U.S. v. Kattar CV-95-221-JD 08/19/99 P
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
United States of America
v. Civ. No. 95-221-JD
George T. Kattar, et al.
O R D E R
The United States of America ("government " ) , brought this
action against George T. Kattar, Phyllis Kattar, Personally and
as Trustee, Mary Abdoo, Trustee, George P. Kattar, Trustee, Kevin
Kattar, Trustee, the Seven Children Trust, and the Town of
Meredith, seeking to reduce to judgment certain assessments of
tax liabilities made by the Internal Revenue Service ("IRS"), to
have a tax lien declared against certain property, and to render
void certain fraudulent transfers of property. Before the court
is the motion of the government for summary judgment (document
n o . 90). Background1
I Tax Proceedings
On January 16 , 1969 , Special Agent McNally and Revenue Agent
Chernosky contacted George T. Kattar and informed him he was to
be investigated for income tax liability based upon allegations
of fraud. The investigation initially focused upon tax years
1962 through 1967 and included review of a number of George T.
Kattar's business enterprises, and his income and deductions
therefrom. On November 11, 1971, George T. Kattar was informed
by IRS agents that it was likely they would recommend prosecution
for willful tax evasion. The record indicates that prosecution
was indeed recommended in the late winter or early spring of
1972. On April 13, 1972, George T. Kattar was indicted by a
federal grand jury for the District of Massachusetts on six
counts of tax evasion, charging among other things personal
income tax evasion for the years 1965, 1966, 1967, and 1968. On
December 10, 1973, George T. Kattar plead guilty to two counts of
subscribing to federal income tax returns which he did not
believe to be correct.
After completion of the criminal proceedings, George T. and
Phyllis Kattar (alternately the "Kattars") litigated their civil
tax liabilities for 1963 through 1967, and 1970, in the United
States Tax Court.2 See George T. Kattar and Phyllis Kattar v.
1The following does not constitute findings of fact of the court and is provided for context purposes only.
21he record indicates that George T. and Phyllis Kattar file joint tax returns.
2 Commissioner, 48 T.C.M. 629, (filed July 26, 1984). After a
trial, the tax court determined that there were tax deficiencies
of approximately $170,000 for those years. As a result, on April
29, 1985, and September 26, 1985, the IRS made assessments for
tax, penalties, and interest totaling $505,626.68 for the years
1963 through 1967, and on April 29, 1985, the IRS made an
assessment of $70,645.41 for the tax year 1970.
The IRS asserts that on April 12, 1985, it also issued a
notice of deficiency for 1971, identifying a deficiency of
$18,586, along with statutory additions for negligence. See 26
U.S.C.A. 6653(a). The Kattars do not dispute that they never
filed a petition in the Tax Court in connection with this notice.
Thereafter, on August 23, 1985, the IRS asserts it issued a
deficiency assessment for 1971 in the amount of $50,562.04.
II Property Transfers
On March 31, 1969, approximately two months after being
contacted by Special Agent McNally regarding the investigation
for tax evasion, George T. Kattar created seven trusts titled the
"Meredith Clifford Trusts" and numbered them one through seven.
Each child of George T. Kattar was designated the sole
beneficiary of one of the trusts. George T. Kattar then
attempted to transfer over to the Meredith Clifford Trusts the
value of certain stock which was owned by him, including stock in
the Tri-State Development Corp., the Northeast Investment Co.,
Inc., the Community Investment Corp., North American Enterprises,
3 Inc., and the Kattar Realty Trust, Inc. On May 6, 1976, the
Kattars belatedly filed a 1969 federal gift tax return indicating
that the total value of stock transferred to the trusts was
$133,392.00, with the value of the Kattar Realty Trust stock
transferred being $0.00.
The trustees of the trusts were the Kattars' attorneys,
Jerome Rosen and Henry Hyder, Jr., and George T. Kattar's sister,
Mary Abdoo. Phyllis Kattar was designated the successor trustee.
Although Mary Abdoo signed trust documents, she testified at her
deposition that she had not heard of the Meredith Clifford Trusts
or that she could not recall the trusts. Similarly, Henry Hyder
testified during his deposition that although he was a trustee,
he had little recollection of the trusts or of taking any actions
as a trustee. He stated that he was not involved with and had no
records concerning the trusts' books, records, distributions,
trustee meetings, or the management of trust assets. Jerome
Rosen testified similarly as to his limited involvement with the
trusts, although he also testified that trust records and books
were maintained by a secretary of George T. Kattar's
corporations.
Kevin Kattar, one beneficiary of the Meredith Clifford
Trusts, never received any benefit from the trusts. Another
beneficiary, Kimberly Kattar, had never heard of the trusts,
while a third beneficiary, Meredith Kattar, was similarly unaware
of their existence.
Also in 1969, Phyllis Kattar signed an affidavit stating
4 that she had signed a purchase and sale agreement to sell the
Kattars' residence in Methuen Massachusetts to a neighbor by July
30, 1969. However, she testified in this case that she did not
recall selling or offering to sell the Methuen residence to her
neighbor.
On December 31, 1970, Phyllis Kattar transferred the title
to the Kattars' Methuen residence to George T. Kattar's attorney
Henry Hyder. The consideration given was less than $100.
However, she testified that she was unaware of ever holding title
to the Methuen property or of transferring any real property to
Hyder, that a signature on what apparently was the deed was not
hers, and that she was unaware until the date of the deposition
that title to the property rested in Hyder. Hyder testified that
he was holding the property as a nominee for the Kattar family
and never used the property. Despite both of the purported
transfers, the Kattar family continued to live in and reside at
the Methuen property.
On June 20, 1972, two months after George T. Kattar was
indicted for tax evasion on joint tax returns for George T. and
Phyllis Kattar, they formed the Seven Children Trust ("Trust").
