In re Chaffee
| Decision Date | 12 July 1995 |
| Docket Number | Bankruptcy No. 91-02443. Adv. No. 94-70150. |
| Parties | In re Robert A. CHAFFEE, Elaine K. Chaffee, Debtors. Robert A. CHAFFEE, Elaine K. Chaffee, Plaintiffs, v. INTERNAL REVENUE SERVICE OF UNITED STATES OF AMERICA, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of New York |
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Allan J. Bentkofsky, Auburn, NY, for debtors.
William Larkin, Assistant U.S. Attorney, Syracuse, NY, for Internal Revenue U.S. Department of Justice.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
This matter comes before the Court on a motion by the Internal Revenue Service ("IRS") seeking summary judgment in the adversary proceeding commenced by Robert A. and Elaine K. Chaffee ("Debtors"). Oral argument was heard at a regular motion term of the Court in Syracuse, New York, on March 7, 1995. The parties were afforded an opportunity to file memoranda of law, and the matter was submitted for decision on March 31, 1995.
The Court has core jurisdiction over the parties and subject matter of this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b), 157(a), (b)(1), (b)(2)(I) and (O).
Debtors filed a voluntary petition of reorganization ("Petition") pursuant to Chapter 11 of the Bankruptcy Code (11 U.S.C. §§ 101-1330) ("Code") on September 6, 1991. Debtor Robert Chaffee is the principal owner and President of Sevco Associates, Inc. ("Sevco"), which filed a Chapter 11 petition on July 2, 1991.
According to the Debtors' Disclosure Statement, filed March 12, 1993, the filing of their Petition was occasioned by the imposition by the IRS of 100% penalties against them for nonpayment of Federal withholding taxes by Sevco. The IRS' proof of claim filed in Debtors' case on October 8, 1991, lists a claim of $229,467.93, including a secured claim of $214,049.47 and a priority claim of $15,418.46.2
The Debtors' plan of reorganization ("Plan"), filed on March 12, 1993, listed the IRS' claim as a priority claim and provided that no payment would be made to the IRS by the Debtors as Sevco's plan proposed to pay 100% of the trust-fund taxes due to the IRS. On July 2, 1993, the IRS filed its objection to the Debtors' Plan. The IRS asserted that it held both a secured claim and a priority claim and, based on the Debtors' schedules, its secured claim was actually oversecured, which entitled the IRS to be paid post-petition interest pursuant to Code § 506(b). The IRS also argued that pursuant to Code § 1129(a)(9)(C), the Debtors were required to provide for full payment of the IRS' priority claim, with interest, within six years of assessment.
On September 27, 1993, the Court signed Orders confirming the Debtors' Plan, as well as that of Sevco. Incorporated in the Debtors' Plan was a stipulation ("Stipulation") between the Debtors and the IRS which provides:
In the event of a default by Sevco Associates, Inc. in payment of trust funds taxes due to the IRS or if the case of Sevco Associates, Inc. is converted or dismissed, the individual debtors Robert A. and Elaine K. Chaffee shall remain personally liable for said trust fund taxes. If it is determined that the claim of I.R.S. is over secured, then the debtors shall pay to the I.R.S. interest on the secured claim of I.R.S. from the date of filing of the debtors\' petition to the date of confirmation of debtors\' plan of reorganization . . .
The parties subsequently determined that the claim of the IRS was not oversecured.
On October 14, 1994, the Debtors commenced an adversary proceeding against the IRS pursuant to Code § 523, requesting a determination of the interest claimed by the IRS4 and the extent to which the individual Debtors are liable therefor.
The IRS asserts that as neither party disputes the material facts in this matter summary judgment is appropriate. The IRS contends that its motion should be granted and Debtors' Complaint should be dismissed. The IRS makes the argument that the Stipulation merely addressed whether the IRS would be entitled to be paid interest from the Debtors' estate pursuant to Code § 506(b) in the event that it was determined that the IRS was oversecured. The IRS asserts that the Stipulation provided that in the event that the IRS was not oversecured, it was not entitled to collect Code § 506(b) interest from the Debtors' estate for the "gap period" from the date the Debtors filed their Petition to the date of confirmation of their Plan. The IRS contends that the Stipulation makes no mention of the interest accruing on the taxes from the date Sevco filed its Petition to the date of confirmation of its Plan. IRS argues that in agreeing to the Stipulation, it had not waived its right to collect post-petition interest on the non-dischargeable tax liability owed by the individual Debtors outside of their Plan.
