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United States of America v. David A. Tyler and Louis J. Ruch

March 13, 2012

UNITED STATES OF AMERICA,
PLAINTIFF,
v.
DAVID A. TYLER AND LOUIS J. RUCH,
DEFENDANTS.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM RE: DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND GOVERNMENT'S CROSS-MOTION FOR SUMMARY JUDGMENT

The United States of America (the "Government") brought the instant action pursuant to 26 U.S.C. §§ 7401 and 7403 against Defendants David A. Tyler ("Mr. Tyler") and Louis J. Ruch ("Mr. Ruch," and together with Mr. Tyler, "Defendants"), individually and as co-executors of the respective estates of Mr. Tyler's late father and mother, David J. Tyler (the "Taxpayer") and Paula I. Tyler ("Mrs. Tyler"), to enforce a federal tax lien resulting from the Taxpayer's failure to pay income taxes for a period of years. Presently before the Court are Defendants' Motion for Summary Judgment (ECF No. 24) and the Government's Cross-Motion for Summary Judgment (ECF No. 25.), each filed pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons set forth below, Defendants' Motion is DENIED and the Government's Cross-Motion is GRANTED.

I. Factual and Procedural Background

The following relevant facts are undisputed.*fn1 On January 28, 2002, the Internal Revenue Service (the "IRS") assessed the Taxpayer with income tax liabilities for the years 1992 through 1998. (Def. SUF ¶ 2; Pl. SUF ¶ 2.) The Taxpayer failed to pay these liabilities. (Pl. SUF ¶ 3.)

At the time the IRS made the assessments, the Taxpayer and his wife, Mrs. Tyler, owned real property located at 585 Cricket Lane in Radnor, Pennsylvania (the "Cricket Lane Property") as tenants by the entirety. (Def. SUF ¶ 3.) On August 20, 2003, the Taxpayer and Mrs. Tyler executed an indenture placing the Cricket Lane Property solely in the name of Mrs. Tyler for a stated consideration of $1. (Def. SUF ¶ 4; Pl. SUF ¶ 4.) On March 23, 2004, the IRS recorded a notice of federal tax lien reflecting a total of $436,349.09 in unpaid federal taxes with the Delaware County, Pennsylvania, Prothonotary in connection with the Cricket Lane Property. (Def. SUF ¶ 7; Pl. SUF ¶ 8.)

On or about August 15, 2006, the Taxpayer passed away. (Def. SUF ¶ 9; Pl. SUF ¶ 10.) A formal estate was never submitted to probate for the Taxpayer. (Def. SUF ¶¶ 13, 14.) Close to a year later, on or about June 26, 2007, Mrs. Tyler passed way. (Def. SUF ¶ 10; Pl. SUF ¶ 11.) Upon Mrs. Tyler's death, Defendants became co-executors of her estate, which was formally raised in the Orphan's Court Division of the Common Pleas of Delaware County. (Def. SUF ¶¶ 15, 17.)

On September 11, 2007, the IRS sent letters to Defendants advising them that the federal tax lien encumbered the Cricket Lane Property and that, as co-executors of the estate of the Taxpayer and his wife, they were obligated to satisfy the lien out of the assets of the estate. (Pl. SUF ¶ 13.) Subsequently, Mr. Ruch filed an administrative appeal with the IRS challenging the federal tax lien. (Pl. SUF ¶ 14.) The IRS ultimately rejected the appeal. (Id.)

On November 21, 2008, Defendants conveyed the Cricket Lane Property to Mr. Tyler for a stated consideration of $1. (Def. SUF ¶ 20; Pl. SUF ¶ 16.) Defendants did not seek the approval of the Orphan's Court to transfer the property. (Def. SUF ¶ 22; Pl. SUF ¶ 23.) Then, in July, 2009, Mr. Tyler sold the Cricket Lane Property to a third party purchaser for $525,019.48. (Pl. SUF ¶ 19.) The net proceeds of the sale totaled $313,206.94. (Id.; David A. Tyler Deposition Transcript, Aug. 9, 2011 ("Tyler Depo. Tr."), at 22:8-23:2, 37:14-21.) Mr. Tyler retained and invested the proceeds, which, in his own words, "pretty much got blown away in the market." (Pl. SUF ¶ 24.)

