In re Bankruptcy Court's Use of Standardized Form
| Decision Date | 20 January 2010 |
| Docket Number | No. 2:09-cv-13505.,2:09-cv-13505. |
| Citation | 423 B.R. 294 |
| Parties | In re The BANKRUPTCY COURT'S USE OF A STANDARDIZED FORM OF CHAPTER 13 CONFIRMATION ORDER THAT ENJOINS THE INTERNAL REVENUE SERVICE TO REDIRECT TAX REFUNDS TO CHAPTER 13 TRUSTEES, United States of America, Plaintiff, v. Krispen S. Carroll, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
Peter Sklarew, Thomas P. Cole, Department of Justice, Washington, DC, for Plaintiff.
Jason W. Bank, Joanne G. Swanson, William A. Sankbeil, Kerr, Russell and Weber, PLC, Erica L. Fitzgerald, Eugene Driker, Barris, Sott, Detroit, MI, for Defendants.
On September 4, 2009, Plaintiff United States of America, at the request of the Chief Counsel to the Internal Revenue Service ("IRS") and under the direction of the Attorney General, filed the instant Complaint and Petition for a Writ of Mandamus requesting the following relief: (1) an order declaring that the standing chapter 13 Trustees for the Eastern District of Michigan ("Trustees") may not seek to enforce those provisions of numerous chapter 13 plan confirmation orders entered by the United States Bankruptcy Court for this district which compel the IRS to pay future tax refunds claimed by chapter 13 debtors to the chapter 13 Trustees instead of to the debtors; and (2) a writ prohibiting the Bankruptcy Court from entering any further orders containing such a provision and from confirming any more chapter 13 plans that contain such provisions. The IRS also sought "to Withdraw the Reference if Deemed Necessary."
The IRS filed a pleading similar to the one presently before this Court on September 26, 2008, but dismissed it without prejudice on September 29, 2008 at the request of the Executive Office of the United States Trustees, which sought time to act as a kind of mediator between the Tax Division of the Department of Justice and the IRS and the local standing chapter 13 Trustees and the judges of the Bankruptcy Court for this district. This effort, however, failed to produce a mutually agreeable solution.
On April 23, 2009, the six judges of the Bankruptcy Court jointly signed a letter to the Attorney General requesting that the Tax Division reconsider its decision to commence litigation in Detroit on behalf of the Internal Revenue Service. See Compl. and Pet., Ex. C. The Bankruptcy Court indicated,
The bankruptcy court's jurisdiction and authority to enter such an order is clear under 28 U.S.C. §§ 1334 and 157, and 11 U.S.C. §§ 105(a), 106(a), 1306(a), 542(a), 1322(a)(1), 1325(c) and 1327(a). Of course, every order creates a burden. Nevertheless, the law requires compliance until the order is reversed or modified on appeal. Celotex Corp. v. Edwards, 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995).
Accordingly, there is no substantial cause for the Tax Division to institute a collateral attack on thousands of our court orders. They are final orders, and debtors and creditors have since relied on their finality. They are important, necessary and appropriate aspect of our chapter 13 process and our efforts to stem the tide of home foreclosures in the Eastern District of Michigan. We hope you all agree that nationwide implications of such a challenge are serious and unacceptable. We ask you to reconsider the decision of the Tax Division.
Compl. and Pet., Ex. C, p. 2. On May 20, 2009, Associate Attorney General Thomas J. Perrelli informed the Bankruptcy Court that it would be refiling its petition for mandamus. Id., Ex. D.
As noted, on September 4, 2009, the IRS filed the instant matter with this Court. On October 15, 2009, the Trustees, instead of filing an Answer to the IRS' Complaint and Petition for Writ of Mandamus, filed two pleadings: (1) Motion for Additional Time to File Responsive Pleading; and (2) Motion to Effectuate Referral of Case Pursuant to L.R. 83.50. On October 28, 2009, the IRS filed a Cross Motion for Preliminary Injunction, in response to the Trustees' Motion to Effectuate Referral. On November 23, 2009, the Trustees filed a Motion to Dismiss instead of an Answer to the Complaint and Petition for Writ of Mandamus. On November 25, 2009, the judges of the Bankruptcy Court filed a Motion for Leave to File a Brief as Amici Curiae. The parties filed response briefs to the various motions to support their respective motions. On December 11, 2009, the IRS filed a Protective Motion for Withdrawal of Reference If Deemed Necessary. A hearing was held on December 14, 2009.
