Dmb Realco Llc et al v. United States of America

Cross MOTION for Summary Judgment Partial Summary Judgment and Memorandum of Points and Authorities in Support Thereof

D. Ariz.March 24, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 YALE F. GOLDBERG (AZ 005245) DEREK W. KACZMAREK (AZ 028669) FRAZER, RYAN, GOLDBERG & ARNOLD, L.L.P. 3101 North Central Avenue, Suite 1600 Phoenix, AZ 85012-2615 Telephone: (602) 277-2010 Email:ygoldberg@frgalaw.com dkaczmarek@frgalaw.com JEFFRY A. BERNSTEIN (State Bar No. 79673) CLIFFORD E. YIN (State Bar No. 173159) FREDRICK C. CROMBIE (State Bar No. 244051) COBLENTZ PATCH DUFFY & BASS LLP One Montgomery Street, Suite 3000 San Francisco, California 94104-5500 Telephone: 415.391.4800 Facsimile: 415.989.1663 Email:ef-jab@cpdb.com ef-cey@cpdb.com ef-fcc@cpdb.com Attorneys for Plaintiff DREW M. BROWN., and Intervenor DMB ASSOCIATES, INC. UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA, PHOENIX DIVISION DMB REALCO, LLC, by and through DMB ASSOCIATES, INC., its Tax Matters Partner, Plaintiff, v. UNITED STATES OF AMERICA, Defendant. Case No. CV-16-01585-NVW DMB REALCO LLC'S CROSS- MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT [Oral Argument Requested] Judge: Hon. Neil V. Wake Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 1 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 i CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 TABLE OF CONTENTS Page INTRODUCTION ................................................................................................................. 1 BACKGROUND ................................................................................................................... 3 I. DMB ................................................................................................................ 3 II. The Original Deed ........................................................................................... 3 III. The FPAA........................................................................................................ 4 IV. The Amended Deed......................................................................................... 4 V. The Superior Court Judgment Deeming The Amended Deed Effective Nunc Pro Tunc, As Of December 22, 2006 .................................................... 5 VI. This Action ...................................................................................................... 6 ARGUMENT......................................................................................................................... 6 I. The Amended Deed Controls the Federal Tax Consequences of DMB's Donation and Meets the Requirements for a Qualified Contribution..................................................................................................... 6 A. The Amended Deed Controls the Federal Tax Consequences of DMB's Donation Because Property Rights Are Determined Under State Law. .................................................................................. 6 1. Flitcroft Was Not "Effectively Overruled" By Bosch............... 8 2. The Superior Court Judgment Was Not Obtained By Collusion. ................................................................................ 10 a. The Superior Court Judgment determined what property rights DMB transferred to Buckeye on December 22, 2006. ..................................................... 10 b. The Court should refuse to review the Superior Court Judgment for its correctness............................... 12 c. It Is Irrelevant That Buckeye did not resist the Superior Court Action. ................................................. 15 d. The Government had notice of the Superior Court Action................................................................. 15 3. This Court is bound by Flitcroft and cannot overturn it. ........ 16 B. The Amended Deed Meets the Requirements for a Qualified Contribution........................................................................................ 17 Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 2 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 ii CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 1. The Amended Deed meets the proportionality requirements of Regulation § 1.170A‑14(g)(6) regarding perpetuity. ............................................................... 17 2. Arizona's Conflict of Interest Statute Does Not Apply to Make the Donation Voidable and not in Perpetuity................ 17 3. The Amended Deed meets the requirements of Regulation § 1.170A-14(g)(5) regarding donor reserved rights........................................................................................ 18 II. The Contribution Was Substantiated With a Contemporaneous Written Acknowledgement From the Donee Organization........................... 20 CONCLUSION.................................................................................................................... 23 Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 3 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 iii CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 TABLE OF AUTHORITIES Page(s) Cases: Averyt v. Comm'r, 104 T.C.M. (CCH) 65 (2012) ........................................................................................ 20 Bond v. Commissioner, 100 T.C. 32 (1993) ......................................................................................................... 20 Commissioner v. Estate of Bosch, 387 U.S. 456 (1967) ..................................................................................................... 8, 9 Crimi v. Comm'r, 105 T.C.M. (CCH) 1330 ................................................................................................ 22 DMB Realco L.L.C. v. City of Buckeye, Case No. CV2016-002658 ..................................................................................... 5, 7, 15 Flitcroft v. Comm'r, 328 F.2d 449 (9th Cir. 1964)................................................................................... passim French v. Comm'r, 111 T.C.M. (CCH) 1241 (2016) .................................................................................... 23 Irby v. Comm'r, 139 T.C. 371 (2012) ................................................................................................... 2, 20 Isaak v. Massachusetts Indem. Life Ins., Co., 623 P.2d 11 (Ariz. 1981).................................................................................... 10, 11, 12 Lopez v. Ryan, 2009 WL 2707178 (D. Az.) ........................................................................................... 16 Mackey v. Philzona Petrol. Co., 378 P.2d 906 (Ariz. 1963).............................................................................................. 14 Miller v. Gammie, 335 F.3d 889 (9th Cir. 2003)............................................................................................ 9 Morgan v. Comm'r, 309 U.S. 78 (1940) ........................................................................................................... 6 Nussbaumer v. Superior Court, 489 P.2d 843 (Ariz. 1971).............................................................................................. 14 Phil Bramsen Distrib., Inc. v. Mastroni, 726 P.2d 610 (Ariz. App. 1986)............................................................................... 13, 15 RP Golf, LLC v. Comm'r, 104 T.C.M. (CCH) 413 (2012) ...................................................................................... 20 Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 4 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 iv CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 Cases (cont'd): U.S. v. Boulware, 384 F.3d 794 (9th Cir. 2004), cert. denied 546 U.S. 814 (2005)..................................... 9 Underdown v. Reche, 595 P.2d 439 (Ariz. App. 1979)......................................................................... 12, 13, 15 United States v. Irvine, 511 U.S. 224 (1994) ....................................................................................................... 11 United States v. Pelzer, 312 U.S. 399 (1941) ....................................................................................................... 11 Estate of Warren v. Comm'r, 981 F.2d 776 (5th Cir. 1993)............................................................................................ 9 Statutes: 26 U.S.C. § 170................................................................................................................ 9, 12 26 U.S.C. § 170(a)(1) .......................................................................................................... 