Opinion
No. 2:12-0012
03-28-2014
UNITED STATES OF AMERICA, Plaintiff v. WESLEY D. BOWDEN, et al., Defendants
Judge Sharp/Bryant
TO: THE HONORABLE KEVIN H. SHARP
REPORT AND RECOMMENDATION
Pending in this case is the United States' Motion for Default Judgment Against Wesley D. Bowden, Betty S. Bowden, Harry B. Doolittle and Edward A. Denison (Docket Entry No. 66). Defendant Wesley Bowden has filed a response in opposition (Docket Entry No. 72) and Bledsoe and Cumberland Counties have filed consents to the entry of Plaintiff's motion for default judgment (Docket Entry Nos. 68 and 70).
For the reasons stated below, the undersigned Magistrate Judge recommends that Plaintiff's motion for default judgment be GRANTED.
STATEMENT OF THE CASE
The United States has filed this civil action seeking a declaration of the validity of federal tax liens against certain real properties located in Cumberland and Bledsoe Counties, Tennessee, leave to foreclose such tax liens against the subject real property and to subject such property to sale, the proceeds of the sale to be distributed in accordance with the rights of the parties (Docket Entry No. 1).
The Clerk has entered default against Defendants Wesley D. Bowden, Betty S. Bowden, Harry B. Doolittle and Edward A. Denison for their failure to appear, plead, or otherwise defend this action (Docket Entry Nos. 14 and 23).
The United States now has filed its motion for judgment by default against the Bowden Defendants as well as Defendants Doolittle and Denison.
FINDINGS OF FACT
From the evidence appearing in the record, the undersigned Magistrate Judge finds the following facts:
1. Tenn Tex Properties, Inc. was incorporated in the state of Texas on November 5, 1986 (Docket Entry No. 66-7). Wesley Bowden was identified as the president, a director, and registered agent for this corporation (Docket Entry Nos. 66-7 and 66-8).
2. On December 30, 1986, Tenn Tex Properties, Inc., a Texas corporation, acquired by warranty deed real property in Cumberland County and Bledsoe County, Tennessee, that is the subject of this action (Docket Entry No. 67-9).
3. By quitclaim deed dated May 25, 1993, Tenn Tex Properties, Inc. conveyed the subject real property to Tenn-Tex Trust. Defendant Wesley Bowden executed this quitclaim deed as President of Tenn Tex Properties, Inc. (Docket Entry No. 66-10). The mailing address of Tenn-Tex Trust was the same as that of Tenn Tex Properties, Inc.: 9717 North Central Expressway, Dallas, Texas 75231 (Id.).
4. On October 25, 2000, Defendant Wesley Bowden executed a verified declaration in the nature of an affidavit in which he stated, among other things, that "[t]he fiction, known as Tenn-Tex Company Trust (and all derivatives thereof) was created on paper without form or substance as a creation of my mind." (Docket Entry No. 67-21 at 1).
5. On July 31, 2008, a federal jury in the United States District Court for the Northern District of Texas found Defendant Wesley Bowden guilty on six counts of tax evasion. This verdict required a finding by the jury that Defendant Bowden had either (a) established nominee trusts and placed funds and property in such trusts or (b) used false and misleading financial information in connection with employment or financial transactions, with the purpose of evading or defeating any fixed federal income tax or the payment thereof, and that Defendant Bowden had acted wilfully (Docket Entry Nos. 67-11 and -12).
6. On May 25, 2010, Defendants Wesley Bowden and Betty Bowden signed a Treasury form 433-A entitled "Collection Information Statement for Wage Earners and Self-Employed Individuals" in which they stated that they owned "raw land" valued at $1 million located in Bledsoe and Cumberland Counties, Tennessee (Docket Entry No. 67-13).
7. To perfect its interest in the subject real property, the Internal Revenue Service filed a series of Notices of Federal Tax Lien in Cumberland and Bledsoe Counties against Wesley Bowden and against Tenn-Tex Trust as Bowden's nominee (Docket Entry Nos. 66-16 and -17).
8. On December 18, 2012, the United States District Court for the Northern District of Texas entered final judgment in favor of the United States and against Defendant Wesley D. Bowden in the amount of $1, 461, 938.60, as of January 9, 2012, plus interest and other additions to tax allowed by law accruing thereafter until paid at the rate provided by 26 U.S.C. § 6621 (Docket Entry No. 66-15).
9. On February 11, 2011, a document entitled "Contract for bill of exchange in fee simple absolute", signed by H. Bradley Doolittle, was recorded in the register's office for Bledsoe County, Tennessee (Docket Entry No. 66-20).
CONCLUSIONS OF LAW
Under Rule 55(b)(2) of the Federal Rules of Civil Procedure, the Court is granted wide discretion in determining whether default judgment is appropriate. Vesligaj v. Peterson, 331 Fed. Appx. 351, 354 (6th Cir. 2009). As a general rule, upon entry default, the complaint's well pleaded allegations pertaining to liability are taken as true. Soles4Souls, Inc. v. Gleaning for the World, Inc., 2011 WL 4002568 (M.D. Tenn. Sep. 7, 2011) (citing In re Family Resorts of America, Inc., 1992 WL 174539 at *4 (6th Cir. July 24, 1992). The complaint in this action alleges that Tenn-Tex Trust holds legal title to the subject real property as a nominee of Defendant Wesley Bowden, the true equitable owner (Docket Entry No. 55 at 10).
