United States of America v. Edwards, et al., No. 1:2017cv01105 - Document 28 (E.D. Cal. 2018)
Court Description: FINDINGS and RECOMMENDATIONS recommending that Plaintiff's Motion for Entry of Default Judgment be Granted, 22 . Matter referred to Judge Ishii. Objections to F&R due within twenty-one (21) days of service of this recommendation; signed by Magistrate Judge Sheila K. Oberto on 5/4/2018. (Timken, A)
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 Plaintiff, 11 12 Case No. 1:17-CV-01105-AWI-SKO UNITED STATES OF AMERICA, FINDINGS AND RECOMMENDATIONS THAT PLAINTIFF’S MOTION FOR ENTRY OF DEFAULT JUDGMENT BE GRANTED v. 13 14 15 16 17 (Doc. 22) DAVID J. EDWARDS, CENTRAL CINEMA, LP MARCIA DOERR (Trustee of LAP Trust), and STATE OF CALIFORNIA FRANCHISE TAX BOARD, Defendants. _____________________________________/ 18 19 I. 20 21 22 23 24 25 26 27 28 INTRODUCTION Before the Court is an unopposed motion for entry of default judgment (the “Motion”), filed on April 4, 2018, by Plaintiff United States of America (the “Government”) against Defendants David J. Edwards, Marcia Doerr (Trustee of LAP Trust), and Central Cinema, L.P. (collectively “Defendants”). (Doc. 22.) The undersigned has reviewed the Government’s submissions and determined, pursuant to Rule 230(g) of the Local Rules of the United States District Court, Eastern District of California, that the matter was suitable for decision without oral argument. The undersigned accordingly vacated the motion hearing. (Doc. 23.) For the reasons set forth below, the undersigned RECOMMENDS that the Government’s Motion be granted. 1 2 II. FACTUAL AND PROCEDURAL BACKGROUND On August 16, 2017, Plaintiff filed this action seeking to reduce federal income tax 3 assessments incurred by Defendant Edwards to a judgment, pursuant to 26 U.S.C. §§ 7401 and 4 7403, and foreclose federal tax liens on real property owned by Defendant Edwards in Fresno 5 County. (Doc. 1 (the “Complaint”).) 6 The first property on which the Government seeks to foreclose its liens is located at 451 7 Burl Avenue, Clovis, CA 93611 (the “Clovis Property”). (Doc. 1 ¶ 15.) Defendant Edwards 8 obtained the Clovis Property by conveyance in 1992. (Id. ¶¶ 15-16.) Defendant Edwards 9 conveyed the Clovis Property to LAP Trust for no consideration in 1995, and, after it was 10 conveyed back to him, he conveyed it to LAP Trust for no consideration for a second time in 11 2003. (Id. ¶¶ 17-19.) At the time the Government file the complaint in this matter, Defendant 12 Dooer was the sole trustee of LAP Trust. (Id. ¶ 20.) The second property on which the 13 Government seeks to foreclose its liens is located at 330-364 South Clovis Avenue, Fresno, CA 14 93727 (the “Fresno Property”). (Doc. 1 ¶ 21.) Defendant Edwards conveyed the Fresno Property 15 to Take Five Trust for no consideration in 1995, and Take Five Trust conveyed the property to 16 Central Cinema L.P. for no consideration in 1999. (Id. ¶¶ 22-23.) Defendant Edwards is the sole 17 general partner in Central Cinema L.P. (Id. ¶ 23.) The Government alleges that it was defrauded 18 by these property transfers. (Doc. 22-1, ¶ 15.) 19 The Government served Defendant Edwards and Central Cinema, L.P. with the complaint 20 on August 30, 2017, but, to date, both defendants have failed to respond. (Docs. 4, 5.) On 21 January 17, 2018, the Court permitted Plaintiff to serve Defendant Doerr by publication in the 22 Fresno Bee, which Plaintiff did on January 29, February 5, February 12, and February 19, 2018. 23 (Doc. 17.) To date, Defendant Doerr has failed to respond. 24 The Government requested entry of default as to Central Cinema, L.P. and Defendant 25 Edwards on November 3, 2017 (Doc. 8), and as to Defendant Doerr on April 2, 2018 (Doc. 20), 26 which the Clerk of the Court entered (Docs. 9, 21). The Government now seeks entry of default 27 against Defendants in the amount of $1,034,795.09, plus interest from May 31, 2018, until paid. 28 (Doc. 22.) 