UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

FORT WAYNE DIVISION

UNITED STATES OF AMERICA, )

)

Plaintiff, )

)

v. ) CAUSE NO. 1:16-CV-145-PPS-SLC

 )

NORMAN E. KAIN, SALLY A. KAIN, and )

SOVEREIGN FINANCIAL MANAGEMENT, )

)

Defendants. )

OPINION AND ORDER

This matter is before the Court on the United States’ Motion for: (1) Judgment on

the Pleadings Against Defendant Norman E. Kain; and (2) Default Judgment Against

Defendants Sally A. Kain and Sovereign Financial Management. [DE 24.] In an Order

dated November 16, 2016, I took the government’s motion under advisement, explained

to Defendant Norman E. Kain that I have jurisdiction over this action, and gave him

until November 28, 2016 to file an answer that complied with Federal Rule of Civil

Procedure 8. [DE 33.] Until that point, Mr. Kain only “answered” the complaint by

filing several somewhat nonsensical “Notices” wherein he contested the jurisdiction of

the Court and otherwise failed to defend against the allegations pleaded in the

complaint. In my Order, I cautioned Mr. Kain that if he continued to file “Notices”

challenging jurisdiction instead of the requisite responsive pleading, all facts in the

complaint will be deemed admitted by him and he risks the entry of judgment against

him on the pleadings. [Id.] Mr. Kain responded to my order by filing yet another notice
contesting jurisdiction and demanding dismissal or “full disclosure of the true

jurisdiction of this Court.” [DE 34 at 1.] In other words, Mr. Kain did exactly what I

cautioned him not to and, as a result, it is time for me to rule on the government’s

motion, which I grant.

The United States initiated this action by filing a Complaint on May 5, 2016. [DE

1.] In a nutshell, the government brought this action against Mr. Kain to establish his

tax liability for unpaid taxes and penalties and foreclose on his house to satisfy his

liability to the United States and included as parties those with potential interests in the

property. According to the Complaint, Defendants Norman Kain and his wife,

Defendant Sally Kain, reside in Wells County, Indiana. [DE 1 at ¶¶3-4.] The Secretary

of the Treasury of the United States made various assessments against Mr. Kain for

federal income taxes, penalties, and interest for tax years 2000-2006 and 2008 for a total

of $91,382.05. [Id. ¶12.] These assessments are detailed in the government’s Complaint. 

[Id.] The Secretary of the Treasury gave Mr. Kain notice of those tax liabilities and made

demand for payment of the balance due, but Mr. Kain failed, neglected, or refused to

pay those tax liabilities and remains liable to the United States for the unpaid balance of

his 2000-2006 and 2008 federal income tax liabilities, which had balances due with

accruals as of March 21, 2016. [Id. ¶¶13-14.] 

In addition, the Secretary of the Treasury made various assessments against Mr.

Kain pursuant to 26 U.S.C. § 6702 for filing frivolous federal income tax returns for a

total of $95,694.04. [Id. ¶15.] These assessments are likewise detailed in the

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government’s Complaint. [Id.] The Secretary of the Treasury gave Mr. Kain notice of

those liabilities and made demand for payment of the balance due, but Mr. Kain failed,

neglected, or refused to pay those civil penalties and remains liable to the United States

for the unpaid balance of his 1994-2006 and 2008 civil penalties, which had balances due

with accruals as of March 21, 2016. [Id. ¶¶16-17.] 

As a result of Mr. Kain’s failure to pay his tax liabilities, federal tax liens in the

amount of the original assessments, plus interest and other statutory additions, arose on

the dates of the assessments and attached to all property and rights to property

belonging to Mr. Kain. This included the property at issue in this action— Mr. and Mrs.

Kain’s residence at 632 South Main Street, Bluffton, Indiana 46714. [Id. ¶8 and ¶31.] For

ease of reference I will call this property “the Real Property” throughout the remainder

of this Opinion. The government’s Complaint contains a detailed description of the

attachment of the federal tax liens to the Real Property. [Id. ¶¶21-26.] 

