In re Olson

• Decision Date: 07 April 1994
• Docket Number: Bankruptcy No. 93-30725. Adv. No. 93-7063.
• Citation: 170 BR 161
• Parties: In re Richard D. OLSON & Jean Olson, Debtors. Richard D. OLSON & Jean Olson, Plaintiffs, v. UNITED STATES of America acting Through the DEPARTMENT OF TREASURY and the Internal Revenue Service & the State of North Dakota acting through the North Dakota Tax Department, Defendants.
• Court: U.S. Bankruptcy Court — District of North Dakota

170 B.R. 161 (1994)

In re Richard D. OLSON & Jean Olson, Debtors.

Richard D. OLSON & Jean Olson, Plaintiffs, v. UNITED STATES of America acting Through the DEPARTMENT OF TREASURY and the Internal Revenue Service & the State of North Dakota acting through the North Dakota Tax Department, Defendants.

Bankruptcy No. 93-30725. Adv. No. 93-7063.

United States Bankruptcy Court, D. North Dakota.

April 7, 1994.

James J. Coles, Bismarck, ND, for plaintiffs.

Thomas V. Linguanti, Washington, DC, for USA/IRS.

Donnita A. Wald, Bismarck, ND, for State of ND.

MEMORANDUM & ORDER

WILLIAM A. HILL, Bankruptcy Judge.

The matter before the court is a Motion for Partial Summary Judgment filed on February 28, 1994, by the defendant, United States of America, acting through the Department of Treasury and the Internal Revenue Service arising from the Complaint filed by the plaintiffs, Richard D. Olson and Jean Olson, on August 30, 1993, to determine the dischargeability of certain pre-petition tax obligations. The motion of the United States essentially alleges that the material facts and issues relative to a finding of nondischargeability under 11 U.S.C. § 523(a)(1)(C) have been previously established with respect to a number of pre-petition tax obligations via a consent judgment entered by the United States Tax Court on June 9, 1988. Specifically, the United States avers that the issue of "fraud" should be given preclusive effect under collateral estoppel principals in this adversary proceeding.

FACTUAL BACKGROUND

The affidavits and documents filed by the United States in support of its motion and by the plaintiffs in opposition, establish the relevant facts. The debtor, Richard Olson (Olson), was licensed realtor specializing in the sale of single family dwellings. In 1978, Olson entered into a joint venture with Kent Johanneson (Johanneson) who was an attorney experienced in property matters. The joint venture was undertaken for the purpose of acquiring and selling "mineral properties" at a time when oil and gas activity in North Dakota was escalating. The business venture came to its conclusion in 1981 with sale of the remaining properties acquired by Olson and Johanneson.

In June of 1987, the Commissioner of the Internal Revenue Service (I.R.S.) assessed income tax deficiencies against the plaintiffs for the tax years of 1977-82 inclusive, and issued a statutory notice of deficiency. The I.R.S. further assessed penalties against the plaintiffs for fraudulently under-reporting their income pursuant to I.R.C. § 6653(b) for the tax years 1977-81 inclusive.¹ The foregoing assessments were made primarily in connection with income and expenses associated with the purchase and sale of mineral properties.

The plaintiffs, who were represented by counsel, petitioned the United States Tax Court for a redetermination of the deficiency and penalty assessments in September of 1987. The plaintiffs challenged both the validity of the deficiency assessments and the assessment of the fraud penalties. The plaintiffs, in their petition, and the I.R.S., in its answer, detailed the grounds for their respective positions.

For reasons which are not altogether clear to the court, the parties entered into a compromise agreement which apparently provided for the full payment of the deficiency assessments for the years in question and a substantial reduction in the penalty assessment under I.R.C. § 6653(b).² As such, an evidentiary hearing on the issues was never held. That compromise agreement was adopted by the United States Tax Court and a consent judgment was entered accordance with its terms. The decision of the United States Tax Court provides in part:

Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED: That there are deficiencies in income taxes due from the petitioners for the taxable years 1977, 1978, 1979, 1980, 1981 and 1982 in the amounts of $5,960.00, $91,026.00, $31,258.00, $6,638.00, $7,386.00 and $273.00, respectively;

That there are additions to the tax due from petitioner Richard D. Olson for the taxable years 1977, 1978, 1979, 1980 and 1981, under the provisions of I.R.C. § 6653(b), in the amounts of $1,192.00, $18,205.00, $6,252.00, $1,328.00 and $1,477.00, respectively; and

That there are no additions to the tax under I.R.C. § 6653(b) due from petitioner Jean Olson for the taxable years 1977, 1978, 1979, 1980 and 1981. . . .

