Hutchins v. I.R.S.

• Decision Date: 24 May 1995
• Docket Number: Nos. 94-5509,94-5510,s. 94-5509
• Citation: 67 F.3d 40
• Parties: -6778, Bankr. L. Rep. P 76,647 Charles T. HUTCHINS, Appellant in 94-5509, v. INTERNAL REVENUE SERVICE; United States of America. Charles T. HUTCHINS v. INTERNAL REVENUE SERVICE; United States of America, United States of America, Appellant in 94-5510. . Submitted Pursuant to Third Circuit LAR 34.1(a)
• Court: U.S. Court of Appeals — Third Circuit

Page 40

67 F.3d 40

76 A.F.T.R.2d 95-6778, Bankr. L. Rep. P 76,647

Charles T. HUTCHINS, Appellant in 94-5509, v. INTERNAL REVENUE SERVICE; United States of America.

Charles T. HUTCHINS v. INTERNAL REVENUE SERVICE; United States of America,

United States of America, Appellant in 94-5510.

Nos. 94-5509, 94-5510.

United States Court of Appeals Third Circuit.

Submitted Pursuant to Third

Circuit LAR 34.1(a)

May 24, 1995.

Decided Oct. 3, 1995.

Charles T. Hutchins, Farmingdale, NJ, Pro Se.

Faith S. Hochberg, United States Attorney, Loretta C. Argrett, Gary R. Allen, Bruce R. Ellisen, Bridget Rowan, Laurie Snyder, Assistant U.S. Attorneys, Tax Division, U.S. Department of Justice, Washington, DC, for Appellee/Cross-Appellant.

Before: GREENBERG, ROTH and ALDISERT, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge:

In this appeal, Charles T. Hutchins, appearing pro se, and the Internal Revenue Service each challenge aspects of the entry of summary judgment below. The district court granted summary judgment to the I.R.S. on its counterclaim to recoup an erroneous tax credit, but then, disturbed by this result, invoked equitable estoppel sua sponte to bar the I.R.S. from recovering all but a minor portion its claim. This holding necessarily denied Hutchins' standing to sue for the original tax credit. We reverse. Hutchins had standing to pursue his original tax claim because in the bankruptcy proceedings that gave rise to this case, the tax refund descended to him through abandonment as part of a properly scheduled antitrust action. Because the I.R.S. grounded its recoupment claim solely on Hutchins' lack of standing, our ruling on this issue is dispositive. We reach neither the validity of the underlying tax refund, which is not properly before us, nor the application of equitable estoppel, which is rendered superfluous.

I. Factual and Procedural History

In November 1979 Hutchins, as sole proprietor of Hutchins Supply Company, filed a Chapter 7 Bankruptcy Petition in the U.S. Bankruptcy Court in Anchorage, Alaska. After the initial scheduling of all known assets and liabilities pursuant to 11 U.S.C. Sec. 521(1), Hutchins learned that his business had failed because of his competitors' antitrust violations and unfair business practices. Hutchins instituted an antitrust action against these competitors, amending his schedules to reflect the antitrust cause of action as an asset of the bankrupt estate. By stipulation, the estate trustee allowed Hutchins to pursue the action, reserving the right to all settlement proceeds. In 1986, the resulting claims were settled for $243,000 in cash, which was turned over to the bankruptcy trustee. In addition, the antitrust defendants withdrew claims against the bankrupt estate for approximately $76,000 in business debt. On January 27, 1987, the trustee filed an estate income tax return reflecting both the cash and the retired debt as income.

On September 21, 1988, the trustee petitioned the U.S. Bankruptcy Court to abandon any remaining assets to Hutchins. The requisite order was issued on March 23, 1989. The bankruptcy proceedings were closed sometime prior to February 1989, re-opened on March 1, 1989, and closed a second time on March 14, 1990.

On April 2, 1989, Hutchins filed an amended tax return for 1987, asserting that pursuant to 26 U.S.C. Sec. 108, the $76,000 in retired business debt was not taxable income. Hutchins sought a tax credit of $38,458, the amount he believed the trustee had overpaid by erroneously including the $76,000 in retired business debt as income. On January 22, 1992, the I.R.S. granted in part the claimed refund and applied a credit of $37,897.04 to Hutchins' tax arrearages. On September 29, 1992, Hutchins responded by filing a complaint against the I.R.S. in the U.S. District Court for the District of New Jersey seeking, among other relief, an additional credit of $650. The I.R.S. responded by counterclaiming for the entire January 1992 tax credit, alleging it was granted erroneously since Hutchins was not the proper party to receive a refund of taxes paid by the bankruptcy estate.

On May 24, 1993, the district court dismissed Hutchins' various prayers for relief on several grounds, leaving the I.R.S.'s counterclaim as the sole remaining dispute. That order has not been appealed. On January 10, 1994, on cross motions for summary judgment, the district court ruled in favor of the I.R.S. on its counterclaim, denied Hutchins' motion to dismiss, and invoked equitable estoppel to bar the I.R.S. from recovering all but $663 plus interest from Hutchins. Both parties appealed to this court.

