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Nineveh Investments Limited v. United States

United States District Court, E.D. Pennsylvania

August 14, 2019



          DuBois, J.


         In this action for wrongful levy against the United States under 26 U.S.C. § 7426 of the Internal Revenue Code, plaintiff Nineveh Investments Limited (“plaintiff”) seeks reconsideration of that part of the Court's December 5, 2017 Memorandum and Order denying plaintiff's Motion for Application of Foreign Law Pursuant to Federal Rule of Civil Procedure 44.1 by reason of plaintiff's failure to prove the substance of Bahamian law. In that Order, the Court concluded that plaintiff failed to prove the substance of Bahamian law through its exclusive reliance on a July 6, 2017 Order by a Bahamian court that provided no evidence of the substance of Bahamian law. Consequently, the Court determined that Pennsylvania law would apply in the case as the law of the forum.

         In its Motion for Reconsideration, plaintiff provides additional legal authority in support of its Motion for Application of Bahamian Law. The Court determines that the interests of justice favor considering plaintiff's supplemental authority on Bahamian law. The additional authority provides the substance of Bahamian law and enables the Court to apply that law to interpretation of the Kaplan Family Trust. The Court will apply Bahamian law to that issue.

         The Court also concludes that the doctrine of depecage[1] is appropriate in this case and denies without prejudice plaintiff's Motion for Application of Foreign Law with respect to all other issues involved in determining Gary Kaplan's property interest in the Kaplan Family Trust, including the law relating to nominee, alter ego, sham/substance over form, and fraudulent transfer. For the reasons that follow, plaintiff's Motion for Reconsideration is granted in part and denied in part.

         II. BACKGROUND[2]

         This lawsuit arises out of tax levies by defendant United States on the claimed assets of terminated third-party defendant Gary Kaplan (“Kaplan”) to satisfy Kaplan's outstanding tax obligations. Kaplan's tax obligations stem from the sale of his shares in BetOnSports, PLC, an overseas gambling operation, in public offerings in 2004 and 2005. In anticipation of the public offerings, Kaplan settled two trusts based in the Isle of Jersey, to which he transferred his shares in BetOnSports. In 2010, Kaplan settled the Kaplan Family Trust (“the Trust”) under the laws of the Bahamas as a successor to the two trusts based in the Isle of Jersey. Plaintiff Nineveh is a Bahamian corporation that holds the Trust's financial assets.

         a. The Terms of the Trust

          The Trust grantor, or “settlor, ” is Gary Kaplan. See ECF No. 38-2. The trust beneficiaries are the settlor, Holly Kaplan, [3] the issue of the settlor, and the International Red Cross and other such charitable organizations. Id. at 14 ¶¶ 1-4. The Trust protector[4] is Michael Hunter, a lawyer located in Israel. See ECF No. 37-1. Below, the Court details the relevant Trust terms related to the settlor, protector, and trustees.

         i. Powers of Settlor

         Section 6.3 of the Trust grants the settlor (Kaplan) the power “to appoint any successor or additional Protector.” ECF No. 38-2 § 6.3. Section 6.13 states that “[n]otwithstanding anything in this Clause 6 to the contrary, the Settlor during his lifetime and while he is not Incapacitated shall have the power to remove Protectors, with or without cause, and to appoint replacements for Protectors so removed.” Id. § 6.13.

         ii. Powers of Protector

         The Trust terms provide for a protector with broad powers over the administration of the Trust. Section 12.1 of the Trust provides that “[t]he power of removing Trustees and appointing new or additional Trustees shall be vested in the Protector for the time being hereof, ” and under Section 12.3, that power of removal “shall be exercisable without any reason being given for such removal.” Id. §§ 12.1, 12.3. The Protector also has the power, inter alia, “to consent to changes in class of Beneficiaries, ” “to consent to early termination of the Trust Period, ” and to direct “the Trustees [to] pay or apply the whole or any part of [sic] parts of the income or capital of the Trust Fund for the benefit of all or any one or more exclusive of the other or others of the Beneficiaries.” Id. at 15 ¶ 1.

         Furthermore, under Section 6.7 of the Trust, “[n]o person acting as Protector shall owe any fiduciary duty to, or be accountable to, any Beneficiary of any Trust, or to the Trustees, in relation to the powers of the Protector, as such, hereunder, it being the intention that in the absence of fraud, each Protector will be free from any liability whatsoever relating to the Protector's acts as Protector.” Id. § 6.7.

         The Trust terms also limit the protector's power by directing that “no Beneficiary may be a Protector” and “[n]o Protector shall participate in any decision to consent to any decision of the Trustees to pay income or capital to or for the benefit of himself.” Id. § 6.10.

         iii. Powers of Trustees

         Finally, trustees are authorized to make distributions and otherwise dispose of the trust's assets and to end the trust at any time. Id. § 1.6. Additionally, Section 11 explains that “Trustees may (with the consent of the Protector) pay out of the capital or income of the Trust Fund any taxes of any kind which become payable (whether or not enforceable) anywhere in the world in respect of any part of the Trust Fund or its income either by the Trustees or by any person who has transferred property to this Trust or by any Beneficiary notwithstanding that the payment of taxes may be prejudicial to one or more of the Beneficiaries.” Id. § 11.

         b. Procedural History

          In 2014, the United States Tax Court ruled that Kaplan earned taxable income from the 2004 and 2005 sales of his shares in BetOnSports. Consequently, on February 24, 2016, the Internal Revenue Service (“IRS”) placed levies on assets transferred by Kaplan to plaintiff.

