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United States v. Preston

United States District Court, D. Columbia.

August 24, 2015

UNITED STATES OF AMERICA, Plaintiff,
v.
JAMES W. PRESTON, et al., Defendants

          For UNITED STATES OF AMERICA, Plaintiff: Oliver W. McDaniel, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE, Civil Division, Washington, DC.

         For JAMES W. PRESTON, Defendant: Mariam Wagih Tadros, Stephen D. Charnoff, LEAD ATTORNEYS, REES BROOME, PC, Tysons Corner, VA.

         For NANCY PRESTON, Defendant: Sean Patrick Roche, LEAD ATTORNEY, CAMERON/MCEVOY, PLLC, Fairfax, VA.

         Re Document Nos.: 46, 47

Page 94

         MEMORANDUM OPINION

         RUDOLPH CONTRERAS, United States District Judge.

         Denying Plaintiff's Motion for Summary Judgment and Denying Defendant James W. Preston's Motion for Summary Judgment

         I. INTRODUCTION

         The United States of America (the " Government" ) filed this civil action against

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Defendants James W. Preston and his wife, Nancy Preston, seeking to avoid certain transfers of property as fraudulent pursuant to the Federal Debt Collection Procedures Act (" FDCPA" ), 28 U.S.C. § § 3301 et seq.

         From approximately 1992 until September 2011, Nancy Preston was the Corporate Controller for Clyde's Restaurant Group (" Clyde's" ). See Statement of the Offense at 1, United States v. Preston, No. 12-cr-00189 (RC) (D.D.C. Sept. 26, 2012) (" Crim." ), ECF No. 6. In 2012, Ms. Preston was convicted of mail fraud in violation of 18 U.S.C. § 1841 in this Court, and, as part of her sentence, this Court ordered Ms. Preston to pay restitution in the amount of $239,069 and a fine of $62,000 to the United States. See Judgment, Crim. ECF No. 25. Prior to her conviction and entry of the money judgment, Ms. Preston transferred her interest in real property that was jointly owned by herself and her husband, as well as certain cash and securities that she held, to Mr. Preston. The Government filed this civil action against Mr. and Ms. Preston seeking to avoid those transfers as fraudulent. During this litigation, the transferred cash and securities were also the subject of an ancillary forfeiture proceeding in Ms. Preston's criminal case, which this Court resolved in favor of the Government. See Order, Crim. ECF No. 74; Order, Crim ECF No. 77.

         Now before the Court are cross-motions for summary judgment filed by the Government and Mr. Preston. See Def.'s Mot. Summ. J., ECF No. 46; Pl.'s Mot. Summ. J., ECF No. 47. Ms. Preston, proceeding pro se in this case, has not moved for summary judgment and has not filed any response to the present cross-motions for summary judgment. For the reasons explained below, the Court will deny both parties' motions.

         II. FACTUAL BACKGROUND

         Upon consideration of the evidentiary record submitted by the parties, the Court finds that the following relevant facts have been established or are not in dispute, except where noted as a party's claim or a disputed fact.

         A. Mr. Preston's Acquisition of the Windover Property and Conveyance in 2008

         In August 1984, Mr. Preston purchased real property located at 295 Windover Avenue N.W., Vienna, Virginia 22180 (the " Windover Property" ). See Def.'s Stmt. Undisputed Material Facts (" Def.'s SOF" ) ¶ 14, Def.'s Mem. Supp. Mot. Summ. J., ECF No. 46-1.[1]

         Mr. and Ms. Preston married over 20 years later, on December 30, 2004. See Pl.'s Stmt. Material Facts Not in Genuine Dispute (" Pl.'s SOF" ) ¶ 2, ECF No. 47-2. Nearly four years later, on November 25, 2008, Mr. Preston executed a Deed of Gift conveying the Windover Property to Ms. Preston and himself as tenants by the entirety. See Def.'s Mot. Summ. J. Ex. 13 (the " 2008 Deed of Gift" ), ECF No. 46-14. The text of the 2008 Deed of Gift states that the property was conveyed " without consideration" and, near the top of the document, it states that consideration is " None." Id. It also states that the conveyance is " Exempt from Recordation Tax under § 58.1-811.D of the Code of Virginia," which concerns deeds of gift without consideration. Id. It also states that the property's assessment was $789,270.00. Id. The parties sharply dispute the terms and circumstances of this conveyance.

