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FDIC v. UNITED STATES

October 24, 1986

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff,
v.
THE UNITED STATES OF AMERICA, INTERNAL REVENUE SERVICE, GLOBAL INDUSTRIES, INC., NCR CORPORATION, JOAN COFFMAN, GEORGIA ANN HARMON, Trustee, FIDELITY EQUIPMENT LEASING CORP., URBAN INDUSTRIES, INC. OF KENTUCKY, WESLO, INC., MERCHANTS AND BUSINESSMENS MUTUAL INSURANCE CO., BITUMINOUS CASUALTY CO., FIREMEN'S FUND INSURANCE CO., NEWARK INSURANCE CO., Defendants



The opinion of the court was delivered by: MURPHY

Judge Harold L. Murphy

 ORDER

 BACKGROUND OF THE CASE

 In 1974 Michael G. Thevis, convicted of certain federal crimes, entered federal prison, and undertook to sell Global Industries, Inc. to his associate, Laverne Bowden. This sale transaction was re-negotiated or modified in 1975, 1977 and 1978. Ms. Bowden used the entity "Fidelity Equipment Leasing Corp.," as the vehicle for the acquisitions, which became the parent of Global Industries, Inc. and Global's own numerous subsidiaries.

 In 1978, as part of the last re-negotiation, Fidelity Equipment Leasing Corp. caused Global Industries, Inc. to issue a (second) deed to secure debt on Global's property at 267 Marietta Street in Atlanta, Georgia to Mr. Thevis, who simultaneously assigned it to an inter vivos trust also established at that time. The trust and its assets were assigned to secure Mr. Thevis' obligation to pay alimony to Joan Thevis, now Coffman, then his wife, whom he was divorcing. On April 28, 1978 and subsequent to (1) the divorce settlement, (2) the creation of the trust, (3) the last re-negotiation of the Global sale and the granting of the deed to secure debt, and (4) the assignment thereof to the trust, Mr. Thevis escaped prison.

 During 1978, through the summer of 1979, Ms. Bowden remained at Fidelity Equipment Leasing Corp., apparently in charge, until she was allegedly terminated at the direction of Mr. Thevis. From that time until March of 1981, Fidelity Equipment Leasing Corp. was under the alleged supervision of Georgia Ann Harmon, trustee of the alimony trust, although day-to-day operation was in the hands of Lynda Ivy. In March of 1981, the Internal Revenue Service seized all of the known assets of the business, and it has not operated since that time.

 The property at 267 Marietta was foreclosed upon by the Federal Deposit Insurance Corporation, and at issue herein is whether the second deed to secure debt thereon is enforceable.

 The United States contends that the sale of Global Industries, Inc. to Laverne Bowden was a sham, a transaction without substance, undertaken to permit Mr. Thevis to remain in control of Global Industries, Inc. during his imprisonment, that he in fact remained in control, and that the transactions leading up to the granting and assignment of the deed of trust were for his benefit. The United States further contends Fidelity Equipment Leasing Corp. was the agent or alter ego or nominee of Mr. Thevis, its purported ownership by Ms. Bowden was a sham, and the Fidelity-Thevis transactions must be disregarded and set aside by this court.

 The United States claims the proceeds of the foreclosure sale of 267 Marietta pursuant to two separate encumbrances, a federal tax lien duly filed on August 10, 1978, and a decree of forfeiture entered by this Court on December 11, 1979 under 18 U.S.C. § 1963 (the RICO Statute). In the consolidated pre-trial order, Joan Coffman objected to the "dual capacities" in which the United States appeared herein, claiming that the "positions are contradictory." The United States, in order to both preserve its lien and to enforce the forfeiture, claims the alimony trust's mortgage is void and unenforceable.

 When this case was instituted in 1980, both the trustee, Georgia Ann Harmon, and the beneficiary, Joan Thevis (now Coffman), were named as defendants and appeared, to claim under the alimony trust. Pursuant to this court's order of August 3, 1982, however, Harmon's attorney withdrew, and has not been replaced, and the trustee has not otherwise appeared. The Trustee is in default of the pre-trial requirements.

 Although the trustee is in default, the United States acknowledges that the rights and interests of the trust may be protected and litigated by a beneficiary, such as Ms. Coffman. The trustee is a necessary party to the action, and she is joined, albeit she is in default.

