The opinion of the court was delivered by: DALZELL
This is a case about a tax protester who, despite his two years' incarceration after his conviction for tax evasion in 1987, continues his seventeen-year attempt to evade paying federal income taxes. The case also concerns the protester's wife, who at the eleventh-hour seeks to rescue the marital residence from federal tax lien foreclosure.
As will be seen, in the 1980s the protester built a tangled web in an attempt to shield himself from what is now in excess of a three-quarter million dollar tax obligation. Our resolution of the motions before us will bring this long-delayed day of reckoning much closer.
I. Factual and Procedural Background1
On September 21, 1995, the United States filed this civil action against defendants Joseph E. Klimek ("Klimek"), Nassau Life Insurance Company, Limited ("Nassau"), Dominion Holding Company ("Dominion"), and Colonial Investment Company ("Colonial") to reduce to judgment federal tax assessments against Klimek and foreclose federal tax liens on real property located at 115 Golf Club Drive, Langhorne, Pennsylvania (the "Golf Club Drive property"), which, according to the Government, Klimek equitably owns. According to defendant-intervenor Magdalene M. Klimek ("Mrs. Klimek"), Klimek's wife of over forty years, and as the Government agrees, the Golf Club Drive property is the Klimeks' marital residence.
The Government contends that Nassau, Dominion, and Colonial are fictitious, defunct companies to which Klimek has nominally transferred title to the Golf Club Drive property, as a mechanism by which to shelter the property from his creditors, including the United States. The United States has named these entities as defendants in this suit in order to foreclose any interest they may assert in the Golf Club Drive property.
As a condition of his probation, Judge Bechtle of this Court ordered Klimek to fulfill any and all of his outstanding tax liabilities for the period of the criminal indictment, 1980 through 1986. Accordingly, in December of 1987, Klimek, through his attorney, filed with the Internal Revenue Service ("IRS") signed income tax returns on Federal Form 1040 for tax years 1980 through 1986.
Not surprisingly, the IRS audited Klimek's tax returns for these years, and the delegate of the Secretary of the United States Treasury determined that Klimek owed additional taxes, which Klimek has, as of yet, failed to pay. As of November 30, 1996, Klimek, the Government claims, owes the United States, in income tax deficiencies, penalties, and interest, seven hundred fifty-nine thousand four hundred twenty-seven dollars and twenty-one cents. See Decl. of Dennis L. Bohn, IRS Revenue Officer, at P 8.
Not only has Klimek failed to pay his federal income taxes for the past seventeen years, but, ever since the IRS notified Klimek on August 4, 1984 of its criminal investigation (which ultimately concluded with Klimek's conviction by a jury before Judge Bechtle in October of 1987), Klimek has actively worked to evade paying taxes by concealing his assets.
Specifically, on August 23, 1984, Klimek and his wife for no consideration transferred to "Dominion Holding Co., Del. East P.M.B. 11 Grand Turk, Turks and Caicos Island, B.W.I.," title to real property located at 4336 Central Avenue, Ocean City, New Jersey (the "Ocean City property"), which the Klimeks had purchased in December of 1981 for $ 190,000. See Gov't's First Req. for Admissions at Exh. 19 (deed for Ocean City property); Magdalene Klimek Dep. at 53. The Klimeks ultimately sold the Ocean City property for $ 300,000 in September of 1988, but did not pay taxes on the gain realized on the sale. See id. at PP 92-97, 107-08 & Exh. 20 (deed of sale); Magdalene Klimek Dep. at 55.
On August 23, 1984, the Klimeks also transferred title to their then-residence at 35 Woodstock Drive, Newtown, Pennsylvania ("Newtown property") to Nassau as trustee for Dominion. See Decl. of Magdalene Klimek at Exh. B. The Klimeks had purchased the Newtown property in 1969 in their own names. See id. at Exh. A-1. The Klimeks sold the Newtown property in July of 1985 and, a month later, invested the proceeds in the Golf Club Drive property. See id. at Exh. C-1; Magdalene Klimek Dep. at 33.
On August 30, 1985, the Klimeks, in the names of Nassau and Dominion, purchased the Golf Club Drive property -- their current marital residence. See Magdalene Klimek Dep. at 33; Gov't's First Req. for Admissions at Exh. 26 (deed). On March 27, 1986, as a further means of shielding the Golf Club Drive property from the IRS, Klimek had Dominion grant a mortgage on the Golf Club Drive property to Colonial, see id. at P 126; Magdalene Klimek Decl. at Exh. D-6. The Government claims this is a sham mortgage since Klimek neither owed Colonial any money, see Gov't's First Req. for Admissions at P 127, nor ever made any mortgage payments thereafter, see Magdalene Klimek Dep. at 48-49. Since 1990, the Government has filed and recorded notices of the federal tax liens in the Bucks County Prothonotary's Office (the Golf Club Drive property is located in Bucks County, Pennsylvania) against Klimek and against the corporate defendants named here.
