USTC ¶50,625] Watson Clinic LLP, Plaintiff v.
United States of America
, Richard Hill, and Patricia Hill, Defendants
District Court, Mid. Dist. Fla., Tampa Div., 8:99-CV-2260-T-17E,
Tax liens: Interpleader action: Validity and priority of liens: Third
parties: Judgment lien creditor.--In an interpleader action, two
federal tax liens were entitled to priority over a creditor's judgment
lien with respect to a delinquent taxpayer's interest in partnership
property. The creditor's judgment lien was not perfected until the state
) court actually entered a charging order against the debtors.
Therefore, the government's liens, which had been filed prior to the
issuance of the charging order, were accorded priority.
Tax liens: Interpleader action: Validity and priority of liens: Third
parties: Judgment lien creditor: Res judicata: Collateral
estoppel.--In an interpleader action, two federal tax liens were
entitled to priority over a creditor's judgment lien with respect to a
delinquent taxpayer's interest in partnership property. The principles
of res judicata or equitable estoppel did not prevent the
government from asserting its tax liens even though the IRS failed to
raise a claim or an objection at the time a charging order was issued.
The government was neither a party nor in privity with the parties in
the earlier court proceedings and, therefore, was not barred from
litigating this issue. Further, a creditor cannot use equitable estoppel
against the government to recover public funds in the 11th Circuit.
Tax liens: Interpleader action: Attorneys' fees.--A partnership
may be entitled to attorneys' fees it incurred in bringing an
interpleader action when the government attempted to enforce its federal
tax liens against a delinquent partner. However, the partnership was not
entitled to have its attorneys' fees paid from the interpleaded funds
until the tax liens had been satisfied.
ORDER GRANTING MOTION BY
UNITED STATES OF AMERICA
FOR SUMMARY JUDGMENT
This cause is
before the Court on the following:
', Motion for Summary Judgment
19 Defendant, Watson Clinic LLP's, response
23 Defendants, Richard Hill and Patricia Hill's, Motion for Summary
24 Defendants, Richard Hill and Patricia Hill's, Memorandum of Law in
Support of Motion for Summary Judgment
27 Defendants, Richard Hill and Patricia Hill's, Appendix to Motion for
have previously received notice that all motions for summary judgment
under Federal Rule of Civil Procedure 56 will be considered based upon
the standards of review set forth by the United States Supreme Court in Celotex
Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d (1986); Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202
(1986); and Matsushita Electric Industrial Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
judgment is appropriate if the "pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law."
language of Rule 56(c) mandates the entry of summary judgment after
adequate time for discovery and upon motion, against a party who fails
to make a showing sufficient to establish the existence of an element
essential to that party's case, and on which that party will bear the
burden of proof at trial. In such a situation, there can be no 'genuine
issue of material fact' since a complete failure of proof concerning an
essential element of the non-moving party's case necessarily renders all
other facts immaterial. The moving party is 'entitled to judgment as a
matter of law' because the non-moving party has failed to make a
sufficient showing on an essential element of the case with respect to
which that party has the burden of proof.
Corp. v. Catrett, 477
at 317-318 (1986).
Issues of fact
are genuine only if a reasonable jury considering the evidence presented
could find for the non-moving party. See
v. Liberty Lobby, Inc., 477
242, 248 (1986). Where the moving party bears the burden of persuasion
at trial, the party must support the summary judgment motion with
credible evidence, of the like indicated in Rule 56(c), which would
entitle that party to a directed verdict if not controverted.
The facts as
enumerated in the Motion for Summary Judgment filed by the
United States of America
are undisputed. Further, there is no dispute that the issues raised
should be resolved via summary judgment.
Dr. Henry J.
Redd is indebted to the
United States of America
for 1991, 1995, and 1996, income tax liabilities. (Doc. 27 at App. Ex.
9, 10). Richard Hill and Patricia Hill (hereinafter referred to as
"the Hills") obtained a Judgment against Dr. Redd and his wife
June 7, 1995
, in the amount of $75,000.00. Hill v. Redd, No. GC-G-94-1868
(Fla. Polk County Cir. Ct. June 7, 1995).
April 8, 1996
, the Watson Clinic LLP was served with a Writ of Garnishment and a
Continuing Writ of Garnishment in connection with Dr. Redd and his
wife's income tax liabilities. (Doc. 27 at App. Ex. 2 & 3). Watson
Clinic LLP filed an Answer to the Writ and Continuing Writ of
Garnishment detailing the partnership property which Dr. Redd was
entitled to receive. (Doc. 27 at App. Ex. 4).
May 8, 1996
, the Hills filed a Motion for Charging Order Against Partnership
Interest seeking to attach Dr. Redd's partnership interest in Watson
Clinic LLP. (Doc. 27 at App. Ex. 5). On
September 6, 1996
, the trial court entered an Order Denying Without Prejudice the Hill's
Motion for Charging Order (Doc. 27 at App. Ex. 6). On or about
February 17, 1998
, the Hills filed a new Motion for Charging Order Against Partnership
Interest. (Doc. 27 at App. Ex. 8).
April 6, 1998
filed a Notice of Federal Tax Lien for the 1991 tax liability, and
another Notice of Federal Tax Lien for the 1995 and 1996 liabilities,
with the Clerk of the Circuit Court of Polk County, Florida. (Doc. 27 at
App. Ex. 9, 10).
May 12, 1998
, the Polk County Circuit Court entered a Charging Order in favor of the
Hills. Hill v. Redd, No. GC-G-94-1868 (Fla. Polk County Cir. Ct.
May 12, 1998).
August 24, 1998
, the Internal Revenue Service served a Notice of Levy on Watson Clinic
LLP in an attempt to collect Dr. Redd's tax liability. (Doc. 1 at Ex.
E). The Notice of Levy directed Watson Clinic LLP to pay to the United
States Dr. Redd's property, or rights to property, that Watson Clinic
LLP had or was holding for Dr. Redd.
September 30, 1999
, Dr. Redd's outstanding income tax liability for tax years 1991, 1995,
and 1996, including interest and penalties, was $91,505.84.
United States of America
and the Hills have laid claims to Dr. Redd's funds. Watson Clinic LLP
was in doubt as to which party was entitled to receive payment and,
therefore, brought this interpleader action.
issue before this Court is whether the Hills' Judgment Lien was
perfected before the federal tax liens were filed. Once the
properly files a Notice of Federal Tax Lien, the lien becomes valid
against subsequent judgment lien creditors. See Central Bank v.
United States [93-2 USTC ¶50,586], 833 F.Supp. 892, 895 (M.D. Fla.
The heart of
this issue turns upon when the Hills' judgment lien became
perfected. No specific statute in
exists to dictate when a lien is perfected in the application for a
Charging Order Against Interest.
argues that the Hills did not perfect their lien until
May 12, 1998
, when the Circuit Court entered the Charging Order and, therefore,
failed to meet the definition of judgment lien creditors prior to that
date. (Doc. 14 at 5). The
further argues that since the
filed two Notices of Federal Tax Lien against Dr. Redd on
April 6, 1998
' federal tax liens have priority over the Hills'. See id.
The Hills urge
this Court to consider and rely on Krauth v. First Continental
Dev-Con Inc., 351 So.2d 1106 (Fla. 4th DCA 1977), in which the court
determined that between competing unsecured creditors, the first
to apply for a charging order has priority for full satisfaction. In
Krauth, the court held that ". . . the first to apply to a court of
proper jurisdiction for a Section 620.695 charging order has priority
for the full satisfaction of his judgment from the debtor's partnership
at 1108. However the issue in Krauth did not involve perfection of a
lien, but involved the issue of which of two perfected liens has
priority. The ruling in Krauth did not establish that a lien is
perfected by filing an application with a court.
In In re
Jaffe, 235 B.R. 490, 492 (Bankr. S.D. Fla.1999), the court
determined that in
, "an application for a charging order starts the judicial process
for perfecting a lien against a partnership interest. Perfection of the
lien, however, does not occur until a court actually enters a charging
order." Other courts have also concluded that a lien is not
perfected until a charging order has been issued. See In re Bridgeman,
197 B.R. 19 (Bankr. D.
1996); see also, In re Madden, 174 B.R. 178 (Bankr. E.D.N.Y.
Circuit has provided some additional guidance on this issue through its
exploration of when perfection of garnishment liens occurs. In Continental
Nat. Bank of
v. Tavormina (In re Masvidal), 10 F.3d 761, 763 (11th Cir. 1993),
the court held that, "it is the judgment entered on a writ of
garnishment that creates the 'lien' in favor of the garnishor. Mere
service of a writ alone creates no such interest."
guiding principles, the Hills did not perfect their lien until the
Circuit Court entered the Charging Order on
May 12, 1998
. Therefore, the Federal Tax Liens that the
April 6, 1998
, have priority over the Hills' Judgment Lien.
issue before this Court is whether the principle of res judicata
should preclude the
from bringing forth any claim against the funds at issue. The Hills
argue that the principles of estoppel and res judicata apply
because the Internal Revenue Service did not raise a claim or objection
at the time of the order requiring Plaintiff, Watson Clinic LLP, to
distribute the transfereable interest of Dr. Redd to the Hills. (Doc. 10
Court has addressed the principle of res judicata. Res judicata
applies to "repetitious suits involving the same cause of
action." Commissioner of Internal Revenue v. Sunnen [48-1
USTC ¶9230], 333 U.S. 591, 597 (1948). "A final judgment on the
merits of an action precludes the parties or their privies from
relitigating [sic] issues that were or could have been raised in that
action." Federated Department Stores v. Moitie, 452
394, 398 (1981).
was neither a party, nor in privity with the parties, in the prior state
court proceedings. Therefore, res judicata does not apply in this
estoppel does not apply against the
in the instant case. In the 11th Circuit, equitable estoppel
"cannot apply against the
to recover public funds."
v. Walcott, 972 F.2d 323, 327 (11th Cir. 1992).
The third and
final issue before this Court concerns whether Plaintiff, Watson Clinic
LLP, is entitled to attorney's fees. Plaintiff, Watson Clinic LLP, cites
two cases from the Middle District of Florida, SouthTrust Bank of
Florida N.A. v. Wilson [97-2 USTC ¶50,807], 971 F.Supp. 539 (M.D.
Fla. 1997); and Kurland v. United States [96-1 USTC ¶50,242],
919 F.Supp. 419 (M.D. Fla. 1996), which hold that a court may award
attorney's fees, at its discretion, to a disinterested stakeholder
filing an action in interpleader. (Doc. 20 at 3).
, Inc. v. Project, Inc. [85-1 USTC ¶9268], 749 F.2d 626 (11th Cir.
1984), the law in the Eleventh Circuit is clear. "The stakeholder
of an interpleaded fund is not entitled to attorney's fees to the extent
that they are payable out of a part of the fund impressed with a federal
tax lien." Id at 627 (quoting Spinks v. Jones [74-2
USTC ¶9657], 499 F.2d 339, 340 (5th Cir. 1974)).
equity, Plaintiff, Watson Clinic LLP, may be, upon filing of an
appropriate motion, entitled to reasonable attorney's fees after
the federal tax lien liability has been fully satisfied. As such,
summary judgment is not appropriate as to the issue of attorney's fees.
it is ORDERED that Defendant, United States of America's, Motion
for Summary Judgment, (Doc. 14), be GRANTED in part and DENIED
in part as discussed herein; Defendants, Richard Hill and Patricia
Hill's, Motion for Summary Judgment, (Doc. 23), be DENIED; and
the Clerk of Court be DIRECTED to enter judgment in accordance
ORDERED in Chambers, in
, this 6th day of July, 2000.
USTC ¶50,338] In re Barbara J. Sparks, Debtor. Barbara J. Sparks,
United States of America
Bankruptcy Court, No.
Secs. 6323 and 6330 ]
District Court: Jurisdiction: Assessment and collection: Challenges
to: Res judicata: Tax Court decision: New matters: Hearing before
The doctrine of res judicata barred jurisdiction over an
individual's challenge to her deficiency assessments. The Tax Court had
already determined that the assessments were correct in a case that
involved the same parties, concerned the same cause of action, gave the
taxpayer a full and fair opportunity to litigate her claims, and
resulted in a final judgment. Thus, it was irrelevant that she now
wished to raise substantive arguments that she failed to raise before
the Tax Court. Finally, the provision in Code
Sec. 6330 for an
istrative hearing prior to the execution of an IRS levy did not apply to
judicial proceedings or supersede the doctrine of res judicata.
