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KATHRYN KENEALLY Assistant Attorney General G. PATRICK JENNINGS COLIN C. SAMPSON Trial Attorneys, Tax Division U.S. Department of Justice P.O. Box 683 Ben Franklin Station Washington, D.C. 20044-0683 Telephone: (202) 514-9668 Facsimile: (202) 307-0054 Email: Colin.C.Sampson@usdoj.gov Guy.P.Jennings@usdoj.gov Western.TaxCivil@usdoj.gov Of Counsel: BENJAMIN B. WAGNER United States Attorney Attorneys for the United States of America

12 13 IN THE UNITED STATES DISTRICT COURT FOR THE 14 EASTERN DISTRICT OF CALIFORNIA 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiff, the United States of America (United States), by and through undersigned counsel, submits this Opposition to the Motion to Dismiss filed jointly by Defendants Michael Scott Ioane, Acacia Corporate Management LLC, and Mariposa Holdings, Inc., which all appear to share William McPike as their attorney. For the reasons stated herein, the Court should deny Defendants Motion and allow the matter to proceed to discovery. UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) v. ) ) VINCENT STEVEN BOOTH; LOUISE Q. ) BOOTH; MICHAEL SCOTT IOANE; ACACIA ) CORPORATE MANAGEMENT LLC; ) MARIPOSA HOLDINGS, INC., ) ) Defendants. ) Civil No. 1:09-CV-01689-AWI-GSA UNITED STATES OPPOSITION TO DEFENDANTS MOTION TO DISMISS Date: Monday, May 14, 2012 Time: 1:30 p.m. Courtroom: No. 2, 8th Floor Judge: Anthony W. Ishii

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BACKGROUND In a related case, Acacia Corporate Management, et al., v. United States, et al. (Acacia), 1:07-cv-1129-AWI-GSA, Michael Ioane and Acacia Corporate Management LLC seek a court order quieting title in three properties, located at 1927 21st Street, Bakersfield, California 93301, 5705 Muirfield Drive, Bakersfield, California 93306, and 5717 Roundup Way, Bakersfield, California 93306 (Subject Properties), which belong to V. Stephen and Louise Q. Booth (the Booths) and are encumbered by federal tax liens resulting from the Booths tax liabilities. In Acacia, the Booths and Ioane entered a collusive order in 2007 regarding the Subject Properties, which purported to finally determine title to the properties. See Acacia, 1:07-cv-1129-AWI-GSA, Dkt. No. 10. Although the United States is named as a defendant in that action, the collusive order was filed and entered without the participation of the United States and before the United States filed an Answer or entered an appearance. Moreover, the Court has denied entering a partial judgment in that case. Id., Dkt. No. 64. Further, the collusive order was entered while the Booths were still conspiring with Ioane to avoid their tax liabilities, and the Booths, having been criminally prosecuted for their participation in this scheme, now dispute that Ioane or Acacia possess an interest in their properties. Declaration of Vincent Steven Booth, 9; see also United States v. Ioane, et al., 1:09cr-142-LJO (discussed below); Booth, et al., v. Acacia, et al. (Booth v. Acacia), 1:12cv-171-AWI-GSA (same). This action involves the United States claims to reduce to judgment federal taxes assessed against the Booths and seeks to foreclose the United States federal tax liens against the same three Subject Properties as in Acacia, above. The United States has amended its Complaint to include a foreclosure count which will establish the ownership of the Subject Properties, paralleling the relief sought in the Acacia quiet title case. Michael Ioane, Acacia, and Mariposa Holdings, Inc. (Mariposa) were added as defendants in the United States Amended Complaint (Dkt. No. 39), which, in addition to seeking to reduce outstanding federal income tax assessments against the Booths, also -2United States Opposition to Defendants Motion to Dismiss

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seeks to set aside the Booths fraudulent transfers of three parcels of real property to nominees and a fraudulent deed of trust in order to avoid collection by the United States. The United States did not file the foreclosure complaint in this case in order to evade the collusive order in the Acacia case, as Defendants allege.1 Rather, the United States objected to the jurisdiction of the Court to hear the Acacia case, which was improperly filed on behalf of a corporation by a non-attorney, Mr. Ioane, and portions of the case have been dismissed for lack of jurisdiction. The United States brought the foreclosure counts, which will have the effect of quieting title, on its own initiative in this case, where jurisdiction is clear. The Booth v. Acacia action, recently removed from Kern County Superior Court, appears to involve the Booths attempt to quiet title in the three Subject Properties properties at issue in this and the Acacia matters. In that case, defendants Ioane and Acacia Corporate Management counterclaimed against the Booths and the United States. The United States recently removed this matter to federal court and sought consolidation of all three cases in order to adjudicate all parties claims in the Subject Properties in one action, which the Court denied. See Booth v. Acacia, Dkt. No. 20. Michael Ioane continues in his attempts to legitimize and defend a series of transactions for which he was criminally convicted. See United States v. Ioane, et al., 1:09-cr-142-LJO. Defendants Motion to Dismiss asserts that this matter should be dismissed due to the pendency of the 2007 case, Acacia Corporate Management LLC, et al., v. United States, et al., 1:07-cv-1129, in this District.2 They assert that a collusive, non-final order obtained without the United States participation is binding as to the question of ownership of the Subject Properties. The collusive order does not constitute a final

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Indeed, the United States sought to consolidate the cases.

