Durensky, In re

• Decision Date: 18 September 1975
• Docket Number: No. 74-3038,74-3038
• Citation: 519 F.2d 1024
• Parties: 75-2 USTC P 9801 In the Matter of Lloyd James DURENSKY, Bankrupt. UNITED STATES of America, Appellant, v. Lloyd James DURENSKY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1024

519 F.2d 1024

75-2 USTC P 9801

In the Matter of Lloyd James DURENSKY, Bankrupt.

UNITED STATES of America, Appellant, v. Lloyd James DURENSKY, Appellee.

No. 74-3038.

United States Court of Appeals, Fifth Circuit.

Sept. 18, 1975.

Before GOLDBERG, CLARK and GEE, Circuit Judges.

GOLDBERG, Circuit Judge:

The United States initiated this appeal in the hope of persuading this Court to rule that bankruptcy courts have no jurisdiction, either under section 2a of the Bankruptcy Act (the Act), 11 U.S.C. § 11(a), ¹ or otherwise, to determine the amount and legality of federal taxes due and owing by a bankrupt or to determine the liability of the bankrupt therefor, where the United States has filed no claim in the bankruptcy proceeding. The bankruptcy judge to whom this argument was made below rejected the Government's objection to his jurisdiction over this matter. On review, the district court was of the opinion that the Government's position was an incorrect one, but concomitantly concluded that its appeal was premature. 377 F.Supp. 798. We agree with the latter conclusion and so find no occasion to decide the extent of the bankruptcy court's jurisdiction in cases involving the potential federal tax liability of bankrupts. ² We dismiss the appeal.

Lloyd James Durensky filed a voluntary petition in bankruptcy on February 25, 1972, naming the United States as a creditor by virtue of approximately $90,000 in income taxes alleged to be due and owing for the years 1964 and 1965. The Government was duly notified of the First Meeting of Creditors and was further informed that the bankruptcy court had set May 22, 1972, as the last day for filing objections to Durensky's discharge and for filing applications pursuant to section 17c(2) of the Act, 11 U.S.C. § 35(c)(2), ³ to determine the dischargeability of debts claimed to be nondischargeable under the Act. The Government, however, neither filed a proof of claim nor participated in any way in the bankruptcy proceedings. On May 25, 1972, the bankruptcy court entered an order granting Durensky a discharge of his debts.

While Durensky was being absolved of his debts and given a fresh fiscal start, the Internal Revenue Service was completing its slow but inexorable investigation of the bankrupt's potential tax liability. On August 8, 1972, the IRS finally concluded that Durensky did in fact owe the Government $90,000 in income taxes for 1964 and 1965, and so presented him with a Final Notice Before Seizure, demanding payment. Durensky responded to this sudden demonstration of interest by returning to the bankruptcy court and filing an application to determine the dischargeability of his tax debts, pursuant to section 17c(1) of the Act. The bankruptcy judge issued a temporary restraining order on August 14, restraining the Government from seizing any of Durensky's property pending a hearing on the merits of the dispute. ⁴ The Government immediately objected to the bankruptcy court's jurisdiction over this tax controversy, on the ground that the Government had not filed a proof of claim in the prior proceedings. After a lengthy delay, the bankruptcy judge held a hearing on the Government's motion to dismiss Durensky's application, and on December 21, 1973, the judge entered an order denying the Government's motion and setting a date for a hearing on the merits of the dischargeability issue. The Government chose to appeal this order to the district court, in accordance with section 2a(10) of the Act, 11 U.S.C. § 11(a) (10). ⁵ On May 28, 1974, after an extensive and thoughtful discussion of the jurisdiction of bankruptcy courts in tax controversies, the district court concluded that regardless of the strength of the Government's jurisdictional contentions, its appeal of the interlocutory order denying its motion to dismiss was "premature and piecemeal." 377 F.Supp. at 805-06. Accordingly, the court remanded the case to the bankruptcy judge for a hearing on the merits.

Although the district court is a "bankruptcy court," 11 U.S.C. § 1(10), endowed with a broad power to review and modify the actions of bankruptcy judges, see n. 5, supra, this Court can exercise only a general appellate review in bankruptcy matters. Willyerd v. Buildex Co., 6 Cir. 1972, 463 F.2d 996, 1001 n. 1; 2 Collier, Bankruptcy P 24.05(1) (14th ed. rev. 1975). Our power of review is conferred by section 24a of the Act, 11 U.S.C. § 47(a):

The United States courts of appeals . . . are invested with appellate jurisdiction from the several courts of bankruptcy in their respective jurisdictions in proceedings in bankruptcy, either interlocutory or final, and in controversies arising in proceedings in bankruptcy, to review, affirm, revise, or reverse, both in matters of law and in matters of fact: Provided, however, That the jurisdiction upon appeal from a judgment on a verdict rendered by a jury shall extend to matters of law only: And provided further, That when any order, decree, or judgment involves less than $500, an appeal therefrom may be taken only upon allowance of the appellate court.

