Griffith v. U.S.

• Decision Date: 24 March 2000
• Docket Number: No. 97-4845,97-4845
• Citation: 206 F.3d 1389
• Parties: (11th Cir. 2000) IN RE: Leroy Charles GRIFFITH, Debtor. Leroy Charles Griffith, Plaintiff-Appellant, v. United States of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1389

206 F.3d 1389 (11th Cir. 2000)

IN RE: Leroy Charles GRIFFITH, Debtor.

Leroy Charles Griffith, Plaintiff-Appellant, v. United States of America, Defendant-Appellee.

No. 97-4845.

United States Court of Appeals, Eleventh Circuit.

March 24, 2000.

[Copyrighted Material Omitted] Appeal from the United States District Court for the Southern District of Florida.

Before ANDERSON, Chief Judge, and TJOFLAT, EDMONDSON, COX, BIRCH, DUBINA, BLACK, CARNES, BARKETT, HULL, MARCUS and WILSON, Circuit Judges.

BIRCH, Circuit Judge:

This appeal requires us to determine the scope of nondischargeability of tax debts under 11 U.S.C. 523(a)(1)(C). Specifically, we requested the parties in this case to address the question of whether 523(a)(1)(C) renders a tax debt nondischargeable in bankruptcy where the debtor has willfully attempted in any manner to evade or defeat the payment of a tax but has not in any manner willfully attempted to evade or defeat the assessment of a tax. Because we find that 523(a)(1)(C) does render nondischargeable tax debts where the debtor has willfully attempted in any manner to evade or defeat the payment of a tax and because the bankruptcy and district courts did not clearly err in finding that Debtor Leroy Charles Griffith's actions constituted a willful attempt to evade or defeat the payment of a tax, we AFFIRM the finding that Griffith's tax debts are nondischargeable.

I. Background

We adopt and reiterate the factual background as written by the panel that originally heard this case:

Plaintiff-appellant Leroy Charles Griffith ("Griffith") has long been the sole owner of several corporations primarily involved in the adult entertainment industry. These corporations included, among others, Gayety Theaters, Inc. ("Gayety"), Ell Gee, Inc., and Paris Follies, Inc. As subchapter S corporations, the income and deductions pass through to the shareholders, so Griffith's personal income tax returns reflect the performance of his corporations. An IRS audit revealed that Griffith had substantially underpaid his taxes for the years 1969, 1970, 1972-1976, and 1978. Griffith petitioned the Tax Court for a reconsideration of the amount owed. In a detailed opinion issued in September of 1988, the Tax Court found that Griffith had indeed underpaid his taxes, but did not impose fraud penalties because the government's evidence with respect to fraud did not satisfy the clear and convincing burden of proof. See Griffith v. Commissioner, 56 T.C.M. (CCH) 220 (1988), modified, 56 T.C.M. (CCH) 1263 (1989). With interest, the amount of taxes owed at the time that Griffith filed for bankruptcy in this case was close to $2,000,000. See In re Griffith, 161 B.R. 727, 730 (Bankr.S.D.Fla.1993), aff'd, 210 B.R. 216 (S.D.Fla.1997), rev'd, 174 F.3d 1222 (11th Cir.), vacated and reh'g en banc granted, 182 F.3d 1297 (11th Cir.1999).

Less than a month after the Tax Court issued its decision, on October 10, 1988, NuWave, Inc., was incorporated, with Griffith's long-time live-in girlfriend, Linda, as sole shareholder. On June 8, 1989, Linda and Griffith married, and Griffith signed an antenuptial agreement in which he transferred all of his stock in Gayety, Ell Gee, and Paris Follies to Linda and himself as tenants in the entirety, along with $390,000 in promissory notes. Assets from another corporation that he owned were transferred to NuWave, Inc. The IRS made an assessment against Griffith on September 28, 1989. However, the assets transferred pursuant to the antenuptial agreement were insulated from being levied upon because assets held by tenants in the entirety cannot be levied upon without a judgment against both owners. Additionally, Griffith no longer had any ownership interest in those assets transferred to NuWave, Inc.

On January 15, 1993, Griffith filed a Chapter 7 bankruptcy petition, as well as a complaint to determine the dischargeability of his tax debts. The government argued that the tax debts were nondischargeable under 11 U.S.C. 523(a)(1)(C) which prohibits discharge of taxes "with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax." The bankruptcy court agreed. Although there was no evasion with respect to the assessment of the tax, the bankruptcy court, looking to the "badges of fraud," found that Griffith's conduct occurring after the Tax Court issued its decision amounted to a willful attempt to evade or defeat the payment of the tax debt. See In re Griffith, 161 B.R. at 733-34. The court specifically rejected Griffith's argument that 523(a)(1)(C) applies only to conduct constituting evasion of the assessment of a tax; the court held that the phrase "in any manner" was sufficiently broad to include conduct constituting evasion of the payment of a tax. See id. at 732-33.

