Bankruptcy Case No. 05-40137-SBB, Adversary Proceeding No. 06-01361-SBB.United States Bankruptcy Court, D. Colorado.
February 26, 2007
ORDER GRANTING DEFENDANT’S PARTIAL MOTION TO ABSTAIN (DOCKET # 24)
SIDNEY BROOKS, Bankruptcy Judge
THIS MATTER comes before the Court on February 21, 2007, regarding the Motion to Abstain filed by the United States of America, Department of Treasury (“Defendant”) on November 22, 2006 (Docket # 24); the Objection to the Motion to Abstain filed by Daniel H. Overmyer (“Plaintiff”) on November 22, 2006 (Docket # 24); the Objection to the Motion to Abstain filed by Heppenstall Savage LLC on January 11, 2007 (Docket # 29); and the Objection to the Motion to Abstain filed by Michael J. Abramovitz filed on January 12, 2007 (Docket #30). Jeffrey Brinen appeared, in person, on behalf of the Plaintiff and Chad Nardiello appeared, via telephone, on behalf of the Defendant at the hearing on February 21, 2007. There were no other appearances. Counsel for the Plaintiff and Defendant made argument and offers of proof before the Court. The Court, having reviewed the file, conducted the hearing, considered the arguments and offers of proof made by counsel for the Defendant and Plaintiff, and being advised in the matter, makes the following findings of fact, conclusions of law and Order.
For the reasons set forth herein, this Court is GRANTING the United States of America, Department of Treasury’s Partial Motion to Abstain. This Court will abstain from making a determination as to whether the Plaintiff is liable for taxes assessed by the IRS pursuant to 26 U.S.C. § 6672 for trust fund liability (hereinafter “Trust Fund Liability”).
I. Background
The underlying facts of this Chapter 7 bankruptcy case are not in dispute. The Plaintiff filed for relief under Chapter 7 of the Bankruptcy Code on October 6, 2005. On January 3, 2006, the Chapter 7 Trustee (“Trustee”) filed a No Asset Report and on January 11, 2006, the Plaintiff received his discharge. The case was subsequently closed on February 3, 2006.
Page 2
Shortly after the case was closed, on February 10, 2006, the Plaintiff filed a Motion to Reopen (Docket # 15). The Court granted the Motion on February 15, 2006 (Docket # 17). The Motion to Reopen was principally filed so as to allow the Plaintiff to seek relief against the Defendant as follows:
(A) To determine the amount owed, if any, for certain taxes, including Trust Fund Liability, and possibly other taxes.
(B) To determine whether certain tax obligations, including those for Trust Fund Liability, are dischargeable in Plaintiff’s Chapter 7 case.
(C) To determine whether the Defendant has violated the automatic stay.
On November 22, 2006, the Defendant filed its Motion to Abstain (Docket # 18). Defendant asserts that this Court should partially and permissively abstain from determining the Plaintiff’s tax liability since this Chapter 7 case is a no asset case and, therefore, determination of the Debtor’s tax liability will have no effect on the administration of the bankruptcy estate. The Defendant further contends that the complex issues involved in fixing the liability of the Plaintiff can be done through administrative and tax court proceedings. The Defendant maintains that, essentially, the only issue necessary for the Bankruptcy Court would be whether such liability would be dischargeable.
Plaintiff filed its Objection to the Motion to Abstain on November 22, 2006 (Docket # 24). Plaintiff asserts that the cas may be — or perhaps more accurately stated, might become — an asset case. Largely, this assertion is premised on a possible cause of action against Bank of America for a state law foreclosure action that occurred in 1983 whereby the Bank took control of several of the Debtor’s related business entities and their assets. Debtor also asserts that the right to a fresh start also favors this Court determining the tax liability.
The Law Firm of Heppenstall Savage LLC and a separate creditor, Michael J. Abarmovitz have also objected to the Motion to abstain further asserting that there may be assets for this estate that should be dealt with (respectively Docket #s 29 and 30).
II. Issue
The issue front and center is whether this Court should partially and permissively abstain from making a determination with respect to Plaintiff’s Trust Fund Liability.
