Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-02057/USCOURTS-casd-3_15-cv-02057-1/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7401 IRS: Tax Liability - Authorization to collect via civil action

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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

UNITED STATES OF AMERICA, 

Plaintiff,

v. 

JOHN MICHAEL PAULSON, as the 

Executor or Statutory Executor of the 

Estate of Allen E. Paulson, and 

Individually; JAMES D. PAULSON, as 

Statutory Executor of the Estate of Allen 

E. Paulson; VIKKI E. PAULSON, as 

Statutory Executor of the Estate of Allen 

E. Paulson Living Trust, and Individually; 

CRYSTAL CHRISTENSEN, as Statutory 

Executor of the Estate of Allen E. 

Paulson, as Trustee of the Allen E. 

Paulson Living Trust, and Individually; 

MADELEINE PICKENS, as Statutory 

Executor of the Estate of Allen E. 

Paulson, as Trustee of the Marital Trust 

created under the Allen E. Paulson Living 

Trust, as Trustee of the Madeleine Anne 

Paulson Separate Property Trust, and 

Individually, 

Defendants.

 Case No.: 15cv2057-AJB-NLS 

ORDER GRANTING IN PART AND 

DENYING IN PART CROSSDEFENDANTS VIKKI E. PAULSON 

AND CRYSTAL L. CHRISTENSEN’S 

MOTION TO DISMISS CROSSCLAIMANT MADELEINE 

PICKENS’S CROSS-CLAIMS 

(Doc. No. 63) 

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MADELEINE PICKENS, as Statutory 

Executor of the Estate of Allen E. 

Paulson, as Trustee of the Marital Trust 

created under the Allen E. Paulson Living 

Trust, as Trustee of the Madeleine Anne 

Paulson Separate Property Trust, and 

Individually, 

Cross-claimant,

v. 

JAMES D. PAULSON, as Statutory 

Executor of the Estate of Allen E. 

Paulson; VIKKI E. PAULSON, as 

Statutory Executor of the Estate of Allen 

E. Paulson, as Trustee of the Allen E. 

Paulson Living Trust, and Individually; 

and CRYSTAL CHRISTENSEN, as 

Statutory Executor of the Estate of Allen 

E. Paulson, as Trustee of the Allen E. 

Paulson Living Trust, and Individually, 

Cross-defendants.

 

 On September 16, 2015, the United States of America instituted an action to recover 

unpaid estate taxes, penalties, and interest from the Estate of Allen E. Paulson. (Doc. No. 

1.) Presently before the Court is Vikki Paulson and Crystal Christensen’s motion to dismiss 

Madeleine Pickens’s cross-claims. (Doc. No. 63.) Having reviewed the parties’ arguments, 

the Court finds this motion suitable for determination on the papers and without oral 

argument in accordance with Civil Local Rule 7.1.d.1. For the reasons set forth more fully 

below, the Court GRANTS Vikki Paulson and Crystal Christensen’s request for judicial 

notice and GRANTS IN PART and DENIES IN PART Vikki Paulson and Crystal 

Christensen’s motion to dismiss Madeleine Pickens’s cross-claims. 

/// 

/// 

/// 

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I. FACTUAL BACKGROUND 

The following facts are taken from the complaint and construed as true for the 

limited purpose of resolving the pending motion. See Moyo v. Gomez, 40 F.3d 982, 984 

(9th Cir. 1994).

 On December 23, 1986, Allen Paulson (“Mr. Paulson”) established the Allen E. 

Paulson Living Trust (hereafter referred to as “the Living Trust”). (Doc. No. 55 ¶ 7.) In 

1988, before their marriage, Mr. Paulson and Madeleine Pickens (“Ms. Pickens”) entered 

into an Antenuptial Agreement. (Id. ¶ 8.) On July 19, 2000, Mr. Paulson died. (Id. ¶ 10.) 

Mr. Paulson was survived by several heirs, including his wife, Ms. Pickens, his three sons, 

Richard Paulson, James Paulson, and Michael Paulson, and a granddaughter Crystal 

Christensen. (Id. ¶ 11.) 

 At the time of Mr. Paulson’s death, the Living Trust held all of Mr. Paulson’s assets 

except for his shares in the Gold River Hotel & Casino Corporation (hereafter referred to 

as “Gold River shares”). (Id. ¶ 14.) The Living Trust’s assets included real estate valued at 

$24,764,500, stocks and bonds valued at $113,761,706, cash and receivables valued at 

$23,664,644, and miscellaneous assets valued at $31,243,494.1

 (Id.) 