Court: THIS MATTER comes before the Court pursuant to Defendant's Motion
To Dismiss or For Summary Judgment With Supporting Brief (the
"Motion") filed by the United States of America, acting
through the Internal Revenue Service, Defendant herein
("Defendant" or "IRS") and the Brief in Response to
the Motion filed by Barbara J. Sparks, Plaintiff herein
("Plaintiff" or "Ms. Sparks"). The following
findings of fact and conclusions of law are made pursuant to Bankruptcy
Rule 7052 and Federal Rule of Civil Procedure 52.
The Court has
jurisdiction over this matter pursuant to 28 U.S.C.A. §1334(b), 1
and venue is proper pursuant to 28 U.S.C.A. §1409. Reference to the
Court of this adversary proceeding is proper pursuant to 28 U.S.C.A. §157(a).
This is a core proceeding as contemplated by 28 U.S.C.A. §157(b)(2)(B).
judgment is proper where " 'there is no genuine issue as to any
material fact.' " Celotex v. Catrett, 477
317, 322-23 (1986) (citing Anderson v. Liberty Lobby, Inc., 477
242, 250 (1986)). Summary judgment is appropriate if "the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c), made
applicable in this proceeding by Fed.R.Bank.P. 7056.
States Court of Appeals for the Tenth Circuit has ruled that
"[e]ntry of summary judgment is mandated, after an adequate time
for discovery and upon motion, 'against a party who fails to make a
showing to establish the existence of an element essential to that
party's case, and on which that party will bear the burden of proof at
trial.' " Aldrich Enterprises, Inc. v. United States, 938
F.2d 1134, 1138 (10th Cir. 1991), rehearing denied October 4,
1991 (citation omitted); accord Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 256-57, 106 S.Ct. 2505, 2514-15, 91 L.Ed.2d 202 (1986).
Summary judgment is only appropriate if the facts set forth by the
movant are properly supported with admissible evidence and the facts
affirmatively show that the movant is entitled to judgment on those
facts as a matter of law. See Fed.R.Civ.P. 56(e).
facts are not in dispute. Ms. Sparks failed to file timely federal
income tax returns for tax years 1993 and 1994. On
February 2, 1996
, she received a Notice of Deficiency (the "Notice") from the
IRS. The Notice explained various adjustments made by the IRS to Ms.
Sparks' income with detailed schedules showing capital gains and losses
for 1993 and 1994. It also stated that Ms. Sparks owed additional unpaid
federal taxes of $11,330.00 for 1993 and $41,194.00 for 1994. These
taxes were calculated on the basis of documents known as
"Substitutes for Returns" ("SFRs") which were
prepared by the IRS after examination of its records regarding Ms.
Sparks' income. See Complaint, Docket No. 1, ¶4.
April 4, 1996
, Ms. Sparks filed a petition (the "Petition") in the United
States Tax Court (the "Tax Court") seeking a redetermination
of her tax liability for tax years 1993 and 1994. See Government
Exhibit 2. The Petition took direct issue with the assessments contained
in the Notice on various bases, including allegations that Ms. Sparks
was a "Non-resident Alien" not subject to federal taxation,
that "no methods of regulated cash exist" which would allow
her to legally discharge any tax obligation and that the IRS had engaged
in some form of unspecified "Government Fraud" against Ms.
Sparks. The IRS filed a motion to dismiss the Petition.
May 20, 1996
, the Tax Court ordered Ms. Sparks to submit an amended petition
detailing any specific errors included in the Notice requiring
redetermination. See Government Exhibit 3. Ms. Sparks filed her
amended petition (the "Amended Petition") on
June 13, 1996
. See Government Exhibit 4. In the Amended Petition, Ms. Sparks
alleged that the IRS could not legally assess taxes against her in the
form of federal reserve notes, as "[f]ederal reserve notes are
securities which are exempt from taxation pursuant to the party securing
the said notes in the first instance." See Government
Exhibit 4, ¶4. 2
Thereafter, the IRS filed a motion to dismiss the Amended Petition for
failure to state a claim.
Petition was dismissed by the Tax Court on
July 5, 1996
. At that time, the Tax Court also entered its "Order of Dismissal
and Decision" (the "Tax Court Order"). See
Government Exhibit 6. The Tax Court Order affirmed the tax calculations
contained in the Notice, and added penalties of $2,833.00 and $476.00
for tax year 1993, and $10,299.00 and $2,123.00 for tax year 1994. The
IRS assessed these amounts against Ms. Sparks on
November 13, 1996
. Ms. Sparks appealed the Tax Court Order decision to the United States
Court of Appeals for the Tenth Circuit on
October 7, 1996
. See Government Exhibit 7. Her appeal was dismissed on
January 9, 1997
, for lack of prosecution. See Government Exhibit 8. The Tax
Court Order was not further appealed, and is now final and
October 27, 1997
, the IRS brought an action in the United States District Court for the
Western District of Oklahoma seeking to reduce the amount owed to it by
Ms. Sparks to judgment and to set aside certain transfers made by Ms.
Sparks to others (the "Collection Action"). See
Government Exhibit 9. On
March 1, 1999
, the IRS filed a Motion for Partial Summary Judgment in the Collection
March 17, 1999
, Ms. Sparks filed her petition for relief before this Court, thus
staying the Collection Action.
To the extent
the "Conclusions of Law" contain any items which should more
appropriately be considered "Findings of Fact," they are
incorporated herein by this reference.
advances two arguments in support of its position that it is entitled to
summary judgment in this adversary proceeding. First, the IRS contends
that the Tax Court Order is res judicata as to the issue of Ms.
Sparks' liability to the IRS. Second, the IRS contends that this Court
lacks jurisdiction to hear this dispute under §505 of the Bankruptcy
Code. In response, Ms. Sparks argues that the Motion should be denied
because the IRS used substitute returns in determining the amounts owed
for tax years 1993 and 1994, which fail to include the tax basis in
certain property she sold in 1993 and 1994. Ms. Sparks argues that the
issues raised by the use of the substitute returns may be considered by
this Court because they were not raised before or considered by the Tax
Court. For the reasons set forth below, the Court concludes that Ms.
Sparks is incorrect.
States Court of Appeals for the Tenth Circuit has ruled in order to be
applicable in a particular case,
judicata requires the satisfaction of four elements: (1) the prior
suit must have ended with a judgment on the merits; (2) the parties must
be identical or in privity; (3) the suit must be based on the same cause
of action; and (4) the plaintiff must have had a full and fair
opportunity to litigate the claim in the prior suit.
v. General Mills Restaurants, Inc.,
124 F.3d 1255, 1256 (10th Cir. 1997) (citation omitted) (hereafter
"Nwosun"). The doctrine of res judicata applies
to decisions of the United States Tax Court. See Egbert v. United
States [91-1 USTC ¶50,048], 752 F.Supp. 1010, 1018 (D. Wyo. 1990), aff'd,
940 F.2d 1539 (10th Cir. 1991), cert. denied, 502 U.S. 1016
(1991) ("The final decisions of the United States Tax Court are res
judicata and conclusive as to all matters decided therein as well as
all matters which could have been decided.").
All of the
elements outlined in Nwosun are present in this case. The Tax
Court Order is a final judgment on the merits. The parties to the Tax
Court Order are the same parties who are now before this Court. The Tax
Court Order is based upon the same cause of action (Ms. Sparks' federal
income tax liability for tax years 1993 and 1994) that Ms. Sparks now
seeks to litigate in this Court. 3
Ms. Sparks was given a full and fair opportunity to litigate her claim
in the Tax Court, including her right to appeal once an adverse decision
was rendered against her. For reasons unknown to this Court, Ms. Sparks
failed to raise before the Tax Court the substantive arguments which she
wishes to present to this Court. It may well be that had Ms. Sparks
raised those arguments to the Tax Court, she would have prevailed. The
fact that she failed to raise these arguments does not entitle her to a
second bite at the judicial apple. The doctrine of res judicata
precludes further litigation of Ms. Sparks' 1993 and 1994 tax liability.
As a result of its determination that the doctrine of res judicata
is applicable to this case, the Court declines to reach the issues
raised by the IRS under §505 of the Bankruptcy Code.
response to the Motion, Ms. Sparks does not make any direct argument in
opposition to the applicability of the doctrine of res judicata.
Instead, Ms. Sparks argues that §6330 of the Internal Revenue Code (the
"IRC") grants her the right to raise before this Court an
issue not raised to the Tax Court; i.e., the accuracy of the SFRs
prepared and relied upon by the IRS, and thus contest the validity of
her tax liability for a second time. In order to reach the result sought
by Ms. Sparks, this Court must either disregard the entire body of case
law on the concept of res judicata, or assume that Congress
intended to legislatively overrule the doctrine of res judicata
as it applied to decisions of the United States Tax Court when it
enacted IRC §6330. This Court declines to reach either of these
of the IRC was enacted in 1998, in response to mounting public criticism
of the collections policies and procedures of the IRS. The section is
entitled "Notice and opportunity for hearing before levy." 4
The levy referred to in IRC §6330 is found in IRC §6331, which creates
a sweeping power of levy which is unique to the IRS. A levy under IRC §6331
may be performed without any judicial process and may be done without
any notice to the taxpayer if the Secretary of the IRS has determined
"that the collection of the tax is in jeopardy." See
IRC §6331(d)(3). In all other cases, §6330 creates a right to an
istrative hearing before the IRS may exercise its powers of levy under
IRC §6331. Any such hearing "shall be held by the Internal Revenue
Service Office of Appeals." See IRC §6330(b)(1). There is
nothing in IRC §6330 to indicate that it is intended to apply to
judicial proceedings, or that it is intended to displace the
long-standing doctrine of res judicata. The only reference to any
court of law is found in §6330(d), which outlines a taxpayer's right of
appeal to a court of competent jurisdiction in the event the taxpayer is
dissatisfied with the decision of the Internal Revenue Service Office of
Appeals. The Court concludes that IRC §6330 is a statute with a limited
purpose; i.e., to provide a taxpayer with an opportunity for an
istrative hearing prior to a non-judicial levy by the IRS. It does
nothing more than that. The Court concludes that IRC §6330 does not
supercede the doctrine of res judicata.
The Motion for
Summary Judgment filed by the
United States of America
, acting through the Internal Revenue Service, Defendant herein, is
granted. A separate order consistent with this Memorandum Opinion is
entered concurrently herewith.
comes before the Court pursuant to Defendant's Motion To Dismiss or For
Summary Judgment With Supporting Brief filed by the
United States of America
, acting through the Internal Revenue Service, Defendant herein and the
Brief in Response to the Motion filed by Barbara J. Sparks, Plaintiff
herein. The issues having been duly considered and a decision having
been duly rendered, for the reasons set forth in the Memorandum Opinion
filed concurrently herewith,
IT IS HEREBY
ORDERED that judgment is entered in favor of the
United States of America
, acting through the Internal Revenue Service, Defendant herein, and
against Beeler Distributing Co., Defendant.
IT IS FURTHER
ORDERED that this adversary proceeding be, and the same hereby is,
dismissed with prejudice.
Unless otherwise noted, all statutory references are to sections of the
United States Bankruptcy Code, 11 U.S.C.A. §101 et. seq. (West
At no time did Ms. Sparks ever present to the Tax Court the substantive
argument which she now makes to this Court; i.e., that the tax
calculations contained in the Notice and the SFRs do not take into
account "Debtor's adjusted basis in the assets sold [by
Debtor]." See Docket No. 22, p. 2. The Court assumes that
this statement is factually accurate for purposes of its decision.
As the United States Supreme Court has noted,
are levied on an annual basis. Each year is the origin of a new
liability and of a separate cause of action. Thus if a claim of
liability or non-liability relating to a particular tax year is
litigated, a judgment on the merits is res judicata as to any
subsequent proceeding involving the same claim and the same year.
Commissioner of Internal Revenue v. Sunnen [48-1 USTC ¶9230], 333
U.S. 591, 598 (1948) (hereafter "Sunnen"); see also
Finley v. United States [80-1 USTC ¶13,337], 612 F.2d 166, 170 (5th
Cir. 1980) ("In federal tax litigation one's total income tax
liability constitutes a single, unified cause of action, regardless of
the variety of contested issues and points that may bear on the final
computation.") (citing Sunnen); see also In re Limited
Gaming of America, Inc., 213 B.R. 369, 373 (Bankr. N.D. Okla. 1997)
(holding that each taxable year constitutes a separate claim for
Section 6330 of the Internal Revenue Code is reproduced in its entirety
in Appendix "A" to this Memorandum Opinion. As of the date of
this Memorandum Opinion, the Court was unable to locate any case
authority dealing with the applicability of this section to judicial
¶50,156] In re Howard J. and Mina J. Black, Debtors
Bankruptcy Court, Dist. Ariz., 92-00165-PHX-JMM, 12/17/98
Secs. 6323 and 6871 ]
Bankruptcy: Liens: Validity of: Nondischargeable debt: Chapter 12
plan: Object to.--
Since the IRS failed to object to married debtors' confirmed Chapter 12
plan, it waived the right to collect a nondischargeable debt in
bankruptcy from them and was bound by the plan's treatment of the IRS
secured tax claim as an unsecured priority claim for a reduced amount
and as a general and unsecured claim for a portion of the penalties and
interest. The plan confirmation proceeding provided notice of the
proposed treatment of the secured claims and of the fact that the IRS
secured claim had been disallowed in its entirety. The IRS failed to
object to the modified plan and confirmation order that plainly stated
that there were no tax claims and that all tax liens would be released
upon payment or entry of discharge. It also did not object to the sale
order for the debtors' real estate that indicated that the sale proceeds
were used to pay the tax lien.