The facts giving rise to this action began sometime in 2008, when the Bankruptcy Court approved a standardized confirmation order, published on the Bankruptcy Court's website, which includes an injunctive provision compelling the IRS to issue all future refunds to the chapter 13 trustee during the pendency of the case. The provision states:
The Debtor shall remit ____% of all tax refunds to which Debtor is entitled during the pendency of the Plan and shall not alter withholdings without Court approval. The Internal Revenue Service is ordered to direct to the Chapter 13 Trustee the requisite refund to which the Debtor(s) become(s) entitled during the pendency of this Chapter 13 proceeding.
See Compl. and Pet., Ex. E.1
The IRS submits that compliance with these orders poses a substantial and growing administrative burden on the IRS.2 Until now, the IRS has tried to comply with the injunctive provisions included in the local confirmation orders, notwithstanding the administrative burdens. The IRS claims that the number of chapter 13 filings containing these provisions has grown substantially over the years. According to the IRS insolvency unit in Detroit, it was tracking 401 confirmed chapter 13 plans with the IRS-turnover injunctions as of April 2008, by April of 2009 these number had increased to 4,966.
The IRS maintains that they are entitled to an order declaring that the IRS is not required to comply with, and the Trustees may not seek to enforce any provisions compelling the IRS to redirect tax refunds from the chapter 13 debtors to the chapter 13 Trustees because these injunctive provisions violate sovereign immunity.
The underlying issue in this matter is whether the confirmation orders issued by the bankruptcy court containing the provision ordering the IRS to redirect a debtor's tax refund, if any, to the trustee, is proper. Although the chapter 13 Trustees' strategy in responding to the IRS' Complaint and Petition for Writ of Mandamus was to file various motions, including a Motion to Effectuate Referral and a Motion to Dismiss, the Court finds that addressing the sole issue raised by the IRS in its Complaint and Petition for Writ of Mandamus regarding sovereign immunity is the most judicially efficient manner to handle this matter. Addressing the sovereign immunity issue at the first instance resolves the extent of the Bankruptcy Court's exercise of its judicial powers.
This is the second case filed by the IRS raising this issue. Since 2008, attempts were made between the parties before the Bankruptcy Court to resolve this matter but to no avail. Thousands of chapter 13 bankruptcy cases are affected by this issue. The Bankruptcy Court has clearly stated its position on this issue in the briefs filed before the Court and in its letter to the Attorney General dated April 13, 2009. The parties have extensively briefed and submitted many documents to support their various positions. The Court has before it sufficient briefings of the parties' positions.
Generally, a writ of mandamus affords relief only from final judgments. Will v. United States, 389 U.S. 90, 96, 88 S.Ct. 269, 19 L.Ed.2d 305 (1967). However, a writ of mandamus may issue in limited circumstances to review a non-final order or a non-appealable order if review is necessary or appropriate in aid of the jurisdiction of the court. Turner Broadcasting Sys. v. FCC, 507 U.S. 1301, 113 S.Ct. 1806, 123 L.Ed.2d 642 (1993). The All Writs Act provides for the use of extraordinary writs such as writs of mandamus. 28 U.S.C. § 1651. The remedy of mandamus is a drastic one, to be invoked only in extraordinary situations where the petitioner can show a clear and indisputable right to the relief sought. Will v. Calvert Fire Ins. Co., 437 U.S. 655, 662, 98 S.Ct. 2552, 57 L.Ed.2d 504 (1978); Kerr v. United States District Court, 426 U.S. 394, 403, 96 S.Ct. 2119, 48 L.Ed.2d 725 (1976). There must be a demonstration of a clear abuse of discretion or conduct amounting to usurpation of judicial power in order grant such a writ. In re King World Prods., Inc., 898 F.2d 56, 58 (6th Cir.1990). Three conditions must be satisfied before the writ may issue. First, the party seeking the writ must "have no other adequate means to attain the relief desired." Kerr, 426 U.S. at 403, 96 S.Ct. 2119. This condition is designed to ensure that the appeal process is not circumvented. Ex Parte Fahey, 332 U.S. 258, 260, 67 S.Ct. 1558, 91 L.Ed. 2041 (1947). Second, the petitioner must satisfy the burden of showing that the right to issue the writ is clear and indisputable. Kerr, 426 U.S. at 403, 96 S.Ct. 2119. Third, even if the first two conditions have been met, the issuing court, in the exercise of its discretion, must be satisfied that the writ is appropriate under the circumstances. Id.
As to the first condition, the IRS has established that it has no other adequate means to attain the relief desired. The Trustees argue that this matter should either be dismissed or referred back to the Bankruptcy Court. The Trustees claim that the IRS failed to file appeals in the individual cases which include the refund redirection injunctions. However, the IRS has shown that it did take ordinary appeals from similar refund redirection injunctions in twelve case...
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