Defendants have filed a similar motion to dismiss another related matter, Booth v. Acacia, 1:12cv-171, Dkt. No. 26. -3United States Opposition to Defendants Motion to Dismiss

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order and was not consented to by the United States. Moreover, the Court in that case has determined that it is not binding on the United States. See Acacia, 1:07-cv-1129, Dkt. No. 64, p. 8 (denying a partial final judgment based upon the stipulated order and finding that ownership of the Properties is completely intertwined with the dispute between Plaintiffs and the United States.). Defendants devote a substantial amount of their Motion to Dismiss to challenging the propriety of related but separate cases, and misstates the record with respect to this matter. ARGUMENT 1. The Court Should Allow Discovery to Proceed Before Granting Any Summary Judgment.

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Defendants assert that the United States Complaint fails to state a claim against them upon which relief may be granted. Defendants fail completely to provide any argument regarding the United States foreclosure counts in its Amended Complaint and the relief it seeks, instead asserting that a collusive order obtained in another proceeding is binding on this Courts adjudication of the United States foreclosure action. When deciding the sufficiency of a complaint under Rule 12(b)(6), the court accepts all allegations of material fact as true and construes these facts in the light most favorable to the nonmoving party. Am. Family Assn v. City and County of San Francisco, 277 F.3d 1114, 1120 (9th Cir. 2002). Defendants have provided no argument to support their contention that the United States has failed to state a claim. Indeed, the United States has alleged that the three properties against which the United States seeks foreclosure of its federal tax liens were transferred to nominees of the Booths to avoid collection. Rather than dispute the merits of the United States Amended Complaint, Defendants merely assert that this action is duplicative of a related matter which sought and obtained a collusive order that does not bind the United States. Such assertions do not go to the merits of the United States Amended Complaint, and are

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United States Opposition to Defendants Motion to Dismiss

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not the proper subject of a motion to dismiss under Rule 12(b)(6).3 Defendants introduction of declarations and requests for judicial notice (Dkt. Nos. 48, 48-1, 49, 50, 52) require the Court to look beyond the United States Amended Complaint and consider Defendants motion as one for summary judgment. Unless the Court converts the Rule 12(b)(6) motion into a summary judgment motion, it cannot consider material outside the complaint (e.g., facts presented in briefs, affidavits or discovery materials). See Arpin v. Santa Clara Valley Transp. Agency, 261 F. 3d 912, 925 (9th Cir. 2001); see also Butler v. Los Angeles County, 617 F. Supp. 2d 994, 999 (C.D. CA 2008); Paulsen v. CNF, Inc., 391 F. Supp 2d 804, 807 (N.D. CA 2005). The Court has issued a Scheduling Order in this matter (Dkt. No. 37), and discovery will commence shortly. The United States respectfully requests that the Court refrain from converting Defendants motion to a motion for summary judgment until the parties have the opportunity to take discovery and pursue their claims. If the Court converts the motion, the U.S. requests notice and an opportunity to brief the need for discovery under Rule 54(d). 2. The United States is Not Bound by a Collusive Order in Another Case.

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In Acacia Corporate Management LLC v. United States, et al., a suit seeking to 19 quiet title in the same properties at issue here, the Booths and Ioane entered a collusive 20 order regarding the Subject Properties, which purported to finally determine title to the 21 properties as between them. See Acacia, Civ. No. 1:07-cv-1129, Dkt. No. 10. Although 22 the United States was named in that action and had been served with the Summons 23 and Complaint, it had not yet answered the Complaint and was not a signatory to this 24 collusive order and indeed had no notice prior to its entry, and thus is not bound by it. 25 Id., Dkt. No. 64. Further, despite Mr. Ioane and Acacias insistence, the collusive order 26 27 28
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Indeed, the United States unsuccessfully sought consolidation of this action with Acacia and with Booth v. Ioane, which Defendants vehemently opposed. See Dkt. No. 51. -5United States Opposition to Defendants Motion to Dismiss

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entered is not a final judgment of the Court, and can be modified or rescinded by the Court as the action remains pending. When multiple parties are involved in an action, the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determined that there is no just reason for delay. Fed. R. Civ. P. 54(b). The Court may have signed the collusive order presented to it, but it did not make an express determination that there was no just reason for delay, or that the determination as to some but not all parties should be final, and thus is an order and not a judgment. Moreover, the Booths now seek to avoid the order as well, which they concede was entered to avoid tax collection. See Declaration of Vincent Steven Booth, 9. 3. Judicial Notice of an Order in Another Case Should Not Bind The United States.