Nassau, Dominion, and Colonial, which are not domestic or foreign corporations doing business in the Commonwealth of Pennsylvania, are, the Government maintains, fictitious, defunct entities, which Klimek controls as their president and/or "president/agent," see Gov't's First Req. for Admissions at PP 128-31, and on behalf of which he has signed many legal documents, see id. at P 128. Mrs. Klimek is the Secretary Agent of Colonial and an officer of Dominion. See Magdalene Klimek Dep. at 24 & 33.
On October 19, 1995, less than a month after the Government initiated this civil case, Klimek filed a voluntary petition for relief under Chapter Thirteen of the United States Bankruptcy Code. By virtue of Klimek's bankruptcy filing, this civil action was stayed as a matter of law, see 11 U.S.C. § 362(a), pending the resolution of the bankruptcy proceeding. See November 9, 1995 Order (ordering Clerk to place case in the Civil Suspense File). On December 28, 1995, Judge Fox of the Bankruptcy Court granted Klimek's praecipe for voluntary dismissal, pursuant to 11 U.S.C. § 1307(b), of the bankruptcy proceeding Klimek had, less than a month earlier, begun. The voluntary dismissal of the bankruptcy case was without prejudice and did not discharge Klimek's debts to the Government. See 11 U.S.C. § 349(a).
Consequently, on January 26, 1996, we ordered that this matter be transferred once again to our active docket. See January 26, 1996 Order; Docket Entry No. 5 (Klimek's objections). In response, Klimek filed a document entitled, "Refusal for Cause Without Prejudice UCC 3-501," where he asserted that "I, Joseph Edmond, Klimek, herein-after Aggrieved Party, have timely noticed STEWART DALZELL, JUDGE OF THE DISTRICT COURT OF EASTERN PENNSYLVANIA of my Refusal and return to sender Without Dishonor that said Case has been Discharged and is RES JUDICATA!" Docket Entry No. 7.
The Government on February 17, 1996, personally served process upon Klimek, in his individual capacity, and on behalf of each of the other named defendants.
Klimek, however, returned the summons and complaint to the Government, stamped "Refusal For Cause Without Dishonor UCC 3-501." See Docket Entry No. 12.
On March 1, 1996, Robert Samuel Chappell, who, at the time was (and, presumably, remains) incarcerated in the New Mexico State Penitentiary in Sante Fe, New Mexico,
represented himself to be defendant Nassau's "founder and president," and moved for summary judgment on behalf of Nassau and the other defendants in this case. See Docket Entry No. 10. We held that the motion was a nullity because Chappell is not a licensed attorney and thus could not represent Nassau or any of the other corporate defendants here. See April 1, 1996 Order at PP b & c (citing Rowland v. California Men's Colony, 506 U.S. 194, 113 S. Ct. 716, 721, 121 L. Ed. 2d 656 (1993) & 28 U.S.C. § 1655).
The Government, pursuant to Fed. R. Civ. P. 15(a), amended the complaint in this case on April 1, 1996. See Docket Entry No. 16. Count I of the amended complaint seeks a judgment in favor of the United States in the amount of Klimek's currently unpaid federal tax assessments which, as of November 30, 1996, totalled seven hundred fifty-nine thousand four hundred twenty-seven dollars and twenty-one cents. See Bohn Decl. at P 8. Count II seeks a declaratory judgment that (a) the federal tax liens are valid and subsisting those tax liens upon Klimek's property or right to any property, (b) Nassau and Dominion are nominees of Klimek with respect to the Golf Club Drive property, and (c) Colonial's mortgage on the Golf Club Drive property is a sham. In addition, Count II seeks a Court Order that (a) the federal tax liens be foreclosed upon all of Klimek's property and rights to property, including the Golf Club Drive property, and (b) the Golf Drive Club Drive property be sold and the proceeds from that sale be distributed to cover the administrative costs of the sale, with the balance remitted to the United States.
Thereafter, Klimek returned the Government's amended complaint, attaching to it a document styled, "Refusal for Cause Without Dishonor," which, in relevant part, asserted that:
This Refusal For Cause is made timely as all Liabilities whether Real or Fictions were Discharged in the Bankruptcy Court of the Eastern District of Pennsylvania on December 22, 1995 by Judge BRUCE I. FOX. (see 95-18275).
Therefore, the complaint of September 21, 1995 (Civil No. 95-5971) is RES JUDICATA!
The double jeopardy provision of the Fifth Amendment to the Constitution for the u nited States of America bars a civil proceeding after criminal penalties were enacted by the sovereign. (see Travis v. Brownlee, et al v. United States, CR 84-52 Wks, U.S. District Court of Delaware and JOSEPH E. KLIMEK v. United states, Crim. Case # 8700165, U.S. District Court of Eastern Pennsylvania.)
The above cases establish double jeopardy.
Therefore the complaint of September 21, 1995 (civil No. 95-5971) is RES JUDICATA!
