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    UNITED STATES of America, Plaintiff, v. William THOMASSEN, Joan Thomassen, Elmer Thomassen, Leo W. Thomassen, O’Neill Production Credit Association, Harold S. Fried and Ruth Fried, Defendants.
    Civ. No. 78-0-241.
    United States District Court, D. Nebraska.
    Jan. 16, 1985.

      David Moynihan, Daniel, Ross, U.S. Dept, of Justice, Washington, D.C., for plaintiff.
    Jeanene Moenckmeier, St. Louis, Mo., for defendants Elmer, Joan and William Thomassen.
    James T. Gleason, Omaha, Neb., for defendant Leo Thomassen.
    Richard J. Spethman, Omaha, Neb., for defendants Harold and Ruth Pried.
   RICHARD E. ROBINSON, Senior District Judge.

I. INTRODUCTION

The United States of America brings this action under 26 U.S.C. Sections 7401-7403, 28 U.S.C. Sections 1340 and 1345 to reduce certain tax liabilities to judgment, to set aside an allegedly fraudulent conveyance of real property, and to foreclose federal tax liens against such property. Jurisdiction of this Court is proper pursuant to 28 U.S.C. Section 1396 and the above-mentioned provisions. This Memorandum constitutes the Court’s findings of facts and conclusions of law in accordance with Fed. R.Civ.P. 52(a).

This case was tried to the Court on August 2 and 3, 1984. The parties were given 45 days at the close of the trial to submit post-trial briefs and all briefs have been received. Plaintiff United States of America (Government) presented the testimony of defendants William Thomassen, Leo Thomassen, and Ruth Fried. Defendant William Thomassen presented the testimony of co-defendants Joan Thomassen, Elmer Thomassen, and Joseph G. Krane, a California public accountant.

II. FACTS

An understanding of who the parties to this action are and their relationship to each other is necessary to follow the events from which this case evolved. The related defendants in this action are William Thomassen, Elmer and Joan Thomassen, and Leo and Tommie Thomassen. Elmer and Joan Thomassen are husband and wife, and William is their son. Elmer and Leo Thomassen are brothers. Harold and Ruth Pried (husband and wife) are holders of a valid purchase money mortgage on the real estate in question and are not related to the other defendants. Leo Thomassen and O’Neill Production Credit Association (O’Neill P.C.A.) are defendants in this action due to Leo’s ownership of an undivided one-half interest in the real estate in question and O’Neill P.C.A.’s first mortgage on Leo’s interest in the real estate.

On December 7, 1968, Leo Thomassen and his late wife, Tommie, and Elmer and Joan Thomassen jointly purchased undivided one-half interests in a parcel of land from Harold and Ruth Fried. The undivided one-half interests that both parties received in the real estate, which is the subject of this suit, are described as follows:

An undivided one-half (V2) interest in: The Southwest Quarter of the Southwest Quarter (SWV4 SWV4) of Section Twelve (12), The West Half (WV2), and the West Half of the Southeast Quarter (WV2 SEV4) and the Southeast Quarter of the Southeast Quarter (SEVi SEVi) of Section Thirteen (13), and the North Half of the Northeast Quarter (NV2 NEV4), and the Southeast Quarter of the Northeast Quarter (SEV4 NE1/:), and the Northeast Quarter of the Northwest Quarter (NEV4 NWV4), and the Southeast Quarter (SE1/!) of Section Twenty-four (24) and the Northeast Quarter (NEV4) of Section Twenty-five (25), Township Thirty-three (33), Range Fourteen (14), and Lots Three (3) and Four (4) in Section Nineteen (19), and the West Half of the Northwest Quarter (WV2 of NWV4) of Section Thirty (30), Township Thirty-three (33), Range Thirteen (13), Holt County, Nebraska, [hereinafter the Holt County property].

Subsequently, on December 8, 1968, Leo and Elmer executed a document entitled “AGREEMENT” which provided that if one party failed to pay his share of the mortgage or one-half of the taxes for two years, the other party had the right to make those payments and the delinquent/non-paying party would lose all interest in the property. Defendants’ Exhibit 104; Tll:9-20. Whether this document is a valid binding agreement between the parties has not been raised as an issue in this case and, therefore, will not be considered by the Court. Actions by at least one of the parties apparently were based on the assumption that the agreement was valid and binding, however, the Court does not comment on its validity, but merely notes its existence for future reference.

Harold and Ruth Fried hold a valid purchase money mortgage on the Holt County property, dated December 7, 1968. This mortgage is prior and superior to any lien the Government may have on this property through William, Elmer, and/or Joan Thomassen. (Pretrial Order, Filing # 85, par. 9). At the request of the Court, following the close of the trial, the Frieds’ counsel submitted to the Court by letter dated August 23, 1984, the balance due on the mortgage held by Mr. and Mrs. Fried. The Frieds indicated that to the best of their knowledge and estimate, the balance due on the Holt County property mortgage, as of August 15, 1984, was $79,563.76 with interest, and $47,900.00 without interest. All parties agreed to the submission of the mortgage balance in this manner. T141:2142:15.

Elmer and Joan Thomassen incurred substantial tax liabilities for income taxes due during the years 1964 through 1971. On June 2, 1975, the United States Tax Court found that the total amount of the deficiencies against Elmer and Joan for the years 1964-1971 amounted to $317,087.72, not including interest. (Pretrial Order, Filing No. 85, p. 5). Assessments of income tax, penalties, and interest for the years 1964-1971 were made by a delegate of the Secretary of the Treasury and the Internal Revenue Service pursuant to the Tax Court’s determination against Elmer and Joan Thomassen, and notices were timely sent to the parties on October 13 and 17, 1975.

The Thomassens failed to satisfy their assessed tax liability and approximately two years later, on October 18, 1977, notices of federal tax liens were filed in the official records of Holt County, Nebraska, against Elmer and Joan Thomassen in the amount of $322,041.35. Plaintiffs Exhibit 4 and 5. However, on April 5,1972, Elmer and Joan Thomassen conveyed their interest in the Holt County property by warranty deed to their son, William, for the stated consideration of “one dollar and love and affection.” The Government subsequently recorded a notice of federal tax lien in the amount of $322,041.35 on the official records of Holt County, Nebraska, against William' Thomassen as agent, manager, and trustee of Elmer and Joan Thomassen with respect to their right, title, and interest in the Holt County property, (the legal description of which was previously set forth). The notices of lien described above were filed and indexed in conformity with 26 U.S.C. Section 6323.

The Government alleges that the conveyance from Elmer and Joan Thomassen of their undivided one-half interest in the Holt County property to their son, William Thomassen, on April 5, 1972, was fraudulent, and seeks to set aside that conveyance and foreclose the federal tax lien on the Holt County property in order to satisfy the default judgment rendered against defendants Elmer and Joan Thomassen by the Tax Court. The defendant William Thomassen argues that his parents did not intend to defraud the United States or any other creditors in transferring the Holt County property to him. Rather, the defendant asserts that his parents were merely giving him a gift, which he claims is legal if they were solvent at the time of the conveyance. (Defendant’s Post-Trial Brief at 7).

During the years which the Thomassens incurred the tax liabilities previously mentioned three patients initiated lawsuits against Elmer Thomassen for medical malpractice. (Plaintiff’s Exhibits 12, 13, 14). One of these suits resulted in a $50,000 verdict against Elmer Thomassen, on March 16, 1973. (Plaintiff’s Exhibit 8). Additionally, on July 9, 1979, the United States Court for the Central District of California found Elmer and Joan Thomas-sen jointly and severally liable to the United States for past due taxes, interest, and penalties in the amount of $428,197.03, plus interest and penalties. (Plaintiff’s Exhibit 16). That court also set aside various conveyances of real property by Elmer and Joan to their close relatives. These fraudulent transactions involved conveyances of real property by Elmer and Joan to Rose Horn (Joan’s mother), George Thomassen (Elmer’s brother), and William Thomassen. Each of the grantees were found to have no interest in the properties conveyed to them from Elmer and Joan and the California court ordered the sale of the property involved. The conveyances all took place between January 9, 1972 and January, 1973. It was during this period, when Elmer and Joan conveyed all of their real property located in California to their close relatives, that they also transferred the Holt County property to their son William.

