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United States v. Paulson

United States District Court, S.D. California

April 11, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
JOHN MICHAEL PAULSON, as the Executor or Statutory Executor of the Estate of Allen E. Paulson, and Individually; JAMES D. PAULSON, as Statutory Executor of the Estate of Allen E. Paulson; VIKKI E. PAULSON, as Statutory Executor of the Estate of Allen E. Paulson, as Trustee of Allen E. Paulson Living Trust, and Individually; CRYSTAL CHRISTENSEN, as Statutory Executor of the Estate of Allen E. Paulson, as Trustee of the Allen E. Paulson Living Trust, and Individually; MADELEINE PICKENS, as Statutory Executor of the Estate of Allen E. Paulson, as Trustee of the Marital Trust created under the Allen E. Paulson Living Trust, as Trustee of the Madeleine Anne Paulson Separate Property Trust, and Individually, Defendants. MADELEINE PICKENS, as Statutory Executor of the Estate of Allen E. Paulson, as Trustee of the Marital Trust created under the Allen E. Paulson Living Trust, as Trustee of the Madeleine Anne Paulson Separate Property Trust, and Individually, Cross-claimant,
v.
JAMES D. PAULSON, as Statutory Executor of the Estate of Allen E. Paulson; VIKKI E. PAULSON, as Statutory Executor of the Estate of Allen E. Paulson, as Trustee of the Allen E. Paulson Living Trust, and Individually; and CRYSTAL CHRISTENSEN, as Statutory Executor of the Estate of Allen E. Paulson, as Trustee of the Allen E. Paulson Living Trust, and Individually, Cross Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS VIKKI E. PAULSON AND CRYSTAL L. CHRISTENSEN'S MOTION TO DISMISS CROSS-CLAIMANT MADELEINE PICKENS'S CROSS-CLAIMS

          HON. ANTHONY J. BATTAGLIA UNITED STATES DISTRICT JUDGE.

         On September 16, 2015, the United States of America instituted an action to recover unpaid estate taxes, penalties, and interest from the Estate of Allen E. Paulson. (Doc. No. 1.) Presently before the Court is Vikki Paulson and Crystal Christensen's (collectively referred to as “Cross Defendants”) motion to dismiss Madeleine Pickens's (“Ms. Pickens”) first amended cross-claims. (Doc. No. 63.) Having reviewed the parties' arguments, the Court found this motion suitable for determination on the papers and without oral argument in accordance with Civil Local Rule 7.1.d.1. For the reasons set forth more fully below, the Court GRANTS Cross Defendants' request for judicial notice and GRANTS IN PART and DENIES IN PART Cross Defendants' motion to dismiss Ms. Pickens's amended cross-claims.

         I. FACTUAL BACKGROUND [1]

         As the Court is already well-versed as to the alleged facts in this case, for the sake of brevity, the Court will only provide a brief summary of the events leading up to the institution of this action.

         On December 23, 1986, Allen Paulson (“Mr. Paulson”) established the Allen E. Paulson Living Trust (hereafter referred to as “the Living Trust”). (Doc. No. 76 ¶ 6.) On July 19, 2000, Mr. Paulson died. (Id. ¶ 9.) Mr. Paulson was survived by several heirs, including his wife, Ms. Pickens, his three sons, Richard Paulson, James Paulson, and Michael Paulson, and a granddaughter Crystal Christensen.[2] (Id. ¶ 10.) At the time of Mr. Paulson's death, the Living Trust held all of Mr. Paulson's assets including real estate valued at $24, 764, 500, stocks and bonds valued at $113, 761, 706, cash and receivables valued at $23, 664, 644, and miscellaneous assets valued at $31, 243, 494. (Id. ¶ 16.)

         In 2003, Ms. Pickens entered into a settlement agreement with Michael Paulson individually, and as co-trustee of the Living Trust (hereafter referred to as the “2003 Settlement”). (Id. ¶ 19.) The 2003 Settlement was meant to resolve prolonged litigation regarding Ms. Pickens's right to certain properties pursuant to the Living Trust and the Antenuptial Agreement, which Michael Paulson refused to transfer to her.[3] (Id. ¶¶ 19, 20.) Specifically, the 2003 Settlement provides that Ms. Pickens is entitled to receive those trust properties free and clear of any liabilities for estate tax. (Id. ¶ 21.) Furthermore, Ms. Pickens alleges that until she receives all of the trust property to which she is entitled under the 2003 Agreement free of any estate taxes, her interest in the Living Trust continues. (Id. ¶ 41.)

