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United States v. California Franchise Tax Board

August 13, 2008

UNITED STATES OF AMERICA, PLAINTIFF,
v.
JOHN L CABRAL, JANET M. CABRAL, STATE OF CALIFORNIA FRANCHISE TAX BOARD, STATE OF CALIFORNIA EMPLOYMENT DEVEOPMENT DEPARTMENT, SAN JOAQUIN VALLEY HAY GROWERS ASSOCIATION, C.L. BRYANT INC. DISCOVER BANK, NATIONAL CREDIT ACCEPTANCE, INC., COUNTY OF MERCED, DCSS, DEFENDANTS.



The opinion of the court was delivered by: Oliver W. Wanger, United States District Judge

MEMORANDUM DICISION AND ORDER RE GRANTING DEFENDANT CALIFORNIA FRANCHISE TAX BOARD AND CALIFORNIA EMPLOYMENT DEVELOPMENT DEPT. MOTION TO DISMISS (Doc. 29) AND GRANTING UNITED STATES MOTION TO DISMISS (Doc. 41)

1. Introduction

Defendant California Franchise Tax Board ("FTB") and California Employment Development Department ("EDD") move to dismiss, pursuant to Fed. R. Civ. P. 12(b)(1), crossclaims brought by Defendant John L. Cabral ("Cabral") for lack of subject matter jurisdiction. Plaintiff United States moves to dismiss, pursuant to Fed. R. Civ. P. 12(h)(3), Cabral's counterclaims for lack of subject matter jurisdiction. Oral argument was heard on August 4, 2008.

2. Procedural History

The United States filed a complaint on November 30, 2007. (Doc. 1, Complaint). EDD filed an answer to the Complaint on March 12, 2008. (Doc. 11, EDD Answer). FTB filed an answer to the Complaint on March 18, 2008. (Doc. 18, FTB Answer). Defendant Cabral filed an answer with counterclaims and crossclaims against Plaintiff United States and Co-Defendants FTB, EDD and Janet M. Cabral on May 12, 2008. (Doc. 27, Cabral Answer). FTB and EDD jointly filed a motion to dismiss for lack of jurisdiction against Defendant Cabral on May 21, 2008. (Doc. 30, FTB and EDD Motion to Dismiss). The Clerk entered the default of Defendant Janet M. Cabral on May 23, 2008 (Doc. 35), and of County of Merced, DCSS, Discovery Bank, and National Credit Acceptance, Inc. on June 5, 2008. (Doc. 40). The United States filed a motion to dismiss for lack of jurisdiction of Defendant Cabral's counterclaims on June 10, 2008. (Doc. 41, US Motion to Dismiss). Defendant Cabral filed an opposition to the US Motion to Dismiss on July 23, 2008. (Doc. 46, Opposition -US). Defendant Cabral filed an opposition to the FTB and EDD Motion to Dismiss on July 23, 2008. (Doc. 47, Opposition -California). The United States filed a reply to Defendant Cabral's Opposition - US on July 25, 2008. (Doc. 48, US Reply).

3. Factual Background

A. United States' Complaint

Plaintiff United States brings its Complaint in District Court pursuant to 26 U.S.C. § 7401, 7403, to reduce to judgment the outstanding federal tax assessments made against Defendants Cabral and Janet M. Cabral, and to foreclose federal tax liens, arising from federal tax liabilities against two parcels of property owned by Cabral and Janet M. Cabral, located in Stanislaus County.*fn1 (Complaint, ¶¶ 2, 3).*fn2 The United States' alleges that it sent and made timely notice and demands of tax assessments, described in paragraph 13 to the Complaint to Defendant Cabral which Defendant Cabral has neglected, failed or refused to pay. (Complaint, ¶¶ 14, 15). The United States seeks to reduce to judgment in its first cause of action the amount outstanding. The total balance of unpaid taxes alleged due and outstanding, including accrued interest and penalties through August 1, 2007, is $1,989,497.90. (Complaint, ¶ 15).

