Opinion ID: 1553671
Heading Depth: 1
Heading Rank: 2

Heading: Succession of Jo Anne Fuller

Text: On January 25, 1984, five days after Jo Anne's death, Mrs. Anderson and Mrs. Tobin retained respondent to represent them in connection with Jo Anne's succession. Mrs. Anderson also granted respondent a general power of attorney to handle her affairs. On that same day, upon the nomination of Mrs. Anderson and Mrs. Tobin, respondent was appointed the provisional administrator of Jo Anne's succession. He served in that capacity until October 31, 1984, at which time the maternal aunt, Mrs. Collins, was appointed administratrix. [2] Mrs. Anderson and Mrs. Tobin also nominated respondent to be the administrator of Helen's succession. Respondent was appointed to that position in March 1984. Mrs. Collins thereafter petitioned for respondent's removal, claiming that he was not qualified to serve as administrator under the Louisiana Code of Civil Procedure. This effort by Mrs. Collins was unsuccessful, [3] and for a time Helen's and Jo Anne's successions proceeded in tandem with separate administrators. In 1986, respondent petitioned the trial court for approval to sell all of the property of Helen's succession at private sale. [4] The sales price was $180,000, with respondent and his wife, his wife's parents, and Mrs. Anderson named as buyers. Mrs. Collins opposed the sale. In early January 1990, the trial court ruled that the pro rata sale would be permitted. [5] Respondent, his wife, and in-laws were to receive a total of one-third of the property for $60,000. [6] However, on January 12, 1990, before the sale could take place, this court consolidated the assets of Helen's succession into Jo Anne's succession. [7] This action ended respondent's tenure as administrator of Helen's succession, and left Mrs. Collins as administratrix of the consolidated successions. The administration of Jo Anne's estate was complicated by tax problems. First, Jo Anne had failed to file income tax returns in the years prior to her death. On October 29, 1984, the IRS filed a proof of claim in Jo Anne's succession showing that Jo Anne owed over $1 million in unpaid income taxes. On January 8, 1990, Mrs. Collins and respondent received a notice of levy from the IRS, seizing all the property of Jo Anne's and Helen's successions to satisfy the income tax obligation owed by Jo Anne. At that time, Jo Anne owed $1.65 million in unpaid income taxes, penalties, and interest. [8] Furthermore, the succession was at odds with the IRS over estate taxes. On April 14, 1988, the IRS notified Mrs. Collins of a $4.45 million deficiency in the estate tax liability of the Estate of Jo Anne Fuller. The IRS had placed a much higher value on the estate property than had Mrs. Collins when she filed the estate tax return. [9] The major asset in question was four promissory notes given to Jo Anne by an Arkansas physician, David Newbern. Although the estate ascribed a discounted value of $230,000 to the four Newbern notes, the face value of the notes was actually $4,910,000. It was the face value of the notes, plus other adjustments in the estate tax paid by Jo Anne's succession, which formed the basis of the $4.45 million deficiency assessment. At the same time, the Newbern notes were the subject of a lawsuit filed in February 1988 by respondent, his wife, his in-laws, and Mrs. Anderson against Mrs. Collins and her attorneys, the Shreveport law firm of Cary & Cary. [10] The plaintiffs alleged that Mrs. Collins and her attorneys had allowed the Newbern notes to prescribe and breached other fiduciary duties as administratrix of Jo Anne's succession. On April 20, 1988, an Arkansas court agreed that the Newbern notes were prescribed and were not furnished for consideration. On July 14, 1988, attorney John Luffey, Jr., the tax counsel for Jo Anne's estate, filed a petition in the United States Tax Court contesting the estate tax deficiency. Among other contentions, Mr. Luffey asserted that no value should be given to the Newbern notes among the assets of the estate. Notwithstanding the position taken by Mr. Luffey in the Tax Court, respondent counseled his client, Mrs. Anderson, against accepting the assets of Jo Anne's succession. Respondent told Mrs. Anderson that with interest and penalties, the estate tax liability was $8.5 million, far in excess of her interest in the estate. The ODC contends that respondent intentionally and artificially overstated the estate tax liability so that he could acquire the succession assets for himself at a fraction of their fair market value, and that there was not a significant risk that the IRS would ever assess $8.5 million in estate taxes. Meanwhile, respondent was working to amicably resolve the issues with the IRS and Mrs. Collins. By January 1990, respondent had proposed