MEMORANDUM OPINION AND ORDER
GEORGE LIMBERT, Magistrate Judge
Leia Mason ("Plaintiff"), acting on behalf of S.E., a minor ("Claimant"), seeks judicial review of the final decision of Michael J. Astrue ("Defendant"), Commissioner of the Social Security Administration ("SSA"), denying Claimant's Supplemental Security Income ("SSI") claim. ECF Dkt. #1. Plaintiff asserts that the Administrate Law Judge ("ALJ") erred in: (1) finding that Claimant did not have marked limitations in the domains of "attending and completing tasks" and "health and physical well-being" and (2) not giving any weight to the opinions of Claimant's treating medical providers. ECF Dkt. #15. For the following reasons, the Court REVERSES the ALJ's decision and REMANDS this case for further factfinding, analysis, and articulation by the ALJ:
I. PROCEDURAL HISTORY
On September 16, 2005, Plaintiff, acting on behalf of Claimant, protectively filed an application for SSI, alleging disability beginning August 23, 2005 due to attention deficit hyperactivity disorder (ADHD), depression, hallucinations, a learning disability, borderline intellectual functioning (BIF), and obsessive compulsive disorder (OCD). Tr. at 87-89, 94. The application was denied initially and on reconsideration. Id. at 78, 84. Plaintiff filed a request for a hearing by an ALJ. Id. at 77.
On August 22, 2008, an ALJ conducted an administrative hearing, where Plaintiff and Claimant were represented by counsel. Tr. at 450. At the hearing, the ALJ received testimony from Claimant, Plaintiff, and medical expert Dr. Kathleen O'Brien, M.D. Id. On September 5, 2008, the ALJ issued a Notice of Decision — Unfavorable. Tr. at 14-24. On March 25, 2009, the Appeals Council denied Plaintiff's request for review. Id. at 4.
On May 19, 2009, Plaintiff filed the instant suit seeking review of the ALJ's decision. ECF Dkt. #1. On November 14, 2009, Plaintiff filed a brief on the merits. ECF Dkt. #15. On January 14, 2010, Defendant filed a brief on the merits. ECF Dkt. #17. Plaintiff filed no reply.
II. STEPS TO DETERMINING ELIGIBILITY FOR SOCIAL SECURITY BENEFITS FOR A CHILD
In order to receive SSI benefits, Claimant must show that she has a medically determinable physical or mental impairment which results in marked and severe functional limitations, and that is expected to cause death or that has lasted or can be expected to last for a continuous period of not less than twelve months. 20 C.F.R. § 416.906. An ALJ must proceed through the required sequential steps for evaluating entitlement to childhood disability insurance benefits. 20 C.F.R. § 416.924(a). The three-step procedure requires the ALJ to determine whether a child: (1) is performing substantial gainful activity; (2) has a "severe" impairment or combination of impairments; and (3) whether the impairment or combination of impairments are of listing-level severity in that the impairment(s) either meets, medically equals or are the functional equivalent in severity to a listed impairment. Id.
In order to meet a Listing, the child's impairment(s) must be substantiated by medical findings shown or described in the listing for that particular impairment. 20 C.F.R. § 416.925(d) (emphasis added). In order to medically equal a Listing, a child's impairment(s) must be substantiated by medical findings at least equal in severity and duration to those shown or described in the listing for that particular impairment. 20 C.F.R. § 416.926(a) (emphasis added). In order to functionally equal a Listing, the child's impairment(s) must be of listing-level severity; i.e., it must result in "marked" limitations in two domains of functioning or an "extreme" limitation in one domain. 20 C.F.R. § 416.926a(a) (emphasis added). The SSA assesses all relevant factors, including (1) how well the child initiates and sustains activities, how much extra help she needs, and the effects of structured or supportive settings; (2) how the child functions in school; and (3) how the child is affected by her medications or other treatment. 20 C.F.R. § 416.926a(a)(1)-(3). Further, the SSA considers how a child functions in her activities within six domains: "(i) Acquiring and using information; (ii) Attending and completing tasks; (iii) Interacting and relating with others; (iv) Moving about and manipulating objects; (v) Caring for yourself; and, (vi) Health and physical well-being." 20 C.F.R. § 416.926a(b)(1)(i)-(vi).
III. STANDARD OF REVIEW
Under the Social Security Act, the ALJ weighs the evidence, resolves any conflicts, and makes a determination of disability. This Court's review of such a determination is limited in scope by § 205 of the Act, which states that the "findings of the Commissioner of Social Security as to any fact, if supported by substantial evidence, shall be conclusive." 42 U.S.C. § 405(g). Therefore, this Court's scope of review is limited to determining whether substantial evidence supports the findings of the Commissioner and whether the Commissioner applied the correct legal standards. Abbott v. Sullivan, 905 F.2d 918, 922 (6th Cir. 1990). The Court cannot reverse the decision of an ALJ, even if substantial evidence exists in the record that would have supported an opposite conclusion, so long as substantial evidence supports the ALJ's conclusion. Walters v. Comm'r of Soc. Sec., 127 F.3d 525, 528 (6th Cir. 1997). Substantial evidence is more than a scintilla of evidence, but less than a preponderance. Richardson v. Perales, 402 U.S. 389, 401 (1971). It is evidence that a reasonable mind would accept as adequate to support the challenged conclusion. Id.; Walters, 127 F.3d at 532. Substantiality is based upon the record taken as a whole. Houston v. Sec'y of Health and Human Servs., 736 F.2d 365 (6th Cir. 1984).
IV. ANALYSIS
The ALJ found that Claimant had the severe impairments of BIF, ADHD, Learning Disorder, and OCD. Tr. at 17. In finding that none of Claimant's severe impairments met, equaled, or functionally equaled a Listing, the ALJ relied upon the findings and conclusions of medical expert Dr. O'Brien. Id. Based upon Dr. O'Brien's opinion, the ALJ found that Claimant had "less than marked" limitations in all of the childhood domains. The ALJ further found that substantial evidence contradicted treating psychologist Dr. Cunningham's findings of marked limitations in two domains since Dr. O'Brien had access to this information and found less than marked limitations in all domains. Tr. at 17-18. The ALJ also found that Dr. Cunningham's findings were contradicted by the reports that Claimant was taking Prozac, which was working for her OCD, she had no treatment or medication for her ADHD, reports indicated Claimant was doing well, and she had friends. Id. at 18. The ALJ further indicated that the record showed that despite her obesity, Claimant engaged in physical activities such as roller skating, which required balance, coordination and physical effort. Id. The ALJ also indicated that despite her BIF, Claimant played the trumpet, which required a great deal of concentration, the ability to read music, and physical effort, coordination, and dexterity. Id.
