In re Thomas, Case No. 07-15888 (DHS) (Bankr.N.J. 7/23/2008)

• Decision Date: 23 July 2008
• Docket Number: Adv. No. 07-02558 (DHS).,Case No. 07-15888 (DHS).
• Parties: In Re: JOE L. THOMAS, Debtor. JOE L. THOMAS, Plaintiff, v. DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

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In Re: JOE L. THOMAS, Debtor.

JOE L. THOMAS, Plaintiff, v. DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE, Defendant.

Case No. 07-15888 (DHS).

Adv. No. 07-02558 (DHS).

United States Bankruptcy Court, D. New Jersey.

July 23, 2008.

Duston K. Barton, Esq., United States Department of Justice, Counsel for the Internal Revenue Service.

Melinda D. Middlebrooks, Esq., Middlebrooks Shapiro & Nachbar, P.C., Counsel for Debtor Joe L. Thomas.

OPINION

DONALD H. STECKROTH, Bankruptcy Judge

Before the Court is a motion for summary judgment filed by the Department of the Treasury, Internal Revenue Service (hereinafter "IRS") seeking dismissal of the instant adversary complaint filed by Joe L. Thomas (hereinafter "Debtor" or "Plaintiff") on the following grounds: (i) the IRS properly notified the Debtor of the federal tax liens pursuant to 26 U.S.C. § 6320; (ii) Section 507(a)(8) of the Bankruptcy Code is inapplicable to the IRS's secured claim; and (iii) the Debtor misconstrued the perfection requirements for federal tax liens. In opposition, the Debtor contended that: (i) the IRS failed to properly perfect the federal tax lien; (ii) the IRS Proof of Claim arising from tax years ending December 31, 2001, 2002, 2004 should be modified from secured to general unsecured claims pursuant to Section 507(a)(8) as they are outside of the three-year "look back" period; and (iii) the Debtor did not receive the Notice of Federal Tax Liens.

For the reasons stated hereafter, the IRS's motion for summary judgment is hereby granted. The Court has jurisdiction over this motion pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The following shall constitute the Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.

Statement of Facts and Procedural History

The Debtor, Joe L. Thomas, filed a voluntary petition for Chapter 11 bankruptcy protection on April 30, 2007. The IRS filed a Proof of Claim for $2,035,999.08 on May 8, 2007. Id. at ¶ 4. At that time, Debtor's Counsel was advised by the Debtor's pre-petition accountants that notices of federal tax liens were not served upon the Debtor or his accountants. See Certification of Melinda D. Middlebrooks, Esq. In Support of the Objection on Behalf of Plaintiff Joe L. Thomas to the Motion for Summary Judgment ("Middlebrooks Cert."), at ¶ 2. On November 15, 2007, the Debtor commenced the instant adversary proceeding against the IRS to determine the validity, priority, and extent of the IRS's liens pursuant to Sections 101 and 545 of the Bankruptcy Code and Bankruptcy Rule 7001.

The Proof of Claim indicates that the total amount of the claim is as follows: (i) $1,846,869.87 is secured; (ii) $157,086.69 is a priority claim; and (iii) $32,042.52 is unsecured. See Objection on Behalf of Plaintiff ("Pls. Obj."), at Exhibit A. Furthermore, the secured liability exclusive of penalties and pre-petition interest is: (i) $801,746.28 for the tax period ending December 31, 2001 ("2001 Tax"); (ii) $192,712.00 for the tax period ending December 31, 2002 ("2002 Tax"); and (iii) $109,930.00 for the tax period ending December 31, 2004 ("2004 Tax"). Id., at Exhibit B; Middlebrooks Cert. at ¶ 7. The Debtor submits that the IRS first filed a "Notice of Tax Lien" on November 3, 2003 in Bergen County, New Jersey and New York County, New York. Middlebrooks Cert. at ¶ 8. However, the Proof of Claim attached to the Debtor's Objection states that the Notice of Tax Lien filed on November 3, 2003 was with respect to the 2001 Tax. See Pls. Obj., at Exhibit B. Subsequently, Notices of Tax Lien were filed in Bergen County on April 5, 2004 and October 31, 2006 for the 2002 Tax and the 2004 Tax, respectively. Id.

