Matter of Border

Decision Date22 June 1990
Docket NumberBankruptcy No. 3-89-01479,Adv. No. 3-89-0345.
Citation116 BR 588
PartiesIn the Matter of Rodney Wayne BORDER, Joretta F. Border, Debtors. Rodney Wayne BORDER, Joretta F. Border, Plaintiffs. v. INTERNAL REVENUE SERVICE, Defendant.
CourtU.S. Bankruptcy Court — Southern District of Ohio

Roy D. Boucher, Dayton, Ohio, for debtors.

Pamela Millard Stanek, Asst. U.S. Attys., Dayton, Ohio, Jonathan P. Welch, U.S. Dept. of Justice, Tax Div., Washington, D.C., for IRS.

DECISION ON ORDER GRANTING DECLARATORY JUDGMENT, INJUNCTIVE RELIEF AND SUMMARY JUDGMENT

THOMAS F. WALDRON, Bankruptcy Judge.

This proceeding, which arises under 28 U.S.C. § 1334(b) in a case referred to this court by the Standing Order of Reference entered in this district on July 30, 1984, is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A)—matters concerning the administration of the estate, (B)—allowance or disallowance of claims against the estate and (O) proceedings affecting the adjustment of the debtor-creditor relationship.

The debtors, Rodney and Joretta Border, filed a joint petition under Chapter 13 of the Bankruptcy Code on April 21, 1989. The Schedule Of Debts (Page 3) filed in the debtors' initial Plan (Doc. 10, Case No. 3-89-01479) lists an estimated ninety-five thousand dollar debt ($95,000.00) (the Border claim) due the Internal Revenue Service (IRS) with the following remarks: "Border Machine & Manufacturing, Inc. owes S.S. Withholding and FUIT and Debtor is President." The Codebtor Schedules (Page 9) filed in the debtors' initial Plan provide that the debtor-husband is liable to the IRS for ninety-five thousand dollars ($95,000.00) in connection with Border Machine & Manufacturing, Inc. (Border Machine) for Employees' Withholding Taxes, Social Security and FUIT and refers to the Schedule Of Debts (Page 3). Section VII in the debtors' initial Plan provides that all "allowed claims entitled to priority under 11 U.S.C. § 507 shall be paid in full in deferred cash payments as a class 3 claim." The debtors filed a Motion to Modify Plan Before Confirmation (Doc. 26, Case No. 3-89-01479) on June 20, 1989. Modification No. 9 pertains to the Border claim and provides that "allowed claims for taxes and pre-petition interest to be paid in full per Par. VII of original Plan and penalty portion to be treated as unsecured claim." The Order confirming the debtors' modified Plan (Doc. 36, Case No. 3-89-01479) was entered on September 20, 1989.

On October 25, 1989, the Chapter 13 Trustee filed a Notice of Intention to Pay Claims (Doc. 40, Case No. 3-89-01479), which contains a listing of those claims the Trustee's records indicate have been filed and which he proposes to pay pursuant to the terms of the confirmed plan. The Border claim is not included in this listing.

Pursuant to this court's Order (Doc. 3, Case No. 3-89-01479), the last day to file a proof of claim was August 21, 1989. Although the IRS filed various proofs of claim concerning the debtors' income tax obligations, it has not filed a proof of claim for the Border claim, nor has it sought an extension of time in which to file such a proof of claim.

The debtors filed this Complaint for Declaratory Judgment and Injunction (Doc. 1). The IRS filed its Answer And Defenses (Doc. 9). The debtors filed Plaintiffs' Motion For Summary Judgment (Doc. 12) and the IRS filed Defendant's Opposition To Plaintiffs' Motion For Summary Judgment and Cross-Motion For Summary Judgment (Doc. 15). Debtors also filed Plaintiffs' Brief In Reply To "Defendant's Opposition To Plaintiffs' Motion For Summary Judgment" (Doc. 17) and the IRS filed United States' Reply Memorandum To Plaintiffs' Brief In Response To United States' Cross-Motion For Summary Judgment (Doc. 18).

