Opinion
No. SA-04-CA-00151-RF.
December 22, 2004
ORDER DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT
BEFORE THE COURT is Defendants' Motion for Partial Summary Judgment, filed on May 28, 2004, along with the Responses of Plaintiff United States of America ("the Government"). The Court held a hearing on December 22, 2004. Having carefully considered the motion, arguments and the summary judgment evidence presented by the parties, the Court is of the opinion that Defendants' Motion for Summary Judgment (Docket No. 13) should be DENIED.
FACTUAL AND PROCEDURAL BACKGROUND
The Government filed its Original Complaint in this action on February 19, 2004. The Government brings suit pursuant to Sections 7401, 7402, and 7403 of the Internal Revenue Code of 1986, as amended, to enter a judgment against Defendants Raul E. Gaona and Mariscela F. Gaona, individually, for the unpaid balance of federal taxes and statutory additions owed for the period between 1992 and 2001. The Government seeks to set aside two property conveyances which it characterizes as fraudulent and to enforce the Government's tax liens on these two properties. Raul and Mariscela allegedly conveyed these properties on June 17, 1996 to two trusts: The Raul E. Gaona and Mariscela F. Gaona Living Trust Dated June 17, 1996 ("Living Trust"), and The Raul and Mariscela Gaona Children's Trust, Dated June 17, 1996 ("Children's Trust").
Raul and Mariscela Gaona have assessed and unpaid taxes from tax years 1992-2000, totaling $421,034.79. See Plf.'s First Amended Complaint, at 3.
The properties which are the subject of this suit are the Gaona's homestead, located at 3530 Twisted Oaks in San Antonio, Bexar County, Texas (the "Homestead Property"), and the Gaona's 120.868 acre horse farm located in Sequin, Guadalupe County, Texas (the "Horse Farm").
Defendants Raul E. Gaona, Jr., Francisco J. Gaona, Ana M. Gaona, Rodrigo G. Gaona, Octavio A. Gaona, and Diego J. Gaona (collectively, "Gaona Children") are the trustees of the Children's Trust, to which one of the subject properties was conveyed. Initially, the International Bank of Commerce ("IBC") was listed as a defendant party, but was dismissed by the Government after submitting evidence showing that it held no interest in the properties. Defendant Frontier Capital Group, Ltd. may claim an interest in the properties and was served in this action, but has not answered the Original Complaint.
The Government's First Amended Complaint contains four counts related to the property transfers, characterizing them as fraudulent transactions under a state fraudulent conveyance statute, sham conveyances for federal tax purposes, entrustment, and as inferior to the Government's tax liens on the properties. The Government seeks an order setting forth the amount of the Gaona's indebtedness, establishing the ownership of the transferred properties in Raul and Mariscela Gaona, and declaring the two trusts' interests in the properties to be voidable as to the United States.
The Texas Uniform Fraudulent Transfers Act (the "TUFTA"), codified as TEX. BUS. COMM. CODEANN. §§ 24.002(7)(A), 24.005(a), and 24.006(a) and (b).
Under this theory, the Government argues that the properties are property of Raul and Mariscela Gaona, but that title to them is held by the alleged transferees, "as agents, nominees, or trustees of Raul E. and Mariscela Gaona." (the Government's "nominee" theory) Plf.'s Amend. Compl., at 6.
Defendants move for summary judgment on the state fraudulent transaction claims, arguing that the claims were filed after the statutory limitations period had run. Defendants filed three separate Warranty Deeds reflecting the conveyances on September 22, 1999 and claim that these filings, attached to their motion, represented "notice to the world" of the conveyances. Based upon the statutory limitations period, Defendants seek partial summary judgment on all claims of fraudulent transfer under Texas law. However, Defendants Raul and Mariscela do not challenge their indebtedness to the Government here.
DISCUSSION
I. Summary Judgment Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. A court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in his favor." A defendant moving for summary judgment need not disprove the plaintiff's claims, but can rely instead on an absence of evidence to support an essential element of those claims.
