Honorable Mike K. Nakagawa, United States Bankruptcy Judge.
On May 20, 2014, the court heard the Objection to Claims of Exemption brought on behalf of Federal Deposit Insurance Corporation as Receiver for La Jolla Bank, FSB ("FDIC"). The appearances of counsel were noted on the record. After oral arguments were presented, the matter was taken under submission.
On December 19, 2013, Daniel Tarkanian and Amy Tarkanian ("Debtors") filed a voluntary Chapter 7 petition. (ECF No. 1). The case was assigned for administration to William A. Leonard ("Trustee") and a meeting of creditors was scheduled to be held on January 22, 2014. (ECF No. 4). On January 3, 2014, Debtors filed their schedules of assets and liabilities and other information required by Section 521(a)(1). (ECF No. 12).
On their real property Schedule "A," Debtors listed a property located at 3008 Campbell Circle in Las Vegas, Nevada ("Residence"). Debtors state that the current value of the Residence is $450,000 and that there is a claim secured by the Residence in the amount of $248,000. On their secured creditor Schedule "D," Debtors identify Bank of America as having a claim in the amount of $248,000 secured by the Residence. On their Schedule "C," Debtors claim a homestead exemption in the Residence in the amount of $202,000 pursuant to NRS 21.090(1)(1) and NRS 115.050. On their non-priority unsecured creditor Schedule "F," Debtors list the Federal Deposit Insurance Corporation ("FDIC") as receiver for La Jolla Bank, FSB, as having a claim of $16,995,005.17, based on a personal guaranty of business debt. On the same schedule, Debtors also list Nevada State Bank ("NSB") as having a claim in the amount of $14,800,000.00, based on a personal guaranty of business debt. Stancorp also is listed as having claim in the amount of $3,076,000 based on a personal guaranty of business debt. On their Schedule "H," Debtors list an entity identified as JAMD, LLC as a co-debtor with respect to both the NSB and the Stancorp obligations.
In Item 4 of their Statement of Financial Affairs ("SOFA"), Debtors disclosed a
On January 23, 2014, the Trustee reported that there are assets to administer after having completed the meeting of creditors. (ECF No. 16).
On February 21, 2014, the Trustee filed an objection to the Debtors' claim of exemption with respect to their interest in JAMD, LLC and Tark, LLC. (ECF No. 38).
Also on February 21, 2014, the FDIC filed the instant objection to the Debtors' claim of an exemption with respect to their Residence ("Homestead Objection"). (ECF No. 40).
On March 20, 2014, Debtors filed an amended Schedule "C" that eliminated any claim of exemption as to their interest in JAMD, LLC and Tark, LLC. (ECF No. 79). As a result, the Trustee withdrew his objection to those claims of exemption. (ECF No. 80).
On March 26, 2014, an initial hearing on the Homestead Objection was conducted. At the initial hearing, the court was advised that separate counsel had been retained by debtor Amy Tarkanian. An evidentiary hearing on the Homestead Objection was scheduled for May 1, 2014.
On April 14, 2014, a notice of appearance of separate counsel for Amy Tarkanian was filed. (ECF No. 113).
On April 28, 2014, the FDIC filed its trial brief ("FDIC Brief") in support of the Homestead Objection (ECF No. 121) accompanied by a request for judicial notice ("RJN"). (ECF No. 122). On the same date, a trial brief in response to the Homestead Objection was filed on behalf of Daniel Tarkanian ("Daniel Brief") (ECF No. 120) as well as a separate trial brief on behalf of Amy Tarkanian ("Amy Brief"). (ECF No. 125).
On May 1, 2014, the evidentiary hearing on the Homestead Objection commenced. Because additional time was required to complete the witnesses' testimony, the
Under FRBP 4003(b)(1), a party in interest must object, if at all, to a debtor's claim of exemptions within 30 days after conclusion of the meeting of creditors. Failure to timely object bars any subsequent challenge to the validity of the claimed exemption,
Under FRBP 4003(c), the objecting party has the burden of proving that an exemption is not properly claimed. In
483 B.R. at 203. The standard of proof is by a preponderance of the evidence.
June 10, 2005 Residence purchased by Daniel Tarkanian (Deed from prior owner to
Daniel Tarkanian — Ex. "D") (Excerpts from Chicago Title Property
Profile Report — Ex. "4") and financed through Adjustable Rate Note
dated June 6, 2005 (Note — Ex. "I"); (same — Ex. "3")
December 16, 2005 Daniel and Amy Tarkanian Revocable Family Trust ("Debtors' Family Trust") was formed (Declaration of Trust — Ex. "H") May 8, 2006 Residence transferred to Daniel Tarkanian and Amy Tarkanian, husband and wife, as community property (Deed from Daniel Tarkanian to Daniel and Amy Tarkanian — Ex. "F"); (Excerpts from Chicago Title Property Profile Report — Ex. "4") May 8, 2006 Residence transferred from Daniel Tarkanian and Amy Tarkanian to Debtors' Family Trust (Deed from Daniel and Amy Tarkanian to Debtors' Family Trust — Ex. "G"); (Excerpts from Chicago Title Property Profile Report — Ex. "4") July 12, 2007 La Jolla Bank, FSB, loaned $14,568,750 to Vegas Diamond Properties, LLC, which loan was personally guarantied by Debtors and family members (Judgment in Civil Action — Ex. "L"); (same Ex. "1" to RJN) Summer, 2009 Jerry Tarkanian suffered fall in San Diego May 6, 2010 FDIC as receiver for La Jolla Bank removes a complaint for breach of personal guaranties from San Diego Superior Court to the United States District Court for Southern District of California ("FDIC Collection Action"). (Order entered April 17, 2012 in FDIC Collection Action — Ex. "2" to RJN) July 1, 2010 First interest rate change on residential mortgage (Bank of America statement re loan payments — Ex. "6") November 21, 2011 FDIC files motion for summary judgment on its claims in the FDIC Collection Action. (Statement Regarding Registration of Judgment filed in United States District Court for District of Nevada — Ex. "M") March, 2011 Jerry Tarkanian suffered heart attack April 17, 2012 Summary judgment granted in favor of FDIC on defendants' counterclaims in FDIC Collection Action. (Order entered April 17, 2012 in FDIC Collection Action — Ex. "2" to RJN). May 4, 2012 Summary judgment granted in favor of FDIC on its claims in the FDIC Collection Action. (Judgment in Civil Action — Ex. "L") May 22, 2012 Judgment entered against Debtors and family members in the amount of $16,995,005 ("FDIC Judgment") (Judgment in Civil Action — Ex. "L") (same — Ex. "19") June 3, 2012 Daniel Tarkanian requested loan on cash value of Lois Tarkanian's life insurance policy (Correspondence to Phoenix Home Life — Ex. 1 to Ex. "P"); (same — Ex. "25") June 3, 2012 Daniel Tarkanian requested loan on cash value of Jerry Tarkanian's life insurance policy (Correspondence to Phoenix Home Life — Ex. 1 to Ex. "P"); (same — Ex. "25") July 2, 2012 Daniel Tarkanian opened new bank account for Jerry and Lois Tarkanian Irrevocable Trust at Wells Fargo Bank (Consumer Account Application — Ex. "15")
July 3, 2012 Phoenix Life Insurance Company issues two separate checks in the amount of $110,000 payable to the parents' irrevocable trust (Deposit and withdrawal slips and checks — Ex. 2 to Ex. "P"); (same — Ex. "7") July 9, 2012 $220,000 deposited into new bank account for Jerry and Lois Tarkanian Irrevocable Trust (Deposit and withdrawal slips and checks — Ex. 2 to Ex. "P"); (same — Ex. "7") July 10, 2012 $220,000 withdrawn from Irrevocable Trust bank account and loaned to JAMD) (Deposit and withdrawal slips and check — Ex. 2 to Ex. "P") July 11, 2012 Tarkanian Congressional Campaign repaid $53,755.83 in loans from Daniel Tarkanian (Deposit and withdrawal slips and check copies — Ex. 3 to Ex. "P") July 12, 2010 JAMD repaid $250,000 in loans from Daniel Tarkanian (Deposit and, withdrawal slips and check copies — Ex. 3 to Ex. "P") July 12, 2012 Debtors pay $300,000 to Bank of America (Cashier's checks — Ex. 7 to Ex. "P"); (same — Exs. "10" and "13") July 27, 2012 Tarkanian Basketball Academy loaned $50,000 to JAMD (Check and deposit slip — Ex. 4 to Ex. "P"); (Deposit and withdrawal slips and check — Ex. "11") August 3, 2012 JAMD repays $50,000 in loans from Debtors. (Deposit and withdrawal slips — Ex. 5 to Ex. "P") August 3, 2012 Debtors pay $50,000 to Bank of America (Cashier's checks — Ex. 7 to Ex. "P"); (same — Ex, "13") August 22, 2012 JAMD repaid $50,000 in loans from Debtors. (Check — Ex. 6 to Ex. "P"); (Check and cashier's check — Ex. "12") August 22, 2012 Debtors paid $50,000 to Bank of America (Cashier's checks — Ex. 7 to Ex. "P"); (same — Ex. "13") February 6, 2013 Declaration of Homestead recorded (Recording cover page and declaration — Ex, "K"); (same — Ex. "5") April 10, 2013 Order entered approving stipulation in Zafi and Jodie Diamant bankruptcy proceeding, Case No. 12-23432-LBR, for limited relief from stay to permit registration and recording of FDIC Judgment (Statement Regarding Registration of Judgment filed in United States District Court for District of Nevada — Ex. "M") 6 April 19, 2013 FDIC commenceed Miscellaneous Matter No. 2:13-ms-00025 in United States District Court for District of Nevada, to register FDIC Judgment (Statement Regarding Registration of Judgment filed in United States District Court for District of Nevada — Ex. "M") December 19, 2013 Debtors filed joint Chapter 7 petition.
