In re Adelstein, Bankruptcy No. 87-01656-TUC-JMM.

• Decision Date: 02 February 1994
• Docket Number: Bankruptcy No. 87-01656-TUC-JMM.
• Citation: 167 BR 589
• Parties: In re Ellen B. ADELSTEIN, Debtor.
• Court: U.S. Bankruptcy Court — District of Arizona

167 B.R. 589 (1994)

In re Ellen B. ADELSTEIN, Debtor.

Bankruptcy No. 87-01656-TUC-JMM.

United States Bankruptcy Court, D. Arizona.

February 2, 1994.

Kathleen H. Herighty and Clague Van-Slyke, Tucson, AZ, for debtor.

Bernard J. Knight, Dept. of Justice, Tax Div., Washington, DC, for I.R.S.

ORDER

(Re: Motion to Enforce Settlement)

JAMES M. MARLAR, Bankruptcy Judge.

The Debtor's Motion to Enforce Settlement with the Internal Revenue Service came on regularly for hearing on January 27, 1994. The Debtor was represented by Kathleen H. Herighty; the United States (Internal Revenue Service) was represented by Bernard J. Knight, of Washington, D.C. Upon consideration of the entire record in this case, the authorities cited by the parties, and good cause appearing, the Court finds and concludes:

FACTS

1. The Debtor filed a Chapter 11 proceeding on August 11, 1987. On June 24, 1991, it was converted to a Chapter 7 proceeding.

2. The Internal Revenue Service filed a claim for $41,663.34, which represented the amount owed it, by the Debtor, as of the petition date.

3. On or about March 3, 1992, attorneys Herighty and Knight, on behalf of their respective clients, filed a Stipulation for Settlement of the I.R.S. tax claim against the Debtor. The Stipulation provided that "this agreement is in full and final settlement of the Proof of Claim filed by the Internal Revenue Service in the above referenced and numbered action."

4. The Court further finds, pursuant to the representation of Mr. Knight, made in open Court, that the sum of $41,683.84 was paid by the Chapter 7 Trustee, approximately one year after approval of the settlement. The I.R.S. accepted said monies.

5. The Trustee had full and complete control of all assets of the Debtor, some of which were eventually used to pay the I.R.S.

6. The Bankruptcy Court entered its Order approving the parties' Stipulation on March 3, 1992, stating within that Order that "this agreement is in full and final settlement of the Proof of Claim filed by the Internal Revenue Service in the above referenced and numbered action."

7. The Court further notes that there was no specific time period within which the $41,683.84 amount was to have been paid. The Bankruptcy Trustee's counsel, Eileen W. Hollowell, Esq., approved the form of Order, as did attorneys Herighty and Knight. Thus, the Trustee was aware of the settlement, and agreed with it, since the Trustee eventually paid the claim.

8. Mr. Knight informed the Court that although the I.R.S. did not receive payment for approximately one year, it apparently did not notify its counsel of its concerns in the interim, but eventually attempted to seek an assessment for alleged "post-petition penalties and interest" through present collection efforts.

9. The Debtor asks for enforcement of the March 3, 1992 Order and Agreement.

DISCUSSION

The Internal Revenue Service takes the position that the settlement did not include "post-petition penalties and interest." Such a position is without merit, and if its reasoning was to be accepted by this Court, would negate the purpose for settlements. Parties would not settle cases if the matters at issue were not intended to fully and completely settle the merits of the controversy. The Internal Revenue Service' current position is both legally and practically unsound.

A settlement is merely a compromise. Black's Law Dictionary, "Compromise and Settlement" (5th ed. 1979). In its usual form, a settlement does not include complete capitulation or surrender by either party. A settlement typically resolves disputes in such fashion so that neither party is wholly satisfied. The I.R.S. now, however, seeks complete relief in derogation of its agreement, rather than simply acknowledging that it settled a case, and that receipt of $41,683.84 consummated the agreement.

The United States states that its claim was otherwise non-dischargeable. This is true, and would have remained so had the government not been paid, or if the agreement was breached. However, the claim was paid,...