NM TP/Farmer convicted

Post by **Demosthenes** » Fri Apr 23, 2010 4:43 pm

FOR IMMEDIATE RELEASE TAX
FRIDAY, APRIL 23, 2010 (202) 514-2007
http://WWW.JUSTICE.GOV TDD (202) 514-1888
NEW MEXICO FARMER CONVICTED OF TAX FRAUD,
FRAUDULENTLY COLLECTING FARM SUBSIDIES
Estimated He Owes More Than $18 Million in Federal Taxes
WASHINGTON - Bill Melot, a resident of Hobbs, N.M., was convicted today of tax evasion, failure to file tax returns, making false statements to the U.S. Department of Agriculture (USDA), and impeding the Internal Revenue Service (IRS) following a four day jury trial before Judge M. Christina Armijo in Albuquerque, N.M., the Justice Department, IRS and the USDA’s Office of Inspector General announced.
According to the indictment and evidenced presented at trial, Melot owes the IRS more than $18 million in federal taxes and has not filed a personal tax return since 1986. In addition, Melot has improperly collected over $225,000 in federal farm subsidies from USDA by furnishing false information to the agency. Specifically, Melot provided the USDA a false Social Security Number and fictitious Employer Identification Number to collect federal farm aid.
According to the indictment and evidence presented at trial, Melot took a numerous steps to conceal his ownership of the 250 acres in Lea County, N.M., including notarizing forged deeds and titling the property in the name of nominees. The evidence further showed that Melot used false Social Security Numbers and fictitious Employer Identification Numbers to hide his assets from the IRS. Additionally, Melot maintained a bank account with Nordfinanz Zurich, a Swiss financial institution, which he set up in Nassau, Bahamas, in 1992. Melot failed to report the Swiss account to the U.S. Treasury Department as required by law.
Melot faces a maximum term of 49 years in prison and a maximum fine of $2,850,000. He was jailed pending sentencing, which is set for May 20, 2010.
Acting Assistant Attorney General John DiCicco commended the investigative efforts of IRS Criminal Investigation and the USDA’s Office of Inspector General, as well as Tax Division trial attorney Jed Silversmith and Assistant U.S. Attorney George Kraehe, who prosecuted the case. Acting Assistant Attorney General DiCicco also thanked the Criminal Investigation Division of the Texas Comptroller of Public Accounts for its assistance in prosecuting this matter.
More information about the Justice Department’s Tax Division and its enforcement efforts is available at http://www.usdoj.gov/tax/.

Post by **wserra** » Fri Apr 23, 2010 5:22 pm

Demosthenes wrote:Melot owes the IRS more than $18 million in federal taxes and has not filed a personal tax return since 1986. In addition, Melot has improperly collected over $225,000 in federal farm subsidies from USDA

I have a new reference standard for chutzpah.

Post by **Demosthenes** » Wed Aug 31, 2011 6:01 pm

__________________________________________________________________________
FOR IMMEDIATE RELEASE TAX
WEDNESDAY, AUGUST 31, 2011 (202) 514-2007
WWW.JUSTICE.GOV TTY (866) 544-5309

NEW MEXICO FARMER SENTENCED TO FIVE YEARS IN PRISON FOR TAX FRAUD,
FRAUDULENTLY COLLECTING FARM SUBSIDIES

Ordered to Pay $18 Million in Restitution to the Internal Revenue Service

WASHINGTON – Bill Melot, a Hobbs, N.M., farmer, was sentenced to five years in prison yesterday to be followed by three years of supervised release for tax evasion, program fraud and other crimes, the Justice Department, Internal Revenue Service (IRS) and U.S. Department of Agriculture’s (USDA) Office of Inspector General announced today.

Melot was previously convicted of tax evasion, failure to file tax returns, making false statements to the USDA, and impeding the IRS following a four-day jury trial in Albuquerque, N.M. According to the indictment and evidence presented at trial and at sentencing, Melot owes the IRS more than $25 million in federal taxes and more than $7 million in taxes to the state of Texas. Melot has not filed a personal income tax return since 1986. In addition, Melot has improperly collected more than $225,000 in federal farm subsidies from USDA by furnishing false information to the agency. Specifically, Melot provided the USDA with a false Social Security number (SSN) and fictitious employer identification number (EIN) to collect federal farm aid.

According to the indictment and evidence presented at trial, Melot took numerous steps to conceal his ownership of 250 acres in Lea County, N.M., including notarizing forged deeds and titling the property in the name of nominees. The evidence also showed that Melot used false SSNs and fictitious EINs to hide his assets from the IRS. Additionally, Melot maintained a bank account with Nordfinanz Zurich, a Swiss financial institution, which he set up in Nassau, Bahamas, in 1992. Melot failed to report the Swiss bank account to the U.S. Treasury Department as required by law.

Melot was also ordered to pay $18,493,099 in restitution to the IRS and $226,526 in restitution to the USDA.

Kenneth J. Gonzales, U.S. Attorney for the District of New Mexico, and John A. DiCicco, Principal Deputy Assistant Attorney General of the Justice Department’s Tax Division, commended the investigative efforts of IRS Criminal Investigation and the USDA’s Office of Inspector General, as well as Tax Division Trial Attorney Jed Silversmith and Assistant U.S. Attorney George Kraehe, who prosecuted the case. Principal Deputy Assistant Attorney General DiCicco and U.S. Attorney Gonzales also thanked the Criminal Investigation Division of the Texas Comptroller of Public Accounts for its assistance in prosecuting this matter.

More information about the Justice Department’s Tax Division and its enforcement efforts is available at www.usdoj.gov/tax/.

Post by **The Observer** » Tue Jan 10, 2012 3:44 pm

UNITED STATES OF AMERICA,
Plaintiff,
v.
BILLY R. MELOT KATHERINE MELOT,
KLM TRUST, C.D. PROPERTIES, INC., MELM TRUST,
Q.F. MARKETING, INC., LEIGH CORPORATION,
SUZANNE CORPORATION, MIRROR FARMS, INC., and
C.D. EXPRESS, INC.,
Defendants.

Release Date: JANUARY 06, 2012

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO

MEMORANDUM OPINION AND ORDER

THIS MATTER comes before the Court on Plaintiff United States of America's Motion for Summary Judgment, filed July 11, 2011 [Doc. 68]. The Court, having considered the motion, briefs, declarations, voluminous exhibits, arguments, and relevant law, and being otherwise fully informed, finds that the motion should be GRANTED in part and DENIED in part.

BACKGROUND

The United States, via the Internal Revenue Service ("IRS"), filed the underlying action to reduce to judgment outstanding tax assessments against pro se Defendants Billy R. Melot and Katherine L. Melot ("Mr. and Ms. Melot") and to foreclose federal tax liens upon certain real and personal property owned by Mr. and Ms. Melot. See Amended Complaint [Doc. 33] at 1, paragraph 1. The trust and corporate Defendants named in the Amended Complaint are named because they hold title to property as a nominee/transferee or alter ego for the alleged real owners, Mr. and Ms. Melot. See id. at 2-3, paragraphs 5-12. According to the Amended Complaint, Mr. Melot did not file tax returns for the tax years 1987 through 1993, despite earning significant income. Id. at 4, paragraph 13. The Amended Complaint similarly alleges that Ms. Melot did not file tax returns for the tax years 1987 through 1993 and 1996. Id. at 5, paragraph 16. The IRS therefore prepared substitute tax returns on behalf of Defendants. Id. at 4-5, paragraphs 13, 16. Mr. and Ms. Melot received notice and demand from a delegate of the Secretary of Treasury, but they still refused to pay the federal income tax assessments for the respective tax years. See id. paragraphs 14, 17.

On October 9, 2001, the IRS filed Notices of Federal Tax Lien for those federal income tax liabilities against Defendants in Lea County, New Mexico. Id. paragraphs 15, 18. The IRS has also assessed tax liabilities against Defendant Billy Melot d.b.a. Melot Oil Company for unpaid federal excise taxes and associated penalties and interest for tax periods ending in 1989 through 1991 and 1992 through 1993. Id. at 6, paragraph 20. On October 15, 2001, the IRS filed a Notice of Federal Tax Lien against Mr. Melot with regard to these liabilities in Bernalillo County, New Mexico. Id. at 7, paragraph 21. On September 24, 2009, the IRS filed nominee Notices of Federal Tax Liens against the Defendant trusts and corporations in Lea County, New Mexico naming them as nominees, alter egos, transferees, agents, and/or holders of beneficial interests of Mr. Melot for his 1987-1993 federal income tax liabilities. Id. at 8-12, paragraphs 24, 26, 28, 30, 33, 35, and 37. In all, the tax liens reflect an assessment of unpaid taxes, penalties, and interest in an amount exceeding $ 34 million. Id. at 4-7, paragraphs 14, 17, and 20. The filed tax liens attach to any interest in Defendants' real and personal property. Id. at 7, paragraph 22.

On April 22, 2010, a federal court jury convicted Mr. Melot on all 15 counts with which he was charged in a related criminal matter. See No. 09-CR-2258-MCA (D. N.M.) at Doc. 79. The jury found Mr. Melot guilty of: (1) corruptly endeavoring to obstruct or impede the due administration of the Internal Revenue Code; (2) willfully attempting to evade the payment of federal income tax (with respect to tax years 1987-1993); (3) willfully failing to make income tax returns for tax years 2003-2008; and (4) knowingly making false statements to the U.S. Commodity Credit Corporation. See id. On August 30, 2011, Mr. Melot received a sentence of sixty months imprisonment. See Doc. 208 in Case No. 09-CR-2258-MCA.

Defendants have previously moved to dismiss this case on the grounds that they were not properly served, that Ms. Melot could not owe the taxes assessed against her because she had no income for the periods covered by the assessments, that the liens against them were filed without due process of law, and that the amount of assessments against them is incorrect. See Docs. 7 and 8. Defendants also moved to dismiss the case on the grounds that the tax assessments were made after the applicable statute of limitations had run, see Docs. 49 and 52. The Court has previously denied these motions. See Docs. 18 and 115.

In its motion, the Government has set forth the basis for its calculations of tax liability. Defendants contend that several factual issues remain regarding the IRS agent's methodology, the validity of the tax liens, and the Government's compliance with procedural requirements, precluding summary judgment. Defendants also contend that the Government has failed to provide numerous documents requested in discovery. The claims related to the alleged discovery violations were analyzed and rejected in a recent opinion by Magistrate Judge Lynch, and will not be further discussed here. See Order Denying Defendants' Motion to Compel Discovery, issued December 8, 2011 [Doc. 132]. Defendants objected to the Magistrate Judge's Order denying their motion to compel, see Doc. 135, and the Court overruled this objection in an Order issued contemporaneously with this Memorandum Opinion and Order.

LEGAL STANDARD

Summary judgment is appropriate if "the record contains no evidence of a genuine issue of material fact and demonstrates that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 447 U.S. 242, 247 (1986); Woodman v. Runyon, 132 F.3d 1330, 1337 (10th Cir. 1997); Fed. R. Civ. P. 56(c). The Court views the record and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party. Thomas v. Int'l Bus. Machs., 48 F.3d 478, 484 (10th Cir. 1995). The moving party has the initial burden of showing that there is no genuine issue of material fact. Anderson, 477 U.S. at 256. Once the moving party has met its burden, the non-moving party must do more than merely show that there is some doubt as to the material facts. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmoving party may not rest on mere allegations or denials of the pleadings, but must set forth specific facts showing a genuine issue for trial. Anderson, 477 U.S. at 248, 256. Although the Court views the evidence and draws all inferences in the light most favorable to the party opposing summary judgment, that party still "must identify sufficient evidence which would require submission of the case to a jury." Mares v. ConAgra Poultry Co., 971 F.2d 492, 494 (10th Cir. 1992). Unsupported allegations, conclusory in nature, are insufficient to defeat a proper motion for summary judgment. Anderson, 477 U.S. at 248.

DISCUSSION

Six issues must be resolved in the Government's favor to enable it to foreclose on the federal tax liens it has filed against Defendants' real property. The Court must determine whether: (1) Mr. Melot is indebted to the United States for outstanding tax liabilities, including penalties and interest assessed against him for the 1987-1993 tax years; (2) Ms. Melot is indebted to the United States for outstanding tax liabilities, including penalties and interest assessed against her for the 1987-1993 and 1996 tax years; (3) Mr. Melot is liable for excise taxes related to his sales of blended gasoline; (4) the filed federal tax liens are properly attached to Mr. and Ms. Melot's personal property and to the real property held by nominees; (5) the KLM Trust, Suzanne Corp., Leigh Corp., MELM Trust, and Mirror Farms are nominees merely holding title to real property for Mr. and Ms. Melot; and (6) whether the KLM Trust is a sham entity. The Government's motion for summary judgment incorporates hundreds of pages of exhibits to meticulously document the basis for its tax assessments against Defendants and the propriety of the federal tax liens it has attached to Defendants' real and personal property. Below, the Court will cite the documents on which it is relying for its conclusions, and will address Defendants' objections to the Government's contentions. 1

A. Mr. Melot's Outstanding Tax Liabilities

During the 1987-1993 tax years at issue, Mr. and Ms. Melot operated numerous businesses including several convience stores that engaged in the retail sale of gasoline and groceries in Hobbs, New Mexico, and the Permian Basin of Texas. Declaration of Revenue Agent Denise Baker ("Baker Dec."), attached as Govt. Ex. 4, paragraphs 2 and 3. 2 Through these businesses, Mr. Melot earned significant income requiring him to file federal income tax returns. Id. Yet, neither Mr. nor Ms. Melot filed federal income tax returns for the 1987-1993 years. Id. Accordingly, the IRS prepared substitute for returns on behalf of Mr. and Ms. Melot by reconstructing their income and expenses. Id., paragraph 3. In addition to failing to file federal income tax returns for the 1987-1993 tax years, Mr. and Ms. Melot also failed to make any estimated tax payments for those years. See Govt. Ex. 1 at 2, 7, 11, 15, 19, 23 and 27.

The IRS used a combination of methods to reconstruct and determine the amount of the Melots' total gross income, expenses, cost of goods sold, capital gains, wages, and appropriate inclusions of income and deductions therefrom based in part on the Melots' own handwritten ledgers, bank deposits and other third party records. The details of this methodology are described in the Baker Declaration at paragraphs 6, 7, 9, 10, 12 and 13. Using this methodology, the IRS calculated the corrected tax liabilities, additions to tax, and penalties for Mr. Melot's 1987-1993 tax years. Id.

Based on the results of this examination, the IRS issued three separate Statutory Notices of Deficiency for the 1987-1993 tax years to Mr. Melot reflecting the examination results. See id. paragraphs 7, 10, and 13. Mr. Melot failed to petition the United States Tax Court to contest any of the tax liabilities as calculated for the 1987-1993 tax years. See id. paragraphs 7d., 10d., and 13d. On June 5, 2000, the IRS assessed the total corrected tax liabilities, penalties, and additions to tax as set forth in the Notices of Deficiency against Mr. Melot. See Govt. Ex. 1 at 2, 7, 11, 15, 19, 23, and 27. These assessments reflected a corrected tax liability, failure to file penalties, and failure to pay estimated tax penalties for the 1987-1993 tax years totaling $ 4,604,754. See Govt. Ex. 5 at 1, 5, and 6; Govt. Ex. 6 at 1, 5, and 6; Govt. Ex. 7 at 1, 5, and 6. To date, Mr. Melot has failed to pay the tax assessments, resulting in a total amount due, when failure to pay penalties and statutory interest are added, of $ 18,493,098.51 as of August 11, 2009. See Baker Dec. at paragraph 15; Govt. Ex. 12.