 In 2003, Ms. Pickens entered into a settlement agreement with Michael Paulson and 

Nicholas Diaco, co-trustees of the Living Trust, and with Michael Paulson and James D. 

Paulson, individually (hereafter referred to as the “2003 Settlement”). (Id. ¶ 17.) The 2003 

Settlement was meant to resolve prolonged litigation regarding Ms. Pickens’s right to 

certain properties pursuant to the Living Trust and the Antenuptial Agreement, which 

Michael Paulson refused to transfer to her. (Id. ¶ 15.) Specifically, the 2003 Settlement 

imparted to Ms. Pickens various properties whose transfers fully discharged and terminated 

any and all interest Ms. Pickens had in the Living Trust and Estate. (Id. ¶ 17.) 

 After Mr. Paulson’s death, Michael Paulson and Edward White were appointed and 

served as co-executors of the Living Trust until Edward White’s resignation on October 8, 

2001. (Id. ¶ 12.) Edward White was then replaced by Nicholas Diaco. (Id. ¶ 16.) On March 

                                                                

1

 The value of the assets listed were valued at the time of Mr. Paulson’s death. (Doc. No. 55 ¶ 14.) 

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24, 2009, the Probate Court removed Michael Paulson as co-trustee of the Living Trust for 

misconduct and gross mismanagement of the Living Trust’s assets. (Id. ¶ 24.) The court 

then appointed Vikki Paulson and James D. Paulson as co-trustees. (Id. ¶ 25.) In April of 

2009, the net value of the assets of the Living Trust totaled $13,738,727. (Id.) On June 10, 

2010, James D. Paulson was removed as co-trustee for breach of court orders. (Id. ¶ 26.) 

Vikki E. Paulson thus served as the sole trustee of the Living Trust until February 28, 2011, 

when Crystal Christensen was appointed to serve as co-trustee with her. (Id.) The net value 

of the assets of the Living Trust in 2011 totaled $8,802,034. (Id.) 

 On January 15, 2013, Vikki Paulson and Crystal Christensen, as co-trustees of the 

Living Trust, entered into a settlement agreement with Michael Paulson to which they 

distributed substantially all of the remaining assets of the Living Trust to Michael Paulson 

free of any encumbrances. (Id. ¶ 27.) The assets included the Trust’s $28.5 million 

investment in Supersonic Aerospace International, LLC, and the stock in the Gold River 

shares, which the IRS valued at $5,380,000. (Id.) 

 On January 16, 2005, the IRS determined there existed a deficiency in estate tax in 

the amount of $37,801,245. (Id. ¶ 21.) Mr. Paulson’s taxable estate, net of the property 

distributed to Ms. Pickens, totaled $77,963,709. (Id.) On December 2, 2005, the IRS and 

Michael Paulson agreed upon an estate tax deficiency in the amount of $6,699,477. (Id. ¶ 

22.) According to the Tax Court decision, all of the transfers to Ms. Pickens qualified for 

the marital deduction under 26 U.S.C. § 2056. 2 (Id.) In 2015, the United States then filed 

a complaint seeking a judgment against the Estate of Allen E. Paulson for $10,621,217 in 

unpaid estate taxes, penalties, and interest. (Doc. No. 1 at 1.) 

 In sum, Ms. Pickens alleges that pursuant to California Probate Code §§ 16000-

16015, James Paulson, Vikki Paulson, and Crystal Christensen had a duty to administer the 

Living Trust according to its terms, to act impartially in investing, to refrain from using or 

dealing with the property of the Living Trust for his or her own profit, and to take 

                                                                

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 Section 2056 states that the value of the taxable estate under the marital deduction shall “be determined 

by deducting from the value of the gross estate an amount equal to the value of any interest in property 

which passes or has passed from the decedent to his surviving spouse, but only to the extent that such 

interest is included in determining the value of the gross estate.” 28 U.S.C. § 2056. 

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reasonable steps to control and preserve the property of the Living Trust for the benefit of 

all beneficiaries. (Doc. No. 55 ¶ 29.) However, Ms. Pickens contends that James and Vikki 

Paulson, and Crystal Christensen breached their fiduciary duty to Ms. Pickens by failing to 

apply the assets of the Living Trust to discharge the estate tax liabilities due to the United 

States as agreed upon in the 2003 Settlement. (Id. at 7-10.) 

