USA v. Kattar

• Court: District Court, D. New Hampshire
• Decided: October 8, 1997
• Docket: CV-95-221-JD
• Status: Published

Opinion

USA v. Kattar CV-95-221-JD 10/08/97 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

United States of America

v. Civil No. 95-221-JD

George T. Kattar, et al.

O R D E R

The plaintiff, the United States of America, brought this

action against the following defendants: George T. Kattar; the

Seven Children Trust; Phyllis Kattar, personally and as trustee

of the Seven Children Trust; Mary Abdoo, George P. Kattar, and

Kevin Kattar, each as trustees of the Seven Children Trust; and

the town of Meredith, New Hampshire. The action seeks, inter

alia, to reduce to judgment federal tax liabilities of over one

million dollars allegedly owed by defendants George T. and

Phyllis Kattar (the "Kattars") and to foreclose on real property

allegedly fraudulently transferred by Phyllis Kattar to defendant

Seven Children Trust (the "trust"). Before the court is the

plaintiff's motion to amend its complaint (document no. 53). Background1

In 1972, defendant Phyllis Kattar owned a residence called

Clovelly on Powers Road in Meredith, New Hampshire. On June 20,

1972, the Kattars created the trust. At the time of the trust's

creation, the trust documents did not explicitly designate the

beneficiaries of the trust.2 On June 27, 1972, defendant Phyllis

Kattar purported to transfer Clovelly to the trust. Despite the

purported transfer, the Kattars continued to live in Clovelly and

exercise control over it.

In a sworn financial statement submitted to the Internal

Revenue Service during the mid-1980's, the Kattars represented

that they had only $1,600 in assets and that they had not

transferred any assets since at least 1969. The plaintiff

asserts that the transfer of Clovelly was a fraudulent conveyance

for the purpose of "hindering, delaying, and defrauding" the

plaintiff with respect to the payment of the Kattars' income tax

'The facts relevant to the instant motion are not in dispute or have been alleged by the plaintiff. The court assumes a familiarity with the factual background of this case set forth in more detail in its December 31, 1996, order and recounts here only those facts pertinent to the instant dispute.

2The plaintiff contends that the trust beneficiaries were not designated until November 15, 1983, when the Kattars filed an amendment to the trust documents. The defendants assert that the beneficiaries were readily identifiable at the time of the trust's creation.

2 liability. Am. Compl., 5 20. The plaintiff further asserts that

the trust is the nominee of the Kattars, their alter ego, and/or

a sham. Furthermore, the plaintiff asserts that, at least since

the filing of this action, the trustees have failed to pay

property taxes on Clovelly, giving rise to a property tax lien

against it which might have priority over the plaintiff's income

tax lien.

After filing this action on April 27, 1995, the plaintiff

amended its complaint as of right on June 6, 1995. Subseguently,

during discovery, the plaintiff gained new information about the

Kattars' assets and allegedly fraudulent transfers of those

assets by the defendants. In response to a written discovery

reguest, the defendants disclosed that the only transfer of the

Kattars' property with a value of over $1,000 during the period

in guestion was the June 27, 1972, transfer of Clovelly. During

a deposition in February 1997, however, defendant Phyllis Kattar

indicated that she retained assets at the time of the conveyance

of Clovelly and that she subseguently transferred those assets to

the trust in 1980. The assets included jewelry and the contents

of Clovelly (collectively, the "personal property"), which the

defendants claim had a 1972 value of approximately $180,000 and

$170,000, respectively. In April 1997, the plaintiff inspected

Clovelly and discovered that the majority of these newly

3 disclosed assets remain in the residence.

The plaintiff now seeks to amend its complaint for a second

time. The proposed amendment would make the following changes to

the current complaint: (1) it would add claims relating to the

personal property; (2) it would add an alternative theory with

respect to the fraudulent transfers, i.e., that they occurred not

when the defendants claim, but in 1983, when the plaintiff

asserts that the beneficiaries of the trust were first

designated; and (3) it would make the trustees personally liable

to the extent that they allowed the property to become damaged,

be dissipated, or suffer liens against it, including failure to

pay taxes on Clovelly. The defendants oppose this attempted

amendment on several grounds.3

Discussion

According to Rule 1 5 (a) of the Federal Rules of Civil

Procedure, leave to amend shall be "freely given when justice so

reguires." "That mandate is to be heeded," Foman v. Davis, 371

U.S. 178, 182 (1962), and amendments should be liberally granted,

see Tiernan v. Blvth, Eastman, Dillon & Co., 719 F.2d 1, 4 (1st

defendant town of Meredith has assented to the plaintiff's reguest to amend its complaint. The remaining defendants oppose the motion. Throughout the remainder of this order, the court refers to the defendants opposing the amendment simply as "the defendants."

4 Cir. 1983). Although resolution of a motion to amend is within

the sound discretion of the trial court, refusing to grant leave

to amend without justification is an abuse of discretion and

inconsistent with the Federal Rules of Civil Procedure. See

Foman, 371 U.S. at 182.