II. Jurisdiction

The district court properly asserted federal jurisdiction over the I.R.S.'s counterclaim under 26 U.S.C. Sec. 7405(b). We have jurisdiction over the district court's final order pursuant to 28 U.S.C. Sec. 1291. Our review of a grant of summary judgment is plenary. Oritani Sav. & Loan Ass'n v. Fidelity & Deposit Co., 989 F.2d 635, 637 (3d Cir.1993); Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977). The question of standing is itself subject to plenary review. Polychrome Int'l Corp. v. Krigger, 5 F.3d 1522, 1530 n. 19 (3d Cir.1993).

III. Discussion

In its counterclaim in district court, the I.R.S. sought to recoup the entire tax credit it had granted Hutchins by asserting that he lacked standing to pursue the discrepancy. The I.R.S. argued that because Hutchins had failed to schedule the tax claim explicitly as an asset of the bankrupt estate, the right to the refund was not abandoned but was instead retained by the estate. Since the refund belonged to that separately taxable entity, only the trustee could sue for its recovery. Hutchins therefore had no basis for his claim. Consequently, any tax refund granted to Hutchins was erroneous and could be recovered. The district court implicitly conceded this much in an elliptical comment ¹ followed by its sua sponte application of equitable estoppel. We disagree. This line of reasoning ignores the fact that the tax refund originated as part of the properly scheduled antitrust action. The refund claim was at best a derivative asset that arose as a result of the trustee's tax filings on behalf of the estate. Moreover, the claim was not asserted until after the bankruptcy had closed. Since it existed during the bankruptcy as an integral part of the antitrust claim--or if separately as a still inchoate right--the tax claim was properly scheduled through the scheduling of the antitrust action and descended to Hutchins through abandonment. Hutchins had standing to sue.

A.

We observe in passing that if the tax refund were a unique asset that had to be scheduled separately, as the I.R.S. asserts, then the failure to schedule the refund is fatal to Hutchins' claim. It is clear that an asset must be properly scheduled in order to pass to the debtor through abandonment under 11 U.S.C. Sec. 554. See Vreugdenhill v. Navistar Int'l Transp. Corp., 950 F.2d 524, 526 (8th Cir.1991) (refusing to find unscheduled cause of action abandoned even where trustee was aware of it prior to abandonment); In re Medley, 29 B.R. 84, 86-87 (Bankr.M.D.Tenn.1983) (refusing to abandon unscheduled refund claim to debtor); DiStasio v. United States, 22 Cl.Ct. 36, 52 (1990) (holding claim for refund abandoned only if scheduled); Weiner v. United States, 15 Cl.Ct. 43, 45 (1988) (retaining unscheduled tax refund claim as property of bankrupt estate); see generally 4 Collier on Bankruptcy p 554.03 (15th ed. 1994). It is equally clear that since the bankrupt estate retains unscheduled assets, only the bankruptcy trustee has the authority to control them. 11 U.S.C. Sec. 554(d) ("property ... not abandoned under this section ... remains property of the estate"). This authority includes the power to file an amended tax return. See 26 U.S.C. Sec. 6012(b)(4) (requiring that fiduciary for estate file estate return); see also Mindlin v. Drexel Burnham Lambert Group, 160 B.R. 508, 514 (S.D.N.Y.1993) ("By operation of 11 U.S.C. Sec. 554(c) and (d), any asset not scheduled pursuant to 11 U.S.C. Sec. 521(1) remains property of the estate, and the debtor loses all rights to enforce it under his own name."). These propositions, however, beg the fundamental question raised by this dispute, viz. were the antitrust action and tax refund claim separate assets? If they were not, then the tax refund was scheduled as part and parcel of the antitrust claim, and it descended to Hutchins through abandonment. After reviewing the respective arguments, we conclude that during the pendency of the bankruptcy, the tax refund existed as an inherent part of the properly scheduled antitrust claim.

Initially, it bears noting that the tax refund in this case differs from the tax refunds that typically appear as unscheduled assets in bankruptcy proceedings. The standard case of an unscheduled tax refund involves an expected refund computed by the debtor and entered on a personal or corporate tax return, which the debtor then fails to schedule after declaring bankruptcy. See, e.g., Mertz v. Rott, 955 F.2d 596 (8th Cir.1992) (considering estate tax refund that debtors anticipated but failed to schedule); Doan v. Hudgins, 672 F.2d 831 (11th Cir.1982) (considering debtor's failure to list expected tax refund); Barowsky v. Serelson, 102 B.R. 250 (D.Wyo.1989) (reopening bankruptcy after discovery of anticipated but unscheduled income tax refund). The scenario is even clearer when the refund has already been paid by the I.R.S. and yet goes unscheduled. See In re Maynard, 162 B.R. 349 (Bankr.M.D.Fla.1993); In re Walton, 158 B.R. 943 (Bankr.N.D.Ohio 1993). In either case, the debtor knows of the existence of the asset, expects to receive it, and should have scheduled it.

The instant facts are different. Here, the tax refund was the result of action by the bankruptcy trustee, and the claimed...