United States v. Faulkner

UNITED STATES OF AMERICA, Plaintiff, v. RONALD R. FAULKNER, DANIEL R. FAULKNER, DEVIN S. HAWKINS,as Trustee of the KEVIN S. HAWKINS REVOCABLE TRUST,CAROLE JEAN JORDAN, as tax collector for INDIAN RIVER COUNTY, Defendants.

CASE NO. 18-14122-CIV-MARRA

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

March 27, 2020

ORDER AND OPINION DENYING MOTION FOR SUMMARY JUDGMENT

THIS CAUSE is before the Court upon the United States' Motion for Summary Judgment Against All Defendants [DE 34]. The motion is fully briefed and ripe for review. The Court has considered the entire Court file and is otherwise fully advised in the premises.¹

Introduction

The United States filed the instant motion seeking a judgment that federal tax liens against Ronald Faulkner attach to two properties in Vero Beach, Florida. Defendant Daniel Faulkner, Ronald Faulkner's son, timely responded. The Courtentered a $668,325.63 judgment against Ronald Faulkner for individual income tax liabilities, plus statutory additions and interest that continue to accrue. DE 10. Daniel Faulkner concedes that the United States' federal tax liens attach to a 50% interest in each of the properties. DE 36 at 2-3. Therefore, the United States asserts, the only questions remaining on summary judgment are whether the tax liens attach to all of Property 1 and whether foreclosure sales are appropriate.

Undisputed Material Facts

1. In 1980 or 1981, Ronald Faulkner and his wife, Joanne Faulkner, started a trucking brokerage business in Roanoke, Virginia. (Ex. 1 - Deposition of Ronald Faulkner, p. 26:16-26:18; p. 31:1-31:24; 32:25- 33:4; 33:5-33:8; 33:25-34:3; 36:16-36:24; 39:20-39:22; 40:5-40:21; 41:21-42:1; 46:21-47:3; 51:19-52:5).

2. Joanne Faulkner and Ronald Faulkner were both involved with the business and had distinct duties. (Ex. 1 - Deposition of Ronald Faulkner, p. 47:4 - 47:9; Ex. 2 - Deposition of Daniel Faulkner, p. 107:10-108:4)

3. The Faulkners ran the trucking business together and used the profits to pay for their lives together (Ex. 1 - Deposition of Ronald Faulkner, p. 91:25-92:13).

4. When the Faulkners moved to Florida in 2006, Joanne Faulkner and Ronald Faulkner were able to continue their business without disruption because it was computerized. This allowed them to book drivers and freight loads all over the continental United States and Canada. (Ex. 1 -Deposition of Ronald Faulkner, p. 48:25-51:5).

5. NS Transportation, Inc. was incorporated in 2012. Joanne Faulkner was the sole owner of NS Transportation; Ronald Faulkner was only an employee. (Ex. 1 - Deposition of Ronald Faulkner, p. 51:19-52:13; 53:2-53:17)

6. Ronald Faulkner did not timely file an individual income tax returns for 1999, 2000, 2001, and 2002 even though he was aware as of the filing deadlines each year that he owed a debt to the IRS for individual income tax for the previous year. (R. Faulkner Dep. 16:16-17:1; 18:10-19:2).

7. On October 13, 2005, Ronald Faulkner and Joanne Faulkner filed for Chapter 7 Bankruptcy in the U.S. Bankruptcy Court for the Western District of Virginia, Case No. 05-74985. (Select Filings from Ronald and Joanne's Joint Chapter 7 Bankruptcy ("Bankruptcy Record"), DE 34, Exhibit 2, Pg. 1.)

8. On March 10, 2006, the IRS filed a Proof of Claim in the Faulkners' bankruptcy in the amount of $364,308, which reflected that Ronald Faulkner had outstanding tax liabilities for 1995 to 2004. (DE 34, Ex. 2 Bankruptcy Record, Pg. 37.)

9. The Faulkners objected to the IRS's claim in the bankruptcy. Their objection was resolved by an Agreed Order that discharged their federal tax liability for years 1995 - 1998, and did not discharge their federal tax liability for the years 1999 - 2004. (DE 34, Ex. 2 Bankruptcy Record, Pg. 37-38.)

10. Ronald Faulkner's nondischargeable tax debt for 1999 to 2002 totaled over $90,000 at the time the IRS filed its Proof of Claim. (DE 34, Ex. 2 Bankruptcy Record, Pg. 39-41.)

11. The Faulkners' bankruptcy case was closed on May 30, 2006. (DE 34, Ex. 2 Bankruptcy Record, Pg. 42.)

12. Ronald Faulkner did not file tax returns for 2005 or 2006. Ronald Faulkner filed his 2007 return on October 15, 2008. Ronald Faulkner filed his 2008 return on April 15, 2009. (DE 34, Ex. A to R.O. Decl., Pgs. 27, 33, 39, 44.)

13. On or about September 21, 2006, Ronald Faulkner filed individual income tax returns for 1999, 2000, 2001, and 2002 reporting amounts due. (DE 34, Ex. A to R.O. Decl., Pgs. 2, 11, 16, 21.) He did not submit payment of the amounts due at that time. (See generally, DE 34, Ex. A. to R.O. Decl., Pgs. 1-25.)

16. After moving to Florida in 2006, Joanne Faulkner learned that Ronald Faulkner had an extra-marital relationship with a woman in Florida that had begun in the early 1990s. (Ex. 1 - Deposition of Ronald Faulkner, 81:10-81:15; 82:7-82:8)

17. On or about October 12, 2007, Ronald and Joanne Faulkner acquired an interest in real property at 7556 15th St, Vero Beach, Florida ("Property 1"), which was conveyed to them as "Ronald Faulkner and Joanne C. Faulkner, his wife." (DE 34, Warranty Deed attached as Exhibit 4.) The Faulkners owned Property 1 as tenants by the entireties.