Title to the Real Property was first transferred to Mr. and Mrs. Kain through a

properly executed and delivered warranty deed dated May 19, 1977 and recorded with

the Wells County Recorder fours days later. [Id. ¶9.] Title to the Real Property was

purportedly transferred from Mr. and Mrs. Kain for $10 or less to Defendant Sovereign

Financial Management through a “quitclaim deed” recorded with the Wells County

recorder on October 23, 1996. [Id. ¶10.] The United States alleges, however, that this

transfer was invalid because the quitclaim deed was not property executed and

delivered as it did not include a full description of the Kains’ property as required by

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Ind. Code § 32-1-1-13. Therefore, according to the United States, the house is still

owned by Mr. and Mrs. Kain. [Id. ¶¶19, 27.] The government alleges that Sovereign

Financial Management is a sham and not a valid legal entity. [Id. ¶27.] Specifically, the

government alleges that Mr. Kain continues to exercise dominion and control over the

Real Property, enjoys the benefits of ownership of the Real Property, and retains

possession of and resides in the Real Property. [Id. ¶¶28- 30.] 

In addition, the government alleges that Mr. Kain placed the Real Property in the

name of Sovereign Financial Management in anticipation of a suit or occurrence of tax

liabilities as a result of his refusal to file federal tax returns and failure to pay his federal

taxes. [Id. ¶32.] Neither the State of Indiana, nor the State of Arizona—where

Sovereign Financial Management purportedly had a Contract and Declaration of Trust

recorded in 1994—have any records of any entity under the name “Sovereign Financial

Management.” [Id. ¶¶33-35.] The government alleges that, “‘Sovereign Financial

Management’ exists, if at all, solely as an artifice with the purpose to obstruct and

defraud the creditors of defendant Norman E. Kain, including the United States . . . and

defendant Norman E. Kain remains the true and equitable owner of the Real Property.” 

[Id. ¶¶36-37.] 

For all of these reasons, the government claims that the purported transfer of

record title to the Real Property from the Kains to Sovereign Financial Management was

fraudulent under Ind. Code § 32-18-2-4 and the government is, therefore, entitled to

avoid the purported transfer of record title or, in the alternative, a judgment finding

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that Sovereign Financial Management is the mere nominee of Mr. Kain, the true and

equitable owner of the Real Property, or voiding the transfer to Sovereign Financial

Management and enforcing the federal tax liens attached to the Real Property. [Id.

¶¶40-41.] 

As I noted at the outset, Mr. Kain did not properly answer or otherwise plead,

despite my warnings of the consequences of failing to do so, and Mrs. Kain and

Sovereign Financial Management have failed to appear or otherwise defend this action. 

As such, the United States filed a motion for judgment on the pleadings against Mr.

Kain and default judgment against Mrs. Kain and Sovereign Financial Management. 

[DE 24.] Specifically, the United States asks for a judgment declaring that: (1) Mr. Kain

is liable for his unpaid federal income tax liabilities and unpaid penalties; (2) the Real

Property is subject to valid and subsisting federal tax liens securing the liabilities

described in the Complaint; (3) the federal liens will be enforced upon the Real Property

by ordering the sale of the entire Real Property, the proceeds of which to be distributed

to the United States and to the Defendants Wells County, Indiana and the State of

Indiana Department of Revenue, in accordance with the law; (4) Defendants Sally A.

Kain and Sovereign Financial Management possess no rights, titles, claims, liens or

interests in the Real Property; and (5) the United States is entitled to its costs in this

action. [DE 24 at 4-5.] 

Before I address the government’s request for judgment on the pleadings, I must

first address Defendants Sally A. Kain and Sovereign Financial Management’s lack of

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participation in this action and the government’s resultant request for default judgment

against them. Both parties were served on June 30, 2016 and failed to file an answer or

otherwise plead. [DE 7, 8.] Clerk’s entry of default was entered against Mrs. Kain and

Sovereign Financial Management in August 2016 and September 2016, respectively. 

[DE 18, 22.] Neither defendant has had any contact with the Court in the eight months

since this action was initiated and have shown no intent to defend. It is time for this

matter to proceed without them. Federal Rule of Civil Procedure 55(a) provides that

default should be entered against any party “against whom a judgment for affirmative

relief is sought [who] has failed to plead or otherwise defend.” For these reasons, I

now order entry of a default judgment against Mrs. Kain and Sovereign Financial

Management. 

