Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_13-cv-02158/USCOURTS-caed-2_13-cv-02158-4/pdf.json

Parties Involved:
Action Construction Co.
Defendant
Robert Huckaby
Defendant
Gregory L. Hunt
Defendant
United States of America
Plaintiff

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA,

Plaintiff,

v.

ROBERT HUCKABY, individually and 

in his capacity as the Trustee of Texas 

Tea Trust; GREGORY L. HUNT; and 

ACTION CONSTRUCTION CO., 

Defendants.

No. 2:13-cv-02158-MCE-EFB

MEMORANDUM AND ORDER

This is a lawsuit instituted by the United States for payment of unpaid taxes by 

Defendant Action Construction Co., a Nevada corporation (“Action”). The suit arises 

from a payment of $83,069.61 made to settle a large receivable owed to Action on a 

construction project. Rather than remit the money to the United States for unpaid taxes, 

Defendant Robert Huckaby (“Huckaby”), an attorney who had represented both Action 

and its owner Defendant Gregory Hunt (“Hunt”), engineered a series of transactions that 

resulted in the funds being diverted and ultimately paid in large part to Defendant Hunt

for his own personal use. The United States responded with the instant lawsuit, which 

charges Defendants in its First and Second Claims with violations of 26 U.S.C. § 6332(d) 

for failing to honor the government's levies on the proceeds in question and for doing so 

without reasonable cause. Additionally, by way of its Third and Fourth Claims, the 

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government asserts causes of action for fraudulent transfer and conversion. Presently 

before the Court is the United States’ motion for summary judgment as to each of those 

claims. For the reasons set forth below, the government’s motion is GRANTED in part 

and DENIED in part.

1

BACKGROUND

The facts here are basically undisputed. Defendant Hunt formed Action along 

with a partner, Richard Gregg, in 1974. Gregg ended his involvement with Action in 

approximately 2004, but Hunt continued to operate the company. One of Action's last 

projects, the so-called Minden Gateway Center, went bankrupt in about 2009. As a 

result of that insolvency, Action was paid only about $1.75 million of the $2.25 million 

contract price, a shortfall that made Action itself insolvent by the end of 2009. Action 

sued for the additional monies it was owed around this time (“the Minden lawsuit”) and,

as a result of its financial distress, was unable to pay employment taxes among other tax 

obligations. Action ultimately had to file for bankruptcy protection.

Hunt alleges that, by February 23, 2011, when Hunt received a settlement check

for the Minden lawsuit made out to Action in the amount of $83,069.61, the assets of 

Action had already been disbursed to settle creditor's claims in the course of those 

bankruptcy proceedings and Action no longer continued to exist. Hunt asked his 

attorney, Huckaby, what to do with the funds and Huckaby suggested they be deposited 

into Huckaby's client trust account. On June 6, 2011, several months after making that 

deposit, Huckaby called Michael Franck, a revenue officer for the Internal Revenue 

Service (“IRS”), and informed Franck of the payment. Franck demanded that the entire 

amount be handed over to the government for unpaid tax obligations, and Huckaby filed 

for personal bankruptcy on Hunt's behalf that same day. Thereafter, on August 29, 

 1 Having determined that oral argument would not be of material assistance, the Court ordered this 

matter submitted on the briefs in accordance with E.D. Local Rule 230(g).

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2011, at Hunt’s instruction, Huckaby transferred the money to an inactive trust called the 

Texas Tea Trust for which Huckaby was Trustee. Although Franck had previously 

demanded payment both verbally and by letter, he followed up those attempts on 

September 7, 2011, with two notices of levy directed to Huckaby, one to him personally 

and the other to him in his capacity as attorney in fact for Action. Both made claims 

totaling $88,890.05 in unpaid taxes, sums well in excess of the settlement funds that 

Action had received. Apparently on the basis of the above-described transfer, Huckaby 

responded to the levies by stating that there were “no funds” even though he was trustee 

of the Trust where the monies at issue had been placed.

To complicate matters further, on December 14, 2009, Hunt executed a 

promissory note in favor of Richard Gregg in the amount of $225,000.00 which 

represented Hunt’s alleged “buyout” of Gregg’s interest in Action despite the fact that 

Action was in fact insolvent by the time of that sales transaction. Then, after Action 

received the subject $83,069.61 settlement for the Minden lawsuit, Huckaby prepared a 

“Memorandum” on his own legal letterhead in which Gregg “demanded” that Hunt pay 

that entire amount to him in accordance with the 2009 promissory note and a UCC-1 

security lien filed over a year later, on January 6, 2011.