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          Mr. and Ms. Preston submit sworn affidavits claiming that, despite the language in the 2008 Deed of Gift, the conveyance was part of an agreement between them that Ms. Preston would, at some future point in time, pay Mr. Preston for her joint interest.[2] See Aff. James Preston (Feb. 19, 2015), Def.'s Mot. Summ. J. Ex. 2 (" Mr. Preston's Feb. 2015 Aff." ) ¶ ¶ 19-20, ECF No. 46-3; Aff. Nancy Preston (Feb. 19, 2015), Def.'s Mot. Summ. J. Ex. 12 (" Ms. Preston's Feb. 2015 Aff." ) ¶ ¶ 18-19, ECF No. 46-13. Mr. Preston states:

Nancy Preston and I agreed that in exchange for placing Nancy Preston's name on the title to the [Windover] Property, Nancy Preston would pay me the value of her Clyde's stock (which was seized by the Government) and the funds from the sale of a property in Falls Church, Virginia, which sums were held in her Merrill Lynch accounts. She would pay this amount at the time that we combined our finances, which never occurred.

         Mr. Preston's Feb. 2015 Aff. ¶ 19. He further states that he conveyed his interest to himself and Ms. Preston " with the understanding that she would pay me for that interest in accordance with our agreement." Id. ¶ 20. Similarly, Ms. Preston states:

James Preston and I agreed that in exchange for placing my name on the title to the [Windover Property], I would pay James Preston the value of my Clyde's stock (which was seized by the Government) and the net proceeds from the sale of a property I separately owned in Falls Church, Virginia that I acquired before my marriage to Mr. Preston, which sums were held in my Merrill Lynch accounts. I intended to pay these amounts at the time that we combined our finances, which never occurred. In fact, James Preston and I still have not combined our finances.

         Ms. Preston's Feb. 2015 Aff. ¶ 18. The Prestons claim that they kept (and still keep) their finances separate, although they had planned to combine them. See Mr. Preston's Feb. 2015 Aff. ¶ 19; Ms. Preston's Feb. 2015 Aff. ¶ 18. Neither Mr. Preston nor Ms. Preston claim that they had agreed upon any specific amount that Ms. Preston would pay or any consequences in the event that Ms. Preston did not or could not pay. They do not provide the Court with any contemporaneous evidence of their agreement or statements from any third party witnesses with knowledge of the agreement. They also do not provide any explanation as to why the deed was recorded as a deed of gift or why it consistently refers to the conveyance as being without consideration.

         The Government disputes the Prestons' factual claim, largely relying on the 2008 Deed of Gift's statement that there was no consideration for the conveyance. See Pl.'s Mem. Supp. Mot. Summ. J. at 18-19, ECF No. 47-1. The Government also points to the deposition testimony of Victoria Griffith, a former co-worker of Ms. Preston who was terminated in connection with Clyde's investigation into Ms. Preston's criminal conduct. See Victoria Griffith Dep. Tr. (Jan. 23, 2015) at 13:6-18, Pl.'s Mot. Summ. J. Ex. E (" Griffith Dep." ), ECF No. 48-5.[3] Ms. Griffith testified

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that she had at least one conversation with Ms. Preston in which Ms. Preston discussed plans to refinance the Windover Property in order to construct an additional garage and an apartment on the property and she estimated that those conversations took place around late 2008. See id. at 27:18-28:9. Ms. Griffith also testified that the Prestons' decision to place Ms. Preston's name on the title to the Windover Property occurred around the same time. See, e.g., id. at 28:11-15. When asked what Ms. Preston told her about this decision, Ms. Griffith testified that Ms. Preston said, " We refinanced the house, and it's done, and we're moving forward on the construction," and that Ms. Preston " elaborate[d] to me that it was - you know, she was happy that her - she was a part of the house now." Id. at 33:18-33:25. Ms. Griffith does not appear to have given testimony concerning the purpose of the conveyance or whether there was any consideration or other agreement. The Prestons dispute Ms. Griffith's testimony, both stating that they never discussed the Windover Property with her at any time. See Aff. Nancy Preston (Apr. 17, 2015) ¶ 5, Def.'s Opp. Pl.'s Mot. Summ. J. Ex. 4 (" Ms. Preston's Apr. 2015 Aff." ), ECF No. 50-5; Aff. James Preston (Apr. 17, 2015) ¶ 10, Def.'s Opp. Pl.'s Mot. Summ. J. Ex. 3 (" Mr. Preston's Apr. 2015 Aff." ), ECF No. 50-4.