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Forty-three exhibits were admitted into evidence. Six witnesses testified at the hearing and each was subject to cross-examination.
In addition to the items referenced in the foregoing TIME LINE, the other exhibits admitted at the hearing included copies of the Daniel Declaration (Ex. "1"), the Jodie Declaration (Ex. "20"), an Adjustable Rate Note dated June 6, 2005 (Ex. "3"), a Bank of America loan history statement dated April 9, 2014 (Ex. "6"), a Personal Financial Statement of Daniel Tarkanian dated December 22, 2011 (Ex. "14"), an Affidavit of Financial Condition of Daniel Tarkanian dated December 22, 2011 (Ex. "16"), a Personal Financial Statement of Amy Tarkanian dated December 22, 2011 (Ex. "17"), an Affidavit of Financial Condition of Amy Tarkanian dated December 22, 2011 (Ex. "18"), an email message from NSB to Daniel Tarkanian dated October 16, 2012 (Ex. "22"), a check payable to John Hancock Freedom 529 dated April 29, 2012 (Ex. "23"), a check payable to Lois M. Tarkanian dated June 1, 2012 (Ex. "24"), copies of letters from Danny Tarkanian to Phoenix Home Life dated June 3, 2012, bearing the stamped endorsement guaranty of Wells Fargo Bank (Ex. "25"), a letter from NSB to Daniel Tarkanian dated December 11, 2012 (Ex. "26"), an email message from Daniel Tarkanian to NSB dated October 16, 2012 (Ex. "27"), an assessor's parcel map encompassing the Residence (Ex. "A"), photographs of a walkway between the Residence and the home of Jerry and Lois Tarkanian (Ex. "B"), and portions of Jerry Tarkanian's medical records from Dr. Stephen Miller (Ex. "O").
Live witness testimony was presented by James Main, Stephen Miller, Lois Tarkanian, Jodie Tarkanian Diamant, Amy Tarkanian, and Daniel Tarkanian.
Main is a certified public accountant who has been employed by Daniel Tarkanian since 2007 to prepare income tax returns for the Debtors, as well as the various entities managed by Daniel Tarkanian. Those entities include JAMD, LLC, Tark, LLC, certain trusts for which Daniel Tarkanian is the trustee, and Tarkanian Basketball Academy, LLC. In preparing the tax returns through 2012, Main was provided information from Daniel Tarkanian. Apparently the information was provided in the form of a spreadsheet setting forth loan activity. Main would compare the loan activity set forth in the spreadsheet against the bank statements, mortgage statements, and checkbooks for the entity. Where applicable, a property management report also would be reviewed. Any loan balances would be reflected in the tax return. Main testified that he followed the same process for each return that he prepared.
As to the Tarkanian Basketball Academy, Main testified that in 2009, he probably received a general ledger produced through common bookkeeping software known as Quickbooks in lieu of a spreadsheet. He would compare the information on the general ledger against the bank statements and checkbook for the entity. Sometime after 2009, Tarkanian Basketball Academy began using a different bookkeeping system, but Main continued to compare the results to bank statements and the checkbook to prepare the tax return.
Main testified that no audits of the returns have ever been requested by the Internal Revenue Service. He has no recollection of discussions with Daniel Tarkanian other than those involving the preparation of the tax returns and did not hear Daniel Tarkanian express any concerns that the Residence would be subject to foreclosure. Main also has no knowledge of the specifics of any loan, never saw any documentation memorializing any loans between JAMD and Daniel Tarkanian, and has no knowledge regarding the financial performance of any of the entities. Main also has never audited to determine whether any loan payments were actually gifts, never audited the disposition of any cash withdrawals, never audited whether funds received from JAMD were compensation or loan repayments, and never asked about Daniel Tarkanian's intentions in making any transfers. Main testified that a copy of the FDIC Judgment was not included in the documents provided by Daniel Tarkanian in preparing the Debtors' income tax return for 2012. He also testified that he does not review bank statements in preparing personal income tax returns.
Miller is a doctor of internal medicine who first started treating Jerry Tarkanian in 2009. As of that time, Jerry Tarkanian had a history of prostate cancer for which he was treated in 2004. In 2009, he was being treated for thyroid, back, blood pressure, high cholesterol, eye, and balance issues, and was pre-diabetic. As of 2009, Jerry Tarkanian had required more than six stents to be put into his heart.
Miller testified that Jerry Tarkanian fell some time in 2009 while in San Diego. Miller saw him in August 2009 in Las Vegas shortly after the incident. He noticed a cognitive decline and believed Jerry Tarkanian to be in far worse condition than his previous visits. Miller also saw Jerry Tarkanian throughout 2010.
In March 2010, Miller noted in his medical records that Jerry Tarkanian was "a walking time bomb." He expressed that view to Jerry Tarkanian's family members, including Daniel Tarkanian. Miller saw Jerry Tarkanian in June and October 2010, and he was still suffering from shortness of breath. In December 2010, Miller thought Jerry Tarkanian had decreased considerably in his cognitive abilities. Members of Jerry Tarkanian's family were present at each medical visit, with Daniel Tarkanian there most of the time.
By 2011, Miller thought that Jerry Tarkanian's overall health was continuing in a downward spiral. He testified that Jerry Tarkanian suffered another fall in the middle of 2011 that injured his elbow. Miller drained the elbow.
Miller testified that in March 2012, Jerry Tarkanian suffered a heart attack that required him to be hospitalized for three weeks. As he is not a cardiologist nor did he have hospital privileges, Miller visited Jerry Tarkanian in the hospital, but was not the treating physician. Miller testified that Jerry Tarkanian thereafter started an accelerated decline in his overall health. A family member would always accompany Jerry Tarkanian in subsequent office visits and in telephone communications.
Miller testified that some time shortly after the March 2012 heart attack and his release from the hospital, Jerry Tarkanian visited his office on a weekend, pushed in a wheelchair. Miller believed that he was having complications from his medications and that he had torn the Achilles tendon in one of his ankles. Miller recalled that on
Miller testified that he believes there has been a marked decline in Jerry Tarkanian's health since March 2012 based on a multitude of factors. Those include his ability to walk, his talking and breathing problems, and his hospitalization. He characterized the hospitalization as the "second bump in the road" with the first "bump in the road" being Jerry Tarkanian's fall in 2009.
Miller testified that he also treats Lois Tarkanian. He testified that Lois Tarkanian has numerous health problems, including an autoimmune disease, uterine cancer, and dermatopolymyositis.
Lois is the wife of Jerry Tarkanian, and the mother of Daniel Tarkanian, George Tarkanian, Pamela Tarkanian, and Jodie Tarkanian Diamant. She also is a current member of the Las Vegas City Council. She testified that in 1992, she and her husband set up an irrevocable trust for the benefit of her children and grandchildren. She does not know who is the trustee of the trust, nor how much is in the bank account for the trust. Lois does not know how much money was in the account when the $17,000,000 judgment was entered against her and her family members in May 2012.
Lois testified that she does not recall any conversations with Daniel Tarkanian about opening an account for the trust at Wells Fargo Bank. She testified that in her judgment debtor examination in June 2013, she did not know the source of the $220,000 deposit into the account nor why $220,000 was withdrawn from the account the following day. Lois did not personally withdraw any cash from her life insurance policies. She does not remember any conversations with Daniel Tarkanian about taking the cash value out of her life insurance policies, but thinks her husband, Jerry Tarkanian, probably did. She was not present for any such conversation nor does she have any specific knowledge that such a conversation actually took place.
