United States v. Estate of Sidney Elson et al

OPINION. Signed by Judge Kevin McNulty on 10/9/2019. (vm)

District of New Jersey, njd-2:2018-cv-11325

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4 PageID: 319 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY UNITED STATES OF AMERICA, Civ. No. 18-11325 (KM) (SCM) Plaintiff, OPINION V. ESTATE OF SIDNEY ELSON, EUGENE ELSON, SHEILA STRAUSS, JEFFERY ELSON, SHOSHANA BITTON AND MITCHELL NENNER, Defendant(s). KEVIN MCNULTY, U.S.D.J.: The government's complaint asserts a claim under Section 6324(b) of the Internal Revenue Code for gift taxes owed by defendants as donees. Now before the court are the motions of defendants Sheila Strauss and Mitchell Nenner to dismiss the complaint for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6), which I construe as a motion for judgment on the pleadings, pursuant to Federal Rule of Civil Procedure 12(c). Defendants' motions assert that the government's claims are time-barred and that the government has failed to comply with certain individual-assessment procedures necessary to hold them liable. For the reasons stated herein, defendants' motions to dismiss are denied. 1 4 PageID: 320 I. Summary1 This action arises as a result of gifts Sidney Elson made to several individuals, including the two defendants who bring these motions to dismiss. (Compl. ¶ 10) In relevant part, defendants concede that in 2004, Mr. Elson made the following gifts: a. To Sheila Strauss: real property located at 1875 Springfield Avenue in Maplewood, New Jersey with a value of $345,000 and a 15% interest in the Penn Tool Company with a value of $164,016 for a total of $509,016. b. To Mkchell Nenner: Real property located at 820 Mountain Avenue in Springfield, New Jersey worth $455,000. (Compl. ¶IJ 21, 46) (see, e.g. S.MTD at 4 ("Sidney Elson made gifts to the Defendants"); M.MTD at 4 (same)) Mr. Elson did not file a gift tax return in 2004, and had not done so at the time he died in 2006. (Id. ¶ 12) The parties appear to agree that in 2009 Sheila Strauss, as Executrix, filed a gift tax return on behalf of Mr. Elson's estate. (Id. ¶ 13; S.MTD at 4, M.MTD at 4) The government alleges that the return reported certain gifts and reported a gift liability of $80,300. (Compl. ¶ 13) After the Internal Revenue Service ("IRS") audited the return, however, it concluded that the return failed to report additional gifts. The government asserts that in 2009, it assessed the Estate of Sidney Elson additional gift taxes in the amount of $374,131 and sent notice of that assessment to the Estate. (Id. ¶J 15, 17) For ease of reference, certain key items from the record will be abbreviated as follows: = Docket entry number in this case; "Compi." = The complaint filed by the government [DE 1]; "S.MTD" = Motion to dismiss filed by Sheila Strauss [DE 59]; "M.MTD" = Motion to dismiss filed by Mitchell Nenner [DE 60]; "Opp." = Opposition filed by the government [DE 65]; "Reply" = Joint reply filed by defendants [DE 67]. 2 4 PageID: 321 The Estate of Sidney Elson has made certain payments towards its gift tax liability: "$150,000 in 2009; $60,000 in 2011; and $136,000 in 2015 from the sale of the real estate transferred to Sheila Strauss." (Id. ¶ 18, 22) However, as of December 4, 2017, a total of $684,217.79 allegedly remained owing to the IRS. (Id. ¶ 19) On July 3, 2018, the government filed the complaint in this action. On August 13, 2018, both defendants answered the complaint. (DE 20; 22) Defendants asserted four affirmative defenses including the statute of limitations and failure to provide required notice. (DE 20 at 7; DE 22 at 7) On Februaw 4, 2019, the government submitted its responses and objections to defendants' first requests for document production. (DE 59-1; DE 60-1) Defendants note that these discovery responses fail to establish that the government ever sent them individual assessments for taxes owed, pursuant to 26 U.S.C. § 6901. On May 6, 2019, Defendants moved to dismiss the complaint for failure to state a claim under Federal Rule of civil Procedure 12(b)(6). (DE 59, 60) The government opposed those motions, arguing inter alia that they were procedurally defective. (DE 65). In their reply, the defendants requested that the court convert their motions to dismiss into motions for summary judgment. (DE 67) H. Discussion a. Procedural issues with defendants' 12(b)(6) motions As a threshold matter, I must decide first whether it was procedurally proper for defendants to: (1) move to dismiss after filing an answer; and (2) rely on evidence outside of the pleadings. Defendants filed their rule 12(b)(6) motions after answering the complaint. It is true, of course, that a Rule 12(b)(6) motion to dismiss a complaint "must be filed before any responsive pleading." Thrbe a Gou't of VI., 938 F.2d 427, 428 (3d Cir. 1991). Still, a motion for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c) may be filed at any time, and may be the 3 4 PageID: 322 functional equivalent of a motion to dismiss. Federal Rule of Civil Procedure 12(h)(2) "provides that a defense of failure to state a claim upon which relief can be granted may also be made by a motion for judgment on the pleadings." Thrbe v. Govt of Virgin Islands, 938 F.2d 427, 428 (3d Cir. 1991). Accordingly, when a Rule 12(c) motion asserts that the complaint fails to state a claim, the familiar Rule 12(b)(6) standards apply. Id. It is therefore fairly routine to simply recharacterize a post-answer 12(b)(6) motion as a Rule 12(c) motion for judgment on the pleadings. Having done so, I would proceed to analyze it under Rule 12(b)(6) standards. Those Rule 12(b)(6) standards provide that the facts alleged in the complaint are accepted as true and all reasonable inferences are