The Government asserts that all of the conveyances by Elmer and Joan Thomassen rendered them insolvent and were made with the intent to delay, hinder, and defraud the United States of America, which was already their creditor. (Plaintiff’s Post-Trial Brief at 5-6).

The issues to be determined are:

1. Whether the conveyance by Elmer and Joan Thomassen of their undivided one-half interest in the Holt County property to their son, William Thomassen, was fraudulent and therefore void as to the United States, and
2. If the conveyance described above is found to be fraudulent, is the Government entitled to sell the entire property, including Leo Thomassen’s undivided one-half interest, to satisfy its tax lien?

III. CONCLUSIONS OF LAW

A. Fraudulent Conveyance.

1. Applicable Law:

As a threshold matter, it must be determined what law this Court must apply in resolving the issue of whether the conveyance from Elmer and Joan Thomassen to William Thomassen was fraudulent. “[U]ntil Congress speaks to the contrary, the existence and extent of liability [in such cases] should be determined by state law.” Commissioner v. Stem, 357 U.S. 39, 45, 78 S.Ct. 1047, 1051, 2 L.Ed.2d 1126 (1958) (when a fraudulent transfer is alleged, the liability of an innocent transferee to the Government is determined by state law). Consequently, the determination of whether the conveyance in question was fraudulent is governed by Nebraska Law. See United States v. Fernon, 640 F.2d 609, 611 (5th Cir.1981).

2. Requirements for Fraudulent Conveyance.

The statute governing fraudulent conveyances in Nebraska states:

Every conveyance or assignment, in writing or otherwise, of any estate or interest in lands, or in goods or things in action, or of any rents or profits issuing therefrom, and every charge upon lands, goods or things in action, or upon the rents and profits thereof, made with the intent to hinder, delay or defraud creditors or persons, of their lawful rights, damages, forfeitures, debts or demands, and every bond or other evidence of debt given, suit commenced, or decree or judgment suffered, with the like intent as against the persons so hindered, delayed or defrauded, shall be void.

Neb.Rev.Stat. Section 36-401 (Reissue 1978) (since repealed and replaced by the Uniform Fraudulent Conveyance Act. Neb.Rev.Stat. Section 36-601 et seq. (cum. supp.1982)).

To establish a prima facie case for a fraudulent conveyance, the party challenging the transaction has “the burden of showing the conveyance was one between close relatives and that the consideration appeared to be inadequate.” West Gate Bank of Lincoln v. Eberhardt, 202 Neb. 762, 277 N.W.2d 104,106 (1979). After this is achieved, “the burden of proof then shift[s] to the defendants to establish the good faith of the transaction.” Id., 277 N.W.2d at 106.

Defendant William Thomassen asserts in his post-trial brief, page 15, that the Government must prove actual fraud, i.e. that the Thomassens knew there was a deficiency, in order to have the conveyance set aside under Neb.Rev.Stat. Sections 36-401 et seq. A reading of Jansen v. Lewis, 52 Neb. 556, 72 N.W. 861 (1897), cited by the defendant for this proposition, reveals that this is not the correct burden. The distinction between Jansen and the case at bar is clear. Jansen involved a subsequent creditor and the instant case involves an existing creditor (the United States).

“A different standard is applied to creditors where debts are in existence at the time of conveyance, as opposed to subsequent creditors. A creditor whose debts did not exist at the date of a voluntary conveyance by the debtor cannot attack such conveyance for fraud unless he pleads and proves that the same was made to defraud subsequent creditors whose debts were in contemplation at the time.”

First National Bank of Kearney v. Bunn, 195 Neb. 829, 241 N.W.2d 127, 129 (1976). See also Big Horn Collieries Co. v. Roland, 116 Neb. 846, 219 N.W. 233 (1928).

The United States was clearly an existing creditor at the time the transaction in question took place. Under 26 U.S.C. Section 6151(a), taxes become due and owing to the United States as of the date prescribed by law for the filing of the return. Section 6151(a) states:

“... when a return of tax is required under this title or regulation, the person required to make such return shall, without assessment or notice and demand from the secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return____”

A defendant who refuses to sign 1040 and W-4 forms is not immune from the duties imposed by the tax laws. United States v. Drefke, 707 F.2d 978 (8th Cir.1983). “[B]y the terms of the Internal Revenue Code [26 U.S.C. Section 6151 (1954) ] income tax liability matures on the day the return is required to be filed, and the correct amount of tax liability becomes due at that time, regardless of when the deficiency assessment may be made [citations omitted, emphasis in original].” Hartman v. Lauchli, 238 F.2d 881, 887 (8th Cir.1956) (reh’g denied), cert. denied, 353 U.S. 965, 77 S.Ct. 1048, 1 L.Ed.2d 915 (1957) (holding that the Government’s tax claims became liabilities of the debtor in bankruptcy and constituted provable debts as they matured). See also United States v. Plastic Electro-Finishing Corp., 313 F.Supp. 330, 333 n. 4 (E.D.N.Y.1970) (unassessed tax obligation is sufficiently a debt so as to entitle the Government to move to set aside a fraudulent transfer made by the debtor).

a) Conveyance between close relatives:

It is uncontroverted that Elmer and Joan Thomassen, husband and wife, conveyed their interest in the Holt County property to their son William Thomassen, by warranty deed dated April 5, 1972. (Filing No. 85, Pretrial Order par. 8). This conveyance is clearly between “close relatives,” therefore, under West Gate Bank, this Court must address the issue of the adequacy of consideration.

b) Adequacy of Consideration:

“Inadequacy of consideration is a badge of fraud.” First National Bank of Omaha v. First Cadco Corp., 189 Neb. 553, 203 N.W.2d 770, 778 (1973), appeal after remand, 191 Neb. 678, 217 N.W.2d 93 (1974); Farmers State Bank of Ewing v. Dierks, 137 Neb. 442, 452, 289 N.W. 860, 866 (1940) (inadequacy of consideration a badge of fraud and a circumstance tending to show knowledge of fraud and participation in it). See also United States National Bank of Omaha v. Rupe, 207 Neb. 131, 296 N.W.2d 474, 476 (1980). (conveyance without or for inadequate consideration, made with the intent to delay or defraud creditors, is fraudulent.).

The defendant William Thomassen purportedly paid “one dollar and love and affection” to his parents, Elmer and Joan, for the title to the Holt County property. William’s testimony at trial revealed that he did not remember whether he had ever paid his parents the $1.00 consideration. T49:20-50:l. The record shows that William did not know when the transfer of property took place, although he was approximately 18 years old at the time, and also that William was unsure when he first saw the warranty deed conveying the Holt County property from his parents to him. T40:9-41:18.

William admitted making one payment on the land, however, this payment came at a time when he was forced to leave college in 1976 due to financial difficulties. T41:19-42:10, 48:1-7. His memory of making this payment was refreshed by the testimony of Ruth Fried and conflicted with William’s deposition taken in March, 1984, wherein he testified that he never made any payments on the property. Rental payments were being made on the land, of which William had knowledge, but he never sought to obtain any of these rental payments. T42:23-43:5. Furthermore, William could not remember the amount of the mortgage payment he purportedly made, whether he had a bank account, where it was located, his balance, or whether or not the check bounced. T44:845:23. Such a payment cannot even arguably be considered adequate consideration.