Bankruptcy: Liens: Validity of: Nondischargeable debt: Chapter 12
plan: Object to: Res judicata.--
The IRS had no basis to object to married debtors' confirmed Chapter 12
plan, since the confirmed plan's treatment of its secured claim and lien
was res judicata. Moreover, it could not use the current lien
avoidance proceeding to collaterally attack the prior final orders.
Accordingly, the IRS's postconfirmation and refiled tax lien had no
force or effect.
Hugh W. Hull,
3030 N. Central Ave.
, for debtors. Jose de Jesus Rivera, United States Attorney, Phoenix,
ert McIntosh, Department of Justice, Washington, D.C. 20530, for I.R.S.
chapter 12 case, the United States Internal Revenue Service
("IRS") has recorded, postconfirmation, a corrected tax lien.
The taxes covered by the lien were included in a secured tax claim filed
by the IRS in the bankruptcy case of Howard and Mina Black
("Debtors"). Debtors' plan classified the secured claim as an
unsecured priority claim for a reduced amount, and as a general
unsecured claim for a portion of the penalties and interest. The IRS did
not object to the plan. Debtors paid the priority amount from proceeds
of real property sales, and there was no distribution for the unsecured
creditors. In addition, Debtors' modified plan was subsequently
confirmed, which confirmation order purported to extinguish all tax
liens. Debtors moved to set aside the refiled lien, contending that the
IRS was bound by the confirmed plan, which discharged their tax
obligation. The Court must determine the following issues:
1. Whether the
IRS lien could be "stripped off" or avoided through the
chapter 12 plan provisions.
2. Whether the
IRS is bound by the confirmed plan's treatment of its nondischargeable
debt, and/or has waived its right to (1) collect any remaining
nondischargeable priority tax debt and/or (2) enforce a lien for unpaid
tax, having failed to assert its rights at the time of plan
confirmation, modified plan confirmation, or at court-approved sales.
This is a core
proceeding, over which the bankruptcy court has subject matter
jurisdiction pursuant to 28 U.S.C. §1334 and §157(b). Having reviewed
the file, including the pleadings and the supplemental briefs, and the
law, the court now renders its decision in this matter.
July 10, 1990
, the IRS filed a Notice of Tax Lien for the 1987 tax. On
September 12, 1990
, the IRS filed a Notice of Tax Lien for 1988 unpaid taxes in the amount
of $10,374.20, and for 1989 unpaid taxes in the amount of $9,440.92, for
a total of $19,815.12.
a chapter 12 petition on
January 7, 1992
. The IRS was listed on the master mailing list, and was listed in
Debtors' schedules as an unsecured priority creditor with a claim of
October 21, 1992
, the IRS filed a proof of claim in Debtor's bankruptcy case for
agricultural labor employment tax for the years 1987, 1988, 1989 and
1991, as follows:
Tax Year Date Type of
Assessed Tax Penalties Interest Total Claim
1987 6/13/88 $0 $ 670.70 $ 769.74 $ 1,440.34 Secured
1988 7/9/90 $6,357.77 $3,681.72 $3,143.21 $13,182.70 Secured
1989 7/9/90 $7,163.54 $3,116.14 $2,018.70 $12,298.38 Secured
1991 5/18/92 $1,677.08 $ 1,677.08 Unsecured
1991 $ 394.11 $ 394.11 Gen'l
Total Secured: $ 26,921.42
Total Priority: $ 1,677.08
Total Unsecured: $ 394.11
Debtors' schedules, their real property was fully encumbered by liens of
other creditors with priority over the IRS tax lien. The Debtors also
owned personal and exempt assets totaling $26,577 and $110,577,
respectively. The IRS alleges that such assets totally secured the IRS's
tax lien. In re Isom [90-1 USTC ¶50,216], 901 F.2d 744, 745-46
(9th Cir. 1990); 11 U.S.C. §522(c)(2)(B).
April 24, 1992
, Debtors filed and served their chapter 12 plan. The plan defined an
"allowed claim" as one "which is filed pursuant to §501
of the Bankruptcy code and which is al lowed pursuant to §502 of the
Bankruptcy Code." The plan further provided that secured claims
would be allowed or disallowed at confirmation based on a valuation of
Debtors' property securing the respective claims. Nevertheless, Debtors
did not file a formal objection to the IRS secured claim, pursuant to §502
and Fed.R.Bankr.P. 3007.
Debtors treated the entire IRS claim as both a priority claim for taxes,
pursuant to §507, and a general unsecured claim for penalties and
interest. Specifically, the plan provided that the priority claim of
$13,521.31 would be paid in full. This figure was the sum of the 1988
tax principal of $6,357.77, and the 1989 tax principal of $7,163.54.
further provided that "[a]ny and all penalties and/or interest
assessed more than three years prior to the filing date of this petition
shall be deemed unsecured and relegated to Class 8 for treatment with
other unsecured debts." Since only the interest and penalties for
1987 were "assessed more than three years prior to the filing
date," the plan actually, and perhaps inadvertently, reduced the
total nondischargeable priority debt to $13,521.31. 1
The unsecured claims were to be paid from net cash flow from operations,
but no distribution was ever made on the unsecured claims.
received notice of the proposed plan and confirmation hearing. The IRS
did not object to plan confirmation. The chapter 12 plan was confirmed
September 29, 1992
, following a hearing. The confirmation order was not appealed, and
March 12, 1993
, Debtors filed a motion to sell certain real property and listed the
secured debt on the property, but did not include the IRS lien. Debtors
notified the IRS, along with all creditors, of this sale. The IRS did
not object, and an order approving the sale was entered on
June 21, 1993
, and was amended on
August 19, 1993
June 7, 1994
, Debtors moved for approval to sell more real property, and notified
the IRS. This time, Debtors proposed to pay the IRS "tax lien"
of $13,521.31, in cash at closing. The IRS did not object to the sale,
nor did it contend that its lien was greater than $13,521.31. The sale
and payment of the "lien" was approved in the order dated
July 15, 1994
. IRS received the payment, which it applied to the 1987 and 1988 tax
debt. Thereby, according to IRS records, the priority tax for 1989 was
April 25, 1995
, Debtors filed a modified plan which proposed to reduce the payout
period from five years to three and one-half years, and to deal with the
remaining secured debt, which did not include the IRS claim. The
modified plan provided for Class 3 priority tax debt to be paid in
annual installments, with the interest and penalties "assessed more
than three years prior to the filing date" to be treated as a
general unsecured claim. The amended plan omitted the reference to a
specific amount for any IRS priority claim, presumably because the IRS
unsecured priority claim had been paid in full from the
July 15, 1994
received a copy of the proposed modified plan, but did not object.
Following a hearing, the modified plan was confirmed on
June 21, 1995
, and the order was not appealed. The order, unlike the modified plan
itself, stated that there were no tax claims-either priority or
unsecured. The order further purported to extinguish all tax liens upon
discharge. Paragraph 7 stated:
7. Tax Claims
to be paid as follows:
a. Paid as
priority claims: None.
b. Tax Claims
upon which interest pursuant to IRC Sections 6621 and 6222 are to be
paid as follows: None.
value of __-$__. Remainder of 19--Federal Income Tax claims to be
classified as a general unsecured claim.
All tax liens
placed by the respective tax agencies to be released, and extinguished
upon payment, or entry of discharge pursuant to 11 U.S.C. §1328(a).
c. Paid as
unsecured general claims: None.
The order was
not appealed and became final. On
May 1, 1996
, Debtors moved for the entry of a Final Decree, stating that the Plan
had been fully consummated. A Final Decree was entered on
June 13, 1996
years later, on
February 26, 1998
, Debtors filed a Motion to Set Aside Lien of IRS. The notice of lien in
question was filed and recorded on
May 12, 1996
. The new notice of lien, allegedly, "correct[ed] the original
September 12, 1990
. It changed the "refile deadline" in column "e"
August 8, 1996
August 8, 2000
. Otherwise, the lien amount for unpaid tax debt for 1988 and 1989 was
the same as that listed in 1990:
1988: ....................................................... $10,374.20
1989: ....................................................... $ 9,440.92
The IRS filed
a written objection to the motion. Following a hearing on Debtors'
July 8, 1998
, the bankruptcy court took the matter under advisement, then issued its
first memorandum decision on
August 7, 1998
, in which the Court requested additional briefing on the aforementioned
August 28, 1998
, the IRS filed a supplemental brief, and on September 1 and 2, 1998,
the IRS filed additional legal authority for its position. On
September 4, 1998
, Debtors filed a supplemental brief.
the IRS, the taxes for 1987 and 1988 have been paid, and only the 1989
tax in the amount of $9,440.92 remains subject to the alleged lien.
contend that the chapter 12 plan treated the IRS priority claim and the
"balance" of the claim was treated as a general unsecured
claim. Furthermore, they allege that this determination was made
pursuant to §506(a) (determination of secured status) because there was
no value in property of the estate to support the IRS's secured claim.
Debtors' contention is that the IRS has waived its rights and/or is
bound by the terms of the confirmed plan. Since the plan was completed,
Debtors argue that their entire tax debt has been discharged, and their
property is unencumbered by any liens for prepetition debts. Debtors
also request their attorney's fees and costs.
contends that the plan provisions did not avoid the tax lien on all of
Debtors' exempt and nonexempt property for the unpaid amounts. The IRS
further contends that none of the debt entitled to priority has been
discharged by the plan because it is nondischargeable pursuant to §507(a)(8)(D).
The IRS also contends that it did not waive its rights as to any
nondischargeable debt. In addition, the IRS contends that the 1991
priority claim for $1,677.08 was not provided for in the plan, thus was
parties have expanded the issues beyond the viability of the tax lien,
and request that this Court determine whether the unpaid tax debt has
been discharged. This court has the jurisdiction and authority to
construe the bankruptcy court's prior orders. Burlington Northern
Inc. v. United States, 459
131, 143 n.9, 103 S.Ct. 514, 522, 74 L.Ed.2d 311 (1982); In re Elias,
215 B.R. 600, 617 (9th Cir. BAP 1997).
Debtors' Confirmed Chapter 12 Plan "Stripped Off" the Tax Lien
and Bound the IRS to Unsecured Status.
sets forth the effect of plan confirmation in chapter 12, and provides,
in pertinent part:
Except as provided in section 1228(a) of this title, the provisions of a
confirmed plan bind the debtor, [and] each creditor . . . whether or not
the claim of such creditor . . . is provided for by the plan, and
whether or not such creditor . . . has objected to, has accepted, or has
rejected the plan.
Except as otherwise provided in the plan or the order confirming the
plan, the confirmation of a plan vests all of the property of the estate
in the debtor.
Except as provided in section 1228(a) of this title and except as
otherwise provided in the plan or in the order confirming the plan, the
property vesting in the debtor under subsection (b) of this section is
free and clear of any claim or interest of any creditor provided for by
confirmation order acts as a res judicata determination of all
matters dealt with by the plan, and the debtor's obligation to the
creditor is permanently adjusted according to the plan provisions. 8
COLLIER ON BANKRUPTCY §1227.01 (15th ed. 1998). A creditor is
precluded from asserting, after confirmation, any other interest than
that provided for in the confirmed plan. In re Peters, 184 B.R.
799, 802 (9th Cir.BAP 1995), rev'd on other grounds, 101 F.3d 618
(9th Cir. 1996) (construing §1327). 2
The issue in
this case falls squarely under the meaning of §1227(c), which states
that "[e]xcept as provided in section 1228(a) of this title and
except as otherwise provided in the plan or in the order confirming the
plan, the property vesting in the debtor . . . [upon confirmation of a
plan] is free and clear of any claim or interest of any creditor
provided for in the plan."
