The Little Guy Beats the Big Guy
Vern Holland, an excellent paralegal from
Tulsa, Oklahoma has been instrumental in inspiring Freedom Fighters to save their property from the IRS. In the following
case, an unpublished case from the Northern District of Florida, United States of America vs. Wilford Simpson, Case NO. 3: 97-cv-242/LAC, the
IRS sued Wilford Simpson to get his property. Wilford fought back and defeated the IRS. The moral of this
story is that if you live in a state that allows the ownership of property by tenancy by the entireties, the IRS is going
to have problems stealing the property if they have a lien against only one of the owners. The actual text of the court decision
follows. Please take this as inspiration that the IRS can be defeated.
The Court said:
Both Plaintiff and Defendants
agree that the facts in the instant action are undisputed, and indeed both recite almost identical factual circumstances in
the memoranda in support of their respective motions for summary judgment.
1. On
December 29, 1983 Defendants Wilford and Janet Simpson, as husband and wife, acquired as tenants by the entireties a parcel
of property located in Walton County, Florida. That property, totaling approximately 27.77 acres, also includes buildings
and an airplane runway.
2. On October 12, 1984, Defendant Wilford Simpson transferred his
interest in the property to Janet Simpson by quitclaim deed.
3. On June 10, 1985 Plaintiff
assessed it first tax liability against Defendant Wilford Simpson for the tax year 1981.
4.
On October 30, 1987 Plaintiff filed a notice of federal tax lien as to Defendant Wilford Simpson's 1981 tax liability.
5.
On
December 17, 1987 Defendant Janet Simpson transferred her interest in the property by warranty deed to her children, Defendants
Cynda, William, Warren, Whitney, and Wesley Simpson, but retained a life estate in the property.
6.
On April 22, 1988 the children transferred their interest in the property by warranty deed to only children Cynda and William
Simpson, but still reserved a life estate for Janet Simpson.
7. On June 24, 1988 the
Defendants Cynda and William Simpson transferred their interest into the Earnest Mill Family Preservation Trust. Janet Simpson
still retained a life estate in the property.
8. Twelve additional tax liabilities were assessed
by Plaintiff against Defendant Wilford Simpson in the years 1991, 1994, and 1995 for the tax years 1984-1992. The respective
tax liens were subsequently filed in 1992, 1994, and 1995. The total unpaid balance of tax liability alleged by Plaintiff
is $1,284,537.10.
9. Civil penalties were also assessed against Defendant Wilford Simpson
in 1992 and
1994 for tax years 1978-1981, totaling $2,696.66. Notice of Liens were filed as to these assessments in 1994.
10.
On April 29, 1992 and May 27, 1994 notices of federal tax lien were filed with the Clerk of the Circuit Court of Walton County
against the Defendants Janet, Cynda, William, Warren, Whitney, and Wesley Simpson as nominees of Wilford A. Simpson.
11.
Defendant Wilford Simpson has not paid either the balance of tax liability or the civil penalties assessed in 1985 and thereafter.
On May 19, 1997 Plaintiff
filed this civil action seeking a monetary judgment against Defendant Wilford A. Simpson for the unpaid balances and foreclosure
of its liens against the 27.77 acres of property and structures located in Walton County (doc. 1). Default judgment was entered
against Defendant Wilford Simpson in the amount of $1,284,537.10 for unpaid federal income taxes and $2,696.66 for unpaid
civil penalties as of February 28, 1996 plus further interest and statutory additions as allowed by law (doc. 36).
The remaining Defendants,
however, timely filed a responsive pleading and moved for summary judgment against Plaintiff (docs. 26, 27). After the Court
took that motion under advisement, (doc. 30), Plaintiff filed a cross-motion for summary judgment, which also served as its
response in opposition to Defendants' motion (doc. 31). The Court has taken that motion under advisement as well, (doc. 37),
and is prepared to rule on both motions.
Summary
judgment is appropriate where the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits,
if any, show that no genuine issue of material fact exists and that the party moving is entitled to judgment as a matter of
law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552,
91 L.Ed. 2d 265 (1986). The substantive law will identify which facts are material and which are irrelevant. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248, 106 S.Ct.
2505,2510,91 L.Ed. 2d202(1986). An issue of fact is material if it is a legal element of the claim under the applicable substantive
law which might affect the outcome of the case. Id.
At the summary judgment stage, a court's function is not to weigh the evidence to determine the truth of the matter,
but to determine whether a genuine issue of fact exists for trial. Anderson, 477 U.S. at 249, 106 S.Ct. at 2510. A genuine issue exists only if sufficient
evidence is presented favoring the nonmoving party for a jury to return a verdict for that party. Id. "If reasonable minds could differ on the inferences
arising from undisputed facts, then a court should deny summary judgment." Miranda v. B & B Cash Grocery Store. Inc., 975 IF.2d 1518, 1534 (11th
Cir. 1992) (citing Mercantile Bank & Trust Co. v. Fidelity and Deposit Co., 750 F.2d 838, 841 (11th Cir. 1985)).
