Matter of Flynn
Decision Date | 13 May 1994 |
Docket Number | Bankruptcy No. 92-40789. Adv. No. 93-4013. |
Citation | 169 BR 1007 |
Parties | In the Matter of Penny H. FLYNN, Debtor. Penny H. FLYNN, Plaintiff, v. INTERNAL REVENUE SERVICE and United States of America, Defendants. |
Court | U.S. Bankruptcy Court — Southern District of Georgia |
COPYRIGHT MATERIAL OMITTED
R. Wade Gastin, Savannah, GA, for plaintiff.
Lawrence B. Lee, Asst. U.S. Atty., Savannah, GA, for defendants.
A trial of the above-captioned case was conducted on February 2, 1994. After considering the evidence, applicable authorities and the argument of counsel, I make the following Findings of Fact and Conclusions of Law.
Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code on April 17, 1992. Debtor properly scheduled the Internal Revenue Service ("IRS" or "Service") as a creditor in her case, and the IRS duly received notice of the pendency of Debtor's case pursuant to notice given by the Clerk of this Court. On August 26, 1992, the IRS filed two proofs of claim in Debtor's case, and both claims were allowed for payment under Debtor's Plan, which was confirmed on November 19, 1992. Copies of the Order of Confirmation were mailed to all creditors scheduled by the Debtor, including the Service.
Debtor and her husband were divorced prior to her bankruptcy, and Debtor had custody of, and provided support to, their two minor sons. A significant portion of the claim of the Internal Revenue Service stems from tax liabilities that arose during the time that Debtor and her husband were married, living together, and filing joint returns. Debtor testified that the liability arose because her ex-husband had under-reported his income, unknown to her, leading to the assessment of additional taxes.
On or about January 14, 1993, Debtor received a letter, dated January 12, 1993, from NationsBank of Georgia, N.A., advising her that the IRS had served NationsBank with a levy against the checking account which she maintained there. (Exhibit "P-4"). The letter advised her that the levy required the bank to remit the sums in her account, up to the amount of the levy, within twenty-one days from the date of service of the levy, unless the bank received a release of the levy from the Service before the expiration of that time period. The letter further advised her that her account would remain frozen in the meantime.
Debtor was in an extreme state of distress after she received the letter from the bank. She testified that her attorney had assured her that the filing of her Chapter 13 petition would stay any collection activities by any creditor, including the Internal Revenue Service. At the time she filed her case she had been struggling to maintain her obligations, but the large tax obligation from her marriage, for which she was legally liable, but which she apparently had no actual participation in creating, ultimately forced her to file a Chapter 13 petition. Debtor stated that she believed that "the court had let her down and that the IRS was above the law if it could act in such fashion."
NationsBank had enclosed a copy of the notice of levy with the January 12 letter, and the notice provided a toll free telephone number for the Jacksonville office of the Service. On January 15th, Debtor called that number and spoke with one or more persons in the collection unit of the IRS. She first spoke with a Service employee who verified on the Service's computer that the Debtor had filed a Chapter 13 bankruptcy. Debtor told the employee that she needed the Service to release the levy. The representative admitted the levy should not have been filed, and stated that a release of the levy would be processed by the end of the day.
The United States' witness, Ms. Marciano, an IRS employee in the Jacksonville office, stated that she did not speak to the Debtor on January 15th, but that a Ms. Frederick in the Jacksonville office did. Ms. Marciano produced computer records of all the contacts between the Jacksonville office and Debtor or her ex-husband. (Exhibit "P-11"). The records revealed that, on January 15, the "taxpayer's ex-wife" (i.e., Debtor) had contacted the IRS and stated that she needed the Service to fax a release of the levy to her bank. Entries on this form are made chronologically. Above that line but undated was the following notation: "PREV CMTS TPXW FILED BANKRUPTCY, REQUESTED LP 68 TO L1//." The Service's witness could not identify the source of that information or the date it was entered, but translated the various codes to yield a message of "previous comments, taxpayer's ex-wife filed bankruptcy, requested LP 68 to L1//," the latter symbols being internal codes describing different forms or notices issued by the Service. The fax from the Service was processed on the 15th as promised by the IRS employee, but due to a limited number of fax machines and a large volume of work, it was not actually faxed until the following week. The original notice releasing the levy, however, was mailed from Jacksonville on the 15th and received by NationsBank on Tuesday, January 19, 1993. On that same day, Debtor again contacted the Service and spoke with Ms. Marciano and discussed the situation with her.
