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United States v. Steele

United States District Court, D. Nevada

June 7, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
SPENCER J. STEELE; JAY SORDEAN as the successor trustee of THE DESERT LAKE TRUST CREATED ON OCTOBER 1, 2005; and STEWART TITLE COMPANY as the successor in interest to STEWART TITLE OF DOUGLAS COUNTY, Defendants.

          ORDER

          MIRANDA M. DU UNITED STATES DISTRICT JUDGE.

         I. SUMMARY

         Plaintiff United States of America (“Government”) brought this action seeking federal tax assessment judgment against Defendant Spencer J. Steele (“Steele”) and to foreclose federal tax liens against real property located at 1883 Genoa St., Gardnerville, NV 89410, Assessors Parcel No. 1022-29-201-012 (“Property”).[1] This order concerns the Government's motion and Steele's cross-motion for summary judgment (ECF Nos. 28, 42) as well as Defendant Jay Sordean's opposition to the Government's motion for entry of clerk's default (ECF Nos. 30, 49). Because the latter was filed after the Clerk entered the requested default (see ECF No. 32), the Court deems Sordean's opposition as a motion to set aside the Clerk's entry of default. Ultimately, the Court grants the Government's motion for summary judgment (ECF No. 28), denies Steele's cross-motion (ECF No. 42), and denies the motion to set-aside the Clerk's entry of default (ECF No. 49).[2], [3] The Court also grants Steele's pending motion to strike (ECF No. 46).

         II. BACKGROUND

         The relevant facts are undisputed, unless otherwise indicated.

         A. Defendants & Property

         Steele is alleged to be indebted to the Government for failing to pay his personal federal income tax liabilities for tax years 2004, 2005, 2006, and 2009 and the Government contends he is the true owner of the Property. (ECF No. 1.) Sordean was named a party because he holds the nominal title to the Property as the successor trustee of the Desert Lake Trust (“DLT”). (ECF No. 28-12 at 31; ECF No. 28 at 2.) Stewart Title Company is the successor in interest of the Stewart Title of Douglas County (“Stewart Title”). (ECF No. 1.) The latter is the named trustee under the pertinent Deed of Trust with Assignment of Rents (“DOT”) attached to the Property. (See, e.g., ECF No. 28-12 at 58.)

         The Property is described as:

THE WEST 165 FEET OF THE NORTH 1/2 OF THE SOUTHWEST 1/4 OF THE SOUTHEAST 1/4 OF THE NORWESTET 1/4 OF SECTION 29, TOWNSHIP 10 NORTH, RANGE 22 EAST, M.D.B. & M.

(ECF No. 1 at 3; ECF No. 28-12 at 62.) DLT's asset consists only of the Property and has no money and income beyond what it receives from Steele as rent. (See, e.g., ECF No. 28-9 (Steele Depo.) at 39; ECF No. 28-11 (Sordean Depo.) at 11-13.)

         B. Underlying Facts

         1. Steele's Tax Liabilities

         Steele last filed federal income tax returns in 2003. (ECF No. 28-3 (Steele Testimony) at 10.) Thereafter, he “became of the opinion that [he] was not liable for federal income tax, and therefore was not liable to keep [his] records or file any returns.” (Id.)

         During the four years at issue, Steele received income from various sources, which was reported to the Internal Revenue Service (“IRS”) by third parties on various information returns-1098, 1099-G, 1099-Misc, 1099-S, etc. (ECF No. 28-1 (Schubert Decl.) at 2; ECF No. 28-2; ECF No. 28-3.) Without input from Steele, the Government calculated his income based on the third-party information for the relevant four years. (ECF No. 28-1 at 2; ECF No. 28-3; ECF No. 28-4 at 11-52.) The IRS then sent Steele or DLT statutory notices of deficiency pursuant to 26 U.S.C. § 6211-6212. (ECF No. 28-1 at 2-3; ECF No. 28-4) These notices provided Steele's tax liabilities and explained the IRS's calculation. (Id.) The Government contends that because Steele did not petition for redetermination of his noted deficiencies under 26 U.S.C. § 6213, the IRS made timely assessments against him for unpaid federal income taxes, penalties, and interest set forth on the notices of deficiency. (ECF No. 28 at 4; ECF No. 28-1 at 2; ECF No. 28-5.)