“Love and affection has been held to be inadequate consideration under state fraudulent conveyance laws.” Walker v. Treadwell (In re Treadwell), 699 F.2d 1050, 1051 (11th Cir.1983), citing United States v. West, 299 F.Supp. 661, 666 (D.Del.1969)' (deed recited consideration of “one dollar ... and other valuable and lawful considerations” and defendants argued “natural love and affection” is good consideration, but court held it was not fair consideration); Roddam v. Martin, 285 Ala. 619, 622, 235 So.2d 654, 656 (1970). See also Flatau v. Atef (In re Gaites), 466 F.Supp. 248, 254 (M.D.Ga.1979) (when recited consideration is love and affection, there is generally a gift). Finally, where there was no consideration other than love and affection in a transfer between relatives, there is no fair consideration. Jahner v. Jacob, 252 N.W.2d 1, 6 (N.D.1977) (under North Dakota Fraudulent Conveyance Act).

The Court therefore finds that the Government has met its burden of showing that the conveyance from Elmer and Joan Thomassen to William Thomassen was between close relatives and was without adequate consideration. West Gate Bank, 202 Neb. 762, 277 N.W.2d 106, interpreted First National Bank of Omaha v. First Cadco Corp., 189 Neb. 553, 203 N.W.2d 770, “to hold that inadequacy of consideration suggests an intent to defraud and shifts the burden to the defendants.” Thus, the burden shifts to the defendant William Thomassen to establish the good faith of this transaction.

c) Presumption of Fraud:

“It is well settled law that a deed by a father to his son is presumptively fraudulent as to an existing creditor, and that in litigation between him and the parties to the conveyance over its alleged invalidity the burden is on them to establish the good faith of the transaction by a preponderance of the evidence.” Lincoln Trust Co. v. Sweeney, 124 Neb. 686, 248 N.W. 67, 68 (1933); Christensen v. Smith, 123 Neb. 388, 243 N.W. 118 (1932); see also Farmers State Bank of Ewing v. Dierks, 137 Neb. 442, 289 N.W. at 864. This presumption is equally applicable to a conveyance of real estate between close relatives.

The presumption that a conveyance of real property in Nebraska is fraudulent is not evidence. First National Bank in Kearney v. Bunn, 195 Neb. 829, 241 N.W.2d 128.

“It may take the place of evidence unless and until evidence appears to overcome or reb ut it, and when evidence sufficient in quality appears to rebut it the presumption disappears and the party having the burden of proof on the issue must, in civil actions, sustain his position by a preponderance of the evidence.”

Id., 241 N.W.2d at 128.

The defendant William Thomassen has offered no evidence to rebut this presumption. Thus, it remains not as evidence, but as an additional badge of fraud to be considered in determining the validity of this conveyance. The intent of the parties to the transaction must also be scrutinized in light of the fraudulent presumption.

d) Intent:

“A conveyance is declared to be fraudulent when its object or effect is to defraud another, or the intent with which it is made is to avoid some duty or debt due by or incumbent upon the party making the transfer.” Farmers State Bank, 137 Neb. 442, 289 N.W. at 866. A specific intent need not be proved, rather “[t]he intent may be gathered by the acts of the parties, and a conveyance is fraudulent when it is shown that it was made for the purpose of placing property beyond the reach of creditors, or that it would hinder or delay them in collecting their just demands.” Id., 289 N.W. at 866, quoting Becker v. Linton, 80 Neb. 655, 666, 114 N.W. 928, 932 (1908). “Fraudulent intent may be established by proof of facts from which such inference may be reasonably drawn.” Id., 289 N.W. at 866; Riggs v. Hroch, 133 Neb. 260, 274 N.W. 598, 600 (1937), citing Peterson v. Wahlquist, 125 Neb. 247, 249 N.W. 678 (1933) Additionally, a transfer where a grantor reserves himself a benefit to the detriment of his creditors may constitute evidence of fraud. First National Bank v. First Cadco Corp., 189 Neb. 553, 203 N.W.2d at 779.

In the present case, the actions of the parties involved lead this Court to the conclusion that the conveyance from Elmer and Joan to William was undertaken with fraudulent intent.

As pointed out earlier in this Memorandum, the testimony of William was fraught with inconsistencies and uncertainties concerning the events surrounding the conveyance. T49:16-23. William’s testimony reflects inadequate consideration; his financial inability to make any payments on the mortgage (save one the amount of which he could not remember), and his involvement in or receipt of other pieces of property from his parents. These other conveyances were later declared null and void by the United States District Court for the Central District of California. (Plaintff’s Exhibit 16).

William testified that the land was “a gift to further [his] education” and give him a start in life. T50:18-21. He had no plans for the property and hardly, if ever, visited or used the land to help improve his financial position. Elmer and Joan Thomassen also retained some benefits or interest in the Holt County property after the purported conveyance to William. The testimony of Ruth Fried indicates that the Frieds received payments from Elmer and Leo until approximately 1975, at which time Elmer stopped making his share of the payments. T31:l-20. The transfer to William occurred in April, 1972, however, Elmer continued to pay the mortgage payments on William’s interest for several years after the transfer. T72:4-14. Elmer testified that although he expected William to work his way through school, he did not expect William to make the $2000 mortgage payments on the Holt County property all the time. T93:14-19.

In determining the validity of an allegedly fraudulent conveyance, “[t]he ability of the grantee to pay the encumbrance is also a fact to be considered.” First National Bank of Omaha v. First Cadco Corp., at 558, 203 N.W.2d 779. Elmer and Joan’s retention of the enjoyment, possession, and control of the Holt County property after the purported conveyance, in addition to their continued payment of the mortgage in William’s behalf, pin yet another badge of fraud on this transaction. See United States v. Bertie, 529 F.2d 506, 508 (9th Cir.1976).

Elmer Thomassen’s motives for conveying away his' real property also show “fraudulent intent.” Elmer testified that during 1972 and 1973 he conveyed all of his real property to close relatives. T96:16-18. Several conveyances were made to William, involving property in Riverside County, California and Orange, California, all of which were subsequently set aside. Several malpractice suits were pending against Elmer during 1970 and 1972, a judgment was rendered against him in March 19, 1973, for $50,000 (Plaintiff’s Exhibits 8, 12, 13, 14), and Elmer and Joan incurred substantial tax liabilities during the years 1964-1971. This evidence leads this Court to conclude that their motivation behind the conveyance to William of the Holt County property was to hinder, delay or defraud their existing creditors, particularly the United States. To the extent the conveyance appears to have been motivated by Elmer’s tax liabilities and pending litigation with the Internal Revenue Service, such a transfer indicates fraudulent intent. See United States v. Bertie, 529 F.2d 508 (pendency of litigation by Internal Revenue Serviee a badge of fraud).

From the above analysis, this Court finds and concludes that the conveyance of Elmer and Joan Thomassen’s interest in the Holt County property to William Thomas-sen was made with fraudulent intent as to the United States.

e) Insolvency:

The last badge of fraud under which this conveyance must be analyzed, to determine whether it was fraudulent and whether the defendant has rebutted the fraudulent presumption, is the solvency of Elmer and Joan Thomassen. Defendant asserts that it was not Elmer and Joan’s intent to defraud the United States or other creditors when they conveyed the Holt County property to William and that parents can give a gift to their son if they are solvent when the gift is made. (Defendant’s Post Trial Brief, page 7). Additionally, defendant argues that the conveyance was not fraudulent because at the time of the transfer, Joan and Elmer were solvent. (Defendant’s Post-Trial Brief, page 9).

In Lincoln Trust Co. v. Sweeney, 124 Neb. 686, 248 N.W. 67, creditors sought to cancel a deed from parents to their son which was executed for the nominal consideration of one dollar. Defendants argued, inter alia, that the deed was executed, delivered, and registered in good faith when the father was solvent, and that plaintiff had a lien on other land of the grantors, which afforded ample security for the payment of the judgment. Id. The father owned several tracts of farmland, encumbered with mortgages. Plaintiff became owner of a note and mortgage via an assignment, after which the father defaulted. The father subsequently conveyed property to his son and almost nine months later, plaintiff recovered a judgment against the father. Plaintiff was unable to execute on the judgment because the father had turned over all personal property and unencumbered real estate to his son.