On October 9, 2001, the IRS filed a Notice of Federal Tax Lien with the County Clerk of Lea County, New Mexico with respect to Mr. Melot's federal income tax liabilities. See Govt. Ex. 16 at 1. On or about October 12, 2001, Mr. Melot received notice from the IRS that federal tax liens had been filed against him for the 1987-1993 tax years, and a breakdown of the amounts due. See Govt. Ex. 14. Mr. Melot responded to this notice with numerous pages of thoroughly discredited tax protestor arguments, including assertions that the income tax laws are unconstitutional and therefore he cannot be liable for such taxes. Id. This response was in keeping with other correspondence sent by Mr. Melot regarding his tax liability in which he declared that he did not owe any money because he is not a citizen subject to the jurisdiction of the United States and is not required to file income tax returns. See, e.g., Govt. Ex. 45 (August 31, 1999 letter to District Director of IRS declaring that he incurred no liability in 1986 or any years after that, and does not anticipate incurring a liability in future years, so there is no need to contact him further regarding the taxes he allegedly owes). On October 5, 2009, the federal tax liens for Mr. Melot's 1987-1993 income tax liabilities were re-filed in Lea County, New Mexico. See Govt. Ex. 16 at 3.

Mr. Melot challenges the Government's assessments of his tax liabilities, contending that the methodology used by Agent Baker to reconstruct his income and associated tax liability was flawed. See Defendants' Response to Plaintiff's Motion for Summary Judgment (hereinafter "Deft. Resp.") [Doc. 113] at 6-8, 13-14. However, a taxpayer has the duty to maintain adequate and accurate records to enable him to file a tax return. See 26 U.S.C. section 6001; Anson v. Comm'r, 328 F.2d 703, 705 (10th Cir. 1964). If the taxpayer fails to file returns or keeps inadequate records or no records at all, the IRS is entitled to reconstruct the taxpayer's gross receipts and costs to arrive at an assessment of unreported income. See Anaya v. Comm'r, 983 F.2d 186, 188 (10th Cir. 1993). The IRS issued Forms 4340 Certificate of Assessments and Payments, showing these assessments against Mr. Melot for the 1987-1993 tax years. See Govt. Ex. 1. Forms 4340 are presumptively correct and are entitled to great weight absent evidence to the contrary. See Long v. United States, 972 F.2d 1174, 1181 (10th Cir. 1992).

Mr. Melot has failed to produce any specific facts tending to demonstrate that Agent Baker's calculations leading to the IRS's assessments were incorrect, despite having multiple opportunities to do so. The same methodology that the IRS used to determine the amount of tax liability and penalties for the years at issue was also used to determine the tax loss and restitution amount in Mr. Melot's associated criminal trial. See Govt. Ex. 55 (transcript of sentencing) at 42-43 (ordering Mr. Melot to pay $ 18,493,098 in restitution to the IRS, the same total that the IRS is alleging in this suit that Mr. Melot owes for the 1987-1993 tax years). 3 In his objections to the pre-sentence report and at his sentencing hearing, Mr. Melot raised similar arguments and complaints about Agent Baker's methodology and calculations. See Govt. Ex. 54 (Defendant's Amended Objections to the Pre-sentence Investigative Report) at 1, 7. At Mr. Melot's sentencing, the District Court overruled his objections and found that Agent Baker's methodology used to calculate the amount of taxes owed by Mr. Melot was reasonable under the circumstances, that the methodology was not based on speculation or conjecture, and that the calculation of taxes owed for the 1987-1993 tax years was correct. See Govt. Ex. 55 at 6-16. The District Court specifically found that the certified transcripts admitted at Mr. Melot's criminal trial were sufficient to establish the propriety of the 1987-1993 tax assessments because Mr. Melot presented no credible evidence during his trial or sentencing hearing that contradicted the validity of the assessments. See id. at 8:1-16. Similarly, in this case, Mr. Melot has not presented evidence to overcome the presumption of correctness attached to the IRS's Certificates of Assessments and Payments, and the Government's motion for summary judgment on this count must be granted.

B. Ms. Melot's Outstanding Tax Liabilities

1. 1987-1993 Tax Years

Because Ms. Melot was married to Mr. Melot during the years at issue, and because New Mexico is a community property state, the IRS determined Ms. Melot's federal income tax liabilities on a community property split basis. Thus, the IRS attributed a portion of the income earned by Mr. Melot during the 1987-1993 tax years to Ms. Melot. Like Mr. Melot, Ms. Melot failed to file federal income tax returns for the 1987-1993 tax years. As previously discussed, the IRS therefore prepared substitute returns on behalf of Ms. Melot as well as Mr. Melot, using a combination of methods to reconstruct the Melots' gross income and deductible expenses. See Govt. Ex. 2 at 2, 6, 10, 14, 18, 22, 26; Baker Dec. (Govt. Ex. 4) at paragraphs 2, 3, 19-27.

Based on the results of this examination, the IRS issued three separate Statutory Notices of Deficiency for the 1987-1993 tax years to Ms. Melot reflecting the examination results. See Baker Dec. paragraphs 20, 23, and 26. Ms. Melot failed to petition the United States Tax Court to contest any of the tax liabilities as calculated for the 1987-1993 tax years. See id. paragraphs 20d., 23d., and 26d. On June 5, 2000, the IRS assessed the total corrected tax liabilities, penalties, and additions to tax as set forth in the Notices of Deficiency against Ms. Melot. See Govt. Ex. 2 at 2, 6, 10, 14, 18, 22, 26. These assessments reflected a corrected tax liability, failure to file penalties, and failure to pay estimated tax penalties for the 1987-1993 tax years totaling $ 2,338,500. See Govt. Ex. 8 at 1, 5, and 6; Govt. Ex. 9 at 1, 5, and 6; Govt. Ex. 10 at 1, 5, and 6. Ms. Melot failed to pay the tax assessments, resulting in a total amount due, when failure to pay penalties and statutory interest are added, of $ 5,025,090.78 as of October 1, 2001. See Govt. Ex. 18. With years of additional statutory interest, Ms. Melot's tax liability for the 1987-1993 tax years is now estimated to be approximately $ 9.3 million as of March 31, 2009. See Amended Complaint [Doc. 33] at 5 paragraph 17.

On October 9, 2001, the IRS filed a Notice of Federal Tax Lien with the County Clerk of Lea County, New Mexico with respect to Ms. Melot's federal income tax liabilities. See Govt. Ex. 18 at 1. On or about October 12, 2001, Ms. Melot received notice from the IRS that federal tax liens had been filed against her for the 1987-1993 tax years, and a breakdown of the amounts due. See Govt. Ex. 15. Ms. Melot responded to this notice with numerous pages of thoroughly discredited tax protestor arguments, including assertions that the income tax laws are unconstitutional and therefore she cannot be liable for such taxes. Id. This response was in keeping with other correspondence sent by Ms. Melot regarding his tax liability in which she declared that she did not owe any money because she is not a citizen subject to the jurisdiction of the United States and is not required to file income tax returns. See, e.g., Govt. Ex. 46 (August 31, 1999 letter to District Director of IRS declaring that she incurred no liability in 1986 or any years after that, and does not anticipate incurring a liability in future years, so there is no need to contact her further regarding the taxes she allegedly owes). On July 27, 2009, the federal tax liens for Ms. Melot's 1987-1993 income tax liabilities were re-filed in Lea County, New Mexico. See Govt. Ex. 18 at 2, 3, and 4.

Ms. Melot challenges the Government's assessment of her 1987-1993 taxes on the same basis that Mr. Melot challenged his assessment; namely that Agent Baker's methodology was flawed. As previously discussed, Defendants have not presented evidence to call this methodology into question or to overcome the presumption of correctness that attaches to the IRS's Certificates of Assessments and Payments. Therefore, the Government's motion for summary judgment with respect to Ms. Melot's 1987-1993 tax assessments must be granted.

2. 1996 Tax Year

The United States has submitted a Form 4340 Certificate of Assessment for Ms. Melot's 1996 tax year, showing a total amount due, when failure to pay penalties and statutory interest are added, of $ 4,050.87. See Govt. Ex. 2 at 30-33. With years of additional statutory interest, Ms. Melot's tax liability for the 1996 tax year is estimated to be approximately $ 6,742 as of March 31, 2009. See Amended Complaint [Doc. 33] at 5 paragraph 17. However, Defendants have raised several concerns related to the validity of this assessment. Most importantly, it is not clear what the basis of this assessment is. Unlike all of the other assessments at issue in this case, the Government has not submitted work papers or explained the methodology behind this assessment. Viewing the evidence in the light most favorable to the non-movants, the Court must deny Plaintiff's motion on this issue.

Defendants have submitted a Certificate of Assessment for Mr. Melot's 1996 tax year showing a zero balance. See Deft. Ex. B. As Ms. Melot's federal income tax liability for the 1987-1993 years was based on a community property split with her husband, it is unclear what the basis of her assessment is if Mr. Melot has a zero balance for 1996. The Sentencing Memorandum submitted by the United States in Mr. Melot's associated criminal trial indicates that the United States does not have records to determine Mr. Melot's federal tax liability from 1994 to 2010. See Deft. Ex. D. Given this lack of records, it is unclear what records the United States is relying on to form the basis for its assessment against Ms. Melot for the 1996 tax year. Significantly, Agent Baker's thorough declaration and associated exhibits, laying out the basis for all assessments against Defendants, contains no discussion of Ms. Melot's 1996 tax year. See Govt. Ex. 4 paragraphs 16-27 (discussing only the basis for Ms. Melot's assessments for the 1987-1993 tax years). In addition, although a Notice of Federal Tax Lien was filed in Lea County on October 9, 2001 with respect to Ms. Melot's 1987-1993 and 1996 taxes, when these liens were later re-filed in 2009 and 2010, they did not include assessments for 1996. See Govt. Ex. 18.

Because this assessment does not bear the same indicia of reliability as all of the other assessments at issue in this case, out of an abundance of caution the Court will deny summary judgment with respect to Ms. Melot's liability for her 1996 tax assessment only. This assessment reflects a tiny fraction of the total amount assessed against Defendants, and, as a practical matter, should have no impact on the United States' ability to foreclose on all of its other liens. The Court directs Plaintiff to inform the Court as to whether it wishes to proceed to trial on this sole remaining issue.

C. Excise Taxes

During the years in question, Mr. Melot operated a sole proprietorship known as Melot Oil Company. See Govt. Ex. 13 at 2-3. This business was engaged in the buying, selling, blending, and distributing of gasoline and diesel fuel. Id. In operating this business, Mr. Melot purchased natural gasoline, blended it with additives and octane boosters, and sold the finished product through his gas stations. Id at 1-3. Internal Revenue Code section 4081 imposes an excise tax on gasoline sold by the producer thereof, and such a producer is required to file Form 720 tax returns. Mr. Melot failed to file Forms 720 or to pay the excise taxes due for quarterly tax periods in 1989-1993. The IRS therefore reconstructed the sales of gasoline from Melot Oil Company for those periods, and filed substitute Forms 720 accordingly. See id. at 1, 8-15; Govt. Ex. 3. The IRS assessed against, and gave notice and demand to, Billy Melot d/b/a Melot Oil Company for unpaid federal excise taxes, penalties, statutory additions, and interest. See Govt. Ex. 3.

In support of its motion for summary judgment, the United States submitted forms 4340 Certificates of Assessments and Payments evidencing the assessments made against Melot Oil Company for the excise tax quarters ending 3/31/1989-3/31/1991 and 3/31/1992-12/31/1993. At the time of assessment on December 20, 1999, Billy Melot d/b/a/ Melot Oil Company owed $ 3,414,412.93 in excise taxes, penalties, statutory additions, and interest. See id. at 2, 6, 9, 12, 15, 18, 21, 24, 27, 30, 33, 36, 39, 42, 45, 48, and 50. With years of additional statutory interest, the excise tax assessments owed by Billy Melot d/b/a/ Melot Oil Company now approximate $ 6.6 million as of March 31, 2009. See Amended Complaint [Doc. 33] at 6-7 paragraph 20.

Mr. Melot challenges the IRS's assessment of excise taxes as "a conglomeration of questionable assumptions" and "little other than speculation as to the underlying tax liability." Deft. Resp. [Doc. 113] at 14. Mr. Melot also contends that, because he was not convicted on state criminal charges in Texas that may have been related to the gasoline at issue in this case, he cannot be liable for federal excise taxes. Id. The District Court at Mr. Melot's sentencing hearing overruled these objections. See Govt. Ex. 55 at 20:15-21:3. Whether or not Mr. Melot owes taxes to the State of Texas does not determine the validity of the assessment of federal excise taxes against his business. 4 As with Mr. and Ms. Melot's individual income taxes, the Forms 4340 Certificates of Assessments and Payments reflecting the assessed excise taxes are presumptively correct and entitled to great weight absence evidence to the contrary. The United States has produced detailed work papers and calculations of these excise taxes due. See Govt. Exs. 3, 13. Mr. Melot has failed to produce any evidence to rebut the IRS's calculations and assessments, either as part of this case or in connection with his sentencing in his related criminal case. Thus, summary judgment must be granted on this count.

D. Federal Tax Liens

If a person fails or refuses to pay a federal tax owed after proper demand is made, a tax lien is created that attaches to all of that person's property and rights to property, real or personal, owned on the assessment date or acquired thereafter. 26 U.S.C. section 6321; United States v. Nat'l Bank of Commerce, 472 U.S. 713, 719 (1985). Even if property to which a section 6321 lien attaches is subsequently transferred, the lien is not affected because the property passes with the lien attached. See United States v. Cache Valley Bank, 866 F.2d 1242, 1245 (10th Cir. 1989). A lien imposed by section 6321 arises automatically at the time of tax assessment, and remains in place until the liability is satisfied or until it becomes unenforceable by lapse of time. See 26 U.S.C. section 6322. In general, the statute of limitation on collection expires ten years after the date of assessment, however, "if a timely proceeding in court for the collection of a tax is commenced, the period during which such tax may be collected by levy shall be extended and shall not expire until the liability for the tax is satisfied or becomes unenforceable." 26 U.S.C. section 6502(a). The IRS assessed 1987-1993 taxes against Mr. and Ms. Melot on June 5, 2000. Therefore, although the statute of limitations on collection would have run on June 5, 2010 absent action by the United States, on July 31, 2009, the United States filed this present suit to reduce to judgment the Melots' 1987-1993 tax assessments. See Complaint [Doc. 1]. Accordingly, the statute of limitations on collection has not expired.

Mr. and Ms. Melot own a significant amount of personal and real property, either outright or as beneficiaries through trust or corporate entities. See Govt. Ex. 47 (rough inventory of real and personal property owned by Melots). Most significant among the Melots' holdings are five pieces of real property located in Hobbs, New Mexico, all held through nominee trusts and corporations: (1) a house and acreage located at 2805 E. Rose Road; (2) two small tracts of land bordering the 2805 E. Rose property; (3) a 160 acre farm located along Johnson Road; (4) a 13 acre horse barn property located along E. Lovelady Road; and (5) a commercial property located at 321 E. Sanger Street. See Deft. Resp. [Doc. 113] at 5 (Defendants' Statement of Undisputed Material Facts).

In this case, the United States seeks to foreclose on the tax liens it has against the Melots' properties, including the properties held in the names of nominees. The IRS may satisfy a tax deficiency by imposing a lien on any property or rights to property that belong to the delinquent taxpayer. See Drye v. United States, 528 U.S. 49, 55 (1999) (quoting 26 U.S.C. section 6321). Because "Congress meant to reach every interest in property that a taxpayer might have," the terms "property" and "rights to property" include "not only property and rights to property owned by the taxpayer but also property held by a third party if it is determined that the third party is holding the property as a nominee . . . of the delinquent taxpayer." Holman v. United States, 505 F.3d 1060, 1065 (10th Cir. 2007) (citations omitted). In determining whether the IRS can proceed against property held by a nominee, the Court "focuses upon the taxpayer's relationship to a particular piece of property" and "[t]he ultimate inquiry is whether the taxpayer has engaged in a legal fiction by placing legal title to property in the hands of a third party while actually retaining some or all of the benefits of true ownership." Id. In evaluating nominee questions, the Court looks at six factors: "(1) whether inadequate or no consideration was paid by the nominee; (2) whether the property was placed in the nominee's name in the anticipation of a lawsuit or other liability while the transferor remains in control of the property; (3) whether there is a close relationship between the nominee and the transferor; (4) whether they failed to record the conveyance; (5) whether the transferor retained possession; and (6) whether the transferor continues to enjoy the benefits of the transferred property." Id. (quoting Spotts v. United States, 429 F.3d 248, 253 n.2 (6th Cir. 2005). Using these factors, as described further below, the Court concludes that the United States is entitled to foreclose upon the tax liens securing real property held for the Melots by nominees.

