United States District Court, D. Oregon
JOHN WADSWORTH, individually and as trustee for the RBT VICTIM RECOVERY TRUST, Plaintiff,
RONALD B. TALMAGE, an individual, ANNETTE C. TALMAGE, an individual, RIVERCLIFF FARM, INC., an Oregon corporation, NEW CENTURY PROPERTIES LTD., a foreign corporation, UNITED STATES OF AMERICA, and MULTNOMAH COUNTY, a political subdivision, Defendants.
A. Ped, WILLIAMS, KASTNER GREENE & MARKLEY, William B.
Ingram and Alan R. Houston, STRONG & HANNI, PC, Of
Attorneys for Plaintiff John Wadsworth, individually and as
trustee for the RBT Victim Recovery Trust.
A. Hubbert, Acting Assistant Attorney General; Lindsay L.
Clayton, Jennifer Y. Golden, and Alex Halverson, Trial
Attorneys, UNITED STATES DEPARTMENT OF JUSTICE, TAX DIVISION,
Ben Franklin Station, Billy J. Williams, United States
Attorney, UNITED STATES ATTORNEY'S OFFICE, DISTRICT OF
OREGON Of Attorneys for Defendant United States of America.
OPINION AND ORDER
Michael H. Simon United States District Judge.
John Wadsworth (“Wadsworth”), individually and as
trustee for the RBT Victim Recovery Trust (collectively, the
“Trust”), has sued Ronald B. Talmage
(“Talmage”), Annette C. Talmage, RiverCliff Farm,
Inc. (“RFI”), New Century Properties Ltd.
(“NCPL”), the United States of America (the
“United States”), and Multnomah County
(collectively, “Defendants”), seeking to quiet
title in real property located at 35701 NE Chamberlain Road
in Corbett, Oregon (the “RiverCliff Property”).
The only claim that the Trust asserts against the United
States is to quiet title. The United States moves to dismiss
that claim pursuant to Federal Rules of Civil Procedure
12(b)(1) and 12(b)(6). For the reasons that follow, the motion is
Motion to Dismiss for Lack of Subject Matter
courts are courts of limited jurisdiction. Gunn v.
Minton, ___ U.S. ___, 133 S.Ct. 1059, 1064 (2013)
(citation omitted). As such, a court is to presume
“that a cause lies outside this limited jurisdiction,
and the burden of establishing the contrary rests upon the
party asserting jurisdiction.” Kokkonen v. Guardian
Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)
(citations omitted); see also Robinson v. United
States, 586 F.3d 683, 685 (9th Cir. 2009); Safe Air
for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.
2004). A motion to dismiss under Federal Rule of Civil
Procedure 12(b)(1) for lack of “subject-matter
jurisdiction, because it involves a court's power to hear
a case, can never be forfeited or waived.” United
States v. Cotton, 535 U.S. 625, 630 (2002). An objection
that a particular court lacks subject matter jurisdiction may
be raised by any party, or by the court on its own
initiative, at any time. Arbaugh v. Y&H
Corp., 546 U.S. 500, 506 (2006); Fed.R.Civ.P.
12(b)(1). The Court must dismiss any case over which it lacks
subject matter jurisdiction. Fed.R.Civ.P. 12(h)(3).
Motion to Dismiss for Failure to State a Claim
motion to dismiss for failure to state a claim may be granted
only when there is no cognizable legal theory to support the
claim or when the complaint lacks sufficient factual
allegations to state a facially plausible claim for relief.
Shroyer v. New Cingular Wireless Servs., Inc., 622
F.3d 1035, 1041 (9th Cir. 2010). In evaluating the
sufficiency of a complaint's factual allegations, the
court must accept as true all well-pleaded material facts
alleged in the complaint and construe them in the light most
favorable to the non-moving party. Wilson v.
Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir.