Plaintiff first contends that the ALJ erred in finding that Claimant did not have marked limitations in the domains of "attending and completing tasks" and in "health and physical well-being." ECF Dkt. #15 at 1. Plaintiff argues that the ALJ's analysis of the domains was very brief, occupying a few short paragraphs of a ten-page decision, with the rest of the pages containing mere recitation of the regulations regarding the domains and a conclusory sentence at the end of each domain finding that Claimant had less than marked limitation in the domain. Id. at 12-13.
The Court agrees that the ALJ's analysis was indeed brief. Of the ten-page decision, the only portion that is not a mere recitation of law and regulations is one paragraph regarding Plaintiff's filing date for Claimant and the identification of those who appeared at the hearing, and five short paragraphs constituting less than one page in which the ALJ explained his conclusion that Claimant's severe impairments did not meet, equal or functionally equal any Listing in the Listing of Impairments. Tr. at 14, 17-18. The remaining six pages of the ALJ's decision merely set forth the standards for determining functional equivalence, and set forth the regulations regarding the six domains of function with a conclusory sentence stating that Claimant had less than marked limitations in each of the domains. Id.
A brief analysis is not in and of itself erroneous. Here, the ALJ relied upon the opinions of Dr. O'Brien, the medical expert, in finding that Claimant had less than marked limitations in each of the domains. Tr. at 17. The ALJ also stated that he did not give controlling weight to the July 2008 opinion of Dr. Cunningham, Claimant's treating psychologist, who had found that Claimant was markedly limited in the domains of "acquiring and using information" and "attending and completing tasks." Id. at 17-18. As support for his finding, the ALJ explained that Dr. Cunningham had earlier found in June 2007 that Claimant had marked limitations in "acquiring and using information" and "health and physical well-being" without any explanation. Id. The ALJ further stated that Dr. O'Brien had access to all of the evidence in the case and substantial evidence contradicted Dr. Cunningham's opinion because medication was working for Claimant's OCD, Claimant received no treatment or medication for her ADHD, and she engaged in physical activities like roller skating and playing the trumpet despite her BIF. Id. at 18.
An ALJ must adhere to certain standards when reviewing medical evidence in support of a claim for social security. Most importantly, the ALJ must generally give greater deference to the opinions of the claimant's treating physicians than to those of non-treating physicians. SSR 96-2p, 1996 WL 374188 (July 2, 1996); Wilson, 378 F.3d at 544. A presumption exists that the opinion of a treating physician is entitled to great deference. Id.; Rogers v. Comm'r of Soc. Sec., 486 F.3d 234, 243 (6th Cir. 2007). Accordingly, if that presumption is not rebutted, the ALJ must afford controlling weight to the opinion of the treating physician if that opinion regarding the nature and severity of a claimant's conditions is "well-supported by medically acceptable clinical and laboratory diagnostic techniques and is not inconsistent with other substantial evidence in [the] case record." Wilson, 378 F.3d at 544. "The determination of disability is [ultimately] the prerogative of the [Commissioner], not the treating physician." Warner v. Comm'r of Soc. Sec., 375 F.3d 387, 390 (6th Cir. 2004) quoting Harris v. Heckler, 756 F.2d 431, 435 (6th Cir. 1985). When an ALJ determines that a treating physician's opinion is not entitled to controlling weight, he must consider the following factors in determining the weight to give to that opinion: the length, frequency, nature, and extent of the treatment relationship; the supportability and consistency of the physician's conclusions; the specialization of the physician; and any other relevant factors. Id.
If an ALJ decides to discount or reject a treating physician's opinion, he must provide "good reasons" for doing so. SSR 96-2p. The ALJ must provide reasons that are "sufficiently specific to make clear to any subsequent reviewers the weight the adjudicator gave to the treating source's medical opinion and the reasons for that weight." Id. This allows a claimant to understand how his case is determined, especially when he knows that his treating physician has deemed him disabled and he may therefore "`be bewildered when told by an administrative bureaucracy that he is not, unless some reason for the agency's decision is supplied.'" Wilson, 378 F.3d at 544 quoting Snell v. Apfel, 177 F.3d 128, 134 (2d Cir. 1999). Further, it "ensures that the ALJ applies the treating physician rule and permits meaningful appellate review of the ALJ's application of the rule." Id. If an ALJ fails to explain why he rejected or discounted the opinions and how those reasons affected the weight accorded the opinions, this Court must find that substantial evidence is lacking, "even where the conclusion of the ALJ may be justified based upon the record." Rogers, 486 F.3d at 243, citing Wilson, 378 F.3d at 544. Unless the ALJ's failure to abide to these procedural requirements amounts to harmless error, the error is cause for remanding the case. Carroll v. Astrue, No. 1:09-CV-1232, 2010 WL 2643420, at *5 (N.D. Ohio July 1, 2010). The Sixth Circuit has explained that an ALJ's "failure to follow the procedural requirement of identifying the reasons for discounting the opinions and for explaining precisely how those reasons affected the weight" given "denotes a lack of substantial evidence, even where the conclusion of the ALJ may be justified based upon the record." Id., quoting Rogers, 486 F.3d 234, 243 (6th Cir. 2007).
In this case, the ALJ indicated that he was crediting Dr. O'Brien's testimony and opinions and offers reasons for adopting her testimony and opinions. Tr. at 17. While it is true that a medical expert's testimony that is consistent with the evidence of record constitutes substantial evidence to support the ALJ's decision, Atterberry v. Secretary of Health and Human Servs., 871 F.2d 567, 570 (6th Cir. 1989), the ALJ cannot disregard the treating physician rule and the procedural requirements accompanying the rule when doing so. The ALJ further cited evidence of record in support of his finding. Tr. at 17-18.