1. House and acreage located at 2805 E. Rose Road

The house and acreage located at 2805 E. Rose Road, owned by Mr. and Ms. Melot, but titled in the name of Suzanne Corporation, consists of approximately 96 acres on which their home is located. See Govt. Ex. 35 at 1 (escrow contract for property); Govt. Ex. 34 at 1. The 2805 E. Rose property is fully described in the escrow contract. See Govt. Ex. 35 at 1. On March 15, 1994, Mr. and Ms. Melot purchased the 2805 E. Rose property in the name of Suzanne Corporation. See Govt. Ex. 35 at 11. At the time of this purchase, Mr. and Ms. Melot were already under an IRS audit, which began in April of 1992. See Govt. Ex. 4. at 1 paragraph 2. Mr. and Ms. Melot were aware that they were under audit at the time they purchased this property, as Agent Baker first interviewed Mr. Melot in May of 1992. Id. at 2 paragraph 4.

In signing the escrow contract for the property, Mr. and Ms. Melot agreed individually to be personally responsible for money due under the escrow agreement. Govt. Ex. 35 at 11. Mr. Melot personally paid the property taxes on the 2805 E. Rose property. See Govt. Ex. 34 at 2-3. Mr. Melot also paid the property taxes on the 2805 E. Rose property through his nominee trust, KLM. 5 Id. Suzanne Corp. never made any property tax payments on the 2805 E. Rose Property. Id. According to its Articles of Incorporation, Mr. and Ms. Melot are the directors of Suzanne Corp. See Govt. Ex. 37. However, Suzanne Corp. is a non-filing entity and is not registered to do business in the state of New Mexico. See Govt. Ex. 36.

The arrangement to have Suzanne Corp. hold title to the 2805 E. Rose property implicates several of the factors that the Court looks at to determine whether the taxpayer has engaged in a legal fiction. The purchase by Suzanne Corp. was made at a time that the Melots knew they were under investigation for unpaid taxes and must have known that they would incur staggering tax liabilities as they had failed to file tax returns since 1987 despite earning significant income. Thus, the property appears to have been placed in the name of Suzanne Corp. in anticipation of a suit or incurrence of liabilities. Moreover, an extremely close relationship exists between the transferor and the nominee. The Melots are the directors of Suzanne Corp., and Suzanne Corp. does not appear to have independent significance, as it has never filed federal tax returns and is not registered to conduct business in New Mexico. The Melots signed the contract to purchase the property, personally guaranteed payment of the contract, and have personally paid property taxes on the property. Finally, the Melots have retained possession of the property and they continue to enjoy the benefits of the property, as it remains their home address. See, e.g., Deft. Resp. [Doc. 113] at 18 (listing 2805 E. Rose Road as Defendants' address). Thus, it appears that Defendants have "engaged in a legal fiction by placing legal title to property in the hands of a third party while actually retaining some or all of the benefits of true ownership," Holman, 505 F.3d at 1065, and the IRS can proceed against the 2805 E. Rose property. 6

On September 24, 2009, two nominee Notices of Federal Tax liens were filed in the Lea County real property records against Suzanne Corp., as nominee of Billy and Katherine Melot, each for their separate 1987-1993 income tax liabilities. See Govt. Ex. 20, at 1, 3. This tax lien was re-filed on October 5, 2010. See id. at 5. The United States is entitled to foreclose on these tax liens related to the 2805 E. Rose property.

2. Tracts # 3 and #4

In 1996, Mr. Melot purchased five tracts of property located in Lea County, New Mexico at a bankruptcy sale through a corporation named Leigh Corporation. See Govt. Ex. 23 at 5, 6. The property purchased through Leigh Corp. is referred to throughout the United States' filings as Tracts #1, #2, #3, #4 and #5. Tracts #3 and #4 are strips of land, .81 and 3.01 acres, respectively, bordering the 2805 E. Rose property, and providing access to the Melots' 13 acre horse barn property. See Govt. Exs. 23, 24, and 25. Tracts #3 and #4 are fully described in the purchase agreement, Govt. Ex. 23 at 6, and in the Lea County Assessment Reports, Govt. Exs. 24 and 25.

As in the case of the 2805 E. Rose property, Mr. Melot personally paid the property taxes on Tracts #3 and #4. See Govt. Exs. 24 and 25. Mr. Melot also paid the property taxes on Tracts #3 and #4 through his nominee trust, KLM. Id. Leigh Corp. never made any property tax payments on Tracts #3 and #4. Id. Leigh Corporation's address is the same as the Melots' home address, 2805 E. Rose Rd. Id. As with Suzanne Corp., Leigh Corp. is a non-filing entity and is not registered to do business in the state of New Mexico. See Govt. Ex. 43.

An extremely close relationship also exists between the Melots and the nominee corporation holding title to Tracts #3 and #4. Leigh Corp. does not appear to have independent significance, as it has never filed federal tax returns and is not registered to conduct business in New Mexico. The Melots have been paying property taxes on the property. They have also retained possession of the property and continue to enjoy the benefits of the property, as it is connected to the 2805 E. Rose property and provides access to their horse barn property. The use of Leigh Corp. as a nominee to conceal the ownership of Tracts #3 and #4 to willfully attempt to evade the payment of federal income tax with respect to the 1987-1993 tax years was part of the basis for Counts 1 and 2 on which Mr. Melot was convicted in his associated criminal trial. See Govt. Ex. 52, paragraphs 5, 13, 52. Thus, it appears that Defendants have "engaged in a legal fiction by placing legal title to property in the hands of a third party while actually retaining some or all of the benefits of true ownership," Holman, 505 F.3d at 1065, and the IRS can proceed against Tracts #3 and #4.

On September 24, 2009, a nominee Notice of Federal Tax lien was filed in the Lea County real property records against Leigh Corp., as nominee of Billy Melot for his 1987-1993 income tax liabilities. See Govt. Ex. 21 at 1. This tax lien was re-filed on October 5, 2010. See id. at 4. The United States is entitled to foreclose on this tax lien related to Tracts #3 and #4.

3. 160 Acre Farm on Johnson Road (Tracts #1 and
#2)

Tracts #1 and #2 acquired by the Melots through the Leigh Corporation in the 1996 bankruptcy sale form a 160 acre farm along Johnson Road, across the street from the Melots' 2805 E. Rose property. See Govt. Ex. 23 at 5, 6; Govt. Exs. 26 and 27. Tracts #1 and #2 are fully described in the purchase agreement, Govt. Ex. 23 at 6, and in the Lea County Assessment Reports, Govt. Exs. 26 and 27. Mr. Melot personally paid the property taxes on Tracts #1 and #2. See Govt. Exs. 26 and 27. Mr. Melot also paid the property taxes on Tracts #1 and #2 through his nominee trust, KLM. Id. Leigh Corp. never made any property tax payments on Tracts #1 and #2. Id. As previously discussed, Leigh Corp. is a non-filing entity and is not registered to do business in the state of New Mexico. See Govt. Ex. 43.

On March 31, 2003, Leigh Corp. transferred the 160 acre property to KLM Trust for no consideration. See Govt. Ex. 28. At his trial, Mr. Melot admitted that he forged the signature of Carla Self, the nominal president of Leigh Corp., on the deed transferring the property to the KLM Trust. Govt. Ex. 51 at 61:17-62:15. Mr. Melot contended that he felt he did not need Ms. Self's signature on the transfer deed because "it's just going from my company to my company." Id. at 62:14-15. This testimony, in addition to the fact that he transferred the property for no consideration, indicates that there was an identity of interest between the transferor and the nominee. This indication is strengthened by the fact that Mr. and Ms. Melot, individually as landlords, rather than through the KLM Trust, leased 120 acres of the farm to a farmer. See Govt. Ex. 49.

Defendants argue that the KLM Trust is an entity that is not subject to federal tax collection because the law permits the creation of the Trust, the Trust has economic substance and is not a sham, and it was not created for the purpose of avoiding taxes. See Deft. Resp. at 15-16. The facts as established by the United States, and uncontested by Defendants, belie this contention. The Melots received notice of a federal tax lien on October 12, 2001. See Govt. Ex. 14. Shortly thereafter, on November 28, 2001, Mr. Melot set up the KLM Trust. See Govt. Ex. 30 (KLM Trust Creation Document) at 39.

Mr. Melot is the settlor of the KLM Trust. Id. at 39-40. He had a power of attorney for the Trust. See Govt. Ex. 31. Although his son was named as trustee, he was only seventeen years old when the Trust was established. See Govt. Ex. 33 (Drivers License record listing Bill Melot Jr. as under 21 until April 2005). By the explicit terms of the Trust, Mr. Melot is the protector of the Trust and he can replace the trustee at any time. See Govt. Ex. 30 at 39. At his criminal trial, Mr. Melot admitted that he had control over his son's decisions. Govt. Ex. 51 at 55:7-17. Not only did Mr. Melot control the KLM Trust as a practical matter, but in federal documents he also held himself out as the trustee of the Trust. See Govt. Ex. 29 at 5-6. As with Suzanne Corp. and Leigh Corp., the KLM Trust's address is listed as 2805 E. Rose Rd., Govt. Ex. 30 at 1, the Trust is a non-filing entity, and it is not registered to do business in the state of New Mexico. See Govt. Ex. 32.

The KLM Trust appears to lack economic substance, as, contrary to Defendants' arguments, it does not have an independent trustee nor does it impose substantial restrictions on the trustee's use of trust property. After transferring the 160 acre farm from Leigh Corp. to the KLM Trust, the Melots have retained possession of the property and continue to enjoy the benefits of the property, including personally collecting rent for its use. The use of Leigh Corp. and then the KLM Trust as nominees to conceal the ownership of Tracts #1 and #2 to willfully attempt to evade the payment of federal income tax with respect to the 1987-1993 tax years was part of the basis for Counts 1 and 2 on which Mr. Melot was convicted in his associated criminal trial. See Govt. Ex. 52, paragraphs 5, 32, 52. Thus, the IRS can proceed against Tracts #1 and #2.

On September 24, 2009, two nominee Notices of Federal Tax liens were filed in the Lea County real property records against the KLM Trust, as nominee of Billy and Katherine Melot, each for their separate 1987-1993 income tax liabilities. See Govt. Ex. 42, at 1, 3. These tax liens were re-filed on October 5, 2010. See id. at 5, 7. The United States is entitled to foreclose on these tax liens related to the 160 acre farm on Johnson Rd. (Tracts #1 and #2).

4. 13 Acre Horse Barns Property

In November of 1999, Mr. Melot, through Mirror Farms, Inc., purchased a property consisting of more than 13 acres with horse barns located along E. Lovelady Road. See Govt. Exs. 40, 41. The 13 acre horse barn property is described fully in the deed attached as Govt. Ex. 41. Similar to other of the Melots' properties, Mr. Melot personally paid the property taxes on the horse barns property. See Govt. Ex. 40 at 3. Mr. Melot also paid the property taxes on the horse barns property through the KLM Trust. Id. Mirror Farms, Inc. never made any tax payments on the property. Id. In addition, Mirror Farms, Inc.'s address is the same as the Melots' home address, 2805 E. Rose Rd. Id. For the same reasons discussed with respect to other of the Melots' properties titled in the names of nominees, the United States can proceed against the 13 acre horse barn property.

On September 24, 2009, a nominee Notice of Federal Tax Lien was filed in the Lea County real property records against Mirror Farms, Inc., as nominee of Billy Melot, for his 1987-1993 federal income tax liabilities. See Govt. Ex. 19 at 2. On October 5, 2010, this tax lien was re-filed in the Lea County property records. Id. at 4. The United States is entitled to foreclose on this tax lien related to the 13 acre horse barn property.

5. 321 E. Sanger Street Commercial Property

In December of 2000, Mr. Melot, in his personal capacity, entered into an agreement to purchase the 321 E. Sanger property from ADCO Marketing. See Govt. Ex. 39 at 1, 9, 10. The 321 E. Sanger property is described fully in the Warranty Deed. Id. at 12. Shortly thereafter, Mr. Melot caused the 321 E. Sanger property to be titled in the name of another nominee entity, C.D. Express, Inc. Id. at 12. C.D. Express, Inc. is a non-filing entity. See Govt. Ex. 48. In 2004, C.D. Express, Inc. transferred the 321 E. Sanger property to the MELM Trust for no consideration. See Govt. Ex. 39 at 13.

Similar to other of the Melots' properties, Mr. Melot personally paid the property taxes on the 321 E. Sanger property. See Govt. Ex. 44 at 3. Mr. Melot also paid the property taxes on the 321 E. Sanger property through the KLM Trust. Id. Neither C.D. Express, Inc. nor the MELM Trust ever made any tax payments on the property. Id. In addition, the MELM Trust's address is the same as the Melots' home address, 2805 E. Rose Rd. Id. For the same reasons discussed with respect to other of the Melots' properties titled in the names of nominees, Mr. Melot appears to be the true beneficial owner of the property, and the United States can proceed against the 321 E. Sanger property.

On September 24, 2009, a nominee Notice of Federal Tax Lien was filed in the Lea County real property records against the MELM Trust, as nominee of Billy Melot, for his 1987-1993 federal income tax liabilities. See Govt. Ex. 17 at 2. On October 5, 2010, this tax lien was re-filed in the Lea County property records. Id. at 4. The United States is entitled to foreclose on this tax lien related to the 321 E. Sanger property.

E. Allegations of Procedural Violations

In addition to challenging the validity of the assessments against them on substantive grounds, Defendants also make a series of technical procedural challenges, none of which has merit.

1. 30 and 90 Day Letters

Defendants contend that the IRS never sent them required letters notifying them of the Revenue Agent's Report (30-day letter) or the required statutory Notice of Deficiency (90-day letter) and, as such, they could not pay or challenge any deficiencies of which they were not aware. Deft. Resp. [Doc. 113] at 8-9. The IRS met all of its notification requirements in this respect. Regarding the 30-day letters, such letters were sent by Certified Mail and received by Mr. and Ms. Melot on July 1, 1999, as evidenced by Govt. Ex. 56. Mr. Melot must have been aware of these letters prior to filing his response in this matter, as they were used as Exhibit 155 in his criminal trial. The IRS also sent the required 90-day letters to Mr. and Ms. Melot, as evidenced by Govt. Exs. 5-10.

2. Hearing Pursuant to 26 U.S.C. section 6320

Under 26 U.S.C. section 6320, upon receiving notice of a federal tax lien filing, a taxpayer may request a hearing within 30 days to appeal the collection action. Defendants contend that they properly requested such a hearing and were denied the opportunity to contest the validity of the liens against them. Deft. Resp. at 6, 15. On October 12, 2001, Mr. and Ms. Melot each received, via certified mail, notice of the tax liens filed against them. See Govt. Exs. 14 and 15. These notices informed the Melots that they had the right to request a hearing to appeal the collection action, that such a request should be made by completing the enclosed Form 12153 Request for a Collection Due Process Hearing, and that such a request must be made by November 12, 2001. Govt. Ex. 14 at 1; Govt. Ex. 15 at 1. On March 15, 2002, over four months past the time to request a hearing, Mr. and Ms. Melot filed a document, other than the required Form 12153, that consisted of nothing but discredited tax protestor arguments. See Govt. Exs. 14 and 15. Not only did the responses not meet the technical requirements for requesting a hearing, but Form 12153 states that "The IRS Office of Appeals will not consider frivolous requests." IRS Form 12153 at 3. Defendants' tax protester assertions epitomize the type of frivolous requests the IRS has the right to ignore, as they did not raise any of the statutorily-specified issues that may be addressed at a collection due process hearing, such as spousal defenses or possible alternative means of collection, but instead only made thoroughly discredited tax protestor arguments regarding who may be taxed and the manner in which taxes may be collected. Thus, based on what they filed, Defendants were not entitled to a collections due process hearing. Nor did the absence of such a hearing prevent Defendants from having the opportunity to thoroughly challenge and litigate their tax assessments.