The initial trustees were George T. and Phyllis Kattar, and Mary
Abdoo. The current trustees are Phyllis Kattar, Mary Abdoo, and
George P. and Kevin Kattar, two of the Kattars' children. The
Seven Children Trust was created pursuant to the advice of one of
George T. Kattar's attorneys, apparently Henry Hyder, although
Hyder could not testify about the reason for the creation of the
5 Trust because of attorney-client privilege. George T. Kattar
testified that the Trust was created as an inheritance device.
The Trust was structured to issue certificates of interest to
beneficiaries of the Trust, denominated shareholders. Pursuant
to the terms of the Trust, all property conveyed to the Trust was
to vest in the trustees, as joint tenants with right of
survivorship as trustees of the Trust, to manage and administer
the assets for the benefit of the shareholders. The record
indicates that no shares were issued or distributed by the Trust
before November 15, 1983, and beneficiaries were not identified
until a November 15, 1983, amendment.3
Approximately one week after the Seven Children Trust was
created, Phyllis Kattar transferred real estate known as
"Clovelly," along with the contents of the residence, to George
T. Kattar, Phyllis Kattar, and Mary Abdoo as trustees of the
Seven Children Trust. The Clovelly residence is a 12 room year-
round residence with a recreation building, a boat house, boat
slips, and garage. The record indicates that the consideration
given for the transfer was less than $100, and was made upon the
advice of attorneys as relayed to Phyllis through George T.
Kattar.
On June 27, 1972, Hyder transferred his interest in the
Methuen property, supposedly conveyed to him earlier by Phyllis
Kattar, to the Seven Children Trust for less than $100
3The record indicates that the Trust was inadvertently created as a real estate trust, and it was subseguently modified.
6 consideration. Also on the same day, June 27, 1972, Phyllis
Kattar conveyed real property located in Andover, Massachusetts,
to the Seven Children Trust, for less than $100 consideration.
Phyllis testified that she did not know why she transferred the
property to the Seven Children Trust, and George T. Kattar
testified that it was his brother's property and that he did not
know why the property would have been transferred to the Seven
Children Trust. Indeed, on November 30, 1973, the Seven Children
Trust transferred the Andover property to Suzanne M. Kattar, the
wife of Peter Kattar, the brother of George T. Kattar. Peter
Kattar never knew that the property had been held by the Seven
Children Trust, and Suzanne Kattar testified that she was unaware
that she acguired her title to the property from the Seven
Children Trust, although they both have generally resided there
at least since the late 1960's, Peter Kattar having initially
acguired it in 1957. The record is unclear what consideration
was given, although Hyder testified that he was unaware of any
consideration being given.
Finally, in 1980 or 1981, after the death of her daughter,
Phyllis Kattar transferred her jewelry and furs to the Seven
Children Trust.
Standard
The role of summary judgment is "to pierce the boilerplate
of the pleadings and assay the parties' proof in order to
determine whether trial is actually reguired." Snow v.
7 Harnischfeger Corp., 12 F.3d 1154, 1157 (1st Cir. 1993) (quoting
Wynne v. Tufts Univ. Sch. of Med . , 976 F.2d 791, 794 (1st Cir.
1992)). The court may only grant a motion for summary judgment
where the "pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of
law." Fed. R. Civ. P. 56(c). The party seeking summary judgment
bears the initial burden of establishing the lack of a genuine
issue of material fact. See Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986); Quintero de Quintero v. Aponte-Rogue, 974 F.2d
226, 227-28 (1st Cir. 1992). The court must view the entire
record in the light most favorable to the non-movants,
"'indulging all reasonable inferences in [their] favor.'"
Mesnick v. General Elec. Co . , 950 F.2d 816, 822 (1st Cir. 1991)
(quoting Griqqs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir.
1990)). However, once the plaintiff has submitted a properly
supported motion for summary judgment, the defendants "may not
rest upon mere allegation or denials of [their] pleading, but
must set forth specific facts showing that there is a genuine
issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
256 (1986) (citing Fed. R. Civ. P. 56(e)).
Fraud must be proven by clear and convincing evidence. See
Snow v. American Morgan Horse Assoc. Inc., 141 N.H. 467, 468
(1996) (fraudulent misrepresentation); Chaqnon Lumber Co. v.
DeMoulder, 121 N.H. 173, 176 (1981) (context of New Hampshire Revised Statutes Annotated ("RSA") ch. 545) (repealed 1987,
effective Jan. 1, 1988); Jennev v. Vininq, 120 N.H. 377, 381
(1980) (clear and convincing evidence required to show "existence
of fraud or actual fraudulent intent") (context of then extant
RSA ch. 545); Hoyt v. Horst, 105 N.H. 380, 390 (1964) ("Fraud is
never to be presumed, but must be established by clear and
convincing proof."); see also. Loyal Cheese Co. v. Wood County
Nat'l Bank and Trust Co., 969 F.2d 515, 518 (7th Cir. 1992) (Wis.
Fraudulent Conveyance Act, insolvency provisions); Benson v.
Richardson, 537 N.W.2d 748, 758 (Iowa 1995) (Iowa common law);
Territorial Sav. & Loan Assoc, v. Baird, 781 P.2d 452, 458 (Utah.
C t . A p p . 1989) (Utah Fraudulent Conveyance Act) (clear and
satisfactory standard context of insolvency provisions);
Transamerica Ins. Co. V. Trout, 145 Ariz. 355, 360 (Ariz. C t .
App. 1985) (Arizona Uniform Fraudulent Conveyance Act); Furniture
Mfrs. Sales, Inc. v. Deamer, 680 P.2d 398, 399 (Utah 1984); FDIC
v. Proia, 663 A.2d 1252, 1254 n.2 (1995) (Maine Uniform
Fraudulent Transfer Act) (Act does not change clear and
convincing burden of proof). C f . Warner v. Warner, 65 B.R. 512
(S.D. Ohio 1986) (preponderance of evidence applies to insolvency
provisions under Ohio law); United States v. Edwards, 572 F.
