Matter of Berryhill, Bankruptcy No. 88-11367.
| Decision Date | 07 May 1991 |
| Docket Number | Bankruptcy No. 88-11367. |
| Citation | 127 BR 427 |
| Parties | In the Matter of Raymond Dale BERRYHILL & Kay Louise Berryhill, Debtor(s). |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
Roland Gariepy, Fort Wayne, Ind., for debtors.
William Andersen, South Bend, Ind., for U.S. Trustee.
Tina Nommay, Office of the U.S. Atty., Fort Wayne, Ind., for FmHA.
DECISION
This matter is before the court following trial of the issues raised by separate motions to dismiss, filed on behalf of the United States Trustee and the United States of America (acting through The Farmers Home Administration, The Commodity Credit Corporation, and The Internal Revenue Service) and a motion for contempt, filed on behalf of The Internal Revenue Service (IRS). The motions to dismiss essentially have the same foundation. Both are premised upon the debtors' failure to fulfill various obligations imposed upon them. By its separate motion, the IRS asks the court to hold the debtors in contempt because of their failure to comply with the order of October 25, 1990, concerning the filing of tax returns or, alternatively, the delivery of financial information to the IRS.
On October 24, 1990, the IRS filed a motion asking the court to require the debtors to file tax returns or deposit certain books and records. As of the date the motion was filed, the debtors had failed to file any of their federal income tax returns since the return for the year 1985. Accordingly, the IRS sought a court order compelling the debtors to file their income tax returns or provide financial information for the years 1986, 1987, 1988, and 1989.1
The IRS' motion was granted by the court's order of October 25, 1990. This order gave the debtors several options with regard to compliance or a response. If the debtors had any objection to providing the returns or information requested, they were required to file it within twenty days of the court's order. In the absence of a timely objection, the order required compliance within thirty days. If the returns had been filed, debtors were to provide copies to the United States Attorney. Otherwise, the debtors were required to file the returns or deliver their books and records for these tax periods to the IRS.
Debtors never filed an objection or other response to the order of October 25, 1990. As a result, within thirty days of that date, they were required to either file the tax returns for the years 1986 through 1989 or to deliver their books and records for those years to the IRS.
The debtors received the court's order of October 25 and began to make an effort to comply with it. On October 26, 1990, Mr. Berryhill delivered financial records to their accountant so that the returns could be prepared. Nonetheless, the returns were not prepared within the thirty days required and the debtors never sought an extension of the compliance deadline.
By February 8, 1991, the debtors still had not complied with the court's order of October 25, 1990. On that date the IRS filed its motion for contempt citation, asking that the debtors be held in contempt of court for their noncompliance. Shortly after the motion was filed, the debtors filed their 1986 tax return. The return had been completed and signed by their accountant on January 24, 1991 and it was signed by the debtors on February 15, 1991. Although the debtors did belatedly file their 1986 tax return, as of the date of trial, the returns for the years 1987, 1988, and 1989 had not been completed and have not been filed. Furthermore, the debtors have not exercised their alternative option to deliver the books and records for any of the years in question to the IRS.
A motion for contempt of court presents only two issues: (1) whether the alleged contemnor knew of the court's order and (2) whether he complied with it. In re Keane, 110 B.R. 477, 482-83 (S.D.Cal. 1990); In re Shuma, 124 B.R. 668, 678 (Bankr.W.D.Pa.1991).
It must be shown that there exists an enforceable order that is clear and specific which unambiguously commands such party to perform or refrain from performing in accordance with the order. . . . `The party seeking the contempt citation retains the ultimate burden of proof, but once he makes out a prima facia case, the burden of production shifts to the alleged contemnor, who must then come forward with evidence to show a present inability\' to comply with the court\'s order. . . . Civil contempt must be proved by clear and convincing evidence. Keane, 110 B.R. at 483 (citations omitted).