According to Title 44 sections 1505, 1510 and the Parallel Table of Authorities for rule making in C.F.R. 26 and 27 of the Internal Revenue Code Section 6331 (and a host of others) does not have the force and effect of law (see exhibit # 1 and 2). Note that Title 27 has the force and effect of law in 26 U.S.C. 6321). Title 26 shows T.D. 7577 which has no force and effect of law. This is the Treasury Departments Procedure for the s tates.
Therefore the complaint of September 21, 1995 (civil No. 95-5971) is RES JUDICATA!
The Federal Court in ?Delaware found the entities of Nassau Life Insurance Company Limited to be legal, NOT A SHAM and Mr. Robert Samuel Chappell to be its President. (see Brownlee case above).
Therefore the complaint of September 21, 1995 (civil no. 95-5971) is RES JUDICATA!
My name is Joseph Edmond, Klimek, and therefore your service of court papers and/or complaint are in error. The address for Nassau Life Insurance Company Limited, Dominion Holding Company and Colonial Investment Company is not 115 Golf Club Drive, Langhorne, Pennsylvania (19047). This fact is recorded om Federal Court Transcripts.
With all of the above points but not limited to those few I have enclosed and ORDER OF DISCHARGE OF COMPLAINT (civil no. 95-5971) in favor of the Accused. I would assume you do not wish to be a party to this CONSTRUCTIVE FRAUD.
In Commerce, TRUTH IS SOVEREIGN.
Joseph Edmond, Klimek, sui juris c/o 115 Golf Club Drive Langhorne, Pennsylvania Republic Non-domestic State Federal Regional Venue Denied
On May 7, 1996,
we ordered, inter alia, that (1) defendants Nassau, Dominion, and Colonial to appear, plead, answer, or otherwise move, through a licensed attorney, in this matter, or, we warned them, "they will be in default" and "this Court will proceed to a hearing and adjudication of the merits of this suit," see May 7, 1996 Order at P 3, and (2) the Government effect personal serve of that Order, together with the amended complaint, on Klimek and Chappell, who held himself out to be an officer or other representative of defendants Nassau, Dominion, and Colonial, see id. at PP 4 & 5 (docket entry no. 28). In accordance with our Order, the Government personally served Klimek and Chappell on May 31 and June 19, 1996, respectively.
In response, Klimek filed a document entitled, "Refusal for Cause Judge Dalzell's May 7, 1996 Order," which, among other things, stated that "I am putting you on Notice JUDGE DALZELL that a crime has/is taking place, and I am Notifying you of this crime and I am demanding that you take action against these Extortionists as they have prosecuted me criminally, and now they are prosecuting me civilly in case No. 95-5971, which is double jeopardy, among other violations." See Docket Entry No. 30.
On August 12, 1996, we ordered the Clerk of the Court to enter default against the defendants Nassau, Dominion, and Colonial for their failure to comply with our Order of May 7, 1996. See Docket Entry No. 38; see also Docket Entry Nos. 35-37 (Gov't's Requests for Default Judgment). Two days later, Klimek filed another "Notice of Refusal For Fraud Under [F.R.Civ.P. 9(b)]." See Docket Entry No. 39.
On September 27, 1996, the Government served Klimek with a request for documents, and noticed his deposition for October 17, 1996. See Gov't Summ. J. Br. at 4. Klimek, writing across the discovery requests "Refused for Fraud," returned them to the Government, and never produced the requested documents or appeared for the scheduled deposition. See id. at 22. The Government, however, was able to depose Klimek's wife, Magdalene M. Klimek. See id. at 5. The Government then served Klimek with two sets of requests for admissions, both of which were returned by Klimek with the phrase "Refused For Fraud" written across them. See Flesch Decl. at Exhs. C & D; see supra n.1.
On November 1, 1996 -- close to ten months after we had reopened this case -- Mrs. Klimek moved, pursuant to Fed. R. Civ. P. 24(a)(2), for leave to intervene in this matter, contending that because the Golf Club Drive property is the marital residence, she has an equitable interest in the property and that the disposition of this action will impair that equitable interest. Despite the fact that Mrs. Klimek's motion was untimely under Rule 24 (Mrs. Klimek had allowed a year to elapse from the filing of the original complaint), we granted her leave to intervene, and allowed her to conduct discovery. See November 21, 1996 Order (docket entry no. 52).
Now before us are the Government's (1) motion for summary judgment and sanctions against Klimek; (2) motion for entry of default judgment against defendants Nassau, Dominion, and Colonial; and (3) opposition to Mrs. Klimek's cross-motion for summary judgment. Klimek, as has been his custom in this case, has filed two "notices," which while acknowledging receipt of the Government's motions, declare that they are "refused for fraud." See "Notice" of December 3, 1996 and January 15, 1997. From Mrs. Klimek, we have before us (1) an answer to the amended complaint; (2) a motion for summary judgment; ...