Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-02176/USCOURTS-caed-2_05-cv-02176-11/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7401 IRS: Tax Liability

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA, 2:05-CV-02176-MCE-CMK

Plaintiff,

v. MEMORANDUM AND ORDER

MICHAEL CAREY; LEONE CAREY;

DOUGLAS CARPA and ROBERT

TALBOT (or their successor

trustees), as Trustees of the

RANCH HOLDING TRUST; MICHAEL

BLOOMQUIST (or his successor

trustee), as Trustee of the

HIDDEN MEADOWS HOLDING TRUST;

PAMELA GRAFF; PATRICIA WELCH

(aka PATRICIA KOERNER); STATE

OF CALIFORNIA FRANCHISE TAX

BOARD, and STATE OF CALIFORNIA

DEPARTMENT OF INDUSTRIAL

RELATIONS,

Defendants.

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 Because oral argument will not be of material assistance, 1

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h). 

2

The United States filed the present action against Michael

and Leone Carey (“Careys”); Douglas Carpa and Robert Talbot (both

as trustees of the Ranch Holding Trust); Michael Bloomquist (as

trustee of the Hidden Meadows Holding Trust); Pamela Graff; and

various other defendants, seeking, inter alia, to foreclose

federal tax liens securing the Careys’ federal income tax

liabilities, plus penalties and interest, against certain real

property located in Redding, Palo Cedro, and in Bella Vista,

California.

Presently before the Court is the United States’ Motion for

Default Judgment against Douglas Carpa and Robert Talbot (as

trustees of the Ranch Holding Trust), Michael Bloomquist (as

trustee of the Hidden Meadows Holding Trust), and Pamela Graff

adjudicating that the Ranch Holding Trust, the Hidden Meadows

Holding Trust, and Pamela Graff have no interest in the Palo

Cedro, Redding, and Bella Vista Properties. In conjunction with

the United States’ Motion for Default Judgment, the government

has filed a Motion for Summary Judgment against Michael and Leone

Carey declaring that the Careys are the true and beneficial

owners of the Palo Cedro, Redding, and Bella Vista properties

despite any purported interests held by the foregoing trusts. 

For the reasons set forth below, the United States’ Motions for

Default Judgment and for Summary Judgment are GRANTED.1

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BACKGROUND

According to the Government’s Complaint, a delegate of the

Secretary of the Treasury made assessments against the Careys for

unpaid federal income taxes, plus penalties and interest, for the

1995 through 2000 tax years. As of November 18, 2004, there

allegedly remains due and owing from the Careys, jointly and

severally, the sum of $6,473,034.57 on the assessments, plus

accrued interest, penalties and other statutory additions as

provided by law. Interest has now accrued on the liability, such

that as of February 28, 2007, the Careys owed $7,475,470.08. The

United Stated contends that, to date, the Careys have neglected,

failed, or refused to fully pay the indebted amounts.

The United States alleges that the Careys are the true and

beneficial owners of real property located in Palo Cedro,

Redding, and Bella Vista, California. The Careys transferred the

Palo Cedro and Redding properties to the Ranch Holding Trust

administered by Douglas Carpa and/or Robert Talbot. The Bella

Vista property is in the Hidden Meadows Holding Trust,

administered by Michael Bloomquist. The United States alleges

the Trusts are the nominees and/or alter ego’s of the Careys. 

None of the Defendants has properly answered the

Government’s Complaint. The filed Answers of Defendants Carpa

and Bloomquist were struck by Order of this Court as improper. 

Defendant Graff’s Motion to Dismiss was similarly struck down as

defective and a new motion was never filed. On July 31, 2006,

the Clerk entered default against Robert Talbot, Douglas Carpa,

Michael Bloomquist, and Pamela Graff.

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The Careys have been involved in significant litigation with

the United States involving the tax years at issue including

claims before the United States Bankruptcy Court, the United

States Tax Court, and the United States District Court as

follows.

1. United States Bankruptcy Court

On July 28, 2005, the Bankruptcy Court entered judgment in

favor of the United States, finding, inter alia, that the Careys’

tax debts for the tax years at issue are excepted from discharge

under 11 U.S.C. Section 523(a)(1)(C). See Undisputed Facts,

¶ 16.