§1227(c), the two exceptions to property vesting in the debtor free and
clear of liens are: (1) property of the estate will remain subject to
all liens and claims that are left in place under the terms of the plan
or the confirmation order, and (2) property of the estate will remain
subject to to claims that are not discharged in the case.
The Lien as a Claim
The tax lien
exists pursuant to 26 U.S.C. §6321, which provides, in pertinent part:
any person liable to pay any tax neglects or refuses to pay the same
after demand, the amount . . . shall be a lien in favor of the United
States upon all property and rights to property, whether real or
personal, belonging to such person.
26 U.S.C. §6322
provides that the tax lien "shall arise at the time the assessment
is made and shall continue until the liability for the amount so
assessed . . . is satisfied or becomes legally unenforceable by reason
of lapse of time." 26 U.S.C. §6325(a)(1) further provides that
alien shall be released when "the liability . . . has become
legally unenforceable," clearly contemplating methods besides
"lapse of time" by which tax liabilities might become
unenforceable. In re Isom [90-1 USTC ¶50,216], 95 B.R. 148, 150
(9th Cir. BAP 1988), aff'd, 901 F.2d 744 (9th Cir. 1990).
101(37) of the Bankruptcy Code defines "lien" as a
"charge against or interest in property to secure payment of a debt
or performance of an obligation." Because a lien secures a
creditor's right to payment of a debt, i.e., a "claim,"
the lien has no existence in the absence of the claim which it secures.
11 U.S.C. §101(5)(A) and (37).
that the tax debt became legally unenforceable through the confirmed
plan which discharged the debt upon payment pursuant to the plan, and
the lien was released pursuant to the plan's strip-off of the IRS's
secured claim based on §506. This argument is based on the premise that
a lien is a "claim" and thus a "debt," which is
discharged after completion of all payments under the plan which provide
for the lien. See Johnson v. Home State Bank, 501
78, 84, 111 S.Ct. 2150, 2154, 115 L.Ed.2d 66 (1991). Section 1228, in
pertinent part, provides a discharge of "all debts provided for by
the plan . . . or disallowed under section 502 of this title,"
(with the exception for debts of a kind specified in section 523(a) of
the code, which will be discussed below). See COLLIER ON
BANKRUPTCY, supra., §1228.02[a]. Since the IRS's secured
claim was not disallowed under section 502, the question is whether the
secured debt was "provided for by the plan." A claim is
"provided for" under the plan if the plan " 'make[s] a
provision for' it, i.e., deal[s] with it or refer[s] to it."
In re Gregory, 705 F.2d 1118, 1122 (9th Cir. 1983).
On the other
hand, the IRS contends that the lien was unaffected by the chapter 12
plan, because the plan provisions alone could not change its secured
claim into an unsecured claim. 3
The IRS filed
a proof of secured claim for $26,941.42, including the 1989 tax
liability. The plan provided that a claim would be allowed pursuant to
§502, which provides that a claim filed pursuant to §501 is
"deemed allowed, unless a party in interest . . . objects."
Debtors did not list the secured claim as disputed, nor did they object
to the IRS proof of claim, as required under §502 and Fed.R.Bankr.P.
3007. The IRS claim was not disallowed under §502. Therefore, the IRS's
secured claim was deemed allowed. 11 U.S.C. §502(a).
§502, §506 also applies in chapter 12 cases. See 11 U.S.C. §103(a).
Section 506 allows a debtor to bifurcate an allowed claim into its
secured and unsecured components according to the value of its
collateral in which the estate has an interest. 4
Section §506(a) provides:
(a) An allowed
claim of a creditor secured by a lien on property in which the estate
has an interest, or that is subject to setoff under section 553 of this
title, is a secured claim to the extent of the value of such creditor's
interest in the estate's interest in such property, or to the extent of
the amount subject to setoff, as the case may be, and is an unsecured
claim to the extent that the value of such creditor's interest or the
amount so subject to setoff is less than the amount of such allowed
claim. Such value shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of such property, and
in conjunction with any hearing on such disposition or use or on a plan
affecting such creditor's interest.
At this late
stage, the IRS disputes whether all of the nonexempt estate property was
fully encumbered by liens with priority over the IRS lien. See
' Supplemental Brief at 5. In fact, there may have been value to which
the lien attached, i.e., Debtors' personal and exempt assets.
Believing there was no value, however, and in the absence of an
objection from the IRS, Debtors classified the secured claim as an
unsecured claim, and the claim was paid accordingly.
reorganization case, §506(a) is relevant regarding what claims are
allowed or disallowed to determine what gets paid through the plan,
"and the would-be secured creditor whose claim is allowed only as
unsecured gets paid as an unsecured creditor." In re Laskin,
222 B.R. 872, 876 (9th Cir. BAP 1998).
important to note that §506 does not govern the allowance or
disallowance of a claim, rather it governs the determination and treat
ment of secured claims. 4 COLLIER ON BANKRUPTCY, supra., §506.01.
Nevertheless, §506 "was intended to facilitate valuation and
disposition of property in the reorganization chapters of the
Code." In re Lange, 120 B.R. 132,135 (9th Cir. BAP 1990).
For example, once a claim is "allowed" as an unsecured claim
under §506(a), its treatment is dictated by the plan provisions for
satisfying or modifying those claims. See §§1222, 1225. Once
those requirements have been met, the plan binds the creditor to such
treatment, pursuant to §1227.
The IRS was
determined by Debtors, according to the valuation procedure set forth in
their plan, to be a totally unsecured creditor without objection from
the IRS. Therefore, the plan did not have to meet the requirements for a
secured claim according to §1225. 5
See Associates Commercial Corp. v. Rash,--U.S.--, 117 S.Ct. 1879,
1884-85, 138 L.Ed.2d 148 (1997) (using §506(a) to determine the amount
of a secured creditor's claim to establish the amount that the debtors
must pay the secured creditor under §1325(a)(5)). The plan
"provided for" the IRS secured claim in that it determined
there was no secured claim.
Avoiding the Lien in the Chapter 12 Plan
serves the function of voiding a lien when the claim it secures has not
been "allowed." Dewsnup v. Timm, 502
410, 415-16,112 S.Ct. 773,116 L.Ed.2d 903 (1992). It is well established
that in a chapter 7 case a lien cannot be avoided pursuant to §506(d)
unless the secured claim has also been disallowed under a §502
A growing number of cases have held that §506(d) is inapplicable to the
reorganization chapters, and that lien stripping in a chapter 11, 12 or
13 is derived from the pertinent reorganization chapter code provisions
which expressly authorize the adjustment of the rights of secured
creditors including, with certain exceptions, the adjustment of lien
rights. See In re Talbot [97-2 USTC ¶50,624], 124 F.3d 1201
(10th Cir. 1997); Harmon v. United States through Farmers Home
Administration, 101 F.3d 574, 582-84 (8th Cir. 1996) (chapter 12
provisions allow lien stripping, and citing other chapter 12 cases); In
re Rhea, 224 B.R. 816, 817 (Bankr. S.D. Ala. 1997) (chapter 11 cases
are governed by the code provisions dealing with plans, and a tax lien
may be canceled in accordance therewith); In re Thompson, 224 B.R
360, 364-65 (Bankr. N.D. Tex. 1998); In re Hernandez, 175 B.R.
962, 965-67 (N.D. Ill. 1994) (Section 1327 provides the mechanism by
which debtors can strip down a creditor's lien without resorting to §506(d));
In re Murry-
, 147 B.R. 960, 962 (Bankr. N.D. Cal. 1992) (pursuant to §§1322(b)(2)
and 1327(a), a debtor "is permitted not merely to alter the amount
and terms of payment of her secured debts, but to hold the property free
and clear of liens after paying the allowed secured claims in accordance
with the provisions of her confirmed plan."); 4 COLLIER ON
BANKRUPTCY, supra., §506.06[c]. Other cases provide tentative
support for the use of the plan confirmation process as the vehicle for
avoidance of the undersecured lien pursuant to §506(d). In re Dever,
164 B.R. 132 (Bankr. C.D. Cal. 1994) (§506(d) is applicable for lien
stripping in chapter 11); In re
, 160 B.R. 198, 200-01 (Bankr. M.D. Fla. 1993), aff'd, IRS v.
, 180 B.R. 686 (M.D. Fla. 1995).
In a chapter
12, the enabling provisions include §§1222(b), 1225(b)(5) and 1227(c).
The plain language of §1222(b) indicates that Debtors may strip down
the tax lien to the value of the collateral because it provides that the
plan may "modify the rights of holders of secured claims." See
In re Lee, 162 B.R. 217, 222-26 (D.
1993). A plan which provides for zero payment on the secured claim has
provided for that claim if it is determined by the plan to be entirely
unsecured. Gregory, 705 F.2d at 1121.
stripping in the reorganization chapters can be accomplished without a
contested claims allowance or lien avoidance proceeding, as required
under the statutory interpretation of Dewsnup, because the plan
confirmation process provides this function. See Dewsnup, 112
S.Ct. at 778 ("allowed secured claim" for purposes of §506(d)
does not have the same meaning as the same term in §506(a). See also
In re Penrod, 50 F.3d 459, 463 (7th Cir. 1995) (recognizing
"extinction" of liens which are not expressly preserved by the
plan); In re Wolf, 162 B.R. 98, 107 (Bankr. D. N.J. 1993) (no
separate objection to the allowance of a secured claim is required to
modify a secured creditor's rights in a chapter 13 plan); In re
McDonough, 166 B.R. 9, 13 (Bankr. D.
1994) (plan which treated junior lienor as wholly unsecured without
objection avoided lien). Specifically, an "allowed secured
claim" in §1225(a)(5) may be interpreted by reference to the
bifurcation of claims into secured and unsecured claims by §506(a).
Therefore the traditional notion of allowance or disallowance under §506(a)
remains viable, and the vehicles for avoidance are the chapter 12 plan
cited above, is instructive. The Talbots' chapter 13 plan provided full
payment of the IRS secured claim, which was asserted by the IRS to be
$18,674--the amount of debtors' equity in the real property, pursuant to
§506(a). The total IRS claim was $37,660, and more than the $18,674 was
secured by a tax lien. Nevertheless, the Talbots trifurcated the claim
into the allowed secured, priority unsecured and general unsecured
portions. After plan confirmation, the property sold for a greater
amount than expected. The IRS demanded additional payment from the
proceeds on its claim. The Seventh Circuit held that §1327(a) bound the
IRS to the amount set out in the plan and confirmation order for its
secured claim and no more, and noted that a plan totally extinguishes
the creditor's rights upon payment of the sums called for. Talbot
[97-2 USTC ¶50,624], 124 F.3d at 1209. Even though the unsecured claims
had not been paid in full, they could not be paid from the proceeds of
the residence because those claims were not secured, the Seventh Circuit
to the creditor, or put another way, a respect for the secured
creditor's right not to participate in the bankruptcy, is the linchpin
of this process. Tax liens attach to an extremely wide range of
property, United States v. Barbier [90-1 USTC ¶50,107], 896 F.2d
377, 378 (9th Cir. 1990), and there is a strong policy that liens should
pass through bankruptcy unaffected. Long v. Bullard, 117
617, 620-21, 6 S.Ct. 917, 918, 29 L.Ed. 1004 (1886) (secured creditors
with valid liens may ignore the bankruptcy proceedings and look to the
lien for satisfaction of the debt); In re Isom [90-1 USTC ¶50,216],
901 F.2d 744, 745 (9th Cir. 1990) (in a chapter 7 case, the Ninth
Circuit Court of Appeals held that 26 U.S.C. §6325(a)(1) does not
require the IRS to release a valid tax lien when the underlying tax debt
is discharged in bankruptcy). Indeed, §506(d) provides an exception to
lien avoidance when the secured creditor's claim has been disallowed for
the sole reason that it did not file a proof of claim. On the flip side,
if a creditor files a proof of claim to which there is no objection, the
claim is deemed allowed under §502, and must be provided for in the
plan in order to extinguish the lien.
The process as
been described as follows:
holders are entitled to have their rights in a Chapter 13 case
determined after appropriate notice and opportunity for hearing. Notice
and procedural due process can be satisfied in several ways without
violating any fundamental principles of bankruptcy law. Describing in a
Chapter 13 plan the treatment of a secured claim holder and determining
the allowed amount of a secured claim for purposes of §506(a)
inevitably involve some of the same questions of fact and law. Valuation
of collateral is often at the heart of both. There is no obvious reason
under the Bankruptcy Code or Rules why such overlapping issues can't be
decided in either context-either as part of a hearing on confirmation of
the plan or as part of a hearing on an objection to a claim. . . . [I]f
notice is properly given and the procedural due process rights of the
secured claim holder are respected, a bankruptcy court order fixing the
value of collateral, determining the allowed amount of a secured claim
or defining what the secured claim holder will receive in satisfaction
of its lien rights is binding on all parties without regard to the label
on the process. Several courts have recognized that the binding effect
of confirmation is limited by the quality of notice given but is not
dependent on whether the debtor has objected to a claim, has filed a
motion under Bankruptcy Rule 3012, or has filed an adversary proceeding
against the creditor.
