In re Spenlinhauer

• Decision Date: 08 September 2017
• Docket Number: Case No. 13–17191–JNF
• Parties: IN RE Robert J. SPENLINHAUER, Debtor
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

572 B.R. 18

IN RE Robert J. SPENLINHAUER, Debtor

Case No. 13–17191–JNF

United States Bankruptcy Court, D. Massachusetts.

Signed September 8, 2017

Gary W. Cruickshank, Law Office of Gary W. Cruickshank, Boston, MA, for Debtor.

Paula R.C. Bachtell, U.S. Department of Justice, Eric K. Bradford, Office of the United States Trustee, Boston, MA, for Assistant U.S. Trustee.

John T. Morrier, Lynne F. Riley, Casner & Edwards, LLP, Boston, MA, for Trustee.

MEMORANDUM

Joan N. Feeney, United States Bankruptcy Judge

I. INTRODUCTION

The matter before the Court is the Motion by Respondent, Robert J. Spenlinhauer (the "Debtor"), for Summary Judgment Relative to Estate Tax Claim of the United States of America. The Debtor's Motion for Summary Judgment arises in the context of a contested matter initiated by the filing of "Creditor United States of America's Motion to Determine Tax Liability Pursuant to § 505(a)." Pursuant to that motion, the United States seeks a determination that the Debtor is personally liable for an estate tax obligation as a transferee of the estate of Georgia M. Spenlinhauer, the Debtor's deceased mother,¹ as he was the executor and beneficiary of his mother's estate and did not file a Form 706 estate tax return for her estate until February 8, 2017, more than 12 years after his mother passed away.

Through his summary judgment motion, the Debtor seeks entry of an order finding that the the proof of claim bar date of May 2, 2014 (the "Bar Date"), established by this Court pursuant to its bar order entered on March 24, 2014, prevents the filling by the United States Department of the Treasury, Internal Revenue Service (the "IRS"), of an amended or new proof of claim asserting an estate tax claim for which the Debtor may be liable as executor and beneficiary of his deceased mother's estate.² In support of his motion, the Debtor filed a Concise Statement of Material Facts, an Affidavit, and a "Memorandum of Law in Support of Motion for Summary Judgment Regarding the Objection to Estate Tax Portion of Amended Claim Number 10 filed by the Internal Revenue Service."

The IRS filed an Opposition to the Debtor's summary judgment motion. In addition, it filed a Cross–Motion for Partial Summary Judgment, as well as a Concise Statement of Material Facts in Support of its Opposition and Cross–Motion for Partial Summary Judgment, a Brief in Opposition to the Motion for Summary Judgment and in Support of its Cross–Motion for Partial Summary Judgment, and the Declaration of Nicholas R. Ernick in Support of its Opposition and Cross–Motion for Partial Summary Judgment. It seeks an order "granting partial summary judgment [in] its favor finding that the claims bar date in this case does not prevent the Internal Revenue Service from amending its proof of claim, post-claims bar date, to assert estate tax-related claims against the Debtor, and to assert income tax claims against the Debtor regarding tax year 2005."

The Court heard the Motion for Summary Judgment and the Cross–Motion for Partial Summary Judgment on June 13, 2017 and afforded the parties additional time to file further submissions in this contested matter. Both the Debtor and the IRS filed supplemental documents. In particular, the IRS filed the Declaration of Scott E. Irick in Support of its submissions, as well as a Motion to Permit Late–Filed Tax Claim in which it reiterated arguments made in support of its Cross–Motion for Partial Summary Judgment. The Debtor filed an Objection to the Motion to Permit Late Filed Tax Claim, as well as a Response to the Further Submissions of the IRS and a Memorandum of Law.

The issues presented include whether the IRS had adequate notice that it had a claim against the Debtor in his capacity as executor and beneficiary of his deceased mother's estate in addition to its claim for income taxes owed by the Debtor and whether it demonstrated "cause," see Fed. R. Bankr. P. 3003(c)(3), or excusable neglect, see Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), warranting an extension of the Bar Date for filing a proof of claim for the Debtor's personal liability as a transferee of the estate of Georgia Spenlinhauer for her estate's federal estate tax liability. For the reasons set forth below, the Court finds that the IRS has sustained its burden of establishing both cause and excusable neglect warranting an extension of the Bar Date for filing claims relating to Georgia Spenlinhauer's estate.