2 1 III. DISCUSSION 2 A. Legal Standard 3 The Federal Rules of Civil Procedure permit a court-ordered default judgment following 4 the entry of default by the Clerk of the Court. See Fed. R. Civ. P. 55(b)(2). “The district court’s 5 decision whether to enter a default judgment is a discretionary one.” Aldabe v. Aldabe, 616 F.2d 6 1089, 1092-93 (9th Cir. 1980). That is, a defendant’s default by itself does not entitle a plaintiff to 7 such a judgment. See id. (citations omitted). 8 In determining whether to enter default judgment, the Court should consider the following 9 so-called Eitel factors: (1) the possibility of prejudice to the plaintiff, (2) the merits of the 10 plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in 11 the action (5) the possibility of a dispute concerning material facts, (6) whether the default was 12 due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil 13 Procedure favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 14 1986). For the reasons set forth below, the Court finds that the Eitel factors weigh in favor of 15 entering default judgment against Defendants. 16 B. Analysis of the Eitel Factors 17 1. 18 19 20 21 22 23 24 25 26 27 Factor One: The Government Will Be Prejudiced if Default Judgment is Not Granted. The first Eitel factor favors entry of default judgment where “the plaintiff would suffer prejudice if default judgment is not entered.” Lyon v. Bergstrom Law, Ltd., No. 1:16-cv-00401DAD-SKO, 2017 WL 2350447, at *3 (E.D. Cal. May 31, 2017) (quoting Joe Hand Promotions, Inc. v. Dhillon, No. 2:15-cv-1108-MCE-KJN, 2015 WL 7572076, at *2 (E.D. Cal. Nov. 25, 2015). Over seven months into this action, Defendants have failed to respond to the Complaint. The litigation has thereby stalled, potentially prejudicing the Government by leaving it with no recourse to recover on its claims. That, by itself, is sufficient for a finding that this factor weighs in favor of entering default judgment. See, e.g., Philip Morris, USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 499 (C.D. Cal. 2003). // 28 3 1 2 3 4 5 6 2. Factors Two and Three: The Government’s Claims that it is Entitled to a Judgment Against Defendant Edwards for Unpaid Income Tax Assessments and that the Transfers of the Clovis and Fresno Properties Were Fraudulent are Meritorious and the Complaint is Sufficient. Under the second and third Eitel factors, the Court considers the general sufficiency of the complaint as well as the merits of its substantive claims. HICA Educ. Loan Corp. v. Warne, No. 11-cv-04287-LHK, 2012 WL 1156402, at *2 (N.D. Cal. Apr. 6, 2012). See generally U.S. ex rel. Hajoca Corp. v. Aeroplate Corp., No. 1:12-cv-1287-AWI-BAM, 2013 WL 3729692, at *3 (E.D. 7 Cal. July 12, 2013) (addressing the second and third Eitel factors “together because of the 8 relatedness of the two inquiries”). These factors “together . . . require that a plaintiff state a claim 9 on which the plaintiff may recover.” PepsiCo, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1175 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (C.D. Cal. 2002); see also Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978); Discovery Commc’ns, Inc. v. Animal Planet, Inc., 172 F. Supp. 2d 1282, 1288 (C.D. Cal. 2001). On a motion for entry of default judgment following entry of default by the Clerk of the Court, the Court must accept as true the well-pleaded facts in the complaint. Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1992). Necessary facts which are not contained in the complaint, or are legally insufficient, however, will not be established by the Clerk’s entry of default. Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992). The Government’s complaint requests that the Court (1) reduce the unpaid income tax assessments against Defendant Edwards to a judgment pursuant to 26 U.S.C. § 7402(a); (2) find that the property transfers of the Clovis Property were fraudulent under Cal. Civ. Code §§ 3439.04, 3439.05; (3) find that the property transfers of the Fresno Property were fraudulent under Cal. Civ. Code §§ 3439.04, 3439.05; (4) find that the current title holder of the Clovis Property is holding title as the nominee and/or alter-ego of Defendant Edwards; (5) find that the current title holder of the Fresno