         B. Confession and Transfers of Cash and Securities in Early 2012

         On January 9, 2012, Ms. Preston confessed to agents of the Federal Bureau of Investigation (" FBI" ) that she had embezzled more than $600,000 from Clyde's, and this interview began a process that led to Ms. Preston retaining a criminal defense attorney to represent her, meeting with the U.S. Attorney's Office, and ultimately pleading guilty to mail fraud. See Stip. Regarding Testimony SA Mark Stanley, Def.'s Mot. Summ. J. Ex. 14, ECF No. 46-15.

         Eleven days later, on January 20, 2012, Ms. Preston made two cash transfers from an account she held at Merrill Lynch, one transfer of $6,000 and another transfer of $5,500 (the " Cash" ), to a Merrill Lynch account held by Mr. Preston. See Def.'s SOF ¶ 3. Three days after that, on January 23, 2012, Ms. Preston transferred certain securities valued at $190,529.27 (the " Securities" ) from her same Merrill Lynch account to a different Merrill Lynch account held by Mr. Preston. See id. ¶ 4.

         Ms. Preston claims that she made these transfers because two Merrill Lynch representatives told her that she " would no longer be able to maintain accounts at Merrill Lynch" and claims that she had no " intent to hinder, delay or defraud the Government." Ms. Preston's Feb. 2015 Aff. ¶ ¶ 4-5. Mr. Preston supports her claim. See Mr. Preston's Feb. 2015 Aff. ¶ 5. The Prestons also claim that, in making the transfers to Mr. Preston, Ms. Preston " instructed [Mr. Preston] to use the transferred funds to satisfy her personal financial obligations, including her restitution obligations to the Government arising from her plea agreement." Id. ¶ 9. See also Ms. Preston's Feb. 2015 Aff. ¶ 8. The Government challenges these claims, providing a sworn declaration by an in-house counsel to Merrill Lynch stating that " [a]t no time did Merrill Lynch ask Mrs. Preston to close" her account and that Merrill Lynch continued to maintain Ms. Preston's account for over two-and-a-half years until it was " purged from the Merrill Lynch system following thirteen months of inactivity" on August 30, 2014. Decl. Greg Rose ¶ 1, Pl.'s Mem. Opp. Def.'s Mot. Summ. J. Ex. B (" Rose Decl." ), ECF No. 51-4. Neither party provides any testimony from the Merrill Lynch representatives

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that actually met with Ms. Preston.[4] It is clear, however, that Ms. Preston's account continued to remain open and active for at least nine months following the transfers, as Mr. Preston paid Ms. Preston's attorneys on her behalf from Ms. Preston's account in March 2012 and as late as October 5, 2012. See Mr. Preston's Feb. 2015 Aff. ¶ ¶ 11-14.

         On February 7, 2012, the Securities, along with other securities held in Mr. Preston's account, were transferred to a separate Merrill Lynch account held by the James W. Preston Trust (the " Trust" ). See Def.'s SOF ¶ 4; Decl. Mary McAllister, Pl.'s Mot. Summ. J. Ex. A (" McAllister Decl." ) at 22-28, ECF No. 48-1. The Prestons do not provide any explanation for this transfer.[5] Documents indicate that the Trust was formed by an agreement dated January 20, 2012, the same day that Ms. Preston transferred the Cash to Mr. Preston's account, and that Mr. Preston is the grantor of the Trust and its sole trustee. See McAllister Decl. ¶ 9; id. at 29-30.

         C. Transfer of the Windover Property in April 2012

         On April 4, 2012, Mr. and Ms. Preston executed a Deed of Gift conveying their joint interest in the Windover Property to Mr. Preston " for his sole and equitable estate," removing Ms. Preston's name from the title. See Deed of Gift dated April 4, 2012 (" 2012 Deed of Gift" ), Pl.'s Mot. Summ. J. Ex. F (" Title Report" ) at 6-8, ECF No. 48-6. The text of the 2012 Deed of Gift states that the property was conveyed " in consideration of the sum of Ten Dollars ($10.00)," but, near the top of the document, it states that consideration is " None." Id. at 6-7. It states that the Windover Property's assessment was $934,370.00. Seeid. at 6. It also states that the conveyance is exempt from Virginia's recordation tax " as a transfer pursuant to a written incident to a divorce," id., but the Prestons have stated that this " appears to be a typo or mistake by the closing agent." Answer of James Preston at 2 ¶ 8, ECF No. 24; Answer of Nancy Preston at 2 ¶ 8, ECF No. 25. The Prestons remained ...


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