Next I turn to the government’s request for judgment on the pleadings against

Mr. Kain. A Rule 12(c) motion for judgment on the pleadings that appears to be aimed

at disposing of the case on the basis of the underlying substantive merits, as opposed to

a failure to state a claim, is governed by the standard of review applicable to summary

judgment under Rule 56, but may only consider the contents of the pleading. Alexander

v. City of Chicago, 994 F.2d 333, 336 (7th Cir. 1993). “Thus, we take all well-pleaded

allegations in the plaintiffs’ pleadings to be true, and we view the facts and inferences to

be drawn from those allegations in the light most favorable to the plaintiffs.” Id. A

motion for judgment on the pleadings will only be granted if the moving party

establishes that “no genuine issues of material fact remain to be resolved,” id., and “that

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he or she is entitled to judgment as a matter of law.” National Fidelity Life Ins. Co. v.

Karaganis, 811 F.2d 357, 358 (7th Cir. 1987). 

Applying this standard, I find that the government has met its burden. Mr.

Kain’s failure to appropriately answer the Complaint or otherwise plead means that all

of the allegations contained therein are deemed admitted. FED. R. CIV. P. 8(b)(6). In

doing so, Mr. Kain essentially concedes his liability. First, I look to whether Mr. Kain is

liable for the assessed income taxes. A presumption of correctness attaches to a tax

assessment made by the IRS. U.S. v. Fior D’Italia, Inc., 536 U.S. 238, 242 (2002). While

the government may adduce evidence of its tax assessments by producing Certificates

of Assessments, Payments, and Other Specified Matters, Form 4340 (“Certificates of

Assessment”) that show the date and amount of the assessment and the nature of the

liability or type of tax, it does not need not do so here because Mr. Kain admitted the

liabilities pleaded in the Complaint by failing to answer. Once evidence of an

assessment is introduced, the burden falls on Mr. Kain to prove that the assessment is

erroneous. U.S. v. Janis, 428 U.S. 433, 440 (1976). But again, by only challenging

jurisdiction and failing to answer, Mr. Kain has failed to meet this burden and I must

accept the factual allegations in the Complaint as correct. In doing so, I find that Mr.

Kain is liable for the assessed income taxes.

Next, I must determine whether Mr. Kain is the true owner of the Real Property. 

I find that he is. The government alleges in its Complaint that, despite the purported

transfer to Sovereign Financial Management, Mr. Kain remains the true and equitable

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owner of the real property and continues to exercise dominion and control, enjoy

benefits of ownership, and retain possession of and reside in the Real Property. [DE 1 at

¶¶29-30, 37.] In addition, the government alleges that the purported transfer of the Real

Property to Sovereign Financial Management through a “quitclaim deed” was invalid

because the deed was not properly executed and delivered because it did not include a

full description of the property as required by Ind. Code § 32-21-1-13. As I discussed

above, Sovereign Financial Management and Mrs. Kain have failed to file an answer or

otherwise plead and I have ordered default judgment to be entered against them,

meaning that all of the allegations contained in the Complaint are deemed admitted by

them. FED. R. CIV. P. 8(b)(6). The same goes for Mr. Kain due to his failure to properly

answer. As such, the fact that Mr. Kain is the true and equitable owner of the Real

Property is deemed admitted by Sovereign Financial Management, Mrs. Kain, and Mr.

Kain and no further analysis is needed for me to conclude the Mr. Kain is the true

owner of the Real Property.1

Finally, I must determine whether the government may enforce its tax liens on

the Real Property and whether I may order the sale of the Real Property pursuant to 26

U.S.C. § 7403. A federal lien arises when unpaid taxes are assessed and continues until

the resulting liability is either satisfied or becomes unenforceable due to the running of

1

I note that the government also claims, in the alternative, that the purported transfer to

Sovereign Financial Management of the Real Property was fraudulent under Ind. Code § 32-18-2-14. [DE

1 at ¶¶38-40.] I am inclined to agree, but further analysis is not necessary because the Mr. Kain has

admitted to the allegations germane to the United States’ request for relief.