III. Discussion
A. Overview of Permissive Abstention
The factors to be considered in making a determination as to whether a Court should
Page 3
abstain are found in Lucre Mgmt. Group, LLC v. Schempp Real Estate, LLC (In re Schempp).[1] As enunciated therein, courts apply the following factors to a permissive abstention analysis:
(1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable law, (4) the presence of a related proceeding commenced in state court or other nonbankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the substance rather than the form of an asserted “core” proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court, (9) the burden of [the bankruptcy court’s] docket, (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, and (12) the presence in the proceeding of nondebtor parties.[2]
As discussed below, this Court concludes that an analysis of these factors does not bode for the relief requested and this Court will not partially abstain. In considering this matter, this Court has also reviewed case law from other jurisdictions dealing with issues similar to the question presented here, including, but not limited to: Williams v. United States, 190 B.R. 225 (Bankr. W.D.Pa. 1995); Wheeler v. United States (In re Wheeler), 183 B.R. 256 (Bankr. W.D. Okla. 1995); D’Alessio v. Internal Revenue Service (In re D’Alessio), 181 B.R. 756
(S.D.N.Y. 1995); and Anderson v. Internal Revenue Service (In re Anderson), 171 B.R. 549 (Bankr. W.D.Va. 1994).
B. Efficient Administration of the Estate
The Plaintiff asserts that he can achieve a more rapid resolution of the various disputes in the Bankruptcy Court. This Court, however, has no reason to believe that the Trust Fund Liability question will be resolved more quickly in this forum. Moreover, the Tax Court — as it is a specialized court dealing with tax questions almost exclusively — would likely be more adept at timely and effectively dealing with the Trust Fund Liability question.
The Trustee in this case has already “effectively administered” the case, and closed it as a no asset case. It is inconsistent, if not anomalous, to begin, again, to administer the case after the Debtor (a) failed to deal with this tax issue while the case was still open, or (b) to assert that this
Page 4
case might become an asset case based on allegations of some wrongdoing by Bank of America which the Debtor has elected to not litigate for over twenty years.
C. The Extent to Which State Law Issues Predominate overBankruptcy Issues
There are no readily apparent state law issues as to the determination of the Plaintiff’s tax liability except that there may be considerations as to how state corporate law concepts may implicate an obligation on the part of the Plaintiff with respect to the various related companies’ tax obligations. However, there is a considerable, specific body of non-bankruptcy law that applies to the Trust Fund Liability question, that is the Internal Revenue Code.
D. The Difficulty or Unsettled Nature of the Applicable Law
The Trust Fund Liability question and other tax questions presented by the Plaintiff date back to the late 1970’s and early 1980’s. Plaintiff advises that this will be a document intensive case. The issues may or may not be difficult or unsettled — that remains to be seen. However, this Court does not deal with tax questions with the same frequency and with the same degree of specialized skill as the Tax Court.
E. The Presence of a Related Proceeding Commenced in StateCourt or Other Nonbankruptcy Court
There is not a related proceeding presently commenced or pending anywhere else. The Plaintiff brought this adversary tax proceeding in this Court rather than pursue the matter using the Internal Revenue Service administrative procedures and/or Tax Court.
This Court believes that there exists a specialized court that is much better equipped to determine whether the Debtor has any Trust Fund Liability. There is no evidence presented that such process would slow down the administration of this case. First, if the case is a no asset case, which clearly is the case as of today, there is no compelling reason involving estate administration. Second, if the Bank of America claim is the only (putative) asset to be administered, the prosecution of that case, most likely in New York, and — being that it involves a purported claim that may have arisen in 1983 out of a state foreclosure action — may take significant time, effort, money and delay.
