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United States v. Northern States Investment

December 5, 2008

UNITED STATES, PLAINTIFF,
v.
NORTHERN STATES INVESTMENT, INC., AND LASALLE NATIONAL BANK, AS TRUSTEE FOR LAND TRUST NO. 10-17758-9, DEFENDANTS.



The opinion of the court was delivered by: Joan B. Gottschall United States District Judge

Judge Joan B. Gottschall

MEMORANDUM OPINION AND ORDER

Before the court are parties' cross-motions for summary judgment, Defendants' motion to exclude certain material facts, and Defendants' motion to strike parts of the United States' memorandum of law in response to Defendants' motion for summary judgment. For the reasons stated below, the United States' motion for summary judgment is denied, Defendants' motion for summary judgment is denied, and Defendants' motion to exclude is denied as explained in this order or is otherwise denied as moot. Defendants' motion to strike is also denied.*fn1

I. BACKGROUND*fn2

This is a federal tax lien foreclosure case stemming from assessments for various years from 1978 to 1987 against Robert B. Horsting, Sr. and Margaret M. Horsting (collectively, "Horsting parents"). The United States seeks to foreclose against real property located at 1727 Sunset Ridge Road in Glenview, Illinois ("the 1727 property"). This action is brought against Northern States Investment, Inc. ("NSI") and LaSalle National Bank ("LSNB"). LSNB is trustee of the 1727 property, and NSI possesses the beneficial interest in the 1727 property. The Horsting parents never held actual title to the 1727 property, but the United States argues that NSI was the alter ego or nominee of the Horsting parents.

Margaret passed away in 2003, and Robert, Sr. passed away in 2005. The Horsting parents are survived by five children who are indirectly involved in this action as shareholders, officers, and directors of NSI. The children are all of age. They are, in order from oldest to youngest, Robert B. Horsting, Jr., Richard E. Horsting, David P. Horsting, Laurie Horsting Kiddell, and Susan Horsting.

The history of the 1727 property involves some complication. Prior to residing in the 1727 property, the Horsting family resided at 1617 Sunset Ridge Road, in Glenview, Illinois ("the 1617 property"). It is unclear when the Horstings moved into the 1617 property, but in 1964 the 1617 property was held in trust by the Exchange National Bank of Chicago in Trust No. 17758 (the "land trust"), with the beneficial interest held by William A. Nott and to be transferred to Margaret upon Nott's death, unless Nott had previously sold, assigned, transferred or otherwise disposed of the interest. Prior to the Horsting's departure from the 1617 property, Nott assigned his interest in any sale of the 1617 property to Margaret. The 1617 property is not a part of this action.

In 1968, title to the 1727 property was conveyed to the same land trust that held title to the 1617 property. Robert, Sr., and Nott (who still held the beneficial interest in the land trust) signed the closing statement.*fn3 The land trust executed a $34,000 mortgage to cover the costs of this conveyance, and Robert, Sr., Margaret, and Nott (as well as Elizabeth Nott), gave their personal guarantees on the mortgage.*fn4 The Horsting family moved into the 1727 property in late 1968.

On March 19, 1979, more than ten years after the Horsting family moved into the 1727 property, Robert, Sr. incorporated NSI and assigned his interest in NSI to his five children via a document entitled "Assignment By Incorporator."*fn5 Since March 19, 1979, and continuing to present, NSI has been owned equally by the five Horsting children. On March 19, 1979, shares were issued to the five children, and Robert, Jr., Richard, and David were named as the Board of Directors of NSI via a document titled "Written Unanimous Consent to Corporate Action by Shareholders." On April 3, 1979, Robert, Jr. was named the President, Richard the Vice President, and David the Secretary and Treasurer of NSI, pursuant to a document titled "Written Unanimous Consent of Corporate Action by Directors." The same day, Nott conveyed his beneficial interest in the land trust (and, therefore, in the 1727 property) to NSI. At this point, Robert, Sr. was not formally involved in the functioning of NSI, but when Attorney Robert Dini sent the Exchange National Bank of Chicago an original and two copies of the April 3, 1979 conveyance from Nott to NSI on July 24, 1979, the letter was copied to Robert, Sr.*fn6

The parties dispute whether Nott received any compensation for this conveyance. If Nott received any consideration, it came from Robert, Jr., and not from NSI. Defendants argue, pursuant to Robert, Jr.'s affidavit and deposition, that Robert, Jr., compensated Nott.*fn7 The United States argues to the contrary, and points to an interview of Robert, Jr., conducted in 1989 by IRS Revenue Officer Chester Baer, during which Robert, Jr. is reported to have stated that he had no knowledge of any consideration given to Nott.*fn8

The parties also dispute whether any rent was paid by the Horsting parents to NSI.*fn9 The United States alleges that no rent was paid, citing the deposition of Richard. Defendants "deny" in their 56.1 response without any citation to the record. However, an affidavit and deposition from Robert, Jr. does lend some support to the claim that the Horsting parents paid at least some rent.

Before and after the beneficial interest in the 1727 property was conveyed from Nott to NSI, various liabilities against the 1727 property and personally against Robert, Sr., were lodged by both creditors and the federal government.*fn10 In 1969 two liens were recorded against the 1727 property for over $8,500; the court is unaware of the disposition of these liens.*fn11 From 1973 to 1990, seven civil judgments were entered against Robert, Sr., and other defendants, for a cumulative sum of over $500,000.*fn12 The IRS filed tax assessments against the Horsting parents for the years 1978 to 1983 and 1987. These assessments went unpaid despite notice, and the sum of $2,174,211.91 remained due as of April 15, 2008.

Several other facts regarding the functioning of NSI as a corporation and the personal practices of the Horsting parents are relevant. NSI was never intended to make a profit, has never had any capital, and has never paid a return on capital to its shareholders. It has never conducted any business, had any income, or had a checking account. State and federal tax returns have never been filed on NSI's behalf, and NSI has never entered into contracts or ever written correspondence. Although there was an outstanding mortgage on the 1727 property, payments were never made by NSI but were made by Margaret via checks drawn on an account in the name of Margaret's mother.*fn13 Indeed, the Horsting children do not recall that their parents ever had a personal checking account in their own name. Finally, various taxes on the 1727 property, as well as the utilities for the property, were paid through a combination of contributions from the Horsting parents and children; none were paid by NSI.

The efficacy and care of NSI officers is also of question. Robert, Jr., who is President of NSI and is on the board of directors, testified that he is not aware of the difference between an "officer" and a "director" of a corporation, and he has not been involved in the incorporation of any other entity. In 1983, an NSI Annual Report was filed with the Secretary of State that (i) states that NSI was engaged in the business of "investment banking," although all parties agree this is untrue; (ii) incorrectly labels the offices held by David and Richard; and (iii) incorrectly identifies Laurie and Susan as directors when they are actually only shareholders.*fn14 David, the NSI Secretary and Treasurer, further testifies that he did not sign two NSI documents although his signature appears on the forms, including a corporate resolution for NSI dated April 10, 1979 permitting the three officers and directors of NSI to act on behalf of NSI vis-à-vis LSNB,*fn15 and an "Amendment of Trust Agreement" dated June 20, 1984, which continues the trust ...


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