In re Mulvania

• Decision Date: 22 September 1997
• Docket Number: BAP No. CC-96-2127-SHJ,Bankruptcy No. SA 94-17472-LR.
• Parties: In re Richard L. MULVANIA, Debtor. Richard L. MULVANIA, Appellant, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Appellee.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit

214 B.R. 1 (1997)

In re Richard L. MULVANIA, Debtor.

Richard L. MULVANIA, Appellant, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Appellee.

BAP No. CC-96-2127-SHJ, Bankruptcy No. SA 94-17472-LR.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted July 23, 1997.

Decided September 22, 1997.

Elmer Dean Martin, Diamond Bar, CA, for Appellant.

Richard G. Stack, Assistant United States Attorney, Los Angeles, CA, for Appellee.

Before SNYDER¹, HAGAN, and JONES, Bankruptcy Judges.

OPINION

SNYDER, Bankruptcy Judge.

Richard L. Mulvania (Debtor) appeals the bankruptcy court's determination that the claim of the Internal Revenue Service (IRS) was allowed as filed. We affirm in part, and reverse and remand in part.

I FACTS

In 1985, the IRS sent a notice of income tax deficiency to the Debtor pursuant to 26 U.S.C. § 6212. The notice claimed that the Debtor owed additional income taxes for tax years 1978, 1979, 1980, and 1981. In September 1985, the Debtor filed a petition challenging the claimed deficiency in the United States Tax Court.

The Debtor filed a voluntary Chapter 7 petition² on July 20, 1987. The Debtor was granted a discharge in his Chapter 7 case on December 21, 1987.

On May 3, 1989, stipulations between the Debtor and the IRS were entered with the tax court as to the amounts of the 1978, 1979, 1980 and 1981 taxes. The stipulations and decisions provided that the Debtor had tax deficiencies of $81,271 for 1978, $119,040 for 1979, $80,672 for 1980, and $10,878 for 1981. The stipulations also provided that the Debtor waived the restriction contained in 26 U.S.C. § 6213(a) that prohibits assessment and collection of a deficiency until a decision of a tax court has become final.

A stipulation and order for entry of tax court judgment between the Debtor and the IRS was entered in the bankruptcy court on March 10, 1989 (March 10, 1989 stipulation). In part, the March 10, 1989 stipulation requested an order allowing the tax court to enter its judgment as stipulated. In addition, paragraph 5(b) of the stipulation provided:

5. The parties request and stipulate to an order:

. . . .

(b) providing that the time within which the tax liability referred to in Paragraph 4 above may be assessed shall terminate 60 (sixty) days after the end of the period during which the United States is prohibited by reason of the Debtor\'s Title 11 case from making the assessment of the tax liability against the Debtor.

An order confirming and approving the March 10, 1989 stipulation was entered by the bankruptcy court on April 5, 1989.

The IRS allegedly assessed the taxes for the Debtor's 1978 tax year on May 14, 1989, 1979 tax year on August 14, 1989, and 1980 and 1981 tax years on August 28, 1989. The IRS recorded tax liens for the 1978 through 1981 taxes on May 3, 1994.

On March 30, 1994, the Debtor filed a motion for interpretation of the March 10, 1989 stipulation. A hearing on the motion for interpretation was held on May 4, 1994. An order denying Debtor's motion without prejudice to any subsequent adversary proceeding was entered with the bankruptcy court on May 25, 1994.³

The Debtor filed a voluntary Chapter 11 petition on July 22, 1994. The IRS timely filed a proof of claim on August 5, 1994, setting forth an unsecured priority tax claim of $476.29 and a secured tax claim of $1,481,441.10. The secured portion of the claim was for unpaid income taxes for the calendar years 1978 through 1981, and 1987.

On November 14, 1994, the Debtor filed a motion for an order fixing and allowing the amount of the IRS's claim on the Debtor's property. A hearing was held on this motion on December 5, 1994. On February 28, 1995, an order was entered establishing that the maximum amount of the IRS's secured claim was $511,718.42, less income taxes payable by the Debtor's estate due to the receipt of certain accounts receivable. The order made no ruling as to the validity of the IRS's claim, but reserved the right of the Debtor to file an objection to the claim within 30 days of the effective date of the Debtor's plan of reorganization.

The Debtor's first amended Chapter 11 plan of reorganization was confirmed by an order signed on February 27, 1995.

The Debtor filed an objection to the IRS's claim on March 30, 1995. A hearing was held on the Debtor's objection to claim on June 12, 1995. The bankruptcy court entered findings of fact and conclusions of law on December 12, 1996, overruling the Debtor's objection to the IRS's claim for failure to meet his evidentiary burden under Fed. R. Bankr.P. 3001(f). The IRS's claim, as filed, was allowed by order entered December 12, 1996. The bankruptcy court also rendered alternative findings of fact and conclusions of law in the event that a reviewing court disagreed. In its alternative findings of fact and conclusions of law, the bankruptcy court determined that the parties were mutually mistaken as to the termination of the automatic stay, rendering paragraph 5(b) of the March 10, 1989 stipulation unenforceable. The bankruptcy court further found that hypothetical sales costs could not be taken into account in establishing the value of a secured claim under 11 U.S.C. § 506 and that the Debtor had no standing to exercise a trustee's avoiding powers under 11 U.S.C. § 545(2). The Debtor appeals.