(Government Exhibit 4, at 1). The compromise agreement which is attached to the Tax Court decision was signed by the plaintiffs' counsel and an I.R.S. representative. The stipulated agreement provides in pertinent:

It is stipulated that the Court may enter the foregoing decision. It is further stipulated that, effective upon the entry of the decision of the Court, petitioners waive the restriction contained in I.R.C. § 6213(a) prohibiting assessment and collection of the deficiencies in income tax and additions to the tax (plus statutory interest) until the decision of the Tax Court has become final.

It is further stipulated that any reduction in tax payments for the taxable years 1980, 1981 and 1982 due to the adjustment in earned income credit by reason of the above decision will be repaid by the petitioners upon notification by an Internal Revenue Service Center. . . .

(Government Exhibit 4, at 2). For reasons which are not entirely clear to the court, the Debtors filed a petition for relief under Chapter 7 of the United States Bankruptcy Code on August 18, 1993.

Based upon the foregoing decision and compromise agreement, the United States essentially argues, inter alia, the issue of fraud was both in dispute in the Tax Court proceeding and essential to the Tax Court decision. Therefore, it is asserted, that the issue of fraud should be given preclusive effect and warrants the entry of summary judgment pursuant to Federal Rule 56 and 11 U.S.C. § 523(a)(1)(C). Olson retorts in part by emphatically denying the existence of any fraud or fraudulent intent and further counters by averring that neither the compromise agreement nor the decision of the Tax Court makes any reference to fraud or a willful attempt to evade the payment of taxes.

CONCLUSIONS OF LAW

1.

Rule 56 of the Federal Rules of Civil Procedure governs the grants of summary judgment and is made applicable to bankruptcy proceedings by Bankruptcy Rule 7056. Under Rule 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issues as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The primary purpose for granting a summary judgment motion is to promptly dispose of actions and avoid unnecessary trials when no genuine issue of material fact exists. The summary judgment mechanism is thus not a disfavored procedural shortcut, but rather an integral component of the Federal Rules of Civil Procedure as a whole, which are fashioned to secure an inexpensive, speedy, and just determination of every case. Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986).

The initial burden is always squarely on the movant to establish the lack of any genuine issue of material fact, with the party opposing the motion to be given the full benefit of all favorable factual inferences. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Froholm v. Cox, 934 F.2d 959, 961 (8th Cir.1991); Simmons v. Diamond Shamrock Corp., 844 F.2d 517, 519 (8th Cir.1988); Olson v. United States (In re Olson), 154 B.R. 276, 279 (Bankr.D.N.D. 1993). The party opposing a motion for summary judgment may not, however, merely rely on the naked allegations or general denials contained in its pleadings or papers. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986); Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356 (opining that when the movant has carried the burden in the first instance under Rule 56, "the opponent must do more than simply show that there is some metaphysical doubt as to the material facts."). The express language of the Rule makes it incumbent upon the nonmoving party to come forward with specific facts which demonstrate the existence of a genuine issue for trial. Fed.R.Civ.P. 56(e). Moreover, the mere existence of some factual dispute will not overcome an otherwise properly supported summary judgment motion. Anderson, 477 U.S. at 247, 106 S.Ct. at 2509-10. There is no genuine issue of material fact if the record as a whole could not lead the trier of fact to find for the nonmoving party. Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356. "If the evidence is merely colorable or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2511 (citations omitted). However, summary judgment is inappropriate in those cases in which different ultimate inferences may be properly drawn. When considering the merits of a summary judgment motion, it is not the function of the court to weigh evidence and resolve the truth of the matter but to ascertain whether there exists a genuine issue for trial. Anderson, 477 U.S. at 249, 106 S.Ct. at 2510-11; Olson v. United States (In re Olson), 154 B.R. 276, 279 (Bankr.D.N.D. 1993).

It is with the foregoing standard in mind coupled with a review of the pleadings, papers, and submitted exhibits that the court proceeds to resolve the issue raised by the parties.

2.

As the United States' Motion for Partial Summary Judgment is premised almost exclusively upon the prior consent judgment of the United States Tax Court and the doctrine of collateral estoppel (issue preclusion), this court will consider the consent judgment with the concomitant compromise agreement and facts surrounding its creation in light of the...