Property is holding title as the nominee and/or alter-ego of Defendant Edwards; and (6) foreclose federal tax liens against the Clovis and Fresno Properties pursuant to 26 U.S.C. § 7403(c). (Doc. 1 ¶¶ 24-59.) a. The Government’s Allegations Establish that Defendant Edwards Owes the Taxes Assessed Against Him. “In an action to collect taxes, the government bears the initial burden of proof.” Palmer v. 4 1 U.S. I.R.S., 116 F.3d 1309, 1312 (9th Cir. 1997). “The government can usually carry its initial 2 burden, however, merely by introducing its assessment of tax due.” U.S. v. Stonehill, 702 F.2d 3 1288, 1293 (9th Cir. 1983); see also Palmer, 116 F.3d at 1312 (“The Commissioner's deficiency 4 determinations and assessments for unpaid taxes are normally entitled to a presumption of 5 correctness so long as they are supported by a minimal factual foundation.”). The presumption of 6 correctness shifts the burden of proof to the taxpayer to show that the determination is incorrect. 7 See Rapp v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985); Stonehill, 702 F.2d at 8 1293 (“Normally, a presumption of correctness attaches to the assessment, and its introduction 9 establishes a prima facie case.”). 10 Although the government cannot rely on the presumption of correctness until it offers 11 “some substantive evidence showing that the taxpayer received income” on which taxes were not 12 paid, Weimerskirch v. Comm’r, 596 F.2d 358, 360 (9th Cir. 1979); see also Edwards v. 13 Comm’r, 680 F.2d 1268, 1270 (9th Cir. 1982) (per curiam) (holding that a factual foundation for 14 the assessment is laid “once some substantive evidence is introduced demonstrating that the 15 taxpayer received unreported income”), this burden “can be met by presenting federal tax 16 assessments. . . . Certificates of Assessments and Payments (‘Form 4340s') are highly probative 17 and in the absence of contrary evidence, are sufficient to establish a tax assessment was properly 18 made and notice and demand for payment were sent,” U.S. v. Vacante, 717 F.Supp.2d 992, 1004 19 (E.D. Cal. 2010); see also Huff v. U.S., 10 F.3d 1440, 1445 (9th Cir. 1993) (“Generally, courts 20 have held that IRS Form 4340 provides at least presumptive evidence that a tax has been validly 21 assessed . . .”); Hansen v. U.S., 7 F.3d 137, 138 (9th Cir. 1993) (“We stated that Form 4340 is 22 probative evidence in and of itself and, in the absence of contrary evidence, [is] sufficient to 23 establish that notices and assessments were properly made.”); Hughes, 953 F.2d at 535 (“Official 24 certificates, such as Form 4340, can constitute proof of the fact that the [tax] assessments were 25 actually made.”). “If the taxpayer fails to rebut the presumption, the government is entitled to 26 judgment as a matter of law.” Vacante, 717 F.Supp.2d at 1004. 27 The Government has established that its assessments are entitled to a presumption of 28 correctness by proffering the Certificates of Assessments and Payments (Form 4340) that calculate 5 1 the amount of taxes that Defendant Edwards owed for the years 2001, 2004, 2005, and 2007 2 through 2009 (Doc. 22, Decl. of IRS Revenue Officer Kenneth Morgan (“Morgan Decl.”), Exs. A3 F), and the declarations of Aaron Bailey, an attorney with the United States Department of Justice, 4 Tax Division (Doc. 22, Bailey Decl.), and IRS Revenue Officer Kenneth Morgan (Doc. 22, 5 Morgan Decl.). See, e.g., U.S. v. Boyce, 38 F.Supp.3d 1135, 1151-52 (C.D. Cal. Jul. 8, 2014) 6 (finding that the government was entitled to a presumption of correctness where it proffered Forms 7 4340 to show taxpayer owed for the 1998 through 2008 tax years); U.S. v. Uptergrove, 2008 WL 8 3850833, at *5-6 (E.D. Cal. Aug. 13, 2008) (finding that the government’s certificates of 9 assessment established that tax liability was properly assessed against the taxpayer and that notices 10 and demand for payment of liabilities were properly sent) (citing U.S. v. Chila, 871 F.2d 1015, 11 1017-19 (11th Cir. 1989). The Government’s Certificates also demonstrate that the unpaid 12 balance due, with accrued interest, penalties and other statutory additions as of May 31, 2018, is 13 $1,034,795.09. Uptergrove, 2008 WL 3850833, at *4. 