10 26 U.S.C. § 170(f)(8).................................................................................................... passim 26 U.S.C. § 170(f)(8)(A) ..................................................................................................... 20 26 U.S.C. § 504(b)............................................................................................................... 11 26 U.S.C. § 2056.................................................................................................................... 8 Ariz. Rev. Stat. § 9-240.A ................................................................................................... 22 Ariz. Rev. Stat. § 38-511 ............................................................................................... 17, 18 Ariz. Rev. Stat. § 38-511.F .................................................................................................. 18 Regulations: 26 C.F.R. § 1.170A-14.................................................................................................. passim Other Authorities: 27 Williston on Contracts § 70:19 ....................................................................................... 10 Ariz. Atty. Gen. Op. No. I16-003 ........................................................................................ 17 Federal Rules of Civil Procedure Rule 56 ............................................................................. 1 Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 5 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 v CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 Town of Buckeye Code of Ordinances: §2-5-1 ............................................................................................................................. 21 §3-4-1 ............................................................................................................................. 21 §7-6-1 ............................................................................................................................. 21 Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 6 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 1 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 Pursuant to Rule 56 of the Federal Rules of Civil Procedure, DMB Realco LLC ("DMB") by and through DMB Associates, Inc., its Tax Matters Partner, respectfully moves the Court for partial summary judgment with respect to the issues presented in Phase I of this case (the "Phase I Issues"): (1) whether the conservation easement that DMB donated to the Town (now City) of Buckeye ("Buckeye") met the perpetuity requirements of Treasury Regulation (26 C.F.R.) § 1.170A-14(g)(6) ("Regulation"); (2) whether DMB obtained a contemporaneous written acknowledgement meeting the requirements of Internal Revenue Code (26 U.S.C.) (the "Code) § 170(f)(8); and (3) whether that conservation easement was contrary to certain document and notice requirements of Regulation § 1.170A-14(g)(5). For the reasons set forth below, DMB's donation met each of the foregoing requirements. Consequently, the Court should grant summary judgment on those issues in favor of DMB and against the Government. INTRODUCTION This case concerns DMB's charitable deduction for its donation to Buckeye of a conservation easement over approximately 182 acres of valuable undeveloped hillside land in the Verrado planned development near Phoenix (the "Conservation Easement"). Congress specifically permitted charitable deductions for conservation easements to "encourag[e] landowners across our country to conserve millions of acres of farm land and scenic open spaces," and to provide landowners with "the certainty they need to preserve and protect even more property and natural resources for future generations." (Decl. of Fredrick C. Crombie ("Crombie Decl." Ex. 1 [Heller Press Release].)) DMB's donation of the Conservation Easement was consistent with the purposes of the law. Now the Government, although it concedes that DMB donated a valuable conservation easement to Buckeye, seeks to deny DMB a charitable deduction based upon hyper-technical flaws in the original documentation of that donation. The Government argues that the original deed recorded on December 22, 2006 (the "Original Deed") and documenting the easement contribution violated the perpetuity requirements of Regulation § 1.170A-14(g)(6) and certain document and notice requirements of Treasury Regulation Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 7 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 2 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 § 1.170A-14(g)(5) regarding donor-reserved rights. It thus concludes that because that Original Deed did not comply with each and every technical requirement of the Regulations, DMB's deduction must be denied, notwithstanding its beneficial donation. The Government is wrong. DMB and Buckeye always intended that the Conservation Easement meet both state and federal law definitions of a conservation easement, including state and federal law perpetuity requirements. (See Jt. Stip. Ex. 1 [Orig. Deed] Recitals C, D.) The flaws upon which the Government seizes are drafting errors committed by DMB's retained professionals that caused the originally recorded deed not to accurately document DMB's and Buckeye's intentions for the donation. On May 18, 2012, DMB, Buckeye and Verrado Assembly (the Verrado Home Owner's Association and current property owner) recorded an Amended and Restated Deed (the "Amended Deed") correcting their retained professionals' drafting errors. On November 2, 2016, the Arizona Superior Court for the State of Arizona, County of Maricopa (the "Superior Court") entered a judgment (the "Superior Court Judgment") reforming that Original deed "nunc pro tunc to and effective as of the original recording date (December 22, 2006)" to incorporate the terms of the Amended Deed. As a result, that Amended Deed (and not the Original Deed) controls the tax consequences of DMB's donation. Flitcroft v. Comm'r, 328 F.2d 449 (9th Cir. 1964). The Amended Deed meets all of the Code and Treasury Regulation requirements for a charitable donation, including the perpetuity requirements of Regulation § 1.170A-14(g)(6), (see Jt. Stip. ¶ 13), and the document and notice requirements of Regulation § 1.170A-14(g)(5). The Government also wrongly asserts that DMB should be denied its charitable deduction "because it failed to secure a contemporary written acknowledgement from Buckeye stating whether DMB received goods or services from Buckeye in exchange for the gift," as is required by Code Section 170(f)(8). (Def's Mot. at 16:19-21.) A contemporaneous written acknowledgement need not take any form and may be comprised of several documents so long as those documents provide a description of the property donated and information showing that the donee did not provide any goods or services in exchange for the donation. Irby v. Comm'r, 139 T.C. 371, 387 (2012). The Original Deed Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 8 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 3 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 described the real property that was subject to the Conservation Easement, and the Form 8283 filed with DMB's 2006 income tax return and signed by Buckeye's Finance Director, described the property donated as a conservation easement over 182 acres. (See Jt. Stip. Ex. 1 [Orig. Deed] at Exs. A & B thereto; Decl. of M. Alexander ("Alexander Decl."), Ex. 2.) And those same documents together with the Buckeye's Council Resolution approving the acceptance and execution of the Original Deed and the form requesting that council approval all show that Buckeye provided no goods or services in exchange for the donated easement. (id.; Jt. Stip. Exs. 2, 3.) BACKGROUND I. DMB DMB, through its affiliates, is engaged in the development of master-planned communities and commercial, office and retail properties in Arizona and across the United States. DMB is the developer of Verrado, a nearly 9,000 acre master-planned community set against the White Tank Mountains in Buckeye, Arizona 25 miles west of downtown Phoenix. DMB, through its wholly owned subsidiary DMB White Tank, held legal title to the easement property. II. The Original Deed On December 22, 2006, DMB (through DMB White Tank its wholly owned subsidiary disregarded for income tax purposes) conveyed by gift a conservation easement to Buckeye over approximately 182 acres of undeveloped hillside in Verrado (the "Conservation Easement"), and shortly thereafter conveyed the remaining fee title over that land to the Verrado Assembly. DMB granted the Conservation Easement to Buckeye "to preserve [the Easement Area] as open space, for the scenic enjoyment of the general public, for educational purposes, and to protect and preserve the natural habitat for wildlife and vegetation (the 'Conservation Purposes')." (Jt. Stip. Ex. 1 [Orig. Deed] Recital D.) Both DMB and Buckeye intended that the Conservation Easement would be a "perpetual" easement that constituted a "Conservation Easement, as that term is used in state and federal law." (Id. at Recitals C, D; see also id. §§ 1, 2.1, 13, 15.5.) Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 9 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 4 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 DMB hired expert legal and accounting professionals to document its conveyance of the Conservation Easement to Buckeye. (Jt. Stip. Ex. 18.) Those professionals were charged with preparing the deed conveying the Conservation Easement to conform with the requirements of a Conservation Easement under both state and federal law, including Code Section 170(f)(8) and Regulation Section 1.170A-14, which required, among other things, that the easement grant a perpetual vested property right in the donee. (Id.) On December 22, 2006, DMB and Buckeye recorded a fully executed Deed of Conservation Easement (the "Original Deed"), that they mistakenly believed had accurately documented their agreement. (See Jt. Stip. Ex. 1 [Orig. Deed].) III. The FPAA DMB reported a charitable contribution deduction of $26,440,000 for its donation of the Conservation Easement to Buckeye (the "Charitable Deduction") on its federal income tax return for the tax period ending December 31, 2006. (Jt. Stip. ¶ 9.) The IRS audited DMB and on December 28, 2015 issued a Final Partnership Audit Adjustment ("FPAA") disallowing the Charitable Deduction in full. (Id. Ex. 7.) In the FPAA, the IRS contended that the Conservation Easement DMB granted to Buckeye was not a qualified real property interest enforceable in perpetuity, and that DMB failed to provide a contemporaneous written acknowledgement stating that no goods or services were provided in consideration of the donation. (Id. at 7.) IV. The Amended Deed During the audit, DMB learned that Section 6 of the Original Deed contained a scrivener's error that was inconsistent with and contrary to DMB's and Buckeye's express intent that the Original Deed grant Buckeye a perpetual interest in a Conservation Easement, as defined by federal tax law. Section 6 of the Original Deed stated that, if the Conservation Easement was extinguished through a judicial proceeding due to "changed conditions," Buckeye would be entitled to receive any resulting proceeds in an amount equal to the "fair market value" of its interest in the Easement Area as of the date the deed was recorded (i.e., December 22, 2006). Although an extinguishment is so highly remote a possibility as to be Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 10 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 5 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 negligible (see Regulation § 1.170A-14(g)(3)), to qualify as a "Conservation Easement" under the applicable Regulations upon a sale or disposition of the property, the donee must be entitled to receive the proportionate amount of the conservation easement's fair market value that it bears to the total value of the property as a whole at time of the transfer (and not, as set forth in Section 6 of the Original Deed, a fixed amount of fair market value measured as of the date of conveyance). See. Regulation § 1.170A-14(g)(6)(ii). (Interestingly, due to the decline in value in years after 2006, the fair market value would have far exceeded the proportionate value were the Conservation Easement to have been extinguished.) DMB acted promptly to request that Verrado and Buckeye correct the error and execute an Amended and Restated Deed of Conservation Easement to be effective as of December 19, 2006 (the "Amended Deed"). (Jt. Stip. Ex. 6.) That Amended Deed corrected numerous scrivener's errors made by DMB's retained professionals so that it now accurately documents DMB's and Buckeye's original agreement that the Conservation Easement convey to Buckeye an immediately vested, irrevocable and perpetual property interest in December 2006. (Id.) That Amended Deed was recorded with the Maricopa County Recorder's Office on May 18, 2012. The Government stipulated that that Amended Deed "satisfies the requirements of Regulation § 1.170A-14(g)(6) that the easement be protected in perpetuity within the meaning of that Regulation." (Jt. Stip. ¶ 13.) V. The Superior Court Judgment Deeming The Amended Deed Effective Nunc Pro Tunc, As Of December 22, 2006 On April 1, 2016, Plaintiff commenced an action in the Arizona Superior Court, County of Maricopa, entitled DMB Realco L.L.C. v. City of Buckeye, Case No. CV2016- 002658 (the "Superior Court Action"), with notice to the United States. (Jt. Stip. ¶¶15, 16.) On November 2, 2016, the Superior Court entered its judgment in the Superior Court Action, finding that Section 6 of the Original Deed contained a scrivener's error and that the Amended Deed correcting that error was effective nunc pro tunc, as of December 22, 2006 (the "Superior Court Judgment"). (Id. ¶ 18, Ex. 13.) Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 11 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 6 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 VI. This Action DMB commenced this action to seek readjustment of the FPAA on the grounds that, inter alia, after the Superior Court Judgment reforming the Original Deed, the Amended Deed met all of the requirements for a charitable deduction of a conservation easement. The Government did not accept the Superior Court Judgment, and in the parties' Joint Plan (ECF 32), the parties proposed to file, as the first of two phases to this proceeding, cross-motions for summary judgment as to whether: (i) the Conservation Easement met the perpetuity requirements of Regulation § 1.170A-14(g)(6); (ii) DMB obtained a contemporaneous written acknowledgement under Code Section 170(f)(8), and (iii) the Conservation Easement met the requirements of Regulation § 1.170A-14(g)(5) relating to reserved rights.1 ARGUMENT I. The Amended Deed Controls the Federal Tax Consequences of DMB's Donation and Meets the Requirements for a Qualified Contribution. DMB's entitlement to a Charitable Deduction depends in part upon whether the Original or Amended Deed controls the federal tax consequences of its donation to Buckeye. The parties have stipulated that Section 6 of the Amended Deed satisfies the requirements of Regulation § 1.170A-14(g)(6) that the easement be protected in perpetuity within the meaning of that Regulation (Jt. Stip. ¶ 13). The Government contends that the Original Deed controls. (Def's Mot. at 6:4–16:6.) It is wrong. Under binding Ninth Circuit precedent, Flitcroft v. Comm'r, 328 F.2d 449 (9th Cir. 1964), the Amended Deed controls. Accordingly, the Conservation Easement meets the perpetuity requirements of the Regulation and meets all of the requirements for a qualified conservation contribution deduction. A. The Amended Deed Controls the Federal Tax Consequences of DMB's Donation Because Property Rights Are Determined Under State Law. "State law creates legal interests and rights. The federal revenue acts designate what interests or right so created, shall be taxed." Morgan v. Comm'r, 309 U.S. 78, 80 (1940); see 1 Although not asserted by the IRS in the FPAA, the Government belatedly now contends that DMB failed to meet those requirements. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 12 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 7 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 also Flitcroft, 328 F.2d at 456 ("State law is controlling in determining the nature of the legal interests and rights which the taxpayer has in the property or income sought to be reached. The federal revenue acts designate what interests or rights shall be taxed."). Consequently, the Ninth Circuit, as stated in Flitcroft, has followed the general rule that final state court decisions determining the parties' property rights, including those retroactively reforming legal documents, are to that extent, binding and conclusive with respect to tax liability. Flitcroft, 328 F.2d at 454 (state court judgment retroactively reforming trust agreements to reflect the trustors' original intention held binding for federal tax purposes). In Flitcroft, the taxpayer's attorney drafted a trust but failed to include that the trust was "irrevocable" under state law. Hence, the trust was revocable and the income was taxed to the grantor of the trust and not to the trust as a separate taxpayer. The error was discovered in an IRS audit, and two years later the trust agreement was amended and reformed to make it irrevocable, which was the express intent of the trustors. The trustees