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United States of America v. Irving Cohen

October 17, 2011

UNITED STATES OF AMERICA, PLAINTIFF,
v.
IRVING COHEN, THE WINDSOR ) ORGANIZATION, INC., AND 3-B ) STORES, INC., DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, U.S. District Judge:

E-FILED Tuesday, 18 October, 2011 02:42:00 PM

Clerk, U.S. District Court, ILCD

OPINION

Pending before the Court is the motion for summary judgment filed by Defendant, The Windsor Organization, Inc.

I. INTRODUCTION

This action is brought pursuant to 28 U.S.C. §§ 1340 & 1345 and 26 U.S.C. §§ 7401 & 7403. Plaintiff United States of America seeks to foreclose upon commercial real property located at 709 (also known as 719) West Jefferson, Springfield, Sangamon County, Illinois ("the Property"). The Plaintiff is attempting to attach a federal tax lien for penalties assessed against the Defendant, Irving Cohen, against the Property which Defendants allege is owned by The Windsor Organization, Inc. ("Windsor II"), another Defendant, claiming that Windsor II holds property as the alter ego/nominee of Cohen. Windsor II contends that Plaintiff's claim is unfounded and cannot be proven as a matter of law. It seeks summary judgment against the Plaintiff that it cannot attach a lien to the Property.

The Plaintiff asserts that Windsor II does not exist apart from Irving Cohen. It moves at his direction, while Cohen makes every decision. The Plaintiff claims that Cohen has maintained and exerted control over the Property long after he decided to title it in Windsor's name. Accordingly, the Plaintiff contends the evidence establishes that Windsor is Cohen's nominee and alter ego.

II. BACKGROUND

A. History of the Springfield, Illinois Property In its Complaint, the Plaintiff claims that Windsor II holds the real estate which is subject to this suit as the nominee of Irving Cohen. On June 1, 1976, Tolly's Market, Inc. and National Super Markets, Inc., a Michigan corporation ("National"), entered into a Lease Agreement for property situated at 709 West Jefferson, Springfield, Illinois, legally described as:

Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, and 10, except the East 80 feet of Lot 10 all in Block 1 of Henry Davis', Jr. Addition to the City of Springfield, Illinois situated in the County of Sangamon and State of Illinois and all improvements thereon including a building of approximately 16,608 square feet in size (hereinafter referred to as "Lots 1-10").

On May 4, 1981, The Windsor Organization, Inc. was incorporated in Nevada ("Windsor I"), and purchased National's interest in the Property including its leasehold interest in Lots 1-10, title to the remaining portion of the Property and the buildings and improvements located on the Property.

On or about August 20, 1981, Windsor I transferred its interest in the buildings and improvements located on the Property and its leasehold interest in Lots 1-10 to American National Bank and Trust Company of Chicago, Trustee of Land Trust No. 53586, for the benefit of Windsor Income Properties, a New York limited partnership. On or about December 10, 1981, American National Bank and Trust Company of Chicago executed a mortgage to Windsor I to secure two junior promissory notes in the amount of $1,525,500.00 and $2,560,000.00, respectively, issued by Windsor Income Properties to Windsor I to purchase the property from Windsor I.

Windsor II alleges that sometime in 2000 or 2001, Windsor Income Properties defaulted on its obligations under the second mortgage note ($2,500,000 principal) held by Windsor I and a Windsor Income Representative advised Irving Cohen that it had no ability to operate the Property as a result of the departure of the grocery store tenant. The Plaintiff alleges that this misrepresents the extent of Windsor Income Properties' default on its obligations to Windsor I and suggests that it may have defaulted on both notes.

Windsor II claims that in 2001, Irving Cohen was acting as President of Windsor I and continues in that capacity. The Plaintiff disputes this allegation and claims that Cohen has for some time acted as President and Manager of Windsor II. Moreover, the allegation is immaterial because Cohen's connection to Windsor I does not explain his continued conduct on behalf of Windsor II.

Windsor II alleges that Irving Cohen sought an investor to provide capital for needed improvements to attract tenants to the Property left vacant by the departure of the previous grocery store tenant. Cohen contacted Dr. Markus Kolzoff, which resulted in the commitment of T. I&M. Services Ltd. (TI&M) to invest funds in the Property. Cohen then arranged for the formation of Windsor II to own the Property with TI&M as its sole shareholder. The Plaintiff disputes that Windsor II contacted Dr. Kolzoff. Moreover, Cohen knew very little about TI&M and lacked authority to represent that entity. The Plaintiff questions how Cohen could set up Windsor II on behalf of TI&M.

Windsor II alleges that, shortly before January 1, 2002, Windsor I entered into an agreement with Windsor II whereby Windsor I would loan Windsor II additional funds and cause title of Windsor I's interest in the Property to transfer to Windsor II in exchange for Windsor II assuming the outstanding liability on the underlying second mortgage note secured by the Windsor II mortgage, to be increased by the new loan funds. The Plaintiff denies these allegations, claiming that no agreement between Windsor I and Windsor II has ever been reduced to writing. Moreover, any such agreement would be a sham because it would have been negotiated by the same person, Irving Cohen, on both sides of the transaction.