From the evidence, the court in Sweeney concluded that the father intended to delay the creditor from collecting its debt which had been reduced to judgment. The court stated that “[a]s to an existing creditor, a conveyance with such an intent is declared by statute to be void.” Id., 248 N.W. at 68, citing Neb.Rev.Stat. Section 36-401 (1929). The conveyance from the father to the son was found to be fraudulent as to the existing creditors, and the fact that the debtor retained property in his own name, sufficient to satisfy the judgment, does not defeat the creditor’s action. Id., at 248 N.W. at 68. See Shreck v. Hanlon, 66 Neb. 451, 92 N.W. 625 (1902) (in an action to set aside a fraudulent conveyance, it is not always a defense that grantor had property remaining after the conveyance was made which would satisfy creditors).

The defendant in his post-trial brief, goes through an analysis of Elmer and Joan Thomassen’s assets and liabilities in an attempt to show their solvency on the date the Holt County property was conveyed to William. The figures and valuations proffered by the defendant through the testimony of Elmer Thomassen and Joseph G. Krane (Elmer’s accountant) carry little weight or probative value on the issue of Elmer and Joan’s solvency. It has been noted that “where testimony relied on to show good faith of an allegedly fraudulent conveyance is given by interested parties, [or relatives only], the reasonableness or unreasonableness of their evidence bears considerable weight in arriving at a just conclusion.” Filley v. Mancuso, 146 Neb. 493, 20 N.W.2d 318, 321 (1945); Farmers State Bank of Ewing v. Dierks, 137 Neb. 442, 289 N.W. 860, 865; VanSteenberg v. Nelson, 147 Neb. 88, 22 N.W.2d 414, 417 (1946); Bank of Brule v. Harper, 141 Neb. 616, 4 N.W.2d 609 (1942).

The testimony of Elmer, Joan, and William must be taken in light of the above proposition. Defendant William Thomas-sen attempts to point out that Elmer and Joan retained substantial property after the Holt County property was conveyed to him on April 5, 1972. In support of this argument, William presented and relies on the testimony of an accountant from California, Joseph G. Krane. Mr. Krane testified at trial as to Elmer and Joan Thomas-sen’s assets and liabilities, including the value of property purportedly owned by the Thomassens. The figures and information testified to by Mr. Krane and submitted by the defendant in his brief at pages 11-14 were compiled by Mr. Krane approximately 10 days before the trial of this action. T138:18-139:17. Many of the figures were arrived at with Elmer Thomassen’s help or based on his word and were not independently verified. T117:14-119:21. These figures were summarized by Mr. Krane and received into evidence as defendant’s Exhibit No. 118, however, the Court pointed out at trial its reluctance to give Mr. Krane’s figures, compiled in Exhibit 118, any probative value. T121:19-122:5. Considering the fact that the summary was hurriedly prepared for trial, its unverified figures, and its obvious reliance on information furnished by Elmer Thomassen, the figures contained in defendant’s Exhibit 118 and in defendant’s brief at 11-14 carry little, if any, probative value.

Defendant arrived at a figure of $20,-512.28 which purportedly represents the excess of assets over liabilities at the time of the conveyance. (Defendant’s Post Trial Brief at 13). The Court notes that the figures attempting to show Elmer and Joan Thomassen’s solvency are incorrect.

A close analysis of the property included by the defendant in the asset portion of the financial summary reveals that one piece of property — described as property in Riverside County (29 acres in Elsinore) — was not owned by Elmer and Joan at the time they conveyed the Holt County property to William. (Defendant’s post-trial brief at 11; plaintiff’s Exhibit 16, at 2-3). The Riverside County property was conveyed by Elmer and Joan to William Thomassen on January 15,1972. T94:3 — 10; plaintiff’s Exhibit 16 at 3. This piece of property was apparently included as an asset of Elmer Thomassen in computing his asset and liabilities statement. See Defendant’s Post-Trial Brief, at 11. The Holt County property was conveyed to William on April 5, 1972, therefore, the inclusion of the Riverside County property improperly inflates Elmer and Joan’s assets. Using the defendant’s own estimates of the value of this property, $29,000 (T129:19-25), and deducting that amount from the total assets set forth in defendant’s Post-Trial Brief at 13, Elmer and Joan Thomassen clearly had greater liabilities than assets on the date they transferred the Holt County property to William.

The Court concludes that Elmer and Joan Thomassen were left with insufficient assets to meet their existing and anticipated obligations, including but not limited to their unpaid federal income tax liabilities, as a result of the conveyance in question.

5. Conclusion:

In sum, the Court finds that:

a) the conveyance of the Holt County property from Elmer and Joan Thomassen to William Thomassen was made without fair or adequate consideration.
b) the United States of America was an existing creditor of Elmer and Joan Thomassen at the time of the conveyance in question.
c) the conveyance in question was made by Elmer and Joan Thomassen with a fraudulent intent to hinder, delay, and defraud the United States.
d) Elmer and Joan Thomassen were left with insufficient assets to meet their existing and anticipated obligations and thus were insolvent at the time of the purported conveyance of the Holt County property to William or rendered insolvent thereby.
e) the conveyance of the Holt County property to William Thomassen from Elmer and Joan Thomassen was fraudulent as to the United States.
f) Elmer and Joan Thomassen are indebted to the United States in the amount of the assessments described in footnote 2 and in the Pretrial Order, Filing No. 85), together with accrued interest and penalties. The tax lien of the United States encumbers their interest in the Holt County property, described herein. The tax lien is superior to any interest of William Thomassen in said property.
g) the interest of Harold and Ruth Fried, as evidenced by the mortgage they hold on the Holt County property, is prior and superior to the United States of America’s lien on said property to the extent of the unpaid balance on the mortgage.
h) the conveyance from Elmer and Joan Thomassen to William Thomassen of real property, described herein as the Holt County property, on April 5, 1972, is void and therefore set aside.

B. Foreclosure on the property.

The final issue that this Court must address is whether the Government is entitled to foreclose on the entire Holt County property, including Leo Thomas-sen’s undivided one-half interest, or whether the Government can only foreclose on the one-half interest owned by Elmer and Joan Thomassen.

Leo and the Government rely exclusively on United States v. Rodgers, 461 U.S. 677, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983) for support of their respective positions and submit that it is controlling on this issue. The Court agrees that Rodgers controls the outcome of this issue, but it is by no means on all fours with the case at bar.

The statute which Rodgers addressed and under which this action has proceeded states in pertinent part:

“The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States.”

26 U.S.C.A. Section 7403 (West.Supp.1967). In Rodgers, the Supreme Court addressed the issue of whether Section 7403 authorizes the judicial sale of a “home in which a delinquent taxpayer had an interest at the time he incurred his indebtedness, but in which the taxpayer’s spouse, who [did] not owe any of that indebtedness, also [had] a separate ‘homestead’ right” under Texas law. Id. at 680, 103 S.Ct. 2136. The court held “that the statute does grant power to order the sale, but that its exercise is limited to some degree by equitable discretion.” Id., 103 S.Ct. at 2142. '

The court read Section 7403 “to contemplate, not merely the sale of the delinquent taxpayer’s own interest, but the sale of the entire property (as long as the United States has any ‘claim or interest’ in it), and the recognition of third-party interests through the mechanism of judicial valuation and distribution.” Id. at 694,103 S.Ct. 2143. However, the court also concluded that “Section 7403 does not require a district court to authorize a forced sale under absolutely all circumstances, and that some limited room is left in the statute for the exercise of reasoned discretion.” Id. at 706, 103 S.Ct. 2149.

The presence of some judicial discretion is grounded in the fact that a proceeding under Section 7403 is an equitable proceeding and, as such, any exercise of that discretion “can take into account both the Government’s interest in prompt and certain collection of delinquent taxes and the possibility that innocent third parties will be unduly harmed by that effort.” Id. at 708-709, 103 S.Ct. 2150, 2151.

