Bronson v. U.S.

• Citation: 46 F.3d 1573
• Decision Date: 26 January 1995
• Docket Number: No. 93-5207,93-5207
• Parties: -668, 63 USLW 2493, Bankr. L. Rep. P 76,401, Unempl.Ins.Rep. (CCH) P 14349B Phillip Duncan BRONSON, Plaintiff-Appellant, v. UNITED STATES, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1573

46 F.3d 1573

75 A.F.T.R.2d 95-668, 63 USLW 2493, Bankr.

L. Rep. P 76,401,

Unempl.Ins.Rep. (CCH) P 14349B

Phillip Duncan BRONSON, Plaintiff-Appellant, v. UNITED STATES, Respondent.

No. 93-5207.

United States Court of Appeals, Federal Circuit.

Jan. 26, 1995.

David S. Grossman, LeSourd & Patten, P.C., Seattle, WA, argued, for plaintiff-appellant. With him on brief was Robert M. McCallum.

Teresa Milton, Dept. of Justice, Washington, DC, argued, for respondent. With her on brief were Loretta C. Argrett, Asst. Atty. Gen., and Gary R. Allen and Kenneth L. Greene. Of counsel was Alice L. Ronk.

Before RICH, NIES, and MAYER, Circuit Judges.

Opinion for the Court filed by Circuit Judge RICH. Additional Views filed by Circuit Judge NIES. Dissenting opinion filed by Circuit Judge MAYER.

RICH, Circuit Judge.

Phillip Duncan Bronson (Bronson) appeals the August 5, 1993, judgment of the United States Court of Federal Claims (CFC) granting the United States' (government's) motion for summary judgment and denying Bronson's cross-motion for summary judgment thereby dismissing Bronson's complaint for a refund of penalties assessed pursuant to section 6672 of the Internal Revenue Code of 1986, 26 U.S.C. Sec. 6672 (1988). The CFC decision is reported at Bronson v. United States, 28 Fed.Cl. 756 (1993). We affirm.

BACKGROUND

This is a tax case. The material facts of this case are not in dispute. On November 8, 1983, the Internal Revenue Service (IRS) notified Bronson that it proposed to assess penalties against him pursuant to 26 U.S.C. Sec. 6672 (1988) (hereinafter Sec. 6672). Section 6672 imposes a penalty on any person responsible for collecting and paying over to the IRS income tax withholding and employee FICA tax amounts who willfully fail to do so. These penalties are in the form of a "100% penalty." ¹

The proposed assessment of penalties was equal to the amount withheld from the wages of employees of Re-New Manufacturing Co., Inc. (Re-New) of Everett, Washington, for taxable periods ending September 30, 1981; March 31, 1982; June 30, 1982; September 30, 1982; December 31, 1982; and March 31 Bronson twice attempted to administratively appeal the proposed assessment but the IRS considered the appeals invalid because Bronson failed to state any reasons for his contention. On February 6, 1984, the IRS recommended that the proposed assessment be made.

1983. During these periods, Bronson was an officer, stockholder, and the general manager of Re-New with signature authority for the company's operating account. There is no dispute that Bronson is a "responsible person" under the statute. The penalty totaled $49,610.14.

On March 15, 1984, Bronson filed a Chapter 11 bankruptcy petition with the United States Bankruptcy Court for the Western District of Washington. The IRS acknowledged that it was notified of this filing. However, one month after Bronson filed the bankruptcy petition, the IRS finally assessed the 100% penalty that was subject of the prior notices. ² It is agreed by both parties that the assessment violated the Bankruptcy Code's automatic stay provision, section 362(a)(6). 11 U.S.C. Sec. 362(a)(6) (1988). However, the parties stipulated that the IRS did not willfully violate the terms of the automatic stay. ³ Thereafter, the IRS filed a proof of claim, reflecting the penalties assessed pursuant to Sec. 6672, in Bronson's bankruptcy proceeding. The proof of claim notified the bankruptcy court that the IRS has a claim against Bronson in the amount of $49,610.14.

On August 20, 1984, Bronson wrote to the IRS notifying it of a pending sale of property "with the thought in mind that you [the IRS] might wish to file a lien prior to sale" because he was converting from Chapter 11 to Chapter 7, a liquidation proceeding rather than a reorganization proceeding. Bronson stated that this property was the only remaining asset available to satisfy the claim in bankruptcy. Bronson also stated: "In the absence of this lien please let me know how this claim might be settled."