Lois testified that Daniel Tarkanian had permission to use funds that are resources for business purposes and he would provide information on a paper or would come before the family as a group to vote on it. She did not believe that use of insurance policy funds would be a business use, but does not think she would have objected to it. Lois does not recall that Daniel Tarkanian ever told her that his residence was in foreclosure. She testified that Daniel Tarkanian received permission to transfer $220,000 out of the life insurance policies some time after the transfer already had been made. Lois also testified that she personally would not take money out of an insurance policy and was shocked to find out later that funds actually could be taken out of the insurance policy.
Lois testified that she and her husband had an enclosed walkway constructed between her home and Daniel Tarkanian's residence. Describing a picture of the walkway, she testified that the walls enclosing the walkway bear various paintings by the grandchildren, with names, ages, heights, and the like.
Lois testified that she has been married to Jerry Tarkanian for 58 years and that he is of Armenian ancestry. She testified that in Armenian families there is an extremely strong bond between the father and the eldest son. Lois testified that there
Lois testified that she is not strong enough to lift her husband and that having Daniel Tarkanian nearby provides a feeling of security. She testified that her husband had another heart attack within the last three weeks and that she arrived at the house after the heart attack occurred. After she arrived, 911 was called and Jerry Tarkanian was taken to the hospital by the fire department.
Lois also testified that her son George Tarkanian is unavailable to assist in the care of Jerry Tarkanian due to his own health issues. Her daughter Pamela works full time and sometimes comes over to take care of her father.
Jodie is one of Daniel Tarkanian's sisters and lives, with her husband and two children, about a quarter mile away from her parents, Jerry and Lois Tarkanian. Her older sister, Pamela, also lives in Las Vegas, along with her four children, not far away. Her brother George, along with his wife and son, also lives in Las Vegas.
Jodie is a registered nurse who initially practiced for eight years, ceased practice after her youngest daughter was born, and then resumed practice in 2013. She visits her father, Jerry Tarkanian, at least twice per week, and puts together his medications in a pill box. Her brother Daniel Tarkanian visits her father at least two days during the week and usually spends Sundays at her father's home as well. Because of Jodie's medical background, the family frequently asks her questions about her father's medical care. She testified that as the oldest son of the family, Daniel Tarkanian is vocal in his opinions and the family looks to him for leadership. Jodie also testified that Daniel Tarkanian's opinion regarding their father is more valuable to her because he sees his father more frequently due to his close proximity. In addition, Daniel Tarkanian spends far more time with their father than any of their siblings, even on the days when Jodie is supposed to be there. When phone calls late at night are not answered by their parents, Daniel Tarkanian is available to go to their parents' house to check on them. Jodie is aware that the Debtors' residence is connected to her parents' home by a walkway and is comforted by her brother's close proximity. She testified that at some point in time she had told her brother the same thing.
Jodie testified that as an example, a couple of weeks ago, her nephews were visiting Jerry Tarkanian and saw him slumped over in his chair. They were unable to reach Jodie and others by telephone, so they went and got Daniel Tarkanian at the Residence.
She believes that Jerry Tarkanian has had nine or ten stents put in his heart, one over the past summer. Jodie testified that her father had a serious fall in San Diego during the summer of 2009 where he broke his shoulder and also had to have a bone spur removed from his back. She believes that her father was in the hospital and/or in rehabilitation for around six weeks. After Jerry Tarkanian returned home, Jodie believes that both a physical therapist and an occupational therapist came to the house, but does not recall if her father had nursing care on a daily basis. She believes that a nurse visited perhaps once a week to determine whether physical and occupational therapy continued to be necessary. Jodie described the fall in 2009 as the first major incident with her father's health.
Jodie testified that she was present in March 2012 when Jerry Tarkanian suffered a heart attack. While visiting a dermatologist, her father was having difficulty
Jodie also testified that the family has been trying to have meetings each month regarding the health of the parents, but have not had a meeting for the past couple of months. In addition to Jerry Tarkanian's health problems, Lois Tarkanian has cancer, Lupus, and fibroids.
Jodie also testified that in March 2014, Jerry Tarkanian was able to attend games played by the University of Nevada Las Vegas ("UNLV") basketball team prior to the start of the NCAA basketball tournament. He also went with Daniel Tarkanian to Dallas where the final four teams in the tournament played for the national championship, but he did not attend any games.
Jodie never had any conversation with the Debtors before they purchased the Residence located near their parents, nor did she know anything about how the purchase was financed. She does not recall any conversation with the Debtors in 2012 about them being worried about losing their home nor of any cost-cutting measures to make payments on their home. She never questioned any of the financial decisions that Daniel Tarkanian made on behalf of their parents.
Jodie testified that her husband had loaned $400,000 to JAMD out of a line of credit, in order to help construct a building on certain hospital property. She testified that she is a part owner of JAMD and that her husband was repaid the moneys that were loaned. She testified that Daniel Tarkanian manages JAMD and makes the financial decisions. Jodie was never told by Daniel Tarkanian that $220,000 would be drawn from her parents' life insurance policies and out of the Jerry and Lois Tarkanian Irrevocable Trust to loan to JAMD, which ultimately would be used to pay down the Debtors' mortgage. She was unaware of the transaction occurring until about a year ago and she knows nothing about nor was she aware of any loans between JAMD and Daniel Tarkanian. She has never discussed the transaction with her parents nor does she recall any conversations with her siblings about the transactions when they were taking place. Jodie testified that there is a family reunion every summer where an informal family meeting would take place. During the family meetings, Daniel Tarkanian would discuss the status of the various properties owned by the family. Only recently did she become aware of any loans the Debtors had made to JAMD.
Jodie testified that at the informal family meetings, Daniel Tarkanian would give them statements or something that she had no interest in. Her husband attended the meetings and thought everything was fine. Jodie has not reviewed any of the financial spreadsheets lately concerning the outstanding loans owed by JAMD.
Amy married Daniel Tarkanian in 2001 and they have four children. She testified that at some point in time she was an actress in Los Angeles and that she also worked in the theater as well.
Amy testified that she leaves all of her finances to her husband because she did
Amy testified that she does not know if she has any bank or investment accounts for her children. She does not know if there are any investment accounts for herself or her husband. She has never gone online to look at any bank or investment accounts for herself or her children. Amy testified that Daniel Tarkanian runs the show at home and she just makes sure the kids get fed. She does not discuss household finances with her husband and does not know how bills come in for basic living expenses like water, utilities, or garbage. Her husband gives her cash or credit cards to buy groceries, but she does not know which banks issue the credit cards. She does not know the amount of the monthly mortgage payment on her home and has never known. She testified that she does not know how her husband makes the mortgage payments. Amy testified that she does not remember who her husband was working for in 2005 when they bought the house. She does not know how much money Daniel Tarkanian was making in 2005, nor how much money he earns today.
Amy did acknowledge signing a check dated April 29, 2012, in the amount of $7,500 payable to John Hancock Freedom 529, but testified that she does not know what the account is. She also acknowledged signing a check dated June 1, 2012, in the amount of $2,000 payable to her daughter, Lois M. Tarkanian, which may have been a birthday gift in an amount to make up for moneys previously given to the grandchildren by her husband's parents.
Amy testified that Daniel Tarkanian once mentioned the importance of keeping the Residence after Jerry Tarkanian's heart attack and doing whatever it takes, probably through refinancing, but nothing beyond that. She testified that she has heard of the term underwater with regard to a mortgage but does not know whether the Residence has been refinanced. She testified that she believes it to be important to stay in the Residence because her children attend schools nearby, the Residence is close to the family, and her husband wants to remain near to Jerry Tarkanian due to his declining health condition.
Amy testified that she is aware of the $17,000,000 judgment entered against her, as well as her husband, but has no idea how the process of paying the judgment would work. Although she does not know her finances, she is pretty sure that she did not have $16.9 million dollars in assets to pay the judgment when it was entered against her in May 2012. She testified that she was not interested in trying to figure out how to respond to the judgment because she left that up to her husband. She does not know if she had any equity in the Residence at the time the judgment was entered and does not know if she has any equity in the Residence today. Amy also testified that she never went with her husband to discuss with any accountants or financial advisors how to satisfy the judgment.
Amy testified that the Tarkanian family has meetings to discuss family business matters but she does not attend them. She is not aware of the large principal payment made on the Residence in 2012 and never discussed it with her husband or participated in any way in making the payment.
Amy testified that in January 2013, she started a job as a political pundit representing the conservative agenda where she debates important political positions and topics. She testified that on a political show called "What's Your Point" she engages in almost daily discourse with Rory Reid. The televised show is on Channel 3 and she is paid an annual salary.
