MAGISTRATE AGAIN DENIES SUMMARY JUDGMENT IN LIEN FORECLOSURE CASE.

               IN THE UNITED STATES DISTRICT COURT

[2] In the September 14, 2001 Memorandum Opinion and Order I did not address the United States' Motion for Summary Judgment on Claims Three and Four.¹ Claims Three and Four assert that the United States is entitled to foreclose upon its federal Tax liens against the seven parcels of real property because Midwest Limited and Sunrise Investments ("the Trusts") hold title to the property as the nominees of defendant Edward Novotny ("Novotny"), or the Trusts are sham trusts, and, therefore, Novotny retains a beneficial interest in the parcels of property. I did not address the United States' arguments in support of summary judgment on those claims because I concluded that my ruling that the Novotnys failed to convey legal title to the Trusts in 1979 on Claim Two obviated the need for a ruling on Claims Three and Four. I found that the theories of nominee and sham trust are not applicable because the Novotnys' purported conveyances of the properties to the Trusts in 1979 did not convey legal title to the Trusts.

[3] The United States now moves for reconsideration of my decision not to address its motion for summary judgment on Claims Three and Four on the ground that if the Trusts establish at trial that they hold title to the property under the Colorado adverse possession statutes, the theories of nominee and sham trust will once again become germane. The United States argues that if a judicial determination is made that the Trusts are sham trusts, or hold paper title to the seven properties as the nominees of the Novotnys, that ruling will foreclose the Trusts' counterclaims to quiet title to the properties.

[4] Upon further, consideration, I will grant the United States' request that I rule on their motion for summary judgment on Claims Three and Four, I find that the theories of nominee and sham trust asserted in Claims Three and Four are relevant to the determination of whether Novotny had a beneficial interest in the properties in 1993 and 1994, when the United States' tax liens arose against Novotny's property and rights to property for his failure to pay federal income taxes.

[5] I first address the United States' contention, in Claim Four, that the Trusts hold title to the seven parcels of property as the nominees of Novotny. A nominee is one who holds bare legal title to property for the benefit of another. BLACK'S LAW DICTIONARY (7th ed. 1999). The Government may foreclose its federal tax liens on property held by a nominee of the taxpayer in order to collect the taxpayer's liability. See GM Leasing Corp. v. United States, 429 U.S. 338, 350-51 (1977); Oxford Capitol Corp. v. United States, 211 F.3d 280, 284 (5th Cir. 2000): Scoville v. United States, 250 F.3d 1198, 1201 (8th Cir. 2001); Shades Ridge Holding Co., Inc. v. United States, 888 F.2d 725, 728 (11th Cir. 1989). United States v. Schaeffer, 84 AFTR 2d 99-5209 at 5792 (D. Colo. 1999); United States v. Stonier, 94-2 USTC p. 50,409, 1994 WL 395644 (D.Colo.)), aff'd 48 F.3d 1233 (10th Cir. 1995)(Unpublished Disposition).

[6] The Trusts argue that they are the sole vested owners of the properties because the Trusts were created in conformance with the requirements of state law. They contend that under the terms of the Trusts' declarations, the Novotnys, as trustees, do not have a beneficial interest in the property conveyed to the Trusts, so the tax liens did not attach to that property. Under the above cited authority, however, if the Trusts hold paper title to the seven parcels of property as the nominees of Novotny, the United States may disregard the form of the Trusts to reach the Trusts' assets to satisfy Novotny's tax debt.