2. United States Tax Court

The United States Tax Court found a tax deficiency in the

amount of $205,911 and a penalty due in the amount of $41,182

under Section 6662(a) for the tax year 1995. See Undisputed

Facts, ¶ 18. The United States Tax Court also found a tax

deficiency in the amount of $498,933 and penalties due in the

amounts of $74,874.99 and $99,786.60 under Sections 6651(a) and

6662(a), respectively for the tax year 1997. See Undisputed

Facts, ¶ 19. The Tax Court also concluded that the Residential

Management Services Trust, Rancho Residential Services Trust,

Sunshine Residential Trust, and the Home Services Trust were

invalid and sham trusts; that the Careys controlled and dealt

with trust property as if it were their own; that income reported

by these trusts should be imputed as being income earned by the

Careys and not by these trusts; 

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that bank accounts controlled by the Careys paid for the property

taxes on the Palo Cedro and Bella Vista properties; and that the

Careys resided at the Palo Cedro and Bella Vista Properties as

their personal residences. See Undisputed Facts, ¶ 20.

3. United States District Court

The United States has litigated numerous enforcement actions

against the Careys in this Court involving their fraudulent use

of trusts. See United States v. Carey, Case Nos. 2:05-cv-02176;

2:98-cv-01540; 2:98-mc-00289; 2:98-mc-00294; 2:98-mc-00295;

2:98-mc-00296; and 2:98-mc-00297. Those cases have concluded

that enforcement against the Careys of various tax obligations

was proper. 

4. The United States’ Requests For Admissions

The United States served the Careys with various discovery

requests on July 28, 2006, including its First Request for

Admissions. See Undisputed Facts, ¶ 21. The Careys failed to

respond to any of the United States’ discovery requests,

including its First Request for Admissions. See Undisputed

Facts, ¶ 22. The United States’ Request for Admissions included

requests that the Careys admit they: (1) are liable for the

assessments made against them for the tax years at issue,

totaling $6,473,034.57, plus accrued interest, penalties and

other statutory additions as provided by law from the dates of

assessment; (2) are the true and beneficial owners of the Palo

Cedro and Redding Properties despite any purported transfers to

the Ranch Holding Trust; 

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(3) transferred the Palo Cedro and Redding Properties to the

Ranch Holding Trust with the intent of hindering, delaying, or

defrauding their present and future creditors, including the

United States; (4) are the true and beneficial owners of the

Bella Vista Property despite any purported interest held by the

Hidden Meadows Holding Trust; (5) use the Ranch Holding Trust and

the Hidden Meadows Holding Trust as sham entities which lack any

purpose beyond shielding assets, including the Palo Cedro,

Redding, and Bella Vista properties, from the reach of their

creditors and, consequently, that these trusts are the Careys’

nominees and/or alter egos. See Undisputed Facts, ¶ 23.

STANDARD

1. Default Judgment

The starting point for considering whether to grant a motion

for entry of default judgment is the general rule that default

judgments are ordinarily disfavored. Eitel v. McCool, 782 F.2d

1470, 1472 (9th Cir. 1986). Cases should be decided upon their

merits whenever reasonably possible. Pena v. Seguros La

Comercial, S.A., 770 F.2d 811, 814 (9th Cir. 1985). Whether to

grant a motion for default judgment is within the Court’s

discretion. Eitel, 782 F.2d at 1472. The Ninth Circuit has set

forth factors which may be considered in exercising this

discretion: (1) the possibility of prejudice to the plaintiff,

(2) the merits of plaintiff’s substantive claim, (3) the

sufficiency of the complaint, (4) the sum of money at stake,

(5) the possibility of a dispute concerning material facts,

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(6) whether the default was due to excusable neglect, and (7) the

policy favoring decisions on the merits. Id.

2. Summary Judgment 

The Federal Rules of Civil Procedure provide for summary

judgment when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.” Fed. R. Civ. P. 56(c). One of the

principal purposes of Rule 56 is to dispose of factually

unsupported claims or defenses. Celotex Corp. v. Catrett, 477

U.S. 317, 325 (1986).

Rule 56 also allows a court to grant summary adjudication on

part of a claim or defense. See Fed. R. Civ. P. 56(a) (“A party

seeking to recover upon a claim ... may ... move ... for a

summary judgment in the party’s favor upon all or any part

thereof.”); see also Allstate Ins. Co. v. Madan, 889 F. Supp.

374, 378-79 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter

Twp. of Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992).

The standard that applies to a motion for summary

adjudication is the same as that which applies to a motion for

summary judgment. See Fed. R. Civ. P. 56(a), 56(c); Mora v.

ChemTronics, 16 F. Supp. 2d. 1192, 1200 (S.D. Cal. 1998).