Amy testified that she has been selected as a member of the Silver State Excellence of Women Program geared to recruit women to run for political office or to participate in the political process. She testified that she also served on the Clark County Republican Executive Board and was once elected and re-elected as the Nevada Republican Party chairperson. Amy testified that she served as the leader of the Republican Party in Nevada after she was elected the chairperson. She testified that as party leader, she would raise funds and an executive director and treasurer would take care of the money. She testified that fund-raising only required talking about obtaining money rather than about how much money is needed because the amount needed is unlimited. Amy testified that in her roles on the executive board and as party leader, the executive director and treasurer would make the financial decisions, and she would go fund-raise. She testified that when Daniel Tarkanian ran for political office in 2012, she campaigned for him going door to door.
Amy also testified that her job at Channel 3 is her first job making money personally after she married in 2001, other than her job in real estate. She testified that she once had a real estate license, but does not recall whether she was involved in two or more transactions. She believes she may have been involved in the purchase of the Residence. She testified that she was involved in a transaction involving commercial property, but does not remember the property or the persons involved in the transaction. She testified that her husband Daniel Tarkanian was involved in every transaction, and that someone would bring her documents and she would sign them. She does not recall who brought her the documents.
Amy testified that she does not remember how she used her real estate license in the purchase of the Residence. She does not recall whether she received a commission, who she represented on the sale, or whether the home originally was purchased in her husband's name as separate property. She testified that she did not talk to her husband about whether they could afford to purchase the home because she trusted him. She also testified that she does not know whether she is even on title to the house.
Amy testified that when the Residence was purchased in 2005, she intended that
Amy testified that she does not recall signing a personal financial statement in 2011, although she recognized her signature on the copy shown to her. She testified that she may have read the document, but does not remember. Because she does not remember reading the document, Amy testified that she does not know if the statements made in the financial statement were accurate as of December 22, 2011. She testified that she does not know if the $12,000 monthly income figure for her husband was accurate and that her husband came up with that figure. She also did not do anything to follow up on the accuracy of the income figure because she did not know where Daniel Tarkanian worked in 2011. Amy testified that she did not remember knowing the amount of the monthly mortgage payment when the personal financial statement was filled out. She also testified that she has no idea where a figure for $15,000 cash on hand or a figure of $24,500 in other assets came from. Amy testified that she did not participate in the preparation of the personal financial statement nor did she provide any of the information in it. Additionally, she did not ask her husband whether the information was correct before she signed it.
Amy testified her signature appears on an affidavit of financial condition. She testified that she does not remember if she did anything to confirm or verify any of the information appearing in the affidavit. She testified that she signs every document that is handed to her by Daniel Tarkanian. She does not remember if the investment account figures in the affidavit were accurate when she signed the document. Amy testified that she did not participate in the preparation of the affidavit and assumes it was prepared by her husband.
Daniel Tarkanian purchased the six bedroom, five bathroom Residence in his own name in 2005, then transferred it to Amy and himself as husband and wife. He testified that he initially took title only in his name because his wife's credit was not very good and the interest rate would be higher if she was on title. Thereafter, it was transferred to him and his wife as community property, and then to the Daniel and Amy Tarkanian Revocable Family Trust. He testified that title to the Residence remains in that family trust. Daniel Tarkanian testified that the purchase price was $810,000, with $162,000 as a down payment, requiring a loan of $648,000 to complete the purchase. He testified that the down payment was obtained from the sale of their prior residence. He testified that the purchase was financed through a 30-year, adjustable rate mortgage, requiring interest-only payments. The loan application provided for initial monthly mortgage payments of around $3,400. He testified that the original interest rate was 5.75 percent and he was paying close to $3,800 a month. He testified that he purchased the Residence
Daniel Tarkanian testified that he has always taken care of the family finances during his marriage to Amy. His wife has no interest in the finances and had credit problems in the past. He testified that he has taken complete control over payments being made and books being kept. Amy has no involvement in the mortgage payments for the Residence and does not review the monthly mortgage statements. Daniel Tarkanian testified that Amy was not involved in the transactions to pay down the mortgage in 2012. She did not attend any of the meetings where family business was involved and she had no interest in the meetings
He testified that the only principal payments on the loan were made in July and August 2012. Until that time, he had only paid interest on the loan. As a result of the principal payment, the balance remaining on the loan was around $248,000. Daniel Tarkanian testified that at the time of the principal payments, he had not had an appraisal done on the Residence, but did have a tax assessor's statement for that time period.
Daniel Tarkanian testified that part of the principal payment came from proceeds from his parents' irrevocable trust that had insurance policies on his parents' lives. He testified that he and his siblings are the beneficiaries of the parents' trust, and that the trust is not a judgment debtor on the FDIC judgment. Two separate checks, each in the amount of $110,000, were issued by the Phoenix Life Insurance Company. Both checks are dated July 3, 2012. He testified that on July 2, 2012, he applied to open a bank account for his parents' trust at a nearby branch of Wells Fargo Bank because it was located much closer than the only Ameritrade office more than thirty minutes away. He testified that on July 9, 2012, he deposited two checks that he received from Phoenix Life Insurance Company into the account.
Danny Tarkanian testified that he withdrew the funds from the parents' trust account on July 10, 2012, and the funds were immediately loaned by the parents' trust to JAMD. Because he had a close-knit family and the transaction was within family members, the loan was not formalized by a promissory note, but was reported on an Excel spreadsheet provided to the accountant who prepared the tax returns. Daniel Tarkanian testified that he believed it would raise fiduciary questions and possibly a breach of fiduciary duty if he had transferred the funds directly to himself to pay down his mortgage. He testified that JAMD had borrowed funds from the trust on at least seven occasions over the past several years. He testified that the decisions to borrow funds from the life insurance policies to maintain JAMD's survival depended on the interest charged by other sources and whether the insurance policies were the only source of income. Daniel Tarkanian testified that he never told the other beneficiaries of his parents' trust that he was borrowing money to loan to JAMD in advance of doing so. He did not do so before the $220,000 was borrowed by JAMD to repay its loans to him, nor did he do so before any of the other six times that JAMD borrowed money from the parents' trust. He testified that he is not the trustee of the Lois Tarkanian Irrevocable Trust and that Judy Steel is the trustee. He is the trustee of two of his parents' irrevocable trusts as well as the manager of all of the family entities that he described.
Daniel Tarkanian testified that on July 12, 2012, JAMD used the $220,000 in funds borrowed from the parents' trust to repay Daniel Tarkanian for loans that he previously had made to JAMD. He believed it
Daniel Tarkanian testified that when he received the loan repayment from JAMD, he deposited the funds into his personal account and then had a cashier's check made payable to Bank of America as a principal reduction on the mortgage. He testified that the amount of the cashier's check was $300,000, consisting of $250,000 from JAMD and an additional $50,000 that was a repayment of a loan that he had made to the Daniel Tarkanian congressional account. The same day he deposited $53,000 into his personal account that he received from the Daniel Tarkanian congressional account. He testified that he was running for Congress in 2012 and had loaned his campaign money during the primary. After he won the primary, campaign donations were received from which he was repaid the money he had loaned the campaign. He testified that the $250,000 from JAMD included the $220,000 JAMD had borrowed from his parents' trust plus $30,000 from JAMD's operational income.
Daniel Tarkanian testified that on August 3, 2012, a cashier's check in the amount of $50,000 was made payable to Bank of America. The source of the $50,000 was the Tarkanian Basketball Academy, a non-profit entity that operates a sports facility, which had loaned the funds to JAMD. At the time, the Academy had excess cash because it received its biggest revenues in June and July for the summer basketball tournaments. Daniel Tarkanian testified that after JAMD borrowed the $50,000 from the Tarkanian Basketball Academy, JAMD paid back $50,000 that JAMD had borrowed from Daniel Tarkanian. Daniel Tarkanian then obtained the cashier's check payable to Bank of America. He testified that Tarkanian Basketball Academy could not have given $50,000 directly to him because he was not working for the Academy at that time as he was involved in the last two months of his congressional campaign. Daniel Tarkanian testified that the funds were loaned to JAMD but that no promissory note was prepared. He testified that the loan was documented on the Excel spreadsheets, ledger sheets, cancelled check, and bank account statements provided to the accountant. He does not remember whether he told Judith Flynn, who signed the check from the Academy payable to JAMD, that the $50,000 was a loan. He testified that he was the only person authorized to decide whether or not the loan was a reasonable use of the Academy's cash. He also testified that if the Tarkanian Basketball Academy had excess cash ten months earlier, it could have loaned $50,000 to JAMD at that time. Daniel Tarkanian testified that neither JAMD nor the Tarkanian Basketball Academy are debtors on the FDIC judgment.