14 Further, Defendant Edwards has filed no opposition rebutting the presumption of 15 correctness by, for instance, showing that the assessments were in error. See Boyce, 38 F.Supp.3d 16 at 1152. The Government has therefore established that valid tax assessments were made and that 17 Defendant Edwards owes the taxes assessed. 18 19 20 21 22 23 24 25 26 27 b. The Government’s Allegations Establish the Government’s Entitlement to Foreclose on the Federal Tax Liens. “If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.” 26 U.S.C. § 6321. “The IRS has broad powers to impose federal tax liens under 26 U.S.C. § 6321 . . . The Supreme Court has interpreted section 6321 to apply to all property of a taxpayer, including property that is held by a third party as the taxpayer’s nominee or alter ego.” Fourth Inv. L.P. v. U.S., 720 F.3d 1058, 1067 (9th Cir. 2013) (citing G.M. Leasing Corp. v. U.S., 429 U.S. 338, 35051 (1977); see U.S. v. Capriotti, No. 1:11-cv-00847 SAB, 2013 WL 1563214, *27 (E.D. Cal. Apr. 28 6 1 12, 2013). “While state law determines the property rights and interests, ‘state law is inoperative 2 to prevent the attachment of liens created by statute in favor of the United States.’” Capriotti, 3 2013 WL 1563214 at *27 (citing Drye v. U.S., 528 U.S. 49, 52 (1999)). 4 Here, it is undisputed that, at the time the tax assessments were made, title to the Clovis 5 Property was held by Defendant Doerr as trustee for the LAP Trust and the Fresno Property was 6 held by Central Cinema, L.P. To reach the Clovis and Fresno Properties, therefore, the 7 Government must demonstrate that Defendant Doerr and Central Cinema, L.P. are the nominees or 8 alter egos for Defendant Edwards. See Boyce, 38 F.Supp.3d at 1152-53. 10 The Government’s Allegations Establish that Defendants Doerr and Central Cinema, L.P. Are the Nominees of Defendant Edwards in the Clovis and Fresno Properties. 11 The Government contends that it is entitled to foreclose on the Clovis and Fresno 9 c. 12 Properties because the Properties are truly owned by Defendant Edwards, and Defendants Doerr 13 and Central Cinema, L.P. merely hold legal titles as Defendant Edwards’ nominee or alter ego. 14 (Doc. 1 ¶¶ 38-54.) 15 It is a well-settled principle that the “Government may foreclose on property held by a 16 nominee of a taxpayer in order to collect the taxpayer’s debt.” U.S. v. Shaeffer, 245 B.R. 407, 415 17 (D. Colo. 1999) (citing G.M. Leasing Corp., 429 U.S. at 351). “A nominee is one who holds bare 18 legal title to property for the benefit of another.” Scoville v. U.S., 250 F.3d 1198, 1202 (8th Cir. 19 2001). Courts consider several factors when determining whether a title holder is merely a 20 nominee, the most important of which is the taxpayer’s ability to exert control, either directly or 21 indirectly, over the property at issue. See Shaeffer, 245 B.R. at 415 (citing Valley Fin., Inc. v. 22 U.S., 629 F.2d 162, 172 (D.C. Cir. 1980)). “Those factors are ‘(1) whether inadequate or no 23 consideration was paid by the nominee; (2) whether the propert[y] [was] placed in the nominee[’s] 24 name[] in anticipation of a lawsuit or other liability while the transferor remains in control of the 25 property; (3) whether there is a close relationship between the nominees and the transferor; (4) 26 failure to record the conveyances; (5) whether the transferor retained possession; and (6) whether 27 the transferor continues to enjoy the benefits of the transferred property.’” Boyce, 38 F.Supp.3d at 28 1153 (quoting Fourth Inv. L.P., 720 F.3d at 1070). 7 “Courts focus on the totality of the 1 circumstances, and no single factor is dispositive.” Id. (internal quotation omitted). 2 With regard to the first factor, the Government’s complaint alleges that Defendant 3 Edwards received no consideration for transferring the Clovis Property to Defendant Doerr and the 4 Fresno Property to Central Cinema, L.P. (Doc. 1 ¶¶ 17-19, 22-23.) The Government further states 5 in its Motion that the lack of documentary transfer tax paid on the property deeds is evidence that 6 no consideration was paid to Defendant Edwards. (Doc. 22-1 at 16.) This factor, therefore, 7 weighs in favor of the Government. 