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Under summary judgment practice, the moving party

always bears the initial responsibility of informing

the district court of the basis for its motion, and

identifying those portions of ‘the pleadings,

depositions, answers to interrogatories, and admissions

on file together with the affidavits, if any,’ which it

believes demonstrate the absence of a genuine issue of

material fact.

Celotex Corp. v. Catrett, 477 U.S. at 323 (quoting Rule 56(c)).

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist. 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

585-87 (1986); First Nat’l Bank v. Cities Serv. Co., 391 U.S.

253, 288-89 (1968).

In attempting to establish the existence of this factual

dispute, the opposing party must tender evidence of specific

facts in the form of affidavits, and/or admissible discovery

material, in support of its contention that the dispute exists. 

Fed. R. Civ. P. 56(e). The opposing party must demonstrate that

the fact in contention is material, i.e., a fact that might

affect the outcome of the suit under the governing law, and that

the dispute is genuine, i.e., the evidence is such that a

reasonable jury could return a verdict for the nonmoving party. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 251-52

(1986); Owens v. Local No. 169, Assoc. of W. Pulp and Paper

Workers, 971 F.2d 347, 355 (9th Cir. 1987). 

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Stated another way, “before the evidence is left to the jury,

there is a preliminary question for the judge, not whether there

is literally no evidence, but whether there is any upon which a

jury could properly proceed to find a verdict for the party

producing it, upon whom the onus of proof is imposed.” Anderson,

477 U.S. at 251 (quoting Improvement Co. v. Munson, 14 Wall. 442,

448, 20 L.Ed. 867 (1872)). As the Supreme Court explained,

“[w]hen the moving party has carried its burden under Rule 56(c),

its opponent must do more than simply show that there is some

metaphysical doubt as to the material facts .... Where the record

taken as a whole could not lead a rational trier of fact to find

for the nonmoving party, there is no ‘genuine issue for trial.’” 

Matsushita, 475 U.S. at 586-87.

In resolving a summary judgment motion, the evidence of the

opposing party is to be believed, and all reasonable inferences

that may be drawn from the facts placed before the court must be

drawn in favor of the opposing party. Anderson, 477 U.S. at 255. 

Nevertheless, inferences are not drawn out of the air, and it is

the opposing party’s obligation to produce a factual predicate

from which the inference may be drawn. Richards v. Nielsen

Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985),

aff’d, 810 F.2d 898 (9th Cir. 1987).

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ANALYSIS

1. Default Judgment

In this case, the United States filed the Complaint on

October 27, 2005, and sufficiently pled the case against all

Defendants. Default was not entered against Defendants Talbot,

Carpa, Bloomquist, and Graff until July 31, 2006. Since that

time, the only response has been by Mr. Carpa. However, Mr.

Carpa was informed on April 21, 2006, by Order of this Court,

that appropriate counsel was needed to represent the Trust.

Contrary to that Order, Mr. Carpa continued to respond without

the assistance of counsel. The other Defendants have failed to

respond entirely.

The United States alleged that the Trusts represented by

Defendants Carpa, Talbot, and Bloomquist lack economic substance

and are mere shams. The general rule “is that upon default the

factual allegations of the complaint, except those relating to

the amount of damages, will be taken as true.” Geddes v. United

Financial Group, 559 F.2d 557, 560 (9th Cir. 1977). Given that

the United States is not seeking monetary damages against the

defaulting Defendants but rather seeking default judgment as to

certain other facts set forth in the Complaint, the Court shall

deem those facts true.

As noted above, the United States has alleged in its

Complaint that the Ranch Holding Trust administered by Douglas

Carpa and/or Robert Talbot and the Hidden Meadows Holding Trust,

administered by Michael Bloomquist are sham trusts. 

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That allegation, as well as the remainder of the Complaint,

remains unanswered. In addition, the United States sought

admissions that, likewise, have gone unanswered by Defendants. 

Pursuant to Federal Rule of Civil Procedure 36(a) “[e]ach matter

of which an admission is requested...is admitted unless, within

30 days after service of the request, or within such shorter or

longer time as the court may allow or as the parties may agree to

in writing...” No extension of time has been granted for

Defendants to respond to the admissions. Accordingly, pursuant

to Rule 36, they are deemed admitted. Given those admissions,

the Court finds the Careys are the true and beneficial owners of

the Bella Vista Property despite any purported interest held by

the Hidden Meadows Holding Trust. In addition, the Court finds

the Careys use the Ranch Holding Trust and the Hidden Meadows

Holding Trust as sham entities, including the Palo Cedro,

Redding, and Bella Vista properties, in an attempt to shield

those properties from the reach of their creditors. Accordingly,

the United States’ Motion for Default Judgment is GRANTED. 

