Judge levels tax fraud charge at ABQ attorney

Copyright © 2022 Albuquerque Journal

A federal bankruptcy judge wrote in a court order that prominent Albuquerque attorney Will Ferguson used shell companies to avoid paying state and federal taxes, including excise taxes on pricey cars for his personal collection.

Judge David Thuma of the U.S. Bankruptcy Court District of New Mexico found that Ferguson improperly claimed sole ownership of Motiva Performance Engineering LLC, "allowing him to deduct all of its losses" on his tax returns, even though the company had three owners.

"Between 2016 and 2020, Ferguson deducted $1,289,941 from his income for Motiva's losses," Thuma wrote in a 34-page opinion. At the time, Ferguson owned 65% of Motiva, not 100%, Thuma wrote.

"At a 37% marginal tax rate, the result is an improper reduction of $167,047 in federal income tax, together with an analogous underpayment of state income taxes," Thuma wrote. "Federal tax evasion is a serious matter."

Ferguson is the owner and president of Will Ferguson & Associates, one of New Mexico's largest personal injury law firms.

Ferguson responded that as Motiva's sole investor, he legally deducted all of Motiva's losses by agreement with the other owners of the limited liability company.

"They didn't have any investment in the business," Ferguson said in a phone interview. "So the operating losses in those years that the business incurred operating losses were placed on my tax return. The testimony was clear that that was the agreement."

Thuma also found that "Ferguson used Motiva to avoid paying state excise taxes by claiming that Motiva owned cars that Ferguson intended to be part of his private collection."

The collection included at least 23 cars with a total purchase price of about $1.4 million, including a Rolls Royce Ghost, four Jaguars, two Ferraris and a 1936 Packard, the judge wrote.

Assuming an average excise tax of 3.5%, Ferguson avoided paying about $49,000 to the state, Thuma estimated.

The fact that Ferguson titled cars under the Motiva dealer license belies his claim that the cars do not belong to Motiva, Thuma wrote.

"Ferguson is barred from telling this Court that Motiva does not own the Subject Cars, because he previously represented to the New Mexico Taxation and Revenue Department that Motiva did own them," Thuma wrote. "Ferguson made his bed when he avoided paying excise tax on the Subject Cars. Now he must lie in it."

Thuma handed down the order Oct. 7 in Motiva's Chapter 7 bankruptcy case following a six-day bench trial in August. He also ordered Ferguson to pay a $575,000 judgment for transferring Motiva's assets to one of his other companies "without obtaining reasonable compensation for Motiva."

Ferguson filed a motion in October disputing Thuma's findings and asking the judge to reconsider his opinion and judgment. A hearing is scheduled Dec. 2 to consider the motion.

Motiva's insolvency is a key issue because a 2nd Judicial District Court issued a six-figure judgment against Motiva.

Creig Butler sued Motiva in 2017 alleging the company botched an upgrade to his 2009 Hummer H3. A jury returned a verdict against Motiva in October 2018 resulting in a $292,000 judgment against the company.

"The judgment caught Ferguson by surprise," Thuma wrote, because Motiva held title to a number of luxury cars purchased with Ferguson's money. "Ferguson acted quickly," Thuma wrote. On Nov. 1, 2018, he transferred titles of five cars with a total acquisition cost of $609,000 to Dealerbank Financial Services, but no money changed hands, he wrote.

Ferguson is listed as director and chairman of Dealerbank in the New Mexico Secretary of State's corporate records.

By the time the company shut down in 2018, "Motiva had only a few worthless assets," Thuma wrote.

Butler garnished Motiva's bank account in December 2018 but obtained less than $3,000. Motiva filed for bankruptcy in November 2019.

Thuma found that Ferguson improperly used Motiva and other companies to prevent payment to Butler and other creditors.

"All creditor claims against Motiva should have been paid in full," he wrote. "Instead, creditors found they had claims against an empty shell."

Thuma also made Ferguson personally liable for paying Motiva's creditors – an action called "piercing the corporate veil."

Thuma also noted that in May 2021, New Mexico Supreme Court justices barred Ferguson from practicing law for 90 days after finding that he attempted to avoid paying the Butler judgment by shifting assets between companies he owned.

Ferguson contends that Motiva, Dealerbank and other businesses involved in the dispute are legitimate companies that paid creditors and carried little or no debt.

"Those businesses, most of them, went on for a decade or more and had nothing to do with creditors," Ferguson said. "It's a bizarre conclusion."

Ferguson said that he and Butler were Motiva's only creditors, which means that Ferguson will receive part of any money he pays toward Motiva's debts.

Motiva struggled because Albuquerque could not support a business that provided expensive, customized car modifications, he said.

"Here in Albuquerque, there weren't that many people who could afford what it cost to do that much work to a car," he said.

The six-figure judgment in the Butler case, which Ferguson called "an incredible amount of money," was the final blow that killed Motiva, he said.

"The business couldn't begin to address half of it," Ferguson said of the judgment. "There was a garnishment that cleaned out her bank account. That was the end of Motiva."

Ferguson said the core of Motiva's business involved selling cars on consignment for owners. He denied that he transferred ownership of the cars to avoid paying the judgment.

Car collections are "transactional," he said. "You buy them and you sell them. Sooner or later they all get sold. There were only four or five cars that hadn't been sold through the dealership,"

He also denied using Motiva's dealer tag to avoid paying excise taxes on cars he purchased for his own collection.

"The testimony was clear that we went through 40 cars or more, selling them off through the Motiva sales process through the dealer's license," he said. "There were a couple of cars that I used personally."

What happens when a judge accuses someone of tax fraud?

Albuquerque attorney Spencer Edelman, special counsel for Motiva's U.S. bankruptcy trustee, said he doesn't know if Ferguson will face legal consequences as a result of Thuma's ruling. Edelman also represented Butler in his lawsuit against Motiva.

"From a legal perspective, I don't know the answer," Edelman said in a phone interview. "It's not too good because it's a judicial finding."

Butler is unlikely to receive payment pending Ferguson's motion for reconsideration, he said.

Edelman said he was surprised that Ferguson chose not to settle the bankruptcy case and instead take it to trial.

"There were ample opportunities for Mr. Ferguson to avoid taking this to trial," he said. "I'm just astounded that any of this has had to happen. All of this was in Mr. Ferguson's control to avoid long ago."

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