8 As concerns the second factor, it is uncontroverted that Defendant Edwards resided at the 9 Clovis Property continuously throughout the various conveyances until he moved to an assisted 10 living facility (Doc. 1 ¶ 41), and that he retained physical possession of the Fresno Property while 11 paying no rent for it (Id. ¶¶ 50, 52). The IRS initiated a tax audit of Defendant Edwards in January 12 1999, and only two months later Defendant Edwards transferred the Fresno Property to Central 13 Cinema, L.P. Defendant Edwards also retained physical possession of the Property and never paid 14 rent for it. (Id. ¶ 53.) Two years later, Defendant Edwards transferred the Clovis Property to 15 Defendant Doerr. (Id. ¶ 45.) The Government states in the complaint that Defendant Edwards 16 was subsequently convicted of tax evasion, including concealing the nature and extent of his assets 17 from 2000 to 2005. (Id.) These facts indicate that the Fresno and Clovis Properties were placed in 18 the names of Defendant Doerr and Central Cinema, L.P. in anticipation of the IRS audit, and, 19 therefore, the second factor weighs heavily in favor of the Government. 20 The fifth and sixth factors, which are interrelated, each weigh in favor of the Government. 21 The Government alleges that Defendant Edwards resided at the Clovis Property continuously 22 throughout the various property conveyances until he moved to an assisted living facility. (Doc. 1 23 ¶ 41.) Defendant Edwards never paid rent to remain at the Clovis Property, and he continuously 24 claimed deductions for real estate tax and mortgage interests from the Property. (Id. ¶¶ 42-43.) 25 Defendant Edwards also continuously listed the Clovis Property as his home address on his 1040 26 tax forms. (Id. ¶ 43.) As concerns the Fresno Property, Defendant Edwards was the sole general 27 partner. (Id. ¶ 49.) Defendant Edwards continued to enjoy the benefits of the Fresno Property, 28 which was doing business as Sunnyside Medical, and he continuously paid expenses for the 8 1 Property. (Id. ¶ 50.) Defendant Edwards also retained physical possession of the Property and 2 never paid rent for it. (Id. ¶¶ 50, 52.) These factors therefore weigh in favor of the Government. 3 As the foregoing factors weigh in the Government’s favor, the Court finds that Defendant 4 Doerr as trustee for the LAP Trust holds title to the Fresno Property as Defendant Edward’s 5 nominee and Central Cinema, L.P. holds title to the Clovis Property as Defendant Edward’s 6 nominee. See, e.g., Boyce, 38 F.Supp.3d at 1154 (holding that there was a nominee relationship 7 where all but one factor favored the government; Fourth Inv. L.P., 720 F.3d at 1072 (same). 8 Accordingly, the Fresno and Clovis Properties are considered the property of Defendant Edwards, 9 and the IRS tax liens attach to it. 11 The Government’s Allegations Establish that Defendant Edwards’ Transfers of the Clovis Property to Defendant Doerr and the Fresno Property to Defendant Central Cinema L.P. were Fraudulent. 12 The Government next asserts that Defendant Edwards’ transfer of the Clovis Property to 10 d. 13 Central Cinema, L.P., and the Fresno Property to Defendant Doerr were fraudulent as defined in 14 California’s Uniform Fraudulent Transfer Act (“UFTA”) because they “were made with the intent 15 to hinder, delay, or defraud [Defendant] Edwards’ creditors.” (Doc. 1 ¶ 35.) California Civil 16 Code § 3439.04 provides 17 18 19 A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation . . . with the actual intent to hinder, delay, or defraud any creditor of the debtor. 