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,

, (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.,

(1st Cir. 1993) (quoting

Wynne v. Tufts Univ. Sch. of Med . ,

(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,

(1986); Quintero de Quintero v. Aponte-Rogue,

(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 . ,

(1st Cir. 1991)

(quoting Griqqs-Ryan v. Smith,

(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.,

(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.,

(1996) (fraudulent misrepresentation); Chaqnon Lumber Co. v.

DeMoulder,

(1981) (context of New Hampshire Revised Statutes Annotated ("RSA") ch. 545) (repealed 1987,

effective Jan. 1, 1988); Jennev v. Vininq,

(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,

(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.,

(7th Cir. 1992) (Wis.

Fraudulent Conveyance Act, insolvency provisions); Benson v.

Richardson,

(Iowa 1995) (Iowa common law);

Territorial Sav. & Loan Assoc, v. Baird,

(Utah.

C t . A p p . 1989) (Utah Fraudulent Conveyance Act) (clear and

satisfactory standard context of insolvency provisions);

Transamerica Ins. Co. V. Trout,

(Ariz. C t .

App. 1985) (Arizona Uniform Fraudulent Conveyance Act); Furniture

Mfrs. Sales, Inc. v. Deamer,

(Utah 1984); FDIC

v. Proia,

, 1254 n.2 (1995) (Maine Uniform

Fraudulent Transfer Act) (Act does not change clear and

convincing burden of proof). C f . Warner v. Warner,

(S.D. Ohio 1986) (preponderance of evidence applies to insolvency

provisions under Ohio law); United States v. Edwards,

(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.

(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.

(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,

(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

(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. . .

(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 . . . ."

(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,

(9th

Cir. 1993) (guoting Hughes v. United States,

(9th Cir. 1992)); see also, Pursifill v. United States,

(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."

(1999). The summary record is known as Form 23C. See Brewer v. United States,

, 315 n.3 (S.D.N.Y. 1991). Supp. 113 (M.D. G a . 1992) . C f . Blackston v. United States,

(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,

(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.

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,

(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,

-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

- 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,

(filed July 26, 1984). The Tax Court concluded

that the exception provided for in

(c) to the

limitations on assessments and collections was applicable to

those years, see

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."

(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,

(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,

, 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,

, 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,

.

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,

(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

."); c f . Geiselman,

. 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,

.

the '23C date' (the date the assessment officer signed the Form 23C) for the initial assessments." Geiselman,

.

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,

(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,

; Furniture Mfrs. Sales,

Inc. v. Deamer,

(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.

.

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,

(1981); Jennev v. Vininq,

(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.,

(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,

(1st Cir.

1970) (direct evidence not necessary). "Fraud is never to be

presumed, but must be established by clear and convincing proof."

Hoyt,

. "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 . ,

, 201-02 (2d

Cir. 1991); see also, Int'l Shortstop, Inc. v. Rally's, Inc.,

(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,

(9th Cir. 1980); Jackson v.

Star Sprinkler Corp.,

, 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,

. "Credibility determinations, of

course, are within the province of the fact-finder."

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,

(1990) (guoting Russell v. Meyers,

(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,

(Fla. 1st Dit.

C t . App. 1996) (guoting Kunce v. Robinson,

(Fla. 3d Dist. C t . App. 1985)); Fitzsimmons v. Harmon,

(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,

(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,

(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,

(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,

(2d. Cir. 1997)); Defs'. O b j . to

United States Renewed Mot. For Summ. J. at 16 (citing Sequoia

Property,

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,

(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,

(I960)); Dean v. United States,

(W.D. Mo. 1997); Sequoia Property,

at

*3. However, courts have also referred to federal law and have

found the distinctions inconseguential. See Dean,

(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,

(E.D. Mi. 1990); Loving

Saviour Church, 556 F. Supp. at 691-92; see also. Village Press

Inc. v. Stephan Edward Co. ,

(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,

(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.,

(1968) ("in rare particular situations in order to

prevent gross ineguity"); New England Theatres, Inc. v. Olympia

Theatres, Inc.,

(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,

, *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,

, *5 (Mass. Super. C t . Mar. 30, 1994)) (citations and

quotations omitted) (disregarding distinctions between corporate

entities); see also. My Bread Baking Co . ,

.

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,

(1982), whether

formalities were adhered to, see

and "whether the

stockholder [was] using the corporation to further his own

private business rather than that of the corporation," see

Village Press,

.

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

33