However, the ALJ failed to articulate the weight, if any, that he afforded Dr. Cunningham's June 2007 or July 2008 opinions. Tr. at 18. As Social Security Ruling (SSR) 96-2p provides: "A finding that a treating source's medical opinion is not entitled to controlling weight does not mean that the opinion is rejected. It may still be entitled to deference and adopted by the adjudicator." Even when the ALJ believes that the treating physician's opinion is inconsistent with other evidence, "a treating source's medical opinions remain entitled to deference and must be weighed using the factors provided in 20 C.F.R. § 404.1527 and 416.927." Friend v. Comm'r of Soc. Sec., 2010 WL 1725066, at *8 (6th Cir. Apr. 28, 2010), citing Blakely v. Comm'r of Soc. Sec., 581 F.3d 399, 408 (6th Cir. 2009). The ALJ did not follow this procedural requirement in the instant case.
Moreover, the ALJ fails to even mention the opinions of Claimant's treating psychiatrist, Dr. Don Howe, who indicated that Claimant had a marked limitation in "attending and completing tasks," moderate limitations in "interacting and relating with others" and "caring for self", and an extreme limitation in "health and physical well-being" when Claimant was not taking her medications. Tr. at 320-321. "A failure to follow the procedural requirement `of identifying the reasons for discounting the opinions and for explaining precisely how those reasons affected the weight accorded the opinions denotes a lack of substantial evidence, even where the conclusion of the ALJ may be justified based upon the record.'" Friend, 2010 WL 1725066, at 8, quoting Rogers, 486 F.3d at 243; see also Wilson, 378 F.3d at 546 (a reviewing court "cannot excuse the denial of a mandatory procedural protection simply because . . . there is sufficient evidence in the record of the ALJ to discount the treating source's opinion and, thus, a different outcome on remand is unlikely").
In addition, the ALJ and the medical expert concentrated upon the fact that Claimant's impairments improved with medication, which began occurring in 2006, but they failed to address earlier reports and opinions regarding the degrees of limitation in the domains, especially considering the durational requirement of twelve months or more for finding disability and Claimant's filing date for SSI dated back to September 16, 2005. 20 C.F.R. § 416.905(a). For example, the ALJ noted that he considered Plaintiff's testimony of Claimant's serious episodes of picking her skin, but it was "contradicted by the current medical report." Tr. at 18. Dr. O'Brien also testified in reference to Dr. Cunningham's findings of marked limitations that "I'm going by the provider saying that she's [Claimant] made significant progress and it's not a problem anymore." Id. at 469. She further testified in reference to Claimant that ". . . she's responded very well to treatment and she's doing less of it [picking her skin on her arms] and it seems to be an improved condition, an improved medical condition." Id. at 470-471. However, neither the ALJ nor the medical expert discuss earlier reports about Claimant's intense behavior in picking her face and skin or the indications that Claimant still picks at her arm. See Tr. at 287, 332, 339-340, 474. Nor does the ALJ address whether Claimant's other impairments, such as OCD, ADHD or BIF met, equaled or functionally equaled a Listing during the relevant time period, as opposed to discussing only the most recent examinations and results. And the ALJ fails to address the fact that Claimant receives special accommodations at school for her impairments and the impact of these accommodations upon the domains, a subject approached by Claimant's attorney with the medical expert at the hearing, with unclear results. Tr. at 163-168, 206-281, 291-293, 332, 353, 395-421.
The Court makes no determination as to whether Claimant meets this durational requirement but merely points out that the ALJ and medical expert appear to base their determinations primarily on recent evidence of record.
The Court also calls attention to the medical expert's vague testimony regarding a narrative which accompanied Claimant's scores on the Behavior Assessment System for Children (BASC) and their significance. Tr. at 471. Claimant's attorney asked Dr. O'Brien about results from the BASC conducted October 31, 2005 by school psychologist Mary Lou Fasko, with additional reports by Claimant's teachers. Id. at 217. The BASC showed "Very Significant" scores in "Atypicality" and "Internalization," and "Significant" scores in "Learning Problems," "Withdrawal," "Depression," "Somatization," and "Behavior Symptom Index." Id. Dr. O'Brien admitted that the deviations in "Atypicality," "Internalization," and "Somatization" were significant, but she explained that she did not know how the test was administered, whether by self-reporting or other methods. Id. at 472. Dr. O'Brien indicated that she relied upon the narrative accompanying the results of the BASC in finding that Claimant "definitely has limitations, they are just not marked limitations." Id. Dr. O'Brien read from the following from the narrative:
she has average behaviors and adaptive skills. She can be polite, she can compliment others and is creative. She has other behaviors that they describe as more intense. They talk about her being shy and having difficulty with groups and having a short attention span. Weak academic skills. Sees things that are not there. I don't know where that comes from because that's nowhere in the psychiatric record. Picks on arms and forehead. Her behaviors impact her ability to learn. She requires increased supervision and support to remain on task and specialized interventions to reduce anxiety. Again, I think that's consistent with my testimony that she definitely has limitations, they just are not marked limitations.
Id. at 472. The narrative did state that to which Dr. O'Brien testified.
Id. at 217. However, the narrative stated that Claimant picks at her arms and forehead "until they bleed."
Id. It further states that Claimant has some behaviors "which are more intense that[sic] typically developing student[sic] her age."
Id. It also states that Claimant "makes careless errors," "throws tantrums," and "has difficulty when routines are changed."
Id. And contrary to Dr. O'Brien's testimony, the psychiatric record does indicate that Claimant saw things that were not there. On October 31, 2005, Dr. Howe evaluated Claimant and indicated in his evaluation that Claimant had a "sudden severe onset" of "seeing bugs" two years ago.
Id. at 332. He noted that when the medication that Claimant was on stopped, she stopped seeing the bugs, but she continued to "feel crawling on her skin."
Id. Dr. Andre Prochoroff, a Pediatric Fellow for Dr. Manikum Moodley, evaluated Claimant on December 20, 2004 and also reported that Claimant had continued to pick at her skin and continued to complain of "bugs crawling" on her as she had complained since one year ago, one month after she began taking Adderall.
Id. at 383. Regardless, Dr. O'Brien fails to explain why she came to the conclusion that Claimant's limitations were not marked based upon the narrative accompanying the BASC. To the extent that the ALJ relied upon Dr. O'Brien's conclusions which resulted from review of this assessment and narrative, the ALJ lacked substantial evidence in which to do so.