3. Determination of Liability Prior to Assessment

Defendants contend that the IRS erred by assessing the Melots' tax liability at the same time that it announced their tax deficiency. They cite Bromberg v. Ingling, 300 F.2d 859, 861 (9th Cir. 1962), a case concerning the actions of the Tax Commissioner of Guam, for the proposition that "Notice of Commissioner's determination of tax liability must, absent jeopardy, precede assessment." Deft. Resp. at 9. In this case, the IRS' Notices of Deficiency (90-day letters) served as notice of the Commissioner's determination of tax liability. See Govt. Exs. 5-10. These notices were dated January 19, 2000. Id. These notices gave Defendants until April 18, 2000 to file a petition with the United States Tax Court to challenge the determination of liability. Id. As previously discussed, Defendants filed no such petition. The IRS Forms 4340 Certificate of Assessments for Mr. and Ms. Melot indicate that assessments of taxes were not made until June 5, 2000, well after the time to challenge the determination, and not simultaneous with the notice of determination, as alleged by Defendants. See Govt. Exs. 1 and 2.

4. Validity of Liens

Defendants contend that the liens against the Melots' properties that the United States is attempting to enforce through this proceeding are invalid and unenforceable. See Deft. Resp. at 10-11. On July 25, 2010 and August 22, 2010, the IRS erroneously issued releases of Mr. and Ms. Melots' federal tax liens for their 1987-1993 tax assessments, despite the fact that the balances reflected in these liens had not been paid. See Deft. Exs. M, N, O, P, and Q. Despite this erroneous release, the tax liens are still valid. First, the IRS timely re-filed these liens with the Lea County Clerk on March 18, 2011 and March 28, 2011. See Govt. Ex. 58. Second, the liens are still valid because it is uncontested that the assessed amounts of tax liability for the 1987-1993 tax years have not been satisfied and the statute of limitations for collections has not expired. A lien imposed by 26 U.S.C. section 6321 arises automatically at the time of tax assessment, and remains in place until the liability is satisfied or until it becomes unenforceable by lapse of time. See 26 U.S.C. section 6322. In general, the statute of limitation on collection expires ten years after the date of assessment, however, "if a timely proceeding in court for the collection of a tax is commenced, the period during which such tax may be collected by levy shall be extended and shall not expire until the liability for the tax is satisfied or becomes unenforceable." 26 U.S.C. section 6502(a). The IRS assessed 1987-1993 taxes against Mr. and Ms. Melot on June 5, 2000. Therefore, although the statute of limitations on collection would have run on June 5, 2010 had the United States done nothing, on July 31, 2009, it filed this present suit to reduce to judgment the Melots' 1987-1993 tax assessments. See Complaint [Doc. 1]. Accordingly, the statute of limitations on collection has not expired and the federal tax liens are valid and enforceable.

CONCLUSION

IT IS THEREFORE ORDERED that the United States of America's Motion for Summary Judgment is GRANTED in part and DENIED in part. The Motion for Summary Judgment is denied to the extent that it seeks to impose liability on Defendant Katherine Melot for unpaid income taxes for the 1996 tax year. It is granted in all other respects. Specifically, the Court finds that:

1) Defendant Billy Melot is liable for the full amount of his unpaid income taxes, penalties, statutory additions, and interest for the 1987, 1988, 1989, 1990, 1991, 1992, and 1993 tax years as set forth in Plaintiff's Amended Complaint at paragraph 14;

2) Defendant Katherine Melot is liable for the full amount of her unpaid income taxes, penalties, statutory additions, and interest for the 1987, 1988, 1989, 1990, 1991, 1992, and 1993 tax years as set forth in Plaintiff's Amended Complaint at paragraph 17;

3) Defendant Billy Melot is liable for the full amount of his unpaid Form 720 federal excise taxes, penalties, statutory additions, and interest for the tax periods ending 03/31/1989 through 03/31/1991 and 03/31/1992 through 12/31/1993 as set forth in Plaintiff's Amended Complaint at paragraph 20;

4) The United States is entitled to foreclose its tax liens against the properties discussed in this Memorandum Opinion and Order and set forth in Plaintiff's Amended Complaint at paragraphs 23, 25, 32, 34, and 36;

5) The United States is entitled to foreclose its tax liens against the Melots' personal property assets; and

6) The sales proceeds from the personal property assets and real property shall be applied to Defendant Billy Melot's outstanding federal tax liabilities for the 1987-1993 tax years and to Defendant Katherine Melot's outstanding federal tax liabilities for the 1987-1993 tax years.

United States District Judge

FOOTNOTES:

/1/ Defendants' Response to Plaintiff's Motion for Summary Judgment [Doc. 113] includes numerous exhibits. Defendants filed a motion seeking to expand the page limits for exhibits. [Doc. 112]. Although Defendants characterized this motion as "opposed," they did not cite the nature of the Government's opposition, nor did the Court receive any filing from the Government opposing Defendants' motion. The Court previously granted a motion by the Government seeking leave to file excess exhibits related to its motion for summary judgment, see Doc. 89. The Court hereby also grants Defendants' motion to expand the page limits for exhibits related to their Response.

/2/ Unless otherwise noted, "Govt. Ex." refers to exhibits attached by the Government to its Motion for Summary Judgment.

/3/ Defendants contend that, if this Court enters summary judgment on behalf of the IRS in this case, he will be forced to pay the $ 18,493,098 assessment twice, as he has already been ordered to do so by the District Court in his associated criminal case. See Deft. Resp. [Doc. 113] at 17. However, this civil case is only an attempt to reduce the liens to judgment to enable the United States to collect the money it is owed. To the extent that it collects a portion of the outstanding taxes due through foreclosing on its liens, that would reduce the amount that could be collected under the restitution order accordingly.

/4/ Incidently, at Mr. Melot's sentencing hearing, the District Court recognized that Texas' Comptroller reflects Mr. Melot as currently owing approximately $ 7,675,000 in unpaid taxes to the State of Texas. See Govt. Ex. 55 at 20.

/5/ Later in this Memorandum Order and Opinion, the Court will address why the actions of KLM Trust should be treated as the actions of Mr. and Ms. Melot.

/6/ In Mr. Melot's related criminal case, Counts 1 and 2 of the Indictment set forth his use of nominees to conceal the ownership of assets to willfully attempt to evade the payment of federal income tax with respect to the 1987-1993 tax years, including the titling of the 2805 E. Rose property in the name of Suzanne Corp. See Indictment, attached as Govt. Ex. 52, paragraphs 5, 12. Mr. Melot was convicted of these Counts. See Govt. Ex. 53.

Post by **The Observer** » Tue Oct 22, 2013 2:53 pm

UNITED STATES OF AMERICA,
Plaintiff-Appellee/Cross-Appellant,
v.
BILLY R. MELOT,
Defendant-Appellant/Cross-Appellee.

Release Date: OCTOBER 21, 2013

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
(D.C. NO. 2:09-CR-02258-MCA-1)

Gregory M. Acton, Albuquerque, New Mexico, for Defendant-Appellant/Cross-Appellee.

Mark S. Determan, Attorney, Department of Justice (Kenneth J. Gonzales, United States Attorney, Of Counsel; Kathryn Keneally, Assistant Attorney General; Frank P. Cihlar, Chief, Criminal Appeals & Tax Enforcement Policy Section; and Gregory Victor Davis, Attorney, Department of Justice, with him on the briefs), Washington, D.C., for Plaintiff-Appellee/Cross-Appellant.

Before HOLMES, HOLLOWAY, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

I. INTRODUCTION

After a jury trial, appellant Bill Melot was convicted of one count of corruptly endeavoring to impede the administration of the Internal Revenue Code, one count of attempting to evade or defeat tax, six counts of willful failure to file, and seven counts of making false statements to the Department of Agriculture. Melot was sentenced to a term of sixty months' imprisonment, a significant downward variance from the advisory guidelines range of 210-262 months. He was also ordered to pay $ 18,493,098.51 in restitution to the Internal Revenue Service.

In this appeal, Melot argues the Government presented insufficient evidence of willfulness to support his convictions and erred in the calculation of the tax loss and the amount of restitution. The Government cross-appeals, arguing the district court committed clear error by applying a two-level reduction to Melot's offense level for acceptance of responsibility. Exercising jurisdiction under 18 U.S.C. section 3742 and 28 U.S.C. section 1291, this court affirms Melot's convictions and reverses his sentence.

II. BACKGROUND

On August 11, 2009, Melot was charged by indictment with one count of corruptly endeavoring to impede the administration of the Internal Revenue Code, in violation of 26 U.S.C. section 7212(a); one count of willfully attempting to evade the payment of taxes, in violation of 26 U.S.C. section 7201; six counts of willfully failing to file a tax return, in violation of 26 U.S.C. section 7203; and seven counts of making a false statement to the Department of Agriculture, in violation of 15 U.S.C. section 714m(a). Melot pleaded not guilty and a four-day trial was held in April 2010. The Government presented evidence that Melot received income from various businesses and rental properties but ceased filing income tax returns after 1986 1 and did not pay any federal income taxes since at least 1984.

At trial, an IRS revenue agent testified she was assigned Melot's case in 1992. During her first meeting with Melot and his accountant, she asked Melot why he had not filed a 1987 income tax return and he responded that "he didn't know how to do it." She testified Melot did not disclose all of his business entities during their meeting, but her subsequent investigation showed that, during the relevant time period, Melot operated between seven and ten gas stations under the moniker Melot Oil Company. He deposited the receipts from the businesses into multiple bank accounts he opened in the names of nominee entities. 2 Melot established these entities and bank accounts using a false Social Security number or a false employer identification number. There was evidence Melot deposited over $ 9.5 million in gross business receipts into these bank accounts between 1999 and 2008. Each deposit was in an amount less than $ 10,000. The revenue agent testified this behavior is known as "structuring" and is done because a bank receiving a deposit of $ 10,000 or more is required to file a currency transaction report with the IRS. 3

The agent obtained, among other things, records showing transfers ranging between $ 25,000 and $ 50,000 from Melot's domestic bank accounts to a Swiss bank in the Bahamas. She also uncovered large checks written to family members or to cash. Based on the books and records she obtained from Melot, bank deposit records, and other sources, the revenue agent determined Melot owed $ 253,260 in taxes for the tax year 1987; $ 430,464 for the tax year 1988; $ 867,595 for the tax year 1989; $ 521,638 for the tax year 1990; $ 353,667 for the tax year 1991; $ 462,657 for the tax year 1992; and $ 633,667 for the tax year 1993. 4

Once the audit was complete, Melot was notified of the proposed assessment and given an opportunity to respond. Melot sent a letter to the IRS on March 30, 1999, stating:

Please be advised that I am a non-resident alien,
American, of the United States, never having lived,
worked, nor having income from any source within
the District of Columbia, Puerto Rico, Virgin Islands,
Guam, American Samoa, or any other territory within
the United States which entity has its origin and
jurisdiction from Article 1, Section 8, Clause 17
of the U.S. Constitution. Therefore I am a non-taxpayer
outside of the venue and jurisdiction of the 26 USC.
Please forward me a letter stating that I am not
liable for these tax returns or provide me with a
copy of the section numbers in 26 USC and 26 CFR
requiring me to file the Form 1040.

The revenue agent testified that Melot's letter presented a frivolous tax argument that was consistent with arguments made by so-called tax protestors. In response, the IRS sent Melot a formal thirty-day notice, informing him of his right to a conference with a regional office of appeals. Melot responded by sending a second letter, stating:

I do not owe the IRS any income taxes. I have incurred
no tax liability for the Form 1040 individual income
tax under Title 26, Subtitle A, during those years.
Furthermore, I am not under your jurisdiction since
I fall under the classification, quote, non-resident
alien, unquote, under Title 26 CFR 111. I do not
reside in Washington, DC, or in any other federal
enclave in which the IRS has jurisdiction. I am not
subject to the jurisdiction of the United States.
It is a well established principle of law that all
federal legislation applies only within the territorial
jurisdiction of the United States unless a contrary
intent appears. Unquote. Foley Brothers versus Filardo,
336 U.S. 281, in 1948. . . . Please clear up your
records for me.

Melot and the IRS exchanged additional correspondence but Melot did not follow the process for lodging a formal written protest to the assessment, file properly prepared tax returns for the years in question, or pay the assessed amount.

The Government also presented the testimony of an IRS field revenue officer whose job is to collect delinquent taxes remaining unpaid after a substitute-for-return assessment is made. She testified the IRS sent a notice to Melot in September 2000 informing him that a federal tax lien would be filed one year later in October 2001. She also stated the IRS seizes a taxpayer's property only as a last resort, "[a]fter all reasonable attempts have been made to try and work with the taxpayer." She testified the IRS does not have the power to seize property unless it is in the taxpayer's name 5 and, therefore, a taxpayer can impede the collection of a tax liability by transferring property, titling property or opening banks accounts in the name of a nominee, opening foreign bank accounts, or recording false mortgages. Melot's former employee testified that Melot told her he transferred assets to trusts and corporations "so it couldn't get tracked" by the government. Another former employee testified Melot purchased some real property and had it titled in her name even though she provided none of the purchase price. Although the property was subsequently mortgaged for $ 525,000, she did not receive any money from the transaction. When this employee purchased a retail store from Melot, she made monthly payments to individuals named Porterfield and Watson, not to Melot.

There was also testimony Melot frequently used cash to operate his businesses. A government witness who worked for a company that supplied tobacco products, candy, and sundries to Melot's businesses described him as a "big customer" who made "large purchases." She also testified Melot, at one point, attempted to pay for the merchandise with cash instead of electronic funds transfer payments because he "didn't want the money going through his [bank] account." A former employee testified Melot paid his employees with a combination of cash and checks and advised them they were not required to pay taxes on the portion of their wages paid in cash. She also testified she never received a W-2. Melot admitted he paid his employees with cash but testified it was at their request. He asserted he filed W-2 forms for his employees.

The Government also presented testimony related to Melot's receipt of agricultural subsidies from the United States Department of Agriculture. Melot applied for, and received, subsidies in his individual name and in the name of the KLM Trust from 1996 through 2009. The payments totaled $ 226,526. As a prerequisite to receiving these funds, Melot was required to complete eligibility and contract documents. The Government presented the documents completed by Melot indicating, in response to one question, that he is a United States citizen. On the forms, Melot also certified that the income information he provided was "consistent with the tax returns filed with the Internal Revenue Service." The application defined "adjusted gross income" as "the individual's or legal entity's IRS reported adjusted gross income." During the years at issue, however, Melot did not file a tax return or report any adjusted gross income to the IRS. He also provided the Department of Agriculture with a false Social Security number.

At trial, Melot did not dispute the allegations he failed to file tax returns or pay taxes. Instead, he defended the charges by asserting his actions were not willful and contesting the amount of tax owed. Melot testified in his defense that he believed he was not a citizen of the United States and, therefore, the tax laws did not apply to him and he did not owe any taxes. He also testified he transferred assets to irrevocable trusts because he believed trusts were not required to pay income taxes. 6 He asserted these beliefs were based on representations he read in tax-protestor literature that "somehow . . . came across [his] path" and "made sense" to him. Melot stated the literature made "a really good argument that wages are not income under the income tax laws." He recalled the books also advised him he was not a citizen of the United States because he did not live in Washington, D.C., or a territory of the United States. He asserted during his direct examination that he no longer believed any of the tax-protestor literature on which he previously relied.

On cross-examination, Melot admitted he hired an accountant in 1985 and 1986 to prepare his tax returns. He further testified that after that date, he relied solely on the tax-protestor literature he purchased and never verified the information in that literature with an accountant. He conceded he periodically sought advice from accountants and lawyers after he read the literature but no accountant or other trained, licensed professional told him the federal income tax code was unconstitutional or that he did not have to pay income taxes on wages.

Melot also testified he believed he had no tax liability based on the number of exemptions he could claim and the amount of income he was making. He further testified that his motivation in forming multiple corporations was to limit his liability for accidents occurring on his property, not for tax purposes. He asserted the profits earned by the corporations were transferred to offshore banks because that was the only way to invest in foreign currency. Melot stated the corporations never filed corporate income tax returns because he "never did get around to that" even though he "shoulda got that done."

