Widow Has No Interest in Property; Lien Foreclosure Allowed

On February 24, 2015, the government filed a motion for summary judgment against Ms. Aloha Johnson ("Aloha Johnson"), Clyde Johnson's widow, and a motion for default judgments against Clyde Johnson's alleged surviving heirs, Ms. Erin Johnson and Ms. Gina Campbell, and his purported entity, Alphabiotic Life Center. Dkt. 66.

In addition, on March 12, 2015, the government filed a motion to amend its first amended complaint. Dkt. 67. Neither defendant has filed any objections to the government's motion to amend.

On March 16, 2015, Aloha Johnson filed a response to the government's motion for a summary judgment (Dkt. 68), and on March 20, 2015, the government filed a reply (Dkt. 71).

They married at the Eatonville Property and lived there together until May 2012 when Clyde Johnson passed away. Dkt. 66-1, at 10. During their marriage, Clyde Johnson paid off the Eatonville Property with the money from his chiropractic practice (Id., at 34). Although Aloha Johnson alleges that she contributed approximately $12,000.00 she had inherited from her father towards a remodeling project Clyde Johnson performed on the property (Id., at 42-43; Dkt. 69, at 2), she remembers no details and has no documentation for the contribution (Dkt. 66-1, at 42-43).

On June 10, 1999, even though Aloha Johnson had no recorded interest in the Eatonville Property, she executed a quit claim deed ("Quitclaim Deed"), transferring any interest she may have had to Clyde Johnson "as his separate estate." Id., at 70. Aloha Johnson stated in her declaration that Ms. Lewis wanted the balance on the note paid, so Clyde Johnson obtained a loan from a bank to pay the balance, eventually paying off the loan in 2012. Dkt. 69, at 2. In addition, Aloha Johnson stated in her declaration that she had no involvement in the refinance transaction, but that she was asked to sign the Quitclaim Deed, which she claims was "somehow necessary for the refinance to go through." Id., at 2-3. She stated that she had "no independent recollection of actually signing the deed," conceding that the signature on the Quitclaim Deed was hers. Id., at 2. Further, the real estate tax affidavit filed with the Quitclaim Deed states that the "explanation" for the transaction is to "separate community property." Dkt. 66-1, at 72.

Clyde Johnson supported the family financially with his chiropractic practice. Id., at 12; Dkt. 69, at 3. Although he worked as a chiropractor between 1994 and 2003 (Dkt. 66-1, at 12), he failed to pay his tax liabilities for at least these years (Dkt. 66-1, at 100-109; Dkt. 66-2, at 2-66) as he appears to have ascribed to unconventional beliefs about the federal tax system (Dkt. 66-2, at 135-148). In September 2000, unable to bring Clyde Johnson into voluntary compliance, the IRS started issuing notices of deficiencies to him. Dkt. 66-3; Dkt. 66-4, at 2-38. In addition, between November 2002 and March 2012, the IRS made several assessments against Clyde Johnson for unpaid taxes, penalties, and interest for the years in question. Dkt. 66-2, at 2-66. Aloha Johnson alleges that Clyde Johnson excluded her from any business and related matters, including the purchase of the Eatonville Property and income taxes. Dkt. 69, at 3.

On December 1, 2000, a few months after he received his first notice of deficiency, Clyde Johnson transferred his interest in the Eatonville Property to a new purported entity Alphabiotic Life Center ("Alphabiotic"). Dkt. 66-1, at 66. This transfer was a "Gift . . . for love and affection as consideration . . ." (Id., at 66), involving no monetary consideration (Id., at 68). Aloha Johnson stated in her deposition that Alphabiotic was a technique of adjustment Clyde Johnson intended to practice following his retirement. Id., at 26. Neither corporate charter, bylaws, articles of incorporation, nor any other document related to Alphabiotic was ever located. Id., at 30. Nor was Aloha Johnson aware at the time of her deposition whether Alphabiotic had any operations, managers, or annual meetings. Id., at 31-31. In fact, she stated that "[Alphabiotic] hadn't done anything yet. That was just what [Clyde Johnson] was -- from what I understood was going to be the name of his practice." Id., at 32.