In an attempt to emphasize the limited nature of the discretion which the district courts have, the Court enumerated four considerations which it deemed important in deciding whether to go ahead with a forced sale. Briefly summarized, these considerations which this Court should consider are as follows:

1) “the extent to which the Government’s financial interests would be prejudiced if it were relegated to a forced sale of the partial interest actually liable for the delinquent taxes.” Id. at 710, 103 S.Ct. 2151;
2) whether an innocent/non-delinquent third-party has a legitimate or legal expectation that his separate interest would not be subject to a forced sale by the delinquent taxpayer or his creditors. Id., 103 S.Ct. 2151;
3) the prejudice to the third-party in personal dislocation costs and undercompensation. Id., 103 S.Ct. 2152;
4) “the relative character and value of the non-liable and liable interests held in the property.” Id., 103 S.Ct. 2152.

Before analyzing the first consideration, several pertinent figures need to be set out. The total purchase price for the approximately 1120 acres comprising the Holt County property was $78,000. This was divided between Leo and his wife, and Elmer and Joan Thomassen. The down payment was $8,000 of which Leo and Elmer each paid $4,000. The mortgage balance owed to the Frieds, who have first priority pursuant to the previously mentioned stipulation, is $47,900, without interest, as of August 15, 1984. Testimony at trial indicated that neighboring land had sold for $77 per acre, and defendant Leo Thomas-sen indicated in his brief, p. 7, that the Holt County property is worth between $75 and $100 per acre.

The Court first considers whether the Government will be financially prejudiced by sale of only Elmer’s one-half interest in the property. For purposes of illustration, the Court will look at how much the Government stands to gain if all or half the property is sold for the highest and the lowest values mentioned.

SALE OF THE WHOLE PROPERTY Assuming sale brings $75 per acre: 1120 acres x $75 = $84,000 Less: Fried’s mortgage $47,900 Leo’s one-half interest (less his share of mortgage) $42,000 - $23,950 18,050 65,950 18,050 Assuming sale brings $100 per acre: 1120 acres x $100 = 112,000
Less: Fried’s mortgage $47,900 Leo’s one-half interest (less his share of mortgage) $56,000 - 23,950 = 32,050 - $79,950 32,050 SALE OF ELMER'S ONE-HALF INTEREST Assuming sale brings $75 per acre: 560 acres x $75 = 42,000 Less: Fried’s mortgage (for amount due on Elmer’s 'k interest: $47,900 -f- 2) -23,950 $18,050 Assuming sale brings $100 per acre: 560 acres X $100 $56,000 Less: Fried’s mortgage (for amount due on Elmer’s 'k interest: $47,900 -f- 2) —23,950 $32,050

From the above analysis, it is apparent that a sale of just Elmer’s one-half interest would not prejudice the Government’s financial interest. Only the sale price will change the amount the Government may get from a forced sale, and with farm land prices being in the depressed state that they currently are, the Court will not indulge in further speculation as to the final sale price. A sale of only half of the land may not bring as high a price as the Government would desire, however, it would certainly not be “worthless” as the Government contends. Plaintiff’s post-trial brief, p. 16. The Court therefore concludes and finds that the sale of only Elmer and Joan Thomassen’s one-half interest in the Holt County property would not prejudice the Government’s financial interests.

The second consideration which the Court in Rodgers set forth asks whether Leo had any legal expectation that his interest would not be subject to a forced sale under Nebraska law. “It appears to be well settled in this state that a judgment lien on real estate in the name of the judgment debtor is a lien only on the actual interest of the judgment debtor and is subject to all existing equities whether of record or not,” Halsted v. Halsted, 169 Neb. 325, 99 N.W.2d 384, 386 (1959). See also Action Realty Co., Inc. v. Miller, 191 Neb. 381, 215 N.W.2d 629, 639 (1974); Roberts v. Robinson, 49 Neb. 717, 68 N.W. 1035, 1036 (1896). Leo Thomassen may have had some expectation, under this principle, that his interest would not be subject to a forced sale to satisfy liens against his co-tenant.

Under Neb.Rev.Stat. Section 25-2170, et seq. (Reissue 1979), “[a]ll tenants in common, joint tenants, or lessees of any estate in land or interest therein ... may be compelled to make or suffer partition____” Partition may be compelled by any joint owner of real estate or other interests therein. Neb.Rev.Stat. Section 25-2170.01. There are numerous exemptions from an execution or forced sale set out in Neb.Rev. Stat. Sections 25-1552 to 25-1563; however, these provisions do not protect Leo’s interest in the land from forced sale.

A sale of Elmer’s undivided one-half interest would not necessarily require that the land be partitioned prior to the sale. After the sale of the undivided interest is completed, the new owner could force a partition of the property if he or she so desired. Under such a sale the buyer would naturally take the land subject to the existing mortgage and the Government would receive the proceeds less the mortgage balance on the one-half interest.

The third consideration requires the Court to look at the prejudice to Leo in personal dislocation costs and undercompensation. There are approximately 100 head of cattle (cows) on the land about 50 of which have calves. T23:5-23. This cow-calf operation has been run by Leo since 1971 or 1972. There is no evidence of what it would cost to relocate the cattle, however, it is apparent that such a relocation would be an added expense to Leo Thomas-sen that he otherwise would not have incurred. Similarly, there was no evidence introduced as to the depressed condition of the real estate market for Nebraska farmland. However, a forced sale at this time would inevitably work a hardship on Leo Thomassen by forcing him to look elsewhere for land to raise his cattle.

Financial compensation would be of little help to Leo if the proceeds of a sale of the entire property were insufficient to enable him to purchase other land to continue his cattle operation. While this situation does not involve “a roof over one’s head” as Rodgers did, this Court cannot be “blind to the fact that in practical terms financial compensation may not always be a completely adequate substitute____” Rodgers, 103 S.Ct. at 1248. This is particularly true where the property, although not used as a personal residence, is necessary to the co-tenant’s livelihood. This Court therefore concludes and finds that there are hardships present in the instant case which would prejudice Leo Thomassen if the entire tract was sold.

The final consideration which this Court will consider is the relative interests that Leo and Elmer hold in the property. Elmer stopped making payments on the land sometime in 1976. T3L1-17. In 1977 William Thomassen made one payment to the Frieds approximately 5 years after the land had been fraudulently conveyed to him. During this time Leo kept up his portion of the payments. After a period of time during which neither Elmer nor William made any payments, the Frieds renegotiated the mortgage with Leo in 1979 and since that time Leo has made both his payments and Elmer’s payments. (The payments were originally' made annually, but are now made monthly by Leo). Leo has paid all the taxes on the land since it was purchased, however, the taxes have not been paid since 1980. T13:7-19. Leo’s takeover of Elmer’s payments and the subsequent renegotiation of the mortgage were apparently carried out pursuant to the Agreement of December 8, 1969.

Leo and Elmer Thomassen have had little communication with each other since their joint purchase of the property. The record does not reveal any collusion between Elmer and Leo which would indicate an intent to prevent a sale of the entire property, or an attempt to defraud the United States.

Leo points out in his brief at page 7, that he had made two-thirds (%) of the payments due and Elmer has made one-third (V3) of the payments. Although not in evidence, these figures show for illustrative purposes, the disparity of the interests held by Leo and Elmer. Leo has paid in approximately $16,000, while Elmer has paid approximately $8,000 on his portion, and this does not include the payment of taxes which, as mentioned earlier, were made entirely by Leo. This disparity in the interests held by Elmer (the delinquent taxpayer) and Leo (the innocent third-party) gives yet another reason why the entire property should not be subject to a forced sale. The Court therefore concludes and finds that Leo Thomassen’s relative interest in the property, when compared to Elmer’s interest, falls within the parameters of the fourth consideration set out in Rodgers, and as such, gives the Court additional grounds to exercise its limited discretion in allowing only Elmer’s interest to be sold.