Melot admitted he knew the Social Security number appearing on his license was incorrect but stated he could not explain how it happened. He testified he nevertheless continued to use the incorrect number because he "didn't think it mattered." 7 The false Social Security number was used to open multiple bank accounts. It was also used when Melot installed a credit card machine in his gas stations for the purpose of accepting credit card payments from customers. Melot testified he did not have "any idea" how an additional false Social Security number 8 was entered on Department of Agriculture farm subsidy forms, but acknowledged he probably provided the number to the "girls" who completed the forms for him. On cross-examination, Melot asserted he never read or reviewed any of the documents he submitted to the Department of Agriculture even though his initials and signature appeared on all of them. He denied using false Social Security numbers so the Internal Revenue Service could not find him or seize his assets.

The jury found Melot guilty of all the crimes charged. The district court sentenced him to sixty months' imprisonment, a significant downward variance from the advisory guidelines range of 210-262 months calculated by the district court. He was ordered to pay $ 18,493,098.51 in restitution to the Internal Revenue Service and $ 226,526 in restitution to the United States Department of Agriculture. In this appeal, Melot raises challenges to his convictions and his sentence.

III. DISCUSSION

A. Convictions

Melot challenges the sufficiency of the evidence presented by the Government to prove he willfully attempted to evade or defeat tax and willfully failed to file tax returns. Melot concedes his failure to move for judgment of acquittal following trial means this court reviews the issue under the plain error doctrine. United States v. Goode, 483 F.3d 676, 681 n.1 (10th Cir. 2007) (en banc footnote) ("[A] forfeited claim of insufficient evidence must be reviewed under the plain-error standard . . . ."). However, "a conviction in the absence of sufficient evidence of guilt is plainly an error, clearly prejudiced the defendant, and almost always creates manifest injustice." Id. Evidence is sufficient to support a conviction if the direct and circumstantial evidence and the reasonable inferences drawn therefrom, viewed in the light most favorable to the Government, would allow a reasonable jury to find the defendant guilty beyond a reasonable doubt. United States v. Wilson, 107 F.3d 774, 778 (10th Cir. 1997). Having carefully reviewed the entire record and considered the arguments of the parties, this court concludes there is no merit to Melot's arguments regarding the sufficiency of the evidence supporting his convictions for violating 26 U.S.C. section 7201 and 7203.

Melot concedes the Government's evidence showed he failed to file tax returns for the years in question and failed to pay federal taxes. His appellate argument is confined to an assertion the Government failed to prove he did so willfully. He argues he had a good-faith belief he was not violating the law. See Cheek v. United States, 498 U.S. 192, 201-02 (1991). To prove the element of willfulness, the Government was required to show Melot intentionally failed to report income and pay taxes he knew the law required him to report and pay. See United States v. Hoskins, 654 F.3d 1086, 1090 (10th Cir. 2011). The Government can meet its burden of proving actual knowledge without presenting direct evidence of Melot's state of mind. See id. That is, a jury can infer willfulness from a defendant's conduct.

The Government's evidence demonstrated overwhelmingly that Melot engaged in behavior consistent with an individual who had actual knowledge of his obligation to file returns and pay tax. Melot paid employees in cash, advising them they could avoid reporting the cash payments as income. He attempted to pay cash for inventory for his gas stations, in an effort to avoid creating a paper trail in his bank account. He used Social Security numbers he knew were false for numerous purposes. He transferred substantial assets into a foreign bank account but failed to file the necessary disclosure forms with the IRS. He frequently made domestic bank deposits in amounts slightly below $ 10,000, the amount at which he knew a bank must file a currency transaction report with the Internal Revenue Service. He transferred assets to corporations and trusts and used nominees to open bank accounts, but admitted he maintained control over the assets associated with these accounts and entities. He sent letters to the Internal Revenue Service denying he was a United States citizen or claiming to be either a non-resident alien or a citizen of the "republic of New Mexico." Nonetheless, when he applied for a passport from the State Department and agricultural farm subsidies from the Department of Agriculture, Melot declared he was a United States citizen.

In sum, the Government's evidence showed Melot routinely concealed income and assets from the IRS; used cash extensively, informing others that this was a means to avoid the payment of income taxes; and acted in a manner inconsistent with his asserted belief he is not subject to federal income taxes because he is not a citizen of the United States. All of the Government's evidence, together with the reasonable inferences that can be drawn from it, is amply sufficient to support the jury's finding that Melot was aware of his obligation to file returns and pay federal taxes and negates any inference Melot acted in good faith. 9

B. Sentence

Melot raises two challenges to his sentence. The first implicates the calculation of his base offense level. The Presentence Investigation Report applied an offense level of thirty-eight and a criminal history category of II to arrive at an advisory guidelines range of 262-327 months' incarceration. Melot's base offense level was calculated based on an intended tax loss of approximately $ 33 million. The total tax loss included, inter alia, federal income taxes of $ 18.5 million, federal fuel excise taxes of $ 6.6 million, and state fuel excise taxes of $ 7.7 million. Melot argues it was error to include the federal and state fuel excise taxes in the calculation.

Tax loss, including any loss due to relevant conduct, is used to determine the base offense level for a tax offense. See U.S.S.G. section 2T1.1(a), 2T4.1; United States v. Higgins, 2 F.3d 1094, 1097-98 (10th Cir. 1993) ("[E]ven uncharged tax losses constitute relevant conduct which a sentencing court may consider in determining the basic offense level tax loss."). An offense is relevant conduct under U.S.S.G. section 1B1.3(a)(2) if "(1) the offense involved conduct described in section 1B1.3(a)(1)(A) and (B); (2) the offense would require grouping with the offense of conviction under U.S.S.G. section 3D1.2(d); and (3) the offense is part of the 'same course of conduct' or 'common scheme or plan' as the offense of conviction." United States v. Clark, 415 F.3d 1234, 1242 n.4 (10th Cir. 2005). Melot first argues the state fuel excise taxes do not qualify as relevant conduct because they are not groupable with his offenses of conviction. Although Melot sets out the relevant standard of review, his opening brief contains no separate analysis of the grouping issue. Instead, he interweaves his grouping argument with a separate argument that the failure to pay state and federal excise taxes is not relevant conduct because it is not part of the same scheme or course of conduct.

Although Melot's combination of the two issues muddles his argument, this court has no hesitation concluding the excise tax offenses were properly included in the total tax loss. The excise taxes were properly grouped because the relevant guideline provides that tax offenses should be grouped. See U.S.S.G. section 3D1.2(d) (listing tax offenses as offenses that "are to be grouped"). It is immaterial that the offenses involved different victims. See U.S.S.G. section 3D1.2(d) cmt. n.6 (providing an example of five theft convictions, each involving a different victim, as counts that are to be grouped together); see also United States v. Springer, 444 F. App'x 256, 265 (10th Cir. 2011) (unpublished disposition cited for persuasive value) (grouping state tax losses with tax loss from federal conviction). The offenses of conviction and the evasion of fuel excise taxes were part of a common scheme or plan because both have a common purpose -- the defeat of taxes owed. When "there is a continuing pattern of violations of the tax laws by the defendant," the Guidelines provide that the conduct is considered to be part of the same course of conduct or common scheme or plan. U.S.S.G. section 2T1.1 cmt. n.2 ("In determining the total tax loss attributable to the offense . . . , all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated."). Here, the evidence shows Melot's failure to pay fuel excise taxes occurred during the same period of time he was evading federal income taxes and the district court correctly characterized the steps he took to avoid paying taxes as demonstrating a "pattern of conduct . . . [that] endured in excess of twenty years."

Melot also argues there was insufficient evidence to support the district court's determination that he owed Texas fuel excise taxes because that determination was based on unreliable hearsay. The Government, which bore the burden to prove the amount of the tax loss, relied on state excise tax assessments made by the Texas Comptroller of Public Accounts. This court has previously held that tax assessments are prima facie evidence of a tax loss. United States v. Chisum, 502 F.3d 1237, 1244 (10th Cir. 2007). The district court found that "no credible evidence contradict[s] the validity of these tax assessments." A review of the record confirms the correctness of this finding. The evidence was both reliable and sufficient to support the inclusion of the Texas fuel excise taxes in the tax loss calculation. The district court's ruling was not clearly erroneous.

Melot also challenges the portion of his sentence requiring him to pay restitution in the amount of the agricultural subsidies he received from the Department of Agriculture. He argues he would have qualified for the subsidies even if he had provided the correct identifying information to the Department of Agriculture. Thus, according to Melot, the only harm from his actions was the lost opportunity on the part of the IRS to garnish the subsidies he received. Melot's argument is easily rejected. The Government's trial evidence established that Melot provided false information to the Department of Agriculture when he applied for the agricultural subsidies. The director of the Farm Service Agency of the USDA testified that by making misrepresentations on the subsidy applications, Melot became ineligible to receive the subsidies. See, e.g., 7 U.S.C. section 1308-1(a); id. section 1308-2(a); 7 C.F.R. section 1400.107. Thus, the district court did not err when it ordered Melot to pay restitution to the United States Department of Agriculture.

IV. Cross-Appeal

In its cross-appeal, the Government argues the district court clearly erred in granting Melot a two-level decrease in his offense level for acceptance of responsibility. The district court not only granted the two-level reduction, it also increased Melot's offense level for obstruction of justice. See U.S.S.G. section 3C1.1. Application Note 4 to section 3E1.1 of the Sentencing Guidelines counsels that both the obstruction-of-justice enhancement and the acceptance-of-responsibility reduction apply only in "extraordinary cases." This court has adopted the following test to determine whether a case is extraordinary:

We . . . hold that in determining whether a case
is "extraordinary" so as to merit both a section
3E1.1 reduction and a section 3C1.1 enhancement,
the sentencing court must consider the totality of
the circumstances, including, but not limited to
1) whether the obstruction of justice was an isolated
incident or an on-going, systematic effort to obstruct
the prosecution, and 2) whether defendant voluntarily
terminated his obstructive conduct and truthfully
admitted the conduct comprising the offense of conviction.

United States v. Salazar-Samaniega, 361 F.3d 1271, 1280 (10th Cir. 2004). The defendant must "present evidence to support the adjustment" and the district court must make findings to justify its conclusion that a particular case qualifies as an extraordinary case. Id. Here, the district court did not make the required findings. This is not a situation, however, in which it is appropriate to remand the matter to the district court to permit it to correct the procedural error. Had the district court not applied the obstruction-of-justice enhancement to calculate Melot's offense level, it was still clear error to grant Melot an acceptance of responsibility adjustment.

A district court has wide discretion in determining whether a defendant qualifies for the acceptance-of-responsibility reduction, and this court will not reverse the court's decision unless it is clearly erroneous. United States v. Gauvin, 173 F.3d 798, 805 (10th Cir. 1999); see also U.S.S.G. section 3E1.1 cmt. n.5("[T]he sentencing judge is in a unique position to evaluate a defendant's acceptance of responsibility and is, therefore, entitled to great deference upon review."). Despite this highly deferential standard of appellate review, it is the defendant's burden to prove entitlement to the section 3E1.1 adjustment. United States v. Ivy, 83 F.3d 1266, 1292 (10th Cir. 1996). Melot, thus, was required to "prove by a preponderance of the evidence that he has clearly demonstrated acceptance of responsibility for his offense." Id. (quotation and alteration omitted). The Sentencing Guidelines provide that a defendant can meet his burden by showing, inter alia, he truthfully admitted the conduct comprising the offense of conviction or voluntarily paid restitution prior to adjudication of guilt. U.S.S.G. section 3E1.1 cmt. n.1. A review of the record confirms Melot did neither of these things, nor did he engage in any other conduct demonstrating an acceptance of responsibility for his offenses. See id. (detailing a non-exhaustive list of factors the district court may consider when determining if a defendant has accepted responsibility). To the contrary, the record clearly shows Melot continued to deny that he willfully engaged in criminal conduct 10 and unambiguously shows Melot did not voluntarily pay restitution. 11

Further, the Sentencing Commission has made clear that the acceptance of responsibility adjustment "is not intended to apply to a defendant" like Melot "who puts the government to its burden of proof at trial by denying the essential factual elements of guilt, is convicted, and only then admits guilt and expresses remorse." U.S.S.G. section 3E1.1 cmt. n.2. "In rare situations, however, a defendant may clearly demonstrate an acceptance of responsibility for his criminal conduct even though he exercises his constitutional right to a trial." Id. As guidance to sentencing courts on what constitutes such a "rare situation," the Guidelines provide the example of a defendant who "goes to trial to assert and preserve issues that do not relate to factual guilt (e.g., to make a constitutional challenge to a statute or a challenge to the applicability of a statute to his conduct)." Id. Here, Melot did not proceed to trial to preserve an issue unrelated to his factual guilt. He, instead, exercised his constitutional right to trial so he could challenge the mens rea element of the crimes charged in the indictment. See United States v. Alvarez, 2013 WL 5433604, at *3 (10th Cir. Oct. 1, 2013). He steadfastly maintained he did not commit the crimes charged because he did not act willfully. 12 His direct examination at trial began with the following exchange:

Q. All right. Did you at any time act corruptly?
By that I mean knowingly and dishonestly with the
intent to secure an unlawful benefit for yourself
or anyone else in your dealings with the Internal
Revenue Service?

A. No.

Q. Let me ask you with respect to Count 2 of this
Indictment, did you during the years indicated in
the Indictment, and basically 1987 to 1999, did you
believe that you owed the IRS any income tax? Substantial
or otherwise.

A. No.

. . . .

Q. All right. With respect to Count 3 through 8,
did you willfully, as you understood your obligation
under the law, fail to file a tax return from years
2003 to 2008?

A. No.

Q. Did you, sir with respect to Counts 9 through
15, make statements to . . . the United States Department
of Agriculture with the intent of obtaining a thing
of value? Did you make a false statement with that
intent?

A. No.

Even after his conviction, he unflinchingly continued to maintain he did not act willfully. He filed a sentencing memorandum with the district court requesting the section 3E1.1 reduction and asserting he intended to testify at the sentencing hearing that "he went to trial in order to present to the jury that he did not willfully fail to pay taxes that he knew he owed." He further asserted he proceeded to trial because "he earnestly wished the jury to hear his rationale for not paying income taxes." Consistent with these statements in his memorandum, Melot denied he acted willfully at the sentencing hearing and maintained his innocence. 13

Because the record contains absolutely no evidence supporting the application of the acceptance-of-responsibility reduction but, instead, clearly demonstrates Melot did not accept responsibility for his criminal conduct, the district court's determination that he was entitled to the section 3E1.1 decrease is clearly erroneous and Melot's sentence must be reversed.

V. CONCLUSION

Melot's convictions are affirmed. The matter is remanded to the district court with instruction to vacate Melot's sentence and resentence him without application of the section 3E1.1 adjustment. The Government's motion for leave to file a supplemental letter brief is denied. Melot's motion to strike the Government's motion is denied as moot. Melot's motion to supplement the record on appeal is granted.

FOOTNOTES:

/1/ Melot last filed an individual income tax return for the 1986 tax year. The KLM Trust, an irrevocable trust established by Melot but over which he retained control, did not file tax returns for the years 1986 through 2008. Three additional trusts established by Melot -- the MELM Trust, the ARM Trust, and the BRM Trust -- also did not file tax returns. Corporate income tax returns were not filed for corporations established by Melot, including Cline Sales, Inc.; CD Express, Inc. (for all years but 1997); CD Properties; GEW, Inc.; Leigh Corporation; QF Marketing; and Suzanne Corporation. A government witness who audited Melot in 1992, testified he also did not file an IRS Form 720, which is applicable to fuel excise taxes.

/2/ Melot told the revenue agent he personally prepared and made all the deposits himself. He also admitted he maintained complete control over at least one bank account established in the name of his sister, Georgia Watson, and that his sister "didn't have anything to do with that particular account."

/3/ The Government presented testimony indicating Melot was aware of this $ 10,000 threshold. An employee at the bank where Melot and his wife maintained an account, testified she discussed the issue with Mrs. Melot in 1990. Based on Mrs. Melot's conduct, the witness stated she completed a suspicious transaction log to record Mrs. Melot's currency transactions that were below $ 10,000. Another witness testified Melot engaged in similar behavior at the bank where she worked. She also filed a suspicious activity report.

/4/ These amounts did not include fees and penalties.

/5/ The witness also testified the IRS can place a nominee lien on property.