2012); Daniels-Hall v. Nat'l Educ. Ass'n,
629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a
presumption of truth, allegations in a complaint “may
not simply recite the elements of a cause of action, but must
contain sufficient allegations of underlying facts to give
fair notice and to enable the opposing party to defend itself
effectively.” Starr v. Baca, 652 F.3d 1202,
1216 (9th Cir. 2011). All reasonable inferences from the
factual allegations must be drawn in favor of the plaintiff.
Newcal Indus. v. Ikon Office Solution, 513 F.3d
1038, 1043 n.2 (9th Cir. 2008). The court need not, however,
credit the plaintiff's legal conclusions that are couched
as factual allegations. Ashcroft v. Iqbal, 556 U.S.
662, 678-79 (2009).
complaint must contain sufficient factual allegations to
“plausibly suggest an entitlement to relief, such that
it is not unfair to require the opposing party to be
subjected to the expense of discovery and continued
litigation.” Starr, 652 F.3d at 1216. “A
claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678 (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
core, this is a lawsuit to quiet title to real property. Both
the Trust and the United States assert rights against the
RiverCliff Property. The Trust is composed of victims of an
alleged Ponzi scheme conducted by Talmage.
alleged in the Second Amended Complaint (“SAC”)
(ECF 39), in November 1997, Talmage and his then-spouse,
Kumiko Talmage, purchased the RiverCliff Property. SAC ¶
16. The down payment for the Property was made with funds
stolen from Talmage's then-investor clients. Id.
The balance of the purchase price was paid in full in
February 1998. Id. None of these earlier investor
clients include any of the beneficiaries of the Trust. SAC
¶¶ 16-18. In 2001, Talmage divorced Kumiko and
agreed to pay $1.4 million for her half-interest in the
RiverCliff Property, but he did not pay her or receive her
interest in the Property at that time. SAC ¶ 18.
in 2002, Talmage began receiving funds from the beneficiaries
of the Trust, allegedly through false pretenses and
embezzlement. SAC ¶ 17. These funds were used to make
improvements on the RiverCliff Property and to pay pre-2002
investor clients whose funds were used to acquire the
property in 1997 and to improve it thereafter. SAC
¶¶ 17, 26. On January 21, 2005, Talmage, acting
through NCPL, paid $1.5 million to Kumiko Talmage, and she
conveyed to Talmage her half-interest in the RiverCliff
Property. SAC ¶ 18. Talmage used money fraudulently
received from the Trust's beneficiaries to pay Kumiko.
Id. By February 2005, Talmage claimed sole ownership
over the RiverCliff Property. Id. On June 30, 2005,
Talmage conveyed title to the RiverCliff Property to RFI, a
subsidiary of NCPL. SAC ¶ 19. Talmage controlled both
RFI and NCPL. SAC ¶¶ 12, 19. After the conveynance,
Talmage continued to reside in and use the RiverCliff
Property as his own. SAC ¶ 19.
United States claims that Talmage and his current spouse,
Annette Talmage (collectively, the “Talmages”)
failed to pay federal income taxes for the 1998-2005 and 2007
tax years. SAC ¶ 33. The United States filed notices of
federal tax liens on September 17, 2008; November 28, 2008;
May 20, 2013; and January 31, 2014. Id. In related
litigation, the United States seeks to foreclose its tax
liens on the RiverCliff Property under the theory that
Talmage's transfer of the RiverCliff Property to RFI was
fraudulent or done for the purpose of avoiding his tax
liabilities. SAC ¶ 36. The Trust does not dispute the
amount of the Talmages' tax liabilities. SAC ¶ 35.
The Trust also does not dispute that RFI “is not a bona
fide purchaser and can have no better title to the
[RiverCliff] [P]roperty than Talmage.” SAC ¶ 37.
The Trust asserts, however, that “[b]ecause Talmage
never had title to the funds he embezzled, Talmage also never
had valid title to the RiverCliff Property, which was
acquired and improved with the proceeds of the embezzled
funds.” SAC ¶ 37. Thus, argues the Trust, the
federal tax liens “never attached to the RiverCliff
Property.” SAC ¶ 38.
