Kriss v. United States (In re Kriss), Bk. No. 12-11983-BAH

Citation2019 BNH 003
Decision Date27 September 2019
Docket NumberBk. No. 12-11983-BAH,Adv. No. 18-01064-BAH
CourtUnited States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire
PartiesIn re: Terrence P. Kriss, Debtor Terrence P. Kriss, Plaintiff v. United States of America (IRS), Defendant

Note: This is an unreported opinion. Refer to LBR 1050-1 regarding citation.

Chapter 13

Ann K. Barber, Attorney for Plaintiff

Jeffrey N. Nuńez, Attorney for Defendant

MEMORANDUM OPINION
I. INTRODUCTION

Before the Court is the Motion for Judgment on the Pleadings (the "Motion")1 filed by the United States of America (the "Defendant" or the "IRS"). The Motion moves this Court to enter a final order or judgment that the liabilities of debtor Terrence P. Kriss (the "Plaintiff" or the "Debtor") for income taxes and interest for the tax years 1997, 2000, 2008, 2009, 2010, 2011, are excepted from discharge pursuant to 11 U.S.C. § 523(a)(1)(B). The Defendant also argues it is entitled to judgment regarding the Plaintiff's adversary complaint seeking damages, costs, attorney's fees, and sanctions for a violation of the discharge injunction in 11 U.S.C. § 524(a)(2),because the Defendant has not waived its sovereign immunity to be sued on those grounds. The Plaintiff timely filed his Objection to the Motion (the "Objection").2

After reviewing the papers filed and having heard oral argument, for the reasons set forth herein, the Defendant's Motion is GRANTED in part, and DENIED in part.

II. JURISDICTION

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the United States District Court, District of New Hampshire Local Rule 77.4(a). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

Both parties have consented to entry of a final order or judgment regarding the dischargeability of tax debts by the bankruptcy court. However, the IRS argues that the Debtor's adversary complaint (the "Adversary Complaint")3 does not contain jurisdictional allegations sufficient to confer jurisdiction to this Court, and as there has been no waiver of sovereign immunity by the IRS, this Court lacks jurisdiction over the Adversary Complaint as it pertains to an award of damages, attorney's fees and costs and/or sanctions. This jurisdictional issue asserted by the IRS is addressed further in section V.C. of this Order.

III. FACTUAL4 AND PROCEDURAL BACKGROUND
A. Pre-Petition

The Debtor did not file tax returns by the IRS's filing deadline for the income tax years of 1997 or 2000. For the tax year of 1997 the IRS assessed $30,568.00 in taxes, interest and penalties based on a "substitute for return" filed by the IRS on December 31, 2001, a portion of which was abated after the Debtor filed an "amended" 1997 tax return on July 7, 2007. For thetax year 2000, the IRS assessed $43,344.00 in taxes, interest and penalties based on a "substitute for return" filed by the IRS on September 1, 2003, a portion of which was abated after the Debtor filed an "amended" 2000 tax return on July 16, 2007. Additionally, none of the Debtor's tax returns for the tax years 2008, 2009, 2010, or 2011 had been filed by the IRS filing deadline for each corresponding tax year, or before the Debtor filed his bankruptcy petition.5

B. The Bankruptcy Proceeding

On June 19, 2012, the Debtor filed a voluntary Chapter 13 petition (the "Petition") with this Court (Case Number 12-11983-BAH, the "Main Case"). Shortly after filing the Petition, but after the IRS deadline to file returns for each tax year had passed, the Debtor filed late returns for the 2008, 2009, 2010, and 2011 tax years in June and July of 2012.

The Debtor filed his initial plan on July 2, 2012, which was later amended on August 16, 2012 (the "Plan"),6 proposing to pay an estimated priority claim for the tax years of 2008-2011 to the IRS, but paying no interest on that priority claim during the pendency of the Plan.7 The Plan did not propose any specific non-conforming special plan provisions, and proposed to pay 15.01% of all allowed general unsecured claims.

The IRS filed an amended proof of claim on October 12, 2012 ("Claim 4-2") in the total amount of $278,309.42. Claim 4-2 consisted of a secured claim for tax year 1996 in the amount of $15,555.00; an unsecured priority claim for tax years 2008-2011 in the amount of $48,873.30; and a general unsecured claim for the tax years of 1996, 1997, 2000, 2004, 2005 and 2007 (including pre-petition penalties on both the priority claims and the general unsecured claims) inthe amount of $213,881.12. As stated in Claim 4-2, the 1997 debt was $45,645.79 ($19,346.00 in tax and $26,299.79 in pre-petition interest); 2000 debt was $25,738.64 ($13,972.00 in tax and $11,766.64 in pre-petition interest).8