On October 10, 2007, the IRS recorded a Notice of Federal Tax Lien in Pierce County, Washington against the Eatonville Property for $288,937.42, securing Clyde Johnson's unpaid tax liabilities for the 1994-2003 tax years. Id., at 79. Similarly, on August 1, 2008, the IRS recorded another Notice of Federal Tax Lien in Pierce County, Washington, for the same tax years against the Eatonville Property for $287,373.06, naming Alphabiotic "as nominee or alter ego of Clyde B Johnson." Id., at 84. Finally, between 2012 and 2014, the IRS re-filed notices as to certain tax years, naming both Clyde Johnson and Alphabiotic. Id., at 81-83, 85-86.

After the IRS referred Clyde Johnson's unpaid tax liabilities to the Department of Justice and before the government initiated the present action, Clyde Johnson died. Dkt. 66, at 12.

In this action, the government seeks to collect Clyde Johnson's unpaid tax liabilities for the 1994-2003 tax years by enforcing its liens against the Eatonville Property.

On March 12, 2015, the government filed a motion to amend its first amended complaint on the basis that it identified a drafting error therein. Dkt. 67. Specifically, the government states that it erroneously listed a civil penalty assessed against Clyde Johnson for the 2008 tax year. Id. The government seeks relief only as to the federal tax liens arising from Clyde Johnson's tax liabilities, interest, and penalties for the 1994-2003 years. Id.

Neither defendant has filed any response to the government's motion to amend its first amended complaint. The Court should consider such lack of response as an admission that the motion has merit. See LCR 7(b). In addition, no apparent reason exists to deny leave to amend such as undue delay, bad faith, or dilatory motive. See Foman v. Davis, 371 U.S. 178, 182 (1962). In fact, the government seeks to remove a basis for liability.

Nor has either defendant shown any prejudice resulting from such an amendment.

Accordingly, the Court should grant the government's motion to amend its first amended complaint, which does not alter the Court's analysis on the government's motions for summary and default judgments.

B. Plaintiff's motion for summary judgment

The government argues that the Court should decree a sale of the Eatonville Property for the following reasons:

First, the government argues that it possesses valid federal tax liens against Clyde Johnson. Dkt. 66.

Second, the government argues that Aloha Johnson had no interest in the Eatonville Property on the dates of assessments so as to prelude the sale of the property. Id. The government argues that, under Washington community property law, Aloha Johnson acquired no interest in the Eatonville Property when she married Clyde Johnson because the character of property is determined at the date of acquisition. Id. More specifically, Clyde Johnson purchased the Eatonville Property several months before they married; accordingly, the government argues, the property remained his separate, not their community, property throughout their marriage. Id. Even if Aloha Johnson had acquired an interest in the Eatonville Property through their marriage, the government maintains that she no longer had any such interest when the government's tax liens arose because she had executed the Quitclaim Deed, transferring any interest she may have had in the Eatonville Property to Clyde Johnson "as his separate estate." Id.

Third, even if Aloha Johnson had an interest in the Eatonville Property, the government argues that it may still foreclose its liens against the entire property because Clyde Johnson's tax liabilities constitute their community debt. Id.

Finally, the government argues that the tax liens attach to the Eatonville Property, even though Clyde Johnson placed it in Alphabiotic's name, because Alphabiotic was Clyde Johnson's nominee or alter ego. Id.

In response, Aloha Johnson argues that she continuously possessed at least a one-half interest in the Eatonville Property because they were in a "meretricious relationship" when Clyde Johnson purchased the property. Dkt. 68. Although Aloha Johnson argues that she possessed "an interest" in the property, she argues that she possessed no "community property" interest subject to community debt. Id.