20 21 22 23 24 25 26 27 28 Cal. Civ. Code § 3439.04(a)(1). “Whether there is actual intent to hinder, delay, or defraud under [the] UFTA is a question of fact to be determined by a preponderance of evidence.” Wolkowitz v. Beverly (In re Beverly), 374 B.R. 221, 235 (9th Cir. BAP 2007) (citations omitted). “Once the creditor has shown that the conveyance is presumptively fraudulent, the burden shifts to the party defending the transfer.” Id. (citing Whitehouse v. Six Corp., 40 Cal.App.4th 527, 533 (1995)). “Because a debtor rarely admits to such a transfer, the evidence of intent ‘must of necessity consist of inferences drawn from the circumstances surrounding the transaction and the relationship and interests of the parties.’” In re SCI Real Estate Investments, LLC, 2:11-bk-15975, 2013 WL 9 1 1829648, *4 (C.D. Cal. May 1, 2013) (citing Neumeyer v. Crown Funding Corp., 56 Cal.App.3d 2 178, 183 (1976)); see also Am. Express Travel Related Services Co., Inc. v. D & A Corp., No. CV3 F-04-6737 OWW TAG, 2007 WL 3217565, *14 (E.D. Cal. Oct. 29, 2007). 4 The UFTA identifies the following eleven “badges of fraud” used to determine fraudulent 5 intent: (1) whether the transfer was to an insider; (2) whether the debtor retained possession or 6 control of the property after the transfer; (3) whether the transfer was disclosed or concealed; (4) 7 whether before the transfer was made, the debtor had been sued or threatened with suit; (5) 8 whether the transfer was of substantially all the debtor's assets; (6) whether the debtor absconded; 9 (7) whether the debtor removed or concealed assets; (8) whether the value of the consideration 10 received by the debtor was reasonably equivalent to the value of the asset transferred; (9) whether 11 the debtor was insolvent or became insolvent shortly after the transfer was made; (10) whether the 12 transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) whether 13 the debtor transferred the essential assets of a business to a lienholder that then transferred them to 14 an insider of the debtor. See Cal. Civ. Code § 3439.04(b); In re SCI Real Estate Investments, 15 LLC, 2013 WL 1829648 at *4; Acacia Corp. Mgmt., LLC v. U.S., No. CIV F-07-1129 AWI GSA, 16 2013 WL 57690, *6 (E.D. Cal. Jan. 4, 2013). “The UFTA list of ‘badges of fraud’ provides 17 neither a counting rule, nor a mathematical formula. No minimum number of factors tips the 18 scales toward actual intent. A trier of fact is entitled to find actual intent based on the evidence in 19 the case, even if no ‘badges of fraud’ are present.” In re SCI Real Estate Investments, LLC, 2013 20 WL 1829648 at *4 (citing In re Beverly, 374 B.R. at 236). 21 Here, the Government has established that Defendant Edwards fraudulently transferred the 22 Clovis and Fresno Properties. First, Defendant Edwards transferred the Properties to Defendants 23 Doerr and Central Cinema, L.P., whom the Court has determined hold legal title as Defendant 24 Edwards’ nominees. See supra Part II.B.2.c. This satisfies the first factor relevant in assessing 25 fraudulent intent. Second, the Government has established that Defendant Edwards retained 26 possession and control of the Properties after the transfers. Specifically, since transferring the 27 Properties to Defendants Doerr and Central Cinema, L.P. Defendant Edwards continued to 28 physically possess both properties, list the Clovis Property as his address, pay expenses for the 10 1 Properties, and claim deductions for real estate tax and mortgage interests from the Properties. As 2 noted above, these facts demonstrate that Defendant Edwards retained possession and control, 3 which satisfies the second factor. Third, Defendant Edwards transferred the Properties shortly 4 after the IRS commenced an audit of Defendant Edwards, thus satisfying the fourth factor. 5 Finally, Defendant Edwards received no consideration for any of the transfers of the Properties. 6 This fact satisfies the eighth factor. 7 Based on the Government’s uncontroverted evidence, the Court concludes that the 8 Government has shown that the transfers were presumptively fraudulent. Defendant Edwards has 9 adduced no evidence to rebut this presumption. The Court therefore concludes that Defendant 10 Edwards conveyance of the Fresno Property to Central Cinema, L.P., and the Clovis Property to 11 Defendant Doerr as trustee for the LAP Trust were fraudulent. See Boyce, 38 F.Supp. at 1157 12 (concluding that the government adduced evidence as to several of the “badges of fraud” factors, 13 shifting the burden to defendants, and defendants did not proffer evidence rebutting the 14 presumption); see also Mendez v. Keeling, No. 09-cv-2261 BEN (WMC), 2011 WL 1431469, *615 7 (S.D. Cal. Apr. 13, 2011) (same). This provides an alternate basis for concluding that IRS tax 16 liens attach to the Properties. Boyce, 38 F.Supp. at 1157. 