For the foregoing reasons, the Court concludes that the ALJ failed to follow the treating physician rule with regard to Drs. Cunningham and Howe, and failed to address earlier evidence of Claimant's impairments and explain whether her impairments met, equaled or functionally equaled the Listings, such as medical reports and findings, teacher reports, school psychologist reports and evaluations.
V. CONCLUSION
For the foregoing reasons, the Court REVERSES the ALJ's decision and REMANDS the instant matter for further factfinding, analysis, and articulation by the ALJ in accordance with this Memorandum Opinion Order.
IT IS SO ORDERED.
ourth Circuit reversed a district court for applying the state law with respect to collection of real estate taxes instead of the law of resulting trusts.
Thornton,
1988 WL 97278, at *3. Both the Sixth Circuit and the Tenth Circuit have emphasized that the district court must initially determine the taxpayer's property rights under state law.
Spotts v. United States,
429 F.3d 248, 252-54 (6th Cir. 2005);
Holman v. United States,
505 F.3d 1060, 1067-68 (10th Cir. 2007).
Ms. Primavera suggests that, as to Mr. Boggs' interest, the appropriate North Carolina law to apply in this case is that of resulting trusts or constructive trusts. (Reply to Opp'n by U.S. to Primavera's Mot. Summ. J. (Doc. 156) at 5-6.) "A resulting trust arises where a person makes or causes to be made a disposition of property under circumstances which raise an inference that he does not intend that the person taking or holding the property should have the beneficial interest therein and the beneficial interest is not otherwise effectively disposed of." Strange v. Sink, 27 N.C.App. 113, 116, 218 S.E.2d 196, 198 (1975). One circumstance that creates a resulting trust under North Carolina law is known as a purchase money resulting trust and occurs when one party provides the consideration for a purchase of property, but title is taken in another party's name.Taylor v. Gillespie, 66 N.C.App. 302, 306, 311 S.E.2d 362, 365 (1984). In this circumstance, the person who paid the consideration retains equitable title to the property even though another has legal title. Bowen v. Darden, 241 N.C. 11, 13, 84 S.E.2d 289, 292 (1954). In the present case, no consideration was provided for the transfer of the properties to Corredores (Primavera Aff. (Doc. 135) ¶ 6; Boggs' Resp. to Interrogs. (Doc. 141 Ex. 36) at 2), and Ms. Primavera and Mr. Boggs directly conveyed the property to Corredores. Therefore, a purchase money resulting trust is not applicable.
Ms. Primavera seems to argue that the law of resulting and constructive trusts leads to the conclusion that her transfer of the property to Corredores was a legal nullity from the outset, which the court should set aside as if it never happened, thus allowing her ownership rights to remain intact. (See Reply to Opp'n by U.S. to Primavera's Mot. Summ. J. (Doc. 156) at 5-7.) This section only discusses Mr. Boggs' legal position in relation to the properties at issue and will leave a discussion of Ms. Primavera's ownership rights until the next section.
However, the general principal of a resulting trust might still apply if the circumstances create an inference that the parties intended for legal title to be transferred to Corredores while beneficial title remained with Mr. Boggs. See Strange, 27 N.C.App. at 116, 218 S.E.2d at 198. The fact that Mr. Boggs continued to reside on one of the properties after the transfer and improved another of the properties without reimbursement might give rise to an inference that the parties intended a resulting trust. However, any implicit inference from these circumstances is undermined by the fact that the document creating Corredores explicitly states that the "Trustees" of Corredores, who are designated as John Crim and Cecil Dawson, are to hold the property for the benefit of the "Certificate holders," who are not specified in the document. (U.S.' Mem. Support Mot. Summ. J. (Doc. 141) Ex. 3 at 6.) Mr. Boggs' transfer of the property to an organization created explicitely for the benefit of other parties undermines an equitable inference that the parties intended for Mr. Boggs to retain beneficial title for himself. While the law of resulting trusts is potentially applicable to the government's claim, this court determines that, as discussed below, the law of fraudulent conveyances is more appropriately applied here.
In Thornton, the Fourth Circuit determined that the law of resulting trusts was the proper body of law in Maryland to determine the ownership of the land in question because it controlled "circumstances in which one person provides consideration to purchase property that is placed in the legal ownership of another." Thornton, 1988 WL 97278, at *3. As discussed above, no consideration was provided in this case. However, general principles of equity like those in the law of resulting trusts may still allow a court to determine the ownership of land in a case like this one. For instance, inUnited States v. Haddock, 144 F.Supp. 720 (E.D.N.C. 1956), the court relied on general principles of equity to determine that the defendant's transfer of land was an attempt to defraud the U.S. from collecting taxes and that, as a result, the defendant was the equitable owner of the land for the purpose of the U.S. attaching its lien. Id. at 725. This court does not apply equitable principles in this case because, as discussed below, North Carolina has codified the law of fraudulent conveyances in statutes, and that law is directly applicable to the situation at bar. Furthermore, the U.S. has pled the elements of a fraudulent conveyance in North Carolina, see infra note 6, but has not pled a theory based upon resulting trusts (see U.S.' Second Am. Answer, Countercl. Third-party Compl (Doc. 47)). Nevertheless, these equitable theories support the same result reached by this court. See infra note 10.
The law of constructive trusts, suggested by Ms. Primavera, is also not the most appropriate state law in this case. A constructive trust arises when a person "obtains legal title to property in violation of a duty" he or she owes to another.Miller v. Rose, 138 N.C.App. 582, 591, 532 S.E.2d 228, 234 (2000) (internal quotation marks and citations omitted). In such a case, equitable title is actually retained by the wronged party. Bowen v. Darden, 241 N.C. 11, 13-14, 84 S.E.2d 289, 292 (1954). In the present case, neither Mr. Boggs nor Ms. Primavera have alleged any wrongdoing on the part of Corredores. Although Ms. Primavera has alleged that she did not fully understand the nature of the transfers to Corredores at the time they were made, her misunderstanding was based on Mr. Boggs' representations, not Corredores'. (Br. Support Mot. Summ. J. by Primavera (Doc. 137) at 3-5.) Therefore, the remedy of constructive trusts is not applicable to this case.