In addition, Aloha Johnson argues that the Quitclaim Deed lacks any "donative intent" to constitute a gift of her existing interest in the Eatonville Property because she executed the Quitclaim Deed only to facilitate the refinance transaction. Id. In support, Aloha Johnson cites only to In re Estate of Borghi, 167 Wn. 2d 480 (2009), as corrected (2010), a case where the court held that no presumption was created that the property acquired by one spouse before her marriage transmuted from separate to community property when the deed was issued in both spouses' names.

Even if the Quitclaim Deed can be interpreted as intending a transfer of community property into separate property, Aloha Johnson argues that the Quitclaim Deed fails because she (1) possessed no "community property" interest; and (2) lacked intent to gift the property and even knowledge that she possessed any transferrable interest to form such intent. Id.

Further, Aloha Johnson argues that the tax liens do not attach to her interest in the Eatonville Property because the IRS has never sought to hold her personally liable for the tax liabilities in question. Id. In addition, Aloha Johnson argues that these tax liabilities do not constitute community property debt because Clyde Johnson acquired the Eatonville Property before they were married and she, therefore, had only an "equitable," and not a "community property," interest in the Eatonville Property. Id. In support, Aloha Johnson cites United States v. Rodgers, 461 U.S. 677 (1983), where the Supreme Court held that, under 26 U.S.C. § 7403, a district court can order the sale of the home itself, not just the delinquent taxpayer's interest in the property and that the nondelinquent spouse is entitled, as part of the distribution of proceeds, to so much of the proceeds as represents complete compensation for the loss of such spouse's separate interest.

Finally, Aloha Johnson argues that the Court should exercise its equitable power to deny foreclosure of the tax liens because the record is devoid of any evidence of the factors the Court should consider before authoring such a sale. Id.

In reply, the government argues that the evidence is insufficient to establish a "meretricious" relationship between Aloha Johnson and Clyde Johnson because cohabitation alone does not establish "meretricious" relationship, more recently referred to as a "committed intimate relationship." Dkt. 71.

Even if Aloha Johnson and Clyde Johnson had a "meretricious" relationship, the government argues that it is entitled to enforce the liens because (1) the "committed intimate relationship" doctrine was established to equitably distribute property following a termination of a committed relationship where partners never formally married, not to divide property in a federal lawsuit involving tax liens where neither partner holds title to the property in question; (2) the "committed intimate relationship" doctrine applies only to, unlike here, a jointly-acquired property; and (3) "committed intimate relationship" doctrine (a) does not vest Aloha Johnson with a property interest insulated from any federal tax liens where a commensurate community property interest would not be, and (b) at most, would give Aloha Johnson a "community property-like interest" subject to community debts. Id.

In addition, the government argues in its reply that the Quitclaim Deed severed any interest Aloha Johnson may have had in the Eatonville Property regardless of her alleged intent. Id. Specifically, the government argues that Aloha Johnson has pointed to no ambiguity in the Quitclaim Deed justifying turning to extrinsic evidence such as her "self-serving declaration that she now recalls lacking donative intent." Id. (internal citations omitted). Even if the Court considers extrinsic evidence, the government argues that such evidence, in fact, shows that the Quitclaim Deed severed any interest Aloha Johnsons may have had in the property because the real estate tax affidavit filed with the Quitclaim Deed states that the "explanation" for the transaction was to "separate community property." Id.

Finally, the government argues that the equities in this case favor the government, not Aloha Johnson. Id.

The determination of the existence of a material fact is often a close question. The court must consider the substantive evidentiary burden that the nonmoving party must meet at trial -- e.g., a preponderance of the evidence in most civil cases. Anderson, 477 U.S. at 254, T.W. Elect. Service Inc., 809 F.2d at 630. The court must resolve any factual issues of controversy in favor of the nonmoving party only when the facts specifically attested by that party contradict facts specifically attested by the moving party. The nonmoving party may not merely state that it will discredit the moving party's evidence at trial, in the hopes that evidence can be developed at trial to support the claim. T.W. Elect. Service Inc., 809 F.2d at 630 (relying on Anderson, supra). Conclusory, non specific statements in affidavits are not sufficient, and "missing facts" will not be "presumed." Lujan v. National Wildlife Federation, 497 U.S. 871, 888-89 (1990).