M. Lundin, 2 CHAPTER 13 BANKRUPTCY §6.10 at 6-23 (1994 & Supp.
The IRS has
cited a line of cases which has gained favor in the Ninth Circuit. These
cases hold that classification of creditor's claim by a debtor in a
reorganization plan does not constitute a request for allowance or
disallowance under §502, and thus plan confirmation does not invalidate
a creditor's lien. The cases generally hold that the filing of a
contested matter or adversary proceeding is necessary to disallow a
secured claim, and a reorganization plan alone is not such a contested
proceeding. See In re Taylor, 132 F.3d 256 (5th Cir. 1998); Cen-Pen
Corp. v. Hanson 6,
58 F.3d 89, 93 (4th Cir. 1995) (confirmation will not have a preclusive
effect upon issues that must be raised through an adversary proceeding);
In re Bisch, 159 B.R. 546 (9th Cir. BAP 1993); In re Hobdy,
130 B.R. 318, 321 (9th Cir. 1991) (a chapter 13 plan is inconsistent
with §502(a) if it effectively determines the amount of the secured
claim); In re Simmons, 765 F.2d 547 (5th Cir. 1985) ("there
appears to be no sound reason for lifting liens by operation of law at
confirmation under Chapter 13"); In re Howard, 972 F.2d 639
(5th Cir. 1992); see also In re Tarnow, 749 F.2d 464 (7th Cir.
exceptions, these cases have been resolved on facts which show that the
secured creditor had inadequate notice and opportunity for objection to
the claim treatment, or chose not to participate in the bankruptcy
proceedings at all. Thus, they are distinguishable from this case where
the IRS filed a proof of claim and had sufficient notice of the plan.
, the IRS withdrew its proof of claim for personal income taxes. A
chapter 11 plan was confirmed which purported to determine that the
debtor had zero liability for a penalty tax for failure to pay over
withholding taxes, to which the IRS did not object. Postconfirmation,
the IRS filed a notice of assessment for the penalty. The Fifth Circuit
held that the plan could not compromise the amount of a nondischargeable
tax penalty, and that it was incumbent upon the debtor to file a claim
on behalf of the IRS and object thereto, or to file a motion under §505
to determine his tax liability.
, 132 F.3d at 262. Importantly, the appellate court held that the
penalty tax was a "separate type of tax" from the income tax
proof of claim.
differs from the instant case because the IRS had not filed a proof of
claim in Taylor, and the Fifth Circuit Court of Appeals drew upon
a line of cases from that circuit which refused to void liens in the
confirmation context where the secured creditor had duly filed a proof
of claim as to which no objection had been interposed.
The facts of
the Ninth Circuit cases which have followed the reasoning of the above
cases are also distinguishable from the instant case. In Bisch,
the IRS's proof of claim failed to disclose that unsecured priority
claims were secured by a second tax lien. The chapter 13 plan dealt with
all of outstanding tax liability set forth in the proof of claim, and it
was confirmed without objection from the IRS. Following confirmation,
the debtors sold their home and discovered that a second tax lien
encumbered the property. The lien applied to payroll taxes for 1990,
which had been included in the original proof of claim as an unsecured
priority claim. The debtors moved to avoid the lien, but the bankruptcy
court ruled that the IRS was entitled to assert its lien rights. The
appellate panel affirmed the bankruptcy court, citing Simmons,
among other cases, for the proposition that a secured creditor's lien
survives the bankruptcy unaffected. The panel held that (1) a secured
creditor may rely on its lien and need not file a proof of claim; and
(2) failure to provide for the IRS lien in a confirmed chapter 13 plan
does not extinguish the lien. Bisch, 159 B.R. at 549.
in the present case, the second tax lien filed by the IRS was simply an
amended version of the first lien, which was provided for in Debtors'
chapter 12 plan. Also unlike Bisch, the IRS had the opportunity
to object to the treatment of its secured claim, whereas in Bisch,
the debtors were unaware of the second tax lien which secured a portion
of the debt classified as unsecured. Therefore, the secured portion was
never valued or allowed pursuant to §506.
The panel in Bisch
also relied on BAP precedent in In re Junes [89-1 USTC ¶9383],
99 B.R 978 (9th Cir. BAP 1989). In Junes, the IRS filed a proof
of secured claim, to which the debtors objected. The debtors' chapter 13
plan provided for full payment of all priority claims, and provided
nothing for the nonpriority claims. The plan proposed to treat the IRS
claim as a priority claim in the amount of $9,160.91, and as a
nonpriority claim in the amount of $37,721.59. At the hearing on the
objection, the bankruptcy court determined the amount of the allowed
secured claim to be $8,405. Debtors took the position that they were
entitled to allocate the payment of the priority claims to extinguish
the tax lien. The bankruptcy court disagreed, and ruled that the IRS
could apply the payments in any manner it chose, i.e., to pay the
unsecured claim first.
On appeal, the
panel affirmed the bankruptcy court, framing the issue as: "whether
a federal tax lien that was not avoided or provided for under the plan
survives the bankruptcy proceedings," since the panel affirmed the
IRS's right to apply the payments to the unsecured debt first.
at 980. The panel held that "[t]he debtors' failure to provide for
the IRS's tax lien in the Chapter 12 plan and to provide for the
allocation of payments allows the IRS's tax lien to survive the
facts are distinguishable from Junes. Here, it was determined in
the confirmation process that the IRS claim was unsecured, not secured,
and Debtors' plan provided that the priority tax claim would be paid in
Finally, in Hobdy,
the debtor failed to object to the secured claim filed by the mortgage
company for arrearages, and instead challenged the claim indirectly by
means of its chapter 13 plan, which proposed to substantially reduce the
claim. 130 B.R. at 320. In Hobdy, the debtor used the chapter 13
plan to compromise the taxing authority's secured claim without giving
the creditor proper notice, i.e., a copy of the proposed plan.
Indeed, the debtor had indicated in his chapter 13 statement that he
owed significantly more secured debt than he proposed to pay in the
plan. The bankruptcy court denied the creditor's subsequent motion for
allowance of its full claim, citing the creditor's failure to object to
the confirmed plan.
panel reversed on due process grounds. The panel also emphasized the
debtor's failure to follow proper procedure for determining the
viability of a claim by filing a contested matter under Fed.R.Bankr.P.
In a concurring opinion, Judge Perris proposed that any disharmony
between the binding effect of §1327(a) and the allowance provisions of
§502(a) may be resolved "by interpreting §1327(a) as dictating
that the plan binds the parties to the amount the trustee will
distribute under the plan, but is not binding as to the amount of the
In the case at
bar, Debtors scheduled the IRS claim as an unsecured claim in the
approximate amount of $24,000. The chapter 12 plan proposed to strip off
the IRS lien, and reclassify the claim. The IRS had adequate notice of
the plan provisions. In addition, the modified plan indicated that there
were no tax claims, and the IRS did not object, even though it later
asserted a lien based on the same secured claim that had been provided
for in the first plan. These facts are sufficiently distinguishable from
Hobdy to hold the IRS bound by the plan provisions under §1227(a).
In addition to
the plan provisions, the sale order of the second parcel of real estate,
from which proceeds the tax claim was paid, clearly indicated that the
payment was being made on the "Tax Lien-IRS." According to the
plan terms, the claim would be satisfied by the payment of the
$13,521.31, thus the lien interest would necessarily be extinguished at
that time. 26 U.S.C. §6325(a)(1). The IRS did not object to the plan.
Moreover, the IRS did not object to the order approving the sale. The
IRS contends that it did not have to object since the property was
plainly overencumbered by consensual liens with priority. (In fact, the
IRS priority claim was paid before the secured creditor.) If the IRS
believed its claim had not been paid in full, it should have objected to
the distribution of sale proceeds at that time. In addition, the IRS
should have objected to the modified plan and confirmation order which
plainly stated that there were no tax claims, and that all tax liens
would be released upon payment or entry of discharge. In fact, the IRS
had no basis to object, since the confirmed plan's treatment of its
secured claim and lien was res judicata. See Spartan Mills v. Bank of
America Illinois, 112 F.3d 1251, 1256 (4th Cir. 1997), cert.
denied, 118 S.Ct. 417 (1997) (creditor cannot allow a final order
that deprives it of a lien position to stand and then hope to attack it
collaterally at another time and in another forum). The IRS cannot use
the present lien avoidance proceeding to collaterally attack the prior
final orders. Celotex Corp. v. Edwards, 514
300, 313, 115 S.Ct. 1493, 1501, 131 L.Ed.2d 403 (1995).
The IRS has Waived its Right to Collect the Nondischargeable Debt by its
Failure to Object to the Plans, Confirmation and Sale Orders, which
Provided Payment in Full for the Priority Claim in the Amount of
contends that the plan could not discharge the unpaid nondischargeable
priority tax debt, thus it is entitled to reassert a lien on those
taxes. See Junes [89-1 USTC ¶9383], 99 B.R. at 980 (tax lien
continues until there is payment on the taxes it secures or the statute
of limitations runs). It presents a threefold argument. First, the IRS
believes the 1989 tax principal is unpaid because it applied the payment
to other tax years, and therefore, the lien was not extinguished as to
that nondischargeable priority tax. Second, the IRS believes the plan
did not provide for the interest and penalties associated with the 1989
tax because the plan provided that penalties and interest "assessed
more than three years prior to the filing date" were treated as
general unsecured claims, and the penalties and interest associated with
the 1989 tax were assessed within three years of the petition date.
Third, the IRS believes the plan did not provide at all for its priority
claim for 1991 tax in the amount of $1,677.08, because the plan provided
payment of the priority claim which was only the sum of the 1988 and
1989 tax principal.
contains an exception to discharge for employment taxes on wages for
which a return is last due within three years before the petition date.
11 U.S.C. §523(a)(1)(A); §507(a)(8)(D). The return for the 1989
employment taxes was due within three years of the bankruptcy petition. See
26 C.F.R. §31.6071(a)-1(a)(1). Therefore, the tax debt (with the
exception of the penalties) at issue here falls under the second
When a chapter
12 debtor has completed all of the payments and performed the plan
provisions, §1228 provides for a discharge of personal liability, with
some exceptions. The discharge is "of all debts provided for by the
plan . . . or disallowed under section 502 of this title . . . except
any debt . . . (2) of the kind specified in section 523(a) of this
excepts from discharge the type of employment tax debt at issue here. See
§523(a)(1)(A) (excepting from discharge a priority tax under §507(a)(8)).
Undisputedly, the tax involved in this case, including the $1,677.08, is
nondischargeable priority tax, pursuant to the code. Such tax is plainly
excepted from the discharge provisions of §1228, and the plan could not
change the nondischargeable character of the tax debt. In re Pardee,
218 B.R. 916 (9th Cir. BAP 1998); section 1227(a).
The IRS first
argues that the priority tax debt was nondischargeable pursuant to the
code; therefore the plan could not discharge the unpaid debt. On its
face, this statement appears to be correct, because debts of a kind
specified in §523(a) are plainly excepted from discharge.
position ignores, however, the code provision for resolving priority
debt. Section 1222(a)(2) requires that a chapter 12 plan provide for the
full payment of all claims entitled to priority under §507, "unless
the holder of a particular claim agrees to a different treatment of such
claim" (emphasis added). Agreeing to be paid less than the
complete claim constitutes a waiver on the part of the IRS of its right
to collect the additional amount. United States v. Amwest Surety Ins.