Plaintiff United States seeks the same recovery from Defendant Janet M. Cabral in its second cause of action, for a total amount outstanding as of August 1, 2007, of $1,763,947.42. (Complaint, ¶ ¶ 16-19). The default against Janet M. Cabral has been entered by the Clerk of the Court against Janet M. Cabral. (Doc. 35, filed May 23, 2008).

Defendant Cabral and Janet M. Cabral are husband and wife, jointly holding title to two parcels of real property, at issue in the suit. (Complaint, ¶ 6). Defendant Cabral is a named party to the suit because the United States asserts that it seeks to reduce its tax assessments against him to judgment and because he may claim an interest in the subject property. (Complaint, ¶ 7).

The United States' alleges that Cabral and his wife Janet M. Cabral acquired title to the real property at issue via a grant, dated April 29, 1993, which was recorded in Stanislaus County on May 17, 1993. (Complaint, ¶ 9).

The United States seeks in its third cause of action to foreclose its alleged federal tax lien on the subject property. (Complaint, ¶ 23).

Other Defendants are named in the suit because the United States' asserts they may claim an interest in the property against which the United States seeks to foreclose its tax liens (Complaint, ¶ 10):*fn3

(1) Defendant FTB may claim a lien interest in the taxes liabilities of taxpayers. (Complaint, subject properties arising from unpaid state income ¶ 10(a));

(2) Defendant San Joaquin Valley Hay Growers properties arising from unpaid judgment recorded on Association may claim a lien interest in the subject October 4, 1999. (Complaint, ¶ 10(b));

(3) Defendant EDD may claim a lien interest in the subject properties arising from a 1999 Employment tax lien, recorded on March 29, 2000. (Complaint, ¶ 10(c)); and

(4) Defendant C.L. Bryant, Inc. may claim a lien interest in the subject properties arising from unpaid judgment, recorded July 7, 2000. (Complaint, ¶ 10(d)).

B. Defendant Cabral's Counterclaims/Crossclaims

Defendant Cabral filed his Answer to the United States Complaint and alleges two counterclaims against Plaintiff United States pursuant to Fed. R. Civ. P. 13(a).*fn4 Defendant asserts two crossclaims against FTB and EDD pursuant to Fed. R. Civ. P. 13(g).*fn5 (Cabral Answer, ¶¶ 7, 16 and 21). Defendant also alleges a cross-claim against Co-Defendant Janet M. Cabral pursuant to Fed. R. Civ. P. 13(g). (Complaint, ¶¶ 21, 23).

Defendant Cabral's first counterclaim/cross-claim is against Plaintiff United States and Co-Defendants FTB and EDD for a wrongful lien under 28 U.S.C. § 2410. (Complaint, ¶ 7).

Defendant Cabral's second counterclaim/cross claim is against Plaintiff United States and Co-Defendants FTB and EDD for wrongful levy under 26 U.S.C. § 7426(a). (Complaint, ¶ 17).

Defendant Cabral's third cross-claim is against Co-Defendant Janet M. Cabral for breach of fiduciary duty. (Complaint, ¶¶ 21, 23).

Defendant Cabral alleges under his first and second counterclaims/cross claims:

* Cabral and his wife married in or about 1980. (Complaint, ¶ 9).

* Cabral is estranged from his wife Janet M. Cabral (Complaint, ¶ 9).

* Cabral and his wife started a farming business together in or about 1981 or 1982. The farming business remained a partnership between the two. (Complaint, ¶ 9).

* Cabral and his wife started a trucking business in or about 1985, which began as a partnership between the two, but was incorporated in or about 1996, where Janet M. Cabral was the Secretary. (Complaint, ¶ 9).

* At Janet M. Cabral's suggestion, the Cabral's switched their financial accounting systems for both businesses to a computer-based system in or about 1992. Cabral alleges that he does not have any experience in computers and lost his ability to review the financial performance of their businesses, therefore Janet M. Cabral assumed sole responsibility for all financial operations of the two businesses. (Complaint, ¶ 10).

* Janet M. Cabral handled all financial matters, including writing business checks, handling accounts receivables, reconciling accounts, paying business debts, preparing tax returns and ...


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