United States v. Sullender

2018 DNH 054

United States of America v. Jeffrey Sullender, et al.

Civil No. 16-cv-523-LM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

March 16, 2018

ORDER

The United States of America brings suit to enforce federal tax liens against two properties to satisfy a judgment against defendant Jeffrey Sullender. The government alleges that Sullender has avoided paying federal taxes for several years, and it asserts that Sullender transferred the two properties "through an elaborate maze of sham trusts in a transparent attempt to avoid . . . collection efforts." Doc. no. 34-1 at 23. Defendants Thomas Budziszewski, as trustee for Paradigm Trust ("Paradigm"), and Midway Holding Company ("Midway"), are the putative holders of the properties, and are alleged to be involved in the scheme.¹ All three defendants have failed to appear, and the government now moves for default judgmentagainst them. For the following reasons, the government's motion is granted.

STANDARD OF REVIEW

After default is entered and when the amount at issue is not a sum certain, "the party must apply to the court for a default judgment." Fed. R. Civ. P. 55(b)(2); see also KPS & Assocs., Inc. v. Designs by FMC, Inc., 318 F.3d 1, 19 (1st Cir. 2003). Before entering a default judgment, the court "may examine a plaintiff's complaint, taking all well-pleaded factual allegations as true, to determine whether it alleges a cause of action." Ramos-Falcon v. Autoridad de Energia Electrica, 301 F.3d 1, 2 (1st Cir. 2002) (quoting Quirindongo Pacheco v. Rolon Morales, 953 F.2d 15, 16 (1st Cir. 1992)). The defaulted party is "taken to have conceded the truth of the factual allegations in the complaint." Ortiz-Gonzalez v. Fonovisa, 277 F.3d 59, 62-63 (1st Cir. 2002) (quoting Franco v. Selective Ins. Co., 184 F.3d 4, 9 n. 3 (1st Cir. 1999)).

The defaulted party does not, however, "admit the legal sufficiency of those claims." 10 James Wm. Moore, Moore's Federal Practice § 55.32[1][b] (3d ed. 2013). In other words, before entering default judgment, the court must determine whether the admitted facts state actionable claims. See Sykes v. RBS Citizens, N.A., No. 13-cv-334-JD, 2016 WL 738210, at *1(D.N.H. Feb. 23, 2016) (noting that the standard for default judgment is "akin to that necessary to survive a motion to dismiss for failure to state a claim"). Further, when "[f]aced with a motion for default judgment, a district court must exercise sound judicial discretion in determining whether the judgment should be entered." Fin. of Am. Reverse, LLC v. Carmona-Vargas, No. 16-1661, 2018 WL 522317, at *1 (D.P.R. Jan. 23, 2018) (internal quotation marks omitted).

BACKGROUND

By virtue of their default, defendants concede the following facts alleged in the amended complaint. This is the second action filed by the government against Sullender related to his failure to file federal income tax returns between 2000 and 2005. See generally United States v. Sullender, 12-cv-387-JL (D.N.H. 2012) ("Sullender I"). Although notices of tax liabilities and demands were properly sent to Sullender, he failed to fully pay the amounts, and the government instituted the first action.

In Sullender I, as here, Sullender failed to appear, and the government moved for a default judgment and to enforce federal tax liens that arose as to the two properties. The undersigned, in her capacity as magistrate judge, wrote a Report and Recommendation granting the government's motion for adefault judgment of $2,379,799.81 for unpaid taxes, penalties, and interest. See Sullender I, No. 12-cv-387-JL, 2013 WL 7390846, at *7 (D.N.H. Oct. 8, 2013). However, the undersigned recommended that the district judge deny the motion to the extent it sought enforcement of the tax liens, concluding that the government had not demonstrated that it was entitled to such relief. See id. at *4-7.

After the undersigned issued the Report and Recommendation, the government filed a notice of conditional voluntary dismissal as to its request for enforcement of the tax liens. See Fed. R. Civ. P. 41(a)(1)(B) (stating that a dismissal by notice is generally without prejudice). As a result, Chief Judge Laplante approved the Report and Recommendation in part, upholding the default judgment but declining to approve the denial of the enforcement of the tax liens. See Sullender I, No. 12-cv-387-JL, 2013 WL 6728988, at *1 (D.N.H. Dec. 19, 2013).

The government subsequently filed this action pursuant to 26 U.S.C. § 7403. See 26 U.S.C. § 7403(a), (c) (stating that a civil action may be filed to enforce a federal tax lien and allowing the district court to "adjudicate all matters involved [] and finally determine the merits of all claims to and liens upon the property"). The court now turns to the allegations relating to the properties.