Trust commenced this lawsuit on October 28, 2016. ECF 1. In
the first motion to dismiss filed by the United States, the
Government argued that, among other things, the Trust has not
established standing to sue the United States. ECF 19. The
Court granted the Government's motion to dismiss and gave
the Trust leave to replead. ECF 36. On March 13, 2017, the
Trust obtained a $90 million judgment (after trebling)
against Talmage in Utah state court and later registered that
judgment in Oregon state court. SAC ¶¶ 30-32.
Government moves to dismiss the Trust's quiet title claim
against the United States on two alternative grounds. First,
the United States argues that the Court continues to lack
subject matter jurisdiction because the Trust did not have
Article III standing at the commencement of this action.
Second, the Government argues that the Trust cannot quiet
title to the RiverCliff Property as a matter of law based on
the allegations contained in the Second Amended Complaint.
Court dismissed the original Complaint because it contained
no allegation that the Trust's beneficiaries had assigned
their claims to Wadsworth or the Trust. ECF 36. Thus, the
Trust did not properly allege Article III standing. Although
the Second Amended Complaint alleges that “[e]ach
beneficiary, including Mr. Wadsworth, has assigned his, her
or its right, title and interest in the claims herein to Mr.
Wadsworth as trustee of the Victim Trust, ” SAC ¶
1, the United States argues that this allegation continues to
be insufficient because it does not allege when the
assignment occurred. If the assignment occurred after the
Trust filed the original Complaint, the United States argues,
the Trust did not have Article III standing at the time the
Trust filed the original Complaint. Skaff v. Meridien N.
Am. Beverly Hills, LLC, 506 F.3d 832, 838 (9th Cir.
2007) (“The existence of standing turns on the facts as
they existed at the time the plaintiff filed the
Court concludes, however, that the Second Amended Complaint
adequately alleges standing. In its Order dismissing the
original Complaint, the Court allowed the Trust to file an
amended complaint to allege when the Trust's
beneficiaries assigned their claims to Wadsworth or the
Trust. ECF 36. The Court construes its Order as also granting
the Trust leave to file a supplemental pleading under Rule
15(d) of the Federal Rules of Civil Procedure. Because the
Trust alleges that the assignment occurred before it filed
the Second Amended Complaint, the Trust now adequately
alleges standing. See Northstar Fin. Advisors Inc. v.
Schwab Invs., 779 F.3d 1036, 1044 (9th Cir. 2015)
(noting that “Rule 15(d) permits a supplemental
pleading to correct a defective complaint and circumvents
‘the needless formality and expense of instituting a
new action when events occurring after the original filing
indicated a right to relief'” (quoting 6A Charles
Alan Wright, Arthur R. Miller, & Mary Kay Kane,
Federal Practice and Procedure § 1505 (3d ed.
determine whether the Trust has stated a valid claim to quiet
title to the RiverCliff Property, the Court begins by
analyzing the present ownership of the RiverCliff Property
within the meaning the words “property” and
“rights to property” contained in the tax lien
statute, 26 U.S.C. § 6321 (“§ 6321”).
The Trust argues that it adequately alleges that its
beneficiaries presently own the RiverCliff Property. The
United States responds that Talmage, as the owner of the
RiverCliff Property, conveyed title to RFI, as his
nominee or alter ego. If the Trust is correct,
then the Trust states a valid claim to quiet title. If,
however, the United States is correct and RFI holds legal
title to the RiverCliff Property as Talmage's nominee or
alter ego, then the Court must determine whether the existing
federal tax liens have priority over any interest asserted by
the Trust's beneficiaries.
Ownership of the RiverCliff Property
Trust does not allege that its beneficiaries hold legal title
to the RiverCliff Property-or have ever held legal title to
the RiverCliff Property, lived in that property, or used that
property on a regular basis. Rather, the Trust argues that it
has sufficiently alleged that its beneficiaries currently own
the Property under either the equitable theory of resulting
trust or the equitable theory of constructive
trust. SAC ¶¶ 40, 43. These are legal
conclusions couched as factual allegations. ...