 STATEMENT OF THE CASE

 This is an interpleader action brought by the Federal Deposit Insurance Corporation ("FDIC") as successor to the Hamilton Bank and Trust Company pursuant to 28 U.S.C. § 1335. The FDIC, as holder of the first mortgage on 267 Marietta Street, Atlanta, Georgia, foreclosed its lien on Global Industries, Inc., and after satisfying the outstanding amount of the mortgage, paid surplus cash proceeds from the foreclosure sale into the registry of this Court. (Those proceeds were in the amount of $ 360,788.83, and at this time have increased to over $ 650,000.00). Thereafter, this action was filed by the FDIC, naming as defendants the potential claimants to these funds.

 When this action was originally commenced, there were a number of parties participating and asserting claims to the funds in the registry of the Court. As the litigation has progressed, there have emerged two principal parties to this litigation, Joan Coffman and the United States of America. Additionally, judgment creditors NCR Corporation and Urban Industries and its insurers lay claim to the funds involved in this litigation, but took no active role in the trial of this case.

 It is undisputed that the rights to be established in this case depend on the determination of the issues between Joan Coffman and the United States of America. If Joan Coffman prevails, then the other parties, including the United States, will be cut off. If the United States prevails, then the right to the funds in the registry of the Court will be a matter of lien priority to be determined by the Court at a later hearing.

 Joan Coffman claims in this action pursuant to a divorce Settlement Agreement with Michael G. Thevis and a resulting Alimony Trust of which she is beneficiary. The Alimony Trust was funded with a $2,000,000.00 promissory note in favor of Michael G. Thevis which was secured by a Deed to Secure Debt (second mortgage) on 267 Marietta Street, which note and second mortgage had been assigned to the trustee of the Alimony Trust. Upon default in the payment to the holder of the first mortgage, it (the FDIC) foreclosed upon the property at 267 Marietta Street, Atlanta, Fulton County, Georgia, and upon its public sale utilized the cash received to extinguish the indebtedness due the first mortgage and interpled the remaining proceeds of the sale into this Court. Ms. Coffman claims her lien was established on April 28, 1978 and is first in priority among all the claimants.

 The United States of America claims in this action in two capacities. The United States claims these proceeds by virtue of a prior decree of forfeiture entered by this court on December 11, 1979 under the Federal RICO statute. Additionally, the United States claims under a federal tax lien which was filed on August 19, 1978, which arose from Jeopardy Assessments made against Michael G. Thevis, Joan Thevis (Coffman), and Global Industries, Inc. These assessments were for the tax years 1972, 1973, 1974 and 1975.

 Urban Industries and its insurers claim by virtue of a judgment against Michael G. Thevis entered on May 1, 1978, in Louisville, Kentucky, domesticated in the State of Georgia, and recorded on June 22, 1978, in the Superior Court of Fulton County.

 NCR Corporation claims by virtue of a judgment against Global Industries, Inc. which was recorded on the General Execution Docket in Fulton County Superior Court on May 25, 1979.

 The United States contends that in a series of transactions between 1974 and 1978, Michael G. Thevis purported to sell his business, Global Industries, Inc., to Fidelity Equipment Leasing Corp., which was allegedly owned by Laverne Bowden. The United States contends that this transaction, or series of transactions, is a sham, contrived by Thevis and Bowden to hide the former's continued control and ownership of Global Industries, Inc., that in fact Thevis continued to own and control Global Industries, Inc., and these transactions should be set aside, and held void by this Court.

 During the course of the final restructuring of the sale in 1978, Fidelity Equipment Leasing Corp. caused Global Industries, Inc. to deliver a mortgage on Global property to Mr. Thevis, which Mr. Thevis simultaneously assigned over to an alimony trust, which trust Michael Thevis had simultaneously created. The United States contends that this mortgage is a component part of the sham sale transaction, was issued without consideration, at the direction of Michael Thevis, and must be held void and of no effect by this court.

 The United States disputes the contentions of Ms. Coffman. It contends she cannot for her own account assert such third-party standing and that the transferee of the mortgage was the alimony trust, not Ms. Coffman personally. The claim of "innocent party" must inure to the trustee, or to the settler, or to the primary beneficiary -- not to Joan Coffman, who was only a contingent beneficiary. Even if she had standing to make the claim, Joan Coffman is not entitled to the rights of an "innocent party," because she was on full notice as to intentions and motives of Michael Thevis, and had grounds to suspect that the sale was sham and the mortgage void.

