Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca1-16-01415/USCOURTS-ca1-16-01415-0/pdf.json

Parties Involved:
Robyn Baker
Appellee
Scott G. Baker
Appellee
OneWest Bank, F.S.B.
Not Party
United States
Appellant

Document Text:

United States Court of Appeals 

For the First Circuit 

No. 16-1415 

UNITED STATES, 

Plaintiff, Appellant, 

v. 

SCOTT G. BAKER, ROBYN BAKER, 

Defendants, Appellees, 

ONEWEST BANK, F.S.B., 

Defendant. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF MASSACHUSETTS 

[Hon. Richard G. Stearns, U.S. District Judge] 

Before 

Torruella, Thompson, and Kayatta, 

 Circuit Judges. 

Norah E. Bringer, Attorney, Tax Division, Department of 

Justice, with whom Caroline D. Ciraolo, Principal Deputy Assistant 

Attorney General, Thomas J. Clark, Attorney, Tax Division, and 

Carmen M. Ortiz, United States Attorney, were on brief, for 

appellant. 

D. Sean McMahon, with whom Eric J. Rietveld and McMahon & 

Associates, PC were on brief, for appellee Robyn Baker. 

March 24, 2017 

 

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TORRUELLA, Circuit Judge. Scott G. Baker used a tax 

shelter to reduce his taxable income for the years 1997-2002. In 

2008, he divorced his wife Robyn Baker in order to fraudulently 

transfer assets and avoid some of his tax liability.1 Following 

an agreed judgment for over five million dollars against Scott in 

2015, the dispute narrowed to whether and to what extent the 

government's tax liens attached to certain assets. After the 

district court set aside the Bakers' separation agreement as a 

fraudulent transfer, it proceeded to re-divide and reallocate 

these assets applying Massachusetts law. The government's tax 

liens attached directly to any assets allocated to Scott. The 

government also argued that its tax liens attached indirectly to 

certain assets allocated to Robyn. 

This appeal concerns the district court's allocation of 

two assets in particular (1) funds that were directly traceable to 

Scott's tax shelter (the "Escrowed Funds"); and (2) a property the 

Bakers owned in Hingham, Massachusetts (the "Hingham property"). 

The district court divided both assets more or less evenly, 

 

1 As will become clear in this opinion, Robyn appears to be 

implicated in at least some of Scott's fraudulent activity. 

However, she was never put on trial, and it appears that the 

government is not pursuing any claims for fraud against her. As 

such, nothing in this opinion is meant to suggest that Robyn has 

been found guilty of fraud. 

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reasoning that it was applying "an equitable 50/50 division of the 

couple's assets consistent with the common-law community property 

system adopted by Massachusetts and recognized as valid by the 

IRS." In order to effectuate this division as to the Hingham 

property, the court ordered it to be sold and half the proceeds to 

be paid to the government and half to Robyn. 

The government challenges the 50/50 division of the 

Escrowed Funds on the ground that Massachusetts is not a community 

property state. In fact, Massachusetts law requires a judge to 

consider, either explicitly or by clear implication, fourteen 

factors in order to arrive at an equitable division of the parties' 

assets. See Bowring v. Reid, 503 N.E.2d 966, 967–68 (Mass. 1987). 

Because it is not clear to us that the district court considered 

these fourteen factors, we vacate and remand the division of the 

Escrowed Funds. 

The government does not challenge the 50/50 division of 

the Hingham property. Instead, it argues that it is entitled to 

Robyn's half of the proceeds from the sale on a lien-tracing 

theory. The district court rejected this theory on the ground 

that the government had not submitted evidence sufficient to trace 

the liens with the required level of specificity. We affirm this 

aspect of the district court's ruling. 

 

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I. Background 

A. Factual History 

In December 2002, Scott G. Baker and his business partner 

sold eight Planet Fitness gyms to Bally Fitness for approximately 

$15 million, including Bally Fitness stock that he later sold for 

$3.4 million. He used a Son-of-BOSS tax shelter2 to reduce his 

taxable income on gains from the Planet Fitness sale, claiming a 

negative $2.5 million in income in his 2002 return, which he filed 

separately from his wife. Scott then amended his tax returns for 

1997-2001 to carry back the loss, leading the IRS to refund 

"virtually all" of the taxes the Bakers had paid in the years 1999-

2001. 

In June of 2003, and as part of the Son-of-BOSS tax 

shelter, Scott established and became the settlor of the "Scott 

Baker Family Trust" (the "Family Trust") in the Cayman Islands. 

