Berkshire Bank v. Town of Ludlow , 708 F.3d 249 ( 2013 )

United States Court of Appeals
For the First Circuit
No. 12-1625
BERKSHIRE BANK,
Plaintiff,
v.
TOWN OF LUDLOW, MA,
Defendant, Appellant,
DOUGLAS SHULMAN, Commissioner of Internal Revenue Service;
UNITED STATES OF AMERICA,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
Before
Boudin,* Selya and Stahl,
Circuit Judges.
*
Judge Boudin heard oral argument in this matter and
participated in the semble, but he did not participate in the
issuance of the panel's opinion in this case. The remaining two
panelists have issued the opinion pursuant to 28 U.S.C. § 46(d).
José A. Aguiar, with whom Doherty, Wallace, Pillsbury and
Murphy, P.C. was on brief, for appellant.
Kenneth W. Rosenberg, Tax Division, United States Department
of Justice, with whom Kathryn Keneally, Assistant Attorney General,
and Thomas J. Clark, Tax Division, United States Department of
Justice, were on brief, for appellees.
January 11, 2013
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STAHL, Circuit Judge. This appeal presents the question
of whether a company that owned a particular parcel of land was the
"nominee" of a delinquent taxpayer for purposes of a federal tax
lien that attached to all of the taxpayer's property. We conclude
that it was and therefore affirm the district court's grant of
summary judgment in favor of the United States.
William A. Livermore owned approximately fifteen acres of
undeveloped land in Ludlow, Massachusetts. In August 2005, the
Town of Ludlow (Ludlow) approved Livermore's plan to divide the
property into eleven lots and turn it into a development to be
known as Leland Estates. Ludlow imposed certain restrictions,
contained in a recorded covenant that Livermore executed. That
same month, Livermore obtained a commitment from Berkshire Bank to
make a loan to fund the development. The commitment stipulated
that the loan would be made to "William A. Livermore or nominee"
and that, if Livermore assigned the commitment to a nominee, he
would be required to guarantee the loan personally.
In September 2005, Livermore registered with the
Commonwealth of Massachusetts a limited liability company (LLC)
called WAL Development, LLC (WAL). Livermore was the company's
sole member, owner, resident agent, and manager, and WAL's business
address was Livermore's home address. Livermore formed WAL
exclusively to develop Leland Estates. In December 2005, he
transferred title of the property to WAL by quitclaim deed,
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receiving no consideration for the transfer.1 WAL established a
line of credit with Berkshire Bank, secured by a mortgage on Leland
Estates. Livermore signed the mortgage deed and related documents
in the name of the LLC, but he personally guaranteed repayment of
the loan and made the mortgage payments from an account held in his
own name at Berkshire Bank.
As parcels of the Leland Estates property were sold,
Livermore deposited the proceeds into that same Berkshire Bank
account. He then transferred a portion of those proceeds into a
separate account at Citizens Bank and used them to pay his personal
expenses. During tax years 2006, 2007, and 2008, Livermore
incurred significant unpaid federal tax liabilities, arising in
large part from the net income of WAL, which he reported on his
individual tax returns. In March 2009, the Internal Revenue
Service (IRS) recorded a Notice of Federal Tax Lien2 with regard to
Livermore's 2006 and 2007 income tax liabilities.
Meanwhile, the Leland Estates development encountered
financial difficulties, and the loan became delinquent. Berkshire
Bank foreclosed on the four unsold lots that remained and sold them
1
Though Livermore received no consideration from WAL, he did
obtain a $498,750 mortgage loan from Berkshire Bank when he
transferred the land to WAL and used some of that loan to pay off
a prior mortgage he had on the property.
2
A federal tax lien attaches to "all property and rights to
property, whether real or personal, belonging to" a taxpayer. 26
U.S.C. § 6321.
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at auction. The auction proceeds satisfied the outstanding balance
on the mortgage, and $92,703.94 remained in surplus proceeds. In
August 2010, Berkshire Bank filed this interpleader action in the
Massachusetts Probate and Family Court to determine who had the
right to the surplus proceeds.
The bank joined Ludlow, Siok & Son Excavation (Siok), the
Commissioner of the IRS, and WAL. WAL made no claim to the surplus
proceeds, and Siok stopped participating in the case once it was
removed to federal court in October 2010. Ludlow claimed an
interest in the interpleader fund based on a $135,000 judgment that
it had obtained against WAL in June 2010, resulting from WAL's
failure to complete the Leland Estates development as it had
promised to do in its 2005 covenant with Ludlow. The United
States, for its part, claimed an interest in the fund as a result
of the assessments for Livermore's unpaid 2006, 2007, and 2008
federal income tax liabilities and the March 2009 notice of federal
tax lien. The claims of the United States and Ludlow each exceeded
the amount of the surplus proceeds.