In addition to the general rule deeming allegations of liability as established in the event of default, the evidence of record in this case supports a conclusion that Tenn-Tex Trust holds legal title to the property as a nominee for Defendant Wesley D. Bowden. Property held by a taxpayer's alter ego or nominee may be subjected to a federal tax lien or levy. G.M. Leasing Corp. v. United States, 429 U.S. 338, 350-51 (1977).
In determining whether an entity is the nominee of a taxpayer, courts consider multiple factors including (1) whether there was a lack of consideration, (2) whether the property was placed in the name of the nominee in anticipation of liability while the taxpayer continued to exercise control over the property, (3) whether there is a close relationship between the taxpayer and the nominee, (4) whether the conveyance was not recorded, (5) whether the taxpayer retains or possesses the property, and (6) whether the taxpayer continues enjoyment of the benefits of the transferred property. PBV, Inc. v. Rossotti, 178 F.3d 1295, 1999 WL 220123 (6th Cir. Apr. 6, 1999) (unpublished). The nominee doctrine allows the Government to sweep aside bare legal constructs used by taxpayers seeking to frustrate just collection. Drye v. United States, 528 U.S. 49, 1999 (affirming the foreclosure of a tax lien against property held by a trust as the taxpayer's nominee).
The evidence of record in this action supports a conclusion that Tenn-Tex Trust is the nominee of Defendant Wesley D. Bowden. First, the evidence suggests a lack of consideration for the transfer of the property from Tenn Tex Properties, Inc., of which Wesley Bowden served as president and a director, to Tenn-Tex Trust. The quitclaim deed, signed by Defendant Wesley Bowden as president of the transferor, recites a consideration of $10 "and other considerations" (Docket Entry No. 66-10). Moreover, the mailing addresses of Tenn Tex Properties, Inc. and Tenn-Tex Trust are the same: 9717 North Central Expressway, Dallas, Texas 75231, evidencing a close relationship between these two entities. In addition, Defendant Bowden in May 2010 listed the subject property among his assets on an IRS Form 433-A (Docket Entry No. 66-13 at 3). Moreover, Defendant Wesley Bowden stated in a verified declaration signed in October 2000 that the Tenn-Tex Company Trust and all derivatives thereof was a "fiction" "created on paper without form or substance as a creation of my mind." (Docket Entry No. 56-21). Finally, Defendant Bowden has been convicted by a federal jury of tax evasion based upon establishment of nominee trusts or use of false and misleading financial information in connection with employment or financial transaction (Docket Entry Nos. 66-11 and -12).
Defendant Bowden has filed a response (Docket Entry No. 72) in which he states that the May 2010 Form 433-A was signed under duress because an IRS agent Baustert threatened to have Bowden's parole revoked if he refused to sign. Bowden asserts that he filed an amended Form 433-A in September 2010 that did not list the subject property among Bowden's assets. Although Bowden stated that his response was signed "pursuant to 28 U.S.C. 1746," he has significantly failed to state that his response is true and correct "under penalty of perjury," as the statute requires (Id. at 4).
The United States, in its reply (Docket Entry No. 73), acknowledges that Bowden sent a later amended Form 433A that deleted the subject land from the listing of his assets, but only after the IRS assessed tax liability against him in August 2010.
From the foregoing facts, the undersigned Magistrate Judge concludes that Tenn-Tex Trust held the subject property as the nominee of Defendant Wesley D. Bowden.
It further appears from the record that the United States has perfected its tax liens against Wesley Bowden, and that these liens are attached to the subject real property (Docket Entry Nos. 66-16 and -17). Subject to the claims of Defendants Cumberland and Bledsoe Counties, which are granted priority pursuant to 26 U.S.C. § 6323(b), Defendants Bowden, Doolittle and Denison have failed to assert or establish why any interests they may have in the subject real property could be superior to the claim of the United States. From the foregoing, the undersigned Magistrate Judge finds that, subject to the claims of Cumberland and Bledsoe Counties, the United States has perfected its tax liens against the subject property as superior to other claimants.
It appears from this record that the United States has recorded its notices of tax liens in Cumberland and Bledsoe Counties in accordance with Tennessee law both against Defendant Wesley Bowden and against Tenn-Tex Trust as his nominee, and that the United States is, therefore, entitled to foreclose these federal tax liens against the property pursuant to 26 U.S.C. § 7403(c).
RECOMMENDATION
For the reasons stated above, the undersigned Magistrate Judge recommends that the motion of the United States for default judgment be GRANTED, that the Court find that Tenn-Tex Trust is a nominee for Defendant Wesley D. Bowden and that Defendant Wesley D. Bowden was and is the true, equitable, and defacto owner of the subject real property; that the Court further find that the tax liens of the United States attached to the subject real property and that the liens should be foreclosed and the subject real property sold, according to law, free and clear of any right, title, lien, title claim, or interest of any of the parties herein, except those of Cumberland and Bledsoe Counties, (3) that this Court order the sale of the real property at issue, the proceeds of which should be distributed first to the expenses of the sale; and second, in accordance with the interests of the parties.
Under Rule 72(b) of the Federal Rules of Civil Procedure, any party has 14 days from receipt of this Report and Recommendation in which to file any written objections to this Recommendation with the District Court. Any party opposing said objections shall have 14 days from receipt of any objections filed in this Report in which to file any responses to said objections. Failure to file specific objections within 14 days of receipt of this Report and Recommendation can constitute a waiver of further appeal of this Recommendation. Thomas v. Arn, 474 U.S. 140 106 S. Ct. 466, 88 L.Ed.2d 435 (1985), Reh'g denied, 474 U.S. 1111 (1986).
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JOHN S. BRYANT
United States Magistrate Judge