ARGUMENT OF THE PARTIES

Debtors seek a declaration from this court that the Border claim will be discharged upon completion of payments pursuant to their confirmed plan and an order enjoining the IRS from collection proceedings during the pendency of this Chapter 13 case and, upon completion of their plan, permanently enjoining the IRS from collection of any prepetition tax claim against the debtors in connection with Border Machine. The debtors recognize that the Border claim is a § 507 priority claim and that § 1322(a)(2) requires that the plan provide for full payment of such a claim. The debtors contend that their confirmed plan provides for full payment of the Border claim and thus they are entitled to the full discharge of this claim upon completion of the plan. The debtors assert that the IRS must file a proof of claim to receive distribution of the Border claim. Since the IRS did not timely file a proof of claim, or timely file a request to extend the time in which to file a proof of claim concerning the Border claim, it is not entitled to receive payment; nevertheless, the Border claim must be discharged upon completion of the plan (§ 1328).

The IRS argues that § 1322(a)(2)'s requirement that the debtors' Plan provide for full payment of all § 507 priority claims is a mandatory provision which requires that the IRS actually receive full distribution of the amount of the Border claim as a prerequisite for obtaining a discharge. The IRS contends that full payment of the Border claim, an acknowledged § 507 claim, is required to meet the statutory demands of § 1322(a)(2) and the presence or absence of a timely filed proof of claim is not determinative of the discharge of such a claim.

INJUNCTION, DECLARATORY AND SUMMARY JUDGMENT

As a preliminary matter, this court must determine whether injunctive relief, declaratory judgment and summary judgment can issue in this proceeding.

Debtors request that this court issue injunctive relief pursuant to Bankruptcy Rule 7001(7) and § 105 of the Code. The Rule requires that an adversary proceeding be initiated "to obtain an injunction or other equitable relief." The court notes that the injunctive relief sought here is generally provided by operation of § 362 and § 524 of the Code, without separate specific orders of the court. Bankruptcy Rule 7001(7) contemplates the institution of adversary proceedings for specific injunctive relief not encompassed by § 362(a) and § 524(a). See, 9 Colliers on Bankruptcy Para. 7001.10 (15th ed. 1989). Although this court believes that the above Code sections prevent any efforts by the IRS to collect on its prepetition claim against the debtor, to the extent that the general provisions of § 362(b) could be deemed applicable to the issues presented in this proceeding, the court determines that § 105 provides authority for this court to issue the specific injunctions requested by the debtors.

Federal Rule of Civil Procedure (Fed.R.Civ.P.) 57 which governs declaratory judgments is not applicable to bankruptcy proceedings; however, Bankr.Rule 7001(9) provides that this remedy is available in connection with the various adversary proceedings enumerated in Bankr. Rule 7001(1)-(8). The source of the declaratory judgment remedy is 28 U.S.C. 2201 (1984) which provides:

(a) In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986, a proceeding under section 505 or 1146 of title 11, or in any civil action involving an antidumping or countervailing duty proceeding regarding a class or kind of Canadian merchandise, as determined by the administering authority, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

This section provides that any court of the United States can grant this remedy. Pursuant to 28 U.S.C. §§ 151-158, the bankruptcy court, a unit of the district court, has the authority to exercise the declaratory judgment power. See, Amatex Corp. v. Aetna Casualty & Surety Co. (In re Amatex Corp.), 107 B.R. 856, 862 (D.E.D.Pa. 1989); 9 Collier on Bankruptcy § 7001.12, at 7001-27 (15th ed. 1989).

The purpose of declaratory judgment is to "settle legal rights and remove uncertainty and insecurity from legal relationship without awaiting violation of rights or disturbance of relationships." Raine v. Allied Artists Pictures Corp. (In re Allied Artists Pictures Corp.) 71 B.R. 445, 448 (D.S.D.N.Y.1987). Declaratory judgments are only available to resolve actual controversy, and courts refrain from entering declaratory judgments when the judgment would have "no practical effect upon the alleged controversy." Id. at 448-449. Further, the trial court's "grant or denial of declaratory relief must be predicated on an exercise of its discretion after full inquiry into all relevant considerations." Allstate Insurance Co. v. Green, 825 F.2d 1061, 1065 (6th Cir.1987). The Supreme Court has stated:

The question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interest, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.

Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941).

In undertaking such a determination the Sixth Circuit requires that the following five factors be considered:

1. whether the declaratory action would settle the controversy;
2. whether it would serve a useful purpose in clarifying the legal relations in issue;
3. whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race for res judicata";
4. whether use of a declaratory action would increase friction between federal and state courts and improperly encroach upon state jurisdiction;
5. and whether there is an
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