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Defendants seek judicial notice of documents relating to other cases, including the collusive order discussed above, which they assert quiets title to the property that is the subject of the United States foreclosure counts included in the Amended Complaint in this action. See Dkt. Nos. 48 and 49, pp. 2 (Requests for Judicial Notice); see also Acacia Corporate Management LLC v. United States, et al. (Acacia). Civ. No. 1:07-cv1129, Dkt. No. 10. A court may take judicial notice of a document filed in another court not for the truth of the matters asserted in the other litigation, but rather to establish the fact of such litigation and related findings. Kramer v. Time Warner Inc., 937 F. 2d 767, 774 (2nd Cir. 1991); Opoka v. I.N.S., 94 F. 3d 392, 395 (7th Cir. 1996); Taylor v. Charter Med. Corp., 162 F. 3d 827, 829-30 (5th Cir. 1998). Thus, while a court may judicially notice another courts order, it may not accept that courts findings of fact as true. Wyatt v. Terhune, 315 F. 3d 1108, 1114 (9th Cir. 2003); United States v. Jones, 29 F. 3d 1549, 1553 (11th Cir. 1994). Indeed, judicially noting a fact simply because it was found to be true in another action would render the doctrine of collateral estoppel superfluous. United States v. Jones, 29 F. 3d at 1553. As an initial matter, the Court in Acacia refused to enter a partial judgment -6United States Opposition to Defendants Motion to Dismiss

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pursuant to the collusive order. Further, the United States will be seeking an order from that Court reconsidering the collusive order. At the time that the collusive order was presented to the Court and signed, the United States had not yet entered an appearance or filed an answer and was not a signatory to the stipulation. See Acacia, 1:07-cv-1129, Dkt. No. 17. Not only is the collusive order at issue not binding as to the United States, a non-party to the stipulated order, but the Court has specifically denied judgment pursuant to Rule 54(b), noting that ownership of the Properties is completely intertwined with the dispute between Plaintiffs [Acacia and Ioane] and the United States. Acacia, 1:07-cv-1129, Dkt. No. 64, pp. 8-9. Defendants attempt to deceive this court is a grave misrepresentation the record in the Acacia matter. 4. This Suit is Authorized by the Secretary of the Treasury.

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7United States Opposition to Defendants Motion to Dismiss

Defendants claim that this action, as well as a state court quiet title action removed by the United States to the United States District Court for the Eastern District of California, have not been authorized by the Secretary of the Treasury. Motion, Dkt. No. 47, p. 3. As an initial matter, the United States was not a party to the action recently removed to federal court until the United States was named as a Cross Defendant by Defendants themselves (Ioane and Acacia Corporate Management LLC). See Booth, et al., v. Ioane, et al., 1:12-cv-171, Dkt. No. 1-1. Defendants conjecture regarding the purpose of that suit is unfounded and is not the proper subject of a motion to dismiss the instant action. Notwithstanding Defendants frivolous arguments, and in accordance with 26 U.S.C. 7401, the United States Department of Justice has been authorized to bring this suit by the Secretary of the Treasury, and the Attorney General of the United States has directed that this suit be brought. Declaration of Colin C. Sampson, 4-5; Attachment A. Because this suit, Plaintiffs motion for dismissal based on Section 7401 fails.

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The Amended Complaint was Allowed by the Court.

Defendants claim that there is nothing to indicate the Court ever allowed the 3 United States Amended Complaint, and further assert that the United States never 4 sought leave to add parties to this action. Their assertions are unfounded. By this 5 Courts Order, the United States was ordered to file an Amended Complaint no later 6 than February 10, 2012. Dkt. No. 37, p. 2. The United States timely filed the Amended 7 complaint on February 10, 2012. See Dkt. No. 39. 8 9 10 11 Defendants Motion asserts that the United States was obligated to bring a 12 counterclaim against them in Acacia regarding foreclosure of the United States tax liens 13 against the Subject Properties. Motion, Dkt. No. 47, p. 4-5. Defendants are incorrect. 14 As an initial matter, the United States did not bring suit in the matter removed to this 15 Court from the state court (Booth v. Ioane, et al., 1:12-cv-171), but rather removed the 16 action after it was named in a counterclaim relating to properties against which the 17 United States claims an interest. 18 The United States is not barred from bringing the instant suit. Among other 19 reasons, the United States refrained from filing a counter claim in that action because 20 the United States contended that a suit may not be brought on behalf of a corporation 21 by a non-attorney, thereby, in the Governments view, rendering it an improper claim. 22 Special considerations have led the courts to determine that tax collection actions are 23 not to be treated as compulsory counterclaims even where they arise out of the 24 transaction or occurrence that is the subject matter of the opposing party's claim. 25 Caleshu v. United States, 570 F.2d 711 (8th Cir. 1978); Pfeiffer Co. v. United States, 26 518 F.2d 124, 130 (8th Cir. 1974); Gustin v. United States, 876 F.2d 485, 490 n.1 (5th 27 Cir. 1989); see, also Russell v. United States, 592 F.2d 1069, 1073 (9th Cir. 1979) 28 -8United States Opposition to Defendants Motion to Dismiss

6.