The Debtors, however, make the argument that the Stipulation was intended to cover any and all interest that the Debtors might owe the IRS based on their personal liability for Sevco's debt to the IRS and that the IRS has waived any right it might otherwise have had to collect interest from the Debtors for the period from September 6, 1991, through September 27, 1993 ("Debtors' Gap Period").
In considering a motion for summary judgment pursuant to Rule 7056(c) of the Federal Rules of Bankruptcy Procedure ("Fed.R.Bankr.P."), the Court's role is to determine whether there is a genuine issue as to any material fact that would preclude a movant from obtaining a judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248, 106 S.Ct. 2505, 2509-2510, 91 L.Ed.2d 202 (1986); Hudson Hotels Corp. v. Choice Hotels Intern., 995 F.2d 1173, 1175 (2d Cir.1993). In the matter sub judice, both parties have agreed that there is no dispute regarding the material facts. The only issue is whether the IRS is entitled to collect interest from the date Sevco filed its petition to the date of confirmation of Sevco's plan, namely July 2, 1991 through September 27, 1993 ("Sevco's Gap Period"), in light of the Stipulation incorporated in the Debtors' Plan.
Code § 1129(b)(2)(A)(i)(II) sets forth the treatment to be accorded a class of secured claims in order for a plan to be found to be "fair and equitable." A holder of a secured claim is to receive "deferred cash payments totaling at least the allowed amount of such claim . . ." (emphasis added). Normally, interest on tax claims does not accrue as against the estate from the date of the filing of the petition to the date of confirmation of the Chapter 11 plan. Bruning v. U.S., 376 U.S. 358, 363, 84 S.Ct. 906, 909, 11 L.Ed.2d 772 (1964), citing New York v. Saper, 336 U.S. 328, 69 S.Ct. 554, 93 L.Ed. 710 (1949); see also In re Jaylaw Drug, Inc., 621 F.2d 524, 526 (2d Cir.1980). In the case of an oversecured creditor, however, its allowed secured claim is to include post-petition interest pursuant to Code § 506(b). It makes no difference that the creditor is secured by virtue of a non-consensual lien. See U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).
In the matter sub judice, the IRS filed a proof of claim for both a secured and a priority claim. The IRS filed an objection to the Debtors' Plan on the basis inter alia that the Plan did not provide for the payment of post-petition interest to which the IRS contended it was entitled based on the Debtors' schedules which indicated that the IRS was oversecured. To settle the matter, the parties entered into the Stipulation which was incorporated into the Plan. According to the terms of the Stipulation, once it was determined that the IRS was not oversecured, the IRS' was not entitled to receive post-petition interest, from the Debtors, on its allowed secured claim.
Debtors contend that by virtue of the Stipulation, the IRS waived any right it might have to collect any nondischargeable interest arising from Sevco's failure to pay withholding taxes which accrued during the Debtors' Gap Period. In support of their argument, the Debtors have asked the Court to consider In re Adelstein, 167 B.R. 589 (Bankr.D.Ariz. 1994). In Adelstein the debtor and the IRS filed a stipulation for settlement of the claim filed by the IRS. The court's order stated that the agreement was in "full and final settlement of the Proof of Claim filed by the IRS" in the amount of $41,683.84. The full amount of the claim of the IRS was paid by the Chapter 7 trustee approximately one year after approval of the settlement. The IRS then sought to collect post-petition penalties and interest on the claim. The court concluded that the debtor was no longer liable on the obligation, since payment, which was to have fully settled any claim of the IRS, had been made in accordance with the terms of the stipulation.
The Stipulation presently before this Court does not indicate that it was intended to be in full and final settlement of the Debtors' liability for any and all interest that the...
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