II Issues⁴

1. Did the bankruptcy court err in allowing the IRS's claim as filed?

2. Did the bankruptcy court err in its application of the burden of proof in claim objection proceedings?

3. Did the bankruptcy court err in denying the Debtor an opportunity to conduct further discovery?

4. Did the bankruptcy court err in finding that paragraph 5(b) of the March 10, 1989 stipulation was unenforceable on the basis of mutual mistake?

5. Did the bankruptcy court err in finding that the IRS's claim should not be reduced by the amount of hypothetical sales costs?

III STANDARD OF REVIEW

A court's findings of fact are reviewed under the clearly erroneous standard and its conclusions of law are subject to de novo review. In re Park-Helena Corp., 63 F.3d 877, 880 (9th Cir.1995) (citing In re United States Trustee, 32 F.3d 1370, 1372 (9th Cir.1994)), cert. denied, ___ U.S. ___, 116 S.Ct. 712, 133 L.Ed.2d 667 (1996). Review under the clearly erroneous standard is "significantly deferential, requiring a `definite and firm conviction that a mistake has been committed.'" Granite State Ins. Co. v. Smart Modular Technologies, Inc., 76 F.3d 1023, 1028 (9th Cir.1996) (quoting Concrete Pipe & Products of Cal., Inc. v. Construction Laborers Pension Trust for Southern Cal., 508 U.S. 602, 623, 113 S.Ct. 2264, 2280, 124 L.Ed.2d 539 (1993)).

IV DISCUSSION

A. The Bankruptcy Court Erred in Allowing the IRS's Claim as Filed

On August 5, 1994, the IRS filed an unsecured priority claim of $476.29 and a secured claim of $1,481,441.10. The bankruptcy court ruled that the IRS's claim was allowed as filed. The Debtor alleges that the claim should have been allowed as modified by either confirmation of the Debtor's Chapter 11 plan of reorganization or the bankruptcy court's prior valuation order.

On November 14, 1994, the Debtor filed a motion for order fixing and allowing claim secured by the Debtor's property. A hearing was held on the Debtor's motion on December 5, 1994. An order confirming the Debtor's first amended Chapter 11 plan of reorganization was filed on February 27, 1995. On February 28, 1995, an order was entered establishing that the maximum amount of the IRS's secured claim was $511,718.42, less income taxes payable by the Debtor's estate by reason of the receipt of accounts receivable. The order directed the IRS to file amendments to the notices of lien it had recorded as public record to reflect the reduction of its secured claim to $511,718.42, less the income taxes.⁵

Both parties were under the impression that the February 28, 1995 order established the maximum amount of the IRS's secured claim. In the pleadings submitted in response to the Debtor's objection to claim, the IRS stated that its claim should be determined and allowed as follows:

Priority Claim: $476.29

Secured Claim: $511,718.42, less income taxes payable by the debtor\'s estate by reason of income from sale of accounts receivable.

General Unsecured Claim: $970,198.97, plus an amount equal to the income taxes payable by the debtor\'s estate by reason of income from sale of accounts receivable.

Further, presumably in accordance with the February 28, 1995 order, the IRS prepared amended notices of federal tax lien on September 13, 1995. Except that the dates and recorder numbers are different in two of the notices, they each contain the following language:

Based on the Bankruptcy Court Order entered February 28, 1995 in Case Number SA94-17472LR, the aggregate amount of this Notice of Federal tax lien and Notices of Federal Tax Lien, with Recorder Numbers XXXXXXXXX and XXXXXXXXX, recorded May 3, 1994, is reduced and restricted to $403,245.42.

Despite the clear language of the February 28, 1995 order, the bankruptcy court ruled that the IRS's claim was allowed as filed. The only mention of the February 28, 1995 order in the bankruptcy court's findings of fact and conclusions of law was a statement in the "FACTS" section that, "contemporaneous with his plan confirmation hearing, debtor brought a motion to value the IRS's claim." The bankruptcy court failed to either acknowledge or state its basis for disregarding the February 28, 1995 order. Although the Bankruptcy Code and Rules contain avenues for reconsideration or relief from prior orders, it does not appear as if the bankruptcy court was making use of these avenues in rendering its decision. See e.g., Fed. R. Bankr.P. 9024. As discussed in greater detail in Section D below, bankruptcy courts no longer possess an inherent ability to reconsider prior orders. Gekas v. Pipin (In re Met-L-Wood Corp.), 861 F.2d 1012, 1018 (7th Cir.1988). Whether...