In its certification accompanying the instant motion, the IRS details its efforts to file and serve the Notice of Federal Tax Lien upon the Debtor. For the 2001 Tax, the IRS states that it filed its Notice in New York County and Bergen County on October 22, 2003 and served the Debtor via certified mail on October 27, 2003. Declaration of Gertrude Maughan ("Maughan Decl."), at ¶¶ 2-5.¹ On March 9, 2004, the IRS filed the Notice in Bergen County for the 2002 Tax and served such Notice on the Debtor on March 12, 2004 via certified mail. Id. at ¶¶ 6-7. On October 24, 2006, the IRS filed a Notice in Bergen County for the 2004 Tax and served the Notice on the Debtor on October 31, 2006. Id. at ¶¶ 8-9.

In the certification accompanying Debtor's Objection, Counsel to the Debtor certifies that upon searches of the certified mail numbers for the various letters sent with the Notices, the United States Postal Service records indicate that there was no record of the letters being mailed or received. See Middlebrooks Cert., at ¶¶ 13-18. Specifically, Counsel for the Debtor submits that identical certified mail numbers were used for letters mailed on October 17, 2003 and October 27, 2003. Id. at ¶ 16. Additionally, the zip code for Saddle River, where the Debtor had real property, was incorrect. Id. at ¶ 17. Thus, the Debtor argues that the Notices of Federal Tax Liens were never received (even if mailed). The Debtor's accountants pre- and post-petition, Wlodinguer, Erk & Chanzis, corroborate the Debtor's assertion. See Certification of Arthur Erk, CPA In Support of Plaintiff's Objection ("Erk Cert."), at ¶ 7.

Discussion

The issues for the Court to consider in the instant motion are: (i) whether the tax liens were properly perfected; (ii) whether the Debtor received notice of the federal tax liens; and (iii) whether the tax liens satisfy the requirements of Section 507(a)(8) allowing for a modification of the tax claim from a secured to either a priority or general unsecured claim. The Court will address these issues in turn below.

I. Summary Judgment Standard

A court may grant summary judgment under Federal Rule of Civil Procedure 56(c), made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056, "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Id. At the summary judgment stage, the role of the court "is not to weigh evidence, but to determine whether there is a genuine issue for trial." Knauss v. Dwek, 289 F. Supp. 2d 546, 549 (D.N.J. 2003) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). The court must construe facts and inferences in a light most favorable to the non-moving party. See Am. Marine Rail NJ, LLC v. City of Bayonne, 289 F. Supp. 2d 569, 578 (D.N.J. 2003) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986)). "Only evidence admissible at trial may be used to test a summary judgment motion. Thus, evidence whose foundation is deficient must be excluded from consideration." Williams v. Borough of West Chester, Pa., 891 F.2d 458, 471 (3d Cir. 1989) (citations omitted).

The moving party must make an initial showing that there is no genuine issue of material fact. See Knauss, 289 F. Supp. 2d at 549 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The burden then shifts to the non-moving party to "`make a showing sufficient to establish the existence of [every] element essential to the party's case, and on which that party will bear the burden of proof at trial.'" Cardenas v. Massey, 269 F.3d 251, 254-55 (3d Cir. 2001) (questioned on other grounds) (quoting Celotex Corp., 477 U.S. at 322). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48 (emphasis in original). An issue of fact is "genuine" if a reasonable juror could return a verdict for the non-moving party. See id. at 248. Furthermore, a material fact is determined by the substantive law at issue. See Crane v. Yurick, 287 F. Supp. 2d 553, 556 (D.N.J. 2003) (citing Anderson, 477 U.S. at 248). A fact is "material" if it might affect the outcome of the suit under governing law. Id. Disputes over irrelevant or unnecessary facts are insufficient to defeat a motion for summary judgment. Anderson, 477 U.S. at 248 (citation omitted).

However, even if material facts remain disputed, summary judgment may be proper if, after all inferences are drawn in the non-moving party's favor, the moving party is entitled to judgment as a matter of law. Id. at 248-50. Such a judgment is appropriate "as a matter of law" when the non-moving party has failed to make an adequate showing on an essential element of his or her case, as to which he or she has the burden of proof. See Celotex Corp., 477 U.S. at 322-23. When one party moves the court for summary judgment, Federal Rules of Civil Procedure 54(c) and 56, taken together, permit the court to enter summary judgment on behalf of the non-movant, even if the non-movant has not filed a cross-motion for summary judgment. See Peiffer v. Lebanon Sch. Dist., 673 F. Supp. 147, 151-52 (M.D. Pa. 1987) (citation omitted). On the other hand, a court must deny a motion for summary judgment when a genuine issue of material fact remains to be tried, or where the moving party is not entitled to a judgment as a matter of law.

II. Perfection of Federal Tax Liens

Section 6321 of the Internal Revenue Code, found at Title 26 of the United States Code, provides:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any...