Daniel Tarkanian testified that JAMD was opened in 2007 and owns a commercial development project consisting of fifteen acres of land across from the San Martin Hospital. He made all management and
Daniel Tarkanian testified that he is the sole person who decides whether it is necessary for JAMD to repay the loans. One such loan was for $450,000 that JAMD borrowed from Zafi Diamant for the construction of a building which was paid back when Zafi needed to pay back his line of credit. He testified that there was another loan to JAMD from the Diamants, but that it has not been paid off and has a balance of $73,005. He testified that another example was when he borrowed against his parents' life insurance and loaned the funds to JAMD, which then repaid the $250,000 it had borrowed from his parents. He testified that his parents needed to retrofit their home after his father's illness. Daniel Tarkanian testified that after he was repaid the loans in 2012, JAMD also repaid loans to his parents, to the Tarkanian Family Limited Partnership, to the Lois Tarkanian Revocable Trust, to the Jerry and Lois Tarkanian Irrevocable Trust, and perhaps others.
Daniel Tarkanian testified that at the time Tarkanian Basketball Academy loaned the $50,000 to JAMD, there were no promissory notes to Daniel Tarkanian coming due that needed to be paid. He testified that neither JAMD nor the Tarkanian Basketball Academy are debtors on the FDIC judgment, so that the FDIC could not pursue the Academy for the $50,000 loaned to JAMD. Daniel Tarkanian testified that the FDIC could only pursue JAMD for the moneys it owed to him.
Daniel Tarkanian testified that on August 22, 2012, JAMD repaid him another $50,000 by a check that he cashed and converted to a cashier's check payable to Bank of America. It was to be applied to reduce the principal owed on the mortgage. He testified that he usually made mortgage payments by personal checks and the use of cashier's checks was not typical.
Daniel Tarkanian testified that before the principal payments were made on his mortgage in 2012, he had been sued on a personal guaranty of a $14 million loan from La Jolla Bank. The loan had been guarantied by his wife, his parents, his sister Jodie and her husband, and his brother George. He testified that the FDIC judgment was entered on May 22, 2012, about six weeks before he started making principal payments on his mortgage. Daniel Tarkanian testified that he
Daniel Tarkanian testified that he signed a personal financial statement dated December 22, 2011. He testified that he signed an affidavit of financial condition on December 22, 2011. On the affidavit he listed a receivable from JAMD in the amount of $670,379. He testified that the receivable would have been reduced by at least $350,000 due to the subsequent loan repayments in 2012. Daniel Tarkanian testified that in July 2010, JAMD owed him $748,465.
Daniel Tarkanian testified that he personally guarantied a $14 million loan that Nevada State Bank had made to JAMD. He testified that for six months in 2012 he was being paid a salary by JAMD. He testified that Nevada State Bank objected to JAMD's payment of property management fees and legal fees to Daniel Tarkanian. He testified that he received a letter from Nevada State Bank dated December 11, 2012, accusing him of manipulating accounting practices by claiming attorneys fees of $7,500 per month without substantiation of the amount. He testified that he did not disclose to Nevada State Bank the loan repayments made by JAMD to Daniel Tarkanian because those repayments were not an operating expense such as management and legal fees, and did not have to be disclosed under the bank's loan documents. He testified that from the time that Nevada State Bank had loaned money in 2005, it was not given notice of any of the 40 to 50 loan repayments that JAMD made to his siblings, himself and the trusts, because it was not relevant to the loan documents.
Daniel Tarkanian testified that he and his family members also formed a business called Tark, LLC, in 1999. That entity owns a retail building located in Clovis, California. He testified that he manages Tark, LLC, including review and approval of leases and working with leasing agents. He also reviews and approves leases for JAMD. Daniel Tarkanian testified that at the end of 2013, Tark, LLC, took out a loan of $822,000, by refinancing its property. Daniel Tarkanian testified that the refinancing was a smart business decision because the loan was obtained at a four percent interest rate and the moneys received from the loan are nontaxable. He testified that part of the loan proceeds were used to repay a loan that Tark, LLC had received from the Tarkanian Basketball Academy. He testified that another part of the loan proceeds were loaned to JAMD which in turn used the funds to repay the Jerry and Lois Tarkanian Irrevocable Trust for the $220,000 it had borrowed against the Phoenix Life Insurance policy.
Daniel Tarkanian testified that in 2010, his brother George ran the Tarkanian Basketball Academy because Daniel Tarkanian was running for the United States Senate. He testified that due to a serious illness, George had to step down from running the facility. George's wife was doing the bookkeeping and running the office while George ran the basketball programs. At the end of August 2010, Pete Zopolos came in to run the facility and Amy came in to help transition from George to Pete. He testified that his wife Amy was paid to help organize the office and files, and do other things.
Daniel Tarkanian testified that he made the principal payments on the mortgage in 2012 because he was afraid that the payments would go up some time in the future and he would not be able to afford them. He testified that his mortgage payments in fact had been going down, but that he
Daniel Tarkanian testified that interest rates have not gone up, but if so, very little. He testified that in July 2010, the interest rate on his mortgage was about to change. He testified that even though JAMD owed him $748,465 at the time, he does not know if JAMD had the cash flow to repay the amounts owed. Daniel Tarkanian testified that JAMD could have borrowed against his parents life insurance policies through his parents' trust, but that JAMD had already borrowed $144,000 in April 2010. He testified that Jerry Tarkanian's health had begun to fail in 2009, but he did not attempt to pay down or refinance his mortgage or engage in any transaction similar to principal reductions he made in 2012.
Daniel Tarkanian testified that he did not record a homestead declaration in 2005 when he purchased the Residence. He testified that he and his wife filed the homestead declaration in January 2013, but acknowledged that he had previously testified that he could not explain the reason for delaying the filing of the homestead declaration because of the attorney-client privilege. He testified that as of July 2012, he was current on his mortgage payments and had not received any notices of default. He testified that the Residence was not in foreclosure and that he could have made the payment the next month. Daniel Tarkanian testified that he was worried that the interest rate would rise and he would not be able to make the higher monthly payment.
Daniel Tarkanian testified that he believed he had three options in July 2012. He testified that his first option was to remain in the home and wait for interest rates to increase from $1,500 currently to as high as $3,700. He testified that the monthly interest-only payment on the loan started at $3,105 for the first five years, then dropped to $1,552 in July 2010, then dropped to $1,485 in February 2011, then dropped to $1,417.50 in August 2011, then remained at $1,417 in November 2011, then increased to $1,552 in February 2012, and then dropped to $1,209 in July 2012. He testified that Tarkanian Basketball Academy's lease with Station Casinos had expired and the Academy's revenue could end if it is required to move. He also testified that JAMD was upside down several million dollars and would not be a source of income if it went under. He testified that his second option was to walk away from the Residence, let it be foreclosed or short sold, and then purchase another home away from his father. Daniel Tarkanian testified that his third option was to obtain repayment of the funds loaned to JAMD and then pay down the mortgage. He testified that as a result of the principal reductions made in 2012, the monthly interest-only payment had dropped to $869.00 in August 2012. He testified that the $400,000 in transfers during July and August 2012 were the first time he had ever made any payments of principal on the mortgage.
Daniel Tarkanian testified that he graduated from the UNLV with a business finance degree and then graduated from the University of San Diego School of Law. He is admitted to the Nevada bar and currently is a licensed attorney. Daniel Tarkanian testified that he started a law firm in January 2014, Tarkanian & Knight Law Group, but does not practice law except for dealing with his family's various business entities. He testified that he does
Daniel Tarkanian testified that he is very close to his father, Jerry Tarkanian, as are all eldest sons of Armenian ancestry with their fathers. He testified that he named his only son, Jerry, after his father. Daniel Tarkanian testified that he was a ball boy for Jerry Tarkanian and traveled with the basketball teams that his father coached. He testified that Jerry Tarkanian coached at San Joaquin Memorial High School, Redlands High School, Antelope Valley High School, Riverside City College, Pasadena City College, Long Beach State, UNLV, and Fresno State. He played basketball for his father for one year at a junior college and then for three years at UNLV where his father coached a team that was ranked number one in the nation. He testified that his father won a national championship while coaching at UNLV, went to the Final Four of the collegiate national basketball tournament four times, and had the highest winning percentage of any coach when he left UNLV. Daniel Tarkanian testified that after graduating from law school, he practiced law for a few years and left practice to coach with his father at Fresno State. At the end of Jerry Tarkanian's employment at Fresno State, Daniel Tarkanian testified that he acted as his father's attorney at a hearing before the NCAA infractions committee. He testified that during the course of his life, he has spent much of his time with his father, working with his father, and defending his father. Daniel Tarkanian testified that about a month ago, he flew with Jerry Tarkanian to Dallas for a coaching convention where the Final Four basketball tournament was held.