Then, on November 16, 2011, Huckaby drafted a memorandum on his own 

letterhead signed by Richard Gregg. That memorandum demanded the $83.069.61 be 

paid to Gregg since Gregg had "sold" his remaining interest in the company, as indicated 

above, for $225,000.00. Citing the January 6, 2011, UCC-1 security lien, Gregg claimed

he was entitled to those proceeds, and Huckaby proceeded to pay Gregg the entire 

$83,069.61 amount by way of a cashier’s check on December 9, 2011.2 

On February 16, 2012 Huckaby opened up yet another account, as trustee of the 

“Richard P. Gregg Trust,” and deposited the December 9, 2011, cashier’s check to 

 2 While Huckaby claims there was nothing wrong with the fact that “secured creditor Richard 

Gregg got hold of the subject funds before the IRS did” (Defs.’ Opp., 4:1-3), the IRS levies were in fact 

served on or about September 7, 2011, over two months before Huckaby transferred the funds to Gregg 

on December 9, 2011.

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Gregg into that account. Huckaby then established a third trust vehicle, the New 

Horizons Trust, and Gregg authorized Huckaby to make payments for Hunt’s benefit to 

that Trust. After paying part of the money ($20,537.53) to satisfy employment tax 

liabilities that were Hunt’s personal responsibility, most of the funds (some $53,500.00) 

were paid to Hunt through the New Horizons Trust in order for Hunt to "start over."

3 As 

of June 15, 2015, however, the IRS had still not collected $35,719.36 in tax liabilities still 

owed by Action. 

STANDARD

The Federal Rules of Civil Procedure provide for summary judgment when “the 

movant shows that there is no genuine dispute as to any material fact and the movant is 

entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. 

Catrett, 477 U.S. 317, 322 (1986). One of the principal purposes of Rule 56 is to 

dispose of factually unsupported claims or defenses. Celotex, 477 U.S. at 325.

In a summary judgment motion, the moving party always bears the initial 

responsibility of informing the court of the basis for the motion and identifying the 

portions in the record “which it believes demonstrate the absence of a genuine issue of 

material fact.” Celotex, 477 U.S. at 323. 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, 586-87 (1986); First Nat’l Bank v. Cities Serv. Co., 391 U.S. 

253, 288-89 (1968).

In attempting to establish the existence or non-existence of a genuine factual 

dispute, the party must support its assertion by “citing to particular parts of materials in 

 3 Huckaby also paid himself $7,500.00 for legal fees he charged to represent Hunt in his personal 

bankruptcy proceedings. Therefore a total of $61,000 was paid out of the settlement proceeds for Hunt’s 

own benefit.

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the record, including depositions, documents, electronically stored information, 

affidavits[,] or declarations . . . or other materials; or showing that the materials cited do 

not establish the absence or presence of a genuine dispute, or that an adverse party 

cannot produce admissible evidence to support the fact.” Fed. R. Civ. P. 56(c)(1). 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. 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). The opposing party must also 

demonstrate that the dispute about a material fact “is ‘genuine,’ that is, if the evidence is 

such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 

477 U.S. at 248. In other words, the judge needs to answer the preliminary question 

before the evidence is left to the jury of “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, 81 U.S. 442, 448 (1871)) (emphasis in original). 

As the Supreme Court explained, “[w]hen the moving party has carried its burden under 

Rule [56(a)], its opponent must do more than simply show that there is some 

metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586. Therefore, 

“[w]here 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.’” Id. 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

A. Failure to Honor IRS Levies

Section 6331 of the Internal Revenue Code provides that if any person liable for 

any tax neglects or refuses to pay the tax within ten days following notice and demand, 

the IRS may proceed to collect the tax through levy upon all property or rights to 

property of the delinquent taxpayer. 26 U.S.C. § 6331(a). The language employed by 

subdivision (b) of the statute, which extends to “all property possessed and obligations 

existing at the time of the levy” is broad and reflects congressional intent “to reach every 

interest in property that a taxpayer might have.” See United States v. National Bank of 

Commerce, 472 U.S. 713, 721 (1985). Significantly for purposes of the present case,

the IRS’ reach in this regard extends beyond the taxpayer itself since any person in 

possession of property belonging to a delinquent taxpayer upon which a levy has been 

made must also, upon demand, surrender such property to the IRS. 26 U.S.C.