 The United States contends that Fidelity Equipment Leasing Corp. and Laverne Bowden served as the alter ego or nominee of Michael Thevis, so that the transactions among them are of no force and effect.

 This case was inactive for sometime pending litigation in the Tax Court which the parties thought might lead to a disposition of this case. Those proceedings, now terminated, do not impact on the issues before the Court in this litigation.

 This cause came on for trial before the Court without the intervention of a jury. After considering the evidence, the argument of counsel and the submissions of the parties, the Court makes the following findings of fact and conclusions of law.

 FINDINGS OF FACT

 1. Michael G. Thevis of Atlanta, Georgia, founded and owned completely a firm by the name of Global Industries, Inc. Global itself owned a large number of subsidiary corporations, many of which were involved with the wholesale or retail distribution of adult books, magazines and films, usually referred to as pornography. Other Global subsidiaries were engaged in music production, real estate, or other "non-adult" enterprises.

 2. Michael G. Thevis and Joan Coffman were married, on September 26, 1951. During the marriage of almost twenty-seven years, they had five children. During the last years of their marriage, they lived in a large home on Powers Ferry Road in Atlanta. The home was titled in Mr. Thevis' name alone and was unencumbered. In late April 1978, Ms. Thevis obtained a divorce in the Superior Court of Fulton County, Georgia.

 3. In December 1974, Thevis entered federal prison, and remained in custody until 1978, pursuant to a series of federal criminal convictions related to obscenity, arson and extortion.

 4. In November 1974, Michael G. Thevis, sole owner of Global Industries, Inc. agreed to sell certain assets of Global Industries, Inc. consisting of certain of the subsidiaries of Global which made up the "adult" portion of its business to Fidelity Equipment Leasing Corp. and its sole shareholder, Laverne Bowden, a trusted friend and long term employee of Mr. Thevis, for a purchase price of $ 5,200,000.00. The purchase price was represented by a small cash down payment and a note for the balance. As security for the payment of the note, Ms. Bowden executed a personal guaranty, pledged her shares of stock in a company owned by her known as Omega Sales, and pledged the stock of the companies purchased, all of which security was delivered to an escrow agent.

 The terms of this agreement are set forth in the following exhibits which are before the Court: Memorandum of Agreement for the Sale of Stock by Global Industries, Inc., dated July 29, 1974; Certificate of Corporate Secretary of Global Industries, Inc.; [Sale] Agreement of November 30, 1974; Promissory Note from Fidelity to Global in the amount of $ 5,190,000.00 dated November 30, 1974; and Guaranty Agreement of the same date.

 This transaction is referred to by the parties as the "first transaction."

 5. In November 1975, the "first transaction" was rescinded, renegotiated, and restructured as of the date of the original sale. Under this restructuring agreement Fidelity purchased one hundred percent of the stock of Global from Mr. Thevis for a purchase price of $ 16,240,000.00. As security for the payment of the note pursuant to this restructuring, Ms. Bowden executed a personal guaranty agreement, pledged her shares of stock in Omega Sales, and pledged the stock of Global, all of which security was delivered to an escrow agent.

 This transaction is evidenced by the following documents: Action Taken by the Board of Directors of Fidelity Equipment Leasing Corporation; Rescission Agreement; Sale Agreement; Escrow Agreement; Collateral Promissory Note in the amount of $ 16,240,000.00; and Guaranty Agreement.

 This restructuring is referred to by the parties as the "second transaction."

 6. In March 1977, the "second transaction" was renegotiated and restructured wherein the purchase price, its payment terms, and security agreement for the sale were modified. The principal balance of the debt was reduced to $ 11,200,000.00. Additional security in the form of a second deed to secure debt on real property owned by Global, known as 267 Marietta Street, Atlanta, Georgia, was allegedly taken. No second mortgage executed at this time is of record in the case.

 This transaction is evidenced by the following documents: Modification and Security Agreement; and Allonge to the promissory note in the renegotiated amount of $ 11,200,000.00.

 These facts are referred to by the parties as the "third transaction."

 7. On March 1, 1978, the single promissory note of March 1, 1977 in the amount of $ 11,200,000.00 was recast into two promissory notes.

 The documents reflecting this transaction are: Amendment to Modification and Security Agreement; Collateral Promissory Note in the amount of $ 8,729,341.00; and Collateral Promissory Note in the amount of $2,000,000.00.

