In re Spenlinhauer

• Decision Date: 08 September 2017
• Docket Number: Case No. 13–17191–JNF
• Citation: 573 B.R. 343
• Parties: IN RE Robert J. SPENLINHAUER, Debtor
• Court: U.S. Bankruptcy Court — District of Massachusetts

573 B.R. 343

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, Eric K. Bradford, U.S. Department of Justice, 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 Movant for Summary Judgment Relative to Estate Tax Claim of the Massachusetts Department of Revenue" (the "MDOR") through which Robert J. Spenlinhauer (the "Debtor") seeks an order granting summary judgment in his favor and finding that the proof of claim bar date (the "Bar Date") of May 2, 2014 prevents the filling by the MDOR of an amended or a new proof of claim asserting an estate tax claim. In conjunction with his Motion for Summary Judgment, 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 of Debtor to Estate Tax Portion of Claim Number 31 Filed by the Massachusetts Department of Revenue."¹

The MDOR filed a Response in Opposition to the Motion for Summary Judgment which included a "Response to Movant's Statement of Material Facts, Counter–Statement of Material Facts Not in Dispute, and Statement of Contested Fact [sic]," and a "Report by Attorney Regarding Registry of Deeds On–Line Search," together with the Affidavit of Kendra Ye and a Memorandum in Opposition to the Motion for Summary Judgment.

The Court heard the matter on June 13, 2017 and ordered the filing of further submissions. On June 27, 2017, the MDOR filed a Response to Questions Raised by Court at Hearing on June 13, 2017. The Debtor, in turn, filed a Response to the MDOR's Response.

The issue presented is whether the MDOR 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, if not, 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 the estate's tax liability, or, alternatively, whether the Debtor is estopped under the circumstances of the case from claiming the benefit of the Bar Date. For the reasons set forth below, the Court finds that the MDOR has sustained its burden of establishing both cause and excusable neglect warranting an extension of the Bar Date for claims relating to Georgia Spenlinhauer's estate.

II. BACKGROUND

The Debtor filed a Chapter 11 petition on December 16, 2013.² 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: "MASS DEPT [sic] OF REVENUE, BANKRUPTCY UNIT, PO BOX 9564, Boston, MA 02114–9564." The meeting of creditors did not take place as initially scheduled. The Debtor, through counsel, on December 31, 2013, sent a Notice of Reschedule 341 Meeting of Creditors to the Internal Revenue Service (the "IRS") and other creditors but did not serve the MDOR.

On January 10, 2014, the Debtor filed, among other things, his schedules of assets and liabilities and Statement of Financial Affairs. He did not list the MDOR as the holder of a claim. On February 14, 2014, the Debtor filed amended Schedules A, B, C, D, E, and F and an Amended Statement of Financial Affairs. On amended Schedule E–Creditors Holding Unsecured Priority Claims, the Debtor listed the MDOR as the holder of a priority claim for "state taxes" in the sum of $48,718.97, and, on amended Schedule F–Creditors Holding Unsecured Nonpriority Claims, the Debtor listed the MDOR as the holder of a claim for "interest and penalties" in the sum of $65,493.51. On April 11, 2014, the Debtor filed an amended Schedule E listing the MDOR as the holder of priority claims for 2011 income taxes in the sum of $9,940.00 and for 2012 income taxes in the sum of $6,169.00, as well as the claim for "state taxes" in the sum of $48,718.97.

The MDOR filed a timely proof of claim on January 16, 2014 for the Debtor's personal income taxes in the total sum of $114,212.48, asserting that $48,718.97 was entitled to priority under 11 U.S.C. § 507(a)(8) and that $65,493.41 was a general unsecured claim. It amended that claim on June 25, 2014 setting forth a claim in the total sum of $82,706.34, asserting that $23,699.61 was entitled to priority under 11 U.S.C. § 507(a)(8) and the balance was a general unsecured claim. Over three years later, on March 20, 2017, Kendra Ye, a "Tax Examiner II" with the MDOR's Bankruptcy Unit, filed, on behalf of the MDOR, a proof of claim in the sum of $2,154,955.65 for unpaid estate taxes owed by the estate of Georgia Spenlinhauer, for which the Debtor was the executor. The MDOR asserted a secured claim pursuant to Mass. Gen. Laws ch. 62C, § 50 in real estate, motor vehicles and "[a]ll property and rights to property" for the full amount of its claim, which it described as relating to an estate tax for the period of "02/04/2005." According to the MDOR, the tax was assessed on March 17, 2017. It indicated that the amount of the tax was $963,031.75, interest totaled $710,408.03, and penalties totaled $481,515.87.³

The MDOR's filing of the proof of claim on March 20, 2017 was triggered by the sale of property in Hingham, Massachusetts which the Debtor inherited from his mother, Georgia Spenlinhauer, in 2005. 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 $9.48 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 MDOR to file statements with respect to the amended motion within 30 days. The MDOR filed its Statement on September 19, 2016.

Until such time as the Trustee addressed the Debtor's tax obligations as part of her fiduciary duties in 2016 following the sale of the Hingham Property and the Court conducted an evidentiary hearing with respect to her Motion to Convert, neither the MDOR nor the IRS were aware of issues relating to the Debtor's failure to file an estate tax return for his late mother's estate or any potential liability for estate taxes. Owing to that newly discovered circumstance on the part of the parties in interest, the Court itself directed the IRS and the MDOR to address the issue at the conclusion of the evidentiary hearing by filing the statements referenced above. As a result of the new information, the MDOR filed Claim No. 31 on March 20, 2017 which is the subject of the Debtor's Motion for Summary Judgment.

III. THE PARTIES' STATEMENTS OF MATERIAL FACTS

A. The Debtor

The Debtor states that on March 22, 2017 he filed an objection to the MDOR's proof of claim filed on March 20, 2017 which this Court deemed a contested matter. The original and amended proofs of claim filed by the MDOR in 2014 were for income taxes for tax years 2010, 2011 and 2012.

The Debtor further states that he...