See FED. R. CIV. P. 56(c); Vulcan Materials Co. v. City of Tehucana, 369 F.3d 882, 886 (5th Cir. 2004) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
Chaplin v. NationsCredit Corp., 307 F.3d 368, 372 (5th Cir. 2002) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).
Int'l Assoc. of Machinists Aerospace Workers, Lodge No. 2504 v. Intercontinental Mfg. Co., 812 F.2d 219, 222 (5th Cir. 1987).
When defendants' motions are based upon a statute of limitations, the court must draw all reasonable inferences in favor of the non-moving plaintiff. To obtain summary judgment on a limitations defense, a moving defendant must "establish beyond peradventure" all of the essential elements of the defense.
Chaplin, 307 F.3d at 372.
See id. (quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986)).
II. Grounds for Summary Judgment
The Government's Amended Complaint sets forth four counts, two of which state TUFTA claims. Count I contains TUFTA claims based upon Sections 24.002(7)(A), 24.005(a), 24.006(a) and (b). Count IV contains a single claim based upon TUFTA Section 24.008.
Defendants move for partial summary judgment on the Government's fraudulent transfer claims under the TUFTA, arguing that where the Government seeks to set aside a fraudulent conveyance, it is subject to the state statute that governs that cause of action, here TUFTA. As a result, Defendants argue that the Government's claims are time-barred under the TUFTA's limitations provisions. The relevant provisions state that fraudulent transfer actions under TUFTA Section 24.005(a) must be brought within four years after the transfer was made or the obligation was incurred, or if later, within one year after the transfer or obligation could reasonably have been discovered by the claimant. Actions under the TUFTA Section 24.005(a)(2) or 24.006(a) must be brought within four years after the transfer was made or the obligation incurred. Finally, actions under TUFTA Section 24.006(b) must be brought within one year after the transfer was made.
See Hall v. United States, 403 F.2d 344, 347 (5th Cir. 1968).
See TEX. BUS. COMM. CODE § 24.010(a) ("Extinguishment of Cause of Action").
Id. § 24.010(a)(1).
Id. § 24.010(a)(2).
Defendants contend that the Government should have filed its TUFTA claims in Count I by either four years after the transfers were made or within one year after the Government reasonably could have discovered the transfers. Defendants' summary judgment evidence shows that the transfers were made June 17, 1996. The transfers were filed of record — and could have reasonably been discovered by the Government — on September 22, 1999. Thus, under the TUFTA limitations provisions, if applicable, the claims would have had to have been filed either on June 17, 2000 (four years from the date of the transfer) or on September 22, 2000. Since the latter date is later in time, that is the relevant date on which an action could be filed, according to TUFTA Section 24.010(a)(1). The Government is charged with constructive knowledge of the three Warranty Deeds which transferred the Gaona's two properties and with all other facts that a follow-up inquiry would have revealed. Since the Government did not file suit until February 19, 2004, Defendants claim that their TUFTA claims are statutorily barred and entitle them to summary judgment on these claims.
See Resolution Trust Corp. v. Kemp, 951 F.2d 657, 661 (5th Cir. 1992) (properly recorded interest is "notice to all persons of the existence of the instrument."); TEX.PROP.CODEANN. § 13.002 (Vernon 1984).
See id. at 661-62.
The Government responds that it is not bound by the limitations period found in TUFTA, citing United States v. Summerlin, which clearly holds that the United States is not bound by the same statutory periods that bind other litigants. This is especially so when the state law's limitations provision would work to invalidate the Government's claim completely. "When the United States becomes entitled to a claim, acting in its governmental capacity and asserts its claim in that right, it cannot be deemed to have abdicated its governmental authority so as to become subject to a state statute putting a time limit upon enforcement."
310 U.S. 414, 416 (1940) ("It is well settled that the United States is not bound by state statutes of limitation or subject to the defense of laches in enforcing its rights.").
Id. at 417.
Id.
Further, the Government points out, the Fifth Circuit has spoken on the appropriate statute of limitations for fraudulent transfer actions brought by the Government to collect unpaid taxes. In Fernon, the Fifth Circuit cited the language and holding of the Supreme Court's Summerlin decision, holding that the Government's fraudulent transfer claims could not be barred by state statutes of limitations. Instead, as the Fifth Circuit recognized in Fernon, the Government is limited only by its own federal limitations provisions.