 8. Shortly after completion of the "first transaction" Michael G. Thevis entered federal prison.

 9. After the "first transaction" Michael Thevis and Joan Thevis remained officers and directors of Global Industries, Inc. and its remaining subsidiaries.

 10. In the 1975 transaction ("the second transaction") which rescinded the 1974 transaction and resulted in a new agreement, retroactive to 1974, Michael Thevis purported to sell all of Global Industries and its subsidiaries, both "adult" and "non-adult" to Fidelity Equipment Leasing Corp. The contract documents provided, however, that while the purchase price was unpaid Michael Thevis retained broad powers to appoint officers and select directors for the "non-adult" portion of the Global group, which included Global and its real estate.

 11. Michael Thevis even though and while in prison exercised his powers to choose Global officers, and installed trusted associates Leon Walters and Patricia McLean as officials of Global to protect his interests.

 12. In 1975 sale ("the second transaction") required that Fidelity make periodic payments to Thevis, but Fidelity was unable to make the required payments. Thus, in 1977 the sale was again modified, the sale price was reduced to $ 11,200,000.00, and the payment schedules were adjusted. This 1977 modification ("the third transaction") required that Fidelity deliver to Mr. Thevis, as additional security, deeds to secure debt on the real property owned by Global, including the real property bringing the monies which are made the subject of this suit at 267 Marietta Street. These deeds to secure debt were not recorded during 1977, if ever executed.

 14. Handling these 1975, 1977 and 1978 transactions on behalf of Bowden and Thevis were Atlanta attorneys Gilbert Deitch and Warren Shulman.

 15. Although Ms. Bowden warranted that she was the sole shareholder in Fidelity, no stock was ever issued to her, and an unexecuted Certificate No. 1, made out to Ms. Bowden was discovered in the Fidelity stock book long after her departure from the scene.

 16. Global carried a large receivable due from Mr. Thevis at the time of the purported sale thereof to Fidelity, which receivable was not then retired. Even after the sale, Fidelity accountants continued to charge corporate expenditures to that receivable account, i.e., classify corporate expenses as additional loans to Thevis.

 17. While in prison, Michael Thevis remained in frequent communication with the business by telephone, and in 1976 Fidelity funds were used to make a surreptitious payment to a prison chaplain, to preserve those telephone privileges.

 18. In 1975 Thevis stated to Roger Underhill that the sale of Global to Ms. Bowden was a "front that the Government couldn't crack."

 19. In 1976 Thevis stated to Leon Walters that the sale to Bowden was a sham.

 20. In late 1977, Joan Thevis commenced a divorce proceeding against Thevis. At that time she owned virtually no assets in her own name. She sought a property settlement from Thevis, and made a demand for a two million dollar lump sum settlement.

 21. Joan Thevis was represented in the divorce proceedings by attorney Morton Levine, who filed a timely lis pendens notice on the Thevis' residence, warning all persons that the title to that property was in litigation.

 22. In 1978, Michael G. Thevis and Velda Joan Thevis and their respective attorneys, Warren Shulman and Morton Levine, finalized the terms of the Thevis' divorce after months of negotiations between the parties and their attorneys. That agreement is embodied in the Settlement Agreement entered into by Michael G. Thevis and Velda Joan Thevis, now Coffman, which settled all issues between the parties insofar as their marital rights and obligations were concerned. Among other things, Michael Thevis agreed: to convey to Joan Thevis the family residence; provide her with lifetime alimony; transfer to her several automobiles, life insurance policies, and shares of stock; provide a trust for the five Thevis children; and convey real property to Joan Thevis in Florida, Bartow County, Georgia and Clayton County, Georgia.

 23. Negotiations between counsel for the parties culminated in the Settlement Agreement which was prepared in its executed form by Joan Thevis' attorney, Morton Levine, and delivered by Levine to Michael G. Thevis' attorney, Warren Shulman. Warren Shulman presented the agreement to his client in Indiana on either April 25 or 26, 1978 at which time the same was executed by Michael G. Thevis as were certain other documents called for in the agreement. All the papers were returned to Joan Thevis' attorney for her execution which was accomplished on April 28, 1978 in Atlanta, Georgia.