F. The Jurisdictional Basis, If Any, Other than28 U.S.C. § 1334
The Plaintiff is proceeding under 11 U.S.C. § 505(a)(1). This provision provides that a Bankruptcy Court may determine the amount of any tax, if it so chooses. This provision, however, is not mandatory and this Court can exercise its discretion as to whether it is appropriate to abstain. As noted in the Williams v. United States (In re Williams) opinion:
One of the primary purposes of § 505(a) is to avoid delays in the administration of the bankruptcy estate by providing a forum where certain tax liability disputes
Page 5
may be decided expeditiously. Congress did not intend for a bankruptcy court to provide a forum for such litigation when the outcome of the case will have no impact upon the administration of the bankruptcy case.[3]
This Court concurs with the Williams Court because, where, as here, the case is a no asset case, the outcome of this case will not result in any distribution to any creditors.
G. The Degree of Relatedness or Remoteness of the Proceeding tothe Main Bankruptcy Case
The main case was closed by the Court after the Trustee filed his No Asset Report. The Plaintiff, soon thereafter, reopened the case to bring this adversary proceeding. It would appear that at least two creditors oppose the relief requested because they believe this case may become an asset case. The Plaintiff also makes this assertion. However, neither of these creditors appeared at the hearing. It has not been demonstrated to the Court’s satisfaction that this adversary proceeding will benefit anyone else but the Plaintiff. The estate and creditors can only hope that there may be some recovery in a separate action against Bank of America on an alleged claim arising over 25 years ago.
H. The Substance Rather than the Form of an Asserted “Core”Proceeding
This element was not addressed by the parties. A dischargeability determination is “core.” This Court believes that the Trust Fund Liability issue is not “core.” It is, at best, in this no asset case, “related to.”
I. The Feasibility of Severing State Law Claims from “Core”Bankruptcy Matters to Allow Judgments to Be Entered in StateCourt with Enforcement Left to the Bankruptcy Court
The tax liability claim and the dischargeability issue are severable. If, as a result of the Tax Court process, the amount of the Debtor’s tax liability, if any, is determined, the Bankruptcy Court can consider the findings and conclusions resulting therefore and make its own determination of whether any such liability is not dischargeable. This is a common procedure when dealing with issues-such as liability — before the Bankruptcy Court are not “core.”
J. The Burden of The Bankruptcy Court’s Docket
The Court is not familiar with the burden on the Tax Courts at this time. This Court’s docket is still quite busy stemming from the remaining cases from the Fall of 2005. If, however, the Plaintiff is proceeding against Bank of America in another forum, any urgency to finally determine the dischargeability of the possible Trust Fund Liability is not apparent to this Court.
Page 6
K. The Likelihood That the Commencement of the Proceeding inBankruptcy Court Involves Forum Shopping by One of the Parties
The Court could ascertain that Plaintiff is seeking this forum as a more neutral forum than the Tax Court. The Court could further ascertain that the Defendant is also, by filing the Motion to Abstain, seeking a friendlier forum. Nevertheless, the Plaintiff has had twenty-five years on the oldest taxes involved here to resolve the issues related to tax liability. Moreover, the Plaintiff has had a similar amount of time to deal with his putative claim against the Bank of America.
L. The Existence of a Right to a Jury Trial
The right to a jury trial does not seem to apply here.
M. The Presence in the Proceeding of Non-Debtor Parties
The presence of non-debtor parties does not seem to apply here. Except that determination of the tax liability, if any, will require the examination of several related non-debtor entities that the Debtor controlled or held an interest in.
IV. ORDER
THEREFORE based upon the above and foregoing,
IT IS ORDERED that the Motion to Abstain is GRANTED. This Court will abstain from making a determination as to whether the Plaintiff is liable for taxes assessed by the IRS pursuant to 26 U.S.C. § 6672 for trust fund liability (hereinafter “Trust Fund Liability”).
IT IS FURTHER ORDERED that this Court will hold this matter in abeyance pending determination from the Tax Court with respect to liability. The Plaintiff shall, in the meantime, submit status reports commencing June 29, 2007 and at the end of each quarter thereafter (i.e. September 30, 2007, December 31, 2007, etc.). After time for all appeals from any ruling of the Tax Court has expired, the parties may seek this Court’s resetting of the trial date in this matter to determine the dischargeability of any Trust Fund Liability, if any.
(Bankr. D.Del, 2004).