Daniel Tarkanian testified that his father's health had been declining since 2009 but his father had not had another major problem until his heart attack and hospitalization in March 2012. He testified that he had concerns about his father's condition after that hospitalization, including Jerry Tarkanian's inability to walk, his risk of falling, his inability to go to the restroom without assistance, and his limited speech. Daniel Tarkanian testified that he would assist his mother in lifting his father at times when he fell out of his chair or bed. He testified that he spent a lot of time with his father and also brought his children along to interact with their grandfather.
Daniel Tarkanian testified that after his father's March 2012 heart attack, he decided it was important to remain in the Residence by paying down the mortgage and refinancing it at a low interest rate. He testified that during 2012 he believed the fair market value of the Residence was somewhere in the mid-$300s based on a county tax assessment. He testified that prior to the principal reductions in 2012, he and his wife had no equity in the Residence and that it was upside down several hundred thousand dollars. Daniel Tarkanian testified that the actual reduction in principal was 8398,701.92, resulting in $93,596 in equity based on the county assessor's valuation of the Residence. He testified that the principal payment of $398,701.92 resulting in $93,596 of equity was a lousy investment but it was more important to remain in the Residence after his father's heart attack. He testified that he tried to refinance the Residence at the end of 2012, but had to wait until after he filed his 2012 tax return. Daniel Tarkanian
Daniel Tarkanian testified that a little over a month ago, Jerry Tarkanian suffered another heart attack. He was able to rush over from the Residence to his father's house and was the first adult to arrive. Jerry Tarkanian was taken to the hospital and was diagnosed with another heart attack. Daniel Tarkanian testified that his sister had arrived before him and placed a CPAP mask on Jerry Tarkanian to force air into his lungs.
Under Section 541(a)(1), all property in which a debtor has a legal or equitable interest as of the commencement of the bankruptcy case constitutes property of their bankruptcy estate. Under Section 522(b)(1), an individual Chapter 7 debtor may exempt from property of the bankruptcy estate property that may be claimed as exempt under applicable state law pursuant to Section 522(b)(3). Under Section 522(b)(3)(A), property claimed as exempt under state law is subject to the provisions of Section 522(o). Under Section 522(o)(4), "
Under Section 522(b)(2), each State may elect not to allow its residents to claim the federal bankruptcy exemptions set forth in Section 522(d). Under NRS 21.090(3), Nevada has "opted out" of the federal bankruptcy exemptions.
Subject to specific exceptions, the Nevada Constitution exempts from a forced sale the homestead that is available to Nevada residents.
The homestead provided for by Nevada law is limited by the Nevada Supreme Court's decision in
119 Nev. at 393, 75 P.3d at 378-79 (citations and footnotes omitted).
There is no dispute that the Residence is property of the Debtors' bankruptcy estate and that the Debtors have claimed a homestead exemption under NRS 21.090(1)(1) and NRS 115.050. There also is no dispute that the Homestead Objection was timely filed by the FDIC under FRBP 4003(b)(1).
Although the FDIC initially asserted only that the Debtors had made fraudulent transfers for which their Nevada homestead exemption would be denied under
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The type of debtor before the court in
75 P.3d at 379 (footnotes omitted) (Emphasis added). Because the sister had obtained her brother's funds by fraudulent means, the court concluded that her homestead exemption was invalid and could not prevent an execution sale of the residence to enforce the judgment.
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In the present case, neither the FDIC nor the Debtors have cited an instance where the equitable lien concepts articulated in
In the instant case, there is no dispute that the Debtors purchased the Residence in June, 2005 for $810,000 using a down payment of $162,000 from the sale of their prior residence. There is no dispute that after the Debtors acquired the Residence in 2005, they owed a balance of $648,000. There is no dispute that after 2005, Debtors made only interest payments on their mortgage. There is no dispute that the Debtors could have filed a homestead declaration at any time after they purchased the Residence in 2005. There is no dispute that the maximum amount of the Nevada homestead exemption was $200,000 at the time the Debtors purchased the Residence. There is no dispute that the maximum amount of the Nevada homestead exemption was $350,000 between July 1, 2005 and June 30, 2007. There is no dispute that the maximum amount of the Nevada homestead exemption after July 1, 2007, is $550,000.
There is no dispute that as of July 1, 2012, the Debtors had no equity in the Residence. There is no dispute that the Debtors made no principal payments on their mortgage until July 12, 2012. There is no dispute that the Debtors made additional principal payments on August 3, 2012 and August 22, 2012. There is no dispute that the principal payments made by the Debtors in July 2012 and August 2012 reduced their mortgage balance to approximately $248,000. There is no dispute that the reduction in the mortgage balance resulted in the Debtors having equity in their Residence. There is no dispute that the amount of the Debtors' equity in the Residence is less than the $550,000 maximum allowed for a Nevada homestead. There is no dispute that the Debtors did not record their homestead declaration until February 6, 2013.
Although other facts are established by the evidence and will be discussed below,
In 2005, i.e., the year the Debtors purchased the Residence, Section 522(o) was enacted, along with Section 522(p) and Section 522(q), to limit an individual's ability to claim a homestead in bankruptcy. Section 522(p) attempts to close the socalled "mansion loophole" by capping the amount of a homestead exemption to now-$155,675
In this district, a party objecting to a homestead exemption under Section 522(o) must demonstrate: "(a) an increase in the value of the debtor's homestead; (b) that the increase was `attributable' to the disposition of nonexempt assets; (c) that the disposition of the nonexempt assets was made with the intent to hinder, delay, or defraud a creditor; and (d) that the disposition occurred during the ten-year period ending on the date the debtor's bankruptcy petition was filed."
The evidence adduced at trial established that the source of the funds for the July 12, 2012, payment to Bank of America was: (1) $220,000 from the life insurance policies of the parents' irrevocable trust that were loaned to JAMD which then partially repaid prior loans made to JAMD by the Debtors; (2) $30,000 from JAMD's available operational income which then partially repaid prior loans made to JAMD by the Debtors; and (3) $50,000 from the Daniel Tarkanian congressional campaign to repay a loan previously made by the Debtors to the campaign. The source of funds for the August 3, 2012, payment to Bank of America was from a $50,000 loan made by the Tarkanian Basketball Academy to JAMD which then partially repaid the prior loans to JAMD made by the Debtors. The source of funds for the August 22, 2012, payment to Bank of America was from JAMD's partial repayment of prior loans to JAMD made by the Debtors. Thus, according to Debtors' evidence, the direct source of all of the funds that the Debtors used to make the principal payments on their mortgage were repayments of loans by JAMD ($350,000) or the repayment of a loan by the Daniel Tarkanian congressional campaign ($50,000).
Debtors jointly argued that they did not dispose of non-exempt assets as required by Section 522(o).
Debtors' reliance on the insurance exemption under NRS 21.090(1)(k) is misplaced. There is no dispute that the life insurance policies issued by Phoenix Life Insurance Company are held by the parents' irrevocable trust rather than the Debtors.
In her own response to the Homestead Objection, Amy does not rely on NRS 21.090(1)(k), but separately argues that Section 522(o) somehow is meant to address the disposition of the debtor's residence rather than the disposition of separate non-exempt property. In her written argument, Amy relies on the following language from a leading bankruptcy treatise:
But the Debtors also jointly argued that the repayment of $350,000 of loans by JAMD to Debtors is excluded by Section 522(o) because the FDIC could have enforced its judgment only by seeking a charging order against the Debtors' interest in JAMD pursuant to NRS 86.401.
A party may, of course, be both a member of a limited liability company and a creditor of a limited liability company. No evidence has been provided as to whether JAMD is a member managed or a manager managed limited liability company. Members of a limited liability company may have both economic and non-economic interests,
Under NRS 86.401(1), a judgment creditor may obtain a charging order allowing access to the member's economic interest in the share of the profits and distributions of the limited liability company.
In the instant case, the Trustee has control over whatever management rights, if any, that Daniel Tarkanian has in JAMD in proportion to Daniel Tarkanian's capital contribution unless otherwise provided in the articles of organization or operating agreement for JAMD.
Likewise, when Daniel Tarkanian loaned monies to his congressional campaign, he no longer owned the funds, but instead held claims against his campaign fund.
In this case, the Debtors' factual and legal position is that JAMD and the Daniel Tarkanian congressional campaign repaid claims that were owed to Daniel Tarkanian. Debtors do not dispute that the decision by JAMD and the congressional campaign to repay those claims were made on behalf of JAMD and the campaign by Daniel Tarkanian. Those claims against JAMD and the congressional campaign were converted to money which the Debtors used to make their principal payments to Bank of America. As any mode of disposing of or parting with property is considered to be a transfer under Section 101(54)(D), certainly the Debtors' conversion of their claims against JAMD and the congressional campaign constituted a disposing of a debtor's assets under Section 522(o).