In this case, the Court should conclude that the government is entitled to a summary judgment as a matter of law because no genuine issues of material fact exist as to (1) the validity of the liens in question; (2) Clyde Johnson's requisite interest in the Eatonville Property; and (3) the lack of Aloha Johnson's requisite interest in the Eatonville Property.

Here, in the form of the Certificates of Official Record and/or IRS Forms 4340, the government has made a prima facie showing that it possesses valid tax liens against Clyde Johnson. Dkt. 66-2, 1-68. See Huff v. United States, 10 F.3d 1440, 1445 (9th Cir. 1993) (IRS Form 4340 provides at least presumptive evidence that a tax has been validly assessed under § 6203). Aloha Johnson has failed to set forth any evidence controverting the government's position on this issue.

Accordingly, the Court should conclude that no genuine issues of material fact exist as to the validity of the tax liens in question.

Specifically, the government has shown as follows: (1) Alphabiotic appears to have paid no consideration for the Eatonville Property other than "love and affection"; (2) Clyde Johnson placed the Eatonville Property in Alphabiotic's name just a few months after the IRS issued its first notice of deficiency; (3) Clyde Johnson appears to have closely controlled Alphabiotic, a business he envisaged for his solo practice following his retirement; and (4) after Clyde Johnson placed the Eatonville Property in Alphabiotic, he continued to possess, and enjoy the benefits of, the property. See United States v. Smith, C11-5101 RJB, 2012 WL 1977964, at *5 (W.D.Wash.2012) (citing United States v. Black, 725 F.Supp.2d 1279, 1291-92 (E.D.Wash.2010); Sharp Management, LLC, 2007 WL 1367698, at *3 (W.D.Wash.2007)).

Significantly, Aloha Johnson has presented no evidence controverting the government's prima facie case that Alphabiotic acquired the Eatonville Property as Clyde Johnson's nomineeor alter ago. In addition, no corporate charter, bylaws, articles of incorporation, or any other related document was ever located. Dkt. 66-1, at 30. Nor was Aloha Johnson aware at the time of her deposition whether Alphabiotic had any operations, managers, or annual meetings. Id., at 31-32. In short, Aloha Johnson has failed to controvert the government's position that the liens in question encumber the Eatonville Property.

Accordingly, even if Aloha Johnson had an interest in the Eatonville Property when the IRS assessed Clyde Johnson's liabilities, the government may enforce the liens in question by selling the entire property. See Rodgers, 461 U.S. at 693-94 ("We must read [26 U.S.C. § 7403] to contemplate, not merely the sale of the delinquent taxpayer's own interest, but the sale of the entire property (as long as the United States has any "claim or interest" in it), and the recognition of third-party interests through the mechanism of judicial valuation and distribution.").

In this case, the issue is whether Aloha Johnson has shown that she had any interest in the Eatonville Property requiring judicial valuation or distribution. As discussed below, the Court should conclude that she has failed to satisfy this burden.

Although Aloha Johnson argues that she lacked the allegedly requisite "donative intent" to gift her interest in the Eatonville Property through a quit claim deed, she has provided no support for this proposition. In re Estate of Borghi, the only case Aloha Johnson has cited without explaining, is inapposite and involves no quit claim deeds. Further, Aloha Johnson stated in her declaration that she had executed the Quitclaim Deed only to facilitate the refinance transaction, not to gift any interest she may have had to Clyde Johnson; however, the Court need not consider this extrinsic evidence to determine her intent because the Quitclaim Deed's language is unambiguous. See In re Snow, 199 Fed. Appx. 609, 610-11 (9th Cir. 2006). Specifically, under the Quitclaim Deed, Aloha Johnson "conveys and quit claims to Clyde B. Johnson, married man as his separate estate." Dkt. 66-1, at 70. She transferred any interest she may have had in the Eatonville Property to Clyde Johnson when she executed the Quitclaim Deed.