In the absence of objection, the order of October 25 clearly and unambiguously required the debtors to do one of two things by a date certain. They were required to either file their tax returns for the years 1986 through 1989 within thirty days or, within that time, to deliver their books and records for these tax periods to the IRS. There is no question that the debtors were aware of the court's order. Furthermore, there is no dispute that the debtors have failed to comply with either option. The IRS has, thus, established a prima facia case warranting a finding of contempt.
The debtors seek to escape a finding of contempt based upon their efforts to comply with the court's order. Mr. Berryhill delivered the financial information in question to their accountant the day after the order was entered so that the preparation and filing of the returns could begin. Their accountant did not, however, complete the task within the time required. Thus, the debtors contend that non-compliance is not attributable to their own actions but, instead, that the fault rests with their accountant.
Debtors' defense to the motion for contempt is insufficient. Although the debtors could choose to delegate the preparation of their tax returns to an accountant, the delegation of that task did not relieve them of their responsibility to comply with the court's order. When it became apparent that the returns would not be filed within the time required, the debtors could not safely ignore the deadline. If additional time was required in order to comply, the debtors had the obligation to advise the court of that fact and to seek an extension. They never did so. It was not until shortly before the initial hearing on the contempt motion, which was scheduled for March 25, 1991, that the debtors made any effort to advise the court of the compliance problems. On March 13 they filed a report advising the court of the fact that the 1986 return had been completed and filed but that the accountant had not yet compiled the remaining returns. This explanation is not only unsatisfactory but also, under the circumstances, too late, coming more than a month after the IRS had initiated contempt proceedings.
Despite any problems or delays the debtors encountered in actually preparing their tax returns, they have always had the ability to fully comply with the order of October 25. Preparation and filing of the tax returns was only one of two possible compliance options. As an alternative to filing the required returns, the debtors had the option of simply delivering their books and records to the IRS. When it became obvious to the debtors and their accountant that the returns would not be filed as required, there is no reason that the debtors could not have exercised the option of delivery. The information required was the same information that debtors delivered to their accountant and it is the same information which he made freely available to them for other purposes. The court can think of no reason why the debtors could not have chosen to deliver that financial information to the IRS in order to comply with the order of October 25.
The debtors have failed to comply with the court's order of October 25, 1990 and the court finds that they are in contempt. Given the court's decision concerning dismissal, it is unnecessary to give further consideration to the issue.
This case was filed under Chapter 11 of the United States Bankruptcy Code more than two and one-half years ago, on October 3, 1988. Debtors have yet to confirm a proposed plan or even to have secured approval of a satisfactory disclosure statement.2 The motions filed by the United States and the United States Trustee ask the court to dismiss this case because of debtors' failure to comply with court orders concerning their obligations as debtors-in-possession and because of unreasonable delay that is prejudicial to their creditors. Having considered the court's record in this proceeding and the evidence presented at trial, the court finds that this case has all of the hallmarks of a proceeding in which the debtors are very willing to take advantage of the benefits which come from filing a petition for relief under Chapter 11 but are unwilling to accept the responsibilities that accompany that filing. The motions are well-taken.
The burden of proving sufficient "cause" for conversion or dismissal lies with the moving party. Matter of Santiago Vela, 87 B.R. 229, 231 (Bankr.D.P.R.1988). "The inquiry under § 1112 is case-specific, focusing on the circumstances of each debtor." Timbers, 808 F.2d at 371-372. Although the statute provides ten illustrative examples of various causes which may warrant conversion or dismissal, the list is not exhaustive. See Matter of Levinsky, 23 B.R. 210, 217 (Bankr.E.D.N.Y.1982) (citing In re Pappas, 17 B.R. 662, 666 (Bankr.D.Mass. 1982)); Matter of W.J. Rewoldt Co., 22 B.R. 459, 461 (Bankr.E.D.Mich.1982); In re Kors, Inc., 13 B.R. 676, 680 (Bankr.D.Vt. 1981). See also 11 U.S.C. § 102(3). Cons...
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