The United States moved for summary judgment, arguing
that WAL was Livermore's nominee or alter ego.3 Ludlow conceded
3
According to the IRS, "[a]s used in the federal tax lien
context, a nominee is generally a third-party individual who holds
legal title to property of a taxpayer while the taxpayer enjoys
full use and benefit of that property." I.R.M. 5.17.2.5.7.2(1).
The alter ego theory, on the other hand, "focuses more on those
facts associated with a 'piercing the corporate veil' analysis."
William D. Elliot, Federal Tax Collections, Liens and Levies
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that the federal tax lien had temporal priority over its judgment
lien but responded that WAL was not Livermore's nominee or alter
ego. The district court granted the motion for summary judgment,
finding that WAL was "manifestly" Livermore's nominee. Berkshire
Bank v. Town of Ludlow, No. 10–cv–30198, 2012 WL 1085568, at *2 (D.
Mass. Mar. 29, 2012).
The United States advocated for, and the district court
applied, a multi-factor test derived from federal law to determine
nominee status. See id. On appeal, Ludlow does not take issue
with the district court's use of that test but rather argues that
the factors weigh in its favor enough to create a genuine dispute
of material fact. We pause to note, however, that "[w]hether a
particular asset belongs to a taxpayer is a question of state law."
Dalton v. Comm'r, 682 F.3d 149, 157 (1st Cir. 2012); see also Drye
v. United States, 528 U.S. 49, 58 (1999) ("We look initially to
state law to determine what rights the taxpayer has in the property
the Government seeks to reach, then to federal law to determine
whether the taxpayer's state-delineated rights qualify as
'property' or 'rights to property' within the compass of the
federal tax lien legislation."); Holman v. United States, 505 F.3d
1060, 1067-68 (10th Cir. 2007); Spotts v. United States, 429 F.3d
248, 251-53 (6th Cir. 2005); Scoville v. United States, 250 F.3d
1198, 1202 (8th Cir. 2001).
¶ 9.10[2] (2d ed. 2008).
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Thus, in reviewing a collection due process determination
by the IRS in Dalton, we held that Maine law provided "the
substantive rules of decision" as to whether a trust was merely a
nominee for the taxpayers. 682 F.3d at 157. Maine recognized
something similar to the nominee doctrine, but state case law did
not "fully delineate the contours of" that doctrine. Id. We found
that the IRS had acted reasonably in applying case law from other
jurisdictions -- primarily federal cases -- "to fill the void and
illuminate Maine's nominee doctrine." Id.
In this case, however, the parties have not even
mentioned the state law question on appeal, nor did the district
court address it below. We will therefore assume, without
deciding, that Livermore had an adequate interest in the Leland
Estates property under Massachusetts law, because Ludlow has waived
any claim to the contrary. See Farris v. Shinseki, 660 F.3d 557,
562 n.5 (1st Cir. 2011). We will also assume, again because Ludlow
has not argued otherwise, that it was appropriate for the district
court to apply the federal nominee test. See id.Our standard of review merits one additional detour. In
the typical summary judgment case, our review is de novo. See
Reich v. John Alden Life Ins. Co., 126 F.3d 1, 6 (1st Cir. 1997).
As Ludlow conceded at oral argument, however, this is a non-jury
case in which "[t]here are no significant disagreements about [the]
basic facts," and the parties have not sought to introduce
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additional evidence or present witnesses. EEOC v. S.S. Clerks
Union, Local 1066, 48 F.3d 594, 603 (1st Cir. 1995) (quoting
Federacion de Empleados del Tribunal Gen. de Justicia v. Torres,
747 F.2d 35, 36 (1st Cir. 1984)) (first alteration in original).
Instead, the parties' dispute centers around the inferences that
the district court should have drawn from the facts at issue. In
such a case, we can "assume that 'the parties considered the matter
to have been submitted below as a case ready for decision on the
merits.'" John Alden, 126 F.3d at 6 (quoting Federacion de
Empleados, 747 F.2d at 36). Accordingly, we review the district
court's factual inferences for clear error only, though the court's
"ultimate application of the law to the facts . . . remains subject
to de novo review." Id.The district court considered the nominee factors
articulated in In re Callahan, 442 B.R. 1 (D. Mass. 2010), which
are as follows:
[1] the lack of consideration paid by the
titleholder; [2] a close relationship between
the taxpayer and the titleholder; [3] the
control exercised over the property by the
taxpayer while title is held by another;
[4] the use and enjoyment by the taxpayer of
the property titled to another; [5] lack of
interference in taxpayer's use of property by
the titleholder; [6] the use of property or
funds titled to another to pay the taxpayer's
personal expenses;4 [7] whether the taxpayer
4
The district court seems to have conflated factors five and
six. See Berkshire Bank, 2012 WL 1085568, at *2 (considering "the
lack of interference in a taxpayer's personal expenses").