II. PROCEDURAL BACKGROUND 

 On September 16, 2015, the United States of America filed a complaint against John 

Michael Paulson, James D. Paulson, Vikki E. Paulson, Crystal Christensen, and Madeleine 

Pickens for unpaid taxes. (See generally Doc. No. 1.) On November 13, 2015, Madeleine 

Pickens filed a motion to dismiss. (Doc. No. 15.) On December 7, 2015, Crystal 

Christensen, and Vikki E. Paulson filed another motion to dismiss. (Doc. No. 19.) On 

January 13, 2016, James D. Paulson also filed a motion to dismiss. (Doc. No. 36.) On 

February 8, 2016, Crystal Christensen and Vikki E. Paulson filed a motion to dismiss 

Michael Paulson’s cross-claim. (Doc. No. 44.) On September 6, 2016, the Court granted in 

part and denied in part Madeleine Pickens’s motion to dismiss, granted in part and denied 

in part Vikki Paulson and Crystal Christensen’s motion to dismiss, denied James Paulson’s 

motion to dismiss, denied Madeleine Pickens’s motion to dismiss, and denied Vikki 

Paulson and Crystal Christensen’s motion to dismiss Michael Paulson’s cross-claim. (Doc. 

No. 54.) On September 20, 2016, Ms. Pickens filed a cross-claim against Crystal 

Christensen, James Paulson, and Vikki Paulson. (Doc. No. 55.) The present action by 

Crystal Christensen and Vikki Paulson (collectively referred to as “Cross-defendants”) was 

filed on October 14, 2016.3

 (Doc. No. 63.) Ms. Pickens opposes the motion. (Doc. No. 65.) 

III. LEGAL STANDARD 

 A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a plaintiff’s 

complaint and allows a court to dismiss a complaint upon a finding that the plaintiff has 

failed to state a claim upon which relief may be granted. See Navarro v. Block, 250 F.3d 

729, 732 (9th Cir. 2001). “[A] court may dismiss a complaint as a matter of law for (1) lack 

                                                                

3

 Though the cross-claim by Ms. Pickens was against Crystal Christensen, Vikki Paulson, and James 

Paulson. The Court notes that James Paulson is not a party to the present motion to dismiss. 

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of a cognizable legal theory or (2) insufficient facts under a cognizable legal claim.” 

SmileCare Dental Grp. v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir. 1996) 

(citations omitted). However, a complaint will survive a motion to dismiss if it contains 

“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. 

Twombly, 550 U.S. 544, 570 (2007). In making this determination, a court reviews the 

contents of the complaint, accepting all factual allegations as true, and drawing all 

reasonable inferences in favor of the nonmoving party. Cedars-Sinai Med. Ctr. v. Nat’l 

League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). 

 Notwithstanding this deference, the reviewing court need not accept “legal 

conclusions” as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). It is also improper for a 

court to assume “the [plaintiff] can prove facts that [he or she] has not alleged.” Associated 

Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 

(1983). However, “[w]hen there are well-pleaded factual allegations, a court should assume 

their veracity and then determine whether they plausibly give rise to an entitlement to 

relief.” Iqbal, 556 U.S. at 679. 

IV. DISCUSSION 

 A. Judicial Notice 

 As an initial matter, Cross-defendants ask the Court to take judicial notice of the 

2003 Settlement in support of their motion to dismiss. (Doc. No. 63-2.) Federal Rule of 

Evidence 201 allows a court to take judicial notice of facts that can be “accurately and 

readily determined from sources whose accuracy cannot be reasonably be questioned.” 

Fed. R. Evid. 201(b)(2); Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 

(9th Cir. 2006). The court may also take judicial notice of documents that are matters of 

public record. See MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) 

(noting a district court may take “judicial notice of matters of public record outside the 

pleadings” when determining whether a complaint fails to state a claim). 

 Cross-defendants contend that Ms. Pickens’s cross-claim relies upon the 2003 

Settlement, thus the Court may consider it. (Doc. No. 63-1 at 10.) A court may take judicial 

notice of a document on a motion to dismiss pursuant to Rule 12(b)(6), if the unattached 

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document is “evidence on which the complaint ‘necessarily relies’ if: (1) the complaint 

refers to the document; (2) the document is central to the plaintiff’s claim; and (3) no party 

questions the authenticity of the document.” U.S. v. Corinthian Colleges, 655 F.3d 984, 

999 (9th Cir. 2011). The Court finds the 2003 Settlement central to the instant action. This 

is evident by Ms. Pickens’s repeated use of portions of the 2003 Settlement throughout her 

cross-claim. Furthermore, neither party disputes the authenticity or opposes the use of the 

2003 Settlement. As a result, the Court GRANTS Cross-defendants’ request for judicial 

notice. 