that he purchase the assets of Jo Anne's estate, but the IRS agent in charge of collecting the income taxes, Winfred Weldon, informed respondent that the IRS would not support his proposal unless the purchase price would fully pay the outstanding income taxes. However, Mr. Weldon explained, the payment of the income taxes would have a very positive impact upon the estate taxes owed by Jo Anne Fuller, as the payment in full of the income taxes will negate most if not all, the estate taxes owing by both estates. [11] On March 28, 1990, respondent and Mrs. Collins entered into a confidential settlement whereby Mrs. Collins agreed to sell respondent the entirety of the succession assets, on the condition that respondent assume liability for the payment of the taxes. [12] With regard to the estate taxes, the settlement agreement provided that the claim shall be settled as to the amount of the obligation by closing. IRS may not necessarily be paid any remaining estate tax at that time, because the new administration may elect to pay such remaining tax pursuant to the provisions of IRC 6166 or other relief provisions (including 6161). However, the obligation shall be determined and fixed by closing, so that it will be known to Buyer [respondent]. [Emphasis in original.] On April 16, 1990, respondent wrote a letter to Mrs. Collins' attorney in which he stated, with regard to the estate tax, We have that almost settled. On April 30, 1990, the closing of the sale of the succession assets by Mrs. Collins to respondent took place. Respondent paid Mrs. Collins the sum of $397,000 for her interest in the two successions, [13] plus a $125,000 fee for her services as administratrix. In order to finance the transaction with Mrs. Collins, and to pay the income and estate taxes owed to the IRS, respondent borrowed funds from, among other sources, his client, Mrs. Anderson. In March 1990, respondent transferred $600,000 from two bank accounts in Mrs. Anderson's name to Auburn Corporation (Auburn), a closely-held corporation he created expressly for the purpose of acquiring the succession property. Respondent and his wife are the sole shareholders of Auburn. [14] In consideration of the transfer of funds, respondent executed a $600,000 promissory note on behalf of Auburn in favor of Mrs. Anderson. [15] The particulars of the transaction are not memorialized in any documents or memoranda executed or acknowledged by Mrs. Anderson indicating her awareness or authorization of the loan. Moreover, respondent did not advise Mrs. Anderson to seek independent advice regarding the consequences of entering into a business transaction with her lawyer. On May 2, 1990, respondent sent a report to Mr. Weldon in which he advised that he had obtained a commitment from the bank for the financing to pay the income taxes, and had tentatively settled the estate tax with Gus Marcotte [the estate tax auditor], at least in principle. We know approximately what the final figure will be, so that I can plan my financing. I am relying on Gus as to the estate tax figure. Following the execution of the settlement documents with Mrs. Collins, respondent and Mrs. Collins filed a joint petition seeking the approval of the trial court to sell the succession assets to respondent or his designee, Auburn. The petition was granted. [16] Respondent then paid the income taxes owed to the IRS, approximately $1.65 million, and completed the negotiations to resolve the estate tax claim. In December 1990, the IRS acquiesced in Mr. Luffey's contention that no value should be given to the Newbern notes among the assets of the estate, and a stipulation was filed in the Tax Court reducing the value of Jo Anne's taxable estate by $4,910,000. In January 1993, the United States Tax Court formally accepted the stipulation of the parties. The effect of the stipulation was that no estate taxes were paid by Jo Anne's succession; rather, the succession was actually due a refund of estate taxes in the amount of $172,328.22. The refund was paid to Auburn. Once the assets of the successions were owned by Auburn free and clear of any tax liens, respondent transferred 70,000 shares of bank stock to himself and then transferred all of the remaining assets to his wife via a series of dations en paiement [17] The ODC alleges that these transactions were designed to place the property beyond the legal reach of heirs seeking to rescind the transfers; however, respondent denies this allegation. Rather, respondent suggested that he transferred the bank stock to himself in order that Auburn would not be considered a bank holding company, [18] and that the transactions involving his wife were designed solely to get the properties out of the corporation in order that Auburn would not have to pay some $5,000 in annual franchise taxes.