Rather than the law of resulting or constructive trusts, the North Carolina law that this court will apply to determine the ownership status of the properties is the law of fraudulent transfers as to creditors, which is codified in N.C. Gen. Stat. § 39-23.4 (2010). See Embree Constr. Group, Inc. v. Rafcor, Inc., 330 N.C. 487, 491, 411 S.E.2d 916, 920 (1992) ("The court's equitable intervention is obviated when an adequate remedy at law is available to the plaintiff. . . .") Section 39-23.4(a) states that a "transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation . . . [w]ith intent to hinder, delay, or defraud any creditor of the debtor." In order to determine the debtor's intent, a court may consider the following factors:
The government has sufficiently pled the elements of § 39-23.4 in Count II as an alternative to the lien theory in Count I. (U.S.' Second Am. Answer, Countercl. Third-party Compl. (Doc. 47) ¶ 39 (stating that the transfer was "made with the intent to hinder, delay, and/or defraud the United States from collecting Taxpayer's income tax liabilities or in the alternative, were conveyed without fair consideration at a time when Taxpayer was insolvent, or became insolvent as a result of the conveyances").)
(1) The transfer or obligation was to an insider;
(2) The debtor retained possession or control of the property transferred after the transfer;
(3) The transfer or obligation was disclosed or concealed;
(4) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5) The transfer was of substantially all the debtor's assets;
(6) The debtor absconded;
(7) The debtor removed or concealed assets;
(8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(9) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(10) The transfer occurred shortly before or shortly after a substantial debt was incurred;
(11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor;
(12) The debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor reasonably should have believed that the debtor would incur debts beyond the debtor's ability to pay as they became due; and
(13) The debtor transferred the assets in the course of legitimate estate or tax planning.
§ 39-23.4(b). Regarding the first factor (a transfer to an insider), the comments for the section cite to a case that states that "shifting of assets by the debtor to a corporation wholly controlled by him is . . . [a] badge of fraud." In re Kaiser, 722 F.2d 1574, 1583 (2d Cir. 1983). In the present case, no party disputes that Mr. Boggs created Corredores with himself and his wife as the only "managing directors," which gave them power to control the properties in the trust. (Boggs Dep. (Doc. 140 Ex. 114) at 43-44, 109; Primavera Dep. (Doc. 141 Ex. 115) at 82-83; U.S.' Mem. Support Mot. Summ. J. (Doc. 141) Ex. 4.) This kind of insider transfer indicates fraudulent intent under § 39-23.4(b)(1).
The undisputed facts in this case also indicate fraudulent intent under the second factor — that "the debtor retained possession or control of the property transferred after the transfer." § 39-23.4(b)(2). Mr. Boggs stated in his deposition that he continued to live at the Fink Street property after the conveyances and continued to develop the Faith Road property extensively with his own money without being reimbursed. See supra Part I.A.
The third factor, that the transfer was concealed, § 39-23.4(b)(3), also indicates fraud in this case. Although the deeds for the transfer were recorded, the nature of the transfer was concealed. While the deeds state that valuable consideration was given (U.S.' Mem. Ex. 1 at 2; Eggleston Aff. (Doc. 136) Ex. 2 at 1), no consideration was actually paid (Primavera Aff. (Doc. 135) ¶ 6; Boggs' Resp. to Interrogs. (Doc. 141 Ex. 36) at 2). The lack of consideration by itself also indicates fraud under § 39-23.4(b)(8).
During oral arguments on June 16, 2010, Ms. Primavera argued that the statement on the deed that consideration was given for the transfer is at best ambiguous because the absence of an excise tax shown on the deed represents that consideration was in fact not given. However, N.C. Gen. Stat. § 105-228.29 (2006) exempts certain real property transactions from tax, including those for which "no consideration in property or money is due or paid by the transferee to the transferor." § 105-228.29(6). Consideration can take other forms besides money or property.See, e.g., IWTMM, Inc. v. Forest Hills Rest Home, 156 N.C.App. 556, 562, 577 S.E.2d 175, 179 (2003) (holding that consideration "can take the shape of mutual promises to perform some act or to forbear from taking some action"). Therefore, this court cannot find that the absence of an excise tax on a deed establishes that the parties intended to represent that no valuable consideration was exchanged, particularly when the deed recites that valuable consideration was given.
The transfer also indicates fraudulent intent under the fourth factor, which considers whether the transfer was made after the debtor was "sued or threatened with suit." § 39-23.4(b)(4). Mr. Boggs stated in his deposition that Corredores was created for "asset protection" because he had been threatened with a lawsuit and was afraid he could lose everything as a result. (Boggs Dep. (Doc. 140 Ex. 114) at 33-37.)
The tenth factor considers whether the transfer occurred shortly before or after a substantial debt was incurred. § 39-23.4(b)(10). The transfers began in 2000, which was shortly after Mr. Boggs filed his 1999 and 1998 tax returns, both of which prompted the U.S. to assess significant tax debts upon examination of the returns in 2002. The proximity in time between the transfers and the tax debt is an indication of Mr. Boggs' fraudulent intent.
All of the above factors, taken together, are sufficient to indicate that Mr. Boggs transferred the properties with the intent to hinder, delay, or defraud a creditor, here the U.S., from collecting its debt. Therefore, under § 39-23.4, Mr. Boggs' conveyances were fraudulent as to the U.S., and, as a remedy, the U.S. may avoid the transfers in order to satisfy its claim against Mr. Boggs. See N.C. Gen. Stat. § 39-23.7(a)(1) (2006). Thus, Mr. Boggs is considered to have ownership rights to the OMOA properties for the purpose of the U.S. collecting its debts. Accordingly, since Mr. Boggs retains ownership rights to the properties under North Carolina law in regard to his debts, the nominee or alter ego liens against the properties are proper under 26 U.S.C. § 6321 (2006), and those liens may be foreclosed under 26 U.S.C. § 6331 (2006).
Since the U.S. has absolved Ms. Primavera of any debt by declaring her an innocent spouse, the U.S. may only avoid the transfer as to the property interest that Mr. Boggs transferred, but not as to the interest that Ms. Primavera transferred. However, as discussed in the next section, Ms. Primavera may not claim any interest in the property because of her unclean hands, and OMOA relinquished any interest that it might have held when it consented to judgment in favor of the U.S. See infra Part II.A.2.b. Therefore, the U.S. may claim the entire properties.