 B. Cross-defendants’ Motion to Dismiss 

 Cross-defendants argue two main contentions in support of their motion to dismiss: 

(1) that they do not owe, and have never owed, Ms. Pickens any fiduciary duty; and (2) 

that Ms. Pickens’s claims for indemnity should be dismissed to the extent they are alleged 

against Cross-defendants in their personal capacity. (Doc. No. 63-1 at 11-14.) 

1. The Alleged Breach of Fiduciary Duty 

 Cross-defendants contend that Ms. Pickens is no longer a beneficiary to the trust as 

pursuant to the 2003 Settlement, the various properties transferred to Ms. Pickens “fully 

discharged and terminated any and all interest she had in the Living Trust and Estate.” (Id.

at 11-12.) As a result, Ms. Pickens lacks standing to challenge the alleged acts of Crossdefendants. (Id. at 12.) In opposition, Ms. Pickens contends that pursuant to Section 21 of 

the 2003 Settlement, all estate taxes are the obligation of the co-trustees of the Living Trust.

(Doc. No. 55 ¶ 18.) 

 Section 21 of the 2003 Settlement states: 

 Except as otherwise provided in this Paragraph 21, the Parties 

acknowledge and agree that [Ms. Pickens] shall have no liability 

for the payment of Death Taxes, or gift taxes attributable to gifts 

made by [Mr. Paulson] during his lifetime, and that all such taxes 

shall be paid by the Co-Trustees, and, in furtherance of such 

obligation, the Co-Trustees agree to indemnify, defend and hold 

harmless [Ms. Pickens] from and against any such liability. The 

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liability for any estate tax or gift tax . . . payable as a result of any 

distribution made to [Ms. Pickens] pursuant to this Agreement 

shall be borne entirely by [Ms. Pickens]. 

(Doc. No. 63-3 at 36.) 

 Here, even taking the allegations in the cross-claim as true, Ms. Pickens has failed 

to sufficiently state a claim for breach of fiduciary duty.4

 In her cross-claim, Ms. Pickens 

summarily concludes that Cross-defendants breached their fiduciary duty to her by failing 

to apply the assets of the Living Trust to discharge the estate tax liability. (Doc. No. 55 ¶¶ 

42, 54.) However, the Court highlights that Ms. Pickens also repeatedly states throughout 

her cross-claim that the transfer of properties under the 2003 Settlement “fully discharged 

and terminated any and all interest she had in the Living Trust and Estate.” (Id. ¶¶ 17, 21, 

24, 27.) Accordingly, it is unclear to the Court how Ms. Pickens can be owed a fiduciary 

duty when the 2003 Settlement ended her rights as a beneficiary. See Cal. Prob. Code § 

16464(a) (“[A] beneficiary may be precluded from holding the trustee liable for a breach 

of trust by the beneficiary’s release or contract effective to discharge the trustee’s liability 

to the beneficiary for that breach.”). 

 Thus, the Court finds that the cross-claim lacks factual allegations to properly plead 

a claim for which relief may be granted. Specifically, the cross-claim does not plead how 

Ms. Pickens is still owed a fiduciary duty or how she may bring this action against Crossdefendants when the distributions made under the 2003 Settlement discharged her interest 

in the Living Trust. Additionally, even if Ms. Pickens was successful in pleading the first 

two elements of a claim for breach of fiduciary duty, the Court is unable to determine from 

her cross-claim any evidence of damages as no liability for the estate taxes at issue has 

been determined. 

 The Court does note that Ms. Pickens argues in her Opposition that Cross-defendants 

are liable for their predecessors’ breach because they knew that their predecessors had not 

                                                                

4

 The elements of a claim for breach of fiduciary duty are: (1) the existence of a fiduciary duty; (2) 

breach of the fiduciary duty; and (3) damage proximately caused by the breach. Neilson v. Union Bank 

of Cal., N.A., 290 F. Supp. 2d 1101, 1137 (2003). 

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paid the estate taxes, permitted the non-payment to continue, and that their fiduciary duty 

to her is not “discharged until her property is no longer subject to claims for estate tax.” 

(citing Mims-Brown v. Brown, 428 S.W. 3d 366, 375 (Tex. App. 2014)) (Doc. No. 65 at 

4.)5

 However, the Court is unwilling to assume facts that are not alleged in the complaint. 

See Associated Gen. Contractors of Cal., Inc., 459 U.S. at 526. As a result, as currently 

configured, Ms. Pickens has not properly pled a cause of action for breach of fiduciary 

duty. Accordingly, Ms. Pickens’s claim is DISMISSED. 