§ 6332(a). A person who fails to comply with a Notice of Levy faces personal liability for 

such failure under § 6332(d)(1), as well as a penalty over and above the applicable 

amount in the amount of 50 percent unless reasonable cause for failure to honor the levy 

can be established. Id. at § 6332(d)(2).

The defenses available to a party served with a valid notice of levy are limited, 

extending only to instances where the person does not possess the property or rights to 

the property, or where the property has already been subject to a prior attachment or 

execution. U.S. v. Hemmen, 51 F.3d 883, 887-888 (9th Cir. 1995). Questions as to the 

validity of the levy and competing claims to the ownership of the funds are not deemed 

to be valid reasons for refusing to honor a levy. United States v. Daccarett, 6 F.3d 37, 

59 (2d Cir. 1993). Additionally, to the extent a defendant claims he or she did not have 

the rights to the property as of the time of the levy, they have the burden of proof to 

establish that lack of interest rests with them. See Flores v. United States, 551 F.2d 

1169, 1174 (9th Cir. 1977) (“[I]t seems appropriate for such a person (one sued for 

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failure to honor an IRS levy) to carry the burden of showing non-ownership by the 

taxpayer as a defense because the purpose of the statute is a coercive one which seeks 

to foster swift tender of property which has been levied upon.”).

There is no question that Hunt received a check made payable to Action that was 

remitted to settle an outstanding receivable pertaining to one of Action’s past 

construction projects. Nor is there any dispute that this remittance constituted an asset 

of the company.

4

 Moreover, under Nevada law a corporation cannot make distributions 

to its owner or stockholders if such a distribution would prevent the corporation from 

being able to pay its own debts. Nev. Rev. Stat. § 78.288(2)(a). Because Action had 

outstanding tax liabilities which exceeded the amount of the check at the time it was 

received, it follows that those liabilities would have to be satisfied before Hunt could 

claim any interest in the funds.

As indicated above, Huckaby initially negotiated the check and deposited the funds 

into his client trust account before transferring those funds into another account he held 

as the Trustee of the Texas Tea Trust. As also set forth above, once the IRS issued 

notices of levy as to the proceeds, Huckaby initiated personal bankruptcy proceedings for 

his client, Mr. Hunt. Huckaby argues that by filing that action, any levy against Action was 

nullified because of the automatic stay attaching to bankruptcy proceedings. As the 

government points out, however, Hunt’s own bankruptcy has no bearing on the failure to 

honor liens issued by the IRS, since Action was not a party to the bankruptcy and Hunt’s 

bankruptcy estate had no legally cognizable interest in Action’s property.

5

 4 The Court recognizes Defendants’ contention that because Action’s corporate charter was 

suspended in August 31, 2010, it did not exist as a legal entity and consequently “any asset attributable to 

[the] company belonged to Gregory Hunt as its sole owner.” Defs.’ Opp., 2: 15-20. That argument, 

however, is plainly incorrect. The fact that Action may have ceased to do business did not mean its assets 

somehow belonged to Hunt. Under Nevada law, when “the charter of a corporation is revoked and the 

right to transact business is forfeited, all the property and assets of the defaulting domestic corporation 

must be held in trust . . . . ” Nev. R. Stat. § 78.175(5). 5 The fact that Hunt declared the Action settlement proceeds in his personal bankruptcy schedules 

is of no moment since those funds were Action’s. This was explicitly recognized by Hunt’s bankruptcy 

trustee, who characterized those monies in his final March 22, 2013 report as “belong[ing] to Action 

Construction Inc., not a party to [the bankruptcy].” See Pl.’s Undisputed Fact No. 31.

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Nor can Huckaby profess confusion about competing claims to the funds in 

question as justifying his refusal to recognize the IRS’s claim. See Daccarett, supra, 

6 F.3d at 59. Therefore, Huckaby cannot claim that Richard Gregg’s UCC-1 lien against 

Action, which purportedly secured Hunt’s personal debt in buying Gregg’s share of 

Action, was a valid factor in determining whether or not to honor the IRS levy.