Mr. Boggs' "ownership" of the property does not extend beyond the government's right to avoid the transfer for the purpose of collecting Mr. Boggs' unpaid federal taxes.
As an alternative to determining Mr. Boggs' property ownership status under § 39-23.4, this court applies the factors set forth by other federal district courts in North Carolina in United States v. Holland, 637 F.Supp.2d 315, 320 (E.D.N.C. 2009), United States v. Greer, 383 F.Supp.2d 861, 868 (W.D.N.C. 2005), aff'd in part and vacated in part, 182 Fed.Appx. 198, 2006 WL 1444889 (2006) (unpublished table opinion), and Hill v. United States, 844 F.Supp. 263, 271 (W.D.N.C. 1993) to reach the same result. These factors are substantially similar to the factors listed in § 39-23.4. The factors are as follows: 1) "the treatment by the taxpayer of the asset as his own;" 2) "control over the [alleged nominee] by the taxpayer or a close relationship between them;" 3) "use of the [alleged nominee's] funds to pay personal expenses of the taxpayer;" 4) "transfer of the property to the [alleged nominee] for a nominal sum;" 5) "the fact that the [alleged nominee] supported the taxpayer;" 6) "whether the taxpayer expended personal funds for the property;" 7) "whether the taxpayer enjoys the benefit of the property;" and 8) "whether the record titleholder interfered with the taxpayer's use of the property." Holland, 637 F.Supp.2d at 320. All of these factors, except for the third and fifth, are present in this case. As previously discussed, Mr. Boggs treated the properties as his own after the transfers by continuing to reside at the Fink Street property and by making improvements to the Faith Road property. He had control over the trusts in his role as managing director. No consideration was given for the transfer to Corredores. Mr. Boggs used his personal funds for improvements made on the Faith Road property and was not compensated. The trusts did not interfere with or interrupt Mr. Boggs' use of the properties. Therefore, Corredores, Northstar, and OMOA are nominees or alter egos of Mr. Boggs under Holland, Greer, and Hill.
Furthermore, the analysis set forth in this opinion involves the same factors as United States v. Haddock, 144 F.Supp. 720 (E.D.N.C. 1956), even though that case relied on North Carolina's recognition of broad equitable powers rather than N.C. Gen. Stat. § 39-15, which was the fraudulent conveyance statute at the time that has since been repealed. Haddock, 144 F.Supp. at 724-25.
b. Ms. Primavera's Rights to the OMOA Properties
Ms. Primavera argues that there is a genuine issue of material fact as to whether she has a one-half undivided interest as a tenant in common with Mr. Boggs in the Faith Road property and in the Tract 1 and Tract 2 property. Ms. Primavera states that since the transfer of the property to Corredores was a "sham and a legal nullity," the title to the properties remained as though the conveyances never occurred. (Br. by Primavera (Doc. 137) at 9.) She contends that when she and Mr. Boggs divorced, the tenancy by the entirety was severed for the properties and became a tenancy in common. (Id.) Ms. Primavera was declared an innocent spouse in 2004, which she argues meant that the liens did not attach to her undivided one-half interest when they were filed by the IRS in 2005. (Id.)
This court declines to adopt Ms. Primavera's theory. Rather than erasing a transaction as if it never happened, Section 39-23 states only that the transfer is "fraudulent as to a creditor," § 39-23.4(a) (emphasis added), and "a creditor . . . may obtain . . . [a]voidance of the transfer," § 39-23.7(a)(1) (emphasis added). The property is deemed to be owned by the debtor in regard to the creditor's right to the property, but the statute does not imply that the transfer is void as to any parties other than the creditor.
Although Ms. Primavera claims that she is seeking a remedy under law rather than an equitable remedy (Reply to Opp'n by U.S. to Primavera's Mot. Summ. J. (Doc. 156) at 6), she provides no viable theory of law for her assertion that the transfers of the properties to Corredores were a legal nullity as to her interests in the property. Therefore, this court construes her pleadings as seeking an equitable remedy.
"Equity is for the protection of innocent persons and is a tool used by the court to intervene where injustice would otherwise result." Swan Quarter Farms, Inc. v. Spencer, 133 N.C.App. 106, 110, 514 S.E.2d 735, 738 (1999). One who comes to the court with unclean hands is barred from equitable relief. See id. Ms. Primavera argues that she is an innocent party because the IRS granted her "innocent spouse" status as to Mr. Boggs' tax liability. (Reply to Opp'n by U.S. at 6-7.) However, just because Ms. Primavera was declared an innocent spouse as to the tax liability does not mean that she is also an innocent spouse as to the transfers of property to Corredores. Ms. Primavera signed the deeds, which stated that the properties were transferred from her and Mr. Boggs to Corredores for "valuable consideration." (U.S.' Mem. Support Mot. Summ. J. (Doc. 141) Ex. 1 at 2; Eggleston Aff. (Doc. 136) Ex. 2 at 1.) In fact, no consideration was given. (Primavera Aff. (Doc. 135) ¶ 6; Boggs' Resp. to Interrogs. (Doc. 141 Ex. 36) at 2.) Despite Ms. Primavera's contention that she was "skeptical" of the process and "never fully understood the purposes to be served by the Pure Trust Organizations" (Primavera Aff. ¶ 5), she willingly signed the deed knowing that no consideration was actually given. She cannot now receive relief in equity from a fraud in which she participated, and, because of her unclean hands, the transfers of property are not void as to her interests. See Penland v. Wells, 201 N.C. 173, 159 S.E. 423, 424 (1931) ("`Where both parties have united in a transaction to defraud another, or others, or the public, or the due administration of the law . . . the Courts will not enforce it in favor of either party.' The entire doctrine is based upon the `clean hands' concept of equity.");Sellers v. Ochs, 180 N.C.App. 332, 336, 638 S.E.2d 1, 4 (2006) (barring a plaintiff from enforcing a resulting or constructive trust when she had unclean hands because she purchased the property in the defendant's name in order to avoid creditors). As a result, Ms. Primavera has no claim to the OMOA properties.
