Summary
finding courts regularly substitute executors, administrators, or distributees of distributed estates as proper parties for substitution of a deceased party under Rule 25
Summary of this case from Villa v. HellerOpinion
CASE NO. CV-F-97-5044-LJO
June 3, 2002
ORDER ON GOVERNMENT'S MOTION FOR SUBSTITUTION OF DECEASED PARTY (Doc. 347.)
INTRODUCTION
In this second phase of trial on the United States of America's ("Government's") nominee/alter ego and fraudulent transfer claims, the Government seeks to substitute Gilbert Mark Crisp ("Mr. Crisp" as a party for his deceased mother Wanda Jean Crisp ("Mrs. Crisp") and to require Mr. Crisp to provide a report on the nature of Mrs. Crisp's estate. In the alternative, the Government seeks an extension to substitute Mr. Crisp until 90 days after his report.
After review of the parties' papers, this Court considered the Government's alternative motions on the record and without the June 7, 2002 hearing, pursuant to this Court's Local Rule 78-230(h). For the reasons discussed below, this Court DENIES without prejudice the Government's motion to substitute Mr. Crisp and DENIES the Government's motions to appoint Mr. Crisp as Mrs. Crisp's personal representative and to require Mr. Crisp's report on Mrs. Crisp's estate.
BACKGROUND
This is a consolidation of four actions involving, among others, the Government's tax assessment and tax lien foreclosure claims against Mr. Crisp, his wife Rhonda Crisp, and Mrs. Crisp (collectively the "Crisps"). After the March 2001 first phase of trial, the jury returned verdicts to find Mr. Crisp and Rhonda Crisp failed to report more than $2.4 million taxable income for 1988 and 1989 and Mrs. Crisp failed to report more than $2.5 million taxable income for 1988 and 1989.
This figure reflects the post-first phase corrected amount.
On January 17, 2002, this Court began without a jury the second phase of trial on the Government's claims that the Crisps transferred their residences for no consideration to their limited partnerships as nominees/alter egos or fraudulent transferees. Conclusion of the trial's second phase has been continued to June 12, 2002 in light of Mrs. Crisp's February 20, 2002 death. No judgment has been entered based on the phase one jury verdicts.
Mrs. Crisp's limited partnership is Hyper-Jean Property and Equipment Limited Partnership ("Hyper-Jean Property"). Mr. Crisp and Rhonda Crisp's limited partnership is Sequoia Property and Equipment Limited Partnership ("Sequoia Property"). Hyper-Jean Property and Sequoia Property will be referred to collectively as the "limited partnerships."
No probate case has been opened for Mrs. Crisp, and thus no personal representative has been appointed for her estate. Mr. Crisp has stated he is general partner of Hyper-Jean Property. The Government contends Mr. Crisp should be substituted as a party defendant for Mrs. Crisp and appointed as personal representative for her estate because, among other reasons, the Government's claims against Mr. Crisp are identical to those against Mrs. Crisp. The Government notes that since Mr. Crisp is a general partner of Hyper-Jean Property, to imply his knowledge and control over Mrs. Crisp's estate, his appointment as the personal representative of Mrs. Crisp's estate is the least disruptive option at this stage of the action. The Government claims Mr. Crisp should be ordered to collect information regarding Mrs. Crisp's estate, including a listing of assets, insurance and will, and report such information to the Court within 30 days as appointed representative of the estate. Alternatively, the Government seeks an extension to substitute Mr. Crisp for Mrs. Crisp for 90 days after Mr. Crisp files the report requested by the Government regarding Mrs. Crisp's estate.
The limited partnerships contend this Court should not appoint Mr. Crisp as personal representative of Mrs. Crisp's estate because when and if a probate is opened, a personal representatives will be appointed under California law. The limited partnerships argue that until probate is opened, this Court is not empowered to appoint Mr. Crisp as personal representative or to compel Mr. Crisp to prepare a report regarding Mrs. Crisp's estate. The limited partnerships note the Government, as a judgment creditor, will have rights to collect assets from Mrs. Crisp's estate after judgment is entered The limited partnerships do not oppose continuance of substitution for Mrs. Crisp.
