American Bicycle Ass'n, In re

• Decision Date: 12 February 1990
• Docket Number: No. 88-15281,88-15281
• Citation: 895 F.2d 1277
• Parties: -672, 58 USLW 2488, 90-1 USTC P 50,104, 20 Bankr.Ct.Dec. 239, Bankr. L. Rep. P 73,249 In re AMERICAN BICYCLE ASSOCIATION, Debtor. AMERICAN BICYCLE ASSOCIATION; Bernard R. Anderson, Appellants, v. UNITED STATES of America, ex rel. INTERNAL REVENUE SERVICE, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1277

895 F.2d 1277

65 A.F.T.R.2d 90-672, 58 USLW 2488, 90-1

USTC P 50,104,

20 Bankr.Ct.Dec. 239, Bankr. L. Rep. P 73,249

In re AMERICAN BICYCLE ASSOCIATION, Debtor AMERICAN BICYCLE ASSOCIATION; Bernard R. Anderson, Appellants, v. UNITED STATES of America, ex rel. INTERNAL REVENUE SERVICE, Appellee.

No. 88-15281.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 5, 1989.

Decided Feb. 12, 1990.

Charles W. Lowe, Davis & Lowe, P.C., Phoenix, Ariz., for appellants.

Shirley D. Peterson, Asst. Atty. Gen., and Calvin C. Curtis, Tax Atty., Dept. of Justice, Washington, D.C., for appellee.

Appeal from the United States District Court for the District of Arizona.

Before NORRIS, THOMPSON and O'SCANNLAIN, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

Appellants American Bicycle Association ("debtor") and Bernard R. Anderson appeal the district court's order reversing the bankruptcy court's order enjoining the Internal Revenue Service ("IRS") from collecting a "responsible officer 100% penalty" assessed under Internal Revenue Code Sec. 6672 ¹ against Anderson, the debtor's secretary-treasurer. The district court had jurisdiction pursuant to 28 U.S.C. Sec. 158(a). We have jurisdiction under 28 U.S.C. Sec. 158(d) and we affirm.

FACTS AND PROCEEDINGS

The debtor filed for relief under Chapter 11 of the Bankruptcy Code on November 25, 1985. In its confirmed plan of reorganization, the debtor is obligated to make installment payments to pay in full approximately $219,623 in federal taxes. Nothing indicates that the debtor has failed to make the payments required by the plan. Prior to confirmation of the plan, the IRS notified Anderson that he would be assessed as a "responsible officer" of the debtor corporation a penalty of $35,742.85 under section 6672 for willfully failing to pay to the government a portion of the federal taxes owed by the debtor. ² On September 15, 1987, appellants filed a complaint seeking to enjoin the IRS from collecting this liability from Anderson. In an uncontroverted affidavit, Anderson alleged that the IRS' collection of the assessed penalty would impair his ability to make necessary capital contributions required to fund the debtor's reorganization plan.

The bankruptcy court, taking these allegations as true, held that it had jurisdiction to rule on appellants' complaint and entered a preliminary injunction against the IRS. The bankruptcy court, noting a divergence of authority on the question, chose to follow those cases holding that a bankruptcy court may enjoin the IRS from collecting 100% penalty taxes from responsible corporate officers of a debtor. The bankruptcy court granted the government leave to appeal from the preliminary injunction. The district court reversed. The district court held that the bankruptcy court had no positive grant of jurisdiction to enjoin the collection of taxes from a nondebtor corporate officer and also that the Anti-Injunction Act ³ specifically barred the bankruptcy court from enjoining the IRS. The debtor and Anderson appeal.

STANDARD OF REVIEW

This appeal involves no issues of fact. We review the bankruptcy and district

courts' conclusions of law de novo. In re Globe Inv. and Loan Co., Inc., 867 F.2d 556, 559 (9th Cir.1989).

ANALYSIS

This appeal presents an issue of first impression in our circuit: may a bankruptcy court enjoin the collection of a 100% penalty assessed under 26 U.S.C. Sec. 6672 against the responsible officer of a debtor corporation? Our answer is no.

The decisions on this issue are numerous and divergent. See In re John Renton Young, Ltd., 87 B.R. 635, 638 (Bankr.D.Nev.1988) (lists cases which have addressed the issue). Under circumstances similar to those in the present case, one court of appeals has held that bankruptcy courts have no positive grant of jurisdiction to enjoin the collection of taxes against nondebtors, see United States v. Huckabee Auto Co., 783 F.2d 1546, 1549 (11th Cir.1986). We decide this appeal, however, under "the Anti-Injunction Act because it is relatively straightforward, avoids deciding a constitutional question (Article III standing), and provides the narrowest ground for decision." In the Matter of LaSalle Rolling Mills, Inc., 832 F.2d 390, 392 n. 6 (7th Cir.1987).