Ms. Primavera stated in her deposition that she signed the deed without reviewing it. (Primavera Dep. (Doc. 148) at 137.) However, if "a person of mature years of sound mind who can read or write signs or accepts a deed or formal contract affecting his pecuniary interest, it is his duty to read it, and knowledge of the contents will be imputed to him in case he has negligently failed to do so." Elam v. Smithdeal Realty Ins. Co., 182 N.C. 599, 109 S.E. 632, 634 (1921). This general rule is excepted if something has been said or done to mislead the person signing or "to put a man of reasonable business prudence off his guard in the matter." Id. Ms. Primavera has not alleged that she was mislead or put off her guard in relation to the matter of consideration recited on the deed. Therefore, she is presumed to have knowledge that the deed recited that consideration was given for the transfer.
Ms. Primavera may not independently claim a right to an undivided one-half of the properties; furthermore, any interest OMOA might have retained was relinquished when OMOA consented to judgment in favor of the U.S. (Joint Mot. Entry Consent J. (Doc. 129).) Thus, the U.S. is entitled to claim complete ownership of the OMOA properties and to receive recovery of complete ownership.
Accordingly, because there are no genuine questions of material fact as to the status of Corredores, Northstar, and OMOA as nominees of Mr. Boggs and as to Ms. Primavera's rights to the properties, this court will grant the government's motion for summary judgment as to the OMOA properties.
3. Wood Duck Cove Property
The U.S. argues that the court should grant summary judgment on the foreclosure of the federal tax lien against the Wood Duck Cove property because the lien attached before Corredores transferred the property to Ms. Primavera, and, therefore, the lien followed the property through the transfer. (U.S.' Mem. Support Mot. Summ. J. (Doc. 141) at 12-14.) The U.S. does not dispute that the lien only applies to an undivided one-half interest in the property. (U.S.' Reply Primavera's Opp'n U.S.' Mot. Summ. J. (Doc. 151) at 7-10.) Ms. Primavera, however, argues that the evidence creates a genuine issue of material fact as to whether she is the sole owner of the property, and she presents various legal theories that she claims demonstrate that the property has always been her sole property. (Opp'n Mot. Summ. J. by U.S. (Doc. 145) at 12-13.) According to Ms. Primavera's theory, if the property was her sole property, then Mr. Boggs never had an interest to which the U.S. could attach a lien.
First, she argues that because she purchased the Wood Duck Cove property with her separate property, she is the sole owner of the property under the principles of resulting trust law in North Carolina. (Primavera's Br. Opp'n Mot. Summ. J. by U.S. (Doc. 147) at 12-13.) "A resulting trust arises when a person becomes invested with the title to real property under circumstances which in equity obligate him to hold the title and to exercise his ownership for the benefit of another." Mims v. Mims, 305 N.C. 41, 46, 286 S.E.2d 779, 783 (1982). However, if property is titled in the name of a husband and wife together as tenants by the entirety, the law presumes that the spouse who paid for the property "intended to make a gift of the entirety interest to the other spouse." Dillingham v. Dillingham, N.C.App. ___, ___, 688 S.E.2d 499, 504 (2010). To establish that the transaction created a resulting trust instead of a gift, the spouse asserting the claim must rebut the presumption of a gift by "clear, cogent, and convincing evidence." Id. This may be shown by reference to all the surrounding facts and circumstances of the transaction. Id. Declarations of intent are limited to those made at the time of the transaction. Mims, 305 N.C. at 58, 286 S.E.2d at 790. Therefore, any statements that Ms. Primavera makes now about her intent at the time of the purchase are irrelevant. Other than her current arguments that the transaction created a resulting trust, she has not presented any evidence to rebut the presumption of a gift. Therefore, the transaction created a tenancy by the entirety between Ms. Primavera and Mr. Boggs, not a resulting trust.
Next, Ms. Primavera argues that the Wood Duck Cove Property retained its character as separate property under North Carolina law because she purchased the property with proceeds of her separate property. (Primavera's Br. Opp'n Mot. Summ. J. by U.S. (Doc. 147) at 13.) To support this contention, she cites toPawlus v. Wise-Pawlus, 195 N.C.App. 325, 672 S.E.2d 782 (2009) (unpublished table opinion). That case concerns North Carolina's equitable distribution statute, which is not at issue here. The fact that Ms. Primavera used proceeds of her separate property to purchase Wood Duck Cove does not alter the presumption under North Carolina law that the property was deeded as a tenancy by the entirety to Mr. Boggs and Ms. Primavera.
Ms. Primavera also argues that the evidence before the court shows that the transfer to Corredores was a mistake, and that Corredores' failure to remedy the mistake before 2006 should not alter the fact that the transfer was a mistake. (Primavera's Br. Opp'n Mot. Summ. J. by U.S. (Doc. 147) at 13.) Ms. Primavera stated in her deposition that she signed the deed without reviewing it and did not realize until later that the Wood Duck Cove property was also listed in the deed. (Primavera Dep. (Doc. 148) at 137-38.) She also stated that she thought the deed was only for the Fink Street property but that the lawyer had "tricked" her by placing all of the properties in one deed. (Id. at 136.) It appears that Ms. Primavera obtained the services of the lawyer through her practice as a real estate agent and that she had trusted his services because she had used him in the past. (Id. at 137-38.) Mr. Boggs stated in his deposition that the inclusion of the Wood Duck Cove property was "by mistake" and that he tried to remedy the mistake by writing letters. (Boggs Dep. (Doc. 147 Ex. 1) at 93, 96-97.) Neither Ms. Primavera nor Mr. Boggs stated that Corredores tried to mislead or deceive them in the transfer. If a literate person of sound mind fails to read a deed or contract, that person cannot subsequently avoid the consequences of signing the document unless she has been mislead or deceived by the other party. See Taylor v. Edmunds, 176 N.C. 325, 97 S.E. 42, 43 (1918); Elam v. Smithdeal Realty Ins. Co., 182 N.C. 599, 109 S.E. 632, 634 (1921). In the present case, Ms. Primavera has not argued that Corredores deceived or mislead her, but rather that a mistake was made, seemingly by an attorney that she procured herself. Therefore, she cannot avoid the consequences of signing the deed merely because she failed to read it. See id. Even if she were able to show that she was mislead or deceived by Corredores, she could not avoid the transfer because of her unclean hands. See supra Part II.A.2.b. Thus, she relinquished her right to the property in 2000, and it is necessary to determine what right, if any, she gained when Corredores recorded the deed transferring title back to her in 2006.
