Court Opinion

ID: 9929891
Source: CourtListenerOpinion
Date Created: 2024-02-05 18:00:43.512541+00
Date Added: 2024-06-11T10:58:11.853388
License: Public Domain

NOT PRECEDENTIAL

           UNITED STATES COURT OF APPEALS
                FOR THE THIRD CIRCUIT
                    _______________

                         No. 23-1338
                       _______________

              UNITED STATES OF AMERICA

                               v.

     SHANT S. HOVNANIAN; PETER HOVNANIAN,
    in his capacity as trustee for the Pachava Asset Trust;
    NINA HOVNANIAN, both in her individual capacity
            and as trustee for the VSHPHH Trust;
ADELPHIA WATER COMPANY INC; MTAG SERVICES LLC;
 ULYSSES ASSET SUB II LLC; TOWNSHIP OF HOWELL;
VAPACHA LLC; PACHAVA ASSET TRUST; VSHPHH TRUST

           Pachava Asset Trust and VSHPHH Trust,
                                    Appellants
                     _______________

         On Appeal from the United States District Court
                for the District of New Jersey
                   (D.C. No. 3-18-cv-15099)
               District Judge: Zahid N. Quraishi
                       _______________

          Submitted Under Third Circuit L.A.R. 34.1(a)
                     on February 2, 2023

    Before: KRAUSE, PORTER, and CHUNG, Circuit Judges

                    (Filed: February 5, 2024)
                                     _______________

                                        OPINION *
                                     _______________

KRAUSE, Circuit Judge.

       VSHPHH Trust (“VSHPHH” or the “Trust”) appeals the District Court’s grant of

partial summary judgment in the Government’s favor and its Order of Sale of a

VSHPHH-held property, the Village Mall, to satisfy co-defendant Shant Hovnanian’s

outstanding federal tax obligations. Specifically, the Trust argues that the District Court

erred by treating VSHPHH as Hovnanian’s third-party nominee because Hovnanian

never held title to the Village Mall. Because the record establishes that Hovnanian

exercised substantial control over the Village Mall after it was transferred to the Trust,

we will affirm.

I.     DISCUSSION 1

       To satisfy a delinquent taxpayer’s outstanding liabilities, the Government may

attach liens to property that is under the taxpayer’s control or the control of a third party

who is the taxpayer’s nominee. G.M. Leasing Corp. v. United States, 429 U.S. 338, 349–

51 (1977). State law determines whether a third party may be treated as the taxpayer’s

nominee. See Drye v. United States, 528 U.S. 49, 58 (1999). Here, the Trust argues that

*
 This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding
precedent.
       1
         The District Court had jurisdiction under 26 U.S.C. § 7402(a) as well as 28 U.S.C.
§§ 1340 and 1345. We have jurisdiction under 28 U.S.C. § 1291. We review a grant of
summary judgment de novo. Am. Home Assurance Co. v. Superior Well Servs., Inc., 75
F.4th 184, 188 n.4 (3d Cir. 2023).

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the District Court erroneously determined that it was a third-party nominee under New

Jersey law. Specifically, the Trust argues that it is not a third-party nominee under the six

factors articulated in United States v. Patras, 544 F. App’x 137 (3d Cir. 2013). Those

factors are:

       (1) whether the nominee paid adequate consideration for the property; (2)
       whether the property was placed in the nominee’s name in anticipation of a
       suit or other liabilities while the taxpayer continued to control . . . the
       property; (3) the relationship between the taxpayer and the nominee; (4) the
       failure to record the conveyance; (5) whether the property remained in the
       taxpayer's possession; and (6) the taxpayer’s continued enjoyment of the
       benefits of the property.

Id. at 141 (alteration in original) (quoting United States v. Patras, 909 F. Supp. 2d 400,

410 (D.N.J. 2012), aff’d, 544 F. App’x 137) (summarizing New Jersey case law). The

Trust’s contention is not persuasive.

       The fourth of these factors weighs in Hovnanian’s favor, as the transfer of title

was recorded. But this factor is not dispositive and may be accorded relatively little

weight if the other factors suggest that the Trust acted as Hovnanian’s nominee. See

Patras, 544 F. App’x at 142. That is the case here, where the remaining five factors

weigh in favor of treating VSHPHH as a third-party nominee.

       First, VSHPHH was paid only nominal consideration for the Village Mall, as the

Trust purchased title to the property for a single dollar. Second, the timing of the transfer

suggests that the Village Mall was placed in the Trust’s possession in order to circumvent

Hovnanian’s tax liabilities and to assist Hovnanian financially, as Hovnanian’s parents

did not transfer title to VSHPHH until after the IRS filed several multimillion-dollar

federal tax liens against Hovnanian and shortly before Hovnanian finalized his divorce.

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Third, Hovnanian’s close relationship with VSHPHH—he was the co-trustee of

VSHPHH with his sister, and his children were named beneficiaries of the Trust—

counsels strongly in favor of treating the Trust as a third-party nominee.

       The fifth and sixth factors also suggest that the Trust acted as a third-party

nominee, as Hovnanian retained significant control over the Village Mall after the

transfer and continued to enjoy the benefits of the property. Hovnanian was the co-

trustee of VSHPHH when the Trust obtained title to the Village Mall in 2015, and he

remained in that role until 2017. After the transfer, Village Mall tenants considered

Hovnanian to be their landlord and viewed him as the person in charge of the property.

Hovnanian made decisions about the property’s expenses, often without meaningful input

from his co-trustee, and he used his personal account to pay the property’s expenses, even

satisfying a lien on the property using money obtained from his divorce proceedings. He

also comingled profits from the Village Mall with his personal assets and used them to

pay for his personal expenses.

       The Trust argues that none of the six Patras factors can be satisfied because

Hovnanian himself never held title to the Village Mall. But we have never suggested that

a delinquent taxpayer must have actually possessed title to a piece of property in order for

a nominee lien to attach. On the contrary, a party acts as a third-party nominee when the

property remains under the delinquent taxpayer’s control despite the legal fiction that title

to the property is technically in the name of the third party. See, e.g., Holman v. United

States, 505 F.3d 1060, 1065 (10th Cir. 2007) (“Although in many instances the

delinquent taxpayer will have transferred legal title to a third party, an actual transfer of

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legal title is not essential to the imposition of a nominee lien.”). The undisputed facts

here confirm that Hovnanian exercised substantial control over the Village Mall after

2015, even if he never actually held title to the property, and that the Mall was transferred

to the Trust so that the property would not be subject to Hovnanian’s tax liabilities.

Under these circumstances, we are satisfied that the District Court did not err by

concluding that the Trust obtained title to the Village Mall as Hovnanian’s third-party

nominee. 2

II.    CONCLUSION

       For the foregoing reasons, we will affirm the District Court’s grant of partial

summary judgment and its Order of Sale.

2
  The Trust also argues that the District Court should have exercised its discretion to
decline to order a sale of the Village Mall. But the Trust forfeited this argument by
failing to raise it before the District Court. See Del. Dep’t of Nat. Res. & Env’t Control v.
U.S. Army Corps of Eng’rs, 685 F.3d 259, 280 n.22 (3d Cir. 2012).

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