obtained an order from the California Superior Court reforming the trust nunc pro tunc as of the date of the trust's formation. The IRS refused to recognize the Superior Court's decision reforming the trust and its position was upheld by the United States Tax Court. The Ninth Circuit overruled the Tax Court and determined that state law controls the property rights of the taxpayer and federal tax law designates what rights are taxed. The Court further determined that the Superior Court action was not collusive, in part because the federal tax authorities were given notice of the state court action. The Superior Court Judgment (and the facts surrounding it) is similar to the retroactive California judgment that was binding for federal tax purposes under Flitcroft. Here, the Superior Court Judgment determined that the Original Deed was drafted in error and did not reflect the intent of the parties, and pursuant to well-established Arizona law, reformed that document retroactively "nunc pro tunc to and effective as of the original recording date (December 22, 2006) to incorporate the terms of the [Amended Deed]." (Jt. Stip. Ex. 13.) That was a determination of DMB's, Buckeye's and Verrado's respective property rights under Arizona law – i.e. that their respective property rights always were Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 13 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 8 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 those described in the Amended Deed – and it is therefore the Amended Deed that controls the federal tax consequences of DMB's contribution. Although the Superior Court judgment determined the parties' property rights, the Government asserts, contrary to Flitcroft, that this Court should disregard that judgment and the Amended Deed. But its arguments in this respect all miss the mark. 1. Flitcroft Was Not "Effectively Overruled" By Bosch. The Government first argues that the Ninth Circuit's decision in Flitcroft was "effectively overruled by the Supreme Court's decision in Commissioner v. Estate of Bosch, 387 U.S. 456 (1967), which the Government contends "rejected the state-court-judgments- are-conclusive reasoning the Ninth Circuit employed in Flitcroft by overruling one of the key cases on which the Flitcroft case relied." (Def's Mot. at 7:13–11:2.) The problem with that argument, however, is that the Bosch Court expressly limited its holding to matters involving the federal estate tax marital deduction and its underlying reasoning hinged on legislative history unique to that provision. See Bosch, 387 U.S. at 457, 463-64. Bosch involved the application of the marital deduction for estate tax purposes under Code Section 2056. In the companion cases before it, representatives of the estates obtained rulings from a state probate court on state law issues that would have affected the calculation of the estate tax liability if respected for federal tax purposes. Id. at 457-61. After the Tax Court determined that the state probate court judgments were conclusive for federal estate tax purposes and the Second Circuit affirmed, the Supreme Court reversed. In doing so, it issued an expressly narrow holding applicable only in the estate tax context: We hold that where the federal estate tax turns upon the character of a property interest held and transferred by the decedent under state law, federal authorities are not bound by the determination made of such property interest by a state trial court. Id. at 457. The Supreme Court could have issued a holding generally applicable to all federal taxes, but it did not. It could have overruled or distinguished Flitcroft (decided before Bosch), but did not. Indeed, it made no mention of Flitcroft whatsoever. And that is because its underlying reasoning was specific to federal estate taxes (id. at 463-64): Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 14 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 9 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 We find that the report of the Senate Finance Committee recommending enactment of the marital deduction used very guarded language in referring to the very question involved here. It said that ‘proper regard,’ not finality, ‘should be given to interpretations of the will’ by state courts and then only when entered by a court ‘in a bona fide adversary proceeding.’ S.Rep. No. 1013, Pt. 2, 80th Cong., 2d Sess., 4. We cannot say that the authors of this directive intended that the decrees of state trial courts were to be conclusive and binding on the computation of the federal estate tax as levied by the Congress. If the Congress had intended state trial court determinations to have that effect on the federal actions, it certainly would have said so—which it did not do. On the contrary, we believe it intended the marital deduction to be strictly construed and applied. Not only did it indicate that only ‘proper regard’ was to be accorded state decrees but it placed specific limitations on the allowance of the deduction as set out in section 2056(b), (c), and (d). For this and other reasons, the Ninth and Fifth Circuits have acknowledged the limited applicability of Bosch to federal estate taxes. See U.S. v. Boulware, 384 F.3d 794, 803-804 (9th Cir. 2004) (citing Flitcroft and relying on Bosch's reasoning and pre- and post-Bosch precedent to explain its limited applicability to estate taxes only), cert. denied 546 U.S. 814 (2005)2; Estate of Warren v. Comm'r, 981 F.2d 776, 779-82 (5th Cir. 1993) (Bosch not applicable to the federal estate tax charitable deduction and reversing Tax Court decision that refused to give effect to Texas Probate Court judgment).3 Flitcroft thus remains good law in the Ninth Circuit. Moreover, the Government cites nothing in the legislative history of Code Section 170 that is comparable to that cited in Bosch with respect to the effect of state court decrees that might counsel the lesser regard for such decrees that the Government urges. The 2 Although the Government contends that Boulware's discussion of Bosch was "dicta," that discussion was a necessary element of the Court's opinion, explaining why the Court assumed that the state court judgment controlled and then proceeded to the next step of analyzing what that judgment determined. See Boulware, 384 F.3d at 803-04. 3 Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003), is not to the contrary, and the Government's strained effort to quote it, while inserting the word "Flitcroft" in brackets, is grossly misleading. The words "Flitcroft" and "Bosch" appear nowhere in that decision, which concerned neither federal taxes nor the binding nature of state court decisions. Rather, it involved differences between a Ninth Circuit decision and later Supreme Court decisions regarding the degree of immunity afforded to social workers. See id. at 899-900. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 15 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 10 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 Government points to Code Section 170(a)(1) and states that "[i]ts aim was to eliminate deductions claimed when a binding pledge to make a donation was made in one year, but the transfer didn't occur until a year later." (Def's Mot. at 11:6-8.) But that policy is not implicated by a state court judgment reforming an instrument. Reformation merely conforms an erroneous instrument to accurately reflect parties' previously reached agreement. Reformation does not change the parties' original agreement. Isaak v. Massachusetts Indem. Life Ins., Co., 623 P.2d 11, 14 (Ariz. 1981) ("Reformation is the remedy designed to correct a written instrument which fails to express the terms agreed upon by the parties; it is not intended to enforce the terms of an agreement the parties never made."); see also 27 Williston on Contracts § 70:19. In other words, reformation of the Original Deed to conform with the Amended Deed did not cause a later transfer, but rather reformed the document to accurately reflect those rights transferred on December 22, 2006. 