Carney v. IRS

• Decision Date: 16 July 2001
• Docket Number: No. 00-10746,00-10746
• Citation: 258 F.3d 415
• Parties: (5th Cir. 2001) In the Matter of: JOHN H. CARNEY, Debtor JOHN H. CARNEY Appellant, v. INTERNAL REVENUE SERVICE, Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

Page 415

258 F.3d 415 (5th Cir. 2001)

In the Matter of: JOHN H. CARNEY, Debtor

JOHN H. CARNEY Appellant, v. INTERNAL REVENUE SERVICE, Appellee.

No. 00-10746

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

July 16, 2001

Appeal from the United States District Court for the Northern District of Texas

Before HIGGINBOTHAM and BENAVIDES, Circuit Judges, and DUPLANTIER, District Judge.^*

BENAVIDES, Circuit Judge:

John H. Carney appeals from an adverse summary judgment in his challenge to the validity of tax deficiency claims made against him by the Internal Revenue Service (IRS). The deficiencies stem from the IRS's determination that certain partnership investments by Carney lacked economic substance, and hence could not support tax credits and depreciation deductions that Carney claimed. We AFFIRM the grant of summary judgment based on Carney's Rule 36(a) deemed admission that the proof of claim filed by the IRS in his bankruptcy proceeding accurately described his tax obligations.

Factual and Procedural Background

Carney, an attorney licensed to practice in Texas, participated as a limited partner in the Cinema '84 and Cinema '85 limited partnerships (the Cinema Partnerships) from 1984 through 1989. On his tax returns for these periods, Carney claimed deductions, depreciation, and tax credits with respect to his investments in the Cinema Partnerships. In 1991, the IRS determined that the Cinema Partnerships were tax shelter investments lacking economic substance. Consequently, credits and deductions claimed by individual Cinema partners, such as Carney, were no longer viable. In 1992, the Cinema Partnerships' tax matters partner petitioned the Tax Court for judicial review of the IRS's determination.¹

In January 1995, Carney filed a petition for relief under Chapter 11 of the Bankruptcy Code.² The petition was later converted to Chapter 7. In May 1995, the IRS filed a proof of claim against Carney relating, inter alia, to unpaid federal income taxes from the 1984, 1985, 1986, 1987 and 1989 tax years. The claimed deficiencies stemmed from the IRS's disallowance of the deductions and credits claimed by Carney in relation to the Cinema Partnerships and the Bellbrook Joint Venture Partnership. Carney did not object to the IRS's proof of claim. In December 1995, the IRS issued to Carney notices of deficiencies and penalties with respect to the claimed obligations. Carney received a general bankruptcy discharge in December 1996.

The IRS assessed the 1986, 1987 and 1989 deficiencies and penalties on July 16, 1997, and the 1984 and 1985 deficiencies and penalties on August 11, 1997. When the IRS attempted to collect the assessments in 1998, Carney commenced the present action in the bankruptcy court seeking a determination that his obligations had been discharged. Carney later amended his complaint to challenge the validity of the claimed deficiencies. After a period of discovery and negotiation, the IRS moved for summary judgment in September 1999. In addition to responding to the IRS's motion for summary judgment, Carney filed a motion to compel responses to certain interrogatories and requests for production previously served on the IRS, as well as a request for a scheduling order setting a future date to hear summary judgment arguments.

The bankruptcy court granted the IRS's motion for summary judgment. As to the validity of the deficiency claims, the court stated that Carney failed to produce sufficient evidence creating a material fact question with respect to his claim for the deductions and tax credits. Alternatively, the court held that Carney's failure to respond to the IRS's requests for admission created a deemed admission conclusively establishing the validity of the IRS's claims. With respect to the dischargeability of the tax claims, the court relied on Bankruptcy Code sections 523(a)(1)(A) and 507(a)(8)(A)(iii) to hold that the taxes owed were non-dischargeable because they were assessable, but not assessed at the time that Carney filed his bankruptcy petition. See 11 U.S.C. §§ 523(a)(1)(A); 507(a)(1)(A)(iii). The court denied Carney's discovery requests, concluding that Carney "could have and should have been diligent in filing his Motion to Compel Discovery Responses, but he was not." The court suggested that Carney made his motion to compel discovery "as some sort of defensive measure in order to distract the Court's attention from the Summary Judgment Motion." Carney appealed these rulings to the district court, which affirmed summarily. This appeal followed.