drawn in favor of the plaintiff. New Jersey Carpenters & the Trustees Thereof ii. Tishman Const. Corp. of New Jersey, 760 F.3d 297, 302 (3d Cir. 2014). "[A] plaintiffs obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell AU. Corp. v. Twomhly, 550 U.S. 544, 555 (2007). Thus, the complaint's factual allegations must be sufficient to raise a plaintiffs right to relief above a speculative level, so that a claim is "plausible on its face." Twombly, 550 U.S. at 570; see also West Run Student Hous. Assocs., LLC v. Huntington Nat. Bank, 712 F.3d 165, 169 (3d Cir. 2013). Where a motion to dismiss attaches or relies on documents extrinsic to the pleadings, the court must first consider whether such documents may permissibly be considered. In general, the Court in considering a Rule 12(b)(6) motion is confined to the allegations of the complaint, with narrow exceptions: "Although phrased in relatively strict terms, we have declined to interpret this rule narrowly. In deciding motions under Rule 12(b)(6), courts may consider "document[sJ integral to or explicitly relied upon in the complaint," In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (emphasis in original), or any "undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiffs claims are based on the document," PBGC v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993)." 4 4 PageID: 323 In re Asbestos Products Liability Litigation (No. VI), 822 F.3d 125, 134 n.7 (3d Cir. 2016). The documents attached to the defendants' motions consist of discovery responses. These I will not consider under Rule 12(b)(6) because they are not cited in the complaint and the government's claims are not based on them. See id. The defendants, however, propose another solution. In their reply brief, they request that the court convert their motion to one for summary judgment. (d) Result of Presenting Matters Outside the Pleadings. If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion. Fed. R. Civ. p. 12(d). When presented with extrinsic documents not properly considered on a motion to dismiss, the Court may of course simply disregard them; otherwise, it "may either deny the motion or convert it into a motion for summary judgment, providing the parties with a schedule for submission of statements in compliance with Local Civil Rule 56.1, supplemental briefs, and any supplemental evidence they deem necessary." Dix a Total Petrochemicals USA, Inc., No. 10—3196, 2011 WL 2474215, at*2 (D.N.J. June 20, 2011). The decision whether to convert a motion to dismiss into a summary judgment, however, is a discretionary one. See Telfair v. Tandy, No. 08—73 1, 2009 WL 2132433, at *3 (D.N.J. July 13, 2009) ("A court deciding a motion to dismiss has the discretion to accept materials beyond the pleadings and then convert the motion into one for summary judgment") (citing Gunson a James, 364 F.Supp.2d 455, 460—61 (D.N.J.2005)). I choose not to exercise my discretion in this manner, for two reasons. First, a motion for summary judgment is premature; I adhere to the usual rule that summary judgment motions are best considered at the close of fact discovery. This ensures an orderly procedure and saves the court from 5 4 PageID: 324 serial motions brought by parties to exploit some temporary advantage in the discovery process. Second, the defendants have invoked summary judgment only in their reply brief. To give the government a fair chance to respond would require the court to initiate a wasteful, additional round of briefing. The defendants' motions to dismiss, construed as motions for judgment on the pleadings, are thus denied to the extent they are based on the extrinsic documents. b. Claims under Section 6324(b) I conclude, however, that I may profitably address the motions to dismiss without resort to reliance on extrinsic documents, because the motions pose issues of law. The defendants assert two essential grounds for dismissal: 1. That the claims are untimely because the ten-year limitation on a statutory' gift tax lien under 26 U.S.C. § 6324(b) has expired. 2. That the government failed to file a required individual assessment against them pursuant to 26 U.S.C. § 6901, and that any such assessment would now be untimely. As to the first issue, I hold herein as a matter of law that the ten-year lien limitation period does not apply. As to the second, I hold as a matter of law that the government was not required to impose an individual § 6901 assessment in order to bring this action; thus it is not necessary to resort to extrinsic documents to determine whether the government in fact did so. 1. Section 6324(b), Sentence 1 and Sentence 2 In its complaint, the government asserts a claim pursuant to 26 U.S.C. § 6324(b). Each defendant, says the government, is personally liable for gift taxes to the extent of the value of the property he or she received by gift from Sidney Elson (or his Estate). Defendants Strauss and Nenner do not dispute that they are donees under § 6324(b). Nevertheless, they say, the government's claims 6 4 PageID: 325 are subject to § 6324(b)'s ten-year limitation period for gift tax liens, and are now time-barred. Section 6324(a) concerns special liens and personal/transferee liability for estate taxes, and section 6324(b) for gift taxes.2 As relevant here, the overall 2 Because they are both referred to in the discussion, I here quote Sections 6324(a) & (b) in full: (a) Liens for estate tax. Except as otherwise provided in subsection (c)— (1) Upon gross estate Unless the estate tax imposed by chapter 11 is sooner paid in full, or becomes unenforceable by reason of lapse of time, it shall be a lien upon the gross estate of the decedent for 10 years from the date of death, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction ther