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United States v. Wilhite

United States District Court, D. Colorado

March 14, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
MICHAEL DAVID WILHITE, Defendant.

          ORDER GRANTING THE GOVERNMENT'S MOTION FOR ENTRY OF DECREE OF SALE AND TO APPOINT A RECEIVER TO ENFORCE LIEN

          CHRISTINE M. ARGUELLO UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the Government's Motion for Entry of Decree of Sale and to Appoint a Receiver to Enforce Lien, wherein the Government argues that Advanced Floor Concepts (AFC) should be sold pursuant to 28 U.S.C. § 7403(c) to satisfy Defendant Michael Wilhite's long-outstanding restitution obligations. (Doc. # 168.) Mr. Wilhite and his wife Darla Wilhite (the Wilhites, collectively) challenge the motion (Doc. # 177), and for the following reasons, the Court grants it.

         I. BACKGROUND

         Mr. Wilhite owes the Government at least $1, 714, 708.79 in restitution. In 2015, the Government filed an Application for Writ of Execution upon “the personal property of [Mr. Wilhite], which his wife, Darla Wilhite . . ., holds as a nominee.” (Doc. # 30.) The Clerk issued the Writ of Execution to the United States Marshal, commanding, as pertinent here, the sale of Mr. Wilhite's interest in AFC. (Doc. # 31.) Mrs. Wilhite filed a motion to quash the Writ, reasoning that Mr. Wilhite has no ownership interest in AFC because it is solely owned and operated by Mrs. Wilhite. (Doc. # 36 at ¶ 5.) In 2016, the Court denied the motion to quash and determined that Mr. Wilhite does, indeed, have an equitable interest in AFC. (Doc. ## 121, 159.) On October 13, 2017, this Court specifically concluded that Mr. Wilhite has a 73.9% interest in AFC and Mrs. Wilhite has a 26.1% interest. (Ownership Order) (Doc. # 159.) The Court also concluded that Mr. Wilhite's 73.9% interest constitutes property under the federal tax lien statute and the Federal Debt Collection Procedures Act (FDCPA) and that such 73.9% interest may be subject to levy or collection by the Government to satisfy Mr. Wilhite's substantial and long-outstanding restitution obligations. (Id.)

         In the instant motion, the Government, seeking to levy on that 73.9% interest, argues that a forced sale of AFC is the most appropriate mechanism for doing so. (Doc. # 168 at 1.) The Government also requests that a receiver be appointed to manage the sale. (Doc. # 168 at 1.)

         The Wilhites object to the sale of AFC, arguing primarily that the Government only has the right to seize Mr. Wilhite's individual interest in AFC, not to sell the entire company. For the same reasons, the Wilhites also contend that there is no justification or authority for appointing a receiver in this case. (Id. at 11-15.)

         II. SALE OF AFC

         Mr. Wilhite's restitution obligation was imposed under the Mandatory Victim's Restitution Act (MVRA) and created a lien in favor of the Government. 18 U.S.C. 3613(a). The Government's action to enforce its lien in this case is therefore “in every real sense a proceeding in court to collect a tax.” United States v. Holmes, 727 F.3d 1230, 1235 (10th Cir. 2013).

         The reach of a federal tax lien is broad. It provides:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal[1], belonging to such person.

26 U.S.C. § 6321 (emphasis added.) Congress intended the lien “to reach every interest in property that a taxpayer may have.” United States v. National Bank of Commerce, 472 U.S. 713, 719-20 (1985). “Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes.” U.S. v. Craft, 535 U.S. 274 (2002).

         Although broad, a federal tax lien may only reach a debtor's “property or rights to property” to the extent that state law recognizes the subject interest as property. Id. at 722. In other words, the government “steps into the shoes of the [debtor] and acquires whatever rights to the property the [debtor] possessed” under state law. Kane v. Captical Guardian Trust Co, 145 F.3d 1218, 1221 (10th Cir. 1998.) In looking to state law, courts consider “the substance of the rights state law provides, not merely the labels the State gives these rights or the conclusions it draws from them.” Craft, 535 U.S. at 279.

         This Court has already concluded that Mr. Wilhite has a 73.9% ownership[2] interest in AFC under Colorado state law, and that this 73.9% interest constitutes property or rights to property under the federal tax lien statute. (Doc. # 159 at 16.) See Craft, 535 U.S. at 286 (The federal tax lien attaches to “an individual partner's interest in the partnership, that is, to the fair market value of his or her share in the partnership assets.”); LaFond v. Sweeney, 345 P.3d 932, 939 (Colo.App. 2012); aff'd, 343 P.3d 939 (Colo. 2015) (partnership law principles provide guidance when examining LLCs because they share many important characteristics and the language of the acts are similar).

         As a holder of this lien, the Government, stepping into Mr. Wilhite's shoes, is entitled to, at a minimum, a “share of the profits and losses, ” the “right to receive distributions” of AFC's assets, including any proceeds from dissolution, and many other rights set forth in AFC's Operating Agreement. Colo. Rev. Stat. §§ 7-80-102 (9-10); 7-80-108(1)(a); see United States v. Triangle Oil, 277 F.3d 1251, 1255 (10th Cir. 2002) (a partner's interest generally consists of the ...


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