Windsor II alleges that Windsor I caused $449,534.34 to be loaned to Windsor II from 2002 through 2004 pursuant to agreement with Dr. Kolzoff acting for TI&M, Windsor II's sole shareholder, to provide funds along with TI&M's capital contribution of up to $400,000.00 for necessary capital improvements and working capital. The Plaintiff disputes this allegation, noting that Kolzoff stated he did not become a member of TI&M until April 4, 2008. Moreover, there is no written document formalizing any agreement with TI&M. The Plaintiff further asserts that Irving Cohen diverted hundreds of thousands of dollars from funds purported to be from TI&M to his own pocket.

LaSalle Bank National Association, successor Trustee of Land Trust No. 53586, and Windsor Income Properties, beneficiary of said Land Trust, transferred its leasehold interest and the building and improvements on the Property to Windsor II pursuant to a Settlement and Deed in Lieu Agreement dated as of January 1, 2002 between Windsor I, LaSalle Bank National Association, and Windsor Income Properties.

Windsor II alleges that the outstanding mortgage owed to Windsor I was not released as a result of the Deed in Lieu of Agreement and the underlying second mortgage note due to Windsor I remains unsatisfied to date. The Plaintiff denies this allegation, claiming that although Windsor I once held a mortgage against the Property, on May 3, 2005, Windsor I executed a Release of Second Mortgage and Assignment of Rents. The release was unambiguous and signed by Irving Cohen. Accordingly, the Plaintiff claims that Windsor I no longer holds a mortgage against the Property.

Windsor II claims that a renegotiated mortgage debt in the amount of $1,400,000 on the Property owed to Windsor I by Windsor II has been reported on Windsor II's Form 1120, Corporate Tax Return, since 2002, the year Windsor II was incorporated. The Plaintiff disputes the allegation. Although the Plaintiff acknowledges that Windsor II has reported a mortgage on the company's corporate federal tax returns, it notes that the amount of the mortgage changed on Windsor's tax returns between 2004 and 2010 due to the execution of a legitimate mortgage held by 3-B Stores. The Plaintiff further asserts that the purported agreement to lower to $1.4 million the outstanding mortgage held by Windsor I was not reduced to writing. It claims that Windsor II made no payments on the supposed $1.4 million mortgage, and the agreement was not negotiated in good faith and at arm's length.

Windsor II claims it purchased Lots 1-10 from Defendant, 3-B Stores, Inc., successor in interest to Tolly's Market, Inc., on May 19, 2005, pursuant to Real Estate Sale Agreement, which provided that a new mortgage be given to 3-B Stores, Inc. to secure a purchase money note, and with the Windsor I note to be made subordinate thereto. The Plaintiff disputes this allegation, noting that Exhibit B to the Real Estate Agreement did not describe or identify any first mortgage on the property. Section 3.7 of the Mortgage and Security Agreement between 3-B Stores and Windsor II specified that "any current mortgage on the property may remain provided it is subordinated to the lien of the [3-B Stores] mortgage."

Windsor II was permitted to place an additional mortgage on the property "provided it is expressly subordinate to the rights of 3-B Stores, Inc." The Plaintiff further claims that, on the same day that Windsor II executed this new mortgage with 3-B Stores, Irving Cohen released Windsor I's mortgage on the property. Windsor II executed a Mortgage and Security Agreement for the benefit of 3-B Stores, Inc. on May 3, 2005.

B. Incorporation and operation of Windsor II Windsor II was incorporated in the State of Nevada on February 8, 2002. According to Windsor II, the corporation was incorporated using the name "The Windsor Organization, Inc." at the suggestion of Robert Fernandez, counsel for Windsor II at Sonnenschein, Bath & Rosenthal in Chicago, Illinois. The Plaintiff denies this allegation, pointing to Irving Cohen's deposition testimony which is inconsistent with it.

Windsor II claims to have issued 100 registered shares to TI&M, its sole shareholder, on February 9, 2002. Accordingly, Windsor II states that it is wholly owned by TI&M. The Plaintiff disputes these allegations, alleging that Windsor II never reported on its federal tax returns between 2002 and 2010 that it was foreign-owned, as Windsor II would have been required to do. Windsor II disputes the Plaintiff's suggestion that the fact it failed to report its foreign ownership on its federal tax returns somehow invalidates the stock certificate it issued to TI&M on February 9, 2002.

Windsor II alleges that William Reed was the sole corporate officer and director of Windsor II from February 8, 2002, to January 16, 2007. The Plaintiff contends that Reed served in that capacity in name only, pointing to Irving Cohen's testimony that Reed was a "nominee president" and that Cohen ran the day-to-day operations of the company. The Plaintiff further notes that during this period, Cohen often signed legal documents such as leases and construction documents as "President" of Windsor. Cohen testified that it was "not necessarily" a false statement ...


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