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the statute of limitations. 26 U.S.C. §§ 6321, 6322; Treas. Reg. § 301.6321-1. This lien

extends to “all property and rights to property, whether real or personal.” 26 U.S.C. §

6321. A taxpayer’s property includes real estate. See U.S. v. Craft, 535 U.S. 274 (2002).

Pursuant to 26 U.S.C. § 7403, “in all cases where a claim or interest of the United

States therein is established, [the court] may decree a sale of such property, by the

proper officer of the court, and a distribution of the proceeds of such sale according to

the findings of the court in respect to the interests of the parties and of the United

States.” A judicial order of sale of property belonging to a delinquent taxpayer is

“consistent with the policy inherent in the tax statutes in favor of the prompt and

certain collection of delinquent taxes.” U.S. v. Rodgers, 461 U.S. 677, 694 (1983).

As discussed above, and detailed in the Complaint, the Secretary of the Treasury

of the United States made various assessments against Mr. Kain for federal income

taxes, penalties, and interest for federal income tax and for filing frivolous federal

income tax returns. As a result of Mr. Kain’s neglect, refusal, or failure to pay his tax

liabilities, federal tax liens in the amount of the original assessments, plus interest and

other statutory additions, arose on the dates of the assessments and attached to all

property and rights to property belonging to Mr. Kain, including the Real Property. I

find that the government’s lien on the Real Property is valid and I see no reason, and no

party has raised one, to refuse to authorize sale of the Real Property to satisfy, to the

extent possible, Mr. Kain’s tax liabilities. For these reasons, I order sale of the Real

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Property in order to collect the $187,76.09 plus accruals that Norman E. Kain owes the

United States.2

In its motion, the government also requests costs in this action. [DE 25 at 5.] It

makes no argument or reference to a statute authorizing the award of costs beyond

those enumerated in Federal Rule 54(d)(1). As such, I find that, as the prevailing party,

the government is entitled to costs pursuant to Rule 54(d)(1), should it choose to file a

Bill of Costs after judgment is entered in this action.

ACCORDINGLY, the Court GRANTS the United States’ Motion for: (1)

Judgment on the Pleadings Against Defendant Norman E. Kain; and (2) Default

Judgment Against Defendants Sally A. Kain and Sovereign Financial Management [DE

24], and DIRECTS the Clerk to enter final judgment in this matter as follows:

1. Judgment in favor of the plaintiff United States of America and against the

defendant Norman E. Kain in the amount of $187,076.09, plus statutory

additions from and after May 6, 2016, including interest pursuant to 26

U.S.C. §§ 6601, 6621, and 6622, as well as 28 U.S.C. § 1961(c).

2. The judgment referenced in paragraph 1, above, is for federal income

taxes that were assessed against the defendant Norman E. Kain, in regard

to the tax periods ending on December 31, 2000, December 31, 2001,

December 31, 2002, December 31, 2003, December 31, 2004, December 31,

2005, December 31, 2006, and December 31, 2008, and for civil penalties

that were assessed against the defendant Norman E. Kain under 26 U.S.C.

§ 6702(a) in regard to the tax periods ending December 31, 1994, December

31, 1995, December 31, 1996, December 31, 1997, December 31, 1998,

December 31, 1999, December 31, 2000, December 31, 2001, December 31,

2002, December 31, 2003, December 31, 2004, December 31, 2005,

December 31, 2006, and December 31, 2008.

2

The government represents to the Court that it will recognize the priority of the

Wells County lien pursuant to 26 U.S.C. § 6323(b)(6), if any.

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3. The judgment referenced in paragraph 1, above, may be enforced via

separate order of sale and distribution of proceeds to the plaintiff United

States and the defendants Wells County, Indiana and the State of Indiana,

Department of Revenue, in accordance with their lawful priorities against

the real property owned by Norman E. Kain, commonly known as 632

South Main Street, Bluffton, Indiana 46714, the property identified in the

complaint upon which the United States seeks to enforce its federal tax

liens.

4. The defendant Sally A. Kain has no right, title, claim, lien or interest in the

real property located at 632 South Main Street, Bluffton, Indiana 46714, the

property identified in the complaint upon which the United States seeks to

enforce its federal tax liens.

5. The defendant Sovereign Financial Management has no right, title, claim,

lien or interest in the real property located at 632 South Main Street,

Bluffton, Indiana 46714, the property identified in the complaint upon

which the United States seeks to enforce its federal tax liens. 

SO ORDERED.

ENTERED: January 24, 2017

s/ Philip P. Simon 

PHILIP P. SIMON, CHIEF JUDGE

UNITED STATES DISTRICT COURT

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