2. The Superior Court Judgment Was Not Obtained By Collusion. Under Flitcroft, state court proceedings are presumed to be "regular and valid," and where, as here, "collusion" is asserted by the Government, "it is incumbent upon [it] to produce at least some evidence to that effect." Flitcroft, 328 F.2d at 454. The Flitcroft court identified four factors to consider in the collusion analysis: The mere fact that the action instituted by the trustees was not resisted by the trustors, and was to that extent a ‘consent’ decree, does not in itself make the decree collusive. It is one factor to be considered. Other factors include (1) the nature of the right determined by the state court; (2) whether the federal tax authorities have notice of the state court action; and (3) whether the state court reached the correct result. Flitcroft, 328 F.2d at 455. We address each of those factors, demonstrating that the Superior Court Judgment was not obtained by collusion of the parties. a. The Superior Court Judgment determined what property rights DMB transferred to Buckeye on December 22, 2006. The fundamental relief afforded in the Superior Court Judgment was to reform the Original Deed "nunc pro tunc to and effective as of the original recording date (December Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 16 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 11 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 22, 2006) to incorporate the terms of the [Amended Deed]." (Jt. Stip. 13.) As explained above, reformation does not change the rights originally transferred, but merely operates to conform an instrument to better evidence those already transferred rights. Isaak, 623 P.2d at 14. Consequently, the fundamental nature and effect of the Superior Court Judgment was to (i) determine the rights transferred by DMB to Buckeye on December 22, 2006, and (ii) to conform the Original Deed to the Amended Deed so that it accurately described those transferred rights. Clearly, the rights determined by the Superior Court Judgment were property rights involving a Conservation Easement. The Government, however, asserts that the "key issue . . . is not what those rights are, but when they were created," and, citing United States v. Irvine, 511 U.S. 224 (1994), argues that federal law somehow controls the question of when DMB transferred certain property rights to Buckeye. (Def's Mot. at 14:14–15:2.) The Government is wrong and the Irvine case it relies upon is inapposite. In Irvine, the Supreme Court was called upon to determine the federal gift tax consequences of the taxpayer's disclaimer of an interest in a trust years after she first learned of that interest and began receiving her annual share of trust income. Id. at 226-27. Minnesota law both permitted that late disclaimer and treated it as relating back to the date of the transfer of the interest later disclaimed. Id. at 239. The Supreme Court held that federal tax laws were not beholden to that legal fiction treating a disclaimer actually made in one year as being (fictionally) made in an earlier year. Id. at 238-240 (noting that "the Jewett [v. Comm'r, 455 U.S. 305 (1982)] Court was undoubtedly correct to hold that Congress had not meant to incorporate state-law fictions as touchstones of taxability when it enacted the Act.")4 Contrary to the Minnesota statutes at issue in Irvine, reformation under Arizona law does not rely upon any legal fiction – it relies instead upon what actually occurred, i.e. what property rights DMB actually transferred to Buckeye on 4 United States v. Pelzer, 312 U.S. 399 (1941), also cited by the Government concerned the definition of a "future interest" in property, which was provided both by the clear legislative history of Code Section 504(b) and by the applicable Regulation. Id. at 403. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 17 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 12 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 December 22, 2006. See Isaak, 623 P.2d at 14. b. The Court should refuse to review the Superior Court Judgment for its correctness. State court judgments that finally and conclusively adjudicate property rights should not be reviewed for their correctness. As Flitcroft explained: . . . there are at least three types of tax cases with respect to which the effect of state decisions might be quite different. Where the state court adjudicates property rights, its decree must ‘be given effect, not because it is res judicata against the United States, but because it is conclusive of the parties' property rights which alone are to be taxed. So far as those parties are concerned the law of the state is what the state court has declared and applied in their case. If the state court's judgment has binding final effect under the state law the rights of the parties can only be what the court has held them to be. It is for this reason that the federal court should not in a case of this kind make an independent examination and application of state law. Id. at 455 (internal citations and quotations omitted; emphasis added). Inasmuch as the Superior Court Judgment finally and conclusively determined the property rights transferred by DMB to Buckeye on December 22, 2006, this Court should not review that judgment for its correctness for the very reasons articulated in Flitcroft.5 But even were the Court to review the Superior Court Judgment for its correctness, it is correct. Arizona law permits a court to reform a deed that fails to express the parties' intention (and true agreement) because of a mistake or negligent drafting. See Underdown v. Reche, 595 P.2d 439 (Ariz. App. 1979). The evidence presented to the Superior Court showed that DMB hired expert legal and accounting professionals knowledgeable in this area of law and that its counsel (in his Declaration) understood that (i) DMB and Buckeye intended that the Conservation Easement be "perpetual," and (ii) that DMB intended that its donation of the Conservation Easement qualify for the charitable deduction under Code Section 170 and that it satisfy the requirements of Treasury Regulation § 1.170A-14, 5 The Government contends otherwise, but ignores that Flitcroft nowhere analyzed the correctness of the state court judgment before it and affirmatively stated that it would not. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 18 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 13 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 including its perpetuity requirement. (Jt. Stip. Ex. 11, at Ex. 6 thereto [Decl. of G. Birnbaum].) The evidence also showed that DMB actually intended to donate and Buckeye actually intended to accept an easement that was perpetual – (see Jt. Stip. Ex. 1 [Orig. Deed] at Recital ¶ C and §§ 1, 2.1, 13, 15.5. ) – and that constituted a "Conservation Easement as that term is used in state and federal law," (see id. at Recital ¶ D (emphasis added).) Finally, the evidence showed that DMB's attorneys inaccurately drafted the Original Deed in such a way that it did not reflect DMB's transfer to Buckeye of the right, in the event of a judicial extinguishment, to receive the proportionate amount of the conservation easement's fair market value that it bears to the total value of the property as a whole at the time of the transfer, as was required under Regulation § 1.170A-14(g)(6) and as DMB and Buckeye intended at the time. (Id. § 6.) Reformation of the Original Deed to conform to the Amended Deed was therefore appropriate. Underdown, 595 P.2d at 672; Phil Bramsen Distrib., Inc. v. Mastroni, 726 P.2d 610 (Ariz. App. 1986) (reforming lease nunc pro tunc to conform to the parties' actual intent, notwithstanding that the original lease was unambiguous).6 The Government argues that the Superior Court was fooled by a "false equivalence between two different contexts for the word 'perpetual.'" (Def's Mot. at 11:23-24.) As the Government tells it, "the Original Deed did grant Buckeye a 'perpetual' interest in the Property in the sense that the easement was permanent and irrevocable," and "[t]hat's the sense in which 'perpetual' was used in the Original Deed." (Def's Mot. at 11:24–12:16.) But the Government offers no evidence to support that assertion; it merely points to the Original Deed and speculates as to DMB's and Buckeye's intention in using the word "perpetual." 6 The Government urges that "it's not clear that DMB presented all of the facts" to the Superior Court because it "didn't point out the other substantive changes it made." (Def's Mot. at 11:18-22.) But the Government does not identify even one change that it contends might actually have been relevant. Moreover, DMB provided the Superior Court with the full text of both the Original and Amended Deeds, (Jt. Stip. Ex. 11 at Exs. 3 and 10 thereto), and Buckeye had neither any objection nor any factual or legal basis to object to the requested reformation, (Jt. Stip. Ex. 12). The Superior Court had all of the relevant facts. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 19 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 14 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 (Id.) That speculation is wrong. As noted above, the Original Deed stated that "Grantor wishes to donate to Grantee, and Grantee wishes to accept, a Conservation Easement, as that term is used in state and federal law, for the purpose of preserving the Conservation Values." (Jt. Stip. Ex. 1 [Orig. Deed] at Recital ¶ D (emphasis added).) Hence, the word "perpetual" as used in the Original Deed must be interpreted in both its state and federal law senses, and when DMB explained to the Superior Court that the Original Deed mistakenly failed to document the conveyance of a "perpetual" easement under federal law, there was no "false equivalence" and no deception of that court. In this respect, the Nussbaumer and Mackey cases cited by the Government are off point. In both of those cases, the plaintiffs knowingly entered into a particular form of transaction, but were mistaken as to the eventual consequences of that transaction. Hence, the plaintiff in Nussbaumer knowingly bid the full amount of debt owed to it by the judgment debtor in the foreclosure sale of the debtor's real property, and thereby inadvertently extinguished its claims against third persons that had failed to honor its liens. Nussbaumer v. Superior Court, 489 P.2d 843, 844-45 (Ariz. 1971). Similarly, the plaintiff in Mackey knowingly ratified a fraudulent contract by reselling the stock acquired under that contract, inadvertently waiving his right to rescind that fraudulent contract in a later suit. Mackey v. Philzona Petrol. Co., 378 P.2d 906 (Ariz. 1963). In both cases, the courts refused to rescue the plaintiffs from the unintended consequences of the transactions they intentionally entered into. Nussbaumer, 489 P.2d at 846-47; Mackey, 378 P.2d at 909. Here, there was no mistake as to the consequences of granting the Conservation Easement. Both DMB and Buckeye intended that the easement transferred be perpetual under both state and federal law. (Jt. Stip. Ex. 1 [Orig. Deed] at Recital ¶ D.) Instead, the mistake was in the attorneys' drafting of the Original Deed in such a way that it did not purport to convey an easement that was perpetual under federal law (as required by Regulation § 1.170A-14(g)(6)). In that manner, the Original Deed did not accurately evidence the transfer that took place on December 22, 2006. And under those circumstances, the Superior Court's Judgment reforming the deed, was correct under Arizona law. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 20 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 15 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 Underdown, 595 P.2d at 672; Phil Bramsen, 726 P.2d 610. c. It Is Irrelevant That Buckeye did not resist the Superior Court Action. The mere fact that Buckeye did not resist a state court adjudication of the property rights transferred to it is irrelevant. As Flitcroft explained: "in order for the state court to settle conclusively the property question under state law and by that to fix the tax consequences under federal law, it is not necessary that the adjudication be the result of a contest in which one party says yes and another no." Flitcroft, 328 F.2d at 456 (internal citations and quotations omitted). The Government nonetheless argues that this factor should cut in its favor because "Buckeye had no incentive to resist a reformation," and "its concern was to ensure that the rights that had already been transferred weren't impaired by any reformation." (Def's Mot. at 14:8-13.) But the Government again ignores that the Original Deed confirmed both DMB's and Buckeye's intention that the easement convey a Conservation Easement as the term is used under federal law and that was perpetual. (Jt. Stip. Ex. 1 [Orig. Deed] at Recital ¶ D.) It also ignores that Verrado Assembly also sought reformation even though the terms of the Amended Deed would ensure that it received a lesser share of the value of the property in the event it was condemned. (Jt. Stip. Ex. 8 at 1, 2.) And it further ignores Buckeye's factual admission that it "does not have any basis to dispute the allegations of fact or law of Plaintiff in this regard." (Jt. Stip. Ex. 12 at 1:21-22.) Certainly a state court judgment should not be given less deference where the original document confirms the parties' actual intent, the party with the most to lose (Verrado Assembly) consents to the relief, and the named defendant (Buckeye) concedes that it has no basis in law or fact to contest the relief sought. In the end, this factor is irrelevant. d. The Government had notice of the Superior Court Action. Flitcroft held that the fact that the federal tax authorities are provided with notice of the state court action is an "important factor" cutting against any assertion of collusion. Flitcroft, 328 F.2d at 456-57. Here, DMB provided notice of the Superior Court Action to (1) the United States Attorney for the District of Arizona, (2) the Acting Assistant Attorney Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 21 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 16 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 General for the United States Department of Justice, Tax Division, and (3) Ms. Deborah McFaul, the IRS Appeals Officer assigned to DMB's case. (Jt. Stip. ¶ 16, Ex. 9.) The Government argues that notwithstanding Flitcroft – which is binding upon this Court – this factor should be given "minimal weight" because "it runs counter to the fundamental principal that the federal government is immune from suit except as it consents." (Def's Mot. at 15:19-24 (citing United States v. Nordic Village, Inc., 503 U.S. 30 (1992).) That misses the point. The question is not whether the Superior Court Judgment is res judicata or collateral estoppel against the United States, see Flitcroft, 328 F.2d at 455, but whether the action between DMB and Buckeye was "collusive." Notice to the federal tax authorities shows that the action was conducted in the light of day, not clandestinely behind closed doors, and thus was not "collusive." Id. at 456. As the foregoing demonstrates, all of the Flitcroft factors, to the extent they are relevant, support the binding effect of the Superior Court Judgment reforming the Original Deed nunc pro tunc to incorporate the terms of the Amended Deed.7 3. This Court is bound by Flitcroft and cannot overturn it. In its Motion, the Government argues that this Court should overturn Flitcroft and instead rely upon precedent from other Federal Courts of Appeal. (Def's Mot. at 16:9-16 (citing Van den Wymelenberg v. United States, 397 F.2d 443, 445 (7th Cir. 1968); Am. Nurseryman Pub. Co. v. Comm'r, 75 T.C. 271, 275 (1980).) This Court, however, is bound by Ninth Circuit authority, and thus not bound by the opinions of other circuits. See Lopez v. Ryan, 2009 WL 2707178 at *3 (D. Az.) (noting that the court was bound by Ninth Circuit precedent until overturned by that court). 7 The Government contends that Flitcroft identified a fifth factor to the collusion analysis: whether the mistake was one of federal or state law. Flitcroft identified no such factor while discussing the collusion analysis. See Flitcroft at 455. It discussed the plaintiff's mistake eleven paragraphs earlier as background. The import was not to distinguish between mistakes of state versus federal law, but to distinguish the plaintiff's mistake in drafting its documents to comply with state law and accurately set forth its intention, from a mistake as to the federal tax consequences of creating a revocable trust. See id. at 453. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 22 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 17 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 B. The Amended Deed Meets the Requirements for a Qualified Contribution. 1. The Amended Deed meets the proportionality requirements of Regulation § 1.170A‑14(g)(6) regarding perpetuity. The parties stipulate that "Section 6 of the Amended Deed satisfies the requirements of Regulation § 1.170A-14(g)(6) that the easement be protected in perpetuity within the meaning of that Regulation." (Jt. Stip. ¶ 13.) 