/6/ Melot admitted his son was named trustee of an irrevocable trust known as the KLM Trust, but he made all the decisions related to the trust and retained the power to remove his son as trustee.

/7/ The IRS revenue agent auditing Melot's income tax returns testified she discovered the Social Security number on Melot's driver's license was incorrect in August 1992, when she was assisting him in obtaining information about a contemporaneous excise tax audit. She further testified Melot admitted, at that time, that the Social Security number on his license was incorrect.

/8/ The Social Security number Melot provided to the United States Department of Agriculture was neither his true Social Security number nor the false one on his driver's license.

/9/ Melot points to his own testimony that (1) he genuinely believed the information presented in the "tax protestor snake oil" documents he read, (2) did not read the disclaimers associated with that literature, and (3) did not understand the Internal Revenue Code because it was "too complex" for him, as support for his assertion he held a good-faith belief that he was not violating the law. Based on its verdict, however, the jury clearly disbelieved Melot's testimony. To the extent Melot also relies on the testimony of Dr. Samuel Roll, that reliance is misplaced. Dr. Roll, a psychologist, testified at the sentencing hearing, not the trial.

/10 / For example, although the jury found Melot guilty of making false statements to the Department of Agriculture, Melot testified under oath at the sentencing hearing that he "didn't lie or cheat or nothing" when he applied for the agricultural subsidies. See infra n.13.

/11/ Since his conviction, Melot has tenaciously opposed the Government's efforts to collect the restitution he was ordered to pay by the district court, attempting to thwart the collection of more than $ 18 million in outstanding income tax assessments and more than $ 6.5 million in outstanding excise tax assessments. In 2012, a federal magistrate judge issued a certification of criminal contempt against him in the ancillary collection proceedings, finding he "actively and intentionally participated in a scheme to fraudulently create a third party interest in his properties with the intention of defrauding the Court, sabotaging the orderly administration of justice and delaying the United States' lawful efforts to recover the judgment as ordered by the Court." Certificate of Criminal Contempt as to Billy R. Melot, August 6, 2012, United States v. Melot, No. 2:09-CV-00752 (D. N.M. (Dkt. No. 246)). These post-sentencing actions may be considered by the district court during Melot's resentencing. See Pepper v. United States, 131 S. Ct. 1229, 1242 (2011).

/12/ In his opening brief, Melot states his "defense was that he really believed that he did not owe any income taxes."

/13/ At the June 27th sentencing hearing, Melot testified he did not file tax returns or pay taxes because he did not believe he was required to file or pay, characterized some of the trial evidence against him as slander, continued to deny that he lied to the Department of Agriculture despite the jury's finding he did lie, denied his trusts owed any income taxes, claimed his corporations were only formed for liability purposes, testified he threw away all the documents that would demonstrate he did not owe the amount of taxes assessed, claimed he had paid all excise taxes but did not have the documentation to prove it, and said he did not recall if he had a bank account. The district court specifically found that Melot's "testimony at sentencing concerning tax matters" was not credible.

JamesVincent · Post by **JamesVincent** » Tue Oct 22, 2013 3:39 pm

So he appealed and will probably get a stiffer sentence without the reduction?

Post by **Famspear** » Tue Oct 22, 2013 5:58 pm

...At trial, an IRS revenue agent testified she was assigned Melot's case in 1992. During her first meeting with Melot and his accountant, she asked Melot why he had not filed a 1987 income tax return and he responded that "he didn't know how to do it."....

And that excuse didn't work???!!??

. · Post by . » Tue Oct 22, 2013 6:21 pm

After pushing the idiocy envelope many steps too far, I hope he enjoys the extra 15 years he'll get upon being resentenced appropriately.

Putz.

Post by **wserra** » Tue Oct 22, 2013 6:44 pm

JamesVincent wrote:So he appealed and will probably get a stiffer sentence without the reduction?

. wrote:I hope he enjoys the extra 15 years he'll get upon being resentenced appropriately.

While Melot will likely be resentenced to more than the sixty months he originally received, I would be very surprised if the sentence went from five years to twenty. The Tenth Circuit ruled only that Melot should not have received a two-level reduction for acceptance of responsibility. The two-level increase (level 36 to level 38, criminal history II) turns a range of 210-262 to 252-327 months, an increase of about 25 percent. Applying the same increase to 60 months yields 75 months. Melot may receive more than that, because the Tenth Circuit did imply that he get a very lenient deal.

But from 60 to 240? I doubt it.

Post by **LPC** » Wed Oct 23, 2013 5:01 pm

wserra wrote:While Melot will likely be resentenced to more than the sixty months he originally received, I would be very surprised if the sentence went from five years to twenty.

But are we correct in believing that the government was not going to appeal, and that the sentence would have stayed at 60 months, but for Melot's appeal?

The court refers to the government's appeal as a "cross-appeal," which leads me to believe that the government did not originally intend to file an appeal, and only filed an appeal to the sentence after Melot filed his appeal. But I don't know enough about appellate procedure to know for sure if that's true.

If it's true that the government originally didn't appeal, then it's possible that Melot got mediocre legal advice, because I would think that a good lawyer would tell a client not to take a dodgy appeal if it runs the risk of upsetting what looks to be a good sentencing result. (Although it's more likely the lawyer didn't recommend the appeal and was simply doing what he was told by his obstinate--to put it politely--client.)

Post by **Burnaby49** » Wed Oct 23, 2013 5:13 pm

In Canada, as I understand it, if both sides appeal a verdict they are considered an appeal and cross-appeal even if they are done completely independently and one appeal is not a result of the other being filed.

Dr. Caligari · Post by **Dr. Caligari** » Wed Oct 23, 2013 7:21 pm

Here, whoever files first is the appellant, and the party who files second is the cross-appellant. Form what's been posted, I have no way to tell if the Government would have filed anyway, but there's at least a decent possibility they wouldn't.

Post by **wserra** » Wed Oct 23, 2013 7:28 pm

LPC wrote:But are we correct in believing that the government was not going to appeal, and that the sentence would have stayed at 60 months, but for Melot's appeal?

While just desserts are always gratifying, I don't think there's any way to say.

Melot, being a moron, filed a pro se notice of appeal on May 10, 2010, a couple of weeks after he was convicted. Given that he was not sentenced until August 30, 2011, and judgment was not entered until a week after that, Melot was seventeen months premature. Instead of dismissing it, however, the Tenth Circuit held Melot's appeal in abeyance until the judgment, and he never filed a new notice. The govt filed its notice of appeal on October 3, 2011, within the 30 days of judgment that FRAP 4(b) gives it. There is thus no way to know if the govt's appeal was provoked by Melot's.

The court refers to the government's appeal as a "cross-appeal," which leads me to believe that the government did not originally intend to file an appeal, and only filed an appeal to the sentence after Melot filed his appeal. But I don't know enough about appellate procedure to know for sure if that's true.

FRAP doesn't define "cross-appeal". In general usage, it simply means an appeal by the party that was first a respondent. Moreover, the rule governing procedure in case of cross-appeal (FRAP 28.1) requires that all matters be addressed in the same appellate proceedings. It seems to me that the govt might well have appealed what it surely viewed as an unreasonably lenient sentence in any event. But we'll never know.

Post by **The Observer** » Wed Dec 09, 2015 3:52 pm

BILL MELOT,
Plaintiff,
v.
LEE ROBERSON,
UNITED STATES OF AMERICA, AND
BOBBY SHAW,
Defendants.

Release Date: DECEMBER 03, 2015

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO

MEMORANDUM OPINION AND ORDER

THIS MATTER comes before the Court on the United States' Motion to Dismiss Case with Prejudice (ECF No. 10) and Lee Roberson's Motion to Dismiss (ECF No. 27). The Court, having considered these motions, responses thereto, as well applicable case law, concludes that the motions are well taken, will be granted, and that this case will be dismissed in its entirety.

I. OVERVIEW OF THIS LAWSUIT

Plaintiff filed his pro se Complaint to Recover for Monetary Loss and to Quiet Title and Occupy on March 19, 2015 (ECF No. 1). 1 This Complaint alleges that the Court has jurisdiction pursuant to 28 U.S.C. section 1346, 2409 and 2410. 2 It alleges that Plaintiff was and is, the lawful owner of all property described in the Complaint; that Defendant Shaw unlawfully and fraudulently conveyed this property to Defendant Roberson; that Defendant Roberson sold, destroyed, rented or disposed of said property without Plaintiff's consent or authority; and that Defendant United States claims interest in the disputed title to these same properties. Plaintiff states that his claims are made pursuant to the Quiet Title Act.

Plaintiff alleges that Defendant United States had tax liens on such properties, but that as of the time of the filing of the Complaint, the United States has no interest in the properties, and that the tax liens are not enforceable.

II. PRIOR LITIGATION

A. United States v. Melot, et al., CIV No. 09-0752 JCH/WPL ("Melot I")

In the current litigation, Plaintiff seeks to quiet title in the same real properties involved in a prior lawsuit in this Court, to-wit: United States v. Melot, CIV No. 09-0752 JCH/WPL ("Melot I"). In that prior litigation, United States District Court Judge Judith Herrera ordered federal tax liens on property to be foreclosed, pursuant to her Memorandum Opinion and Order (ECF No. 141), 3 and granted Final Judgment to Defendants (ECF No. 173). This judgment in favor of the United States enforced its tax liens and authorized the sale of all of the Melots' property, including property held in the names of several nominees/alter egos. After entry of final judgment, Plaintiff filed a "plethora of post-judgment motions" to delay the District Court proceedings, including several motions to stay the foreclosure proceedings. (Order Denying Mot. to Stay Proceedings, ECF No. 223).

By Order dated August 6, 2012, the Court appointed Bobby Shaw as Receiver to arrange for the sale of all property owned by the Melots, as described in that Order. (ECF No. 244). On January 23, 2013, the District Court entered a Partial Final Judgment against Billy Melot for 1987-1993 federal income taxes in the amount of $ 8,788,056, as of March 31, 2009. (ECF No. 318). The Court also entered judgment against Billy Melot for federal excise taxes in the amount of $ 6,566,661. Judgment was entered against Katherine Melot for 1987-1993 federal income taxes in the amount of $ 8,788,056. The Court determined that the United States was entitled to foreclose its federal tax liens against the Melots' real and personal properties, and apply the net sales proceeds to their outstanding federal income tax liabilities. (Id.).

On July 25, 2013, the District Court entered an Order Confirming Judicial Sale of Real Property for a piece of commercial property owned by the Melots located on Sanger Street in Hobbs, New Mexico (ECF No. 368). Further confirmed sales of properties were disrupted when Katherine Melot filed a Chapter 7 bankruptcy. The United States was allowed to proceed, on August 27, 2013, when the automatic stay was lifted, however progress in this process was again interrupted when Billy Melot filed a Chapter 7 bankruptcy case. The automatic stay in this second bankruptcy proceeding was lifted, and on December 9, 2013, having found that the Receiver had received the best possible offer, the District Court entered an Order Confirming Judicial Sale of Real Properties and Equipment for $ 1,125,000. (ECF No. 411). This Order provided that, upon payment of this amount, the Receiver Bobby Shaw, was authorized and directed to issue a Receiver's Deed for the real properties, water rights, and equipment described in said Order, to Lee Roberson.

Billy and Katherine Melot appealed this Order. On April 18, 2014, the Tenth Circuit affirmed the District Court's granting summary judgment, its entry of final judgment and its order appointing a receiver to sell all of the Melots' properties. United States v. Melot, 562 Fed. App'x 646 (10 Cir.)(unpublished), cert. denied, 135 S.Ct. 488 (2014). Specifically, the Tenth Circuit affirmed the judgment of income tax assessments as to both of the Melots, the fuel-excise tax assessments against Billy, the judgment authorizing foreclosure of the tax liens and sale of real properties to satisfy the liens, and rejected the Melots' objections to the Receiver. (Id.).

On June 30, 2014, the District Court entered an amended order re-confirming the sale of the Melots' real and personal properties (ECF No. 448). The sale of the Melots' real properties was completed in July 2014 and a Receiver's Deed was issued to Lee Roberson. The United States subsequently received the sales proceeds and applied them to the outstanding federal tax liabilities of Katherine and Billy Melot.

The Melots filed a second appeal. In its April 13, 2015 Order and Judgment, the Tenth Circuit rejected the Melots' main argument that the sale was improperly conducted and that it produced less than the best possible price for the properties sold. The Tenth Circuit affirmed the June 30, 2014 lower court order confirming the judicial sale of Melots' real property and personal property by Receiver Bobby Shaw to Lee Roberson for the $ 1,125,000 price. United States v. Melot, 606 Fed. App'x 930 (10 Cir. 2015) (unpublished).

B. Melot v. Internal Revenue Service, et al., CIV No. 14-687 LAM/GBW ("Melot II")

On June 19, 2014, subsequent to the Tenth Circuit's opinion affirming the judgment of income and excise tax assessments, the judgment authorizing forclosure of the tax liens and sale of real properties to satisfy the liens, and rejection of the Melots' objections to the Receiver, Bill Melot filed a lawsuit in state court. In this action, he sought to quiet title to certain properties, to gain the right to occupy these properties, to cancel the federal tax liens on these properties, to enjoin collection of his tax liabilities, and to cancel the federal judgment rendered against him. In his Complaint, Mr. Melot alleged that the Court had jurisdiction over his claims to quiet title pursuant to 28 U.S.C. section 2410(a)(1). The United States removed this case to federal court on August 6, 2014, and it was assigned to United States Magistrate Judge Lourdes Martinez, with CIV No. 14-0687 as the cause number.

One of the grounds raised by the United States in seeking dismissal of Melot II was that Plaintiff's complaint failed to state a claim upon which relief could be granted because this Court has already validated the federal tax liens against Plaintiff and ordered the relevant property sold in Melot I. In Melot II, Judge Martinez summarized the arguments of the United States, noting that pursuant to res judicata, the United States sought to preclude Plaintiff from contesting the same federal tax liens and seeking to quiet title to the same properties that were involved in Melot I. (ECF No. 19). 4 The United States further argued that Plaintiff was precluded from seeking the right to occupy the properties at issue because this too was decided in Melot I, when the Court ordered that the tax liens should be foreclosed against the properties, that the properties should be sold, and that Plaintiff's wife and all other family members must vacate the properties.

In Melot II, Judge Martinez noted that Mr. Melot's complaint sought the cancellation of liens and notices of liens on the same properties involved in Melot I, wherein the Court ordered that the United States was entitled to foreclose its tax liens against those properties and entered an order confirming the sale of the same properties. (ECF No. 141 in Melot I). To the extent that Mr. Melot was seeking an injunction regarding the enforcement of tax liens on the properties listed in his complaint, Judge Martinez found that the complaint should be dismissed for lack of subject matter jurisdiction because it was barred by the Anti-Injunction Act. (ECF No. 19). To the extent that Mr. Melot was challenging the sale of the properties, Judge Martinez held that the proper forum for such relief would have been in Melot I, as that was the case that ordered the sale of the properties and application of the proceeds of the sale to Plaintiff's tax liability, noting that "any action in this case that would affect any of the orders entered in that case would be improper." (Id.). "To the extent [Mr. Melot] is seeking an accounting regarding the sale of the properties listed in his complaint, the Court finds that Plaintiff's complaint should be dismissed without prejudice because the proper forum for such a motion would be in [CIV No. 09-752 JCH/WPL]." (Id.). For these reasons, Judge Martinez dismissed Mr. Melot's complaint without prejudice, because the proper forum for the relief he sought was Melot I.

III. ARGUMENTS OF THE PARTIES IN THIS LAWSUIT

In its current motion to dismiss, the United States relies most heavily on the doctrine of res judicata. The United States argues that this case must be dismissed on the grounds that Mr. Melot's basis for this Complaint centers directly on the court-ordered sale of the real and personal properties in Melot I, and that in effect Mr. Melot is using this suit in an attempt to have this Court review and reverse orders issued in Melot I. The United States argues that this was the basis for dismissal of Mr. Melot's claims by Judge Martinez in Melot II. Further, the United States notes that Mr. Melot already challenged the Court's orders in Melot I, by way of an appeal to the Tenth Circuit, who, on April 18, 2014, affirmed the District Court's orders granting summary judgment, final judgment, and appointing the Receiver to sell the subject properties. 5 Subsequently, on April 13, 2015, the Tenth Circuit affirmed the District Court's order confirming the judicial sale of the Melot's property by the Receiver, Bobby Shaw, to Lee Roberson for the $ 1,125,000 price. 6 Finally, the United States contends that only an appellate court has jurisdiction to review final decisions of district courts, and therefore this Court lacks jurisdiction to review orders from Melot I, which is in effect what Mr. Melot is seeking in the immediate litigation. For these reasons the United States argues that this case should be dismissed for failure to state a claim as to all named Defendants.