 2. Indemnification 

 Ms. Pickens next argues that under Section 21 and 41 of the 2003 Settlement that 

co-trustees agreed to indemnify her for any estate tax liability and for reasonable attorney’s 

fees. (Doc. No. 55 ¶¶ 46-51, 58-63.) In opposition, Cross-defendants first argue that 

Section 41 only refers to litigation between the “Parties” to the 2003 Settlement. (Doc. No. 

63-1 at 14-15.) Thus, as Cross-defendants were not “parties” to the agreement as defined 

by the 2003 Settlement, Ms. Pickens has no legal basis to hold them liable. (Id.) Second, 

Cross-defendants argue that under Section 18000 of the California Probate Code that a 

trustee is not personally liable for obligations incurred in administration of a trust. (Id. at 

13.) 

 Section 41 of the 2003 Settlement states that “[i]n the event of any litigation between 

the Parties to enforce any of the provisions of this Agreement or any right of any Party 

arising out of this Agreement, the unsuccessful party to such litigation agrees to pay to the 

prevailing Party all costs and expenses, including reasonable attorney’s fees incurred by 

the prevailing Party . . . .” (Doc. No. 63-3 at 51.) “Party” or “Parties” is defined by the 2003 

Settlement as a “party or the parties to this Agreement.” (Id. at 7.) “Co-Trustees” is defined 

as either “(1) Michael J. Paulson, or his successor, serving as the sole Trustee, or (2) J. 

Michael Paulson, or his successor, and such other person as may be appointed to serve as 

a co-trustee . . . .” (Id. at 5.) 

                                                                

5

 The Court also notes that it finds this case from Texas not only unpersuasive, but also inapplicable to 

the present matter as Mims-Brown involves the right of survivorship in a joint tenancy. Mims-Brown,

428 S.W. at 369. 

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 Here, Ms. Pickens precipitously states that under Section 41 of the 2003 Settlement 

that she is entitled to recover from the co-trustees i.e. Cross-defendants for any expenses 

in litigating portions of the 2003 Settlement. (Doc. No. 55 ¶¶ 51, 63.) However, this bare 

assertion not only misstates the phrasing of Section 41, but also lacks plausible legal and 

factual allegations to show how Cross-defendants as “co-trustees” are also “parties” to the 

2003 Settlement. As stated above, the 2003 Settlement clearly provides two separate 

definitions for “parties” and “co-trustee.” In addition, as noted by Cross-defendants in their 

motion to dismiss, the opening paragraphs of the 2003 Settlement identify several persons 

as “parties” to the 2003 Settlement, including Michael Paulson and Nicholas Diaco, but 

makes no reference to either of the Cross-defendants or any future co-trustee of the Living 

Trust. (Doc. No. 63-1 at 15.) In short, Ms. Pickens’s cross-claim jumbles and misstates the 

actual terms of Section 41. Thus, having failed to plead sufficient facts to support her 

argument, Ms. Pickens’s claim under Section 41 of the 2003 Settlement is DISMISSED. 

 Next, as to Cross-defendants’ second contention, Cross-defendants argue that 

Section 21 provides no support to impose personal liability on successor trustees. (Doc. 

No. 63-1 at 14.) Thus, if Ms. Pickens wishes to assert personal liability against Crossdefendants, the Court should grant the motion to dismiss. (Id. at 13-15.) The Court finds 

that Ms. Pickens has not responded to this argument by Cross-defendants. Moreover, it is 

unclear from the phrasing of the cross-claim as to whether Ms. Pickens wishes to pursue 

her claim of indemnity against Cross-defendants personally or in their fiduciary capacity. 

Accordingly, in the limited context in ruling on a motion to dismiss, the Court declines to 

make a finding as to whether Ms. Pickens is indemnified under Section 21 of the 2003 

Settlement. As a result, Cross-defendants’ motion to dismiss as to this claim is DENIED. 

V. CONCLUSION 

 For the reasons set forth more fully above, the Court GRANTS Cross-defendants’ 

request for judicial notice and GRANTS IN PART and DENIES IN PART Crossdefendants’ motion to dismiss Ms. Pickens’s cross-claim. Additionally, finding that 

amendment would not be futile or prejudicial, the Court will allow Ms. Pickens leave to 

amend. Thus, if Ms. Pickens may plausibly allege additional facts to cure the deficiencies 

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noted herein, she may file an amended cross-claim within fourteen (14) days of the date of 

this order. Cross-defendants are otherwise ordered to file an answer to the cross-claim, as 

applicable, within fourteen (14) days of the date of this order or within fourteen (14) days 

of an amended cross-claim being filed, whichever is later. 

IT IS SO ORDERED. 

 

Dated: January 4, 2017 

 

 

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