17 3. 18 The fourth Eitel factor, the sum of money at stake in the action, weighs in favor of granting Factor Four: The Sum of Money At Stake in the Action is Reasonable. 19 default judgment. Default judgment is disfavored when a large amount of money is involved or is 20 unreasonable in light of the defendant’s actions. See Truong Giang Corp. v. Twinstar Tea Corp., 21 No. C 06-03594-JSW, 2007 WL 1545173, at *12 (N.D. Cal. May 29, 2007). Here, the 22 Government is seeking $1,034,795.09—the amount owed by Defendant Edwards in unpaid tax 23 assessments—plus interest from May 31, 2018, until paid. (Doc. 22.) While this amount is not 24 insubstantial, it is reasonable since Defendant Edwards owes this amount and failed to defend his 25 interests despite having received notice of these proceedings. See, e.g., U.S. v. Roof Guard 26 Roofing Co., Inc., No. 17-cv-02592-NC, 2017 WL 6994215, at *3 (N.D. Cal. Dec. 14, 2017) 27 (Although “[a]s a raw amount, the defendants’ tax liabilities here are not insignificant, totaling 28 over a million dollars[,] the government substantiates the figures with verified tax assessments 11 1 against each defendant.”) (emphasis added); U.S. v. Sundberg, 211 WL 3667458, at *5 (N.D. Cal. 2 Aug. 22, 2011) (“While [$2,521,982.25] is substantial, it is tailored to Mr. Sundberg’s specific 3 misconduct.”); O’Brien v. U.S., No. 2:07-cv-00986-GMN-GWF, 2010 WL 3636171, at *4 4 (finding that while the sum of money at stake is substantial, over $3 million, it did not weigh 5 against granting default judgment because it reflected only the amount defendant owed in unpaid 6 taxes and interest to which the United States is entitled). Therefore, the amount of money at stake 7 does not preclude entry of default judgment. 8 4. 9 With regard to this Eitel factor, no genuine issues of material fact are likely to exist Factor Five: No Dispute Over Material Facts. 10 because the allegations in the Government’s complaint are taken as true, Televideo Sys., 826 F.2d 11 at 917-18, and Defendants have submitted nothing to contradict the well-pled allegations in the 12 complaint. Accordingly, this factor favors entry of default judgment. 13 5. 14 Defendants have failed to file responsive pleadings or oppose the Government’s Motion Factor Six: No Evidence that Default Was Due to Excusable Neglect. 15 for Default Judgment. The Court has no evidence before it establishing that Defendants’ failure to 16 participate in the litigation is due to excusable neglect. This factor therefore weighs in favor of 17 granting default judgment. 18 6. Factor Seven: Strong Policy Favoring Decisions on the Merits. 19 This factor inherently weighs strongly against awarding default judgment in every case. 20 This factor is outweighed, however, by the other factors that favor granting default judgment. 21 C. Terms of the Judgment and Proof of Damages 22 While analysis of the Eitel factors supports entry of a default judgment, the Court also 23 considers the proof of the damages and the terms of the judgment sought by the Government. In 24 other words, although the Court must accept the Government’s allegations as true on a motion for 25 default judgment, the Government must still prove all damages sought in the complaint. See 26 Televideo Sys. Inc., 826 F.2d at 917-18. The relief sought “must not differ in kind from, or exceed 27 in amount, what is demanded in the [complaint].” Fed. R. Civ. P. 54(c). 