When assessing the sufficiency of the evidence
in favor of the nonmoving party, the court must view all the evidence, and all factual inferences reasonably drawn from the
evidence, in the light most favorable to the nonmoving party. Hairston v. Gainesville Sun Publ'g Co., 9 F.3d 913, 918 (1lth Cir. 1993). The court is not obliged, however,
to deny summary judgment for the moving party when the evidence favoring the nonmoving party is merely colorable or is not
significantly probative. Anderson, 477 U.S. at 249, 106 S.Ct. at 2510. A mere scintilla of evidence in support of the nonmoving party's position will
not suffice to demonstrate a material issue of genuine fact that precludes summary judgment. Walker v. Darbv, 911 F.2d 1573, 1577 (11th Cir. 1990).
Under Florida law,
property held as a tenancy by the entireties cannot be charged with the individual debts of either spouse, in the absence
of fraud. United
States
v. Gurlev 415 F.2d 144, 149 (5th Cir.
1969) (citing Meyer v.
Faust,
83 So. 2d 847 (Fla. 195 5)). "Because of the unique nature of a tenancy by the entireties under Florida law, a
judgment lien cannot attach to real property held in such an estate... , and since property held by the entireties is not
subject to levy and sale under execution, an ‘Execution Lien' cannot attach thereto." Id.
It is undisputed that Defendants Wilford and Janet Simpson
took title to the property at issue as tenants by the entireties, and Plaintiff readily concedes that "[t]here is no evidence before this Court that the Simpsons
acquired the real property as tenants by the entireties in order to defeat Mr. Simpson's creditors" (doc. 31, memorandum
at 9). Therefore, Defendant Wilford Simpson's interest in the property was unreachable by Plaintiff or any other creditor
while held as a tenancy by the entireties.
A similar circumstance was at issue before the Fifth Circuit in Gurlev:
[I]f the property here involved was then
held by the Gurleys in a tenancy by the entirety, the filing of this federal tax assessment with the Clerk of the Circuit
Court of Duval County would not have created a United States tax lien against said property because in matters involving the
creation and enforcement of federal tax liens the Federal Courts respect those laws of a state which establish and regulate
property rights within a state, 415 F.2d at 150 (citing Folsom v. United States, 306 F.2d 361 (5th Cir. 1962); United States v. American Nat'l Bank, 255 F.2d 504 (5th Cir. 1958)).
That court ultimately concluded that if the property was in fact held
as an estate by the entireties, it could only be reached by creditors once the spouses' interests converted to a tenancy in
common, where each spouse's separate interests in such property become liable for his or her individual debts. Id. If on remand the district court determined
that the Gurleys were tenants by the entireties, then the tenancy would be destroyed only upon the divorce of the husband
and wife, thus creating a tenancy in common and simultaneously allowing the United States tax lien to attach to each spouses'
interests. Id. at 149-50.
In the instant case,
there simply was no opportunity for Plaintiff to reach the individual interest of Defendant Wilford Simpson. As a tenant by
the entireties under the laws of Florida, his interest was unreachable by any creditor. United States v. 15621 S.W. 209th Avenue, 894 F.2d 1511, 15 14-15(11th
Cir. 1990). Moreover, because the property was then conveyed to only Janet Simpson in fee simple, Wilford Simpson had absolutely
no interest at the time the tenancy by the entireties was destroyed:
No persons except husband and wife have a present interest in an estate
by the entireties when such estate is unencumbered by any lien existing prior to the creation of such estate and is unencumbered
by any lien created jointly by the husband and wife after the estate by entireties came into being. It is not subject to execution
for the debt of the husband. It is not subject to partition; it is not subject to devise by will; neither it is subject to
the laws of descent and distribution. It is, therefore, an estate over which the husband and wife have absolute disposition
and as to which each, in the fiction of the law, holds the entire estate as one person. Therefore, there appears to be no
plausible reason why the law should not recognize as valid any formal agreement executed according to law whereby one spouse
would be divested of his or her interest in such estate and the other be invested with the unqualified fee-simple title.
Hunt v. Covington, 200 So. 76 (Fla. 1941).