The United States Was Not Obligated To Bring A Compulsory Counterclaim to Defendants Quiet Title Action in Acacia.

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(Internal Revenue Code provisions specifically block action of Rule 13(a) on compulsory counterclaims). In Caleshu, the leading case on this issue, the Eighth Circuit Court of Appeals held that the Government need not bring its suit to reduce a Trust Fund Recovery Penalty to judgment as a compulsory counterclaim in a refund suit for the same taxes. In that case, unlike here, the collection action would have been a compulsory counterclaim under a traditional Rule 13(a) analysis. However, the Court reasoned that requiring collection actions to be brought as compulsory counterclaims would interfere with the tax collection provisions enacted by Congress, by permitting a taxpayer unilaterally to shorten the limitations period for bringing a collection suit from the statutory period permitted [then six years, now ten] to as little as six months. Caleshu, 570 F.2d at 713-714. And requiring tax collection suits to be brought as compulsory counterclaims would interfere with the Government's choice of venue, which is mandated by statute and is frequently essential for effective tax enforcement. Id. at 713. Finally, the Court reasoned that its holding was consistent with Flora v. United States, 362 U.S. 145, 166 (1960), which requires full payment by the taxpayer to obtain District Court jurisdiction. Because no full payment is required to commence a quiet title action, a compulsory counterclaim rule would permit any taxpayer to circumvent the Flora rule at will. Flora, 362 U.S. 145, 166 (the Government may, but seemingly is not required to, bring a counterclaim). Thus, the United States is not barred from bringing its Amended Complaint in this case as a result of any asserted failure to file a counterclaim in the Acacia matter. 7. Defendants Statements Regarding Ioanes Appeal Are Misleading.

23 24 25 26 27 28 The Motion suggests that Ioane was released from incarceration in an almost, unprecedented ruling from the Ninth Circuit, further suggesting that the Ninth Circuit had determined that he was likely to win his appeal. Motion, p. 2 (emphasis deleted). The Motion argues that the United States Amended Complaint in this action somehow violates the Fifth Amendment right of Michael Scott Ioane. Id. -9United States Opposition to Defendants Motion to Dismiss

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The Order of the Ninth Circuit merely released Mr. Ioane from custody as a result of a showing that appellant is not likely to flee or to pose a danger to the safety of any other person or the community if released. United States v. Michael Scott Ioane, 1210068, Dkt. No. 11, p. 1 (9th Cir. March 20, 2012). Moreover, Ioane provides absolutely no legal argument regarding his rights pursuant to the Fifth Amendment.

CONCLUSION Wherefore, the United States respectfully requests that this Court enter an order denying Defendants Motion to Dismiss, allow discovery in this matter to commence, and grant any other relief that the Court deems just and proper.

Dated: April 30, 2012. Respectfully submitted, KATHRYN KENEALLY Assistant Attorney General /s/ Colin C. Sampson G. PATRICK JENNINGS LAUREN CASTALDI COLIN C. SAMPSON Trial Attorneys, Tax Division U.S. Department of Justice Post Office Box 683 Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 514-6062 Of Counsel: BENJAMIN B. WAGNER United States Attorney Attorneys for the United States of America

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United States Opposition to Defendants Motion to Dismiss

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CERTIFICATE OF SERVICE IT IS HEREBY CERTIFIED that on this 30th day of April, 2012, I served the foregoing 1. 2. 3. 4. 5. UNITED STATES OPPOSITION TO DEFENDANTS MOTION TO DISMISS; DECLARATION OF COLIN C. SAMPSON; EXHIBITS; DECLARATION OF VINCENT STEVEN BOOTH; and CERTIFICATE OF SERVICE.

by U.S. Mail, postage prepaid, addressed to: 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 11 United States Opposition to Defendants Motion to Dismiss

V. Steven Booth Louise Q. Booth 5717 Roundup Way Bakersfield, CA 93306

William McPike 257 E. Bellevue Road, #188 Atwater, CA 95301 Attorney for Michael S. Ioane Attorney for Acacia Corporate Management, LLC Attorney for Mariposa Holdings, Inc.

/s/ Colin C. Sampson COLIN C. SAMPSON Trial Attorney, Tax Division United States Department of Justice