Co., 54 F.3d 601, 602 (9th Cir. 1995) (" '[a] waiver is an
intentional relinquishment or abandonment of a known right or privilege'
") (quoting Groves v. Prickett, 420 F.2d 1119, 1125 (9th
Cir. 1970)). In addition, failing to object to the plan provisions for
payment of its priority claim constituted implied acceptance of such
treatment. Pardee, 218 B.R. at 936 (citing In re Andrews,
49 F.3d 1404, 1409 (9th Cir. 1995)).
panel in Pardee recently examined whether a chapter 13
reorganization plan can bind a creditor as to the plan's treatment of
its nondischargeable debt, because the plan is a contract between the
creditor and the debtor which can alter the creditor's rights. See
Pardee, 218 B.R. at 925-26; In re Than, 215 B.R. 430, 435
(9th Cir. BAP 1997).
the panel held that postpetition interest on student loan debt, which is
nondischargeable under the code, was, nonetheless discharged pursuant to
specific discharge provisions of the debtor's chapter 13 plan, because
the unsecured creditor failed to object to the plan and thereby waived
its right to collect such debt.
at 922-25. The plan in Pardee specifically stated that "any
remaining unpaid amounts [of student loan debt] shall be discharged by
the plan." Pardee, 218 B.R. at 918. The creditor in Pardee
objected to the court's imposition of an injunction against its
collection efforts. The panel noted that a confirmation order was res
judicata and could not be collaterally attacked even though the plan
contains illegal provisions.
at 924. In its discussion, the panel opined that it disagreed with a
Seventh Circuit case which held that res judicata did not prevent
the postconfirmation dismissal of a chapter 13 plan that did not provide
for payment of a priority tax claim as required under the code.
at 926 (citing In re Escobedo, 28 F.3d 34 (7th Cir 1994)).
§1227 specifically conditions the binding effect of the chapter 12 plan
on the nonexistence of a nondischargeable debt under §1228(a); section
1327 has no such internal restriction. However, this is a distinction
without a difference. Pardee, as a case authority for a waiver of
nondischargeability provisions, was also considered in a subsequent
chapter 11 case.
In chapter 11,
§1141 provides for the binding effect of the plan, and like §1227,
also incorporates an exception to discharge for debts of a type falling
under §523. In In re Artisan Woodworkers, 225 B.R. 185 (9th Cir.
BAP 1998), the chapter 11 plan did not include payment of postpetition
interest on the IRS priority tax debt. The panel held that the taxing
authority could pursue collection of this nondischargeble priority tax
postconfirmation, citing Bruning v. United States [64-1 USTC ¶9330],
376 U.S. 358, 360, 84 S.Ct. 906, 11 L.Ed.2d 772 (1964). The panel
rejected the chapter 11 debtor's argument that the amount of a tax claim
was fixed at the time of confirmation simply because the state taxing
authority had not objected to confirmation. The panel distinguished its
case from Pardee, only because the chapter 11 plan did not
purport to discharge the postpetition interest.
at 191 n.11.
case is stronger for the application of waiver and res judicata
than Pardee because it involves plan treatment of the same claim
which the IRS attempts to reassert, rather than of an additional amount,
which could be viewed as a new claim.
chapter 11 case, the bankruptcy court held that the IRS was bound to the
plan which "effectively modified the creditor/debtor
relationship" by determining the amount of its nondischargeable
claim without objection. In re Martin, 150 B.R. 43, 47 (Bankr.
S.D. Cal. 1993) (also citing United States v. Energy Resources Co.,
Inc., 495 U.S. 545, 110 S.Ct. 2139,109 L.Ed.2d 580 (1990) for the
broad authority of bankruptcy courts, as courts of equity, to modify
creditor-debtor relationships). As in the instant case, the IRS argued
that the discharge exception provisions left it free to pursue other
determination and collection techniques for the nondischargeable taxes
"as though it had never submitted a claim under the bankruptcy
case." Martin, 150 B.R. at 46. The bankruptcy court
disagreed, and held that "[a]lthough a plan cannot discharge the
debt, it may otherwise subject the debt to its provisions." Id.
specifically treated the entire IRS claim as unsecured priority debt of
a specific amount, with certain specified interest and penalties as an
unsecured general claim. Even though the plan did not expressly provide
for the 1989 interest and (dischargeable) penalties or the 1991 priority
tax, the plan expressly stated that the amount of the priority tax claim
was determined to be $13,521.3 1, and also expressly provided that
claims entitled to priority would be paid in full. Thus, the
nondischargeable portion was paid according to the plan, whereas the
balance of the debt was treated as dischargeable unsecured debt.
was contrary to the dischargeability provisions of the code.
Nevertheless, the treatment necessarily rendered the entire reduced debt
satisfied. The IRS cannot assert rights that are inconsistent with the
confirmed plan. In re Wruck, 183 B.R. 862, 864 (Bankr. D. N.D.
1995). The IRS had an opportunity to object to the original plan, as
well as the modified plan, but failed to do so. If the IRS believed its
priority claim was for a greater amount, it should have objected at plan
confirmation or again at the time the property was sold to pay off the
priority claim and, thereby, release the lien. The IRS's failure to
object at the confirmation hearings or to appeal from the pertinent
orders "precludes its attack on the plan or any provision therein
as illegal in a subsequent proceeding." Gregory, 705 F.2d at
1121; Pardee, 218 B.R. at 925 ("a plan provision that is
contrary to the Code or is otherwise illegal may not be challenged
postconfirmation for the first time).
IRS waived its right to collect the nondischargeable debt and is bound
by the specific plan provisions which reduced the amount of its
nondischargeable tax claim. Section §1227(c).
chapter 12 plan provided for the IRS proof of claim in its entirety. 9
The plan confirmation proceeding provided notice of the proposed
treatment of secured claims and of the fact that the IRS secured claim
had been disallowed in its entirety. The IRS did not object to the
treatment of its entire claim as provided for in the plan. The priority
claim was paid in full, as determined by the plan, with proceeds from
the sale of Debtors' real property. The IRS did not object to the sale
order for distribution of the proceeds, nor to the subsequent modified
plan and confirmation order which indicated that there were no tax
claims and any tax liens were released upon payment. The IRS's secured
tax lien was extinguished pursuant to §506(a) and the chapter 12 plan
provisions. Furthermore, the IRS waived its right to collect any
outstanding nondischargeable unsecured tax debt subject to its prior
claim because it impliedly agreed to the treatment under the chapter 12
plan; furthermore, the IRS is bound by the amount provided in the
confirmed plans. Accordingly, the IRS lien, filed on
May 12, 1996
, is of no force or effect.
request for attorney's fees and costs shall be denied.
counsel shall prepare a form of judgment, consistent with this decision,
and lodge the same within 20 days of this ruling.
The total nondischargeable debt pursuant to the proof of claim included,
at least, the interest for 1988 and 1989, in addition to the taxes for
1988 and 1989--an additional amount of $5,161.91 ($3,143.21+$2,018.70)
for the interest, plus $1,677.08 for the 1991 taxes. See In re
Bossert [96-2 USTC ¶50,689], 201 B.R. 553, 558, 560 (Bankr. E.D.
Wash. 1996) (section 1222(a)(2) provides for full payment of tax and
interest due but prefiling penalties do not qualify for priority
treatment, pursuant to §507(a)(8)(G)).
Chapter 12 of the code was modeled after chapter 13. 8 COLLIER, SUPRA.,
§1200.01. As a result, case law often looks to chapter 13 provisions
in examining a chapter 12 case. Furthermore, chapters 11, 12 and 13, all
reorganization chapters, are sufficiently similar that cases from all
three chapters can provide support for the relevant arguments. See
through Farmers Home Administration, 101 F.3d 574, 582 (8th Cir.
The IRS also argues that the lien, which attached to exempt
property, was not extinguished by the plan's provisions. See In
re Isom [90-1 USTC ¶50,216], 901 F.2d 744, 745-46 (9th Cir. 1990);
§522(c). This argument is not relevant to the issues, and is incorrect,
because if the lien were extinguished through the plan, it would not
continue to attach to exempt property. The code provisions which except
a tax lien from avoidance by the debtor or the trustee, for example, §522
or §545, are inapplicable here.
The IRS's "exempt property" argument would not work here
either, because property of the estate at the time of the petition
includes all interests of the debtor in property as of the commencement
of the case, §541(a)(1), and the Debtor exempts the property out of the
estate pursuant to §522(b).
Section 1225(a)(5) both protects lienholders' rights and empowers
chapter 12 debtors to "provide for" and manage liens through
the plan without the consent of the lienholder. It provides:
respect to each allowed secured claim provided for by the plan--
holder of such claim has accepted the plan;
plan provides that the holder of such claim retain the lien securing
such claim; and
value, as of the effective date of the plan, of property to be
distributed by the trustee or the debtor under the plan on account of
such claim is not less under the plan on account of such claim is not
less than the allowed amount of such claim; or
(C) the debtor
surrenders the property securing such claim to such holder; and
(D) the debtor
will be able to make all payments under the plan and to comply with the
11 U.S.C. §1225
In Hanson, the Fourth Circuit held that the chapter 13 plan did
not provide for the creditor's lien, even though the debtor named the
creditor as an unsecured creditor in the plan, gave it notice of its
unsecured status and of the amount it would receive, and notified the
creditor that liens of creditors who did not file proofs of claim or
object to the plan would be voided upon discharge. The Fourth Circuit
gave Hanson a restrictive reading in a subsequent opinion which
held that in a chapter 11 case, a financing order and an order for sale,
each stating that a bank had a first priority lien, precluded a
competing lender from asserting a first lien in a declaratory action
filed after the bankruptcy court's orders became final. Spartan Mills
v. Bank of America Illinois, 112 F.3d 1251, 1256 (4th Cir. 1997), cert.
denied, 118 S.Ct. 417 (1997).
The fact that the IRS may have applied the payments in part to
nonpriority unsecured debt first, leaving the 1989 tax unpaid, should
not abrogate the plan terms which provided for full payment of the 1989
priority taxes. See In re Bossert [96-2 USTC ¶50,689],
201 B.R. 553, 560 (Bankr. E.D. Wash. 1996) (stating in dicta that
language of plan constitutes specific instructions to the IRS for
application of plan payments); see also United States v.
Energy Resources Co., Inc., 495 U.S. 545, 551, 110 S.Ct. 2139, 2143,
109 L.Ed.2d 580 (1990) (holding that the bankruptcy court had authority
to order the IRS to apply tax payments to offset trust fund obligations,
if such treatment is necessary for a reorganization's success).
Martin involved an injunction order, which the IRS appealed as
being contrary to the Anti-Injunction Act. The appeal was dismissed as
moot because the bankruptcy court subsequently allowed the IRS's amended
proofs of claims for additions to the taxes, and the outcome of those
claims under the confirmed plan, if any, has not been published. See
v. Martin, 172 B.R. 644 (S.D.
As a practical matter, the IRS's unsecured claim for $394.11 for
penalties associated with the 1991 tax need not be considered; there was
no distribution for unsecured claims under the plan, and this claim was
¶50,160] In re Statistical Tabulating Corporation, a Delaware
Corporation, a/k/a Stat-Tab, Debtor. United States of America, Appellant
v. Statistical Tabulating Corporation, a Delaware Corporation, a/k/a
Stat-Tab, and LaSalle Bank Lakeview, Appellees
District Court, No. Dist.
, East. Div., 97 C 415, 12/21/98, Vacating and remanding an unreported
Bankruptcy Court decision
Secs. 6323 and 6871 ]
Bankruptcy: Liens and levies: "Law of the case": Res
judicata: Priority.--The bankruptcy court wrongly ignored the
"law of the case" doctrine in failing to follow the directive
of the appellate court to examine a security agreement concerning a
bank's interest in the sale proceeds of a debtor corporation's general
intangibles. Although an agreed order executed between the IRS and the
bank established the bank's priority claim to assets covered by its
liens, the evidence was insufficient to establish res judicata
regarding the extent of those liens.
MEMORANDUM OPINION AND ORDER
Senior District Judge:
comes before the Court on the government's second appeal from a decision
of the bankruptcy court. In this appeal, the government asks the Court
to vacate the lower court's Order of
December 6, 1996
, granting judgment as a matter of law in favor of Appellee LaSalle Bank
Lakeview ("LaSalle" or "the Bank") and against the
government. For the following reasons, the Court vacates the Order and
remands the case to the bankruptcy court.
The facts of
this case have been laid out in detail in previous opinions of this
Court, the bankruptcy court, and the Seventh Circuit Court of Appeals.
Consequently, we will not elaborate on them here, but will provide only
a framework to aid understanding of the latest developments in the case.
