownership" now before the U.S. Tax Court arguing the Court lacks jurisdiction to consider these issues and a stay would avoid inconsistent rulings.
First, Defendants argue that the Court has lost jurisdiction over the case since they have petitioned the U.S. Tax Court on issues similar to the ones raised in this Court but they fail to provide any legal authority for their summary contention. Defendants do not dispute that the Court has jurisdiction to foreclose under
Defendants also argue that the Court should stay the case due to the potential of inconsistent rulings on the issues of "fraudulent transfer" and "nominee theory of ownership"
As to the issue of fraudulent transfer, Defendants refer to the IRS' denial of Victoria's innocent spouse relief where the reason for the denial was based on a finding that Victoria received assets from Charles as "part of a fraudulent scheme or for the principal purpose of avoiding tax or the payment of tax." (Dkt. No. 65-4, Charles Decl., Ex. 1 at 2.) It is not clear what factors the IRS considers to make a determination on whether to grant innocent spouse relief. At the hearing, the government argued that fraudulent transfer is one of many factors that the IRS considers and res judicata may not apply because the U.S. Tax Court may not consider fraudulent transfer as a factor in reviewing the IRS' Final Determinations. At this stage, the issue of res judicata has not been fully addressed by the parties; it is not clear whether it would apply in this case and therefore, it is not clear whether a stay would avoid inconsistent rulings.
Notwithstanding Defendants' res judicata argument, the Internal Revenue Code ("IRC") provides that any IRS collection action should be suspended until a decision concerning innocent spouse relief by the Tax Court has become final.
When Victoria filed her request for innocent spouse relief on August 30, 2017, she sought relief for all the tax years 1992-1995 and 1997-1999. (Dkt. No. 36-4, Ds' RJN, Ex.1.) On May 16, 2018, the IRS issued a Final Determination as to all the tax years 1992-1995 and 1997-1999 even though the IRS had already made Final Determinations for the tax years 1992-1994 on April 23, 2000 and a determination on July 24, 2002 as to tax year 1995.
Based on the procedural posture of this case, a stay should be granted as to Victoria as to all the years that are subject to this litigation since the innocent spouse relief issue is before the U.S. Tax Court. See
In Rodgers, the United States Supreme Court held that § 7403 contemplates the sale of the entire property even though the taxpayer's spouse also has an interest but does not owe any indebtedness and the statute's permissive language leaves "limited room ... for the exercise of reasoned discretion." Rodgers,
In United States v. Battersby, the district court granted an innocent spouse's motion to stay the proceedings of selling the Property jointly owned with her tax delinquent spouse in which she is the 50% joint owner.
However, in another case where the district court granted the government's motion for summary judgment granting a foreclosure order on the subject property, the court rejected the non-delinquent spouse's defense that she would qualify as an "innocent spouse" under
Here, because Victoria has appealed the IRS Determinations on all years of tax liability with the U.S. Tax Court, the foreclosure case should be stayed as to Victoria pending a final ruling by the U.S. Tax Court. See
Accordingly, the Court GRANTS a stay pending a final ruling on the issue of innocent spouse relief by the U.S. Tax Court. If the U.S. Tax Court rules in favor of dismissal of some tax years in the government's recent motion to dismiss, the Court will consider additional briefing as to whether the case should continue to be stayed pending a ruling on the remaining tax years. If the U.S. Tax Court denies the motion to dismiss, the case will be stayed until the U.S. Tax Court's ruling becomes final.
Conclusion
Based on the reasoning above, the Court GRANTS in part Defendants' motion to stay the proceedings until a final ruling by the U.S. Tax Court. Within seven (7) days, Plaintiff shall inform the Court of the Tax Court's ruling. In the event the U.S. Tax Court grants the government's motion to dismiss certain tax years, Plaintiff shall notify the Court of this ruling along with a brief as to whether the stay should be
In light of the Court's ruling, the Court DENIES Defendants' ex parte motion to extend the deadline to file dispositive motions. (Dkt. No. 83.)
IT IS SO ORDERED.
Notes
In a related case, on October 29, 2012, the Court entered judgment in favor of United States of America and against Defendants Charles and Victoria Le Beau in the amount of $1,157,165.85 plus interest accruing after July 1, 2012, and also entered judgment against Defendant Charles Le Beau in the amount of $371,257.66 plus interest accruing after July 1, 2012. (See Case No. 10cv817-GPC(NLS), Dkt. No. 68.)
The Internal Revenue Code ("IRC") provides that any IRS collection action should be suspended until the IRS makes a determination plus 90 days to petition the Tax Court to review the IRS's determination or if a petition has been filed with the Tax Court then until a decision by the Tax Court has become final.
Page numbers are based on CM/ECF pagination.
United States v. LeBeau, Case No. 10-cv-00817-GPC-NLS (S.D. Cal.).
Defendants filed a request for judicial notice of documents. (Dkt. No. 65-2.) Plaintiff does not object because the documents appear to be what Defendants say they are but it reserves the right to object to its admissibility at a later date if the documents are not accurate.
The Court may take judicial notice of a fact "(1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201.
Defendants seek judicial notice IRS Final Determinations letters dated May 16, 2018, Defendants' petition to the U.S. Tax Court, and the case of Fourth Inv. LP v. United States,
Defendants also spend much of their brief discussing the merits of the case which the Court notes are not appropriate at this stage of the proceeding.
There is no indication that the issue of nominee liability is before the U.S. Tax Court.
In its sur-reply, the United States, for the first time, argues that the Court should also stay the proceedings as to Victoria as to tax year 1995 since Victoria filed a request for innocent spouse relief in 2000, (Case No. 10cv817, Dkt. No. 27-16), with a denial on April 25, 2003 by the IRS and the denial was not appealed with the U.S. Tax Court. (Dkt. No. 77-1 at 4.) First, the United States cannot raise arguments for the first time in a sur-reply. See e.g., Zamani v. Carnes,
In McGrew, the spouse sought innocent spouse relief under