Finally, the list of considerations provided by Rodgers is by no means “exhaustive.” Id. 461 U.S. at 711, 103 S.Ct. 2152. The Court notes that the Holt County property is not the only piece of property which Elmer Thomassen owns. Evidence shows that Elmer and Joan Thomassen own five parcels of land in California, only one of which had been foreclosed upon at the close of the trial. The Government indicated that it was attempting to sell the California properties, but that Elmer and Joan’s tax liabilities exceed the value of all the pieces of property. T147:19-149:6. Apparently these properties are not held jointly with other parties and therefore do not suffer from the confusing problems that are present with the Holt County property. There is no evidence before the Court as to the status of the Government’s proceedings against the California properties, however, the fact that there are other avenues by which the Government may satisfy its tax liens, provides another reason for prohibiting the Government from forcing a sale of the entire Holt County property-

IV. CONCLUSION

The above analysis of the considerations set forth in United States v. Rodgers, 103 S.Ct. 2132, clearly distinguishes this case from those situations which Rodgers and previous courts have addressed. In the instant case we have an innocent co-tenant who would suffer some financial hardship and displacement of his cow-calf operation if the entire property were foreclosed under 26 U.S.C. Section 7403. The situation in Rodgers dealt with a “homestead right,” rather than an actual undivided ownership interest in the property, as in the case at bar.

The equitable considerations which Rodgers requires this Court to consider outweigh the Government’s need to sell the entire Holt County property. No prejudice will result in limiting the Government to a sale of only Elmer Thomassen’s one-half interest. The Court therefore concludes and finds that the Government is entitled to sell only Elmer Thomassen’s undivided one-half interest in the property.

A separate Order shall be issued contemporaneously with this Memorandum Opinion.

ORDER

In accordance with the Court’s Memorandum Opinion issued this date IT IS HEREBY-ORDERED THAT;

1) the conveyance from Elmer and Joan Thomassen to William Thomassen of an undivided one-half interest of real property, described herein as the Holt County property, on April 5, 1972, is void and therefore set aside;

2) the plaintiff United States of America is entitled to sell Elmer and Joan Thomas-sen’s undivided one-half interest in the Holt County property; and

3) the interests of the lienholders shall be satisfied in the order set forth in the accompanying Memorandum Opinion.

      . Tommie Thomassen died after this action was commenced, and Leo Thomassen subsequently remarried. A suggestion of death was filed (Filing No. 16) and Leo Thomassen’s present wife, Margaret, was made a party to this action prior to the start of the trial.

      . The assessments made against Elmer and Joan and the corresponding years are as follows:
      Assessments of income tax, penalties, and interest made by the Secretary of the Treasury on October 13, 1975, against the taxpayer-defendants Elmer H. Thomassen and Joan Thomassen:
      Year Income Tax Penalty Section 6653(a) 1964 $19,553.39 S 977.67 1965 29,614.49 1,480.72 1967 28,342.24 1,417.11 1968 37,089.00 1,854.00 1969 49,484.00 2,474.00 1970 56,970.00 2,849.49 Interest $12,478.16 17,122.24 12,985.60 14,767.77 16,734.06 15,847.41
      Assessments of taxes, penalties and interest against Elmer Thomassen, made by the Internal Revenue Service on October 18, 1975:
      Income Penalty Penalty Penalty Year Tax Sec. 6651(a) Sec. 6653(a) Sec. 6654 Interest 1966 $12,859.00 $3,214.75 $642.95 $6,663.17 1971 19,841.00 4,960.00 992.05 $634.91 4,328.73
      Assessment of taxes, penalties and interest made by the Internal Revenue Service on October 18, 1975 (against Joan Thomassen):
      Income Penalty Penalty Penalty Year Tax Sec. 6651(a) Sec. 6653(a) Sec. 6654 Interest 1966 $12,453.10 $3,113.27 $622.65 $6,452.86 1971 19,255.80 4,813.95 962.79 $616.19 4,201.06
      (Pretrial Order, Filing No. 85).

      . Elmer Thomassen is an orthopedic surgeon who operates out of various offices and hospitais in Southern California.

      . See First National Bank in Kearney v. Bunn, 195 Neb. 829, 241 N.W.2d 127 (1976); First National Bank v. First Cadco Corp., supra, 189 Neb. 553, 203 N.W.2d 770; United States National Bank v. Rupe, supra, 207 Neb. 131, 296 N.W.2d 474; Creason v. Wells, 158 Neb. 78, 62 N.W.2d 327, 329 (1954); 8 A.L.R.4th 1105, 1123 (1981). See also Riggs v. Hroch, 133 Neb. 260, 274 N.W. 598 (1937); Bank of Brule v. Harper, 141 Neb. 616, 4 N.W.2d 609 (1942); VanSteenberg v. Nelson, 147 Neb. 88, 22 N.W.2d 414 (1946).
      "A reasonable basis for such a presumption and shifting the burden of going forward with the evidence is the recognition by the courts of ‘the notorious tendency of the spouses [and other close relatives] to aid each other before they are just to creditors.’ ’’

        United States v. West, 299 F.Supp. 661, 665 (D.Del.1969); citing McLaughlin, Application of the Uniform Fraudulent Conveyance Act, 46 Harv.L.Rev. 404, 428 (1933).

      . The statute in effect and applied by the court in Sweeney (Neb.Rev.Stat. Sec. 36-401 (1929), is identical to the 1978 version which this Court now applies to the case at bar. No amendments to the 1929 version were made until 1980.

      . This property cannot be classified as a homestead under Neb.Rev.Stat. Section 40-101 (Reissue 1978), because "homestead” means house and land where the family dwells. Horn v. Gates, 155 Neb. 667, 53 N.W.2d 84, 87 (1952). Presently no one is living on the land which consists of approximately 1120 acres of which 138 acres are irrigated and the remainder being pasture and timberland. T13:23-14:9. There are also several unoccupied buildings on the property.


source: Caselaw Access Project

author: DIANA E. MURPHY, District Judge.

license: Public Domain

text:
    Delthea MASON, Plaintiff, v. SPIEGEL, INC., Defendant and Third-Party Plaintiff, v. ANDOVER TOGS, INC., a foreign corporation, Park Avenue Imports, Inc., an Illinois corporation, Park Avenue Overseas Corporation, a foreign corporation, Mitsui & Company USA, Inc., a New York corporation, and Ina Fashions, Inc., a foreign corporation, Third-Party Defendants.
    Civ. No. 4-83-363.
    United States District Court, D. Minnesota, Fourth Division.
    Feb. 1, 1985.

      Frank W. Levin, Minneapolis, Minn., and Richard Baldwin, Webster & Baldwin, St. Paul, Minn., for plaintiff.
    James T. Martin, Gislason and Martin, Edina, Minn., for defendant and third-party plaintiff.
    Heidi M. Hoard, Faegre & Benson, Minneapolis, Minn., and Michael Ryan, Murnane, Conlin, White, Brandt & Hoffman, St. Paul, Minn., for third-party defendants.
   DIANA E. MURPHY, District Judge.

Plaintiff, Delthea Mason, a Minnesota resident, brought this action for compensatory and punitive damages against defendant Spiegel, Inc. (Spiegel), an Illinois corporation, alleging strict liability, breach of warranties and negligence in the sale of an unreasonably flammable cotton gingham tennis dress. Jurisdiction is alleged under 28 U.S.C. § 1332. Spiegel brought a third-party complaint against Andover Togs, Inc. (Andover), Park Avenue Imports, Inc., a/k/a Park Avenue Overseas Corporation (collectively referred to as Park Avenue), Mitsui & Company (U.S.A.) (Mitsui), and Ina Fashions (Ina). Spiegel alleges that it bought the dress from one of the third-party defendants and resold it without modification, making one of these parties liable for contribution or indemnification. The matter is now before the court upon Spiegel’s motion for dismissal, or, alternatively, for summary judgment, and third-party defendants Park Avenue and Mitsui’s joint motion for summary judgment. Andover has also filed a motion for summary judgment.

BACKGROUND

There appears to be little dispute about the facts. In 1968, plaintiff was severely burned when her woven gingham checked tennis dress caught fire from a burning match. The accident occurred in North Carolina when plaintiff was five years old, and she was hospitalized there for several months. Plaintiff and her parents were residents of Minnesota when the accident occurred, but were living in North Carolina where plaintiff’s father was serving in the army. The family returned to Minnesota in 1970 and have resided here ever since, apart from a four year stay in Georgia.

