United States District Court, N.D. Illinois, Eastern Division
SUSAN CALLAHAN as TRUSTEE of the CALLAHAN CHILDREN EDUCATIONAL SUPPORT TRUST, Plaintiff,
THE CHICAGO SERIES OF LOCKTON COMPANIES, LLC, a series established by LOCKTON COMPANIES, LLC, an Illinois Series Limited Liability Company, Defendant, THE UNITED STATES OF AMERICA, Defendant and Counterclaim Plaintiff, SUSAN F. CALLAHAN, individually and as TRUSTEE OF THE CALLAHAN CHILDREN EDUCATIONAL SUPPORT TRUST, and JOHN P. CALLAHAN, Counterclaim Defendants
For Susan Callahan, Susan F. Callahan as Trustee of the Callahan Children Educational Support Trust, Plaintiff: Johnathan D. Morton, DiMonte & Lizak, LLC, Park Ridge, IL; Riccardo Anthony DiMonte, DiMonte & Lizak, Park Ridge, IL.
For USA, Defendant, Counter Claimant: Jordan Andrew Konig, LEAD ATTORNEY, U.s. Department Of Justice, Tax Division, Washington, DC; Larry Steven Schifano, LEAD ATTORNEY, U.S. Dept. of Justice, Tax Division, Washington, DC.
For Susan Callahan, Counter Defendant: Riccardo Anthony DiMonte, DiMonte & Lizak, Park Ridge, IL.
MEMORANDUM OPINION AND ORDER
Robert W. Gettleman, United States District Judge.
Plaintiff Susan Callahan (" Susan" ), as trustee of the Callahan Children Educational
Support Trust (the " Trust" ), filed a four-count complaint against the United States of America and the Chicago Series of Lockton Companies, LLC (" Lockton" ), contesting an Internal Revenue Service (" IRS" ) tax levy on a note in favor of Susan's former husband John Callahan (" John" ) in the original sum of $574,855.20 (the " Lockton Note" ). Counts I through III are against the United States for return of allegedly wrongfully levied property. Count IV, which asserted a claim for breach of contract against Lockton for acquiescing to the IRS levy against the balance of the Note, was dismissed by this court on February 12, 2015.
The United States filed a counterclaim against Susan, individually and as trustee of the Trust, and John, seeking, among other things, a judgment finding that: (1) it " has valid and subsisting tax liens on the property transferred by John Callahan to Susan Callahan, individually or as Trustee for the benefit of the Callahan children, through the McLean County divorce action, that prime all other claims against the property; " (2) " the seizure of funds due under the Lockton Note by IRS levy was a proper exercise of the United State's [sic] power to collect Internal Revenue Tax; " and (3) the transfer of the Lockton Note by John to Susan, individually or as trustee, was a fraudulent transfer under the Illinois Uniform Fraudulent Transfer Act § § 740 Ill.Comp.Stat. 160/5-160/6. The United States' counterclaim also seeks an order requiring Susan to turnover " property transferred by John Callahan to Susan Callahan, individually or as Trustee for the benefit of the Callahan children . . . to the extent of John Callahan's delinquent income tax debts."
Presently before the court is Susan's motion for summary judgment and the United States' cross-motion for summary judgment as to all of Susan's claims and partial summary judgment as to its fraudulent transfer claim. For the reasons discussed below, the court denies Susan's motion and grants in part and denies in part the United States' motion.
In April 2009, John terminated his employment with Lockton, at which time he received the Lockton Note with a face value of $574,855.20. The Note was payable on April 16th of each year beginning in 2009 through 2012 in equal installments of $73,038.13, along with accrued interest, with a final balloon payment of $195,004.00 due on April 16, 2013. On November 23, 2009, the IRS assessed John with an unpaid tax liability of over $173,000.00. The IRS filed a Notice of Federal Tax Lien against John with the DuPage County Recorder of Deeds on May 21, 2010. John, however, lived in Will County, Illinois at the time the notice was filed.
On November 24, 2010, Susan and John officially separated, at which time the McLean County Circuit Court entered an Order for Support and Property Division, awarding the Lockton Note to Susan, " as and for educational support for the [Callahan] children to be held in trust however, for her children and the proceeds to be used for their educational expenses." On April 29, 2011, John paid the IRS $60,000 from the Lockton Note for application to his unpaid tax liabilities. The Callahan marriage was dissolved on September 9, 2011, by a Judgment of Dissolution of Marriage entered by the McLean County
Circuit Court, ratifying a Marital Settlement Agreement signed by Susan and John on August 29, 2011. The Marital Settlement Agreement provided that Susan was to receive the balance of the Lockton Note " without any limitation as to an April 2012 tax or other payment; in trust as and for educational support for the children, with the proceeds to be used for their reasonable educational expenses (including living expenses while enrolled in an educational institution)." The settlement agreement also required John to assume liability for all marital and individual debts. In addition to the settlement agreement, the Judgment of Dissolution of Marriage also incorporated a Joint Parenting Agreement in which John was ordered to pay child support and the children's college expenses.
On April 9, 2012, John assigned the Note to Susan, directing Lockton to " make all payments due . . . [on the Note] directly to SUSAN F. CALLAHAN." Thereafter, Susan received the April 2012 Note payment from Lockton. John informed the IRS on February 5, 2013, that the Lockton Note had been transferred to Susan as a part of their divorce proceedings. After being served a Notice of Levy by the IRS, Lockton made the final ...