Additionally, it was Huckaby who drafted the memorandum signed by Gregg in 

which Gregg demanded that the funds be paid to him. Huckaby then set up yet another 

account, the Richard P. Gregg Trust, and with Gregg’s approval, began to shift funds to 

Hunt personally through the so-called “New Horizons Trust” in amounts that ultimately 

totaled some $53,500.00.

All these events point to the inescapable conclusion that Huckaby, who 

unquestionably had possession of the funds in question took the steps he did in order to 

avoid honoring the IRS levies and to divert as much as possible of those monies to 

Hunt’s own use. He had no valid reason for failing to honor the levies, and by failing to 

comply with them, Huckaby bears personal liability under Internal Revenue Code 

§ 6332(d)(1). 

The government is further entitled to a 50 percent penalty under § 6332(d)(2), 

since Huckaby lacked reasonable cause in failing to honor the liens. Establishing the 

requisite reasonable cause is even more difficult than establishing a defense for not 

honoring the lien in the first place, since such good causes exists only where there is a 

bona fide dispute over: 1) “the amount of property to be surrendered pursuant to a levy”;

or 2) “the legal effectiveness of the levy.” 26 C.F.R. §301.6332-1(b)(2). Here, no 

dispute as to the amount of the levy has even been raised, and as stated above any 

argument that the levy was ineffective given Hunt’s bankruptcy filing lacks merit. In 

addition, Huckaby cannot claim that he was not notified as to exactly what funds the IRS 

sought to collect, since he simply responded to the levies by stating he had “no funds” 

///

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even though the funds in fact were in a bank account he held as trustee of the Texas 

Tea Trust.6 

Summary judgment in the government’s favor and against Huckaby is therefore 

granted as to the First and Second Claims for Relief, which seek damages in the amount 

of Action’s unpaid $35,719.36 in tax liabilities7 as well as a 50 percent statutory penalty 

of $17,859.68, given Huckaby’s lack of reasonable care in failing to honor levies that 

would have generated funds to pay Action’s remaining tax obligations to the IRS.

B. Fraudulent Transfers

California’s version of the Uniform Fraudulent Transfer Act, as codified at Civil 

Code § 3439.04, defines a fraudulent transfer in pertinent part as follows:

“(a) A transfer made or obligation incurred by a debtor is 

fraudulent as to a creditor, whether the creditor’s claim arose 

before or after the transfer was made or the obligation was 

incurred, if the debtor made the transfer or incurred the 

obligation as follows:

(1) With actual intent to hinder, delay, or defraud any creditor 

of the debtor;

(2) Without receiving a reasonably equivalent value in 

exchange for the transfer or obligation . . . “

The government contends that the above described transfers were fraudulent 

under this definition, since they were done to prevent the IRS from collecting on its 

levies. Given Huckaby’s repeated and uequivocal efforts to move the funds so as to 

avoid paying the IRS, the Court agrees that the transfers were both fraudulent and made 

with actual intent by Huckaby to hinder IRS’ efforts to collect Action’s unpaid taxes. 

Additionally, as the government also points out, the transfer from Huckaby’s trust 

account to the Texas Tea Trust were also constructively fraudulent since they were not 

used for Action’s benefit. This is because Action, a company already insolvent, received 

 6 Huckaby candidly admitted at deposition that he put the funds into a trust under his control that 

was not in the name of either Hunt or Action in order to “take care of” the IRS levies. Huckaby Dep., Exh. 

“G” to the Decl. of Nithya Senra, 62: 9-12, ECF No. 30-4.

7 In addition to $3,528.95 that Huckaby paid out of the Gregg Trust towards Hunt’s personal 

liability for amounts Action owed the IRS, the IRS also received another $40,877.08 from the bankruptcy 

trustee, which reduced the Action’s remaining tax liability down to the $35,719.36 figure. The $35.719.36 

outstanding balance of Action’s tax liabilities is set forth in the Decl. of Patrick J. Brown and its 

attachments, ECF No. 30-3.

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no reasonably equivalent value in exchange for the funds. Finally, Richard Gregg’s 

UCC-1 lien was ineffective to encumber Action’s assets (specifically, the $83,069.61

Minden lawsuit settlement check) since Hunt had no equity in those assets and because

Action was insolvent at the time the UCC-1 lien was recorded in any event (and also 

received no consideration for transferring the funds to Gregg).