         2. Purchase of the Property, Formation of DLT

         Steele testified to loaning DLT $422, 000.00 in fall 2005 to purchase the Property. (ECF No. 28-9 at 33; ECF No. 28-12 at 63.)

         Initial Escrow Instructions for the Property, dated September 28, 2005, shows “title vested in: Spencer J. Steele.” (ECF No. 28-12 at 64.) Stewart Title appears to have prepared an Escrow Instructions Signature Page, which the sellers of the Property, Clifford E. Clinton and Rena C. Clinton (“Sellers”), signed. (Id. at 72.) On the same signature page, a portion titled “Buyer (s)” follows Sellers' signatures and provides “Spencer J. Steele” under a signature line, but is not signed. (Id.) Instead, a different-but substantively the same-signature page, excluding Sellers' signature provides DLT is the buyer, which Bill Driscoll (“Driscoll”) signed as trustee of DLT. (Id. at 73.) It appears Steward Title also prepared the latter signature page. (Id.) Supplemental Escrow Instructions, dated October 7, 2005, amended the prior instructions and provides:

The Buyer in this transaction shall be amended to read: Bill Driscoll, Trustee of the Desert Lake Trust Created October 1, 2005

(Id. at 74.) This document was signed by Sellers and Driscoll. (Id.)

         A Grant, Bargain, Sale Deed (“Deed of Sale”) conveys title from Sellers to Bill Driscoll, Trustee of the Desert Lake Trust created October 1, 2005. (ECF No. 28-12 at 56.) The Deed of Sale is dated September 20, 2005. (Id.)

         DLT is noted as “formed” on October 1, 2005, (ECF No. 28-12 at 15), but the certificate of its existence and authority and other trusts documents were signed several days later (id. at 15-33). The document creating DLT shows Driscoll as DLT's trustee at the time of its creation. (Id. at 15.) The same document shows J. Dennis Scarbrough as DLT's creator. (Id.) Sellers notarized the Deed of Sale on October 6, 2005, and it was recorded on October 14, 2005. (Id. at 56.)

         Steele was asked about the creation of DLT at his deposition in this case:

Q Did you ask for it to be created? Did you direct it to be created? Or did you discuss it with people who created it?
A It was recommended to me as an estate planning move in anticipation of my death. And, you know, I lent money to the trust to buy the property, so to that extent I was involved.
Q Do you know - - do you understand what it's supposed to accomplish?
A My understanding is that the trust is supposed to be a separate legal entity. So that if, for example, like you're trying to do, somebody comes after me for money they claim I owe, the trust will not be responsible for that.

(ECF No. 28-9 at 35-36.) Steele further testified that he chose DLT's beneficiaries-his cousins. (Id. at 36-37.)

         The DOT attached to the Property, dated “20th day of September, 2005[, ]” but recorded on October 14, 2005, notes that the DOT is made between the following entities and person:

Bill Driscoll, Trustee of the Desert Lake Trust created October 1, 2005 . . . herein called “Trustor”, Stewart Title of Douglas County, . . . herein called “Trustee”, and Spencer John Steele, (whose address is c/o Re/Max Bill Driscoll . . . herein called “Beneficiary.”

(ECF No. 28-12 at 58.) The DOT additionally provides:

That Trustor irrevocably grants to Trustee in trust, with power of sale, all interest of Trustor in that certain property situate in Douglas County . . .
together with, the tenements, . . . and appurtenances . . . and the reversion . . . . remainder . . . rents, issues and profits . . . subject, however, to the right of the Beneficiary, during any period of default hereunder, and without waiver of ...

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