Court Opinion

ID: 815247
Source: CourtListenerOpinion
Date Created: 2013-01-11 21:17:53+00
Date Added: 2024-06-11T11:18:47.480861
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 12-1625

                         BERKSHIRE BANK,

                           Plaintiff,

                               v.

                       TOWN OF LUDLOW, MA,

                      Defendant, Appellant,

   DOUGLAS SHULMAN, Commissioner of Internal Revenue Service;
                    UNITED STATES OF AMERICA,

                     Defendants, Appellees.

          APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF MASSACHUSETTS

          [Hon. Michael A. Ponsor, U.S. District Judge]

                             Before

                    Boudin,* Selya and Stahl,
                         Circuit Judges.

     *
       Judge Boudin heard oral argument in this matter and
participated in the semble, but he did not participate in the
issuance of the panel's opinion in this case. The remaining two
panelists have issued the opinion pursuant to 28 U.S.C. § 46(d).
     José A. Aguiar, with whom Doherty, Wallace, Pillsbury and
Murphy, P.C. was on brief, for appellant.
     Kenneth W. Rosenberg, Tax Division, United States Department
of Justice, with whom Kathryn Keneally, Assistant Attorney General,
and Thomas J. Clark, Tax Division, United States Department of
Justice, were on brief, for appellees.

                         January 11, 2013

                               -2-
           STAHL, Circuit Judge.           This appeal presents the question

of whether a company that owned a particular parcel of land was the

"nominee" of a delinquent taxpayer for purposes of a federal tax

lien that attached to all of the taxpayer's property.                 We conclude

that it was and therefore affirm the district court's grant of

summary judgment in favor of the United States.

           William A. Livermore owned approximately fifteen acres of

undeveloped land in Ludlow, Massachusetts.                  In August 2005, the

Town of Ludlow (Ludlow) approved Livermore's plan to divide the

property into eleven lots and turn it into a development to be

known as Leland Estates.            Ludlow imposed certain restrictions,

contained in a recorded covenant that Livermore executed.                      That

same month, Livermore obtained a commitment from Berkshire Bank to

make a loan to fund the development.                 The commitment stipulated

that the loan would be made to "William A. Livermore or nominee"

and that, if Livermore assigned the commitment to a nominee, he

would be required to guarantee the loan personally.

           In    September     2005,       Livermore     registered    with     the

Commonwealth of Massachusetts a limited liability company (LLC)

called WAL Development, LLC (WAL).              Livermore was the company's

sole member, owner, resident agent, and manager, and WAL's business

address   was   Livermore's        home    address.     Livermore     formed   WAL

exclusively to develop Leland Estates.                  In December 2005, he

transferred     title   of   the    property    to    WAL   by   quitclaim    deed,

                                          -3-
receiving no consideration for the transfer.1          WAL established a

line of credit with Berkshire Bank, secured by a mortgage on Leland

Estates.    Livermore signed the mortgage deed and related documents

in the name of the LLC, but he personally guaranteed repayment of

the loan and made the mortgage payments from an account held in his

own name at Berkshire Bank.

            As parcels of the Leland Estates property were sold,

Livermore deposited the proceeds into that same Berkshire Bank

account.    He then transferred a portion of those proceeds into a

separate account at Citizens Bank and used them to pay his personal

expenses.     During   tax   years   2006, 2007, and    2008,   Livermore

incurred significant unpaid federal tax liabilities, arising in

large part from the net income of WAL, which he reported on his

individual tax returns.        In March 2009, the Internal Revenue

Service (IRS) recorded a Notice of Federal Tax Lien2 with regard to

Livermore's 2006 and 2007 income tax liabilities.

            Meanwhile, the Leland Estates development encountered

financial difficulties, and the loan became delinquent.         Berkshire

Bank foreclosed on the four unsold lots that remained and sold them

     1
       Though Livermore received no consideration from WAL, he did
obtain a $498,750 mortgage loan from Berkshire Bank when he
transferred the land to WAL and used some of that loan to pay off
a prior mortgage he had on the property.
     2
       A federal tax lien attaches to "all property and rights to
property, whether real or personal, belonging to" a taxpayer. 26
U.S.C. § 6321.

                                     -4-
at auction. The auction proceeds satisfied the outstanding balance

on the mortgage, and $92,703.94 remained in surplus proceeds.     In

August 2010, Berkshire Bank filed this interpleader action in the

Massachusetts Probate and Family Court to determine who had the

right to the surplus proceeds.

            The bank joined Ludlow, Siok & Son Excavation (Siok), the

Commissioner of the IRS, and WAL.   WAL made no claim to the surplus

proceeds, and Siok stopped participating in the case once it was

removed to federal court in October 2010.         Ludlow claimed an

interest in the interpleader fund based on a $135,000 judgment that

it had obtained against WAL in June 2010, resulting from WAL's

failure to complete the Leland Estates development as it had

promised to do in its 2005 covenant with Ludlow.          The United

States, for its part, claimed an interest in the fund as a result

of the assessments for Livermore's unpaid 2006, 2007, and 2008

federal income tax liabilities and the March 2009 notice of federal

tax lien.   The claims of the United States and Ludlow each exceeded

the amount of the surplus proceeds.