Currently, Mrs. Tyler's estate remains open in the Orphan's Court. (Def. SUF ¶ 17; Pl. SUF ¶ 21.) There has not been a final accounting because the federal tax lien has yet to be resolved.(Def. SUF ¶ 19; Pl. SUF ¶ 22.)

On March 22, 2010, the Government commenced the instant action by filing a Complaint (ECF No. 1) pursuant to 26 U.S.C. §§ 7401 and 7403 against Defendants, each in their individual capacity and as a co-executor of the respective estates of the Taxpayer and Mrs. Tyler, to enforce the federal tax lien. On April 9, 2010, the Government filed an Amended Complaint (ECF No. 2). The Amended Complaint seeks (1) to reduce to judgment the Taxpayer's federal tax assessments, (2) to set aside fraudulent conveyances of the Cricket Lane Property, (3) to foreclose on the sale proceeds of the fraudulently conveyed property, and (4) to receive an accounting from Defendants regarding the estates of the Taxpayer and Mrs. Tyler.

Subsequently, Defendants moved to dismiss the Amended Complaint for lack of jurisdiction and for failure to state a claim pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. On September 27, 2010, this Court issued a Memorandum and Order, denying Defendants' Motion to Dismiss. United States v. Tyler, No. 10-CV-1239, 2010 WL 3769094 (E.D. Pa. Sept. 27, 2010).

Almost a year later, following discovery, on August 30, 2011, Defendants filed a Motion for Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. (ECF No. 24.) On September 20, 2011, the Government filed a response in opposition thereto. (ECF No. 27.) Defendants did not file a reply.

The day after Defendants filed their Motion for Summary Judgment, the Government filed a Cross-Motion for Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. (ECF No. 25.) The Government's motion seeks the following relief only: (1) a declaration that the United States had a valid and subsisting lien on the Cricket Lane Property when Defendants, acting as co-executors of the estate of Mrs. Tyler, transferred the property to Mr. Tyler for $1, and (2) a judgment against both Defendants, jointly and severally, for one half the value of the proceeds of Mr. Tyler's subsequent sale of the property to a third party.*fn2 On September 21, 2011, Defendants filed a response in opposition to the Government's Cross-Motion. (ECF No. 28.) The Government did not file a reply.*fn3

II. Standard of Review

A court should grant a motion for summary judgment if the movant can show "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).*fn4 A dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "material" if it "might affect the outcome of the suit under the governing law." Id.

Where the non-moving party bears the burden of proof on a particular issue at trial, the moving party's initial burden can be met simply by showing the court that "there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The party opposing summary judgment must rebut by making a factual showing "sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322. The court may grant summary judgment "[i]f the evidence is merely colorable, or is not significantly probative." Anderson, 477 U.S. at 249 (citations omitted). The court must view the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in favor of the non-movant. Id. at 255 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158--59 (1970)).

III. Discussion

A. The Probate Exception to Federal Jurisdiction Does Not Apply

As an initial matter, Defendants contend that the probate exception to federal subject matter jurisdiction divests this Court of jurisdiction that it otherwise has over the instant action pursuant to 28 U.S.C. § 1340, 28 U.S.C. § 1345, 26 U.S.C. § 7402, and 26 U.S.C. § 7403.*fn5 The Court disagrees.

The probate exception is a judicially-created jurisdictional limitation on the federal courts. Three Keys Ltd. v. SR Util. Holding Co., 540 F.3d 220, 226 (3d Cir. 2008). The Supreme Court has recognized that it is a "narrow exception" of "distinctly ...


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