The plaintiff asserts that the Kattars' misrepresentations

made certain facts unavailable and it now seeks to amend its

complaint to comport with those facts. The defendants make the

following arguments in opposition to the motion to amend: (1) the

plaintiff's claim against the personal property is barred by the

statute of limitations, making amendment futile; (2) assertion of

a claim against the personal property would unduly delay the

proceedings and prejudice the defendants; (3) the allegation that

the beneficiaries of the trust were not identifiable until 1983

lacks adeguate support; and (4) the plaintiff's effort to add the

trustees would unnecessarily delay the proceedings, is unduly

prejudicial to the defendant trustees, and has not been

adeguately supported by factual allegations. The court considers

the parties' arguments seriatim.

I. Newly Discovered Fraudulent Transfer of Personal Property

The defendants argue that the plaintiff's attempt at

5 amendment is futile because the allegedly fraudulent transfer of

personal property is outside the ten year statute of limitations.

See 26 U.S.C.A. § 6502 (West Supp. 1997) . In addition, they

argue that they will be prejudiced by the addition of claims

pertaining to the transfers because of undue delay on the part of

the plaintiff, the length of time between the filing of the

original complaint and the amendment, the fact that the

defendants will have to significantly alter their trial strategy,

the fact that discovery will have to be reopened, and the fact

that the defendants reasonably relied on the plaintiff's

permitting the statute of limitations to run. The court rejects

these arguments because the prejudice and delay appear to be

occasioned by the defendants' ineguitable conduct.

The plaintiffs have asserted that defendant Phyllis Kattar

has made mutually incompatible sworn statements for the purpose

of avoiding tax liability by defrauding and hindering the

plaintiff. The defendants have not contested the validity of the

plaintiff's allegations. Instead, the defendants argue, in

essence, that after having mislead the plaintiff for a

sufficiently long period of time, they are now entitled to rely

on the plaintiff's failure to discover the truth and to reap the

benefits of their prior misrepresentations. The defendants have

produced no legal authority, and the court is aware of none, to

6 support such a proposition. Assuming, as it must at this stage

of the proceedings, that the plaintiff's allegations are true,

the court finds that any prejudice to the defendants was caused

by their own behavior and that justice reguires that the

plaintiff be allowed to amend its complaint to add allegations

that the transfers of personal property by Phyllis Kattar were

fraudulent and therefore void as to the plaintiff. See Fed. R.

Civ. P . 15(a).

II. Designation of Trust Beneficiaries and Time of Transfers

The defendants urge that the plaintiff should not be allowed

to amend its complaint to assert that the transfer of Clovelly

did not take effect until 1983 because the beneficiaries of the

trust had not been designated until that time. The defendant

asserts, inter alia, that the title of the Seven Children Trust

is sufficient to establish that the beneficiaries of the trust

were to be the Kattars' seven children. However, the defendants'

arguments with respect to this point would be more properly set

forth in a motion for summary judgment, because they focus

primarily on factual matters that they assert make the identity

of the beneficiaries of the trust clear. In the plaintiff's

proposed amended complaint, it sets forth its allegation as an

alternate theory of liability and it provides a factual basis for

7 its contentions. The court cannot, given the case's procedural

posture, ascertain that the plaintiff is unable to prove any set

of facts that would entitle it to the requested relief.

Therefore, the court finds that the plaintiff has sufficiently

demonstrated its entitlement to amend its complaint with respect

to this allegation.

III. Addition of Trustees as Defendants

The defendants argue that the plaintiff fails in its

proposed amended complaint to allege any facts in support of its

claim against the trustees individually, and thus the amendment

should be denied as futile. However, the proposed amended

complaint states that, "upon information and belief" defendant

Meredith "has liens upon [Clovelly] for unpaid real estate

taxes." Proposed Second Am. Compl., 5 6. It notes that

defendants Mary Abdoo, George P. Kattar, and Kevin Kattar are

trustees of the trust. See id., 5 4. It seeks to make the

trustees "personally liable . . . to the extent they have allowed

or hereafter allow the subject properties to be damaged or

dissipated or to suffer liens with priority or superiority to the

[plaintiff's] claims, including by failing to pay real property

taxes while refusing to concede this action." Id., 5 58.

The court finds that these allegations, taken together.

8 provide the trustees with sufficient notice to appraise them of

the plaintiff's accusation that they failed to pay real property

taxes on Clovelly to the detriment of the plaintiff's claims.

Therefore, the defendants' argument that "Plaintiff has failed to

allege any facts to support its asserted claim against the

trustees individually," Defs.' Objection to Pl.'s Mot. to Amend

Compl., at 21, is without merit. The defendants' remaining

arguments on this point fail to establish that the plaintiff's

attempted amendment would be futile. The court concludes that

the plaintiff should be allowed to amend its complaint to add the

trustees as individual defendants.

Conclusion

For the reasons stated above, the court determines that

justice reguires that the plaintiff be allowed to amend its

complaint. Therefore, the plaintiff's motion to amend its

complaint (document no. 53) is granted.

SO ORDERED.

Joseph A. DiClerico, Jr. Chief Judge

October 8, 1997 cc: George P. Eliopoulos, Esguire Steven M. Gordon, Esguire Albert F. Cullen Jr., Esguire Janice E. McLaughlin, Esguire