            The United States moved for summary judgment, arguing

that WAL was Livermore's nominee or alter ego.3      Ludlow conceded

     3
       According to the IRS, "[a]s used in the federal tax lien
context, a nominee is generally a third-party individual who holds
legal title to property of a taxpayer while the taxpayer enjoys
full use and benefit of that property." I.R.M. 5.17.2.5.7.2(1).
The alter ego theory, on the other hand, "focuses more on those
facts associated with a 'piercing the corporate veil' analysis."
William D. Elliot, Federal Tax Collections, Liens and Levies

                                 -5-
that the federal tax lien had temporal priority over its judgment

lien but responded that WAL was not Livermore's nominee or alter

ego.   The district court granted the motion for summary judgment,

finding that WAL was "manifestly" Livermore's nominee.      Berkshire

Bank v. Town of Ludlow, No. 10–cv–30198, 2012 WL 1085568, at *2 (D.

Mass. Mar. 29, 2012).

           The United States advocated for, and the district court

applied, a multi-factor test derived from federal law to determine

nominee status.     See id.   On appeal, Ludlow does not take issue

with the district court's use of that test but rather argues that

the factors weigh in its favor enough to create a genuine dispute

of material fact.     We pause to note, however, that "[w]hether a

particular asset belongs to a taxpayer is a question of state law."

Dalton v. Comm'r, 682 F.3d 149, 157 (1st Cir. 2012); see also Drye

v. United States, 528 U.S. 49, 58 (1999) ("We look initially to

state law to determine what rights the taxpayer has in the property

the Government seeks to reach, then to federal law to determine

whether   the   taxpayer's    state-delineated   rights   qualify   as

'property' or 'rights to property' within the compass of the

federal tax lien legislation."); Holman v. United States, 505 F.3d

1060, 1067-68 (10th Cir. 2007); Spotts v. United States, 429 F.3d

248, 251-53 (6th Cir. 2005); Scoville v. United States, 250 F.3d

1198, 1202 (8th Cir. 2001).

¶ 9.10[2] (2d ed. 2008).

                                  -6-
           Thus, in reviewing a collection due process determination

by the IRS in Dalton, we held that Maine law provided "the

substantive rules of decision" as to whether a trust was merely a

nominee for the taxpayers.           682 F.3d at 157.           Maine recognized

something similar to the nominee doctrine, but state case law did

not "fully delineate the contours of" that doctrine.                Id. We found

that the IRS had acted reasonably in applying case law from other

jurisdictions -- primarily federal cases -- "to fill the void and

illuminate Maine's nominee doctrine."              Id.

           In     this   case,    however,     the    parties    have    not   even

mentioned the state law question on appeal, nor did the district

court   address    it    below.     We     will    therefore     assume,   without

deciding, that Livermore had an adequate interest in the Leland

Estates property under Massachusetts law, because Ludlow has waived

any claim to the contrary.          See Farris v. Shinseki, 660 F.3d 557,

562 n.5 (1st Cir. 2011).         We will also assume, again because Ludlow

has not argued otherwise, that it was appropriate for the district

court to apply the federal nominee test.               See id.

           Our standard of review merits one additional detour.                  In

the typical summary judgment case, our review is de novo.                      See

Reich v. John Alden Life Ins. Co., 126 F.3d 1, 6 (1st Cir. 1997).

As Ludlow conceded at oral argument, however, this is a non-jury

case in which "[t]here are no significant disagreements about [the]

basic   facts,"    and    the    parties    have     not   sought   to   introduce

                                         -7-
additional evidence or present witnesses.          EEOC v. S.S. Clerks

Union, Local 1066, 48 F.3d 594, 603 (1st Cir. 1995) (quoting

Federacion de Empleados del Tribunal Gen. de Justicia v. Torres,

747 F.2d 35, 36 (1st Cir. 1984)) (first alteration in original).

Instead, the parties' dispute centers around the inferences that

the district court should have drawn from the facts at issue.          In

such a case, we can "assume that 'the parties considered the matter

to have been submitted below as a case ready for decision on the

merits.'"     John Alden, 126 F.3d at 6 (quoting Federacion de

Empleados, 747 F.2d at 36).      Accordingly, we review the district

court's factual inferences for clear error only, though the court's

"ultimate application of the law to the facts . . . remains subject

to de novo review."    Id.

            The   district   court    considered   the   nominee   factors

articulated in In re Callahan, 442 B.R. 1 (D. Mass. 2010), which

are as follows:

            [1] the lack of consideration paid by the
            titleholder; [2] a close relationship between
            the taxpayer and the titleholder; [3] the
            control exercised over the property by the
            taxpayer while title is held by another;
            [4] the use and enjoyment by the taxpayer of
            the property titled to another; [5] lack of
            interference in taxpayer's use of property by
            the titleholder; [6] the use of property or
            funds titled to another to pay the taxpayer's
            personal expenses;4 [7] whether the taxpayer

     4
       The district court seems to have conflated factors five and
six. See Berkshire Bank, 2012 WL 1085568, at *2 (considering "the
lack of interference in a taxpayer's personal expenses").