Section 24a thus distinguishes between "proceedings in bankruptcy" and "controversies arising in proceedings in bankruptcy;" appeals may be taken as of right from either interlocutory or final orders in the former type of matter, but only from final orders in the latter variety. Diamond Door Co. v. Lane-Stanton Lumber Co., 9 Cir. 1974, 505 F.2d 1199, 1203; In re Charmar Investment Co., 6 Cir. 1973, 475 F.2d 560, 563, cert. denied sub nom. Charmar Investment Co. v. City National Bank & Trust Co.,414 U.S. 823, 94 S.Ct. 123, 38 L.Ed.2d 56. Unfortunately, the distinction between "proceedings" and "controversies" has long eluded concise and easily ascertainable definition, so that the courts have adopted what is tantamount to a case-by-case approach for the classification of particular disputes. See Texas & N.O.R. Co., 5 Cir. 1954, 211 F.2d 419, 421-22, cert. denied, 1955,348 U.S. 913, 75 S.Ct. 293, 99 L.Ed. 716; United Kingdom Mutual S.S. Assur. Assoc. v. Liman, 2 Cir. 1969, 418 F.2d 9, 10. As a general rule, " proceedings" are those matters of an administrative character, including questions between the bankrupt and his creditors which are presented in the ordinary course of the administration of the bankrupt's estate. " Controversies," on the other hand, are usually described as matters which arise in the course of the bankruptcy proceedings and which are not mere steps in the ordinary administration of the bankrupt, but which present distinct and separable issues between the trustee and adverse claimants concerning the right and title to the bankrupt's estate. See Taylor v. Voss, 1926, 271 U.S. 176, 180-81, 46 S.Ct. 461, 463, 70 L.Ed. 889, 892; In re Merle's, Inc., 9 Cir. 1973, 481 F.2d 1016 1018; United Kingdom Mutual S.S. Assur. Assoc. v. Liman, supra, 418 F.2d at 10; 2 Collier, supra, PP 24.12- 24.36. Another approach to the elusive distinction was taken in United Kingdom Mutual, where the Second Circuit attempted to differentiate the two types of matters by reasoning that a proceeding contains a "controversy" if the matter involves a claimant "(who) raises a dispute with regard to the propriety of including property in the estate for distribution, rather than a question with regard to the administration of the estate once it is amassed." 418 F.2d at 10.

Although we have been unable to discover any instance in which a section 17c(1) application such as that filed by Durensky here has been denominated either "proceeding" or "controversy," ⁶ we believe that it is a clear as anything can be in this terminological morass that the instant case constitutes a "proceeding." If we scrutinize the application for a determination of the dischargeability of a debt for evidence of the common characteristics of a "proceeding," we find that the section 17c(1) motion begins as a proceeding, that is, by an application by the bankrupt as to which the bankruptcy court applies its summary procedures. It is also true that such a motion occurs in the ordinary course of the bankruptcy proceedings, in that it is an integral although not inevitable part of bankruptcy adjudications. Finally, if we apply either the traditional definition of "controversy" or that proposed in United Kingdom Mutual, we think it apparent that the Government has not challenged the right and title to any part of the bankrupt's estate as it existed before discharge, nor has the Government questioned the propriety of the inclusion of any particular property in the estate; rather, the Government contends that Durensky's discharge has had no effect upon his tax liability.

The denial of a motion to dismiss for lack of jurisdiction is an interlocutory order which is not ordinarily appealable under the "final judgment" rule of 28 U.S.C. § 1291. See Catlin v. United States, 1945,324 U.S. 229, 236, 65 S.Ct. 631, 635, 89 L.Ed. 911, 917-18; Wallace v. Norman Industries, Inc., 5 Cir. 1972, 467 F.2d 824, 825; Connell v. Dulien Steel Products, Inc., 5 Cir. 1957, 240 F.2d 414, 415, cert. denied, 356 U.S. 968, 78 S.Ct. 1008, 2 L.Ed.2d 1074. We have seen, however, that section 24a of the Bankruptcy Act departs from the general rule and affords appeals as of right from both interlocutory and final orders in proceedings in bankruptcy. It might appear, therefore, that the district court's order of remand in the instant case with its concomitant refusal to reverse the bankruptcy judge's denial of the Government's motion to dismiss would surely be an appealable order in view of our determination that this case is a proceeding in bankruptcy. Such a sweeping conclusion would be ill-advised however, for the courts of appeals have interpreted section 24a so as to allow appeals from interlocutory orders in proceedings only when the orders dispose of some right or duty asserted by one of the parties. See, e. g., City of Fort Lauderdale v. Freeman, 5 Cir. 1952, 197 F.2d 122, 124; ...