Supp. 1527, 1534 (D. Conn 1983) (applying preponderance of
evidence standard under Conn. law); First Nat'l Bank v.
Hoffines, 429 P.A. 109, 114 (1968) (Pennsylvania Uniform
Fraudulent Transfer Act) (where grantor is in debt at time of
transfer, grantee must prove solvency or fair consideration by clear and convincing evidence)
Discussion
In this action the government seeks, inter alia, to reduce
to judgment tax assessments that were made on April 29, 1985,
August 23, 1985, and September 26, 1985, against George T. and
Phyllis Kattar, for tax years 1963, 1964, 1965, 1966, 1967, 1970,
and 1971. The government further moves to establish tax liens
against all the property and rights to property of George T. and
Phyllis Kattar. In order to collect the tax debts, the
government seeks to set aside certain transfers of property made
by George T. and Phyllis Kattar. Specifically, the government
asks the court to set aside as fraudulent the June 27, 1972,
transfer by Phyllis Kattar of real property, together with the
contents therein, located on Powers Road, Meredith, New Hampshire
("Clovelly"), to George T. Kattar, Phyllis Kattar and Mary Abdoo
as trustees of the Seven Children Trust. Alternatively, the
government argues that because beneficiaries of the Seven
Children Trust were not identified until 1983, when the Trust was
amended to identify beneficiaries, the transfer to the Seven
Children Trust of the real property and its contents took place
in 1983, was fraudulent at that time, and should be set aside.4
Further, the government seeks to render void, as fraudulent,
transfers of personal assets made by Phyllis Kattar to the Seven
4The government also argues in the alternative that the Seven Children Trust is the alter ego and/or nominee of George T. and Phyllis Kattar.
10 Children Trust in 1980. Finally, the government seeks such other
relief as might be just, including, in particular, a
determination that the trustees of the Seven Children Trust are
personally liable for any diminution in the value of Trust assets
after the government notified them of its contentions.
I Assessment and Notice
The defendants assert that summary judgment should be denied
because the government has failed to offer proof that the tax
assessments have been properly or timely filed, or that reguisite
statutory notice has been given to the taxpayers. They do not
offer any evidence that the government did not provide the
reguisite notice, failed to make the reguired assessments,or
that the assessments were inaccurate or invalid.5 Neither has
the government addressed these issues.
26 U.S.C.A. § 6501(a) (West 1999) provides:
Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) . . . and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.
26 U.S.C.A. § 6501(c)(1) (West 1999) provides that in "the case
of a false or fraudulent return with the intent to evadetax, the
5As a preliminary issue, the court notes that "[i]t is settled law that taxpayers bear the burden of proving that a tax deficiency assessment is erroneous." Delany v. Commissioner of Internal Revenue, 99 F.3d 20, 23 (1st Cir. 1996). In this case the Kattars have not submitted any evidence challenging the accuracy of the tax assessments, nor do they dispute the merits of the assessments.
11 tax may be assessed, or a proceeding in court for collection of
such tax may be begun without assessment, at any time." Pursuant
to 26 U.S.C.A. § 6501(c)(4), taxpayers and the government can
agree to an extension of time in which tax assessments can be
made and notice given.
Section 6203 provides that assessment "shall be made by
recording the liability of the taxpayer in the office of the
Secretary in accordance with rules or regulations prescribed by
the Secretary. . . 26 U.S.C.A. § 6203 (West 1999).6 Pursuant
to section 6303, the government must then "within 60 days, after
the making of an assessment of a tax pursuant to section 6203,
give notice to each person liable for the unpaid tax . . . ." 26
U.S.C.A. § 6303 (West 1999).
Courts have held that IRS "Form 4340 is probative evidence
in and of itself and, 'in the absence of contrary evidence, [is]
sufficient to establish that notices and assessments were
properly made.'" Hansen v. United States, 7 F.3d 137, 138 (9th
Cir. 1993) (guoting Hughes v. United States, 953 F.2d 531, 540
(9th Cir. 1992)); see also, Pursifill v. United States, 849 F.
Supp. 597 (S.D. Ohio 1993); Bassett v. United States, 782 F.
61he applicable regulation provides that "[t]he assessment shall be made by an assessment officer signing the summary record of assessment. The summary record . . . . shall provide identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of the assessment . . . . The date of the assessment is the date the summary record is signed by an assessment officer." 26 C.F.R. § 301.6203-1 (1999). The summary record is known as Form 23C. See Brewer v. United States, 764 F. Supp. 309, 315 n.3 (S.D.N.Y. 1991). Supp. 113 (M.D. G a . 1992) . C f . Blackston v. United States, 778
F. Supp. 244 (D. Md. 1991) (4340 inadequate where government
unable to explain irregularities in computer generated form).
Under First Circuit jurisprudence "Certificates of Assessments
and Payments are routinely used to prove that tax assessment has
in fact been made . . . [and] are presumptive proof of a valid
assessment." Geiselman v. United States, 961 F.2d 1, 6 (1st Cir.
1992) (citations and quotations omitted). Moreover, the
"Certificates of Assessments and Payments, which list[] 'First
Notice' dates for each assessment, also constitute[] presumptive
proof that the IRS gave notice of the assessments and made
demands for payment" from the taxpayers. Id. Computer
transcriptions of IRS records showing that taxpayers were sent
notices of assessments and demands have also been accepted as
evidence of compliance with section 6303 notice requirements.
See, e.g., Schmidt v. United States, 717 F. Supp. 763, 764-65 (D.