On October 4, 1984, the bankruptcy court did in fact convert Bronson's case to a Chapter 7 liquidation proceeding. At no time did either party or the court raise the issue of the validity of the IRS assessment, raise the issue of violation of the automatic stay, or object to the IRS's proof of claim that was filed with the bankruptcy court. Nor did the IRS place or perfect a lien on any of Bronson's property. ⁴

On February 15, 1985, the bankruptcy court entered an Order discharging Bronson from all debts dischargeable under the Bankruptcy Code. The 100% penalty, however, was not discharged under the Order because the tax liabilities at issue are nondischargeable under 11 U.S.C. Sec. 523 (1988). The IRS's claim, therefore, was excepted from the bankruptcy court's discharge order.

The IRS did not abate the assessment nor did it reassess the penalty after the automatic stay was lifted following the dismissal of the bankruptcy case. However, a Notice of Federal Lien was filed by the IRS against Bronson on February 20, 1986. On April 14, 1986, Bronson and the IRS entered into an Installment Agreement to pay off the penalty plus interest at a rate of $500 per month, later reduced to $300 per month. On April 28, 1986, Bronson signed a waiver extending the statute of limitations for the IRS to collect the penalty to December 31, 1996. The agreement was perfected by the responsible agent of the IRS on May 6, 1986.

Between March 26, 1986, and April 5, 1989, Bronson made payments to the IRS totaling $75,233.94, of this amount, $64,194.12 was paid to the IRS after May 17, 1988. Bronson also requested the IRS to place a lien on his Bronson was not aware that the IRS's violation of the stay might provide a basis for avoiding the assessment until October 1987. ⁶ Although Bronson had signed a waiver allowing collection of the assessment, Bronson waited until he thought the statute of limitations periods for assessment had run, thus eliminating the possibility that the IRS could reassess the penalties if, in fact, the April 30, 1984 assessment was without force and effect. ⁷

home and on his section 401k account ⁵ to enable him to pay a larger portion of the penalty as well as to improve his financial position.

On August 31, 1988, Bronson filed a claim for refund ⁸ with the IRS seeking return of all amounts paid with respect to the penalty. Bronson asserted, for the first time, that the assessment was void because it was made in violation of the automatic stay. The IRS denied Bronson's claim.

Bronson timely filed a complaint in the CFC. Thereafter, both parties filed motions for summary judgment. The government's position was that a tax assessment, made in violation of the automatic stay is not void, but merely voidable, and because Bronson never challenged his liability on the merits, there was no overpayment of tax and, therefore, he is not entitled to a refund. The government also asserted that Bronson's refund claim was barred by the doctrines of waiver, estoppel and/or laches ⁹; therefore, even if the assessment was found to be void, Bronson would be equitably barred from collecting a refund. The CFC granted the government's motion for summary judgment and denied Bronson's cross-motion. Bronson appeals.

ANALYSIS

On appeal of a grant of summary judgment, we independently determine whether there are any genuine issues of material fact, and if not, whether the court erred either in interpreting the governing law or in applying the law to the facts. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986); Allstate Ins. Co. v. United States, 936 F.2d 1271, 1273 (Fed.Cir.1991).

There are no issues of material fact. The issues here are whether the violation of the automatic stay renders the assessment void, therefore without force or effect, or, if the assessment is voidable and here valid, because Bronson made no attempt to have the assessment voided in bankruptcy, and, whether Bronson is entitled to a refund for overpayment if the assessment is held to be void.

In its opinion, the CFC initially stated that "both legislative history and case law support the conclusion that acts in violation of the stay should be held void." However, the CFC ultimately held that the assessment, made in violation of the stay, under these specific circumstances, was not void but voidable. The CFC concluded that "even though The CFC has confused, as have many courts before it, the use of "void" and "voidable." Once a petition in bankruptcy has been filed, 11 U.S.C. Sec. 362(a)(6) (1988), the "automatic stay" provision, bars assessment against the bankrupt of any claim that arose before the commencement of the bankruptcy proceeding.

                the assessment was not void, Bronson could have petitioned the bankruptcy court to void them at any time during the bankruptcy proceedings."   However, in the absence of such petition by Bronson, and in light of the equitable considerations enunciated by the court, the CFC held that the assessment was proper
                

Section 362 reads in pertinent part:

(a) ... petition filed under ... this title operates as a stay, applicable to all entities, of--

....

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;

11 U.S.C. Sec. 362(a)(6) (1988).

It is undisputed that the IRS tax assessment ¹⁰ violated the Bankruptcy Code's automatic stay provision, specifically, 11 U.S.C. Sec. 362(a)(6) (1988). While Congress specified what actions violate an automatic stay as well as exceptions under Sec. 362(b), the consequent validity of the violative actions are not statutorily defined. This issue is of first impression in this court. We must, therefore, look to the legislative history and the case law of other circuits for guidance.

There a split among the circuits as to the ensuing validity of actions in violation of an automatic stay...