DISCUSSION Substitution of Deceased Party
Upon a party's motion, a court may order substitution of "proper parties" if "a party dies and the claim is not thereby extinguished." F.R.Civ.P. 25(a)(1). "Unless the motion for substitution is made not later than 90 days after the death suggested upon the record by service of a statement of fact of the death . . . the action shall be dismissed as to the deceased party." F.R.Civ.P. 25(a)(1). F.R.Civ.P. 25(a)(2) continues: "In the event of the death . . . of one or more of the defendants in an action in which the right sought to be enforced survives . . . only against the surviving defendants, the action does not abate. The death shall be suggested upon the record and the action shall proceed . . . against the surviving parties."
"Since a substituted party steps into the same position as the original party there is a continuance of the original action and a separate proceeding against a substituted party is not necessary." United States v. Miller Bros. Construction Co., 505 F.2d 1031, 1036 (10th Cir. 1974); see, e.g., Ransom v. Brennan, 437 F.2d 513 (5th Cir.), cert. denied, 403 U.S. 904, 91 S.Ct. 2205 (1971). F.R.Civ.P. 25(a) is "purely a rule of procedure" and the effect of death is determined by applicable substantive law. 1 Schwarzer, Tashima Wagstaffe, Cal. Practice Guide: Federal Civil Procedure Before Trial (2002) Parties, para. 7:356, p. 7-93.
An executor or administrator, or distributee of a distributed estate are proper parties for substitution of a deceased party. Sinito v. U.S. Dept. of Justice, 176 F.3d 512, 516 (D.C. Cir. 1999); see McSurely v. McClellan, 753 F.2d 88, 98-99 (D.C. Cir. 1985), cert. denied, 474 U.S. 1005, 106 S.Ct. 525 (1985); Rende v. Kay, 415 F.2d 983, 985 (D.C. Cir. 1969). A court may order substitution of the proper legal representative (e.g., executor). 1 Schwarzer, Tashima Wagstaffe, Cal. Practice Guide: Federal Civil Procedure Before Trial (2002) Parties, para. 7:358, p. 7-94 (citing McKenna v. Pacific Rail Services, 32 F.3d 820, 836 (3rd Cir. 1994); Hilao v. Estate of Marcos, 103 F.3d 762, 766 (9th Cir. 1996)). Generally, the deceased's legal representative (e.g., executor or administrator) is the proper party to be substituted. However, once the estate has been distributed, distributees are also proper parties for substitution. 1 Schwarzer, Tashima Wagstaffe, Cal. Practice Guide: Federal Civil Procedure Before Trial (2002) Parties, para. 7:358, p. 7-94 (citing McSurely, 753 F.2d at 98).
An order of substitution is prerequisite to obtain a judgment against a deceased party's estate. The enforcement of such judgment depends on compliance with state probate law. 1 Schwarzer, Tashima Wagstaffe, Cal. Practice Guide: Federal Civil Procedure Before Trial (2002) Parties, para. 7:364, p. 7-97. California law generally requires filing of a formal notice of claim in the probate proceedings within four months after letters are issued by decedent's representative. See Cal. Prob. Code, §§ 9002, 9100.
28 U.S.C. § 2404 addresses a defendant's death in a damages action: "A civil action for damages commenced by or on behalf of the United States or in which it is interested shall not abate on the death of a defendant but shall survive and be enforceable against his estate as well." "Estate" is used in 28 U.S.C. § 2404 "in its broadest sense to denote all of the property in which the decedent had an interest at the moment of death." United States v. Estate of Baxter, 568 F. Supp. 707, 711 (V. Kan. 1983). The Government seeks to substitute Mrs. Crisp with Mr. Crisp although Mr. Crisp has not been appointed as the legal representative of her estate and is not (as of yet) a distributee of her estate. Although substitution of Mrs. Crisp is in order, it is uncertain whether Mr. Crisp is the proper person to substitute for her until probate proceedings are initiated. In addition, the Government seeks this Court's appointment of Mr. Crisp as Mrs. Crisp's personal representative. However, a state probate court, not a federal court, is empowered to make such an appointment. See Cal. Prob. Code, §§ 8400, 8405, 8420, 8440, 8460. The Government cites no authority, including that discussed above, for this Court to appoint Mr. Crisp as personal representative.