Kan. 1989) ("It has been held that the computerized
transcriptions are sufficient evidence to establish a prima facie
case that notice of assessment and demand for payment was sent to
the taxpayer.") (citing In re Saunders, 26 A.F.T.R. 2d 70-5388,
70-5389 (N.D. Cal. 1970)). 7 Moreover, as the court in Schmidt
recognized, the government enjoys the presumption of procedural
regularity. I d . at 765.
71he court notes the computer transcripts in Schmidt were also accompanied by the affidavits of IRS officials concerning IRS procedures and the forms provided. See 717 F. Supp. at 764- 65. In this case the government has not provided any affidavit testimony.
13 A Timeliness
The record belies the defendants' contention that the
government has supplied no evidence reflecting that timely
assessments and notices were made. As discussed above, the
government seeks to reduce to judgment tax assessments that
relate to years 1963, 1964, 1965, 1966, 1967, 1970, and 1971.
After a trial the United States Tax Court determined that Phyllis
and George T. Kattar fraudulently attempted to conceal their true
income for the years 1963, 1964, 1965, 1966, and 1967. See
George T. Kattar and Phyllis Kattar v. Commissioner, 48 T.C.M.
(CCH) at 638, 641 (filed July 26, 1984). The Tax Court concluded
that the exception provided for in 26 U.S.C.A. § 6501(c) to the
limitations on assessments and collections was applicable to
those years, see id., the three year period of limitations for
years 1963, 1964, 1965, 1966, and 1967 is inapplicable, and the
assessments could be made "at any time." 26 U.S.C.A.
§ 6501(c) (1) (West 1999) .
Although the tax court did not explicitly discuss the issue
of fraud and the timeliness of the assessment for 1970, the court
found in favor of the government for 1970 and sustained the
deficiency determination the government made in its notice of
deficiency. See i d . at 642. The defendants cannot now
collaterally attack that judgment. See Commissioner v. Sunnen,
333 U.S. 591, 597-98 (1948). Furthermore, in this action the
timeliness issue for the 1970 assessment was addressed earlier in
the context of the defendants' motion to dismiss. See United
14 States v. Kattar, Civ. No. 95-221-JD, 1996 WL 784587, at *3
(D.N.H. Dec. 31, 1996).
Finally, as to the timeliness of the 1971 assessment, the
Kattars filed their return for 1971 on April 15, 1972. The
record indicates that on June 6, 1981, the defendants signed an
agreement (Form 872-A) with the government providing that any
federal income tax due for 1971 may be assessed on or before the
ninetieth day after "the Internal Revenue Service mails a notice
of deficiency for such period." United States Memorandum in
Opposition to the Defendants' Motion to Dismiss, Ex. 3. The
record contains a Certificate of Assessments and Payments (Form
4340) for 1971 showing that the first notice was issued August
23, 1985, the same day the assessment was made. Therefore, the
government's initial assessment for 1971 was timely. See Ward v.
Commissioner of Internal Revenue, 907 F.2d 517, 522 n.7 (5th Cir.
1990) ("The waiver of a limitations period under Form 872-A does
not terminate until after the IRS sends a valid notice of
deficiency to the taxpayer.").
B Assessment, Notice and Demand
Certificates of Assessments and Payments (Form 4340) filed
by the government for 1966, 1967, and 1970 indicate that an
assessment was made on April 29, 1985, and notice sent to the
Kattars on that date.8 Plf. Ex. 1 at 4-6. The government has
8As in Geiselman, "the government did not provide the district court with an actual Form 23C, but it did submit several Certificates of Assessments and Payments (Form 4340) which listed
15 similarly filed a Form 4340 for 1971 indicating notice,
assessment, and "23C" dates as August 23, 1985. I d . at 7. As
discussed above, these Certificates of Assessments and Payments
constitute presumptive proof that a valid assessment has been
made, and that notice and demand for payment was given, as to
those assessments listed. See Geiselman, 961 F.2d at 6.
As for the years 1963, 1964, and 1965 the government has
filed certified computer transcripts which contain notations
indicating that assessments were made on September 26, 1985, and
that notice was sent to the Kattars' address on that date. Plf.
Ex. 1 at 1-3. However, there is no mention of Form 23C or a "23C
date," and therefore no certification that the 23C Form was
completed and signed by the assessment officer. See Brewer, 764
F. Supp. at 315 (S.D.N.Y. 1991) (denying summary judgment where
there was "no indication in the record before us that the
'Summary Report of Assessments', known as Form 23C, was completed
and signed by the assessment officer as reguired by 26 C.F.R.
§ 301.6203-1."); c f . Geiselman, 961 F.2d at 6. Moreover, where
the government has successfully relied upon computer
transcriptions to establish assessment, notice, and demand for
payment, such transcriptions have been accompanied by other
evidence, such as affidavit testimony, addressing the
significance of the transcripts and regular IRS procedures. See,
e.g., Schmidt, 717 F. Supp. at 764-65.
the '23C date' (the date the assessment officer signed the Form 23C) for the initial assessments." Geiselman, 961 F.2d at 5-6.
16 The court concludes, therefore, that the government has met
its burden of establishing that a timely and proper assessment
was made for years 1966, 1967, 1970, and 1971, and that notice
and demand for payment was sent to the Kattars. See, e.g..
United States v. Barretto, 708 F. Supp. 577, 579 (S.D.N.Y. 1989)
(where assessment placed in evidence and no material issues of
fact exist, government entitled to judgment). However, the
government has not met its burden for years 1963, 1964, and 1965,
and genuine issues of material fact exist concerning statutorily
reguired assessments, notice, and demand for payments as to those
years.
11 Insolvency
The government argues that the 1972 transfer of Clovelly in
Meredith, New Hampshire, and the contents therein, by Phyllis
Kattar to the Seven Children Trust was fraudulent under New
Hampshire Revised Statutes Annotated ("RSA") § 545:4. RSA
§ 545:4 provided that
Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditor, without regard to his actual intent, if the conveyance is made or the obligation is incurred without fair consideration.