In essence, this appeal involves a dispute between Debtor Statistical
Tabulating Corporation's ("Stat-Tab") two secured creditors,
the Internal Revenue Service ("IRS") and LaSalle, over the
right to sale proceeds of certain assets associated with Debtor's
operations. In particular, the IRS and LaSalle both contend they are
entitled to the proceeds of assets known as "general
The crux of
the dispute is an Agreed Order between the two creditors, entered on
December 12, 1990
, to establish the priority of security interests. That order provides:
notwithstanding any statements to the contrary in any prior orders
including cash collateral orders, LaSalle has a first, prior security
interest in and to the assets of the Debtor and that the security
interest of the IRS is junior to that of LaSalle.
claims the Agreed Order entitles it to the proceeds of sale of all
Debtor's assets, including "general intangibles." To this
June 21, 1991
, LaSalle moved for turnover of the full amount of these proceeds. The
government, on behalf of the IRS, contested this motion, arguing that
"general intangibles" lay outside the scope of LaSalle's
security interest as defined by the security agreement and the two
supplements thereto between LaSalle and Debtor. The bankruptcy court
granted judgment as a matter of law in favor of LaSalle and against the
govern ment, and ordered that all the proceeds of sale be disbursed to
government's first appeal, this Court vacated the lower court's order
and remanded the case for consideration of whether the vacated order
"gave the Bank a greater security interest in the debtor's property
than was due under the security agreement and its [two]
supplements." United States v. Statistical Tabulating Corp.,
No. 91 C 4887, 1992 WL 97915, at *3 (N.D. Ill. April 20, 1992) (signed
by the Court on April 16, 1992) ("Stat-Tab I"). 1
However, while the first appeal was pending, the remainder of Debtor's
estate was liquidated and disbursed to LaSalle, and the bankruptcy case
was dismissed. For this reason, the bankruptcy court ultimately
concluded that it no longer had jurisdiction to consider the remanded
matter, a decision which this Court affirmed. On appeal to the Seventh
Circuit, the appellate court reversed and remanded the case to the
bankruptcy court for further proceedings consistent with Stat-Tab I
and the Court of Appeal's own opinion. See In re Statistical
Tabulating Corp., 60 F.3d 1286, 1290 (7th Cir. 1995) ("Stat-Tab
on remand, the bankruptcy court again granted judgment as a matter of
law in favor of LaSalle and against the government. See In re
Statistical Tabulating Corp., No. 90 B 3686, 1996 WL 788400 (Bankr.
Dec. 6, 1996
) ("Stat-Tab IV"). The lower court determined, based on
the Agreed Order, that issue of the extent of LaSalle's liens was res
judicata and that LaSalle's liens extended to all of Debtor's
at *2-*3. The government now appeals this determination for a second
& STANDARD OF REVIEW
courts of the
have jurisdiction to hear appeals from final judgments, orders, and
decrees of bankruptcy judges. 28 U.S.C. §158(a). Appellate review of a
bankruptcy court's legal conclusions is de novo. FED. R. BANKR.
P. 8013; In re Salzer, 52 F.3d 708, 711 (7th Cir. 1995); In re
Rivinius, Inc., 977 F.2d 1171, 1175 (7th Cir. 1992).
appeal, the government argues that the bankruptcy court violated the
"law of the case" doctrine by looking only at the Agreed Order
to determine the scope of LaSalle's security interest. LaSalle counters
this position by arguing that res judicata bars the government's
claim, because the Agreed Order is a final judgment determining the
existence or priority of LaSalle's liens. The Court agrees with LaSalle
that the doctrine of res judicata precludes further litigation as
to the existence and priority of the Bank's liens. As this Court has
previously confirmed, the Agreed Order affirmed LaSalle's priority claim
to all of the assets covered by the Bank's liens. See Stat-Tab I,
1992 WL 97915, at *3.
Agreed Order is silent as to the extent of those liens, a fact which
this Court has explained twice before. In Stat-Tab I, the Court
Because it is
unclear what the parties and the bankruptcy court intended by the Agreed
Order, or for that matter whether they were unified in their intentions,
it is not clear to the Court that the issue of which assets the Bank's
priority lien extended to is res judicata.
WL 97915, at *3. As a result, the Court directed the bankruptcy court
"to consider whether its previous disbursement order gave the Bank
a greater security interest in the debtor's property than was due under
the security agreements and its supplements."
Less than two
months later, on LaSalle's motion to reconsider, the Court explained
uncertainties in the extent of the Bank's security interest are
sufficient to dictate to the Court that it should not grant the Bank's
motion to reconsider. This Court cannot say, as a matter of law, in the
face of a limited record that would appear to say otherwise, that the
Bank's security interest extended to all of the collateral that produced
the disputed proceeds.
II, 1992 WL 131065, at *3.
Nonetheless, the Court declined to determine the reach of the Bank's
liens due to the paucity of the record on that issue and, consequently,
remanded the case for further proceedings consistent with
However, on remand, the bankruptcy judge did not reconsider the extent
of the Bank's security interest in light of the security agreement and
its supplements, but rather looked only at the Agreed Order. Stat-Tab
IV, 1996 WL 788400, at *2-3. Under the "law of the case"
doctrine, he was not free to do this.
of the case" doctrine provides that "the trial court [must]
conform any further proceeding on remand to the principles set forth in
the appellate opinion unless there is a compelling reason to
depart." Wilder v. Apfel, 153 F.3d 799, 803 (7th Cir. 1998)
(citing Law v. Medco Research, Inc., 113 F.3d 781, 783 (7th Cir.
1997). See also Waid v. Merrill Area Public Schools, 130 F.3d
1268, 1272 (7th Cir. 1997) (explaining that, in the "most
elementary application" of the doctrine, when an appellate court
reverses and remands a lower court's judgment, the lower court must
follow the appellate court's express or implied rulings). As the Seventh
Circuit recognized in Wilder, "[a] ruling that evidence was
insufficient to support some finding is the type of ruling that
establishes the law of the case." Wilder, 153 F.3d at 803.
While new evidence may form the basis for departure from a previous
appellate ruling, "if there is no new evidence, or if . . . the
evidence does not undermine the previous ruling on sufficiency, then the
previous ruling must stand."
In the present
case, this Court previously determined that the evidence is not
sufficient to support a finding of res judicata as to the extent
of the Bank's security interest. Stat-Tab I, 1992 WL 131065, at
*3. On remand, the Bank presented no new evidence to undermine the
previous rulings and thus to give the bankruptcy court reason to
disregard our earlier directives. Instead the Bank argued, and the
bankruptcy court agreed that our determinations were merely dicta,
"not holdings that are to be considered the law of the case." Stat-Tab
IV, 1996 WL 788400, at *2. Both were mistaken. Far from being
"dicta," the portions of Stat-Tab I and Stat-Tab II
discussing the insufficiency of the evidence were essential to the
decision. Without these, "there wouldn't be an opinion, just a
at 804. Consequently, the bankruptcy court wrongly ignored the law of
this case when it failed to examine the security agreement and
supplements on remand.
I, this Court remanded the present case to the bankruptcy court for
further consideration of the scope of LaSalle's security interest. See
Stat-Tab I, 1992 WL 97914, at *5. In particular, the bankruptcy
court was directed "to consider whether its previous disbursement
order gave the Bank a greater security interest in the debtor's property
than was due under the security agreement and its supplements."
Because LaSalle and the bankruptcy court did not follow the letter and
spirit of Stat-Tab I as well as Stat-Tab II and Stat-Tab
December 6, 1996
judgment in favor of LaSalle is vacated, and this case is remanded for
further proceedings consistent with this Memorandum Opinion and Order.
IN A CIVIL CASE
IT IS HEREBY ORDERED AND ADJUDGED that in Stat-Tab I, this Court
remanded the present case to the bankruptcy court for further
consideration of the scope of LaSalle's security interest. See
Stat-Tab I, 1992 WL 97914, at *5. In particular to consider whether its
previous disbursement order gave the Bank a greater security interest in
the debtor's property than was due under the security agrreement and its
Because LaSalle and the bankrupcty court did not follow the letter and
spirit of Stat-Tab I as well as Stat-Tab II and Stat-Tab III, the
December 6, 1996
judgment in favor of LaSalle is vacated and this case is remanded for
further proceedings consistent with this Memorandum Opinion and Order.
LaSalle moved for a reconsideration of this ruling, and the Court denied
the motion and remanded the case for further proceedings consistent with
Stat-Tab I. See United States v. Statistical Tabulating Corp.,
No. 91 C 4887, 1992 WL 131065, at *3 (June 4, 1992) ("Stat-Tab
¶9614]Transamerica Insurance Company of
, Movant v.
United States of America
[Code Sec. 6323]
Lien for taxes: Priority: Embezzled funds. Procedural defect in
government's appeal.--Failure to perfect an appeal and join as an
indispensable party an insurer in a state estate case resulted in the
insurer's claim being superior to the government's income tax lien. The
insurer had paid a claim under a policy for embezzlement by a now
deceased hospital employee and was awarded the estate assets at trial
under a constructive trust. The government appealed, naming only the
istrator, and was successful after being allowed to amend the appeal to
include the insurer. The state supreme Court held that the appeal's
amendment was too late and reversed the appellate court.
Trautwein, Gary D. Garrison, Barnett & Alagia, 1700 Kentucky Home
Life Building, Louisville, Kentucky 40202, for movant. Albert Jones,
United States Attorney, William F. Trusty, Assistant United States
Attorney, Louisville, Kentucky 40202, M. Carr Ferguson, Assistant
Attorney General, Myron C. Baum, Gilbert E. Andrews, Crombie J. D.
Garrett, Jeffrey S. Blum, Wynette J. Hewett, Department of Justice,
Washington, D. C. 20530, for respondent.
Opinion Per Curiam
istrator of the estate of Thomas B. Lucas instituted this action in the
Jefferson Circuit Court to determine the priorities among the creditors
of the $35,000 estate. The claims of the two largest creditors, movant
Transamerica Insurance Company and respondent
United States of America
, were based upon funds totaling approximately $75,000 that the decedent
embezzled from the
during his employment as hospital
istrator. Transamerica paid the hospital $50,000 under an employee
dishonesty policy and became subrogated to the rights of the hospital
against the estate. The
claimed liens in excess of $87,000 for income tax accrued on the
embezzled funds. The trial court found a constructive trust in favor of
the hospital and entered judgment directing the
istrator to transfer the estate assets to Transamerica.
filed a notice of appeal to the Court of Appeals on
February 14, 1977
April 12, 1977
filed a statement of appeal, naming only the
istrator of the estate as appellee. More than 60 days after the notice
of appeal was filed, Transamerica made a motion to dismiss the appeal
for failure to properly perfect the appeal and failure to join
Transamerica as an indispensable party. The
then moved to file an amended statement of appeal designating
Transamerica as appellee. The Court of Appeals denied the motion to
dismiss and granted the motion to amend the statement of appeal.
Eventually the Court of Appeals reversed the judgment of the trial court
on the merits, and we granted discretionary review.
before us now is whether the Court of Appeals committed error in denying
Transamerica's motion to dismiss and granting the motion of the
to amend the statement of appeal. The rules of procedure in force at the
time this appeal was taken required that an appeal be properly perfected
within 60 days after the date of filing of the notice of appeal. CR
73.08; RAP 1.070. By neglecting to name Transamerica as appellee in the
statement of appeal, the
failed to make Transamerica a party to the appeal. RAP 1.090, 1.095. The
crucial question is whether this defect was curable by amendment of the
statement of appeal more than 60 days after the notice of appeal was
filed. The filing of a proper statement of appeal was a prerequisite to
the filing of the record on appeal. RAP 1.030(e)(2), 1.070. It is
therefore apparent that the motion to amend the statement of appeal to
name Transamerica as appellee was in effect a motion for extension of
time to file the record on appeal. CR 73.08 clearly prohibited granting
of extensions of time on motions made after the expiration of the
original filing period. See Evans v. Commonwealth,
, 450 S. W. 2d 509 (1968). It follows that the Court of Appeals
erred in granting the motion to amend the statement of appeal.
that Transamerica was in no way prejudiced by the defects in perfecting
the appeal is without merit. It has long been the policy of this court
to require strict compliance with the procedural rules and time limits
regarding appeals. Williams v.
, 515 S. W. 2d 618 (1974); T. I. M. E.-D. C., Inc. v.
, 495 S. W. 2d 500 (1973). "[A]s
soon as rules of procedure are ignored to do substantial justice on the
merits in a particular case, there are no rules." City of
v. Christian Business Women's Club,
, 306 S. W. 2d 274, 277 (1957.)
We are of the
opinion that the
failed to timely effect an appeal against Transamerica. Accordingly, the
appeal should be dismissed. Our decision renders moot the other
assignments of error raised by movant.
of the Court of Appeals is reversed, and the cause is remanded with
directions that the appeal be dismissed.
Apartment Investors "A", a limited partnership, Plaintiff v.
United States of America
S. District Court, East.
, No. F-76-185 Civ., 2/15/77
[Code Secs. 6321 and 6323--result unchanged by '76 Tax Reform Act]
Lien for taxes: Validity: Property subject to lien: Leasehold
interest.--The government's rights under tax liens that attached to
a lessee's leasehold interest in property terminated when the lessee's
interests in such property were terminated by a state court judgment.