Plaintiff states that her parents did not know that they could have brought suit on her behalf during her minority. Before turning 21 on August 4, 1983, plaintiff contacted legal counsel. Suits were begun against Spiegel on May 5, 1983 in Minnesota, on June 7, 1983 in Illinois, and on June 9, 1983 in North Carolina. Plaintiff’s counsel began suit in three jurisdictions because of uncertainty as to which was appropriate. It is undisputed that the North Carolina statute of limitations had not run when the suit was commenced.

In each suit, plaintiff claimed that the dress had been purchased from Spiegel in the spring of 1968 and that, among other things, it was unreasonably flammable, unmerchantable and unfit for its intended purpose. Plaintiff also charged that Spiegel failed to exercise ordinary care in placing the dress on the market. Plaintiff does not have any documents proving purchase, nor is any portion of the dress still in existence.

On February 9, 1984, an order was entered which dismissed the North Carolina case; the Illinois case had been previously dismissed on January 27, 1984. Plaintiff now contends that these dismissals were ordered because Spiegel chose to appear in Minnesota, claiming that it would be cheaper and more convenient to litigate in Minnesota, and appearing to concede that the North Carolina statute of limitations had not run. Spiegel claims that plaintiff’s suit is barred by the Minnesota statute of limitations.

On March 1, 1984, Spiegel brought its suit for contribution or indemnity against the third-party defendants. It admits that it has no records from the period 1966 through 1968 which establish the identity of the manufacturer or supplier of the tennis dress. Spiegel relies on testimony of two persons formerly employed by Spiegel who have stated that to the best of their recollection, the garment would have been purchased from Andover, Park Avenue, or Ina, but could not specify which of them was the actual manufacturer.

Ina went out of business 10 years ago and has not answered Spiegel’s third-party complaint. Mitsui and Park Avenue claim that they have conducted an extensive search of their records and have found no evidence of a sale of the dress or any similar garment to Spiegel. Andover denies ever manufacturing, importing, or selling any such tennis dress at all. DISCUSSION

A. Spiegel’s Motion for Dismissal and/or Summary Judgment

Spiegel contends that plaintiff’s suit is not timely under the Minnesota statute of limitations. It argues that statutes of limitations are procedural rather than substantive and that the law of the forum governs with respect to procedural rules. Accordingly, Spiegel maintains that N.C.Gen.Stat. § 1-17, which tolls the running of the statute of limitations in personal injury suits until three years after the injured infant reaches the age of 18, is inapplicable. The appropriate period, it argues, is governed by Minn.Stat. §§ 541.05 and 541.15, which toll the running of the six year statute of limitations for personal injuries during infancy and grant one additional year in which to bring suit after the infant turns 18. Plaintiff turned 18 on August 4, 1981, but did not bring suit in Minnesota until May 5, 1983. Spiegel contends that her claim is therefore barred.

Plaintiff, by contrast, asserts that Spiegel waived its right to raise the statute of limitations by suggesting that the action proceed in Minnesota. She argues that it would be unconscionable to allow Spiegel to assert the statute of limitations defense after plaintiff has relied on its actions and allowed the timely North Carolina suit to be dismissed, rather than bringing a motion to transfer. In addition, plaintiff contends that the North Carolina statute regarding limitation periods for minors is substantive in nature and that application of Minnesota’s five-factor choice-of-law analysis dictates that North Carolina law apply. Under N.C.Gen.Stat. § 1-17, plaintiff’s claims were not time-barred until August 4, 1983, three months after the Minnesota suit was filed.

Equitable estoppel can be invoked to prevent a party from taking unconscionable advantage of his or her actions. Bethesda Lutheran Church v. Twin City Constr., 356 N.W.2d 344 (Minn.App.1984). To rely on this doctrine, plaintiff must show that defendant made representations or inducements upon which plaintiff reasonably relied that will cause plaintiff harm if estoppel is not found. Northern Petrochemical Co. v. U.S. Fire Insurance Co., 277 N.W.2d 408, 410 (Minn.1979). Bad faith or an intent to deceive is generally not essential to create an estoppel against enforcement of limitation periods. 51 Am.Jur.2d Limitation of Actions, § 450. Nor is it necessary that there be an express mention of, or agreement about, the statute of limitations. Albachten v. Bradley, 212 Minn. 359, 3 N.W.2d 783 (1942). Whether the elements of equitable estoppel are present is a question of fact. See O’Donnell v. Continental Casualty Co., 263 Minn. 326, 116 N.W.2d 680 (1962).

In the instant case, both sides are in essential agreement as to the facts underlying the estoppel claim. Plaintiff does not contend that counsel for Spiegel deliberately attempted to deceive or that there was an express agreement or promise that Spiegel would waive the statute of limitations. Rather, plaintiff claims that opposing counsel appeared by his actions to concede that the action was maintainable in Minnesota, and that transfer was an unnecessary ritual.

The evidence shows that after Spiegel failed to appear in North Carolina or Illinois, those courts urged plaintiff to proceed on a default basis or have its case dismissed. Plaintiff’s counsel states that he thought it inappropriate to default Spiegel when they were actively litigating the claim in Minnesota and he informed Spiegel’s counsel of the court’s wishes. Spiegel’s counsel suggested that the North Carolina and Illinois suits be dismissed because they were duplicative, an unnecessary expense, and because Minnesota was the most convenient forum for the suit.

Counsel for the defense also stated during a discussion of the North Carolina statute of limitations at a December 2, 1983 deposition of plaintiff, that plaintiff “sure is lucky this accident happened in North Carolina and not in Minnesota.” At no time before plaintiff’s twenty-first birthday did defense counsel state that the Minnesota, rather than the North Carolina, statute of limitation was controlling.

Plaintiff's counsel would not have dismissed the North Carolina and Illinois actions but for the actions of Spiegel’s counsel in suggesting that suit be brought in Minnesota and in implying that North Carolina law controlled. This reliance clearly harms plaintiff. If estoppel is not found, plaintiff will presumably lose any chance of compensation for her severe injuries. Under these circumstances, the elements of equitable estoppel are satisfied. Because of this determination it is not necessary to reach plaintiff’s other argument.

B. Third-Party Defendants’ Motions for Summary Judgment

Park Avenue, Mitsui and Andover Togs claim that they are entitled to summary judgment against Spiegel because it cannot identify which third-party defendant sold it the tennis dress. They argue that the sole basis for Spiegel’s claims against the third-party defendants is the 18-year old recollection of a former merchandise manager and a former buyer of Spiegel who think that the dress could have come from one of three sources. Such evidence, they claim, is legally insufficient to support a cause of action against them and is not adequate to rebut a summary judgment motion. Each third-party defendant asserts that the “alternative liability” theory of Restatement (Second) of Torts, § 433B (1965) and the “market share” theory sometimes used in asbestos or drug cases are inapplicable. In addition, Mitsui and Park Avenue contend that their search through 175 boxes of records shows a matter of law that they did not sell the tennis dress to Spiegel.

Spiegel, on the other hand, asserts that the plaintiff will rely on Gryc v. Dayton-Hudson Corp., 297 N.W.2d 727 (Minn. 1980), cert. denied, 449 U.S. 921, 101 S.Ct. 320, 66 L.Ed.2d 149 (1980), to prove that the tennis dress was defective because of an industry-wide failure to flame retard such dresses and because of an industry-wide practice of adhering to a federal test procedure which was invalid. In such circumstances, Spiegel contends that the theory of “alternative liability” is appropriate to shift the burden of proof from Spiegel to the third-party defendants who must show that they did not produce the garment in question.

After carefully considering the record before the court, the court finds that third-party defendants Mitsui and Park Avenue have established their right to judgment as a matter of law. The record shows that 175 boxes of documents were examined reflecting the business operations of Park Avenue for the years 1964 to 1975, the last year being the one in which Park Avenue was dissolved as an Illinois corporation. All documents pertaining to sales to Spiegel were examined, but none was found concerning style number 30Z9266, the tennis dress in question, or any similar “9000” series dress.