(1974) (repealed 1987, effective January 1, 1988). 9 As noted
earlier, under RSA § 545:4, fraud must be proved by clear and
convincing evidence. See, e.g., Chaqnon Lumber Co . , 121 N.H. at
91he government and the Kattars agree that RSA ch. 545 controls the conveyances during the time periods in issue.
17 17 6; Jennev v. Vininq, 120 N.H. at 381; Furniture Mfrs. Sales,
Inc. v. Deamer, 680 P.2d 398, 399 (Utah 1984) (Utah Fraudulent
Transfer A c t ) .
In support of their contention that Phyllis Kattar was not
rendered insolvent by her transfer of Clovelly and its contents,
the defendants have submitted the report and affidavit of Philip
W. Grow, a certified public accountant at the firm of Nathan
Wechsler & Co. Defs.' Ex. B. Based largely upon Phyllis
Kattar's interest in the Kattar Realty Trust, which in turn held
shares of the Tri-State Development Corporation, Grow concluded
that Phyllis Kattar was still solvent after the 1972 transfer of
Clovelly and its contents.
The record is ambiguous regarding Phyllis Kattar's ownership
of Kattar Realty Trust stock, Kattar Realty Trust's ownership of
Tri-State Development Corporation's stock, and the value of Tri-
State Development Corporation's stock. The document establishing
the Kattar Realty Trust shows that there were initially one
thousand shares issued, and a stock certificate indicates that
Phyllis Kattar held those one thousand shares as of October 6,
1961. Defs.' Ex. C. The government has identified no evidence
that those shares were then transferred to George T. Kattar. The
government has argued, however, that George T. Kattar owned the
entire interest of Kattar Realty Trust, although the deposition
of George T. Kattar that it relies upon does not support the
government's assertion. See United States Renewed Mot. For Summ.
J. at 6 n.4. Instead, George T. Kattar stated that he did not
18 know if his wife had an interest in the Kattar Realty Trust, and
he deduced that because he started Kattar Realty Trust he must
have had an interest in it at some time. See George T. Kattar
D e p ., Vol. II at 160-61. Phyllis Kattar testified as to her
belief that George I. Kattar had an interest in Kattar Realty
Trust at some time, but that she was unsure if she did. See
Phyllis Kattar Dep., Vol. I at 29.
Other evidence also indicates that George I. Kattar may have
held an interest in Kattar Realty Trust. Upon establishing the
Meredith Clifford Trusts, George T. Kattar purported to transfer
one thousand shares of Kattar Realty Trust to the Meredith
Clifford Trusts, despite the lack of any evidence that he held
any interest in the Kattar Realty Trust. Plf.'s Ex. 9, 10.
Indeed, George T. Kattar identified the value of the Kattar
Realty Trust shares transferred as "$0.00" in his gift tax
returns. Plf.'s Ex. 10. The court, therefore, finds a triable
issue concerning whether Phyllis Kattar actually held an interest
in the Kattar Realty Trust in 1972, and what that interest was.
Grow based his determination of the value of Kattar Realty
Trust, and Phyllis Kattar's interest in it, largely on the shares
of Tri-State Development Corporation ("Tri-State"). Defs'. Ex. B
at 2. The summary of the stock record book of Tri-State
indicates that 286,568 shares were issued to Phyllis Kattar,
Trustee of Kattar Realty Trust. Id. at 16. Although the date of
the transfer is not listed, the stock certificates are generally
issued seguentially and certificate number thirty one.
19 representing the shares issued to Phyllis Kattar, is listed
between the years 1967 and 1969. Id. Of greater significance is
a notation "Certificate #31, Spoiled - not issued," although the
record indicates that the shares were indeed issued. Id.
Finally, the basis for Grow's conclusion that the total book
value of Tri-State and its subsidiaries was $1,027,742 is
unclear. However, he attests that his analysis included review
of the financial statements dated February 29, 1972, and February
28, 1973, of Tri-State and its subsidiaries. I d . at 6, 10.
Furthermore, he attested to his ultimate conclusion that Phyllis
Kattar had assets remaining sufficient to satisfy her debts,
including her tax obligations, after the transfer of Clovelly.
I d . at 6. This conclusion was dependent upon his review of the
financial statements of Tri-State and its subsidiaries. I d . at
2, 5-6. The court therefore concludes that on this record there
are genuine issues of material fact regarding the issuance of
Tri-State stock to Phyllis Kattar, as trustee of the Kattar
Realty Trust, and the value of that stock.10
Given the above discussion, the court concludes that the
issue of insolvency has not been established by clear and
convincing evidence and that triable issues remain concerning
whether Phyllis Kattar was rendered insolvent by her transfer of
the Clovelly residence in 1972. Summary judgment premised upon
RSA § 545:4 is therefore inappropriate.
10The court also notes the Tax Court's conclusion that George T. Kattar engaged in fraudulent book-keeping practices. See Kattar. 48 T.C.M. at 642.
20 Ill Intent to Defraud
The government, relying upon RSA § 545:7 (repealed 1987,
effective January 1, 1988), next asserts that summary judgment is
warranted because there are no genuine issues of material fact
concerning the Kattars' intent to defraud in transferring
Clovelly.11 RSA § 545:7 provided
Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed by law, to hinder, delay or defraud either present or future creditors is fraudulent as to both present and future creditors.
(1974) (repealed 1987, effective January 1, 1988).