Accordingly, the lessor's motion for summary judgment quieting title to
the property free and clear of any claim or lien of the government was
Hanessian, Stern, Hanessian, Clarke & Stambul, 11661 San Vicente
Blvd., Los Angeles, Calif. 90049, for plaintiff. Dwayne Keyes, United
States Attorney, James E. White, Assistant United States Attorney,
Fresno, Calif. 93721, Harold S. Larsen, Department of Justice,
Washington, D. C. 20530, for defendant.
This is an
action to quiet title to property under 28
C. 2410. Plaintiff's motion for Summary Judgment was heard in open court
on Monday, January 31, 1977. After oral argument, the matter was taken
In this case
the United States Treasury Department, Internal Revenue Service, is
attempting to enforce tax liens against a corporation known as
Transamerican Builders, Inc. These liens have been imposed on property
known as Parcels 4, 5 and 6. Parcels 4, 5, and 6 are apartment buildings
which lie on real property known as Parcels 1, 2 and 3. The central
issue in this motion for summary judgment is whether or not
Transamerican Builders, Inc. (hereinafter Transamerican), have any
property interest in Parcels 4, 5 and 6 upon which a lien can attach.
which have been imposed, their amounts and the dates upon which they
were recorded, are as follows: On April 11, 1973, two liens totaling
better than $114,000.00 were recorded against Transamerican and imposed
on Parcels 4, 5 and 6; thereafter, on June 20, 1973, a lien in the
amount of $50,769.66 was recorded against Transamerican and likewise
imposed on Parcels 4, 5 and 6; finally, on August 2, 1974, the last two
liens totaling more than $1,700.00 were recorded and imposed in the same
manner as those above.
On the dates
of lien recordation Transamerican held, at most, only (1) a 5-year
sublease interest in Parcels 4, 5 and 6, and (2) a security interest in
parcels 4, 5 and 6 acquired under a prior "Installment Sale
Contract" of these same parcels. This "Installment Sale
Contract" was entered into in 1971 between Transamerican, as
vendor, and Carolina Apartment Investors "B", as vendee.
importance to this case is the existence of a so-called "Ground
Lease" which was entered into in 1971 between plaintiff, as lessor,
and Transamerican, as lessee. This "Ground Lease" was
subsequently assigned by Transamerican to Carolina Apartment Investors
"B" before any of the above liens were either assessed or
recorded. This "Ground Lease" provided, inter alia, that
"Upon the expiration of the Term of this Lease or any earlier
termination thereof, LESSEE shall surrender to LESSOR possession of the
and all improvements constructed or installed thereon". The
"Ground Lease" itself concerned principally parcels 1, 2 and
18, 1975, a state court judgment was entered in favor of plaintiff and
against Carolina Apartment Investors "B" in which the court
decreed that the "Ground Lease" was terminated and declared
null and void all junior interests. Thereafter, on
Jan. 6, 1977
state court entered judgment quieting title to parcels 4, 5 and 6 in
favor of plaintiff and against Transamerican.
finds that although the tax liens may have attached to Transamerican's
interest, those liens remained against that interest only so long as the
interest itself existed. (See, Aquilino v. United States (1960)
[60-2 USTC ¶9538] 363 U. S. 509; and U. S. v. Durham Lumber Co.,
(1960) [60-2 USTC ¶9539] 363 U. S. 522). Once Transamerican's interest
in the property terminated, the rights of the Government to the property
also terminated. (See, Revenue Ruling 54-154, Cum. Bul. 1954-1, 277).
On this matter
the Ninth Circuit, in Stuart v. Willis (1957) [57-1 USTC ¶9330]
244 F. 2d 925, at page 929, has declared,
". . . it
may be generally stated as a principle of our federal tax law that the
power of the Collector never extends beyond the rights of the taxpayer
upon whose property the levy is sought. The Collector has rights 'no
higher than those of the taxpayer whose right to property is sought to
be levied upon.'"
regard, what right and property interest Transamerican may have in
parcels 4, 5 and 6 turns upon state law (see, Aquilino and
, supra). As one can see under state law, as stated in Scott
v. Mullins, 211 CA 2d 51, at page 55 (1962), Transamerican's
interests were terminated by the 1975 California state court judgment.
The second 1977 state court judgment merely provided a last kick to an
already dead horse.
plaintiff is granted summary judgment in its favor quieting title to the
above-mentioned parcels free and clear of any claim or lien of the
¶9483]In re Airport Machining Corporation, Debtor (United States of
America, Aetna Business Credit, Inc., Union Planters National Bank and
Martin Bank), Creditors
S. District Court, West. Dist.
, East. Div., No. 5377 In Bankruptcy, 1/24/75
[Code Sec. 6323]
Lien for taxes: Priority over recorded mortgage.--Creditors'
security interests were found to have priority over the government's tax
liens with respect to the proceeds from the sale of the bankrupt
taxpayer's machinery and equipment installed in its foundry. The court
found that the creditors had secured status in the foundry machinery and
equipment. Further, the referee in bankruptcy properly concluded that
recorded real estate mortgages created security interests in the
machinery and equipment because these items were fixtures to be treated
as real estate. Finally, the referee's findings concerning the value of
the taxpayer's foundry were upheld since they were not clearly
ert A. Udelsohn, 700
, for creditors. John Van Den Bosch, 107 Shannon St., Jackson, Tenn., J.
T. White, 225 Peachtree St., Suite 2012, Atlanta, Ga., for bankrupt.
John L. Warner, Jr.,
311 S. 3rd St.
, for trustee.
debtor-complex, Airport Machining Corporation, (hereinafter AMC) filed
proceedings in Bankruptcy during 1973 under Chapter Ten of the
Bankruptcy Act. Subsequently, this matter pursuant to orders of the
Court was converted to straight bankruptcy under Chapter Three. A great
number of claims have been settled after extended hearings and
proceedings and the properties of the debtor AMC have been liquidated.
The dispute now before this Court involves conflicting claims of the
United States of America, Aetna Business Credit, Inc., (hereinafter
Aetna), Union Planters National Bank (hereinafter U. P.) and Martin Bank
(hereinafter Martin) to the land, building, machinery, or the proceeds
thereof, of AMC at Everett Stewart Airport in Union City, Tennessee. The
real estate at the airport, the building situated thereon, and the
machinery installed in the building had been operated as a foundry prior
to the institution of bankruptcy proceedings. After extensive efforts to
find a buyer, this property was sold as an entirety for $750,000.00 and
the sale was approved by the referee. The contentions of the creditors
arise out of lien, priority, or security interest claims in this foundry
and machine shop property and equipment. The referee conducted hearings
to determine the respective rights and interests on the four creditors
now seeking to establish priorities in the proceeds of sale. He
determined the value of the "foundry" itself to be
$286,700.00, and the value of the machinery and equipment situated in
the foundry and machine shop buildings to be $463,300.00. Further, the
referee concluded that Aetna, as a perfected lienholder under T. C. A.
47-9-401(c), had a first priority interest on the machinery and
equipment; that U. P. and Martin, as real estate mortgagors, had
priority on the land and buildings involved as well as second priority
on the machinery and equipment installed therein, considering them to be
as a creditor under substantial tax obligations of AMC, and on other
claims, contests the priority claims of
and the Banks as lienholders to the machinery and equipment, which it
contends is merely personalty.
November 21, 1973
, the referee entered an order on petition of the bankruptcy trustees
for classification of the AMC debts claimed by creditors, particularly
as to that of
. In material part, the order stated:
APPEARING to the Court that Aetna Business Credit, Inc. has as security
all the machinery in the machine shop and foundry and a third mortgage
on the real estate of the debtor complex in the Seventh Civil District
of Obion County to secure its claim in the amount of $442,690.04, and it
appears to the Court that the claim of Aetna Business Credit, Inc. has
been proven and should be allowed in the amount of $442,690.04 and that
said claim is secured to the extent of its security.
February 19, 1974, the referee entered an order on claims of Aetna and
the Banks to require the Trustee 1
to pay them out of proceeds of the $750,000.00 sale, one-half of which
had then been received from Dayton-Walther Corporation, the purchaser. 2
moved to re-hear or to reconsider this action by the referee, contesting
their rights to be declared priority or secured creditors as to these
proceeds in which the
was also interested. On
April 16, 1974
, the referee filed an opinion to the effect that while the trustee's
October 9, 1973
, apportioned $150,000.00 to realty and $600,000.00 to personalty, a
proper apportionment of "fair market value" of the
"foundry" was $286,700.00 as real estate based on the
After considering the protests and exceptions of the United States and
the other creditors here involved as to the determination and
apportionment of the value of the respective portions of property in the
sale, the referee approved the disbursement of proceeds based upon an
additional July 15, 1974 order that the U. P. and Martin real estate
mortgage liens were secured interests against the foundry machinery and
equipment as well as the machinery and equipment located in the machine
shop building. Within the time specified in the July, 1974, orders, the
filed a notice of appeal to this Court.
first that the
did not perfect a timely appeal as to its secured status on all the
machinery in the machine shop and foundry. Under the Bankruptcy Court
rules of procedure, it would appear that the
did fail to appeal
's status as a security holder on the machinery and equipment within 10
days as required. The February, 1974 orders merely dealt with
disbursement of proceeds to Aetna and the two banks; thus, the November,
1973 order following the sale giving
's $442,690.04 claim a security and a priority status was not amended or
changed in any way. The April and July, 1974 orders, moreover, dealt
only with apportionment between land, buildings on the one hand,
machinery and equipment on the other hand, involved in the sale, and the
status of the real estate mortgage liens as they pertained to the
machinery and equipment.
's predecessor filed a financing statement on the AMC machinery and
April 13, 1971
, to secure a $350,000.00 note with the Obion County Register of Deeds
and the Secretary of State of Tennessee. A supplementary financing
statement pursuant to the Uniform Commercial Code as applicable in
was similarly filed in September of 1972, on a note for $250,000.00
covering said machinery and equipment. 4
On that same date Aetna took a third mortgage on the AMC real estate at
the Everett-Stewart Airport to secure its $200,000.00 loan to AMC
Castings Co., subordinate to preexisting 1971 mortgages on this real
estate held by Martin and U. P. On
August 30, 1972
, Fussell, President of AMC, purported to certify to
that equipment inventory valued at some $886,335.00 was transferred from
AMC to AMC Castings Company. The
fails, therefore, in its effort to challenge the security interest of
on its claim to the machinery and equipment in controversy. The debt
owed by AMC to
was secured by the proceeds of the sale of said machinery and equipment
must be considered whether the recorded real estate mortgages of the
also created a lien on the machinery and equipment of AMC and/or AMC
Castings Company. Relying principally upon Fuson v. Whitaker, 190
S. W. 2d 305 (Tenn. App. 1945), the referee held that the machinery and
equipment were so affixed and attached to the AMC real estate and
buildings that they became "a single whole," or fixtures to be
treated as real estate for purposes of the mortgages. See also Whitaker-Glesser
Co. v. Ohio Savings Bank, 22 F. 2d 773 (6th Cir. 1927) and 35 Am.
Jur. (2d), Fixtures, Sec. 101-103. The tests set out by the
Tennessee Court in determining whether a chattel becomes a fixture are
similar to those generally considered in most jurisdictions. 36A C. J.
S., Fixtures, §1, p. 591. The intention of the parties would
seem to take into account a recognition of the adaptability and
application of the machinery and fixtures to the use and purpose to
which the realty was appropriated, that is for a foundry and machine
shop. Essentially the same entity owned both the realty and the
machinery which were made subject to liens of
. The referee's findings and conclusions with respect to the lien of the
Banks and of
under their mortgages as pertaining to the machinery and equipment under
the circumstances, appear to be correct and are not, in any particular,
the referee's finding that the value of the foundry building and the
real estate on which it was situated was $286,7000.00 clearly erroneous?
For purposes of this evaluation, must the fixtures be included in the
figure determined for the real estate? The Court is disposed to respond
to each of these question "no." While a different
apportionment might well be argued or found if the Court were
considering this issue de novo, there is evidence supportive of the
referee's finding. We would believe the value of the land and buildings
to be at least $286,000.00, but the referee's determination and
allocation is not clearly erroneous. His decision is therefore affirmed
in all respects.
One of the co-trustees had been discharged upon his appointment as an
United States Public Defender in this Court.
There was also a peripheral issue pending as to whether a 5%
istrative charge should be assessed against the claims of
and the Banks.
There was no appraisal made by the trustees of the land, building or
foundry machinery and equipment prior to the sale, since it was
negotiated during the Chapter Ten Proceedings.
This security agreement covering the supplemental filing dated
August 30, 1972
, was also to be deemed collateral for any
loans to AMC Castings Company, including an
August 30, 1972
, $200,000.00 note.