The Debtor filed an Objection to Claim 4-2 on November 9, 2012.9 The IRS neither filed a response nor appeared at the hearing on the Objection. Consequently, on December 17, 2012, the Court entered an order sustaining the Objection. Specifically, that Order provided that the claim for the 1996 tax year in the amount of $15,555.00, which was filed as a secured claim, be treated as a general unsecured claim; and that both the unsecured priority claim in the amount of $48,873.30 (the "Priority Claim") and the general unsecured claims of $229,436.12 (which included the 1997 and 2000 tax years) (the "General Unsecured Claim") be paid according to the terms of the Plan.10

The Debtor completed the Plan, resulting in the Court entering its customary Order of Discharge on August 23, 2017. That order states that certain debts were not discharged, including certain types of taxes specified in 11 U.S.C. §§ 507(a)(8)(C), 523(a)(1)(B) or 523(a)(1)(C) to the extent not paid in full under the plan.

The Chapter 13 Trustee's Final Report and Accounting, filed upon completion of the Plan on October 3, 2017, stated that the Priority Claim had been paid in full through the Plan, and that payments in the amount of $42,624.67 were made through the Plan towards the IRS's General Unsecured Claim.

The Debtor's case was closed on December 5, 2017.

C. Post-Discharge

On January 8, 2018 the IRS sent the Debtor CP504 notices seeking payment of an "amount owed" plus interest charges for the tax years 1997 and 2000. The IRS also sent the Debtor CP504 notices seeking payment for the years 2008-2011 (the "2008-2011 Notices").11 The notice for 2008 stated: "our records show you have unpaid taxes for the tax year ending December 31, 2008," informed the Debtor that he was on notice of the IRS's intent to "levy against his property or rights to property," listed the "amount you owed" as $1,614.88 and "interest charges" of $4.97, and had an asterisk and a blank line after the words "amount due immediately", with a toll free phone number for the Debtor to call "for penalty and interest charges and remaining balance." See Objection (Ex. 1). The notices for the tax years of 2009, 2010 and 2011 contained the identical "unpaid tax" language, listed the amount owed for each year, and the "amount due immediately" line on showed the same blanks and asterisks. Id. (Exs. 2-4).12

On July 6, 2018, the Debtor moved to reopen the Main Case to allow him to file an adversary proceeding against the IRS to allege violations of his discharge under 11 U.S.C. §524(a)(2) relating to the 2008-2011 Notices, and to request an order declaring that the debt the 2008-2011 Notices sought to collect was discharged. The Debtor's motion was granted. On July 9, 2019, after the Main Case had been reopened but before an adversary complaint had been filed, the IRS sent a CP508-C notice to the Debtor stating the tax debt for the tax years 1997 and 2000 was seriously delinquent.

On August 22, 2018, the Adversary Complaint was filed, alleging the Post Discharge Notices violated 11 U.S.C. § 524(a)(2).13 The Adversary Complaint sought declaratory judgment that the debt that the Post Discharge Notices sought to collect was discharged, and requested damages (including emotional distress damages) for violation of the discharge injunction, as well as sanctions in the form of attorney's fees and costs.

On November 11, 2018, the IRS brought a civil action, Case Number 1:18-cv-01011 in the United States District Court for the District of New Hampshire (the "Civil Action") against the Debtor, seeking to reduce to judgment the tax liabilities for the tax years of 1997 and 2000.14 The Civil Action is currently stayed.15

On December 20, 2018 the Defendant filed the Motion.

IV. LEGAL STANDARD

A motion for judgment on the pleadings is governed by Rule 12(c) of the Federal Rules of Civil Procedure, which is made applicable in bankruptcy proceedings by Bankruptcy Rule 7012. Rule 12(c) provides: "After the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." The standard for evaluating a Rule 12(c) motion is essentially the same as that for deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim. Pérez-Acevedo v. Rivero-Cubano, 520 F.3d 26, 29 (1st Cir. 2008) (citation omitted); Best v. Nationstar Mortg. LLC (In re Best), 540 B.R. 1, 7 (B.A.P. 1st Cir. 2015) (citation omitted). Under both Rule 12(b)(6) and Rule 12(c), "the pleadings taken in the light most favorable to the non-movant must establish a plausible claim." Rivera Mercado v.Banco Popular de Puerto Rico (In re Rivera Mercado), 599 B.R. 406, 416-17 (B.A.P. 1st Cir. 2019) (citation omitted).

When considering a motion for judgment on the pleadings, a bankruptcy court is entitled to examine the pleadings, exhibits attached to the pleadings, and any documents sufficiently referenced in the pleadings. Best, 540 B.R. at 8. Documents attached to the answer are considered part of the answer and may also be considered. Fed. R. Civ. P. 10(c). A bankruptcy court may take judicial notice of docket entries in the main bankruptcy case. LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 8 (1st Cir. 1999) (bankruptcy court may take judicial...

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