In support of its motion, the government argues that the
transfer of Clovelly was made for inadeguate consideration, was
essentially made to an insider, and constituted virtually all of
Phyllis Kattar's assets. Moreover, the government identifies the
chronology of events present in this case. The transfer of the
Kattars' assets began almost immediately after George T. Kattar
was contacted by the government concerning a criminal
investigation for tax evasion. Clovelly was transferred just two
months after George T. Kattar's tax indictment. Finally, the
government points to the Kattars' continued enjoyment of
transferred assets for residences and as security for loans, to
the Kattars' failure to identify beneficiaries of the Seven
Children Trust until 1983, and to the Kattars' leases for
Clovelly. The leases spanned ten years, were retroactive, and
“ Although the record indicates that Phyllis Kattar was the transferor, the government does not consistently distinguish between Phyllis or George T. Kattar in this regard.
21 were executed shortly after an $800,000 judgment was rendered
against George T. Kattar on May 3, 1983. The government argues
that the indicia, or badges, of fraud present in this case give
rise to a presumption of fraud that shifts the burden to the
Kattars to dispel.
The Kattars assert that the transfers of assets identified
by the government, including the transfer of Clovelly, were
executed as part of the Kattars' estate planning for inheritance
tax purposes. George T. Kattar testified that the transfers were
done pursuant to the advice of attorneys and accountants for
inheritance tax purposes. Mary Abdoo, the sister of George T.
Kattar and a trustee of the Seven Children Trust, testified that
when she was asked in 1972 to be a trustee, George T. Kattar
stated that the Seven Children Trust was created for the benefit
of his children and that he wanted her to be the trustee because
she would protect the children's welfare. Similarly, George P.
Kattar, one of the Seven Children Trust's beneficiaries,
testified that he was told by his father, around the time of the
Trust's creation, that the Trust was for the benefit of the
children and to preserve a residence that would always be theirs.
A plaintiff asserting that a transfer was fraudulent
pursuant to RSA § 545:7 "has the burden of proving by clear,
convincing and direct evidence the existence of a fraudulent
intent." Chagnon Lumber Co. v. Demulder, 121 N.H. 173, 176
(1981); Jennev v. Vininq, 120 N.H. 377, 381 (1980) (plaintiff
must show by "clear, convincing and direct evidence, the
22 existence of fraud or actual fraudulent intent" in context of RSA
ch. 545); c f . Snow v. American Morgan Horse Assoc. Inc., 141 N.H.
467, 468 (1996) ("fraud must be proved by clear and convincing
evidence, but such proof may be founded upon circumstantial
evidence") (context of fraudulent misrepresentation) (citations
and quotations omitted). But see, Krinskv v. Mindick, 100 NH
423, 425 (1957) ("Direct evidence of fraud however is not
essential for the issue of fraudulent intent or knowledge can be
determined on the facts and circumstances of the particular
situation."); Curran v. Salvucci, 426 F.2d 920, 922 (1st Cir.
1970) (direct evidence not necessary). "Fraud is never to be
presumed, but must be established by clear and convincing proof."
Hoyt, 105 N.H. at 390. "Ordinarily, the issue of fraudulent
intent cannot be resolved on a motion for summary judgment, being
a factual question involving the parties' states of mind."
Golden Budha Corp. v. Canadian Land Co . , 931 F.2d 196, 201-02 (2d
Cir. 1991); see also, Int'l Shortstop, Inc. v. Rally's, Inc., 939
F.2d 1257, 1265 (5th Cir. 1991) ("we have emphasized repeatedly
that cases which turn on the moving party's state of mind are not
well-suited for summary judgment."); Commodity Futures Trading
Comm'n v. Savage, 611 F.2d 270, 283 (9th Cir. 1980); Jackson v.
Star Sprinkler Corp., 575 F.2d 1223, 1231 (8th Cir. 1978)
("Ordinarily, fraudulent intent is a question to be determined by
a jury or by the court as fact-finder and not on a motion for
summary judgment."). As the Fifth Circuit explained, this is
because "[w]hen state of mind is an essential element of the
23 nonmoving party's claim, . . . [the] party's state of mind is
inherently a question of fact which turns on credibility." Int'1
Shortstop, 939 F.2d at 1265. "Credibility determinations, of
course, are within the province of the fact-finder." Id.
Issues of credibility are squarely before the court in this
summary judgment motion. The Kattars' testimony concerning
motivations and intent are corroborated by the testimony of Mary
Abdoo and George P. Kattar about statements made
contemporaneously with the creation of the Seven Children Trust.
As discussed above, triable issues exist about the financial
condition of Phyllis Kattar at the time of the Clovelly transfer.
Furthermore, lawful justifications can be offered to explain a
number of the indicia of fraud relied upon by the government.
If, indeed, the Kattars sought to transfer the assets as part of
their estate planning, the "insider" recipients of the transfers,
the consideration given in exchange for the transfers, and the
Kattars' continued enjoyment of the assets may possibly, given
all reasonable inferences, be understood to be motivated by
something other than an intent to defraud creditors. However,
other factual issues, such as the chronology of events, cannot be
so readily interpreted as motivated by lawful interests. In
short, the court concludes that on this record and in the context
of summary judgment, where all reasonable inferences are drawn in
favor of the non-movants and credibility issues abound, granting
summary judgment as to Phyllis Kattar's allegedly fraudulent
intent would be inappropriate.
24 IV Trust Amendment
The government argues in the alternative that the transfer
of Clovelly did not occur until 1983 because of the failure of
the Seven Children Trust to adeguately identify its
beneficiaries. Therefore, it argues, the 1983 transfer was
fraudulent pursuant to RSA §§ 545:4 and 545:7.
Under Massachusetts law, "[w]hether a trust is created
depends primarily upon the manifestation by the [settlor] of an
intention to create a trust." Ventura v. Ventura, 407 Mass. 724,
726 (1990) (guoting Russell v. Meyers, 316 Mass. 669, 672
(1944)). "In order for a trust to be valid in the Commonwealth,
it must uneguivocally show an intention that the legal estate be
vested in one person to be held in some manner or for some
purpose on behalf of another." I d . (citations and guotations
omitted) (holding trust valid where it specified the trust's res,
duration, beneficiaries, and the trustees' powers and duties).