28 // 12 1 Here, the Government has submitted the declaration of IRS Revenue Officer Kenneth 2 Morgan accompanied by Certificates of Assessments and computer generated breakdowns of the 3 amounts owed by Defendant Edwards for the tax years in question in this case. (Doc. 22, Morgan 4 Decl.); see Koff v. U.S., 3 F.3d 1297, 1298 (9th Cir. 1993) (“It is settled in this circuit that 5 Certificates of Assessments and Payments are probative evidence in and of themselves and, in the 6 absence of contrary evidence, are sufficient to establish that . . . assessments were properly 7 made.”) The Government has also provided the INTST printouts for each year showing the total 8 due for each year. (Doc. 22-1, Ex. C.) According to these documents, the total due for each tax 9 year plus interest from May 31, 2018, is as follows: 10 Tax Year Activity 2001 $570,341.30 2004 $94,174.12 2005 $99,521.27 15 2007 $46,949.00 16 2008 $32,521.57 17 2009 $191,287.83 Total Due $1,034,795.09 11 12 13 14 18 19 20 (Doc. 22, Morgan Decl. ¶ 8; see also Doc. 22, Ex. G at pp. 1-6.) 21 22 proof. Reviewed as a whole, the Government's documentation satisfies its burden of See Oliver, 921 F.2d at 919. Defendants did not challenge the documentation. 23 Accordingly, the undersigned recommends that judgment be entered against Defendants in the 24 amount of $1,034,795.09, plus interest from May 31, 2018, until paid. 25 The Government also seeks post judgment interest on the award. “Under the provisions of 26 28 U.S.C. § 1961, post judgment interest on a district court judgment is mandatory.” Air 27 Separation, Inc. v. Underwriters at Lloyd’s of London, 45 F.3d 288, 290 (9th Cir. 1995). Pursuant 28 to section 1961(c) interest on the award is governed by section 6621 of the Internal Revenue Code. 13 1 Accordingly, the Court recommends that post judgment interest be awarded until the judgment is 2 paid in full. See Sanders, 2016 WL 5109939, at *5. 3 4 IV. CONCLUSION AND RECOMMENDATIONS Based on consideration of the declarations, pleadings, and exhibits to the Government’s 5 Motion, the Court RECOMMENDS that: 6 1. The Government’s Motion for Entry of Default Judgment (Doc. 22) against 7 Defendants David J. Edwards, Marcia Doerr (Trustee of LAP Trust), and Central 8 Cinema, L.P. be GRANTED; 9 2. Judgment be entered in favor of the United States and against Defendants David J. 10 Edwards in the amount of $1,034,795.09, plus all penalties and interest according 11 to 28 U.S.C. §1961(c) and 26 U.S.C. §§ 6601, 6621, and 6622, from May 31, 2018, 12 until paid in full; 13 3. It be declared that the Defendants Marcia Doerr (Trustee of LAP Trust) and Central 14 Cinema, L.P. are the fraudulent transferees of Defendant David J. Edwards, and the 15 purported transfers of the Fresno Property, located at 330-364 South Clovis 16 Avenue, Fresno, CA 93727, and the Clovis Property, located at 451 Burl Avenue, 17 Clovis, CA 93611, be set aside and title returned in the name of Defendant David. 18 J. Edwards; and 19 4. It be declared that the United States has valid liens against the properties of 20 Defendant David J. Edwards, including but not limited to the Fresno and Clovis 21 Properties, and that the United States’ tax liens be ordered foreclosed against 22 Defendant David. J. Edwards. 23 The United States is HEREBY ORDERED to mail a copy of these findings and 24 recommendations to Defendant David J. Edwards at his last known address. 25 These findings and recommendations are submitted to the district judge assigned to this 26 action, pursuant to 28 U.S.C. § 636(b)(1)(B) and this Court’s Local Rule 304. Within twenty-one 27 (21) days of service of this recommendation, any party may file written objections to these 28 findings and recommendations with the Court and serve a copy on all parties. Such a document 14 1 should be captioned “Objections to Magistrate Judge’s Findings and Recommendations.” The 2 district judge will review the magistrate judge’s findings and recommendations pursuant to 3 28 U.S.C. § 636(b)(1)(C). The parties are advised that failure to file objections within the 4 specified time may waive the right to appeal the district judge’s order. Wilkerson v. Wheeler, 5 772 F.3d 834, 839 (9th Cir. 2014). 6 7 IT IS SO ORDERED. 8 Dated: 9 May 4, 2018 /s/ Sheila K. Oberto UNITED STATES MAGISTRATE JUDGE 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 .
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