 

2 Son-of-BOSS (Bond Options Sales Strategy) tax shelters involve 

creating capital losses on paper to offset real capital gains. 

See, e.g., Fid. Int'l Currency Advisor A Fund, LLC v. United 

States, 661 F.3d 667, 668 (1st Cir. 2011) ("the plan . . . put 

into effect required [the U.S. taxpayer] to form a partnership 

with a foreign national; that partnership would engage in 

transactions that would generate largely offsetting gains and 

losses without net risk; the gain component would be principally 

allocated to the foreign national; the loss component would be 

principally allocated to [the U.S. taxpayer] and used on his 

individual return to offset gains on his exercise of the [] stock 

options, virtually eliminating tax on those gains."). 

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He chose Royal Bank of Canada Trust Company to be the initial 

trustee, and granted himself a one-third beneficial interest, with 

the remaining interests divided among Robyn and their two children. 

Scott had the power to add or exclude beneficiaries and to appoint 

successors to the trustee(s). The trustee(s) had discretion to 

disburse the funds in the Family Trust to any of the beneficiaries, 

to end the trust at any time, and to invest its capital and income.

Scott deposited the proceeds from the sale of the Bally 

Fitness stock into the Family Trust, and instructed the Trustee to 

invest the corpus of the Family Trust into a hedge fund called 

International Management Associates ("IMA"). Late in 2005, the 

Bakers learned that IMA was in fact a Ponzi scheme and that all of 

the money had disappeared. IMA filed for bankruptcy in 2006. 

In August of 2005, the Bakers purchased a home in 

Hingham, Massachusetts, which they owned as tenants by the 

entirety, for just over $1.6 million. In the same month, the IRS 

opened an examination of Scott Baker's 2002 tax return. Scott 

agreed to participate in the IRS's Global Settlement Initiative, 

agreeing to pay $1.2 million in outstanding taxes. However, he 

was removed from the program in 2007 after the IRS determined he 

was unable to pay the agreed amount through his disclosures on 

Form 433-A, which "collect[s] information on a debtor's current 

assets when he or she claims an inability to pay the taxes owing." 

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Scott contends that his inability to pay was due to the losses he 

suffered in the IMA Ponzi scheme. 

In February 2007, the Bakers remortgaged their Hingham 

property with Scott as the sole mortgagor; on the same day, they 

established the S&R Realty Trust with Robyn as trustee and 

transferred the title of their Hingham Property into the trust. 

They also established the C&S Realty Trust on the same day, with 

Robyn as sole trustee and their two children as primary 

beneficiaries, and transferred into it a beach house located in 

Scituate, Massachusetts. Scott did not receive any consideration 

for transferring his interests in the properties to the trusts. 

In November 2007, Robyn sold the Scituate property and deposited 

the $433,000 in proceeds into a South Shore Bank account owned by 

C&S Trust. She used the majority of the money to pay down loans 

secured by the Hingham property, and the remainder on living 

expenses. 

On January 10, 2008, the Bakers signed a separation 

agreement, and the following day the two filed for divorce. The 

agreement, which was incorporated into the final divorce judgment, 

gave most of the assets to Robyn, but most of the liabilities to 

Scott. Robyn received sole ownership of the Hingham Property, as 

well as of the New Hampshire properties worth $200,000 as of March 

of 2007. She also received a boat, a car, two motorcycles, and 

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title to any money recovered from the IMA investment. Scott, on 

the other hand, assumed the $875,000 mortgage on the Hingham 

Property. According to his testimony, he "regularly made monthly 

payments" to Robyn of $6,200 to apply to the mortgage. He received 

real property relating to his construction business, and he agreed 

to assume all marital credit card debt and all liability relating 

to his construction business. He maintained sole ownership of his 

business ventures, including a Planet Fitness gym in Scarsdale, 

New York, with an asserted worth of $250,000 at the time of 

divorce. Scott claimed losses on this business in both his 2007 

and 2008 federal income tax returns. 

The agreement stipulated that Scott could continue to 

reside in the Hingham Property, and he did so after the divorce 

became final in May of 2008. After the divorce, Robyn continued 

to refer to Scott as her husband, though she testified that those 

references were mistakes or oversights. Scott testified that he 

had never told his children of the divorce, and he did not know if 

they were aware of the separation. The Bakers continued to 

vacation together, often with their family friends, Michael 

Theriault and his wife Lori Leo. Theriault testified that the 

Bakers took an estimated fifteen ski trips with them, as well as 

numerous camping trips. Theriault also estimated that over the 

course of four years, he and his wife had dinner with the Bakers 

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approximately 250 times. For the duration of their friendship, 

Theriault and Leo were under the impression that the Bakers were 

married. Their friendship eventually went sour, after Robyn, who 

had been working for Leo, went to work for a competitor. Around 

the same time, it came to light that Theriault and Robyn had been 

having sexual relations. When Theriault went to talk to Scott 

shortly thereafter, Scott allegedly assaulted him, gouged out 

Theriault's artificial eye and attempted to gouge out his good eye 

as well. 