         After Mr. Paulson's death, Michael Paulson and Edward White were the first trustees appointed to serve as co-executors of the Living Trust. (Id. ¶ 15.) On March 24, 2009, the Probate Court removed Michael Paulson as co-trustee of the Living Trust for misconduct and gross mismanagement of the Living Trust's assets. (Id. ¶ 31.) The court then appointed Vikki Paulson and James D. Paulson as co-trustees. (Id. ¶ 32.) In April of 2009, the net value of the assets of the Living Trust totaled $13, 738, 727. (Id.) On June 10, 2010, James D. Paulson was removed as co-trustee for breach of court orders. (Id. ¶ 33.) Vikki E. Paulson thus served as the sole trustee of the Living Trust until February 28, 2011, when Crystal Christensen was appointed to serve as co-trustee with her. (Id.) The net value of the assets of the Living Trust in 2011 totaled $8, 802, 034. (Id.)

         On January 16, 2005, the IRS determined there existed a deficiency in estate tax in the amount of $37, 801, 245. (Id. ¶ 28.) On December 2, 2005, the IRS and Michael Paulson agreed upon an estate tax deficiency in the amount of $6, 699, 477. (Id. ¶ 29.)

         On January 15, 2013, Cross Defendants, as co-trustees of the Living Trust, entered into a settlement agreement with Michael Paulson to which they distributed substantially all of the remaining assets of the Living Trust to Michael Paulson free of any encumbrances. (Id. ¶ 37.) Ms. Pickens claims that the Living Trust still has properties that could be applied to reduce the outstanding balance of the estate tax. (Id. ¶ 38.) However, Cross Defendants allegedly continue to refuse to apply such properties to the payment of estate tax. (Id.)

         In sum, Ms. Pickens alleges that pursuant to California Probate Code §§ 16000-16015, James Paulson, and Cross Defendants had a duty to administer the Living Trust according to its terms, to act impartially in investing, to refrain from using or dealing with the property of the Living Trust for his or her own profit, and to take reasonable steps to control and preserve the property of the Living Trust for the benefit of all beneficiaries. (Id. ¶ 46.) However, Ms. Pickens claims Cross Defendants breached their fiduciary duties to Ms. Pickens by failing to pay the estate tax from the Living Trust, and by distributing the remaining properties of the Living Trust to Michael Paulson, thereby wrongfully subjecting Ms. Pickens to liabilities for estate tax. (Id. ¶¶ 47-48.)

         II. PROCEDURAL BACKGROUND

         On September 16, 2015, the United States of America filed a complaint against John Michael Paulson, James D. Paulson, Cross Defendants, and Madeleine Pickens for unpaid taxes. (See generally Doc. No. 1.) On September 20, 2016, Ms. Pickens filed a cross-claim against Cross Defendants and James Paulson. (Doc. No. 55.) On October 14, 2016, Cross Defendants filed a motion to dismiss, (Doc. No. 63), which was granted in part and denied in part on January 4, 2017. (Doc. No. 75.) On January 18, 2017, Ms. Pickens filed her first amended cross-claim (“ACC”). (Doc. No. 76.) On February 1, 2017, Cross Defendants filed the present motion, its second motion to dismiss. (Doc. No. 77.)

         III. LEGAL STANDARD

         A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a plaintiff's complaint and allows a court to dismiss a complaint upon a finding that the plaintiff has failed to state a claim upon which relief may be granted. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “[A] court may dismiss a complaint as a matter of law for (1) lack of a cognizable legal theory or (2) insufficient facts under a cognizable legal claim.” SmileCare Dental Grp. v. Delta Dental Plan of Cal.,88 F.3d 780, 783 (9th Cir. 1996) (citations omitted). However, a complaint will survive a motion to dismiss if it contains “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,550 U.S. 544, 570 (2007). In making this determination, a court reviews the contents of the complaint, ...


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