Ms. Primavera has not made out a legally sufficient case for reformation of the deed by mutual mistake. In such an action, "the plaintiff has the burden of showing that the terms of the instrument do not represent the original understanding of the parties and must do so by clear, cogent and convincing evidence."Hice v. Hi-Mil, Inc., 301 N.C. 647, 651, 273 S.E.2d 268, 270 (1981). Ms. Primavera has not presented any evidence indicating that Corredores believes that the deed mistakenly included the Wood Duck Cove property.
Before the transfer to Corredores in October of 2000, Ms. Primavera and Mr. Boggs owned the property as tenants by the entirety. When Mr. Primavera and Mr. Boggs initiated the transfer to Corredores, that act converted their ownership in the property from a tenancy by the entirety to a tenancy in common. See North Carolina State Highway Commission v. Myers, 270 N.C. 258, 261-62, 154 S.E.2d 87, 89 (1967) ("An estate by the entirety can be destroyed or dissolved by the voluntary joint acts of the husband and wife."). Mr. Boggs' transfer of his undivided one-half of the property to Corredores can be avoided by the U.S. for the purpose of collecting the debts Mr. Boggs owes. See supra Part II.A.2.a; N.C. Gen. Stat. § 39-23.7(a)(1). Thus, after the transfer in 2000, although the deed purported to transfer the entire property (Eggleston Aff. (Doc. 136) Ex. 4), Corredores actually only received a one-half undivided interest from Ms. Primavera. The U.S. obtained a one-half interest by avoiding Mr. Boggs' attempt to transfer his undivided one-half to Corredores.
The U.S. obtained a lien as to Mr. Boggs' interest in the property by the determination of the assessment in 2002. See 26 U.S.C. § 6322 (2006) (stating that a taxpayer lien aries at the time the assessment is made and continues until the liability is satisfied); United States v. Bond, 279 F.2d 837, 841 (4th Cir. 1960) (holding that no recording is necessary for a lien to be valid against the taxpayer). Although that lien was placed on the property after the transfer to Corredores in 2000, the U.S. may apply the law of fraudulent conveyances to avoid the transfer. Even assuming Corredores had some right to challenge the government's lien, Corredores has waived any interest it may have had in the property by stipulation. (Doc. 90.)
The government's one-half undivided interest became valid as to third parties when the U.S. recorded its lien on November 18, 2005. See In Re Avis, 178 F.3d 718, 721 (4th Cir. 1999) (citing 26 U.S.C. § 6323(a), (f)) (holding that a lien becomes valid as to a third party when the IRS files notice of the lien in a recording office of the state in which the property is located). Even though Ms. Primavera received the deed to the Wood Duck Cove property in May of 2005 (Eggleston Aff. Ex. 10 at 1), because it was not recorded until June 6, 2006 (id.), she took subject to the government's recorded lien. See § 47-18 (No "conveyance of land . . . shall be valid to pass any property interest as against lien creditors . . . but from the time of registration thereof in the county where the land lies."). Therefore, the U.S. has an undivided one-half interest in the Wood Duck Cove property, and this court will grant the United States' motion for summary judgment in that regard.
B. Ms. Primavera's Motion for Summary Judgment
On April 19, 2010, Ms. Primavera moved for summary judgment, seeking a judgment declaring that she has a one-half undivided interest in the Tract 1 and Tract 2 property and the Faith Street property and full interest in the Wood Duck Cove property. In accordance with the above discussion, this court finds that Ms. Primavera has no interest in the Faith Street property or the Tract 1 and Tract 2 property and a one-half undivided interest in the Wood Duck Cove property. Therefore, her motion for summary judgment is denied.
C. Joint Motion for Entry of Consent Judgment
On April 8, 2010, OMOA and the U.S. entered a joint motion for a consent judgment in which OMOA agreed to dismiss its complaint against the U.S. and consent to the U.S.' counterclaim to foreclose on the federal tax liens against the four properties. (Joint Mot. Entry Consent J. (Doc. 129).) Ms. Primavera objected to the court filing a decree regarding the sale of the land and distribution of proceeds before her claims regarding the property have been resolved. (Primavera's Object. in Part to Joint Mot. Entry Consent J. (Doc. 149) at 4-5.) Since the above discussion resolves Ms. Primavera's property interests, her objection is no longer relevant.
Mr. Boggs objected to the motion for consent judgment on the grounds that OMOA and the U.S. have failed to meet their burden of demonstrating that Rule 54(b) certification is warranted in this case, and that even if the motion was properly made, certification should not be granted because the counterclaims as to OMOA and the third-party claims as to Mr. Boggs are "completely intertwined." (Boggs' Resp. U.S.' Joint Mot. Entry Consent J. (Doc. 150) at 7.) Rule 54(b) of the Federal Rules of Civil Procedure permits a district court to enter final judgment as to one or more but fewer than all the claims in a multi-claim action. Since the above discussion resolves all of the pending claims in this action, Rule 54(b) certification is no longer relevant. Therefore, this court grants the U.S.' and OMOA's joint motion for consent judgment. D. OMOA's Motion to Dismiss Ms. Primavera's Counterclaim
On April 19, 2010, OMOA moved to dismiss Ms. Primavera's counterclaim against it for failure to state a claim upon which relief may be granted. (OMOA's Mot. Dismiss (Doc. 139).) Because the above discussion fully resolves the rights of the parties by denying Ms. Primavera's motion for summary judgment, granting the government's motion for summary judgment, and granting OMOA's and the government's joint motion for consent judgment, this motion is no longer relevant. Therefore, the court dismisses it as moot.
III. Conclusion
It is therefore ORDERED that the United States' Motion for Summary Judgment (Doc. 140) is GRANTED, and it is FURTHER ORDERED that Ms. Primavera's Motion for Summary Judgment (Doc. 134) is DENIED. It is FURTHER ORDERED that the Joint Motion for Entry of Consent Judgment by the U.S. and OMOA (Doc. 129) is GRANTED. Finally, it is FURTHER ORDERED that OMOA's Motion to Dismiss Counterclaim (Doc. 139) is DISMISSED AS MOOT. The United States is directed to submit a judgment prepared in accordance with the terms of this order and including legal descriptions of the relevant property within ten (10) days of the entry of this order. A copy of the United States' proposed judgment shall be provided to all counsel prior to submission to this court.