United States v. Estate of Espinor

          AMENDED FINDINGS AND RECOMMENDATIONS

          ALLISON CLAIRE, UNITED STATES MAGISTRATE JUDGE

         Pursuant to Local Rule 302(c)(19), this matter came before the court on May 11, 2016 for hearing on plaintiff's motion for default judgement, ECF No. 33. Attorney Paul Butler appeared telephonically on behalf of the plaintiff. There was no appearance by defendants. On May 17, 2016, the court issued Findings and Recommendations. ECF No. 38. On May 24, 2016, the plaintiff filed objections to the Findings and Recommendations, ECF No. 39, seeking correction of a typographical error, clarification of a non-party's status, and alternative language for the recommended judgment's interest provision.

         On review of the motion, the documents filed in support, ^[1] the plaintiff's objections, and good cause appearing therefor, the undersigned will vacate the previously-issued Findings and Recommendations, and makes the following Findings and Recommendations in their place.

         PROCEDURAL BACKGROUND

         By this action, the United States seeks a money judgment for federal estate tax unpaid by the Estate of Cipriano Espinor ("the Estate") from the Estate, Michael C. Espinor (co-executor and heir), Toni Hicks (co-executor and heir), heirs John Espinor, Richard Espinor, Pauline DiBattista, Martha Espinor, and S&P Sheet Metal, LLC., and Wells Fargo Bank, N.A. ECF No. 1 (Complaint) at ¶1. Jurisdiction is properly founded upon 28 U.S.C. sections 1340 and 1345, 26 U.S.C. §§ 6324(a), 7402 and 7403, and 31 U.S.C. § 3713. Venue is proper in this judicial district under 28 U.S.C. § 1391(b) since the tax liabilities accrued, decedent resided, and proceeds of the Estate were distributed here.

         The Court's record reflects that all defendants were properly served with the complaint between March 25 and April 26, 2014. ECF Nos. 6-12. Defendants Martha Espinor and Wells Fargo have both answered the complaint through counsel, but the other named defendants have not appeared and have expressed no intention to appear either in propria persona or through counsel. Wells Fargo has been dismissed from the action. ECF No. 34. Default was entered by the Clerk of this Court on September 26, 2014, against all remaining defendants except Martha Espinor. ECF No. 23. Plaintiff filed the instant Motion for entry of Default Judgment on March 18, 2016. ECF No. 33.

         FACTS

         Cipriano Espinor died testate on October 13, 2004. ECF No. 1 (Complaint) at ¶12. After Cipriano's death, co-executors Michael C. Espinor and Toni Espinor Hicks administered the estate informally, without court supervision, and they took actions without court approval. Id. at ¶¶ 14, 16. Decedent's will contained a "pour-over" clause directing that residuary assets were to be transferred into a Family Trust executed on April 22, 1997, and distributed in accordance with its terms. Cipriano and his wife Nora, who predeceased him, were grantors and initial trustees and they were succeeded by Michael C. Espinor and Toni Hicks as trustees. Id. at ¶¶17-19. The Family Trust directed, among other things, that upon death of the grantors the trustee was required to set aside sufficient assets to be used to pay federal estate tax debts and obligations of either of the grantors due and owing, and directed the disposition of the remaining assets to the named defendants. Id. at ¶¶ 20-29.

         The complaint identifies real property, business assets and retirement accounts that were under the control of the co-trustee defendants at the time of Cipriano's death. Id. at ¶¶ 30-31. The Form 706 Estate Tax Return filed by the co-executors listed fair market values of all assets of the Estate, reflecting a total estate value of $5, 120, 869. Id. at ¶ 32. On or about June 26, 2006, executor Michael Cipriano filed an election to defer payment of estate taxes five (5) years and thereafter to pay the remaining tax liability in ten (10) annual installments. Id. at ¶ 33. In this election, he admitted that the estate tax liability totaled $1, 586, 551.00, of which the Estate elected to defer $622, 563. Id. at ¶ 34.

         On or about August 16, 2005, the executors made a request for an extension to pay federal estate taxes that had been due a month earlier, that request was granted, and the duly authorized delegate of the Secretary of Treasury continued to make timely assessments itemized in the Complaint from January 17, 2006 through December 17, 2012. Id. at 35-36. Other agreements to secure the debt to the United States, to defer payments and enter liens to assure satisfaction, were negotiated between the Estate and the United States over the next few years. Id. at ¶¶ 37-39. On June 14, 2012, the IRS declared the Estate to be in default of the installment agreement and terminated it. Id. at ¶ 43. On November 8, 2012, the Service sent notice and demand for payment, id. at ¶ 44, and by July 31, 2013, federal estate taxes that remained due and owing amounted to $621, 850.85 and continued to accrue interest, id. at ¶ 40.

         The complaint asserts, id. at ¶ 48, that with the tax burden unsatisfied, the following assets were distributed by the co-executors/co-trustees, Michael Espinor and/or Toni Hicks:

1. A car valued at $35, 000 and cash payments and loans of $210, 922 to defendant Michael Espinor;

2. A pick-up truck valued at $35, 000 and cash payments and loans of $440, 944 to defendant Toni Hicks;

3. A Truck valued at $20, 000 and $212, 228.00 in cash payments and loans to defendant Richard Espinor;

4. Two (2) Ford automobiles valued at $80, 000 and $60, 000, and $755, 826 in cash payments and loans to defendant John Espinor;

5. Cash payments to Pauline DiBatttista of $33, 840;

6. Cash payments of $27, 500 to Craig Gonsalves;^[2]

7. A cash loan of $120, 000, and cash deposits in the amount of $170, 145 to S&P Sheet Metal, LLC.^[3]

         These transfers are described as having been made at a time when the Estate did not have sufficient assets to pay its outstanding liabilities, including its federal estate tax liability, and, at the time of filing, the Estate was in deficit with regard to its outstanding liabilities overall. Id. at ¶¶ 51-53.

         PLAINTIFF'S MOTION

         Plaintiff United States of America seeks entry of a default judgment against the Estate of Cipriano Espinor, Michael C. Espinor and Tony Hicks as co-executors of the Estate and Trustees of the Espinor Family Trust and for the value of property they received from the estate before taxes were paid, John S. Espinor, Richard S. Espinor, Pauline DiBattista, and S & P Sheet Metal, LLC, for the value of property they received from the estate before taxes were paid, penalties and interest on that unpaid obligation under 26 U.S.C. section 6324(a). The alleged liability of the individual non-executors is limited to the value of the assets each received from the Estate as trasnferees, trustees, and/or beneficiaries, up to the date of judgment. The ...