[7] The factors pertinent to the court's determination of whether an entity or individual holds property as the nominee of another are essentially the same under federal and state law, Stonier, at *3; Shades Ridge Holding Co., Inc., 888 F.2d at 728-29; Valley Finance, Inc. v. United States, 629 F.2d 162, 172 (D.C. Cir. 1980). Those factors include: (1) the consideration paid for the property by the transferee; (2) the amount of control exercised by the transferor over the property while the title is in the transferee's name; (3) whether there is a close relationship between the transferor and the nominee; (4) the transferor's use of the transferred property or funds; and (5) lack of interference by the transferee in the transferor's use of the property. Stonier, at *4; Shades Ridge Holding Co., 888 F.2d at 728; Cityview Trust v. Hutton, 98-2 USTC p. 50,872, 1998 WL 1031525 at *10 (D. Wyo. 1998); United States v. Marsh, 114 F.Supp.2d 1036,1043 (D.Hawaii 2000). Whether the property has been placed in the name of a nominee in anticipation of a suit or the incurrence of liabilities may be relevant, but is not determinative. Cityview Trust, at **10-12; Marsh, 114 F.Supp.2d at 1044-45. The critical issue is who has substantial control over the property. Stonier, at *4; Cityview Trust, at *10; Valley Finance Inc., 629 F.2d at 172; Shades Ridge Holding Co., 888 F.2d at 728.

[8] Turning to the facts contained in the record, I find that the first factor weighs in favor of a finding that the Trusts are the nominees of Novotny. The undisputed facts are that Novotny transferred his interests in each of the parcels of property to the Trusts for only nominal consideration ($10.00).

[9] Under the second factor, in determining the amount of control exercised by the transferor over the property while title is in the transferee's name, the court must take into consideration that under Wyoming law, the settler of a trust may also be a trustee² In re Estate of Lohrie, 950 P.2d 1030 (Wyo. 1997). The Contracts and Declarations of Trust for Midwest Limited and Sunrise Investments set forth the authority of the trustees. (Contracts and Declarations of Trust, Section 29, Exs. 2 and 3 to Trusts' Answer) Under the Trust documents, the trustees are authorized to manage the Trusts' assets in a manner beneficial to the Trusts. (Id. at Section 11)

[10] The evidence shows that after Parcel 3 was transferred to Sunrise Investments, Novotny continued to exercise control over the property which he uses for his and his wife's benefit, as their residence and for his auto salvage business. Novotny has never paid rent to either Trust for his use of the property for his business or for the Novotnys' use of the house on Parcel 3. The Novotnys have not made any significant improvements to Parcel 3 in lieu of rent. Further, the Trusts have not placed any restrictions on the Novotnys' use of Parcel 3 and no other persons have exercised control over Parcel 3 since the property was conveyed to the Trusts. It is unclear from the record whether the Novotnys or the Trusts paid the property taxes on Parcel 3 and the utility bills for the Novotnys' residence and business on Parcel 3. On the whole, I find that the second factor weighs in favor of a finding of a nominee relationship with respect to Parcel 3.

[11] With regard to the other parcels, Novotny has controlled the management of the properties both during his tenures as trustee, and from 1979 through 1985 when he was not an appointed trustee. There is no evidence, however, that Novotny has managed Parcels 1, 2, 4, 5, 6 or 7 to benefit himself or his wife. The record reflects that Novotny has managed Parcels 2 and 6 for the benefit of the Trusts. The evidence regarding Novotny's management of Parcels 1, 4, 5 and 7 was meager and inconclusive. There is no evidence that any use has been made of Parcels 1, 4 or 7. Parcel 5 has been managed by trustee Costello since 1993 and has been used for her personal business ventures, but there is no evidence about Parcel 5's use prior to 1993 when it was managed by Novotny. Accordingly, I find that the second factor weighs against a finding of a nominee relationship with respect to Parcels 1, 2, 4, 5, 6 and 7.

[12] Under the third factor, the evidence shows that there is a close relationship between Novotny and the Trusts. Novotny and his wife have served as appointed or de facto trustees during the entire existence of the Trusts and make all decisions concerning the Trust property, with the exception of trustee Costello's management of Parcel 5. Further, the Novotnys' children are the Trust beneficiaries. The third factor weighs in favor of a finding of a nominee relationship as to all seven parcels of property.