Moreover, if Aloha Johnson, in fact, intended only to facilitate the refinance transaction lacking understanding at the time that she may have had an interest in the Eatonville Property to form the requisite intent to transfer any such interest to Clyde Johnson, then she would have formed such an intent had she understood what was at stake because the intent to gift or otherwise transfer interest in the Eatonville Property, as evidenced by the Quitclaim Deed's unambiguous language, was required for the alleged refinance transaction. Similarly, if the Court were to consider extrinsic evidence, such evidence would further support that Aloha Johnson transferred any interest she may have had in the Eatonville Property to Clyde Johnson because the real estate tax affidavit filed with the Quitclaim Deed states that the "explanation" for the transaction was to "separate community property." Id., at 72.

Finally, even if Aloha Johnson had any interest in the Eatonville Property when the IRS assessed Clyde Johnson's liabilities in question, she has failed to show that the tax liabilities did not constitute community debt subject to enforcement. See Am. President Lines, Ltd. v. Pederson, C9-5109BHS, 2009 WL 2164408, at *3 (W.D.Wash.2009) (citing Warren v. Washington Trust Bank, 19 Wash.App. (1978)) (a spouse contesting a community debt has the burden of showing that the debt was not incurred with the intention or expectation, at the inception of the transaction, on the part of the spouse that a material economic benefit would accrue to the community) (internal quotations omitted).

Accordingly, the Court should conclude that Aloha Johnson has failed to controvert the government's prima facie case that she had no interest in the Eatonville Property not subject to enforcement when the IRS assessed Clyde Johnson's tax and related liabilities. As such, Aloha Johnson is not entitled to judicial valuation and distribution.

C. Plaintiff's motion for default judgments against Ms. Erin Johnson, Ms. Gina Campbell, and Alphabiotic

On October 7, 2014, on the government's motions (Dkts. 33-34), the Clerk entered defaults as to Ms. Erin Johnson and Ms. Gina Campbell, Clyde Johnson's alleged surviving heirs, for failure to plead or otherwise defend (Dkts. 36-37). Similarly, on October 15, 2015, on the government's motion (Dkt. 31), the Clerk entered a default as to Alphabiotic for failure to plead or otherwise defend (Dkt. 38).

On October 21, 2014, the government filed motions for default judgments as to these defendants. Dkts. 40-42. On October 24, 2014, the Court denied the government's motions without prejudice for lack of supporting evidence. Dkts. 44-46.

Here, the government again moves the Court for default judgments against defendants Ms. Erin Johnson, Ms. Gina Campbell, and Alphabiotic, arguing that, if the Court denies these motions, the government will be unable to adequately protect its interests in the tax liens attached to the Eatonville Property. Dkt. 66. More specifically, the government argues that, without resolution of any purported interest Ms. Erin Johnson, Ms. Gina Campbell, and Alphabiotic may have in the Eatonville Property, the title to the property will remain clouded. Id.

Accordingly, the Court should grant the government's motion for default judgments against Ms. Erin Johnson, Ms. Gina Campbell, and Alphabiotic.

Finally, Aloha Johnson has failed to show that she had any interest, or interest not subject to community debt, in the property entitling her to judicial valuation or distribution. The Court should decree a sale of the Eatonville Property to satisfy the tax liens in question.

Accordingly, it is hereby ORDERED that

The United States of America's Motion to Amend United States' Amended Complaint (Dkt. 67) is GRANTED. The Clerk is directed to file the United States' Second Amended Complaint (Dkt. 67-2).

The United States of America's Motion for Summary Judgment Against Aloha Johnson (Dkt. 66) is GRANTED. The United States of America may foreclose its liens upon the Eatonville Property, with the proceeds to be distributed to the United States of America to satisfy Mr. Clyde Johnson's outstanding tax liabilities for the 1994-2003 tax years.

The United States of America's Motion for Default Judgment against Erin Johnson, Gina Campbell, and Alphabiotic Life Center (Dkt. 66) is GRANTED.

The Clerk is directed to send uncertified copies of this Order to all counsel of record and to any party appearing pro se at said party's last known address.

Dated this 30^th day of March, 2015.