On May 14, 2009, the IRS determined that Scott had 

underpaid his taxes for the years 1997-2002 and assessed taxes and 

penalties for the 1997, 1998, and 2002 tax years. On May 20, 2010, 

it made additional assessments for the years 1999-2001. Per I.R.C. 

§ 6321, federal tax liens "arose on the dates of assessment . . . 

and attached to all of [Scott's] property and interests in 

property."

In November of 2012, the trustee of the IMA bankruptcy 

issued a check to the Family Trust for just over $202,000 and 

mailed the check to Scott, who testified that he was 

"flabbergasted" to have recovered any money. Robyn -- who had by 

this time been made the sole trustee of the Family Trust -- 

invested the money from the IMA bankruptcy payment into a design 

company owned by a friend, which then hired Scott to do 

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construction on a home being built by the company. She testified 

that she gave the money to the company in $9,000 increments because 

she "didn't want the IRS to take [her] money." The value of this 

investment subsequently increased to $528,962.28.

The Family trust received a second payment from the IMA 

bankruptcy for $84,000, which Robyn used to pay legal fees for 

both her and Scott. Finally, a third payment from the IMA 

bankruptcy for $70,116.49 was added to the Bakers' share of the 

proceeds from the design business to comprise the escrowed funds 

now at issue, for a total of $599,078.77 (the "Escrowed Funds"). 

B. Procedural History 

The United States commenced this suit in May 2013 when 

Scott failed to pay the tax liabilities assessed against him. The 

United States sought collection of the tax liabilities, as well as 

enforcement of federal tax liens against property that had been 

fraudulently transferred to Robyn and liens attached to a property 

interest held by Robyn. The United States claimed first that Scott 

had fraudulently transferred to Robyn his interest in the Hingham 

Property, and second that the federal tax liens had attached to 

the Hingham Property to the extent of the mortgage payments that 

Scott made after the tax liens arose. 

On January 29, 2015, the district court entered an agreed 

judgment against Scott in the amount of $5,026,915.43 for federal 

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income taxes due for the years 1997-2002. Thus, the dispute was 

narrowed to the issue of the extent to which the tax liens attached 

to various assets. 

On August 17, 2015, following a bench trial, the district 

court found that the February 2007 transfers of property into 

trusts were fraudulent and that the Bakers had divorced with the 

purpose of fraudulently transferring assets. It identified several 

"badges of fraud" under the Massachusetts Uniform Fraudulent 

Transfer Act that applied to the property transfers in the Bakers' 

2008 settlement agreement, including that: (1) they continued to 

live together after their divorce; (2) Scott remained at the 

Hingham Property and made the majority of the mortgage payments; 

(3) they concealed the divorce and held themselves out as married; 

(4) Robyn received substantially all of Scott's assets in the 

divorce agreement; (5) they hid assets after the divorce; (6) there 

was not adequate consideration for Scott's transfer; (7) Scott was 

insolvent when the transfer occurred; and (8) the transfer was 

made after a substantial debt was incurred. The district court 

also found additional indicia that the divorce had been obtained 

so as to fraudulently transfer assets: (1) only Robyn had been 

represented by counsel; (2) they continued to live together in the 

house that had been transferred by the divorce; (3) Scott paid the 

mortgage and other bills related to the house; and (4) Robyn 

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received most of the assets while Scott received most of the debts 

in the divorce. 

The district court accordingly entered a partial 

judgment on October 23, 2015, holding in favor of the United States 

on a theory of fraudulent transfer, adding that while the 

government's lien-tracing claim was "not rejected," it was also 

"not embraced." The district court found that the government's 

tax liens attached to Scott's one-half interest in the Hingham 

Property, and ordered that the property be sold to satisfy Scott's 

tax liabilities. It also ruled that Scott had one-half interests 

in the New Hampshire properties and other personal property, which 

he had fraudulently conveyed to Robyn, and that the government 

could take necessary action to recover those assets. Finally, it 

found that the liens attached to Scott's interest in the Escrowed 

Funds and ordered the funds be turned over to the United States, 

giving Robyn time to submit a claim for whatever portion of the 

funds she believed she was due. The district court did not resolve 

which portion of the Escrowed Funds Robyn was entitled to. Rather, 

the district court indicated that it would "separately adjudicate 

the matter unless the parties are able to come to an agreement on 

an appropriate division of the escrowed funds." 