Subsequent to the bankruptcy court's decision, we decided In re Haas, 48 F.3d 1153 (11th Cir.1995). Haas had filed accurate tax returns, but had not paid the taxes due; instead, he used his income to pay business and personal debts. Upon filing for bankruptcy, he sought discharge of the tax debts, which the government opposed on the basis of 523(a)(1)(C). Noting the "fresh start" policy underlying the bankruptcy laws, the Haas panel found that a literal reading of the statute, including the broad phrase "in any manner," would conflict with the goals of bankruptcy. See id. at 1156. Thus, the panel looked to provisions of the Internal Revenue Code ("I.R.C.") and found that they referred to "willfully attempting in any manner to evade or defeat any tax or the payment thereof." See id. (quoting 26 U.S.C. 6531(2)) (emphasis added); see also id. (quoting 26 U.S.C. 6653, 6672, & 7201, which contain the identical language as that emphasized in the above quote). The panel relied on the absence of the phrase "or the payment thereof" from 523(a)(1)(C) to conclude that the provision precludes discharge when the debtor "willfully attempted ... to evade or defeat" the tax at the assessment stage, but does not preclude discharge when there has been such evasion at the payment stage. See id. at 1159. Thus, Haas' debt was dischargeable.

Griffith appealed the bankruptcy court's decision in the instant case to the district court, relying heavily on the intervening decision in Haas. The district court affirmed the bankruptcy court's decision. See In re Griffith, 210 B.R. 216, 220 (S.D.Fla.1997), rev'd, 174 F.3d 1222 (11th Cir.), vacated and reh'g en banc granted, 182 F.3d 1297 (11th Cir.1999). In so doing, it distinguished Haas. The district court found that, unlike Haas, Griffith had done more than simply pay other debts before paying his back taxes; Griffith had engaged in a fraudulent transfer of assets in order to prevent collection of his tax debt. See id. at 219. Griffith appealed to this court.¹

II. Discussion

This case requires us to interpret 523(a)(1)(C), which states that:

(a)A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-

(1)for a tax or customs duty-

...

(C)with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax....

We do not conduct this enterprise against an empty slate. Several courts, including this court in Haas, have addressed the application of 523(a)(1)(C) to persons who failed to pay their tax debts before entering bankruptcy. While most of the courts that have addressed this issue agree with our primary holding in Haas "that a debtor's failure to pay his taxes, alone does not fall within the scope of section 523(a)(1)(C)'s exception to discharge in bankruptcy," 48 F.3d at 1158, our second holding, that "the phrase 'attempt[s] in any manner to evade or defeat such tax' does not imply attempts to evade or defeat payment thereof," id. at 1159 (alteration in original), has been more controversial. See, e.g., In re Fegeley, 118 F.3d 979, 983 (3d Cir.1997) (accepting first holding from Haas but finding that nonpayment of taxes is relevant to the question of whether tax debts are nondischargeable under 523(a)(1)(C)); In re Birkenstock, 87 F.3d 947, 951-52 (7th Cir.1996) (accepting first holding from Haas but holding that "where nonpayment is coupled with a pattern of failing to file tax returns or where a defendant takes other measures to conceal assets or income from the IRS, a court may reasonably find that the debtor sought to 'evade or defeat' his tax liabilities") (citations omitted); Dalton v. IRS, 77 F.3d 1297, 1301 (10th Cir.1996) (accepting first holding from Haas but finding that "any statutory interpretation of 'evade and defeat' which relieves the dishonest debtor who conceals assets to avoid the payment or collection of taxes, but which penalizes the same dishonesty to avoid assessment, would be an absurd result"); see also In re Tudisco, 183 F.3d 133, 137 (2d Cir.1999) (refusing to pass on question of whether mere nonpayment is sufficient to render tax debts nondischargeable under 523(a)(1)(C) but, instead, finding that the fact that the debtor had "engaged in more than 'mere nonpayment' " meant that he had attempted to evade or defeat his taxes). But see In re Bruner, 55 F.3d 195, 200 (5th Cir.1995) (rejecting both holdings of Haas ). Because we find that 523(a)(1)(C) renders nondischargeable tax debts where the debtor willfully attempted to evade or defeat payment of taxes and because we find that the bankruptcy court did not err in finding that Griffith had willfully attempted to evade payment of his taxes, we affirm the district court's affirmance of the bankruptcy court's finding of nondischargeability.

A.Statutory Interpretation

Interpretation of a statute begins "with the language of the statute itself." United States v. Ron Pair Enters., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). As a general rule, if the language of the statute is plain, then our...