The beneficiary must be "a person who is to have a right to
enforce the trust." Restatement (Second) of Trusts § 112 c m t . a
(1959); McLemore v. McLemore, 675 So.2d 202, 204 (Fla. 1st Dit.
C t . App. 1996) (guoting Kunce v. Robinson, 469 So.2d 874, 877
(Fla. 3d Dist. C t . App. 1985)); Fitzsimmons v. Harmon, 108 Me.
456 (1911) .
"Members of a definite class of persons can be the
beneficiaries of a trust," Restatement (Second) of Trusts § 120
(1959), if "the identity of all the individuals comprising its
membership is ascertainable," id., cmt. a. Under Massachusetts
25 law, where the trust does not establish a definite, limited class
of beneficiaries such that the beneficiaries are ascertainable
and capable of enforcing the trust, the trust fails. See Old
Colony Trust Co. v. Wardell, 293 Mass. 310, 313 (1936).
Therefore, in circumstances where a trust provided for the
issuance of shares to beneficiaries but no shares are ever
issued, no trust is formed. See Kaufman v. Federal Nat'l Bank,
287 Mass. 97, 98 (1934) ("No shares were ever issued, and no
cestui que trust over [sic] existed."). As the Massachusetts
Supreme Court has stated
As [the settlor] never designated a beneficiary as required by the declaration of trust, the [trust] never came into existence and the attempted conveyance fails for lack of a cognizable recipient.
Arlington Trust Co. v. Caimi, 414 Mass. 839, 848 (1993).
Although the Kattars argue that the trust document evinces a
clear intent to create a trust, under Massachusetts law such an
intent must be sufficiently manifested to give rise to a valid
trust. See infra.
Again, the government's argument in the alternative relies
upon RSA §§ 545:4 and 545:7, and turns upon either Phyllis
Kattar's insolvency or her fraudulent intent in 1983. The court
finds that on this record triable issues exist as to Phyllis
Kattar's solvency in 1983. As previously noted, the issue of her
ownership of Kattar Realty Trust stock cannot be resolved on the
record before the court. The IRS document filed by the Kattars
setting forth their net worth, as submitted to the court, lacks a
date next to their signatures. See A p p . to United States Mot.
26 for Summ. J., Ex. 29 at 2. However, it identifies 1984 as the
last year for which the Kattars filed an income tax return, which
would indicate that the form presumably represented the Kattars'
assets sometime after April 1985. Finally, the declaration of
Marc Payeur, signed in 1996, states that after his assignment to
the Kattars' account in 1988 he did not find any material assets
owned by Phyllis Kattar. However, this does not bear on the
status of her assets in 1983.
The court concludes that the government has not established
the lack of a genuine issue of material fact regarding the
solvency of Phyllis Kattar in 1983, and therefore on this record
the court cannot conclude that a conveyance in 1983 would be
fraudulent under RSA § 545:4. Moreover, given the considerations
discussed more fully in the context of the purported 1972
transfer, summary judgment as to Phyllis Kattar's fraudulent
intent in 1983 is inappropriate on this record.12
V Nominee and Alter Ego
The government also argues in the alternative that the Seven
Children Trust can be considered the nominee of George T. and/or
Phyllis Kattar. State law controls the determination of whether
an entity or individual is the nominee of another and liable for
the other's tax debts. See Sequoia Property and Equip. Ltd.
Partnership v. United States, No. CV-F 97-5044 OWW SMS, 1998 WL
12The above-discussed considerations likewise preclude granting summary judgment on the government's claims concerning the transfer of personal property in 1980 or 1981.
27 471643 at *3 (E.D. Ca. May 13, 1998). Although none of the
parties have identified the controlling state law on the issue,
both the government and the defendants agree that the issue is
governed by the following factors:
A) No consideration or inadeguate consideration is paid by the nominee;
B) Property is placed in the name of the nominee in anticipation of a suit or occurrence of liabilities while the transferor continues to exercise control over the property;
C) A close relationship between the transferor and the nominee exists;
D) Conveyances were not recorded;
E) The transferor retained possession of the property; and
F) The transferor continued to enjoy the benefits of the transferred property.
See United States' Renewed Mot. For Summ J. at 45 (citing LiButti
v. United States, 107 F.3d 110 (2d. Cir. 1997)); Defs'. O b j . to
United States Renewed Mot. For Summ. J. at 16 (citing Sequoia
Property, 1998 WL 471643 at *3)).
Despite the government's considerable evidence, when all
reasonable inferences are drawn in the favor of the non-movants
the court finds that there is a genuine issue of material fact as
to the alleged nominee status of the Seven Children Trust. Some
indicia, such as the consideration given in exchange for the
assets and the close relations between the beneficiaries, the
trustees, and the transferors, may be interpreted in a light
favorable to the Kattars given evidence that the Trust was
intended as an estate planning device. Also, it appears that
28 deeds exist for many of the conveyances. Other indicia exist,
however, such as the timing of the transfers, which suggest a
nominee status.
Moreover, credibility issues are implicated when considering
whether George T. and Phyllis Kattar retain control, possession,
and continued enjoyment of the premises. For example, George T.
Kattar has testified that he and his wife reside in the Methuen
premises by the largess of the beneficiaries and subject to their
indulgence. Not only do George T. and Phyllis Kattar live in the
Methuen residence, but so do George P. Kattar and his family.
Various other Kattars have moved in and out at different times.
The record indicates that the Kattars' children do not pay rent
when they live there. Similarly, evidence exists that many of
the Kattars enjoy Clovelly. Furthermore, evidence exists that
Trust assets were not only used to benefit George T. and Phyllis
Kattar, but the beneficiaries as well. Among other things, money
was transferred not only to George T. and Phyllis Kattar and
their enterprises, but to enterprises associated with George P.,
Kevin, and apparently James Kattar as well.