Plaintiff counters with the argument that, in this current lawsuit, he challenges the wrongful actions of Defendants Roberson and Shaw, which were not addressed in previous litigation, and therefore res judicata does not apply.

IV. THE DOCTRINE OF RES JUDICATA

Res judicata is a doctrine that addresses the legal effect of an entry of judgment in one lawsuit on subsequent cases that are related to the original case. Subject to some exceptions, this doctrine establishes the rule that once a case has reached a final judgment, many claims or issues related to that case should be treated as finally decided, once and for all. Thus, if res judicata applies to a case, a party who lost a lawsuit will be precluded from litigating not only those claims already raised, but also all others which could have been raised in a prior lawsuit. The policies behind this doctrine are judicial economy and finality in litigation. Res judicata is intended to relieve the parties of the cost or vexation of multiple lawsuits, prevent inconsistent decisions, and encourage reliance on adjudication.

"Under res judicata, or claim preclusion, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in the prior action." Satsky v. Paramount Comm., Inc., 7 F.3d 1464, 1467-68 (10 Cir. 1993) (internal quotations omitted). "To apply the doctrine of res judicata three elements must exist: (1) a [final] judgment on the merits in an earlier action; (2) identity of parties or privies in the two suits; and (3) identity of the cause of action in both suits." King v. Union Oil Co., 117 F.3d 443, 444-45 (10 Cir. 1997), quoted in Wilkes v. Wyoming Dept. of Employment of Labor, 314 F.3d 501, 504 ((10 Cir. 2003).

In this instance, the Court is presented with the question of whether Mr. Melot's claims in the immediate litigation are barred by this doctrine, as having been decided, once and for all, in Melot I. In Melot I, the United States was the Plaintiff and the named Defendants were Billy R. Melot, Katherine L. Melot, KLM Trust, C.D. Properties, Inc., MELM Trust, Q.F. Marketing, Inc., Leigh Corporation, Suzanne Corporation, Mirror Farms, Inc., and C.D. Express, Inc. Judgment on the merits was entered against the Melots and their various corporate entities.

In the immediate case, Bill Melot is the sole Plaintiff, and the named Defendants are the United States, Bobby Shaw and Lee Roberson.

A. Final Judgment on the Merits in An Earlier Action

There is no dispute that a final judgment on the merits was reached in Melot I. Not only did Melot I proceed to a final judgment on the merits of the case, the Tenth Circuit entertained two appeals in that matter. It is generally well settled that, when a trial judge enters judgment, so that the parties are in a position to appeal the judgment, finality has been achieved and this element of res judicata has been satisfied. See Clay v. U.S., 537 U.S. 522, 526 (2003)("[A] federal judgment becomes final for appellate review and claim preclusion purposes when the district court disassociates itself from the case, leaving nothing to be done at the court of first instance save execution of the judgment.").

Furthermore, both of these appeals followed judgments that were "on the merits." As already noted, the district court in Melot I entered judgments against the Melots for unpaid federal income and excise taxes, ordered the foreclosure of federal tax liens, authorized the sale the Melots' property, appointed a Receiver to sell the property, overruled the Melots' objections to the Receiver, confirmed the sales of the properties, and authorized the Receiver to deed the legal rights to said properties to Mr. Roberson.

In light of these circumstances, it is clear that the first element for res judicata has been met.

B. Identity of the Parties or Privies in Melot I and in This Case

Mr. Melot claims in this litigation that the Receiver, Mr. Shaw, acted unlawfully and fraudulently in conveying the property in question to Lee Roberson, and that Lee Roberson has wrongful possession over the property at issue or has disposed of it without Mr. Melot's authority in an unlawful manner. (Comp. paragraphs II (2) and (3)). In other words, in addition to filing suit against the United States, in this latest lawsuit Mr. Melot has sued two individuals who were not specifically named in Melot I.

The second requirement for res judicata is that the parties in a subsequent action must be identical to the parties in the first action, or in privity with parties in the first action. Clearly this requirement is met insofar as Mr. Melot and the United States are concerned because both were parties in Melot I and of course, are parties in this immediate action. The remaining issue is whether or not Bobby Shaw and Lee Roberson, who were not parties in Melot I, are privies for purposes of res judicata in this current lawsuit.

There is no definition of "privity" which can be automatically applied to all cases involving the doctrine of res judicata because privity depends upon the underlying circumstances. See Lowell Staats Mining Co. v. Philadelphia Electric Co., 878 F.2d 1271, 1274-75 (10 Cir. 1989). Privity may be established if the party to the first suit represented the interests of the party to the second suit. Id. at 1280.

The Court concludes that the court-appointed Receiver, Bobby Shaw, is a privy to the United States for res judicata purposes. By Order dated August 6, 2012, the Court appointed Mr. Shaw to facilitate the sale of property owned by the Melots, as described in that Order. 7 On December 9, 2013, the Court entered an Order Confirming Judicial Sale of Real Properties and Equipment for $ 1,125,000. 8 This Order provided that, upon payment of this amount, as Receiver, Mr. Shaw was authorized and directed to issue a Receiver's Deed for the real properties, water rights, and equipment described in said Order, to Lee Roberson. 9

Pursuant to these Orders, the Melots' property fell under the receivership of Mr. Shaw. In that capacity and by virtue of his receivership powers, Mr. Shaw had the right and duty to participate in and control the disposition of the Melots' property, as per direction of the Court. Mr. Shaw was acting as a Receiver on behalf of the United States and can be considered a privy of the United States for purposes of this res judicata analysis.

Furthermore, the purchaser of the property, Mr. Roberson, is in privity with Mr. Shaw. Privity has been found when successive relationships to the same property exist, as by purchase, facilitated in this instance by the conveyance of the Melots' property to Mr. Roberson by Receiver Deed. See St. Louis Baptist Temple, Inc. v. FDIC, 605 F.2d 1169, 1175 (10 Cir. 1979).

Clearly, Mr. Melot's current claims against Mr. Shaw and Mr. Roberson call into question the propriety of the process used to sell Mr. Melot's property, following the Court's imposition of tax liens and all subsequent proceedings. The lawfulness of Mr. Shaw's actions in his capacity as Receiver has already been litigated (and upheld by the Tenth Circuit). In Melot I, Mr. and Mrs. Melot failed to prove that Mr. Shaw unlawfully and fraudulently conveyed property to Mr. Roberson. Mr. Melot may not re-litigate this issue now by the simple expedient of naming Mr. Shaw as a defendant in this subsequent action. See Lowell Staats Mining Co., Inc. at 1276.

Similarly, in Melot I, the Melots failed to prove that Mr. Roberson sold, destroyed, rented or disposed of said property without Mr. Melot's consent or authority. Of course, such an approach would have been futile because Mr. Roberson purchased this property pursuant to court order which provided that the Receiver was authorized and directed to convey title to Mr. Roberson. (See ECF No. 411 in Melot I). Clearly Mr. Melot's consent or authority is not necessary for Mr. Roberson to do as he wishes with this property, given that he is now the rightful owner of this property. Nevertheless, Mr. Melot had the opportunity, in Melot I, to litigate this issue and could have made Mr. Roberson a party to that lawsuit but failed to do so. Mr. Melot may not now re-litigate this issue by the simple expedient of naming Mr. Roberson as a defendant in this subsequent action. See Lowell Staats Mining Co., Inc. at 1276.

Although Defendants Lee and Roberson were not named parties in Melot I, they certainly could have been named as parties, and in any event, the propriety of their conduct has already by determined by the Court in Melot I. The Melots were unsuccessful in Melot I, in establishing that the imposition of tax liens, appointment of Receiver and sales of properties were improper in any way.

Given these circumstances, the Court concludes that the second element for res judicata has been met.

C. Identical Claims; Same Transaction or Occurrence

In Petromanagement Corp. v. Acme-Thomas Joint Venture, 835 F.2d 1329, 1335 (10 Cir. 1988), the Tenth Circuit adopted the transactional approach of Restatement (Second) of Judgments to determine what constitutes a "cause of action" for claim preclusion purposes. The transactional approach provides that a final judgment extinguishes:

all rights of the plaintiff to remedies against the
defendant with respect to all or any part of the
transaction, or series of connected transactions,
out of which the action arose. . . . What factual
grouping constitutes a "transaction," and what groupings
constitute a "series," are to be determined pragmatically,
giving weight to such considerations as whether the
facts are related in time, space, origin, or motivation,
[and] whether they form a convenient trial unit.
. . .

Id. at 1335 (quoting Restatement (Second) of Judgments section 24). "Under [the transactional] approach, a cause of action includes all claims or legal theories of recovery that arise from the same transaction, event or occurrence. All claims arising out of the transaction must therefore be presented in one suit or be barred from subsequent litigation." Nwosun v. General Mills Restaurants, Inc., 124 F.3d 1255, 1257 (10 Cir. 1997).

It is clear to the Court that all claims raised by Mr. Melot in the immediate lawsuit are predicated on the same transaction, event and/or occurrence that were squarely addressed and fully resolved in Melot I. The relevant facts in this case are substantially similar (if not identical) to those in Melot I. In that litigation, the Court ordered foreclosure of federal tax liens on the Melots' real and personal property, appointed Mr. Shaw as Receiver, and ultimately confirmed the sale of all of the Melots' properties to Lee Roberson, applying the net sales proceeds to their outstanding federal income tax liabilities. For purposes of this res judicata analysis, the Court considers this to be all one "transaction" and accordingly the third element for res judicata has been met.

V. CONCLUSION: THIS MATTER IS BARRED BY RES JUDICATA

In this lawsuit, Mr. Melot is contesting the same federal tax liens, seeking to quiet title to the same properties, and challenging the sale of those properties that were involved in Melot I. In that case, the District Court specifically ruled on the disposition of the Melots' property and confirmed by order the sale of their property by Receiver Shaw to Mr. Roberson for $ 1,125,000. The Tenth Circuit affirmed all District Court orders in all respects. Hoping for a different result, Mr. Melot has filed this lawsuit, however such an effort must be precluded by res judicata for the reasons stated herein, and accordingly this matter is hereby dismissed,

III. POTENTIAL FILING RESTRICTIONS

Mr. Melot's three lawsuits, detailed herein, regarding the imposition of tax liens and ultimate sale of his property have reached the point of being an abuse of the federal judicial system. Federal courts have the inherent power to regulate the activities of abusive litigants by imposing carefully tailored restrictions under appropriate circumstances. See Judd v. Univ. of N.M., 204 F.3d 1041, 1043-45 (10 Cir. 2000); Tripati v. Beaman, 878 F.2d 351, 352 (10 Cir. 1989). Injunctions restricting further filings are appropriate where: (1) the litigant's lengthy and abusive history is set forth; (2) the court provides guidelines as to what the litigant may do to obtain its permission to file an action; and, (3) the litigant receives notice and an opportunity to oppose the court's order before it is implemented. See id. at 353-54. Because Mr. Melot's repetitive filings must come to an end, the Court warns him that any additional frivolous and repetitious filings regarding the same tax years and sale of his properties involved in Melot I may result in the imposition of filing restrictions.

This admonition does not apply to a notice of appeal from the Final Judgment in CIV No. 15-235 LH/CG only.

WHEREFORE, IT IS HEREBY ORDERED, for the reasons stated above, United States' Motion to Dismiss Case with Prejudice (ECF No. 10) and Lee Roberson's Motion to Dismiss (ECF No. 27) are hereby granted and this matter is dismissed.

IT IS SO ORDERED.

Senior United States District
Judge

FOOTNOTES:

/1/ Because Plaintiff is proceeding pro se, the Court will construe his pleadings liberally. Hall v. Bellmon, 935 F.2d 1106, 1110 (10 Cir. 1991).

/2/ These statutes pertain to situations in which the United States is a defendant; actions in which the United States has an ownership interest in lands, as a tenant in common or joint tenant; and, actions affecting property on which the United States has a lien, respectively.

/3/ Unless otherwise noted, all docket numbers mentioned in Section IIA are found in CIV No. 09-0752 JCH/WPL.

/4/Unless otherwise noted, all docket numbers mentioned in Section IIB are found in CIV No. 14-0687 LAM/GBW.

/5/See United States v. Melot, 562 Fed. App'x 646 (10 Cir.)(unpublished), cert. denied, 135 S.Ct. 488 (2014).

/6/ See United States v. Melot, 606 Fed. App'x 930 (10 Cir. 2015)(unpublished).

/7/ ECF No. 244 in Melot I.

/8/ ECF No. 411 in Melot I.

/9/ Pursuant to 26 U.S.C. section 7402, the district court has jurisdiction to appoint receivers, and to render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws.

KickahaOta · Post by **KickahaOta** » Tue Jun 14, 2016 9:53 pm

UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
_________________________________
BILLY MELOT, Plaintiff - Appellant,
v.
LEE ROBERSON; UNITED STATES OF AMERICA; BOBBY SHAW, Defendants - Appellees.

No. 15-2234
(D.C. No. 2:15-CV-00235-LH-CG)
(D. N.M.)

FILED
United States Court of Appeals
Tenth Circuit
June 14, 2016
Elisabeth A. Shumaker
Clerk of Court
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before BRISCOE, BACHARACH, and McHUGH, Circuit Judges.
_________________________________
This appeal marks Billy Melot’s latest effort to undo the judicial sale of his real and personal property, the proceeds of which were applied to his outstanding tax liabilities. Through multiple proceedings, Mr. Melot, who is presently in prison for federal tax crimes, has unsuccessfully challenged district court orders that reduced his outstanding tax liabilities to judgment, authorized the government to foreclose its tax liens on his property, appointed defendant Bobby Shaw as receiver, and confirmed the sale of the property to defendant Lee Roberson. In a previous appeal, we explained to Mr. Melot that his claims seeking to invalidate the sale are moot because the property was already sold to Mr. Roberson in July 2014. Nevertheless, in this action, Mr. Melot, proceeding pro se, once again attempts to invalidate the sale and quiet title to the property.1 He also seeks monetary damages for what he claims was the fraudulent transfer of his property. As we previously explained, however, Mr. Melot’s efforts to invalidate the sale are moot. And, to the extent he seeks other relief against the government, his claims are barred by sovereign immunity. As for his claims against Mr. Shaw and Mr. Roberson, they are foreclosed by res judicata. For these reasons, we affirm the dismissal of Mr. Melot’s suit.

I

The orders Mr. Melot is attempting to challenge were issued in another case, United States v. Melot, No. 09-CV-752-JCH-WPL (D.N.M.) (“Melot I”). In that case, the government sued Mr. Melot and his wife, Katherine Melot, who together owed millions of dollars in unpaid taxes. The government sought to reduce their outstanding tax assessments to judgment and foreclose federal tax liens on real and personal property owned by the Melots or their nominees or transferees. On January 6, 2012, the district court granted the government’s requests. See R. at 67 (Melot I, Doc. 141, slip op. at 27). The court then appointed Mr. Shaw as receiver to coordinate the sale, and, once Mr. Shaw found a buyer, entered an order on December 9, 2013, confirming the sale of the property to Mr. Roberson within thirty days, Melot I, Doc. 411, slip op. at 1-4. The Melots appealed, contesting their tax assessments and the methodology used to calculate them, as well as the validity of the government’s tax liens and Mr. Shaw’s qualifications to serve as receiver, among other things. We rejected their arguments and affirmed the district court. United States v. Melot, 562 F. App’x 646, 654 (10th Cir. 2014).