In this instance, neither the Debtors jointly, nor the Debtors separately, have pointed to an exemption that would encompass their claims against JAMD or the Daniel Tarkanian congressional campaign. The only exemption they cite, e.g., NRS 21.090(1)(k), simply does not apply as the Debtors are not the owners or beneficiaries of the parents' life insurance policies. Thus, the court concludes that the increase in the Debtors' homestead exemption, in fact, the very existence of the homestead exemption, is attributable to the disposition of non-exempt assets.
In determining whether a debtor disposed of nonexempt assets with intent to hinder, with intent to delay, or with intent to defraud a creditor under Section 522(o), the traditional "badges of fraud" employed in the fraudulent transfer context are often explored.
The nonexclusive list of badges indicating fraud include whether: (1) the transfer was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer was disclosed or concealed; (4) the debtor was sued or threatened with suit before the transfer; (5) the transfer was of substantially all of the debtor's assets; (6) the debtor absconded; (7) the debtor removed or concealed assets; (8) the consideration received was reasonably equivalent to the value of the asset transferred; (9) the debtor was insolvent or became insolvent shortly after the transfer; (10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) the debtor transferred the essential assets of a business to a lienor who then transferred the assets to an insider.
For example, the FDIC relies primarily on the conclusions reached by a bankruptcy court in this district in
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In the present case, the timing of the repayment of loans by JAMD and the Daniel Tarkanian congressional campaign fund, and the use of the loan payments to pay down the mortgage on the Residence, all commencing within six weeks after the FDIC Judgment was entered, infers that the Debtors disposed on their claims against JAMD and the congressional campaign fund with the intent to hinder or delay the FDIC's collection efforts. Additionally, because Daniel Tarkanian controlled both the repayment of the loans by JAMD and the congressional campaign fund, and the use of the funds to pay the
Debtors maintain that their principal payments in July and August 2012 were done out of concern for the health of Daniel Tarkanian's parents. They argue that after Jerry Tarkanian had a heart attack in March 2012, it became more important to remain in the Residence located close by. To remain in the Residence, Daniel Tarkanian contends that a substantial reduction of the principal balance was necessary to ensure that the Debtors could afford to make monthly payments if the interest rate on their loan significantly increased. Debtors maintain that they did not intend to hinder, delay or defraud creditors, but instead disposed of their nonexempt assets to remain nearby to Daniel Tarkanian's parents.
The FDIC rejects this explanation. It maintains that Jerry Tarkanian's health deteriorated sharply beginning with his fall that occurred in the summer of 2009, leading to Miller describing him as a walking time bomb in March 2010. In spite of Daniel Tarkanian being informed of this description in 2010, the FDIC maintains that Daniel Tarkanian did nothing to reduce the principal on the mortgage until after the FDIC Judgment was entered on May 22, 2012. Similarly, the FDIC argues that Jerry Tarkanian had many other significant health problems between 2009 and 2012, and still the Debtors did nothing to retain the Residence until after the FDIC Judgement was entered. In other words, the FDIC contends that Jerry Tarkanian's health had little to do with the Debtors' decision to reduce the principal balance of their mortgage.
The FDIC also argues that Daniel Tarkanian's concerns over the monthly interest only payments on the loan are illusory. It refers to the reduction in the monthly payment from approximately $3,400 at the inception of the residential loan in 2005 to $1,552 at the first interest rate change hi July 2010. It also refers to subsequent interest rate changes where the monthly payments fluctuated but never exceeded $1,552, culminating in a monthly payment of $1,209 in July 2012. Thus, the FDIC maintains that Daniel Tarkanian's purported concern over his ability to respond to interest rate fluctuations is belied by the actual history of the Debtors' loan. Coupled with the declines in Jerry Tarkanian's health for many years prior to entry of the FDIC Judgment, the FDIC argues that Daniel Tarkanian's sudden concern over possible interest rate increases simply lacks credibility.
The other witnesses who testified contributed only modestly, if at all, to the issue of credibility. The accounting testimony from Main established only that Daniel Tarkanian characterizes the loan transactions and other financial activity of the entities for which Main prepares tax returns, including JAMD, the Tarkanian Basketball Academy, Tark, LLC, and certain trusts managed by Daniel Tarkanian. Main testified that he received the information from Daniel Tarkanian in the form of a spreadsheet, and compared the information against bank statements and the like, but never saw any documentation memorializing loans between Daniel Tarkanian and JAMD. As previously discussed, the medical testimony from Miller established that Jerry Tarkanian had significant health issues prior to 2009 and has had significant health setbacks since 2009. Miller's testimony also established that Daniel Tarkanian as well as his sister Jodie keep abreast of their father's medical condition. Miller's testimony further established that Lois Tarkanian also has serious medical
The testimony from Lois Tarkanian confirmed an exceptionally close relationship between Daniel Tarkanian and his father, Jerry Tarkanian, both in the past as well as in the present.
The testimony from Jodie Tarkanian Diamant confirmed that Daniel Tarkanian spends more time with Jerry Tarkanian than any of his other children. Her testimony confirmed that Jerry Tarkanian suffered a major health incident in 2009 and that she and her siblings recently have had meetings concerning the health of their parents. Her testimony established that Daniel Tarkanian's close proximity to their parents' home was important in responding to a recent additional heart attack suffered by Jerry Tarkanian. Her testimony also established, however, that she was not consulted nor did she authorize or participate in the transactions resulting in the principal reductions to Daniel Tarkanian's mortgage.
The testimony from Amy Tarkanian confirmed that her husband was concerned about Jerry Tarkanian's health after the latter's heart attack in March 2012. She also testified, however, that she did not discuss with Daniel Tarkanian, nor did she participate in, the transactions resulting in the principal reductions to her mortgage.
The focus then, is on the credibility of Daniel Tarkanian's explanation that he disposed of the claims against JAMD and the congressional campaign fund with the intent of living close to his parents, or whether he disposed of the claims with intent to hinder or delay collection of the FDIC Judgment. Based on the timing of his actions, the interrelationships between the entities, and the inconsistencies in the record, the court concludes that both intentions were present. As a result, Section 522(o) applies in this case.
The FDIC concedes and the credible testimony of the Debtors and their family members establish beyond question their love for Jerry Tarkanian as well as their concerns for his health. The evidence also establishes beyond question that the close proximity between the Residence and the parents' home is at least convenient and perhaps vitally important in assuring the presence of a family member available to assist in the care of Jerry Tarkanian and, if needed, Lois Tarkanian.
As previously noted, Daniel Tarkanian testified in his declaration that non-exempt assets were not disposed of with intent to hinder, delay or defraud his creditors. The timing of Jerry Tarkanian's health concerns, however, infer that the intent was to hinder or delay creditors rather than only to address the needs of Daniel Tarkanian's parents.
On July 12, 2007, the Debtors personally guarantied a loan by La Jolla Bank to Vegas Diamond Properties in the amount of $14,568.750. By March 1, 2009, the loan was in default as default interest already was being charged on the loan.
By the spring of 2010, Miller described Jerry Tarkanian as a "walking time bomb" and conveyed that description to Daniel Tarkanian and other members of his family. Despite these red flags concerning his father's health, no steps were taken by Daniel Tarkanian to reduce the principal owed on the Residence or to refinance the Residence in order to lock in a lower monthly payment.
On May 6, 2010, the FDIC as receiver for La Jolla Bank commenced suit in the federal district court in San Diego on the Debtors' personal guaranty of the $14,568,750 loan. The Debtors' parents, Jerry and Lois Tarkanian, as well as Jodie Tarkanian Diamant and her husband, and George Tarkanian, also were named defendants. On or about July 1, 2010, the interest-only payment on the Debtors' mortgage decreased from $3,105.00 per month to $1,552.50 per month, while the principal balance, of course, remained at $647,999.99.
In 2011, Miller believed that Jerry Tarkanian's health continued a downward spiral. On or about February 1, 2011, the interest-only payment on the Debtors' mortgage decreased from $1,552.50 per month to $1,485.00 per month. In the middle of 2011, Jerry Tarkanian suffered another fall. It required Miller to drain his elbow. Despite these additional red flags concerning his father's health, in addition
On or about August 1, 2011, the interestonly payment on the Debtors' mortgage decreased from $1,485.00 per month to $1,417.50 per month. On November 21, 2011, in the FDIC Collection Action, the FDIC filed its motion for summary judgment with respect to its claims on the personal guaranties. On or about February 1, 2012, the interest-only payment on the Debtors' mortgage increased from $1,417.50 per month to $1,552.50 per month. In March 2012, Jerry Tarkanian suffered a heart attack while at a dermatologist appointment and was admitted to a hospital. Despite these additional red flags concerning his father's health, plus two opposite fluctuations in the interest rate charged on the mortgage, no immediate steps were taken by Daniel Tarkanian to reduce the principal owed on the Residence or to refinance the Residence in order to lock in a stable monthly payment.