Appellants attack the applicability of the Anti-Injunction Act. They argue that Congress' desire to provide for the reorganization of bankrupts in Chapter 11 overrides its interest in preventing any interference in the collection of federal taxes. Appellants also argue that this case comes within the judicially-created exception to the Anti-Injunction Act set forth in South Carolina v. Regan, 465 U.S. 367, 104 S.Ct. 1107, 79 L.Ed.2d 372 (1984). Neither of these arguments is persuasive.

In arguing that "Congress contemplated bankruptcy to be an exception to the Anti-Injunction Act," appellants attempt to find an inconsistency between the Supreme Court's opinion in United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), and the present case. In Whiting Pools, the Court concluded that under 11 U.S.C. Sec. 542(a) (Supp. V 1976), property of the debtor's estate includes "property of the debtor that has been seized by a creditor prior to the filing of a petition for reorganization." Id. at 209, 103 S.Ct. at 2315. The Court thus ordered the IRS to turn over prepetition assets that it had seized from the debtor. Appellants argue that it would be inconsistent to deny issuance of an injunction in this case when the Court approved issuance of an injunction which thwarted the IRS' collection efforts in Whiting Pools.

Appellants, however, overlook at least two crucial distinctions between our case and Whiting Pools. First, as the Court noted in Whiting Pools, section 542(a) applies to any "entity" and "[t]he Bankruptcy Code expressly states that the term 'entity' ... includes a governmental unit." Id. No comparable specific statutory exception helps the appellants in the present case. Second, Whiting Pools dealt with the statutory authority of a bankruptcy trustee to require the IRS to return to the estate prepetition property of a debtor which it had seized. The present case involves the collection of a 100% penalty assessed against a nondebtor responsible officer of the debtor corporation. The present case is thus distinguishable from Whiting Pools.

We conclude that Whiting Pools does not provide authority for the bankruptcy court's injunction enjoining collection of the 100% penalty from Anderson. Moreover, nothing in the Bankruptcy Code or its legislative history indicates that Congress intended to override the Anti-Injunction Act in these circumstances. See LaSalle Rolling Mills, 832 F.2d at 394. Only section 105(a) of the Bankruptcy Code might arguably give a bankruptcy court power to enjoin the IRS from collecting the 100% penalty from the responsible officer of a debtor corporation. Section 105(a) authorizes a bankruptcy court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. Sec. 105(a) (1988). All encompassing as this statute seems to be, however, it does not provide specific authorization empowering a bankruptcy court to enjoin collection of the 100% penalty. On the other hand, the text of the Anti-Injunction Act is specific and unequivocal. We hold that its proscription is not overridden by the general grant of authority provided in section 105(a) of the Bankruptcy Code.

We are mindful that some district courts and bankruptcy courts, although in the minority of those considering the issue, have adopted appellants' argument and granted injunctions in cases similar to ours. These courts have relied primarily on Bostwick v. United States, 521 F.2d 741 (8th Cir.1975). See In re John Renton Young, Ltd., 87 B.R. at 638 (lists cases where injunctions were determined to be appropriate). In Bostwick, the Eighth Circuit held that the Anti-Injunction Act did not prohibit a bankruptcy court from enjoining the IRS from collecting taxes against a debtor following discharge. The court concluded that the discharge provisions under section 17(c) of the Bankruptcy Act, including a provision "authorizing the issuance of injunctions, clearly evidences an intent by Congress that the orderly administration of the Bankruptcy Act take precedence over the general policy stated in the 'anti-injunction' act." Bostwick, 521 F.2d at 745.

We need not pass on the correctness of Bostwick. Instead, we merely note that the Eighth Circuit has subsequently limited Bostwick to its facts, holding that the Anti-Injunction Act prevents bankruptcy courts from enjoining the IRS from collecting the 100% penalty prescribed by section 6672 from responsible officers and shareholders of a corporate debtor. See A to Z Welding & Mfg. Co. v. United States, 803 F.2d 932, 933 (8th Cir.1986) (per curiam) (reaffirming the holding of Kelly v. Lethert, 362 F.2d 629 (8th Cir.1966)); accord LaSalle Rolling Mills, 832 F.2d at 392-94; see also In re Heritage Village Church & Missionary Fellowship, Inc., 851 F.2d 104, 105-06 (4th Cir.1988) (per curiam) (holding that the Anti-Injunction Act prevented the bankruptcy court from enjoining the IRS from revoking the debtor's tax-exempt status); In the Matter of Becker's Motor Transportation, Inc., 632 F.2d 242, 246 (3d Cir.1980) (holding that although the IRS had failed to give notice of its intention to collect prepetition penalties and postpetition interest from the debtor, the Anti-Injunction Act barred the bankruptcy court from enjoining the IRS' collection of these taxes following discharge), cert. denied, 450 U.S. 916, 101 S.Ct. 1358, 67 L.Ed.2d 341 (1981). Thus, the appellants' argument that the Bankruptcy Code overrides the Anti-Injunction Act is not persuasive.

Appellants argue next that even if the Bankruptcy Code does not override the Anti-Injunction Act, appellants' complaint comes...