Closing of the sale was delayed, however, and the district court’s order confirming the sale expired, because Mrs. Melot refused to vacate one of the parcels of real property. When she eventually relocated, the district court entered an amended order re-confirming the sale on June 30, 2014. R. at 32-35 (Melot I, Doc. 448, slip op. at 1-4). The sale closed on July 17, 2014, and on that date, Mr. Shaw delivered to Mr. Roberson a Receiver’s Deed for real property, water rights, and certain designated equipment. Id. at 27-31. Again, the Melots appealed, and again we affirmed, holding that the appeal was moot to the extent it challenged the sale because “[w]e . . . cannot grant any relief that would have the effect of invalidating the sale.” United States v. Melot, 606 F. App’x 930, 932 (10th Cir.), cert. denied, 136 S. Ct. 86 (2015).

While these latter events played out in Melot I, Mr. Melot initiated a second case in New Mexico state court on June 19, 2014, seeking to quiet title to the property and cancel the government’s tax liens. After the government removed the case to federal court, the district court dismissed the suit for lack of subject matter jurisdiction, ruling that any attempt to enjoin the government from foreclosing its liens, which already had been adjudicated in Melot I, was barred by the Anti-Injunction Act, 26 U.S.C. § 7421. See Melot v. United States, No. 14-CV-0687-LAM-GBW, slip op. at 5-6 (D.N.M. Nov. 19, 2014) (“Melot II”). Although Mr. Melot denied that he was attempting to invalidate the sale, the district court ruled that any attempt to do so would be inappropriate because the proper forum to raise such a challenge would have been in Melot I.

Notwithstanding these adverse judgments, Mr. Melot returned to the district court and initiated this action with a pleading entitled, “Complaint to Recover for Monetary Loss and to Quiet Title and Occupy.” R. at 6. He named as defendants the United States, Mr. Shaw, and Mr. Roberson. Although he acknowledged the government previously had tax liens on the property, he alleged that as of the time of filing his complaint, the United States no longer had an interest in the property and the liens were unenforceable. He further averred that Mr. Roberson and Mr. Shaw “[a]cted with deceptive practices and fraudulent pretenses to transfer property belonging to [him] without his permission or consent, resulting in a fraudulent sale.” Id. at 7. Thus, Mr. Melot sought to quiet title to the property, requesting that “defendants be barred and forever estopped from having or claiming any lien upon or any right, title, interest, or estate in or to such property, adverse to [him].” Id. at 13. He also sought unspecified damages, another $909,950 from Mr. Roberson and Mr. Shaw, and an additional $500,000 in damages for “mental anguish and distress.” Id. Last, he demanded that Mr. Roberson vacate the property immediately. The district court dismissed the suit on res judicata grounds, and Mr. Melot appealed.

II

A. Mootness
The threshold issue we must consider is the extent to which this case is moot. See N.M. Env’t Dep’t v. Foulston (In re L.F. Jennings Oil Co.), 4 F.3d 887, 888 (10th Cir. 1993) (“The mootness question necessarily constitutes our threshold inquiry, because the existence of a live case or controversy is a constitutional prerequisite to the jurisdiction of the federal courts.” (internal quotation marks omitted)). The government contends that Mr. Melot’s claims seeking to invalidate the sale and recover the property are moot because the sale already occurred. Indeed, the government argues that because these claims are moot, the district court lacked jurisdiction to dismiss them on res judicata grounds. Although the government failed to make this argument to the district court, defects in subject matter jurisdiction may be raised at any time. Niemi v. Lasshofer, 770 F.3d 1331, 1345 (10th Cir. 2014). Accordingly, we review the mootness issue de novo, Schell v. OXY USA Inc., 814 F.3d 1107, 1114 (10th Cir. 2016), and agree the district court lacked jurisdiction, at least in part to the extent the complaint sought to invalidate the sale and recover the property.

To answer whether Mr. Melot’s claims are moot, we ask whether the district court could have granted him any effective relief. See Kan. Judicial Review v. Stout, 562 F.3d 1240, 1246 (10th Cir. 2009) (“When it becomes impossible for a court to grant effective relief, a live controversy ceases to exist, and the case becomes moot.”). In Mr. Melot’s previous appeal, we declined to reach his arguments that would have invalidated the sale, explaining that “‘[a]n appeal is moot if the court of appeals can no longer grant effective relief because the object of the suit has been transferred.’” Melot, 606 F. App’x at 931 (quoting Out of Line Sports, Inc. v. Rollerblade, Inc., 213 F.3d 500, 501 (10th Cir. 2000)). As we indicated, once the property is sold, a court generally cannot reverse the sale, and thus any judicial pronouncement on the parties’ rights will be ineffective in granting relief. See, e.g., Schell, 814 F.3d at 1113-15 (holding that sale of gas wells mooted appeal because defendant’s conduct would not be affected by judgment concerning the leases); Christopher Vill., Ltd. P’ship v. Retsinas, 190 F.3d 310, 314 (5th Cir. 1999) (“Ordinarily, an appeal will be moot when the property underlying the dispute has been sold at a foreclosure sale because this court cannot fashion adequate relief, i.e., cannot reverse the transaction.”); cf. C.O.P. Coal Dev. Co. v. C.W. Mining Co.
(In re C.W. Mining Co.), 641 F.3d 1235, 1239 (10th Cir. 2011) (holding in bankruptcy context that appeal was moot to the extent remedy would affect the validity of the sale).

The property at issue here was sold to Mr. Roberson on July 17, 2014.2 That event rendered moot Mr. Melot’s claims seeking to invalidate the sale and recover the property. We explained this to Mr. Melot in his previous appeal, but he refused to accept that conclusion and instead instituted anew his claims seeking to invalidate the sale, only to have the district court dismiss them on res judicata grounds. But because the claims challenging the sale were moot before Mr. Melot filed his complaint, the district court should have dismissed them for lack of subject matter jurisdiction. We therefore modify the district court’s dismissal accordingly.

B. Sovereign Immunity

The government also contends that, to the extent Mr. Melot’s claims against the United States are not moot, they are barred by sovereign immunity. The damages claim for emotional distress survives the foregoing mootness analysis. Although Mr. Melot also sought unspecified damages “against all defendants,” R. at 13, he does not explain the basis for this claim, though his complaint suggests it is predicated on the sale of his property. Nevertheless, we agree these claims for damages against the government are barred by sovereign immunity.

“The United States and its officers enjoy immunity from suit except in instances where the United States has expressly waived that protection.” Flute v. United States, 808 F.3d 1234, 1239 (10th Cir. 2015). A waiver of sovereign immunity must be “unequivocally expressed,” and “statutory text purporting to waive governmental immunity is strictly construed in favor of the sovereign.” Id. (internal quotation marks omitted). Absent an express waiver of immunity, a court lacks jurisdiction. United States v. Murdock Mach. & Eng’g Co. of Utah, 81 F.3d 922, 930 (10th Cir. 1996).

Mr. Melot asserts the government waived its immunity via three statutory provisions: 28 U.S.C. §§ 1346, 2409, and 2410. Although Mr. Melot offers no specific argument under any of these provisions, our review indicates that none apply. Indeed, none of these provisions waive immunity for Mr. Melot’s emotional distress claim, so his attempt to recover for “mental anguish” is barred.3

As for his unspecified damages claim, it is possible Mr. Melot intended to rely on § 1346(a)(1), which permits “[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.” But this provision is inapplicable because Mr. Melot does not seek a refund of any “internal-revenue tax”; rather, his complaint indicates only that he seeks damages, presumably for the loss of his property. If Mr. Melot intended to rely on § 1346(b)(1), which provides jurisdiction for “claims against the United States, for money damages . . . for injury or loss of property . . . caused by the negligent or wrongful act or omission of any employee of the Government,” sovereign immunity is preserved under 28 U.S.C. § 2680(c), which excludes from the waiver “[a]ny claim arising in respect of the assessment or collection of any tax.” Mr. Melot also may be relying on § 1346(f), which confers jurisdiction to hear “civil actions under [28 U.S.C. § 2409a] to quiet title” where the government asserts an interest in real property. But this provision is inapplicable because the United States no longer has an interest in the property, which was sold well before Mr. Melot instituted this action. Likewise, Mr. Melot held no interest in the property when he initiated this suit. See Kinscherff v. United States, 586 F.2d 159, 160 (10th Cir. 1978) (per curiam) (holding that § 2409a requires plaintiff to have some interest in the title of the property).

Also inapplicable is § 2409, which authorizes suits against the government by a “tenant in common or joint tenant owning an undivided interest in lands” if the government “is one of such tenants in common or joint tenants.” Neither the government nor Mr. Melot were tenants in common or joint tenants when he filed this suit.

Lastly, Mr. Melot invokes § 2410, which permits suits to quiet title to real or personal property when the government holds a mortgage or other lien on the property. This provision is inapplicable because the government did not have a lien or mortgage on the property when the suit was filed. See Dahn v. United States, 127 F.3d 1249, 1251 n.1 (10th Cir. 1997) (“A quiet title claim . . . first made when any liens involved no longer existed[] was barred ab initio.”); Lewis v. Hunt, 492 F.3d 565, 572 (5th Cir. 2007) (“Section 2410 applies only if at the time plaintiff files suit the government had a mortgage or other lien on the property that is the basis of the taxpayer’s quiet title action.” (brackets and internal quotation marks omitted)); Hughes v. United States, 953 F.2d 531, 538 (9th Cir. 1992) (“If the government has sold the property prior to the filing of the suit, and no longer claims any interest in the property, § 2410 does not apply.”). Consequently, Mr. Melot failed to invoke a valid waiver of sovereign immunity and his claims against the government are barred to the extent they are not moot.

C. Res Judicata

Finally, we review de novo the district court’s application of res judicata to Mr. Melot’s claims against Mr. Shaw and Mr. Roberson. See Pelt v. Utah, 539 F.3d 1271, 1280 (10th Cir. 2008) (applying de novo review). The district court concluded that res judicata barred these claims because Mr. Melot was contesting the same liens, seeking to quiet title to the same properties, and challenging the same sale that was involved in Melot I. We agree res judicata applies.

“Under res judicata, or claim preclusion, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in the prior action.” Wilkes v. Wyo. Dep’t of Emp’t Div. of Labor Standards, 314 F.3d 501, 503-04 (10th Cir. 2002) (internal quotation marks omitted). To apply, “three elements must exist: (1) a final judgment on the merits in an earlier action; (2) identity of parties or privies in the two suits; and (3) identity of the cause of action in both suits.” Id. at 504 (brackets and internal quotation marks omitted).4

All three elements are present here. First, there was a final judgment entered on the merits of Melot I. The district court in that case entered orders reducing the Melots’ tax assessments to judgment, authorizing the foreclosure of the government’s tax liens on their property, appointing Mr. Shaw as receiver, and twice confirming the sale to Mr. Roberson. The Melots twice appealed those orders to this court, and we twice affirmed.

The second element also is satisfied. Mr. Melot and the government were opposing parties in Melot I. Although Mr. Shaw and Mr. Roberson were not parties to that suit, they are in privity with the government for purposes of applying res judicata in this suit. Privity may be established by “a substantial identity between the issues in controversy and showing the parties in the two actions are really and substantially in interest the same.” Pelt, 539 F.3d at 1281. The issue in controversy is the same—the propriety of the sale. Also, the government had a shared interest with Mr. Shaw because as receiver, Mr. Shaw coordinated the sale for the government’s benefit. Indeed, Mr. Shaw represented the government’s legal rights by preserving the property value and coordinating the sale to effectuate the foreclosure. See St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d 1169, 1175 (10th Cir. 1979) (“Privity has been found in cases involving a person so identified in interest with another that he represents the same legal right.”). So, too, was Mr. Roberson in privity with the government as the successive owner of the property to which the government’s liens had attached and been reduced to judgment. See id. (“[P]rivity denotes . . . successive relationship to the same right of property, so that a privy is one who, after the commencement of the action, has acquired an interest in the [property] affected by the judgment through or under one of the parties, as by inheritance, succession, purchase, or assignment.” (internal quotation marks omitted)).

The third element of res judicata—identity of causes of action—exists as well. To ascertain a single cause of action, this court employs a transactional approach in which “a final judgment extinguishes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out
of which the action arose.” Lowell Staats Mining Co. v. Phila. Elec. Co., 878 F.2d 1271, 1274 (10th Cir. 1989). We evaluate a “transaction” or “series of connected transactions” “pragmatically[,] considering whether the facts are related in time, space, origin, or motivation, and whether they form a convenient trial unit.” Id. “Under [the transactional] approach, a cause of action includes all claims or legal theories of recovery that arise from the same transaction, event, or occurrence.” Nwosun v. Gen. Mills Rests., Inc., 124 F.3d 1255, 1257 (10th Cir. 1997). Applying this approach, Mr. Melot’s claims for damages or other remedies against Mr. Shaw and Mr. Roberson are foreclosed because they are all tied to a solitary transaction: the sale of the property. Mr. Melot disputes this conclusion, insisting there has been no adjudication of what he alleges were the conspiratorial and deceptive practices of Mr. Shaw and Mr. Roberson to deprive him of the property. But the propriety of the sale was litigated in Melot I, and Mr. Melot
could have challenged Mr. Shaw and Mr. Roberson’s conduct in that proceeding, just as he challenged Mr. Shaw’s qualifications, see Melot, 562 F. App’x at 654. In fact, he did allege irregularities in Mr. Shaw’s conduct in coordinating the sale, including claiming that Mr. Shaw failed to properly advertise the property and pursue attractive offers. See Melot, 606 F. App’x at 932. We rejected those claims as “unsupported and speculative,” id., and res judicata bars Mr. Melot from relitigating those or similar claims now.5

III

The judgment of the district court is affirmed, although Mr. Melot’s claims seeking to invalidate the sale should have been dismissed for lack of jurisdiction based on mootness, rather than on res judicata grounds. To the extent Mr. Melot’s claims against the government were not moot, they should have been dismissed as barred by sovereign immunity. So modified, the district court’s judgment is otherwise affirmed.

Mr. Melot’s motion to proceed without prepayment of costs and fees is denied because he fails to show “the existence of a reasoned, nonfrivolous argument on the law and facts in support of the issues [he] raised on appeal.” DeBardeleben v. Quinlan, 937 F.2d 502, 505 (10th Cir. 1991). Mr. Melot is directed to remit the entire filing and docketing fee to the Clerk of the District Court.

Entered for the Court
Mary Beck Briscoe
Circuit Judge

--FOOTNOTES--

* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist in the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

1 We afford Mr. Melot’s pro se pleadings a liberal construction but do not act as his lawyer. See United States v. Pinson, 584 F.3d 972, 975 (10th Cir. 2009).

2 Our previous decision indicated the property was sold on July 21, 2014, but the Receiver’s Deed is dated July 17, 2014. R. at 30. The disparity in these dates is immaterial to our decision.

3 Any argument that Mr. Melot might have brought his emotional distress claim under § 1346(b)(1), the Federal Tort Claims Act, is meritless because that provision waives immunity for certain personal injury claims against the government, except “[a]ny claim arising in respect of the assessment or collection of any tax,” id., § 2680(c).

4 We have at times articulated a fourth element—a full and fair opportunity to litigate the matter in the earlier proceeding—although we recognize an exception to res judicata when the party against whom the prior judgment is asserted lacked a full and fair opportunity to litigate the matter in the prior suit. See Yapp v. Excel Corp., 186 F.3d 1222, 1227 n.4 (10th Cir. 1999). These different elemental articulations have no impact on our disposition because Mr. Melot does not contend he was denied a full and fair opportunity to litigate his claims in Melot I, and we perceive nothing in the record to suggest otherwise. See Sil-Flo, Inc. v. SFHC, Inc., 917 F.2d 1507, 1521 (10th Cir. 1990) (explaining that the inquiry focuses “on whether there were significant procedural limitations in the prior proceeding, whether the party had the incentive to litigate fully the issue, or whether effective litigation was limited by the nature or relationship of the parties”).

5 In an unrelated argument, Mr. Melot contends the district court erred in dismissing the action prior to service upon all defendants, namely Mr. Shaw. Mr. Melot cites no authority for this contention, and where the district court had the government’s motion to dismiss, and the claims against Mr. Shaw were clearly foreclosed, we see little benefit to requiring the district court to wait for Mr. Melot to complete service.

Quatloos!

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