In re Fingers, 93-328-G/R. Bankruptcy No. 89-02143-H7. Adv. No. 91-90597-H7.
| Decision Date | 08 July 1994 |
| Docket Number | No. 93-328-G/R. Bankruptcy No. 89-02143-H7. Adv. No. 91-90597-H7.,93-328-G/R. Bankruptcy No. 89-02143-H7. Adv. No. 91-90597-H7. |
| Citation | 170 BR 419 |
| Court | U.S. District Court — Southern District of California |
| Parties | In re Roland G. FINGERS, Debtor. UNITED STATES of America, Appellant/Cross-Appellee, v. Roland G. FINGERS, Appellee/Cross Appellant. |
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Harold E. Wolfe, Jr., Harold E. Wolfe, Jr., P.A., West Palm Beach, FL, and Jeffrey D. Schreiber, Carlsbad, CA, for Roland G. Fingers.
George N. Harris, Jr., Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, for U.S.
This action is a direct appeal from a final order of the Bankruptcy Court for the Southern District of California, and jurisdiction is conferred upon the United States District Court by 28 U.S.C. § 158(a). The United States initially appealed from such final order, and the appellee/cross appellant brought a cross-appeal. For the reasons given below, the bankruptcy court's decision is affirmed in part and remanded in part.1
This Court affirms the following bankruptcy court rulings: (1) Fingers was a proper party to bring an action under 11 U.S.C. § 362(h) for violation of the automatic stay; (2) Fingers sustained injuries giving rise to damages under 11 U.S.C. § 362(h); (3) the IRS' assessment of the tax and seizure of the tax refunds both violated bankruptcy's automatic stay; (4) the IRS waived its sovereign immunity under 11 U.S.C. § 106(a); (5) attorneys' fees may be awarded in excess of a $75.00 hourly rate; and (6) the bankruptcy court's Order of February 18, 1993 directing that the money sanctions remitted directly to Fingers' attorneys be deemed paid by the debtor himself.
This Court remands the bankruptcy court's ruling that Fingers' counsel and accountant incurred unreasonable fees for more specific findings. The bankruptcy court is directed to articulate specifically its grounds for determining the amount of attorneys' and accountant's time and costs in the adversary proceeding that flowed as a consequence of automatic stay violations. Moreover, the court is directed not to isolate bankruptcy issues from tax issues. Finally, the court is directed to determine any fees resulting from the instant appeal utilizing the same lodestar factors considered in determining the attorneys' and accountant's fee award in the underlying adversary proceeding.
Finally, this Court holds that pursuant to 26 U.S.C. §§ 6503(h) and 6503(a)(1), the IRS failed to timely assess the tax liability for the 1981 and 1982 tax years; therefore, although the 1981 and 1982 taxes were nondischargeable pursuant to 11 U.S.C. §§ 523(a)(1)(A) and 507(a)(7)(A)(iii), they were uncollectible as a matter of law due to expiration of the limitations period on tax assessments.
On January 9, 1987 Roland Fingers petitioned the tax court for a redetermination of his 1981 and 1982 federal income tax liability. The tax case subsequently settled, and the tax court entered a stipulation decision reflecting tax liabilities for 1981 totalling $1,565.00 and for 1982 totalling $74,902.00. The tax court's stipulated decision became final on March 20, 1989.
Three days later, on March 23, 1989, Fingers filed a Chapter 7 bankruptcy. The IRS admitted that it was named as a creditor in the bankruptcy case and that it received notice of the filing. Nonetheless, on April 10, 1989, the IRS assessed the 1981 and 1982 tax liability despite its awareness of the pending bankruptcy. The improper assessment went unchallenged during the bankruptcy and almost a year later, on April 6, 1990, Fingers received his discharge. On April 15, 1990, Fingers filed tax refund claims for the pre-petition tax years 1984 through 1989.
On August 22, 1991, following the reopening of the bankruptcy estate, Fingers filed an adversary proceeding seeking a determination from the bankruptcy court that his 1982 income tax liability had been discharged, or alternatively, a determination of that tax liability. On July 14, 1992, Fingers filed an amended adversary complaint alleging that both his 1981 and 1982 tax debts were discharged and that the IRS had violated the automatic stay when it issued tax assessments against him. The amended complaint sought, among other things, damages under 11 U.S.C. § 362(h).