2. Summary Judgment

The Careys’ tax liability has been previously adjudicated in

both the United States Tax Court and United States Bankruptcy

Court. In Residential Management Services Trust v. Commissioner,

the Tax Court found that the Careys had under-reported their tax

income for 1995, including income which should have been

attributed to the Careys but was instead attributed to a trust.

82 T.C.M (CCH) 874, 2001 WL 1360439 (U.S. Tax Ct. 2001). 

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Pursuant to this decision, the Tax Court entered an Order in the

amount of $247,093 for tax deficiency and penalties for the 1995

tax year. In Carey v. Commissioner, the Tax Court upheld the

IRS’s proposed levy against the Careys for their 1996 tax

assessment. 84 T.C.M. (CCH) 214, 2002 WL 1906445 (U.S. Tax Ct.

2002). In a second case entitled Carey v. Commissioner, the Tax

Court found that the Careys had under-reported their income for

1997, and held that several of the Careys Trusts were shams for

federal tax purposes. 86 T.C.M. (CCH) 420, 2003 WL 22233822

(U.S. Tax Ct. 2003). This led to an Order in the amount of

$678,594.59 in tax deficiency and penalties for the 1997 tax

year.

The Careys filed for Chapter 7 bankruptcy on September 7,

2004. On November 18, 2004, the IRS filed Form 4340 Certificates

which show tax assessments against the Careys totaling

$6,473,034.57 for the years 1995-2000. The United States also

filed Notices of Federal Tax Liens securing the Careys unpaid tax

debts for the years 1995, 1996, 1998, 1999, and 2000. The

Bankruptcy Court entered judgment that the Careys’ tax

liabilities for the years 1995 through 2000 were not subject to

discharge under the bankruptcy proceedings. The only items

discharged by the Bankruptcy Court were the penalties and the

interest on the penalties for those years. However, all but the

1997 penalties were previously secured by federal tax liens and,

therefore, were not discharged.

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In the present matter, the United States has submitted the

IRS Form 4340 Certificates showing the Careys’ tax assessments. 

Such tax assessments are presumed to be correct as long as they

have a minimum of factual support. U.S. v. Stonehill, 702 F.2d

1288, 1293 (9th Cir. 1983). The burden then shifts to the

taxpayer to rebut the presumption of correctness. Id. At 1294. 

The taxpayer can do this by proving that the assessments are

“arbitrary or erroneous.” Id.

Here, the Careys have not put forth any evidence to indicate

that the assessments are incorrect or invalid in any way. In

fact, the Careys did not submit an Opposition to the United

States’ Motion for Summary Judgment. Additionally, the Careys

failed to respond to any of the United States’ requests for

admissions. As noted above, when a party fails to respond to

admission requests within thirty days, the requests are deemed

admitted. Fed. R. Civ. Pro. 36(a). The requests here included

admissions that: 1) the Careys are liable to the United States in

the amount of $6,473,034.57; 2) that the Careys are the true

beneficial owners of the Palo Cedro, Redding, and Bella Vista

properties; 3) that the Careys transferred the Palo Cedro and

Redding properties to the Ranch Holding Trust in order to hinder

or delay payment of federal income taxes; and 4) that the Ranch

Holding Trust and Hidden Meadows Holding Trust are sham trusts

and are the nominee/alter egos of the Careys.

In light of the previous judgments against the Careys and

the Careys’ failure to put forth any evidence disputing the

United States’ allegations, the Motion for Summary Judgment is

proper and, hereby, GRANTED.

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CONCLUSION

For the reasons set forth above, the Court finds that the

Ranch Holding Trust, the Hidden Meadows Holding Trust, and Pamela

Graff have no interest in the Palo Cedro, Redding, and Bella

Vista properties. Default judgment against Douglas Carpa and

Robert Talbot (as trustees of the Ranch Holding Trust), Michael

Bloomquist (as trustee of the Hidden Meadows Holding Trust), and

Pamela Graff is hereby GRANTED. In addition, the Court finds

Michael and Leona Carey are the true owners of the Palo Cedro,

Redding, and Bella Vista properties making Defendant United

States’ Motion for Summary Judgment proper and, hereby, GRANTED.

IT IS SO ORDERED.

Dated: July 5, 2007

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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