The Government's Requested Report From Mr. Crisp
The Government seeks an order to require Mr. Crisp to collect information regarding Mrs. Crisp's estate and to report such information to the Court. As noted by the Government, under F.R.Civ.P. 69, discovery may be had of a judgment debtor or third persons without separate suit and all discovery devices under the Federal Rules of Civil Procedure may be used. Caisson Corp. v. Country West Bld. Corp., 62 F.R.D. 331, 334 (E.D. Pa. 1974). A judgment creditor "must be given the freedom to make abroad inquiry to discover hidden or concealed assets of the judgment debtor." Caisson Corp., 62 F.R.D. at 334; Monticello Tobacco Co., Inc. v. American Tobacco Co., 12 F.R.D. 344 (S.D.N.Y. 1952), aff'd on merits, 197 F.2d 629 (2nd Cir. 1952), cert. denied, 344 U.S. 875, 73 S.Ct. 168 (1958). "The scope of postjudgment discovery is very broad to permit a judgment creditor to discover assets upon which execution may be made." Federal Deposit Ins. Corp. v. LeGrand, 43 F.3d 163, 172 (5th Cir. 1995).
26 U.S.C. § 6321 imposes a tax lien "in favor of the United States upon all property and rights to property, whether real or personal" belonging to a person liable to pay tax but neglects or refuses to pay the tax after demand. The scope of 26 U.S.C. § 6321 "is broad and reveals on its face that Congress meant to reach every interest in a property that a taxpayer may have." Drye v. United States, 528 U.S. 49, 56, 120 S.Ct. 474 (1999); United States v. National Bank of Commerce, 472 U.S. 713, 719-720 (1985).
The Government contends that since it has a broad tax lien and will presumably obtain a judgment based on the unpaid tax liability, Mr. Crisp should be directed to provide a report to detail Mrs. Crisp's estate. The Government relies on authority addressing post-judgment discovery and collection. The Government provides no authority, including that discussed above, to authorize the prejudgment discovery it seeks and appears to claim discovery is in order to assist its collection efforts. In addition, the Government provides no authority that Mr. Crisp should provide a report in the absence of his appointment as personal representative. Without such authority, this Court is not in a position to require Mr. Crisp to provide a report requested by the Government.
Extension To Substitute Mr. Crisp For Mrs. Crisp
Alternatively, the Government seeks an extension to substitute Mr. Crisp for Mrs. Crisp for 90 days after Mr. Crisp files the report on Mrs. Crisp's estate. The fact that no one has been appointed as representative of a deceased party's estate would undoubtedly constitute "good cause" to delay a motion to substitute the representative. 1 Schwarzer, Tashima Wagstaffe, Cal. Practice Guide: Federal Civil Procedure Before Trial (2002) Parties, para. 7:363, p. 7-97. "A discretionary extension should be liberally granted absent a showing of bad faith on the part of the movant for substitution or undue prejudice to other parties to the action." Miller Bros., 505 F.2d at 1035.
F.R.Civ.P. 25(a)(1) provides a deadline to file a substitution motion "not later than 90 days after the death is suggested upon the record by service of a statement of the fact of the death." No one on behalf of Mrs. Crisp has filed a statement of fact of death. In fact, the Government brought Mrs. Crisp's death to this Court's attention and has timely sought to substitute Mrs. Crisp. Since absence of a personal representative for Mrs. Crisp is good cause to delay a substitution motion, a subsequent motion to substitute Mrs. Crisp is appropriate pending appointment of a personal representative, be it Mr. Crisp or someone else, or pending distribution of her estate.
CONCLUSION AND ORDER
For the reasons discussed above, this Court:
1. DENIES without prejudice the Government's motion to substitute Mr. Crisp for Mrs. Crisp pending his appointment as personal representative or evidence he is a distributee of her estate; and
2. DENIES the Government's motions to appoint Mr. Crisp as Mrs. Crisp's personal representative and to require Mr. Crisp's report on Mrs. Crisp's estate in the absence of jurisdiction or authority to do so.
IT IS SO ORDERED.