II. BACKGROUND

The Debtor filed a Chapter 11 petition on December 16, 2013.³ He listed the IRS on his original matrix filed pursuant to MLBR 1007–1 at the following address:

Internal Revenue Service

JFK Federal Building

15 New Sudbury Street

Boston, MA 02203–0292

The Bankruptcy Noticing Center, on December 21, 2013, sent a copy of the "Notice of Chapter 11 Bankruptcy Case, Meeting of Creditors, & Deadlines" to the following: "UNITED STATES ATTORNEY, JOHN JOSEPH MOAKLEY, UNITED STATES FEDERAL COURTHOUSE, 1 COURTHOUSE WAY, SUITE 9200, BOSTON, MA 02210–3011," "EDI: IRS.COM Dec 19 2013 23:38:00 INTERNAL REVENUE SERVICE, P.O. Box 7346, Philadelphia, PA 19101–7346," and "EDI: IRS.COM Dec 19 2013 23:38:00 [sic] INTERNAL REVENUE SERVICE, INSOLVENCY GROUPS–STOP 20800, PO BOX 9112, 25 NEW SUDBURY STREET, Boston, MA 02203." The meeting of creditors did not take place as initially scheduled. The Debtor, through counsel, on December 31, 2013, sent a Notice of Rescheduled 341 Meeting of Creditors to the IRS at the following address:

Internal Revenue Service

SPS JFK Bldg.

PO Box 9112

Stop 20800

Boston MA 02203

The Debtor did not serve the IRS at any other address, including, as will be discussed below, the address set forth in MLBR Appendix 4 and the identical address set forth in the Roster of Government Units and Tax Liability Addresses maintained by the United States Bankruptcy Court for the District of Massachusetts pursuant to Fed. R. Bankr. P. 5003(e).

On January 10, 2014, the Debtor filed, among other things, his schedules of assets and liabilities and Statement of Financial Affairs. On Schedule D–Creditors Holding Secured Claims, he listed the IRS as the holder of a claim, identified as 2006–2010 Tax Lien, in the sum of $294,000 secured by property located at 13 Industrial Drive, Mashpee, Massachusetts valued at $474,000. On February 14, 2014, the Debtor filed amended Schedules A, B, C, D, E, and F and an amended Statement of Financial Affairs, but did not list the IRS as the holder of any claims other than the one previously listed on Schedule D. On his original and amended Schedule D, he listed the IRS at the address used for the rescheduled meeting of creditors. On March 27, 2014, the Debtor amended his schedules again but did not alter the way he listed the IRS's claim. On April 11, 2014, the Debtor filed an amended Schedule E, adding the IRS as the holder of an unsecured priority claim for 2011 income taxes in the sum of $40,299.00, using the SPS JFK Bldg. address.

Approximately 20 months after the Debtor commenced his Chapter 11 case, on September 3, 2015, the Court entered an order authorizing the Debtor to sell real property located at 90–90A Industrial Park Road in Hingham, Massachusetts ("the Hingham Property"). On September 14, 2015, the sale of the Hingham Property closed, generating, according to the Debtor in a Status Report filed on September 17, 2015, net proceeds of $1,029,459.29 for the bankruptcy estate.

On December 8, 2015, the United States Trustee filed a Motion to Convert Debtor's Chapter 11 case to Chapter 7, or, in the Alternative, to Appoint a Chapter 11 Trustee asserting numerous grounds, including the Debtor's failure to timely file his federal and state tax returns. On December 15, 2015, this Court granted the United States Trustee's alternative Motion to Appoint a Chapter 11 Trustee in lieu of converting the Debtor's Chapter 11 case to a Case under Chapter 7 and subsequently entered an order authorizing the appointment of Lynne F. Riley as Chapter 11 Trustee (the "Trustee") in this case. Four months after her appointment, on April 12, 2016, the Trustee filed a Motion to Convert Case to Chapter 7.⁴

The Court conducted evidentiary hearings on the Motion to Convert on May 4, 2016, July 26, 2016, and August 19, 2016. Following the May 4, 2016 hearing, the Court directed the filing of memoranda regarding the Debtor's tax liabilities, including any potential tax liability arising from his failure to file an estate tax return in 2005 as executor of his deceased mother's estate.

On July 26, 2016, the Trustee filed a "Memorandum of Law Regarding the Debtor's Tax Liabilities in Support of the Trustee's Motion to Convert These Proceedings to Chapter 7." In her Memorandum, the Trustee argued that "because the Hingham Property was included in Georgia Spenlinhauer's taxable estate, but the required estate tax return was not filed and the estate tax due has never been paid, Robert Spenlinhauer, as his mother's executor and beneficiary, remains liable for the estate tax due." The Trustee estimated that the Debtor's personal liability for estate tax arising from his late mother's estate exceeds $11 million, given that the Hingham Property alone was worth between $9.8 million and $9.65 million at the time of Georgia Spenlinhauer's death in 2005.⁵ Thereafter, on August 5, 2016, the Trustee filed an Amended Motion to Convert Case to Chapter 7 for the purposes of incorporating "as grounds for conversion substantial new information disclosed by the Debtor and his advisors and other witnesses, in testimony and otherwise, since the filing of her Initial Motion to Convert."⁶

At the conclusion of the August 19, 2016 evidentiary hearing, and upon consideration of the Trustee's Amended Motion to Convert, the Court directed the IRS and the Massachusetts Department of Revenue (the "MDOR") to file statements with respect to the amended motion within 30 days. The IRS filed its Statement on September 19, 2016...