18. On the same date, the Faulkners executed a mortgage in the amount of $186,000. (DE 34, Mortgage and Satisfaction attached as Exhibit 5.)

19. In 2008, Joanne Faulkner learned that Ronald Faulkner fathered a child, Ryan Watson-Bly, by the woman with whom he had the extra-marital relationship.

Ryan Bly-Watson was born in 1993. (Ex. 1 - Deposition of Ronald Faulkner, 80:2-80:7; 82:7-82:22) (DE 34, Ex. 1 R. Faulkner Dep. 82:13-20; 168:15-20.)

20. On September 11, 2008, Ronald Faulkner transferred his interest in Property 1 to Joanne Faulkner, by quit-claim deed, which was recorded with the Clerk of the Circuit Court of Indian River County Florida in Book 2292, Page 773 on September 17, 2008. (DE 34, Quit-claim Deed attached as Exhibit 6.)

21. Before transferring his interest in Property 1 to Joanne Faulkner, Ronald Faulkner was aware that he owed substantial income tax liabilities to the United States for 1999 to 2002. (DE 34, Ex. 1 R. Faulkner Dep. 27:18-28:7.)

22. Ronald Faulkner testified that after his wife learned that he had a son as a result of his extra-marital relationship, Joanne Faulkner was unsure if she wanted to continue her relationship with him and discussed divorcing him. Based on advice from his attorney, Ronald Faulkner quit-claimed his interest in Property 1 to Joanne Faulkner in 2008 so that she would not have to worry about a fight over the property if they divorced. R. Faulkner Depo. at 83-90.

23. Although he did not file individual income tax returns for 2005, 2006, 2007, or 2008 by their due dates, Ronald Faulkner was aware as of April 15th of each of the following years that he owed a debt to the IRS for individual income tax. (DE 34, Ex. 1 R. Faulkner Dep. 19:3-5.).

24. In 2008 when he transferred his interest in Property 1, Ronald Faulkner owed the United States over $132,262.43 just for 1999, 2000, 2001, and 2002 individual income taxes, penalties, and interest, which had already been assessed. (DE 34, See Ex. A to R.O. Decl., Pgs. 1-25.)

25. Additionally, Ronald Faulkner owed income tax liabilities for 2005, 2006, and 2007, which were not yet assessed by the IRS. Ronald Faulkner was aware that he owed the IRS for individual income taxes for 2005 through 2007. (DE 34, Ex. 1 R. Faulkner Dep. 18:22-19:20.)

26. At the time Ronald Faulkner quit-claimed his interest in Property 1 to Joanne Faulkner, he had no other property of significant value. (Ex. 1 R. Faulkner Dep. 90:3-91:2.) At that time, Ronald and Joanne Faulkner jointly owned a 2008 BMW X5, a 2007 Chevy Tahoe, and a 2007 Mustang GT, value unknown. See DE 37-1, Dep. R. Faulkner, 90:17-19.

27. Joanne Faulkner did not pay Ronald Faulkner anything in exchange for his interest in Property 1. (Ex. 1 R. Faulkner Dep. 91:3-7.)²

28. Ronald Faulkner remained liable on the mortgage on Property 1 until it was released by a Satisfaction of Mortgage executed August 4, 2014 and recorded with the Clerk of the Circuit Court for Indian River County on August 5, 2014 at Book 2778, Page 2074. (DE 34, Ex. 5 Mortgage and Satisfaction.)

29. After Ronald Faulkner quit-claimed his interest in Property 1 to Joanne Faulkner, he continued to live in the home, and the Faulkners paid their household expenses, including for maintenance of the home and utilities, out of their joint bank account. (DE 34, Ex. 1 R. Faulkner Dep. 91:8-92:9.)

30. On October 15, 2008, just one month after executing the quit-claim deed, Ronald Faulkner filed an individual income tax return for 2007 reporting a substantial amount due. (DE 34, Ex. A to R.O. Decl., Pg. 44.)

31. Shortly thereafter, in November of 2008, the IRS made assessments totaling $65,800.68 against Ronald Faulkner for his 2006- and 2007-income tax, penalties, and interest. (DE 34, Ex. A to R.O. Decl., Pgs. 33, 39.)

32. On December 21, 2010, the IRS recorded a Notice of Federal Tax Lien against Ronald Faulkner for his outstanding individual income tax liabilities for 1999 through 2002 and 2005 through 2008 with the Clerk of the Circuit Court for Indian River County Florida. (Exhibit D to Complaint.)

33. On July 5, 2016, the IRS recorded with the Clerk of the Circuit Court for Indian River County, Florida, at Book 2947, Page 1046, a Refiled Notice of Federal Tax Liens for Ronald Faulkner's individual income tax liabilities for 1999, 2000, 2001, and 2002. (DE 34, NFTL Refile 1, attached as Exhibit 7.)

34. On September 4, 2018, the IRS recorded with the Clerk of the Circuit Court for Indian River County, Florida, at Book 3145, Page 2341, a Refiled Notice of Federal Tax Liens for Ronald Faulkner's individual income tax liabilities for 2005, 2006, 2007, and 2008. (DE 34, NFTL Refile 2, attached as Exhibit 8.)

35. In 2014, Joanne Faulkner purchased 2135 Island Drive, Vero Beach, Florida ("Property 2") from Kevin Hawkins, who built the house, for approximately $675,000.00. She put approximately 40% down and...