After the parties failed to reach such an agreement, the 

district court divided the Escrowed Funds evenly between Scott and 

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Robyn. The district court noted that it had applied "an equitable 

50/50 division of the couple's assets consistent with the commonlaw community property system adopted by Massachusetts and 

recognized as valid by the IRS" for the division of the couple's 

real property. Because the district court saw "no reason to depart 

from the 50/50 equitable formula," it used the same formula to 

divide the Escrowed Funds. It also deemed Scott to be entitled to 

half of the $84,000 second payment from the IMA bankruptcy and 

Robyn to have taken that entire payment for herself. Thus, it 

compensated Scott for his $42,000 share of that payment out of the 

Escrowed Funds. By the court's final calculations, Robyn was found 

entitled to $256,539.38, with the remaining $342,539.39 going 

through Scott to the United States.3 The United States now appeals. 

II. Standard of Review 

This Court generally "review[s] a district court's 

ultimate decision to grant or withhold an equitable remedy for 

abuse of discretion." Texaco P.R., Inc. v. Dep't of Consumer 

Affairs, 60 F.3d 867, 875 (1st Cir. 1995). However, where a court 

applies "an improper standard to the facts, it may be corrected as 

a matter of law." United States v. Singer Mfg. Co., 374 U.S. 174, 

 

3 The United States notes that the district court appears to have 

made a mathematical error: the government's share should have been 

$341,539.39, and Robyn's share $257,539.38. 

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194 n.9 (1963). "[A] district court by definition abuses its 

discretion when it makes an error of law." Alison H. v. Byard, 

163 F.3d 2, 4 (1st Cir. 1998). 

Determinations regarding the sufficiency of evidence 

during a bench trial are legal determinations, and hence are 

reviewed de novo. See In re Pharm. Indus. Average Wholesale Price 

Litig., 582 F.3d 156, 162-63 (1st Cir. 2009) (citing United States 

v. 15 Bosworth St., 236 F.3d 50, 53 (1st Cir. 2001)). 

III. Discussion 

A. The Escrowed Funds 

Although the divorce of the Bakers was entered into in 

order to fraudulently transfer assets, the divorce itself is not 

therefore invalid. Consequently, it fell to the district court to 

divide the marital assets following the divorce. In Massachusetts, 

such a division is governed by Mass. Gen. Laws ch. 208, § 34 

("§ 34"). The district court stated that it "applied an equitable 

50/50 division of the couple's assets consistent with the commonlaw community property system adopted by Massachusetts and 

recognized as valid by the IRS." 

Contrary to the statement of the district court, 

Massachusetts is not a community property state, and its laws do 

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not prescribe a "50/50" division of marital assets upon divorce.4 

Rather, Massachusetts law requires "an equitable, rather than an 

equal division of property." Williams v. Massa, 728 N.E.2d 932, 

939 (Mass. 2000). In order to arrive at this equitable division, 

a court must consider 

the length of the marriage, the conduct of the parties 

during the marriage, the age, health, station, 

occupation, amount and sources of income, vocational 

skills, employability, estate, liabilities and needs 

of each of the parties, the opportunity of each for 

future acquisition of capital assets and income, and 

the amount and duration of alimony, if any, . . . [as 

well as] the present and future needs of the dependent 

children of the marriage. 

Mass. Gen. Laws ch. 208, § 34. In addition, a court may, but need 

not, consider "the contribution of each of the parties in the 

acquisition, preservation or appreciation in value of their 

respective estates and the contribution of each of the parties as 

a homemaker to the family unit." Id. Thus, § 34 "contains fourteen 

mandatory factors which the judge must consider, and four 

discretionary factors which the judge may consider." Bowring v. 

Reid, 503 N.E.2d 966, 968 (Mass. 1987). 

In dividing assets under § 34, a court must also "ma[k]e 

findings consistent with [its] obligations under G.L. c. 208, § 34, 

 

4 It is undisputed that Massachusetts law applies to the division 

of the various assets in this case. 

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indicating that [it] has fairly considered all factors relevant 

under § 34 and has not considered any irrelevant matter," in which 

case its determination "may not be reversed unless plainly wrong 

and excessive." Redding v. Redding, 495 N.E.2d 297, 300 (Mass. 