I. The Nashua Property

The first property is located in Nashua (the "Nashua Property"). In 1991, Sullender acquired title to the Nashua Property by warranty deed for $92,000. The government alleges that, at least by 1995, Sullender had decided to cease filing federal income tax returns. He began engaging in a "circuitous series of purported transfers in order to convey the Nashua Property beyond the reach of his creditors" while "still retaining dominion and control over it." Doc. no. 1 at 7.

First, in January 1995, Sullender purported to convey the Nashua Property to Aldebaran Assets Associates ("Aldebaran"). Aldebaran was managed by John Merrick, who was affiliated with various purported trusts and business entities formed by Sullender to hold his assets. Despite the fact that the Nashua Property represented nearly all of Sullender's known assets at that time, the transfer of the property was made with "little or no consideration," and "Sullender and Aldebaran exchanged nothing" following the conveyance. Id. at 8. The government alleges that Sullender retained possession and control over the property after the conveyance, noting that he continued to operate his business from the property. In addition, Sullender filed "numerous extraneous documents" with the registry of deeds, in order to "conceal the purported transfer of the NashuaProperty." Id. at 7. At least since 1998, Sullender has not filed federal income tax returns.

Second, in November 2002, for the stated consideration of "21 U.S. silver dollars," Aldebaran purported to convey the Nashua Property to Seaside Management ("Seaside"). Id. at 8. Seaside is an entity owned, controlled, and managed by Sullender. Aldebaran received "little or no consideration" for the purported transfer of the Nashua Property to Seaside. Id. at 9. As with the previous transfer, the government alleges that Sullender effectuated this conveyance in order to put the property beyond the reach of creditors, and that Sullender attempted to conceal the transfer by filing extraneous documents with the registry of deeds. On January 4, 2007, the government filed notices of federal tax lien on the Nashua Property in the registry of deeds, based on Sullender's tax liabilities between 2000 and 2005. The notices named Sullender and Seaside as Sullender's nominee.

The third transfer occurred in January 2010. Seaside, through Sullender, purported to convey the property to Paradigm, via warranty deed. At the time of the conveyance, Ronald Ottaviano controlled Paradigm as trustee.² The government alleges that Ottaviano is a convicted tax evader, and it citesthe case of United States v. Ottaviano, 738 F.3d 586 (3d Cir. 2013), which describes his tax-evasion scheme. Through his company Mid-Atlantic Trusts and Administrators, Ottaviano marketed so-called "Pure Trust Organization[s]," which appeared to be legitimate trusts but would actually provide customers with unlimited access to and control over their accounts. Ottaviano, 738 F.3d at 589; see also doc. no. 1 at 9. The warranty deed between Sullender and Paradigm describes the latter as "c/o Mid-Atlantic Tr & Admin." Doc. no. 1 at 10. The government asserts that Paradigm is a sham trust, the purpose of which is to assist Sullender in the evasion of his federal tax liabilities. The government alleges that, notwithstanding these putative transfers, Sullender has continued to exercise dominion and control over, and enjoy the benefits of, the Nashua Property.

II. The Hollis Property

The second property is in Hollis (the "Hollis Property"). The first relevant conveyance occurred on June 21, 2004, when John H. Baltz conveyed the property to Lisa Pollard. Doc. no. 1 at 12. The complaint alleges that "[t]he titling of the Hollis Property in Pollard's name . . . was itself fraudulent." Id. In its motion, the government explains that Lisa Pollard is the maiden name of Sullender's wife, Lisa Sullender. Sullenderplaced title in the name of Pollard because, by that time, Sullender had incurred substantial federal tax liabilities and was seeking to "hinder, delay, or defraud his creditors." Id. at 13. The government had already initiated efforts to collect Sullender's unpaid tax liabilities at that point. Sullender paid 72 percent of the purchase price for the Hollis Property, and retained possession and control over it, using the property as his personal residence. Like the transfers of the Nashua Property, Sullender attempted to conceal the conveyance of the Hollis Property by filing extraneous documents with the registry of deeds.

On March 25, 2005, for the stated consideration of "2 ounces of gold in coin," Pollard purported to convey the Hollis Property to Seaside. Id. On January 4, 2007, the government filed a notice of federal tax lien for the years 2000 through 2005 with the registry of deeds as to Sullender.

On May 5, 2007, as a purported gift, Seaside, through Sullender, conveyed the Hollis Property to Staci Barba, Sullender's sister. The government alleges that Barba initially had no knowledge that the Hollis Property was titled in her name. It was not until Sullender I that she discovered this fact, and she disclaimed any interest...