 24. Pursuant to the Settlement Agreement in the divorce action, the following documents were executed: Alimony Trust Agreement; Irrevocable Living (Children's) Trust; Deed to Secure Debt and Security Agreement on 267 Marietta Street; Assignment of $2,000,000.00 Note and Deed to Secure Debt; Assignment of $ 8,000,000.00 Promissory Note; Assignment of Stock; and Assignment of Life Insurance. Michael Thevis conveyed to Joan Thevis by warranty deed, the family residence and the properties in Bartow and Clayton County, Georgia. Certain of the settlement documents were executed by Georgia Ann Harmon acting as provided for by a Power of Attorney from Michael G. Thevis dated April 26, 1978.

 25. On April 28, 1978, Michael Thevis and Joan Thevis were granted a divorce upon Ms. Thevis' petition in the Superior Court of Fulton County, Georgia.

 26. Michael Thevis escaped from prison on the night of April 28, 1978.

 27. At the time of the commencement of the divorce action, Michael Thevis and his wife Joan Thevis, were the subject of an ongoing income tax examination by the Internal Revenue Service. Their representative in the examination was Atlanta accountant T. D. James, now deceased. Joan Thevis had executed various Treasury documents concerning the examination, including extensions of the statute of limitations and the appointment of T. D. James, as her representative, she had provided financial records to the IRS and was aware of the examinations.

 28. During the first four months of 1978, besides being a federal prisoner, Michael Thevis was (a) the target of an on-going federal grand jury inquiry in the Northern District of Georgia, (b) the defendant in a civil arson case in Louisville, Kentucky, that came to trial in April, 1978, and (c) the defendant in State criminal charges filed by the State of Florida. All of these pending matters were commented on regularly by the Atlanta news media.

 29. In negotiations with Michael Thevis, Joan Thevis and her counsel were assisted at all times, and without compensation, by accountant T. D. James, who also served as an accountant for Fidelity, and who had particular knowledge and information concerning the assets and affairs of both Michael Thevis and Fidelity. T. D. James provided information to Ms. Thevis' counsel to assist her counsel in framing the demands made on Michael Thevis. At this time Fidelity and Global were under an income tax examination, with revenue agents present regularly at Fidelity offices, and such examination was known to T. D. James.

 30. The negotiations for the property settlement in the divorce action culminated in a series of legal instruments executed by Michael Thevis, Joan Thevis and others during the period of April 26-28, 1978. At that time, Michael Thevis was being held in the Floyd County Jail, at New Albany, Indiana, where he was assisting in the defense of a civil action against him in Louisville. A jury verdict against him of some $ 670,000.00 had been returned in that court several days earlier, and which was reported in the Atlanta newspaper.

 31. At the time of the execution of these instruments, Michael Thevis anticipated that a large civil tax case might be filed against him, he was concerned over the adverse outcome of the Louisville civil suit, and he was concerned over government efforts, through the criminal investigation, to tie up his assets.

 32. In the settlement negotiations, Michael Thevis acceded to the demands of his wife, and transferred to her or to trusts in which she or the children were beneficiaries, virtually all of the real property, stocks and life insurance, that he owned, together with the Fidelity notes to him for the purchase of Global Industries, Inc. Also he agreed to pay Joan Thevis alimony of $ 12,000 per month, so long as she lived.

 33. As part of this marital settlement, the payment schedule between Fidelity and Thevis was renegotiated. The previous note obligation of which some $10.7 million remained unpaid was broken into Note A for $2,000,000.00 and Note B for $ 8,729,341.00. The deeds to secure debt, which in 1977 were supposed to secure the entire obligation, were changed to secure only Note A -- which is the note upon which the claimant, Joan Thevis, now Coffman, comes before this Court.

 35. At the time of the execution of these instruments, including the delivery, assignment and recordation of the deeds to secure debt on the property of Global, Michael Thevis was indebted to the United States for unpaid income taxes for prior years in the amount of more than 2.5 million dollars. Global Industries, Inc., similarly was indebted to the United States for unpaid income taxes for prior years in the amount of more than ten million dollars.

 36. The power of attorney from Michael G. Thevis to Georgia Ann Harmon was recorded on May 8, 1978, Deed Book 6951, Page 171, Fulton County Records.

 37. The Deed to Secure Debt and Security Agreement from Global Industries, Inc. to Michael G. Thevis was recorded on May 8, 1978, Deed Book 6951, Page 178, Fulton County Records.

 38. The Assignment by Michael G. Thevis to Georgia Ann Harmon was recorded on May 8, 1978, Deed Book 6951, Page ...


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