Although initially George T. and Phyllis Kattar and Mary
Abdoo were the trustees of the Seven Children Trust, the record
indicates that George T. Kattar resigned his position as trustee
in 1984, and that George P. and Kevin Kattar are now trustees of
the Trust.13 The record also contains some evidence that Kevin
13The record indicates, however, that George T. Kattar remains a signatory on the Trust bank account.
29 Kattar has assumed substantial control over the Trust assets,
including its checking account, and that he has been liguidating
Trust assets such as artwork and jewelry in his capacity as
trustee to pay bills of the Trust, which include maintenance of
the Trust properties. The court concludes that the record
contains significant conflicting evidence regarding control of
the Trust.
As an alternative to nominee status, the government argues
that the Seven Children Trust is the alter ego of George T.
and/or Phyllis Kattar. Many courts have determined that state
law controls the issue of alter ego in tax collection cases.
See, e.g., Wolfe v. United States, 806 F.2d 1410, 1411 (9th Cir.
1986) ("State law governs the determination of whether there
exists an alter ego from whom the government may satisfy the
obligation of a taxpayer.") (citing Aquilino v. United States,
363 U.S. 509, 512-23 (I960)); Dean v. United States, 987 F. Supp.
1160, 1164 (W.D. Mo. 1997); Sequoia Property, 1998 WL 471643 at
*3. However, courts have also referred to federal law and have
found the distinctions inconseguential. See Dean, 987 F. Supp.
1164 (citing cases). In either case, when courts have considered
the alter ego issue in the context of trusts, they have relied
upon law governing the disregard of the corporate form. See,
e.g., i d . at 1164-65; William L. Comer Family Equity Trust v.
United States, 732 F. Supp. 755, 759 (E.D. Mi. 1990); Loving
Saviour Church, 556 F. Supp. at 691-92; see also. Village Press
Inc. v. Stephan Edward Co. , 120 N.H. 469 (1980). The parties do
30 not address the issue of the governing law, although the
government relies upon federal law and the Kattars upon New
Hampshire law.14 Both parties analogize to and rely upon the
doctrine of piercing the corporate veil.
Under either Massachusetts or New Hampshire law, a court may
pierce the corporate veil to prevent an injustice or fraud on the
plaintiff. See Terren v. Butler, 134 N.H. 635, 639 (1991);
Village Press, Inc., 120 N.H. at 471 ("plaintiff must establish
that the corporate entity was used to promote an injustice or
fraud"); My Baking Bread Co. v. Cumberland Farms, Inc., 353 Mass.
614, 620 (1968) ("in rare particular situations in order to
prevent gross ineguity"); New England Theatres, Inc. v. Olympia
Theatres, Inc., 287 Mass. 485, 493 (1934) ("It is only where the
corporation is a sham, or is used to perpetrate deception to
defeat a public policy, that it can be disregarded."). "The
burden rests upon the party who seeks to pierce the corporate
veil to establish by uncontroverted facts (for purposes of
summary judgment) the activities of the individual which
demonstrate a virtual disregard of the existence of the corporate
entity behind which he seeks to hide." Sherman Williams Co. v. H
& R Painting Co., No. 9128, 1992 WL 14090, *2 (Mass. App. Div.
J a n . 16, 1992).
Under Massachusetts law, a corporate form may be disregarded
14N o mention is made of Massachusetts law in this regard. The court need not resolve the issue of whether Massachusetts or New Hampshire law controls as it concludes that summary judgment is unwarranted under either of the standards.
31 where:
(1) "there is active and pervasive control of [] business entities by the same controlling persons and there [are] fraudulent or injurious consequences by reason of the relationship . . . ;" or (2) "there is a []confused intermingling of activity . . . [and] a common enterprise with substantial disregard of the separate nature of the [corporation ], or serious ambiguity about the manner and capacity in which [] corporations and their representatives are acting."
Balcor Company v. Daeien (Massachusetts) Inc., No. 915835E, 1994
WL 879679, *5 (Mass. Super. C t . Mar. 30, 1994)) (citations and
quotations omitted) (disregarding distinctions between corporate
entities); see also. My Bread Baking Co . , 353 Mass. at 619.
Similarly, the New Hampshire Supreme Court has considered such
factors as whether "a shareholder suppresses the fact of
incorporation, misleads his creditors as to the corporate assets,
or otherwise uses the corporate entity to promote injustice or
fraud," see Drudinq v. Allen, 122 N.H. 823, 827 (1982), whether
formalities were adhered to, see id., and "whether the
stockholder [was] using the corporation to further his own
private business rather than that of the corporation," see
Village Press, 120 N.H. at 471.
While the record clearly contains evidence supportive of the
government's position that the Seven Children Trust was the alter
ego of George T. and Phyllis Kattar, the record also contains
sufficient countervailing evidence to preclude summary judgment
against the defendants, as discussed more fully above in the
sections concerning fraudulent intent and nominee status.
32 Conclusion
In light of the above discussion, the court concludes that
the government is entitled to judgment as to its assessments and
corresponding statutory additions for years 1966, 1967, 1970, and
1971. However, the court otherwise denies the government's
motion and concludes that summary judgment on this record would
be inappropriate. Given the court's conclusion in this regard,
at this time the government's reguest for litigation expenses is
denied, as is its reguest for a determination that the trustees
are personally liable for any diminution of value of Trust assets
(document no. 90) .
SO ORDERED.
Joseph A. DiClerico, Jr, District Judge
August 19, 1999
cc: George P. Eliopoulos, Esguire Albert F. Cullen, Jr., Esguire Steven M. Gordon, Esguire Janice E. McLaughlin, Esguire Philip T. McLaughlin, Esguire