On May 4, 2012, however, the FDIC's summary judgment motion was granted. On May 22, 2012, judgment was entered in the FDIC Collection Action against the Debtors and the other named defendants in the amount of $16,995,005. On June 3, 2012, Daniel Tarkanian requested Phoenix Home Life to loan $110,000 of the cash value from each of the insurance policies on the lives of Jerry Tarkanian and Lois Tarkanian. On July 2, 2012, Daniel Tarkanian opened an account at Wells Fargo Bank for the parents' irrevocable trust. On July 3, 2012, two separate checks in the amount of $110,000 were issued by Phoenix Life Insurance Company payable to the parents' irrevocable trust of a loan against his parents' life insurance policies. On July 9, 2012, Daniel Tarkanian deposited the insurance company checks into the new account at Wells Fargo Bank. On July 10, 2012, the funds borrowed by the parents' irrevocable trust were loaned to JAMD. On July 11, 2012, the Daniel Tarkanian congressional campaign repaid Daniel Tarkanian $53,755.83 that he previously loaned to his U.S. Senate campaign. On July 12, 2012, JAMD used the $220,000 borrowed from the parents' irrevocable trust plus an additional $30,000 of operational funds to repay Daniel Tarkanian $250,000 that Daniel Tarkanian had previously loaned to JAMD. On July 12, 2012, Daniel Tarkanian obtained from his Wells Fargo Bank account a cashier's check payable to Bank of America in the amount of $300,000, using the loan repayments from JAMD and the congressional campaign, which is delivered as a principal payment on his mortgage.
Daniel Tarkanian testified that all of these transactions that were set into motion eleven days after the FDIC Judgment was entered, i.e., borrowing on his parents' life insurance policies, opening the new bank account at Wells Fargo, JAMD borrowing and the irrevocable trust loaning $220,000, JAMD using $30,000 of operating funds, JAMD's repayment out of its checking account the funds borrowed from Daniel Tarkanian, and Wells Fargo Bank's issuance of a cashier's check payable to Bank of America, were all determined and carried out by the same person: Daniel Tarkanian. Neither his wife Amy, nor any of Daniel Tarkanian's family members were consulted in advance or were even aware of the transactions.
On July 27, 2012, the Tarkanian Basketball Academy loaned and JAMD borrowed, $50,000. On or about August 1, 2012, the interest-only payment on the Debtors' mortgage decreased from $1,552.50 per month to $869.00 per month due to the
On August 22, 2012, JAMD used $50,000 from its operating funds to repay Daniel Tarkanian another $50,000 that Daniel Tarkanian had previously loaned to JAMD. On the same date, Daniel Tarkanian obtained from his Wells Fargo Bank account a cashier's check payable to Bank of America in the amount of $50,000, which is delivered as another principal payment on his mortgage. Daniel Tarkanian testified that all of these transactions, i.e., JAMD using the operating funds in its checking account to repay funds borrowed from Daniel Tarkanian, and Wells Fargo Bank issuing a cashier's check payable to Bank of America, were all determined and carried out by Daniel Tarkanian. As with the two prior principal payments, neither his wife Amy nor any of his family members were consulted in advance or were even aware of these transactions.
Daniel Tarkanian testified that he had never previously used cashier's checks to make any mortgage payments to Bank of America. All of the cashier's checks were signed by a representative of Wells Fargo Bank because they were written on the bank's funds rather than Daniel Tarkanian's funds. As such, neither the FDIC nor any other creditor could reach those funds by post-judgment levy or pre judgment attachment of the Debtors' bank accounts.
This conclusion is bolstered by the fact that at the time the FDIC was actively pursuing a multi-million dollar judgment on its claim, it was not the only creditor holding or perhaps pursuing multi-million dollar claims against the Debtors. When they commenced their bankruptcy proceeding on December 19, 2013, Debtors scheduled possible claims against them exceeding $17,000,000 by creditors NSB and Stancorp, based on personal guaranties of JAMD's indebtedness. Thus, not only does it appear that the Debtors were confronted with the FDIC Judgment which they admittedly did not have the funds to pay, their primary source of funds for payment of the principal on their mortgage, JAMD, also had other debt obligations exceeding the amount of the FDIC Judgment. Daniel Tarkanian testified that JAMD was upside down several million dollars at the time he was considering the option of making the principal reductions on his mortgage. Moreover, NSB, which apparently extended loans totaling approximately $14,800,000 to JAMD starting in 2005, was actively monitoring Daniel Tarkanian's management of JAMD during 2012.
The interrelationship between the various family entities also suggests the type of intention forbidden by Section 522(o). An individual who has unfettered control over the finances of multiple entities can determine who, when, where, why, and how obligations between the entities will be incurred and repaid. Daniel Tarkanian testified, and both Lois Tarkanian and Jodie Tarkanian Diamant confirmed, that he manages the affairs of JAMD, the Tarkanian Basketball Academy, Tark, LLC, the parents' irrevocable trust, and other family entities. All three testified that Daniel Tarkanian does not consult and is not required to consult with his family before making decisions for the family business entities, including inter-entity loans. Only after he takes action does Daniel Tarkanian report his activities to his family members and then only in the form of spreadsheets that he prepares.
Finally, Daniel Tarkanian's testimony regarding his purported intentions was contradictory. In his declaration, Daniel Tarkanian attested that at the time the principal payments were made, "... the home was underwater" because he "owed approximately $648,701.92 and the property was valued at $342,369 by the Clark County Assessor's office for the 2011-2012 tax year." Daniel Declaration at ¶ 10. He also stated that the amount of the principal reduction "
A "loan to value ratio" typically reflects the amount of the secured debt in proportion to the value of the collateral. An owner's "equity" in its collateral typically represents the difference between the amount of the debt and the collateral's value. The loan to value ratio can be reduced and the amount of equity can be increased either by reducing the amount of the debt or increasing the value of the collateral. Obviously, a principal reduction intended to provide an 80 percent loan to value ratio either increases the existing equity in the subject collateral or creates equity in the collateral where none previously existed. It is not readily apparent how one can seek to improve the loan to value ratio on encumbered property without also seeking to
In summary, the Debtors clearly intended to keep the Residence so they could remain living close to Jerry Tarkanian and Lois Tarkanian, both of whom they love. To achieve that end, however, they disposed of their claims against JAMD and the Daniel Tarkanian congressional campaign with the intent to hinder or delay their creditors, particularly the FDIC. Because the proceeds of those non-exempt assets were used to create the equity in their Residence for which they now claim their homestead exemption, Section 522(o) applies in this case. This aspect of the Homestead Objection will be sustained. Thus, an order will be entered reducing the value of the Debtors' interest in their homestead by $202,000, i.e., the amount of equity in their Residence on the petition date that is attributable to the disposition of the nonexempt assets.
Amy maintains that she had no knowledge of or participation in any of the measures taken by Daniel Tarkanian. Amy testified to only one mention by her husband of the importance of retaining the Residence after Jerry Tarkanian suffered a heart attack in March 2012. She insists that she had no involvement in the financial affairs of the household nor the financial affairs of her husband or his family, and that she had no discussions with her husband as to how the mortgage would be paid or the FDIC Judgment would be satisfied. She argues that she is an "innocent spouse" who should not lose her homestead protection for one-half of the exempt value of the Residence.
Daniel Tarkanian testified that he makes all financial decisions in his marriage to Amy due to undescribed financial difficulties that Amy had before their marriage. He confirmed that his wife had no involvement in the decision to have loans be repaid by JAMD as well as the congressional campaign fund, and then using the funds to pay down the mortgage.
Amy also disclaimed knowledge of even the most basic economic elements of her family's household, e.g., the amount expended on utilities, the amount of private school tuition for her children, the amount of the monthly mortgage payment, the existence of any bank accounts, or the amount earned by her husband. She testified that she signed any documents that her husband gave to her, including the Personal Financial Statement and Affidavit of Financial Condition in December 2011, without verifying any information.
Amy's portrayal of herself as a virtual "Stepford" wife as to her marital finances
Based on her testimony as well as that of Daniel Tarkanian, it might be easy to conclude that Amy is truly an innocent spouse for whom the protection of the homestead is appropriate regardless of any inappropriate conduct of her spouse. Unlike the situation in American Business Machines, however, Amy is jointly and severally liable on the FDIC Judgment. Unlike the situation in
As previously recited, the language of Section 522(o) specifies that "
In
In
In the instant case, the express language of Section 522(o) requires this court to reduce the value of the Debtors' homestead. However, Section 522(o) does not permit the court to surcharge the homestead. Likewise, it does not appear that
Based on the foregoing, the Homestead Objection will be