                                     -8-
             exercises dominion and control over the
             property, or treats it as if it belongs to
             him; [8] whether title was placed in the
             record owner's name as a result of or in
             anticipation of the taxpayer's liability.

Id. at 6 n.5; see also Dalton, 682 F.3d at 158 (listing a similar

set of factors). "Virtually without exception, courts focus on the

totality of the circumstances without regarding any single factor

as the sine qua non of a nominee relationship."               Dalton, 682 F.3d

at 158.

             We agree with the district court that those factors weigh

in   favor   of   finding    that   WAL   was   Livermore's    nominee.    See

Berkshire    Bank,   2012     WL    1085568,    at   *2.   First,    Livermore

transferred the property to WAL for no consideration.               Second, the

relationship between Livermore and WAL was very close. No one else

had any interest in the company, made decisions for the company, or

benefitted from its income, and WAL operated out of Livermore's

home.   Third, Livermore exercised total control over the property

and its development.        Fourth, and relatedly, he also had complete

use and enjoyment of the property, as evidenced by his formulation

and execution of the plan to subdivide the property and sell off

the lots.      Fifth, WAL did not interfere with that use of the

property.    Sixth, Livermore admitted during his deposition that he

used ten to fifteen percent of the revenue from WAL to pay his

personal expenses.     Seventh, Livermore treated the property as if

it belonged to him.         Eighth, he testified that he set up the LLC

                                       -9-
and transferred        title   to the    property   solely    to    avoid    legal

liability "in case somebody got hurt on the property."5

            There are certainly some countervailing considerations.

The deed memorializing the transfer from Livermore to WAL was

properly recorded.       WAL had a lawyer and an accountant (who also

rendered services to Livermore), filed annual reports with the

Massachusetts Secretary of State, and kept records of its corporate

transactions.6         Livermore    segregated    those     records       from    his

personal ones, and his attorney maintained a corporate book.

Livermore   also used      what    the   district   court    described       as   "a

separate checking account" for WAL at Berkshire Bank, from which he

made mortgage payments and paid property taxes and insurance

premiums.    Berkshire Bank, 2012 WL 1085568, at *2.

            Importantly, however, the Berkshire Bank account was held

in Livermore's name, not WAL's, and Livermore testified that he

"frequently"     (in     other     words,    "[p]robably     once     a    month")

     5
       Ludlow seems to suggest on appeal that the taxpayer must
have transferred the property to avoid tax liability specifically.
Case law does not support that proposition. See, e.g., Dalton, 682
F.3d at 158 (describing the factor as "whether the property was
transferred in anticipation of liability"); Holman, 505 F.3d at
1065 n.1 (describing the factor as "whether the property was placed
in the nominee's name in anticipation of a lawsuit or other
liability"); Oxford Capital Corp. v. United States, 211 F.3d 280,
284 n.1 (5th Cir. 2000) (describing the factor as whether the
property was "placed in the name of the nominee in anticipation of
a suit or occurrence of liabilities").
     6
       The district court's finding that WAL filed income tax
returns with the IRS is not supported by the record.

                                      -10-
transferred money from the account into his personal account at

Citizens Bank.   More specifically, as mentioned above, Livermore

estimated that he moved about ten to fifteen percent of the money

from the Berkshire Bank account into his Citizens Bank account to

pay for personal expenses.    There was never any truly separate

account for WAL.      That blurring of the lines between WAL and

Livermore speaks to the closeness of their relationship and the

degree to which, post-transfer, Livermore continued to treat the

Leland Estates property as his own and fully benefit from it.    See

In re Callahan, 442 B.R. at 6 n.5; Dalton, 682 F.3d at 158.

           The ultimate inquiry in a nominee case "is whether the

taxpayer has engaged in a legal fiction by placing legal title to

property in the hands of a third party while actually retaining

some or all of the benefits of true ownership."     Holman, 505 F.3d

at 1065.   In answering that question, the district court had to

draw inferences about the relative significance or insignificance

of the essentially undisputed facts.     We discern no clear error in

those inferences, nor any error in the court's ultimate conclusion

that WAL was Livermore's nominee.     See John Alden, 126 F.3d at 6.

We do not wish to suggest, as Ludlow fears, that a single-member,

single-purpose LLC can never escape nominee status for purposes of

a federal tax lien.    But under the circumstances presented here,

there was simply too much intermingling of funds and too close of

a relationship between Livermore and WAL for us to conclude that

                               -11-
WAL was anything other than "a legal fiction."   Holman, 505 F.3d at

1065.

          Like the district court, we take "very little pleasure in

this ruling, which leaves Ludlow with an unfinished subdivision."

Berkshire Bank, 2012 WL 1085568, at *3.    However, the statutory

language creating the federal tax lien "is broad and reveals on its

face that Congress meant to reach every interest in property that

a taxpayer might have."   United States v. Nat'l Bank of Commerce,

472 U.S. 713, 719-20 (1985) (citation omitted).     Accordingly, we

affirm.

                               -12-