The record also indicates that the preserved documents are quite complete. Spiegel’s witnesses testified in their depositions that various forms, specifications and invoices would necessarily document each sale. Park Avenue and Mitsui’s search turned up each category of documents mentioned by the former Spiegel employees as well as other types of documents, such as customs invoices and inventory lists. Moreover, the search revealed that Park Avenue sold Spiegel a garment which was advertised in the same catalogue as plaintiff’s tennis dress. Documents concerning this item, a girl’s blouse, style number 30Z9413, show up repeatedly in Park Avenue’s records, including Spiegel’s merchandise purchase orders, shipping documents and correspondence.

Park Avenue has sifted through extensive records to show that it did not manufacture the_ dress in question. Because Spiegel has not in rebuttal demonstrated any specific facts which create a genuine issue as to whether Park Avenue sold it the dress, it has not met its burden under Fed.R.Civ.P. 56(e). See Lundeen v. Cordner, 354 F.2d 401 (8th Cir.1966). Summary judgment is therefore appropriate as to Park Avenue and Mitsui.

Third-party defendant Andover has no documents to prove that it did not manufacture the tennis dress for Spiegel. As a matter of law, however, Spiegel has failed to present sufficient evidence to support a cause of action against Andover. The court is persuaded that the instant case resembles more closely Wetzel v. Eaton Corp., 62 F.R.D. 22 (D.Minn.1973), than any of the authorities which apply an alternative liability theory.

In Wetzel, the plaintiff was injured in an accident caused by a faulty tractor part. The tractor part had been discarded and the only evidence as to the manufacturer of the component part was the tractor manufacturer’s testimony that it purchased the part from one of two intermittent suppliers. The court held that the facts gave equal support to two inconsistent inferences and any verdict would necessarily be based on conjecture and speculation. Wetzel, 62 F.R.D. at 29.

In this case discovery has ended and Spiegel has not come up with any evidence more probative than the 18 year old testimony of its former employees. No piece of the tennis dress remains, and Spiegel has not kept documents which would help it prove the evidentiary chain. Like the Wetzel case, the testimony of Spiegel’s employees establishes facts giving rise to inconsistent inferences, for they state that one of three companies could have made the dress. Liability in such a case could only be based on speculation. See Clift v. Nelson, 25 Wash.App. 607, 608 P.2d 647 (1980); Garcia v. Joseph Vince Co., 84 Cal.App.3d 868, 148 Cal.Rptr. 843 (1978).

Spiegel argues that Wetzel v. Eaton Corp., 62 F.R.D. 22 (D.Minn.1973), is inapplicable because section 433B of the Restatement of Torts 2d shifts the burden of proof to defendants to prove their innocence. Under the rule of Erie Railroad Co. v. Tomkins, however, this court is bound to follow the substantive law of Minnesota. The Minnesota Supreme Court has not yet adopted an alternative liability theory which would impose liability on the basis of an industry-wide practice. Even if this court were persuaded that Minnesota intended to adopt such a doctrine, it finds, as a matter of law, that such a theory is inappropriate upon the facts of this case.

ORDER

Accordingly, based upon the above and all the files, records, and proceedings herein,

IT IS HEREBY ORDERED that

1. The motion of Spiegel, Inc. for dismissal or, alternatively, summary judgment is denied.

2. The joint motion of third-party defendants Park Avenue Imports, Inc., Park Avenue Overseas Corporation, and Mitsui & Company (U.S.A.) for summary judgment is granted..

3. The motion of third-party defendant Andover Togs, Inc. for summary judgment is granted.

      . Since matters outside the pleadings have been submitted and considered, the court will treat defendant’s motion as one of summary judgment. See Fed.R.Civ.P. 12(b)(6).

      . Nevertheless, the court is persuaded that the North Carolina statute at issue could be classified as substantive as applied to this particular plaintiff. The policies underlying the statute are substantive in nature, reflecting "a special concern of the North Carolina courts for protecting the interests of the infant.” Genesco, Inc. v. Cone Mills Corp., 604 F.2d 281 (4th Cir. 1979). Minnesota law is somewhat unclear concerning the method to distinguish between questions of substance and procedure for choice of law purposes. Davis v. Furlong, 328 N.W.2d 150 (Minn.1983), suggests, however, that Minnesota will be guided, at least partially, by North Carolina’s characterization of its statute as substantive. If the North Carolina law is classified as substantive, the choice-of-law analysis of Milkovich v. Saari, 295 Minn. 155, 203 N.W.2d 408 (Minn.1973) applies. Review of these factors indicates that the North Carolina statute of limitations should be applied in plaintiffs case instead of Minnesota law.

      . Each third-party defendant also claims that summary judgment is appropriate because the statute of limitations bars plaintiffs action against Spiegel. Since the court has held that plaintiff’s claim is not barred, summary judgment cannot be granted on this basis. Moreover, under Minnesota law, the statute of limitations does not begin to run on a right to claim contribution or indemnity until liability by the party claiming such right actually occurs. See Grothe v. Shaffer, 305 Minn. 17, 232 N.W.2d 227 (1975); 9A Dunnell Minn.Digest 2d Indemnity § 4340 (3d ed. rev. 1977). Accordingly, Spiegel’s third-party complaint is timely.

      . Spiegel contends that Mitsui owned or controlled Park Avenue during the relevant time periods and that in 1975, Mitsui liquidated Park Avenue and assumed all of its liabilities and assets. Mitsui denies that either Park Avenue Imports, Inc. or Park Avenue Overseas Corp. was a subsidiary or that it has any legal liability for these liquidated companies. For purposes of this motion, the court accepts the allegations of Spiegel.

      . Andover does rely, however, on the testimony of its founder and current chairperson, Sidney B. Cohen, who asserts that in the 35 years of its existence, Andover has never manufactured, imported or sold a gingham checked tennis dress of the type allegedly worn by plaintiff. Cohen aff. at 2.

      . Gryc v. Dayton-Hudson Corp., 297 N.W.2d 727 (Minn.1980), cert. denied, 449 U.S. 921, 101 S.Ct. 320, 66 L.Ed.2d 149 (1980), did not involve an "industry-wide” theory of liability. In Gryc, the findings pertained to the actual fabric manufacturer and liability was based upon documents found in that manufacturer’s file.

      . In the instant case, unlike the drug and asbestos cases, the tennis dress is not a uniform product that is intrinsically defective no matter who manufactured it. Compare Sheffield v. Eli-Lilly & Co., 144 Cal.App.3d 583, 192 Cal.Rptr. 870 (1983). Even if these companies did make or supply a dress to Spiegel made from 100% cotton, variations, in weight, fabric weave, finishing and other methods of construction would all affect the flammability of the garment. Nor is this a case involving a plaintiff who cannot identify any of several defendants who admittedly manufactured the specific product which caused the injury. See Annot. 22 A.L.R. 4th, 183 (1983). Plaintiff in this case has identified Spiegel as the seller of the dress and will have the opportunity to receive compensation if she proves her case. Spiegel itself may have had a role in the manufacturer’s alleged negligence, for the record demonstrates that it sometimes gave suppliers specifications for garments it would sell. See Ardickas depo. at 8; Stein depo. at 69. Moreover, several of these manufacturers specifically deny that they ever manufactured such a dress. See Sindell v. Abbott Laboratories, 26 Cal.3d 588, 163 Cal.Rptr. 132, 145, 607 P.2d 924, 937 (1978), cert. denied, 449 U.S. 912, 101 S.Ct. 285, 66 L.Ed.2d 140 (1980) (One of original DES defendant manufacturers was dismissed upon its filing a declaration that it had not manufactured DES until after plaintiff was born.) In such circumstances, it would be unreasonable to impose burdens on the third-party defendants when harm might have been caused by only one of them. See Namm v. Charles Frosst & Co., Inc., 178 N.J.Super. 19, 427 A.2d 1121 (1981).