CROSS-APPEAL BY FINGERS
The district court sits as an appellate court when a direct appeal is taken from a final order of the bankruptcy court. 28 U.S.C. § 1334(a). In the Ninth Circuit, the bankruptcy court's findings of fact are reviewed for clear error, and the conclusions of law are reviewed de novo. In re Eastport Assoc., 935 F.2d 1071, 1079 (9th Cir.1991). Mixed questions of law and fact are reviewed de novo. In re Wade, 115 B.R. 222, 225 (9th Cir. BAP 1990), aff'd, 948 F.2d 1122 (9th Cir.1991). Statutory interpretation is reviewed de novo. Trustees of the Amalgamated Ins. Fund v. Geltman Indus., Inc., 784 F.2d 926, 929 (9th Cir.1986). The appropriateness of a sanction is reviewed for abuse of discretion. In re Taylor, 884 F.2d 478 (9th Cir.1989).
The appellant United States argues that the appellee/cross-appellant Roland Fingers was not a proper party to bring an action for sanctions under 11 U.S.C. § 362(h) for violation of the automatic stay. The U.S. Supreme Court has set forth the test for standing in Allen v. Wright, 468 U.S. 737, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984):
A plaintiff must allege personal injury fairly traceable to the defendant\'s allegedly unlawful conduct and likely to be redressed by the requested relief.
Id. at 751, 104 S.Ct. at 3324 (citations omitted).
In the instant case, the bankruptcy court found that the IRS made two specific violations of the automatic stay: (1) assessing tax during bankruptcy in violation of the automatic stay under 11 U.S.C. § 362(a)(6); and (2) enforcing post-petition payment of the 1981 and 1982 void tax liability by offsetting those amounts against pre-petition tax refunds. In re Fingers, 148 B.R. 586, 591 (Bankr.S.D.Cal.1993). Despite the fact that the 1981 and 1982 tax liability was void and uncollectible since it was made in violation of bankruptcy's automatic stay and since the statute of limitations on tax assessments had subsequently expired, the IRS nonetheless attempted to hold Fingers personally liable for that tax liability. Consequently, the ensuing adversary proceeding constituted Fingers' defense against the IRS' attempts to hold him personally liable for a void and uncollectible tax liability stemming from an automatic stay violation which would affect his post-bankruptcy financial condition (e.g., through tax liens). If the tax was ultimately found to be valid, it could have been collected from Fingers post-bankruptcy.
The Government argues that Fingers is not a party in interest with respect to the post-petition assets because in a chapter 7 proceeding (unlike in a chapter 11 case where the debtor-in-possession does retain an interest in the reorganization estate property), the creation of a bankruptcy estate by the filing of a petition extinguishes the debtor's interest in property that becomes "estate property." However, various courts have espoused the following general rule:
Since the bankrupt is normally insolvent, he is considered to have no interest in how his assets are distributed among his creditors and is held not to be a party in interest. However, when it appears that, if the contested claims are disallowed, there may be a surplus of assets to be returned to the bankrupt, the bankrupt is considered to have standing to contest the claim.
Willemain v. Kivitz, 764 F.2d 1019 (4th Cir. 1985) (citing Kapp v. Naturelle, Inc., 611 F.2d 703, 706-07 (8th Cir.1979); In re Woodmar Realty Co., 241 F.2d 768, 770-71 (7th Cir.1957); In re Silverman, 10 B.R. 734, 735 (Bankr.S.D.N.Y.1981), aff'd, 37 B.R. 200, 201 (S.D.N.Y.1982); In re Roberts, 20 B.R. 914, 916-17 (Bankr.E.D.N.Y.1982); In re Lapointe, 39 B.R. 80 (Bankr.W.D.Ky.1984)).
Following that general rule, because Fingers' attorneys' and accountant's fees, which comprised the injury and damages in the instant case, were directly traceable to the IRS' attempts to hold Fingers personally liable post-bankruptcy for a tax liability assessed in violation of bankruptcy's automatic stay, Fingers has standing to bring an action under 11 U.S.C. § 362(h). Moreover, courts have held that an individual debtor may sue a creditor for a willful violation of the automatic stay: (1) after bankruptcy proceedings have terminated; and (2) in the district court rather than the bankruptcy court. Price v. Rochford, 947 F.2d 829, 831 (7th Cir.1991); Martin-Trigona v. Champion Fed. Sav. & Loan Ass'n, 892 F.2d 575, 577 (7th Cir.1989). This could not occur if the right to commence a section 362(h) action vested solely in the bankruptcy trustee rather than in...
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