Plaintiff now argues
that the subsequent transfers to Janet Simpson, then to her children, and ultimately to the Mills Family Preservation Trust
were fraudulent, as those grantees were effectively nominees of Wilford Simpson, and that it is entitled to foreclose its
liens against the property (doc. 31, memorandum at 8-14). However, a large component of this argument becomes moot when considered
in light of the safeguards afforded property held by tenants by the entireties. If, arguendo, the transfer to Janet Simpson was not fraudulent, then
clearly she holds the property in fee simple and is free to dispose of it as she wishes. On the other hand, if that conveyance
was fraudulent, Janet Simpson would not have fee simple title to the property, but rather the property would still be held
by Wilford and Janet Simpson as tenants by the entireties. In either case, the subsequent transfers to the children and trust
become irrelevant, as they too are either entirely valid or entirely void depending on the validity of the initial transfer
to Janet.
Furthermore, it is also unnecessary to address whether the conveyance from Wilford and Janet Simpson to only Janet
was fraudulent. As discussed immediately above, if the conveyance to Janet was fraudulent, the property remained a tenancy
by the entireties and was unreachable by creditors of only Wilford Simpson. If the conveyance was valid, then Janet Simpson
held the property in fee simple and Wilford had no interest at all. While there is a possibility that by divorce or some other
reason the tenancy by the entireties could be destroyed, thus creating a tenancy in common and making the validity of subsequent
conveyances of utmost importance, that day has not yet arrived. As such, the Court declines to make those determinations today.
The facts of this case
mandate an unusual result. Frequently, a debtor will attempt to convey his own property to a third party or into a tenancy
by the entireties as an attempt to hinder or obstruct his creditors. Without discerning the motives behind their decision,
the Court notes that Defendants did exactly the opposite, destroying the tenancy by the entireties in favor of a fee simple
held by Janet Simpson alone. While this conveyance, if valid, would have placed the property beyond the reach of Wilford's
individual creditors, the tenancy by the entireties already afforded that protection. Nonetheless, because it is undisputed
that Wilford and Janet Simpson acquired the 27.77 acre parcel as tenants by the entireties without intention to defraud or
avoid creditors, the Plaintiff is simply unable to enforce a lien against Mr. Simpson's interests in the property as it is
held today, regardless of subsequent conveyances. Therefore, summary judgment in favor of Defendants is warranted.
Defendants also move
for Rule 11 sanctions against Plaintiff and allege that the Government's motion for summary judgment is "frivolous, not
‘substantially justified,' and is not ‘warranted -by existing law or by a nonfrivolous argument for the extension,
modification, or reversal or existing law'" (doc. 34:1). However, the Court finds Defendants' argument unpersuasive.
By filing their own motion for summary judgment, Defendants invited a response in opposition from the Plaintiff. Indeed, the
non-movant is required in this district to file a responsive memorandum to a motion for summary judgment and failure to do so "may
be sufficient cause to grant the motion." N.D. FLA. Loc.R. 7.1(C)(1).
The language of Rule 11 "stresses the need for
some prefiling inquiry into both the facts and the law to satisfy the affirmative duty imposed by the rule." FED. R.
CIV. P. 11 advisory committee's note. The rule, as amended in 1983, is intended to "reduce frivolous claims, defenses
or motions" and to deter "costly meritless maneuvers," thus avoiding unnecessary delay and expense in litigation.
Donaldson
v. Clark,
819 F.2d 1551, 1556 (11th Cir. 1987) (citations omitted). The standard for testing conduct under Rule 11 is "reasonableness
under the circumstances," a standard more stringent than the original good faith requirement required under the rule.
Id. Where there is some legal and
factual basis for the argument, sanctions are inappropriate. See. e.g., Davis v. Carl, 906 F.2d 533, 536-37 (11th Cir. 1990).
In the instant case, Plaintiff's arguments are well-grounded in Eleventh
Circuit jurisprudence. Although they now fail because of their inapplicability to the unusual factual posture of this case,
the significance of those arguments may come to bear in the future. Simply because the Court finds those arguments unavailing
today does not mean they are without merit, nor does it compel this Court to resort to Rule 11 sanctions. Moreover, as Plaintiff
was required to respond to Defendants' motion, it's cross-motion for summary judgment did not impose any additional expenses
upon the Court or the parties than if it had been titled only as a responsive memorandum. For these reasons, the Court finds that sanctions are
not proper.
1.
Defendants JANET, CYNDA, WILLIAM, WARREN, WHITNEY, AND WESLEY SIMPSON's motion for summary judgment (doc. 26) is GRANTED and summary judgment is hereby
entered in favor of those Defendants. Plaintiff takes nothing by this action from said Defendants who shall go without day.
2.
Plaintiff's cross-motion for summary judgment (doc. 31) is DENIED.
3. Defendants' motion
for Rule 11 sanctions is DENIED.
ORDERED on this 24th day of June 1998.
Lacey A. Collier
United States District Judge