         On March 4, 2016, plaintiff Nineveh filed suit in this Court, alleging that the levied assets were not taxable property belonging to Kaplan, but only to plaintiff and the Trust. The Complaint set forth a single count, for wrongful levy, and sought return of the levied assets, with interest and costs. Plaintiff also filed suit in the Bahamian Supreme Court, a trial-level tribunal, against Kaplan for determination of “the rights of the discretionary beneficiaries” of the Trust. The United States was invited to “participate” in the Bahamian proceedings but declined to do so. On July 6, 2017, the Bahamian Supreme Court issued an Order (“July 6, 2017 Order”), ruling that the levied assets “do not form a part of the personal assets of Gary Kaplan.” On October 23, 2017, plaintiff filed a Motion for Application of Foreign Law Pursuant to Federal Rule of Civil Procedure 44.1. Plaintiff urged this Court to adopt the July 6, 2017 Order as evidence of the substance of Bahamian law pursuant to Rule 44.1 or, in the alternative, to adopt that Order under principles of international comity. This Court denied plaintiff's Motion for Application of Foreign Law in a December 5, 2017 Memorandum and Order. In that Memorandum and Order, the Court concluded that plaintiff had failed to prove the substance of Bahamian law under Rule 44.1 and the United States' immunity to suit in foreign courts precluded adoption of the July 6, 2017 Order under principles of comity. The Court also determined that because plaintiff had failed to prove the substance of foreign law, Pennsylvania law, the law of the forum, governed the case, pursuant to Third Circuit precedent.

         Plaintiff now seeks reconsideration of the December 5, 2017 Memorandum and Order. Plaintiff filed its Motion on December 17, 2017, and the United States responded on January 9, 2018. A reply and sur-reply were filed on January 23, 2019, and January 29, 2019, respectively. After unsuccessful settlement discussions, the parties submitted additional briefing on choice of law issues and the substance of Bahamian law (Document No. 65, filed August 10, 2018; Document No. 66, filed September 17, 2018; Document No. 69, filed October 15, 2018, and Document No. 70, filed November 12, 2018).

         Plaintiff's Motion is now ripe for decision.


         Only three situations warrant granting reconsideration: “(1) an intervening change in the controlling law; (2) the availability of new evidence that was not available when the court [issued its order]; or (3) the need to correct a clear error of law or fact or to prevent manifest injustice.” Max's Seafood Cafe v. Quinteros, 176 F.3d 669, 677 (3d Cir. 1999). The moving party has the burden of establishing one of these grounds. Blystone v. Horn, 664 F.3d 397, 415 (3d Cir. 2011). The grant or denial of reconsideration lies within the discretion of the district court. N. River Ins. Co. v. CIGNA Reinsurance Co., 52 F.3d 1194, 1218 (3d Cir. 1995).

         The scope of a motion for reconsideration is “extremely limited” and should not be used to relitigate the case. Blystone, 664 F.3d at 415. A motion for reconsideration “addresses only factual and legal matters that the Court might have overlooked.” Glendon Energy Co. v. Borough of Glendon, 836 F.Supp. 1109, 1122 (E.D. Pa. 1993) (internal citation omitted). “It is improper on a motion for reconsideration to ask the Court to rethink what it already thought through-rightly or wrongly.” Id. (citation omitted).


         In its Motion and subsequent submissions, plaintiff argues that the Court should reconsider its December 5, 2017, Memorandum and Order in light of plaintiff's supplemental evidence of Bahamian law. Plaintiff contends that its submissions adequately prove the substance of Bahamian law and that Supreme Court precedent requires application of Bahamian law to the case. Mem. L. Supp. Mot. Recons. 2-3. The United States responds that the Court should not consider plaintiff's additional evidence of Bahamian law, plaintiff's analysis of Bahamian law is incorrect, and under a federal choice of law analysis, the Court should apply Pennsylvania law. U.S.' Opp'n to Nineveh's Mot. Recons. 5; U.S. Mem. Regarding C.O.L. & Substance Applicable Bahamian L. (“U.S. Mem. C.O.L.”) 17.

         For the reasons stated below, the Court will consider the parties' additional evidence of Bahamian law. Specifically, the Court will determine whether the substance of Bahamian law has been proven on an issue-by-issue basis and will apply the doctrine of depecage. The Court concludes that (1) plaintiff has met its burden of proving foreign law as to the issue of interpretation of the Trust; (2) plaintiff has not met its burden of proving foreign law as to other issues in the case, and the Court thus assumes that Bahamian law is the same as the law of the forum as to those issues; (3) ...

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