Discussion

Pursuant to section 158(d) of Title 28, this Court exercises jurisdiction over the bankruptcy court's final orders fixing the amount of Carney's tax debt and holding that debt to be non-dischargeable. 28 U.S.C. § 158(d). Carney has waived the dischargeability issue on appeal by failing to offer a legal or factual explanation of how the bankruptcy court erred when it held his tax obligations non-dischargeable. See American States Ins. Co. v. Bailey, 133 F.3d 363, 372 (5th Cir. 1998) ("Failure to provide any legal or factual analysis of an issue results in waiver.").³ Thus, our review focuses on the bankruptcy court's summary judgment that the IRS's amended proof of claim correctly stated the value of Carney's tax obligations.

Carney essentially argues that the bankruptcy court granted summary judgment in this case prematurely, before the IRS had responded to his discovery requests. His appellate brief and oral argument have both focused on the bankruptcy court's consideration of allegedly improper evidence introduced by the IRS to challenge Carney's credibility with respect to his motion to compel discovery. If the bankruptcy court considered improper evidence when denying his motion to compel, Carney reasons that the grant of summary judgment should be overturned. In the alternative, Carney maintains that his affidavit testimony creates a genuine issue of material fact as to his entitlement to claimed credits and deductions.

Carney's arguments neglect his own failures to comply with the Federal Rules of Civil Procedure governing discovery. As explained below, Carney's failure to respond to the IRS's Federal Rule of Civil Procedure 36 request that he admit the accuracy of the IRS's proof of claim conclusively established the validity of that claim.⁴ Carney's attempt to contradict this admission through his affidavit testimony is precluded by the plain language of Rule 36 and this Circuit's precedent. Though Rule 36 allows litigants to request leave to withdraw or amend an admission, Carney never made such a motion before the bankruptcy court in this case. Consequently, we affirm the grant of summary judgment based on Carney's deemed admissions.

We review orders granting summary judgment de novo, guided by the same standard as the bankruptcy and district courts: Federal Rule of Civil Procedure 56. Stults v. Conoco, Inc., 76 F.3d 651, 654 (5th Cir. 1996). Pursuant to Rule 56, a party may obtain summary judgment when "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). The IRS argues, and the bankruptcy court alternatively held, that Carney admitted the validity and value of the IRS's deficiency claims by failing to respond to the IRS's Rule 36 requests for admission. Specifically, Carney failed to respond to the IRS's request that he admit the following: "You owe the [IRS] the taxes reflected on the Proof of Claim attached hereto as Government Exhibit 1." According to the IRS, this admission resolves all material fact questions regarding the validity of its claims against Carney.

Federal Rule of Civil Procedure 36(a)states in pertinent part:

A party may serve upon any other party a written request for the admission, for purposes of the pending action only, of the truth of any matters within the scope of Rule 26(b) set forth in the request that relate to statements or opinions of fact or of the application of law to fact, including the genuineness of any documents described in the request. ....

The matter is admitted unless, within 30 days after service of the request, or within such shorter or longer time as the court may allow or as the parties may agree to in writing, subject to Rule 29, the party to whom the request is directed serves upon the party requesting the admission a written answer or objection addressed to the matter....

Fed. R. Civ. Proc. 36(a)(West 2001). Rule 36 allows litigants to request admissions as to a broad range of matters, including ultimate facts, as well as applications of law to fact. See, e.g., Stubbs v. Comm'r Internal Rev., 797 F.2d 936, 938 (11th Cir. 1986); Campbell v. Spectrum Automation Co., 601 F.2d 246, 253 (6th Cir. 1979). C.f. Playboy Enterprises, Inc. v. Welles, 60 F.Supp.2d 1050, 1057 (S.D. Cal. 1999) ("Requests for admissions cannot be used to compel an admission of a conclusion of law."); Kosta v. Connolly, 709 F. Supp. 592, 594 (E.D. Pa. 1989)(suggesting that Rule 36 should not be employed to establish facts that are obviously in dispute). Such breadth allows litigants to winnow down issues prior to trial and thus focus their energy and resources on disputed matters. Wright, Miller & Marcus, Federal Practice and Procedure: Civil 2d § 2254 (1994). For Rule 36 to be effective in this regard, litigants must be able to rely on the fact that matters admitted will not later be subject to challenge. American Auto Ass'n v. AAA Legal Clinic, 930 F.2d 1117, 1119 (5th Cir. 1991). Thus, Rule 36(b) provides that "[a]ny matter admitted . . . is conclusively established unless the court on motion permits withdrawal or amendment of the admission." Fed. R. Civ. Proc. 36(b).

This Circuit has stressed that a deemed admission can only be withdrawn or amended by...