See United States v. Fernon 640 F.2d 609, 612 (5th Cir. 1981).
Id. See also Bresson v. Comm'r of Internal Revenue, 213 F.3d 1173, 1178 n. 13 (9th Cir. 2000) (approving Fernon and finding no distinction between statute of limitations and claim-extinguishing provisions in attempt to bar Government's fraudulent conveyance claims).
Another district court in Texas has dealt with a situation that is directly analogous to the one before this Court. In United States v. Bantau, the Government brought a fraudulent transfer claim against a transferee, who claimed that the action was barred by the TUFTA's extinguishment provisions upon which Defendants rely. Following the controlling case law of Summerlin and Fernon cited above, the court held that the United States could bring a fraudulent transfer action pursuant to TUFTA without reference to TUFTA's limitations periods. While this Court in no way cites to the Bantau court's decision as controlling precedent, it does look to the analysis undertaken by its sibling court as it grapples with the issues before it. In Bantau, the district court was facing a similar claim brought by the United States against a taxpayer who allegedly received funds owed to the Government by a corporation of which Bantau had been president and corporate director prior to its dissolution. The district court, reviewing a similar legal issue, found that the Government was not bound by the TUFTA extinguishment provisions, declining to grant defendant's motion to dismiss. While Defendants here are correct that the Bantau court was dealing with the issue on a motion to dismiss under Rule 12(b)(6), the Court here reaches the same conclusion on Defendant's motion for summary judgment.
See Bantau, 907 F.Supp. 988 (N.D. Tex. 1995).
Id. at 991.
See id. at 989.
The Government's tax collection action is subject to the statute of limitations provisions set forth in 26 U.S.C. § 6502(a)(1). The statute provides that:
Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun . . . within 10 years after the assessment of the tax.
This ten-year period clearly runs from the date the tax is assessed. Here, summary judgment evidence submitted by the Government shows that the earliest tax assessment against Raul E. and Mariscela F. Gaona was made on November 17, 1997, for the 1996 tax year. With this as the controlling date, the Internal Revenue Code, Section 6502(a)(1) provides that the suit does not expire until November 17, 2007.
See Plf.'s Resp. to Def.'s Motion, at 5 Ex. 6.
Defendants also assert that a bankruptcy decision from the Southern District of Illinois is relevant here. In that case, a group of Chapter 12 debtors filed an adversary proceeding to determine the validity priority, and extent of liens of certain real estate previously owned by a testate decedent. The defendants filed for summary judgment, seeking to quiet title to the real estate parcels. In its analysis, the bankruptcy court heard arguments from the I.R.S. which asserted that the Summerlin decision was controlling on the issue of whether certain liens persisted against the real estate in question. The court, citing Seventh Circuit precedent, determined that Summerlin was not applicable to the facts of the bankruptcy case before it, because even if the Government was precluded from collecting against the properties by operation of the limitations provisions, it was free to seek recovery against other funds in the debtor's estate.
See White v. Stults, 174 B.R. 775 (Bankr. N.D. Ill. 1994).
See id. at 776.
Id. at 777-78.
With full regard for the bankruptcy court's decision, this Court finds that the case is not controlling. Here, the Government would apparently be precluded from asserting its TUFTA claims if this Court determined that the four-year extinguishment provisions in TUFTA were controlling; while this would not preclude any recovery whatsoever against the Gaona Defendants, it would certainly seem to prevent the Government from asserting these claims. This result is contrary to the language and holding of both the Summerlin decision of the Supreme Court and the Fifth Circuit case law applying that decision. While the Court understands that Defendants are attempting to distinguish their arguments from the thrust of Summerlin and the Fifth Circuit case law, the Court is not willing to accept the structure of the argument at this time.
CONCLUSION
Based upon the foregoing, it is therefore ORDERED that Defendants' Motion for Partial Summary Judgment (Docket No. 13) is DENIED.