[13] Under the fourth factor, the evidence shows that Novotny has made personal use of Parcel 3, but has not made personal use of the other parcels of property. There is no evidence that Novotny has ever appropriated Trust funds for personal use. Accordingly, similarly to the second factor, this factor weighs in favor of a finding of a nominee relationship with respect to Parcel 3 only.

[14] Finally, the record reflects that the Trusts have not interfered with Novotny's use of Parcel 3. Although there is no evidence that the Trusts have interfered with Novotny's use of any of the other parcels, there is also no evidence that Novotny has made any personal use of the other properties, other than to pick some plums off of the trees on Parcel 7.

[15] The evidence further shows that at the time the property transfers occurred in 1979, Novotny did not owe any tax debt. Novotny stopped filing federal tax returns the same year that he transferred the properties to the Trusts, but has never been assessed any tax deficiencies for tax years 1979 through 1988. I find that this factor does not weigh in favor of either party. Further, as previously stated, whether or not the transfers were made in anticipation of suit or the incurrence of liabilities does not appear to be a dispositive consideration in determining whether a trust is the nominee of the taxpayer. See Stonier Cityview Trust.

[16] I find that the United States has failed to demonstrate as a matter of law that the defendant Trusts hold paper title to Parcels 1, 2, 4, 5, 6 and 7 as the nominees of Edward Novotny. Further, although the evidence on Parcel 3 weighs heavily in the United States' favor, I nonetheless find that genuine issues of material fact remain on the issue of whether Sunrise Investments holds paper title to Parcel 3 as the nominee of Novotny. Accordingly, I deny the United States' Motion for Summary Judgment on Claim Four.

[17] The United States asserts in Claim Three that the Trusts are sham trusts. To prove this claim, the United States must establish that Novotny continued to treat the parcels of property as his own after he transferred title to the Trusts. See F.P.P. Enterprises v. United States, 830 F.2d 114, 115-117 (8th Cir. 1987); James E. Edwards Family Trust v. United States 572 F.Supp. 22, 24-25 (E.D.N.M. 1983). Although the evidence weighs heavily in the United States' favor with regard to parcel 3, I find that genuine issues of material fact exist as to whether Novotny continued to treat the seven parcels of property as his own after title to the parcels was transferred to the Trusts. I deny the United States' motion for summary judgment on Claim Three.

[18] I am not inclined to revisit the merits of the other rulings contained in the September 14, 2001 Memorandum Opinion and Order, or to address new arguments not raised in the cross motions for summary judgment. Accordingly, it is

[19] HEREBY ORDERED that United States' motion for Reconsideration [filed October 17, 2001] is granted in part and denied in part. The court grants the motion to the extent the United States requests that the court rule on its motion for summary judgment on Claims Three and Four, as set forth herein. The remainder of the motion is denied. It is

[20] ORDERED that the United States' Motion for Summary Judgment [filed December 22, 2000, and refiled on January 19. 2001] is denied as to Claims Three and Four. The United States may present evidence in support of those claims at trial. It is

[21] FURTHER ORDERED that the Trusts' Cross Motion for Reconsideration [filed November 1, 2001] is denied.

[22] Dated this 8th day of November, 2001

                                   BY THE COURT:

² The declarations of the Trusts contain the following provision: "The rights and duties of the several parties of the Declaration of Trust shall be determined according to the common law and the laws of the state of Wyoming." (Contract and Declaration of Trust, Section 4. Exs. 2 and 3 to Trusts' Answer) The parties' choice of law provision is to be given effect unless doing so would contravene some important public policy of the State of Colorado. See Mood Borthers Homes, Inc, v. Walker-Adjustment Bureau, 601 P.2d 1369 (1979); Restatement (Second) of Conflict of Laws §277(1) (1971). Issues regarding the validity of the Trusts are thus determined under Wyoming law. I note that Colorado law is consistent with Wyoming law on the issue of whether a settlor may be appointed as trustee. See Estate of Brenner, 547 P.2d 938 (Colo. 1976).