1986) (citations omitted). The court's reasons for coming to its 

conclusions under § 34 "must be apparent in [its] findings and 

rulings." Id. at 301. "The rationale for the decision must appear 

in the judgment either explicitly or by clear implication," and 

"the mere listing of findings, even if detailed, is not enough." 

Bowring, N.E.2d at 968. 

In the present case, while the district court did make 

extensive factual findings, it is not clear to us that the district 

court considered all the fourteen factors required under § 34. To 

the contrary, the district court used a "50/50 equitable formula" 

to divide the Escrowed Funds without explanation as to how any of 

the facts in the case factored into this decision. This implies 

that it did not consider the factors of § 34, but rather simply 

divided the property evenly between the Bakers.5

The government also argues that the district court, in 

dividing the Escrowed Funds, was wrong to consider Massachusetts's 

 

5 To the extent that the government urges us to apply the § 34 

factors ourselves, we decline. The district court is in a better 

position to apply what are typically findings of fact. 

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"strong public policy of protecting the interests of nondebtor 

spouses." Bakwin v. Mardirosian, 6 N.E.3d 1078, 1085 (Mass. 2014). 

Because the district court appeared to have simply applied a 

"50/50" formula, however, it is not clear to us that this public 

policy factored into the district court's analysis in any way. To 

the extent that the district court did rely on this public policy, 

such reliance was misplaced. "The judge may consider only factors 

which are enumerated in § 34, in making alimony and property 

division determinations." Bowring, N.E.2d at 968 (emphasis added). 

B. The Hingham Property 

The government also urges us to find that the district 

court erred in rejecting its lien-tracing theory. We decline to 

do so. 

The government argues that its tax liens attached to any 

property Scott possessed on or after May 14, 2009, the date of the 

first tax assessment. The government infers from the Bakers' 

testimony that one of the Bakers made the mortgage payment on the 

Hingham property every month up to the time of trial, and that 

each payment was $6,200. The government notes that the district 

court found that Scott ultimately "made the majority of the 

mortgage payments." Thus, reasons the government, Scott must have 

paid at least half of the total mortgage payments made on the 

Hingham property between June 2009 and December 2014 (just before 

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the start of trial) using money on which the government had a tax 

lien. By that logic, the government concludes that it had a lien 

on the property no smaller than $6,200 times sixty-seven months 

divided by two, or $207,700. Dividing that lien between the two 

halves of the property, the government claims that it has a lien 

of $103,850 on Robyn's half, which exceeds her share of the sale 

proceeds. Thus, on this argument, the government would be entitled 

to all the proceeds from the sale of the Hingham property. 

The government's argument suffers from a fatal flaw. 

The district court found that "for the lien tracing theory to be 

viable the government has the burden of showing with particularity 

the sums transferred by [Scott] Baker to which the tax liens 

attach." However, the district court never made a finding as to 

the amount or the number of the mortgage payments. The government 

relies entirely on the testimony of the Bakers -- which the 

government itself concedes was contradictory -- for the 

proposition that the amount of the payment was $6,200,6 and then 

assumes that every payment during the relevant time period was 

made in full. The district court found "neither of the Bakers to 

be credible witnesses, at least insofar as their financial 

 

6 Indeed, Robyn Baker testified that "[c]urrently the mortgage is 

[$]6200 interest-only payments." This leaves open the possibility 

that the mortgage payments were not $6,200 at all times. 

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interests are concerned. Leo credibly testified that [Robyn] has 

problems with honesty. [Robyn] admitted that she struggles with 

the truth." 

We agree with the district court that "the equivocal 

testimony of the Bakers by itself [is not] sufficient to satisfy 

the government's burden in a lien tracing context." The government 

has not here met its burden of distinctly tracing its lien, because 

the evidence it has presented is insufficient -- the government 

has proven neither the amount of any mortgage payment, nor has it 

proven that all mortgage payments were in fact made. We do not 

mean to hold that every time the government wishes to trace a lien 

it must be able to prove the amounts involved to the penny -- but 

it should present the court with more than the testimony of 

witnesses who struggle with the truth.7

IV. Conclusion 

For the foregoing reasons, the district court's 

February 19, 2016 Memorandum and Order, as well as paragraph 6 of 

the February 19, 2016 Amended Judgment, are vacated, and the case 

is remanded for further proceedings consistent with this opinion. 

Vacated and Remanded.

 

7 We have considered the parties' other arguments and found them 

to be without merit. 

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