The Court cannot, however, make the same conclusion as a matter of law with 

respect to Hunt’s role in what occurred. According to his deposition testimony, Hunt

simply gave the check from Action to his attorney, Huckaby, without any specific 

instruction as to what to do with it. Hunt Dep., 27: 19-21, Ex. “E” to the Senra Decl., ECF 

No. 30-4. While his testimony is less than clear, Hunt appears to contend he told 

Huckaby to pay off the IRS so that he “could be a clear man”. Id. at 34:21-35:15. 

Triable issues of fact remain as to Hunt’s role in what transpired, and, while Huckaby’s 

liability for having fraudulently transferred the money is clear, those factual questions as 

to Hunt preclude granting summary judgment against him for the Third Claim for Relief.

C. Conversion

The common law tort of conversion has long been defined as the wrongful 

exercise of dominion over the personal property of another. Welco Electronics, Inc. v.

Mora, 223 Cal. App. 4th 202, 208 (2014); Steele v. Marsicano, 102 Cal. 666, 669 (1894). 

The elements of the cause of action are: 1) the plaintiff’s ownership or right to 

possession of the property at the time of the conversion; 2) defendant’s conversion by a 

wrongful act or disposition of the plaintiff’s property rights; and 3) damages. Los 

Angeles Federal Credit Union v. Madatyan, 209 Cal. App. 4th 1383, 1387 (2012); 

Baldwin v. Marina City Properties, Inc., 79 Cal. App. 3d 393, 410 (1978). Unlike 

fraudulent transfer, however, the tort of conversion does not require actual intent under 

California law. Instead, “[t]he foundation of the action rests neither in the knowledge nor 

the intent of the defendant . . . . Therefore, questions of the defendant’s good faith, lack 

of knowledge, and motive are ordinarily immaterial” since it is “the action of conversion 

itself [that] is 

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tortious.” Welco Electronics, 223 Cal. App. 4th at 208-09 (citing Los Angeles Federal 

Credit Union, 209 Cal. App. 4th at 1387)

By virtue of its levies, the government contends it had a clear right to the 

$83,069.61 check in question. Despite that right, according to the government Hunt 

wrongfully disposed of the funds first by transferring the entire check amount to Huckaby 

and later by receiving the benefit of some $61,000 in funds through the New Horizons 

Trust for his own use and personal benefit as opposed to the monies being utilized to 

satisfy Action’s obligations. Additionally, since the IRS has remained unable to collect 

some $35,719.36 in Action’s federal tax liabilities, it has established damage as a result 

of Hunt’s actions. Consequently, irrespective of Hunt’s intent or his knowledge of what 

Huckaby intended to do with the settlement proceeds, it cannot be disputed that his 

actions resulted in a conversion as to the government’s interest in the Minden settlement 

funds.

The government similarly contends Huckaby converted the funds when he 

placed them first into a client trust account, and then into the Texas Tea Trust, the 

Richard P. Gregg Trust and the New Horizons Trust. For the same reasons outlined 

about with respect to subverting the IRS’ valid levies on the fund and with regard to 

fraudulent transfer, Huckaby’s actions also constitute conversion as a matter of law.

CONCLUSION

For the reasons stated above, the United States’ Motion for Summary Judgment 

(ECF No. 30) is DENIED as to Defendant Hunt’s liability as to the Third Claim for Relief, 

but otherwise GRANTED in its entirety. The government is therefore entitled to 

judgment at the conclusion of this matter as follows:

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1. Against Defendant Huckaby in the amount of $35,719.36, plus 

statutory interest and other additions running from June 15, 2015, for 

Huckaby’s failure to honor an IRS levy pursuant to 26 U.S.C. 

§ 6332(d)(1) as alleged in the First Claim for Relief;

2. Against Defendant Huckaby in the additional amount of $17,859.68, 

including statutory interest and other additions running from June 15, 

2015, for failure to honor said levy without reasonable cause pursuant 

to 26 U.S.C. § 6332(d)(2) as alleged in the Second Claim for Relief;

3. Against Defendant Huckaby for fraudulently transferring assets 

belonging to Defendant Action pursuant to California Civil Code 

§ 3439.04 as alleged in the Third Claim for Relief; and

4. Against Defendant Huckaby and Defendant Hunt for tortious conversion 

of assets belonging to Defendant Action as alleged in the Fourth Claim 

for Relief.

IT IS SO ORDERED.

Dated: March 30, 2016

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