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exercises dominion and control over the
property, or treats it as if it belongs to
him; [8] whether title was placed in the
record owner's name as a result of or in
anticipation of the taxpayer's liability.
Id. at 6 n.5; see also Dalton, 682 F.3d at 158 (listing a similar
set of factors). "Virtually without exception, courts focus on the
totality of the circumstances without regarding any single factor
as the sine qua non of a nominee relationship." Dalton, 682 F.3d
at 158.
We agree with the district court that those factors weigh
in favor of finding that WAL was Livermore's nominee. See
Berkshire Bank, 2012 WL 1085568, at *2. First, Livermore
transferred the property to WAL for no consideration. Second, the
relationship between Livermore and WAL was very close. No one else
had any interest in the company, made decisions for the company, or
benefitted from its income, and WAL operated out of Livermore's
home. Third, Livermore exercised total control over the property
and its development. Fourth, and relatedly, he also had complete
use and enjoyment of the property, as evidenced by his formulation
and execution of the plan to subdivide the property and sell off
the lots. Fifth, WAL did not interfere with that use of the
property. Sixth, Livermore admitted during his deposition that he
used ten to fifteen percent of the revenue from WAL to pay his
personal expenses. Seventh, Livermore treated the property as if
it belonged to him. Eighth, he testified that he set up the LLC
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and transferred title to the property solely to avoid legal
liability "in case somebody got hurt on the property."5
There are certainly some countervailing considerations.
The deed memorializing the transfer from Livermore to WAL was
properly recorded. WAL had a lawyer and an accountant (who also
rendered services to Livermore), filed annual reports with the
Massachusetts Secretary of State, and kept records of its corporate
transactions.6 Livermore segregated those records from his
personal ones, and his attorney maintained a corporate book.
Livermore also used what the district court described as "a
separate checking account" for WAL at Berkshire Bank, from which he
made mortgage payments and paid property taxes and insurance
premiums. Berkshire Bank, 2012 WL 1085568, at *2.
Importantly, however, the Berkshire Bank account was held
in Livermore's name, not WAL's, and Livermore testified that he
"frequently" (in other words, "[p]robably once a month")
5
Ludlow seems to suggest on appeal that the taxpayer must
have transferred the property to avoid tax liability specifically.
Case law does not support that proposition. See, e.g., Dalton, 682
F.3d at 158 (describing the factor as "whether the property was
transferred in anticipation of liability"); Holman, 505 F.3d at1065 n.1 (describing the factor as "whether the property was placed
in the nominee's name in anticipation of a lawsuit or other
liability"); Oxford Capital Corp. v. United States, 211 F.3d 280,
284 n.1 (5th Cir. 2000) (describing the factor as whether the
property was "placed in the name of the nominee in anticipation of
a suit or occurrence of liabilities").
6
The district court's finding that WAL filed income tax
returns with the IRS is not supported by the record.
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transferred money from the account into his personal account at
Citizens Bank. More specifically, as mentioned above, Livermore
estimated that he moved about ten to fifteen percent of the money
from the Berkshire Bank account into his Citizens Bank account to
pay for personal expenses. There was never any truly separate
account for WAL. That blurring of the lines between WAL and
Livermore speaks to the closeness of their relationship and the
degree to which, post-transfer, Livermore continued to treat the
Leland Estates property as his own and fully benefit from it. See
In re Callahan, 442 B.R. at 6 n.5; Dalton, 682 F.3d at 158.
The ultimate inquiry in a nominee case "is whether the
taxpayer has engaged in a legal fiction by placing legal title to
property in the hands of a third party while actually retaining
some or all of the benefits of true ownership." Holman, 505 F.3d
at 1065. In answering that question, the district court had to
draw inferences about the relative significance or insignificance
of the essentially undisputed facts. We discern no clear error in
those inferences, nor any error in the court's ultimate conclusion
that WAL was Livermore's nominee. See John Alden, 126 F.3d at 6.
We do not wish to suggest, as Ludlow fears, that a single-member,
single-purpose LLC can never escape nominee status for purposes of
a federal tax lien. But under the circumstances presented here,
there was simply too much intermingling of funds and too close of
a relationship between Livermore and WAL for us to conclude that
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WAL was anything other than "a legal fiction." Holman, 505 F.3d at
1065.
Like the district court, we take "very little pleasure in
this ruling, which leaves Ludlow with an unfinished subdivision."
Berkshire Bank, 2012 WL 1085568, at *3. However, the statutory
language creating the federal tax lien "is broad and reveals on its
face that Congress meant to reach every interest in property that
a taxpayer might have." United States v. Nat'l Bank of Commerce,
472 U.S. 713, 719-20 (1985) (citation omitted). Accordingly, we
affirm.
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