The IRS' levy had several unfortunate consequences. First, because the Debtor learned that she could not access her bank account and because she had very limited cash on hand, she was forced to cancel a birthday party that she had planned for her eleven-year-old son on January 16, 1993. This fact added to the distress that she originally experienced upon receipt of the letter from NationsBank informing her of the levy. She spent the entire three day weekend in a state of agitation, what she described as being "in a wreck," worried specifically that her rent and other checks would be dishonored by the bank. She subsequently received notice that several checks issued prior to January 15th, at a time when her account held adequate funds to cover the checks, were dishonored because the checks were presented for payment during the period of time that her account was frozen. See Exhibits P-1, P-2 and P-5. In each case, the bank returned the item to the payee of the check and charged $20.00 directly to the Debtor for the dishonor. Additionally, Debtor was required, in making good on the dishonored checks, to pay an additional $20.00 insufficient fund charge to each of the payees. All told, Debtor incurred $120.00 in "NSF" charges.
The Service ultimately faxed a copy of the release of levy to NationsBank. Thus, by January 21, 1993, NationsBank had been advised by mail and by fax that the levy had been released. Debtor was forced to endure, however, the final indignity of being stopped in the checkout line of a Kroger supermarket as she was attempting to purchase groceries. Kroger was one of the payees whose check NationsBank refused to honor during the period that Debtor's account was frozen. Thus, although the levy had been removed from Debtor's account, Debtor was still unable to negotiate another check without leaving the checkout line, going to the manager's office and making additional arrangements for payment because Kroger's computer identified her account as being one on which a bad check had previously been drawn. All of this occurred in full view of others in the line and caused her great embarrassment.
Debtor initiated this proceeding on January 26, 1993, alleging that the post-petition levy upon her account constituted a "willful violation" of the automatic stay under Section 362(h) of the Bankruptcy Code. As actual damages, Debtor claims a total of $120.00 in check charges, three days lost wages in the total amount of $360.00, and travel and meal expenses in the total amount of $108.55 due to the fact that she was required to travel to the hearing on this matter from Birmingham, Alabama, where she now resides. She further seeks compensatory damages for mental embarrassment, humiliation and anxiety in the amount of $25,000.00, as well as an award of attorney's fees for her representation in this adversary proceeding. Finally, Debtor seeks an award of punitive damages against the IRS in the sum of $100,000.00.
As part of its defense, the United States sought to show that, notwithstanding the fact that notice was provided to the IRS in accordance with the requirements of the Bankruptcy Rules, that the IRS filed two proofs of claim in the case, and that counsel for the United States appeared on behalf of the IRS at a hearing on confirmation and to consider the Debtor's objection to the IRS' claim, the notice of levy was issued by the Service's Jacksonville office, which did not have actual knowledge of Debtor's bankruptcy case. In an effort to explain why the Jacksonville office did not have actual notice of Debtor's bankruptcy, Ms. Marciano testified that the bankruptcy unit of the Internal Revenue Service, located in Atlanta, Georgia, receives all notices of bankruptcy filings for this region. Thus, Debtor's bankruptcy filing was properly noted in the records of the bankruptcy unit in Atlanta. However, Debtor and her former husband previously resided in Florida. As a result, the notice of levy was issued by the office located in Jacksonville, Florida, which did not have any information regarding Debtor's bankruptcy. (Exhibit "P-3"). The question, then, is why was the Jacksonville office without notice of Debtor's bankruptcy.
The answer to this question, according to Ms. Marciano, revolves around the fact that the past-due taxes at issue in this proceeding arise from joint returns filed by Debtor and her husband. The collection file for these joint tax obligations contained two Social Security numbers, the first being that of Debtor's ex-husband, and the second being that of Debtor's. According to Ms. Marciano, when dealing with a tax obligation on which a husband and wife are jointly liable, the Service's current...
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