2. Arizona's Conflict of Interest Statute Does Not Apply to Make the Donation Voidable and not in Perpetuity The Amended Deed, which controls, does not incorporate Arizona's Conflict of Interest Statute (Ariz. Rev. Stat. § 38-511) ("Section 38-511"). (See gen. Jt. Stip. Ex. 6.) The Government argues that Section 15.8 of the Original (not Amended) Deed violated the perpetuity requirement by referring to Section 38-511, which applies only to contracts with a government body. That statute, according to the Arizona Attorney General, however, "does not apply to a private landowner's gratuitous donation of a conservation easement – which does not impose affirmative obligations on the State or require any consideration in exchange for the donation – because such a donation is not a 'contract' within the meaning of A.R.S. 38-511." (Jt. Stip. Ex. 16 [Ariz. Atty. Gen. Op. No. I16-003] (citing Schade v. Diethrich, 158 Ariz. 1, 8 (1988)).) Because Section 38-511 does not apply to a conservation easement donation, section 15.8 of the Original Deed could not operate to extinguish the easement. The Government speculates that "DMB and Buckeye specifically chose to include a term in the Original Deed allowing Buckeye to terminate the easement," and leaps to the conclusion that "[t]he most reasonable reading of the provision is that it allowed Buckeye to unilaterally terminate the easement if one if its employees had a conflict of interest." (Def's Mot. at 4:12-17.) That argument neither makes sense, nor is consistent with the evidence. First, what conflict of interest could arise from a Buckeye official accepting from DMB a donation that places no duties, obligations or responsibilities on Buckeye, and then hypothetically later going to work for DMB? The Government doesn't identify any because Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 23 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 18 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 none exist. Second, despite having had the opportunity to conduct discovery on this issue, (see Case Mgmt. Order [ECF 34] ¶ 3), the Government offers no evidence supporting its speculation as to the reasons why the Original Deed made reference to Section 38-511. That statute requires all political subdivisions of the state (including Buckeye) to provide notice of the statute in every contract. See Ariz. Rev. Stat. § 38-511.F. The undisputed evidence shows that the parties, at the time they negotiated and executed the Original Deed, were mistaken as to its inclusion because the Original Deed was with a government entity (See Alexander Decl., Ex. 1 ("[w]e have included a reference to the Conflict of Interest Statute A.R.S. § 38-511, even though it is not clear that such a reference is required.") Conversely, there is no evidence whatsoever that the parties reached a (nonsensical) agreement that "the principle behind the statute could apply to the negotiation of an easement as well." (Def's Mot. at 4:12-13.) Ariz. Rev. Stat. § 38-511 simply never applied and its incorporation was a nullity. The provision was deleted in the Amended Deed as it is inapplicable. 3. The Amended Deed meets the requirements of Regulation § 1.170A-14(g)(5) regarding donor reserved rights. Regulation § 1.170A-14(g)(5) imposes certain requirements "when a donor reserves rights the exercise of which may impair the conservation interests associated with the property," including (i) that the donor provide to the donee "documentation sufficient to establish the condition of the property at the time of the gift" and (ii) that the donor "agree to notify the donee, in writing, before exercising any reserved right." This Regulation does not apply to Section 3.1 of the Amended Deed for a simple reason: it does not reserve any rights in favor of the donor. (See Jt. Stip. Ex. 6 at § 3.1 (reserving rights in favor of the "Grantee," not the grantor.) The Government incorrectly argues that the Original (not Amended) Deed failed to meet the requirements of Regulation § 1.170A-14(g)(5). (Def's Mot. at 4:22–5:14.) Even if the Original Deed somehow controlled on this issue – and it does not – Section 3.1 the Original Deed did not reserve any rights the exercise of which might "impair the Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 24 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 19 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 conservation interests associated with the property." Regulation § 1.170A-14(g)(5). Rather, that section reserved only the rights to "revegetate and otherwise improve the eastern end of the Easement Area," in a manner that both (a) "conform[s] the appearance of that area to the appearance of the balance of the Easement Area," and (b) "advance[s] the Conservation Purposes."8 (Jt. Stip. § 3.1.) Those restrictions on the reserved right adequately divested the donor of any right which could impair the conservation interests associated with the Easement Area. As a consequence, the documentation and notice requirements of Regulation § 1.170A-14(g)(5) do not apply even to the Original Deed.9 Moreover, even if section 3.1 of the Original Deed had reserved to the donor rights that might impair the conservation interests – and it did not – DMB substantially complied with Regulation § 1.170A-14(g)(5). The Original Deed contained both a map of the easement area and a description of that area's characteristics (including its vegetative species). (Jt. Stip. Ex. 1 [Orig. Deed] at Exs. A, B.) DMB also provided to Buckeye an October 2000 biological report that, while it pertained to the Verrado project as a whole, when combined with the Original Deed adequately established the condition of the easement area at the time of donation.10 (Jt. Stip. Ex. 4; Decl. of D. Nilsen ("Nilsen Decl.") ¶ 6.) And both DMB and Buckeye had access to a 2006 "Environmental Assessment" of certain undeveloped lands owned by the Bureau for Land Management and that were contiguous to 8 By contrast, Regulation § 1.170A-14(g)(5) identifies only one example of a "reserved right" the exercise of which "may have an adverse impact on the conservation interests": "the right to extract certain minerals." Regulation § 1.170A-14(g)(5)(ii). 9 Sections 4.2 and 4.3 of the Original Deed further prevent any exercise of a reserved right in a manner inconsistent with the Conservation Purposes by granting to the donee the rights to "enter upon the Easement Area at reasonable times in order to monitor compliance" and to "prevent any activity or use of the Easement Area that is [actually] inconsistent with Conservation Easement and to require the restoration of such areas or features of the Easement Area that may be damaged by any inconsistent activity or use." (Id. at §§ 4.2, 4.3.) 10 The Government disregards the October 2000 report on the assertion that "[m]uch can change in six years," (Def's Mot. at 5:5), but after having had the opportunity to take discovery, it cannot cite to even one changed condition. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 25 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 20 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 the Easement Area, and that DMB and Buckeye understood to be in a condition materially identical to the Easement Area. (Jt. Stip. Ex. 17; Nilsen Decl. ¶¶ 3-5.) The Original Deed also provided Buckeye with the right to enter and inspect the property and to enforce the conservation restrictions by appropriate legal remedies. (Jt. Stip. Ex. 1 [Orig. Deed] §§ 4.2, 4.3.) DMB substantially complied with these requirements and that is sufficient. See Bond v. Commissioner, 100 T.C. 32 (1993) (applying substantial compliance doctrine to charitable contribution substantiation requirements). II. The Contribution Was Substantiated With a Contemporaneous Written Acknowledgement From the Donee Organization. Code Section 170(f)(8)(A) provides that no deduction shall be allowed for charitable contributions of $250 or more unless the contribution is substantiated with a contemporaneous written acknowledgement from the donee. "The contemporaneous written acknowledgement 'need not take any particular form.'" Irby v. Comm'r, 139 T.C. 371, 387 (2012). It also may be made up of a "series of documents," so long as those documents, taken together provide: (i) a description of the property; (ii) information as to whether the donee provided any goods or services in consideration of the contribution; and (iii) a description and good faith estimate of the value of any goods or services provided by the donee, if any. Code § 170(f)(8); Irby, 139 T.C. at 387-389 (finding contemporaneous acknowledgement requirement satisfied by combination of five separate documents). Here, several documents, when taken together, satisfy that requirement. First, the Original Deed recites that it is a voluntary grant to Buckeye in consideration of the mutual covenants, terms and conditions stated therein. (Jt. Stip. Ex. 1 [Orig. Deed] at 2.) There is no mention in the Original Deed of any consideration or goods and services. See RP Golf, LLC v. Comm'r, 104 T.C.M. (CCH) 413 (2012) (deed that stated it was granted in consideration of terms contained therein and for "other good and valuable consideration" held to satisfy the requirements of Code Section 170(f)(8)); Averyt v. Comm'r, 104 T.C.M. (CCH) 65 (2012) (deed, the terms of which taken as a whole showed that no goods or services were received in exchange, satisfied Section 170(f)(8)). Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 26 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 21 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 Second, DMB's IRS Form 8283 described the donation as "conservation easement of 182.766 acres," and the Original Deed describes the Conservation Easement over the 182.766 acres. (See Alexander Decl., Ex. 2; Jt. Stip. Ex. 1 (at Recital A, § 1, Ex. A).) The Government does not dispute this. (See Def's. Mot. at 16:17-17:18.) Third, Buckeye's Request for Council Action, Buckeye's Resolution 62-06, and DMB's IRS Form 8283, together confirm that Buckeye provided no goods or services in consideration of the contribution. Buckeye's Request for Council Action – signed by Buckeye's Manager and Director of Finance – also documented the contribution. It stated that the contribution was not a "budgeted item" and that it had no "financial implications," meaning that no goods were provided in exchange. (Jt. Stip. Ex. 2.) It also described the "review process" as "reviewed by Town Attorney's office." Had any goods or services been provided in exchange for the contribution, that review process would have been required to include the relevant Buckeye administrator with authority over the goods or services provided. See Buckeye Code of Ord. § 2-5-1 ("[a]ll ordinances, resolutions and contract documents shall, before presentation to the council . . . shall, when there are substantive matters of administration involved, be referred to the person who is charged with administration of the matters.")11 Buckeye's Resolution 62-06 – executed by the Town Clerk, the Mayor and the Town Attorney – approved only the Original Deed and accepted the Conservation Easement contribution, the execution of it by Buckeye officials, and those steps necessary to carry out its purpose and intent. It did not authorize any Buckeye official to provide goods or services in consideration of that contribution, as would have been required under Buckeye's 11 For example, the Government speculates that Buckeye could have provided a "zoning concession" in consideration of the contribution. (See Def's Mot. at 17:17.) Had that been the case, the Resolution would have been referred to Buckeye's Community Development Director. (See Buckeye Code of Ord. §§ 2-5-1 (describing review process), § 7-6-1 (Community Development Director "shall have general responsibility for administering and enforcing provisions of this Development Code"). Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 27 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 22 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 Ordinances had such consideration been provided. See Buckeye Code of Ord. § 3-4-1 (2006) (not subjecting contracts for the purchase or sale of real property to the procurement process, and thus requiring prior council approval); Ariz. Rev. Stat. § 9-240.A (council "shall have control of the finances and property of the corporation").12 DMB's IRS Form 8283 –signed by Buckeye's Director of Finance – documented and disclosed the contribution. In Section B, Part I, box 5(g), DMB reported that no goods or services were provided in exchange for the contribution. (See Alexander Decl. Ex. 2.) The Government argues that the foregoing documents, because they do not "explicitly state that Buckeye provided no goods or services as consideration for the easement," do not discharge the contemporaneous written acknowledgement requirement. (Def's Mot. at 17:10-13.) Section 170(f)(8) does not require an "explicit statement." It requires only that the acknowledgement "include[e] the following information: . . . (ii) [w]hether the donee organization provided any goods or services in consideration, in whole or in part, for any property [contributed]." The foregoing documents include that information by negative implication – had goods or services been provided, those goods or services would have been disclosed on DMB's IRS Form 8283, and Buckeye's Resolution 62-06 would have approved the provision of those goods and services and been reviewed by the Buckeye official administering those goods and services. The absence of those matters conveys the required information that no goods or services were provided. See Crimi v. Comm'r, 105 T.C.M. (CCH) 1330 (letter stating the consideration provided in exchange for charitable donation, but not explicitly stating that no other goods or services were provided, nonetheless satisfied the requirements of Code Section 170(f)(8)). The Government also argues that the documents fail because the Original Deed does "not state that the Original Deed constituted the entire agreement between the parties," citing 12 Neither the Original nor the Amended Deed are contracts. But had Buckeye agreed to provide goods or services in consideration of the contribution, a contract would have been formed, and that contract would have had to been approved by the Buckeye Council. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 28 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3673998v1 23 CV-16-01585-NVW DMB REALCO LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF AND IN OPPOSITION TO THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 French v. Comm'r, 111 T.C.M. (CCH) 1241, 1243 (2016). But in French, the taxpayer relied exclusively on the deed to demonstrate that no goods or services were provided. In that context, the Tax Court, in a Memorandum decision, held that because the deed did not state that it was the entire agreement between the parties, it did not foreclose the possibility that goods or services were otherwise provided. Id. Here DMB does not rely exclusively on the Original Deed but on the lack of any evidence of Buckeye government action, and on other documents, which taken as a whole prove compliance with section 170(f)(8). For that reason, French is inapplicable and does not apply.13 Finally, it is notable that while Government speculates "DMB could have received something in return," (Def's Mot. at 17:16-17), it does not assert that DMB actually did. CONCLUSION For the foregoing reasons, DMB respectfully requests that the Court grant summary judgment in its favor and against the Government on all of the Phase I issues in this case. DATED: March 24, 2017 Respectfully submitted, COBLENTZ PATCH DUFFY & BASS LLP By: /s/ Jeffry A. Bernstein Jeffry A. Bernstein Attorneys for Plaintiff DREW M. BROWN., and Intervenor DMB ASSOCIATES, INC. 13 Buckeye confirmed the intention of the parties that no goods or services were received in the Amended Deed, which was effective nunc pro tunc as of December 2006. Case 2:16-cv-01585-NVW Document 48 Filed 03/24/17 Page 29 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3670337v1 CV-16-01585-NVW PROPOSED ORDER GRANTING CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA, PHOENIX DIVISION DMB REALCO, LLC, by and through DMB ASSOCIATES, INC., its Tax Matters Partner, Plaintiff, v. UNITED STATES OF AMERICA, Defendant. Case No. CV-16-01585-NVW PROPOSED ORDER GRANTING CROSS- MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING UNITED STATES OF AMERICA'S PARTIAL SUMMARY JUDGMENT Judge: Hon. Neil V. Wake Before the Court is the United States' Motion for Summary Judgment and DMB Realco LLC's ("DMB") Cross-Motion for Summary Judgment, both relating the Phase 1 proceedings as described in the parties Joint Discovery Plan filed on November 8, 2016. After considering the parties' briefings and oral arguments, it is HEREBY ORDERED that the United States' Motion is DENIED and DMB's Cross-Motion is GRANTED. Case 2:16-cv-01585-NVW Document 48-1 Filed 03/24/17 Page 1 of 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14554.004 3670337v1 2 CV-16-01585-NVW PROPOSED ORDER GRANTING CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING UNITED STATES' MOTION FOR SUMMARY JUDGMENT C O B L E N T Z P A T C H D U F F Y & B A S S L L P O n e M o n t g o m e r y S t r e e t , S u i t e 3 0 0 0 , S a n F r a n c i s c o , C a l i f o r n i a 9 4 1 0 4 - 5 5 0 0 4 1 5 . 3 9 1 . 4 8 0 0 • F a x 4 1 5 . 9 8 9 . 1 6 6 3 IT IS FURTHER ORDERED that the parties shall, on or before ________________, 2017 file a Joint Plan describing proposed Phase Two proceedings and deadlines. Dated: Hon. Neil V. Wake Judge, United States District Court Respectfully submitted by: YALE F. GOLDBERG (AZ 005245) DEREK W. KACZMAREK (AZ 028669) FRAZER, RYAN, GOLDBERG & ARNOLD, L.L.P. 3101 North Central Avenue, Suite 1600 Phoenix, AZ 85012-2615 Telephone: (602) 277-2010 Email: ygoldberg@frgalaw.com dkaczmarek@frgalaw.com JEFFRY A. BERNSTEIN (State Bar No. 79673) CLIFFORD E. YIN (State Bar No. 173159) FREDRICK C. CROMBIE (State Bar No. 244051) COBLENTZ PATCH DUFFY & BASS LLP One Montgomery Street, Suite 3000 San Francisco, California 94104-5500 Telephone: 415.391.4800 Facsimile: 415.989.1663 Email: ef-jab@cpdb.com ef-cey@cpdb.com ef-fcc@cpdb.com Attorneys for Plaintiff DREW M. BROWN., and Intervenor DMB ASSOCIATES, INC. Case 2:16-cv-01585-NVW Document 48-1 Filed 03/24/17 Page 2 of 2